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, 2000
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 ____
No X
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On September 15, 2000, 25,371,750 shares of the Registrant's Common Stock, no
par value, were outstanding.
Index Page No.
PART I FINANCIAL INFORMATION 3
Item 1. Financial Statements: 3
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 8
PART II OTHER INFORMATION
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARBITE GOLF INC
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(UNAUDITED)
________________________________________________________________________________
ASSETS
Current Assets
Cash $ 1,437,254
Accounts Receivable 2,084,299
Note Receivable 253,238
Inventory 2,347,015
Prepaid Expenses 364,530
Future Tax Assets 150,000
________________________________________________________________________________
Total Current Assets 6,636,336
Capital Assets 747,478
Patents and Trademarks Net of Amortization 84,427
Goodwill Net of Amortization 2,065,481
Other Non-Current Assets (Deferred Costs) 184,574
________________________________________________________________________________
Total Assets $ 9,718,296
================================================================================
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts Payable 843,318
Accrued Liabilities 404,600
Bank Loan 519,150
Income Tax Payable 33,977
Other Current Liabilities 37,208
________________________________________________________________________________
Total Current Liabilities $ 1,838,253
- --------------------------------------------------------------------------------
Shareholders Equity
Share Capital 11,260,612
Deficit (3,380,569)
Total Stockholders Equity 7,880,043
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 9,718,296
================================================================================
3
CARBITE GOLF INC
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
JUNE 30, 2000
(UNAUDITED)
Three months ended June 30, Six months ended June 30
2000 1999 2000 1999
- -----------------------------------------------------------------------------------------------------------
Net Sales $ 4,951,448 $ 5,491,681 $ 9,197,324 $ 9,606,810
Cost of Goods Sold 2,778,665 2,956,414 4,969,913 5,076,159
- -----------------------------------------------------------------------------------------------------------
Gross Profit 2,172,783 2,535,267 4,227,411 4,530,651
Operating Expenses
Selling Expenses 1,774,684 1,782,656 3,173,584 2,736,828
Gen. and Admin. Expenses 620,197 376,300 1,186,845 795,834
Research & Development Costs 151,013 112,541 294,462 228,321
- -----------------------------------------------------------------------------------------------------------
Income from Operations (376,977) 263,770 (427,479) 769,668
Amortization (129,678) (105,627) (254,065) (203,235)
Interest income (expense) (24,404) (4,356) ( 19,823) (5,565)
Other Expense 0 (37,524) 0 (247,367)
- -----------------------------------------------------------------------------------------------------------
Net Income (531,059) 116,263 (701,367) 313,481
===========================================================================================================
Basic and Diluted Earnings Per Share (.02) .01 (.03) .01
===========================================================================================================
4
CARBITE GOLF INC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
JUNE 30, 2000
Six months ended June 30, Three Months ended June 30,
2000 1999 2000 1999
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Cash Flows used in Operating Activities
Net Loss (701,367) $ 313,481 (531,059) $ 116,263
Adjustments to Net Loss
to Cash Used in Operations:
Gain/(loss) on other discontinued operation (67,203) (67,203)
Deferred Costs on Unrecognized Sales 97,662 151,000 46,267 89,434
Amortization 156,403 145,000 79,351 72,500
Depreciation 84,908 67,203 44,484 36,289
Changes in Operating Assets and Liabilities:
Inventories 34,570 (81,820) 163,621 (544,572)
Accounts Receivable 76,049 (1,111,117) 154,894 (312,078)
Other Current (315,510) (522,484) (13,531) 111,711
Accounts Payable and Accrued Liabilities 471,968 204,848 458,969 (255,202)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Used in Operating Activities (95,317) (901,092) 402,996 (752,858)
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Cash Flows from Investing Activities:
Purchases of Capital Equipment (219,030) (283,765) (45,274) (107,024)
Other Investment (35,725) (41,947) (7,100) (20,252)
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Cash Used in Investing Activities (254,755) (325,712) (52,374) (127,276)
- -----------------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net Borrowings (payments)
under Line of Credit 327,225 112,425 0 112,425
Repayment of L/T Debt (6,817) (6,429) (3,424) (4,305)
Change in Foreign Currency 358 5,396 0 4,091
Net Proceeds From Sale of Common Stock 805,891 663,096 425,038 60,545
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Cash Provided by Financing Activities 1,126,657 774,488 421,614 172,756
- -----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 776,585 (452,316) 772,236 (707,378)
Cash at Beginning of Period 660,669 1,154,678 665,018 1,409,740
- -----------------------------------------------------------------------------------------------------------------------------------
Cash at End of Period $1,437,254 $ 702,362 $1,437,254 $ 702,362
===================================================================================================================================
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, 2000 and for the three-month periods ended June 30, 2000 and 1999
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, 2000 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, 1999 in the Company's Form 10-SB. Readers of this
Quarterly Report on Form 10-QSB are strongly encouraged to review the Company's
Form 10-SB. 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, 2000 were $2,414,568 with a reserve for doubtful
accounts of ($330,269) for net receivables of $2,084,299. At June 30, 2000, the
Company added $135,000 to the Reserve to reflect on-going credit problems with
several of our dot.com customers and one specific large retailer, Golf Day.
NOTE 3 - NOTES RECEIVABLE
During the Second Quarter, the Company accepted a secured Promissory Note from a
customer for the full amount of its outstanding trade receivables. As of June
30, 2000, that debt is carried as a Note Receivable. The balance due at June 30,
2000 was $253,238.
NOTE 4 - INVENTORY
Inventories consist of:
Raw materials $1,719,149
Work-in-progress 843,696
Obsolescence reserve ( 215,830)
----------
$2,347,015
At June 30, 2000, the Company completed a periodic review of inventory and
charged $215,830 to inventory obsolescence reserve to account for products which
have been de-emphasized or will be closed out in the future.
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NOTE 5 - BANK LOAN
We have a $1,000,000 Revolving Line of Credit with Scripps Bank in San Diego,
California, which is at the lender's general reference rate of interest and is
collateralized by accounts receivable. As of June 30, 2000, we had drawn
$519,150 under that Line of Credit.
NOTE 6 - LETTER OF CREDIT COMMITMENTS
The Company purchases some components from overseas vendors through Letter of
Credit financing. At June 30, 2000, we had $208,121 in such Letters of Credit
outstanding with Scripps Bank, San Diego and $404,076 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, 2000, there were 23,526,486 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 due to losses incurred by the Company during this period. At June
30, 2000, there were 3,159,740 share options and 1,291,250 share purchase
warrants outstanding.
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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 conso1idated sa1es through the second quarter of 2000 were
$4,951,448 compared to $5,491,681 through the second quarter of 1999, a decrease
of 10%. Net sales were negatively effected by unsuccessful telemarketing
campaigns which have since been discontinued and by continued delay in the full
roll out of our Polar Balanced Wedge product. For the six months ended June 30,
2000, net sales were down 4%, $9.2 million versus $9.6 million. Domestic retail
sales were $400,000 over the comparable period in 1999.
Gross Margin. Gross Margins for the Quarter were 44% versus 46% in 1999.
For the six months ended June 30, 2000, gross margins were relatively unchanged,
47% versus 46%.
Operating Expenses. Operating expenses for the Quarter were increased over
1999, $2,545,894 versus $2,271,497. Operating expenses for the six months
through June 2000 were $827,766, or 23.4% higher than year to date June 1999.
Operating expenses in 2000 were 47.1% of sales, compared to 28.5% in 1999. These
increases were primarily in Sales/Marketing, G&A, and R&D as noted below.
Sales and Marketing Expense. Sales and Marketing expenses for the three
months were the same, but increased 16% over the same six-month period in 1999.
The additional spending was principally in commissions and sales and marketing
personnel. Commissions increased substantially as the Company experimented with
outside telemarketing call centers with commissions of 20-25% on gross sales.
Those projects will be discontinued.
General and Administrative Expense. General and Administrative expense for
the Quarter and for the six months up 40.7%. This increase resulted from
additional management personnel, additional occupancy costs at our new building,
and on going transition expense of a new computer system, $135,000 increase in
bad debt reserves, and a $25,000 finders fee for the arrangement of financing.
Research and Development. Research and Development expenses were up 29% in
the first half of 2000 versus the first half of 1999. Additional manpower is
being utilized to bring new products to market, such as the Polar Balanced
wedge, and work on improving the current putter technology.
Other Expenses. Amortization of deferred costs and depreciation are higher
in 2000 than in 1999. These costs are consistent with previous expenditures in
the first quarter. Other expenses year to date June 2000 are $338,973 compared
to $270,458 year to date June 1999.
Income Taxes. As in the first quarter of 2000, the company has not recorded
a provision for income taxes for the six months-ended 2000
8
Capital Expenditures. Capital expenditures through the second quarter of
2000 were $45,274. These dollars were spent on five new computer stations,
inventory storage racks, and general production tooling. Capital expenditures in
the future will fit the current strategic plans for growth and profitability.
Inventory Reserve. At June 30, 2000, the Company charged $215,000 to an
Inventory Obsolescence reserve to account for products which will be de-
emphasized or closed out in the future as the Company moves to focus on its core
products - putters and wedges using the patented Polar Balanced technology.
Accounts Receivable. At June 30, 2000, the Company increased its allowance
for doubtful accounts by $150,000 in order to reflect the on-going shake out
among dot.com vendors and large retailers who have been aggressive buyers of our
products.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our business through cash flow from
operations and the private placement of equity and/or debt securities,
supplemented with short-term borrowings from commercial lenders. In May, 2000,
we raised $400,000 through private equity placements made in the United States.
Net cash from operating activities for the quarter ended June 30, 2000 was
$402,596 compared to net cash used of $752,858 in the same quarter in 1999. For
the six months ending June 30, 2000, net cash used in operating activities was
$95,317 compared to $901,092 net cash used for the same period in 1999. As of
June 30, 2000, we had drawn $519,150 under our $1,000,000 Credit Facility with
Scripps Bank in San Diego.
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PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
At the Company's Annual Meeting on May 24, 2000, the shareholders voted and
approved the following: the appointment of KPMG, LLP, and Charter Accountants as
auditors; the increase in the number of directors for the ensuing year from five
(5) to six (6); approval of the granting of 155,000 stock options to seven
employees of the Company; and election of the following persons to be Directors:
Chester Shira; Michael Spacciapolli; David Nairne; Jim Henderson; David
Williams; John Pierandozzi.
The Board elected the following to be officers: Chester Shira, Chairman;
Mike Spacciapoli, Vice Chairman; John Pierandozzi, President and CEO; Andy
Robertson, Executive Vice President and COO; Stan Sopczyk, VP of Operations; and
Joe Sery, VP of Engineering.
ITEM 5. OTHER INFORMATION
On April 18, 2000, we granted options to purchase an aggregate of 220,000
shares of common stock to 3 directors--David Williams (80,000 at $.37 Cdn),
James Henderson (80,000 at $.37 Cdn) and David Nairne (60,000 at $.37 Cdn). All
options expire April 18, 2005.
On May 15, 2000, the Company renewed for six months its $1,000,000 Line of
Credit with Scripps Bank. That line will expire in November 2000.
On May 23, 2000, the Company issued 100,000 shares of common stock at a
deemed price of $.40 Canadian per share to Paul Michaels as a finders fee for
services rendered in arranging for the $500,000 Letter of Credit financing with
Inabata America Corporation. 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.
On May 15, 2000, the Company entered into an Asset Purchase Agreement with
Carizma Golf, San Diego, to acquire substantially all the assets of Carizma,
including its products and intellectual property in exchange for Carbite Golf
common stock. The assets were valued at $301,200 and will be purchased by the
issuance of 792,632 shares of Carbite common stock at a deemed price per share
of $.38US. Carbite will also pay Carizma royalty on all Putterball and Power Ti-
Pod sales for a period of 5 years. The shares will be issued upon regulatory
approval by the Canadian Venture Exchange.
On June 12, 2000 the Company accepted a private placement of up to
1,052,632 Units at a price of $.38US per Unit to raise gross proceeds of up to
$400,000. Each Unit will consist of one common share and one non-transferable
share purchase warrant. Four such warrants, once exercised, will entitle the
holder to purchase one additional common share of the Company at a price of
$.38US per share for a period of two years from the later of the date of the
advancement of funds or the date as specified by the Company in conjunction with
the regulatory authorities. The shares and warrants will issue upon
10
approval from the Canadian Venture Exchange. 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.
On June 30, 2000, the Board of Directors expanded the Board from 6 to 7
members and appointed Ballard F. Smith of McCall, Idaho, former President and
CEO of the San Diego Padres Baseball Club, to its Board of Directors.
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
----------- -----------
10.18 Asset Purchase Agreement Between Carbite Golf and
Carizma Golf dated May 15, 2000
27.1 Financial Data Schedule
(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: October 15, 2000 By: /s/ John Pierandozzi
----------------------
John Pierandozzi
President and CEO
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