U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1996
[ ] Transition report pursuant Section 13 or 15(d) of the
Exchange Act of 1934
For the transition period from to
Commission file number 0-26344
Golf Technology Holding, Inc.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Idaho 59-3303066
(State or Other Jurisdiction of (I.R.S. Employer ID #)
Incorporation or Organization)
13000 Sawgrass Village Circle, #30, Ponte Vedra Beach, Florida 32082
(Address of Principal Executive Offices)
904/273-8772
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange
Act after the distribution of securities under a plan confirmed
by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
class of common equity, as of the latest practicable date: $.001
par value Common Stock - 4,049,408 as of November 10, 1996
<PAGE>
GOLF TECHNOLOGY HOLDING, INC.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of September 30, 1996 3
Statements of Operations for the three month
and nine month periods ended September 30,
1996 and 1995 4
Statements of Cash Flows for the nine month
periods ended September 30, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II - OTHER INFORMATION AND SIGNATURES
Item 3. Defaults Upon Senior Securities 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1
GOLF TECHNOLOGY HOLDING, INC.
Balance Sheet
September 30,
Assets 1996
(Unaudited)
Current assets:
Cash $ 113,328
Accounts receivable
Trade 1,325,011
Employees 26,972
----------
1,351,983
Inventories 1,279,752
Other current assets 165,870
----------
Total current assets 2,910,933
----------
Property and equipment, at cost:
Furniture and fixtures 61,286
Machinery and equipment 941,772
Leasehold improvements 45,814
Vehicles 79,811
----------
1,128,683
Less accumulated depreciation 173,713
----------
954,970
Notes receivable from related parties 34,105
Certificates of deposits, restricted 182,771
Deposits 283,026
Other assets 87,443
----------
Total assets $ 4,453,248
==========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable 101,584
Notes payable to related parties 212,500
Accounts payable 1,080,813
Accrued liabilities 202,163
----------
Total current liabilities 1,597,060
----------
Stockholders' equity:
Preferred stock, Series A 9% Cumulative Convertible,
$.001 par value per share; aggregate involuntary
liquidation preference of $2,141,627 ($5.50 share),
4,990,000 shares authorized, 389,600 shares issued
and outstanding 390
Preferred stock, Series B Convertible,
$.001 par value per share; aggregate involuntary
liquidation preference of $9,231,000 ($1,000.00
share), 10,000 shares authorized, 9,231 shares
issued and outstanding 9
Common stock, $.001 par value, 25,000,000 shares
authorized, 4,049,408 shares issued and outstanding 4,049
Additional paid-in capital 9,618,676
Accumulated deficit (6,766,936)
----------
Total stockholders' equity 2,856,188
----------
Total liabilities and stockholders' equity $ 4,453,248
==========
See accompanying notes to financial statements.
<PAGE>
<TABLE>
GOLF TECHNOLOGY HOLDING, INC.
Statements of Operations
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Sales $ 767,158 196,376 $ 3,308,164 1,013,689
Cost of sales 447,917 109,936 1,353,034 373,551
---------- ------- ---------- ---------
Gross profit 319,241 86,440 1,955,130 640,138
Selling and marketing expenses 1,493,439 503,118 2,798,616 1,607,640
General and administrative expenses 644,903 310,873 1,616,265 796,705
Research and development costs 21,980 171,474 204,949 438,054
---------- ------- ---------- ---------
Operating income (loss) (1,841,081) (899,025) (2,664,700) (2,202,261)
---------- ------- ---------- ---------
Other income (expense):
Interest income 11,398 1,234 24,717 8,231
Interest expense (2) - (26,940) (691)
Allowance for note receivable - (378,034) - (378,034)
Other, net 23,596 2,802 45,543 8,394
---------- ------- ---------- ---------
34,992 (373,998) 43,320 (362,100)
Net income (loss) before
income taxes (1,806,089) (1,273,023) (2,621,380) (2,564,361)
Income taxes - - - -
---------- ------- ---------- ---------
Net income (loss) (1,806,089) (1,273,023) ($2,621,380) ($2,564,361)
Preferred stock cumulative
dividends (43,710) (26,408) (130,882) (26,408)
---------- ------- ---------- ---------
Net income (loss) for
common stockholders $(1,849,799) (1,299,431) $(2,752,262) (2,590,769)
========== ========= ========== ==========
Net income (loss) per average
outstanding common share:
Primary:
Net income (loss) $ (0.27) (0.35) (0.49) (0.70)
========== ========= ========== ==========
Weighted average shares
outstanding 6,959,722 3,721,125 5,647,209 3,719,327
========== ========= ========== ==========
Fully Diluted:
Net income (loss) $ (0.27) (0.35) (0.49) (0.70)
========== ========= ========== ==========
Weighted average shares
outstanding 6,898,432 3,721,125 5,629,577 3,719,327
========== ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
GOLF TECHNOLOGY HOLDING, INC.
Statements of Cash Flows
Nine months ended
September 30,
1996 1995
(unaudited)
Cash flows from operating activities:
Net loss $ (2,621,380) (2,564,361)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 103,123 34,731
Allowance for note receivable - 378,034
Changes in operating assets and
liabilities:
Accounts receivable - trade (1,210,596) (124,948)
Accounts receivable - employees (13,048) (493)
Inventories (1,116,133) (107,074)
Other current assets and other
assets (104,995) (79,766)
Deposits (114,055) (239,449)
Accounts payable and accrued
liabilities 205,747 691,247
--------- ---------
Net cash used in operating
activities (4,871,337) (1,772,630)
--------- ---------
Cash flows from investing activities:
Investment in certificates of deposit,
restricted (135,388) (875)
Notes receivable from related parties (7,235) (128,119)
Capital expenditures (719,133) (243,838)
--------- ---------
Net cash used in investing
activities (861,756) (372,832)
--------- ---------
Cash flows from financing activities:
Notes payable (135,916) 140,000
Net proceeds from issuance of preferred
and common stock 5,956,427 1,219,276
Collection of account receivable -
related party - 137,638
--------- ---------
Net cash provided by
financing activities 5,820,511 1,496,914
--------- ---------
Net increase (decrease)
in cash 87,418 (648,548)
Cash balance, beginning of period 25,910 658,754
--------- ---------
Cash balance, end of period $ 113,328 10,206
========= =========
See accompanying notes to financial statements.
<PAGE>
GOLF TECHNOLOGY HOLDING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The Company. Golf Technology Holding, Inc. (the
"Company") designs, manufactures and markets Snake Eyes/R/ golf
clubs. Snake Eyes/r/ are tour-quality golf clubs marketed to the
premium-priced segment of the golf equipment market.
The predecessor to the Company's operating subsidiary, Golf-
Tec Holding, Inc. ("Golf-Tec"), was formed as a Florida
corporation in June 1993 under the name Golf-Tec, Inc. to
manufacture and market a line of golf clubs to be developed by
its sole stockholder and director. Golf-Tec was formed as a
Florida corporation in May 1994 to become the parent company of
Golf-Tec Inc., which was merged into Golf-Tec in October 1994.
During the first quarter of 1995, Golf-Tec was acquired by
THO2 and Rare Metals Exploration, Inc., an Idaho corporation
incorporated in September 1963 ("THO2"), pursuant to a voluntary
share exchange effected between Golf-Tec's stockholders and THO2
on a one-for-one share basis. THO2 changed its name to Golf-
Technology Holding, Inc. in connection with the share exchange.
Subsequent to the acquisition, the former shareholders of Golf-
Tec have the right to an ownership interest in 3,468,337 of
4,049,408, or 86%, of the Company's outstanding shares of common
stock.
As of September 30, 1996, 2,343,334 of 3,468,337, or 68%, of
Golf Tec's outstanding shares of common stock have been exchanged
for 2,343,334 of 4,049,408, or 58%, of the Company's outstanding
shares of common stock. Management anticipates that the
remaining 1,125,003, or 32%, of Golf-Tec's outstanding shares of
common stock will be exchanged for shares in the Company.
For accounting purposes, the acquisition has been treated as
a recapitalization of Golf-Tec with Golf-Tec as the acquirer.
THO2 had zero net tangible assets (no assets or liabilities) at
the date of acquisition. The historical financial statements
prior to 1995 are those of Golf-Tec, except the number of shares
outstanding have been retroactively restated to reflect the
shares outstanding after the recapitalization.
2. Basis of Presentation. The accompanying interim
unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission,
and reflect all adjustments which, in the opinion of management,
are necessary to properly state the results of operations and
financial position. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations, although
management believes that the disclosures are adequate to make the
information presented not misleading. The results of operations
are not necessarily indicative of the results for the full year.
These financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's
Form 10-KSB, as filed with the Securities and Exchange Commission
on April 1, 1996.
3. Liquidity and Capital Resources. The Company has
financed its operations and investment in assets principally
through the sale of equity securities. The Company has incurred
operating losses from its inception through September 30, 1996.
The Company issued 6,000 shares of Common Stock and a
promissory note in the amount of $55,000 to a director of the
Company. In October 1996, the company issued $650,000 of debt to
an overseas investor. These cash infusions have contributed to
the working capital of the Company; however concerns exist about
the Company's liquidity and its ability to continue operations at
current levels and expand its product lines.
Although not certain, the Company believes that it has the
ability to raise sufficient capital which, together with
projected cash flow from operations, will be sufficient to meet
the Company's working capital needs for at least the next two
years.
4. Notes Receivable. The Company has made advances to a
shareholder of the Company of $34,105. The advances do not bear
interest and are due upon demand; however, the Company does not
intend to demand repayment of the advances prior to December 31,
1997. Accordingly, the outstanding balance at September 30, 1996
has been classified as long term.
5. Representation Agreements. The Company has
representation agreements with seventeen PGA Tour members. The
Company has agreed to pay certain incentives based upon
performance under the agreements, including minimum annual
compensation totaling $793,333, $243,750 and $15,000 for 1996,
1997 and 1998, respectively; 2,500 shares of the Company's common
capital stock for 1996; five year stock options for 10,000 shares
of the Company's common capital stock; bonuses of $10,000 to
$50,000 per win of an official PGA Tour event, the Masters, the
U.S. Open or the British Open; bonuses up to $20,000 and $40,000
based on a member's ranking on the PGA Tour Money List for 1996
and 1997, respectively; and, bonuses up to $40,000 and $100,000
based on a member's percentage of PGA Tour earnings for 1996 and
1997, respectively. The Company incurred expenses for
representation agreements of $615,375 and $343,890 for the nine
months ended September 30, 1996, and 1995 respectively.
6. Series B Preferred Stock. On May 17, 1996, the Board
of Directors of the Company, adopted a resolution which created a
Series B Preferred Stock. On May 20, 1996, 9,231 shares of its
$1,000.00 face value Series B Preferred Stock were issued, at a
discount of $3,081,000, for net proceeds, including brokers fees
of $1,051,372, of approximately $5,098,628.
The holder of each issued and outstanding share of Series B
Preferred Stock shall be entitled to receive, when and as
declared by the Board of Directors of the Company, out of the
assets at the time legally available for such purpose, dividends
at a rate of $32.50 per share per annum. No dividends shall be
declared and paid on the Series B Preferred Stock unless all
accrued but unpaid dividends on the Company's existing class of
Series A Preferred Stock have been declared and paid in cash.
Such dividends are not cumulative. If all shares of Series B
Preferred Stock have not been converted into common stock by
April 30, 1997, such dividends shall begin to accumulate on all
shares of Series B Preferred Stock which remain outstanding at
such time and are payable on April 30, 1997.
Upon liquidation, dissolution or winding up of the Company,
holders of the Series B Preferred Stock are entitled to receive
liquidation distributions equivalent to $1,000.00 per share
before any distribution to holders of Common Stock. The
liquidation preference of the Series B Preferred Stock shall be
junior in right of payment to the liquidation preference of the
Company's existing class of Series A Preferred Stock.
The Series B Preferred Stock is convertible at any time
commencing forty-five (45) days after the last day on which there
is an original issuance of the Series B Preferred Stock. The
conversion price equals the lesser of the average closing bid
price for the five days prior to conversion or $6.05.
Each share of Series B Preferred Stock outstanding on December
31, 1997 automatically shall be converted into Common Stock on
such date at the conversion price then in effect.
7. Earnings per share. Primary and fully diluted earnings
per share for the nine months ended September 30, 1996 are based
on weighted average common shares and share equivalents outstanding.
Common share equivalents include dilutive options and warrants, Series B
preferred stock, and certain convertible debt.
In computing fully diluted earnings per share, the conversion of
the Series A preferred stock was not assumed as the effect would
be anti-dilutive.
The following table presents information necessary to calculate
earnings per share for the three month period ended September 30,
1996:
Primary Fully
Diluted
Shares outstanding:
Weighted average outstanding 4,043,475 4,043,475
Share equivalents 2,916,247 2,854,957
---------- ----------
Adjusted outstanding 6,959,722 6,898,432
Net income (1,806,089) (1,806,089)
Series A preferred stock
cumulative dividends (43,710) (43,710)
Net income for common stockholders $(1,849,799) $(1,849,799)
========== ==========
Net income per common share $ (.27) $ (.27)
For the three months ended September 30, 1995 and the three and
nine months ended September 30, 1996 and 1995, the loss per
share, assuming full dilution, are considered to be the same as
primary since the effect of the common stock equivalents would be
anti-dilutive.
Item 2.Management's Discussion and Analysis of Financial
Condition and Results of
Operations
The following management's discussion and analysis of
financial condition and results of operations addresses the
performance of the Company for the three and nine month periods
ended September 30, 1996 and 1995 (unaudited) and should be read
in conjunction with the Company's Financial Statements (including
the notes thereto) appearing elsewhere in this document. As the
Company's acquisition of Golf-Tec has been accounted for as a
recapitalization, the discussion below refers to the operations
of Golf-Tec and its subsidiary, Golf-Tec, Inc., prior to the
share exchange as those of the Company on a consolidated basis.
In June 1995, one of the Company's vendors, which polishes and
chromes clubheads, had a work slowdown due to labor contract
negotiations. The same vendor had a work stoppage in July 1995.
This happened at a time when the Company's sales orders were
exceeding projections. This situation resulted in the Company
receiving only limited product shipments during the second half
of 1995, with only slight increases during the first three months
of 1996, and therefore, the Company was able to ship and invoice
only a small number of orders during that period. During the
same period, the Company's sales orders continued to climb, and
as of March 31, 1996, the Company had sales orders of
approximately $3,089,381. The Company has developed a
relationship with two additional polishing and chroming vendors
and is now receiving product from three vendors. Product
availability has improved, beginning April, 1996.
The Snake Eyes/R/ Driver was introduced to the market in April,
1996. The demand of the Snake Eyes/R/ Driver exceeds the current
production capacity. At September 30, 1996, the Company had
sales orders of approximately 6,500 Snake Eyes/R/ Drivers. The
Company is establishing a significant vendor relationship that
will allow the Company to improve the availability of Snake
Eyes/R/ Drivers and reduce overhead cost. This relationship should
be fully implemented by December of 1996.
The Company believes it will be able to be current in shipping
and invoicing Snake Eyes/R/ Drivers by December, 1996.
For the Nine Months Ended September 30, 1996
The Company's net sales (unaudited) for the nine month
period ending September 30, 1996 and 1995 were $3,308,164 and
$1,013,700 respectively. Management attributes the increase in
sales for the nine months ended September 30, 1996 to the
increase in product availability beginning in April, 1996.
The Company's gross profit (and gross profit margin) for the
nine months ended September 30, 1996 was $1,955,130 (59%)
compared to $640,100 (63%) for the nine months ended September
30, 1995.
Operations resulted in net losses of $2,664,700 and
$2,202,261 for the nine months ended September 30, 1996 and
September 30, 1995, respectively. The operating loss incurred
during the nine months ended September 30, 1996 was primarily due
to four factors: tour player contract expenses, advertising
expenses, increased staffing, and shortage of deliverable
product. Tour player contract expenses increased from $343,890
for the nine months ended September 30, 1995 to $615,375 for the
same period in 1996. Advertising expenses were $1,441,980 for the
nine months ended September 30, 1996, up from $897,280 for the
same period in 1995. General and administrative expenses were
$1,616,265 for the nine months ended September 30, 1996, up from
$796,705 for the same period in 1995. The majority of this
increase was due to the adding of new employees in the
administration departments to handle the increased order volume.
Also, the general and administrative expenses of the Company's
manufacturing plant, located in Michigan, are included as General
and Administrative expenses beginning April, 1996. Prior to this
date, these costs were included in Research and Development, as
the Snake Eyes/R/ Driver was still in the development stage. The
Company experienced a shortage of deliverable product due to a
lack of deliveries from a primary vendor as noted in the previous
discussion of revenues. Although there was an increase in
product flow and availability beginning January, 1996, the level
of product flow was not adequate to meet shipping requirements
until April, 1996.
Other expenses reported for the nine months ended September
30, 1995 include a bad debt write off of $378,000 for an
uncollectible note receivable and advances to a former employee.
These funds were loaned to Donald R. Cook, to keep his company in
business while it helped to develop the Snake Eyes/R/ Driver
product. The Company expected to eventually purchase the assets
of Mr. Cook's company, Sunshine Sports, Inc., but was unable to
do so due to unreported liabilities and various liens on said
assets.
For the Three Months Ended September 30, 1996
The Company's net sales (unaudited) for the three month
period ending September 30, 1996 and 1995 were $767,160 and
$196,380, respectively. Management attributes the increase in
sales for the three months ended September 30, 1996 to the
increase in product availability beginning in April, 1996.
The Company's gross profit (and gross profit margin) for the
three months ended September 30, 1996 was $319,240 (42%) compared
to $86,440 (44%) for the three months ended September 30, 1995.
Operations resulted in net losses of $1,841,100 and
$899,030 for the three months ended September 30, 1996 and
September 30, 1995, respectively. The net loss for the three
months ended September 30, 1995 is attributable primarily to the
beginning of a national advertising campaign which included
monthly major magazine advertising as well as weekly television
advertising on ESPN.
The net loss realized during the three months ended
September 30, 1996 was primarily affected by major advertising
and marketing expenses without adequate deliverable product.
Advertising expenses were $717,300 for the three months ended
September 30, 1996, up from $154,830 for the same period in 1995.
Other expenses reported for the three months ended September
30, 1995 include a bad debt write off of $378,000 for an
uncollectible note receivable and advances to a former employee.
These funds were loaned to Donald R. Cook, to keep his company in
business while it helped to develop the Snake Eyes/R/ Driver
product. The Company expected to eventually purchase the assets
of Mr. Cook's company, Sunshine Sports, Inc., but was unable to
do so due to unreported liabilities and various liens on said
assets.
Liquidity and Capital Resources
The Company has financed its operations and investment in
assets principally through the sale of equity securities. The
Company has incurred operating losses from its inception through
September 30, 1996.
The Company issued 6,000 shares of Common Stock and issued a
promissory note in the amount of $55,000 to a director of the
Company. In October 1996, the company issued $650,000 of debt to
an overseas investor. These cash infusions have contributed to
the working capital of the Company; however concerns exist about
the Company's liquidity and its ability to continue operations at
current levels and expand its product lines.
Although not certain, the Company believes that it has the
ability to raise sufficient capital which, together with
projected cash flow from operations, will be sufficient to meet
the Company's working capital needs for at least the next two
years.
PART II. OTHER INFORMATION AND SIGNATURES
Item 3.Defaults Upon Senior Securities
The Company has Series A Cumulative Preferred Stock
dividends in arrears of $194,107 as of September 30, 1996. To
date, the Company has not paid dividends. The arrearage for
Series A Cumulative Preferred Stock dividends is $213,801 as of
November 10, 1996.
Item 6.Exhibits and Reports on Form 8-K
A. Exhibits:
11. Computation of Earnings Per Share
27. Financial Data Schedule
B. Reports on Form 8-K:
None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
GOLF TECHNOLOGY HOLDING, INC.
DATE: November 10, 1996 By:/s/ Harold E. Hutchins
Harold E. Hutchins
Vice President, Chief
Operating Officer and
Chief Financial Officer
PART III. INDEX TO EXHIBITS
Exhibit 11 Computation of Earnings Per Share
Exhibit 27 Financial Data Schedule
Exhibit 11
GOLF TECHNOLOGY HOLDING, INC.
COMPUTATION OF EARNINGS PER SHARE
See Note 7 of Part I, Item 1, which is
incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 113,328
<SECURITIES> 0
<RECEIVABLES> 1,414,776
<ALLOWANCES> 214,382
<INVENTORY> 1,279,752
<CURRENT-ASSETS> 2,910,933
<PP&E> 1,128,683
<DEPRECIATION> 173,713
<TOTAL-ASSETS> 4,453,248
<CURRENT-LIABILITIES> 1,597,060
<BONDS> 0
0
399
<COMMON> 4,049
<OTHER-SE> 2,851,740
<TOTAL-LIABILITY-AND-EQUITY> 4,453,248
<SALES> 3,308,164
<TOTAL-REVENUES> 3,308,164
<CGS> 1,353,034
<TOTAL-COSTS> 4,151,650
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 109,772
<INTEREST-EXPENSE> 26,940
<INCOME-PRETAX> (2,621,380)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,621,380)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,621,380)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
</TABLE>
