UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 1999
Commission File Number 000-25563
OUTLOOK SPORTS TECHNOLOGY, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 65-0648808
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Grand Street, Suite 5A
New York, NY 10013
(Address of principal executive offices) (Zip Code)
(212) 966-0400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the
Act:
Common Stock, par value $0.01 per share
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The Company's revenues for the year ended January 31, 1999 were $468,194.
As of May 13, 1999 the aggregate market value of the voting stock held by
non-affiliates of the registrant (based on The Over the Counter Electronic
Bulletin Board's last sale price of $7.25 on May 13, 1999) was $16,496,396.
As of May 13, 1999, there were 4,072,528 shares of the registrant's Common
Stock outstanding.
<PAGE>
PART I.
Item 1. HISTORY OF THE COMPANY
The Company was founded as Hippo, Inc. in February 1996, with the goal of
becoming a leading U.S. golf equipment and apparel manufacturer. To that end the
Company entered into a licensing agreement with Hippo Holdings, Ltd., a leading
manufacturer of value-priced golf equipment in Europe, to manufacture, market
and distribute the HiPPO brand of golf equipment in the United States and
Canada. The Company began shipments of HiPPO products in July of 1997 and for
the ten month period ending April 30, 1998 sold approximately $500,000 in HiPPO
clubs. The Company has since discontinued the distribution of value-priced golf
equipment to pursue opportunities in the premium-priced end of the market
offered by Tegra products.
In June of 1996, the Company initiated a significant research and
development project to develop new, visibly distinct technology for its golf
clubs with which to enter the premium-priced segment of the U.S. golf market.
The premium-priced segment of the golf market captures the largest portion of
consumer spending with approximately 70% of consumer dollars being spent on
premium clubs. In addition, manufacturers margins on premium clubs are typically
significantly higher than on value-priced equipment. This research led to the
Company's development of its patent-pending Invisible Inset Hosel and bullet
shaped driver technology. These new technologies have become the key
technological elements of the Tegra brand of golf equipment. To improve its
margins and profits, the Company added the Tegra brand of premium golf equipment
and accessories at the premium-priced segment of the market.
In January, 1998 the Company changed its name to Outlook Sports
Technology, Inc. Management believes that this name better reflects the attitude
and spirit of the Company, as a forward thinking and technologically advanced
sporting goods manufacturer, than its prior name.
In April, 1998 the Company was approached by Hippo Holdings, Ltd. to
reacquire the rights to the HiPPO brand in the United States and Canada. On May
4, 1998 the Company sold its license to sell HiPPO-TM- products in the U.S. back
to Hippo Holdings, Ltd. along with all existing HiPPO-TM- inventory, marketing
materials and related liabilities. In return, the Company received a cash
payment from Hippo Holdings, Ltd. of approximately $413,000. In addition, Hippo
Holdings, Ltd. returned to the Company 50,000 shares of the Company's common
stock and assumed outstanding liabilities and commitments of the Company in
excess of $1,000,000.
General
Company Products
TEGRA GOLF CLUBS. Tegra woods and irons with the Company's
patent-pending Invisible Inset Hosel are an evolution from current club
technology. The Company has worked with Chou Golf Design Labs, Inc. to develop
the Tegra line of golf clubs. The Company's design moves or insets the shaft as
close to the center of the club head as permitted under current USGA rules. As a
result, the club head will rotate to the target faster than conventional
designs, making it easier to square the club at impact and enabling the golfer
to hit straighter and longer shots. This technology has been designed to be
visibly distinct to the consumer at all times except while the club is being
used. The Company's purpose in making the technology "invisible" to golfers
while hitting the shot is to enhance the golfers ability to aim the club when
addressing the ball. The Company believes that the Company's Invisible Inset
Hosel technology could be as significant to the golf industry as perimeter
weighting, graphite shafts or oversize metal woods.
<PAGE>
In addition, the Company designed the Tegra woods with a "bullet" shape
in which the widest part of the club is the club's face or hitting area. This
"bullet" shape contrasts with conventional club designs, in which the club head
widens out from the face of the club resulting in the widest part of the club
head being half an inch or more behind the face. The club's bullet shape
provides a larger hitting area and sweet spot than would be achieved in a club
having the same volume but a conventional design. An additional result of the
bullet shape is that more weight in the club is distributed directly behind the
hitting area than with conventional designs.
Tegra irons incorporate the same patent-pending Invisible Inset Hosel
technology as Tegra woods. The inset is as beneficial in Tegra irons as it is in
Tegra woods. The Company believes that squaring the club to the target at impact
makes Tegra iron shots more accurate than conventional designs. Tegra irons
feature an oversize head design, with weighting around the perimeter and behind
the sweet spot designed to maximize forgiveness on mis-hits and to provide a
better feel on center hits, and the Invisible Inset Hosel which has been
elevated to reduce club head twisting in longer grass.
The Company designs and markets Tegra men's right handed titanium woods
and 17-4 stainless steel irons. The Company produces a full range of titanium
drivers (6 DEG., 8 DEG., 9 DEG., 10 DEG. and 11 DEG.) and titanium fairway woods
(#3, #5, #7 and #9) with graphite shafts and irons with options of steel or
graphite shafts. Each shaft is available in various flexes to accommodate
golfers of all ages and ability levels. The Company plans to introduce
left-handed, ladies and seniors woods in the Summer of 1999.
The Company has conducted player testing on its woods and irons and the
Company believes such testing shows its Tegra technology promotes straighter and
longer golf shots than other leading premium-priced golf clubs. "Iron Byron"
testing (robotic testing designed to repeat identical swings so different clubs
can be compared under controlled conditions) of Tegra woods has confirmed that
the Tegra driver provides greater carry, roll and overall distance than certain
leading premium-priced clubs while simultaneously increasing accuracy.
Additional mechanical testing which has recently been recorded using high speed
video shows that the Invisible Inset Hosel design produces a squarer club face
at impact than other leading premium-priced clubs, resulting in straighter and
longer shots.
The Company's Invisible Inset Hosel technology is visibly distinct to
the consumer except while the club is being used. In the golf industry, where
many products look alike, some technological features are difficult to
distinguish. Since many manufacturers make similar performance claims, consumers
can become confused and have difficulty distinguishing products. The visibility
of the technology is extremely important to identifying the product and
communicating its benefits in a believable way and therefore adds to the
Company's marketing effort. The Company believes that past performance of golf
club sales shows that golf clubs which have had visibly distinct technology have
seen far greater sales growth than equipment with new but non-visibly distinct
technology. In 1967, Ping became a leader in the irons category when it
introduced the first cavity backed (perimeter weighted) irons, a technology that
was visibly distinct from other irons available at the time. In 1979, Taylor
Made became a leader in the driver category when it introduced the first "metal
wood" with an investment cast steel club head replacing the traditional
persimmon wood head. In 1991, Callaway Golf became a leader in the driver
category when it introduced the first oversized metal wood. Each of these
products was not only an evolution of existing technology but its technology was
visibly distinct to the consumer. As a more recent example, in 1994, Taylor Made
introduced the Burner Bubble Shaft. This shaft incorporates a geometrical
"bubble" highlighted with copper paint to emphasize its visible difference from
conventional shafts. In the second quarter of 1995, Taylor Made's sales nearly
tripled from 1994, achieving a 30% share of the premium driver market. The
Company believes that a key factor to the success of these products is that the
technology was visibly distinct to the consumer.
<PAGE>
The Company is currently sourcing all of its golf club components from
contract manufacturing facilities. The Company's golf club heads are currently
made in Asia by Wisdom Industries Co., Ltd., Fu Sheng Industrial Co., Ltd. and
Zhong Shan Wei Sheng Sporting Goods Co., Ltd. True Temper Sports ("True
Temper"), the world's largest shaft manufacturer, is currently producing the
Company's steel and graphite shafts domestically. Golf Pride, a division of the
Eaton Corporation, the world's largest grip manufacturer, produces the grips
domestically. Joe Powell Golf, Inc. ("Powell"), one of the golf industry's
leading golf equipment assembly companies, assembles the Tegra clubs
domestically. The Company obtains these supplies by using individual purchase
orders, rather than detailed open supply agreements. The Company spent $189,581
in 1998 and $451,019 in 1997 in connection with research and development.
APPAREL. In addition to golf clubs, the Company designs and markets a
line of men's apparel. The Company's apparel designs are intended to enhance the
Tegra brand image and be technically advanced. The Company's apparel collection
for the holiday 1999 selling season will focus on golf outerwear. The collection
will expand for the Spring 2000 to include a complete range of men's shirts.
Tegra outerwear is designed to perform in a variety of climatic
conditions. A collection of technical fabrics such as Air-Tech-TM-, a
waterproof-breathable nylon, and Micro Fleece, a brushed Polyester fabric which
provides breathable insulation have been incorporated to help keep the golfer
comfortable when playing in inclement weather.
A complete range of men's shirts is planned for introduction for the
Spring 2000 selling season. The Company's men's shirt collection will focus on
offering a limited range of updated styles in a wide variety of colors. The
Tegra collection will emphasize performance, comfort and style and are suitable
for wear on or off course. The Company will offer a custom embroidery program
for on-course golf shops and anticipates that 75% of all shirts will be custom
logoed.
ACCESSORIES. The Company offers a variety of golf caps and full size
staff bags. The Company plans to offer a full line of accessories, including
bags, umbrellas, towels and caps. The Company anticipates offering a range of
golf bags, including stand, light-weight carry and full size staff bags. The
Company expects its golf bags, umbrellas, and towels to be available for the
summer, 1999.
MARKETING
GENERAL. The Company's target consumer is the avid amateur golfer. To
reach this consumer the Company is developing a direct response advertising
campaign, which will include a thirty minute infomercial, creating a unique web
site which will include electronic commerce, designing and installing TREs in
golf shops and attempting to obtain endorsements from golf professionals.
DIRECT RESPONSE ADVERTISING. The Company is presently developing a
direct response advertising campaign. The campaign will contain a long format
(30-minute) infomercial for Tegra drivers as well as 30 second, one minute and
two minute spots. Filming of this infomercial was completed during April, 1999.
The infomercial is being hosted by national sports broadcaster Dan Hicks and
contains appearances by professional golf instructor Josh Zander and the club's
designer Art Chou. The Company believes that several golf equipment companies
have found long format infomercials to be extremely successful and profitable.
The Company believes that the unique technological features incorporated in the
Tegra driver and visibility of the features give it the potential to be a
successful direct response product. Consumers will be able to purchase Tegra
products directly by calling the Company's toll free phone number or ordering
the product on-line. The Company intends to test market the infomercial on
network affiliates, sports cable channels and regional cable channels in the
Northeastern United States beginning in June, 1999.
<PAGE>
In addition to broadcast advertising, the Company will launch a direct
market print campaign. The Company plans to place Tegra driver direct response
print advertisements in national golf publications such as GOLF DIGEST, GOLF
WEEK and GOLF MAGAZINE and other targeted consumer publications.
INTERNET. The Company anticipates that it will have a web site on the
internet by July 1999. The site will contain information about Tegra products
and tour players. In addition, the Company is considering making products
available for direct internet purchases (electronic commerce), although no
assurance can be given as to when, or if, the Company will do so. The Company
foresees expanding on-line operations to maximize internet opportunities.
TEGRA RETAIL ENVIRONMENTS. The Company has adopted a marketing model used
by marketers of many leading brands of consumer products who use in-store shops
to increase sales and brand awareness. TREs are advanced retail selling systems
designed to increase sales and brand awareness at point of purchase by selling
Tegra products in a branded environment. TREs are defined spaces in golf shops,
which occupy from 25 to 150 square feet and consist of a variety of elements,
which may include flooring, fixtures, graphics, and point-of-purchase materials.
Within a TRE the Company has the ability to market Tegra golf clubs, apparel and
accessories in an integrated, branded environment designed to convey the image
of the Company as innovative in golf club technology and distinctive in design.
In the Spring, 1998, the Company began a rollout of Tegra Retail
Environments in select golf stores. The Company installed 58 TREs in golf stores
in 55 cities, including two of the nation's largest golf equipment retailers
Edwin Watts and Roger Dunn Golf Shops. This rollout demonstrated to the Company
that there is a need and an opportunity in the marketplace for in-store golf
shops. However, due to cash flow problems in 1998, the Company was unable to
support these shops and accordingly removed installations for revision and
reinstallation in 1999. Most present Tegra retailers have indicated a desire to
have updated TREs and the Company anticipates that the majority of golf shops
which retail Tegra products in the year 2000 will be included in the TRE
program.
TOUR ENDORSEMENTS. Tegra products were endorsed for the 1998 season by
four touring professionals. Tegra players won more than $2 million world-wide on
tour. The company is revising its tour strategy in 1999 to focus on a large
number of PGA Tour professionals to endorse its products rather than signing
large endorsement contracts with one or two players. The Company is not
presently endorsing any tour professionals. However, the Company is
investigating the possibility of establishing a program under which professional
golfers would be endorsed for wearing Tegra clothing and/or headgear and/or
using a Tegra driver.
RETAIL PRICING. One of the Company's sales strategies is to deliver
products which can achieve superior retail margin in order to incentivize
retailers to sell more Tegra product. The Company estimates that retailers on
average achieve 20% gross margin on sales from premium golf equipment. By
pricing appropriately, the Company believes it will be able to offer retailers
products that can achieve superior margin. The Company expects that, on average,
Tegra golf clubs will allow retailers to achieve 40% gross margin, while Tegra
apparel allow retailers to achieve in excess of 50% gross margin.
CATALOGUE SALES. Tegra products are available in the Edwin Watts golf
catalog, one of the country's leading golf catalogues.
PATENTS
Where appropriate, the Company seeks patent protection. The Company has
filed patent applications covering various aspects of its TEGRA line of inset
woods and irons. The Company filed a United States provisional patent
application on December 31, 1996, entitled INSET HOSEL GOLF CLUB. The Company
subsequently filed a full United States patent application and a Patent
Cooperation Treaty patent application based on the United States provisional
patent application, claiming priority as of the December 31, 1996 date. The
Patent Cooperation Treaty Application designated all states. Based on the
results of a patent search obtained by outside patent counsel, the Company is of
the view that various aspects of the TEGRA line of woods and irons may be
patentable. The patent applications include sixty-eight claims of varying scope
and construction, including claims directed to golf clubs having an inset hosel
wherein the fact that the hosel is inset and is hidden from the golfer, as well
as claims directed to methods of making such a golf club. Other claims are
directed to other features or combinations of features of the Tegra golf clubs.
The Company has not received a substantive office action on the merits from the
United States Patent and Trademark Office.
<PAGE>
The Company intends to seek further patents on its technology, if
appropriate. However, there can be no assurance that patents will issue from any
of the Company's pending or any future applications or that any claim allowed
from such applications will be of sufficient scope of strength, or be issued in
all countries where the Company's products can be sold, to provide meaningful
protection or any commercial advantage to the Company.
COMPETITION
The Company competes with a number of established golf club
manufacturers, many of which have greater financial and other resources than the
Company. The Company's competitors include Callaway Golf Company, Adidas-Salomon
AG (Taylor Made) and Fortune Brands, Inc. (Titleist and Cobra). The Company
competes primarily on the basis of performance, brand name recognition, quality
and price. The Company believes that its ability to establish its brand and
market its products through its distributors is important to its ability to
compete.
The golf club industry is generally characterized by rapid and
widespread imitation of popular technologies, designs and product concepts. The
Company expects that one or more competitors may introduce products similar to
its Tegra clubs. The buying decisions of many purchasers of golf clubs are often
the result of highly subjective preferences which can be influenced by many
factors, including, among others, advertising media, promotions and product
endorsements. The Company may face competition from manufacturers introducing
other new or innovative products or successfully promoting golf clubs that
achieve market acceptance. The failure to compete successfully in the future
could result in a material deterioration of customer loyalty and could have a
material adverse effect on the Company's business, operating results or
financial condition.
In addition, the Company competes with a number of more
well-established designers of golf apparel, including Nike, Reebok, Greg Norman,
and Tommy Hilfiger. Because the Company competes primarily on the basis of brand
name recognition, quality, comfort, and fashion considerations, the Company
believes that its ability to establish its brand and market its apparel is
important to its ability to compete. The subjective nature of apparel-buying
decisions could result in a lack of acceptance in the market of the Company's
apparel and accessories. Failure of the Company's current and planned apparel
and accessories would adversely affect the Company's future growth and
profitability.
Employees
At April 30, 1999, the Company had eight full-time employees, seven of whom
were involved in executive, managerial, supervisory and sales capacities and one
of whom serves in a clerical capacity. None of the Company's employees is
covered by a collective bargaining agreement or is a member of a union. The
Company believes that its relationship with its employees is satisfactory.
Item 2. PROPERTIES AND FACILITIES
The Company's corporate headquarters are located in a 2,250 square foot
facility in New York, NY. This facility accommodates the Company's corporate,
administrative and marketing personnel. The lease on this facility is month to
month with a monthly rent of $4,950.
Item 3. LEGAL PROCEEDINGS
The Company received a letter from counsel for Tatsuya Saito ("Saito")
on January 28, 1998 requesting that the Company review its Tegra line of clubs
in view of a patent issued to Saito on July 12, 1994 (the "Saito Patent"). The
Saito Patent covers certain aspects of a club head and hosel, including the
positioning of the hosel inset relative to the club head. The Company has
referred this request to independent outside patent counsel. The Company does
not believe that the Tegra line of clubs infringes any of the claims of the
Saito Patent; however, there can be no assurance that a court will find that one
or more of the Company's products does not infringe the Saito Patent, or any
other patent. If Tatsuya Saito is successful in asserting its patent, it could
require the Company to alter or withdraw existing products, delay or prevent the
introduction of new products, or force the Company to pay damages if the
products have been introduced.
<PAGE>
The Company is a defendant in a lawsuit filed by Vardon Golf Company,
Inc. ("Vardon") asserting that the Company's Tegra woods and irons infringe one
of the claims of its patent issued on April 12, 1994 (the "Vardon Patent"). The
Vardon Patent includes claims directed to a number of aspects of a golf club
head and hosel, including claims directed to an extended radius of gyration,
which includes an aspect of the club head extending behind the hosel. Vardon
filed a complaint in the Northern District of Illinois, Eastern Division, on May
13, 1998, in which Vardon alleges that six golf club manufacturers, including
the Company, have manufactured, sold, offered to sell and distributed in the
United States, specifically in the Northern District of Illinois, wood-type and
iron golf clubs that are covered by at least one claim of the Vardon Patent and
a related design patent. The Company does not believe that the Tegra line of
clubs infringes any of the claims of these patents and the Company has prepared
and filed a response to the complaint; however, there can be no assurance that a
court will find that the Company does not infringe one or the other of these
patents, or both. If Vardon is successful in asserting its patent, it could
require the Company to alter or withdraw existing products, delay or prevent the
introduction of new products, or force the Company to pay damages if the
products have been introduced.
The Company has been named as a defendant, together with May Davis
Group ("May Davis"), in a litigation brought in the United States District
Court, Southern District of New York on December 11, 1998 (Case Number 98CIV.
8772) brought by Argent Securities, Inc. ("Argent"). Argent alleges that the
Company has breached a letter of intent with Argent whereby Argent was to act as
the underwriter of the company's initial public offering of securities as well
as a Private Placement Agreement whereby Argent was to act as the placement
agent of the Company's private placement of securities. The complaint alleges
that Argent is owed $20,557 by the Company for expenses and $1.5 million by the
Company for services performed by Argent for the benefit of the Company. The
complaint further alleges that May Davis was instrumental in interfering with
these contracts and Argent is seeking $1.5 million in damages from May Davis as
damages caused by such alleged tortious interference. Finally Argent is claiming
$1.5 million in damages against both of the Company and May Davis, jointly and
severally, which is to equal lost revenues and future profits of Argent. The
Company believes these claims are without merit and intends to vigorously defend
itself against these claims. The Company is also considering bringing counter
claims against Argent. There can be no assurance however, that the Company will
be successful in defending itself against these claims and if the Company were
to lose such litigation it would have a materially adverse effect on the Company
and its ability to continue operations.
The Company had extensive negotiations with an entity representing
professional golfer Ian Woosnam for in excess of one year in an attempt to reach
an agreement on the terms of a long term endorsement contract under which Mr.
Woosnam would endorse Tegra golf equipment, apparel and accessories. While these
negotiations were ongoing, Mr. Woosnam used Tegra golf equipment, apparel and
accessories while competing on the US and European PGA Tours. The Company and
Mr. Woosnam have been unable to reach agreement on the terms of the endorsement
contract and at this time negotiations have stopped. The Company has made offers
to Mr. Woosnam in an attempt to compensate Mr. Woosnam for the value of the
services he rendered during 1998. Should the Company and Mr. Woosnam be unable
to amicably reach an agreement regarding the value of the services rendered by
Mr. Woosnam, Mr. Woosnam may decide to pursue legal action against the Company.
In the event that Mr. Woosnam does file a lawsuit against the Company, the
Company will assert its defenses vigorously; however, no assurance can be made
that the Company will prevail or as to the damages which a court may assess
against the Company if Mr. Woosnam were to prevail in any such action.
From time to time the Company has been threatened with, or named as a
defendant in, lawsuits in the ordinary course of its business. The Company's
management does not believe that any of these lawsuits are material. There can
be no assurance that one or more future lawsuits, if decided adversely to the
Company, would not have a material adverse effect on the Company's business,
financial condition and results of operations.
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company consummated an initial public offering of its Class A
Common Stock, par value $0.01 per share ("Class A Common Stock") pursuant to a
registration statement declared effective by the Commission on March 16, 1999,
File No. 333-58631 ("Registration Statement"). The Class A Common Stock is
quoted on the Over The Counter Electronic Bulletin Board under the symbol TGRA.
The Company's Class B Common Stock , par value $0.01 per share ("Class B Common
Stock") has no public trading market.
As of April 30, 1999 there were approximately 45 holders of record of
Class A Common Stock inclusive of those brokerage firms and/or clearing houses
holding the Company's Class A Common Stock in street name for there clientele
(with each such brokerage house and/or clearing house being considered as one
holder) and two holders of record of Class B Common Stock.
The Company has not paid any dividends to date on either class of
Common Stock.
Recent Sales of Unregistered Securities
On October 7, 1998, the Company amended its certificate of incorporation to
create two classes of Common Stock. References to Common Stock below are to the
Common Stock of the Company prior to this Amendment.
The following information is furnished with regard to all securities sold
by the Company within the past three years which were not registered under the
Securities Act. The share numbers set forth below have been adjusted to reflect
a number of stock splits.
The issuances described in this Item 5 were made in reliance upon the
exemption from registration set forth in Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering. None of the
foregoing transactions involved a distribution or public offering. The
recipients of all of these securities represented that such securities were
being acquired for investment and not with a view to the distribution thereof.
In addition, the certificates evidencing these securities bear restrictive
legends. All investors represented that they were either sophisticated or
accredited investors. All investors were given full disclosure concerning the
Company and its business as well as a full opportunity to ask questions of and
receive answers from the Company and its officers and authorized representatives
regarding the terms and conditions of the offering as well as the affairs of the
Company and related matters.
<PAGE>
<TABLE>
<CAPTION>
Issuances of Common Stock
Name Number of Shares Purchase Price Date Sold
<S> <C> <C> <C>
Paul Berger.......................................... 333,333 $ 132,000 May 13, 1996
117,630 95,000 June 21, 1996
207,690 170,000 August 19,1996
1,204,800 588,660 February 27,1997
Jim Dodrill.......................................... 333,333 132,000 May 31, 1996
4,833 10,150 April 22,1997
Michelle Cohen....................................... 76,502 210,000 September 4, 1996
David Staudinger..................................... 6,666 14,000 July 25, 1997
Walter Maupay........................................ 16,666 35,000 July 31, 1997
Walter & Gina McDonough.............................. 3,333 7,000 August 1, 1997
DDJ Hackworthy Ltd Pp................................ 47,619 100,000 August 11, 1997
David Stern.......................................... 8,333 17,500 August 18, 1997
Ian Woosnam (1)...................................... 104,784 220,047 October 1, 1997
Synergy Group International (2) 200,000 100,000 October 17, 1997
Carol Dodrill/Bill Powell (3)........................ 100,000 50,000 October 28, 1997
Paul Fairchild....................................... 33,333 70,000 October 30, 1997
Rodger Berman (2).................................... 6,666 5,000 November 10, 1997
Frank Maddocks....................................... 60,000 45,000 November 11, 1997
Glen Day............................................. 10,000 (4) January 1, 1998
Dan Snider........................................... 1,250 (4) January 1, 1998
Arthur Chou.......................................... 1,666 (4) January 1, 1998
Andrew Holder/Marc Roberts (2) 100,000 100,000 January 23, 1998
Argent Securities, Inc............................... 125,000 (4) January 23, 1998
Total.......................................
</TABLE>
Purchase price was paid by the individual forgoing payments due under a
contract with Company in amounts equal to the purchase price. These individuals
purchased stock from Paul Berger and Jim Dodrill.
These individuals purchased stock from Paul Berger. Issued in connection with a
services contract.
In November 1998, the Company executed exchange agreements with certain
noteholders, including officers and a related party, whereby such parties
exchanged an aggregate of $6,121,284 of principal and interest on notes for
1,224,257 shares of the Company's Class A Common Stock and 1,224,257 warrants to
acquire shares of the Company's Class A Common Stock.
Between November 1998 and February 1999, the Company received $225,000 in
exchange for notes payable bearing interest at rates between 10% and 12% with an
equivalent face amount and 18,000 shares of the Company's Class A Common Stock.
These notes matured upon the earlier of (a) various dates between February and
October 1999 and (b) five days subsequent to the completion of an initial public
offering by the Company. These loans were repaid in March 1999.
Debt Securities and Warrants
From February, 1997 through July 1, 1998, the Company issued unregistered
debt securities and warrants to a number of individuals pursuant to five private
placements and to Stanley Berger in connection with certain advances to the
Company. The issuances made in connection with these transactions were made in
reliance on Section 4(2) of the Securities Act. In each case, each purchaser was
an accredited investor. The following summary of these transactions reflects the
effect of all stock splits of the Company's Common Stock. The summary also
reflects a 25% increase in the number of shares of Common Stock that may be
purchased by each investor in the offerings described under (a) and (b) below,
which increase was granted by the Company in return for an extension of the
payment date for each Note.
<PAGE>
(a) In February through April, 1997, the Company sold through a private
placement a total of 9.75 Units (or portions of a Unit) to fourteen individuals,
each Unit consisting of a non-transferable promissory note in the amount of
$100,000, earning 12.5% interest annually, and a warrant to purchase 13,570
shares of the Common Stock of the Company. The warrants are convertible into
shares of Common Stock at $0.75 per share and terminate after five years.
(b) In May through June, 1997, the Company sold through a private placement
a total of 10.5 Units (or portions of a Unit) to ten individuals (all of whom
had participated in the first private placement), each Unit consisting of a
non-transferable promissory note in the amount of $50,000, earning 15% interest
annually, and a warrant to purchase 27,708 shares of the Common Stock of the
Company. The warrants are convertible into shares of Common Stock at $0.75 per
share and terminate after five years.
(c) In July, 1997, the Company sold through a private placement a total of
six Units (or portions of a Unit) to three individuals, each Unit consisting of
a non-transferable promissory note in the amount of $75,000, earning 12.5%
interest annually, and a warrant to purchase 15,000 shares of the Common Stock
of the Company. The warrants are convertible into shares of Common Stock at
$2.10 per share and terminate after five years. One investor in this offering
received warrants to purchase an additional 98,333 shares of Common Stock at
$3.00 per share, and one investor received warrants to purchase an additional
31,666 shares of Common Stock at $2.10 per share.
(d) In January through June, 1998, the Company sold through a private
placement a total of 70.1 Units (or portions of a Unit) to 43 individuals (four
of whom had participated in the first private placement), each Unit consisting
of a non-transferable promissory note in the amount of $50,000 and an option to
receive an additional $3,125 in cash or a warrant to purchase 25,000 shares of
the Common Stock of the Company. Argent Securities, Inc. acted as placement
agent in the private placement and received compensation of $499,150 consisting
of a 10% commission and certain other fees.
(e) On July 1, 1998, the Company, the Company sold through a private
placement a total of one Unit to a single individual, which Unit consisted of a
non-transferable promissory note in the amount of $400,000 and a warrant to
purchase 533,333 shares of the Common Stock of the Company. The warrant is
convertible into shares of Common Stock at $7.25 per share and terminates after
three years. H.J. Meyers acted as placement agent in the private placement and
received compensation of $40,000 consisting of a 10% commission.
(f) In September, 1996 through January, 1998, the Company issued a total of
ten non-transferable promissory notes, totaling $340,000 and warrants to
purchase a total of 67,857 shares of the Common Stock of the Company. The
warrants are convertible into shares of Common Stock at exercise prices ranging
from $0.75 per share to $4.00 per share and terminate after 5 years.
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
General
The statements contained in this report that are not historical are forward
looking statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Exchange Act, including statements regarding the Company's
expectations, intentions, beliefs or strategies regarding the future. All
forward looking statements include the Company's statements regarding liquidity,
anticipated cash needs and availability and anticipated expense levels. All
forward looking statements included in this report are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward looking statement. It is important to note
that the Company's actual results could differ materially from those in such
forward looking statements.
The following analysis of the Company's financial condition as of and for
the fiscal years ended January 31, 1999 and 1998 and for the period from
February 8, 1996 (inception) through January 31, 1997 should be read in
conjunction with the Company's financial statements and notes thereto included
elsewhere in this report.
RESULTS OF OPERATIONS 1999 vs. 1998
Sales during the year ended January 31, 1999 totaled $468,194 compared to
sales of $741,120 for the year ended January 31, 1998. Of the sales during the
year ended January 31, 1999, $445,799 were generated by sales of Tegra products
and $22,395 by sales of HiPPO products. This compares to sales during the year
ended January 31, 1998, of $588,514 generated by sales of HiPPO products and
$152,606 by sales of Tegra products.
The Company introduced the HiPPO line in July of 1997 and the Tegra line in
October of 1997. Sales during both the year ended January 31, 1999 and the year
ended January 31, 1998 were negatively impacted because the Company was not able
to purchase inventory to fill customer orders as a result of the Company's
inadequate working capital and lack of open terms with its vendors. The Company
believes that the absence of sufficient working capital has historically
prevented the Company from taking full advantage of demand for its products.
Likewise, the Company believes that the lack of open terms with its vendors
contributed to preventing the Company from meeting this demand.
In May of 1998 the Company sold its license to sell HiPPO products in the
U.S. back to Hippo Holdings, Ltd. along with all existing HiPPO inventory,
marketing materials and related liabilities. In return, the Company received a
cash payment from Hippo Holdings, Ltd. of approximately $413,000. In addition
Hippo Holdings, Ltd. returned to the Company 50,000 shares of the Company's
Common Stock and assumed commitments of the Company in excess of $1,000,000.
Accordingly, the Company has ceased selling HiPPO products and does not expect
to receive revenue on a going forward basis from such brand.
Costs of sales during the year ended January 31, 1999 totaled $685,131
compared to cost of sales during the year ended January 31, 1998 of $859,317. Of
the total incurred during the year ended January 31, 1999, approximately $48,307
reflects costs associated with air freighting goods from manufacturing
facilities, which are in Asia, to the Company's warehouse in Miami, Florida
compared to approximately $89,343 for the year ended January 31, 1998. The cost
of air freight was necessitated by the Company's marginal working capital
position which limited the Company's ability to place orders as far in advance
as would otherwise be desirable or to maintain inventory to support demand. The
Company's shortage of working capital required the Company to attempt to shorten
lead times involved in production and shipping of goods in order to deliver
product as quickly as possible to its customers. Other incremental delivery
costs of $47,787 also adversely impacted cost of sales for the year ending
January 31, 1998. Additional production cost variances of $52,218 in material
and assembly charges attributed to smaller production runs and manufacturing
carrying charges than the Company expects would have been the case if it were in
a better working capital position also adversely impacted cost of sales for the
year ending January 31, 1998. Costs of sales in comparison to sales for the year
ended January 31, 1998 was negatively impacted by the liquidation of apparel for
$85,356 with a cost of $151,089. Cost of sales for the year ended January 31,
1999 were also negatively impacted by $142,157 loss for liquidation of apparel
below cost.
<PAGE>
Research and development costs totaled $189,581 for the year ended January
31, 1999 as compared to $451,019 for the year ended January 31, This decrease
resulted from reduced spending associated with final development of Tegra golf
equipment.
During the year ended January 31, 1998 the Company incurred a royalty
expense of $16,681 to Hippo Holdings, Ltd. in connection with sales of HiPPO
products. Because all such sales have been terminated, the Company incurred no
such royalty expense during the year ended January 31, 1999 and will no longer
have any royalty expenses to Hippo Holdings, Ltd.
Selling, general and administrative expenses totaled $5,861,141 for the
year ended January 31, 1999 as compared to $3,669,657 for the year ended January
31, 1998 This increase resulted primarily from increased payroll and related
expenses, advertising and promotion, travel, professional fees and facilities,
supplies and services.
RESULTS OF OPERATIONS 1998 vs. 1997
Sales during the year ended January 31, 1998 totaled $741,120. There
were no sales during the period February 8, 1996 (inception) to January 31,
1997. Of the sales during the year ended January 31, 1998, $588,514 were
generated by sales of HiPPO products and $152,606 by sales of Tegra products.
The Company introduced the HiPPO line in July of 1997 and the Tegra
line in October of 1997. Sales during the year ended January 31, 1998 were
negatively impacted because the Company was not able to purchase inventory to
fill customer orders as a result of the Company's inadequate working capital and
lack of open terms with its vendors. The Company believes that the absence of
sufficient working capital has historically prevented the Company from taking
full advantage of demand for its products. Likewise, the Company believes that
the lack of open terms with its vendors contributed to preventing the Company
from meeting this demand.
Costs of sales during the year ended January 31, 1998 totaled $859,317.
Of this amount, approximately $89,343 reflects costs associated with air
freighting goods from manufacturing facilities, which are in Asia, to the
Company's warehouse in Miami, Florida. The cost of air freight was necessitated
by the Company's marginal working capital position which limited the Company's
ability to place orders as far in advance as would otherwise be desirable or to
maintain inventory to support demand. The Company's shortage of working capital
required the Company to attempt to shorten lead times involved in production and
shipping of goods in order to deliver product as quickly as possible to its
customers. Other incremental delivery costs of $47,787 also adversely impacted
cost of sales for the year ending January 31, 1998. Additional production cost
variances of $52,218 in material and assembly charges attributed to smaller
production runs and manufacturing carrying charges than the Company expects
would have been the case if it were in a better working capital position also
adversely impacted cost of sales for the year ending January 31, 1998. Costs of
sales in comparison to sales for the year ended January 31, 1998 was negatively
impacted by the liquidation of apparel for $85,356 with a cost of $151,089.
Research and development costs totaled $451,019 for the year ended
January 31, 1998 as compared to $650,805 for the period ended January 31, 1997.
This 31% decrease resulted from reduced spending associated with final
development of Tegra golf equipment.
During the year ended January 31, 1998 the Company incurred a royalty
expense of $16,681 to Hippo Holdings, Ltd. in connection with sales of HiPPO
products. No royalty expense was incurred during the period ending January 31,
because the Company had not begun sales of its products.
Selling, general and administrative expenses totaled $3,669,657 for the
year ended January 31, 1998 as compared to $1,251,009 for the period ended
January 31, 1997. This increase resulted primarily from increased advertising
and promotion spending and development costs and growth in employment and
related costs.
<PAGE>
FORECAST
The Company expects to commence sales of Tegra products as existing and
potential retailers and consumers gain familiarity with the Tegra brand and the
benefits offered by the Company's Tegra Driver which the Company plans to
advertise extensively through the Company's 30 minute infomercial which the
Company anticipates airing beginning June 1999.
The Company anticipates that its cost of goods sold will decrease with
increased volume of purchasing and lower costs associated with shipping product
as the Company's working capital position improves.
The Company anticipates that within the following 12 months it will
hire an additional 5 people. Of these 5 people, 2 are expected to be hired for
sales positions. These individuals will primarily be territory managers
responsible for sales to specific accounts within a defined geographic region.
The remaining new hires will work in customer service and administrative
positions.
YEAR 2000 COMPLIANCE
Many existing computer systems and applications and other control
devices use only two digits to identify a year in the date field, without
considering the impact of the upcoming change in the century. As a result, as
year 2000 approaches, computer systems and applications used by many companies
may need to be upgraded to comply with "Year 2000" requirements. The Company
relies on its systems in operating and monitoring many significant aspects of
its business, including financial systems (such as general ledger, accounts
payable, accounts receivable, inventory and order management), customer
services, infrastructure and network and telecommunications equipment. The
Company also relies directly and indirectly on the systems of external business
enterprises such as customers, suppliers, creditors, financial organizations and
domestic and international governments. The Company currently estimates that its
costs associated with Year 2000 compliance, including any costs associated with
the consequences of incomplete or untimely resolution of Year 2000 compliance
issues, will not have a material adverse effect on the Company's business,
financial condition or results of operations. However, the Company has not
exhaustively investigated and does not believe it has fully identified the
impact of Year 2000 compliance and has not concluded that it can resolve any
issues that may arise in complying with Year 2000 without disruption of its
business or without incurring significant expense. In addition, even if the
Company's internal systems are not materially affected by Year 2000 compliance
issues, the Company could be affected through disruption in the operation of the
enterprises with which the Company interacts.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity has historically consisted of
sales of equity securities and high yield debt borrowings. During the year ended
January 31, 1999 the Company borrowed $4,205,000 from unaffiliated individuals
at interest rates ranging from 7.5% to 12% and with a weighted average rate of
9.3% Additionally, the Company borrowed $19,147 from the Chief Executive Officer
of the Company at an interest rate of 12.5%.
In November 1998, the Company executed exchange agreements (the "Exchange
Agreements") with certain unaffiliated noteholders whereby such note holders
exchanged an aggregate of $5,210,236 principal amount of indebtedness plus
accrued interest for 1,042,047 shares of Common Stock and 1,042,047 Warrants.
Holders of $375,000 principal amount of indebtedness refused to execute the
Exchange Agreement and such amount remained outstanding at January 31, 1999. The
Company is attempting to negotiate settlement of this amount with the
noteholders. In addition, in November 1998, $911,048 which the Company had
borrowed from certain officers or persons affiliated to officers of the Company
was also converted into 182,210 shares of Common Stock and 182,210 Warrants.
<PAGE>
The Company has developed and implemented strategies to meet ongoing
and future liquidity needs. These strategies include (i) obtaining funds from
private placements of securities of the Company; (ii) an initial public offering
of the Company's Class A Common Stock (iii) arranging for purchase order
financing and (iv) arranging for working capital financing on inventory and
receivables to assist in cash flow. In addition, the Company has reached an
agreement with Wisdom Industries Co., Ltd., ("Wisdom") one of the Company's
principal suppliers of driver heads in which Wisdom has agreed to allow the
Company to pay for 30% of the purchase price of driver heads with Common Stock.
The terms of the agreement also provide the Company with extended terms for
payment of the remainder of the cash portion of the purchase price. The
management of the Company believes that these actions along with a tighter
control on overall costs will allow the Company to meet its liquidity needs for
the next 12 months. If one or more of the Company's financing plans or
strategies are not successful, it may materially impact the Company's cash flow
needs during the next twelve months.
Pursuant to the terms of a factoring agreement, the Company assigns
substantially all of its accounts receivable to a factor with recourse. The
Company is able to borrow up to 50% of eligible accounts receivable, as defined,
up to a maximum amount of $1 million. Advances from the factor incur interest at
24% per annum. Receivables assigned to the factor are subject to a charge of
3.0% of the face amount of the receivable. The advances from the factor are
secured by all the Company's assets. During the year ended January 31, 1998, the
Company incurred interest charges of $10,059 and factoring charges of $7,739.
During the year ended January 31, 1999, the Company incurred combined interest
and factoring charges of $34,877. The term of the factoring agreement is through
August 1999 and renews for successive twelve month periods thereafter, unless
canceled by the Company or the factor. At January 31, 1998, the Company had
received advances of approximately $115,000 in excess of those permitted under
the factoring agreement, resulting in the Company being in default of such
agreement. As a result of the default, the factor had the right to terminate the
agreement and demand payment of the funds advanced. Subsequent to year end, the
Company reduced the amounts outstanding under the factoring agreement and is
currently within the borrowing base of such agreement.
SEASONALITY
The business of the Company is subject to seasonal fluctuations.
Historically, companies in the golf industry have seen their greatest sales in
the first half of the calendar year, and the business of the Company is
particularly dependent on sales during these months. Nevertheless, the Company
believes that, in the near term, its sales may not reflect this seasonality
because the opening of new accounts during the second half of 1999 will outweigh
seasonal effects, which the Company expects may increase its sales during this
period.
<PAGE>
Item 7. FINANCIAL STATEMENTS
The Financial Statements are included with this report commencing on
page F-1.
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants F-2
Balance Sheet, January 31, 1999 F-3
Statements of Operations, Years Ended
January 31, 1999 and 1998 F-4
Statements of Changes in Shareholders' Deficit, Years Ended
January 31, 1999 and 1998 F-5
Statements of Cash Flows, Years Ended
January 31, 1999 and 1998 F-6
Notes to Financial Statements F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Outlook Sports Technology, Inc.
We have audited the accompanying balance sheet of Outlook Sports
Technology, Inc. as of January 31, 1999, and the related statements of
operations, changes in shareholders' deficit, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Outlook Sports Technology,
Inc. as of January 31, 1999, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has incurred recurring losses and negative
cash flows from operations and has a working deficiency capital and
shareholders' deficit at January 31, 1999. These factors raise substantial doubt
about the Company's ability to continue as a going concern. Management's plans
in regard to these matters are described in Note 1. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/S/WOLINETZ, GOTTLIEB & LAFAZAN, P.C.
WOLINETZ, GOTTLIEB & LAFAZAN, P.C.
Rockville Centre, New York
May 6, 1999
F-2
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
BALANCE SHEET
JANUARY 31, 1999
ASSETS
<TABLE>
<CAPTION>
Current Assets:
<S> <C>
Accounts receivable (net of allowance for doubtful accounts
of $147,605) ................................................................ $ --
Inventories ................................................................... 225,804
Prepaid expenses .............................................................. 33,747
------------
Total current assets ................................................... 259,551
Property and equipment (net of accumulated depreciation
of $160,855) .................................................................. 354,318
Debt issuance expense - net ..................................................... 22,000
Deferred offering costs ......................................................... 170,706
$ 806,575
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities:
Accounts payable .............................................................. $ 1,674,384
Accrued expenses .............................................................. 1,571,899
Accrued wages and related expenses ............................................ 1,058,879
Accrued interest payable ...................................................... 233,322
Advances from officer ......................................................... 25,000
Notes payable - current portion ............................................... 762,844
------------
Total current liabilities .............................................. 5,326,328
Notes payable - long-term ....................................................... 40,000
------------
5,366,328
Commitments and contingencies
Shareholders' Deficit:
Preferred stock; $.01 par value, 5,000,000 shares authorized,
none issued and outstanding ................................................. --
Common stock; Class A, $.01 par value, 15,000,000
shares authorized; 2,334,075 shares issued .................................. 23,341
Common stock; Class B, $.01 par value, 5,000,000 shares
authorized; 1,464,953 shares issued and outstanding ......................... 14,650
Treasury stock; 50,000 Class A shares at cost ................................. (19,300)
Additional paid-in capital .................................................... 8,892,290
Accumulated deficit ........................................................... (13,470,734)
------------
Total shareholders' deficit ............................................ ( 4,559,753)
------------
$ 806,575
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended
January 31,
1999 1998
-------------- ---------------
<S> <C> <C>
Revenue ...................................... $ 468,194 $ 741,120
----------- -----------
Costs and expenses:
Costs of sales ............................. 685,131 859,317
Research and development ................... 189,581 451,019
Stock-based compensation ................... -- 210,130
Selling, general and administrative expenses 5,861,141 3,669,657
----------- -----------
Total costs and expenses ............ 6,735,853 5,190,123
----------- -----------
Loss from operations ......................... (6,267,659) (4,449,003)
----------- -----------
Other income (expense):
Interest expense ........................... ( 544,869) ( 244,648)
Gain on sale of license .................... 413,997 --
----------- -----------
( 130,872) ( 244,648)
----------- -----------
Net loss ..................................... $(6,398,531) $(4,693,651)
=========== ===========
Net loss per common share - basic and diluted $ (2.34) $ (2.21)
=========== ===========
Weighted average common shares outstanding ... 2,739,376 2,120,460
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Additional Total
Common Stock Treasury Paid in Accumulated Shareholders'
Shares Amount Stock Capital Deficit Deficit
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1997 ... 1,118,488 $ 11,185 $ -- $ 1,221,159 $ (2,378,552) $ (1,146,208)
Issuance of common stock .... 1,205,583 12,056 -- 932,218 -- 944,274
Stock option compensation ... -- -- -- 153,166 -- 153,166
Net loss .................... -- -- -- -- (4,693,651) (4,693,651)
------------ ------------ ------------ ------------ ------------ ------------
Balance, January 31, 1998 ... 2,324,071 23,241 -- 2,306,543 (7,072,203) (4,742,419)
Issuance of common stock
for payment of services ... 242,700 2,427 -- 411,786 -- 414,213
Issuance of common stock
upon conversion of debt ... 1,224,257 12,243 -- 6,109,041 -- 6,121,284
Issuance of common stock
as debt issuance expense .. 8,000 80 -- 39,920 -- 40,000
Issuance of stock purchase
warrants as payment of
accrued interest .......... -- -- -- 25,000 -- 25,000
Treasury stock, 50,000 shares -- -- (19,300) -- -- ( 19,300)
Net loss .................... -- -- -- -- ( 6,398,531) (6,398,531)
------------ ------------ ------------ ------------ ------------ ------------
Balance, January 31, 1999 ... 3,799,028 $ 37,991 $ (19,300) $ 8,892,290 $(13,470,734) $ (4,559,753)
============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended
January 31,
1999 1998
-------------- ---------------
Operating activities:
<S> <C> <C>
Net loss .............................................. $(6,398,531) $(4,693,651)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ..................... 167,400 8,100
Stock-based compensation .......................... -- 210,130
Increase in allowance for doubtful accounts ....... 112,605 --
Stock issued for services ......................... 414,213 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable ...... 55,095 ( 167,700)
(Increase) decrease in inventories .............. 191,254 ( 417,058)
Increase in prepaid expenses .................... ( 20,893) ( 12,854)
(Increase) decrease in deposits and
other current assets ........................... 51,813 ( 44,004)
Decrease in prepaid royalties ................... 133,319 16,681
Increase in accounts payable and accrued expenses 2,208,785 2,156,941
----------- -----------
Net cash used in operating activities ................... (3,084,940) (2,943,415)
----------- -----------
Investing Activities:
Capital expenditures .................................. ( 302,074) ( 178,547)
----------- -----------
Net cash used in investing activities ................... ( 302,074) ( 178,547)
----------- -----------
Financing activities:
Proceeds from line of credit .......................... 100 35,000
Advances from officers ................................ 44,147 255,000
Proceeds from issuance of unsecured notes payable ..... 4,205,000 2,265,500
` Proceeds (payments) from (to) factor ................. ( 277,394) 280,138
Repayment of unsecured notes payable .................. ( 415,500) ( 30,000)
Proceeds from exercise of stock options and sale of
common stock ........................................ -- 298,650
Deferred offering costs ............................... ( 170,706) --
----------- -----------
Net cash provided by financing activities ............... 3,385,647 3,104,288
----------- -----------
Net decrease in cash .................................... ( 1,367) ( 17,674)
Cash, beginning of period ............................... 1,367 19,041
----------- -----------
Cash, end of period ..................................... $ -- $ 1,367
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................ $ 9,322 $ 1,868
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
STATEMENTS OF CASH FLOWS
(Continued)
Supplemental disclosure of noncash investing and financing activities:
<TABLE>
<CAPTION>
Year Ended
January 31,
1999 1998
-------------- ---------------
<S> <C> <C>
Issuance of 1,024,800 shares of common stock in
February 1997 in exchange for the forgivness
of $588,660 of advances due to the Company's Chief
Executive Officer $ - $ 588,660
================== ============
Issuance of 8,000 shares of Class A common stock
as debt issuance expense $ 40,000 $ -
================== ============
Return to the Company of 50,000 shares of common
stock as treasury stock originally issued to a licensor
in connection with sale of license back to licensor $ 19,300 $ -
================== ============
Issuance of 1,161,666 shares of Class A common stock
and 1,161,666 warrants to purchase Class A common
stock in connection with conversion of notes payable
and accrued interest on notes, pursuant to exchange
agreement $ 5,808,327 $ -
================= ============
Issuance of 62,591 shares of Class A common stock
and 62,591 warrants to purchase Class A common
stock to the Company's President and Chief Executive
Officer in connection with conversion of advances
made to the Company and accrued interest on such advances,
pursuant to exchange agreement $ 312,957 $ -
================ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 1 - Organization and Basis of Presentation
--------------------------------------
Outlook Sports Technology, Inc. (the "Company") was
incorporated on February 8, 1996 in the State of Delaware.
The Company is a designer and marketer and, through the use
of contracted parties, a manufacturer of golf equipment,
apparel and accessories under the TEGRA(TM)brand name.
TEGRA(TM)golf clubs incorporate the Company's patent-pending
Invisible Inset Hosel(TM).
The Company initially entered the U.S. golf market
under a license agreement with Hippo Holdings, Ltd. ("Hippo
Holdings"), a British golf equipment manufacturer and
distributor. Under the terms of the licensing agreement, the
Company acquired the rights, in perpetuity, to market and
sell HiPPO(TM)brand products in the U.S. and Canada for
50,000 shares of the Company's common stock, and prepaid
royalties of $150,000. In May 1998, the Company sold this
license back to Hippo Holdings (see Note 9).
The accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern. Since its inception in 1996 through January 31,
1999, the Company has incurred recurring losses of
approximately $13,471,000 and has not generated cash from
its operating activities. Additionally, at January 31, 1999,
the Company had a shareholders' deficit of approximately
$4,560,000 and its current liabilities exceeded its current
assets by approximately $5,067,000. These factors, among
others, raise substantial doubt about the Company's ability
to continue as a going concern. Continuation of the Company
is dependent on (i) achieving sufficiently profitable
operations and (ii) obtaining adequate financings. These
financial statements do not reflect any adjustments relating
to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that
might result should the Company be unable to continue as a
going concern.
In connection with the above, during March and April
1999 the Company completed an initial public offering under
which the Company sold 438,500 shares of its Class A common
stock for net proceeds of approximately $1,794,000 inclusive
of certain unpaid offering expenses (see Note 10). In
addition, the Company intends to raise additional funds
through a combination of equity and/or debt financings. The
Company also intends to test market an infomercial for
TEGRA(TM)drivers on network affiliates, sports cable
channels and regional cable channels in the Northeastern
United States beginning in June 1999. The success of these
planned measures however, cannot be determined at this time
and there can be no assurance that these planned measures
will be realized.
NOTE 2 - Summary of Significant Accounting Policies
------------------------------------------
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual
results could differ from these estimates.
Cash
The Company considers those short-term, highly liquid
investments with original maturities of three months or less
as cash.
F-8
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 2 - Summary of Significant Accounting Policies (Continued)
------------------------------------------------------
Inventories
Inventories, which is primarily comprised of clubs and
component parts, is stated at the lower of cost or market
with cost determined using the first-in, first-out method.
Component parts consist primarily of golf club heads, shafts
and grips.
Property and Equipment
Property and equipment is stated at cost less
accumulated depreciation. Depreciation is computed using the
straight line method over the estimated useful lives of the
related assets, which approximate three and five years.
Significant additions and improvements are capitalized and
costs for maintenance and repairs are expensed as incurred.
Deferred Offering Costs
Deferred offering costs represent charges incurred in
connection with a proposed initial public offering of the
Company's common stock. Upon successful completion of such
offering, the aggregate offering costs will be charged to
additional paid-in capital. In the event that the proposed
offering is unsuccessful, the aggregate offering costs will
be charged to operations in the appropriate period.
Debt Issuance Expense
Costs associated with certain of the Company's debt
financing transactions have been capitalized. These costs
include the value of common stock issued, as consideration
for obtaining various loans. Such costs are being amortized
over the terms of the related loans.
Long Lived Assets
The Company reviews long lived assets and identifiable
intangibles for recoverability and reserves for impairment
whenever events or changes in circumstances indicate. Based
on estimated future cash flows, the carrying amount of the
assets will not be fully recoverable.
Revenue Recognition
Revenue from the sale of non consignment products is
recognized at the time title to such products passes to the
customer. Revenue from the sale of products delivered on
consignment is recognized at the time such products are sold
by the customer.
Research and Development Costs
Research and development costs, which relate primarily
to the design of the TEGRA(TM) brand name products, are
expensed as incurred.
Advertising Costs
Advertising costs are expensed as incurred. Advertising
expense consists of media advertising as well as brochure,
production and direct mail costs. Advertising expense
approximated $1,033,000 for the year ended January 31, 1998.
F-9
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 2 - Summary of Significant Accounting Policies (Continued)
------------------------------------------------------
Income Taxes
The Company records deferred income taxes using the
liability method. Under the liability method, deferred tax
assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the
financial statement and income tax bases of the Company's
assets and liabilities. An allowance is recorded, based upon
currently available information, when it is more likely than
not that any or all of the deferred tax asset will not be
realized. The provision for income taxes includes taxes
currently payable, if any, plus the net change during the
year in deferred tax assets and liabilities recorded by the
Company.
Stock-Based Compensation
The Company accounts for stock-based compensation to
its employees using the intrinsic value method, which
requires the recognition of compensation expense over the
vesting period of the options when the exercise price of the
stock option granted is less than the fair value of the
underlying common stock. Additionally, the Company provides
pro forma disclosure of net loss and loss per share as if
the fair value method had been applied in measuring
compensation expense for stock options granted. Stock-based
compensation related to options granted to non-employees is
recognized using the fair value method.
Loss Per Share
The computation of loss per share of common stock is
computed by dividing net loss for the period by the weighted
average number of common shares outstanding during that
period. The weighted average number of common shares
outstanding for the years ended January 31, 1998 and 1999
excludes approximately 1,179,000 and 3,218,000 respectively,
of antidilutive stock options and warrants.
Because the Company is incurring losses, the effect of
stock options and warrants is antidilutive. Accordingly, the
Company's presentation of diluted earnings per share is the
same as that of basic earnings per share.
Fair Value of Financial Instruments
The carrying value of the Company's financial
instruments, including cash , accounts receivable, accounts
payable, accrued expenses and notes payable approximated
fair value because of the short maturity of these
instruments. The Company routinely assesses the financial
strength of its customers and records an allowance for
doubtful accounts when it determines that collection of a
particular amount is unlikely.
Reclassifications
Certain items in these financial statements have been
reclassified to conform to the current period presentation.
F-10
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 3 - Inventories
-----------
Inventories consist of the following:
Components parts .................. $ 64,800
Clubs ............................. 124,216
Apparel, golf accessories and other 36,788
--------
$ 225,804
NOTE 4 - Property and Equipment
----------------------
Property and equipment consists of the following:
Furniture and fixtures . $468,974
Equipment .............. 46,199
--------
515,173
Accumulated depreciation 160,855
$354,318
The Company recorded depreciation expense of $8,100 and $149,400 for the
years ended January 31, 1998 and 1999, respectively.
NOTE 5 - Notes Payable
-------------
Notes payable consist of the following:
Unsecured notes payable to private investors,
due September 1998 (see below) ................... $375,000
Unsecured notes payable to private investors,
due February 1999, interest at 12% (see below) ... 75,000
Unsecured note payable to private investor,
due September 1999, interest at 10% (see below) .. 25,000
Unsecured notes payable to private investors,
due April 1999, interest at 7.5% ................. 250,000
Unsecured line of credit, interest at the bank's
prime rate plus 2%, guaranteed by the
Company's President and Chief Executive
Officer, due on demand ........................... 35,100
Long-term unsecured notes payable to the
Company's President and Chief Executive
Officer, interest at 7.5%, due by September 2002 . 40,000
Advances from factor, interest at 24%, due on demand 2,744
--------
802,844
Current portion .................................... 762,844
--------
Long-term portion .................................. $ 40,000
========
F-11
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 5 - Notes Payable (Continued)
-------------
In January 1998, as part of a proposed $3,500,000 debt
offering, the Company issued a $50,000 note payable maturing
at the earlier of September 1998 or within 5 days after an
initial public offering of the Company's common stock
generating in excess of $7 million of gross proceeds. From
February 1998 through June 1998 the Company raised an
additional $3,455,000 through the issuance of notes payable,
the terms of which were the same as the January 1998 note.
Under the terms of the debt financing, for each $50,000
principal the holder of the note payable had the option to
receive interest in the amount of $3,125 or warrants to
purchase 25,000 shares of the Company's common stock at a
price per share equal that to be offered in connection with
the offering of warrants under the Company's then planned
initial public offering, which management expected to be
115% of the per share initial public offering price.
In July 1998 the Company issued a $400,000 note
payable, the terms of which gave the noteholder the option
to receive either $25,000 in interest or warrants to
purchase 533,333 shares of the Company's common stock at
125% of the per share initial public offering price.
In November 1998, noteholders of $3,530,000 principal
of the $3,905,000 principal described above elected to
exchange such indebtedness for an aggregate of 706,000
shares of the Company's Class A common stock and 706,000
warrants to purchase Class A common stock (see Note 6). At
January 31, 1999 the Company was in default on the remaining
$375,000 notes payable.
In connection with the issuance of the 12% and 10%
notes, the Company issued 8,000 shares of Class A common
stock valued at $40,000. Such shares have been recorded as
debt issuance expense and are being amortized over the terms
of the loans.
Pursuant to the terms of a factoring agreement, the
Company assigns substantially all of its accounts receivable
to a factor with recourse. The Company is able to borrow up
to 50% of eligible accounts receivable, as defined, up to a
maximum amount of $1 million. The agreement calls for the
Company to assign a minimum of $1.5 million per year of
eligible accounts receivable, as defined. Advances from the
factor bear interest at 24% per annum. Receivables assigned
to the factor are subject to a charge of 3% of the face
amount of the receivable. The advances from the factor are
secured by all of the Company's assets. During the year
ended January 31, 1998, the Company incurred interest of
$10,059 and factoring charges of $7,739. During the year
ended January 31, 1999, the Company incurred combined
interest and factoring charges of $34,877. The factoring
agreement, as amended on August 31, 1998, is for an initial
term of twelve months and renews for successive twelve month
periods thereafter, unless cancelled by the Company or the
factor.
F-12
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 6 - Shareholders' Deficit
---------------------
Stock Splits and Number of Authorized Shares
In February 1997, the Company increased the number of
authorized shares of common stock from 6,500,000 to
10,881,000 and simultaneously effected a 3-for-2 reverse
stock split. In July 1997, the Company increased the number
of authorized shares of common stock from 10,881,000 to
24,300,000. On January 31, 1998, the Company decreased the
authorized shares of common stock to 8,100,000 and
simultaneously effected a 3-for-1 reverse stock split.
In October 1998, the Company increased the authorized
shares of common stock from 8,100,000 to 20,000,000. Within
the authorized shares of common stock, the Company created a
Class A and a Class B stock, consisting of 15,000,000 and
5,000,000 shares of stock, respectively. Additionally, the
Company authorized 5,000,000 shares of preferred stock, par
value $0.01 per share.
All references to the number of common shares and per
share amounts elsewhere in the financial statements and
related footnotes have been restated to reflect the effect
of all stock splits for all periods presented.
Common Stock
During February 1997, the Company's Chief Executive
Officer was issued approximately 1,025,000 shares of the
Company's common stock in return for the forgiveness of
$588,660 in advances to the Company at various dates during
1996 and 1997. The Company recorded approximately $57,000 of
compensation expense in connection with the issuance of such
shares based on the fair market value of the shares as
determined by an independent valuation. Also, during the
year ended January 31, 1998, the Company sold approximately
181,000 shares of its common stock for $299,000, of which
4,833 shares were sold to a related party.
In March 1998, the Company issued 104,784 shares to a
professional golfer as consideration for $220,047 owed to
such golfer under the Company's endorsement arrangement with
Hippo Holdings. The Company was then negotiating an
endorsement contract with this professional golfer for the
Company's TEGRA(TM)brand products. These negotiations ceased
prior to any agreement being reached between the Company and
the golfer.
On April 29, 1998, the Company entered into a
consulting agreement with a financial advisor to obtain
financial investment services through January 22, 2000. The
consideration provided for in the agreement was the issuance
of 125,000 shares of the Company's common stock. This
agreement was terminated by the Company in November 1998.
Accordingly, the Company recorded $125,000 as a charge to
operations in the current period.
In March 1998 the Company issued 12,916 shares of Class
A common stock valued at $69,166 to three consultants in
connection with services performed.
In connection with issuance of $100,000 principal notes
payable (see Note 5) the Company issued 8,000 shares of
Class A common stock valued at $40,000. Such shares have
been recorded as debt issuance expense and are being
amortized over the term of the loans.
F-13
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 6 - Shareholders' Deficit (Continued)
---------------------------------
Common Stock (Continued)
On October 7, 1998, the Company's President and Chief
Executive Officer converted an aggregate of 1,464,953 shares
of their Class A common stock to the equivalent number of
Class B common stock. The Company has agreed not to register
the Class B common stock under the Securities Exchange Act
of 1933 for a period of two years. The Class B common stock
converts to an equal amount of Class A common stock upon the
earlier of (i) October 31, 2000 or (ii) such time as the
closing price for the Class A common stock shall equal or
exceed $8 for a period of 10 consecutive trading days.
Otherwise, the rights of the holders of Class A and Class B
common stock are substantially the same.
In November 1998, the Company executed exchange
agreements with certain noteholders including a related
party, whereby such parties exchanged an aggregate of
$5,808,327 of principal and interest on notes for 1,161,666
Class A shares of common stock and 1,161,666 warrants to
acquire Class A shares of common stock. Subsequent to such
exchange, the Company was in default on $375,000 principal
notes payable.
Addiitonally, in November 1998, the Company executed
exchange agreements with the Company's President and Chief
Executive Officer who had advanced funds to the Company,
whereby such officers exchanged an aggregate of $312,957 of
principal and interest on advances for 62,591 Class A shares
of common stock and 62,591 warrants to acquire Class A
shares of common stock.
Common Stock Warrants
In connection with the issuance of its unsecured notes
payable to private investors, the Company issued warrants to
purchase shares of its common stock as follows:
<TABLE>
<CAPTION>
Warrants
Weighted Average
Shares Exercise Price
<S> <C> <C> <C> <C>
Balance, January 31, 1997 ............................ 7,150 $ 1.13
Warrants issued in connection with $975,000 of
notes payable at 12.5% ............................. 107,250 0.75
Warrants issued in connection with $525,000 of
notes payable at 15% ............................... 232,750 0.75
Warrants issued in connection with $420,000 of
notes payable at 12.5% ............................. 84,000 2.10
Warrants issued in connection with other notes payable 33,000 2.33
------- -----
Balance, January 31, 1998 ............................ 464,150 1.12
</TABLE>
F-14
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 6 - Shareholders' Deficit (Continued)
---------------------------------
Common Stock Warrants (Continued)
<TABLE>
<CAPTION>
Warrants
Weighted Average
Shares Exercise Price
Warrants issued in connection with extension of
<S> <C> <C> <C>
$975,000 of notes payable at 12.5% .......... 26,813 $0.75
Warrants issued in connection with extension of
$525,000 of notes payable at 15% ............ 58,188 0.75
Warrants issued in connection with extension of
$420,000 of notes payable at 12.5% .......... 130,000 2.78
Warrants issued in connection with $400,000 of
note payable ................................ 533,333 7.25
Warrants issued in connection with exchange of
$6,121,284 principal and interest (see above) 1,224,257 6.67
--------- -----
Balance, January 31, 1999 ..................... 2,436,741 $5.32
========= =====
</TABLE>
The Company believes that the above warrants had an insignificant fair
market value at the time of their issuance.
Common Stock Options
On September 4, 1996, the Company adopted the 1996
Incentive and Non-Qualified Stock Option Plan (the "1996
Plan") allowing the Company to issue 500,000 incentive stock
options to employees and non-qualified stock options to
either employees or consultants. The total number of shares
with respect to which options may be granted was increased
to 1.15 million on January 24, 1997.
In June 1998 the Company adopted the 1998 Incentive and
Non-Qualified Stock Option Plan (the "1998 Plan") allowing
the Company to issue 800,000 incentive stock options to
employees and non-qualified stock options to either
employees or consultants.
The Company has issued various stock options to
employees and consultants. The options' vesting period
varies from full vesting upon issuance of options to vesting
over a three year period. A summary of the Company's stock
options activity is as follows:
<TABLE>
<CAPTION>
Options
Weighted Average
Shares Exercise Price
<S> <C> <C>
Balance, January 31, 1997 267,531 $0.82
Granted ................. 448,880 3.04
-------- ------
Balance, January 31, 1998 716,411 2.21
Terminated .............. (101,765) (3.05)
Granted ................. 166,666 8.24
-------- ------
Balance, January 31, 1999 781,312 $3.383
======== ======
</TABLE>
F-15
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 6 - Shareholders' Deficit
---------------------
Common Stock Options (Continued)
Outstanding Exercisable Weighted Average
Exercise Price Range Shares Shares Exercise Price
$ 0.225 85,476 85,476 $ 0.225
0.72 - 0 75 159,441 151,942 0.689
2.10 - 3 00 319,896 318,785 2.632
6.00 - 9 20 216,499 112,791 7.724
------- ------- ------
781,312 668,994 $ 3.383
======= ======= ======
The Company generally grants options at exercise prices
equal to the estimated market value of the Company's common
stock at the date of the grant. The Company recognized
approximately $153,000 of stock-based compensation expense
during the year ended January 31, 1998, relating to options
granted to exercise prices below the estimated fair market
value of the Company's common stock at the date of grant.
Had compensation costs for the Company's stock option grants
to employees been determined using the fair value method,
the Company's loss and loss per share for the year ended
January 31, 1998 would not have been significantly different
from the amounts recorded.
Fair market value information for the Company's stock
warrants and options for the years ended January 31, 1998
and 1999 was estimated using the Black-Scholes option
pricing model assuming risk free rates of 5.6% to 6.5%, no
dividend yield, expected terms of 3 years, and no
significant volatility.
NOTE 7 - Income Taxes
------------
The Company is subject to federal and state income
taxes but has not incurred a liability for such taxes due to
losses incurred. As of January 31, 1999 the Company had a
net operating loss carryforward ("NOLC") for federal income
tax purposes of approximately $9,800,000. This NOLC is
available to offset future federal taxable income, if any,
through 2014. Limitations on the utilization of the
Company's net operating tax loss carryforwards could result
in the event of certain changes in the Company's ownership.
The Company had deferred tax assets of approximately
$4,116,000 at January 31, 1999, resulting primarily from net
operating loss carryforwards. The deferred tax assets have
been fully offset by a valuation allowance resulting from
the uncertainty surrounding the future realization of the
net operating loss carryforwards.
F-16
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 8 - Commitments and Contingencies
-----------------------------
The Company currently rents office space on a month to
month basis and leases equipment under non cancelable
operating lease arrangements. Rent expense for the years
ended January 31, 1998 and 1999 was approximately $101,000
and $133,000, respectively.
The Company has a commitment under an employment
contract expiring in November 1999. The remaining commitment
on this contract is approximately $47,000.
As of January 31, 1998, the Company had entered into
purchase agreements with various suppliers for components
and finished goods for both TEGRA(TM)and HiPPO(TM)brand
products, approximating $1.3 million (see Note 9). At
January 31, 1999 the Company had no significant purchase
agreements.
The Company is a defendant in a lawsuit alleging patent
infringement and, additionally, has received a request that
the Company reviews its TEGRA(TM)line of clubs in view of a
patent issued to a third party relating to golf club design.
The Company believes that its TEGRA(TM)brand golf clubs do
not infringe the patents which are the subject of the
lawsuit of the review request. However, no assurance can be
given that the Company's product does not infringe such
patents, or any golf club related patent. Further, the
Company cannot currently estimate the effect of an adverse
decision in connection with these matters on the Company's
financial condition or results of operations.
The Company is a defendant in a lawsuit alleging the
breach of a letter of intent with an underwriter. The
lawsuit seeks approximately $1.5 million in damages. The
Company believes this claim is without merit and intends to
vigorously defend itself; however, there can be no assurance
that the Company will prevail.
The Company is involved in legal proceedings and claims
which arise in the ordinary course of its business.
Management believes that the outcome of such litigation and
claims will not result in any material adverse effect on the
Company's financial position or results of operations.
NOTE 9 - Sale of License
---------------
In May 1998, the Company sold its license to sell
HiPPO(TM) products in the U.S. back to Hippo Holdings along
with all existing HiPPO(TM) brand inventory and certain
marketing materials of approximately $91,000, prepaid
royalties of approximately $133,000, and the assumption of
liabilities in the amount of approximately $225,000. The
Company received cash payments of approximately $413,000. A
gain of approximately $414,000 was recorded in connection
with this transaction. In addition, Holdings returned to the
Company the 50,000 shares of common stock it had received
upon entering the license agreement; no gain or loss was
recorded in connection with the return of the stock.
Furthermore, Hippo Holdings assumed the Company's then
outstanding purchase commitments in the amount of
approximately $1,172,000 related to the HiPPO(TM) brand of
products. Sales of HiPPO(TM) brand products for the years
ended January 31, 1998 and 1999, were approximately $589,000
and $24,000, respectively.
F-17
<PAGE>
OUTLOOK SPORTS TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1999
NOTE 10 - Subsequent Events
-----------------
Subsequent to January 31, 1999, the Company received
$125,000 in exchange for notes payable bearing interest at a
rate of 10% with an equivalent face amount and 10,000 shares
of the Company's Class A common stock. These notes mature on
the earlier of October 1, 1999 or 5 days subsequent to the
completion of an initial public offering by the Company. The
Company valued the shares issued in connection with this
transaction at $50,000. These loans were repaid in March
1999.
In March 1999, the Company agreed to reacquire 125,000
shares of Class A common stock for $31,250. These shares
were originally issued to Argent Securities, Inc. in April
1998 in connection with a two year consulting agreement.
During March and April 1999 the Company completed an
initial public offering of its Class A common stock. The
Company sold 438,500 shares of Class A common stock at $5.80
per share. Net proceeds to the Company were approximately
$1,794,000 inclusive of certain unpaid offering expenses.
In connection with the offering, the Underwriters were
granted for a nominal fee Common Stock Purchase Warrants
entitling the Underwriters to purchase up to 40,000 shares
of Class A common stock at $9.57 per share.
Additionally, in April 1999 the Company's Chief
Executive Officer advanced $250,000 to the Company in
exchange for notes payable bearing interest at the prime
rate of interest. The first $100,000 of this advance is due
on the earlier of March 1, 2000 or within five days
following the closing of a public offering of equity
securities of the Company resulting in gross proceeds to the
Company of $5,000,000. The remaining $150,000 of this
advance is due on the earlier of April 20, 2004 or within
five days following the closing of a public offering of
equity securities of the Company resulting in gross proceeds
to the Company of $5,000,000.
NOTE 11 - Year 2000 Considerations
------------------------
The "Year 2000" problem relates to computer systems
that have time and date-sensitive programs that were
designed to read years beginning with "19", but may not
properly recognize the year 2000. If a computer system or
software application used by the Company or a third party
dealing with the Company fails because of the inability of
the system or application to properly read the year 2000 the
results could have a material adverse effect on the Company.
The Company's review of its own operating systems does
not indicate any Year 2000 problems. However, the Company is
dependent on third party vendors. Failures and
interruptions, if any, resulting from the inability of
certain computing systems of third party vendors to
recognize the Year 2000 could have a material adverse effect
on the Company's results of operations. There can be no
assurance that the Year 2000 issue can be resolved by any of
such third parties prior to the upcoming change in the
century. Although the Company may incur substantial costs,
as a result of such third party service providers correcting
Year 2000 issues, such costs are not sufficiently certain to
estimate at this time.
F-18
<PAGE>
Item 8. CHANGES IN ACCOUNTANTS AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Previous independent accountants
On April 5, 1999 PricewaterhouseCoopers LLP resigned as
the Company's independent accountants.
The reports of PricewaterhouseCoopers LLP on the
Company's financial statements for the past two fiscal years
contained no adverse opinion or disclaimer of opinion and
were not qualified or modified as to audit scope or
accounting principle; however, the report of
PricewaterhouseCoopers LLP dated June 9, 1998 on the
financial statements of the Company as of and for the
periods ended January 31, 1998, contained a paragraph of
emphasis indicating the existence of certain factors which
raised substantial doubt about the Company's ability to
continue as a going concern.
The Company's Board of Directors have been notified of
the resignation of the PricewaterhouseCoopers LLP as the
independent accountants of the Company..
In connection with its audits for the two most recent
fiscal years and for the period from February 1, 1998
through April 5, 1999, there have been no disagreements with
PricewaterhouseCoopers LLP on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not
resolved to the satisfaction of PricewaterhouseCoopers LLP,
would have caused them to make reference thereto in their
report on the financial statements for such years.
The Registrant has requested that
PricewaterhouseCoopers LLP furnish it with a letter
addressed to the SEC stating whether or not it agrees with
the above statements. A copy of such letter, dated April 9,
1999, has been filed as Exhibit 16 to the Company's Form 8-K
filed on April 9, 1999.
New independent accountants:
Effective April 9, 1999, Registrant engaged Wolinetz,
Gottlieb & Lafazan, P.C. as its principal accountant. Such
engagement was approved by the Registrant's Board of
Directors. During Registrant's two most recent fiscal years
and any subsequent interim period from February 1, 1998
through April 9, 1999, Registrant did not consult Wolinetz,
Gottlieb & Lafazan, P.C., regarding the application of
accounting principals to a specified transaction, the type
of audit opinion that might be rendered on Registrant's
financial statements or any matter that was the subject of
disagreement or a reportable event.
<PAGE>
PART III.
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors and Executive Officers
The following table sets forth certain information concerning the Directors
and Executive Officers of the Company:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Paul H. Berger .............................................................. 31 Chairman of the Board
and Chief Executive Officer
Jim G. Dodrill II ........................................................... 32 President, General Counsel,
Chief Financial Officer and Director
Neal J. Cohen ............................................................... 42 Vice President Apparel Operations
David K. Stern .............................................................. 34 Vice President Marketing
</TABLE>
MR. BERGER co-founded the Company with Mr. Dodrill and has served as the
Chairman of the Board and Chief Executive Officer of the Company since the
Company's inception. From 1994 to 1995, Mr. Berger was the Special Projects
Manager for Designs, Inc. ("Designs"), of which his father is the Chairman of
the Board. Mr. Berger assisted in repositioning Designs from a single brand
apparel chain to a multi-brand operation and in the acquisition by Designs of
Boston Trading Ltd., a high quality men's and women's apparel manufacturer. From
1993 to 1994, Mr. Berger served as an attorney with Designs. Mr. Berger is a
graduate of the George Washington University and the University of Miami School
of Law. Mr. Berger is licensed to practice law in the Commonwealth of
Massachusetts and the State of Florida.
MR. DODRILL co-founded the Company with Mr. Berger and has served as
President, General Counsel and a director of the Company since the Company's
inception and has served as the Company's Chief Financial Officer since April 1,
1999. From 1993 to 1996, Mr. Dodrill was an associate at the law firm of Latham
& Watkins, practicing in the corporate area with an emphasis on securities
offerings, acquisitions, finance and general corporate representation. From 1988
to 1990, Mr. Dodrill worked for Davis Polk & Wardwell conducting research and
coordinating administrative efforts regarding corporate reorganization and
recapitalization transactions and mergers and acquisitions. Mr. Dodrill
graduated from Brown University and the University of Miami School of Law, MAGNA
CUM LAUDE. Mr. Dodrill is licensed to practice law in the State of New York.
MR. COHEN has served as the Company's Vice President of Apparel Operations
since June 1996. From 1989 to 1996, Mr. Cohen was Vice President of Operations
for Benetton Sportsystem Active, where he was responsible for managing the
global sourcing of all brands, implementing final quality assurance auditing
procedures and managing customer service, and traffic, warehousing and
distribution of product. From 1980 to 1985 Mr. Cohen served as the
Quality/Production Manager for Adidas U.S.A.
MR. STERN has served as the Company's Vice President of Marketing since
March, 1998. From 1997 to February, 1998, Mr. Stern served on the Company's
Advisory Board. From 1997 to 1998, Mr. Stern served as Director of Marketing for
Thermolase, a publicly traded company which owns and runs spa facilities across
the U.S. From 1987 to 1997, Mr. Stern was Vice President of Marketing at
Maddocks and Company.
<PAGE>
Committees of the Board of Directors
The Board of Directors currently consists of Paul Berger and Jim Dodrill
and does not currently have a Compensation Committee or an Audit Committee. The
Company is currently seeking qualified candidates in order to expand the size of
the Board of Directors. Subsequent to such increase, the Board of Directors
intends to establish and form a Compensation Committee and Audit Committee.
Compensation of Directors
The Company's directors will be reimbursed for any out-of-pocket expenses
incurred by them for attendance at meetings of the Board of Directors or
committees thereof. The Board of Directors also intends to compensate Directors
who are not employees of the Company $1,000 per month and to grant each Director
who is not an employee of the Company options to purchase 12,000 shares of
Common Stock each year, with a per share exercise price equal to the then fair
market value of the Common Stock.
Section 16(a) Beneficial Ownership Reporting Compliance
Based solely upon a review of Forms 3, 4 and 5, and amendments thereto,
furnished to the Company during fiscal year 1999, the Company is not aware of
any director, officer or beneficial owner of more than ten percent of the
Company's Common Stock that, during fiscal year 1999, failed to file on a timely
basis reports required by Section 16(a) of the Securities Exchange Act of 1934.
Item 10. EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company during each of the last two fiscal years to the Company's
Chief Executive Officer and to each of the Company's executive officers who
earned in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS(2)
<S> <C> <C> <C> <C> <C>
Paul H. Berger....................................... 1999 $ 31,249 -- $-- (3)
Chairman of the Board and Chief 1998 32,721 -- 7,800 (4)
Executive Officer
James G. Dodrill II................................. 1999 31,249 -- -- (5)
President, General Counsel, Chief 1998 32,721 -- 7,800 (6)
Financial Officer and Director
Gary M. Treater.............................. 1999 115,434 -- -- (7)
Executive Vice President 1998 153,912 -- 6,039 13,000
Neal J. Cohen........................................ 1999 101,700 -- -- (8)
Vice President Apparel Operations 1998 135,600 -- 6,444 10,000
James J. Henley............................... 1999 90,000 -- -- (9)
Apparel Design Director 1998 120,000 -- 5,400 7,000
David K. Stern................................ 1999 37,500 -- -- (10)
</TABLE>
<PAGE>
(1) Other Annual Compensation consists of life insurance premiums paid by the
Company on behalf of the Named Executive Officer.
(2) See "Option Grants in Last Fiscal Year," below.
(3) Mr. Berger deferred an additional $93,751.
(4) Mr. Berger deferred an additional $92,279.
(5) Mr. Dodrill deferred an additional $93,751.
In March, 1998, Mr. Dodrill received options to purchase 166,666 shares of Class
A Common Stock at $3.00 per share in lieu of $92,279 in salary.
(7) Mr. Treater deferred an additional $25,652.
(8) Mr. Cohen deferred an additional $33,900.
(9) Mr. Henley deferred an additional $30,000.
(10) Mr. Stern deferred an additional $43,336.
STOCK OPTIONS GRANTS AND EXERCISES
The following table shows the value at January 31, 1999 of unexercised
options held by the named executive officers:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-end Option
Values
<TABLE>
<CAPTION>
Number of securities
underlying unexercised Value of unexercised
options at fiscal year-end in-the-money options at
Name Shares acquired (#) Value Realized fiscal year-end ($)
on exercise (#) ($) Exercisable/unexercisable Exercisable/unexercisable
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Paul H. Berger -- -- 19,577/0 93,480/0
James G. Dodrill II -- -- 336,511/0 1,089,337/0
Gary M. Treater -- -- 39,888/0 94,381/0
Neal J. Cohen -- -- 11,137/10,528 23,962/20,340
Everette C. Hinson -- -- 18,333/0 35,415/0
James J. Henley -- -- 11,443/0 13,393/0
David K. Stern -- -- 0/25,000 0/0
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has no material employment agreements.
STOCK OPTION PLANS.
The 1996 Incentive and Non-Qualified Stock Option Plan (the "1996 Plan")
was adopted by the Board of Directors and the shareholders. Under the 1996 Plan,
1,150,000 shares of Class A Common Stock have been reserved for issuance upon
exercise of options designated as either (i) incentive stock options ("ISOs")
under the Internal Revenue Code (the "Code"), or (ii) non-qualified options.
ISOs may be granted under the 1996 Plan to employees and officers of the
Company. Non-qualified options may be granted to consultants, directors and
other persons who render services to the Company or any subsidiary corporation
of the Company (whether or not they are employees).
<PAGE>
The 1998 Incentive and Non-Qualified Stock Option Plan (the "1998 Plan" and
collectively with the 1996 Plan, the "Plans") was adopted by the Board of
Directors and the shareholders of the Company in June, 1998. Under the 1998
Plan, 800,000 shares of Class A Common Stock have been reserved for issuance
upon exercise of options designated as either (i) incentive stock options
("ISOs") under the Internal Revenue Code (the "Code"), or (ii) non-qualified
options. ISOs may be granted under the 1998 Plan to employees and officers of
the Company. Non-qualified options may be granted to consultants and other
persons who render services to the Company or any subsidiary corporation of the
Company (whether or not they are employees), and to all directors of the
Company.
The purpose of the Plans is to provide additional incentive to officers and
other employees of the Company as well as other persons providing services to
the Company by affording them an opportunity to acquire or increase their
proprietary interest in the Company through the acquisition of shares of its
Common Stock. The Board of Directors is responsible for administering the Plans.
The 1998 Plan may also be administered by a committee consisting of at least two
disinterested directors. The Board, within the limitations of the Plans, may
determine the persons to whom options will be granted, the number of shares to
be covered by each option, whether the options granted are intended to be ISOs,
the duration and rate of exercise of each option, the option purchase price per
share and the manner of exercise, the time, manner and form of payment upon
exercise of an option, and whether restrictions such as repurchase rights by the
Company are to be imposed on shares subject to options. ISOs granted under the
Plans may not be granted at a price less than the fair market value of the Class
A Common Stock on the date of grant (or 110% of fair market value in the case of
persons holding 10% or more of the voting power of all classes of stock of the
Company). The aggregate fair market value at the time of grant of shares for
which ISOs granted to any person are exercisable for the first time by any
person during any calendar year may not exceed $100,000. Options under the Plans
may not be granted more than 10 years after its effective date. Options granted
to date have seven (7) year terms. The term of each ISO granted under the Plans
will expire not more than ten years from the date of grant (or five (5) years in
the case of persons holding 10% or more of the voting power of all classes of
stock of the Company). Options granted under the Plans are not transferable
during an optionee's lifetime but are transferable at death by will or under the
laws of descent and distribution. In addition to the options summarized below, a
total of ISOs and non-qualified options to purchase 326,819 shares of Class A
Common Stock have been granted to other employees and advisors of the Company.
The following table sets forth as to each Named Executive Officer (a)
the total number of shares subject to options granted during the fiscal year
ended January 31, 1999, (b) exercise price of such options, (c) the percentage
such grants represent of the total option grants to employees in the fiscal year
ended January 31, 1999, and (d) the expiration date of such option grants.
<PAGE>
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
Percentage of
Number of Total Options
Shares Subject to Exercise Granted to Expiration
Name Option Grants Price Employees Date
<S> <C> <C> <C> <C> <C>
James G. Dodrill 166,666(1) $3.00 76.9% March 16, 2005
David K. Stern 25,000 $6.00 11.5% April 1, 2005
</TABLE>
Mr. Dodrill received these options in lieu of $92,279 of salary for 1997.
Information regarding executive compensation will appear under the caption
"Executive Compensation" in the Information Statement and is incorporated herein
by reference.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Stockholders
The following table sets forth certain information, as of the date hereof,
with respect to the beneficial ownership of the Common Stock by each beneficial
owner of more than 5% of the outstanding shares thereof, by each director, each
nominee to become a director and each executive named in the Summary
Compensation Table and by all executive officers, directors and nominees to
become directors of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS
OF BENEFICIAL OWNER,
5% STOCKHOLDER OR BENEFICIAL OWNERSHIP
SELLING STOCKHOLDER NUMBER PERCENT (1)
<S> <C> <C> <C>
Paul Berger (2) .................... 1,488,823 36.36%
Jim Dodrill (3) .................... 544,812 12.36%
Gary M. Treater (4) ................ 39,388 0.96%
Neal J. Cohen (5) .................. 12,248 0.30%
Everette C. Hinson (6) ............. 18,333 0.45%
James J. Henley (7) ................ 11,443 0.28%
David K. Stern (8) ................. 14,583 0.36%
All directors and executive officers
of the Company as a group
(4 persons) (9) 2,059,355 46.32%
</TABLE>
- - ------------------------
Based on the combined total of outstanding Class A and Class B Common Stock.
(1) Mr. Berger and Mr. Dodrill are the only owners of Class B Common Stock,
which identical voting rights to the Class A Common Stock.
(2) Includes 19,578 shares of Class A Common Stock issuable upon the
exercise of options exercisable within 60 days of the date of this report.
(3) Includes 336,512 shares of Class A Common Stock issuable upon the
exercise of options exercisable within 60 days of the date of this Report.
(4) Comprised entirely of shares issuable upon the exercise of options
exercisable within 60 days of this Report.
(5) Comprised entirely of shares issuable upon the exercise of options
exercisable within 60 days of this Report.
(6) Comprised entirely of shares issuable upon the exercise of options
exercisable within 60 days of this Report.
(7) Comprised entirely of shares issuable upon the exercise of options
exercisable within 60 days of this Report.
(8) Includes 6,250 shares of Class A Common Stock issuable upon the
exercise of options exercisable within 60 days of the date of this Report.
(9) Includes 377,673 shares of Class A Common Stock issuable upon the
exercise of options exercisable within 60 days of the date of this Prospectus.
<PAGE>
Item 12. CERTAIN TRANSACTIONS
TRANSACTIONS INVOLVING AFFILIATES OF THE COMPANY
As the Company does not have independent directors as of the date of
this Prospectus, none of the ongoing transactions, or past transactions which
are now closed, between the Company and its affiliates were approved by
independent directors. In the event the Company makes or enters into any
material transactions or loans with affiliated persons, the terms of any such
transactions will be no less favorable to the Company than those that can be
obtained from unaffiliated third parties. Additionally, any forgiveness of such
loans will be approved by a majority of the Company's independent directors,
once elected, who do not have an interest in the transactions. Such directors
will have access, at the Company's expense, to the Company's or independent
counsel.
TRANSACTIONS INVOLVING PAUL BERGER
Between August 21, 1996 and January 23, 1998, Paul Berger, Chairman of the
Board of Directors and Chief Executive Officer of the Company, made a number of
advances to the Company. On August 21, 1996, Mr. Berger advanced $10,000 to the
Company and received a note with a term of six years, earning 7.5% interest
annually and an option to purchase 19,577 shares of the Common Stock of the
Company at a price of $0.225 per share. In addition, Mr. Berger made four
advances to the Company using proceeds from sales of his own stock to other
individuals (some of whom were affiliates of the Company) at lower prices than
contemporaneous sales of stock by the Company to third-party investors. On
October 17, 1997, Mr. Berger advanced $50,000 to the Company after selling
100,000 shares of his stock to Synergy Group International, Inc. at the price of
$0.50 per share. On October 28, 1997, Mr. Berger advanced $50,000 to the Company
after selling 100,000 shares of his stock to Carol Dodrill, Jim Dodrill's
mother, and Bill Powell at the price of $0.50 per share. On November 11, 1997,
Mr. Berger advanced $2,500 to the Company after selling 3,333 shares of his
stock to Rodger Berman at the price of $0.75 per share. On January 23, 1998, Mr.
Berger advanced $50,000 to the Company after selling 50,000 shares of his stock
to Andrew Holder and Marc Roberts at the price of $1.00 per share. These four
transactions were contemporaneous with the Company's sale of its Common Stock at
$2.10 per share. On July 31, 1998, Mr. Berger advanced $19,147 to the Company.
Mr. Berger received notes from the Company for all five advances with an annual
interest rate of 12.5%. In November 1998, Mr. Berger exchanged an aggregate of
$171,647 principal amount of indebtedness plus accrued interest for an aggregate
of 39,125 shares of Common Stock and 39,125 Warrants.
Additionally, in April 1999 Mr. Berger advanced $250,000 to the Company
in exchange for notes payable bearing interest at the prime rate of interest.
The first $100,000 of this advance is due on the earlier of March 1, 2000 or
within five days following the closing of a public offering of equity securities
of the Company resulting in gross proceeds to the Company of $5,000,000. The
remaining $150,000 of this advance is due on the earlier of April 20, 2004 or
within five days following the closing of a public offering of equity securities
f the Company resulting in gross proceeds to the Company of $5,000,000.
TRANSACTIONS INVOLVING JIM DODRILL
Between September 5, 1996 and January 23, 1998, Jim Dodrill, President,
General Counsel and Chief Financial Officer of the Company, made a number of
advances to the Company. On September 5, 1996, Mr. Dodrill advanced $30,000 to
the Company and received a note with a term of six years, earning 7.5% interest
annually and an option to purchase 58,731 shares of the Common Stock of the
Company at a price of $0.225 per share. In addition, Mr. Dodrill made three
advances to the Company using proceeds from sales of his own stock to other
individuals at lower prices than contemporaneous sales of stock by the Company
to third-party investors. On October 17, 1997, Mr. Dodrill advanced $50,000 to
the Company after selling 100,000 shares of his stock to Synergy Group
International, Inc. at the price of $0.50 per share. On November 11, 1997, Mr.
Dodrill advanced $2,500 to the Company after selling 3,333 shares of his stock
to Rodger Berman at the price of $0.75 per share. On January 23, 1998, Mr.
Dodrill advanced $50,000 to the Company after selling 50,000 shares of his stock
to Andrew Holder and Marc Roberts at the price of $1.00 per share. These three
transactions were contemporaneous with the Company's sale of its Common Stock at
$2.10 per share. Mr. Dodrill received notes from the Company for all three
advances with an annual interest rate of 12.5%. In November 1998, Mr. Dodrill
exchanged an aggregate of $102,500 principal amount of indebtedness plus accrued
interest for an aggregate of 23,467 shares of Common Stock and 23,467 Warrants.
<PAGE>
TRANSACTIONS INVOLVING STANLEY BERGER
Between August 13, 1996 and January 16, 1998, Stanley Berger, Paul
Berger's father, made a number of advances to the Company. The following table
summarizes the loans made. For each loan, Mr. Berger received a note with the
loan amount and interest rate set forth in the table. In addition, for all but
the two repaid loans and one loan on October 1, 1997, Mr. Berger also received a
warrant to purchase the number of shares set forth in the table and at the
exercise price set forth in the table. All of these notes, aggregating $510,000
plus interest in the amount of $88,090, were exchanged in November 1998 for
119,618 shares of Common Stock and 119,618 Warrants.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
PURCHASABLE
INTEREST UPON EXERCISE WARRANT
DATE AMOUNT OF LOAN RATE OF WARRANT EXERCISE PRICE
<S> <C> <C> <C> <C>
August 13, 1996(1) $ 35,000 -- -- --
September 26, 1996 $ 40,000 12.5% 4,400 $ 1.13
October 8, 1996 .. $ 25,000 12.5% 2,750 $ 1.13
April 30, 1997 ... $ 25,000 12.5% 3,437 $ 0.75
May 27, 1997 ..... $ 50,000 15% 27,708 $ 0.75
June 19, 1997 .... $ 50,000 15% 27,708 $ 0.75
July 3, 1997 ..... $ 30,000 12.5% 6,000 $ 2.10
July 10, 1997 .... $ 15,000 12.5% 3,000 $ 2.10
August 27, 1997(1) $ 50,000 -- -- --
September 12, 1997 $ 50,000 12.5% 8,333 $ 2.10
October 1, 1997(2) $ 25,000 12.5% -- --
October 14, 1997 . $ 50,000 12.5% 8,333 $ 2.10
November 14, 1997 $ 50,000 12.5% 8,333 $ 2.10
November 28, 1997 $ 30,000 12.5% 2,400 $ 2.10
December 3, 1997 . $ 20,000 12.5% 1,600 $ 2.10
January 16, 1998 . $ 50,000 12.5% 4,000 $ 4.00
Total ........ $595,000 108,002
</TABLE>
(1) This Note was repaid previously.
(2) For this loan, Mr. Berger received a security interest in all of the
Company's accounts receivable.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
<S> <C>
3.1* Articles of Incorporation of the Registrant(1)
3.2* By-laws of Registrant(1)
4.1* Specimen Common Stock Certificate(1)
10.1* Employment Agreement with William Barthold, dated January 16, 1996(1)
10.2* Employment Agreement with Daniel Snider, dated January 16, 1998(1)
10.3* Business Note and Security Agreement, dated June 19, 1997 with Barnett
Bank, N.A. (1)
10.4* Revolving Accounts Receivable Funding Agreement between the Company and Gibraltar Financial Corporation,
dated November 25, 1997(1)
10.5* Amendment to Revolving Accounts Receivable Funding Agreement dated November 25, 1997(1)
10.6* Gibraltar Financial Corporation Demand Note, dated November 25, 1997(1)
10.7* Form of Promissory Note signed by the Company in favor of Paul Berger, Jim Dodrill and Stanley Berger for
all advances made by them to the Company(1)
<PAGE>
10.8* Security Agreement with Stanley Berger, dated Cctober 1, 1997(1)
10.9* Subordination Agreement with Stanley Berger, dated December 3,
1997(1)
10.10* Option, dated January 24, 1997, received by Paul Berger as consideration for an advance made by him to
the Company(1)
10.11* Option, dated September 5, 1996, received by Jim Dodrill as consideration for an advance made by him to
the Company(1)
10.12* Form of Warrant for the purchase of the Common Stock of the Company received by Stanley Berger as
consideration for advances made by him to the Company(1)
10.13* Form of Promissory Note signed by the Company in favor of all participants in a private financing between
February 4, 1997 and April 30, 1997 (1)
10.14* Form of Warrant for the purchase of the Common Stock of the Company received by all participants in a
private financing between February 4, 1997 and April 30, 1997 (1)
10.15* Form of Promissory Note signed by the Company in favor of all participants in a private financing between
May 12, 1997 and June 30, 1997(1)
10.16* Form of Warrant for the purchase of the Common Stock of the Company received by all participants in a
private financing between May 12, 1997 and June 30, 1997 (1)
10.17* Form of Promissory Note signed by the Company in favor of all participants in a private financing in
July, 1997(1)
10.18* Form of Warrant for the purchase of the Common Stock of the Company received by all participants in a
private financing in July, 1997(1)
10.19* Form of Consent to extension of payment for all Notes executed by the Company in all private financings(1)
10.20* Form of Subscription Agreement signed by all investors in the Company(1)
10.21* Lease Agreement, dated March 13, 1997, between the Company and Sanctuary of Boca, Inc. (for office space
in Boca Raton) (1)
10.22* Amendment to Lease #1, dated August 1, 1997, between the Company and Sanctuary of Boca, Inc. (1)
10.23* Amendment to Lease #2, dated February 2, 1998, between the Company and Sanctuary of Boca, Inc. (1)
10.24* Sublease Agreement and Rider, dated December 1, 1996, between the Company and Tom Rochon Associates (for
office space in New York City) and Over-Lease Agreement incorporated therein(1)
10.25* Sublease Agreement and Rider, dated July 12, 1996, between the Company and Tom Rochon Associates (for
office space in New York City) and Over-Lease Agreement incorporated therein(1)
10.26* Research, Development and Consulting Contract, dated October 8, 1996, with Chou Golf Design Labs, Inc.(1)
10.27* Contract Amendment, dated may 4, 1997, to Research, Development and Consulting Contract with Chou Golf
Design Labs, Inc. (1)
10.28* Agreement, dated September 1, 1998, with G. Day Associates, Inc. (1)
10.29* 1996 Incentive and Non-qualified Stock Option Plan(1)
10.30* Form of Incentive Stock Option Agreement under 1996 Incentive and Non-qualified Stock Option Plan(1)
10.31* Form of Non-qualified Stock Option Agreement under 1996 Incentive and Non-qualified Stock Option Plan(1)
10.32* 1998 Incentive and Non-qualified Stock Option Plan(1)
10.33* Form of Incentive Stock Option Agreement under 1998 Incentive and Non-qualified Stock Option Plan(2)
10.34* Form of Non-qualified Stock Option Agreement under 1998 Incentive and Non-qualified Stock Option Plan(2)
10.35* MONY Deferred Compensation Plan for managers of the Company(1)
10.36* Settlement Agreement and Release, dated May 4, 1998 between the Company and Hippo Holdings Ltd. (1)
10.37* Consulting Agreement, dated April 29, 1998 between the Company and Argent Securities. Inc.(2)
10.38* Form of Non-qualified Stock Option Agreement for Outside Directors under 1998 Incentive and Non-qualified
Stock Option Plan(2)
10.39* Termination Agreement, dated September 1, 1998 between the Company and Daniel Snider(2)
10.41* Form of Exchange Agreement(3)
16.1* Letter on Change in Certifying Accountants(4)
27** Financial Data Schedule
----------------
</TABLE>
* Previously filed.
** Filed herewith
(1) Incorporated by reference from registrant's Registration Statement
on Form SB-2, filed on July 7, 1998.
(2) Incorporated by reference from registrant's Registration Statement
on Form SB-2, Amendment No. 1, filed on October 8, 1998.
(3) Incorporated by reference from registrant's Registration Statement
on Form SB-2, Amendment No. 2, filed on February 11, 1999.
Incorporated by reference from the registrant's Form 8-K filed on April
9, 1999.
(b) Reports on Form 8-K.
No Reports on Form 8-K were filed during the last quarter of the period
covered by this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Outlook Sports Technology, Inc.
By: /s/ Paul Berger
Paul Berger, Chairman and Chief Executive Officer
Date: May 17, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Name Position Date
<S> <C> <C>
/s/ PAUL BERGER Chairman, Chief Executive Officer May 17, 1999
Paul Berger
/s/ JAMES DODRILL President, General Counsel, Director May 17, 1999
Jim Dodrill
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> jan-31-1999
<PERIOD-END> jan-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 147,605
<ALLOWANCES> 147,605
<INVENTORY> 225,804
<CURRENT-ASSETS> 259,551
<PP&E> 515,173
<DEPRECIATION> 160,855
<TOTAL-ASSETS> 806,575
<CURRENT-LIABILITIES> 5,326,328
<BONDS> 0
0
0
<COMMON> 37,991
<OTHER-SE> (4,597,744)
<TOTAL-LIABILITY-AND-EQUITY> 806,575
<SALES> 468,194
<TOTAL-REVENUES> 468,194
<CGS> 685,131
<TOTAL-COSTS> 6,735,853
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 544,869
<INCOME-PRETAX> (6,398,531)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,398,531)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,398,531)
<EPS-PRIMARY> (2.34)
<EPS-DILUTED> (2.34)
</TABLE>
