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 March 31, 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 (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 - 4,734,739 as of May 14, 1997
<PAGE>
GOLF TECHNOLOGY HOLDING, INC.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheet as of March 31, 1997 . . . . . . . . . . . . 3
Statements of Operations for the three month periods ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . 4
Statements of Cash Flows for the three month periods ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . 9
PART II - OTHER INFORMATION AND SIGNATURES
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PART III - INDEX TO EXHIBITS
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1
GOLF TECHNOLOGY HOLDING, INC.
BALANCE SHEET
(Unaudited)
March 31,
Assets 1997
(Unaudited)
Current assets:
Cash $ 319,439
Accounts receivable, net of allowance of 1,511,609
$167,009
Inventories 845,139
Prepaid Inventory 136,875
Prepaid Expenses 214,760
Other current assets 88,812
----------
Total current assets 3,116,634
----------
Property and equipment, at cost:
Furniture and fixtures 65,303
Machinery and equipment 382,337
Leasehold improvements 11,885
----------
459,526
Less accumulated depreciation (157,373)
----------
302,153
Notes receivable from related parties 70,737
Certificates of deposits, restricted 162,771
Deposits 116,801
Other assets 28,969
----------
Total assets $ 3,798,065
==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 700,376
Notes payable to related parties 32,500
Accrued liabilities 37,814
----------
Total current liabilities 770,690
----------
Shareholders' equity:
Preferred stock, Series A 9% Cumulative
Convertible, $.001 par value per share;
aggregate involuntary liquidation
preference of $2,141,627 ($5.50 share),
5,000,000 shares authorized, 389,600
shares issued and outstanding 390
Preferred stock, Series B Convertible
$.001 par value per share; aggregate
involuntary liquidation preference of
$8,303,000 ($1,000.00 share), 10,000
shares authorized, 8,303 shares issued
and outstanding 8
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, 4,734,739 shares issued
and outstanding 4,735
Additional paid-in capital 12,712,335
Accumulated deficit (9,690,098)
----------
Total stockholders' equity 3,027,375
----------
Total liabilities and stockholders'
equity $ 3,798,065
==========
See accompanying notes to financial statements.
<PAGE>
ITEM 1. CONTINUED
GOLF TECHNOLOGY HOLDING, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
1997 1996
(Unaudited)
Net Sales $ 1,684,920 537,740
Cost of sales 753,394 187,172
---------- ----------
Gross profit 931,526 350,568
Selling and marketing expenses 621,532 591,773
General and administrative expenses 320,456 525,316
Research and development costs - 144,925
---------- ----------
Operating income (loss) (10,461) (911,446)
---------- ----------
Other income (expense):
Royalty income 50,000 13,330
Other, net 30 6,069
---------- ----------
50,030 19,399
Net income (loss) before income
taxes 39,569 (892,047)
Income taxes
Net income (loss) - -
---------- ----------
39,569 (892,047)
Preferred stock cumulative dividends (43,230) (64,404)
Deemed dividend on preferred stock
(note 5) (2,250,000) -
---------- -----------
Net income (loss) for common
stockholders $ (2,253,661) (956,451)
========== ==========
Net income (loss) per average
outstanding common share:
Primary:
Net income (loss) (0.50) (0.25)
Weighted average shares
outstanding 4,525,000 3,775,796
========== ==========
See accompanying notes to financial statements.
<PAGE>
ITEM 1. CONTINUED
GOLF TECHNOLOGY HOLDING, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
1997 1996
(unaudited)
Cash flows from operating activities:
Net loss $ 39,569 (892,047)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 16,775 16,899
Changes in operating assets and
liabilities:
Accounts receivable (984,460) (102,259)
Inventories 216,676 (111,117)
Equipment for sale 275,000 -
Prepaid Inventory 34,889 -
Prepaid and other assets (111,949) 15,350
Deposits and other assets 17,209 (118,061)
Accounts payable and
accrued liabilities (1,276,963) 377,136
---------- ----------
Net cash used in
operating activities (1,773,254) (814,009)
---------- ----------
Cash flows from investing activities:
Investment in certificates of deposit,
restricted (40,000) (388)
Notes receivable from related parties - (7,235)
Capital expenditures (81,762) (24,113)
---------- ----------
Net cash used in investing
activities (121,762) (31,736)
---------- ----------
Cash flows from financing activities:
Bank overdraft - 4,725
Repayment of notes payable (705,000) -
Proceeds from notes payable - 495,000
Net proceeds from issuance of
preferred and common stock 2,859,349 320,200
---------- ----------
Net cash provided by financing
activities 2,154,349 819,925
---------- ----------
Net increase (decrease) in cash 259,333 (25,910)
Cash balance, beginning of period 60,106 25,910
---------- ----------
Cash balance, end of period $ 319,439 0
========== ==========
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. Current marginal earnings and
prior losses at March 31, 1997 cause concerns about the Company's
liquidity and its ability to continue operations at current levels and
expand its product lines. During January 1997, the Company successfully
issued a private Series C 3.33% Convertible Preferred Stock Offering which
netted proceeds of $2,900,000. In addition, management projects that the
Company will be profitable and will have positive cash flow from
operations during the remainder of 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 sufficient 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.
4. 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 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 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 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
automatically converted into 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.
5. Equity Conversion. On February 4, 1997, a related party of the
Company elected to convert 928 shares of Series B Preferred Stock into
384,663 shares of the Company's Common Stock. The 384,663 shares of
common stock were issued to the related party effective February 18, 1997.
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 month periods ended March 31, 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.
For the Three Months Ended March 31, 1997
The Company's net sales (unaudited) for the three month period ending
March 31, 1997 and 1996 were $1,684,920 and $537,740, respectively.
Management attributes the increase in sales for the three months ended
March 31, 1997 to expansion of the Company's product line, early spring
promotions and the increase in product availability.
The Company's gross profit (and gross profit margin) for the three months
ended March 31, 1997 was $931,526 (55%) compared to $350,568 (65%) for the
three months ended March 31, 1996. The increase in reported gross profit
is relative to the increase 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 losses of $10,461 and $911,446 for the three
months ended March 31, 1997 and March 31, 1996, respectively. The minimal
operating loss incurred during the three months ended March 31, 1997 was
primarily due to increased sales as discussed above and a relative
reduction of selling and marketing expenses, general and administrative
expenses, and research and development costs.
Selling and marketing expenses of $621,532 reported for the three months
ended March 31, 1997 reflect a marketing plan that includes "right sized"
media and print advertising, targeted marketing promotions and
professional tour player promotions. Included in the amount reported
above is $201,000 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 320,456 reported for the three
months ended March 31, 1997 reflects a reduction of general and
administrative expenses from periods previously reported. This reduction
is primarily attributed to the reduction and transfer of Snake Eyes Driver
production operations to the Company's Ponte Vedra Beach, Florida main
plant in December of 1996. This production was previously done at a
plant in Ann Arbor, Michigan. These plant operations have been closed.
No research and development costs have been reported for the three months
ended March 31, 1997. This is due to the fact that the Snake Eyes Driver
has been in full production since December of 1996. Research and
development costs are anticipated to be incurred by the Company relative
to its development of Snake Eyes Irons. The impact of these costs is
expected to culminate with the completion of iron development expected
during the late second quarter/ early third quarter of 1997.
Other Income reported for the three months ended March 31, 1997 includes
$50,000 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 $1,511,609 as of March
31, 1997 compared to $527,149 as of December 31, 1996, reflects the impact
of sales during the three month period ended March 31, 1997. Much of
these sales were concentrated toward the later part of the period.
Liquidity and Capital Resources
Current marginal earnings and prior losses at March 31, 1997 cause
concerns about the Company's liquidity and its ability to continue
operations at current levels and expand its product lines. During January
1997, the Company successfully issued a private Series C 3.33% Convertible
Preferred Stock Offering which netted proceeds of $2,900,000. In
addition, management projects that the Company will be profitable and will
have positive cash flow from operations during the remainder of 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 sufficient 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.
Certain proceeds from the issuance of Series C Preferred Stock have been
utilized to substantially pay down the Company's Notes Payable to related
parties, Accounts Payable and Accrued Liabilities.
The Company has collected, in full, amounts related to the $275,000
Equipment for Sale recorded as a current asset in the Company's December
31, 1996 financial statements. The collection of these amounts occurred
during the three month period ended March 31, 1997.
PART II. OTHER INFORMATION AND SIGNATURES
Item 3. Defaults Upon Senior Securities
The Company has Series A Cumulative Preferred Stock dividends in
arrears of $281,000 as of March 31, 1997. To date, the Company has not
paid dividends. The arrearage for Series A Cumulative Preferred Stock
dividends is $300,000 as of May 13, 1997.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits:
3. Statement of Resolution establishing Series C Preferred Stock
dated January 27, 1997
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: May 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
<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 PERIOD ENDED MARCH
31, 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> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 319,439
<SECURITIES> 0
<RECEIVABLES> 1,511,609
<ALLOWANCES> 167,009
<INVENTORY> 845,139
<CURRENT-ASSETS> 3,116,634
<PP&E> 459,526
<DEPRECIATION> 157,373
<TOTAL-ASSETS> 3,798,065
<CURRENT-LIABILITIES> 770,690
<BONDS> 0
0
403
<COMMON> 4,735
<OTHER-SE> 3,022,237
<TOTAL-LIABILITY-AND-EQUITY> 3,798,065
<SALES> 1,684,920
<TOTAL-REVENUES> 1,734,950
<CGS> 753,394
<TOTAL-COSTS> 621,532
<OTHER-EXPENSES> 320,456
<LOSS-PROVISION> (41,123)
<INTEREST-EXPENSE> 1,135
<INCOME-PRETAX> 39,569
<INCOME-TAX> 0
<INCOME-CONTINUING> 39,569
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,569
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
