<PAGE>
------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-KSB
Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
for the fiscal year ended June 30, 1997
Commission file number 0-25332
GOLF TRAINING SYSTEMS, INC.
(Name of small business issuer 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)
Issuer's telephone number, including area code: (770) 623-6400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common stock, $.01
par value
Redeemable warrants
Check whether 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 reports) and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive Proxy or
Information Statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Issuer's revenues for its most recent fiscal year were $2,625,026.
The aggregate market value of the voting stock held by non-affiliates of Issuer
at September 17, 1997 was $3,054,233 based on a market price of $0.91 per share.
The number of shares outstanding of Issuer's class of common stock at September
17, 1997 was 3,716,400 shares of common stock.
Documents Incorporated by Reference: Portions of the Proxy Statement for the
1997 Annual Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days of Issuer's fiscal year-end are incorporated by
reference in Part III.
Transitional Small Business Disclosure Format (Check one): Yes No X
--- ---
<PAGE>
GOLF TRAINING SYSTEMS, INC.
TABLE OF CONTENTS
-----------------
Page
PART I
ITEM 1. DESCRIPTION OF BUSINESS..................................... 1
ITEM 2. DESCRIPTION OF PROPERTY..................................... 12
ITEM 3. LEGAL PROCEEDINGS........................................... 13
PART II
ITEM 4. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..................................... 14
ITEM 5. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS................................... 16
ITEM 6. FINANCIAL STATEMENTS....................................... 20
ITEM 7. CHANGES IN AND DISAGREEMENTS WITH
OR PLAN ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................... 20
PART III
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS
AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE
ACT..................................................... 21
ITEM 9. EXECUTIVE COMPENSATION..................................... 21
ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT................................... 21
ITEM 11. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS............................................ 21
ITEM 12. EXHIBITS AND REPORTS ON FORM 8-K........................... 22
SIGNATURES.......................................................... 26
<PAGE>
PART I
------
ITEM 1. DESCRIPTION OF BUSINESS.
-----------------------
(a) BUSINESS DEVELOPMENT
Golf Training Systems, Inc. (the "Company") specializes in the
marketing of golf improvement and learning products professionally designed to
promote proper training, fitness and swing mechanics for both the beginning and
advanced golfer. The Company currently markets (1) The Leadbetter Collection, a
group of learning and training devices, books, videotapes and other products,
endorsed by renowned golf instructor, David Leadbetter, (2) Dave Pelz, The Short
Game, a group of learning and training devices, audio and videotapes and other
products, endorsed by recognized putting and short game authority, Dave Pelz,
(3) Rotella Performance Enhancement series of books, audiotapes and group
workshops and seminars, endorsed by noted sports/golf psychologist, Dr. Bob
Rotella, and (4) the Signature Select Series, a line of additional golf
products.
The Company's strategy is to become the leading source for
professionally designed and coordinated golf learning and improvement products.
A principal component of this strategy is to expand its various product lines
through the development, acquisition and introduction of new products and
services aimed at beginning golfers who want to learn how to play golf as well
as advanced golfers who wish to improve their game.
The Company is a Delaware corporation and a successor by merger in
September 1994 to Golf Training Systems, Inc., a Georgia corporation
incorporated in June 1991. Unless the context requires or as otherwise
indicated, all references to the "Company" include the predecessor company. The
Company's executive offices are located at 3400 Corporate Way, Suite G, Duluth,
Georgia 30136 and its telephone number is (770) 623-6400.
The Company completed a Regulation S private placement of $4,150,000
shares of Series A Convertible Preferred Stock (415 shares at $10,000 per share)
with a group of seventeen foreign investors on April 11, 1996. The Series A
Convertible Preferred Stock provides for its conversion into the Company's
common stock. However, the Company determined on August 13, 1996 to suspend
conversion of the Series A Convertible Preferred Stock issued in such Regulation
S private placement as a result of concerted market manipulation and/or
irregularities in the trading of the Company's outstanding common stock which
management believed was related to the conversion terms of such Regulation S
private
-1-
<PAGE>
placement. Following lengthy negotiations, the Company obtained on October 30,
1996 the approval of holders of its outstanding shares of Series A Convertible
Preferred Stock to amend the conversion terms of the Company's Certificate of
Designation of the Preferred Stock.
(b) BUSINESS OF ISSUER
INDUSTRY BACKGROUND
According to The National Golf Foundation, a non-profit industry
association, in 1994 there were approximately 24.3 million golfers in the United
States and over $10 billion was spent in the United States on golf and golf
related activities. The Company believes the sport is growing in popularity,
particularly among women, children and senior players. In certain foreign
markets, particularly Japan, Germany and Sweden, golf has also experienced
significant growth over the last decade.
The golf instruction business is premised on a golfer's continuing
desire to improve his or her game as well as the instruction desired by new
golfers. Historically, instruction has been conducted primarily by local golf
professionals. In recent years, technological improvements and the interests of
both the golf professional and consumer have created a shift towards
instructional products and programs. However, the golf learning and improvement
products industry continues to be composed principally of single product
companies, none of which, to the Company's knowledge, offers an integrated
approach to golf learning and improvement. The Company intends to further
develop and market a coordinated package of golf educational products and
services under The Leadbetter Collection, Dave Pelz, The Short Game, Rotella
Performance Enhancement, and the Signature Select Series.
STRATEGY
The Company's goal is to become the leading source for professionally
designed and coordinated golf learning and improvement products. A principal
component of this strategy is to expand its product base by introduction of new
products and additional product lines. Additionally, the Company intends to
promote proper fitness and training through the use of its products as an
essential element of any golfer's regimen. The Company believes that a
coordinated and effective product line, coupled with endorsements by David
Leadbetter, Dave Pelz, Dr. Bob Rotella, and professional golfers,
-2-
<PAGE>
along with focused advertising, will promote the Company's identity as the major
source of products promoting the learning, improvement and enjoyment of golf.
To implement its business strategy, the Company intends to expand its
sales and marketing activities to include promotional efforts aimed at achieving
product and corporate recognition and acceptance in the golf community. As part
of this effort, the Company intends to promote its corporate logo, Golf Training
Systems, Learn from the Best, within the golf industry and to golf consumers.
The Company also intends to market its product lines under the logos The
Leadbetter Collection, Dave Pelz, The Short Game, and Rotella Performance
Enhancement. The Company expects to vary its marketing strategy in
international markets with its distributors, reflecting consumer preferences,
development of the market and other market factors, and in marketing to
institutional customers such as golf schools and driving ranges. In addition,
pricing, distribution and sales strategies will vary in certain foreign markets,
particularly with products requiring service or an information-intensive sales
approach.
The Company now distributes its products through three principal sales
channels: direct response, domestic retail and international. In the direct
response channel, the Company advertises certain of its products on the Golf
Channel, in industry publications, by direct mail, or through its recently
introduced products catalogue which was first mailed in May, 1997. The domestic
retail sales channel consists of pro shops, driving ranges, golf products
stores, sporting goods stores, and catalogue publishers such as Herringtons,
Golfsmith and Edwin Watts. International sales are made through distributors in
designated foreign markets.
PRODUCTS
THE LEADBETTER COLLECTION
The Company markets a group of mechanical, literary, video and other
products endorsed by renowned golf instructor David Leadbetter pursuant to an
agreement which is described hereinafter under the heading "Leadbetter
Agreement". The Company commenced marketing these products under the name The
Leadbetter Collection in 1994. Some of the products incorporated in The
Leadbetter Collection were previously marketed separately by the Company and
others.
-3-
<PAGE>
The Leadbetter Collection includes a variety of products that help
educate golfers and to teach them to perform on the course. The Leadbetter
Collection presently is comprised of the following products:
The Coach 300 SX - a golf training and fitness system for home use.
The system includes both an instructional video by David Leadbetter and an
instructional manual.
Computer Coach - 2,000 Swing Analysis System - a computer system
complete with both hardware and software marketed to the teaching and retail
environment. The first generation computer software was owned by a third-party
software developer and marketed by the Company on a worldwide exclusive basis.
In September, 1997, the Company introduced a second generation Computer Coach
product with computer software owned by the Company, and developed by a another
software developer.
The Right Link - used to promote a correct position at the top of the
swing and a proper release.
The Mirror - a mirror that provides a wide range of vision throughout
the swing.
The Putting Rules - a "ruler" that incorporates a number of
fundamental putting tips and allows the golfer to repeat the proper stroke and
develop distance control.
The Glove - a golf glove which has marks which aids the golfer with
the correct grip.
The Short Club - a 27" club for indoor practice of swing mechanics.
Set Right - an alignment tool for proper swing practice technique.
The Magic Eye - teaches proper rotation, weight transfer and head
position.
Leadbetter's Putting Necklace - a necklace which helps develop a
pendulum putting and chipping stroke with an instructional video and manual by
David Leadbetter.
-4-
<PAGE>
The Junior Start Right Kit - a collection of products designed by
David Leadbetter to help children beginning to play golf. The package also
includes an instructional video by David Leadbetter.
The Leadbetter Collection also includes (1) several books by David
Leadbetter, published by a third party, The Golf Swing, Faults & Fixes, and
Lessons from The Golf Greats; and (2) a series of instructional videos, produced
by a third party, The Full Golf Swing, The Short Game ,Taking it to the Course,
Faults & Fixes, Simple Secrets, and Practice Makes Perfect.
DAVE PELZ, THE SHORT GAME
The Company entered into an agreement (the "Pelz Agreement") in August
1996 with Dave Pelz, a noted golf short game instructor, for the marketing by
the Company of putting and short game audio tapes, videotapes, newsletters,
mechanical learning and training devices and club fitting programs developed by
Mr. Pelz. The Pelz Agreement has a term of five years and expires in August
2001. The Company, as part of the agreement, took over the marketing of Mr.
Pelz existing product line which includes, The Truth Board, The Putting Track,
Teacher Clips, a book entitled Putt Like the Pros, and videos entitled Amazing
Truth About Putting and Developing Great Touch. The Company is currently
developing additional product with Mr. Pelz to expand this product line:
Bunkerboard - Teaches proper foot positioning, target alignment and
club swing path to correctly hit from a sand trap.
Combination "Track and Board" for retail application, which includes
The Putting Track and The Truth Board.
ROTELLA PERFORMANCE ENHANCEMENT SERIES
The Company entered into an agreement (the "Rotella Agreement") in
February 1996 with Dr. Bob Rotella, a noted sports/golf psychologist for the
marketing by the Company of a performance enhancement series of audiotapes,
videotapes, newsletters, group workshops and seminars, and other golf motivation
and training applications developed by Dr. Rotella. The Rotella Agreement has
an initial term of five years and expires in February 2001. Under a newsletter
publishing agreement with MSV Publishing, Inc. of Charlottesville, Virginia, the
Company has published a monthly newsletter written by Dr. Rotella called The
Rotella Letter since December, 1996.
-5-
<PAGE>
Rotella Performance Enhancement series includes the following products:
1. Books - Golf is not a Game of Perfect and a companion audio
Golf is a Game of Confidence
2. Audio - Putting Out of Your Mind
Golf is Not a Game of Perfect
Golf is a Game of Confidence
These products are owned and distributed by Simon and Schuster and re-
distributed by the Company.
3. Business audio tape series --- Playing to Win - a five set audio
cassette series for application in life, business, and sports. This product was
developed by Dr. Rotella and has been distributed by the Company since October
1996. Additional audio tapes and tape series are currently under development,
with two tape series scheduled for introduction in 1997.
SIGNATURE SELECT SERIES
This is a line of new products offered by the Company to improve the level
of all play of all golfers. Products in this line fall outside of the product
lines offered under the Leadbetter, Pelz and Rotella lines.
Arnold Palmer Golf Academy Golf Journal - a personal reference book which
enables the golfer to chart his or her progress in practice and performance,
marketed as a gift item.
Swingyde - guides the proper wrist and hand positions for a solid golf
swing.
The Company may introduce under this line additional products endorsed by
other golf teaching professionals or tour professionals.
PRODUCTS UNDER DEVELOPMENT
The Company is continually evaluating and developing new products and
services. Product development has been conducted primarily by the Company. The
-6-
<PAGE>
Company anticipates expanding all of its product lines by introducing new or
enhanced products on a continuing basis.
The Company is developing a new version of The Coach, which will be
adjustable for all types of golfers using separate "tension" levels. Management
anticipates introduction of this product in the spring of 1998.
In April, 1996, the Company entered into a business venture with
BioMechanics, Inc. for the licensing of three-dimensional movement analysis and
computer animation technology (known as "3D motion capture") for golf
applications through Sports Training Systems, LLC ("Sports Training Systems").
The Company is the majority shareholder of Sports Training Systems, which was to
market and distribute the licensed technology through products and services to
golfers, including golf swing analysis, golf swing modification, physical
analysis and muscular activity assessment of the golf swing through a worldwide
license program. The Company initially invested $1.8 million for a 57%
ownership interest in Sports Training Systems. Sports Training Systems intended
to license the technology for instruction and teaching in high traffic areas
such as shopping malls, hotels or stand-alone teaching centers in major
metropolitan areas. The 3D motion capture technology was introduced by the
Company at the PGA International Show in Las Vegas in September 1996. In the
fall of 1996, the Company became dissatisfied with the failure of BioMechanics
and its affiliates to complete the development process for the licensed
technology. Protracted negotiations failed to resolve the dispute. In April
1997, the Company brought suit against BioMechanics and its affiliates and seeks
to recover its investment and other remedies. See Item 3 for further details
regarding the litigation.
DOMESTIC SALES AND MARKETING
Domestic sales accounted for approximately 92% of the Company's net sales
during the fiscal year ended June 30, 1997. The Company has historically
marketed its products through magazine and direct mail advertisements. The
Company will continue to market specific products such as The Coach and Computer
Coach through this channel, but has also increased its efforts in the area of
retail sales. The Company continues to build a national independent sales
representative force in order to sell directly to golf, general sports and
gift/specialty retail markets.
The Company also attends national and selected regional trade shows in
order to promote its products and name and logo recognition. The Company plans
to continue to advertise in national golf magazines, such as Golf Digest, Golf
Magazine, Golf World and Golf Tips, and regional magazines targeted to golfers.
The Company also plans to continue
-7-
<PAGE>
to focus on "consumer response" marketing to potential consumers comprised of
individuals, schools, teaching professionals, driving ranges, hotels and health
clubs through direct mail and television direct response commercials. The
Company has advertised certain of its products on The Golf Channel since August
1996 and introduced its initial products catalogue in May 1997.
The Company was a presenting sponsor of the 1997 Dupont World Amateur
Handicap Championship, the largest golf tournament in the world, with over 4,000
participants, and also intends to sponsor other golf and golf related events.
The Company may also seek to develop various promotional programs with The David
Leadbetter Golf Academies and various corporate sponsors to provide a vehicle
for obtaining lists of potential customers for the Company's direct mail
campaigns.
INTERNATIONAL MARKETS
Foreign sales accounted for approximately 8% of the Company's net sales
during the fiscal year ended June 30, 1996. The Company has exclusive
distribution agreements with distributors in Thailand, Germany, Austria,
Switzerland, the United Kingdom and Australia as of June 30, 1997. The Company
has non-exclusive distributors in Malaysia, Argentina, Germany, Sweden, the
Philippines, and Belgium as of June 30, 1997. The Company intends to enter into
agreements with additional distributors in Japan and South Korea and is
currently in discussion with potential distributors in those countries to
increase its international marketing efforts in these markets.
The Company's distribution agreements with its distributors are generally
exclusive as to the territory for a minimum period of two years and provide that
the distributor must purchase a minimum number of the Company's products in each
year. In the event the distributor fails to meet this obligation, the Company
may terminate the distribution agreement with respect to one or more products of
the Company. In the event the Company fails to supply the minimum amounts to
the distributor, the distributor may terminate its agreement. The Company's
distribution agreements further provide that the distributors shall bear the
responsibility and expenses of developing an annual marketing plan for the sale
of the Company's products within their respective territories and shall be
responsible for compliance with all applicable laws, regulations and
governmental orders within such respective territories.
-8-
<PAGE>
LEADBETTER AGREEMENT
In May 1994, the Company entered into a licensing, promotional and
endorsement agreement with golf instructor David Leadbetter (the "Leadbetter
Agreement") with a term through December 31, 1997. The Company has recently
entered into a revised Leadbetter Agreement for an additional five year term
through December 31, 2002. Mr. Leadbetter is a professional golf instructor and
former European golf tour professional. Mr. Leadbetter has instructed such
professional golfers as Nick Price, Nick Faldo, Greg Norman, David Frost, Denis
Watson, Mike Hulbert, Jerry Pate, Mark McNulty, Tom Watson, Scott Simpson, Brad
Faxon, Seve Balesteros, Larry Mize, Bernhard Langer and Ian Baker-Finch. Mr.
Leadbetter is a contributing editor of Golf Digest.
Pursuant to the Leadbetter Agreement, the Company has the exclusive
worldwide right and license to use Mr. Leadbetter's name, likeness and
identification, and the trademark The Leadbetter Collection, which is owned by
Mr. Leadbetter, in connection with the sale of specific golf products endorsed
by Mr. Leadbetter. In addition, the Company has acquired the exclusive right to
use Mr. Leadbetter's name, likeness and identification in connection with the
sale of specific other golf products of the Company. Pursuant to the terms of
the new Leadbetter Agreement, Mr. Leadbetter is entitled to receive royalty
payments from the Company and has received warrants to purchase up to 250,000
shares of the Company's Common Stock at an exercise price of $1 per share and
the right to receive additional warrants (in increments of 50,000 warrants) to
purchase up to 150,000 shares of the Company's Common Stock at an exercise price
of $1 per share based on designated future closing prices of the Company's
Common Stock (which may or may not occur).
Mr. Leadbetter has also agreed to provide certain promotional and
endorsement services to the Company. These services are limited to three days
per year during the term of the agreement at no charge to the Company (except
for expenses); however, Mr. Leadbetter is not required to provide such services
unless all payments due to him under the Leadbetter Agreement have been paid.
Compensation for any additional personal services performed by Mr. Leadbetter
for the Company must be negotiated between Mr. Leadbetter and the Company. Mr.
Leadbetter has also agreed to be designated and represented to the general
public and the golfing industry as a spokesperson for the Company. Mr.
Leadbetter has the right to approve any references to or identification of him
and the Company is required to consult with Mr. Leadbetter on all marketing
plans and promotions for The Leadbetter Collection products. During the fiscal
year ended June 30, 1997, the Company paid royalties aggregating $98,465 to Mr.
Leadbetter.
-9-
<PAGE>
ROYALTY OBLIGATIONS
In October 1990, Robert Fitch, the inventor of The Coach, assigned his
entire right, title and interest in his invention known as The Coach and the
related patent to Gruv-a-Swing, Inc., which were then assigned in August 1991 by
Gruv-a-Swing, Inc. to the Company. During the fiscal year ended June 30, 1997,
the Company paid or accrued royalties of $4,943 pursuant to this agreement.
It is also likely that the Company will owe incidental royalty payments to
talent appearing in videos and other instructional materials produced by or on
behalf of the Company or to other professional golfers who endorse specific
products, although the Company does not currently have any pending arrangements,
negotiations, understandings or contracts with respect thereto.
MANUFACTURING AND SUPPLIERS
The Company uses outside domestic sources and several foreign sources to
manufacture the components of its products many of which are the single source
for the component supplied. Should such outside sources cease to supply such
components, the Company could experience significant delays in the production
and delivery of such products. To date, the Company has not experienced any
significant delay in the production and delivery of components of any of its
products from outside domestic sources, but has experienced delays in dealing
with the foreign sources which manufacture both the product and packaging for
The Glove. The Company assembles and packages many of the products in the
Company's warehouse located in Duluth, Georgia.
PATENTS AND TRADEMARKS
The Company has two United States patents covering The Coach and has filed
corresponding patent applications in Canada and Japan. Although the Company
believes that these patents may provide it with a competitive advantage, there
can be no assurance that the patents will not be designed around or successfully
challenged or that any of the foreign patents will be issued. The Company has
registered trademarks with respect to the Computer Coach, as a software based
golf swing instructional system, The Coach, for use as golf swing training and
exercising machines, and the Golf Training Systems logo. The Company has filed
a patent application covering The Glove, and has filed applications to register
The Right Link, The Putting Rules, Set Right as trademarks. The Company believes
that these trademarks are an important factor in marketing its products. The
Company has an exclusive worldwide license to use the following trademarks: The
Leadbetter Collection, Dave Pelz,
-10-
<PAGE>
The Short Game, and Rotella Performance Enhancement, which are owned by David
Leadbetter, Dave Pelz and Dr. Bob Rotella, respectively.
COMPETITION
The Leadbetter Collection, Dave Pelz, The Short Game, and Rotella
Performance Enhancement, together with the other products of the Company, will
compete in the recreation, fitness and sports training markets, which are highly
competitive. The golf industry has been characterized by widespread imitation
of popular products. Increased competition generally, and the introduction or
promotion of competing products specifically, could adversely affect the
Company's sales and profitability by exerting pricing pressure, reducing market
share and/or creating other obstacles. In the golf industry, a manufacturer's
ability to compete is dependent in part upon its ability to satisfy various
subjective preferences of golfers, including the look and "feel" of a golf
product, level of acceptance that the product has achieved among professional
and other golfers and the name recognition value of the vendors and its
endorsers. The subjective preferences of purchasers of golf training products
may be subject to rapid and unanticipated changes. There are numerous
recreational and exercise devices, equipment and other apparatus in the general
fitness industry, as well as several golf-targeted products, such as swing-
enhancing products, on the market. Although the Company is not aware of any
apparatus currently on the market other than The Coach which combines golf-swing
training, strength training and muscle-memory training, there can be no
assurance that superior fitness and golf-training devices will not be developed
and successfully marketed or that the technology incorporated in The Coach and
other products developed and marketed by the Company will not become obsolete.
The Company also competes with the manufacturers and distributors of the other
products included in The Leadbetter Collection, Dave Pelz, The Short Game and
Rotella Performance Enhancement.
Employees
As of June 30, 1997, the Company employed 15 people on a full-time basis
and 6 people on a part-time basis. None of the employees are covered by a
collective bargaining agreement. The Company considers its relations with its
employees to be good.
-11-
<PAGE>
Executive Officers and Directors
The following sets forth certain information regarding the executive
officers and directors of the Company:
Daniel A. Gordon, age 58, has been a Director of the Company since June
1996 and became the Chief Executive Officer in February 1997. Mr. Gordon has
been the owner/principal since 1992 of Corporate Growth Services, which provides
consulting support services to business in the early stages of development. Mr.
Gordon has also been Chairman of the Board of Directors since 1993 of New
Paradigm Software Corp., a publicly held developer of computer systems
integration software. From 1989 to 1992, Mr. Gordon served as president of Coin
Banking Systems, Inc., which had been the banking system division of Coin
Financial Systems, Inc., a financial software company. Mr. Gordon served as
chairman and chief executive officer of Coin Financial Systems, Inc. from 1984
to 1989.
Wayne C. McDonald, age 48, has been Chairman of the Board since the
Company's inception in June 1991 and was Chief Executive Officer of the Company
until February 1997, when Mr. Gordon became Chief Executive Officer. Mr.
McDonald was president, chief executive officer and a director of Cornerstone
Products, Inc., a company that develops and markets point-of-sale products and
programs in the sports industry, since September 1986. Cornerstone Products,
Inc. manages programs for the National Basketball Association, Major League
Baseball International, the National Hockey League, the Indianapolis Motor
Speedway, the Brickyard 400 and the United States Olympic Committee. Mr.
McDonald devotes substantially all of his business time to the Company.
George P. Lee, III, age 39, has been President and Chief Operating Officer
of the Company since July 1993, has been a director of the Company since its
inception in June 1991, and from its inception to July 1993 was the Company's
Vice President--Operations. From November 1990 to June 1991, Mr. Lee was self-
employed in the construction business. From 1979 to November 1990, Mr. Lee held
various positions with P. R. Orton, Inc., a general contractor and developer,
including vice president and general manager.
ITEM 2. DESCRIPTION OF PROPERTY.
-----------------------
The Company leases its office space and warehouse facilities in Duluth,
Georgia, which contain approximately 11,000 combined square feet of space, from
an unaffiliated party pursuant to a lease currently providing for an annual
rental of approximately $69,263, subject to annual increases, which expires in
2001.
-12-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
-----------------
The Company filed a lawsuit on April 25, 1997 in the Superior Court of
Cobb County, Georgia against BioMechanics, Inc. and its affiliates, Thomas M.
McGalaughlin, John C. Thomas, for failure to perform their duties in connection
with the development of the 3D motion capture technology for commercial
application to golf training, instruction and teaching. The Company is seeking
damages of $2,070,456 and punitive damages of $5 million against the defendants.
The Company had reached an impasse in its efforts to negotiate a mutually
acceptable restructuring of its Sports Training Systems (STS) business venture
with BioMechanics, Inc. and its affiliates. The Company initially invested $1.8
million for a 57% ownership interest in STS, which licensed the use of such
motion capture technology for golf applications. BioMechanics and its
affiliates made a demand for arbitration on May 30, 1997, pursuant to the
Sublicense Agreement relating to the technology in order to recover damages for
breach of contract for STS' alleged failure to pay sums due and owing under the
Sublicense Agreement and to affirm its termination of the Sublicense Agreement.
In response to the lawsuit, BioMechanics and its affiliates instituted an
arbitration proceeding against STS regarding the dispute pursuant to the
Sublicense Agreement.
-13-
<PAGE>
PART II
-------
ITEM 4. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock was listed on The NASDAQ Stock Market on May 15,
1995, while the Company's units consisting of one share of common stock and one
redeemable warrant were previously listed on March 9, 1995. As of September 17,
1997, the Company had approximately 250 shareholders of record of its common
stock.
The following is a summary of the range of high and low bids for the
Company's common stock and warrants, including the units, as reported on The
NASDAQ Stock Market system:
High Low
---- ---
Quarter ended March 31, $6.00 (units) $4.25 (units)
1995
Quarter ended June 30, $6.00 (units) $4.75 (units)
1995 $6.25 (common $5.63 (common
stock) stock)
$1.50 (warrant) $0.75 (warrant)
Quarter ended September $6.38 (common $5.50 (common
30, 1995 stock) stock)
$1.38 (warrant) $0.50 (warrant)
Quarter ended December $9.25 (common $2.75 (common
31, 1995 stock) stock)
$2.00 (warrant) $0.44 (warrant)
Quarter ended March 31, $5.25 (common $3.38 (common
1996 stock) stock)
$0.75 (warrant) $0.25 (warrant)
-14-
<PAGE>
Quarter ended June 30, $5.00 (common $1.50 (common
1996 stock) stock)
$0.75 (warrant) $0.16 (warrant)
Quarter ended September $3.25 (common $1.25 (common
30, 1996 stock) stock)
$0.44 (warrant) $0.19 (warrant)
Quarter ended December $3.69 (common $1.50 (common
31, 1996 stock) stock)
$0.50 (warrant) $0.25 (warrant)
Quarter ended March 31, $3.06 (common $1.50 (common
1997 stock) stock)
$0.41 (warrant) $0.25 (warrant)
Quarter ended June 30, $1.69 (common $1.06 (common stock)
1997 stock) $0.13 (warrant)*
$0.38 (warrant)*
*The warrants were delisted from Nasdaq on April 28, 1997. These quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.
The Company has not declared any cash dividends since its inception and it
does not anticipate paying cash dividends in the foreseeable future. The
Company currently intends to retain all earnings, if any, for use in the
expansion of the Company's business. The declaration and payment of future cash
dividends, if any, will be at the sole discretion of the Board of Directors and
will depend upon the Company's profitability, financial condition, cash
requirements, future prospects and other factors deemed relevant by the Board of
Directors.
-15-
<PAGE>
ITEM 5. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
---------------------------------------------
OF OPERATIONS.
-------------
Results of Operations
1997 TO 1996
Continuing Operations
Net sales (gross sales less returns and allowances) for the year ended June
30, 1997 (fiscal 1997) increased to $2,625,026 from $1,428,173 for the year
ended June 30, 1996 (fiscal 1996), an increase of 84%. The increase in sales
during fiscal 1997 is attributable to the increased acceptance of the Company's
product lines previously introduced during fiscal 1996, its continued
introduction of additional higher margin products and the increased marketing
efforts of the Company including the strategy to expand distribution of all
products through additional new sales channels including the retail market
during fiscal 1997 as compared to relatively lower retail volumes during fiscal
1996.
Gross margins increased to $958,967 (36.5% of net sales) from $333,840 (23%
of net sales) primarily on the strength of increased sales in fiscal 1997 of
higher margin products as compared to fiscal 1996. The Company's anticipated
sales growth in its Glove product has exceeded management's expectations and
demand continues to be growing into fiscal 1998.
Operating expenses declined to $2,612,817 in fiscal 1997 from $2,936, 786,
a reduction of 11%, based upon an aggressive effort by management to contain
costs and manage overhead while increasing the sales levels throughout the year.
As a result of the increased sales and of the product mix shifting towards
higher margin products and considering the aggressive expense management, the
Company was able to achieve a $925,546 (37%) reduction in its loss from
continuing operations from $2,520,108 ($1.12 per share) in fiscal 1996 to
$1,594, 562 ($.48 per share) in fiscal 1997.
Discontinued Operations
At June 30, 1997, management determined that its STS operations should be
classified as a discontinued operation. (See Note 2 to the consolidated
financial
-16-
<PAGE>
statements). Management's decision to cease operations was the result of an
alleged breach of contract by Biosports, LLC (Biosports), the licensor of
certain motion capture technology that STS intended to develop and market for
golf and other applications. The loss from discontinued operations increased
during fiscal 1997 to $512,620 from $221,608 primarily as a result of funding
development of the technology and other operating expenses
1996 TO 1995
Continuing Operations
Net sales for fiscal 1996 increased to $1,428,173, from $652,620, for the
year ended June 30, 1995 (fiscal 1995), an increase of approximately 119%. The
increase in sales is attributable to the resumption of advertising during fiscal
1996 which management believes continues to result in increased unit sales.
During fiscal 1995, the Company allocated its limited financial resources to the
redesign and development of new models of products 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 products introduced in prior years, sales also continue to be
positively impacted by the introduction of other new products in The Leadbetter
Collection, and other training aids being developed by Dr. Bob Rotella, a
leading sports psychologist.
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
also announced the addition of an independent sales force which the Company
anticipates will continue to 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
Dr. Bob Rotella, a leading sports psychologist. The Company will continue to
develop an entire line of products on an exclusive basis with Dr. Rotella,
targeted to performance enhancement for business people, initially, and expanded
to golf and all other sports, ultimately. During August and September 1996, the
Company continued to introduce new products being developed by Dave Pelz in the
area of the short golf game which management believes to continue to enhance its
strategy of full product lines.
-17-
<PAGE>
Gross margins increased slightly to 23% (of net sales) in fiscal 1996, as
compared to approximately 21% in fiscal 1995. These changes reflect the impact
of the increased sales of the Computer Coach, which has a lower gross margin
somewhat offset by other new higher margin products.
Selling and marketing expenses increased approximately 111% in fiscal 1996,
as compared to fiscal 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
104% for fiscal 1996 over comparable amounts for the fiscal 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.
The Company had a consolidated net loss from continuing operations of
$2,520,108 ($1.12 per share) for fiscal 1996 compared to a net loss of
$2,815,539 ($1.65 per share) fiscal 1995. The net loss and net loss per share
amounts primarily reflect the increase in sales, a 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 during fiscal 1996.
Discontinued Operations
As discussed above, at June 30, 1997, management determined that its STS
operations should be classified as a discontinued operation. (See Note 2 to the
consolidated financial statements). The loss from discontinued operations
increased during fiscal 1996 to $221,608 primarily as a result of funding
development of the technology and other operating expenses.
Liquidity and Sources of Capital
At June 30, 1997, the Company had consolidated working capital of $378,568,
including $74,047 of cash and cash equivalents. The Company had a negative cash
flow from operations of $1,550,161 ($1,286,639 without discontinued operations)
for fiscal 1997 and a negative cash flow from operations of $3,782,541
($1,981,895 without
-18-
<PAGE>
discontinued operations) for fiscal 1996. The negative cash flow from
operations reflects the increased expenses discussed above. The Company has
also accumulated a significant deficit during the period of fully developing its
product lines and requires additional financing to achieve profitable
operations. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management will seek additional funds
through private financings in order to continue operations. There can be no
assurance that any such financings can be accomplished.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-19-
<PAGE>
ITEM 6. FINANCIAL STATEMENTS.
--------------------
The financial statements, notes thereto and auditor's report thereon
included on the following pages are included herein by reference.
Index to Financial Statements
-----------------------------
Financial Statements Page
- -------------------- ----
Reports of Independent Auditors...................... F-2
Consolidated Balance Sheet as of June 30, 1997....... F-3
Consolidated Statements of Operations for the
years ended June 30, 1997 and 1996................ F-4
Consolidated Statements of Stockholders' Equity for
the years ended June 30, 1997 and 1996............ F-5
Consolidated Statements of Cash Flows for the
years ended June 30, 1997 and 1996................ F-6
Notes to Consolidated Financial Statements........... F-7
ITEM 7. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
-----------------------------------------------
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
--------------------------------------
None.
-20-
<PAGE>
PART III
--------
ITEM 8. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
-------------------------------------------------
The information set forth under the heading "Election of Directors" in
the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders is
incorporated herein by reference. Information with respect to the Company's
executive officers is included in Item 1 of Part I of this Report.
ITEM 9. EXECUTIVE COMPENSATION.
----------------------
The information set forth under the heading "Executive Compensation"
in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders is
incorporated herein by reference.
ITEM 10. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
The information set forth under the heading "Principal Stockholders"
in the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders is
incorporated herein by reference.
ITEM 11. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
-----------------------------------------------
The information set forth under the heading "Certain Transactions" in
the Company's Proxy Statement for the 1997 Annual Meeting of Stockholders is
incorporated herein by reference.
-21-
<PAGE>
ITEM 12. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) 1. FINANCIAL STATEMENTS.
--------------------
The financial statements, notes thereto and auditor's report thereon, filed
as part hereof, are listed in the Index to Item 7 of this Report.
2. FINANCIAL STATEMENT SCHEDULES.
-----------------------------
All schedules have been omitted as the required information is not
applicable.
3. EXHIBITS.
--------
Exhibit No. Description
----------- -----------
3.1(a)* Certificate of Incorporation
3.1(b)* Certificate of Ownership and Merger
3.2* Bylaws
4.1* Form of Debenture
4.2* Form of Rights Agreement
4.3* Revised Form of Warrant Agreement
4.4* Revised Form of Representatives' Option
4.5* Agreement between the Registrant and David Leadbetter dated
Warrant held by David Leadbetter and Registration Rights
as of May 2, 1994
4.6* Warrant held by Golf Products International dated as of
July 1, 1994
4.7* Warrant held by James H. Brennan, III dated as of August 1,
1993
-22-
<PAGE>
Exhibit No. Description
----------- -----------
4.8* Warrant held by Samuel R. Dunlap, Jr. dated as of June 1,
1993
4.9* Form of Common Stock Certificate
10.1* 1994 Stock Option Plan
10.2* Employment Agreement between the Registrant and Wayne C.
McDonald dated as of September 15, 1994
10.3* Employment Agreement between the Registrant and George P.
Lee, III dated as of September 15, 1994
10.4* Lease Agreement dated September 27, 1991 between the
Registrant and Southeast Venture Limited Partnership and
First Addendum and Second Addendum to Lease Agreement
10.5* Form of Indemnification Agreement
10.6* Agreement dated November 9, 1991 between the Registrant and
Robert E. Fitch
10.7* Agreement dated May 2, 1994 between the Registrant and David
Leadbetter
10.8* Agreement dated as of July 1, 1994 between the Registrant
and Denis Watson.
10.9* Agreement dated as of July 1, 1994 between the Registrant
and Golf Products International
10.10* Letter Agreement dated September 28, 1994 between the
Registrant and Neat Systems, Inc.
10.11* Letter of Agreement dated September 22, 1994 between the
Registrant and Bart Productions, Inc.
-23-
<PAGE>
Exhibit No. Description
----------- -----------
10.12* Distribution Agreement dated September 15, 1993 between the
Registrant and Golf Training Systems, Ltd.
10.13* Distribution Agreement dated August 1, 1994 between the
Registrant and Asian-Thai Golf International Co., Ltd.
10.14* Distribution Agreement dated January 1, 1994 between the
Registrant and Dynaflo Sports Tech Co., Ltd.
10.15* Distribution Agreement dated September 1, 1992 between the
Registrant and Sumitomo Rubber Industries, Inc.
10.16* Distribution Agreement dated September 1, 1992 between the
Registrant and Chung Sports Corp.
10.17* Agency Agreement dated August 1, 1994 between the
Registrant and Sithichai Tonapat
10.18* Consulting Agreement dated as of June 1, 1993 between the
Registrant and Samuel R. Dunlap, Jr.
10.19* Revised Form of Consulting Agreement between the Registrant
and First Allied Securities, Inc.
10.20* Letter of Termination of Agreement dated February 16, 1994
between the Registrant and Bart Productions, Inc.
10.21**** Agreement dated August 22, 1997 between the Registrant and
David Leadbetter
16*** Letter on Change in Certifying Accountant
27** Financial Data Schedule
*Previously filed by the Company as exhibits to a Registration Statement on Form
SB-2 (File No. 33-84808), and such documents are incorporated herein by
reference.
**Filed herewith.
***Previously filed by the Company as an exhibit on Form 8-K dated June 24,
1996, and such document is incorporated herein by reference.
****To be filed.
-24-
<PAGE>
(b) REPORTS ON FORM 8-K.
-------------------
The Company filed a report on Form 8-K dated April 25, 1997 regarding the
Company is filing of a lawsuit against BioMechanics, Inc. and its affiliates in
connection with a business venture between the parties regarding the development
of a 3-D motion capture technology for commercial application to golf training,
instruction and teaching. See Item 3 of this Report for further details
concerning this matter.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-25-
<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, on September 26, 1997.
GOLF TRAINING SYSTEMS, INC..
By: /s/
-----------------------------------
Wayne C. McDonald,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on September 26, 1997.
SIGNATURE TITLE
- --------- -----
/s/ Chairman of the Board and Chief Executive
- ---------------------- Officer (principal executive officer)
Wayne C. McDonald
/s/ President, Chief Operating Officer and
- ---------------------- Director
George P. Lee, III (principal financial officer)
_____________________ Director
Nicholas J. Aquilino
/s/ Director
- ----------------------
Daniel A. Gordon
_____________________ Director
Parker Smith
/s/ Director
- ----------------------
Thomas W. Tripp
_____________________ Director
Richard E. White
-26-
<PAGE>
[LETTERHEAD OF PORTER KEADLE MOORE, LLP APPEARS HERE]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Golf Training Systems, Inc.:
We have audited the accompanying consolidated balance sheet of Golf Training
Systems, Inc. and subsidiary (the "Company") as of June 30, 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the period ended June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Golf Training
Systems, Inc. and subsidiary as of June 30, 1997, and the results of their
operations and their cash flows for each of the two years in the period ended
June 30, 1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed under Basis of
Presentation in note 3 to the financial statements, the Company has suffered
recurring losses from operations and has accumulated a significant deficit.
These matters raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regards to these matters are also
described in note 3. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
PORTER KEADLE MOORE, LLP
/s/ Porter Keadle Moore, LLP
-----------------------------
Successor to the practice of
Evans, Porter, Bryan & Co.
Atlanta, Georgia
September 5, 1997
F-2
<PAGE>
GOLF TRAINING SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 74,047
Receivables less allowance for doubtful accounts of $37,000 247,289
Inventories 329,141
Prepayments 38,814
-----------
Total current assets 689,291
Equipment and improvements:
Office furniture and equipment 257,210
Manufacturing equipment 213,464
Leasehold improvements 11,105
-----------
481,779
Accumulated depreciation 310,743
-----------
Net property and equipment 171,036
Other assets:
Intangible assets:
Patents and trademarks, net of amortization of $16,023 57,797
License agreements, net of amortization of $108,309 56,691
Goodwill, net of amortization of $533,016 1,405,224
Net assets of discontinued operations 1,329,940
Deposits 6,523
-----------
Total Assets $ 3,716,502
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 126,535
Salaries and taxes payable 41,418
Commissions and royalties payable 93,003
Other accrued expenses 49,767
-----------
Total current liabilities 310,723
Commitments
Stockholders' equity:
Preferred Stock, no par value; 3,000,000 shares authorized;
Series A, $.01 par value; 600 shares authorized, 160.5 shares issued 1,605,000
Common Stock, $.01 par value; 10,000,000 shares authorized,
3,689,305 shares issued 36,893
Paid-in capital 11,138,464
Accumulated deficit (9,374,578)
-----------
Total stockholders' equity 3,405,779
-----------
Total Liabilities and Stockholders' Equity $ 3,716,502
===========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
GOLF TRAINING SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended June 30,
----------------------------------
1997 1996
----------- ----------------
(Restated, Note 2)
<S> <C> <C>
Sales $ 2,740,207 $ 1,470,173
Less returns and allowances 115,181 42,000
----------- -----------
Net sales 2,625,026 1,428,173
Cost of Sales 1,666,059 1,094,333
----------- -----------
Gross margin 958,967 333,840
Operating Expenses:
Selling and marketing 1,230,440 1,290,722
General and administrative 1,104,220 1,337,095
Depreciation and amortization 271,248 280,880
Research and development 6,909 28,089
----------- -----------
Total operating expenses 2,612,817 2,936,786
----------- -----------
Operating loss from continuing operations (1,653,850) (2,602,946)
Other income:
Interest income and other 59,288 82,838
----------- -----------
Loss from continuing operations (1,594,562) (2,520,108)
Loss from discontinued operations (512,620) (221,608)
----------- -----------
Net Loss $(2,107,182) $(2,741,716)
=========== ===========
Net Loss Per Share:
Continuing operations $ (.48) $(1.12)
Discontinued operations (.16) (.10)
----------- -----------
$ (.64) $(1.22)
=========== ===========
Weighted Average Common Shares 3,271,834 2,249,911
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
GOLF TRAINING SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------------- ------------------ Paid-in Accumulated
Shares Amount Shares Amount capital deficit Total
------- ------------ --------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1995 -- $ -- 2,188,021 $21,880 $ 8,470,196 $(4,525,680) $ 3,966,396
Issuance of stock for services -- -- 251 3 997 -- 1,000
Sale of stock -- -- 100,000 1,000 555,000 -- 556,000
Sale of preferred stock 415 4,150,000 -- -- (420,086) -- 3,729,914
Conversion of preferred stock
to common stock (17) (170,000) 104,778 1,048 168,952 -- --
Net loss -- -- -- -- -- (2,741,716) (2,741,716)
------ ----------- --------- ------- ----------- ----------- -----------
Balance, June 30, 1996 398 3,980,000 2,393,050 23,931 8,775,059 (7,267,396) 5,511,594
Issuance of stock for employee
benefits -- -- 810 8 1,359 -- 1,367
Conversion of preferred stock
to common stock (237.5) (2,375,000) 1,295,445 12,954 2,362,046 -- --
Net loss -- -- -- -- -- (2,107,182) (2,107,182)
------ ----------- --------- ------- ----------- ----------- -----------
Balance June 30, 1997 160.5 $ 1,605,000 3,689,305 $36,893 $11,138,464 $(9,374,578) $ 3,405,779
====== =========== ========= ======= =========== =========== ===========
</TABLE>
F-5
<PAGE>
GOLF TRAINING SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended June 30,
------------------------------
1997 1996
----------- ----------------
(Restated, Note 2)
<S> <C> <C>
Cash flows from operating activities:
Continuing operations:
Net loss $(1,594,562) $(2,520,108)
Depreciation and amortization 347,491 318,232
Issuance of common stock and warrants
for services 1,367 307,000
Changes in operating assets and liabilities:
Receivables (82,993) (124,913)
Inventories 101,000 (204,294)
Prepayments and other assets 24,593 18,978
Accounts payable (155,041) 188,586
Accrued expenses and other liabilities 71,506 34,624
Discontinued operations:
Net loss from discontinued operations (512,620) (221,608)
Amortization 84,167 8,417
Change in net assets from discontinued operations 164,931 (1,587,455)
----------- -----------
Net cash used by operating activities (1,550,161) (3,782,541)
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (51,977) (142,716)
Payments for patents and trademarks and other (1,448) (35,202)
----------- -----------
Net cash used by investing activities (53,425) (177,918)
Cash flows from financing activities:
Proceeds from sale of stock, net of issuance costs -- 3,729,914
Proceeds from exercise of stock options -- 250,000
----------- -----------
Net cash provided by financing activities -- 3,979,914
----------- -----------
Net increase (decrease) in cash and cash equivalents (1,603,586) 19,455
Cash and cash equivalents at beginning of period 1,677,633 1,658,178
----------- -----------
Cash and cash equivalents at end of period $ 74,047 $ 1,677,633
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
GOLF TRAINING SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF BUSINESS
Golf Training Systems, Inc. ("GTS") was organized in June 1991 and specializes
in the creation, production and marketing of educational and training products
for golf and general fitness. GTS has exclusive rights to manufacture and
market an exercise machine to improve the golf swing, strengthen golf muscles,
teach timing and improve fitness, and a computerized swing analysis system
designed to instruct the individual golfer on corrections to his or her swing.
GTS also markets a collection of mechanical, computer programs and systems,
literary and other products manufactured by third parties and endorsed by golf
teaching professionals, David Leadbetter and Dave Pelz, in addition to
motivational and training tapes and materials developed by Dr. Bob Rotella.
GTS's present collection of products is marketed in North America, the Far East
and Europe. During 1996, GTS organized a majority owned subsidiary, Sports
Training Systems, LLC ("STS") (See Note 2).
NOTE 2. DISCONTINUED OPERATIONS
At June 30, 1997, management has determined that STS is a discontinued
operation. Accordingly, the assets, liabilities and operations of this
discontinued operation have been reclassified in the accompanying consolidated
financial statements to separately reflect its net assets and operations.
Financial results for the year ended June 30, 1996 have been restated to
separately reflect continuing operations.
Management's decision to cease operations was the result of an alleged breach of
contract by Biosports, LLC, ("Biosports") the licensor of certain virtual
reality technology that STS intended to develop and market for golf and other
applications. STS paid an initial $1,000,000 sub-license fee, purchased certain
assets and made monthly payments to complete the development of the technology
for its intended use. The agreement with Biosports required the completion and
delivery of the technology by October 2, 1996, at which time GTS believed it
would begin marketing the product to franchisees or other golf instruction
professionals. Biosports failed to deliver the product and STS ceased to
further invest any amounts in the development. Presently, GTS has filed a suit
in the Superior Court of Cobb County, Georgia, alleging breach of fiduciary
duty, fraud and other matters against Biosports and related parties. Currently,
the litigation and counter-claims are under arbitration. The Company expects to
obtain a favorable ruling in these cases. However, the ultimate outcome of the
arbitration and litigation is unknown at the present time. Accordingly, no
provision to reduce the carrying value of the net assets from discontinued
operations has been made in the accompanying consolidated financial statements.
Net assets consist principally of the license fee and certain special purpose
computers and other electronic hardware. Management expects to complete the
disposition of such assets in late fiscal 1998.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The Consolidated financial statements contain all
the accounts of GTS and STS (a discontinued operation), together ("The
Company"). All intercompany transactions have been eliminated.
BASIS OF PRESENTATION The Company's consolidated financial statements have been
presented on the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has accumulated a significant deficit during the
period of fully developing and marketing its product lines and requires
additional financing to achieve profitable operations. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management will seek additional funds through private financings in order to
continue operations. There can be no assurance that any such financings can be
accomplished. The consolidated financial statements do not include any
adjustments that might result from the outcome of these uncertainties.
F-7
<PAGE>
GOLF TRAINING SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
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 amounts reported in the consolidated financial
statements and accompanying notes. Material estimates that are particularly
susceptible to significant change in the near term include, but are not limited
to, the valuation of the net assets of discontinued operations and the valuation
allowance associated with the realization of deferred tax assets which is based
on future taxable income. Actual results inevitably will differ from those
estimates, and such differences may be material to the consolidated financial
statements.
CASH AND CASH EQUIVALENTS The Company considers all money market accounts and
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents. At times, the Company may have funds at certain
financial institutions in excess of federally insured amounts and which may
significantly exceed balance sheet amounts due to outstanding checks.
INVENTORIES Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method. Inventories consist of
the following components:
<TABLE>
<CAPTION>
<S> <C>
Raw materials $133,592
Finished goods 195,549
--------
$329,141
========
</TABLE>
EQUIPMENT AND IMPROVEMENTS Equipment and improvements are stated at cost.
Depreciation is provided primarily using the straight-line method over the
estimated useful lives of the depreciable assets, principally five years.
INTANGIBLE ASSETS Intangible assets are stated at amortized cost and consist of
patents and trademarks and goodwill. Patents and trademarks are amortized using
the straight-line method over their estimated lives of 17 years. Goodwill is
amortized on a straight-line basis over ten years. Included in the net assets
of discontinued operations are license fees which are being amortized over seven
years.
The Company periodically evaluates recorded goodwill against an estimate of
anticipated undiscounted net income over the remaining life of the goodwill.
Adjustments are made whenever this evaluation indicates that the recorded amount
exceeds expected future benefits or whenever events and circumstances warrant a
revised estimate of the useful life of recorded goodwill.
REVENUE RECOGNITION Revenue is recognized at the time of shipment. Provision
is made for sales returns and allowances in the period in which the related
products are shipped.
PRODUCT WARRANTY The Company provides a one-year limited warranty on certain
mechanical devices. The estimated cost of this warranty is accrued at the time
of sale.
ADVERTISING COSTS All advertising and development costs included in selling and
marketing expenses are expensed as incurred. Advertising expense for the years
ended June 30, 1997 and 1996 was $392,820 and $381,783, respectively.
CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject
the Company to concentration of credit risk consist principally of trade
receivables. At June 30, 1997, receivables from customers outside the United
States were $3,852. The Company attempts to reduce its credit risk by generally
obtaining irrevocable letters of credit from overseas customers prior to the
shipment of inventory.
F-8
<PAGE>
GOLF TRAINING SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
RESEARCH AND DEVELOPMENT Research and development costs are expensed as
incurred.
NET LOSS PER SHARE Net loss per share has been computed using the weighted
average number of common shares and common equivalent shares, using the treasury
stock method, if dilutive, outstanding during the period.
NOTE 4. INCOME TAXES
Income taxes are computed based on the provisions of SFAS 109, "Accounting for
Income Taxes." Under this statement, deferred tax assets and liabilities are
determined based on differences between financial reporting and income tax bases
of assets and liabilities and are measured using the enacted tax rates and laws
that are expected to be in effect when they reverse or are realized.
Additionally, this statement requires the recognition of future tax benefits,
such as net operating loss carryforwards, to the extent that realization of such
benefits is more likely than not. The income tax benefit differs from the
amount computed by applying the statutory federal income tax rates to the loss
before income taxes for the following reasons:
<TABLE>
<CAPTION>
Years ended June 30,
-----------------------
1996 1996
---------- -----------
<S> <C> <C>
Continuing operations:
Income tax benefit at statutory federal income
tax rate applied to loss before income taxes $(561,000) $ (888,000)
State income tax benefit, net of federal income
tax benefit (64,000) (101,000)
Amortization of goodwill 76,000 34,000
Other 3,000 11,000
Tax benefit not currently recognizable 546,000 944,000
--------- ----------
Total from continuing operations -- --
Discontinued operations:
Income tax benefit at statutory federal income
tax rate applied to loss before income taxes (180,000) (78,000)
State income tax benefit, net of federal income
tax benefit (21,000) (9,000)
Tax benefit not currently recognizable 201,000 87,000
--------- ----------
Total from discontinued operations -- --
--------- ----------
$ -- $ --
========= ==========
</TABLE>
Significant components of deferred tax assets and liabilities at June 30, 1997
are as follows:
Deferred tax assets
Net operating loss carryforwards $3,252,000
Other 16,000
----------
Net deferred tax assets 3,268,000
Valuation allowance (3,268,000)
----------
$--
==========
F-9
<PAGE>
GOLF TRAINING SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INCOME TAXES, CONTINUED
The valuation allowance at July 1, 1996 was approximately $2,490,800. A
valuation allowance is provided for the portion of the deferred tax asset when
it is more likely than not that some portion or all of the deferred tax asset
will not be realized. For federal income tax purposes, the Company has net
operating loss carryforwards of approximately $8,296,000 which expire in 2007
through 2012. The utilization of the tax loss carryforwards may be limited in
future years due to the application of certain provisions of the Internal
Revenue Code.
NOTE 5. MAJOR CUSTOMERS
Approximately 8% and 14% of the Company's net sales in its years ended June 30,
1997 and 1996, respectively, were outside the United States, primarily to Japan,
Germany, England, Canada and Malaysia. Sales to the largest single customer in
the United States represented 5% of net sales for fiscal 1997.
NOTE 6. RELATED PARTY TRANSACTIONS
Transactions and outstanding balances with related parties are summarized as
follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
Patent and legal costs $ 3,618 $31,931
Inventory purchases 144,676 35,079
Commissions and royalties 224,241 77,023
Consulting fees 29,329 44,475
</TABLE>
PATENT COSTS Patent applications and renewal fees were paid to a director and
officer's firm which provides patent counsel to the Company.
INVENTORY PURCHASES Inventory is occasionally purchased from unrelated
companies owned by certain officers and stockholders of GTS.
COMMISSIONS AND ROYALTIES GTS has an agreement expiring December 31, 1997 with
David Leadbetter, a renowned golf instructor and a stockholder. The agreement
provides that GTS will pay Mr. Leadbetter a royalty equal to 10% of net sales,
as defined, from the sale of golf products under "The Leadbetter Collection,"
except "The Coach," for which Mr. Leadbetter will receive 5% of net sales. GTS
has guaranteed to pay, in monthly installments, minimum royalties of $95,000 per
year, plus up to an additional $25,000 per product per year in the event that
certain additional products developed by third parties are added to "The
Leadbetter Collection." Additionally, GTS issued warrants to Mr. Leadbetter to
purchase up to 24,879 shares of the common stock of GTS at an exercise price of
$3.316 per share through May 2, 1999. At June 30, 1997 royalties of $3,465 were
payable to Mr. Leadbetter. On August 22, 1997, GTS extended the contract with
Mr. Leadbetter beginning January 1, 1998 through December 31, 2002. Under this
worldwide contract, Mr. Leadbetter will receive royalties ranging from 5% to 10%
on certain products with minimum royalties of $10,000 per month for the first
six months increasing to $12,000 per month for the remaining 54 months. Mr.
Leadbetter was granted additional warrants to purchase 250,000 shares of the
Company's common stock for $1.00 per share exercisable through the expiration
date of the contract. Mr. Leadbetter also received warrants to purchase an
additional 150,000 shares of the Company's common stock for $1.00 per share
exercisable in 50,000 increments should the stock trade for ten consecutive
business days at $3.00 per share, $4.00 per share and $5.00 per share,
respectively.
F-10
<PAGE>
GOLF TRAINING SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. RELATED PARTY TRANSACTIONS, CONTINUED
GTS has a five year exclusive distribution agreement to distribute all audio,
video newsletters, seminars, and all other books and other training materials
produced by Dr. Bob Rotella. The agreement provides royalties of 10% on all
related products and services sold. Additionally, GTS guarantees a minimum
royalty paid monthly on all products, except the newsletter, of $50,000 per year
in the first year increasing by 10% each year in the second and the third years,
and a $25,000 minimum guarantee on a newsletter beginning with its initial
publication. Additionally, options as to 35,000 shares are to be granted, 15,000
in fiscal 1996 and 10,000 on each anniversary date of the agreement for two
years.
Additionally, GTS entered into a five year distribution agreement to distribute
all audio, video, computer programs, mechanical and other training devices or
material developed jointly with Independent Golf Research Corporation and Dave
Pelz. The agreement provides royalties of 10% on all related products sold.
Additionally, GTS guarantees a minimum royalty paid monthly on all products of
$75,000 per year and increasing by 10% on each anniversary date of the
agreement. Additionally, options as to 55,000 shares are to be granted, 15,000
in fiscal 1996 and 10,000 on each anniversary date of the agreement for four
years. GTS has also granted to Pelz, an option to purchase 100,000 shares of
STS at $5.00 per share exercisable through July 31, 2001.
NOTE 7. LEASES
The Company leases office/warehouse space and equipment under noncancelable
operating leases. Future minimum lease payments under leases with initial or
remaining noncancelable lease terms in excess of one year as of June 30, 1997,
are as follows:
<TABLE>
<CAPTION>
Year ending:
<S> <C>
June 30, 1998 $ 69,263
June 30, 1999 72,618
June 30, 2000 74,802
Thereafter 18,837
--------
$235,520
========
</TABLE>
Rent expense totaled $60,585 for fiscal 1997 and 1996.
NOTE 8. COMMITMENTS
The Company assumed a Patent Purchase and Payment Agreement between a
stockholder and the inventor of "The Coach." Under the terms of the agreement,
the Company has agreed to pay the inventor $25,000 in one lump sum and an
additional royalty fee in the amount of $5 per system sold within the United
States and approximately 1.5% of net sales, as defined, of "The Coach" outside
the United States, payable quarterly.
NOTE 9. STOCKHOLDERS' EQUITY
In April 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 authorized preferred stock as Series A preferred stock, par
value $.01 with the certain rights and preferences. In October 1996 the terms
of the Series A preferred stock were amended to change the conversion price and
rate of conversion. At June 30, 1997 all unconverted preferred stock is
eligible for conversion into the Company's common stock at $3.00 per share.
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
F-11
<PAGE>
GOLF TRAINING SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCKHOLDERS' EQUITY, CONTINUED
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.
WARRANTS The Company has issued 1,919,374 warrants to purchase shares of its
common stock to certain advisors, investors and management personnel of the
Company. Of these warrants, 197,374 are exercisable at any time for $3.316 per
share of common stock and expire in varying amounts ranging from November 1997
to June 1999. Additionally, the Company issued in its initial public offering,
warrants for an additional 850,000 shares to investors and warrants for an
additional 170,000 shares to the Underwriters of the offering. Each of the
850,000 warrants issued to the investors entitles the holder to purchase one
share of common stock at $7.20 per share until March 2000 and are redeemable by
the Company at $.10 per warrant provided that the market price of the Company's
common stock equals or exceeds $9.00 for certain trading periods. The 170,000
underwriter's warrants are exercisable, 85,000 at $9.32 and 85,000 at $7.36
beginning March 1998 until March 2000. The Company has also issued to the
underwriters of the above referenced private placement warrants for the purchase
of 99,000 shares of common stock exercisable at the lower of $4.1625 or the
average of certain trades until March 2001. The Company has also issued warrants
for 3,000 shares exercisable at various amounts for services to the Company. In
October 1996, the Company issued warrants for the purchase of 200,000 shares of
the Company's common stock to consultants of the Company exercisable for seven
years at $2.25 per share. Additionally, as discussed in Note 6, the Company has
issued 400,000 warrants to Mr. Leadbetter, 250,000 exercisable at $1.00 at any
time through December 31, 2002 and an additional 150,000 exercisable in 50,000
increments at $1.00 through December 31, 2002 should the stock trade for ten
consecutive business days at $3.00 per share, $4.00 per share and $5.00 per
share, respectively. At June 30, 1997, the Company has reserved 1,919,374 shares
of its common stock for issuance in connection with warrants.
STOCK OPTIONS The Company has elected to follow Accounting Principles Board
opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options, because the
alternative fair value accounting provided for under SFAS No. 123, "Accounting
for Stock-Based Compensation" requires use of option valuation models that were
not developed for use in valuing employee stock options. The exercise price of
the Company's employee stock options equaled the market price of the underlying
stock on the date of grant and no compensation expense is recognized.
The Company's incentive stock option plan (the Plan) has authorized the grant of
up to 600,000 shares of the Company's common stock. Under the Plan, employees,
officers and directors, consultants and advisors to the Company are eligible to
receive incentive stock options or options that do not qualify as incentive
options. Incentive options granted under the Plan are exercisable for a period
of up to 10 years from the date of grant at an exercise price which is not less
than the fair market value of the common stock on the date of the grant, except
that the term of an incentive option granted to a stockholder owing more than
10% of the outstanding common stock may not exceed five years, and its exercise
price may not be less than 110% of the fair market value of the common stock on
the date of the grant. The provisions of the Plan also provide for the
automatic grant of stock options to purchase shares of common stock to directors
of the Company who are not employees or principal stockholders of the Company.
F-12
<PAGE>
GOLF TRAINING SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCKHOLDERS' EQUITY, CONTINUED
A summary of stock option transactions under the Plan is as follows:
<TABLE>
<CAPTION>
Shares Price
--------- -------------
<S> <C> <C>
Options outstanding at June 30, 1995 117,400 6.00 to 6.25
Granted 285,000 1.375 to 6.25
Exercised (100,000) 5.56
Canceled or expired (132,400) 1.375 to 6.25
--------
Options outstanding at June 30, 1996 170,000 2.00 to 6.25
Granted 269,000 1.375 to 3.50
Exercised --
Canceled or expired (37,000) 1.69 to 6.00
--------
Options outstanding at June 30, 1997 402,000 1.69 to 6.25
========
</TABLE>
Options to acquire 351,000 shares of the common stock of the Company were
exercisable at June 30, 1997. The weighted average exercise price at June 30,
1997 was $3.78 per share.
Had compensation cost for the Plan been determined based upon the fair value of
the options and warrants at the grant dates consistent with the methodology from
SFAS No. 123, the Company's net loss and net loss per share would have been
changed to the proforma amounts below:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C> <C>
Net loss As reported $(2,107,182) $(2,741,716)
Proforma (2,144,702) (2,898,466)
Net loss
per share As reported (.64) (1.22)
Proforma (.66) (1.29)
</TABLE>
The fair value of each option is estimated on the date of grant using the Black-
Scholes options pricing model with the following weighted average assumptions
used for grants in 1997 and 1996, respectively: dividend yield of 0%, risk free
rates of 7%, volatility of .1%, and an expected life of 10 years. The weighted
average fair value per option and warrant share calculated under this method was
$.08 for 1997 grants and $.55 for 1996 grants.
F-13
<PAGE>
GOLF TRAINING SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. PARENT COMPANY ONLY FINANCIALS
GOLF TRAINING SYSTEMS, INC.
BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
ASSETS
Current assets:
<S> <C>
Cash and cash equivalents $ 74,047
Receivables, net 646,457
Inventories 329,141
Prepayments 38,814
-----------
Total current assets 1,088,459
Net property and equipment 171,036
Other assets:
Investment in STS 930,772
Intangible assets, net 1,519,712
Other 6,523
-----------
Total Assets $ 3,716,502
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 126,535
Other accrued expenses 184,188
-----------
Total current liabilities 310,723
Stockholders' equity:
Preferred Stock, no par value; 3,000,000 shares authorized;
Series A, $.01 par value; 600 shares authorized, 160.5 shares issued 1,605,000
Common Stock, $.01 par value, 10,000,000 shares authorized;
3,689,305 shares issued 36,893
Paid-in capital 11,138,464
Accumulated deficit (9,374,578)
-----------
Total stockholders' equity 3,405,779
-----------
Total Liabilities and Stockholders' Equity $ 3,716,502
===========
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 2,625,026 $ 1,428,173
Cost of Sales 1,666,059 1,094,333
----------- -----------
Gross margin 958,967 333,840
Operating Expenses:
Selling and marketing 1,230,440 1,290,722
General and administrative 1,104,220 1,337,095
Depreciation and amortization 271,248 280,880
Research and development 6,909 28,089
----------- -----------
Total operating expenses 2,612,817 2,936,786
----------- -----------
Operating loss (1,653,850) (2,602,946)
Equity in loss of subsidiary (discontinued operations) (512,620) (221,608)
Other income (expense) 59,288 82,838
----------- -----------
Net Loss $(2,107,182) $(2,741,716)
=========== ===========
</TABLE>
F-14
<PAGE>
GOLF TRAINING SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. PARENT COMPANY ONLY FINANCIALS, CONTINUED
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended June 30,
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,107,182) $(2,741,716)
Equity in loss of subsidiary 512,620 221,608
Depreciation and amortization 347,491 318,232
Issuance of common stock and warrants
for services 1,367 307,000
Changes in operating assets and liabilities:
Receivables (346,515) (125,551)
Inventories 101,000 (204,294)
Prepayments and other assets 24,593 18,978
Accounts payable (155,041) 188,578
Accrued expenses and other liabilities 71,506 34,624
----------- -----------
Net cash used by operating activities (1,550,161) (1,982,541)
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (51,977) (142,716)
Investment in STS -- (1,800,000)
Payments for patents and trademarks and other (1,448) (35,202)
----------- -----------
Net cash used by investing activities (53,425) (1,977,918)
Cash flows from financing activities:
Proceeds from sale of stock, net of issuance costs -- 3,729,914
Proceeds from sale of warrants -- 250,000
----------- -----------
Net cash provided by financing activities -- 3,979,914
----------- -----------
Net increase in cash and cash equivalents (1,603,586) 19,455
Cash and cash equivalents at beginning of period 1,677,633 1,658,178
----------- -----------
Cash and cash equivalents at end of period $ 74,047 $ 1,677,633
=========== ===========
</TABLE>
F-15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
Article 5 FDS for year ended June 30, 1997
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 74
<SECURITIES> 0
<RECEIVABLES> 284
<ALLOWANCES> 37
<INVENTORY> 329
<CURRENT-ASSETS> 689
<PP&E> 482
<DEPRECIATION> 311
<TOTAL-ASSETS> 3,717
<CURRENT-LIABILITIES> 311
<BONDS> 0
0
1,605
<COMMON> 37
<OTHER-SE> 1,764
<TOTAL-LIABILITY-AND-EQUITY> 3,717
<SALES> 2,740
<TOTAL-REVENUES> 2,625
<CGS> 1,666
<TOTAL-COSTS> 1,666
<OTHER-EXPENSES> 2,613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,595)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,595)
<DISCONTINUED> (513)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,107)
<EPS-PRIMARY> (.64)
<EPS-DILUTED> (.64)
</TABLE>
