<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 0-19817
MACGREGOR SPORTS AND FITNESS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Minnesota 41-1652566
- ------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer I.D. #)
incorporation or organization)
8100 White Horse Road, Greenville, SC 29611
-------------------------------------------------
(Address of principal executive office) (Zip Code)
(864) 294-5230
----------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such report(s),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
YES NO
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 11,698,002 common shares, par value
$.02 per share, outstanding at June 3, 1996.
Page 1 of 17 total pages on this document
<PAGE> 2
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION
- 2 -
<PAGE> 3
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996 AND JULY 31, 1995
ASSETS
<TABLE>
<CAPTION>
APRIL 30, 1996 JULY 31, 1995
--------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
CASH $ 4,646 $ 2,846
TRADE RECEIVABLES, NET OF
ALLOWANCE FOR DOUBTFUL
ACCOUNTS OF $4,000 AT JULY 31, 1995 1,329
INVENTORIES 6,450
ROYALTY RECEIVABLE, RELATED PARTY 77,190
---------- ----------
TOTAL CURRENT ASSETS 81,836 10,625
---------- ----------
OFFICE FURNITURE AND EQUIPMENT 8,414
LESS ACCUMULATED DEPRECIATION
AND AMORTIZATION (6,723)
---------- ----------
1,691
---------- ----------
OTHER ASSETS:
TRADEMARKS AND LICENSE AGREEMENTS
NET OF ACCUMULATED AMORTIZATION
($2,439,225, APRIL 30, 1996; $1,099,612
JULY 31, 1995) 2,932,880 4,272,492
---------- ----------
$3,014,716 $4,284,808
========== ==========
</TABLE>
(CONTINUED)
- 3 -
<PAGE> 4
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
APRIL 30, 1996 AND JULY 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
APRIL 30, 1996 JULY 31, 1995
-------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
LINES OF CREDIT $ $ 380,677
NOTES PAYABLE, SHAREHOLDERS 91,306
CURRENT PORTION OF LONG-TERM DEBT,
SHAREHOLDER 27,000
INVESTMENT FEES PAYABLE TO RELATED PARTY 281,500
ACCRUED INTEREST AND OTHER, RELATED PARTY 379,180
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 953,013
DEFERRED ROYALTY REVENUE 64,477
----------- -----------
TOTAL CURRENT LIABILITIES 2,177,153
----------- -----------
LONG-TERM DEBT, SHAREHOLDER 225,020
----------- -----------
CLASS A 10% MANDATORY REDEEMABLE
CONVERTIBLE PREFERRED STOCK, LIQUIDATION
PREFERENCE $610,000 PLUS UNPAID DIVIDENDS, IF
AND WHEN DECLARED; ISSUED AND OUTSTANDING -
0 SHARES AT APRIL 30, 1996 AND 610 SHARES
AT JULY 31, 1995. 610,000
----------- -----------
SHAREHOLDERS' EQUITY:
CLASS C CONVERTIBLE PREFERRED STOCK,
LIQUIDATION PREFERENCE OF $1,000 PLUS
DIVIDEND PREFERENCE OF $70 PER SHARE
PER YEAR, ISSUED AND OUTSTANDING 0 SHARES
AT APRIL 30, 1996 AND 1000 SHARES AT
JULY 31, 1995. 1,000,000
COMMON STOCK, PAR VALUE $.02; AUTHORIZED
25,000,000 SHARES, ISSUED AND OUTSTANDING
11,698,002 SHARES AT APRIL 30, 1996
AND 8,249,423 SHARES AT JULY 31, 1995 233,959 164,988
ADDITIONAL PAID-IN CAPITAL 11,934,013 7,397,429
WARRANTS 1,093,988 3,588
DEFICIT (10,247,244) (7,293,370)
----------- -----------
3,014,716 1,272,635
----------- -----------
$ 3,014,716 $ 4,284,808
=========== ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 4 -
<PAGE> 5
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, 1996 APRIL 30, 1995
-------------- --------------
<S> <C> <C>
SALES $ $ 129,931
COST OF SALES 111,447
------------ ------------
GROSS PROFIT 18,484
------------ ------------
ROYALTY INCOME:
RELATED PARTY 76,665
------------ ------------
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 1,422,448 124,715
DEPRECIATION AND AMORTIZATION 36,661 69,521
------------ ------------
1,459,109 194,236
------------ ------------
OPERATING INCOME (LOSS) (1,459,109) (99,087)
------------ ------------
OTHER INCOME (EXPENSE):
INTEREST EXPENSE:
RELATED PARTY (6,301) (26,657)
OTHER (3,092) (8,507)
OTHER 81 4,046
------------ ------------
(9,312) (31,118)
------------ ------------
NET LOSS $ (1,468,421) $ (130,205)
============ ============
LOSS PER COMMON SHARE $ (.13) $ (.02)
============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 11,599,113 8,249,423
============ ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 5 -
<PAGE> 6
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED APRIL 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, 1996 APRIL 30, 1995
-------------- --------------
<S> <C> <C>
SALES $ $ 450,450
COST OF SALES 328,239
----------- ----------
GROSS PROFIT 122,211
----------- ----------
ROYALTY INCOME:
RELATED PARTY 141,667 176,665
----------- ----------
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 1,824,539 355,790
DEPRECIATION AND AMORTIZATION 140,459 219,521
WRITE DOWN OF TRADEMARK COSTS (NOTE 4) 1,200,000
----------- ----------
3,164,998 575,311
----------- ----------
OPERATING LOSS (3,023,331) (276,435)
----------- ----------
OTHER INCOME (EXPENSE):
INTEREST EXPENSE:
RELATED PARTY (38,338) (80,952)
OTHER (12,830) (28,149)
OTHER 838 17,020
----------- ----------
(50,330) (92,081)
----------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (3,073,661) (368,516)
----------- ----------
EXTRAORDINARY ITEM, GAIN FROM
EXTINGUISHMENT OF DEBT 119,787
----------- ----------
NET LOSS $(2,953,874) $ (368,516)
=========== ==========
LOSS PER COMMON SHARE: BEFORE
EXTRAORDINARY ITEM $ (.32) $ (.05)
=========== ==========
LOSS PER COMMON SHARE: $ (.31) $ (.05)
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 9,652,274 8,143,312
=========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 6 -
<PAGE> 7
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED APRIL 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
CLASS C
PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance, July 31, 1995 1,000 $ 1,000,000 8,249,423 $ 164,988
Common stock issued as collateral
for line of credit 228,667 4,573
Common stock issued in conversion of
notes payable shareholders 42,056 841
Common stock issued in conversion
of Class C convertible
preferred shares (1,000) (1,000,000) 1,000,000 20,000
Common stock issued in conversion
of Class A redeemable convertible
preferred stock 165,920 3,318
Class A dividends declared
Common stock issued in payment
of accrued Class A dividends 112,000 2,240
Common Stock issued in payment
of $1,053,005 of accounts payable and
accrued expenses, $324,924 accrued
interest and other related parties,
$281,500 investment fees related
party, $252,020 long-term debt
shareholder, $49,250 notes payable
shareholders (Note 8). 1,271,936 25,439
Common stock sold at:
200,000 shares at $.50 200,000 4,000
128,000 shares at $.75 128,000 2,560
200,000 shares at $1.25 200,000 4,000
Sale of previously issued common stock
(344,000 shares)
(228,667 shares)
Common stock issued in exercise of
employee stock option 100,000 2,000
Warrants issued in connection of
services provided
Net Loss
------ ---------- ---------- ---------
Balance, April 30, 1996 0 0 11,698,002 $ 233,959
====== ========== ========== =========
<CAPTION>
ADDITIONAL
PAID-IN
CAPITAL WARRANTS DEFICIT TOTAL
------- -------- ------- -----
<S> <C> <C> <C> <C>
Balance, July 31, 1995 $ 7,397,429 $ 3,588 $ (7,293,370) $ 1,272,635
Common stock issued as collateral
for line of credit (4,573)
Common stock issued in conversion of
notes payable shareholders 41,215 42,056
Common stock issued in conversion
of Class C convertible
preferred shares 980,000
Common stock issued in conversion
of Class A redeemable convertible
preferred stock 606,682 610,000
Class A dividends declared (280,000) (280,000)
Common stock issued in payment
of accrued Class A dividends 277,760 280,000
Common Stock issued in payment
of $1,053,005 of accounts payable and
accrued expenses, $324,924 accrued
interest and other related parties,
$281,500 investment fees related
party, $252,020 long-term debt
shareholder, $49,250 notes payable
shareholders (Note 8). 1,935,260 1,960,699
Common stock sold at:
200,000 shares at $.50 96,000 100,000
128,000 shares at $.75 93,440 96,000
200,000 shares at $1.25 246,000 250,000
Sale of previously issued common stock
(344,000 shares) 172,000 172,000
(228,667 shares) 274,800 274,800
Common stock issued in exercise of
employee stock option 98,000 100,000
Warrants issued in connection of
services provided 1,090,400 1,090,400
Net Loss (2,953,874) (2,953,874)
----------- ---------- ------------ -----------
Balance, April 30, 1996 $11,934,013 $1,093,988 $(10,247,244) $ 3,014,716
=========== ========== ============ ===========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- 7 -
<PAGE> 8
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED APRIL 30, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, 1996 APRIL 30, 1995
-------------- --------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $(610,322) $ 1,414
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET PAYMENTS UNDER REVOLVING CREDIT AGREEMENTS (380,677) (13,158)
PROCEEDS FROM ISSUANCE OF SHARES OF COMMON STOCK 992,799
PROCEEDS FROM ISSUANCE OF NOTE PAYABLE, SHAREHOLDER 164,000
PAYMENTS TO NOTES PAYABLE, SHAREHOLDER (164,000)
INCREASE (DECREASE) IN BANK OVERDRAFT (16,153)
--------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 612,122 (29,311)
--------- --------
INCREASE (DECREASE) IN CASH 1,800 (27,897)
--------- --------
CASH, BEGINNING OF PERIOD 2,846 35,738
--------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,646 $ 7,841
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST $ 42,148 $ 24,535
========= ========
SUPPLEMENTAL SCHEDULE OF NON CASH FINANCING ACTIVITY:
DURING THE QUARTER ENDED OCTOBER 31, 1994, $191,000 OF
ACCOUNTS PAYABLE WITH THIRD PARTIES WERE CONVERTED
477,500 SHARES OF THE COMPANY'S COMMON STOCK.
DURING THE QUARTER ENDED OCTOBER 31, 1995, THE COMPANY
ISSUED 228,667 SHARES OF COMMON STOCK TO ITS SUBSIDIARY,
CTS, AS ADDITIONAL COLLATERAL TO BE PLEDGED FOR ITS
LINE OF CREDIT ARRANGEMENT.
DURING THE QUARTER ENDED OCTOBER 31, 1995, $42,056 OF
NOTES PAYABLE SHAREHOLDERS WERE CONVERTED TO
42,056 SHARES OF THE COMPANY'S COMMON STOCK.
DURING THE QUARTER ENDED JANUARY 31, 1996, 1,000 SHARES
OF CLASS C CONVERTIBLE PREFERRED SHARES, LIQUIDATION
PREFERENCE OF $1,000 PER SHARE WERE CONVERTED TO
1,000,000 SHARES OF THE COMPANY'S COMMON STOCK.
DURING THE QUARTER ENDED JANUARY 31, 1996, DIVIDENDS OF
$280,000 WERE DECLARED ON THE CLASS A MANDATORY
REDEEMABLE CONVERTIBLE PREFERRED STOCK AND THE
OUTSTANDING 610 SHARES OF CLASS A PREFERRED STOCK
AND CUMULATIVE DIVIDENDS (TOTAL LIQUIDATION PREFERENCE
OF $890,000) WERE CONVERTED TO 277,920 SHARES OF THE
COMPANY'S COMMON STOCK. THE PREFERRED STOCK WAS
CONVERTED AT THE PRESCRIBED CONVERSION RATE OF 272
SHARES OF COMMON STOCK TO 1 SHARE OF PREFERRED STOCK
RESULTING IN 165,920 SHARES OF COMMON STOCK. THE
CUMULATIVE DIVIDENDS WERE CONVERTED AT AN AGREED
UPON VALUE OF $2.50 PER SHARE OF COMMON STOCK RESULTING
IN 112,000 SHARES OF COMMON STOCK.
DURING THE QUARTER ENDED APRIL 30, 1996, $1,960,699
LIABILITIES WERE CONVERTED TO 1,271,936 SHARES OF
COMMON STOCK (NOTE 8).
DURING THE QUARTER ENDED APRIL 30, 1996, THE COMPANY
ISSUED 200,000 WARRANTS TO ACQUIRE 200,000 SHARES OF
THE COMPANY'S COMMON STOCK IN RETURN FOR CONSULTING
SERVICES PROVIDED.
DURING THE QUARTER ENDED APRIL 30, 1996, THE COMPANY
ISSUED 395,200 WARRANTS TO PURCHASE 395,200 SHARES OF
THE COMPANY'S COMMON STOCK FOR SERVICES PROVIDED.
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
- 8 -
<PAGE> 9
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED
APRIL 30, 1996 AND 1995
(UNAUDITED)
1. THE INTERIM FINANCIAL STATEMENTS:
MacGregor Sports and Fitness, Inc. (the "Company" or "MSF"), through
its wholly-owned subsidiary, MacGregor Sports Product, Inc. ("MSP")
owns the worldwide rights to the use of the MacGregor name for a broad
range of sports. Roadmaster Corporation (an affiliate of the Company),
through a distribution agreement, markets these recreational and
fitness products. Carolina Team Sports ("CTS") is also a wholly-owned
subsidiary. CTS had no significant operations during the nine months
ended April 30, 1996.
The interim financial statements have been prepared by MSF and, in the
opinion of management, reflect all material adjustments (including
normal recurring adjustments) which are necessary to a fair statement
of results for the interim periods presented. Certain information and
footnote disclosures made in the last annual report on Form 10-KSB have
been condensed or omitted for the interim statements. It is the
Company's opinion that, when the interim statements are read in
conjunction with the July 31, 1995, annual report on Form 10-KSB, the
disclosures are adequate to make the information presented not
misleading.
2. ORGANIZATION:
The Company was formed on December 30, 1991 through a merger between
Vida Ventures, LTD. ("VIDA") and Sports Acquisition Company ("SAC").
SAC was formed in February 1991, and on May 9, 1991, it acquired
certain assets of MacGregor Sporting Goods, Inc. ("MSI"). The primary
assets were worldwide rights to use the MacGregor name on sporting,
recreational and fitness products.
- 9 -
<PAGE> 10
3. AGREEMENT AND PLAN OF THE MERGER:
On January 16, 1996, the Company entered an agreement and plan of a
merger with Technical Publishing Solutions, Inc., a Minnesota
Corporation ("TPSI"). TPSI is a technology company focused on
document-based information management systems. Under the merger
agreement, MSP will be merged with and into TPSI with TPSI as the
surviving corporation and further, with the result that TPSI will
become a wholly-owned subsidiary of MSF. Each of the owners of issued
and outstanding TPSI common stock will be entitled to receive
approximately 1.74 shares of MSF's common stock in exchange and
conversion for each share of TPSI common stock held and each option or
warrant to purchase one share of the common stock of TPSI outstanding
will become an option or warrant to purchase approximately 1.74 shares
of MSF common stock. For accounting purposes, the exchange will be
treated as an acquisition of the Company by TPSI and as a
recapitalization of TPSI. Included under the terms and conditions of
the agreement are:
a. The balance sheet of the Company is to have at least $3
million of liquid tangible net worth and cash of at least $1.0
million.
b. The Company is to have paid or otherwise satisfied all debt
and all current liabilities, or otherwise removed them from
the Company's balance sheet.
c. The Company may not have more than 12,000,000 million shares
of common stock outstanding. Included in this amount would be
any shares subject to an option or warrant with exercise
prices of less than $1.00 per share. The Company may not have
more than 2,200,000 outstanding warrants and options.
d. The Company is to, subject to its shareholder approval, have
completed the sale of substantially all of its assets (Note
4).
e. Certain other requirements including a satisfactory due
diligence and approval by the Company's stockholders.
To meet the above requirements, it is necessary for the Company to
satisfy all of its obligations or otherwise remove those liabilities
from its balance sheet. The Company intends to sell stock or take other
actions as management determines necessary to meet this requirement.
TPSI will record the transaction as an acquisition and
recapitalization. Accordingly, for accounting purposes, TPSI is
assumed to be the acquirer. Subsequently to the transaction, the
historical financial statements will be those of TPSI.
MacGregor will change its fiscal year end to March 31. Accordingly,
assuming the Merger closes prior to July 31, 1996, the end of the
Company's current fiscal year, MacGregor will not file a year-end
report on Form 10-KSB for the fiscal year ended July 31, 1996, but
will file forms 10-QSB for the fiscal quarters ending June 30,
September 30 and December 31 of 1996, and its next year-end annual
report for the year ended March 31, 1997.
- 10 -
<PAGE> 11
4. AGREEMENT TO SELL LICENSE RIGHTS:
In February 1996, the Company entered an agreement with an affiliate.
Under the terms of the agreement, the Company will sell all of its
interests in and to the MacGregor trademark and other related
trademarks and rights (the "MacGregor Rights") for cash at closing of
$1,000,000 plus $1,910,000 to be paid in twelve equal monthly
installments. In response to the agreement, the Company reduced the
carrying amount of its intangible assets at January 31, 1996 by
$1,200,000. Previously, the Company was anticipating realizing
approximately $4 million on its sale of the MacGregor Rights. However,
in late 1995, due to the competitive retail environment that the
MacGregor trademarks operate in, Management believes the $2.9 million
sales price stated in the agreement is the maximum amount a buyer would
offer. Management has investigated the sale of the MacGregor Rights to
other parties and believes the proposed transaction offers the best
outcome for the Company and its shareholders.
5. DISTRIBUTION AGREEMENT:
Effective October 7, 1993, the Company entered an agreement with
Roadmaster Corporation ("RMC") by which RMC acquired the exclusive
rights to distribute MacGregor products, subject to certain worldwide
territorial limitations and restrictions set forth in the Company's
other licensing agreements. The agreement continues for five years,
with an option to renew for an additional five year term with a minimum
annual royalty. The agreement provides that RMC will pay the Company on
a quarterly basis percentage-based royalties on net revenues generated
from sales of the MacGregor products with minimum cumulative royalties.
Under the agreement, the Company received cash of approximately
$1,631,000 in exchange for accounts receivable with a book value of
$427,000, $623,000 of inventory, and $30,000 of equipment, resulting in
a $551,000 write off the carrying value of the MacGregor license costs.
The purchase price included payment of the revolving line of credit for
$440,000, payment for $276,000 to satisfy commissions owed and to
settle the exclusive representation agreement with a company that had
been marketing the Company's products, $186,000 for the reduction of
certain notes payable, and $729,000 for the reduction of certain
accounts payable and accrued expenses.
Roadmaster markets its products (principally bicycles and fitness
equipment) under the brand names of Roadmaster and Vitamaster.
Roadmaster, through its independent representatives and key account
managers, sells its and MacGregor's products to retail sporting good
stores and large retailers such as discount stores, department stores
and other mass merchant outlets.
- 11 -
<PAGE> 12
6. LOSS PER SHARE:
Loss per share is computed based on the weighted average number of
shares actually outstanding. Although no dividends have accumulated
on the Class A Preferred Stock during the years ended July 31, 1994
and 1995, net loss has been adjusted to reflect the dividends as if
they had been accumulated. Outstanding warrants, options and
convertible preferred stock are not considered in the calculations as
they would decrease loss per share.
7. EXTRAORDINARY ITEM:
During the nine months ended April 30, 1996, the Company settled
certain payables and accrued expenses with vendors and realized a gain
on debt extinguishment of $119,787.
8. CONVERSION OF LIABILITIES TO COMMON STOCK:
During the quarter ended April 30, 1996, the following liabilities were
converted to 1,271,963 shares of common stock:
<TABLE>
<S> <C>
Accounts payable and accrued expense $1,053,005
Accrued interest and other, related parties 324,924
Investment fees payable to related party 281,500
Long-term debt, shareholder 252,020
Notes payable shareholders 49,250
----------
$1,960,699
==========
</TABLE>
9. WARRANTS:
During March 1996, the Company finalized an agreement to issue a
consultant warrants to acquire 200,000 shares of the Company's common
stock in return for services provided to the Company. The exercise
price of the warrants was, in the aggregate $200,000 below the trading
price of the Company's common stock on the date of issue of
approximately $3.00 per share. The warrants expire five-years from the
date of issuance. As a result of this transaction, the Company
recognized an expense of $200,000 during the month of March 1996.
During April 1996, the Company finalized an agreement to issue warrants
to acquire 395,200 (250,200 of which were issued to the Chairman of the
Board) shares of the Company's common stock in return for services
provided to the Company. The exercise price of the warrants was, in the
aggregate, $790,400 below the trading price of the Company's common
stock on the date of issue of approximately $3.00 per share. The
warrants expire five-years from the date of issuance. As a result of
this transaction, the Company recognized an expense of $790,400 during
the month of April 1996.
- 12 -
<PAGE> 13
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - INTRODUCTION:
The Company, through one of its wholly owned subsidiaries MacGregor
Sports Products, Inc. ("MSPI") is in the business of marketing and
distributing through its exclusive distributor, Roadmaster Corporation
("RMC"), (an affiliate of the Registrant) a broad range of athletic
products and sporting goods under the MacGregor trademark.
- - RESULTS OF OPERATIONS:
Effective October 7, 1993, the Company entered an agreement with RMC by
which RMC acquired the exclusive rights to distribute MacGregor
products, subject to certain worldwide territorial limitations and
restrictions set forth in the Company's other licensing agreements. The
agreement continues for a period of five years, with an option to renew
for an additional five year terms with a minimum annual royalty. The
agreement provides that RMC will pay the Company on a quarterly basis
percentage royalties on net revenues generated from sales of the
MacGregor products with minimum cumulative royalties.
Under the agreement, the Company received cash of approximately
$1,631,000 in exchange for accounts receivable with a book value of
$427,000, $623,000 of inventory, and $30,000 of equipment, resulting in
a $551,000 write-off of the carrying value of the MacGregor license
costs. The purchase price included payment of the revolving line of
credit for $440,000, payment for $276,000 to satisfy commissions owed
to and to settle the exclusive representation agreement with a company
that had been marketing the Company's products, $361,000 for the
reduction of certain notes payable and long-term debt and $554,000 for
the reduction of certain accounts payable and accrued expenses.
The independent auditor's report on the MacGregor's financial
statements for the year ended July 31, 1995, included a "going concern"
explanatory paragraph which means that the auditors have expressed
substantial doubt about MacGregor's ability to continue as a going
concern. Management's plans in regard to the factors which prompted the
explanatory paragraph are discussed in Note 2 of MacGregor's July 31,
1995 financial statements.
There were no sales revenue for the three and nine months ended April
30, 1996. Revenues from CTS retail operations for the three and nine
months ended April 30, 1995 were $129,931 and $450,450, respectively.
- 13 -
<PAGE> 14
Royalty income decreased by $76,665 and $34,998 for the three and nine
months ending April 30, 1996 compared with April 30, 1995 as the
Company did not record the minimum royalty under the Roadmaster
agreement in the current quarter. MacGregor did not record the
royalties because the Hutch transaction was considered by the parties,
and, pursuant to APB 16, has been accounted for, as completed as of the
date of the Hutch agreement was signed, January 31, 1996, and therefore
no further royalties would accrue after that date.
Operating expenses for the three months ended April 30, 1996 and 1995
were $1,459,109 and $194,236, respectively. Operating expenses for the
nine months ended April 30, 1996 were $3,164,998 compared with $575,311
for the nine months ended April 30, 1995.
The main reasons for the increase in the comparable quarters ended
April 30 were that in 1996, MacGregor a) issued 595,200 warrants to
acquire 595,200 shares of the Company's common stock. The exercise
prices were in the aggregate of $695,200 which was approximately
$1,090,400 below the trading price of the Company's common stock. The
Company recognized this amount as an expense of financial consulting
and other services provided the Company in connection with the Merger
as further described in Note 3, b) accrued the remainder of office rent
($134,159) due for its lease through March 31, 1998, and c) additional
accounting and legal services of approximately $98,000.
For the nine month period, in addition to the above, MacGregor also
realized operating services provided by an affiliate of approximately
$256,000, and as further described in liquidity and capital resources
wrote-down its trademark and license agreement by $1,200,000.
Net loss for quarter ended April 30, 1996 was $1,468,421 compared with
a net loss of $130,205 for the quarter ended April 30, 1995. Net loss
for the nine months ended April 30, 1996 was $2,953,874 compared with a
net loss of $368,516 for the nine months ended April 30, 1995. The main
reason for the increase in the losses were the write-down of the
trademark costs of $1,200,000 and the costs recorded to conclude the
sale of the MacGregor Rights. This was partially offset by gains
realized on certain extinguishment of debt.
- - LIQUIDITY AND CAPITAL RESOURCES:
At April 30, 1996, MacGregor had current assets of $81,836 with no
current liabilities. As discussed in Note 5 to the financial
statements, MacGregor has entered into a distribution agreement with
Roadmaster. However, the level of cash flow from the royalties under
the distribution agreement does not provide assurance on an ongoing
basis that MacGregor will have sufficient cash flow to pay for its
operating and other expenses. Additionally, it does not provide a
capital base for MacGregor to engage in other business opportunities.
Under the terms of the definitive agreement for MacGregor to sell its
MacGregor Rights, as further discussed in Note 4 to the financial
statements, MacGregor will receive $1,000,000 in cash at closing and a
$1,910,000 note, payable in twelve equal installments. This transaction
will enable MacGregor to meet one of the conditions necessary to effect
the Merger as described in Note 3 to the financial statements. As a
result of the agreement to sell the MacGregor Rights, MacGregor has
reduced the carrying amount of its intangible assets by $1,200,000.
- 14 -
<PAGE> 15
From August 1995 through April 1996, MacGregor sold 1,200,667 shares of
its stock at prices of $.50 to $1.25 for proceeds of $992,800 and
received $164,000 from a shareholder in exchange for a 10% note. The
total proceeds of $1,156,800 were used to repay the $164,000
shareholder note payoff its indebtedness to BB&T of $402,786, and
certain liabilities of MacGregor, as well as to fulfill MacGregor's
obligation under its license from Equilink.
In February 1994, the Company issued 344,000 shares of Common Stock to
BB&T to collateralize $175,000 of the $400,000 line of credit to CTS.
In October 1995, BB&T required MacGregor to cause the shares to be
purchased by Equitex's designee at a price of $.50 per share. The
proceeds of $172,000 reduced the BB&T indebtedness. In October 1995,
MacGregor agreed to issue 228,667 shares of its Common Stock to CTS,
and CTS pledged these shares to the bank as collateral for its then
remaining indebtedness of approximately $225,000. In February 1996,
BB&T required MacGregor to cause the shares to be purchased by
Equitex's designee. Of the total proceeds of $274,800, $230,786
inclusive of interest accrued, was used to pay off in full the
remaining indebtedness to BB&T.
As disclosed in MacGregor's statement of cash flow for the nine months
ended April 30, 1996, the Class A preferred stock, the Class C
preferred stock and certain other liabilities were converted to
MacGregor's Common Stock.
- 15 -
<PAGE> 16
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS:
None
ITEM 2 CHANGES IN SECURITIES:
None
ITEM 3 DEFAULTS UPON SENIOR SECURITIES:
Not Applicable
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:
(a) Exhibits
None
(b) Reports on Form 8-K
None
- 16 -
<PAGE> 17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MACGREGOR SPORTS AND FITNESS, INC.
Date: June 12, 1996 By: /s/Michael S. Casazza
---------------------
Michael S. Casazza
President
Date: June 12, 1996 By: /s/Barry S. Hollander
---------------------
Barry S. Hollander
Chief Financial Officer
- 17 -
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-1-1995
<PERIOD-END> APR-30-1996
<CASH> 4,646
<SECURITIES> 0
<RECEIVABLES> 77,190
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 81,836
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,014,716
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 233,959
0
0
<OTHER-SE> 2,780,757
<TOTAL-LIABILITY-AND-EQUITY> 3,014,716
<SALES> 0
<TOTAL-REVENUES> 141,667
<CGS> 0
<TOTAL-COSTS> 3,164,998
<OTHER-EXPENSES> (838)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,168
<INCOME-PRETAX> (3,073,661)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,073,661)
<DISCONTINUED> 0
<EXTRAORDINARY> 119,787
<CHANGES> 0
<NET-INCOME> (2,953,874)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.31)
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