FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(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, 2000
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 0-24829
FULL TILT SPORTS, INC.
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(Exact name of registrant as specified in its charter)
Colorado 84-1416864
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
212 North Wahsatch, Suite 205, Colorado Springs, CO 80903
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(Address of principal executive office) (Zip Code)
(719) 630-0980
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 such filing
requirements for the past 90 days. Yes X No
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The number of shares outstanding of each of Issuer's classes of common equity as
of August 17, 2000.
Common Stock, par value $.001 7,745,328
----------------------------- ------------------
Title of Class Number of Shares
Transitional Small Business Disclosure Format yes no X
--- ---
<PAGE>
Full Tilt Sports, Inc.
Index
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Part I
Item 1. Financial Statements
Balance Sheet as of June 30, 2000 (unaudited) 1
Statements of Operations for the Three and Six Months
Ended June 30, 2000 and 1999 and the Period From Inception
(June 30, 1997) through June 30, 2000 (unaudited) 2
Statements of Cash Flows for the Three Months Ended
June 30, 2000 and 1999 and the Period From Inception
(June 30, 1997) through June 30, 2000 (unaudited) 3
Notes to Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operation 6
Part II
Item 1-6. Other Information 9
Signatures 10
<PAGE>
FULL TILT SPORTS, INC.
BALANCE SHEET
JUNE 30, 2000
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 642,260
Accounts receivable 109,469
Inventory 164,060
Prepaid expenses 490,031
--------------
Total current assets 1,405,820
--------------
PROPERTY AND EQUIPMENT, net of depreciation 52,102
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OTHER ASSETS
Prepaid rent 147,244
Prepaid personal services and expenses 303,237
Deposits 8,940
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Total other assets 459,421
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$ 1,917,343
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 105,749
Accrued expenses 11,260
Deferred income - trade agreements 10,618
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Total current liabilities 127,627
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STOCKHOLDERS' EQUITY
10% Convertible preferred stock, Series A, $0.01 par
value, 150,000 shares authorized, 50,000 shares issued
and outstanding 50,000
Preferred stock, $0.01 par value, 4,850,000 undesignated
shares authorized -
Common stock, $0.001 par value, 25,000,000 shares
authorized, 7,765,328 shares issued
and outstanding 7,765
Additional paid in capital 4,246,638
Deficit accumulated during the development stage (2,514,687)
--------------
Total stockholders' equity 1,789,716
--------------
$ 1,917,343
==============
<PAGE>
<TABLE>
FULL TILT SPORTS, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
JUNE 30, 1997
THREE MONTHS ENDED SIX MONTHS ENDED (INCEPTION)
------------------------------- ------------------------------ THROUGH
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000
-------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUES
Sales of merchandise $ 132,698 $ 38,345 $ 132,756 $ 39,190 $ 339,796
Advertising/Promotion income - 17,500 - 17,500 17,500
Trade agreements 14,730 25,743 25,960 29,643 107,463
Miscellaneous 32 2 43 1,519 2,186
-------------- ------------- ------------- ------------- -------------
147,460 81,590 158,759 87,852 466,945
-------------- ------------- ------------- ------------- -------------
COST OF GOODS SOLD 102,948 22,983 104,862 23,469 210,389
-------------- ------------- ------------- ------------- -------------
GROSS PROFIT 44,512 58,607 53,897 64,383 256,556
-------------- ------------- ------------- ------------- -------------
GENERAL AND ADMINISTRATIVE EXPENSES 567,863 277,716 822,787 428,325 2,777,222
-------------- ------------- ------------- ------------- -------------
(LOSS) FROM OPERATIONS (523,351) (219,109) (768,890) (363,942) (2,520,666)
-------------- ------------- ------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest income 4,114 2,988 4,118 5,302 13,821
Interest expense (646) (3) (2,851) (3) (7,842)
-------------- ------------- ------------- ------------- -------------
3,468 2,985 1,267 5,299 5,979
-------------- ------------- ------------- ------------- -------------
NET (LOSS) (427,189) (216,124) (767,623) (358,643) (2,514,687)
PREFERRED DIVIDENDS - - - - (8,589)
-------------- ------------- ------------- ------------- -------------
NET (LOSS) APPLICABLE TO COMMON STOCK $ (427,189) $ (216,124) $ (767,623) $ (358,643) $(2,523,276)
============== ============= ============= ============= =============
PER SHARE INFORMATION:
WEIGHTED AVERAGE SHARES
OUTSTANDING (BASIC AND DILUTED) 6,575,651 3,704,981 4,963,623 3,557,449 3,794,860
============== ============= ============= ============= =============
NET (LOSS) PER COMMON SHARE
(BASIC AND DILUTED) $ (0.06) $ (0.06) $ (0.15) $ (0.10) (0.66)
============== ============= ============= ============= =============
</TABLE>
2
<PAGE>
<TABLE>
FULL TILT SPORTS, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
JUNE 30, 1997
SIX MONTHS SIX MONTHS (INCEPTION)
ENDED ENDED THROUGH
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000
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<S> <C> <C> <C>
OPERATING ACTIVITIES
Net cash flow from operating activities $ (344,265) $ (203,116) $(1,160,201)
INVESTING ACTIVITIES
Acquisition of fixed assets (32,560) (13,433) (65,254)
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Net cash (used in) investing activities (32,560) (13,433) (65,254)
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FINANCING ACTIVITIES
Common stock issued, net of offering costs 1,000,000 363,804 1,765,906
Preferred stock issued - - 50,000
Proceeds from note payable 78,393 - 120,393
Repayment of notes payable (64,995) - (64,995)
Preferred dividends paid - - (3,589)
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Net cash provided by financing activities 1,013,398 363,804 1,867,715
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Net increase (decrease) in cash 636,573 147,255 642,260
CASH AT BEGINNING OF PERIOD 5,687 101,716 -
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CASH AT END OF PERIOD $ 642,260 $ 248,971 $ 642,260
============= ============= =============
</TABLE>
3
<PAGE>
FULL TILT SPORTS, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
(1) Basis Of Presentation
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles ("GAAP") for interim financial
information and Item 310(b) of Regulation SB. They do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. For further
information, refer to the financial statements of the Company as of December 31,
1999 and for the two years then ended, including notes thereto included in the
Company's Form 10-KSB.
(2) Earnings Per Share
The Company calculates net income (loss) per share as required by SFAS No. 128,
"Earnings per Share." Basic earnings (loss) per share is calculated by dividing
net income (loss) by the weighted average number of common shares outstanding
for the period. Diluted earnings (loss) per share is calculated by dividing net
income (loss) by the weighted average number of common shares and dilutive
common stock equivalents outstanding. During the periods presented common stock
equivalents were not considered as their effect would be anti dilutive
(3) Inventory
Inventories are stated at the lower of cost or market using the weighted average
method.
(4) Equity
The Company has authorized 30,000,000 shares of stock, of which 25,000,000
shares are $.001 par value common stock and 5,000,000 shares are $.01 par value
preferred stock. The Board of Directors is authorized to divide the class of
preferred shares into series and to fix and determine the relative rights and
preferences of those shares.
During the three month period ended March 31, 2000, the Company issued 133,535
shares of common stock at prices ranging from $.75 to $1.38 per share for
services. The value of the common shares corresponds to the fair market value of
the common stock on the date it was agreed to issue said shares. The value of
the shares was recorded as prepaid services and will be charged to operations
over the lives of the related agreements.
4
<PAGE>
During April, 2000 the Company issued 3,594,256 shares of its common stock at a
price per share of $.373869 per share in a negotiated private placement. The
consideration received by the Company was $1,000,000 cash, $193,744 of pre-paid
rent, $117,844 for consulting services and $32,192 for equipment. In connection
with filing of the Company's Form 10-QSB for the quarter ended June 30, 2000,
and upon consultation with the Company's accoutants, the Company subsequently
determined that the fair market value of the common stock for financial
statement accounting purposes on the date of the transaction was approximately
$.55 per share. Accoordingly, the Company will record stock grant compensation
of $648,864 over the lives of the associated agreements representing the
difference between the neogotiated price per share and the fair market value of
the common stock. The Company does not anticipate accruing additional stock
grant compensation for such private placement.
During the three month period ended June 30, 2000, the Company issued 97,815
shares of common stock at prices ranging from $0.75 to $1.25 per share for
services. The value of the common shares corresponds to the fair market value of
the common stock on the date it was agreed to issue said shares. The value of
the shares was recorded as prepaid services and will be charged to operations
over the lives of the related agreements.
(5) Related Party Transactions
The Company paid the outstanding balances of several promissory note agreements
with two members of the board of directors. Total amount paid for principal and
interest was $49,872.
5
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations.
===================================================================
The following discussion and analysis covers material changes in the
Company's financial condition since December 31, 1999 and material changes in
the results of operations for the three and six months ended June 30, 2000, as
compared to the same periods in 1999. This discussion and analysis should be
read in conjunction with "Management's Discussion and Analysis and Results of
Operations" included in the Company's Form 10-KSB for the year ended December
31, 1999.
Results of Operations
---------------------
For the three months ended June 30, 2000, Full Tilt Sports, Inc. (the
"Company") realized a net loss of $427,189, or $.06 per share, on total revenues
of $147,460. This compares to a net loss of $216,124, or $.06 per share, on
revenues of $81,590 for the quarter ended June 30, 1999. For the six months
ended June 30, 2000, the Company realized a net loss of $767,623, or $.15 per
share, on total revenues of $158,759. This compares to a net loss of $358,643,
or $.10 per share, on total revenues of $87,852 for the six months ended June
30, 1999.
During 2000, the Company upgraded its product line and begun contracting
for production of merchandise overseas. Revenues from the sale of merchandise
during the second quarter of 2000 did increase $65,960 from the same fiscal
quarter in the prior year. This increase is attributable to additional retail
outlets carrying the Company's products. A small amount of the revenues during
the second quarter of 2000 were also realized from trade agreements, where the
Company trades the services of its contract athletes for services or merchandise
from third parties.
Gross profit for the three and six month periods ended June 30, 2000
decreased significantly compared to the three and six month periods ended June
30, 1999, although revenues increased by approximately $100,000 during these
periods. This decrease in gross profit was due to an increase in the costs of
goods sold during the latter periods, in turn attributable to the increased cost
of manufacturing higher end products and the costs of shipping from overseas.
The Company's gross profit during the second quarter of 2000 was still
insufficient to finance general and administrative expenses. These expenses for
the six months ended June 30, 2000 were $822,787, an increase of approximately
$400,000 from the six months ended June 30, 1999, when expenses were $428,325.
While certain expenses such as advertising decreased in the six month period
ended 2000 as compared to the similar period in 1999, other expenses increased
such as consulting fees, which increased approximately $180,000, and promotional
and public relations expenses which increased approximately $60,000. In
addition, $92,694 in consulting expenses were realized as a non-cash expense in
the second quarter 2000 due to services that a shareholder provided to the
Company as part of the purchase price for his stock acquisition in that period.
The Company valued the stock sold by the shareholder in his stock
acquisition, in accordance with generally accepted accounting principles, at
approximately $.55 per share, a negotiated discount price from the trading price
of $.75 per share at the date of the transaction. This discount was due to the
significant financial investment the shareholder made at that time, the thinly
traded market for the Company's stock, and the fact that the stock was
restricted from resale at the time of purchase. The shareholder's actual
purchase price per share was less than the $.55 price per share as valued above.
The difference between the actual and attributed share prices, for accounting
purposes, was a non-cash expense.
During the second quarter 2000, the Company issued an aggregate of 82,458
shares of its common stock at prices ranging from $.75 to $1.25 for services. In
addition, the Company issued approximately 140,000 shares of its common stock to
a shareholder at a price of approximately $.55 per share as above stated. These
stock issuance for services are reflected as a non-cash expense to the Company.
6
<PAGE>
Management believes the Company's products are continuing to gain greater
marketplace acceptance. The Company is expanding its sales outlets to department
stores over a greater area, primarily in the western states. The Company
delivered a sizable order in the second quarter of 2000 to JC Penney Co, Inc.
and has commitments for significant orders for the fall of 2000. However,
management is of the opinion that the Company will continue to incur losses
until such time as the sale of its merchandise results in a sufficient profit
margin to cover general, administrative and other expenses.
Liquidity and Capital Resources
-------------------------------
The Company's financial condition improved significantly from fiscal
quarter end March 31, 2000 and December 31, 1999. At June 30, 2000, the Company
had working capital of $1,278,193, an increase of $968,770 from the prior fiscal
year end. This is due in large part to an increase in the Company's cash assets
that were $5,000 at December 31, 1999 and increased to $642,260 at June 30,
2000. Prepaid expenses increased by approximately $290,000 during this period as
well. The increase in cash was primarily realized from the private placement
described below.
In April, 2000, in an effort to satisfy the Company's working capital
needs, an aggregate of 3,594,256 shares of common stock at a price per share of
$.373869 was sold in a neogotiated private placement completed April 19, 2000.
The Company also issued a warrant to purchase an additional 1,036,000 shares.
The sale was made pursuant Rule 506 of Regulation D of the Securities Act of
1933, as amended. All of the shares sold in the transaction were restricted
within the meaning of the 1933 Act and bear the restrictive legend as required
by Rule 144 under the Securities Act of 1933, as amended. The consideration
received by the Company was $1,000,000 in cash, $193,744 for satisfaction of
rent for the Company's principal office facilities for two years, $32,192 for
office equipment and improvements, and $117,844 for consulting services. At the
time of the placement, the Company determined that the issuance was for fair
value for a number of reasons including, but not limited to: a) lack of
responsiveness in the public capital markets to new financing considering
declining stock markets; b) that there were no commissions payable on the
transaction regarding the financing or leasing terms; c) the difficulty and cost
of timely obtaining alternative large equity financing; d) that the terms and
conditions were preferable to debt or preferred stock terms; e) the timing and
availability of obtaining rental space in a tight rental market; f) the
restrictions associated with the issued stock under the agreements and
securities laws; and g) the extremely thin trading volume of the Company's
common stock. In connection with filing of the Company's Form 10-QSB for the
quarter ended June 30, 2000, and upon consultation with the Company's
accountants, the Company subsequently determined that the fair market value of
the common stock for financial accounting purposes on the date of the
transaction was approximately $.55 per share. Accoordingly, the Company will
record stock grant compensation of $648,864 over the lives of the associated
agreements representing the difference between the neogotiated price per share
and the fair market value of the common stock. The Company does not anticipate
accruing additional stock grant compensation for such private placement.
Shareholders' equity also increased significantly, from $332,919 at year
end 1999 to $1,789,716 at June 30, 2000. However, the number of shares
outstanding also significantly increased, from 3,939,722 at year end 1999 to
7,765,328 shares at June 30, 2000. A majority of these shares were issued in the
private placement.
Based upon the cash and working capital existing at June 30, 2000, as well
as current commitments, management believes that the Company has sufficient
working capital to meet its expenses until the end of this year. However, the
Company may require additional cash in 2001 to continue its operations. The
Company may have to raise additional cash from outside sources. The Company has
a line of credit with Bank One, Colorado N.A. though November 2000, all of which
is available at June 30, 2000. If that line of credit is not renewed in
November, the Company may be forced to borrow elsewhere or sell equity
securities to raise cash for inventory, to finance accounts receivable and for
general and administrative expenses.
Management is of the opinion that the Company remains dependent on receipt
of capital from outside sources to become profitable.
7
<PAGE>
Cautionary Note Regarding Forward-Looking Statements
----------------------------------------------------
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby
providing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made by
or on behalf of the Company herein or orally, whether in presentations, in
response to questions or otherwise. Factors that could cause actual results to
differ materially include, among others, the following: acceptability of the
Company's products in the retail market place, general economic conditions, and
the overall state of the retail clothing industry. Most of these factors are
outside the control of the Company. Any statements that express, or involve
discussions as to expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "will result", "are expected to", "will continue", "is
anticipated", "estimated", "projection" and "outlook") are not historical facts
and may be forward-looking and, accordingly, such statements involve estimates,
assumptions, and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements.
The Company cautions that actual results or outcomes could differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company. Any forward-looking statement speaks only as of the date
on which such statement is made, and the Company undertakes no obligation to
update any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time, and it
is not possible for management to predict all of such factors. Further,
management cannot assess the impact of each such factor on the 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.
8
<PAGE>
Part II: Other Information
Item 1: Legal Proceedings
None
Item 2: Changes in Securities
See Part I, Item 2.
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other information
None
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits
27.1 Financial Data Schedule
B. Reports on Form 8-K
The Company filed a Current Report dated April 19, 2000 reporting
a change in control of the Company.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FULL TILT SPORTS, INC.
Date: August 21, 2000 By: /s/ Roger K. Burnett
--------------------------
Roger K. Burnett, President and
Chief Financial Officer
10
