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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, 1997.
[ ] 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.
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(Exact Name of Registrant as Specified in its Charter)
New Jersey 22-2388568
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
18 Gloria Lane, Fairfield, NJ 07004
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(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
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On April 23, 1997, 2,214,738 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.
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Item 1. Financial Statements
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Balance Sheets - March 31, 1997 and December 31, 1996 2
Statements of Operations - Three Months Ended
March 31, 1997 and March 31, 1996 3
Statements of Cash Flow - Three Months Ended
March 31, 1997 and March 31, 1996 4
Notes to Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
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Condition and Results of Operations 6
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
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Signatures 10
<PAGE>
PART I
Item 1. Financial Statements
S2 GOLF INC.
Balance Sheets
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
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ASSETS (Unaudited)
<S> <C> <C>
Current Assets
Cash $150 $166,592
Accounts Receivable (Net of Allowance
for Doubtful Accounts $186,077 in 1997
and $250,131 in 1996 4,070,743 2,429,680
Inventory 2,541,073 1,873,201
Prepaid Expenses 42,587 42,353
Deferred Income Taxes 150,746 150,131
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Total Current Assets 6,805,299 4,661,957
Plant and Equipment - Net 105,422 112,660
Non-Current Deferred Income Taxes 198,108 187,758
Other Assets - Net 196,574 191,276
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Total Assets $7,305,403 $5,153,651
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-Term Borrowings $2,982,369 $1,772,246
Accounts Payable 996,613 230,090
Accrued Expenses 224,495 195,301
Other Current Liabilities 77,592 62,416
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Total Current Liabilities 4,281,069 2,260,053
Non-Current Liabilities 241,108 253,498
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Total Liabilities 4,522,177 2,513,551
Commitments and Contingencies
Shareholders' Equity
Common Stock, $.01 Par; 12,000,000
Authorized Shares: 2,211,742 and 2,208,311 Issued and
Outstanding at March 31, 1997 and December 31, 1996
22,117 22,083
Additional Paid in Capital 4,029,440 4,025,475
Accumulated Deficit (1,268,331) (1,407,458)
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Total Shareholders' Equity 2,783,226 2,640,100
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Total Liabilities and Shareholders' Equity $7,305,403 $5,153,651
========== ==========
</TABLE>
See notes to financial statements
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S2 GOLF INC.
Statements of Operations
For the Three Months Ended
Unaudited
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
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<S> <C> <C>
Net Sales $2,837,433 $2,064,046
Cost of Goods Sold 1,978,215 1,420,812
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Gross Profit 859,218 643,234
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Operating Expenses:
Selling 384,932 387,199
General & Administrative 265,922 311,311
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Total Operating Expenses 650,854 698,510
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Operating Income 208,364 (55,276)
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Other Income (Expense)
Interest Expense (58,588) (51,949)
Other Income (Expense) (503) (16,000)
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Other - Net (59,091) (67,949)
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Income (Loss) Before Income Taxes 149,273 (123,225)
Provision (Benefit) for Taxes 10,146 (48,042)
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Net Income (Loss)
$139,127 ($75,183)
========== ==========
Earnings (Loss) Per Common Share $0.06 ($0.03)
========== ==========
Weighted Average Number of Shares Outstanding 2,210,171 2,208,311
</TABLE>
See notes to financial statements
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<PAGE>
S2 GOLF INC.
Statement of Cash Flows
For the Three Months Ended
Unaudited
<TABLE>
<CAPTION>
March 31, March 31,
1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES
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Net Income (Loss) $139,127 ($75,183)
Adjustments to Reconcile Net Income to Net Cash (used)
Provided By Operating Activities:
Depreciation and Amortization 38,230 13,283
Deferred Income Taxes (10,965) (33,538)
Issuance of Stock for Compensation 3,999
Cash Flow Provided (Used) by Operating Activities as a
Result of Changes in:
Accounts Receivable (1,641,063) (986,717)
Inventory (667,872) (340,221)
Prepaid Expenses (234) 2,545
Other Assets (30,689) 27,724
Accounts Payable and Accrued Expenses 766,523 790,143
Other Current Liabilities 29,194 4,971
Other - Net 2,786 (18,506)
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NET CASH (USED) IN OPERATIONS (1,370,964) (615,499)
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INVESTING ACTIVITIES
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Purchase of Equipment (5,601) (4,454)
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NET CASH USED IN INVESTING ACTIVITIES (5,601) (4,454)
FINANCING ACTIVITIES
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Proceeds from Line of Credit 2,516,861 1,832,466
Payments on Line of Credit (1,306,738) (1,173,493)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,210,123 658,973
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INCREASE (DECREASE) IN CASH (166,442) 39,020
CASH - BEGINNING OF PERIOD 166,592 18,995
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CASH - END OF PERIOD $150 $58,015
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
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Cash Paid During the period:
Interest 43,588 40,603
</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. 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.
In February 1997, the FASB issued Statement No. 128 "Earnings Per Share", which
simplifies the standards for computing Earnings Per Share (EPS) and makes them
comparable to International EPS Standards. Statement No. 128 replaces standards
for computing and presenting EPS found in Accounting Principles Board Opinion
No. 15, "Earnings Per Share" (APB.15) Statement No. 128 requires dual
presentation of Basic (which replaces APB15 Primary EPS) and Diluted EPS on the
face of the income statement for all entities with complex capital structures.
Statement No. 128 will be effective for the 1997 Annual Report, including
interim periods to be presented therein; however, earlier application is not
permitted. Had Statement No. 128 been effective for the first quarter 1997,
Basic and Diluted EPS would have been $.06 per share.
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, 1997 December 31, 1996
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<S> <C> <C>
Allowance for Doubtful Accounts $ 90,375 $ 115,981
Legal Settlement 191 191
Accrued Expenses 109,363 90,274
Other, Net 67,589 60,457
Valuation Allowance (116,772) (116,772)
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Current Deferred Income Tax $ 150,746 $ 150,131
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Net Operating Loss (carryforward) 233,544 233,544
Non-Compete Agreement (22,357) (17,829)
Valuation Allowance (116,772) (116,772)
Other, Net 103,693 88,815
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Non Current Deferred Income Tax $ 198,108 $ 187,758
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</TABLE>
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Tax Provision for the three months ended March 31, 1997:
<TABLE>
<CAPTION>
Three Month
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<S> <C>
Federal Provision ($ 3,421)
State Provision 13,567
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Income Tax Provision $10,146
</TABLE>
The tax expense for the three months ended March 31, 1997 was $10,146 of which
$14,563 and ($4,417) is current expense 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
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Net Sales for the three-month period ended March 31, 1997 increased $773,387 or
37% to $2,837,433 as compared to $2,064,046 for the same period in 1996. This
is primarily due to increased distribution to on-course shops, off-course shops
and the addition of specialty sporting goods accounts.
Gross profit as a percentage of sales decreased to 30.2% for the three-month
period ended March 31, 1997 as compared to 31.1% for the same period in 1996.
The decrease relates to a shift in product mix. Lower price point model golf
clubs accounted for a greater percentage of total sales for the first quarter
1997 versus 1996 along with approximately $400,000 of slower moving merchandise
sold at discounts.
Selling expense decreased $2,267 for the three-month period ended March 31, 1997
to $384,932 versus $387,199 for the same period in 1996. Although total costs
remained consistent, a shift in several costs occurred; 1) an increase in sales
commissions of $71,354 due to increased sales volume; 2) a decrease in sales
salaries of $37,864 as well as a decrease in travel expense of $11,308 due to
the elimination of two salesmen in mid 1996, and 3) a decrease in advertising
expense of $28,000.
General and Administrative expense decreased $45,389 to $265,922 for the three
month period ended March 31, 1997 as compared to $311,311 for the same period in
1996. This decrease is primarily due to a reduction in personnel and a reduction
in medical insurance premiums as a result of the Company changing carriers.
Interest expense for the three-month period March 31, 1997 increased $6,639 over
the same period in 1996 due to an overall increase in the average loan balance.
The average balance for the three-months ended March 30, 1997 was approximately
$2,391,832 versus $1,835,608 for the same period in 1996.
The Company's net income before taxes was $149,273 for the three-month period
ended
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<PAGE>
March 31, 1997 versus a net loss of $123,225 for the same time in 1996.
This improvement of approximately 221% was the result of increased sales volume
of approximately 37%.
Financial Condition and Liquidity
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The Company's working capital at March 31, 1997 increased $122,326 from December
31, 1996 to $2,524,230. The increase in current assets of $2,143,342 or 46%
from December 31, 1996 to March 31, 1997 consists primarily of increases in
accounts receivable and inventory of $1,641,063 and $667,872, respectively.
These increases were the result of increased sales and inventory purchases,
respectively, from year end as is typical to the Company due to the cyclical
nature of the golf industry.
The increase in working capital of $266,480 at March 31, 1997 from March 31,
1996 was also due to an increase in accounts receivable of $994,395 and
inventory of $505,607 resulting from the 37% growth in sales and increased
product demand in 1997 over the same period in 1996.
Current liabilities increased $2,021,016 from December 31, 1996 to March 31,
1997 primarily due to increases in bank borrowings, of approximately $1,210,123,
and accounts payable, of approximately $766,523 which was the result of
inventory purchases typically made in the first quarter in anticipation of
customer demand.
The increase in current liabilities of $937,051 from March 31, 1996 to March 31,
1997 was primarily the result of increased account payable inventory purchase
activity made in an effort to meet demand associated with the increase in sales
growth in the first quarter of 1997 versus the same time period in 1996.
Cash used by operations was $1,370,964 and $615,499 for the three-months ended
March 31, 1997 and 1996, respectively. The increase in cash used by operations
was the result of increased in accounts receivable and inventory due to
increased volume.
Cash provided by financing activities amounted to $1,210,123 for the three-month
period ending March 31, 1997 as compared to $658,973 for the same period in
1996. This increase was the result of increased borrowings of the Company's
line of credit to finance inventory purchases in order to meet the Company's
sales growth and demand.
At March 31, 1997, the Company had $527,428 available under its line of credit
with PNC Bank and $18,000 in letters of credit written but not drawn.
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<PAGE>
Item 6. Exhibits, Financial Statement Schedules and Reports on Form 8-K
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<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit*
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<S> <C>
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 to 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 Statement No. 33-37371 on Form S-3).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
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 (incorporated by
reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996).
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 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994).
12 Amended and Restated Licensing Agreement between Ladies Professional
Golf Association and the Registrant dated July 1, 1996 (incorporated
by reference to Exhibit 12 of the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1996).
27 Financial Data Schedule.
* In the case of incorporation by reference to documents filed by the
Registrant under the Exchange Act, the Registrant's file number under
the Act is 0-14146.
** Management contract or management compensatory plan or arrangement.
</TABLE>
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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 5, 1997 s/s Douglas A. Buffington
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Dated: By:
Douglas A. Buffington
President and Chief
Operating Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 150
<SECURITIES> 0
<RECEIVABLES> 4,256,820
<ALLOWANCES> 186,077
<INVENTORY> 2,541,073
<CURRENT-ASSETS> 6,805,299
<PP&E> 732,226
<DEPRECIATION> 626,804
<TOTAL-ASSETS> 7,305,403
<CURRENT-LIABILITIES> 4,281,069
<BONDS> 0
0
0
<COMMON> 22,117
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,305,403
<SALES> 2,837,433
<TOTAL-REVENUES> 2,837,433
<CGS> 5,805,895
<TOTAL-COSTS> 650,854
<OTHER-EXPENSES> 503
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,588
<INCOME-PRETAX> 149,273
<INCOME-TAX> 10,146
<INCOME-CONTINUING> 139,127
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 139,127
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
