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 June 30, 1997
[ ] 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 Incorporation or Organization)
(I.R.S. Employer ID #)
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 - 5,168,808 as of August 14, 1997
Page 1 of 13
<PAGE>
GOLF TECHNOLOGY HOLDING, INC.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of June 30, 1997 . . . . . . . . . . . . . 3
Statements of Operations for the three month and six month
periods ended June 30, 1997 and 1996 . . . . . . . . . . . 4
Statements of Cash Flows for the six month periods ended
June 30, 1997 and 1996 . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION AND SIGNATURES
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1
GOLF TECHNOLOGY HOLDING, INC.
BALANCE SHEET
(Unaudited)
June 30,
1997
(Unaudited)
Assets
Current assets:
Cash $ 47,748
Accounts receivable, net of allowance 1,431,284
of $134,078
Inventories 878,706
Prepaid Inventory 85,738
Prepaid Expenses 128,826
Other current assets 80,973
---------
Total current assets 2,653,275
---------
Property and equipment, at cost:
Furniture and fixtures 66,572
Machinery and equipment 427,314
Leasehold improvements 11,885
---------
505,771
Less accumulated depreciation (174,623)
---------
331,148
Notes receivable from related parties 68,237
Certificates of deposits, restricted 142,771
Deposits 140,166
Other assets 19,243
---------
Total assets $ 3,354,840
=========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 1,052,909
Accrued liabilities 109,654
---------
Total current liabilities 1,162,563
---------
Stockholders' equity:
Preferred stock, Series A 9%
Cumulative Convertible, $.001 par
value per share; aggregate involuntary 390
liquidation preference of $2,141,627
($5.50 share), 5,000,000 shares
authorized, 389,600 shares issued and
outstanding
Preferred stock, Series B Convertible,
$.001 par value per share; 7
aggregate involuntary liquidation
preference of $7,369,000 ($1,000.00
share), 10,000 shares authorized,
7,369 shares issued and outstanding
Preferred stock, Series C Convertible,
$.001 par value per share; aggregate
involuntary liquidation preference of
$4,500,000 ($1,000.00 share), 5,000
shares authorized, 4,500 shares issued
and outstanding 5
Common stock, $.001 par value, 25,000,000
shares authorized, 5,168,808 shares issued
and outstanding 5,168
Additional paid-in capital 12,711,903
Accumulated deficit (10,525,196)
Total stockholders' equity 2,192,277
Total liabilities and $ 3,354,840
stockholders' equity
See accompanying notes to financial statements.
<PAGE>
ITEM 1 CONTINUED
GOLF TECHNOLOGY HOLDING, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
(Unaudited) (Unaudited)
Net Sales $ 1,201,523 1,972,591 $ 2,886,443 2,511,151
Cost of sales 587,659 717,945 1,341,053 905,117
---------- ---------- ---------- ----------
Gross profit 613,864 1,254,646 1,545,390 1,606,034
Selling and marketing
expenses 846,744 713,404 1,468,276 1,305,177
General and adminis-
trative expenses 634,385 446,046 954,841 971,362
Research and develop-
ment costs 8,872 38,044 8,872 182,969
---------- --------- ---------- ----------
Operating income
(loss) (876,137) 57,152 (886,599) (853,474)
---------- --------- ---------- ----------
Other income (expense):
Royalty Income 18,361 17,345 68,361 29,855
Other, net 22,489 2,259 22,519 8,328
---------- --------- ---------- ----------
40,850 19,604 90,880 38,183
Net income
(loss) before
income taxes (835,287) 76,756 (795,719) (815,291)
Income taxes -- -- -- --
---------- --------- ---------- ----------
Net income (loss) (835,287) 76,756 (795,719) (815,291)
Preferred stock
cumulative dividends (43,710) (43,710) (87,172) (87,172)
---------- --------- ---------- ----------
Deemed dividend on
preferred stock
(note 5) -- -- (2,250,000) --
---------- --------- ---------- ----------
Net income (loss)
for common stock-
holders $ (878,997) 33,046 $(3,132,891) (902,463)
========== ========= ========== ==========
Net income (loss)
per average out-
standing common
share:
Primary:
Net income
(loss) $ (0.08) 0.01 $ (0.28) (0.23)
========== ========= ========== ==========
Weighted
average
shares
outstanding 11,685,266 6,206,109 11,347,960 3,898,107
========== ========= ========== ==========
Fully Diluted:
Net income
(loss) $ (0.08) 0.01 $ (0.28) (0.23)
========== ========= ========= ==========
Weighted
average
shares
outstanding 11,685,266 6,214,502 $11,347,960 3,898,107
========== ========= ========== ==========
See accompanying notes to financial statements.
<PAGE>
ITEM 1 CONTINUED
GOLF TECHNOLOGY HOLDING, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended
June 30,
1997 1996
(unaudited)
Cash flows from operating
activities:
Net loss $ (795,719) (815,291)
Adjustments to reconcile
net loss to net cash used
in operating activities:
Depreciation and amortization 34,025 47,626
Changes in operating
assets and liabilities:
Accounts receivable (904,135) (1,333,117)
Inventories 183,109 (632,728)
Equipment for sale 275,000 --
Prepaid Inventory 86,026 --
Prepaid and other assets (18,176) (145,665)
Deposits and other assets 3,571 (239,449)
Accounts payable and accrued
liabilities (852,592) (327,957)
---------- ----------
Net cash used in
operating activities (1,988,891) (3,446,581)
---------- ----------
Cash flows from investing activities:
Investment in certificates
of deposit, restricted (20,000) (135,388)
Notes receivable from
related parties 2,500 (7,235)
Capital expenditures (128,007) (342,101)
---------- ----------
Net cash used in
investing activities (145,507) (484,724)
---------- ----------
Cash flows from financing activities:
Repayment of notes payable (737,500) (137,500)
Net proceeds from issuance of
preferred and common stock 2,859,540 6,036,427
---------- ----------
Net cash provided by
financing activities 2,122,040 5,898,927
---------- ----------
Net increase (decrease)
in cash (12,358) 1,967,622
Cash balance, beginning of
period 60,106 25,910
---------- ----------
Cash balance, end of period $ 47,748 1,993,532
========== ==========
See accompanying notes to financial statements.
<PAGE>
ITEM 1. CONTINUED
GOLF TECHNOLOGY HOLDING, INC.
NOTES TO 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.
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 March 31,
1997.
3. Liquidity and Capital Resources. The Company has financed its
operations and investment in assets principally through the sale of equity
securities. Current operating losses cause concerns about the Company's
liquidity and its ability to continue operations at current levels and
expand its product lines. Management projects that the Company will
improve its results of operations during the remainder of 1997 based on
current sales orders and expense levels. In particular, the delivery of
pre-booked orders of new Snake Eyes iron sets will substantially
contribute to the realization of improved results of operations. 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 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.
However, the Company's ability to raise capital is uncertain.
4. Earnings Per Share. For the three and six month periods ended
June 30, 1997 and 1996, 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.
5. Series C Preferred Stock. On January 27, 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 - $3.625 per share and exercisable starting January 27, 1997
through December 31, 2002, for proceeds of $2,900,000, net of legal fees
of $100,000. The stock was issued in two separate parcels of 1,875 and
2,625 shares to two existing common shareholders of the Company. The
holders of the issued stock shall be beneficially entitled similar to that
of the Series B preferred shareholders. Series C Preferred Stock
dividends are payable annually in arrears, at the option of the Company
in cash or additional shares of Series C Preferred Stock. No dividends
shall be declared and paid on the Series C Preferred Stock (other than
dividends 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 on 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 shall be considered converted to common stock at the
conversion price then in effect.
As noted above, the Company issued the Series C Preferred Stock at a
discount of $2,250,000. Since the Series C Preferred Stock is convertible
at its face value 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 statement of operations for
the three months ended March 31, 1997.
Proceeds from this offering have been used to repay the $650,000, 10%
unsecured demand note payable to related party as mandated by the Series C
Preferred Stock subscription.
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 six month periods ended June 30, 1997 and 1996
(unaudited) and should be read in conjunction with the Company's Financial
Statements (including the notes thereto) appearing elsewhere in this
document.
Sales of the Snake Eyes Driver has not, to date, met management's
expectations. The Company will continue to promote and market the Snake
Eyes Driver in order to maximize the market potential of this product.
The Company has completed its first full set of irons, the MB-Series.
These muscle-backed forged irons are being forged by the internationally
recognized company Smith & Wesson. Smith & Wesson is widely recognized as
a forging and industrial metallurgy leader. Smith & Wesson has been in
business for over 145 years. The Company has pre-booked sales orders in
excess of $3,000,000 for delivery of irons sets. The Company expects
order levels to grow substantially through the fall buying season. A
substantial portion of these orders should be delivered by the end of
fiscal year 1997.
For the Six Months Ended June 30, 1997
The Company's net sales (unaudited) for the six month period ending
June 30, 1997 and 1996 were $2,886,443 and $2,511,151, respectively.
Management attributes the increase in sales for the six months ended June
30, 1997 to expansion of the Company's product line, spring promotions and
the increase in product availability.
The Company's gross profit (and gross profit margin) for the six
months ended June 30, 1997 was $1,545,390 (54%) compared to $1,606,034
(64%) for the six months ended June 30, 1996. The decrease in reported
gross profit and gross profit percentage is due to reduced pricing on
limited sales of promotional inventory.
Operations resulted in net losses of $886,599 and $853,474 for the
six months ended June 30, 1997 and June 30, 1996, respectively. The
operating loss incurred during the six months ended June 30, 1997 was
attributed to a combination of advertising and promotional expenses
related to driver sales coupled with driver sales, to date, not meeting
expectations.
Selling and marketing expenses of $1,468,276 reported for the six
months ended June 30, 1997 reflect a marketing plan that includes media
and print advertising primarily to support wedge sales, driver sales,
targeted marketing promotions and professional tour player promotions.
Included in the amount reported above is $378,000 relative to professional
tour player related costs. These costs include professional tour players'
contract expenses for approximately thirteen PGA, Senior PGA, and NIKE
Tours Players.
Other Income reported for the six months ended June 30, 1997 includes
$68,361 of royalty income attributed to sales of Snake Eyes soft goods by
Michael Thomas Ltd. d/b/a Snake Eyes Apparel Group.
The Company's accounts receivable (net), balance of $1,431,284 as of
June 30, 1997 compared to $527,149 as of December 31, 1996, reflects the
impact of sales during the period.
For the Three Months Ended June 30, 1997
The Company's net sales (unaudited) for the three month period ending
June 30, 1997 and 1996 were $1,201,523 and $1,972,591, respectively.
Management attributes the decrease in sales for the three months ended
June 30, 1997 compared to the same period in 1996 to the fact that second
quarter 1996 sales were inflated due to lack of product availability in
the last half of 1995 and the first quarter of 1996. The resulting delay
of product delivery was substantially "caught up" during the quarter ended
June 30, 1996.
The Company's gross profit (and gross profit margin) for the three
months ended June 30, 1997 was $613,864(51%) compared to $1,254,646(64%)
for the three months ended June 30, 1996. The decrease in reported gross
profit is relative to the decrease in sales as discussed above. The
decrease in gross profit percentage is due to reduced pricing on limited
sales of promotional inventory.
Operations resulted in net loss of $876,137 and net income of $57,152
for the three months ended June 30, 1997 and June 30, 1996, respectively.
The operating loss incurred during the three months ended June 30, 1997
was attributed to a combination of advertising and promotional expenses
related to wedge and driver sales coupled with driver sales, to date, not
meeting expectations. Additionally, the Company incurred increased
general and administrative expenses incurred to support the Company's
capacity to grow.
Selling and marketing expenses of $846,744 reported for the three
months ended June 30, 1997 reflect a marketing plan that includes
substantial media and print advertising related primarily to support sales
of the Snake Eyes Driver, targeted marketing promotions and professional
tour player promotions. Included in the amount reported above is $177,000
relative to professional tour player related costs. These costs include
professional tour players' contract expenses for approximately thirteen
PGA, Senior PGA, and NIKE Tours Players.
General and administrative expenses of $634,385 reported for the
three months ended June 30, 1997 reflect increased spending incurred to
support the Company's capacity to grow. Included in the total general and
administrative expenses were salaries and related expenses of $251,000,
insurance expenses of $107,000, travel related expenses of $82,000,
leasing related costs of $57,000 and operating tax expenses of $41,000.
Liquidity and Capital Resources
The Company has financed its operations and investment in assets
principally through the sale of equity securities. Current operating
losses cause concerns about the Company's liquidity and its ability to
continue operations at current levels and expand its product lines.
Management projects that the Company will improve its results of
operations during the remainder of 1997 based on current sales orders and
expense levels. In particular, the delivery of pre-booked sales orders of
new Snake Eyes iron sets will substantially contribute to the realization
of improved results of operations. 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 sufficient capital, which
together with projected cash flows 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.
PART II. OTHER INFORMATION AND SIGNATURES
Item 3. Defaults Upon Senior Securities
The Company has Series A Cumulative Preferred Stock dividends in
arrears of $324,400 as of June 30, 1997. To date, the Company has not
paid dividends. The arrearage for Series A Cumulative Preferred Stock
dividends is $346,000 as of August 14, 1997.
Item 6.Exhibits and Reports on Form 8-K
A. Exhibits:
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: August 14, 1997 By: /s/ Harold E. Hutchins
Harold E. Hutchins
Chief Operating and
Financial Officer
<PAGE>
PART III. INDEX TO EXHIBITS
Exhibit 27 Financial Data Schedule
Exhibit 11
GOLF TECHNOLOGY HOLDING, INC.
COMPUTATION OF EARNINGS PER SHARE
See Note 4 of Part I, Item 1, which is incorporated herein by
reference.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF GOLF TECHNOLOGY HOLDING, INC. AS OF AND FOR THE THREE MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 47,748
<SECURITIES> 0
<RECEIVABLES> 1,565,362
<ALLOWANCES> 134,078
<INVENTORY> 878,706
<CURRENT-ASSETS> 2,653,275
<PP&E> 505,771
<DEPRECIATION> (174,623)
<TOTAL-ASSETS> 3,354,840
<CURRENT-LIABILITIES> 1,162,563
<BONDS> 0
0
402
<COMMON> 5,087
<OTHER-SE> 2,186,788
<TOTAL-LIABILITY-AND-EQUITY> 3,354,840
<SALES> 1,201,523
<TOTAL-REVENUES> 1,242,373
<CGS> 587,659
<TOTAL-COSTS> 846,744
<OTHER-EXPENSES> 643,259
<LOSS-PROVISION> (44,967)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (835,287)
<INCOME-TAX> 0
<INCOME-CONTINUING> (835,287)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (835,287)
<EPS-PRIMARY> (.28)
<EPS-DILUTED> (.28)
</TABLE>
