10QSB 1 0001.txt FORM 10-QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ____________________ FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 Commission file Number: 0-28707 CARBITE GOLF, INC. (Exact Name of Small Business Issuer as Specified in Its Charter) British Columbia, Canada 33-0770893 (State or Other Jurisdiction of (IRS Employer Incorporation or Organization) Identification No.) 9985 HUENNEKENS STREET SAN DIEGO, CA 92121 (Address of Principal Executive Offices) Registrant's Telephone Number (858) 625-0065 Check Whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes______ No X ----- On September 15, 2000, 25,371,750 shares of the Registrant's Common Stock, no par value, were outstanding.
Index Page No. PART I FINANCIAL INFORMATION Item 1. Financial Statements: 3 Condensed Consolidated Balance Sheet 3 Condensed Consolidated Statements of Operations 4 Condensed Consolidated Statements of Cash Flows 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II OTHER INFORMATION Item 5. Other Information 9 Item 6. Exhibits and Reports on Form 8-K 10 SIGNATURES 10
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CARBITE GOLF INC CONDENSED CONSOLIDATED BALANCE SHEET MARCH 31, 2000 (UNAUDITED) -------------------------------------------------------------------------------- ASSETS Current Assets Cash $ 665,018 Accounts Receivable 2,538,346 Inventory 2,510,636 Prepaid Expenses 294,959 Future Tax Assets 150,000 -------------------------------------------------------------------------------- Total Current Assets 6,158,959 Capital Assets 751,258 Patents and Trademarks Net of Amortization 88,859 Goodwill Net of Amortization 2,137,978 Other Non-Current Assets (Deferred Costs) 232,114 -------------------------------------------------------------------------------- Total Assets $ 9,369,168 ================================================================================ LIABILITIES AND STOCKHOLDERS EQUITY Current Liabilities Accounts Payable 603,016 Accrued Liabilities 185,932 Bank Loan 559,783 Income Tax Payable 33,977 -------------------------------------------------------------------------------- Total Current Liabilities $ 1,382,708 -------------------------------------------------------------------------------- Shareholders Equity Share Capital 10,835,612 Deficit (2,849,152) Total Stockholders Equity 7,986,460 -------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 9,369,168 ================================================================================ 3 CARBITE GOLF INC CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS MARCH 31, 2000 (UNAUDITED) Three months ended March 31, 2000 1999 -------------------------------------------------------------------------------- Net Sales $4,245,876 $4,115,129 Cost of Goods Sold 2,243,546 2,119,600 -------------------------------------------------------------------------------- Gross Profit 2,002,330 1,995,529 Operating Expenses Selling Expenses 1,398,900 954,172 General And Administrative Expenses 506,423 415,679 Research and Development Costs 143,449 115,780 -------------------------------------------------------------------------------- Income from Operations (46,442) 509,898 Amortization (128,447) (101,628) Interest income (expense) 4,581 (1,209) Other Expense 0 (209,843) -------------------------------------------------------------------------------- Net Income (170,308) 197,218 ================================================================================ Basic and Diluted Earnings per Share (.01) .01 ================================================================================ 4 CARBITE GOLF INC CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS MARCH 31, 2000 Three months ended March 31, 2000 1999 -------------------------------------------------------------------------------- Cash Flows used in Operating Activities Net Loss (170,308) 197,218 Adjustments to Net Loss to Cash Used in Operations: Additional Paid in Capital Deferred Costs on Unrecognized Sales 51,395 61,566 Amortization 77,052 72,500 Depreciation 40,424 30,914 Changes in Operating Assets and Liabilities: Inventories (129,051) 462,752 Accounts Receivable (78,845) (799,039) Other Current (128,804) (634,195) Accounts Payable and Accrued Liabilities (160,176) 460,050 -------------------------------------------------------------------------------- Cash Used in Operating Activities (498,313) (148,234) -------------------------------------------------------------------------------- Cash Flows from Investing Activities: Purchases of Capital Equipment (173,756) (176,741) Other Investment (28,625) (21,695) -------------------------------------------------------------------------------- Cash Used in Investing Activities (202,381) (198,436) -------------------------------------------------------------------------------- Cash Flows from Financing Activities: Net Borrowings (payments) under Line of Credit 327,225 0 Repayments of L/T Debt (3,393) (2,124) Change in Foreign Currency 358 1,305 Net Proceeds From Sale of Common Stock 380,853 602,551 -------------------------------------------------------------------------------- Cash Provided by Financing Activities 705,043 601,732 -------------------------------------------------------------------------------- Net Increase (Decrease) in Cash 4,349 255,062 Cash at Beginning of Period 660,669 1,154,678 -------------------------------------------------------------------------------- Cash at End of Period $ 665,018 $1,409,740 ================================================================================ 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - QUARTERLY FINANCIAL STATEMENTS The accompanying condensed consolidated financial statements and related notes as of March 31, 2000 and for the three month periods ended March 31, 2000 and 1999 are unaudited but include all adjustments (consisting of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of financial position and results of operations of the Company for the interim periods. The results of operations for the three-month period ended March 31, 2000 are not necessarily indicative of the operating results to be expected for the full fiscal year. The information included in this report should be read in conjunction with the Company's audited consolidated financial statements and notes thereto and the other information, including risk factors, set forth for the year ended December 31, 1999 in the Company's Form 10-SB. Readers of this Quarterly Report on Form 10-QSB are strongly encouraged to review the Company's Form 10-SB. Copies are available from the Company's Investor Relations Department at 9985 Huennekens Street, San Diego, CA 92121. NOTE 2 - ACCOUNTS RECEIVABLE Accounts Receivable at March 31, 2000 were $2,842,572 with a reserve for doubtful accounts of ($304,226) for net receivables of $2,538,346. NOTE 3 - INVENTORY Inventories consist of: Raw materials $1,869.263 Finished goods 541,373 ---------- $2,510,636 NOTE 4 - BANK LOAN We have a $1,000,000 Revolving Line of Credit with Scripps Bank in San Diego, California, which is at the lender's general reference rate of interest and is collateralized by accounts receivable. As of March 31, 2000, we had drawn $519,150 under that Line of Credit. NOTE 5 - LETTER OF CREDIT COMMITMENTS The Company purchases some components from overseas vendors through Letter of Credit financing. At March 31, 2000, we had $338,641 in such Letters of Credit outstanding with Scripps Bank, San Diego. These Letters of Credit are generally due and payable by the Company upon shipment of the products by our vendors. 6 NOTE 6 - EARNINGS PER SHARE Earnings per share are calculated by dividing the loss available to common shareholders by the weighted average of shares outstanding during the period. At March 31, 2000, there were 23,426,486 common shares outstanding. The computation of diluted loss per share excludes the effect of the exercise of share options and share purchase warrants outstanding because their effect would be antidilutive due to losses incurred by the Company during this period. At March 31, 2000, there were 2,939,740 share options and 1,291,250 share purchase warrants outstanding. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements which involve substantial risks and uncertainties. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth in this section and elsewhere in this Quarterly Report on Form 10-QSB. RESULTS OF OPERATIONS Net Sales. Net consolidated sales through the first quarter of 2000 were $4,245,876, a 3% increase compared to $4,115,129 in the first quarter of 1999. Putter sales were essentially flat even though we introduced no new models. Wedge sales were below our projections due to the delayed launch of our Polar Balanced Wedge product. Gross Profit. Gross margins decreased approximately 3% due to "close out" sales of slower moving putters. Operating Expenses. Operating Expenses for the first quarter of 2000 were $2,048,772 up 38% compared to $1,485,631 for 1999, due to increases in Sales and Marketing, General and Administrative, and Research and Development noted below. Sales and Marketing. Sales and Marketing expense increased 32% over the same quarter last year, principally due to increases in commission expense and sales staff. Commissions were up due to (i) the use of outside call rooms for telemarketing campaigns where commissions are 20-25% on gross sales and (ii) a portion of 1999 sales were not paid until First Quarter 2000 due to a computer software error. Salaries in the sales department were up as we added sales personnel. Marketing expenses were also higher due to production and testing expenses for an infomercial which had not yet been rolled out. General and Administrative Expense. General and Administrative expenses were $506,423, an increase of 21% from $408,036 in the first quarter of 1999. These increases were primarily due to an increase in wages and salaries. Moving costs and higher rent also contributed in increased G&A as we completed our move from an 18,000 square foot facility to a 26,000 square foot facility in February 2000. Research and Development Expense. Research and Development expenses increased 24% in the first quarter of 2000 compared to the first quarter of 1999. This increase was in wages and salaries to cover additional work on new products and improvement of current technologies. Other Expenses. Other expenses were higher in deferred costs and depreciation, but the same for amortization of goodwill. There were more infomercial costs to expense in the first quarter of 2000 compared to1999. Depreciation was higher by $9,510 in 2000 because of the purchase of new computer information systems software. 8 Income Taxes. The company has not recorded a provision for income taxes for the current three-month period, as losses have been incurred to this point in the current year. Capital Expenditures. Capital Expenditures in the first quarter of 2000 were $95,338, compared to $198,437 in the first quarter of 1999. $56,970 was paid for a secondary Polar Balanced Putter tooling and $11,675 for Yipless Putter robots that demonstrate Carbite Technology in a retail environment. The remaining balance was used in set-up of our new building for equipment and production support. LIQUIDITY AND CAPITAL RESOURCES We have historically financed our business through cash flow from operations and the private placement of equity and/or debt securities, supplemented with short-term borrowings from commercial lenders. In March, 2000, we raised $550,000 through a private equity placement with a director, resident in Canada. Net cash used by operating activities was $498,313 for the quarter ended March 31, 2000 compared to $148,234 net cash used for the same quarter in 1999. As of March 31, 2000, we had drawn $519,150 under our $1,000,000 Credit Facility at Scripps Bank, San Diego. PART II OTHER INFORMATION ITEM 5. OTHER INFORMATION On February 4, 2000, we moved to a new headquarters building at 9985 Huennekens Street, San Diego, California. We are leasing the building under a four-year lease dated October 29, 1999 that calls for base rent of $20,185 per month. This facility provides 26,000 square feet of office, warehouse, manufacturing, and research and development space and should provide adequate facilities for growth in the foreseeable future. David Williams, the President of Roxborough Holdings in Toronto, Canada, was appointed to the Company's Board of Directors at a Board meeting on February 17, 2000. On March 15, 2000, we completed an Amended and Restated Endorsement Agreement with pro golfer, Fuzzy Zoeller. The basic terms of the agreement are the same as the original agreement in August, 1999, i.e., a five-year Endorsement Agreement whereby Zoeller will play, endorse, and assist in the development of Carbite products worldwide. The Agreement calls for payments to Zoeller in a combination of cash and stock of $138,000 for the first six months (August 1999 to February 2000) and five annual payments of cash and stock thereafter with a dollar value of $300,000 in Year 2, $300,000 in Year 3, $500,000 in Year 4, $550,000 in Year 5 and $575,000 in Year 6. We have the right to terminate the arrangement if 2001 sales do not reach $25 million. This agreement simply clarifies the procedures for the issuance of shares to Zoeller. 9 On March 17, 2000, a private placement of 1,000,000 shares was completed with David Williams, a Director, for $.55 CDN per share. 500,000 warrants were attached with an exercise price of $.55 CDN per share with an expiration date of March 17, 2001. No underwriters were used in this transaction and we have relied upon the exemptions provided by Section 4(2) and/or Regulation D of the Securities Act. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The exhibits filed as part of this report are listed below: Exhibit No. Description ----------- ----------- 10.17 Amended and Restated Endorsement Agreement with Fuzzy Zoeller Productions dated as of March 15, 2000 27.1 Financial Data Schedule (b) Reports on Form 8-K. No reports on Form 8-K were filed during the Quarter ended March 31, 2000. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CARBITE GOLF, INC. Date: October 15, 2000 By: /s/ John Pierandozzi -------------------- John Pierandozzi President and CEO 10