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, 1998
or
[ ] Transition Report Under Section 13 or 15(d ) of the Securities Exchange
Act of 1934 For the Transition Period Ended From to
------------------
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)
Not applicable
(Former name, former address and former fiscal year, if changed since last
report)
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 - 3,933,104 shares as of March 31, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GOLF TRAINING SYSTEMS, INC.
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------ -------------
(Unaudited) (Note)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents .......................................... $ 184,501 $ 74,047
Receivables, net ................................................... 190,844 247,289
Inventories ........................................................ 166,610 329,141
Prepayments and other .............................................. 137,585 38,814
------------ -------------
Total Current Assets ............................................... 679,540 689,291
Equipment and Improvements, net ....................................... 116,850 171,036
Other Assets:
Patents, trademarks and license agreements, net .................... 81,014 114,488
Goodwill, net ...................................................... 1,259,856 1,405,224
Net assets of discontinued operations .............................. 843,146 1,329,940
Other .............................................................. 15,651 6,523
------------ -------------
$ 2,996,057 $ 3,716,502
============ =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts payable ................................................... $ 337,094 $ 126,535
Notes payable ...................................................... 750,000 --
Accrued expenses ................................................... 143,249 184,188
------------ -------------
Total Current Liabilities .......................................... 1,230,343 310,723
Stockholders' Equity:
Preferred stock, $.01 par value;
3,000,000 shares authorized:
Series A, 600 shares authorized,
106 shares issued .............................................. 1,060,000 1,605,000
Series B, 50 shares authorized,
8 shares issued ................................................ 200,000 --
Common stock, $.01 par value; 10,000,000
shares authorized; 3,933,104 shares issued ....................... 39,331 36,893
Additional paid-in capital ......................................... 11,842,038 11,138,464
Accumulated deficit ................................................ (11,375,655) (9,374,578)
------------- -------------
Total Stockholders' Equity ......................................... 1,765,714 3,405,779
------------ -------------
$ 2,996,057 $ 3,716,502
============ =============
Note: The balance sheet at June 30, 1997 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 consolidated
financial statements.
<PAGE>
GOLF TRAINING SYSTEMS, INC.
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
(Note) (Note)
<S> <C> <C> <C> <C>
Net sales ...................................... $ 390,488 $ 853,001 $ 1,397,536 $ 1,910,445
Cost of sales .................................. 293,377 539,365 978,518 1,240,203
----------- ----------- ------------ -----------
Gross margin ................................... 97,111 313,636 419,018 670,242
Operating expenses:
Selling and marketing ....................... 352,921 315,054 949,463 978,045
General and administrative .................. 399,155 332,577 1,094,896 1,010,439
Research and development .................... 15,290 3,246 24,875 4,440
----------- ----------- ------------ -----------
767,366 650,877 2,069,234 1,992,924
----------- ----------- ------------ -----------
Operating loss .............................. (670,255) (337,241) (1,650,216) (1,322,682)
Other income (expense) ......................... (102,906) 5,587 (88,470) 56,263
------------ ----------- ------------- -----------
Loss from continuing operations ............. (773,161) (331,654) (1,738,686) (1,266,419)
Loss from discontinued operations .............. (41,052) (91,979) (262,391) (466,243)
------------ ------------ ------------- ------------
Net loss ....................................... $ (814,213) $ (423,633) $ (2,001,077) $ (1,732,662)
============ ============= ============= =============
Basic net loss per share:
Continuing operations ....................... $ (.20) $ (.10) $(.45) $ (.41)
Discontinued operations ..................... (.01) (.03) (.07) (.14)
------- ------- ------ -------
$ (.21) $ (.13) $(.52) $ (.55)
======= ======= ====== =======
Weighted average common shares ................. 3,933,104 3,330,186 3,833,496 3,123,961
========= ========= ========== =========
Note: The statements of operations for the three and nine month periods ended
March 31, 1997 have been restated from previously reported amounts to reflect
the discontinued operations. See Note 2 to the Consolidated Financial Statements
in the Company's 1997 Annual Report on Form 10-KSB.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
GOLF TRAINING SYSTEMS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine Months Ended December 31,
-------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows used in operating activities .............................. $ (766,004) $ (1,427,424)
Cash flows used in investing activities .............................. (15,485) (346,761)
Cash flows from financing activities ................................. 891,943 --
------------- -------------
Net increase (decrease) in cash and cash equivalents .............. 110,454 (1,774,185)
Cash and cash equivalents at beginning of period ..................... 74,047 2,009,820
------------- -------------
Cash and cash equivalents at end of period ........................... $ 184,501 $ 235,635
============= =============
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
<PAGE>
GOLF TRAINING SYSTEMS, INC.
Notes to Condensed Consolidated Financial Statements
March 31, 1998
(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, 1998 are
not necessarily indicative of the results that may be expected for the year
ended June 30, 1998. 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, 1997.
2. Loss per Share The Company adopted the provisions of Financial Accounting
Standards Board Statement No. 128 "Earnings per Share" effective December 31,
1997. Comparable periods in the previous year have been restated to conform to
the provisions of this Statement. No diluted loss per share amounts have been
presented due to the anti-dilutive nature of all other potential common shares.
3. Inventories The components of inventory consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
--------------- ---------------
<S> <C> <C>
Raw materials $ 92,458 $ 133,592
Finished goods 104,152 195,549
Allowances (30,000) --
--------------- ---------------
$ 166,610 $ 329,141
=============== ===============
</TABLE>
4. Notes Payable Notes payable is a $750,000 advance under a $1,000,000 credit
facility with a stockholder which matures with all accrued interest on June 30,
1998. The advance accrues interest at 10% per year and is collateralized by all
assets of the Company. The Company also issued to the lender a warrant to
purchase up to 1,000,000 shares of the Company's common stock for $.25 per share
exercisable through June 30, 1998. During April 1998 the remaining $250,000 was
advanced to the Company under the line.
<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 month period
ended March 31, 1998 (1998 quarter) decreased to $390,488 from $853,001 for the
three month period ended March 31, 1997 (1997 quarter), and to $1,397,536 for
the nine month period ended March 31, 1998 (1998 year to date) from $1,910,445
for the nine month period ended March 31, 1997 (1997 year to date), or decreases
of approximately 54% and 27%, respectively.
As a result, gross margins also declined.
The decrease in sales in the 1998 quarter resulted from the Company's diminished
working capital position which required close management of available cash, thus
forcing a reduction in purchasing of higher margin goods during the quarter and
year to date. However, the Company closed a line of credit facility with a
stockholder on December 31, 1997 which increased the Company's working capital
and facilitated renewed purchasing of goods. While, the Company continues to
focus its resources and efforts on its higher margin products while reducing its
investment in low margin products and services, gross margins declined from
36.8% for the 1997 quarter to 24.9% for the 1998 quarter and from 35% for the
1997 year to date to 30% for the 1998 year to date. The decline in margins for
the 1998 quarter is attributed to lower sales levels in the 1998 quarter and
year to date as compared to prior periods as well as the Company's reduction in
carrying value of older lower margin items and to maintaining fixed direct labor
costs.
Selling and marketing expenses and general and administrative expenses increased
16% to $752,076 for the 1998 quarter from $647,631 for the 1997 quarter and to
$2,044,359 for 1998 year to date from $1,988,484 for 1997 year to date
reflecting the effort of the Company to manage its overhead expense level to
achieve more efficiency and profitability while increasing its investment in
advertising and other marketing activities which have a longer term effect or
return. General and administrative expenses were above normal levels due to
legal expenses related to the closing of the line of credit and litigation
costs. Other expenses increased due to amortization of a premium recorded as a
result of the warrant issued to the lender of the line of credit.
At June 30, 1997, management determined that its Sports Training Systems (STS)
operations should be classified as a discontinued operation. (See Note 2 to the
consolidated financial statements included in the Company's annual report on
Form 10-KSB at June 30, 1997). Management's decision to cease operations was the
result of an alleged breach of contract by Biosports, LLC, the licenser of
certain motion capture technology that STS intended to develop and market for
golf and other applications. The loss from discontinued operations continues to
impact the profitability of the Company, however, the losses from the
discontinued operations for 1998 year to date decreased to $262,391 from
$466,243 for 1997 year to date as the Company continued to shut down the
operations. Expenses for 1998 year to date relate primarily to amortization of
certain assets and legal costs.
The Company's net loss of $814,213 ($.21 per share) for the 1998 quarter
increased from a net loss of $423,633 ($.13 per share) for the 1997 quarter, and
increased for 1998 year to date with a loss of $2,001,077 ($.52 per share) as
compared to 1997 year to date losses of $1,732,662 ($.55 per share). These
losses are primarily the result of the lower sales and gross margins.
Liquidity and Sources of Capital
At March 31, 1998, the Company had negative working capital of $550,803,
including $184,501 of cash and cash equivalents. The notes payable included in
current liabilities is a $750,000 short term note under a $1,000,000 credit
facility with a stockholder of the Company. During April 1998 the lender
advanced the remaining $250,000 under the line. The lender is also required by
June 30, 1998, to exchange the outstanding principal balance under the facility
for 50,000 shares of new Series C, par value $10, convertible preferred stock, a
five year senior secured note in an amount equal to the then outstanding
principal balance less $500,000 and a five year warrant to purchase four million
shares of common stock at an exercise price of $.25 per share. After June 30,
1999, the senior secured note may be exchanged for new Series D convertible
preferred stock.
The Company had an improvement in its negative cash flows from operations of
$766,004 for 1998 year to date from negative cash flows from operations of
$1,427,424 for 1997 year to date. The reduction in the negative cash flow from
operations reflects reduced expenses. On February 12, 1998, the Company received
$418,557 from BioSports, LLC in satisfaction of the award from an arbitration
proceeding in favor of its majority owned subsidiary, Sports Training Systems,
LLC. However, the Company has also accumulated a significant deficit during the
period of fully developing its product lines and may require additional
financing to achieve profitable operations. These conditions raise substantial
doubt about the Company's ability to continue as a going concern.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On November 12, 1997, the Company obtained a favorable ruling in its arbitration
proceedings with Biosports, LLC. Under the terms of the award, BioSports was to
pay $411,000 in damages to Sports Training Systems, LLC (STS), a majority owned
subsidiary of the Company. On February 12, 1998, STS received a payment of
$418,557 which satisfied the award, including post-judgment interest.
Additionally, there has been no change in the litigation discussed in Note 2 to
the Consolidated financial statements in the Company's Annual Report on Form
10-KSB for the year ended June 30, 1997.
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.
On April 23, 1998 at a special meeting of the shareholders, a proposal
to amend the Company's certificate of incorporation to effect a one for five
reverse stock split was approved.
Item 5. Other Information.
Not applicable.
Item 6. Other Information.
(a) Exhibits.
Exhibit 27 Financial Data Schedule
(b) Reports on Forms 8-K
None
<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 12, 1998 /s/ Daniel A. Gordon
---------------------- --------------------
Daniel A. Gordon
Chief Executive Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> MAR-31-1998
<CASH> 184,501
<SECURITIES> 0
<RECEIVABLES> 280,844
<ALLOWANCES> 90,000
<INVENTORY> 166,610
<CURRENT-ASSETS> 679,540
<PP&E> 488,136
<DEPRECIATION> 371,286
<TOTAL-ASSETS> 2,996,057
<CURRENT-LIABILITIES> 1,230,343
<BONDS> 0
0
1,260,000
<COMMON> 39,331
<OTHER-SE> 466,383
<TOTAL-LIABILITY-AND-EQUITY> 2,996,057
<SALES> 1,397,536
<TOTAL-REVENUES> 1,397,536
<CGS> 978,518
<TOTAL-COSTS> 2,069,234
<OTHER-EXPENSES> 88,470
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,738,686)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,738,686)
<DISCONTINUED> (262,391)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,001,077)
<EPS-PRIMARY> (.52)
<EPS-DILUTED> (.52)
</TABLE>
