U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under
the Securities Exchange Act of 1934
For Quarter Ended: March 31, 2001
Commission File No. 0-25743
FREEDOM GOLF CORPORATION
(Exact name of small business issuer as specified in its charter)
Nevada
(State or other jurisdiction of incorporation or organization)
91-1950699
(IRS Employer Identification No.)
7334 South Alton Way, Bldg. 14-A
Englewood, Colorado
(Address of principal executive offices)
80112
(Zip Code)
(303) 221-0331
(Issuer's Telephone Number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 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 ____.
The number of shares of the registrant's only class of common stock issued and
outstanding as of May 9, 2001, was 12,222,021 shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the six months ended March 31, 2001,
are attached hereto.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with our unaudited
financial statements and notes thereto included herein. In connection with, and
because we desires to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, we caution readers regarding
certain forward looking statements in the following discussion and elsewhere in
this report and in any other statement made by, or on our behalf, whether or not
in future filings with the Securities and Exchange Commission. Forward looking
statements are statements not based on historical information and which relate
to future operations, strategies, financial results or other developments.
Forward looking statements are necessarily based upon estimates and assumptions
that are inherently subject to significant business, economic and competitive
uncertainties and contingencies, many of which are beyond our control and many
of which, with respect to future business decisions, are subject to change.
These uncertainties and contingencies can affect actual results and could cause
actual results to differ materially from those expressed in any forward looking
statements made by, or on our behalf. We disclaim any obligation to update
forward looking statements.
Comparison of Results of Operations for the six month periods ended March
31, 2001 and 2000
Total revenues increased from $36,682 in the six month period ended March
31, 2000, to $106,884 in 2001, an increase of $70,202 (291.4%). We believe that
this increase was attributable to more golfers becoming aware of our products
line through our increased marketing efforts and new visibility, including those
professional golfers who are using our products on the Celebrity Players Tour.
Costs of sales were $19,834 during the six month period ended March 31, 2001,
compared to $23,065 during the similar period in 2000, a decrease of $3,231
(14%). This was due primarily to the significant inventory of raw materials
available to us at the beginning of the period in question, which cost was
reflected in prior quarters.
Selling, general and administrative expenses were $261,461 during the six
month period ended March 31, 2001, compared to $994,508 during the similar
period in 2000, a decrease of $733,047
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(73.7%). This decrease was due primarily to the issuance of 800,000 shares of
common stock during the six month period ended March 31, 2000, which stock was
valued at the then current market price of $1.00. With the exception of these
entries, our selling, general and administrative expenses during the six month
period ended March 31, 2001 remained relatively consistent with prior periods.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, we had no cash, $82,815 in accounts receivable and
$178,934 in inventory.
Also at March 31, 2001, we had outstanding notes payable to nonaffiliates
amounting to $259,590. All of these notes are due within one year and bear
interest at from 7.25% to 15% per annum.
In addition, we have notes payable in the principal amount of $110,850 due
to persons and entities affiliated with our company. Included in these
obligations are the following:
On December 21, 2000, Heritage Real Estate Development Corp. Defined
Benefit Pension Plan and Trust (the "Heritage Trust") loaned us the principal
sum of $45,200. The Heritage Trust is a pension plan to which John Arney, a
director of our company, is trustee and beneficiary. This loan accrued interest
at the rate of 15% per annum and was due December 21, 2000. The applicable loan
provided for a conversion feature, wherein the loan was convertible into shares
of our common stock at a conversion price of $.85 per share. As of the date of
this Report, the loan has not been converted. On October 16, 2000, we refinanced
this loan. As a result of this refinancing, the Heritage Trust currently holds
two separate notes. One note is in the principal amount of $40,000, which is
secured by 25 complete regulation sets of graphite Freedom golf clubs, including
logo head covers. This note was due March 6, 2001 and accrues interest at the
rate of 15% per annum, except in the event of a default, when the interest rate
increases to 18% per annum. Relevant thereto, we reached a verbal agreement with
this note holder to extend the due date of this obligation until June 30, 2001.
We expect that a written extension will be executed in the near future. As
additional consideration, during the period ended December 31, 2000, we issued a
stock option in favor of Heritage Trust whereby it has the option to purchase
266,667 shares of our common stock at an exercise price of $.15 per share
through December 3, 2003.
Also as a result of this refinancing, we owe Heritage Trust the principal
sum of $10,850, the balance of the principal amount due under the original note,
plus accrued interest. This note also accrues interest at the rate of 15% per
annum, with a default interest rate of 18% per annum. However, this note is not
secured but is guaranteed by our President, Gaylen Johnson. This note is
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due on or before February 15, 2001, but is expected to be extended. As
additional consideration, we granted Heritage Trust an option to purchase 72,333
shares of our common stock at an exercise price of $.15 per share, through
December 3, 2003.
In December 1999, John Arney, individually, loaned us the principal amount
of $20,000, which accrues interest at the rate of 10% per annum. In November
2000, Mr. Arney loaned us an additional $40,000, which note also accrues
interest at the rate of 15% per annum and was due January 16, 2001. We reached a
verbal agreement with Mr. Arney to extend the due date of this obligation to
June 30, 2001 as well.
At March 31, 2001, we had outstanding cash working capital advances from
our President amounting to $67,653. The advances are non-interest bearing and
are expected to be repaid out of the proceeds from the debenture offering
described below, provided that sufficient funds are available therefrom. We also
have accrued $317,632 in past due salaries, which are due to Mr. Johnson.
Our management has recognized that, in order to allow us to implement our
business strategy discussed in our Form 10-KSB for our fiscal year ended
September 30, 2000, as filed with the US Securities and Exchange Commission, it
will be necessary for us to raise additional equity capital of at least $2
million in addition to the funds recently raised by us. Relevant thereto, in
February 2001, we commenced a self-underwritten, "best efforts" private offering
of convertible debentures, each debenture convertible into shares of our common
stock at a conversion price of $.50 per share. The debentures accrue interest at
the rate of 15% per annum and are due 18 months from receipt and acceptance by
us of the relevant subscription. As of the date of this Report, we have raised
$45,000 in this Offering. We are currently exploring other available funding
opportunities, but as of the date of this Report, no definitive agreement or
arrangement has been reached with any person or entity, who has agreed to
provide funding to us.
We intend to continue our discussions with investment bankers and others to
provide or assist in providing additional financing. However, as of the date of
this Report, we do not have any written commitments for any financing, and no
assurance can be given that we will obtain any such financing. Failure to obtain
additional capital into our company will force management to reduce expense,
which may affect our ability to implement our business plan. If we are not
successful, it is doubtful that we will be able to survive and we will be forced
to liquidate.
TRENDS
Because of the difficulty we have been experiencing in raising capital,
implementation of our business plan has been delayed. In spite of this
difficulty, we previously anticipated that our
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revenues would increase beginning in February 2001, which increase we
believe is reflected in the total revenue increase which we experienced during
the six month period which ended March 31, 2001. While no assurances can be
provided, we believe our revenue flow will be inconsistent through June 2001 but
further anticipate that our revenues will again increase beginning in July 2001,
subject to a variety of factors, including the receipt of additional equity or
debt funding and as a result of additional revenues derived from a pending
business transaction. While no definitive written agreement has been executed
with this third party, we are cautiously optimistic that beginning in July 2001,
this prospective arrangement will result in approximately $80,000 per month in
additional revenues to our company for an extended period of time. These factors
also include our expectation that market acceptance for our concept in golf
clubs will continue to grow. Our success is dependent upon our ability to
finance our proposed operations, either with debt or equity.
We also understand that new designs and changes from traditional lines of
golf clubs may meet with consumer rejection. We have planned our manufacturing
capabilities based upon our forecasted demand for our products. Actual demand
for such products may exceed or be less that our forecasted demand. If we are
unable to produce sufficient quantities of our golf clubs in time to fulfill
actual demand, such inability may limit our sales and adversely affect our
financial performance.
INFLATION
Although our operations are influenced by general economic conditions, we
do not believe that inflation had a material affect on the results of operations
during the six month period ended March 31, 2001.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We have been named as a defendant in several lawsuits in the normal course
of our business. In the opinion of management, after consulting with legal
counsel, the liabilities, if any, resulting from these matters will not have a
material effect on our financial statements.
ITEM 2. CHANGES IN SECURITIES
During the three month period ended March 31, 2001, we issued an aggregate
of 213,115 shares of our common stock. Of these shares, each current member of
our Board of Directors were issued 20,000 shares in exchange for their services
(80,000 in aggregate). Further, Mr. Gary Carter, a director of our company, was
issued an additional 75,000 shares of our common stock in consideration for
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marketing assistance provided by Mr. Carter by his playing our line of golf
clubs, using our golf bags, logo, hats and shirts, as well as his acting as a
spokesperson for our company. These shares were valued at $.10 per share, the
market price for our common stock on the issuance date.
In March 2001, we issued 38,115 shares of our common stock to one
individual pursuant to a debt conversion. These shares were valued at $0.20 per
share, the market price of our common stock on the issuance date.
Finally, we issued an aggregate of $45,000 in convertible debentures
pursuant to the private offering described in Part I, Item 2, above, to six
persons.
We relied upon the exemption from registration provided by Section 4/2
and/or Regulation D, each promulgated under the Securities Act of 1933, as
amended, to issue these shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K -
(a) Exhibits - none
(b) Reports on Form 8-K
None
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Freedom Golf Corporation
Balance Sheet
March 31, 2000
(Unaudited)
ASSETS
------
March 31,
2000
-----------
Current assets:
Accounts receivable - trade $ 82,815
Inventory 178,934
-----------
Total current assets 261,749
Property and equipment, at cost, net of
accumulated depreciation of $9,292 8,106
Deposit 2,000
Patents, net of accumulated amortization of $16,111 82,220
-----------
$ 354,075
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - bank $ 2,918
Notes payable - others 256,672
Notes payable - related party 110,850
Accounts payable - trade 108,292
Advances from officer 67,653
Accrued salaries 317,632
Accrued interest - related party 6,035
Accrued expenses 14,212
-----------
Total current liabilities 884,264
Stockholders' equity:
Common stock, $.001 par value,
50,000,000 shares authorized,
13,882,021 shares issued and outstanding 13,882
Additional paid-in capital 2,213,232
Unearned services 197,500
Accumulated deficit (2,954,803)
-----------
(530,189)
-----------
$ 354,075
===========
See accompanying notes to unaudited financial statements.
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Freedom Golf Corporation
Statements of Operations
Three Months Ended December 31, 2000 and 1999
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
2001 2000 2001 2000
---------- ----------- ----------- -----------
Sales, net $ 78,757 $ 26,883 $ 106,884 $ 36,682
Cost of sales (8,630) (17,528) (19,834) (19,834)
---------- ----------- ----------- -----------
Gross profit 70,127 9,355 87,050 13,617
Selling, general and
administrative expenses 138,842 906,696 261,461 994,508
---------- ----------- ----------- -----------
Income (loss) from operations (68,715) (897,341) (174,411) (980,891)
Other income and (expense):
Interest expense (4,906) (11,054) (12,899) (13,651)
Other income 54 17 67 66
---------- ----------- ----------- -----------
(73,567) (908,378) (187,243) (994,476)
Income (loss) before income taxes (73,567) (908,378) (187,243) (994,476)
Provision for income taxes - - - -
---------- ----------- ----------- -----------
Net income (loss) $ (73,567) $ (908,378) $ (187,243) $ (994,476)
========== =========== =========== ===========
Basic and fully diluted earnings
(loss) per share:
Net income (loss) $ (0.01) $ (0.07) $ (0.01) $ (0.08)
========== =========== =========== ===========
Weighted average shares outstanding 13,725,573 12,503,206 13,725,573 11,990,206
========== =========== =========== ===========
See accompanying notes to unaudited financial statements.
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Freedom Golf Corporation
Statements of Cash Flows
Three Months Ended December 31, 2000 and 1999
(Unaudited)
Six Months Ended
March 31,
2001 2000
---------- ----------
Net income (loss) $ (187,243) $ (86,098)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Common stock issure for services 2,500 807,500
Depreciation and amortization 4,998 4,187
Interest added to loan balance 5,650 -
Changes in assets
and liabilities:
(Increase) decrease in accounts receivable (81,050) (8,120)
(Increase) decrease in inventory (75,839) (57,468)
(Increase) decrease in prepaid expenses 38,800 (18,250)
Increase (decrease) in accounts payable 30,028 (34,368)
Increase (decrease) in accrued salaries 13,132 36,000
Increase (decrease) in accrued expenses 4,713 8,750
---------- ----------
Total adjustments (57,068) (738,231)
---------- ----------
Net cash provided by
operating activities (244,311) (256,245)
---------- ----------
Cash flow from investing activities:
Purchase of equipment (750) (1,088)
---------- ----------
Net cash used by investing activities (750) (1,088)
---------- ----------
Cash flows from financing activities:
Common stock sold for cash 75,000 230,600
Repayment of bank loan (3,254) -
Proceeds from notes payanle 175,000 98,070
Repayment of notes payable (17,282) (68,885)
---------- ----------
Net cash (used in)
financing activities 229,464 259,785
---------- ----------
Increase (decrease) in cash (15,597) 2,452
Cash and cash equivalents,
beginning of period 15,597 246
---------- ----------
Cash and cash equivalents,
end of period $ - $ 2,698
========== ==========
See accompanying notes to unaudited financial statements.
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Freedom Golf Corporation
Notes to Unaudited Financial Statements
March 31, 2001
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the provisions of Regulation SB. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. These financial statements should be
read in conjunction with information provided in the Company's report on Form
10-K for the year ended September 30, 2000.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year.
Income (loss) per share was computed using the weighted average number of common
shares outstanding.
During the six months ended March 31, 2001, the Company received gross proceeds
from the sale of common stock aggregating $70,000. The shares were sold at a
price of $.25 per share, which was equivalent to the trading value common stock
at the sale date.
Additionally during the quarter, the Company received gross proceeds $70,000
from the issuance of notes payable, added accrued interest of $5,650 to a note
balance and repaid notes aggregating $12,282.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities and Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FREEDOM GOLF CORPORATION
(Registrant)
Dated: May 21, 2001
By:s/ Gaylen P. Johnson
---------------------------------
Gaylen P. Johnson, President
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