Carbite Golf, Inc., through its wholly-owned subsidiary Carbite, Inc.,
develops, manufactures, and sells golf equipment. Our primary products are
putters and wedges sold under the "Carbite" brand, both of which incorporate our
patent-protected technology. We also sell iron and wood sets under the name
"Daiwa." We market and sell our products principally through wholesale sales to
on-course and off-course golf retail shops and selected sporting goods
retailers. We also make some sales directly to consumers through television
infomercials, direct mail, telemarketing and the internet.
The Company was incorporated in 1985 in British Columbia, Canada and
has been publicly traded on the Canadian Venture Exchange (previously Vancouver
Stock Exchange) since 1986, and on the NASDAQ OTC Bulletin Board since December,
2001. Carbite, Inc., our wholly-owned subsidiary, is a California corporation
which we acquired in 1997.
Proprietary Technology Applied to Golf Clubs
Our patented metallurgy technology gives us the ability to produce
products which we believe have demonstrable benefits over competing products.
Dual Density. Our technology enables us to join different types of
metals with different densities into one club head with most of the weight in
the heel and toe. In our putters, for example, we combine highly dense tungsten
at the extreme heel and toe with lightweight aluminum in the center section. Our
patented process creates a molecular bonding of these materials into an
integrated structure so the heel and toe pieces become a functional part of the
club head. The net effect of this extreme heel-toe weighting is a bigger sweet
spot; the performance impact is that off-center hits will perform better.
High Friction Inserts. Our insert technology permits the molecular
bonding of tungsten carbide and diamond particles into a bronze face plate to
form a durable roughened striking surface. On wedges, this insert improves the
ability of all players to spin the ball and to control their shots. On putters,
this insert increases feel and creates a truer roll.
Strategy
In June 2000, we set out to re-position the company away from direct
response and away from products outside our core competence of putters and
wedges. To do that, we discontinued telemarketing sales programs of non-core
products (irons, woods, and utility products) which had accounted for
substantial, but unprofitable sales in 2000. By the beginning of 2001, we were
positioned with two focused product lines - Carbite branded putters and wedges
and a full line of products under the Daiwa license - and one primary trade
channel - wholesale distribution to U.S. retail.
2
Products
Our product line extends to all levels of play (from beginners to
professionals) and a broad range of retail price points. The following table
sets forth the contribution to net sales attributable to our product groups for
the periods indicated:
Year Ended December 31, 2001 Year Ended December 31, 2000
Carbite Putters and Wedges. Our primary business is Carbite branded
premium putters and wedges sold through traditional retail distribution. These
products incorporate our patented technology, especially "Polar Balancing" and
the "Brass Balls" insert, marketed as "The Short Game Solution." In 2001 our
putter line included three series - The Cap series (18 models), the Z series (10
models), and the D series (11 models), offered at retail prices from $99-$129.
Our 2001 wedge line included four modes of our Polar Balanced wedge, first
introduced in 2000.
Daiwa. We offer a high quality margin-based strategy for the full
product line business through Team Daiwa products under our license with Daiwa.
We do not seek to compete directly with the big players with huge marketing
resources, but to offer this product as quality with good margins at retail. The
Daiwa full product line business has grown from $0 in 1999 to $623,000 in 2000
to $1.6 million in 2001.
Special Makeups. We have the ability to inexpensively source quality
equipment which we will offer to large customers and national buying groups.
This special makeup strategy will add incremental sales with reduced inventory
expense and risk.
Technology Licensing. Our patented technology can be licensed to
generate further incremental income with no direct overhead. Previous licenses
for wedge inserts and other technology have generated nearly $1,000,000 in
licensing-related revenues, 1995 - 1999. Our most recent license to Wilson
Sporting Goods for a new weight-centered golf ball will generate royalty revenue
to us for each ball sold by Wilson which uses the technology. In 2002, that
technology is the centerpiece of Wilson's ball marketing strategy.
Specialty Products. The Sergio Garcia Putterball, the Power Ti-Pod, and
the Carbite TT-1 ball, which incorporates the technology licensed to Wilson,
diversify our product offering and increase our sales opportunities.
3
Product Design and Development
The development of new products and the enhancement of current product
lines is necessary for our growth and success. Our research and development
expenses for 2001 and 2000 were $616,021 and $636,944, respectively. We intend
to continue to invest in R&D and product development in the future.
Sales and Marketing
Beginning in mid-2000, the Company began to reposition the customer mix
away from heavy concentration in consumer direct sales and other non-traditional
wholesale distribution toward a traditional domestic wholesale mix of off-course
specialty, green grass, and general sporting goods.
Retail. We sell primarily to U.S. retailers, handled by a national
network of 34 independent sales representatives supported by our executive
office and an inside sales team in San Diego. Our products are carried by the
majority of Off-Course Golf Specialty accounts. Our Green Grass penetration is
below 10%, but in 2001 we implemented a plan to build that business with better
reps, more in-house support, and sales programs specifically tailored to meet
the needs of green grass. All but two General Sporting Goods multi-store chains
carry Carbite.
International. We sell our products outside the United States through
independent distributors. The primary foreign market is Japan but we also sell
to Korea, United Kingdom, Germany, Sweden, Puerto Rico, Malaysia, and the
Philippines. International sales account for approximately 7% of sales.
Internet. We maintain web sites at carbitegolf.com, putterball.com, and
teamdaiwa.com, which serve as an on-line catalog and investor relations
vehicles. The Carbite site provides a description of the product line, our
technology story, background and history of the Company, and a shopping cart
feature through which consumers and dealers can buy product. The internet
remains an exciting vehicle to introduce and educate consumers to the products
and the technology. All our print and TV ads have a component to direct
consumers to our website.
Carbite Marketing. In 2001, Carbite's overall marketing theme was
"Carbite-The Short Game Solution", showcasing our two primary technologies-Polar
Balancing and the "Brass Balls" insert. In 2001 we re-positioned our marketing
away from the direct sales model of the past toward a more traditional brand
education and information model. We employ a diverse and cost-effective
combination of public relations, trade shows, promotion, print advertising, TV
advertising, printed sales materials, and in-store point-of-purchase materials.
We rely primarily on sales and marketing vehicles with a predictable ability to
educate consumers, create demand, drive consumers to retail, and help retailers
close the sale. As such, we generally avoid traditional image advertising.
Daiwa Marketing. The Daiwa marketing strategy is a cost-effective and
careful one designed to educate the consumer to the presence of the product line
and its attributes. We are leveraging current Daiwa brand awareness, not
spending marketing dollars to build a brand.
Customer Service Support. We maintain an in-house customer service
department for both wholesale and direct consumer trade and a 24-hour
7-day-a-week telemarketing company answers customer calls generated by any
infomercials.
Infomercials. We have successfully used television infomercials to
launch new products. The ViperBite in 1995, the Gyroseven utility wood in 1997,
and the Polar Balanced Putter in 1998 were all introduced through infomercials.
We believe that good infomercials can enhance consumer awareness of products,
make immediate sales, and expand the retail customer base, In March 2001, we
completed and began airing on a very limited basis a new infomercial, Winning
Golf with Fuzzy Zoeller, featuring Carbite putters and wedges as the "Short Game
Solution."
Direct Response. By the beginning of 2001, the Company had rolled back
nearly all of its Direct Response programs in order to concentrate on
traditional wholesale distribution. We will maintain limited Direct Sales
programs through our website, consumer shows, and inter-net programs that will
also build brand awareness.
Product Endorsements. In August, 1999, we entered into a five-year
Endorsement Agreement with professional golfer Fuzzy Zoeller whereby Zoeller
will play, endorse, and assist in the development of Carbite products
worldwide. We also have short-term arrangements with a limited number of other
players on other tours.
Our total advertising and marketing related expenses were
approximately $1.6 million and $3.1 million for 2001 and 2000.
4
Manufacturing, Assembly and Raw Materials
The principal components of our golf clubs (club heads, shafts and
grips) are manufactured by outside suppliers and shipped to us for assembly. The
suppliers are selected based on the quality of the finished products, materials,
dependability and pricing. All club heads are designed by us and we provide the
manufacturers with detailed specifications. They are inspected prior to shipment
by a quality control inspector employed by us in Taiwan.
All assembly operations, including painting, stenciling and the
application of trade dress, are completed at our facility in San Diego,
California. All components are inspected upon arrival from the suppliers and are
assembled under the supervision of a full-time quality control inspector who
conducts numerous visual inspections at various points along the assembly
process.
Dependence on Major Customers
During 2001 and 2000, no customer accounted for more than 10% of net
sales revenue.
Intellectual Property
We are the owner, by way of assignment by Chester Shira, of eight U.S.
registered patents which give the Company the exclusive right to produce golf
clubs incorporating the proprietary powder metallurgy processes set forth in
them. Eight additional patent applications are pending, but have not been
issued. Under a Royalty Agreement dated March 1, 1993, the Company pays Mr.
Shira a royalty of $.50 per club using the initial four patents which were
assigned in March, 1993. The eight patents are: No. 4,768,787 (issued 9/6/88);
No. 4,992,236 (issued 2/12/91); No. 5,062,638 (issued 1/5/91); No. 5,094,810
(issued 3/10/92); No. 5,217,227 (issued 6/8/93); No. 5,669,825 (issued 9/23/97);
No. 5,755,626 (issued 5/26/98) and No. 6,027,010 (issued 2/23/00).
We sell most of our products under the Carbite brand name. We own the
following U.S. registered trademarks: "Carbite;" "Check Mate;" "Multi Density;"
"Dual Density;" and "Diatanium." The "Carbite" mark is also registered in Japan
and Germany.
We also have the licensed right to use the names "Daiwa" and "Team
Daiwa" on golf products sold in the U.S. and the trademark and patent rights to
the "Putterball" and the "Power Ti-Pod."
5
Employees
As of December 31, 2001, we had 65 full-time employees, including 28 in
product assembly and shipping, 19 in sales and marketing, and 18 in management,
finance and administration. The employees are not represented by a union, and we
consider our relations with employees to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
In February 2000, we relocated to a new facility located at 9985
Huennekens Street, San Diego, California. The facility includes approximately
26,000 square feet of office, warehouse, manufacturing and research and
development space. The base rent is $20,185 per month and our lease runs through
February, 2004.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the shareholders during the Fourth Quarter
of 2001.
6
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock Market
Our common stock trades on the Canadian Venture Exchange, Canada.
Following a 1:4 share consolidation which took effect October 14, 2001, the
symbol was changed from CAB to CGT. As of December 14, 2001, we were also listed
on the OTC Bulletin Board under the symbol CGTFF. The following table sets forth
for the periods indicated the high and low closing prices in Canadian dollars
for the common stock provided by the Canadian Venture Exchange.
Fiscal Year 2001 High Low
---------------- ---- ---
First Quarter $ .88 $ .48
Second Quarter .72 .48
Third Quarter .84 .20
Fourth Quarter .50 .20
Fiscal Year 2000 High Low
---------------- ---- ---
First Quarter $ 2.84 $ 1.88
Second Quarter 2.08 1.40
Third Quarter 1.60 .88
Fourth Quarter 1.48 .40
All stock prices listed above have been retroactively restated as if the 1:4
reverse split had always been in effect. All per share and share amounts
throughout have also been adjusted, unless otherwise noted.
We have authorized capital stock of 50,000,000 shares of common stock,
no par value.
As of April 11, 2002, there were 7,074,751 shares of Common Stock
issued and outstanding, held of record by approximately 1,100 persons and an
additional 572,530 options and 141,039 warrants outstanding.
We have not paid or declared any cash dividends on shares of our common
stock and do not anticipate paying any cash dividends in the foreseeable future.
We currently intend to retain any future earnings for use in the operation and
growth of our business.
7
Common Stock
The holders of Common Stock are entitled to one vote for each share on
all matters submitted to a vote of the shareholders and are entitled to receive
such dividends, if any, as may be declared by the Board of Directors from time
to time out of legally available funds. Upon liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to share in all
assets of the Company that are legally available for distribution. The holders
of Common Stock have no preemptive, subscription, redemption or conversion
rights.
At its Annual General Meeting on June 14, 2001, the shareholders of the
Company authorized the Board of Directors to approve a reverse stock split of
both the authorized and issued share capital of the Company using a ratio of
1:4. That consolidation became effective October 14, 2001. The revenue stock
split has been applied retroactively in the Company's Consolidated Financial
Statement and all share and per share information in this annual report is on a
post split basis.
Stock Transfer Agent
The Company's transfer agent and registrar is Pacific Corporate Trust
Company, 625 Howe Street, Vancouver, British Columbia, Canada V6C 3B8.
Treasury Stock
In September 2000, the Board of Directors authorized the Company to
repurchase up to 250,000 shares of its common stock subject to market conditions
and buying opportunities. During 2000, the Company purchased 14,500 shares of
our common stock on the open market at a total cost of $9,950.00 Canadian
dollars. These shares were cancelled as of October 11, 2001. No shares were
repurchased in 2001.
Recent Sales Of Unregistered Securities
During the Fourth Quarter of 2001, the Company sold or issued the
unregistered securities listed below. All other such sales during 2001 have
previously been included in a Quarterly Form 10-QSB.
On December 14, 2001, we issued 212,425 shares of common stock to Fuzzy
Zoeller Productions in connection with our Endorsement Agreement dated March 15,
2000 and in consideration for $150,000 US payable in 212,425 common shares at an
average deemed price of $1.09 Canadian per share. 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.
8
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations addresses our financial performance for the
fiscal years ended December 31, 2001 and 2000, and should be read in conjunction
with our detailed consolidated financial statements and related notes appearing
elsewhere in this Form 10-KSB.
Carbite Golf Inc.'s net sales are derived from sales of golf equipment
to on-course and off-course golf shops, selected sporting goods retailers,
international distributors and direct sales to consumers. Net sales are
accounted for on an accrual basis for all wholesale sales and on a cash basis
for direct consumer sales.
Carbite Golf Inc. does not manufacture the components for its golf
clubs, relying instead on component suppliers. Costs of the clubs consist
primarily of component parts, including the head, shaft and grip. Cost of goods
sold also includes labor and facilities costs in connection with the inspection,
testing and assembly of component parts at our facility in San Diego,
California. Operating expenses are composed primarily of selling and marketing
expenses, general and administrative expenses, and research and development
expenses. Selling and marketing expenses include advertising, marketing,
salaries and commissions.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
The following table sets forth the operating results expressed as a
percentage of net sales for the periods indicated.
Statement of Operations (Year Ended December 31)
2001 2000
Net Sales $10,266,325 100.0% $14,160,976 100.0%
Cost of goods sold 7,080,824 69.0% 8,434,114 59.6%
Gross profit 3,185,501 71.0% 5,726,862 40.4%
Operating expenses 6,179,540 60.2% 9,315,970 65.8%
Net operating loss (2,994,039) (29.2%) (3,589,108) (25.3%)
Other Income (Expense) (1,640,586) (16.0%) 202,758 1.4%
Loss before income taxes (4,634,625) (45.1%) (3,386,350) (23.9%)
Income taxes 235,932 2.3% (268,247) 1.9%
Loss (4,870,557) (47.4%) (3,118,103) (22.0%)
9
RESULTS OF OPERATIONS
NET SALES. Net consolidated sales for the year ending December 31, 2001
were $10,266,325 versus $14,160,976 for 2000, a decline of $3,894,651 or 27.5%.
Overall sales results were hurt by production delays in the Cap Series putters
introduced in January 2001 but not fully shipping until July 2001 and continued
weakness in sales of the Polar Balanced Wedge. Sales were also impacted by our
termination in August 2000 of direct marketing programs. Although the direct
marketing programs added to top line sales during 2000, they were terminated
because they were not profitable.
The terrorist attacks of September 11 also had a clear chilling effect
on our business in the Fourth Quarter, exacerbating the usual seasonality we
experience in November and December. Nearly $2 million of our $3.0 million
operating loss for the year was attributable to the Fourth Quarter.
2001 sales were impacted in general by a radical re-positioning of our
product line and sales and distribution strategy. In June 2000, we set out to
re-position the company away from direct response marketing and products outside
our core competence of putters and wedges. To do that, we discontinued
telemarketing sales programs of non-core products (irons, woods, and utility
products) which had accounted for nearly $4 million in sales in 2000. These
programs had delivered top line sales, but proved unprofitable after high
commissions and returns. In the short term, their termination hurt sales results
in real dollars and comparative to prior years. But, in the long term their
termination removed unprofitable sales and was consistent with our revised
market strategy. In 2001, sales from direct programs were $433,000, mostly in
the First Quarter, versus $4.6 million in 2000.
By the beginning of 2001, we were positioned with two focused product
lines - Carbite branded putters and wedges and a full line of products under the
Daiwa license - and one primary trade channel - wholesale distribution to U.S.
retail. On the Carbite side, our results were disappointing. We had some sales
inefficiencies in the product line as we brought in new products to upgrade
and replace putters that had been in the product line for over 3 years. The
inefficiencies related to delayed deliveries and production of the new Cap
Series. Wholesale putter sales were down 31% from 2000, wholesale wedge sales
down 43% from 2000. Sales of our Daiwa full line products were up substantially
to $1.6 million in 2001 versus $623,000 in 2000. In 2001, Daiwa wholesale sales
were 16% of total sales versus 3% in 2000. Sales of the Putterball training aid
were $741,181 in 2001 versus $262,148 in 2000.
In 2001, we also saw a reduction in royalty income to $17,589 compared
to $43,189 in 2000.
COST OF GOODS SOLD AND GROSS MARGIN. Gross margins declined in 2001 to
31.0% compared to 40.4% for 2000. This decline was the result of: lower margins
on closeout sales, particularly Polar Balance wedges; increased sales to
international accounts ($970,000) and mass merchants ($1.3 million) with reduced
10
margins; inventory obsolescence reserve at year end of $202,164; the continuing
liquidation of returned product from discontinued telemarketing programs;
continuing sales price pressures on our Z putters which were entering their
fourth year in the market; and lower margins on some of our Daiwa product as we
sought to build market share in our second year of distribution.
OPERATING EXPENSES. Operating expenses for 2001 were $6,179,540 versus
$9,315,970 for 2000, a reduction of 33.7%. As a percentage of sales, Operating
Expenses were 60.2% in 2001 versus 65.8% in 2000. The primary components of
Operating Expenses, Sales and Marketing, G&A, and R&D are detailed below.
SALES AND MARKETING EXPENSE. Sales and Marketing expenses for 2001 were
$3,335,002 compared to $6,047,402 for 2000, a reduction of 44.9%. As a
percentage of sales, they were 32.5% in 2001 versus 42.7% in 2000. These
reductions were a result of lower variable selling expenses on reduced sales
volume, reduced staff, and substantially reduced media costs as we de-emphasized
the role of the infomercial in our marketing.
GENERAL AND ADMINISTRATIVE EXPENSE. G&A expenses in 2001 were
$1,772,078 compared to $2,063,979 in 2000, a reduction of 14.1%. As a percentage
of sales, G & A increased to 17.3% in 2001 versus 14.6% in 2000. G&A savings
were principally the result of reduced salary expenses, reduced Bad Debt
expense, and general overhead reductions.
RESEARCH AND DEVELOPMENT. R&D expenses in 2001 were $616,021 compared
to $636,944 in 2000, a decrease of 3.3%. As a percentage of sales, R&D expenses
were 6.0% in 2001 versus 4.5% in 2000. These expenses related primarily to
salaries and product testing.
INTEREST EXPENSE. Interest expense included in general and
administrative expenses on the financial statements in 2001 was $234,000 versus
$97,517 in 2000. This increase was primarily a result of increased borrowing in
the form of a $650,000 loan and a Credit Facility for product purchases provided
by Inabata which was drawn as high as $1,350,000 during 2001 and had a balance
due at year end of $1,010,905.
GOODWILL WRITE-DOWN. At year end 2001, we wrote off all the remaining
goodwill from our acquisition of Carbite, Inc in 1997. That resulted in a
one-time non-cash charge of $1,642,814 under Canadian GAAP. However, under U.S.
GAAP, the goodwill write down was $1,911,114. Since all the goodwill has been
written off under both Canadian and U.S. GAAP, there is no longer a difference
in the written-down carrying value of goodwill.
INCOME TAXES. For 2001, the Company has recorded an income tax
provision of $235,932. This provision mainly relates to the write off of current
and long term future tax assets as the likelihood of realization of these future
tax assets is unlikely.
11
CAPITAL EXPENDITURES. Capital expenditures in 2001 were $303,176
compared to $293,130 in 2000. The capital expenditures relate to purchases of
office equipment, machinery and equipment, trade show booths, and product
tooling costs.
DEFERRED COSTS Deferred costs incurred by the company in 2001 amounted
to $205,051 and were capitalized under Canadian GAAP. These relate to the
completion of the Fuzzy Zoeller infomercial that we aired only sporadically in
2001. $138,000 of amortization relating to these deferred cost was expensed in
2001. Under U.S. GAAP, all deferred costs are expensed as incurred and as a
result no amortization of deferred costs would be recorded.
Bad Debts and Credit Risk
For the year ending December 31, 2001, we incurred bad debt expense of
$241,758, approximately 2.4% of net sales for the year, compared to $471,645 or
3.3% of sales in 2000. Bad debt expense includes a reserve at year end of
$300,000 (2000 - $175,000). We take all reasonable steps to perform ongoing
credit evaluations of our customers and to impose credit holds as appropriate,
but any substantial downturn in the retail golf market or the economy generally
could result in unanticipated delinquent accounts of our customers. This would
negatively impact operations by increasing bad debt expense and would reduce
liquidity by reducing cash collections from accounts receivable.
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 from time to time with short-term borrowings from commercial
lenders.
We have the following sources of commercial credit:
. Bank Line of Credit. We have a Line of Credit with U.S.
National 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 $500,000. On April 12, 2002,
U.S. National Bank extended that line of credit through July
15, 2002. The extension agreement requires the company to
reduce the amount outstanding to $450,000 from $490,000 at
year end. The line of credit continues to bear interest at
bank prime rate plus 2% and the company is required to make
monthly principal payments of $10,000 commencing May 15, 2002.
. Equipment loan with U.S. National Bank which had an
outstanding balance at December 31, 2001 of $12,687.
. $50,000 line of credit from Wells Fargo Bank which had an
outstanding balance on December 31, 2001 of $41,857.
12
. $650,000 loan from Inabata America Corporation. This is covered
by a one-year renewable note dated March 23, 2001 with interest
at 11% per annum. The loan is secured by the assets of the
Company subject only to a first lien from the U.S. National Bank.
We also agreed to pay Inabata a royalty on Putterball sales in
Asia of $1 per unit (nominal sales in 2001) and offered Inabata a
right of first refusal to manufacture components for the Company
in Asia. At December 31, 2001, the $650,000 principal was
outstanding. On March 22, 2002, Inabata agreed to extend this
loan for 30 days on the condition that the Company make a minimum
principal payment of $100,000 on the Inabata Credit Facility
before the thirty days extension deadline.
. Credit Facility for Product Purchases (LC and DP). The Company
purchases some components from overseas vendors through a secured
Credit Facility provided by Inabata America Corporation. At
December 31, 2001, we had $1,010,905 principal and interest
outstanding on that Credit Facility, all of which was due and
payable at December 31, 2001.
. Included in accounts payable is accrued interest of $94,595 as at
December 31, 2001 on the above Inabata indebtedness.
Net cash used by operating activities for the year ended December 31, 2001
was $1,444,831 compared to $935,018 for the year ended December 31, 2000. The
Company had cash on hand at December 31, 2001 of $126,023, compared to $381,110
as at December 31, 2000. Cash flows from operations was impacted by reduced
accounts receivable collections and reductions in accounts payable balances
offset in part by the reduced inventory position at year end. Non cash outlays
for depreciation and amortization increased by $18,662 and non-cash working
capital balances relating to operations decreased by $633,700 versus 2000. In
addition, there was a $1,642,804 non-cash write-down of goodwill at December 31,
2001.
Cash used by investing activities was $579,265 in 2001 versus $536,601 in
2000. The cash used in 2001 was attributable to $205,051 for an infomercial,
$74,806 in patent and trademark costs, and $303,176 in capital assets, including
machinery, tooling, furniture, and computer equipment. Capital assets were
disposed in the year for total proceeds of $3,768.
Net cash provided by financing activities was $1,769,809 in 2001 versus
$1,192,000 in 2000. The cash provided in 2001 was composed of $250,000 from an
equity private placement and increased borrowings of $1,537,941, which was
mainly from Inabata America Corporation. $18,132 was repaid on the equipment
loan with U.S. National Bank in the year.
13
Accounts receivable, net of $300,000 allowance for doubtful accounts,
at year end 2001 was $1,195,209 versus $1,092,455 in 2000, an increase of 9%.
This increase in accounts receivable was due in part to the granting of extended
terms into early 2002 for many accounts impacted by slow or no sales
post-September 11. Customers were granted an extra 30 to 90 days extension on
the payment of their accounts determined on an account by account basis.
Inventory at year end 2001 was $2,460,134 versus $3,169,908 in 2000.
This decrease was the result of our close out programs that removed old
inventory and improved inventory management and purchasing procedures. Inventory
reduction was also impacted by extending credit terms for customers at year end
to facilitate greater movement.
To sustain and continue operations, the company will require $1-2
million in equity and/or debt financing. If we are unable to (i) extend the U.S.
National Bank line of credit of $450,000 beyond July 15, 2002, (ii) reach
agreement with Inabata on repayment of the $1,010,905 due on the credit facility
at year end; and (iii) secure extensions of the Inabata loan beyond April 23,
2002, we will also need to repay and/or refinance each of these arrangements
listed above. Senior management is scheduled to meet with Inabata management in
Tokyo at the end of April. We are also actively investigating additional
financing arrangements and have implemented internal programs designed to
increase profitability and hence improve internal cash flow.
Critical Accounting Pronouncements
The Company's discussion and analysis of its financial condition and
results of operations, including the discussion on liquidity and capital
resources, are based on its consolidated financial statements that have been
prepared in accordance with Canadian generally accepted accounting principles
and include a reconciliation note to U.S. generally accepted accounting
principles. The preparation of these financial statements requires that
management make estimates and judgments that affect reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an ongoing basis, management reevaluates its estimates and
judgments, particularly those related to the valuation of inventory, valuation
of goodwill, and nature of deferred costs. Management bases its estimates and
judgments on historical experience, contractual arrangements and commitments
and on various other assumptions that it believes are reasonable in the
circumstances. Changes in these estimates and judgments will impact the amounts
recognized in the consolidated financial statements, and the impact may be
material.
Management believes the following critical accounting policies require
more significant estimates and judgments in the preparation of the consolidated
financial statements.
The consolidated financial statements have been prepared on the going
concern basis, which assumes the realization of assets and liquidation of
liabilities in the normal course of operations. If the Company were not to
continue as a going concern it would likely not be able to realize on its
assets at values comparable to the carrying value or the fair value estimates
reflected in the balances set out in the presentation of the consolidated
financial statements. As described elsewhere in this Form 10-KSB, at December 3
1, 2001 the Company's operations have primarily been financed through debt or
equity financing as the company has experienced continuing negative cash flows
from operations. The current bank loan and line of credit facilities are either
past due or in excess of their original limit. The company's ability to sustain
and continue operations will be dependent on the continuing support of
creditors and investors, in particular the renewal and extensions on the line
of credit and loan facilities. If the Company is not able to generate
sufficient positive cash flow to satisfy its liabilities as they come due, the
assets and liabilities may have to be restated at liquidation values which may
be materially less than their carrying values.
Inventory of finished goods are carried at the lower of average cost
and net realizable value. In estimating net realizable value, management
evaluates the inventory turnover and sales trends of its finished goods on a
product line basis, The net realizable value of its finished goods can be
impacted by changes in general economic conditions, market preferences and the
introduction of new or enhanced technologies as well as changes in the
company's need to liquidate inventory. These changes could render the company's
products less marketable and as a result impact the net realizable value and
reserve for inventory obsolescence of finished goods.
Accounts receivable are carried net of an allowance for amounts not
considered recoverable. Managements reviews accounts receivable on an account by
an account basis to determine any specific allowances required. The allowance
also includes an estimate of unidentified losses which are determined based on
general market conditions and is recorded as a general provision against
accounts receivable as a whole. Changes in economic factors could negatively
impact our customers and the recoverability of accounts receivable.
Recent Accounting Pronouncements
On June 29, 2001, the FASB approved for issuance Statement of Financial
Accounting Standards (SFAS) No. 141 "Business Combinations" ("SFAS 141") and
SFAS No. 142, "Goodwill and other Intangible Assets" ("SFAS 142"). SFAS 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. As a result, the
pooling-of-interests method will be prohibited. SFAS 142 changes the accounting
for goodwill from an amortization method to an impairment-only approach. Thus,
amortization of goodwill, including goodwill recorded in past business
combinations, will cease upon adoption of this statement, which for Carbite Golf
Inc. will be January 1, 2002. Management believes the adoption of SFAS No. 141
and 142 will not have a material effect on the Company's financial position or
results of operations as all goodwill has been written off as at December 31,
2001.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), which addresses
financial reporting and accounting for the impairment of disposal of long-lived
assets. The statement supercedes SFAS 121, and the accounting and reporting
provisions APB 30, for the disposal of a segment of a business. The provisions
of SFAS 144 are required to be adopted by Carbite Golf Inc. effective January 1,
2002.
14
Management believes the adoption of SFAS No. 144 will not have a
material effect on the company's financial position or results of
operations.
Risk Factors That May Affect Future Results and Financial Condition
The Company's operations and financial results are subject to numerous
risks, many of which are beyond the Company's control, including:
Dependence on Polar Balanced Putters
During 2001 and 2000, approximately 64% and 79% of our net sales were
derived from sales of the Polar Balanced Putter line. Such sales are expected to
account for a substantial portion of our net sales for some time. A decline in
demand for, or average selling prices of, the Polar Balanced Putter would have a
material adverse effect on our business.
Our continued growth and success depend, therefore, on our ability to
successfully develop and introduce new products accepted in the marketplace.
Historically, a large portion of new golf club technologies and designs have
been rejected by consumers. No assurance can be given that new products we are
developing now or will develop in the future will meet with market acceptance.
In addition, our competitors are always working on new products. Accordingly,
our operating results could fluctuate as a result of the amount, timing and
market acceptance of new product introductions by us and our competitors.
Our Clubs Must Comply With USGA Regulations
The design of new golf clubs is greatly influenced by the rules and
interpretations of the U.S. Golf Association ("USGA"). Although the golf
equipment standards established by the USGA generally apply only to competitive
events sanctioned by that organization, we believe it is critical that new clubs
comply with USGA standards. No assurance can be given that any new products will
receive USGA approval or that existing USGA standards will not be altered in
ways that adversely affect the sales of our products.
15
We Need to Develop and Protect Proprietary Technology
Our ability to compete effectively in the golf club market will depend,
in part, on our ability to maintain the proprietary nature of our technologies
and products. We own, by way of assignment from Chester Shira, eight U.S.
patents which are incorporated in some of our products. These patents may,
however, have limited commercial value or may lack sufficient breadth to
adequately protect the aspects of our products to which the patents relate. The
Company's U.S. patent rights do not preclude competitors from developing or
marketing products similar to our products in international markets.
There can be no assurance that competitors, many with greater resources
than us, will not apply for and obtain patents that will prevent, limit or
interfere with our ability to make and sell our products.
We are Dependent on Continued Growth in The Golf Industry
Our financial performance is dependent in large part upon the current
and anticipated market demand for golf equipment. During 1998 and early 1999,
the golf equipment industry experienced periods of oversupply. There can be no
assurance that such growth will return and that the slowdown will not continue.
A reduced rate of growth in the demand for golf equipment due, for example, to
competitive factors, technological change or otherwise, may materially adversely
affect the markets for the Company's products.
We are a Small Player in a Highly Competitive Industry
The market for golf clubs is highly competitive. Our competitors
include a number of established companies, most of which have greater financial
and other resources. We could, therefore, face substantial competition from
existing or new competitors that introduce and successfully promote golf clubs
that achieve market acceptance. There can be no assurance that our marketing
strategy will not be emulated by others, thereby diluting our message or forcing
us to adopt a new marketing strategy. Such competition could result in
significant price erosion or increased promotional expenditures, either of which
could have a material adverse effect on the business. There can be no assurance
that we will be able to compete successfully against current and future sources
of competition.
We are in a Seasonal Business Dependent on Discretionary Consumer
Spending
Golf generally is regarded as a warm weather sport and sales of golf
equipment historically have been strongest during the second and third quarters,
weakest during the fourth quarter. Sales of golf clubs are dependent on
discretionary consumer spending and, as such, may be affected by general
economic conditions. A decrease in consumer spending generally or in golf
spending specifically could result in decreased spending on golf equipment,
which could have a material adverse effect on our business. Because
16
most operating expenses are relatively fixed in the short term, we may be unable
to adjust spending sufficiently in a timely manner to compensate for any
unexpected sales shortfall. If technological advances by competitors or other
competitive factors require us to invest significantly greater resources than
anticipated in research and development or sales and marketing efforts, our
business could be materially adversely affected. Accordingly, we believe that
period- to-period comparisons of results of operations should not be relied upon
as an indication of future performance. The results of any quarter are not
indicative of results to be expected for a full fiscal year.
We Will Need Future Capital And Additional Financing
We are in the process of pursuing additional financing through equity
placements and/or additional financing and re-financing of existing
indebtedness. There is no assurance that our efforts will be successful.
Adequate funds, whether through additional equity financing, debt financing or
other sources may not be available when needed or on acceptable terms, or may
result in further dilution to existing shareholders. If we cannot obtain
sufficient financing we may need to curtail or cease our operating activities
significantly. Our December 31, 2001 consolidated financial statements includes
a continuing operations note and our auditor's report includes additional
comments for U.S. readers. This additional note and auditors report addresses
disclosure requirements on our ability to continue as a going concern due to the
recurring operating losses, negative cash flows from operating activities, and
requirements for additional funding. The consolidated financial statements do
not reflect any adjustments that might result from the outcome of this
uncertainty.
We Must be Able to Manage Growth
To compete effectively and manage future growth, if any, we will be
required to continue to implement and improve our operational, financial and
management information systems, procedures and controls on a timely basis and to
expend, train, motivate and manage our workforce. There can be no assurance that
our personnel, systems, procedures and controls will be adequate to support its
existing or future operations. Any failure to implement and improve our
financial and management systems or to expand, train, motivate or manage
employees could have a material adverse effect on the business.
We are Dependent on Key Personnel
Our success depends upon the performance of our senior management team.
There is strong competition for qualified personnel in the golf club industry,
and the inability to continue to attract, retain and motivate other key
personnel could adversely affect our business.
17
We Review Possible Acquisitions, But They Can be Risky
We regularly review possible acquisition opportunities and may make
future acquisitions of complementary services, technologies, product designs or
businesses in the future. There can be no assurance that future acquisitions, if
any, will be completed or that, if completed, any such acquisition will be
effectively assimilated into our business. Acquisitions involve numerous risks,
including, among others, loss of key personnel of the acquired company, the
difficulty associated with assimilating the personnel and operations of the
acquired company, the potential disruption of our ongoing business, the
maintenance of uniform standards, controls, procedures and policies, and the
impairment of our reputation and relationships with employees and customers. In
addition, any future acquisitions could result in the issuance of additional
dilutive equity securities, the incurrence of debt or contingent liabilities,
and amortization expenses related to goodwill and other intangible assets, any
of which could have a material adverse effect on our business.
Outstanding Options and Warrants May Dilute Ownership
As of April 11, 2002, there were outstanding options to purchase an
aggregate of 572,530 shares of common stock and outstanding warrants to purchase
an aggregate of 141,039 shares of common stock. The exercise of such outstanding
options and warrants would dilute the percentage ownership of our stock, and any
sales in the public market of common stock underlying such stock options could
adversely affect prevailing market prices for the common stock. Moreover, the
terms upon which we would be able to obtain additional equity capital could be
adversely affected by the existence of such options or warrants.
We Sell to Customers who May Present Unknown Credit Risks
We primarily sell our products to golf equipment retailers and
distributors, and directly to customers via infomercials and direct response
programs. We perform ongoing credit evaluations of our customers' financial
condition and generally require no collateral from these customers. Accordingly,
there can be no assurance that our results of operations or cash flows will not
be adversely impacted by the failure of our customers to meet their obligations.
We Must Keep Up With Technological Changes
The manufacture and design of golf clubs has undergone significant
changes with respect to design and materials in recent years. The introduction
of new or enhanced technologies or designs by competitors could render our
products less marketable. Our ability to compete successfully will depend to a
large degree on our ability to innovate and respond to changes and advances in
its industry.
18
We Face The Risk of Technical Problems or Product Defects
There is no assurance, despite testing and quality assurance efforts,
that technical problems or product defects will not be found, resulting in loss
of or delay in market acceptance and sales, diversion of development resources,
injury to our reputation or increased service and support costs, any of which
could have a material adverse effect on the Company's business. Moreover, there
is no assurance that we will not experience difficulties that could delay or
prevent the development and introduction of products and services, that new or
enhanced products and services will meet with market acceptance, or that
advancements by competitors will not erode our position or render our products
and services obsolete.
We Depend on a Limited Number of Component Suppliers
We assemble all of our Carbite branded clubs at the San Diego facility.
We do not manufacture the components required to assemble the golf clubs. We are
dependent on a limited number of suppliers and do not have written supply
agreements with any of them. Three suppliers for heads, all based in the Far
East; three suppliers for shafts, two based in the Far East; and three suppliers
for grips, one based in the Far East. Therefore, our success will depend on
maintaining our relationships with existing suppliers and developing
relationships with new suppliers.
We plan our orders to manufacturers based upon the forecasted demand
for our products. Actual demand may be more or less than the forecasted demand.
Since our overseas club head vendors generally require at least 45-60 days lead
times to produce heads after a purchase order is placed, and since shipments
from these vendors average 20-25 days, our ability to quickly expand our
manufacturing capacity for new products is limited. If we are unable to produce
sufficient quantities of new products in time to fulfill actual demand, it could
limit our sales and adversely affect our financial performance. If actual demand
is less than forecasted, we could have excess inventories and related
obsolescent charges that could adversely affect financial performance.
We Rely on Independent Domestic Sales Representatives
Sales of our products are dependent, in part, on a nationwide network
of independent sales representatives. While we believe that our relationships
with sales representatives and customers are satisfactory, there can be no
assurance that we will be able to maintain such relationships. Although we work
closely with our sales representatives, we cannot directly control such
representatives' sales and marketing activities. There can be no assurance that
these representatives will effectively manage the sale of our products or that
our selling efforts will prove effective.
19
We Rely on Foreign Distributors for International Sales
During 2001 and 2000, sales to international customers accounted for
approximately 7% and 22% of our net sales. We rely on foreign distributors to
market and sell our products outside the United States. Although we work closely
with our foreign distributors, we cannot directly control such distributors'
sales and marketing activities and, accordingly, cannot manage our product sales
in foreign markets. Our foreign distributors may also distribute, either on
behalf of themselves or other golf club equipment manufacturers, other product
lines, including product lines that may be competitive with ours. Additionally,
our international sales may be disrupted or adversely affected by events beyond
our control, including currency fluctuations and political or regulatory
changes.
20
Forward-Looking Statements
This Form 10-KSB contains "Forward-looking statements" about our plans,
strategies, objectives, expectations, intentions, anticipated growth, and
possible acquisitions. Other statements that are not historical facts may also
be forward-looking statements. When used in this report, the words "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates," and similar
expressions are generally intended to identify forward-looking statements. These
statements are only predictions and actual results could differ materially.
Factors that might cause such a difference are discussed throughout this Form
10-KSB including the section "Risk Factors" on pages 16 to 21. Any
forward-looking statement speaks only as of the date we made the statements.
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Page
----
Auditors' Report of KPMG LLP, Chartered Accountants ............. 23
Comments by Auditor for U.S. Readers on Canada-U.S. Reporting
Difference ............................................. 24
Consolidated Balance Sheets as of December 31, 2001 and 2000 .... 25
Consolidated Statement of Operations and Deficit for the years
ended December 31, 2001 and 2000 ....................... 26
Consolidated Statement on Cash Flows for the years ended
December 31, 2001 and 2000 ............................. 27
Notes to Consolidated Financial Statements ...................... 28
21
Consolidated Financial Statements
(Expressed in U.S. Dollars)
CARBITE GOLF INC.
Years ended December 31, 2001 and 2000
22
[LOGO]
KPMG LLP
Chartered Accountants Telephone (604) 854-2200
32575 Simon Avenue Telefax (604) 853-2756
Abbotsford BC V2T 4W6 www.kpmg.ca
Canada
AUDITORS' REPORT
To the Shareholders of
Carbite Golf Inc.
We have audited the consolidated balance sheets of Carbite Golf Inc. as at
December 31, 2001 and 2000 and the consolidated statements of operations and
deficit and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted auditing
standards and United States generally accepted auditing standards. Those
standards require that we plan and perform an audit to obtain reasonable
assurance whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2001
and 2000 and the results of its operations and its cash flows for the years then
ended in accordance with Canadian generally accepted accounting principles.
/s/ KPMG LLP
Chartered Accountants
Abbotsford, Canada
March 20, 2002, except for Note 17(c) which is as of April 12, 2002
[LOGO] KPMG LLP, a Canadian owned limited liability partnership established
under the laws of Ontario, is a memeber firm of KPMG International, a
Swiss association
23
[LOGO]
KPMG LLP
Chartered Accountants
32575 Simon Avenue Telephone (604) 854-2200
Abbotsford BC V2T 4W6 Telefax (604) 853-2756
Canada www.kpmg.ca
Comments by Auditor for U.S. Readers on Canada-U.S. Reporting Difference
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that may cast substantial doubt
on the company's ability to continue as a going concern, such as those described
in Note 1 to the financial statements. Our report to the shareholders dated
March 20, 2002, except for Note 17(c) which is as of April 12, 2002 is expressed
in accordance with Canadian reporting standards which do not permit a reference
to such events and conditions in the auditor's report when these are adequately
disclosed in the financial statements.
/s/ KPMG LLP
Abbotsford, Canada
March 20, 2002, except for Note 17(c) which is as of April 12, 2002
[LOGO] KPMG LLP, a Canadian owned limited liability partnership established
under the laws of Ontario, is a memeber firm of KPMG International, a
Swiss association
24
CARBITE GOLF INC.
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
December 31, 2001 and 2000
================================================================================================================
2001 2000
----------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 126,823 $ 381,110
Accounts receivable, net of allowance of $300,000
(2000 - $175,000) 1,195,209 1,092,455
Inventory (Note 3) 2,460,134 3,169,908
Income taxes recoverable - 168,933
Prepaid expenses 213,118 127,643
Future tax assets (Note 10) - 188,000
----------------------------------------------------------------------------------------------------------------
3,995,284 5,128,049
Future tax assets (Note 10) - 42,000
Capital assets (Note 4) 803,872 728,264
Patents and trademarks, net of accumulated amortization of
$137,098 (2000 - $107,975) 154,129 108,446
Deferred costs, net of accumulated amortization of $1,038,135
(2000 - $900,032) 359,068 292,120
Goodwill, net of accumulated amortization and write-downs
of $2,899,804 (2000 - $967,000) (Note 5) - 1,932,804
----------------------------------------------------------------------------------------------------------------
$ 5,312,353 $ 8,231,683
================================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Bank loan and line of credit facilities (Note 6) $ 2,193,591 $ 655,650
Accounts payable and accrued liabilities 1,662,486 1,606,068
Current portion of long-term debt 12,687 15,319
----------------------------------------------------------------------------------------------------------------
3,868,764 2,277,037
Long-term debt (Note 7) - 15,500
Endorsement agreement payable (Note 14(b)) 62,500 87,500
Shareholders' equity:
Share capital (Note 8) 12,035,462 11,635,462
Deficit (10,654,373) (5,783,816)
----------------------------------------------------------------------------------------------------------------
1,381,089 5,851,646
----------------------------------------------------------------------------------------------------------------
$ 5,312,353 $ 8,231,683
================================================================================================================
See accompanying notes to consolidated financial statements.
25
CARBITE GOLF INC.
Consolidated Statements of Operations and Deficit
(Expressed in U.S. Dollars)
Years ended December 31, 2001 and 2000
================================================================================================================
2001 2000
----------------------------------------------------------------------------------------------------------------
Net sales $ 10,266,325 $ 14,160,976
Cost of sales 7,080,824 8,434,114
----------------------------------------------------------------------------------------------------------------
Gross margin 3,185,501 5,726,862
Operating expenses:
Selling 3,335,002 6,047,402
Research and development 616,021 636,944
General and administrative 1,772,076 2,063,979
Amortization of deferred costs 138,103 167,137
Amortization of goodwill, patents and trademarks 319,123 311,642
Settlement of contract dispute (Note 15) - 90,000
Foreign exchange gain (785) (1,134)
-----------------------------------------------------------------------------------------------------------
6,179,540 9,315,970
----------------------------------------------------------------------------------------------------------------
Loss from operations (2,994,039) (3,589,108)
Other income (expense):
Write-down of goodwill (Note 5) (1,642,804) -
Commission revenue - 176,427
Gain on disposal of capital assets 1,625 -
Interest and other 593 26,331
-----------------------------------------------------------------------------------------------------------
(1,640,586) 202,758
----------------------------------------------------------------------------------------------------------------
Loss before income taxes (4,634,625) (3,386,350)
Income tax provision (Note 10):
Current 5,932 (181,247)
Future 230,000 (87,000)
-----------------------------------------------------------------------------------------------------------
235,932 (268,247)
----------------------------------------------------------------------------------------------------------------
Loss (4,870,557) (3,118,103)
Deficit, beginning of year (5,783,816) (2,665,713)
----------------------------------------------------------------------------------------------------------------
Deficit, end of year $ (10,654,373) $ (5,783,816)
----------------------------------------------------------------------------------------------------------------
Loss per share, basic and diluted (Notes 12 and 8(c)) $ (0.73) $ (0.52)
================================================================================================================
See accompanying notes to financial statements.
26
CARBITE GOLF INC.
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
Years ended December 31, 2001 and 2000
-------------------------------------------------------------------------------------------------------
2001 2000
-------------------------------------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Loss $ (4,870,557) $ (3,118,103)
Items not affecting cash:
Depreciation 225,425 185,210
Future income tax 230,000 (87,000)
Amortization 457,226 478,779
Gain on disposal of capital assets (1,625) -
Finder's fee paid with common shares - 25,000
Selling expense paid or payable with common shares 125,000 200,500
Write-down of goodwill 1,642,804 -
Change in non-cash operating working capital:
Accounts receivable (102,754) 1,276,408
Inventory 709,774 (487,123)
Income taxes recoverable 168,933 (396,805)
Prepaid expenses (85,475) 157,998
Accounts payable and accrued liabilities 56,418 830,118
-------------------------------------------------------------------------------------------------------
(1,444,831) (935,018)
Investing:
Deferred costs incurred (205,051) (204,375)
Patent and trademark costs incurred (74,806) (39,096)
Purchase of capital assets (303,176) (293,130)
Proceeds on disposal of capital assets 3,768 -
-------------------------------------------------------------------------------------------------------
(579,265) (536,601)
Financing:
Issuance of common shares, net of reacquisitions 250,000 741,541
Repayments on long-term debt (18,132) (13,206)
Increase in bank loan (net) 1,537,941 463,725
-------------------------------------------------------------------------------------------------------
1,769,809 1,192,000
-------------------------------------------------------------------------------------------------------
Decrease in cash during the year (254,287) (279,559)
Cash and cash equivalents, beginning of year 381,110 660,669
-------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 126,823 $ 381,110
-------------------------------------------------------------------------------------------------------
Supplementary cash flow information:
Interest paid $ 136,330 $ 52,116
Income taxes paid - 204,769
Non-cash financing/investing activities:
Shares issued for services $ 150,000 $ 138,000
Shares issued for assets - 301,200
-------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
27
CARBITE GOLF INC.
Notes to Consolidated Financial Statements
(Expressed in U.S. dollars unless otherwise noted)
Years ended December 31, 2001 and 2000
1. Continuing operations:
The Company is incorporated under the laws of British Columbia, Canada and
was continued into the Yukon Territory, Canada on October 22, 2001. The
company's primary business activity is the development and sales of a
proprietary brand of golf clubs and other golf products which represents a
single operating segment. The Company's operations are located in San
Diego, California, U.S.A.
These financial statements have been prepared on the going concern basis
which, in part, assumes that the Company will be able to generate
sufficient positive cash flow to satisfy its liabilities as they come due.
The ability to achieve sufficient cash flow is dependent upon the return to
profitable operations and the continuing support of creditors and
investors. If sufficient positive cash flow cannot be generated, the assets
and liabilities may have to be restated at liquidation values which may be
materially less than their carrying values.
The Company has positive working capital, but has experienced continued
negative cash flows from operations. Operations have primarily been
financed through debt or equity financing. The current bank loan and a line
of credit facilities are either past due or in excess of their original
limit. The lenders for the loan and line of credit have not formally
renewed or called the loans. Management has negotiated loan extensions,
plans to request further extensions, and has arranged a prepayment of
royalty fee income to address cash flow requirements (see Note 17). With
the assistance of the Board of Directors, the company is actively pursuing
additional financing through additional debt and/or equity and has
implemented internal programs to improve cash flow.
2. Significant accounting policies:
(a) Basis of presentation:
The consolidated financial statements are prepared in accordance
Canadian generally accepted accounting principles which conform in all
material respects with accounting principles generally accepted in the
United States, except as disclosed in Note 13.
The consolidated financial statements include the accounts of the
Company and the following subsidiaries:
Cash and cash equivalents include all cash balances and highly liquid
investments with a maturity date of three months or less at the time
of acquisition.
28
2. Significant accounting policies (continued):
(c) Inventory:
Raw materials inventory is stated at the lower of cost on a first-in,
first-out basis, and replacement cost. Finished goods inventory is
stated at the lower of average cost and net realizable value.
(d) Deferred costs:
Deferred costs are related to the development and promotion of the
products of Carbite, Inc. The costs are being amortized on a
straight-line basis over a maximum five year period, depending on the
nature of the costs.
(e) Capital assets:
Capital assets are recorded at cost. Depreciation has been provided
over the estimated useful lives of the assets using the straight-line
method at the following annual rates:
Leasehold improvements 25%
Manufacturing equipment 20%
Office and computer equipment 14%
Trade show displays 14%
(f) Goodwill:
Goodwill, representing the excess of cost over net assets of
subsidiaries acquired and certain intangible assets purchased, is
amortized using the straight-line method over ten years. The Company
assesses the continuing value of goodwill each year by considering
current operating results, trends, and prospects and measures
impairment when the estimated undiscounted future cash flows are less
than the carrying value of the asset. In the year of an impairment in
value, the goodwill will be reduced by a charge to earnings.
(g) Patents and trademarks:
Patents and trademarks represent all costs incurred to obtain these
intangible assets. The patents and trademarks are amortized using the
straight-line method over ten years. The Company assesses the
continuing value of patents and trademarks each year by considering
operating results, trends, and prospects and measures impairment when
the estimated undiscounted future cash flows are less than the
carrying value of the asset. In the year of an impairment in value,
the patents will be reduced by a charge to earnings.
29
2. Significant accounting policies (continued):
(h) Share option plan:
The Company maintains a share option plan under which the Board of
Directors, subject to shareholder approval, may grant options to
acquire common shares to its directors, officers, employees and
consultants. Under Canadian generally accepted accounting principles,
no compensation expense is recognized for this plan when share options
are issued. Any consideration received upon the exercise of share
options is credited to share capital. Options are non-assignable,
non-transferable, and except in certain specified circumstances,
terminate 30 days after the optionee ceases to be employed or
associated with the Company.
(i) Foreign currency translation:
The Company has adopted the United States dollar as its reporting
currency, which is also its functional currency. The Company and its
subsidiaries are considered to be integrated operations and the
accounts are translated using the temporal method. Under this method,
monetary assets and liabilities are translated at the rates of
exchange in effect at the balance sheet date; non-monetary assets at
historical rates and revenue and expense items at the average rates
for the period other than depreciation and amortization which are
translated at the same rates of exchange as the related assets. The
net effect of the foreign currency translation is included in current
operations.
(j) Revenue recognition:
Revenue is recognized on shipment of finished goods which is when
title passes. Accordingly, the Company sells products FOB shipping
point. Upon shipment the Company does not have significant remaining
obligations related to products sold.
(k) Income taxes:
The Company uses the asset and liability method of accounting for
income taxes. Under this method, future tax assets and liabilities are
recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and loss carryforwards.
Future tax assets and liabilities are measured using enacted or
substantively enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. The effect on future tax assets and liabilities
of a change in tax rates is recognized in income in the period that
includes the substantive enactment date. To the extent it is not
considered to be more likely than not that a future income tax asset
will be realized, a valuation allowance is provided.
(l) Use of estimates:
These financial statements have been prepared in accordance with
Canadian generally accepted accounting principles which require
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Carbite performed an assessment of the carrying values of goodwill based on
current operating trends and expected future cash flows, and as a result,
recorded a goodwill write-down of $1,642,804.
The write-down was related to the goodwill associated with the acquisitions
of Carbite Inc., AGS Acquisition Corp. and Printer Graphics Ltd. and
resulted from continued under performance by the Company.
6. Bank loan and line of credit facilities:
-------------------------------------------------------------------------------------------
2001 2000
-------------------------------------------------------------------------------------------
U.S. National Bank operating line of credit (i) $ 490,829 $ 655,650
Wells Fargo operating line of credit, unsecured (ii) 41,857 -
Inabata America Corporation loan, payable in
monthly instalments of interest only at 11%
per annum, due March 23, 2002, secured (iii) 650,000 -
Inabata America Corporation line of credit (iv) 1,010,905 -
-------------------------------------------------------------------------------------------
$ 2,193,591 $ 655,650
===========================================================================================
31
6. Bank loan and line of credit facilities (continued):
(i) The U.S. National Bank operating line of credit has a maximum limit
of $500,000 (2000 - $700,000) and matures January 15, 2002. The
operating line bears interest at bank prime rate plus 2% (2000 - bank
prime rate plus 1%) per annum. The U.S. National Bank loan (Note 7)
and operating line of credit are secured by assignment of
inventories, accounts receivable, equipment and assignment of
insurance proceeds. As of the audit report date, the operating line
of credit has not been formally renewed. The operating line continues
to be in place at existing terms. The lender has the discretion to
further reduce or eliminate the Company's line of credit, but has
made no decision at this time.
(ii) The Wells Fargo operating line of credit bears interest at 11.75% per
annum and has a maximum limit of $50,000.
(iii) The loan and the line of credit described in (iv) are secured by a
security interest over all of Carbite's assets, subject only to a
first lien from the U.S. National Bank. The lender has granted the
Company a 30 day extension on the loan due March 23, 2002.
(iv) The Inabata operating line of credit bears interest at 1% per month.
The operating line of credit has a maximum limit of $500,000 and
automatically renews on an annual basis unless either party notifies
the other before sixty days before the respective anniversary date
(April 1).
Any increases to the line of credit over the maximum are at the
lender's sole and unlimited discretion and payment can be requested
on demand.
7. Long-term debt:
---------------------------------------------------------------------------------------------------
2001 2000
---------------------------------------------------------------------------------------------------
U.S. National Bank loan, payable in monthly instalments of
$1,501 including interest at bank prime rate plus 1.75% per
annum, due November 2002, secured - see Note 6 $ 12,687 $ 30,819
Current portion 12,687 15,319
---------------------------------------------------------------------------------------------------
$ - $ 15,500
===================================================================================================
32
8. Share capital:
Authorized (Note 8(c)):
50,000,000 Common shares with no par value
Issued:
-----------------------------------------------------------------------------------------------------------
Number
of shares Amount
-----------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 5,606,621 $ 10,454,721
Shares reacquired on open market (14,500) (6,569)
Issued in 2000:
For cash 488,158 748,110
For services - Finder's fee 25,000 25,000
- Endorsement agreements (Note 14(b)(i)) 73,889 113,000
For purchase of assets (i) 198,158 301,200
-----------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 6,377,326 11,635,462
Issued in 2001:
For cash 485,000 250,000
For services - Endorsement agreements (Note 14(b)(i)) 212,425 150,000
-----------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 7,074,751 $ 12,035,462
===========================================================================================================
(i) On May 15, 2000, the Company acquired certain assets of a manufacturer
and distributor of golf products in exchange for 198,158 common shares.
The exchange was based on the market value of the Company's common
shares at the date of purchase of the assets. The shares are subject to
a one year hold period required by the regulatory authorities.
33
8. Share capital (continued):
a) Share options:
----------------------------------------------------------------------------------------------
Weighted
Number average price
of options (CAD $'s)
----------------------------------------------------------------------------------------------
Balance, December 31, 1999 736,060 $2.16
Granted 220,000 1.68
Granted 55,000 1.48
Cancelled/expired (279,625) 2.64
----------------------------------------------------------------------------------------------
Balance, December 31, 2000 731,435 1.76
Granted - -
Cancelled (158,905) 2.93
----------------------------------------------------------------------------------------------
Balance, December 31, 2001 572,530 $1.23
----------------------------------------------------------------------------------------------
The following share options were outstanding and exercisable at
December 31, 2001:
----------------------------------------------------------------------------------------------
Number Exercise
of shares price Expiry date
----------------------------------------------------------------------------------------------
(CAD $)
Directors 41,155 1.68 October 1, 2002
Employees 15,875 1.68 October 1, 2002
Former Director 151,750 0.04 March 1, 2003
Employees and Directors 62,500 1.68 November 3, 2003
Employee 12,500 1.68 June 25, 2004
Employees and Director 33,750 1.68 December 31, 2004
Directors 35,000 1.48 April 18, 2005
Employee 75,000 1.68 August 15, 2007
Directors 145,000 1.68 August 15, 2007
--------------------------------------------------------------------------------------------------
572,530
--------------------------------------------------------------------------------------------------
No compensation resulted from the granting of these options as the
options were granted having exercise prices based on the market value
of the Company's common shares at the date of grant.
In April 2001, the Company received regulatory approval to re-price
165,780 outstanding share options from CAD $2.40 to a reduced exercise
price of CAD $1.68.
34
8. Share capital (continued):
(b) Share purchase warrants:
------------------------------------------------------------------------
Weighted
Number average
of shares price (CAD $'s)
------------------------------------------------------------------------
Balance, December 31, 1999
and 2000 294,164 $ 2.29
Expired (28,125) 2.08
(125,000) 2.20
------------------------------------------------------------------------
Balance, December 31, 2001 141,039 $ 2.41
========================================================================
The following share purchase warrants were outstanding at December 31,
2001:
------------------------------------------------------------------------
Number Exercise
of shares price Expiry date
------------------------------------------------------------------------
(CAD$)
Warrants 75,000 2.60 May 31, 2002
Warrants 66,039 2.20 June 12, 2002
------------------------------------------------------------------------
141,039
========================================================================
(c) Authorized:
Following a special resolution of shareholders passed on June 14, 2001,
the authorized share capital of Carbite Golf Inc. was altered by
consolidating all of the 50,000,000 common shares without par value,
every four of such shares being consolidated into one share. Subsequent
to the consolidation, the authorized capital of Carbite Golf Inc. was
increased back to 50,000,000 common shares without par value. Carbite
Golf Inc. began trading on a consolidated bases on October 12, 2001.
All current and comparative share, price per share, and loss per share
figures have been retroactively restated as if the 1:4 reverse split
had always been in effect.
35
9. Segmented information:
Revenue and long-lived assets relating to foreign and domestic operations
based on the location of the customer are as follows:
---------------------------------------------------------------------------
2001 2000
---------------------------------------------------------------------------
Net sales:
United States $ 9,551,430 $ 11,071,939
Japan 223,171 2,528,870
Other 491,724 560,167
---------------------------------------------------------------------------
$ 10,266,325 $ 14,160,976
---------------------------------------------------------------------------
Capital assets:
United States $ 722,058 $ 665,858
Taiwan 81,814 62,406
---------------------------------------------------------------------------
$ 803,872 $ 728,264
---------------------------------------------------------------------------
There are no major customers representing 10% or more of total sales.
10. Income taxes:
The Company's provision (recovery) for income taxes differs from the
amounts computed by applying the combined U.S. federal and state income tax
rate of 43% for the following reasons:
--------------------------------------------------------------------------------------------------------
2001 2000
--------------------------------------------------------------------------------------------------------
Income tax recovery at the statutory rate $ (1,992,889) $ (1,456,130)
Increase in valuation allowance for net future tax assets 1,136,753 738,041
Adjustment for Canadian losses expired and exchange translation 74,209 76,066
Adjustment for U.S. state losses that do not carry forward 100,588 98,387
Adjustment for U.S. federal losses reduced by state taxes 41,821 53,122
Amortization and write-down of non-deductible goodwill 831,106 124,700
Prior years' tax adjustments - 29,644
Non-deductible expenses and other 44,344 67,923
--------------------------------------------------------------------------------------------------------
Actual tax provision (recovery) $ 235,932 $ (268,247)
--------------------------------------------------------------------------------------------------------
36
10. Income taxes (continued):
The tax effects of temporary differences that give rise to a significant
portion of the future tax assets and future tax liabilities at December 31,
2001 and 2000 are presented as follows:
===========================================================================================
2001 2000
-------------------------------------------------------------------------------------------
Future income tax assets:
Accounts receivable and inventory $ 274,000 $ 188,000
Net operating losses carried forward 2,392,956 1,558,941
Unclaimed Canadian research and development expenditures 127,963 135,925
---------------------------------------------------------------------------------------
2,794,919 1,882,866
Less: valuation allowance (2,751,819) (1,615,066)
---------------------------------------------------------------------------------------
Net future income tax assets 43,100 267,800
Future income tax liability:
Capital assets and patents (43,100) (37,800)
-------------------------------------------------------------------------------------------
Net future income taxes $ - $ 230,000
===========================================================================================
In assessing the realizability of future tax assets, management considers
whether it is more likely than not that some portion or all of the future
tax assets will not be realized. The ultimate realization of future tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of future tax liabilities, projected
future taxable income, and tax planning strategies in making this
assessment. The amount of the future tax asset considered realizable could
change materially in the near term based on future taxable income during
the carryforward period. At December 31, 2001 and 2000, a valuation
allowance has been recognized to offset all net future tax assets arising
in Canada as the Company's operations are substantially all outside of
Canada (see Note 9) and the realization of these net assets is unlikely.
The Company has unclaimed research and development expenditures of
approximately CAD $474,000 which can be deducted for income tax purposes in
Canada in future years at the Company's discretion.
The Company has losses for tax purposes of approximately CAD $2,522,000
which are available to offset future years' taxable income in Canada
expiring between 2002 and 2008.
37
10. Income taxes (continued):
The Company has losses for tax purposes, both federal and state, which are
available to offset future years' taxable income in the United States,
expiring as follows:
==================================================================================
Loss for Expiry
tax purposes dates
----------------------------------------------------------------------------------
Federal $ 4,565,346 2020-2021
California 2,752,618 2010-2011
==================================================================================
11. Related party transactions:
The following amounts were charged by directors and officers of the
Company:
==================================================================================
2001 2000
----------------------------------------------------------------------------------
Management salaries paid to directors $ 241,976 $ 339,455
Royalties paid to a director 20,330 64,473
Wages and fees paid to present and former officers 132,134 117,877
==================================================================================
These transactions occurred in the normal course of operations and are
measured at the exchange amount, which is the amount of the consideration
established and agreed to by the related parties.
12. Loss per share:
The loss per share figures are calculated using the weighted average
monthly number of shares outstanding during the respective fiscal years,
which was 6,702,962 in 2001 and 5,954,832 in 2000. The effect of the
exercise of share options and share purchase warrants outstanding is
antidilutive in 2001 and 2000.
All current and comparative figures have been retroactively restated as if
the 1:4 reverse split had always been in effect.
38
13. 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:
=========================================================================================
2001 2000
------------------------- ------------------------
Canadian U.S. Canadian U.S.
GAAP GAAP GAAP GAAP
-----------------------------------------------------------------------------------------
Deferred costs (Note 13(a)) $ 359,068 $ - $ 292,120 $ -
Goodwill (Notes 13(c) and (d)) - - 1,932,804 2,248,454
=========================================================================================
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:
=========================================================================================
2001 2000
------------------------- ------------------------
Canadian U.S. Canadian U.S.
GAAP GAAP GAAP GAAP
-----------------------------------------------------------------------------------------
Shareholders' equity:
Share capital $12,035,462 $12,035,462 $11,635,462 $11,635,462
Additional paid-in
capital (Note 13(d)) - 668,174 - 668,174
Deficit (Note 13(a)) (10,654,373) (11,681,615) (5,783,816) (6,428,461)
-----------------------------------------------------------------------------------------
$ 1,381,089 $ 1,022,021 $ 5,851,646 $ 5,875,175
=========================================================================================
Had the Company followed U.S. GAAP, the statement of operations contained
within the consolidated financial statements would have been reported as
follows:
=========================================================================================
2001 2000
-----------------------------------------------------------------------------------------
Loss from operations under Canadian GAAP $(2,994,039) $(3,589,108)
Reversal of amortization of deferred costs (Note 13(a)) 138,103 167,137
Deferred costs incurred (Note 13(a)) (205,051) (204,375)
Writedown of goodwill (Note 13(c)) (1,911,104) -
Additional goodwill amortized (Note 13(d)) (47,350) (47,350)
-----------------------------------------------------------------------------------------
Loss from operations under U.S. GAAP $(5,019,441) $(3,673,696)
=========================================================================================
39
13. Differences between generally accepted accounting principles in Canada and
the United States (continued):
---------------------------------------------------------------------------------------------
2001 2000
---------------------------------------------------------------------------------------------
Loss under Canadian GAAP $(4,870,557) $(3,118,103)
Amortization of deferred costs (Note 13(a)) 138,103 167,137
Deferred costs incurred (Note 13(a)) (205,051) (204,375)
Write-down of additional goodwill (Note 13(c)) (268,300) -
Additional goodwill amortized (Note 13(c)) (47,350) (47,350
---------------------------------------------------------------------------------------------
Loss under U.S. GAAP, being comprehensive loss
under U.S. GAAP $(5,253,155) $(3,202,691)
=============================================================================================
Loss per share under U.S. GAAP - basic and diluted $ (0.78) $ (0.54)
=============================================================================================
Had the Company followed U.S. GAAP, the statements of cash flows contained
within the consolidated financial statements would have been reported as
follows:
---------------------------------------------------------------------------------------------
2001 2000
---------------------------------------------------------------------------------------------
Cash used in operating activities under Canadian GAAP $(1,444,831) $ (935,018)
Deferred costs incurred (Note 13(a)) (205,051) (204,375)
---------------------------------------------------------------------------------------------
Cash used in operating activities under U.S. GAAP $(1,649,882) $(1,139,393)
=============================================================================================
Cash used in investing activities under Canadian GAAP $ (579,265) $ (536,601)
Deferred costs incurred (Note 13(a)) 205,051 204,375
---------------------------------------------------------------------------------------------
Cash used in investing activities under U.S. GAAP $ (374,214) $ (332,226)
=============================================================================================
(a) Deferred costs:
Under U.S. GAAP, the expenditures that were deferred and amortized
under Canadian GAAP would have been expensed in the year incurred
against operations and accordingly, there would be no amortization of
deferred costs.
(b) Recent accounting pronouncements:
(i) In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities"
("SFAS 133"). SFAS 133 establishes accounting and reporting
standards requiring that every derivative instrument be recorded
on the balance sheet as either an asset or liability measured at
its fair value. SFAS 133, as recently amended, is effective for
fiscal years beginning after June 15, 2001. To date, the Company
has not entered into derivative instruments. The adoption of SFAS
133 effective January 1, 2001 did not have a material effect on
the Company's financial position or results of operations.
40
13. Differences between generally accepted accounting principles in Canada and
the United States (continued):
(b) Recent accounting pronouncements (continued):
(ii) On June 29, 2001, the FASB approved for issuance Statement of
Financial Accounting Standards (SFAS) No. 141 "Business
Combinations" ("SFAS 141") and SFAS No. 142, "Goodwill and other
Intangible Assets" ("SFAS 142"). SFAS 141 requires that the
purchase method of accounting be used for all business
combinations initiated after June 30, 2001. As a result, the
pooling-of-interests method will be prohibited. SFAS 142 changes
the accounting for goodwill from an amortization method to an
impairment-only approach. Thus, amortization of goodwill,
including goodwill recorded in past business combinations, will
cease upon adoption of this statement, which for Carbite Golf
Inc. will be January 1, 2002.
Management believes the adoption of SFAS No. 141 and 142 will
not have a material effect on the Company's financial position
or results of operations as all goodwill has been written off at
December 31, 2001.
(iii) In October 2001, the FASB issued SFAS No. 144, "Accounting for
the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
which addresses financial reporting and accounting for the
impairment of disposal of long-lived assets. The statement
supercedes SFAS 121, and the accounting and reporting provisions
APB 30, for the disposal of a segment of a business. The
provisions of SFAS 144 are required to be adopted by Carbite
Golf Inc. effective January 1, 2002.
Management believes the adoption of SFAS No. 144 will not have a
material effect on the company's financial position or results
of operations.
(c) Impairment in goodwill and other intangibles:
As described in Notes 2(f) and 2(g), the Company measures
impairment for Canadian GAAP purposes by the excess of carrying
values over the undiscounted estimated future cash flows. For
U.S. GAAP purposes, the impairment calculation is made by
reference to discounted future cash flows. There is no
difference in the amount of the written-down carrying value to
December 31, 2001, under a discounted or undiscounted cash flow
method. However, under U.S. GAAP, goodwill, net of amortization
would have been $268,300 more than under Canadian GAAP. This
additional goodwill would also be impaired and written off under
U.S. GAAP. As at December 31, 2001 there is no longer a
difference in the carrying value of goodwill.
Under U.S. GAAP, the entire writedown of goodwill of $1,911,104
would be included in loss from operations.
41
13. Differences between generally accepted accounting principles in Canada and
the United States (continued):
(d) Compensation expense:
(i) Under U.S. GAAP, the estimated fair value of 151,750 fully
vested options issued in exchange for fully vested options as
part of the Carbite Inc. acquisition in a prior year would be
recorded as additional cost of the acquisition. The estimated
fair value of the options of $473,500 would have been recorded
as additional goodwill and additional paid-in capital. This
additional goodwill would be amortized over a period of ten
years consistent with the amortization period recorded under
Canadian GAAP. The remaining additional goodwill would be
written down in 2001 under U.S. GAAP.
(ii) During 2001, the Company repriced certain options previously
issued (Note 8(a)). Under U.S. GAAP, the options would be
accounted for as variable plan awards. In addition, a one time
compensation expense would arise under FAS 123 (see (iii)
below). Variable plan awards are awards for which the price of
the award is not determinable until after the date of grant. The
repricing of the options deems the options to be variable
awards. Under variable award accounting, compensation expense is
accrued at each measurement date for increases or decreases in
the quoted market value of the shares covered by the grant but
shall not be adjusted below zero on a cumulative basis. As the
Company's stock price at December 31, 2001 was below the
repriced amount of the options, no additional compensation
expense is recorded for the repriced options.
(iii) For U.S. GAAP purposes, the Company has elected under Statement
of Financial Accounting Standards No. 123, "Accounting for
Stock-based Compensation" ("SFAS 123") to continue to apply the
intrinsic value based method of accounting for stock-based
compensation to employees under APB 25, "Accounting for Stock
Issued to Employees". Under the intrinsic value method, stock
compensation is the excess, if any, of the quoted market value
of the stock at the date of grant over the amount the optionee
must pay to acquire the stock. No additional compensation
expense was recognized under APB 25 for the years ended December
31, 2001 and 2000.
42
13. Differences between generally accepted accounting principles in Canada and
the United States (continued):
(d) Compensation expense (continued):
The Company follows the disclosure provisions of FAS 123. Had
compensation cost been determined based on fair value at the grant
date for options to employees consistent with the measurement
provision of FAS 123, net loss and loss per share would have been:
---------------------------------------------------------------------------------
2001 2000
---------------------------------------------------------------------------------
Loss as reported under U.S. GAAP $(5,253,155) $(3,202,691)
Additional compensation for fair value of
options issued or repriced (6,572) (153,926)
---------------------------------------------------------------------------------
Pro forma loss under U.S. GAAP $(5,259,727) $(3,356,617)
=================================================================================
Pro forma loss per share under U.S. GAAP $ (0.78) $ (0.56)
=================================================================================
The following weighted average assumptions were used to estimate
the fair value of options granted:
---------------------------------------------------------------------------------
2001 2000
---------------------------------------------------------------------------------
Risk-free interest rate - 4.0%
Dividend yield rate - 0.0%
Price volatility - 134.0%
Weighted average expected life of options - 1 year
---------------------------------------------------------------------------------
The weighted average fair value of the options granted in 2000
was $0.56. No options were granted in 2001.
(iv) The total additional paid in capital that would be recorded under
U.S. GAAP is as follows:
---------------------------------------------------------------------------------
Fair value of options (i) $ 473,500
Options repriced in prior years 121,374
Compensation expense on options issued
as part of exclusive distribution contract 73,300
---------------------------------------------------------------------------------
$ 668,174
=================================================================================
43
14. Commitments:
(a) Royalty agreement:
The Company has a royalty agreement with one of the directors, which
pays a fixed fee per club for certain clubs sold in exchange for the
exclusive assignment of certain patents made by the director.
(b) Endorsement agreements:
(i) In August, 1999, the Company signed a six year endorsement
agreement, which gives the Company unlimited worldwide use of the
endorser's name and likeness in promotions for the Company and its
products. The endorser also agrees to publicly use Carbite
products while competing at PGA events, and participate in
promotional activities the Company arranges.
As consideration, the Company agreed to pay the endorser $138,000
in cash and shares for the six month period of the contract ending
February, 2000. In addition, the Company agreed to pay the
following annual amounts thereafter:
------------------------------------------------------------------
Dollar value Total
Contract year ended Cash of shares agreement
------------------------------------------------------------------
February 2001 $ 200,000 $ 100,000 $ 300,000
February 2002 200,000 100,000 300,000
February 2003 275,000 225,000 500,000
February 2004 300,000 250,000 550,000
February 2005 325,000 250,000 575,000
The contract can be terminated at the discretion of the Company at
any future date as certain sales figures were not met in calendar
year 2001 by the Company. For accounting purposes, the Company
recognizes as a charge against income the proportionate
consideration owing for services rendered in the fiscal year.
(ii) In January 2001, the Company signed a two year endorsement
agreement, which gives the Company use of the endorser's name and
likeness in promoting of the Putterball Training aid. The
promotional endorsement is limited only to the Putterball product.
As consideration, the Company agreed to pay the endorser $25,000
in cash and a seven and one-half percent royalty of the net sales
of Putterballs. In fiscal 2002, the Company will be granting the
Licensor the option to purchase 6,250 shares of Carbite's common
stock at the exercise price of $1.20 with an expiry date of
January 26, 2006.
44
14. Commitments (continued):
(c) Trademark license and distribution agreements:
In September 1999, the Company entered into two agreements with Daiwa
Seiko ("Daiwa") of Japan:
(i) A Trademark License Agreement which permits the Company to use the
Daiwa name and other trademarks of Daiwa on golf products in the
United States and Canada. The term is five years with an option
for an additional five-year term. The Company is obligated to pay
a royalty of 6% of the Company's FOB purchase price on all
products sold under the license. The agreement is subject to
termination upon certain events, including failure to meet certain
minimum royalty amounts ($75,000 in Year 1, $225,000 in Year 2,
$250,000 in Year 3, $375,000 in Year 4 and $450,000 in Year 5).
ii) A Distribution Agreement which designates the Company as the
exclusive distributor of Daiwa golf products in the United States
and Canada for a term of five years with an option to renew for an
additional five years. The agreement is subject to termination
upon certain events, including the failure for two consecutive
years to undertake to meet certain minimum purchase obligations,
which begin at $1.75 million for the first year of the agreement
and escalate substantially each year thereafter. The Company has
granted Daiwa share purchase warrants, exercisable through May 31,
2002, to buy 75,000 shares of the Company's common stock at CAD
$2.60 per share. The Company must also pay 10% of Daiwa net sales
for advertising and promotion of Daiwa products in the United
States.
(d) Lease commitment:
During fiscal 2000, the Company signed a four year lease agreement
expiring February 29, 2004 on the rental of its premises. The Company
is required to make the base rent payments as outlined below plus its
share of common area operating expenses.
In fiscal 2000, the Company terminated an agreement for telemarketing
services from a particular vendor. In settlement of the termination, the
Company agreed to pay the vendor $90,000.
45
16. Fair value of financial instruments:
The Company's financial instruments include accounts receivable, accounts
payable, accrued liabilities, bank loans and line of credit facilities. The
carrying amounts approximate fair values due to the immediate or short-term
maturity of these financial instruments.
17. Subsequent events:
(a) In March 2002, the Company amended its license agreement with Wilson
Sporting Goods Company. Wilson Sporting Goods Company advanced the
Company $375,000 on royalties due in 2002 or later under its license
agreement in return for a paid up royalty credit of $500,000 to be
applied against future royalties due under the agreement.
(b) Inabata America Corporation granted the Company a 30 day extension on
the $650,000 loan that was due March 23, 2002. Management anticipates
further extensions or repayment of the loan through private placement
funds.
(c) On April 12, 2002, U.S. National Bank extended the company's line of
credit through July 15, 2002. The extension agreement requires the
company to immediately reduce the amount outstanding to $450,000 from
$490,000 at year end. The line of credit continues to bear interest at
bank prime rate plus 2% and the company is required to make monthly
principal payments of $10,000 commencing May 15, 2002.
18. Reclassification:
Certain of the prior years' figures have been reclassified to conform to
the presentation adopted in the current year.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
There were no changes in or disagreements with accountants on accounting and
financial disclosure.
46
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
As of December 31, 2001, the directors and executive officers of the
Company were as follows:
Name Age Position
---- --- --------
Ballard Smith 55 Director and Chairman of the Board
Chester S. Shira 73 Director of R&D and Director
John R. Pierandozzi 47 President, Chief Executive Officer and Director
Andrew W. Robertson 52 Executive Vice President, COO, and Secretary
Stanley R. Sopczyk 66 Vice President, Operations
David Nairne 47 Director
David Williams 59 Director
Russell Lewis 43 Director
Chester S. Shira is the founder of our wholly-owned subsidiary,
Carbite, Inc., and has been its Chairman of the Board since 1988. From 1988 to
1994 he also served as President and Chief Executive Officer of Carbite, Inc.
Mr. Shira has been Chairman of the Board and Director of R & D for the Company
since 1997. Mr. Shira spent 11 years managing all aspects of welding, forging
and metal finishing development for North American Rockwell and four years with
Lincoln Electric Company, working in the areas of application engineering and
process controls. He has over 40 years experience as a metallurgist and welding
engineer. Mr. Shira has a BA from Ohio State University, and is a registered
professional metallurgical engineer in California and Ohio.
John R. Pierandozzi, President and CEO since May 2000, joined the
Company in 1998 as a consultant after 18 years in golf and golf-related
businesses as a course developer, manufacturer, and retailer. From 1997 - 1998,
he was a New Products/Research and Development consultant to Adams Golf. From
1994 - 1997, he was the President of Evolution Golf Company. He is a graduate of
the University of Southern California.
Andrew W. Robertson, Executive Vice President, COO, and Secretary,
since May, 2000. Prior to joining the Company, he had been in the private
practice of law since 1974 and was a partner with the firm of Lillick McHose &
Charles and Pillsbury Madison & Sutro. He was the Executive Vice President of
California Pro USA Corp, an in-line skate manufacturer, from 1991 - 1994. He was
Chairman of the 1979 Los Angeles Open at Riviera CC. He is a graduate of Brown
University and UCLA Law School.
47
Stanley R. Sopczyk, Vice President Operations, joined the Company in
1998. He was previously the Vice President and COO for Taylor Made Golf and Vice
President of the Golf Division of CoastCast Corporation, the world's largest
manufacturer of golf heads.
David Nairne was appointed as a director in 1996. Mr. Nairne is
President of Cedaridge Development and Management LTD, a private company in real
estate based in Vancouver, Canada. Prior to joining Cedaridge, Mr. Nairne was
Vice President of Communities Southwest in Irvine, California from August, 1993
to November, 1995. Mr. Nairne received his Bachelor of Commerce degree in 1977
and his Bachelor of Laws degree in 1978.
Ballard Smith was appointed as a director in June, 2000. He was
President of the San Diego Padres Baseball Club from 1979 - 1987 and a member of
Major League Baseball's Executive Committee from 1981 - 1985. He served on the
Board of McDonald's Corporation for 14 years and was Chairman of Sun Mountain
Broadcasting from 1985 - 1997.
David Williams was appointed as a director in February, 2000. He has
been the President of Roxborough Holdings in Toronto, Canada since 1977. He is
also a director of Pico Holdings, Ltd., Metro One Telecommunications, and
Radiant Energy Corporation.
Russell Lewis was appointed a director in December, 2001. Mr. Lewis is
the President and CEO of Rhino Linings USA, a privately-held company based in
San Diego, which he founded in 1988. Rhino Linings is the world leader in
sprayed-on polyurethane truck bed linings.
We have a currently effective directors and officers liability
insurance policy.
ITEM 10. EXECUTIVE COMPENSATION.
The following table shows the compensation paid by the Company to its
Chief Executive Officer and all other executive officers of the Company whose
annual salary and bonus exceeded $100,000 for the years indicated (collectively
"Named Executive Officers.")
48
Summary Compensation Table
Long Term
Compensation
Annual Compensation/(2)/ Awards
------------------------------------- ------
Securities
Other Annual Underlying All other
Salary Bonus Compensation Options/SAR's Compensation
Name and Principal Position Year ($) ($) ($)/(1)/ ($) ($)
--------------------------- ------ ----- ------------- ----------- ------------
Chester S. Shira, Director of R&D and Director 2001 111,797 20,330
2000 140,000 -0- 64,473
1999 140,000 25,000 174,637
John R. Pierandozzi, President and CEO/(4)/ 2001 127,659
(5/22/00 - present) 2000 97,156
1999 -0-
500,000
Andrew W. Robertson, Executive Vice President 2001 107,692
2000 71,076
1999 -0-
(1) Represents royalties paid to Mr. Shira pursuant to a Royalty
Agreement dated March 1, 1993 between the Company and Mr. Shira and
pursuant to an arrangement with the Company whereby he received 1/3
of certain royalties received from licensee KZ Golf.
(2) The compensation described in this table does not include certain
perks and other personal benefits received by the Named Executive
Officers, the value of which does not exceed the lesser of $50,000 or
10% of the Named Executive Officers total annual salary and bonus.
Option Grants in Last Fiscal Year
The following table sets forth information concerning stock option
grants made to the Chief Executive Officer and each of the other Named Executive
Officers for the fiscal year ended December 31, 2001:
Option/SAR Grants in Last Fiscal Year
Individual Grants
------------------------------------------------
Number of % of Total
Securities Options/SAR's
Underlying Granted to
Options/SAR's Employees Exercise or
Name Granted (#) in Fiscal Year Base Price ($/Sh) Expiration Date
---- ------------- -------------- ----------------- ---------------
None
Option Exercise and Holdings
The following table sets forth information concerning option
exercises and option holdings for the year ended December 31, 2001, with respect
to Chief Executive Officer and the Named Executive Officers:
49
Aggregate Option/SAR Exercises in Last Fiscal Year
and Fiscal Year End Option/SAR Values
-----------------------------------------------------
Value Realized Number of Unexercised Value of Unexercised
Shares Market Price at Options/SAR's at In-The-Money Options/SAR's
Acquired on Exercise less Fiscal Year End at Fiscal Year End ($U.S.)/(1)/
---------------------------- ---------------------------------
Name Excercise (#) Exercise Price Exercisable Unexercisable Exeercisable Unexercisable
---- ------------- -------------- ---------------------------- ---------------------------------
($US)
-----
-0- ---
Chester S. Shira --- --- 59,905 ---
John R. Pierandozzi -0-
137,000 25,000 ---
Andrew W. Robertson 88,875 15,000
Compensation of Directors
We reimburse directors for expenses in connection with attending Board
and Committee meetings, but do not pay them for serving as Directors.
Employment Agreements
During 2001, the Company had Employment Agreements with three Senior
Managers - Stanley Sopczyk, V.P., Operations, one year agreement at salary of
$100,000 for the period July 1, 2001 through June 30, 2002; Andrew W. Robertson,
Executive Vice President, sixteen month agreement for the period August 15, 2000
through December 31, 2001 at an annual salary of $90,000 which increased to
$100,000 at February 15, 2001; and John Pierandozzi, President and CEO, sixteen
month agreement for the period August 15, 2000 through December 31, 2001 at an
annual salary of $110,000 which was later increased by the Board of Directors to
$125,000 per year retroactive to the start date of the agreement, but to be paid
only if the cash resources of the Company were adequate.
In January 2002, the Company entered into new agreements with Messrs.
Pierandozzi and Robertson, each for one year terms January 1, 2002 thru December
31, 2002, at salaries of $125,000 and $110,000 respectively.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
COMMON STOCK - CERTAIN BENEFICIAL OWNERS
The following are the only persons known to us to own beneficially, as
of March 25, 2002, five percent (5%) or more of the outstanding shares of our
common stock:
Shares Beneficially Owned
Name and Address of Beneficial Owner/(1)/ Number Percentage/(2)/
--------------------------------------- ------------------------------
Chester S. Shira/(3)/ 1,098,323 15.5%
Ballard Smith/(4)/ 464,868 6.62%
David Williams/(5)/ 395,000 5.6%
Russell Lewis 687,500 9.7%
(1) Unless otherwise indicated, the address of each person is in care of
the Company at 9985 Huennekens Street, San Diego, California 92121.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options, warrants or convertible securities that are
currently exercisable, or exercisable within 60 days of April 11, 2002
are deemed outstanding for computing the percentage of the person
holding such options, warrants or convertible securities but are not
deemed outstanding for computing the percentage owned by any other
shareholder listed. Except as indicated by footnote and subject to
community property laws where applicable, the persons named in the
table have sole
50
voting and investment power with respect to all shares of Common
Stock shares as beneficially owned by them.
(2) Percentage ownership is based on 7,074,752 shares outstanding as
of April 11, 2002.
(3) Includes 59,905 shares which Mr. Shira has the right to acquire
upon exercise of outstanding options, all of which were
exercisable as of April 11, 2002.
(4) Includes 395,526 shares held by BCS Properties, Ltd, a
partnership of which Mr. Smith is a principal; 49,342 shares
which BCS Properties, Ltd. has the right to acquire upon the
exercise of stock warrants, all of which were exercisable as of
April 11, 2002; and 20,000 shares which Mr. Smith has the right
to acquire upon exercise of outstanding options, all of which
were exercisable as of April 11, 2002.
(5) Includes 20,000 shares which Mr. Williams has the right to
acquire upon exercise of outstanding options, all of which were
exercisable as of April 11, 2002.
COMMON STOCK - MANAGEMENT
The following table sets forth information known to us regarding
the beneficial ownership of our common stock, as of April 11, 2002 by
each of the Company's directors, each Named Executive Officer, and all
directors and executive officers as a group.
Shares Beneficially Owned
Name and Address of Beneficial Owner/(1)/ Number Percentage/(2)/
----------------------------------------- --------------------------
Chester S. Shira/(3)/ ...................... 1,098,323 15.5%
John R. Pierrandozzi/(4)/ .................. 137,500 1.9%
David Nairne/(5)/ .......................... 79,892 1.1%
Ballard Smith/(6)/ ........................ 464,868 6.6%
David Williams/(7)/ ........................ 395,000 5.6%
William Wilson/(8)/ ........................ 80,987 1.1%
Russell Lewis .............................. 687,500 9.7%
Andrew W. Robertson/(9)/ ................... 92,650 1.3%
All directors and executive officers
as a group ................................. 2,349,220 33%
________________
(1) Unless otherwise indicated, the address of each person is in care
of the Company at 9985 Huennekens Street, San Diego, California
92121. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally
includes voting or investment power with respect to securities.
Shares of Common Stock subject to options, warrants or
convertible securities that are currently exercisable, or
exercisable within 60 days of April 11, 2002 are deemed
outstanding for computing the percentage of the person holding
such options, warrants or convertible securities but are not
deemed outstanding for computing the percentage owned by any
other shareholder listed. Except as indicated by footnote and
subject to community property laws where applicable, the persons
named in the table have sole voting and investment power with
respect to all shares of Common Stock shares as beneficially
owned by them.
(2) Percentage ownership is based on 7,074,751 shares outstanding as
of April 11, 2002.
(3) Includes 59,905 shares which Mr. Shira has the right to acquire
upon exercise of outstanding options, all of which were
exercisable as of April 11, 2002.
(4) Includes 137,500 shares which Mr. Pierandozzi has the right to
acquire upon exercise of outstanding options, 112,500 of which
were exercisable as of April 11, 2002. The remaining 25,000 vest
and become exercisable on August 15, 2002.
(5) Includes 20,000 shares which Mr. Nairne has the right to acquire
upon exercise of outstanding options, all of which were
exercisable as of April 11, 2002.
51
(6) Includes 395,526 shares held by BCS Properties, Ltd, a
partnership of which Mr. Smith is a principal; 49,342 shares
which BCS Properties, Ltd. has the right to acquire upon the
exercise of stock warrants, all of which were exercisable as of
April 11, 2002; and 20,000 shares which Mr. Smith has the right
to acquire upon exercise of outstanding options, all of which
were exercisable as of April 11, 2002.
(7) Includes 200,000 shares which Mr. Williams has the right to
acquire upon exercise of outstanding options, all of which were
exercisable as of April 11, 2002.
(8) Includes 16,447 shares which Mr. Wilson has the right to acquire
upon the exercise of stock warrants, all of which were
exercisable as of April 11, 2002.
(9) Includes 88,875 shares which Mr. Robertson has the right to
assign upon exercise of outstanding options, 73,875 of which were
exercisable as of April 11, 2002. The remaining 15,000 vest and
become exercisable on August 15, 2002.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to a Royalty Agreement dated March 1, 1993, we pay
royalties to Chester S. Shira, Director of Research and Development and
Chairman of the Board. The Royalty Agreement provides for a royalty of
$.50 per club on clubs employing any of the inventions set forth in the
four patents assigned to us by Mr. Shira in March, 1993. The term of the
Agreement is coextensive with the life of each of the four patents. All
royalty payments are current. For 2001 and 2000, we paid Mr. Shira a total
of $20,330 and $64,473 in connection with the 1993 Royalty Agreement.
We have also paid Mr. Shira royalties in connection with licenses
of other patents owned by the Company to certain third parties. In 2001,
we paid Mr. Shira $11,300 as one-third of all royalties we received in
2001 from KZ Golf in connection with our License Agreement with KZ Golf
dated October 28, 1998.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
* 2.1 Agreement and Plan of Merger between Carbite, Inc., Carbite Golf,
Inc. and Carbite Acquisition Corp. dated June 6, 1996
* 2.2 Agreement between Advanced Golf Systems, Inc. and Carbite Golf,
Inc. dated September 24, 1996
* 3.1 Amended and Restated Articles of Incorporation and Bylaws of the
Company
* 4.1 Specimen Common Stock Certificate
52
* 4.2 Form of Warrant
*10.1 Royalty Agreement between Carbite, Inc. and C. S. Shira dated
March 1, 1993
*10.2 Employment Agreement between the Company and Chester S. Shira
dated September 3, 1997
*10.3 Employment Agreement between the Company and Michael A.
Spacciapolli dated September 3, 1997
*10.4 License Agreement between Carbite Golf Company and Taylor Made
Golf dated January 1, 1995 and Amendment dated March 4, 1997
*10.5 License Agreement between Carbite, Inc. and K Z Golf, Inc. dated
October 28, 1998
*10.6 Endorsement Agreement between Carbite Golf, Inc., Carbite, Inc.
and Fuzzy Zoeller Productions, Inc. dated August 20 ,1999
*10.7 Agreement and Plan of Merger between Carbite, Inc., Carbite Golf,
Inc. and Carbite Acquisition Corp. dated June 6, 1996
*10.8 Agreement between Advanced Golf Systems, Inc. and Carbite Golf,
Inc. dated September 24, 1996
*10.9 Loan Agreement dated April 13, 1998 between the Company and James
A. and Susan V. Henderson as Co-Trustees of the Henderson Living
Trust
*10.10 Lease Agreement dated January 6, 1998 between Carbite, Inc. and
Nancy Ridge Technology Center, LLC relating to the facilities at
6330 Nancy Ridge Road, San Diego, CA 92121
*10.11 Form of Stock Option Agreement
*10.12 Employee Confidentiality and Invention Agreement
*10.13 Commercial Security Agreement between Carbite, Inc. and Scripps
Bank dated May 15, 1999
*10.14 Trademark License Agreement between Carbite Golf, Inc. and Daiwa
Seiko, Inc. dated September 16, 1999
*10.15 Exclusive Distribution Agreement between Carbite Golf, Inc. and
Daiwa Seiko, Inc. dated September 16, 1999
53
* 10.16 Lease Agreement between Manufacturers Life Insurance and Carbite,
Inc. dated October 29, 1999 relating to facilities at 9985
Huennekens Street, San Diego, CA 92121
* 10.17 Amended and Restated Endorsement Agreement with Fuzzy Zoeller
Productions dated as of March 15, 2000 (incorporate by reference
from Amendment No. 1 to Form 10-SB dated February 28, 2001)
* 10.18 Asset Purchase Agreement Between Carbite Golf and Carizma Golf
dated May 15, 2000
* 10.19 Loan Agreement with Inabata America Corporation dated March 23,
2001
* 10.20 Employment Agreement between Carbite, Inc. and John R.
Pierandozzi dated August 15, 2001
* 10.21 Employment Agreement between Carbite, Inc. and Andrew W.
Robertson dated August 15, 2001
* Previously filed and incorporated herein by reference
** Filed herewith
(b) No reports on Form 8-K was filed during 2000.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
CARBITE GOLF, INC.
Date: April 15, 2002 By: /s/ John R. Pierandozzi
-----------------------
John R. Pierandozzi
Chief Executive Officer
Principal Financial and
Accounting Officer
54
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the
corporation and on the dates indicated:
Signature Title Date
/s/ Chester S. Shira Director 4/15/02
---------------------------
Chester S. Shira
/s/ David Nairne Director 4/15/02
----------------
David Nairne
/s/ David Williams Director 4/15/02
---------------------------
David Williams
/s/ Ballard Smith Director 4/15/02
---------------------------
Ballard Smith
/s/ William Wilson Director 4/15/02
---------------------------
William Wilson
/s/ Russell Lewis Director 4/15/02
------------------
Russell Lewis
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