UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR FISCAL YEAR ENDED OCTOBER 31, 1996
Commission file number 0-24160
CARLYLE GOLF, INC.
(Name of Small Business Issuer in its Charter)
COLORADO 84-1218066
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
10550 East 54th Avenue, Unit E
Denver, Colorado 80239
(303) 371-2889
(Address and Telephone Number of Principal Executive Offices
and Principal Place of Business)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Title of each class
COMMON STOCK, $.001 PAR VALUE
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
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will
be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-KSB or any amendment to this Form 10-KSB. [X]
State issuer's revenues for the fiscal year ended October 31, 1996:
$4,131,282
As of December 31, 1996, 4,881,524 shares of the registrant's Common
Stock and 1,928,800 Warrants were outstanding. The aggregate market value
of the 1,672,880 shares of Common Stock held by non-affiliates was
$2,887,208 as of December 31, 1996. The market value of the shares was
calculated based on the closing sale price of such shares on the Nasdaq
SmallCap Market on such date.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT: [ ]YES [X] NO
DOCUMENTS INCORPORATED BY REFERENCE
THE INFORMATION REQUIRED BY PART III (ITEMS 9, 10, 11, AND 12) IS
INCORPORATED BY REFERENCE TO PORTIONS OF THE REGISTRANT'S DEFINITIVE PROXY
STATEMENT FOR THE 1997 ANNUAL MEETING OF STOCKHOLDERS WHICH WILL BE FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION WITHIN 120 DAYS AFTER THE
CLOSE OF THE FISCAL YEAR.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Carlyle Golf, Inc., a Colorado corporation formed in September of 1992, is
engaged in the design, contract for manufacture and marketing of men's
golf apparel. The Company markets Carlyle apparel to golf pro shops
located on golf courses in the United States and throughout the world.
Since its formation, the Company has focused on developing its products,
marketing strategy, and distribution network as the foundation for growth.
In particular, the Company obtained endorsements of the Company's products
by PGA Touring Professionals, formed an Advisory Council which includes 25
golf professionals employed by golf clubs, country clubs, and resorts who
advise the Company on design and marketing of the Company's products, and
organized a network of approximately 33 experienced, independent sales
representatives. The Company's offices and warehouse are located at 10550
East 54th Avenue, Unit E, Denver, Colorado 80239, and its telephone number
is (303)371-2889.
PRODUCTS AND DESIGN
The Company's products consist of men's golf apparel which includes 100%
cotton shirts, sweaters, sweater vests, windshirts, shorts and outer wear
garments. The spring and fall lines are introduced at major golf trade
shows in January and September of each year. The sales in the spring
shipping season typically represent 60% of the volume for the year.
The Company designs a broad range of apparel with the use of different
knits, colors, and fabrics to assure that the line appeals to a wide age
range of golfers. The line is developed starting with four or five color
stories so that individuals can find variety within a color that best
suits them. Accessory garments like sweaters and sweater vests are
designed to complement the shirts within a color story. A variety of knit
fabrications are used such as interlock, pique, jacquard, crepe, jersey,
and pima to give each golfer the maximum choice in his buying decision.
The Company currently has approximately 60 products in each line.
The prices for the Company's apparel ($55-$70 suggested retail) is between
the middle and high end of the market for men's golf apparel. Management
believes that focusing on a high quality product in the middle to upper
end market is the best strategy for long term profitability.
During 1996, the Company developed a nylon windshirt line for both spring
and fall. This product is an example of the introduction of new products
that the Company creates in an effort to increase the average sale to its
existing customers. A Polartec vest was also introduced during 1996 to
expand the Company's variety and answer a request for light weight, high-
tech fabrics that provide warmth with a minimum amount of restriction.
Both of these new products were well received based on consumer demand and
feedback from trade shows.
The Company embroiders club logos on approximately 80% of its garments.
Embroidery is applied to the garments in-house and the Company has
recently taken delivery on two additional machines to meet the expected
demand for its embroidered products.
The design staff works closely with the Company's sales, finance, and
production staff. The line is reviewed by the Vice President of Sales and
the President in concert with the Company's design team. Costs of
production are compiled and selling prices are set after review of these
costs to coincide with targeted margins. Purchase order quantities are
reviewed against order flow per style to insure that adequate amounts have
been ordered. The design team has the responsibility for negotiating the
cost of production, the timely arrival of samples, and the purchase of
trim items such as collars, cuffs and buttons. In addition, they are
responsible for testing fabrics for shrinkage and colorfastness.
SALES AND MARKETING
The Company's plan for continued sales growth is to (i) promote the
Carlyle name through advertising (ii) continue to create brand recognition
by the use of PGA Tour players wearing the product at golf tournaments
(most of which are televised) (iii) continue the use of an Advisory
Council of PGA Club Professionals that advise the Company on a variety of
issues (iv) increase its customer base by emphasizing on-time delivery and
quality embroidery (v) expand its product line (vi) increase its average
sale to each customer (vii) enter the corporate market (viii) expand its
relationship with college golf teams to include bookstores and college
golf tournaments (ix) expand its network of international distributors,
and (x) selectively acquire golf related companies that create synergy
with its existing products.
The Company has 33 independent sales representatives selling Carlyle
products throughout the United States. These sales representatives are
supported by six in-house support staff, including sales management,
customer service and marketing. The Company also has distributors in the
United Kingdom, Canada, Japan, Guam, and Singapore.
Sales in the fiscal years ended 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Domestic $3,895,000 $3,337,000 $1,452,000
International $236,000 $130,000 $249,000
</TABLE>
In fiscal 1996, approximately 75% of the Company's sales were to country
clubs, resorts and golf pro shops at golf courses. The balance of the
sales were to corporations, tournament events, and discount retailers for
the liquidation of prior season goods. No customer accounted for more
than 10% of sales in either fiscal 1995 or 1996. The Company is
attempting to expand its foreign distribution; however, no assurances can
be made that it will be successful.
The Company obtained the endorsements of eleven (11) different tour
professionals in 1996. The Company was represented on the Senior PGA
Tour, the PGA Tour, the Nike Tour, the European Tour, the Asian Tour, and
the Japanese Tour. Players received a clothing allowance of Carlyle
products and, in some cases, shares of the Company's common stock for
their services. Most of these players have signed contracts with the
Company ranging from one to three years. The contracts set minimum
requirements such as their participation in a certain number of
tournaments per calendar year for their continued endorsement eligibility
and provide for special incentives based upon their performance in
tournaments throughout the year.
The Company advertises in several of the golf trade journals throughout
the year and runs "win-ads" when one of its tour professionals wins a
tournament. During 1996, three Carlyle players won tournaments on the PGA
Tour. Management believes that brand appeal and awareness is created by
having tour professionals wear Carlyle apparel.
During 1996, the Company renewed the contracts of its Advisory Council
staff. Advisory Council members are primarily club professionals who
support the Company's apparel lines by promoting the brand within their
PGA section, wearing the product, and giving advice and counsel on the
design of each line. The length of the contract renewals were for one
year.
COMPETITION
The golf apparel business is highly competitive with a large number of
competitors and relatively low barriers to entry into the market. While
many of these competitors are larger and better financed than the Company,
management believes that its products, pricing and distribution methods
compare favorably to those of many of its competitors. Naturally,
however, there can be no assurance that the Company will not be adversely
affected in the future by competitive pressures from one or more other
golf apparel companies.
MANUFACTURING PROCESS
All raw materials are purchased in the United States. The Company does
not have any long term contractual arrangements for the purchase of raw
materials from these suppliers. The Company has experienced minimal
difficulty in satisfying its sourcing requirements for fabric and
considers its relations with its fabric contractors to be good.
Fabric and trim purchased by the Company are shipped directly to its
cutting and sewing contractors for construction of the apparel in
accordance with the Company's specifications. Cutting and sewing
contractors currently utilized by the Company are located in the United
States. Management believes that these contractors are capable of meeting
the Company's needs for the foreseeable future. The Company considers its
relations with its current cutting and sewing contractors to be good.
Finished apparel is shipped to the Company's facility in Denver, Colorado
for embroidery, final inspection, packaging and shipping. The Company
inspects every garment before shipping to its customers. The Company
believes that these rigorous standards are necessary to ensure that the
Company maintains a reputation for high quality goods. The Company has
its embroidery operations in-house to enhance its ability to control
production, reduce embroidery related costs and provide on-time delivery
to customers. The Company utilizes computerized embroidery machines to
embroider customer logos on the apparel. The Company recently added two
machines to meet the increased demand for its products.
The Company must forecast demand for its products well in advance of sales
so that production meets delivery dates. If the Company misjudges the
market demand, it will either forego additional sales or create excess
inventory. The Company made a significant effort to strengthen this area
of its business during fiscal 1995 by developing a management information
system that allows the Company to more closely monitor incoming orders and
therefore improve its forecasts of product purchases. During fiscal 1996,
the Company continued its enhanced efforts to more closely monitor its
product purchases.
TRADEMARK PROTECTION
The Company markets its products under the Carlyle label using the
Company's logo of a stylized "C" which is a registered trademark.
The Company also filed an application for registration of the wordmark
"Carlyle" with the Principal Register of the United States Patent and
Trademark Office ("USPTO"). The Company's application was rejected by the
USPTO on account of the use of a similar name by an unrelated company.
The Company plans to continue to use the Carlyle name notwithstanding the
USPTO action and may seek a license or waiver from the potentially
conflicting user cited by the USPTO. If a license or waiver is not
obtained from the company, the Company will have to rely on whatever
common law trademark rights it might have, which rights may be limited.
No assurance can be given that the Company will be able to protect its
trademarks from conflicting uses or claims of ownership. While it is
possible, the Company considers it unlikely that it would have to change
its trademarks to avoid conflict with prior third-party users.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's business offices and distribution facility are located at
10550 E. 54th Ave., Unit E, Denver, Colorado. The facility consists of
approximately 13,000 square feet used for offices, warehousing,
distribution and embroidery operations. The facility lease expires on
July 1, 1998. Monthly base rental is $2,971. The Company is also
responsible for paying its pro rata share of the costs and expenses
incurred in connection with the maintenance and operation of the building,
including but not limited to taxes, insurance, and repairs. Management
believes that the facility is sufficient to meet the Company's needs for
the next two to three years.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings to which the Company is a party or to which
the property of the Company is subject are pending and no such proceedings
are known by the Company to be contemplated.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this Form 10 KSB to a vote of security holders through the
solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET
The Company completed a public offering (the "Offering") of its $.001 par
value common stock ("Common Stock") during August 1994. The Offering
consisted of 1,700,000 shares of Common Stock which sold for $3.00 per
share and 1,700,000 warrants to purchase Common Stock (the "Warrants")
which sold for $.25 per Warrant. Each Warrant entitles the holder thereof
to purchase, at a price of $4.50, one share of Common Stock for a 23-month
period beginning September 12, 1995. The proceeds to the Company, after
the underwriting discount of 10 percent, were $4,972,500, before deduction
of other Offering expenses.
In connection with the Offering, the Company granted the underwriter an
over-allotment option to purchase an additional 255,000 shares of Common
Stock at $3.00 per share and 255,000 Warrants at $.25 per Warrant, less a
10 percent underwriting discount and a 3% non accountable expense
allowance. On September 28, 1994, the option was exercised to purchase
228,800 Warrants for $51,480, after the underwriting discount and before
deduction of other Offering expenses.
The Company's Common Stock trades over-the-counter on the Nasdaq SmallCap
Market under the Symbol "CRLG." The Company's initial public offering
(the "Offering") was declared effective August 12, 1994.
In June 1996, the Company completed a private placement of 633,873 shares
of Common Stock to an inside investor group which raised $1,003,009, net
of offering costs. The Company is in the process of registering these
shares with an S-3 registration statement.
The following table sets forth the high and low closing sale prices for
the Company's Common Stock on Nasdaq, from August 12, 1994 through October
31, 1996.
<TABLE>
<CAPTION>
<S> <C> <C>
QUARTER ENDED HIGH ($) LOW ($)
October 31, 1994 3 2 1/2
January 31, 1995 2 7/16 2 1/16
April 30, 1995 3 1/16 2 7/8
July 31, 1995 2 2 1/4
October 31, 1995 2 1/16 1 5/8
January 31, 1996 1 5/8 1 3/16
April 30, 1996 2 9/16 1 3/16
July 31, 1996 2 9/16 1 1/8
October 31, 1996 1 7/8 1 5/16
</TABLE>
SHAREHOLDERS
At October 31, 1996, the Company had 4,871,024 shares outstanding and 122
shareholders of record, although the Company estimates that there are
more than 1,200 beneficial owners of its stock.
DIVIDENDS
The Company has never declared or paid a dividend on its Common Stock.
The Board of Directors presently intends to retain any earnings for use in
the Company's business and, therefore, does not anticipate paying cash
dividends in the foreseeable future. The declaration of dividends, if
any, in the future would be subject to the discretion of the Board of
Directors, which may consider such factors as the Company's results of
operations, financial condition, capital needs, and any contractual or
other restrictions.
PREFERRED STOCK
The Company's Articles of Incorporation authorize 2,500,001 shares of
$.001 par value Convertible Preferred Stock ("Preferred Stock").
Currently, there are no shares of Preferred Stock issued and outstanding.
If issued, each share of Preferred Stock is convertible into one share of
Common Stock at the option of the holder thereof. The holders of shares
of Preferred Stock, if any, would have the right to vote, together with
the holders of all outstanding shares of Common Stock and not by classes,
on all matters on which the holders of Common Stock have the right to
vote; provided, however, that the following actions would also require the
affirmative vote of a majority of the shares of Preferred Stock voting
separately as a class (i) the authorization or issuance of any additional
shares of Preferred Stock or shares of stock having special voting rights
or priority over Preferred Stock or a ranking on parity therewith, or (ii)
any amendment of the Articles of Incorporation of the Company. Any
dividends declared by the Company would have to be paid to the holders of
shares of Preferred Stock up to an amount equal to the original purchase
price of the shares of Preferred Stock before any dividends could be paid
to the holders of Common Stock. Once this amount is paid, holders of
shares of Preferred Stock would be entitled to receive a dividend on each
share of Preferred Stock in an amount equal to one-half of the dividend
paid on each share of Common Stock.
The shares of Preferred Stock would also have various preferential rights
over shares of Common Stock in the event of the voluntary or involuntary
liquidation, dissolution or winding down of the Company, or upon the
merger or consolidation of the Company, or upon the sale, lease,
conveyance or other disposition of all or a substantial part of the
Company's property or business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The following table set forth, for the periods indicated, the percentage
of net sales represented by items derived from the Company's statements of
income:
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
1996 1995 1994
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of goods sold 82.0% 93.2% 79.4%
Gross profit 18.0% 6.8% 20.6%
Selling, general and
administrative expenses 47.1% 66.9% 82.9%
Loss from operations (28.7)% (60.2)% (62.2)%
Interest and other expense (2.7)% 0% (4.9)%
Net loss (31.4)% (60.2)% (67.1)%
</TABLE>
COMPARISON OF FISCAL YEARS ENDED OCTOBER 31, 1996 AND 1995. Net sales for
fiscal 1996 were $4,131,278, an increase of $663,832 or 19.1% over net
sales of $3,467,446 in fiscal 1995. The increase in net sales was
attributable to growth in the Company's customer base and an increase in
consumer recognition of the Company's brand name. However, net sales were
negatively impacted by the large amount of prior season goods sold during
1996. These goods were sold at substantially lower prices than the normal
wholesale price of the product line. The Company was able to liquidate
substantially all of the prior season inventory during 1996.
The gross profit margin increased in fiscal 1996 to 18.0% from 6.8% in
fiscal 1995. The increase during the year was the result of the absence
of inventory writedowns in 1996, whereas, in 1995 there was an inventory
writedown of $573,390. In fiscal 1995, excluding the inventory writedown,
the gross profit margin would have been 23.3%. The decrease of 5.3% in
fiscal 1996 was principally due to the liquidation of prior season
inventory at reduced selling prices and the early discounting of two color
stories in the Spring 1996 line. The Fall 1996 line has not been
significantly discounted.
Selling, general and administrative expenses were $1,933,003 for fiscal
1996, down $387,512 from $2,320,907 for fiscal 1995. This 16.7% reduction
in expenses was attributable in part to two unusual items in fiscal 1995
aggregating $265,000, while the remainder of the improvement was through
cost containment measures implemented in 1996. As a percentage of net
sales, selling, general and administrative expenses decreased from 66.9%
in fiscal 1995 to 46.8% in fiscal 1996.
The Company's net loss decreased $789,781 to $1,297,806 in fiscal 1996
from $2,087,587 in fiscal 1995. A major portion of this improvement was
the lack of any inventory writedowns in fiscal 1996, and the reductions in
selling, general and administrative expenses noted above. As a percentage
of net sales the net loss for fiscal 1996 was 31.4% compared to 60.2% for
fiscal 1995.
COMPARISON OF FISCAL YEARS ENDED OCTOBER 31, 1995 AND 1994. Net sales for
fiscal 1995 were $3,467,446, an increase of $1,766,044 or 103.8% over net
sales for fiscal 1994 of $1,701,402. The significant increase in net
sales was primarily attributable to the Company's continued expansion of
its distribution network, growth in the Company's customer base, and an
increase in consumer recognition of the Company's brand name.
The gross profit margin decreased to 6.8% in fiscal 1995, as compared to
20.6% in fiscal 1994. This decline was largely a result of the inventory
writedown in 1995. Due to the lack of historical information regarding
market demand, the Company's early forecasts and resulting inventory
purchases were excessive relative to the demand for the product. The
writedown was a result of an evaluation by management of the fair market
value of older styles of its apparel inventory. As a result, inventory
was written down $573,390 during 1995. The gross profit margin without
the writedown would have been 23.3% in fiscal 1995.
Selling, general and administrative expenses were $2,320,907 for fiscal
1995 compared to $1,409,537 in fiscal 1994. This increase of $911,370, or
64,7%, was primarily due to additional personnel to create the in-house
embroidery department and to facilitate increased sales volume, increased
advertising and marketing expenses, increased sales commissions due to
higher sales levels, and increases in variable expenses tied to the higher
level of sales in fiscal 1995. Additionally, $265,000 of the increase can
be attributed to two unusual items, a negotiated severance package for the
previous chief executive officer who had an employment contract and a
settlement agreement with the Company's independent embroidery contractor.
As a percentage of net sales, selling, general and administrative expense
decreased to 66.9% in fiscal 1995 compared to 82.9% in fiscal 1994.
The Company's net loss increased to $2,087,587 in fiscal 1995 from
$1,142,194 for fiscal 1994, largely as a result of the inventory writedown
and the increase in selling, general and administrative expenses noted
above. As a percentage of net sales the net loss was 60.2% in fiscal 1995
compared to 67.1% in fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
Since the creation of the Company in 1992, it has focused on developing
its products, marketing strategy and distribution network as the
foundation for growth, and as a result has incurred losses since its
inception. The ability of the Company to achieve profitable operations is
dependent ultimately upon its ability to increase sales and improve gross
profit margins.
The Company plans to improve gross margins by controlling the quantity of
inventory purchases to correspond more closely to its sales orders. The
Company has reduced the level of its inventory by disposing of older
styles of inventory through bulk sales. The Company expects that, with
funds provided through increased sales, improved gross margins, and
continued efforts to control expenses, it will be able to fund its growth
through 1997. There can be no assurance, however, that the Company will
achieve the level of sales, gross profit margins or expense reductions to
achieve profitable operations during fiscal 1997.
Should the Company require additional capital in the future to fund its
operations and to sustain growth, the Company plans to sell additional
equity securities to raise the needed capital. However, there can be an
assurance that sufficient capital would be available from the private or
public markets on terms acceptable to the Company or at all.
The Company has experienced substantial growth since 1993, with its net
sales growing from $200,000 in fiscal 1993 to over $4,000,000 in fiscal
1996. The growth in sales has increased the Company's working capital
requirements, principally to fund the losses incurred and for increases in
accounts receivable and finished goods inventory. The Company financed
its operations during fiscal 1993 and through August of 1994 with a
combination of bank borrowings and the sale of private equity. In August
of 1994, the Company completed a public sale of 1,700,000 units, each unit
consisting on one share of Common Stock and one warrant, realizing net
proceeds of approximately $4.8 million. Approximately $1.5 million of
these proceeds were used to repay outstanding bank borrowings. From
August 1994 until June 1996, the Company funded its growth through the
proceeds of the public offering and a bank revolving line of credit. In
June 1996, the Company sold an additional 633,873 shares of Common Stock
to the directors and management of the company which raised net proceeds
of $1,003,009. The Company used those proceeds, plus advances under the
bank line, to fund its operations for the remainder of fiscal 1996. The
Company will use borrowings under the bank line of credit to fund its
operations during fiscal 1997.
Operating activities in 1996 resulted in negative cash flows of $954,669
compared to negative cash flows of $1,742,956 for 1995. The primary uses
of cash were to fund the Company's net losses of $1,297,806 in fiscal
1996, and $2,087,587 in fiscal 1995, and to finance inventory purchases
needed for growth.
The Company's investing activities were comprised of property and
equipment purchases totaling $47,992 for fiscal 1996 and $477,710 for
fiscal 1995. The 1996 expenditures were for miscellaneous office and
warehouse equipment. The 1995 expenditures were largely comprised of
embroidery machines, computer imaging equipment, an inventory rack system,
an expanded trade show booth and leasehold improvements to accommodate
growth.
Cash flows from financing activities totaled $959,217 for fiscal 1996 and
$550,155 for fiscal 1995. As noted above, the Company completed a private
placement of the Company's common stock to an inside investor group during
1996, which raised net proceeds of $1,003,009. During fiscal 1995, the
Company obtained a line of credit from a bank to fund its working capital
needs and received net advances of $561,000 on the line. The Company's
greatest working capital requirements are from approximately December
through the end of March as the costs of raw materials and production are
incurred in preparation for the primary spring/summer selling season.
Management anticipates that the Company's working capital requirements
will continue to increase as the Company expands its sales volume and its
inventory.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (SFAS 121) was issued in March 1995, by the Financial Accounting
Standards Board. It requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121 is required
to be adopted for fiscal years beginning after December 15, 1995.
Adopting this statement by the Company is not expected to have a
significant effect on the financial statements.
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation (SFAS 123), was issued by the Financial Accounting
Standards Board in October 1995. SFAS 123 establishes financial
accounting and reporting standards for stock-based employee compensation
plans as well as transactions in which an entity issues its equity
instruments to acquire goods and services from non-employees. This
statement defines a fair value based method of accounting for employee
stock options or similar equity instruments, and encourages all entities
to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, Accounting for
Stock Issued to Employees. Entities electing to remain with the
accounting in Opinion 25 must make pro forma disclosures on net income
and, if presented, earnings per share, as if the fair vale based method of
accounting defined by SFAS 123 had been applied. SFAS 123 is applicable
to fiscal years beginning after December 15, 1995. The Company currently
accounts for its equity instruments using the accounting prescribed by
Opinion 25. The Company does not currently expect to adopt the accounting
prescribed by SFAS 123; however, the Company will include the disclosures
required by SFAS 123 in future financial statements.
Item 7. Financial Statements
CARLYLE GOLF, INC.
Index to Financial Statements
Page
Independent Auditors' Report F-2
Balance Sheets - October 31, 1996 and 1995 F-3
Statements of Operations - Years Ended October 31, 1996 and 1995 F-4
Statements of Stockholders' Equity - Years Ended October 31, 1996
and 1995 F-5
Statements of Cash Flows - Years Ended October 31, 1996 and 1995 F-6
Notes to Financial Statements F-7
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Carlyle Golf, Inc.:
We have audited the accompanying balance sheets of Carlyle Golf, Inc. as
of October 31, 1996 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Carlyle Golf, Inc. as
of October 31, 1996 and 1995, and the results of its operations and its
cash flow for the years then ended in conformity with generally accepted
accounting principles.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
December 20, 1996
F-2
<PAGE>
CARLYLE GOLF, INC.
Balance Sheets
October 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
<S> <C> <C>
Current assets:
Cash $ 12,326 55,770
Trade accounts receivable, net of
allowance for doubtful accounts
of $50,000 in 1996 and $100,000
in 1995 (note 3) 585,522 549,806
Inventories (notes 2 and 3) 1,782,916 1,774,658
Prepaid expenses 150,319 157,828
----------- ----------
Total current assets 2,531,083 2,538,062
----------- ----------
Property and equipment, at cost (note 3):
Furniture and fixtures 84,498 4,498
Office equipment 135,578 116,673
Leasehold improvements 48,223 48,223
Warehouse and other equipment 394,665 365,578
----------- ----------
662,964 614,972
Less accumulated depreciation (195,334) (88,634)
----------- ----------
Property and equipment, net 467,630 526,338
Other assets 46,223 90,352
----------- ----------
Total assets $ 3,044,936 3,154,752
=========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C> <C>
Current liabilities:
Note payable to bank (note 3) $ 526,307 561,092
Accounts payable 474,599 301,574
Accrued liabilities 86,628 230,808
Capitalized lease obligations - 10,162
------------ ----------
Total current liabilities 1,087,534 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 4,871,024 shares in 1996
and 4,221,201 shares in 1995 4,871 4,221
Additional paid-in capital (note 5) 6,994,703 5,937,214
Compensation payable in common stock
(77,000 shares in 1996 and
40,500 shares in 1995) (note 5) 117,304 98,420
Unearned compensation (note 5) (78,174) (205,243)
Accumulated deficit (5,081,302) (3,783,496)
----------- -----------
Total stockholders' equity 1,957,402 2,051,116
----------- -----------
Commitments (notes 5 and 7)
Total liabilities and
stockholders' equity $ 3,044,936 3,154,752
=========== ==========
See accompanying notes to financial statements.
</TABLE>
F-3
<PAGE>
CARLYLE GOLF, INC.
Statements of Operations
Years Ended October 31, 1996 and 1995
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Net revenue $ 4,131,278 3,467,446
Cost of sales 3,385,876 3,232,465
----------- ----------
Gross margin 745,402 234,981
Selling, general, and
administrative expenses 1,933,395 2,320,907
----------- ----------
Loss from operations (1,187,993) (2,085,926)
Other income (expenses):
Interest expense (109,813) (22,890)
Other - 21,229
----------- ----------
(109,813) (1,661)
----------- ----------
Net loss $(1,297,806) (2,087,587)
============ ===========
Net loss per common share $ (.29) (0.49)
============ ===========
Weighted average common shares
outstanding 4,535,045 4,242,659
============ ===========
See accompanying notes to financial statements.
</TABLE>
F-4
<PAGE>
CARLYLE GOLF, INC.
Statements of Stockholders' Equity
Years Ended October 31, 1996 and 1995
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL COMPENSATION
PAID-IN PAYABLE IN
SHARES AMOUNT CAPITAL COMMON STOCK
<S> <C> <C> <C> <C>
BALANCE, OCTOBER 31, 1994 4,156,451 $ 4,157 5,725,752 -
Compensation payable in
common stock (note 5) - - - 338,266
Common stock issued to tour
players (note 5) 109,000 109 239,737 (239,846)
Amortization of unearned
compensation - - - -
Common stock received and
compensation forfeited upon
termination of agreements
(note 5) (44,250) (45) (28,275) -
Net loss - - - -
---------- -------- ---------- -----------
BALANCE, OCTOBER 31, 1995 4,221,201 4,221 5,937,214 98,420
Common stock issued for cash,
net of offering costs
(note 5) 633,873 634 1,002,375 -
Compensation payable in
common stock (note 5) - - - 73,387
Common stock issued to tour
players (note 5) 29,500 30 54,473 (54,503)
Amortization of unearned
compensation - - - -
Common stock received and
compensation forfeited upon
termination of agreements
(note 5) (13,550) (14) 641 -
Net loss - - - -
--------- -------- ---------- -----------
BALANCE, OCTOBER 31, 1996 4,871,024 $ 4,871 6,994,703 117,304
========== ======== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
UNEARNED ACCUMULATED
COMPENSATION DEFICIT TOTAL
<S> <C> <C> <C>
BALANCE, OCTOBER 31, 1994 (137,424) (1,695,909) 3,896,576
Compensation payable in
common stock (note 5) (256,050) - 82,216
Common stock issued to tour
players (note 5) - - -
- Amortization of unearned
compensation 163,151 - 163,151
Common stock received and
compensation forfeited upon
termination of agreements
(note 5) 25,080 - (3,240)
Net loss - (2,087,587) (2,087,587)
---------- ---------- -----------
BALANCE, OCTOBER 31, 1995 (205,243) (3,783,496) 2,051,116
Common stock issued for cash,
net of offering costs
(note 5) - - 1,003,009
Compensation payable in
common stock (note 5) (48,803) - 24,584
Common stock issued to tour
players (note 5) - - -
Amortization of unearned
compensation 175,872 - 175,872
Common stock received and
compensation forfeited upon
termination of agreements
(note 5) - - 627
Net loss - (1,297,806) (1,297,806)
---------- ---------- -----------
BALANCE, OCTOBER 31, 1996 (78,174) (5,081,302) 1,957,402
========== ========== ===========
See accompanying notes to financial statements.
</TABLE>
F-5
<PAGE>
CARLYLE GOLF, INC.
Statements of Cash Flows
Years Ended October 31, 1996 and 1995
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,297,806) (2,087,587)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation 106,700 65,291
Amortization of unearned
compensation 175,872 163,151
Issuance of stock for
services, net 25,211 78,976
Provision for doubtful accounts
receivable 24,420 60,000
Write-down of inventory
to estimated market value - 573,390
Changes in operating assets
and liabilities:
(Increase) decrease in:
Trade accounts receivable (60,136) (114,704)
Inventories (8,258) (304,808)
Prepaid expenses
and other assets 51,638 (149,649)
Increase (decrease) in:
Accounts payable 173,025 (181,631)
Accrued liabilities (144,180) 154,615
---------- ----------
Net cash used
by operating activities (953,514) (1,742,956)
---------- ----------
Cash flows from investing activity -
purchase of property and equipment (47,992) (477,710)
---------- ----------
Cash flows from financing activities:
Proceeds from issuance of stock 1,003,009 -
Increase (decrease) in note
payable to bank, net (34,785) 561,092
Repayment of capitalized
lease obligations (10,162) (10,937)
---------- ----------
Net cash provided
by financing activities 958,062 550,155
---------- ----------
Net decrease in cash (43,444) (1,670,511)
Cash, beginning of year 55,770 1,726,281
---------- ----------
Cash, end of year $ 12,326 55,770
========== ===========
Supplemental disclosure of
cash flow information -
cash paid for interest $ 111,028 22,890
========== ===========
See accompanying notes to financial statements.
</TABLE>
F-6
<PAGE>
CARLYLE GOLF, INC.
Notes to Financial Statements
October 31, 1996 and 1995
- --------------------------------------------------------------------------
- ----
(1) Summary of Significant Accounting Policies
Nature of Business
Carlyle Golf, Inc. (the Company) a Colorado corporation formed in
September of 1992, is engaged in the design, contract for
manufacture and marketing of men's golf apparel. The apparel
consists of 100% cotton shirts, sweaters, vests, pullovers, shorts,
belts and nylon windshirts. The Company markets Carlyle apparel to
golf pro shops located on golf courses in the United States and
throughout the world.
During its early years of operation, the Company has focused on
developing its products, marketing strategy, and distribution
network as the foundation for growth, and as a result has incurred
losses from operations since its inception. The ability of the
Company to achieve profitable operations is dependent ultimately
upon its ability to increase sales and improve gross profit
margins. Should the Company require additional capital in the
future to fund its operations and support its working capital
requirements, the Company will attempt to sell additional equity
securities to raise capital. However, there can be no assurance
that additional capital would be available from private or public
markets on terms acceptable to the Company or at all.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out)
or market. Cost primarily includes materials and cut and sew
costs.
Property and Equipment
Depreciation and amortization is provided on the straight-line
method over the estimated useful lives (ranging from 3 to 7 years)
of the respective assets, or the term of the related lease, if
shorter. The cost of normal maintenance and repairs is charged to
operating expense as incurred. Expenditures which significantly
increase the life of an asset are capitalized and depreciated over
the estimated remaining useful life of the asset. The cost of
assets sold, or otherwise disposed of, and the related accumulated
depreciation or amortization are removed from the accounts, and any
gains or losses are reflected in operations currently.
F-7
Net Loss Per Common Share
Net loss per common share is based on the weighted average number
of common shares outstanding plus common shares to be issued for
compensation. Convertible preferred stock, options and warrants
have not been included in the computation of earnings per share
because their effect would be antidilutive.
Income Taxes
The Company accounts for income taxes under an asset and liability
method. Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities measured using enacted tax rates expected to apply to
taxable income in the years in which these temporary differences
are expected to be recovered or settled. A tax benefit or expense
is recognized for the net change in the deferred tax asset or
liability during the period. The effect on deferred tax assets and
liabilities due to a change in tax rates is recognized in
operations in the period that includes the enactment date.
Reclassifications
Certain reclassifications have been made to the 1995 financial
statements to conform to the 1996 presentation.
(2) Inventories
The following is a summary of inventories at October 31:
<TABLE>
<CAPTION>
1995 1996
------ ------
<S> <C> <C>
Materials $ 811,177 400,937
Finished goods 971,739 1,373,721
----------- ----------
$ 1,782,916 1,774,658
=========== ==========
</TABLE>
In October 1995, the Company recorded an inventory writedown of
$573,390 to reduce the cost of certain merchandise to its estimated
net realizable value.
(3) Note Payable to Bank
In July 1995, the Company obtained a $1,500,000 revolving line of
credit from a bank. The 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 $624,000 at
October 31, 1996. The note payable is due on July 7, 1999, with
interest payable monthly at 4% above the bank's prime lending rate
(12.25% at October 31, 1996). Under the line of credit the Company
is required to meet certain financial covenants. As of October 31,
1996, the Company was in default of certain covenants. Subsequent
to October 31, 1996, the Company amended the agreement and obtained
a waiver of the violations. The amended agreement established
financial covenants through October 31, 1997. Prior to October 1,
1997, the Company and bank must negotiate the financial covenants
for the remaining term of the note. If the bank and the Company
cannot agree on the new financial covenants, the bank may designate
such financial covenants in its sole discretion, and the failure of
the Company to satisfy such covenants shall constitute a default by
the Company.
(4) Income Taxes
For the years ended October 31, 1996 and 1995, the Company has not
recorded current income tax expense since it has reported losses
for income tax purposes. The Company's net deferred tax asset for
future deductions and its net operating loss carryforward in excess
of future taxable amounts is offset by a valuation allowance.
The tax effects of temporary differences that give rise to
significant deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
Deferred tax assets:
Net operating loss
carryforwards $1,480,000 1,131,000
Allowance for doubtful accounts 18,000 37,000
Inventory valuation 25,000 239,000
Other 23,000 22,000
----------- --------
1,546,000 1,429,000
Less valuation allowance (1,546,000) (1,429,000)
----------- -----------
Net deferred tax assets $ - $ -
=========== ===========
</TABLE>
The Company has available at October 31, 1996, net operating loss
carryforwards of approximately $4,000,000 which may be used to
offset future taxable income. Net operating loss carryforwards are
subject to certain rules limiting their annual usage. These
carryforwards, if not utilized, will expire in the years 2007
through 2011.
(5) Stockholders' Equity
Common Stock
On June 24, 1996, the Company issued 633,873 shares of common stock
to the management group of the Company. The net proceeds to the
Company were $1,003,009.
Initial Public Offering
During August 1994, the Company completed an initial public
offering of 1,700,000 shares of common stock for $3.00 per share
and 1,700,000 warrants for the purchase of one share of common
stock for $.25 per warrant. During September 1994, the underwriter
exercised the overallotment option to purchase 228,800 warrants.
The warrants have an exercise price of $4.50 per share and expire
in July 1997. The warrants are redeemable under certain
circumstances by the Company for $.05 per warrant. The Company
sold the underwriter, for nominal consideration, a warrant to
purchase up to 170,000 shares of common stock for $3.90 per share
and 170,000 warrants (to purchase shares of common stock for $4.50
per share) for $.325 per warrant. The underwriter's warrants
expire in July 1999.
Stock Bonus Plan
The Company has adopted an incentive stock bonus plan (Stock Bonus
Plan) whereby the Board of Directors has the authority to award
shares of the Company's common stock to certain officers,
directors, employees, and consultants. The total number of shares
of common stock authorized under the Stock Bonus Plan is 760,000,
of which 137,250 shares have been awarded at October 31, 1996.
Unearned compensation attributed to the value of the shares awarded
has been recorded in a separate component of stockholders' equity
and is being amortized to compensation expense over the vesting
period of the awards. During the years ended October 31, 1996 and
1995, 14,950 and 33,750 previously issued shares were returned to
the Company and canceled and the remaining unearned compensation
was forfeited.
Pro Plan
The Company has adopted the Stock Purchase and Redemption and
Nonqualified Stock Option Plan for Club Professionals and PGA Tour
Players (the Pro Plan), whereby the Board of Directors has the
authority to award shares of the Company's common stock or to grant
options to purchase shares of common stock to certain PGA club
professionals and PGA tour players. The total number of shares of
common stock authorized under the Pro Plan is 1,010,000, of which
378,000 have been awarded at October 31, 1996. The Company granted
85,750 and 149,500 shares under this plan during the years ended
October 31, 1996 and 1995, respectively. Of the 85,750 shares
granted during fiscal 1996, 77,000 had not yet been issued at
October 31, 1996. During the year ended October 31, 1996, 32,750
shares were returned to the Company and canceled and the remaining
unearned compensation was forfeited. To date, no stock options
have been granted under the Pro Plan.
PGA Tour Player Agreements
The Company has entered into agreements with several PGA Tour
players to exclusively wear the Company's shirts and sweaters
at all golf events in which the player participates. The tour
players have also agreed to make themselves available to the
Company one business day per calendar year for promotional
purposes and to enter a minimum of 18 PGA tour sanctioned
tournaments per calendar year. Upon execution of such an
agreement, the tour player is issued a certain number of
shares of common stock of the Company or options to purchase
shares of common stock of the Company subject to the terms and
conditions of the Company's Pro Plan. Stock options may not
be issued at less than 50% of the fair market value at the
date of award. Additional shares or options are issued to the
tour player during the term of the agreement if the tour
player wins or places in the top five in specified
professional golf tournaments. The agreements have initial
terms of one to three years. Unearned compensation attributed
to the value of the shares awarded has been recorded in a
separate component of stockholders' equity and is being
amortized over the terms of the agreements.
Advisory Council Agreements
The Company has entered into agreements with several PGA club
professionals to serve on the Company's advisory council and
advise the Company on matters relating to its primary
business. Each individual agreement has an initial term of
three years and a subsequent renewal period of one year.
Under the terms of the initial agreements, each club
professional (advisor) was awarded 3,750 shares of common
stock of the Company under the terms and conditions of the Pro
Plan. Under the renewal agreements, each advisor is awarded
1,000 shares of common stock of the Company. The shares
issued under the agreements are subject to redemption by the
Company until the advisor has completed the term of his
agreement. Unearned compensation attributed to the value of
the shares awarded has been recorded in a separate component
of stockholders' equity and is being amortized over the terms
of the agreements.
Stock Options
During fiscal 1994, the Company established a Stock Option/Stock
Appreciation Rights Plan (Option Plan) for key employees. The
Option Plan provides for the grant of Incentive Stock Options
(ISOs), Nonqualified Stock Options (NQSOs) and, in conjunction with
ISOs or NQSOs, Tandem Stock Appreciation Rights (SARs). The Option
Plan requires all options granted under the Option Plan to be made
at not less than the fair market value of the date of grant and all
options expire 10 years from the date of grant. The Option Plan
provides that SARs may only be granted in conjunction with related
stock options. The Company has reserved 750,000 shares of the
Company's common stock for issuance under the Option Plan. As of
October 31, 1996 options for 399,220 shares have been awarded under
the Option Plan. The Company has issued options for an additional
50,000 shares subsequent to October 31, 1996. In fiscal 1995, the
Company established the CEO plan, which provided for the grant of a
nonqualified stock option to the Chief Executive Officer to acquire
250,000 common shares under terms and conditions similar to the
Option Plan.
The following table summarizes activity under the stock option plans:
<TABLE>
<CAPTION>
Shares under Option Price
option per share
<S> <C> <C>
Option Plan:
Outstanding, October 31, 1994 320,000 $ 2.66 - 3.00
Granted 30,500 2.25 - 2.66
--------
Outstanding, October 31, 1995 350,500 2.25 - 3.00
Granted 53,220 1.25 - 1.75
Forfeited (4,500) 1.25
--------
Outstanding at October 31, 1996 399,220 1.25 - 3.00
========
Exercisable at October 31, 1996 296,720
========
CEO Plan:
Outstanding, October 31, 1994 - -
Granted 250,000 2.66
========
Outstanding and exercisable,
October 31, 1996 62,500 2.66
========
</TABLE>
(6) Related Party Transactions
In fiscal 1995, the Company provided $12,500 of prize money and
shirts valued at $1,100 to a golf tournament sponsored by a PGA
Club professional who is a member of the Board of Directors, a
member of the advisory council, and a stockholder.
(7) Commitments
Leases
The Company leases office space, equipment and warehouse facilities
under noncancelable operating leases expiring through June 1998.
Total rent expense was $43,227 and $42,794 for the years ended
October 31, 1996 and 1995, respectively. The total minimum rental
commitments at October 31, 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Years ending October 31:
1997 $ 35,652
1998 23,768
--------
$ 59,420
========
</TABLE>
Employment Agreements
The Company has employment contracts with certain employees with
remaining terms of one to three years at amounts approximating
their current levels of compensation. The remaining aggregate
commitment at October 31, 1996 under such contracts is
approximately $170,000.
Purchase Commitments
The Company has signed noncancelable purchase contracts totaling
approximately $554,000 as of October 31, 1996 for the manufacture
of material for golf shirts.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In accordance with a recommendation of the officers and of the Audit
Committee of Carlyle Golf, Inc. (the "Company"), the Company's Board of
Directors on May 8, 1995 selected the firm of KPMG Peat Marwick LLP as the
Company's independent auditors for the fiscal year ending October 31,
1995, which selection was ratified by the Company's shareholder at the
Annual Meeting of Shareholders held on June 12, 1995. The firm of HEIN +
ASSOCIATES LLP served as the Company's independent auditors for the fiscal
year ending October 31, 1994.
The Company believes there were no disagreements with HEIN + ASSOCIATES
LLP within the meaning of Item 304 of Regulation S-B on any matters of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure in connection with the practices, financial
statement disclosure, or auditing scope or procedure in connection with
the audits of the Company's financial statements for the fiscal year ended
October 31, 1994, for the two months ended October 31, 1993 and for the
period from September 29, 1992 (inception) to August 31, 1993 or for any
subsequent interim period, which disagreements if not resolved to their
satisfaction would have caused HEIN + ASSOCIATES LLP to issue an adverse
opinion or a disclaimer of opinion, and neither report contained an
adverse opinion or disclaimer of opinion or was qualified or modified as
to uncertainty, audit scope or accounting principles.
During the fiscal year ended October 31, 1994, for the two months ended
October 31, 1993 and for the period from September 29, 1992 (inception) to
August 31, 1993 and through the present, there were no reportable events
(as defined in Item 304 of Regulation S-B) with HEIN + ASSOCIATES LLP.
The Company did not consult with KPMG Peat Marwick LLP regarding the
application of accounting principles to a specified transaction or the
type of audit opinion that might be rendered on the Registrant's financial
statements during the fiscal year ended October 31, 1994, for the two
months ended October 31, 1993 and for the period from September 29, 1992
(inception) to August 31, 1993 and through the date of their appointment.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS OF REGISTRANT. Information as to the names, ages, positions and
offices with the Company, terms of office, periods of service, business
experience during the past five years and other directorships held by each
director of the Company is set forth under the caption OFFICERS AND
DIRECTORS appearing in the Company's Definitive Proxy Statement for the
1997 Annual Meeting of Shareholders, and is incorporated herein by
reference.
EXECUTIVE OFFICERS OF REGISTRANT. The names and ages of all executive
officers of the Registrant are set forth under the caption OFFICERS AND
DIRECTORS appearing in the Company's Definitive Proxy Statement for the
1997 Annual Meeting of Shareholders, and is incorporated herein by
reference.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT. Section 16(a) of the
Securities Exchange Act of 1934 requires the Company's officers and
directors and persons who own more than ten percent of the Company's
outstanding common stock to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Officers,
directors and greater than ten percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms
they file.
To the Company's knowledge, during the fiscal year ended October 31, 1996,
all directors, officers or more than ten percent shareholders timely filed
their Form 3's and Form 4's.
ITEM 10. EXECUTIVE COMPENSATION
Information concerning remuneration received by the Company's directors
and executive officers and stock options is set forth under the caption
EXECUTIVE COMPENSATION in the Company's Definitive Proxy Statement for the
1997 Annual Meeting of Shareholders, and is incorporated herein by
reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information as to the security ownership of certain beneficial owners of
the Company and by each of its directors and officers as of December 31,
1996 and the amount of such shares with respect to which certain of the
officers have the right to acquire beneficial ownership, is set for under
the caption SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
appearing in the Company's Definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders, and is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning transactions with management and others and certain
business relationships is set forth under the caption CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS appearing in the Company's
Definitive Proxy Statement for the 1997 Annual Meeting of Shareholders,
and is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT NO. DESCRIPTION
3.1 Restated Articles of Incorporation with Amendments as
filed with the Colorado Secretary of State on April
13, 1994 filed as Exhibit 3.1 to the Registrant's Form
SB-2 Registration Statement (No. 33-78448-D) and
incorporated herein by reference.
3.2 Bylaws of the Company as adopted by its Board of
Directors on September 29, 1992 filed as Exhibit 3.2
to the Registrant's Form SB-2 Registration Statement
(No. 33-78448-D) and incorporated herein by reference.
4.1 Specimen Certificate for $.001 par value Convertible
Preferred Stock of the Company filed as Exhibit 4.1 to
the Registrant's Form SB-2 Registration Statement (No.
33-78448-D) and incorporated herein by reference.
4.2 Specimen Certificate for $.001 par value Common Stock
of the Company filed as Exhibit 4.2 to the
Registrant's Form SB-2 Registration Statement (No. 33-
78448-D) and incorporated herein by reference.
4.3 Specimen Certificate for Warrant to Purchase Common
Stock of the Company filed as Exhibit 4.3 to the
Registrant's Form SB-2 Registration Statement (No. 33-
78448-D) and incorporated herein by reference.
10.1 Investment Agreement dated January 1993 between the
Company, David J. Bullock, Timothy B. Kneen and
Kenneth R. LaBounty, as amended, filed as Exhibit
10.1 to the Registrant's Form SB-2 Registration
Statement (No. 33-78448-D) and incorporated herein by
reference.
10.2 Amended and Restated Stock Purchase and Redemption and
Nonqualified Stock Option Plan for Club Professionals
and PGA Tour Players filed as Exhibit 10.1 to the
Registrant's Form 10-QSB dated April 30, 1996 and
incorporated herein by reference.
10.3 1993 Stock Bonus Plan for Officers, Directors,
Employees and Consultants filed as Exhibit 10.3 to the
Registrant's Form SB-2 Registration Statement (No. 33-
78448-D) and incorporated herein by reference.
10.4 1994 Stock Option and Appreciation Rights Plan filed
as Exhibit 10.4 to the Registrant's Form SB-2
Registration Statement (No. 33-78448-D) and
incorporated herein by reference.
10.5 Executive Employment Agreement with Warren F. Mack
dated May-1, 1993 filed as Exhibit 10.5 to the
Registrant's Form SB-2 Registration Statement (No. 33-
78448-D) and incorporated herein by reference.
10.6 Executive Employment Agreement with David J. Bullock
dated February 25, 1994 filed as Exhibit 10.6 to the
Registrant's Form SB-2 Registration Statement (No. 33-
78448-D) and incorporated herein by reference.
10.7 Form of Advisory Council Agreement filed as Exhibit
10.7 to the Registrant's Form SB-2 Registration
Statement (No. 33-78448-D) and incorporated herein by
reference.
10.8 Form of PGA Tour Players Agreement filed as Exhibit
10.8 to the Registrant's Form SB-2 Registration
Statement (No. 33-78448-D) and incorporated herein by
reference.
10.9 Note, Loan and Security Agreement dated August 24,
1993 between the Company and Merrill Lynch Business
Financial Services, Inc. filed as Exhibit 10.9 to the
Registrant's Form SB-2 Registration Statement (No. 33-
78448-D) and incorporated herein by reference.
10.10 Pledge and Collateral Assignment of Securities Account
dated August 24, 1993 between Kenneth R. LaBounty and
Merrill Lynch Business Financial Services, Inc. filed
as Exhibit 10.10 to the Registrant's Form SB-2
Registration Statement (No. 33-78448-D) and
incorporated herein by reference.
10.11 Unconditional Guarantee dated August 24, 1993 between
Kenneth R. LaBounty, Kenneth R. LaBounty Revocable
Trust and Merrill Lynch Business Financial Services,
Inc. filed as Exhibit 10.11 to the Registrant's Form
SB-2 Registration Statement (No. 33-78448-D) and
incorporated herein by reference.
10.12 Letter dated March 16, 1994 regarding WCMA Line of
Credit increase from Merrill Lynch Business Financial
Services, Inc. accepted by Carlyle Golf, Inc. and
accepted by Kenneth R. LaBounty and approved by
Kenneth R. LaBounty and Kenneth R. LaBounty Revocable
Trust filed as Exhibit 10.12 to the Registrant's Form
SB-2 Registration Statement (No. 33-78448-D) and
incorporated herein by reference.
10.13 Real Estate lease dated April 23, 1993 on 10550 East
54th Avenue, Unit E, Denver, CO 80293, between the
Company and the State of California Public Employees'
Retirement System filed as Exhibit 10.13 to the
Registrant's Form SB-2 Registration Statement (No. 33-
78448-D) and incorporated herein by reference.
10.14 Equipment lease dated June 29, 1993 between the
Company and LFC, Inc. filed as Exhibit 10.14 to the
Registrant's Form SB-2 Registration Statement (No. 33-
78448-D) and incorporated herein by reference.
10.15 Continuing Guarantee dated June 29, 1993 between the
Company and LFC, Inc., David J. Bullock and Timothy B.
Kneen as Guarantors filed as Exhibit 10.15 to the
Registrant's Form SB-2 Registration Statement (No. 33-
78448-D) and incorporated herein by reference.
10.16 Continuing Guarantee dated June 30, 1993 between the
Company and LFC, Inc., Kenneth R. LaBounty as
Guarantor filed as Exhibit 10.16 to the Registrant's
Form SB-2 Registration Statement (No. 33-78448-D) and
incorporated herein by reference.
10.17 Equipment lease dated August 6, 1993 between the
Company and LFC, Inc. filed as Exhibit 10.17 to the
Registrant's Form SB-2 Registration Statement (No. 33-
78448-D) and incorporated herein by reference.
10.18 Continuing Guarantee dated August 9, 1993 between the
Company and LFC, Inc., David J. Bullock as Guarantor
filed as Exhibit 10.18 to the Registrant's Form SB-2
Registration Statement (No. 33-78448-D) and
incorporated herein by reference.
10.19 Continuing Guarantee dated August 9, 1993 between the
company and LFC, Inc., Timothy B. Kneen as Guarantor
filed as Exhibit 10.19 to the Registrant's Form SB-2
Registration Statement (No. 33-78448-D) and
incorporated herein by reference.
10.20 Continuing Guarantee dated August 9, 1993 between the
Company and LFC, Inc., Kenneth R. LaBounty as
Guarantor filed as Exhibit 10.20 to the Registrant's
Form SB-2 Registration Statement (No. 33-78448-D) and
incorporated herein by reference.
10.21 Agreement between Janine R. Hiatt and Gregory L.
Hiatt, dated August 27, 1993 filed as Exhibit 10.21 to
the Registrant's Form SB-2 Registration Statement (No.
33-78448-D) and incorporated herein by reference.
10.22 Option Agreement between Professional Images, Inc. and
the Company dated April 25, 1994 filed as Exhibit
10.22 to the Registrant's Form SB-2 Registration
Statement (No. 33-78448-D) and incorporated herein by
reference.
10.23 Lock-Up Agreement among the officers and directors of
the Company, 5% or more shareholders and Neidiger,
Tucker, Bruner, Inc. filed as Exhibit 10.23 to the
Registrant's Form SB-2 Registration Statement (No. 33-
78448-D) and incorporated herein by reference.
10.24 Consulting Agreement between the Company and Neidiger,
Tucker, Bruner, Inc. filed as Exhibit 10.24 to the
Registrant's Form SB-2 Registration Statement (No. 33-
78448-D) and incorporated herein by reference.
10.25 Employment Agreement with William A. Clymor dated
November 8, 1994 filed as Exhibit 4.3d to the
Registrant's Form S-8 Registration Statement (No.33-
88178) and incorporated herein by reference.
10.26 Settlement Agreement and Release between Professional
Images, Inc. and the Company dated effective January
12, 1995, filed as Exhibit 10.26 to the Registrant's
Form 10-KSB dated October 31, 1994 and incorporated
herein by reference.
10.27 Credit and Security Agreement between the Company and
Norwest Business Credit, Inc. dated July 7, 1995 filed
as Exhibit 10.27 to the Registrant's Form 10-KSB dated
October 31, 1995 and incorporated herein by reference.
10.28 First Amendment dated December 22, 1995 to Credit and
Security Agreement between the Company and Norwest
Business Credit, Inc. dated July 7, 1995 filed as
Exhibit 10.28 to the Registrant's Form 10-KSB dated
October 31, 1995 and incorporated herein by reference.
10.29 Second Amendment dated January 16, 1996 to Credit and
Security Agreement between the Company and Norwest
Business Credit, Inc. dated July 7, 1995 filed as
Exhibit 10.29 to the Registrant's Form 10-KSB dated
October 31, 1995 and incorporated herein by reference.
10.30 Stock Purchase Agreement dated April 1, 1996 between
the Company and its Directors and Executive Officers
filed as Exhibit 10.1 to the Registrant's Form 10-QSB
dated July 31, 1996 and incorporated herein by
reference.
10.31 Third Amendment dated May 13, 1996 to Credit and
Security Agreement between the Company and Norwest
Business Credit, Inc. dated July 7, 1995.
10.32 Fourth Amendment dated December 9, 1996 to Credit and
Security Agreement between the Company and Norwest
Business Credit, Inc. dated July 7, 1995.
10.33 Term Note dated December 9, 1996 between the Company
and Norwest Business Credit, Inc.
10.34 Amended and Restated Revolving Note dated December 9,
1996 between the Company and Norwest Business Credit,
Inc.
23 Consent of KPMG Peat Marwick.
27 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Commission
during the quarter ended October 31, 1996.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange, the
Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CARLYLE GOLF, INC.
By: /s/ William A. Clymor
-----------------------------------
William A. Clymor,
Principal Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
/s/ William A. Clymor
- ---------------------------------- Date:January 20, 1997
William A. Clymor, Chairman of the
Board, Director and Chief Executive Officer
/s/ Jerome M. Hause
- ---------------------------------- Date:January 20, 1997
Jerome M. Hause, Director and
Chief Operating Officer
/s/ Wendy K. Williams
- ---------------------------------- Date:January 20, 1997
Wendy K. Williams, Vice President,
Finance, Principal Financial and
Accounting Officer
- --------------------------------- Date:January -----, 1997
W. Clayton Cole, Director
/s/ Kenneth R. LaBounty
- --------------------------------- Date:January 20, 1997
Kenneth R. LaBounty, Director
/s/ Walt Kellogg
- --------------------------------- Date:January 20, 1997
Walter E. Kellogg, Director
/s/ Edward S. Adams
- --------------------------------- Date:January 20, 1997
Edward S. Adams, Director
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT METHOD OF FILING
- ------- ----------------
<S> <C> <C>
10.31 Third Amendment dated May 13,
1996 to Credit and Security
Agreement between the Company
and Norwest Business Credit,
Inc. dated July 7, 1995. Filed herewith electronically
10.32 Fourth Amendment dated December
9, 1996 to Credit and Security
Agreement between the Company
and Norwest Business Credit,
Inc. dated July 7, 1995. Filed herewith electronically
10.33 Term Note dated December 9,
1996 between the Company and
Norwest Business Credit, Inc. Filed herewith electronically
10.34 Amended and Restated Revolving
Note dated December 9, 1996
between the Company and Norwest
Business Credit, Inc. Filed herewith electronically
23 Consent of KPMG Peat Marwick. Filed herewith electronically
27 Financial Data Schedule. Filed herewith electronically
</TABLE>
THIRD AMENDMENT
TO
CREDIT AND SECURITY AGREEMENT
This Third Amendment is made and is effective this 13th day of May,
1996, by and between CARLYLE GOLF, INC., a Colorado corporation (the
"Borrower"), and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation
(the "Lender").
RECITALS
The Borrower and the Lender entered into a Credit and Security
Agreement dated as of July 7, 1995 (the "Credit Agreement"), as previously
amended.
The Borrower has requested that the Lender agree to amend certain
loan covenants set forth in the Credit Agreement, and the Lender is
willing to do so on the terms and subject to the conditions set forth
herein.
NOW THEREFORE, in consideration of the premises and the mutual
promises herein contained, the parties hereto agree as follows:
1. Section 6.13 of the Credit Agreement is hereby amended by
replacing the table contained therein with the following table:
"DATE ACTUAL INCOME OR LOSS
April 30, 1996 ($550,000)
May 31, 1996 ($576,000)
June 30, 1996 ($611,000)
July 31, 1996 ($630,000)
August 31, 1996 ($660,000)
September 30, 1996 ($680,000)
October 31, 1996 ($750,000)"
2. This Amendment shall be effective only upon payment by the
Borrower to the Lender of a covenant restructuring fee of $10,000.
3. All outstanding Defaults by the Borrower under the Credit
Agreement, which occurred prior to the date hereof, are waived effective
as of the date each such Default occurred.
4. Except as specifically amended hereby, the Credit Agreement
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed as of the day and year first above written.
CARLYLE GOLF, INC.
By: /s/Jerome M. Hause
Its: President
NORWEST BUSINESS CREDIT, INC.
By: /s/Edmond Lelo
Its: Vice President
FOURTH AMENDMENT
TO
CREDIT AND SECURITY AGREEMENT
This Fourth Amendment is made this 9th day of December, 1996, by and
between CARLYLE GOLF, INC., a Colorado corporation (the "Borrower"), and
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender").
RECITALS
The Borrower and the Lender entered into a Credit and Security
Agreement dated as of July 7, 1995, as previously amended (the "Credit
Agreement").
The Borrower has requested that the Lender agree to amend certain
loan covenants set forth in the Credit Agreement and to make a temporary
term loan to the Borrower, and the Lender is willing to do so on the terms
and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the premises and the mutual
promises herein contained, the parties hereto agree as follows:
1. Section 1.1 of the Credit Agreement is hereby amended by
amending the definition of the term "Inventory Cap" contained therein to
read in its entirety as follows:
"'Inventory Cap' means $550,000 during the months of December
through May and $500,000 during the months of June through November."
2. Section 1.1 of the Credit Agreement is hereby amended by
deleting in its entirety the definition of the term "Note" contained
therein and by adding the following new definition thereto to read in its
entirety as follows:
"'Notes' means the Term Note and the Revolving Note."
3. Section 1.1 of the Credit Agreement is hereby further amended by
amending the definition of "Prior Season Inventory" contained therein to
read in its entirety as follows:
"'Prior Season Inventory' means Inventory which is initially
offered for sale by the Borrower two or more seasons prior to the
shipping period for the current season. As used in this definition,
the shipping period for the spring season begins January 1 and the
shipping period for the fall season begins June 15."
4. Section 1.1 of the Credit Agreement is hereby further amended by
adding the following new definition thereto to read in their entirety as
follows:
"'Revolving Note' means the Amended and Restated Revolving Note
of the Borrower dated December 9th, 1996 and payable to the Lender in
the principal amount of $1,500,000, which note is issued in
substitution for, and not in repayment of, the Revolving Note of the
Borrower dated July 7, 1995."
5. Section 1.1 of the Credit Agreement is hereby further amended by
adding the following new definition thereto to read in its entirety as
follows:
"'Term Note' means the promissory note of the Borrower dated
December 9th, 1996 and payable to the Lender in the principal amount
of $200,000."
6. Section 1.1 of the Credit Agreement is hereby further amended by
amending the definition of the term "Termination Date" contained therein
to read in its entirety as follows:
"'Termination Date' means June 30, 1999."
7. The Credit Agreement is hereby amended by adding a new Section
2.13 thereto to read in its entirety as follows:
"Section 2.13 TERM ADVANCE. The Lender agrees, on the terms and
subject to the conditions herein set forth, to make a single Advance to
the Borrower in the principal amount of $200,000, which Advance shall be
secured by the Collateral as provided in Article III hereof. Upon
fulfillment of the applicable conditions precedent to such Advance, the
Lender shall disburse the proceeds of such Advance by depositing the same
to the Borrower's demand deposit account maintained with Norwest Bank
Colorado, N.A. unless the Lender and the Borrower shall agree in writing
to another manner of disbursement. The Advance made pursuant to this
Section 2.13 shall be evidenced by and repayable with interest in
accordance with the Term Note. The principal of the Term Note shall be
payable as provided therein and on acceleration by the Lender pursuant to
Section 8.2 hereof, and shall bear interest as provided herein."
8. Section 2.2 of the Credit Agreement is hereby amended to read in
its entirety as follows:
"Section 2.2 NOTES.
(a) All Advances made by the Lender under Section 2.1 hereof
shall be evidenced by and repayable with interest in accordance with
the Revolving Note. The principal of the Revolving Note shall be
payable as provided herein and on the earlier of the Termination Date
or acceleration by the Lender pursuant to Section 8.2 hereof, and
shall bear interest as provided herein.
(b) The Advance made by the Lender under Section 2.13 hereof
shall be evidenced by and be repayable with interest in accordance
with the Term Note. The principal of the Term Note shall be payable
in equal monthly installments of $5,556 each, commencing on February
1, 1997 and continuing on the first day of each month thereafter
until the earlier of March 31, 1997, or acceleration by the Lender
pursuant to Section 8.2 hereof, when the outstanding principal
balance thereof shall be due and payable in full. The Term Note
shall bear interest as provided herein.
9. Section 2.3 of the Credit Agreement is hereby amended by
amending subsection (a) thereof to read in its entirety as follows:
"(a) The principal of the Advances outstanding from time to time
during any month shall bear interest (computed on the basis of actual
days elapsed in a 360-day year) as follows:
(1) Advances pursuant to Section 2.1 hereof and evidenced
by the Revolving Note shall bear interest at the Floating Rate;
provided, however, that in any event no rate change shall be put
into effect which would result in a rate greater than the
highest rate permitted by law. Interest accruing on the
principal balance of such Advances outstanding from time to time
shall be payable on the first day of each month and on the
Termination Date or earlier demand or prepayment in full.
(2) The Advance made pursuant to Section 2.13 hereof and
evidenced by the Term Note shall bear interest at the Floating
Rate; provided, however, that in any event no rate change shall
be put into effect which would result in a rate greater than the
highest rate permitted by law. Interest accruing on the
principal balance of such Advance outstanding from time to time
shall be payable on the first day of each month and on March 31,
1997 or earlier demand or prepayment in full.
(3) Notwithstanding anything contained in this Section 2.3
or the Notes to the contrary, from the first day of any month
during which any Default or Event of Default occurs or exists at
any time, in the Lender's discretion and without waiving any of
its other rights and remedies, the rate of interest payable on
any and all Advances and on the Notes shall be the Default
Rate."
10. Section 2.4 of the Credit Agreement is hereby amended to read in
its entirety as follows:
"Section 2.4 VOLUNTARY PREPAYMENT; TERMINATION OF AGREEMENT BY
BORROWER.
(a) The Borrower may, in its discretion, prepay the Revolving
Note in whole or from time to time in part without penalty or
premium.
(b) The Borrower may, in its discretion, prepay the Term Note
in whole or from time to time in part, PROVIDED, HOWEVER, that the
Term Note may not be prepaid from the proceeds of a loan provided by
a lender other than the Lender (or an affiliate of Norwest
Corporation) unless the Borrower first provides the Lender with the
opportunity of providing such credit facility on the same terms as
such lender and the Lender declines to do so. If such prepayment is
not made with the proceeds of a loan or other financing from an
affiliate of Norwest Corporation, the Borrower shall pay a prepayment
premium equal to two percent (2%) of the amount of such prepayment.
(c) The Borrower may terminate this Agreement at any time and,
subject to payment and performance of all the Borrower's obligations
to the Lender, may obtain any release or termination of the Security
Interest to which the Borrower is otherwise entitled by law by (i)
giving at least 30 days' prior written notice to the Lender of the
Borrower's intention to terminate this Agreement; and (ii) paying the
Lender a prepayment fee of two percent (2%) of the Commitment if the
prepayment occurs on or before July 7, 1997, and one percent (1%) of
the Commitment if the prepayment occurs after July 7, 1997, but prior
to the Termination Date, unless the Credit Facility is refinanced by
an affiliate of Norwest Corporation, the outstanding Advances are
repaid solely out of the cash flow of the Borrower or by the proceeds
of the sale by the Borrower of equity securities and the Borrower
does not obtain another credit facility with another lender within 90
days following such termination, or the termination occurs within 60
days after demand by the Lender for payment of compensation pursuant
to Section 2.12."
11. Section 2.5 of the Credit Agreement is hereby amended by
amending the first sentence thereof to read in its entirety as follows:
"Section 2.5 MANDATORY PREPAYMENT. Without notice or demand, if the
sum of the outstanding principal balance of the Advances made pursuant to
Section 2.1 and evidenced by the Revolving Note shall at any time exceed
the Borrowing Base, the Borrower shall immediately prepay the Revolving
Note to the extent necessary to reduce the sum of the outstanding
principal balance of such Advances to the Borrowing Base."
12. Section 6.12 of the Credit Agreement is hereby amended to read
in its entirety as follows:
Section 6.12 BOOK NET WORTH. The Borrower shall, on each of the
dates set forth below, maintain its Book Net Worth at an amount which is
greater than or equal to the amount set forth opposite such date:
PERIOD BOOK NET WORTH
December 31, 1996 $1,531,000
January 31, 1997 $1,439,000
February 28, 1997 $1,454,000
March 31, 1997 $1,481,000
April 30, 1997 $1,498,000
May 31, 1997 $1,519,000
June 30, 1997 $1,525,000
July 31, 1997 $1,550,000
August 31, 1997 $1,562,000
September 30, 1997 $1,545,000
October 31, 1997 $1,461,000
Prior to October 1, 1997 the Lender and the Borrower shall negotiate in
good faith as to the Book Net Worth that the Borrower shall be required to
maintain for periods after October 31, 1997, but if the Borrower and the
Lender do not agree, the Lender may designate the required Book Net Worth
in its sole discretion, and the failure of the Borrower to maintain its
Book Net Worth at or above the amounts designated by the Lender pursuant
to this Section 6.12 shall constitute a default by the Borrower
hereunder."
13. Section 6.13 of the Credit Agreement is hereby amended to read
in its entirety as follows:
"Section 6.13 NET INCOME. The Borrower shall, on each of the dates
set forth below, have Actual Income or Loss of an amount which is greater
than or equal to the amount set forth opposite such date:
DATE ACTUAL INCOME OR LOSS
December 31, 1996 ($320,000)
January 31, 1997 ($420,000)
February 28, 1997 ($415,000)
March 31, 1997 ($395,000)
April 30, 1997 ($395,000)
May 31, 1997 ($380,000)
June 30, 1997 ($385,000)
July 31, 1997 ($370,000)
August 31, 1997 ($370,000)
September 30, 1997 ($395,000)
October 31, 1997 ($490,000)
Prior to October 1, 1997 the Lender and the Borrower shall negotiate in
good faith as to the Actual Income or Loss that the Borrower shall be
required to achieve for periods after October 31, 1997 but if the Borrower
and the Lender do not agree, the Lender may designate the required Actual
Income or Loss in its sole discretion, and the failure of the Borrower to
achieve the designated Actual Income or Loss shall constitute a default by
the Borrower hereunder."
14. Section 1.1 of the Credit Agreement is hereby further amended by
amending the definition of the term "Floating Rate" contained therein to
read in its entirety as follows:
"'Floating Rate' means an annual rate equal to the sum of the
Base Rate plus four percent (4.0%), which Floating Rate shall change
when and as the Base Rate Changes, PROVIDED, HOWEVER, that if, on or
before January 31, 1997, the Borrower uses the proceeds of an
additional loan from the Lender to fund the acquisition of (i)
substantially all of the assets of Pro-Line Cap Company, or (ii) a
majority of the voting capital stock of Pro-Line Cap Company, the
Floating Rate shall be reduced to an annual rate equal to the sum of
the Base Rate plus three and one-quarter percent (3.25%) effective as
of the date of such acquisition, which Floating Rate shall change
when and as the Base Rate Changes."
15. Section 2.11 of the Credit Agreement is hereby amended by adding
a new subsection (d) thereto, to read in its entirety as follows:
"(d) If, on January 31, 1997, the Borrower shall not have used
the proceeds of an additional loan from the Lender to fund the
acquisition of (i) substantially all of the assets of Pro-Line Cap
Company, or (ii) a majority of the voting capital stock of Pro-Line
Cap Company, the Borrower agrees to pay to the Lender a fully earned
and non-refundable covenant restructuring fee of $7,500."
16. Section 7.10 of the Credit Agreement is hereby amended to read
in its entirety as follows:
"Section 7.10 CAPITAL EXPENDITURES. The Borrower will not expend or
contract to expend in the aggregate more than $200,000 during its fiscal
year ending October 31, 1997, or more than $100,000 in the aggregate
during any subsequent fiscal year, for the lease, purchase or other
acquisition of any capital asset, or for the lease of any other asset,
whether payable currently or in the future."
17. All outstanding Defaults by the Borrower under the Credit
Agreement, which occurred prior to the date hereof, are waived effective
as of the date each such Default occurred.
18. This Fourth Amendment shall be effective only upon the execution
and delivery by the Borrower of the promissory notes in substantially the
form of Exhibits A and B hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Fourth
Amendment to be duly executed as of the day and year first above written.
CARLYLE GOLF, INC.
By: /s/Jerome M. Hause
Its: President
NORWEST BUSINESS CREDIT, INC.
By: Brenda Swedlund
Its: Comm'l Banking Rep.
TERM NOTE
$200,000 Denver, Colorado
December 9, 1996
For value received, the undersigned, CARLYLE GOLF, INC., a Colorado
corporation (the "Borrower"), hereby promises to pay to the order of
NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at
its main office in Minneapolis, Minnesota, or at any other place
designated at any time by the holder hereof, in lawful money of the United
States of America and in immediately available funds, the principal sum of
Two Hundred Thousand and no/100 Dollars ($200,000) or, if less, the
aggregate unpaid principal amount of all advances made by the Lender to
the Borrower hereunder, together with interest on the principal amount
hereunder remaining unpaid from time to time, computed on the basis of the
actual number of days elapsed and a 360-day year, from the date hereof
until this Note is fully paid at the rate from time to time in effect
under the Credit and Security Agreement dated July 7, 1995, by and between
the Lender and the Borrower, as amended (the "Credit Agreement"). The
principal hereof shall be payable in monthly installments in the amount
set forth in the Credit Agreement, commencing on February 1, 1997 and
continuing on the first day of each month thereafter until March 31, 1997,
when the outstanding principal balance hereof shall be due and payable in
full. Interest accruing thereon shall be due and payable on the first day
of each month and on maturity or earlier payment in full. This Note may
be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof.
This Note is the Term Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages,
deeds of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when
due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
CARLYLE GOLF, INC.
By: /s/Jerome M. Hause
Its: President
AMENDED AND RESTATED REVOLVING NOTE
$1,500,000 Denver, Colorado
December 9, 1996
For value received, the undersigned, CARLYLE GOLF, INC., a Colorado
corporation (the "Borrower"), hereby promises to pay on June 30, 1999 to
the order of Norwest Business Credit, Inc., a Minnesota corporation (the
"Lender"), at its main office in Minneapolis, Minnesota, or at any other
place designated at any time by the holder hereof, in lawful money of the
United States of America and in immediately available funds, the principal
sum of One Million Five Hundred Thousand and No/100 Dollars ($1,500,000)
or, if less, the aggregate unpaid principal amount of all advances made by
the Lender to the Borrower hereunder, together with interest on the
principal amount hereunder remaining unpaid from time to time, computed on
the basis of the actual number of days elapsed and a 360-day year, from
the date hereof until this Note is fully paid at the rate from time to
time in effect under the Credit and Security Agreement dated as of July 7,
1995, as amended (the "Credit Agreement") by and between the Lender and
the Borrower. The principal hereof and interest accruing thereon shall be
due and payable as provided in the Credit Agreement. This Note may be
prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit
Agreement, which provides, among other things, for acceleration hereof.
This Note is the Revolving Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Loan Documents as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages,
deeds of trust, assignments or other instruments or agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when
due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and
protest are expressly waived.
CARLYLE GOLF, INC.
By: /s/Jerome M. Hause
Its: President
Exhibit 23
----------
TO THE BOARD OF DIRECTORS
CARLYLE GOLF, INC.:
We consent to incorporation by reference in the registration statement
(No. 33-88178) on Form S-8 of Carlyle Golf, Inc. of our report dated
December 20, 1996, relating to the balance sheets of Carlyle Golf, Inc. as
of October 31, 1996 and 1995, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended, which
report appears in the October 31, 1996, annual report on Form 10-KSB of
Carlyle Golf, Inc.
/s/KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
January 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS, STATEMENTS OF OPERATIONS AND STATEMENTS OF CASH FLOWS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 12
<SECURITIES> 0
<RECEIVABLES> 636
<ALLOWANCES> (50)
<INVENTORY> 1,783
<CURRENT-ASSETS> 150
<PP&E> 663
<DEPRECIATION> (195)
<TOTAL-ASSETS> 3,045
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0
0
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</TABLE>
