FORM 10-QSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1996
Commission File Number 1-13344
SURE SHOT INTERNATIONAL, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Florida 65-0352254
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
405 Cogshall Street, Holly, Michigan 48442
------------------------------------------
(Address of principal executive offices)
(810) 634-6621
--------------
Registrant's telephone number
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 / /
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common equity, as the close of the period covered by this report.
Title of Class Number of Shares Outstanding
-------------- ----------------------------
Common Stock, par value 3,771,246
$.01 per share
Transitional Small Business Disclosure Format
YES / / NO /X/
--- ---
<PAGE>
SURE SHOT INTERNATIONAL, INC.
FORM 10-QSB
INDEX
PART 1 - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995 1-2
Consolidated Statements of Earnings (Loss) for the three
and nine months ended September 30, 1996 and 1995 3
Consolidated Statements of Cash Flows for the three
and nine months ended September 30, 1996 and 1995 4
Notes to Interim Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II - OTHER INFORMATION 14
Item 1. Legal Proceedings 14
Item 2. Change in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
<PAGE>
<TABLE>
<CAPTION>
SURE SHOT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
ASSETS SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash ........................................ $ 107,974 $ 155,445
Accounts Receivable - Trade, Net of Allowance
for Doubtful Accounts of $57,392 and
$131,956 in 1996 and 1995, respectively ... 2,684,736 3,014,161
Inventory ................................... 6,607,023 6,917,689
Prepaid Expenses and Other
Current Assets ............................ 804,599 227,894
Refundable Federal Income Taxes ............. 151,324 142,324
----------- -----------
TOTAL CURRENT ASSETS .................... 10,355,656 10,457,513
PROPERTY AND EQUIPMENT
Leasehold Improvements ...................... 164,141 161,544
Machinery and Equipment ..................... 2,328,134 2,188,446
Office Equipment ............................ 268,391 247,490
Vehicles .................................... 71,232 53,482
----------- -----------
TOTAL PROPERTY AND EQUIPMENT ............ 2,831,898 2,650,962
Less: Accumulated Depreciation .............. 769,195 594,306
----------- -----------
BOOK VALUE - PROPERTY & EQUIPMENT .................. 2,062,703 2,056,656
DEFERRED FEDERAL INCOME TAXES ...................... 457,000 --
OTHER ASSETS
Covenant Not to Compete, Net of Accumulated
Amortization of $262,582 and $196,266 in
1996 and 1995, respectively ............... 450,000 516,315
Organizational Costs, Net of Accumulated
Amortization of $37,260 and $24,634 in
1996 and 1995, respectively ............... 50,264 65,121
Goodwill, Net of Accumulated Amortization
of $82,831 and $50,419 in 1996 and 1995,
respectively ............................... 565,413 597,825
Prepaid Royalties, Net of Accumulated
Amortization of $16,994 and $10,344 in
1996 and 1995, respectively ............... 116,006 122,655
Deferred Charges ............................ 223,101 231,202
----------- -----------
TOTAL OTHER ASSETS ...................... 1,404,784 1,533,118
----------- -----------
TOTAL ASSETS ................ $14,280,143 $14,047,287
=========== ===========
<FN>
See notes to interim consolidated financial statements
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
SURE SHOT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
LIABILITIES AND STOCKHOLDERS' EQUITY SEPTEMBER 30, DECEMBER 31,
1996 1995
------------ -------------
<S> <C> <C>
CURRENT LIABILITIES
Lines of Credit ............................. $ 5,623,500 $ 5,056,036
Accounts Payable - Trade .................... 1,967,998 1,334,165
Notes Payable ............................... 771,308 342,402
Taxes Other Than Income ..................... 28,809 61,324
Accrued Expenses ............................ 347,739 169,919
------------ ------------
TOTAL CURRENT LIABILITIES ............... 8,739,354 6,963,846
LONG-TERM LIABILITIES
Notes Payable ............................... 1,165,819 447,077
Deferred Income Taxes ....................... 65,020 65,020
------------ ------------
TOTAL LIABILITIES ....................... 9,970,193 7,475,943
REDEEMABLE STOCK
Common Stock
Authorized 45,000 Shares;
$.01 Par Value, Issued and
Outstanding 15,000 in 1995 ................ -- 98,419
STOCKHOLDERS' EQUITY
Common Stock
Authorized 10,000,000 Shares,
$.01 Par Value; Issued and
Outstanding 3,771,246 in 1996
and 3,916,246 in 1995 ..................... 37,713 39,163
Paid-In Capital ............................. 5,657,529 5,794,721
Retained Earnings (Deficit) ................. (1,224,424) 673,460
Cumulative Translation Adjustment ........... (160,868) (34,419)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY .............. 4,309,950 6,472,925
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY ............... $ 14,280,143 $ 14,047,287
============ ============
<FN>
See notes to interim consolidated financial statements
</TABLE>
-2-
<PAGE>
<TABLE>
<CAPTION>
SURE SHOT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
SALES ............................. $ 2,157,271 $ 2,432,244 $ 8,911,510 $ 8,457,997
COST OF SALES ..................... 1,922,377 1,700,549 6,688,188 6,052,788
----------- ----------- ----------- -----------
GROSS PROFIT ...................... 234,894 731,695 2,223,322 2,405,209
OPERATING EXPENSES ................ 844,944 529,001 2,095,716 1,632,635
----------- ----------- ----------- -----------
EARNINGS (LOSS) FROM OPERATIONS ... (610,050) 202,694 127,606 772,574
OTHER INCOME (EXPENSE)
INTEREST EXPENSE ........... (181,391) (87,737) (451,315) (228,493)
OTHER ...................... 4,170 (358) 9,933 5,385
----------- ----------- ----------- -----------
TOTAL OTHER INCOME (EXPENSE) (177,221) (88,095) (441,382) (223,108)
NON-RECURRING CHARGE .............. 2,042,530 -- 2,042,530 --
----------- ----------- ----------- -----------
EARNINGS (LOSS) BEFORE
INCOME TAXES (CREDIT) .......... (2,829,801) 114,599 (2,356,306) 549,466
INCOME TAXES (CREDIT) ............. (601,870) 34,356 (460,000) 166,970
----------- ----------- ----------- -----------
NET EARNINGS (LOSS) ............... $(2,227,931) $ 80,243 $(1,896,306) $ 382,496
=========== =========== =========== ===========
EARNINGS (LOSS) PER SHARE
Earnings (Loss) Available to
Common Stockholders' ......... $(2,228,324) $ 58,322 $(1,897,887) $ 382,496
Weighted Average Shares Outstanding 3,761,138 3,931,246 3,794,385 3,931,246
----------- ----------- ----------- -----------
Earnings (Loss) per Share ......... $ (0.59) $ 0.01 $ (0.50) $ 0.10
=========== =========== =========== ===========
<FN>
See notes to interim consolidated financial statements
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
SURE SHOT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Earnings (Loss) ........................ $(2,227,931) $ 80,243 $(1,896,306) $ 382,496
Adjustments:
Depreciation ........................... 60,264 33,829 174,889 119,942
Amortization ........................... 29,036 29,912 118,004 89,543
Bad Debt Expense ....................... 22,300 9,000 64,900 25,000
Deferred Income Taxes (Credit) ......... (457,000) 12,000 (457,000) 36,000
Changes in Assets and Liabilities:
Decrease in Accounts Receivable - Trade 1,021,294 449,324 403,989 502,638
Increase in Inventories ................ 478,910 (751,906) 310,666 (2,187,744)
(Increase) Decrease in Prepaid Expenses
and Other Current Assets ......... 79,984 (197,099) (576,705) (692,947)
(Increase) Decrease in Refundable
Federal Income Taxes ............. (144,870) (6,982) (9,000) 32,000
(Increase) Decrease in Other Assets .... 173,618 (231,203) 2,549 (231,203)
Increase (Decrease) in Accounts
Payable - Trade .................. 394,223 (131,180) 535,414 198,740
Decrease in Taxes Other Than Income .... (13,268) -- (32,515) --
Increase (Decrease) in Accrued Expenses 134,948 (69,910) 177,820 (38,262)
Decrease in Federal Income Taxes Payable -- (10,318) -- --
----------- ----------- ----------- -----------
Total Adjustments .................... 1,779,439 (864,533) 713,011 (2,146,293)
----------- ----------- ----------- -----------
Net Cash Used in Operating Activities (448,492) (784,290) (1,183,295) (1,763,797)
Cash Flows From Investing Activities:
Acquisition of Property and Equipment ...... (14,815) (138,911) (392,568) (531,479)
Cash Flows From Financing Activities:
Net Proceeds from Lines of Credit .......... 565,000 916,000 2,023,500 1,990,214
Proceeds from Notes Payable ................ 16,521 225,200 203,921 225,200
Principal Payments on Notes Payable ........ (104,827) (21,417) (512,309) (28,762)
Payments on Redeemable Common Stock ........ -- (108,000) -- (108,000)
Repurchase of Common Stock ................. -- -- (186,720) --
----------- ----------- ----------- -----------
Net Cash Provided From Financing
Activities ........................ 476,694 1,011,783 1,528,392 2,078,652
----------- ----------- ----------- -----------
Net Increase (Decrease) in Cash ................... 13,387 88,582 (47,471) (216,624)
Cash - Beginning .................................. 94,587 167,393 155,445 472,599
----------- ----------- ----------- -----------
Cash - Ending ..................................... $ 107,974 $ 255,975 $ 107,974 $ 255,975
=========== =========== =========== ===========
<FN>
See notes to interim consolidated financial statements
</TABLE>
-4-
<PAGE>
SURE SHOT INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sure Shot International, Inc. (the Company) was incorporated in the State of
Florida on August 6, 1992. The Company is a holding company for its
wholly-owned subsidiaries, Sure Shot Sports Equipment, Inc., Hydra-Rib, Inc.
and RLW, Inc. Through Sure Shot Sports Equipment, Inc., the Company
manufactures basketball and related sporting goods equipment at its facility
in Holly, Michigan and its facility in Warsaw, Poland. Hydra-Rib, Inc.
manufactures portable basketball units at its facility in Fuquay-Varina, North
Carolina. RLW, Inc., located in Phenix City, Alabama, is engaged in the sale
and distribution of headwear and sports apparel under the "Z-Tag Sportswear"
name. The Company sells its products on a wholesale and retail basis
throughout the world.
The Consolidated Balance Sheet as of September 30, 1996 and the Consolidated
Statements of Earnings and Consolidated Statements of Cash Flows for the three
and nine month periods ended September 30, 1996 and 1995 have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in the consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of company management, the financial
statements as of September 30, 1996 and 1995 and for the three and nine month
periods then ended reflect all adjustments (normal recurring accruals) which
are necessary to present a fair statement of the results for the periods then
ended. These financial statements should be read in conjunction with the
audited consolidated financial statements and notes thereto included in the
Company's annual report on Form 10- KSB for the year ended December 31, 1995.
The results for interim periods are not necessarily indicative of trends or
results to be expected for a full year.
PRINCIPLES OF CONSOLIDATION AND FOREIGN EXCHANGE
The interim consolidated financial statements include the accounts of the
Company, and its wholly owned subsidiaries. All material intercompany
transactions and balances have been eliminated.
Assets and liabilities of the foreign subsidiary are translated into U.S.
dollars at exchange rates in effect at September 30, 1996. The unrealized gain
or loss resulting from this process is shown as a cumulative foreign currency
translation adjustment in stockholders' equity in the Company's consolidated
balance sheet. Revenues and expenses are translated using average exchange
rates that prevailed during the three and nine month periods ended
September 30, 1996.
-5-
<PAGE>
SURE SHOT INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORY
Inventory is valued at the lower of cost or market, with cost determined using
the first-in, first-out (FIFO) method. At September 30, 1996 and December 31,
1995, inventory consisted of the following:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Raw Materials and Components $2,724,201 $2,736,780
Finished Goods and WIP ..... 3,882,822 4,180,909
---------- ----------
Total .............. $6,607,023 $6,917,689
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation of property and
equipment is computed using the straight-line method over the estimated useful
lives of the assets.
NOTE 2 - LINES OF CREDIT
The Company has three lines of credit with NBD Bank. As of September 30, 1996,
$5,623,500 had been borrowed against these lines of credit, at interest rates
ranging from NBD's prime rate plus 1% to NBD's prime rate plus 2%. These lines
of credit are secured by the Company's accounts receivable and inventory, are
guaranteed by the Company and two of its directors and expired on
September 30 1996.
Because the Company had become past due on certain loan payments, and because
of the shortfall in collateral securing the Company's indebtedness to NBD, on
October 11, 1996, NBD had notified the Company of its intentions to review its
continued involvement with the Company, if any. This review process was
anticipated to take approximately thirty days. Until such review is complete,
NBD does not intend to extend or renew these facilities and does not intend to
advance further credit or loans to the Company. As of November 15, 1996, the
date of the filing of this report, this review process had not been completed.
The Company is uncertain regarding NBD's continued involvement, if any, with
the Company.
-6-
<PAGE>
SURE SHOT INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - MAJOR CUSTOMER TRANSACTIONS
A nationally recognized retail sales corporation is a major customer of the
company. Sales to this customer approximated $1,765,000 and $2,841,000 for the
periods ended September 30, 1996 and 1995, respectively. These amounts
approximated 20% and 37% of total sales for the periods ended September 30,
1996 and 1995, respectively. Accounts receivable from this customer at
September 30, 1996 and 1995 approximated $482,000 and $764,000, respectively.
NOTE 4 - EARNINGS (LOSS) PER SHARE
Earnings (Loss) per share is computed under the modified treasury stock
method, using the earnings available to common stockholders divided by the
weighted average shares outstanding at September 30, 1996 and 1995,
respectively. The amounts used in this computation are as follows:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Net Earnings (Loss) ..... $(1,896,306) $ 382,496
Earnings (Loss)
Available to
Common Stockholders ... $(1,897,887) $ 382,496
Weighted Average
Shares Outstanding .... 3,794,385 3,931,246
Earnings (Loss)
per Share ............. (.50) .10
</TABLE>
NOTE 5 - REDEEMABLE COMMON STOCK
The Company has no obligation to redeem shares of common stock, except
pursuant to an agreement entered into with the former majority shareholder of
Sure Shot Sports Equipment, Inc. Under the agreement, the former shareholder
sold 15,000 shares of common stock at September 1, 1996 to another party for
$48,079. Pursuant to the agreement, the Company is required to pay $51,921,
which represents the difference between the redemption price, $6.67 per share,
a total of $100,000, and the selling price. A sinking fund is not required
under this agreement. The Company has pledged assets of Sure Shot Sports
Equipment, Inc. equivalent to 110 percent of the outstanding obligation of the
redemption agreement.
-7-
<PAGE>
SURE SHOT INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMON STOCK REPURCHASE
During the nine month period ended September 30, 1996, the Company repurchased
a total of 180,000 shares of common stock from a previous stockholder of RLW,
Inc. for a total of $186,720. The Company entered into a loan agreement with
one of its officers to fund this transaction. The Company is currently making
interest only payments on this loan at a rate equal to the bank's prime rate,
the same rate the officer is paying the bank at which he borrowed these funds.
NOTE 7 - STATEMENT OF CASH FLOWS
The Company paid the following amounts for income taxes and interest during
the nine months ended:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Income Taxes......... $ 0 $ 70,000
Interest............. 276,036 128,317
</TABLE>
NOTE 8 - NON-RECURRING CHARGE
In the third quarter of 1996, the Company recorded a non-recurring charge of
$2,042,530 related to write-offs of inventories and royalties associated with
the 1996 Olympic Games. The royalty write-off, which amounted to $175,000,
occurred because expected sales levels of Olympic licensed product were not
achieved. The inventory write-offs consisted of Olympic licensed products and
the decisions made during the third quarter of 1996 to exit specific product
lines and refocus certain product lines of the Company. The write-off of
Olympic licensed product amounted to $1,007,500. Product lines which were
eliminated included collegiate, International Hockey League and other various
styles of headwear. The total write-off of the headwear inventory amounted to
$860,030.
NOTE 9 - INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Current income taxes ........... $ -- $166,970
Deferred income taxes .......... (460,000) --
Total income taxes (credit) .... $(460,000) $166,970
</TABLE>
-8-
<PAGE>
SURE SHOT INTERNATIONAL, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - INCOME TAXES (CONTINUED)
The provision for income taxes differs from expected income tax expense due to
the following:
<TABLE>
<CAPTION>
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Federal income taxes
(credit) at statutory rates ..... $(801,144) $ 186,818
Nondeductible expenses ........... 9,354 3,733
Rate difference .................. 331,790 --
Other ............................ -- (23,581)
Total .................... $(460,000) $ 166,970
</TABLE>
The tax effects of temporary differences and carryforward items that give rise
to significant portions of the deferred tax assets and deferred tax
liabilities are as follows:
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Deferred tax assets
Benefit of net operating
loss carryforward ............ $ 130,609 $ 130,609
Allowance for doubtful
accounts ..................... 33,195 33,195
Other .......................... 10,865 10,865
Total deferred tax assets ........ 174,669 174,669
Deferred tax liabilities
Utilization of accelerated
depreciation methods ......... (239,689) (239,689)
Net deferred tax liability ....... $ (65,020) $ (65,020)
</TABLE>
During the period ended September 30, 1996, the Company generated
approximately $2,300,000 of net operating loss. The Company has applied their
applicable federal tax rate and recognized a long-term deferred tax asset of
$457,000. This net operating loss amount can be applied to the three previous
tax periods or forward fifteen years to offset future taxable income. If this
net operating loss is not used, it will expire in the year 2011.
At December 31, 1995, the Company had net operating loss carryforwards from
one of its subsidiaries totaling approximately $281,000. Pursuant to SFAS No.
109, the tax benefits of this carryforward of approximately $96,000 will be
offset against the covenant not-to-compete. If any benefits remain after
offset in the future years against the covenant, they may be offset against
future taxable income through 2006. The utilization of the loss carryforward
is subject to an annual limitation of approximately $35,600 under Internal
Revenue Code Section 382 as a result of the change in ownership of the
acquired subsidiary. Under this limitation, it will take approximately eight
years to utilize the net operating loss carryforward.
-9-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The Company's principal sources of liquidity at September 30, 1996 included
cash of $107,974, net trade accounts receivable of $2,684,736 and inventory of
$6,607,023. Working capital (current assets less current liabilities) remained
positive at $1,616,302 at September 30, 1996. The Company has three lines of
credit with NBD Bank ("NBD"). As of September 30, 1996, $5,623,500 had been
borrowed against these lines of credit, at interest rates ranging from NBD's
prime rate plus 1% to NBD's prime rate plus 2%. These lines of credit are
secured by the Company's accounts receivable and inventory, are guaranteed by
the Company and two of its directors and expired on September 30, 1996.
NBD, as part of the above mentioned credit arrangements, has also committed
to provide up to $400,000 for the purpose of making term loans, installment
loans or leases of machinery and equipment, of which the Company has borrowed
a total of $109,526 for this purpose. These loans are two and three year term
loans, include monthly payments of $8,898 plus interest, mature at various
dates through August 2, 1998, bear interest at a rate equal to NBD's prime
rate plus .5% and are secured by specific machinery and equipment of the
Company.
Because the Company had become past due on certain loan payments, and
because of the shortfall in collateral securing the Company's indebtedness to
NBD, on October 11, 1996, NBD had notified the Company of its intentions to
review its continued involvement with the Company, if any. This review process
was anticipated to take approximately thirty days. Until such review is
complete, NBD does not intend to extend or renew these facilities and does not
intend to advance further credit or loans to the Company. As of November 15,
1996, the date of the filing of this report, this review process had not been
completed. The Company is uncertain regarding NBD's continued involvement, if
any, with the Company. Should NBD not renew their involvement with the
Company, the Company will seek replacement financing with another financial
institution or through other financial sources. Failure to secure replacement
financing could have a material adverse effect on the Company's operations.
On March 18, 1996 the Company restructured substantially all of its line of
credit between RLW, Inc. and First Alabama Bank as a term loan. The amount of
the loan was $1,250,000, has a two year term with a balloon payment at the end
of the term, includes monthly payments of $27,000 including interest at a rate
of 9.75% and is guaranteed by the Company and two of its directors.
The Company believes its existing cash and collection of its accounts
receivable will be sufficient to support the Company's operations and general
capital requirements through the remainder of 1996. By the end of 1996, the
Company anticipates renewing its agreement with NBD or obtaining replacement
financing with another financial institution or through other financial
sources in order to finance its operations.
-10-
<PAGE>
Results of Operations
The following table sets forth for the periods indicated certain items from
the Company's Consolidated Statements of Earnings as a percentage of sales.
<TABLE>
<CAPTION>
Nine Months Ended September 30,
--------------------------------------------
(Unaudited) (Unaudited)
1996 % 1995 %
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales ...................... $ 8,911,510 100.0% $ 8,457,997 100.0%
Cost of Sales .............. 6,688,188 75.1% 6,052,788 71.6%
Gross Profit ............... 2,223,322 24.9% 2,405,209 28.4%
Operating Expenses ......... 2,095,716 23.5% 1,632,635 19.3%
Earnings
from Operations .......... 127,606 1.4% 772,574 9.1%
Interest (Expense) ......... (451,315) (5.1)% (228,493) (2.7)%
Other Income ............... 9,933 .1% 5,385 .1%
Non-Recurring Charge ....... 2,042,530 22.9% -- --
Earnings (Loss) Before
Income Taxes ............. (2,356,306) (26.4)% 549,466 6.5%
Income Taxes (Credit) ...... (460,000) -- 166,970 2.0%
Net Earnings (Loss) ........ (1,896,306) (26.4)% 382,496 4.5%
Earnings (Loss)
Available to
Common Stockholders' ..... (1,897,887) 382,496
Earnings (Loss) Per Share .. (.50) .10
</TABLE>
Periods Ended September 30, 1996 Compared to Periods Ended September 30, 1995
Sales decreased $274,973 (11.3%) from $2,432,244 for the third quarter of
1995 to $2,157,271 for the third quarter of 1996. Those decreased sales were
primarily the result of a decrease in sales to the Company's major customer
(see note 3 to the Company's interim consolidated financial statements). The
Company anticipates its sales to that major customer to continue their decline
during the fourth quarter of 1996. For the nine months ended September 30,
sales increased $453,513 (5.4%) from $8,457,997 for 1995 to $8,911,510 for
1996. Those increased sales were primarily the result of increased sales in
the international and institutional markets, the addition of new product lines
and sales to a larger number of customers.
-11-
<PAGE>
The cost of sales increased by $221,828 (13.0%) from $1,700,549 in the third
quarter of 1995, where it was 69.9% of sales to $1,922,377 in the third
quarter of 1996, where it was 89.1% of sales. For the comparable nine month
period ended September 30, cost of sales increased by $635,400 (10.5%) from
$6,052,788 in 1995 (71.6% of Sales) to $6,688,188 in 1996 (75.1% of Sales).
The item which has the largest impact on cost of sales is the cost of
materials, which increased from 38.6% of sales for the third quarter of 1995
to 51.5% of sales for the third quarter of 1996. The cost of materials
increased from 44.6% of sales for the first nine months of 1995 to 48.4% of
sales for the comparable period in 1996. This percentage increase is primarily
the result of an increase in raw material costs, which the Company has
incurred during 1996 and, because of contractual obligations, has not been
able to pass on to its customers quickly enough. Because of the decrease in
sales during the third quarter of 1996, the increase in cost of sales for the
third quarter of 1996 is also a result of increases, as a percent of sales, in
the following overhead expenses included in cost of sales: direct labor,
payroll taxes and depreciation. These combined expenses increased from a total
of 16.7% of sales during the third quarter of 1995 to 21.4% of sales during
the third quarter of 1996.
As a result of the foregoing, the Company's gross profit decreased from
$2,405,209 in the first nine months of 1995 to $2,223,322 in the first nine
months of 1996, a decrease of $181,887 (7.6%). For the third quarter, the
Company's gross profit decreased from $731,695 in 1995 to $234,894 in 1996, a
decrease of $496,801 (67.9%).
The Company's operating expenses increased from $1,632,635 in the first nine
months of 1995 to $2,095,716 in the first nine months of 1996, an increase of
$463,081 (28.4%). For the third quarter, the Company's operating expenses
increased from $529,001 in 1995 to $844,944 in 1996, an increase of $315,943
(59.7%). The increase in operating expenses primarily resulted from increases
in the following items of selling, general and administrative expenses during
the first nine months of 1996: salaries and wages increased by $171,982 as the
Company has increased its total sales and administrative staffs; in an effort
to increase public awareness of the Company's products, advertising and
promotion increased by $83,619 and trade show expense increased by $56,518;
the Company incurred an increase in its bad debt expense in the amount of
$38,878; amortization of intangible assets increased by $31,972; and as total
sales for the first nine months of 1996 have increased over 1995 levels,
outside commissions have increased by $23,804.
As the Company has had to increase it's total debt through 1996, from
$5,845,515 at December 31, 1995 to $7,560,627 at September 30, 1996, an
increase of $1,715,112, interest expense increased from $228,453 in the first
nine months of 1995 to $451,315 in the first nine months of 1996, an increase
of $222,822 (97.5%). For the third quarter, the Company's interest expense
increased from $87,737 in 1995 to $181,391 in 1996, an increase of $93,654
(106.7%).
-12-
<PAGE>
In the third quarter of 1996, the Company incurred a non-recurring charge of
$2,042,530 related to write-offs of inventories and royalties associated with
the 1996 Olympic Games. The royalty write-off, which amounted to $175,000,
occurred because expected sales levels of Olympic licensed product were not
achieved. The inventory write-offs consisted of Olympic licensed products and
the decisions made during the third quarter of 1996 to exit specific product
lines and refocus certain product lines of the Company. The write-off of
Olympic licensed product amounted to $1,007,500. Product lines which were
eliminated included collegiate, International Hockey League and other various
styles of headwear. The total write-off of the headwear inventory amounted
$860,030.
Because of the net operating loss the Company generated during the nine
months ended September 30, 1996, the Company's provision for federal income
taxes resulted in a tax credit of $460,000. Pursuant to SFAS No, 109, the
Company has applied its anticipated applicable federal tax rate to arrive at
this credit. As a result of all of the foregoing, the Company's net earnings
for the first nine months decreased from $382,496 in 1995 to a net (loss) of
$(1,896,306), a decrease of $2,278,802. The Company's net earnings for the
third quarter decreased from $80,243 in 1995 to a net (loss) of $(2,227,931)
in 1996, a decrease of $2,308,174.
Outlook For Remainder of 1996
As mentioned in Note 3 of the Company's interim consolidated financial
statements, sales to the Company's major customer have declined from
approximately $2,841,000 for the first nine months of 1995 to approximately
$1,765,000 for the first nine months of 1996, a decrease of $1,076,000
(37.9%). For the fourth quarter of 1995, sales to this major customer were
approximately $1,007,000. The Company is anticipating sales to this major
customer during the fourth quarter of 1996 to be substantially lower than
these 1995 levels, in excess of the 37.9% decline for the first nine months of
1996. However, as noted above, the Company's total sales have increased for
the first nine months of 1996, from $8,457,997 for 1995 to $8,911,510 for
1996, an increase of $453,513 (5.4%). These increased sales were primarily the
result of increased sales in the international and institutional markets, the
addition of new product lines and with sales to a larger number of customers.
The Company is in the process of analyzing every aspect of their operations
and, commencing with the fourth quarter of 1996, has begun to implement
various cost cutting measures to reduce costs. Through employee lay-offs and
salary wage reductions, the Company is estimating a yearly reduction in total
payroll of approximately $330,000. The Company believes this reduction in
personnel will not adversely affect its sales growth potential. The warehouse
lease in Phenix City, Alabama expires on December 31, 1996. The Company will
be transferring all warehouse operations from this location to its Holly,
Michigan location. A sales office will continue to be located in Phenix City.
The Company is estimating a yearly reduction in warehouse rent and overhead
expenses of approximately $85,000 by consolidating these operations.
-13-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
No information called for by this item is applicable for the period covered
by this report.
Item 2. Changes in Securities
The Company repurchased 40,000 and 120,000 shares of common stock on January
29, 1996 and March 13, 1996, respectively, from a previous stockholder of RLW,
Inc. for a total of $186,720. The Company entered into a loan agreement with
one of its officers to fund this transaction.
Item 3. Defaults Upon Senior Securities
Because the Company had become past due on certain loan payments, and
because of the shortfall in collateral securing the Company's indebtedness to
NBD Bank, on October 11, 1996, NBD had notified the Company of its intentions
to review its continued involvement with the Company, if any. This review
process was anticipated to take approximately thirty days. Until such review
is complete, NBD does not intend to advance further credit or loans to the
Company. As of November 15, 1996, the date of the filing of this report, this
review process had not been completed. The following is a summary of the debt
which was in default as of September 30, 1996:
<TABLE>
<CAPTION>
Principal Interest Total
--------- -------- -----
<S> <C> <C> <C>
Sure Shot Sports - Line
of Credit .................... $4,384,000 $99,374 $4,483,374
RLW -- Line of Credit .......... $ 757,000 $19,156 $ 776,156
Hydra-Rib -- Line of Credit..... $ 482,000 $ -- $ 482,000
Sure Shot International--
Term Loan Payment ............ $ 13,889 $ 2,887 $ 16,776
</TABLE>
As of November 15, 1996, the date of the filing of this report, the term
loan payment had been made. However, the interest payments on the two lines of
credit noted above had not been made.
Item 4. Submission of Matters to a Vote of Security Holders
No information called for by this item is applicable for the period covered
by this report.
-14-
<PAGE>
Item 5. Other Information
No information called for by this item is applicable for the period covered
by this report.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the period covered by this report.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
SURE SHOT INTERNATIONAL, INC.
Dated: November 15, 1996 By: /s/ Harold L. Bachmann
-- ------------------------
Harold L. Bachmann,
President
Dated: November 15, 1996 By: /s/ Michael J. Sleva
-- -------------------------
Michael J. Sleva,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> $ 107,974
<SECURITIES> 0
<RECEIVABLES> 2,742,128
<ALLOWANCES> 57,392
<INVENTORY> 6,607,023
<CURRENT-ASSETS> 10,355,656
<PP&E> 2,831,898
<DEPRECIATION> 769,195
<TOTAL-ASSETS> 14,280,143
<CURRENT-LIABILITIES> 8,739,354
<BONDS> 0
<COMMON> 37,713
0
0
<OTHER-SE> 4,272,237
<TOTAL-LIABILITY-AND-EQUITY> 14,280,143
<SALES> 8,911,510
<TOTAL-REVENUES> 8,911,510
<CGS> 6,688,188
<TOTAL-COSTS> 2,095,716
<OTHER-EXPENSES> 2,042,530
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 451,315
<INCOME-PRETAX> (2,356,306)
<INCOME-TAX> (460,000)
<INCOME-CONTINUING> (1,896,306)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,896,306)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> 0
</TABLE>
