<PAGE>
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, 1998
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
of incorporation or organization] Identification No.]
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 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:
Class Outstanding at November 13, 1998
----- --------------------------------
Common Stock, $.001 par value 5,386,265 shares
Transitional Small Business Disclosure Format. Yes [_] No [X]
<PAGE>
COYOTE SPORTS, INC.
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of September 30, 1998
(unaudited) and December 31, 1997.................................. 1
Condensed Consolidated Statements of Operations (unaudited) for
the three and nine months ended September 30, 1998 and 1997........ 2
Condensed Consolidated Statements of Comprehensive Income (Loss)
(unaudited) for the three and nine months ended September 30, 1998
and 1997........................................................... 3
Condensed Consolidated Statements of Cash Flows (unaudited) for
the three and nine months ended September 30, 1998 and 1997........ 4
Notes to Condensed Consolidated Financial Statements (unaudited)... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ 15
Item 2. Changes in Securities and Use of Proceeds.................... 15
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............................................ Not Applicable
Item 6. Exhibits..................................................... 15
Signatures ........................................................... 15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 108,182 726,290
Restricted cash 90,000 702,814
Trade receivables, net 4,070,114 3,778,483
Inventories, net 5,522,872 3,582,194
Prepaid expenses and other current assets 522,651 439,130
------------- ------------
Total current assets 10,313,819 9,228,911
Property, plant and equipment, net 13,459,609 7,546,284
Goodwill, net 11,994,643 -
Other assets, net 2,754,302 90,058
------------- ------------
$ 38,522,373 16,865,253
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 7,371,149 2,705,928
Current portion of long-term debt 6,653,007 452,237
Accounts payable 4,154,702 3,204,234
Accrued expenses 4,288,331 1,413,362
Current portion of obligation payable under purchase agreement - 87,000
------------- ------------
Total current liabilities 22,467,189 7,862,761
------------- ------------
Long-term debt, net of current portion 3,087,512 202,644
Related party notes payable - 600,340
Deferred taxes and other liabilities 1,127,240 1,090,000
------------- ------------
Total liabilities 26,681,941 9,755,745
Minority interests in net assets of subsidiaries - 396,874
Stockholders' equity (deficit):
Preferred stock, $.001 par value. Authorized 4,000,000
shares, none issued or outstanding - -
Common stock, $.001 par value. Authorized 25,000,000
shares; issued and outstanding, 5,008,004 at
September 30, 1998 and 3,855,000 at December 31, 1997 5,008 3,855
Additional paid-in capital 16,276,551 12,664,642
Accumulated deficit (4,922,132) (5,493,167)
Accumulated comprehensive income (loss) 481,005 (462,696)
------------- ------------
Total stockholders' equity 11,840,432 6,712,634
Commitments and contingencies ------------- ------------
$ 38,522,373 16,865,253
============= ============
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1997 has been
derived from the audited consolidated 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>
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
---------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 10,011,658 7,407,233 30,889,395 20,157,402
Cost of goods sold (7,447,523) (5,825,644) (23,487,493) (15,610,179)
---------------- ------------- -------------- -------------
Gross profit 2,564,135 1,581,589 7,401,902 4,547,223
Operating expenses (2,190,790) (1,978,751) (6,566,005) (6,050,291)
---------------- ------------- -------------- -------------
Operating income (loss) 373,345 (397,162) 835,897 (1,503,068)
Other income (expense):
Interest expense, net (414,808) (165,595) (814,657) (365,213)
Gain (loss) on forward exchange contracts, net 69,000 (132,000) 64,000 (171,000)
Debt financing costs (100,141) (20,000) (200,140) (570,000)
Other 47,289 - 140,319 -
---------------- ------------- -------------- -------------
Income (loss) before income taxes, minority
interests and extraordinary item (25,315) (714,757) 25,419 (2,609,281)
Income tax (expense) benefit - 155,000 (13,000) 336,000
Minority interests in subsidiaries' losses 75,890 45,023 212,035 93,065
---------------- ------------- -------------- -------------
Net income (loss) before extraordinary item 50,575 (514,734) 224,454 (2,180,216)
Extraordinary item, net of taxes - - 346,581 -
---------------- ------------- -------------- -------------
Net income (loss) $ 50,575 (514,734) 571,035 (2,180,216)
================ ============= ============== =============
BASIC EARNINGS PER SHARE
Income (loss) before extraordinary item $ 0.01 (0.17) 0.05 (0.66)
Extraordinary item, net of taxes - - 0.08 -
---------------- ------------- -------------- -------------
Net income (loss) $ 0.01 (0.17) 0.13 (0.66)
================ ============= ============== =============
DILUTED EARNINGS PER SHARE
Income (loss) before extraordinary item $ 0.01 (0.17) 0.05 (0.66)
Extraordinary item, net of taxes - - 0.07 -
---------------- ------------- -------------- -------------
Net income (loss) $ 0.01 (0.17) 0.12 (0.66)
================ ============= ============== =============
Shares used in calculating basic earnings
per share 4,823,221 2,963,315 4,546,757 3,285,989
================ ============= ============== =============
Shares used in calculating diluted earnings
per share 4,829,118 2,963,315 4,574,060 3,285,989
================ ============= ============== =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) $ 50,575 (514,734) $ 571,035 (2,180,216)
Other comprehensive income (loss) 190,504 (460,085) 150,680 (518,505)
------------- ----------- ------------ ------------
Comprehensive income (loss) $ 241,079 (974,819) $ 721,715 (2,698,721)
============= =========== ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net cash provided (used) by operating activities $ 475,736 (1,577,116) 875,461 (2,600,110)
Cash flows from investing activities:
Purchase of property, plant and equipment (579,797) (56,089) (2,871,462) (3,888,749)
Other assets (19,667) - (19,667) (99,012)
Acquisition of businesses, net of cash acquired (500,000) - (3,629,774) (198,059)
------------ ------------ ------------ -----------
Net cash used in investing activities (1,099,464) (56,089) (6,520,903) (4,185,820)
------------ ------------ ------------ -----------
Cash flows from financing activities:
Borrowings (repayments) on notes payable, net (1,441,045) (3,551,142) (1,739,536) 77,000
Borrowings on long-term debt, net 1,082,740 1,149,322 5,816,870 1,964,559
Sale of minority interest in Pentiumatics - 594,177 - 594,177
Capital contributions 950,000 4,317,714 950,000 6,528,759
------------ ------------ ------------ -----------
Net cash provided by financing activities 591,695 2,510,071 5,027,334 9,164,495
------------ ------------ ------------ -----------
Increase (decrease) in cash and equivalents (32,033) 876,866 (618,108) 2,378,565
Cash and equivalents at beginning of period 140,215 1,806,705 726,290 305,006
------------ ------------ ------------ -----------
Cash and equivalents at end of period $ 108,182 2,683,571 108,182 2,683,571
============ ============ ============ ===========
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 365,024 150,816 774,845 277,063
============ ============ ============ ===========
Cash paid during the period for income tax $ 24,447 - 24,447 -
============ ============ ============ ===========
Non-cash financing activities:
Fair value of common stock issued for services $ - - 504,000 -
============ ============ ============ ===========
Fair value of common stock issued in connection
with long term debt $ - - 600,000 -
============ ============ ============ ===========
Fair value of common stock issued for acquisiton $ - - 1,500,000 -
============ ============ ============ ===========
Fair value of common stock issued in connection
with notes payable $ - - 59,062 -
============ ============ ============ ===========
Notes payable entered into in connection with
purchase of assets $ 5,500,000 - 5,500,000 -
============ ============ ============ ===========
Book value of assets exchanged in connection
with exchange of ownership interests $ (848,266) - (848,266) -
============ ============ ============ ===========
Fair value of assets received in connection
with exchange of ownership interests $ 1,426,025 - 1,426,025 -
============ ============ ============ ===========
Cumulative foreign currency translation
adjustment realized upon exchange of
ownership interests $ (560,493) - (560,493) -
============ ============ ============ ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
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 consolidated
financial statements and the notes thereto included in the Company's Annual
Report on 10-KSB (File No. 000-23085) for the fiscal year ended December 31,
1997 and 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 loss will
continue.
2. ACQUISITIONS
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.
The acquisition of Sierra Materials coincided with the formation of Sierra on
March 27, 1997. The transaction was accounted for by the purchase method with
the assumption of approximately $650,000 in outstanding debt. The operations of
Sierra have been included in the Company's consolidated financial statements
from March 27, 1997 forward. 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. The acquisition was accounted for by the
purchase method. Consideration for Pentiumatics was approximately $200,000 cash
and no goodwill was recorded. On July 23, 1998, the Company exchanged its
ownership interest for an interest in another company (see Note 7).
On March 19, 1998, the Company acquired all of the outstanding stock of
Unifiber Corporation (Unifiber), a supplier of graphite golf shafts to premium
original equipment manufacturers, for a purchase price of $3,000,000 in cash and
521,739 shares of the Company's Common Stock recorded at fair value of
$1,500,000. The acquisition was accounted for by the purchase method. Under
the terms of the agreement, the previous owner has the option to sell the shares
back to the Company for a period of two years after the closing at a price of
$5.17 per share. In addition, the Company has agreed to pay the previous owner
$100,000 per year for the next five years for a not to compete agreement in
which the previous owner will not own, manage, operate, be employed at or be
connected to in any manner any business of the type conducted by Unifiber. The
Agreement provides for an earnout in the event Unifiber's financial performance
for the calendar year ending December 31, 1998, results in net income before
income taxes equal to $1,500,000. The earnout ranges from $0 to $2,000,000
based upon net income before income taxes of $1,500,000 to $2,500,000. Based on
historical operating results and forecasted operating results, management does
not expect to pay any amount of the earnout. As a result of the acquisition,
total assets recorded were $13,879,967 of which $10,998,427 was goodwill.
Liabilities assumed were $9,082,446. Goodwill is being amortized on a straight-
line basis over 40 years.
On September 9, 1998, the Company purchased substantially all of the assets
of West Coast Composites, a wholly-owned subsidiary of Cobra Golf Incorporated,
for a purchase price of $500,000 in cash and $5,500,000 in the form of a note
payable due March 31, 1999. As a result of the acquisition, total assets
recorded were $6,500,000 of which $1,136,064 was goodwill. Liabilities assumed
were $500,000. Goodwill is being amortized on a straight-line basis over 40
years. The assets of West Coast Composites have been consolidated into Unifiber
as of September 9, 1998.
5
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following unaudited pro forma financial information for the three and
nine months ended September 30, 1997 and the nine months ended September 30,
1998 presents the combined results of operations of the Company, Sierra
Materials and Unifiber as if the acquisitions had occurred as of the beginning
of 1997 and 1998 after giving effect to certain adjustments. The pro forma
financial information does not necessarily reflect the results of operations
that would have occurred had the Company, Sierra Materials and Unifiber
constituted a single entity during such periods. Historical financial
information is not available for West Coast Composites. Net sales for West
Coast Composites for the 21-day period from September 9 through September 30,
1998 were $343,300.
<TABLE>
<CAPTION>
Three Nine Months Ended
Months Ended September 30,
September 30, --------------------------------------------
1997 1998 1997
--------------------- ------------------- -------------------
(Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
Net sales $11,848,458 $34,648,679 $36,795,742
Net income (loss) $ (792,489) $(1,210,205) $(3,575,299)
Net income (loss) per diluted share $ (0.22) $ (0.26) $ (0.90)
</TABLE>
3. LIQUIDITY
The Company had net income of $571,035 and incurred a loss of $2,180,216 for
the nine months ending September 30, 1998 and 1997, respectively. As of
September 30, 1998, the Company had outstanding balances on notes payable and
long-term debt as listed below. For discussion, see "Liquidity and Capital
Resources" in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
<TABLE>
<CAPTION>
September 30, 1998
------------------
<S> <C>
Note payable under line of credit, variable interest rate of 1.5% plus LIBOR rate
(8.94% at September 30, 1998), interest payable quarterly $ 545,000
Note payable under line of credit, variable interest rate equal to the lender's prime
rate plus 1.5% (10.0% at September 30, 1998), interest payable monthly 1,018,000
Note payable under line of credit and term loan, variable interest rate of 1.5 % over
the lender's prime rate (10.0% at September 30, 1998), interest payable monthly 2,205,329
Note payable under line of credit and term loan, variable interest rate of 1.5% over
the lender's prime rate (10.0% at September 30, 1998), interest payable monthly 1,008,783
Note payable secured by accounts receivable, variable interest rate of 1.75% over the
lender's base rate (9.25% at September 30, 1998), interest payable monthly 114,000
Note payable, interest rate of 12%, interest payable quarterly in arrears 6,000,000
Note payable under term loan, variable interest rate of 1.75% plus LIBOR rate (9.19% 680,000
at September 30, 1998), interest payable quarterly
Note payable, variable interest rate of 5% over the Federal Reserve discount
rate (10% at September 30, 1998), interest and note due March 31, 1999 5,500,000
Capital leases 40,556
------------------
$17,111,668
==================
</TABLE>
At September 30, 1998, $90,000 in cash was restricted and held as collateral
against a standby letter of credit to secure an operating lease obligation.
Management believes that the combination of cash on hand of $108,182,
restricted cash on hand of $90,000, its borrowing availability of $1,300,000 at
September 30, 1998, projected cash flows from operations, extending the due
dates
6
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
of current debt agreements that mature in the next twelve months and entering
into new debt agreements will provide sufficient cash to meet its obligations as
they come due. However, there can be no assurance that operations will generate
positive cash flows, that the debt agreements will be extended or that new debt
agreements will provide sufficient cash to meet its obligations as they come
due.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------------- -------------------
<S> <C> <C>
Raw materials 1,673,303 845,469
Work in process 1,241,050 1,034,927
Finished goods 3,382,547 2,414,362
------------------- -------------------
6,296,900 4,294,758
Valuation allowance (774,028) (712,564)
------------------- -------------------
5,522,872 3,582,194
=================== ===================
</TABLE>
5. REPORTING COMPREHENSIVE INCOME
The Company has adopted Financial Accounting Standards Board Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income,"
as of January 1, 1998. SFAS No. 130 requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. The cumulative translation adjustments are the
Company's only component of comprehensive income.
6. RELINQUISHMENT OF ASSETS
On June 15, 1998, the Company relinquished the rights to certain intangible
assets to the previous owner and will not distribute its winter sport products
under the ICE*USA trade name. The Company has removed all of the assets and
liabilities of ICE*USA from its consolidated financial statements which resulted
in a net extraordinary gain of $346,581 due to early extinguishment of debt for
the nine months ended September 30, 1998.
7. EXCHANGE OF OWNERSHIP INTEREST
On July 23, 1998, the Company exchanged its 77% ownership interest in
Pentiumatics Sdn. Bhd for a 28% ownership interest in the outstanding common
stock of Unggul Galakan Sdn. Bhd (Unggul). Unggul wholly owns Action Wear Sdn.
Bhd (Action Wear), a southeast Asian manufacturer of athletic apparel. For the
twelve months ended December 31, 1997 (unaudited), Action Wear reported net
income of $819,000 on sales of $8,500,000. As of December 31, 1997 (unaudited),
Action Wear had net assets of $3,042,000. The exchange was accounted for using
the fair value of the assets received. A gain of $577,759, offset by a loss
realized on accumulated foreign currency translation of $560,493, was recorded
as a result of the transaction. The investment in Unggul is accounted for using
the equity method.
7
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Coyote designs, engineers, manufactures, markets and distributes brand name
sports equipment and recreational products worldwide. Through an aggressive
acquisition strategy, Coyote Sports Inc. wholly owns or has a controlling
interest in five operating entities worldwide; Apollo Sports Technologies,
Limited (Apollo), Reynolds Cycle Technology, Limited (Reynolds), Apollo Golf
Inc. (Apollo U.S.), Sierra Materials LLC (Sierra Materials), and Unifiber
Corporation (Unifiber). The Company's products include steel and graphite golf
shafts, premium grade cycle tubing 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 sporting goods
products.
The Company's business objective is to become a leading provider of sports
equipment and recreational products. Coyote management intends to build a
consolidated group of companies engaged in related and complementary businesses
that work together to compete effectively in the sports equipment and recreation
products industry. The Company intends to continue to purchase companies within
the sports equipment and recreation products industry with experienced
management, that have well-established brand names and product lines, and strong
engineering and design capabilities. Management intends to strengthen and foster
the growth of these companies through the introduction of additional
manufacturing capabilities and techniques, expanded sales and marketing efforts
and vertical integration of company-wide manufacturing and distribution
capabilities.
HIGHLIGHTS
The Company reported significant year on year improvement in sales and
operating results in the third quarter.
. Sales grew to $10,012,000 for the three months ended September 30, 1998, a
35% increase from $7,407,000 for the three months ended September 30, 1997.
Sales grew to $30,889,000 for the nine months ended September 30, 1998, a
53% increase from $20,157,000 for the nine months ended September 30, 1997.
. The Company recorded net income of $51,000, compared to a net loss of
$515,000 for the three months ended September 30, 1998 and 1997,
respectively. The Company recorded net income of $571,000, which includes
an extraordinary gain of $347,000, compared to a net loss of $2,180,000 for
the nine months ended September 30, 1998 and 1997, respectively.
RESULTS OF OPERATIONS
As discussed in greater detail below, the acquisition of Unifiber on March
19, 1998 has resulted in material increases in the Company's net sales, cost of
goods sold and operating expenses for the three and nine months ended September
30, 1998 in comparison to the three and nine months ended September 30, 1997.
The acquisition of Sierra Materials on March 27, 1997, has resulted in material
increases in the Company's net sales, cost of goods sold and operating expenses
for the nine months ended September 30, 1998 in comparison to the same period in
1997.
The Company's results of operations could be materially adversely affected by
the traditional volatility in consumer demand for specific golf club brands. The
Company also believes that while it will often be impossible to predict such
shifts in advance, the Company's broad range of customers should reduce the
extent of the impact on the Company's financial results. Traditionally, the
Company has focused its attention on the original equipment manufacturer (OEM)
market. The Company plans to continue devoting a majority of its research and
development efforts on developing innovations for the OEM market which today
represents a large portion of the Company's sales. The Company believes that its
strong presence in the OEM market has helped to position it as a leader in the
design, development and manufacture of golf shafts. The Company believes that
its strong historical position with respect to OEM manufacturers gives it
credibility in the retail after market as well.
The following table sets forth, for the periods indicated, certain statement
of operations data as a percentage of net sales. The 1997 data reflects the
consolidated results of Apollo, Reynolds, Apollo U.S., ICE*USA (ICE) and general
corporate expenses from January 1, 1997 through September 30, 1997 and includes
Sierra Materials and Pentiumatics from April 1, 1997 through September 30, 1997
as these entities were acquired as of April 1, 1997. The 1998 data reflects the
8
<PAGE>
consolidated results of all entities except for Unifiber from January 1, 1998
through September 30, 1998. Unifiber was acquired on March 19, 1998 and is
included in the Company's results from April 1, 1998 through September 30, 1998,
since the results for the period from March 20, 1998 to March 31, 1998 are not
significant. The assets of West Coast Composites were consolidated into Unifiber
on September 9, 1998 and are included in the Company's results from September 9,
1998 through September 30, 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ------------------------------
1998 1997 1998 1997
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
Cost of goods sold (74) (79) (76) (77)
Gross profit 26 21 24 23
Operating expenses (22) (27) (21) (30)
Operating income (loss) 4 (6) 3 (7)
Interest expense, net (4) (2) (3) (2)
Debt financing costs (1) - (1) (3)
Other 1 (2) 1 (1)
Income (loss) before income taxes, minority
interests and extraordinary item - (10) - (13)
Income tax (expense) benefit - 2 - 2
Minority interests 1 1 1 -
Net income (loss) before extraordinary item 1 (7) 1 (11)
Extraordinary item, net of taxes - - 1 -
Net income (loss) 1 (7) 2 (11)
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Net sales for the three months ended September 30, 1998 increased 35% to
$10,011,658 as compared to $7,407,233 for the comparable period of 1997. The
increase in net sales is primarily attributable to the acquisition of Unifiber.
Gross profit for the three months ended September 30, 1998 and 1997 was 26% and
21% of net sales, respectively. The increase in gross margins is primarily
attributable to an improvement in the product mix to higher margin golf shafts.
Operating expenses for the three months ended September 30, 1998 were 22% of net
sales as compared to 27% for the comparable period of 1997, as a result of an
increase in sales relative to operating expenses.
The Company had operating income of $373,345 for the three months ended
September 30, 1998, as compared to an operating loss of $397,162 for the
comparable period in 1997. The turnaround in operating income is attributable
to an increase in sales, an improvement in the product mix to higher margin golf
shafts and a tighter control on operating expenses.
Interest expense, net of interest income was $414,808 for the three months
ended September 30, 1998, as compared to $165,595 for the comparable period of
1997. The increase in interest expense is attributable to the $6,000,000 note
payable entered into on March 19, 1998 to acquire Unifiber and the $5,500,000
note payable entered into on September 9, 1998, to acquire the assets of West
Coast Composites.
Minority interests in subsidiaries' losses were $75,890 and $45,023 for the
three months ended September 30, 1998 and 1997, respectively. Minority
interests in subsidiaries' losses are a result of the net effect on profits and
losses of Sierra Materials, ICE (prior to the relinquishment of ICE's assets)
and Pentiumatics (prior to exchange of ownership) and is based on the
minorities' percentage ownership in Sierra Materials (20%), ICE (prior to the
relinquishment of ICE's assets) (20%) and Pentiumatics (prior to exchange of
ownership) (23%).
Net income for the three months ended September 30, 1998 was $50,575 or $0.01
per diluted share, as compared to a net loss of $514,734 or $0.17 per share for
the comparable period of 1997. Management attributes the turnaround to
profitability primarily due to an increase in golf shaft sales due to the
acquisition of Unifiber, an improvement in the product mix to higher margin golf
shafts and to lower operating costs at Apollo.
The Company exchanged its 77% ownership interest in Pentiumatics for a 28%
ownership interest in the outstanding common stock of Unggul Galakan Sdn. Bhd
(Unggul). Unggul owns 100% of Action Wear Sdn. Bhd (Action Wear), a
9
<PAGE>
southeast Asian manufacturer of athletic apparel. A gain of $577,759, offset by
a loss realized on accumulated foreign currency translation of $560,493, was
recorded as a result of the transaction.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Net sales for the nine months ended September 30, 1998 increased 53% to
$30,889,395 as compared to $20,157,402 for the comparable period of 1997. The
increase in net sales is primarily attributable to an increase in golf shaft
sales from the acquisition of Unifiber and an increase in sales from the
acquisition of Sierra Materials. Gross profit for the nine months ended
September 30, 1998 and 1997 was 24% and 23% of net sales, respectively. The
increase in gross margins is primarily attributable to an improvement in product
mix to higher margin golf shafts. Operating expenses for the nine months ended
September 30, 1998 were 21% of net sales as compared to 30% for the comparable
period of 1997, as a result of an increase in sales relative to operating
expenses.
The Company had operating income of $835,897 for the nine months ended
September 30, 1998, as compared to an operating loss of $1,503,068 for the
comparable period in 1997. The turnaround in operating income is attributable
to an increase in sales, an improvement in the product mix to higher margin golf
shafts and a tight control on operating expenses.
Interest expense, net of interest income, was $814,657 for the nine months
ended September 30, 1998 as compared to $365,213 for the comparable period of
1997. The increase in interest expense primarily attributable to the $6,000,000
note payable entered into on March 19, 1998 to acquire Unifiber and the
$5,500,000 note payable entered into on September 9, 1998 to acquire the assets
of West Coast Composites.
Minority interests in subsidiaries' losses were $212,035 and $93,065 for the
nine months ended September 30, 1998 and 1997, respectively. Minority interests
in subsidiaries' losses are a result of the net effect on profits and losses of
Sierra Materials, ICE (prior to the relinquishment of ICE's assets) and
Pentiumatics (prior to the exchange of ownership) and is based on the
minorities' percentage ownership in Sierra Materials (20%), ICE (prior to the
relinquishment of ICE's assets) (20%) and Pentiumatics (prior to the exchange of
ownership) (23%).
Net income before an extraordinary gain of $346,581 for the nine months ended
September 30, 1998 was $224,454 or $0.05 per diluted share, as compared to a net
loss of $2,180,216 or $0.66 per share for the comparable period of 1997.
Management attributes the turnaround to profitability primarily due to an
increase in golf shaft sales from the acquisition of Unifiber, an improvement in
the product mix to higher margin golf shafts and to lower operating costs at
Apollo.
In order to remain profitable, the Company must continue to 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, more efficiently utilize existing plant capacities at
Apollo, Unifiber and Reynolds, expand manufacturing capacity at Sierra Materials
and by acquiring companies whose businesses would be complementary to, and
compatible with, the existing business of the Company's subsidiaries. There can
be no assurance that the Company will be able to achieve these goals or remain
profitable in the future.
SEASONALITY
As a result of the Company's present operations being primarily dependent
upon Apollo and Unifiber 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
THE YEAR 2000 ISSUE
The Company is aware of the issues associated with the programming code in
existing computer systems and is working to resolve the potential impact of the
year 2000 on the ability of the Company's computerized information systems to
accurately process information that may be date sensitive. Any of the Company's
programs that recognize a date using "00" as the year 1900 rather than the year
2000 could result in errors or system failures ("Year 2000 Issue").
10
<PAGE>
The Company's State of Readiness
- ----------------------------------
The Company utilizes a number of computer programs across its operations.
The Company has developed a Year 2000 project team to address the Year 2000
Issue. An initial assessment has been completed for each of the Company's
operations. The evaluation revealed that a number of computer hardware and
software systems utilized by the Company have Year 2000 compliance issues.
These systems will need to be replaced or upgraded. The majority of the systems
and/or programs are "off the shelf" products with Year 2000 compliant versions
now available. However, there are some custom programs which will need to be
reprogrammed to be Year 2000 compliant.
A Year 2000 plan has been developed for most of the Company's operations,
some of which are in the implementation and testing stages. The systems and
programs are scheduled to be replaced or upgraded at various times over the next
10 months. The Company expects to have all critical systems and/or programs Year
2000 compliant by August 1999.
The Company relies on third parties for many products and services and the
Company may be adversely impacted if these companies are unable to address this
issue in a timely manner which could result in a material financial risk to the
Company. The Company has not performed an assessment on the state of readiness
and/or compliance of key suppliers and customers. Management plans to identify
key suppliers and customers by March 31, 1999.
The Costs to Address the Company's Year 2000 Issues
- ---------------------------------------------------
Management expects that completion of its Year 2000 compliance project will
result in additional expenditures of approximately $100,000.
The Risks Associated with the Company's Year 2000 Issues
- --------------------------------------------------------
The Company's failure to resolve the Year 2000 Issue on or before December
31, 1999, could result in system failures or miscalculations causing disruption
in operations, including among other things, a temporary inability to process
transactions, send invoices, send and/or receive e-mail and voice mail, or
engage in similar normal business activities. Additionally, failure of third
parties upon whom the Company's business relies to timely remediate their Year
2000 issues could result in disruptions in the Company's supply of parts and
materials, late, missed or unapplied payments, temporary disruptions in order
processing and other general problems related to the Company's daily operations.
While the Company believes its Year 2000 compliance actions will adequately
address the Company's internal Year 2000 Issue, until the Company completes its
assessment of its suppliers and customers, the overall risks can not be
accurately described and quantified, and there can be no guarantee that the Year
2000 Issue will not have a material adverse effect on the Company and its
operations.
The Company's Contingency Plan.
- -------------------------------
The Company has not, to date, implemented a Year 2000 contingency plan. It is
the Company's goal to have the major Year 2000 issues resolved by mid 1999.
Final verification and validation is scheduled to occur by August 1999. However,
the Company intends to develop and implement a contingency plan by mid 1999, in
the event that the Company's Year 2000 Issue plan should fall behind schedule.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998 the Company had an accumulated deficit of $4,922,132
compared to an accumulated deficit of $5,493,167 at December 31, 1997. Net
income for the nine months ending September 30, 1998 was $571,035, compared to a
net loss of $2,180,216 for the comparable period in 1997.
As of September 30, 1998, the Company had eight outstanding notes payable.
The notes are broken out by operating entity and discussed below.
Parent
On March 19, 1998, the Company entered into a Loan and Security Agreement
(Agreement) with a Lender for $6,000,000, with an interest rate of 12% payable
once a quarter, with principal due September 19, 1999. The proceeds were
primarily used in connection with the acquisition of Unifiber Corporation on
March 19, 1998. The Agreement is secured by the Company's co-founders' (the
Company's Chairman and CEO) shares of Common Stock. Under the terms of the
agreement, the Company issued 163,265 shares of the Company's Common Stock in
connection with the Agreement.
In the event that on March 19, 1999 any principal of the loan remains unpaid
and the aggregate value of the initial consideration, based on the per-share
closing price of the Common Stock on March 19, 1999 on the NASDAQ Market
11
<PAGE>
(Aggregate First Anniversary Reset Value) is less than $1,000,000 then the
Company shall deliver, at the Company's option, either an amount in cash or
Common Stock equal to $1,000,000 less the Aggregate First Anniversary Reset
Value.
In the event that on September 19, 1999, the aggregate value of the initial
consideration, based on the per-share closing price of the Common Stock on
September 19, 1999 on the NASDAQ Market ( Aggregate Second Anniversary Reset
Value) is less than $1,000,000 then the Company shall deliver, at the Company's
option, either an amount in cash or Common Stock equal to $1,000,000 less the
Aggregate Second Anniversary Reset Value and any consideration received in
connection with the First Anniversary Reset Value. In the event that the loan
is prepaid in full prior to the Maturity Date and the aggregate value of the
initial consideration, based on the per-share closing price of the Common Stock
on the NASDAQ Market (Aggregate Prepayment Date Reset Value) on the date of
prepayment is less than $1,000,000 then the Company shall deliver, at the
Company's option, either an amount in cash or Common Stock equal to $1,000,000
less the Aggregate Prepayment Date Reset Value. As of September 30, 1998,
$6,000,000 was outstanding under this note payable.
Apollo
One note payable provides for borrowings under a foreign line of credit up to
600,000 Pound Sterling ("PS") (approximately $1,020,000 U.S. at September 30,
1998) with an interest rate of 1.5% plus the LIBOR rate. Amounts outstanding on
the note are secured by the land and buildings owned by Apollo. As of September
30, 1998, $545,000 was outstanding under this note payable.
On September 21, 1998, the Company entered into a five-year note payable for
up to 400,000 PS (approximately $680,000 U.S. at September 30, 1998) with an
interest rate of 1.75% plus the LIBOR rate. Amounts outstanding on the note are
secured by the land and buildings owned by Apollo. As of September 30, 1998,
$680,000 was outstanding under this note payable.
In March 1997, the Company entered into an agreement with a lender to advance
loans secured by trade receivables. As of September 30, 1998, $114,000 was
outstanding under this agreement. The Agreement continues indefinitely until
notice to terminate is given by either party.
Apollo U.S.
In January 1998, the Company entered into a Loan and Security Agreement with
a lender to advance loans up to $2,300,000 at an interest rate of prime plus 1.5
percent secured by substantially all assets of Apollo U.S. Advances are
guaranteed by Sierra Materials and the parent company. Advances are calculated
on a daily basis and are based on defined eligible accounts receivable and
inventories. Under the terms of the agreement, the borrowings may be immediately
callable by the lender. The term of the agreement is for two years. At
September 30, 1998, the outstanding balance on the loan was $1,018,000. The
Company may not declare or pay dividends without the written consent of the
lender.
Unifiber
In March 1998, the Company entered into a Loan and Security Agreement with a
lender. The agreement provides advance loans up to $2,300,000, a term loan of
$1,100,000 and a capital equipment term loan not to exceed $200,000, at an
interest rate of prime plus 1.5 percent. Borrowings are secured by substantially
all of the assets of Unifiber and are guaranteed by Apollo U.S., Sierra
Materials and the parent company. Advances are calculated on a daily basis and
are based on defined eligible accounts receivable and inventories. Borrowings
on the capital equipment term loan can not exceed a defined percentage of
invoice prices for selected capital equipment. Under the terms of the
agreement, the borrowings may be immediately callable by the lender. The formal
term of the agreement is for two years. As of September 30, 1998, the total
outstanding balance under the Agreement was $1,008,783. The Company may not
declare or pay dividends without the written consent of the lender.
On September 9, 1998, the Company entered into a note payable for $5,500,000
with an interest rate of 10%. Accrued interest and principal are due March 31,
1999. Borrowings are secured by the shares of Unifiber Corporation and by the
assets purchased from West Coast Composites.
Sierra Materials
In January 1998, the Company entered into a Loan and Security Agreement with
a lender. The agreement provides advance loans up to $2,500,000, a term loan of
$169,365 and a capital equipment term loan not to exceed $2,100,000, at an
interest rate of prime plus 1.5 percent. Borrowings are secured by substantially
all of the assets of Sierra Materials and are guaranteed by Apollo U.S., and the
parent company. Advances are calculated on a daily basis and are based on
defined
12
<PAGE>
eligible accounts receivable and inventories. Borrowings on the capital
equipment term loan can not exceed a defined percentage of invoice prices for
selected capital equipment. Under the terms of the agreement, the borrowings may
be immediately callable by the lender. The formal term of the agreement is for
two years. As of September 30, 1998, the total outstanding balance under the
Agreement was $2,205,329. The Company may not declare or pay dividends without
the written consent of the lender.
At September 30, 1998, $90,000 in cash was restricted and held as collateral
against a standby letter of credit to secure an operating lease obligation.
Management believes that the combination of cash on hand of $108,182,
restricted cash on hand of $90,000, its borrowing availability of $1,300,000 at
September 30, 1998, projected cash flows from operations, extending the due
dates of current debt agreements and entering into new debt agreements will
provide sufficient cash to meet its obligations as they come due. However, there
can be no assurance that operations will generate positive cash flows, that the
debt agreements will be extended or that new debt agreements will provide
sufficient cash to meet its obligations as they come due.
Net cash provided by operating activities was $875,461 for the nine months
ending September 30, 1998 primarily due to an increase in operating profit and a
decrease in restricted cash.
Net cash used in investing activities of $6,520,903 for the nine months
ending September 30, 1998 was a result of the acquisition of Unifiber, the
purchase of the assets of West Coast Composites and the purchase of machinery
and equipment by Sierra Materials.
Net cash provided by financing activities was $5,027,334 for the nine months
ending September 30, 1998 primarily due to the borrowings to acquire Unifiber.
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.
13
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND ANALYST REPORTS
Certain written and oral statements made or incorporated by reference from
time to time by Coyote Sports, Inc., its subsidiaries and its representatives in
this report, other reports, filings with the Securities and Exchange Commission,
press releases, conferences, or otherwise, are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 (the
"Act"). Forward-looking statements include, without limitation, any statement
that may predict, forecast, indicate, or imply future results, performance, or
achievements, and may contain the words "believe," "anticipate," "expect,"
"estimate," "project," "will be," "will continue," "will likely result," or
words or phrases of similar meaning. Forward-looking statements involve risks
and uncertainties which may cause actual results to differ materially from the
forward-looking statements. The risks and uncertainties are detailed from time
to time in reports filed by Coyote Sports, Inc. with the SEC, including Forms 8-
K, 10-QSB, and 10-KSB, and include, among others, the following: adverse
international, national and local general economic and market 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 factors referenced or incorporated by
reference in this report and other reports. The risks included here are not
exhaustive. Other sections of this report may include additional factors which
could adversely impact Coyote Sports, Inc.'s business and financial performance.
Moreover, Coyote Sports, Inc. operates in a very competitive and rapidly
changing environment. New risk factors emerge from time to time and it is not
possible for management to predict all such risk factors, nor can it assess the
impact of all such risk factors on Coyote Sports, Inc.'s business or the extent
to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements. Given
these risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.
14
<PAGE>
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
On July 23, 1997, the Company's subsidiary, Unifiber Corporation, was sued by
Aero Industrial Ltd., in the Superior Court for the State of California, County
of San Diego. The complaint alleged that Unifiber breached the terms of it lease
at 8929 Aero Drive, San Diego, California by vacating the premises on or about
July 2, 1997. In addition, the complaint alleged that Unifiber failed to pay
monthly rent and additional rent for the lease. The complaint alleged damages in
excess of $2,000,000. On June 28, 1998, the Company entered into a stipulation
for settlement under the Superior Court for the State of California, County of
San Diego, and agreed to pay Aero Industrial the sum of $615,000 as payment in
full of all claims arising from the breach of Unifiber's lease. On September 30,
1998, the Company paid the settlement amount plus accumulated interest.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On September 7, 1998, the Company issued 250,000 shares of common stock to a
private investor, providing the Company with net proceeds of $950,000 after
deducting issuance costs of $50,000. Proceeds from the transaction have been
used for the acquisition of the assets of West Coast Composites, $500,000, and
working capital requirements, $450,000.
ITEM 6. EXHIBITS.
(a) Exhibits
11.1 Computation of per share income (loss)
27.1 Financial Data Schedule
(b) The following reports on Form 8-K were filed by the Company during the
third quarter of fiscal 1998:
September 9, 1998 - Form 8-K Acquisition of West Coast Composites
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 13, 1998 COYOTE SPORTS, INC.
By: /s/ John Paul McNeill
---------------------
John Paul McNeill
Chief Financial Officer
(Principal Financial and
Accounting Officer)
15
<PAGE>
EXHIBIT 11.1
COMPUTATION OF PER SHARE INCOME (LOSS)
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1998 1997 1998 1997
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) $ 50,575 (514,734) $ 571,035 (2,180,216)
--------------- -------------- -------------- --------------
Common shares outstanding at beginning
of period 4,758,004 3,450,000 3,855,000 3,450,000
Net effect of shares issued during the period 65,217 (486,685) 691,757 (164,011)
--------------- -------------- -------------- --------------
Shares used in computing basic income
(loss) per share 4,823,221 2,963,315 4,546,757 3,285,989
--------------- -------------- -------------- --------------
Net effect of dilutive stock options 5,897 - 27,303 -
--------------- -------------- -------------- --------------
Shares used in computing diluted income
(loss) per share 4,829,118 2,963,315 4,574,060 3,285,989
=============== ============== ============== ==============
Basic income (loss) per share $ 0.01 (0.17) $ 0.13 (0.66)
=============== ============== ============== ==============
Diluted income (loss) per share $ 0.01 (0.17) $ 0.12 (0.66)
=============== ============== ============== ==============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 198,182
<SECURITIES> 0
<RECEIVABLES> 4,714,315
<ALLOWANCES> 644,201
<INVENTORY> 5,522,872
<CURRENT-ASSETS> 10,313,819
<PP&E> 14,573,878
<DEPRECIATION> 1,114,269
<TOTAL-ASSETS> 38,522,373
<CURRENT-LIABILITIES> 22,467,189
<BONDS> 0
0
0
<COMMON> 5,008
<OTHER-SE> 11,835,424
<TOTAL-LIABILITY-AND-EQUITY> 38,754,291
<SALES> 30,889,395
<TOTAL-REVENUES> 30,889,395
<CGS> 23,487,493
<TOTAL-COSTS> 23,487,493
<OTHER-EXPENSES> 6,561,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 814,657
<INCOME-PRETAX> 25,419
<INCOME-TAX> 13,000
<INCOME-CONTINUING> 218,664
<DISCONTINUED> 0
<EXTRAORDINARY> 346,581
<CHANGES> 0
<NET-INCOME> 571,035
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.12
</TABLE>
