<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 June 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
Englewood, Colorado 80112
------------------- -----
(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 August 11, 1997
<PAGE> 2
Index
Black Rock Golf Corporation
Part I. Financial Information
Item 1. Financial Statements ( Unaudited )
Condensed balance sheets---June 30, 1997 and December 31, 1996
Condensed statements of operations---Three months ended June 30, 1997
and 1996; Six months ended June 30 1997 and 1996
Condensed statements of cash flows---Six months ended June 30, 1997
and 1996;
Notes to condensed financial statements---June 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
Item 1. Financial Statements
Black Rock Golf Corporation
Condensed Balance Sheets
<TABLE>
<CAPTION>
June 30 December 31,
1997 1996
---------------------------------------------------
(Unaudited) (See Note Below)
<S> <C> <C>
Assets
Current Assets
Cash $ 97,332 $ 264,979
Investment in U S Treasury Bills - 1,300,966
Security Deposits 39,847 106,825
Accounts Receivable, net 985,482 422,191
Inventories - Note B 2,669,221 1,844,927
Prepaid Expenses 127,833 83,475
Other Current Assets 4,208 -
------------------- ------------------
Total Current Assets 3,923,923 4,023,363
Property, Plant and Equipment 400,092 341,711
Less Allowances for Depreciation (106,612) (57,332)
------------------- ------------------
Net Property, Plant and Equipment 293,480 284,379
Other Assets 273,147 255,426
------------------- ------------------
Total Assets $ 4,490,550 $ 4,563,168
=================== ==================
Liabilities and Stockholders' Equity
Current Liabilities
Accounts Payable $ 946,752 $ 628,644
Accrued Expenses 153,398 167,911
Warranty Reserves 104,000 83,478
Line of Credit 587,140 -
Other Current Liabilities 8,134 -
------------------- ------------------
Total Current Liabilities 1,799,424 880,033
Stockholders'/Members Equity
Common stock, par value $.001 per share -
Authorized 10,000,000 shares, issued
and outstanding 3,150,000 shares as of March 31,
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 March 31, 1997
and December 31, 1996 - -
Paid-in capital 5,486,323 5,486,323
Retained Deficit (2,798,347) (1,806,338)
------------------- ------------------
Total Stockholders' Equity 2,691,126 3,683,135
------------------- ------------------
Total Liabilities and Stockholders' Equity $ 4,490,550 $ 4,563,168
=================== ==================
</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 Six Months Ended
June 30 June 30
------------------------------------- -------------------------------------
1997 1996 1997 1996
--------------- -------------- -------------- ---------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Net sales $ 2,308,449 $ 3,233,179 $ 4,832,935 $ 5,525,238
Cost of sales 856,565 1,188,705 2,311,545 2,052,757
--------------- -------------- -------------- ---------------
Gross profit 1,451,884 2,044,474 2,521,390 3,472,481
Operating expenses:
Advertising 1,312,151 1,153,619 1,948,738 1,893,564
Marketing 50,424 98,308 119,279 182,717
Selling & administrative 690,396 713,587 1,376,747 1,124,269
Depr. and amortization 31,549 12,011 55,582 59,543
--------------- -------------- -------------- ---------------
Operating income (loss) (632,636) 66,949 (978,956) 212,388
Interest expense 25,214 18,955 25,214 25,265
Other income (exp), net 1,380 3,089 12,162 5,099
--------------- -------------- -------------- ---------------
Income (loss) before income tax (656,470) 51,083 (992,008) 192,222
Income tax expense (benefit) - 16,358 - 16,358
--------------- -------------- -------------- ---------------
Net income (loss) $ (656,470) $ 34,725 $ (992,008) $ 175,864
=============== ============== ============== ===============
Weighted average shares
outstanding (Notes D & E) 3,191,212 2,064,000 3,191,212 2,064,000
=============== ============== ============== ===============
Net income (loss) per share
(Notes D & E) $ (0.21) $ 0.02 $ (0.31) $ 0.09
=============== ============== ============== ===============
Pro forma information
Historical income (loss)
before taxes $ (656,470) $ 51,083 $ (992,008) $ 192,222
Charges (benefit) in lieu of
income
Tax for Limited Liability
Company - 16,358 - 71,699
--------------- -------------- -------------- ---------------
Pro forma net income (loss) $ (656,470) $ 34,725 $ (992,008) $ 120,523
=============== ============== ============== ===============
Pro forma weighted average shares
outstanding after IPO
(Notes C, D & E) 3,191,212 3,214,000 3,191,212 3,214,000
=============== ============== ============== ===============
Pro forma net income (loss) per
share (Notes C, D & E) $ (0.21) $ 0.01 $ (0.31) $ 0.04
=============== ============== ============== ===============
</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>
Six Months ended March 31,
---------------------------------------------------
1997 1996
---------------------------------------------------
<S> <C> <C>
Cash used in operations $ (1,979,471) $ (761,713)
Cash used in investing activities
Purchase of equipment (58,381) (109,852)
------------------- ------------------
Total cash used in investing activities (58,381) (109,852)
Cash provided by financing activities
Proceeds from initial public offering of common stock, net - -
Issuance of debt instruments 587,140 948,500
Gross proceeds from maturities of securities 1,300,966 -
Other assets (17,721) (175,405)
------------------- ------------------
Total cash provided by financing activities 1,870,385 773,095
------------------- ------------------
Increase/(decrease) in cash and cash equivalents $ (167,467) $ (98,470)
=================== ==================
</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
June 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
six-month period ended June 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 and March 31, 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>
June 30, December 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Work in Process $ 1,012,150 $ 340,677
Finished Goods 1,657,071 1,504,250
--------------- ---------------
Total Inventory $ 2,669,221 $ 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 as if the Company had been a C corporation for all periods
presented. This results in a pro forma charge for income taxes for the
six-month period ended June 30, 1996 of $16,358.
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 41,212
and 64,000 shares of Common Stock underlying outstanding warrants at June 30,
1997 and 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 March 7, 1997, the United States Golf Association ( "USGA" ) issued a ruling
that certain of the Company's 1995 and 1996 golf clubs did not conform with
USGA rules. Specifically, the USGA had ruled that certain decorative markings
on the face of the driver, 3 and 7 woods do not comply
<PAGE> 9
BLACK ROCK GOLF CORPORATION
Notes to Unaudited Condensed Financial Statements
Note G---Subsequent Events, continued
with certain rules of the USGA governing markings on the face of the club.
Approximately 114,000 golf clubs were affected by this ruling. The ruling was
not related to the Company's signature long shafts and did not affect any of
the Company's other clubs or products. The Company appealed this ruling with
the USGA executive committee.
On April 11, 1997 the USGA executive committee ruled in the Company's favor on
its appeal of the March 7, 1997 ruling. The executive committee of the USGA
decided that the USGA's interpretation of the decorative markings rule "has
been overly restrictive" and the Company's drivers and fairway woods now
conform with the Rules of Golf. The Company's extra length shaft iron sets and
its Stinger 3 wedge system have been submitted to the USGA for a determination
of their conformity with the USGA rules governing markings on the face of
clubs. The Company believes these clubs conform with USGA standards.
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 allows for
all funds deposited to the Company's account to be first used to pay down the
outstanding principal and interest on this facility.
<PAGE> 10
Item 2. 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 were less and expenses were greater during the three-month period
ended June 30, 1997 and the six-month period ended June 30, 1997 than revenues
and expenses during the corresponding three-month period ended June 30, 1996.
Expenses during the first quarter of 1997 compared to the first quarter of 1996
increased because the Company had significantly more employees, more
established marketing methods and distribution channels and its infrastructure
and management team was in place. During the second quarter of 1997 and 1996
the expense levels in total are substantially the same. 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.
<PAGE> 11
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations
Three-month and six-month periods ended June 30, 1997 compared with the
three-month and six-month period ended June 30, 1996
Net revenues decreased $924,730, or 29%, from $3,233,179 during the three-month
period ended June 30, 1996 to $2,308,449 during the three-month period ended
June 30, 1997. Net revenues decreased $692,303, or 13%, from $5,525,238 during
the six-month period ended June 30, 1996 to $4,832,935 during the six-month
period ended June 30, 1997. For the three-month period ended June 30, 1997,
sales of $71,313 resulted from the Company's close out of its 1996 model clubs
at substantially reduced wholesale prices. For the six- month period ended
June 30, 1997, sales of $1,181,199 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 six-month periods ended June 30, 1996
since the Company's club design remained unchanged during 1995 and 1996. In
addition, for the three-month and six-month period ended June 30, 1997,
infomercial sales per dollar of media costs was lower than that experienced in
the three-month and six-month period ended June 30, 1996. 1997 model club
sales generated from ProShop Direct participants decreased $518,367, or 37%,
from $1,385,104 for the three-month period ended June 30, 1996 to $866,737 for
the three-month period ended June 30, 1997. 1997 model club sales generated
from ProShop Direct participants decreased $1,103,628, or 46%, from $2,376,852
for the six-month period ended June 30, 1996 to $1,273,224 for the six-month
period ended June 30, 1997. Consumer sales decreased $508,745, or 29%, from
$1,760,841 for the three- month period ended June 30, 1996 to $1,252,096 for
the three-month period ended June 30, 1997. Consumer sales decreased $787,950,
or 26%, from $2,980,187 for the six-month period ended June 30, 1996 to
$2,192,237 for the six-month period ended June 30, 1997. International sales
increased $31,069, or 36%, from $87,234 for the three-month period ended June
30, 1996 to $118,303 for the three-month period ended June 30, 1997.
International sales increased $18,076, or 11%, from $168,199 for the six-
<PAGE> 12
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations (continued)
month period ended June 30, 1996 to $186,275 for the six-month period ended
June 30, 1997. The effect of the USGA ruling in March 1997 has materially
impacted 1997 sales results to date and will continue its negative impact for
the remainder of 1997. Sales for the three-month and six-month periods ended
June 30, 1997 were severely impacted by the USGA ruling on March 7, 1997 that
certain of the Company's 1995, 1996 and 1997 golf clubs, its drivers, 3 and 7
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 March 7, 1997 ruling the Company experienced resistance on the part of
the ProShop Direct participants to purchase non- conforming clubs, even though
the Company assured them the Company's 1997 model clubs were in conformance
with the USGA rules. 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 available club 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 infomercial sales per
dollar of media costs being lower than expected and that which was experienced
in the six-month period ended June 30, 1996. The reduced infomercial air time
will result in fewer sales.
Cost of goods sold decreased $332,140, or 28%, from $1,188,705 for the
three-month period ended June 30, 1996 to $856,565 for the three-month period
ended June 30, 1997. Cost of goods sold increased $258,788, or 13%, from
$2,052,757 for the six-month period ended June 30, 1996 to $2,311,545 for the
six-month period ended June 30, 1997. For the three-month period ended June
30, 1997, cost of goods sold in the amount of $60,616 resulted from the
Company's close out of its 1996 model clubs. For the six-month period ended
June 30, 1997, cost of goods sold in the amount of $994,591 resulted from the
Company's close out of its 1996 model clubs.
<PAGE> 13
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations (continued)
Cost of goods sold for the Company's 1997 model club sales decreased in line
with the decrease in club sales.
The gross margin (gross profit divided by net sales) for the three-month
periods ended June 30, 1997 and June 30, 1996 was 63%. The gross margin for
the six-month periods ended June 30, 1997 was 52% compared to 63% for the
six-month period ended June 30, 1996. The decrease in the gross profit margin
for the six-month period ended June 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 would have been 64%.
Advertising expenses increased $158,532, or 14%, from $1,153,619 for the
three-month period ended June 30, 1996 to $1,312,151 for the three-month period
ended June 30, 1997. Advertising expenses increased $55,174, or 3%, from
$1,893,564 for the six-month period ended June 30, 1996 to $1,948,738 for the
six-month period ended June 30, 1997. Infomercial air time decreased $11,150 or
1%, from $828,043 for the three-month period ended June 30, 1996 to $816,893
for the three-month period ended June 30, 1997. Infomercial air time decreased
$235,141 or 16%, from $1,462,197 for the six-month period ended June 30, 1996
to $1,227,056 for the six-month period ended June 30, 1997. The Company reduced
substantially its infomercial air time for the six-month period ended June 30,
1997 as a result of its new titanium driver infomercial not airing until mid
February 1997. 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 titanium infomercial production
costs amounted to an increase of $189,559 for the three-month period ended June
30, 1997 over the three-month period ended June 30, 1996 since production costs
were deferred 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
<PAGE> 14
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations (continued)
decreased $30,722 as a result of the new infomercial and magazine advertising
(including production and creative expenses) increased $22,548 for the
three-month period ended June 30, 1997 over the three-month period ended June
30, 1996. Inbound telemarketing costs, order taking for infomercial telecasts,
decreased $59,723 due to the reduced sales generated by infomercials for the
three- month period ended June 30, 1997 compared to the three-month period ended
March 31, 1996. Direct mailing costs increased $52,565 due to increased
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 June
30, 1997 compared to the three-month period ended March 31, 1996. Amortization
of the titanium infomercial production costs amounted to an increase of $236,246
for the six-month period ended June 30, 1997 over the six- month period ended
June 30, 1996 since 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 $18,332 as a result of the new infomercial
and magazine advertising (including production and creative expenses) increased
$56,412 for the six-month period ended June 30, 1997 over the six-month period
ended June 30, 1996. Inbound telemarketing costs, order taking for infomercial
telecasts, decreased $95,044 due to the reduced sales generated by infomercials
and moving part of the functions performed by the third party in-house for the
six-month period ended June 30, 1997 compared to the six-month period ended
March 31, 1996. Direct mailing costs increased $68,125 due to increased
mailings to the Company's existing customer base and to non customers whose
names were purchased from a third party for the six-month period ended June 30,
1997 compared to the six-month period ended March 31, 1996.
Marketing expenses decreased $47,884, or 49%, from $98,308 for the three-month
period ended June 30, 1996 to $50,424 for the three- month period ended June
30, 1997. Marketing expenses decreased $63,438, or 35%, from $182,717 for the
six-month period ended June 30, 1996 to $119,279
<PAGE> 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations (continued)
for the six-month period ended June 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 $23,191, or 3%, from
$713,587 for the three-month period ended June 30, 1996 to $690,396 for the
three-month period ended June 30, 1997. The decrease in selling and
administrative expenses is primarily the result of less commissions and credit
card processing fees which are the result of decreased sales. Selling, general
and administrative expenses increased $252,478, or 22%, from $1,124,269 for the
six-month period ended June 30, 1996 to $1,376,747 for the six-month period
ended June 30, 1997. The Company has increased its number of employees from 18
full time and 10 part time employees at March 31, 1996 to 29 full time and 6
part time employees as of March 31, 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
six-month period ended June 30, 1997 as compared to the six-month period ended
June 30, 1996.
Income tax expense for the three-month and six-month periods ended June 30,
1996 was $16,358 and at June 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 June 30, 1997 was $656,470 compared
to net income of $34,725 for the three-month period ended June 30, 1996.
Lower sales caused by the USGA ruling and the Company's
<PAGE> 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations (continued)
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
second 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 $1,979,471 for the three-month period ended
June 30, 1997 as compared to $761,713 for the three- month period ended June
30, 1996.
Security deposits decreased by $66,978 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 $563,291,
$308,000 was the result of the Company's four (4) month payment plan for
consumer sales using credit cards; inventory increased by $824,294 as a result
of the delay in receiving new products due to the USGA ruling resulting in
fewer sales than originally projected and prepaid expenses increased by $44,358
primarily due to the increased buying of July 1997 air time for the Company's
infomercials. These items were partially offset by an increase in current
liabilities of $919,391, $587,170 of which is funds used from the Company's line
of credit and $318,108 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 in the remaining spring and 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.
<PAGE> 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Liquidity and Sources of Capital (continued)
The Company believes that available cash from its future operations and the
$800,000 revolving line of credit will be sufficient to meet its
normal operating requirements through the year 1997, including new product
testing and design, inventory for new products and increased marketing and
media expenses. 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. This original covenant was modified in early July
1997. There is no assurance the Company will be able to achieve this financial
covenant included in the revolving line of credit.
<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.
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
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
<PAGE> 19
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K (continued)
(A) EXHIBITS (CONTINUED)
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
Hoffer dated April 10, 1996
10.6* Line of Credit Agreement between the Company and MegaBank of
Arapahoe dated August 11, 1995
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
<PAGE> 20
PART II. OTHER INFORMATION (CONTINUED)
Item 6. Exhibits and Reports on Form 8-K (continued)
(A) EXHIBITS (CONTINUED)
* 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 June 26, 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 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 08/14/97 /s/ Jackson D. Rule., Jr.
----------------------------- ---------------------------------------
Jackson D. Rule, Jr., President & C.E.O.
Date 08/14/97 /s/ Gerald D. Fick
----------------------------- ---------------------------------------
Gerald D. Fick, C.F.O., Treasurer &
Secretary
<PAGE> 22
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
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
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
<PAGE> 23
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
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
Hoffer dated April 10, 1996
10.6* Line of Credit Agreement between the Company and MegaBank of
Arapahoe dated August 11, 1995
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
<PAGE> 24
* 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 June 26, 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 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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 97,332
<SECURITIES> 0
<RECEIVABLES> 985,482
<ALLOWANCES> 0
<INVENTORY> 2,669,221
<CURRENT-ASSETS> 3,923,923
<PP&E> 400,092
<DEPRECIATION> 106,612
<TOTAL-ASSETS> 4,490,550
<CURRENT-LIABILITIES> 1,799,424
<BONDS> 0
0
0
<COMMON> 3,150
<OTHER-SE> 2,687,976
<TOTAL-LIABILITY-AND-EQUITY> 4,490,550
<SALES> 4,832,935
<TOTAL-REVENUES> 4,832,935
<CGS> 2,311,545
<TOTAL-COSTS> 3,500,346
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,214
<INCOME-PRETAX> (992,008)
<INCOME-TAX> 0
<INCOME-CONTINUING> (992,008)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (992,008)
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
</TABLE>
