<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 000-23085
COYOTE SPORTS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER
AS SPECIFIED IN ITS CHARTER)
Nevada 88-0326730
[State or other jurisdiction [I.R.S. Employer Identification No.]
of incorporation or organization]
2291 Arapahoe Avenue
Boulder, Colorado 80302
[Address of principal executive offices] [Zip Code]
Registrant's telephone number, including area code: (303) 417-0942
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
<TABLE>
<CAPTION>
Class Outstanding at November 12, 1997
----- --------------------------------
<S> <C>
Common Stock, $0.001 par value 3,855,000 shares
</TABLE>
Transitional Small Business Disclosure Format Yes [ ] No [X]
<PAGE> 2
COYOTE SPORTS, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 1997 (unaudited)
and December 31, 1996......................................................... 1
Condensed Consolidated Statements of Operations (unaudited) for the three months
and nine months ended September 30, 1997 and 1996............................... 2
Condensed Consolidated Statements of Cash Flows (unaudited) for the nine
months ended September 30, 1997 and 1996....................................... 3
Notes to Condensed Consolidated Financial Statements (unaudited)................. 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................................Not Applicable
Item 2. Changes in Securities and Use of Proceeds........................................ 12
Item 3. Defaults Upon Senior Securities..................................................Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders..............................Not Applicable
Item 5. Other Information................................................................ 12
Item 6. Exhibits and Reports on Form 8-K................................................. 12
Signatures ................................................................................. 13
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,683,571 305,006
Trade receivables, net 4,026,905 2,681,626
Receivables from related parties -- 91,418
Inventories, net 3,302,485 3,931,718
Prepaid expenses and other current assets 271,149 245,623
------------- ------------
Total current assets 10,284,110 7,255,391
Property, plant and equipment, net 7,308,796 3,541,747
Intangible assets, net 1,049,521 1,001,771
============= ============
$ 18,642,427 11,798,909
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 1,115,000 1,038,000
Current portion of long term debt 908,336 87,000
Current portion of related party notes payable 222,446 22,291
Accounts payable 3,054,032 2,687,427
Taxes payable -- 638,000
Accrued expenses 1,625,483 823,077
------------- ------------
Total current liabilities 6,925,296 5,295,795
------------- ------------
Long-term debt, net of current portion 1,114,217 728,000
Related party notes payable, net of current portion 669,712 112,861
Deferred tax liability 333,000 426,000
------------- ------------
Total liabilities 9,042,225 6,562,656
Minority interests in net assets of subsidiaries 710,800 209,688
Stockholders' equity (deficit):
Preferred stock, $.001 par value. Authorized 4,000,000
shares, none issued and outstanding -- --
Common stock, $.001 par value. Authorized 25,000,000
shares; issued and outstanding, 3,825,000 at
September 30, 1997 and 3,450,000 at December 31, 1996 3,825 3,450
Additional paid-in capital 12,697,471 6,136,288
Accumulated deficit (3,505,809) (1,325,593)
Foreign currency translation adjustment (306,085) 212,420
------------- ------------
Total stockholders' equity 8,889,402 5,026,565
============= ============
$ 18,642,427 11,798,909
============= ============
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
See accompanying notes to condensed consolidated financial statements
1
<PAGE> 4
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------- ----------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 7,407,233 -- 20,157,402 11,601
Cost of goods sold (5,825,644) -- (15,610,179) --
-------------- -------------- -------------- --------------
Gross profit 1,581,589 -- 4,547,223 11,601
Operating expenses (1,978,751) (189,053) (6,050,291) (450,121)
-------------- -------------- -------------- --------------
Operating loss (397,162) (189,053) (1,503,068) (438,520)
Other expense:
Interest expense (165,595) -- (365,213) --
Loss on forward exchange
contracts, net (132,000) -- (171,000) --
Debt financing costs (20,000) -- (570,000) --
-------------- -------------- -------------- --------------
Loss before income taxes
and minority interests (714,758) (189,053) (2,609,281) (438,520)
Income tax benefit 155,000 -- 336,000 --
Minority interests in
subsidiaries losses 45,023 -- 93,065 --
-------------- -------------- -------------- --------------
Net loss $ (514,734) (189,053) (2,180,216) (438,520)
============== ============== ============== ==============
Net loss per share $ (0.17) (0.05) (0.66) (0.13)
============== ============== ============== ==============
Shares used in calculating
per share amounts 2,963,315 3,450,000 3,285,989 3,450,000
============== ============== ============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
<PAGE> 5
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------
1997 1996
-------------- --------------
<S> <C> <C>
Net cash used in operating activities $ (1,515,079) (117,221)
Cash flows from investing activities:
Purchase of property, plant and equipment (3,888,749) --
Acquisition of businesses, net of cash acquired of $114,759 (302,218) --
-------------- --------------
Net cash used in investing activities (4,190,967) --
-------------- --------------
Cash flows from financing activities:
Proceeds from notes payable 77,000 --
Borrowings on long term debt 1,207,553 --
Borrowings on related party notes payable 757,006 96,902
Capital contributions 6,561,558 43,216
-------------- --------------
Net cash provided by financing activities 8,603,116 140,118
-------------- --------------
Effect of exchange rate changes on cash (518,505) --
-------------- --------------
Increase in cash and cash equivalents 2,378,565 22,897
Cash and cash equivalents at beginning of period 305,006 29,497
============== ==============
Cash and cash equivalents at end of period $ 2,683,571 52,394
============== ==============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest paid $ 277,063 --
============== ==============
Income taxes paid $ -- --
============== ==============
</TABLE>
See accompanying notes to condensed consolidated financial statments
3
<PAGE> 6
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and instructions to Form 10-QSB. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations. The
Company believes that the disclosures are adequate to make the information
presented not misleading when read in conjunction with the financial statements
and the notes thereto included in the Company's Registration Statement on Form
SB-2 (File No. 333-29077).
The financial information presented in this Quarterly Report on Form 10-QSB
reflects all adjustments, consisting only of normal recurring adjustments, which
are, in the opinion of management, necessary for a fair statement of the results
for the interim periods presented. The results for the interim periods are not
necessarily indicative of results to be expected for the full year. The Company
has experienced significant quarterly fluctuations in operating results and it
expects that these fluctuations in sales, expenses and net income or losses will
continue.
2. INITIAL PUBLIC OFFERING
In September 1997, the Company completed its initial public offering of
1,225,000 shares of common stock (including an exercised underwriter's
over-allotment option of 100,000 shares and 75,000 shares issued to bridge
lenders) at a price of $5.00 per share, providing the Company with net proceeds
of approximately $3,950,000 after deducting underwriting discounts and
commissions of approximately $779,000 and offering costs of approximately
$1,021,000. Proceeds from the offering have been used to repay $1,500,000 in
loans to unaffiliated third parties and $285,000 for working capital
requirements. The remaining balance of net proceeds will be used for capital
equipment purchases, repayment of notes to a stockholder and working capital
requirements.
3. ACQUISITIONS
Prior to 1996, the Company was a development stage enterprise as it was
devoting most of its activities to financial planning and identifying
acquisitions. On September 18, 1996, the Company acquired three affiliated
entities, TI Apollo Limited ("Apollo"), a United Kingdom company, TI Reynolds
531 Limited ("Reynolds"), a United Kingdom company, and Apollo Golf,
Inc.("Apollo U.S."), a United States company, (the "Apollo Entities") and a
manufacturing facility for total consideration of 3,284,702 Pound Sterling (PS)
($5,135,305 U.S.) in cash. The transaction was accounted for by the purchase
method. The purchase price was allocated to monetary current assets and
liabilities based on the fair values and the remainder to property, plant and
equipment, which resulted in property, plant and equipment being recorded at
less than the appraised value. Accordingly, no goodwill was recorded from this
acquisition. According to the purchase agreement, the seller has indemnified the
Company for five years for environmental obligations and related costs up to
500,000 PS. The results of operations of the Apollo Entities have been included
in the Company's results of operations from October 1, 1996, since the results
for the period from September 18, 1996 to September 30, 1996 are not
significant. Apollo is one of three major manufacturers of steel golf shafts in
the world. Reynolds ranks as one of the leading suppliers of premium brand steel
cycle tubing.
4
<PAGE> 7
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. ACQUISITONS (CONTINUED)
On March 27, 1997, the Company established a new entity, Sierra Materials,
LLC ("Sierra"). Sierra is 80% owned by the Company and 20% owned by two
individuals. Sierra was established to acquire Cape Composites, Inc. (d/b/a
Sierra Materials). Sierra Materials is a supplier of graphite and other advanced
composite materials for use in the sports and recreational markets. This
acquisition of Sierra Materials coincided with the formation of Sierra on March
27, 1997. The transaction was accounted for by the purchase method and the
shares of Sierra Materials are pledged as collateral for certain outstanding
debt which has been refinanced by the Company according to the terms and
conditions of the purchase agreement. No cash was paid and no goodwill was
recorded as a result of this acquisition.
On April 1, 1997, the Company acquired all of the outstanding stock of
Pentiumatics Sdn. Bhd. ("Pentiumatics"), a Southeast Asian entity whose
principal operations have not commenced. In May of 1997, a 23% interest in
Pentiumatics was sold to an unrelated third party. The principal operations of
Pentiumatics will be the extrusion of various metals to be sold to third
parties, primarily for the manufacture of sporting goods. The acquisition has
been accounted for by the purchase method. Consideration for Pentiumatics was
approximately $200,000 cash and no goodwill was recorded.
The following unaudited pro forma financial information for the three months
and nine months ended September 30, 1996 and 1997 presents the combined results
of operations of the Company, the Apollo Entities and Sierra Materials as if the
acquisitions had occurred as of the beginning of 1996 and 1997 after giving
effect to certain adjustments, including amortization of intangible assets,
reduced depreciation expense, and related income tax effects. The pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had the Company, the Apollo Entities and Sierra
Materials constituted a single entity during such periods.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(UNUADITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 7,407,233 6,000,093 21,090,349 17,626,491
Net loss $ (514,734) (626,125) (2,229,926) (1,062,898)
Net loss per share $ (0.17) (0.18) (0.68) (0.31)
</TABLE>
Also, on September 18, 1996, the Company entered into an agreement to
acquire certain assets of Expedition Trading Company, LLC, a Utah Limited
Liability Company (Expedition). The Company established ICE*USA LLC, a Colorado
Limited Liability Company (ICE), in order to purchase certain intangible assets
from Expedition in exchange for consideration of $1.5 million, in the form of a
note, and a 20% interest in ICE. The negotiated terms of the transaction
provided that the Company would own an 80% interest in ICE and Expedition would
own a 20% interest.
The $1.5 million unsecured obligation is payable to Expedition over six
years, and has been discounted at 15%. The present value is $1,018,750 as of
December 31, 1996. Expedition is entitled to receive a minimum payment of
$100,000 per year and a maximum of $200,000 per year through 2002. Annual
payment amounts are based on ICE sales. In 2003, the Company must pay Expedition
$1.5 million, less all amounts previously paid under the agreement.
5
<PAGE> 8
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. LIQUIDITY
The Company incurred a loss of $514,734 and $2,180,216 for the three and
nine months ending September 30, 1997, respectively. Notes payable to banks as
of September 30, 1997 contractually terminate April 30, 1998 and May 31, 1998.
Management believes that the combination of cash on hand, extending the due
dates of debt agreements, entering into new debt agreements and cash from
operations will provide sufficient cash to meet its obligations as they come
due. However, there can be no assurance the debt agreements will be extended or
new debt agreements will be entered into or that cash on hand and cash from
continuing operations will be sufficient to cover the Company's financial
obligations during 1998.
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials $ 658,148 $ 804,113
Work in process 949,955 1,082,239
Finished goods 2,578,845 2,661,366
------------- ------------
4,186,948 4,547,718
Valuation allowance (884,463) (616,000)
------------- ------------
$ 3,302,485 $ 3,931,718
============= ============
</TABLE>
6
<PAGE> 9
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The matters discussed in this Management's Discussion and Analysis of
Financial Condition and Results of Operations contain forward-looking statements
that involve risks and uncertainties that could cause actual results to differ
materially from future results expressed or implied by such forward looking
statements. The Company has attempted to identify, in context, certain of the
factors that it currently believes may cause actual future experience and
results to differ from the Company's current expectations. The differences may
be caused by a variety of factors, including but not limited to adverse economic
conditions, general decreases in consumer spending for sports equipment and
recreational products, intense competition, including entry of new competitors,
increased or adverse governmental regulation, inadequate capital, unexpected
costs, lower revenues and net income than forecasted, loss of significant
customers, price increases for raw materials, inability to raise prices, the
risk of litigation and administrative proceedings involving the Company and its
employees, higher than anticipated labor costs, labor disputes, the possible
fluctuation and volatility of the Company's operating results and financial
condition, adverse publicity and news coverage, adverse currency exchange rates,
inability to carry out marketing and sales plans, loss of key executives,
changes in interest rates, inflationary factors, and other specific risks that
may be alluded to in this 10-QSB. These forward-looking statements represent the
Company's judgment as of the date of the filing of this Form 10-QSB. The Company
disclaims any intent or obligation to update these forward-looking statements.
OVERVIEW
Coyote designs, engineers, manufactures, markets and distributes brand name
sports equipment and recreational products. The Company's products include steel
and graphite golf shafts, premium grade cycle tubing, composite ski poles and
javelins. The Company also produces graphite and other advanced composite
materials for use in the production of golf shafts, fishing poles, ski poles,
hockey sticks and other third party manufactured products. The Company
manufactures its Apollo golf shafts in its manufacturing facility in Oldbury,
England, its Reynolds cycle tubing in Tyseley, England, its advanced composite
materials in San Diego, California and intends on manufacturing extruded
aluminum alloys in Southeast Asia for such products as cycle tubing, ski poles
and tennis rackets. The Company's ICE products are assembled in Heber City,
Utah.
RESULTS OF OPERATIONS
Prior to 1996, the Company was a development stage enterprise as it was
devoting most of its activities to financial planning and identifying and
evaluating acquisitions. Management's Discussion and Analysis of Financial
Condition and Results of Operations primarily includes discussions of operations
subsequent to the acquisition of Apollo, Reynolds, Apollo U.S., ICE, Sierra
Materials and Pentiumatics. Accordingly, these acquisitions have resulted in
material increases in the Company's net sales, cost of goods sold and selling,
general and administrative costs and resulting net operating losses for the
three and nine months ended September 30, 1997 in comparison to the three and
nine months ended September 30, 1996. Apollo, Reynolds, Apollo U.S. and ICE were
acquired on September 18, 1996. The operating results of these acquired entities
are reflected only in the three and nine months ended September 30, 1997 and not
for the three and nine months ended September 30, 1996. The results of
operations of the Apollo Entities have been included in the Company's results of
operations from October 1, 1996, since the results for the period from September
18, 1996 to September 30, 1996 are not significant. On March 27 and April 1 of
1997, the Company acquired its interest in Sierra Materials and Pentiumatics,
respectively. The results of operating of Sierra Materials and Pentiumatics have
been included in the Company's results of operations from April 1, 1997, since
the results for the period from March 27, 1997 to March 31, 1997 are not
significant.
The Company accounts for its foreign operations, Apollo and Reynolds, in the
local functional currency, the Pound Sterling for United Kingdom operations and
the Malaysian Ringgit for Pentiumatics. These amounts are translated into the
U.S. dollar for financial reporting purposes. Balance Sheet amounts are
translated using the period end exchange rate. Statement of Operations amounts
are translated using the average exchange rate for the period. Translation gains
and losses are reflected in Stockholders' equity (deficit) in the line item,
"Foreign currency translation adjustment." The risks inherent in maintaining
assets and liabilities and entering into transactions
7
<PAGE> 10
denominated in foreign currencies increases volatility in reported results of
operations and Stockholders' equity due to exchange rate differences between the
U.S. dollar and the other currencies. The Company enters into forward foreign
exchange contracts, from time to time, to "fix" the exchange rate for specific
sales from the U.K. to the U.S. The contracts are "marked" to market at each
period end. Gains and losses on the contracts are recognized currently in the
Statement of Operations. Due to significant volatility between the U.S. dollar
and the U.K. Pound Sterling, the Company's Statement of Operations could be
significantly impacted by exchange rate changes in these currencies.
The following table sets forth, for the periods indicated certain statement
of operations data as a percentage of net sales. The 1996 data is attributable
to general corporate expenses as none of the Company's subsidiaries had been
acquired. The 1997 data reflects the consolidated results of Apollo, Reynolds,
Apollo U.S., ICE and general corporate expenses from January 1, 1997 through
September 30, 1997 and Sierra Materials and Pentiumatics from April 1, 1997
through September 30, 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales 100% -- 100 --
Cost of goods sold (79) -- (77) --
Gross profit 21 -- 23 --
Operating expenses (27) (100) (30) (100)
Operating loss (6) (100) (7) (100)
Interest expense (2) -- (2) --
Loss on forward
Exchange contracts, net (2) -- (1) --
Debt financing costs -- -- (3) --
Loss before income taxes
And minority interests (10) (100) (13) (100)
Income tax benefit 2 -- 2 --
Minority interests 1 -- -- --
Net loss (7) (100) (11) (100)
</TABLE>
Net sales for the three and nine months ended September 30, 1997 increased
to $7,407,233 and $20,157,401, respectively, as compared to no sales and $11,601
for the comparable periods of 1996. Gross profit for the three months and nine
months ended September 30, 1997 was $1,581,589 and $4,547,222, respectively, as
compared to no gross profit and $11,601 for the comparable periods of 1996.
Operating expenses for the three months and nine months ended September 30, 1997
were $1,978,751 and $6,050,291, respectively, as compared to $189,053 and
$438,520 for the comparable periods of 1996. The increase in sales, gross profit
and operating expenses for the three and nine months ending September 30, 1997,
compared to the same periods in 1996, is primarily attributable to the
acquisitions of Apollo, Reynolds, Apollo U.S. and ICE, Sierra Materials and
Pentiumatics.
Operating loss for the three and nine months ended September 30, 1997
increased to $397,162 and $1,503,069 respectively, as compared to $189,053 and
$438,520 for the same periods of 1996. Management attributes the increase in
loss primarily to lower than expected sales of Apollo and ICE, higher than
expected graphite shaft manufacturing costs, unfavorable foreign exchange rates
between the U.S. Dollar and the U.K. Pound Sterling, manufacturing material
usage inefficiencies at Sierra Materials and other general corporate expenses.
8
<PAGE> 11
Interest expense for the three and nine months ended September 30, 1997
increased to $165,595 and $365,213, respectively, as compared to no interest
expense for the comparable periods of 1996. The increases resulted primarily
from higher average borrowing balances for the three and nine months ending
September 30, 1997 as compared to the same periods in 1996. Interest expense is
expected to increase in 1998 with planned increases in subsidiary borrowings for
working capital and capital equipment.
The Company has entered into certain forward currency exchange contracts to
hedge its exposures to changes in currency exchange rates primarily between the
U.S. Dollar and the UK Pound Sterling. These transactions resulted in $132,000
and $171,000 in losses for the three and nine months ended September 30, 1997,
respectively. No such transactions took place for the comparable periods in 1996
as the Company had not yet acquired Apollo or Reynolds.
The Company entered into two secured promissory notes with Bridge Lenders in
1997 of $1,500,000 and an additional secured note for $300,000 with a related
party. Debt financing costs incurred in connection with the notes were $20,000
and $570,000 for the three and nine months ending September 30, 1997,
respectively. No such transactions took place for the comparable periods in
1996.
The Company recorded an income tax benefit of $155,000 and $336,000 for the
three and nine months ended September 30, 1997, respectively, primarily as a
result of losses generated by Apollo in the United Kingdom in the current fiscal
year. The income tax benefit is being taken against prior year income tax
payments made by Apollo in the United Kingdom. No such income tax benefits
existed for comparable period in 1996.
Minority interests in losses for the three and nine months ended September
30, 1997 were $45,023 and $93,065, respectively. Minority interests in losses is
a result of the net effect on profits and losses of Sierra Materials, ICE and
Pentiumatics and is based on the minorities' percentage ownership in Sierra
Materials (20%), ICE (20%) and Pentiumatics (23%). No minority interest in
losses existed in 1996.
Net loss for the three and nine months ended September 30, 1997 was $514,734
and $2,180,216, respectively, as compared to $189,053 and $38,520 for the
comparable periods of 1996. Management attributes the increase in loss primarily
to lower than expected sales of Apollo and ICE, higher than expected graphite
shaft manufacturing costs, unfavorable foreign exchange rates between the U.S.
Dollar and the U.K. Pound Sterling, manufacturing material usage inefficiencies
at Sierra Materials, higher than expected borrowing costs, debt financing costs
and other general corporate expenses.
In order to become profitable, the Company must increase sales while
effectively managing costs. Profitability depends to a large extent on
management's ability to increase sales, reduce selling, general, and
administrative costs, outsource the manufacturing of graphite shafts, more
efficiently utilize existing plant capacities at Apollo and Reynolds, expand
manufacturing capacity at Sierra Materials, commence manufacturing at
Pentiumatics, and by acquiring companies whose businesses would be complementary
to, and compatible with, the existing business of the Company's subsidiaries.
Management does not expect the Company to attain profitability in 1997. There
can be no assurance that the Company will be able to achieve these goals or
attain profitability in the future.
RECENT ACCOUNTING PRONOUNCEMENTS
In February of 1997, the Financial Accounting Standards Board (the "FASB")
issued Statements of Financial Accounting Standards, No. 128, Earnings per
Share, (Statement No. 128) and No. 129, Disclosure of Information about Capital
Structure, (Statement No. 129), effective for years ending after December 15,
1997. Statement No. 128 specifies the computation, presentation, and disclosure
requirements for earnings per share ("EPS") for entities with publicly held
common stock or potential common stock. The Company will adopt Statement No. 128
in the December 31, 1997 consolidated financial statements. Management believes
that the effect of such adoption will not have a significant impact on the
earnings per share of the Company. Statement No. 129 specifies and aggregates
various disclosures which were previously required for certain entities. The
Company has adopted the disclosure requirements under this statement.
9
<PAGE> 12
SEASONALITY
As a result of the Company's present operations being primarily dependent
upon Apollo sales, management expects for the foreseeable future that the
Company's business will remain seasonal. Because the Company's customers have
historically built inventory in anticipation of purchases by golfers in the
spring and summer, the principal selling season for golf shafts, the Company's
primary product, the Company's operating results have been affected by seasonal
demand for golf clubs, which has generally resulted in higher sales in the
spring and summer months. The success of certain customers' products, patterns
of product introduction, and customer acceptance thereof, coupled with a
generally increasing overall demand for golf shafts, may mitigate the impact of
this seasonality
LIQUIDITY AND CAPITAL RESOURCES
In September 1997, the Company completed its initial public offering of
1,225,000 shares of common stock (including an exercised underwriter's
over-allotment option of 100,000 shares and 75,000 shares issued to bridge
lenders) at a price of $5.00 per share, providing the Company with net proceeds
of approximately $3,950,000 after deducting underwriting discounts and
commissions of approximately $779,000 and offering costs of approximately
$1,021,000. Proceeds from the offering have been used to repay $1,500,000 in
loans to unaffiliated third parties and $285,000 for working capital
requirements. The remaining balance of net proceeds will be used for capital
equipment purchases, repayment of notes to a stockholder and working capital
requirements.
At September 30, 1997 the Company had an accumulated deficit of $3,505,809
compared to an accumulated deficit of $1,325,593 at December 31, 1996. Net loss
for the three and nine months ending September 30, 1997 was $514,734 and
$2,180,216, respectively, compared to a net loss of $189,000 and $438,520 for
the comparable periods in 1996. Management does not expect the Company to attain
profitability in 1997.
At September 30, 1997 the Company had two outstanding notes payable. One
note payable provides for borrowings under a foreign line of credit up to
750,000 PS ($1,210,000 U.S.) plus cash on deposit with the bank with an interest
rate of 1.5% over the bank's prime rate (7 1/4% as of November 11, 1997).
Amounts outstanding on the note are secured by substantially all Apollo's
assets. Amounts outstanding under the note payable were $779,000 and $738,000
as of September 30, 1997 and December 31, 1996, respectively. The credit
facility is due on demand and subject to review on April 30, 1998.
The second note payable provides for borrowings under a line of credit up to
a maximum of $500,000, with an interest rate equal to the bank's prime rate.
Amounts outstanding on the line of credit are secured by substantially all
assets of Apollo U.S. Amounts outstanding on the note payable were $336,000 and
$300,000 as of September 30, 1997 and December 31, 1996, respectively. The line
of credit expires on May 31, 1998.
Management believes that the combination of cash on hand, extending the due
dates of the debt agreements, entering into new debt agreements and cash from
operations will provide sufficient cash to meet the Company's financial
obligations as they come due. However, there can be no assurance that the
Company will be able to meet its financial obligations as they come due.
Net cash used in operating activities was $1,515,079 and $117,221 for the
periods ending September 30, 1997 and 1996, respectively. The primary use of
cash was to fund the Company's losses.
Net cash used in investing activities of $4,190,967 was a result of the
acquisition of Sierra Materials and Pentiumatics, the purchase of land, building
and machinery and equipment at Pentiumatics and machinery and equipment
purchases at Apollo.
Net cash provided by financing activities was $8,603,116 and $140,118 for
the periods ending September 30, 1997 and 1996, respectively. The primary source
of cash was capital contributions in the initial public offering, the sale of
23% of Pentiumatics to a minority interest and the increase in borrowings for
working capital demands.
10
<PAGE> 13
The Company continues to consider the acquisition of additional businesses
complementary to the Company's business. The Company would require additional
debt or equity financing, if it were to engage in a material acquisition in the
future.
11
<PAGE> 14
PART II. OTHER INFORMATION.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
In August 1997, the Company borrowed $285,000 from an unrelated third party.
At the close of the Initial Public Offering in September, the principal was
repaid. Interest was agreed to as 8,000 shares of common stock in the Company to
be transferred equally from the Chief Executive Officer and the Chief Operating
Officer.
In September 1997, the Company completed its initial public offering of
1,225,000 shares of common stock (including an exercised underwriter's
over-allotment option of 100,000 shares and 75,000 shares issued to bridge
lenders) at a price of $5.00 per share, providing the Company with net proceeds
of approximately $3,950,000 after deducting underwriting discounts and
commissions of approximately $779,000 and offering costs of approximately
$1,021,000. Proceeds from the offering have been used to repay $1,500,000 in
loans to unaffiliated third parties and $285,000 for working capital
requirements. The remaining balance of net proceeds will be used for capital
equipment purchases, repayment of notes to a stockholder and working capital
requirements.
On October 31, 1997, the underwriter exercised an additional over-allotment
option of 30,000 shares of common stock at a price of $5.00 per share providing
the Company with $130,500 after deducting underwriting discounts and commissions
of $19,500. The net proceeds will be used for capital equipment purchases,
repayment of notes to a stockholder and working capital requirements. The period
in which the underwriter may exercise their over-allotment option has expired.
ITEM 5. OTHER INFORMATION.
On November 4, 1997, the Company issued a press release announcing plans to
acquire Unifiber Corporation. The press release has been attached as a exhibit
10.1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Coyote Sports to Acquire Unifiber Corporation press
release
11.1 Computation of per share loss
27.1 Financial Data Schedule
(b) Reports on Form 8-K.
None
12
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 12, 1997 COYOTE SPORTS, INC.
By: /s/ JIM PROBST
--------------------------------
Jim Probst
Chief Operating Officer and Chief
Financial Officer
13
<PAGE> 1
EXHIBIT 10.1
FOR IMMEDIATE RELEASE NEWS
November 4, 1997 Nasdaq-COYT
COYOTE SPORTS TO ACQUIRE UNIFIBER CORPORATION
Transaction Should Increase Coyote's 1998 Net Sales By Approximately 50% And
Position The Company As A Major Global Provider Of High-End Golf Club Shafts
BOULDER, Colorado - Coyote Sports, Inc. (Nasdaq-COYT), a leading provider of
recreational products and sports equipment to the golf, cycling and winter
sports industries, today announced plans to acquire Unifiber Corporation, a
graphite golf shaft manufacturer that reported sales of $23 million in fiscal
1997.
James Probst, COO of Coyote Sports, said the two companies have signed a letter
of intent calling for Coyote Sports to purchase 100% of privately-held Unifiber.
Coyote Sports plans to obtain additional private debt or equity financing to
complete the purchase. The transaction, which is subject to due diligence,
financing and execution of a definitive agreement, is expected to close in the
first quarter of 1998.
Management believes the acquisition will increase Coyote's net sales from golf
shafts by more than 100% and will significantly increase Coyote's annual net
sales on a consolidated basis. Coyote Sports, which expects to report sales in
excess of $25 million in 1997, has grown rapidly since inception by virtue of an
aggressive acquisition strategy that targets growht companies within the sports
equipment and recreational products industries.
Unifiber, based in San Diego, CA, manufactures high-end graphite shafts for such
leading golf club makers as Callaway, Goldwin, Lynx and Prince. Unifiber
reported $23 million in fiscal 1997 revenue, up from $19.3 in fiscal 1996.
"The planned acquisition of Unifiber is a major step forward in our strategy to
become a fully integrated, global sports manufacturing company," said Probst.
"Unifiber's line of premium graphite shafts is highly complementary to our own
Apollo line of graphite and steel shafts, and will enable Coyote to rapidly and
significantly expand its share of the worldwide golf shaft market."
Probst noted that Coyote and Unifiber have several customers in common, and on a
combined basis provide shafts to many of the world's leading golf club
manufacturers.
The strong synergies in technology, products and customer base should lead to
new market opportunities and improved operating efficiencies which, in turn,
should result in increased margins and profitability,' Probst said.
Coyote Sports, Inc., is a diversified sports manufacturing company that
specializes in golf (Apollo shafts), cycling (Reynolds premium cycle tubing),
ski poles (ICE USA) in addition to together sports products that use graphite
and other advance composite materials. Coyote has operation in the United States
and the United Kingdom and anticipates commencing operation in Malaysia in 1998.
Certain oral and written statements of management of the Company included in
this press release may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. The accuracy of such statement cannot be guaranteed as
they are subject to a variety of risks, including but not limited to, the
integration of new companies and spending for sports equipment and recreational
products, intense competition, including the entry of new competitors, the
Company's ability to obtain additional debt or equity financing, unexpected
costs, lower sales than forecasted, loss of significant customers as well as
other factors.
CONTACT:
Coyote Sports, Inc.
Mel Stonebraker, CEO
Or James Probst, CFO/COO
303-417-0942
<PAGE> 1
EXHIBIT 11.1
COMPUTATION OF PER SHARE LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------- ----------------------------------
1997 1996 1997 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net loss $ (514,734) $ (189,053) $ (2,180,216) $ (438,520)
-------------- -------------- -------------- --------------
Common shares outstanding at
beginning of period 3,450,000 3,450,000 3,450,000 3,450,000
Net effect of shares (retired) and
issued during the period (486,685) -- (164,011) --
Shares used in computing
loss per share 2,963,315 3,450,000 3,285,989 3,450,000
============== ============== ============== ==============
Net loss per share $ (0.17) $ (0.05) $ (0.66) $ (0.13)
============== ============== ============== ==============
</TABLE>
Primary and fully diluted net loss per share
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,683,571
<SECURITIES> 0
<RECEIVABLES> 4,253,516
<ALLOWANCES> 226,611
<INVENTORY> 3,302,485
<CURRENT-ASSETS> 10,284,110
<PP&E> 7,660,232
<DEPRECIATION> 351,436
<TOTAL-ASSETS> 18,642,427
<CURRENT-LIABILITIES> 6,925,296
<BONDS> 0
<COMMON> 0
0
3,825
<OTHER-SE> 8,885,577
<TOTAL-LIABILITY-AND-EQUITY> 18,642,427
<SALES> 20,157,402
<TOTAL-REVENUES> 20,157,402
<CGS> 15,610,179
<TOTAL-COSTS> 15,610,179
<OTHER-EXPENSES> 6,791,291
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 365,213
<INCOME-PRETAX> (2,609,281)
<INCOME-TAX> (336,000)
<INCOME-CONTINUING> (2,180,216)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,180,216)
<EPS-PRIMARY> (0.66)
<EPS-DILUTED> (0.66)
</TABLE>
