<PAGE> 1
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 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996] FOR THE FISCAL
YEAR ENDED DECEMBER 31, 1996
( ) Transaction 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 0-26150
MILEMARKER INTERNATIONAL, INC.
- -------------------------------------------------------------------------------
(Exact Name Of Small Business Registrant As Specified In Its Charter)
New York 11-2128469
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(State or other jurisdiction IRS Employer Identification
of incorporation or organization) Number
1450 S.W. 13th Court, Pompano Beach, Florida 33069
--------------------------------------------------
(Address of principal executive offices)
Registrant's Telephone Number: (954) 782-0604
--------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Indicate by check mark whether the Registrant (1) has filed all documents and
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months (or 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. Yes X No
--- ---
Indicate by check mark if no disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is 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 From 10-KSB. [ ]
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State Registrant's revenues for its most recent fiscal year: $3,754,679
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 March 28, 1997: $610,545.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of the Registrant's sole class of Common Stock
as of March 28, 1997, was 9,984,357 shares.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
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MILEMARKER INTERNATIONAL, INC.
REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
Page
<S> <C> <C>
Item 1. Description of the Business .................................. 4
Item 2. Description of Properties .................................... 6
Item 3. Legal Proceedings ............................................ 7
Item 4. Submission of Matters to Vote of Security Holders ............ 7
PART II
Item 5. Market for Common Equity and related Shareholder Matters ..... 7
Item 6. Management's Discussion and Analysis ......................... 9
Item 7. Financial Statements ......................................... 11
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ..................................... 11
PART III
Item 9. Directors and Executive Officers ............................. 12
Item 10. Executive Compensation ....................................... 12
Item 11. Security Ownership of Certain Beneficial Owners and Management 13
Item 12. Certain Relationships and Related Transactions ............... 14
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K ...................... 14
Signatures ............................................................... 16
</TABLE>
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ITEM 1. DESCRIPTION OF THE BUSINESS
FORM, ORGANIZATION AND CHANGES
MileMarker International, Inc. (the "Company"), was organized as a New York
corporation on August 15, 1960, under the name Nylo-Thane Plastics, Inc. On
January 19, 1982, the Company's name was changed to Olan Laboratories
International, Inc., and on December 28, 1993, the Company's name was changed to
MileMarker International, Inc. From January 9, 1982 to December 28, 1993, the
Company conducted business operations through a wholly-owned subsidiary, Olan
Laboratories, Inc.
On December 12, 1993, the Company entered into an Exchange of Stock Agreement
and Plan of Reorganization (the "Reorganization Agreement") with MileMarker,
Inc., a Florida corporation ("MileMarker"). Pursuant to the Reorganization
Agreement, which was completed and closed on December 28, 1993, (i) the
Company's common stock was reverse split on a one share for ten shares basis;
(ii) the par value of each share of common stock was changed from $.01 to $.001;
(iii) Olan Laboratories International, Inc. changed its name to MileMarker
International, Inc.; and (iv) 7,000,000 post-reverse-split shares of the
Company's common stock were exchanged for all of the outstanding common shares
of MileMarker common stock, so that the shareholders of MileMarker became the
controlling shareholders of the Company, and MileMarker became a wholly-owned
subsidiary of the Company. Concurrently with the closing of the Reorganization
Agreement, the Company sold its Olan Laboratories Inc. subsidiary to the
Company's former president in payment of $15,000.
The Company, through its MileMarker subsidiary, is a manufacturer and
distributor of specialized automobile parts for the 4-wheel drive
utility/recreational/military vehicle markets. MileMarker and a predecessor
company have been in business for over 16 years under the management of
MileMarker's founder, Chairman and Chief Executive Officer Richard E. Aho, who
is also the Chairman and Chief Executive Officer of the Company. The Company is
one of three nationally recognized suppliers of wheel locking hubs. MileMarker's
unique patented line of hydraulic winches use a vehicle's power steering pump as
its source of energy. MileMarker also markets its patented four-wheel Selectric
Drive coupling device.
PRINCIPAL PRODUCTS
HUBS
MileMarker is a manufacturer, assembler and distributor of specialized auto
parts for the four-wheel drive recreational vehicle market. Hub products have
been marketed under the "MileMarker" trade name since 1980. MileMarker's hub
products include a patented locking wheel hub for four-wheel vehicles which
locks
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a four-wheel drive vehicle's front axles to insure four-wheel drive, conversion
kits and accessories. In addition to its own patented hubs, MileMarker has
bought the rights to the well known line of Selectro@ wheel hubs for trucks.
MileMarker's hubs are manufactured by its subcontractors in Taiwan and assembled
as necessary in Pompano Beach, Florida. The Company sells a full line of locking
wheel hubs, conversion kits and other related accessory items.
HYDRAULIC WINCHES
In November of 1994, MileMarker introduced a new patented (pending) line of
vehicle mounted hydraulic winch kits which utilize the vehicle's power steering
pump as their energy source. This unique hydraulic winch was designed for the
recreational /utility vehicle two and four wheel drive market, but has also
found strong acceptance from commercial utilities and the military. A two-speed
version of this hydraulic winch is being manufactured for sale in early1997.
MileMarker's hydraulic winch kits are very competitively priced against electric
winches and have capabilities not found in electric winches, such as multiple
safety features, durability, and continuous and silent operation. MileMarker
distributes its hydraulic winch product line via an extensive wholesaler supply
network in North America and worldwide that includes over 70,000 jobbers, 780
retail stores, 100 warehouses and millions of catalogues.
SELECTRIC DRIVES
MileMarker's newest product line is a patented Selectric Drive Fluid Coupling
with only four moving parts. A four-wheel vehicle's drive requires some slippage
to be engineered into the drive train to cope with adverse mechanical forces so
that excessive wear and vibration will not cause dangerous handling problems and
excessive fuel consumption. Generally, this slippage factor is met through
complicated and expensive viscous couplers installed in a special transfer case.
These couplers are similar in design and extremely difficult to service. Most
couplers have up to 100 moving parts and use a series of friction plates in
liquid to transfer power to the front wheels. The Company's management believes
that MileMarker's Selectric Drive represents a major breakthrough in power
transfer design.
MANUFACTURING
Neither the Company nor its MileMarker subsidiary manufactures its own products.
Product components are sourced on a price and quality basis in the United States
and Asia. Each component is manufactured pursuant to a separate purchase order
on negotiated terms, which may vary with each purchase order based on general
market conditions, availability of manufacturing capacity and the Company's time
requirements. The Company is not dependent upon any manufacturer and would not
be adversely affected if it were unable to continue business with any of its
existing manufacturers.
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COMPETITION
The Company's primary competitors in the hub and winch markets are Warn
Industries, Milwaukee, Oregon; Ramsey, Inc., Tulsa Oklahoma; and Superwinch,
Inc., Putnam, Connecticut.
MileMarker's two major hub competitors are Warn and AVM in Brazil, whose hubs
are distributed in the U.S. by Superwinch. Warn is the Company's largest direct
competitor, with several proprietary products competing against the Company's
products, plus a long history of both OEM and aftermarket sales. Warn's market
emphasis seems to be on the recreational automotive aftermarket and automotive
OEM parts sales.
MileMarker's major winch competitors are Warn, Ramsey and Superwinch - none of
which currently has a hydraulic winch designed around a power steering pump
comparable to MileMarker's. Ramsey is the Company's second largest competitor in
the winch market, and the Company makes private label hubs for Ramsey. Ramsey's
market emphasis seems to be on industrial applications. Superwinch, Inc. is
considered by the Company to be an indirect competitor which concentrates on
mass markets and markets smaller, low-cost winches.
MANAGEMENT AND PERSONNEL
The Company's employees include the President/Chief Executive Officer, the
Secretary/ Treasurer and two Sales and Marketing Vice Presidents. The Company
has seventeen employees, thirteen of whom are employed at the Company's Pompano
Beach, Florida, office. The Company also uses leased employees and independent
sales representatives to supplement its salaried and hourly employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 9,200 square feet of warehouse space and
administrative offices in Pompano Beach, Florida under long-term leases thru
June 1998 at a monthly rent of $5,671, and rents approximately 400 square feet
of warehouse space in Kalama, Washington on a month-to-month basis from the
sister of the Company's Chairman at a monthly cost of $475. See "Certain
Relationships and Related Transactions." MileMarker owns no manufacturing
facilities.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is a party to business disputes arising in the
normal course of its business operations. The Company's management believes that
none of these actions, standing alone, or in the aggregate, are currently
material to the Company's operations or finances.
The Company is a party in a dispute being arbitrated by the American Arbitration
Association: MileMarker v. Gale A. Kronberger v. MileMarker, Case No.
77-133-0198-96. On May 8, 1996, Gale Kronberger filed a complaint against the
Company's subsidiary, MileMarker, Inc., in the First Judicial District Court of
Wyoming alleging a breach of certain royalty and confidentiality agreements and
demanding an accounting, an injunction and damages of approximately $48,000. On
May 31, 1996, the Company filed a complaint against Gale Kronberger in the
Seventeenth Judicial Circuit Court in Broward County, Florida, for an order
compelling arbitration. The Company's suit was abated on July 31, 1996, and
Kronberger's suit was stayed on August 28, 1996 pending resolution via
arbitration. The arbitration hearing is set for May 7, 1997 in Denver, Colorado.
The Company believes that it has meritorious defenses against the action and
intends to defend itself vigorously. The potential outcome of this matter cannot
be determined at this time, and the accompanying financial statements do not
reflect any adjustments that may result from this uncertainty.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders through the solicitation
of proxies or otherwise during the fourth quarter of the fiscal year ended
December 31, 1996.
Proxies are currently being solicited in connection with the Company's Annual
Stockholders Meeting on April 24, 1997 to increase the number of the Company's
authorized common shares to 20,000,000 shares, to elect two directors and to
appoint the Company's independent public accountants for the 1997 fiscal year.
PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the NASD OTC Bulletin Board under the
symbol MMKR. There is no active trading market for the Company's common stock.
The National Quotation Bureau, Inc. has advised the company that the following
bid quotations have been reported for the period beginning January 1, 1995 and
ended December 31, 1996:
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<TABLE>
<CAPTION>
Bid Prices
-----------
High Low
---- ---
<S> <C> <C>
Quarter Ended March 31, 1995 3/8 1/16
Quarter Ended June 30, 1995 1/4 3/16
Quarter Ended September 30, 1995 3/8 3/16
Quarter Ended December 31, 1995 3/8 1/16
Quarter Ended March 31, 1996 7/32 1/32
Quarter Ended June 30, 1996 9/32 7/32
Quarter Ended September 30, 1996 1/4 3/16
Quarter Ended December 31, 1996 3/16 1/8
</TABLE>
Such quotations reflect inter-dealer prices, without retail markup, markdown or
commission. Such quotes are not necessarily representative of actual
transactions or of the value of the Company's securities, and are, in all
likelihood, not based upon any recognized criteria of securities valuation as
used in the investment banking community.
The Company has been advised that two member firms of the NASD are currently
acting as market makers for the Company's common stock. However, there are no
meaningful trading transactions currently for the Company's common stock. There
is no assurance that an active trading market will develop which will provide
liquidity for the Company's existing shareholders or for persons who may acquire
the Company's common stock through the exercise of warrants or options.
As of June 26, 1996, there were 982 holders of record of the Company's common
stock. Certain of the shares of the Company's common stock and warrants are held
in "street name" and may, therefore, be held by several beneficial owners.
As of December 31, 1996, there were 9,984,357 shares of the Company's common
stock issued and outstanding. Of those shares, 6,039,500 shares were
"restricted" securities of the Company within the meaning of Rule 144(a)(3)
promulgated under the Securities Act of 1933, as amended, because such shares
were issued and sold by the Company in private transactions not involving a
public offering. Unless offered pursuant to a registration statement, restricted
securities cannot be sold publicly for two years after their issuance on
December 28, 1993 and June 4, 1996, at which time they may be sold pursuant to
and subject to the volume and other limitations of SEC Rule 144.
On August 15, 1994, the Company completed the placement of 2,000,000 shares of
its common stock in a transaction under SEC Regulation D, Rule 504. Accordingly,
the shares issued in that placement may be freely traded under the Federal
securities laws, although their sale may be restricted by state blue sky laws.
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In connection with that placement of 2,000,000 shares of common stock, the
Company issued to its placement agent a warrant, exercisable for five years, to
purchase 150,000 shares of common stock of the Company at an exercise price of
$.60 per share. Pursuant to the warrant and a registration rights agreement
between the Company and the placement agent, the placement agent has demand
registration rights as to the shares underlying its warrant. The Company also
completed a private placement to a single individual on June 4, 1996 of 400,000
shares of its common stock at a price of $.50 per share.
The Company has not paid a cash dividend on the common stock since the
reorganization of December 28, 1993. It intends to retain its earnings, if any,
for use in its business. However, the payment of dividends may be made at the
discretion of the Board of Directors of the Company and will depend upon, among
other things, the Company's operations, its capital requirements and its overall
financial condition.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction with the
Financial Statements appearing elsewhere in this Registration Statement. The
information which follows includes results of the fiscal years ended December
31, 1996 and 1995.
RESULTS OF OPERATIONS
The following table summarizes the results of operations for the calendar years
indicated:
<TABLE>
<CAPTION>
1996 Amount % 1995 Amount %
---------------------- ----------------------
<S> <C> <C> <C> <C>
Sales $ 3,754,679 100.0 $ 2,432,210 100.0
Cost of Sales 2,337,310 62.3 1,587,224 65.3
----------- -----------
Gross Profit 1,417,369 37.7 844,986 34.7
Selling, General and
Administrative Expenses 1,468,908 39.1 1,082,352 44.5
----------- -----------
Loss from Operations (51,539) (1.4) (237,366) (9.9)
Other Income (Expense) 16,845 .4 (74,360) (3.0)
Interest Expense (104,394) (2.3) (71,368) (2.9)
----------- -----------
Loss Before Income Tax (139,088) (3.7) (383,094) (15.8)
Income Tax Benefit -- 28,703 1.2
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Net Loss (139,088) (3.7) (354,391) (14.6)
</TABLE>
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The Company's total sales increased by approximately 54% from 1995 to 1996, with
the major portion of the increase attributable to winch sales. Winch sales
increased from about $133,000 in 1995 to about $1,118,000 in 1996. Sale of hubs
and conversion kits also increased by approximately 18% from about $2,200,000 to
about $2,600,000. The Company's gross margins on its sales increased from about
35% in 1995 to about 38% in 1996 as the Company's management was able to reduce
unit purchase costs.
Selling, general and administrative expenses of the Company increased by about
34% in 1996 compared to 1995, with the majority of this increase due to
increased selling costs required to achieve market recognition for the Company's
unique hydraulic winch product. Excluding selling costs, the Company's general
and administrative expenses increased by approximately $153,000 from 1995 to
1996, or about 17%. Most of this increase in general and administrative expense
was attributable to higher staffing costs, professional fees and interest
expense. The improvement in Other Income (Expense) in 1996 is due to higher
royalties received compared to licensing costs paid and the forgiveness of
interest on a shareholder loan.
The Company's net loss for 1996 was $139,088 compared to a net loss of $354,391
in 1995, and is primarily due to several non-recurring marketing costs
associated with the introduction and promotion of the Company's hydraulic winch
product line. Loss per common share decreased to $.01 from $.04 in 1996 versus
1995 based on 9,792,049 average number of shares outstanding in 1996 compared to
9,534,357 in 1995.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of $997,419 as compared to
$795,539 at December 31, 1995, and a current ratio of 1.84 compared to 1.68. The
major reason for this improvement is the continued funding of the Company's
working capital through the issuance of additional common stock. During 1996,
the Company received a total of $300,000 from the issuance of 450,000 shares and
warrants and the conversion of debt. Cash used by the Company's operating
activities decreased from about $763,000 in 1995 to $130,000 in 1996. At
December 31, 1996, the Company had cash balances of $31,882 compared to $14,338
a year earlier.
During 1996, the Company increased its borrowings under its bank asset-based
line of credit from $685,413 to $809,884 and paid down principal balances of
notes payable by approximately $230,000. The Company's line of credit with a
bank was increased to $850,000 on September 26, 1996, and was subsequently
renewed and extended until March 31, 1997.
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In order to meet the Company's need for significantly increased working capital
to achieve its projected increased sales potential, the Company is negotiating
with another asset-based lender for a $1,700,000 credit facility consisting of a
two year term loan of $200,000 and a two year revolving line of credit of
$1,500,000 based on a commitment binding through March 31, 1997. Such credit
facility will include an interest rate of 3.5% above prime in addition to
certain banking fees and will require as collateral a security interest in all
of the Company's MileMarker, Inc. assets, including its accounts receivable and
inventory.
The Company had no material commitments for capital expenditures at December 31,
1996.
ITEM 7. FINANCIAL STATEMENTS
The following is an index to the Financial Statements of the Company being filed
herewith commencing at page F-1:
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants ......... F-1, F-2
Consolidated Balance Sheets - December 31, 1996
and December 31, 1995 .................................. F-3
Consolidated Statements of Operations - Years Ended
December 31, 1996 and 1995 .............................. F-4
Consolidated Statements of Shareholders' Equity - Years
Ended December 31, 1996 and 1995 ........................ F-5
Consolidated Statements of Cash Flows - Years Ended
December 31, 1996 and 1995 .............................. F-6, F-7
Notes to Consolidated Financial Statements ................ F-8
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On September 12, 1996, October 1, 1996 and October 24, 1996, the Company filed a
Report on Form 8K and two amendments thereto, which are incorporated herein by
reference, announcing the change in the Company's independent certified public
accountant from Frederick W. Smith, CPA to Spear, Safer, Harmon & Company,
Certified Public Accountants.
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PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of December 31, 1996, the Executive Officers and Directors of the Company
were as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard E. Aho 53 Chairman, President,
Chief Executive Officer,
Director
Leslie J. Aho 40 Vice President, Treasurer,
Secretary, Director
</TABLE>
Richard E.Aho formed MileMarker, Inc. in 1984 to produce and market a series of
new products in the automotive market. In 1980, Mr. Aho founded 4X4 Savings,
Inc., a predecessor of MileMarker, Inc., to sell a cost-saving product which was
designed for the 4-wheel drive segment of the automotive industry. From 1972 to
1980, he was the owner and operator of the Tire Place, Inc., Reinier, Oregon, an
active retailer of specialty tires and accessories. Mr. Aho became Chairman and
Chief Executive Officer of the Company on December 28, 1993.
Leslie J. Aho has supervised the operations of MileMarker, Inc. since its
inception and became Vice President, Secretary, Treasurer and a Director of the
Company on December 28, 1993. She is the executive officer responsible for the
Company's production planning, manufacturing and human resources management. Ms.
Aho is the wife of Richard Aho.
Each director of the Company will serve until the next annual meeting of
shareholders and until his or her successor is duly elected and qualifies. Each
officer will serve until the first meeting of the Board of Directors following
the next annual meeting of the shareholders and until his or her successor is
duly elected and qualifies.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely on a review of Forms 4 and 5 furnished to the Company and filed
with the Securities and Exchange Commission under Rule 16a-3(e) promulgated
under the Securities Exchange Act of 1934 with respect to 1995 and 1996, the
Company believes that Richard Aho and Leslie Aho did not file Form 5 for the
Company's 1995 fiscal year on a timely basis. Except as identified herein and
based solely on a review of its files concerning Rule 16a-3(e), the Company is
not aware that any other person was required to, but did not, comply with
Section 16(a)
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ITEM 10. EXECUTIVE COMPENSATION
The following table and notes present for the three years ended December 31,
1996, compensation paid by the Company to Richard E. Aho, its President and
Chief Executive Officer, who is the only executive officer whose total
compensation exceeded $100,000 in any of the years ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual
Fiscal Compensation
Name and Position Year - Salary
- ----------------------------------------------------------------
<S> <C> <C>
Richard E. Aho, President 1996 $112,750
Chief Executive Officer 1995 $129,250
1994 $143,000
</TABLE>
Mr. Aho has received no compensation from the Company other than his salary in
each of these years noted above. No director receives any additional
compensation for his or her services as a director. The Company has no option,
profit sharing or pension plan currently in effect. During 1996, the Company had
no written employment contract with any employee, nor did it have any
termination of employment or change-in-control arrangement with any employee.
The Company does not have a compensation committee. Compensation is determined
by the Board of Directors acting as a whole on the basis of the value of an
employee or a contracted service to the Company, compensation by other companies
of like size for comparable services and other factors specific to each
determination of compensation.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth information with respect to the beneficial ownership
of the Company's common stock by (i) each person who is known to the Company to
be the beneficial owner of more than five percent of the Company's common stock,
(ii) all directors and nominees, (iii) each executive officer, and (iv) all
directors and executive officers as a group. Unless otherwise indicated, the
Company believes that the beneficial owner has sole voting and investment power
over such shares. The Company does not believe that any shareholders act as a
"group", as that term is defined in Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended. As of December 31, 1996, the Company had issued and
outstanding 9,984,357 shares of common stock.
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<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of
Beneficial Owner Beneficially Owned Ownership
- ---------------- ------------------ ---------
<S> <C> <C>
Richard E. Aho (1) 2,525,000 25.29%
1350 S.W. 13th Court
Pompano Beach, FL 33069
Leslie J. Aho (1)(2) 2,525,000 25.29%
1350 S.W. 13th Court
Pompano Beach, FL 33069
All Executive Officers and 5,050,000 50.58%
Directors as a group (2 persons)
</TABLE>
- ------------------------
(1) Officer and Director
(2) Leslie J. Aho is the wife of Richard E. Aho
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In July of 1995, the Company borrowed $150,793 from Chairman and Chief Executive
Officer Richard E. Aho and $45,000 from his mother-in law to purchase hydraulic
winch inventory. These unsecured loans mature on December 31, 1998 and December
31, 1999, respectively, and both bear interest at an annual rate of 12% per
annum. During 1996, Richard E. Aho waived the 1996 interest on his loan in the
amount of $18,095.
The Company rents office and warehouse space in Kalama, Washington, from the
sister of Richard E. Aho for $475.00 on a month to month basis. The Company also
rents the use of a vehicle in Kalama, Washington for Company business purposes
from the brother-in law of Richard E. Aho for consideration of $376.00 per
month.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) EXHIBITS
The following exhibits designated with a footnote reference are incorporated
herein by reference to a prior registration statement or a periodic report filed
by the Registrant pursuant to Section 13 or 15(d) of the Exchange Act:
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<TABLE>
<CAPTION>
Number Description
- ------ -----------
<S> <C>
2.1 Articles of Incorporation, as amended
2.2 By-Laws of Milemarker International, Inc.
3.1 Form of Common Stock Certificate
3.2 Warrant dated July 30, 1994 issued to Pennsylvania Merchant
Group, Ltd.
3.3 Registration Agreement between the Company and Pennsylvania
Merchant Group, Ltd.
6.1 Exchange of Stock Agreement between the Company and Olan
Laboratories International, Inc. dated December 12, 1993
23.1 Consent of Frederick W. Smith, CPA
</TABLE>
(b) FORM 8-K
On September 12, 1996, October 1, 1996 and October 24, 1996, the Company filed a
Form 8K and two amendments thereto, which are incorporated herein by reference,
announcing the change in the Company's independent certified public accountant
from Frederick W. Smith, CPA to Spear, Safer, Harmon & Company, Certified Public
Accountants.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this Annual Report and any subsequent
amendments thereto to be signed on its behalf by the undersigned, thereunto duly
authorized.
MILEMARKER INTERNATIONAL, INC.
Dated: March 28, 1997 By: /s/ Richard E. Aho
-----------------------------------------
Richard E. Aho, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this Report has been
signed below by the following persons in their respective capacities with the
Registrant and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Titles Dates
---------- ------ -----
<S> <C> <C>
/s/ Richard E. Aho President, Chairman, March 28, 1997
- ------------------------------ Chief Executive Officer,
Richard E. Aho Chief Accounting Officer
and Director
/s/ Leslie J. Aho Vice President, Secretary, March 28, 1997
- ------------------------------ Treasurer and Director
Leslie J. Aho
</TABLE>
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[LETTERHEAD] SPEAR, SAFER, HARMON & CO., P.A.
Independent Auditors' Report
To the Board of Directors and Shareholders
MileMarker International Inc. and Subsidiary
Pompano Beach, Florida
We have audited the accompanying consolidated balance sheet of MileMarker
International, Inc. and Subsidiary as of December 31, 1996 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
the year then ended. These consolidated 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 consolidated 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 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 financial position of MileMarker
International, Inc. and Subsidiary as of December 31, 1996, and the results of
its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Spear, Safer, Harmon & Co.
- ------------------------------
Miami, Florida
February 18, 1997
F-1
<PAGE> 18
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
To the Board of Directors and
Stockholders of Mile Marker International, Inc.
I have audited the balance sheet of Mile Marker International, Inc and
subsidiary as of December 31, 1995 and December 31, 1994, and the related
statements of income, changes in stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I 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 preparation. I
believe that my audit provides a reasonable basis for my opinion.
In my opinion the financial statements referred to in the first
paragraph present fairly, in all material respects, the financial position of
Mile Marker International, Inc. as of December 31, 1995 and December 31, 1994,
and the results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Frederick W. Smith, CPA
- ---------------------------
Frederick W. Smith, CPA
Boca Raton, Florida
June 3, 1996
F-2
<PAGE> 19
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 31,882 $ 14,338
Accounts Receivable, net of allowance for doubtful
accounts of $7,000 in 1996 and $16,000 in 1995 548,056 378,945
Inventory 1,592,352 1,564,000
Other Receivables 3,555 7,257
Prepaid Expenses 8,758 3,378
--------------------------
Total Current Assets 2,184,603 1,967,918
PROPERTY AND EQUIPMENT, NET 155,474 219,433
OTHER ASSETS
Unamortized Patent Costs, net 88,126 83,115
Other Assets 26,293 50,396
--------------------------
Total Other Assets 114,419 133,511
--------------------------
TOTAL ASSETS $ 2,454,496 $ 2,320,862
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Bank Line of Credit $ 809,884 $ 685,413
Current Maturities Notes Payable 66,095 296,289
Accounts Payable 208,417 137,120
Accrued Liabilities 102,788 53,557
--------------------------
Total Current Liabilities 1,187,164 1,172,379
LONG-TERM NOTES PAYABLE
Notes Payable - Shareholders 195,793 195,059
Other Notes Payable 60,988 103,805
--------------------------
Total Long-Term Notes Payable 256,781 298,864
--------------------------
TOTAL LIABILITIES 1,443,965 1,471,243
==========================
SHAREHOLDERS' EQUITY
Common Stock, $.001 par value; 10,000,000 shares
authorized, 9,984,357 shares issued and outstanding
in 1996 and 9,784,354 issued in 1995 9,984 9,784
Paid-in Capital 1,381,865 1,107,065
Accumulated Deficit (381,318) (242,230)
--------------------------
1,010,531 874,619
Less Treasury Stock, at cost -- (25,000)
TOTAL SHAREHOLDERS' EQUITY 1,010,531 849,619
--------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 2,454,496 $ 2,320,862
==========================
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-3
<PAGE> 20
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------------------------
<S> <C> <C>
SALES $ 3,754,679 $ 2,432,210
COST OF SALES 2,337,310 1,587,224
---------------------------
GROSS PROFIT 1,417,369 844,986
SELLING EXPENSES 494,207 227,231
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and Wages 501,690 431,451
Professional Fees 130,933 62,361
Interest 104,394 71,368
Rent 78,683 100,311
Depreciation and Amortization 65,432 83,635
Insurance 29,957 20,813
Vehicle Expenses 39,668 37,170
Research & Development 15,783 7,875
Other 112,555 111,505
---------------------------
Total General and Administrative Expenses 1,079,095 926,489
---------------------------
Total Expenses 1,573,302 1,153,720
---------------------------
LOSS FROM OPERATIONS (155,933) (308,734)
OTHER INCOME (EXPENSE)
Forgiveness of Interest 18,045 --
Licensing Costs and Royalties (1,200) (74,360)
---------------------------
Total Other Income (Expense) 16,845 (74,360)
Loss before Provision for Income Taxes (139,088) (383,094)
Provision for Income Taxes (Benefit) -- (28,703)
--------------------------
NET LOSS $ (139,088) $ (354,391)
==========================
PER SHARE DATA:
Weighted average shares outstanding 9,792,049 9,534,357
LOSS PER COMMON SHARE $ (0.01) $ (0.04)
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-4
<PAGE> 21
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
RETAINED
TOTAL COMMON STOCK TREASURY PAID IN EARNINGS
EQUITY SHARES AMOUNT STOCK CAPITAL (DEFICIT)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1994 $ 1,204,010 9,784,354 $ 9,784 $ (25,000) $ 1,017,065 $ 112,161
Net loss for year 1995 (354,391) 0 0 0 0 (354,391)
--------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 849,619 9,784,354 9,784 (25,000) 1,107,065 (242,230)
Retirement of treasury shares 0 (250,000) (250) 25,000 (24,750) 0
Net loss for year 1996 (139,088) 0 0 0 0 (139,088)
Sale of new common stock 200,000 400,000 400 0 199,600 0
Conversion of debt into common
stock and warrant 100,000 50,000 50 0 99,950 0
--------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 $ 1,010,532 9,984,354 $ 9,984 $ 0 $ 1,381,865 $ (381,317)
======================================================================================
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-5
<PAGE> 22
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
-------------------------
<S> <C> <C>
OPERATING ACTIVITIES $(139,088) $(354,391)
Net loss
Adjustments to reconcile net loss to net cash
used by operating activities:
Gain on sale of capital equipment (2,250) --
Provision for doubtful accounts 5,042 --
Depreciation and amortization 65,432 83,635
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (174,153) (19,785)
Inventories (28,352) (458,358)
Prepaid expenses (5,380) 9,958
Other receivables 3,702 --
Other assets 24,103 (64,852)
(Decrease) increase in:
Accounts payable 71,297 37,438
Accrued liabilities 49,232 3,256
-------------------------
Net cash used by operating activities (130,415) (763,099)
INVESTING ACTIVITIES
Capital equipment acquisitions (28,773) (127,886)
Patent costs (12,041) --
Proceeds from sale of capital equipment 17,250 29,304
-------------------------
Net cash used in investing activities (23,564) (98,582)
FINANCING ACTIVITIES
Proceeds from sale of stock 200,000 --
Net borrowings under line of credit 124,171 213,765
Proceeds (repayment) of short-term vendor debt (230,194) 292,100
Proceeds from long-term debt 100,000 141,152
Proceeds from shareholder loans 734 195,059
Principal payments on long-term debt (23,488) (47,494)
Principal payments on capital leases -- (2,759)
-------------------------
Net cash provided by financing activities 171,523 791,823
Increase (decrease) in Cash 17,544 (69,856)
Cash at Beginning of Year 14,338 84,196
-------------------------
Cash at End of Year $ 31,882 $ 14,338
=========================
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-6
<PAGE> 23
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS CONT'D
YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest: $ 86,349 $70,808
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Disposal of capital equipment in full
satisfaction of debt $ 19,329 -
Conversion of note payable into common
stock and warrant $100,000 -
Retirement of treasury stock $ 25,000 -
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-7
<PAGE> 24
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The consolidated financial statements include the accounts of MileMarker
International, Inc. and its wholly-owned subsidiary, MileMarker, Inc. (the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
b. Organization and Business
MileMarker International, Inc., through its wholly-owned operating subsidiary,
MileMarker Inc., is a distributor of a line of hubs, which are components in
four-wheel drive automobile transmission systems, and an innovative line of
recreational hydraulic winches used by owners of light trucks, sport utility
vehicles and the military. The Company is one of three nationally-recognized
suppliers of "Wheel Locking Hubs" as well as other accessory items. The Company
also assembles and markets unique hydraulic winches which use a vehicles's power
steering pump as the energy source as well as a "Selectric Drive" full-time 4
wheel drive coupling device. The Company's customer base is located throughout
the United States and certain foreign countries.
c. Credit Risk
Financial instruments, which potentially subject the Company to concentrations
of credit risk, consist principally of cash and trade receivables. The Company
places its cash with high credit quality financial institutions. Concentrations
of credit risk with respect to trade receivables are reduced to the Company's
large number of customers and their dispersion across many different states and
worldwide. The Company conducts ongoing credit evaluations of its customers and
does not require collateral or other security from most customers.
d. Inventory
Inventories consist of merchandise purchased for resale and are valued at the
lower of cost (first-in, first-out basis) or market.
F-8
<PAGE> 25
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e. Property and Equipment
Property and equipment are stated at cost. The Company computes depreciation
using the straight-line method over the estimated useful lives of the assets,
usually five years. Expenditures for repairs and maintenance are charged to
operations as incurred, and additions and improvements that extend the lives of
the assets are capitalized.
f. Income Taxes
Deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of available evidence, it is more
likely than not that some portion or all of the deferred tax assets will not be
realized.
g. Earnings Per Share
Net income (loss) per common share is computed using the weighted average number
of common and dilutive common equivalent shares consisting of shares issued and
issuable upon exercise of stock options and warrants (using the treasury
method). In loss periods, dilutive common equivalent shares are excluded as the
effect would be anti-dilutive.
h. Use of Estimates
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 the 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 these estimates.
i. Reclassifications
Certain reclassifications have been made to the 1995 data previously reported to
conform to the presentation for 1996.
F - 9
<PAGE> 26
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORY
The Company's products are primarily manufactured overseas and arrive in the
United States substantially complete and require very little preparation for
distribution. At December 31, 1996 and December 31, 1995, approximately $64,000
and $56,000, respectively, of the Company's inventory was in transit to the
United States from overseas. Costs associated with preparing inventory for sale
are more appropriately classified as period costs rather than inventoriable
costs because the Company's management believes that its sales function more
closely resembles that of a distributor than of a manufacturer.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Leased property $ -0- $ 62,529
Molds, dies and tooling 633,052 604,923
Autos and trucks 48,417 129,945
Office equipment 52,414 44,385
--------- ---------
733,883 841,782
Less accumulated depreciation (578,409) (622,349)
--------- ---------
$ 155,474 $ 219,433
========= =========
</TABLE>
The leased property was fully amortized at December 31, 1995 and consequently
was written off during 1996.
4. OTHER ASSETS
Other assets at December 31, 1996 and December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Patents, net of amortization $ 88,126 $ 83,115
Rental security deposits 11,229 11,808
CSVI - officers' life insurance 15,064 4,826
Refundable income taxes -0- 33,762
-------- --------
$114,419 $133,511
======== ========
</TABLE>
F - 10
<PAGE> 27
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE
Notes payable at December 31, 1996 and December 31, 1995 consist of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Note payable - bank under revolving credit
agreement, interest at Prime plus 3.0%, secured
by accounts receivable and inventory $ 809,884 $ 663,765
Unsecured note payable in installments,
interest at 12%, with final
payment due July 1, 2000 52,500 68,750
Short-term notes due vendors, with an
average interest rate of 9% 42, 562 292,100
Notes payable to financial institutions at
various interest rates from 10.25% to
10.60%, secured by autos and trucks 32,021 60,892
--------- ----------
936,967 1,085,507
Less amounts due within one year (875,978) (981,702)
--------- ----------
Amount due after one year $ 60,988 $ 103,805
========= ==========
</TABLE>
During 1996, the Company renewed its revolving credit agreement with a bank,
increasing the maximum borrowings to $850,000 subject to adequate collateral
levels of inventory and accounts receivable and extending the expiration date to
March 31, 1997. The credit agreement contains certain affirmative, negative and
financial covenants which, among others, specify minimum net worth requirements
and maintenance of minimum interest coverage. The Company is in the process of
replacing the existing credit facility with a $1,700,000 credit facility from
another lender under the terms of a lending commitment valid through March 31,
1997 which includes interest of 3.5% over prime and other banking fees.
F-11
<PAGE> 28
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE (CONTINUED)
The aggregate maturities of notes payable at December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997 $875,978
1998 24,466
1999 25,061
2000 11,462
--------
$936,967
========
</TABLE>
6. LICENSING AGREEMENT
The Company is obligated under a licensing agreement with Warn Industries, Inc.
which grants the Company authority to utilize Warn's patents in the manufacture
of certain locking hubs. The agreement calls for quarterly payments of 4% of
sales on these hubs for a period of 10 years, with minimum payments of $325,000
and maximum payments of $600,000 during the life of the agreement. During 1996,
the Company met the minimum payment requirements of the agreement.
7. INCOME TAXES
The Company has net operating loss carryforwards of approximately $650,000 which
may provide future income tax benefits that expire through 2011. The deferred
tax asset at December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Net Operating Loss Carryforwards $ 247,000
Valuation Allowance (247,000)
---------
--
=========
</TABLE>
Since any tax benefit is dependent upon future taxable earnings, the Company has
not recognized such benefits for financial reporting purposes.
A reconciliation of income tax at the statutory rate to the Company's effective
tax rates for the year ended December 31, 1996 is as follows:
<TABLE>
<S> <C>
Federal income tax at statutory rate 34.0 %
Effect of state rate 3.6 %
Benefit of net operating loss carryforward (37.6)%
-----
Income tax expense -- %
=====
</TABLE>
F-12
<PAGE> 29
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK
On August 15, 1994, the company successfully completed a private placement of
its common stock. The Company sold 2,000,000 shares of common stock at $.50 per
share. The underwriter of the private placement was offered warrants to purchase
150,000 shares of the Company's common stock at a price of $.60 per share at any
time within five years of the closing date. The warrants, which were sold for
$150, are provided standard anti-dilution protection and are to be included in
any registration statement filed by the Company in the future. Other features of
this private placement are (1) the right of the underwriter to designate one
director to the Company's Board of Directors for a period of three years and (2)
the granting of a right of first refusal to the underwriter to act as managing
underwriter or placement agent for any and all public or private offerings of
the Company, or any successor to or subsidiary of the Company, for a period of
three years. No warrants were exercised during 1996.
In August 1994, the Company purchased 250,000 shares of its common stock
previously issued to a former promoter of the Company for the price of $25,000,
or $.10 per share. These shares were retired by the Company in February of 1996.
On June 30, 1996, the Company completed a private placement of 400,000 shares of
common stock at $.50 per share.
On December 31, 1996, the Company issued 50,000 shares of common stock and a
warrant for 250,000 additional fully-paid shares to be issued by March 31, 1997
for consideration of $100,000 face value of a note payable (approximately $.33
per share).
On December 31, 1996, the Company sold an option exercisable by March 31, 1997
for the purchase of 100,000 shares of common stock for consideration of $11,300
(approximately $.113 per share).
9. RELATED PARTY TRANSACTIONS
During 1995, the Chairman and a related party advanced funds to the Company
evidenced by two promissory notes in the amount of $150,793 and $45,000,
respectively. The notes bear interest at the rate of 12% per annum, are
subordinated to bank borrowings and are payable in full on December 31, 1998 and
December 31, 1999, respectively. During 1996, the Chairman waived approximately
$18,000 of interest that was accrued on this loan, which is included in Other
Income in the accompanying Statements of Operations.
F-13
<PAGE> 30
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
The Company's Kalama, Washington office and warehouse is situated in the home of
a relative of the Company's Chairman. The Company currently pays $475 per month
on a month-to-month basis for this space. Additionally, the Company rents the
use of a vehicle in Washington for Company purposes from the brother-in-law of
the Company's Chairman for $376 a month.
10. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its office and warehouse facilities under leases through
1998. Current monthly rent payments are $6,146, including $475 in month-to month
rents. Rent expense for the years ended December 31, 1996 and December 31, 1995
were $78,683 and $100,311, respectively. At December 31, 1996, the future
minimum lease payments are as follows:
<TABLE>
<S> <C>
1997 $68,052
1998 28,355
-------
$96,407
=======
</TABLE>
Legal
From time to time, the Company is a party to business disputes arising in the
normal course of its business operations. The Company's management believes that
none of these actions, standing alone, or in the aggregate, are currently
material to the Company's operations or finances.
The Company is a party in a dispute being arbitrated by the American Arbitration
Association: MileMarker v. Gale A. Kronberger v. MileMarker, Case No.
77-133-0198-96. On May 8, 1996, Gale Kronberger filed a complaint against the
Company's subsidiary, MileMarker, Inc., in the First Judicial District Court of
Wyoming alleging a breach of certain royalty and confidentiality agreements and
demanding an accounting, an injunction and damages of approximately $48,000. On
May 31, 1996, the Company filed a complaint against Gale Kronberger in the
Seventeenth Judicial Circuit Court in Broward County, Florida for an order
compelling arbitration. The Company's suit was abated on July 31, 1996, and
Kronberger's suit was stayed on August 28, 1996 pending resolution via
arbitration. The arbitration hearing is set for May 7, 1997 in Denver, Colorado.
The Company believes that it has meritorious defenses against the action and
intends to defend itself vigorously. The potential outcome of this matter cannot
be determined at this time, and the accompanying financial statements do not
reflect any adjustments that may result from this uncertainty
F-14
