U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED JULY 31, 1996
Commission file number 0-24160
CARLYLE GOLF, INC.
(Exact name of small business issuer as specified in its charter)
Colorado 84-1218066
(State or other jurisdiction of incorporation) (IRS Employer
Identification No.)
10550 East 54th Avenue, Unit E
Denver, Colorado 80239
(Address of principal executive offices)
(303) 371-2889
(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. [X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class Outstanding at September 9, 1996
Common Stock, $.001 par value 4,867,274
Transitional Small Business Disclosure Format (check one): Yes[ ] No[X]
<PAGE>
INDEX
PAGE
PART I - Financial Information
ITEM 1 - Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
ITEM 2 - Management's Discussion and Analysis of
Financial Conditions and Results of Operations 7 - 9
PART II - Other Information
ITEMS 1 through 6 10
Signature Page
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
CARLYLE GOLF, INC.
BALANCE SHEETS
July 31, 1996 and October 31, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1996 1995
------- -----
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 53,928 $ 55,770
Trade accounts receivable, net
of allowance for doubtful
accounts of $50,000 and $100,000,
respectively 950,607 549,806
Inventories 1,459,728 1,774,658
Prepaid and other current assets 144,361 157,828
---------- ----------
Total current assets 2,608,624 2,538,062
Property and equipment, at cost:
Property and equipment 654,867 614,972
Less accumulated depreciation (167,665) (88,634)
---------- ----------
487,202 526,338
---------- ----------
Other assets 51,860 90,352
---------- ----------
Total Assets $3,147,686 $3,154,752
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note payable to bank $ 375,757 $ 561,092
Accounts payable 317,120 301,574
Accrued liabilities 106,447 230,808
Capitalized lease obligations 2,560 10,162
---------- ----------
Total current liabilities 801,884 1,103,636
Stockholders' Equity:
Preferred stock, $.001 par value,
authorized 2,500,001 shares,
none issued
Common stock, $.001 par value,
authorized 30,000,000 shares;
issued 4,890,474 and 4,221,201
shares, respectively 4,890 4,221
Additional paid-in capital 7,009,050 5,937,214
Compensation payable in common stock
(55,000 and 40,500 shares, respectively) 83,350 98,420
Unearned compensation (110,003) (205,243)
Accumulated deficit (4,641,485) (3,783,496)
---------- ----------
Total Stockholders' Equity 2,345,802 2,051,116
---------- ----------
Total Liabilities and Stockholders' Equity $3,147,686 $3,154,752
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CARLYLE GOLF, INC.
Statements of Operations
<TABLE>
<CAPTION>
(UNAUDITED) Quarter Ended July 31, Nine Months Ended July 31,
- --------------------------------------------------------------------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net revenue $1,289,000 $1,061,011 $3,115,022 $2,694,140
Cost of Sales 1,038,782 812,676 2,508,232 2,012,453
---------- ---------- ---------- ----------
Gross Margin 250,218 248,335 606,790 681,687
Selling, general,
and administrative
expenses 517,238 568,961 1,373,374 1,652,647
---------- ---------- ---------- ----------
Loss from
operations (267,020) (320,626) (766,584) (970,960)
Other income
(expenses):
Interest expense (35,390) (2,927) (91,405) (4,660)
Other - 648 - 21,207
---------- ---------- ---------- ----------
(35,390) (2,279) (91,405) 16,547
---------- ---------- ---------- ----------
Net loss $ (302,410) $ (322,905) $ (857,989) $ (954,413)
========== ========== ========== ==========
Net loss per
common share $ (0.07) $ (0.08) $ (0.20) $ (0.23)
========== ========== ========== ==========
Weighted average
common shares
outstanding 4,572,309 4,252,434 4,385,768 4,237,543
========= ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CARLYLE GOLF, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
(UNAUDITED) Quarter Ended July 31, Nine Months Ended July 31,
- --------------------------------------------------------------------------
1996 1995 1996 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Cash flows from
operating
activities:
Net loss $ (302,410) $ (322,905) $ (857,989) $ (954,413)
Adjustments to
reconcile net
loss to net
cash used by
operating
activities:
Depreciation 27,197 20,376 79,031 43,703
Amortization
of deferred
compensation 36,032 58,476 124,437 103,157
Issuance of
stock for
services, net - 108,050 25,228 341,560
Bad debt expense - 1,653 27,763 1,736
Changes in
operating
assets and
liabilities:
(Increase)
decrease in:
Trade
receivables (27,062) 27,537 (428,564) (293,440)
Inventories 229,462 135,032 314,930 (251,332)
Prepaid and
other assets 44,508 (208,888) 51,959 (460,596)
Increase
(decrease) in:
Accounts
payable (235,744) (260,592) 15,546 (269,279)
Accrued
liabilities 7,621 98,204 (124,361) 175,683
Other
liabilities - (9,095) - 9,892
--------- --------- --------- --------
Net cash used by
operating
activities (220,396) (352,152) (772,020) (1,553,329)
---------- ---------- ---------- ----------
Cash flows from
investing activity -
Purchase of property
and equipment (22,038) (14,360) (39,895) (430,502)
---------- ---------- ---------- ----------
Cash flows from
financing activities:
Repayment of
capitalized lease
obligations (1,093) (3,275) (7,602) (8,676)
Proceeds from
(repayments of)
note payable
to bank, net (740,840) 305,438 (185,335) 305,438
Proceeds from
issuance of
common stock 1,003,010 - 1,003,010 -
---------- ---------- ---------- ----------
Net cash
provided
(used) by
financing
activities 261,077 302,163 810,073 296,762
---------- ---------- ---------- ----------
Net increase
(decrease)
in cash 18,643 (64,349) (1,842) (1,687,069)
---------- ---------- ---------- ----------
Cash and cash
equivalents,
beginning of
period 35,285 103,561 55,770 1,726,281
---------- ---------- ---------- ----------
Cash and cash
equivalents,
end of period $ 53,928 $ 39,212 $ 53,928 $ 39,212
========== ========== ========== ==========
Supplemental
disclosure of cash
flow information -
Cash paid for
interest $ 42,414 $ 8,424 $ 94,502 $ 10,157
========== ========== ========== ==========
</TABLE>
See accompanying notes to these financial statements.
<PAGE>
CARLYLE GOLF, INC.
NOTES TO FINANCIAL STATEMENTS
1. FINANCIAL STATEMENTS:
The unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant
to such rules and regulations. In the opinion of management, the
accompanying financial statements contain all of the normal recurring
adjustments necessary to present fairly the financial position of the
Company as of July 31, 1996, and the results of its operations, and
its cash flows for the period then ended.
The operating results for the nine month period ended July 31, 1996
are not necessarily indicative of the results that may be expected
for the year ending October 31, 1996. The accompanying financial
statements should be read in conjunction with the audited financial
statements of the Company and notes thereto for the fiscal year ended
October 31, 1995.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Net sales for the quarter ended July 31, 1996, were $1,289,000, an
increase of $227,989, or 21%, from net sales of $1,061,011 for the same
quarter in 1995. Net sales for the nine months ended July 31, 1996, were
$3,115,022, an increase of $420,882, or 16%, from net sales of $2,694,140
for the same period in 1995. Unit sales for the quarter ended July 31,
1996, were 55% higher than for the same period in 1995. Unit sales for
the nine months ended July 31, 1996, were 53% higher than for the same
period in 1995. The disparity between the increase in unit volume as
compared to the increase in dollar volume was a result of the liquidation
of prior season inventory.
Cost of goods sold as a percentage of net sales was 81% and 77% for the
quarters ended July 31, 1996 and July 31, 1995, respectively. The
Company's decrease in gross margin from the prior year is primarily due to
a larger proportion of sales of older inventory which was sold at lower
prices. Management believes that the Company will maintain or slightly
improve its gross margin during the remainder of 1996 as a result of
increased shipments of the Company's current lines. However, the gross
margin will continue to be affected negatively by the sale of older
inventory for the rest of the fiscal year.
Selling, general and administrative expenses decreased as a percentage of
net sales to 40% for the quarter ended July 31, 1996 from 54% for the same
quarter in 1995. Selling, general and administrative expenses for the
nine months ended July 31, 1996 were 44% of net sales as compared to 61%
for the same period in 1995. The decreases reflect the absence of certain
non-recurring expenses included in 1995, as well as reductions in 1996.
The Company currently sells to domestic and foreign customers. The
Company obtains a letter of credit, when deemed necessary, on foreign
sales. The Company requires remittance in United States currency on all
foreign sales. Therefore, there is no risk associated with currency
fluctuation on foreign sales.
LIQUIDITY AND CAPITAL RESOURCES
During its earliest years of operations, the Company focused on developing
its products, marketing strategy and distribution network as the
foundation for growth. Despite a recent focus on increasing sales
volumes, improving margins and better managing inventory, the Company has
continued to incur losses from operations, which amount to $4,641,485
since the Company's inception. The ability of the Company to achieve
profitable operations is dependent ultimately upon its ability to increase
sales and improve gross margins.
During the quarter ended July 31, 1996, the Company completed a private
placement of the Company's common stock to an inside investor group which
raised $1,023,100. The proceeds of the transaction will be used to
finance future growth and working capital needs. Should the Company
require additional capital in the future to fund its operations and to
sustain growth, the Company may sell additional debt or equity securities
to raise the needed capital. However, there can be no assurance that
additional capital will be available from private or public markets.
The Company is continuing its efforts to improve gross margins by
controlling the quantity of inventory purchases to correspond more closely
to its sales orders. The Company has also reduced corporate overhead,
including salary reductions for key management personnel. The Company
continues to reduce inventory levels by disposing of older styles in bulk
sales, which sales also improve the Company's liquidity. The Company
expects that, with funds provided through increased sales, improved gross
margins, expense reductions, liquidation of older inventory and the
additional equity raised in the private placement, it will be able to fund
its growth through fiscal 1996 and into fiscal 1997. There can be no
assurance, however, that the Company will achieve the level of sales,
gross profit margins and expense reductions needed to achieve profitable
operations in the near future.
The Company has funded its operations from inception through July 31, 1996
from both the proceeds of its initial public offering and a subsequent
private placement, and from a working capital line of credit obtained from
a bank. The $1,500,000 line of credit is secured by accounts receivable,
inventory and equipment. Advances under the line of credit are limited to
certain percentages of accounts receivable and inventory. The borrowing
limit was approximately $970,389 at July 31, 1996.
As of July 31, 1996, the Company had $53,928 in cash and cash equivalents
on hand and working capital of $1,806,740.
Operating activities produced negative cash flows of $220,396 for the
quarter ended July 31, 1996, and of $772,020 for the nine months ended
July 31, 1996. The primary uses of cash were to fund the Company's year
to date net loss and to finance current inventory purchases.
The Company's investing activities were comprised of property and
equipment purchases totaling $22,038 for the quarter ended July 31, 1996,
and $39,895 for the nine month period ended July 31, 1996. These
purchases consist of miscellaneous office and warehouse equipment.
Financing activities produced positive cash flows of $261,077 for the
quarter ended July 31, 1996, and $810,073 for the nine months ended July
31, 1996. The primary use of cash received from the funding of the
private placement was to reduce the line of credit and trade payables.
FORWARD LOOKING STATEMENTS
To the extent that this report includes predictions of the Company's
future performance or discloses the expectations of management of the
Company as to such performance, such statements are forward looking
statements the accuracy of which cannot be guaranteed by the Company or
its management. For example, a downturn in general economic conditions,
adverse developments in the "green grass" golf apparel industry,
unanticipated problems with or delays by the Company's cutting and sewing
contractors or fabric suppliers, or the failure of presently anticipated
funding sources to materialize or continue, among other possibilities,
could cause these forward looking statements to prove to be incorrect.
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
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Stock Purchase Agreement between the Company and
certain insiders dated April 1, 1996
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
Carlyle Golf, Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CARLYLE GOLF, INC.
(Registrant)
Date: September 13, 1996 By:/s/WILLIAM A. CLYMOR
William A. Clymor,
Chairman of the Board and Chief
Executive Officer
Date: September 13, 1996 By:/s/WENDY K. WILLIAMS
Wendy K. Williams
Chief Financial Officer
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT METHOD OF FILING
- ------- ----------------
<S> <C>
10.1 Stock Purchase Agreement
between the Company and
certain insiders dated
April 1, 1996 Filed herewith electronically
27 Financial Data Schedule Filed herewith electronically
</TABLE>
STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") dated as of April 1,
1996, by and among CARLYLE GOLF, INC., a Colorado corporation (the
"Company"), and the individuals listed on Schedule A hereto (the
"Purchasers").
WHEREAS, the Company is in need of capital to finance its 1997
inventory; and
WHEREAS, pursuant to this Agreement, the Purchasers wish to provide
such capital by purchasing shares of the Company's $.001 par value Common
Stock (the "Shares"); and
WHEREAS, because all of the Purchasers are directors or executive
officers of the Company, they qualify as "accredited investors" as defined
by Rule 501(a) of Regulation D under the Securities Act of 1933, as
amended (the "Act"), the transaction will be exempt from registration
under the Act; and
WHEREAS, in order to ensure that the transaction avoids even the
appearance of impropriety, the parties have agreed that the purchase price
for the Shares to be purchased will be determined by reference to the
public trading market price at a future date when all material facts
concerning the Company's business and financial condition have been
publicly disclosed.
NOW, THEREFORE, in consideration of the aforesaid and the mutual
promises hereinafter made, the parties hereto agree as follows:
1. PURCHASE OF SHARES
1.01 SALE OF SHARES. The Company agrees to sell to the Purchasers,
and the Purchasers agree to buy from the Company, an aggregate of at least
$1,000,000 of its $.001 par value common stock (the "Shares") at a price
per share to be determined in accordance with Section 1.02. Subject to
the terms and conditions hereof, on the Closing Date the Company will
issue and sell to each Purchaser, and each Purchaser agrees to purchase
from the Company, the dollar amount of Shares set forth opposite such
Purchaser's name in column (A) of Schedule A to this Agreement. The
number of Shares to be purchased by each Purchaser for such dollar amount
shall be determined by dividing the dollar amount listed for such
Purchaser in column (A) of Schedule A by the Purchase Price as specified
in Section 1.02.
1.02 PURCHASE PRICE. Each Share will be purchased at the average
closing price ("last") of the Company's Common Stock on the NASDAQ Market
over the ten business day period beginning on the third business day
following release of the Company's second quarter sales and earnings, less
a ten percent (10%) discount.
1.03 CLOSING DATE; DELIVERY. The closing of the issuance and sale of
the Common Stock hereunder will be held at the offices of Gorsuch Kirgis
L.L.C., on June 1, 1996 or at such other time and place as to which the
Company and the Purchasers may agree (the "Closing Date"). At the Closing
(or as soon thereafter as the Purchase Price is determined), the Company
will deliver to each Purchaser stock certificates registered in such
Purchaser's name as set forth in Schedule A representing the Common Stock
to be purchased by such Purchaser, against receipt by the Company of a
check or wire transfer in immediately available funds of the Purchase
Price. If payment for the Common Stock is received by the Company from
any Purchaser prior to June 1, 1996, the Company agrees to pay interest to
such Purchaser on the funds so received, until June 1, 1996, at the same
rate it pays on its existing bank line of credit (currently prime plus
4%). Interest will be paid to the Purchasers on the Closing Date. Each
Purchaser may elect to take such interest in cash or in additional shares
of Common Stock at the Purchase Price.
1.04 INVESTMENT REPRESENTATIONS OF PURCHASERS.
Each Purchaser hereby represents and warrants as follows:
a. The Shares are being acquired for investment only and not
with a view to or for resale or distribution of any part thereof, and with
no present intention of selling, granting participation in, or otherwise
distributing the same except pursuant to the registration rights granted
by Section 3 hereof;
b. Each Purchaser has such knowledge and experience in
business and financial matters as to be capable of evaluating the merits
and risks of an investment in the Shares and has sufficient financial
resources to bear the economic risks thereof (including possible complete
loss of such investment) for an indefinite period of time. Each Purchaser
has full and free access to the Company's books, financial statements,
records, contracts, documents and other information concerning the Company
and has been afforded an opportunity to ask questions of the Company's
officers, employees, agents, accountants and representatives concerning
the Company's business, operations, financial condition, assets,
liabilities and other relevant matters, and has been given all such
information as has been requested, in order to evaluate the merits and
risks of the investment in the Shares; and
c. (i) The Shares are "restricted securities" within the
meaning of Rule 144 under the Act; (ii) the Shares are not being
registered at this time and therefore must be held until they are
subsequently registered under the Act and any applicable state or foreign
securities laws (pursuant to Section 2 hereof or otherwise) unless an
exemption from registration is available; and (iii) the exemption from
registration under Rule 144 will not be available for two years from the
date of acquisition of the Shares, and even then may not be available
unless (A) a public trading market still exists for the Common Stock at
that time, (B) adequate information concerning the Company is then
publicly available, and (C) the sale complies with the other terms and
conditions of Rule 144.
1.05 RESTRICTIVE LEGENDS. Each certificate evidencing Common Stock
which is issued pursuant to this Agreement shall bear the following
restrictive legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR STATE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED WITHOUT REGISTRATION UNDER SUCH ACT OR AN
EXEMPTION THEREFROM.
2. REGISTRATION RIGHTS
2.01 COMPANY REGISTRATION.
a. RIGHT TO PIGGYBACK ON REGISTRATION OF COMMON STOCK.
Subject to Section 2.01(c), if at any time the Company proposes to
register any Common Stock under the Act in connection with the offering of
such Common Stock (except for registration on Form S-4 or S-8 or a
registration in connection with an exchange offer solely to existing
securityholders) (a "Piggyback Registration"), the Company shall promptly
give each Purchaser prior written notice of such determination no later
than 45 days prior to the proposed filing date of such registration
statement. Any Purchaser wishing to register all or any portion of the
Purchaser's Registrable Securities must give written notice to the Company
of intent to participate no less than 15 days after the receipt of such
notice. Upon receipt of such written notice, the Company will use its
best efforts to effect the registration under the Act of such Registrable
Securities. Any Purchaser holding Registrable Securities initially
requesting to be included in such registration may elect, in writing prior
to the effective date of the registration statement filed in connection
with such registration, not to register such Registrable Securities in
connection with such registration. "Registrable Securities" means the
Shares and any additional shares of Common Stock issued as a stock
dividend or stock split or other distribution, recapitalization or
reclassification with respect to the Shares until such time as such Shares
(i) have been registered under the Act and disposed of in accordance
therewith, or (ii) have been sold pursuant to Rule 144 under the Act, or
(iii) have ceased to be outstanding.
b. SELECTION OF UNDERWRITER(S). If the Company in its sole
discretion decides a Piggyback Registration shall be underwritten, the
Company shall have sole discretion in the selection of any underwriter(s)
to manage such Piggyback Registration.
c. PRIORITY ON PIGGYBACK REGISTRATIONS. If the underwriter(s)
of a Piggyback Registration (or if a Piggyback Registration is not
underwritten, holders of a majority of the Registrable Securities being
registered) advise the Company in writing that in its or their opinion the
number of Registrable Securities proposed to be sold in such Piggyback
Registration exceeds the number which can be sold, or adversely affects
the price at which the Registrable Securities are to be sold in such
offering, the Company will include in such registration only the number of
Registrable Securities which, in the opinion of such underwriter(s) (or
the Purchasers, as the case may be) can be sold in such offering without
so affecting such price. The Registrable Securities so included in such
Piggyback Registration shall be apportioned (i) first, to any Common Stock
that the Company proposes to sell, (ii) second, pro rata among any Shares
that any Purchasers propose to sell, and (iii) third, pro rata among other
shares of Common Stock included in such Piggyback Registration, in each
case according to the total number of shares of Common Stock requested for
inclusion by said selling securityholders, or in such other proportions as
shall mutually be agreed to among such selling securityholders.
2.02 DEMAND REGISTRATION RIGHTS.
a. RIGHT TO DEMAND REGISTRATION. If, at any time after ninety
(90) days after payment is made for the Common Stock purchased hereunder,
William A. Clymor, Kenneth R. LaBounty or any group of Purchasers holding
Registrable Securities representing fifty-one percent (51%) or more in
aggregate of the Common Stock makes a written request (the "Request
Notice") to the Company for registration under the Act of all or part of
the Registrable Securities then owned by such Purchaser or Purchasers (a
"Demand Registration"), the Company shall thereupon, as expeditiously as
possible, use its best efforts to file a registration statement with the
Securities and Exchange Commission (the "Commission") and have the
registration statement declared effective by the Commission. Within 10
days after receipt of such request, the Company will serve written notice
(the "Notice") of such registration request to all Purchasers who hold
Registrable Securities, and the Company will include in such registration
all Registrable Securities of such Purchasers with respect to which the
Company has received written requests for inclusion therein (also "Request
Notices") within 20 days after the giving of the Notice. All Purchasers
requesting registration of their Registrable Securities pursuant to this
Section 3.02(a) will specify the aggregate number of Registrable
Securities to be registered and will also specify the intended methods of
disposition thereof. Each Purchaser shall be entitled so to request or
participate in a request for one Demand Registration (which shall not be
deemed to occur due to the exercise of rights under Section 2.01)
initiated under this Section 2.02(a) filed with and declared effective by
the Commission, the expenses of which shall be borne by the Company in
accordance with this Agreement, provided, however, that if a Purchaser
elects not to participate in a Demand Registration, such Purchaser shall
have no further rights to participate in or request a Demand Registration.
If at the time of any Request Notice (i) the Company is engaged
in a registered public offering as to which the Purchasers had the right
to include their Registrable Securities as a Piggyback Registration (ii)
the Company is engaged in any other activity outside of the ordinary
course of business, such as a merger, consolidation, recapitalization or
acquisition which, in the good faith judgment of the Board of Directors of
the Company, would be materially and adversely affected by the requested
registration, or (iii) the Board of Directors of the Company makes a good
faith determination that the public disclosures required to be made in the
requested registration statement would have a material and adverse impact
on the business, financial condition or prospects of the Company, the
Company may, at its option, direct that such request be delayed for a
period of not more than sixty (60) days, which right to delay may be
exercised by the Company only one time for all Purchasers.
The Company shall have the same rights to Piggyback Registration
on a Demand Registration as a Purchaser would have in a Piggyback
Registration permitted under Section 2.01 hereof.
b. SELECTION OF UNDERWRITER(S). The Purchaser(s) initially
giving a Request Notice with respect to a proposed Demand Registration
pursuant to this Section 2.02 shall have sole discretion to select any
underwriter(s), if any, to manage such Demand Registration under this
Section 2.02.
c. EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 2.02 will not be deemed to have been effected
unless it has become effective; provided, that if, within 135 days after
it has become effective, the offering of Registrable Securities pursuant
to such registration is interfered with by any stop order, injunction or
other order or requirement of the Commission or other governmental agency
or court, such registration will be deemed not to have been effected.
Nevertheless, if any such stop order is rescinded, the effective period
shall continue upon such rescission and be extended by the number of days
by which such stop order reduced the effective period.
d. PRIORITY ON DEMAND REGISTRATIONS. If the underwriter(s) of
a Demand Registration advise the Company in writing that in its or their
opinion the number of Registrable Securities proposed to be sold in such
Demand Registration exceeds the number which can be sold, or adversely
affects the price at which the Registrable Securities are to be sold, in
such offering, the Company will include in such registration only the
number of Registrable Securities which, in the opinion of such
underwriter(s) (or the Purchasers, as the case may be), can be sold in
such offering without so affecting such price. The Registrable Securities
so included in such Demand Registration shall be apportioned, pro rata,
among the Registrable Securities of the Purchasers.
e. ADDITIONAL RIGHTS. The Company agrees that it shall not
grant to any other holders of Common Stock any rights to request the
Company to effect the registration under the Act of any such shares of
Common Stock on terms more favorable to such holders than the terms set
forth in this Section 2.02 and shall not grant any other person rights to
register securities of the Company on terms which could restrict in any
way the ability of the Company fully to perform its obligations to the
Purchasers pursuant to this Section 2.02.
2.03 REGISTRATION PROCEDURES. It shall be a condition precedent to
the obligations of the Company and any underwriter(s) to take any action
pursuant to this Article II that the Purchasers requesting inclusion in
any Piggyback Registration or Demand Registration (a "Registration") shall
furnish to the Company such information regarding them, the Registrable
Securities held by them, the intended method of disposition of such
Registrable Securities, and such agreements regarding indemnification,
disposition of such securities and the other matters referred to in this
Article II as the Company shall reasonably request. With respect to any
Registration which includes Registrable Securities held by a Purchaser,
the Company will, subject to Sections 2.01 and 2.02, as expeditiously as
practicable:
(a) Prepare and file a Form S-3 registration statement, or, if
is not able to use a Form S-3, then another appropriate form prescribed by
the Commission and file with the Commission any necessary amendments to
the registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become
effective;
(b) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement and any documents
required to be incorporated by reference therein as may be necessary to
keep the registration statement effective for a period of time as
necessary to complete the offering which period shall be not less than six
months (or such shorter period which will terminate when all Registrable
Securities covered by such registration statement have been sold or
withdrawn, but not prior to the expiration of the time period referred to
in Section 4(3) of the Act and Rule 174 thereunder, if applicable) and
cause the prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Act (or any successor rule);
(c) Furnish to such Purchaser, without charge, at least one
conformed copy of the registration statement and any post-effective
amendment thereto, upon request, and a reasonable number of copies of the
final prospectus and any preliminary prospectus(es) and any amendments or
supplements thereto, and any exhibits or documents incorporated therein by
reference;
(d) Immediately notify such Purchaser, at any time when a
prospectus relating thereto is required to be delivered under the Act,
when the Company becomes aware of any event which causes the prospectus to
contain any untrue statement of material fact or omit to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made not misleading and, as promptly
as practicable thereafter, prepare and file and furnish a supplement or
amendment to such prospectus correcting same;
(e) Use its best efforts to cause all securities included in
such registration statement to be listed, by the date of the first sale of
securities pursuant to such registration statement, on the NASDAQ Small
Cap Market;
(f) Make generally available to its security holders an
earnings statement satisfying the provisions of Section 11(a) of the Act
no later than 90 days after the end of the 12-month period beginning with
the first month of the Company's first fiscal quarter commencing after the
effective date of the registration statement, which statement shall cover
said 12-month period;
(g) Make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the registration statement at
the earliest possible moment;
(h) As promptly as practicable after filing with the Commission
of any subsequently filed document which is incorporated by reference into
a registration statement (such as a Form 10-QSB), deliver a reasonable
number of copies of such document to such Purchaser;
(i) Prior to the date on which the registration statement is
declared effective, use its best efforts to register or qualify the
securities covered by the registration statement for offer and sale under
the securities or blue sky laws of each state of the United States as such
Purchaser or underwriter(s), may reasonably request and to keep each such
registration or qualification effective, including through new filings, or
amendments or renewals, during the period such registration statement is
required to be kept effective and to do any and all other acts or things
necessary or advisable to enable the disposition in all such jurisdictions
of the Registrable Securities covered by the applicable registration
statement;
(j) Enter into such customary agreements (including an
underwriting agreement in customary form) and take such other actions
customarily taken by registrants as sellers of a majority of such
Registrable Securities or the underwriter(s), if any, reasonably request
in order to expedite or facilitate the disposition of such Registrable
Securities;
(k) Obtain a "cold comfort" letter or letters from the
Company's independent public accountants in customary form as may
reasonably be requested;
(l) Make available for inspection by any Purchaser holding
Registrable Securities covered by such registration statement, by any
underwriter participating in any disposition to be effected pursuant to
such registration statement and by any attorney, accountant or other agent
retained by any such Purchaser or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of the Company, and supply all information reasonably requested by any
such Purchaser, underwriter, attorney, accountant or agent in connection
with such registration statement;
(m) Cooperate with such Purchaser and the underwriter(s), if
any, to facilitate the timely preparation and delivery of certificates
(not bearing any restrictive legends) representing the Shares to be sold
under the registration statement, and enable such securities to be in such
denominations and registered in such names as the Purchaser or the
underwriter(s), if any, may request; and
(n) Use its best efforts to cause the Shares covered by the
registration statement to be registered with or approved by such other
governmental agencies or authorities within the United States, including,
without limitation, the National Association of Securities Dealers, Inc.,
as may be necessary to enable the seller or sellers thereof or the
underwriter(s), if any, to consummate the disposition of such Registrable
Securities.
The Purchasers, upon receipt of any notice from the Company of
any event of the kind described in paragraph (d) of this Section 2.03,
will forthwith discontinue disposition of the securities until the
Purchasers' receipt of the copies of the supplemented or amended
prospectus contemplated by paragraph (d) of this Section 2.03 or until
they are advised in writing (the "Advice") by the Company that the use of
the prospectus may be resumed, and have received copies of any additional
or supplemental filings which are incorporated by reference in the
prospectus. In the event the Company shall give any such notice, the time
periods mentioned in paragraph (b) of this Section 2.03 shall be extended
by the number of days during the period from and including any date of the
giving of such notice to and including the date when each seller of
securities covered by such registration statement shall have received the
copies of the supplemented or amended prospectus contemplated by paragraph
(d) of this Section 2.03 hereof or the Advice.
2.04 REGISTRATION EXPENSES. In the case of any Registration, the
Company shall bear all of the costs and expenses of such Registration
(including, without limitation, the expenses of preparing any registration
statement, Commission and state "blue sky" filing, registration and
qualification fees, the cost of providing any legal opinion or "cold
comfort" letters reasonably requested by the Purchasers, and printing
costs); provided, however, that the Company shall not be responsible for
legal fees or expense of counsel for any of the Purchasers, or for any
underwriter's discounts or commissions that are attributable to the
Registrable Securities of a Purchaser.
2.05 INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless each Purchaser, its officers, directors and
agents and each person who controls (within the meaning of the Act and the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) such
Purchaser, including, without limitation, any general partner or manager
of any thereof, against all losses,claims, damages, liabilities and
expenses arising out of or based upon any untrue or alleged untrue
statement of a material fact contained in any registration statement,
prospectus or preliminary prospectus in which such Purchaser is
participating or in any document incorporated by reference therein or any
omission or alleged omission to state therein a material fact necessary to
make the statement therein (in the case of the prospectus or any
preliminary prospectus, in light of the circumstances under which they
were made) not misleading, except insofar as the same are caused by, based
upon or contained in any information with respect to such Purchaser
furnished in writing to the Company by such Purchaser expressly for use
therein; provided, however, that the foregoing indemnity agreement with
respect to any preliminary prospectus shall not inure to the benefit of
any Purchaser from whom the person asserting such loss, claim, damage or
liability purchased the securities if it is determined that it was the
responsibility of such Purchaser to provide such person with a current
copy of the prospectus and such current copy of the prospectus would have
cured such loss, claim, damage or liability. The Company will also
indemnify underwriters (as such term is defined in the Act), their
officers and directors and each person who controls such persons (within
the meaning of the Act) to the same extent as provided above with respect
to the indemnification of the Purchasers.
(b) INDEMNIFICATION BY THE PURCHASERS. In connection with any
Registration in which an Purchaser is participating, such Purchaser will
furnish to the Company in writing such information and affidavits with
respect to such Purchaser as the Company reasonably requests for use in
connection with any registration statement or prospectus and agrees to
indemnify and hold harmless the Company, its directors, officers and
agents and each person who controls (within the meaning of the Act and the
Exchange Act) the Company against any losses, claims, damages, liabilities
and expenses arising out of or based upon any untrue statement of a
material fact or any omission to state a material fact necessary to make
the statements in the registration statement or prospectus or preliminary
prospectus (in the case of the prospectus or preliminary prospectus, in
light of the circumstances under which they were made) not misleading, to
the extent, but only to the extent, that such untrue statement or omission
is contained in any information or affidavit such Purchaser furnished in
writing to the Company by such Purchaser expressly for use therein;
provided, however, that the amount recoverable by the Company from any
Purchaser under this indemnification provision shall not exceed the amount
of net proceeds received by the Purchaser from the sale of Registrable
Securities hereunder; and provided, further, that the indemnity agreement
contained in this Section 2.05(b) shall not apply to amounts paid in
settlement of any loss, claim, damage, liability or action arising
pursuant to a registration under Article II if such settlement is effected
without the consent of the Purchaser (which consent shall not be
unreasonably withheld). Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company
or any of the prospective sellers, or any of their respective affiliates,
directors, officers or controlling persons and shall survive the transfer
of such securities by such seller.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person
entitled to indemnification hereunder will (i) give prompt written notice
to the indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest may exist between such indemnified and
indemnifying party, permit the indemnifying party to assume the defense of
such claim, jointly with any other indemnifying party similarly notified
to the extent it may elect, with counsel reasonably satisfactory to the
indemnified party. The failure to so notify the indemnifying party shall
relieve the indemnifying party from any liability hereunder with respect
to the action to the extent that such failure materially prejudices the
indemnifying party; provided, however, that any such failure shall not
relieve the indemnifying party from any other liability which it may have
to any other party. Whether or not such defense is assumed by the
indemnifying party, the indemnifying party will not be subject to any
liability for any settlement made without its consent (but such consent
will not be unreasonably withheld). No indemnifying party will consent to
entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff
to such indemnified party of a release from all liability in respect of
such claim or litigation. An indemnifying party who is not entitled to,
or elects not to, assume the defense of a claim will not be obligated to
pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless
in the reasonable judgment of any indemnified party a conflict of interest
may exist between such indemnified party and any other of such indemnified
parties with respect to such claim, in which event the indemnifying party
shall be obligated to pay the reasonable fees and expenses of such
additional counsel or counsels.
(d) CONTRIBUTION. If for any reason the indemnification
provided for in the preceding paragraphs (a) and (b) of this Section 2.05
is unavailable to an indemnified party as contemplated by the preceding
paragraphs (a) and (b) of this Section 2.05 for any reason, then the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the indemnifying party, but
also the relative fault of the indemnified party and the indemnifying
party, as well as any other relevant equitable considerations.
Notwithstanding the foregoing, if the indemnifying party is an Purchaser ,
any contribution pursuant to this Section 2.05(d) shall be several and not
joint, and shall be limited to the amount of net proceeds received by such
Purchaser from the sale of Registrable Securities hereunder.
(e) OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding subdivisions of this Section 2.05 (with
appropriate modifications) shall be given by the Company and each seller
of Registrable Securities with respect to any required registration or
other qualification of securities under any federal or state law or
regulation or governmental authority other than the Act.
2.06 EXCHANGE ACT REPORTS. The Company agrees that at all times
after it has filed a registration statement pursuant to the requirements
of the Act relating to any class of equity securities of the Company, it
will use its best efforts to file in a timely manner all reports required
to be filed by it pursuant to the Exchange Act to the extent the Company
is required to file such reports. Upon request of a Purchaser, the
Company will furnish the requesting Purchaser with such information as may
be necessary to enable such Purchaser to effect sales pursuant to Rule
144A. Notwithstanding the foregoing, the Company may deregister any class
of its equity securities under Section 12 of the Exchange Act or suspend
its duty to file reports with respect to any class of its securities
pursuant to Section 15(d) of the Exchange Act if it is then permitted to
do so pursuant to the Exchange Act and rules and regulations thereunder.
2.07 PARTICIPATION IN REGISTRATIONS. No Purchaser may participate in
any Registration hereunder unless such Purchaser (a) agrees to sell the
Purchaser's securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements, and (b) completes and executes all questionnaires, powers of
attorney, underwriting agreements and other documents customarily required
under the terms of such underwriting arrangements.
2.08 REMEDIES. Each Purchaser shall have the right and remedy to
have the provisions of Sections 2.01 and 2.02 specifically enforced by any
court having jurisdiction in the event that the Company breaches such
provisions, and the Company shall reimburse such Purchaser for the
reasonable costs of the expenses for counsel for such Purchaser incurred
in connection with such proceeding.
2.09 OTHER REGISTRATION RIGHTS. The Company will not grant any
person any demand or piggyback registration rights with respect to the
Common Stock of the Company except that the Company may grant piggyback
registration rights ("new rights") that (i) are not in conflict or
inconsistent with, or grant rights more favorable than, the rights of the
Purchasers set forth in this Article II, (ii) do not entitle such person
to be included in any Registration, and (iii) provide that the Purchasers
have a piggyback right upon the exercise of such new rights and shall be
included in such registration statement on an equal basis with the shares
being registered pursuant to the exercise of the new rights.
3 MISCELLANEOUS
3.01 NOTICES. All notices, requests and other communications to any
party hereunder shall be in writing (including telex, facsimile or similar
writing) and shall be given to such party at its address or telex or
facsimile number set forth on the signature pages hereof or such other
address or telex or facsimile number as such party may hereafter specify
in writing to the Secretary of the Company for the purpose by notice to
the party sending such communication. Each such notice, request or other
communication shall be effective (i) if given by telex or facsimile, when
such message is transmitted to the number set forth on such signature
pages or such other number as a party may specify in writing to the
Secretary of the Company or (ii) if given by any other means, the earlier
of (x) when delivered by hand to the address set forth on such signature
pages or such other address as a party may specify in writing to the
Secretary of the Company or (y) five business days after the mailing of
such notice by certified mail. If more than one Purchaser specified the
same address for such notices, then a single notice to such address shall
be deemed to be notice to all Purchasers at that address.
3.02 BINDING EFFECT; BENEFITS. This Agreement shall be binding upon
and inure to the benefit of the parties to this Agreement and their
respective successors and permitted assigns. Nothing in this Agreement,
express or implied, is intended or shall be construed to give any person
other than the parties to this Agreement or their respective successors or
assigns any legal or equitable right, remedy or claim under or in respect
of any agreement or any provision contained herein. This Agreement
constitutes the entire agreement and understanding, and supersedes and
terminates all prior agreements and understandings, both oral and written,
between the parties hereto relating to the subject matter hereof;
provided, however, that notwithstanding anything in this Agreement, the
registration rights of Mr. LaBounty granted pursuant to the Investor
Agreement between Mr. LaBounty and the Company dated January, 1993, (the
"Investor Rights Agreement") shall not be altered or amended in any way by
this Agreement.
3.03 WAIVER. Any party hereto may, without binding any other party,
by written notice to another party (a) extend the time for the performance
of any of the obligations or other actions of such other party under this
Agreement; (b) waive compliance with any of the conditions or covenants of
such other party contained in this Agreement; and (c) waive or modify
performance of any of the obligations of such other party under this
Agreement. Except as provided in the preceding sentence, no action taken
pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute
a waiver by the party taking such action of compliance with any
representations, warranties, covenants or agreements contained herein.
Neither the waiver by any party hereto of a breach of any provision hereof
or any preceding or succeeding breach nor the failure by any party to
exercise any right or privilege hereunder shall be deemed a waiver of such
party's rights or privileges hereunder nor shall it be deemed a waiver of
such party's rights to exercise the same at any subsequent time or times
hereunder.
3.04 INVESTOR RIGHTS AGREEMENT. Mr. LaBounty hereby waives (a)
notice of the sale of additional securities as contemplated hereunder, and
(b) the right to purchase such additional securities, as provided by
Section 3.1 of the Investor Rights Agreement.
3.05 AMENDMENT. This Agreement may be amended, modified or
supplemented only by a written instrument executed by all of the parties
hereto (including Transferees of Purchasers).
3.06 ASSIGNABILITY. Neither this Agreement nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by either the Company or any Purchaser except as otherwise
contemplated hereunder.
3.07 TERMINATION. The right of any Purchaser to Demand Registration
or Piggyback Registration hereunder will terminate at such time as there
are no longer Registerable Securities held by that Purchaser.
3.08 APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF COLORADO WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAWS.
3.09 PRONOUNS. Whenever the context may require any pronoun used
herein shall include the corresponding masculine, feminine or neuter
forms.
3.10 ATTORNEYS FEES. In the event of a dispute concerning the
provisions of this Agreement which results in litigation, arbitration or
other dispute resolution proceedings, the parties agree that the legal
fees and other expenses of the prevailing party shall be borne by the
other, non-prevailing parties to the dispute.
3.11 SECTION AND OTHER HEADINGS. The section and other headings
contained in this Agreement are for reference purposes only and shall not
affect the meaning or interpretation of this Agreement.
3.12 COUNTERPARTS. This Agreement may be executed in any number of
counterparts or separate number of counterparts, each of which shall be
deemed to be an original and all of which together shall be deemed to be
one and the same instrument.
IN WITNESS WHEREOF, the Company and each Purchaser has executed this
Agreement as of the day and year first above written.
CARLYLE GOLF, INC.
By: /s/ Jerome M. Hause
Jerome M. Hause,
President
Notices: 10550 E. 54th Avenue, Unit E
Denver, CO 80239
Facsimile: 303/371-3189
KENNETH R. LABOUNTY
/s/ Kenneth R. LaBounty
Notices: Route 1, Box 164B
Two Harbors, MN 55616
Facsimile: 218/834-4504
G. RICHARD OSCARSON
/s/ G. Richard Oscarson
Notices: 625 Packford Drive
Chesterfield, MO 63017
WARREN F. MACK
/s/ Warren F. Mack
Notices: 13152 Summit Creek Road
Jacksonville, FL 32224
Facsimile: 904/223-4456
GRANT M. BEEMAN
/s/ Grant M. Beeman
Notices: Carlyle Golf, Inc.
10550 E. 54th Avenue, Unit E
Denver, CO 80239
Facsimile: 303/371-3189
W. CLAYTON COLE
/s/ W. Clayton Cole
Notices: Cherry Hills Country Club
Pro Shop
4125 S. University Blvd.
Englewood, CO 80110
Facsimile: 303/761-0825
MICHAEL D. REID
/s/ Michael D. Reid
Notices: 935 E. 80 N.
Orem, UT 84057
WENDY K. WILLIAMS
/s/ Wendy K. Williams
Notices: Carlyle Golf, Inc.
10550 E. 54th Avenue, Unit E
Denver, CO 80239
Facsimile: 303/371-3189
JEROME M. HAUSE
/s/ Jerome M. Hause
Notices: Carlyle Golf, Inc.
10550 E. 54th Avenue
Unit E
Denver, CO 80239
Facsimile: 303/371-3189
Denver, CO 80206
CLYMOR PARTNERS, LTD. L.L.P.
By: /s/ William A. Clymor
William A. Clymor, Partner
Notices: Penthouse Four
5445 DTC Parkway
Englewood, CO 80111
Facsimile: 303/486-6921
SCHEDULE A
PURCHASERS
(A)
Aggregate Purchase Price of Stock Purchases
Clymor Partners, Ltd. L.L.P. $500,000
Kenneth R. LaBounty $500,000
G. Richard Oscarson $2,000
Warren F. Mack $500
Grant M. Beeman $100
W. Clayton Cole $10,000
Michael D. Reid $500
Wendy K. Williams $5,000
Jerome M. Hause $5,000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS, STATEMENTS OF OPERATIONS AND STATEMENT OF CASH FLOWS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 54
<SECURITIES> 0
<RECEIVABLES> 1,001
<ALLOWANCES> (50)
<INVENTORY> 1,460
<CURRENT-ASSETS> 2,609
<PP&E> 655
<DEPRECIATION> (168)
<TOTAL-ASSETS> 3,148
<CURRENT-LIABILITIES> 802
<BONDS> 0
0
0
<COMMON> 5
<OTHER-SE> 2,346
<TOTAL-LIABILITY-AND-EQUITY> 3,148
<SALES> 3,115
<TOTAL-REVENUES> 3,115
<CGS> 2,508
<TOTAL-COSTS> 1,373
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 91
<INCOME-PRETAX> (858)
<INCOME-TAX> 0
<INCOME-CONTINUING> (858)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (858)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
