FORM 10-Q. - QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the quarterly period ended March 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
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Commission File Number: 1-11586
PTI HOLDING INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3590980
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(State or jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
c/o 15 East North Street, Dover, DE 19901
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(Address of principal executive offices) (Zip Code)
(302) 678-0855
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(Issuer's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 the past 90 days.
X Yes No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING
DURING THE PRECEDING FIVE YEARS :
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS :
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. As of May 16, 2000,
4,956,352 shares of the issuer's common equity were outstanding.
This is the registrant's initial form 10-Q report, form 10-QSB was
filed in all applicable preceding quarters.
PART I FINANCIAL INFORMATION
ITEM 1.
Financial Statements.
Page
Consolidated Balance Sheets as of March 31, 2000 and December 31, 1999 11
Consolidated Statements of Operations for the quarters
ended March 31, 2000, 1999 and 1998 12
Consolidated Statements of Cash Flows for the quarters
ended March 31, 2000, 1999 and 1998 13
Notes to Consolidated Financial Statements 14 - 17
ITEM 2. Management's Discussion and Analysis
Statements in this Quarterly Report on Form 10-Q 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. (the "Company") was incorporated under the laws of
Delaware in March 1990.
On March 1, 1994, the Company acquired Foam-O-Rama, Inc. ("Foam"), a
New York corporation which was 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 accounting,
the acquisition has been accounted for as a purchase.
On August 5, 1997, the Company consummated the merger (the "Merger") of
Flents Products Co., Inc., a New York corporation ("FPC"), which was 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 ("Flents"), pursuant to an Agreement and Plan of Merger among the
Company, Flents and FPC. 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. Flents delivered at closing an aggregate merger consideration
of approximately $4.8 million. On October 5, 1998, in accordance with certain
provisions of the Flents transaction, an additional 54,846 shares of the
company's common stock were issued to the original shareholders of Flents.
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. The Comfees division manufactures and
distributes contact lens cases, liquid dispensers, medicine droppers, finger
splints and ear protectors, among other health and beauty care items.
On April 14, 1999, Flents consummated an asset acquisition ("Karlen") of
Karlen Manufacturing, Inc. The Company acquired substantially all of the net
operating assets of Karlen. The purchase price was $17,750,000, excluding
acquisition costs. The Karlen operation, which is based in Michigan, is in the
business of manufacturing, marketing and selling personal health and beauty care
items, including some products similar to those sold by Flents.
The purchase price consisted of a $16,750,000 cash payment and a
$1,000,000 promissory note bearing interest at 12% per annum.
Karlen Manufacturing Inc. had revenues in the amount of approximately
$12,345,000 in 1998. The assets acquired include approximately $1,585,000 in
accounts receivables, $1,800,000 in inventory and $372,000 in property and
equipment. Flents assumed current liabilities of approximately $373,000.
All agreements entered into and described below are dated April 14,1999
unless noted otherwise.
In connection with the Karlen acquisition, Flents entered into an
Employment Agreement with the chief operating officer of Karlen, to serve as the
President of Flents. The Employment Agreement has a term of five years. The
Agreement provides for compensation at an annual rate of $165,000 per year. On
the first anniversary of the Agreement and on each subsequent anniversary, the
annual rate of salary shall be increased by 5% of the amount of the previous
annual rate. The Agreement also entitles the Employee to a bonus based on the
Subsidiary's increase in earnings before interest, taxes, depreciation and
amortization. Additionally, the Agreement grants the Employee an option to
purchase an aggregate of 2.0408 shares of common stock of the Subsidiary. The
exercise price shall be the value of the Subsidiary on April 14, 1999 multiplied
by 2.0408%. The option vests on the fifth anniversary of the Agreement and
expires nine months after vesting.
Flents also entered into a Lease Agreement. The lease is for a term of
three years and is at specified rental payments, which Flents believes are fair
market rates. The lessor is a shareholder of Karlen.
In addition, Flents has entered into a Requirements Agreement by which
Flents has agreed to buy all of its requirements of non-latex polyurethane
cosmetic grade foam, subject to the terms of the Agreement, from an entity
related to a Karlen shareholder. This raw material is used in the manufacture of
foam wedges which are used in various cosmetic products. The term of this
agreement is for three years with purchase prices under the Requirements
Agreement approximately equal to the historic purchase prices charged to Karlen
for this critical raw material.
To finance the Karlen acquisition, at the Closing, Flents entered into a
$10,000,000 financing facility pursuant to a Revolving Credit, Term Loan and
Security Agreement with a bank. The facility includes a Term loan of $4,000,000,
fully funded at closing, and a line of credit of $6,000,000 of which at closing
approximately $2,900,000 was drawn and approximately $1,000,000 was available
under the facility's various borrowing limits. Flents pledged all of its assets
as security for this financing. The term loan is for three years and bears
interest at the bank's base rate plus .75%. The line of credit bears interest at
the bank's base rate plus .25%.
Flents also entered into, with a subordinated lender, a Securities
Purchase Agreement by which the lender advanced $8,000,000 to Flents and
acquired (1) detachable warrants (the "Flents warrants") exercisable to purchase
22 shares of common stock of Flents, par value $.01 per share, which would
constitute upon exercise 22% of the issued and outstanding common stock of
Flents on a diluted basis, and (2) an $8,000,000 promissory note with an
interest rate of 12%. At December 31, 1999 the $8,000,000 promissory note had a
stated value of $5,954,841 after giving consideration that the note has an
effective interest rate of 19.88%. The Flents warrants are exercisable for a
nominal purchase price until April 14, 2009. The promissory note is payable
interest only for six years and is due in full at maturity in six years.
Pursuant to an Investment Agreement by and among the Company and two of
the Company's officers/directors, Flents issued an aggregate of 18% of its
common stock of Flents, for consideration of $1,800,000.
Upon the exercise of the warrants, the Company will own 60% of Flents.
Because Flents is no longer a wholly owned subsidiary of the Company, Flents
also entered into a Management Agreement with PTI. Under the Management
Agreement, PTI provides various services to Flents, including senior executive
services of the Chief Executive Officer and the Chief Financial Officer,
information and data processing functions and services, management systems and
services, and senior human resource management functions and services, such as
payroll, benefits, and related functions.
Flents also entered into a Shareholders' Agreement by and among Flents,
the Company, the Subordinated lender and the two officers/directors owning 18%
of Flents. The Shareholders' Agreement places various restrictions on the
shareholders, including restrictions on the transfer of shares of Flents common
stock.
Three Months ended March 31, 2000 as compared to the
Three Months ended March 31, 1999
The Company's net sales were $15,743,723 during the three months ended
March 31, 2000, a decrease of 2% from net sales of $16,120,849 for the same
period in 1999. Sales for PTI were $10,420,247 for the three months ended March
31, 2000 and $13,846,232 for the same period in 1999. The decrease in sales for
PTI was attributed to a change in the purchasing patterns by our major
customers, whereby customer orders and shipments are currently spread more
evenly throughout the year. Sales which were historically shipped in the first
quarter, now are set to ship in the second quarter. Sales for Flents were
$5,323,476 for the three months ended March 31, 2000 and $2,274,617 for the same
period in 1999. The increase in sales for Flents resulted predominantly from the
acquisition by Flents of Karlen in 1999. Karlen was acquired in April 1999 and
therefore not included in the first quarter ended March 31, 1999.
The cost of sales for the three months ended March 31, 2000 was
$11,006,533 (resulting in a gross profit margin of 30%), compared to the
Company's cost of sales for the three months ended March 31, 1999 of $11,511,592
(resulting in a gross profit margin of 29%). PTI's gross profit margin
contribution approximated 23% for the three months ended March 31, 2000 and 29%
for the three months ended March 31, 1999. Flents' gross profit margin
contribution approximated 44% for the three months ended March 31, 2000 and 45%
for the three months ended March 31, 1999. The fluctuation in gross margins for
PTI and Flents was due primarily to changes in product mix sales. PTI's gross
margins for the three months ended March 31, 2000 were also affected by
increased credit allowances to major customers, which were not included in the
three months ended March 31, 1999
Selling, general and administrative expenses for the three months ended
March 31, 2000 were $4,907,969 compared to selling, general and administrative
expenses of $3,508,369 and for the three months ended March 31, 1999. Selling,
general & administrative expenses, as a percentage of sales were 31% and 22% for
the quarters ended March 31, 2000 and 1999, respectively. The increased selling,
general and administrative spending in 2000 and 1999 was primarily due to the
addition of the operating expenses of Karlen, which was acquired in April 1999,
higher costs associated with the expansion of the businesses, licensing fees
associated with the sales of licensed products, the amortization of goodwill
associated with the acquisitions of Karlen and Comfees, the depreciation of the
installation of new systems and the higher costs for human resources.
Interest expense, net of interest income, for the Company for the three
months ended March 31, 2000 was $704,202, compared to net interest expense of
$264,572 for the three months ended March 31, 1999. The increase in net interest
expense from 1999 to 2000 was due primarily to increased inventory levels for
the Company and to the financing costs associated with the acquisition of
Karlen. Net interest expense for Flents was $494,223 for the three months ended
March 31, 2000 and $93,488 for the three months ended March 31, 1999.
The Company had a net loss of ($553,941) for the three months ended
March 31, 2000 compared to the Company's net income for the three months ended
March 31, 1999 of $485,063. The reduction in earnings resulted primarily from
increased SG&A spending and the financing costs associated with the acquisition
of Karlen and from increased Goodwill amortization resulting from the
acquisitions.
Liquidity and Capital Resources
The Company's working capital at March 31, 2000 was $9,025,413 as
compared to $9,733,611 at December 31, 1999.
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 decreased by ($297,663) and $616,362 in the three months ended
March 31, 2000 and 1999, respectively.
Net cash provided by (used in) operating activities was $(4,244,732)
and $1,955,203 in the three months ended March 31, 2000 and 1999, respectively.
Net income (loss) was ($553,941) and $485,063 for the same periods,
respectively.
Net cash provided by (used in) investing activities was ($523,637) and
$120,961 in the three months ended March 31, 2000 and 1999, respectively. Net
cash used in investing activities included payments for acquired businesses and
assets, payments primarily for computers, manufacturing equipment and other
capital expenditures of $416,675 and $271,500 in these periods, respectively.
The increases in capital expenditures were due primarily to the increased
development of new production tooling and new computer equipment purchases.
Net cash provided by (used in) financing activities was $4,470,706 and
($1,459,802) in the three months ended March 31, 2000 and 1999, respectively.
During the three months ended March 31, 2000 and 1999 net borrowings
(repayments) were $4,920,709 and ($1,459,802), respectively. The increase in net
borrowings was due primarily to increased inventory levels in anticipation of
the upcoming spring sales season.
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, 2000, the Company had $435,867 of cash available for
its cash needs, compared to cash of $733,530 as of December 31, 1999.
On April 14, 1999, the Company negotiated new financing agreements with
PNC Business Credit. Under the terms of the new financing agreement, PNC
Business Credit has issued separate financing agreements for PTI and Flents.
Each company now has a line of credit collateralized by such company's
inventory, receivables and other assets, and guaranteed by the Company as well
as a separate term loan. PTI has available on its line of credit up to
$22,000,000, and has a term loan of $3,000,000; Flents has available on its line
of credit up to $6,000,000 and a term loan of $4,000,000. Each term loan is for
three years and bears interest of the bank's base rate plus .75%. The lines of
credit for each bear interest at the bank's base rate plus .25%. At the closing
of these financing agreements, the balance owed to Key Bank, pursuant to the
line of credit with Key Bank, was fully repaid and the Karlen asset acquisition
was completed. At March 31, 2000, the balances of the lines of credit were
$12,430,512 (PTI) and $3,057,215 (Flents), and the term loan balance was
$5,199,988. The availability on the lines of credit, based on accounts
receivable and inventory balances at March 31, 2000 were approximately
$16,000,000 and $4,000,000 for PTI and Flents, respectively.
Flents also entered into, with a subordinated lender, a Securities
Purchase Agreement by which the lender advanced $8,000,000 to Flents and
acquired (1) detachable warrants (the "Flents warrants") exercisable to purchase
22 shares of common stock of Flents, par value $.01 per share, which would
constitute upon exercise 22% of the issued and outstanding common stock of
Flents on a diluted basis, and (2) an $8,000,000 promissory note with an
interest rate of 12%. The Flents warrants are exercisable for a nominal purchase
price until April 14, 2009. The promissory note is payable interest only for six
years and is due in full at maturity in six years.
Based on the Company's business, management anticipates that current
cash balances, together with the Company's line of credit and cash flow
generated from operations, would be sufficient to continue to fund existing
production, equipment requirements, marketing activities and research and
development, as well as the remainder 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 $233,000, $54,000 and $47,000 for the quarters ended March 31,
2000, 1999 and 1998, respectively. It is expected that the Company will spend
approximately $400,000 on research and development during the 2000 year.
Introduction of the Euro
On January 1, 1999, eleven of the fifteen member countries of the
European Union established fixed conversion rates between their existing
sovereign currencies and a new currency called the "Euro". These countries
agreed to adopt the Euro as their common legal currency on that date. The Euro
trades on currency exchanges and is available for non-cash transactions. Until
January 2, 2002, the existing sovereign currencies will remain legal tender in
these countries. On January 1, 2002, the Euro is scheduled to replace the
sovereign legal currencies of these countries. The Company will evaluate the
impact the implementation that the Euro will have on its business operations,
and no assurance can be given that the implementation of the Euro will not have
a material affect on the Company's business, financial position and results of
operational, and operations, and cash flows. In addition, the Company cannot
accurately predict the impact the Euro will have on currency exchange rates or
the Company's currency exchange risk.
Recently Issued Accounting Standards
In June 1999, the Financial Accounting Standards Board ("FASB") issued
SFAS No.137, Accounting for Derivative Instruments and Hedging Activities
Deferral of the Effective Date of FASB Statement No. 133. The Statement defers
for one year the effective date of SFAS No. 133, Accounting Derivative
Instruments and Hedging Activities, which was issued in June 1998 and
established accounting and reporting standards requiring that every derivative
instrument, including certain derivative instruments embedded in other
contracts, be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133 also requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. SFAS No. 133 will now apply to all fiscal
quarters of all fiscal years beginning after June 2000. Management believes that
the implementation of SFAS No. 133 during the third quarter of year 2000 will
not have a material impact on the Company's results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial Statements.
SAB No. 101 provides guidance on the recognition, presentation and disclosure of
revenue in financial statements. The Company has reviewed the bulletin and
believes that its current revenue recognition policy is consistent with the
guidance provided in SAB No. 101.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Market Risks and Sensitivity Analysis
The Company is exposed to various market risks, including changes in interest
rates. The following analysis presents the hypothetical loss in earnings, cash
flows and fair values of the financial instruments which were held by the
Company at March 31, 2000, and are sensitive to the above market risks.
Interest Rate Risks
At March 31, 2000, the Company had financial assets totaling $15.8 million and
financial liabilities totaling $35.6 million. For fixed rate financial
instruments, interest rate changes affect the fair market value but do not
impact earnings or cash flows. Conversely, for variable rate financial
instruments, interest rate changes generally do not affect the fair market value
but do impact future earnings and cash flows, assuming other factors are held
constant.
At March 31, 2000, the Company had fixed rate financial assets of $15.8 million.
Holding other variables constant, a ten percent increase in interest rates would
increase the unrealized fair value of the fixed financial assets by
approximately $1.2 million.
At March 31, 2000, the Company had fixed rate debt of $14.9 million and variable
rate debt of $20.7 million. A ten percent decrease in interest rates would
increase the unrealized fair value of the fixed rate debt by approximately $2.3
million.
The net decrease in earnings for the next year resulting from a ten percent
interest rate increase would be approximately $1.6 million, holding other
variables constant.
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.
Certain product liability claims and actions are pending against the
Company. While the outcome of such claims cannot be determined, it appears the
Company's product liability insurance is adequate to cover any losses that may
arise from such claims.
ITEM 4. Submission of Matters to a Vote of Security-Holders.
No matter was submitted during the first quarter of the Company's 2000
fiscal year to a vote of security-holders.
ITEM 6. Exhibits 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
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 Non competition 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 Non-competition 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
10.10 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
10.13 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.
`
10.14 Asset Purchase Agreement dated January 8,
1999, by and among Flents Products Co.,Inc.,
Karlen Manufacturing, Inc., incorporated by
reference to exhibit number 1 in the
Registrant's Current Report in Form 8-K
dated April 14, 1999 under the Securities
Exchange Act of 1934, as amended.
10.15 Purchase Money Promissory Note made payable
to Karlen Manufacturing, Inc.dated April 14,
1999. Incorporated by reference to exhibit
number 2 in the Registrant's Current Report
in Form 8-K dated April 14, 1999 under the
Securities Exchange Act of 1934, as amended.
10.16 Revolving Credit, Term Loan and Security
Agreement dated April 14, 1999 between
Flents Products Co., Inc., and PNC Bank,
National Association. Incorporated by
reference to exhibit number 3 in the
Registrant's Current Report in Form 8-K
dated April 14, 1999 under the Securities
Exchange Act of 1934, as amended.
10.17 Revolving Credit, Term Loan and Security
Agreement dated April 14, 1999 by and among
Protective Technologies International Inc.,
Zacko Sports Inc. and PNC Bank, National
Association. Incorporated by reference to
exhibit number 4 in the Registrant's Current
Report in Form 8-K dated April 14, 1999
under the Securities Exchange Act of 1934,
as amended.
10.18 Securities Purchase Agreement dated April
14, 1999 between Flents Products Co., Inc.
and The 1818 Mezzanine Fund, LP Incorporated
by reference to exhibit number 5 in the
Registrant's Current Report in Form 8-K
dated April 14, 1999 under the Securities
Exchange Act of 1934, as amended.
10.19 Investment Agreement dated April 14, 1999 by
and among Meredith Birrittella, Warren
Schaeffer, and Flents Products Co., Inc.
Incorporated by reference to exhibit number
6 in the Registrant's Current Report in Form
8-K dated April 14, 1999 under the
Securities Exchange Act of 1934, as amended.
10.20 Management Agreement dated April 14, 1999
between Flents Products Co., Inc. and
Protective Technologies International Inc.
Inc. Incorporated by reference to exhibit
number 7 in the Registrant's Current Report
in Form 8-K dated April 14, 1999 under the
Securities Exchange Act of 1934, as amended.
10.21 Shareholder's Agreement dated April 14, 1999
by and among Flents Products Co., Inc., PTI
Holding Inc., The 1818 Mezzanine Fund, L.P.,
Meredith Birrittella, and Warren Scheaffer.
Incorporated by reference to exhibit number
8 in the Registrant's Current Report in Form
8-K dated April 14, 1999 under the
Securities Exchange Act of 1934, as amended.
10.22 Fairness Opinion rendered by Management
Planning, Inc. dated April 13, 1999.
Incorporated by reference to exhibit number
9 in the Registrant's Current Report in Form
8-K dated April 14, 1999 under the
Securities Exchange Act of 1934, as amended.
10.23 Consent of Management Planning, Inc.
Incorporated by reference to exhibit number
10 in the Registrant's Current Report in
Form 8-K dated April 14, 1999 under the
Securities Exchange Act of 1934, as amended
(b) Reports on Form 8-K
The Company did not file any Current Report on Form 8-K during the quarter ended
March 31, 2000.
<PAGE>
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
report has been signed by the following persons in the capacities and on the
dates stated.
Chief Executive Officer, May 15, 2000
Meredith W. Birrittella Chairman and Director
Chief Financial Officer May 15, 2000
Anthony Costanzo Chief Accounting Officer
<PAGE>
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
report has been signed by the following persons in the capacities and on the
dates stated.
/s/ Meredith W. Birrittella Chief Executive Officer, May 15, 2000
- ----------------------------
Meredith W. Birrittella Chairman and Director
/s/ Anthony Costanzo Chief Financial Officer May 15, 2000
- -----------------------------
Anthony Costanzo Chief Accounting Officer
<PAGE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
ASSETS
March 31, 2000 December 31, 1999
----------------- ------------------
(unaudited) (audited)
Current assets:
Cash and cash equivalents $ 435,867 $ 733,530
Accounts receivable, net of allowance for returns and doubtful
collections of $863,609 (March 31, 2000) and $515,881 (December 31, 1999) 14,472,315 10,599,417
Inventories 17,373,608 12,959,906
Deferred tax asset 322,000 322,000
Prepaid expenses and other current assets 1,607,703 2,270,274
----------------- ---------------
Total current assets 34,211,493 26,885,127
Deferred tax asset 90,000 90,000
Equipment and improvements, net 3,259,966 3,226,447
Intangible assets, net 19,702,359 19,871,196
Other Assets 605,210 662,265
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$ 57,869,028 $ 50,735,035
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Loan payable, bank $ 15,487,727 $ 10,567,018
Current portion of Long term debt 1,800,000 1,800,000
Accounts payable and accrued expenses 7,898,353 4,784,498
------------------ ----------------
Total current liabilities 25,186,080 17,151,516
Long Term debt, net of current portion 4,399,988 4,849,991
Subordinated note payable 6,011,757 5,954,841
Commitments and contingencies
Minority interest in Subsidiary 4,076,214 4,029,761
Stockholders' equity:
Common stock, $.01 par value; authorized 10,000,000 shares, issued
and outstanding 4,956,352 shares 49,564 49,564
Note receivable (54,822) (54,822)
Capital in excess of par 16,283,217 16,283,217
Retained earnings 1,917,030 2,470,967
----------------- ---------------
Total stockholders' equity 18,194,989 18,748,926
----------------- ---------------
$ 57,869,028 $ 50,735,035
================= ===============
</TABLE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<S> <C> <C>
THREE MONTHS ENDED MARCH 31,
2000 1999
----------------- ------------------
Net sales $ 15,743,723 $ 16,120,849
Cost of sales 11,006,533 11,511,592
------------------ ------------------
Gross profit 4,737,190 4,609,257
------------------ ------------------
Operating expenses :
Licensing fees 560,647 478,701
Depreciation and amortization 454,964 431,025
Other selling, general and administrative expenses 3,892,358 2,598,643
------------------ ------------------
Total operating expenses 4,907,969 3,508,369
------------------ ------------------
Income (loss) from operations (170,779) 1,100,888
Interest expense, net 704,202 264,572
------------------ -------------------
Income (loss) before income taxes (874,981) 836,316
Income taxes (benefit) (367,493) 351,253
------------------ -------------------
Income (loss) before minority interest (507,488) 485,063
------------------ -------------------
Minority interest (46,453) -
------------------ -------------------
Net income (loss) $ (553,941) $ 485,063
================== ===================
</TABLE>
<TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<S> <C> <C>
2000 1999
---------------- ----------------
Cash flows from operating activities:
Net income (loss) $ (553,941) $ 485,063
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Minority interest in income of subsidiary 46,453
Provision for returns and doubtful accounts 347,728 -
Depreciation 393,915 390,135
Amortization of intangible assets 232,944 40,889
Amortization of OID on Subordinated note payable 56,916 -
Deferred income tax (benefit) - 10,300
(Increase) decrease in operating assets:
Accounts receivable (4,220,626) (3,506,919)
Inventories (4,413,702) 2,619,909
Prepaid expenses and other current assets - -
Other assets 762,481 (362,497)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 3,113,859 2,278,323
Other current liabilities - -
---------------- ----------------
Net cash (used in) provided by operating activities (4,233,974) 1,955,203
---------------- ----------------
Cash flows from investing activities:
Cash payments as consideration for purchase of acquired product line (7,052) -
Loan to stockholders (99,910) 392,461
Purchase of equipment and improvements (427,434) (271,500)
---------------- ----------------
Net cash (used in) provided by investing activities (534,395) 120,961
---------------- ----------------
Cash flows from financing activities:
Payments of other current liabilities - -
Repayment of long term Financing (450,003) -
Borrowings, net 4,920,709 (1,459,802)
---------------- ----------------
Net cash provided by (used in) financing activities 4,470,706 (1,459,802)
---------------- ----------------
Net increase (decrease) in cash and cash equivalents (297,663) 616,362
Cash and cash equivalents, beginning of period 733,530 837,618
---------------- ----------------
Cash and cash equivalents, end of period $ 435,867 $ 1,453,980
================ ================
Supplemental disclosures:
Interest paid $ 734,414 $ 292,614
</TABLE>
PTI HOLDING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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-K for the year ended
December 31, 1999 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, 2000 and the
results of its operations and its cash flows for the three months ended
March 31, 2000. The results of operations for an interim period are not
necessarily indicative of the results to be attained in any other fiscal
period.
Reclassification:
For comparability, certain 1999 amounts have been reclassified where
appropriate to conform to the financial statement presentation used in
2000.
2. 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.
In 1999, certain product liability claims were asserted against the
Company. While the outcome of such claims cannot be determined, it
appears the Company's product liability insurance is adequate to cover
any losses that may arise from such claims.
3. Segment Information:
The Company has two reportable segments: PTI Sports and Flents. PTI
Sports and Flents have separate management teams and infrastructures
that offer different products.
The PTI Sports segment designs, manufactures and distributes bicycle
helmets, bicycles and bicycle accessories for sale, principally to major
retailers in the United States and Canada.
The Flents segment designs, manufactures and markets earplugs and other
safety and medical supplies such as an eye drop delivery system, styptic
devices, and air filter masks. Customers include major department
stores, drug chains and supermarket retailers in the United States.
The accounting policies of the segments are the same as those described
in the summary of the significant accounting policies. The Company
evaluates performance based on operating earnings of the respective
segments. Inter-segment sales are not significant. Inter-segment charges
for production, SG&A, and interest costs are determined on a pro rata
basis.
Two major retail chains accounted for approximately 37% and 19% of net
sales for the three months ended March 31, 2000. The same two retailer
accounted for approximately 43% and 27% of net sales for the same period
in 1999 and 35% and 30% for the same period in 1998. As of March 31,
2000, accounts receivable included approximately $5,846,000 and
$3,165,000 respectively, due from these two customers. The PTI sports
segment reports the sales of the larger of the two major customers, and
both segments report the sales of the second major customer. 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.
The following table presents segment information for the three months
ended March 31, 2000, 1999 and 1998.
<TABLE>
<S> <C> <C> <C> <C>
2000 PTI Sports Flents Other Total
-------- --------------- ---------- ---------- -------------
Net sales 10,421,000 5,323,000 - 15,744,000
Gross profit 2,409,000 2,328,000 - 4,737,000
Operating earnings (loss) (858,000) 694,000 (7,000) (171,000)
Depreciation and amortization 165,000 290,000 - 455,000
Interest revenue 18,000 5,000 1,000 24,000
Interest expense 229,000 499,000 - 728,000
Income tax expense (benefit) (448,000) 84,000 (3,000) (367,000)
Total assets 29,716,000 27,068,000 1,085,000 57,869,000
Capital expenditures 357,000 70,000 - 427,000
1999 PTI Sports Flents Other Total
------------ --------------- ----------- -------- -----------
Net sales 13,846,000 2,275,000 - 16,121,000
Gross profit 3,583,000 1,026,000 - 4,609,000
Operating earnings 907,000 220,000 (26,000) 1,101,000
Depreciation and amortization 325,000 106,000 - 431,000
Interest revenue 24,000 2,000 1,000 27,000
Interest expense 198,000 94,000 - 292,000
Income tax expense (benefit) 308,000 54,000 (11,000) 351,000
Total assets 30,979,000 8,160,000 562,000 39,701,000
Capital expenditures 254,000 17,000 - 271,000
</TABLE>
First quarter financial information relating to the Company's operations
by geographic area is presented below.
Net sales 2000 1999
------------ ----------- ------------
United States $ 15,174,000 $ 15,448,000
Canada 520,000 623,000
Other 50,000 50,000
----------------- --------------
$ 15,744,000 $ 16,121,000
================= ==============
Significantly all of the Company's long-lived assets are located in the
United States.
4. Subsequent events:
In April 2000, the Company entered into a 65 month lease for a warehousing and
distribution facility. The lease calls for minimum monthly rentals of $16,000
per month for the fist 5 months and $72,054 per month thereafter through August
31, 2005.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 435,867
<SECURITIES> 0
<RECEIVABLES> 15,335,924
<ALLOWANCES> 863,609
<INVENTORY> 17,373,608
<CURRENT-ASSETS> 34,211,493
<PP&E> 7,867,568
<DEPRECIATION> 4,607,602
<TOTAL-ASSETS> 57,869,028
<CURRENT-LIABILITIES> 25,186,080
<BONDS> 0
0
0
<COMMON> 49,564
<OTHER-SE> 18,145,425
<TOTAL-LIABILITY-AND-EQUITY> 57,869,028
<SALES> 15,743,723
<TOTAL-REVENUES> 15,743,723
<CGS> 11,006,533
<TOTAL-COSTS> 11,006,533
<OTHER-EXPENSES> 4,907,969
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 704,202
<INCOME-PRETAX> (874,981)
<INCOME-TAX> (367,493)
<INCOME-CONTINUING> (170,779)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (553,941)
<EPS-BASIC> (.11)
<EPS-DILUTED> (.11)
</TABLE>
