<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, 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.
------------
(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, 1997, 2,218,608 shares of common stock, $.01 par value, were
issued and outstanding.
________________________________________________________________________________
<PAGE>
INDEX
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PART I. FINANCIAL INFORMATION Page No.
--------
Item 1. Condensed Financial Statements
-------------------------------------------------
Balance Sheets - September 29, 1997 and
December 31, 1996 2
Statements of Operations - Nine Months Ended
September 29, 1997 and September 29, 1996 3
Statements of Operations-Three Months Ended
September 29, 1997 and September 29, 1996 4
Statements of Cash Flow - Nine Months Ended
September 29, 1997 and September 29, 1996 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
<PAGE>
PART I
Item 1. Financial Statements
S2 GOLF INC.
Condensed Balance Sheets
<TABLE>
<CAPTION>
September 29, December 31,
1997 1996
------------- ------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets
Cash $105,138 $166,592
Accounts Receivable (Net of Allowance
for Doubtful Accounts of$201,062 in 1997
and $250,131 in 1996) 3,025,197 2,429,680
Inventory 2,670,264 1,873,201
Prepaid Expenses 38,470 42,353
Deferred Income Taxes 360,341 150,131
---------- ----------
Total Current Assets 6,199,410 4,661,957
Plant and Equipment - Net 88,900 112,660
Non-Current Deferred Income Taxes 83,343 187,758
Other Assets - Net 167,802 191,276
--------- ----------
Total Assets $6,539,455 $5,153,651
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-Term Borrowings $2,053,907 $1,772,246
Accounts Payable 453,579 230,090
Accrued Expenses 469,332 195,301
Other Current Liabilities 55,430 62,416
---------- ----------
Total Current Liabilities 3,032,248 2,260,053
Non-Current Liabilities 215,482 253,498
---------- ----------
Total Liabilities 3,247,730 2,513,551
---------- ----------
Commitments and Contingencies
Shareholders' Equity
Common Stock, $.01 Par; 12,000,000
Authorized Shares: 2,218,608 and 2,208,311 Issued and
Outstanding at September 29, 1997 and December 31, 1996 22,186 22,083
Additional Paid in Capital 4,036,802 4,025,475
Accumulated Deficit (767,263) (1,407,458)
---------- ----------
Total Shareholders' Equity 3,291,725 2,640,100
---------- ----------
Total Liabilities and Shareholders' Equity $6,539,455 $5,153,651
========== ==========
</TABLE>
See notes to financial statements
-2-
<PAGE>
S2 GOLF INC.
Condensed Statements of Operations
For the Nine Months Ended
Unaudited
<TABLE>
<CAPTION>
September 29, 1997 September 29, 1996
------------------- --------------------
<S> <C> <C>
Net Sales $9,132,316 $6,709,335
Cost of Goods Sold 6,260,062 4,533,229
------------------- --------------------
Gross Profit on Sales 2,872,254 2,176,106
------------------- --------------------
Operating Expenses:
Selling 1,134,296 1,028,495
General & Administrative 808,453 845,974
------------------- --------------------
Total Operating Expenses 1,942,749 1,874,469
------------------- --------------------
Operating Income 929,505 301,637
------------------- --------------------
Other (Expense)
Interest (234,519) (181,717)
Other (5,404) (56,797)
------------------- --------------------
Other Expense (239,923) (238,514)
------------------- --------------------
Income Before Income Taxes 689,582 63,123
Provision for Income Taxes 49,386 6,931
------------------- --------------------
Net Income $640,196 $56,192
=================== ====================
Earnings Per Common Share $.29 $0.02
=================== ====================
Weighted Average Number of Shares Outstanding 2,213,788 2,208,311
</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, 1997 September 29, 1996
------------------- -------------------
<S> <C> <C>
Net Sales $2,859,749 $1,713,695
Cost of Goods Sold 1,939,425 1,180,835
------------------- -------------------
Gross Profit on Sales 920,324 532,860
------------------- -------------------
Operating Expenses:
Selling 374,923 271,120
General & Administrative 254,814 222,017
------------------- -------------------
Total Operating Expenses 629,737 493,137
------------------- -------------------
Operating Income 290,587 39,723
------------------- -------------------
Other Income (Expense)
Interest (72,442) (57,015)
Other 100 (22,250)
------------------- -------------------
Other Expense (72,342) (79,265)
------------------- -------------------
Income (Loss) Before Income Taxes 218,245 (39,542)
Provision (Benefit) for Income Taxes 51,956 (3,507)
------------------- -------------------
Net Income (Loss) $166,289 ($36,035)
=================== ===================
Earnings (Loss) Per Common Share $.08 ($0.02)
=================== ===================
Weighted Average Number of Shares Outstanding 2,213,788 2,208,311
</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, 1997 September 29, 1996
------------------- -------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $640,196 $56,192
Adjustments to Reconcile Net Income to Net Cash Used
By Operating Activities:
Depreciation and Amortization 90,959 40,853
Deferred Income Taxes (105,795) (83,513)
Issuance of Stock for Compensation 11,430 -
Cash Flow Used by Operating Activities as a
Result of Changes in:
Accounts Receivable (595,517) 11,129
Inventory (797,063) (587,325)
Prepaid Expenses 3,883 78,952
Other Assets (30,989) 84,445
Accounts Payable and Accrued Expenses 497,521 329,080
Other Current Liabilities (6,986) (27,203)
Other Non-Current Liabilities- Net (38,016) 20,762
------------------- -------------------
NET CASH USED BY OPERATIONS (330,377) (76,628)
------------------- -------------------
INVESTING ACTIVITIES
Purchase of Equipment (12,737) (19,527)
------------------- -------------------
NET CASH USED IN INVESTING ACTIVITIES (12,737) (19,527)
FINANCING ACTIVITIES
Proceeds from Line of Credit 9,444,457 7,061,734
Payments on Line of Credit (9,162,797) (6,883,088)
------------------- -------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 281,660 178,646
INCREASE (DECREASE) IN CASH (61,454) 82,491
CASH - BEGINNING OF PERIOD 166,592 18,995
------------------- -------------------
CASH - END OF PERIOD $105,138 $101,486
=================== ===================
SUPPLEMENTAL CASH FLOW INFORMATION
Cash Paid During the Year For:
Interest 212,418 181,716
Income Taxes (Net of Refund) -
</TABLE>
See notes to financial statements
-5-
<PAGE>
S2 GOLF, INC.
Notes to Condensed 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.
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" (APB15) Statement No. 128 requires dual
presentation of Basic EPS (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 three and nine-
month periods ended September 29, 1997, reported EPS would not have been
different from the reported EPS under APB15.
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, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
Allowance for Doubtful Accounts $ 96,365 $ 115,981
Accrued Expenses 189,186 90,274
Other, Net 74,790 60,648
Valuation Allowance 0 (116,772)
-------- ---------
Current Deferred Income Tax $360,341 $ 150,131
-------- ---------
Net Operating Loss (carryforward) 0 233,544
Non-Compete Agreement 106,200 102,654
Valuation Allowance 0 (116,772)
Other, Net (22,857) (31,668)
-------- ---------
Non Current Deferred Income Tax $ 83,343 $ 187,758
-------- ---------
</TABLE>
-6-
<PAGE>
Tax Provision for the three and nine months ended September 29, 1997:
<TABLE>
<CAPTION>
Three Month Nine Month
------------ -----------
<S> <C> <C>
Federal Provision $ 72,360 $ 219,175
State Provision 21,048 63,755
-------- ---------
93,408 282,930
Utilization of NOL (41,452) (233,544)
-------- ---------
Income Tax Provision $ 51,956 $ 49,386
</TABLE>
The tax provision for the nine months ended September 29, 1997 was $49,386 of
which $155,181 and $(105,795) is current expense and deferred tax benefit,
respectively.
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, 1997
increased $1,146,054 and $2,422,981 or 67% and 36%, respectively, to $2,859,749
and $9,132,316 as compared to $1,713,695 and $6,709,335 for the same period in
1996. These increases continue to be due to; 1) increased distribution to on-
and off -course shops caused by additional sales in territories where the
Company previously held little presence, 2) a more diverse and cosmetically
appealing product line aimed specifically at the women's market, and 3) a
competitive pricing structure.
Gross profit as a percentage of net sales decreased to 31.5% for the nine-month
period ended September 29, 1997 versus 32.4% for the same period in 1996. The
decrease results from a shift in product sales mix wherein sales of lower price
point model golf clubs increased 55% representing 57% of total sales versus 50%
in 1996.
Selling expenses for the three- and nine-month periods ended September 29, 1997
increased $103,803 and $105,801, respectively, as compared to the same periods
in 1996. These increases were mainly due to an increase in sales commissions of
approximately $238,000 offset by a decrease in sales salaries and travel
expenses totaling $126,000.
General and Administrative expenses increased $32,797 and decreased $37,521 for
the three- and nine-month periods ended September 29, 1997, respectively, as
compared to the same periods in 1996. Three month fluctuations are due to an
increase in salaries and bonus of $46,606 offset by a decrease in amortization
expense of $21,813 relating to three months of amortization expense of the non-
compete agreement which was fully amortized as of June 30, 1997. The nine-month
decrease is primarily due to the $21,813 decrease in non-compete amortization
expense.
-7-
<PAGE>
Interest expense for the three- and nine-month periods ended September 29, 1997
increased $15,427 and $52,802, respectively, as compared to the same periods in
1996. These increases are due to an overall increase in borrowings in the first
nine months of 1997 which averaged approximately $2,528,000 versus $2,035,000
for the same period in 1996.
The Company's income (loss) before taxes for the three- and nine-month periods
ended September 29, 1997 increased 652% and 992% to $218,245 and $689,582
respectively, as compared to income (loss) before taxes of ($39,542) and $63,123
for the same periods in 1996. These increases are due to a 67% and 36% increase
in sales for the three- and nine-month periods ended September 29, 1997.
Income tax (benefit) provision for the three- and nine-month periods ended
September 29, 1997 were $51,956 and $49,386, respectively, as compared to
($3,507) and $6,931 respectively, for the same periods in 1996. For the nine
months ended September 29, 1997, the Company utilized net operating loss
carryforwards reducing its allowable federal income tax provision by $233,544.
Financial Condition and Liquidity
- - ----------------------------------
The Company's working capital at September 29, 1997 increased $765,258 or 32%
from December 31, 1996. The Company's current assets increased $1,537,453 from
December 31, 1996, consisting primarily of an increase in inventory of $797,063
and accounts receivable of $595,517. The increase in inventory levels from
December 31, 1997 are due to the cyclical nature of the business. However,
inventory levels at September 29, 1997 were $387,693 higher than September 29,
1996 due to increased product purchases in an effort to meet demand expected in
the 4th quarter 1997 and 1st quarter 1998. Increases in accounts receivable are
due to the 36% increase in sales.
The increase in current liabilities at September 29, 1997 of $772,195 reflects
an increase in short term borrowings of $281,661 and accounts payable of
$223,489 from December 31, 1996. Both increases are the result of increased
inventory purchases in the three months ended September 29, 1997 as compared to
purchases made during the three month period ended December 31, 1996.
The Company has a revolving line of credit with PNC Bank with a maximum credit
limit of $4,000,000 subject to a borrowing base of 70% of eligible accounts
receivable, and depending on the time of year, 40% to 50% of qualified
inventory. This credit facility expires December 31, 1997. The Company is
currently negotiating with PNC Bank for modifications to, and an extension of,
this facility.
At September 29, 1997, the Company had $339,192 available under its line of
credit and $0 in letters of credit written but not drawn as compared to $225,255
available and $186,238 letters written at September 29, 1996.
-8-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
At the Company's Annual Meeting of Shareholders held on June 5, 1997, the
shareholder's voted upon and elected directors.
Elections of Directors:
<TABLE>
<CAPTION>
Votes For Votes Withheld
-------------------------- ---------------------
<S> <C> <C>
Douglas A. Buffington 1,959,893 10,730
Richard M. Maurer 1,959,893 10,730
Robert L. Ross 1,959,893 10,730
Mary Ann Jorgenson 1,959,893 10,730
Frederick B. Ziesenheim 1,959,893 10,730
</TABLE>
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).
-9-
<PAGE>
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 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 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 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).
-10-
<PAGE>
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 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.
-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.
11/07/97 /s/ Douglas A. Buffington
_______________ __________________________________
Dated: By:
Douglas A. Buffington
President and Chief
Operating Officer
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-29-1997
<CASH> 105,138
<SECURITIES> 0
<RECEIVABLES> 3,226,259
<ALLOWANCES> (201,062)
<INVENTORY> 2,670,264
<CURRENT-ASSETS> 6,199,410
<PP&E> 739,361
<DEPRECIATION> 650,461
<TOTAL-ASSETS> 6,539,455
<CURRENT-LIABILITIES> 3,032,248
<BONDS> 0
0
0
<COMMON> 22,186
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,539,455
<SALES> 9,132,316
<TOTAL-REVENUES> 9,132,316
<CGS> 6,260,062
<TOTAL-COSTS> 1,942,749
<OTHER-EXPENSES> 5,404
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 234,519
<INCOME-PRETAX> 689,582
<INCOME-TAX> 49,386
<INCOME-CONTINUING> 640,196
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 640,196
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
