<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 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
( ) 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
- --------------------------------------------------------------------------------
(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.
[ ]
<PAGE> 2
State Registrant's revenues for its most recent fiscal year: $ 3,881,383
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 February 19, 1998: $ 648,044.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of the Registrant's sole class of Common Stock
as of February 19, 1998, was 10,284,354 shares.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
- 2 -
<PAGE> 3
MILEMARKER INTERNATIONAL, INC.
REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
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 ............................................................. 13
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 ............................................. 15
Signatures ..................................................................................... 16
</TABLE>
- 3 -
<PAGE> 4
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) Olan Laboratories International, Inc. changed its name to MileMarker
International, Inc.; and (iii) 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 17 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
- 4 -
<PAGE> 5
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 well known line of Selectro@ wheel hubs for trucks. MileMarker's hubs
are manu-factured 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. MileMarker distributes its
product lines via an extensive wholesaler supply network in North America and
worldwide that includes over 70,000 jobbers, 3000 retail stores, 100 warehouses
and millions of catalogues.
HYDRAULIC WINCHES
In 1994, MileMarker introduced a new patented 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 was manufactured for sale in 1997. MileMarker's hydraulic winch
kits are very competitively priced against electric winches and have proven
performance capabilities not found in electric winches, such as multiple safety
features, durability, and continuous, reliable and silent operation.
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.
- 5 -
<PAGE> 6
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 independent sales representatives
and independent contractors to supplement its salaried and hourly employees.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 9,200 square feet of warehouse space and admin-
istrative 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.
- 6 -
<PAGE> 7
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.
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 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, 1997.
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 Pennsylvania Merchant Group LTD. has advised the Company that the following
bid quotations have been reported for the period beginning January 1, 1996 and
ended December 31, 1997:
BID PRICES
-----------
HIGH LOW
---- ---
Quarter Ended March 31, 1996 .219 .031
Quarter Ended June 30, 1996 .281 .219
Quarter Ended September 30, 1996 .250 .188
Quarter Ended December 31, 1996 .188 .125
Quarter Ended March 31, 1997 .125 .125
Quarter Ended June 30, 1997 .375 .125
Quarter Ended September 30, 1997 .375 .125
Quarter Ended December 31, 1997 .125 .085
- 7 -
<PAGE> 8
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 December 31, 1997, there were about 900 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, 1997, there were 10,284,354 shares of the Company's common
stock issued and outstanding. Of those shares, 6,979,405 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 June 4,
1996, December 31, 1996 and December 31, 1997 at which time they may be sold
pursuant to and subject to 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.
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 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. On December
31, 1996, the Company issued 50,000 shares and a fully-paid warrant for the
issuance of 250,000 shares to an existing shareholder for consideration of
approximately $.33 per share. On July 16, 1997, the Company issued 250,000
shares to pursuant to a warrant issued on December 31, 1996. On December 31,
1997, The Company issued 50,000 shares to an existing shareholder for
consideration of approximately $.50 per share.
- 8 -
<PAGE> 9
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, 1997 and 1996.
RESULTS OF OPERATIONS
- ---------------------
The following table summarizes the results of operations for the calendar years
indicated:
1997 AMOUNT % 1996 AMOUNT %
-------------------- ---------------------
Sales $ 3,881,383 100.0 $ 3,754,679 100.0
Cost of Sales 2,400,534 61.8 2,337,310 62.3
----------- -----------
Gross Profit 1,480,849 38.2 1,417,369 37.7
Selling, General and
Administrative Expenses 1,433,850 36.9 1,468,908 39.1
----------- -----------
Income (Loss) from Operations 46,999 1.3 (51,539) (1.4)
Other Income (Expense) 126,916 3.2 16,845 0 .4
Interest Expense (179,080) (4.6) (104,394) (2.3)
----------- -----------
Loss Before Income Tax (5,165) (0.1) (139,088) 3.7)
Income Tax Benefit -- --
----------- -----------
Net Loss (5,165) (0.1) (139,088) (3.7)
The Company's total sales increased by $126,704, or approximately 3% from 1996
to 1997, with most of the increase attributable to winch sales. Winch sales
increased from about $1,118,000 in 1996 to about $1,276,000 in 1997. Sales of
hubs, conversion kits and other products remained essentially the same as the
previous year. The Company's gross margins on its sales remained constant at
about 38% for both 1997 and 1996.
- 9 -
<PAGE> 10
Selling, general and administrative expenses of the Company decreased by about
$35,000 in 1997 compared to 1996, with most of this decrease due to reduced
selling costs which decreased approximately $101,980 because different marketing
methods were used in 1997 to sell the winch product line. Specifically, the
Company expanded its distribution network in 1997 to sell its winches, while
mail order advertising was used extensively in 1996 to promote this product
directly at the retail level. The decrease in selling costs was offset by an
increase of approximately $69,000 in loan amortization costs and insurance
expenses. A $45,000 decrease in payroll costs was offset by a $38,000 increase
in professional fees due primarily to the Kronberger lawsuit. 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"). Interest expense was approximately $75,000 higher in 1997 than in
1996 due to the higher levels of inventory and receivables financed at
significantly higher interest rates. During 1997, Chairman Richard E. Aho waived
approximately $59,000 of his expenses, consisting of officer compensation and
interest on his shareholder loan. Relative to sales, the Company's selling,
general and administrative costs decreased from about 39% of sales during 1996
to about 37% in 1997.
Other Income (Expense) of $126,916 in 1997 was substantially higher than in 1996
due to $125,000 of licensing income earned from a foreign distributor pursuant
to an Intellectual Property Licensing Agreement consummated in the latter part
of 1997.
The Company's net loss for 1997 was $5,165 compared to a net loss of $139,088 in
1996. This reduction in loss is due both to the improvement in the Company's
loss from operations as well as the substantially increased Other Income earned
during 1997. Loss per common share was negligible in 1997 compared to $.01 in
1996 based on 10,103,585 average number of shares outstanding in 1997 compared
to 9,792,049 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations principally through the daily 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 $850,000 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 new 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 its
inventory and accounts receivable, as well as the pledge of all of the stock
held by MileMarker International, Inc. in MileMarker, Inc. and the key man life
insurance on the Company's President/Chairman.
- 10 -
<PAGE> 11
At December 31, 1997, the Company had working capital of $1,005,169 compared to
$997,419 at December 31, 1996. However, the Company's current ratio fell from
1.84 on December 31, 1996 to 1.51 on December 31, 1997. The major reason for
this development is that significantly higher levels of inventory and
receivables were being funded by substantially higher borrowings and accounts
payable
Borrowings increased to $1,459,745 at December 31, 1997 under the Company's new
line of credit, compared to $809,884 on December 31, 1996 - an increase of about
80%. At December 31, 1997, the Company held cash balances of $102,568 compared
to $31,882 a year earlier. However, most of the 1997 cash balances represented
cash collateral against the line of credit from the collection of the Company's
receivables which had not been applied against the loan with the Company's
lender.
During 1997, several significant changes occurred in the Company's long term
capital structure. A new two-year term loan of $200,000 was funded on March 31,
1997, and most of the proceeds were used for deferred loan costs of
approximately $125,000. The note payable to an officer shareholder was reduced
during 1997 by approximately $72,000, with $25,000 utilized to purchase 50,000
shares of Company common stock.
The Company had no material commitments for capital expenditures at December 31,
1997.
ITEM 7. FINANCIAL STATEMENTS
The following is an index to the Financial Statements of the Company being filed
herewith commencing at page F-1:
Report of Independent Certified Public Accountants ............F-1
Consolidated Balance Sheets - December 31, 1997
and December 31, 1996 .....................................F-2
Consolidated Statements of Operations - Years Ended
December 31, 1997 and 1996 .................................F-3
Consolidated Statements of Shareholders' Equity - Years
Ended December 31, 1997 and 1996 ..........................F-4
Consolidated Statements of Cash Flows - Years Ended
December 31, 1997 and 1996 ................................F-5, F-6
Notes to Consolidated Financial Statements ..................F-7
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
NONE
- 11 -
<PAGE> 12
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of December 31, 1997, the Executive Officers and Directors of the Company
were as follows:
NAME AGE POSITION
Richard E. Aho 53 Chairman, President,
Chief Executive Officer,
Director
Leslie J. Aho 41 Vice President, Treasurer,
Secretary, Director
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.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 1996 and 1997, the
Company believes that Richard Aho and Leslie Aho did not file Form 5 for the
Company's 1997 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)
- 12 -
<PAGE> 13
ITEM 10. EXECUTIVE COMPENSATION
The following table and notes present for the three years ended December 31,
1997, 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:
SUMMARY COMPENSATION TABLE
Annual
Fiscal Compensation
Name and Position Year Salary
- --------------------------------------------------------------------------------
Richard E. Aho, President 1997 $ 99,000
Chief Executive Officer 1996 $ 112,750
1995 $ 129,250
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. On April 25, 1997, the
Company entered into a three year employment agreement with a key employee which
included among its provisions an option to acquire 100,000 shares of the
Company's common stock at an exercise price of $.50 per share until March 31,
2000. Otherwise, the Company has no option, profit sharing or pension plan
currently in effect, nor 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, 1997, the Company had issued and
outstanding 10,284,354 shares of common stock.
- 13 -
<PAGE> 14
Name and Address Number of Shares Percentage of
of Common Stock of Common Stock Common Stock
Beneficial Owner Beneficially Owned Ownership
- ---------------- ------------------ ---------
Richard E. Aho (1) (3) 2,575,000 25.04%
1350 S.W. 13th Court
Pompano Beach, FL 33069
Leslie J. Aho (1) (2) (3) 2,525,000 24.55%
1350 S.W. 13th Court
Pompano Beach, FL 33069
David Allsop
Four Falls Corporate Center
West Conshohocken, PA 535,000 5.20%
All Executive Officers and
Directors as a group (2 persons) 5,100,000 49.59%
(1) Officer and Director
(2) Leslie J. Aho is the wife of Richard E. Aho
(3) All shares owned by Richard and Leslie Aho are pledged to the
Company's lender as additional collateral for the Company's March
31, 1997 credit facility.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31,1997, the Company had borrowed $79,043 from its President and
Chief Executive Officer, Richard E. Aho, and $45,000 from his mother-in law.
Both of these unsecured loans mature on December 31, 1999, and both bear
interest at an annual rate of 12% per annum. During 1997 and 1996, Richard E.
Aho waived $15,563 and $18,045, respectively, of interest on his shareholder
loan to the Company.
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.
- 14 -
<PAGE> 15
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:
NUMBER DESCRIPTION
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
(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.
- 15 -
<PAGE> 16
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 20, 1998 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.
SIGNATURES TITLES DATES
---------- ------ -----
/s/ Richard E. Aho President, Chairman, March 20, 1998
- --------------------------- Chief Executive Officer,
Richard E. Aho Chief Accounting Officer
and Director
/s/ Leslie J. Aho Vice President, Secretary, March 20, 1998
- --------------------------- Treasurer and Director
Leslie J. Aho
- 16 -
<PAGE> 17
SPEAR
SAFER
HARMON & CO.
------------
PROFESSIONAL
ASSOCIATION
CERTIFIED PUBLIC ACCOUNTANTS
* * *
8350 N.W. 52nd Terrace, Suite 301
Miami, Florida 33166
1-800-776-1099
Tel: (305) 591-8850
Fax: (305) 593-9883
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 sheets of MileMarker
International, Inc. and Subsidiary as of December 31, 1997 and 1996 and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the years 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 audits 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 evaluating the overall financial
statement presentation. We believe that our audits provide 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, 1997 and 1996, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Spear, Safer, Harmon & Co.
Miami, Florida
February 19, 1998
F-1
<PAGE> 18
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
-----------------------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 102,568 $ 31,882
Accounts Receivable, net of allowance for doubtful
accounts of $7,000 867,578 548,056
Inventory 1,869,806 1,592,352
Other Receivables 114,685 3,555
Prepaid Expenses 8,299 8,758
----------- -----------
Total Current Assets 2,962,936 2,184,603
PROPERTY AND EQUIPMENT, NET 139,947 155,474
OTHER ASSETS
Deferred Financing Costs, net 78,090 --
Unamortized Patent Costs, net 85,180 88,126
Other 31,017 26,293
----------- -----------
Total Other Assets 194,287 114,419
TOTAL ASSETS $ 3,297,170 $ 2,454,496
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable - Line of Credit $ 1,459,745 $ 809,884
Current Maturities of Notes Payable 57,264 66,095
Accounts Payable 354,776 208,417
Accrued Liabilities 85,982 102,788
----------- -----------
Total Current Liabilities 1,957,767 1,187,184
LONG-TERM NOTES PAYABLE
Notes Payable - Shareholders 124,043 195,793
Term Loan 147,212 --
Other Notes Payable 37,782 60,988
----------- -----------
Total Long-Term Notes Payable 309,037 256,781
TOTAL LIABILITIES 2,266,804 1,443,965
----------- -----------
SHAREHOLDERS' EQUITY
Common Stock, $.001 par value; 20,000,000 shares
and 10,000,000 shares authorized in 1997 and 1996;
10,284,354 shares and 9,984,354 shares issued and
outstanding in 1997 and 1996, respectively 10,284 9,984
Paid-in Capital 1,406,565 1,381,865
Accumulated Deficit (386,483) (381,318)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 1,030,366 1,010,531
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 3,297,170 $ 2,454,496
=========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F - 2
<PAGE> 19
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
----------------------------
SALES $ 3,881,383 $ 3,754,679
COST OF SALES 2,400,534 2,337,310
----------------------------
GROSS PROFIT 1,480,849 1,417,369
SELLING EXPENSES 392,227 494,207
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and Wages 456,586 501,690
Professional Fees 169,913 130,933
Interest 179,080 104,394
Rent 73,752 78,683
Depreciation and Amortization 112,425 65,432
Insurance 51,797 29,957
Vehicle Expenses 42,362 39,668
Research & Development 16,370 15,783
Other 118,418 112,555
----------------------------
Total General and Administrative Expenses 1,220,703 1,079,095
----------------------------
Total Expenses 1,612,930 1,573,302
LOSS FROM OPERATIONS (132,081) (155,933)
OTHER INCOME (EXPENSE)
Royalty Income 52,584 64,589
Licensing Income 125,000 --
Licensing Costs (66,231) (65,789)
Forgiveness of Interest 15,563 18,045
----------------------------
Total Other Income (Expense) 126,916 16,845
Loss before Provision for Income Taxes (5,165) (139,088)
Provision for Income Taxes (Benefit) -- --
----------------------------
NET LOSS $(5,165) $(139,088)
----------------------------
PER SHARE DATA:
Weighted Average Shares Outstanding 10,103,585 9,792,049
LOSS PER COMMON SHARE $(0.00) $(0.01)
The accompanying Notes are an integral part of these financial statements.
F - 3
<PAGE> 20
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997 AND 1996
<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, 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 1,010,531 9,984,354 9,984 0 1,381,865 (381,318)
Conversion of stock warrants
into common shares 0 250,000 250 0 (250) 0
Conversion of shareholder loan
into common shares 25,000 50,000 50 0 24,950 0
Net loss for year 1997 (5,165) 0 0 0 0 (5,165)
--------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 $ 1,030,366 10,284,354 $ 10,284 $ 0 $ 1,406,565 $ (386,483)
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-4
<PAGE> 21
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (5,165) $(139,088)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 112,425 65,432
Gain on sale of capital equipment - (2,250)
Provision for doubtful accounts - 5,042
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (319,522) (174,153)
Inventories (277,454) (28,352)
Prepaid expenses 459 (5,380)
Other receivables (111,130) 3,702
Other assets (4,724) 24,103
(Decrease) increase in:
Accounts payable 146,359 71,297
Accrued liabilities (16,806) 49,232
------------------------------------------
Net cash used by operating activities (475,558) (130,415)
INVESTING ACTIVITIES
Capital equipment acquisitions (40,444) (28,773)
Patent costs (6,654) (12,041)
Proceeds from sale of capital equipment - 17,250
------------------------------------------
Net cash used in investing activities (47,098) (23,564)
FINANCING ACTIVITIES
Proceeds from sale of common stock - 200,000
Net borrowings under line of credit 649,861 124,471
Repayment of short-term vendor debt (42,563) (230,194)
Proceeds from long-term debt 200,000 100,000
Deferred financing costs (124,944) -
(Repayment) proceeds of shareholder loans (46,750) 734
Principal payments on long-term debt (42,262) (23,488)
------------------------------------------
Net cash provided by financing activities 593,342 171,523
Increase in Cash 70,686 17,544
Cash at Beginning of Period 31,882 14,338
------------------------------------------
Cash at End of Period $102,568 $31,882
==========================================
</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 CONT'D
YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------------------------------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest: $159,355 $86,349
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Disposal of capital equipment in full
satisfaction of debt -- $19,329
Conversion of notes payable into common stock -- $100,000
Retirement of treasury stock -- $25,000
Conversion of shareholder notes payable into
common stock $25,000 --
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F - 6
<PAGE> 23
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997 AND 1996
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 necessary adjustments to the financial statements have been
made, and significant inter-company 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 vehicle'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. Cash
At December 31, 1997, cash balances included restricted cash of approximately
$89,000 in a cash collateral account with the Company's lender pending repayment
of the Company's borrowings.
d. 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.
F - 7
<PAGE> 24
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
e. Inventory
Inventories consist primarily of merchandise purchased for resale and are valued
at the lower of cost (first-in, first-out basis) or market.
f. Property and Equipment
Property and equipment is 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.
g. Amortization
The cost of patents is being amortized on a straight line basis over their
expected lives, usually twelve years. Deferred financing charges incurred in
connection with the credit agreement (see Note 5) with the Company's lender are
being amortized over the two year life of the credit facility.
h. 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.
i. Earnings Per Share
Net loss per common share is calculated using the weighted average number of
common and dilutive potential common stock outstanding during the year. The
number of shares used in the per share computations were 10,103,585 and
9,792,049 at December 31, 1997 and 1996, respectively. Potential common stock,
when included in the computation of dilutive earnings per share, was
anti-dilutive at December 31, 1997 and 1996.
F - 8
<PAGE> 25
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
j. 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.
k. Recent Pronouncements in Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 "Earnings Per Share" and Statement of
Financial Accounting Standards No. 129 "Disclosure of Information about Capital
Structure" which are both effective for fiscal years beginning after December
15, 1997. The Company plans to adopt SFAS No. 128 and SFAS No. 129 in 1998 and
expects no material impact to the Company's EPS calculation or financial
statement disclosure.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income," which
is effective for fiscal years beginning after December 15, 1997. The Company
plans to adopt SFAS No. 130 during 1998 and expects no material impact to the
Company's financial reporting or presentation.
Also in June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. The Company plans to adopt SFAS No. 131
during 1998 which may result in additional financial statement disclosures.
l. Reclassifications
Certain reclassifications have been made to the prior year's consolidated
financial statements and related footnotes to conform to the current year's
presentation.
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, 1997 and December 31, 1996, approximately $115,000
and $64,000, 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, 1997 and December 31, 1996 consist of the
following:
1997 1996
---- ----
Molds, dies and tooling 663,067 633,052
Autos and trucks 53,287 48,417
Office equipment 57,974 52,414
---------- ---------
774,328 733,883
Less accumulated depreciation (634,381) (578,409)
---------- ---------
$ 139,947 $ 155,474
========== =========
4. OTHER ASSETS
Other assets at December 31, 1997 and December 31, 1996 consist of the
following:
1997 1996
---- ----
Patents, net of amortization $ 85,180 $ 88,126
Rental security deposits 10,929 11,229
CSVI - officer life insurance 20,088 15,064
Deferred financing costs, net 78,090 --
---------- ---------
$ 194,287 $ 133,511
========== =========
F - 10
<PAGE> 27
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE
Notes payable at December 31, 1997 and December 31, 1996 consist of the
following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Note payable - line of credit under revolving
credit agreement, interest at Prime plus 3.0%,
secured by accounts receivable and inventory $ 1,459,745 $ 809,884
Term loan payable, interest at Prime plus 3.5%,
secured by all Company assets, due March 31,
1999 180,180 --
Unsecured note payable in installments,
interest at 12%, with final payment due
July 1, 2000 38,750 52,500
Notes payable - shareholders, interest at 12%,
payable December 31, 1999 124,043 195,793
Short-term notes due vendors, with an
average interest rate of 9% - 42,562
Notes payable to financial institutions at
various interest rates from 10.25% to
10.60%, secured by autos and trucks 23,329 32,021
---------- -----------
1,826,047 1,132,760
Less amounts due within one year (1,517,009) (875,978)
---------- -----------
Amount due after one year $ 309,038 $ 256,781
========== ===========
</TABLE>
During 1997, the Company committed to a $1,500,000 revolving credit agreement
and a $200,000 term loan with a financial institution for a period of two years
at an interest rate of 3.50% above Prime plus substantial additional fees. The
credit agreement contains certain affirmative, negative and financial covenants
which, among others, specify certain minimum earnings and net worth requirements
and maintenance of certain minimum interest coverage ratios. The credit
agreement also requires the Company to assign all of the stock in its
subsidiary, MileMarker, Inc., and the key man life insurance in the amount of
$1,300,000 on its President/Chairman to the lender as collateral.
F - 11
<PAGE> 28
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE (CONTINUED)
As of December 31, 1997, the Company was in technical default on several of the
lender's requirements and ratios and has requested the lender's waiver and
modification of these ratios. The Company has been advised by the lender that
waivers and modifications will be granted. The Company is not in default in the
payment of interest or principal.
The aggregate maturities of notes payable at December 31, 1997 are as follows:
1998 $ 1,517,009
1999 296,316
2000 12,722
------------
$ 1,826,047
============
6. LICENSING AGREEMENTS
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. The Company
has met the minimum payment requirements of this agreement.
The Company entered into an Intellectual Property Licensing Agreement with a
foreign distributor during 1997 whereby the Company receives licensing fees of
$125,000 plus royalties for a period of 10 years.
7. INCOME TAXES
The Company has net operating loss carry-forwards of approximately $650,000
which may provide future income tax benefits that expire through 2012. The
deferred tax asset at December 31, 1997 consists of the following:
Net Operating Loss Carry-forwards $ 247,000
Valuation Allowance (247,000)
---------
--
=========
Since any tax benefit is dependent upon future taxable earnings, the
Company has not recognized such benefits for financial reporting purposes.
F - 12
<PAGE> 29
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
A reconciliation of income tax at the statutory rate to the Company's effective
tax rates for the year ended December 31, 1997, is as follows:
Federal income tax at statutory rate 34.0%
Effect of state rate 3.6%
Benefit of net operating loss carry-forward (37.6%)
------
Income tax expense --%
======
8. 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 through 1997.
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 in 1997 for
consideration of $100,000 face value of a note payable (approximately $.33 per
share). 250,000 shares of common stock were issued in July of 1997 pursuant to
such warrants.
On April 25, 1997, the Company issued an option exercisable through April 24,
2000, to a key employee of the Company for the purchase of 100,000 shares of
common stock at an exercise price of $.50 per share. During 1997, no options
were exercised.
On December 31, 1997, at the request of its lender, the Company issued 50,000
shares of common stock to its Chairman in consideration for the conversion of
$25,000 of his shareholder loan to the Company (approximately $.50 per share).
F - 13
<PAGE> 30
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. RELATED PARTY TRANSACTIONS
During 1995, the President 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, 1999.
During 1997 and 1996, the President waived approximately $16,000 and $18,000,
respectively, of interest that was accrued on this loan, which is included in
Other Income in the accompanying Statements of Operations. During 1997, the
President also reduced his note payable from the Company by a total of $72,480
via conversion into $25,000 of common stock and a salary reduction of $46,750.
The Company's Kalama, Washington office and warehouse is situated in the home of
a relative of the Company's President. The Company currently pays $475 per month
on a month-to-month basis for this space.
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, 1997 and December 31, 1996
were $73,752 and $78,683, respectively. The Company also has several operating
leases for vehicles and office equipment through 2001. At December 31, 1997, the
future minimum lease payments are as follows:
1998 $ 49,229
1999 12,228
2000 7,581
2001 5,465
---------
$ 74,503
=========
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.
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."
F - 14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 102,568
<SECURITIES> 0
<RECEIVABLES> 989,314
<ALLOWANCES> 7,051
<INVENTORY> 1,869,806
<CURRENT-ASSETS> 2,962,936
<PP&E> 774,327
<DEPRECIATION> 634,380
<TOTAL-ASSETS> 3,297,170
<CURRENT-LIABILITIES> 1,957,767
<BONDS> 309,037
0
0
<COMMON> 10,284
<OTHER-SE> 1,020,082
<TOTAL-LIABILITY-AND-EQUITY> 3,297,170
<SALES> 3,881,383
<TOTAL-REVENUES> 4,008,299
<CGS> 2,400,534
<TOTAL-COSTS> 2,792,761
<OTHER-EXPENSES> 1,041,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 179,080
<INCOME-PRETAX> (5,165)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,165)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,165)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
