<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, 1998 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, 1998, the Registrant had outstanding 10,684,354 shares of
common stock, $.001 par value.
<PAGE> 2
MILEMARKER INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets, September 30, 1998 and
December 31, 1997 .............................................. 3
Consolidated Statements of Operations, Three months ended
September 30, 1998 and September 30, 1997 ...................... 4
Consolidated Statements of Operations, Nine months ended
September 30, 1998 and September 30, 1997 ...................... 5
Consolidated Statements of Cash Flows, Nine months ended
September 30, 1998 and September 30, 1997 ...................... 6
Consolidated Statement of Shareholders' Equity, Nine months
ended September 30, 1998 ....................................... 7
Notes to Consolidated Financial Statements ..................... 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 9-11
PART II OTHER INFORMATION
Item 1. Legal Proceedings ................................................... 11
Item 2. Changes in Securities ............................................... 11
Item 3. Defaults Upon Senior Securities ..................................... 11
Item 4. Submission of Matters to a Vote of Security Holders ................. 12
Item 5. Other Information ................................................... 12
Item 6. Exhibits and Reports on Form 8-K .................................... 12
SIGNATURES ................................................................... 13
</TABLE>
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<PAGE> 3
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 32,564 $ 102,568
Accounts Receivable, net of allowance for doubtful
accounts of $7,000 520,792 867,578
Inventory 2,018,498 1,869,806
Other Receivables 75,000 114,685
Prepaid Expenses 30,365 8,299
----------- -----------
Total Current Assets 2,677,219 2,962,936
PROPERTY AND EQUIPMENT, NET 106,544 139,947
OTHER ASSETS
Deferred Financing Costs, net 45,189 78,090
Unamortized Patent Costs, net 76,805 85,180
Other 54,142 31,017
----------- -----------
Total Other Assets 176,136 194,287
----------- -----------
Total Assets $ 2,959,899 $ 3,297,170
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable - Line of Credit $ 1,023,918 $ 1,459,745
Term Loan - Current 152,336 32,968
Current Maturities of Notes Payable 25,049 24,296
Accounts Payable 557,999 354,776
Accrued Liabilities 31,144 85,982
----------- -----------
Total Current Liabilities 1,790,446 1,957,767
LONG-TERM NOTES PAYABLE
Notes Payable - Shareholders 45,000 124,043
Term Loan -- 147,212
Other Notes Payable 18,936 37,782
----------- -----------
Total Long-Term Notes Payable 63,936 309,037
----------- -----------
Total Liabilities 1,854,382 2,266,804
=========== ===========
SHAREHOLDERS' EQUITY
Common Stock, $.001 par value; 20,000,000 shares
authorized, 10,684,354 shares and 10,284,354 shares
issued and outstanding in 1998 and 1997, respectively 10,684 10,284
Paid-in Capital 1,546,165 1,406,565
Accumulated Deficit (451,332) (386,483)
----------- -----------
Total Shareholders' Equity 1,105,517 1,030,366
----------- -----------
Total Liabilities & Shareholders' Equity $ 2,959,899 $ 3,297,170
=========== ===========
</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, 1998 and 1997
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 800,379 $ 856,882
Cost of Sales 425,786 528,328
------------ ------------
Gross Profit 374,593 328,554
------------ ------------
Selling Expenses 118,443 93,022
------------ ------------
General and Administrative Expenses
Salaries and Wages 114,325 74,385
Professional Fees 10,748 23,985
Rent 19,329 18,438
Depreciation and Amortization 38,262 29,832
Insurance 13,440 23,084
Vehicle Expenses 7,993 10,687
Research & Development 1,244 6,131
Other 31,273 34,673
------------ ------------
Total General and Administrative Expenses 236,614 221,215
------------ ------------
Total Expenses 355,057 314,237
------------ ------------
Income from Operations 19,536 14,317
Other (Expense)/Income
Interest Expense (44,552) (43,307)
Other (Expense)/Income (13,795) 128,998
------------ ------------
Total Other (Expense)/Income (58,347) 85,691
(Loss)/Income before Provision for Income Taxes (38,811) 100,008
Provision for Income Taxes (Benefit) -- --
------------ ------------
Net (Loss)/Profit $ (38,811) $ 100,008
============ ============
Per Share Data:
Weighted Average Shares Outstanding 10,684,354 10,171,857
(Loss)/Income per Common Share $ (0.00) $ 0.01
</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, 1998 and 1997
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Sales $ 2,664,660 $ 2,752,293
Cost of Sales 1,580,355 1,697,052
----------- -----------
Gross Profit 1,084,305 1,055,241
----------- -----------
Selling Expenses 325,697 258,782
----------- -----------
General and Administrative Expenses
Salaries and Wages 268,516 332,539
Professional Fees 56,565 143,554
Rent 56,488 55,314
Depreciation and Amortization 108,027 80,721
Insurance 23,384 45,215
Vehicle Expenses 30,619 33,155
Research & Development 5,869 11,311
Other 89,045 78,006
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Total General and Administrative Expenses 638,513 779,815
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Total Expenses 964,210 1,038,597
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Income from Operations 120,095 16,644
Other Expense/Income
Interest Expense (137,443) (111,815)
Other (Expense)/Income (47,502) 128,794
----------- -----------
Total Other (Expense)/Income (184,945) 16,979
----------- -----------
(Loss)/Income before Provision for Income Taxes (64,850) 33,623
Provision for Income Taxes (Benefit) -- --
----------- -----------
Net (Loss)/Income $ (64,850) $ 33,623
=========== ===========
Per Share Data:
Weighted Average Shares Outstanding 10,564,354 10,059,357
(Loss)/Income per Common Share $ (0.01) $ 0.00
</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, 1998 AND 1997
UNAUDITED
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss)/income $ (64,850) $ 33,623
Adjustments to reconcile net (loss)/income to net cash
provided(used) by operating activities:
Depreciation and amortization 108,027 80,721
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 346,786 (28,996)
Inventories (148,692) (317,682)
Prepaid expenses (22,066) (10,504)
Other receivables 39,685 (105,668)
Other assets (23,125) (3,571)
(Decrease) increase in:
Accounts payable 203,223 196,589
Accrued liabilities (54,838) (25,197)
--------- ---------
Net cash provided (used) by operating activities 384,150 (180,685)
INVESTING ACTIVITIES
Capital equipment acquisitions (6,317) (40,391)
Patent costs (623) (6,654)
--------- ---------
Net cash used in investing activities (6,940) (47,045)
FINANCING ACTIVITIES
Proceeds from sale of common stock 140,000 --
(Repayment of) proceeds from short term borrowing (435,827) 334,627
Proceeds from long-term debt -- 200,000
Deferred financing costs (26,407) (124,944)
Repayment of shareholder loans (79,043) (46,750)
Principal payments on long-term debt (45,937) (71,206)
--------- ---------
Net cash (used) provided by financing activities (447,214) 291,727
(Decrease) Increase in Cash (70,004) 63,997
Cash at Beginning of Period 102,568 31,882
--------- ---------
Cash at End of Period $ 32,564 $ 95,879
========= =========
Supplementary Disclosure of Cash Flow Information:
Cash paid during the period for Interest $ 137,443 $ 107,992
</TABLE>
The accompanying Notes are an integral part of these financial statements.
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<PAGE> 7
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1998
UNAUDITED
<TABLE>
<CAPTION>
RETAINED
TOTAL COMMON STOCK PAID IN EARNINGS
EQUITY SHARES AMOUNT CAPITAL (DEFICIT)
--------- ---------- ------ --------- --------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1997 $1,030,366 10,284,354 $10,284 1,406,565 $(386,483)
Sale of New Common Stock 140,000 400,000 400 139,600 0
Net Loss for Nine Months 1998 (64,849) 0 0 0 (64,849)
---------- ---------- ------- --------- ---------
Balances, September 30, 1998 $1,105,517 10,684,354 $10,684 1,546,165 $(451,332)
</TABLE>
These accompanying Notes are an integral part of these financial statements.
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<PAGE> 8
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 necessary adjustments to the
financial statements have been made, and significant inter-company 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 financial 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, 1997 of Mile-Marker International,
Inc., as filed with the Securities and Exchange Commission. The summary December
31, 1997 balance sheet was derived from audited consolidated financial
statements, but does not include all disclosures required by generally accepted
accounting principles at December 31, 1997.
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. Potential common stock,
when included in the computation of earnings per share, was anti-dilutive.
Note 2: Reclassification
Certain amounts in prior periods have been reclassified for
comparative purposes.
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<PAGE> 9
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,
1998 and 1997:
<TABLE>
<CAPTION>
Nine Months Three Months
------------------ ------------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 59.3 61.7 53.2 61.7
----- ----- ----- -----
Gross Profit 40.7 38.3 46.8 38.3
Selling, General and
Administrative Expenses 36.2 37.7 44.4 36.7
----- ----- ----- -----
Income from Operations 4.5 .6 2.4 1.6
Other Income (Expense) (1.7) 4.7 (1.7) 15.1
Interest Expense (5.2) (4.1) (5.6) (5.0)
----- ----- ----- -----
Net Income (Loss) (2.4) 1.2 (4.9) 11.6
</TABLE>
Sales of $2,664,660 for the nine months ended September 30, 1998, were
approximately 3% less than 1997 sales of $2,752,293 for the same comparable
period. Sales for the three months ended September 30, 1998, were approximately
6.6% less than the same period in 1997, reflecting a weak quarter for summer
re-ordering by the Company's distributors. 1998 sales generally were less than
1997 sales because the warm winter resulting from the El Nino weather effects
had an adverse impact on the demand for the Company's weather-related products.
The Company's product mix between winches and hubs/conversion kits
during the nine months ended September 30, 1998 shifted back to hubs/conversion
kits, which accounted for approximately 67% of sales in 1998 compared to
approximately 64% in 1997. The gross profit margin improved by approximately 2%
in the 1998 period from the nine month period in 1997, reflecting lower product
costs. Selling costs, however, increased by approximately $67,000 in the first
nine months of 1998 to $325,697 from $258,782 - an increase of about 26% when
compared to the same period in 1997 due to more sales commissions and co-op
advertising required in 1998 to generate the sales achieved in a difficult
market.
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<PAGE> 10
General and administrative expenses for the nine months ended September 30, 1998
decreased by $141,302, or about 18%, from $779,815 in 1997 to $638,513 in 1998.
The most significant decreases in general and administrative expenses during the
first nine months of 1998 related primarily to professional fees and salaries.
About $70,000 of non-recurring legal costs were incurred by the Company during
1997 for its successful defense of the Kronberger legal action; none were
incurred in 1998. Also, during the first nine months of 1998, about $79,000 of
officer salaries were waived, compared to $62,000 waived in 1997. Approximately
$53,000 higher interest and loan amortization expenses in the first nine months
of 1998 were offset by lower professional fees, salaries and insurance expenses.
As a percentage of sales, the Company's general and administrative costs
decreased to about 24% during the first nine months of 1998 from about 28% in
the first nine months of 1997.
The Company had an operating income of $120,095 from operations in the
first nine months of 1998 compared to an operating income of $16,644 in 1997.
This improvement resulted from lower operating expenses and improved profit
margins on 2% less sales in 1998. During the three months ended September 30,
1998, the Company's income from operations was $19,536 compared to an operating
income of $14,317 during the prior year's similar period. Other income and
expense items during the three months and nine months ended September 30, 1998
reflected net expenses of $13,795 and $47,502, respectively, compared to other
income of approximately $129,000 during the comparable periods. This decrease
from 1997 is attributable to the cessation of certain royalty income which had
previously offset licensing costs. The Company's net loss for the nine months
ended September 30, 1998 was $64,850 compared to a net profit of $33,623 for the
first nine months of 1997. The Company's net loss for the three months ended
September 30, 1998 was $38,811 compared to a net profit of $100,008 for the same
period in 1997. The Company's loss per common share was approximately $.01
during the first nine months of 1998 compared to a net profit per common share
of less than $.01 during 1997.
The Company has converted its computer system to be Year 2000 compliant
at a cost of approximately $16,000. New computer hardware was installed which is
Year 2000 compliant, and a computer software company has recently upgraded the
software for the Company's computer system to be Year 2000 compliant.
LIQUIDITY AND CAPITAL RESOURCES
The Company's current assets decreased by $285,717 to $2,677,219 at
September 30, 1998, compared to $2,962,936 at December 31, 1997. Most of this
decrease is reflected in a $346,786 reduction in accounts receivable and $70,004
in cash balances at September 30, 1998, partially offset by an $148,692 increase
in inventory. Net working capital decreased by $118,396 from $1,005,169 on
December 31, 1997, to $886,773 on September 30, 1998, primarily because a term
loan became current during this period. The Company's current ratio decreased to
1.50 at September 30, 1998, compared to
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<PAGE> 11
1.51 at December 31, 1997. Borrowings under the Company's line of credit
decreased by $435,827 from December 31, 1997 levels, and trade payables
increased by over $200,000. The Company also received $140,000 from the sale of
its common stock at $.35 per share during the first nine months of 1998.
The Company has no material commitments outstanding for major capital
expenditures during 1998.
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., principally 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.
Item 2. Changes in Securities
None
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 maintenance of minimum interest
coverage. As of September 30, 1998, 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> 12
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
Exhibit 27 - Financial Data Schedule (for SEC use only)
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<PAGE> 13
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)
11-9-98 /s/ Richard E. Aho
- --------------------------- ------------------------------------
(Date) Richard E. Aho, President and
Principal Accounting Officer
11-9-98 /s/ Leslie J. Aho
- --------------------------- ------------------------------------
(Date) Leslie J. Aho, Secretary/Treasurer
- 13 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 32,564
<SECURITIES> 0
<RECEIVABLES> 527,843
<ALLOWANCES> 7,051
<INVENTORY> 2,018,498
<CURRENT-ASSETS> 2,677,219
<PP&E> 780,644
<DEPRECIATION> 674,100
<TOTAL-ASSETS> 2,959,899
<CURRENT-LIABILITIES> 1,790,446
<BONDS> 63,936
0
0
<COMMON> 10,684
<OTHER-SE> 1,094,833
<TOTAL-LIABILITY-AND-EQUITY> 2,959,899
<SALES> 2,664,660
<TOTAL-REVENUES> 2,664,660
<CGS> 1,580,355
<TOTAL-COSTS> 1,906,052
<OTHER-EXPENSES> 686,015
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,443
<INCOME-PRETAX> (64,850)
<INCOME-TAX> 0
<INCOME-CONTINUING> (64,850)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (64,850)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
