SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549-1004
---------------------------------------
FORM 10-Q
(Mark One)
[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
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0 - 22230
ROYAL GRIP, INC.
Nevada 86-0615648
(State or other jurisdiction of (IRS employer identification number)
incorporation)
444 West Geneva Drive
Tempe, Arizona 85282
(602) 829-9000
(Address, including zip code, and telephone number,
including area code, of registrant's
principal executive offices)
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 shorter period that the
registrant was required to file such reports), and (2) has, been subject to the
filing requirements for at least the past 90 days.
Yes x No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (May 7, 1996).
Common stock, $.001 par value: 2,734,678
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ROYAL GRIP, INC.
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets- 3
March 31, 1996 and December 31, 1995
Condensed Consolidated Statements of Operations- 4
Three Months Ended
March 31, 1996 and March 31, 1995
Condensed Consolidated Statements of Cash Flows- 5
Three Months Ended
March 31, 1996 and March 31, 1995
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
EXHIBITS
11 Computation of Net Income (Loss) Per Share 13
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<TABLE>
<CAPTION>
Part I ROYAL GRIP, INC. AND SUBSIDIARY
Item 1
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
-------- -----------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ - $ 413,345
Trade accounts receivable (net of allowance for
doubtful accounts of $272,055 and $227,070
as of March 31, 1996 and March 31, 1995,
respectively). 2,832,791 1,864,012
Income tax refund receivable 100,465 101,139
Inventories 1,704,275 1,720,296
Prepaid expenses and other current assets 152,685 144,828
---------- -----------
Total current assets 4,790,216 4,243,620
---------- ----------
Property and equipment, net 5,461,177 6,258,292
Intangible assets, net 1,038,671 1,083,240
Other assets 59,938 58,675
----------- ---------
$11,350,002 $11,643,827
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Revolving line of credit $ 350,000 $ -
Current portion of long-term debt and capital leases 129,322 136,643
Accounts payable and accrued expenses 1,597,482 1,671,626
---------- -----------
Total current liabilities 2,076,804 1,808,269
---------- ----------
Long-term debt and capital leases, less current portion 168,309 161,422
Stockholders' equity:
Preferred stock, par value $.001 per share.
Authorized 5,000,000 shares; none issued
Common stock, par value $.001 per share.
Authorized 15,000,000 shares; issued and
outstanding 2,734,678 shares at March 31, 1996
and at March 31, 1995 2,735 2,735
Additional paid-in capital 12,199,288 12,199,288
Retained earnings (deficit) (3,097,134) (2,527,887)
---------- --------------
Total stockholders' equity 9,104,889 9,674,136
---------- ----------
$11,350,002 $11,643,827
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
ROYAL GRIP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended
March 31,
1996 1995
--------- ----------
Net sales $4,357,621 $4,484,077
Cost of goods sold 3,239,546 3,051,957
--------- -----------
Gross profit 1,118,075 1,432,120
Selling, general and administrative expenses 1,671,455 2,032,172
--------- -----------
Loss from operations (553,380) (600,052)
Other expenses, net (15,867) (14,350)
---------- -----------
Loss before income tax benefit (569,247) (614,402)
Income tax benefit - (245,400)
---------- -----------
Net loss ($569,247) $(369,002)
========== ===========
Net loss per share ( $0.21) ($0.13)
========== ===========
Shares used in net loss per share 2,734,678 2,734,678
========== ===========
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ROYAL GRIP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss ($569,247) ($369,002)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 435,371 490,882
Loss on disposition of property and equipment 7,387 4,635
Decrease in deferred income taxes - (245,400)
Increase in trade accounts receivable (968,779) (832,971)
Decrease in inventories 16,021 708,547
Increase in prepaid expenses and other current assets (7,183) (369,633)
Increase in other assets and intangibles (16,025) (15,794)
Increase (Decrease) in trade accounts payable
and accrued expenses (74,144) 176,764
-------- ---------
Net cash used by operating activities (1,176,599) (451,972)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (352,337) (324,865)
Proceeds from sale of property and equipment 766,025 -
-------- -------
Net cash provided by (used in) investing activities 413,688 (324,865)
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations (7,606) (6,739)
Advances on notes payable 7,172 -
Increase in revolving line of credit 350,000 -
-------- --------
Net cash provided by (used in) financing activities 349,566 (6,739)
------- ---------
Net decrease in cash (413,345) ( 783,576)
Cash at beginning of period 413,345 1,193,909
---------- ----------
Cash at end of period $ - $ 410,333
============= ========
See accompanying notes to condensed consolidated financial statements.
</TABLE>
5
<PAGE>
ROYAL GRIP, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles, pursuant
to rules and regulations of the Securities and Exchange Commission. In the
opinion of management the accompanying condensed financial statements include
all adjustments (of a normal recurring nature) which are necessary for a fair
presentation of the results for the interim periods presented. Certain
information and footnote disclosures have been condensed or omitted pursuant to
such rules and regulations. It is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements
included in the Company's annual report on Form 10-K for the year ended December
31, 1995, as filed with the Securities and Exchange Commission. Results of
operations in interim periods are not necessarily indicative of results to be
expected for a full year.
(2) Inventories
Inventories consist of the following:
March 31, March 31,
1996 1995
-------- --------
Finished goods $981,339 $929,248
Work in process 51,821 81,219
Raw materials 671,115 397,771
----------- -----------
$1,704,275 $1,408,238
========== ==========
(3) Property and Equipment
During the quarter ended March 31, 1996, the Company sold certain
equipment which had a net book value of $765,478 at December 31, 1995. The
Company used these proceeds to pay down its line of credit and for working
capital.
6
<PAGE>
(4) Revolving line of credit
The Company has a $1.2 million revolving line of credit with a
commercial bank in Phoenix, Arizona. Amounts outstanding bear interest at the
bank's prime rate of 8.25% on March 31, 1996. Interest is payable monthly and
principal balances are due when the line expires on May 30, 1996. Alternatively,
at the maturity date, the Company may pay up to $700,000 of the then outstanding
portion in sixty equal monthly installments plus interest and the balance of the
outstanding portion in full. At March 31, 1996, $350,000 was outstanding on the
line. The revolving line of credit agreement contains debt covenants for which
the Company was in compliance at March 31,1996.
(5) Deferred Income Taxes
The Company accounts for income taxes under the asset and liability
method of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes."
No tax benefit is available in the first quarter of 1996 due to a l00%
valuation allowance on the deferred tax asset. This will have the effect of
reducing income tax expense in future periods in which the net operating loss
carry forwards are realized.
7
<PAGE>
Part I
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Results of Operations
The following table sets forth for the periods indicated the percentage
of net sales represented by each line item in the Company's statements of
operations:
Three Months Ended
March 31,
------------------
1996 1995
---- ----
Net sales 100.0% 100.0%
Cost of goods sold 74.3 68.1
------- -------
Gross profit 25.7 31.9
Selling, general and administrative expenses 38.1 45.3
------- -------
Loss from operations (12.4) (13.4)
Other expense net (0.3) (0.3)
------- --------
Loss before income tax benefit (12.7) (13.7)
Income tax benefit (0.0) (5.5)
------- --------
Net loss (12.7%) (8.2%)
======= ========
Net Sales. Net sales for the three months ended March 31, 1996 (first
quarter) were $4.4 million, a decrease of 2.8% over net sales of $4.5 million
for the corresponding period in the prior year. The decrease in net sales for
the first quarter of 1996 from the same period of the prior year is largely
attributable to a decrease in grip sales of $502,000. This reflects a decrease
in grip sales to the Company's Japanese distributor and OEM customers of 6.1%
and 4.4%, respectively, in the first quarter of 1996 over the corresponding
period in the prior year. The Company's headwear subsidiary, Roxxi Inc.,
reported an increase in sales of $388,000, or 41.0%, for the quarter ended March
31, 1996, as compared to the same period of the prior year.
8
<PAGE>
Gross Profit. Gross profit decreased to $1.1 million in the first
quarter of 1996, down from $1.4 million in the first quarter of 1995. As a
percentage of net sales, gross profit decreased to 25.7% from 31.9%. The decline
in gross profit and the gross profit percentage primarily was attributable to
increased lower margin headwear sales as a percentage of the total sales mix.
During the first quarter, the margin on headwear sales increased by 10.9
percentage points compared to the same quarter last year due to increased
revenues and efficiencies gained in production. The margin on grip sales
decreased by 7.1 percentage points compared to the same quarter last year
primarily due to a reduction in sales resulting in fixed expenses being spread
over fewer units sold.
Selling, General and Administrative. Selling, general and
administrative expenses decreased to $1.7 million in the first quarter of 1996
from $2.0 million in the comparable period of 1995. Selling, general and
administrative expenses decreased due to a reduction in advertising and
promotion expenses of $157,000 and miscellaneous expenses of $225,000.
Other Income (Expense). Other expense was $16,000 in the first quarter
of 1996 compared to other expense of $14,000 in the same period of 1995. The
expense in 1996 resulted primarily from interest expense incurred on a revolving
line of credit and a loss on fixed asset dispositions.
Liquidity and Capital Resources
On April 30, 1996, the Company had $175,000 drawn on its line of credit
of $1.2 million. See Note (4) to the Notes to Condensed Consolidated Financial
Statements. Available borrowings on the line at March 31, 1996 were $850,000.
This line matures on May 31, 1996. The Company has an income tax refund
receivable of $100,000 at March 31, 1996. For the three months ended March 31,
1996, the Company recorded a net decrease in cash of $413,345. The significant
uses of
9
<PAGE>
cash were the increase in accounts receivable of $968,779 and the purchase of
plant and equipment of $352,337. During the first quarter, the Company's primary
sources of cash were borrowings of $350,000 on its credit line and proceeds from
the sale of fixed assets of $766,025. In the first quarter, the Company entered
into a new five year lease on a facility in Oklahoma City, Oklahoma. The Company
believes that its present cash position, available borrowings and future cash
flow from operations will satisfy the Company's working capital and capital
expenditure requirements for the foreseeable future.
10
<PAGE>
Part II
Other Information
Item 6. (a) Exhibit 11 - Computation of Net Income (Loss)
Per Share (attached).
(b) No reports on Form 8-K have been filed during the quarter
for which this report is filed.
11
<PAGE>
SIGNATURE
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 hereunto duly authorized.
ROYAL GRIP, INC.
Date: May 14, 1996 By: /S/ Thomas a. Schneider
------------------------
Thomas A. Schneider
Vice President - Finance
(Principal Financial and
Accounting Officer)
12
ROYAL GRIP, INC. AND SUBSIDIARY
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Three months ended
March 31,
-----------------------
1996 1995
----- ----
Net income (loss) ($569,247) ($369,002)
========== ===========
Weighted Average Shares:
Common shares outstanding 2,734,678 2,734,678
Common equivalent shares issuable upon
---- ----
--------- ---------
Shares used in net income (loss) per share 2,734,678 2,734,678
========= =========
Net income (loss) per share ($0.21) ($0.13)
========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000910568
<NAME> ROYAL GRIP, INC.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,104,846
<ALLOWANCES> 272,055
<INVENTORY> 1,704,275
<CURRENT-ASSETS> 4,790,216
<PP&E> 10,256,429
<DEPRECIATION> 4,795,252
<TOTAL-ASSETS> 11,350,002
<CURRENT-LIABILITIES> 2,076,804
<BONDS> 0
0
0
<COMMON> 2,735
<OTHER-SE> 9,102,154
<TOTAL-LIABILITY-AND-EQUITY> 11,350,002
<SALES> 4,357,621
<TOTAL-REVENUES> 4,357,621
<CGS> 3,239,546
<TOTAL-COSTS> 1,671,455
<OTHER-EXPENSES> 8,655
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,212
<INCOME-PRETAX> (569,247)
<INCOME-TAX> 0
<INCOME-CONTINUING> (569,247)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (569,247)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
