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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, 1998
( ) 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.
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(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. [ ]
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State Registrant's revenues for its most recent fiscal year: $ 3,748,279
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of March 23, 1999: $ 698,044.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of the Registrant's sole class of Common Stock
as of March 23, 1999, was 10,684,354 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None
FORWARD-LOOKING STATEMENTS
When used in this Annual Report on Form 10-KSB or in future filings by the
Company (as hereinafter defined) with the Securities and Exchange Commission, in
the Company's press releases or other public or shareholder communications, or
in oral statements made with the approval of an authorized executive officer,
the words or phrases "will likely result," "are expected to," " will continue,"
"is anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company wishes to caution readers
not to place undue reliance on any such forward-looking statements, which speak
as of the date made, and to advise readers that various factors, including
regional and national economic conditions, substantial changes in levels of
market interest rates, credit and other risks of manufacturing, distributing or
marketing activities, and competitive and regulatory factors could affect the
company's financial performance and could cause the Company's actual results for
future periods to differ materially from those anticipated by any
forward-looking statements.
The Company does not undertake and specifically disclaims any obligation to
update any forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such statements.
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MILEMARKER INTERNATIONAL, INC.
REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
-----------------
PART I
Page
Item 1. Description of the Business..................................... 4
Item 2. Description of Property......................................... 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............................................ 12
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 12
PART III
Item 9. Directors and Executive Officers................................ 12
Item 10. Executive Compensation.......................................... 13
Item 11. Security Ownership of Certain Beneficial Owners and Management.. 14
Item 12. Certain Relationships and Related Transactions.................. 15
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K........................ 15
Signatures .............................................................. 16
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ITEM 1. DESCRIPTION OF THE BUSINESS
FORM, ORGANIZATION AND CHANGES
MileMarker International, Inc. (the "Company"), was organized as a New York
corporation on August 15, 1960, under the name Nylo-Thane Plastics, Inc. On
January 19, 1982, the Company's name was changed to Olan Laboratories
International, Inc., and on December 28, 1993, the Company's name was changed to
MileMarker International, Inc. From January 9, 1982 to December 28, 1993, the
Company conducted business operations through a wholly-owned subsidiary, Olan
Laboratories, Inc.
On December 12, 1993, the Company entered into an Exchange of Stock Agreement
and Plan of Reorganization (the "Reorganization Agreement") with MileMarker,
Inc., a Florida corporation ("MileMarker"). Pursuant to the Reorganization
Agreement, which was completed and closed on December 28, 1993, (i) the
Company's common stock was reverse split on a one share for ten shares basis;
(ii) 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 18 years under the management of
MileMarker's founder, Chairman and Chief Executive Officer Richard E. Aho, who
is also the Chairman and Chief Executive Officer of the Company. The Company is
one of three nationally recognized suppliers of wheel locking hubs. MileMarker's
unique patented line of hydraulic winches use a vehicle's power steering pump as
its source of energy. MileMarker also markets its patented four-wheel Selectric
Drive coupling device.
PRINCIPAL PRODUCTS
HUBS
MileMarker is a manufacturer, assembler and distributor of specialized auto
parts for the four-wheel drive recreational vehicle market. Hub products have
been marketed under the "MileMarker" trade name since 1980. MileMarker's hub
products include a patented locking wheel hub for four-wheel vehicles which
locks
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a four-wheel drive vehicle's front axles to insure four-wheel drive, conversion
kits and accessories. In addition to its own patented hubs, MileMarker has
bought the well known line of Selectro wheel hubs for trucks. MileMarker's hubs
are manufactured by its subcontractors in Taiwan and assembled as necessary in
Pompano Beach, Florida. The Company sells a full line of locking wheel hubs,
conversion kits and other related accessory items. MileMarker's product lines
are available through an extensive wholesaler supply network in North America
and worldwide that includes approximately 100 warehouse distributors,
approximately 3500 retail stores, approximately 70,000 jobbers, 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.
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CUSTOMERS
During 1998 and 1997, sales to the Company's top five customers amounted to
approximately 30% and 23% of total sales, respectively.
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 fourteen employees, twelve 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
2003 at a monthly rent of $5,955, 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 $495. See "Certain Relationships
and Related Transactions." MileMarker owns no manufacturing facilities.
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ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is a party to business disputes arising in the
normal course of its business operations. The Company's management believes that
none of these actions, standing alone, or in the aggregate, are currently
material to the Company's operations or finances.
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, 1998.
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, 1997 and
ended December 31, 1998:
BID PRICES
-----------
HIGH LOW
---- ---
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
Quarter Ended March 31, 1998 .250 .088
Quarter Ended June 30, 1998 .219 .063
Quarter Ended September 30, 1998 .063 .063
Quarter Ended December 31, 1998 .170 .063
Such quotations reflect inter-dealer prices, without retail markup, markdown or
commission. Such quotes are not necessarily representative of actual
transactions or
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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, 1998, there were about 800 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, 1998, there were 10,684,354 shares of the Company's common
stock issued and outstanding. Of those shares, 6,200,00 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. Of the
restricted shares issued by the Company, shares held for at least two years by
persons who are not "affiliates" of the Company (as that term is defined in
Securities and Exchange Commission Rule 144) may be sold without limitation
under Rule 144(k). Shares held by affiliates, and restricted shares held for
more than one, but less than two years, may be sold pursuant and subject to the
limitations of Rule 144. Based on the information available to it, the Company
believes that on March 23, 1999, 450,000 restricted shares could be sold without
limitation, 250,000 restricted shares could be sold subject to Rule 144, and
5,100,000 shares held by affiliates (whether or not restricted) could be sold
subject to Rule 144. Further, as noted below, the 400,000 shares of common stock
sold by the Company on March 31, 1998 pursuant to Securities and Exchange
Commission Regulation S can be resold commencing April l, 1999.
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.
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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. On March 31, 1998, the Company
issued 400,000 common shares to several new shareholders for consideration of
$.35 per share under SEC Regulation S.
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, 1998 and 1997.
RESULTS OF OPERATIONS
The following table summarizes the results of operations for the calendar years
indicated:
1998 AMOUNT % 1997 AMOUNT %
---------------------- ----------------------
Sales $ 3,748,279 100.0 $ 3,881,383 100.0
Cost of Sales 2,216,140 59.1 2,400,534 61.8
----------- -----------
Gross Profit 1,532,139 40.9 1,480,849 38.2
Selling, General and
Administrative Expenses 1,351,935 36.1 1,433,850 36.9
----------- -----------
Income from Operations 180,204 4.8 46,999 1.3
Other (Expense) Income (59,934) (1.6) 126,916 3.2
Interest Expense (188,977 (5.0) (179,080) (4.6)
----------- -----------
Loss Before Income Tax (68,707) (1.8) (5,165) (0.1)
Income Tax Benefit -- --
----------- -----------
Net Loss $ (68,707) (1.8) $ (5,165) (0.1)
=========== ===========
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The Company's total sales decreased by $133,104, or approximately 3% from 1997
to 1998, with most of the decrease attributable to winch sales. Winch sales
decreased from about $1,276,000 in 1997 to about $1,114,000 in 1998. The
decrease in sales was primarily weather-related. Sales of hubs, conversion kits
and other products increased by about 1% over the previous year. The Company's
gross margins on its sales increased from about 38% in 1997 to almost 41% in
1998, reflecting lower product costs.
Selling, general and administrative expenses of the Company decreased by about
$82,000 in 1998 compared to 1997, with most of this decrease due to reduced
professional fees resulting from the settlement of the Kronberger lawsuit in
1997 (see "Legal Proceedings").
Selling costs increased in 1998 by approximately $62,000 over 1997 due to more
sales commissions and advertising required to generate the same level of sales
in a more difficult market than 1997. An increase of approximately $35,000 in
loan amortization costs was offset with a decrease of approximately $58,000 in
compensation costs. During 1998, Chairman Richard E. Aho waived approximately
$79,000 of his officer compensation and approximately $6,000 in interest on his
shareholder loan. Relative to sales, the Company's selling, general and
administrative costs continued to decrease from about 37% of sales during 1997
to about 36% in 1998. As a result of improvement in the Company's 1998 gross
margin together with expense control, the Company's 1998 income from operations
of $180,204 was substantially greater than $46,999 in 1997.
Other expense net of other income during 1998 reflected a net other expense of
$248,911 compared to a net other expense of $52,164 in 1997. The major reason
for the $196,747 difference is due to the non-recurrence of $177,584 of royalty
and licensing income received in 1997. Interest expense of $188,977 in 1998 was
approximately 5% more than the $179,080 in 1997 due to higher levels of
inventory financed during the year.
The Company's net loss for 1998 was $68,707 compared to a net loss of $5,165 in
1997. This increase in net loss is due primarily to the elimination of royalty
and licensing income received in 1997. The Company's income from operations
reflects a major improvement over 1997 despite 3% less sales in 1998. Loss per
common share - basic was $.01 compared to a negligible amount in 1997 based on
10,592,046 average number of shares outstanding in 1998 compared to 10,103,585
in 1997.
The Company has converted its computer system to be Year 2000 compliant at a
cost of approximately $16,000. New computer hardware and software was installed
during 1998 to achieve Year 2000 compliance.
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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 on March 31, 1997 obtained a
$1,700,000 credit facility consisting of a two year term loan of $200,000 and a
two year revolving credit 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 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. This credit facility is in the process of being renewed,
extended through March 31, 2000 and increased to approximately $1,850,000.
At December 31, 1998, the Company had working capital of $885,346 compared to
$1,005,169 at December 31, 1997. However, the Company's current ratio fell from
1.51 on December 31, 1997 to 1.46 on December 31, 1998. The decrease can be
attributed to the increase in the current portion of the term loan based on its
maturation on March 31, 1999.
Borrowings decreased by approximately $46,000 to $1,413,814 at December 31, 1998
under the Company's line of credit, compared to $1,459,745 on December 31, 1997.
At December 31, 1998, the Company held cash balances of $62,726 compared to
$102,568 a year earlier. However, most of the 1998 and 1997 cash balances
represent 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 1998, the Company's total liabilities decreased by approximately $288,000
from 1997. Common stock and paid in capital were increased by $140,000 through
the placement of 400,000 shares of common stock at $.35 per share to several
new investors. Additionally, during 1998, the Company received the proceeds from
the collection of $114,685 of other receivables from 1997.
The Company had no material commitments for capital expenditures at December 31,
1998.
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ITEM 7. FINANCIAL STATEMENTS
The following is an index to the Financial Statements of the Company being filed
herewith commencing at page F-1:
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Certified Public Accountants .................................... F-1
Consolidated Balance Sheets - December 31, 1998
and December 31, 1997 ............................................................. F-2
Consolidated Statements of Operations - Years Ended
December 31, 1998 and 1997 ......................................................... F-3
Consolidated Statements of Shareholders' Equity - Years
Ended December 31, 1998 and 1997 .................................................. F-4
Consolidated Statements of Cash Flows - Years Ended
December 31, 1998 and 1997 ........................................................ F-5, F-6
Notes to Consolidated Financial Statements ........................................... F-7
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
NONE
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As of December 31, 1998, the Executive Officers and Directors of the Company
were as follows:
NAME AGE POSITION
---- --- --------
Richard E. Aho 54 Chairman, President,
Chief Executive Officer,
Director
Leslie J. Aho 42 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., Rainier, Oregon, an
active retailer of specialty tires and accessories. Mr. Aho became Chairman and
Chief Executive Officer of the Company on December 28, 1993.
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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 1998 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)
ITEM 10. EXECUTIVE COMPENSATION
The following table and notes present for the three years ended December 31,
1998, 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 1998 $ 74,250
Chief Executive Officer 1997 $ 99,000
1996 $ 112,750
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. No options were exercised in 1998 or 1997. 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.
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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, 1998, the Company had issued and
outstanding 10,684,354 shares of common stock.
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 24.10%
1350 S.W. 13th Court
Pompano Beach, FL 33069
Leslie J. Aho (1) (2) (3) 2,525,000 23.63%
1350 S.W. 13th Court
Pompano Beach, FL 33069
David Allsop
Four Falls Corporate Center
West Conshohocken, PA 535,000 5.00%
All Executive Officers and
Directors as a group (2 persons) 5,100,000 47.73%
(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.
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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of December 31, 1998, the Company had borrowed $45,000 from the mother-in-law
of the Company's President. This unsecured loan was extended during 1998 to
mature on December 31, 2000 and bears interest at an annual rate of 12% per
annum. During 1998 and 1997, the President waived $5,743 and $15,563,
respectively, of interest on his shareholder loan to the Company and used all
of his shareholder loan to refund a portion of his salary to the Company.
The Company rents office and warehouse space in Kalama, Washington, from the
sister of the President for $495.00 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 the President for consideration of $376.00 per month.
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) EXHIBITS
The following exhibits designated with a footnote reference are incorporated
herein by reference to a prior registration statement or a periodic report filed
by the Registrant pursuant to Section 13 or 15(d) of the Exchange Act:
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
27 Financial Data Schedule (for S.E.C. use only)*
* Filed Herewith
(b) FORM 8-K
The Company filed no reports on SEC Form 8 for the quarter ended December 31,
1998.
- 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 23, 1999 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 23, 1999
--------------------------- Chief Executive Officer,
Richard E. Aho Chief Accounting Officer
and Director
/s/ Leslie J Aho Vice President, Secretary, March 23, 1999
--------------------------- 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, 1998 and 1997 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, 1998 and 1997, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ SPEAR, SAFER, HARMON & CO.
Miami, Florida
February 24, 1999
F-1
<PAGE> 18
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 62,726 $ 102,568
Accounts Receivable, net of allowance for doubtful
accounts of $7,000 834,660 867,578
Inventory 1,885,530 1,869,806
Other Receivables -- 114,685
Prepaid Expenses 23,806 8,299
-----------------------
Total Current Assets 2,806,722 2,962,936
PROPERTY AND EQUIPMENT, NET 140,456 139,947
OTHER ASSETS
Deferred Financing Costs, net 23,254 78,090
Unamortized Patent Costs, net 73,805 85,180
Other 36,510 31,017
-----------------------
Total Other Assets 133,569 194,287
-----------------------
TOTAL ASSETS $3,080,747 $3,297,170
=======================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable - Line of Credit $1,413,814 $1,459,745
Term Loan - Current 128,239 32,968,000
Current Maturities of Notes Payable 25,061 24,296
Accounts Payable 315,674 354,776
Accrued Liabilities 38,588 85,982
-----------------------
Total Current Liabilities 1,921,376 1,957,767
LONG-TERM NOTES PAYABLE
Notes Payable - Shareholders 45,000 124,043
Term Loan -- 147,212
Other Notes Payable 12,712 37,782
-----------------------
Total Long-Term Notes Payable 57,712 309,037
-----------------------
TOTAL LIABILITIES 1,979,088 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 (455,190) (386,483)
-----------------------
TOTAL SHAREHOLDERS' EQUITY 1,101,659 1,030,366
-----------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $3,080,747 $3,297,170
=======================
</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, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-----------------------
<S> <C> <C>
SALES $3,748,279 $3,881,383
COST OF SALES 2,216,140 2,400,534
-----------------------
GROSS PROFIT 1,532,139 1,480,849
-----------------------
SELLING EXPENSES 453,954 392,227
-----------------------
GENERAL AND ADMINISTRATIVE EXPENSES
Salaries and Wages 397,605 456,586
Professional Fees 74,053 169,913
Rent 76,836 73,752
Depreciation and Amortization 147,966 112,425
Insurance 43,608 51,797
Vehicle Expenses 37,649 42,362
Research & Development 6,075 16,370
Other 114,189 118,418
-----------------------
Total General and Administrative Expenses 897,981 1,041,623
-----------------------
Total Expenses 1,351,935 1,433,850
-----------------------
INCOME FROM OPERATIONS 180,204 46,999
-----------------------
OTHER EXPENSE/INCOME
Interest Expense (188,977) (179,080)
Royalty Income 0 52,584
Licensing Income 0 125,000
Licensing Costs (65,677) (66,231)
Forgiveness of Interest 5,743 15,563
-----------------------
Total Other (Expense)/Income (248,911) (52,164)
-----------------------
-----------------------
Loss before Provision for Income Taxes (68,707) (5,165)
Provision for Income Taxes (Benefit) -- --
-----------------------
NET LOSS $(68,707) $(5,165)
=======================
PER SHARE DATA:
Weighted Average Shares Outstanding 10,592,046 10,103,585
LOSS PER COMMON SHARE - BASIC ($0.01) ($0.00)
</TABLE>
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, 1998 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
TOTAL ------------------ PAID IN EARNINGS
EQUITY SHARES AMOUNT CAPITAL (DEFICIT)
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1996 $1,010,531 9,984,354 $ 9,984 $1,381,865 $(381,318)
Conversion of Stock Warrants
into Common Shares 0 250,000 250 (250) 0
Conversion of Shareholder Loan
into Common Shares 25,000 50,000 50 24,950 0
Net Loss for Year 1997 (5,165) 0 0 0 (5,165)
---------- ----------- ------- ---------- ---------
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 Year 1998 (68,707) 0 0 0 (68,707)
---------- ----------- ------- ---------- ---------
BALANCES, DECEMBER 31, 1998 $1,101,659 10,684,354 $10,684 $1,546,165 $(455,190)
</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, 1998 AND 1997
1998 1997
----------------------
OPERATING ACTIVITIES
Net (loss) $(68,707) $(5,165)
Adjustments to reconcile net (loss) to net cash
provided(used) by operating activities:
Depreciation and amortization 147,966 112,425
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable 32,918 (319,522)
Inventories (15,724) (277,454)
Prepaid expenses (15,507) 459
Other receivables 114,685 (111,130)
Other assets (5,493) (4,724)
(Decrease) increase in:
Accounts payable (39,106) 146,359
Accrued liabilities (47,394) (16,806)
----------------------
Net cash provided (used) by operating activities 103,638 (475,558)
INVESTING ACTIVITIES
Capital equipment acquisitions (55,232) (40,444)
Patent costs (625) (6,654)
----------------------
Net cash used in investing activities (55,857) (47,098)
FINANCING ACTIVITIES
Proceeds from sale of common stock 140,000 --
(Repayment of) proceeds from short term borrowing (45,931) 649,861
(Repayment of) short-term vendor debt -- (42,563)
Proceeds from long-term debt -- 200,000
Deferred financing costs (26,406) (124,944)
Repayment of shareholder loans (79,043) (46,750)
Principal payments on long-term debt (76,243) (42,262)
----------------------
Net cash (used) provided by financing activities (87,623) 593,342
(Decrease) Increase in Cash (39,842) 70,686
Cash at Beginning of Year 102,568 31,882
----------------------
Cash at End of Year $ 62,726 $ 102,568
======================
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, 1998 AND 1997
1998 1997
-----------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest: $178,370 $159,355
Cash paid during the period for income taxes: -- --
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES
Conversion of shareholder notes payable into
common stock -- $ 25,000
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, 1998 AND 1997
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.
(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.
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, 1998, cash balances included restricted cash of approximately
$42,000 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)
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 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/(Loss) Per Common Share - Basic
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 10,592,046 and
10,103,585 at December 31, 1998 and 1997, respectively. Potential common stock,
when included in the computation of dilutive earnings per share, was
anti-dilutive at December 31, 1998 and 1997.
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. Accounting for Impairment of Long-Lived Assets
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and For Long-Lived Assets to Be Disposed Of", the Company reviews
long-lived assets for impairment on an exception basis. At December 31, 1998 and
1997, the Company believes no material impairments existed.
l. 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 has adopted SFAS No. 128 and SFAS No. 129 in 1998 with 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 has
adopted SFAS No. 130 during 1998 and with 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 has adopted SFAS No. 131 during
1998, with the required additional financial statement disclosures presented in
Note 11 below.
F-9
<PAGE> 26
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132 "Employers' Disclosures About Pensions
and Other Postretirement Benefits," which is effective for fiscal years
beginning after December 15, 1997. Since the Company has no such plans, there is
no impact to the Company's financial reporting or presentation due to the
adoption of SFAS 132.
m. 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.
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, approximately $115,000 (none in 1998) 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, 1998 and December 31, 1997 consist of the
following:
1998 1997
---- ----
Molds, dies and tooling $ 697,858 $ 663,067
Autos and trucks 53,287 53,287
Office equipment 78,415 57,974
--------- ---------
829,560 774,328
Less accumulated depreciation (689,104) (634,381)
--------- ---------
$ 140,456 $ 139,947
========= =========
Depreciation expense was approximately $55,000 in 1998 and $56,000 in 1997.
F-10
<PAGE> 27
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. OTHER ASSETS
Other assets at December 31, 1998 and December 31, 1997 consist of the
following:
1998 1997
---- ----
Patents, net of amortization $ 73,805 $ 85,180
Rental security deposits 11,188 10,929
CSVI - officer life insurance 25,322 20,088
Deferred financing costs, net 23,254 78,090
-------- --------
$133,569 $194,287
======== ========
5. NOTES PAYABLE
Notes payable at December 31, 1998 and December 31, 1997 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Note payable - line of credit under revolving
credit agreement, interest at Prime plus 3.0%,
secured by accounts receivable and inventory $ 1,413,814 $ 1,459,745
Term loan payable, interest at Prime plus 3.5%,
secured by all Company assets, due March 31, 1999 128,239 180,180
Unsecured note payable in installments, interest
at 12%, with final payment due July 1, 2000 23,750 38,750
Notes payable - shareholders, interest at 12%,
payable December 31, 2000 45,000 124,043
Notes payable to financial institutions at
various interest rates from 10.25% to
10.60%, secured by autos and trucks 14,023 23,329
----------- -----------
1,624,826 1,826,047
Less amounts due within one year (1,567,114) (1,517,009)
----------- -----------
Amount due after one year $ 57,712 $ 309,038
=========== ===========
</TABLE>
F-11
<PAGE> 28
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE (CONTINUED)
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.
As of December 31, 1998, the Company was in technical default on several of the
lender's requirements and ratios and requested the lender's waiver and
modification of these ratios. The Company was advised by the lender in a March
16, 1999 commitment letter that the waivers and modifications will be granted
and that the credit facility will be extended until March 31, 2000. The Company
is not in default in the payment of interest or principal.
The aggregate maturities of notes payable at December 31, 1998 are as follows:
1999 $ 1,567,114
2000 57,712
-----------
$ 1,624,826
===========
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 received a licensing fee of
$125,000 plus royalties for a period of 10 years.
F-12
<PAGE> 29
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES
The Company has net operating loss carry-forwards of approximately $700,000
which may provide future income tax benefits that expire through 2013. The
deferred tax asset at December 31, 1998 consists of the following:
Net Operating Loss Carry-forwards $ 266,000
Valuation Allowance (266,000)
---------
--
=========
Since any tax benefit is dependent upon future taxable earnings, the Company has
not recognized such benefits for financial reporting purposes.
A reconciliation of income tax at the statutory rate to the Company's effective
tax rates for the year ended December 31, 1998, 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 1998.
F-13
<PAGE> 30
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMON STOCK (CONTINUED)
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 1998 and 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).
On March 31, 1998, the Company completed a placement of 400,000 shares of common
stock at $.35 per share under SEC Regulation S.
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 and
December 31, 2000. During 1998 and 1997, the President waived approximately
$6,000 and $16,000, respectively, of interest that was accrued on this loan,
which is included in Other Income in the accompanying Statements of Operations.
During 1998 and 1997, the President also reduced his note payable from the
Company by a total of $79,043 and $71,750, respectively, via salary reductions
of $79,043 and $46,750 and conversion into $25,000 of common stock.
The Company's Kalama, Washington office and warehouse is situated in the home of
a relative of the Company's President. Rent is $495 per month on a
month-to-month basis.
10. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its office and warehouse facilities under non-cancellable
leases through 2003. Rent expense for the years ended December 31, 1998 and
December 31, 1997 were $76,836 and $73,752, respectively. The Company also has
several operating leases for vehicles and office equipment through 2003.
F-14
<PAGE> 31
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At December 31, 1998, the future minimum lease payments are as follows:
1999 $ 86,614
2000 84,051
2001 83,424
2002 80,147
2003 31,750
---------
$ 365,986
=========
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."
11. INDUSTRY SEGMENT AND OPERATIONS BY GEOGRAPHIC AREAS
The Company operates predominantly in one industry segment - that being the
production, distribution and marketing of 4-wheel drive hubs and coupling
devices and hydraulic winches. During 1998 and 1997, sales to the top five
customers amounted to approximately 30% and 23% of total sales, respectively.
Operations outside of the United States are worldwide, but primarily in
Australia, Asia, Europe and Africa. No single country or geographic region is
significant to the overall operations of the Company. Foreign revenues,
operating income and identifiable assets were approximately $350,000, $17,000
and $170,000, respectively, in 1998 and approximately $150,000, $2,000 and
$190,000, respectively, in 1997.
The Company has assets and its major supplier located in Taiwan, The Republic of
China. The Taiwan economy has been impacted by the economic uncertainty
associated with many of the countries in the region. The countries in this
region have experienced volatile currency exchange rates and volatile interest
rates, illiquidity and reduced economic activity. Although the Company may be
affected by economic conditions in this region, the Company's management is
unable to determine the extent of such impact.
F-15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 62,726
<SECURITIES> 0
<RECEIVABLES> 841,711
<ALLOWANCES> 7,051
<INVENTORY> 1,885,530
<CURRENT-ASSETS> 2,806,722
<PP&E> 829,560
<DEPRECIATION> 689,104
<TOTAL-ASSETS> 3,080,747
<CURRENT-LIABILITIES> 1,921,376
<BONDS> 57,712
0
0
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<EPS-PRIMARY> (0.01)
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</TABLE>
