SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A
Amendment No. 1
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission file number 0-26344
GOLF-TECHNOLOGY HOLDING, INC.
(Name of Small Business Issuer in its charter)
Idaho 59-3303066
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
13000 Sawgrass Village Circle, Suite 30, Ponte Vedra Beach, FL 32082
(Address of principal executive offices)(Zip Code)
Issuer's telephone number: 904/273-8772
Securities registered under Section 12(b) of the Securities Exchange Act:
Title of each class Name of each exchange
on which registered
None None
Securities registered under Section 12(g) of the Securities Exchange Act:
Common Stock $0.001 par value
(Title of Class)
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
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
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not 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. [ ]
State issuer's revenues for its most recent fiscal year: $3,544,183
State the aggregate market value of the voting stock held by non-
affiliates of the registrant on March, 31, 1997 computed by reference to
the price at which the stock was sold on that date:$10,058,030 (based on
shares traded on the NASDAQ Small Cap Exchange on said date)
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares of each of the issuer's classes of common
equity, as of March 31, 1997: 4,722,080 shares of common stock.
<PAGE>
GOLF-TECHNOLOGY HOLDING, INC.
Index to Financial Statements
Independent Auditors' Report F-2
Balance Sheets as of December 31, 1996 and 1995 F-3
Statements of Operations for the years ended December 31, 1996
and 1995 F-4
Statements of Stockholders' Equity for the years ended
December 31, 1996 and 1995 F-5
Statements of Cash Flows for the years ended
December 31, 1996 and 1995 F-6
Notes to Financial Statements F-7
<PAGE>
Independent Auditors' Report
The Board of Directors
Golf-Technology Holding, Inc.
We have audited the accompanying balance sheets of Golf-Technology
Holding, Inc. as of December 31, 1996 and 1995, and the related statements
of operations, stockholders' equity (deficit), 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 Golf-Technology
Holding, Inc. as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1(b) to
the financial statements, the Company has suffered recurring losses from
operations which raise substantial doubt about its ability to continue as
a going concern. Management's plans in regard to these matters are also
described in note 1(b). The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Jacksonville, Florida
March 25, 1997
<PAGE>
GOLF-TECHNOLOGY HOLDING, INC.
Balance Sheets
December 31, 1996 and 1995
Assets 1996 1995
Current assets:
Cash $ 60,106 25,910
Accounts receivable NET OF
ALLOWANCE OF $232,652 IN
1996 AND $34,552 IN 1995 527,149 128,339
Inventories (note 2) 1,061,815 163,619
Prepaid Inventory 171,764 36,642
Equipment for sale (note 3) 275,000 -
Prepaid Expenses 128,888 43,750
Other 62,735 37,803
---------- ---------
Total current assets 2,287,457 436,063
---------- ---------
Property and equipment,net (note 3) 237,166 338,960
Notes receivable from related parties,
net (note 8) 70,737 26,870
Certificates of deposits, restricted 122,771 47,383
Deposits 141,302 168,971
Other 21,678 30,123
---------- ---------
Total assets $ 2,881,111 1,048,370
========= =========
Liabilities and Stockholders'
Equity (Deficit)
Current liabilities:
Notes payable (note 4) - 205,000
Notes payable to related
parties (note 4) 737,500 245,000
Accounts payable 1,892,433 1,032,927
Accrued liabilities 122,721 44,302
--------- ---------
Total current liabilities 2,752,654 1,527,229
--------- ---------
Stockholders' equity (deficit)
(notes 4, 7, 8, 9 and 12):
Preferred stock, Series A 9%
Cumulative Convertible,
$.001 par value per share;
aggregate involuntary liquidation
preference of $2,233,238 ($5.73
share), 5,000,000 shares authorized 390 373
Preferred stock, Series B Convertible,
$.001 par value per share; aggregate
involuntary liquidation preference of
$9,231,000 ($1,000.00 share), 9,231
shares authorized 9 -
Common stock, $.001 par value,
25,000,000 shares authorized 4,350 3,758
Additional paid-in capital 9,853,375 3,662,566
Accumulated deficit
(9,729,667) (4,145,556)
--------- ---------
Total stockholders'
equity (deficit) 128,457 (478,859)
--------- ---------
Commitments and contingent liabilities
(notes 6, 9 and 13)
Total liabilities and stock-
holders' equity (deficit) $ 2,881,111 1,048,370
========= =========
See accompanying notes to financial statements.
<PAGE>
GOLF-TECHNOLOGY HOLDING, INC.
Statements of Operations
Years ended December 31, 1996 and 1995
1996 1995
Net sales $ 3,544,183 1,269,843
Cost of sales 1,745,007 596,921
--------- ---------
Gross profit 1,799,176 672,922
Selling and marketing expenses 4,015,190 2,112,963
General and administrative expenses 2,511,347 1,202,178
Research and development costs 517,322 619,547
Other (note 3) 441,048 -
--------- ---------
Operating loss
(5,685,731) (3,261,766)
Other income (expense):
Interest income 32,891 9,918
Interest expense (43,191) (5,866)
Write-off of note receivable (note 8) - (378,034)
Royalty income 53,033 17,670
Other, net 58,887 (1,015)
--------- ---------
Net loss before income taxes
(5,584,111) (3,619,093)
Income taxes (note 5) - -
--------- ---------
Net loss (5,584,111) (3,619,093)
Preferred stock cumulative
dividends (note 12) (175,093) (62,745)
Deemed dividend on preferred stock
(note 12) (3,081,000) -
--------- =========
Net loss for common stockholders $(8,870,204) (3,681,838)
========= =========
Net loss per average outstanding
common share $ (2.17) (.98)
========= =========
Average outstanding common shares 4,093,280 3,743,450
========= =========
See accompanying notes to financial statements.
<PAGE>
GOLF-TECHNOLOGY HOLDING, INC.
Statements of Stockholders' Equity (Deficit)
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Additional Accu-
Preferred Stock Common Stock paid-in mulated
Shares Amount Shares Amount capital deficit Total
<S> <C> <C> <S> <C> <S>
Balance,
December 31, 1994 - $ - 3,718,408 $ 3,718 1,905,603 (526,463) 1,382,858
Issuance of stock - - 40,000 40 193,710 - 193,750
Issuance of stock,
net of issuance
cost of $307,249 372,600 373 - - 1,555,378 - 1,555,751
Other - - - - 7,875 - 7,875
Net loss - - - - - (3,619,093) (3,619,093)
------- ----- --------- ------ --------- --------- ---------
Balance,
December 31, 1995 372,600 373 3,758,408 3,758 3,662,566 (4,145,556) (478,859)
Issuance of stock,
net of issuance
cost of $22,400 17,000 17 - - 109,983 - 110,000
Issuance of stock - - 591,668 592 1,122,007 - 1,122,599
Issuance of stock,
net of issuance cost
of $1,191,172
(note 12) 9,231 9 - - 8,039,819 - 8,039,828
Deemed dividend on
preferred stock
(note 12) - - - - (3,081,000) - (3,081,000)
Net loss - - - - - (5,584,111) (5,584,111)
------ --- --------- ------ --------- --------- ---------
Balance,
December 31, 1996 398,831 $ 399 4,350,076 $ 4,350 9,853,375 (9,729,667) 128,457
======= === ========= ====== ========= ========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
GOLF-TECHNOLOGY HOLDING, INC.
Statements of Cash Flows
Years ended December 31, 1996 and 1995
1996 1995
Cash flows from operating activities:
Net loss $ (5,584,111) (3,619,093)
Adjustments to reconcile net loss
to net cash used in
operating activities:
Depreciation and amortization 156,113 64,353
Write-off of note receivable - 378,034
Write-off of non-recoverable equipment
and lease accrual 441,048 -
Stock compensation - 75,000
Changes in operating assets
and liabilities:
Accounts receivables (398,810) (69,015)
Inventories (898,196) (66,913)
Prepaid Inventory (135,122) -
Prepaid and other assets (110,070) (95,117)
Deposits and other assets 28,169 (124,971)
Accounts payable and accrued
liabilities 895,925 968,764
--------- ----------
Net cash used in operating
activities (5,605,054) (2,488,958)
--------- ---------
Cash flows from investing activities:
Investment in certificates of deposit,
restricted (75,388) (57,383)
Maturities of certificates of deposit,
restricted - 55,000
Notes receivable due from related parties (43,867) (120,884)
Capital expenditures (720,422) (290,633)
--------- ---------
Net cash used in investing activities (839,677) (413,900)
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable 1,225,000 450,000
Repayment of notes payable (702,500) -
Net proceeds from issuance of preferred
and common stock 5,956,427 1,820,014
--------- ---------
Net cash provided by financing
activities 6,478,927 2,270,014
--------- ---------
Net change in cash 34,196 (632,844)
Cash balance, beginning of period 25,910 658,754
--------- ---------
Cash balance, end of period $ 60,106 25,910
========= =========
Supplemental Disclosures:
Cash paid for interest $ 26,900 -
========= =========
Notes payable converted to common stock $ 235,000 -
========= =========
See accompanying notes to financial statements.
<PAGE>
GOLF-TECHNOLOGY HOLDING, INC.
Notes to Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies and Other Information
(a) Nature and Development of Business
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 June 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 or 93%, of the
Company's outstanding shares of common stock immediately
following the exchange.
As of December 31, 1996, 2,343,334 or 68%, of Golf-Tec's
outstanding shares of common stock have been exchanged for
shares of the Company's outstanding 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.
(b) 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 since its
inception.
Recurring losses and the negative working capital at
December 31, 1996 cause concerns about the Company's
liquidity and its ability to continue operations at
current levels and expand its product lines. Subsequent
to December 31, 1996, the Company has successfully issued
a private Series C 3.33% Convertible Preferred Stock
offering which netted proceeds of $2,900,000 to the
Company. Management projects that the Company will be
profitable and will have positive cash flow from
operations in 1997 based on current sales orders and
expense levels. However, it is not certain that the
Company will be able to realize management's sales
projections.
Based on communications with current and prospective
investors, the Company believes that it will be able to
raise capital, if needed, 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. However, the Company's ability to raise further
capital is uncertain.
(c) Revenue Recognition
Sales are recognized at the time goods are shipped, net of
allowance for sales returns.
(d) Inventories
Inventories are valued at the lower of cost or market.
Cost is determined using the first-in, first-out (FIFO)
method.
(e) Property and Equipment
Property and equipment is stated at cost. Depreciation is
computed using the straight-line and accelerated methods
over estimated useful lives of five to fifteen years.
Repairs and maintenance costs are charged to expense as
incurred.
(f) Advertising Costs
Advertising costs are expensed as incurred.
(g) Research and Development
Research and development costs are expensed as incurred.
(h) Income Taxes
The Company uses the asset and liability method of
accounting for income taxes. Deferred tax assets are
recognized for the future tax consequences attributable to
differences between the financial statement carrying
amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary
differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that
includes the enactment date.
(i) Stock Option Plan
Prior to January 1, 1996, the Company accounted for its
stock option plan in accordance with the provisions of
Accounting Principles Board ("APB") Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related
interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market
price of the underlying stock exceeded the exercise price.
On January 1, 1996, the Company adopted SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, which permits
entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of
grant. Alternatively, SFAS No. 123 also allows entities
to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings
per share disclosures for employee stock options grants
made in 1995 and future years as if the fair-value-based
method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of
APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
(j) 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 assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(k) Impairment of Long -Lived Assets and Long-Lived Assets to
Be Disposed Of
The Company adopted the provisions of SFAS No 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF, on January 1, 1996.
This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment
whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset of
future net cash flows expected to be generated by the
asset. If such assets are considered impaired, the
impairment to be recognized is measured by the amounts by
which the carrying amount of the assets exceed the fair
value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value
less costs to sell. Adoption of this Statement did not
have a material impact on the Company's financial
position, results of operations, or liquidity.
(l) Earnings (Loss) Per Common Share
Earnings (loss) per share are calculated by dividing the
net income (loss) for common stockholders by the weighted
average number of common shares outstanding. The stock
options, warrants and the convertible preferred stock were
not considered in the calculation since their inclusion
would be anti-dilutive.
(m) Significant Customers
Approximately 12% and 10% of the Company's 1996 sales were
from two customers.
(n) Reclassification
Certain 1995 amounts have been reclassified to conform to
the presentation adopted in 1996.
(2) Inventories
Inventories consist of the following at December 31, 1996 and
1995:
1996 1995
Components $ 599,424 96,414
Finished Goods 462,391 67,205
----------- -------
$ 1,061,815 163,619
=========== =======
(3) Property and Equipment
Property and Equipment, at cost, consist of the following at
December 31, 1996 and 1995:
1996 1995
Furniture and fixtures $ 56,390 42,687
Machinery and equipment 309,489 321,049
Leasehold improvements 11,885 45,814
----------- -------
377,764 409,550
Less accumulated
depreciation 140,598 70,590
----------- -------
$ 237,166 338,960
=========== =======
On December 1, 1996, the Company transferred the operations of a
subsidiary manufacturing plant in Ann Arbor, Michigan, to its
manufacturing plant at its headquarters in Ponte Vedra Beach,
Florida. The Company has recorded a charge to operations of
$441,048 for the year ended December 31, 1996, related to the
write-off of non-recoverable equipment and accrual of lease
obligation (see note 6). Estimated recoverable equipment, net, of
$275,000 has been recorded and is included in current assets as of
December 31, 1996.
Subsequent to December 31, 1996, the Company has realized net
proceeds approximating $275,000 from the sale of the recoverable
equipment referred to above.
(4) Notes Payable
Notes payable at December 31, 1995
consists of the following:
Unsecured promissory note, 12%,
due May 11, 1995 $ 50,000
Unsecured demand note, 10%, subject
to 5% late charge 30,000
Unsecured demand notes, due upon
the closing of any stock subscription
offering through November 30, 1996 or
demand thereafter, non-interest
bearing, 24% upon default 125,000
-------
$ 205,000
=======
During 1996, the $100,000 of unsecured demand notes, non-interest
bearing, were converted to 66,668 shares of the Company's common
stock. All other notes payable were repaid during 1996.
Notes payable to related parties at December 31, 1996 and 1995
consists of the following:
1996 1995
Unsecured demand note, non-interest
bearing $ 32,500 5,000
Unsecured demand note, 10%, due upon
closing of any stock subscription
through October 31, 1997 or
demand thereafter 650,000 -
Unsecured promissory note, non-interest
bearing, due September 13, 1995 - 30,000
Secured promissory note, non-interest
bearing, due September 13, 1995 - 30,000
Promissory note, non-interest bearing,
18% upon default, due
December 29, 1996 55,000 180,000
------ -------
$ 737,500 245,000
======= =======
Subsequent to December 31, 1996, all outstanding notes payable to
related parties, except for the non-interest bearing demand note
($32,500), have been paid in full.
During 1996, $135,000 of the promissory note was converted to
180,000 shares of the Company's common stock. During 1995, in
exchange for the unsecured promissory note, the Company issued to
a shareholder 1,000 warrants exercisable for five years at an
exercise price of $5.00 per share.
(5) Income Taxes
The Company since inception has had operating losses; therefore,
no income tax expense has been incurred. At December 31, 1996,
the Company had a net operating loss carryforward of approximately
$9,578,000 which is available to offset future taxable income
through the year 2011. A valuation allowance equal to the
deferred tax asset (approximately $3,604,000) related to the net
operating loss carryforward has been recorded since it is
considered more likely than not that the deferred tax asset will
not be realized based upon recent losses.
(6) Leases
The Company leases its corporate headquarters under a
noncancelable operating lease expiring July 31, 1997. The lease
requires the Company to pay all maintenance, insurance, and
property taxes, and is subject to normal escalation provisions.
Rent expense was $39,600 and $38,907 for the years ended December
31, 1996 and 1995, respectively.
During June, 1996, the Company entered a noncancelable operating
lease for manufacturing space expiring July 31, 1997. Rent expense
was $23,300 for the year ended December 31, 1996.
During March, 1995, the Company entered a noncancelable operating
lease for manufacturing and office space effective May 1, 1995
expiring April 30, 2000. Rent expense was $83,000 and $54,000 for
the years ended December 31, 1996 and 1995, respectively. The
Company is currently negotiating to either sub-lease or buyout
this lease. The Company has accrued $42,000 as of December 31,
1996 for the estimated future net expenditures required under this
lease.
Future minimum lease payments under the leases, are as follows:
1997 $ 142,000
1998 89,000
1999 92,000
2000 31,000
Thereafter 0
--------
$ 354,000
========
(7) Stock Option Plan
The Company's Board of Directors have adopted a stock award and
incentive plan (the Plan) for its officers, directors, selected
employees and independent contractors of the Company . The Plan
reserved 1,250,000 shares of common stock and provided that the
term of each award be determined by the Board of Directors.
The options granted may be either nonqualified or incentive stock
options and the exercise price may not be less than 110% of the
fair market value of the Company's common stock at the date of
grant. The options expire five to ten years from the date of
grant, unless otherwise provided in the option agreement.
The Company applies APB Opinion No. 25 in accounting for its Plan
and, accordingly, no compensation cost has been recognized for its
stock options in the financial statements. Had the Company
determined compensation cost based on the fair value at the grant
date for its stock options issued in 1996 and 1995 under SFAS No.
123, the impact on the Company's net loss and net loss per share
for the years ended December 31, 1996 and 1995 would have been
immaterial. This pro forma information applies only to options
granted in 1996 and 1995. Therefore, the full impact of calculat-
ing compensation cost for stock options under SFAS No. 123 is not
considered in the pro forma net loss and net loss per share
amounts referred to because compensation cost is reflected over
the options' vesting period and compensation cost for options
granted prior to January 1, 1995 is not considered.
Stock option activity during the periods indicated is as follows:
Number of Weighted-Average
Shares Exercise Price
Balance at
December 31, 1994 755,000 $ 1.65
Granted 26,500 1.62
Exercised - -
Forfeited - -
Expired - -
------- ----
Balance at
December 31, 1995 781,500 1.63
Granted - -
Exercised - -
Forfeited - -
Expired - -
------- ----
Balance at
December 31, 1996 781,500 1.63
======= ====
At December 31, 1996, the range of exercise prices and weighted-
average remaining contractual life of outstanding options was
$1.50 - $1.65 and 5.73 years, respectively.
At December 31, 1996 and 1995, the number of options exercisable
was 421,500 and 301,500, respectively, and the weighted average
exercise price of those options was $1.61 and $1.59, respectively.
(8) Related Party Transactions
(a) Employment Agreements
The Company has employment agreements with the Chairman
and Chief Operating and Financial Officer which provide
for 1996 salaries of $100,000 and $72,000, respectively.
(b) Notes Receivable
The Company has made advances to shareholders of the
Company. As of December 31, 1996 and 1995, related
outstanding balances were $70,737 and $26,870,
respectively. 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 January 1, 1998.
Accordingly, the outstanding balances at December 31, 1996
have been classified as long term.
Employee advances of $378,034 were written-off during 1995.
(c) Private Placement Agent
A former director of the Company served as President and a
director of Coleman and Company Securities, Inc., a
registered broker-dealer (Coleman) hired by the Company to
act as its exclusive placement agent for raising capital
investment. Affiliates of Coleman were allowed to
purchase 800,000 shares of the Company's common stock at
$.01 per share in connection with the formation of the
Company. Coleman holds warrants to purchase 146,834
shares of common stock at an exercise price of $1.80 per
share. The warrants are exercisable for five years.
Coleman had been retained by the Company to provide financial
consulting services for a three-year term expiring December 15,
1999, for which it received $3,000 per month. Subsequent to
December 31, 1996, the Company has negotiated a settlement and has
paid $20,000 to sever this agreement, effective immediately.
(9) Representation Agreements
The Company has representation agreements with thirteen PGA, PGA
Senior and NIKE Tour players. The Company has agreed to pay
certain incentives based upon performance under the agreements,
including minimum annual compensation totaling $561,250, $190,000,
$75,000 AND $150,000 FOR 1997, 1998, 1999 AND 2000, respectively;
five year stock options for 10,000 shares of the Company's
preferred capital stock; bonuses of $10,000 to $50,000 per win
of an official tour event or "Major" championship; bonus up to
$40,000 based on a member's ranking on the PGA Tour Money List
for 1997 and 1998, and, bonus up to $100,000 based on a member's
PGA Tour earnings for 1997. The Company incurred expenses for
representation agreements of $842,900 and $536,250 in 1996 and
1995, respectively.
(10) Distribution Agreement
The Company has a distribution agreement whereby Palawan Pearls,
Inc. d/b/a SunTrex Corporation (SunTrex) has the exclusive rights
to sell golf clubs under the Company's trademarks in the Pacific
Rim countries for a period expiring January 24, 1998. Based on the
agreement, SunTrex is required to purchase minimum annual
quantities from the Company at terms and prices specified in the
agreement. These terms and prices are subject to negotiation by
the parties.
(11) Licensing Agreement
The Company has a licensing agreement whereby Michael Thomas, Ltd.
(Thomas) has the exclusive rights for the design, manufacture, and
distribution of clothing under the Company's trademarks for a
period expiring March 31, 2000, including a three to five year
renewal option. Under the agreement, Thomas is required to pay
licensing fees on total sales on a graduated scale.
(12) Preferred Stock
In 1995, the Company issued 372,600 shares of its Series A 9%
Cumulative Convertible Preferred Stock (Preferred Stock) for net
proceeds of approximately $1,555,751. THE SERIES A PREFERRED
STOCK IS CONVERTIBLE AT ANY TIME AT A CONVERSION PRICE EQUAL TO
$5.00 PER SHARE OF COMMON STOCK. Coleman served as placement
agent for the offering and received selling commissions and an
expense allowance equal to 10% and 2.5%, respectively, of the
sales price of the Preferred Stock, plus one warrant for every ten
shares placed by Coleman in the offering. The warrants are for
the purchase of one share of the Preferred Stock or the number of
shares of the Company's common stock into which such shares of
Preferred Stock would be convertible, at an exercise price of
$6.00 per share and are exercisable for four years commencing one
year following the completion of the offering. Coleman received
selling commissions of $236,300 and an expense allowance of
$46,575 in connection with the offering.
The Company has not declared and, therefore, not paid accumulated
dividends on its Series A preferred stock. Dividends on Series A
preferred stock cannot be declared or paid until the Company has
accumulated profits. If the Company had accumulated profits at
December 31, 1996 and 1995, it would have accumulated dividends
payable on preferred stock in the amounts of $237,838 and $62,745,
respectively. Because the Company has not paid dividends on its
preferred stock, the preferred stock converted from non-voting to
voting preferred stock in April 1996.
On May 20, 1996, the Company issued 9,231 shares of its Series B
Convertible Preferred stock, $1,000 face value, at a discount of
$3,081,000 for net proceeds of $5,098,628, including brokers fees
of $1,051,372. 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 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.
Upon liquidation, dissolution or winding up of the Company,
holders of Series B Preferred stock are entitled to receive
liquidation distributions equivalent to $1,000 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
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 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.
As noted above, the Company issued the Series B Preferred Stock
at a discount of $3,081,000. Since the preferred stock is
convertible at its face amount into Common Stock, the conversion
results in a beneficial conversion feature to the preferred
shareholder. On March 28, 1997, a newly adopted position was
formally issued by the Securities and Exchange Commission which
requires companies to report the value of beneficial conversion
features on preferred stock issued as a dividend to preferred
shareholders. Accordingly, such amount has been reported as a
"deemed dividend on preferred stock" on the Statements of
Operations and Stockholders' Equity (deficit) for 1996.
On January 31, 1997, the Company issued 4,500 shares of its Series
C 3.33% Convertible Preferred stock, $1,000 face value ($4,500,000)
and warrants valued at $750,000 to purchase 501,724 shares of Common
Stock of the Company at prices ranging from $3.00 - $3.65 per share
and are exercisable starting January 27, 1997 through December 31,
2002 for proceeds of $2,900,000, including brokers fees of $100,000.
The stock was issued pro-rata, in two separate parcels of 1,875 and
2,625 shares to Common shareholders of the Company. The holders of
the issued stock shall be beneficially entitled similar to that of
Series B Preferred shareholders. Series C dividends are payable
annually in arrears, at the option of the Company in cash or
additional shares of Series C Stock. No dividends shall be declared
and paid on the Series C Preferred Stock (other than a dividend
payable solely in shares of Series C Preferred Stock) unless all
accrued but unpaid dividends on the Company's existing Series A
Preferred Stock have been declared and paid in cash. Such dividends
are not cumulative.
If all shares of Series C Preferred Stock have not been converted
into common stock by December 31, 1997, such dividends shall begin
to accumulate on all shares of Series C Preferred Stock which
remain outstanding at such time.
Upon liquidation, dissolution or winding up of the Company,
holders of Series C Preferred stock are entitled to receive
liquidation distributions equivalent to $1,000 per share before
any distribution to holders of Common Stock. The liquidation
preference of the Series C Preferred Stock shall be junior in
right of payment to the liquidation preference of the Company's
existing class of Series A Preferred Stock and shall be a pari
passu basis with the right of payment to the liquidation preference
of the Company's existing class of Series A Preferred Stock and
shall be a pari passu basis with the right of payment to the
liquidation preference of the Company's existing class of Series B
Preferred Stock. The Series C Preferred Stock is convertible at any
time commencing forty-five days after the last day on which there
is an original issuance of the Series C Preferred Stock. The
conversion price equals the lesser of the average closing bid for
the five days prior to conversion or $2.25. Each share of Series
C Preferred stock outstanding on June 30, 2002 automatically shall
be converted into Common Stock on such date at the conversion
price then in effect.
Proceeds from this offering have been used to repay the $650,000,
10% unsecured demand note payable to related party (see Note 4) as
mandated by the Series C subscription.
(13) Commitment and Contingent Liabilities
THO2 initially was organized as a mining company but is believed
to have engaged in only sporadic activity and to have been dormant
for the last several years. Management's knowledge about THO2's
prior business is extremely limited. Management has no way of
knowing whether there is any basis for a contingent liability
arising out of acts or omissions of the Company prior to the share
exchange, such as a tax liability or an environmental claim
relating to any real property to which the Company may have held
title many years ago. While management does not believe that any
such contingent liabilities exist, there can be no assurance that
any possible contingent liabilities resulting from the Company's
prior business history have not yet been cut off by applicable
statutes of limitations. Because management knows very little
about THO2's prior business, it has no basis for determining
likely sources of contingent liabilities and therefore has no
basis for determining when applicable statutes of limitation would
run.
The Company is involved in litigation on matters and is subject to
certain claims which arise in the normal course of business, none
of which, in the opinion of management, is expected to have a
material adverse effect on the Company's consolidated financial
position or results of operations.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereinto duly authorized.
GOLF-TECHNOLOGY HOLDING, INC.
Date: May 14, 1997 By: /s/ Harold E. Hutchins
Harold E. Hutchins
Chief Operating and Financial Officer
