<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(MARK ONE)
[ x ] Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 For the quarterly period ended September 30, 1997
[ ] Transition report under to Section 13 or 15 (d) of the Exchange Act 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 80112
Englewood, Colorado
------------------------------------ ---------
(Address of principal executive office) (Zip Code)
(303)799 - 9901
-------------------------------------------------
(Registrants telephone number, including area code)
Not applicable
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed from last report)
Check whether the issuer ( 1 ) has 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 the
past 90 days. Yes X No
----- -----
State 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, 1997
<PAGE> 2
Index
Black Rock Golf Corporation
Part I. Financial Information
Item 1. Financial Statements ( Unaudited )
Condensed balance sheets---September 30, 1997 and December 31, 1996
Condensed statements of operations---Three months ended September 30, 1997
and 1996; Nine months ended September 30, 1997 and 1996
Condensed statements of cash flows---Nine months ended September 30, 1997
and 1996;
Notes to condensed financial statements---September 30, 1997
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
<PAGE> 3
PART I. FINANCIAL INFORMATION
BLACK ROCK GOLF CORPORATION
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30 December 31,
1997 1996
----------- ----------------
(Unaudited) (See Note Below)
<S> <C> <C>
Assets
Current Assets
Cash $ 35,794 $ 264,979
Investment in U S Treasury Bills -- 1,300,966
Security Deposits 49,847 106,825
Accounts Receivable, net 577,217 422,191
Inventories - Note B 2,929,980 1,844,927
Prepaid Expenses 51,433 83,475
Other Current Assets 7,323 --
----------- -----------
Total Current Assets 3,651,594 4,023,363
Property, Plant and Equipment 405,156 341,711
Less Allowances for Depreciation (133,563) (57,332)
----------- -----------
Net Property, Plant and Equipment 271,593 284,379
Other Assets 120,532 255,426
----------- -----------
Total Assets $ 4,043,719 $ 4,563,168
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $ 867,887 $ 628,644
Accrued Expenses 175,353 167,911
Warranty Reserves 42,972 83,478
Line of Credit 524,239 --
Promissory Notes Payable 180,876 --
Other Current Liabilities 10,984 --
----------- -----------
Total Current Liabilities 1,802,311 251,389
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,
1997 and 3,150,000 as of December 31, 1996 3,150 3,150
Preferred stock, par value $.001 per share -
Authorized 1,000,000 shares, issued
and outstanding 0 shares as of September 30, 1997
and December 31, 1996 -- --
Paid-in capital 5,486,323 5,486,323
Retained Deficit (3,248,065) (1,806,338)
----------- -----------
Total Stockholders' Equity 2,241,408 3,683,135
----------- -----------
Total Liabilities and Stockholders' Equity $ 4,043,719 $ 3,934,524
=========== ===========
</TABLE>
Note: The balance sheet at December 31, 1996 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> 4
BLACK ROCK GOLF CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 1,343,456 $ 2,100,745 $ 6,176,391 $ 7,625,983
Cost of sales 641,123 895,790 2,952,668 2,948,547
----------- ----------- ----------- -----------
Gross profit 702,333 1,204,955 3,223,723 4,677,436
Operating expenses:
Advertising 452,136 931,272 2,400,874 2,824,836
Marketing 29,655 133,476 148,934 316,193
Selling & administrative 627,912 658,874 2,004,659 1,783,143
Depr. and amortization 27,452 16,950 83,034 76,493
----------- ----------- ----------- -----------
Total operating expenses 1,137,155 1,740,572 4,637,501 5,000,665
----------- ----------- ----------- -----------
Operating loss (434,822) (535,617) (1,413,778) (323,229)
Interest expense 14,922 6,844 40,136 32,109
Other income (exp), net 27 (25,946) 12,189 (20,847)
----------- ----------- ----------- -----------
Loss before income taxes (449,717) (568,407) (1,441,725) (376,185)
Income tax benefit -- (16,358) -- --
----------- ----------- ----------- -----------
Net loss $ (449,717) $ (552,049) $(1,441,725) $ (376,185)
=========== =========== =========== ===========
Weighted average shares
outstanding (Notes D & E) 3,150,000 2,988,945 3,150,000 2,374,500
=========== =========== =========== ===========
Net loss per share
(Notes D & E) $ (0.14) $ (0.18) $ (0.46) $ (0.16)
=========== =========== =========== ===========
PRO FORMA INFORMATION
Historical loss before taxes $ (449,717) $ (568,407) $(1,441,725) $ (376,185)
Benefit in lieu of income
Tax for Limited Liability Company -- (16,358) -- --
----------- ----------- ----------- -----------
Pro forma net loss $ (449,717) $ (552,049) $(1,441,725) $ (376,185)
=========== =========== =========== ===========
Pro forma weighted average shares
outstanding after IPO
(Notes C, D & E) 3,150,000 2,988,945 3,150,000 2,374,500
=========== =========== =========== ===========
Pro forma net loss per
share (Notes C, D & E) $ (0.14) $ (0.18) $ (0.46) $ (0.16)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
<PAGE> 5
BLACK ROCK GOLF CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended September 30,
-------------------------------
1997 1996
-------------------------------
<S> <C> <C>
Cash used in operations $(2,032,927) $(2,510,859)
Cash used in investing activities
Purchase of equipment (63,445) (296,912)
----------- -----------
Total cash used in investing activities (63,445) (296,912)
Cash provided by financing activities
Proceeds from initial public offering of common stock, net -- 4,775,000
Issuance of debt instruments 705,115 --
Gross proceeds from maturities of securities 1,300,966 --
Other assets (138,894) (79,591)
----------- -----------
Total cash provided by financing activities 1,867,187 4,695,409
----------- -----------
Increase/(decrease) in cash and cash equivalents $ (229,185) $ 1,887,638
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
financial statements.
<PAGE> 6
BLACK ROCK GOLF CORPORATION
Notes to Unaudited Condensed Financial Statements
September 30, 1997
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 nine-month period
ended September 30, 1997 are not necessarily indicative of the results that may
be expected for the year ended December 31, 1997. For further information, refer
to the Company's Registration Statement on Form SB - 2 (No. 333 - 4890 - D), as
amended, and Quarterly Reports on Form 10 - QSB for the quarters ended June 30,
1996, September 30, 1996, March 31, 1997 and June 30, 1997 and Form 10-KSB for
the year ended December 31, 1996.
Note B---Inventories
The components of inventory consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Work in Process $1,973,442 $ 340,677
Finished Goods 956,538 1,504,250
---------- ----------
Total Inventory $2,929,980 $1,844,927
========== ==========
</TABLE>
<PAGE> 7
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, if any, as if the Company had been a C corporation for all periods
presented. This results in no pro forma charge for income taxes for the
nine-month period ended September 30, 1996.
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). As a result, pro
forma weighted average common shares outstanding assumes the issuance of 0 and
64,000 shares of Common Stock underlying outstanding warrants at September 30,
1997 and September 30, 1996 respectively. See Note E---Initial Public Stock
Offering.
<PAGE> 8
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) were invested in short term U. S. Treasury Bills
(Cash equivalents) until the funds were utilized for marketing and media,
product testing and design, inventory purchases for existing and new products
and for general corporate and working capital purposes.
Note F---FASB Statement No. 128
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods. Under the new
requirements for calculating earnings per share, the dilutive effect of stock
options will be excluded. The expected impact of Statement No. 128 on these
quarters is not expected to be material.
Note G---Subsequent Events
On April 15, 1997 the Company secured an $800,000 two year revolving line of
credit with a bank secured by substantially all of its assets. The agreement
includes certain financial covenants and a lock box feature which
<PAGE> 9
BLACK ROCK GOLF CORPORATION
Notes to Unaudited Condensed Financial Statements
Note F---Subsequent Events, continued
allows for all funds deposited to the Company's account first be used to pay
down the outstanding principal and interest on this facility.
On September 1, 1997 the Company entered into a Distribution Agreement to allow
the sale of the Company's products in Japan. Terms contained in the agreement
for future distribution rights include minimum purchases of products on a
monthly basis, which requirement has been met by the distributor.
On October 24, 1997 the Company issued $200,000 in debentures for funding of its
Jump Start to Golf product introduction. The debentures bear interest at a rate
of 10% per annum. Warrants to purchase 100,000 shares of common stock at $1.00
per share exercisable for a period of five years were issued in conjunction with
the debentures. The warrants may not be sold, transferred assigned or
hypothecated until October 24, 1998.
On November 3, 1997 the Company signed a Promissory Note in the amount of
$50,000 with an interest rate of 10% per annum. The due date of the Note is the
earlier of any equity financing by the Company or June 30, 1998. An officer of
the Company is the Holder of this Note.
On November 7, 1997 the Company engaged the services of an Investment Banker to
assist the Company in defining specific objectives and action plans and to
locate and assist in the negotiations with an equity/debt funding source for the
Company's 1998 funding requirements.
<PAGE> 10
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
The marketing channels tracked are ProShop Direct including close out sales,
Consumer and International. ProShop Direct consists of green grass golf club pro
shops and major golf retail outlets, including catalog sales. Consumer sales
consist of infomercial sales, outbound telemarketing sales, golf magazine sales,
direct mail sales and customer service sales, all of which are sold directly to
the individual consumer.
Three-month and nine-month periods ended September 30, 1997
compared with the three-month and nine-month periods ended
September 30, 1996
Net revenues decreased $757,289, or 36%, from $2,100,745 during the three-month
period ended September 30, 1996 to $1,343,456 during the three-month period
ended September 30, 1997. Net revenues decreased $1,449,592, or 19%, from
$7,625,983 during the nine-month period ended September 30, 1996 to $6,176,391
during the nine-month period ended September 30, 1997. For the three-month
period ended September 30, 1997, sales of $176,705 resulted from the Company's
close out of its 1996 model clubs at substantially reduced wholesale prices. For
the nine-month period ended September 30, 1997, sales of $1,357,904 resulted
from the Company's close out of its 1996 model clubs at substantially reduced
wholesale prices. There were no close out sales for the three-month and
<PAGE> 11
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations (continued)
nine-month periods ended September 30, 1996 since the Company's club design
remained unchanged during 1995 and 1996. In addition, for the three-month and
nine- month period ended September 30, 1997, infomercial sales per dollar of
media costs was lower than that experienced in the three-month and nine-month
period ended September 30, 1996. New model club sales generated from ProShop
Direct participants decreased $468,216, or 52%, from $897,504 for the
three-month period ended September 30, 1996 to $429,288 for the three-month
period ended September 30, 1997. New model club sales generated from ProShop
Direct participants decreased $1,580,038, or 48%, from $3,274,356 for the
nine-month period ended September 30, 1996 to $1,694,318 for the nine-month
period ended September 30, 1997. Consumer sales decreased $523,538, or 46%, from
$1,135,646 for the three-month period ended September 30, 1996 to $612,108 for
the three-month period ended September 30, 1997. Consumer sales decreased
$1,303,294, or 32%, from $4,115,833 for the nine-month period ended September
30, 1996 to $2,812,539 for the nine-month period ended September 30, 1997.
International sales increased $57,760, or 85%, from $67,595 for the three-month
period ended September 30, 1996 to $125,355 for the three-month period ended
September 30, 1997. International sales increased $75,836, or 32%, from $235,794
for the nine- month period ended September 30, 1996 to $311,630 for the
nine-month period ended September 30, 1997. The international sales increase is
the result of signing a distributorship agreement for sales to the Japanese
market effective September 1, 1997. Terms contained in the agreement for future
distribution rights include minimum purchases of products on a monthly basis,
which requirement has been met by the distributor. On February 5, 1997, the
Company was notified by the USGA of its intention to issue a ruling that certain
of the Company's clubs were not in conformance with the USGA rules governing
markings on the face of the club head. On March 7, 1997 the USGA issued its
ruling. Sales for the three-month and nine-month periods ended September 30,
1997 were materially impacted by the USGA ruling. The ruling indicated that
certain of the Company's 1995, 1996 and 1997 golf clubs, its drivers, 3 and 7
<PAGE> 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations (continued)
woods, did not comply with USGA rules governing certain markings on the face of
the club. On April 11, 1997 the USGA executive committee ruled in the Company's
favor on its appeal of the March 7, 1997 ruling. The selling season for golf
clubs begins in mid to late February of each year and as a result of the USGA
notifying the Company on February 5, 1997 of its intention to issue the non
conformance ruling and issuing the ruling on March 7, 1997, the Company
experienced resistance on the part of the ProShop Direct participants and retail
outlets to purchase the non-conforming clubs. Prior to learning of the USGA
decision on the Company's appeal, the Company decided to modify the markings on
the club face of its 1997 model golf clubs. This resulted in inventory shortages
during the early selling season when the ProShops and retail outlets are
stocking inventory for their sales efforts. The Company has also reduced its air
time for infomercials for the remainder of 1997 due to the Company's conclusion
that infomercial airings are in effect subsidized advertising for driving retail
sales and the Company does not expect infomercial sales to be profitable. The
reduced infomercial air time will result in fewer sales.
The gross margin (gross profit divided by net sales) for the three-month period
ended September 30, 1997 was 52% and for the three-month period ended September
30, 1996 was 57%. The gross margin for the nine-month period ended September 30,
1997 was 52% compared to 61% for the nine-month period ended September 30, 1996.
The decrease in the gross profit margin for the nine-month period ended
September 30, 1997 was a direct result of the Company's close out sales of its
1996 model clubs. Excluding the 1996 model close out sales, the gross margin for
the nine-month period ended September 30, 1997 would have been 61%.
Advertising expenses decreased $479,136, or 51%, from $931,272 for the
three-month period ended September 30, 1996 to $452,136 for the three-month
period ended September 30, 1997. Advertising expenses decreased $423,962, or
15%, from $2,824,836 for the nine-month period ended September 30, 1996 to
$2,400,874 for the nine-month period ended
<PAGE> 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations (continued)
September 30, 1997. Infomercial air time decreased $121,919 or 24%, from
$502,887 for the three-month period ended September 30, 1996 to $380,968 for the
three-month period ended September 30, 1997. Infomercial air time decreased
$357,060, or 18%, from $1,965,084 for the nine-month period ended September 30,
1996 to $1,608,024 for the nine-month period ended September 30, 1997. The
Company reduced substantially its infomercial air time for the nine-month period
ended September 30, 1997 as a result of its new titanium driver infomercial not
airing until mid February 1997 and the Company's conclusion that infomercial
airings are in effect subsidized advertising for driving retail sales and the
Company does not expect infomercial sales to be profitable. The Company
discontinued air time for its 1996 driver infomercial in mid December 1996 due
to direct sales from this infomercial not meeting expectations. Amortization of
the infomercial production costs amounted to a decrease of $188,876 for the
three-month period ended September 30, 1997 over the three-month period ended
September 30, 1996. Dubbing and shipping costs decreased $20,312 as a result of
the new infomercial while magazine advertising (including production and
creative expenses) decreased $22,577 for the three-month period ended September
30, 1997 over the three-month period ended September 30, 1996. Direct mailing
costs decreased $125,182 due to reduced mailings to the Company's existing
customer base and to non customers whose names were purchased from a third party
for the three-month period ended September 30, 1997 compared to the three-month
period ended September 30, 1996. For the nine-month period ended September 30,
1997, amortization of infomercial production costs increased $47,370 over the
nine-month period ended September 30, 1996. The 1997 infomercial production
costs were capitalized in the amount of approximately $307,000 prior to any air
time and were fully amortized at June 30, 1997 since there was no future
benefits for the remaining air time periods, dubbing and shipping costs
decreased $39,144 as a result of the new infomercial, and magazine advertising
(including production and creative expenses) increased $21,106 for the
nine-month period ended September 30, 1997 over the nine-month period ended
September 30, 1996.
<PAGE> 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations (continued)
Direct mailing costs decreased $96,234 due to the reduced mailings to the
Company's existing customer base and to non customers whose names were purchased
from a third party for the nine-month period ended September 30, 1997 compared
to the nine-month period ended September 30, 1996.
Marketing expenses decreased $103,821, or 78%, from $133,476 for the three-month
period ended September 30, 1996 to $29,655 for the three-month period ended
September 30, 1997. Marketing expenses decreased $167,259, or 53%, from $316,193
for the nine-month period ended September 30, 1996 to $148,934 for the
nine-month period ended September 30, 1997. The decrease in marketing expenses
primarily are the result of the Company's reduced reliance on an outside
advertising agency and its related expenses in developing the Company's
marketing programs.
Selling, general and administrative expenses decreased $30,962, or 5%, from
$658,874 for the three-month period ended September 30, 1996 to $627,912 for the
three-month period ended September 30, 1997. Selling, general and administrative
expenses increased $221,516, or 12%, from $1,783,143 for the nine-month period
ended September 30, 1996 to $2,004,659 for the nine-month period ended September
30, 1997. The Company has increased its number of employees from 18 full time
and 10 part time employees at March 31, 1996 to 24 full time and 8 part time
employees as of September 30, 1997. Payroll costs and associated payroll taxes
and employee benefits has increased $129,162, professional fees for legal and
accounting has increased $22,969, rent has increased by $77,686 and costs
associated with a publicly traded company has increased $18,872 for the
nine-month period ended September 30, 1997 as compared to the nine-month period
ended September 30, 1996. A decrease of $281,719 for the nine-month period ended
September 30, 1997 compared to the nine-month period ended September 30, 1996 is
primarily the result of less commissions, inbound telemarketing (order taking
for infomercial telecasts) and credit card processing fees which are the result
of decreased sales.
<PAGE> 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations (continued)
Income tax expense for the nine-month periods ended September 30, 1996 and
September 30, 1997 was $0. 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.
Net loss for the three-month period ended September 30, 1997 was $449,717
compared to a net loss of $552,049 for the three-month period ended September
30, 1996. Lower sales caused by the USGA ruling and the Company's close out
sales of its 1996 model clubs plus lower than expected sales generated through
other marketing channels contributed to the net loss in the third quarter of
1997. The delay in receiving inventory for the Company's new product offerings
due to the USGA ruling resulted in the Company missing an opportunity to sell
clubs in the southern states at the end of their golf season and delayed the
introduction to retailers and green grass pro shops in the northern part of the
United States.
Liquidity and Sources of Capital
Cash flows used in operations were $2,032,927 for the nine-month period ended
September 30, 1997 as compared to $2,510,859 for the nine-month period ended
September 30, 1996.
Security deposits decreased by $56,978 primarily as a result of the Company
securing a revolving line of credit that satisfied the requirements of the
Company's foreign suppliers; accounts receivable increased by $155,026, $121,000
was the result of the Company's four (4) month payment plan for consumer sales
using credit cards; inventory increased by $1,085,053 as a result of the delay
in receiving new products due to the USGA ruling resulting in fewer sales than
originally projected and prepaid
<PAGE> 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Sources of Capital (continued)
expenses decreased by $32,042 primarily due to the decreased buying of 1997 air
time for the Company's infomercials. These items were partially offset by an
increase in current liabilities of $1,550,922, $524,234 which is funds used from
the Company's line of credit, $180,876 of Promissory Notes transferred from
accounts payable and $239,243 increase in accounts payable. The Company has used
the remaining funds from its initial public offering, $1,300,966, during the
first quarter of 1997 primarily for the purchase of new inventory to prepare for
the increased sales anticipated during the summer selling season. The Company
does not anticipate excess inventory requiring close out sales in 1997 or 1998
because the Company's product design for 1998 will remain the same as its 1997
product design. The Company has added a 5 wood to its current product line which
will be available for delivery in early December 1997.
The Company believes that should current sales projections be achieved,
available cash from its future operations, and the Company has available
collateral equaling its available line of credit, the $800,000 revolving line of
credit will be sufficient to meet its normal operating requirements through year
end 1997, including new product testing and design, inventory for new products
and increased marketing and media expenses. The Company is currently pursuing
additional bridge financing as its investment banker has indicated it will take
approximately ninety (90) days to close on the equity financing the Company is
seeking. The loan agreement contains a financial covenant on the amount of
common equity required, which is $2,400,000 and increases by one half of future
profits, if any. At September 30, 1997, the Company was in default of the equity
covenant in the loan agreement. The lender has issued a letter to the Company
waiving the default of the common equity requirement contained in the loan
agreement. This original covenant was modified in early July 1997. There is no
assurance that the Company will be able to maintain this financial covenant
included in the revolving line of credit. All amounts drawn from this line of
credit are shown as current liabilities.
<PAGE> 17
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Sources of Capital (continued)
In October 1997, the Company issued $200,000 of debentures for the purpose of
funding its Jump Start to Golf product introduction through an infomercial to be
aired in December 1997. The Jump Start to Golf product is designed to teach the
beginning golf enthusiast the correct grip, stance Management's Discussion and
Analysis of Financial Condition and Results of Operations
Liquidity and Sources of Capital (continued)
and swing which would eliminate the need for the first three lessons given by a
teaching golf professional. A market test of this product will be conducted in
December 1997 and January 1998.
In November 1997 the Company signed a Promissory Note in the amount of $50,000
with an interest rate of 10% per annum. The due date of the Note is the earlier
of any equity financing by the Company or June 30, 1998. An officer of the
Company is the holder of this Note.
In November 1997 the Company engaged the services of an Investment Banker to
assist the Company in defining specific objectives and action plans and to
locate and assist in the negotiations with an equity/debt funding source for the
Company's 1998 funding requirements.
<PAGE> 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In March 1997, the Company received correspondence from a golf club
manufacturer alleging infringement of a patent by the infrastructure (the
"Parabolic Arch Reinforcement") of its titanium and stainless steel driver
heads. The Company believes it has not infringed this patent and that the
resolution of this patent claim will not have a material adverse affect on the
Company.
In July 1997, suit was filed against the Company alleging amounts due ($65,000)
for infomercial air time during 1995 which the Company had not been invoiced
for until March 1997. The Company believes it has paid for all infomercial air
time run during 1995 and that the resolution of this suit will not have a
material adverse affect on the Company.
In September 1997, suit was filed against the Company alleging amounts due
($184,000) for printing costs of the Company's prospectus in its initial public
offering on July 19, 1996. The Company believes the amount invoiced is
excessive and has reserved an amount it feels to be justified by the facts as
indicated in the bid from the printer and the subsequent details included in
the printers invoice to the Company. The Company believes the resolution of
this suit will not have a material adverse effect on the Company.
The Company is a party, from time to time, in litigation incident to its
business. The Company is not aware of any current or pending litigation that
it believes will have a material adverse affect on the Company's results of
operations or financial condition.
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBITS
2.1* Exchange Memorandum dated February 23, 1996, regarding the
reorganization of the Registrant from a Colorado limited
liability company to a Delaware corporation (the "Exchange
Memorandum")
2.2* Amendment to the Exchange Memorandum
<PAGE> 19
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K (continued)
(A) EXHIBITS (CONTINUED)
2.3* Articles of Dissolution of Black Rock Ventures, LLC
3.1* Certificate of Incorporation of the Company
3.2* Bylaws of the Company
4.1* Form of Bridge Warrant
4.2*** Form of Amendment to Bridge Warrant
4.3* Certificate of Designations, Rights and Preferences of Series A
Redeemable and Convertible Preferred Stock of Black Rock Golf
Corporation
4.4** Form of Underwriter's Warrant
10.1* 1996 Stock Option Plan
10.2* Licensing Agreement between S2 Golf Inc. and the Company dated
January 1, 1996
10.3* Employment Agreement between the Company and Jackson D.
Rule, Jr. dated April 10, 1996
10.4* Employment Agreement between the Company and Rocky
Thompson dated April 1, 1996
10.5* Employment Agreement between the Company and Lawrence
B. Hoffer dated April 10, 1996
10.6* Line of Credit Agreement between the Company and MegaBank
of Arapahoe dated August 11, 1995
<PAGE> 20
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K (continued)
(a) EXHIBITS (CONTINUED)
10.7* Assignment of Trademarks between the Company and Koala
Ventures, LLC
10.8* Sales Agency Agreement between the Company and Hampshire
Securities Corporation dated May 9, 1996
11.1**** Computation of per share earnings
27.1 Financial Data Schedule
* Incorporated by reference to the Company's Registration Statement on
Form SB-2 filed May 24, 1996 (Registration No. 333-4890-D)
** Incorporated by reference to the Company's Pre-Effective Amendment
No. 1 to the Registration Statement on Form SB-2 filed July 16, 1996
(Registration No. 333-4890-D)
*** Incorporated by reference to the Company's Pre-Effective Amendment
No. 2 to the Registration Statement on Form SB-2 filed June 26, 1996
(Registration No. 333-4890-D)
**** This data appears in the Consolidated Statement of Operations
included in the Company's Consolidated Financial Statements
(b) REPORTS ON FORM 8-K: None
<PAGE> 21
Signatures
In accordance with to the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Black Rock Golf Corporation
---------------------------
(Registrant)
Date 11/14/97 /s/ Jackson D. Rule., Jr.
------------------------------- ------------------------------
Jackson D. Rule, Jr.,
President & C.E.O.
Date 11/14/97 /s/ Gerald D. Fick
------------------------------- ------------------------------
Gerald D. Fick, C.F.O.,
Treasurer & Secretary
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