<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[ x ] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Period Ended September 30, 1996
------------------
or
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the Transition Period From __________________ to ________________
Commission file number 001-11935
---------
BLACK ROCK GOLF CORPORATION
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 84-1336891
- --------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6786 SOUTH REVERE PARKWAY, STE. 150D
ENGLEWOOD, COLORADO 80112
- --------------------------------------- --------------------------------------
(Address of principal executive office) (Zip Code)
(303) 799-9901
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(Registrants telephone number, including area code)
NOT APPLICABLE
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed from 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 periods 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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
Common Stock, $.001 Par Value---3,150,000 shares outstanding as of
November 12, 1996
<PAGE>
INDEX
BLACK ROCK GOLF CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed balance sheets---September 30, 1996 and December 31, 1995
Condensed statements of operations---Three months ended September 30, 1996
and 1995; Nine months ended September 30, 1996 and 1995
Condensed statements of cash flows---Nine months ended September 30, 1996
and 1995
Notes to condensed financial statements---September 30, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes In Securities
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I. FINANCIAL INFORMATION
BLACK ROCK GOLF CORPORATION
CONDENSED BALANCE SHEETS
September 30, December 31,
1996 1995
----------------------------------
(Unaudited) (See Note Below)
Assets
Current Assets
Cash and Cash Equivalents $2,015,649 $ 128,011
Security Deposits 269,839 84,163
Accounts Receivable, net 623,866 203,816
Inventories - Note B 2,260,053 637,703
Prepaid Expenses 104,204 41,161
---------- ----------
Total Current Assets 5,273,611 1,094,854
Property, Plant and Equipment 315,146 18,234
Less Allowances for Depreciation (39,658) (3,727)
---------- ----------
Net Property, Plant and Equipment 275,488 14,507
Other Assets 176,533 96,942
---------- ----------
Total Assets $5,725,632 $1,206,303
---------- ----------
---------- ----------
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $ 505,369 $ 143,813
Notes Payable -- 44,268
Other Current Liabilities 22,575 58,062
---------- ----------
Total Current Liabilities 527,944 246,143
Stockholders' Equity
Common stock, par value $.001 per share -
Authorized 10,000,000 shares, issued
and outstanding 3,150,000 shares as of
September 30, 1996 and 2,000,000 as of
December 31, 1995 3,150 2,000
Preferred stock, par value $.001 per share -
Authorized 1,000,000 shares, issued and
outstanding 0 shares as of September 30,
1996 and December 31, 1995 -- --
Paid-in capital 5,711,861 958,160
Retained earnings (deficit) (517,323) --
---------- ----------
Total Stockholders' Equity 5,197,688 960,160
---------- ----------
Total Liabilities and Stockholders' Equity $5,725,632 $1,206,303
---------- ----------
---------- ----------
Note: The balance sheet at December 31, 1995 has been derived from the
audited financial statements at that date but does not include all of the
financial information and footnotes required by generally accepted
accounting principles for complete financial statements.
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
BLACK ROCK GOLF CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $2,100,745 $2,073,521 $7,625,983 $2,950,079
Cost of sales 895,790 884,358 2,948,547 1,221,046
---------- ---------- ---------- ----------
Gross profit 1,204,955 1,189,163 4,677,436 1,729,033
Operating expenses:
Advertising 931,272 981,690 2,824,836 1,821,236
Marketing 133,476 50,327 316,193 70,044
Selling & administrative 658,874 191,357 1,783,143 362,648
Depr. and amortization 16,950 14,371 76,493 43,113
---------- ---------- ---------- ----------
Operating income (loss) (535,617) (48,582) (323,229) (568,008)
Interest expense 6,844 2,314 32,109 2,314
Other income (exp), net (25,946) 1,258 (20,847) 1,258
---------- ---------- ---------- ----------
Income (loss) before income tax (568,407) (49,638) (376,185) (569,064)
Income tax expense (benefit) (16,358) - - -
---------- ---------- ---------- ----------
Net income (loss) $ (552,049) $ (49,638) $ (376,185) $ (569,064)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average shares
outstanding (Notes D & E) 2,988,945 2,064,000 2,374,500 2,064,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per share
(Notes D & E) $ (0.18) $ (0.02) $ (0.16) $ (0.28)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
PRO FORMA INFORMATION
Historical income (loss)
before taxes $ (568,407) $ (49,638) $ (376,185) $ (569,064)
Charges (benefit) in lieu
of income
Tax for Limited Liability
Company (16,358) - - -
---------- ---------- ---------- ----------
Pro forma net income (loss) $ (552,049) $ (49,638) $ (376,185) $ (569,064)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Pro forma weighted average shares
outstanding after IPO
(Notes C, D & E) 2,988,945 3,214,000 2,374,500 2,064,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Pro forma net income (loss) per
share (Notes C, D & E) $ (0.18) $ (0.02) $ (0.16) $ (0.28)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part
of these condensed financial statements.
<PAGE>
BLACK ROCK GOLF CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months ended
September 30,
------------------------
1996 1995
----------- ---------
Cash used in operations $(2,510,859) $(888,935)
Cash provided by financing activities
Proceeds from initial public offering
of common stock, net 4,775,000 -
Issuance of member interests - 795,000
Other assets (79,591) (31,173)
----------- ---------
Total cash provided by financing activities 4,695,409 763,827
Cash used in investing activities
Purchase of equipment (296,912) (15,313)
----------- ---------
Total cash used in investing activities (296,912) (15,313)
----------- ---------
Increase/(decrease in cash and cash equivalents) $ 1,887,638 $(140,421)
----------- ---------
----------- ---------
The accompanying notes are an integral part
of these condensed financial statements.
<PAGE>
BLACK ROCK GOLF CORPORATION
Notes to Unaudited Condensed Financial Statements
September 30, 1996
NOTE A---BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Certain amounts from the prior quarters have been reclassified
to conform with the current quarter. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine-
month periods ended September 30, 1996 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1996. For further
information, refer to the Company's Registration Statement on Form SB - 2 (No.
333 - 4890 - D), as amended, and Quarterly Report on Form 10 - QSB for the
quarter ended June 30, 1996.
NOTE B---INVENTORIES
The components of inventory consist of the following:
September 30, December 31,
1996 1995
------------- ------------
Work in Process $ 579,599 $ 164,063
Finished Goods 1,680,454 473,640
----------- ----------
Total Inventory $ 2,260,053 $ 637,703
----------- ----------
----------- ----------
<PAGE>
BLACK ROCK GOLF CORPORATION
Notes to Unaudited Condensed Financial Statements
Continued
NOTE C---INCOME TAXES
The Company reorganized to a C corporation (which was incorporated in the state
of Delaware) from a Colorado limited liability company effective April 1, 1996.
Prior to April 1, 1996, all of the limited liability company's earnings or
losses were passed through to its members. The Company has included in its
statements of operations, pro forma information to include charges in lieu of
income taxes as if the Company had been a C corporation for all periods
presented. However, this does not result in a pro forma charge for income taxes
for the nine-month period ended September 30, 1996 because the Company incurred
a net loss of $376,185.
NOTE D---EARNINGS PER SHARE
A pro forma earnings per share calculation has been provided including the
common shares issued in the Company's initial public offering for all periods
presented. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletins and Staff Policy, common and common equivalent shares issued during
the 12-month period prior to an initial public offering at prices below the
public offering price are presumed to have been issued in contemplation of the
initial public offering, even if anti-dilutive, and have been included in the
calculations as if these common and common equivalent shares were outstanding
for all periods presented (using the Treasury stock method and the initial
public offering price for the Common Stock). As a result, pro forma weighted
average common shares outstanding assumes the issuance of 64,000 shares of
Common Stock underlying outstanding warrants for all periods presented. See
Note E---Initial Public Stock Offering.
<PAGE>
BLACK ROCK GOLF CORPORATION
Notes to Unaudited Condensed Financial Statements
Continued
NOTE E---INITIAL PUBLIC STOCK OFFERING
The Company completed its initial public offering of common stock on July 19,
1996. A total of 1,000,000 shares were sold in this offering. In addition, the
underwriter exercised its option to purchase an additional 150,000 shares of
Common Stock. The unused proceeds from the initial public offering (after
repayment of outstanding debt) have been invested in short term U. S. Treasury
Bills (cash equivalents) pending the utilization of the funds for marketing
and media, product testing and design, inventory purchases for existing and
new products and for general corporate and working capital purposes.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
In addition to historical information, this discussion and analysis contains
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those anticipated,
including but not limited to, (i) delays in the delivery of the Company's
products, (ii) infomercials and other marketing channels producing worse than
anticipated sales, and (iii) the risks and uncertainties described in reports
and other documents filed by the Company with the Securities and Exchange
Commission, including the Prospectus dated July 19, 1996 and the Company's
Registration Statement on Form SB - 2 (No. 333 - 4890 - D).
Results of Operations
Revenues and expenses during the nine-month period ended September 30, 1996 were
much greater than revenues and expenses during the nine-month period ended
September 30, 1995 because (i) the Company commenced operations in February
1995, and (ii) during the nine-month period ended September 30, 1996 the Company
had significantly more employees, more established marketing methods and
distribution channels, its infrastructure and management team in place, and
spent more money on advertising and marketing which, in turn, generated greater
sales. During 1995, the Company tracked revenue based on the product that was
sold. During 1996, the Company changed the manner in which it tracked revenue
based on the marketing channel that generated the revenue, and, therefore,
comparisons of revenue components cannot practically be made between revenue
generated during 1996 and 1995.
Three-month and nine-month periods ended September 30, 1996
compared with the three-month and nine-month periods ended
September 30, 1995
Net revenues increased $27,224, or 1.31%, from $2,073,521 during the three-month
period ended September 30, 1995 to $2,100,745 during the three-month period
ended September 30, 1996. Net revenues increased
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations (continued)
$4,675,904, or 158.50%, from $2,950,079 during the nine-month period ended
September 30, 1995 to $7,625,983 during the nine-month period ended September
30, 1996. For the three-month period ended September 30, 1996, sales were
negatively impacted by the late delivery of inventory of new product offerings
and lower than expected sales from infomercials. Deliveries of the Company's
new clubs, titanium drivers and the 3-wedge system, were approximately 30 to 45
days behind schedule. This delay resulted in the Company missing an opportunity
to sell these clubs during the golf season in the northern part of the United
States. In addition, infomercial sales per dollar of media costs was lower than
realized in the past. The increase in revenue for the nine-month period ended
September 30, 1996 is a direct result of additional sales personnel, expanded
distribution channels including ProShop Direct, direct mailing, and the
increased airtime for the Company's infomercials.
Cost of goods sold increased $11,432, or 1.29%, from $884,358 for the three-
month period ended September 30, 1995 to $895,790 for the three-month period
ended September 30, 1996. Cost of goods sold increased $1,727,501, or 141.48%,
from $1,221,046 for the nine-month period ended September 30, 1995 to $2,948,547
for the nine-month period ended September 30, 1996. The gross margin (gross
profit divided by net sales) for the three-month period ended September 30, 1996
was 57.36% compared to 57.35% for the three-month period ended September 30,
1995. For the nine-month period ended September 30, 1996 the gross margin was
61.34% compared to 58.61% for the nine-month period ended September 30, 1995.
Price reductions for individual components purchased from the Company's
suppliers reduced the per unit cost of goods sold, thereby increasing the gross
margin for the nine-month period ended September 30, 1996 compared to the
corresponding period ended September 30, 1995.
Advertising expenses decreased $50,418, or 5.14%, from $981,690 for the three-
month period ended September 30, 1995 to $931,272 for the three-month period
ended September 30, 1996. Advertising expenses increased
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations (continued)
$1,003,600, or 55.11%, from $1,821,236 for the nine-month period ended September
30, 1995 to $2,824,836 for the nine-month period ended September 30, 1996. For
the three and nine-month periods ended September 30, 1996, a charge of $122,961
is included for the production costs of the Company's "Stinger" 3-wedge system
video mailer. This mailer was sent to the Company's customer base in the third
quarter of 1996 with the intent of generating additional sales of the "Stinger"
3-wedge system. The increase in advertising for the nine-month period ended
September 30, 1996 is the result of increased infomercial airtime, infomercial
dubbing and shipping costs, and magazine advertising costs.
Marketing expenses increased $83,149, or 165.22%, from $50,327 for the three-
month period ended September 30, 1995 to $133,476 for the three-month period
ended September 30, 1996. Marketing expenses increased $246,149, or 351.42%,
from $70,044 for the nine-month period ended September 30, 1995 to $316,193 for
the nine-month period ended September 30, 1996. The increased marketing
expenses primarily are the result of the Company's increased efforts to attract
more ProShop Direct participants. The number of ProShop Direct participants was
approximately 2,700 as of September 30, 1996. The ProShop Direct distribution
program commenced the first week of June, 1995.
Selling and administrative expenses increased $467,517, or 244.32%, from
$191,357 for the three-month period ended September 30, 1995 to $658,874 for the
three-month period ended September 30, 1996. Selling and administrative expenses
increased $1,420,495, or 391.70%, from $362,648 for the nine-month period ended
September 30, 1995 to $1,783,143 for the nine-month period ended September 30,
1996. The increase in selling and administrative expenses is the result of an
increase in the number of employees, additional space requirements for these
employees, additional warehouse space for an expanded product line and increased
inventory and other costs associated with selling and administration such as
telephone and
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations (continued)
office supplies. The Company has increased its number of employees from 5 full
time and 3 part time employees at September 30, 1995 to 31 full time
and 9 part time employees as of September 30, 1996. The additional full time
employees at September 30, 1996 were added in the following departments: 9 in
sales, 4 in customer service, 6 in fulfillment, 2 in information systems, 1 in
media, 2 in administration and 2 in executive management. The increase in part
time employees has been primarily in the Company's outbound telemarketing
(sales) department.
Interest expense for the three and nine-month periods ended September 30, 1996
amounted to $6,844 and $32,109, respectively, compared to $2,314 for each of the
three and nine-month periods ended September 30, 1995. This increased interest
expense is a result of an increase in the outstanding balance of the Company's
line of credit and debentures issued by the Company in March, April and May
1996. The debt, along with accrued interest, was repaid in full with a portion
of the proceeds from the Company's initial public offering in July 1996.
Income tax benefit for the three-month period ended September 30, 1996 was
$16,358 compared to $0 of income tax expense for the three-month period ended
September 30, 1995. The Company reorganized to a C corporation from a Colorado
limited liability company effective April 1, 1996. Prior to April 1, 1996 all
of the limited liability company's earnings or losses were passed through to its
members. The Company has included in its statements of operations pro forma
information to include charges in lieu of income taxes, if any, for the 1st
quarter 1996 as if the Company had been a C corporation for all periods
presented. Since the Company has incurred a net loss for the nine-months ended
September 30, 1996, there is no income tax related charges for the nine-month
period ended September 30, 1996.
Net loss for the three-month period ended September 30, 1996 was $552,049
compared to a net loss of $49,638 for the three-month period
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Results of Operations (continued)
ended September 30, 1995. For the first nine months of 1996, the Company
incurred a net loss of $376,185 compared to a net loss of $569,064 for the
nine-month period ended September 30, 1995. Charges of $122,961 and $54,830
respectively related to the Company's "Stinger" 3-wedge video mailer and
a write off of the expenses associated with the Company's debentures issued in
May 1996 and redeemed in July 1996 contributed to the net loss for the three and
nine-month periods ended September 30, 1996. Lower sales caused by the late
delivery (30 - 45 days) of inventory of new product offerings (titanium drivers
and the "Stinger" 3-wedge system) and significantly lower than expected sales
per dollar of media costs from infomercials than that realized in the past also
contributed to the net loss of the third quarter of 1996. The delay in new
product offerings resulted in the Company missing an opportunity to sell
these clubs during the golf season in the northern part of the United States.
The decrease in net loss for the nine-month period ended September 30, 1996
compared to the nine-month period ended September 30, 1995 was the result of
increased sales as a result of the Company's expanded distribution channels
and increased airtime for infomercials. Also during a significant portion of
1995 the Company was still in its infancy, having commenced operations in
February 1995.
LIQUIDITY AND SOURCES OF CAPITAL
Cash flows used in operations were $2,510,859 for the nine-month period ended
September 30, 1996 as compared to $888,935 for the nine-month period ended
September 30, 1995.
Security deposit requirements increased by $185,676 primarily due to the
Company's increased inventory needs from its foreign suppliers and the increased
office and warehouse space needs; accounts receivable increased by $420,050 as
a result of increased sales and inventories increased by
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Sources of Capital (Continued)
$1,622,350 to support potential future sales; and prepaid expenses increased by
$63,043, primarily for prepaid insurance. These items were partially offset by
an increase in accounts payable of $361,556. Outside sources of capital
resulted in the issuance of $800,000 in debentures in March, April and May 1996
and drawing down $148,500 from the Company's bank line of credit, all of which
were repaid in July 1996 with a portion of the proceeds from the Company's
initial public offering. The Company believes that available cash from its
recent initial public offering and from future operations will be sufficient
to meet its normal operating requirements through the fall of 1997,
including new product testing and design, inventory for new products and
increased marketing and media expenses. The above is a forward looking
statement that is subject to risks and uncertainties that could cause actual
results to differ materially from those anticipated, including but not limited
to, (i) delays in the delivery of the Company's products, (ii) infomercials and
other marketing channels producing worse than expected sales, and (iii) the
risks and uncertainties described in reports and other documents filed by the
Company with the Securities and Exchange Commission, including the Prospectus
dated July 19, 1996 and the Company's Registration Statement on Form SB - 2 (No.
333 - 4890 - D).
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company knows of no material pending or threatened legal proceedings to
which the registrant is a party or to which any of its property is subject.
Item 2. Changes in Securities
The Company completed its initial public offering of common stock on July 19,
1996. A total of 1,150,000 shares were sold in this offering, including 150,000
shares of common stock the underwriter purchased pursuant to its option to
purchase.
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three-months ended
September 30, 1996.
<PAGE>
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.
Black Rock Golf Corporation
---------------------------------------------
(Registrant)
Date
--------------------- ---------------------------------------------
Jackson D. Rule, Jr., President & C.E.O.
Date
--------------------- ---------------------------------------------
Gerald D. Fick, C.F.O., Treasurer & Secretary
<PAGE>
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.
Black Rock Golf Corporation
---------------------------------------------
(Registrant)
Date 11/13/96 /s/ Jackson D. Rule, Jr.
--------------------- ---------------------------------------------
Jackson D. Rule, Jr., President & C.E.O.
Date 11/13/96 /s/ Gerald D. Fick
--------------------- ---------------------------------------------
Gerald D. Fick, C.F.O., Treasurer & Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,015,649
<SECURITIES> 0
<RECEIVABLES> 623,866
<ALLOWANCES> 0
<INVENTORY> 2,260,053
<CURRENT-ASSETS> 5,273,611
<PP&E> 315,146
<DEPRECIATION> 39,658
<TOTAL-ASSETS> 5,725,632
<CURRENT-LIABILITIES> 527,944
<BONDS> 0
0
0
<COMMON> 3,150
<OTHER-SE> 5,194,538
<TOTAL-LIABILITY-AND-EQUITY> 5,725,632
<SALES> 7,625,983
<TOTAL-REVENUES> 7,625,983
<CGS> 2,948,547
<TOTAL-COSTS> 5,000,665
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 32,109
<INCOME-PRETAX> (376,185)
<INCOME-TAX> 0
<INCOME-CONTINUING> (376,185)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (376,185)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
