U.S. SECURITIES AND EXCHANGE COMMISSION
                                 Washington, D.C. 20549

                                       Form 10-QSB

 X _____ Quarterly  report under Section 13 or 15(d) of the Securities  Exchange
Act of 1934 for the quarterly period ended September 30, 1996

   Transition 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 1-11586

                                     PTI HOLDING INC.
                     (Name of small business issuer in its charter)


      Delaware                                                        13-3590980
(State or jurisdiction
(I.R.S.Employer
of incorporation or                                          Identification No.)
organization)


c/o 15 E. North Street, Dover, DE                                    19901
----------------------------------------                           -------
(Address of principal executive offices)                           (Zip Code)


                                     (302) 678-0855
                    (Issuer's Telephone Number, Including Area Code)


(Former Name, Former Address and Former Fiscal Year, if Changed Since Last 
Report)

       Check whether the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 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 past 90 days.

Yes  X    No


       State the  number of shares  outstanding  of each  class of the  issuer's
classes of common equity, as of the latest  practicable date. As of November 13,
1996, 3,487,936 shares of the issuer's common equity were outstanding.










                                    Page - 1
<PAGE>

                                         PART I


ITEM 1.       Consolidated Financial Statements.
                                                                       Page
Consolidated Balance Sheet as of September 30, 1996                      8

Consolidated Statement of Income for the three
and nine months ended September 30, 1996 and 1995                        9

Consolidated Statement of Cash Flows for the
nine months ended September 30, 1996 and 1995                           10

Notes to Consolidated Financial Statements                              11-12


ITEM 2.       Management's Discussion and Analysis


       PTI  Holding  Inc.  (collectively  with  its  wholly-owned   subsidiaries
referred to herein as the "Company"), formally known as Aerial Assault Inc., was
incorporated  under the laws of Delaware in March 1990. Until February 28, 1994,
the Company was engaged in the business of designing,  developing  and marketing
distinctive,  high-performance  men's  athletic  footwear  for  basketball,  and
related  apparel  bearing the Aerial  Assault  Inc.  name and logo.  The Company
commenced sales in February 1992.

       On March 1, 1994,  the Company  acquired  Foam-O-Rama,  Inc.,  a New York
corporation  ("Foam"),  which is  principally  engaged  in the  business  of the
design,  marketing and sale of bicycle helmets,  by merging it with and into the
Company's wholly owned subsidiary, Protective Technologies International Inc., a
New  York  corporation  (the  "Operating  Subsidiary"),  pursuant  to  a  Merger
Agreement and Plan of Reorganization dated February 14, 1994 among the Operating
Subsidiary, Foam and Foam's shareholders. From and after March 2, 1994, Foam had
no  separate or  independent  existence,  having been merged into the  Operating
Subsidiary.  For purposes of the transfer of the economic  benefits and risks of
such transaction and the ongoing business of Foam, the acquisition was deemed to
have occurred as of the opening of business on January 1, 1994.

       The Company is a bicycle helmet manufacturer. In addition to helmets, the
Company also markets and distributes bicycles and bicycle-related products.


Results of Continuing Operations

       Third Quarter 1996 Compared to Third Quarter 1995

       The  Company's  net  sales  were  $4,087,524  during  the  quarter  ended
September 30, 1996, an increase of 114% from net sales of $1,906,634  during the
comparable  quarter in 1995.  The 114% sales increase from 1995 to 1996 resulted
primarily from increased sales to existing customers through the addition of new
helmet models, from the expansion of the Company's bicycle accessories business,
and also from the addition of new customers.

       Taking  into  account  the  third  quarter  sales  increases,  management
anticipates that 1996 sales will increase more than 85% compared to 1995 sales.1
This  increase is expected to result from the  Company's  increasing  its market
share at the expense of  competitors,  from  introducing  new accessory  product
lines,  and from the  Company's  license  arrangements  with  Hasbro,  Inc.,  to
manufacture  and market  helmets,  bicycles  and bicycle  accessories  under the
PlayskoolTM brand name.

       Net income  was  $158,750  for the  quarter  ended  September  30,  1996,
compared to a net income of $70,433 during the same period in 1995. The increase
in net income was due to higher  sales  levels,  and lower  selling  general and
administrative expenses as a percentage of sales.

       Although  the  Company  has  projected  sales  for  1996,  a  net  income
projection has not been provided  because of the  uncertainties  involved in the
competitive nature of the helmet market.

       The cost of sales for the quarter ended September 30, 1996 was $3,142,180
(resulting in a gross profit margin of 23.13%) compared to the Company's cost of
sales of  $1,232,525  (resulting  in a gross  profit  margin of 35.36%)  for the
quarter ended September 30, 1995. The decrease in the gross profit margin is due
primary to the increased  volume of the  accessories  business which has a lower
gross profit margin than the helmet business.
                                   
                                    Page - 2
<PAGE>



       Selling,  general  and  administrative  expenses  for the  quarter  ended
September 30, 1996 were $687,080 compared to the Company's selling,  general and
administrative expenses of $617,804 for the quarter ended September 30, 1995. As
a percentage  of sales,  these  expenses  were 16.81% and 32.4% for the quarters
ended September 30, 1996 and 1995, respectively. The decreased ratio of selling,
general and administrative spending to sales is in part due to the fact that the
Company's sales grew faster than its increases in fixed overhead.


       Nine Months Ended 9/30/96 Compared to Nine Months Ended 9/30/95

       The  Company's  net sales were  $13,532,363  during the nine months ended
September 30, 1996, an increase of 108% from net sales of $6,506,019  during the
comparable  nine  months  in 1995.  The 108%  sales  increase  from 1995 to 1996
resulted  primarily  from  increased  sales to  existing  customers  through the
addition of new helmet  models,  from the  expansion  of the  Company's  bicycle
accessories business, and also from the addition of new customers.

       Net income was  $1,286,119  during the nine months  ended  September  30,
1996,  compared to a net income of $509,441  during the same period in 1995. The
increase in net income was due to higher sales levels and lower selling  general
and administrative expenses as a percentage of sales.

       The cost of sales  for the  nine  months  ended  September  30,  1996 was
$9,717,716  (resulting in a gross profit  margin of 28.19%)  compared to cost of
sales of  $4,374,531  (yielding  a gross  profit  margin of 32.8%)  for the nine
months ended  September 30, 1995. The decrease in the gross profit margin is due
primary to the increased  volume of the  accessories  business which has a lower
gross profit margin than the helmet business.

       Selling,  general and  administrative  expenses for the nine months ended
September 30, 1996 were $1,901,156  compared to the Company's  selling,  general
and  administrative  expenses of $1,656,956 for the nine months ended  September
30, 1995.  As a percentage of sales,  these  expenses were 14.05% and 25.47% for
the nine months ended September 30, 1996 and 1995,  respectively.  The decreased
ratio of selling, general and administrative spending to sales is in part due to
the fact that the  Company's  sales  grew  faster  than its  increases  in fixed
overhead.


Capital Resources

       The Company has satisfied its capital  requirements  through the proceeds
of its initial public offering of securities,  which resulted in net proceeds of
approximately  $3,800,000,  through  the  proceeds of a  Regulation  'S' private
placement in November 1994,  which  resulted in gross proceeds of  approximately
$751,875,  through the exercise of certain outstanding options held by employees
and consultants of the Company,  which resulted in net proceeds of approximately
$175,075,  through  internal  cash flow and,  recently,  through  the  Operating
Subsidiary's opening of a revolving line of credit.

       The  Company  pays its  employees  and  vendors  on a weekly,  monthly or
bimonthly  basis,  while its customers pay for products on an average of 70 days
after shipment and,  therefore,  the Company has  substantial  needs for working
capital.  As of September 30, 1996,  the Company had $449,278 of cash  available
for its cash needs, compared to cash of $385,850 as of September 30, 1995.

       On May 6, 1996, the Operating Subsidiary  established a revolving line of
credit at Key Bank of New York.  The line of  credit  is  collateralized  by the
Operating Subsidiary's  inventory,  receivables and other assets, and guaranteed
by the Company and  Protective  Technologies  of America,  Inc., a  wholly-owned
subsidiary  (nonoperating)  of the Company.  The Company does not currently have
any
outstanding loans pursuant to such line of credit.

       The Company will also consider  financing  through  additional public and
private securities offerings and solicitations.

       Based on the Company's current plans, management anticipates that current
cash  balances,  together  with the  Company's  line of  credit  and  cash  flow
generated from  operations,  will be sufficient to continue to fund  production,
purchase of equipment, increased marketing activities and continued research and
development,  as  well as the  rest  of the  Company's  cash  requirements,  for
approximately the next 18 months.

                                    Page - 3
<PAGE>
                                
                                         PART II


ITEM 5.       Other Information.

       The Board of Directors  of the Company held a special  meeting on October
22, 1996. In accordance with its bylaws,  the Company  increased the size of its
Board of Directors from three directors to five directors. Each of the two newly
appointed  directors  will hold  office  until the next  Annual  Meeting  of the
Company's  shareholders,  and until his  successor  has been  duly  elected  and
qualified, or as otherwise provided in the Company's bylaws.

       The Directors of the Company have appointed the following  individuals to
fill the vacancies created by increasing the size of the Board of Directors:

       Warren Schaeffer.  Mr. Schaeffer, age 39, co-founded  Foam,  the  company
acquired by the Company in March, 1994.  Since the acquisition, he has served as
the President  of  the  Operating  Subsidiary.   Prior to his employment by the 
Operating Subsidiary, Mr. Schaeffer was the President and a director of Foam.

       Myles Birrittella.  Mr. Myles Birrittella, age 33, is currently  employed
at GE Capital.  Mr. Myles Birrittella is the brother of Meredith W. Birrittella,
the Company's Chief Executive Officer, and the brother of Martin P. Birrittella,
the Chairman of the Company.



ITEM 6.       Exhibits and Reports on Form 8-K.

       (a)    Exhibits

       3.1      Registrant's Articles of Incorporation, as amended, incorporated
                by reference to the like numbered exhibit in  the   Registrant's
                Registration Statement on Form SB-2 under the Securities  Act of
                1933, as amended, File No. 33-53466

       3.2      Registrant's  By-Laws,  incorporated  by  reference to the like 
                numbered exhibit  in  the  Registrant's  Registration  Statement
                on Form SB-2 under the Securities Act of 1933, as amended,  File
                No. 33-53466

       4.1      ______ Resolution of Designation, Powers, Preferences and Rights
                of Series A Preferred  Stock,  incorporated  by reference to the
                like numbered exhibit in the Registrant's Registration Statement
                on Form SB-2 under the Securities Act of 1933, as amended,  File
                No. 33-53466

       4.2      ______ Form of Warrant of Bridge Loan lenders,  incorporated  by
                reference  to the  like  numbered  exhibit  in the  Registrant's
                Registration  Statement on Form SB-2 under the Securities Act of
                1933, as amended, File No.
                33-53466

       4.3      ______  Form of  Warrant  included  in  Units,  incorporated  by
                reference  to the  like  numbered  exhibit  in the  Registrant's
                Registration  Statement on Form SB-2 under the Securities Act of
                1933, as amended, File No.
                33-53466

       4.4      Form of Underwriter's Warrant, incorporated by reference to  the
                like numbered exhibit in the Registrant's Registration Statement
                on Form SB-2 under the Securities Act of 1933, as amended,  File
                No. 33-53466

       4.5      Omitted

       10.1     Omitted

       10.2     Omitted

       10.3     Omitted

       10.4     Omitted

       10.5     Omitted
                                

                                    Page - 4
<PAGE>



       10.6     Omitted

       10.7     Omitted

       10.8     Omitted
                                   
       10.9     Warrant  Agreement  dated    ,   1992  between  Corporate  Stock
                Transfer, Inc. and the Company, incorporated by reference to the
                like numbered exhibit in the Registrant's Registration Statement
                on Form SB-2 under the Securities Act of 1933, as amended,  File
                No. 33-53466

       10.10    Omitted

       10.11    Omitted

       10.12    Omitted

       10.13    Omitted

       10.14    ____ Form of Stock  Option  granted  to  employees,  independent
                contractors  and  consultants,  incorporated by reference to the
                like numbered exhibit in the Registrant's Registration Statement
                on Form SB-2 under the Securities Act of 1933, as amended,  File
                No. 33-53466

       10.15    ____ Merger Agreement and Plan of Reorganization  dated February
                14,  1994  among  ____  Protective  _____   Technologies   _____
                International ____ Inc., Foam-O-Rama,  Inc., Ellen Schaeffer and
                Lori Hillsberg, as amended, incorporated by reference to exhibit
                number 2 in the  Registrant's  Current  Report on Form 8-K dated
                March 16, 1994 under the  Securities  Exchange  Act of 1934,  as
                amended

       10.16    Noncompetition Agreement dated March 1, 1994 between  Protective
                Technologies International Inc. and Ellen  Schaeffer   and  Lori
                Hillsberg,  incorporated  by reference to exhibit number 99.1 in
                the Registrant's Current Report on Form 8-K dated March 16, 1994
                under the Securities Exchange Act of 1934, as amended

       10.17    Noncompetition Agreement dated March 1, 1994 between  Protective
                Technologies International Inc. and Warren  Schaeffer  and  Alan
                Hillsberg,  incorporated  by reference to exhibit number 99.2 in
                the Registrant's Current Report on Form 8-K dated March 16, 1994
                under the Securities Exchange Act of 1934, as amended

       10.18    Omitted

       10.19    Omitted

       10.20    Omitted

       10.21    ____ Form of Promissory Note memorializing loans from  directors
                and officers  as authorized by  the Board of Directors on March 
                13, 1996, incorporated by reference to the like numbered exhibit
                in the Registrant's Annual Report on  Form 10-KSB for the period
                ended  December 31, 1995  under the Securities  Exchange Act of 
                1934, as amended

       10.22    ____  Guarantee  from Warren  Schaeffer  and Alan  Hillsberg  to
                Protective  Technologies  International  Inc.,  incorporated  by
                reference to exhibit number 10.21 in the Registrant's  Quarterly
                Report on Form 10-QSB for the quarter ended  September 30, 1995,
                under the Securities Exchange Act of 1934, as amended

       10.23    ____ Exclusive License and Purchase Guarantee  Agreement,  dated
                July  19,  1994  between  Toy  Biz,  Inc.  and  the  Registrant,
                incorporated  by  reference  to  exhibit  number  10.22  in  the
                Registrant's  Quarterly  Report on Form  10-QSB for the  quarter
                ended September 30, 1995,  under the Securities  Exchange Act of
                1934, as amended

                                 

                                    Page - 5
<PAGE>



       10.24    ____  Amendment #1 dated October 18, 1995 to Warrant  Agreement,
                incorporated  by  reference  to  exhibit  number  10.23  in  the
                Registrant's  Quarterly  Report on Form  10-QSB for the  quarter
                ended September 30, 1995,  under the Securities  Exchange Act of
                1934, as amended

       10.25    Line of Credit Agreement (Asset Based), dated May 6, 1996, among
                Key  Bank  of  New York, Protective  Technologies  International
                Inc., PTI Holding Inc. and  Protective  Technologies of  America
                Inc., and collateral  loan  documents  thereto,  incorporated by
                reference to like numbered exhibit in the Registrant's Quarterly
                Report  on  Form 10-QSB for the  quarter  ended  March 31, 1996,
                under the  Securities Exchange Act of 1934, as amended

                                
       10.26    ____  Amendment  ____ #2  dated  June 6,  1996 to  Warrant  ____
                Agreement,  incorporated by reference to exhibit number 2 in the
                Registrant's  Current  Report  on Form 8-K dated  July 9,  1996,
                under the Securities Exchange Act of 1934, as amended


       (b)  Reports on Form 8-K

       The  Company  filed  no  reports  on Form 8-K  during  the  period  ended
       September 30, 1996.



































                         



                                    Page - 6
<PAGE>





                                        SIGNATURE

       In  accordance  with  Section  13 or  15(d)  of  the  Exchange  Act,  the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Dated:  November     , 1996


                    PTI HOLDING INC.




                    By:
                         Meredith W. Birrittella,
                         Chief Executive Officer (authorized signatory)
                         Chief Financial Officer



































                                 




                                    Page - 7
<PAGE>


<TABLE>
<CAPTION>

                      PTI HOLDING INC. AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEET
                                 (Unaudited)

                              SEPTEMBER 30, 1996


ASSETS
<S>                                                              <C>
Current assets:
    Cash and cash equivalents                                    $    449,278
    Accounts receivable, net of allowance for returns and           2,755,212
       doubtful collections of $65,748
    Inventories                                                     2,984,605
    Advances toward inventory purchases                               326,170
    Deferred tax asset                                                 67,600
    Prepaid expenses and other current assets                         801,475
                                                                 ---------------

    Total current assets                                            7,384,340

Equipment and improvements, net of accumulated                        455,394
    depreciation of $696,759
Deferred tax asset                                                     93,200
Goodwill, net of accumulated amortization of $115,468               1,354,128
Covenants not to compete, net of accumulated                          213,655
    amortization of $305,045
Patents, net of accumulated amortization of $741                        4,305
                                                                 ---------------

                                                                 $  9,505,022
                                                                 ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Accounts payable and accrued expenses                        $  1,646,394
    Current portion of due to former key employee and                  25,000
          shareholder of acquired company
    Income taxes payable                                              610,880
                                                                 ---------------

    Total current liabilities                                       2,282,274
                                                                 ---------------

Due to former key employee and shareholder of acquired                 58,750
    company, net of current portion
                                                                 ---------------

Commitments and contingent liabilities

Series A preferred stock, $.001 par value; issued and
    outstanding 25,000 shares, redeemable at liquidation                2,500
    value of $.10 per share (aggregating $2,500)
                                                                 ---------------

Stockholders' equity:
    Preferred stock, $.001 par value; authorized 100,000                    -
       shares of which 25,000 shares have been designated
       as Series A preferred
    Common stock, $.01 par value; authorized 10,000,000                34,784
       shares, issued and outstanding 3,478,436 shares
    Capital in excess of par                                        6,405,052
    Retained earnings                                                 721,662
                                                                 ---------------

    Total stockholders' equity                                      7,161,498
                                                                 ---------------

                                                                 $  9,505,022
                                                                 ===============
</TABLE>

                                    Page - 8
<PAGE>


<TABLE>
<CAPTION>


                               PTI HOLDING INC. AND SUBSIDIARIES

                                CONSOLIDATED STATEMENT OF INCOME
                                          (Unaudited)

                     THREE & NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995



                                        Three Months ended             Nine Months ended
                                           September 30,                 September 30,
                                   ----------------------------   ----------------------------
                                       1996            1995           1996            1995
                                   ------------    ------------   ------------    ------------
<S>                                 <C>             <C>           <C>             <C>    
Net sales                           $ 4,087,524     $ 1,906,634   $ 13,532,363    $  6,506,019

Cost of sales                         3,142,180       1,232,525      9,717,716       4,374,531
                                   ------------    ------------   ------------    ------------

Gross profit                            945,344         674,109      3,814,647       2,131,488

Selling, general and                    687,080         617,804      1,901,156       1,656,956
administrative expenses
                                   ------------    ------------   ------------    ------------

Income from operations                  258,264          56,305      1,913,491         474,532

Interest income, net of                  22,166          14,128         12,708          34,909
    interest (expense)
                                   ------------    ------------   ------------    ------------

Income before income taxes              280,430          70,433      1,926,199         509,441
                                   ------------    ------------   ------------    ------------

Income tax expense (benefit)
    Current                             134,080               -        610,880               -
    Deferred                            (12,400)              -         29,200               -
                                   ------------    ------------   ------------    ------------
                                        121,680               -        640,080               -
                                   ------------    ------------   ------------    ------------

Net income                          $   158,750          70,433   $  1,286,119    $    509,441
                                   ============    ============   ============    ============


Net income per share of             $       .04             .02   $        .33    $        .15
common stock
                                   ============    ============   =============   ============


Weighted average shares               4,216,889       3,365,506      3,891,973       3,330,900
outstanding
                                   ============    ============   ============    ============


</TABLE>










                                       Page - 9
<PAGE>
<TABLE>
<CAPTION>

                         PTI HOLDING INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENT OF CASH FLOWS
                                    (Unaudited)

                   NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995


                                                          1996            1995
                                                      ------------    ------------
<S>                                                   <C>             <C>
Cash flows from operating activities:
    Net income                                        $  1,286,119    $    509,441
    Adjustments to reconcile net income to net
       cash (used in) operating activities:
          Provision for returns and doubtful                 4,252        (216,000)
             collections
          Depreciation                                     236,739         163,581
          Amortization of intangible assets                109,519         109,519
          Deferred income taxes                             29,200               -
          Deferred compensation                                  -          37,500
          (Increase) decrease in operating assets:
             Accounts receivable                        (1,588,326)         22,714
             Inventories                                (1,315,469)       (841,366)
             Advances toward inventory                    (326,170)              -
              purchases
             Prepaid expenses and other current           (521,121)       (201,332)
             assets
          Increase in operating liabilities:
             Accounts payable and accrued                  913,985         186,431
                         expenses
             Income taxes payable                          610,880               -
                                                      ------------    ------------

    Net cash (used in) operating activities               (560,392)       (229,512)
                                                      ------------    ------------

Cash flows from investing activities:
    Purchase of equipment and improvements                (325,538)       (187,789)
    Reduction in cash invested to secure letters           208,750         208,750
       of credit
                                                      ------------    ------------

    Net cash provided by (used in) investing              (116,788)         20,961
       activities
                                                      ------------    ------------

Cash flows from financing activities:
    Payments of amounts due to former key
       employees and shareholders of acquired             (41,309)        (217,747)
       company
    Proceeds from issuance of common stock                 198,438         107,500
                                                      ------------    ------------

    Net cash provided by (used in) financing               157,129        (110,247)
       activities
                                                      ------------    ------------

Net decrease in cash and cash equivalents                 (520,051)       (318,798)

Cash and cash equivalents, beginning of period             969,329         704,648
                                                      ------------    ------------


Cash and cash equivalents, end of period              $    449,278    $    385,850
                                                      ============    ============


Supplemental disclosures:
    Interest paid                                     $     24,074    $          -
    Income taxes paid                                        4,160               -

</TABLE>

                                     Page - 10
<PAGE>


                       PTI HOLDING INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (Unaudited)


1.      Basis of presentation:

        The consolidated financial statements included herein have been prepared
        by the Company,  without the benefit of an audit,  pursuant to the rules
        and  regulations  of the  Securities  and Exchange  Commission.  Certain
        information and disclosures  normally  included in financial  statements
        prepared in accordance  with generally  accepted  accounting  principles
        have been condensed or omitted  pursuant to such rules and  regulations.
        These  unaudited  consolidated  financial  statements  should be read in
        conjunction with the consolidated financial statements and notes thereto
        included  in the  Company's  Annual  Report on Form  10-KSB for the year
        ended  December  31,  1995 and filed with the  Securities  and  Exchange
        Commission.

        In the opinion of the Company's management, these unaudited consolidated
        financial  statements  include  all  adjustments,  consisting  solely of
        normal recurring  adjustments,  necessary in order to present fairly the
        Company's  consolidated  financial position as of September 30, 1996 and
        the consolidated results of their operations for the three & nine months
        ended September 30, 1996 and 1995 and their  consolidated cash flows for
        the nine  months  ended  September  30,  1996 and 1995.  The  results of
        operations for an interim period are not  necessarily  indicative of the
        results to be attained in any other fiscal period.

        Common shares contingently issuable are excluded from the computation of
        weighted average shares  outstanding  since conditions for issuance have
        not been met  and/or  their  inclusion  would  have had an  antidilutive
        effect.

        During March 1995, the Financial  Accounting Standards Board issued SFAS
        No.  121,  "Accounting  for the  Impairment  of  Long-Lived  Assets  and
        Long-Lived  Assets  to Be  Disposed  Of." The  Statement  requires  that
        long-lived assets and certain  identifiable  intangibles be reviewed for
        impairment  whenever  events or changes in  circumstances  indicate that
        full   recoverability   is   questionable.   Management   evaluates  the
        recoverability  of  goodwill  and other  long-lived  assets and  several
        factors  are  used  in the  valuation  including,  but not  limited  to,
        management's plans for future  operations,  recent operating results and
        projected  cash  flows.  The Company  adopted  SFAS No. 121 in the first
        quarter of 1996,  the adoption of which did not have a material  adverse
        effect on the results of operations or financial condition.

        In October 1995, the  Financial  Accounting Standards Board issued SFAS 
        No. 123, "Accounting for  Stock-Based  Compensation."  The Company  will
        adopt the new  disclosure  requirements  beginning with  the year ending
        December 31, 1996.


2.      Contingent liabilities:

        Effective   April  1,  1994,  the  Company   entered  into  a  two-year,
        noncancellable lease for a production,  warehouse,  and office facility.
        The lease calls for the minimum  annual rent of $76,000 plus  escalation
        charges for increases in real estate  taxes.  By notice in October 1994,
        the Company  ceased making  rental  payments and  terminated  such lease
        because the lessor failed to obtain a certificate of occupancy. However,
        the Company  continued to occupy the space through  September 1995 until
        it  relocated  to a new  facility.  The  landlord  has  commenced a suit
        against the Company for unpaid rent and for funds to make repairs.

        The  resolution  of this matter is  presently  uncertain.  However,  any
        possible  settlement  is not  expected to have a material  effect on the
        financial position and results of operations of the Company if concluded
        unfavorably.



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        Certain claims,  suits and complaints  arising in the ordinary course of
        business  have been filed or are  pending  against the  Company.  In the
        opinion of management, all matters are without merit or of such kind, or
        involve  such  amounts,  as would  not  have a  material  effect  on the
        financial position and results of operations of the Company if concluded
        unfavorably.

        While the Company has not experienced any product  liability  claims, it
        presently  cannot be  determined if its product  liability  insurance is
        adequate to cover any losses that may arise.



3.      Series A preferred stock:

        The  Series A  preferred  stock  issued  on July 31,  1992  bears  stock
        issuance  rights  entitling  the holder  thereof to the  issuance  of 10
        shares of common stock, up to a maximum aggregate amount of 30 shares of
        common stock, for each share of Series A preferred stock for each of the
        following  conditions  that are  met:  The  Company  has net  income  of
        $750,000 during any of the three complete fiscal years immediately after
        the date of the public offering  (December  1992); the Company has gross
        revenue of  $20,000,000  during any of the five  complete  fiscal  years
        after the date of the public offering;  the Company has gross revenue of
        $35,000,000  during any of the five complete fiscal years after the date
        of the public  offering;  and a cumulative  total of 50% of the warrants
        issued in the public offering have been exercised.

        If the  period  during  which the  shares of common  stock are  issuable
        lapses and each  series A preferred  stockholder  has not been issued 30
        shares of common  stock,  then each share of Series A preferred is to be
        redeemed  at the  liquidation  preference  price of $.10 per share.  All
        shares of common stock  issuable  with respect to the Series A preferred
        stock  and not  previously  issued is to be  issued  if the  Company  is
        acquired,  provided  that if the common  stock  continues to be publicly
        traded,  the average bid price  during the prior 90 days is greater than
        or equal to $5.00 per share (the initial  public  offering  price of the
        common stock).

        For the year ended  December  31,  1995,  the  Company had net income in
        excess of  $750,000.  Accordingly,  the Series A preferred  shareholders
        were  entitled  to 10  shares  of the  common  stock  for each  Series A
        preferred share owned. However,  three preferred shareholders holding an
        aggregate of 23,552 preferred shares relinquished their right to receive
        an issuance of an aggregate of 235,520  shares of the  company's  common
        stock. In consideration  for  relinquishing  their rights to that common
        stock, the Company granted the three preferred  shareholders  options to
        acquire an aggregate of 235,520 shares of the common stock.  The options
        have an  exercise  price  of  $4.50  (the  quoted  market  price  on the
        effective date of grant),  are exercisable  commencing in January,  1996
        and expire in January,  2006. The three preferred  shareholders are also
        directors and major common  stockholders  of the company.  The remaining
        14,480 common shares were issued to the other preferred  stockholders in
        1996.

4.      Line of credit agreement:

        On May 6, 1996, the Company entered into a line of credit agreement with
        a bank.  Under the terms of the agreement,  the Company may borrow up to
        $7,000,000 based on the a percentage of certain accounts  receivable and
        inventories  as  defined in the  agreement.  All  borrowings  are due on
        demand,  and are  collateralized by the company's  accounts  receivable,
        inventories and other assets.  At September 30, 1996, the Company had no
        outstanding liability pursuant to the line of credit agreement.


Footnotes:

     1 Although  the Company is  currently  unaware of any  potential  setbacks,
certain  situations may arise which would cause the Company's  results to differ
materially  from its  projections.  These  situations  may include,  but are not
limited to: (i) the emergence of stronger than  anticipated  competition  in the
helmet  market;  (ii) the failure of one or more of the  Company's new accessory
product  lines;  (iii)  disputes  arising  between the Company and its licensors
and/or  customers;  and  (iv)  the  loss  of one or more  of the  Company's  key
personnel.

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