<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 2)
Current Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
March 19, 1998
[Date of earliest event reported.]
COYOTE SPORTS, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER
AS SPECIFIED IN ITS CHARTER)
Commission file number 000-23085
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
<PAGE>
This amendment No. 2 to Current Report on Form 8-K/A amends the Current Report
on Form 8-K (the "Form 8-K") of Coyote Sports, Inc., a Nevada corporation (the
"Company," or the "registrant") for the events dated March 19, 1998, as filed
with the Securities and Exchange Commissions on April 3, 1998.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Audited financial statements of Unifiber at March 29, 1997 and
March 30, 1996, and for each of the years in the two-year period
ended March 29, 1997. Unaudited financial statements of Unifiber
at December 27, 1997 and for the nine-month periods ended December
27, 1997 and December 28, 1996. Such financial statements appear
on pages 3 to 16 of this Form 8-K/A.
(b) Unaudited pro forma condensed combined consolidated financial
statements of Coyote Sports as of December 31, 1997, and for the
year then ended, which appear on pages 17 to 20.
(c) Exhibit 23.1: Consent of Independent Accountants
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Unifiber Corporation
In our opinion, the accompanying balance sheets and the related statements of
operations, of cash flows and of net capital deficiency present fairly, in all
material respects, the financial position of Unifiber Corporation at March 29,
1997 and March 30, 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and has a net
capital deficiency that raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
PRICE WATERHOUSE LLP
San Diego, California
May 23, 1997, except as to Note 1, which is as of December 19, 1997.
3
<PAGE>
UNIFIBER CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 30, March 29, December 27,
ASSETS 1996 1997 1997
---------------- ---------------- -----------------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash $ 5,000 52,000 84,000
Accounts receivable, less allowance for doubtful
accounts of $17,000, $29,000 and $36,000 (unaudited) 1,508,000 1,628,000 1,123,000
Inventories 1,341,000 1,963,000 1,391,000
Deferred tax assets, current 241,000 241,000 -
Other current assets 41,000 216,000 332,000
---------------- ---------------- -----------------
Total current assets 3,136,000 4,100,000 2,930,000
Property and equipment, net 2,399,000 2,158,000 1,664,000
Deferred tax assets 174,000 174,000 -
Other assets 120,000 95,000 57,000
---------------- ---------------- -----------------
5,829,000 6,527,000 4,651,000
================ ================ =================
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Accounts payable 1,664,000 2,939,000 2,087,000
Accrued expenses 1,316,000 1,026,000 948,000
Current portion of long term debt 512,000 663,000 259,000
Current portion of capital lease obligations 223,000 246,000 -
Lines of credit - 725,000 1,064,000
Short-term borrowings - - 516,000
---------------- ---------------- -----------------
Total current liabilities 3,715,000 5,599,000 4,874,000
---------------- ---------------- -----------------
Long-term debt, net of current portion 2,336,000 2,124,000 2,881,000
Deferred rent 175,000 126,000 19,000
Capital lease obligations, net of current portion 623,000 377,000 -
---------------- ---------------- -----------------
Total liabilities 6,849,000 8,226,000 7,774,000
Commitments and contingencies (Note 9)
Net capital deficiency:
Common stock, no par value, 1,000,000 shares authorized,
68,919 shares issued and outstanding 806,000 806,000 806,000
Accumulated deficit, net of common stock repurchase (1,826,000) (2,505,000) (3,929,000)
(Note 7) ---------------- ---------------- -----------------
Net capital deficiency (1,020,000) (1,699,000) (3,123,000)
---------------- ---------------- -----------------
$ 5,829,000 6,527,000 4,651,000
================ ================ =================
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
UNIFIBER CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
------------------------------ -----------------------------
March 30, March 29, December 28, December 27,
1996 1997 1996 1997
------------ ---------- ---------- ----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $ 19,320,000 23,733,000 18,445,000 14,264,000
Cost of goods sold 14,086,000 18,748,000 14,413,000 11,848,000
------------ ---------- ---------- ----------
Gross profit 5,234,000 4,985,000 4,032,000 2,416,000
General and administrative expenses 2,525,000 2,346,000 1,752,000 1,316,000
Research and development costs 1,155,000 1,447,000 1,047,000 954,000
Selling expenses 996,000 980,000 724,000 486,000
------------ ---------- ---------- ----------
4,676,000 4,773,000 3,523,000 2,756,000
Income (loss) from operations 558,000 212,000 509,000 (340,000)
Other (income) expense:
Unfavorable lease commitment (Notes 9 and 11) 472,000 628,000 343,000 451,000
Interest expense, net 181,000 403,000 302,000 386,000
Other (32,000) (27,000) (26,000) (50,000)
------------ ---------- ---------- ----------
621,000 1,004,000 619,000 787,000
Loss before income taxes (63,000) (792,000) (110,000) (1,127,000)
Income tax (benefit) expense (49,000) (113,000) (85,000) 297,000
------------ ---------- ---------- ----------
Net loss $ (14,000) (679,000) (25,000) (1,424,000)
============ ========== ========== ==========
Basic and diluted loss per share $ (0.17) (9.85) (0.36) (20.66)
Weighted average common shares
outstanding 82,390 68,919 68,919 68,919
</TABLE>
See accompanying notes to financial statements
5
<PAGE>
UNIFIBER CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Nine Months Ended
March 30, March 29, December 28, December 27,
--------------------------------- ----------------------------------
1996 1997 1996 1997
--------------- -------------- -------------- -----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (14,000) (679,000) (25,000) (1,424,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 763,000 731,000 542,000 489,000
Loss (gain) on disposition of property and
equipment (2,000) 4,000 3,000 93,000
Deferred taxes (77,000) - - 415,000
Increase (decrease) in cash resulting from
changes in assets and liabilities:
Accounts receivable, net 412,000 (120,000) (769,000) 505,000
Inventories (574,000) (622,000) (373,000) 572,000
Other assets (29,000) (150,000) (220,000) (78,000)
Accounts payable 10,000 1,275,000 1,087,000 (852,000)
Accrued expenses 314,000 (290,000) (612,000) (78,000)
Deferred rent 58,000 (49,000) (36,000) (107,000)
--------------- -------------- -------------- -----------------
Net cash provided by (used in) operating activities 861,000 100,000 (403,000) (465,000)
--------------- -------------- -------------- -----------------
Cash flows from investing activities:
Purchases of property and equipment (492,000) (494,000) (450,000) (110,000)
Proceeds from disposition of property and
equipment 5,000 - - 22,000
--------------- -------------- -------------- -----------------
Net cash used in investing activities (487,000) (494,000) (450,000) (88,000)
--------------- -------------- -------------- -----------------
Cash flows from financing activities:
Proceeds from short-term borrowings - - - 516,000
Repayments of long-term debt (201,000) (705,000) (659,000) (761,000)
Proceeds from long-term debt - 644,000 644,000 1,114,000
Repayments under capital lease obligations (195,000) (223,000) (165,000) (623,000)
Net proceeds under line of credit agreements - 725,000 1,028,000 339,000
--------------- -------------- -------------- -----------------
Net cash (used in) provided by financing activities (396,000) 441,000 848,000 585,000
--------------- -------------- -------------- -----------------
Net (decrease) increase in cash (22,000) 47,000 (5,000) 32,000
Cash at beginning of period 27,000 5,000 5,000 52,000
--------------- -------------- -------------- -----------------
Cash at end of period $ 5,000 52,000 - 84,000
=============== ============== ============== =================
Supplemental disclosures of cash flow information
Cash paid for interest $ 191,000 394,000 302,000 387,000
=============== ============== ============== =================
Cash paid (received) for income taxes $ 1,000 80,000 64,000 (8,000)
=============== ============== ============== =================
Non-cash financing activities
Capital lease obligations $ 235,000
===============
Note payable issued for common stock (Note 7) $ 2,500,000
===============
</TABLE>
See accompanying notes to financial statements
6
<PAGE>
UNIFIBER CORPORATION
STATEMENT OF NET CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
Common Stock
--------------------------- Accumulated
Shares Amount Deficit Total
<S> <C> <C> <C> <C>
Balance at March 25, 1995 85,085 $ 995,000 $ 499,000 $ 1,494,000
Common stock repurchase (16,166) (189,000) (2,311,000) (2,500,000)
Net loss (14,000) (14,000)
-------- --------- ----------- -----------
Balance at March 30, 1996 68,919 806,000 (1,826,000) (1,020,000)
Net loss (679,000) (679,000)
-------- --------- ----------- -----------
Balance at March 29, 1997 68,919 806,000 (2,505,000) (1,699,000)
Net loss (unaudited) (1,424,000) (1,424,000)
-------- --------- ----------- -----------
Balance at December 27, 1997 (unaudited) 68,919 $ 806,000 $ (3,929,000) $ (3,123,000)
======== ========= ============ ============
</TABLE>
See accompanying notes to financial statements
7
<PAGE>
UNIFIBER CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - THE COMPANY
THE COMPANY
Unifiber Corporation (the "Company") is a California Corporation that
manufactures composite shafts which are sold primarily to golf club
manufacturers and resellers.
The Company incurred net losses for the nine months ended December 27, 1997 and
the years ended March 29, 1997 and March 30, 1996 of $1,424,000 (unaudited),
$679,000 and $14,000, respectively. Additionally, the Company had negative
working capital of $1,944,000 (unaudited), $1,499,000 and $579,000 at December
27, 1997, March 29, 1997 and March 30, 1996, respectively. The Company is
dependent on additional financing to continue its operations. Management
believes that its future cash flows from operations combined with the proceeds
of the credit facilities discussed in Notes 10 and 11 will be sufficient to fund
its operations and anticipated growth for at least the next twelve months.
However, the Company's financial position and results of operations for recent
periods raise substantial doubt about its ability to continue as a going
concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR
The Company operates and reports using a fiscal year ending on the last Saturday
in March.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At March 29, 1997, the carrying amounts of the Company's financial instruments,
including accounts receivable and payable, approximated their fair values due to
their short term maturities. At March 29, 1997, the estimated fair value of the
Company's long-term debt approximated its carrying value.
CONCENTRATION OF CREDIT RISK
The Company operates in the golf equipment industry and primarily sells its
products to golf club manufacturers and resellers. The Company performs on-
going credit evaluations of its customers' financial condition and generally
requires no collateral. Management believes that its credit policies
substantially mitigate such credit risk. Bad debt expenses were not material in
fiscal 1997 and 1996.
The Company has sales to three customers whose purchases exceeded 10% of total
sales in fiscal 1997. Sales to one customer totaled $9,189,000 (unaudited),
$9,213,000 (unaudited), $12,036,000 and $7,754,000 for the nine months ended
December 27, 1997 and December 28, 1996 and for the years ended March 29, 1997
and March 30, 1996, respectively. Accounts receivable balances from this
customer at December 27, 1997, March 29, 1997 and March 30, 1996 were $555,000
(unaudited), $466,000 and $565,000, respectively. Sales to a second customer
totaled $3,350,000 (unaudited), $4,448,000 (unaudited), $5,622,000 and $427,000
for the nine months ended December 27, 1997 and December 28, 1996 and for the
years ended March 29, 1997 and March 30, 1996, respectively. Accounts
receivable balances from this customer at December 27, 1997, March 29, 1997 and
March 30, 1996 were $229,000 (unaudited), $625,000 and $282,000, respectively.
Sales to a third customer totaled
8
<PAGE>
UNIFIBER CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
$1,322,000 (unaudited), $3,428,000 (unaudited), $4,278,000 and $8,850,000 for
the nine months ended December 27, 1997 and December 28, 1996 and for the years
ended March 29, 1997 and March 30, 1996, respectively. Accounts receivable
balances from this customer at December 27, 1997, March 29, 1997 and March 30,
1996 were $323,000 (unaudited), $152,000 and $483,000, respectively.
REVENUE RECOGNITION
Revenue from the sale of products, net of an allowance for returns, is
recognized upon shipment.
ADVERTISING COSTS
The Company expenses advertising costs as incurred. Advertising expenses for
fiscal 1997 and 1996 were $218,000 and $328,000, respectively.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
the average cost method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
both straight-line and accelerated methods over the assets' estimated useful
lives of five to seven years. Leasehold improvements are amortized over the
shorter of the lease term or their estimated useful lives.
LONG-LIVED ASSETS
The Company assesses potential impairments to its long-lived assets, on an
exception basis, when there is evidence that events or changes in circumstances
have made recovery of the asset's carrying value unlikely. An impairment loss
would be recognized when the sum of the expected future undiscounted cash flows
is less than the carrying amount of the asset. No such impairment losses have
been recorded by the Company.
EARNINGS PER SHARE
Basic earnings (loss) per share is calculated by dividing net income by the
weighted average number of common shares outstanding during the period. As the
Company has no dilutive securities outstanding, diluted earnings per share is
the same as basic earnings per share.
STOCK-BASED COMPENSATION
Since the Company has no outstanding stock-based compensation awards, SFAS No.
123 "Accounting for Stock-Based Compensation" has no effect on the Company's
financial statements.
INCOME TAXES
Current income tax expense is the amount of income taxes expected to be payable
for the current year. A deferred income tax asset or liability is established
for the expected future tax consequences resulting from differences in the
financial reporting and tax bases of assets and liabilities. Deferred income
tax (benefit) expense is the change during the year in the deferred income tax
asset or liability (Note 8). A valuation allowance is established for the
estimated amount of deferred tax assets that more likely than not will not be
realized.
INTERIM RESULTS (UNAUDITED)
The accompanying balance sheet at December 27, 1997 and the related statements
of operations and of cash flows for the nine months ended December 28, 1996 and
December 27, 1997, and the statement of net capital deficiency for the nine
months ended December 27, 1997 are unaudited. In the opinion of management,
these statements have been prepared on the same basis as the audited financial
statements and include all adjustments, consisting only of
9
<PAGE>
UNIFIBER CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
normal recurring adjustments, necessary for the fair statement of results of the
interim periods. The data disclosed in these notes to the financial statements
at such dates and for such periods are also unaudited. The results of operations
for the nine-month periods ended December 27, 1997 and December 28, 1996 are not
necessarily indicative of the results of operations for a full fiscal year.
NOTE 3 - COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
MARCH 30, MARCH 29, DECEMBER 27,
1996 1997 1997
(UNAUDITED)
<S> <C> <C> <C>
Inventories:
Raw materials $ 444,000 $ 778,000 $ 395,000
Work in process 697,000 892,000 728,000
Finished goods 200,000 293,000 268,000
----------- ----------- -----------
$ 1,341,000 $ 1,963,000 $ 1,391,000
=========== =========== ===========
Property and equipment, net:
Equipment $ 3,009,000 $ 3,402,000 $ 3,417,000
Leasehold improvements 863,000 886,000 791,000
Vehicles and airplane 355,000 355,000 350,000
Furniture and fixtures 178,000 179,000 178,000
----------- ----------- -----------
4,405,000 4,822,000 4,736,000
Accumulated depreciation and amortization (2,006,000) (2,664,000) (3,072,000)
----------- ----------- -----------
$ 2,399,000 $ 2,158,000 $ 1,664,000
=========== =========== ===========
Accrued expenses:
Compensation and employee benefits $ 492,000 $ 522,000 $ 334,000
Unfavorable lease commitment 118,000 285,000 600,000
Related party sales return allowance 324,000 23,000 -
Other 382,000 196,000 14,000
----------- ----------- -----------
$ 1,316,000 $ 1,026,000 $ 948,000
=========== =========== ===========
</TABLE>
NOTE 4 - BANK LINE OF CREDIT
As of March 29, 1997, the Company had a line of credit agreement with a bank
which provided for borrowings of the lesser of $1,500,000 or 80 percent of
eligible domestic accounts receivable less any outstanding term loan balance at
the bank's prime rate plus .25 percent (8.75 percent at March 29, 1997). The
line was secured by all of the Company's assets and guaranteed by the Company's
shareholders. There were borrowings outstanding under this credit facility of
$1,156,000, which was comprised of $725,000 outstanding under the line of credit
and $431,000 outstanding under the term loan (classified as current portion of
long-term debt) as of March 29, 1997. There were no borrowings outstanding under
this facility as of March 30, 1996. The credit agreement included covenants
which, among other things, required the Company to maintain stated net worth
amounts and specific liquidity ratios. The agreement also included covenants
which restricted ownership transactions. The Company was in violation of the
tangible net worth, the ratio of liabilities to tangible net worth and the cash
flow coverage ratio covenants at March 29, 1997; however, management obtained a
commitment from a new lender for additional financing subsequent to the balance
sheet date (Note 10).
10
<PAGE>
UNIFIBER CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 30, MARCH 29, DECEMBER 27,
1996 1997 1997
(UNAUDITED -
NOTE 11)
<S> <C> <C> <C>
Note payable to former shareholder, collateralized
by repurchased shares and personally guaranteed
by the shareholders, bearing interest at 9%, with
quarterly interest payments. Principal and accrued
interest is due March 1999 (Note 7). $2,500,000 $2,015,000 $2,015,000
Note payable to bank, secured by the Company's assets,
bearing interest at prime plus 1% (9.5% at
December 27, 1997). Principal payments of $29,167
plus interest due monthly through June 2001 - - 1,000,000
Note payable to individual, unsecured and personally
guaranteed by the shareholders, bearing interest at 10%,
with quarterly interest payments. Principal and accrued
interest due September 1997. 125,000 125,000 125,000
Note payable to finance company, collateralized by
an airplane, bearing interest at 9.5%, due in monthly
payments of $4,000 through November 1997. 114,000 71,000 -
Note payable to bank, secured by the Company's assets,
bearing interest at prime plus 1% (9.5% at
March 29, 1997). Principal payments of $13,472
plus interest due monthly through October 1999. - 431,000 -
Note payable to finance company, collateralized by
equipment, bearing interest at 8.8%. Principal
and interest payments of $1,975 due in monthly
installments through December 2000. - 76,000 -
Note payable to finance company, collateralized by
equipment, bearing interest at 8.9%. Principal
and interest payments of $1,973 due in monthly
installments through August 2000. - 69,000 -
Note payable to shareholders, unsecured, bearing
interest at 8%. Principal and accrued interest due
on April 1, 1996. 88,000 - -
Note payable to individual, unsecured, bearing
interest at 7%, due in monthly installments of
$7,000 through June 1996. 21,000 - -
---------- ---------- ----------
2,848,000 2,787,000 3,140,000
Less current portion 512,000 663,000 259,000
---------- ---------- ----------
$2,336,000 $2,124,000 $2,881,000
========== ========== ==========
</TABLE>
11
<PAGE>
UNIFIBER CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Principal maturities of long-term debt as of March 29, 1997 are as follows:
1998 $ 663,000
1999 40,000
2000 2,057,000
2001 27,000
----------
$2,787,000
==========
NOTE 6 - RETIREMENT SAVINGS PLAN
The Company has a savings plan under Section 401(k) of the Internal Revenue Code
under which all employees of the Company are eligible to participate. Each year
employees can contribute up to the lesser of 15% of their compensation or
$9,000. The Company may elect to match employee contributions subject to
certain limitations. Employer contributions vest 20% each year for five years
beginning in the second year. During the years ended March 29, 1997 and March
30, 1996, the Company contributed $95,000 and $79,000 to the plan, respectively.
NOTE 7 - COMMON STOCK REPURCHASE
In February 1996, the Company executed a Stock Purchase and Sale Agreement with
an affiliate of Lynx Golf, Inc. (Lynx), a customer of the Company, whereby the
Company repurchased 16,166 shares of its common stock for $2,500,000,
representing Lynx's 19% ownership in the Company. The purchase price is payable
in full by execution of a secured promissory note (Note 5). The repurchase
resulted in a reduction in common stock of $189,000 that represented the pro
rata balance of the shares acquired and a reduction in retained earnings for the
remaining balance of $2,311,000.
The terms of the note required the Company to purchase a $1,000,000 life
insurance policy on one of the Company's shareholders with the Lynx affiliate
designated as the beneficiary. The policy limit may be reduced once the
principal balance of the note is reduced below $1,000,000, but the result of the
reduction cannot cause the policy limit to be less than that principal balance.
The terms of the note also restrict, as long as any principal remains
outstanding and unpaid, the Company's payment of dividends, borrowings not in
the ordinary course of business from a party other than the bank with which the
Company has a line of credit, and the sale of shares of common stock that would
result in the shareholders owning beneficially less than 75% of the common stock
issued and outstanding, without prior consent from the Lynx affiliate. During
fiscal 1997, Unifiber made payments under the note totaling $485,000. As a
result of these payments, the Lynx affiliate released the lien on 3,136 (of the
16,166) shares of Unifiber's common stock held as collateral. The remaining
13,030 shares continue to be held as collateral. Additionally, the terms of the
note were altered from requiring monthly principal payments of $40,000 plus
interest commencing July 1996 to requiring quarterly interest only payments.
The principal balance and accrued interest is due March 1999.
12
<PAGE>
UNIFIBER CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES
The following is a summary of the (benefit) provision for income taxes:
YEAR ENDED YEAR ENDED
MARCH 30, MARCH 29,
1996 1997
Current tax (benefit) provision:
Federal $ 12,000 $ (98,000)
State 16,000 (15,000)
Deferred tax benefit:
Federal (37,000) -
State (40,000) -
-------- ---------
Benefit from income taxes $(49,000) $(113,000)
======== =========
Deferred tax assets are summarized as follows:
MARCH 30, MARCH 29,
1996 1997
Deferred rent $ 90,000 $ 70,000
Accrued vacation 63,000 67,000
Depreciation 54,000 100,000
Reserves and allowances 65,000 42,000
Tax credits 49,000 265,000
Unfavorable lease commitment 47,000 115,000
State net operating loss carry forwards - 26,000
Other 47,000 15,000
-------- ---------
415,000 700,000
Less valuation allowance - 285,000
-------- ---------
Net deferred tax assets $415,000 $ 415,000
======== =========
A reconciliation of the benefit from income taxes to the amount computed by
applying the statutory federal income tax rate to the loss before income taxes
is as follows:
MARCH 30, MARCH 29,
1996 1997
Federal benefit $ 21,000 $ 269,000
State benefit 16,000 75,000
Research and development credit carryforwards
generated 18,000 28,000
Valuation allowance on deferred tax assets - (285,000)
Other (6,000) 26,000
-------- ---------
Benefit from income taxes $ 49,000 $ 113,000
======== =========
13
<PAGE>
UNIFIBER CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
As of March 29, 1997 and March 30, 1996, the Company has Federal and state tax
research and development credit carryforwards totaling approximately $122,000
and $27,000, respectively, which are available to offset future income taxes.
The Federal tax credits expire beginning in 2006. Additionally, the state net
operating loss carryforwards generated in fiscal 1997 will expire during the
fiscal year ending 2013.
As of March 29, 1997, the Company has provided a valuation allowance of $285,000
for deferred tax assets as management believes it is more likely than not this
amount will not be realized based on recent and expected trends in operating
results.
During the unaudited interim period ended December 27, 1997, the Company
provided an additional valuation allowance of $415,000 for the remaining
deferred tax assets as management believes it is more likely than not this
amount will not be realized.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases certain equipment acquired under capital leases (Note 11).
These capital leases mature at various dates through February 2001 and have
interest rates ranging from 8.7% to 13.6%. As of March 29, 1997 and March 30,
1996, $526,000 and $747,000, respectively, of such equipment is included in
property and equipment. These amounts are net of accumulated amortization.
Amortization of the related assets is included in depreciation and amortization
expense, and amounted to $220,000 and $261,000 in fiscal 1997 and 1996,
respectively.
Future minimum lease payments for capital and operating leases as of March 29,
1997 are as follows:
CAPITAL OPERATING
YEARS ENDING MARCH LEASES LEASES
1998 $297,000 $ 804,000
1999 291,000 772,000
2000 116,000 745,000
2001 7,000 521,000
2002 - 2,000
Thereafter - 4,000
-------- ----------
Total minimum lease payments 711,000 $2,848,000
==========
Amount representing interest (88,000)
--------
Obligations under capital leases $623,000
========
Certain leases provide for free rent periods which are being amortized over the
lease terms on a straight line basis. Rental expense for operating leases
amounted to $726,000 and $763,000 for the years ended March 29, 1997 and March
30, 1996, respectively.
14
<PAGE>
UNIFIBER CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
One of the Company's leased facilities is not being utilized and is currently
vacant. The Company is in the process of identifying a sublessee for the
facility. Included as a separate component of other (income) expense titled
"Unfavorable lease commitment" in fiscal 1997 is $628,000 comprised of $343,000
in rental expense and $285,000 that represents management's estimate of the
rental expense to be incurred prior to the execution of a sublease agreement.
Although management believes it will be successful in identifying a sublessee,
there is no certainty that a sublessee will be identified and the resultant
rental income will equal or exceed the Company's rental expense (Note 11).
Included in the $2,848,000 total future minimum lease payments for operating
leases is $1,615,000 related to this facility.
OTHER
The Company is engaged in various legal actions arising in the ordinary course
of business. The Company has provided reserves for such actions as considered
necessary, and believes that the ultimate resolution thereof will not have a
material adverse effect on its financial position or results of operations.
NOTE 10 - SUBSEQUENT EVENT
On May 23, 1997, the Company obtained a financing commitment to enter into a new
revolving line of credit and term loan agreement, subject to certain conditions
(Note 11). The revolving line of credit will provide for borrowings of the
lesser of $2,000,000 or 80 percent of eligible accounts receivable and 50
percent of eligible inventories at the bank's prime rate plus one half of one
percent, due in quarterly interest payments. The term loan will provide for
borrowings of up to $1,400,000 for a term of four years from commencement at the
bank's prime rate plus one percent, due in monthly principal payments of $29,167
plus interest. The revolving line of credit and the term loan will be secured
by substantially all of the Company's assets and personally guaranteed by
certain of the Company's shareholders. These agreements also include covenants
which, among other things, require the Company to maintain stated net worth
amounts and specific liquidity ratios.
NOTE 11 - SUBSEQUENT EVENTS (UNAUDITED)
NEW FINANCING ARRANGEMENT
Pursuant to the financing commitment discussed in Note 10, the Company obtained
a new revolving line of credit and term loan agreement on June 20, 1997. Upon
receipt of the proceeds related to these agreements, the Company refinanced
certain of its other outstanding borrowings, including all amounts due under
capital leases (Notes 5 and 9) and amounts due under the previous bank line of
credit (Note 4). The terms and conditions of the agreements are consistent
with those discussed in Note 10. Principal and interest payments on the term
loan are due monthly through June 20, 2001. In addition, the agreements contain
several covenants regarding minimum tangible net worth, the ratio of total
liabilities to tangible net worth, the current ratio, the fixed charge coverage
ratio and working capital. At December 27, 1997, the Company was not in
compliance with the tangible net worth and the ratio of liabilities to tangible
net worth covenants of these new agreements; however, the Company liquidated
such debt as of March 18, 1998 in connection with the acquisition discussed
below.
UNFAVORABLE LEASE COMMITMENT
As discussed in Note 9, one of the Company's leased facilities is not being
utilized and is currently vacant. Subsequent to year end, the Company was unable
to sublease the facility, and the Company stopped making scheduled lease
payments. The Company is currently negotiating a settlement with the owner and
has accrued $600,000 for this contingency as of December 27, 1997, which
represents management's best estimate of its minimum liability in this matter
based on its discussions with legal counsel.
15
<PAGE>
UNIFIBER CORPORATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
RELATED PARTY SHORT-TERM BORROWINGS
On December 19, 1997, the Company secured $200,000 in short-term borrowings from
the Company's shareholders. The borrowings bore interest at prime plus 2.5%
(11% at December 27, 1997) and were payable on March 15, 1998. The loan was
liquidated in connection with the acquisition discussed below.
On December 23, 1997, the Company obtained an additional $316,000 in short-term
financing from the ultimate buyer of the Company as discussed below. The loan
bears interest at 10% and was due on March 18, 1998. Subsequent to the
acquisition noted below, this obligation continued.
ACQUISITION
On March 19, 1998, the Company's shareholders entered into a sale transaction in
which the buyer acquired all of the outstanding shares of the Company's stock
for a purchase price of $3,000,000 in cash and 521,739 shares of the buyer's
common stock. The purchase price is subject to upward, but not downward,
adjustment in the event net income before taxes of the Company reaches or
exceeds defined thresholds during the calendar year ending December 31, 1998.
16
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED FINANCIAL STATEMENTS
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 with a fair value of $1,500,000 of the Company's common stock. The
acquisition was accounted for by the purchase method.
The following unaudited pro forma condensed combined consolidated balance sheets
as of December 31, 1997 assumes that the acquisition occurred as of that date
and reflects the combination of the historical balance sheet of the Company as
of December 31, 1997 with the historical balance sheet of Unifiber as of
December 27, 1997, with pro forma adjustments to give effect to the business
combination.
The following unaudited pro forma condensed combined consolidated statements of
operations for the year ended December 31, 1997 combines the historical results
of operations of the Company for the year ended December 31, 1997 with the
historical results of operations of Unifiber for the twelve months ended
December 27, 1997. The historical results of operations of Unifiber for the
twelve months ended December 27, 1997 were obtained by (1) deducting the amounts
for the nine months ended December 28, 1996 from the amounts for the year ended
March 29, 1997, and (2) adding the amounts for the nine months ended December
27, 1997. The pro forma combined results of operations of the Company assume
that the business combination occurred as of January 1, 1997.
The pro forma results of operations do not necessarily reflect the results of
operations that would have occurred had the Company and Unifiber constituted a
single entity as of the beginning of the period presented nor are they
indicative of the future operating results of the combined companies. These
unaudited pro forma condensed combined consolidated financial statements should
be read in conjunction with the historical consolidated financial statements and
related notes of the Company and Unifiber.
17
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 27,
1997 1997
Historical Historical Pro Forma Pro Forma
Coyote Unifiber Adjustments Combined
ASSETS ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents $ 726,290 84,000 390,479 (a) 1,200,769
Restricted cash 702,814 - 702,814
Trade receivables, net 3,778,483 1,123,000 4,901,483
Inventories, net 3,582,194 1,391,000 4,973,194
Other current assets 439,130 332,000 771,130
------------ ----------- ----------
Total current assets 9,228,911 2,930,000 12,549,390
Property, plant and equipment, net 7,546,284 1,664,000 86,955 (b) 9,297,239
Intangible assets, net - - 9,994,941 (c) 9,994,941
Other assets 90,058 57,000 600,000 (d) 747,058
------------ ----------- ---------- ----------
$ 16,865,253 4,651,000 11,072,375 32,588,628
============ =========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 2,705,928 1,580,000 (200,000) (a) 4,085,928
Current portion of long term debt 452,237 259,000 (259,000) (a) 452,237
Accounts payable 3,204,234 2,087,000 5,291,234
Accrued expenses 1,413,362 948,000 2,189,375 (e) 4,550,737
Current portion of obligation payable
under purchase agreement 87,000 - 87,000
Taxes payable - - -
------------ ----------- ----------
Total current liabilities 7,862,761 4,874,000 14,467,136
------------ ----------- ----------
Long-term debt, net of current portion 202,644 2,881,000 4,119,000 (a) 7,202,644
Obligation payable under purchase agreement,
net of current portion 728,000 - 728,000
Related party notes payable, net of current
portion 600,340 - 600,340
Deferred rent - 19,000 19,000
Deferred tax liability 362,000 - 362,000
------------ ----------- ----------
Total liabilities 9,755,745 7,774,000 23,379,120
Minority interests in net assets of subsidiaries 396,874 - 396,874
Stockholders' equity (deficit):
Preferred stock - - -
Common stock 3,855 806,000 708 (d)
(806,000) (f) 4,563
Additional paid-in capital 12,664,642 - 2,099,292 (d) 14,763,934
Accumulated deficit (5,493,167) (3,929,000) 3,929,000 (f) (5,493,167)
Foreign currency translation adjustment (462,696) - (462,696)
------------ ----------- ----------
Total stockholders' equity (deficit) 6,712,634 (3,123,000) 8,812,634
------------ ----------- ---------- ----------
$ 16,865,253 4,651,000 11,072,375 32,588,628
============ =========== ========== ==========
</TABLE>
18
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED COMBINED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Twelve Months
Year Ended Ended
December 31, December 27,
1997 1997
Historical Historical Pro Forma Pro Forma
Coyote Unifiber Adjustments Combined
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 27,685,918 19,552,000 47,237,918
Cost of goods sold (22,111,617) (16,183,000) (38,294,617)
------------- ------------ ------------
Gross profit 5,574,301 3,369,000 8,943,301
Operating expenses (8,243,325) (4,006,000) (341,721)(g)
(400,000)(h)
657 (i) (12,990,389)
------------- ------------ ------------
Operating loss (2,669,024) (637,000) (4,047,088)
Other (expense) income:
Interest expense, net (456,868) (487,000) (520,848)(j) (1,464,716)
Loss on forward exchange
contracts, net (179,000) - (179,000)
Loss on relinquishment of assets (933,790) - (933,790)
Debt financing costs (617,156) - (617,156)
Unfavorable lease commitment (736,000) 736,000 (k) -
Other - 51,000 51,000
------------- ------------ ------------
Loss before income taxes
and minority interests (4,855,838) (1,809,000) (7,190,750)
Income tax (expense) benefit 281,273 (269,000) 12,273
Minority interests in
subsidiaries' losses 406,991 - 406,991
------------- ------------ ------------ ------------
Net loss $ (4,167,574) (2,078,000) (525,912) (6,771,486)
============= ============ ============ ============
Basic and diluted loss per share $ (1.22) (1.65)
============= ============
Shares used in calculating
per share amounts 3,426,945 4,111,949
============= ============
</TABLE>
19
<PAGE>
BASIS OF PRESENTATION
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 with a fair value of $1,500,000. The
acquisition was accounted for by the purchase method. The results of operations
of Unifiber will be included in the operations of the Company beginning April 1,
1998, since the results for the period from March 20, 1998 to March 31, 1998 are
not significant.
PRO FORMA ADJUSTMENTS
The following pro forma adjustments give effect to the purchase and related debt
financing as of the beginning of the period presented for the unaudited pro
forma condensed combined consolidated statements of operations and the effect of
the purchase and related debt financing as of the end of the period presented
for the balance sheets.
(a) Adjustment to record proceeds from note payable of $6,000,000 at an
interest rate of 12% of which $3,000,000 was paid to the seller as part of
the acquisition and $2,340,000 was used to repay notes payable and long-
term debt of Unifiber.
(b) Adjustment to record the sale of property and equipment to the former
Unifiber stockholders and purchase of property and equipment in connection
with the acquisition.
(c) Adjustment to record goodwill representing the excess of purchase price
over the fair value of net assets acquired.
(d) Adjustment to record fair value of stock issued in connection with long-
term debt and related debt issuance costs.
(e) Adjustment to record liabilities assumed in the acquisition.
(f) Common stock and accumulated deficit have been adjusted to eliminate the
historical equity accounts of Unifiber.
(g) Adjustment to record amortization of goodwill recorded in the acquisition
on a straight-line basis over the expected benefit period.
(h) Adjustment to record amortization of debt financing costs on the interest
method over an 18-month period.
(i) Adjustment to record additional depreciation expense related to equipment
purchased and to eliminate depreciation expense of equipment sold.
(j) Adjustment to record net effect of additional interest expense on long-term
debt.
(k) Adjustment to eliminate expense related to unfavorable lease commitment as
the Company recognized the liability for the lease in purchase accounting
for pro forma purposes.
EXPENSE REDUCTION ADJUSTMENTS
The unaudited pro forma condensed combined consolidated statements of
operations do not reflect expected cost reductions of Unifiber under the
Company's management. Management has identified costs in excess of $1,328,000
incurred by the previous owner and management that would not have been incurred
under Coyote Sports, Inc.'s management if the acquisition had occurred as of
January 1, 1997. The Company expects to realize these cost savings as well as
additional expense reductions related to areas such as vendor consolidation and
research and development costs after the acquisition. However, there can be no
assurance that these costs savings will be realized.
20
<PAGE>
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 hereunto duly authorized.
COYOTE SPORTS, INC.
(Registrant)
Dated May 12, 1998 By: /s/ John Paul McNeill
John Paul McNeill
Chief Financial Officer and Treasurer
21
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 333-47749 and No. 333-48509) of Coyote Sports, Inc.
of our report dated May 23, 1997, except as to Note 1, which is as of December
19, 1997, relating to the financial statements of Unifiber Corporation, which
appears in the Current Report on Form 8-K/A Amendment No. 2 of Coyote Sports,
Inc. dated March 19, 1998.
PRICE WATERHOUSE LLP
San Diego, California
May 11, 1998
22
