UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Quarterly Period Ended March 31, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 0-28007
GOLFGEAR INTERNATIONAL, INC.
--------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 43-1627555
------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5285 Industrial Drive, Huntington Beach, California 92649
--------------------------------------------------------------
(Address of principal executive offices)
(714) 899-4274
--------------------------
(Issuer's telephone number)
Not applicable
---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
As of May 15, 2003, the Company had 37,681,154 shares of common stock issued and
outstanding.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
Documents incorporated by reference: None.
1
GOLFGEAR INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 2003 (Unaudited)
and December 31, 2002
Consolidated Statements of Operations (Unaudited) - Three
Months Ended March 31, 2003 and 2002
Consolidated Statements of Cash Flows (Unaudited) - Three
Months Ended March 31, 2003 and 2002
Notes to Consolidated Financial Statements (Unaudited) -
Three Months Ended March 31, 2003 and 2002
Item 2. Management's Discussion and Analysis or Plan of Operation
PART II. OTHER INFORMATION
Item 2 - Recent sales of unregistered securities
SIGNATURES
EXIBITS
2
GolfGear International, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2003 December 31, 2002
---------------- -------------------
ASSETS (Unaudited)
Current assets:
Cash $ 50,665 $ 117,018
Accounts receivable, net of allowance for doubtful
accounts of $116,837 and $99,079, respectively 313,840 302,216
Inventories 483,216 492,904
Prepaid expenses 56,384 58,053
---------------- -------------------
Total current assets 904,105 970,191
Property and equipment, net of accumulated depreciation 94,033 98,740
Other assets:
Patents and trademarks, net of accumulated amortization 91,966 100,515
Deferred financing costs 229,357 315,366
Prepaid marketing costs and other assets 610,134 609,534
---------------- -------------------
Total assets $ 1,929,595 $ 2,094,346
================ ===================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses $ 903,809 $ 967,108
Accrued product warranties 116,249 116,102
Accrued interest payable 127,043 89,449
Bank line of credit 164,521 70,894
Notes payable to stockholders 200,000 200,000
Notes payable 83,177 83,177
Convertible debentures 2,100,000 2,100,000
Deferred licensing revenue 62,969 75,000
Other current liabilities 1,600 1,600
---------------- -------------------
Total current liabilities 3,759,368 3,703,330
Stockholders' deficit:
Common stock, $.001 par value; authorized - 50,000,000
shares; issued and outstanding - 37,681,154 shares
and 34,856,154 shares, respectively 37,681 34,856
Additional paid-in capital 13,086,188 12,808,763
Common stock purchase receivable note (951,969) (945,164)
Deferred compensation (92,042) (100,409)
Accumulated deficit (13,909,631) (13,407,030)
---------------- -------------------
Total stockholders' deficit (1,829,773) (1,608,984)
---------------- -------------------
Total liabilities and stockholders' deficit $ 1,929,595 $ 2,094,346
================ ===================
See notes to consolidated financial statements.
3
GolfGear International, Inc. and Subsidiaries
Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31,
2003 2002
------------ ------------
Sales, net $ 545,245 $ 377,780
Cost of goods sold 328,338 216,263
------------ ------------
Gross profit 216,907 161,517
Operating Expenses:
Selling and marketing 189,951 113,339
Tour and pro contracts 21,234 8,871
Bad debt expense 17,758 11,333
General and administrative 384,683 221,902
Depreciation and amortization 19,507 13,410
------------ ------------
Total operating expenses 633,133 368,855
Loss from operations (416,226) (207,338)
Other income (expense):
Other 40,181 -
Interest income 6,809 -
Interest expense (133,365) (6,183)
Loss on disposal of asset - (26,769)
------------ ------------
Net loss $ (502,601) $ (240,290)
============ ============
Loss per common share - basic and diluted $ (0.01) $ (0.01)
============ ============
Weighted average number of common shares
outstanding - basic and diluted 36,020,321 17,894,454
============ ============
See notes to consolidated financial statements.
4
Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31,
2003 2002
---------- ----------
Cash Flows From Operating Activities
Net loss $(502,601) $(240,290)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of deferred compensation 8,367 -
Depreciation and amortization 19,508 13,410
Accrued interest 86,009 -
Amortization of deferred financing costs (6,805) -
Provision for obsolete inventory - -
Provision for bad debts 17,758 11,333
Other income (22,626) -
Loss on disposal of asset - 26,769
Deferred revenue (12,031) -
Changes in operating assets and liabilities:
(Increase) decrease in:
Accounts receivable (29,382) 100,186
Inventories 9,688 93,014
Prepaid expenses 1,669 (4,475)
Prepaid marketing costs and other assets (600) -
Increase (decrease) in:
Accounts payable and accrued expenses (40,673) (121,916)
Accrued product warranties 147 4,780
Accrued interest payable 37,594 3,581
Accrued officer's compensation - 17,819
---------- ----------
Net cash used in operating activities (433,978) (95,789)
---------- ----------
Cash Flows From Investing Activities
Purchases of property and equipment (6,252) (1,444)
---------- ----------
Cash Flows From Financing Activities
Proceeds from sale of common stock 280,250 -
Repayments of short term borrowings - (15,243)
Borrowings under bank line, net 93,627 (3,015)
---------- ----------
Net cash provided by (used in) financing activities 373,877 (18,258)
---------- ----------
Net Decrease in Cash (66,353) (115,491)
Cash at the Beginning of Period 117,018 120,135
---------- ----------
Cash at the End of Period $ 50,665 $ 4,644
========== ==========
Cash Paid For Interest $ 6,761 $ 2,510
========== ==========
See notes to consolidated financial statements.
5
GolfGear International, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited)
Three Months Ended March 31, 2003 and 2002
1. BASIS OF PRESENTATION
The consolidated financial statements as of and for the three months ended
March 31, 2003 have been prepared assuming that the Company will continue
as a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The carrying
amounts of assets and liabilities presented in the consolidated financial
statements do not purport to represent the realizable or settlement values.
The Company has suffered recurring operating losses and requires additional
financing to continue operations. For the three months ended March 31, 2003
the Company incurred losses from operations of $416,226 and a net loss of
$502,601 and used cash in operating activities of $433,978 and as of March
31, 2003 had a working capital deficit of $2,855,263 and a stockholders
deficit of $1,829,773. As a result of these factors, there is a substantial
doubt about the Company's ability to continue as a going concern.
The Company is attempting to increase revenues through various means,
including expanding brands and product offerings, new marketing programs,
and possibly direct marketing to customers, subject to the availability of
operating working capital resources. To the extent that the Company is
unable to increase revenues in 2003, the Company's liquidity and ability to
continue to conduct operations may be impaired.
The Company will require additional capital to fund operating requirements.
The Company is exploring various alternatives to raise this required
capital, including convertible debentures, private infusion of equity and
various collateralized debt instruments, but there can be no assurances
that the Company will be successful in this regard. To the extent that the
Company is unable to secure the capital necessary to fund its future cash
requirements on a timely basis and/or under acceptable terms and
conditions, the Company may have to substantially reduce its operations to
a level consistent with its available working capital resources. The
Company may also be required to consider a formal or informal restructuring
or reorganization.
GolfGear International, Inc. and its subsidiaries (collectively, "GolfGear"
or the "Company") designs, develops and markets golf clubs and related golf
products.
GolfGear, formerly Harry Hurst, Jr., Inc. ("HHI") was incorporated under
the laws of the State of Nevada on October 9,1997. The Company is the
successor entity resulting from December 5, 1997 reorganization between
GolfGear International, Inc. ("GGI"), which has been active in the golf
business since 1990, and HHI, a non-operating public shell corporation. HHI
changed its
6
name to GolfGear International, Inc., and GGI changed its name to GGI, Inc.
and remains a wholly-owned subsidiary of the Company. Each share of Common
Stock of GGI was exchanged for 3.5235 shares of Common Stock of HHI. The
shareholders of GGI, constituting 90% of the then outstanding Common Stock,
became the controlling shareholders of the Company. For accounting
purposes, the acquisition of GGI by HHI has been treated as a reverse
acquisition of GGI with GGI considered the acquirer.
2. INVENTORIES
Inventories consisted of the following:
March 31, December 31,
2003 2002
---------- -------------
(unaudited)
Component parts $ 125,123 $ 189,616
Finished goods 358,093 303,288
---------- -------------
$ 483,216 $ 492,904
========== =============
3. BANK LINES OF CREDIT
The Company has a $250,000 bank line collateralized by eligible accounts
receivable. The line of credit matures on December 9, 2003 and bears
interest at 28% annually. Interest is payable monthly. Outstanding
borrowings at March 31, 2003 and December 31, 2002, were $123,259 and
$26,253 respectively.
The Company also has an unsecured $70,000 line of credit with another bank.
Interest is payable monthly at a variable rate (10.25% at March 31, 2003).
Outstanding borrowings at March 31, 2003 and December 31, 2002, were
$41,262 and $44,641, respectively. This is a revolving line of credit with
no maturity date personally guaranteed by the Company's Founder.
4. NOTES PAYABLE AND NOTES PAYABLE TO STOCKHOLDERS
Notes payable consisted of the following:
March 31, December 31,
2003 2002
---------- -------------
(unaudited)
Notes payable to individuals, payable
on demand plus interest at rates
ranging from prime to 18% $ 83,177 $ 83,177
========== =============
On November 20, 2002 the Company entered into a loan agreement with Peter
Pocklington, its Chairman and Chief Executive Officer whereby Mr.
Pocklington loaned the Company $200,000. As consideration for the loan the
Company agreed to an amendment to a stock
7
pledge agreement and released 9,029,518 shares of Common Stock held by the
Company as security for payment of a promissory note due for Pocklington's
purchase of 15,000,000 shares of Common Stock. The promissory note remains
collateralized by 3,303,482 shares of Common Stock to secure the unpaid
balance of the promissory note less the loan to the Company. The loan bears
interest at 9 1/2% and is due on June 20, 2003. The Company's board of
directors unanimously approved the transaction by written consent on
November 20, 2002.
On June 6, 2002, GolfGear International, Inc. (the "Company") completed the
sale of $2,100,000 of convertible debentures. The debentures are
convertible into common stock at $0.25 per share for a period of twelve
(12) months commencing six (6) months after the initial sale of the
debentures. The Company's patents, trademarks, and other intangible assets
secured the debentures. For each share of common stock issued upon
conversion of the debentures, one (1) common stock purchase warrant will be
issued, which will be exercisable for a period of eighteen (18) months at
$0.10 per share. The costs associated with the issuance of the Debentures
have been capitalized and are being amortized over the 18 months. If the
Debentures convert to equity prior to the 18-month term the unamortized
portion will be debited to additional paid in capital. Pursuant to the
terms as outlined above the balance of any debentures that do not convert
to equity is due and payable December 6, 2003.
5. STOCKHOLDERS' EQUITY
During the three months ended March 31, 2002 the Company canceled 100,000
shares issued to a former employee and issued 5,000 shares in consideration
to the extension granted on a certain note payable.
During the three months ended March 31, 2003 the Company issued 2,800,000
shares of common stock for exercised warrants at $0.10 per share. During
the three months ended March 31, 2003 the Company issued 25,000 shares of
common stock for exercised options at $0.01 per share.
On April 8, 2002, the Company entered into a stock purchase agreement (the
"Agreement") with Wyngate Limited, a Jersey Limited Company ("Wyngate"),
whereby Wyngate agreed to purchase 15,000,000 shares of the Company's
Common Stock at $0.075 per share for an aggregate purchase price of
$1,125,000. Of the purchase price, $200,025 was paid upon execution of the
Agreement and Wyngate executed a promissory note with interest at 2.88% per
annum in favor of the Company for the balance of $924,975. Pursuant to the
promissory note, the balance is due and payable October 8, 2003.
6. SEGMENT AND GEOGRAPHIC INFORMATION; MAJOR CUSTOMERS
The Company operates in one business segment. The Company sells to
customers in the United States, the Far East and Europe. During the three
months ended March 31, 2003 the Company had sales of $545,245 (100%) in the
United States. During the three months ended March 31, 2002, sales to
customers in the United States, the Far East and Europe were $303,024
(80%), $56,032 (15%) and $18,724 (5%), respectively.
8
During the three months ended March 31, 2003, two customers accounted for
61% of total sales. At March 31, 2003, two such customers accounted for
$227,225 (72%) of net accounts receivable. During the three months ended
March 31, 2002, three customers accounted for approximately 45% of total
sales. At March 31, 2002, two such customers accounted for $213,072 (71%)
of net accounts receivable
7. COMMITMENTS
The Company entered into an at-will employment agreement with Chris
Holiday, its senior vice-president of sales and marketing, dated January
21, 2003. The agreement provides for a base salary of $175,000 per year and
a health benefit allowance of $400 per month. The agreement may be
terminated for cause, as defined in the agreement, without any severance
benefits. In the event of termination without cause Mr. Holiday shall be
entitled to receive a severance benefit of (i) four (4) months salary in
effect on the date of termination, (ii) health benefits for the same period
and, (iii) acceleration of vesting on 500,000 shares of Common Stock
options if termination occurs during the first year of employment. In
addition, Mr. Holiday was granted an option to purchase two million
(2,000,000) shares of the Company's Common Stock at fair market value at
date of grant or $.20 per share. These shares were granted outside the Plan
(hereinafter defined).
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This Quarterly Report on Form 10-QSB for the quarterly period ended March
31, 2003 contains "forward-looking" statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, including statements
that include the words "believes", "expects", "anticipates", or similar
expressions. These forward-looking statements include, among others,
statements concerning the Company's expectations regarding its working
capital requirements, gross margin, results of operations, business, growth
prospects, competition and other statements of expectations, beliefs,
future plans and strategies, anticipated events or trends, and similar
expressions concerning matters that are not historical facts. The
forward-looking statements included in this Quarterly Report on Form 10-QSB
for the quarterly period ended March 31, 2003 involve known and unknown
risks, uncertainties and other factors that could cause the actual results,
performance or achievements of the Company to differ materially from those
expressed in or implied by the forward-looking statements contained herein.
Overview:
The consolidated financial statements as of and for the three months ended
March 31, 2003 have been prepared assuming that the Company will continue
as a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The carrying
amounts of assets and liabilities presented in the consolidated financial
statements do not purport to represent the realizable or settlement values.
9
The Company has suffered recurring operating losses and requires additional
financing to continue operations. For the months ended March 31, 2003 the
Company incurred losses from operations of $416,226 and a net loss of
$502,601 and used cash in operating activities of $433,978 and as of March
31, 2003 had a working capital deficit of $2,855,263 and a stockholders
deficit of $1,829,773. As a result of these factors, there is a substantial
doubt about the Company's ability to continue as a going concern.
The Company is attempting to increase revenues through various means,
including expanding brands and product offerings, new marketing programs,
and possibly direct marketing to customers, subject to the availability of
operating working capital resources. To the extent that the Company is
unable to increase revenues in 2003, the Company's liquidity and ability to
continue to conduct operations may be impaired.
The Company will require additional capital to fund operating requirements.
The Company is exploring various alternatives to raise this required
capital, including convertible debentures, private infusion of equity and
various collateralized debt instruments, but there can be no assurances
that the Company will be successful in this regard. To the extent that the
Company is unable to secure the capital necessary to fund its future cash
requirements on a timely basis and/or under acceptable terms and
conditions, the Company may have to substantially reduce its operations to
a level consistent with its available working capital resources. The
Company may also be required to consider a formal or informal restructuring
or reorganization.
Results of Operations
Three Months ended March 31, 2003 and 2002 -
Net sales increased to $545,245 in 2003 from $377,780 in 2002, an increase
of $167,465 or 44.3%. The increase in net sales in 2003 as compared to 2002
is a result of the Company's new marketing efforts and the public
acceptance/demand for the Company's new product line. In order to continue
to increase sales, the Company will require additional capital to fund the
increased sales and marketing activities, as well as increased inventory
levels.
Gross profit increased to $216,907 in 2003 from $161,517 in 2002, but
decreased as a percentage of net sales to 39.8% in 2003 from 42.8% in 2002.
The decrease in gross profit margin in 2003 as compared to 2002 was due to
the Company's new pricing/costing structure. The Company has reduced it
wholesale prices and increased some key component costs while offering a
new and improved product line.
Selling and marketing expenses increased to $189,951 in 2003 (34.8% of net
sales) from $113,339 in 2002 (30.0% of net sales), an increase of $76,612
or 67.6%. Selling and marketing expenses increased in 2003 as compared to
2002 as a result of the Company's continued efforts to increase sales in
2003. The Company has launched several new marketing programs offering
promotional point of purchase displays, printed brochures, and other
promotional materials, as well as a print advertisement campaign.
Tour and pro contract expenses increased to $21,234 in 2003 (3.9% of net
sales) from $8,871 in 2002 (2.3% of net sales), an increase of $12,363 or
139.4%. Tour and pro
10
contract expenses increased in 2003 as compared to 2002 as the Company has
entered into new obligations with nationally known golf professionals.
Bad debt expense increased to $17,758 in 2003 from $11,333 in 2002, an
increase of $6,425. Bad debt in these two periods was calculated as a
percentage of sales - the increase in the bad debt expense is a reflection
of the increased in sales.
General and administrative expenses increased to $384,683 in 2003 (70.6% of
net sales) from $221,902 in 2002 (58.7% of net sales), an increase of
$162,781 (73.4%). The $162,781 increases in general and administrative
expenses are due to increase in salaries, insurance and legal expenses. The
increases in salaries are due to new hires (President and SVP of Sales and
Marketing), as the Company has assembled a new team of executive
professionals targeted at future growth. The increases in insurance are due
to expanded coverage and all of the legal expenses were in the normal
course of business.
Depreciation and amortization increased to $19,507 in 2003 from $13,410 in
2002, an increase of $6,097 or 45.5%. The increase is a result of the
acquisition of certain intangible and fixed assets.
Interest expense increased to $133,365 in 2003 from $6,183 in 2002, an
increase of $127,182 or 2,057.0%. The primary reason for the increase
expense was the issuance of the convertible debentures including the
amortization of the finder's fees. The convertible debentures were issued
in June of 2002 and they bear interest at seven percent (7%). The sale of
the debenture resulted in $516,054 in capitalized financing costs. These
costs are being amortized over the 18-month life of the debenture.
Net loss was $502,601 for the three months ended March 31, 2003, as
compared to a net loss of $240,290 for the three months ended March 31,
2002. The primary reason for the increased loss was the increase in
marketing expenses (especially those associated with the new marketing
efforts), the overall increase in general and administrative expenses (most
notable the new salaries) and the increase in interest expense (due to the
convertible debentures including the amortization of the finder's fees).
Liquidity and Capital Resources - March 31, 2003:
The Company is attempting to increase revenues through various means,
including expanding brands and product offerings, new marketing programs,
and possibly direct marketing to customers, subject to the availability of
operating working capital resources. To the extent that the Company is
unable to increase revenues in 2003, the Company's liquidity and ability to
continue to conduct operations may be impaired.
The Company will require substantial additional capital to fund operating
requirements. The Company is exploring various alternatives to raise this
required capital, including convertible debentures, private infusion of
equity and various collateralized debt instruments, but there can be no
assurances that the Company will be successful in this regard. To the
extent that the Company is unable to secure the capital necessary to fund
its future cash requirements on a timely basis and/or under acceptable
terms and conditions, the Company may have to substantially reduce its
operations to a level consistent with its available working capital
resources. The Company may also be required to consider a
11
formal or informal restructuring or reorganization.
Operating Activities. The Company's operations utilized cash of $433,978
during the three months ended March 31, 2003, as compared to utilizing cash
of $95,789 during the three months ended March 31, 2002. The increase in
cash utilized in operating activities in 2003 as compared to 2002 was
primarily a result of increased losses and cash utilized for accounts
receivable. At March 31, 2003, cash and cash equivalents had decreased by
$66,353, as compared to $117,018 at December 31, 2002. The Company had
working capital deficit of $2,855,263 at March 31, 2003, as compared to
working capital deficit of $2,733,139 at December 31, 2002, reflecting
current ratios of 0.24:1 and 0.26:1 at March 31, 2003 and December 31,
2002, respectively.
Investing Activities. During the three months ended March 31, 2003 and
2002, net cash used in investing activities for the purchase of property
and equipment was $6,252 and $1,444, respectively.
Financing Activities. The Company received $280,250 from the exercise of
common stock warrants and options during the three months ended March 31,
2003.
The Company has a $250,000 bank line collateralized by eligible accounts
receivable. The line of credit matures on December 9, 2003 and bears
interest at 28% annually. Interest is payable monthly. Outstanding
borrowings at March 31, 2003 and December 31, 2002, were $123,259 and
$26,253 respectively.
The Company also has an unsecured $70,000 line of credit with another bank.
Interest is payable monthly at a variable rate (10.25% at March 31, 2003).
Outstanding borrowings at March 31, 2003 and December 31, 2002, were
$41,262 and $44,641, respectively. This is a revolving line of credit with
no maturity date personally guaranteed by the Company's Founder.
On June 6, 2002, GolfGear International, Inc. (the "Company") completed the
sale of $2,100,000 of convertible debentures. The debentures are
convertible into common stock at $0.25 per share for a period of twelve
(12) months commencing six (6) months after the initial sale of the
debentures. The Company's patents, trademarks, and other intangible assets
secured the debentures. For each share of common stock issued upon
conversion of the debentures, one (1) common stock purchase warrant will be
issued, which will be exercisable for a period of eighteen (18) months at
$0.10 per share. The costs associated with the issuance of the Debentures
have been capitalized and are being amortized over the 18 months. If the
Debentures convert to equity prior to the 18-month term the unamortized
portion will be debited to additional paid in capital. Pursuant to the
terms as outlined above the balance of any debentures that do not convert
to equity is due and payable December 6, 2003.
During the three months ended March 31, 2002 the Company reclassed $8,500
under short-term notes from certain of its shareholders. During the three
months ended March 31, 2002, the Company repaid $15,243 of short-term notes
to unrelated parties.
New Accounting Pronouncements:
12
New Accounting Pronouncements - In July 2002, the FASB issued SFAS No. 146
which nullifies Emerging Issues Task Force Issue No. 94-3: "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity (including Certain Costs Incurred in a Restructuring)".
SFAS No. 146 requires that a liability be recognized for those costs only
when the liability is incurred, that is, when it meets the definition of a
liability in the FASB's conceptual framework. SFAS No. 146 also establishes
fair value as the object for initial measurement of liabilities related to
exit or disposal activities. SFAS No. 146 is effective for exit or disposal
activities that are initiated after December 31, 2002, with earlier
adoption encouraged. Management does not expect the adoption of SFAS No.
146 to have a material impact on the Company's financial position or
results of operations.
In December 2002 the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transaction and Disclosure." SFAS No. 148 amends SFAS No. 123
to provide alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based compensation. It also
amends the disclosure requirements of SFAS No. 123. If an entity elects to
adopt the recognition provisions of the fair value based method of
accounting for stock-based compensation in a fiscal year beginning before
December 16, 2003, that change in accounting principle shall be reported
using either the (i) prospective method, (ii) the modified prospective
method, or (iii) the retroactive restatement method as defined in SFAS No.
148. SFAS No. 148 is effective for fiscal years ending after December 15,
2002. Since the Company has elected to continue accounting for stock-based
compensation under APB No. 25, the adoption of SFAS no. 148 has had no
impact to the Company's financial position or results of operations. The
Company's financial statement disclosures have been designed to conform to
the new disclosure requirements prescribed by SFAS No. 148.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(c) Recent sales of unregistered securities
During the three months ended March 31, 2003, the Company issued 2,825,000
shares of common stock. Of that 2,800,000 shares were from the exercise of
common stock warrants and 25,000 were from the exercise of stock options.
During the three months ended March 31, 2002 the Company canceled 100,000
shares issued to a former employee and issued 5,000 shares in consideration
to the extension granted on a certain note payable. During the three months
ended March 31, 2002, the Company did not issue any stock options or
warrants to purchase common stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Articles of Incorporation (1)
3.2 Certificate of Amendment of Articles of Incorporation (1)
13
3.3 Certificate of Amendment of Articles of Incorporation (1)
3.4 Articles of Merger (1)
3.5 Bylaws (1)
4.3 Binding Subscription Agreement for Purchase of Equity Securities (MC
Corporation)(1)
4.4 Certificate of Determination (1)
10.1 Distribution Agreement (MC Corporation)(1)
10.10 GolfGear International, Inc. 1997 Stock Incentive Plan (1)(C)
10.13 Property Lease Agreement (2)
10.14 Amended and Restated Agreement for Sale and Purchase of Assets
between Bel Air Golf Company and GolfGear International, Inc. (2)
10.15 Agreement for Sale and Purchase of Assets - Leading Edge (3)
10.16 Personal Services Agreement - Peter Alliss (3)
10.17 Exclusive Distribution Agreement (4)
10.18 Subscription Agreement dated March 7, 2002(5)
10.19 Stock Purchase Agreement dated April 8, 2002(5)
10.20 Promissory Note dated April 8, 2002(5)
10.21 Stock Pledge Agreement dated April 8, 2002(5)
10.22 Employment Agreement (Michael A. Piraino) (4)
10.23 Employment Agreement (Donald A. Anderson) (4)
10.24 Loan Agreement (Peter H. Pocklington) (4)
10.25 Employment Agreement (Chris Holiday) (4)
10.26 Attorney Fee Agreement (Fulbright & Jaworski LLP) (4)
10.27 Nike (6)
21 Subsidiaries of the Registrant (1)
99.1 Patents (1)
99.2 Trademarks (1)
99.3 Certifications Pursuant to Sarbanes-Oxley Act of 2002 (4)
Footnotes:
(1) Previously filed as an Exhibit to the Company's Registration Statement
on Form 10-SB dated November 11, 1999, and incorporated herein by
reference.
(2) Previously filed as an Exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1999, and incorporated
herein by reference.
(3) Previously filed as an Exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2000, and incorporated
herein by reference.
(4) Previously filed as an Exhibit to the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 2002, and incorporated
herein by reference.
(5) Previously filed as Exhibits to the Company's Report on Form 8-K dated
April 15, 2002.
(6) Filed herein.
Reports on Form 8-K - Three Months Ended March 31, 2003: None
14
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
GOLFGEAR INTERNATIONAL, INC.
----------------------------
(Registrant)
Date: May 20, 2003 By: /s/ Donald A. Anderson
----------------------
Donald A. Anderson
Founder, Director and Chief Executive Officer
Date: May 20, 2003 By: /s/ Michael A. Piraino
-----------------------
Michael A. Piraino
President, Chief Operating Officer
and Chief Financial Officer
15
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of GolfGear International, Inc. (the
"Company") on Form 10-QSB for the three months ended March 31, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Michael A. Piraino, Chief Financial Officer, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(b) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material aspects, the financial condition and results of operations of
the Company.
Date: May 20, 2003 By: /s/ Michael A. Piraino
-----------------------
Michael A. Piraino
President, Chief Operating Officer
and Chief Financial Officer
16
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of GolfGear International, Inc. (the
"Company") on Form 10-QSB for the three months ended March 31, 2003 as filed
with the Securities and Exchange Commission on the date hereof (the "Report"),
I, Donald A. Anderson, Chief Executive Officer, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(b) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material aspects, the financial condition and results of operations of
the Company.
Date: May 20, 2003 By: /s/ Donald A. Anderson
----------------------
Donald A. Anderson
Founder, Director and Chief Executive Officer
17
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Michael A. Piraino, certify that:
1) I have reviewed this quarterly annual report on Form 10-QSB of GolfGear
International, Inc.;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operation and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. Evaluated the effectiveness of the registrant's disclosure
controls and procedure as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
a. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 20, 2003
18
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Donald A. Anderson, certify that:
1) I have reviewed this quarterly report on Form 10-QSB of GolfGear
International, Inc.;
2) Based on my knowledge, this quarterly report does not contain any untrue
statement of material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report.
3) Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operation and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
c. Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
d. Evaluated the effectiveness of the registrant's disclosure
controls and procedure as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
e. Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit committee
of registrant's board of directors (or persons performing the equivalent
function):
d. All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
e. Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls or
in other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: May 20, 2003
19
NON-EXCLUSIVE LICENSE AGREEMENT
PARTIES:
-------
NIKE, Inc. "NIKE"
Pacific Golf Holdings, Inc., "GolfGear"
dba GolfGear International, Inc.
ARTICLE I
DEFINITIONS
1.1 "Agreement" means this Non-Exclusive License Agreement.
---------
1.2 "Agreement Year" means the period beginning at the commencement of the
--------------
NIKE fiscal quarter immediately following the Effective Date and ending one year
thereafter, and each succeeding one-year period during the term of this
Agreement.
1.3 "Effective Date" means the date the last signer signs this Agreement.
---------------
1.4 "Licensed Patents" means:
-----------------
1.4.1 The United States and foreign patents identified on EXHIBIT A to
---------
this Agreement, and any other patents relating to GolfGear's forged insert
technology.
1.4.2 any patents and patent rights relating to improvements or
enhancements to the inventions described and claimed in the patents listed
in Section 1.4.1.
1.4.3 any and all continuations, continuations in part, divisions,
reissues, patents of addition, renewals, and foreign counterparts of the
above patents;
1.5 "Licensed Products" mean any products, the manufacture, use, sale,
------------------
offer for sale, or import of which, without a license, would infringe any of the
Licensed Patents.
1.6 "NIKE Affiliate" means any association, partnership, a limited
---------------
liability company, corporation or other entity controlling, controlled by, or
under common control with NIKE, Inc. The term "control" means the power to
direct or cause the direction of the management and policies of an entity,
whether through the ownership of voting securities, by contract or otherwise.
ARTICLE II
GRANT OF NON-EXCLUSIVE LICENSE
During the term of this Agreement, and subject to the terms and conditions
of this Agreement (including payment of all applicable royalties), GolfGear
grants NIKE a worldwide, royalty-bearing, non-exclusive license to make, have
made, use, offer to sell, sell, transfer, market, and import Licensed Products
and to practice any invention disclosed and claimed in the
1
Licensed Patents. GolfGear further grants NIKE the right to assign or sublicense
any or all of the rights granted in the preceding sentence to one or more NIKE
Affiliates. Immediately following the Effective Date, NIKE will grant
sublicenses to the NIKE Affiliates listed on EXHIBIT B.
-----------
ARTICLE III
ROYALTIES
3.1 Payment.
-------
3.1.1 NIKE will pay GolfGear royalties on sales of Licensed Products
based on the applicable royalty rates indicated in Section 3.2 below.
Royalties will accrue at the time NIKE issues its invoice for the Licensed
Products and will be paid quarterly within 45 days after the end of each
NIKE fiscal quarter ending during the term of this Agreement, or within 45
days after expiration or termination of this Agreement, as applicable. No
royalties shall accrue or be payable with respect to Licensed Products that
are donated or given away as promotional items, and NIKE shall be entitled
to deduct from each royalty payment any royalties previously paid in
respect of Licensed Products previously sold but returned to NIKE during
the fiscal quarter or other period to which the payment relates. In no
event will NIKE and NIKE Affiliates be required to make more than one
royalty payment in respect of the same golf club (If, for example, NIKE or
a NIKE Affiliate sells a golf club to another NIKE Affiliate, which in turn
sells the club to a consumer, the applicable royalty would accrue only on
the first sale).
3.1.2 With respect to sales of Licensed Products by NIKE Affiliates to
which NIKE has assigned its rights or granted sublicenses pursuant to
Article II of this Agreement, NIKE or its assignee or sublicensee, as
applicable, will pay to GolfGear royalties in amounts equal to the
royalties that NIKE would have been obligated to pay had NIKE sold the
Licensed Products itself. NIKE guarantees the payment of royalties by NIKE
Affiliates.
3.1.3 Notwithstanding any other provision of this Agreement, if any
one of the patents listed on EXHIBIT A is held by a court of competent
---------
jurisdiction to be void or unenforceable, all obligations of NIKE and NIKE
Affiliates to pay royalties to GolfGear under this Agreement based on that
patent shall be suspended pending review and will terminate upon entry of a
final, non-appealable order declaring the patent to be void or
unenforceable. If an initial holding that a patent is void or unenforceable
is overturned on appeal, withdrawn or otherwise reversed, the obligations
of NIKE and NIKE Affiliates to pay royalties to GolfGear in respect of such
patent shall be reinstated back to the date of suspension, and NIKE and
NIKE Affiliates shall pay all such back royalties within 45 days after such
reinstatement.
3.2 Royalty Rates and Taxes.
--------------------------
3.2.1 The royalty rate on [XXXX] sold during each Agreement Year. If
sales during the Agreement Year exceed [XXXX], the royalty rate applicable
to [XXXX] sold during the remainder of that Agreement Year will be reduced
for each succeeding increment of [XXXX] drivers in accordance with the
following table:
2
------------------------------------
Number of [XXXX] Royalty Rate [XXX]
---------------- ------------------
XXX XXX
---------------- ------------------
XXX XXX
---------------- ------------------
XXX XXX
---------------- ------------------
XXX XXX
---------------- ------------------
XXX XXX
---------------- ------------------
XXX XXX
------------------------------------
For example, if the total number of [XXX] sold by NIKE and NIKE Affiliates
during a given Agreement Year is [XXX], the total royalties payable to
GolfGear for that Agreement Year would be [XXX], calculated as follows:
[XXX]
3.2.2 The royalty rate on [XXXX] on the first [XXX] sold during each
Agreement Year. If sales during the Agreement Year exceed [XXX], the
royalty rate applicable to fairway woods sold during the remainder of that
Agreement Year will be reduced for each succeeding increment of [XXX] in
accordance with the following table:
------------------------------------
Number of [XXXX] Royalty Rate [XXX]
---------------- ------------------
XXX XXX
---------------- ------------------
XXX XXX
---------------- ------------------
XXX XXX
---------------- ------------------
XXX XXX
---------------- ------------------
XXX XXX
---------------- ------------------
XXX XXX
---------------- ------------------
XXX XXX
---------------- ------------------
XXX XXX
------------------------------------
For example, if the total number of [XXX] sold by NIKE and NIKE Affiliates
during a given Agreement Year is [XXX], the total royalties payable to
GolfGear for that Agreement Year would be [XXX] calculated as follows:
[XXX]
The royalty rate on [XXX] will be [XXX] sold during each Agreement Year.
3.2.3 NIKE shall bear and pay all taxes imposed by any taxing
authority as a result of the existence of this Agreement, the exercise of
NIKE's rights hereunder or sales of Licensed Products, including without
limitation all sales and value added taxes and import or export duties.
Notwithstanding the foregoing, GolfGear shall bear any taxes based upon its
own income, including any income or withholding tax to be levied under the
laws of any foreign country on the income of GolfGear arising under this
Agreement. If required to do so by applicable law, NIKE shall withhold such
income or withholding tax from the amount of income to be remitted to
GolfGear and pay it to the appropriate governmental authority. NIKE shall
provide to GolfGear appropriate documentation of
3
such withholding and payment sufficient for GolfGear to receive credit
therefor with the United States and state taxing authorities where
permitted.
3.3 Advance Royalties. NIKE will pay GolfGear [XXX] within thirty days
------------------
of the Effective Date as an advance on royalties that may otherwise become due
under this Agreement. This payment is non-refundable, but NIKE and NIKE
Affiliates may set off this amount against amounts otherwise due and payable
under this Agreement.
3.4 Reports and Records.
---------------------
3.4.1 With each quarterly royalty payment, NIKE shall submit a written
report to GolfGear showing the number of Licensed Products sold, broken
down by product category (i.e., drivers, fairway woods, and irons), and the
amount of royalties due and payable. Within 45 days after the expiration or
termination of this Agreement, NIKE shall submit a written report showing
all Licensed Products sold during the period prior to the date of
expiration or termination and not previously reported to GolfGear.
3.4.2 NIKE shall keep true and accurate records, files or books of
accounts containing the data reasonably required for the computation and
verification of the royalties to be paid under this Agreement. During the
term of this Agreement and three (3) years after the termination or
expiration of this Agreement, NIKE shall permit GolfGear's duly authorized
independent accountant reasonably agreeable to NIKE to inspect such
records, files or books of accounts at GolfGear's expense at any reasonable
time during usual business hours for the purpose of determining the amounts
payable by NIKE. NIKE agrees to cooperate with and provide reasonable
assistance to GolfGear's accountants as may be requested by them in
conducting their inspection. If any such inspection reveals that NIKE has
underpaid royalties to GolfGear by an amount that exceeds 3% of the
royalties that should have been paid during the period covered by the
inspection, NIKE will pay GolfGear's reasonable audit costs in addition to
the full amount of unpaid royalties.
ARTICLE IV
INTELLECTUAL PROPERTY PROTECTION
4.1 Patent Maintenance. GolfGear covenants and agrees to take all
-------------------
actions necessary to maintain the Licensed Patents continuously in force for the
full term available under law, including payment of all maintenance fees,
annuities and the like, at GolfGear's sole expense. In the event that any of the
Licensed Patents expires prematurely as a result of non-payment of a maintenance
fee when due, any and all royalties otherwise due under this Agreement based on
that patent shall be deemed forfeited by GolfGear for the period during which
such patent is not in force.
4.2 Patent Enforcement.
-------------------
4.2.1 NIKE shall have the right, but no obligation, to institute any
action or suit against third parties for infringement of any of the
Licensed Patents. Subject to Section 4.2.2 below, if NIKE institutes any
such action, it shall be done solely at NIKE's expense with counsel
selected by NIKE, and NIKE shall be entitled to any and all monetary
4
recovery, including damages, settlement payments, attorney fees or
otherwise, up to the amount of NIKE's costs and expenses incurred during
the litigation. Any monetary recovery in excess of the amount of NIKE's
costs and expenses shall be split so that NIKE receives [XXX] of the excess
and GolfGear receives [XXX] of the excess. GolfGear agrees to cooperate in
any such suit and to join as a party plaintiff in any such lawsuit
initiated by NIKE, if requested by NIKE, with all costs, attorneys fees,
and expenses to by paid by NIKE except as provided in Section 4.2.2 below.
4.2.2 If NIKE elects to institute any action or suit against third
parties for infringement of any of the Licensed Patents, GolfGear shall
have the right to elect to participate actively in the litigation with
counsel selected by GolfGear, in which case GolfGear shall bear the costs
of its own outside counsel, and other litigation costs and expenses shall
be borne equally by the parties. If GolfGear makes such an election and
continues its active participation throughout the litigation, NIKE and
GolfGear shall split equally any monetary recovery, including damages,
settlement payments, attorney fees, etc.
4.2.3 Each party shall notify the other party in writing of any
suspected infringement(s) of the Licensed Patents and shall inform the
other party of any evidence of such infringement(s). Each party shall
notify the other party in writing at least 30 days before commencing any
action or suit against third parties for infringement of any of the
Licensed Patents. If GolfGear is pursuing licensing activities with third
parties and provides notice to NIKE thereof, then NIKE shall take no action
with respect to such third parties without first obtaining written approval
from GolfGear.
4.2.4 Neither party shall settle any actions covered by this Section
without first obtaining the consent of the other party, which consent will
not be unreasonably withheld.
4.2.5 NIKE agrees to exercise reasonable efforts to mark any Licensed
Products with the patent number as may be appropriate under applicable law.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1 Ownership and Rights. GolfGear represents and warrants that it is
----------------------
the sole owner of the Licensed Patents and has full right and power to extend
the rights granted under this Agreement.
5.2 No Inconsistent Agreements. GolfGear represents and warrants that it
----------------------------
has not made and will not make any agreements with or commitments to third
parties that are inconsistent with the grant of rights in this Agreement
5.3 No Encumbrances. GolfGear represents and warrants that there is no
----------------
encumbrance such as a mortgage or lien on any or all of the Licensed Patents,
other than the convertible subordinated debenture financing substantially
completed at this time.
5
5.4 No Infringement. GolfGear represents and warrants that to the best of
----------------
its knowledge, the exercise of the license rights granted under this Agreement
will not result in an infringement of any third party's intellectual property
rights.
5.5 Validity and Enforceability of Licensed Patents. GolfGear represents
-------------------------------------------------
and warrants that to the best of its knowledge (including the knowledge of
GolfGear's patent prosecution counsel), there are no material issues relating to
the validity or enforceability of the Licensed Patents. GolfGear further
represents and warrants that GolfGear and its agents have not engaged in any
conduct that would make any of the Licensed Patents void or otherwise
unenforceable.
5.6 No Infringement of GolfGear Patents. GolfGear represents and warrants
------------------------------------
that, except for the Licensed Patents, GolfGear does not own any patent right
that NIKE would infringe should it seek to practice the inventions claimed in
the Licensed Patents. GolfGear acknowledges and agrees that, to GolfGear's
actual knowledge, none of the golf clubs currently manufactured and sold by NIKE
and NIKE Affiliates infringes any of the Licensed Patents or any other patent
rights owned by GolfGear or its affiliates.
ARTICLE VI
INDEMNIFICATION
6.1 GolfGear's Defense and Indemnification of NIKE. GolfGear will
---------------------------------------------------
defend, indemnify and hold harmless NIKE and NIKE Affiliates and their
respective shareholders, officers, directors, employees, agents and customers
from and against all liabilities, demands, damages, expenses, fees (including
attorney fees), costs or losses arising out of any breach of any representation,
warranty or covenant of GolfGear in this Agreement.
6.2 NIKE's Defense and Indemnification of GolfGear. NIKE will defend,
---------------------------------------------------
indemnify and hold harmless GolfGear and its affiliates, shareholders, officers,
directors, employees, agents and customers from and against all liabilities,
demands, damages, expenses, fees (including attorney fees), costs or losses
arising out of any product liability claim in connection with a third party's
use of a Licensed Product.
ARTICLE VII
TERM AND TERMINATION
7.1 Term. Unless earlier terminated in accordance with Section 7.2
----
below, the term of this Agreement shall commence on the Effective Date and
expire upon expiration of the last to expire of the Licensed Patents.
7.2 Termination for Material Breach. Either party may terminate this
----------------------------------
Agreement in the event of a material breach by the other party if, after written
notice detailing the alleged breach, the breaching party fails to cure the
breach within sixty (60) days; provided, however, that if the breaching party
commences within such sixty (60) period reasonable efforts to cure the breach
and diligently and continuously pursues such efforts, the sixty (60) day cure
period shall be extended for so long as such diligent efforts continue, but in
no event for more than 30 additional days.
6
ARTICLE VIII
GENERAL TERMS
8.1 Entire Agreement. This Agreement constitutes the entire agreement
-----------------
of NIKE and GolfGear with respect to the subject matter of this Agreement, and
unless otherwise expressly provided in this Agreement supersedes and replaces
any prior or contemporaneous written or oral agreements or understandings
between GolfGear and NIKE concerning the subject matter of this Agreement. No
party is relying upon any representations or promises other than those set forth
herein.
8.2 Amendment; Waiver. This Agreement may not be amended, supplemented,
------------------
waived or modified except in a writing referring to this Agreement and signed by
authorized representatives of NIKE and GolfGear. No delay or omission in the
exercise of any right or remedy will be deemed a waiver of any right or remedy.
No waiver will constitute a waiver of any other provision, breach, right or
remedy, nor will any waiver constitute a continuing waiver.
8.3 Assignment. This Agreement will be binding upon and inure to the
----------
benefit of NIKE and GolfGear and their respective heirs, successors and assigns.
8.4 Severability. Should any term or provision of this Agreement for any
------------
reason be declared by any court of competent jurisdiction to be invalid, such
decision will not effect the validity of any remaining portion, which remaining
portion will continue in full force and effect as if this Agreement had been
executed with the invalid portion eliminated, it being the intention of the
parties that they would have executed the remaining portion of this Agreement
without including any such invalid part, parts or portions.
8.5 Governing Law. This Agreement will be governed by and construed in
--------------
accordance with the applicable laws of California, without reference to the
conflict of laws principles applied in the courts of such state.
8.6 No Public Disclosure. Within five days after the Effective Date, the
----------------------
parties will jointly issue a press release in the form attached as EXHIBIT C. In
---------
the absence of the prior written agreement of the parties, neither party will
issue or cause to be issued any further public announcement or other disclosure
with respect to (i) this Agreement or any of its terms, (ii) any business
relationship between the parties. Notwithstanding the preceding sentence, each
party may disclose this Agreement or its terms (a) as required by law or (b) to
the party's legal and financial advisors under an obligation of confidentiality.
GolfGear may also disclose the fact that this license exists to other potential
licensees.
8.7 Further Assistance. GolfGear shall take such further actions as may
-------------------
reasonably be requested by NIKE to enable NIKE to exercise and protect the
rights granted under this Agreement.
8.8 Execution in Counterparts. This Agreement may be executed by facsimile
--------------------------
and in one or more counterparts, each of which will be deemed an original and
all of which will constitute one and the same Agreement.
7
8.9 Notices. Any and all notices, claims, certificates, requests, demands,
-------
and other communications required or permitted under this Agreement will be in
writing and will be delivered to the party entitled to receive the same by
regular mail, overnight courier or facsimile, addressed as follows:
If to NIKE:
NIKE, Inc.
One Bowerman Drive
Beaverton, Oregon 97005-6453
Attn: General Counsel
Phone: (503 671-3849
Facsimile: (503) 646-6926
If to GolfGear:
Donald Anderson
President
Go1fGear International, Inc.
5285 Industrial Drive
Huntington Beach, CA 92649
Phone: (714) 899-4274
Facsimile: (714) 899-4284
8
IN WITNESS WHEREOF, the parties have executed this Agreement by their
respective duly authorized representatives, effective as of the date the last
signer signs as set forth below
NIKE, INC. PACIFIC GOLD HOLDING, INC.,
dba GOLF GEAR INTERNATIONAL,
INC.
By:
-------------------------------------
Name:
-----------------------------------
Title: By:
---------------------------------- ------------------------------
Date: Name:
----------------------------------- ----------------------------
Title:
---------------------------
Date:
----------------------------
9
EXHIBIT A
---------
CERTAIN LICENSED PATENTS
------------------------
-------------------------
Jurisdiction Patent No.
------------- ----------
United States 5,024,437
------------- ----------
United States 5,094,383
------------- ----------
United States 5,255,918
------------- ----------
United States 5,261,663
------------- ----------
United States 5,261,664
------------- ----------
United States 5,344,140
------------- ----------
United States 5,720,673
------------- ----------
Taiwan 336,518
------------- ----------
Japan 3232320
------------- ----------
10
EXHIBIT B
---------
NIKE AFFILIATES
---------------
-------------------------------------------------------------------
NIKE Argentina S.A. Av. Del Libertador 767
Floors 3 & 4
1638 Vicente Lopez
Buenos Aires
Argentina
-------------------------- ---------------------------------------
NIKE Australia Pty Ltd. 28 Victoria Crescent
Abbotsford 3067, Australia
-------------------------- ---------------------------------------
NIKE do Brasil Alameda Araguaia #1142
3 Andar, Alphaville
CEP 06455 940
Barueri, Sao Paulo Brazil
-------------------------- ---------------------------------------
NIKE Canada Ltd 175 Commerce Valley Drive west
Thornhill, Ontario
Canada L3T 7P6
-------------------------- ---------------------------------------
NIKE de Chile Isidora Goyenechea
Las Condes
Santiago Chile
-------------------------- ---------------------------------------
NIKE European Operations Colosseum 1
Netherlands, B.V.**** 1213 NL Hilversum
The Netherlands
-------------------------- ---------------------------------------
NIKE Hong Kong Suite 801-6, Tower 2
Enterprises Square
9 Shueng Yuet Road
Kowloon Bay, Kowloon, Hong Kong
-------------------------- ---------------------------------------
NIKE International Ltd. One Bowerman Drive
Beaverton, Oregon 97005 USA
-------------------------- ---------------------------------------
NIKE Japan Corporation Sea Fort Square Center Bldg.
2-3-12 Higashi-Shinagawa
Shinagawa-Ku
Tokyo 140-8631
Japan
-------------------------------------------------------------------
11
-------------------------------------------------------------------
NIKE Sports Korea Co. Ltd. Sam Hwa Building
144-17, Samsung-Dong, Kangnam-Ku
Seoul, Korea 135-092
-------------------------- ---------------------------------------
NIKE Sales Malaysia No. 5, Block B, Lot 4898, Jalan SS13/5
SDN BHD 47500 Subang Jaya, Selangor Darul Ehsan
Malaysia
-------------------------- ---------------------------------------
NIKE New Zealand 50 Anzac Road, Browns Bay
Auckland 10, New Zealand
-------------------------- ---------------------------------------
NIKE de Mexico SA de Ontario 1107
C.V. Colonia Providencia
CP 44630, Guadalajara
Jalisco, Mexico
-------------------------- ---------------------------------------
NIKE Philippines, Inc. Rufino Pacific Tower, 39th floor
6784 Ayala Avenue
Makati City, Philippines 1226
-------------------------- ---------------------------------------
NIKE Singapore PTE, Ltd. 300 Tampines Avenue
#04-02/03 Tampines Junction
Singapore 529653
-------------------------- ---------------------------------------
NIKE South Africa Pty. 13 Fedsure Park
Ltd. Tonnetti Street
Halfway House 1685 South Africa
-------------------------- ---------------------------------------
NIKE Suzhou Sports 9/F, Lan Sheng Building
Company LTD. 2-8# Huai Hai Zhong Road
Shanghai 200021, PRC
-------------------------- ---------------------------------------
BRS NIKE Taiwan 15F, IBM Building
No. 2 Tun Hua South Road, Sec. 1
Taipei, Taiwan ROC
-------------------------- ---------------------------------------
NIKE (Thailand) Limited 12th-13th Floor
Rajanakarn Building
183 South Sathorn Road
Yannawa, Sathorn
Bangkok 10120 Thailand
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NIKE USA, Inc. One Bowerman Drive
Beaverton, OR 97005-6453
USA
-------------------------------------------------------------------
****NIKE European Operations Netherlands, B.V. sells NIKE brand products (either
directly to NEON's retail accounts or to NIKE owned or non-NIKE owned
distributors) in the following countries/territories:
---------------------------------------------------
Goal XCT Goal XCT Goal YSG
Country Desc. Country Code Shipping Region
Code
-------------------- ------------ ---------------
------ ---- ---
-------------------- ------------ ---------------
ANTILLES ANTI EI
-------------------- ------------ ---------------
AUSTRIA AUST El
-------------------- ------------ ---------------
BAHRAIN BAHR ME
-------------------- ------------ ---------------
BELGIUM BELG EO
-------------------- ------------ ---------------
BULGARIA BULG EE
-------------------- ------------ ---------------
CANARY ISLANDS CNRY El
-------------------- ------------ ---------------
CROATIA CROA EE
-------------------- ------------ ---------------
CYPRUS CYPR ME
-------------------- ------------ ---------------
CZECH REP. CZRP EE
-------------------- ------------ ---------------
DENMARK DENM EO
-------------------- ------------ ---------------
ESTONIA ESTO EO
-------------------- ------------ ---------------
FINLAND FINL EO
-------------------- ------------ ---------------
FRANCE FRAN EO
-------------------- ------------ ---------------
GERMANY GERM EO
-------------------- ------------ ---------------
GREECE GREE EI
-------------------- ------------ ---------------
HUNGARY HUNG EE
-------------------- ------------ ---------------
ICELAND ICEL EO
-------------------- ------------ ---------------
IRELAND IREL El
-------------------- ------------ ---------------
ISRAEL ISRA ME
-------------------- ------------ ---------------
ITALY ITAL EO
-------------------- ------------ ---------------
KUWAIT KUWA ME
-------------------- ------------ ---------------
LEBANON LEBA ME
-------------------- ------------ ---------------
LUXEMBURG LUXE EO
-------------------- ------------ ---------------
MACEDONIA MACE EI
-------------------- ------------ ---------------
MALTA MALT El
-------------------- ------------ ---------------
MONACO MONA El
-------------------- ------------ ---------------
NETHLANDS NETH EO
-------------------- ------------ ---------------
NORWAY NORW EO
-------------------- ------------ ---------------
POLAND POLA EE
-------------------- ------------ ---------------
PORTUGAL PORT El
-------------------- ------------ ---------------
ROMANIA ROMA EO
---------------------------------------------------
13
---------------------------------------------------
RUSSIA RUSS EE
-------------------- ------------ ---------------
SAUDI ARABIA SAUD ME
-------------------- ------------ ---------------
SLOVAKIA SLOV EE
-------------------- ------------ ---------------
SLOVENIA SLVN EE
-------------------- ------------ ---------------
SPAIN SPAI EO
-------------------- ------------ ---------------
SWEDEN SWED EO
-------------------- ------------ ---------------
SWITZERLAND SWIT El
-------------------- ------------ ---------------
TURKEY TURK ME
-------------------- ------------ ---------------
U.K. UK
-------------------- ------------ ---------------
UNITED ARAB EMIRATES UNIT ME
-------------------- ------------ ---------------
RUSSIA USSR EE
-------------------- ------------ ---------------
YUGOSLOVIA YUGO El
-------------------- ------------ ---------------
14
EXHIBIT C
---------
FORM OF PRESS RELEASE
---------------------
[Attach form of press release.]
15
GolfGear International, Inc. and Nike Golf
Announce Licensing Agreement
HUNTINGTON BEACH, CA, and BEAVERTON, OR -- August, 2002 -- GolfGear
International, Inc. (OTCBB: GEAR) and Nike, Inc. (NYSE: NKE) jointly announced
today that effective August _, 2002, GolfGear has granted Nike Golf a
non-exclusive, long-term, world-wide license to manufacture and sell golf clubs
under GolfGear's patents covering its proprietary forged-face insert technology.
The license agreement grants Nike Golf the right to institute litigation
against third parties for infringement of GolfGear's patents. Economic terms of
the license agreement were not announced, nor were Nike Golf's future plans
regarding the manufacture and sale of woods and irons using the licensed
technology.
Founded in 1989 by Don Anderson, GolfGear invented forged-face insert
technology, and has been issued seven domestic and two foreign patents related
to insert technology. Designed by Don Anderson, GolfGear's entire line of
state-of-the-art Tsunami drivers, fairway woods and irons uses forged-face
insert technology.
GolfGear's world-class Tsunami driver, available in 340 c.c., 360 c.c. and
400 c.c. sizes, has a double-forged 10-2-3 beta hybrid titanium alloy face plate
attached to a titanium cast body, resulting in maximum energy transfer and one
huge sweet spot. All GolfGear products comply with the most recent USGA and R&A
rulings relating to Coefficient of Restitution ("COR").
Peter H. Pocklington, GolfGear's new chairman and chief executive officer,
said, "We are delighted that a company of the caliber and reputation of Nike has
chosen to establish a business relationship with GolfGear. This license
agreement validates Nike Golf's commitment to becoming a market leader in the
golf club segment, and to providing golfers with world-class products."
Pocklington added, "This agreement further validates the fact that Nike
Golf does business in a very ethical manner, respecting the intellectual
property rights of other companies. We look forward to a long and prosperous
relationship with Nike Golf."
Anderson, GolfGear's President and founder, said, "We are honored that Nike
Golf has chosen to license GolfGear's patents covering its proprietary
forged-face insert technology. We believe that forged-face insert technology is
the best way to build high-performance golf clubs for golfers of all levels, and
we are confident that this technology will have a major impact on Nike's golf
club design and manufacturing capabilities."
"Nike Golf is committed to providing golfers with the best possible
equipment available, both exclusively and through partnerships with other
industry leaders," said Mike Kelly, category business director for Nike Golf
clubs. "We are evaluating applications for GolfGear's forged face insert
technology with some of the 100 club projects we currently have in the works."
16
GolfGear, headquartered in Huntington Beach, California, offers a full line
of golf equipment under various brand names, including "GolfGear", "Leading
Edge", "Claw" (putters), "Players Golf" (junior clubs), and "Diva" (women's
clubs). GolfGear's products are sold principally in the United States through
pro shops and golf specialty stores, as well as in Europe and Asia through
foreign distributors. For more information on GolfGear products, visit
www.golfgearint.com.
GolfGear's patent portfolio with respect to insert technology is the
largest and most comprehensive in the golf industry, with seven domestic and two
foreign patents issued related to forged-face insert technology, and additional
patents pending. These patents incorporate a wide variety of forged-face insert
materials, including titanium, beryllium copper, stainless steel, carbon steel,
aluminum, and related alloys, and include technology for variable face thickness
of the insert.
Nike Golf equipment is available at on-course and off-course specialty
shops and selected sporting goods retailers in a variety of specifications to
meet every golfer's needs. Nike Golf, located in Beaverton, Oregon, is
passionately dedicated to honoring and respecting the traditions and heritage of
the game, and to providing committed golfers with the absolute best equipment in
the game in every product category. For more information on Nike Golf products,
visit www.nikegolf.com.
----------------
# # #
NOTE: Cautionary Statement Pursuant to Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995:
This news release may contain forward-looking statements, which are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Expressions of future goals and similar expressions
reflecting something other than historical fact are intended to identify
forward-looking statements, but are not the exclusive means of identifying such
statements. These forward-looking statements involve a number of risks and
uncertainties. The actual results achieved may differ materially from any
forward-looking statements due to such risks and uncertainties. Neither GolfGear
or Nike undertake any obligations to revise or update any forward-looking
statements in order to reflect events or circumstances that may arise after the
date of this news release.
# # #
For additional information, contact Don Anderson at GolfGear at (800)
955-6440 or (714) 899-4274 or Dean Stoyer at Nike Golf at (503 532-6018.
# # #
17