UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
____________
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarter ended March 31, 2001
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 X
---
No _____
On August 15, 2001, 27,507,306 shares of the Registrant's Common Stock, no par
value, were outstanding.
Index Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheet 3
Condensed Consolidated Statements of Operations 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II OTHER INFORMATION
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARBITE GOLF INC.
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2001
(UNAUDITED)
- --------------------------------------------------------------------------
ASSETS
- --------
Current Assets
Cash $ 96,254
Accounts Receivable (Note 2) 1,642,700
Inventory (Note 3) 3,221,151
Prepaid Expenses 65,110
Future Tax Assets 436,733
- --------------------------------------------------------------------------
Total Current Assets 5,461,948
Capital Assets 818,557
Patents and Trademarks Net of Amortization 104,012
Goodwill Net of Amortization 1,847,979
Other Non-Current Assets (Deferred Costs) 360,361
- --------------------------------------------------------------------------
Total Assets 8,592,857
==========================================================================
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts Payable 1,417,874
Accrued Liabilities 575,616
Bank Loan (Note 4) 525,210
Income Tax Payable 30,103
Notes Payable (Note 5) 650,000
- --------------------------------------------------------------------------
Total Current Liabilities 3,198,803
- --------------------------------------------------------------------------
Shareholders Equity
Share Capital 11,885,462
Deficit (6,491,408)
Total Stockholders Equity 5,394,054
- --------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY $ 8,592,857
==========================================================================
3
CARBITE GOLF INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
for the three months ending March 31, 2001 and March 31, 2000
(UNAUDITED)
2001 2000
- --------------------------------------------------------------------------------
Net Sales $2,550,379 $4,245,876
Cost of Goods Sold 1,349,160 2,243,546
- --------------------------------------------------------------------------------
Gross Profit 1,201,219 2,002,330
Operating Expenses
Selling Expenses 1,187,562 1,398,900
General And Administrative Expenses 469,954 506,423
Research and Development Costs 140,672 143,449
- --------------------------------------------------------------------------------
Income from Operations (596,969) (46,442)
Amortization (82,595) (128,447)
Interest income (expense) ( 28,028) 4,581
Other Expense 0 0
- --------------------------------------------------------------------------------
Net Income (707,592) (170,308)
================================================================================
Basic and Diluted Earnings per Share
(Note 7) (.03) (.01)
================================================================================
4
CARBITE GOLF INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the three months ending March 31, 2001 and March 31, 2000
(UNAUDITED)
2001 2000
- --------------------------------------------------------------------------------
Cash Flows used in Operating Activities
Net Loss
Adjustments to Net Loss to Cash Used in Operations: ($ 707,592) ($ 170,308)
Additional Paid in Capital
Deferred Costs -0- 51,395
Amortization 82,595 77,052
Depreciation 53,210 40,424
Changes in Operating Assets and Liabilities:
Inventories (51,243) (129,051)
Accounts Receivable (550,245) (78,845)
Other Current 6,187 (128,804)
Accounts Payable and Accrued Liabilities 330,025 (160,176)
- --------------------------------------------------------------------------------
Cash Used in Operating Activities (837,063) (498,313)
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Cash Flows from Investing Activities:
Purchases of Capital Equipment (143,504) (173,756)
Patents and Deferred Costs Incurred (68,241) (28,625)
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Cash Used in Investing Activities (211,745) (202,381)
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Cash Flows from Financing Activities:
Net Borrowings (payments) under Line of Credit (130,440) 327,225
Repayments of L/T Debt (5,608) (3,393)
Notes Payable 650,000 358
Net Proceeds From Sale of Common Stock 250,000 380,853
- --------------------------------------------------------------------------------
Cash Provided by Financing Activities 763,952 705,043
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Net Increase (Decrease) in Cash (284,856) 4,349
Cash at Beginning of Period 381,110 660,669
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Cash at End of Period $ 96,254 $ 665,018
================================================================================
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - QUARTERLY FINANCIAL STATEMENTS
This Amendment No. 1 to Form 10-QSB for the Quarter ending March 31, 2001,
amends and restates the Company's operating results for the Quarter ending March
31, 2001 from a loss of ($496,186) to a loss of ($707,592). This Amendment No.
1 is made to adjust First Quarter results to include $211,406 in expenses
properly chargeable to the First Quarter. The accompanying condensed
consolidated financial statements and related Notes as of March 31, 2001 and for
the three months ended March 31, 2001 and 2000 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 months ended March 31, 2001 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, 2000 in the Company's Form 10-KSB. Readers of this Quarterly Report on Form
10-QSB are strongly encouraged to review the Company's Form 10-KSB. 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, 2001 were $1,642,700 ($1,771,540 less reserve
for doubtful accounts of ($128,840).
NOTE 3 - INVENTORY
Inventories consist of:
Raw materials $2,088,717
Fixed Goods 1,280,616
Obsolescence reserve (148,182)
-----------
$3,221,151
NOTE 4 - BANK LOAN
In March 2001, we paid our $700,000 Line of Credit with USBank (previously
Scripps Bank) in San Diego, California, down to $500,000 at the Bank's request
and the Bank renewed the line at $500,000 through June 1, 2001. As of March 31,
2001, we had drawn $500,000 under that Line of Credit. By a Forebearance Letter
dated April 4, 2001, Scripps Bank advised the Company that it was not in
compliance with the net worth covenants of the loan, but agreed to a
forebearance. That Line of Credit terminated July 15, 2001 with a balance due
of $450,000. The Company continues to keep all interest and other fee payments
current, but the principal amount of $450,000 became due July 15, 2001.
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NOTE 5 - NOTES PAYABLE
On March 23, 2001, we secured additional financing with a Loan Agreement with
Inabata America Corporation whereby Inabata advanced the Company $650,000 on a
one-year renewable note at 11% interest. The loan is secured by the assets of
the Company and is convertible, at Inabata's option, to common shares of our
stock at $.50 Canadian per share. We also agreed to pay Inabata a royalty on
Putterball sales in Asia of $1 per unit and offered Inabata a right of first
refusal to manufacture components for the Company in Asia. The Agreement
provides Inabata the option to increase the loan in $50,000 increments up to a
total of $2 million. At March 31, 2001, $650,000 remained due on that loan.
NOTE 6 - LETTER OF CREDIT COMMITMENTS
The Company purchases some components from overseas vendors through Letter of
Credit financing. At March 31, 2001, we had $128,558 in such Letters of Credit
outstanding with Inabata America Corporation. The Letters of Credit with Inabata
are due and payable by the Company when it takes delivery of the products after
arrival in the United States.
NOTE 7 - 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, 2001, there were 25,567,306 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. At March 31, 2001, there were 2,327,120 share options and
563,158 share purchase warrants outstanding.
NOTE 8 - DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CANADA
AND THE UNITED STATES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada (Canadian GAAP) which differ
in certain respects from those principles and practices that the Company would
have followed had its consolidated financial statements been prepared in
accordance with accounting principles and practices generally accepted in the
United States (U.S. GAAP).
Had the Company followed U.S. GAAP, the deferred cost and goodwill section of
the balance sheet contained within the consolidated financial statements would
have been reported as follows:
- --------------------------------------------------------------------------------
Three months ended March 31, 2001
Canadian GAAP U.S. GAAP
Deferred costs $ 360,361 $ -0-
Goodwill 1,847,979 2,151,791
- --------------------------------------------------------------------------------
Had the Company followed U. S. GAAP, the shareholders' equity section of the
balance sheet contained within the consolidated financial statements would have
been reported as follows:
- --------------------------------------------------------------------------------
7
Three months ended March 31, 2001
Canadian GAAP U.S. GAAP
Shareholders' equity:
Share capital $11,885,462 $11,885,462
Additional paid-in capital -0- 668,174
Deficit (6,491,408) (7,216,132)
- --------------------------------------------------------------------------------
$ 5,394,054 $ 5,337,504
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Had the Company followed U.S. GAAP, the statement of operations contained within
the consolidated financial statements would have been reported as follows:
- --------------------------------------------------------------------------------
Three months ended March 31, 2001
Net income (loss) under Canadian GAAP $(707,592)
Deferred costs incurred (68,241)
Amortization of deferred costs -0-
Additional Goodwill amortized (11,838)
- --------------------------------------------------------------------------------
Net income (loss) under U.S. GAAP, being
Comprehensive income (loss) under U.S. GAAP $(787,671)
- --------------------------------------------------------------------------------
Net income (loss) per share under U.S. GAAP - basic
and diluted $ (.03)
- --------------------------------------------------------------------------------
Had the Company followed U. S. GAAP, the statements of cash flows contained
within the consolidated financial statements would have been reported as
follows:
- --------------------------------------------------------------------------------
Three months ended March 31, 2001
Cash provided by (used in) operating activities
under Canadian GAAP $(837,063)
Deferred costs incurred (68,241)
- --------------------------------------------------------------------------------
Cash used in operating activities under U.S. GAAP $(905,304)
- --------------------------------------------------------------------------------
Cash used in investing activities under Canadian Basis $(211,745)
Deferred costs incurred 68,241
- --------------------------------------------------------------------------------
Cash used in investing activities under U.S. basis $(143,504)
(a) Reference should be made to Note 12 of audited consolidated Financial
Statement for years ending December 31, 2000 and 1999 for a qualitative
explanation of the differences between U.S. GAAP and Canadian GAAP as applied to
the Company.
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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 in this section and elsewhere in this Quarterly Report
on form 10-QSB.
RESULTS OF OPERATIONS
NET SALES. Net consolidated sales for the three months ending March 31,
2001 were $2,550,379 versus $4,245,876 for the three months ending March 31,
2000. Our net domestic wholesale sales to retail outlets were $2,305,149 in
2001 versus $3,567,348 in 2000. Overall sales results were hurt by late
delivery of our new line of Cap Series putters which showed back orders of
approximately $700,000 at March 31, 2001. Sales were also reduced because of
the termination of direct marketing programs. These direct response programs
added top line sales during 2000, but were ultimately unprofitable and were
terminated in August, 2000.
COST OF GOODS SOLD AND GROSS MARGIN. Gross margins in First Quarter 2001
were very similar, 47.2% in 2001 compared to 47.1% in 2000.
OPERATING EXPENSES. Operating expenses for First Quarter 2001 were
$1,798,188 versus $2,048,772 for First Quarter 2000, a decrease of 22%. This
reduction was principally due to reduced selling and G & A expenses detailed
below.
SALES AND MARKETING EXPENSE. Sales and marketing expenses for First
Quarter 2001 were $1,187,562 compared to $1,398,000 for First Quarter 2000. As
a percentage of sales, they were 46% in 2001 and 32.9% in 2000. The reduction
was due to reduced variable selling expenses as sales declined and media buying
and other marketing expenses were reduced.
GENERAL AND ADMINISTRATIVE EXPENSE. G&A expenses in First Quarter 2001
were $469,954 compared to $506,423 in First Quarter 2000. This reduction was
principally due to a reduction in Bad Debt expenses and on-going efforts to
reduce overhead expenses.
RESEARCH AND DEVELOPMENT. R&D expenses in First Quarter 2001 were $140,672
compared to $143,449 in First Quarter 2000.
OTHER EXPENSES. Interest expense increased during First Quarter 2001 to
$28,028 from $4,581 interest income in First Quarter 2000 as we made greater use
of our Line of Credit to fund new product purchases for 2001 inventory.
Amortization expenses were $82,595 in First Quarter 2001 compared to $123,447
for First Quarter 2000.
INCOME TAXES. The company has not recorded a provision for income taxes for
the three months ended March 31, 2001. Current losses preclude a provision for
year to date March 31, 2001. An income tax receivable has been recorded of
$168,933 at year ended December 31, 2000 and future tax assets were increased by
$117,800 through the same period.
9
CAPITAL EXPENDITURES. Capital expenditures in 2001 were $143,504 compared
to $173,756 for 2000. These expenditures were for Polar Balanced wedge tooling,
Cap series putter tooling at two locations, new retail show booth, leasehold
improvements, and computer station hardware.
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. There was one
private placement in the First Quarter of 2001 for $250,000. Our credit facility
with US Bank (previously Scripps Bank) was reduced in March 2001 from $700,000
to $500,000 and terminated July 15, 2001 with a balance due of $450,000. The
company continues to keep all interest and other fee payments current, but the
principal amount of $450,000 became due July 15, 2001.
To finance additional growth and new product introductions planned through
fiscal years 2001 - 2002, the Company will immediately require $1 - $2 million
in equity or debt financing. The Company must promptly pay down and/or replace
the expired $450,000 credit line from Scripps Bank and find alternative credit
facilities. We are currently investigating additional private placement and/or
financing arrangements and have implemented internal programs designed to
increase profitability and hence improve internal cash flow.
10
PART II
OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On January 21, 2001, the Board of Directors appointed William Wilson of
Mount Kisco, New York as a Director to take the place of Michael Spacciapolli
who resigned December 10, 2000.
On March 2, 2001, the Company's financial obligations under its 1997 three-
year Employment Agreements with Chester Shira and Michael Spacciapolli expired
without being renewed. Those agreements provided for employment through
September 3, 2000 and if they expired without being renewed, the Company was
obligated to continue compensation (at the rate of $125,000 per year to Mr.
Spacciapolli and $140,000 per year to Mr. Shira) for six months after
termination. That six month period ended on March 2, 2001. Mr. Spacciapolli
resigned from the Company in December, 2000. Mr. Shira continues as Director of
R&D at $7,500 per month.
On March 28, 2001, we entered into a private placement arrangement for
1,940,000 shares at a deemed price of $.20 Canadian per share, or a total of
$250,000 U.S. The shares were issued April 27, 2001 after approval by the
Canadian Venture Exchange. No underwriters were used in these transactions and
we relied upon the exemptions provided by Section 4(2) and/or Regulation D of
the Securities Act.
On April 12, 2001, the Company received approval from the Canadian Venture
Exchange of (i) the Board of Directors' August 15, 2000 approval of a re-
pricing of 550,120 options to officers, directors, and employees to $.42
Canadian, (this re-pricing initially involved 1,128,740 options but all but
550,120 had expired by April, 2001); (ii) the Board of Directors' grant on
August 15, 2000 of 880,000 options at $.42 Canadian to officers and directors.
In March 2001, the Company began test marketing a golf ball it has
developed with patent-pending weight-centered technology.
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
----------- -----------
*10.19 Loan Agreement with Inabata America
Corporation dated March 23, 2001
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
Quarter ending March 31, 2001.
*previously filed
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SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CARBITE GOLF, INC.
Date: August 27, 2001 By: /s/ John Pierandozzi
--------------------
John Pierandozzi
President and CEO
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