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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 June 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 June 30, 1998, the registrant had 7,379,938 shares outstanding of its
Common Stock, $.001 par value.
Transitional Small Business Disclosure Format (check one);
Yes [ ] No [X]
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RENAISSANCE GOLF PRODUCTS, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheets as of June 30, 1998 1
and December 31, 1997
Statements of Operations for the six months 2
ended June 30, 1998 and 1997
Statements of Operations for the three months 3
ended June 30, 1998 and 1997
Statements of Cash Flows for the six months 4
ended June 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 11
SIGNATURES 12
</TABLE>
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RENAISSANCE GOLF PRODUCTS, INC.
BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
(unaudited (audited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 347,882 $ 775,854
Accounts receivable, net $ 924,662 987,321
Inventories, net $ 4,431,732 1,924,983
Prepaid expenses 164,255 57,510
------------ ------------
Total current assets 5,868,531 3,745,668
PROPERTY AND EQUIPMENT, net 445,657 53,586
INTANGIBLE ASSETS, net 887,760 --
OTHER ASSETS 39,065 34,199
------------ ------------
Total assets $ 7,241,013 $ 3,833,453
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Revolving line of credit, net of discount $ 4,884,076 $ 3,637,487
Accounts payable $ 825,097 460,226
Accrued liabilities $ 183,806 114,673
Accrued royalties $ 118,355 118,355
Current portion of notes payable 225,000 225,000
------------ ------------
Total current liabilities 6,236,334 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; 7,379,938 and 4,613,662 issued and
outstanding as of 6-30-98 and 12-31-97, respectively 7,379 4,614
Common stock subscribed, 83,500 and 1,496,276 shares
as of 6-30-98 and 12-31-97, respectively 84 1,496
Additional paid-in capital 17,832,358 14,795,509
Accumulated deficit (16,910,142) (15,723,910)
------------ ------------
Total stockholders' equity (deficit) 929,679 (922,288)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 7,241,013 $ 3,833,453
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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RENAISSANCE GOLF PRODUCTS, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
NET SALES $ 3,272,577 $ 2,772,844
COST OF SALES 2,377,067 2,046,400
----------- -----------
Gross profit 895,510 726,444
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,785,260 936,347
----------- -----------
Operating loss (889,750) (209,903)
OTHER INCOME (EXPENSE):
Miscellaneous 1,386 75,196
Interest income 5,389 3,555
Interest expense (302,457) (108,819)
----------- -----------
Net other expense (295,682) (30,068)
----------- -----------
LOSS BEFORE INCOME TAX EXPENSE (1,185,432) (239,971)
PROVISION FOR INCOME TAXES (800) (800)
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (1,186,232) (240,771)
EXTRAORDINARY GAIN-FORGIVENESS OF DEBT -- 318,228
----------- -----------
NET INCOME (LOSS) ($1,186,232) $ 77,457
=========== ===========
EARNINGS PER SHARE:
Loss before extraordinary item ($ 0.18) ($ 0.09)
Extraordinary gain-forgiveness of debt -- 0.12
----------- -----------
Net income (loss) per common and common
equivalent share ($ 0.18) $ 0.03
=========== ===========
WEIGHTED AVERAGE OUTSTANDING COMMON
AND COMMON EQUIVALENT SHARES 6,458,679 2,740,313
</TABLE>
The accompanying notes are an integral part of the financial statements.
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RENAISSANCE GOLF PRODUCTS, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
NET SALES $ 2,600,705 $ 2,342,044
COST OF SALES 1,914,788 1,815,073
----------- -----------
Gross profit 685,917 526,971
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 1,218,852 550,015
----------- -----------
Operating loss (532,935) (23,044)
OTHER INCOME (EXPENSE):
Miscellaneous 1,328 75,105
Interest income 2,017 1,810
Interest expense (155,962) (70,849)
----------- -----------
Net other expense (152,617) 6,066
----------- -----------
LOSS BEFORE INCOME TAX EXPENSE (685,552) (16,978)
PROVISION FOR INCOME TAXES -- --
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (685,552) (16,978)
EXTRAORDINARY GAIN-FORGIVENESS OF DEBT -- 35,104
----------- -----------
NET INCOME (LOSS) ($ 685,552) $ 18,126
=========== ===========
EARNINGS PER SHARE:
Loss before extraordinary item ($ 0.10) ($ 0.01)
Extraordinary gain-forgiveness of debt -- 0.01
----------- -----------
Net income (loss) per common and common
equivalent share ($ 0.10) $ 0.01
=========== ===========
WEIGHTED AVERAGE OUTSTANDING COMMON
AND COMMON EQUIVALENT SHARES 6,935,707 2,740,313
</TABLE>
The accompanying notes are an integral part of the financial statements.
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RENAISSANCE GOLF PRODUCTS, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND JUNE 30, 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($1,186,232) $ 77,457
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 39,238 14,244
Accretion of discount 10,539 5,600
Change in allowance for doubtful accounts (56,711) 14,515
Gain on forgiveness of debt -- (318,228)
Non-cash reduction in accrued liabilities -- (75,050)
Compensation expense recorded in connection with options 1,800 7,600
Net change in operating assets and liabilities:
Accounts receivable 120,420 (762,868)
Inventories (2,506,749) (506,312)
Prepaid expenses (106,745) (39,430)
Other assets (4,866) 1,038
Accounts payable and accrued expenses 435,411 350,412
Accrued royalties -- (65,791)
Deferred revenue -- (267,723)
----------- -----------
Net cash used in operating activities (3,253,895) (1,564,536)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property & equipment (219,673) --
Purchase of license agreement (99,396) --
----------- -----------
Net cash used in investing activities (319,069) --
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in lines of credit -- 100,000
Payments on notes payable, net of discount -- (1,355,935)
Proceeds from notes payable 1,261,042 2,015,019
Proceeds from issuance of subordinated convertible debentures 337,500
Proceeds from issuance of common stock 1,885,000 337,500
----------- -----------
Net cash provided by financing activities 3,146,042 1,434,084
----------- -----------
NET DECREASE IN CASH (426,922) (130,452)
CASH and cash equivalents, beginning of period 774,804 276,012
----------- -----------
CASH and cash equivalents, end of period $ 347,882 $ 145,560
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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RENAISSANCE GOLF PRODUCTS, INC.
NOTES TO FINANCIAL STATEMENTS
For the six months and three months ended June 30, 1998 and June 30, 1997
- -------------------------------------------------------------------------
1. BASIS OF PRESENTATION
The unaudited financial statements reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position and results of operations for
the periods indicated.
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 period ended December 31, 1997 as filed with the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to the Securities and
Exchange Commission rules and regulations.
The results of operations for the interim period covered by this report
may not necessarily be indicative of operating results for the full fiscal year.
Net income (loss) per common and common equivalent share was computed
based on the net income (loss) divided by the weighted average number of common
and common equivalent shares outstanding (unless anti-dilutive) during the years
presented.
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards 128, Earnings per Share ("SFAS 128"), which is
effective for financial statements issued for periods ending after December 15,
1997. The effect on the Company of adopting SFAS 128 has not yet been
determined.
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 down in excess of
80% of current liabilities to the maximum of $5,000,000.
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<PAGE> 8
In addition to the credit lines secured by the Company last year, a
private placement of the Company's securities was undertaken in March 1998 to
raise up to $2,400,000. As of the date of this report, a total of 545,000 units,
each unit 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"), have been purchased for a total of $1,635,000 raised. Through the
private placement, the Company offered for sale up to a maximum of 550,000 Units
at a purchase price of $3.00 per Unit. The warrants included in the Units (the
"Warrants") are immediately exercisable and transferable separately from the
shares of Common Stock. 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 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 November 15, 1998 expiration date has not been changed.
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.
4. INVESTMENT IN SUBSIDIARIES
Effective April 1, 1998, the Company acquired 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 defined. As of August 19, 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 June 30 1998, the unamortized balance
was $495,833.
Effective April 1, 1998, the Company acquired 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
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<PAGE> 9
shares and 50,000 options (with an exercise price of $5 per share) based upon
achievement of certain revenue milestones, as defined. As of August 19, 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 June 30 1998, the
unamortized balance was $297,500.
The results of operations for both WGFI and BMC have been included in
the results of operations of the Company for the quarter ended June 30, 1998.
The proforma results of operations (assuming combination of the Company, WGFI,
and BMC at January 1, 1997) would have been as follows:
<TABLE>
<CAPTION>
For the six months For the year
ended ended
June 30, 1998 December 31, 1997
--------------- -----------------
<S> <C> <C>
Revenues $ 3,563,000 $ 5,827,000
Net loss $ (1,315,000) $ (2,268,000)
Weighted average shares 6,583,679 3,105,538
Net loss per share $ (0.20) $ (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 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 have a material adverse effect on the
Company's business.
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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 without limitation 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 Renaissance
Golf Products, Inc. (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 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 forward-looking statements or to update the reasons actual results could
differ from those projected in such forward-looking statements. Therefore,
readers are cautioned not to place undue reliance on these forward-looking
statements.
Results of Operations
Net sales for the six months ended June 30, 1998 were $3,273,000
compared to $2,773,000 for the comparable period in 1997, an increase of
$500,000 or 18%. Net sales for the three months ended June 30, 1998 were
$2,601,000 compared to $2,342,000 for the comparable period in 1997, an increase
of $259,000 or 11%. The increased sales volume was attributable to the
contribution of revenues from the newly acquired subsidiaries in the amount of
$526,000. 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. The Company's business is seasonal in nature.
Therefore, operating results for one or more quarters may not be indicative of
future trends or operating results for the full fiscal year.
Cost of sales increased from $2,046,000 for the six months ended June
30, 1997 to $2,377,000 for the comparable period in 1998, an increase of
$331,000 or 16%. Cost of sales increased from $1,815,000 for the three months
ended June 30, 1997 to $1,915,000 for the comparable period in 1998, an increase
of $100,000 or 6%. The gross profit margin increased from 26% for the six months
ended June 30, 1997 to 27% for the comparable period in 1998. The gross profit
margin increased from 23% for the three months ended June 30, 1997 to 26% for
the comparable period in 1998. This increase in gross margins resulted from
higher margins on higher sales volume for the three months and six months ended
June 30, 1998 as compared to the same periods in 1997.
Selling, general, and administrative costs were $1,785,000 for the six
months ended June 30, 1998 compared to $936,000 for the comparable period in
1997, an increase of $849,000 or 91%. Selling, general, and administrative costs
were $1,219,000 for the three months ended June 30, 1998 compared to $550,000
for the comparable period in 1997, an increase of $669,000 or 122%. These
increases are attributable to an increase in non-recurring costs as a result of
the relocation of the Company from Huntington Beach,
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<PAGE> 11
California to Draper, Utah and the continued establishment and organization of
the new facility in Utah during the first two quarters. In addition, the
increases are attributable to certain costs associated with the acquisition,
relocation, and establishment of the subsidiaries acquired in April 1998.
The Company's interest expense increased from $109,000 for the six
months ended June 30, 1997 to $302,000 for the comparable period in 1998 and
increased from $71,000 for the three months ended June 30, 1997 to $156,000 for
the comparable period in 1998 as a result of increased interest bearing debt in
1998.
The Company experienced a net loss before extraordinary item and net
loss per share before extraordinary item of $1,186,000 and $0.18 respectively
for the six months ended June 30, 1998 compared to a net loss before
extraordinary item and net loss per share before extraordinary item of $241,000
and $0.09 respectively for the comparable period in 1997. The Company
experienced a net loss before extraordinary item and net loss per share before
extraordinary item of $686,000 and $0.10 respectively for the three months ended
June 30, 1998 compared to a net loss before extraordinary item and net loss per
share before extraordinary item of $17,000 and $0.01 respectively for the
comparable period in 1997. The Company experienced a net loss and net loss per
share of $1,186,000 and $0.18 respectively for the six months ended June 30,
1998 compared to net income and net income per share of $78,000 and $0.03
respectively for the comparable period in 1997, after 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 $686,000 and $0.10
respectively for the three months ended June 30, 1998 compared to net income and
net income per share of $18,000 and $0.01 respectively for the comparable period
in 1997, after the effect of a $35,000 extraordinary gain from forgiveness of
debt 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 $4,432,000 at June 30, 1998 in
anticipation of increased sales volume for 1998.
Liquidity and Capital Resources
The Company's cash from operations is generated by sales of golf
products to distributors at wholesale prices. Sales to domestic accounts are
typically due 30 to 90 days after shipment while sales to international
distributors are paid by letter of credit facilities or wire transfer upon
shipment.
Net cash used in operating activities for the six months ended June 30,
1998 and June 30, 1997 was $3,254,000 and $1,565,000, respectively. Working
capital at June 30, 1998 was $(368,000) compared to ($810,000) at December 31,
1997. Cash and cash equivalents at June 30, 1998 were $348,000 compared to
$776,000 at December 31, 1997. Inventories, net of reserves and including
deposits made on inventory, at June 30, 1998 were $4,432,000 compared to
$1,925,000 at December 31, 1997, an increase of $2,507,000. Also, accounts
receivable decreased $62,000 from $987,000 at December 31, 1997 to $925,000 at
June 30, 1998. The revolving line of credit increased by $1,247,000, net of
discounts, from December 31, 1997 to June 30, 1998. Notes payable for $300,000
were outstanding at June 30, 1998 compared to $425,000 at December 31, 1997.
Accounts payable and accrued liabilities increased by $435,000 from December 31,
1997 to June 30, 1998. Royalties due and payable pursuant to the license
agreement with Fila Sport for the first and second quarters of 1998 were paid
prior to the end of the respective quarters.
The Company strives to maintain a sufficient inventory of golf club
components, bags, and accessories to fulfill orders. Generally, the Company does
not maintain a substantial finished product inventory. Management believes that
all of the golf club components and other products manufactured for the Company
by suppliers are readily available from a variety of sources.
9
<PAGE> 12
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 down in excess of
80% of current liabilities to the maximum of $5,000,000.
In addition to the credit lines secured by the Company last year, a
private placement of the Company's shares of Common Stock was recently
undertaken on March 2, 1998 to raise up to $2,400,000. As of the date of this
report, a total of approximately 545,000 Units have been subscribed for a total
of $1,635,000 raised. Through the private placement, the Company offered for
sale up to a maximum of 550,000 Units, each Unit consisting of one share of its
Common Stock, par value $.001 per share, and a warrant to purchase one share of
Common Stock. The purchase price was $3.00 per Unit. The Company offered a
minimum of 5,000 Units per investor. The Warrants are immediately exercisable
and transferable separately from the shares of Common Stock. Each Warrant
entitles its holder to purchase one share of Common Stock at an exercise price
of $5.00 per share, subject to adjustment in certain events. 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.
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 from the Company to
Mr. Haglund for a portion of such fees.
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 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
10
<PAGE> 13
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 November 15, 1998 expiration date has not been changed.
Throughout the Company's operating history, net losses have caused
significant cash flow problems, particularly during 1995 and 1996. At December
31, 1994, the Company had cash and cash equivalents of $1,060,380. At December
31, 1995 and December 31, 1996, the Company's available cash and equivalents
totaled $96,927 and $276,012 respectively. Although the proceeds from financing
activities and cash flow from operations are anticipated to be sufficient for
operations in 1998, the Company will likely require additional capital for
future development and the marketing of existing and future product lines. In
the event the Company cannot fund operations through sales after the initial
infusion of capital from financing activities, and if the Company is unable to
secure additional financing in the future, its ability to pursue its business
strategy, its financial position, and its results of operations for future
periods may be adversely impacted.
Corbin & Wertz acted as the Company's independent public accountants for
the years ending December 31, 1996 and 1997. In conjunction with the Company
moving its principal executive office and warehousing functions to Utah, the
Board of Directors determined to change to an auditor with an office in close
proximity to the Company's office in Utah. Upon the recommendation of the Board
of Directors, Corbin & Wertz, located in Irvine, California, was dismissed
effective April 30, 1998 by the Company in order for the Company to appoint
Deloitte & Touche LLP, located in Salt Lake City, Utah, as auditors. Corbin &
Wertz for the past two years has issued "going concern" opinions based upon the
Company's financial condition, but has had no disagreements with the Company.
The Board of Directors has selected Deloitte & Touche LLP to serve as
the Company's independent public accountants for the fiscal year ending December
31, 1998, subject to the approval of the Stockholders at the Annual Meeting
scheduled to be held in June 1998. To the knowledge of the Company, at no time
has Deloitte & Touche LLP had any direct or indirect financial interest in or
any connection with the Company other than as independent public accountants.
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
Not Applicable
Item 5. Other Information
Not Applicable
11
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
Change in Accountants, 8-K filed April 30, 1998
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.
<TABLE>
<S> <C>
RENAISSANCE GOLF PRODUCTS, INC.
Date: August 19, 1998 By: /s/John B. Hewlett
--------------- ------------------
John B. Hewlett
Chairman of the Board and Chief Executive Officer
Date: August 19, 1998 By: /s/Mont E. Warren
--------------- -----------------
Mont E. Warren
Chief Financial Officer
(Principal Accounting Officer)
</TABLE>
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 347,882
<SECURITIES> 0
<RECEIVABLES> 924,662
<ALLOWANCES> 0
<INVENTORY> 4,431,732
<CURRENT-ASSETS> 5,868,531
<PP&E> 445,657
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,241,013
<CURRENT-LIABILITIES> 6,236,334
<BONDS> 0
0
0
<COMMON> 7,463
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,241,013
<SALES> 3,272,577
<TOTAL-REVENUES> 3,272,577
<CGS> 2,377,067
<TOTAL-COSTS> 1,785,260
<OTHER-EXPENSES> 6,775
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (302,457)
<INCOME-PRETAX> (1,185,432)
<INCOME-TAX> (800)
<INCOME-CONTINUING> (1,186,232)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,186,232)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> 0
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