U.S. 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 PERIOD ENDED JANUARY 31, 1997
Commission file number 0-24160
CARLYLE GOLF, INC.
(Exact name of small business issuer as specified in its charter)
Colorado 84-1218066
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation)
10550 East 54th Avenue, Unit E
Denver, Colorado 80239
(Address of principal executive offices)
(303) 371-2889
(Issuer's telephone number)
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. [X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
Class Outstanding at March 7, 1997
Common Stock, $.001 par value 5,285,899
Transitional Small Business Disclosure Format (check one): Yes[ ] No[X]
INDEX
PAGE
PART I - Financial Information
ITEM 1 - Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6 - 7
ITEM 2 - Management's Discussion and Analysis of
Financial Conditions and Results of Operations 8 - 10
PART II - Other Information
ITEMS 1 through 6 11
Signature Page
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CARLYLE GOLF, INC.
BALANCE SHEETS
JANUARY 31, 1997 AND OCTOBER 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------
1997 1996
--------- --------
ASSETS
Current assets:
Cash $ 35,966 $ 12,326
Trade accounts receivable, net of
allowance of $350,000 in 1997
and $100,000 in 1996 1,610,500 585,522
Inventories 3,328,522 1,782,916
Prepaid and other assets 212,190 150,319
----------- -----------
Total current assets 5,187,178 2,531,083
Property and equipment, at cost:
Building 800,000 -
Equipment and leasehold improvements 1,904,662 662,964
Less accumulated depreciation (226,458) (195,334)
----------- -----------
2,478,204 467,630
Goodwill and other assets 2,020,596 46,223
----------- -----------
Total assets $ 9,685,972 $ 3,044,936
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ 2,309,140 $ 526,307
Note payable to stockholder 1,243,000 -
Accounts payable 997,238 474,599
Accrued liabilities 674,647 86,628
Obligations under purchase agreement 109,274 -
Capitalized lease obligations 25,419 -
----------- -----------
Total current liabilities 5,358,718 1,087,534
Obligations under purchase agreement,
net of current portion 385,951 -
Capitalized lease obligations, net
of current portion 83,680 -
Stockholders' equity:
Preferred stock, $1.00 par value,
authorized 2,500,001 shares,
issued 1,320,432 shares 1,320,432 -
Common stock, $.001 par value,
authorized 30,000,000 shares;
issued 5,234,899 shares in 1997
and 4,871,024 in 1996 5,235 4,871
Additional paid-in capital 7,958,447 6,994,703
Compensation payable in common
stock (131,500 shares in 1997
and 77,000 shares in 1996) 221,690 117,304
Unearned compensation (194,014) (78,174)
Accumulated deficit (5,454,167) (5,081,302)
----------- -----------
Total stockholders' equity 3,857,623 1,957,402
----------- -----------
Total liabilities and stockholders'
equity $ 9,685,972 $ 3,044,936
=========== ===========
CARLYLE GOLF, INC.
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31,
(UNAUDITED)
- --------------------------------------------------------------------------
1997 1996
--------- --------
Net revenue $ 778,538 $ 433,492
Cost of sales 636,929 383,962
----------- -----------
Gross profit 141,609 49,530
Selling, general, and administrative
expenses 487,913 401,691
----------- -----------
Loss from operations (346,304) (352,161)
Other income (expenses):
Interest expense (26,561) (20,347)
----------- -----------
(26,561) (20,347)
----------- -----------
Net loss $ (372,865) $ (372,508)
=========== ===========
Net loss per common share $ (0.07) $ (0.09)
=========== ===========
Weighted average common shares
outstanding 5,023,498 4,261,701
=========== ===========
See accompanying notes to financial statements.
CARLYLE GOLF, INC.
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 1997 AND 1996
(UNAUDITED)
- --------------------------------------------------------------------------
1997 1996
--------- --------
Cash flows from operating activities:
Net loss $ (372,865) $ (372,508)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Depreciation 31,124 25,765
Amortization of unearned
compensation 54,595 60,613
Changes in operating assets
and liabilities:
(Increase) decrease in:
Trade receivables (73,890) 121,940
Inventories (302,972) (242,915)
Prepaid expenses (114,522) (26,494)
Increase (decrease) in:
Accounts payable 129,131 322,744
Accrued liabilities 127,418 (110,950)
----------- -----------
Net cash used in operating
activities (521,981) (221,805)
----------- -----------
Cash flows from investing activity -
Net Cash received in acquisition 5,716 -
Purchase of property and equipment (14,801) (12,867)
----------- -----------
Net cash used in investing activities (9,085) (12,867)
----------- -----------
Cash flows from financing activities:
Proceeds from note payable to bank, net 555,389 231,130
Repayment of capitalized lease
obligations (683) (2,802)
----------- -----------
Net cash provided by financing
activities 554,706 228,328
----------- -----------
Net increase (decrease) in cash 23,640 (6,344)
----------- -----------
Cash, beginning of period 12,326 55,770
----------- -----------
Cash, end of period $ 35,966 $ 49,426
=========== ===========
Supplemental disclosure of cash
flow information -
Cash paid for interest $ 19,061 $ 20,410
=========== ===========
See accompanying notes to these financial statements.
CARLYLE GOLF, INC.
NOTES TO FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
The unaudited financial statements have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant
to such rules and regulations. In the opinion of management, the
accompanying financial statements contain all of the normal recurring
adjustments necessary to present fairly the financial position of the
Company as of January 31, 1997, and the results of its operations,
and its cash flows for the period then ended.
The operating results for the three month period ended January 31,
1997 are not necessarily indicative of the results that may be
expected for the year ending October 31, 1997. The accompanying
financial statements should be read in conjunction with the audited
financial statements of the Company and notes thereto for the fiscal
year ended October 31, 1996.
2. ACQUISITION OF PRO-LINE CAP COMPANY:
On January 24, 1997, Carlyle Golf, Inc. acquired substantially all of
the assets of Star Point Enterprises, Inc. d/b/a Pro-Line Cap Company
of Fort Worth, Texas ("Pro-Line"), a producer of high quality sized
and adjustable athletic and golf headwear. The total consideration
for the Pro-Line acquisition was approximately $6.0 million. The
Pro-Line acquisition was financed through a combination of issuance
of common and preferred stock and the assumption of certain
liabilities.
The Pro-Line acquisition was accounted for as a purchase, and
accordingly, the net purchase price was allocated to the various
purchased assets in relation to their fair value at the date of
purchase. The results of operation of Pro-Line will be included from
February 1, 1997, since the results for the period from January 24,
1997 to January 31, 1997 are not significant.
The following table presents the unaudited pro forma results of
operations as if the Pro-Line acquisition had occurred on November 1,
1995. The summary pro forma results are based on assumptions and are
not necessarily indicative of the results which would have occurred
had the acquisition actually taken place on such date, or of the
future results of operations of the Company.
Three Months Ended January 31,
1997 1996
--------- --------
Net revenue $ 2,172,671 $ 1,811,561
Net loss $ (875,824) $ (1,009,238)
Net loss per share $ (.16) $ (.22)
CARLYLE GOLF, INC.
NOTES TO FINANCIAL STATEMENTS
3. CAPITALIZED LEASE OBLIGATION:
In December 1996, the Company entered into a capitalized lease
obligation for $98,972 to purchase embroidery equipment. The lease
is secured by the equipment purchased and is due in monthly
installments of principal and interest over a term of sixty months.
The interest rate on the note is 12.7%.
CARLYLE GOLF, INC.
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
Net sales for the quarter ended January 31, 1997, were $778,538, an
increase of $345,046, or 80%, from net sales of $433,492 for the same
quarter in 1996. The increase in sales for the quarter can be attributed
to an increase in demand for the Company's products. As of January 31,
1997, orders for the Spring 1997 booking season are 48% higher than for
the same booking season a year ago.
Cost of goods sold as a percentage of net sales was 82% and 89% for the
quarters ended January 31, 1997 and January 31, 1996, respectively. The
Company's increase in gross margin from the prior year is primarily due to
higher sales volume during the quarter. Management believes that the
Company will report improved gross margins in its existing operations
during the remainder of 1997 since it expects that a higher proportion of
shipments will be from the Company's current lines as compared to fiscal
1996 where the Company had a concerted effort to liquidate prior season
inventory at lower margins.
Selling, general and administrative expenses decreased as a percentage of
net sales to 63% for the quarter ended January 31, 1997 from 93% for the
same quarter in 1996. The decreases reflect a combination of higher sales
volumes without increases in staffing and the continuation of cost
containment measures put in place during fiscal 1996.
The Company currently sells to domestic and foreign customers. The
Company obtains a letter of credit, when deemed necessary, on foreign
sales. The Company requires remittance in United States currency on all
foreign sales. Therefore, the Company is not exposed to risk associated
with currency fluctuations on foreign sales.
LIQUIDITY AND CAPITAL RESOURCES
Since the creation of the Company in 1992, it has focused on developing
its products, marketing strategy and distribution network as the
foundation for growth, and as a result has incurred losses since its
inception. The ability of the Company to achieve profitable operations is
dependent ultimately upon its ability to increase sales and improve gross
profit margins.
CARLYLE GOLF, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company plans to continue to improve gross margins in its existing
operations by controlling the quantity of inventory purchases to
correspond more closely to its sales orders. The Company has concentrated
on carrying the appropriate levels of inventory to allow for growth but
also dispose of older styles of inventory in a systematic method. The
Company expects that, with funds provided through increased sales,
improved gross margins, and continued efforts to control expenses, it will
be able to find its growth through 1997. There can be no assurance,
however, that the Company will achieve the level of sales, gross profit
margins or expense reductions to achieve profitable operations during
fiscal 1997.
Should the Company require additional capital in the future to fund its
operations and to sustain growth, the Company plans to sell additional
equity securities to raise the needed capital. However, there can be an
assurance that sufficient capital would be available from the private or
public markets on terms acceptable to the Company or at all.
The Company has experienced substantial growth since 1993, with its net
sales growing from $200,000 in fiscal 1993 to over $4,000,000 in fiscal
1996. The growth in sales has increased the Company's working capital
requirements, principally to fund the losses incurred and for increases in
accounts receivable and finished goods inventory. The Company financed
its operations during until August of 1994 with a combination of bank
borrowings and the sale of private equity. From August 1994 until June
1996, the Company funded its growth through the proceeds of its initial
public offering and a bank revolving line of credit. In June 1996, the
Company sold an additional 633,873 shares of Common Stock to the directors
and management of the Company which raised net proceeds of $1,003,009.
The Company used those proceeds, plus advances under the bank line, to
fund its operations for the remainder of fiscal 1996. The Company expects
to use borrowings under the bank line of credit to fund its operations
during fiscal 1997.
Additionally, in connection with the acquisition of Pro-Line, Star Point
Enterprises loaned the Company the sum of $1,243,000, and the Company
agreed to use its best efforts to obtain additional capital financing,
for, among other purposes, the repayment of this loan.
As of January 31, 1997, the Company had $35,966 in cash on hand and
negative working capital of $171,540.
Operating activities produced negative cash flows of $521,981 for the
quarter ended January 31, 1997. The primary uses of cash were to fund the
Company's year to date net loss and to finance current inventory
purchases.
The Company's investing activities for the quarter ended January 31, 1997
were comprised of property and equipment purchases totaling $14,801 and
$5,716 cash received in the acquisition of Pro-Line Cap Company. The
property and equipment purchases consisted primarily of miscellaneous
office equipment.
Financing activities produced positive cash flows of $554,706 for the
quarter ended January 31, 1997 representing the proceeds from the note
payable to bank, net of repayments.
CARLYLE GOLF, INC.
FORWARD LOOKING STATEMENTS
To the extent that this report includes predictions of the Company's
future performance or discloses the expectations of management of the
Company as to such performance, such statements are forward looking
statements the accuracy of which cannot be guaranteed by the Company or
its management. For example, a downturn in general economic conditions,
adverse developments in the "green grass" golf apparel industry,
unanticipated problems with or delays by the Company's cutting and sewing
contractors or fabric suppliers, or the failure of presently anticipated
funding sources to materialize or continue, among other possibilities,
could cause these forward looking statements to prove to be incorrect.
Part II - Other Information
Item 1 Legal Proceedings
Not applicable
Item 2 Changes in Securities
On January 24, 1997, the Company issued 322,375 shares of its
Common Stock and 1,320,432 shares of its Preferred Stock in a
private transaction with a limited number of sophisticated
purchasers which was exempt from registration under Section
4(2) of the Securities Act of 1993, as amended. The
transaction was described in Item 2 Acquisition or Disposition
of Assets of the Company's Form 8-K dated January 24, 1997
filed with the Commission on February 10, 1997, which is
incorporated herein by reference.
Item 3 Defaults Upon Senior Securities
Not applicable
Item 4 Submission of Matters to a Vote of Security Holders
Not applicable
Item 5 Other Information
Not applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
A Report on From 8-K dated January 24, 1997 under Item
2 reported the acquisition of substantially all of
the assets of Star Point Enterprises, Inc. d/b/a Pro-
Line Cap Company for approximately $6.0 million.
CARLYLE GOLF, INC.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CARLYLE GOLF, INC.
(Registrant)
Date: March 17, 1997 By: Jerome M. Hause
-------------------------
Jerome M. Hause,
Director and Chief
Operating Officer
Date: March 17, 1997 By: Wendy K. Williams
-------------------------
Wendy K. Williams
Chief Financial Officer
EXHIBIT INDEX
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EXHIBIT METHOD OF FILING
- ------- ----------------
27 Financial Data Schedule Filed herewith electronically