SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------------------
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31, 2000
---------------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
of 1934
For the transition period from ________ to __________
Commission file number: 333-53757
-------------------------------
MCHENRY METALS GOLF CORP.
------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 87-0429261
- ---------------------------------- ----------------------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1945 CAMINO VIDA ROBLE, SUITE J, CARLSBAD, CA 92008
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(Address of Principal Executive Offices)
(760) 929-0015
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(Registrant's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------ ------
On May 19, 2000, 19,248,400 shares of the Registrant's Common Stock, par value
of $0.001, were outstanding.
<PAGE>
<TABLE>
<CAPTION>
INDEX PAGE NO.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet ...................................... 3
Condensed Consolidated Statements of Operations ........................... 4
Condensed Consolidated Statements of Cash Flows ........................... 5
Notes to Condensed Consolidated Financial Statements ...................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ........................ 9
PART II OTHER INFORMATION
Item 3. Defaults upon Senior Securities ........................................... 13
Item 6. Exhibits and Reports on Form 8-K .......................................... 13
SIGNATURES ................................................................................ 14
EXHIBIT INDEX ............................................................................. 15
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MCHENRY METALS GOLF CORP.
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
<S> <C>
ASSETS
Current Assets
Cash $ 211,500
Accounts receivable, net 55,700
Inventories 218,200
Deferred costs on unrecognized sales 43,700
Other current assets 124,200
- ------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 653,300
Equipment and leasehold improvements, net 195,500
Other non-current assets 30,700
- ------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 879,500
================================================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Line of credit borrowings, due on demand $ 541,700
Current portion of leases payable 16,600
Accounts payable and accrued liabilities 2,112,700
Accrued compensation 209,000
Deferred revenue 55,700
- ------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 2,935,700
- ------------------------------------------------------------------------------------------------
Leases payable, less current portion 11,500
Commitments and Contingencies
Shareholders' Deficit
Preferred stock, $0.001 par value; 5,000,000 shares authorized;
no shares issued or outstanding --
Common stock, $0.001 par value; 50,000,000 shares authorized; 18,616,100
issued and outstanding 18,700
Additional paid-in capital 16,403,100
Unearned compensation
Accumulated deficit (18,489,500)
- ------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' DEFICIT (2,067,700)
- ------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 879,500
================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
MCHENRY METALS GOLF CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------
2000 1999
- --------------------------------------------------------------------
<S> <C> <C>
Net sales $ 734,500 $ 1,191,900
Cost of goods sold 527,500 639,600
- --------------------------------------------------------------------
Gross profit 207,000 552,300
Selling expenses 151,100 1,924,500
General and administrative expenses 125,100 493,900
Research and development costs 21,200 39,400
- --------------------------------------------------------------------
Loss from operations (90,400) (1,905,500)
Interest income (expense), net (18,800) (30,800)
Other expense (39,900) (3,400)
- --------------------------------------------------------------------
Net loss $ (149,100) $(1,939,700)
====================================================================
Basic and diluted loss per share $ (0.01) $ (0.13)
====================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
MCHENRY METALS GOLF CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
2000 1999
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net loss $ (149,100) $(1,939,700)
Adjustments to reconcile net loss to cash used in operating activities:
Stock issued as compensation 100 663,400
Warrants issued as compensation 11,900
Amortization of unearned compensation 171,000
Deferred costs on unrecognized sales (2,100) (737,800)
Provision for inventory obsolescence 4,600
Depreciation and amortization 28,800 18,400
Changes in operating assets and liabilities:
Inventories 331,600 885,400
Other current assets 29,500 (19,600)
Other non-current assets (4,000) (6,200)
Accounts payable and accrued liabilities (35,400) (283,400)
Accrued compensation (300) 32,000
- ------------------------------------------------------------------------------------------------------
Cash used in operating activities 199,100 (1,200,000)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements (33,000)
- ------------------------------------------------------------------------------------------------------
Cash used in investing activities (33,000)
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit (105,700)
Principal payments on leases payable (8,200) (5,500)
Net proceeds from sale of common stock 826,600
- ------------------------------------------------------------------------------------------------------
Cash provided by financing activities (8,200) 715,400
- ------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 190,900 (517,600)
- ------------------------------------------------------------------------------------------------------
CASH AT BEGINNING OF PERIOD 20,600 595,100
- ------------------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 211,500 $ 77,500
======================================================================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
MCHENRY METALS GOLF CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - QUARTERLY FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements and related notes
as of March 31, 2000 and for the three month periods ended March 31, 2000 and
1999 are unaudited but include all adjustments (consisting of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of financial position and results of operations of the Company for the
interim periods. Due to the Company's limited operating history, management has
elected to defer recognition on product sales until the related accounts
receivable have been collected. This basis of revenue recognition is expected to
continue until, in the opinion of management, there exists sufficient history of
customer payments and returns to provide a reasonable basis to conclude that
revenue is earned at the point of shipment. Certain prior year amounts have been
reclassified to conform to the current year presentation. The results of
operations for the three month period ended March 31, 2000 is not necessarily
indicative of the operating results to be expected for the full fiscal year. The
information included in this report should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto and the
other information, including risk factors, set forth for the year ended December
31, 1999 in the Company's Annual Report on Form 10-KSB. Readers of this
Quarterly Report on Form 10-QSB are strongly encouraged to review the Company's
Annual Report on Form 10-KSB. Copies are available from the Company's investor
relations department at 1945 Camino Vida Roble, Suite J, Carlsbad, California
92008-6529.
NOTE 2 - INVENTORIES
<TABLE>
<CAPTION>
Inventories consist of: March 31, 2000
-----------------
(unaudited)
<S> <C>
Raw materials............................................ $ 66,400
Work-in-progress.........................................
Finished goods........................................... 230,500
Finished goods on consignment............................
Obsolescence reserve..................................... (78,700)
-----------------
$ 218,200
=================
</TABLE>
NOTE 3 - NET LOSS PER SHARE
Loss per share is calculated pursuant to the Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). Basic loss per share
includes no dilution and is computed by dividing loss available to common
shareholders by the weighted average number of shares outstanding during the
period. Diluted loss per share reflects the potential dilution of securities
that could share in the earnings of the Company.
The following table illustrates the computation of basic and diluted loss per
share:
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------
2000 1999
---------------------- --------------------
<S> <C> <C>
NUMERATOR:
Net loss available for common stockholders $ (149,100) $ (1,939,700)
====================== ====================
DENOMINATOR:
Weighted average number of common shares outstanding during
the period 18,404,500 14,450,600
====================== ====================
Basic and diluted loss per share $ (0.01) $ (0.13)
====================== ====================
</TABLE>
6
<PAGE>
MCHENRY METALS GOLF CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
The computation of diluted loss per share excludes the effect of incremental
common shares attributable to the exercise of outstanding common stock options
and warrants because their effect would be antidilutive due to losses incurred
by the Company during periods presented.
NOTE 4 - LINE OF CREDIT
The Company has a $541,700 line of credit agreement with a bank bearing interest
at the bank's prime rate plus 7% (total of 16.00% at March 31, 2000). The line
of credit is secured by accounts receivable and was due on September 15, 1999.
On May 4, 2000, the Company and the bank signed a forbearance agreement. The
Company paid all past due interest at a fixed rate of 12.5% from September 15,
1999 to May 4, 2000, and will pay interest monthly at a rate of 4% over prime
during the forbearance period. The forbearance agreement extends the loan until
August 31, 2000, and, if the loan balance is $300,000 or less at that time, the
agreement extends until October 31, 2000. If, at that time, the loan balance is
$200,000 or less, the agreement extends until December 31, 2000. As of May 4,
2000, the Company implemented a daily principal paydown program equivalent to
20% of its net accounts receivable and cash collections. The Company has agreed
to make a $90,000 principal reduction by June 30, 2000 from the sale of
refurbished product that has been set aside for that purpose. In conjunction
with the forbearance agreement, the Company granted to the bank a warrant to
purchase 120,000 shares of restricted common stock at a price of $.66. The
warrant must be exercised on or before August 23, 2002. The Company required the
bank to return warrants that were issued in 1998 and 1999, representing 59,213
shares of restricted common stock.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims arising in the ordinary course of
business; none of these claims, in the opinion of management, is expected to
have a material adverse impact on the financial position, cash flows or overall
trends in the results of operations of the Company.
The Company entered into an agreement with a company, whose President was a
Director of the Company, to purchase golf club heads that were on open purchase
orders and completed by the supplier. Pursuant to the agreement, the Company
purchases on a COD basis, as needed, from the related party. In exchange for
financing the purchase of these golf club heads, the Company pays a 20% markup
over cost. The total purchase price of the golf club heads is approximately $
1,410,000 and was to have been purchased by the Company by June 30, 1999. The
Company is currently in default of the terms of the agreement. As of May 19,
2000 the remaining balance is approximately $515,000.00. While the related
party has the ability to either sell the merchandise as components, or complete
the golf club heads into finished golf clubs, and to sell them to the general
public, which could reduce the value of the Company's remaining inventory, that
decision has been deferred. The Company continues to purchase inventory from the
related party.
During the period between January 30, 1999 and March 15, 1999, the Company
placed purchase orders for new models of product with a new supplier, of which
the purchase was supported by additional sales
7
<PAGE>
MCHENRY METALS GOLF CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
orders. The purchase of the new merchandise was to be financed through
management's efforts to raise additional funds not provided by its planned
operations through additional sales of its equity securities to new investors.
The Company was unable, during this period to raise the necessary financing to
purchase the merchandise. As of May 19, 2000 the open purchase order balance is
approximately $195,500.00. Since this supplier is critical to the Company as a
going concern, the Company entered into an agreement on July 29, 1999 to extend
the period of the purchase orders. The Company is currently in default of the
terms of the agreement. While the supplier currently has the ability to either
sell the merchandise as components, or complete the golf club heads into
finished golf clubs and to sell them to the general public, which could reduce
the value of the Company's remaining inventory, he has chosen to defer that
decision. The Company continues to purchase inventory from this supplier.
During the period ending March 31, 2000, the Company entered into endorsement
agreements with three professional golfers for them to play the Company's
product and display the Company's logo prominently on their headwear. In
conjunction with these agreements, the Company has provided base compensation
totaling 375,000 shares of restricted common stock. Depending on the players'
performance on tour during 2000, the Company could be required to issue up to
450,000 shares of restricted common stock as additional compensation.
NOTE 6 - GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. On May 4, 2000, the Company was
successful in negotiating a forbearance agreement with its primary lender. A
number of factors, including the Company's history of significant losses,
negative working capital, and its accumulated deficit raise substantial doubts
about the Company's ability to continue as a going concern. As of March 31,
2000, the Company has an accumulated deficit of $18,489,500 and a working
capital deficiency of $2,282,400. The Company has suppliers with a significant
quantity of its golf club heads which these suppliers currently have the ability
to sell in the open market, thereby reducing the value of the Company's
inventory and its ability to maintain its current market pricing in the future.
These factors raise questions about the ability of the Company to continue as a
going concern. In this regard, management is proposing to raise any necessary
additional funds not provided by its planned operations through loans and/or
through additional sales of its equity securities pursuant to the exercise of
outstanding warrants or otherwise. However, there is no assurance that the
Company will be successful in raising this additional capital or achieving
profitable operations. The accompanying condensed consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
NOTE 7 - FORWARD-LOOKING STATEMENTS
These condensed consolidated financial statements and the notes thereto contain
forward-looking statements, which involve substantial risks and uncertainties.
The Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including the
effects of debt restructuring.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS, WHICH INVOLVE SUBSTANTIAL RISKS
AND UNCERTAINTIES. THE COMPANY'S ACTUAL
8
<PAGE>
MCHENRY METALS GOLF CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
================================================================================
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THIS
SECTION AND ELSEWHERE IN THIS QUARTERLY REPORT ON FORM 10-QSB.
RESULTS OF OPERATIONS
NET SALES
Net sales for the three months ended March 31, 2000, were $734,500 as compared
to net sales of $1,191,900 for the first quarter of 1999. The Company
experienced lower sales volume during the first quarter of 2000 due to a shift
in its sales practices with regard to retail golf stores and on-course pro shops
(collectively referred to as "retailers"). As a result of the business strategy
shift, the Company no longer employs sales management personnel and sales staff
to call on golf retailers in an attempt to generate orders for the Company's
product line, and the Company does not offer payment terms to most golf
retailers. These decisions were made based on the Company's experience that many
golf retailers treated the Company's product as consignment inventory, that many
golf retailers did not comply with the Company's stated payment terms, and that
many golf retailers represented significant credit risk.
These strategic decisions are intended to shift the sales emphasis to
direct-to-consumer sales, while eliminating overhead costs associated with sales
management, sales staff, and credit risk, and improving the Company's overall
efficiency in generating revenue.
With its new approach, the Company intends for its previous and current
advertising efforts to generate consumer demand and orders through retailers and
also direct-to-consumer channels such as direct response advertising and the
Internet. The Company intends to launch an aggressive nationwide Demo Day
program in the second quarter of 2000 to supplement the advertising campaign,
and increase sales opportunities. The Company's 30-minute television
infomercial, the cornerstone of its direct response advertising efforts, began
airing on April 8, 2000, in conjunction with The Masters tournament weekend.
This weekend has been historically viewed as the "kickoff" to the golf season
across the United States. In comparison, the Company did run its 30-minute
television infomercial during the first quarter of 1999.
With the changes in the Company's business strategy mentioned above, the bulk of
the Company's sales volume during the first quarter of 2000 represented sales of
refurbished and demo product inventory that had been accumulated during 1999.
This inventory was sold to generate cash flow during the off-season winter
months while the Company prepared to implement its new sales and marketing
approach in the second quarter.
Due to the Company's limited operating history, management has elected to defer
recognition of revenue on product sales until the related accounts receivable
have been collected. This basis of revenue recognition is expected to continue
until, in the opinion of management, there exists sufficient history of customer
payments and returns to provide a reasonable basis to conclude that revenue is
earned at the point of shipment. As a result of this policy, net sales do not
include the sales value of shipments for which the Company has not yet been
paid.
COST OF GOODS SOLD
Cost of goods sold was $527,500 (71.8% of net sales) for the three months ended
March 31, 2000, as compared to $639,600 (53.7% of net sales) for the first
quarter of 1999. The cost of goods sold, as a
9
<PAGE>
MCHENRY METALS GOLF CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
================================================================================
percentage of sales, was higher in the first quarter of 2000 due to the sales of
refurbished and demo product inventory at lower prices.
The Company expects cost of goods sold for the remainder of 2000, as a
percentage of sales, to show significant improvement. For example, in the
Company's preliminary financial reports for April 2000, the cost of goods sold
was less than 35% of net sales.
GROSS PROFIT
Gross profit was $207,000 (28.2% of net sales) for the first quarter of 2000 as
compared to $552,300 for the first quarter of 1999. The gross profit was lower
in the first quarter of 2000 due to the Company's change in sales practices as
described above. The gross profit was lower in the first quarter of 2000 as a
percentage of sales due to the sales of refurbished and demo product inventory
at lower prices.
The Company expects gross profit for the remainder of 2000, as a percentage of
sales, to show significant improvement. For example, in the Company's
preliminary financial reports for April 2000, the gross profit was over 65% of
net sales.
SELLING EXPENSES
Selling expenses were $151,100 for the three months ended March 31, 2000,
representing a decrease of $1,773,400 from the first quarter of 1999. The
Company's new business strategy provided a significant decrease in costs
associated with sales management personnel, sales staff, and credit management.
In addition, the Company's television infomercial did not begin airing until the
second quarter in conjunction with The Masters tournament weekend, historically
viewed as the "kickoff" of the golf season across the United States.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $125,100 for the three months ended
March 31, 2000 as compared to $493,900 for the first quarter of 1999,
representing a decrease of $368,800 from the first quarter of 1999.
The Company has experienced lower payroll costs and consolidated its operations
into one facility at the end of 1999.
EFFECTS OF INCOME TAXES
The Company believes that it has sufficient losses to offset any taxable income
that will be generated in the current year. As a result, the Company has not
recorded a provision for income taxes for the three-month period ended March 31,
2000.
The Company believes that it may have incurred an ownership change pursuant to
Section 382 of the Internal Revenue Code and, as a result, the Company believes
that its ability to utilize net operating loss and credit carryforwards in
subsequent periods may be subject to annual limitations.
10
<PAGE>
MCHENRY METALS GOLF CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
The Company primarily financed its operations during the three months ended
March 31, 2000 and 1999 through the sale of common stock. During the first
quarter of 2000, the operating activities used $190,900. Also, during the first
quarter of 2000, the Company converted $103,700 of accounts payable to common
stock and secured agreements with certain individuals (Senior PGA Tour Players)
to compensate for services provided for the fiscal year of 2000 through common
stock in the amount of an additional $103,400. As of May 19, 2000, the Company
had converted $187,500 of accrued compensation to equity. At March 31, 2000,
the Company had a working capital deficiency of $2,282,400, an accumulated
deficit of $18,489,500 and had $541,700 outstanding under a bank line of credit,
which was in default. On May 4, 2000, the Company and the bank signed a
forbearance agreement. The Company paid all past due interest at a fixed rate of
12.5% from September 15, 1999 to May 4, 2000, and will pay interest monthly at a
rate of 4% over prime during the forbearance period. The forbearance agreement
extends the loan until August 31, 2000, and, if the loan balance is $300,000 or
less at that time, the agreement extends until October 31, 2000. If, at that
time, the loan balance is $200,000 or less, the agreement extends until December
31, 2000. As of May 4, 2000, the Company implemented a daily principal paydown
program equivalent to 20% of its net accounts receivable and cash collections.
The Company has agreed to make a $90,000 principal reduction by June 30, 2000
from the sale of refurbished product that has been set aside for that purpose.
In conjunction with the forbearance agreement, the Company granted to the bank a
warrant to purchase 120,000 shares of restricted common stock at a price of
$.66. The warrant must be exercised on or before August 23, 2002. The Company
required the bank to return warrants that were issued in 1998 and 1999,
representing 59,213 shares of restricted common stock.
During the first quarter of 1999, operating activities used $595,100, investing
activities, consisted of purchases of equipment and leasehold improvements, used
$33,000, and financing activities provided $715,000. At March 31, 1999, the
Company had a working capital deficiency of $1,074,300, an accumulated deficit
of $15,343,000 and had $665,000 outstanding under a bank line of credit, which
was in default. Subsequent to March 31, 2000, the Company received cash and
commitments totaling in excess of $500,000 from the sale of equity securities
and subordinated debt from existing and new investors.
FUTURE OPERATIONS - STATUS AS A GOING CONCERN
The financial statements of the Company have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, the Company is newly formed, has incurred
losses since its inception and has not yet been successful in establishing
profitable operations. The Company's independent certified public accountants
have included an explanatory paragraph in their audit report with respect to the
Company's 1999 consolidated financial statements related to a substantial doubt
with respect to the Company's ability to continue as a going concern. In this
regard, management is proposing to raise any necessary additional funds not
provided by its planned operations through loans and/or through additional sales
of its equity securities pursuant to the exercise of warrants or otherwise.
During the three months ended March 31, 2000, the Company converted $103,700 of
accounts payable to common stock and secured agreements with certain individuals
(Senior PGA Tour Players) to compensate for services provided for the fiscal
year of 2000 through common stock in the amount of an additional $103,400. As
of May 29, 2000, the Company had converted $187,500 of accrued compensation to
equity. Subsequent to March 31, 2000, the Company received cash and commitments
totaling in excess of $500,000 from the sale of equity securities and
subordinated debt from existing and new investors. However, there is no
assurance that the Company
11
<PAGE>
MCHENRY METALS GOLF CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
- --------------------------------------------------------------------------------
will be successful in raising additional capital or achieving profitable
operations. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. There can be no assurance that the
Company's future consolidated financial statements will not include another
going concern explanatory paragraph if the Company is unable to raise additional
funds and become profitable. The factors leading to, and the existence of, the
explanatory paragraph may have a material adverse effect on the Company's
ability to obtain additional financing.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
As of March 31, 2000, the Company was not in compliance with most of its loan
covenants of the line of credit agreement. On May 4, 2000, the Company and the
bank signed a forbearance agreement. The Company paid all past due interest at a
fixed rate of 12.5% from September 15, 1999 to May 4, 2000, and will pay
interest monthly at a rate of 4% over prime during the forbearance period. The
forbearance agreement extends the loan until August 31, 2000, and, if the loan
balance is $300,000 or less at that time, the agreement extends until October
31, 2000. If, at that time, the loan balance is $200,000 or less, the agreement
extends until December 31, 2000. As of May 4, 2000, the Company implemented a
daily principal paydown program equivalent to 20% of its net accounts receivable
and cash collections. The Company has agreed to make a $90,000 principal
reduction by June 30, 2000 from the sale of refurbished product that has been
set aside for that purpose. In conjunction with the forbearance agreement, the
Company granted to the bank a warrant to purchase 120,000 shares of restricted
common stock at a price of $.66. The warrant must be exercised on or before
August 23, 2002. The Company required the bank to return warrants that were
issued in 1998 and 1999, representing 59,213 shares of restricted common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No reports on form 8-K were filed during the three month period ended March 31,
2000.
The Exhibits filed as part of this report are listed below.
EXHIBIT NO. DESCRIPTION
27.1 Financial Data Schedule
13
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MCHENRY METALS GOLF CORP.
-------------------------
(Registrant)
Date: May 19, 2000 By: /s/ Theodore Aroney
------------ -----------------------
Theodore Aroney
Vice Chairman of the Board of
Directors
14
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27.1 Financial Data Schedule
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 2000, THE STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE
THREE MONTH PERIODS ENDED MARCH 31, 2000 AND 1999 AND FOOTNOTES THERETO AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES
THERETO.
</LEGEND>
<CIK> 0001046472
<NAME> McHenry Metals Golf Corp.
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-2000 DEC-31-1999
<PERIOD-START> JAN-01-2000 JAN-01-1999
<PERIOD-END> MAR-31-2000 MAR-31-1999
<CASH> 211,500 77,500
<SECURITIES> 0 0
<RECEIVABLES> 55,700 1,927,200
<ALLOWANCES> 0 0
<INVENTORY> 218,200 1,022,100
<CURRENT-ASSETS> 653,300 4,240,300
<PP&E> 195,500 427,600
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 879,500 4,719,700
<CURRENT-LIABILITIES> 2,935,700 5,314,600
<BONDS> 11,500 31,200
0 0
0 0
<COMMON> 18,700 15,300
<OTHER-SE> (2,086,400) (641,400)
<TOTAL-LIABILITY-AND-EQUITY> 879,500 4,719,700
<SALES> 734,500 1,191,900
<TOTAL-REVENUES> 734,500 1,191,900
<CGS> 527,500 639,600
<TOTAL-COSTS> 527,500 639,600
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 18,800 30,800
<INCOME-PRETAX> (149,100) (1,939,700)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (149,100) (1,939,700)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (149,100) (1,939,700)
<EPS-BASIC> (0.01) (0.13)
<EPS-DILUTED> (0.01) (0.13)
</TABLE>
