United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Period Ended March 31, 1996
or
[ ] Transition Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
------------------
Commission file number 0-25332
GOLF TRAINING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 58-1963120
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3400 Corporate Way, Suite G
Duluth, Georgia 30136
(Address of principal executive offices) (Zip Code)
(770) 623-6400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter periods that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Applicable Only to Issuers Involved in Bankruptcy
Proceedings During the Preceding Five Years
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by the court. Yes No
Applicable Only to Corporate Issuers
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $.01 Par Value - 2,288,021 shares as of May 1, 1996.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GOLF TRAINING SYSTEMS, INC.
Condensed Balance Sheets
March 31, June 30,
1996 1995
----------- -----------
(Unaudited) (Note)
ASSETS
Current Assets:
Cash and cash equivalents ..................... $ 524,378 $ 1,658,178
Receivables, net .............................. 113,540 39,391
Inventories ................................... 237,356 225,847
Prepayments ................................... 82,084 81,785
----------- -----------
Total Current Assets .......................... 957,358 2,005,201
Equipment and Improvements,....................... 217,513 165,166
Other Assets:
Intangible assets, net ....................... 1,805,642 1,960,362
Other ......................................... 7,123 6,723
----------- -----------
$ 2,987,636 $ 4,137,452
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable .............................. $ 118,302 $ 92,998
Accrued expenses .............................. 108,131 78,058
----------- -----------
Total Current Liabilities ..................... 226,433 171,086
Stockholders' Equity:
Preferred stock, $.01 par value;
3,000,000 shares authorized, none issued .... -- --
Common stock, $.01 par value;
40,00,000 shares authorized; 2,288,021
and 2,188,021 shares issued and
outstanding, respectively ................... 22,880 21,880
Additional paid-in capital .................... 9,025,196 8,470,196
Accumulated deficit ........................... (6,286,873) (4,525,680)
----------- -----------
Total Stockholders' Equity .................... 2,761,203 3,966,396
----------- -----------
$ 2,987,636 $ 4,137,452
=========== ===========
Note: The balance sheet at June 30, 1995 has been derived from the audited
financial statements at that date but does not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying notes are an integral part
of the condensed financial statements.
<PAGE>
GOLF TRAINING SYSTEMS, INC.
Condensed Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------- -----------------------
1996 1995 1996 1995
--------- --------- ---------- ---------
Net sales ..................... $ 460,990 $ 165,930 $1,051,100 $ 444,834
Cost of sales ................. 338,154 115,404 771,706 314,351
--------- --------- ---------- ---------
Gross margin .................. 122,836 50,526 279,393 130,483
Operating expenses:
Selling and marketing ...... 309,162 102,549 899,483 426,538
General and administrative . 270,629 215,376 888,898 629,615
Non-cash non-recurring items (306,000) -- 306,000 589,099
--------- --------- ---------- ----------
273,791 317,925 2,094,381 1,645,252
--------- --------- ---------- ----------
Operating loss ............. (150,955) (267,399) (1,814,988) (1,514,769)
Other income (expense) ........ 12,076 (431,145) 53,795 (722,659)
--------- --------- ----------- -----------
Net loss ...................... $(138,879) $(698,544) $(1,761,193) $(2,237,428)
========= ========= =========== ===========
Net loss per share ............ $ (.06) $ (.45) $ (.77) $ (1.43)
========= ========= =========== ===========
Weighted average common shares 2,326,730 1,564,345 2,274,175 1,563,738
========= ========= =========== =========
The accompanying notes are an integral part
of the condensed financial statements.
<PAGE>
GOLF TRAINING SYSTEMS, INC.
Condensed Statements of Cash Flows
(Unaudited)
Nine Months Ended March 31,
--------------------------
1996 1995
----------- -----------
Cash flows used in operating activities ......... $(1,285,187) $ (463,711)
Cash flows used in investing activities ......... (98,613) (130,246)
Cash flows from financing activities
Issuance of notes payable, net of issuance costs -- 435,803
Proceeds from sale of stock, net of
issuance costs ............................. 250,000 3,691,069
Repayment of notes payable ................... -- (1,412,500)
----------- -----------
Cash flows provided by financing activities .. 250,000 2,714,372
----------- -----------
Net increase (decrease) in cash
and cash equivalents ...................... (1,133,800) 2,120,415
Cash and cash equivalents at
beginning of period ............................ 1,658,178 280,737
----------- -----------
Cash and cash equivalents at
end of period .................................. $ 524,378 $ 2,401,152
=========== ===========
The accompanying notes are an integral part
of the condensed financial statements.
<PAGE>
GOLF TRAINING SYSTEMS, INC.
Notes to Condensed Financial Statements
March 31, 1996
(Unaudited)
1. BASIS OF PRESENTATION The accompanying unaudited condensed financial
statements of Golf Training Systems, Inc. (the Company) have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and
Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring items) considered necessary for a fair
presentation have been included. Operating results for the three and nine
month periods ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the year ended June 30, 1996. For further
information, refer to the audited financial statements and notes thereto
included in the Company's Form 10-KSB for the year ended June 30, 1995.
2. INVENTORIES The components of inventory consist of the following:
March 31, June 30,
1996 1995
-------- --------
Raw materials .................................. $148,993 $187,272
Finished goods ................................. 88,363 38,575
-------- --------
$237,356 $225,847
======== ========
3. PREFERRED STOCK On April 11, 1996, the Company completed a Regulation S
private placement of $4,150,000 of Series A convertible preferred stock.
The Company has designated 600 of the 3,000,000 previously authorized
preferred stock shares as Series A preferred stock, par value $.01 with the
following rights and preferences. One-third of the Series A preferred stock
is convertible beginning 45 days subsequent to April 11, 1996, two-thirds
of the Series A preferred stock is convertible after 75 days, and all
remaining Series A preferred stock is convertible after 105 days into
shares of common stock of the Company based upon a conversion formula which
among other things includes an 8% return for all outstanding days as
preferred stock and at a conversion price of the lesser of $4.1625 per
common share or 85% of the average closing price for the five days prior to
the date of conversion. Each share of Series A preferred stock outstanding
on March 22, 1999 automatically converts into common stock of the Company
at the above conversion formula. The Company has the right to redeem for
cash any Series A preferred stock presented for conversion at the above
conversion formula amounts or at a stated value including a premium amount
for the three years subsequent to April 11, 1996. The Series A preferred
stock is also subject to certain liquidation and dilution preferences and
has no voting rights.
4. OTHER STOCKHOLDER EQUITY On March 31, 1996 the Company terminated a
contract for certain consulting services. As a result, rights to warrants
were also canceled resulting in a reversal of a non-cash charge of $306,000
previously recorded by the Company for these warrants issued at less than
the then market value of the underlying common stock.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Net sales (gross sales less returns and allowances) for the three and nine month
periods ended March 31, 1996 increased to $460,990 and $1,051,100, respectively,
from $165,930 and $444,834, for the three and nine month periods ended March 31,
1995, an increase of approximately 178% and 136%, respectively. The increase in
sales is attributable to the resumption of advertising during August 1995
through March 1996 which management believes continues to result in increased
sales of The Coach(TM) as sales have increased each quarter during the nine
months ended March 31, 1996. During the nine month period ended March 31, 1995,
the Company allocated its limited financial resources to the redesign and
development of new models of The Coach(TM) rather than to marketing resulting in
lower sales during that period, but having an improved product ready for
distribution during fiscal 1996. In addition to the revenue growth in sales of
The Coach(TM), sales also continue to be positively impacted by the introduction
of other products in The Leadbetter Collection, including an interactive
software teaching and analysis product, the Computer Coach(TM). This product,
which was introduced during the third quarter of fiscal 1995 accounted for
approximately 26% and 23% of net sales during the three and nine month periods
ended March 31, 1996 compared to no sales in the three and nine month periods
ended March 31, 1995, reflecting an increased acceptance of computer aided
teaching tools in the marketplace. Sales of other golf aids also continue to
positively impact the growth in total revenues accounting for 25% and 23% of net
sales for the three and nine month periods ended March 31, 1996. Such sales were
not significant in the comparable periods of the prior year. The mix and growth
in sales continues to reflect the Company's strategy of increasing the variety
of products in the The Leadbetter Collection and the expansion into other
product lines.
The Company's concentration on increasing sales in the domestic market while
also increasing overall sales during the nine month period ended March 31, 1996
continues to temporarily decrease international sales, consisting primarily of
The Coach(TM). International sales remained constant at approximately 15% of the
total net sales for the nine month period ended March 31, 1996 as compared with
the nine month period ended March 31, 1995. The Company believes that its
current strategy of a lower current price point as compared to previous periods
for The Coach Model 300SX(TM), increased and continued activity in interviewing
and developing potential qualified distributors in key foreign markets and the
additional marketing efforts will result in long term dollar increases in
international sales, however the continued increases in domestic sales may
continue to reduce the overall percentage of international sales.
The Company's strategy and operating plans continue to be executed as originally
announced. The final introduction of products in The Leadbetter Collection, as
introduced at the annual PGA Show in January 1996, complete the initial product
line in the area of swing improvement for golfers. The Company recently
announced the addition of an independent sales force which the Company
anticipates will add sales growth in the retail golf products market. Prior to
February 1996, sales were generally as a result of direct response marketing
activities for the United States market and overseas distributors. During
February 1996, the Company also announced an alliance with a leading sports
psychologist. The Company will be developing an entire line of products on an
exclusive basis, targeted to .performance enhancement for business people,
initially, and expanded to golf and all other sports, ultimately.
The Company also recently announced its investment in a majority owned business
venture that owns certain technology rights for 3D movement analysis and
computer animation in the sports training industry. The Company believes that
such technology provides the most accurate full body golf swing evaluation and
makes the results easier to understand through real-time 3D virtual reality
computer animation of body and club motions and instant feedback of all
biomechanical performance data.
Cost of sales as a percentage of net sales was approximately 73% in the three
and nine month periods ended March 31, 1996, as compared to approximately 70%
and 71% in the three and nine month periods ended March 31, 1995. These changes
reflect the impact of the increased sales of the Computer Coach(TM), which has a
lower gross margin somewhat offset by other new higher margin products.
Selling and marketing expenses increased approximately 201% and 111% in the
three and nine month periods ended March 31, 1996, respectively, as compared to
the three and nine month periods ended March 31, 1995. The increased selling and
marketing expenses reflect the resumption of certain advertising and payments
and costs associated with the Company's royalty, commission and endorsement
agreements as well as costs associated with increased sales.
General and administrative, depreciation and amortization and research and
development expenses increased approximately 26% and 41% for the three and nine
month periods ended March 31, 1996 over comparable amounts for the three and
nine month periods ended March 31, 1995. The increase reflects the Company's
increase in operations, including salaries and related personnel costs following
the completion of its initial public offering in March 1995, as well as, an
increase in associated costs such as legal and consulting, and increased
amortization of intangibles following the Company's reorganization, as discussed
below. Additionally, included in the costs incurred during the nine month period
ended March 31, 1996 was a one-time non-cash consulting fee of $612,000 incurred
as a result of the issuance of certain warrants to a consultant to the Company.
Warrants for the purchase of 200,000 shares of common stock were issued to the
consultant at less than the then current market price of the Company's common
stock in addition to cash payments for consulting services currently rendered.
This contract was terminated March 31, 1996 and all amounts related to the
unissued shares at that time were reversed resulting in a one-time non-cash gain
of $306,000 recorded in the three month period ended March 31, 1996.
The Company's operating expenses for the nine month period ended March 31, 1995
includes a non-cash non-recurring charge consisting of a reorganization premium
of $589,099 reflecting the difference in fair value of the shares exchanged in
the recapitalization of the Company by the certain former holders of Class B
common stock, relating to the benefit to such holders resulting from the
elimination of the Class A common stock liquidation preference in connection
with a recapitalization.
The Company's other income (expense) of $(172,824) and $(291,513) for the three
and six month periods ended December 31, 1994 included approximately $175,000
and $295,000, respectively, of interest and amortization relating to the
debentures outstanding prior to the repayment of the debentures upon the
completion of the initial public offering.
The Company had a net loss of $138,879 ($.06 per share) and $1,761,193 ($.77 per
share) for the three and nine month periods ended March 31, 1996 compared to a
net loss of $698,544 ($.45 per share) and $2,237,428 ($1.43 per share) for the
three and nine month periods ended March 31, 1995. The net loss and net loss per
share amounts primarily reflect the increase in sales, the non-recurring noncash
reorganization premium and consulting fees, the interest associated with the
debentures, and the increased selling and marketing and general and
administrative expenses discussed above as the Company increased its level of
operations and increased selling and marketing efforts on new products
introduced since March 31, 1995.
Liquidity and Sources of Capital
At March 31, 1996, the Company had working capital of $730,925, including
$524,378 of cash and cash equivalents. The Company believes that the remaining
net proceeds of the initial public offering and the recently announced private
placement together with funds expected to be generated from operations in
response to the Company's current efforts to expand its product line and sales
will be sufficient to meet its normal operating requirements over the near term.
However, the Company's strategy of growth into the retail market and
international sales and the continued introduction of new products will require
additional funds to implement. The Company has no commitments and no assurance
additional funds will be available or if so, will be sufficient to continue to
implement such strategy.
The Company had a negative cash flow from operations of $1,285,187 for the nine
month period ended March 31, 1996 and a negative cash flow from operations of
$463,711 for the nine month period ended March 31, 1995. The negative cash flow
from operations reflects the increased expenses discussed above.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
There are no material pending legal proceedings to which the Company is a party
or of which any of their property is subject.
Item 2. Changes in Securities.
(a) Not applicable.
(b) Not applicable.
Item 3. Defaults Upon Senior Securities.
(a) Not applicable.
(b) Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Other Information.
(a) Exhibits.
Exhibit 11 Statement Re: Computation of Earnings Per Share.
(b) Reports on Forms 8-K. The Company filed reports on Form 8-K
dated January 11, 1996 regarding the resignation of Direc-
tor John C. Thomas Jr. as a result of other business commit-
ments and dated April 11, 1996 regarding the completion of a
Regulation S private placement of $4,150,000 of Series A
Convertible Preferred Stock.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLF TRAINING SYSTEMS, INC.
(Registrant)
Date May 6, 1996 /s/ Wayne C. McDonald
---------------------- -------------------------------
Wayne C. McDonald
Chairman and Chief Executive Officer
<PAGE>
GOLF TRAINING SYSTEMS, INC.
EXHIBIT 11 - Statement Re: Computation of Earnings Per Share
Three Months ended Nine Months ended
March 31, March 31,
----------------------- -----------------------
1996 1995 1996 1995
--------- --------- --------- ---------
Primary and fully diluted:
Weighted average shares 2,288,021 1,367,946 2,235,466 1,328,699
Effect of common stock
acquisition rights and
warrants granted subsequent
to October 19, 1993computed
in accordance with the
treasury stock method as
required by the SEC 38,709 196,399 38,709 235,039
--------- --------- --------- ---------
Total weighted average
common shares ........ 2,326,730 1,564,345 2,274,175 1,563,738
========= ========= ========= =========
Net loss .................. $(138,879) $(698,544) $(1,761,193) $(2,237,428)
========= ========= =========== ===========
Net loss per share ........ $ (.06) $ (.45) $ (.77) $ (1.43)
======= ======= ======= ========
(1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, Common and Preferred Stock issued and stock options and warrants granted at
prices below the assumed initial public offering price of $6.00 per share during
the twelve-month period immediately preceding the initial filing date of the
Company's Registration Statement for its initial public offering have been
included as outstanding for all periods presented using the treasury stock
method.
