U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee required) for the quarterly period ended March 31,
1998.
Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No fee required) For the transition period from to
Commission file number 1-11586
PTI HOLDING INC.
(Name of small business issuer in its charter)
Delaware 13-3590980
(State or jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
c/o 15 East North Street, Dover, DE 19901
(Address of principal executive offices) (Zip Code)
(302) 678-0855
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class
Name of each exchange
on which registered
Common Stock, par value
$.01 per share None
Securities registered under Section 12(g) of the Act:
Title of each class
Common Stock, par value
$.01 per share
-
Check whether the issuer: (1) filed reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for past 90 days. Yes X No
State the number of shares outstanding of each class of the issuer's
classes of common equity, as of the latest practicable date. As of May14, 1998,
4,796,506 shares of the issuer's common equity were outstanding.
<PAGE>
ITEM 1. Financial Statements.
Page
Consolidated Balance Sheet as of March 31, 1998 F-1
Consolidated Statements of Income for the three months
ended March 31, 1998 and 1997 F-2
Consolidated Statements of Cash Flows for the three months F-3
ended March 31, 1998 and 1997
Notes to Consolidated Financial Statements F-4 to
F-5
PART I
ITEM 2. Management's Discussion and Analysis
Statements in this Quarterly Report on Form 10-QSB concerning the
Company's business outlook or future economic performance; or other financial
items; and plans and objectives related thereto; and statements concerning
assumptions made or expectations as to any future events, conditions,
performance or other matters, are "forward-looking statements" as that term is
defined under the Federal Securities Laws. Forward-looking statements are
subject to risks, uncertainties and other factors that could cause actual
results to differ materially from those stated in such statements.
PTI Holding Inc. (collectively with its wholly-owned subsidiaries
referred to herein as the "Company"), manufactures and markets protective
equipment, primarily bicycle helmets and safety ear plugs. In addition, the
Company markets and distributes bicycles and bicycle-related products, and other
safety and medical supplies.
On August 5, 1997, the Company expanded its line of protective products
by acquiring Flents Products Co., Inc., ("Flents"), which is principally engaged
in the business of the manufacture of wax earplugs and the marketing and sale of
earplugs and other safety and medical supplies, such as an eye drop delivery
system, styptic devices, and air-filter masks. For purposes of financial
accounting and income tax, the Merger was deemed to have occurred as of the
opening of business on June 1, 1997.
On May 12, 1998, Flents acquired certain assets of the Comfees division
of Magnivision, a subsidiary of American Greetings Corporation, for a purchase
price of approximately $1,700,000. Comfees manufactures and distributes contact
lense cases, liquid dispensers, medicine dispensers, finger splints and ear
protectors, among other health and beauty care items. Comfees products are sold
through several mass merchandisers, including K-Mart and Target.
Results of Operations
The Company's net sales were $11,745,977 during the quarter ended
March 31, 1998, an increase of 89% from its net sales $6,229,506 of for the same
period in 1997.
The sales increase from 1997 to 1998 resulted predominantly from
increased sales to existing customers through the addition of new helmet models,
from increased market share at the expense of competitors, from increased sales
in existing models due to growth in the overall helmet market, from increased
sales of the Company's bicycle and bicycle accessory products, from the addition
of new retail outlets for the Company's products, from introducing new accessory
product lines, from the Company's license arrangements both with Hasbro,
Inc., to manufacture and market helmets, bicycles and bicycle accessories under
the PlayskoolTM brand name, and with Mattel, Inc. to manufacture and market
helmets under the Barbie(TM) name, and from net sales of its Flents subsidiary
of $1,856,113, which was acquired June 1, 1997.
The Company had a net income of $732,265 for the quarter ended March
31, 1998 compared to the Company's net income of $758,971 for the same period
in 1997.
The cost of sales for the quarter ended March 31, 1998 was $ 8,054,509
(resulting in a gross profit margin of 31%), compared to the Company's cost of
sales of $3,937,393 for the same period in 1997 (resulting in a gross profit
margin of 37%). The gross profit margin for the period ended March 31, 1997 was
uncharacteristically high based on previous periods. The gross profit margin
for the year ended December 31, 1997 was 31%.
Selling, general and administrative expenses for the quarter ended
March 31, 1998 was $2,381,616 compared to selling, general and administrative
expenses of $964,836 for the same period in 1997. SG&A as a percentage of sales
were 20.28% and 15.49% for the periods ended March 31, 1998 and 1997
respectively. The increased selling, general and administrative spending in 1998
was primarily due to the higher costs associated with the expansion of the
helmet, bicycle and bicycle accessory business, the acquisition of Flents, and
the higher costs for human resources.
Capital Resources
The Company has satisfied its capital requirements through the proceeds
of its initial public offering of securities, which resulted in net proceeds of
approximately $3,800,000, through the proceeds of Regulation "S" private
placement in November 1994, which resulted in gross proceeds of approximately
$750,000, through the exercise of certain outstanding options held by employees
and consultants of the Company, which resulted in net proceeds of approximately
$400,000, through internal cash flow, through PTI's opening of a revolving line
of credit in May, 1996 and through the exercise of public warrants in 1997,
which resulted in gross proceeds of approximately $3,000,000.
The Company's working capital at March 31, 1998 was $9,953,333 as
compared to $6,092,751 at March 31, 1997.
The cash flows of the Company have fluctuated due to capital spending,
working capital requirements, and bank loans. The Company expects that cash
flows in the near future will be primarily determined by the levels of net
income, working capital requirements, and financings, if any, undertaken by the
Company. Net cash decreased by $302,126 and $450,056 in the three-month periods
ended March 31, 1998 and 1997, respectively.
Net cash used in operating activities was $4,493,785 and $1,605,890 in
the three-month periods ended March 31, 1998 and 1997, respectively. Net income
was $732,265 and $758,971 for the same periods, respectively.
Net cash used in investing activities was $2,120,569 and $490,123 in
the three-month periods ended March 31, 1998 and 1997, respectively. Net cash
used in investing activities pertains to capital expenditures in these periods,
primarily for computer systems and manufacturing equipment.
Net cash provided by financing activities was $6,312,228 and
$1,645,957 in the three-month periods ended March 31, 1998 and 1997,
respectively. Cash flows from financing activities were primarily affected by
the net bank loans of $6,369,227 and $1,624,054 in these periods, respectively.
The Company pays its employees and vendors on a weekly, monthly or
bimonthly basis, while its customers pay for products on an average of 75 days
after shipment, and therefore the Company has substantial needs for working
capital. As of March 31, 1998, the Company had $380,034 of cash available for
its cash needs, compared to cash overdraft of $(88,178) as of March 31, 1997.
On May 6, 1996, the Company opened a revolving line of credit at Key
Bank of New York. The line of credit is collateralized by inventory, receivables
and other assets. As of March 31, 1998, the Company had $8,437,488 outstanding
pursuant to such line of credit ($12,000,000 available, including $2,000,000
specifically for the future capital expenditures).
Based on the Company's current plans, management anticipates that
current cash balances, together with the Company's line of credit and cash flow
generated from operations, will be sufficient to continue to fund production,
purchase of equipment, increased marketing activities and continued research and
development, as well as the rest of the Company's cash requirements, for
approximately the next 18 months.
The Company's research and development efforts are directed toward
developing new products, improving existing products and refining its
manufacturing processes. Such research and development costs amounted to
approximately $47,000 for the quarter ended March 31, 1998 and approximately
$25,000 for the quarter ended March 31, 1997. It is expected that the Company
will spend approximately $150,000 on research and development during the 1998
year.
Year 2000 Compliance
The Company is currently in the process of finalizing its installation
of the SAP R/3 accounting system, which will be year 2000 compliant. The Company
does not anticipate any material additional costs with regard to its year 2000
compliance.
The year 2000 issue is expected to affect the systems of various
entities with which the Company interacts, including suppliers and vendors.
However, there can be no assurance that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure by
another company's systems to be year 2000 compliant would not have a material
adverse effect on the Company.
<PAGE>
ITEM 6. Exhibits; List and Reports on Form 8-K.
(a) Exhibits
3.1 Registrant's Articles of Incorporation, as amended, incorporated by
reference to the like numbered exhibit in the Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933, as amended,
File No. 33-53466
3.2 Registrant's by-laws, incorporated by reference to the like numbered
exhibit in the Registrant's Registration Statement on Form SB-2 under
the Securities Act of 1933, as amended, File No. 33-53466
4.2 Form of Warrant of Bridge Loan lenders, incorporated by reference to
the like numbered exhibit in the Registrant's Registration Statement on
Form SB-2 under the Securities Act of 1933, as amended, File No.
33-53466
4.4 Form of Underwriters' Warrant, incorporated by reference to the like
numbered exhibit in the Registrant's Registration Statement on Form
SB-2 under the Securities Act of 1933, as amended, File No. 33-53466
10.1 Warrant Agreement dated , 1992 between Corporate Stock Transfer, Inc.
and the Company, incorporated by reference to exhibit number 10.9 in
the Registrant's Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, File No. 33-53466
10.2 Form of Stock Option granted to employees, independent contractors and
consultants, incorporated by reference to exhibit number 10.14 in the
Registrant's Registration Statement on Form SB-2 under the Securities
Act of 1933, as amended, File No. 33-53466
10.3 Agreement and Plan of Merger dated February 14, 1994 among Protective
Technologies International Inc., Foam-O-Rama, Inc., Ellen Schaeffer and
Lori Hillsberg, as amended, incorporated by reference to exhibit number
2 in the Registrant's Current Report on Form 8-K dated March 16, 1994
under the Securities Exchange Act of 1934, as amended
10.4 Noncompetition Agreement dated March 1, 1994 between Protective
Technologies International Inc. and Ellen Schaeffer and Lori Hillsberg,
incorporated by reference to exhibit number 99.1 in the Registrant's
Current Report on Form 8-K dated March 16, 1994 under the Securities
Exchange Act of 1934, as amended
10.5 Noncompetition Agreement dated March 1, 1994 between Protective
Technologies International Inc. and Warren Schaeffer and Alan
Hillsberg, incorporated by reference to exhibit number 99.2 in the
Registrant's Current Report on Form 8-K dated March 16, 1994 under the
Securities Exchange Act of 1934, as amended
10.6 Form of Promissory Note memorializing loans from directors and officers
as authorized by the Board of Directors on March 13, 1996, incorporated
by reference to exhibit number 10.21 in the Registrant's Annual Report
on Form 10-KSB for the period ended December 31, 1995, under the
Securities Exchange Act of 1934, as amended
10.7 Guarantee from Warren Schaeffer and Alan Hillsberg to Protective
Technologies International Inc., incorporated by reference to exhibit
number 10.21 in the Registrant's Quarterly Report on Form 10-QSB for
the period ended September 30, 1995, under the Securities Exchange Act
of 1934, as amended
10.8 Exclusive License and Purchase Guarantee Agreement, dated July 19, 1994
between Toy Biz, Inc. and the Registrant, incorporated by reference to
exhibit number 10.22 in the Registrant's Quarterly Report on Form
10-QSB for the period ended September 30, 1995, under the Securities
Exchange Act of 1934, as amended
10.9 Amendment #1 dated October 18, 1995 to Warrant Agreement, incorporated
by reference to exhibit number 10.23 in the Registrant's Quarterly
Report on Form 10-QSB for the period ended September 30, 1995, under
the Securities Exchange Act of 1934, as amended
10.10 Line of Credit Agreement (Asset Based), dated May 6, 1996, between Key
Bank of New York, Protective Technologies International Inc., PTI
Holding Inc. and Protective Technologies of America Inc., and
collateral loan documents thereto, incorporated by reference to exhibit
number 10.25 in the Registrant's Quarterly Report on Form 10-QSB dated
March 31, 1996, under the Securities Exchange Act of 1934, as amended
10.12 Amendment #2, dated June 6, 1996 to Warrant Agreement, incorporated by
reference to exhibit number 2 in Registrant's Current Report on Form
8-K dated July 9, 1996, under the Securities Exchange Act of 1934, as
amended
10.13 Merger Agreement and plan of Reorganization dated July 25, 1997 among
PTI Holding Inc. and Flents Products Co., Inc., as amended,
incorporated by reference to exhibit numbers 1 and 2 in the
Registrant's Current Report on Form 8-K date August 20, 1997 under the
Securities Exchange Act of 1934, as amended.
(b) Reports on Form 8-K
No current report on form 8-K was filed by the Company during
the quarter ended March 31, 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated May 15, 1998
PTI HOLDING INC.
By /s/ Meredith Birrittella
Meredith W. Birrittella,
Chairman of the Board
Chief Executive Officer (authorized signatory)
By /s/ Anthony Costanzo
Anthony Costanzo
Chief Financial Officer
<PAGE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
MARCH 31, 1998
<S> <C>
ASSETS
Current assets:
Cash $ 380,034
Accounts receivable, net of allowance for returns and doubtful collections of $208,500 11,489,538
Inventories 10,870,850
Deferred tax asset 171,780
Prepaid expenses and other current assets 1,954,995
-------------------
Total current assets 24,867,197
Deferred tax asset 182,280
Equipment and improvements, net of accumulated depreciation of $1,694,333 2,695,629
Intangible assets, net of accumulated amortization of $706,559 4,220,847
-------------------
$ 31,965,953
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable, bank $ 8,437,488
Accounts payable and accrued expenses 5,889,578
Income taxes payable 586,798
-------------------
Total current liabilities 14,913,864
-------------------
Commitments and contingent liabilities
Stockholders' equity:
Common stock, $.01 par value; authorized 10,000,000 shares, issued and outstanding
4,796,506 shares 47,965
Capital in excess of par 16,144,815
Note receivable from exercise of common stock warrants (58,322 )
Retained earnings 917,631
-------------------
Total stockholders' equity 17,052,089
-------------------
$ 31,965,953
===================
</TABLE>
<PAGE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<S> <C> <C>
1998 1997
------------------- -------------------
Net sales $ 11,745,977 $ 6,229,506
Cost of sales 8,054,509 3,937,393
------------------- -------------------
Gross profit 3,691,468 2,292,113
Selling, general and administrative expenses 2,381,616 964,836
------------------- -------------------
Income from operations 1,309,852 1,327,277
Interest expense, net of interest income 47,326 14,380
------------------- -------------------
Income before income taxes 1,262,526 1,312,897
Income taxes 530,261 553,926
------------------- -------------------
Net income $ 732,265 $ 758,971
=================== ===================
Net income per share of common stock
Basic $ .15 $ .22
Diluted .14 .19
Weighted average shares outstanding
Basic 4,796,506 3,494,797
Diluted 5,279,497 4,054,506
</TABLE>
<PAGE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<S> <C> <C>
1998 1997
-------------------- -------------------
Cash flows from operating activities:
Net income $ 732,265 $ 758,971
Adjustments to reconcile net income to net cash (used in) operating
activities:
Provision for returns and doubtful collections 100,000 -
Depreciation 236,317 90,807
Amortization of intangible assets 52,172 36,535
Deferred income tax benefit (56,537) (80,500)
(Increase) decrease in operating assets:
Accounts receivable (6,362,367) (1,123,060)
Inventories (2,998,493) (1,964,812)
Prepaid expenses and other current assets 8,368 21,800
(Decrease) increase in operating liabilities:
Accounts payable and accrued expenses 3,207,692 1,069,943
Income taxes payable 586,798 (415,574)
-------------------- -------------------
Net cash used in operating activities (4,493,785) (1,605,890)
-------------------- -------------------
Cash flows from investing activities:
Purchase of equipment and improvements (1,258,309) (289,660)
Loan to stockholders (862,260) (200,463)
-------------------- ------------------
Net cash used in investing activities (2,120,569) (490,123)
-------------------- -------------------
Cash flows from financing activities:
Payments of other current liabilities (56,999) (23,472)
Proceeds from bank loan, net 6,369,227 1,624,054
Proceeds from issuance of common stock - 45,375
-------------------- -------------------
Net cash provided by financing activities 6,312,228 1,645,957
-------------------- -------------------
Net decrease in cash and cash equivalents (302,126) (450,056)
Cash and cash equivalents, beginning of period 682,160 361,878
-------------------- -------------------
Cash and cash equivalents (overdraft), end of period $ 380,034 $ (88,178)
==================== ===================
Supplemental disclosures:
Interest paid $ 77,886 $ 28,890
Income taxes paid - 1,050,000
</TABLE>
<PAGE>
PTI HOLDING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of presentation:
The consolidated financial statements included herein have been prepared
by the Company, without an audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations.
These unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 1997 and filed with the Securities and Exchange
Commission.
In the opinion of the Company's management, these unaudited consolidated
financial statements include all adjustments, consisting solely of
normal recurring adjustments, necessary in order to present fairly the
Company's consolidated financial position as of March 31, 1998 and the
results of their operations and their cash flows for the three months
ended March 31, 1998 and 1997. The results of operations for an interim
period are not necessarily indicative of the results to be attained in
any other fiscal period.
2. Recently Issued Accounting Standards
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"),
"Earnings Per Share". This statement establishes new standards for
computing and presenting earnings per share (EPS), replacing the
presentation of formerly required primary EPS with a presentation of
basic EPS. For entries with complex capital structures, the statement
requires dual presentation of both basic EPS and diluted EPS on the face
of the statement of operations. Under this new standard, basic EPS is
computed based on weighted average shares outstanding and excludes any
potential dilution. Diluted EPS reflects potential dilution from the
exercise or conversion of securities into common stock or from other
contracts to issue common stock. The Company adopted SFAS 128 for its
financial statements issued for the year ended December 31, 1997. The
Company restated its EPS data for the three months ended March 31, 1997
to conform to the provisions of SFAS 128.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income", which establishes standards for reporting and
display of comprehensive income and its components (revenue, expenses,
gains, and losses) in a full set of general purpose financial
statements. The Company adopted No. SFAS 130 in the first quarter 1998
which did not have a material impact on its financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about segments
of an Enterprise and Related Information", which establishes standards
for the way public business enterprises report information about
operating segments in interim and annual financial statements. It also
establishes standards for related disclosures about products and
services, geographic areas and major customers. The Company will adopt
SFAS No. 131 for the year ending December 31, 1998.
3. Contingent liabilities:
Certain claims, suits and complaints arising in the ordinary course of
business have been filed or are pending against the Company. In the
opinion of management, all matters are without merit or of such kind, or
involve such amounts, as would not have a material effect on the
financial position and results of operations of the Company if concluded
unfavorably.
While the Company has not experienced any product liability claims, it
presently cannot be determined if its product liability insurance is
adequate to cover any losses that may arise.
4. Subsequent event:
On May 12, 1998, the Company acquired certain assets of the Comfees
division of Magnivision, a subsidiary of American Greetings Corporation,
for a purchase price of approximately $1,700,000. Comfees manufactures
and distributes contact lense cases, liquid dispensers, medicine
dispensers, finger splints and ear protectors, among other health and
beauty care items. Comfees products are sold through several mass
merchandisers, including K-Mart and Target.
5. Related party transactions:
At March 31, 1998, officers/directors owed the Company approximately
$1,150,000. These loans bear interest at 6% per annum.
For the period ended March 31, 1998, the Company recognized interest
income of approximately $10,750 from loans to officers/directors.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<CASH> 380,034
<SECURITIES> 0
<RECEIVABLES> 11,698,038
<ALLOWANCES> 208,500
<INVENTORY> 10,870,850
<CURRENT-ASSETS> 24,867,197
<PP&E> 2,695,629
<DEPRECIATION> 236,317
<TOTAL-ASSETS> 31,965,953
<CURRENT-LIABILITIES> 14,913,864
<BONDS> 0
0
0
<COMMON> 47,965
<OTHER-SE> 17,004,124
<TOTAL-LIABILITY-AND-EQUITY> 31,965,953
<SALES> 11,745,977
<TOTAL-REVENUES> 11,745,977
<CGS> 8,054,509
<TOTAL-COSTS> 8,054,509
<OTHER-EXPENSES> 2,381,616
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,326
<INCOME-PRETAX> 1,262,526
<INCOME-TAX> 530,261
<INCOME-CONTINUING> 1,309,852
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 732,265
<EPS-PRIMARY> .15
<EPS-DILUTED> .14
</TABLE>
