SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended April 30, 1997 or
[_] Transition report pursuant to Section 13 of 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to ______
Commission file number 0-8485
Grip Technologies, Inc.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 95-1980894
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
10 Corporate Park, Suite 130
Irvine, California 92714
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(Address of principal executive offices) (Zip Code)
(714) 252-8500
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [_]
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [_] No [_]
Applicable only to corporate issuers:
Indicate the number of shares outstanding of the issuer's classes of common
stock, as of April 30, 1997: 5,981,925
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INDEX
PART I FINANCIAL INFORMATION PAGE
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets 4
Consolidated Statements of Operations 6
Consolidated Statements of Cash Flows 7
Notes to Consolidated Financial Statements 9
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II OTHER INFORMATION
Item 3 Defaults Upon Senior Securities 14
Item 6 Exhibits and Reports on Form 8-K 14
Signatures 16
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GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
April 30, 1997 July 31, 1996
-------------- -------------
(Unaudited)
CURRENT ASSETS:
Cash $ 920 $ 16,975
Accounts receivable, net of allowance
for doubtful accounts of $130,311 at
April 30, 1997 and $190,669 at July
31, 1996 297,541 537,445
Inventories 576,853 506,995
Prepaids and other assets 28,978 31,625
-------------- -------------
Total current assets 904,292 1,093,040
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of
$684,903 at April 30, 1997 and
$373,589 at July 31, 1996 810,825 887,242
INTANGIBLES, net of accumulated
amortization of $1,073,422 at April
30, 1997 and $924,490 at July 31,
1996 1,074,488 1,223,420
-------------- -------------
$ 2,789,604 $ 3,203,702
============== =============
The accompanying notes are an integral part of these balance sheets
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GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
April 30, 1997 July 31, 1996
-------------- --------------
(Unaudited)
CURRENT LIABILITIES:
Short-term borrowings $ 10,000 $ 340,000
Current portion of long-term obligations 1,518,929 976,412
Amounts due stockholder 405,479 358,879
Accounts payable 594,944 528,392
Accrued liabilities 320,172 329,905
------------- -------------
Total current liabilities 2,849,524 2,533,588
LONG-TERM OBLIGATIONS, net of current
portion 522,424 337,072
------------- -------------
Total liabilities 3,371,948 2,870,660
------------- -------------
STOCKHOLDERS' EQUITY (DEFICIT):
Series A convertible preferred stock
Authorized -- 3,000,000 shares
Issued and outstanding -- 887,500
shares at April 30, 1997 and
1,287,500 shares at July 31, 1996 887,500 1,287,500
Common stock
Authorized -- 25,000,000 shares
Issued and outstanding -- 5,981,925
shares at April 30, 1997 and
5,581,925 shares at July 31, 1996 5,854,040 5,454,040
Accumulated deficit (7,323,884) (6,408,498)
------------- -------------
Total stockholders' equity
(deficit) (582,344) 333,042
------------- -------------
$ 2,789,604 $ 3,203,702
============= =============
The accompanying notes are an integral part of these balance sheets
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GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
-----------
Nine Months Ended April 30, Quarters Ended April 30,
---------------------------------------- -------------------------------------------
1997 1996 1997 1996
--------------- ----------------- --------------- ---------------
NET SALES $ 3,013,230 $ 1,999,149 $ 838,496 $ 1,040,503
COST OF SALES 2,361,189 1,550,227 690,645 823,855
--------------- ----------------- --------------- ---------------
Gross profit 652,041 448,922 147,850 216,648
--------------- ----------------- --------------- ---------------
OPERATING EXPENSES:
Selling 477,583 635,391 139,441 198,707
General and administrative 471,339 556,658 132,205 163,483
Research and development 29,405 29,320 8,213 7,378
Depreciation 311,314 161,256 109,089 68,827
Intangible amortization 148,932 120,586 49,644 49,644
--------------- ----------------- --------------- ---------------
1,438,572 1,503,211 438,592 488,039
--------------- ----------------- --------------- ---------------
Loss from operations (786,531) (1,054,289) (290,742) (271,391)
--------------- ----------------- --------------- ---------------
INTEREST AND OTHER
Interest expense, net 149,583 117,922 56,921 36,171
Other expense (income) (22,328) (14,322) (5,798) (8,654)
--------------- ----------------- --------------- ---------------
127,255 103,600 51,123 27,517
--------------- ----------------- --------------- ---------------
Loss before income taxes (913,787) (1,157,889) (341,865) (298,908)
PROVISION FOR INCOME TAXES 1,600 1,600 - -
--------------- ----------------- --------------- ---------------
Net loss $ (915,387) $ (1,159,489) $ (341,865) $ (298,908)
============== ================ ============== ===============
Net loss per common and equivalent
share $ (0.16) $ (0.25) $ (0.06) $ (0.06)
============== ================ ============== ===============
Weighted average common shares
outstanding 5,757,749 4,691,980 5,981,925 5,176,925
============== ================ ============== ===============
The accompanying notes are an integral part of these statements
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GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
-----------
Nine Months Ended April 30,
---------------------------
1997 1996
---------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(915,387) $(1,159,489)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 311,314 161,256
Intangible amortization 148,932 120,586
Loss on disposal of property and equipment - 5,531
(Increase) decrease in accounts receivable 239,904 (156,087)
Increase in inventories (69,858) (70,371)
(Increase) decrease in prepaids and other
assets 2,647 (30,615)
Increase in accounts payable 66,552 2,673
Decrease in accrued liabilities (9,733) (115,377)
--------- -----------
Net cash used in operating activities (225,628) (1,241,893)
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (234,896) (399,652)
Proceeds from disposal of proberty and equipment - 9,500
Decrease in note receivable - 50,000
Organization costs - (2,900)
--------- -----------
Net cash used in investing activities (234,896) (343,052)
--------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on short-term borrowings (30,000) (410,000)
Net increase in amounts due stockholder 46,600 75,809
Proceeds from long-term obligations 508,500 -
Principal payments of long term obligations (80,631) (71,132)
Proceeds from issuance of stock - 1,907,185
--------- ----------
Net cash provided by financing activities 444,469 1,501,862
--------- ----------
NET DECREASE IN CASH (16,055) (83,083)
CASH, beginning of period 16,975 126,827
--------- ----------
CASH, end of period $ 920 $ 43,744
========= ==========
The accompanying notes are an integral part of these statements
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GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
-----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Nine Months Ended April 30,
-----------------------------
1997 1996
-------------- -------------
Cash paid for interest $ 89,555 $ 72,888
============== =============
On September 22, 1995, the Company completed the acquisition of USGRIPS, Inc.,
in exchange for 600,000 shares of Common Stock. The fair values of the assets
acquired and liabilities assumed are as follows:
Fair value of assets acquired:
Accounts receivable $ 195,877
Inventories 194,077
Prepaids and other assets 4,830
Property and equipment 315,406
Goodwill 1,390,750
-------------
$ 2,100,940
=============
Liabilities assumed:
Short-term borrowings $ 600,000
Accounts payable 266,211
Accrued liabilities 184,729
-------------
$ 1,050,940
=============
Fair market value of Common Stock issued $ 1,050,000
=============
The accompanying notes are an integral part of these statements
-8-
GRIP TECHNOLOGIES, INC. AND SUBSIDIARY
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
APRIL 30, 1997
--------------
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements include the
accounts of Grip Technologies, Inc. (the Company) and its wholly owned
subsidiary. All significant intercompany accounts and transactions have
been eliminated in consolidation. In the opinion of the Company's
management, all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's consolidated
financial position at April 30, 1997, the consolidated results of
operations and cash flows for the quarters ended April 30, 1997 and 1996
have been included.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules of the
Securities and Exchange Commission (SEC). These unaudited financial
statements should be read in conjunction with the financial statements and
related footnotes for the year ended July 31, 1996 included as part of the
Company's Annual Report on Form 10-K (File No. 0-8485) filed with the SEC
on November 12, 1996.
The consolidated results of operations for the quarter and nine months
ended April 30, 1997 are not necessarily indicative of the results to be
expected for the full fiscal year.
2. Acquisition of USGRIPS, Inc.
----------------------------
On September 22, 1995, the Company acquired USGRIPS, Inc. (USG). In
connection therewith, the Company issued 600,000 shares of Common Stock,
valued at $1,050,000, to the two stockholders of USG, and agreed to issue
up to an additional 400,000 shares over a three-year period pursuant to an
earn-out formula based on the gross margins achieved by the acquired USG
business. The acquisition has been accounted for as a purchase, and the
results of USG have been included in the accompanying consolidated
financial statements since the date of acquisition. The cost of the
acquisition has been allocated on the basis of the estimated fair market
value of the assets acquired and the liabilities assumed. This allocation
resulted in goodwill of $1,390,750, which is being amortized over seven
years.
In connection with the acquisition of USG, the Company elected to outsource
production and discontinue all manufacturing in its Irvine, California,
facility. Subsequent to the outsourcing of production, the Company began
purchasing sport grips from contract manufacturers who use the Company's
tooling, and in some cases, technology. Certain grips are then processed
in the Company's Vista, California facility, where the grips are painted or
engraved with custom logos, in accordance with customer requirements.
3. Going Concern
-------------
The Company has historically incurred significant losses including a loss
of $341,865 and $915,387 for the quarter and nine months ended April 30,
1997, respectively. The Company used $ 29,077 and $225,628 of cash for
operating activities during the quarter and nine months ended April 30,
1997, respectively. The working capital deficit increased $25,328 and
$504,684 to $1,945,232 for the quarter and nine months ended April 30,
1997, respectively. These factors, among others, raise substantial doubt
about the Company's ability to continue as a going concern. In order to
provide working capital to support its operations, the Company has raised
funds through trade credit, stock issuances and additional borrowings. The
Company is also currently pursuing additional funding through private
placements.
The ability of the Company to meet its existing and ongoing obligations is
dependent upon raising additional capital from sources of funding such as
private placements, public offerings, a merger or banks/other lenders.
However, there can be no assurances that any of these transactions may be
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consummated in a timely manner or on terms reasonably acceptable to the
Company. The ability of the Company to continue as a going concern is
ultimately dependent, in part, on achieving profitable operating levels and
obtaining adequate financing. The accompanying financial statements do not
include any adjustments that might be necessary should the Company be
unable to continue as a going concern.
4. Common Stock Transactions
-------------------------
On December 31, 1996, a holder of 400,000 shares of Series A convertible
preferred stock elected to convert the shares into 400,000 shares of common
stock.
5. Stock Options
-------------
In December 1996, the Board of Directors approved an amendment to the 1994
Stock Option Plan (the Plan) increasing the number of shares of common
stock set aside for grant to key employees, officers, directors and
consultants to 900,000. The amendment was subsequently approved by the
stockholders.
6. Long-Term Obligations
---------------------
In January 1997, certain term notes to a bank totaling $780,000 were
combined into a single note and the maturity date extended to September 15,
1997. The effective interest rate of the note to the Company is
approximately 10% and continues to be secured by the personal assets of a
stockholder.
In March 1997, the Company borrowed $108,500 from two accredited investors
for promissory notes. The notes mature on February 28, 1999, pay
interest at 8% per annum, and are convertible into common stock at $1.50
per share. In connection therewith, other outstanding short-term
borrowings of $50,000 to one investor was extended through February 28,
1999 under similar terms. In conjunction therewith, the Company issued
warrants to purchase 10,000 shares of common stock for $1.50 per share.
7. Subsequent Events
-----------------
In May 1997, the Company issued 72,500 shares of common stock as a result
of the early exercise of warrants by certain existing warrant holders.
Proceeds from the issuance totaled $54,375. The warrants originally had
exercise prices ranging from $1.50 to $5.00 per share. As an inducement to
encourage the early exercise of all outstanding warrants, the Company
lowered the exercise price to $0.75 per share for the warrants exercised
early. In addition, a short-term note holder agreed to cancel $10,400 of
principal and interest and surrender warrants to purchase 13,866 shares in
consideration for the issuance of 13,866 shares of common stock of the
Company at $0.75 per share. The warrants originally had an exercise price
of $2.50 per share.
Also in May 1997, the Company initiated a private placement to accredited
investors of units consisting of three shares of common stock and a warrant
to purchase one share of common stock for two years at an exercise price of
$2 per share. The Company is offering a minimum of 200,000 units and a
maximum of 500,000 units at $3 per unit. The private placement is open
through June 15, 1997, and may be extended for an additional 60 days by the
Company. No assurances can be made that the Company will be able to close a
minimum offering or obtain any funding from this private placement.
In June 1997, the Company borrowed $250,000 from an accredited investor.
New promissory notes totaling $521,000 were issued in exchange for the
amount borrowed and the cancellation of certain existing convertible short-
term notes totaling $271,000. The new notes pay interest semi-annually at
8% per annum, are convertible into common stock at $1.00 per share and
mature on May 31, 1999.
8. New Accounting Pronouncement
----------------------------
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, which will require a
basic earnings-per-share (EPS) disclosure, rather than the primary EPS
currently disclosed. This disclosure will be required commencing with
fiscal 1998. The significant difference between the two calculations is
the inclusion, if dilutive, of common stock equivalents in the calculation
of primary EPS. Since such equivalents have been anti-dilutive due to the
Company's recurring losses, the adoption of SFAS No. 128 would have minimal
effect on the Company's reported EPS.
-10-
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read together with the
consolidated financial statements and notes thereto set forth elsewhere herein.
Forward-Looking Statements
- --------------------------
From time to time, the Company may publish forward-looking statements relating
to such matters as anticipated financial performance, business prospects,
technological developments, new products, research and development activities
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. Such statements are
subject to certain risks and uncertainties which could cause actual results to
differ materially from those projected. Readers are cautioned not to place
undue reliance on these forward-looking statements which speak only as of the
date hereof. The Company undertakes no obligation to republish revised forward-
looking statements to reflect events or circumstances after the date hereof or
to reflect the occurrence of unanticipated events. Readers are also urged to
carefully review and consider the various disclosures made by the Company in
this Report, as well as the Company's other periodic reports on Forms 10-K, 10-Q
and 8-K filed with the Securities and Exchange Commission. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company's business
include, but are not limited to, those factors set forth under the caption
"Liquidity and Capital Resources" appearing below.
Financial Condition and Results of Operations
- ---------------------------------------------
On September 22, 1995, the Company completed the acquisition of USGRIPS, Inc.
(USG), in exchange for 600,000 shares of common stock. Accordingly, the
financial information discussed herein includes the operations of USG from that
date forward.
Net sales for the quarter and nine months ended April 30, 1997 were $838,496 and
$3,013,230, a 19% decrease and 51% increase when compared with $1,040,503 and
$1,999,149 for the same periods in fiscal 1996, respectively. The 51% increase
in current year-to-date net sales was primarily attributable to higher sales
volume to new and existing OEM customers. This was the result of an aggressive
sales campaign directed towards the OEM market. Net sales for the quarter
compared to the same quarter in fiscal 1996 were negatively impacted by reduced
sales to Cobra Golf (Cobra). This was due, in part, to golf club production
delays at Cobra resulting from its inability to obtain certain component parts
for their golf clubs. This delay resulted in a temporary overstocked inventory
of golf grips by Cobra. Due in part to its temporary overstocked inventory the
Company accepted an unusually high level of product returns from Cobra.
Subsequently, the Company has resumed shipments to Cobra. Delays in the
completion of certain tooling, primarily due to cash flow constraints, also
negatively impacted net sales for the quarter and nine months ended April 30,
1997 compared to the same periods in fiscal 1996. Sales to the Company's two
largest customers, Cobra and Golfsmith International (Golfsmith), were 25% and
15% during the most recent quarter and 53% and 10%, during the nine months
ended April 30, 1997, respectively. The Company continues to work with other
OEM customers to increase sales to these other customers in order to reduce the
dependence on Cobra.
Cost of sales for the nine months ended April 30, 1997 was $2,361,189 compared
to $1,550,227 for the same period in fiscal 1996. The resulting gross profit
percentage decreased slightly from 22.5% to 21.7%. The increase in dollar
amounts reflects the increased sales level in the current period. The overall
slight decrease in gross profit percentage is attributable to many factors, some
offsetting, including costs related to a full nine months of operations at the
Vista facility. In addition, the Company incurred additional costs in
streamlining the flow of production through the Vista facility, which Management
believes will ultimately result in improved production efficiencies. Increased
labor inefficiencies in the most recent quarter caused, in part, by the Company
not promptly reducing the size of the labor force to match lower than
anticipated production levels also contributed to the decrease in gross profit
percentage.
Selling expenses for the quarter and nine months ended April 30, 1997 decreased
30% and 25%, from the same periods in fiscal 1996. The primary factors causing
the decrease are reductions in the number of salespersons and advertising.
Advertising has been reduced due to cash flow constraints. The number of
salespersons has been
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reduced as the Company has redirected its sales and marketing efforts to the
replacement market. The Company has focused more on its marketing partnerships
with catalog resellers such as Golfsmith, the world's largest reseller of golf
club components. During the quarter, the Company also initiated a new
distributor program to increase replacement market sales to retailers and other
non-OEM customers. Management believes that these programs will enable the
Company to ultimately increase sales to the replacement market while incurring
less expense and risk related to servicing that market directly. Significant
benefits from these programs are not expected until Fiscal 1998.
General and administrative expenses for the quarter and nine months ended April
30, 1997 decreased 19% and 15% from the same periods in fiscal 1996. The
Company successfully integrated the acquired USG operation, eliminated duplicate
functions and otherwise aggressively reduced expenses. Bad debt expense was
also reduced due to the redirected sales and marketing efforts and improved
credit management.
The Company's research and development efforts are in line with past periods,
and continue to focus on development of prototype grip products for new
customers, as well as the development of technologies the Company owns or has
licensed.
Depreciation expense for the quarter and nine months ended April 30, 1997 has
increased 58% and 93% over the comparable periods in fiscal 1996. These
increases reflect the additional investments in tooling made in prior periods
required to accommodate new OEM customers, new projects for existing OEM
customers and other new proprietary grip products.
Improvements made within the Company's Vista facility to increase capacity,
streamline production and meet key delivery deadlines during the nine months
ended April 30, 1997 resulted in improvements in customer service, product
quality, customer relationships and management's evaluating and reporting of
operations. However, the costs of such improvements contributed to the
operating loss. The net loss for the quarter just ended increased by 14%
compared to the same quarter in Fiscal 1996. The net loss for the nine months
ended April 30,1997 decreased by 21% compared to the same period in Fiscal 1996.
The Company incurred a loss of $341,865 or $0.06 per share and $915,387 or $0.16
per share during the quarter and nine months ended April 30, 1997, as compared
to a loss of $298,908 or $0.06 per share and $1,159,489 or $0.25 per share for
the same periods in fiscal 1996, respectively.
Receivables decreased $239,904 during the nine months ended April 30, 1997 due
to continually improving collections and reduced sales levels in the most recent
quarter.
Inventories decreased $26,413 during the quarter ended April 30, 1997 as a
result of improved inventory management, but remain above July 31, 1996 levels
by $69,858 in order to support the overall increase in sales activity.
During the quarter and nine months ended April 30, 1997 the Company invested
$67,433 and $234,896 in tooling for new products, as compared with $206,543 and
$399,652 during the same periods in fiscal 1996.
Liquidity and Capital Resources
- -------------------------------
The Company had a significant working capital deficit of $1,945,232 at April
30, 1997. The working capital deficit at July 31, 1996 was $1,440,548. The
$504,684 increase in working capital deficit is directly attributable to net
cash used in operating activities and investments in property and equipment
(tooling) which were funded primarily by borrowings on a $400,000 line of
credit established with a bank in September 1996. Interest on the line is
payable monthly at prime plus 2.5% and matures on September 15, 1997 . As a
result of cash flow constraints, compounded by the increased operating cash flow
deficit in the quarter just ended, the Company has had to prioritize its
payments to vendors, debt holders and others. Management has identified
payroll, rent, utilities and certain office expenses, contract grip
manufacturers, tooling and certain debt holders as the most critical obligations
to be met. As a result, trade payables have increased and a portion are
significantly past due. As of June 14, 1997 the Company is more than 60 days
past due with respect to approximately $210,000 in trade payables. Included in
this amount is approximately $25,000 owed to one of the Company's PGA tour
endorsers for endorsement fees. The endorser's representatives have verbally
agreed to work with the Company regarding payments of the past due amounts.
However, included in current liabilities at April 30, 1997 is approximately
$1,511,000 of long-term obligations personally guaranteed by and/or
collateralized by the personal assets of the Company's President and major
-12-
stockholder. Also included in current liabilities at April 30, 1997 are
$586,730 due to two stockholders, including the President and another officer of
the Company. Of the $1,511,000 of current portion of long-term obligations,
$1,180,000 is owed to a bank and matures on September 15, 1997. Historically,
the Company has been able to extend this obligation, however, to date, the
Company has not obtained any written commitment from the bank to extend these
loans and no assurance can be given that the obligations will be extended past
September 15, 1997 or that the Company will be able to obtain new loan
commitments from another lender to repay the $1,180,000 on September 15, 1997.
Repayment of the amounts due the stockholders has historically been deferred,
but further deferral is not assured. The Company is not expected to generate
sufficient cash from operations necessary to repay these obligations as they
come due. It will be required to either extend the maturities, sell additional
equity to generate funds to repay them, or seek alternative financing.
During the quarter just ended, the Company borrowed $108,500 to help fund
operations and extended a short-term note of $50,000 to February 28, 1999. The
new note is convertible at $1.50 per share. Since the end of the quarter just
ended, the Company has obtained additional fundings of $304,375 from the early
exercise of warrants and promissory notes issued by the Company. In addition,
$10,000 of short-term borrowings were converted to common stock.
The Company anticipates it will require an additional $2,000,000 through Fiscal
1998, including $300,000 through the remainder of Fiscal 1997, to fund operating
losses, the expected continued sales growth, projected tooling purchases and to
meet certain obligations (including certain notes payable and other long-term
obligations) as they come due. The Company is aggressively pursuing the pending
private placement and other opportunities to meet these requirements. The
Company is also seeking to obtain concessions and/or deferred payment plans from
vendors on amounts owed. The Company will also pursue other private placements
of its debt securities and other loan transactions. Additional bank financing is
not expected to be an option unless credit enhancements, such as guarantees, are
available, or until such time the Company has at least one fiscal quarter of
profitability. None of these sources or alternatives may be available to the
Company and, if they become available, they may not occur within the time frame
required by the Company or they may require terms which management finds
unacceptable. The inability of the Company to locate additional capital prior to
the end of the fiscal 1997 raises substantial doubt about the Company's ability
to continue operating as a going concern.
-13-
PART II
Item 3 Defaults Upon Senior Securities
Don Poulin is owed approximately $280,000 in connection with the
purchase by the Company of certain assets from Poulin Progrip, Inc. in
1993. Poulin and the Company into a settlement agreement in February
1996, pursuant to which the Company agreed to pay Poulin $200,000 by
July 31, 1996, which Poulin subsequently agreed to extend through
December 31, 1996. If the Company fails or refuses to make such
payment the settlement agreement is rescinded and both parties reserve
whatever rights they might have against the other. The Company has
made periodic payments to Poulin although the settlement agreement has
been rescinded. The total payments in arrears at April 30, 1997 is
approximately $65,000.
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits.
---------
2.1 Agreement and Plan of Reorganization, dated September 20,
1995, by and among Registrant, USG Acquisition Corporation
and USGRIPS, Inc., as amended -incorporated by reference to
exhibit 2.1 to Registrant's Form 10-K for the year ended
July 31, 1996
03.1(i) Restated Articles of Incorporation of Registrant-
incorporated by reference to exhibit 3.1(i) to Registrant's
Form 10-K for the year ended July 31, 1996
3.1(ii) Amended and Restated Bylaws of Registrant -incorporated by
reference to exhibit 3.1(ii) to Registrant's Form 10-K for
the year ended July 31, 1996
4.1 Loan documents for $780,000 loan from Wells Fargo Bank,
including Loan Commitment Note, dated January 14, 1997;
Addendum to Promissory Note, dated February 12, 1997; Third
Party Security Agreement: Securities Account, dated January
14, 1997; Addendum to Third Party Security Agreement:
Securities Account, dated February 12, 1997; and Securities
Account Control Agreement, dated February 12, 1997; and
Securities Account Control Agreement, dated February 14,
1997.
4.2 Revolving Line of Credit Note, dated September 23, 1996,
made payable by Registrant to Wells Fargo Bank N.A. in the
original principal sum of $400,000 - incorporated by
reference to exhibit 4.4 to Registrant's Form 10-K for the
year ended July 31, 1996
4.3 Form of Convertible Notes issued by Registrant:
Amount Payee Loan Date Due Date
- ----------------------------- -------------------- --------- --------
$ 50,000 The Caroline Company 3/12/97 2/28/99
$ 87,500 The Caroline Company 3/12/97 2/28/99
$ 21,000 Third Century II 3/25/97 2/28/99
$500,000 Third Century II 6/10/97 5/31/99
$ 21,000 Z-Fund 6/10/97 5/31/99
Registrant agrees to make copies of any or all of said
Convertible Notes available to the commission upon request.
4.4 Form of Instruction for and Notice of Early Exercise of
Stock Purchase Warrant
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10.1 1994 Stock Option Plan - incorporated by reference to
exhibit 10.1 to Registrant's Form 10-K for the year ended
July 31, 1996
10.2 Amendments to 1994 Stock Option Plan - adopted by
Shareholders on December 17, 1996 incorporated by reference
10.3 Employment Agreement, dated as of September 22, 1995,
between Registrant and Paul Herber - incorporated by
reference to exhibit 10.2 to Registrant's Form 10-K for the
year ended July 3
10.4 Noncompetition Agreement, dated September 22, 1995, between
Registrant and J. Barrie Ogilvie -incorporated by reference
to exhibit 10.3 to Registrant's Form 10-K for the year
ended July 31, 1996
10.5 Security Agreement, dated July 31, 1995, between Registrant
and Sam G. Lindsay - incorporated by reference to exhibit
10.4 to Registrant's Form 10-K for the year ended July 31,
1996
10.6 Letter Agreement, dated August 1, 1995, between Registrant
and Sam G. Lindsay re: deferral of compensation -
incorporated by reference to exhibit 10.5 to Registrant's
Form 10-K for the year ended July 31, 1996
10.7 Request to Convert and Investment Letter, dated July 31,
1996, between Registrant and Sam G. Lindsay- incorporated
by reference to exhibit 10.6 to Registrant's Form 10-K for
the year ended July 31, 1996
10.8 Agreement, dated September 22, 1995, between Registrant and
ARC Equipment, Inc. - incorporated by reference to exhibit
10.7 to Registrant's Form 10-K for the year ended July 31,
1996
21.1 Subsidiaries of Registrant - incorporated by reference to
exhibit 21.1 to Registrant's Form 10-K for the year ended
July 31, 1996
27 Financial data schedule
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the Registrant's fiscal quarter
ended April 30, 1997
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRIP TECHNOLOGIES, INC.
---------------------------------
(Registrant)
Date: June 14, 1997
/s/ SAM G. LINDSAY
--------------------------------
Sam G. Lindsay
President and
Chief Executive Officer
Date: June 14, 1997
/s/ ROBERT W. TAYLOR
---------------------------------------
Robert W. Taylor
Chief Operations and Financial Officer
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