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: June 30, 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 30, 2001, was 13,242,021 shares.
PART I
ITEM 1. FINANCIAL STATEMENTS.
The unaudited financial statements for the nine months ended June 30, 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 nine month periods ended June
30, 2001 and 2000
Total revenues increased from $101,427 in the nine month period ended June
30, 2000, to $124,763 in 2001, an increase of $23,336 (23%). 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 $21,683 during the nine month period ended June 30, 2001,
compared to $79,138 during the similar period in 2000, a decrease of $57,455
(72.6%). 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 $524,341 during the nine
month period ended June 30, 2001, compared to $1,137,511 during the similar
period in 2000, a decrease of
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$613,170 (116.9%). This decrease was due primarily to the issuance of 800,000
shares of common stock during the nine month period ended June 30, 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
nine month period ended June 30, 2001 remained relatively consistent with prior
periods.
Subsequent Event
In August 2001, we executed a letter of intent with Trinity Golf, Inc., a
privately held golf club manufacturer based in Tustin, California ("Trinity"),
providing for us to engage in a merger with Trinity. The proposed merger is
subject to various conditions, including continued due diligence by both
parties, execution of a definitive agreement and obtaining shareholder approval.
In the event the proposed merger is successfully consummated, the Trinity
shareholders will be issued shares of our common stock equal to an 85% interest
and our name will be changed to reflect this transaction. There can be no
assurances that this proposed merger will be successfully consummated. If
consummated, it is anticipated that we will increase our authorized capital, as
well as engage in a reverse split of our issued and outstanding common stock,
whereby one share of common stock will be issued for every 8 shares currently
outstanding.
Additionally, the proposed terms require that a significant portion of our
outstanding debt owed to affiliates and others be converted into shares of our
common stock at a conversion price of $.15 per share, the market price of our
common stock when the negotiations of the proposed merger with Trinity
commenced. The letter of intent establishes a maximum $150,000 in accounts
payable to be assumed by Trinity at the closing. We are currently discussing
this provision with our creditors.
Trinity is currently involved in the manufacturing and sale of golf clubs.
They have produced and marketed their golf clubs through the use of
infomercials, which our management believes have been very successful. It is
anticipated that Trinity's revenues derived from their infomercials will reach
$15 million by the end of 2001.
Upon closing of the proposed merger, Mr. Johnson will remain with our
company in the capacity of executive vice president and as a director. Greg
DeBenon, Trinity's current CEO, will be appointed CEO of our company. The
balance of our officers and directors will resign and be replaced by Trinity's
representatives. While no assurances can be provided, it is anticipated that the
proposed merger will be consummated within the 30 day period following the date
of this Report.
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2001, we had no cash, $793 in accounts receivable, $188,872 in
accounts payable and $177,602 in inventory.
Also at June 30, 2001, we had outstanding notes payable to nonaffiliates
amounting to $369,629. 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 $73,766 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. On October 16,
2000, we renegotiated the terms of this loan. As a result, 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
September 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 2000, leaving a balance due of $10,850, including $5,200 in
principal plus $5,650 in interest. This note also accrues interest at the rate
of 15% per 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 September 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 September 15, 2001.
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At June 30, 2001, we had outstanding cash working capital advances from our
President's personal line of credit with his bank amounting to $49,927. We pay
interest due to the bank on the line of credit with no additional interest being
paid to the President. In addition, our President, Gaylen Johnson, individually,
has two personal loans to us. One note is for $5,500 dated October 29, 1998, and
the other for $10,000 dated 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
we are in a position to repay the notes. As of June 30, 2001, we also have
accrued $291,261 in past due salaries 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
$75,000 in this Offering, but do not expect to raise any additional funds in
this Offering due to current market conditions, including the price of our
common stock. 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.
However, in the event the proposed Trinity transaction described above does
close, our need to raise additional funds to finance our operations is not
expected to be as critical as this need is currently.
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 revenues would increase beginning
in February 2001, which increase we believe is reflected in the total revenue
increase which we
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experienced during the nine month period which ended June 30, 2001. Without
consideration for the proposed merger with Trinity discussed above under
"Subsequent Events" and while no assurances can be so provided, we believe our
revenue flow will be inconsistent through October 2001 but further anticipate
that our revenues will again increase beginning in November 2001, subject to a
variety of factors, including the receipt of additional equity or debt funding
and as a result of our completing a 30 minute infomercial for our Freedom 345
golf club, which could begin airing in certain segments of the US as early as
November 1, 2001. 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 nine month period ended June 30, 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 and one judgement has been entered against us in the amount of
$10,063. In the opinion of management, after consulting with legal counsel,
these 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. We
had previously paid $10,000 on this obligation, despite the fact that we had not
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concluded any financings prior to issuance of the aforesaid payment. However,
despite this good faith payment, 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 June 30, 2001, we issued an aggregate
of $30,000 in convertible debentures pursuant to the private offering described
in Part I, Item 2, above, to five 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 securities.
We did not issue any additional securities during the three month period
ended June 30, 2001.
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
JUNE 30, 2001
(Unaudited)
ASSETS
------ June 30,
2001
-----------
Current assets:
Accounts receivable - trade $ 793
Inventory 177,602
-----------
Total current assets 178,395
Property and equipment, at cost, net of
accumulated depreciation of $10,124 7,274
Deposit 2,000
Patents, net of accumulated amortization of $19,447 80,553
-----------
$ 268,222
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - bank $ 13,042
Notes payable - others 369,629
Notes payable - related party 73,766
Accounts payable - trade 188,872
Advances from officer 49,927
Accrued salaries 291,261
Accrued interest - related party 5,632
Accrued expenses 42,734
-----------
Total current liabilities 1,034,863
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 2,261,432
Unearned services (187,500)
Accumulated deficit (2,853,815)
-----------
(766,641)
-----------
$ 268,222
===========
See accompanying notes to unaudited financial statements.
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Freedom Golf Corporation
Statements of Operations
Three Months and Nine Months Ended June 30, 2001 and 2000
(Unaudited)
Three Months Ended Nine Months Ended
June 30, June 30,
2001 2000 2001 2000
---------- ---------- ---------- -----------
Sales, net $ 17,879 $ 64,745 $ 124,763 $ 101,427
Cost of sales 1,849 56,073 21,683 79,138
---------- ---------- ---------- -----------
Gross profit 16,030 8,672 103,080 22,289
Selling, general and administrative expenses 262,753 143,003 524,341 1,137,511
---------- ---------- ---------- -----------
Income (loss) from operations (246,723) (134,331) (421,261) (1,115,222)
Other income and (expense):
Interest expense (31,106) (6,001) (44,043) (19,652)
Other income 2 4 69 70
---------- ---------- ---------- -----------
(31,104) (5,997) (43,974) (19,582)
Income (loss) before income taxes (277,827) (140,328) (465,235) (1,134,804)
Provision for income taxes - - - -
---------- ---------- ---------- -----------
Net income (loss) $ (277,827) $ (140,328) $ (465,235) $(1,134,804)
========== ========== ========== ===========
Basic and fully diluted earnings (loss) per share:
Net income (loss) $ (0.02) $ (0.01) $ (0.04) $ (0.09)
========== ========== ========== ===========
Weighted average shares outstanding 13,242,021 12,643,206 13,256,611 12,207,873
========== ========== ========== ===========
See accompanying notes to unaudited financial statements.
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Freedom Golf Corporation
Statements of Cash Flows
Nine Months Ended June 30, 2001 and 2000
(Unaudited)
Nine Months Ended
June 30,
2001 2000
---------- -----------
Net income (loss) $ (465,235) $(1,134,804)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Common stock issued for services - 807,500
Depreciation and amortization 7,497 6,283
Interest added to loan balance 8,566 -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 972 (11,864)
(Increase) decrease in inventory (74,508) (64,992)
(Increase) decrease in prepaid expenses 38,800 (28,250)
Increase (decrease) in accounts payable 107,762 58,860
Increase (decrease) in accrued salaries (13,239) 54,000
Increase (decrease) in accrued expenses 28,216 8,066
---------- -----------
Total adjustments 104,066 829,603
---------- -----------
Net cash provided by
operating activities (361,169) (305,201)
---------- -----------
Cash flows from investing activities:
Purchase of fixed assets (749) (4,709)
---------- -----------
Net cash (used in)
investing activities (749) (4,709)
Cash flows from financing activities:
Common stock sold for cash 117,623 230,600
Repayment of bank loan (4,103) 19,546
Proceeds from notes payable 232,801 129,570
Repayment of notes payable - (70,052)
---------- -----------
Net cash (used in)
financing activities 346,321 309,664
---------- -----------
Increase (decrease) in cash (15,597) (246)
Cash and cash equivalents,
beginning of period 15,597 246
---------- -----------
Cash and cash equivalents,
end of period $ - $ -
========== ===========
See accompanying notes to unaudited financial statements.
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Freedom Golf Corporation
Notes to Unaudited Financial Statements
June 30, 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.
Additionally during the quarter, the Company received gross proceeds of $30,000
from the issuance of 15% Convertible Debentures.
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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: August 15, 2001
By:s/ Gaylen P. Johnson
---------------------------------
Gaylen P. Johnson, President
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