<PAGE> 1
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended August 30, 1997
[ ] 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: 0-71735
ROYAL PRECISION, INC.
---------------------
(Exact name of registrant as specified in its charter)
DELAWARE 06-1453896
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3490 CLUBHOUSE DRIVE
SUITE 102
WILSON, WYOMING 83014
---------------------
(Address of principal executive offices) (Zip code)
(307) 739-1188
--------------
(Registrant's telephone number, including area code)
FM PRECISION GOLF CORP.
-----------------------
(Former Name)
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 preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes No X
--- ---
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date:
Title of each class Outstanding at September 30, 1997
- ------------------- ---------------------------------
Common Stock, par value $.001 5,596,442 shares
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ITEM 1.
ROYAL PRECISION, INC. AND SUBSIDIARIES
--------------------------------------
(formerly, FM Precision Golf Corp. and Subsidiaries)
----------------------------------------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
August 30, May 31,
1997 1997
---- ----
(unaudited)
<S> <C> <C>
ASSETS
------
CURRENT ASSETS:
Cash $ 35,553 $ 27,841
Accounts receivable, net of allowance
for doubtful accounts of $541,000
at August 30, 1997 and $88,000
at May 31, 1997 3,642,595 3,257,932
Inventories, net 3,906,836 3,493,080
Current portion of net investment
in lease 225,935 --
Prepaid expenses and other current assets 154,056 63,291
Deferred income taxes 222,877 222,877
----------- -----------
Total current assets 8,187,852 7,065,021
----------- -----------
PROPERTY, PLANT AND EQUIPMENT:
Land 37,500 37,500
Buildings and improvements 534,134 363,491
Machinery and equipment 4,398,781 2,669,898
----------- -----------
4,970,415 3,070,889
Less - Accumulated depreciation (297,449) (202,449)
----------- -----------
4,672,966 2,868,440
----------- -----------
GOODWILL 10,300,696 --
----------- -----------
DEFERRED MERGER COSTS -- 465,136
----------- -----------
NET INVESTMENT IN LEASE, less current portion 2,754,925 --
----------- -----------
OTHER ASSETS 53,492 --
----------- -----------
DEFERRED INCOME TAXES 25,799 25,799
----------- -----------
$25,995,730 $10,424,396
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Current portion of long-term debt
and capital lease obligations $ 3,195,276 $ 2,466,136
Accounts payable 2,305,286 1,258,082
Accrued expenses 2,109,191 1,724,815
Supply agreement credits 472,393 --
----------- -----------
Total current liabilities 8,082,146 5,449,033
----------- -----------
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS, less current portion 2,954,259 2,616,808
----------- -----------
OTHER LIABILITIES 188,703 --
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000
shares authorized; no shares issued -- --
Common stock, $.001 par value;
50,000,000 shares authorized;
5,546,442 and 4,175,394 shares issued
and outstanding at August 30, 1997 and
May 31, 1997, respectively 5,546 4,175
Additional paid-in capital 13,805,977 1,420,825
Retained earnings 959,099 933,555
----------- -----------
Total stockholders' equity 14,770,622 2,358,555
----------- -----------
$25,995,730 $10,424,396
=========== ===========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
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ROYAL PRECISION, INC. AND SUBSIDIARIES
--------------------------------------
(formerly, FM Precision Golf Corp. and Subsidiaries)
----------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
-----------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended
-------------------------
August 30, August 31,
1997 1996
---- ----
<S> <C> <C>
NET SALES $4,922,334 $4,849,748
COST OF SALES 3,726,804 3,342,562
---------- ----------
Gross profit 1,195,530 1,507,186
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,025,452 748,485
---------- ----------
Operating income 170,078 758,701
INTEREST EXPENSE 123,634 119,099
---------- ----------
Income before provision for
income taxes 46,444 639,602
PROVISION FOR INCOME TAXES 20,900 273,862
---------- ----------
Net income $ 25,544 $ 365,740
========== ==========
NET INCOME PER COMMON AND COMMON
EQUIVALENT SHARE $0.01 $0.08
===== =====
WEIGHTED AVERAGE NUMBER OF COMMON
AND COMMON EQUIVALENT SHARES
OUTSTANDING 4,334,055 4,334,055
========== ==========
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements.
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ROYAL PRECISION, INC. AND SUBSIDIARIES
--------------------------------------
(formerly, FM Precision Golf Corp. and Subsidiaries)
----------------------------------------------------
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
Three Months Ended
------------------
August 30, August 31,
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 25,544 $ 365,740
Adjustments to reconcile net income
to net cash provided by operating
activities -
Depreciation 95,000 50,333
Changes in operating assets and
liabilities -
Accounts receivable 908,334 1,123,360
Inventories 296,471 (148,763)
Prepaid expenses and other
current assets (30,739) (324,969)
Accounts payable and accrued
expenses (589,711) 765,684
----------- -----------
Net cash provided by
operating activities 704,899 1,831,385
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired from Royal Grip, Inc. 17,568 --
Purchases of equipment, net (230,005) (232,789)
Merger costs (385,493) --
Acquisition of net assets of
predecessor business -- (6,824,206)
----------- -----------
Net cash used in investing
activities (597,930) (7,056,995)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock -- 1,000,000
Proceeds from long-term debt -- 3,750,000
Borrowings under line-of-credit, net 125,253 686,198
Repayments of long-term debt and
capital lease obligations (224,510) (125,000)
----------- -----------
Net cash (used in) provided
by financing activities (99,257) 5,311,198
----------- -----------
INCREASE IN CASH 7,712 85,588
CASH, beginning of period 27,841 --
----------- -----------
CASH, end of period $ 35,553 $ 85,588
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for -
Interest $ 133,964 $ 88,163
=========== ===========
Income taxes $ 60,000 $ 48,750
=========== ===========
Net cash transactions -
Accrued Merger and registration
costs $ 520,632 $ --
=========== ===========
Issuance of common stock and options
and warrants to purchase common
stock for acquisition of RG $12,994,518 $ --
=========== ===========
</TABLE>
The accompanying notes are an integral
part of these condensed consolidated financial statements.
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ROYAL PRECISION, INC. AND SUBSIDIARIES
--------------------------------------
(formerly, FM Precision Golf Corp. and Subsidiaries)
----------------------------------------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
-----------
1. Operations and Significant Accounting Policies:
-----------------------------------------------
Basis of presentation -
-----------------------
The condensed consolidated financial statements of Royal Precision, Inc.
and subsidiaries (collectively, RPI or the Company) presented herein have
been prepared pursuant to the rules of the Securities and Exchange
Commission for quarterly reports on Form 10-QSB and do not include all of
the information and note disclosures required by generally accepted
accounting principles. These condensed consolidated financial statements
should be read in conjunction with the Company's consolidated financial
statements and notes thereto for the year ended May 31, 1997 included in
the Company's Form S-4 Registration Statement dated August 15, 1997
(Registration Statement No. 333-28841). In the opinion of management, the
accompanying unaudited condensed consolidated financial statements
include all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the consolidated financial position, results
of operations and cash flows of the Company. Quarterly operating results
are not necessarily indicative of the results which would be expected for
the full year.
Principles of consolidation -
-----------------------------
The accompanying consolidated financial statements include Royal
Precision, Inc. (formerly FM Precision Golf Corp.) and its three
wholly-owned subsidiaries, FM Precision Golf Manufacturing Corp., FM
Precision Golf Sales Corp. and Royal Grip, Inc. (formerly FMPSUB, Inc.).
No results of operations for Royal Grip, Inc. are included in the
accompanying condensed consolidated statements of operations as RG had no
material operating results since its acquisition on August 29, 1997 (see
Note 2). All significant intercompany balances and transactions have been
eliminated in consolidation.
Reporting periods -
-------------------
The Company's first three fiscal quarters end on a Saturday. The
Company's year end is May 31.
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2. Business Combination:
---------------------
On May 14, 1997, RPI entered into an Agreement and Plan of Merger with
Royal Grip, Inc. Under the terms of the Merger agreement, effective
August 29, 1997, FMPSUB, Inc. (a wholly-owned subsidiary of RPI created
for such purpose) merged with and into Royal Grip, Inc. (the Merger).
Royal Grip, Inc. (RG) was the surviving corporation and became a
wholly-owned subsidiary of RPI.
In the Merger, each outstanding share of RG common stock was converted
into one-half share of RPI common stock. No fractional shares of RPI were
issued in the Merger. In lieu of any such fractional shares, each holder
of fractional shares of RG common stock will be paid cash in an amount
equal to such fractional interest multiplied by the average of the high
and low trading prices per share of RG common stock for the five trading
days ended immediately prior to the Merger. As a result of the Merger,
the pre-Merger stockholders and option and warrant holders of RG own or
have the right to acquire an aggregate of 30% of RPI's common stock on a
fully diluted basis.
The aggregate purchase price of $13,766,106 represents the sum of (i) the
fair value of the 1,371,058 shares of RPI common stock issued in exchange
for 2,742,116 of the shares of RG common stock outstanding as of the
Merger date at $3.925 per share (the average closing bid price of RG
common stock (pre-conversion) for the period from two days before until
the two days after the announcement of the revised Merger terms) of
$10,762,805, (ii) cash of $122 to be paid to RG stockholders in lieu of
31 fractional shares, as discussed above, (iii) the fair value of the
options and warrants to purchase 982,250 shares of RG common stock
outstanding as of the Merger date (which were converted into options and
warrants to purchase 491,125 shares of RPI common stock in connection
with the Merger) of $2,231,713, which amount was determined using the
Black Scholes Valuation Model, and (iv) RPI Merger expenses of $771,466
(RG's Merger costs of approximately $637,000 were expensed and RG's
registration statement costs of approximately $143,000 were charged to
stockholders' equity by RG prior to the acquisition). RPI also incurred
expenses of $607,995 associated with the Form S-4 Registration Statement
which were charged to stockholders' equity. The Merger was accounted for
as a purchase and the purchase price was allocated based on the fair
market value of the assets acquired and liabilities assumed as follows:
Cash $ 17,568
Accounts receivable 1,292,997
Inventories 710,227
Net investment in lease 2,980,860
Prepaid expenses and other current assets 68,226
Property and equipment 1,669,521
Goodwill 10,300,696
Accounts payable and accrued expenses (1,500,537)
Supply agreement credits (472,393)
Debt and capital lease obligations (1,165,848)
Other, net (135,211)
-----------
$13,766,106
===========
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<PAGE> 7
The estimated fair values are subject to further refinement; however, RPI
does not expect that the final allocation of the Merger purchase price
will differ materially from the preliminary allocation included above.
As of December 31, 1996, RG had Federal and state net operating loss
(NOL) carry-forwards of approximately $4.3 million. Due to uncertainty of
realization, a valuation allowance has been recorded to fully offset the
value of the NOL carryforwards. If such carryforwards are used in the
future, the related benefit will be recorded as a reduction in goodwill.
RPI will amortize goodwill related to the RG acquisition over 20 years
and will evaluate the asset for impairment by reviewing the estimated
future cash flows of RG on a quarterly basis.
In connection with the Merger, the Company amended its Certificate of
Incorporation to increase the number of authorized shares of common stock
from 3,000 to 50,000,000, reduce the par value of the common stock from
$.01 to $.001 per share, split each issued and outstanding share of
common stock into 4,175.394 shares of common stock and authorize
5,000,000 shares of $.001 par value preferred stock. In connection with
the stock split, RPI paid $84 in lieu of issuing 10.46 fractional shares
of RPI common stock. The accompanying condensed consolidated financial
statements have been restated to reflect this share split and change in
par value and authorized shares.
In connection with the Merger, RG issued warrants to purchase 100,000
shares of RG common stock (pre-conversion) to an investment banker. The
warrants were exercisable at a price of $.01 per share.
Such warrants were exercised in September 1997 for $1,000.
3. Inventories:
------------
Inventories as of August 30, 1997 and May 31, 1997 consisted of the
following:
August 30, 1997 May 31, 1997
--------------- ------------
Raw materials $1,468,227 $1,137,189
Work-in-process 1,113,799 964,904
Finished goods 1,041,089 1,107,266
LIFO Reserve 283,721 283,721
---------- ----------
$3,906,836 $3,493,080
========== ==========
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<PAGE> 8
4. Supply Agreement Credits:
-------------------------
In December 1996, RG outsourced all of its production of non-cord grips
to Acushnet Rubber Company (Acushnet). During the first quarter of 1997,
Acushnet experienced startup delays in the production of grips. In light
of these difficulties, RG and Acushnet renegotiated their agreement. In
connection with this renegotiation, and subsequent production shortfalls,
Acushnet agreed to provide RG with aggregate credits of $472,393 for
future purchases of grips, to be applied against current accounts payable
due to Acushnet. Additional credits may also be earned in the event
Acushnet fails to meet future production requirements. These credits may
be reduced, during calendar 1997 only, depending upon Acushnet's
production beyond levels specified in the amendment to the Manufacturing
and Supply Agreement, but only to the extent that the Company orders
grips above such specified levels. The credits may also be reduced as a
result of the cancellation of stock options granted to Acushnet. Because
of the contingent nature of these credits, this amount is reflected as a
liability (supply agreement credits) and a reduction in accounts payable
to Acushnet. RPI intends to recognize these credits in 1997 as a
reduction in cost of sales when it becomes probable and estimable that
Acushnet will not be able to earn back the credits by either increasing
its production or by virtue of a reduction in RG's orders below levels
specified in the amendment. As of August 30, 1997, RPI has not recorded
any of the credits as a reduction of cost of sales as Acushnet can still
earn back the credits and such amounts, if earned back, are payable in
cash.
5. Long-Term Debt:
---------------
FM Precision Golf Manufacturing Corp. (FMP) has a Credit Facility which
includes a revolving line-of-credit and term loan. As of August 30, 1997,
FMP had $1.6 million outstanding on its revolving line-of-credit.
Borrowings on the Credit Facility bear interest at the prime rate plus
1.5% (Term Loan) and at the prime rate plus 1.25% (Revolver). The Term
Loan is due in monthly principal installments of $69,712 commencing March
1997 through May 31, 1999 plus an additional annual principal payment
each August in an amount equal to 30% of excess cash flow, as defined,
for FMP's preceding fiscal year. The additional principal payment for
fiscal 1997 was waived by the lender. The Revolver and Term Loan mature
on May 31, 1999; however, the lender may extend the maturity to May 31,
2001. If the lender does not extend the maturity of the Credit Facility,
the remaining principal outstanding under the Term Loan is due and
payable May 31, 1999. The Credit Facility matures on May 31, 1999. The
amount available for borrowings under the revolving credit portion of
FMP's Credit Facility is determined pursuant to a formula which is based
upon the levels of eligible accounts receivable and inventory subject to
a maximum amount of $7.5 million, less the amount outstanding on the term
portion of the Credit Facility. Based on eligible receivables and
inventory
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<PAGE> 9
at August 30, 1997, FMP had $1.8 million available for additional
borrowings at such date. As of September 30, 1997, FMP was in the process
of renegotiating certain terms of its Credit Facility with its lender.
The proposed revisions include revised covenants based on RPI's new
projections as a result of the Merger, a $1 million increase in the
amount available for borrowing, a 1/4% reduction in the interest rate, an
extended maturity date and the elimination of certain guarantees.
In February 1997, RG entered into a new line of credit facility of $1.75
million and term loan of $700,000 with a commercial bank. These credit
arrangements mature on February 10, 2000 and contain net worth
requirements, prohibit dividend payments and limit capital expenditures.
At March 31, 1997, RG was not in compliance with its quarterly net income
(loss), debt service, and net worth debt covenants and anticipated not
meeting many of its quarterly and monthly covenants during 1997. In April
1997, RG obtained an amended bank agreement which waived the existing net
income (loss), debt service, and net worth covenant defaults and amended
the debt agreement whereby the net income (loss) limits have been
modified to a loss of no more than $1 million for the quarter ending
March 31, 1997 and a cumulative loss of no more than $1.6 million
(excluding the impact of the warrants issued to the investment banker in
connection with the Merger) for the quarter ending June 30, 1997, and for
each month thereafter in 1997. The agreement amended the net worth
covenants to correlate with the net loss covenants above. The quarterly
debt service and monthly loss limit covenants were waived by the bank for
1997. In addition, the interest rate was amended to the bank's prime rate
plus 3.0 percent effective April 1, 1997, subject to change based on the
operating results of RG. RG was in compliance with the amended debt
covenants at August 30, 1997. At August 30, 1997, RPI believes that it is
probable that RG will comply with the debt covenants at the measurement
dates over the next twelve months; therefore, the long-term portion of
RG's term loan is classified as long-term in the accompanying condensed
consolidated balance sheet. As of August 30, 1997, RG had $617,000
available for additional borrowings.
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<PAGE> 10
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forwarding Looking Statements -
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward looking statements. This Form 10-QSB, any other Form
10-QSB, Form 10-KSB, or Form 8-K, or any other written or oral
statements made by or on behalf of RPI may include forward looking
statements which reflect RPI's current views with respect to future
events and financial performance. These forward looking statements are
subject to certain uncertainties and other factors that could cause
actual results to differ materially from such statements. These
uncertainties and other factors include, but are not limited to,
uncertainties relating to economic conditions, customer plans and
commitments, RPI's cost of raw materials, the competitive environment in
which RPI operates, and changes in the financial markets relating to
RPI's capital structure and cost of capital. Statements in this Form
10-QSB, including the Notes to the Condensed Consolidated Financial
Statements and this "Management's Discussion and Analysis of Financial
Condition and Results of Operations", describe factors among others,
that could contribute to or cause such differences. Additional factors
that could cause actual results to differ materially from those
expressed in such forward looking statements are detailed in RPI's Form
S-4 Registration Statement dated August 15, 1997. Please refer to "Risk
Factors" therein. The words "believe," "expect," "anticipate,"
"project," and similar expressions identify forward looking statements,
which speak only as of the date the statement was made. RPI undertakes
no obligation to publicly update or revise any forward looking
statements, whether as a result of new information, future events, or
otherwise.
Overview -
Royal Precision, Inc. (RPI or the Company) has three wholly-owned
subsidiaries which are FM Precision Golf Manufacturing Corp. (FMP), FM
Precision Golf Sales Corp. and Royal Grip, Inc. (formerly known as
FMPSUB, Inc.) (RG). RPI acquired RG on August 29, 1997 by means of a
merger whereby FMPSUB, Inc. merged with and into RG with RG being the
surviving corporation. See Note 2 of Notes to Condensed Consolidated
Financial Statements.
FMP is a manufacturer and distributor of golf shafts which are sold to
original equipment manufacturers (OEMs) and to distributors and
retailers for use in the replacement market. Approximately 67% and 57%
of FMP's sales for the three months ended August 30, 1997 and August 31,
1996 were to OEMs. Approximately 15% and 9% of FMP's sales for the three
months ended August 30, 1997 and August 31, 1996, respectively, were
exported to foreign markets in Japan, Canada and the United Kingdom.
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<PAGE> 11
RG's results of operations since the Merger on August 29, 1997 were not
material, therefore, no results of operations for RG have been included
in the accompanying condensed consolidated statements of operations. RG
designs and manufactures golf club grips and athletic headwear. RG's
products are sold primarily throughout the United States, Japan and the
United Kingdom. In December 1996, RG outsourced the manufacturing of its
non-cord grips (see Note 4 of Notes to Condensed Consolidated Financial
Statements).
Three Months Ended August 30, 1997 Compared to the Three Months Ended
August 31, 1996.
Net Sales. Net sales for the three months ended August 30, 1997 were $4.9
million as compared to $4.8 million for the three months ended August 31,
1996. Sales of the Rifle shaft decreased by $.3 million for the three
months ended August 30, 1997 to $2.4 million compared to sales in the
three months ended August 31, 1996 of $2.7 million. This decrease was
offset by an increase of $.4 million in sales of other steel shafts for
the three months ended August 30, 1997, compared to the three months
ended August 31, 1996.
Cost of Goods Sold. Cost of goods sold was $3.7 million, or 75.7% of
sales, for the three months ended August 30, 1997 as compared to $3.3
million, or 68.9% of sales, for the three months ended August 31, 1996.
The percentage increase is the result of a change in product mix from
higher margin products to lower margin products. The average cost per
unit decreased by approximately 5% which was offset by a reduction in
the average selling price of 13%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1.0 million, or 20.8% of sales, for the
three months ended August 30, 1997 as compared to $.7 million, or 15.4%
of sales, for the three months ended August 31, 1996. This increase is
due to an additional $.3 million of management and professional fees in
the 1997 period.
Interest Expense. Interest expense was $124,000 for the three months
ended August 30, 1997 compared to $119,000 for the three months ended
August 31, 1996.
Income taxes. The provision for income taxes for the three months ended
August 30, 1997 was $21,000, or 45% of pre-tax income, compared to
$274,000, or 43% of pre-tax income for the three months ended August 31,
1996. The increase in the expected rate for the 1997 period is due to the
effect of non-deductible goodwill resulting from the Merger with RG.
Liquidity and capital resources. At August 30, 1997, RPI had working
capital of $106,000 and a current ratio of 1.0 to 1 as compared to
working capital of $1.6 million and a current ratio of 1.3 to 1 at May
31, 1997. The reduction is primarily due to lower FMP accounts receivable
due to the seasonality of the business and accrued transaction fees
related to the Merger.
-11-
<PAGE> 12
FMP has a Credit Facility which includes a revolving line-of-credit and
term loan. As of August 30, 1997, FMP had $1.6 million outstanding on its
revolving line-of-credit. Borrowings on the Credit Facility bear interest
at the prime rate plus 1.5% (Term Loan) and at the prime rate plus 1.25%
(Revolver). The Term Loan is due in monthly principal installments of
$69,712 commencing March 1997 through May 31, 1999 plus an additional
annual principal payment each August in an amount equal to 30% of excess
cash flow, as defined, for FMP's preceding fiscal year. The additional
principal payment for fiscal 1997 was waived by the lender. The Revolver
and Term Loan mature on May 31, 1999; however, the lender may extend the
maturity to May 31, 2001. If the lender does not extend the maturity of
the Credit Facility, the remaining principal outstanding under the Term
Loan is due and payable May 31, 1999. The Credit Facility matures on May
31, 1999. The amount available for borrowings under the revolving credit
portion of FMP's Credit Facility is determined pursuant to a formula
which is based upon the levels of eligible accounts receivable and
inventory subject to a maximum amount of $7.5 million, less the amount
outstanding on the term portion of the Credit Facility. Based on eligible
receivables and inventory at August 30, 1997, FMP had $1.8 million
available for additional borrowings at such date. As of September 30,
1997, FMP is in the process of renegotiating certain terms of its Credit
Facility with its lender. The proposed revisions include revised
covenants based on RPI's new projections as a result of the Merger, a $1
million increase in the amount available for borrowing, a 1/4% reduction
in the interest rate, an extended maturity date and the elimination of
certain guarantees.
In February 1997, RG entered into a new line of credit facility of $1.75
million and term loan of $700,000 with a commercial bank. These credit
arrangements mature on February 10, 2000 and contain net worth
requirements, prohibit dividend payments and limit capital expenditures.
At March 31, 1997, RG was not in compliance with its quarterly net income
(loss), debt service, and net worth debt covenants and anticipated not
meeting many of its quarterly and monthly covenants during 1997. In April
1997, RG obtained an amended bank agreement which waived the existing net
income (loss), debt service, and net worth covenant defaults and amended
the debt agreement whereby the net income (loss) limits have been
modified to a loss of no more than $1 million for the quarter ending
March 31, 1997 and a cumulative loss of no more than $1.6 million
(excluding the impact of the warrants issued to the investment banker in
connection with the Merger) for the quarter ending June 30, 1997, and for
each month thereafter in 1997. The agreement amended the net worth
covenants to correlate with the net loss covenants above. The quarterly
debt service and monthly loss limit covenants were waived by the bank for
1997. In addition, the interest rate was amended to the bank's prime rate
plus 3.0 percent effective April 1, 1997, subject to change based on the
operating results of RG. RG was in compliance with the amended debt
covenants at August 30, 1997. At August 30, 1997, RPI believes that it is
probable that RG will comply with the debt covenants at the measurement
dates over the next twelve months; therefore, the long-term portion of
RG's term loan is classified as long-term in the accompanying condensed
consolidated balance sheet. As of
-12-
<PAGE> 13
August 30, 1997, RG had $617,000 available for additional borrowings.
RPI believes that the funds anticipated to be generated from operations
and the availability under FMP's and RG's credit facilities will be
sufficient to satisfy RPI's working capital and capital expenditure
requirements for at least the next year.
During the three months ended August 30, 1997, net cash provided by
operating activities was $705,000 which primarily resulted from
reductions in FMP accounts receivable, inventories, accounts payable and
accrued expenses (prior to the non-cash increase in accounts payable and
accrued expenses of $520,000 related to accrued Merger costs).
FMP used $598,000 in investing activities during the three months ended
August 30, 1997, primarily due to $230,000 used to purchase additional
property, plant and equipment during such period and Merger costs of
approximately $386,000. RPI estimates that capital expenditures for the
year ended May 31, 1998 will be approximately $1.6 million for FMP and
$500,000 for the period from acquisition to May 31, 1998 for RG.
Net cash used by financing activities was $99,000 primarily due to
$125,000 of borrowings on FMP's revolving line-of-credit offset by
repayments on long-term debt and capital lease obligations of $225,000.
-13-
<PAGE> 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
On August 29, 1997, RPI issued 50,000 shares of RPI Common Stock, par
value $.001 ("Shares"), to EVEREN Securities, Inc. ("EVEREN") upon
EVEREN's exercise of warrants to purchase 50,000 Shares at $.02 per
share. The issuance of the Shares was exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933.
EVEREN is a registered Broker/Dealer and acted as financial adviser to
RG with regard to RG's merger with a wholly owned subsidiary of RPI
("Merger") (See Note 2 Notes to Condensed Consolidated Financial
Statements for a description of the Merger). EVEREN originally obtained
warrants to purchase 100,000 shares of RG Common Stock at $.01 per
share as partial consideration for EVEREN's preparation of a fairness
opinion concerning the Merger pursuant to an engagement letter between
EVEREN and RG dated April 29, 1997. Upon the completion of the Merger,
EVEREN's warrants to purchase 100,000 shares of RG Common Stock at $.01
per share were converted into warrants to purchase 50,000 Shares at
$.02 per share.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports filed on Form 8-K.
6(a) Exhibits
(2) Plan of Acquisition, Reorganization, Arrangements,
Liquidation or Succession
Exhibit 2.1
Agreement and Plan of Merger dated as of May 14, 1997 among Royal Grip,
Inc., FM Precision Golf Corp. and FMPSUB, Inc. (incorporated by
reference to Annex I to the Company's Registration Statement on Form
S-4 filed on June 9, 1997, as amended by Amendment Number 1 filed on
July 25, 1997, Amendment Number 2 filed on August 15, 1997 and
Amendment Number 3 filed on August 18, 1997 (the Company's Form S-4);
No. 333-28841).
Exhibit 2.2
Consulting Agreement dated as of May 14, 1997 between FM Precision Golf
Corp. and Danny Edwards (incorporated by reference to Exhibit 2.2 to
the Company's Form S-4; No. 333-28841).
Exhibit 2.3
Registration Rights Agreement dated as of May 14, 1997 among Danny
Edwards, Drew M. Brown, DMB Property Ventures Limited Partnership, Mark
N. Sklar, Bennett Dorrance, Trustee of the Bennett Dorrance Trust,
Christopher A. Johnston, RPJ/JAJ Partners, Ltd., David E. Johnston,
Kenneth J. Warren, Berenson, Minella & Company, L.P. and FM Precision
Golf Corp.
-14-
<PAGE> 15
(incorporated by reference to Exhibit 2.3 to the Company's Form S-4;
No. 333-28841).
Exhibit 2.4
Stockholder Agreement dated as of May 14, 1997 among Danny Edwards,
Drew M. Brown, DMB Property Ventures Limited Partnership, Mark N.
Sklar, Bennett Dorrance, Trustee of the Bennett Dorrance Trust,
Christopher A. Johnston, RPJ/JAJ Partners, Ltd., David E. Johnston,
Kenneth J. Warren, Berenson Minella & Company, L.P. and FM Precision
Golf Corp. (incorporated by reference to Exhibit 2.4 to the Company's
Form S-4; No. 333-28841).
Exhibit 2.5
Voting Agreement dated as of May 14, 1997 among Danny Edwards, Drew M.
Brown, Mark N. Sklar, Bennett Dorrance, Trustee of the Bennett Dorrance
Trust, DMB Property Ventures Limited Partnership and FM Precision Golf
Corp. (incorporated by reference to Exhibit 2.5 to the Company's Form
S-4; No. 333-28841).
(3) Certificate of Incorporation and Bylaws
Exhibit 3.1
Amended and Restated Certificate of Incorporation of FM Precision Golf
Corp. (incorporated by reference to Annex IV to the Company's Form S-4;
No. 333-28841).
Exhibit 3.2
Bylaws of Royal Precision, Inc. (incorporated by reference to Exhibit
3.2 to the Company's Form S-4; No. 333-28841).
(4) Instruments Defining the Rights of Security Holders
Exhibit 4.1
See Articles FOUR, FIVE and SEVEN of the Amended and Restated
Certificate of Incorporation of FM Precision Golf Corp. (incorporated
by reference to Exhibit 3.1 to the Company's Form S-4; No. 333-28841).
Exhibit 4.2
See Article I, Sections 2.1 and 2.2 of Article II and Section 7.3 of
Article VII of the Bylaws of Royal Precision, Inc. (incorporated by
reference to Exhibit 3.2 to the Company's Form S-4; No. 333-28841).
Exhibit 27
Financial Data Schedule (submitted electronically for SEC information
only).
-15-
<PAGE> 16
6(b) Reports on Form 8-K
A current report on Form 8-K dated August 29, 1997 was filed by the
Company on September 11, 1997 to report the Merger with Royal Grip,
Inc.
-16-
<PAGE> 17
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
------------------------------------------
ROYAL PRECISION, INC.
(Registrant)
Dated: October 13, 1997 By: /s/ Allen W. Ritchie
-------------------------------------
Allen W. Ritchie,
President and Chief Executive Officer
(principal executive officer)
By: /s/Christopher A. Johnston
-------------------------------------
Christopher A. Johnston
Chairman of the Board and Treasurer
(principal financial and accounting
officer)
-17-
<PAGE> 18
Exhibit Index
Page No.
Exhibits
(2) Plan of Acquisition, Reorganization, Arrangements,
Liquidation or Succession
Exhibit 2.1
Agreement and Plan of Merger dated as of May 14, 1997
among Royal Grip, Inc., FM Precision Golf Corp. and FMPSUB,
Inc. (incorporated by reference to Annex I to the Company's
Registration Statement on Form S-4 filed on June 9, 1997, as *
amended by Amendment Number 1 filed on July 25, 1997,
Amendment Number 2 filed on August 15, 1997 and Amendment
Number 3 filed on August 18, 1997 (the Company's Form S-4);
No. 333-28841).
Exhibit 2.2
Consulting Agreement dated as of May 14, 1997 between
FM Precision Golf Corp. and Danny Edwards (incorporated by *
reference to Exhibit 2.2 to the Company's Form S-4; No.
333-28841).
Exhibit 2.3
Registration Rights Agreement dated as of May 14, 1997
among Danny Edwards, Drew M. Brown, DMB Property Ventures
Limited Partnership, Mark N. Sklar, Bennett Dorrance, *
Trustee of the Bennett Dorrance Trust, Christopher A.
Johnston, RPJ/JAJ Partners, Ltd., David E. Johnston, Kenneth
J. Warren, Berenson, Minella & Company, L.P. and FM
Precision Golf Corp.
-18-
<PAGE> 19
(incorporated by reference to Exhibit 2.3 to the
Company's Form S-4; No. 333-28841).
Exhibit 2.4
Stockholder Agreement dated as of May 14, 1997 among
Danny Edwards, Drew M. Brown, DMB Property Ventures Limited
Partnership, Mark N. Sklar, Bennett Dorrance, Trustee of the
Bennett Dorrance Trust, Christopher A. Johnston, RPJ/JAJ *
Partners, Ltd., David E. Johnston, Kenneth J. Warren,
Berenson Minella & Company, L.P. and FM Precision Golf Corp.
(incorporated by reference to Exhibit 2.4 to the Company's
Form S-4; No. 333-28841).
Exhibit 2.5
Voting Agreement dated as of May 14, 1997 among Danny
Edwards, Drew M. Brown, Mark N. Sklar, Bennett Dorrance,
Trustee of the Bennett Dorrance Trust, DMB Property Ventures *
Limited Partnership and FM Precision Golf Corp.
(incorporated by reference to Exhibit 2.5 to the Company's
Form S-4; No. 333-28841).
(3) Certificate of Incorporation and Bylaws
Exhibit 3.1
Amended and Restated Certificate of Incorporation of FM
Precision Golf Corp. (incorporated by reference to Annex IV *
to the Company's Form S-4; No. 333-28841).
Exhibit 3.2
Bylaws of Royal Precision, Inc. (incorporated by
reference to Exhibit 3.2 to the Company's Form S-4; No. *
333-28841).
(4) Instruments Defining the Rights of Security Holders
Exhibit 4.1
See Articles FOUR, FIVE and SEVEN of the Amended and
Restated Certificate of Incorporation of FM Precision Golf *
Corp. (incorporated by reference to Exhibit 3.1 to the
Company's Form S-4; No. 333-28841).
Exhibit 4.2
See Article I, Sections 2.1 and 2.2 of Article II and
Section 7.3 of Article VII of the Bylaws of Royal Precision, *
Inc. (incorporated by reference to Exhibit 3.2 to the
Company's Form S-4; No. 333-28841).
Exhibit 27
Financial Data Schedule (submitted electronically for SEC
information only).
* Incorporated by reference
-19-
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