<PAGE>
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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 MARCH 31, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
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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
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(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 April 23, 1996, 2,208,311 shares of common stock, $.01 par value, were issued
and outstanding.
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<PAGE>
INDEX
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PART I. FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
--------------------
Balance Sheets - March 31, 1996 and December 31, 1995 2
Statements of Operations - Three Months Ended
March 31, 1996 and March 31, 1995 3
Statements of Cash Flow - The Months Ended
March 31, 1996 and March 31, 1995 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations 6
-----------------------------------
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
--------------------------------
Signatures 11
<PAGE>
PART I
Item 1. Financial Statements
S2 Golf, Inc.
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- -----------
(Unaudited)
-----------
<S> <C> <C>
ASSETS
Current Assets
Cash $ 58,015 $ 18,995
Accounts Receivable (Net of Allowance
for Doubtful Accounts of $229,223 in 1996
and $284,375 in 1995) 3,076,348 2,089,631
Inventory 2,035,467 1,695,246
Prepaid Expenses 137,423 139,968
Prepaid Income Taxes 10,000 10,000
Deferred Income Taxes 284,515 257,003
----------- -----------
Total Current Assets 5,601,768 4,210,843
Plant and Equipment - Net 139,536 148,365
Non-Current Deferred Income Taxes 60,105 54,079
Investment - Squaretwo Golf New Zealand, Ltd. 11,129 11,129
Other Assets - Net 274,213 301,937
----------- -----------
Total Assets $6,086,751 $4,726,353
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short Term Borrowings $2,103,994 $1,445,021
Accounts Payable to Related Parties 25,786 14,209
Accounts Payable Other 810,650 158,024
Accrued Expenses 343,047 217,107
Other Current Liabilities 60,541 55,570
----------- -----------
Total Current Liabilities 3,344,018 1,889,931
Non-Current Liabilities 296,700 315,206
----------- -----------
Total Liabilities 3,640,718 2,205,137
Shareholders' Equity
Common Stock, $.01 Par; 12,000,000 Shares
Authorized; 2,208,311 Shares Issued and
Outstanding at March 31, 1996, 2,208,311
Shares Issued and Outstanding December
31, 1995 22,083 22,083
Additional Paid in Capital 4,025,475 4,025,475
Accumulated Deficit (1,601,525) (1,526,342)
----------- -----------
Total Shareholders' Equity 2,446,033 2,521,216
----------- -----------
Total Liabilities and Shareholders' Equity $6,086,751 $4,726,353
========== ==========
</TABLE>
See notes to financial statements
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<PAGE>
S-2 GOLF INC.
Statement of Operations
For the Three Months Ended
Unaudited
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
Net Sales $2,064,046 $1,823,055
Cost of Goods Sold 1,420,812 1,293,976
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Gross Profit on Sales 643,234 529,079
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Operating Expenses:
Selling 387,199 260,941
General & Administrative:
Wesmar Partners 15,000 15,000
Webb, Ziesenheim, Breuning, Logsdon, Orkin and Hanson P.C. 3,750 7,640
Other 292,561 337,786
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Total Operating Expenses 698,510 621,367
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Operating Income (Loss) (55,276) (92,288)
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Other Income (Expense)
Interest - Net (51,949) (57,970)
Other - Net (16,000) (3,259)
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Other Expense - Net (67,949) (61,229)
-------------- --------------
Income (Loss) Before Income Taxes (123,225) (153,517)
Income Taxes (48,042) (60,819)
-------------- --------------
Net Income (Loss) (75,183) (92,698)
============== ==============
Earnings Per Common Share ($0.03) ($0.04)
============== ==============
Weighted Average Number of Shares Outstanding 2,208,311 2,202,706
</TABLE>
See notes to financial statements
-3-
<PAGE>
S2 GOLF INC.
Statements of Cash Flows
For The Three Months Ended
Unaudited
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
-------------- --------------
<S> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net Income (Loss) ($75,183) ($92,697)
Adjustments to Reconcile Net Income to Net Cash Provided
By Operating Activities:
Depreciation and Amortization 13,283 22,383
Deferred Income Taxes (33,538) (54,497)
Issuance of Stock for Compensation -- 13,965
Cash Flow Provided (Used) by Operating Activities as a
Result of Changes in:
Accounts Receivable (986,717) (564,452)
Income Tax Refund Receivable -- --
Inventory (340,221) (127,155)
Prepaid Expenses 2,545 541
Prepaid Income Taxes -- (23,738)
Other Assets 27,724 24,756
Accounts Payable and Accrued Expenses:
Wesmar Partners 20,000 3,815
Webb, Ziesenheim, Breuning, Logsdon, Orkin and Hanson PC (3,349) (7,542)
Other 773,492 114,039
Other Current Liabilities 4,971 (22,358)
Income Taxes Payable -- (2,585)
Other - Net (18,506) (10,353)
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NET CASH PROVIDED (USED) BY OPERATIONS (615,499) (725,878)
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INVESTING ACTIVITIES
- --------------------
Purchase of Equipment (4,454) (38,145)
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (4,454) (38,145)
FINANCING ACTIVITIES
- --------------------
Proceeds from Line of Credit 1,832,466 2,023,714
Payments on Line of Credit (1,173,493) (1,428,419)
-------------- --------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 658,973 595,295
-------------- --------------
INCREASE (DECREASE) IN CASH 39,020 (168,728)
CASH - BEGINNING OF PERIOD 18,995 241,812
-------------- --------------
CASH - END OF PERIOD $58,015 $73,084
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
- ------------------------------------
Information Cash Paid During the Year For:
Income Taxes Paid During the Period -- --
Interest 40,603 41,368
Income Taxes (Net of Refund) -- 20,000
</TABLE>
See notes to financial statements
-4-
<PAGE>
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>
March 31, 1996 December 31, 1995
-------------- -----------------
<S> <C> <C>
Allowance for Doubtful Accounts $ 107,623 $ 129,671
Legal Settlement 191 191
Accrued Expenses 126,095 80,193
Other, Net 50,606 46,948
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Current Deferred Income Tax $ 284,515 $ 257,003
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Net Operating Loss $ 296,511 $ 296,511
Non-Compete Agreement (4,839) (720)
Valuation Allowance (296,511) (296,511)
Other, Net 64,944 54,799
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Non Current Deferred Income Tax $ 60,105 $ 54,079
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</TABLE>
Tax Benefit for the three months ended March 31, 1996:
<TABLE>
<CAPTION>
Three Month
-----------
<S> <C>
Federal Provision ($37,216)
State Provision (10,826)
-----------
(48,042)
Utilization of NOL --
-----------
Income Tax Provision ($48,042)
-----------
</TABLE>
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<PAGE>
The tax benefit for the three months ended March 31, 1996 was $48,042, of which
$2,526 and $45,516 is current benefit and deferred tax benefit, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Results of Operations
- ---------------------
Net sales for the three-month period ended March 31, 1996 increased $240,991 or
13% to $2,064,046 as compared to $1,823,055 for the same period in 1995. This
increase was due, in part, to better sales coverage, lower wholesale prices at
the volume price points and better cosmetics on our iron sets.
Gross profit as a percentage of sales increased to 31.2% for the three-month
period ended March 31, 1996 as compared to 29% for the same period in 1995.
This was a result of higher volume and lower facility costs for the three months
ended in 1996.
Selling expense for the three-month period ended March 31, 1996 increased
$126,258 to $387,199 as compared to $260,941 for the same period in 1995. The
increase was a result of higher salaries due to the addition of a Vice President
of Sales, higher advertising to promote the Company's top line club for women,
higher commissions due to higher sales volume and higher travel expense.
General and administrative expenses decreased $49,115 to $311,311 for the three-
month period ended March 31, 1996 as compared to $360,426 for the same period in
1995. This decrease is a result of lower salaries and consulting expense along
with lower rent and insurance expense.
Interest expense decreased $6,020 to $51,950 for the three-month period ended
March 31, 1996. This decrease was the result of lower borrowings and a
reduction in the prime interest rate.
The Company's net loss before income taxes was $123,225 for the three-month
period ended March 31, 1996 versus a net loss of $153,516 for the same time in
1995. This improvement was the result of higher sales volume for the period.
-6-
<PAGE>
Financial Condition and Liquidity
- ---------------------------------
The Company's working capital at March 31, 1996 decreased $63,162 or 2.7% from
December 31, 1995 to $2,257,750. The increase in current assets of $1,390,925
or 33% from December 31, 1995 to March 31, 1996 consisted primarily of an
increase in accounts receivable of $986,717, resulting from increased sales
from year end as customers prepare for the golf season. The increase in working
capital of $15,648 at March 31,1996 from March 31, 1995 was due to the increase
in accounts receivable which more than offset the increase in current
liabilities at March 31, 1996 from March 31, 1995. Accounts receivable levels
at March 31, 1996 increased by $670,282 over March 31, 1995 levels as a result
of higher sales volume in 1996. Inventory decreased by $493,303 at March 31,
1996 to $2,035,467 from $2,528,770 at March 31, 1995 as a result of improved
inventory management.
The Company's current liabilities increased $1,454,087 or 76.9% from December
31, 1995 to March 31, 1996 reflecting an increase in short term borrowings of
$658,973 as a result of financing operations and an increase in accounts payable
and accrued expenses of $790,143, both of which are the result of the Company
preparing for the golf season. Current liabilities at March 31, 1996 compared
to March 31, 1995 increased $176,556. This increase is primarily the result of
higher accounts payable and accrued expenses of $360,595 which more than offset
decreases in short term borrowings and other current liabilities. This increase
is the result of increased inventory requirements to meet the higher sales
volume and increased selling expenses.
Cash used by operations was $615,499 and $725,878 for the three-month periods
ended March 31, 1996 and 1995, respectively. This decrease in cash used by
operations was the result of higher accounts payable and accured expenses which
more than offset increases in accounts receivable and inventory.
Cash provided by financing amounted to $658,973 for the three-month period ended
March 31, 1996 as compared to $595,295 for the same period in 1995 as the result
of the Company's expansion to increase sales volume.
On December 29, 1994, the Company secured a new credit line with Midlantic Bank
NA. The Company used 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 March 31, 1995, the Company had $201,757 available under its line of credit
and $268,951 in letters of credit written but not drawn.
-7-
<PAGE>
PART II
Item 6. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
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 Annual 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).
-8-
<PAGE>
10.1 Lease Agreement between the Registrant and 12
Gloria Lane Limited Partnership dated June 22, 1989
(incorporated by reference to Exhibit 10.6 of the
Registrant's Registration Statement No. 33-37371 on
Form S-3).
10.2 Lease Renewal Agreement between the Registrant and
12 Gloria Lane Industrial Partnership dated October
3, 1995 (incorporated by reference to Exhibit 10.2
to the Registrants' Annual Report on Form 10-K for
the year ended December 31, 1995).
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 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).
10.5 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).
10.6 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).
10.7 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).
10.8 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).
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<PAGE>
10.9 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 S2 Golf, Inc. Computation of Earnings per share for
the three-month period ended March 31, 1996 and
March 31, 1995.
27 Financial Data Schedules
(b) Reports on Form 8-K
-------------------
None.
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<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.
May 9, 1996 /s/ Douglas A. Buffington
- ----------- -------------------------------
Dated: By:
Douglas A. Buffington
President and Chief
Financial Officer
-11-
<PAGE>
EHIBIT 11.1
S2 GOLF, INC.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31 March 31
1996 (A) 1995 (A)
------------- -------------
<S> <C> <C>
Average Number of Shares Outstanding Before
Adjustment 2,208,311 2,202,706
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 2,208,311 2,202,706
============= =============
Net Income (Loss) Applicable to Common Stock:
Income (Loss) Before Cumulative Effect of Changes in
Accounting Principle ($75,183) ($92,698)
Interest Expense (B) -- --
------------- -------------
Net Income (Loss) Applicable to Common Stock ($75,183) ($92,698)
============= =============
Net Income (Loss) Per Common Stock and Common
Stock Equivalent Shares:
Income (Loss) Before Cumulative Effect of Changes In
Accounting Principle ($0.03) ($0.04)
------------- -------------
Net Income ($0.03) ($0.04)
============= =============
</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 in the aggregate exceeds 20 percent of the number of common shares
outstanding at March 31, 1996 and March 31, 1995. 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 58,015
<SECURITIES> 0
<RECEIVABLES> 3,360,723
<ALLOWANCES> (284,375)
<INVENTORY> 2,035,467
<CURRENT-ASSETS> 5,601,768
<PP&E> 709,278
<DEPRECIATION> 569,742
<TOTAL-ASSETS> 6,086,751
<CURRENT-LIABILITIES> 3,344,018
<BONDS> 0
0
0
<COMMON> 22,083
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,086,751
<SALES> 2,064,046
<TOTAL-REVENUES> 2,064,046
<CGS> 1,420,812
<TOTAL-COSTS> 698,510
<OTHER-EXPENSES> 16,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,949
<INCOME-PRETAX> (123,225)
<INCOME-TAX> (48,042)
<INCOME-CONTINUING> (75,183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (75,183)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
