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 June 30, 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 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARBITE GOLF INC
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2001
(UNAUDITED)
- -------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 71,845
Accounts Receivable 2,164,466
Inventory 3,669,824
Prepaid Expenses 155,524
Future Tax Assets 188,000
- -------------------------------------------------------------------------------
Total Current Assets 6,249,659
Capital Assets 843,443
Patents and Trademarks Net of Amortization 159,307
Goodwill Net of Amortization 1,787,804
Other Non-Current Assets (Deferred Costs) 497,170
Future Tax Assets 79,800
- -------------------------------------------------------------------------------
Total Assets $ 9,617,183
===============================================================================
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts Payable 2,758,628
Accrued Liabilities 388,278
Bank Loan 472,327
Income Tax Payable (168,933)
Notes Payable 650,000
- -------------------------------------------------------------------------------
Total Current Liabilities $ 4,350,300
Future Tax Liability 37,800
- -------------------------------------------------------------------------------
Shareholders Equity
Share Capital 11,885,462
Deficit (6,406,379)
Total Stockholders Equity 5,229,083
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 9,617,183
===============================================================================
3
CARBITE GOLF INC
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
JUNE 30, 2001
(UNAUDITED)
Three months ended June 30, Six months ended June 30
2001 2000 2001 2000
- -------------------------------------------------------------------------------------------------------------
Net Sales $3,303,224 $4,951,448 $5,853,603 $9,197,324
Cost of Goods Sold 1,688,558 2,778,665 3,037,718 4,969,913
- -------------------------------------------------------------------------------------------------------------
Gross Profit 1,614,666 2,172,783 2,815,885 4,227,411
Operating Expenses
Selling Expenses 924,872 1,774,684 2,112,434 3,173,584
Gen. and Admin. Expenses 393,999 624,063 863,953 1,186,845
Research & Development Costs 100,128 151,013 240,800 294,462
- -------------------------------------------------------------------------------------------------------------
Income from Operations 195,667 (376,977) (401,302) (427,479)
Amortization (71,669) (129,678) (154,264) (254,065)
Interest income (expense) (38,969) (24,404) (66,997) (19,823)
Other Expense 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
Net Income 85,029 (531,059) (622,563) (701,367)
=============================================================================================================
Basic and Diluted Earnings Per Share .005 (.02) (.02) (.03)
=============================================================================================================
4
CARBITE GOLF INC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
JUNE 30, 2001
Six months ended June 30,
2001 2000
- -------------------------------------------------------------------------------
Cash Flows used in Operating Activities
Net Loss (622,563) (701,367)
Adjustments to Net Loss
to Cash Used in Operations:
Deferred Costs on Unrecognized Sales 97,662
Amortization 154,264 156,403
Depreciation 98,884 84,908
Changes in Operating Assets and Liabilities:
Inventories (499,917) 34,570
Accounts Receivable (1,072,011) 76,049
Other Current (27,880) (315,510)
Accounts Payable and Accrued Liabilities 1,453,338 471,968
Cash Used in Operating Activities (515,885) (95,317)
- -------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Purchases of Capital Equipment (214,063) (219,030)
Patents and Deferred Costs Incurred (265,175) (35,725)
Cash Used in Investing Activities (479,238) (254,755)
- -------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net Borrowings (payments)
under Bank Loans (214,142) 327,225
Net Borrowings (payments) of L/T Debt 900,000 (6,817)
Change in Foreign Currency 358
Net Proceeds From Sale of Common Stock 0 805,891
- -------------------------------------------------------------------------------
Cash Provided by Financing Activities 685,858 1,126,657
- -------------------------------------------------------------------------------
Net Increase (Decrease) in Cash (309,265) 776,585
Cash at Beginning of Period 381,110 660,669
- -------------------------------------------------------------------------------
Cash at End of Period $ 71,845 $1,434,254
===============================================================================
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - QUARTERLY FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements and related notes
as of June 30, 2001 and for the three-month periods ended June 30, 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-month period ended
June 30, 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 June 30, 2001 were $2,329,414 with a reserve for doubtful
accounts of ($164,948) for net receivables of $2,164,466.
NOTE 3 - INVENTORY
Inventories consist of:
Raw materials and work-in-progress $2,394,295
Finished Goods 1,275,529
---------
$3,669,824
NOTE 4 - BANK LOAN
Our Line of Credit with US Bank in San Diego, California (previously Scripps
Bank), 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.
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 June 30, 2001, $650,000 remained due on that loan.
6
NOTE 6 - LETTER OF CREDIT COMMITMENTS
The Company purchases some components from overseas vendors through Letter of
Credit financing. At June 30, 2001, we had $ -0- in such Letters of Credit
outstanding with Scripps Bank, San Diego and $ -0-with Inabata America
Corporation. The Letters of Credit with Scripps Bank are generally due and
payable by the Company upon shipment of the product by our vendors. 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 June 30, 2001, there were 27,507,306 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 June 30, 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:
________________________________________________________________________________
Six months ended
June 30, 2001
Canadian GAAP U.S. GAAP
Deferred costs $ 497,170 $ -0-
Goodwill 1,787,804 2,079,778
________________________________________________________________________________
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
Six months ended
June 30, 2001
Canadian GAAP U.S. GAAP
Shareholders' equity:
Share capital $11,885,462 $11,885,462
Additional paid-in capital -0- 668,174
Deficit (6,406,379) (7,279,750)
- ------------------------------------------------------------------------------------------------------------------------
$ 5,229,083 $ 5,273,886
- ------------------------------------------------------------------------------------------------------------------------
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 Six months ended
June 30, 2001 June 30, 2001
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) under Canadian GAAP $ 85,029 $ (622,563)
Deferred costs incurred (136,809) (205,050)
Amortization of deferred costs -0- -0-
Additional Goodwill amortized (11,838) (123,676)
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) under U.S. GAAP, being
Comprehensive income (loss) under U.S. GAAP $ (63,618) $ (851,289)
- ------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share under U.S. GAAP -
Basic and diluted (Note 7) $ (.005) $ (.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:
- --------------------------------------------------------------------------------
Six months ended
June 30, 2001
Cash provided by (used in) operating activities under
Canadian GAAP $ (515,885)
Deferred costs incurred (205,050)
- ------------------------------------------------------------------------------------------------------------------------
Cash used in operating activities under U.S. GAAP $ (720,935)
- ------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities under Canadian
Basis $ (479,238)
Deferred costs incurred 205,050
- ------------------------------------------------------------------------------------------------------------------------
Cash used in investing activities under U.S. basis $ (274,188)
8
(a) Reference should be made to note 11(a) - (e) 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.
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 for the three months ending June 30,
2001 were $3,303,224 versus $4,951,448 for the three months ending June 30,
2000. For the six months ended June 30, 2001, net sales were $5,853,603 versus
$9,197,324 for the same period in 2000. Sales were comparatively lower in 2001
as the Company continued to move away from direct marketing campaigns which had
added to top line sales in 2000 but were highly unprofitable. In the second
quarter of 2000, for example, we had direct sales of $1,786,000 and wholesale
sales of $3,165,448 versus second quarter of 2001 with direct sales of $180,629
and wholesale sales of $3,223,580. 2001 sales were also impacted as returns
from direct sales made in 2000 were returned and credited in 2001.
COST OF GOODS SOLD AND GROSS MARGIN. Gross margins in Second Quarter 2001
were higher than Second Quarter 2000, 48% versus 43.8%.
OPERATING EXPENSES. Operating expenses for Second Quarter 2001 were
$1,418,999 versus $2,549,760 for Second Quarter 2000, a decrease of 44%. This
reduction was principally due to reduced selling and G & A expenses detailed
below.
SALES AND MARKETING EXPENSE. Sales and marketing expenses for Second
Quarter 2001 were $924,872 compared to $1,774,684 for Second Quarter 2000. The
reduction was due to reduced variable selling expenses, particularly high
commissions paid on direct sales in 2000, reduced media buying and more
efficient operations.
GENERAL AND ADMINISTRATIVE EXPENSE. G&A expenses in Second Quarter 2001
were $393,999 compared to $624,063 in Second Quarter 2000. This reduction was
principally due to reductions in Bad Debt expenses and on-going efforts to
reduce overhead expenses.
RESEARCH AND DEVELOPMENT. R&D expenses in Second Quarter 2001 were
$100,128 compared to $151,013 in Second Quarter 2000. The reduction was
principally due to reduction in salaries.
9
OTHER EXPENSES. Interest expense increased during Second Quarter 2001 to
$38,969 from $24,404 in Second Quarter 2000 as we made greater use of our Line
of Credit to fund new product purchases for 2001 inventory. Amortization
expenses were $71,669 in Second Quarter 2001 compared to $129,678 for Second
Quarter 2000.
INCOME TAXES. The company has not recorded a provision for income taxes
for the six months ended June 30, 2001. Current losses preclude a provision for
year to date June 30, 2001. An income tax receivable has been recorded of
$168,933 at year ended December 31, 2000.
CAPITAL EXPENDITURES. Capital expenditures in Second Quarter 2001 were
$71,114 compared to $41,840 for 2000. These expenditures were for shop and
office equipment and tooling.
LIQUIDITY AND CAPITAL RESOURCES
Our credit facility with US Bank (previously Scripps Bank) 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 full amount of $450,000 became
due July 15, 2001. We also have a $650,000 financing from Inabata America
Corporation which provides Inabata the option to increase the loan to $2
million.
To finance additional growth and new product introductions planned through
fiscal years 2001 - 2002, the Company will 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 USBank and find alternative credit facilities. We are
currently investigating additional financing arrangements and have implemented
internal programs designed to increase profitability and hence improve internal
cash flow.
10
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
At the Company's Annual Meeting on June 14, 2001, the shareholders voted
and approved the following: the appointment of KPMG, LLP, and Charter
Accountants as auditors; the 1:4 consolidation of the company's shares; re-
location of the Company's domicile in Canada to the Yukon Territory; the
granting of stock options to certain employees of the Company; and election of
the following persons to be Directors: Chester Shira; David Nairne; David
Williams; John Pierandozzi; Ballard Smith; and William Wilson.
The Board elected the following to be officers: Ballard Smith, Chairman;
John Pierandozzi, President and CEO; Andrew W. Robertson, Executive Vice
President and COO; Stan Sopczyk, VP of Operations; and Joe Sery, VP of
Engineering.
ITEM 5. OTHER INFORMATION
On April 1, 2001, the Company entered into a License Agreement with Wilson
Sporting Goods Co. whereby the Company licensed to Wilson the exclusive right to
manufacture and sell golf balls using the Company's weight-centered technology.
Wilson will also manufacture a ball under the Carbite brand for distribution
through Carbite's distribution network.
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.
On May 3, 2001, the Company issued 1,940,000 shares of common stock to
Russell Lewis of San Diego, California in connection with his private placement
of $250,000. No underwriters were used in this transaction and we relied upon
the exceptions provided by Section 4(2) and/or Regulation D of the Securities
Act.
11
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
----------- -----------
10.20 License Agreement with Wilson Sporting Goods
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the
Quarter ending June 30, 2000.
SIGNATURES
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
12