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, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Act of
1934 For the Transition Period From to .
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Commission File Number: 33-7811-NY
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:
[ ] YES [X] NO
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the registrant's classes of
common stock:
16,062886 common shares were outstanding as of December 31, 1997.
<PAGE>
PART I. Item 1. Unaudited Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
Grafix Time Corporation D/B/A Carrera Golf
Balance Sheet
December 31, 1997
(Unaudited)
ASSETS
December 31, 1997
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<S> <C>
CURRENT ASSETS
Cash ........................................................................... $ 167,262
Accounts receivable ............................................................ 511,918
Inventory ...................................................................... 1,088,217
Due from employees ............................................................. 5,000
Miscellaneous costs applied .................................................... 182,789
Prepaid royalty ................................................................ 72,500
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Total Current Assets ...................................................... 2,027,686
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PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation of $3,971 .......... 11,572
TRADE NAME LICENSE, at cost, net of accumulated amortization of $12,863 ............. 187,137
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TOTAL ASSETS ........................................................................ $ 2,226,395
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LIABILITIES AND STOCKHOLDERS' DEFICIT
December 31, 1997
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CURRENT LIABILITIES
Notes payable - current portion ................................................ $ 500,000
Accounts payable and accrued expenses .......................................... 159,340
Payroll taxes payable .......................................................... 23,812
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Note payable - Line of credit (Huntington Bank) ................................ 1,139,000
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Note payable - Transtar Industries, Inc. ....................................... 425,000
Provision for sales returns .................................................... 326,305
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Total Current Liabilities ................................................. 2,573,457
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 pertaining to common stock .......................... 11,123,366
Accumulated deficit ............................................................ (11,543,209)
Retained earnings .............................................................. 56,717
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Total Shareholders' Deficit ............................................... (347,063)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT ......................................... $ 2,226,394
============
</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, 1997 and 1996
(Unaudited)
1997 1996
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<S> <C> <C>
Sales, net .................................................. $ 1,051,312 $ 791,603
Cost of Sales ............................................... 667,198 448,010
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Gross Margin ................................................ 384,114 343,593
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Selling, general and administrative expenses ................ 305,931 533,635
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Income (loss) from operations ............................... 78,183 (190,042)
Other income and (expense):
Gain on disposal of inventory .......................... 0 96,545
Interest expense ....................................... (21,806) (15,000)
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Total other income (expense) ...................... (21,806) 81,545
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Net income (loss) ................................. 56,377 (108,497)
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Earnings (loss) per share:
Net income (loss) ...................................... $ 0.00 $ (0.04)
=========== ===========
Weighted average shares outstanding ......................... 16,062,886 2,684,205
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
<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 were 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, 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, 1997 was the Company's fifth
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.
4
<PAGE>
(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
developed a marketing plan for 1998 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 1998 (Ended December 31, 1997) Compared to First Quarter
1997
Sales
Sales increased from $791,603 for the first fiscal quarter 1997 to
$1,051,312 (an increase of $ 259,709, or 32.8%) for the first fiscal
quarter 1998, as the Company, in conjunction with Citizen, continued
its successful introduction of new golf club products into the Japanese
market. Citizen accounted for most of the Company's sales in the first
fiscal quarter of 1998. The Company also realized sales from its
distributors in South Korea, Taiwan, and Indonesia.
Costs and Expenses
For the first fiscal quarter 1998, the Company reported cost of sales
of $667,198, and a gross margin on sales of $384,114, or 36.5 percent.
Gross margin was down slightly from the same period the prior year, as
the Company incurred higher cost of goods on raw materials, and also
experienced slightly reduced margins on its newest golf club products
sold to Citizen. The Company reported selling, general, and
administrative expenses of $305,931, compared with $533,635 for the
same period the prior year, as it successfully continued to streamline
operations, cut administrative costs, and increase sales. The Company
reported interest expense of $21,806 for the quarter ended December 31,
1997, relating to notes payable.
Net Income
The Company reported net income of $ 56,377 for the first quarter of
1998, compared with a net loss of $ (108,497) for the same period the
prior year. Increased sales of the Company's new golf club products,
combined with effective cost-cutting by management, resulted in
positive net income for the period. 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.
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
5
<PAGE>
receivable and inventory. At December 31, 1997, the Company had
realized sales of over $1 million for the quarter, and reported cash
and accounts receivable totaling $679,180, along with inventory of
$1,088,217. Much of the Company's growth has been financed through a
line of credit with Huntington Bank, and loans from Transtar
Industries, Inc., a company owned by the Company's principal
shareholder. 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 continue to realize
positive net cash flows from operating activities for the remainder of
this fiscal year.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a named defendant in two lawsuits by former employees. The
Company has denied the claims made in these actions, has filed Answers and
Counterclaims, and intends to vigorously contest the lawsuits. Management does
not believe these claims pose an economic threat to the Company.
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.
6
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Report on Form 8-K on January 27, 1998, reporting the
signing of a financing letter of intent with Merlin Venture Partners of
Sunnyvale, California (Item 5).
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
March 4, 1998 By: /S/ RAYMOND E. THEISS
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Raymond E. Theiss, Acting President, Chief
Financial Officer
7
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 167,262
<SECURITIES> 0
<RECEIVABLES> 511,918
<ALLOWANCES> 0
<INVENTORY> 1,088,217
<CURRENT-ASSETS> 2,027,686
<PP&E> 15,543
<DEPRECIATION> 3,971
<TOTAL-ASSETS> 2,226,395
<CURRENT-LIABILITIES> 2,573,457
<BONDS> 0
0
0
<COMMON> 16,063
<OTHER-SE> (347,063)
<TOTAL-LIABILITY-AND-EQUITY> 2,226,394
<SALES> 1,051,312
<TOTAL-REVENUES> 1,051,312
<CGS> 667,198
<TOTAL-COSTS> 305,931
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,806
<INCOME-PRETAX> 56,372
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,377
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
