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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
Commission file Number: 0-28707
CARBITE GOLF, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
British Columbia, Canada 33-0770893
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
9985 HUENNEKENS STREET
SAN DIEGO, CA 92121
(Address of Principal Executive Offices)
Registrant's Telephone Number (858) 625-0065
Check Whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X
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No _____
On November 14, 2000, 25,371,750 shares of the Registrant's Common Stock, no par
value, were outstanding.
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<CAPTION>
Index Page No.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURES 11
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARBITE GOLF INC
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2000
(UNAUDITED)
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ASSETS
Current Assets
Cash $ 893,318
Accounts Receivable 1,728,365
Notes Receivable 194,303
Inventory 2,994,826
Prepaid Expenses 222,836
Future Tax Assets 150,000
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Total Current Assets 6,183,648
Capital Assets 770,212
Patents and Trademarks Net of Amortization 79,994
Goodwill Net of Amortization 2,022,980
Other Non-Current Assets (Deferred Costs) 147,614
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Total Assets $ 9,204,448
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LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts Payable 578,572
Accrued Expenses 453,592
Bank Loan 655,650
Income Tax Payable 30,103
Other Current Liabilities 33,731
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Total Current Liabilities $ 1,751,648
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Shareholders Equity
Share Capital 11,561,811
Additional Paid in Capital
Deficit (4,109,011)
Total Stockholders Equity 7,452,800
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 9,204,448
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CARBITE GOLF INC
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SEPTEMBER 30, 2000
(UNAUDITED)
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<CAPTION>
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Net Sales $3,444,715 $4,456,002 $12,642,039 $14,062,812
Cost of Goods Sold 2,076,225 2,066,554 7,046,138 7,142,713
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Gross Profit 1,368,490 2,309,448 5,595,901 6,920,099
Operating Expenses
Selling Expenses 1,508,953 1,668,419 4,717,042 4,405,247
Gen. and Admin. Expenses 308,491 529,788 1,460,831 1,325,622
Research & Development Costs 176,892 113,382 471,354 341,703
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Income from Operations (625,846) 77,859 (1,053,326) 847,527
Amortization (81,072) (101,648) (335,767) (304,883)
Interest income (expense) (20,893) (2,301) (40,716) (7,866)
Other Expense 0 318 0 68,138
Provision for Taxes 0 (82,535) 0 (397,722)
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Net Income (728,441) (108,307) (1,429,809) 205,194
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Basic and Diluted Earnings Per Share (.03) (.01) (.06) .01
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CARBITE GOLF INC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
2000 1999 2000 1999
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<S> <C> <C> <C> <C>
Cash Flows used in Operating Activities
Net Loss (728,442) (108,287) (1,429,809) $ 205,194
Adjustments to Net Loss
to Cash Used in Operations:
Gain/(loss) on other discontinued operation (935) (68,138)
Deferred Costs on Unrecognized Sales 36,962 153,845 107,268 304,845
Amortization 76,933 (31,797) 228,499 113,203
Depreciation 49,666 55,510 134,573 122,713
Changes in Operating Assets and Liabilities:
Inventories (647,811) (603,306) (613,241) (685,126)
Accounts Receivable 355,934 366,124 640,498 (744,993)
Other Current 196,755 719,319 (336,268) 196,835
Accounts Payable and Accrued Liabilities (215,754) (167,386) 256,214 37,462
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Cash Used in Operating Activities (875,757) 383,087 (1,012,266) (518,005)
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Cash Flows from Investing Activities:
Purchases of Capital Equipment (72,400) (86,520) (284,441) (370,285)
Other Investment (30,000) (345) (17,675) (42,292)
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Cash Used in Investing Activities (102,400) (86,865) (302,116) (412,577)
Cash Flows from Financing Activities:
Net Borrowings (payments)
under Line of Credit 136,500 70,890 463,725 183,315
Repayment of L/T Debt (3,477) (2,181) (10,294) (8,610)
Change in Foreign Currency 0 2,110 0 7,506
Net Proceeds From Sale of Common Stock 301,199 (2,688) 1,093,601 660,408
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Cash Provided by Financing Activities 434,222 68,131 1,547,032 842,619
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Net Increase (Decrease) in Cash (543,935) 364,353 232,650 (87,963
Cash at Beginning of Period 1,437,254 702,362 660,669 1,154,678
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Cash at End of Period $ 893,319 $1,066,715 $ 893,319 $1,066,715
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - QUARTERLY FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements and related notes
as of September 30, 2000 and for the three-month periods ended September 30,
2000 and 1999 are unaudited but include all adjustments (consisting of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair statement of financial position and results of operations of the Company
for the interim periods. The results of operations for the three-month period
ended September 30, 2000 are not necessarily indicative of the operating results
to be expected for the full fiscal year. The information included in this
report should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto and the other information, including risk
factors, set forth for the year ended December 31, 1999 in the Company's
Amendment No. 2 to Form 10-SB. Readers of this Quarterly Report on Form 10-QSB
are strongly encouraged to review the Company's Form 10-SB. Copies are
available from the Company's Investor Relations Department at 9985 Huennekens
Street, San Diego, CA 92121.
NOTE 2 - ACCOUNTS RECEIVABLE
Accounts Receivable at September 30, 2000 were $2,048,894 with a reserve for
doubtful accounts of ($320,529) for net receivables of $1,728,365.
NOTE 3 - NOTES RECEIVABLE
In April, 2000, the Company accepted a Promissory Note from a customer for the
full amount of its outstanding trade receivables. That debt is carried as a Note
Receivable. The balance due at September 30, 2000 was $194,303. As of September
22, 2000, the customer was in default of its payment obligations on that Note
and the company has made demand for immediate payment of the full amount due.
NOTE 4 - INVENTORY
Inventories consist of:
Raw materials $2,135,106
Fixed Goods 1,018,710
Obsolescence reserve (158,990)
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$2,994,826
NOTE 5 - BANK LOAN
We have a $1,000,000 Revolving Line of Credit with Scripps Bank in San Diego,
California, which is at the lender's general reference rate of interest and is
collateralized by accounts receivable. As of September 30, 2000, we had drawn
$655,650 under that Line of Credit.
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NOTE 6 - LETTER OF CREDIT COMMITMENTS
The Company purchases some components from overseas vendors through Letter of
Credit financing. At September 30, 2000, we had $41,350 in such Letters of
Credit outstanding with Scripps Bank, San Diego and $361,033 with Inabata
America Corporation. The Letters of Credit with Scripps Bank are generally due
and payable by the Company upon shipment of the product by our vendors. The
Letters of Credit with Inabata are due and payable by the Company when it takes
delivery of the products after arrival in the United States.
NOTE 7 - EARNINGS PER SHARE
Earnings per share are calculated by dividing the loss available to common
shareholders by the weighted average of shares outstanding during the period. At
September 30, 2000, there were 25,371,750 common shares outstanding. The
computation of diluted loss per share excludes the effect of the exercise of
share options and share purchase warrants outstanding because their effect would
be antidilutive due to losses incurred by the Company during this period. At
September 30, 2000, there were 2,129,240 share options and 1,854,408 share
purchase warrants outstanding.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations contain forward-looking statements, which involve substantial risks
and uncertainties. The company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those in this section and elsewhere in this Quarterly Report
on form 10-QSB.
RESULTS OF OPERATIONS
NET SALES. Net consolidated sales for the Quarter ending September 30,
2000 were $3,444,715 versus $4,456,002 for the same Quarter in 1999, a decline
of 23%. Our net domestic wholesale sales to retail outlets actually increased by
$250,000 over the same period in 1999. Overall sales results were hurt by poor
performance in our direct sales department. Direct sales experienced high
returns during the Quarter, principally returns of iron sets sold through a
telemarketing campaign that has since been terminated. As the Company plans for
2001, it intends to return its focus to its core products--premium wedges and
putters--sold principally through traditional wholesale distribution. In Third
Quarter 2000, we also saw a reduction in royalty income to zero compared to
$86,000 in Third Quarter 1999.
COST OF GOODS SOLD AND GROSS MARGIN. Gross margins declined in Third
Quarter 2000 to 39.7% compared to 53.6% for Third Quarter 1999. This decline
was the result of multiple factors: (1) Sales of lower margin products,
including the E-club which we distribute for QVC, and close outs of some of our
older product line; (2) continuing negative margin impact of our putter/wedge
infomercial which provided customers a free wedge upon purchase of a putter; (3)
increased sales to international and big retail accounts which traditionally
receive deeper discounts; and (4) returns of iron sets sold through our direct
response department. We have discontinued the primary contributors to this
margin erosion--the putter/wedge infomercial and telemarketing sales of iron
sets.
OPERATING EXPENSES. Operating expenses for Third Quarter 2000 were
$1,994,336 versus $2,311,589 for Third Quarter 1999, a decrease of 13%, but a 6%
increase as a percentage of sales. This reduction was due to reduced variable
selling expenses resulting from reduced sales and reduced media buys.
SALES AND MARKETING EXPENSE. Sales and marketing expenses for Third
Quarter 2000 were $1,508,953 compared to $1,668,419 for Third Quarter 1999. As
a percentage of sales, however, selling expenses increased from 37.4% to 43.8%.
The reduction in expenses for the Quarter was due to reduced variable selling
expenses as sales declined and media buying was reduced.
GENERAL AND ADMINISTRATIVE EXPENSE. G&A expenses in Third Quarter 2000
were $308,491 compared to $529,788 in Third Quarter 1999. This reduction was
principally due to a reduction in Bad Debt expenses and on-going efforts to
reduce overhead expenses.
RESEARCH AND DEVELOPMENT. R&D expenses in Third Quarter 2000 were $176,852
compared to $113,382 in Third Quarter 1999. This increase was due to on-going
development costs for new products contemplated for 2001.
OTHER EXPENSES. Interest expense increased during Third Quarter 2000 to
$20,893 from $2,301 in Third Quarter 1999 as we made greater use of our Line of
Credit to fund new product purchases for 2001 inventory. Amortization expenses
were $81,072 in Third Quarter 2000 compared to $101,648 for Third Quarter 1999.
INCOME TAXES. As in the first two quarters of 2000, the company has not
recorded a provision for income taxes for the nine months ended September 30,
2000. Current losses preclude a provision for year to date September 30, 2000.
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CAPITAL EXPENDITURES. Capital expenditures in the third quarter were
$72,000. These expenditures were for Polar Balanced wedge tooling, leasehold
improvements, and computer station hardware.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our business through cash flow from
operations and the private placement of equity and/or debt securities,
supplemented with short-term borrowings from commercial lenders. There were no
private placements in the third quarter of 2000. Net cash used in operating
activities for the quarter ended September 30,2000 was $875,757 compared to cash
from operating activities of $383,087 in the same quarter of 1999. For nine
months ended September 30, 2000, net cash used in operating activities was
$1,012,266 compared to net cash used of $518,005 for the same period in 1999. As
of September 30, 2000, we had drawn $655,650 under our credit facility with
Scripps Bank in San Diego.
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PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
During the Third Quarter, we issued the following stock and warrants:
792,632 shares of common stock at a deemed price of $.38US in
connection with our acquisition of certain assets of Carizma Golf
Company.
1,052,632 shares of common stock at a deemed price of $.38US in
connection with the private placement of $400,000. Each share also
carries a purchase warrant to purchase 1/4 share of common stock at
$.38 US for two years.
300,000 purchase warrants at $.65C to Daiwa Seiko Company pursuant to
our Distribution Agreement with Daiwa dated September 16, 1999.
No underwriters were used in these transactions and we relied upon the
exemptions provided by Section 4(2) and/or Regulation D of the Securities Act.
During the Third Quarter, the Board of Directors approved a re-pricing of
1,128,740 outstanding options to officers, directors, and employees to $.42
Canadian. That re-pricing will be completed upon completion of documentation and
regulatory approval by the Canadian Venture Exchange.
During the Third Quarter, the Board of Directors allocated 880,000 options
to officers and directors at $.42C. The options will be issued upon completion
of documentation and regulatory approval by the Canadian Venture Exchange.
During the Third Quarter, we received the resignation of James Henderson as
a director.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The exhibits filed as part of this report are listed below:
Exhibit No. Description
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27.1 Financial Data Schedule
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
Quarter ending September 30, 2000.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CARBITE GOLF, INC.
Date: November 15, 2000 By: /s/ John Pierandozzi
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John Pierandozzi
President and CEO
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