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Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended Commission File
December 31, 1995 Number O-14146
S2 GOLF INC.
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(Exact name of registrant as specified in 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, N.J. 07004
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(Address of principal executive offices) (Zip Code)
(201) 227-7783
(Registrant's telephone number, including area code)
Securities registered pursuant to 12 (b) of the Act: None
Securities registered pursuant to 12 (g) of the Act:
Common Stock, Par Value $.01
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(Title of class)
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 and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [ ]
As of January 15, 1996, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $773,831.69. This
calculation is based upon the average of the bid and asked prices of the
Registrant's common stock on January 15, 1995.
The number of shares of the Registrant's Common Stock outstanding as of January
15, 1995 was 2,208,311.
Part I
Item 1. Business.
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General Development of Business
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S2 Golf Inc. (the "Company"), was incorporated under the laws of the State of
New Jersey in February, 1982. The Company manufactures and markets a
proprietary line of golf equipment including golf clubs, golf bags, golf balls
and accessories. The Company markets these products under the tradename and
trademark SQUARE TWO (R) and uses several additional trademarks including S2(R),
PCX(R), XGR(R), ZCX(R), Totally Matched(R) and Posiflow(R) among others.
The Common Stock of the Company (the "Common Stock") trades on the National
Association of Securities Dealers Automated Quotation System (NASDAQ) under the
trading symbol "GOLF."
During 1995, the Company continued to improve its line of equipment with the
introduction of the men's oversize Tri-Force irons and woods along with the
Power Circle in both graphite and steel shafts.
The Company continued to expand its sales efforts through golf retailers. In
the top 500 business markets around the United States, the Company examines the
characteristics of each market through research on golf participation data as
well as business data. The Company then forms business relationships with those
retailers that the Company believes best suit the needs of the particular
market.
During 1995, in partnership with the LPGA, the Company expanded the "Square Two
Golf Custom Fit System." Six two-day seminars were held to educate LPGA and
non-LPGA members in the art of clubfitting. As a result of these seminars, the
Company now has over 100 clubfitters. The Company expects this number to
continue to grow.
During 1995, the Company expanded its effort to develop distribution to golf
course pro shops. Using an "LPGA Ladies Boutique" approach, which includes
clubs, bags, balls, and gloves the Company added over 180 domestic outlets.
During 1994, the Company signed an exclusive dealer and licensing agreement with
Dalewin Limited of Hong Kong. The agreement allows Dalewin to promote market
and sell the Company's golf products, specifically golf clubs, golf equipment,
golf clothing and all other devices and products associated with the game of
golf, in Hong Kong, Macao, and the Peoples Republic of China. The agreement has
a three year term and expires on February 28, 1997.
-1-
During 1994, the Company entered into an agreement with Black Rock, LLC, a
Colorado limited liability company which provided the Company with the
exclusive right to manufacture and assemble two new products, the Black Rock
Putter and Black Rock Driver, to be marketed and sold by Black Rock in the
United States and Canada. The 1994 agreement ended at December 31, 1995. A new
agreement with Black Rock became effective January 1, 1996. Under this
agreement the Company will receive a $3.00 royalty for each club sold by Black
Rock, LLC which incorporates the "Tri Bar" technology for which the Company
holds the patent.
Description of Business
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Club Design
The Company designs products for men and women of all ages and has two broad
design approaches: one which targets the steel shaft market and one which
targets the graphite shaft market, since each has peculiarities demanding
different approaches.
A. Steel Shaft Market
For many years simple swingweight matching was the state of the art and the
basis for all golf clubs.
The Company's patented steel shafted Totally Matched concept, consisting of
matching four key physical properties, enhances a steel shafted club's
performance. These properties are:
1) Swingweight,
2) Total Weight,
3) Centers of percussion, and
4) Centers of gravity.
The Company's steel shaft clubs help the golfer create a smoother, more
repeatable swing by providing this total matching. To insure that each of these
properties is matched, the Company manufactures its clubs one set at a time,
instead of producing large batches of each club like some other manufacturers.
Every set is stamped with its own unique serial number for greater quality
control and consistency.
B. Graphite Shaft Market
In recent years the graphite shaft market has experienced tremendous growth.
The lighter weight and design flexibility gives graphite significant advantages
over steel shafts. The Company, recognizing that graphite is rapidly reducing
the demand for steel shafts, especially in women's products is concentrating its
development efforts in this area.
-2-
During 1995, the Company continued to improve and expand its graphite shaft
selection. The Company continued to market its Synchro Speed System(TM) 1 and
Synchro Speed System 2 graphite shafts which were introduced in 1994 and offer
multiple flexes for all levels of play. The shaft flex is matched to the
player's swing speed and driver carry, maximizing energy transfer at impact.
The Company now offers 7 graphite shaft club lines while maintaining 2 steel
shaft club lines.
Products
The Company currently markets the following full line of golf equipment for both
men and women:
PCX II - Cavity back, oversize elliptical head design for irons with oversize
metal woods. The driver features a Synchro Speed System 1 graphite shaft while
the 3 and 5 woods are lightweight steel. The irons feature lightweight steel
shafts and are Totally Matched. PCX II clubs are available for men and women
with LPGA logo in both right and left hand as well as Lady Petite(R).
L/E - LPGA logo, lightweight graphite shafted, cavity back, oversize, stainless
steel irons with graphite shafted oversize, perimeter weighted metal woods. L/E
clubs are available in ladies and Lady Petite for right hand golfers.
Power Circle(TM) - Introduced in early 1995, these graphite shafted irons
feature oversize, full cavity design with four corner cavity muscle back to
resist twist at impact. Metal woods feature graphite shafts with oversize head
designs incorporating rails on the 3, 5 and 7 woods. Power Circle clubs are
available in men's right hand and left hand models.
XGR II - Power cavity muscle back stabilizers resist twisting at impact on these
oversize irons. The oversize stainless steel metal woods have expanded sweet
spots. Irons and woods feature the Synchro Speed System 1 graphite shafts
matched to player's swing speed. The XGR II clubs are available in men's right
and left hand as well as ladies and Lady Petite with LPGA logo.
The Company continues to market the ZCX line of clubs. The irons feature 4 way
cambered rectangular step sole and a high moment of inertia to resist twist at
impact. The woods feature the Company's patented Tri-Bar internal reinforcement
cell. All clubs feature the high modulus, high frequency Synchro Speed System 2
graphite shafts matched to the player's swing speed.
In April of 1995, the Company introduced the Tri-Force(TM) line of men's irons
and woods. The oversize irons feature a deep cavity design and incorporate the
Company's patented Posiflow weighting system. The oversize metal woods feature
the Company's patented Tri-Bar internal reinforcement cell.
During 1995, the Company continued to market the WPD (Women's Power Design) to
golf course pro shops and fitting centers. The oversize irons and metal woods
are available in five flexes for women. The Synchro Speed System 2 graphite
shafts can be matched to most women's swing speed and characteristics.
-3-
The Company continued to sell Hi-tech golf bags for men and women as well as a
new tripod design for the walking golfer.
The Company continues to market a line of men's and women's golf balls and golf
gloves. The ladies golf ball and glove packaging for 1995 was designed as part
of the LPGA Ladies Boutique approach to marketing ladies products.
The Company continued to market its full line of woods and wedges known as the
"Devil Series." The line includes the trademarks Distance Devil(R),
Tee Devil(R), Turf Devil(R), Ruff Devil(R) and Sand Devil(R). During 1995,
three new Devil clubs were introduced, the Super 7, the Super 9, and the
"Devil" Driving Iron. This line meets the market need for "loose" or single
club sales (which are strongest in woods and wedges). The lines of woods and
wedges are available in both steel and graphite shafts.
Manufacturing
The Company's clubs are assembled at its facility located in Fairfield, New
Jersey. Finished heads are purchased from several sources in Taiwan, Thailand
and The Peoples Republic of China which manufacture them to the Company's
appearance and weight specifications, while steel shafts, grips, and accessories
are supplied by various domestic and foreign shaft manufacturers. The Company
obtains its graphite shafts from several domestic and foreign shaft suppliers.
All graphite shafts are manufactured to the Company's design specifications. In
the course of assembly, the Company applies its proprietary weighting and
balancing techniques to achieve the unique design and construction of Totally
Matched steel shafted clubs.
Seasonality
The golf industry is seasonal. While manufacturing goes on throughout the year,
the demand for the Company's clubs is greatest in March through June. At
December 31, 1995, the Company had committments from dealers to purchase its
products of approximately $1,100,000 subject to the Company's ability to deliver
on time, all of which the Company reasonably believes will be filled on time. On
the same date in 1994 the Company had commitments of approximately $1,000,000.
Inventory Supply
The Company tries to maintain at least two sources of supply for irons and metal
wood heads from foreign suppliers. These suppliers generally require 90 to 120
day periods to deliver heads to the Company. Domestic suppliers of shafts and
grips are more plentiful and, under normal circumstances, can provide components
to the Company on relatively short notice. While the Company does not
anticipate long term shortages of either components or sources of supply from
its domestic or foreign suppliers, no assurance can be given that the Company
will not experience shortages in the future. Management believes that it may
suffer some temporary delays in obtaining all the components it requires.
Delays should be no longer than two weeks and should not materially affect the
Company's ability to deliver the product.
-4-
Prior to the Company's placement of an order with its foreign suppliers, the
Company must obtain a letter of credit in favor of that supplier in an amount
equal to the order. The Company has obtained a line of credit in the amount of
$4,000,000 with Midlantic Bank NA. The Company used proceeds of this line to
retire the Integra Bank obligation in 1994. Pursuant to the line of credit,
Midlantic Bank NA may make available a credit facility of up to $1,750,000 in
the form of standby or documentary letters of credit and demand loans. The
amount and number of letters of credit outstanding at any given time will vary
on a daily basis depending on the dollar volume of material being ordered and
supplies received.
Industry Background
The National Golf Foundation estimates that in 1994 there were in excess of
24.3 million golfers in the United States (1995 numbers are not yet available).
The popularity of the sport has created a significant market for golf clubs. In
the competition for a share of this market, various manufacturers have developed
golf clubs using various materials, differing types of construction and the
latest engineering technology. It is anticipated that competitors within the
industry will increase research and development efforts to continue to integrate
the latest technology into golf equipment.
Marketing & Distribution
Until approximately 15 years ago, top of the line golf equipment was sold almost
exclusively by golf professionals at private clubs. Currently offcourse
specialty golf shops, sporting goods retailers, discounters and mail order
houses account for a substantial share of the golf club market.
The golf equipment industry is one in which advertising and promotion is
required to create a market awareness of a company's products.
The Company advertises its LPGA endorsed products as required under the terms of
the LPGA agreement. The Company has prepared a comprehensive catalog for its
dealers.
As of March 1, 1996, the Company had established a network of approximately
1,244 retailers with approximately 1,618 retail outlets.
In 1995, no customer accounted for more than 5% of the Company's total sales.
The Company does not believe that the loss of any single customer would
materially affect its business.
-5-
The Ladies Professional Golf Association Agreement
The Company has entered into an agreement with the LPGA Tournament Players
Corporation (operating as the Ladies Professional Golf Association) which grants
the Company the exclusive right to use the LPGA name and logo on its women's
golf clubs and the non-exclusive right to use the LPGA name and logo on certain
of its other products including golf bags. The Company has exercised an option
to renew the agreement through 1997. The agreement entitles the Company to use
the license granted on a worldwide basis. The Company is obligated to pay a
license fee to the LPGA and a royalty fee based on sales volume. To the extent
that the sum of 5% of sales of the first $1,000,000 of women's golf equipment
bearing the LPGA logo, plus 2-1/2% on all sales of LPGA logo equipment over
that amount exceeds the minimum annual license fee, such excess constitutes the
annual royalty fee. The minimum annual license fee for the remaining term of
the agreement is as follows:
1996 $175,000
1997 $175,000
The Company is obligated to spend a minimum of $100,000 each year on advertising
of LPGA - endorsed products under the terms of the agreement.
Competition
The golf club industry is competitive and is dominated principally by
approximately 15 nationally known manufacturers of sporting goods equipment.
Such manufacturers, including Callaway, Ping, Wilson, Spalding, MacGregor,
Hogan, Taylor Made, Cobra and Northwestern possess greater financial and other
resources than those of the Company. The Company primarily competes with these
entities based upon the uniqueness of the Totally Matched concept, the exclusive
LPGA endorsement of its women's clubs and the quality of its products and
service. However, there is no assurance that the Company will be able to
continue to successfully compete with such manufacturers in the future.
Golf clubs are also manufactured by lesser known, lower volume companies who
assemble clubs from components manufactured by others. While these
manufacturers of clubs are generally smaller than the Company, the Company also
competes with these club manufacturers.
Patents and Trademarks
The Company holds three United States patents. One encompasses the Totally
Matched concept of weighting clubs, the second protects the concept of Posiflow
weighting in iron heads and the third patent protects the internal triangular
reinforcement cell for metal woods.
-6-
The Company has registered the following trademarks with the United States
Patent and Trademark Office:
TOTALLY MATCHED(R) SQUARE TWO(R) ONYX(R)
PCX(R) MICRO-TORQUE(R) S2(R) (Stylized)
POSIFLOW(R) TMP(R) LADY PETITE(R)
BASHIE(R) DYNA-BALANCE(R) XGR(R)
ENGINEERED EXCELLENCE(R) SSX(R) SAND DEVIL(R)
ZCX(R) DISTANCE DEVIL(R) TURF DEVIL(R)
TEE DEVIL(R) RUFF DEVIL(R) TRI-BAR(R)
During 1995, the Company continued to systematically register its principal
trademarks in foreign countries with significant golf markets. The Company
believes the systematic protection will insure its ability to develop future
worldwide brand recognition.
Given the competitive climate within the golf industry worldwide and the recent
counterfeiting of clubhead design, the Company believes that it is imperative to
protect the Company's tradenames, trademarks, and patentable inventions and
designs.
Employees
As of December 31, 1995, the Company employed thirty-six persons, including
thirty-three fulltime employees of which three were executive officers. Thirty
of these were hourly employees and four were management and marketing personnel.
Additional hourly employees are hired during peak production periods and no
problems are anticipated in finding adequate employees. The employees of the
Company are not represented by any labor organization. The Company believes
that its present staff is adequate. However, if sales of the Company's clubs
should increase, it is anticipated that additional production, clerical and
management personnel may be necessary to meet product demand.
Item 2. Properties.
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The Company currently leases its manufacturing, sales and executive offices
located at 18 Gloria Lane, Fairfield, New Jersey 07004. The Company signed a
new lease in 1995 replacing the lease which expired on December 31, 1995. The
new lease expires on December 31, 1996 and covers 20,612 square feet. The
Company believes that this space is adequate for its current production levels.
See Note 7, Leased Properties, of Notes to Financial Statements for additional
information regarding this lease. The Company has the option to renew the lease
for one additional year.
Item 3. Legal Proceedings.
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No material lawsuits or claims are presently pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
-7-
There were no matters submitted to shareholders for vote during the quarter
ended December 31, 1995.
Executive Officers of the Company
See Part III, Item 10 of this report.
-8-
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
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The Common Stock of the Company is traded on NASDAQ under the trading symbol
"GOLF." The following table sets forth the high and low bid price for the
Common Stock as provided by NASDAQ for the periods indicated. These prices
represent quotations between dealers and do not include retail markups,
markdowns, or commissions and do not necessarily represent prices at which
actual transactions were effected.
PERIODS: COMMON STOCK BID PRICES:
High Low
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1994 1st Quarter $2.38 $1.88
1994 2nd Quarter $2.38 $1.75
1994 3rd Quarter $2.75 $2.00
1994 4th Quarter $2.50 $1.88
1995 1st Quarter $2.00 $1.88
1995 2nd Quarter $1.88 $1.88
1995 3rd Quarter $2.50 $1.88
1995 4th Quarter $1.88 $ .81
On March 18, 1996, the number of holders of record of the Company's common stock
was approximately 273. No dividends have been paid to date and it is not
anticipated that dividends will be paid in the near future.
Item 6. Selected Financial Data.
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Year Ended December 31,
-----------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Operating Results:
Net Sales $7,243,307 $8,788,962 $8,947,430 $10,785,948 $8,977,413
Net Income(Loss) (80,468) 228,501 (378,969) 430,065 247,562
Net Income (Loss)
per Share (.04) 0.10 (0.17) 0.20 0.12
Weighted Average
Number of Shares
Outstanding 2,205,647 2,194,009 2,186,084 2,297,048 2,255,469
Cash Dividend 0 0 0 0 0
At Year End:
Working Capital 2,320,912 2,237,524 2,018,110 2,385,580 1,909,534
Total Asset 4,726,353 5,406,726 5,487,104 5,359,153 5,097,758
Total Liabilities 2,205,137 2,830,012 3,152,550 2,663,644 2,894,074
Long Term
Obligations: 315,206 343,214 424,893 418,206 452,488
Shareholders'
Equity $2,521,216 $2,576,714 $2,334,554 $ 2,695,509 $2,203,684
Market Price of
Common Stock
High-Low 2.50-.081 2.75-1.75 3.38-2.00 4.88-2.75 8.24-3.00
-9-
1993 net income includes $423,129 for the cumulative effect on the adoption
of SFAS No. 109 "Accounting for Income Taxes."
The 1992 income includes $112,452 for the extraordinary gain related to the
tax benefit of net operating loss carryforwards.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations.
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Results of Operations
Sales
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1995 Compare to 1994
For the year ended December 31, 1995, net sales were $7,243,307 versus
$8,788,962 for the year ended December 31, 1994, a decrease of $1,545,655. The
decreased sales volume was primarily due to 1) the continued rapid growth of
three of the Company's competitors Cobra, Callaway and Taylor Made 2) several
key customers experiencing financial difficulty and 3) price pressure from other
companies.
1994 Compared to 1993
For the year ended December 31, 1994, net sales decreased $158,468, or 1.8%,
from 1993. The decreased sales volume was primarily due to (1) two large
customers experiencing financial difficulties resulting in reduced shipments to
such customers and (2) the rapid growth of Cobra and Callaway, two large
competitors of the Company, in the oversize club head market. The Company's
oversize club heads have been well received in the marketplace as evidenced by
the PCX II and XGR II contributing 29.4% and 22% of net sales, respectively, in
1994.
Gross Profit
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1995 Compared to 1994
Gross profit on sales for the year ended December 31, 1995 was 31.3% versus
33.1% for the year ended December 31, 1994. This 1.8% decrease was primarily
the result of lower sales volume.
-10-
1994 Compared to 1993
Gross Profit on sales for the year ended December 31, 1994 was 33.1%, a decrease
of 3% from the year ended December 31, 1993. The gross profit percentage
remained at 1993 levels due to the concentrated effort by management to reduce
standard size club head inventory by offering promotional pricing. The Company
also effectively lowered 1994 selling prices by rewarding high volume customers
with greater discounts. In 1993, the Company offered a co-op advertising
program that was replaced in 1994 with lower pricing of Company products. The
lower sales prices were offset by the Company realizing lower negotiated
material cost for major components.
Selling Expenses
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1995 Compared to 1994
Selling expenses decreased $20,410 to $812,105 for the year ended December 31,
1995 compared to selling expenses of $832,515 in 1994. Advertising and public
relations expenses increased $106,405 from 1994 to 1995. The overall decrease
is the result of tighter cost control.
1994 Compared to 1993
Selling expenses decreased $858,352 from 1993 to $832,515, or 9.47% of 1994 net
sales. The decrease was due primarily to lower advertising and sales promotion
costs. The Company discontinued its domestic dealer co-op advertising program
in 1994 and lowered its selling prices. This resulted in a $370,467 decrease in
dealer advertising expense in 1994 versus 1993. The remaining savings were a
result of a management plan to reduce ineffective advertising and promotional
costs.
General Administrative
- ----------------------
1995 Compared to 1994
General and administrative expenses decreased $331,669 to $1,316,140 for the
year ended December 31, 1995 compared to $1,647,809 for the year ended December
31, 1994. The decrease was the result of lower legal costs, medical insurance
costs and bad debt expense.
1994 Compared to 1993
General and Administrative expenses were $1,647,809 in 1994, down slightly from
$1,785,004 in 1993, the difference being attributable to a one time charge the
Company took in 1993 relating to the settlement of a lawsuit against the
Company.
-11-
Interest
- --------
1995 Compared to 1994
Interest expense increased to $250,952 in 1995 from $220,850 in 1994. This
increase was attributable to an increase in interest rates offset in part by a
decrease in the average loan balance. During 1995, the Company's average loan
balance was $1,659,656 as compared to $2,042,938 in 1994.
1994 Compared to 1993
Interest expense increased to $220,850 in 1994 from $196,663 in 1993. The major
factor for this increase was the increase in interest rates during 1994. The
Company's net borrowings in 1994 were less than net borrowing in 1993.
Taxes
- -----
1995 Compared to 1994
The Company had a 1995 tax benefit of $30,671 compared to a benefit of $16,360
for the year 1994. The benefit in 1995 was attributable to the Company's
operating loss for the period.
1994 Compared to 1993
The Company had a 1994 tax benefit of $16,360 compared to the tax provision of
$121,048 in 1993. The benefit was attributable to the reduction of
approximately $109,919 in the valuation allowance on federal net operating loss
carryforwards.
Liquidity and Capital Resources
The Company's working capital (current assets less current liabilities)
increased $83,388 or 4% from December 31, 1994 to December 31, 1995. The
Company's current assets decreased $603,479, or 13%, while the Company's current
liabilities decreased $596,867, or 24%, over the same period. This decrease in
current assets was due to lower inventory levels as a result of the new computer
system the Company installed in December 1994 which resulted in better
management of inventory forecasting. Of the decrease in current liabilities,
$303,198 resulted from a decrease in accounts payable and accrued expenses,
$175,460 resulted from the retirement of short term debt and $118,209 resulted
from the decline in income taxes payable and other current liabilities.
Cash provided by operating activities amounted to $35,919 in 1995, as compared
to cash provided of $424,915 and cash used of $476,156 in 1994 and 1993,
respectively. Cash provided by operating activities in 1995 resulted from lower
inventory levels as a result of better management of inventory.
-12-
Credit Facility
In 1994, the Company obtained a credit line in the amount of $4,000,000 from
Midlantic Bank N.A. under an agreement dated December 29, 1994. The Company's
availability of funds from this credit line varies as it is based on current
receivables and inventory both of which the Company has pledged collateral
against any outstanding loan balance and any standby letters of credit issued on
behalf of the Company. In accordance with the agreement, the Company is charged
interest on the outstanding loan balance at the rate of prime plus 2%.
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
Recent Accounting Pronouncements
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of." This Statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used, and for long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. This Statement is effective for the Company during 1996. The
Company believes that the provisions of SFAS No. 121 will not have a material
impact on the Company's financial position or results of operations.
In October 1995, the FASB issued SAFS No. 123, "Accounting for Stock-Based
Compensation." This Statement requires expanded disclosures of stock-based
compensation arrangements with employees. This Statement does not rescind or
interpret the existing accounting rules for employee stock-based arrangements.
The Company is currently evaluating whether or not it will change to the
recognition provisions of SFAS No. 123. The Company has not yet determined the
financial statement impact of applying the provisions of this Statement.
Refer to the Index to Financial Statements and Financial Statement Schedule on
page F-1, for the required information.
Item 9. Change in and Disagreement with Accounts on Accounting and Financial
--------------------------------------------------------------------
Disclosure.
- -----------
None.
-13-
Part III
Item 10. Identification of Directors and Executive Officers
--------------------------------------------------
Management
Directors and Executive Officers
The Company's current directors and executive officers are:
Name Age Position with the Company
- --------------------------------------------------------------------------------------
Douglas A. Buffington 40 Director, President, Chief Financial Officer,
Chief Operating Officer and Treasurer
Christopher B. Cooper 37 Senior Vice President of Product
Development
Randy A. Hamill 40 Senior Vice President of Manufacturing
and Resources and Assistant Secretary
Michael A. Ross 37 Vice President of Sales
Robert L. Ross 51 Chairman of Board and Chief Executive
Officer
Richard M. Maurer 47 Director and Secretary
Mary Ann Jorgenson 55 Director
Frederick B. Ziesenheim 69 Director
DOUGLAS A. BUFFINGTON joined the Company in January 1994 as Vice President of
Sales and Marketing, became Chief Financial Officer and Chief Operating Officer
in June 1994, became President in December 1994, a Director in February 1995 and
Treasurer in January 1996. From 1992 until joining the Company, Mr. Buffington
served as General Manager of Simon-Duplex, a $25 million capital goods division
of Simon Engineering, a company based in the United Kingdom. From 1990 to 1992,
he served as Vice President of Finance of Simon-Ltd., a $35 million division of
Simon Engineering.
CHRISTOPHER B. COOPER was appointed Senior Vice President of Product Development
in January 1994. He served Secretary of the Company from February 1982 to
January 1996 and served as Chief Operating Officer of the Company from July 1991
to January 1994. From 1982 to July 1991 he served as Vice President of the
Company in charge of Production and Sales.
-14-
RANDY A. HAMILL has been Senior Vice President of Manufacturing and Resources
with the Company since July 1991 and is in charge of all manufacturing and
purchasing. Effective in January 1996, Mr. Hamill became Assistant Secretary of
the Company. He was formerly Vice President of Manufacturing of the Company
from 1981 to July 1991.
MICHAEL A. ROSS (no relation to Robert L. Ross) joined the Company in January
1996 as Vice President of Sales and Marketing. Prior to joining the Company,
Mr. Ross was, since 1994, U.S. National Sales Manager of Pro-Gear, a $6 million
golf equipment company. From 1990 to 1994, Mr. Ross was founder, President and
Chief Operating Officer of Sport-Leisure International, a $29 million
distributor of sporting goods located in Massachusetts. From 1982 to 1990, Mr.
Ross held other sales and sales management positions in the golf industry.
ROBERT L. ROSS has been a director of the Company since 1988 and Chairman of the
Board since October 1995. Effective in January 1996, Mr. Ross became Chief
Executive Officer of the Company. He has been Co-Managing Partner of Wesmar
Partners Limited Partnership ("Wesmar Partners"), the majority shareholder of
the Company, since 1985. Prior to the formation of Wesmar Partners, Mr. Ross
was associated with the Hillman Company, a private investment firm from 1978 to
1985. Mr. Ross is a Certified Public Accountant and was associated with Haskins
& Sells and with Westinghouse Electric Corporation prior to joining The Hillman
Company.
RICHARD M. MAURER has been a director of the Company since 1988. Effective in
January 1996, Mr. Maurer became Secretary of the Company. He has been Co-
Managing Partner of Wesmar Partners, the majority shareholder of the Company,
since 1985. Prior to the formation of Wesmar Partners, Mr. Maurer was
associated with the Hillman Company, a private investment firm, from 1978 to
1985. Mr. Mauer is a Certified Public Accountant and was associated with Price
Waterhouse prior to joining The Hillman Company.
MARY ANN JORGENSON has been a director of the Company since 1992. She has been
a partner with the law firm of Squire, Sanders & Dempsey since 1984 and has been
associated since 1975 with that firm. She also serves as a director of Cedar
Fair Management Company, the general partner of Cedar Fair, L.P., an owner and
operator of amusement parks and is a director and Secretary of Essef
Corporation, a manufacturer of plastic pressure vessels for the water treatment
and systems industry, spa and pool equipment, and containers for hazardous waste
transportation.
FREDERICK B. ZIESENHEIM has been a director of the Company since 1992. He has
been with the law firm of Webb, Ziesenheim, Bruening, Logsdon, Orkin & Hanson,
P.C. (formerly Webb, Burden, Ziesenheim & Webb, P.C.) since 1988 and is
currently Vice President and a member of the management committee of the firm.
Prior to combining his practice with that firm, he was President and a senior
member of the law firm of Buell, Ziesenheim, Beck and Alstadt, P.C., with whom
he had been associated since 1958.
All directors hold office until the next annual meeting of the Company's
shareholders and until their successors have been elected and qualified.
Officers serve at the discretion of the Board of Directors.
-15-
Under Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), the Company's directors, executive officers and any person
holding ten percent or more of the Company's Common Stock are required to report
their initial ownership of the Company's Common Stock and any changes in that
ownership to the Securities and Exchange Commission. Based solely on a review
of copies of the forms furnished to the Company in 1995 and written
representations from the Company's directors and executive officers that only
one Form 5 was required, the Company believes that all Section 16(a) filing
requirements applicable to its directors, executive officers and ten percent
shareholders in 1995 and through the date of this report were complied with,
except that each of Christopher B. Cooper, Michael A. Ross and George H. Nichols
failed to timely file one report with respect to one transaction. L.R. Jeffrey
failed to timely file two reports with respect to two transactions, and Michael
A. Ross failed to timely file his initial report upon becoming an executive
officer of the Company.
Item 11. Executive Compensation.
----------------------
The following table sets forth certain information with respect to annual and
long-term compensation for services in all capacities paid by the Company for
the years ended December 31, 1995 and 1994, to or on behalf of Douglas A.
Buffington who became President of the Company in December 1994. No executive
officer of the Company earned in excess of $100,000 in 1995.
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------------
Long Term
---------
Compensation
------------
Annual Compensation Awards
------------------- ------
- ------------------------------------------------------------------
Name and Other Securities
Principal Annual Underlying All other
Position Year Salary Bonus Compensation Options Compensation
- ------------------------------------------------------------------------------------------------
Douglas A. 1995 $89,885 $16,878 (1) 27,500 $975 (2)
Buffington, 1994 $76,154 $10,000 (3) $15,961 (1)
President
(1) Represents an approximation of travel/commuting expenses reimbursed by the
Company.
(2) The Company paid $975 annual premium on a $750,000 insurance policy on the
life of Mr. Buffington, which names Mr. Buffington's wife as the sole
beneficiary.
(3) Bonus earned in 1994, paid in 1995.
-16-
Set forth below is information with respect to grants of stock options during
the fiscal year ended December 31, 1995, to Douglas A. Buffington.
Option Grants in Last Fiscal Year
Number of % of Total
Securities Options Potential Realizable
Underlying Granted to Value at
Options Employees in Exercise Expiration 5% 10%
Name Granted Fiscal Year Price Date Appreciation Appreciation
- ---- ---------- ------------ -------- ---------- ------------ ------------
Douglas A. 27,500 100% $2.00 1/5/05 $10,725 $28,050
Buffington
The following table set forth certain information pertaining to stock options
held by Douglas A. Buffington as of December 31, 1995, on which date the $2.00
exercise price per share for such options exceeded the $.97 per share market
value of the Common Stock.
FISCAL YEAR-END OPTION HOLDINGS
-------------------------------
Number of Securities Underlying
Options at Fiscal Year-End
--------------------------
Name Exercisable Unexercisable
- ------------------------------------------------------------------------
Douglas A. Buffington 10,000 17,500
Directors Compensation
- ----------------------
The Company compensates its non-employee directors, by granting such persons
shares of the Company's Common Stock equal to $1,000 for every meeting of the
Board of Directors or committee thereof attended by such person. The number of
shares issued is based on the closing price of the stock on the exchange where
traded on the meeting date or the preceding date on which such shares were
traded. The shares are issued on the first business day following the meeting.
Though not employees of the Company, Messrs. Maurer and Ross do not participate
in this plan. The Company has entered into a consulting agreement with MR &
Associates, an affiliate of Messrs. Maurer and Ross. See Item 13, Certain
Relationships and Related Transactions.
Employment Agreements and Stock Option Information
- --------------------------------------------------
In January 1995, the Company entered into an employment agreement with Douglas
A. Buffington with a term ending December 31, 1997. Mr. Buffington's annual
salary under the agreement is $90,000. The agreement also entitles Mr.
Buffington to receive from the Company health and disability benefits,
reimbursement of certain expenses and a $750,000 life insurance policy with Mr.
Buffington's spouse as beneficiary. If the agreement is terminated, the
agreement provides that Mr. Buffington is only entitled to receive the unpaid
balance of his salary prorated and accrued to the date of termination.
-17-
Under the employment agreement, Mr. Buffington was granted an option to acquire
27,500 shares of the Company's Common Stock at $2.00 per share, which exercise
price is equal to the average of the NASDAQ bid and asked closing price per
share on the date of the grant. The option was exercisable immediately with
respect to 5,000 shares, on January 1, 1995, with respect to an additional 5,000
on January 1, 1996, and providing Mr. Buffington remains employed by the
Company, 7,500 shares and 10,000 shares will become exercisable on January 1,
1997 and December 31, 1997, respectively. Upon the occurrence of a change in
control of the Company, the option will vest with respect to all 27,500 shares.
The exercise price per share with respect to shares which were previously
unvested (the "Accelerated Exercise Price") would be either (i) one cent or (ii)
the lowest exercise price greater than one cent per share which would not cause
the value to Mr. Buffington of shares acquired upon exercise to be considered to
be an "excess parachute payment" under section 280G of the Internal Revenue Code
of 1986, as amended. The exercise price for previously vested shares would be
the lower of (a) the Accelerated Exercise Price or (b) $2.00.
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of March 18, 1996 (i) each person who
beneficially owned five percent or more of the outstanding Common Stock (ii)
each director, (iii) Douglas A. Buffington and (iv) all directors and executive
officers as a group calculated in accordance with Rule 13d-3 under the Exchange
Act.
-18-
Amount
Beneficially Percent
Name Owned (1) of Class (1)
- ----------------------------------------------------------------------
L. R. Jeffrey (2) 261,121 10.6
50 Gloucester Road
Summit, NJ 07901
Richard M. Maurer (3) 1,401,096 63.4
Three Gateway Center
Pittsburgh, PA 15222
Robert L. Ross (4) 1,401,096 63.4
Three Gateway Center
Pittsburgh, PA 15222
Mary Ann Jorgenson 7,564 *
4900 Society Center
127 Public Square
Cleveland, OH 44114-1304
Frederick B. Ziesenheim 8,047 *
700 Koppers Building
436 7th Avenue
Pittsburgh, PA 15219-1818
Douglas A. Buffington 10,000 *
18 Gloria Lane
Fairfield, NJ 07004
Wesmar Partners (5) 1,399,096 63.3
Three Gateway Center
Pittsburgh, PA 15222
All directors and executive
officers as a group (6) (8 persons) 1,685,770 68.6
- ---------------
*Less than one percent
-19-
(1) The numbers shown include shares covered by options that are currently
exercisable or exercisable within 60 days of December 31, 1995. The numbers and
percentages of shares owned assume that such outstanding options had been
exercised as follows: L. R. Jeffrey, Jr. - 250,000, Douglas A. Buffington -
10,000, and all directors and executive officers as a group - 248,750.
(2) Does not include 2,823 shares owned by various members of Mr. Jeffrey's
family with respect to which shares he disclaims any beneficial ownership.
(3) Includes 2,000 shares which are held directly by two trusts of which Mr.
Maurer is co-trustee, and 1,399,096 shares owned directly by Wesmar Partners.
Mr. Maurer is an officer, director and principal shareholder of Maurer Ross &
Co., Incorporated, the general partner of MR & Associates, the managing general
partner of Wesmar Partners.
(4) Includes 1,399,096 shares owned directly by Wesmar Partners. Mr. Ross is an
officer, director and principal shareholder of Maurer Ross & Co., Incorporated,
the general partner of MR & Associates, the managing general partner of Wesmar
Partners.
(5) Wesmar Partners is a Pennsylvania limited partnership whose partners are
Landmark Equity Partners III, L. P., a Delaware limited partnership, and MR &
Associates, a Pennsylvania limited partnership. MR & Associates is the managing
partner of Wesmar Partners. Messrs. Maurer and Ross are officers, directors and
principal shareholders of Maurer Ross & Co., Incorporated, a Pennsylvania
corporation and the general partner of MR & Associates.
(6) Does not include shares owned by various members of certain officers'
families with respect to which shares such officers disclaim any beneficial
ownership. Includes 1,399,096 shares owned directly by Wesmar Partners. See
notes 3, 4 and 5 above.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
Transactions with Management and Others
In January 1995, the Company entered into a consulting agreement with George H.
Nichols, a director of the Company until October 1995, under which Mr. Nichols
agreed to provide consulting services to the Company in connection with sales,
marketing and development of the Company's products, for a term ending December
31, 1997. This agreement was terminated in October 1995. During 1995, Mr.
Nichols received reimbursement for certain expenses and $54,000 in consulting
fees at the rate of $6,000 per month from January through September. Under the
agreement Mr. Nichols was granted an option to acquire 37,500 shares of the
Company's Common Stock at $1.875 per share, which exercise price is equal to the
price per share paid for NASDAQ's last Common Stock sale transaction on the date
of the grant. Such option is currently exercisable in full.
-20-
Pursuant to a consulting agreement, with the Company, MR & Associates provides
the Company with business counseling for $5,000 per month. The agreement, which
has been extended, expires on December 31, 1996. Messrs. Maurer and Ross,
directors of the Company, are officers, directors and principal shareholders of
Maurer Ross & Co., Incorporated, the general partner of MR & Associates. MR &
Associates is the managing general partner of Wesmar Partners, a beneficial
owner of approximately 64% of the outstanding Common Stock. In 1995, the
Company paid MR & Associates $70,000 of which $20,000 was due under the
agreement with respect to 1994. At December 31, 1995, $10,000 was due to MR &
Associates.
The Company paid Wesmar Partners $19,075 in 1995 for property, liability and
workers compensation insurance coverage provided by Wesmar Partners to the
Company through Liberty Mutual Insurance Company. Wesmar Partners beneficially
owns approximately 64% of the outstanding Common Stock. Messrs. Maurer and
Ross, directors of the Company, are officers, directors and principal
shareholders of Maurer Ross & Co., Incorporated, the general partner of MR &
Associates, the managing partner of Wesmar Partners.
During the fiscal year ended December 31, 1995, the Company retained the law
firm of Webb, Ziesenheim, Bruening, Logsdon, Orkin & Hanson, P.C. of which
Frederick B. Ziesenheim, a director of the Company, is a Vice President and
member of the Management Committee of the firm, to represent the Company on
various intellectual property matters.
During 1994, the Company finalized a proposal that resulted in the formation of
Squaretwo Golf New Zealand, Ltd. The Company contributed inventory for a 34%
ownership of Squaretwo Golf New Zealand, Ltd. Squaretwo Golf New Zealand, Ltd.
will supply S2 Golf products to the New Zealand and Australian markets.
On May 3, 1991, L. R. Jeffrey resigned as an officer and director of the
Company. In connection with such resignation, the Company and Mr. Jeffrey
entered into a Separation Agreement (the " Separation Agreement"). Mr. Jeffrey
agreed that for a period of five years that began on July 1, 1992, he will not
engage in the United States in any activity similar to the Company's business of
designing, manufacturing, marketing and selling golf clubs and equipment. In
return for the covenant not to compete, the Company is obligated to pay Mr.
Jeffrey or his estate $6,000 per month for a period of ten years that began on
April 1, 1992. In 1995, the Company paid Mr. Jeffrey $72,000 under this
agreement. In connection with the Separation Agreement, the Company granted Mr.
Jeffrey a stock option for 250,000 shares of the Company's Common Stock at a
purchase price of $4.48 per share, which was the average of the closing bid and
ask prices of the common stock on the trading date immediately preceding the
effective date of the grant. Subject to certain limitations, the option was
exercisable immediately and will remain exercisable by Mr. Jeffrey, or upon his
death, by his legal representative or beneficiary, until April 16, 2006. If and
to the extent that any amount is realized in excess of the exercise price upon
the sale of any Common Stock obtained upon exercise of all or any part of the
option, then 65 percent of such excess amount, subject to certain limitations,
is to be paid to the Company in immediately available funds concurrent with the
realization event.
During 1995, the Company engaged the services of William Nichols (son of George
H. Nichols) as an independent sales representative through June 1995. The
Company paid William Nichols $9,462 in 1995, no payments were due William
Nichols at December 31, 1995. William Nichols received 5% and 10% commission on
all retail and pro shop sales respectively, by his accounts in Texas and
Oklahoma while a sales representative for the Company.
-21-
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
----------------------------------------------------------------
(a) (1) The financial statements listed in the accompanying Index to Financial
Statements and Financial Statement. Schedule on Page
F-1 are filed as part of this report.
(2) The financial statement schedule listed in the accompanying Index to
Financial Statements and Financial Statement Schedule on Page F-1 are
filed as part of this report.
(3) The Exhibits listed in the accompanying Exhibit Index are filed as
part of this report.
(b) One Current Report on Form 8-K was filed on January 11, 1995, relating
to the Company's new credit facility with Midlantic Bank NA and the
appointment of Douglas A. Buffington as President of the Company.
-22-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: April 9, 1996 By: /s/ Douglas A. Buffington
-------------- -------------------------
Douglas A. Buffington
President, Chief Financial Officer,
Chief Operating Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Douglas A. Buffington Director, President, Chief April 9, 1996
- ------------------------- Financial Officer, Chief --------------
Douglas A. Buffington Operating Officer and
Treasurer
/s/ Robert L. Ross Chairman of the Board April 9, 1996
- -------------------- and Chief Executive Officer --------------
Robert L. Ross
/s/ Richard M. Maurer Director April 9, 1996
- --------------------- --------------
Richard M. Maurer
Director
- ------------------------- --------------
Mary Ann Jorgenson
Director
- ------------------------- --------------
Frederick B. Ziesenheim
-23-
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Financial Statements Page
Independent Auditors' Report F-2
Balance Sheets - As of December 31, 1995
and 1994 F-3
Statements of Operations - For the Years
Ended December 31, 1995, 1994 and 1993 F-4
Statements of Cash Flows - For the Years Ended
December 31, 1995, 1994 and 1993 F-5
Statements of Changes in Shareholders' Equity -
For the Years Ended December 31, 1995, 1994
and 1993 F-6
Notes to Financial Statements F-7
Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts
and Reserves F-20
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
-24-
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of S2 Golf Inc.:
We have audited the accompanying balance sheets of S2 Golf Inc. as of December
31, 1995 and 1994 and the related statements of operations, changes in
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. Our audits also included the financial statement
schedule listed in the accompanying Index. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of S2 Golf Inc. as of December 31, 1995 and
1994, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 1 to the financial statements, effective January 1, 1993,
the Company changed its method of accounting for income taxes to conform to
Statement of Financial Accounting Standards No. 109.
April 9, 1996
-25-
S2 GOLF INC.
BALANCE SHEETS
AS OF DECEMBER 31,
1995 1994
---------- ----------
ASSETS
Current Assets
Cash $18,995 $113,672
Restricted Cash - 128,140
Accounts Receivable (Net of Allowance
for Doubtful Accounts of $284,375 in 1995
and $361,780 in 1994 2,089,631 1,841,614
Inventory (Note 2) 1,695,246 2,401,615
Prepaid Expenses 139,968 45,165
Prepaid Income Taxes 10,000 -
Deferred Income Taxes (Note 6) 257,003 284,116
---------- ----------
Total Current Assets 4,210,843 4,814,322
Plant and Equipment - Net (Note 3) 148,365 139,666
Non-Current Deferred Income Taxes (Note 6) 54,079 26,291
Investment - Squaretwo Golf New Zealand, Ltd.
(Note 12) 11,129 11,100
Other Assets - Net (Note 4) 301,937 415,347
---------- ----------
Total Assets $4,726,353 $5,406,726
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short Term Borrowings (Note 5) $1,445,021 $1,620,481
Accounts Payable to Related Parties (Note 12) 14,209 33,071
Accounts Payable Other 158,024 451,222
Accrued Expenses 217,107 224,283
Other Current Liabilities 55,570 157,741
---------- ----------
Total Current Liabilities 1,889,931 2,486,798
Non-Current Liabilities 315,206 343,214
---------- ----------
Total Liabilities 2,205,137 2,830,012
Commitments and Contingencies (Note 8)
Shareholders' Equity
Common Stock, $.01 Par; 12,000,000 Shares
Authorized Shares: 2,208,311 Issued and
Outstanding at December 31, 1995, 2,195,737
Shares Issued and Outstanding December
31, 1994 22,083 21,957
Additional Paid in Capital 4,025,475 4,000,631
Accumulated Deficit (1,526,342) (1,445,874)
---------- ----------
Total Shareholders' Equity 2,521,216 2,576,714
---------- ----------
Total Liabilities and Shareholders' Equity $4,726,353 $5,406,726
========== ==========
See notes to financial statements
-26-
S2 GOLF INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
---------- ---------- ----------
Net Sales $7,243,307 $8,788,962 $8,947,430
Cost of Goods Sold 4,979,651 5,879,244 5,959,692
---------- ---------- ----------
Gross Profit 2,263,656 2,909,718 2,987,738
---------- ---------- ----------
Operating Expenses:
Selling 812,105 832,515 1,690,867
General & Administrative:
Wesmar Partners (Note 12) 79,075 108,291 115,596
Webb, Ziesenheim, Bruening, Logsdon,
Orkin, & Hanson, P.C. (Note 12) 24,998 67,311 99,923
Other 1,212,067 1,472,207 1,569,485
---------- ---------- ----------
Total Operating Expenses 2,128,245 2,480,324 3,475,871
---------- ---------- ----------
Operating Income (Loss) 135,411 429,394 (488,133)
---------- ---------- ----------
Other Income (Expense)
Interest Expense (250,952) (220,850) (196,663)
Other Income 4,402 3,597 3,746
---------- ---------- ----------
Other Expense - Net (246,550) (217,253) (192,917)
---------- ---------- ----------
Income (Loss) Before Income Taxes and
Cumulative Effect of Change in
Accounting Principle (111,139) 212,141 (681,050)
Provision (Benefit) for Income Taxes (Note 6) (30,671) (16,360) 121,048
---------- ---------- ----------
Income (Loss) Before Cumulative Effect of
Change in Accounting Principle (80,468) 228,501 (802,098)
Cumulative Effect of Change in Accounting
Principle - 423,129
---------- ---------- ----------
Net Income (Loss) ($80,468) $228,501 ($378,969)
========== ========== ==========
Earnings Per Common Share:
Income (Loss) Before Cumulative Effect of
Change in Accounting Principle and
Extraordinary Item ($0.04) $0.10 ($0.37)
Cumulative Effect of Change in Accounting
Principle for Income Taxes - - 0.20
---------- ---------- ----------
Net Income (Loss) ($0.04) $0.10 ($0.17)
========== ========== ==========
Weighted Average Number of Shares Outstanding 2,205,647 2,194,009 2,186,084
See notes to financial statements
-27-
S2 GOLF INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1995 1994 1993
---- ---- -----
OPERATING ACTIVITIES
- --------------------
Net Income (Loss) ($80,468) $228,501 ($378,969)
Adjustments to Reconcile Net Income to Net Cash
Provided By Operating Activities:
Depreciation and Amortization 175,994 169,590 178,187
Loss on Retirement of Equipment 3,775 37,500
Cumulative Effect of Change in Accounting Principle - (423,129)
Deferred Income Taxes (675) 86,546 (262,584)
Valuation Allowance for Deferred Income Taxes - - 406,403
Issuance of Stock for Compensation 24,970 13,659 18,014
Cash Flow Provided (Used) by Operating Activities as a
Result of Changes in:
Accounts Receivable (248,017) 250,720 (438,452)
Inventory 706,369 (153,204) 527,439
Prepaid Expenses (94,803) (21,549) 1,902
Prepaid Income Taxes (10,000) 36,140 (36,140)
Other Assets 11,964 (53,748) (36,757)
Accounts Payable Wesmar Partners (10,000) 15,000 5,000
Accrued Expenses Webb, Ziesenheim, Bruening, Logsdon
Orkin & Hanson P.C. (8,862) (905) 77
Accounts Payable and Accrued Expenses - Other (300,374) (92,585) (33,215)
Other Current Liabilities (99,586) 22,069 87,365
Income Taxes Payable (2,585) 2,585 (113,420)
Other - Net (28,008) (81,679) (15,377)
---------- ---------- ----------
NET CASH PROVIDED (USED) BY OPERATIONS $35,919 $424,915 ($476,156)
---------- ---------- ----------
INVESTING ACTIVITIES
- --------------------
Purchase of Equipment (83,247) (89,718) (16,312)
Investment in Squaretwo Golf New Zealand, Ltd. (29) (11,100) -
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES ($83,276) ($100,818) ($16,312)
FINANCING ACTIVITIES
- --------------------
Proceeds from Line of Credit 7,096,764 5,314,988 2,899,959
Payments on Line of Credit (7,272,224) (5,502,011) (2,344,152)
---------- ---------- ----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES ($175,460) ($187,023) $555,807
---------- ---------- ----------
INCREASE (DECREASE) IN CASH (222,817) 137,074 63,339
CASH - BEGINNING OF PERIOD 241,812 104,738 41,399
---------- ---------- ----------
CASH - END OF PERIOD $18,995 $241,812 $104,738
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
- ------------------------------------
Information Cash Paid During the Year For:
Interest $235,921 $222,880 $176,846
Income Taxes (Net of Refunds) $20,000 ($141,630) $148,852
See notes to financial statements
-28-
S2 GOLF INC.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
TOTAL
COMMON STOCK CAPITAL IN TREASURY STOCK SHARE-
---------------------- EXCESS OF --------------------- ACCUMULATED HOLDERS'
SHARES AMOUNT PAR VALUE SHARES AMOUNT DEFICIT EQUITY
---------- ---------- ------------- -------- --------- ------------ ----------
Balance - Dec. 31, 1992 2,183,848 $21,838 $3,969,198 (101) ($121) ($1,295,406) $2,695,509
Issuance of Common Stock 6,089 61 17,953 - - - 18,014
Treasury Stock Purchased - - - - - - -
Treasury Stock Retired - - (121) 101 121 - -
Net Loss -1993 - - - - - (378,969) (378,969)
------------------------------------------------------------- ------------------------
Balance - Dec. 31, 1993 2,189,937 21,899 3,987,030 0 0 (1,674,375) 2,334,554
Issuance of Common Stock 5,800 58 13,602 - - - 13,660
Net Income - 1994 - - (1) - 0 228,501 228,501
------------------------------------- --------------------- ------------------------
Balance - Dec. 31, 1994 2,195,737 21,957 4,000,631 0 (1,445,874) 2,576,714
Issuance of Common Stock 12,574 126 24,844 - - - 24,970
Net Income - 1995 - - - - - (80,468) (80,468)
--------------------- ------------- ------------------------------------------------
Balance - Dec. 31, 1995 2,208,311 $22,083 $4,025,475 0 0 ($1,526,342) $2,521,216
========================================================================================
See notes to financial statements
-29-
S2 GOLF INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
------------------------------------------
S2 Golf Inc. (the "Company") was incorporated under the laws of The State of New
Jersey on February 2, 1982. The Company manufactures and markets a proprietary
line of golf equipment including golf clubs, golf bags, golf balls and
accessories. The Company markets these products under various tradenames and
uses several additional trademarks.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of Credit Risk
The Company sells to customers primarily throughout the United States, with a
small amount made to Customers overseas. The Company does not require
collateral on its trade receivables and while it believes its trade receivables
will be collected, the Company anticipates that in the event of default it would
follow normal collection procedures. Overall, the Company's credit risk related
to its trade receivables is limited due to the broad range of products and the
large number of customers in differing geographic areas.
Cash
Cash includes all operating cash balances.
Restricted Cash
Restricted cash at December 31, 1994, represents deposits held at Integra Bank
pursuant to the termination of the credit line agreement for open letters of
credit that was paid in 1995.
Fair Value of Financial Instruments
The fair value of cash and cash equivalents, accounts receivable and accounts
payable approximate their carrying values due to the short term nature of the
instruments. The fair value of loans payable approximates its carrying value
due to their variable interest rate features which reprice quarterly.
-30-
Inventory
Inventory is valued at the lower of cost determined on the basis of the first-
in, first-out method, or market.
Plant and Equipment
Plant and equipment is stated at cost, less accumulated depreciation and
amortization. Depreciation is provided over the estimated useful service life.
As of January 1, 1993, the Company changed its method of recording depreciation
from accelerated cost recovery system (ACRS) and modified accelerated cost
recovery system (MACRS) to straight line for book purposes. The change had an
immaterial impact on the Company's Statement of Operations, Balance Sheet and
Statement of Changes in Shareholders Equity.
The estimated lives used in determining depreciation are:
Machinery and Equipment 5 Years
Furniture and Fixtures 7 Years
Leasehold improvements are amortized over the lives of the respective leases or
the service lives of the improvements, whichever is shorter.
Maintenance and repairs are charged to operations as incurred.
Revenue Recognition
The Company recognizes revenue upon the shipment of merchandise in fulfillment
of orders.
Other Assets
Other assets principally include patents, trademarks, and a covenant not to
compete with a former officer of the Company. The patents and trademarks are
amortized on the straight-line method over 15 years. The covenant not to
compete is being amortized over a five year period on a straight-line method
which began on July 1, 1992. Management periodically evaluates the
recoverability of intangible assets based upon current and anticipated net
income and undiscounted future cash flows.
Income Taxes
As of January 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". This statement
supersedes APB No.11, "Accounting for Income Taxes". The Company elected to
record the implementation as a cumulative effect of an accounting change.
-31-
Deferred income taxes result from temporary differences between the financial
statements and tax basis of the assets and liabilities primarily net operating
losses, accounts receivable, and accrued liabilities.
Reclassifications
Certain reclassifications have been made to the prior years financial statements
to conform to classifications used in 1995.
2. Inventory
---------
Inventory consists of the following components at December 31:
1995 1994
---- ----
Finished Goods $ 831,649 $ 881,139
Work in Process 25,000 13,366
Raw Materials 838,597 1,507,110
---------- ----------
$1,695,246 $2,401,615
========== ==========
At December 31, 1995 and 1994, inventory has been pledged as collateral for the
Company's line of credit as discussed in Note 5.
3. Plant and Equipment
-------------------
Plant and equipment at December 31, were as follows:
1995 1994
---- ----
Machinery and Equipment $606,791 $524,186
Furniture and Fixtures 54,485 53,842
Leasehold Improvements 43,554 43,554
-------- --------
Total 704,830 621,582
-------- --------
Less: Accumulated Depreciation 556,465 481,916
-------- --------
$148,365 $139,666
======== ========
Depreciation for the years ended 1995, 1994 and 1993 was $74,549, $68,758, and
$79,452, respectively. As of January 1, 1993, the depreciation method was
changed as described in Note 1.
-32-
4. Other Assets
------------
Other Assets consists of the following at December 31, 1995, and 1994.
1995 1994
---- ----
Covenant not to Compete $436,277 $436,277
Patents and Trademarks 212,629 201,258
Security Deposits 20,350 30,350
Deferred Loan Charges 13,332 26,667
-------- --------
Total 682,588 694,552
Less: Accumulated
Amortization 380,651 279,205
-------- --------
$301,937 $415,347
======== ========
Amortization expense for the years ended 1995, 1994 and 1993 was $101,446,
$100,832 and $98,735, respectively.
5. Short Term Borrowings
---------------------
The Company has a revolving line of credit with Midlantic Bank NA with a maximum
credit limit of $4,000,000 subject to a borrowing base of 75% of eligible
accounts receivable and depending on the time of year, 40% to 50% of qualified
inventory. The line will expire December 31, 1997. The line of credit is
collateralized by substantially all of the Company's assets and carries an
interest rate of prime plus 2%. The interest rate at December 31, 1995 was
10.75%. The Company used the proceeds of this line to retire the Integra Bank
obligation in 1994. At December 31, 1995 and 1994, borrowings against the line
of credit amounted to $1,445,021 and $1,620,480 respectively and the Company had
approximately $61,937 of availability under this facility.
The Company may issue letters of credit through Midlantic Bank NA for up to
$1,750,000 against the line of credit. At December 31, 1995 the total amount
outstanding of letters of credit was $3,517. At December 31, 1994, the Company
had no letters of credit outstanding against this line.
These facilities contain certain affirmative and negative covenants including
tangible net worth and working capital which, among other items, require the
maintenance of certain financial amounts and ratios including tangible net worth
and working capital. Any event of default under the facility permits the lender
to cease making additional loans thereunder. The Company was in compliance
with all covenants as amended on April 9, 1996.
-33-
6. Income Taxes
------------
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting For Income Taxes" (SFAS
109). This statement changes the method of accounting for income taxes from the
deferred method, required under Accounting Principles Board Opinion No. 11, to
the asset and liability method. The statement, among other matters, addresses
measurement and recognition of deferred tax assets resulting from temporary
differences as well as operating loss and tax credit carryforwards, and other
miscellaneous tax attributes.
The statement requires current recognition of all deferred tax assets and
liabilities subject to impairment by valuation allowance if, based on the weight
of available evidence, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
Effective January 1, 1993, the Company adopted SFAS 109 on a prospective basis.
The cumulative effect of the adoption resulted in an increase in earnings of
$423,129 or $0.20 per share.
The provision (benefit) for income taxes for the years ended December 31, 1995,
1994 and 1993 consists of the following:
1995 1994 1993
---- ---- ----
Current
Federal $(21,826) $ 141,019 $(136,371)
State ( 7,637) 39,086 (32,473)
-------- --------- ---------
(29,464) 180,105 (168,844)
Deferred
Federal ( 1,648) (67,550) (92,866)
State 447 (18,996) (23,645)
-------- --------- ---------
( 1,207) (86,546) (116,511)
Valuation Allowance (109,919) 406,403
-------- --------- ---------
Total Provision (Benefit) for
Income Taxes $(30,671) $( 16,360) $ 121,048
-------- --------- ---------
-34-
Although the effective statutory rate is 35%, the marginal 34% rate applicable
to taxable income not in excess of $10 million per year, is a significant factor
in the measurement of the deferred tax assets.
As a result of a change in ownership during 1988, the utilization of the net
operating loss carryforward for federal purposes had been determined to be
limited to $232,500 each year until their expiration. In years that the
limitation exceeds the amount of the net operating loss utilized, such excess
amount shall be carried over to the subsequent year. The utilization of the
available net operating loss carryforward represented an extraordinary item in
1992.
A summary of the differences between the actual income tax provision (benefit)
and the amounts computed by applying the statutory Federal income tax rate to
income is as follows:
1995 1994 1993
---- ---- ----
Federal Tax (Benefit) at Statutory Rate ($37,787) $ 72,128 $(231,557)
Increase (Decrease) in Taxes
Resulting From:
Valuation Allowance (109,919) 406,403
Travel and Entertainment (2,129) 2,996 7,041
State Tax, Net of Federal Tax Benefit 5,755 13,451 (46,757)
Other 3,490 4,984
--------- -------- ---------
Total Income Tax Provision (Benefit) $ (30,671) $(16,360) $ 121,048
========= ======== =========
At December 31, 1995, the Company had a Federal tax operating loss carryforward
of approximately $939,000 for tax purposes, of which $232,500 will expire in
each of the years 1999 through 2002.
-35-
The tax effects of temporary differences and carryforward items that give rise
to significant portions of the current and noncurrent deferred tax assets at
December 31, 1995 and December 31, 1994 are as follows:
December December
31, 1995 31, 1994
--------- --------
Allowance for Doubtful Accounts $ 129,671 $ 161,236
Legal Settlement 191 17,055
Accrued Expenses 80,193 54,752
Other 46,948 51,073
--------- --------
Current Deferred Income Tax 257,003 284,116
========= =========
Net Operating Loss 296,511 296,511
Non-Compete Agreement ( 720) 14,927
Valuation Allowance (296,511) (296,511)
Other 54,799 11,364
--------- --------
Non Current Deferred Income Tax $ 54,079 $ 26,291
========= =========
7. Leased Properties
-----------------
Operating Lease
The Company leases factory and office space at 18 Gloria Lane, Fairfield, New
Jersey. On December 1, 1995, the Company and the lessor amended the lease to
extend its term to December 1996. The annual base rent for 1996 will be
$118,519. In addition to the base rent, the Company is obligated to pay its pro
rata share of real estate taxes, assessments, and water and sewer rents. The
total base rent commitment is $118,519 due in 1996.
Capital Lease
In 1995, the Company acquired a new show booth under a capital lease agreement.
At December 31, 1996, the total asset value of $38,160 less accumulated
amortization of $12,720 was included in net property and equipment.
-36-
Year ending December 31: 1995
----
1996 $17,227
1997 17,227
1998 2,871
-------
Total minimum lease payments 37,325
Less: Amount representing interest 9,765
-------
Present value of net minimum lease payments $27,560
=======
8. Commitments and Contingencies
-----------------------------
Royalties Payable
Under the terms of an agreement with the LPGA Tournament Players Corporation,
the Company is obligated to pay a royalty fee to the LPGA based on sales volume.
The minimum annual royalty is $150,000, $175,000 and $175,000 for 1995, 1996,
and 1997, respectively, paid quarterly in January, April, October and upon year
end closing results. Payments of $150,000, $150,000, and $125,000 were included
in selling expense for the year ended December 31, 1995, 1994 and 1993,
respectively.
Other Liabilities
Under the terms of a separation agreement, the Company is obligated to pay its
former president $6,000 per month for a period of ten years which began on April
1, 1992 as consideration for his covenant not to compete with the Company (see
Note 4). The obligation is recorded at its present value in other current and
non current liabilities, and accrues interest at 9% per annum.
In connection with the Separation Agreement, the Company granted its former
President stock options for 250,000 shares of the Company's common stock at a
purchase price of $4.48, which was the average of the closing bid and asked
prices of the Company's common stock on the last trading date immediately
preceding the effective date of the grant. Subject to certain limitations, the
options were exercisable immediately and will remain exercisable until April 16,
2006.
If, and to the extent that, any amount is realized in excess of the exercise
price upon the sale of any common stock obtained upon exercise of all or any
part of the options, the 65 percent of such excess amount, subject to certain
limitations, is to be paid to the Company in immediately available funds
concurrent with the realization event.
-37-
9. Stock Options
-------------
Stock Incentive Plans
Under the terms of the Company's 1984 Incentive Stock Option Plan ("The 84
Plan") options to acquire an aggregate of 75,000 shares of the Company's common
stock could have been granted through 1994 to officers and certain employees of
the Company. The table below summarizes stock option activity over the past
three years under current and prior plans:
Number Option price
of shares (range per share)
Outstanding at January 1, 1993 357,500 $4.375-$5.00
Granted ------- ----------
Exercised ------- ----------
Cancelled or expired 10,830 5.00
- ---------------------------------------------------------------
Outstanding at January 1, 1994 346,670 4.375-5.00
Cancelled or expired 68,750 4.375-5.00
- ---------------------------------------------------------------
Outstanding at December 31, 1994 277,920 4.375-5.00
Granted ------- ---------
Exercised ------- ---------
Cancelled or expired ------- ---------
- ---------------------------------------------------------------
Outstanding at December 31, 1995 277,920 4.375-5.00
Exercisable at December 31, 1995 277,920 $4.375-$5.00
======= ============
Other Options
In September 1991, the Company entered into five agreements with members of the
LPGA Teaching Division to provide consulting in the areas of sales, marketing
and product development of women's golf products. In exchange for these
services each consultant would be granted the option to acquire 1,200 shares of
common stock each year on the anniversary date of the agreement provided the
agreement was not terminated. These agreements have a three year term. All of
the above options have an exercise price of $5.625. In September of 1992, the
Company entered into a sixth agreement, with the same terms as the original five
except that the options thereunder have an exercise price of $4.25.
-38-
In May 1991, the Company entered into an agreement with its advertising agency
for advertising and public relations services through December 31, 1994. In
exchange for service rendered by the advertising agency, the Company issued to
the advertising agency an option to acquire 6,250 shares of common stock per
annum for services rendered. As additional incentive, the Company agreed to
award additional stock options for 18,750 total shares of common stock upon the
Company achieving certain annual financial results for 1992, 1993 and 1994. All
of the above options have an exercise price of $4.625 and expire in years ending
December 31, 1997 through December 31, 1999. Since the 1992, 1993 and 1994
performance criteria were not achieved, the 18,750 options are no longer
exercisable.
In connection with the Separation Agreement between the Company and its former
President, the Company issued the option to acquire 250,000 shares of common
stock to the former President in partial consideration for his covenant not to
compete with the Company for a period of 5 years beginning July 1, 1992. (See
Note 8). Subject to certain limitations, the option may be exercised any time
prior to April 16, 2006 at a price of $4.48 per share.
All of the above amounts have been adjusted to reflect the one for four reverse
stock split with occurred in July 1991.
10) Legal Matters
-------------
The company was a defendant in a patent infringement suit which was filed in the
United States District Court for the Northern District of Illinois in August of
1991 based on the Company's production and sale of metal wood golf clubs. In
October 1993, the Company and Vardon Golf Company, Inc., the plaintiff in such
action, entered into an agreement (the "Agreement") to settle the litigation.
Under the terms of the Agreement, the Company is required to make payments to
the plaintiff in the aggregate amount of $171,922.50 payable in equal monthly
installments, without interest, over a period of 20 consecutive months. An
order dismissing the action against the Company was entered on November 16,
1993. This expense was recorded in the General and Administrative expense for
year ended December 31, 1993. At December 31, 1994, the present value of this
liability was recorded in Other Current Liabilities. Payment for 1994 amounted
to $103,153. During 1995 the Company made the final payment to Vardon Golf
Company in settlement in the amount of $42,502.
-39-
11. Shareholder's Equity
--------------------
Wesmar Anti-Dilutive Agreement
The Company issued two Common Stock Purchase Warrants and entered into a Stock
Option Agreement granting options to purchase common stock to Wesmar Partners
Limited Partnership in consideration for entering into a one year loan agreement
in 1988. All of the warrants and options were exercised as of December 31,
1988.
The Warrant Agreement entitled Wesmar Partners to purchase up to that number of
shares of common stock which, when acquired, will result in Wesmar Partners
owning not less than 65% of the outstanding common stock. If, subsequent to
exercise of the Wesmar Partners options and warrants, shares of common stock are
issued to individuals other than Wesmar Partners under warrants, rights or
options which were in existence at the date of Wesmar Partners exercise. Wesmar
Partners would be entitled to receive additional shares for no consideration
which would increase Wesmar Partners, common stock ownership to 65%. In
addition, as a part of the Stock Option Agreement, the Company has entered into
a negative covenant that it will not issue any shares of common stock, rights,
warrants or options which would result in the number of shares issued pursuant
to the Wesmar Partners Warrants and Option Agreements representing less than 60%
of the common stock on a fully diluted basis. During 1991 and 1990, Wesmar
Partners received Common Stock totalling 83,572 and 26,685 shares respectively,
under this antidilutive provision.
As additional consideration for the loan from Wesmar Partners, the Company
granted Wesmar Partners a right of first refusal as to the purchase of any
additional shares of common stock to be issued and sold by the Company.
12. Related Party Transactions
--------------------------
In 1994 and January through May 1995, Wesmar Partners provided the Company with
insurance coverage through the Liberty Mutual Insurance Company for property,
liability and workers compensation insurance. During 1994 and 1995, the Company
paid Wesmar Partners $48,291 and $19,075, respectively for such insurance
coverage.
Pursuant to a consulting agreement, with the Company, MR & Associates provides
the Company with business counseling for $5,000 per month. The agreement, which
has been extended periodically, expires on December 31, 1996. Messrs. Maurer
and Ross, directors of the Company, are officers, directors and principal
shareholders of Maurer Ross & Co., Incorporated, the general partner of MR &
Associates. At December 31, 1995, the Company had paid MR & Associates $70,000
in connection with such consulting agreement, of which $20,000 was due under the
agreement in respect of 1994, and $10,000 was due to MR & Associates at December
31, 1995.
-40-
During the fiscal year ended December 31, 1995, the Company retained the law
firm of Webb, Ziesenheim, Bruening, Logsdon, Orkin & Hanson PC of which
Frederick B. Ziesenheim, a director of the Company, is a Vice President and
Senior Member, to represent the Company on various intellectual property
matters. The Company had paid Webb, Ziesenheim, Bruening, Logsdon, Orkin &
Hanson P.C. $33,860 in 1995 and was indebted in the amount of $4,209 at December
31, 1995.
During 1994, the Company finalized a proposal that resulted in the formation of
Squaretwo Golf New Zealand, Ltd. Squaretwo Golf New Zealand, Ltd. will supply
S2 Golf products to the New Zealand and Australian markets. The Company owns
34% of Squaretwo Golf New Zealand, Ltd.
In 1992, the Company adopted the 1992 stock plan for independent directors of S2
Golf Inc. The plan compensated certain non-employee directors, by granting such
persons shares of the Company's common stock equal to $1,500 for every meeting
attended. The number of shares issued is based on the closing price of the
stock on the exchange where traded on the meeting date or preceding date on
which such shares were traded. The shares are issued on the first business day
following the meeting. At the 1993 Annual Shareholders Meeting, the
shareholders approved this plan. In 1995, the Company amended the 1992 stock
plan for independent directors of S2 Golf Inc. The amendment provides for the
compensation of its non-employee Chairman of the Board and directors by granting
such persons shares of the Company's common stock equal to $2,000 and $1,000,
respectively, for every meeting attended.
-41-
13. Supplemental Disclosures of Non-cash Transactions
-------------------------------------------------
During 1995 and 1994, the Company recorded certain non-cash charges of $32,825
and $36,185, respectively, representing accrued interest for a liability to its
former president in connection with his Separation Agreement (see Note 8).
Additionally, during 1995, 1994 and 1993, the Company recorded $478, $5,882 and
$2,476, respectively, representing accrued interest for the Vardon Suit (see
Note 10).
During 1995, the Company issued common stock in the amount of $11,015 for
services rendered in 1995.
During 1994 and 1995, the Company issued stock in the amount of $13,659 and
$13,955, respectively, for services rendered in 1994.
-42-
S-2 GOLF, INC
-------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
-----------------------------------------------------
Balance at Charged to Charged Balance
Beginning Cost and to Other at End
of Period Expenses Accounts Deductions of Period
---------- ---------- -------- ---------- ---------
ALLOWANCE FOR
DOUBTFUL ACCOUNTS
YEAR ENDED:
December 31, 1993 146,062 173,052 --- 56,154 262,960
December 31, 1994 262,960 117,128 --- 18,308 (1) 361,780
December 31, 1995 361,780 --- --- 77,405 284,375
ALLOWANCE FOR RETURNS
December 31, 1993 46,820 578,748 --- 579,868 45,700
December 31, 1994 45,700 403,541 --- 394,241 55,000
December 31, 1995 55,000 222,659 --- 225,052 52,607
ALLOWANCE FOR DISCOUNTS
December 31, 1993 37,233 405,046 --- 384,956 57,323
December 31, 1994 57,323 136,284 --- 153,607 40,000
December 31, 1995 40,000 192,798 --- 161,473 71,325
INVENTORY OBSOLESCENCE RESERVE
December 31, 1993 --- 52,880 --- --- 52,880
December 31, 1994 52,880 54,529 --- --- 107,409
December 31, 1995 107,409 54,089 161,498
(1) Uncollectible Accounts Written Off, Net of Recoveries
-43-
Exhibit Index
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).
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).
-44-
10.2 Lease Renewal Agreement between the Registrant and 12 Gloria Lane
Industrial Partnership dated October 3, 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 Christopher B.
Cooper dated July 1, 1991, (incorporated by reference to Exhibit
10.8 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1991).
10.5 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).
10.6 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 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 10.11 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, 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)
11 S2 Golf Inc. Computation of Earnings per share for the years ended
December 31, 1995, 1994 and 1993
-45-