<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 29, 1995
[ ] 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: 0-14146
S2 GOLF INC.
------------
(Exact Name of Registrant as Specified in its Charter)
New Jersey 22-2388568
- - ---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18 Gloria Lane, Fairfield, NJ 07004
- - ----------------------------- -----
(Address of Principal Executive Office) (Zip Code)
(201) 227-7783
--------------
(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.
YES X NO
--- ---
On September 29, 1995, 2,207,128 shares of common stock, $.01 par value, were
issued and outstanding.
<PAGE>
<TABLE>
<CAPTION>
INDEX
- - -----
PART I. FINANCIAL INFORMATION Page No.
--------
<S> <C> <C>
Item 1. Financial Statements
--------------------
Condensed Balance Sheets - September 29, 1995 and December
31, 1994 2
Condensed Statements of Operations - Nine Months Ended
September 29, 1995 and September 30, 1994 3
Condensed Statements of Operations - Three Months Ended
September 29, 1995 and September 30, 1994 4
Condensed Statements of Cash Flow - Nine Months Ended
September 29, 1995 and September 30, 1994 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations 7
-----------------------------------
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
--------------------------------
Signatures 12
</TABLE>
<PAGE>
PART I
Item 1. Financial Statements
S2 Golf, Inc.
Condensed Balance Sheets
<TABLE>
<CAPTION>
September 29, December 31,
1995 1994
------------- ------------
(Unaudited)
-------------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 66,254 $ 113,672
Restricted Cash - 128,140
Accounts Receivable (Net of Allowance
for Doubtful Accounts of $287,208 in 1995
and $361,780 in 1994) 2,088,862 1,841,614
Inventory 2,175,291 2,401,615
Prepaid Expenses 77,849 45,165
Deferred Income Taxes 285,952 284,116
---------- ----------
Total Current Assets 4,694,208 4,814,322
Non-Current Deferred Income Taxes 43,990 26,291
Plant and Equipment - Net 171,774 139,666
Investment - Squaretwo Golf New Zealand, Ltd. 11,826 11,100
Other Assets - Net 321,818 415,347
---------- ----------
Total Assets $5,243,616 $5,406,726
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short Term Borrowings $1,707,861 $1,620,481
Accounts Payable 114,622 471,222
Accrued Expenses 318,064 237,354
Income Taxes Payable 13,662 2,585
Other Current Liabilities 72,263 155,156
---------- ----------
Total Current Liabilities 2,226,472 2,486,798
Non-Current Liabilities 311,466 343,214
---------- ----------
Total Liabilities 2,537,938 2,830,012
Commitments and Contingencies
Shareholders' Equity
Common Stock, $.01 Par; 12,000,000 Shares
Authorized; 2,207,128 Shares Issued and
Outstanding at September 29,, 1995, 2,195,737
Shares Issued and Outstanding December
31, 1994 22,071 21,957
Additional Paid in Capital 4,023,485 4,000,631
Accumulated Deficit (1,339,878) (1,445,874)
---------- ----------
Total Shareholders' Equity 2,705,678 2,576,714
---------- ----------
Total Liabilities and Shareholders' Equity $5,243,616 $5,406,726
========== ==========
</TABLE>
See notes to financial statements
2
<PAGE>
S2 GOLF, INC.
Condensed Statement of Operations
For the Nine Months Ended
Unaudited
<TABLE>
<CAPTION>
September 29, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Net Sales $6,207,051 $7,426,474
Cost of Goods Sold 4,156,022 4,742,754
---------- ----------
Gross Profit on Sales 2,051,029 2,683,720
---------- ----------
Operating Expenses:
Selling 660,354 724,795
General & Administrative 1,038,767 1,246,081
---------- ----------
Total Operating Expenses 1,699,121 1,970,876
---------- ----------
Operating Income (Loss) 351,908 712,844
---------- ----------
Other Income (Expense)
Interest - Net (196,250) (160,837)
Other - Net (38,119) -
---------- ----------
Other Expense - Net (234,369) (160,837)
---------- ----------
Income (Loss) Before Income Taxes 117,539 552,007
Income Taxes 11,543 146,503
---------- ----------
Net Income (Loss) $ 105,996 $ 405,504
========== ==========
Earnings Per Common Share $ 0.05 $ 0.18
========== ==========
Weighted Average Number of Shares Outstanding 2,204,310 2,192,799
</TABLE>
See notes to financial statements
3
<PAGE>
S2 GOLF INC.
Condensed Statement of Operations
For the Three Months Ended
Unaudited
<TABLE>
<CAPTION>
September 29, September 30,
1995 1994
------------- -------------
<S> <C> <C>
Net Sales $1,711,434 $2,040,078
Cost of Goods Sold 1,124,219 1,342,819
---------- ----------
Gross Profit on Sales 587,215 697,259
---------- ----------
Operating Expenses:
Selling 190,131 170,979
General & Administrative 308,423 430,144
---------- ----------
Total Operating Expenses 498,554 601,123
---------- ----------
Operating Income (Loss) 88,661 96,136
---------- ----------
Other Income (Expense)
Interest - Net (63,211) (53,973)
Other - Net (21,463) -
---------- ----------
Other Expense - Net (84,674) (53,973)
---------- ----------
Income (Loss) Before Income Taxes 3,987 42,163
Income Taxes 615 2,742
---------- ----------
Net Income (Loss) $3,372 $39,421
========== ==========
Earnings Per Common Share $0.00 $0.02
========== ==========
Weighted Average Number of Shares Outstanding 2,204,310 2,192,799
</TABLE>
See notes to financial statements
4
<PAGE>
S2 GOLF INC.
Condensed Statements of Cash Flows
For The Nine Months Ended
Unaudited
<TABLE>
<CAPTION>
September 29, 1995 September 30, 1994
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
- - --------------------
Net Income (Loss) $105,996 $405,503
Adjustments to Reconcile Net Income to Net Cash Provided
By Operating Activities:
Depreciation and Amortization 100,718 153,791
Deferred Income Taxes - -
Issuance of Stock for Compensation 22,968
Cash Flow Provided (Used) by Operating Activities as a
Result of Changes in:
Accounts Receivable (247,248) (249,516)
Income Tax Refund Receivable - -
Inventory 226,324 (470,037)
Prepaid Expenses (32,684) 6,256
Prepaid Income Taxes - -
Other Assets 26,667 -
Accounts Payable and Accrued Expenses (162,713) (142,719)
Other Current Liabilities (82,893) (17,848)
Income Taxes Payable 11,077 129,982
Deferred Income Taxes (19,535) 52,623
Patents and Trademarks (8,667) (13,024)
Other - Net (31,748) (82,652)
---------- ----------
NET CASH PROVIDED (USED) BY OPERATIONS (91,738) (227,641)
---------- ----------
INVESTING ACTIVITIES
- - --------------------
Purchase of Equipment (57,297) (21,217)
Investment-Squaretwo Golf New Zealand, Ltd. (726) -
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (58,023) (21,217)
FINANCING ACTIVITIES
- - --------------------
Proceeds from Line of Credit 4,357,959 4,319,938
Payments on Line of Credit (4,383,756) (4,098,870)
---------- ----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (25,797) 221,068
---------- ----------
INCREASE (DECREASE) IN CASH (175,558) (27,790)
CASH - BEGINNING OF PERIOD 241,812 104,738
---------- ----------
CASH - END OF PERIOD $66,254 $76,948
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
- - ------------------------------------
Information Cash Paid During the Year For:
Interest 182,399 166,834
Income Taxes 20,000 36,178
</TABLE>
See notes to financial statements
5
<PAGE>
S2 GOLF, INC.
Notes to Financial Statements
Summary of Significant Accounting Policies
In the opinion of management, the financial information in this report reflects
all adjustments necessary for a fair presentation of the results for the interim
periods consisting of normal recurring entries. No dividends have been declared
or paid on common stock. Per share data was determined by using the weighted
average number of shares of common stock outstanding during the period. All
stock options are assumed to have been exercised.
Accounting for Income Taxes
Deferred income taxes reflect the net tax effects of (a) temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes, and (b) operating loss
and tax credit carryforwards. The tax effects of significant items comprising
the Company's net deferred tax assets are as follows:
<TABLE>
<CAPTION>
September 29, 1995 December 31, 1994
------------------ -----------------
<S> <C> <C>
Allowance for Doubtful Accounts $ 130,673 $ 161,236
Legal Settlement 191 17,055
Accrued Expenses 121,688 54,752
Other, Net 33,400 51,073
--------- ---------
Current Deferred Income Tax $ 285,952 $ 284,116
--------- ---------
Net Operating Loss $ 256,828 $ 296,511
Non-Compete Agreement 3,328 14,927
Valuation Allowance (256,828) (296,511)
Other, Net 40,662 11,364
--------- ---------
Non Current Deferred Income Tax $ 43,990 $ 26,291
--------- ---------
</TABLE>
Tax (Benefit) Provision for the three and nine months ended September 29, 1995:
<TABLE>
<CAPTION>
Three Month Nine Month
----------- ----------
<S> <C> <C>
Federal Provision $ 2,113 $ 39,683
State Provision 615 11,543
--------- ---------
2,728 51,226
Utilization of NOL (2,113) (39,683)
--------- ---------
Income Tax Provision $ 615 $ 11,543
--------- ---------
</TABLE>
6
<PAGE>
The tax expense for the nine months ended September 29, 1995 was $51,226, of
which $70,761 and $19,535 is current expense and deferred tax benefit,
respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- - -------------
Financial Condition and Liquidity
- - ---------------------------------
The Company's working capital at September 29, 1995 increased $140,212 or 6%
from December 31, 1994 to $2,467,736. The Company's current assets decreased by
$120,114 from December 31, 1994 while current liabilities decreased $260,326.
These decreases were primarily attributable to lower accounts payable. Short
term borrowings at September 29, 1995 increased $87,380 as compared to December
31, 1994 as a result of higher accounts receivable and lowering of accounts
payable.
On December 29, 1994, the Company secured a new line of credit with Midlantic
Bank NA. The Company used the proceeds of this line to retire the Integra Bank
obligation. The credit line has a credit limit of $4,000,000, subject to a
borrowing base of 75% of eligible accounts receivable, and depending on the time
of year, 40% to 50% of qualified inventory. The credit facility expires
December 31, 1997.
At September 29, 1995, the Company had $382,570 available under its line of
credit and $122,760 in letters of credit written but not drawn.
Results of Operations
- - ---------------------
Net sales for the nine-month period ended September 29, 1995 were $6,207,051
compared to $7,426,474 for the same period in 1994, a decrease of $1,219,423.
Net sales for the three-month period ended September 29, 1995 decreased $328,644
from the same period in 1994. The decreases in sales are attributable to strong
pricing pressure from competition and the unstable financial condition of some
of the Company's customers.
Gross profit as a percentage of net sales was 33% for the nine-month period
ended September 29, 1995 compared to 36% for the same period in 1994. The
decrease in gross profit margin is primarily attributable to a lower sales
volume. Gross profit margins were 34% for both the three-month periods ended
September 29, 1995 and September 30, 1994.
Selling expenses for the nine-month period ended September 29, 1995 decreased
$64,441 from the same period in 1994. This decrease was due, in part, to lower
travel and entertainment costs and reduced salaries which offset an advertising
and promotion expense increase of $91,530. General and Administrative expenses
decreased $121,721 and $207,314 for the three- and nine-month periods ended
September 29, 1995 respectively, as compared to the same periods in 1994,
reflecting reductions in bank charges, medical insurance coverage and travel
expenses.
7
<PAGE>
Net interest for the nine-month period ended September 29, 1995 increased
$35,413 as compared to the same period in 1994. The Company's borrowings during
the first nine months of 1995 were lower than its borrowings during the same
period in 1994, but this was more than offset by increased interest charges on
such borrowings.
The Company's income before taxes for the nine-month period ended September 29,
1995 was $117,539 compared to income before taxes of $552,007 for the same
period ended September 30, 1994. This decrease resulted from lower sales volume
for the nine-month period in 1995 versus the nine-month period in 1994.
Income taxes for the nine-month period ended September 29, 1995 were $11,543
compared to $146,503 for the same period of 1994. At September 29, 1995 the
Company utilized net loss carryforward in the amount of its federal income tax
provision of $39,683.
8
<PAGE>
PART II
Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) Exhibits
--------
Exhibit
Number Description of Exhibit
- - ------ ----------------------
3.1 Amended and restated Certificate of Incorporation of the Company dated
June 28, 1991 (incorporated by reference to Exhibit 3.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1991).
3.2 Amended and restated By-laws of the Registrant dated December 6, 1991
(incorporated by reference to Exhibit 3.2 of the Registrant's Report on
Form 10-K for the year ended December 31, 1991).
4.1 Common Stock Purchase Warrant in favor of Wesmar Partners dated
February 28, 1988 (incorporated by reference to Exhibit 4.4 of the
Registrant's Registration Statement No. 33-37371 on Form S-3).
4.2 Common Stock Purchase Warrant in favor of Wesmar Partners dated
February 28, 1988 (incorporated by reference to Exhibit 4.5 of the
Registrant's Registration Statement No. 33-37371 on Form S-3).
4.3 Stock Option Agreement between the Registrant and Wesmar Partners
dated February 29, 1988 (incorporated by reference to Exhibit 4.6 of the
Registrant's Registration Statement No. 33-37371 on Form S-3).
4.4 Credit Agreement and Security Agreement between the Registrant and
Midlantic Bank, National Association dated December 29, 1994
(incorporated by reference to Exhibit 99 of the Registrant's Current
Report on Form 8-K dated December 26, 1994).
4.5 United States Patent No. 4,203,598 issued the Registrant (incorporated
by reference to Exhibit 10.3 of the Registrant's Registration Statement
No. 33-16931 on Form S-1).
10.0 Agreement between the LPGA Tournament Players Corporation and the
Registrant dated July 31, 1991 (incorporated by reference to Exhibit
4.11 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1991).
9
<PAGE>
10.1 Lease Agreement between the Registrant and 12 Gloria Lane Limited
Partnership dated June 22, 1989 (incorporated by reference to Exhibit
of the Registrant's Registration Statement No. 33-37371 on Form S-3).
10.2 Modification of Lease Agreement between the Registrant and 12 Gloria
Lane Industrial Partnership dated October 10, 1990 (incorporated by
reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1991).
10.3 1984 Incentive Stock Option Plan of the Registrant dated February 10,
1984 (incorporated by reference to Exhibit 10.7 to the Registrant's
Registration Statement No. 33-16931 on Form S-1).
10.4 Consulting Agreement between the Registrant and George H. Nichols
effective as of January 1, 1995 (incorporated by reference to Exhibit
10.4 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994).
10.5 Employment Agreement between the Registrant and Christopher B. Cooper
dated July 1, 1991 (incorporated by reference to Exhibit 10.8 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1991).
10.6 Employment Agreement between the Registrant and Randy A. Hamill dated
July 1, 1991 (incorporated by reference to Exhibit 10.9 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1991).
10.7 Consulting Agreement between the Registrant and MR & Associates dated
January 1992 (incorporated by reference to Exhibit 10.10 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1992).
10.8 1992 Stock Plan for Independent Directors of S2 Golf, Inc. dated
December 28, 1992 (incorporated by reference to Exhibit 10.11 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1992).
10.9 Agreement between the Vardon Golf Company and the Registrant dated
October 4, 1993 (incorporated by reference to Exhibit 10.9 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 24, 1993).
10
<PAGE>
10.10 Employment Agreement between the Registrant and Douglas A. Buffington
dated January 1, 1995 (incorporated by reference to Exhibit 10.10 of
the Registrant's Annual Report on form 10-K for the year ended
December 31, 1994).
11.1 S2 Golf, Inc. Computation of Earnings per share for the nine-month
period ended September 29, 1995 September 30, 1994.
11.2 S2 Golf, Inc. Computation of Earnings per share for the three-month
period ended September 29, 1995 and September 30, 1994.
27 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
S2 GOLF INC.
Dated: November 9, 1995 By: /s/ Douglas A. Buffington
---------------- -------------------------
Douglas A. Buffington
President and Chief
Financial Officer
12
<PAGE>
EXHIBIT 11.1
S2 GOLF, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 29, September 30,
1995 (A) 1994 (A)
------------- -------------
<S> <C> <C>
Average Number of Shares Outstanding Before
Adjustment 2,204,310 2,192,799
Average Number of Stock Options Assumed Converted
to Common Stock Under the Treasury Stock Method
(B)(C) - -
--------- ---------
Average Number of Common Stock and Common Stock
Equivalents outstanding During the Year 2,204,310 2,192,799
========= =========
Net Income (Loss) Applicable to Common Stock:
Income (Loss) Before Cumulative Effect of Changes in
Accounting Principle $105,996 $405,504
Interest Expense (B) - -
--------- ---------
Net Income (Loss) Applicable to Common Stock $105,996 $405,504
========= =========
Net Income (Loss) Per Common Stock and Common
Stock Equivalent Shares:
Income (Loss) Before Cumulative Effect of Changes In
Accounting Principle $ 0.05 $ 0.18
--------- ---------
Net Income $ 0.05 $ 0.18
========= =========
</TABLE>
(A) The calculations of fully diluted earnings per share are antidilutive.
(B) The number of shares of common stock obtainable on exercise of outstanding
aggregate exceeds 20 percent of the number of common shares outstanding at
September 29, 1995 and September 30, 1994. All the options are assumed to have
been exercised and the aggregate proceeds therefrom have been applied first to
repurchase outstanding common shares, but not to exceed 20% of the outstanding
shares, and second, the balance of the funds are applied to reduce short-term
borrowings, with appropriate recognition of any income tax effects.
(C) The common stock options are antidilutive and therefore are not included
in this calculation.
<PAGE>
EXHIBIT 11.2
S2 GOLF, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
------------------
September 29, September 30,
1995 (A) 1994 (A)
------------- -------------
<S> <C> <C>
Average Number of Shares Outstanding Before
Adjustment 2,204,310 2,192,799
Average Number of Stock Options Assumed Converted
to Common Stock Under the Treasury Stock Method
(B)(C) - -
--------- ---------
Average Number of Common Stock and Common Stock
Equivalents outstanding During the Year 2,204,310 2,192,799
========= =========
Net Income (Loss) Applicable to Common Stock:
Income (Loss) Before Cumulative Effect of Changes in
Accounting Principle $3,372 $39,421
Interest Expense (B) - -
--------- ---------
Net Income (Loss) Applicable to Common Stock $3,372 $39,421
========= =========
Net Income (Loss) Per Common Stock and Common
Stock Equivalent Shares:
Income (Loss) Before Cumulative Effect of Changes In
Accounting Principle $ .00 $ .02
--------- ---------
Net Income $ .00 $ .02
========= =========
</TABLE>
(A) The calculations of fully diluted earnings per share are antidilutive.
(B) The number of shares of common stock obtainable on exercise of outstanding
options aggregate exceeds 20 percent of the number of common shares outstanding
September 29, 1995 and September 30, 1994. All the options are assumed to have
been exercised and the aggregate proceeds therefrom have been applied first to
repurchase outstanding common shares, but not to exceed 20% of the outstanding
shares, and second, the balance of the funds are applied to reduce short-term
borrowings, with appropriate recognition of any income tax effects.
(C) The common stock options are antidilutive and therefore are not included
in this calculation.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 66,254
<SECURITIES> 0
<RECEIVABLES> 2,376,070
<ALLOWANCES> (287,208)
<INVENTORY> 2,175,291
<CURRENT-ASSETS> 4,694,208
<PP&E> 698,920
<DEPRECIATION> 527,146
<TOTAL-ASSETS> 5,243,616
<CURRENT-LIABILITIES> 2,226,472
<BONDS> 0
<COMMON> 22,071
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,243,616
<SALES> 6,207,051
<TOTAL-REVENUES> 6,207,051
<CGS> 4,156,022
<TOTAL-COSTS> 1,699,121
<OTHER-EXPENSES> 38,119
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 196,250
<INCOME-PRETAX> 117,539
<INCOME-TAX> 11,543
<INCOME-CONTINUING> 105,996
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 105,996
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
