<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 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)
(803) 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: 11,762,425 common shares, par
value $ .02 per share, outstanding at March 15, 1996.
Page 1 of 16 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
JANUARY 31, 1996 AND JULY 31, 1995
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, 1996 JULY 31, 1995
---------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
CASH $ 20,566 $ 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 97,756 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
($2,402,564, JANUARY 31, 1996; $1,099,612
JULY 31, 1995) 2,969,540 4,272,492
---------- ----------
$3,067,296 $4,284,808
========== ==========
</TABLE>
3
<PAGE> 4
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS -- (CONTINUED)
JANUARY 31, 1996 AND JULY 31, 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JANUARY 31, 1996 JULY 31, 1995
---------------- -------------
(UNAUDITED)
<S> <C> <C>
CURRENT LIABILITIES:
LINES OF CREDIT $ 223,664 $ 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 5,261 953,013
DEFERRED ROYALTY REVENUE 64,477
----------- -----------
TOTAL CURRENT LIABILITIES 228,925 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 JANUARY 31, 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 JANUARY 31, 1996 AND 1000 SHARES AT
JULY 31, 1995. 1,000,000
COMMON STOCK, PAR VALUE $.02; AUTHORIZED
25,000,000 SHARES, ISSUED AND OUTSTANDING
11,762,425 SHARES AT JANUARY 31, 1996
AND 8,249,423 SHARES AT JULY 31, 1995 235,247 164,988
ADDITIONAL PAID-IN CAPITAL 11,378,359 7,397,429
WARRANTS 3,588 3,588
DEFICIT (8,778,823) (7,293,370)
----------- -----------
2,838,371 1,272,635
----------- -----------
$ 3,067,296 $ 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 JANUARY 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS
ENDED ENDED
JANUARY 31, 1996 JANUARY 31, 1995
----------------- ----------------
<S> <C> <C>
SALES $ $ 162,447
COST OF SALES 90,365
------------ ----------
GROSS PROFIT 72,082
------------ ----------
ROYALTY INCOME:
RELATED PARTY 71,667 50,000
------------ ----------
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 335,816 41,933
DEPRECIATION AND AMORTIZATION 51,899 75,000
WRITE DOWN OF TRADEMARK COSTS
(NOTE 4) 1,200,000
------------ ----------
1,587,715 16,933
------------ ----------
OPERATING INCOME (LOSS) (1,516,048) 5,149
------------ ----------
OTHER INCOME (EXPENSE):
INTEREST EXPENSE:
RELATED PARTY (16,031) (29,114)
OTHER (2,833) (9,029)
OTHER (4,295)
------------ ----------
(23,159) (38,143)
------------ ----------
LOSS BEFORE EXTRAORDINARY ITEM (1,539,207) (32,994)
------------ ----------
EXTRAORDINARY ITEM, GAIN FROM
EXTINGUISHMENT OF DEBT 85,234
------------ ----------
NET LOSS $(1,453,973) $ (32,994)
============ ==========
LOSS PER COMMON SHARE BEFORE
EXTRAORDINARY ITEM $ (.17) $ (.01)
============ ==========
LOSS PER COMMON SHARE $ (.16) $ (.01)
============ ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 8,979,824 8,249,423
============ ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE> 6
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JANUARY 31, 1996 JANUARY 31, 1995
---------------- ----------------
<S> <C> <C>
SALES $ $ 320,519
COST OF SALES 216,792
----------- ----------
GROSS PROFIT 103,727
----------- ----------
ROYALTY INCOME:
RELATED PARTY 141,667 100,000
----------- ----------
OPERATING EXPENSES:
GENERAL AND ADMINISTRATIVE 402,091 231,075
DEPRECIATION AND AMORTIZATION 103,798 150,000
WRITE DOWN OF TRADEMARK COSTS (NOTE 4) 1,200,000
----------- ----------
1,705,889 381,075
----------- ----------
OPERATING INCOME (LOSS) (1,564,222) (177,348)
----------- ----------
OTHER INCOME (EXPENSE):
INTEREST EXPENSE:
RELATED PARTY (32,037) (54,295)
OTHER (9,738) (19,642)
OTHER 757 12,974
----------- ----------
(41,018) (60,963)
----------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (1,605,240) (238,311)
----------- ----------
EXTRAORDINARY ITEM, GAIN FROM
EXTINGUISHMENT OF DEBT 119,787
----------- ----------
NET LOSS $(1,485,453) $ (238,311)
=========== ==========
LOSS PER COMMON SHARE: BEFORE
EXTRAORDINARY ITEM $ (.18) $
=========== ==========
LOSS PER COMMON SHARE: $ (.17) $ (.03)
=========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES 8,700,957 8,090,256
=========== ==========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE> 7
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JANUARY 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JANUARY 31, 1996 JANUARY 31, 1995
---------------- ----------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ (443,266) $ (5,978)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
NET PAYMENTS UNDER REVOLVING CREDIT AGREEMENTS (157,013) (20,000)
PROCEEDS FROM ISSUANCE OF SHARES OF COMMON STOCK 617,999
PROCEEDS FROM ISSUANCE OF NOTE PAYABLE, SHAREHOLDER 160,000
PAYMENTS TO NOTES PAYABLE, SHAREHOLDER (160,000)
INCREASE (DECREASE) IN BANK OVERDRAFT (3,874)
---------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 460,986 (23,874)
---------- ---------
INCREASE (DECREASE) IN CASH 17,720 (29,852)
---------- ---------
CASH, BEGINNING OF PERIOD 2,846 35,738
---------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,566 $ 5,886
---------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR INTEREST $ 15,026 $ 8,258
CASH PAID DURING THE PERIOD FOR INCOME TAXES 12,500
---------- ---------
$ 15,026 $ 20,758
========== =========
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
$264,634 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
$874,634) WERE CONVERTED TO 342,343 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 $1.50 PER SHARE OF COMMON STOCK RESULTING
IN 261,016 SHARES OF COMMON STOCK.
DURING THE QUARTER ENDED JANUARY 31, 1996, $1,781,134
LIABILITIES WERE CONVERTED TO 1,371,963 SHARES OF
COMMON STOCK (NOTE 8)
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
7
<PAGE> 8
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JANUARY 31, 1996
(Unaudited)
<TABLE>
Class C Additions
preferred stock Common Stock paid-in
Shares Amount Shares Amount Capital Warrants Deficit Total
------ ------ ------ ------ ------- -------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1995 1,000 $1,000,000 $8,249,423 $164,988 7,397,429 $3,588 $(7,293,370) 1,272,635
Common stock issues as collateral
for line of credit 228,667 4,573 (4,573)
Common stock issued in conversion of
notes payable shareholders 42,056 841 41,215 42,056
Common stock issued in conversion
of Class C convertible
preferred stock (1,000) (1,000,000) 1,000,000 20,000 980,000
Common stock issued in conversion
of Class A redeemeble convertible
preferred stock 165,920 3,318 606,682 610,OOO
Class A dividends declared (264,634) (264,634)
Common stock issued in payment
of $852,029 accounts payable and
accrued expenses $346,535 accrued 176,423 3,528 261,106 (264,634)
interest and other retained parties,
$281,500 investment form related
party, $252,020 long-term debt
shareholder, $49,250 notes payable
shareholders (Note 8). 1,371,936 27,439 1,753,695 1,781,134
Common stock sold at:
200,000 shares at $.50 200,000 4,000 96,000 100,000
128,000 shares at $.75 128,000 2,560 93,440 96,000
200,000 shares at $1.25 200,000 4,000 246,000 250,000
Sale of previously issued common stock
(344,000 shares) 172,000 172,000
Net Loss (1,485,453) (1,485,453)
------ -------- ---------- -------- ----------- --------- ------------ ----------
Balance, January 31, 1996 0 0 11,762,425 $235,247 $11,378,360 $ 3,588 $(8,778,823) $2,838,372
====== ======== ========== ======== =========== ========= ============ ==========
</TABLE>
8
<PAGE> 9
MACGREGOR SPORTS AND FITNESS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED
JANUARY 31, 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
six months ended January 31, 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
2,100,000 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.
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. Outstanding warrants, options and
convertible preferred stock are not considered in the calculation as
they would decrease loss per share.
7. EXTRAORDINARY ITEM:
During the six months ended January 31, 1996, the Company settled
certain trade payables and accrued expenses related to the Company's
former CTS operations and realized a gain on debt extinguishment of
$119,787.
8. During the quarter ended January 31, 1996, the following liabilities
were converted to 1,371,963 shares of common stock at an agreed-upon
value of $1.30 per share:
<TABLE>
<S> <C>
Accounts payable and accrued expenses $ 852,828
Accrued interest and other, related parties 345,535
Investment fees payable to related party 281,500
Long-term debt, shareholder 252,020
Notes payable shareholders 49,250
----------
$1,781,133
==========
</TABLE>
9. SUBSEQUENT EVENT:
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. As a result of this transaction, the Company
recognized an expense of $200,000 during the month of March 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.
There were no sales revenues during the three and six months ended
January 31, 1996 because the Company had ceased selling products and all
revenues were derived from a royalty agreement with RMC.
- 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.
There were no sales revenue for the three and six months ended January
31, 1996. Revenues from CTS retail operations for the three and six
months ended January 31, 1995 were $162,447 and $320,519, respectively.
13
<PAGE> 14
Royalty income increased by $21,667 and $41,667 for the three and six
months ending January 31, 1996 compared with January 31, 1995 as the
Company earned a larger minimum royalty under the Roadmaster agreement
for the current quarter compared with the comparable periods in the
prior year.
Operating expenses for the quarter ended January 31, 1996 and 1995 were
$1,587,715 and $116,933, respectively. Operating expenses for the six
months ended January 31, 1996 were $1,705,889 compared with $381,075 for
the six months ended January 31, 1995. The main reasons for the
increases were as further described in liquidity and capital resources
that the Company wrote down its trademark and license agreement by
$1,200,000, accrued certain expenses related to the sale of its MacGregor
Rights and expensed the office rent due for the remainder of its lease.
Net loss for quarter ended January 31,1996 was $1,453,973 compared with a
loss of $32,994 for the quarter ended January 31, 1995. Net loss for
the six months ended January 31, 1996 was $1,485,453 compared with
$238,311 for the six months ended January 31, 1995. The main reasons 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 January 31, 1996, the Company's current liabilities exceeded its
current assets by approximately $131,000. 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 of an ongoing
basis that the Company will have sufficient cash flow to pay for its
operating and other expenses. Additionally, it does not provide a capital
base for the Company to engage in other business opportunities. Under
the terms of the definitive agreement for the Company to sell its
MacGregor Rights, as further discussed in Note 4, the Company will
receive $1.0 million in cash at closing and a $1,910,000 note, payable in
twelve equal installments. This transaction will enable the Company to
meet 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, the Company has reduced the carrying amount of its
intangible assets by $1,200,000.
From August 1995 through January 1996, the Company sold 528,000 shares
of its stock at prices from $.50 to $1.25 for proceeds of $446,000
pursuant to prior agreements as follows: Ralph Grills Family Ltd.
Partnership, Wayne R. Mills, and Bruce Reichert. The average price
reflects a modest discount from the then prevailing market price in light
of the restricted nature of the shares. MacGregor also received $50,000
from a shareholder in exchange for a 10% note. The total proceeds of
$231,000 were used to pay certain liabilities of MacGregor, as well as
MacGregor's obligation under its license from Equilink. The Company also
received $160,000 from a shareholder in exchange for a 10% note. The
total proceeds of $606,000 were used to repay the $160,000 shareholder
note and certain liabilities of the Company, as well as to fulfill the
Company's obligation under its license from Equilink.
14
<PAGE> 15
In February 1994, the Company issued 344,000 shares of Common Stock to
BB&T of Greenville, CTS' lender ("BB&T") to collateralize $175,000 of
BB&T's then outstanding $400,000 line of credit to CTS. In October 1995,
BB&T required the Company 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, the Company
agreed to issue 228,677 shares of its Common Stock to CTS as a capital
contribution, and CTS pledged these shares to the bank as collateral for
its remaining indebtedness. In February 1996, BB&T required the Company
to cause the shares to be purchased by Equitex's designee. Proceeds of
$230,786 were used to pay off in full the remaining indebtedness.
As disclosed in the Company's statement of cash flow for the six months
ended January 31, 1996, the Class A preferred stock, the Class C
preferred stock and certain other liabilities were converted to the
Company'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: March 15, 1996 By: /s/Michael S. Casazza
-------------------------
Michael S. Casazza
President
Date: March 15, 1996 By: /s/Barry S. Hollander
-------------------------
Barry S. Hollander
Chief Financial Officer
17
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-1-1995
<PERIOD-END> JAN-31-1996
<CASH> 20,566
<SECURITIES> 0
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<CURRENT-ASSETS> 97,756
<PP&E> 0
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<BONDS> 0
235,247
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 3,067,296
<SALES> 0
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<CGS> 0
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<INCOME-PRETAX> (1,605,240)
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