SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[ ] Transitional Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended September 30, 2000
Commission File No. 0-25743
FREEDOM GOLF CORPORATION
------------------------
(Name of small business issuer in its charter)
Nevada 91-1950699
------ ----------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7334 South Alton Way, Bldg. 14-A
Englewood, Colorado 80112
(303) 221-0331
--------------
(Address, including zip code and telephone number, including area
code, of registrant's executive offices)
Securities registered under Section 12(b) of the Exchange Act:
none
Securities registered under to Section 12(g) of the Exchange Act:
Common Stock
------------
(Title of class)
Check whether the issuer (1) 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 Company was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will 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
---
Issuer's revenues for its most recent fiscal year: $154,368
(Continued on Following Page)
<PAGE>
State the aggregate market value of the voting stock held by non- affiliates,
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days: As of January 15, 2001: $702,598.
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of January 16, 2001 there were
12,008,906 shares of the Company's common stock issued and outstanding.
Documents Incorporated by Reference: None
This Form 10-KSB consists of Forty Eight Pages.
Exhibit Index is Located at Page Thirty Nine.
2
<PAGE>
TABLE OF CONTENTS
FORM 10-KSB ANNUAL REPORT
FREEDOM GOLF CORPORATION
PAGE
----
Facing Page
Index
PART I
Item 1. Description of Business................................... 4
Item 2. Description of Property................................... 9
Item 3. Legal Proceedings......................................... 10
Item 4. Submission of Matters to a Vote of
Security Holders...................................... 10
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters....................... 10
Item 6. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................ 11
Item 7 Financial Statements...................................... 14
Item 8. Changes in and Disagreements on Accounting
and Financial Disclosure.............................. 31
PART III
Item 9. Directors, Executive Officers, Promoters
and Control Persons, Compliance with
Section 16(a) of the Exchange Act..................... 31
Item 10. Executive Compensation.................................... 33
Item 11. Security Ownership of Certain Beneficial
Owners and Management................................. 34
Item 12. Certain Relationships and Related
Transactions.......................................... 35
PART IV
Item 13. Exhibits and Reports of Form 8-K.......................... 36
SIGNATURES........................................................... 38
3
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Freedom Golf Corporation, f/k/a Auric Enterprises, Inc. (the "Company") was
incorporated in February 1999 under the laws of the State of Nevada. Effective
January 2000, we engaged in a "reverse merger" with Freedom Golf Corporation, a
privately held Colorado corporation ("Old Freedom"), whereby we issued 9,820,206
shares of our common stock to the Old Freedom shareholders, in exchange for all
of Old Freedom's issued and outstanding common stock. As a result, we
experienced a change in management and in our business plan. In this regard and
as of the date of this report, our principal business is to design, manufacture
and market high quality golf clubs. We also intend on opening Golf Schools
throughout the United States, each to be located at high-end daily fee,
semi-private country clubs or high-end driving ranges. The long range plans also
call for us to acquire high-end daily fee golf courses throughout the United
States.
We have five main objectives, including:
1. Maximize profits, acquire/strengthen and maintain assets, and grow on
a systematic, internally generated basis to become one of the largest
marketing and distribution companies of quality golf clubs.
2. Create our own Company-labeled golf clubs and products.
3. Provide our customers with the very best service possible.
4. Establish the very finest golf schools throughout the United States,
to help ensure our growth and diversification.
5. Acquire high-end daily fee and semi-private golf courses throughout
the United States. Each of the golf courses acquired would ideally be
revenue generating and would be able to be purchased for a discounted
price enabling us to make positive revenues immediately thereafter.
While no assurances can be provided, we believe that, once funding is
completed, we will offer a skilled management team with the ability necessary to
achieve the initial three objectives cited above, and thereafter, concentrate on
the remaining two objectives.
Since our inception, we have spent most of our time attempting to develop
our business plan and engage in preliminary marketing activities of our
principal product, the "Freedom 345" fairway wood. Relevant thereto, in July
1998, we entered into an agreement with Tourshot Golf Company, Inc., Grass
Valley, CA ("Tourshot"),
4
<PAGE>
wherein we agreed to pay Tourshot $100,000 in cash for an assignment of
Tourshot's patent rights in and to the current line of Freedom Golf Clubs, as
well as all marketing rights in and to such golf clubs. The final payment under
this Agreement was tendered in August 1998. Mr. Pat Simmons was CEO and Chairman
of Tourshot. Mr. Simmons is an internationally known golf club designer,
including the designer of the "Alien Wedge."
Our current operations have involved organizational efforts to include
recruiting a management team qualified in all areas of business and
specifically, the golf industry, to include establishing Golf Schools (see
below), designing our business plan, obtaining a portion of the financing which
we believe we will need to implement our business plan and establishing
relationships which management believes will assist the Company with the
implementation of our business plan. These contacts include the former Executive
Director of the Colorado Golf Association, the former President of the
International Association of Executive Directors, the Executive Director of the
International Network of Golf Reporters, the Executive Director of the
Association of Disabled American Golfers, the Professional Golfers Association,
the United States Golf Association, as well as national and regional golf
associations.
Our management has designed a marketing package for our prospective retail
distributors, including pro shops, high end driving ranges and others, that we
believe is very unique within the golf industry. Because of the high expense of
traditional marketing efforts in the golfing industry, it became very apparent
that traditional marketing of selling wholesale to the various golf outlets and
golf courses would be potentially disastrous to our Company. Our management has
devised a marketing program whereas we have no receivables and the "green grass"
accounts (pro shops at golf courses) are not required to carry inventory. This
unique marketing program was developed in August 2000 and, while no assurances
can be provided, is expected to be well received within the golf industry. Based
upon our management's experience in the industry, we believe that golf
professionals would prefer to carry golf clubs in their pro shops, but have not
maintained a significant inventory because of their inability to compete with
the golf discount retail operations which have recently opened nationwide.
Normal mark up for club sales is typically 18%-22%. We are offering a 30%
mark-up as an inducement to get the retailers attention. We pay our professional
independent representatives a commission of 15% of the wholesale price. As of
the date of this Report, we have 4 retailers who have agreed to sell our
products. We intend to "kick-off" our formal marketing program at the
Professional Golfers Association's ("PGA") show, to be held in Orlando, Florida
during the last week of January 2001.
5
<PAGE>
All golf clubs marketed by us do or will conform to the Rules of the United
States Golf Association ("USGA"). We will do ongoing research with Pat and Mark
Simmons to develop "Specialty Clubs" which we believe could have an immediate
impact within the golf industry. We believe it is important to be able to
satisfy all golf markets, but for marketing purposes we have earmarked the high
handicappers (13 and above), regardless of gender, as the target market to
market our golf clubs. This group comprises approximately 95% of the
marketplace. The touring Professionals can also enjoy Freedom Clubs.
Necessary individuals on our management team are expected to spend a large
majority of their time on the road for at least the next two years introducing
the entire line of Freedom clubs throughout the United States via the Freedom
Tour. The Freedom Tour will initially be held at destination type resorts,
high-end resorts and/or semi-private country clubs. The Freedom Tour will
initially be daily Demo Days with group and individual clinics and training.
As mentioned, the initial market is the golfer with a handicap of 13 or
higher. The female golfer is quickly becoming a major force within the golf
industry and the junior or new golfers are also growing in percentages. The
golfers with disabilities could become a major market for the Freedom Swing
concept because of the simplicity and consistency the concept provides all
golfers. With the reduction of stress on a golfer's back when utilizing the
Freedom Swing, a primary target market will also include "AARP" (American
Association of Retired Persons). We understand that approximately one third
(1/3) of all golfers have back problems. That figure alone gives us in excess of
nine million golfers who should have an immediate interest in learning our swing
concept. We have initiated contact with members of the American Chiropractic
Association regarding our swing concept and the response has been very good.
In addition to the sale of golf clubs, we hope to diversify our potential
for growth through the installment of Freedom Golf Schools throughout the United
States. In this regard, in November 1999, we signed a contract with Bill Skully,
formerly the Head Professional at the Legacy Country Club in Port St. Lucie,
Florida (the winter home of the PGA) to be the Director of Golf Schools for the
Company. Our first Golf School became operational in March 2000. It is located
in Port St. Lucie, Florida at the Cobblestone Country Club. Freedom students may
stay at the PGA Villas Resort and will have access to twelve (12) additional
golf courses during their stay.
We intend to pursue the golf school market through corporate America. The
Golf Schools will be in what we consider high end daily fee and/or semi-private
country clubs. We will contact airlines and other corporate venues to establish
ongoing students
6
<PAGE>
at the golf schools. Each of the airlines or other corporate affiliate will
hopefully place ads about our golf schools in their inner company magazines and
newsletters. In consideration for placing the ads, we will give the corporation
a discount to each of their employees while attending the golf school.
Considering United Airlines alone has over 70,000 employees, we believe that our
potential to keep all the schools full is excellent. However, there can be no
assurances that this will occur.
Our goal for our instructor to student ratio will only be 2 to 1 maximum
which is far below the industry standard. The John Jacobs Golf School has 5-10
students per instructor. We also intend to pay our instructors more than the
normal pay scale for their activities. We believe it to be essential to maintain
the same instructors with our teaching philosophy, which is the teaching of Bill
Skully. All instructors will be instructed to maintain a friendly persona, they
must be PGA Certified, and lastly, they must be able to market our goods.
The results of the National Golf Foundation research studies indicate that
golf participation is growing at the rate of approximately 4% annually. Golf
related spending is projected to increase a minimum of 8% annually for the next
10 to 15 years. This explosive growth will continue to provide us with new
customers well into the next century. The approximately 26 million plus golfers
in the United States spend an estimated $20 billion annually on golf and golf
products.
Based on our marketing feasibility studies, our management feels very
confident that we can establish multiple golf schools and golf courses situated
in key demographic areas that will market our club line as well as provide the
additional essential items that all golfers need or want. However, as of the
date of this report, we have insufficient capital available to us to allow
implementation of our complete business plan. We estimate that we will need to
raise up to $2 million, either through debt or equity or a combination of the
two, in order to reach our goals. As of the date of this report, we do not have
any definitive agreement with any investment banking firm, venture capital firm
or other funding source to provide us with such funding. While we intend to
continue to seek out funding sources, there can be no assurances that we will
obtain the funding necessary to allow us to fully implement our business plan
described herein. Failure to obtain this necessary funding will have a negative
impact on our business and future success.
Subsequent Events
Marketing of the Freedom Golf product line will be direct to the consumer
through our Infomercials, which are to be televised nationally on cable
channels, such as, the Golf Channel and the Fox Sports Network, beginning in
March 2001. In this regard, in
7
<PAGE>
November 2000, we entered into an agreement with Mr. Harold Henning, a
professional golfer on the PGA Senior Golf Tour, wherein Mr. Henning did agree
to participate in the making of the infomercial, as well as to act as a
spokesperson for us in our marketing of our golf products. In exchange for Mr.
Henning's services, we agreed to issue Mr. Henning an option to purchase up to
20,000 shares of our common stock for a period of three years ending November
2003, at an exercise price of $.25 per share. In addition, we agreed to tender
to Mr. Henning $1.00 for each Freedom 345 club sold as a direct result of the
infomercial.
In addition, effective October 2000, we entered into an agreement with the
Major League Baseball Player's Alumni Association, whereby we became the
"Official Golf Club Manufacturer" for this Association. The Association also
agreed to allow us to use their Association in promotional materials. In
addition to other benefits, we also received the Association's permission to
distribute our promotional materials and order forms at all 35 "Swing with the
Legends" golf tournaments sponsored by the Association throughout the US, as
well as to demo our golf clubs at such tournament events. As part of our
obligation in this regard, we are obligated to display a minimum of $5000 of our
merchandise at these tournaments.
Employees
As of the date of this report, we have four (4) full time employees,
including our President and Chief Executive Officer, Gaylen P. Johnson, Bill
Skully, our Director of Golf Schools, an administrator and a golf club fitter
and assembly person. We also employ various independent sales representatives.
None of our employees are members of any union. We believe that our relationship
with our employees is excellent. It is anticipated that, in the event our
business plan is accepted by our target market, of which there can be no
assurance, we will need to retain approximately 6 or 7 additional employees, in
the areas of sales, marketing, administration and manufacturing.
Competition
We compete with publicly and privately held companies engaged in the
manufacturing and sales of golf clubs. There are numerous other entities engaged
in this business who have greater resources, both financial and otherwise, than
the resources presently available to us. Specifically, there are at least two
other entities who market their golf clubs by Infomercial, including Adams Golf,
which did approximately $3 million in gross revenues the year prior to their
initial infomercial. The following year Adams Golf did in excess of $32 million
in sales and has continued to grow. Fiscal year ending 1998 annual operating
revenue was $84.6 million. Also, Orlimar Golf, which became one of the fastest
growth stories in golf equipment industry history. Their launch of
8
<PAGE>
a shallow-faced, multi-material club took Orlimar from unknown to the highest
ranks of the golf world almost overnight. The Company went from $1.5 million in
sales in 1997, to more than $65 million in 1998, representing a 4,300% increase,
which has been primarily attributable to the use of their infomercial.
We also believe that a major source of our competition could possibly come
from within. We intend to do everything possible to groom and keep quality
people on board. We believe that proper use of bonuses, stock options and profit
sharing plans can be used to maintain a high satisfaction level among our
personnel.
We also stress customer satisfaction, which we believe is equally important
when dealing with the competition factor. We intend to stress tight quality
control, fast delivery and premier quality and service for our customers.
Finally, we also stress service and support, which we believe are our most
important tasks. To consistently provide our customers with quality service will
aid in our efforts against competition. However, there can be no assurances that
our efforts in the foregoing areas will provide us with the opportunity to
successfully compete in our designated marketplace.
Trademarks/Patents
In July 1998, we entered into an agreement with Tourshot Golf Company,
Inc., Grass Valley, CA ("Tourshot"), wherein we agreed to pay Tourshot $100,000
in cash for an assignment of Tourshot's patent rights in and to the current line
of Freedom Golf Clubs. The final payment under this Agreement was tendered in
August 1998. In October 1998, we were assigned Patent No. D372512, relevant to
this transaction. We hold no other patent rights.
In May 2000, the US Patent and Trademark Officer issued to us a registered
trademark, Registration No. 2,352,221, for our use of the name "Freedom Golf"
for all of our golf related products, including golf clubs, bags, head covers
and other related golf products. We do not have any other tradenames or
trademarks reserved.
Government Regulations
We are not subject to any extraordinary governmental regulations relating
to our business.
ITEM 2. DESCRIPTION OF PROPERTY
Facilities. Our principal place of business is located at 7334 S. Alton
Way, Building 14-A, Englewood, Colorado 80112. This location consists of
approximately 2,761 square feet of executive offices and manufacturing space,
which is leased pursuant to a
9
<PAGE>
written lease providing for monthly rent of $2,070.75, plus a percentage of
operating expenses, taxes, common area utility costs and our utility expenses.
This lease expires in January 2002. It is anticipated that our present premises
will be adequate to meet our needs for the foreseeable future.
Other Property. The Company has no properties and at this time has no
agreements to acquire any properties.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings which are pending or have been
threatened against the Company of which management is aware.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to our shareholders for approval during the three
month period ended September 30, 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
(a) Market Information. Our Common Stock is traded on the National
Association of Securities Dealers OTC Bulletin Board under the trading symbol
"FGLC". The table below sets forth the reported high and low bid prices for the
periods indicated. The bid prices shown reflect quotations between dealers,
without adjustment for markups, markdowns or commissions, and may not represent
actual transactions in the Company's securities.
Bid Price
Quarter Ended High Low
------------- ------- ------
December 31, 1999 $1.0625 $.5625
March 31, 2000 $2.0000 $.2500
June 30, 2000 $ .8125 $.2500
September 30, 2000 $ .3750 $.1300
December 31, 2000 $ .4800 $.1000
(b) Holders. There are one hundred sixty seven (167) holders of our Common
Stock, not including those entities who hold their shares in "street name".
(c) Dividends. We did not pay any dividends on our Common Stock during the
two years ended September 30, 2000. Pursuant to the laws of the State of Nevada,
a corporation may not issue a distribution if, after giving its effect, the
corporation would not be able to pay its debts as they became due in the usual
course of
10
<PAGE>
business, or such corporation's total assets would be less than the sum of their
total liabilities plus the amount that would be needed, if the corporation were
to be dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the distribution. As a result, management does not foresee
that we will have the ability to pay a dividend on our Common Stock in the
fiscal year ended September 30, 2001. See "Part II, Item 7, Financial
Statements."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the Company's
audited financial statements and notes thereto included herein. In connection
with, and because it desires to take advantage of, the "safe harbor" provisions
of the Private Securities Litigation Reform Act of 1995, the Company cautions
readers regarding certain forward looking statements in the following discussion
and elsewhere in this report and in any other statement made by, or on the
behalf of the Company, whether or not in future filings with the Securities and
Exchange Commission. Forward looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results or other developments. Forward looking statements are
necessarily based upon estimates and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Company's control and many of which, with respect
to future business decisions, are subject to change. These uncertainties and
contingencies can affect actual results and could cause actual results to differ
materially from those expressed in any forward looking statements made by, or on
behalf of, the Company. The Company disclaims any obligation to update forward
looking statements.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the fiscal years ended September
30, 2000 and 1999
Total revenues increased from $88,736 in the fiscal year ended September
30, 1999 to $154,368 in 2000, an increase of $65,632 (42.5%). This increase was
attributable to more golfers becoming aware of our products line through
increased marketing efforts and new visibility, including those professional
golfers who are using our products on the Celebrity Players Tour. Costs of sales
were $86,374 in 2000, compared to $94,837 in 1999, a decrease of $8,463 (8.9%).
This was due primarily to management's ability to work with vendors in
generating better prices on materials used for the manufacturing of our golf
clubs.
11
<PAGE>
Selling, general and administrative expenses were $1,067,355 in 2000,
compared to $672,595 in 1999, an increase of $394,760 (36.9%). This increase was
due primarily to increases in advertising and promotion of our golf products,
which increased from $76,720 in 1999, to $173,366 in 2000, as well as consulting
fees, which increased from $390,063 in 1999, to $599,548 in 2000. Other
applicable selling, general and administrative expenses also increased across
the board as a result of our status as a public company and legal and accounting
costs applicable thereto, travel and entertainment costs, dues and subscriptions
and other related expenses.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2000, we had $15,597 in cash and $103,094 in inventory.
Also at September 30, 2000, we had notes payable to individuals, some of
whom are shareholders, amounting to $202,028. All of these notes are due within
one year and bear interest at from 7.25% to 15% per annum. See "Part III, Item
12, Certain Relationships and Related Party Transactions" for a more detailed
description of loans made by affiliates of our Company.
During the year ended September 30, 2000, we sold an aggregate of 746,000
shares of our common stock for gross proceeds of $291,000. The shares were sold
to individuals at a price of $.50 per share prior to the commencement of a
public market for our common stock and at prices equivalent to quoted prices
thereafter. Additionally, during the year ended September 30, 2000, we issued an
aggregate of 1,487,326 shares of our common stock to certain individuals for
services provided to the Company. The shares were valued at fair value based
upon prices paid by cash investors and /or quoted market prices at the dates the
share issuances were approved by our board of directors.
During the year ended September 30, 1999, we sold an aggregate of 1,139,280
shares of our common stock for gross proceeds of $239,720 and incurred $8,000 of
costs related to the sales. The shares were sold to unaffiliated individuals at
a price of $.50 per share through January 1999 and at $.25 per share thereafter
and to certain existing directors and shareholders at a price of $.125 per
share. The Company has recognized $77,800 as compensation expense related to the
shares sold at the discounted price. Additionally, during the year ended
September 30, 1999, we issued an aggregate of 1,932,400 shares of our common
stock to certain individuals for services provided to us. The shares were valued
at $.25 per share as they were issued after January 1999. Additionally, we
issued 45,600 of our shares to certain note holders as repayment of principal
and interest and issued 100,000 shares as additional interest to a note holder.
These shares were valued at $.25 per share.
12
<PAGE>
Certain of the shares issued for services in 1999 were for services not yet
completed by the shareholder pursuant to a consulting contract. The shareholder
became one of our directors in connection with the agreement. Services charged
to expense during the year amounted to $48,611 and the unearned services under
the contract amounted to $201,389 at September 30, 1999 and are classified as a
reduction of stockholders' equity. During the year ended September 30, 2000, the
contract was terminated by the parties and the consultant has agreed to return
950,000 shares to the Company. The value of the shares to be returned was
$187,500 after deducting a $50,000 contract cancellation fee. This amount has
been included in the financial statements as unearned services at September 30,
2000 and will be recorded as treasury stock when the shares are returned.
Our management has recognized that, in order to allow us to implement our
business strategy discussed above in Part I, Item 1, it will be necessary for us
to raise additional equity capital of at least $2 million in addition to the
funds recently raised by us. We are in discussions with investment bankers and
others to provide or assist in providing that financing. However, as of the date
of this Report, we do not have any written commitments for this financing, and
no assurance can be given that we will obtain any additional financing. Failure
to obtain additional capital into the Company will force management to reduce
expense, which may affect our ability to implement our business plan. If we are
not successful, it is doubtful that we will be able to survive and we will be
forced to liquidate.
TRENDS
While no assurances can be provided, we anticipate that our revenues will
increase beginning in February 2001, we commence our formal marketing plan at
the annual PGA show to be held in Orlando, Florida during the last week in
January 2001. Obviously, the demand for our products will be dependent upon,
among other things, market acceptance for our concept in golf clubs, our
operations and general economic conditions that are cyclical in nature. In
addition, our success is also dependent upon our ability to finance our proposed
operations, either with debt or equity.
We also understand that new designs and changes from traditional lines of
golf clubs may meet with consumer rejection. We have planned our manufacturing
capabilities based upon our forecasted demand for our products. Actual demand
for such products may exceed or be less that our forecasted demand. If we are
unable to produce sufficient quantities of our golf clubs in time to fulfill
actual demand, such inability may limit our sales and adversely affect our
financial performance.
13
<PAGE>
INFLATION
Although the operations of the Company are influenced by general economic
conditions, the Company does not believe that inflation had a material affect on
the results of operations during the fiscal year ended September 30, 2000.
ITEM 7. FINANCIAL STATEMENTS
14
<PAGE>
FREEDOM GOLF CORPORATION
Audited Financial Statements
For the Years Ended
September 30, 2000 and 1999
15
<PAGE>
FREEDOM GOLF CORP.
TABLE OF CONTENTS
Page
----
Independent Auditors' Report 1
Financial Statements
Balance Sheet 2
Statement of Operations 3
Statement of Stockholders' Equity 4
Statements of Cash Flows 5-6
Notes to the Financial Statements 7 to 14
16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Freedom Golf Corporation
We have audited the accompanying balance sheet of Freedom Golf Corporation as of
September 30, 2000, and the related statements of operations, changes in
stockholders' equity, and cash flows for each of the two years 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 audits 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 by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide 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 Freedom Golf Corporation as of
September 30, 2000, and the results of its operations, and its cash flows for
each of the two years then ended, in conformity with generally accepted
accounting principles.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
November 24, 2000
-1-
17
<PAGE>
<TABLE>
FREEDOM GOLF CORPORATION
Balance Sheet
September 30, 2000
ASSETS
------
<CAPTION>
2000
----------
<S> <C>
Current assets:
Cash $ 15,597
Accounts receivable - trade 1,765
Inventory 103,094
Prepaid expenses and deposits 38,800
----------
Total current assets 159,256
Property and equipment, at cost, net of
accumulated depreciation of $7,628 9,021
Deposit 2,000
Patents, net of accumulated amortization of $14,444 85,554
----------
$ 255,831
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable - bank 17,145
Note payable - others 136,828
Notes payable - related party 65,200
Accounts payable - trade 81,110
Advances from officer 49,927
Accrued salaries 304,500
Accured interest - related party 5,365
Accrued expenses 14,785
----------
674,860
Stockholders' equity:
Common stock, $.001 par value,
50,000,000 shares authorized,
13,538,906 shares issued and outstanding 13,539
Additional paid-in capital 2,143,512
Unearned services (187,500)
Accumulated deficit (2,388,580)
----------
(419,029)
----------
$ 255,831
==========
See accompanying notes to financial statements.
</TABLE>
-2-
18
<PAGE>
<TABLE>
FREEDOM GOLF CORPORATION
Statements of Operations
Years Ended September 30, 2000 and 1999
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Sales, net $ 154,368 $ 88,736
Cost of sales 86,374 94,837
----------- -----------
67,994 (6,101)
Selling, general and administrative expenses 1,067,355 672,595
----------- -----------
Income (loss) from operations (999,361) (678,696)
Other income and (expense):
Interest expense (27,285) (17,875)
Interest expense - related party 5,365 -
Other income 85 39
Interest and dividend income - -
----------- -----------
(21,835) (17,836)
Income (loss) before income taxes (1,021,196) (696,532)
Provision for income taxes - -
----------- ------------
Net income (loss) $(1,021,196) $ (696,532)
=========== ===========
Basic and fully diluted earnings (loss) per share:
Net income (loss) $ (0.08) $ (0.10)
=========== ===========
Weighted average shares outstanding 12,284,457 7,106,240
=========== ===========
See accompanying notes to financial statements.
</TABLE>
-3-
19
<PAGE>
<TABLE>
FREEDOM GOLF CORPORATION
Statement of Stockholders' Equity
Years Ended September 30, 2000 and 1999
<CAPTION>
Additional
Common Stock Paid-in Unearned Accumulated
Shares Amount Capital Services Deficit Total
---------- ------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1998 6,467,600 $ 6,468 $ 452,592 $ - $ (670,852) $ (211,792)
Common stock sold for cash 1,139,280 1,139 238,581 - - 239,720
Compensation value of stock
sold at discounted price - - 77,800 - - 77,800
Stock issue costs - - (8,000) - - (8,000)
Common stock issued for
services 1,932,400 1,932 466,868 (201,389) - 267,411
Common stock issued for
additional interest 100,000 100 24,900 - - 25,000
Common stock issued for
debt conversion 45,600 46 25,654 - - 25,700
Net (loss) for year - - - - (696,532) (696,532)
---------- ------- ---------- --------- ----------- -----------
Balance, September 30, 1999 9,684,880 9,685 1,278,395 (201,389) (1,367,384) (280,693)
Common stock issued for
services 1,447,326 1,447 549,366 - - 550,813
Common stock issued for cash 746,000 746 290,254 - - 291,000
Common stock issued for
debt conversion 55,700 56 15,444 - - 15,500
Merger with Auric
Enterprises, Inc. 1,605,000 1,605 10,053 - - 11,658
Amortize unearned services - - - 13,889 - 13,889
Net (loss) for the year - - - - (1,021,196) (1,021,196)
---------- ------- ---------- --------- ----------- -----------
Balance, September 30, 2000 13,538,906 13,539 2,143,512 (187,500) (2,388,580) (419,029)
========== ======= ========== ========= =========== ===========
See accompanying notes to financial statements.
</TABLE>
-4-
20
<PAGE>
<TABLE>
FREEDOM GOLF CORPORATION
Statements of Cash Flows
Years Ended September 30, 2000 and 1999
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Net income (loss) $(1,021,196) $ (696,532)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 9,527 8,151
Stock issued for services 550,813 337,211
Stock issued for interest - 25,000
Amortization of unearned services 13,889 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,019) (528)
(Increase) decrease in inventory (54,909) 1,864
(Increase) decrease in prepaid expenses (8,276) (30,524)
Increase (decrease) in accounts payable 37,139 709
Increase (decrease) in accrued salaries 72,000 78,800
Increase (decrease) in accrued expenses 14,058 (508)
----------- -----------
Total adjustments 633,222 420,175
----------- -----------
Net cash provided by operating activities (387,974) (276,357)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (4,709) (2,727)
Increase in lease deposit - (1,000)
----------- -----------
Net cash (used in) investing activities (4,709) (3,727)
----------- -----------
Cash flows from financing activities:
Common stock sold for cash 291,000 239,720
Cash received for merger shares 11,658 -
Repayment of bank loan (3,800) (3,799)
Officer advance 50,000 5,500
Repayment of officer loans (17,726) (6,154)
Proceeds from notes payable 71,032 173,624
Proceeds fromnotes payable - related party 75,200 -
Repayment of notes payable (69,330) (128,561)
----------- -----------
Net cash (used in) financing activities 408,034 280,330
----------- -----------
Increase (decrease) in cash 15,351 246
Cash and cash equivalents,
beginning of period 246 -
----------- -----------
Cash and cash equivalents,
end of period $ 15,597 $ -
=========== ===========
See accompanying notes to financial statements.
-5-
21
<PAGE>
FREEDOM GOLF CORPORATION
Statements of Cash Flows
Years Ended September 30, 2000 and 1999
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
Supplemental cash flow information:
Cash paid for interest $ 16,612 $ 10,661
Cash paid for income taxes $ - $ -
Non-cash financing activities:
Loans converted into common stock $ 15,500 $ -
See accompanying notes to financial statements.
</TABLE>
-6-
22
<PAGE>
Freedom Golf Corporation
Notes to Financial Statements
September 30, 2000
Note 1. Organization and Summary of Significant Accounting Policies.
The Company was originally incorporated in Colorado on December 18, 1996. The
Company has developed and is marketing a line of custom fitted golf clubs.
Limited sales of the Company's products began in 1998. The Company has chosen
September 30th as the end of its fiscal year. During December 1999, the Company
completed a merger with Auric Enterprises, Inc. (Auric), an inactive development
stage company that was incorporated in Nevada on February 12, 1999. The merger
was accounted for as a "reverse merger" and the Company was recapitalized using
the corporate structure of Auric. The domicile of the Company became Nevada as a
result of the merger.
Inventory:
Inventory is valued at the lower of cost or market on a first-in first-out basis
and consists primarily of finished goods, which includes fully assembled golf
clubs and promotional items and raw materials for the assembly of additional
golf clubs. A portion of the inventory has been pledged a collateral in
connection with a loan payable to a related party as discussed in Note 8.
Property, Plant and Equipment:
Property, plant and equipment are recorded at cost and are depreciated based
upon estimated useful lives using the straight-line method. Estimated useful
lives range from 3 to 5 years for furniture and fixtures and from 5 to 10 years
for equipment.
Revenue Recognition:
Revenue is recognized at the time the product is delivered or the service is
performed. Provision for sales returns is estimated based on the Company's
historical return experience. Returns to date have not been significant.
Intangible Assets and Long Lived Assets:
The Company makes reviews for the impairment of long-lived assets and certain
identifiable intangibles whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Under SFAS No. 121,
an impairment loss would be recognized when estimated future cash flows expected
to result from the use of the asset and its eventual disposition is less than
its carrying amount. No such impairment losses have been identified by the
Company for the period ended September 30, 2000.
23
<PAGE>
Cash:
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with maturity of three months or less to be
cash equivalents.
Estimates:
The preparation of the Company's financial statements requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from these
estimates.
Advertising costs:
Advertising costs are charged to operations when the advertising first takes
place. Advertising costs charged to operations were $173,366 and $76,720 for the
years ended September 30, 2000 and 1999 respectively.
Fair value of financial instruments
The Company's short-term financial instruments consist of cash and cash
equivalents, accounts and loans receivable, and payables and accruals. The
carrying amounts of these financial instruments approximates fair value because
of their short-term maturities. Financial instrument that potentially subjects
the Company to a concentration of credit risk consists principally of cash.
During the year the Company did not maintain cash deposits at financial
institutions in excess of the $100,000 limit covered by the Federal Deposit
Insurance Corporation. The Company does not hold or issue financial instruments
for trading purposes nor does it hold or issue interest rate or leveraged
derivative financial instruments
Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard No. 123 (FAS
123), Accounting for Stock-Based Compensation at its inception. Upon adoption of
FAS 123, the Company continued to measure compensation expense for its
stock-based employee compensation plans using the intrinsic value method
prescribed by APB No. 25, Accounting for Stock Issued to Employees. The Company
paid stock based compensation during the years ended September 30, 2000 and 1999
as described in Note 5.
24
<PAGE>
New Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income", establishes guidelines for all
items that are to be recognized under accounting standards as components of
comprehensive income to be reported in the financial statements. The statement
is effective for all periods beginning after December 15, 1997 and
reclassification financial statements for earlier periods will be required for
comparative purposes. The adoption of SFAS No. 130 has had no impact on the
Company, as the Company has not engaged in transactions that would generate
other comprehensive income as defined in the statement.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1, Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use ("SOP 98-1"). SOP 98-1 provides
authoritative guidance on when internal-use software costs should be capitalized
and when these costs should be expensed as incurred. The Company adopted SOP
98-1 at its inception. The adoption of SOP 98-1 has had no impact on the
Company, as the Company has not engaged in transactions that would are whose
accounting treatment is prescribed by the statement.
Effective December 31, 1998, the Company adopted SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"). SFAS 131
superseded SFAS No. 14, Financial Reporting for Segments of a Business
Enterprise. SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. SFAS 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. To date, the Company has operated in one business segment
as defined by the statement.
Effective December 31, 1998, the Company adopted the provisions of SFAS No. 132,
Employers' Disclosures about Pensions and Other Post-retirement Benefits ("SFAS
132"). SFAS 132 supersedes the disclosure requirements in SFAS No. 87,
Employers' Accounting for Pensions, and SFAS No. 106, Employers' Accounting for
Post-retirement Benefits Other Than Pensions. The overall objective of SFAS 132
is to improve and standardize disclosures about pensions and other
post-retirement benefits and to make the required information more
understandable. The Company has to date not adopted benefit plans that would
require the disclosures prescribed by the statement.
25
<PAGE>
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"), which
is required to be adopted in years beginning after June 15, 1999. SFAS 133 will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in fair
value will be immediately recognized in earnings.
Management believes that the adoption of SFAS No. 133 will have no impact on the
Company, as the Company has not engaged in transactions whose accounting
treatment is prescribed by the statement.
Note 2. Property, Plant and Equipment.
Property, plant and equipment consists of the following at September 30, 2000:
Office furniture an equipment $ 11,319
Manufacturing equipment 5,330
---------
16,649
Less accumulated depreciation (7,628)
---------
$ 9,021
Depreciation charged to operations was $2,859 and $1,484 for the years ended
September 30, 2000 and 1999, respectively.
Note 3. Patents
During May 1998, the Company purchased the patent for certain of its golf club
technology from an unaffiliated company whose principal owner is a recognized
expert in golf club design. The Company paid $100,000 in cash for the patent and
is amortizing such cost over a fifteen-year period, the remaining term of the
patent. Amortization expense amounted to $6,667 the years ended September 30,
2000 and 1999.
26
<PAGE>
Note 4. Notes Payable - Others
The Company has notes payable to individuals amounting to $136,828 at September
30, 2000. The notes are all due within one year and bear interest at from 7.25%
to 15%. The notes may be converted into common stock of the Company. During the
years ended September 30, 2000 and 1999, the Company received gross proceeds
from new notes of $71,032 and $173,624 respectively and made cash repayments of
$69,330 and $128,561 respectively. During the years ended September 30, 2000 and
1999, $5,500 and $27,500 of the notes were converted into common stock of the
Company.
Note 5. Stockholders' Equity
During the year ended September 30, 2000, the Company sold an aggregate of
746,000 shares of its common stock for gross proceeds of $291,000. The shares
were sold to individuals at a price of $.50 per share prior to the commencement
of a public market for the Company's common stock and at prices equivalent to
quoted prices thereafter. Additionally, during the year ended September 30,
2000, the Company issued an aggregate of 1,447,326 shares of its common stock to
certain individuals for services provided to the Company. The shares were valued
at fair value based upon prices paid by cash investors and /or quoted market
prices at the dates the share issuances were approved by the Company's board of
directors.
During December 1999, in connection with the merger with Auric, the Company
issued an aggregate of 1,605,000 shares of its common stock to the shareholders
of Auric in exchange for all of its outstanding common stock. The Company
received $11,658 in net assets, principally cash, in connection with the merger
shares issued.
During the year ended September 30, 1999 the Company sold an aggregate of
1,139,280 shares of its common stock for gross proceeds of $239,720 and incurred
$8,000 of costs related to the sales. The shares were sold to unaffiliated
individuals at a price of $.50 per share through January 1999 and at $.25 per
share thereafter and to certain existing directors and shareholders at a price
of $.125 per share. The Company has recognized $77,800 as compen1sation expense
related to the shares sold at the discounted price. Additionally, during the
year ended September 30, 1999, the Company issued an aggregate of 1,932,400
shares of its common stock to certain individuals for services provided to the
Company. The shares were valued at $.25 per share as they were issued after
January 1999. Additionally, the Company issued 45,600 of its shares to certain
note holders as repayment of principal and interest and issued 100,000 shares as
additional interest to a note holder. These shares were valued at $.25 per
share.
27
<PAGE>
Certain of the shares issued for services in 1999 were for services not yet
completed by the shareholder pursuant to a consulting contract. The shareholder
became a director of the Company in connection with the agreement. Services
charged to expense during the year amounted to $48,611 and the unearned services
under the contract amounted to $201,389 at September 30, 1999 and are classified
as a reduction of stockholders' equity. During the year ended September 30,
2000, the contract was terminated by the parties and the consultant has agreed
to return 950,000 shares to the Company.
The value of the shares to be returned was $187,500 after deducting a $50,000
contract cancellation fee. This amount has been included in the financial
statements as unearned services at September 30, 2000 and will be recorded as
treasury stock when the shares are returned.
Note 6. Income Taxes.
Deferred income taxes may arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classifications of the assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are not related
to an asset or liability are classified as current or non-current depending on
the periods in which the temporary differences are expected to reverse. The
Company had no significant deferred tax items arise during any of the periods
presented.
The Company has not provided for income taxes during the years ended September
30, 2000 and 1999 as a result of operating losses. The Company has a net
operating loss carryforward at September 30, 2000 of approximately $2,525,000,
which will expire in the year 2012 ($230,000), 2013 ($440,000), 2014 ($830,000)
and 2015 ($1,025,000). The Company has fully reserved the deferred tax asset
(approximately $858,000), that would arise from the loss carryforward since the
Company believes that it is more likely than not that future income from
operations will not be available to utilize the deferred tax asset. The reserve
increased by approximately $348,000 during the year ended September 30, 2000.
28
<PAGE>
Note 7. Commitments and contingencies
Operating leases:
The Company leases its office facilities under an operating lease through April
15, 2002. Minimum future rentals payable under the lease is as follows:
Year Amount
2001 $24,849
2002 $2,071
Rent expense amounted to $35,611 and $29,463 for the years ended September 30,
2000 and 1999, respectively.
Note 8. Related Party Transactions
At September 30, 1997, the Company had outstanding cash working capital advances
from its president amounting to $28,094. During the years ended September 30,
2000, 1999 and 1998, the Company made repayments against the advances of
$17,726, $9,787 and $6,154, respectively. Additionally the officer advanced
$5,500 and $50,000 in cash to the Company during the years ended September 30,
1999 and 2000, respectively. The advances are non-interest bearing and are
expected to be repaid currently.
The Company has notes payable to an entity controlled by one of its directors
amounting to $65,200 at September 30, 2000. The notes are due within one year
and bear interest at 15% per annum. A portion of the notes ($45,200) may be
converted into common stock of the Company at the conversion rate of $.85 per
share. During the years ended September 30, 2000 and 1999, the Company received
gross proceeds from new notes payable to the entity or the director of $65,200
and $10,000 respectively. During the year ended September 30, 2000 $10,000 of
the notes were converted into 40,000 shares of common stock of the Company. On
October 16, 2000, the loan was refinanced whereby the conversion feature of the
notes was removed, interest accrued of $5,650 was added to the note principal
and the lender was granted a security interest in a portion of the Company's
inventory. The lender was also granted an option to purchase an aggregate of
339,000 shares of the Company's common stock at an exercise price of $.15 per
share. The Company does not expect to record additional interest or other
compensation in connection with the stock options as the market price of the
Company's common stock at the date of the renegotiation was equal to the
exercise price of the options.
A portion of the refinanced notes ($10,850) has been guaranteed by the Company's
president.
29
<PAGE>
Note 9. Statement of Operations Information
Selling, general and administrative expenses for the years ended September 30,
2000 and 1999 consisted of the following:
2000 1999
Advertising and promotion $ 173,366 $ 76,720
Depreciation and amortization 9,527 8,151
Dues and subscriptions 8,089 599
Insurance 7,498 3,872
Salaries and wages 157,290 116,190
Consulting fees 599,548 390,063
Legal fees 15,063 3,233
Rent expense 35,611 29,463
Travel and entertainment 20,981 12,240
Other costs and expenses 50,382 32,064
---------- ---------
$1,077,355 $ 672,595
30
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors are elected for one-year terms or until the next annual meeting
of shareholders and until their successors are duly elected and qualified.
Officers continue in office at the pleasure of the Board of Directors.
The Directors and Officers of the Company as of the date of this report are
as follows:
Name Age Position
---------------- --- -------------------------
Gaylen P. ("John") 51 Chief Executive Officer,
Johnson President, Director
John F. Arney 54 Secretary, Director
Michael S. Gilburd 56 Director
Gary Carter 46 Director
Danny D. Grigsby 53 Director
All Directors of the Company will hold office until the next annual meeting
of the shareholders and until successors have been elected and qualified.
Officers of the Company are elected by the Board of Directors and hold office
until their death or until they resign or are removed from office.
There are no family relationships among the officers and directors. There
is no arrangement or understanding between the Company (or any of its directors
or officers) and any other person pursuant to which such person was or is to be
selected as a director or officer.
(b) Resumes:
Gaylen P. "John" Johnson, has been CEO, President and a director of Freedom
Golf since its inception in December 1996. He assumed his positions with our
Company in December 1999, as part of the reverse merger between Freedom Golf
Corp. and Auric Enterprises, Inc., our Company's former name. Mr. Johnson
devotes substantially all of his business time to the business of our Company.
31
<PAGE>
John F. Arney has been Secretary and a director of our Company since
December 1999. In addition to his position with our Company, since August 1995
Mr. Arney has also been President of Heritage Real Estate Development Company,
Littleton, Colorado, a privately held Colorado corporation engaged in land
acquisition, real estate sales, marketing and development. Mr. Arney obtained a
Masters Degree in 1970 from Iowa State University and a Bachelor of Science
degree from the same university in 1969. He devotes only such time as necessary
to the business of our Company.
Michael S. Gilburd has been a director of our Company since February 2000.
In addition to his position with our Company, Mr. Gilburd has been Vice
President - Corporate Development of LJ International, Inc. (NASDAQ-NM "JADE")
since August 2000. From April 2000 to October 2000, Mr. Gilburd was also
Chairman and CEO of Earnhart Co., Inc., Scottsdale, Arizona, an investment
banking and securities firm. Prior, from July 1995 through October 1999, Mr.
Gilburd was managing director of corporate finance for two American Express
companies, and previously he was national director of corporate finance and a
member of the international corporate finance committee for BDO Seidman. Mr.
Gilburd received a Bachelor of Science degree in accounting from Long Island
University and a Masters of Science in Taxation from Bentley College. He is an
NASD General Securities Principal, an SEC Registered Investment Advisor, an
Accredited Senior Appraiser (Business Valuation Specialty) and a CPA (New York
State - inactive). Mr. Gilburd also serves as a director or officer of six
private companies. He devotes only such time as necessary to the business of our
Company.
Gary Carter has been a director of our Company since September 2000. Since
January 2000, Mr. Carter has been a member of the Celebrity Player's Golf Tour.
Prior, from January 1997 through December 1999, Mr. Carter was a broadcaster for
the Montreal Expos baseball franchise. From January 1993 through December 1996,
Mr. Carter was a broadcaster for the Florida Marlins baseball franchise. Mr.
Carter devotes only such time as necessary to the business of our Company.
Danny D. Grigsby has been a director of our Company since March 1998. In
addition to his position with our Company, since 1996, Mr. Grigsby has also been
a senior staff safety engineer for Lockheed Martin Astronautics, Denver,
Colorado. Since 1993 he has also been employed by DG Consulting, Denver,
Colorado, as a safety consultant. Mr. Grigsby received a Bachelor of Science
degree in Social Science from the University of Southern Colorado in 1977. He
devotes only such time as necessary to the business of our Company.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors and person who own more than 10% of the Company's Common
Stock to file reports of ownership and changes in ownership with the Securities
and Exchange Commission.
32
<PAGE>
All of the aforesaid persons are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. During the fiscal year
ended September 30, 2000, the Company experienced changes in management. From a
review of its available information, it appears that none of our officers and
directors filed applicable Form 3's with the SEC when they assumed their
respective positions with the Company, nor did they file Form 4's reflecting
changes in their respective positions in a timely fashion. All of these reports
were filed late. However, upon information and belief, these filings do not
reflect any sales of our common stock by any of our officers, directors or
affiliates.
ITEM 10. EXECUTIVE COMPENSATION.
Remuneration
The following table reflects all forms of compensation for services to the
Company for the fiscal years ended September 30, 2000 and 1999 of our chief
executive officer.
SUMMARY COMPENSATION TABLE
Long Term Compensation
----------------------------
Annual Compensation Awards Payouts
--------------------- -------------------- -------
Securities
Other Under- All
Annual Restricted lying Other
Name and Compen- Stock Options/ LTIP Compen-
Principal Salary Bonus sation Award(s) SARs Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
---------- ---- ------ ----- ------ -------- ------- ------- ------
Gaylen P. (1)(2)
Johnson, CEO
President &
Director 2000 $ 0 $ 0 $ 0 $ 0 0 $ 0 $ 0
Robert
Hinchey,
President 1999 $ 0 $ 0 $ 0 $ 0 0 $ 0 $ 0
-------------------------
(1) Mr. Johnson, assumed his positions with us in December 1999, following the
closing of the "reverse merger" with Auric Enterprises, Inc.
(2) None of the salary due Mr. Johnson has been paid, but it has been accrued.
It is anticipated that Mr. Johnson will begin receiving his salary once our
revenues increase to a point where the payment of such salary will not have
a significant negative impact on our financial condition.
33
<PAGE>
It is not anticipated that any executive officer of the Company will
receive compensation exceeding $100,000 during the fiscal year ended September
30, 2001.
The Company maintains a policy whereby the directors of the Company may be
compensated for out of pocket expenses incurred by each of them in the
performance of their relevant duties. The Company did not reimburse any director
for such expenses during the fiscal year ended September 30, 2000.
In addition to the cash compensation set forth above, the Company
reimburses each executive officer for expenses incurred on behalf of the Company
on an out-of-pocket basis. The Company cannot determine, without undue expense,
the exact amount of such expense reimbursement. However, the Company believes
that such reimbursements did not exceed, in the aggregate, $1,000 during fiscal
year 2000.
There are no bonus or incentive plans in effect, nor are there any
understandings in place concerning additional compensation to the Company's
officers.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) and (b) Security Ownership of Certain Beneficial Owners and Management.
The table below lists the beneficial ownership of the Company's voting
securities by each person known by the Company to be the beneficial owner of
more than 5% of such securities, as well as by all directors and officers of the
issuer. Unless otherwise indicated, the shareholders listed possess sole voting
and investment power with respect to the shares shown.
Name and Amount and
Address of Nature of
Title Beneficial Beneficial Percent of
of Class Owner Owner Class
-------- ------------------------- ---------- ----------
Common Gaylen P. Johnson 4,320,200 35.0%
7308 S. Spruce St.
Englewood, CO 80112
Common John F. Arney 975,726 (1) 7.9%
3367 E. Geddes Dr.
Littleton, CO 80122
34
<PAGE>
Name and Amount and
Address of Nature of
Title Beneficial Beneficial Percent of
of Class Owner Owner Class
-------- ------------------------- ---------- ----------
Common Danny D. Grigsby 26,000 *
2980 E. 135th Lane
Thornton, CO 80241
Common All Officers and 5,321,926 (1) 43.1%
Directors as a
Group (5 persons)
* Less than 1%
(1) Includes an aggregate of 339,000 shares of our common subject to an option,
exercisable at $.15 per share through December 3, 2003, which options are
held by a pension plan to which Mr. Arney is both trustee and beneficiary.
The balance of the Company's outstanding Common Shares are held by 164
persons, not including those persons who hold their shares in "street name".
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
At September 30, 1997, we had outstanding cash working capital advances
from our President amounting to $28,094. During the years ended September 30,
1999 and 1998, we made repayments against the advances of $9,787 and $6,154,
respectively. Additionally, our President advanced $5,500 and $32,274 to us
during the years ended September 30, 1999 and 2000, respectively. The advances
are non- interest bearing and are expected to be repaid currently.
In addition, on December 21, 1999, Heritage Real Estate Development Corp.
Defined Benefit Pension Plan and Trust (the "Heritage Trust") loaned us the
principal sum of $45,200. The Heritage Trust is a pension plan to which John
Arney, a director of the Company, is trustee and beneficiary. This loan accrued
interest at the rate of 15% per annum and was due December 21, 2000. The
applicable loan provided for a conversion feature, wherein the loan was
convertible into shares of our common stock at a conversion price of $.85 per
share. As of the date of this report, the loan has not been converted. On
October 16, 2000, we refinanced this loan. As a result of this refinancing, the
Heritage Trust currently holds two separate notes. One note is in the principal
amount of $40,000, which is secured by 25 complete regulation sets of graphite
Freedom golf clubs, including logo head covers. This note is due March 6, 2001
and accrues interest at the rate of 15% per annum, except in the event of a
default, when the interest rate increases to 18% per annum. As additional
35
<PAGE>
consideration, we issued a stock option in favor of Heritage Trust whereby it
has the option to purchase 266,667 shares of our common stock at an exercise
price of $.15 per share through December 3, 2003.
Also as a result of this refinancing, we owe Heritage Trust the principal
sum of $10,850, the balance of the principal amount due under the original note,
plus accrued interest. This note also accrues interest at the rate of 15% per
annum, with a default interest rate of 18% per annum. However, this note is not
secured but is guaranteed by our President, Gaylen Johnson. This note is due on
or before February 15, 2001. As additional consideration, we granted Heritage
Trust an option to purchase 72,333 shares of our common stock at an exercise
price of $.15 per share, through December 3, 2003.
In December 1999, John Arney, individually, loaned us the principal amount
of $20,000, which accrues interest at the rate of 10% per annum. This note is
currently past due, and the parties expect to renegotiate the repayment terms in
the near future.
In April 1999, Mr. Arney loaned us the principal sum of $10,000. This loan
was converted into 40,000 shares of our common stock in October 1999. Mr. Arney
agreed to waive any claim to additional interest due on this loan at that time.
There have been no other related party transactions, or any other
transactions or relationships required to be disclosed pursuant to Item 404 of
Regulation S-B.
PART IV
Item 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1* Articles of Incorporation
3.2* Bylaws
3.3 Articles of Merger
4.1* Sample Common Stock Certificate
10.4** Agreement and Plan of Reorganization between the Company and Auric
Enterprises, Inc. dated November 15, 1999.
EX-27 Financial Data Schedule
* Filed with the Securities and Exchange Commission in the Exhibits to Form
10-SB, filed on April 9, 1999, and are incorporated by reference herein.
36
<PAGE>
** Filed with the SEC as an exhibit to Form 8-K, filed on or about January 26,
2000 and incorporated by reference herein.
(b) Reports on Form 8-K
We did not file any reports on Form 8-K during the three month period ended
September 30, 2000.
37
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Company caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on January 18, 2001.
FREEDOM GOLF CORPORATION
(Registrant)
By:s/ Gaylen P. Johnson
-------------------------------
Gaylen P. Johnson, Chief
Executive Officer & President
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities
indicated on January 18, 2001.
s/ Gaylen P. Johnson
------------------------------
Gaylen P. Johnson, Director
s/ John F. Arney
------------------------------
John F. Arney, Director
s/ Michael S. Gilburd
------------------------------
Michael S. Gilburd, Director
s/ Gary Carter
------------------------------
Gary Carter, Director
s/ Danny D. Grigsby
------------------------------
Danny D. Grigsby, Director
38
<PAGE>
FREEDOM GOLF CORPORATION
EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
EXHIBITS Page No.
EX-3.3 Articles of Merger.................................................40
EX-27 Financial Data Schedule............................................48
39
<PAGE>
Exhibit 3.3
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
DEC 15 1999
No. C 3508-99
------------
s/Dean Heller
DEAN HELLER, SECRETARY OF STATE
ARTICLES OF MERGER
ARTICLES OF MERGER (these "Articles") made and entered into as of December 11,
1999 by and between Auric Enterprises, Inc., a Nevada corporation ("Auric") and
Freedom Golf Corporation, a Colorado corporation ("Freedom"). These Articles are
adopted pursuant to Section 7-11-101 of Title 7 of the Colorado Revised
Statutes, 1973, as amended and Section 92A of the Nevada Revised Statutes, as
amended. All of such laws expressly permit the merger described herein; subject
to and pursuant to all of the terms and conditions as set forth herein.
ARTICLE I
SURVIVOR CORPORATION
Auric, a Nevada corporation, shall be the survivor corporation.
ARTICLE II
SHARES AUTHORIZED AND OUTSTANDING
On the date of these Articles of Merger, Auric has authority to issue 50,000,000
shares of Common Stock, $.001 par value, of which 1,605,000 shares are issued
and outstanding. On the date of these Articles of Merger, Freedom has authority
to issue 100,000,000 shares of Common Stock, no par value (the "Freedom Common
Stock"), of which 9,820,206 shares are issued and outstanding. Freedom has the
authority to issue 10,000,000 shares of Preferred Stock, of which no shares are
issued and outstanding.
ARTICLE III
SHAREHOLDER VOTE
On December 1, 1999, a majority of the shareholders entitled to vote on the
action constituting all of the outstanding shares of Freedom Common Stock
approved the Agreement and Plan of Merger to merge Freedom into Auric. Said
number of votes was sufficient for approval by the shareholders. The plan of
merger was duly authorized by all action required by the laws under which it was
incorporated and by its constituent documents.
On December 10, 1999, shareholders entitled to vote on the action constituting
100% of the outstanding shares of Auric Common Stock approved the Agreement and
Plan of Merger to merger Freedom into Auric, none opposed. Said number of votes
was sufficient for approval by the stockholders. The plan of merger was duly
authorized by all action required by the laws under which it was incorporated
and by its constituent documents.
ARTICLE IV
PLAN OF MERGER
The executed agreement of merger is on file at the principal place of business
of the surviving corporation (Auric). Said address is 10 Office Park Rd, Suite
222, Carolina Building, Hilton Head, SC 29928. A copy of the agreement of merger
will be furnished by the surviving corporation to any stockholder of any
constituent corporation.
Page 1
40
<PAGE>
The terms of the Agreement of Merger are as follows:
(1) Merger. Freedom shall be merged with and into Auric, and Auric shall survive
the merger ("merger"), effective upon the date when the Merger Agreement is made
effective in accordance with applicable laws (the "Effective Date").
(2) Amendment to Articles of Incorporation. Article I of the Articles of
Incorporation of Auric shall be amended as to read - "The name of the
corporation is Freedom Golf Corporation.
(3) Governing Documents. The Bylaws of Auric, in effect on the Effective Date,
shall continue to be the Bylaws of Auric as the surviving corporation without
change or amendment until further amended in accordance with the provisions
thereof and applicable laws.
(4) Further Assurances. From time to time, as and when required by Auric or by
its successors and assigns, there shall be executed and delivered on behalf of
Freedom such deeds and other instruments, and there shall be taken or caused to
be taken by it such further and other action, as shall be appropriate or
necessary in order to vest, perfect or confirm, of record or otherwise, in Auric
the title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of Freedom, and
otherwise to carry out the purposes of the Merger Agreement, and the officers
and directors of Auric are fully authorized in the name and on behalf of Freedom
or otherwise to take any and all such action and to execute and deliver any and
all such deeds and other instruments.
(5) Stock of Freedom. On and after the Effective Date, all of the outstanding
certificates which prior to that time represented securities of Freedom shall be
recalled and canceled and 9,820,206 restricted Auric Common Shares. The
registered owner on the books and records of Freedom or its transfer agents of
any outstanding certificate shall, until such certificate shall have been
surrendered for transfer or otherwise accounted for to Auric or its transfer
agents, have and be entitled to exercise any voting and other rights which
respect to and to receive any dividend and other distributions upon the shares
of Auric Common Stock evidenced by such outstanding certificate as above
provided.
(6) Book Entries. As of the Effective Date, entries shall be made upon the books
of Auric in accordance with the following.
(a) The assets and liabilities of Freedom shall be recorded at the
amounts at which they were carried on the books of Freedom immediately prior to
the Effective Date, with appropriate adjustments to reflect the retirement of
the Common Shares of Freedom presently issued and outstanding.
(b) There shall be credited to the common stock account of Auric the
aggregate amount of the stated value of all shares of Auric Common Stock
resulting from the conversion of the outstanding Freedom Common Stock pursuant
to the merger.
(c) There shall be credited to the retained earnings account of Auric
the aggregate of the amount carried in the retained earnings account of Freedom
immediately prior to the Effective Date.
(8) Access to Documentation. Prior to the merger, Auric and Freedom shall
provide each other full access of their books and records, and shall furnish
financial and operating data and such other information with respect to their
business and assets as may reasonably be requested from time to time. If the
proposed transaction is not consummated, all parties shall keep confidential any
information (unless ascertainable from public filings or published information)
obtained concerning each others operations, assets and business.
Page 2
41
<PAGE>
(9) Abandonment. At any time before the effective Date, the Agreement and Plan
of Reorganization and the Agreement of Merger may be terminated and the Merger
may be abandoned by the Board of Directors of either Auric or Freedom or both,
notwithstanding approval of the Merger Agreement by the shareholders of Auric or
the shareholders of Freedom or both.
Page 3
42
<PAGE>
IN WITNESS WHEREOF, these Articles of Merger, having first been duly approved by
resolution of the Boards of Directors of Auric and Freedom and their respective
shareholders, is hereby executed on behalf of each of said two corporations by
their respective officers thereunto duly authorized.
Freedom Golf Corporation ATTEST:
A Colorado corporation
s/Gaylen F. Johnson s/John F. Arney
--------------------------------------- --------------------------------
President Secretary
Auric Enterprises, Inc. ATTEST:
s/Robert E. Hinchey s/Samantha Moody
--------------------------------------- --------------------------------
President Secretary
State of Colorado )
) ss
County of Arapahoe )
On the 13 day of December, 1999, personally appeared before me the
President of Freedom Golf Corporation, a Colorado corporation, the signer of the
above instrument, who duly acknowledged to me that he executed the same on
behalf of said corporation pursuant to duly adopted director's resolutions.
s/M. J. Rotolo
---------------------------------------
NOTARY PUBLIC
Englewood CO 80112
---------------------------------------
---------------------------------------
My Commission Expires 06/25/2001
SEAL
Page 4
43
<PAGE>
State of Colorado )
) ss
County of Arapahoe )
On the 13 day of December, 1999, personally appeared before me the
Secretary of Freedom Golf Corporation, a Colorado corporation, the signer of the
above instrument, who duly acknowledged to me that he executed the same on
behalf of said corporation pursuant to duly adopted director's resolutions.
s/M. J. Rotolo
---------------------------------------
NOTARY PUBLIC
Englewood CO 80112
---------------------------------------
---------------------------------------
My Commission Expires 06/25/2001
SEAL
Page 4
44
<PAGE>
State of )
) ss
County of )
On the 13 day of December, 1999, personally appeared before me the
President of Auric Enterprises, Inc., a Nevada corporation, the signer of the
above instrument, who duly acknowledged to me that he executed the same on
behalf of said corporation pursuant to duly adopted director's resolutions.
s/Joline Brown
---------------------------------------
NOTARY PUBLIC
1040 Wm Hilton Pkwy.
---------------------------------------
Hilton Head, SC 29928
---------------------------------------
My Commission Expires March 26, 2008
SEAL
State of California )
) ss
County of Monterey )
On the 10 day of December, 1999, personally appeared before me the
Secretary of Auric Enterprises, Inc., a Nevada corporation, the signer of the
above instrument, who duly acknowledged to me that he executed the same on
behalf of said corporation pursuant to duly adopted director's resolutions.
s/Jessica Hinrichs
---------------------------------------
NOTARY PUBLIC
395 Del Monte Center
---------------------------------------
Monterey CA 93940
---------------------------------------
My Commission Expires 12/03/02
JESSICA HINRICHS
Commission #1203529
SEAL Notary Public-California
Monterey County
My Comm. Expires Dec 3, 2002
Page 4
45
<PAGE>
VERIFICATION
The undersigned, after being duly sworn, does hereby depose and state, that he
is the Secretary of Freedom Golf Corporation, a Colorado corporation, and that
he has read the foregoing Articles of Merger and knows the contents thereof, and
does hereby certify that these Articles of Merger contain a truthful statement
of the Agreement and Plan of Merger as duly adopted by the Board of Directors by
a majority of the stockholders of the corporation.
s/John F. Arney
---------------------------------------
Secretary
State of Colorado )
) ss
County of Arapahoe )
On the 13 day of December, 1999, personally appeared before me the
Secretary of Freedom Golf Corporation, a Colorado corporation, the signer of the
above instrument, who duly acknowledged to me that he executed the same on
behalf of said corporation pursuant to duly adopted director's resolutions.
s/M. J. Rotolo
---------------------------------------
NOTARY PUBLIC
Englewood CO 80112
---------------------------------------
---------------------------------------
My Commission Expires 06/25/2001
SEAL
Page 5
46
<PAGE>
VERIFICATION
The undersigned, after being duly sworn, does hereby depose and state, that he
is the Secretary of Auric Enterprises, Inc., a Nevada corporation, and that he
has read the foregoing Articles of Merger and knows the contents thereof, and
does hereby certify that these Articles of Merger contain a truthful statement
of the Agreement and Plan of Merger as duly adopted by the Board of Directors by
a majority of the stockholders of the corporation.
s/Samantha Moody
---------------------------------------
Secretary
State of California )
) ss
County of Monterey )
On the 10 day of December, 1999, personally appeared before me the
Secretary of Auric Enterprises, Inc., a Nevada corporation, the signer of the
above instrument, who duly acknowledged to me that he executed the same on
behalf of said corporation pursuant to duly adopted director's resolutions.
s/Jessica Hinrichs
---------------------------------------
NOTARY PUBLIC
395 Del Monte Center
---------------------------------------
Monterey CA 93940
---------------------------------------
My Commission Expires 12/03/02
JESSICA HINRICHS
Commission #1203529
SEAL Notary Public-California
Monterey County
My Comm. Expires Dec 3, 2002
Page 5
47
