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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 June 30, 2000.
[ ] 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)
(973) 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 June 30, 2000, 2,220,113 shares of common stock, $.01 par value, were issued
and outstanding.
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S2 GOLF INC.
FORM 10-Q
FOR QUARTERLY PERIOD ENDED JUNE 30, 2000
INDEX
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PART I. FINANCIAL INFORMATION Page Number
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Item 1. Financial Statements
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Balance Sheets -
June 30, 2000 and December 31, 1999 2
Statements of Operations -
Three Months Ended June 30, 2000
and July 2, 1999 3
Statements of Operations -
Six Months Ended June 30, 2000
and July 2, 1999 4
Statements of Cash Flows -
Six Months Ended June 30, 2000
and July 2, 1999 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of
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Financial Condition and Results of Operations 7
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
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Item 3. Quantitative and Qualitative
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Disclosures About Market Risk 9
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Item 6. Exhibits and Reports on Form 8-K 9
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S2 GOLF INC.
BALANCE SHEETS
AS OF JUNE 30, 2000 (UNAUDITED)
AND DECEMBER 31, 1999 (AUDITED)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
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<S> <C> <C>
ASSETS
Current Assets
Cash $ 150 $ 150
Accounts Receivable - Net 3,433,751 2,650,197
Inventories 2,886,917 2,554,736
Prepaid Expenses 41,759 59,278
Deferred Income Taxes 202,000 163,600
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Total Current Assets 6,564,577 5,427,961
Plant and Equipment - Net 129,969 104,476
Non-Current Deferred Income Taxes 59,500 82,000
Other Assets - Net 129,279 137,642
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Total Assets $6,883,325 $5,752,079
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short term Borrowings $ 811,331 $ 774,468
Accounts Payable 664,876 399,864
Accrued Expenses 628,131 171,522
Other Current Liabilities 72,000 61,335
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Total Current Liabilities 2,176,338 1,407,189
Non-Current Liabilities 44,177 84,822
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Total Liabilities 2,220,515 1,492,011
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Contigency
Shareholders' Equity
Common Stock, $.01 Par; 12,000,000 Shares
Authorized: 2,220,113 Issued and Outstanding
at June 30, 2000 and December 31, 1999 22,201 22,201
Additional Paid in Capital 4,042,787 4,042,787
Retained Earnings 597,822 195,080
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Total Shareholders' Equity 4,640,609 4,237,867
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Total Liabilities and Shareholders' Equity $6,861,124 $5,729,878
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements
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S2 GOLF INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
JUNE 30, 2000 AND JULY 2, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, July 2,
2000 1999
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<S> <C> <C>
Net Sales $ 3,922,802 $ 3,514,504
Cost of Goods Sold 2,473,059 2,335,802
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Gross Profit 1,449,743 1,178,702
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Operating Expenses:
Selling 561,055 478,020
General & Administrative 375,863 301,435
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Total Operating Expenses 936,918 779,455
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Operating Income 512,825 399,247
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Other Expense
Interest (36,608) (60,121)
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Total Other (36,608) (60,121)
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Income Before Income Taxes 476,217 339,126
Provision for Income Taxes 192,040 104,496
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Net Income $ 284,177 $ 234,630
=========== ===========
Earnings per Common Share - Basic $ 0.13 $ 0.11
=========== ===========
Diluted $ 0.12 $ 0.10
=========== ===========
Weighted Average Number of Common Shares Outstanding -
Basic 2,220,113 2,219,316
Diluted 2,280,906 2,299,579
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS
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S2 GOLF INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND JULY 2, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, July 2,
2000 1999
---- ----
<S> <C> <C>
Net Sales $ 6,787,472 $ 6,193,829
Cost of Goods Sold 4,386,886 4,198,199
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Gross Profit 2,400,586 1,995,630
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Operating Expenses:
Selling 994,189 929,892
General & Administrative 682,016 591,916
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Total Operating Expenses 1,676,205 1,521,808
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Operating Income 724,381 473,822
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Other Income (Expense)
Interest Expense (57,299) (124,449)
Other Income -- 562
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Total Other - Net (57,299) (123,887)
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Income Before Income Taxes 667,082 349,935
Provision for Income Taxes 268,868 108,894
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Net Income $ 398,214 $ 241,041
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Earnings per Common Share - Basic $ 0.18 $ 0.11
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Diluted $ 0.18 $ 0.10
=========== ===========
Weighted Average Number of Common Shares Outstanding -
Basic 2,220,113 2,219,316
Diluted 2,275,221 2,306,553
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE STATEMENTS
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S2 GOLF INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30, 2000 AND JULY 2, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, July 2,
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
--------------------
Net Income $ 402,742 $ 241,041
Adjustments to Reconcile Net Income to Net Cash Provided
By (Used in) Operating Activities:
Depreciation and Amortization 31,564 27,481
Deferred Income Taxes (32,400) (6,584)
Changes in Assets and Liabilities:
Accounts Receivable (783,554) 268,309
Inventories (332,181) 700,556
Prepaid Expenses 17,519 (73,272)
Other Assets -- (890)
Accounts Payable 265,012 252,955
Accrued Expenses 456,609 76,350
Other Current and Non-Current Liabilities (29,980) (32,098)
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NET CASH (USED IN) PROVIDED BY OPERATIONS (4,669) 1,453,848
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INVESTING ACTIVITIES
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Purchase of Equipment (48,694) (9,938)
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NET CASH USED IN INVESTING ACTIVITIES (48,694) (9,938)
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FINANCING ACTIVITIES
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Proceeds from Revolving Line of Credit, Net 36,863 (1,443,771)
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NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 36,863 (1,443,771)
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INCREASE IN CASH -- 139
CASH - BEGINNING OF PERIOD 150 1,576
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CASH - END OF PERIOD $ 150 $ 1,715
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SUPPLEMENTAL CASH FLOW DISCLOSURES
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Cash Paid During the Year For:
Interest $ 57,299 $ 124,449
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Income Taxes - 179,881
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL
PART OF THESE STATEMENTS
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NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements of S2 Golf Inc. (the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial reporting. In the opinion of management, all material
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the six months ended
June 30, 2000 are not necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 2000. The unaudited financial statements
and related notes are presented as permitted by Form 10-Q and do not contain
certain information included in the Company's annual financial statements and
notes thereto. For further information, refer to the Company's annual financial
statements and notes thereto included in the Company's annual report on Form
10-K for the fiscal year ended December 31, 1999.
1) EARNINGS PER SHARE
Basic earnings per share ("EPS") excludes dilution and is computed by dividing
net income available to common stockholders by the weighted average number of
common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if stock options or other contracts to issue common
stock were exercised and resulted in the issuance of common stock that then
shared in the earnings of the Company. Diluted EPS is computed using the
treasury stock method when the effect of common stock equivalents would be
dilutive. The only reconciling item between the denominator used to calculate
basic EPS and the denominator used to calculate diluted EPS is the dilutive
effect of stock options issued to employees of the Company and other parties.
The Company has issued no other potentially dilutive common stock equivalents.
2) INVENTORIES
Inventories are valued at the lower of cost, determined on the basis of the
first-in, first-out method, or market.
Inventories at June 30, 2000 and December 31, 1999 consisted of the following
components:
6/30/00 12/31/99
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Raw Materials $2,165,188 $1,916,052
Finished Goods 721,729 638,684
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$2,886,917 $2,554,736
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3) SHORT TERM BORROWINGS
The Company has a secured revolving line of credit allowing a maximum credit
limit of $5,000,000, less 50% of the aggregate face amount of all outstanding
letters of credit, and subject to various borrowing
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bases through September 1, 2000. The availability of funds under this line of
credit varies as it is based, in part, on a borrowing base of 80% of eligible
accounts receivable and 50% of qualified inventory. Substantially all of the
Company's assets are used as collateral for the credit line. Interest rates are
at prime plus one-quarter percent, paid monthly; the interest rate was 9.75% as
of June 30, 2000 and 8.75% as of December 31, 1999. The Company's availability
on the line of credit, as of June 30, 2000, was approximately $1,900,500.
The credit facility contains certain covenants, which, among other items,
require the maintenance of certain financial ratios including tangible net worth
and working capital. Any event of default under the credit facility permits the
lender to cease making additional loans thereunder. The Company was in
compliance with all covenants and conditions of the facility as of June 30,
2000.
4) LEGAL
The Company, in the ordinary course of business, is party to a legal action, the
outcome of which, in the opinion of management, will not have a material adverse
effect on the result of operations, cash flows or financial position of the
Company.
5) QUARTERLY ENDS
The Company reports its interim financial statements as of the Friday closest to
month-end of the quarter. Therefore, the interim quarters for fiscal 2000 will
end on March 31, 2000, June 30, 2000, and September 29, 2000. The Company
reports its year-end financial statements as of December 31.
6) SUBSEQUENT EVENTS
On July 31, 2000, the Company acquired substantially all of the net assets of
NancyLopezGolf(TM), a golf equipment product line of The Arnold Palmer Golf
Company, for approximately $ 4.6 million, subject to purchase price adjustments.
The Company has signed a letter of intent to acquire Ladies Golf Equipment
Company, Inc., a supplier of women's golf footwear and other golf accessories.
Consideration for the acquisition will be in the form of cash and stock.
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 and six-month periods ended June 30, 2000 were
$3,922,802 and $6,787,472 respectively, compared to $3,514,504 and $6,193,829
for the same periods in 1999. Management attributes this 9.6% increase in sales
for the six-month period over the same period in the prior year primarily to
general strengthening of the golf equipment industry plus the continued strength
of the Company's women's business, supported by the Company's national
television advertising campaign. Net sales for the three-month period ended June
30, 2000 were 11.6% higher than the same period in 1999.
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Gross profit as a percentage of sales for the three-month and six-month periods
ended June 30, 2000 was 37.0% and 35.4% respectively, as compared to 33.5% and
32.2% for the same periods in 1999. Management attributes this increase
primarily to differences in the mix of products shipped during the comparison
period and to lower costs for some components in the period ended June 30, 2000.
Selling expenses for the three-month and six-month periods ended June 30, 2000
were $561,055 and $994,189 respectively, compared to $478,020 and $929,892 for
the same periods in 1999. This is the result of increased salaries and
commission. In addition, the company incurred a player endorsement expense
during the six-month period ended June 30, 2000 that did not exist in the
six-month period ended July 2, 1999.
General and Administrative expenses for the three-month and six-month periods
ended June 30, 2000 were $375,863 and $682,016 respectively, compared to
$301,435 and $591,916 for the same periods in 1999. This is due primarily to
increased legal fees in connection with two (2) pending acquisitions, one to be
completed in July 2000 and the other during the 4th quarter of 2000.
Interest expense for the six-month period ended June 30, 2000 was $57,299, which
reflected a 54% decrease compared to the same period in 1999. This reduction in
interest expense was a direct result of the 57% decrease in the average loan
balance. The average loan balance for the six-month period ended June 30, 2000
was $1,333,436 compared to an average loan balance of $3,075,061 for the
six-month period ended July 2, 1999.
The Company's net income for the six-month period ended June 30, 2000 was
$398,214 compared to $241,041 for the same six-month period in 1999. This
increase is the result of a 9.6% increase in net revenue, gross margins
improving to 35.4%, and lower interest charges, offset by increased sales and
general and administrative expenses.
The provision for income taxes was $268,868 for the six-month period ended June
30, 2000 compared to $108,894 for the same six-month period in 1999.
On July 31, 2000, the Company acquired NancyLopezGolf(TM), a golf equipment
product line formerly owned by the Arnold Palmer Golf Company. The Company will
market the NancyLopezGolf(TM) equipment as its premium club line.
FINANCIAL CONDITION AND LIQUIDITY
---------------------------------
The Company's working capital increased by $367,467 for the six-month period
ended June 30, 2000. Current assets increased by $1,136,616, offset by an
increase in current liabilities of $769,149. Accounts receivable increased by
$783,554 for the six-month period ended June 30, 2000, which was typical for the
Company due to the cyclical nature of the golf industry. Inventory increased
during the same period by $332,181, or 13.0%. The Company's short-term borrowing
increased by $36,863, which was a result of the increase to accounts receivable
and inventory. In addition, accounts payable increased by $265,012 for the
six-month period ended June 30, 2000, and accrued expenses increased by $456,609
for the same period. The increases in accounts payable and accrued expenses are
primarily a result of the cyclical nature of the business.
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Working capital increased by approximately $386,900 from the period ended July
2, 1999 to the period ended June 30, 2000. This was the result of a net increase
of approximately $239,000 in current assets (resulting from a net increase of
$389,000 in accounts receivable offset by decreases in inventory, prepaid
expenses and deferred income taxes totaling $149,000) as well as an approximate
decrease in current liabilities of $148,000 (due to a decrease in short term
borrowings of $511,000 offset by increases in accounts payable, accrued expenses
and taxes of $364,000).
Cash used in operations was $4,669 for the six-month period ending June 30,
2000. This was a result of increased inventory purchases. Cash provided by
operations for the six-month period ended July 2, 1999 was $1,453,848. Cash
provided by financing activities totaled $36,863 for the six-month period ended
June 30, 2000 and cash used to reduce financing activities totaled $1,443,771
for the same six-month period in 1999. During the six-month period ended June
30, 2000, cash used for the payment of equipment purchased was $48,694 and
interest charges on short and long term borrowings was $57,299.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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On July 21, 1999, a former Vice President of the Company filed a complaint
against the Company in the Essex County Superior Court of New Jersey in
connection with the termination of his employment. He claims damages of
approximately $50,000. The Company intends to defend this lawsuit vigorously.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
(a) The exhibits listed on the attached Exhibit Index are filed as part
of this report.
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.
8/11/2000 /s/ Douglas A. Buffington
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Dated: By:
Douglas A. Buffington
President and Chief
Operating Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT*
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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).
10.0 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).
10.1 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).
10.2 Amended and Restated Licensing Agreement between Ladies
Professional Golf Association and the registrant dated January
1, 1999 (incorporated by reference to Exhibit 10.2 of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.3 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).
10.4 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).
10.5 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).
10.6 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 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).
10.8 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** Employment Agreement between the registrant and Douglas A.
Buffington dated January 1, 1998. (incorporated by reference
to Exhibit 10.9 of the registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 2000).
10.10** Agreement between the registrant and Randy A. Hamill dated
January 2, 1997 (incorporated by reference to Exhibit 10.10 of
the registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
<PAGE> 12
10.11 Second amendment to loan and security agreement between
registrant and PNC Bank dated December 1, 1997 (incorporated
by reference to Exhibit 10.12 of the registrant's Annual
Report on Form 10-K for the year ended December 31, 1997).
10.12 License Agreement between the registrant and Raymond Lanctot
Ltee/Ltd. dated June 28, 1999 (incorporated by reference to
Exhibit 10.12 of the registrant's Annual Report on Form 10-K
for the year ended December 31, 1999).
10.13 Endorsement Agreement between the registrant and Kathy
Whitworth dated October 13, 1999 (incorporated by reference to
Exhibit 10.13 of the registrant's Annual Report on Form 10-K
for the year ended December 31, 1999).
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.
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