SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-QSB
(Mark One)
X Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
- --------- Act of 1934
For the Quarterly Period Ended: June 30, 1997
or
- --------- Transition Report Pursuant to Section 13 or 15(d) of the Securities
Act of 1934 For the Transition Period From to .
-------- ------
Commission File Number: 33-7811-NY
---------------
Grafix Time Corporation
(Exact name of registrant as specified in its charter)
New York 93-0943925
---------------------- ---------------------------
(State of Incorporation) (I.R.S. Employer I.D. Number)
2901 Suffolk Court East, Suite 130, Ft. Worth, Texas 76133
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(Address of principal executive offices and Zip Code)
(817) 923-7224
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(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days:
[ ] YES [X] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock:
16,062,886 common shares were outstanding as of June 30, 1997.
<PAGE>
PART I. Item 1. Unaudited Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
Grafix Time Corporation D/B/A Carrera Gold
Balance Sheet
June 30, 1997
(Unaudited)
ASSETS
<S> <C>
CURRENT ASSETS
Cash .................................................................. $ 152,118
Accounts Receivable ................................................... 216,555
Inventory ............................................................. 1,311,193
Total Current Assets ............................................. 1,752,366
----------
PROPERTY AND EQUIPMENT, at cost, net of accumulated
depreciation of $3,280 ................................................ 12,263
TRADE NAME LICENSE, at cost, net of accumulated
amortization of $10,563 ............................................... 189,337
TOTAL ASSETS ............................................................... $ 1,953,966
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Note payable - bank ................................................... $ 709,000
Notes payable - current portion ....................................... 1,097,000
Accounts payable and accrued expenses ................................. 354,439
Provision for sales returns ........................................... 382,440
----------
Total Current Liabilities ........................................ 2,542,879
Note payable ............................................................... 25,000
Commitments
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 50,000,000 shares authorized,
16,062,886 shares issued and outstanding ............................ 16,063
Additional paid-in capital ............................................ 11,123,366
Preferred stock, $.01 par value, 5,000,000 shares authorized, 0 shares
issued and outstanding .............................................. --
Accumulated deficit ................................................... (11,752,637)
Total Shareholders' Deficit ...................................... (613,208)
----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ................................ $ 1,953,966
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Grafix Time Corporation D/B/A Carrera Golf
Statement of Operations
For the Three and Nine Months Ended June 30, 1997 and 1996
(Unaudited)
Three Months Ended Nine Months Ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales ................................................... $ 644,476 $ 1,521 $ 1,871,965 $ 13,299
Cost of Sales ........................................... 457,716 -- 1,159,917 --
--------- --------- ---------- ---------
Gross Margin ............................................ 186,760 1,521 712,048 13,299
Selling, general and administrative expenses ............ 252,965 195,440 991,594 890,591
--------- --------- ---------- ---------
Income (loss) from operations ........................... (66,205) (193,919) (279,546) (877,292)
Other income and (expense):
Gain on disposal of inventory ...................... -- -- 96,645 --
Interest expense ................................... -- -- (46,275) (7,013)
--------- --------- ---------- ---------
Total other income (expense) .................. (12,144) (10,290) 39,126 (7,013)
--------- --------- ---------- ---------
Income (loss) before income taxes and
extraordinary item ...................................... (78,349) (204,209) (240,420) (884,305)
--------- --------- ---------- ---------
Income taxes ............................................ -- -- (21,315) --
--------- --------- ---------- ---------
Income (loss) before extraordinary item ................. (78,349) (204,209) (261,735) (884,305)
--------- --------- ---------- ---------
Extraordinary item:
Forgiveness of debt, net of income taxes ................ -- -- 41,478 --
--------- --------- ---------- ---------
Net income (loss) ............................. (78,349) (204,209) (220,257) (884,305)
--------- --------- ---------- ---------
Net income (loss) per Share ........................ $ (0.01) $ (0.09) $ (0.02) $ (0.34)
--------- --------- ---------- ---------
Weighted average shares outstanding ..................... 11,604,873 2,300,892 11,604,873 2,613,521
--------- --------- ---------- ---------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
Grafix Time Corporation D/B/A Carrera Golf
Statement of Cash Flows
Three Months Ended June 30, 1997 and 1996
(Unaudited)
<S> <C>
Net earnings .................................................................... (78,349)
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Increase (decrease) in operating assets:
Accounts receivable ................................................... 116,571
Inventory ............................................................. (467,868)
Prepaid expenses ...................................................... (72,500)
Increase (decrease) in operating liabilities:
Accounts payable ...................................................... 87,493
--------
Net cash provided by operating activities ....................................... (414,653)
--------
Financing Activities:
Proceeds from notes payable - bank ......................................... 309,000
--------
Net cash provided by (used in) financing activities ............................. 309,000
--------
Net increase (decrease) in cash and cash equivalents ............................ (105,653)
--------
Cash and cash equivalents, beginning of period .................................. 257,771
Cash and cash equivalents, end of period ........................................ 152,118
Supplemental cash flow information:
Cash paid for interest .......................................................... 12,144
</TABLE>
See accompanying notes to financial statements.
<PAGE>
Grafix Time Corporation
D/B/A Carrera Golf
Notes to Financial Statements
The accompanying condensed unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to form 10-QSB. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. The results of
operations for the periods presented are not necessarily indicative of the
results to be expected for the full year. The accompanying financial statements
should be read in conjunction with the Company's form 10-KSB filed for the year
ended September 30, 1996.
Income (loss) per share was computed using the weighted average number of shares
of common stock outstanding.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a "going concern"
basis which contemplates the realization of assets and the liquidation of
liabilities in the ordinary course of business.
The Company has incurred operating losses during the periods ended June 30,
1997, and 1996, aggregating $177,727 and $894,595, and has negative working
capital of $790,513 and a stockholders' deficit of $629,271 at June 30, 1997.
During the periods presented the Company has not generated positive cash flow
from operations and there can be no assurance that the trend will not continue.
The Company did obtain both equity and debt financing during the periods
presented. Profitable operations in future periods are dependent upon, among
other factors, the Company's ability to continue financing and managing its
operations.
STOCKHOLDERS' DEFICIT
During April, 1997, the Company converted $344,806 of notes payable into 459,741
shares of its common stock.
Part I. Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
RESULTS OF OPERATIONS
The Company manufactures golf clubs, and distributes golf clubs, bags,
accessories and apparel for sale under the Carrera brand name. The Company's
primary customer is Citizen Trading Company. The Company's marketing plan is
dependent upon continuing the relationship with Citizen, and upon obtaining
other sources of financing.
<PAGE>
Third Quarter 1997 (ended June 30, 1997) Compared to Third Quarter 1996
- -----------------------------------------------------------------------
Assets
The Company's total assets increased from $716,918 at June 30, 1996 to
$1,953,966 at June 30, 1997. This $1,237,048 increase (173 %) was primarily due
to increases in cash (increase of $106,466, or 233 %), accounts receivable
(increase from $0 to $216,555), and inventory (increase of $1,078,860, or 464
%), as a result of the consummation of the Ahuja financing and the Company
moving into the early operational stage. The Company recorded dramatic increases
in accounts receivable and inventory as it filled the first several Citizen
product orders.
Liabilities
The Company's total current liabilities increased from $739,891 at June 30, 1996
to $2,542,879 at June 30, 1997. This $1,802,988 increase (243%) was primarily
due to increases in notes payable (increase of $754,000, or 219.8 %), and
provision for sales returns of $382,440. The last item relates to the return of
the first Citizen order. The Company has since implemented a rigorous quality
control program, which has significantly reduced delays in shipments due to
quality issues. Products for the first several Citizen orders were initially
assembled in Fort Worth, Texas; however, those products are now assembled in
Tokyo, Japan. Management is aware of no other exceptional quality control
problems that would affect the Company's financial statements..
Stockholders' Deficit
Total stockholders' deficit increased $93,707 or 17.5% to $629,271 at June 30,
1997.
Sales
Sales increased from $1,521 for the third quarter of 1996 (ended June 30, 1996)
to $644,476 for the third quarter of 1997, as the Company moved from the
development stage to the early operating stage. Citizen continued to account for
most of the Company's sales in the third quarter of 1997.
Costs and Expenses
The Company reported general, administrative, and interest expense of $195,440
for the third quarter of 1996, as it continued to develop products, identify
potential customers and distributors, and attempted to obtain financing for
expansion of operations. For the third quarter of 1997, the Company had moved
into the early operating stage, and showed cost of sales of $457,716, and a
gross margin on sales of $186,760, or 29 percent. The Company also had selling,
general, and administrative expenses of $252,965 for the third quarter of 1997,
as it moved to fill Citizen orders and expand its operations. Despite ramping up
to fill Citizen orders and expand the Company's business, selling, general and
administrative expenses increased only 23.4 (%) for the third quarter of 1997,
compared to the same period the prior year. Management attributes this increase
to new and more advanced research and development relating to new and unique
products. The Company also had interest expense of $12,144 for the quarter ended
June 30, 1997, relating to notes payable.
Net Income (Loss)
The Company reported a net loss of $204,209 (0.08 per share) for the third
quarter ended June 30, 1996. This was primarily due to minimal sales and
substantial selling, general, and administrative expenses. For the same period
in 1997, the Company reported sales of $644,476, cost of sales of $457,716 and
expenses of $252,965. Loss from operations (excluding interest expense) for the
third quarter of 1997 was $78,349. Accounting for interest expense & income
taxes, the Company reported a net loss of $78,349 for the third quarter 1997.
<PAGE>
Financial Condition, Liquidity and Capital Resources
At June 30, 1996, the Company was in the development stage, had minimal sales,
no financial backing, and no liquidity. At June 30, 1997, the Company had
transitioned into the early operational stage, had realized sales of over
$644,476 for the quarter, and had limited liquidity in the form of cash,
accounts receivable and inventory. Nonetheless, the Company's financial
condition and liquidity remain dependent upon two major factors: (1)
continuation of the Company's relationship with Citizen, and Citizen's timely
payment of invoices for short-term cash flow purposes; and (2) the Company
obtaining other sources of financing as it attempts to expand its product lines
and markets. The market for the Company's common stock is extremely illiquid.
Assuming continuation and growth of the Citizen relationship, management is
hopeful that the Company will realize positive net cash flows from operating
activities by the end of the current fiscal year.
First Nine Months 1997 (ended June 30, 1997) Compared to First Nine Months 1996
- -------------------------------------------------------------------------------
Sales
Sales increased from $13,299 for the first nine months of fiscal 1996 (ended
June 30, 1996) to $1,871,965 for the same period 1997, as the Company moved from
the development stage to the early operating stage. Citizen continued to account
for most of the Company's sales in the first nine months of 1997.
Costs and Expenses
The Company reported general, administrative, and interest expense of $989,634
for the first nine months of fiscal 1996, as it continued to develop products,
identify potential customers and distributors, and attempted to obtain financing
for expansion of operations. For the same period in fiscal 1997, the Company had
moved into the early operating stage, and showed cost of sales of $1,159,917,
and a gross margin on sales of $712,048, or 38 percent. The Company also had
selling, general, and administrative expenses of $991,594 for the first nine
months of 1997, as it moved to fill Citizen orders and expand its operations.
$533,635 (72.2%) of these expenses were incurred in the first fiscal quarter of
1997 (ended December 31, 1996), as the Company changed management, obtained
financing, and filled the first Citizen orders. Despite ramping up to fill
Citizen orders and expand the Company's business, selling, general and
administrative expenses increased only one percent (1%) for the first nine
months of fiscal 1997, compared to the same period the prior year. Management
attributes this small increase to the departure of prior management in December
1996, consolidation of the Company's operations to Fort Worth, Texas in December
1996, and the new management team's commitment to reducing costs and
streamlining operations.
Net Income (Loss)
The Company reported a net loss of $303,487 (0.08 per share) for the nine
months' ended June 30, 1996. This was primarily due to minimal sales and
substantial selling, general, and administrative expenses. For the same period
in 1997, the Company reported sales of $1,871,965, cost of sales of $1,159,917,
expenses of $991,594, and a net loss of $177,727 (0.01 per share). Loss from
operations (excluding interest expense) for the first nine months of 1997 was
$279,546, compared with a net operating loss of $407,260 for the same period the
prior year. Management is hopeful that the Company can continue to grow sales,
control expenses, and realize profits from operations in the future.
<PAGE>
Third Quarter 1997 Compared to Second Quarter 1997
- --------------------------------------------------
Sales
Sales for the third fiscal quarter 1997 (ended June 30, 1997) increased $208,590
(47.9%) from the previous quarter, to $644,476. Management attributes this
increase to increased brand recognition in the Japanese market. Management is
hopeful that Citizen orders will continue to grow as brand recognition is
achieved in the Japanese market, and as Citizen develops its customer base.
Expenses
Cost of sales increased $203,525 (80%) from the second quarter, 1997, to
$457,716 for quarter ended June 30, 1997. The Company's gross sales margin
decreased from 41.7% of gross sales for the second quarter, 1997 to 29% for the
quarter ended June 30, 1997. Management attributes this increase in cost of
sales, and corresponding decrease in gross sales margin, to rollout of the new
plasma titanium line of golf clubs and high levels of samples provided to
distributors as part of that rollout. The Company realized a moderate increase
of $47,971 in selling, general and administrative expenses for the third fiscal
quarter, due to advanced research & development.
Net Income (Loss)
The Company reported a net loss of $78,349 (less than $.01 per share) for the
third fiscal quarter 1997, compared to net income of $9,119 (.01$ per share) for
the second fiscal quarter 1997.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Report on Form 8-K on April 10, 1997 reporting the
results of the Special Shareholders' meeting held March 26, 1997. The Company
filed a Report on Form 8-K on July 10, 1997 reporting the separation of
employment of Ron Karani, the Company's President.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GRAFIX TIME CORPORATION
Dated: December 9, 1997 By: /s/ Raymond E. Theiss
---------------- ---------------------------
Raymond E. Theiss
Acting President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 152,118
<SECURITIES> 0
<RECEIVABLES> 216,555
<ALLOWANCES> 0
<INVENTORY> 1,311,193
<CURRENT-ASSETS> 1,752,366
<PP&E> 15,543
<DEPRECIATION> 3,280
<TOTAL-ASSETS> 1,953,966
<CURRENT-LIABILITIES> 2,542,879
<BONDS> 0
0
0
<COMMON> 16,063
<OTHER-SE> (604,976)
<TOTAL-LIABILITY-AND-EQUITY> 1,953,966
<SALES> 644,476
<TOTAL-REVENUES> 644,476
<CGS> 457,716
<TOTAL-COSTS> 252,965
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (12,144)
<INCOME-PRETAX> (78,349)
<INCOME-TAX> 0
<INCOME-CONTINUING> (78,349)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (78,349)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
