U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB\A1
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 June 4, 2001, was 13,882,021 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 $261,588 during the six
month period ended March 31, 2001, compared to $994,508 during the similar
period in 2000, a decrease of $732,920
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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, $65,089 in accounts receivable and
$178,934 in inventory.
Also at March 31, 2001, we had outstanding notes payable to nonaffiliates
amounting to $294,590. 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 $70,850 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 $1.20 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 and is personally guaranteed by our President, Gaylen Johnson.
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, a revised note was written to show an interest
increase to 18% per annum and a new due date of August 15, 2001. 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.
The second note related to this refinancing is in the amount of $10,850
which is the balance of the principal and interest amount due under the original
$45,200 note. $40,000 of the original note of $45,200 was repaid to Heritage
Trust in November of 2000, leaving a $5,200 in principal plus $5,650 in interest
still due. This note also accrues interest at the rate of 15% per
3
annum, with a default interest rate of 18% per annum. This note is not secured
but is guaranteed by our President, Gaylen Johnson. This note was due February
15, 2001, and was revised and extended to August 15, 2001.
The third note was issued in December 1999, when John Arney, individually,
loaned us the principal amount of $20,000, which accrues interest at the rate of
10% per annum with a default interest rate of 18% per annum. This note was due
January 17, 2000, and has been extended to August 15, 2001.
At March 31, 2001, we had outstanding cash working capital advances from
our President's personal line of credit with his bank amounting to $47,774. The
Company will pay interest due to the bank on the line of credit with no
additional interest being paid to the President. In addition, the President,
Gaylen Johnson, individually, has two personal loans to the Company. One note is
for $5,500 written on October 29, 1998, and the other for $10,000 written August
9, 1999. Both loans accrue interest at the rate of 10% and Mr. Johnson has
agreed to extend both loans until such time as the Company is in a position to
repay the notes. We also have accrued $282,632 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.
4
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 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.
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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.
In addition, we are aware of one matter which may lead to litigation in the
future. In May 2000, we entered into a settlement agreement and release with
Boulder Marketing Agency, Inc. and J. Kevin Weinhoeft (hereinafter jointly
referred to as "BMA"), whereby, in full settlement of various claims, BMA did
agree to return to us 1,020,000 shares of our common stock and we agreed to
issuance to BMA 70,000 shares of our common stock and payment of an aggregate of
$50,000 upon receipt by us of equity or debt financing in excess of $50,000. To
date, we have paid $10,000 on this obligation, despite the fact that we have not
concluded any financings in the relevant amount. BMA has failed to deliver the
relevant 1,020,000 shares back to us. All references in this Report to our
issued and outstanding common shares include these 1,020,000 shares.
ITEM 2. CHANGES IN SECURITIES
During the three month period ended March 31, 2001, we issued an aggregate
of 233,115 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
(100,000 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
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.
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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, 2001
(Unaudited)
ASSETS March 31,
------ 2001
----------
Current assets:
Accounts receivable - trade $ 65,089
Inventory 178,934
----------
Total current assets 244,023
Property and equipment, at cost, net of
accumulated depreciation of $9,292 8,106
Deposit 2,000
Patents, net of accumulated amortization of $17,780 82,220
----------
$ 336,349
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable - bank $ 13,890
Notes payable - others 294,590
Notes payable - related party 70,850
Accounts payable - trade 129,815
Advances from officer 47,774
Accrued salaries 282,632
Accrued interest - related party 5,365
Accrued expenses 20,247
----------
Total current liabilities 865,163
Stockholders' equity:
Common stock, $.001 par value,
50,000,000 shares authorized,
13,242,021 shares issued and outstanding 13,242
Additional paid-in capital 2,221,432
Unearned services (187,500)
Accumulated deficit (2,575,988)
----------
(528,814)
----------
$ 336,349
==========
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 $ 78,777 $ 26,883 $
106,884 $ 36,682
Cost of sales 8,630 17,528
19,834 23,065
---------- ----------
---------- -----------
Gross profit 70,147 9,355
87,050 13,617
Selling, general and administrative expenses 155,884 906,696
261,588 994,508
---------- ----------
---------- -----------
Income (loss) from operations (85,737) (897,341)
(174,538) (980,891)
Other income and (expense):
Interest expense (4,944) (11,054)
(12,937) (13,651)
Other income 54 17
67 66
---------- ----------
---------- -----------
(4,890) (11,037)
(12,870) (13,585)
Income (loss) before income taxes (90,627) (908,378)
(187,408) (994,476)
Provision for income taxes - -
- -
---------- ----------
---------- -----------
Net income (loss) $ (90,627) $ (908,378) $
(187,408) $ (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 13,860,983 12,503,206
13,793,278 11,990,206
========== ==========
========== ==========
See accompanying notes to unaudited financial statements.
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Freedom Golf Corporation
Statements of Cash Flows
Six Months Ended March 31, 2001 and 2000
(Unaudited)
Six Months Ended
March 31,
2001 2000
---------- -----------
Net income (loss) $ (187,408) $ (994,476)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Common stock issued for services - 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 (63,324) (8,120)
(Increase) decrease in inventory (75,840) (57,468)
(Increase) decrease in prepaid expenses 38,800 (18,250)
Increase (decrease) in accounts payable 48,705 (34,368)
Increase (decrease) in accrued salaries (21,868) 36,000
Increase (decrease) in accrued expenses 5,462 8,750
---------- ----------
Total adjustments (57,417) 738,231
Net cash provided by ---------- ----------
operating activities (244,825) (256,245)
---------- ----------
Cash flows from investing activities:
Purchase of fixed assets (749) (1,088)
Net cash (used in) ---------- ----------
investing activities (749) (1,088)
Cash flows from financing activities:
Common stock sold for cash 77,623 230,600
Repayment of bank loan (3,255) -
Proceeds from notes payanle 157,762 98,070
Repayment of notes payable (2,153) (68,885)
Net cash (used in) ---------- ----------
financing activities 229,977 259,785
---------- ----------
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 amendment to this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
FREEDOM GOLF CORPORATION
(Registrant)
Dated: July 30, 2001
By: s/Gaylen P. Johnson
---------------------------------
Gaylen P. Johnson, President
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