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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number: 0-24583
ADAMS GOLF, INC.
(Exact name of registrant as specified in its charter)
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<S> <C>
DELAWARE 75-2320087
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
300 Delaware Avenue, Suite 572, Wilmington, Delaware 19801
(Address of principal executive offices) (Zip Code)
</TABLE>
(302) 427-5892
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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. [X] Yes [ ] No
The number of outstanding shares of the registrant's common stock, par value
$.001 per share, was 22,480,071 on May 1, 2000.
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ADAMS GOLF, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
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<CAPTION>
PART I FINANCIAL STATEMENTS Page
<S> <C> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2000 (unaudited) and December 31, 1999 3
Unaudited Condensed Consolidated Statements of Operations -
Three months ended March 31, 2000 and 1999 4
Unaudited Condensed Consolidated Statement of Stockholders' Equity -
Three months ended March 31, 2000 5
Unaudited Condensed Consolidated Statements of Cash Flows -
Three months ended March 31, 2000 and 1999 6
Notes to Unaudited Condensed Consolidated Financial
Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-18
Item 3. Quantitative and Qualitative Disclosures About Market Risk N/A
PART II OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds N/A
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submissions of Matters to a Vote of Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K 19
</TABLE>
2
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ADAMS GOLF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
---------------------- -------------------
(UNAUDITED)
Current assets:
<S> <C> <C>
Cash and cash equivalents .............................................. $ 1,707 $ 2,786
Marketable securities (note 2) ......................................... 10,497 18,464
Trade receivables, net of allowance for doubtful accounts
of $981 (unaudited) and $966 in 2000 and 1999,
respectively ........................................................ 18,528 11,012
Inventories (note 3) ................................................... 19,406 19,101
Prepaid expenses ....................................................... 1,968 884
Income tax receivable .................................................. 4,836 4,836
Deferred income tax assets ............................................. 692 660
Other current assets ................................................... 989 621
-------- --------
Total current assets ................................................ 58,623 58,364
Property and equipment, net ............................................... 7,334 7,565
Marketable securities (note 2) ............................................ 8,441 8,456
Professional services agreement (note 4) .................................. 8,184 8,438
Other assets, net ......................................................... 1,364 387
-------- --------
$ 83,946 $ 83,210
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................................... 1,780 1,981
Accrued expenses ....................................................... 5,642 2,516
-------- --------
Total current liabilities ........................................... 7,422 4,497
Deferred income tax liabilities ........................................... - 342
Capitalized lease obligation .............................................. 113 -
-------- --------
Total liabilities ................................................... 7,535 4,839
-------- --------
Stockholders' equity:
Preferred stock, $0.01 par value; authorized 5,000,000
shares; none issued ................................................. - -
Common stock, $.001 par value; authorized
50,000,000 shares; 23,137,571 shares issued and
22,480,071 shares outstanding ....................................... 23 23
Additional paid-in capital ............................................. 86,081 85,919
Common stock subscription .............................................. (22) (22)
Deferred compensation .................................................. (553) (476)
Accumulated other comprehensive loss ................................... (48) (44)
Accumulated deficit .................................................... (5,934) (3,893)
Treasury stock, 657,500 shares at cost ................................. (3,136) (3,136)
-------- --------
Total stockholders' equity .......................................... 76,411 78,371
Contingencies (note 8)
-------- --------
$ 83,946 $ 83,210
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
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ADAMS GOLF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales..................................... $ 15,710 $ 8,558
Cost of goods sold............................ 4,188 3,191
-------- --------
Gross profit.......................... 11,522 5,367
-------- --------
Operating expenses:
Research and development expenses.......... 639 469
Selling and marketing expenses............. 11,415 8,908
General and administrative expenses:
Provision for bad debts................. 207 100
Other................................... 2,828 1,988
-------- --------
Total operating expenses.............. 15,089 11,465
-------- --------
Operating loss........................ (3,567) (6,098)
Other income (expense):
Interest income............................ 363 544
Other ..................................... 19 (10)
-------- --------
Loss before income taxes.............. (3,185) (5,564)
Income tax benefit ........................... (1,144) (2,250)
-------- --------
Net loss.............................. $ (2,041) $(3,314)
======== ========
Loss per common share - basic and diluted
(note 5).................................... $ (0.09) $ (0.15)
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
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ADAMS GOLF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
SHARES OF ADDITIONAL COMMON
COMMON COMMON PAID-IN STOCK DEFERRED
STOCK STOCK CAPITAL SUBSCRIPTION COMPENSATION
----- ----- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999............................. 23,137,571 $ 23 $85,919 $(22) $(476)
Comprehensive loss:
Net loss............................................ - - - - -
Other comprehensive income, net of tax -
Unrealized loss on marketable securities..... - - - - -
Comprehensive loss.................................. - - - - -
Issuance of stock options ............................. - - 171 - (171)
Forfeiture of stock options............................ - - (9) - 9
Amortization of deferred
Compensation........................................ - - - - 85
========== ========== =========== =========== ============
Balance, March 31, 2000................................ 23,137,571 $ 23 $86,081 $(22) $(553)
========== ========== =========== =========== ============
<CAPTION>
ACCUMULATED OTHER COST OF TOTAL
COMPREHENSIVE ACCUMULATED COMPREHENSIVE TREASURY STOCKHOLDERS'
LOSS DEFICIT LOSS STOCK EQUITY
---- ------- ---- ----- ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1999............................ $(44) $(3,893) $(3,136) $78,371
Comprehensive loss:
Net loss........................................... - (2,041) (2,041) - (2,041)
Other comprehensive income, net of tax -
Unrealized loss on marketable securities.... (4) - (4) - (4)
----------
Comprehensive loss................................. - - $(2,045) - -
==========
Issuance of stock options............................. - - - -
Forfeiture of stock options........................... - - - -
Amortization of deferred
Compensation....................................... - - - 85
============== ========== ========== =========
Balance, March 31, 2000............................... $(48) $(5,934) $(3,136) $76,411
============== ========== ========== =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
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ADAMS GOLF, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................... $ (2,041) $ (3,314)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization of property and
equipment and intangible assets ........................ 918 755
Amortization of deferred compensation .................... 85 65
Deferred income taxes .................................... (1,144) 732
Allowance for doubtful accounts .......................... 15 (271)
Changes in assets and liabilities:
Trade receivables ...................................... (7,531) (1,340)
Inventories ............................................ (305) (249)
Prepaid expenses ....................................... (1,084) (1,041)
Income tax receivable .................................. - (283)
Other current assets ................................... (368) (211)
Other assets ........................................... (120) (140)
Accounts payable ....................................... (201) 1,625
Accrued expenses ....................................... 3,125 79
-------- --------
Net cash used in operating activities ............... (8,651) (3,593)
-------- --------
Cash flows from investing activities:
Purchases of marketable securities .......................... - (3,492)
Sales of marketable securities .............................. 3,996 -
Maturities of marketable securities ......................... 4,000 -
Purchases of equipment ...................................... (424) (1,112)
-------- --------
Net cash provided by (used in) investing activities.. 7,572 (4,604)
-------- --------
Cash flows from financing activities-
issuance of common stock .................................... - 2
-------- --------
Net cash provided by financing activities ........... - 2
-------- --------
Net decrease in cash and cash equivalents ...................... (1,079) (8,195)
Cash and cash equivalents at beginning of period ............... 2,786 23,688
-------- --------
Cash and cash equivalents at end of period ..................... $ 1,707 $ 15,493
======== ========
Supplemental disclosure of cash flow information:
Interest paid ............................................... $ 2 $ 33
======== ========
Income taxes paid ........................................... $ - $ 26
======== ========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
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ADAMS GOLF, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements of Adams Golf, Inc.
(the "Company") for the three month periods ended March 31, 2000 and 1999
have been prepared by the Company, pursuant to the rules and regulations of
the Securities and Exchange Commission ("SEC"). The information furnished
herein reflects all adjustments (consisting only of normal recurring accruals
and adjustments) which are, in the opinion of management, necessary to fairly
state the operating results for the respective periods. However, these
operating results are not necessarily indicative of the results expected for
the full fiscal year. Certain information and footnote disclosures normally
included in annual consolidated financial statements prepared in accordance
with generally accepted accounting principles have been omitted pursuant to
SEC rules and regulations. The notes to the unaudited condensed consolidated
financial statements should be read in conjunction with the notes to the
consolidated financial statements contained in the Company's 1999 Annual
Report on Form 10-K filed with the SEC on March 28, 2000.
The Company, founded in 1987, designs, manufactures, markets, and distributes
premium quality, technologically innovative golf clubs and provides custom
golf club fitting technology. The Company's primary products are fairway
woods and drivers that are marketed under the trademarks "Tight Lies," "Tight
Lies 2" and "SC Series".
2. MARKETABLE SECURITIES
Marketable securities, primarily consisting of commercial paper and
governmental and corporate bonds, are managed under agreements with
investment managers. The agreements provide terms related to the quality,
diversification and maturities of the investments in the managed portfolios.
The investments are classified as available-for-sale and are carried at fair
value, with unrealized gains and losses, net of the related tax effect,
reported as other comprehensive income in the consolidated statement of
stockholders' equity. The balance sheet classification of the Company's
marketable securities is based upon the contractual maturity date of such
securities.
Marketable securities consist of the following (in thousands):
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<CAPTION>
MARCH 31, 2000
(UNAUDITED)
---------------------------------------------------------
UNREALIZED FAIR
COST GAINS/(LOSSES) VALUE
---------------- ------------------ ----------------
<S> <C> <C> <C>
Commercial paper ........................ $ 500 $ - $ 500
Governmental bonds ...................... 15,497 (67) 15,430
Corporate bonds ......................... 3,015 (7) 3,008
-------- -------- --------
19,012 (74) 18,938
Less current amounts .................... (10,521) 24 (10,497)
-------- -------- --------
Long-term marketable securities ......... $ 8,491 $ (50) $ 8,441
======== ======== ========
</TABLE>
7
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<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------------------------
UNREALIZED FAIR
COST GAINS/(LOSSES) VALUE
---------------- ------------------ ----------------
<S> <C> <C> <C>
Commercial paper $ 7,606 $ (154) $ 7,452
Governmental bonds 15,385 54 15,439
Corporate bonds 3,998 31 4,029
---------------- ------------------ ----------------
26,989 (69) 26,920
Less current amounts (18,489) 25 (18,464)
---------------- ------------------ ----------------
Long-term marketable securities $ 8,500 $ (44) $ 8,456
================ ================== ================
</TABLE>
During the three months ended March 31, 2000, there were approximately
$4,000,000 in proceeds received from maturities of available-for-sale
securities and approximately $3,996,000 in proceeds received from sales of
available-for-sale securities. There were no realized gains or losses. All
marketable securities mature within two years.
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
Finished goods $ 6,386 $ 6,208
Component parts 13,020 12,893
------- -------
$19,406 $19,101
======= =======
</TABLE>
4. PROFESSIONAL SERVICES AGREEMENT
The professional services agreement consists of a contract entered into by
the Company and Nicholas A. Faldo ("Faldo"), a professional golfer, which
provides for Faldo's endorsement and use of the Company's products, as well
as the design, development and testing of new technologies and products. As
consideration for such services, Faldo received 900,000 shares of the
Company's common stock, which were valued at the fair market value of the
stock ($11.25 per share) as of May 1, 1998, the effective date of the
agreement. The value of the stock is being amortized on a straight-line basis
over ten years, which represents the estimated period during which the
Company will realize benefits under the agreement.
5. INCOME (LOSS) PER SHARE
The weighted average common shares used for determining basic loss per common
share were 22,480,071 and 22,479,436 for the three months ended March 31,
2000 and 1999, respectively. The effect of stock options in 1999 and 2000 was
antidilutive.
8
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6. GEOGRAPHIC SEGMENT AND DATA
The Company generates substantially all revenues from the design,
manufacturing, marketing and distribution of premium quality, technologically
innovative golf clubs. The Company's products are distributed in both
domestic and international markets. Net sales for these markets consisted of
the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------------------
2000 1999
--------------- -----------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
United States $ 13,750 $ 7,294
Rest of World 1,960 1,264
--------------- -----------------
$ 15,710 $ 8,558
=============== =================
</TABLE>
7. NEW ACCOUNTING PRONOUNCEMENTS
The Company is assessing the reporting and disclosure requirements of SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. The statement was amended by SFAS No. 137
and will be effective for financial statements for fiscal years beginning
after June 15, 2000. The Company believes SFAS No. 133 will not have a
material impact on its financial statements or accounting policies. The
Company will adopt the provisions of SFAS No. 133 in the first quarter of
2001.
8. CONTINGENCIES
Beginning in June 1999, the first of seven class action lawsuits was filed
against the Company, certain of its current and former officers and directors
and the three underwriters of the Company's initial public offering ("IPO")
in the United States District Court for the District of Delaware. The
complaints allege violations of Sections 11, 12(a)(2) and 15 of the
Securities Act of 1933, as amended, in connection with the Company's IPO. In
particular, the complaints allege that the Company's prospectus, which became
effective July 9, 1998, was materially false and misleading in at least two
areas. Plaintiffs allege that the prospectus failed to disclose that
unauthorized distribution of the Company's products (gray market sales)
threatened the Company's long term profits. Plaintiffs also allege that the
prospectus failed to disclose that the golf equipment industry suffered from
an oversupply of inventory at the retail level, which had an adverse impact
on the Company's sales. The Company believes these actions are without merit
and intends to defend against each of them vigorously. These cases are being
consolidated, although no lead plaintiff has been appointed as yet, and the
Company expects that it will file a motion to dismiss a consolidated, amended
complaint when one is filed.
The Company has directors' and officers' and corporate liability insurance to
cover risks associated with these securities claims filed against the Company
or its directors and officers and has notified its insurers of the complaints
filed against the Company.
The above mentioned complaints are at an early stage. Consequently, at this
time it is not possible to predict whether the Company will incur any
liability or to estimate the damages, or the range of damages, that the
Company might incur in connection with such actions. The Company is also not
able to estimate the amount, if any, of reimbursements that it would receive
from insurance policies should damages with respect to the above actions be
incurred.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
attached unaudited condensed consolidated financial statements and notes
thereto, and with the Company's consolidated financial statements and notes
thereto for the year ended December 31, 1999.
OVERVIEW
The Company designs, manufactures, markets and distributes premium quality,
technologically innovative golf clubs. Founded in 1987, the Company operated
initially as a components supplier and contract manufacturer. Thereafter, the
Company established its custom fitting operation, which currently services a
network of over 100 certified custom fitting accounts. In the fall of 1995,
the Company introduced the original Tight Lies fairway wood and, over the
next three years, extended the Tight Lies line to include the Tight Lies
Strong 2 Tour Brassie, Strong 3, Strong 5, Strong 7, Strong 9 and Strong 11.
During 1999, the Company introduced the SC Series Titanium driver (SC
driver), the Faldo Series wedge, the Tight Lies Tour fairway woods, and the
Tight Lies 2 fairway woods. The Company recently further extended the Tight
Lies line by introducing the Tight Lies 2 driver in January 2000.
The Company's net sales are primarily derived from sales to on-and off-course
golf shops and selected sporting goods retailers and, to a lesser extent,
international distributors, direct sales to consumers, and the Company's
custom fitting accounts. No assurances can be given that demand for the
Company's current products or the introduction of new products will allow the
Company to achieve historical levels of sales in the future.
The Company does not currently manufacture the components required to
assemble its golf clubs, relying instead on various component suppliers. Golf
club components are generally available from multiple suppliers. Currently,
however, certain components for the SC Series Titanium drivers, the Tight
Lies 2 line and the Faldo Series wedges are produced by single suppliers.
Costs of the Company's clubs consist primarily of component parts, including
the head, shaft and grip. To a lesser extent, the Company's cost of goods
sold includes labor and occupancy costs in connection with the inspection,
testing and assembly of component parts at its facility in Plano, Texas.
10
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RESULTS OF OPERATIONS
The following table sets forth operating results expressed as a percentage of
net sales for the periods indicated. All information is derived from the
accompanying unaudited condensed consolidated financial statements. Results
for any one or more periods are not necessarily indicative of annual results
or continuing trends. See "Seasonality and Quarterly Fluctuations" below.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
----------- -----------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold 26.7 37.3
----------- -----------
Gross profit 73.3 62.7
Operating expenses:
Research and development expenses 4.0 5.5
Selling and marketing expenses 72.7 104.1
General and administrative expenses:
Provision for bad debts 1.3 1.2
Other 18.0 23.2
----------- -----------
Total operating expenses 96.0 134.0
----------- -----------
Operating loss (22.7) (71.3)
Interest and other income 2.4 6.2
----------- -----------
Loss before income taxes (20.3) (65.1)
Income tax benefit (7.3) (26.3)
----------- -----------
Net loss (13.0)% (38.8)%
=========== ===========
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
Net sales increased to $15.7 million for the three months ended March 31,
2000 from $8.6 million for the comparable period of 1999. The increase was
primarily attributable to an increased volume of sales of fairway woods and
drivers resulting from the introduction of the Tight Lies 2 line of fairway
woods in the fourth quarter of 1999 and the introduction of the Tight Lies 2
driver in January 2000. Sales of the Tight Lies 2 product line accounted for
69.4% of the Company's revenues for the quarter ended March 31, 2000. Net
sales were also positively impacted in the first quarter of 2000 by sales of
the Faldo Series wedge.
Net sales of fairway woods were $11.9 million, or 75.5% of net sales, for the
three months ended March 31, 2000 compared to $7.5 million, or 88.0% of net
sales, for the three months ended March 31, 1999. Net sales of the Tight Lies
2 driver for the three months ended March 31, 2000 were $2.1 million, or
13.3% of net sales. Net sales of the SC drivers for the three months ended
March 31, 2000 were $1.5 million or 9.8% of net sales compared to $0.9
million, or 10.7% of net sales, in the same period of 1999. Net sales of the
Company's products outside the U.S. increased to $2.0 million for the three
months ended March 31, 2000 from $1.3 million for the three months ended
March 31, 1999, but decreased as a percentage of net sales to 12.5% from
14.8%, respectively.
Cost of goods sold increased to $4.2 million for the three months ended March
31, 2000 from $3.2 million for the comparable period of 1999 but decreased as
a percentage of net sales to 26.7% from 37.3%, respectively. The decrease as
a percentage of sales is primarily due to the introduction of the Tight Lies
2 lines of fairway woods and drivers, which have a lower per unit cost than
other product lines, which, in turn, decreased costs as a percentage of sales.
Operating expenses are comprised primarily of selling and marketing expenses,
general and administrative expenses, and to a lesser extent, research and
development expenses. Selling and marketing expenses increased to $11.4
million for the three months ended March 31, 2000 from $8.9 million for the
comparable
11
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period of 1999. The increase is primarily a result of additional payroll
costs of $0.7 million for additional outside sales representatives and
marketing personnel, additional $0.5 million for costs associated with the
development of a Tight Lies 2 infomercial, $0.5 million incurred by the
Company's international subsidiaries, which were not in existence in the
comparable quarter in 1999, $0.4 million of sales promotional expense related
to the introduction of new products, a $0.3 million increase in royalty
expenses and a $0.3 million increase in tour player endorsement expense.
These increases were partially offset by a $0.7 million decrease in
advertising expenditures in the three months ended March 31, 2000 compared to
the same period in 1999.
General and administrative expenses, including provisions for bad debts,
increased to $3.0 million, or 19.3% of net sales, for the three months ended
March 31, 2000 from $2.1 million, or 24.4% of net sales, for the comparable
period of 1999. This increase is primarily the result of $0.4 million of
additional information technology and other administrative payroll costs,
$0.3 million of expenses incurred by the Company's international subsidiaries
and an additional $0.1 million of bad debt expense as a result of increased
sales volume.
Research and development expenses, primarily consisting of costs associated
with development of new products, for the three months ended March 31, 2000
increased to $0.6 million compared to $0.5 million for the same period in
1999, but decreased as a percentage of net sales to 4.0% from 5.5%.
As a result, the Company's operating loss was $3.6 million for the three
months ended March 31, 2000 compared to $6.1 million for the comparable
period of 1999.
The effective tax rate for the three months ended March 31, 2000 was 35.9%
compared to 40.4% for the comparable period in the prior year. The decrease
in the effective tax rate for the three months ended March 31, 2000 results
primarily from the transfer of investments from tax-exempt to taxable
investments in the current year.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased to $1.7 million at March 31, 2000 from
$2.8 million at December 31, 1999, as a result of cash used in operations.
The increase in cash flows used in operations was primarily a result of the
net loss for the three months ended March 31, 2000, and an increase in trade
receivables of $7.5 million due to the increased volume of sales. These
increases were partially offset by a $3.1 million increase in accrued
liabilities related to advertising expenditures, payroll and commissions and
the operations of the Company's international subsidiaries.
Cash provided by investing activities of $7.6 million for the three months
ended March 31, 2000 is primarily related to proceeds from the sales and
maturities of marketable securities of approximately $8.0 million offset by
purchases of equipment, which approximated $0.4 million.
Working capital approximated $51.2 million at March 31, 2000 compared to
$53.9 million at December 31, 1999.
The Company has a $10.0 million unsecured revolving credit facility,
which expires on May 31, 2000 and which the Company is currently
negotiating to replace. At March 31, 2000, the Company had no
outstanding borrowings under this facility. Based upon the Company's
recent losses, it is not likely that the Company will be able to obtain
an unsecured credit facility similar in terms and conditions to the
current credit facility. The Company does believe that it can obtain a
credit facility secured by its accounts receivable and inventories and
which allows for borrowings based on an advance rate related to the
balances of these assets. Such asset-based credit facility may result in
a higher rate of interest and a potentially higher unused commitment
fee. However, there can be no assurance that such replacement credit
facility can be obtained under the terms and in an amount acceptable to the
Company.
The Company expects to meet future liquidity requirements through cash flows
generated from operations and to a lesser extent cash reserves and maturities
or sales of marketable securities and its credit facility, if available and
needed. It is anticipated that operating cash flows and current cash reserves
will also adequately fund capital expenditure programs which will include
continued upgrade of the newly integrated information systems and expansion
of web site capabilities. These capital expenditure programs can be suspended
or delayed at any time with minimal disruption to the Company's operations if
cash is needed in other areas of the Company's operations. In addition, cash
flows from operations will be utilized to support purchasing of
12
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component parts for new product introductions in the remainder of 2000. The
expected operating cash flows and current cash reserves are expected to allow
the Company to meet working capital requirements during periods of low cash
flows resulting from the seasonality of the industry.
The Company is not aware of any event or trend that would potentially affect
its liquidity. In the event such a trend should develop, the Company believes
that the cash flows from operations, current cash reserves and the credit
facility, if available, would be sufficient to meet operating needs and
capital expenditures for at least the forseeable future.
BUSINESS RISKS
As indicated below, this Form 10-Q contains forward-looking statements that
involve risks and uncertainties. The Company's actual results may differ
materially from the results discussed in the forward-looking statements.
Factors that may cause such a difference include, but are not limited to,
those discussed in this section and elsewhere throughout this Form 10-Q.
DEPENDENCE ON NEW PRODUCT INTRODUCTIONS; UNCERTAIN CONSUMER ACCEPTANCE
Through the first quarter of 2000, the Company's net sales were derived
primarily from the sale of fairway woods (original Tight Lies and Tight Lies
2), Tight Lies 2 and SC Series drivers, and Faldo Series wedges. During the
three months ended March 31, 2000, the Company's fairway woods represented
75.5% of net sales whereas, for the three months ended March 31, 1999, the
Company's fairway woods represented 88.0% of net sales. To date, although
certain of the Company's new product introductions have experienced modest
success, we continue to be heavily dependent on sales of our Tight Lies
fairway woods. The Company's ultimate success depends, in large part, on its
ability to successfully develop and introduce new products accepted in the
marketplace. Historically, a large portion of new golf club technologies and
product designs have been met with consumer rejection. No assurance can be
given that current products will increase in consumer acceptance or that the
Company will be able to design, manufacture and introduce new products that
will meet with market acceptance. Failure by the Company to identify and
develop innovative new products that achieve widespread market acceptance
would adversely affect the Company's future growth and profitability.
Additionally, successful technologies, designs and product concepts are
likely to be copied by competitors. Accordingly, the Company's operating
results could fluctuate as a result of the amount, timing and market
acceptance of new product introductions by the Company or its competitors.
The design of new golf clubs is also greatly influenced by the rules and
interpretations of the USGA. Although the golf equipment standards
established by the USGA generally apply only to competitive events sanctioned
by that organization, the Company believes that it is critical for its future
success that new clubs introduced by the Company comply with USGA standards.
LIMITED HISTORY OF PROFITABILITY
The Company has a limited history of profitability. Although the Company
generated net income during the years ended December 31, 1996 and December
31, 1998, it has historically experienced net losses from operations. There
can be no assurance that the Company will be able to sustain profitability on
a quarterly or annual basis in the future. The Company's prospects must be
considered in light of the significant risks, challenges and difficulties
frequently encountered by companies experiencing rapid growth. To address
these risks, the Company must, among other things, successfully increase the
scope of its operations, respond to competitive and technological
developments, continue to attract, retain and motivate qualified personnel
and continue to develop and obtain market acceptance of its products. There
can be no assurance that the Company will be successful in addressing these
risks and challenges.
COMPETITION
The market for golf clubs is highly competitive. The Company competes with a
number of established golf club manufacturers, some of which have greater
financial and other resources. The Company's competitors include Callaway
Golf Company, Adidas-Salomon AG (Taylor Made), Fortune Brands, Inc. (Titleist
and Cobra) and Orlimar Golf Company, among others. The Company competes
primarily on the basis of
13
<PAGE>
performance, brand name recognition, quality and price. The Company believes
that its ability to market its products through multiple distribution
channels, including on- and off-course golf shops, selected sporting goods
retailers and through direct response advertising, is important to the manner
in which the Company competes. The purchasing decisions of many golfers are
often the result of highly subjective preferences, which can be influenced by
many factors, including, among others, advertising, media, promotions and
product endorsements. These preferences may also be subject to rapid and
unanticipated changes. The Company could face substantial competition from
existing or new competitors that introduce and successfully promote golf
clubs that achieve market acceptance. Such competition could result in
significant price erosion or increased promotional expenditures, either of
which could have a material adverse effect on the Company's business,
operating results and financial condition. There can be no assurance that
Adams Golf will be able to compete successfully against current and future
sources of competition or that its business, operating results or financial
condition will not be adversely affected by increased competition in the
markets in which it operates. The golf club industry is generally
characterized by rapid and widespread imitation of popular technologies,
designs and product concepts. Due to the success of the Tight Lies fairway
woods, the Company has experienced several competitors introducing products
similar to the Tight Lies fairway woods. The buying decisions of many
purchasers of golf clubs are often the result of highly subjective
preferences, which can be influenced by many factors, including, among
others, advertising media, promotions and product endorsements. The Company
may face competition from manufacturers introducing other new or innovative
products or successfully promoting golf clubs that achieve market acceptance.
The failure to compete successfully in the future could result in a material
deterioration of customer loyalty and the Company's image and could have a
material adverse effect on the Company's business, results of operations,
financial position or liquidity.
The introduction of new products by the Company or its competitors can result
in closeouts of existing inventories at both the wholesale and retail levels.
Such closeouts are likely to result in reduced margins on the sale of older
products, as well as reduced sales of new products, given the availability of
older products at lower prices.
ABILITY TO MANAGE GROWTH
Over the past three years, the Company has experienced a period of rapid
growth that has resulted in new and increased responsibilities for management
personnel. The Company's growth has placed, and is expected to continue to
place, a significant strain on the Company's management and operating and
financial systems. To accommodate this growth and to compete effectively and
manage future growth, if any, the Company will be required to continue to
implement and improve its operational financial and management information
systems, procedures and controls on a timely basis and to expand, train,
motivate and manage its workforce. The Company's growth has required
increasing amounts of working capital that, to date, have been funded from
current operations and cash reserves. There can be no assurance that the
Company's personnel, systems, procedures, controls and working capital will
be adequate to support its existing or future operations. Any failure to
implement and improve the Company's operational, financial and management
systems, to expand, train, motivate or manage employees or to maintain
adequate working capital could have a material adverse effect on the
Company's business, operating results or financial condition.
DEPENDENCE ON KEY PERSONNEL AND ENDORSEMENTS
The Company's success depends to a significant extent upon the performance of
its senior management team, particularly the Company's founder, Chief Executive
Officer and President, B.H. (Barney) Adams. In addition to his direction and
supervision of the day-to-day affairs of the Company, Mr. Adams spearheads the
Company's product development efforts. The loss or unavailability of Mr. Adams
would adversely affect the Company's business and prospects. None of the
Company's officers or employees, including Mr. Adams, is bound by an employment
agreement and the relationships of such officers and employees are, therefore,
at will. The Company has a $4.0 million key man life insurance policy on the
life of Mr. Adams; however, there can be no assurance that the proceeds of such
policy could adequately compensate the Company for the loss of his services. In
addition, 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 the Company's business, operating results
or financial condition.
14
<PAGE>
In May 1998, the Company entered into an agreement with Nick Faldo, an
internationally recognized professional golfer and winner of numerous U.S.
and international championships. The agreement provides that Mr. Faldo will
provide a variety of services to the Company including endorsement of certain
of the Company's products. This agreement requires the Company to make
certain significant payments to Mr. Faldo, whether or not his endorsement
results in increased sales of the Company's products. Specifically, Mr. Faldo
is entitled to receive a royalty of 5% of the net sales price of all Adams
golf clubs (other than certain specialty items for which the royalty equals
10% of the net sales price) sold outside the U.S. throughout the term of the
agreement. The agreement provides for a minimum royalty of $1.5 million in
1999 escalating to $4.0 million, for the years 2004 through 2008. From 2009
through 2014, the minimum royalty is $1.5 million, as adjusted for changes in
the consumer price index. After 2014, the agreement does not provide for a
minimum royalty. Commencing with 2009, however, the agreement provides for a
maximum royalty of $4.0 million, as adjusted for changes in the consumer
price index. Absent an early termination event, the agreement with Mr. Faldo
continues throughout his lifetime. The Company believes that the future
success of its marketing strategy may be affected by the continued
professional success of Mr. Faldo. The inability of the Company to maintain
its relationship with Mr. Faldo or the inability of Mr. Faldo to maintain an
acceptable level of professional success, could have a material adverse
effect on the Company's business, operating results or financial conditions.
In addition to Mr. Faldo, the Company has recently entered into endorsement
arrangements with certain members of the PGA Tour and the Senior PGA Tour
including Tom Watson. As is typical in the golf industry generally, the
agreements with these professional golfers do not necessarily require that
they use our golf clubs at all times during the terms thereof, including, in
certain circumstances, at times when the Company is required to make payments
to them. The failure of certain of these individuals to use the Company's
products on one or more occasions has resulted in negative publicity
involving the Company. While the Company does not believe this publicity has
resulted in any significant erosion in the sales of the Company's products to
date, no assurance can be given that the Company's business would not be
adversely affected in a material way by further such publicity or by the
failure of its professional endorsers to carry and use its products.
HISTORICAL DEPENDENCE ON TELEVISION ADVERTISING
In April 1997, the Company debuted a 30-minute infomercial concerning the
original Tight Lies fairway wood, and, immediately thereafter, sales of this
product grew significantly. The Company stopped airing this infomercial in
the fall of 1998 and subsequently began airing a new Tight Lies infomercial
in early 1999. In addition, the Company produced and began airing two
additional infomercials, one for the Adams SC Series Titanium driver and one
for the Company's Faldo Series wedge in 1999. Also, in the first quarter of
2000, the Company began airing a new infomercial for the Tight Lies 2 fairway
woods. Although the Company has significantly increased its use of
traditional image-based advertising over this time period, sales of the
Company's product at both the retail and consumer levels have been, and may
continue to be, highly dependent on the success of the Company's
infomercials. The Company believes that its current television advertising
strategy, like other advertising campaigns, will reach a point of diminishing
return and will therefore need continued modification. No assurance can be
given that another advertising strategy can be timely developed or that, if
developed, such alternative strategy will achieve the same level of success
as that previously enjoyed by the Company's original advertising strategy.
Further, certain companies have attempted to emulate the Company's marketing
strategy. To the extent the Company believes that additional infomercials may
have the effect of diluting the Company's message, the Company may be forced
to rely solely on image-based advertising. A decline in effectiveness of the
Company's marketing strategy could have a material adverse effect on the
Company's business, operating results or financial condition.
SOURCES OF SUPPLY
The Company relies on a limited number of suppliers for a significant portion
of the component parts used in the manufacture of its golf clubs. The Company
could in the future experience shortages of components or periods of
increased price pressures, which could have a material adverse effect on the
Company's business, operating results or financial condition. In addition,
failure to obtain adequate supplies or fulfill customer
15
<PAGE>
orders on a timely basis could have a material adverse effect on the
Company's business, operating results or financial condition.
PRODUCT WARRANTIES
The Company supports all of its golf clubs with a limited one year product
warranty. The Company monitors closely the level and nature of warranty
claims and, where appropriate, seeks to incorporate design and production
changes to assure its customers of the highest quality available in the
market. Significant increases in the incidence of such claims may adversely
affect the Company's sales and image with golfers. The Company establishes a
reserve for warranty claims which it believes is sufficient to meet future
claims. However, there can be no assurance that these reserves will be
sufficient if the Company were to experience an unusually high incidence of
problems with its products.
CERTAIN RISKS OF CONDUCTING BUSINESS ABROAD
The Company imports a significant portion of its component parts, including
heads, shafts, headcovers and grips, from companies in Taiwan, China,
Australia and Mexico. In addition, the Company sells its products to certain
distributors located outside of the United States. The Company's
international business is currently centered in Canada, Japan and the United
Kingdom. The Company's business is subject to the risks generally associated
with doing business abroad, such as foreign government regulations, foreign
consumer preferences, import and export control, political unrest,
disruptions or delays in shipments and changes in economic conditions and
exchange rates in countries in which the Company purchases components or
sells its products.
UNAUTHORIZED DISTRIBUTION AND COUNTERFEIT CLUBS
Despite the Company's efforts to limit its distribution to selected
retailers, some quantities of the Company's products have been found in
unapproved outlets or distribution channels. The existence of a "gray market"
in the Company's products can undermine authorized retailers and foreign
wholesale distributors who promote and support the Company's products, and
can injure the Company's image in the minds of its customers and consumers.
Adams Golf makes efforts to limit unauthorized distribution of its products,
but does not believe the gray marketing of its products can be totally
eliminated. The Company does not believe that the unauthorized distribution
of its clubs had or will have a material adverse effect on the Company's
results of operations, financial condition or competitive position, although
there can be no assurance as such.
In addition, the Company is periodically made aware of the existence of
counterfeit copies of its golf clubs, particularly in foreign markets. The
Company takes action on these situations through local authorities and legal
counsel where practical. The Company does not believe that the availability
of counterfeit golf clubs had or will have a material adverse effect on the
Company's results of operations, financial condition or competitive position,
although there can be no assurance as such.
INDUSTRY SPECIFIC REQUIREMENTS
The Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from these customers. The
Company believes it has adequate reserves for potential credit losses.
However, future weakness in the retail golf equipment market may result in
delinquent or uncollectible accounts for some of the Company's significant
customers. Accordingly, there can be no assurance that the Company's results
of operations or cash flows will not be adversely impacted by the failure of
its customers to meet their obligations to the Company. Due to industry
sensitivity to consumer buying trends and available disposable income, the
Company has in the past extended payment terms for specific retail customers.
Issuance of these terms (i.e., greater than 30 days) are dependent on the
Company's relationship with the customer and payment history. Payment terms
are extended to selected customers typically during off-peak times in the
year (i.e., generally the first and fourth quarters). The Company extends
payment terms during these times of the year in order to promote the
Company's brand name and assure adequate product availability, often to
coincide with planned promotions or advertising campaigns. Although a
significant amount of the Company's sales are not affected by these terms,
the extended terms do have a negative impact on the Company's financial
position and liquidity. The Company expects to continue to selectively offer
16
<PAGE>
extended payment terms in the future, depending upon known industry trends
and the Company's financial plans.
In addition to extended payments terms, the nature of the industry also
requires that the Company carry a substantial level of inventory due to the
lead times associated with purchasing components overseas coupled with the
seasonality of customer demand. The Company's inventory balances were
$19,406,000 at March 31, 2000 and $19,101,000 at December 31, 1999. The
Company expects its inventory level to decline by December 31, 2000 from the
December 31, 1999 balance, although there can be no assurance that this
decline will occur.
SEASONALITY AND QUARTERLY FLUCTUATIONS
Golf generally is regarded as a warm weather sport and sales of golf
equipment historically have been strongest during the second and third
quarters, with the weakest sales occurring during the fourth quarter. In
addition, sales of golf clubs are dependent on discretionary consumer
spending, which may be affected by general economic conditions. A decrease in
consumer spending generally could result in decreased spending on golf
equipment, which could have a material adverse effect on the Company's
business, operating results and financial condition. In addition, the
Company's future results of operations could be affected by a number of other
factors, such as unseasonal weather patterns; demand for and market
acceptance of the Company's existing and future products; new product
introductions by the Company's competitors; competitive pressures resulting
in lower than expected average selling prices; and the volume of orders that
are received and that can be fulfilled in a quarter. Any one or more of these
factors could result in the Company failing to achieve its expectations as to
future sales or net income.
Because most operating expenses are relatively fixed in the short term, the
Company may be unable to adjust spending sufficiently in a timely manner to
compensate for any unexpected sales shortfall, which could materially
adversely affect quarterly results of operations. If technological advances
by competitors or other competitive factors require the Company to invest
significantly greater resources than anticipated in research and development
or sales and marketing efforts, the Company's business, operating results or
financial condition could be materially adversely affected. Accordingly, the
Company believes that period-to-period comparisons of its results of
operations should not be relied upon as an indication of future performance.
In addition, the results of any quarter are not indicative of results to be
expected for a full fiscal year. As a result of fluctuating operating results
or other factors discussed above and below, in certain future quarters the
Company's results of operations may be below the expectations of public
market analysts or investors. In such event, the market price of the
Company's Common Stock could be materially adversely affected.
SHARES ELIGIBLE FOR FUTURE SALE; ISSUANCE OF ADDITIONAL SHARES
Future sales of shares of Common Stock by the Company and its stockholders
could adversely affect the prevailing market price of the Common Stock. The
Company's directors, officers and certain stockholders, hold an aggregate of
13,381,115 shares of Common Stock as of the date of this annual filing which
are eligible for sale pursuant to Rule 144 promulgated under the Securities
Act of 1933 as amended.
Pursuant to its Amended and Restated Certificate or Incorporation (the
"Certificate of Incorporation"), the Company has the authority to issue
additional shares of Common Stock. The issuance of such shares could result
in the dilution of the voting power of the Company's Common Stock. Sales of
substantial amounts of Common Stock in the public market, or the perception
that such sales may occur, could have a material adverse effect on the market
price of the Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation and Amended and Restated Bylaws
(the "Bylaws") contain, among other things, provisions establishing a
classified Board of Directors, authorizing shares of preferred stock with
respect to which the Board of Directors of the Company has the power to fix
the rights, preferences, privileges and restrictions without any further vote
or action by the stockholders, requiring that all stockholder action be taken
at a stockholders' meeting and establishing certain advance notice
requirements in
17
<PAGE>
order for stockholder proposals or director nominations to be considered at
such meetings. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law (the
"DGCL"). In general, this statute prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. Such provisions could delay,
deter or prevent a merger, consolidation, tender offer, or other business
combination or change of control involving the Company that some or a
majority of the Company's stockholders might consider to be in its best
interest, including offers or attempted takeovers that might otherwise result
in such stockholders receiving a premium over the market price for the Common
Stock. The potential issuance of preferred stock may have the effect of
delaying, deferring or preventing a change of control of the Company, may
discourage bids for the Common Stock at a premium over the market price of
the Common Stock and adversely affect the market price of and voting and
other rights of the holders of the Common Stock. The Company has not issued,
and currently has no plans to issue, shares of preferred stock.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company may make acquisitions of complementary services, technologies,
product designs or businesses in the future. There can be no assurance that
any future acquisition will be completed or that, if completed, any such
acquisition will be effectively assimilated into the Company's 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 the Company's ongoing business, the maintenance of
uniform standards, controls procedures and policies, and the impairment of
the Company's reputation and relationships with employees and customers. In
addition, any future acquisitions could result in the issuance of 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 the Company business, operating
results or financial condition.
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains "forward-looking statements" made under the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. These forward-looking statements are based on the beliefs of the
Company's management as well as assumptions made by and information currently
available to the Company's management. When used in this report, the words
"anticipate," "believe," "expect" and words or phrases of similar import, as
they relate to the Company or Company management, are intended to identify
forward-looking statements. Such statements reflect the current view of the
Company with respect to future events and are subject to certain risks,
uncertainties and assumptions related to certain factors including, without
limitation, product development; product introductions; market demand and
acceptance of products; the impact of changing economic conditions; business
conditions in the golf industry; reliance on third parties including
suppliers; the impact of market peers and their products; the actions of
competitors, including pricing, advertising and product development; risks
concerning future technology; and one-time events and other factors detailed
in this report under "Business Risks". Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it
can give no assurance that such expectations will prove to have been correct.
Based upon changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein.
The Company does not intend to update these forward-looking statements. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the applicable cautionary statements.
18
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Beginning in June 1999, the first of seven class action lawsuits (as of the
date of this Form 10-Q) was filed against the Company, certain of its current
and former officers and directors and the three underwriters of the Company's
initial public offering (IPO) in the United States District Court for the
District of Delaware. The complaints allege violations of Sections 11,
12(a)(2) and 15 of the Securities Act of 1933, as amended, in connection with
the Company's IPO. In particular, the complaints allege that the Company's
prospectus, which became effective July 9, 1998, was materially false and
misleading in at least two areas. Plaintiffs allege that the prospectus
failed to disclose that unauthorized distribution of the Company's products
(gray market sales) threatened the Company's long term profits. Plaintiffs
also allege that the prospectus failed to disclose that the golf equipment
industry suffered from an oversupply of inventory at the retail level which
had an adverse impact on the Company's sales. Specifically, the proceedings
pending are as follows: KENNETH F. SHOCKLEY V. ADAMS GOLF, INC. et al, Civil
Action No. 99-371 (D.Del.) filed on or about June 1999; MARK J. LANTZ V.
ADAMS GOLF, INC. et al, Civil Action No. 99-397 (D.Del.) filed on or about
June 22, 1999; F. RICHARD MANSON V. ADAMS GOLF, INC. et al, Civil Action No.
99-421 (D.Del.) filed on or about July 2, 1999; SYLVIA J. DAUGHTRY V. ADAMS
GOLF, INC. et al, Civil Action No. 99-469 (D.Del.) filed on or about July 22,
1999; ROBERT DOLIN V. ADAMS GOLF, INC. et al, Civil Action No. 99-498
(D.Del.) filed on or about August 3, 1999; TINA NARDOLILLO V. ADAMS GOLF,
INC. et al, Civil Action No. 99-511 (D.Del.) filed on or about August 9,
1999; and Robert Petrongolo v. ADAMS GOLF, INC. et al ( D.Del.) filed on or
about September 9, 1999. In each case, the plaintiffs are seeking unspecified
amounts of compensatory damages, interests and costs, including legal fees.
The Company denies the allegations in the complaints and intends to defend
against each of them vigorously. These cases are being consolidated, although
no lead plaintiff has been appointed as yet, and the Company expects that it
will file a motion to dismiss a consolidated, amended complaint when one is
filed.
The Company maintains directors' and officers' and corporate liability
insurance to cover risks associated with these securities claims filed
against the Company or its directors and officers and has notified its
insurers of the complaints filed against the Company.
The above mentioned complaints are at an early stage. Consequently, at this
time it is not possible to predict whether the Company will incur any
liability or to estimate the damages, or the range of damages, that the
Company might incur in connection with such actions. The Company is also not
able to estimate the amount, if any, of reimbursements that it would receive
from insurance policies should damages with respect to the above actions be
incurred.
ITEM 6(A). EXHIBITS
See exhibit index at page 21.
ITEM 6(B). REPORTS ON FORM 8-K
None.
19
<PAGE>
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereonto duly authorized.
ADAMS GOLF, INC.
Date: May 11, 2000 By: /s/ B. H. (Barney) Adams
-------------------------------------------------
B. H. (Barney) Adams, Chairman of the Board,
Chief Executive Officer and President
Date: May 11, 2000 By: /s/ Darl P. Hatfield
-------------------------------------------------
Darl P. Hatfield, Senior Vice President -
Finance and Administration and Chief
Financial Officer
(Principal Financial Officer)
Date: May 11, 2000 By: /s/ Brian K. Glaze
-------------------------------------------------
Brian K. Glaze, Director Financial
Services (Principal Accounting Officer)
20
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description Location
- ------- ----------- --------
<S> <C> <C>
Exhibit 3.1 Amended and Restated Certificate of Incorporated by reference to Form S-1
Incorporation (Exhibit 3.1)
Exhibit 3.2 Amended and Restated By-laws Incorporated by reference to Form S-1
(Exhibit 3.2)
Exhibit 4.1 1998 Stock Incentive Plan of the Company Incorporated by reference to Form S-1
Dated February 26, 1998 (Exhibit 4.1)
Exhibit 4.2 1996 Stock Option Plan dated April 10, 1998 Incorporated by reference to Form S-1
(Exhibit 4.2)
Exhibit 4.3 Adams Golf, Ltd. 401(k) Retirement Plan Incorporated by reference to Form S-1
(Exhibit 4.4)
Exhibit 4.4 1999 Non-Employee Director Plan of Incorporated by reference to the 1999
Adams Golf, Inc. Proxy Statement
Exhibit 4.5 1999 Stock Option Plan for Outside Incorporated by reference to Form S-8
Consultants of Adams Golf, Inc. (Exhibit 4.1)
Exhibit 10.1 Agreement between the Company and Nick Incorporated by reference to Form S-1
Faldo, dated April 22, 1998 (Exhibit 10.1)
Exhibit 10.2 Revolving Credit Agreement dated February
26, 1999, between Adams Golf Direct
Response, Ltd., Adams Golf, Ltd. And
NationsBank of Texas N.A. and related Incorporated by reference to Form 10-K
promissory note and guaranty (Exhibit 10.2)
Exhibit 10.3 Commercial Lease Agreement dated
December 5, 1997, between Jackson-Shaw Incorporated by reference to Form S-1
Technology Center II, Ltd. and the Company (Exhibit 10.3)
Exhibit 10.4 Commercial Lease Agreement dated April 6,
1998, between Jackson-Shaw Technology Incorporated by reference to Form S-1
Center II, Ltd. and the Company (Exhibit 10.4)
Exhibit 10.5 Letter agreement dated April 13, 1998, Incorporated by reference to Form S-1
Between the Company and Darl P. Hatfield (Exhibit 10.5)
Exhibit 10.6 Amendment to Amended and Restated Incorporated by reference to Exhibit
Revolving Credit Agreement dated August 13, 10.6 to the Quarterly Report on Form
1999 between Adams Golf Direct Response, 10-Q for the quarter ended
Ltd., Adams Golf, Ltd. and Bank of America, N.A. September 30, 1999
Exhibit 27.1 Financial Data Schedule Included in this filing
</TABLE>
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR ADAMS GOLF, INC. AND
ITS SUBSIDIARIES FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN
ITS ENTIRETY TO SUCH UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,707
<SECURITIES> 10,497
<RECEIVABLES> 19,509
<ALLOWANCES> 981
<INVENTORY> 19,406
<CURRENT-ASSETS> 58,623
<PP&E> 11,034
<DEPRECIATION> 3,700
<TOTAL-ASSETS> 83,946
<CURRENT-LIABILITIES> 7,421
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 76,389
<TOTAL-LIABILITY-AND-EQUITY> 83,946
<SALES> 15,710
<TOTAL-REVENUES> 15,710
<CGS> 4,188
<TOTAL-COSTS> 11,415
<OTHER-EXPENSES> 3,467
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</TABLE>
