<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, 1999
( ) 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
of incorporation or organization) Identification 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: $ 4,926,568
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 3, 2000: $ 1,222,974.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of the Registrant's sole class of Common Stock
as of March 3, 2000, was 10,684,357 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." 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, 1999
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
----
<S> <C>
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.......................... 10
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 PartyTransactions........... 15
PART IV
Item 13. Exhibits, Lists and Reports on Form 8-K....................... 16
Signatures.............................................................. 17
</TABLE>
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ITEM 1. DESCRIPTION OF THE BUSINESS
FORM, ORGANIZATION AND CHANGES
MileMarker International, Inc. (the "Company"), was organized as a New York
corporation on August 15, 1960, under the name Nylo-Thane Plastics, Inc. On
January 19, 1982, the Company's name was changed to Olan Laboratories
International, Inc., and on December 28, 1993, the Company's name was changed to
MileMarker International, Inc. From January 9, 1982 to December 28, 1993, the
Company conducted business operations through a wholly-owned subsidiary, Olan
Laboratories, Inc.
On December 12, 1993, the Company entered into an Exchange of Stock Agreement
and Plan of Reorganization (the "Reorganization Agreement") with MileMarker,
Inc., a Florida corporation ("MileMarker"). Pursuant to the Reorganization
Agreement, which was completed and closed on December 28, 1993, (i) the
Company's common stock was reverse split on a one share for ten shares basis;
(ii) 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. 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 warehouse distributors, jobbers, retail stores and
mail-order 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 United States 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 1999 and 1998, sales to the Company's top five customers amounted to
approximately 50% and 30% 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 similar to the MileMarker winch which is
designed around a power steering pump. 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,
temporary employees 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 through 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 Party 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 March 4, 1999, the Company filed suit against Peterson Publishing and Warn
Industries, Inc. in Broward Circuit Court for defamation, civil conspiracy and
interference with business practices in connection with a November 1997
published test of its hydraulic winch and power source. The Company alleges that
Peterson Publishing conspired with its advertiser, Warn Industries, to
deliberately misrepresent the quality and performance of the Company's product
to potential consumers, thereby adversely affecting the Company's sales and
profits. The Company is seeking considerable, yet undetermined damages, both of
a compensatory and a punitive nature. Considerable discovery has been completed.
In response to the Company's legal action, Peterson Publishing has filed a
counter-claim for alleged defamation by the Company and the Company's Chief
Executive Officer. The Company's attorney fees for this action are limited by
contingency agreements. The Company's management is unable at this time to
quantify the effects of this action and the counter-claim upon the Company's
finances or its operations.
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, 1999.
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., the Company's principal market maker, has
advised the Company that the following bid quotations have been reported for the
period beginning January 1, 1998 and ended December 31, 1999:
Bid Prices
--------------
High Low
---- ---
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
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Bid Prices
--------------
High Low
---- ---
Quarter Ended March 31, 1999 .063 .125
Quarter Ended June 30, 1999 1.125 .125
Quarter Ended September 30, 1999 .563 .281
Quarter Ended December 31, 1999 .438 .125
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 understands that six 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, 1999, 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, 1999, there were 10,684,357 shares of the Company's common
stock issued and outstanding. Of those shares, 7,029,349 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 3, 2000, 850,000 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.
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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 warrants, which were sold for
$150, provided standard anti-dilution protection and were to be included in any
registration statement filed by the Company in the future. These warrants
expired unexercised in 1999. 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. On September 26, 1996,
the Company engaged the underwriter as the Company's exclusive financial advisor
and investment banker in connection with the potential sale or merger of the
Company.
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.
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. This employment agreement was terminated on January
31, 2000, but the stock option continues until March 31, 2000. On October 29,
1999, the Company issued an option exercisable through October 31, 2002, to a
key consultant of the Company for the purchase of 150,000 shares of common
stock at an exercise price of $.60 per share. No options were exercised in 1999
or 1998 under any stock option agreement.
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.
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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, 1999 and 1998.
RESULTS OF OPERATIONS
The following table summarizes the results of operations for the calendar years
indicated:
<TABLE>
<CAPTION>
1999 Amount % 1998 Amount %
------------------------- --------------------------
<S> <C> <C> <C> <C>
Sales $ 4,926,568 100.0 $ 3,748,279 100.0
Cost of Sales 2,746,415 55.7 2,216,140 59.1
----------- -----------
Gross Profit 2,180,153 44.3 1,532,139 40.9
Selling, General and
Administrative Expenses 1,540,248 31.3 1,351,935 36.1
----------- -----------
Income from Operations 639,905 13.0 180,204 4.8
Other Expenses (59,769) (1.2) (59,934) (1.6)
Interest Expense (191,590) (3.9) (188,977) (5.0)
----------- -----------
Income/(Loss) Before Tax 388,546 7.9 (68,707) (1.8)
Income Tax Benefit 78,000 1.6 --
----------- -----------
Net Income/(Loss) 466,546 9.5 (68,707) (1.8)
=========== ===========
</TABLE>
The Company's total sales increased by $1,178,289, or approximately 30% from
1998 to 1999, with most of the increase attributable to winch sales. Winch sales
increased from about $1,115,000 in 1998 to about $2,307,000 in 1999. Most of
this increase in winch sales was due to the partial fulfillment of U.S. military
winch orders. Sales of hubs, conversion kits and other products were
approximately the same in 1999 and 1998. The Company's gross margins on its
sales continued to increase from about 41% in 1998 to about 44% in 1999,
reflecting lower product costs and higher prices on military winches.
Selling, general and administrative expenses of the Company increased by about
$188,000 in 1999 compared to 1998. Most of this increase was due to $118,000 in
higher salary costs and approximately $57,000 in higher professional fees.
Salary costs were higher in 1999 due in part to salary refunds made in 1998 to
meet certain loan covenants. During 1998, Chairman Richard E. Aho waived
approximately $79,000 of his officer compensation. Professional fees were
higher in 1999 due in part to the costs of the Company's current litigation
against a competitor (see Part I, Item 3 - "Legal Proceedings"). Loan
amortization costs decreased by about $50,000 resulting from the restructuring
of the Company's financing, but were offset by approximately $40,000 of other
expenses. Selling costs increased in 1999 by about $29,000 over 1998 due to more
advertising and sales commissions required to generate the increased level of
sales.
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Relative to sales, the Company's selling, general and administrative costs
continued to decrease from about 36% of sales during 1998 to about 31% in 1999.
As a result of improvements in the Company's 1999 sales and gross margin, the
Company's 1999 income from operations of $639,905 was substantially greater than
the $180,204 in 1998. Other expenses of $251,359 in 1999, consisting primarily
of interest, were not significantly different from the 1998 other expenses of
$248,911.
The Company's net income before taxes of $388,546 represents a significant
improvement over the net loss before taxes of $68,707 in 1998. During 1999, the
Company recognized a tax benefit of $78,000 from its prior years' net loss
carryforwards. Consequently, the Company's 1999 net income of $466,546 compares
to a net loss of $68,707 in 1998. Net income per common share basic was $.04
compared to a loss of $.01 per share in 1998 based on 10,684,357 average number
of shares outstanding in 1999 versus 10,592,049 average number of shares
outstanding in 1998. In 1999 and 1998, incremental shares related to stock
options and warrants were anti-dilutive.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations principally through the daily collection of its
trade receivables, supplemented with asset-based borrowings. On March 31, 1999,
the Company renewed and increased its asset-based line of credit to $1,750,000,
with a maturity date of March 31, 2000. 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
key man life insurance on the Company's President/Chairman.
On March 7, 2000, the Company replaced its asset-based credit facility with a
working capital line of credit of $1,750,000 from another lender at an interest
rate approximating the prime interest rate. The facility is secured by
substantially all of the Company's assets.
At December 31, 1999, the Company had working capital of $1,290,806 compared to
$885,346 at December 31, 1998. The Company's current ratio increased to 1.75 on
December 31, 1999 from 1.46 on December 31, 1998. During 1999, the Company's
total liabilities decreased by approximately $249,000 as several creditors were
paid down and accounts payable was reduced by cash generated from operating
activities.
Borrowings under the Company's line of credit decreased by approximately $44,000
to $1,369,845 at December 31, 1999, compared to $1,413,814 on December 31, 1998.
At December 31, 1999, the Company held cash balances of $187,830 compared to
$62,726 a year earlier. However, most of the 1999 and 1998 cash balances
represent cash collateral against the line of credit from the collection of the
Company's receivables which had not yet been applied against the loan with the
Company's lender.
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The Company had no material commitments for capital expenditures at December 31,
1999.
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, 1999
and December 31, 1998 .................................. F-2
Consolidated Statements of Operations - Years Ended
December 31, 1999 and 1998 .............................. F-3
Consolidated Statements of Shareholders' Equity - Years
Ended December 31, 1999 and 1998 ........................ F-4
Consolidated Statements of Cash Flows - Years Ended
December 31, 1999 and 1998 .............................. F-5
Notes to Consolidated Financial Statements ................. F-6
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, 1999, the Executive Officers and Directors of the Company
were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Richard E. Aho 55 Chairman, President,
Chief Executive Officer,
Director
Leslie J. Aho 43 Vice President,
Treasurer,
Secretary, Director
George Shelley 69 Director
</TABLE>
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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. Mr. Aho's expertise
is in engineering research, new product design and development and contract
manufacturing negotiations. He has received numerous U.S. and foreign patents on
MileMarker products.
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, assembly, warehousing, shipping and human
resources management. Ms. Aho is the wife of Richard Aho.
GEORGE SHELLEY was elected to the Board of Directors in 1999. Mr. Shelley
currently serves as President of Autoart Investments, Inc. He retired in 1988 as
Vice President of Alco Standard, Inc., which had purchased Shelley Manufacturing
Company in 1971.
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 1999 and 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,
1999, compensation paid by the Company to Richard E. Aho, its President and
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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
<TABLE>
<CAPTION>
Annual
Fiscal Compensation
Name and Position Year -Salary
- ----------------- ---- ------------
<S> <C> <C>
Richard E. Aho, President 1999 $ 143,000
Chief Executive Officer 1998 $ 74,250
1997 $ 99,000
</TABLE>
Mr. Aho has received no compensation from the Company other than his salary in
each of these years noted above. No director receives any additional
compensation for his or her services as a director. The Company has no option,
profit sharing or pension plan currently in effect, 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 facto rs 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,
1999, the Company had issued and outstanding 10,684,357 shares of common stock.
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<TABLE>
<CAPTION>
Name and Address Number of Shares Percentage of
of Common Stock of Common Stock Common Stock
Beneficial Owner Beneficially Owned Ownership
- ---------------- ------------------ ------------
<S> <C> <C>
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
George Shelley(4)
1412 S.W. 12th Court
Pompano Beach, FL 33069 566,000 5.30%
David Allsop
Four Falls Corporate Center
West Conshohocken, PA 535,000 5.00%
All Executive Officers and
Directors as a group (3 persons) 5,666,000 53.03%
</TABLE>
(1) Officer and Director
(2) Leslie J. Aho is the wife of Richard E. Aho
(3) All shares owned by Richard and Leslie Aho were pledged to the Company's
lender as collateral for the Company's March 31, 1999 credit facility.
(4) Director
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
As of December 31,1999, 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, the President waived $5,743 of interest on his shareholder
loan to the Company and used $79,043 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 monthly on a month to month basis.
-15-
<PAGE> 16
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
(b) Form 8-K
The Company filed no reports on SEC Form 8 for the quarter ended December 31,
1999.
-16-
<PAGE> 17
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 7, 2000 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 7, 2000
Richard E. Aho Chief Executive Officer,
Chief Accounting Officer
and Director
/s/ Leslie J. Aho
- --------------------------- Vice President, Secretary, March 7, 2000
Leslie J. Aho Treasurer and Director
/s/ George Shelley
- --------------------------- Director March 7, 2000
George Shelley
-17-
<PAGE> 18
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, 1999 and 1998 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, 1999 and 1998, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Spear, Safer, Harmon & Co.
Miami, Florida
February 18, 2000
F-1
<PAGE> 19
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND DECEMBER 31, 1998
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 187,830 $ 62,726
Accounts Receivable, net of allowance for doubtful
accounts of $14,000 and $ 7,000, respectively 943,510 834,660
Inventory 1,749,865 1,885,530
Other Receivables 13,293 --
Deferred Tax Asset 94,010 --
Prepaid Expenses 16,289 23,806
----------- -----------
Total Current Assets 3,004,797 2,806,722
PROPERTY AND EQUIPMENT, NET 131,596 140,456
OTHER ASSETS 161,813 133,569
----------- -----------
TOTAL ASSETS 3,298,206 3,080,747
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable - Line of Credit 1,369,845 $ 1,413,814
Term Loan - Current 31,726 128,239
Current Maturities of Notes Payable -- 25,061
Note Payable - Shareholder 45,000 --
Accounts Payable 216,076 315,674
Accrued Liabilities 51,344 38,588
----------- -----------
Total Current Liabilities 1,713,991 1,921,376
DEFERRED TAX CREDIT 16,010 --
LONG-TERM NOTES PAYABLE
Note Payable - Shareholder -- 45,000
Other Notes Payable -- 12,712
----------- -----------
Total Long-Term Notes Payable -- 57,712
----------- -----------
TOTAL LIABILITIES 1,730,001 1,979,088
=========== ===========
SHAREHOLDERS' EQUITY
Common Stock, $.001 par value; 20,000,000 shares
authorized, 10,684,357 shares issued and outstanding
in 1999 and 1998, respectively 10,684 10,684
Paid-in Capital 1,546,165 1,546,165
Retained Earnings/(Accumulated Deficit) 11,356 (455,190)
----------- -----------
Total Shareholders' Equity 1,568,205 1,101,659
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 3,298,206 $ 3,080,747
=========== ===========
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-2
<PAGE> 20
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Sales $ 4,926,568 $ 3,748,279
Cost of Sales 2,746,415 2,216,140
------------ ------------
Gross Profit 2,180,153 1,532,139
------------ ------------
Selling Expenses 482,783 453,954
------------ ------------
General and Administrative Expenses
Salaries and Wages 515,633 397,605
Professional Fees 130,761 74,053
Rent 77,394 76,836
Depreciation and Amortization 98,278 147,966
Insurance 38,638 43,608
Vehicle Expenses 38,507 37,649
Research & Development 4,071 6,075
Other 154,183 114,189
------------ ------------
Total General and Administrative Expenses 1,057,465 897,981
------------ ------------
Total Expenses 1,540,248 1,351,935
------------ ------------
Income from Operations 639,905 180,204
------------ ------------
Other Expenses
Interest Expense (191,590) (188,977)
Licensing Costs (59,769) (65,677)
Forgiveness of Interest -- 5,743
------------ ------------
Total Other Expenses (251,359) (248,911)
------------ ------------
Income/(Loss) before Tax Benefit 388,546 (68,707)
Income Tax Benefit 78,000 --
------------ ------------
Net Income/(Loss) $ 466,546 $ (68,707)
============ ============
Per Share Data:
Weighted Average Shares Outstanding:
Basic 10,684,357 10,592,049
Diluted -- --
Income/(Loss) per Common Share
Basic $ 0.04 $ (0.01)
Diluted -- --
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-3
<PAGE> 21
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Common Stock Retained
Total ---------------------------- 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 --
Net Loss for Year 1998 (68,707) -- -- -- (68,707)
----------- ----------- ----------- ----------- -----------
Balances, December 31, 1998 1,101,659 10,684,354 10,684 1,546,165 (455,190)
Net Profit for Year 1999 466,546 -- -- -- 466,546
----------- ----------- ----------- ----------- -----------
Balances, December 31, 1999 $ 1,568,205 10,684,354 $ 10,684 $ 1,546,165 $ 11,356
</TABLE>
The accompanying Notes are an integral part of these financial statements.
F-4
<PAGE> 22
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income/(loss) $ 466,546 $ (68,707)
Adjustments to reconcile net income/(loss) to net cash
provided(used) by operating activities:
Depreciation and amortization 98,278 147,966
Deferred income taxes (78,000) --
Bad debts 32,481 --
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (141,331) 32,918
Inventories 135,665 (15,724)
Prepaid expenses 7,518 (15,507)
Other receivables (13,293) 114,685
Other assets (20,085) (5,493)
(Decrease) increase in:
Accounts payable (99,598) (39,106)
Accrued liabilities 12,756 (47,394)
--------- ---------
Net cash provided by operating activities 400,937 103,638
INVESTING ACTIVITIES
Capital equipment acquisitions (42,424) (55,232)
Patent costs (34,500) (625)
--------- ---------
Net cash used in investing activities (76,924) (55,857)
FINANCING ACTIVITIES
Proceeds from sale of common stock -- 140,000
Repayment of short term borrowing - net (165,543) (45,931)
Deferred financing costs (20,654) (26,406)
Repayment of shareholder loans -- (79,043)
Principal payments on long-term debt (12,712) (76,243)
--------- ---------
Net cash (used) by financing activities (198,909) (87,623)
Increase/(decrease) in Cash 125,104 (39,842)
Cash at Beginning of Period 62,726 102,568
--------- ---------
Cash at End of Period $ 187,830 $ 62,726
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 189,610 $ 178,370
Cash paid during the period for income taxes -- --
</TABLE>
The accompanying Notes are an integral part of these financial statements
F-5
<PAGE> 23
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
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, 1999, cash balances included restricted cash of approximately
$180,000 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 due 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-6
<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, primarily net operating loss carryforwards and depreciation, using
enacted tax rates in effect in the years in which the differences are expected
to reverse. In 1998, deferred tax assets were reduced by a valuation allowance
if, based on the weight of available evidence, it was more likely than not that
some portion or all of the deferred tax assets will not be realized.
i. Earnings/(Loss) Per Share
Basic earnings per common share is calculated by dividing net income (loss) by
the average number of common shares outstanding during the year. Diluted
earnings per common share is calculated by adjusting outstanding shares,
assuming conversion of all potentially dilutive stock options and warrants. The
diluted share base for the years ended December 31, 1999 and December 31, 1998
excludes incremental shares related to stock options and warrants since their
effect was anti-dilutive.
F-7
<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, 1999 and
1998, the Company believes no material impairments existed.
l. Recent Pronouncements in Accounting Standards
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
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 adopted SFAS No. 131 during 1998,
with the required additional financial statement disclosures presented in Note
11 below.
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132 "Employers' Disclosures About Pensions
and Other Post-retirement 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.
F-8
<PAGE> 26
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Summary of Significant Accounting Policies (Continued)
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Investments
and Hedging Activities", which is effective for fiscal periods beginning after
June 15, 2000. The Company does not expect a material impact to it's financial
reporting or presentation due to the adoption of SFAS No. 133.
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. 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 consist of the following:
1999 1998
--------- ---------
Molds, dies and tooling $ 723,909 $ 697,858
Autos and trucks 53,287 53,287
Office equipment 94,789 78,415
--------- ---------
871,985 829,560
Less accumulated depreciation (740,389) (689,104)
--------- ---------
$ 133,596 $ 140,456
========= =========
Depreciation expense was approximately $51,000 in 1999 and $55,000 in 1998.
F-9
<PAGE> 27
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. OTHER ASSETS
Other assets consist of the following:
1999 1998
-------- --------
Patents, net of amortization $ 96,305 $ 73,805
Security deposits 25,975 11,188
CSVI - officer life insurance 30,620 25,322
Deferred financing costs, net 8,913 23,254
-------- --------
$161,813 $133,569
======== ========
5. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Note payable - line of credit under revolving credit agreement, interest
at Prime plus 3.5%, secured by all assets of the Company $ 1,369,845 $ 1,413,814
Term loan payable, interest at Prime plus 3.5%, secured by all Company
assets, due March 31, 2000 31,726 128,239
Note payable - shareholder, interest at 12%,
unsecured, payable December 31, 2000 45,000 45,000
Unsecured note payable in installments,
interest at 12% -- 23,750
Notes payable to financial institutions at
interest rates from 10.25% to 10.60% -- 14,023
----------- -----------
1,446,571 1,624,826
Less amounts due within one year (1,446,571) (1,567,114)
----------- -----------
Amount due after one year $ -- $ 57,712
=========== ===========
</TABLE>
F-10
<PAGE> 28
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE (CONTINUED)
On March 31, 1999, the Company renewed for one year and increased to $1,750,000
its revolving credit agreement and the remaining balance of the $200,000 term
loan with a financial institution at an interest rate of 3.50% above Prime plus
additional fees. The amended credit agreement contains certain affirmative,
negative and financial covenants which, among others, specify certain 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, 1999, the Company was in compliance with the lender's covenants.
On March 7, 2000, the Company replaced its asset-based credit facility with a
working capital line of credit of $1,750,000 from another lender at an interest
rate approximating the prime interest rate. The facility is secured by
substantially all of the Company's assets.
6. LICENSING AGREEMENTS
The Company is authorized under a fully-paid licensing agreement with Warn
Industries, Inc. to utilize Warn's patents in the manufacture of certain hubs.
This non-cancelable agreement calls for quarterly payments of 4% of sales on
these hubs for a period of 10 years, with minimum payments of $325,000 and
maximum payments of $600,000 during the life of the agreement. During 1999 and
1998, hub sales of approximately $1,500,000 and $1,600,000, respectively, were
subject to licensing fees under this agreement. The Company has met the payment
requirements of this agreement, which expires on February 28, 2000 (See Note 10
- - Legal).
7. INCOME TAXES
The Company has net operating loss carry-forwards of approximately $210,000
which may provide future income tax benefits that expire through 2013. The
deferred tax asset and the deferred tax credit consist of the following:
1999 1998
-------- --------
Deferred Tax Asset:
Allowances for bad debts and warranty $ 16,000 $ -0-
Net operating loss carryforwards 78,000 266,000
-------- ---------
94,000 266,000
Less Valuation Allowance -0- (266,000)
-------- ---------
Net Deferred Tax Asset $ 94,000 $ -0-
-------- ---------
Deferred Tax Credit:
Depreciation $ 16,000 $ -0-
-------- ---------
F-11
<PAGE> 29
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
Since the tax asset is dependent upon future taxable earnings, the Company has
chosen to recognize such benefit for financial reporting purposes in 1999 based
on expected 2000 taxable earnings.
A reconciliation of income tax at the statutory rate to the Company's effective
tax rates for the years ended December 31, 1999 and 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 AND STOCK OPTIONS AND WARRANTS
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, provided standard anti-dilution protection and are to be included in
any registration statement filed by the Company in the future. The warrants
expired unexercised in 1999. 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. On September 26, 1996,
the Company engaged the underwriter as the Company's exclusive financial advisor
and investment banker in connection with the potential sale or merger of the
Company.
On April 25, 1997, the Company issued an option exercisable through March 31,
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 1999 and 1998, 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 President/Chairman in consideration for the
conversion of $25,000 of his shareholder loan to the Company (approximately $.50
per share).
F-12
<PAGE> 30
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. COMMON STOCK (CONTINUED)
On March 31, 1998, the Company completed a placement of 400,000 shares of common
stock at $.35 per share under SEC Regulation S.
On October 29, 1999, the Company issued an option exercisable through October
31, 2002, to a key consultant of the Company for the purchase of 150,000 shares
of common stock at an exercise price of $.60 per share. During 1999, no options
were exercised.
9. RELATED PARTY TRANSACTIONS
During 1995, a related party advanced funds to the Company evidenced by a
promissory note in the amount of $45,000. The promissory note bears interest at
the rate of 12% per annum, is subordinated to bank borrowings and is payable in
full on December 31, 2000. During 1998, the Company's President reduced his
remaining 1995 note payable from the Company to zero via salary reductions
totaling $79,043.
The Company warehouses certain inventory with a relative of the Company's
President in Kalama, Washington. 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-cancelable
leases through 2003. Rent expense for the years ended December 31, 1999 and
December 31, 1998 were $77,394 and $76,836, respectively. The Company also has
several operating leases for office equipment through 2003.
At December 31, 1999, the future minimum lease payments are as follows:
2000 84,051
2001 83,424
2002 80,147
2003 31,750
--------
$279,372
========
F-13
<PAGE> 31
MILEMARKER INTERNATIONAL, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 March 4, 1999, the Company filed suit against Peterson Publishing and
Warn Industries, Inc. in Broward Circuit Court for defamation, civil conspiracy
and interference with business practices in connection with a November 1997
published test of its hydraulic winch and power source. The Company alleges that
Peterson Publishing conspired with its advertiser, Warn Industries, to
deliberately misrepresent the quality and performance of the Company's product
to potential consumers, thereby adversely affecting the Company's sales and
profits. The Company is seeking considerable, yet undetermined damages, both of
a compensatory and a punitive nature. Considerable discovery has been completed.
In response to the Company's legal action, Peterson Publishing has filed a
counter-claim for alleged defamation by the Company and the Company's Chief
Executive Officer. The Company's attorney fees for this action are limited by
contingency agree- ments. The Company's management is unable at this time to
quantify the effects of this action and the counter-claim upon the Company's
finances or its operations.
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 1999 and 1998, sales to the top five
customers amounted to approximately 50% and 30% of total sales, respectively.
The Company operates worldwide, but primarily in North America, Australia, Asia,
Europe and Africa. No single country or geographic region, other than North
America, is significant to the overall operations of the Company. Foreign
revenues, foreign operating income and foreign identifiable assets were
approximately $360,000, $50,000 and $160,000, respectively, in 1999, and
approximately $350,000, $17,000 and $170,000, respectively, in 1998. 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. However, the Company's management is unable
to quantify the extent of such impact on the Company's operations.
F-14
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0
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