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: December 31, 1996
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
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Grafix Time Corporation
(Exact name of registrant as specified in its charter)
New York 93-0943925
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(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:
[X] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock:
2,719,547 common shares were outstanding as of December 31, 1996.
<PAGE>
PART I. Item 1. Unaudited Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
Grafix Time Corporation
D/B/A Carrera Golf
Balance Sheet
December 31, 1996
(Unaudited)
ASSETS
------
December 31, 1996
<S> <C>
CURRENT ASSETS -----------------
Cash ................................................................................. $ 2,217
Accounts Receivable .................................................................. 416,705
Inventory ............................................................................ 776,430
Total Current Assets ............................................................ 1,195,352
------------
PROPERTY AND EQUIPMENT, at cost, net of
accumulated depreciation of $2,154 ..................................................... 13,389
TRADE NAME LICENSE, at cost, net of accumulated
amortization of $8,263 ................................................................. 191,737
TOTAL ASSETS .............................................................................. $ 1,400,478
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
December 31, 1996
CURRENT LIABILITIES -----------------
Notes payable - current portion ...................................................... $ 597,000
Accounts payable and accrued expenses ................................................ 940,721
Provision for sales returns .......................................................... 382,440
------------
Total Current Liabilities ....................................................... 1,920,161
Note payable .............................................................................. 25,000
Commitments
STOCKHOLDERS' DEFICIT:
Common stock, $.001 par value, 50,000,000 shares authorized,
2,719,547 shares issued and outstanding .......................................... 2,720
Subscriptions to common stock ........................................................ 192,375
Additional paid-in capital pertaining to common stock ................................ 10,063,129
Preferred stock, $.01 par value, 5,000,000 shares authorized,
500,000 shares issued and outstanding .............................................. 5,000
Additional paid in capital pertaining to preferred stock ............................. 875,500
------------
Accumulated deficit .................................................................. (11,683,407)
Total Shareholders' Deficit ..................................................... (544,683)
------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ............................................... $ 1,400,478
============
</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 Months Ended December 31, 1996 and 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Sales ................................................ $ 791,603 $ 11,778
Cost of Sales ........................................ 448,010 --
----------- -----------
Gross Margin ......................................... 343,593 --
----------- -----------
Selling, general and administrative expenses ......... 533,635 477,232
----------- -----------
Income (loss) from operations ........................ (190,042) (477,232)
Other income and (expense):
Gain on disposal of inventory ................... 96,545 --
Interest expense ................................ (15,000) --
----------- -----------
Total other income (expense) ............... 81,545 --
----------- -----------
Net income (loss) .......................... (108,497) (477,232)
----------- -----------
Earnings (loss) per share:
Net income (loss) ............................... $ (0.04) $ (0.19)
=========== ===========
Weighted average shares outstanding .................. 2,684,205 2,546,188
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
Grafix Time Corporation
D/B/A Carrera Golf
Statement of Cash Flows
Three Months Ended December 31, 1996 and 1995
(Unaudited)
1996 1995
---- ----
<S> <C> <C>
Net cash provided by (used in) operating activities .............. (172,495) (50,473)
Cash flows from investing activities:
Acquisition of plant and equipment .......................... -- --
Licensing agreement obtained ................................ -- --
Advances to affiliate ....................................... -- --
Advances to officer ......................................... -- --
Net cash provided by (used in) investing activities ......... -- --
Cash flows from financing activities:
Proceeds from notes payable ................................. 160,000 --
Repayment of notes payable .................................. -- (20,000)
Preferred stock issued for cash ............................. -- --
Common stock issued for cash ................................ -- 10,000
Advances from affiliate ..................................... -- 25,197
Advances from officer ....................................... -- 34,500
Net cash provided by (used in) financing activities ......... 160,000 49,697
Increase (decrease) in cash ...................................... (12,495) (776)
Cash and cash equivalents, beginning of period ................... 14,712 842
-------- --------
Cash and cash equivalents, end of period ......................... 2,217 66
-------- --------
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 December 31,
1996, and 1995, aggregating $108,497 and $477,232, and has negative working
capital of $724,809 and a stockholder' deficit of $544,683 at December 31, 1996.
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.
Profitable operations are dependent upon, among other factors, the Company's
ability to obtain equity or debt financing and the Company's ability to finance
and manage its operations.
The Company is unable to project a level of revenue which would allow a reversal
of its history of operating losses in the near future. In this regard the
Company has undertaken the raising of additional equity capital and debt
financing. The Company's continued operations are dependent upon obtaining
financing.
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.
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 quarter ended December 31, 1995 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 had acquired the Carrera brand name through
bankruptcy proceedings in Germany. The Carrera License runs for five
years, with an additional automatic renewal of 5 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 December 31, 1996, Citizen was the Company's primary
customer, accounting for over 95 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
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 21, 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
6
<PAGE>
Company's primary customer is Citizen; however, management has
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.
First Quarter 1997 (Ended December 31, 1996) Compared to First Quarter
1996
Sales
Sales increased from $11,778 for the first fiscal quarter 1996 to
$791,603 for the first fiscal quarter 1997, as the Company moved from
the development stage to the early operating stage. Citizen accounted
for most of the Company's sales in the first fiscal quarter of 1997.
The Company reported additional income of $95,545 on disposal of
outdated inventory.
Costs and Expenses
The Company reported general, administrative, and interest expense of
$477,232 for the first fiscal quarter of 1996, as it began to develop
products, identify potential customers and distributors, and attempted
to obtain financing for expansion of operations. For the first fiscal
quarter 1997, the Company had moved into the early operating stage, and
showed cost of sales of $448,010, and a gross margin on sales of
$343,593, or 43.4 percent. The Company also had selling, general, and
administrative expenses of $533,635 for the first fiscal quarter 1997,
as it moved to fill Citizen orders and expand its operations. The
Company also had interest expense of $15,000 for the quarter ended
December 31, 1996, relating to notes payable.
Net Income
The Company had minimal sales for the first fiscal quarter of 1996, and
reported a net loss of $477,232 ($ .19 per share) for the period. For
the first fiscal quarter of 1997, the Company reported sales of
$791,603, additional income of $95,545, cost of sales of $448,010,
expenses of $548,635, and a net loss of $108,497 ($.04 per share). Loss
from operations (excluding the disposal of inventory income and the
interest expense) for the quarter was $190,042. Although the Company
did report a small net loss for the first operational quarter,
management is encouraged that the Company was able to fill Citizen
orders, that the gross margin on those orders was in line with
expectations, and that Citizen has placed other orders with the Company
that comport with projected sales for the remainder of the fiscal year.
In addition, management believes that the departure of the former
management team in December, 1996 will result in reduced general and
administrative expenses for the next several quarters.
Financial Condition, Liquidity and Capital Resources
At December 31, 1995 (first fiscal quarter 1996), the Company was in
the development stage, had no sales, no financial backing, and no
liquidity. At December 31, 1996, the Company had transitioned into the
early operational stage, had realized sales of over $750,000 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
7
<PAGE>
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.
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 September 24, 1996, reporting the
signing of a financing letter of intent with Shamrock Investment Group, Inc.
(Item 5). The Company filed a Report on Form 8-K on January 12, 1997, reporting
the December, 1996 financing agreement with Mr. Ahuja (Item 5).
8
<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 25, 1997 By: /S/ RON R. KARANI
---------------------------------------------
Ron R. Karani, President, CEO, Treasurer, and
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED FINANCIAL STATEMENTS FOR THE QUARTER ENDED DECEMBER 31, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,217
<SECURITIES> 0
<RECEIVABLES> 416,705
<ALLOWANCES> 0
<INVENTORY> 776,430
<CURRENT-ASSETS> 1,195,352
<PP&E> 15,543
<DEPRECIATION> 2,154
<TOTAL-ASSETS> 1,400,478
<CURRENT-LIABILITIES> 1,920,161
<BONDS> 0
0
5,000
<COMMON> 2,720
<OTHER-SE> (544,683)
<TOTAL-LIABILITY-AND-EQUITY> 1,400,478
<SALES> 791,603
<TOTAL-REVENUES> 791,603
<CGS> 448,010
<TOTAL-COSTS> 533,635
<OTHER-EXPENSES> 81,545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,000
<INCOME-PRETAX> (108,497)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (108,497)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
