<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 registrant 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) 932-8794
Indicate by check mark whether the registrant (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Outstanding at August 6, 1999
----- -----------------------------
Common Stock, $.001 par value 6,024,156 shares
<PAGE>
COYOTE SPORTS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of June 30, 1999
(unaudited) and December 31, 1998........................ 1
Condensed Consolidated Statements of Operations (unaudited)
for the three and six months ended June 30, 1999
and 1998................................................. 2
Condensed Consolidated Statements of Comprehensive Income
(Loss) (unaudited) for the three and six months ended
June 30, 1999 and 1998................................... 3
Condensed Consolidated Statements of Cash Flows (unaudited)
for the three and six months ended June 30, 1999
and 1998................................................. 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........................................... 16
Item 2. Changes in Securities and Use of Proceeds................... Not Applicable
Item 3. Defaults Upon Senior Securities............................. 16
Item 4. Submission of Matters to a Vote of Security Holders......... 16
Item 5. Other Information........................................... 17
Item 6. Exhibits and Reports on Form 8-K............................ 17
Signatures ............................................................ 17
</TABLE>
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- ---------------
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 115,145 925,275
Restricted cash - 90,000
Trade receivables, net of allowance for doubtful accounts of
$310,000 and $514,000 for 1999 and 1998, respectively 5,943,382 4,436,139
Inventories, net 4,585,156 5,465,465
Assets held for sale, discontinued operations - 1,410,212
Prepaid expenses and other current assets 537,774 864,452
----------------- ---------------
Total current assets 11,181,457 13,191,543
Property, plant and equipment, net 6,051,310 10,671,142
Other assets, net 1,605,350 3,595,016
----------------- ---------------
$ 18,838,117 27,457,701
================= ===============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 11,539,623 10,812,503
Current portion of long-term debt 6,132,000 6,132,000
Accounts payable 6,775,189 4,342,522
Accrued expenses 3,532,197 3,123,614
----------------- ---------------
Total current liabilities 27,979,009 24,410,639
Long-term debt, net of current portion 404,000 879,000
Deferred taxes and other liabilities 1,351,697 1,117,454
----------------- ---------------
Total liabilities 29,734,706 26,407,093
Redeemable preferred stock, $.001 par value. Authorized
4,000,000 shares; issued and outstanding 75,000 shares
redeemable at $20.00 per share 1,500,000 1,500,000
Stockholders' equity (deficit):
Common stock, $.001 par value. Authorized 25,000,000
shares; issued and outstanding 6,024,156 and 5,777,692
shares for 1999 and 1998, respectively 6,024 5,778
Additional paid-in capital 18,938,760 18,180,202
Accumulated deficit (31,786,379) (19,188,376)
Accumulated other comprehensive income 445,006 553,004
----------------- ---------------
Total stockholders' deficit (12,396,589) (449,392)
Commitments and contingencies
----------------- ---------------
$ 18,838,117 27,457,701
================= ===============
</TABLE>
Note: The condensed consolidated balance sheet at December 31, 1998 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 June 30, Six months ended June 30,
---------------------------------- ----------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 8,237,796 11,795,918 14,398,050 18,262,289
Cost of goods sold (7,598,107) (8,784,694) (13,242,874) (13,564,451)
-------------- -------------- -------------- --------------
Gross profit 639,689 3,011,224 1,155,176 4,697,838
Selling, general and administrative (1,969,030) (2,454,534) (4,327,646) (4,037,795)
Abandoned merger costs (1,142,078) - (1,142,078) -
Write down of assets (5,606,750) - (5,606,750) -
-------------- -------------- -------------- --------------
Operating income (loss) from
continuing operations (8,078,169) 556,690 (9,921,298) 660,043
Other income (expense):
Interest expense, net (538,780) (261,831) (1,052,501) (321,419)
Loss on forward exchange contracts, net (114,000) - (287,000) (5,000)
Debt financing costs (99,999) (99,999) (199,998) (99,999)
Other, net - 93,030 (17,171) 93,030
-------------- -------------- -------------- --------------
Income (loss) from continuing operations
before income taxes, minority interests
and extraordinary gain (8,830,948) 287,890 (11,477,968) 326,655
Income tax expense - - (800) (13,000)
Minority interests in subsidiaries' losses - 20,917 - 50,643
-------------- -------------- -------------- --------------
Net income (loss) from continuing operations
before extraordinary item (8,830,948) 308,807 (11,478,768) 364,298
Discontinued operations:
Loss from discontinued operations (net of tax) (467,576) (156,228) (715,303) (190,419)
Loss on disposal of discontinued operations
(net of tax) (403,932) - (403,932) -
-------------- -------------- -------------- --------------
Loss from discontinued operations (871,508) (156,228) (1,119,235) (190,419)
Net income (loss) before extraordinary gain (9,702,456) 152,579 (12,598,003) 173,879
Extraordinary item, net of taxes - 346,581 - 346,581
-------------- -------------- -------------- --------------
Net income (loss) $ (9,702,456) 499,160 (12,598,003) 520,460
============== ============== ============== ==============
Basic and diluted earnings (loss) per share
Income (loss) from continuing operations
before extraordinary item $ (1.52) 0.06 (1.98) 0.08
Income (loss) before extraordinary item (1.67) 0.03 (2.17) 0.04
Extraordinary item, net of taxes - 0.07 - 0.08
-------------- -------------- -------------- --------------
Net income (loss) $ (1.67) 0.10 (2.17) 0.12
============== ============== ============== ==============
Shares used in calculating basic
and diluted earnings per share 5,810,193 4,758,004 5,794,032 4,406,841
============== ============== ============== ==============
</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 June 30, Six months ended June 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net income (loss) $ (9,702,456) 499,160 $ (12,598,003) 520,460
Other comprehensive income (loss) 41,001 (201,499) 107,998 (39,824)
------------- ------------- ------------- -------------
Comprehensive income (loss) $ (9,661,455) 297,661 $ (12,490,005) 480,636
============= ============= ============= =============
</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 June 30, Six months ended June 30,
------------------------------- -------------------------------
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net cash provided (used) by operating activities $ 239,139 (702,916) (1,721,843) (1,079,897)
Cash flows from investing activities:
Purchase of property, plant and equipment (99,211) (233,442) (99,211) (279,916)
Acquisition of business, net of cash acquired - - - (3,129,774)
------------- ------------- ------------- -------------
Net cash used in investing activities (99,211) (233,442) (99,211) (3,409,690)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Borrowings (repayments) on notes payable, net (495,525) 256,217 727,120 (5,783)
Borrowings (repayments) on long-term debt, net (305,000) 275,424 (475,000) 3,909,295
Capital contributions 758,804 - 758,804 -
------------- ------------- ------------- -------------
Net cash provided by financing activities (41,721) 531,641 1,010,924 3,903,512
------------- ------------- ------------- -------------
Increase (decrease) in cash and equivalents 98,207 (404,717) (810,130) (586,075)
Cash and equivalents at beginning of period 16,938 508,403 925,275 689,761
------------- ------------- ------------- -------------
Cash and equivalents at end of period $ 115,145 103,686 115,145 103,686
============= ============= ============= =============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 221,280 68,320 597,501 256,327
============= ============= ============= =============
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 acquisition $ - - - 1,500,000
============= ============= ============= =============
Fair value of common stock issued in connection
with notes payable $ - - - 59,062
============= ============= ============= =============
</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-Q. 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 form 10-KSB (File No. 000-23085) for the fiscal year ended December
31, 1998.
The financial information presented in this quarterly report on form 10-Q
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. ABANDONED MERGER AGREEMENT
On June 22, 1999, the merger agreement between the Company and Royal
Precision Inc. (RP) was terminated due to a material change in the business of
the Company resulting in an inability to obtain suitable replacement long-term
debt financing. Termination of the merger and the failure to obtain replacement
long-term financing will most likely have a material adverse effect on the
Company's business, operating results and financial condition, that may lead to
bankruptcy.
3. LIQUIDITY
The Company incurred a loss of $12,598,003 and had net income of $520,460
for the six months ending June 30, 1999 and 1998, respectively. As of June 30,
1999, the Company was is default and not current with certain notes payable and
was not current with numerous vendors. Management has begun to implement its
restructuring plan in which the Company intends to sell off certain assets,
restructure the Company's outstanding debt obligations, enter into new debt
agreements and/or issue equity in order for the Company to continue as a going
concern. If the Company is not able to sell assets, restructure the Company's
outstanding debt obligations, enter into new debt agreements and/or issue
equity, it may not be able to continue as a going concern and may seek relief
under bankruptcy protection.
5
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. LIQUIDITY (continued)
As of June 30, 1999, the Company had outstanding balances on notes payable
and long-term debt as listed below.
<TABLE>
<CAPTION>
June 30, 1999
-------------
<S> <C>
Note payable under line of credit, variable interest rate of 1.5% plus LIBOR rate
(8.69% at June 30, 1999), interest payable quarterly $ 604,000
Note payable under line of credit, variable interest rate equal to the lender's prime
rate plus 1.5% (10.0% at June 30, 1999), interest payable monthly 2,312,000
Note payable under line of credit and term loan, variable interest rate of 1.5% over
the lender's prime rate, interest payable monthly (a) 2,712,491
Note payable secured by accounts receivable, variable interest rate of 1.75% over the
lender's base rate (9.0% at June 30, 1999), interest payable monthly 90,000
Note payable, interest rate of 12%, interest payable quarterly (b) 6,000,000
Note payable under term loan, variable interest rate of 1.75% plus LIBOR rate,
interest payable quarterly 536,000
Note payable, variable interest rate of 5% over the Federal Reserve discount rate (10%
at June 30, 1999), interest and note due May 31, 1999 (c) 5,500,000
Note payable, with interest payable as a warrant to purchase shares of the Company's
common stock, due June 18, 1999 (d) 260,608
Capital leases 60,524
-----------
$18,075,623
===========
</TABLE>
(a) On August 4, 1999, the lender notified the Company that it was in
default of a note between the lender and Unifiber Corporation, a
wholly owned subsidiary of the Company. The lender has exercised its
right to accelerate and declare the entire unpaid balance of the note
to be immediately due and payable. As of August 4, 1999, the balance
of the loan was $1,483,000, plus accrued interest after August 1, 1999
and other out of pocket costs to be incurred by the lender. As a
result of the notice, the Company has ceased operations at Unifiber
Corporation.
(b) The Company has not made its last two quarterly interest payments
which total $360,000 and consequently is in default on the note. The
Company is in discussion with the lender to have the past due interest
and the principal on the note extended beyond the September 19, 1999
due date.
(c) Principal and interest on the note payable for $5,500,000 originally
due March 31, 1999 was extended to the earlier of the refinancing of
the Company's debt or May 31, 1999. As of June 30, 1999, the balance
of the note and the accrued interest has not been paid and
consequently the Company is in default on the note. The Company is in
discussions with the lender to have the note amended.
(d) Principal on the convertible note payable for $1,000,000 with interest
payable as a warrant to purchase 35,000 shares of the Company's common
stock was due and payable the earlier of the refinancing of the
Company's debt in connection with the merger between Coyote and RP or
May 1, 1999. The holder of the promissory note extended the due date
to June 18, 1999 at which time the holder converted $739,392 of
principal into 246,464 shares of the Company's common stock. As of
June 30, 1999, the remaining $260,608 of the note due on June 18, 1999
has not been paid and as a result the Company is in default on the
note. The Company is in discussion with the lender to have the note
extended beyond the amended maturity date of the note.
6
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
4. DISCONTINUED OPERATIONS
On July 12, 1999, the Company sold its Advanced Materials segment which
represented 80% majority interest in Sierra Materials. The sale resulted in a
loss of $403,932. The loss on the sale has been accounted for as discontinued
operations and prior periods have been restated to reflect the discontinuation
of its Advanced Materials segment.
Under the terms of the agreement, the Company and its operating
subsidiaries Unifiber Corporation and Apollo Golf, Inc. have guaranteed the
indebtedness of Cape Composites to the lender to Cape Composites through March
12, 2000. The total indebtedness was $2,123,000 as of June 30, 1999.
5. INVENTORIES
Inventories consist of the following:
June 30, December 31,
1999 1998
----------- -----------
Raw materials $ 551,893 948,606
Work in process 1,516,132 1,653,044
Finished goods 3,953,932 4,025,128
----------- -----------
6,021,957 6,626,778
Valuation allowance (1,436,801) (1,161,313)
----------- -----------
$ 4,585,156 5,465,465
=========== ===========
6. EARNINGS (LOSS) PER SHARE
The following represents a reconciliation of the earnings (loss) and outstanding
shares used to compute earnings (loss) per share:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------------- ---------------------------------------
1999 1998 1999 1998
----------------- ---------------- ------------------ ---------------
<S> <C> <C> <C> <C>
Net income (loss) $(9,702,456) $ 499,160 $(12,598,003) $ 520,460
Common shares outstanding at beginning of the
period 5,777,692 4,758,004 5,777,692 3,855,000
Net effect of shares issued during the period 32,501 - 16,340 551,841
----------------- ---------------- ------------------ ---------------
Shares used in computing basic income (loss)
per share 5,810,193 4,758,004 5,794,032 4,406,841
Net effect of dilutive stock options - 62,231 - 51,116
----------------- ---------------- ------------------ ---------------
Shares used in computing diluted income (loss)
per share 5,810,193 4,820,235 5,777,692 4,457,957
Basic and diluted income (loss) per share $ (1.67) $ 0.10 $ (2.17) $ 0.12
</TABLE>
7
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
6. SUBSEQUENT EVENTS
On July 26, 1999, the Company received notice from a lessor that it was in
default on a lease agreement. The lessor is seeking damages of approximately
$2,400,000. The Company estimates that the damages to be approximately $750,000
and has accrued for that amount as of June 30, 1999.
On August 5, 1999, Unifiber Corporation ("Unifiber"), a wholly owned
subsidiary of the Company and manufacturer and distributor of graphite golf
shafts, ceased its operations. On August 12, 1999, an Involuntary Petition for
Chapter 7 bankruptcy on behalf of certain unsecured creditors was filed against
Unifiber.
The shut-down is expected to result in an approximate loss of $200,000
(with no expected tax effect), which will be recorded by the Company in the
third quarter. The loss on the shut-down will be accounted for as discontinued
operations and prior periods will be restated to reflect the discontinuation of
Unifiber in the third quarter.
8
<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 wholly owns or has a controlling interest in four
operating entities worldwide; Apollo, Reynolds, Apollo U.S., and Unifiber.
Coyote's products include steel golf shafts, premium grade cycle tubing and
javelins.
On June 22, 1999, the merger agreement between the Company and Royal
Precision Inc. (RP) was terminated due to a material change in the business of
the Company resulting in an inability to obtain suitable replacement long-term
debt financing. Termination of the merger and the failure to obtain replacement
long-term financing will most likely have a material adverse effect on the
Company's business, operating results and financial condition, that may lead to
bankruptcy.
As of June 30, 1999, the Company was in default and not current with certain
notes payable and was not current with numerous vendors. On August 4, 1999, a
secured lender notified the Company that Unifiber Corporation, a wholly owned
subsidiary of the Company and manufacturer and distributor of graphite golf
shafts, was in default and the remaining balance of $1,483,000 was due and
payable immediately. Management has begun to implement its restructuring plan in
which the Company intends to sell certain assets, restructure the Company's
outstanding debt obligations, enter into new debt agreements and/or issue equity
in order for the Company to continue as a going concern. If the Company is not
able to sell assets, restructure the Company's outstanding debt obligations,
enter into new debt agreements and/or issue equity, it may not be able to
continue as a going concern and may seek relief under bankruptcy protection.
On July 12, 1999, the Company sold its Advanced Materials segment which
represented 80% majority interest in Sierra Materials. On August 5, 1999,
Unifiber ceased its operations. On August 12, 1999, an Involuntary Petition for
Chapter 7 bankruptcy on behalf of certain unsecured creditors was filed against
Unifiber.
RESULTS OF OPERATIONS
As part of the Company's restructuring plan, the Company evaluated its assets
to help determine which assets could be sold and what would be their approximate
value if sold in an orderly fashion. As part of the analysis, Unifiber's largest
customer which accounted for approximately 90% of Unifiber's sales, notified
Unifiber that its future orders would be significantly less than previously
expected a month earlier. The long-lived assets, which include property, plant
and equipment, were evaluated in accordance with Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." Impairment was determined
by evaluating the estimated amount at which the assets of Unifiber and the
Company's minority interest in Unggul Galakan Sdn. Bhd. ("Unggul") could be sold
and recognized $4,107,000 in the write down of assets at Unifiber and recognized
$1,500,000 write down in its minority investment in Unggul.
The following table sets forth, for the periods indicated, certain statement
of operations data as a percentage of net sales. The 1999 data reflects the
consolidated results of all entities from January 1, 1999 through June 30, 1999.
The 1998 data reflects the consolidated results of all entities except for
Unifiber and West Coast Composites from January 1, 1998 through June 30, 1998.
Unifiber was acquired on March 19, 1998 and is included in the Company's results
beginning April 1, 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 beginning September 9, 1998.
9
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- --------------------------
1999 1998 1999 1998
------------ ----------- ------------ ---------
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
Cost of goods sold (92) (74) (92) (74)
Gross profit 8 26 8 26
Selling, general and administrative (24) (21) (30) (22)
Abandoned merger costs (14) - (8) -
Write down of assets (68) - (39) -
Operating income (loss) (98) 5 (69) 4
Interest expense, net (7) (2) (7) (2)
Debt financing costs (1) (1) (1) -
Other (1) - (2) -
Income (loss) from continuing operations before income
taxes, minority interests and extraordinary item (107) 2 (79) 2
Income tax (expense) benefit - - - -
Minority interests - - - -
Net income (loss) from continuing operations
before extraordinary item (107) 2 (79) 2
Loss from discontinued operations (11) (1) (8) (1)
Net income (loss) before extraordinary item (118) 1 (87) 1
Extraordinary item, net of taxes - 3 - 2
Net income (loss) (118) 4 (87) 3
</TABLE>
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
Net sales for the three months ended June 30, 1999 were $8,238,000 as
compared to $11,796,000 for the comparable period of 1998. The decrease in net
sales is primarily attributable to reduced product demand in golf shafts in the
United States and Europe. Gross profit for the three months ended June 30, 1999
and 1998 was 8% and 26% of net sales, respectively. Gross profit was negatively
effected by a decrease in both the average selling price and number of units
sold of golf shafts.
Selling, general and administrative costs for the three months ended June
30, 1999 were 24% of net sales as compared to 21% for the comparable period of
1998, as a result of an increase in selling, general and administrative costs
from the acquisition of Unifiber and the acquisition of West Coast Composites.
The Company had an operating loss from continuing operations of $8,078,000
for the three months ended June 30, 1999, as compared to operating income of
$557,000 for the comparable period in 1998. The operating loss from continuing
operations for the three months ended June 30, 1999 is a result of reduced
product demand in golf shafts, a decrease in the average selling price and an
increase in selling, general and administrative costs from the acquisition of
Unifiber and West Coast Composites. In addition, the Company recognized
$1,142,000 in abandoned merger costs as a result of the termination of the
merger agreement between the Company and Royal Precision, Inc., recognized
$4,106,750 in the write down of the Unifiber graphite golf shaft facility and
recognized $1,500,000 write down in its minority investment in Unggul.
Interest expense was $539,000 for the three months ended June 30, 1999, as
compared to $262,000 for the comparable period of 1998. The increase in interest
expense is 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 $21,000 for the three
months ended June 30, 1998. There were no minority interests in subsidiaries'
losses recorded for the three months ended June 30, 1999 since the Company
10
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
relinquished its rights to certain intangible assets to the previous owner of
ICE*USA in June 1998. Minority interests in subsidiaries' losses are a result of
the net effect on profits and losses of ICE*USA and is based on the minorities'
percentage ownership in ICE*USA (20%).
Net loss from continuing operations before extraordinary items for the three
months ended June 30, 1999 was $8,831,000 or $1.52 per share, as compared to
income from continuing operations before extraordinary items of $309,000 or
$0.06 per share for the comparable period of 1998.
On July 12, 1999, the Company sold its Advanced Materials segment which
represented 80% majority interest in Sierra Materials. Loss from discontinued
operations was $872,000 for the three months ended June 30, 1999, as compared to
a loss of $156,000 for the comparable period in 1998.
Net loss for the three months ended June 30, 1999 was $9,702,000 or $1.41 per
share, as compared to net income of $499,000 or $0.10 per share for the
comparable period of 1998, which included an extraordinary gain of $347,000 or
$0.07 per share.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Net sales for the six months ended June 30, 1999 were $14,398,000 as compared
to $18,262,000 for the comparable period of 1998. The decrease in net sales is
primarily attributable to reduced product demand in golf shafts in the United
States and Europe. Gross profit for the six months ended June 30, 1999 and 1998
was 8% and 26% of net sales, respectively. Gross profit was negatively effected
by a decrease in both the average selling price and number of units sold of golf
shafts.
Selling, general and administrative expenses for the six months ended June
30, 1999 were 30% of net sales as compared to 22% for the comparable period of
1998, as a result of an increase in selling, general and administrative costs
from the acquisition of Unifiber and the acquisition of West Coast Composites.
The Company had an operating loss from continuing operations of $9,938,000
for the six months ended June 30, 1999, as compared to operating income from
continuing operations of $660,000 for the comparable period in 1998. The
operating loss from continuing operations for the three months ended June 30,
1999 is a result of reduced product demand in golf shafts, a decrease in the
average selling price and an increase in selling, general and administrative
costs from the acquisition of Unifiber and West Coast Composites. In addition,
the Company recognized $1,142,078 in abandoned merger costs as a result of the
termination of the merger agreement between the Company and Royal Precision,
Inc., recognized $4,106,750 in the write down of the Unifiber graphite golf
shaft facility and recognized $1,500,000 write down in its minority investment
in Unggul.
Interest expense was $1,053,000 for the six months ended June 30, 1999, as
compared to $321,000 for the comparable period of 1998. The increase in interest
expense is 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 $51,000 for the six months
ended June 30, 1998. There were no minority interests in subsidiaries' losses
recorded for the six months ended June 30, 1999 since the Company relinquished
its rights to certain intangible assets to the previous owner of ICE*USA in June
1998. Minority interests in subsidiaries' losses are a result of the net effect
on profits and losses of ICE*USA and is based on the minorities' percentage
ownership in ICE*USA (20%).
Net loss from continuing operations before extraordinary items for the six
months ended June 30, 1999 was $11,479,000 or $1.98 per share, as compared to
income from continuing operations before extraordinary item of $364,000 or $0.08
per share for the comparable period of 1998.
Loss from discontinued operations was $1,119,000 for the six months ended
June 30, 1999, as compared to a loss of $190,000 for the comparable period in
1998.
11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
Net loss for the six months ended June 30, 1999 was $12,598,000 or $2.17 per
share, as compared to net income of $520,000 or $0.12 per share for the
comparable period of 1998, which included an extraordinary gain of $347,000 or
$0.08 per share.
SEASONALITY
As a result of the Company's present operations being primarily dependent
upon golf shaft sales, management expects for the foreseeable future that the
Company's business will remain seasonal. 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.
YEAR 2000 ISSUE
Coyote 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 its computerized information systems to accurately
process information that may be date sensitive. Any of Coyote'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"). Coyote utilizes a
number of computer programs across its operations. Coyote has developed a Year
2000 project team to address the Year 2000 Issue. An initial assessment has been
completed for each of its operations. The evaluation revealed that a number of
computer hardware and software systems utilized by Coyote 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 all of Coyote's operations, some of which are in the
implementation and testing stages. The systems and programs are scheduled to be
replaced or upgraded by September 1, 1999. Coyote expects to have all critical
systems and/or programs Year 2000 compliant by August 1999.
Coyote relies on third parties for many products and services and it 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 Coyote.
Management has identified certain key suppliers and customers and is currently
performing an assessment on the state of readiness and/or compliance of those
key suppliers and customers. Management expects that completion of its Year
2000 compliance project will result in additional expenditures of approximately
$80,000. To date, the Company has spent approximately $40,000 to become Year
2000 compliant. Coyote's failure to resolve the Year 2000 Issue before December
31, 1999 could result in system failures or miscalculations causing disruption
in operations including, among other things, an 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 supply of parts and materials,
late, missed or unapplied payments, disruptions in order processing and other
general problems related to their daily operation. While Coyote believes its
Year 2000 compliance actions will adequately address its internal Year 2000
Issue, until Coyote completes its assessment of its suppliers and customers, the
overall risks cannot 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. Coyote has not, to date, implemented a Year 2000 contingency plan.
Coyote's goal is to have the major Year 2000 Issues resolved by September 1,
1999. Final verification and validation is scheduled to occur by October 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, Coyote had an accumulated deficit of $31,786,000
compared to an accumulated deficit of $19,188,000 at December 31, 1998. Net
loss for the six months ended June 30, 1999 was $12,598,000, compared to income
of $520,000 for the comparable period of 1998. As of June 30, 1999, the Company
had a working capital deficit of $16,798,000.
As of June 30, 1999, Coyote had eight outstanding notes payable. The notes
are broken out by operating entity and discussed below.
12
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
Parent
As of March 19, 1998, Coyote entered into a $6,000,000 Promissory Note (the
"Note") and Loan Agreement, as amended December 30, 1998, (the "Loan Agreement")
with Paragon Coyote Texas Ltd. ("Paragon"). Paragon is an unrelated third party
to Coyote, although as a condition of the Loan Agreement, the Coyote Board of
Directors appointed Mr. Mark Pappas, the president of the general partner of
Paragon, to the Company's Board of Directors, a capacity in which he currently
serves. In the ordinary course of business, this loan is due September 19, 1999.
Interest is payable quarterly at an interest rate of 12% per year. The Company
has not made its last two quarterly interest payments which total $360,000 and
as a result is in default on the note. The Company is in discussion with the
lender to have the past due interest and the principal on the note extended
beyond the September 19, 1999 due date.
Under the Loan Agreement, Coyote issued Paragon 163,265 shares of Coyote
common stock as of March 19, 1998, which represented $1,000,000 divided by the
closing price of the common stock on the Nasdaq Small Cap Market on the day
immediately preceding the closing of the loan. The Loan Agreement provides that
the Company shall issue to Paragon such additional number of shares of Coyote
common stock, as are necessary to make the aggregate value of all shares of
common stock issued equal $1,000,000 on March 19, 1999, which was subsequently
amended to December 30, 1998, upon maturity of the loan and upon the prepayment,
of the loan. Pursuant to this formula, and based on a December 29, 1998 closing
price of the common stock on the Nasdaq Small Cap Market of $3.25 per share,
Coyote issued Paragon an additional 144,427 shares of the Company's common stock
effective December 30, 1998. The Company may be required to issue Paragon
additional shares of common stock at the maturity date (September 19, 1999) and
on any date that the Note is prepaid in full prior to the maturity date.
The Loan Agreement provides that the Note is secured by 1,430,000 shares of
the Company's common stock owned by Mel Stonebraker, Director, and by 1,170,000
shares of the Coyote's common stock owned by Jim Probst, President and Chief
Executive Officer. Under the Loan Agreement, Messrs. Stonebraker and Probst
retain the power to vote their shares of Coyote common stock as long as Coyote
is not in default under the Loan Agreement.
On November 16, 1998, the Company entered into a convertible promissory note
for $1,000,000 with interest payable as a warrant to purchase 35,000 shares of
the Company's common stock at an exercise price of $0.01. Principal on the note
was due on or before May 1, 1999. On May 7, 1999, the Company amended the
$1,000,000 convertible promissory note and extended the maturity date to June
18, 1999 or three days after the close of the financing in connection with the
merger with Royal Precision, Inc., whichever is sooner. At the date of maturity,
the holder of the convertible promissory note converted $739,392 of the note to
246,464 shares of the Company's common stock. As of June 30, 1999, the remaining
$260,608 of the note due on June 18, 1999 has not been paid and as a result the
Company is in default on the note. The Company issued an additional warrant to
purchase 6,536 shares of the Company's common stock at an exercise price of
$0.01.
Apollo
One note payable provides for borrowings under a foreign line of credit up to
600,000 Pounds Sterling ("PS") (approximately $1,020,000 U.S. at June 30, 1999)
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 June 30, 1999,
$604,000 was outstanding under this note payable.
On November 21, 1998, Apollo entered into a five-year note payable for up to
400,000 PS (approximately $680,000 U.S. at June 30, 1999) 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 June 30, 1999, $536,000 was
outstanding under this note payable.
In March 1997, Apollo entered into an agreement with a lender to advance
loans secured by trade receivables. As of June 30, 1999, $90,000 was outstanding
under this agreement. The Agreement continues indefinitely until notice to
terminate is given by either party.
13
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
Apollo U.S.
In January 1998, Apollo U.S. 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 (10.0% at June 30, 1999) secured by substantially all of the assets of
Apollo U.S. The lender has allowed for increased availability of $250,000 as of
March 31, 1999. Advances are guaranteed by Coyote. 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 two years. At June 30,
1999, the outstanding balance under the agreement was $2,312,000. Coyote may not
declare or pay dividends on its common stock without the written consent of the
lender.
Unifiber
In March 1998, Unifiber 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 (10.0% at June 30, 1999). The lender has
allowed for increased availability of $180,000 as of June 30, 1999. Borrowings
are secured by substantially all of the assets of Unifiber and are guaranteed by
Apollo U.S. and Coyote. 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 two years. As of June 30, 1999, the total outstanding balance under
the agreement was $2,712,000. Coyote may not declare or pay dividends on its
common stock without the written consent of the lender. On August 4, 1999, the
lender notified the Company that it was in default of a note between the lender
and Unifiber Corporation, a wholly owned subsidiary of the Company. The lender
has exercised its right to accelerate and declare the entire unpaid balance of
the note to be immediately due and payable. As of August 4, 1999, the balance of
the loan was $1,483,000, plus accrued interest after August 1, 1999 and other
out of pocket costs to be incurred by the lender. As a result of the notice, the
Company has ceased operations at Unifiber Corporation. On August 12, 1999, an
Involuntary Petition for Chapter 7 bankruptcy on behalf of certain unsecured
creditors was filed against Unifiber.
On September 9, 1998, Unifiber entered into a note payable for $5,500,000
with an interest rate of 10%. Principal and accrued interest were due May 31,
1999. Borrowings are secured by the shares of Unifiber and by the assets
purchased from Cobra. As of June 30, 1999, the balance of the note and the
accrued interest has not been paid and as a result the Company is in default on
the note. The Company is in discussion with the lender to have the note amended.
Net cash used in operating activities was $1,722,000 for the six months ended
June 30, 1999, primarily due to the net loss.
Net cash used in investing activities of $99,000 for the six months ended
June 30, 1999, mainly related to equipment purchases at Unifiber.
Net cash provided by financing activities was $1,011,000 for the six months
ended June 30, 1999, primarily due to the borrowings made on revolving lines of
credit and to capital contributions.
As of June 30, 1999, the Company was in default and not current with certain
notes payable and was not current with numerous vendors. On August 4, 1999, a
secured lender notified the Company that Unifiber Corporation was in default and
the remaining balance of $1,483,000 was due and payable immediately. Management
has begun to implement its restructuring plan in which the Company intends to
sell off certain assets, restructure the Company's outstanding debt obligations,
enter into new debt agreements and/or issue equity in order for the Company to
continue as a going concern. If the Company is not able to sell assets,
restructure the
14
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED).
Company's outstanding debt obligations, enter into new debt agreements and/or
issue equity, it may not be able to continue as a going concern and may seek
relief under bankruptcy protection.
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 S.E.C., including Forms
8-K, 10-QSB, 10-Q, 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 or greater losses, 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.
15
<PAGE>
PART II. OTHER INFORMATION.
ITEM 2. LEGAL PROCEEDINGS
On August 12, 1999, an Involuntary Petition for Chapter 7 bankruptcy on
behalf of Select Temporary Services, Remedy Temp, Inc., and Omni Express Temps,
Inc. (collectively "the Group") was filed against Unifiber Corporation in San
Diego, CA. The Group, filed for an emergency order to appoint a trustee and to
prohibit the transfer of assets. On August 17, 1999, the senior secured creditor
of Unifiber Corporation, Fremont Financial Corporation, filed a motion with the
bankruptcy court to deny the appointment of an interim trustee.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of March 19, 1998, Coyote entered into a $6,000,000 Promissory Note (the
"Note") and Loan Agreement, as amended December 30, 1998, (the "Loan Agreement")
with Paragon Coyote Texas Ltd. ("Paragon"). In the ordinary course of business,
this loan is due September 19, 1999. Interest is payable quarterly at an
interest rate of 12% per year. The Company has not made its last two quarterly
interest payments which total $360,000 and as a result is in default on the
note. The Company is in discussion with the lender to have the past due interest
and the principal on the note extended beyond the September 19, 1999 due date.
On November 16, 1998, the Company entered into a convertible promissory note
for $1,000,000 with interest payable as a warrant to purchase 35,000 shares of
the Company's common stock at an exercise price of $0.01. Principal on the note
was due on or before May 1, 1999. On May 7, 1999, the Company amended the
$1,000,000 convertible promissory note and extended the maturity date to June
18, 1999 or three days after the close of the financing in connection with the
merger with Royal Precision, Inc., whichever is sooner. One June 18, 1999, the
holder of the convertible promissory note converted $739,392 of the note to
246,464 shares of the Company's common stock. As of June 30, 1999, the remaining
$260,608 of the note due on June 18, 1999 has not been paid and as a result the
Company is in default on the note.
In March 1998, Unifiber 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 (10.0% at June 30, 1999). The lender has
allowed for increased availability of $180,000 as of June 30, 1999. Borrowings
are secured by substantially all of the assets of Unifiber and are guaranteed by
Apollo U.S. and Coyote. Under the terms of the agreement, the borrowings may be
immediately callable by the lender. The formal term of the agreement is two
years. On August 4, 1999, the lender notified the Company that it was in default
of a note between the lender and Unifiber Corporation, a wholly owned subsidiary
of the Company. The lender has exercised its right to accelerate and declare the
entire unpaid balance of the note to be immediately due and payable. As of
August 4, 1999, the balance of the loan was $1,483,000, plus accrued interest
after August 1, 1999 and other out of pocket costs to be incurred by the lender.
As a result of the notice, the Company has ceased operations at Unifiber
Corporation.
On September 9, 1998, Unifiber entered into a note payable for $5,500,000
with an interest rate of 10%. Principal and accrued interest are due May 31,
1999. Borrowings are secured by the shares of Unifiber and by the assets
purchased from Cobra. As of June 30, 1999, the balance of the note and the
accrued interest has not been paid and as a result the Company is in default on
the note. The Company is in discussion with the lender to have the note amended.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 28, 1999, the Company mailed to its stockholders a Joint Proxy
Statement/Prospectus concerning a merger between the Company and Royal Precision
Inc. A special meeting of stockholders was to be held on June 18, 1999. The
meeting was postponed indefinitely and then on June 22, 1999, the merger
agreement between the Company and Royal Precision Inc. (RP) was terminated due
to a material change in the business of the Company resulting in an inability to
obtain suitable replacement long-term debt financing. Consequently, the special
meeting was never held nor were the votes tabulated.
16
<PAGE>
ITEM 5. OTHER INFORMATION
On August 5, 1999, Unifiber Corporation, a wholly owned subsidiary of the
Company and manufacturer and distributor of graphite golf shafts, ceased its
operations. On August 12, 1999, an Involuntary Petition for Chapter 7 bankruptcy
on behalf of certain unsecured creditors was filed against Unifiber.
The shut-down is expected to result in an approximate loss of $200,000 (with
no expected tax effect), which will be recorded by the Company in the third
quarter. The loss on the shut-down will be accounted for as discontinued
operations and prior periods will be restated to reflect the discontinuation of
Unifiber in the third quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
27.1 -Financial data schedule
(b) Reports on Form 8-K
Report on Form 8-K was filed by the registrant on June 22, 1999 reporting
under Item 5 Other Events
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: August 19, 1999 COYOTE SPORTS, INC.
By: /s/ John Paul McNeill
---------------------
John Paul McNeill
Chief Financial Officer
(Principal Financial and Accounting
Officer)
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 115,145
<SECURITIES> 0
<RECEIVABLES> 6,253,382
<ALLOWANCES> 310,000
<INVENTORY> 4,585,156
<CURRENT-ASSETS> 11,181,457
<PP&E> 11,817,672
<DEPRECIATION> 5,766,362
<TOTAL-ASSETS> 18,838,117
<CURRENT-LIABILITIES> 27,979,009
<BONDS> 0
1,500,000
0
<COMMON> 6,024
<OTHER-SE> (13,902,613)
<TOTAL-LIABILITY-AND-EQUITY> 18,838,117
<SALES> 14,398,050
<TOTAL-REVENUES> 14,398,050
<CGS> 13,242,874
<TOTAL-COSTS> 13,242,874
<OTHER-EXPENSES> 11,580,643
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,052,501
<INCOME-PRETAX> (11,477,968)
<INCOME-TAX> 800
<INCOME-CONTINUING> (11,478,768)
<DISCONTINUED> (1,119,235)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12,598,003)
<EPS-BASIC> (2.17)
<EPS-DILUTED> (2.17)
</TABLE>
