<PAGE> 1
================================================================================
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 quarterly period ended September 30, 1998
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission File Number 1-12532
RENAISSANCE GOLF PRODUCTS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 86-0664849
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
12187 S. BUSINESS PARK DRIVE, SUITE 100, DRAPER, UTAH 84020
(Address of Principal Executive Offices)
(801) 501-0200
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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_____
- ---
As of September 30, 1998, the registrant had 7,396,937 shares outstanding of its
Common Stock, $.001 par value.
Transitional Small Business Disclosure Format (check one);
Yes No X
----- -----
================================================================================
<PAGE> 2
RENAISSANCE GOLF PRODUCTS, INC.
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of September 30, 1998 1
and December 31, 1997
Statements of Operations for the nine months 2
ended September 30, 1998 and 1997
Statements of Operations for the three months 3
ended September 30, 1998 and 1997
Statements of Cash Flows for the nine months 4
ended September 30, 1998 and 1997
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of 8
Financial Condition and Results of Operations
PART II. OTHER INFORMATION 12
SIGNATURES 14
EXHIBITS 15
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RENAISSANCE GOLF PRODUCTS, INC.
BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
================================================================================
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 28,498 $ 775,854
Accounts receivable, net $ 1,460,275 987,321
Inventories, net $ 4,321,976 1,924,983
Prepaid expenses 43,197 57,510
------------ ------------
Total current assets 5,853,946 3,745,668
PROPERTY AND EQUIPMENT, net 470,454 53,586
INTANGIBLE ASSETS, net 876,123 --
OTHER ASSETS 27,440 34,199
------------ ------------
Total assets $ 7,227,963 $ 3,833,453
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Revolving line of credit, net of discount $ 4,890,400 $ 3,637,487
Accounts payable $ 1,443,403 460,226
Accrued liabilities $ 257,985 114,673
Accrued royalties $ 118,355 118,355
Current portion of notes payable 350,000 225,000
------------ ------------
Total current liabilities 7,060,143 4,555,741
------------ ------------
Notes Payable, less current portion 75,000 200,000
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value, 150,000 shares
authorized; 250 issued and outstanding as of 12-31-97 -- 3
Common stock, $.001 par value, 40,000,000 shares
authorized; 7,396,937 and 4,613,662 issued and
outstanding as of 9-30-98 and 12-31-97, respectively 7,397 4,614
Common stock subscribed, 72,953 and 1,496,276 shares
as of 9-30-98 and 12-31-97, respectively 73 1,496
Additional paid-in capital 17,841,704 14,795,509
Accumulated deficit (17,756,354) (15,723,910)
------------ ------------
Total stockholders' equity (deficit) 92,820 (922,288)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 7,227,963 $ 3,833,453
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements
1
<PAGE> 4
RENAISSANCE GOLF PRODUCTS, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
===============================================================================
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
NET SALES $ 6,023,119 $ 3,726,186
COST OF SALES 4,190,295 2,749,324
----------- -----------
Gross profit 1,832,824 976,862
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 3,397,186 1,446,955
----------- -----------
Operating loss (1,564,362) (470,093)
OTHER INCOME (EXPENSE):
Interest Income 6,913 4,175
Interest Expense (474,331) (178,862)
Other 135 94,134
----------- -----------
Net other expense (467,283) (80,553)
----------- -----------
LOSS BEFORE INCOME TAX EXPENSE (2,031,645) (550,646)
PROVISION FOR INCOME TAXES (800) (800)
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (2,032,445) (551,446)
EXTRAORDINARY GAIN -- FORGIVENESS OF DEBT -- 318,228
----------- -----------
NET LOSS $(2,032,445) $ (233,218)
=========== ===========
EARNINGS PER SHARE -- BASIC:
Loss before extraordinary item $ (0.30) $ (0.19)
Extraordinary gain -- forgiveness of debt -- 0.11
----------- -----------
Net loss per common and common
equivalent share $ (0.30) $ (0.08)
=========== ===========
WEIGHTED AVERAGE OUTSTANDING COMMON
AND COMMON EQUIVALENT SHARES -- BASIC 6,771,455 2,896,563
</TABLE>
The accompanying notes are an integral part of the financial statements
2
<PAGE> 5
RENAISSANCE GOLF PRODUCTS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
================================================================================
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
NET SALES $ 2,750,542 $ 953,342
COST OF SALES 1,813,228 702,924
----------- -----------
Gross profit 937,314 250,418
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,611,926 510,608
----------- -----------
Operating loss (674,612) (260,190)
OTHER INCOME (EXPENSE):
Interest income 1,524 620
Interest expense (171,874) (70,043)
Other (1,251) 18,938
----------- -----------
Net other expense (171,601) (50,485)
----------- -----------
NET LOSS (846,213) (310,675)
=========== ===========
EARNINGS PER SHARE -- BASIC:
Net income (loss) per common and common
equivalent share $ (0.11) $ (0.11)
=========== ===========
WEIGHTED AVERAGE OUTSTANDING COMMON
AND COMMON EQUIVALENT SHARES -- BASIC 7,386,807 2,896,563
</TABLE>
The accompanying notes are an integral part of the financial statements
3
<PAGE> 6
RENAISSANCE GOLF PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
===============================================================================
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,032,445) $ (233,218)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 72,653 21,213
Accretion of discount 16,862 7,700
Change in allowance for doubtful accounts (61,119) 40,295
Gain on forgiveness of debt -- (318,228)
Non-cash reduction in accrued liabilities -- (94,694)
Compensation expense recorded in connection with options 3,150 10,950
Net change in operating assets and liabilities:
Accounts receivable (410,785) (742,200)
Inventories (2,396,993) (1,056,086)
Prepaid expenses 14,313 (5,376)
Other assets 6,759 (1,363)
Accounts payable and accrued expenses 1,126,489 338,700
Accrued royalties -- (65,791)
Deferred revenue -- (267,723)
----------- -----------
Net cash used in operating activities (3,661,116) (2,365,821)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property & equipment (266,249) (14,979)
Purchase of license agreement (99,396) --
----------- -----------
Net cash used in investing activities (365,645) (14,979)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in lines of credit -- 200,000
Payments on notes payable, net of discount -- (1,457,159)
Proceeds from notes payable 1,386,042 2,520,020
Proceeds from issuance of subordinated convertible debentures -- 462,500
Proceeds from issuance of common stock 1,893,363 462,500
----------- -----------
Net cash provided by financing activities 3,279,405 2,187,861
----------- -----------
NET DECREASE IN CASH (747,356) (192,939)
CASH and cash equivalents, beginning of period 775,854 276,012
----------- -----------
CASH and cash equivalents, end of period $ 28,498 $ 83,073
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE> 7
RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
For the nine months and three months ended September 30, 1998 and September 30,
1997
================================================================================
1. BASIS OF PRESENTATION
In the opinion of management, the unaudited financial statements reflect
all normally recurring adjustments necessary to fairly present the financial
position and results of operations of Renaissance Golf Products, Inc. (the
"COMPANY").
The accompanying interim financial statements should be read in conjunction
with the financial statements and related notes included in the Company's 10-KSB
for the year ended December 31, 1997, which has been filed with the Securities
and Exchange Commissions. Certain information and footnote disclosures normally
included in the Company's annual financial statements have been omitted from the
quarterly financial statements based upon Securities and Exchange Commission
rules and regulations.
Because the Company's business is highly seasonal, the results of
operations for the third quarter and the first nine months of the year may not
necessarily reflect operating results for the full fiscal year.
Net loss per common and common equivalent share was computed based on the
net loss divided by the weighted average number of common and common equivalent
shares outstanding during the year presented. Diluted earnings per share are not
presented due to the antidilutive effect on earnings.
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income". Statement of Financial Accounting Standards (SFAS) No.
130 establishes standards for reporting and display of comprehensive income and
its components (revenues, expenses, gains, and losses) in a full set of general
purpose financial statements. This statement requires that an enterprise (a)
classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital in the equity
section of a statement of financial position. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
There were no comprehensive income items for the nine months and 3 months ended
September 30, 1998 or for the year ended December 31, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information", which redefines how public business
enterprises report information about operating segments in annual financial
statements. The statement also establishes standards for related disclosures
about products and services, geographical areas, and major customers. SFAS No.
131 is effective for financial statements for periods beginning after December
15, 1997. In the initial year of application, comparative information for
earlier years is to be restated. The adoption of SFAS No. 131 will result in
additional disclosures regarding the Company's segments.
In February 1998, the FASB issued SFAS No. 132, Employer's Disclosures
about Pensions and Other Postretirement Benefits. SFAS No. 132 does not change
the measurement or recognition of
5
<PAGE> 8
pension and other postretirement benefit plans. It standardizes the disclosure
requirements for those plans, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures. SFAS No. 132 is
effective for fiscal years beginning after December 15, 1997. The Company does
not expect the impact of SFAS No. 132 to be material in relation to its
financial statements.
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which supersedes SFAS No. 80, Accounting for
Futures Contracts, SFAS No. 105, Disclosure of Information About Financial
Instruments with Off-Balance-sheet Risk and Financial Instruments with
Concentration of Credit Risk, and SFAS No. 119, Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments, and also amends
certain aspects of other SFAS's previously issued. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. SFAS No. 133 is effective for the Company's financial statements for the
year ending December 31, 2000. The Company does not expect the impact of SFAS
No. 133 to be material in relation to its financial statements.
2. FINANCING
In October 1997, the Company and the Company's Chairman of the Board of
Directors jointly entered into a loan and security agreement with a lender to
provide the Company a revolving credit facility up to the maximum aggregate
principal amount of the lesser of $5,000,000, or 80% of the Company's current
assets. The amount outstanding on the loan and revolving promissory note is
adjusted upward or downward throughout the term of the note, based on total
current assets, which for purposes of the agreement mean cash, accounts
receivable aged less than 90 days, and inventory. The revolving promissory note
executed pursuant to this agreement bears an interest rate of 12% and expires
December 31, 1999. As further consideration for this loan and security
agreement, warrants to purchase 400,000 shares of the Company's common stock
were issued to the lender which are exercisable 200,000 at $1.50; 100,000 at
$2.00; and 100,000 at $3.00 and which expire December 31, 2002. Amounts
outstanding under the agreement are collateralized by the Company's inventory,
open orders, accounts, and all other assets of the Company. As of the date of
this report, the Company had borrowed $5,000,000 on this revolving promissory
note. With the consent of the lender, the Company has drawn in excess of 80% of
current assets to the maximum of $5,000,000. The Company is currently
negotiating with the lender to convert some of the principal and interest due
under the note to equity. If the Company fails to renegotiate the note, the
Lender could declare the note in default, which would require the Company to
raise outside capital to come into compliance.
In March 1998, the Company undertook a private offering to raise up to
$2,400,000 through the sale of up to 800,000 units, comprised of one share of
common stock, par value $.001. and a warrant to purchase one share of common
Stock at an exercise price of $5.00 per share (the "Units"). The offering
closed on August 1, 1998 with 556,000 units having been subscribed for a total
of $1,668,000. The Warrants may be exercised at any time and from time to time
until December 31, 2002. The Company has the right to redeem the Warrants at
$0.01 per Warrant upon not less that 30 days' notice if the closing price of the
Common Stock for a period of 20 consecutive trading days, ending not earlier
than 10 days prior to the date of such redemption notice, equals or exceeds
$7.00 per share, subject to adjustment in certain events.
During April 1998, the Company extended an offer to the holders of the
Company's Class A Warrants (the "Warrants") to modify the terms of such
Warrants. The Company issued 1,400,000 Warrants
6
<PAGE> 9
in connection with its initial public offering in November 1993. The initial
exercise price of $6.50 per share and the number of Warrants were subject to
adjustment on certain events, including stock splits and the issuance of
securities by the Company at prices less than the exercise price. Based on
required adjustments, the exercise price at December 31, 1997 and April 15, 1998
were $10.62 and $9.68 respectively. The adjusted number of Warrants outstanding
at December 31, 1997 and April 15, 1998 were 852,060 and 941,843 respectively.
The Warrants are also redeemable by the Company for $.01 per Warrant if the
Company's Common Stock trades at a price in excess of $9.00 for 10 consecutive
trading days, subject to the holders' rights to exercise their Warrants during
the 10 day period following the redemption notice. The Company's offer to modify
the terms of the Warrants included an agreement to reduce the exercise price of
the Warrants from $9.61 to $5.50 per share and waive the adjustments of the
number of Warrants on the condition that the Warrant holders agree to reduce the
redemption price from $9.00 to $7.00 and waive further price adjustments. The
Company does not anticipate extending the November 15, 1998 expiration date.
On October 9, 1998, the Company entered into a promissory note agreement
with a lender to provide the Company with $500,000. The note plus interest at
12% is due and payable in full on or before January 7, 1999.
3. RELATED PARTY TRANSACTIONS
In March 1998, pursuant to the terms of a stock option agreement, Bruce H.
Haglund exercised 500,000 stock options at $0.50 per share in consideration of
the forgiveness of $250,000 of legal fees owed to Mr. Haglund by the Company,
including principal and accrued interest on a $150,000 note due June 1999 from
the Company to Mr. Haglund for a portion of such fees. Legal fees in the amount
of $75,000 have been accrued for services and costs rendered through September
30, 1998.
On May 7, 1997, the Company borrowed $225,000 from a private lender and
entered into a Promissory Note for the capital received. The note, which was due
on or before June 30, 1998, has been assigned to John B. Hewlett who granted an
extension on the due date of the note to on or before June 30, 1999. The Company
also borrowed an additional $125,000 from John B. Hewlett on September 13, 1998
and entered into a Promissory Note for the capital received. The note is due in
one year. The interest rate on each of the notes to Mr. Hewlett is 12% per
annum.
Consulting fees in the amount of $25,000 have been accrued for services and
expenses incurred by Steven L. Flint through September 30, 1998.
4. INVESTMENT IN SUBSIDIARIES
Effective April 1, 1998, the Company acquired the assets of The World Golf
Federation, Inc. ("WGFI"), which markets and conducts golf events, through the
issuance of 175,000 shares of its common stock (fair market price of $4.06 per
share), and contingent consideration in the form of 50,000 additional shares and
50,000 options (with an exercise price of $5 per share), based upon achievement
of certain revenue milestones. As of November 13, 1998, no contingent shares
have been issued and no liability has been recorded as such milestones have not
been achieved. The resulting goodwill is amortized on a straight-line basis over
a period of thirty years. As of September 30 1998, the unamortized balance was
$491,666.
7
<PAGE> 10
Effective April 1, 1998, the Company acquired the assets of The Ball
Marketing Company, L.L.C. ("BMC"), which is a distributor of golf accessories
and golf balls, through the issuance of 75,000 shares of its common stock (fair
market price of $4.06 per share), and contingent consideration in the form of
50,000 additional shares and 50,000 options (with an exercise price of $5 per
share), based upon achievement of certain revenue milestones. As of November 13,
1998, no contingent shares have been issued and no liability has been recorded
as such milestones have not been achieved. The resulting goodwill is amortized
on a straight-line basis over a period of thirty years. As of September 30 1998,
the unamortized balance was $295,000.
The results of operations for both WGFI and BMC have been included in the
results of operations of the Company for the quarter ended September 30, 1998.
The proforma results of operations (assuming combination of the Company, WGFI,
and BMC at January 1, 1998 and 1997) would have been as follows:
<TABLE>
<CAPTION>
For the nine months ended For the year ended
September 30, 1998 December 31, 1997
------------------------- ------------------
<S> <C> <C>
Revenues $ 6,313,000 $ 5,827,000
Net loss $(2,065,000) $(2,268,000)
Weighted average shares 6,896,455 3,105,538
Net loss per share -- Basic $ (0.30) $ (0.73)
</TABLE>
5. YEAR 2000 MATTERS
The inability of computers, software, and others equipment utilizing
microprocessors to recognize and properly process date fields containing a two
digit year reference such as "00" for the year 2000 is commonly referred to as
the Year 2000 issue. Any of the Company's computer programs that utilize two
digit years may recognize "00" as the year 1900 rather than the year 2000. Such
recognition problems could cause disruptions of operations, including the
inability to process transactions, send invoices, or engage in similar essential
business activities.
The Company believes it has identified all significant applications that
will require modification to address the Year 2000 issue. Internal and external
resources are being used to make the required modifications and test Company
systems for the year 2000. The modifications process of all significant
applications is substantially complete, and the Company intends to complete
modifications and conduct testing by the end of 1998.
The Company is also communicating with third party vendors to determine
their compliance with the Year 2000 issue. The Company can provide no assurance
that the systems of third parties will be in compliance by the turn of the
century. The inability of the Company to complete modifications and the failure
of the third party vendors to complete compliance with the Year 2000 issue, or
both, could have a material adverse effect on the Company's ability to perform
essential business tasks which could hinder operations.
8
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
All statements, other than statements of historical fact, included in this
Form 10-QSB, including the statements under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" are, or may be deemed
to be, "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934. Such forward-looking statements involve assumptions, known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance, or achievements of the Company to be materially different
from any future results, performance, or achievements expressed or implied by
such forward-looking statements contained in this Form 10-QSB. Such potential
risks and uncertainties include, without limitation, competitive pricing and
other pressures from other golf equipment manufacturers, economic conditions
generally and in the Company's primary markets, consumer spending patterns,
perceived quality and value of the Company's products, availability of capital,
cost of labor (foreign and domestic), cost of raw materials, occupancy costs,
weather conditions, and other risk factors detailed herein and in other of the
Company's filings with the Securities and Exchange Commission. The
forward-looking statements are made as of the date of this Form 10-QSB and the
Company assumes no obligation to update the statements or to update the reasons
actual results could differ from those projected in such statements. Readers are
cautioned not to place undue reliance on these statements.
Results of Operations
Net sales for the nine months ended September 30, 1998 were $6,023,000
compared to $3,726,000 for the comparable period in 1997, an increase of
$2,297,000 or 62%. Net sales for the three months ended September 30, 1998 were
$2,751,000 compared to $953,000 for the comparable period in 1997, an increase
of $1,798,000 or 189%. The increased sales volume was mainly attributable to
increased sales in the mass market and the contribution of revenues from the
newly acquired subsidiaries in the amount of $525,000 for the three months ended
June 30, 1998 and $519,000 for three months ended September 30, 1998. The
Company continues to implement re-focused business strategies and marketing
efforts to place greater emphasis on market niches which have been the most
consistently productive since the Company's inception and which are the most
closely aligned with Fila Sport's interests and marketing emphasis; high-fashion
design and value.
Cost of sales increased from $2,749,000 for the nine months ended September
30, 1997 to $4,190,000 for the comparable period in 1998, an increase of
$1,441,000 or 52%. Cost of sales increased from $703,000 for the three months
ended September 30, 1997 to $1,813,000 for the comparable period in 1998, an
increase of $1,110,000 or 158%. The gross profit margin increased from 26% for
the nine months ended September 30, 1997 to 30% for the comparable period in
1998. The gross profit margin increased from 26% for the three months ended
September 30, 1997 to 34% for the comparable period in 1998. This increase in
gross margins resulted from higher margins on higher sales volume for the three
months and nine months ended September 30, 1998, as compared to the same periods
in 1997.
Selling, general, and administrative costs were $3,397,000 for the nine
months ended September 30, 1998 compared to $1,447,000 for the comparable period
in 1997, an increase of $1,950,000 or 135%. Selling, general, and administrative
costs were $1,612,000 for the three months ended September 30, 1998, compared to
$511,000 for the comparable period in 1997, an increase of $1,101,000 or 215%.
For the nine months and three months ended September 30, 1998, $515,000 and
$298,000, respectively, of the increase
9
<PAGE> 12
in selling, general, and administrative cost are attributable to the acquired
subsidiaries. The balance of the increase resulted primarily from increases in
the following expenses for the nine months ended September 30, 1998 as compared
to the same period in 1997 respectively: higher sales and marketing expenses
($1,555,000 as compared to $714,000), consisting of advertising, commissions,
royalties, trade show, and travel expenses; an increase in finance and
administrative expenses ($251,000 as compared to $120,000), mainly consisting of
courier cost, depreciation, equipment rental, office expense, postage, and
telephone expense; an increase in staff costs ($597,000 as compared to
$369,000), mainly consisting of salaries and medical insurance; an increase in
professional costs ($332,000 as compared to $176,000), mainly consisting of
consulting, accounting, and legal expenses. These increases include
non-recurring costs as a result of the relocation of the Company from Huntington
Beach, California to Draper, Utah, and the continued establishment and
organization of the new facility in Utah during the first three quarters. In
addition, the increases include certain costs associated with the acquisition,
relocation, and establishment of the subsidiaries acquired in April 1998. The
Company continues to consolidate operations and business processes in an effort
to reduce expenses associated with the newly acquired entities.
The Company's interest expense increased from $179,000 for the nine months
ended September 30, 1997 to $474,000 for the comparable period in 1998 and
increased from $70,000 for the three months ended September 30, 1997 to $172,000
for the comparable period in 1998 as a result of increased interest bearing debt
in 1998. The interest bearing debt increase has resulted from carrying
additional inventory.
The Company experienced a net loss and net loss per share of $2,032,000 and
$0.30, respectively, for the nine months ended September 30, 1998 compared to a
net loss and net loss per share of $233,000 and $0.08, respectively, net of the
effect of a $318,000 extraordinary gain from forgiveness of debt for the
comparable period in 1997. The Company experienced a net loss and net loss per
share of $846,000 and $0.11 respectively for the three months ended September
30, 1998 compared to a net loss and net loss per share of $311,000 and $0.11,
respectively, for the comparable period in 1997.
The Company's inventory, including deposits made on inventory, increased
from $1,925,000 at December 31, 1997 to $4,322,000 at September 30, 1998 in
anticipation of increased sales volume for 1998. Although sales volumes have
increased over last year, the increase has been less than anticipated for 1998.
Trends, Liquidity, and Capital Resources
The golf industry and sporting goods industry in general have been
suffering during 1998 due to several factors including adverse weather
conditions, the Asian economic crisis, and the end of "Tiger mania" which swept
the industry after Tiger Woods won The Masters golf tournament in 1997. These
conditions resulted in over-production, which lead to inventory accumulation.
Although the Company managed to increase its sales in 1998, anticipated sales
have not been achieved as is consistent with industry trends. The Company
believes conditions will improve in the golf industry next year, but it can't
predict outside events which may occur to positively or negatively affect
industry or Company sales.
During 1998 and throughout the Company's operating history, net losses have
caused significant cash flow problems. At December 31,1996 and 1997, the
Company's available cash and cash equivalents totaled $276,000 and $776,000
respectively. At September 30, 1998, cash and cash equivalents were $28,000,
which is indicative of the Company's need to raise additional capital to fund
continuing operations.
10
<PAGE> 13
As a result of the operating history of the Company, over the past several
years the auditors have expressed concern about the Company's ability to
continue operations. The Company believes these concerns are primarily founded
upon a lack of working capital resulting from operating at a loss, which causes
the Company to rely upon outside capital to fund ongoing operations. At the end
of the third quarter, the Company took action to cut operating expenses by
reducing its work force and bringing certain independent contractor functions
in-house. The Company also intends to pursue a new marketing plan to increase
sales. The Company believes these changes will help move existing inventory and
reduce its cash flow concerns, but it is unlikely that these changes alone will
provide sufficient capital to fund ongoing operations.
Regarding the Company's current cash position, cash used in operating
activities for the nine months ended September 30, 1998 and September 30, 1997
was $3,661,000 and $2,366,000, respectively. Working capital at September 30,
1998 was ($1,206,000) compared to ($810,000) at December 31, 1997. Cash and cash
equivalents at September 30, 1998 were $28,000 compared to $776,000 at December
31, 1997. Inventories, net of reserves and including deposits made on inventory,
at September 30, 1998 were $4,322,000 compared to $1,925,000 at December 31,
1997, an increase of $2,397,000. Also, accounts receivable increased $473,000
from $987,000 at December 31, 1997 to $1,460,000 at September 30, 1998. The
revolving line of credit increased by $1,253,000, net of discounts, from
December 31, 1997 to September 30, 1998. Notes payable of $425,000 were
outstanding at September 30, 1998, compared to $425,000 at December 31, 1997.
Accounts payable and accrued liabilities increased by $1,126,000 from December
31, 1997 to September 30, 1998. Royalties due and payable pursuant to the
license agreement with Fila Sport for the first, second, and third quarters of
1998 were paid prior to the end of the respective quarters.
Historically the Company has funded itself through operations, the sale of
stock, and borrowing. Most recently the Company has raised equity through a
private offering of its stock and through negotiation of loan agreements as are
outlined in the "FINANCING" and "RELATED PARTY TRANSACTION" sections of this
report. The Company plans to continue to use these methods to fund operations
and is currently negotiating with one of its lenders, to accept equity as
payment for interest and principal due on its note. Potential investors are also
being approached to lend to or invest in the Company. The Company will need to
substantially reduce operations if it is unable to raise outside capital within
the next several months to help fund operations.
Sales Trends
During the past two years, the Company has implemented efforts to enter the
mass retail market. As a result of these efforts, the Company has established a
distribution relationship with a large U.S. retailer. The Company anticipates
this relationship will continue through 1999. In the event this relationship
terminates for any reason, the Company could lose a measurable portion of its
anticipated sales which could have a materially adverse impact on the Company's
operations. The Company is negotiating with other retailers to carry its
products in an effort to sell more product through mass retail outlets. From
approximately June 15 to July 31, 1998, the Company sold product to a direct
sporting goods marketer on a trial basis.
11
<PAGE> 14
Seasonality
The golf business is seasonal because of winter conditions throughout much
of the World, especially the Northern United States. This seasonality causes the
Company's sales to vary by quarter. Generally purchase orders are taken during
the first and last quarters of the year and fulfilled during the second and
third quarters. Accordingly, operating results can vary substantially from
quarter to quarter and one quarter's results or any interim period may not be
representative of the Company's annual results.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
On July 14, 1998, the Company held its Annual Meeting of Stockholders at
its corporate office. Stockholders voted on the following five items: 1)
election of Directors, 2) the Company's name change, 3) the Company's
quasi-reorganization, 4) the Company's 1998 Stock Option Plan, and 5) Deloitte &
Touche LLP as auditors. A total of 6,634,938 voting shares were outstanding at
the record date. A total of 2,825,608 votes were cast by Proxy Card and
1,677,062 in person. A total of 2,232,268 votes were not cast. The results of
the items voted upon were as follows:
Proposal 1: Election of Directors
<TABLE>
<CAPTION>
TOTAL FOR ABSTAIN
--------- -------
<S> <C> <C>
John B. Hewlett, Continuing Director 4,499,211 3,459
Ralph W. Rasmussen, Continuing Director 4,499,211 3,459
Dennis L. Crockett, Continuing Director 4,499,211 3,459
Bruce H. Haglund, New Director 4,499,211 3,459
Steven L. Flint, New Director 4,499,211 3,459
</TABLE>
Proposal 2: To approve an amendment of the Company's Certificate of
Incorporation changing the name to "World Sports Marketing, Inc" at such time as
the Board determines the change will benefit the Company.
12
<PAGE> 15
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
4,489,731 8,147 4,792
</TABLE>
Proposal 3: To approve a quasi-reorganization of the Company permitting a
restatement of its balance sheet as of April 1, 1998, eliminating any deficit
and establishing a new earned surplus account for the accumulation of earnings
provided the Board determines the reorganization is appropriate.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
4,491,875 6,340 4,455
</TABLE>
Proposal 4: To approve the Company's 1998 Stock Option Plan providing for a
total of 1,800,000 shares of the Company's Common Stock to be set aside for
grant pursuant to the 1998 Stock Option Plan in accordance with the directions
of the Company's Compensation Committee as approved by the Board of Directors.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
4,453,921 31,154 17,595
</TABLE>
Proposal 5: To consider and ratify the appointment of Deloitte & Touche LLP
as independent auditor of the Company for the fiscal year ending December 31,
1998.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
--- ------- -------
<S> <C> <C>
4,494,970 4,000 3,700
</TABLE>
Item 5. Other Information
At the end of the third quarter the Company acted to vest the Chief
Executive Officer's duties and responsibilities with the Board of Directors
headed by John B. Hewlett as Chairman of the Board. John B. Hewlett held the CEO
position individually before this change.
Item 6. Exhibits and Reports on Form 8-K
During the third quarter, the Company entered into the following material
contracts which are attached hereto as the following exhibits:
10.1 Promissory Note Assignment from Tracy Jones to John B. Hewlett.
10.2 Promissory Note to John B. Hewlett.
10.3 Promissory Note to Alvin W. Emery.
13
<PAGE> 16
SIGNATURES
Pursuant to 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.
RENAISSANCE GOLF PRODUCTS, INC.
Date: November 13, 1998 By: /s/ John B. Hewlett
------------------------------------
John B. Hewlett
Chairman of the Board
Date: November 13, 1998 By: /s/ Mont E. Warren
------------------------------------
Mont E. Warren
Chief Financial Officer
(Principal Accounting Officer)
14
<PAGE> 1
EXHIBIT 10.1
ASSIGNMENT OF PROMISSORY NOTE
I, Tracy Jones as Trustee of the TRACY AND GLENDA JONES CHARITABLE SUPPORT
FOUNDATION, hereby assign all of my rights, title and interest in and to that
certain Promissory Notes dated May 7, 1997 for $225,000, which note is attached
hereto, to John B. Hewlett in exchange for the receipt of 227,325 representing
the balance due on the Promissory Note plus accrued and unpaid interest to date.
I further waive any rights or claims under the note or rights or claims related
thereto, including but not limited to repayment rights, which I have or may have
against Renaissance Golf Products, Inc.
TRACY AND GLENDA JONES
CHARITABLE SUPPORT FOUNDATION
/s/ Tracy Jones
----------------------------------------
Tracy Jones, Trustee
I, John B. Hewlett, as the assignee of the Promissory Note referenced
above, hereby agree to the extension of the due date on the Promissory Note from
June 30, 1998 to on or before June 30, 1999. All other terms and conditions
shall remain as stated in the Promissory Note.
/s/ John B. Hewlett
----------------------------------------
JOHN B. HEWLETT
I, John B. Hewlett, on behalf of Renaissance Golf Products, Inc., hereby
consent to the assignment of the Promissory Note and the extension of the due
date as set forth herein.
RENAISSANCE GOLF PRODUCTS, INC.
/s/ John B. Hewlett
----------------------------------------
John B. Hewlett, Chairman of the Board
15
<PAGE> 1
EXHIBIT 10.2
PROMISSORY NOTE
$125,000 September 13, 1998
Salt Lake City, Utah
FOR VALUE RECEIVED, the undersigned, Renaissance Golf Products, Inc., a
Delaware corporation (A Payor@), promises to pay to JOHN B. HEWLETT (A Payee@),
the principal sum of One Hundred Twenty Five Thousand Dollars and No Cents
($125,000.00), together with interest at an annual rate of twelve percent (12%).
The entire principal balance and any unpaid, accrued interest shall be due and
payable, in full, on or before June 30, 1999.
This Promissory Note may be prepaid, in full or in part, at any time
without penalty. All sums payable to Payee hereunder shall be paid to Payee in
immediately available funds.
At the option of Payee, the indebtedness evidenced by this Promissory Note
shall immediately become due and payable, without notice or demand, upon the
occurrence of any of the following events of default:
(a) a failure to pay in accordance with the terms of this note, strictly
and literally, time being of the essence;
(b) dissolution, termination of existence, insolvency, business failure,
garnishment, or levy against property or rights of, or the appointment of a
receiver of or for any part of the property of, or an assignment for the benefit
of creditors by, or the initiation of any proceedings under any bankruptcy or
insolvency laws by or against, Payor.
Unless prohibited by law, Payor agrees to pay all costs of collection,
including reasonable attorneys' fees and legal expenses, incurred by Payee in
the event this Promissory Note is not paid in accordance with its terms. Payor
agrees that the holder hereof may change any terms of payment of this Promissory
Note, including extensions of time and renewals, and release any security for,
or any party to, this Promissory Note without notifying or releasing any
accommodation maker, endorser or guarantor from liability on this Promissory
Note. Presentment or other demand for payment, notice of dishonor and protest
are hereby waived by Payor and any endorser or guarantor. Payor agrees that this
Promissory Note may not be changed orally, but only by an agreement in writing
and signed by the party against whom enforcement of any waiver, change,
modification or discharge is sought. No delay or omission on the part of Payee
in exercising any right hereunder shall operate as waiver or relinquishment of
such right or any other right hereunder. A waiver on one occasion shall not be
construed as a bar to the exercise of such right or remedy on any future
occasion. this Promissory Note shall be governed by the substantive laws of the
State of California.
IN WITNESS WHEREOF, Payor has executed this Promissory Note as of the day
first hereinabove written at Salt Lake City, Utah.
Renaissance Golf Products, Inc.
/s/ Mont E. Warren
----------------------------------------
Mont E. Warren, CFO
16
<PAGE> 1
EXHIBIT 10.3
PROMISSORY NOTE
$500,000.00 October 9, 1998
Salt Lake City, Utah
FOR VALUE RECEIVED, the undersigned, RENAISSANCE GOLF PRODUCTS, INC., a
Delaware corporation and JOHN B. HEWLETT ("Payor") promised to pay to ALVIN W.
EMERY, or holder ("Payee"), the principal sum of Five Hundred Thousand Dollars
and No Cents ($500,000.00), together with simple interest at the rate of twelve
percent (12%) per annum on the aggregate principal balance outstanding until
paid in full. This note shall be due on or before January 7, 1999. The Note
shall be repaid from sale proceeds received from Target, Oshman's, and Garts
during the fourth quarter of 1998.
In the event of default under this Note, Payee shall be entitled to collect
a reasonable attorneys' fee from the Payor, as well as other costs, charges, and
expenses reasonably incurred, in curing any default or attempting collection of
the payment due on this Note, whether or not litigation or any proceeding to
enforce this Note is commenced.
This Note together with the loan fee and accumulated interest may be
prepaid in whole or in part at any time without penalty.
If any term or provision of this Note, or any portion of any such term or
provision, shall be held invalid or against public policy, or if the application
of the same to any person or circumstance is held invalid or against public
policy, then, the remainder of this Note (or the remainder of such term or
provision) and the application thereof to other persons or circumstances shall
not be affected thereby and shall remain valid and in full force and effect to
the fullest extent permitted by law.
This Note shall be governed by and construed solely in accordance with the
laws of the State of Utah.
IN WITNESS WHEREOF, Payor has executed this Promissory Note as of the day
first hereinabove written at Salt Lake City, Utah.
"PAYOR"
RENAISSANCE GOLF PRODUCTS, INC.
BY: /s/ JOHN B. HEWLETT
--------------------------------------
JOHN B. HEWLETT, CHAIRMAN OF THE BOARD
/s/ JOHN B. HEWLETT
--------------------------------------
JOHN B. HEWLETT
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 28,498
<SECURITIES> 0
<RECEIVABLES> 1,460,275
<ALLOWANCES> 0
<INVENTORY> 4,321,976
<CURRENT-ASSETS> 5,853,946
<PP&E> 470,454
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,227,963
<CURRENT-LIABILITIES> 7,060,143
<BONDS> 0
0
0
<COMMON> 7,397
<OTHER-SE> 92,893
<TOTAL-LIABILITY-AND-EQUITY> 7,227,963
<SALES> 6,023,119
<TOTAL-REVENUES> 6,023,119
<CGS> 4,190,295
<TOTAL-COSTS> 3,397,186
<OTHER-EXPENSES> (7,048)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 474,331
<INCOME-PRETAX> (2,031,645)
<INCOME-TAX> 800
<INCOME-CONTINUING> (2,032,445)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,032,445)
<EPS-PRIMARY> (.30)
<EPS-DILUTED> 0
</TABLE>
