<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, 1996
[ ] 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
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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 September 29, 1996, 2,208,311 shares of common stock, $.01 par value, were
issued and outstanding
<PAGE>
<TABLE>
<CAPTION>
INDEX
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PART I. FINANCIAL INFORMATION Page No.
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<S> <C> <C>
Item 1. Financial Statements
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Balance Sheets - September 29, 1996 and December
31, 1995 2
Statements of Operations - Nine Months Ended
September 29, 1996 and September 29, 1995 3
Statements of Operations - Three Months Ended
September 29, 1996 and September 29, 1995 4
Statements of Cash Flow - Nine Months Ended
September 29, 1996 and September 29, 1995 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 4. Submission of Matters to a Vote of Security Holders 9
---------------------------------------------------
Item 6. Exhibits and Reports on Form 8-K 9
--------------------------------
Signatures 12
</TABLE>
<PAGE>
PART I
Item 1. Financial Statements
<TABLE>
<CAPTION>
September 29, December 31,
1996 1995
---- ----
(Unaudited)
-----------
<S> <C> <C>
ASSETS
Current Assets
Cash $101,486 $18,995
Accounts Receivable (Net of Allowance
for Doubtful Accounts of $222,027 in 1996
and $284,375 in 1995) 2,078,502 2,089,631
Inventory 2,282,571 1,695,246
Prepaid Expenses 61,016 139,968
Prepaid Income Taxes 10,000 10,000
Deferred Income Taxes 343,191 257,003
---------- ----------
Total Current Assets 4,876,766 4,210,843
Plant and Equipment - Net 127,039 148,365
Non-Current Deferred Income Taxes 51,404 54,079
Investment - Square Two Golf New Zealand, Ltd. 11,129 11,129
Other Assets - Net 217,492 301,937
---------- ----------
Total Assets $5,283,830 $4,726,353
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short Term Borrowings $1,623,667 $1,445,021
Accounts Payable to Related Parties 5,927 14,209
Accounts Payable Other 419,991 158,024
Accrued Expenses 292,502 217,107
Other Current Liabilities 28,367 55,570
---------- ----------
Total Current Liabilities 2,370,454 1,889,931
Non-Current Liabilities 335,968 315,206
---------- ----------
Total Liabilities 2,706,422 2,205,137
Shareholders' Equity
Common Stock, $.01 Par; 12,000,000 Shares
Authorized; 2,208,311 Shares Issued and
Outstanding at September 29, 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 (1,470,150) (1,526,342)
---------- ----------
Total Shareholders' Equity 2,577,408 2,521,216
--------- -----------
Total Liabilities and Shareholders' Equity $5,283,830 $4,726,353
========== ==========
</TABLE>
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<PAGE>
S2 GOLF INC.
Condensed Statement of Operations
For the Nine Months Ended
Unaudited
<TABLE>
<CAPTION>
September 29, 1996 September 29, 1995
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<S> <C> <C>
Net Sales $6,709,335 $6,207,051
Cost of Goods Sold 4,533,229 4,156,022
------------------- ----------------
Gross Profit on Sales 2,176,106 2,051,029
------------------- ----------------
Operating Expenses:
Selling 1,028,495 660,354
General & Administrative 845,974 1,038,767
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Total Operating Expenses 1,874,469 1,699,121
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Operating Income 301,637 351,908
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Other (Expense)
Interest (181,717) (196,250)
Other (56,797) (38,119)
------------------- ----------------
Other Expense (238,514) (234,369)
------------------- ----------------
Income Before Income Taxes 63,123 117,539
Provision for Income Taxes 6,931 11,543
------------------- ----------------
Net Income $56,192 $105,996
================== ===============
Earnings Per Common Share $0.02 $0.05
================== ===============
Weighted Average Number of Shares Outstanding 2,208,311 2,204,310
</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, 1996 September 29, 1995
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<S> <C> <C>
Net Sales $1,713,695 $1,711,434
Cost of Goods Sold 1,180,835 1,124,219
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Gross Profit on Sales 532,860 587,215
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Operating Expenses:
Selling 271,120 190,131
General & Administrative 222,017 308,423
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Total Operating Expenses 493,137 498,554
------------------ ----------------
Operating Income 39,723 88,661
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Other (Expense)
Interest (57,015) (63,211)
Other (22,250) (21,463)
------------------ ----------------
Other Expense (79,265) (84,674)
------------------ ----------------
Income (Loss) Before Income Taxes (39,542) 3,987
Provision (Benefit) for Income Taxes (3,507) 615
------------------ ----------------
Net (Loss) Income ($36,035) $3,372
================= ===============
Earnings (Loss) Per Common Share ($0.02) $0.00
================= ===============
Weighted Average Number of Shares Outstanding 2,208,311 2,204,310
</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, 1996 September 29, 1995
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
- --------------------
Net Income $56,192 $105,996
Adjustments to Reconcile Net Income to Net Cash Used
In Operating Activities:
Depreciation and Amortization 40,853 100,718
Deferred Income Taxes (83,513) 0
Issuance of Stock for Compensation - 22,968
Cash Flow Used by Operating Activities as a
Result of Changes in:
Accounts Receivable 11,129 (247,248)
Inventory (587,325) 226,324
Prepaid Expenses 78,952 (32,684)
Other Assets 84,445 26,667
Accounts Payable, Accrued Expenses and
Related Party Payable 329,080 (179,838)
Other Current Liabilities (27,203) (82,893)
Other Non-Current Liabilities- Net 20,762 (31,748)
--------------- -----------------
NET CASH USED BY OPERATIONS (76,628) (91,738)
--------------- -----------------
INVESTING ACTIVITIES
- --------------------
Purchase of Equipment (19,527) (57,297)
Investment in Square Two Golf New Zealand, Ltd. - (726)
--------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (19,527) (58,023)
FINANCING ACTIVITIES
- --------------------
Proceeds from Line of Credit 7,061,734 4,357,959
Payments on Line of Credit (6,883,088) (4,383,756)
--------------- -----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 178,646 (25,797)
INCREASE (DECREASE) IN CASH 82,491 (175,558)
CASH - BEGINNING OF PERIOD 18,995 241,812
--------------- -----------------
CASH - END OF PERIOD $101,486 $66,254
============== ================
SUPPLEMENTAL CASH FLOW INFORMATION
- ----------------------------------
Cash Paid During the Year For:
Interest 181,716 182,399
Income Taxes (Net of Refund) - 20,000
</TABLE>
See notes to financial statements
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<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 during 1996. Per share data was determined by using the
weighted average number of shares of common stock outstanding during the period.
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, 1996 December 31, 1995
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<S> <C> <C>
Allowance for Doubtful Accounts $ 103,260 $ 129,671
Legal Settlement 191 191
Accrued Expenses 164,849 80,193
Other, Net 74,891 46,948
--------- ---------
Current Deferred Income Tax Asset $ 343,191 $ 257,003
--------- ---------
Net Operating Loss Carryforward $ 368,853 $ 296,511
Non-Compete Agreement (13,402) (720)
Valuation Allowance (368,853) (296,511)
Other, Net 64,806 54,799
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Non Current Deferred Income Tax Asset $ 51,404 $ 54,079
--------- ---------
</TABLE>
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<PAGE>
Tax (Benefit) Provision for the three and nine months ended September 29, 1996:
<TABLE>
<CAPTION>
Three Months Nine Months
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<S> <C> <C>
Federal (Benefit) Provision $(12,056) $ 23,827
State (Benefit) Provision (3,507) 6,931
Utilization of NOL 12,056 (23,827)
Income Tax (Benefit) Provision $ (3,507) $ 6,931
</TABLE>
The tax expense before utilization of available NOL for the nine months ended
September 29, 1996 was $30,758, of which $129,583 and $98,825 is current expense
and deferred tax benefit, respectively.
Reclassifications
Certain reclassifications have been made to the prior year financial statements
in order to conform to current year presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- -------------
Results of Operations
- ---------------------
Net sales for the three- and nine-month periods ended September 29, 1996
increased $2,261 and $502,284, respectively, to $1,713,695 and $6,709,335 as
compared to $1,711,434 and $6,207,051 for the same periods in 1995. These
increases in sales are primarily due to more competitive pricing, broader
selection of the Company's women's line of golf clubs and increased sales
coverage.
Gross profit as a percentage of net sales for the three- and nine-month periods
ended September 29, 1996 were 31% and 32% respectively, as compared to 34% and
33% for the same periods in 1995. These fluctuations are primarily due to
change in product mix sales as well as more competitive pricing by the Company.
Selling expenses for the three- and nine-month periods ended September 29, 1996
increased $80,989 and $368,141, respectively, as compared to the same periods in
1995. These increases were due in part to higher sales force salaries,
commissions and advertising expenses. The Company has increased its field sales
force significantly while also adding a Vice President of Sales. The Company
increased its advertising expenses by $118,495 during the nine-months ended
September 29, 1996 as compared to the same period in 1995.
-7-
<PAGE>
General and Administrative expenses decreased $86,406 and $192,793, for the
three- and nine-month periods ended September 29, 1996, respectively, as
compared to the same periods in 1995. This decrease is due in part to lower
office salaries, rent expense and travel expense.
Interest expense for the three- and nine-month periods ended September 29, 1996
decreased $6,197 and $14,534, respectively, as compared to the same periods in
1995. The Company's borrowings over the first nine months of 1996 were
approximately 6% lower than its borrowings during the same period in 1995.
The Company's income(loss) before taxes for the three- and nine-month periods
ended September 29, 1996 were $(39,542) and $63,123, respectively, as compared
to income before taxes of $3,987 and $117,539, respectively, for the same
periods in 1995. These decreases were primarily due to increased sales and
marketing expenses incurred as a result of an increase in the sales force, the
addition of a Vice President of Sales, as well as an increase in advertising
expenses.
Income tax (benefit) provision for the three- and nine-month periods ended
September 29, 1996 were $(3,507) and $6,931, respectively, as compared to $615
and $11,543, respectively, for the same periods of 1995. At September 29, 1996,
the Company utilized net operating loss carryforwards in the amount of its
federal income tax provision of $23,827.
Financial Condition and Liquidity
- ---------------------------------
The Company's working capital at September 29, 1996 increased $185,400 or 8%
from December 31, 1995. The Company's current assets increased $665,923 from
December 31, 1995, consisting primarily of an increase in inventory of $587,325.
This increase was primarily the result of the cyclical demand of the market
place. However, inventory levels at September 29, 1996 were $167,280 higher
than at September 29, 1995 due to increased purchases of new product in the
three-months ended September 29, 1996 as compared to the three-months ended
September 29, 1995.
The increase in current liabilities at September 29, 1996 of $480,523 reflects
an increase in short term borrowings of $178,646 and accounts payable of
$261,967 from December 31, 1995. Both increases are the result of increased
inventory purchases in the three months ended September 29, 1996 as compared to
inventory purchases made during the three months ended December 31, 1995.
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.
-8-
<PAGE>
At September 29, 1996, the Company had $225,255 available under its line of
credit and $186,238 in letters of credit written but not drawn.
PART II
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Company's Annual Meeting of Shareholders held on June 4, 1996 the
shareholder's voted upon and elected directors.
Elections of Directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
--------- --------------
<S> <C> <C>
Douglas A. Buffington 1,977,208 23,071
Richard M. Maurer 1,975,859 24,420
Robert L. Ross 1,976,065 24,214
Mary Ann Jorgenson 1,977,608 22,671
Frederick B. Ziesenheim 1,977,608 22,671
</TABLE>
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 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).
-9-
<PAGE>
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).
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 Modification of Lease Agreement between the
Registrant and 12 Gloria Lane Industrial
Partnership dated October 3, 1995 (incorporated by
reference to Exhibit 10.2 of the Registrant's
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
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).
10.5 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).
10.6 Amendment of Consulting Services Agreement between
the Registrant and MR and Associates effective as
of February 1, 1996.
-10-
<PAGE>
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).
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).
27 Financial Data Schedule.
(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.
October 25, 1996
- ----------------
Dated: By: /s/ Douglas A. Buffington
-------------------------
Douglas A. Buffington
President and Chief
Operating Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 101,486
<SECURITIES> 0
<RECEIVABLES> 2,300,529
<ALLOWANCES> (222,027)
<INVENTORY> 2,282,571
<CURRENT-ASSETS> 4,876,766
<PP&E> 724,356
<DEPRECIATION> 597,317
<TOTAL-ASSETS> 5,283,830
<CURRENT-LIABILITIES> 2,370,454
<BONDS> 0
0
0
<COMMON> 22,083
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,283,830
<SALES> 6,709,335
<TOTAL-REVENUES> 6,709,335
<CGS> 4,533,229
<TOTAL-COSTS> 1,874,469
<OTHER-EXPENSES> 56,797
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181,717
<INCOME-PRETAX> 63,123
<INCOME-TAX> 6,931
<INCOME-CONTINUING> 56,192
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,192
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
