<PAGE> 1
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended Commission file
September 30, 1997 Number 0-26150
MILEMARKER INTERNATIONAL, INC.
(Exact Name Of Small Business Registrant As Specified In Its Charter)
New York 11-2128469
- -------- ----------
(State or other (IRS Employer
jurisdiction of Identification
incorporation) Number)
1450 S.W. 13th Court, Pompano Beach, Florida 33069
--------------------------------------------------
(Address of principal executive offices)
Registrant's Telephone Number: (954) 782-0604
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 preceding 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
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
On September 30, 1997, the Registrant had outstanding 10,234,357 shares of
common stock, $.001 par value.
<PAGE> 2
MILEMARKER INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets, September 30, 1997 and
December 31, 1996.............................................. 3
Consolidated Statements of Operations, Three months ended
September 30, 1997 and September 30, 1996 .................... 4
Consolidated Statements of Operations, Nine months ended
September 30, 1997 and September 30, 1996 .................... 5
Consolidated Statements of Cash Flows, Nine months ended
September 30, 1997 and September 30, 1996 .................... 6
Notes to Condensed Consolidated Financial Statements .......... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 8-10
PART II OTHER INFORMATION
Item 1. Legal Proceedings....................................................... 10
Item 2. Changes in Securities................................................... 10
Item 3. Defaults Upon Senior Securities......................................... 10
Item 4. Submission of Matters to a Vote of Security Holders .................... 11
Item 5. Other Information....................................................... 11
Item 6. Exhibits and Reports on Form 8-K........................................ 11
SIGNATURES......................................................................... 12
</TABLE>
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<PAGE> 3
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
-------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $95,879 $31,882
Accounts Receivable, net of allowance for doubtful
accounts of $7,000 577,052 548,056
Inventory 1,910,034 1,592,352
Other Receivables 109,223 3,555
Prepaid Expenses 19,262 8,758
------------------------------------------
Total Current Assets 2,711,450 2,184,603
PROPERTY AND EQUIPMENT, NET 153,034 155,474
OTHER ASSETS
Deferred Financing Costs, net 93,708 -
Unamortized Patent Costs, net 88,180 88,126
Other 29,810 26,293
------------------------------------------
Total Other Assets 211,698 114,419
------------------------------------------
TOTAL ASSETS $3,076,182 $2,454,496
==========================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable - Line of Credit $1,144,511 $809,884
Current Maturities of Notes Payable 56,046 66,095
Accounts Payable 405,006 208,417
Accrued Liabilities 77,591 102,788
------------------------------------------
Total Current Liabilities 1,683,154 1,187,184
LONG-TERM NOTES PAYABLE
Notes Payable - Shareholders 149,043 195,793
Other Notes Payable 199,831 60,988
------------------------------------------
Total Long-Term Notes Payable 348,874 256,781
------------------------------------------
TOTAL LIABILITIES 2,032,028 1,443,965
==========================================
SHAREHOLDERS' EQUITY
Common Stock, $.001 par value; 20,000,000 shares
and 10,000,000 shares authorized in 1997 and 1996;
10,234,357 shares and 9,984,357 shares issued and
outstanding in 1997 and 1996, respectively. 10,234 9,984
Paid-in Capital 1,381,615 1,381,865
Accumulated Deficit (347,695) (381,318)
------------------------------------------
Total Shareholders' Equity 1,044,154 1,010,531
------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $3,076,182 $2,454,496
==========================================
</TABLE>
The accompanying Notes are an integral part of these financial statements.
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<PAGE> 4
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------
<S> <C> <C>
SALES $856,882 $844,174
COST OF SALES 528,328 500,050
-------------------------------------------
GROSS PROFIT 328,554 344,124
SELLING EXPENSES 93,022 128,713
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and Wages 74,385 95,960
Professional Fees 23,985 50,000
Interest 43,307 26,395
Rent 18,438 18,407
Depreciation and Amortization 29,832 15,612
Insurance 23,084 10,710
Vehicle Expenses 10,687 11,540
Research & Development 6,131 1,121
Other 34,673 16,883
-------------------------------------------
Total General and Administrative Expenses 264,522 246,628
-------------------------------------------
Total Expenses 357,544 375,341
-------------------------------------------
LOSS FROM OPERATIONS (28,990) (31,217)
OTHER INCOME (EXPENSE)
Royalty Income 17,165 28,379
Licensing Income 125,000 -
Licensing Costs (13,167) (15,523)
-------------------------------------------
Total Other Income (Expense) 128,998 12,856
Income (Loss) before Provision for Income Taxes 100,008 (18,361)
Provision for Income Taxes (Benefit) - -
-------------------------------------------
NET INCOME (LOSS) $100,008 ($18,361)
===========================================
PER SHARE DATA:
Weighted Average Shares Outstanding 10,171,857 9,934,357
INCOME (LOSS) PER COMMON SHARE $0.01 ($0.00)
</TABLE>
The accompanying Notes are an integral part of these financial statements.
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<PAGE> 5
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------
<S> <C> <C>
SALES $2,752,293 $2,844,312
COST OF SALES 1,697,052 1,771,320
-------------------------------------------
GROSS PROFIT 1,055,241 1,072,992
SELLING EXPENSES 258,782 373,755
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and Wages 332,539 379,694
Professional Fees 143,554 86,000
Interest 111,815 83,572
Rent 55,314 60,246
Depreciation and Amortization 80,721 55,192
Insurance 45,215 25,710
Vehicle Expenses 33,155 26,605
Research & Development 11,311 13,535
Other 78,006 104,760
-------------------------------------------
Total General and Administrative Expenses 891,630 835,314
-------------------------------------------
Total Expenses 1,150,412 1,209,069
-------------------------------------------
LOSS FROM OPERATIONS (95,171) (136,077)
OTHER INCOME (EXPENSE)
Royalty Income 47,122 58,379
Licensing Income 125,000 -
Licensing Costs (43,328) (45,523)
-------------------------------------------
Total Other Income (Expense) 128,794 12,856
-------------------------------------------
Income (Loss) before Provision for Income Taxes 33,623 (123,221)
Provision for Income Taxes (Benefit) - -
-------------------------------------------
Net Income (Loss) $33,623 ($123,221)
===========================================
PER SHARE DATA:
Weighted Average Shares Outstanding 10,059,357 9,744,356
Income (Loss) per Common Share $0.00 ($0.01)
</TABLE>
The accompanying Notes are an integral part of these financial statements.
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<PAGE> 6
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
UNAUDITED
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $33,623 ($123,221)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 80,721 55,192
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (28,996) (80,107)
Inventories (317,682) 24,630
Prepaid expenses (10,504) (19,476)
Other receivables (105,668) -
Other assets (3,571) (20,368)
(Decrease) increase in:
Accounts payable 196,589 184,678
Accrued liabilities (25,197) 36,348
-------------------------------------------
Net cash (used) provided by operating activities (180,685) 57,676
INVESTING ACTIVITIES
Capital equipment acquisitions (40,391) (12,213)
Patent costs (6,654) (10,383)
-------------------------------------------
Net cash used in investing activities (47,045) (22,596)
FINANCING ACTIVITIES
Proceeds from sale of common stock - 200,000
Proceeds from (repayment of) short term borrowing 334,627 (98,965)
Proceeds from long-term debt 200,000 -
Deferred financing costs (124,944) -
Repayment of shareholder loans (46,750) -
Principal payments on long-term debt (71,206) (144,495)
-------------------------------------------
Net cash provided (used) by financing activities 291,727 (43,460)
Increase in Cash 63,997 (8,380)
Cash at Beginning of Period 31,882 14,338
-------------------------------------------
Cash at End of Period $95,879 $5,958
===========================================
Supplementary Disclosure of Cash Flow Information:
Cash paid during the period for Interest $107,992 $35,797
</TABLE>
The accompanying Notes are an integral part of these financial statements.
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<PAGE> 7
MILEMARKER INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: BASIS OF PRESENTATION
The unaudited consolidated financial statements include the
accounts of MileMarker International, Inc. and its wholly-owned subsidiary,
MileMarker, Inc. (collectively "the Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements,
which are for interim periods, do not include all disclosures provided in the
annual consolidated finan-cial statements. These unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and the footnotes thereto contained in the Annual Report on
Form 10-KSB for the year ended December 31, 1996 of Mile-Marker International,
Inc., as filed with the Securities and Exchange Commission. The summary December
31, 1996 balance sheet was derived from audited consolidated financial
statements, but does not include all disclosures required by generally accepted
accounting principles at December 31, 1996.
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the financial statements.
The results for interim periods are not necessarily indicative of results to be
expected for the complete fiscal year.
Per share data was computed by dividing net income by the
weighted average number of shares outstanding during the period.
NOTE 2: RECLASSIFICATION
Certain amounts in prior periods have been reclassified for
comparative purposes.
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<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Financial Statements appearing elsewhere in this quarterly report on
Form 10-QSB.
RESULTS OF OPERATIONS
The following table summarizes the results of operations, stated as a
percentage of sales, for the nine months and three months ended September 30,
1997 and 1996:
<TABLE>
<CAPTION>
Nine Months Three Months
----------- ------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 61.7 62.3 61.7 59.2
------------------------------------------------
Gross Profit 38.3 37.7 38.3 40.8
Selling, General and
Administrative Expenses 37.7 39.6 36.7 41.3
------------------------------------------------
Income (Loss) from Operations .6 (1.9) 1.6 (.5)
Other Income 4.7 .5 15.1 1.5
Interest Expense 4.1 2.9 5.0 3.1
------------------------------------------------
Income (Loss) 1.2 (4.3) 11.6 (2.1)
</TABLE>
Sales of $2,752,293 for the nine months ended September 30, 1997, are
approximately 3% less than 1996 sales of $2,844,312 because 1996 sales included
the results of a one-time mail order campaign to generate recognition and sales
volume at reduced prices for winches. No such campaign was run in 1977. However,
sales for the three months ended September 30, 1997, are 1.5% more than the same
period in 1996, reflecting an improving trend.
The Company's product mix between winches and hubs/conversion kits
shifted during 1997 more towards winches, which accounted for approximately 39%
of sales in the September 1997 quarter compared to approximately 22% in the 1996
period. The gross margin declined by approximately 2% in the September 1997
quarter from the same period in 1996, reflecting the shifting product mix.
Selling costs decreased substantially in the first nine months of 1997 to
$258,782 from $373,755 - a reduction of about 30% when compared to the same
period in 1996. Different marketing methods were used in 1997 to sell the winch
product line; specifically, the Company expanded its distribution network to
sell its winches, while in 1996 mail order advertising was used extensively to
promote this product directly at the retail level.
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<PAGE> 9
General and administrative expenses for the nine months ended September
30, 1997 increased by $56,316, or about 7%, from $835,314 in 1996 to $891,630 in
1997. These expenses were $17,894, or about 9%, higher for the three months
ended September 30, 1997 from the comparable period in 1996. The most
significant increase in general and administrative expenses during the first
nine months of 1997 related primarily to professional fees. Approximately
$70,000 of non-recurring legal costs were incurred by the Company during 1997
for the successful defense of its Kronberger legal action (see "Legal
Proceedings"). Higher interest, loan amortization, insurance and vehicle
expenses in the first nine months of 1997 were offset by lower salary, rent,
research and other expenses. Relative to sales, the Company's general and
administrative costs decreased from about 43% of sales during the first nine
months of 1996 to about 42% in 1997. During the September 1997 quarter, Chairman
Richard E. Aho waived approximately $62,000, consisting of officer compensation
and interest on his shareholder loan.
The Company's losses from operations for the first nine months of 1997
decreased approximately 30% from $136,077 in 1996 to $95,171 in 1997, primarily
due to a substantial reduction in selling costs. During the three months ended
September 30, 1997, the Company's loss from operations was $28,990 compared to
$31,217 during the prior year's similar period. Other income and expense items
in the first nine months of 1997 were significantly higher due to $125,000 of
licensing income earned during the September 1997 quarter from an international
distributor of the Company's winches. This other income directly resulted in net
income of $100,008 for the quarter ended September 1997 and net income of
$33,623 for the first nine months of 1997, compared to net losses of $18,361 and
$123,221 for the same periods in 1996. The Company's earnings per share were
$0.01 for the nine months of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current assets increased by $526,847 to $2,711,450 at
September 30, 1997, compared to $2,184,603 at December 31, 1996. Most of this
increase is re-flected in a $317,682 higher level of inventory (primarily
winches) at September 30, 1997, compared to December 31, 1996. Receivables
increased by $134,664 for the same period. Net working capital increased by
$30,877 from $997,419 on December 31, 1996, to $1,028,296 on September 30, 1997.
However, the Company's current ratio decreased to 1.61 on September 30, 1997,
compared to 1.84 at December 31, 1996. Borrowings under the line of credit and
trade payables increased by $334,627 and $196,589, respectively from December
31, 1996 levels, and the Company received the proceeds of a $200,000 term loan
on March 31, 1997. Approximately $125,000 of these borrowings were used for
deferred financing costs.
The Company has no material commitments outstanding for major capital
expenditures during 1997.
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<PAGE> 10
The Company funds its operations principally through the collection of
its trade receivables, supplemented with asset-based borrowings. In order to
meet the Company's need for significantly increased working capital to achieve
its projected increased sales potential, the Company's bank line of credit was
replaced on March 31, 1997, with 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. This credit facility includes an interest rate of 3.5% above prime
in addition to substantial banking fees and requires as collateral a security
interest in all of the assets of MileMarker, Inc., including particularly its
inventory and accounts receivable.
PART II - OTHER INFORMATION
ITEM 1. 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,
currently are material to the Company's operations or finances.
On June 20, 1997, the American Arbitration Association issued a Final
Award to the Company in Case No. 77-133-0198-96, MileMarker, Inc. v. Gale A.
Kronberger in which the arbitrator ruled that "Kronberger is not entitled to
damages, including punitive damages, or other remedy from Milemarker."
ITEM 2 CHANGES IN SECURITIES
On April 24, 1997, the shareholders of the Company authorized an
increase in the number of common shares from 10,000,000 shares to 20,000,000
shares
On July 16, 1997, the Company issued 250,000 shares to an existing
shareholder pursuant to a warrant issued on December 31, 1996.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
The Company's credit agreement with its lender contains certain
affirmative, negative and financial covenants which, among others, specify
minimum net worth requirements, minimum earnings before interest, taxes,
depreciation and amortization, and the main-tenance of minimum interest
coverage. As of September 30, 1997, the Company was in technical default on
several of these ratios and has requested the lender's waiver and/or forbearance
for these events of default. The Company is not in default in the payment of
interest or principal.
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<PAGE> 11
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5 OTHER INFORMATION
None
ITEM 6 EXHIBITS AND REPORTS ON FORM 8K
27 Financial Data Schedule (for SEC use only.)
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<PAGE> 12
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, duly authorized.
MILEMARKER INTERNATIONAL, INC.
- ------------------------------
(Registrant)
11/3/97 /s/ Richard E. Aho
- ------------------------- -------------------------------
(Date) Richard E. Aho, President and
Principal Accounting Officer
11/3/97 /s/ Leslie J. Aho
- ------------------------- -------------------------------
(Date) Leslie J. Aho, Secretary/Treasurer
- 12 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 95,879
<SECURITIES> 0
<RECEIVABLES> 584,103
<ALLOWANCES> 7,051
<INVENTORY> 1,910,034
<CURRENT-ASSETS> 2,711,450
<PP&E> 774,327
<DEPRECIATION> 621,294
<TOTAL-ASSETS> 3,076,182
<CURRENT-LIABILITIES> 1,683,154
<BONDS> 348,874
0
0
<COMMON> 10,234
<OTHER-SE> 1,033,920
<TOTAL-LIABILITY-AND-EQUITY> 3,076,182
<SALES> 2,752,293
<TOTAL-REVENUES> 2,881,087
<CGS> 1,697,052
<TOTAL-COSTS> 1,955,834
<OTHER-EXPENSES> 779,815
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 111,815
<INCOME-PRETAX> 33,623
<INCOME-TAX> 0
<INCOME-CONTINUING> 33,623
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 33,623
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
