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, 2002
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.)
7308 S. Spruce Street
Englewood, Colorado 80112
-------------------------
(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 20, 2002, was 13,971,542 shares.
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PART I
ITEM 1. FINANCIAL STATEMENTS.
Our unaudited financial statements for the six months ended March 31, 2002,
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 desire 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.
RESULTS OF OPERATIONS
Comparison of Results of Operations for the six month periods ended March
31, 2002 and 2001.
Total revenues decreased from $78,777 in the six month period ended March
31, 2001, to $2,387 in 2002, a decrease of $76,390 (96.9%). We believe that this
decrease was attributable to the fact that we have not completed our infomercial
for our Freedom 345 golf club. We had put the completion of the infomercial on
hold until the prospective merger between our company and Trinity Golf, Inc.
("Trinity"), was either completed or abandoned. Until this occurred, we put all
marketing efforts on hold, principally because we had ceased fund raising
activities and had no available capital with which to undertake such marketing
activities. As of the date of this Report, the proposed merger with Trinity has
been abandoned as a result of our being notified by the Securities and Exchange
Commission that the Securities and Exchange Commission intended to recommend
that a civil action be commenced against us and Gaylen Johnson, individually,
our President. The SEC is alleging that
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both we and Mr. Johnson have violated the anti-fraud provisions included under
the Securities Act of 1933, as amended. See "Part II, Item 1, Legal Proceedings"
below. As a direct result of this pending matter, management of Trinity has
notified us that they do not wish to proceed with the proposed merger. See
"Liquidity and Capital Resources" below for a discussion of what we intend to do
in the future as a result of this SEC matter.
Costs of sales were $1,881 during the six month period ended March 31,
2002, compared to $8,630 during the similar period in 2001, a decrease of $6,749
(78.2%). This was due primarily to the decrease in marketing efforts as
described above.
Selling, general and administrative expenses were $30,265 during the six
month period ended March 31, 2002, compared to $155,884 during the similar
period in 2001, a decrease of $125,619 (80.6%). This decrease was due primarily
to a decrease in advertising and promotion expense, payroll expense and rent,
but was offset by our incurring increased legal fees relating to the proposed
merger with Trinity. Our management has attempted to limit our administrative
expenses due to our severe lack of working capital by moving our operations to
the home of Mr. Johnson and otherwise curtail spending.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2002, we had $4,077 in cash. We had approximately $15,959 in
inventory and $57,491 in accounts receivable, including inventory which we had
shipped to Trinity in contemplation of completing the merger. However, as of the
date of this Report this inventory has been returned. Other than approximately
$16,000 in additional golf club parts, we had no other material assets, other
than our intellectual properties described elsewhere herein.
At March 31, 2002, we had outstanding notes payable to nonaffiliates in the
principal amount of $370,600. All of these notes are due within one year and
bear interest at from 7.25% to 15% per annum. We have accounts payable due in
the amount of $230,139. In addition, there is an aggregate principal balance of
$165,679 due to two of our officers and directors. These obligations include the
following:
On December 21, 1999, 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,
Secretary and 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.
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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 for the renegotiated
loan, 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, was revised and extended to September 15, 2001.
Additionally, on December 17, 1999, Heritage Trust loaned us the principal
amount of $20,000, which accrued interest at the rate of 10% per annum with a
default interest rate of 18% per annum. This note was due January 17, 2000. On
June 1, 2001, this loan was renegotiated and a new note issued in the principal
amount of $22,916, representing the original principal amount of $20,000, plus
interest to June 1, 2001 at the rate of 10% per annum. The June 1, 2001 note
bears interest at the rate of 15% per annum and had a maturity date of September
15, 2001. As additional consideration for the renegotiated loan, during the
period ended December 31, 2000, we issued a stock option in favor of Heritage
Trust whereby it has the option to purchase 152,773 shares of our common stock
at an exercise price of $.15 per share through December 3, 2003.
No formal extension of the aforesaid notes has been executed as of the date
of this Report. However, we have reached a verbal agreement with Mr. Arney,
wherein he has agreed to extend both notes under the same terms and conditions
as existed prior to the maturity date of each note until the earlier of (i) the
closing of the Trinity Merger; or (ii) June 30, 2002.
In addition, our President, Gaylen Johnson, individually, has three
personal loans to us. One note is for $5,500 dated October 29, 1998, one for
$10,000 dated August 9, 1999 and the third in the
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principal amount of $50,000, dated September 3, 2000, which Mr. Johnson obtained
through his line of credit with Key Bank. Since September 3, 2000, we have
repaid the interest on this loan directly to Key Bank. In addition, the amount
of $17,726 has been deducted from the principal balances due Mr. Johnson as a
result of certain advances made to him by us. All of these loans accrue interest
at the rate of 10% per annum and Mr. Johnson has agreed to extend these loans
until such time as we are in a position to repay the notes. If we are unable to
secure financing, we may not be able to continue to service the interest payment
due Key Bank. As of March 31, 2002, we also have accrued $305,747 in past due
salaries due to Mr. Johnson.
If the proposed Trinity Merger is not successfully consummated, our
management has recognized that, in order to allow us to implement our business
strategy it will be necessary for us to raise additional equity capital of up to
$2 million. 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 further reduce
expense, if possible, 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 experienced during the nine month period which ended June 30,
2001. We believe our revenue flow will continue to be inconsistent through 2002,
but we anticipate that our revenues will increase in the summer and fall of
2002, if we are able to secure adequate funding for our operations, complete and
air our 30 minute infomercial for our Freedom 345 golf club, and our products
are accepted by the golfing market. Each of these assumptions are subject to
numerous contingencies and our actual results will likely differ from our
expectations, which differences could be material.
In addition to the above risks, we also understand that new designs and
changes from traditional lines of golf clubs may meet with consumer rejection.
We have planned our manufacturing
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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 our results of operations
during the six month period ended March 31, 2002.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In April 2002, we were advised by the staff at the Miami, Florida office of
the Securities and Exchange Commission that it intended to recommend that a
civil action be commenced against us and Gaylen Johnson, individually, our
President. The SEC is alleging that both we and Mr. Johnson have violated the
anti-fraud provisions included under the Securities Act of 1933, as amended.
These allegations relate to various "A" Warrants which were exercised to
purchase shares of our common stock in 2000. As of the date of this Report, no
recommendation has yet been made by the SEC's Miami office and we are engaged in
discussions with the same. Based upon the information currently available to us,
it is both our position and Mr. Johnson's opinion that the allegations are
without merit and would be vigorously defended, if we had sufficient capital
available to be able to pay attorneys to represent us, which we do not. Based
upon our conversations with the SEC, our total exposure in this matter is
approximately $170,000, the amount which we received from the exercise of the
aforesaid warrants.
We are unaware of any other threatened or pending matters against us.
ITEM 2. CHANGES IN SECURITIES - None
Subsequent Event
In April 2002, we issued 10,000 shares of our common stock in favor of Gary
Carter, one of our directors, pursuant to our prior agreement wherein we agreed
to issue Mr. Carter 10,000 shares of our common stock for every tournament of
Celebrity Players Tour in which he finishes in the top 10 and 50,000 shares of
our common stock to one unaffiliated person, in exchange for services valued at
$5,000 ($.10 per share). These shares which were issued were valued at the
market price of our common stock at the time of issuance. We relied
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upon the exemption from registration provided by Section 4/2 of 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, 2002
(Unaudited)
ASSETS March 31,
------ 2002
----------
Current assets:
Cash $ 4,077
Accounts receivable - trade, net of $500 bad debt reserve 308
Other Accounts Receivable 57,491
Inventory 15,959
Deposit -
Total current assets 77,836
----------
Property and equipment, at cost, net of
accumulated depreciation of $12,772 2,856
Patents, net of accumulated amortization of $24,448 75,552
----------
$ 156,243
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Note payable - bank $ 8,599
Notes payable - others 359,438
Notes payable - related party 113,766
Accounts payable - trade 230,262
Advances from officer 52,296
Advances from affiliate
Accrued salaries -officer 305,747
Accrued interest - related party 13,938
Accrued interest 67,634
Accrued expenses 8,767
----------
Total current liabilities 1,160,446
Stockholders' equity:
Common stock, $.001 par value,
50,000,000 shares authorized,
13,911,542 shares issued and outstanding 13,912
Additional paid-in capital 2,406,802
Unearned services (237,500)
Accumulated deficit (3,187,416)
----------
(1,004,203)
----------
$ 156,243
==========
See accompanying notes to unaudited financial statements.
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Freedom Golf Corporation
Statements of Operations
Three Months and Six Months Ended March 31, 2002 and 2001
(Unaudited)
Three Months Ended Six Months Ended
March 31, March 31,
2002 2001 2002 2001
---------- ---------- ---------- ----------
Sales, net $ 2,387 $ 78,777 $ 5,682 $ 106,884
Cost of sales 1,881 8,630 4,599 19,834
---------- ---------- ---------- ----------
Gross profit 506 70,147 1,083 87,050
Selling, general and administrative expenses 30,265 155,884 127,811 261,588
---------- ---------- ---------- ----------
Income (loss) from operations (29,759) (85,737) (126,728) (174,538)
Other income and (expense):
Interest expense (15,356) (4,944) (30,490) (12,937)
Other income 1 54 6 67
---------- ---------- ---------- ----------
(15,355) (4,890) (30,484) (12,870)
Income (loss) before income taxes (45,113) (90,627) (157,211) (187,408)
Provision for income taxes - - - -
---------- ---------- ---------- ----------
Net income (loss) $ (45,113) $ (90,627) $ (157,211) $ (187,408)
========== ========== ========== ==========
Basic and fully diluted earnings (loss) per share:
Net income (loss) $ (0.00) $ (0.01) $ (0.01) $ (0.01)
========== ========== ========== ==========
Weighted average shares outstanding 13,911,542 13,860,983 13,911,542 13,793,278
========== ========== ========== ==========
See accompanying notes to unaudited financial statements.
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Freedom Golf Corporation
Statements of Cash Flows
Six Months Ended March 31, 2002 and 2001
(Unaudited)
Six Months Ended
March 31,
2002 2001
---------- ----------
Net income (loss) $ (157,210) $ (187,408)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Common stock issued for services - -
Depreciation and amortization 5,073 4,998
Interest added to loan balance - 5,650
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (0) (63,324)
(Increase) decrease in other accounts receivable (67,491) -
(Increase) decrease in inventory 164,001 (75,840)
(Increase) decrease in prepaid expenses 2,000 38,800
Increase (decrease) in accounts payable (4,102) 48,705
Increase (decrease) in accrued salaries 5,180 (21,868)
Increase (decrease) in accrued expenses 23,815 5,462
---------- ----------
Total adjustments 128,476 (57,417)
---------- ----------
Net cash provided by
operating activities (28,734) (244,825)
---------- ----------
Cash flows from investing activities:
Sale of fixed assets 1,770 (749)
---------- ----------
Net cash (used in)
investing activities 1,770 (749)
Cash flows from financing activities:
Common stock sold for cash 35,452 77,623
Repayment of bank loan (2,713) (3,255)
Proceeds from notes payable 2,369 157,762
Repayment of notes payable (4,067) (2,153)
---------- ----------
Net cash (used in)
financing activities 31,041 229,977
---------- ----------
Increase (decrease) in cash 4,076 (15,597)
Cash and cash equivalents,
beginning of period - 15,597
---------- ----------
Cash and cash equivalents,
end of period $ 4,076 $ -
========== ==========
See accompanying notes to unaudited financial statements.
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Freedom Golf Corporation
Notes to Unaudited Financial Statements
March 31, 2002
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, 2001.
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, 2002, the Company received gross
proceeds from the sale of common stock aggregating $35,000. The shares
were sold at a price of $.10 per share, which was equivalent to the
trading value common stock at the sale date.
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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 20, 2002
By:s/ Gaylen P. Johnson
----------------------------------
Gaylen P. Johnson, President
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