SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------------------------------------------
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: March 31, 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
----------------------------------------------------------
(Address of principal executive offices and Zip Code)
(817) 923-7224
--------------------------------------------------
(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:
[X] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock:
15,357,925 common shares were outstanding as of March 31, 1997.
<PAGE>
PART I. Item 1. Unaudited Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
Grafix Time Corporation D/B/A Carrera Golf
Balance Sheet
March 31, 1997
(Unaudited)
ASSETS
------
<S> <C>
CURRENT ASSETS
Cash ........................................................ $ 257,771
Accounts Receivable ......................................... 333,126
Inventory ................................................... 843,325
Total Current Assets ................................... 1,434,222
------------
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 ..................................................... $ 1,635,822
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Note payable - bank ......................................... $ 400,000
Notes payable - current portion ............................. 1,097,000
Accounts payable and accrued expenses ....................... 266,946
Provision for sales returns ................................. 382,440
------------
Total Current Liabilities .............................. 2,146,386
Note payable ..................................................... 25,000
Commitments
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 50,000,000 shares authorized,
15,357,925 shares issued and outstanding ................ 15,358
Additional paid-in capital .................................. 11,123,366
Preferred stock, $.01 par value, 5,000,000 shares authorized,
0 shares issued and outstanding ........................... --
Accumulated deficit ......................................... (11,674,288)
Total Shareholders' Deficit ............................ (535,564)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ...................... $ 1,635,822
============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
Grafix Time Corporation D/B/A Carrera Golf
Statement of Operations
For the Three and Six Months Ended March 31, 1997 and 1996
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31, March 31, March 31,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C>
Sales .................................................. $ 435,886 -- $ 1,227,489 $ 11,778
Cost of Sales .......................................... 254,191 -- 702,201 --
------------ ------------ ------------ ------------
Gross Margin ........................................... 181,895 -- 525,288 11,778
Selling, general and administrative
expenses ............................................... 204,994 217,919 738,629 695,151
------------ ------------ ------------ ------------
Income (loss) from operations .......................... (23,299) (217,919) (213,341) (683,373)
Other income and (expense):
Gain on disposal of inventory ..................... -- -- 96,645 --
Interest expense .................................. (30,275) (7,013) (46,275) (7,013)
------------ ------------ ------------ ------------
Total other income (expense) ................. (30,275) (7,013) 51,270 (7,013)
------------ ------------ ------------ ------------
Income (loss) before income taxes and
extraordinary item ..................................... (53,674) (224,932) (162,071) (690,386)
------------ ------------ ------------ ------------
Income taxes ........................................... (21,315) -- (21,315) --
------------ ------------ ------------ ------------
Income (loss) before extraordinary item ................ (32,259) (224,932) (140,756) (690,386)
------------ ------------ ------------ ------------
Extraordinary item:
Forgiveness of debt, net of income taxes ............... 41,378 -- 41,378 --
------------ ------------ ------------ ------------
Net income (loss) ............................ 9,119 (224,932) (99,378) (690,386)
------------ ------------ ------------ ------------
Earnings (loss) per share:
Income (loss) before extraordinary item ............ $ 0.00 $ (0.08) $ (0.02) $ (0.33)
Extraordinary item ................................. $ 0.00 -- $ 0.01 --
------------ ------------ ------------ ------------
Net income (loss) ................................. $ 0.00 $ (0.08) $ (0.01) $ (0.33)
------------ ------------ ------------ ------------
Sales .................................................. $ 435,886 -- $ 1,227,489 $ 11,778
Cost of Sales .......................................... 254,191 -- 702,201 --
------------ ------------ ------------ ------------
Gross Margin ........................................... 181,895 -- 525,288 11,778
Selling, general and administrative
expenses ............................................... 204,994 217,919 738,629 695,151
------------ ------------ ------------ ------------
Income (loss) from operations .......................... (23,299) (217,919) (213,341) (683,373)
Other income and (expense):
Gain on disposal of inventory ..................... -- -- 96,645 --
Interest expense .................................. (30,275) (7,013) (46,275) (7,013)
------------ ------------ ------------ ------------
Total other income (expense) ................. (30,275) (7,013) 51,270 (7,013)
------------ ------------ ------------ ------------
Income (loss) before income taxes and
extraordinary item ..................................... (53,674) (224,932) (162,071) (690,386)
Income taxes ........................................... (21,315) -- (21,315) --
Income (loss) before extraordinary item ................ (32,259) (224,932) (140,756) (690,386)
Extraordinary item:
Forgiveness of debt, net of income taxes ............... 41,378 -- 41,378 --
Net income (loss) ............................ 9,119 (224,932) (99,378) (690,386)
------------ ------------ ------------ ------------
Weighted average shares outstanding .................... 11,145,132 2,592,418 66,802,612 2,123,085
------------ ------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
<TABLE>
<CAPTION>
Grafix Time Corporation D/B/A Carrera Golf
Statement of Cash Flows
Six Months Ended March 31, 1997 and 1996
(Unaudited)
1997 1996
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities .............. (816,941) (522,760)
Cash flows from investing activities:
Acquisition of plant and equipment .......................... -- (22,747)
Licensing agreement obtained ................................ -- (50,000)
---------- ----------
Net cash provided by (used in) investing activities ......... -- (72,747)
Cash flows from financing activities:
Proceeds from notes payable ................................. 660,000 315,000
Proceeds from note payable - bank ........................... 400,000 --
Common stock issued for cash ................................ -- 308,230
Common stock subscription collected ......................... -- 38,500
Repayment of officer's loans ................................ -- (13,800)
---------- ----------
Net cash provided by (used in) financing activities ......... 1,600,000 642,930
---------- ----------
Increase (decrease) in cash ...................................... 243,059 47,423
Cash and cash equivalents, beginning of period ................... 14,712 842
---------- ----------
Cash and cash equivalents, end of period ......................... 257,771 48,265
---------- ----------
Supplemental cash flow information:
Cash paid for interest ...................................... -- --
Cash paid for income taxes .................................. -- --
</TABLE>
See accompanying notes to financial statements
4
<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 common
shares 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 March 31,
1997, and 1996, aggregating $99,378 and $690,386, and has negative working
capital of $712,164 and a stockholder' deficit of $535,564 at March 31, 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 ts
operations.
STOCKHOLDERS' DEFICIT
During the quarter ended December 31, 1996, the Company issued 106,026 shares of
its common stock for services valued at $19,880.
During the second quarter ended March 31, 1997, 500,000 shares of the Company's
preferred stock were converted into 12,000,000 shares of the Company's common
stock.
SUBSEQUENT EVENT
During April, 1997, the Company converted $344,806 of notes payable into 459,741
shares of its common stock.
5
<PAGE>
PART I. Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
(1) Overview
Grafix Time Corporation d/b/a Carrera Golf (the "Company") is a New
York corporation that owns a license (the "Carrera License") to
manufacture, sell and distribute golf products (golf clubs, bags,
accessories and apparel) under the Carrera brand name worldwide. The
Company originally obtained a Carrera license by purchasing the assets
of Sports Equipment Technology Company ("SETCO") in January, 1996. This
transaction was accounted for as a merger, and is more fully discussed
in the Company' Form 10-KSB for the fiscal year ended September 30,
1996, and the notes to the financial statements filed therewith. The
financial statements filed as a part of the Company's Report on Form
10-QSB for the quarters ended December 31, 1996 and March 31, 1997 have
been adjusted to reflect the SETCO merger. All references to the
Company's past activities include the activities of SETCO.
In January, 1997, the Company obtained a new long-term Carrera License
from Carrera Optyl Marketing GmbH, a subsidiary of Safilo Group GmbH,
Italy ("Safilo"). Safilo acquired the Carrera brand name through
bankruptcy proceedings in Germany. The Carrera License runs for five
years, with an additional automatic renewal of five years. The Carrera
License obligates the Company to pay Safilo a royalty on sales, and
includes annual minimum royalties.
The Company was in the product research and development stage until
approximately July, 1996. In early 1996, the Company successfully
consummated a distributorship agreement with Citizen Trading Group,
Tokyo, Japan ("Citizen"), for distribution of all Carrera Golf products
in Japan. Citizen placed its first order with the Company in July,
1996. As of March 31, 1997, Citizen remained the Company's primary
customer, accounting for over 90 percent of the Company's sales. The
first fiscal quarter ended December 31, 1996 was the Company's first
quarter as an early operating-stage company.
In October, November, and December, 1996, the Company suffered serious
financial difficulties, as it attempted to obtain financing to fill the
first Citizen orders. In December, 1996, the Company obtained
additional financing support from Mr. Monte Ahuja, a principal
shareholder of the Company. Mr. Ahuja agreed to loan the Company up to
$1.5 million, to enable the Company to fill Citizen product orders. In
addition, all of the Company's prior management except Ted Honda
resigned. Mr. Honda then filled the vacancies on the Board of
Directors, and the Board of Directors appointed a new management team.
As part of the financing received from Mr. Ahuja, the Company agreed to
issue Mr. Ahuja 12 million shares of the Company's restricted common
stock. Mr. Ahuja agreed to provide the financing, and to convert all of
his preferred stock to common stock as part of this transaction. The
Ahjua transaction was approved at a special meeting of shareholders
held March 26, 1997 in Fort Worth, Texas.
(2) Results of Operations
The Company has successfully designed and developed golf clubs, bags,
accessories and apparel for sale under the Carrera brand name. The
Company's primary customer is Citizen; however, management has
6
<PAGE>
developed a marketing plan for 1997 and beyond that contemplates sales
in Asia, Europe, and the United States. The Company's marketing plan
is dependent upon continuing the relationship with Citizen, and upon
obtaining other sources of financing.
Second Quarter 1997 (Ended March 31, 1997) Compared to Second Quarter
1996
Assets
The Company's total assets increased from $268,034 at March 31, 1996 to
$1,635,822 at March 31, 1997. This $1,367,788 increase (510.3%) was
primarily due to increases in cash (increase of $209,506, or 434.1%),
accounts receivable (increase from $0 to $333,126), and inventory
(increase of $773,569, or 1,109%) as a result of 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 $735,098 at
March 31, 1996 to $2,146,386 at March 31, 1997. This $1,411,288
increase (192%) was primarily due to increases in notes payable
(increase of $748,000, or 214.3%), a new bank loan of $400,000 as part
of the Ahuja financing, and provision for sales returns of $382,440.
The last item relates to the first Citizen order. Quality of component
parts negatively affected shipments and product deliveries to a much
larger magnitude than anticipated during the first stage of the
Company's contract with Citizen. Subsequently, the Company has
implemented a rigorous quality control program, and this improved
quality control 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
balance sheet.
Stockholders' Deficit
Total stockholders' deficit increased $68,500, or 14.7%, to $535,564 at
March 31, 1997.
Sales
Sales increased from $0 for the second fiscal quarter 1996 (ended March
31, 1996) to $435,886 for the second fiscal quarter 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
second fiscal quarter of 1997. The Company also reported the
forgiveness of debt in the amount of $41,378 (net of income taxes) by a
former officer as an extraordinary item for the period.
Costs and Expenses
The Company reported general, administrative, and interest expense of
$217,919 for the second fiscal quarter of 1996, as it continued to
develop products, identify potential customers and distributors, and
attempted to obtain financing for expansion of operations.
7
<PAGE>
For the second fiscal quarter 1997, the Company had moved into the
early operating stage, and showed cost of sales of $254,191, and a
gross margin on sales of $181,895, or 41.7 percent. The Company also
had selling, general, and administrative expenses of $204,994 for the
second fiscal quarter 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 actually declined $12,925 (5.9%) for the second fiscal quarter
1997, compared to the same period the prior year. Management attributes
this decline 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 dedication to reducing
costs and streamlining operations. The Company also had interest
expense of $30,275 for the quarter ended March 31, 1997, relating to
notes payable.
Net Income
The Company reported a net loss of $224,932 ($ .08 per share) for the
second fiscal quarter ended March 31, 1996. This was primarily due to
minimal sales and substaintial selling, general, and administrative
expenses. For the same period in 1997, the Company reported sales of
$435,886, cost of sales of $254,191, expenses of $204994, and a loss
before the extraordinary item of $32,259. Loss from operations
(excluding interest expense) for the second fiscal quarter 1997 was
$23,299. Accounting for interest expense, income taxes, and the
extraordinary item, the Company reported net income of $9,119 for the
second fiscal quarter 1997. This is the first quarterly profit ever
recorded by the Company. Management is confident that the Company can
continue to grow sales, control expenses, and realize profits from
operations in the future.
Financial Condition, Liquidity and Capital Resources
At March 31, 1996, the Company was in the development stage, had
minimal sales, no financial backing, and no liquidity. At March 31,
1997, the Company had transitioned into the early operational stage,
had realized sales of over $430,000 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 three major factors: (1) continuation of the Company's
relationship with Citizen, and Citizen's timely payment of invoices for
short-term cash flow purposes; (2) continued financial backing from Mr.
Ahuja, to provide order financing and short-term operating capital; and
(3) 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. The Company has not devoted its
scarce operating resources to financial public relations; however,
management believes the Company must allocate a portion of operating
revenues to market support, to ensure that the Company's stock is
trading at levels commensurate with the Company's financial
performance, and to allow shareholders the liquidity they expect.
Assuming continuation and growth of the Citizen relationship,
management anticipates that the Company will realize positive net cash
flows from operating activities by the end of this fiscal year.
First Six Months 1997 (Ended March 31, 1997) Compared to First Six
Months 1996
Sales
Sales increased from $11,778 for the first six months of fiscal 1996
(ended March 31, 1996) to $1,227,489 for the same period 1997, as
8
<PAGE>
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 six months of 1997.
Costs and Expenses
The Company reported general, administrative, and interest expense of
$695,151 for the first six 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 $702,201, and a gross margin on
sales of $525,288, or 42.8 percent. The Company also had selling,
general, and administrative expenses of $738,629 for the first six
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 $43,478 (6.3%) for the first six months of fiscal 1997,
compared to the same period the prior year. Management attributes this
decline 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 dedication to reducing
costs and streamlining operations.
Net Income
The Company reported a net loss of $690,386 ($ .33 per share) for the
first six months' period ended March 31, 1996. This was primarily due
to minimal sales and substaintial selling, general, and administrative
expenses. For the same period in 1997, the Company reported sales of
$1,227,489, cost of sales of $702,201, expenses of $738,629, and a net
loss of $99,378 (.02 per share). Loss from operations (excluding
interest expense) for the first six months of 1997 was $213,341,
compared with a net operating loss of $683,373 for the same period the
prior year. Management is confident that the Company can continue to
grow sales, control expenses, and realize profits from operations in
the future.
Second Quarter 1997 Compared to First Quarter 1997
Sales
Sales for the second fiscal quarter 1997 (ended March 31, 1997)
decreased $355,717 (44.9%) from the previous quarter, to $435,886.
Management attributes this decrease primarily to a delay in booking
sales, as the Company moved some Citizen sales from the second to the
third fiscal quarter. This minor delay in shipment of Citizen orders in
the second fiscal quarter was primarily due to: (1) changes in the
Company's products ordered by Citizen, namely a substitution of the
Company's newest diamond plasma coated driver for the previously
ordered titanium drivers; and (2) delays in obtaining products from
suppliers, primarily due to the Company's poor prior credit. Management
believes Citizen orders will continue to grow as brand recognitioin is
achieved in the Japanese market, and as Citizen develops its customer
base. Management believes the Company will realize increases in sales
of its products as the Company develops other markets for its products,
such as Asia, Europe and the United States.
9
<PAGE>
Expenses
Cost of sales remained relatively constant, approximately 57 percent of
gross sales, for both quarters. The Company realized a substantial
reduction of $328,641 in selling, general and administrative expenses
for the second fiscal quarter, due to streamlined and consolidated
operations. Management believes it will continue to successfully
implement cost saving measures.
Net Income
The Company reported net income of $9,119 (less than $.01 per share)
for the second fiscal quarter 1997, compared to a net loss of $108,497
($.04 per share) for the first fiscal quarter 1997. This was the direct
result of the substantially reduced costs realized by the Company, as a
result of management's reorganiztion.
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
The Company held a Special Shareholders' meeting on March 26, 1997 in Fort
Worth, Texas. Shareholders ratified the terms of the Ahuja financing, and the
appointment of the Company's current officers and directors.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Report on Form 8-K on January 10, 1997 reporting the
Ahuja financing agreement. The Company filed a Report on Form 8-K on March 12,
1997 reporting the execution of the Licensing Agreement with Carrera Optyl
Marketing GmbH (the Carrera License). 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.
10
<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
June 26, 1997 By: /S/ RON R. KARANI
-------------------------------------------
Ron R. Karani, President, CEO, Treasurer, and
Chief Financial Officer
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1997
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 257,771
<SECURITIES> 0
<RECEIVABLES> 333,126
<ALLOWANCES> 0
<INVENTORY> 843,325
<CURRENT-ASSETS> 1,434,222
<PP&E> 15,543
<DEPRECIATION> 3,280
<TOTAL-ASSETS> 1,635,822
<CURRENT-LIABILITIES> 2,146,386
<BONDS> 0
0
0
<COMMON> 15,358
<OTHER-SE> (535,564)
<TOTAL-LIABILITY-AND-EQUITY> 1,635,822
<SALES> 435,886
<TOTAL-REVENUES> 435,886
<CGS> 254,191
<TOTAL-COSTS> 204,994
<OTHER-EXPENSES> (30,275)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,275
<INCOME-PRETAX> (53,674)
<INCOME-TAX> (21,315)
<INCOME-CONTINUING> (32,259)
<DISCONTINUED> 0
<EXTRAORDINARY> 41,378
<CHANGES> 0
<NET-INCOME> 9,119
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
