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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, 1997 Number O-14146
S2 GOLF INC.
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(Exact name of registrant as specified in charter)
New Jersey 22-2388568
- ---------- ----------
(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)
(973) 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 March 18, 1998, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $6,787,614. This calculation
is based upon the closing price of the Registrant's common stock on March 18,
1998.
The number of shares of the Registrant's Common Stock outstanding as of March
18, 1998 was 2,218,846.
Part I
Item 1. Business.
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Description of Business
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S2 Golf, Inc. (the "Company" or "Square Two") was incorporated under the laws of
the state of New Jersey in February 1982. The Company manufactures and sells
golf equipment throughout the United States. A publicly-traded company with
several club lines for women and men, Square Two is a proven leader in advanced
golf technology.
In the last four years the company has effectively repositioned itself as one of
the top value brands in the women's golf market, which makes up between 55% and
60% of Square Two's business. By concentrating much of its limited promotional
and advertising resources on this market niche, Square Two has developed a
growing following among women golfers and the retailers who sell them clubs.
Square Two has always sought to provide women golfers with the very best value
in state-of-the-art golf technology. One of a few golf equipment manufacturers
whose clubs carry a number of U.S. Patents for technical achievements, the
Company pioneered improvements in head design and shaft technology for women's
clubs.
Square Two also began to tap more aggressively into its 17-year partnership with
the Ladies Professional Golf Association (LPGA). Using input it received from
an advisory board of LPGA teaching professionals and through its sponsorship of
the Square Two/LPGA Custom Club Fitting Program, Square Two began to introduce
options in women's clubs that other manufacturers did not offer. As a result of
its relationship with the LPGA, all of Square Two's women's clubs carry the
distinctive LPGA logo. To create more "eye appeal," Square Two made cosmetic
changes to those products and began to show the logo more prominently.
Square Two has remained committed to providing premium quality, high performance
clubs at affordable prices. Because Square Two does not believe that superior
designs must sell for superior prices, the Company believes that its clubs match
or exceed the performance specifications of clubs costing two to three times
more. Because many women are savvy shoppers, the Company believes that Square
Two's message of advanced technology at affordable prices has been warmly
received by women golfers.
-1-
Products
The Company currently markets the following full line of golf equipment for both
men and women:
The PCX II steel line features 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 only.
The Light and Easy/TM/ line was redesigned in 1997 with medallions and features
the LPGA logo, lightweight steel or graphite shafted, cavity back, oversize,
stainless steel irons with steel or graphite shafted oversize, perimeter
weighted metal woods. Light and Easy/TM/ clubs are available in ladies and Lady
Petite for right and left-handed golfers.
The Power Circle/TM/ line was redesigned in 1997. These irons, which are
available in either steel or graphite shafts, feature oversize, full cavity
design engineered to resist twist at impact. Metal woods feature steel or
graphite shafts with oversize head designs. Power Circle clubs are available in
men's right hand and left hand models.
The RAVE graphite line was introduced in 1997 and features the Company's
patented Posiflow weighting system in its irons. The oversize stainless steel
metal woods have expanded sweet spots. Irons and woods feature ultra-light high
modulous graphite shafts which are matched to the player's swing speed. The
RAVE graphite clubs are available in right and left-handed Mens, Ladies and Lady
Petite with the LPGA logo.
In 1997, the Company introduced the "Power Circle" and "Light and Easy" Titanium
driver series. The heads used on these clubs are 100% 6/4 Titanium.
In 1997, the Company improved its value line of womens graphite with the
introduction of the "Agree".
In 1997, the Company introduced its "ZCX-Ti" line of Titanium faced irons
available in left hand only. These irons feature 100% Titanium inserts for
enhanced feel and Posiflow weighting for less long iron fades and short iron
pulls.
In 1997, the Company introduced its "Lady Ti" line of Titanium faced irons.
Available in womens only, these irons feature 100% 6/4 Titanium inserts for
maximum energy transfer and high modulous lightweight shafts for improved
distance.
In 1997, the Company introduced its "Eight-Is-Enough" line of clubs for junior
golfers. These sets which are available for both young men and women, come in
three different lengths and feature four irons, three woods and a putter.
In 1997, the Company introduced its "Relief" wood series. Available exclusively
for women, the long. middle and short Relief offer V-soles designed to be user
friendly in all playing conditions.
In 1997, the Company introduced its "WTD" or "Womens Tour Design" wedge system.
Designed for women, these wedges feature polymer inserts for better bite on the
green.
-2-
In 1997, the Company introduced its "CASHMASTER" series of mens wedge. Available
in right hand and left hand these wedges feature 20 (degree) angled real rails
which enable an open club face to glide unimpeded through impact.
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 women's golf balls and golf gloves.
The ladies golf ball and glove packaging for 1997 was re-designed as part of the
Company's desire to improve shelf appeal.
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 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,
demand for the Company's clubs is greatest in March through June. At December
31, 1997, the Company had commitments from dealers to purchase products having
an aggregate sales value of approximately $3,200,000, 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 1996, the Company had commitments of
approximately $1,800,000.
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. Delays are not anticipated to be
longer than two weeks and are not anticipated to materially affect the Company's
ability to deliver the product. The Company continues to evaluate other
alternatives in sourcing suppliers.
The Company has a line of credit in the amount of $5,000,000 with PNC Bank
pursuant to which PNC Bank 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.
-3-
Industry Background
The National Golf Foundation estimates that in 1996 there were 24.7 million
golfers in the United States. (1997 numbers are not yet available.) The rate
of growth declined slightly from 1995 to 1996. The popularity of the sport has
created a significant market for golf clubs. In competition for a share of the
market, various manufacturers have developed golf clubs using various materials,
differing types of construction and the latest engineering technology.
Marketing & Distribution
Until approximately 15 years ago, top of the line golf equipment was sold almost
exclusively by golf professionals at private clubs. Currently, off course
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 market awareness of a company's products. It is anticipated
that manufacturers will increase their research and development efforts as well
as their advertising expenditures.
As of February 23, 1998, the Company had established a network of approximately
1,800 retailers with approximately 4,200 retail outlets. The Company has
prepared a comprehensive catalog for its dealers.
In 1997, 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.
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 renewed the
exclusive licensee agreement through the year 2000 at which time the agreement
will become non-exclusive through 2003. At the end of 2003, the Company will
have the option to renew for two consecutive years under the same terms and
conditions. 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 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
% of 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 term of the agreement is $200,000 each consecutive
year through 2003.
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.
-4-
Competition
The golf club industry is highly competitive and is dominated principally by
approximately 15 nationally known manufacturers of sporting goods equipment.
Such manufacturers, including Callaway, Ping, Spalding, Taylor Made,
Cobra/Titleist possess greater financial and other resources than those of the
Company. The Company primarily competes with these entities based upon the
quality and value of its products and service along with the Company being the
official sponsor of the LPGA.
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, their products
also compete with those manufactured by the Company.
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.
The Company has registered the following trademarks with the United States
Patent and Trademark Office:
TOTALLY MATCHED/R/ SQUARE TWO/R/ ONYX/R/ AGREE/R/
PCX/R/ MICRO-TORQUE/R/ S2/R/ (Stylized) MELODY/R/
POSIFLOW/R/ TMP/R/ LADY PETITE/R/ ALLEGRA/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/
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, 1997, the Company employed sixty-six persons, including
sixty-one fulltime employees of which four were executive officers. Fifty-seven
of these were hourly employees and three were management and marketing
personnel. Additional hourly employees are hired during peak production periods
and management anticipates no problems 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.
-5-
Special Note on Forward-Looking Statements
The business, financial condition and results of operations of the Company may
be adversely affected by a number of factors. Certain statements and
information contained herein constitute "forward-looking statements" within the
meaning of the Federal Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance, or achievements
of the Company to be materially different from any future results, performance
or achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, the risks inherent in the development and
introduction of new products; the Company's dependence on consumer tastes which
fluctuate from time to time; seasonality and prevailing weather conditions as
protracted periods of inclement weather could disrupt consumer demand for golf-
related products; unanticipated shortages of components or delays in component
delivery and the significant competition in the Company's line of business, as
well as other risks and uncertainties.
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 exercised
its option to renew its lease at such facility through December 31, 1998. The
lease 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.
-----------------
No material lawsuits or claims are presently pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
There were no matters submitted to shareholders for vote during the quarter
ended December 31, 1997.
Executive Officers of the Company
See Part III, Item 10 of this report.
-6-
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, 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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1996 1st Quarter $1.56 $ .96
1996 2nd Quarter $1.50 $1.06
1996 3rd Quarter $1.75 $ .94
1996 4th Quarter $1.25 $ .81
1997 1st Quarter $1.94 $ .81
1997 2nd Quarter $2.75 $1.50
1997 3rd Quarter $3.63 $2.38
1997 4th Quarter $5.00 $3.06
On February 24, 1997, the number of holders of record of the Company's common
stock was approximately 268. No cash dividends have been paid to date and it is
not anticipated that cash dividends will be paid in the near future.
In 1997, the Company issued 2,147 shares of Common Stock to Frederick B.
Ziesenheim and Mary Ann Jorgenson as compensation for serving as a director of
the Company and participating in board meetings. As no public offering was
involved, the issuance of such shares was exempt from registration under Section
4(2) of the Securities Act of 1933, as amended. See Item 11.
In addition, in 1997 the Company issued 6,000 shares of Common Stock to the
Directors of Womens Golf for services rendered in 1995 and 1996. The Director
of Women's Golf position has been eliminated. As no public offering was
involved, the issuance of such shares was exempt from registration under Section
4(2) of the Securities Act of 1993, as amended.
-7-
Item 6. Selected Financial Data.
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Year Ended December 31,
------------------------
1997 1996 1995 1994 1993
Operating Results:
Net Sales $12,073,843 $8,563,588 $7,243,307 $8,788,962 $8,947,430
Net income (Loss) 855,565 118,884 (80,468) 228,501 (378,969)
Net Income (Loss)
per Share-Basic 0.39 0.05 (0.04) 0.10 (0.17)
per Share-Dilutive 0.37 0.05 (0.04) 0.10 (0.17)
Weighted Average
Number of Shares
Outstanding-Basic 2,214,448 2,208,311 2,205,647 2,194,009 2,186,084
Outstanding-Dilutive 2,290,505 2,208,311 2,205,647 2,194,009 2,186,084
Cash Dividend 0 0 0 0 0
At Year End:
Working Capital 3,435,345 2,401,904 2,320,912 2,237,524 2,018,110
Total Assets 7,630,176 5,153,651 4,726,353 5,406,726 5,487,104
Total Liabilities 4,123,082 2,513,551 2,205,137 2,830,012 3,152,550
Long Term
Obligations: 202,231 253,498 315,206 343,214 424,893
Shareholders
Equity 3,507,094 2,640,100 2,521,216 2,576,714 2,334,554
1993 net income includes $423,129 for the cumulative effect of the adoption of
SFAS No. 109 "Accounting for Income Taxes."
Item 7. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
- -------------
Certain information in the following Management's Discussion and Analysis of
Financial Condition and Results of Operations constitutes forward-looking
information that involves certain risks and uncertainties. See Item 1.
Business, under caption "Special Note on Forward Looking Statements".
Results of Operations
Sales
- -----
1997 Compared to 1996
For the year ended December 31, 1997, net sales were $12,073,843 versus
$8,563,588 for the year ended December 31, 1996, an increase of $3,510,255. The
increase in sales volume is primarily the result of continued improvement of the
sales force, a more cosmetically appealing product line and the addition of a
new channel of distribution; specialty sporting goods.
-8-
1996 Compared to 1995
For the year ended December 31, 1996, net sales were $8,563,588 versus
$7,243,307 for the year ended December 31, 1995, an increase of $1,320,281. The
increase in sales volume is primarily the result of the following: 1) more
attractive price points of women's merchandise to retailers, 2) increased sales
coverage via an increased outside sales force and, 3) a more cosmetically
appealing women's product line. In 1996, sales of the women's line accounted
for approximately 60% of total sales and sales of the men's line accounted for
approximately 40%, in 1995, mens sales accounted for approximately 60% and the
women's line accounted for approximately 40% of total sales. The change in
product sales mix is attributable to those factors associated with the overall
increase in sales volume.
Gross Profit
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1997 Compared to 1996
Gross profit on sales for the year ended December 31, 1997 was 32.8% versus
32.2% for the year ended December 31, 1996. The increase of approximately .6%
is the result of the increased sales volume and lower material costs.
1996 Compared to 1995
Gross profit on sales for the year ended December 31, 1996 was 32.2% versus
31.3% for the year ended December 31, 1995. The increase of approximately 1% is
primarily the result of the lower material costs as well as increased sales
volume and more attractive price points.
Selling Expenses
- ----------------
1997 Compared to 1996
Selling expenses for the year ended December 31, 1997 were $1,551,552 versus
$1,251,688 for the year ended December 31, 1996, an increase of $299,864. This
increase was primarily the result of increased commission expense due to
increased sales volume offset by a decrease in sales salaries, as well as
increased advertising expense.
1996 Compared to 1995
Selling Expenses for the year ended December 31, 1996 were $1,251,688 versus
$812,105 for the year ended December 31, 1995, an increase of $439,583. This
increase was the result of increased costs associated with advertising as well
as sales salaries and commission expenses due to the higher sales volume.
-9-
General Administrative
- ----------------------
1997 Compared to 1996
General and Administrative expenses increased $71,813 to $1,187,444 for the year
ended December 31, 1997 compared to $1,115,631 for the year ended December 31,
1996. This increase was primarily the result of an increase in the allowance
for doubtful accounts offset by a decrease in amortization expense related to a
non-compete agreement with a former officer which was fully amortized in June of
1997.
1996 Compared to 1995
General and Administrative expenses decreased $200,509 to $1,115,631 for the
year ended December 31, 1996 compared to $1,316,140 for the year ended December
31, 1995. This decrease was the result of reduced office salaries as well as a
reduction in costs associated with rent for the Company's facility.
Interest
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1997 Compared to 1996
Interest expense increased $45,022 to $277,854 for the year ended December 31,
1997 compared to $232,832 for the year ended December 31, 1996. This is the
result of an increase in the average outstanding balance of the credit facility
of $2,454,918 in 1997 versus $2,028,714 in 1996.
1996 Compared to 1995
Interest expense decreased $18,120 to $232,832 for the year ended December 31,
1996 compared to $250,952 for the year ended December 31, 1995. The reduction
is attributable to: 1) A reduction of approximately $7,000 of interest on the
average outstanding loan balance due to lower interest rates, 2) a reduction of
approximately $7,500 in interest to vendors and 3) a $3,600 reduction in
interest expense associated with a non-compete agreement with a former officer.
Income Taxes
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1997 Compared to 1996
The Company had a 1997 tax provision of $89,230 compared to a benefit of $6,217
in 1996. The provision is the result of total taxable income, net of state tax
and deferred benefits, exceeding the available net operating loss carryforward.
1996 Compared to 1995
The Company had a 1996 tax benefit of $6,217 compared to a benefit of $30,671
for the year 1995. The 1996 tax benefit is attributable to the Company's
utilization of net operating loss carryforwards.
-10-
Liquidity and Capital Resources
The Company's working capital increased $1,033,441 to $3,435,345 for the year
ended December 31, 1997 as compared to $2,401,904 for the year ended December
31, 1996. This change was the result of an increase in current assets of
$2,694,239 offset by an increase in current liabilities of $1,660,798. The
increase in current assets is due to an increase of $1,293,244 in accounts
receivable as a result of increased sales volume. In addition, inventory
increased $1,221,101 due to increased purchasing in the fourth quarter of 1997
versus the same quarter of 1996. The increase in inventory purchases also
resulted in an increase in current liabilities with the amounts due under on the
credit facility increasing $1,149,585 from $1,772,246 for the year ended
December 31, 1996 to $2,921,832 for the year ended December 31, 1997. The
increased activity in inventory purchases was the result of management's
decision to bring in raw materials in the fourth quarter of 1997 to meet the
increased demand expected in the first quarter 1998 as evidenced by an increase
in customer commitments of approximately $1,400,000 from approximately
$1,800,000 at year end December 31, 1996 to approximately $3,200,000 at year end
December 31, 1997.
Cash used by operating activities in 1997 amounted to $1,177,537 as compared to
cash used in and provided by operations of $168,961 and $35,919 in 1996 and
1995, respectively. Cash used in operating activities resulted from higher
inventory and accounts receivable levels due to increased demand for product in
the first quarter 1998 and an overall increase in sales volume in the fourth
quarter.
Credit Facility
The Company had a revolving line of credit with PNC Bank with a maximum credit
limit of $3,000,000 subject to various borrowing bases which expired December
31, 1997. At that time and effective as of June 30, 1997, the Company
renegotiated the line to a maximum credit limit of $5,000,000. The availability
of funds under this line of credit varies as it is based, in part, on a
borrowing base of 80% of eligible accounts receivable and 50% of qualified
inventory. The line is collateralized by substantially all of the Company's
assets and carries an interest rate of prime plus one-quarter percent. The
interest rate to the Company at December 31, 1997 was 8 1/2%. At December 31,
1997 and 1996, the Company had approximately $366,791and $357,637 of
availability under this facility, respectively.
The Company may issue letters of credit through PNC Bank for up to $1,750,000
against the line of credit. At December 31, 1997 and 1996, the total amount
outstanding of letters of credit were $0 and $127,323, respectively.
These facilities contain certain affirmative and negative covenants 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 at December 31, 1997.
-11-
Year 2000
In July 1996, the Emerging Issues Task Force of the Financial Accounting
Standards Board ("FASB") reached a consensus on Issue 96-14, "Accounting for the
Costs Associated with Modifying Computer Software for the Year 2000 which
requires that costs associated with modifying computer software be expensed as
incurred. The Company has conducted a review of its internal computer systems
to identify those areas that could be affected by the year 2000 issue and
believes that with modifications to existing software and conversions to new
software, the Year 2000 problem will not pose significant operational problems.
The Company currently does not anticipate the year 2000 problem to be material
to its financial position or results of operation. At the present time, the
Company estimates that expenses related to this project will total approximately
$75,000. These expenses are expected to be incurred during fiscal years 1998
and 1999. Currently, the Company is assessing whether any third party non-
compliance will have a material effect on the Company.
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and related Information," which is
effective for the Company beginning January 1, 1998. This statement establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that these
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. The Company is currently evaluating
the impact that the adoptions of SFAS No. 131 will have on its financial
statements.
Item 9. Change in and Disagreements with Accountants on Accounting and
--------------------------------------------------------------
Financial Disclosure.
- ---------------------
None.
-12-
Part III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Management
Directors and Executive Officers
The Company's current directors and executive officers are:
Name Age Position with the Company
- -------------------------------------------- --- ---------------------------------------------
Robert L. Ross 53 Chairman of Board and Chief Executive Officer
Douglas A. Buffington 42 Director, President, Chief Financial Officer,
Chief Operating Officer and Treasurer
Randy A. Hamill 42 Senior Vice President of Manufacturing
and Resources and Assistant Secretary
Richard M. Maurer 49 Director and Secretary
Mary Ann Jorgenson 57 Director
Frederick B. Ziesenheim 71 Director
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.
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.
RANDY A. HAMILL has been Senior Vice President 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.
-13-
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. Maurer 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, LLP 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.
since 1988 and is currently Vice Chairmen of such firm. Prior to combining his
practice with that firm, he was President 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.
Section 16(a) Beneficial Ownership Reporting Compliance
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 1997 and written
representations from the Company's directors and executive officers, the Company
believes that all Section 16(a) filing requirements applicable to its directors,
executive officers and ten percent shareholders in 1997 were complied with
except that each of Mr. Buffington and Mr. Hamill failed to file reports with
respect to options granted in January 1997. In addition, Mr. Maurer, Mr. Ross,
MR & Associates and Maurer, Ross & Co., Incorporated filed late report with
respect to the option granted to MR & Associates in October 1997 (which option
was intended, and was subsequently amended to be options granted to Mr. Maurer
and Mr. Ross individually). Additionally, the Company has become aware that
each of MR & Associates and Maurer Ross & Co., Incorporated filed one late
report with respect to becoming an indirect ten percent shareholder and three
late reports with respect to three acquisitions of Common Stock by Wesmar
Partners in prior fiscal years. Such transactions were reported earlier by
Wesmar Partners and by Messrs. Maurer & Ross.
-14-
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 (i)
for the year ended December 31, 1997 and 1996, to or on behalf of Robert L.
Ross, who became Chief Executive Officer of the Company in January 1996 and (ii)
for the years ended December 31, 1997, 1996 and 1995 to or on behalf of Douglas
A. Buffington and Randy A. Hamill (collectively, the "Named Executives").
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
- ------------------------------------------------------------------------------------------
Robert L. Ross,
Chief
Executive 1997 $ 0 $ 0 $ 0 50,000(5) $ 0
Officer 1996 $ 0 $ 0 $ 0 0 $ 0
Douglas A. 1997 $126,942 $31,250 (1) $19,387(4) --- $975 (2)
Buffington, 1996 $109,612 $10,000 (3) $17,813(4) 16,000 $975 (2)
President 1995 $ 89,885 $16,878(4) 27,500 $975 (2)
Randy A. 1997 $ 96,688 $20,000 (1) --- 44,267 ---
Hamill, 1996 $ 88,636 $ 4,000 (3) --- --- ---
Vice President 1995 $ 80,365 --- --- --- ---
(1) Bonus earned in 1997, paid in 1998.
(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 1996, paid in 1997.
(4) Represents an approximation of travel/commuting expenses reimbursed by the
Company.
(5) In October 1997, an option to purchase 100,000 shares of Common Stock was
erroneously granted to MR & Associates. Such option was subsequently
amended, as was intended, to be a grant of an option to purchase 50,000
shares of Common Stock to each of Mr. Ross and Mr. Maurer.
-15-
Set forth below is information with respect to grants of stock options during
the fiscal year ended December 31, 1997 to the Named Executives.
Option Grants in Last Fiscal Year
Potential Realizable
Value at Assumed Rates
Number of % of Total of Stock Price Appreciation
Securities Options for Option Term(1)
Underlying Granted to
Options Employees in Exercise 5% 10%
Name Granted Fiscal Year Price Appreciation Appreciation
- ---- ------------ ----------- ---------- ------------ ------------
Robert L. 50,000 30% $3.0625 $96,095 $247,150
Ross(2)
Douglas A. 16,000 10% $0.9375 $ 9,432 $ 23,608
Buffington(2)
Randy A.
Hamill(2) 44,267 27% $0.9375 $26,096 $ 65,315
(1) These gains are based on assumed rates of annual compound stock price
appreciation of five percent and ten percent from the date the option was
granted over an assumed ten year term. These assumed annual compound rates
of stock appreciation are mandated by the rules of the Securities and
Exchange Commission and do not represent the Company's estimate of future
Common Stock prices.
(2) The options granted to each of Messrs. Ross, Buffington and Hamill are
fully vested. For additional information concerning one of the options
granted to Mr. Hamill, see "Certain Agreements" below.
The following table sets forth certain information pertaining to stock options
held the by the Named Executives as of December 31, 1997. No options were
exercised by the named executives in 1997.
1997 FISCAL YEAR END OPTION HOLDINGS
------------------------------------
Value of Unexercised
Number of Securities Underlying In the money options of
Options at Fiscal Year End Fiscal Year End (1)
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ------------------- -------------
Robert L. Ross 50,000 - $ 59,500 0
Douglas A. Buffington 43,500 0 $114,875 0
Randy A. Hamill 44,267 0 $146,634 0
(1) Calculated based on the fair market value of the Common Stock of $4.25 per
share on December 31, 1997 less exercise price.
-16-
Directors Compensation
- ----------------------
The Company compensates its non-employee directors (Mary Ann Jorgenson and
Frederick B. Ziesenheim), by granting such persons shares of the Company's
Common Stock having a fair market value of $1,000 for every meeting of the Board
of Directors or committee thereof attended by such person and, effective in
1997, shares of common stock having a fair market value of $500 if such person
participated in a meeting by telephone. 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.
Certain Agreements
- ------------------
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 was $125,000, $110,000 and $90,000 for the years
ended December 31, 1997, 1996 and 1995, respectively. The agreement also
entitled 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. The Company is currently
negotiating with Mr. Buffington to renew his employment agreement. Under the
1995 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 options are fully vested.
In January 1997, the Company entered into an agreement with Randy A. Hamill
pursuant to which Mr. Hamill was granted an immediately exercisable option to
purchase 40,000 shares of Common Stock at an exercise price per share of $0.9375
per share. Upon the occurrence of a change in control of the Company (as
defined in the agreement) the exercise price per share for any unexercised
portion of the option would be the lower of (a) (i) one cent or (ii) the lowest
price greater than one cent per share which would not cause the value to Mr.
Hamill of shares acquired upon exercise to be considered an "excess parachute
payment" under section 280G of the Internal Revenue Code of 1986 as amended or
(b) $0.9375. In the event that Mr. Hamill should die while employed by the
Company and the Company has received $500,000 as beneficiary of a life insurance
policy it maintains on Mr. Hamill's life, Mr. Hamill's estate will have the
right to require the Company to purchase the option, if unexercised, for
$500,000 or, subject to certain limitations to purchase up to 39,999 shares
received on exercise of the option for their then fair market value.
-17-
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, 1998 by (i) each person
who beneficially owned five percent or more of the outstanding Common Stock (ii)
each director, (iii) each Named Executives and (iv) all directors and executive
officers as a group calculated in accordance with Rule 13d-3 under the Exchange
Act. Except as otherwise noted, the persons named in the table below have sole
voting and investment power with respect to the shares shown as beneficially
owned by them.
Amount
Beneficially Percent
Name Owned (1) of Class (1)
- -------------------------------------------------------
L. R. Jeffrey (2) 250,000 10.1%
50 Gloucester Road
Summit, NJ 07901
Richard M. Maurer (3) 1,451,096 63.9%
Three Gateway Center
Pittsburgh, PA 15222
Robert L. Ross (4) 1,451,096 63.9%
Three Gateway Center
Pittsburgh, PA 15222
Mary Ann Jorgenson 9,832 *
4900 Society Center
127 Public Square
Cleveland, OH 44114-1304
Frederick B. Ziesenheim 10,315 *
700 Koppers Building
436 7th Avenue
Pittsburgh, PA 15219-1818
Douglas A. Buffington 43,500 1.9%
18 Gloria Lane
Fairfield, NJ 07004
Randy A. Hamill (5) 55,517 2.5%
18 Gloria Lane
Fairfield, NJ 07004
Wesmar Partners (6) 1,399,096 63.1%
MR & Associates
Maurer, Ross & Co., Incorporated
Three Gateway Center
Pittsburgh, PA 15222
-18-
All directors and executive
officers as a group (6 persons)(7) 1,622,260 67.4
_______________
*Less than one percent
(1) The numbers shown include shares covered by options that are currently
exercisable or exercisable within 60 days of March 18, 1998. The numbers
and percentages of shares owned assume that such outstanding options had
been exercised as follows: L. R. Jeffrey, Jr. - 250,000, Richard M.
Maurer - 50,000, Robert L. Ross - 50,000, Douglas A. Buffington - 43,500,
Randy A. Hamill - 44,267 and all directors and executive officers as a
group - 187,767.
(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 with respect to which he shares voting and
investment power and 1,399,096 shares owned directly by Wesmar Partners
with respect to which he shares voting and investment power and 50,000
shares underlying the option held directly by MR & Associates. 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) Does not include shares owned by various members of Mr. Hamills family with
respect to which shares Mr. Hamill disclaims any beneficial ownership.
(6) Wesmar Partners is a Delaware 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.
(7) Does not include shares owned by various members of a certain officer's
family with respect to which shares such officer disclaims any beneficial
ownership. Includes 1,399,096 shares owned directly by Wesmar Partners (See
Notes 3,4 and 6 above).
-19-
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
Transactions with Management and Others
Pursuant to a consulting agreement with the Company, MR & Associates provided
the Company with business counseling for $5,000 per month. The agreement, which
had been extended, expired 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 63% of the outstanding Common Stock. In 1996, the
Company paid MR & Associates $15,000 of which $10,000 was due under the
agreement with respect to 1995 and $5,000 which represented one months' payment
under this agreement for 1996, with the remaining $55,000 waived by MR &
Associates. On October 1, 1997, the Company granted MR & Associates an
immediately exercisable option to purchase for 100,000 shares of the Company's
common stock in recognition of its services rendered to the Company without fee.
This option was intended to and was subsequently amended to be a grant of an
option to purchase 50,000 shares of Common Stock to each Messrs. Maurer and
Ross. The exercise price for each share of common stock was equal to the
closing market value of the Company's common stock on October 1, 1997 of
$3.0625.
During the fiscal years ended December 31, 1997 and 1996, 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 such firm, to represent the Company on
various intellectual property matters.
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 would 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 each of 1997 and 1996, 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.
-20-
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 is
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) No current reports on Form 8-K were filed for the fourth quarter ended
December 31, 1997.
-21-
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: March 18, 1998 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 March 18, 1998
- --------------------------- Financial Officer, Chief
Douglas A. Buffington Operating Officer and Treasurer
/s/ Robert L. Ross Chairman of the Board March 18, 1998
- --------------------------- and Chief Executive Officer
Robert L. Ross
/s/ Richard M. Maurer Director and Secretary March 18, 1998
- ---------------------------
Richard M. Maurer
- --------------------------- Director March 18, 1998
Mary Ann Jorgenson
- --------------------------- Director March 18, 1998
Frederick B. Ziesenheim
-22-
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Financial Statements Page
Independent Auditors' Report F-2
Balance Sheets - As of December 31, 1997
and 1996 F-3
Statements of Operations - For the Years
Ended December 31, 1997, 1996 and 1995 F-4
Statements of Cash Flows - For the Years Ended
December 31, 1997, 1996 and 1995 F-5
Statements of Changes in Shareholders' Equity - For the
Years Ended December 31, 1997, 1996 and 1995 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.
F-1
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, 1997 and 1996 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, 1997. 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, 1997 and
1996 and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1997, 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.
Parsippany, NJ
March 18, 1998
F-2
S2 GOLF INC.
BALANCE SHEETS
AS OF DECEMBER 31,
1997 1996
--------- ---------
ASSETS
Current Assets
Cash $121,431 $166,592
Accounts Receivable (Net of Allowance
for Doubtful Accounts of$320,930 in 1997
and $250,131 in 1996 3,722,924 2,429,680
Inventory (Note 2) 3,094,302 1,873,201
Prepaid Expenses 44,660 42,353
Deferred Income Taxes (Note 6) 372,879 150,131
---------- ----------
Total Current Assets 7,356,196 4,661,957
Plant and Equipment - Net (Note 3) 79,474 112,660
Non-Current Deferred Income Taxes (Note 6) 30,034 187,758
Other Assets - Net (Note 4) 164,472 191,276
---------- ----------
Total Assets $7,630,176 $5,153,651
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-Term Borrowings (Note 5) $2,921,832 $1,772,246
Accounts Payable 608,724 230,090
Accrued Expenses 336,909 195,301
Other Current Liabilities 53,386 62,416
---------- ----------
Total Current Liabilities 3,920,851 2,260,053
Non-Current Liabilities 202,231 253,498
---------- ----------
Total Liabilities 4,123,082 2,513,551
Commitments and Contingencies (Note 7 & 8)
Shareholders' Equity (Note 8, 9 & 10)
Common Stock, $.01 Par; 12,000,000
Authorized Shares: 2,218,605 and 2,208,311
Issued and Outstanding at December 31, 1997
and 1996
22,186 22,083
Additional Paid in Capital 4,036,802 4,025,475
Accumulated Deficit (551,894) (1,407,458)
---------- ----------
Total Shareholders' Equity 3,507,094 2,640,100
---------- ----------
Total Liabilities and Shareholders' Equity $7,630,176 $5,153,651
========== ==========
See notes to financial statements
F-3
S2 GOLF INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
----------- ---------- ----------
Net Sales $12,073,843 $8,563,588 $7,243,307
Cost of Goods Sold 8,115,313 5,805,895 4,979,651
----------- ---------- ----------
Gross Profit 3,958,530 2,757,693 2,263,656
----------- ---------- ----------
Operating Expenses:
Selling 1,551,552 1,251,688 812,105
General & Administrative 1,187,444 1,115,631 1,316,140
----------- ---------- ----------
Total Operating Expenses 2,738,996 2,367,319 2,128,245
----------- ---------- ----------
Operating Income 1,219,534 390,374 135,411
----------- ---------- ----------
Other Income (Expense)
Interest Expense (277,854) (232,832) (250,952)
Other Income (Expense) 3,115 (44,875) 4,402
----------- ---------- ----------
Other - Net (274,739) (277,707) (246,550)
----------- ---------- ----------
Income (Loss) Before Income Taxes 944,795 112,667 (111,139)
Provision/(Benefit) for Income Taxes (Note 6) 89,230 (6,217) (30,671)
----------- ---------- ----------
Net Income (Loss) $855,565 $118,884 ($80,468)
=========== ========== ==========
Earnings (Loss) Per Common Share--Basic $0.39 $0.05 ($0.04)
=========== ========== ==========
Diluted $0.37 $0.05 ($0.04)
=========== ========== ==========
Weighted Average Number of Shares Outstanding--Basic 2,214,448 2,208,311 2,205,647
Diluted 2,290,505 2,208,311 2,205,647
See notes to financial statements
F-4
S2 GOLF INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
OPERATING ACTIVITIES
Net Income (Loss) $855,565 $118,884 ($80,468)
Adjustments to Reconcile Net Income to Net Cash (used)
Provided By Operating Activities:
Depreciation and Amortization 108,488 159,075 175,994
Deferred Income Taxes (65,024) (26,807) (675)
Issuance of Stock for Compensation 11,430 - 24,970
Cash Flow Provided (Used) by Operating Activities as a
Result of Changes in:
Accounts Receivable (1,293,244) (340,049) (248,017)
Inventory (1,221,101) (177,955) 706,369
Prepaid Expenses (2,307) 97,615 (94,803)
Prepaid Income Taxes - 10,000 (10,000)
Other Assets (31,289) 9,086 11,964
Accounts Payable 378,634 36,051 (319,236)
Accrued Liabilities 141,608 21,135 (99,586)
Income Taxes Payable - - (2,585)
Other - Net (60,297) (75,996) (28,008)
----------- ---------- ----------
NET CASH (USED) PROVIDED BY OPERATIONS (1,177,537) (168,961) 35,919
----------- ---------- ----------
INVESTING ACTIVITIES
Purchase of Equipment (17,209) (21,795) (83,247)
Investment in Squaretwo Golf New Zealand, Ltd. - 11,129 (29)
----------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (17,209) (10,666) (83,276)
FINANCING ACTIVITIES
Proceeds from Line of Credit 12,434,713 8,206,401 7,096,764
Payments on Line of Credit (11,285,128) (7,879,177) (7,272,224)
----------- ---------- ----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 1,149,585 327,224 (175,460)
----------- ---------- ----------
INCREASE (DECREASE) IN CASH (45,161) 147,597 (222,817)
CASH - BEGINNING OF PERIOD 166,592 18,995 241,812
----------- ---------- ----------
CASH - END OF PERIOD $121,431 $166,592 $18,995
=========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
Information Cash Paid During the Year For:
Interest $261,411 $219,728 $235,921
Income Taxes (Net of Refunds) (9,295) 39,039 20,000
See notes to financial statements
F-5
S2 GOLF INC.
STATEMENTS 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, 1994 2,195,737 $21,957 $4,000,631 0 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
Net Income - 1996 - - - - - - 118,884
---------------------------- ------------ -------------------------------------------------------
Balance - Dec. 31, 1996 2,208,311 $22,083 $4,025,475 ($1,407,458) $2,640,100
------------------------------------------------------------------------------------------------------
Issuance of Common Stock 10,294 103 11,327 0 0 0 11,430
Net Income - 1997 0 0 0 0 855,565 855,565
------------------------------------------------------------------------------------------------------
Balance - Dec 31, 1997 2,218,605 $22,186 $4,036,802 0 0 ($551,894) $3,507,094
======================================================================================================
See notes to financial statements
F-6
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 sold to customers overseas. The Company does not require
collateral on its trade receivables and while it believes its trade receivables,
net of allowance for doubtful accounts, 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.
Fair Value of Financial Instruments
The fair value of cash, accounts receivable and accounts payable approximate
their carrying values due to the short-term nature of the instruments. The fair
value of short-term borrowings approximates its carrying value due to their
variable interest rate features which reprice quarterly.
Inventory
Inventory is valued at the lower of cost, determined on the basis of the first-
in, first-out method, or market.
F-7
Plant and Equipment
Plant and equipment is stated at cost, less accumulated depreciation and
amortization. Depreciation is provided over the estimated useful service life.
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 was amortized over a five-year period on a straight-line method which
began on July 1, 1992 and ended in June 1997. Management periodically evaluates
the recoverability of intangible assets based upon current and anticipated net
income and undiscounted future cash flows.
Earnings Per Share
During the fiscal year ended December 31, 1997, the Company adopted SFAS No.
128, "Earnings per Share". SFAS No. 128 requires the dual presentation of basic
and diluted earnings per share ("EPS"). Basic EPS excludes dilution and is
computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if stock options or other
contracts to issue common stock were exercised and resulted in the issuance of
common stock that then shared in the earnings of the Company. Diluted EPS is
computed using the treasury stock method when the effect of common stock
equivalents would be dilutive. All prior periods have been restated to comply
with the provisions of SFAS No. 128. The only reconciling item between the
denominator used to calculate basic EPS and the denominator used to calculate
diluted EPS is the dilutive effect of stock options issued to employees of the
Company and other parties. The Company has issued no other potentially dilutive
common stock equivalents.
F-8
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and related Information," which is
effective for the Company beginning January 1, 1998. This statement establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that these
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. The Company is currently evaluating
the impact that the adoptions of SFAS No. 131 will have on its financial
statements.
2. Inventory
---------
Inventory consists of the following components at December 31:
1997 1996
---------- ----------
Finished Goods $ 819,423 $ 828,060
Work in Process 25,000 25,000
Raw Materials 2,249,879 1,020,141
---------- ----------
$3,094,302 $1,873,201
========== ==========
At December 31, 1997 and 1996, 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:
1997 1996
-------- --------
Machinery and Equipment $645,795 $628,586
Furniture and Fixtures 54,485 54,485
Leasehold Improvements 43,554 43,554
-------- --------
Total 743,834 726,625
Less: Accumulated Depreciation
and Amortization 664,360 613,965
-------- --------
$ 79,474 $112,660
======== ========
Depreciation for the years ended 1997, 1996 and 1995 was $50,395, $57,500 and
$74,549, respectively.
F-9
4. Other Assets
------------
Other Assets consists of the following at December 31, 1997, and 1996:
1997 1996
-------- --------
Covenant not to Compete $436,277 $436,277
Patents and Trademarks 219,014 217,725
Security Deposits 49,500 19,500
-------- --------
Total $704,791 $673,502
Less: Accumulated
Amortization 540,319 482,226
-------- --------
$164,472 $191,276
======== ========
Amortization expense for the years ended 1997, 1996 and 1995 was $58,093,
$101,575 and $101,446, respectively.
5. Short Term Borrowings
---------------------
The Company had a revolving line of credit with PNC Bank with a maximum credit
limit of $3,000,000 subject to various borrowing bases which expired December
31, 1997. At that time and effective as of June 30, 1997, the Company
renegotiated the line to a maximum credit limit of $5,000,000. The line is
subject to a borrowing base of 80% of eligible accounts receivable and 50% of
qualified inventory. The line is collateralized by substantially all of the
Company's assets and carries an interest rate of prime plus one-quarter percent.
The interest rate to the Company at December 31, 1997 was 8 1/2%. At December
31, 1997 and 1996, the Company had approximately $366,791 and $357,637 of
availability under this facility, respectively. This renegotiated line expires
September 30, 2000.
The Company may issue letters of credit through PNC Bank for up to $1,750,000
against the line of credit. At December 31, 1997 and 1996, the total amount
outstanding of letters of credit were $0 and $127,323, respectively.
These facilities contain certain affirmative and negative covenants 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 is currently in compliance with all covenants.
F-10
6. Income Taxes
------------
The provision (benefit) for income taxes for the years ended December 31, 1997,
1996 and 1995 consists of the following:
1997 1996 1995
--------- ---------- -----------
Current
Federal $ 61,912 $ 0 $(21,826)
State 92,342 20,590 ( 7,637)
-------- -------- --------
154,254 20,590 (29,464)
-------- -------- --------
Deferred
Federal (48,127) (20,765) ( 1,648)
State (16,897) (6,042) 447
-------- -------- --------
(65,024) (26,807) ( 1,207)
-------- -------- --------
Total Provision (Benefit) for
Income Taxes $ 89,230 $( 6,217) $(30,671)
======== ======== ========
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 ("NOL")for federal purposes existing at that time
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.
F-11
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:
1997 1996 1995
----- ---- ----
Federal Tax (Benefit) at Statutory Rate $321,230 $38,307 ($37,787)
Increase (Decrease) in Taxes
Resulting From:
Utilization of NOL (259,148) (62,967) ----
Travel and Entertainment 7,600 3,981 (2,129)
State Tax, Net of Federal Tax Benefit 45,809 7,611 5,755
Other (26,261) 6,851 3,490
--------- -------- --------
Total Income Tax Provision (Benefit) $ 89,230 $( 6,217) $(30,671)
========= ======== ========
At December 31, 1997, the Company had a Federal tax operating loss carryforward
of approximately $31,242 for tax purposes, which will expire in each of the
years 1999 through 2002.
F-12
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, 1997 and December 31, 1996 are as follows:
December December
31, 1997 31, 1996
--------- ---------
Allowance for Doubtful Accounts $ 144,284 $ 115,981
Accrued Expenses 131,070 90,274
Other 97,525 60,648
Valuation Allowance 0 (116,772)
--------- ---------
Current Deferred Income Tax $ 372,879 $ 150,131
========= =========
Net Operating Loss 9,372 233,544
Non-Compete Agreement (36,565) (17,829)
Valuation Allowance (9,372) (116,772)
Other 66,599 88,815
--------- ---------
Non Current Deferred Income Tax $ 30,034 $ 187,758
========= =========
7. Leased Properties
-----------------
Operating Lease
The Company leases factory and office space at 18 Gloria Lane, Fairfield, New
Jersey. On June 30, 1996, the Company and the lessor amended the lease to
extend its term to December 31, 1997 with the option to renew for a one year
period upon expiration. The Company has renewed this option. The annual base
rent for 1998 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 charges. Total rent expense for the years ended December 31, 1997,
1996 and 1995 was $118,519, $118,514 and $183,689 respectively.
Capital Lease
In 1995, the Company acquired a new show booth under a capital lease agreement.
At December 31, 1997 and 1996, the total asset value of $46,416 and $40,102 less
accumulated amortization of $40,831 and $26,411, respectively was included in
net property and equipment.
F-13
At December 31, 1997, future minimum lease payments are as follows:
1998 minimum lease payments 2,120
Less: Amount representing interest 751
------
Present value of net minimum lease payments $1,369
======
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.
Beginning in 1998, the minimum annual royalty is $200,000 through 2003, paid
quarterly in January, April, October and upon year end closing results.
Payments of $175,000, $175,000 and $150,000 were included in selling expense for
the years ended December 31, 1997, 1996 and 1995, respectively.
In addition, 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.
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 per share, 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, 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.
F-14
9. Stock Options
-------------
Stock Incentive Plans
Options have been granted to officers and employees of the Company at the
discretion of the Company's Board of Directors. The table below summarizes
activity for all employee stock options.
Number Weighted Average
of shares Exercise Price
--------- --------------
Outstanding at January 1, 1995 277,920 $4.976
Granted 65,000 1.837
Exercised ------- -----
Canceled or expired 40,000 5.000
- -------------------------------------------------------------------------
Outstanding at December 31, 1995 302,920 2.464
Granted 45,000 .101
Exercised ------- ------
Canceled or expired 106,250 5.00
- -------------------------------------------------------------------------
Outstanding at December 31, 1996 241,670 1.653
Granted 164,000 2.232
Exercised -------
Canceled or expired 90,000 5.00
- -------------------------------------------------------------------------
Outstanding at December 31, 1997 315,670 $1.022
The Company applies APB Opinion 25 and related Interpretations in accounting for
its stock plans. Accordingly no compensation cost has been recognized for stock
option grants issued under any of the Company's stock option plans. Had
compensation cost for stock option grants issued during 1997, 1996 and 1995 been
determined under the provisions of SFAS No. 123, the Company's net income (loss)
would have been $661,172, $109,706 and ($157,160), respectively. The Company's
net income (loss) per share for basic and dilutive in 1997, 1996 and 1995 would
have been $.29 and $.28, $.04 and $.04 and ($.08) and ($.08), respectively.
F-15
The fair value of each stock option granted under the Company's plans was
estimated on the date of grant using the Black-Scholes option pricing model.
The following weighted-average assumptions were used to value grants issued
under the plans in 1997, 1996 and 1995.
1997 1996 1995
-------- ----- -----
Annualized Volatility 66%-83% 74% 63%
Risk-free interest rate 5% 5% 5%
Expected term of option (in years) 3.5 3.5 3.5
Dividend Yield n/a n/a n/a
The weighed average fair values per share of stock options granted during 1997,
1996 and 1995 were $1.31, $.88 and $.73, respectively.
The exercise price ranges for options outstanding and exercisable at December
31, 1997 were:
Range of Number of Shares Outstanding Weighted Average
Exercise Price and Exercisable at 12/31/97 Exercise Price
- ---------------------------------------------------------------------------
$.50-2.00 274,000 $ 2.06
$2.01-5.00 41,670 4.85
------- ------
Total 315,670 $1.281
The Company has generally granted options that do not expire.
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 was 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 had 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.
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 services rendered by the advertising agency, the Company issued to
the advertising agency an option to acquire 6,250 shares of common stock per
annum. 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 were not granted.
F-16
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.
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. 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 was 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.
On November 1, 1995, the Company amended an employment agreement dated July 1,
1991 with the former Senior Vice President of Product Development in regards to
stock options granted. The amendment effectively canceled and forever
terminated stock options for 106,250 shares at an exercise price of $5.00 per
share which were granted under the 1984 stock incentive plan. At that time, the
Company granted, to become effective May 6, 1996, 40,000 shares of "new options"
at an exercise price of $1.6875 which represented the average of the Company's
NASDAQ bid and ask closing price on the grant date.
The Company compensates its non-employee directors (Mary Ann Jorgenson and
Frederick B. Ziesenheim), by granting such persons shares of the Company's
Common Stock having a value of $1,000 for every meeting of the Board of
Directors or committee thereof attended by such person and, effective in 1997,
shares of common stock having a value of $500 if such person participated in a
meeting by telephone. 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.
F-17
10. 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 1995, the Company paid
Wesmar Partners $19,075 for such insurance coverage. In 1996, the Company
received $10,198 from Wesmar Partners representing a retrospective adjustment
for the policy year 1994-1995.
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, expired 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. In 1995 the Company paid MR & Associates $70,000 in connection with
such consulting agreement, of which $20,000 was due under the agreement in
respect to 1994, and $10,000 was due to MR & Associates at December 31, 1995.
In 1996, the Company paid MR & Associates $15,000 of which $10,000 was expensed
under the agreement with respect to 1995 and $5,000 which represented one
months payment under this agreement for 1996 with the remaining $55,000 (11
months) waived by MR & Associates.
During the fiscal years ended December 31, 1997 and 1996, 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 Chairman, to
represent the Company on various intellectual property matters. The Company had
paid Webb Ziesenheim Bruening Logsdon Orkin & Hanson P.C. $17,524 and $25,605 in
1997 and 1996, respectively, and was indebted in the amount of $627 and $280 at
December 31, 1997 and 1996, respectively.
F-18
11. Supplemental Disclosures of Non-Cash Transactions
-------------------------------------------------
During 1997 and 1996, the Company recorded certain non-cash charges of $25,130
and $29,150, respectively, representing accrued interest for a liability to its
former president in connection with his Separation Agreement (see Note 8).
During 1995, the Company issued common stock in the amount of $11,015 for
services rendered in 1995. Also, during 1995, the Company issued stock in the
amount of $13,955 for services rendered in 1994. No stock was issued in 1996.
In 1997, the Company issued stock in the amount of $11,430 for services rendered
in 1997.
F-19
S2 GOLF, INC.
-------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
----------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
-----------------------------------------------------
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, 1995 $361,780 $ --- $ --- $ 77,405 (1) $284,375
December 31, 1996 284,375 75,000 --- 109,244 (1) 250,131
December 31, 1997 250,131 159,000 --- 88,194 (1) 320,930
ALLOWANCE FOR RETURNS
December 31, 1995 55,000 222,659 --- 225,052 52,607
December 31, 1996 52,607 212,797 --- 203,404 62,000
December 31, 1997 62,000 184,289 163,036 88,632
ALLOWANCE FOR DISCOUNTS
December 31, 1995 40,000 192,798 --- 161,473 71,325
December 31, 1996 71,325 228,117 --- 208,565 90,877
December 31, 1997 90,877 128,977 169,854 50,000
INVENTORY OBSOLESCENCE RESERVE
December 31, 1995 107,409 54,089 --- --- 161,498
December 31, 1996 161,498 38,876 --- --- 200,374
December 31, 1997 200,374 72,000 49,298 223,076
(1) Uncollectible Accounts Written Off, Net of Recoveries
F-20
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).
10.0 Credit Agreement and Security Agreement between the Registrant and
Midlantic Bank, National Association dated December 29, 1994
(incorporated by reference to Exhibit 99 of the Registrant's
Current Report on Form 8-K dated December 26, 1994).
10.1 United States Patent No. 4,203,598 issued to the Registrant
(incorporated by reference to Exhibit 10.3 of the Registrant's
Registration Statement No. 33-16931 on Form S-1).
10.2 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).
10.3 Lease Agreement between the registrant and 12 Gloria Lane Limited
Partnership dated June 22, 1989 (incorporated by reference to
exhibit 10.6 of the Registrant's Registration Statement No.
33-37371 on Form S-3).
F-21
10.4 Modification of Lease Agreement between the Registrant and 12
Gloria Lane Industrial Partnership dated October 3, 1995
(incorporated by reference to Exhibit 10.2 of the Registrants
Annual Report on Form 10-K for the year ended December 31, 1995).
10.5 1984 Incentive Stock Option Plan of the Registrant dated February
10, 1984 (incorporated by reference to Exhibit 10.7 to the
Registrant's Registration Statement No. 33-16931 on Form S-1).
10.6 Consulting Agreement between the Registrant and MR & Associates
dated January 1992 (incorporated by reference to exhibit 10.10
of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992).
10.7 Amendment of Consulting Services Agreement between the Registrant
and MR and Associates effective as of February 1, 1996
(incorporated by reference to Exhibit 10.6 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996).
10.8** 1992 Stock Plan for Independent Directors of S2 Golf, Inc. dated
December 28, 1992 (incorporated by reference to Exhibit 10.11
of the Registrant's Annual Report on form 10-K for the year ended
December 31, 1992).
10.9** Employment Agreement between the Registrant and Douglas A.
Buffington dated January 1, 1995 (incorporated by reference
to Exhibit 10.10 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994).
10.10** Agreement between the Registrant and Randy A. Hamill dated
January 2, 1997.
10.11 Amended and Restated Licensing Agreement between Ladies Professional
Golf Association and the Registrant dated July 1, 1996.
(incorporated by reference to Exhibit 12 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996).
10.12 Second amendment to loan and security agreement between Registrant
and PNC Bank dated December 1, 1997 (incorporated by reference to
Exhibit 99 of the Registrant's Current Report on Form 8-K dated
December 26, 1994.
27 Financial Data Schedule.
- --------------------------------------------------------------------------------
* In the case of incorporation by reference to documents filed by the
Registrant under the Exchange Act, the Registrant's file number under the
Act is 0-14146.
** Management contract or management compensatory plan or arrangement.
F-22