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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1996
Commission File Number: 0-29014
TEARDROP GOLF COMPANY
(Name of Small Business Issuer in its Charter)
Delaware 52-105660
(State or Other Jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
32 Bow Circle, Building #1
Hilton Head, South Carolina 29928
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (803) 686-4995
Securities registered pursuant to Section 12(b) of the Exchange Act of 1934:
Title of Class Name of each exchange on which registered
None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
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(Title of Class)
Redeemable Common Stock Purchase Warrant
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(Title of Class)
Indicate by check mark whether the registrant (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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulations S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in a definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The Registrant's revenues for its most recent fiscal year were $847,358
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. (The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock as of a specified date within 60 days prior to the date of filing.)
$6,588,258 as of March 28, 1997
Number of shares of common stock outstanding as of March 28, 1997: 2,187,500
Transitional Small Business Disclosure Format: Yes [ ] No [X]
PORTIONS OF THE FOLLOWING DOCUMENTS HAVE BEEN INCORPORATED BY REFERENCE INTO
THIS ANNUAL REPORT ON FORM 10-KSB: NONE
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PART I
Item 1. Description of Business.
General
TearDrop Golf Company (the "Company" or "TearDrop") designs, develops and
markets high-quality, premium-priced golf clubs based on its proprietary
technologies, including its TearDrop line of putters and its new line of Spin
Master wedges. The TearDrop putter is used by professional golfers on the
Professional Golf Association ("PGA") Tour, the Senior PGA Tour and the Nike
Tour. The Company introduced its first product, the TearDrop putter, in 1993,
and has since developed and introduced numerous additional putters, all based on
the TearDrop putter technology. The Company now markets 12 putters. In the
Spring of 1996, the Company broadened its product linewith the introduction of
its Spin Master Wedges.
In January 1997, the Company commenced its extensive marketing and
advertising campaign. In February, the Company's 30-minute television
infomercial began being aired in selected locations throughout the country. The
Company will begin to air a 60-second version of the infomercial in April. The
Company has also produced and begun airing standard television commercials and
expects to increase substantially the number of commercials in April, May and
June 1997. The Company has begun airing its feature, "The TearDrop Putt of the
Week" on the Golf Channel at various times on a weekly basis. The Company's
print advertisements will appear in several magazines including Golf Illustrated
and Senior Golfer during the months from May through October. Finally, the
Company has enlisted numerous golf professionals to promotional agreements,
including Omar Uresti, Bret Ogle and Charles Coody.
Products
TearDrop Putters
The Company currently manufactures and markets 12 putters. The Company's
TearDrop putters are manufactured with the Company's exclusive roll face head,
distinguishing them from most other putters, which have a standard flat face.
The Company believes that with a standard flat faced putter, if a golfer twists
his wrist forward, he will tend to hit the ball down into the green, causing it
to bounce slightly as it travels forward. This slight bounce tends to alter the
true trajectory of the ball rolling towards the cup. With the same standard flat
faced putter, if the golfer twists his wrist backward, he will tend to impart
backspin on the ball, causing it to skid slightly as it begins its roll, also
affecting its true trajectory. In both cases, the problem is especially
pronounced on long putts, when the ball is struck harder. The TearDrop putter,
however, is designed to strike the ball directly on or slightly below the center
of the ball, which is intended to eliminate most skidding and develop a high
overspin, resulting in a superior roll for a more precise shot. The rounded
barrel of the TearDrop roll face putter is designed to keep ball-to-club contact
and the angle of impact constant.
During assembly, the TearDrop putter is balanced by hand using the
Company's face weighting system to provide uniform weighting across the face of
the putter, providing for a larger "sweet spot." The weighting system is
designed to allow a golfer to strike the ball on a straighter line rather than
with a semi-circular motion, also encouraging a steadier, more constant stroke.
In addition, the heavy milled aluminum-titanium alloy head is designed to slow a
golfer's backswing and encourage acceleration all
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the way through the moment of impact. The TearDrop design, with its rounded fin,
is also designed to help prevent stubbing of the club on the swing and
follow-through.
Each of the TearDrop putter models incorporates the roll face into
different putter designs to accommodate golfer's varying tastes, preferences and
habits. The original TearDrop design was invented by one of the Company's
founders and further developed by its current management. The designs for the
subsequent models were developed by the Company with assistance and input from
its touring professionals, its component manufacturers and independent design
consultants. The Company does not have any agreements with golf club designers,
but believes that to the extent any services may be needed, designers having
suitable technical design expertise may be located. However, if the Company is
unable to retain qualified experts who may be able to devote the necessary
attention during the time required, or if the cost proves to be too high, the
Company may be unable to develop new products or improved products on a cost
effective or a timely basis.
The TearDrop Spin Master Wedge
The TearDrop Spin Master wedge features a classic-shape stainless steel
clubhead with a coarse, abrasive titanium treated surface. The rough face
creates a greater spin, and the liquid titanium prevents the face from becoming
smooth with use. The titanium treated friction face of the Spin Master wedges
are designed to impart a backward spin on the golf ball that will help the ball
resist rolling after it hits the green. The wedges are offered in lofts of 52,
56 and 61 degrees for use as a pitching wedge, a sand wedge and a lob wedge,
respectively. Each of the wedges have a traditional shaft and grip.
Sales and Marketing
Advertising and Promotion. In January 1997, the Company commenced its
extensive marketing and advertising campaign. In February, the Company's
30-minute television infomercial began being aired in selected locations
throughout the country. The Company intends to continue airing the infomercial
through the summer of 1997. The Company will begin to air a 60-second version of
the infomercial in April. The Company has also produced and begun airing
standard television commercials and expects to increase substantially the number
of commercials that appear on numerous broadcast and cable channels in April,
May and June 1997. The Company has entered into an advertising agreement with
the Golf Channel which commenced on January 1, 1997 and ends on December 31,
1998. Pursuant to this Agreement, the Company broadcasts commercial advertising
during, and sponsors certain television programming produced by the Golf
Channel. The Company has begun airing its feature, "The TearDrop Putt of the
Week" on the Golf Channel at various times on a weekly basis. The Company has
agreed to purchase no less than $770,000 in advertising from January 1, 1997
through December 31, 1998. The Company uses various forms of media, including
print advertising campaigns, to market and promote its products. In the United
States, the Company concentrates its print advertising in golf magazines such as
Senior Golf, Golf Tips and Golf Illustrated and in trade magazines such as Golf
Shop Operations.
The Company believes that the endorsement of its products by touring
professional golfers is an important feature of its overall marketing effort.
Brett Ogle, an internationally recognized golf professional and 1995 Hawaiian
Open and Pebble Beach Golf Tournament Champion, heads a group of touring
professionals, including Omar Uresti, Charles Coody, a former Masters champion,
P.J. Cowan and 11 other professionals who currently use or endorse the Company's
products. The agreements with the Company's professionals generally are for a
one-year term and provide for certain payments by the Company to the touring
professionals that range from $8,000 to $75,000 per annum in consideration for
their using a TearDrop Putter and bonuses based on tournament performance. The
Company has also granted options to purchase common stock of the Company and may
grant additional options in lieu of or in addition to such performance bonuses.
The Company has instituted a "Player Pool" program, under which the
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Company will provide rewards on a weekly basis to professional players who win
tournaments using TearDrop golf clubs. Endorsement commitments are made on a
year-to-year basis.
Nationwide Distribution Network. The Company markets its clubs primarily
through sales representatives primarily to on-course golf pro shops and
specialty stores, general sporting goods stores and specialty sporting goods
stores. The Company believes that its marketing approach allows it to maintain
its high-quality reputation while at the same time generating loyalty from its
customer base. At March 15, 1997, the Company had 30 independent sales
representatives who call upon and service the needs of the on-course golf
professionals, off-course specialty store operations and sporting goods stores.
These sales representatives receive a commission on qualifying sales. All of the
sales representatives exclusively sell TearDrop putters and wedges although many
also sell apparel, bags, shoes and gloves made by other companies.
Working together with the on-course golf professionals and off-course
specialty store sales force, the independent sales representatives help
introduce and explain the various characteristics of new golf clubs, respond to
questions concerning product support, prepare customers for new product
introductions, provide liaison services to communicate delivery and special
customer needs, and obtain in-field feedback with respect to the market appeal
of the Company's and competitors' products.
The independent sales representative network is supported by the Company's
executive officers who meet with the sales representatives, customers and
potential new customers, and by technical representatives who demonstrate the
Company's golf equipment at various customer locations. While the Company
believes that its relationships with its sales representatives and customers are
satisfactory, there can be no assurance that the Company will be able to
maintain such relationships in the future. Although the Company works closely
with its sales representatives, the Company cannot directly control such
representatives' sales and marketing activities. There can be no assurance that
these representatives will effectively manage the sale of the Company's products
or that their marketing efforts will prove effective.
Customer Service and Support. The Company believes that its relationships
with its distributors and golfing customers have contributed significantly to
its past success and should continue to enhance its prospects. The Company
supports these relationships through programs developed to select its customers
in the sale of its products.
Demonstration/Loaner Program. The Company believes that a significant
contribution to its sales effort is provided by its demonstration/loaner
program. This program generally permits each qualifying on-course golf
professional and off-course specialty store operator to purchase demonstration
clubs within the Company's product line at a discount dependent upon the number
of clubs purchased for resale. Demonstration clubs are available on the basis of
one demonstration club for each six clubs of the same model ordered. The
customer lends a "demo" set or club to the golfer for on-course trial use,
which, in management's judgment, substantially increases the probability of
purchases by the golfer who might otherwise be reluctant to purchase premium
clubs without having on-course experience with them.
International Distribution. The Company markets its products
internationally on a limited basis through exclusive licensees and distributors.
The Company's products are sold on a non-exclusive basis through independent
distributors. International sales accounted for 8%, 45% and 36% of the Company's
gross sales in 1994, 1995 and 1996, respectively. The Company intends to
continue to explore opportunities to expand its activities in international
markets. In January 1997, the Company entered into an exclusive Distribution
Agreement with Williams Worldwide Television providing Williams Worldwide
Television with the exclusive right to market the TearDrop golf clubs in
Australia, Japan, Korea, Malaysia and New Zealand.
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Product Warranties. The Company supports its golf clubs with a lifetime
quality guaranty, entitling the purchaser to return the clubs for repair or
replacement. The Company has not experienced a material level of product
warranty claims.
Assembly
The Company assembles all of its putters for the domestic market and for
sales to selected foreign markets at its 4,000 square foot corporate
headquarters in Hilton Head Island, South Carolina. Stainless steel and titanium
aluminum clubheads are cast or forged by outside suppliers utilizing
Company-owned tooling and are inspected on-site by Company representatives.
Production personnel receive and review incoming components, such as steel
shafts and grips, most of which are supplied to the proprietary specifications
of the Company. All assembly operations, including painting, stenciling and the
application of all trade dress, are completed at the corporate headquarters,
which include finishing and warehousing facilities, from which finished clubs
are shipped. In order to maintain a high level of quality control, the Company
performs numerous visual and machine inspections at various points along the
assembly process, intended to detect any non-conforming clubs or subassemblies.
The Company relies on a limited number of suppliers for materials and
clubheads. The Company's primary putter club head manufacturer manufactures club
heads at its facilities using equipment leased by the Company and provided to
the manufacturer. Under the equipment lease, the Company has the option to
purchase the manufacturing equipment at various times during the lease. They may
also remove the equipment from the manufacturer's facilities at any time. While
management believes that alternative sources of supply either exist or could be
developed, in the event that it should lose its present sources of supply for
these materials and components, or experience delays in receiving delivery from
such sources, the Company would sustain at least temporary shortages of
materials and components, which could have a material adverse effect on the
Company's operating results.
New Club Development
The Company works closely with component manufacturers, independent design
consultants and touring professionals in the development of new products and the
improvement of its existing designs. The Company relies on the input and advice
of its consulting pros to modify its putters. For example, Brett Ogle was
instrumental in designing the TearDrop Pro Model. The Company intends to form a
Professional Advisory Board consisting of touring professional golfers who will
meet at least two times a year to review design plans and comment on the
Company's expansion plans, club designs and general issues regarding the
Company.
Competition
The Company competes in the premium-priced game-improvement segment of the
golf club manufacturing industry. The market for premium-priced golf clubs is
highly competitive and a number of established companies compete in this market,
many of which have greater financial and other resources than the Company. The
Company's competitors include Callaway Golf Company, Karsten Manufacturing
Corporation (Ping), Taylor-Made Golf Company, Cobra Golf Incorporated and Tommy
Armour Golf Company. The Company also competes with numerous smaller,
specialized companies that may compete effectively on a regional basis.
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The golf club industry is generally characterized by rapid and widespread
imitation of popular golf club designs pioneered by new or existing competitors.
Occasionally, new market entrants may develop innovative club designs which meet
with acceptance from golf club purchasers, leading to unanticipated changes in
consumer preferences. Many purchasers of premium-priced game-improvement clubs
desire golf clubs that feature the latest technological innovations and cosmetic
designs, and their purchasing decisions are often the result of highly
subjective preferences which can be influenced by many factors, including, among
others, advertising, media and product endorsement. The Company could therefore
face substantial competition from existing or new competitors that introduce and
successfully promote golf clubs perceived to offer performance advantages and
greater aesthetic appeal. The Company faces competition on the basis of price,
reputation and qualitative distinctions among available products. In addition,
there are several manufacturers that do not currently compete with the Company
that could pose significant competition if they were to enter the market of
premium-priced high-quality clubs.
Regulatory Matters
The design of new golf clubs is greatly influenced by rules and
interpretations of the USGA. Although the golf equipment standards established
by the USGA generally apply only to competitive events sanctioned by that
organization, it has become critical for designers of new clubs to assure
compliance with USGA standards. To the extent that the Company's clubs are ruled
ineligible by the USGA standards, professional golfers, including the Company's
paid touring professional golfers, will be unable to use the clubs and even
non-professional golfers will likely be unwilling to purchase them. The Company
believes that its putters all comply with USGA standards. However, the Company's
current wedges have not yet been submitted to the USGA for approval, and the
Company believes that further modifications will be necessary to bring the
wedges within USGA guidelines. No assurance can be given that the wedges or any
new products will receive USGA approval or that existing USGA standards will not
be altered in ways that adversely affect the sales of the Company's products.
The Company's facilities are subject to numerous federal, state and local
laws and regulations designed to protect the environment from waste emissions
and hazardous substances. The Company is also subject to the federal
Occupational Safety and Health Act and other laws and regulations affecting the
safety and health of employees in the production areas of its facilities. The
Company believes it is in compliance in all material respects with all
applicable environmental and occupational safety regulations.
Employees
At December 31, 1996, the Company had 10 full-time employees engaged in
manufacturing and assembly, sales support and in management and administration.
The Company intends to expand substantially its sales and marketing staff and
retain personnel for certain management positions, including a Chief Financial
Officer and other administrative personnel. The Company believes that additional
manufacturing personnel will be available as needed.
Proprietary Rights
The Company relies on a combination of patents, trademark and trade secret
protection to establish and protect the proprietary rights it has in its
products. The Company has been issued three patents relating to various aspects
of the TearDrop putter head. The Company's "TearDrop" trademark
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is registered with the United States Patent and Trademark Office (the "U.S.
Patent Office"), and the U.S. Patent Office has issued a notice of allowance to
the Company for the trademark "Spin Master."
Item 2. Description of Property.
The Company occupies 4,000 square feet of office, manufacturing and
warehouse and distribution space in Hilton Head Island, South Carolina under a
three-year lease agreement between the Company and Albert H. Politi which
terminates in November 1998. The aggregate minimum rental payments under the
lease for the years ending December 31, 1997 and 1998 are $38,400 and $35,200,
respectively. The Company conducts its corporate, , assembly, warehouse and
distribution activities from these facilities. The Company intends to relocate
its facility to or establish additional facilities in the New York metropolitan
area, where the Company intends to expand its executive and production
capabilities. The Company believes that such operational modifications may be
completed without a significant disruption in its current operations and within
one year from the date of this filing.
Item 3. Legal Proceedings.
The Company is not a party to any material legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
On October 20, 1996, the stockholders of the Company acting by unanimous
written consent approved the reincorporation of the Company in the state of
Delaware and a 3,333.33-for-one share conversion in connection therewith.
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PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
Market Information: Since the effective date of the Company's registration
statement on December 19, 1996, the Company's Common Stock and Redeemable Common
Stock Purchase Warrants ("Warrants") have been traded on the Nasdaq SmallCap
Market under the symbol "TDRP" and "TDRPW", respectively. The following table
shows the range of closing bid prices for the only quarter that the Company's
securities were publicly traded. These amounts, which have rounded to the
nearest eighth, represent quotations between dealers and do not include retail
mark-ups, mark-downs or commissions, and may not represent actual transactions.
Common Stock
Quarter Ended High Low
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December 31, 1996 $ 5 $ 4 3/4
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Warrants
Quarter Ended High Low
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December 31, 1996 $ 1 1/8 $ 1
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Holders: As of March 15, 1997, there were approximately 20 beneficial
owners of the Company's Common Stock. The Company believes that there are in
excess of 300 beneficial holders of its shares of Common Stock. No shares of the
Company's preferred stock have been issued.
Dividends: The Company has never declared or paid dividends on its Common
Stock and does not intend to pay dividends in the foreseeable future. The
payment of dividends in the future will be at the discretion of the Board of
Directors.
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Overview
The Company introduced its first product, the TearDrop putter, in 1993 and
commenced significant marketing and sales activities in 1994. Since the
introduction of the TearDrop putter, the Company has expanded its product line
to include 12 putters and three wedges. A significant percentage of sales made
during the introductory phase of the Company's initial products were made at
discounted prices as part of the Company's marketing strategy to introduce and
increase market awareness of the Company and its clubs.
In order to achieve profitability, the Company will be required to address
numerous issues, including, among others: (i) increasing market awareness of,
and demand for, its existing products, (ii) effectively introducing, over time,
additional innovative golf clubs to the market, (iii) accurately gauging demand
for its products, (iv) determining viable price points for such products, (v)
maintaining and strengthening its supply channels, (vi) designing efficient
manufacturing and assembling systems to meet demand for its products, and (vii)
continuing to build efficient channels of distribution. There can
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be no assurance that the Company will ever achieve profitability, or that if
such profitability is obtained, that it can be maintained.
In early 1997, the Company commenced a substantial television and print
advertising campaign, including the production and airing of a television
infomercial and a series of television commercials. The costs to produce the
infomercial and commercials and to show these on the air will be substantial and
will be incurred primarily during the first and second quarter of 1997. Although
the Company believes that its advertising efforts will increase sales, the
Company's advertising program is intended to increase awareness and exposure of
the Company's products, and the Company does not believe that sales will
increase at the same rate as expenditures. Accordingly, the Company will
continue to incur losses during these periods as it rolls out its advertising
program.
The Company believes that an important element for introducing and
increasing awareness of its golf clubs is the building of a corps of touring
professional golfers that will endorse, use and win with the Company's clubs.
Accordingly, as an integral part of its marketing strategy, the Company
continually seeks to obtain professional endorsements of its clubs. Typically,
the Company's agreements with its endorsing professionals provide for base
payments of between $8,000 and $75,000 in consideration of the use of the
professionals' names in connection with the marketing of the Company's clubs and
the use of the clubs by such professionals in tournament play. In addition bonus
payments which could be substantial may be made based upon tournament
performance. The Company has granted stock options to its endorsing
professionals and intends to continue to do so in the future. The effect of a
particular professional's endorsement on the successful marketing of the
Company's clubs, and the heightening of awareness of the Company's name, may be
directly related to the success of such professional in tournament play. The
Company, however will be required to compensate a professional whether or not he
is successful . In order to succeed with its marketing strategy, the Company
will be required to enter into endorsement agreements with additional touring
professional golfers who will be successful in tournament play.
The Company does not maintain an in-house research and development or
design department. Rather, the Company works closely with component
manufacturers, independent design consultants and the Company's endorsing golf
professionals in the design and development of new products and product
improvements. Accordingly, the Company does not incur regular, ongoing expenses
relating to salaries of in-house design personnel, but does incur design
consulting fees when a new club or product improvement is in the development
phase. The Company does not have any agreements with independent design
consultants, but has historically been able to retain the services of qualified
designers when needed. The inability on the part of the Company to retain
qualified design consultants possessing suitable technical expertise when needed
in the future could result in delays in the introduction of a new product or
product improvement, which could adversely affect sales.
The Company does not manufacture the components required to assemble its
golf clubs, relying instead on a small number of component suppliers. The
Company does not have supply agreements with any of its current suppliers.
Therefore, the Company's success will be dependent, in part, on maintaining its
relationships with its existing suppliers and developing relationships with new
suppliers.
The Company believes that there are readily available alternative sources
for each of the components comprising its clubs, although there can be no
assurance of this. Any significant delay or disruption in the supply of
components from the Company's suppliers or any quality problems with the
suppliers' components would delay the Company's delivery of finished products
and adversely affect current sales and could adversely affect future sales
potential if distributors lose faith in the Company's ability to deliver a
high-quality product on a timely basis. Further, given the highly seasonal
nature of the golf equipment industry, such adverse affect would be exacerbated
should any such supply delay or
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quality problem occur immediately prior to or during the six-month period ending
June 30 (the period during which sales of golf equipment have historically been
the highest).
Under an agreement with Wayne R. Wooten, the designer of the original
TearDrop putter, the Company had agreed to pay royalties on the sale of putters
developed, designed or modified by Mr. Wooten. The Agreement was terminated on
December 18, 1996 by the Company and Mr. Wooten. In consideration thereof, the
Company paid Mr. Wooten $20,000 upon the closing of the Company's initial public
offering and agreed to pay Mr. Wooten $15,000 on December 31, 1997 and to issue
him options to purchase 1,000 shares of Common Stock for $4.50 per share.
Approximately $10,000 of such amount reflected royalties earned by Mr. Wooten
through September 30, 1996. Fred K. Hochman, a director and principal
stockholder of the Company, had provided a personal guarantee of the Company's
obligations to Mr. Wooten.
Results of Operations
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
The Company had sales of approximately $847,000 during the year ended
December 31, 1996 as compared to sales of approximately $1,057,000 during the
year ended December 31, 1995, a decrease of approximately 20%. This decrease is
attributable to difficulties initially encountered by the Company in developing
the manufacturing molds for its new line of clubs introduced in late 1995, which
resulted in the Company's inability to produce and deliver clubs during the
important Spring 1996 buying season. Because of these delays, the Company was
unable to fill orders until late into Spring 1996, resulting in substantially
reduced sales during the nine months ended December 31, 1996.
The cost of sales primarily consists of amounts paid for the purchase of
the components used in the assembly of the Company's golf clubs and costs
relating to the machining and milling of such components and assemblage thereof
into finished golf clubs. Cost of sales was approximately $408,000 (48% of
sales) during the year ended December 31, 1996 as compared to approximately
$549,000 (52% of sales) during the year ended December 31, 1995. This decline in
costs is directly attributable to reduced sales during the first half of 1996
resulting from the difficulties encountered in developing necessary
manufacturing molds. Because of the reduction in production during the year
ended December 31, 1996, the Company had reduced machining and milling costs
during such period. However, because the Company purchased the milling equipment
necessary for the production of the golf club heads in April 1996, reducing the
per-club manufacturing cost, there was a slight decline in cost of sales as a
percentage of sales. The Company does not expect to encounter similar production
delays and, accordingly, expects the costs of sales to decrease correspondingly
with increased production and sales, if such increases occur.
During the year ended December 31, 1996, selling, general and
administrative expenses were approximately $1,176,000 (139% of sales) as
compared to approximately $943,000 (89% of sales) during the year ended December
31, 1995. This increase is attributable to the Company's overall growth,
including the hiring of additional marketing and sales personnel and stepped up
marketing activities.
As a result of increasing expenses and costs relating to the growth of the
Company, the Company experienced a net loss of approximately $910,000 during the
year ended December 31, 1996 and $542,000 during the year ended December 31,
1995. The Company's inability to offset such increased
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costs and expenses by increasing its sales (as a result of the aforementioned
production delays), resulted in the increase in net loss during the year ended
December 31, 1996 as compared to the same period of the prior year.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The Company had sales of approximately $1,057,000 during the year ended
December 31, 1995 as compared to sales of approximately $785,000 during the year
ended December 31, 1994, an increase of 35%. This increase is attributable to
the Company's increased marketing efforts and greater awareness and acceptance
of the TearDrop putter, among both the print media and touring professionals.
During 1995, cost of sales was approximately $549,000 (52% of sales) as
compared to $446,000 (57% of sales) during 1994. This increase was primarily a
result of increased production of clubs to address increased sales.
Selling, general and administrative expenses consist of, among other
things, salaries, advertising expenses and endorsement fees. During 1995, these
costs were approximately $943,000 as compared to $782,000 during 1994. This
increase is attributable to the Company's overall growth, including the hiring
of additional personnel and the retention of additional endorsing golf
professionals. The Company anticipates that as it increases substantially its
marketing and sales activities, that marketing costs, including payments to
endorsing golf professionals will be substantially higher during the next 12
months than in the past.
As a result of costs and expenses associated with the growth of the Company
and the ramp up of production, the Company experienced a net loss of
approximately $542,000 during 1995 and a net loss of approximately $552,000
during 1994.
Liquidity and Capital Resources
The Company had working capital of approximately $3,702,000 at December 31,
1996. Since inception, the Company's internally generated cash flow has not been
sufficient to finance operations. Further, the Company has experienced severe
working capital shortfalls in the past, which have restricted the Company's
ability to conduct its business as anticipated. As a result, the Company has
been substantially dependent upon loans from its current stockholders in order
to maintain its operations. At the closing of the Company's initial public
offering, certain stockholders forgave approximately $1,114,000 of debt owed by
the Company to such stockholders. Of the remaining debt, approximately (i)
$422,000 was paid by the Company with interest at the rate of 8% per annum, upon
the exercise by the underwriters of the Company's initial public offering of the
over-allotment option and (ii) $400,000 will be payable upon the earlier of the
date of exercise of the Warrants (to the extent proceeds derived therefrom are
sufficient to make repayment) and December 19, 1999.
The Company had accounts receivable, less allowance for doubtful accounts,
of $230,202 at December 31, 1996. The Company has provided extended payment
terms to several international distributors in order to encourage initial
purchases of its clubs. Accordingly, approximately 63% of such accounts
receivable are over 90 days old at December 31, 1996. The Company does not
anticipate that it will continue to extend such liberal payment terms. However,
as it expands its activities, it may do so again in order to increase its market
exposure. The Company has not experienced significant collection problems or
credit risks in the past.
11
<PAGE>
The Company has entered into an advertising agreement with the Golf Channel
which commenced January 1, 1997 and ends on December 31, 1998. The agreement
provides that the Company will pay $770,000 to the Golf Channel over the term of
the agreement for the broadcast of commercial advertising during, and
sponsorship of certain television programming produced by the Golf Channel. The
Company has also incurred substantial expenses and undertaken substantial
financial commitments to commence its media campaign including in connection
with the production of its television infomercial, its television commercials,
its print advertisements and has purchased substantial advertising time during
the next several months on a variety of broadcast and cable television channels.
The Company will depend upon increased sales to satisfy these obligations and to
recover these costs. In addition, the Company has entered into endorsement
agreements with 16 touring golf professionals that provide for minimum payments
that range from $8,000 to $75,000. These agreements also provide for bonuses,
which could be substantial if the professionals are successful in tournament
play.
Although the Company believes that the proceeds from its initial public
offering will be sufficient for the Company to maintain its operations as
planned through the Spring of 1998,, if the Company's sales do not increase
substantially, it will likely need additional financing after such time in order
to continue operations. There can be no assurance that any additional financing
will be available to the Company on acceptable terms, if at all, when required
by the Company. The inability to obtain additional financing when needed would
have a material adverse effect on the Company's operating results, and, as a
result, the Company could be required to significantly reduce or suspend its
operations, seek a merger partner or sell some or all of its assets.
Seasonality
The purchasing decisions of most customers are typically made in the autumn
and a vast majority of sales are expected to occur during the first six months
of the year. In addition, quarterly results may vary from year to year due to
the timing of new product introductions, orders and sales, advertising
expenditures, promotional periods and shipments. Accordingly, comparisons of
quarterly information of the Company's results of operations may not be
indicative of the Company's overall annual performance.
Forward Looking Statements
When used in this and in future filings by the Company with the Securities
and Exchange Commission, in the Company's press releases and in oral statements
made with the approval of an authorized executive officer of the Company, the
words or phrases "will likely result," "expects," "plans," "will continue," "is
anticipated," "estimated," "project" or "outlook" or similar expressions
(including confirmations by an authorized executive officer of the Company of
any such expressions made by a third party with respect to the Company) are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements, each
of which speak only as of the date made. Such statements are subject to certain
risks and uncertainties that could cause actual results to differ materially
from historical earnings and those presently anticipated or projected. Such
risks and other aspects of the Company's business and operations are described
in "Risk Factors." The Company has no obligation to publicly release the result
of any revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
Item 7. Financial Statements.
12
<PAGE>
The Financial Statements required by this item appear under the caption
"Index to Financial Statements" and are included elsewhere herein.
13
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
With Section 16(a) of the Exchange Act.
The executive officers and directors of the Company are:
Name Age Position
---- --- --------
Rudy A. Slucker 47 Chairman of the Board, President and
Chief Executive Officer
John Zeravica 41 Vice President
Charles A. Gerber 42 Vice President
Fred K. Hochman 50 Director
Jeffrey Baker 41 Director
Leslie E. Goodman 53 Director
Bruce H. Nagel 44 Director
Rudy A. Slucker has served as Chairman of the Board, President and Chief
Executive Officer of the Company since September 1996. Mr. Slucker was the Chief
Executive Officer of the Atlas Group of Companies, Inc., which imported and
marketed hardware and consumer products, from 1978 until 1990, when it was sold.
Since 1990, Mr. Slucker has been a venture capital investor. He currently serves
on the board of directors and/or is a principal stockholder of the following
companies: Lilli Group, a knitwear manufacturer; The Sled Dogs Company, a
Nasdaq-listed manufacturer of sporting goods; Diplomat Optical, Inc., a
manufacturer and distributor of designer brand eyeglass frames under the names
of Playskool, Jones New York, Coventry, Harve Benard and Kathy Ireland; Major
League Fitness, a chain of fitness centers associated with Major League Baseball
through a licensing agreement; and Babylon Enterprises and Beacon Concessions,
which, together, currently own and operate the Beacon Theater in Manhattan.
John Zeravica became vice president of the Company in September 1996. From
1990 through May 1996, Mr. Zeravica served as Director of Operations for the
U.S. division of Bridgestone Sports, USA, Inc., an international manufacturer
and distribution of sporting goods. From 1983 to 1990, Mr. Zeravica served as
operating manager of Mizuno, USA, a sports product manufacturing and marketing
company.
Charles A. Gerber became vice president of the Company in October 1996.
From April 1994 through September 1996, Mr. Gerber served as vice president of
sales for Bobby Grace Golf Design Inc. From February 1993 to April 1994, Mr.
Gerber served as a director of sales for American Companies. From 1978 to 1992,
Mr. Gerber served as a regional sales manager for the Dial Corporation. From
1976 to 1978, Mr. Gerber served as a sales representative for W.H. Reynolds
Company.
Fred K. Hochman has been a director of the Company since its inception and
served as its President from inception through January 1995 and Chief Executive
Officer from inception through December 1995. In October 1996, Mr. Hochman
became senior vice president of Orix Credit Alliance
14
<PAGE>
Inc. From September 1992 through October 1996, Mr. Hochman served as President
of the Machine Tool Division of Financial Federal Credit, Inc., a wholly-owned
subsidiary of Financial Federal Corporation. Financial Federal Corporation is
listed on the American Stock Exchange. The Machine Tool Division provides
financing for numerically controlled machine tools, which are the type of tools
used to manufacture the TearDrop putter heads. From November 1982 through August
1992, he was Chairman of Machine Tool Finance Corporation, a company he
co-founded.
Jeffrey Baker has been a Director of the Company since September 1996.
Since 1986, Mr. Baker has served as Senior Vice President of GoodTimes
Entertainment, where he is responsible for licensing, marketing and
merchandising of video products. Mr. Baker's prior experience includes more than
twelve years of service in various marketing and sales positions including
marketing manager for Prodigy Services, director of national account sales for
RCA Video Disc, director of video sales for Pickwick International and regional
sales manager for Data Packaging Corp.
Leslie E. Goodman has been a director of the Company since November 1996.
From January 1996 through December 1996, Mr. Goodman served as North Jersey Area
President of First Union National Bank overseeing consumer and commercial
banking in northern New Jersey. Since January 1996, Mr. Goodman also served as
Chairman of the Board of CREOL, Inc., Commercial Real Estate On Line, an
internet based information service. Mr. Goodman also served as a senior
executive vice president of First Union Corporation. From January 1990 through
December 1995, Mr. Goodman served as a member of the Office of the Chairman of
First Fidelity Bancorporation overseeing the Community Business Bank, Corporate
and Institutional Trust. Mr. Goodman was a member of the board of directors of
First Fidelity Bancorporation from January 1990 through December 1995. Mr.
Goodman served as President of First Fidelity Bank, N.A., New Jersey from
September 1990 to January 1994. From 1988 to 1990, Mr. Goodman served as
chairman and chief executive officer of Fidelity Bank, Philadelphia, a
subsidiary of First Fidelity Bancorporation. Mr. Goodman currently is a member
of the board of directors of Wawa Inc., the board of governors of the Hackensack
Medical Center and the board of trustees of Rutgers University.
Bruce H. Nagel, Esq. has been a director of the Company since January 1997.
For more than the last five years, Mr. Nagel has been a partner with the law
firm of Nagel Rice & Dreifuss in Livingston, New Jersey.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors , and persons who own more than
10% of a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Based on a review of the copies of reports furnished to the Company, the Company
believes that during the year ended December 31, 1996 all filing requirements
applicable to its officers, directors and ten percent beneficial owners were
met, except that initial reports of beneficial ownership on Form 3 by the
Company's directors were filed late.
Committees of the Board of Directors
The Board of Directors of the Company has appointed two committees: the
Audit Committee and the Compensation Committee. The members of the Audit
Committee are Fred K. Hochman and Leslie E. Goodman. The Audit Committee
periodically reviews the Company's auditing practices and procedures, makes
recommendations to management or to the Board of Directors as to any changes to
such practices and procedures deemed necessary from time to time to comply with
applicable auditing rules, regulations and practices, and recommends independent
auditors for the Company to be elected by the stockholders. The members of the
Compensation Committee are Rudy A. Slucker, Jeffrey Baker and Bruce H. Nagel.
The Compensation Committee meets periodically to make recommendations to the
Board of Directors concerning the compensation and benefits payable to the
Company's executive officers and other senior executives.
Item 10. Executive Compensation.
Director Compensation
The Company intends to compensate directors $500 per meeting attended.
15
<PAGE>
Executive Compensation
No executive officer of the Company received cash compensation in excess of
$100,000 during the year ended December 31, 1996. In October 1996, Rudy Slucker,
the Company's Chairman of the Board and Chief Executive Officer was granted an
option to acquire 250,000 shares of common stock for $4.50 per share. No other
stock options were granted in 1996.
Employment Agreements
The Company has entered into an employment agreement with Rudy A. Slucker
which commenced on the consummation of the Company's initial public offering and
expires on December 19,, 1999. Pursuant to the agreement, Mr. Slucker will serve
as the Company's Chief Executive Officer and President for an annual salary of
$175,000. The employment agreement also provides that Mr. Slucker is entitled to
receive a bonus equal to 10% of the Company's pre-tax net income starting with
the year ending December 31, 1997. Such bonus will be payable to the extent of
50% of such amount in cash and the remaining 50% in the form of Common Stock of
the Company valued at the lowest last sale price of the Common Stock during the
last quarter of the Company's fiscal year. In addition, if there is a sale of
the Company or substantially all of the assets of the Company which involves
consideration equal to or greater than $25,000,000, Mr. Slucker will also be
entitled to a cash payment equal to the greater of $250,000 and 10% of the
excess consideration over $25,000,000. Mr. Slucker will also be entitled to
receive bonuses at the discretion of the Board of Directors and in accordance
with certain performance criteria. The agreement further provides that Mr.
Slucker will not engage in activities competitive with the Company for a period
of two years after the expiration of his employment agreement. In the event that
the Company terminates Mr. Slucker's employment without cause, such provision
would not apply.
The Company has also entered into an employment agreement with John
Zeravica. Pursuant to the agreement, Mr. Zeravica will serve as Vice President
of the Company for an annual salary of $100,000. The agreement with Mr. Zeravica
may be terminated either by the Company or Mr. Zeravica upon two weeks notice.
Stock Option Plans
On October 18, 1996, the Board of Directors and the stockholders of the
Company adopted the 1996 Employee Stock Option Plan ("Plan") and reserved
200,000 shares of Common Stock for issuance thereunder. The Plan provides for
the granting to employees (including employees who are also directors and
officers) of options intended to qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended
("Code"), and for the granting of nonstatutory stock options to directors,
employees and consultants. The Plan is currently administered by the entire
Board of Directors of the Company.
The exercise price per share of incentive stock options granted under the
Plan must be at least equal to the fair market value of the Common Stock on the
date of grant. In addition, in accordance with the Underwriting Agreement
relating to this Offering, the Company has agreed not to grant any options under
the Plan with an exercise price per share less than the initial public offering
price of the Common Stock. With respect to any participant who owns shares
representing more than 10% of the voting power of all classes of the Company's
outstanding capital stock, the exercise price of any incentive or nonstatutory
stock option must be equal to at least 110% of the fair market value on the
grant date, and the maximum term of the option must not exceed five years. The
terms of all other options granted
16
<PAGE>
under the Plan may not exceed ten years. Upon a merger of the Company, the
options outstanding under the Plan will terminate unless assumed or substituted
by the successor corporation. In March 1997, options to purchase 99,700 shares
of Common Stock have been granted under the Plan, including Incentive Stock
Options to acquire 50,700 shares for $4.75 per share to certain employees of the
Company, options to purchase 15,000 shares of Common Stock for $4.75 per share
to each of Jeffrey Baker, Leslie E. Goodman and Bruce H. Nagel which, options
vest one-third immediately and one-third per year for the next two years if they
are serving on the Board of Directors at such time.
Other Options
On October 21, 1996, the Company granted five-year options (outside of the
Plan) to acquire 250,000 shares of Common Stock for $4.50 per share to Rudy A.
Slucker, the Chairman of the Board and Chief Executive Officer of the Company.
On December 18, 1996, the Company agreed to grant options to Wayne R. Wooten to
purchase 1,000 shares of Common Stock for $4.50 per share. On March 21, 1997,
the Company granted five-year options to acquire an aggregate of 22,200 shares
of Common Stock to 15 golf touring professionals. The Company has reserved an
aggregate of an additional 227,800 shares of Common Stock for the grant of
additional options to touring golf professionals and other professional athletes
who perform consulting and promotional services for the Company. Under the
promotional agreements with the Company's golf professionals, the Company may be
required to grant additional stock options if the professional satisfies certain
conditions such as winning a golf tournament. If the Company's professionals win
a large number of tournaments, the number of additional options granted could be
substantial.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information with respect to the
beneficial ownership of the capital stock of the Company as of March 15, 1997
for (i) each person who is known by the Company to beneficially own more than 5%
of the capital stock, (ii) each of the Company's directors, and (iii) all
directors and executive officers as a group. The Company believes that each of
the beneficial owners of the Common Stock listed in the table, based on
information furnished by such owner, has sole investment and voting power with
respect to such shares.
Number of Shares Percentage
Name Beneficially Owned Ownership
---- ------------------ ---------
Rudy A. Slucker 730,000(1) 29.95%
Fred K. Hochman 153,000 6.99%
Jeffrey Baker 5,000(2) *
Leslie E. Goodman 5,000(2) *
Bruce H. Nagel 15,000(2) *
All directors and executive
officers as a group (7 persons) 908,000 (3) 37.18%
- ----------
* Less than 1%.
(1) Includes (i) 250,000 shares subject to options exercisable at $4.50 per
share and (ii) an aggregate of 75,000 shares of Common Stock owned by the
children and wife of Mr. Slucker.
(2) Includes 5,000 shares underlying options exercisable at $4.75 per
share. Does not include options to purchase 10,000 shares of Common Stock.
(3) Includes 15,000 shares underlying options exercisable at $4.75 per
share. Does not include options to purchase 30,000 shares of Common Stock.
17
<PAGE>
Item 12. Certain Relationships and Related Transactions.
On July 27, 1994, the Company entered into a Consulting and Non-Competition
Agreement with Wayne Wooten providing for payments by the Company in the form of
royalties on the sale of certain putters through July 26, 1996. An aggregate of
$33,070 was paid through such date to Mr. Wooten under the Agreement. At such
time, Fred K. Hochman purchased from Mr. Wooten 116,666 shares of Common Stock
of the Company for approximately $75,000. In addition, Mr. Wooten resigned as an
officer and director of the Company.
In November 1994, the Company borrowed $300,000 from NationsBank. Mr.
Hochman provided a personal guarantee for the loan. In addition, the Company
guaranteed a personal loan of $100,000 from NationsBank to Mr. Hochman, which
guarantee was released in October 1996. Mr. Hochman has pledged all of his
shares of Common Stock of the Company to secure his personal indebtedness.
On December 31, 1994, Mr. Hochman transferred 50,000 shares of Common Stock
to Rudy A. Slucker in consideration of $1.00 and the agreement to loan the
Company $140,000 at an interest rate of 8% per annum and payable over a
three-year term. On October 1, 1995, Mr. Slucker purchased 66,666 shares from
Mr. Hochman for $1.00 and Mr. Slucker's agreement to loan additional sums to the
Company, to the extent necessary.
In April 1996, in consideration of Mr. Slucker's agreement to loan the
Company up to $300,000, and to guarantee the NationsBank loan, Mr. Slucker was
issued 416,666 shares of Common Stock. In April 1996, Mr. Slucker sold 53,333
shares of Common Stock to Mr. Hochman for $80,000, represented by a promissory
note due April 1, 1998.
From time to time, the Company has borrowed funds from its officers,
directors and stockholders. Pursuant to an agreement dated as of October 18,
1996, $400,000 of debt owed by the Company to Mr. Slucker was extended and paid
with interest from and after the consummation of the Company's initial public
offering at the rate of 8% per annum until three years after the consummation of
such offering, except that the Company may prepay such amounts from net proceeds
received from the exercise of the Warrants. In addition, an additional aggregate
amount of $71,000 of debt owed by the Company to Messrs. Slucker, Hochman and
three other shareholders of the Company was repaid on January 24, 1997 with
interest from the proceeds received from the exercise of the over-allotment
option by the underwriters of the Company's initial public offering. The balance
of $183,478, $384,426, $249,800, $42,570 and $254,101,incusive of accrued
interest was forgiven by Messrs. Slucker, Hochman and such shareholders at the
consummation of the Company's initial public offering.
From August 1, 1996 through December 19, 1996, Mr. Slucker advanced an
additional $331,759 to the Company for its business operations and to fund
certain costs of the initial public offering. The Company has repaid the amounts
advanced by Mr. Slucker, with interest at 8% per annum from proceeds received
from the exercise by the underwriters of the over-allotment option.
All ongoing and any future transactions with affiliates of the Company, if
any, will be on terms believed by the Company to be no less favorable than are
available from unaffiliated third parties and will be approved by a majority of
disinterested directors.
18
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
Exhibit No. Description
----------- -----------
3.1H Certificate of Incorporation
3.2H Certificate of Merger
3.3H Agreement and Plan of Merger dated October 21, 1996 between the
Company and TearDrop Putter Corporation, a South Carolina
Corporation
3.4H By-Laws
4.1H Warrant Agreement
4.2H Specimen Common Stock Certificate
4.3H Specimen Warrant Certificate
10.1H Employment Agreement with Rudy A. Slucker
10.2H Employment Agreement with John Zeravica
10.3H Stock Option Plan
10.4H Form of Stock Option Agreement
10.7H Form of Promissory Note in the original principal amount of
$400,000 to be issued by the Company to Rudy A. Slucker
10.17H Property Lease dated August 3, 1995 between the Company and
Albert H. Politi
10.18H Equipment Lease dated November 30, 1995 between the Company and
Packaging Management Associates, Inc.
10.21H Financial Consulting Agreement between the Company and GKN
Securities Corp.
10.22H Advertising Agreement dated November 13, 1996 between the
Company and the Golf Channel, Inc.
10.23H Form of Lock-up Agreement
- ----------
H Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Registration Statement on Form SB-2 (File No.
333-14647) and incorporated herein by reference.
19
<PAGE>
TEARDROP GOLF COMPANY
CONTENTS
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS
BALANCE SHEET F-3
STATEMENTS OF OPERATIONS F-4
STATEMENTS OF STOCKHOLDERS' EQUITY F-5
STATEMENTS OF CASH FLOWS F-6 - F-7
NOTES TO FINANCIAL STATEMENTS F-8 - F-17
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
TearDrop Golf Company
We have audited the accompanying balance sheet of TearDrop Golf Company as of
December 31, 1996, and the related statements of operations, stockholders'
equity and cash flows for the years ended December 31, 1996 and 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of TearDrop Golf Company as of
December 31, 1996, and the results of its operations and its cash flows for the
years ended December 31, 1996 and 1995, in conformity with generally accepted
accounting principles.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
January 31, 1997, except for Note 17 as
to which the date is March 21, 1997
F-2
<PAGE>
TEARDROP GOLF COMPANY
BALANCE SHEET
December 31, 1996
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,508,993
Accounts receivable, less allowance for doubtful
accounts of $53,000 230,202
Inventories 106,781
Prepaid advertising 215,041
Other current assets 66,207
-----------
Total current assets $ 5,127,224
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization 167,502
OTHER ASSETS, intangible assets, less
accumulated amortization 29,648
-----------
$ 5,324,374
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 300,000
Current portion of notes payable, stockholders 431,759
Current portion of obligation under capital lease 15,482
Accounts payable and other current liabilities 677,718
-----------
Total current liabilities $ 1,424,959
NOTES PAYABLE, stockholders, less current portion 400,000
OBLIGATION UNDER CAPITAL LEASE, less
current portion 59,809
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
authorized 1,000,000 shares, issued and
outstanding none
Common stock, $.01 par value, authorized
10,000,000 shares, issued and outstanding
2,000,000 shares 20,000
Capital in excess of par value 5,701,560
Accumulated deficit (2,281,954)
-----------
Total stockholders' equity 3,439,606
-----------
$ 5,324,374
===========
See accompanying notes to financial statements.
F-3
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF OPERATIONS
Years Ended December 31,
-------------------------------
1996 1995
----------- -----------
SALES $ 847,358 $ 1,057,306
COST OF SALES 407,512 549,305
----------- -----------
GROSS PROFIT 439,846 508,001
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 1,175,944 942,638
----------- -----------
LOSS FROM OPERATIONS (736,098) (434,637)
INTEREST EXPENSE, net (174,267) (107,788)
----------- -----------
NET LOSS $ (910,365) $ (542,425)
=========== ===========
NET LOSS PER COMMON SHARE $ (1.15) $ (.72)
=========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 791,100 750,000
=========== ===========
See accompanying notes to financial statements.
F-4
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Capital in
------------------------- Excess of Accumulated
Shares Amount Par Value Deficit Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES, January 1, 1995 333,333 $ 3,333 $ - $ (829,164) $ (825,831)
NET LOSS (542,425) (542,425)
----------- ----------- ----------- ------------ -----------
BALANCES, December 31, 1995 333,333 3,333 (1,371,589) (1,368,256)
COMMON STOCK ISSUED FOR SERVICES 416,667 4,167 4,167
SALE OF COMMON STOCK 1,250,000 12,500 4,457,811 4,470,311
SALE OF COMMON STOCK PURCHASE WARRANTS 129,375 129,375
CONTRIBUTION TO CAPITAL BY STOCKHOLDERS 1,114,374 1,114,374
NET LOSS (910,365) (910,365)
----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 1996 2,000,000 $ 20,000 $ 5,701,560 $(2,281,954) $ 3,439,606
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF CASH FLOWS
Years Ended December 31,
--------------------------
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (910,365) $ (542,425)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 36,626 19,682
Provision for doubtful accounts 52,918 4,317
Accrued interest on stockholders' notes 112,279 75,420
Loss on abandoned assets 74,443
Common stock issued for services 4,167
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (203,623) 29,297
(Increase) decrease in inventories 14,254 (93,679)
(Increase) in prepaid advertising (215,041)
(Increase) in other current assets (52,874) (5,581)
Increase in accounts payable
and other current liabilities 423,991 87,519
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (737,668) (351,007)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES, purchases
of property and equipment (15,213) (29,479)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 8,750
Payments on obligation under capital lease (16,564) (1,202)
Proceeds from stockholders' notes 662,884 380,577
Proceeds from issuance of common stock 4,470,311
Proceeds from issuance of common
stock purchase warrants 129,375
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,246,006 388,125
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,493,125 7,639
CASH AND CASH EQUIVALENTS:
Beginning of year 15,868 8,229
----------- -----------
End of year $ 4,508,993 $ 15,868
=========== ===========
See accompanying notes to financial statements.
F-6
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31,
----------------------
1996 1995
----------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION, cash paid during the year
for interest $ 53,370 $ 32,626
=========== =========
SUPPLEMENTAL SCHEDULES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Contribution to capital in excess of par value from
notes payable, stockholders and accrued interest $ 1,114,374
===========
Equipment recorded under capital lease obligation $ 93,057
=========
Cost of equipment included in
accounts payable $ 37,000
=========
Cost of equipment included in
stockholders' notes $ 18,500
=========
See accompanying notes to financial statements.
F-7
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND NATURE OF OPERATIONS:
The TearDrop Golf Company (the "Company") was incorporated under the laws
of Delaware in September 1996. In October 1996, the Company merged with the
TearDrop Putter Corporation ("TPC"), a South Carolina corporation (see Note
9) which was formed in 1992. The Company manufactures and markets golf
putters and wedges within and outside the United States. The Company
intends to relocate its production and executive facilities to, or
establish additional facilities in, the New York Metropolitan area.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Cash Equivalents - Cash equivalents include all highly liquid investments
having a maturity of less than three months from the purchase date. Cash
equivalents include commercial paper.
Inventories - Inventories are stated at the lower of cost, on a first-in,
first-out method, or market.
Property and Equipment - Property and equipment is stated at cost less
accumulated depreciation and amortization. The Company provides for
depreciation and amortization principally using a declining-balance method
as follows:
Estimated
Asset Useful Lives
----- ------------
Office furniture and equipment 5 Years
Machinery and equipment 5-10 Years
Intangible Assets - Patents and trademarks relate to costs associated with
obtaining patents and trademarks within and outside the United States.
These costs are amortized on a straight-line basis over 17 years.
Organization costs are being amortized on a straight-line basis over 5
years.
Impairment of Long-Lived Assets - The Company periodically assesses the
recoverability of the carrying amounts of long-lived assets, including
intangible assets. A loss is recognized when expected undiscounted future
cash flows are less than the carrying amount of the asset. The impairment
loss is the difference by which the carrying amount of the asset exceeds
its fair value.
Advertising Costs - The Company expenses production costs of advertising
and promotions the first date the advertisements take place.
Advertising costs included in selling, general and administrative expenses
for the years ended December 31, 1996 and 1995 were approximately $109,000
and $154,000, respectively.
Fair Value of Financial Instruments - The fair value of the Company's
assets and liabilities which qualify as financial instruments under
Statement of Financial Accounting Standards No. 107 (SFAS 107) approximate
the carrying amounts presented in the balance sheet.
F-8
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Income Taxes - The Company complies with Statement of Financial Accounting
Standards No. 109 (SFAS 109), "Accounting for Income Taxes", which requires
an asset and liability approach to financial reporting of income taxes.
Deferred income tax assets and liabilities are computed annually for
differences between financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the
future, based on enacted tax laws and rates applicable to the periods in
which the differences are expected to effect taxable income. Valuation
allowances are established, when necessary, to reduce the deferred income
tax assets to the amount expected to be realized.
Net Loss Per Common Share - Net loss per common share is computed based on
net loss applicable to common shareholders, divided by the weighted average
number of common shares outstanding, after giving effect to the merger.
The weighted average includes shares issued within one year of the
Company's initial public offering (IPO) with an issue price less than the
IPO price.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Newly Issued Account Standard - On March 3, 1997, the Financial Accounting
Standards Board released Statement No. 128, "Earnings Per Share". Statement
128 requires dual presentation of basic and diluted earnings per share on
the face of the income statement for all periods presented. Basic earnings
per share excludes dilution and is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings
of the entity. Diluted earnings per share is computed similarly to fully
diluted earnings per share pursuant to Accounting Principles Bulletin No.
15. Statement 128 is effective for fiscal years ending after December 15,
1997, and when adopted, it will require restatement of prior years'
earnings per share.
Since the effect of outstanding options and warrants are antidilutive, they
have been excluded from the Company's computation of net loss per share.
Accordingly, management does not believe that Statement 128 will have an
impact upon historical net loss per share as reported.
NOTE 3 - INVENTORIES:
Inventories consist of the following at December 31, 1996:
Raw materials $ 78,377
Finished goods 28,404
----------
$ 106,781
==========
F-9
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment consist of the following at December 31, 1996:
Office furniture and equipment $ 31,752
Machinery and equipment 92,940
Equipment recorded under capital lease 93,057
---------
217,749
Less accumulated depreciation and amortization
($13,298 pertaining to capital lease) 50,247
---------
$ 167,502
=========
NOTE 5 - INTANGIBLE ASSETS:
Intangible assets consist of the following at December 31, 1996:
Patents and trademarks $ 33,786
Organization costs 10,000
---------
43,786
Less accumulated amortization 14,138
---------
$ 29,648
=========
NOTE 6 - NOTES PAYABLE:
Notes payable consist of two lines of credit under which the Company can
borrow up to $300,000, with interest at 1% over the prime lending rate
(9.25% at December 31, 1996). The lines of credit are collateralized by a
security interest in all assets of the Company and are guaranteed by a
stockholder. The notes were due December 31, 1996 and were paid off on
January 8, 1997.
The Company has an unsecured line of credit expiring January 31, 1997,
under which it can borrow up to $200,000, with interest at the prime
lending rate (8.25% at December 31, 1996). As of December 31, 1996, the
Company has no borrowing under this line of credit.
NOTE 7 - OBLIGATION UNDER CAPITAL LEASE:
Future minimum lease payments at December 31, 1996 are as follows:
Year ending December 31:
1997 $ 23,726
1998 23,726
1999 23,726
2000 19,772
-------------
Total future minimum lease payments 90,950
Amount representing interest 15,659
-------------
Present value of future minimum lease payments 75,291
Less current portion 15,482
-------------
$ 59,809
=============
F-10
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES:
Accounts payable and other current liabilities consist of the following:
Trade $ 483,523
Accrued professional fees 144,000
Other accrued expenses 50,195
-------------
$ 677,718
=============
NOTE 9 - STOCKHOLDERS' EQUITY:
In April 1996, in consideration of the Company's Chief Executive Officer's
(CEO) agreement to loan the Company up to $300,000, and to guarantee the
bank loan, the CEO was issued 416,667 shares of Common Stock.
In connection with the merger (see Note 1), each share of TPC's common
stock issued and outstanding was converted to 3333.33 shares of the
Company's common stock. Accordingly, all number of shares and per share
data have been restated to reflect this stock conversion.
In December 1996, the Company completed its Initial Public Offering for the
sale of 1,250,000 shares of common stock at $4.50 per share and 1,437,500
redeemable common stock purchase warrants at $.10 per warrant. Each warrant
entitles the holder to purchase one share of the Company's common stock for
$5.50. These warrants are exercisable immediately and expire five years
from December 19, 1996. The Company may redeem the warrants at $.01 per
warrant, subject to certain terms.
In connection with the IPO, an aggregate of $1,114,374 of stockholders'
notes and accrued interest was contributed to capital in excess of par
value.
NOTE 10 - STOCK OPTIONS:
On October 18, 1996, the Company's stockholders adopted the TearDrop Golf
Company Stock Option Plan ("Plan") providing for incentive stock options
("ISOs") and non-qualified stock options ("NQSOs"). The Company has
reserved 200,000 shares of common stock for issuance upon the exercise of
stock options granted under the Plan. The exercise price of an ISO or NQSO
will not be less than 100% of the fair market value of the Company's common
stock at the date of the grant. The exercise price of an ISO granted to an
employee owning greater than 10% of the Company's common stock will not be
less than 110% of the fair market value of the Company's common stock at
the date of the grant and will have a maximum term of five years. All other
options granted under the Plan will have a maximum term of ten years. As of
December 31, 1996, no options were granted under the plan.
On October 21, 1996, the Company granted options (outside the Plan) to the
Company's CEO to acquire 250,000 shares of the Company's common stock for
$4.50 per share. These options vest immediately and expire five years from
the grant date.
On December 18, 1996, in connection with the termination of an agreement to
pay royalties to the designer of the original TearDrop putter, the Company
granted options (outside the Plan) to acquire 1,000 shares of the Company's
common stock for $4.50 per share. These options vest immediately and expire
five years from the grant date.
F-11
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - STOCK OPTIONS (CONTINUED):
The Company has reserved 250,000 shares of common stock (outside the Plan)
to be issued to touring golf professionals based upon their performance
(see Notes 15 and 17).
The Company has adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation", effective for the Company's
December 31, 1996 financial statements. The Company applies APB Option No.
25 and related interpretations in accounting for its plans. Accordingly,
compensation costs have been recognized for its stock plan, other stock
options, and stock purchase warrants based on the intrinsic value of the
stock option at date of grant (i.e., the difference between the exercise
price and the fair value of the Company's stock). Had compensation cost for
the Company's stock-based compensation plan, other stock options, and stock
purchase warrants been determined based on the fair value at the grant
dates for awards under those plans consistent with the method of SFAS No.
123, the Company's net loss and loss per share would have been adjusted to
the pro forma amounts indicated below:
Net loss:
As reported $ (910,365)
Pro forma (932,750)
Loss per share:
As reported (1.15)
Pro forma (1.18)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions used for grants in 1996: risk-free interest rates of 6.0
percent; no dividend yields of expected lives of 5 years; and expected
volatility of 50 percent.
NOTE 11 - RELATED PARTY TRANSACTIONS:
In August 1996, the Company issued a note to its CEO for advances made up
to a maximum of $400,000, which bears interest at 8% per annum and is due
on the earlier of December 19, 1998 or upon the exercise of the
underwriters' over-allotment option (see Note 17). At December 31, 1996,
stockholders' notes includes $331,759 under this note.
Stockholders' notes bear interest at 8% per annum and include five
promissory notes which aggregate $100,000, and are due on the earlier of
December 19, 1998 or upon the exercise of the underwriters' over-allotment
option. In addition, stockholders' notes include another $400,000
promissory note issued to the Company's CEO, which is due on the earlier of
December 19, 1999 or upon the exercise of all of the warrants issued by the
Company in connection with the IPO.
Interest expense on these notes aggregated approximately $112,000 and
$75,000 for the years ended December 31, 1996 and 1995, respectively.
F-12
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 12 - INCOME TAXES:
A reconciliation of income tax credit to the federal statutory rate is as
follows:
1996 1995
---------- ---------
Income tax credit on reported pretax
loss at federal statutory rate (34.0)% (34.0)%
Surtax exemption 5.3
Effective tax rate applicable to loss
during "S" corporation period 34.0
State income tax credit, net of
federal benefit (3.3)
Net operating loss carryforward 32.0
---------- ---------
Income taxes 0 % 0 %
========== =========
TPC was an "S" Corporation and, as a result, the earnings and losses were
included in the personal income tax returns of the respective stockholders.
The "S" election was terminated in connection with the merger.
SFAS 109 requires that the Company record a valuation allowance when it is
more likely than not that some portion or all of the deferred tax asset
will not be realized. The ultimate realization of this deferred tax asset
depends on the ability to generate sufficient taxable income in the future.
The components of deferred income tax asset as of December 31, 1996 are as
follows:
Net operating loss carryforward $ 45,000
Allowance for doubtful accounts 17,000
-----------
62,000
Valuation allowance for deferred tax asset (62,000)
-----------
$ -
===========
At December 31, 1996, the Company has a federal net operating loss
carryforward of approximately $140,000, which can be utilized against
future taxable income and expires in the year 2011. Net operating losses
available for state income tax purposes are less than those for federal
purposes and generally expire earlier.
NOTE 13 - MAJOR CUSTOMERS AND SUPPLIERS:
During the years ended December 31, 1996 and 1995, the Company derived
revenues of approximately $85,000 and $94,000 from two customers and
$256,000 from one customer, respectively.
During the years ended December 31, 1996 and 1995, the Company purchased an
aggregate of approximately $118,000 and $64,000 of its inventories from two
suppliers and $252,000, $106,000 and $31,000 of its inventories from three
suppliers, respectively.
F-13
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 14 - FOREIGN SALES:
Export sales were as follows for the years ended December 31, 1996 and
1995:
1996 1995
---------- ----------
Japan $ 193,000 $ 271,000
Other countries 110,000 201,000
---------- ----------
$ 303,000 $ 472,000
========== ==========
NOTE 15 - COMMITMENTS AND CONTINGENCIES:
The Company rents its office and assembly facilities under a lease which
expires on November 30, 1998. The lease requires that rent be adjusted
annually for cost of living increases.
Future minimum annual lease payments are as follows:
Year ending December 31:
1997 $ 38,400
1998 35,200
---------
$ 73,600
=========
Rent expense for the years ended December 31, 1996 and 1995 was
approximately $45,000 and $27,000, respectively.
In January 1996, the Company entered into an endorsement agreement with a
PGA touring professional for three years. The agreement provides for
payments of $55,000, $70,000 and $98,000 during the years ending December
31, 1996, 1997, and 1998, respectively. In addition, the agreement provides
for certain bonuses based on tournament performances and sales in Australia
and New Zealand, as defined. This agreement was modified on January 17,
1997 (see Note 17).
In September 1996, the Company entered into an advertising agreement for
which the Company will receive media advertising valued at approximately
$101,000, in exchange for golf clubs of the same value.
The Company entered into a two year advertising agreement commencing
January 1, 1997, with a one year renewal. The Company will be obligated to
pay an aggregate of approximately $770,000 for advertising services, as
defined in the agreement.
On November 18, 1996, the Company entered into a three year employment
agreement with its CEO commencing December 19, 1996. The agreement provides
for annual compensation of $175,000, with a one year renewal, and
performance bonuses, as defined. The agreement further provides that the
CEO may not engage in certain competitive activities, as defined, for two
years after termination of the employment agreement.
F-14
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED):
On November 18, 1996, the Company entered into an agreement for the
production of an infomercial to air in 1997. The agreement provides for a
fee of $132,500, to be paid in installments during the production of the
infomercial, and for royalties to be paid of 1% of net worldwide television
sales, as defined.
On December 6, 1996, the Company entered into an agreement with an
advertising agency to provide a nationally recognized athlete to appear in
the aforementioned infomercial (the infomercial agreement). The agreement
provides for a guaranteed payment of $60,000 to be paid in two equal
installments and for the grant of options (outside the Plan) to acquire
2,000 shares of the Company's common stock for $4.75 per share. These
options vest immediately and expire five years from the grant date. The
agreement terminates on February 28, 1997, at which time the Company can
extend the term for ten months for an additional payment of $25,000 (see
Note 17).
In December 1996, the Company entered into one year endorsement agreements
with nine touring golf professionals, which commence January 1, 1997. The
agreements provide for base compensation, which ranges between $8,000 and
$75,000 per annum, and bonuses based upon tournament performance. In
conjunction with these agreements, the Company granted options (outside the
Plan) to acquire an aggregate of 11,200 shares of the Company's common
stock at $4.75 per share. These options vest immediately and expire five
years from the grant date.
On December 24, 1996, the Company entered into a two year financial
consulting agreement to pay the aggregate of $60,000 for services to be
rendered.
NOTE 16 - CONCENTRATION OF CREDIT RISK:
The Company's cash is maintained in financial institutions, and at times
exceeds the Federal Deposit Insurance Corporation coverage of $100,000.
Management regularly monitors the financial condition of the financial
institution in order to keep the potential risk to a minimum.
F-15
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 17 - SUBSEQUENT EVENTS:
On January 9, 1997, the Company entered into a one year agency service
agreement, with a one year renewal. The agreement provides for the agency
to negotiate, purchase and arrange for the Company's advertising in the
United States and Canada. The agreement further provides for a 15%
commission based on the gross media cost, as defined.
On January 13, 1997, the Company entered into a six month distribution
agreement in connection with the infomercial. The agreement grants the
distributor the exclusive right to advertise, promote, market and sell the
Company's products in Japan, Australia, Korea, Indonesia, Malaysia, New
Zealand, the Philippines, Singapore and Thailand.
On January 16, 1997, the Company entered into an agreement in which the CEO
is to be featured in a documentary program which will air in 1997. The
agreement provides for a fee of $34,000 to be paid in two equal
installments during production.
On January 17, 1997, the Company renegotiated an endorsement agreement with
a PGA touring professional expiring December 31, 1997 (see Note 15). The
agreement provides for guaranteed compensation of $50,000. In addition, the
Company granted options to acquire 1,000 shares of the Company's common
stock for $4.75 per share. These options vest immediately and expire five
years from the grant date.
On January 24, 1997, the Company's underwriters exercised their
over-allotment option to sell an additional 187,500 shares of common stock
at $4.50 per share (net proceeds of approximately $734,000). Proceeds of
approximately $422,000 were used to repay stockholders' notes, plus accrued
interest, of which $351,000 was paid to the Company's CEO.
In 1997, the Company entered into one and two year endorsement agreements
with six touring golf professionals, which commence January 1, 1997. The
agreements provide for base compensation, which ranges between $12,000 and
$60,000 per annum, and bonuses based upon tournament performance. Certain
of these bonuses are in the form of additional stock option grants, as
defined in the agreements, at an exercise price based upon the market value
on the date of the grant. In conjunction with these agreements, the Company
granted options (outside the Plan) to acquire an aggregate of 11,000 shares
of the Company's common stock at $4.75 per share. These options vest
immediately and expire five years from the grant date.
In March 1997, the Company extended its infomercial agreement until
December 31, 1997 by making an additional payment of $25,000 and granted
the options provided for in the agreement (see Note 15).
F-16
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 17 - SUBSEQUENT EVENTS (CONTINUED):
On March 21, 1997, the Company granted ISO's (in the Plan) to certain
employees to acquire 50,700 shares of the Company's common stock for $4.75
per share. These options vest over a three year period and expire five
years from the grant date. In addition, the Company granted NQSO's (in the
Plan) to its advertising agency and public relations firm to acquire 4,000
shares of the Company's common stock for $4.75 per share. These options
vest immediately and expire five years from the grant date. The Company
also granted NQSO's (in the Plan) to three outside Board members to acquire
45,000 shares of the Company's common stock for $4.75 per share. These
options vest over a three year period if the members are serving on the
Board of Directors at such time, and expire in five years.
F-17
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TEARDROP GOLF COMPANY
Dated: March 28, 1997 /s/Rudy A. Slucker
--------------------------------
Rudy A. Slucker
Chief Executive Officer, President and
Principal Accounting Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Dated: March 28, 1997 /s/Rudy A. Slucker
--------------------------------
Rudy A. Slucker
Director
Dated: March 28, 1997 /s/Fred K. Hochman
--------------------------------
Fred K. Hochman
Director
Dated: March 28, 1997 /s/ Leslie E. Goodman
--------------------------------
Leslie E.Goodman
Director
Dated: March __, 1997
--------------------------------
Jeffrey Baker
Director
Dated: March 28, 1997 /s/ Bruce H. Nagel
--------------------------------
Bruce H. Nagel
Director
20
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
3.1H Certificate of Incorporation
3.2H Certificate of Merger
3.3H Agreement and Plan of Merger dated October 21, 1996 between
the Company and
TearDrop Putter Corporation, a South Carolina Corporation
3.4H By-Laws
4.1H Warrant Agreement
4.2H Specimen Common Stock Certificate
4.3H Specimen Warrant Certificate
10.1H Employment Agreement with Rudy A. Slucker
10.2H Employment Agreement with John Zeravica
10.3H Stock Option Plan
10.4H Form of Stock Option Agreement
10.7H Form of Promissory Note in the original principal amount of
$400,000 to be issued by the Company
to Rudy A. Slucker
10.17H Property Lease dated August 3, 1995 between the Company and
Albert H. Politi
10.18H Equipment Lease dated November 30, 1995 between the Company
and Packaging Management Associates, Inc.
10.21H Financial Consulting Agreement between the Company and GKN
Securities Corp.
10.22H Advertising Agreement dated November 13, 1996 between the
Company and the Golf Channel, Inc.
10.23H Form of Lock-up Agreement
- ----------
H Previously filed with the Securities and Exchange Commission as an
Exhibit to the Company's Registration Statement on Form SB-2 (File No.
333-14647) and incorporated herein by reference.
