UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 1, 2000
Commission File Number 0-27002
MORROW SNOWBOARDS, INC.
(Exact name of Registrant as specified in its charter)
Oregon 93-1011046
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
599 Menlo Drive, Suite 200
Rocklin, California 95765
(Address of principal executive offices)
(916) 315-2021
(Registrant's telephone number, including area code)
o 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
The number of shares outstanding of the registrant's common stock, no par value,
as of August 1, 2000, was 18,032,906.
<PAGE>2
MORROW SNOWBOARDS, INC.
INDEX
Page Number
Part I Financial Information
Item 1. Financial Statements (Unaudited):
Balance Sheets at July 1, 2000
and January 1, 2000..................................................3
Statements of Operations
for the Three and Six Months Ended
July 1, 2000, and June 26, 1999......................................4
Statements of Cash Flows for
the Six Months Ended July 1,2000,
and June 26, 1999 ...................................................5
Notes to Financial Statements .......................................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................15
Part II Other Information
Item 1. Legal Proceedings...................................................20
Item 2. Changes in Securities...............................................20
Item 3. Default Upon Senior Securities......................................21
Item 4. Submission of Matters to a Vote of Security Holders.................21
Item 5. Other Information...................................................21
Item 6. Exhibits and Reports on Form 8-K....................................21
Signatures...................................................................23
<PAGE>3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MORROW SNOWBOARDS, INC. AND SUBSIDIARIES
dba GRANITE BAY TECHNOLOGIES
Consolidated Balance Sheets
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
July 1, January 1,
2000 2000
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 354 $ 1,930
Accounts receivable,
net of allowance for uncollectible accounts 5,904 -
Inventories 678 -
Prepaid expense 151 127
Refundable income taxes - 54
Refundable VAT taxes 23 -
Net current assets of discontinued operations 24 2,332
--------- ---------
Total current assets 7,134 4,443
--------- ---------
Property and equipment, at cost 9,923 3,061
--------- ---------
Other assets:
Investments 1,000 1,000
Goodwill, net 6,294 -
Net non-current assets of discontinued operations - 72
Other assets, net 183 -
--------- ---------
Total other assets 7,477 1,072
--------- ---------
Total Assets $ 24,534 $ 8,576
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 4,386 $ 2,796
Accrued liabilities 996 502
Notes payable, short term 2,837 -
Net current liabilities of discontinued operations 97 -
--------- ---------
Total current liabilities 8,316 3,973
Long-Term Debt, Net of Current Portion 2,045 675
--------- ---------
10,361 3,973
--------- ---------
Shareholders' Equity:
Preferred stock, no par, 10,000,000 shares authorized,
no shares issued or outstanding - -
Common stock, no par, 40,000,000 shares authorized,
18,032,906 issued July 1, 2000; and 9,176,556
issued January 1, 2000 39,440 27,866
Accumulated deficit (25,338) (23,252)
Cumulative translation adjustment 71 (11)
--------- ---------
Total Shareholders' Equity 14,173 4,603
--------- ---------
Total Liabilities and Shareholders' Equity $ 24,534 $ 8,576
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>4
MORROW SNOWBOARDS, INC. AND SUBSIDIARIES
dba GRANITE BAY TECHNOLOGIES
Consolidated Statements of Operations
(in thousands, except share and per share data)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months For the Three Months
Ended Ended
--------------------------- ---------------------------
July 1, June 26, July 1, June 26,
2000 1999 2000 1999
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net sales $ 9,188 $ - $ 6,606 $ -
Cost of goods sold 7,420 - 5,064 -
------------ ----------- ------------ -----------
Gross profit 1,768 - 1,542 -
------------ ----------- ------------ -----------
Operating expenses:
Selling, marketing & customer service 605 - 486 -
Engineering, advance design and product
management 86 - 86 -
General and administrative 2,745 332 1,660 245
------------ ----------- ------------ -----------
Total operating expenses 3,436 332 2,232 245
------------ ----------- ------------ -----------
Operating loss (1,668) (332) (690) (245)
------------ ----------- ------------ -----------
Other income (expense):
Lease Income 40 - 40 -
Interest expense (48) - (21) -
Other income 12 - 5 -
------------ ----------- ------------ -----------
4 - 24 -
------------ ----------- ------------ -----------
Loss from continuing operations before income taxes (1,664) (332) (666) (245)
------------ ----------- ------------ -----------
Income tax benefit (expense) - - - -
------------ ----------- ------------ -----------
Loss from continuing operations (1,664) (332) (666) (245)
------------ ----------- ------------ -----------
Income (loss) on discontinued snowboard operations 11 143 15 (7)
Loss on discontinued apparel operations (321) (1,839) (83) (477)
Loss on disposition of apparel operations (112) - - -
------------ ----------- ------------ -----------
Loss from discontinued snowboard and apparel
operations, net of taxes before extraordinary item (422) (1,696) (68) (484)
------------ ----------- ------------ -----------
Extraordinary Loss on Extingushment of Debt - (287) - (287)
------------ ----------- ------------ -----------
Net loss $ (2,086) $ (2,315) $ (734) $ (1,016)
============ =========== ============ ===========
Net loss per common share:
Loss from continuing operations - basic $ (0.10) $ (0.05) $ (0.04) $ (0.04)
Loss from continuing operations - diluted $ (0.10) $ (0.05) $ (0.04) $ (0.04)
Loss from discontinued operations - basic $ (0.03) $ (0.27) $ (0.00) $ (0.08)
Loss from discontinued operations - diluted $ (0.03) $ (0.27) $ (0.00) $ (0.08)
Loss from extraordinary item - basic $ - $ (0.05) $ - $ (0.05)
Loss from extraordinary item - diluted $ - $ (0.05) $ - $ (0.05)
Net loss - basic $ (0.13) $ (0.37) $ (0.05) $ (0.16)
Net loss - diluted $ (0.13) $ (0.37) $ (0.05) $ (0.16)
Weighted average number of shares used in computing
per share amounts:
Basic 16,251,514 6,176,556 14,836,523 6,176,556
============ =========== ============ ===========
Diluted 16,251,514 6,176,556 14,836,523 6,176,556
============ =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>5
MORROW SNOWBOARDS, INC. AND SUBSIDIARIES
dba GRANITE BAY TECHNOLOGIES
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended
---------------------------
July 1, June 26,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,664) $ (332)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on discontinued operations (422) (1,696)
Extraordinary loss on extinguishment of debt - (287)
Depreciation and amortization 854 569
Provision for uncollectible accounts 66 -
Loss on retirement of fixed assets 33 48
Loss on sale of Westbeach 112 -
Other - 24
Changes in operating assets and liabilities
(Increase) decrease in accounts receivable (1,972) 4,081
(Increase) decrease in inventories 1,161 3,306
(Increase) decrease in prepaid expenses (17) 346
(Increase) decrease in refundable deposits 54
(Increase) decrease in refundable income taxes - (53)
(Increase) decrease in other assets 853 1,068
Increase (decrease) in accounts payable 793 157
Increase (decrease) in accrued liabilities 281 (1,801)
Increase (decrease) in income tax payable - 20
Increase (decrease) in accrued loss on disposal - (1,498)
----------- -----------
Net cash provided by/(used in) operating activities 132 3,952
----------- -----------
Cash flows from investing activities:
Acquisition of PRC Companies (4,272) -
Loan to IDW - -
Acquisition of property and equipment (143) (139)
Proceeds from sale of equipment - 470
----------- -----------
Net cash provided by/(used in) investing activities (4,415) 331
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock 4,338 -
Proceeds from issuance of long-term liabilities - 457
Principal payments on note payable (1,695) (2,251)
Line of credit borrowing, net - (3,698)
Net cash provided by/(used in) financing activities 2,643 (5,492)
----------- -----------
Decrease in cash and cash equivalents (1,640) (1,209)
Cash and cash equivalents at beginning of period 1,994 1,348
----------- -----------
</TABLE>
<PAGE>6
MORROW SNOWBOARDS, INC. AND SUBSIDIARIES
dba GRANITE BAY TECHNOLOGIES
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Continued
<TABLE>
<CAPTION>
For the Six Months
Ended
---------------------------
July 1, June 26,
2000 1999
----------- -----------
<S> <C> <C>
Cash and cash equivalents at end of period $ 354 $ 139
=========== ===========
Supplemental disclosures:
Cash paid for interest $ 42 $ 67
Acquisition of PRC Companies
Fair value of assets assumed $ 11,017
Liabilities assumed (2,213)
Payment due to complete acquisition (Note 4) (4,532)
-----------
Cash paid to acquire PRC Companies $ 4,272
===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>7
MORROW SNOWBOARDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. ORGANIZATION AND CURRENT EVENTS
Description of Business
Morrow Snowboards, Inc. and subsidiaries, dba Granite Bay Technologies (the
"Company"), headquartered in Rocklin, California, was organized in October 1989,
and is currently engaged in (i) the design, manufacture and worldwide
distribution of liquid crystal displays (LCDs), modules, and assemblies for
major OEM applications in telecommunications, automotive, industrial, medical
and consumer products and (ii) the holding of an investment in Globalgate
e-Commerce, Inc. The Company was originally organized to design, manufacture and
market snowboards, boots, bindings, apparel and accessories to retail outlets in
the United States as well as international distributors in several foreign
countries, which business the Company conducted from organization through
November 1999 when that business was discontinued. On November 13, 1997, the
Company acquired all of the outstanding securities of Westbeach Snowboard Canada
Ltd., a manufacturer, wholesaler and retailer of snowboarding apparel and casual
clothing. Westbeach had three subsidiaries, an Austrian organization whose
principal activity consists of a European sales warehousing operation, a United
Kingdom organization consisting of European sales and a Washington State
corporation whose principal activity is U.S. retail sales. On March 26, 1999,
the Company sold all of its "Morrow" intellectual property, along with all
1999-2000 snowboard inventories and its snowboard and binding production
equipment to K2 Acquisitions Inc. ("K2"). On November 12, 1999, a subsidiary of
the Company, Westbeach Canada ULC, sold all of its "Westbeach" operations, along
with all apparel inventories to Westbeach Sports, Inc. The results of operations
for these business segments have been reflected as discontinued operations in
the accompanying Consolidated Statements of Operations.
In November and December 1999, the Company purchased shares of Globalgate
e-Commerce, Inc. ("Globalgate"), a recently formed company whose business
purpose is to build a dominant scalable e-commerce platform for merchants
selling to businesses and consumers. Globalgate's investments consist of six
operating companies, including majority ownership of YellowPages.Com, Inc., a
business directory web-site; BrightInfo.com, Inc., which provides technology to
power online selling sites; Spark Online, Inc., which connects internet
advertisers and ad space; TradeWind CTS, Inc., a business-to- business
marketplace for non-production goods; ThinkMart.com, a developer of a variety of
e- marketplaces; and GrapeVINE, a technology that permits personalization of
e-commerce products and services. The Company hopes to make a return on its
investment in Globalgate, if Globalgate or one or more of its subsidiaries are
successful. However, there is no assurance that the Company will recover its
investment or realize a profit from its investment.
On January 31, 2000, the Company acquired 100% of the outstanding shares of
International DisplayWorks, Inc., ("IDW") a Delaware corporation, located in
Rocklin, California, through the issuance of 2,680,000 shares of Morrow common
stock. The acquisition was accounted for by the purchase method of accounting.
Concurrently, IDW through its wholly owned subsidiary, International
DisplayWorks (Hong Kong) Ltd. ("IDWHK"), acquired 100% of the shares of MULCD
Microelectronics Company Ltd. ("MULCD") and Vikay Shenzhen Technology
Development Company, Ltd. ("VKSTD"). MULCD and VKSTD are engaged in the
manufacturing and assembly of LCDs and modules in Peoples Republic of China
<PAGE>8
("PRC Companies"). MULCD and VKSTD manufacture LCDs and assemblies for the USA,
Europe and Far East markets. The acquisition, which was accounted for by the
purchase method of accounting, required a $1 million deposit, an initial payment
of $4.2 million with the balance due in two installments: $600,000, due on May
1, 2000, and $3.945 million, due May 31, 2000, and which was further subject to
adjustment upon final accounting based upon such items as actual inventory
balances, accounts receivables and advances to operations by the Judicial
Managers during the period that the Company operated the PRC Companies prior to
the final accounting. As of June 30, 2000, the Company still owes $2.837 million
which is being renegotiated and is expected to be paid through the issuance of
common stock in the third quarter, which amount may be further adjusted to
reflect final accounting adjustments. Any adjustments to the final purchase
price will be reflected as an adjustment to the recorded values of the assets
purchased in the period in which the accounting and final settlement is made.
(Note 4).
In addition to the acquisition of the PRC Companies, IDW HK entered into a
Supplemental Deed and Charge ("Charge Agreement") among IDW and IDW HK, as
Chargors, and Vikay Industrial (Hong Kong) Ltd. and Vikay Industrial, Ltd., as
Chargees. Under the Charge Agreement, IDW pledged the Common Stock of IDW HK and
the PRC Companies' assets to secure the payment of the balance of the purchase
price for the PRC Companies. While the Company presently expects to be fully
able to finance those payments, if such payments are not timely made, the
security interest in the IDW HK Common Stock and/or the PRC Companies' assets
could be foreclosed upon on short notice and IDW's investment through IDW HK in
the PRC Companies lost.
Following the acquisition of the PRC Companies, IDW, together with IDW HK
and the PRC Companies, will design, market and produce LCDs and products
incorporating LCDs, principally in Asia, the United States and Europe, with
design and manufacture of such products to be at the facilities of the PRC
Companies, with a focus on high-volume original equipment manufacturers ("OEMs")
who are leaders in their fields. IDW's corporate mission is to be the most
customer-oriented LCD company in the world. Unless the context indicates
otherwise, IDW means IDW, IDW HK and the PRC Companies and references to IDW or
IDW's electronics business, unless the context indicates otherwise, is to the
business conducted by the PRC Companies prior to their acquisition by IDW HK and
by IDW and its subsidiaries thereafter.
Over 60% of IDW's sales in 1999 consisted of custom display modules
developed in close collaboration with its customers. Devices designed and
manufactured by IDW include applications in telecommunications (cell phones and
other wireless communication services), as well as in medical equipment,
appliances, utility applications, automotive equipment, retail and office
equipment, and consumer electronic products, including entertainment systems.
Targeted areas for new applications include office equipment (copiers, facsimile
machines, and printers) and high resolution graphic display products for
personal digital assistance and small computer and map displays. Approximately
30% of 1999 total sales were to the office machinery market (principally
calculators) and approximately 20% to the telecommunications industry
(principally cellular telephones) with the balance spread over a variety of
products and industries. IDW currently specializes in LCD components and
technology and providing design and manufacturing services for its customers.
IDW currently markets its services primarily in Hong Kong and, to a lesser
extent, Asia, but intends to expand sales efforts in the United States, Europe
and Asia. IDW maintains design centers at its manufacturing facilities and in
Singapore, a country which contains corporate headquarters or regional
headquarters for many major electronics firms.
<PAGE>9
The consolidated financial statements include the wholly-owned
subsidiaries, IDW (a Delaware corporation), Westbeach Canada ULC (a Nova Scotia
unlimited liability company), and Morrow International, Inc. (a Guam foreign
sales corporation). All significant intercompany accounts and transactions have
been eliminated.
Current Events
The Company completed a $4,350,000 private placement of common stock in the
first quarter, and the proceeds for the offering were used to facilitate the
acquisition of the PRC Companies, mentioned above. Although initial operating
results have not demonstrated sufficient income to meet operations, Management
believes that these companies will generate sufficient net income in future
periods which will create sufficient liquidity to sustain the Company's
operations. Further, in the event of a capital shortfall, management of the
Company believes that it has the ability to raise additional equity capital.
However, there can be no assurances that the Company's recent acquisitions will
operate profitably or that management will be successful in raising additional
equity capital, or obtaining it on terms favorable to the Company.
The Independent Auditors' Report for the Company's financial statements as
of and for the year ended January 1, 2000, included in the 1999 Form 10-K
contains a going concern qualification in Note 1 to the Consolidated Financial
Statements. Further, the independent auditor's report for the PRC Companies for
the year ended December 31, 1999, also contains a going concern qualification.
The going concern qualification relates to the facts that the auditors are (i)
unable to verify with the PRC Companies' former parent and its affiliates
(collectively "Former Parent") receivables on the books of the PRC Companies due
from the Former Parent in the approximate amount of $39.3 million or accounts
payable to the Former Parent in the amount of approximately $21.5 million and
(ii) due to the existing judicial management procedure in Singapore affecting
the Former Parent, the ability of the Former Parent to pay such receivables or
the ability of the PRC Companies to offset such receivables against the accounts
payable owing to the Former Parent. While the judicial managers for the Former
Parent have indicated they will enter into a "novation agreement" that would
allow the offset of the receivables against the accounts payable, such novation
agreement cannot be entered until certain further action is taken in the
judicial proceeding and, there is no assurance, that such agreement will be
entered or that the Former Parent will otherwise have the resources to pay
amounts owed the PRC Companies. The Company understands that as a matter of law,
the PRC Companies cannot offset the receivables from the Former Parent against
the accounts payable, absent such novation agreement. While such receivables and
accounts payable are reflected in the PRC Companies financial statements. Except
for approximately $2.3 million of accounts payable assumed by IDW HK in
acquiring the PRC Companies, such receivables and accounts payables were
specifically excluded from the purchase of the PRC Companies by the Company.
There is no assurance that the Company will not encounter future financial
problems due to unexpected contingencies, unsuccessful results, adverse results
in pending litigation, or other factors.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed balance sheet as of July 1, 2000,
condensed statements of operations for the three and six month periods ended
<PAGE>10
July 1, 2000, and June 26, 1999, and the condensed statements of cash flows for
the and six month periods ended July 1, 2000, and June 26, 1999, have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation SX. Accordingly, they do not include all of the information and
footnote disclosures required by generally accepted accounting principles for
complete financial statements. It is suggested that these condensed financial
statements be read in conjunction with the audited financial statements and
notes thereto included in the registrant's (the Company's) Annual Report for the
Fiscal Year Ended January 1, 2000, on Form 10-K. In the opinion of management,
the accompanying condensed consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position and results of operations
for the periods presented. The results of operations for the period ended July
1, 2000, are not necessarily indicative of the operating results of the full
year.
Certain amounts in the fiscal 1999 financial statements have been
reclassified to conform with the presentation in the fiscal 2000 financial
statements.
Fiscal Year
The Company uses a 52 or 53 week fiscal year ending on the Saturday nearest
December 31st. Accordingly, the second fiscal quarter of 2000 began on April 2,
2000, and ended on July 1, 2000, whereas the corresponding quarter of the prior
fiscal year began on March 27, 1998, and ended on June 26, 1999.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and on deposit and highly
liquid investments purchased with a maturity of three months or less.
Financial Instruments
A financial instrument is cash or a contract that imposes or conveys a
contractual obligation, or right, to deliver or receive cash or another
financial instrument. The fair value of financial instruments approximated their
carrying value as of July 1, 2000, and January 1, 2000.
Inventories
Inventories for continuing operations are stated at cost. Costs for
valuation of manufacturing inventory are comprised of labor, materials
(including freight and duty) and manufacturing overhead.
Depreciation and Amortization
Property, plant and equipment are carried at cost. Depreciation of
property, plant and equipment is provided using the straight-line method over
the estimated useful lives of the assets, which are 10-35 years for buildings
and improvements and 3-12 years for equipment, fixtures and other. Amortization
of leasehold improvements and equipment under capital leases is provided using
the straight-line method over the expected useful lives of the assets or the
initial term of the lease (including periods related to renewal options which
are expected to be exercised), whichever is shorter. Amortization is included in
depreciation expense.
<PAGE>11
Goodwill and Other Long Lived Assets
Goodwill resulting from the IDW acquisition is being amortized over 15
years using the straight-line method and is net of amortization of $180,000 at
July 1, 2000. Goodwill and other long-lived assets are periodically evaluated
when facts and circumstances indicate that the value of such assets may be
impaired. Evaluations are based on non-discounted projected earnings. If the
valuation indicates that non-discounted earnings are insufficient to recover the
recorded assets, then the projected earnings are discounted to determine the
revised carrying value and a write-down for the difference is recorded.
Warranty Costs
The Company asks that the customer report defects within fifteen days of
receipt of product. All products are fully replaceable if defective. The Company
manufactures custom products to customer specifications and does not anticipate
it will incur a material amount of warranty expense.
Advertising and Promotion Costs
Advertising and promotion costs are expensed as incurred and included in
selling, marketing and customer service expenses.
Revenue Recognition
The Company recognizes revenue from the sale of its products when the
products are shipped to customers.
Income Taxes
The Company accounts for income taxes using the liability method so that
deferred taxes are determined based on the estimated future tax effects of
differences between the financial statement and tax bases of assets and
liabilities given the provisions of enacted tax laws and tax rates. Deferred
income tax expenses or credits are based on the changes in the financial
statement bases versus the tax bases in the Company's assets or liabilities from
period to period.
Stock-Based Compensation Plans
The Company accounts for its stock-based plans under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Product Development Costs
Expenditures associated with the development of new products and
improvements to existing products are expensed as incurred.
<PAGE>12
Net Loss Per Share
The shares used in the calculation of net loss per share are computed as
follows:
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------
July 1, 2000 June 26, 1999
------------ -------------
<S> <C> <C>
Shares
Weighted average shares outstanding 16,251,514 6,176,556
Stock option and convertible debenture dilution(1) - -
---------- ---------
Weighted average shares outstanding for diluted EPS 16,251,514 6,176,556
---------- ---------
</TABLE>
(1) The effect of potential common securities of 1,134,848 shares and 2,182,248
shares are excluded from the dilutive calculation for periods ended July 1,
2000, and June 26, 1999, respectively, as their effect would be
antidilutive.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
translated into U. S. dollars using exchange rates at the balance sheet date for
assets and liabilities, and average exchange rates for the period for revenues
and expenses. Adjustments resulting from translating foreign functional currency
balance sheet components into U.S. dollars are included in Other Comprehensive
Income (Loss) in the Consolidated Statement of Shareholders' Equity.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to prior year balances to conform
to the current period presentation. Such reclassifications have no effect on
previously reported results of operations.
<PAGE>13
3. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
July 1, January 1,
2000 2000
---------- ---------
(in thousands)
<S> <C> <C>
Finished goods $ 464 $ -
Work-in-process 396 -
Raw materials 453 -
Less reserve for obsolete inventory (635) -
---------- ---------
Total continuing operations inventories, net $ 678 $ -
========== =========
Total discontinued operations inventories, net $ - $ 70
========== =========
</TABLE>
4. NOTES PAYABLE AND LONG-TERM DEBT
On August 25, 1999, the Company borrowed $675,000 (the "Bridge Loan")
secured by a first lien against the Company's offices and warehouse in Salem,
Oregon and related real estate ("Real Property"). The amounts owing under the
payment agreement with certain Morrow creditors from discontinued operations
("Payment Agreement") are also secured by a trust deed against the Real
Property. The security interest in the Real Property under the Payment Agreement
is subordinate up to $750,000 to the Trust Deed signed in connection with the
Bridge Loan. Interest only payments are due in monthly installments of $6,750 at
12%, with principal balance due and payable in full June 28, 2000. Subsequent to
July 1, 2000, the Company refinanced the Oregon real estate (Note 8). Proceeds
from the $2.1 million note payable were used to retire the $675,000 Bridge Loan
and the $1,650,000 due to former Morrow creditors from discontinued operations
included in accounts payable. The note bears interest at 14% with interest due
monthly and principal due August 1, 2003.
To complete the acquisition of the PRC Companies, a payment of $3.945
million, plus interest at the rate of 6% per annum, was due May 31, 2000, of
which $2.837 million remained unpaid at June 30. The final payment is being
renegotiated and is expected to be paid through issuance of stock in the third
quarter. While a settlement has been proposed, there is no assurance that the
restructuring will occur (Note 1).
5. SEGMENT AND GEOGRAPHIC REPORTING
Under Statement of Financial Accounting Standards No. 131, "Disclosures
about Segments of an Enterprise and Related Information" (SFAS 131), public
companies are required to disclose certain information about the enterprise's
reportable segments. The Company has two continuing reportable product segments
within two major geographic territories. The product segments are categorized as
liquid crystal displays and modules. The geographic territories are the United
States and Asia. The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. The Company's
territorial segments market, sell and distribute essentially the same
<PAGE>14
products. The following represents continuing operations segment and
geographical data for the six months ended July 1, 2000. There were no
continuing reportable segments for the six months ended June 26, 1999.
<TABLE>
<CAPTION>
Six Months Ended July 1, 2000
--------------------------------------
USA Asia Totals
<S> <C> <C> <C>
Revenues:
Liquid crystal displays $ 117 $ 4,286 $ 4,403
Modules 3,436 1,349 4,785
---------- --------- ---------
Total revenues 3,553 5,635 9,188
Segment operating profit/(loss) 229 (357) (128)
Interest expense - 6 6
Depreciation and amortization 7 626 633
Segment continuing operation assets 1,596 13,006 14,602
Segment asset expenditures for continuing operations 118 68 186
</TABLE>
6. DISCONTINUED OPERATIONS
On March 26, 1999, the Company sold all of its right, title and interest in
and to the "Morrow" and "Morrow Snowboards" names and the other trademarks,
trade names and service marks to K2 Acquisitions, Inc. ("K2"). In addition, K2
purchased all of the machinery, equipment and tooling used for manufacture of
snowboards and bindings; rights to the machinery, equipment and tooling that is
leased by the Company; all of the Company's snowboard inventory for the
1999/2000 season; purchase orders reflecting sales orders received and accepted
by the Company prior to the date of sale; trademark licensing agreement and
international distribution agreement and all of the Company's rights, claims,
credits, causes of action or rights of set-off against third parties relating to
the assets. In consideration of the sale, conveyance, assignment, transfer and
delivery of the assets, the Company was paid $3.2 million.
In October 1999, Westbeach's Bellevue, Washington retail store lease,
inventory and trade fixtures were sold for approximately $196,000, with the
payment amount including the assumption of accounts payable related to that
store's inventory, assumption of the retail store lease (including a release of
Westbeach) and the payment of the balance of the purchase price of approximately
$48,000 payable in installments without interest based on subsequent store sales
on January 5, 2000 and December 31, 2000.
On November 12, 1999, Westbeach sold substantially all its assets,
including its remaining two retail stores in Vancouver and Whistler, British
Columbia, and its apparel line, together with the Westbeach trademarks, to
Westbeach Sports, Inc., a British Columbia corporation, not affiliated with
either the Company or Westbeach. The purchase price for the assets sold was
$2,680,000. The sale was pursuant to an Asset Purchase Agreement that contained
certain representations and warranties by Westbeach to the buyer and
indemnification of the Buyer by Westbeach in certain events for certain
liabilities or any inaccuracies in such representations and warranties. The sale
price was subject to adjustment, based on the final inventory and accounts
receivable counts, and there was a $100,000 holdback to fund certain
adjustments. Currently, only $30,000 is held back, as the remaining $70,000 was
refunded to the Company and a loss of $112,000 was included in loss from
discontinued apparel operations, which loss resulted from the sale price
adjustments.
<PAGE>15
Operating results of the snowboard operations are shown separately in the
Consolidated Statements of Operations as income (loss) from discontinued
snowboard operations, net of tax. Operating results of the apparel operations
are shown separately in the Consolidated Statements of Operations as income
(loss) from discontinued apparel operations, net of tax. The Consolidated
Statements of Cash Flows have not been restated to reflect discontinued
operations presentation.
7. IDW ACQUISITION
On January 31, 2000, the Company acquired all of the outstanding securities
of International DisplayWorks, Inc., ("IDW") in exchange for 2,680,000
newly-issued shares of the Company's common stock valued at $7,236,000. The
transaction has been accounted for as a purchase with the excess of the purchase
price over the fair value (which approximated historical carrying value) of the
net assets acquired allocated to goodwill. The operations of IDW have been
included in the accompanying financial statements since the date of acquisition.
The actual purchase price may be further adjusted, as provided in the purchase
agreement, based on final accounting for inventories and accounts receivable
(Note 1).
8. SUBSEQUENT EVENTS
On August 1, 2000, the Company refinanced its Salem, Oregon facility for
$2.1 million, the proceeds of which were used to make the required payments to
the secured creditors, including interest on that indebtedness. The $2.1 million
loan is for a term of three years, interest only payments, with an interest rate
of 14%. The Company also paid 7 points to secure the loan, which is personally
guaranteed by the Company's Chairman of the Board.
On August 1, the Company also raised an additional $200,000 through a
private placement of common stock to one accredited investor. The stock was
issued in the private transaction at $1.50 per share. The net proceeds to the
Company were used for continuing operations and to meet certain scheduled
payments of debt.
<PAGE>16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Through March 1999, the Company focused its business activities on
designing, manufacturing and marketing premium snowboards and related products
under the "Morrow" brand name. The Company acquired Westbeach, a merchandiser of
snowboarding apparel and casual clothing, on November 13, 1997. In March 1999,
the Company sold its "Morrow" intellectual property, along with all 1999/2000
inventories and its snowboard and binding production equipment to K2. In
November 1999, the Company sold its "Westbeach" brand name to Westbeach Sports,
Inc. resulting in discontinued operations. As a result of the sale of Westbeach,
the Company had no continuing operations until January 31, 2000, with its
acquisition of International DisplayWorks, Inc. ("IDW"), a Delaware corporation,
and IDW's subsequent acquisition on February 1, 2000, through its wholly-owned
subsidiary, International DisplayWorks Hong Kong ("IDW HK"), a company organized
under the laws of Hong Kong, People's Republic of China ("PRC") of (i) MULCD
Microelectronics Company Ltd. ("MULCD") and (ii) IDW Shenzhen Technology
Development Company, Ltd. ("VKSTD"), two companies organized under PRC law
(collectively, the "PRC Companies"). IDW, IDW HK and the PRC Companies operate
as an integrated company.
Forward-Looking Statements
This report contains forward-looking statements which are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. The forward-looking statements involve risks and uncertainties that could
cause actual results to differ materially from the forward- looking statements.
When used in this report, the words "anticipate," "believe," "estimate,"
"expect" and similar expressions as they relate to Morrow Snowboards, Inc. dba
Granite Bay Technologies ("the Company") or its management, including without
limitation, IDW (as defined herein) and the Company's other subsidiaries, are
intended to identify such forward-looking statements. The Company's actual
results, performance or achievements could differ materially from the results
expressed in, or implied by these forward-looking statements. The Company wishes
to caution readers of the important factors, among others, that in some cases
have affected, and in the future could affect the Company's actual results and
could cause actual consolidated results for fiscal year 2000, and beyond, to
differ materially from those expressed in any forward-looking statements made
by, or on behalf of, the Company. These factors include without limitation, the
Company's change in business lines, the ability to obtain capital and other
financing in the amounts and the times needed (including to complete payment of
the acquisition costs of the PRC Companies and fund these companies' growth and
operations), realization of forecasted income and expenses by the PRC Companies,
initiatives by competitors, price pressures, changes in the political climate
for business in China, and the loss of one or more of IDW's significant
customers, and the risk factors listed from time to time in the Company's SEC
reports and risk factors listed below, including, in particular, the factors and
discussion in Item 7 of the 1999 Form 10-K.
The Company's principal assets consist of its equity interests in
Globalgate e-Commerce, Inc. ("Globalgate") and IDW. No immediate return is
expected from the Company's investment in Globalgate. A wide variety of factors
will affect IDW's operating results and could adversely impact its net sales and
profitability. Significant factors in IDW's success will be its ability to
establish and, in certain cases, re-establish design and manufacturing
relationships with key OEM customers that will generate sufficient orders,
including orders of higher margin products, to increase revenues and
<PAGE>17
profitability. Although IDW products are incorporated in a wide variety of
communications, consumer and appliance products, approximately 20% of its total
sales in 1999 were for display modules for cellular products and 30% for use in
office machines (primarily calculators). A slowdown in demand for cellular
products or calculators that utilize IDW's devices as a result of economic or
other conditions and the market served by IDW or other factors could adversely
affect IDW's operating results. IDW's products are sold into an industry
characterized by increasingly rapid product turnaround, increasingly shorter
lead times, product obsolescence, order cancellation and other factors that make
it difficult to forecast future orders, production and personnel needs and other
resources requirements with a high level of certainty. IDW's ability to
anticipate such factors and respond to them in a timely fashion will affect its
ability to utilize its manufacturing capacity effectively, maintain a proper
product mix and avoid downtimes due to product conversions and other factors.
Such uncertainty also creates difficulties in maintaining adequate supplies of
raw materials to meet shifting customer needs and customer orders placed on
short notice.
Other factors, many of which could be beyond the Company's and IDW's
control, include the following:
o IDW's ability to increase sales, including sales of higher margin
products and sales in Asia, Europe and the United States;
o IDW's ability to expand sales into other industries that have
significant growth potential and to establish strong and long-lasting
relationships with companies in those industries;
o IDW's ability to provide significant design and manufacturing services
for those companies in a timely and cost-efficient manner;
o The Company's ability to raise sufficient working capital to fund
IDW's operations and growth;
o Over the long run, the Company's ability to raise additional capital
for IDW to buy equipment and expand plant facilities to expand into
higher margin products;
o IDW's success in maintaining customer satisfaction with its design and
manufacturing services and its products' performance and reliability;
o Customer order patterns, changes in order mix, and the level and
timing of customer orders placed by customers that IDW can complete in
a calendar quarter;
o Market acceptance and demand for customer products and the product
life;
o The availability and effective utilization of manufacturing capacity;
o The quality, availability and cost of raw materials, equipment and
supplies;
o Continuation of IDW's wage cost advantages;
o The cyclical nature of the electronics industries;
<PAGE>18
o Technological changes and technological obsolescence; and
o Competition and competitive pressure on prices.
Results of Operations
The only continuing operations of the Company were the IDW operations,
acquired on January 31, 2000. The purchase method of accounting applies to the
acquisition of IDW; as a result, balance sheet information for IDW and its
subsidiaries is only included as of July 1, 2000, and operating results are only
included from January 31, 2000, for IDW, and, from February 1, 2000, for IDW HK
and the PRC Companies. Because the three and six months ended June 26 1999, and
the year ended January 1, 2000, reflect all discontinued operations, they have
been omitted from this comparison.
Comparison of the Three and Six Months Ended July 1, 2000, and June 26 1999
Continuing Operations. The Company's continuing operations consist of IDW
and the IDW HK subsidiaries (the PRC Companies), MULCD and VKSTD, which
manufacture liquid crystal displays and assemblies. These continuing operations
stem from the acquisition of IDW on January 31, 2000, and the acquisition of the
PRC Companies on February 1, 2000. As previously mentioned, the Company sold its
Morrow business to K2 in March 1999, and its Westbeach business to Westbeach
Sports, Inc. in November 1999, creating discontinued snowboard operations and
discontinued apparel operations.
Net Sales. Net sales for continuing operations for the three and six months
ended July 1, 2000, were $6,606,000 and $9,188,000, which represents continuing
operations of IDW from the acquisition date of January 31, 2000, through July 1,
2000. All prior year sales are a part of the Company's discontinued operations
and therefore not reflected in this comparison.
Gross Profit. Gross profit for continuing operations in the three and six
months ended July 1, 2000, were $1,542,000 and $1,768,000, which represents
continuing operations of IDW from the acquisition date of January 31, 2000,
through July 1, 2000. All prior year sales and cost of sales are a part of the
Company's discontinued operations and therefore no gross profit is reflected in
this comparison.
Operating Expenses. Operating expenses for continuing operations consist of
selling, marketing and customer service; engineering, advance design and product
development; and general and administrative expenses. These expenses were
$2,232,000 and $3,436,000 for the three and six months ended July 1 2000, which
represents continuing operations of IDW from the acquisition date of January 31,
2000, through July 1, 2000, and ongoing corporate administration expenses of the
Company.
Selling, Marketing and Customer Service. Selling, marketing and customer
service expenses for the three and six months ended July 1, 2000, were $486,000
and $605,000, which represents continuing operations of IDW from the acquisition
date of January 31, 2000, through July 1, 2000. Significant elements of this
expense consists of staff and employee related expenses of $405,000, travel and
related expenses of $72,000, and advertising expense of $62,000.
Engineering, Advance Design and Product Management. Expenses incurred
during the three and six months ended July 1, 2000, were $86,000, of which
$74,000 were related to employee expenses.
<PAGE>19
General and Administrative. General and administrative expenses for the
three and six months ended July 1, 2000, were $1,660,000 and $2,745,000, which
represents continuing operations of IDW from the acquisition date of January 31,
2000, through July 1, 2000, and continuing operations expenses for ongoing
corporate administration of the Company. The significant elements of the IDW
expenses relate to staff and employee expenses of $1,280,000, rent, telephone,
and utilities expenses of $126,000, legal expenses of $71,000, and local
government fees of $88,000. Significant elements of the continuing operations
expenses for the Company's ongoing corporate administration include $188,000 in
accounting fees, $70,000 in legal fees, $72,000 in salaries, $180,000 in
amortization of goodwill from the IDW acquisition, and $150,000 for insurance.
Interest Expense. Interest expense was $21,000 and $48,000 for the three
and six months ended July 1, 2000, which relates to payments on the $675,000
outstanding bridge loan.
Other Income. Other income was $45,000 and $52,000 for the three and six
months ended July 1, 2000. This relates to $12,000 in interest income and
$40,000 in lease income related to ongoing corporate administration.
Net Loss. Net loss for continuing operations for the three and six months
ended July 1, 2000, were $666,000 and $1,664,000, respectively, of which
$947,000 represents net loss from continuing operations of IDW from the
acquisition date of January 31, 2000, through July 1, 2000, while $717,000
represents net loss from continuing operations for ongoing corporate
administration of the Company.
Discontinued Operations. In March of 1999, the Company sold all of its
snowboard, boot and binding assets to K2. There was a net loss from discontinued
snowboard operations of $15,000 and $11,000 for the three and six months ended
July 1, 2000, compared to loss on discontinued snowboard operations of $7,000
three months ended June 26, 1999, and income of $143,000 for the six months
ended June 26, 1999.
On November 12, 1999, the Westbeach subsidiaries were sold creating
discontinued apparel operations for the apparel business. Westbeach had a loss
from discontinued apparel operations in the first quarter of 2000 of $353,000,
due to $112,000 in working capital adjustments on the purchase price paid by
Westbeach Sports, Inc., $22,000 in legal fees related to the discontinuance, and
general and administrative fees incurred to wind down operations. This compares
to a loss from discontinued apparel operations of $83,000 in the second quarter
of 2000.
Market Risk
The Company accumulates foreign currency in payment of accounts which it
then uses to pay its foreign vendors or converts to U.S. dollars, exposing the
Company to fluctuations in currency exchange rates. The Company currently holds
foreign currencies which are translated into $246,000 using the quarter-end
exchange rate. The potential loss in fair value resulting from an adverse change
in quoted foreign currency exchange rates of 10% amounts to $24,600. Actual
results may differ. The Company does not hold other market sensitive instruments
and therefore does not expect to be affected by any adverse changes in commodity
prices, or marketable equity security prices. The Company may be exposed to
future interest rate changes on its debt. The Company does not believe that a
hypothetical 10 percent change in interest rates would have a material effect on
the Company's cash flow.
<PAGE>20
Liquidity and Capital Resources
The Company requires capital to pay certain existing fixed obligations and
provide working capital for the PRC Companies and to fund administrative
overhead for the parent company. The increase in cash at January 1, 2000,
partially resulted from decisions by the Company and its Canadian subsidiary to
terminate certain business lines in 1999, the sale of which generated working
capital for the Company to fund the payment of Company debt and provide
additional funds for investment. As discussed below, the Company will require
additional working capital to implement its current Business Plan for IDW.
Net cash provided by operating activities for the six months ended July 1,
2000, was $132,000 resulting primarily from the sale of inventory of $1,664,000
for the period.
Net cash used in investing activities for the six months ended July 1,
2000, totaled $4,415,000 resulting from the $4,272,000 payment for the purchase
of the PRC Companies and $143,000 acquisition of equipment.
Net cash provided by financing activities for six months ended July 1,
2000, was $2,643,000 resulting from the $4,338,000 net proceeds of a sale of
common stock and the $1,695,000 principal reduction of debt.
Under the terms of a payment agreement among the Company, certain creditors
from Morrow discontinued operations and others (the "Payment Agreement"),
certain creditors holding undisputed, non-contingent, liquidated claims against
the Company have received payments from the Company in the aggregate amount of
$850,000 prior to period end. After the period end, on August 1, 2000, the
Company refinanced its Salem, Oregon facility for $2.1 million, the proceeds of
which were used to make the required payments to the secured creditors,
including interest on that indebtedness.
The Company previously reported fixed obligations of $6,270,000 to be
funded by June 30, 2000, consisting of $3,945,000 relating to the Purchase
Agreement, $1,650,000 to the Payment Agreement and $675,000 to the Bridge Loan,
of which approximately $2,800,000 was funded through operating cash flow.
Subsequent to July 1, the Company refinanced its Oregon real estate for $2.1
million. The fixed obligations were further funded in part through the
$2,100,000 from the refinancing of the Salem, Oregon real estate, and
approximately $665,000 in net proceeds received through the private placement of
equity securities, of which $190,000 was received after the June 30 period end.
The Company expects to expend up to $2.0 million of capital expenditures
relating the production of new products by IDW during the remainder of the 2000
fiscal year. Part of these expenditures relate to the entry into the Chip on
Glass business. In addition, the company expects to add up to $2.0 million in
working capital. The Company intends to fund approximately $1,500,000 of this
capital expenditure from the collection of accounts receivable and the balance
from the issuance of common shares to various investors in private equity
transactions. No assurance can be made that such equity investments will be
available and, if not available, the Company would reduce the capital
expenditures, which may result in delayed roll out of new products.
A more detailed discussion of the risks associated with such matters and
other factors that may affect the Company's operations is contained in Item 7 of
<PAGE>21
the Company's Annual Report on Form 10-K for the fiscal year ended January 1,
2000, ("1999 From 10-K") filed with the Securities and Exchange Commission
("SEC") on April 25, 2000.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently involved in the litigation and proceedings
described below.
There are two legal matters before the Company, one of which has been
settled (the Empire matter).
1. Michael Joseph Fashion Agency, Inc. v. Morrow Snowboards, Inc. (Supreme
Court, Province of British Columbia, No. C981832). Michael Joseph Fashion Agency
Inc. ("Michael Joseph"), the Company's former Western Canadian sales
representative, filed a suit in Vancouver, British Columbia claiming damages of
approximately $127,000 (US$), together with interest, attorneys' fees and
certain litigation costs. Michael Joseph is seeking approximately $60,000 for
lost sales commissions due to the alleged termination of its sales
representative relationship without adequate notice under Canadian common law
principles, approximately $60,000 for alleged lost sales commissions on gray
market goods shipped through unauthorized distribution channels in its exclusive
sales territory and the balance for certain expenses incurred. The Company has
retained legal counsel in Vancouver, British Columbia to defend this action. The
Company believes it has a reasonable basis for defending against any such claim,
but there can be no assurance the Company will be successful in this defense.
Discovery has been completed in this lawsuit and trial is expected in October
2000. Although the Company believes that the claims are without merit and it
intends to defend the claims vigorously, there can be no assurance that an award
of damages may not result from the trial. Further, any significant award may
adversely affect the Company's financial condition and capital resources.
2. Empire of Carolina, Inc. ("Empire") v. Morrow Snowboards, Inc. and K2, Inc.
(Palm Beach County, Florida, Circuit Court of the Fifteenth Judicial Circuit,
No. CL99-3453-AE). Empire has filed a lawsuit claiming a breakage fee of
$500,000 and reimbursement of its costs under the Letter of Intent with the
Company dated March 2, 1999. The Company has responded that it believes the
Letter of Intent was terminated without any obligation on the Company's part to
pay such a fee or reimburse any costs. The Company believes it has a reasonable
basis for that position and will vigorously defend against any action by Empire
seeking such fee. In December 1999, the court approved the Company's motion to
dismiss the lawsuit for lack of jurisdiction under Florida law. Empire has
appealed that decision. While that appeal is pending, the parties have agreed to
voluntary mediation of the dispute. No discovery has occurred to date. On May 2,
2000, the parties in the voluntary mediation proceedings agreed to a settlement.
Under the settlement, the Company paid Empire $27,500, the parties exchanged
full releases and the action was dismissed.
ITEM 2. CHANGES IN SECURITIES.
On January 31, 2000, the Company pursuant to a Securities Purchase
Agreement exchanged 2,680,000 shares of its Common Stock (no par value) ("Common
Stock") for all the outstanding securities and rights to acquire securities of
International DisplayWorks, Inc. ("IDW"), a Delaware corporation with offices
and headquarters at 599 Menlo Drive, Suite 200, Rocklin, California 95765;
telephone: 916-415-0645. Following such share exchange, IDW became a
<PAGE>
wholly-owned subsidiary of the Company. Shares were exchanged in reliance on the
exemptions under Sections 4(2) and 4(6) of the Securities Act of 1933, as
amended, and Rule 506 of Regulation D, promulgated by the SEC under federal
securities laws and comparable exemptions for sales to "accredited" investors
and or private/limited offerings under state securities laws. The Board set the
exchange ratio based on its evaluation of IDW and the then market prices for the
Common Stock and other factors.
Also, on January 31, 2000, the Company, in a private placement ("Private
Offering") sold 5,800,000 shares of Common Stock at $.75 per share. Shares were
sold to "accredited" investors only in reliance on the exemptions under Sections
4(2) and 4(6) of the Securities Act of 1933, as amended, and Rule 506 of
Regulation D, promulgated by the SEC under federal securities laws and
comparable exemptions for sales to "accredited" investors under state securities
laws. The Board set the offering price on then market prices and other factors.
The Company engaged Capitol Bay Securities, Inc. ("CBS") as the placement
agent for the Private Offering. As placement agent, CBS received sales
commissions of $435,000 and an expense allowance of $87,000, equal to 12% of the
proceeds raised, and received warrants to acquire 580,000 of the Company's
Common Stock at an exercise price of $.75 per share. CBS is a wholly owned
subsidiary of Capitol Bay Group, Inc. ("CBG") and CBG is wholly owned by Stephen
Kircher, a director of the Company.
In June 2000, the Company, in a private placement sold 334,000 shares of
common stock at $1.50 per share, to a single accredited investor in reliance on
the exemptions under Sections 4(2) and 4(6) of the Securities Act of 1933, as
amended, and Rule 506 of Regulation D, promulgated by the SEC under federal
securities laws and comparable exemptions for sales to "accredited" investors
under state securities laws. The Board set the offering price on then market
prices and other factors.
Also, in August 2000, the Company, in another private placement sold
134,000 shares of common stock at $1.50 per share, to a single accredited
investor in reliance on the exemptions under Sections 4(2) and 4(6) of the
Securities Act of 1933, as amended, and Rule 506 of Regulation D, promulgated by
the SEC under federal securities laws and comparable exemptions for sales to
"accredited" investors under state securities laws. The Board set the offering
price on then market prices and other factors.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-None -
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-None -
ITEM 5. OTHER INFORMATION
-None -
<PAGE>23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits: 27.1 - Financial Data Schedule
Reports on Form 8-K
A current report on Form 8-K (amendment 5) dated January 31, 2000, and
filed with the SEC on July 17, 2000, reported and filed the audited financial
statements for the PRC Companies, which was a further amendment to the IDW Form
8-K dated January 2000.
<PAGE>24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Salem, State of Oregon, on August 12, 2000.
MORROW SNOWBOARDS, INC.
P. BLAIR MULLIN
P. Blair Mullin, President(1)
(Principal Executive Officer)
(1) No Chief Executive Officer is appointed. Under the Company's Bylaws, if
no Chief Executive Officer is appointed, the President acts in such
capacity and has the authority of a Chief Executive Officer.
