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 September 30, 2001
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 X No ____
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On November 15, 2001, 6,862,326 shares of the Registrant's Common Stock, no par
value, were outstanding.
Index Page No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements:
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 9
PART II OTHER INFORMATION 11
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
SEPTEMBER 30, 2001
(UNAUDITED)
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ASSETS
Current Assets
Cash $ 99,225
Accounts Receivable (Note 2) 2,188,825
Inventory (Note 3) 2,887,910
Prepaid Expenses 213,135
Future Tax Assets 188,000
- -------------------------------------------------------------------------------
Total Current Assets 5,577,095
Capital Assets 802,893
Patents and Trademarks Net of Amortization 139,852
Goodwill Net of Amortization 1,715,304
Other Non-Current Assets (Deferred Costs) 497,170
Future Tax Assets 79,800
- -------------------------------------------------------------------------------
Total Assets $ 8,812,114
===============================================================================
LIABILITIES AND STOCKHOLDERS EQUITY
Current Liabilities
Accounts Payable 706,157
Accrued Liabilities 466,093
Bank Lines of Credit (Note 4) 502,070
Income Tax Payable (5,932)
Note Payable (Note 5) 650,000
LC and DP Financing (Note 6) 1,283,147
- -------------------------------------------------------------------------------
Total Current Liabilities $ 3,601,535
Future Tax Liability 37,800
- -------------------------------------------------------------------------------
Shareholders Equity
Share Capital 11,885,462
Deficit (6,712,683)
Total Stockholders Equity 5,172,779
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 8,812,114
===============================================================================
3
CARBITE GOLF INC
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
SEPTEMBER 30, 2001
(UNAUDITED)
Three months ended Sept. 30 Nine months ended Sept. 30
2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------------
Net Sales $ 3,022,696 $ 3,444,715 $ 8,876,299 $ 12,642,039
Cost of Goods Sold 1,864,926 2,076,225 4,902,644 7,046,138
- ---------------------------------------------------------------------------------------------------
Gross Profit 1,157,770 1,368,490 3,973,655 5,595,901
Operating Expenses
Selling Expenses 890,813 1,508,953 3,003,247 4,717,042
Gen. and Admin. Expenses 303,526 308,491 1,167,479 1,460,831
Research & Development Costs 121,722 176,892 362,522 471,354
- ---------------------------------------------------------------------------------------------------
Income from Operations (158,291) (625,846) (559,593) (1,053,326)
Amortization (77,897) (81,072) (232,161) (335,767)
Interest Income (Expense) (71,740) (20,893) (138,737) (40,716)
Other Income (Expense) (1,625) 0 (1,625) 0
- ---------------------------------------------------------------------------------------------------
Net Income (306,303) (728,811) (928,866) (1,429,809)
===================================================================================================
Basic and Diluted Earnings Per Share (.01) (.03) (.06) (.03)
===================================================================================================
4
CARBITE GOLF INC
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
SEPTEMBER 30, 2001
Nine months ended September 30,
2001 2000
- --------------------------------------------------------------------------------
Cash Flows used in Operating Activities
Net Loss (928,866) (1,429,809)
Adjustments to Net Loss
to Cash Used in Operations:
Deferred Costs on Unrecognized Sales 107,268
Amortization 232,161 228,499
Depreciation 161,915 134,573
Changes in Operating Assets and Liabilities:
Inventories 281,998 (613,241)
Accounts Receivable (1,096,370) 640,498
Other Current 77,510 (336,268)
Accounts Payable and Accrued Liabilities (521,317) 256,214
Cash Used in Operating Activities (1,792,969) (1,012,266)
- --------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Purchases of Capital Equipment (236,545) (284,441)
Patents and Deferred Costs Incurred (251,118) (17,675)
Cash Used in Investing Activities (487,663) (302,116)
- --------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Net Borrowings (payments)
under Bank Loans (219,556) 463,725
Notes Payable and Credit Lines 1,968,303 (10,294)
Net Proceeds From Sale of Common Stock 250,000 1,093,601
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Cash Provided by Financing Activities 1,998,747 1,547,032
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Net Increase (Decrease) in Cash (281,885) 232,650
Cash at Beginning of Period 381,110 660,669
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Cash at End of Period $ 99,225 $ 893,319
================================================================================
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - QUARTERLY FINANCIAL STATEMENTS
The accompanying condensed consolidated financial statements and related notes
as of September 30, 2001 and for the three-month and nine-month periods ended
September 30, 2001 and 2000 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 and nine-month periods ended September 30, 2001 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, 2000 in the Company's Form 10-KSB. Readers of this
Quarterly Report on Form 10-QSB are strongly encouraged to review the Company's
Form 10-KSB. 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 September 30, 2001 were $2,299,932 with a reserve for
doubtful accounts of ($111,167) for net receivables of $2,188,825.
NOTE 3 - INVENTORY
Inventories consist of:
Raw materials and work-in-progress $1,734,156
Finished Goods 1,153,754
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$2,887,910
NOTE 4 - BANK LINE OF CREDIT
Our Line of Credit with US Bank in San Diego, California (previously Scripps
Bank), was extended on September 24, 2001 for a four-month period through
January 15, 2002, with a limit of $650,000. $200,000 of that limit is
specifically allocated to Letter of Credit arrangements with one large customer.
At September 30, 2001, $450,000 principal was outstanding on that credit line.
We also have an equipment loan through US Bank which had a balance due of
$16,093 at September 30, 2001. We also maintain a $50,000 Credit Line account
with Wells Fargo Bank which had an outstanding balance of $35,157 at September
30, 2001.
NOTE 5 - NOTE PAYABLE
On March 23, 2001, we secured additional financing with a Loan Agreement with
Inabata America Corporation whereby Inabata advanced the Company $650,000 on a
one-year renewable note at 11% interest. The loan is secured by the assets of
the Company and is convertible, at Inabata's option, to common shares of our
stock at $.50 Canadian per share. We also agreed to pay Inabata a royalty on
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Putterball sales in Asia of $1 per unit and offered Inabata a right of first
refusal to manufacture components for the Company in Asia. The Agreement
provides Inabata the option to increase the loan in $50,000 increments up to a
total of $2 million. At September 30, 2001, $650,000 principal was outstanding
on that loan.
NOTE 6 - LETTER OF CREDIT COMMITMENTS
The Company purchases some components from overseas vendors through Letter of
Credit and Documents Against Payment (DP) financing arrangements. At September
30, 2001, we had $1,283,147 outstanding in Letters of Credit and DP financing
with Inabata America Corporation.
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
September 30, 2001, there were 27,507,306 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. At September 30, 2001, there were 2,327,120 share options and
563,158 share purchase warrants outstanding.
NOTE 8 - DIFFERENCES BETWEEN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN
CANADA AND THE UNITED STATES
The consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in Canada (Canadian GAAP) which differ
in certain respects from those principles and practices that the Company would
have followed had its consolidated financial statements been prepared in
accordance with accounting principles and practices generally accepted in the
United States (U.S. GAAP).
Had the Company followed U.S. GAAP, the deferred cost and goodwill section of
the balance sheet contained within the consolidated financial statements would
have been reported as follows:
- --------------------------------------------------------------------------------
Nine months ended
September 30, 2001
Canadian GAAP U.S. GAAP
Deferred costs $ 497,170 $ -0-
Goodwill 1,715,304 1,995,440
- --------------------------------------------------------------------------------
Had the Company followed U. S. GAAP, the shareholders' equity section of the
balance sheet contained within the consolidated financial statements would have
been reported as follows:
- --------------------------------------------------------------------------------
7
Nine months ended
September 30, 2001
Canadian GAAP U.S. GAAP
Shareholders' equity:
Share capital $11,885,462 $ 11,885,462
Additional paid-in capital -0- 668,174
Deficit (6,712,683) (7,597,891)
- --------------------------------------------------------------------------------
$ 5,172,779 $ 4,955,745
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Had the Company followed U.S. GAAP, the statement of operations contained within
the consolidated financial statements would have been reported as follows:
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Three months ended Nine months ended
September 30, 2001 September 30, 2001
- --------------------------------------------------------------------------------------------------------------
Net income (loss) under Canadian GAAP $ 306,303 $ (928,866)
Deferred costs incurred -0- (205,050)
Amortization of deferred costs -0- -0-
Additional Goodwill amortized (11,838) (35,514)
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Net income (loss) under U.S. GAAP, being
Comprehensive income (loss) under U.S. GAAP $ (318,141) $ (1,169,430)
- --------------------------------------------------------------------------------------------------------------
Net income (loss) per share under U.S. GAAP -
Basic and diluted (Note 7) $ (.01) $ (.04)
Had the Company followed U.S. GAAP, the statements of cash flows contained
within the consolidated financial statements would have been reported as
follows:
- --------------------------------------------------------------------------------
Nine months ended
September 30, 2001
Cash provided by (used in) operating activities under
Canadian GAAP $ (1,792,969)
Deferred costs incurred (205,050)
- --------------------------------------------------------------------------------
Cash used in operating activities under U.S. GAAP $ (1,998,019)
- --------------------------------------------------------------------------------
Cash used in investing activities under Canadian
Basis $ (487,663)
Deferred costs incurred 205,050
- --------------------------------------------------------------------------------
Cash used in investing activities under U.S. basis $ (282,613)
8
(a) Reference should be made to note 11(a) - (e) of audited consolidated
Financial Statement for years ending December 31, 2000 and 1999 for a
qualitative explanation of the differences between U.S. GAAP and Canadian GAAP
as applied to the Company.
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 consolidated sales for the three months ending September
30, 2001 were $3,022,696 versus $3,444,715 for the three months ending September
30, 2000. For the nine months ended September 30, 2001, net sales were
$8,876,299 versus $12,642,039 for the same period in 2000. Sales were
comparatively lower in 2001 as the Company continued to move away from direct
marketing campaigns which had added to top line sales in 2000 but were highly
unprofitable. In the Third Quarter of 2000, for example, we had direct sales of
$665,163 and wholesale sales of $2,779,552 versus Third Quarter of 2001 with
direct sales of $132,438 and wholesale sales of $2,890,258. Our wholesale sales
remain stable as we unwind unprofitable direct sales programs.
COST OF GOODS SOLD AND GROSS MARGIN. Gross margins in Third Quarter
2001 were nominally lower than Third Quarter 2000, 38% versus 39%.
OPERATING EXPENSES. Operating expenses for Third Quarter 2001 were
$1,316,061 versus $1,994,336 for Third Quarter 2000, a decrease of 34%. This
reduction was principally due to reduced selling and G & A expenses detailed
below.
SALES AND MARKETING EXPENSE. Sales and marketing expenses for Third
Quarter 2001 were $890,813 compared to $1,508,953 for Third Quarter 2000. The
reduction was due to reduced variable selling expenses, particularly high
commissions paid on direct sales in 2000, reduced media buying and more
efficient operations.
GENERAL AND ADMINISTRATIVE EXPENSE. G&A expenses in Third Quarter 2001
were $303,526 compared to $308,491 in Third Quarter 2000. This decrease in G&A
was consistent with ongoing overhead reductions since mid-2000.
RESEARCH AND DEVELOPMENT. R&D expenses in Third Quarter 2001 were
$121,222 compared to $176,892 in Third Quarter 2000. The reduction was
principally due to continuing reduction in salaries.
9
OTHER EXPENSES. Interest expense increased during Third Quarter 2001 to
$77,897 from $20,893 in Third Quarter 2000 as we made greater use of our
financing facility with Inabata America Corporation to fund new product
purchases for 2001 and 2002 inventory. Amortization expenses were $77,897 in
Third Quarter 2001 compared to $81,072 for Third Quarter 2000.
INCOME TAXES. The company has not recorded a provision for income taxes
for the Nine months ended September 30, 2001. Current losses preclude a
provision for year to date September 30, 2001.
CAPITAL EXPENDITURES. Capital expenditures in Third Quarter 2001 were
$14,163 compared to $72,400 for 2000. These expenditures were for shop and
office equipment and tooling.
LIQUIDITY AND CAPITAL RESOURCES
We presently have the following credit facilities:
. Bank Lines of Credit. We have a Line of Credit with US Bank in
San Diego (previously Scripps Bank) which was extended on
September 24, 2001 for a four-month period through January 15,
2002, with a limit of $650,000. $200,000 of that limit is
specifically allocated to Letter of Credit arrangements with one
large customer. At September 30, 2001, $450,000 was outstanding
on that credit line. We also have a $16,000 equipment loan with
US Bank and a $50,000 Credit Line with Wells Fargo Bank.
. $650,000 loan from Inabata America Corporation. This is covered
by a one-year renewable note dated March 23, 2001 at 11%
interest. The loan is secured by the assets of the Company and is
convertible, at Inabata's option, to common shares of our stock
at $.50 Canadian per share. We also agreed to pay Inabata a
royalty on Putterball sales in Asia of $1 per unit and offered
Inabata a right of first refusal to manufacture components for
the Company in Asia. The Agreement provides Inabata the option to
increase the loan in $50,000 increments up to a total of $2
million. At September 30, 2001, $650,000 principal was
outstanding.
. LC and DP Financing. The Company purchases some components from
overseas vendors through Letter of Credit and Documents Against
Payment (DP) financing arrangements. At September 30, 2001, we
had $1,283,147 outstanding in Letters of Credit and DP financing
with Inabata America Corporation.
To finance operations and additional growth, the Company will require
$1 - $2 million in equity or debt financing. The US Bank Line of Credit is
scheduled to expire in January 2002 and the Inabata loan comes due in March
2002. We will undertake to have both of these arrangements extended, but if they
are not, we will require financing arrangements to replace them. We are actively
investigating additional financing arrangements and have implemented internal
programs designed to increase profitability and hence improve internal cash
flow.
10
PART II
OTHER INFORMATION
A 1:4 reverse split of our shares became effective October 12, 2001.
One new share was issued for 4 old shares. The trading on a consolidated basis
commenced on the Canadian Venture Exchange at the market opening on October 12,
2001. The trading symbol changed from CAB to CGT. The number of issued and
outstanding shares was reduced from 27,449,306 to 6,862,326. The number of
authorized shares is 50,000,000.
The move of our corporate domicile in Canada from British Columbia to
the Yukon Territory became effective October 12, 2001. This change in domicile
will relieve the Company from certain Canadian residency requirements for its
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
----------- -----------
None
(b) Reports on Form 8-K. A report on Form 8-K was filed October 12,
2001.
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: November 15, 2001 By: /s/ John Pierandozzi
--------------------
John Pierandozzi
President and CEO
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