U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
X Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 (Fee required) For the fiscal year ended December 31, 1997.
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
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. __
State issuer's revenues for its most recent fiscal year: $34,566,135
State the aggregate market value of the voting stock held by
non-affiliates computed by reference to the price at which the stock was sold or
the average bid and asked prices of such stock, as of a specified date within
the past 60 days. As of April 1, 1998, based upon the last sale price on such
date, such aggregate market value was $24,572,111.
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 April 1,
1998, 4,796,506 shares of the issuer's common equity were outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>
PART I
ITEM 1. Description of Business.
History
The Company, formally known as Aerial Assault Inc., was incorporated
under the laws of Delaware in March 1990. Until February 28, 1994, the Company
was engaged in the business of designing, developing and marketing distinctive,
high-performance men's athletic footwear for basketball, and related apparel
bearing the Company's name and logo. The Company commenced sales in February
1992.
On March 1, 1994, the Company acquired Foam-O-Rama, Inc. ("Foam"), a
New York corporation which is principally engaged in the business of the design,
marketing and sale of bicycle helmets, by merging it with and into the company's
wholly-owned operating subsidiary, Protective Technologies International Inc., a
New York corporation ("PTI") pursuant to a Merger Agreement and Plan of
Reorganization dated February 14, 1994 among PTI, Foam and Foam's shareholders.
From and after March 2, 1994, Foam had no separate or independent existence,
having been merged into PTI. For purposes of the transfer of the economic
benefits and risks of such transaction and the ongoing business of Foam, the
acquisition was deemed to have occurred as of the opening of business on January
1, 1994.
On August 5, 1997, the Company consummated the merger (the "Merger") of
Flents Products Co., Inc., a New York corporation ("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, with and into
the Company's wholly owned subsidiary, Flents Products Co., Inc., a Delaware
corporation ("Merger Sub"), pursuant to an Agreement and Plan of Merger among
the Company, Merger Sub and Flents. For purpose of accounting, the acquisition
was effective as of the opening of business on June 1, 1997, and has been
accounted for as a purchase.
Merger Sub delivered at the closing (the "Closing") of the Merger
$27.46 and 3.47 shares of the common stock, par value $.01 per share of the
Company (the "Company's Common Stock") (with associated convertible value rights
described below) to the shareholders of Flents in respect of each of the 77,756
issued and outstanding shares of the common stock of Flents, or total merger
consideration of $4,837,085. The merger consideration was paid $2,135,435 in
cash, and $2,701,650 in units consisting of 270,165 shares of the Company's
Common Stock and 270,165 Convertible Value Rights ("CVRs"). For purposes of the
Merger, the Units were valued at $10 per Unit. Each CVR entitles the original
holder to up to $4.00 of additional Common Stock of the Company to the extent
that the market value of the Company's Common Stock is less than $10.00 per
share on the one-year anniversary of the Closing.
Products
The Company competes in the bicycle helmet, bicycle and bicycle
accessories industry through its Protective Technologies International Inc.
("PTI") subsidiary, and in the personal care industry through its Flents
Products Co. Inc. ("Flents") subsidiary.
PTI competes in the mass market channel by offering a complete line of
sports safety helmets in toddler through adult sizes. PTI also supplies bicycle
accessory products such as locks, tubes and tires, general accessories,
protective wear and children bicycles.
Flents competes in the ear and eye care portion of the personal care
market. Products include earplugs, eyeglass cleaners, eye patches, eyewash, ear
wax removal, as well as other ear and eye care products. Flents also supplies
general accessories for the eyeglass market.
Manufacturing
The Company assembles and distributes helmets, and distributes bicycles
and bicycle accessory products from its manufacturing facility in New York
State. Ear and eye care products are currently distributed from the Company's
facility in Connecticut; however, the Company plans to consolidate its
operations into its New York State facility in or about May, 1998. The Company
sources out the manufacturing of all the raw components of its helmets,
including the plastic foam liners that constitute the main part of the helmets,
to various manufacturers in the United States. Such independent manufacturers
use molds and tooling that are owned by and for the exclusive use of the Company
in the manufacture of these sub-assembly components. Further, the Company
sources out the manufacturing of its bicycle and bicycle accessory products and
ear and eye care products to certain foreign manufacturers in East Asia and
Europe. Management believes that this outsourcing is the best long-term
arrangement because it enables the Company to reduce its need for capital
expenditures on equipment, and its manufacturing overhead.
However, access to the foreign manufacturers could be adversely
affected by economic or political instability in such foreign countries, and by
currency fluctuations. In addition, the bicycles and bicycle accessories
purchased by the Company for resale are subject to United States custom duties.
Under the fixed duty structure in effect since July 1981, duties range from 8.5%
to 37.5%, plus unit charges, depending on whether the principal component is
leather or some other material. Further, the adoption of bilateral trade
agreements between the United States and countries in which the Company's
suppliers are located, work stoppages or the impositions of unilateral
restrictions on trade, including quotas or additional duties, by either the
United States or any supplier company, could disrupt supplies and/or increase
the costs of obtaining products. The Company is unable to predict whether
additional customs duties, quotas or other restrictions may be imposed on the
importation of its products in the future. Any such action could result in
increases in the cost of bicycles or bicycle accessories and, accordingly, might
adversely affect the sales or profitability of the Company.
Although the Company's operations would be seriously disrupted until
alternative suppliers are found, with a significant adverse financial impact,
the Company believes that such contract manufacturing of raw helmets and tooling
and molds, as well as all of the raw materials required for such manufacturing,
is available from several alternate sources. In addition, the Company believes
that alternative suppliers for the Company's bicycle and bicycle accessory
products and ear and eye care products are available in the event of a
disruption of supply.
Marketing and Distribution
The two largest segments in the bicycle helmet market are mass
merchants and independent bicycle dealers ("IBDs"). The Company historically has
focused its sales goals on servicing the large mass-merchant customers. A large
portion of the helmet sales for children in the United States are due to the
mandatory helmet legislation that has been adopted in many states. Mass
merchants have accounted for a large portion of the purchases motivated by such
legislation because of their low retail prices for helmets relative to the
bicycle dealers. In addition, mass merchants provide the largest order volume
and do not require the extensive distribution channels needed to provide
services to IBDs. The Company's helmets are sold chain-wide in Toys R Us (650
stores), Target stores (800 stores), Sam's Club (430 stores), Sports Authority
(150 stores), and other regional mass merchants.
During 1997, the Company's sales to its single largest customer
constituted approximately 71 percent of its gross revenues, compared to
approximately 65 percent during the 1996 calendar year. Sales to its second
largest customer during the 1997 and 1996 accounted for 15 percent of gross
revenues. The Company believes that its relationships with these accounts are
good.
The Company has entered into a license arrangement with Hasbro, Inc. to
manufacture and market helmets, bicycles and bicycle accessories under the
PlayskoolTM brand name. In addition, the Company has entered into an exclusive
license with Mattel, Inc. to manufacture helmets under the BarbieTM brand name,
as well as a license to sell BarbieTM bicycle accessory products.
Private label manufacturing of helmets and accessories for other
companies in the helmet market has historically constituted a small part of the
Company's business, and remains so to date. The Company's private label
purchasers include Toys-R-Us and Target stores.
Flents Products sells its merchandise to mass market merchandisers,
drug stores, and the food trade. The majority of such sales are made through
independent sales representatives who work exclusively on a commission basis.
Flents ships its products directly to retail customers through common freight
carriers. Flents products are sold in over 30,000 retail locations.
Trademarks and Patents
The Company markets its bicycle helmets, bicycles and bicycle products
under the brand names Protective TechnologiesTM PTITM Hydrogen(R) and Aerial
Assualt(R). The Company markets its ear care products under the brand name Quiet
Please!(R). The Company believes that such trademarks are helpful to the
Company's ability to market its products. To the extent it has not already done
so, the Company plans to apply for registration of such trademarks.
The Company does not currently use or employ any patents material to
its business or operations.
Competition
The bicycle helmet industry is dominated by Bell Sports Corporation
("Bell"), which the company estimates has a 65% market share in the United
States. In addition to Bell, significant competitors include Troxel, Specialized
and Trek, as well as other small manufacturers.
Bell and other competitors have significantly greater financial and
other resources than the Company; however, the Company's ability to compete with
Bell is highlighted by its success at Toys R Us and Target, where it has
replaced Bell as the largest vendor. PTI believes it has become the second
largest manufacturer of bicycle helmet and accessories selling through the mass
merchant channel.
Flents' competitors include many large and small company's, many of
which have an advantage over the company in terms of greater financial resources
and ability to advertise their products to the general public.
Research and Development
The Company's research and development activities include development
of new products, the improvement of existing products and the refinement of its
manufacturing processes. During 1997, the Company spent approximately $117,000
on such research and development, up from approximately $109,000 in 1996. Of the
$117,000 spent on research and development during 1997, PTI spent approximately
$107,000 and Flents spent approximately $10,000.
Employees
As of March 25, 1998, the Company had approximately 250 full-time
employees, including 30 individuals in management, administration and clerical
positions. The Company's employees are not represented by a labor union, and the
Company believes that its relations with employees are satisfactory.
ITEM 2. Description of Property.
The Company's principal facility is a 200,000 square foot warehouse and
assembly facility in Hastings on Hudson, New York. The Company occupies the
facility pursuant to a lease, which expires in 2001. The Company also occupies
approximately 15,000 square feet of warehouse space in Bronx, NY pursuant to a
lease expiring September 1998. The Company also occupies approximately 12,500
square feet of office space in Yonkers, New York pursuant to a lease expiring in
2004. Flents occupies 15,000 square feet of warehouse, assembly, and office
space in Norwalk, Connecticut. This facility is to be closed in May of 1998, and
its operations will be consolidated into the Company's other facilities.
ITEM 3. Legal Proceedings.
Although the Company is a party to a certain litigation, which has
arisen in the usual course of its business, management deems such litigations
immaterial to the Company's financial position, results of operations and future
cash flows.
ITEM 4. Submission of Matters to a Vote of Security-Holders.
No matter was submitted during the fourth quarter of the Company's 1997
fiscal year to a vote of security-holders.
PART II
ITEM 5. Market for Common Equity and Related Stockholder Matters.
The Principal market on which the Company's common stock trades is The
NASDAQ Small-Cap Stock Market under the symbol "PTII."
The following table sets forth the high and low sale prices according
to The NASDAQ Stock Market Research Department for the common stock of the
Company during the periods indicated:
NASDAQ Stock Market List Prices
Quarter Ended High Low
March 31, 1996 $ 6.875 $ 4.375
June 30, 1996 $ 9.375 $ 5.750
September 30, 1996 $ 9.625 $ 7.063
December 31, 1996 $10.375 $ 7.750
March 31, 1997 $ 9.250 $ 7.875
June 30, 1997 $ 8.813 $ 7.688
September 30, 1997 $ 9.563 $ 6.875
December 31, 1997 $ 9.625 $ 7.375
The above prices are over-the-counter market quotations and reflect
inter-dealer prices, without retail mark-up, mark-down, or commission, and may
not represent actual transactions. The source of such prices is The NASDAQ Stock
Market's monthly statistical summary reports.
As of April 1, 1998, the approximate number of holders of record of the
Company's common stock was 120, and the number of beneficial holders of the
Company's common stock was in excess of 1,300. The Company has not paid
dividends to its shareholders since its inception and does not plan to pay
dividends in the foreseeable future. The Company currently intends to retain any
earnings to finance the growth of the Company.
ITEM 6. Management's Discussion and Analysis
Statements in this Annual Report on Form 10-K 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.
The Company's net sales were $34,566,135 during the year ended December
31, 1997, an increase of 97% from its net sales of $17,529,509 in 1996.
The 97% sales increase from 1996 to 1997 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, and 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. The results for 1997 also include 7 months of
sales from Flents in the amount of $3,715,425.
The Company had a net loss of $941,295 for the year ended December 31,
1997 compared to the Company's net income for the year ended December 31, 1996
of $1,691,118. The net loss for 1997 included a non-recurring charge for stock
based compensation of $3,636,838. This charge was the result of the Company's
preferred shares held by management and former directors being converted into
common shares pursuant to the terms of the Company's Series A preferred stock.
Without this charge net income for 1997 would have been $2,695,543, an increase
of 59% over net income for 1996. The increase in net income was due to
predominantly higher sales levels.
The cost of sales for the year ended December 31, 1997 was $23,751,353
(resulting in a gross profit margin of 31%), compared to the Company's cost of
sales for the year ended December 31, 1996 of $12,140,542 (resulting in a gross
profit margin of 31%). Flents 7 month gross profit margin contribution
approximated 40%.
Selling, general and administrative for the year ended December 31,
1997 were $9,710,647 compared to selling, general and administrative expenses of
$2,717,851 for the year ended December 31, 1996. Selling, general and
administrative expense was $6,073,809 for 1997 without the charge for conversion
of the preferred shares. Without the charge, SG&A as a percentage of sales were
18% and 16% for the years ended December 31, 1997 and 1996, respectively.
The increased selling, general and administrative spending in 1997 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.
Liquidity and 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 a Regulation 'S' private
placement in November 1994, which resulted in gross proceeds of approximately
$751,875, through the exercise of certain outstanding options held by employees
and consultants of the Company, which resulted in net proceeds of approximately
$406,247, 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 $3,002,000.
The Company's working capital at December 31, 1997 was $10,209,168 as
compared to $5,519,873 at December 31, 1996.
The cash flows of the Company have fluctuated due to the impact of net
income and losses, capital spending, working capital requirements, the issuance
of common stock and other financing activities. 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 increased (decreased) by $320,282 and $(607,451) in the years
ended December 31, 1997 and 1996, respectively.
Net cash used in operating activities was $463,798 and $1,691,790 in
the years ended December 31, 1997 and 1996, respectively. Net (loss) income was
$(941,295) and $1,691,118 for the same periods, respectively.
Net cash used in investing activities was $3,414,633 and $269,221 in
the years ended December 31, 1997 and 1996, respectively. Net cash used in
investing activities included capital expenditures of $1,558,784 and $476,039 in
these periods, respectively, primarily for computer and manufacturing equipment.
Net cash provided by financing activities was $4,198,713 and $1,353,560
in the years ended December 31, 1997 and 1996, respectively. Cash flows from
financing activities were primarily affected by the net proceeds from issuance
of common stock of $3,350,234 and $201,838 in these periods, respectively.
During the year ended December 31, 1996 proceeds from the bank loan were
$1,196,199. Net proceeds from the sale of common stock result from option and
warrant exercises.
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 December 31, 1997, the Company had $682,160 of cash available for
its cash needs, compared to cash of $361,878 as of December 31, 1996.
On May 6, 1996, PTI opened a revolving line of credit at Key Bank of
New York. The line of credit is collateralized by the PTI's inventory,
receivables and other assets, and guaranteed by the Company. As of December 31,
1997 the Company had $2,068,261 outstanding pursuant to such line of credit
($7,000,000 available). The Company is currently in discussions with its lender
to increase the availability on its line of credit to a total of $14,000,000,
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 $117,000 for the year ended December 31, 1997, approximately
$109,000 for the year ended December 31, 1996 and approximately $54,000 for the
year ended December 31, 1995. 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.
Recently Issued Accounting Standards
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
comprhensive income and its componenets(revenue, expenses, gains, and losses) in
a full set of general purpose financial statements. The Company does not
anticipate SFAS 130 will 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 in the first quarter of 1998.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and other Post-retirement Benefits", which standardizes the
disclosure requirements for pensions and other post-retirement benefits. The
company will adopt SFAS No. 132 in the first quarter of 1998.
ITEM 7. Financial Statements.
Page
Independent Auditor's Report for 1997 F-1
Independent Auditor's Report for 1996 F-2
Consolidated Balance Sheet as of December 31, 1997 F-3
Consolidated Statements of Operations for the years
ended December 31, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years F-6
ended December 31, 1997 and 1996
Notes to Consolidated Financial Statements F-7 to
F-21
<PAGE>
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
<TABLE>
The directors and executive officers of the Company are as follows:
<S> <C> <C> <C>
Executive
Officer or
Director
Name Age Position Since
Meredith W. Birrittella 31 Chairman, Director and Chief Executive 3/21/90
Officer
Anthony Costanzo 28 Chief Financial Officer 10/1/97
Myles Birrittella 34 Director 10/22/96
Robert Fuhrman 69 Director 12/12/96
Warren Schaeffer 40 Director, Secretary and President 3/1/94
of Operating Subsidiary
Gary J. Kocher 34 Director 10/21/97
</TABLE>
Meredith W. Birrittella. Mr. Birrittella, age 31, a co-founder of the
Company, has served as an officer and director since the Company's inception,
and is currently Chairman and C.E.O. of the Company.
Anthony Costanzo. Mr. Costanzo, age 28, became Chief Financial Officer
of the Company in October, 1997. Prior to becoming the CFO, he served as
Treasurer of the Company since February, 1995. Mr. Costanzo has been a Certified
Public Accountant since August 1993. Prior to joining PTI, Mr. Costanzo worked
in Public Accounting from 1991 to 1995.
Myles Birrittella. Mr. Myles Birrittella, age 34, became a director of
the Company in October, 1996. Mr. Birrittella is currently employed by Merrill
Lynch as a financial consultant. For the years 1995 and 1996, prior to his
employment with Merrill Lynch, Mr. Birrittella was a self-employed investor.
From 1992 through 1994, prior to becoming a self-employed investor, Mr.
Birrittella was the National Sales Manager for the Company.
Warren Schaeffer. Mr. Schaeffer, age 40, co-founded Foam, the company
acquired by the Company in March, 1994. Since the acquisition, he has served as
the president of the Operating Subsidiary, and in October, 1996, was elected as
a director of the Company. As of December, 1996, Mr. Schaeffer became the
Secretary of the Company. Prior to his employment by the Operating Subsidiary,
Mr. Schaeffer was the President and a director of Foam.
Robert Fuhrman. Mr. Fuhrman, age 69, has been Chairman of Fuhrman
Associates, Inc. since 1972, serving as a managing and marketing consultant for
a wide variety of consumer product companies. During this period, he has also
served from time to time as an executive of client companies, including
positions as President (CEO) of Eggland's Best, Inc., Marketing Vice President
of Beech-Nut Nutrition Inc. (Baby Food) and Senior Vice President of "Totes."
Gary J. Kocher. Mr. Kocher, age 34, became a director of the Company in
1997. Mr. Kocher is a partner in the law firm of Preston, Gates & Ellis, LLP.
Mr. Kocher's practice includes a broad range of corporate finance and
security-related transactions with an emphasis on public and private offerings
of equity and debt and cross-border transactions.
The Board of Directors is classified into three classes. Directors in
each class are elected for a period of three years at the Company's annual
meeting of shareholders, and each serves until his or her successor is duly
elected by the shareholders. Currently, each director's term in office has
expired and/or such director is serving an interim term until the election of
his successor. Officers are elected by and serve at the will of the Board of
Directors. No inside director receives any compensation for services as a
director. The only two committees of the Board of Directors are the Option
Committee and the Audit Committee, both consisting of Mr. Fuhrman and Mr. Myles
Birrittella. The Company has no executive, nominating, compensation or other
committees. Meredith Birrittella and Myles Birrittella are brothers.
The following persons, each of whom was, at some time during the
Company's 1997 fiscal year, a director, officer or beneficial owner of more than
10 percent of any class of equity securities of the Company, failed to file on a
timely basis reports required by Section 16(a) of the Securities Exchange Act of
1934 during such year or prior years:
Name of Number of Number of Transactions
Reporting Person Late Reports Not Filed on Timely Basis
Myles Birrittella 1 1
Robert Fuhrman 1 1
Warren Schaeffer 1 1
Martin Birrittella 2 3
Anthony Costanzo 1 1
Thomas Coleman 2 8
Gary J. Kocher 1 1
<PAGE>
ITEM 10. Executive Compensation.
<TABLE>
Summary Compensation Table
<S> <C> <C> <C> <C> <C>
Securities
Name and Underlying Other Annual
Principal Position Year Salary Bonus Options Compensation (1)
Meredith W. Birrittella 1997 $161,539 -0- 25,000 $2,580
Chief Executive Officer 1996 $155,385 -0- 25,000 $2,424
1995 $131,192 -0- 25,000 $2,024
Warren Schaeffer 1997 $161,539 -0- 25,000 $2,580
Secretary, and President 1996 $130,769 -0- 27,000 $2,424
of Operating Subsidiary 1995 $100,000(2) $50,000(3) -0- $0
Anthony Costanzo 1997 $73,154 $15,000 8,000 $2,580
Chief Financial Officer 1996 $60,462 $10,000 5,000 $2,424
1995 $35,538 - 10,000 $2,024
Warren T. Davies 1997 $196,691 - 40,000 $2,580
President of Operating
Subsidiary
</TABLE>
(1) Consists of dental and health insurance premiums and retirement
plan contributions.
(2) $10,000 of the stated amount has been repaid by Mr. Schaeffer to
the Company in retroactive salary adjustments under an employment agreement
between Mr. Schaeffer and the Company commencing January 1, 1994 (the
"Employment Agreement"). Although the Employment Agreement continues to govern
Mr. Schaeffer's employment with the Company, and remains in full force and
effect with respect to all other provisions, the Board of Directors of the
Company has increased the amount of compensation paid to Mr. Schaeffer pursuant
to the Employment Agreement, as is set forth in the above Summary Compensation
Table.
(3) Accrual of a deferred compensation payment of $100,000 paid by the
Company in March 1996, pursuant to the Employment Agreement, as a result of Mr.
Schaeffer's remaining with the Company throughout the fiscal years of 1994 and
1995.
Inside directors of the Company receive no compensation for serving as
a director; however, the Company's outside directors will receive compensation
in the amount of $7,500 per annum. In addition, on the anniversary of each
outside director's appointment to the Board of Directors, the Company will grant
2,500 options to purchase the Company's common stock to such directors at
exercise prices equal to the closing market price of the Company's common stock
on such date.
<TABLE>
Option Grants In Last Fiscal Year
<S> <C> <C> <C> <C>
Percent of
Name and Principal Number of Securities Total Grants Exercise Expiration
Position Underlying Options to Employees(1) Price Date
Anthony Costanzo 8,000 11.3% 8.00 2/20/02
Chief Financial Officer
Warren T. Davies 40,000 56.5% (2) (2)
President of Operating
Subsidiary
</TABLE>
(1) Does not include stock options granted to consultants or directors
of the Company.
(2) Exercise price and vesting dates are as follows: 10,000 shares
with an exercise price of $9.00 per share, vest on December 31,
1997 and expire on December 31, 2003; 10,000 shares with an
exercise price of $11.00 per share vest on December 31, 1999 and
expire on December 31, 2004; 10,000 shares with an exercise price
of $12.00 per share vest on December 31, 2000 and expire on
December 31, 2005.
Indemnification
The Company's Certificate of Incorporation eliminates or limits the
personal financial liability of the Company's directors, except in situations
where there has been a breach of the duty of loyalty, failure to act in good
faith, intentional misconduct or knowing violation of the law. In addition, the
Company's By-laws include provisions to indemnify its officers and directors and
other persons against expenses, judgments, fines and amounts paid in settlement
in connection with threatened, pending or completed suits or proceedings against
such persons by reason of serving or having served as officers, directors or in
other capacities, except in relation to matters with respect to which such
persons shall be determined to have acted not in good faith, unlawfully or not
in the best interest of the Company.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE COMPANY HAS BEEN INFORMED THAT
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, SUCH INDEMNIFICATION
IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
ITEM 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth, as of March 1, 1998, to the extent
known to the Company, the ownership of the Company's Common Stock by (i) each
person who is known by the Company to own of record or beneficially more than
five percent of the Company's Common Stock, (ii) each of the Company's directors
and executive officers and (iii) all directors and executive officers as a
group. Except as otherwise indicated, the shareholders listed in the table have
sole voting and investment powers with respect to the shares indicated.
<PAGE>
Name and Address of Amount and Nature of
Beneficial Owner Beneficial Ownership Percent of Class
Martin P. Birrittella
One River Street
Hastings on Hudson, NY 10706 552,698 (1) 11.3%
Meredith W. Birrittella
One River Street
Hastings on Hudson, NY 10706 900,198 (2) 18.1%
Myles Birrittella
One River Street
Hastings on Hudson, NY 10706 3,910 (3) .1%
Robert Fuhrman
One River Street
Hastings on Hudson, NY 10706 2,500 (3) .1%
Gary Kocher
One River Street
Hastings on Hudson, NY 10706 -0- -0-
Thomas Coleman
One River Street
Hastings on Hudson, NY 10706 451,125 (4) 9.2%
Warren Schaeffer
One River Street
Hastings on Hudson, NY 10706 207,000 (5) 4.3%
Anthony Costanzo
One River Street
Hastings on Hudson, NY 10706 24,000 (6) .5%
All directors and
officers as a group
(six persons) 1,140,108 (2)(3)(5)(6) 22.4%
(1) Includes 25,000 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $1.25 per share,
and 88,320 shares of the Company's Common Stock, which are issuable in respect
of stock options at an exercise price of $4.50.
(2) Includes 100,000 shares of the Company's Common Stock which are
issuable in respect of stock options issued under the Company's 1994 Joint
Incentive and Non-Qualified Stock Option Plan at an exercise price of $1.25 per
share, and 88,320 shares of the Company's Common Stock, which are issuable in
respect of stock options at an exercise price of $4.50.
(3) Includes 2,500 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $8.00 per share.
(4) Includes 50,000 shares of the Company's Common Stock registered
hereunder which are issuable in respect of stock options at an exercise price of
$1.25 per share, and 58,880 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $4.50 per share
(5) Includes 75,000 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $1.25 per share.
Includes 2,000 shares of the Company's Common Stock which are issuable in
respect of stock options vesting as of December 31, 1996, at an exercise price
of $5.38 per share.
(6) Includes 10,000 shares of the Company's Common Stock which are
issuable in respect of stock options at an exercise price of $2.25 per share.
Includes 5,000 shares of the Company's Common Stock which are issuable in
respect of stock options at an exercise price of $5.375 per share. Includes
8,000 shares of the Company's Common Stock which are issuable in respect of
stock options at an exercise price of $8.00 per share.
ITEM 12. Certain Relationships and Related Transactions.
Martin Birrittella (an officer and director of the Company until his
resignation on December 18, 1996), Meredith Birrittella, Myles Birrittella and
Thomas Coleman (an officer and director of the Company until his resignation on
November 22, 1996), collectively owned 23,599 shares of the Company's Series A
Preferred Stock. The Series A Preferred Stock carried stock issuance rights
entitling the holder thereof to the issuance of a maximum aggregate amount of 30
shares of Common Stock for each share of Series A Preferred Stock upon the
achievement of certain targets.
In the 1995 fiscal year, the Company's net income exceeded $750,000,
thereby entitling holders of Series A Preferred Stock to an issuance of ten
shares of the Company's Common Stock for each share of Series A Preferred Stock.
On such basis, Meredith Birrittella, Martin Birrittella and Thomas Coleman were
collectively entitled to a total of 235,520 shares of Common Stock of the
Company pursuant to their Series A Preferred Stock issuance rights. However,
those individuals relinquished all claim to said 235,520 shares of Common Stock
and, in consideration, the Company granted such individuals ten-year options to
purchase 235,520 shares of the Company's Common Stock at the then-current market
price of $4.50. Myles Birrittella did not relinquish his claim to the 470 shares
of Common Stock to which he was entitled, and the Company issued such shares of
Common Stock to him.
In September 1994, the shareholders of the Company approved a stock
option plan, which provided that Mr. Coleman and Mr. Meredith Birrittella would
receive options to purchase 25,000 shares of Common Stock of the Company at
$4.00 per share for each year of service as an executive officer of the Company
from 1994 through and including 1999. However, in May 1995 both Mr. Coleman,
then a director and executive officer of the Company, and Mr. Birrittella waived
all rights to receive these options. In consideration for such waiver, the
Company granted to Mr. Coleman options (such options not pursuant to the Plan)
to purchase 50,000 shares of Common Stock of the Company at $1.25 per share
(such options exercisable for five years from the date of vesting), 25,000 of
which options vested on May 1, 1995, and 25,000 of which vested on March 31,
1996. In consideration for Mr. Meredith Birrittella's waiver, the Company
granted to him options (pursuant to the Plan) to purchase 100,000 shares of
Common Stock of the Company at $1.25 per share (such options exercisable for
five years from the date of vesting), of which 25,000 vested on May 1, 1995,
25,000 vested on March 31, 1996, 25,000 vested on March 31, 1997, and the
remaining 25,000 vested on March 31, 1998.
As the Company's sales increased in the first quarter of 1996 at a
greater rate than its receivables matured, the Company experienced a shortage of
working capital. To meet these working capital needs during the course of the
Company's negotiations with a commercial lender for a line of credit, the
Company obtained bridge financing in the total amount of $1,272,800 from Martin
P. Birrittella, Meredith W. Birrittella and Warren Schaeffer. On May 6, 1996 the
Company signed a line of credit agreement, and drew upon such facility to fully
satisfy its loans from Messrs. M.P. Birrittella, M.W. Birrittella and Schaeffer.
In connection with this bridge financing, the Company paid a total of $9,658 of
interest to the aforementioned lenders.
At December 31, 1997, Mr. Meredith Birrittella owed the company
approximately $380,000. Subsequent to December 31, 1997, the company loaned Mr.
Warren Schaeffer approximately $800,000 of which $ 400,000 has been repaid on
April 15, 1998. These loans bear interest at 6% per annum.
For the year ended December 31, 1997, the company recognized interest
income of approximately $39,000 from loans to Officers/Directors.
ITEM 13. 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
4.1 Resolution of Designation, Powers, Preferences and Rights of Series A
Preferred Stock, 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
4.3 Form of Warrant included in Units, 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
10.11 Financial Advisory and Investment Banking Agreement, dated April 2,
1996, between PTI Holding Inc. and GKN Securities Corp., incorporated
by reference to the like numbered exhibit in Registrant's Registration
Statement on Form SB-2 under the Securities Act of 1933, dated January
27, 1997, File No. 333-20607
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.
21 Subsidiaries of registrant
(b) Reports on Form 8-K
During the fourth quarter, 1997 the Company filed one
amendment to a Current Report on Form 8-K dated October 15,
1997. Such Amendment included Audited financial statements of
Flents Products Co., Inc. for the period ended May 31, 1997
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PTI HOLDING INC.
By
Meredith W. Birrittella,
Chairman of the Board
Chief Executive Officer (authorized signatory)
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
Chief Executive Officer, April 15, 1998
Meredith W. Birrittella Chairman and Director
Chief Financial Officer April 15, 1998
Anthony Costanzo Chief Accounting Officer
Director April 15, 1998
Myles Birrittella
Director April 15, 1998
Robert Fuhrman
Director and Secretary April 15, 1998
Warren Schaeffer
Director April 15, 1998
Gary J. Kocher
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
PTI HOLDING INC.
By/s/ Meredith W. Birrittella
Meredith W. Birrittella,
Chairman of the Board
Chief Executive Officer (authorized signatory)
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates stated.
/s/ Meredith W. Birrittella Chief Executive Officer, April 15, 1998
Meredith W. Birrittella Chairman and Director
/s/ Anthony Costanzo Chief Financial Officer April 15, 1998
Anthony Costanzo Chief Accounting Officer
/s/ Myles Birrittella Director April 15, 1998
Myles Birrittella
/s/ Robert Fuhrman Director April 15, 1998
Robert Fuhrman
/s/ Warren Schaeffer Director and Secretary April 15, 1998
Warren Schaeffer
/s/ Gary J. Kocher Director April 15, 1998
Gary J. Kocher
Exhibit 21
List of Subsidiaries of PTI Holding Inc.
Protective Technologies International Inc., a New York Corporation
Flents Products Co., Inc., a Delaware Corporation
Fu-Chung Manufacturing Inc., a Delaware Corporation
Zacko Sports, Inc., a Delaware Corporation
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
PTI Holding Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of PTI Holding Inc.
(a Delaware Corporation) and subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PTI Holding Inc. and
subsidiaries as of December 31, 1997, and the results of their operations and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
New York, New York
March 12, 1998
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
PTI Holding Inc. and Subsidiaries
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of PTI Holding Inc. and subsidiaries for
the year ended December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
PTI Holding Inc. and subsidiaries for the year ended December 31, 1996, in
conformity with generally accepted accounting principles.
D'ARCANGELO & CO., LLP
Purchase, New York
March 4, 1997
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $
682,160
Accounts receivable, net of allowance for returns and doubtful accounts of $108,500 5,227,171
Inventories 7,872,357
Prepaid expenses and other current assets 1,101,103
Deferred tax assets 133,523
-------------------
Total current assets 15,016,314
Deferred tax assets
164,000
Equipment and leasehold improvements, net of accumulated depreciation of $1,458,016 1,673,637
Intangible assets, net of accumulated amortization of $654,387 4,273,019
-------------------
$ 21,126,970
===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable, bank $ 2,068,261
Accounts payable and accrued expenses 2,681,886
Other Current Liabilities 56,999
-------------------
Total current liabilities 4,807,146
-------------------
Commitments and contingencies (Notes 6 and 7)
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
185,366
-------------------
Total stockholders' equity 16,319,824
-------------------
$ 21,126,970
===================
</TABLE>
<PAGE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<S> <C> <C>
1997 1996
-------------------- -------------------
Net sales $ 34,566,135 $ 17,529,509
Cost of sales 23,751,353 12,140,542
-------------------- -------------------
Gross profit 10,814,782 5,388,967
==================== ===================
Selling, general and administrative expenses:
SG&A excluding stock-based compensation 6,073,809 2,717,851
Non-recurring stock-based compensation expense 3,636,838 -
-------------------- -------------------
9,710,647 2,717,851
-------------------- -------------------
Income from operations 1,104,135 2,671,116
Interest expense (income), net of interest income of $100,022 (1997)
and $53,540 (1996) 217,430 (2)
-------------------- -------------------
Income before income taxes 886,705 2,671,118
-------------------- -------------------
Income taxes (benefit):
Current 1,807,000 1,014,000
Deferred 21,000 (34,000)
-------------------- -------------------
1,828,000 980,000
-------------------- -------------------
Net (loss) income $ (941,295) $ 1,691,118
==================== ===================
Net (loss) income per share of common stock:
Basic $ (.23) $ .49
Diluted (.23) .43
Weighted average shares outstanding:
Basic 4,083,209 3,450,751
Diluted 4,083,209 3,918,146
</TABLE>
<PAGE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<S> <C> <C> <C> <C> <C> <C>
Common stock
------------------------------
Receivable
from exercise Retained Total
Shares Amount Capital in of stock (deficit) stockholders'
excess of par options and earnings equity
warrants
--------------- ------------- ----------------- --------------- ----------------- ---------------
Balance,
January 1, 1996 3,338,956 $ 33,390 $ 6,212,696 $ (4,688) $ (564,457) $ 5,676,941
Net income - - - - 1,691,118 1,691,118
Collection - - - 4,688 - 4,688
Issuance of common stock 148,980 1,489 195,661 - - 197,150
--------------- ------------- ----------------- --------------- ----------------- -----------------
Balance,
December 31, 1996 3,487,936 34,879 6,408,357 - 1,126,661 7,569,897
Net (loss) - - - - (941,295) (941,295)
Issuances of common stock 1,308,570 13,086 9,736,458 (58,322) - 9,691,222
--------------- ------------- ----------------- --------------- ----------------- -----------------
Balance,
December 31, 1997 4,796,506 $ 47,965 $ 16,144,815 $ (58,322) $ 185,366 $ 16,319,824
=============== ============= ================= =============== ================= =================
</TABLE>
<PAGE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<S> <C> <C>
1997 1996
-------------------- ----------------------
Cash flows from operatinactivities:
Net (loss) income $ (941,295) $ 1,691,118
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Provision for return and doubtful accounts (87,406) 78,906
Depreciation and amortization 539,764 371,761
Amortization of intangible assets 196,513 146,139
Deferred income tax (benefit) 21,000 (34,000)
Stock-based compensation 3,636,838 -
(Increase) decrease in operating assets:
Accounts receivable (933,737) (2,139,935)
Inventories (3,390,435) (2,094,413)
Prepaid expenses and other current assets 88,846 (737,365)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 1,411,002 13,999
Income taxes payable (1,004,888) 1,012,000
----------------- ------------------
Net cash used in operating activities (463,798) (1,691,790)
----------------- ------------------
Cash flows from investing activities:
Cash payments as partial consideration for purchase of acquired
company and acquisition costs, net of cash acquired (1,855,289) -
Purchase of equipment and improvements (1,558,784) (476,039)
Purchase of trademarks (560) (1,932)
Reduction in cash invested to secure letters of credit - 208,750
----------------- ------------------
Net cash used in investing activities (3,414,633) (269,221)
----------------- ------------------
Cash flows from financing activities:
Payments of other current liabilities (23,583) (44,477)
Proceeds from bank loan, net 872,062 1,196,199
Proceeds from exercise of common stock options and warrants 3,350,234 201,838
----------------- ------------------
Net cash provided by financing activities 4,198,713 1,353,560
----------------- ------------------
Net increase (decrease) in cash and cash equivalents 320,282 (607,451)
Cash and cash equivalents, beginning of year 361,878 969,329
----------------- ------------------
Cash and cash equivalents, end of year $ 682,160 $ 361,878
================= ==================
Supplemental disclosures:
Interest paid $ 317,452 $ 53,538
Income taxes paid 3,415,144 2,000
Non-cash investing and financing activities:
Acquisition of business:
Fair value of net assets acquired 2,198,604 -
Resultant goodwill 2,931,572
Other non-cash financing activities:
Common stock issued as partial consideration 2,701,650 -
Conversion of preferred stock 2,500 -
Receivable from exercise of common stock warrants 58,322 -
</TABLE>
<PAGE>
PTI HOLDING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements include PTI Holding Inc., (a
Delaware Corporation) and its three wholly-owned subsidiaries:
Protective Technologies International Inc. ("PTI"), Flents Products
Co., Inc. ("Flents") a subsidiary acquired in 1997 (see note 2), and
Zacko Sports, Inc. ("Zacko"), a subsidiary formed in 1996. PTI Holding
Inc. and its subsidiaries are collectively referred to as the Company.
Significant intercompany balances and transactions are eliminated in
consolidation.
Nature of operations:
PTI and Zacko design, manufacture and market bicycle helmets, bicycles
and bicycle accessories for sale principally to domestic retailers.
Flents designs, manufactures and markets earplugs and other safety and
medical supplies such as an eye drop delivery system, styptic devices,
and air filter masks.
The composition of net sales for the year ended December 31, 1997 was
approximately 49% bicycle helmets, 40% bicycles and bicycle accessories,
and 11% Flents products. For the year ended December 31, 1996, sales of
bicycle and bicycle accessories represented approximately 39% of net
sales.
The following table presents sales and other financial information by
business segment for 1997:
<TABLE>
<S> <C> <C> <C> <C>
PTI Products Flents Products Corporate and Eliminations Consolidated
-------------- --------------- ---------------------------- -------------
Sales to unaffiliated customers $ 30,851,000 $ 3,715,000 - $ 34,566,000
Operating (loss) income 748,000 406,000 (50,000) 1,104,000
Identifiable assets 15,049,000 5,077,000 1,001,000 21,127,000
Capital expenditures 1,559,000 - - 1,559,000
Derpreciation 505,000 35,000 - 540,000
</TABLE>
Revenue recognition:
Sales are recognized when products are shipped with payment due in the
normal course of business.
Cash and cash equivalents:
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
The carrying amount of cash and cash equivalents approximates fair
value.
Inventories:
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Cost includes
material, labor and manufacturing overhead costs.
Depreciation:
Equipment and leasehold improvements are stated at cost. Depreciation of
production equipment and office equipment is provided for using
accelerated methods over the estimated useful lives of the related
assets. Leasehold improvements are amortized using the straight-line
method over the related lease term or the estimated useful lives of the
assets, whichever shorter.
Intangible assets:
Goodwill, covenants not to compete, and trademarks are amortized using
the straight-line method over 35 years, 5 years and 17 years,
respectively.
It is the Company's policy to review the carrying value of unamortized
goodwill, and when such review indicates impairment of value, goodwill
would be written-down.
Impairment of long-lived assets:
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that
full recoverability is questionable. Management evaluates the
recoverability of its intangible assets and other long-lived assets and
several factors are used in the valuation including, but not limited to,
management's plans for future operations, recent operating results and
projected cash flows.
Income Taxes:
Income taxes are determined under the asset and liability method.
Deferred tax assets and liabilities are determined based upon
differences between the financial reporting and the tax basis of assets
and liabilities.
Research and development costs:
Research and development costs included in selling, general and
administrative expenses are charged to operations as incurred and
amounted to approximately $119,000 and $109,000 for the years ended
December 31, 1997 and 1996, respectively.
Earnings per share of common stock:
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." In
accordance with SFAS No. 128, net earnings per common share amounts
("basic EPS") were computed by dividing net (loss) earnings by the
weighted average number of common shares outstanding and excluded any
potential dilution. Net earnings per common share amounts assuming
dilution ("diluted EPS") were computed by reflecting potential dilution
from the exercise of stock options and warrants. SFAS No. 128 requires
the presentation of both basic EPS and diluted EPS on the face of the
statement of operations. Earnings per share amounts for the prior-year
have been restated to conform with the provisions of SFAS No. 128.
A reconciliation between the numerators and denominators of the basic
and diluted EPS computations for net (loss) earnings is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1997 Year Ended December 31, 1996
---------------------------- -----------------------------
Per Share Per share
Net Loss Shares Amounts Net Income Shares Amounts
--------- -------- ----------- ----------- --------- ----------
Basic EPS $ (941,295) 4,083,209 $ (0.23) $ 1,691,118 3,450,751 $ 0.49
Dilutive stock options & warrants 467,395
Diluted EPS $ (941,295) 4,083,209 $ (0.23) $ 1,691,118 3,450,751 $ 0.43
</TABLE>
The potenially diluted shares that were not included in the computation
of diluted earnings per share because to do so would be antidilutive
consist of stock options and warrants as follows:
Options/Warrants
Year ended December 31, 1997 837,283
Year ended December 31, 1996 -
Stock-based compensation:
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," encourages but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations. Accordingly, compensation
expense for stock options issued to employees is measured as the excess,
if any, of the quoted market price of the Company's stock at the date of
the grant over the amount an employee must pay to acquire the stock.
Use of estimates in the preparation of financial statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Reclassification:
For the comparability, certain 1996 amounts have been reclassified where
appropriate to conform to the financial statement presentation used in
1997.
New Accounting Pronouncements:
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 will adopt SFAS No. 130 in the first quarter of
1998.
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 in the first quarter of 1998.
2. Business combination:
On August 5, 1997, the Company acquired, Flents Products Co., Inc., a
New York Corporation ("Flents-New York") and concurrently merged
Flents-New York into Flents, the Company's wholly-owned subsidiary
designed for this purpose. After August 5, 1997, Flents-New York had no
separate or independent existence, having merged into Flents. For
purposes of accounting, the acquisition was effective as of the opening
of business on June 1, 1997, and has been accounted for as a purchase.
In exchange for all the outstanding shares of common stock of Flents-New
York, the Company paid $2,135,435 to the shareholders of Flents-New
York, and issued them: 270,165 units consisting of 270,165 shares of the
Company's common stock and 270,165 convertible value rights ("CVRs").
For purposes of the business combination, the units were valued at $10
per unit. Each CVR entitles the original holder to up to $4.00 of
additional common stock of the Company to the extent that the market
value of the Company's common stock is less than $10.00 per share on the
one-year anniversary of the closing (August 5, 1998).
The pro-forma unaudited consolidated results of operations of the
Company for the years ended December 31, 1997 and 1996 as if the
business combination had been completed on January 1, 1996 are as
follows:
1997 1996
------------ ---------
Net sales $ 37,351,000 $ 23,839,000
Income from operations 1,134,000 3,109,000
Net (loss) income (71,000) 1,930,000
Net (loss) income per share of
common stock:
Basic $ (.02) $ .56
Diluted (.02) .49
3. Inventories:
Inventories are summarized as follows:
Raw materials and work-in-process $ 3,014,426
Finished goods 4,857,931
-------------------
$ 7,872,357
===================
4. Equipment and improvements:
Equipment and improvements consist of the following:
Production equipment $ 1,666,569
Office equipment 1,246,934
Leasehold improvements 218,150
------------------
3,131,653
Less accumulated depreciation 1,458,016
------------------
$ 1,673,637
==================
5. Loan payable, bank
On May 6, 1996, the Company entered into a line of credit agreement with
a bank. Under the terms of the agreement, the Company may borrow up to
$7,000,000 based on a percentage of certain accounts receivable and
inventories as defined in the agreement. All borrowings are due on
demand, and are collateralized by substantially all of the Company's
assets. At December 31, 1997, $2,068,261 was outstanding.
The line of credit agreement requires the Company to comply with certain
affirmative covenants, including the maintenance of a minimum current
ratio, minimum quarterly interest ratios and a maximum leverage ratio,
all as defined in the agreement. In addition, certain negative covenants
(which are all defined in the agreement) call for the Company to obtain
the bank's consent prior to business acquisitions, debt guarantees,
sales or transfers of accounts receivable, loans, total annual capital
expenditures in excess of $300,000 (which was waived for 1997), dividend
declarations or payments, distributions of assets, incurring certain
debt, and permitting liens against assets.
The carrying amount of the bank loan payable approximates fair value due
to the debt instrument's market interest rate (9.75% per annum at
December 31, 1997).
6. Commitments:
Employment contracts:
The Company has long-term employment agreements with five of its key
employees and consulting agreements with two consultants. The employment
agreements provide for a minimum annual compensation plus certain fringe
benefits.
The table below shows the aggregate minimum compensation required under
the employment and consulting agreements:
1998 $561,000
1999 431,000
2000 431,000
2001 326,000
2002 134,000
Thereafter 53,000
----------
$1,936,000
Leasing arrangements:
The Company leases office space, manufacturing and warehouse facilities
under operating leases which expire at various dates through the year
2004. In addition to minimum rent, most of the leases require escalation
payments based on operating expenses and/or real estate taxes. One lease
provides the Company with the option to lease additional space.
Minimum payments for operating leases having initial or remaining
non-cancelable terms in excess of one year are as follows:
1998 $826,000
1999 899,000
2000 887,000
2001 330,000
2002 299,000
Thereafter 658,000
----------
$3,899,000
Rent expense for the years ended December 31, 1997 and 1996
totaled approximately $575,000 and $370,000, respectively.
Retirement plan:
Effective January 1, 1998, the Company began sponsoring a defined
contribution plan. The plan covers all eligible employees and provides
for contributions of up to 3% of salary plus an additional discretionary
percentage to be determined annually by resolution of the Board of
Directors.
7. License agreements:
The Company has entered into various licensing agreements requiring
royalty payments based on specified percentages of product sales. The
future minimum guaranteed royalty payments are $257,000 in 1998 and
$214,000 in 1999. Royalty expenses under these licensing agreements
totaled $468,000 in 1997 and $122,000 in 1996.
8. 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 such 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.
9. Series A preferred stock:
The Company's Series A preferred stock which was issued on July 31, 1992
was converted to common stock during 1997. The Series A preferred stock
bore stock issuance rights entitling the holder thereof to the issuance
of 10 shares of common stock, up to a maximum aggregate amount of 30
shares of common stock, for each share of Series A preferred stock for
each of the following conditions that are met: The Company has net
income of $750,000 during any of the three complete fiscal years
immediately after the date of the public offering (December 1992); the
Company has gross revenue of $20,000,000 during any of the five complete
fiscal years after the date of the public offering; the Company has
gross revenue of $35,000,000 during any of the five complete fiscal
years after the date of the public offering; and a cumulative total of
50% of the warrants issued in the public offering have been exercised.
For the year ended December 31, 1995, the Company had net income in
excess of $750,000. Accordingly, the Series A preferred stockholders
were entitled to 10 shares of common stock for each Series A preferred
share owned. However, three preferred stockholders holding an aggregate
of 23,552 preferred shares relinquished their right to receive an
issuance of an aggregate of 235,520 shares of the Company's common
stock. In consideration for relinquishing their rights to that common
stock, the Company granted the three preferred stockholders options to
acquire an aggregate of 235,520 shares of the common stock. The options
have an exercise price of $4.50 (the quoted market price on the
effective date of grant), are outstanding and exercisable as of December
31, 1997, and expire in January, 2006. The three preferred stockholders
are also major common stockholders of the Company. The remaining 14,480
common shares were issued to the other preferred stockholders in 1996.
During the year ended December 31, 1997, the Company's gross revenues
exceeded the $20,000,000 threshold and a cumulative total of 402,390
public warrants (87% of the public warrants) were exercised. As a result
of the Company's meeting these two conditions, an aggregate of 500,000
shares of common stock were issued to holders of the Company's Series A
preferred stock. Approximately 95% of the shares of common stock issued
were issued to either present or former directors, officers, employees
and consultants of the Company. Accordingly, for the year ended December
31, 1997, the Company provided for stock-based compensation of
$3,636,838, resulting from meeting those two additional preferred stock
conditions. The stock issuance for the remaining 5% of the preferred
stock, held by individuals not otherwise involved with the Company, has
no effect on results of operations. The accounting for the $3,636,838
stock-based compensation charge has no effect on the Company's
consolidated net worth or cash flows.
10. Common stock and warrants:
In December 1992, the Company completed a public offering of 400,000
units at $10 per unit. Each unit consisted of two shares of common stock
and one warrant to purchase one share of common stock at an exercise
price of $7.50. In addition, in January 1993, the underwriters exercised
the overallotment provision of the underwriting agreement to purchase an
additional 60,000 units. During the year ended December 31, 1997, an
aggregate of 402,390 warrants were exercised resulting in gross proceeds
of $3,017,925. The remaining 57,610 warrants were cancelled.
In connection with the public offering, the underwriter received
warrants to purchase 40,000 units at an exercise price of $11 per unit
exercisable. None of these warrants have been exercised as of December
31, 1997.
During October 1992, the Company issued warrants to purchase 63,750
shares of common stock at $1.65 per share of which 9,000 warrants were
exercised prior to January 1, 1996. The warrants were issued pursuant to
a borrowing that has since been repaid. During the year ended December
31, 1997, 53,250 of these warrants were exercised resulting in total
proceeds of 87,863. The remaining 1,500 warrants expired.
During November and December 1994, the Company completed a private
placement of a total of 318,956 shares of common stock. In connection
with the private placement, the underwriter received warrants to
purchase 62,500 shares of common stock at $3.75 per share and 14,765
shares of common stock at $3.95 per share at any time during the
three-year period commencing in November 1994. These warrants were
exercised during the year ended Deccember 31, 1997 resulting in proceeds
of $233,750 and a note receivable of $58,322.
11. Stock options:
The Company has granted stock options to employees, directors and
consultants pursuant to individual agreements or to its incentive and
non-qualified stock option plan. All options granted are for exercise
prices equal to the quoted market price at date of grant.
The total amount of shares of common stock which may be issued upon
exercise of options granted under the incentive and non-qualified stock
option plan is limited to 350,000 shares. Any options granted, may be
exercisable for a period determined in each case by the Board of
Directors. Except under certain circumstances, such period cannot exceed
ten years from the date of grant. Options may not be granted after the
plan terminates in 2004. However, unexpired options granted will
continue until they lapse or terminate by their own terms and
conditions. Any options granted to employees will expire if not
exercised within three months after termination of employment. Subject
to certain limitations, options may be granted to employees, directors,
consultants, and others who the Board of Directors believes have
contributed or will contribute to the Company.
The table below summarizes plan and non-plan stock option activity for
the past two years:
Weighted average
Number of exercise price
shares
-------------- -----------------
Outstanding, January 1, 1996 427,800 $1.61
Granted 440,520 $2.86
Exercised (134,500) $1.62
Canceled or expired (75,000) $5.875
--------------
Outstanding, December 31, 1996 658,820 $3.57
Granted 111,000 $9.69
Exercised ( 5,500) $4.67
Cancelled or expired ( 20,800) $7.51
--------------
Outstanding, December 31, 1997 743,520 $4.36
==============
Exercisable, December 31, 1997 635,520 $3.46
==============
The weighted average grant date fair value of options granted during the
year ended December 31, 1997 is $9.07 per option.
Options outstanding and exercisable at December 31, 1997 and related
weighted average exercise price and life information follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Options outstanding Options exercisable Remaining
---------------------------- ---------------------------
Grant date Shares price Shares price life (years)
----------------- ------------- --------- ------------ ----------- ---------------
1993-1994 24,500 $3.97 24,500 $3.97 1
1995 260,000 $1.29 260,000 $1.29 3
1996 351,020 $5.03 351,020 $5.03 8
1997 108,000 $9.70 - - 4
</TABLE>
The Company follows the disclosure-only
provision of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation
cost has been recognized for the stock options. Had compensation cost
for the Company's stock options been determined based on the fair value
at the grant date for options granted in 1997 and 1996 consistent with
the provisions of SFAS No. 123, the Company's net (loss) income and
(loss) earnings per share would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<S> <C> <C>
1997 1996
-------------- ----------------
Net (loss) income, as reported $ (941,295) $ 1,691,118
Net (loss) income, pro forma (276,706) 888,476
Earnings (loss) per share, as reported (.23) .49
</TABLE>
Earnings (loss) per share, pro forma (.30) .26 The pro forma effect
on net (loss) income for 1997 and 1996 does not take into consideration
pro forma compensation expense related to grants made prior to 1995.
The fair value of options at date of grant was estimated using the
Black-Scholes model with the following weighted average assumptions:
Expected life (years) 5
Interest rate 7.10%
Volatility - 1997 54.7%
- 1996 66.4%
Dividend yield 0%
12. Significant customers:
Two major retail chain organizations accounted for approximately 71% and
15% of net sales in 1997 and 65% and 15% of net sales in 1996. As of
December 31, 1997, accounts receivable included approximately $2,585,000
and $1,257,000, respectively, due from these two customers. Although
other major retailers are customers, a loss of one or both of these two
established major customers would cause a significant loss of sales and
affect operating results adversely.
13. Income taxes:
<TABLE>
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets are presented as
follows:
<S> <C> <C> <C>
1997 1996 Change
--------------- ------------------ --------------------
Accounts receivable due to the allowance
for returns and doubtful accounts $ 44,000 $ 74,000 $ (30,000)
Inventories due to additional costs inventoried for
tax purposes and inventory reserves 44,000 40,000 4,000
Equipment and improvements due to depreciation and
amortization 32,000 8,000 24,000
Intangible assets due to differences in amortization
119,000 95,000 24,000
Accounts payable and accrued expenses due to
accrued bonuses and severance costs 59,000 - 59,000
Other - 7,000 (7,000)
--------------- ------------------ --------------------
Total deferred tax assets $ 298,000 $ 224,000 74,000
=============== ==================
Deferred tax asset acquired (95,000)
--------------------
$ (21,000)
====================
</TABLE>
The valuation allowance decreased by $130,000 to $0 for the year ended
December 31, 1996.
The significant components of the income tax provision attributable to
continuing operations for the years ended December 31, 1997 and 1996 are
presented below:
<TABLE>
<S> <C> <C>
1997 1996
------------------- -------------------
Current income tax expense $ 1,832,000 $ 1,256,000
Deferred income tax (exclusive of the effects of the other
components listed below) 21,000 (34,000)
Tax credits (25,000) (71,000)
Tax benefits of operating loss carryforwards - (171,000)
------------------- -------------------
Income taxes $ 1,828,000 $ 980,000
=================== ===================
</TABLE>
The difference between the actual income tax provision and the income
tax provision computed by applying the statutory federal income tax rate
to income from operations for the years ended December 31, 1997 and 1996
is attributable to the following:
<TABLE>
<S> <C> <C>
1997 1996
------------------- -------------------
Income tax provision at 34% $ 302,000 $ 908,000
State income taxes net of federal income tax 307,000 152,000
Intangible assets and amortization 30,000 38,000
Net operating losses - (138,000)
Tax credits (11,000) (55,000)
Stock-based compensation 1,237,000 -
Other (37,000) 75,000
------------------- -------------------
Actual income tax provision $ 1,828,000 $ 980,000
=================== ===================
</TABLE>
The income tax provision of $1,828,000 for the year ended December 31,
1997 is comprised of $1,423,000 of federal income taxes and $405,000 of state
income taxes.
The income tax provision of $980,000 for the year ended December 31,
1996 is comprised of $750,000 of federal income taxes and $230,000 of
state income taxes. For the year ended December 31, 1996, the income tax
provision from continuing operations reflects the utilization of a
$400,000 federal net operating loss carry forward.
14. Related Parties:
At December 31, 1997, an officer/director owed the Company
approximately $380,000 pursuant to a loan. Subsequent to
December 31, 1997, the Company loaned another officer/director
approximately $ 800,000, of which $400,000 is due on April 15,
1998. These loans bear interest at 6% per annum. For the year
ended December 31, 1997, the Company recognized interest
income of approximately $ 39,000 from loans to
officers/directors.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 682,160
<SECURITIES> 0
<RECEIVABLES> 5,335,671
<ALLOWANCES> 108,500
<INVENTORY> 7,872,357
<CURRENT-ASSETS> 15,016,314
<PP&E> 3,131,653
<DEPRECIATION> 1,458,016
<TOTAL-ASSETS> 21,126,970
<CURRENT-LIABILITIES> 4,807,146
<BONDS> 0
0
0
<COMMON> 47,965
<OTHER-SE> 16,271,859
<TOTAL-LIABILITY-AND-EQUITY> 21,126,970
<SALES> 34,566,135
<TOTAL-REVENUES> 34,566,135
<CGS> 23,751,353
<TOTAL-COSTS> 23,751,353
<OTHER-EXPENSES> 9,710,647
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 317,452
<INCOME-PRETAX> 886,705
<INCOME-TAX> 1,828,000
<INCOME-CONTINUING> 886,705
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (941,295)
<EPS-PRIMARY> (.23)
<EPS-DILUTED> (.23)
</TABLE>
