FORM 10-K/A
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, 2001 Number 0-14146
WOMEN'S GOLF UNLIMITED, INC.
(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
(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: NONE
COMMON STOCK, PAR VALUE $.01
(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. [X]
As of March 18, 2002, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $4,805,508. This calculation
is based upon the closing price of the registrant's common stock on March 18,
2002
The number of shares of the registrant's Common Stock outstanding as of March
18, 2002 was 3,225,173.
PART I
ITEM 1. BUSINESS
--------
(A) GENERAL DEVELOPMENT OF BUSINESS
Women's Golf Unlimited, Inc. (the "Company" or "Women's Golf") was incorporated
under the laws of the state of New Jersey in February 1982. The Company
manufactures and markets throughout the United States proprietary lines of golf
equipment for women and men, including golf clubs, golf bags, golf shoes, golf
balls and accessories. The Company markets these products under the trade name
and trademark Square Two(R) and the trademarks NancyLopezGolf(TM), Lady
Fairway(TM), and several others, including S2(R) and Posiflow(R).
The common stock of the Company (the "Common Stock") trades on the SmallCap
Market of the National Association of Securities Dealers Automated Quotation
System ("Nasdaq") under the trading symbol "GOLF."
Throughout 2001, the Company maintained and strengthened its position as a
manufacturer and seller of high-quality, high-performance clubs, especially for
women golfers. Golf equipment for women comprised approximately 82% of the
Company's business in 2001, as compared against 65% in 1997. Two acquisitions in
2000 expanded significantly both the Company's range of golf products for women
and its distribution network. In July, 2000, the Company acquired the
NancyLopezGolf(TM) lines of premium golf clubs and accessories, and on December
31, 2000, the Company acquired the Lady Fairway(TM) brand of golf shoes and
other accessories.
During 2001, the Company continued to improve its Square Two(R) brands of
equipment, introducing the XLD line of premium titanium drivers, redesigning its
Kathy Whitworth and Agree series of clubs and launching a premium line of men's
clubs, the Rave II(R). During 2001 the Company improved its NancyLopezGolf(TM)
brand of equipment by introducing a premium line of irons, woods and titanium
drivers, the Delma(R). The Company also upgraded its NancyLopezGolf(TM) line of
putters by introducing the Fame(TM) series of putters. The Company also
continued its 20-year partnership with the Ladies Professional Golf Association
("LPGA(R)"), completed its first year of an endorsement agreement with Nancy
Lopez as well as the second year of an endorsement agreement with Kathy
Whitworth, and for a third year aired a television advertisement aimed
exclusively at women. The Company's sponsorship of the Square Two(R)/LPGA(R)
Custom Club Fitting Program, which began in 1993, provided a forum for design
input from professional women golfers during six 2-day seminars. Cosmetic
changes to the Company's lines of women's clubs continued to include greater
prominence for the distinctive LPGA(R) logo, which all of the women's clubs
marketed under the Square Two(R) brand carry.
Between 1997 and 2001, the Company's net sales increased from $12,073,843 to
$16,144,947 and shareholders' equity increased from $3,507,094 to $6,965,015.
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The Company's wholly-owned subsidiary, S2 Golf Acquisition Corp. ("S2
Acquisition"), a New Jersey corporation formed in 2000 (through which the
Company acquired the Lady Fairway(TM) line of products through the December 2000
merger of Ladies Golf Equipment Company, Inc. ("Ladies Golf") with and into S2
Acquisition), was merged with and into the Company as of May 25, 2001. At
present the Company has no subsidiaries.
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
For financial information about business segments in which the Company operates,
see Item 8, Financial Statements and Supplementary Data.
(c) NARRATIVE DESCRIPTION OF BUSINESS
Golf Club Design
----------------
The Company designs golf clubs for women and men of all ages, and engages in
continuous processes of refining existing designs and developing new designs.
The Company employs two broad design approaches. One targets the steel shaft
market, and the other targets the graphite shaft market. In recent years, the
graphite shaft market has experienced tremendous growth, particularly among
women. Graphite shafts are lighter than steel shafts and have greater design
flexibility. The Company, recognizing that graphite has become the shaft of
choice for the majority of women, has developed an extensive array of graphite
shaft models.
Products
--------
The Company manufactures and markets throughout the United States proprietary
lines of golf equipment under the trade name and trademark Square Two(R), and a
number of other trademarks, including NancyLopezGolf(TM) and Lady Fairway(TM).
Under the Square Two(R) name, the Company manufactures and markets numerous
products for women and men golfers of varying ages and abilities. These products
include the ZCX-Ti(TM), Lady Ti(TM), Light & Easy(R), Power Circle(TM), Rave(R),
Lady Rave(TM), Rave(R) II, Relief(TM), Rough Relief(TM), Agree(R) and
Eight-is-Enough(TM) lines of golf clubs. Many of the Square Two(R) brand clubs
feature cavity-back heads with dual copper sole inserts, which lower the center
of gravity and expand the "sweet spot," making the clubs more forgiving.
The Relief(TM) bi-metal irons and Rave(R) and Lady Rave(TM) high-modulus
graphite-shaft irons and woods feature the Company's patented Posiflow(R)
weighting system, in which the shafts are matched to the player's swing speed,
which reduces long-iron slices and short-iron pulls. In the Light & Easy(R) and
Power Circle(TM) lines, putters have tri-metal heads that are heel-toe weighted
to reduce torque on off-center hits, and drivers feature
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club heads made of titanium. The ZCX-Ti(TM) and Lady Ti(TM) lines feature
Posiflow(R) weighting and titanium inserts for enhanced feel.
Under the NancyLopezGolf(TM) trademark, the Company markets premium golf clubs,
including the Albany(R) and the Delma(R) lines and the Streak 78(R), Fame 87(R)
and Debut 98(R) classically styled balata-face putters. The Company's
NancyLopezGolf(TM) products also include golf balls, the LopezGrip(R) line of
golf gloves, golf bags and other golf accessories.
Under the Lady Fairway(TM) line, the Company markets ladies golf shoes,
including Westchester, Monte Carlo and Shaughnessy, as well as golf gloves, golf
socks and other golf accessories.
Golf clubs accounted for more than 82% of the Company's revenue in 2001 and 95%
in 2000 and 1999.
Manufacturing
-------------
The Company assembles its golf clubs at its facility located in Fairfield, New
Jersey. The Company obtains steel shafts, grips, and accessories from various
domestic and foreign shaft manufacturers, graphite shafts from sources in the
People's Republic of China, Korea and the US, and finished heads from
manufacturers in Taiwan, Thailand and the People's Republic of China, all of
which manufacture components to the Company's design specifications.
The Company's Lady Fairway(TM) products (golf shoes, socks, gloves and other
accessories) are manufactured by third-party manufacturers in the People's
Republic of China, Indonesia and in the US.
Inventory and Component Supply
------------------------------
Foreign suppliers of inventory and components to the Company generally require
90- to 120-day lead times to deliver their products. The Company tries to
maintain at least two sources of supply for each of the golf club shaft and golf
club head products that it purchases from foreign suppliers. 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 components or
inventory 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 or to affect materially the Company's
ability to deliver its products. The Company regularly evaluates alternative
suppliers.
The Company purchases inventory and components through a line of credit in the
amount of $8,000,000 with PNC Bank, National Association ("PNC Bank"), pursuant
to which PNC Bank may make available an additional credit facility of up to
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$1,750,000 in the form of standby or documentary letters of credit and demand
loans. See also the discussion of "Liquidity and Capital Resources" under Item
7.
As noted below, the seasonal nature of the golf industry leads to seasonal peaks
in demand for the Company's products, although manufacturing occurs throughout
the year.
Market
------
The National Golf Foundation estimates that in 2001 there were 26.4 million
golfers in the United States. Although the rate of growth in numbers of golfers
has remained relatively flat since 1997, the general popularity of the sport of
golf has created a significant market for golf clubs and other golf accessories.
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 20 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, mail-order houses,
the Internet and infomercials account for a substantial share of sales to the
golf club market.
The Company markets its products primarily through retail shops and also through
private clubs. NancyLopezGolf(TM) brand clubs sell at premium price points,
whereas the Square Two(R) brand products retail at mid-level price points. As of
March 1, 2002, the Company had established a network of approximately 2,250
retailers with approximately 2,800 retail outlets. Each line has a comprehensive
catalog for its dealers.
The golf equipment industry is one in which advertising and promotion are
required to create market awareness of a company's products. Management
anticipates that it will continue to need to increase its research and
development efforts as well as its advertising expenditures.
In 2001, 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.
Competition
-----------
In general, the Company competes with manufacturers of sporting goods equipment
for all phases of the recreation industry, and its business is subject to
factors generally affecting the recreation and leisure market, such as economic
conditions, changes in discretionary spending patterns and weather conditions.
The golf club industry is highly competitive and is dominated principally by
approximately 10 nationally known manufacturers of sporting goods equipment.
Such
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manufacturers, including Callaway(R), Ping(R), Nike(R), Taylor Made(R), and
Cobra/Titleist(R), possess greater financial and other resources than those of
the Company. The Company competes with these entities primarily on the basis of
the pricing and quality of the Company's products and services, along with the
Company's position as an official sponsor of the LPGA(R).
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, they also compete with the
Company.
Seasonality
-----------
The golf industry is seasonal. While manufacturing occurs throughout the year,
demand for the Company's clubs and other golf products is greatest from March
through July.
The Ladies Professional Golf Association Agreement
--------------------------------------------------
The Company has entered into an agreement with the Ladies Professional Golf
Association, which grants the Company the exclusive right to use the LPGA(R)
name and logo on its women's golf clubs and the nonexclusive right to use the
LPGA(R) name and logo on certain of its other products, including golf bags. The
Company has renewed and restated this licensing agreement effective January 1,
1999 through December 31, 2003, at which time the Company has the option to
renew the agreement 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 to the LPGA(R) a license fee
and a royalty fee based on sales volume.
The minimum annual license fee for the term of the agreement is $200,000 each
year through 2003. In the event that the sum of (i) 5% of the net sales of the
licensed products (other than golf shoes) up to $1,000,000 in any calendar year,
(ii) 2.5% of the net sales of the licensed products (other than golf shoes) in
excess of $1,000,000 and less than $5,000,000 in any calendar year, (iii) 1% of
the net sales of the licensed products (other than golf shoes) in excess of
$5,000,000, and (iv) 1% of the net sales of golf shoes in any calendar year,
exceeds the minimum license fee, the excess shall be paid as a royalty fee.
Under the agreement, the Company is obligated to be a "Title Sponsor" of the
LPGA(R) Teaching and Club Professionals Division Team Classic at an annual cost
that began at $35,000 in 1999 and increases by $2,500 per year through 2003. In
addition, the Company is obligated to spend a minimum of $100,000 per year on
various advertising programs.
Kathy Whitworth Endorsement Agreement
-------------------------------------
The Company has entered into an Endorsement Agreement with former LPGA(R) Tour
Golf Professional Kathy Whitworth, effective January 1, 2000 through December
31,
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2005, pursuant to which Ms. Whitworth has granted the Company an exclusive
license to use her name, likeness, image and personal identification, singly or
in any combination, in connection with the production, marketing and sale of a
"Kathy Whitworth" signature line of women's golf clubs. In addition, the Company
has the right to include Ms. Whitworth in two print advertisements and one
television advertisement per year. Ms. Whitworth also has agreed to use only the
golf clubs and golf bags of the Company in any golf event, either professional
or social, during the term of the agreement. She serves as a golf instructor at
up to ten golf clinics per calendar year, and represents the Company, at the
Company's discretion, at up to two Professional Golf Association merchandise
shows each calendar year. The Company pays Ms. Whitworth a base fee of $36,000
per year in equal quarterly payments and a royalty fee of 2% of net sales of the
"Kathy Whitworth" line of clubs.
Nancy Lopez License
-------------------
Under an agreement with Nancy Lopez Enterprises, Inc. ("Lopez Enterprises"), the
Company has the exclusive right to use the name, signature, image and
endorsement of Nancy Lopez on certain of its golf clubs and other golf
equipment. This agreement is for an initial term that ends on December 31, 2007,
and shall be extended automatically until December 31, 2010 unless one of the
parties decides against such extension. The Company pays Lopez Enterprises an
annual fixed royalty of $200,000, plus additional royalties if the sum of (i)
25% of any fees paid to the Company for sublicenses and (ii) 3% of revenues of
up to $10 million for licensed products plus 3.5% of such revenues greater than
$10 million exceeds the fixed royalty amount of $200,000. The Company also pays
Lopez Enterprises bonuses if Ms. Lopez wins or places at least fifth in
specified golf tournaments or wins other named awards, and issues Lopez
Enterprises options to purchase Common Stock on the basis of the revenue for
licensed products in excess of a certain threshold.
Patents and Trademarks
----------------------
The Company holds two United States patents, both of which will expire in 2013.
One protects the concept of Posiflow(R) weighting in iron heads. The second
protects an internal triangular reinforcement cell for metal woods.
The Company owns the rights to the following trademarks registered with the
United States Patent and Trademark Office:
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AGREE(R) FAME 87(R) ONYX(R) S2(R)(STYLIZED)
ALBANY(R) LADIES LONG OUTLAST(R) SARASOTA(R)
ALLEGRA(R) DRIVER(R) OPAL(R) SQUARE TWO(R)
DARDEN(R) LADY PETITE(R) PCX(R) STREAK 78(R)
DEBUT 98(R) LIGHT & EASY(R) POSIFLOW(R) THORPE(R)
DELMA(R) LOPEZGRIP(R) RAVE(R) TOTALLY
DEFINING THE MELODY(R) ROSCOE(R) MATCHED(R)
WOMEN'S GAME(R) NLG(R) ROSWELL(R)
DOMINGO(R) NLG MATCHPLAY S2(R)(BOUNCING
DYNA-BALANCE(R) PROCESS(R) BALL DESIGN)
"Square Two(R)" is registered in 23 countries. "Lady Fairway" is registered in
the United Kingdom and in Sweden.
Given the competitive climate within the golf industry worldwide and the recent
counterfeiting of clubhead designs, the Company believes that it is imperative
to protect the Company's trade names, trademarks and patentable inventions and
designs.
Employees
---------
As of December 31, 2001, the Company employed 59 persons, including 58 full-time
employees, 2 of whom were executive officers. Forty-six of these were hourly
employees and 13 were management, administrative 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 golf clubs or golf shoes should increase additional production,
clerical, sales and management personnel may be necessary to meet product
demand.
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 reflect the Company's current expectations with respect to the
future performance of the Company and may 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 that 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 risks and
uncertainties: the risks inherent in the development and introduction of new
products; 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;
economic conditions as they impact the availability of
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discretionary income; unanticipated shortages of components or delays in
component delivery; and the significant competition in the Company's line of
business.
(D) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS
It is impracticable for the Company to provide financial information about
geographic areas. Historically, the Company's sales to foreign customers have
not been material. For the fiscal year ended December 31, 2001, the Company's
sales to foreign customers comprised less than 2.5% of net sales.
ITEM 2. PROPERTIES
----------
The Company currently leases its manufacturing facility and sales and executive
offices located at 18 Gloria Lane, Fairfield, New Jersey 07004, comprising a
total of 28,442 square feet of space. As of December 1, 2001 the Company entered
into a new lease agreement for the Fairfield location for a period of three
years, expiring on November 30, 2004. In December 2001, the Company consolidated
the Florida customer service, sales, warehousing and distribution operations for
its Lady Fairway(TM) lines with those operations conducted at its New Jersey
location. The Company now maintains a small office of approximately 800 square
feet in Lutz, Florida for administrative activities relating to the Lady
Fairway(TM) lines.
ITEM 3. LEGAL PROCEEDINGS
-----------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of the Company's security holders in the
fourth quarter period of 2001.
EXECUTIVE OFFICERS OF THE COMPANY
See Part III, Item 10 of this report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
---------------------------------------------------------------------
The Common Stock of the Company is traded on the Nasdaq SmallCap Market under
the trading symbol "GOLF." The following table sets forth the high and low bid
prices 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.
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PERIODS: COMMON STOCK BID PRICES:
------- -----------------------
HIGH LOW
---- ---
2000 1st Quarter $2.50 $1.75
2000 2nd Quarter $2.88 $1.75
2000 3rd Quarter $2.75 $1.82
2000 4th Quarter $1.68 $0.75
2001 1st Quarter $1 06 $0.88
2001 2nd Quarter $1.75 $1.29
2001 3rd Quarter $2.62 $1.00
2001 4th Quarter $2.00 $1.00
On March 18, 2002, the number of holders of record of the Company's Common Stock
was approximately 198. No cash dividends have been paid to date and it is
anticipated that cash dividends will not be paid in the near future.
In 2001, the Company issued 1,067 shares of Common Stock to Frederick B.
Ziesenheim and 1,067 shares of common stock to Mary Ann Jorgenson as
compensation for their service as directors of the Company and participation 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.
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
YEAR ENDED DECEMBER 31,
-----------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
OPERATING RESULTS:
Net Sales $16,144,947 $12,510,314 $11,003,556 $11,505,000 $12,073,843
Net Income 164,291 220,654 306,126 440,848 855,565
Net Income
per Share-Basic 0.05 0.10 0.14 0.20 0.39
per Share-Diluted 0.05 0.10 0.14 0.19 0.37
Weighted Average
Number of Shares
Outstanding-Basic 3,223,850 2,226,312 2,219,700 2,219,078 2,214,448
Outstanding-Diluted 3,266,819 2,264,065 2,263,876 2,315,149 2,290,505
Cash Dividend 0 0 0 0 0
At Year End:
Working Capital 1,988,256 1,672,945 4,020,772 3,766,986 3,435,345
Total Assets 12,994,368 13,678,640 5,752,079 7,534,080 7,630,176
Total Liabilities 6,031,355 6,882,918 1,492,011 3,582,138 4,123,082
Long-Term Obligations 202,413 512,105 84,822 146,157 202,231
Shareholders' Equity 6,963,013 6,795,722 4,260,068 3,951,942 3,507,094
Market Price of
Common Stock
High-Low 2.62/.88 2.88/.75 4.00/1.62 11.32/2.00 5.00/.81
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Women's Golf Unlimited, Inc. operates in one business segment, the manufacture
and marketing of golf equipment, including golf clubs, golf balls, golf gloves,
golf bags, and, starting on December 29, 2000, golf shoes and socks. The Company
markets its products primarily in the United States.
The Company grew substantially with its acquisitions of the Lady Fairway(TM)
product line on December 31, 2000 and of the NancyLopezGolf(TM) product line in
July of 2000. Taken together, these acquisitions had a material impact on the
Company's results of operations, liquidity and capital resources in 2001.
Results of Operations
---------------------
The results of the Lady Fairway(TM) acquisition were first included with the
Company's results in January, 2001. As the results of the NancyLopezGolf(TM)
acquisition were first included with the Company's results in August, 2000, 2001
provides the first full year of revenue recognition for the NancyLopezGolf(TM)
brand products. In 2001 the Company began to realize synergies from the
acquisitions, through expanded and consolidated distribution networks.
Management anticipates the realization of additional synergies in 2002 and
beyond, as certain non-recurring costs associated with the acquisitions were
paid in 2001 and the physical consolidation of sales, customer service,
marketing and distribution operations occurred in December of 2001.
Sales
-----
2001 Compared to 2000
---------------------
In 2001, net sales were $16,144,947, versus $12,510,314 in 2000. This is an
increase of 29%, resulting from an increase of $4,834,633 in sales attributable
to the Lady Fairway(TM) and NancyLopezGolf(TM) brand acquisitions, offset by a
decrease of $1,200,000 in sales of Square Two(R) brand products due to bad
weather in the spring 2001 selling season and the U.S. economic recession, both
of which contributed to a poor industry environment in 2001. The Company does
not have its own historical sales data to evaluate the impact of these factors
on 2001 sales of the Lady Fairway(TM) and NancyLopezGolf(TM) brand products.
2000 Compared to 1999
---------------------
In 2000, net sales were $12,510,314, versus $11,003,556 in 1999, an increase of
13.7%. Forty-six percent of this increase was the result of an increase in the
volume of sales of the Square Two(R) brand of equipment, and 54% of this
increase was the result of additional sales generated by the addition of the
NancyLopezGolf(TM) product line in the last 5 months of 2000. The increase in
Square Two(R) brand sales arose from a higher volume of sales of the Light &
Easy(R) model of golf clubs and the successful introduction of the Kathy
Whitworth monogram series of clubs.
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Gross Profit
------------
2001 Compared to 2000
---------------------
In 2001, gross profit on sales (net sales less the cost of goods sold) was
$6,775,415 or 42% of sales, an increase over the 2000 gross profit of $4,258,480
or 34% of sales. This increase in gross profit percentage was due primarily to
the mix of products sold in 2001, with higher sales of products with a higher
average gross profit margin. Another factor was lower material costs on golf
club components.
2000 Compared to 1999
---------------------
In 2000, gross profit on sales (net sales less the cost of goods sold) was
$4,258,480, or 34.0% of sales, an increase over the 1999 gross profit of
$3,575,426, or 32.5% of sales. The increase in gross profit percentage was the
result of lower material costs and the mix of products sold.
Selling Expenses
----------------
2001 Compared to 2000
---------------------
Selling expenses increased to $3,495,523 in 2001, versus $2,093,938 in 2000. The
primary reasons for the increase were the expenses associated with sales of the
Lady Fairway(TM) brand products, payment of the royalty on NancyLopezGolf(TM)
brand products for a full 12-months, heavy television advertising costs
associated with promoting the NancyLopezGolf(TM) brand and higher sales
commissions due to the increased volume of sales.
2000 Compared to 1999
---------------------
Selling expenses increased to $2,093,938 in 2000, versus $1,641,744 in 1999.
This increase was primarily the result of increased salaries and wages, new
costs for player endorsements (by Kathy Whitworth and Nancy Lopez), which were
not incurred in 1999, increased advertising expenses and increased commissions
due to higher revenue.
General Administrative
----------------------
2001 Compared to 2000
---------------------
General and Administrative expenses were $2,759,711 in 2001, versus $1,647,827
in 2000. The primary reason for the increase were the non-recurring general and
administrative expenses associated with the Lady Fairway(TM) acquisition not
incurred in 2000, including increased legal fees, and the recording of 12-months
goodwill associated with the NancyLopezGolf(TM) brand (versus 5 months of
goodwill expense associated with that brand in 2000).
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2000 Compared to 1999
---------------------
General and Administrative expenses were $1,647,827 in 2000, versus $1,302,325
in 1999. This increase of 19.5% was the result of higher consulting expenses,
legal fees, amortization of goodwill arising from the acquisition of the
NancyLopezGolf(TM) product line, and bad debt expenses.
Interest
--------
2001 Compared to 2000
---------------------
Interest expense for 2001 was $413,111, an increase of 77.0% over the 2000
interest expense of $233,385. This increase in interest expense resulted from
the higher average outstanding balance of the credit facility in 2001 plus the
increase of long-term debt in 2001, offset by favorable interest rates. See also
the discussion of "Liquidity and Capital Resources" below.
2000 Compared to 1999
---------------------
Interest expense for 2000 was $233,385, an increase of 46.9% over the 1999
interest expense of $158,892. This increase in interest expense resulted from
the higher average outstanding balance of the credit facility in 2000, when the
average balance was $1,788,795, than in 1999, when the average balance was
$1,622,654. The increase in the average outstanding balance on the credit
facility resulted from a 4.9% increase in the average inventory balance, up to
$3,146,173 in 2000 as compared to $2,990,925 in 1999. Average balances for
accounts receivable in 2000 of $3,627,447 were 13.6% greater than the 1999
average balances of $3,134,017.
Other Income
------------
2001 Compared to 2000
---------------------
Other Income/(Expense) for 2001 was $269,313, compared to ($5,307) in 2000. The
increase is mainly due to royalty income from international distributors
associated with the Square Two(R) and NancyLopezGolf(TM) products.
Income Taxes
------------
2001 Compared to 2000
---------------------
During 2001, the Company recorded a provision for income taxes of $212,092,
compared to $57,369 in 2000. The provision for income tax as a percentage of
income before taxes was 56% in 2001 as compared with 21% in 2000. The effective
tax rate was higher in 2001 as compared to 2000 primarily as a result of the
elimination in 2000 of certain tax reserves (related to over-accruals of
corporate tax liabilities) and the amortization in 2001 of goodwill associated
with the acquisition of the Lady Fairway(TM) product line, which is not
deductible for tax purposes.
2000 Compared to 1999
---------------------
In 2000, the Company had an income tax provision of $57,369, compared to
$166,901 in 1999. The effective tax rate in 2000 decreased as a result of the
elimination of certain reserves as discussed in the preceding paragraph. (See
the Notes to Financial Statements.)
Liquidity and Capital Resources
-------------------------------
The Company's working capital at year end was $1,988,256 in 2001, compared to
$1,672,945 for 2000, an increase of 18.9%. This increase was the result of a
decrease in current assets of $226,560 offset by a decrease
-13-
in current liabilities of $541,871. The decrease in current assets was due
mainly to decreases of $475,203 in accounts receivable, $68,183 in prepaid
expenses and $41,000 in deferred income tax, offset by increased inventory of
$359,995. The 2001 decrease in current liabilities is due to decreases of
$139,946 in the current portion of long-term debt, $563,425 in accounts payable,
$94,025 in accrued expenses and $64,112 in other current liabilities, offset by
an increase of $319,637 in short-term borrowings.
Average balances for accounts receivable in 2001 of $3,895,128 were 7.4% greater
than the 2000 average balances of $3,627,447, also as a result of increased
sales after the acquisitions.
Cash provided by operations in 2001 was $179,046, compared to $1,483,778 in 2000
and $2,082,656 in 1999. The decrease in net cash provided by operations is due
primarily to the Company's increased inventory of approximately $389,000, which
was the result of the acquisition of the Lady Fairway(TM) line of products, and
the reduction of accounts payable, accrued expenses and other liabilities of
approximately $724,000.
The Company's credit facility with PNC Bank (the "PNC Credit Facility") allows a
revolving line of credit up to a maximum of $8,000,000 less 50% of the aggregate
face amount of all outstanding letters of credit, and subject to various
borrowing bases, as well as up to $1,750,000 in the form of standby or
documentary letters of credit and demand loans.
The availability of funds under the revolving line of credit varies because it
is based, in part, on a borrowing base of 80% of eligible accounts receivable
and 60% of qualified inventory. Substantially all of the Company's assets are
used as collateral for the credit line. Interest rates are at prime plus
one-quarter percent, paid monthly; the interest rate as of December 31, 2001 was
5.00%. At December 31, 2001, funds available to the Company under the line of
credit were approximately $679,000.
The average outstanding balance on the line of credit was $4,233,045 in 2001, up
from $1,788,795 in 2000. This increase resulted from a 51.2% increase in the
average inventory balance (of $4,757,047 in 2001 as compared to $3,146,173 in
2000), primarily as a result of the NancyLopezGolf(TM) and Lady Fairway(TM)
brand line acquisitions.
As of December 31, 2001, the Company had no outstanding letters of credit or
demand loans under the PNC Credit Facility.
The PNC Credit Facility contains certain covenants, which among other items
require the maintenance of certain financial ratios including tangible net worth
and working capital. Any event of default under the credit facility permits the
lender to cease making additional loans thereunder. The Company was in
compliance with all covenants and conditions of the facility as of December 31,
2001.
-14-
Other debt obligations of the Company, associated with the acquisitions, are a
term loan from PNC Bank in the original principal amount of $900,000, of which
$500,000 remained outstanding on December 31, 2001 and the final payment on
which is due in mid-2003, and a promissory note payable to James E. Jones in the
original principal amount of $1,000,000, the entire amount of which remained
outstanding on December 31, 2001 and will become due in installments in 2002.
Accounting Policies
-------------------
The Company's accounting policies and practices are described in Note 1 to the
financial statements included herein, "Summary of Significant Accounting
Policies." Application of the Company's accounting policies requires judgments
by management and incorporates expectations about future events. The Company has
established reserves and accruals for possible losses on collection of accounts
receivable as well as on obsolete inventory. Management uses all available facts
and circumstances in establishing such accruals or reserves.
Calculation of Allowances for Doubtful Accounts
-----------------------------------------------
Management reviews on a revolving basis a schedule listing each customer account
containing balances that are 90 or more days past due, and determines whether
collection of each outstanding balance is anticipated. If collection is
anticipated, no reserve for such account is established. If collection is
questionable, management applies a reserve of between 20% and 100% of the total
amount due. In determining whether to apply a reserve and if so, the amount of
such reserve, management draws on its knowledge of the progress of internal
collection efforts, the customer's payment history, and other information about
the customer. Management also applies a reserve of 2% of accounts receivable
that are up to 90 days past due.
Calculation of Reserves for Obsolescence
----------------------------------------
Periodically management reviews all inventory for the purpose of evaluating
current reserves for obsolescence, which is determined on the basis of
historical and current sales of each product, inventory level, and other
factors. A reserve of between 10% and 90% of present book value is assigned for
all questionable inventory, to which is added an additional miscellaneous
amount.
Certain information in the preceding "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 the caption "Special Note on Forward-Looking Statements."
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Company's exposure to market risks is limited to interest rate risks
associated with the variable interest rates on its revolving line of credit,
term loan and promissory note. Changes in the interest rates affect the
Company's earnings and cash flows, but not
-15-
the fair value of the Company's debt instruments. If the indebtedness
outstanding at December 31, 2001 were to remain constant, a 1.0% increase in
interest rates occurring on January 1, 2002 would result in an increase in
interest expense for the following 12 months of approximately $46,956.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
See the Index to Financial Statements and Financial Statement Schedule on page
F-1 for the location in this report of the financial statements and
supplementary data.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
--------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The Company's current directors and executive officers are:
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
Robert L. Ross 57 Chairman of the Board and Chief Executive Officer
Douglas A. Buffington 46 Director, President, Chief Financial Officer, Chief
Operating Officer and Treasurer
Randy A. Hamill 46 Senior Vice President of Manufacturing and Resources
and Assistant Secretary
Richard M. Maurer 53 Director and Secretary
James E. Jones 39 Director and Vice President of Marketing
Mary Ann Jorgenson 61 Director
Nancy Lopez 44 Director
Frederick B. Ziesenheim 75 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
-16-
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, and became Chief Financial Officer and Chief Operating
Officer in June 1994, 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 of 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 Vice President of
Manufacturing of the Company from 1981 to July 1991.
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.
JAMES E. JONES became the Vice President of Marketing and a director of the
Company on January 1, 2001. Mr. Jones, the founder of Ladies Golf, was President
of that company from 1993 through 2000, and served as President of S2
Acquisition between the merger of Ladies Golf into S2 Acquisition at the end of
December, 2000 and the merger of S2 Acquisition into the Company in May of
2001. He was Chief Operating Officer of International Sporting Goods, a producer
of a wide range of sporting goods products from 1991 until 1993, and a sales
representative for the Converse Shoe Company from 1986 until 1991.
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 L.L.P. 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 of Anthony & Sylvan Pools
Corporation, an installer of concrete in-ground swimming pools.
NANCY LOPEZ became a director of the Company on January 1, 2001. She has been a
member of the Tour Division of the Ladies Professional Golf Association since
1977, and was inducted into the LPGA(R) Hall of Fame in 1987. She has 48 career
victories
-17-
including three major titles. Nancy Lopez was Rookie of the Year in 1978, a
four-time LPGA(R) player of the year and a three-time Vare trophy winner for the
lowest scoring average.
FREDERICK B. ZIESENHEIM has been a director of the Company since 1992. He has
been with the law firm of Webb Ziesenheim Logsdon Orkin & Hanson, P.C. since
1988 and is currently Vice Chairman of its Board of Directors. 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 (the "SEC"). Based solely on
a review of copies of the forms furnished to the Company in 2001 and written
representations from the Company's directors and executive officers, the Company
believes that its directors, executive officers and 10% shareholders complied
with all Section 16(a) filing requirements applicable to them in 2001.
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, 2001, 2000 and 1999 to or on behalf of Robert L.
Ross, Douglas A. Buffington, Randy A. Hamill and James E. Jones (collectively,
the "Named Executives").
-18-
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------
OTHER SECURITIES
NAME AND ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
------------------ ---- ------ ----- ------------ ------- ------------
Robert L. Ross, 2001 $ 0 $ 0 $ 0 0 $ 0
Chief Executive Officer 2000 $ 0 $ 0 $ 0 10,000 $ 0
1999 $ 0 $ 0 $ 0 7,500 $ 0
Douglas A. Buffington, 2001 $173,073 $ 45,000(1) $ 19,829(5) 20,000(6) $ 975(9)
President, Chief Financial 2000 $150,000 $ 35,000(2) $ 19,392(5) 20,000(7) $ 975(9)
Officer, Chief Operating 1999 $149,808 $ 24,375(4) $ 19,389(5) 14,375(8) $ 975(9)
Officer, and Treasurer
Randy A. Hamill, 2001 $116,539 $ 31,250(1) $ 0 0 $ 0
Senior Vice President 2000 $100,000 $ 20,000(3) $ 0 5,000(7) $ 0
of Manufacturing and 1999 $100,000 $ 6,250(4) $ 0 6,250(8) $ 0
Resources and Assistant
Secretary
James E. Jones, 2001(10) $100,000 $ 0 $ 0 0 $ 0
Vice President
of Marketing
(1) Bonus earned in 2001, paid in 2002.
(2) Bonus earned in 2000, paid in 2001.
(3) Bonus earned in 2000, paid in 2000.
(4) Bonus earned in 1999, paid in 2000.
(5) Travel/commuting expenses reimbursed by the Company.
(6) Awarded for 2001 services, granted in 2002.
(7) Awarded for 2000 services, granted in 2000.
(8) Awarded for 1999 services, granted in 2000.
(9) The Company paid the $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.
(10) Mr. Jones became an employee on January 1, 2001.
During the year 2001 no stock options were granted to the Named Executives. The
following table sets forth certain information pertaining to stock options held
by the Named Executives as of December 31, 2001. The Named Executives exercised
no options in 2001.
-19-
2001 FISCAL YEAR-END OPTION HOLDINGS
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
------------------ ---------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
Robert L. Ross 67,500 0 $ 0 $ 0
Douglas A. Buffington 85,375 0 $ 0 $ 0
Randy A. Hamill 59,842 0 $ 0 $ 0
James E. Jones 0 0 $ 0 $ 0
(1) Calculated on the basis of the fair market value of the Common Stock of
$.75 per share on December 31, 2001, less exercise price.
Compensation of Directors
-------------------------
The Company compensates its non-employee, non-consultant 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 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
------------------
The Company entered into a new employment agreement with Douglas A. Buffington
effective January 1, 2001 and terminating on December 31, 2005 unless terminated
sooner as provided in the agreement. Mr. Buffington's base annual salary under
the agreement is $175,000. An incentive cash bonus and stock option program are
incorporated into the agreement. Additional stock options, other than those
provided in the incentive program, may be granted at the discretion of the
Company's Board of Directors. The agreement also provides for certain benefits,
in addition to the standard Company employee fringe benefits, including but not
limited to reimbursement of certain expenses and payment of premiums on a
$750,000 life insurance policy with Mr. Buffington's spouse named as
beneficiary. The agreement also contains "noncompetition" and "invention and
secrecy" clauses.
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 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 that 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
-20-
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 fair market value at that time.
On December 29, 2000, the Company and S2 Acquisition entered into an employment
agreement with James E. Jones, effective as of January 1, 2001 and terminating
on December 31, 2005 unless terminated sooner as provided in the agreement,
pursuant to which Mr. Jones serves as the Vice President of Marketing of the
Company and the President of S2 Acquisition. Under this agreement, Mr. Jones'
annual base salary is $100,000, he may also receive grants of options to
purchase shares of the Company's Common Stock, and he receives the Company's
standard employee fringe benefits. The agreement also contains "noncompetition"
and "invention and secrecy" clauses.
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, 2002 by (i) each person
who beneficially owned 5% or more of the outstanding Common Stock, (ii) each
director, (iii) each Named Executive 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 AND ADDRESS OWNED(1) OF CLASS(1)
---------------- -------- -----------
L. R. Jeffrey (2) 250,000 7.2%
7 Mallet Lane
Far Hills, NJ 07931
Richard M. Maurer (3) 1,492,696 45.4%
Director and Secretary
Three Gateway Center
Pittsburgh, PA 15222
Robert L. Ross (4) 1,473,596 44.8%
Chairman of the Board
and Chief Executive Officer
Three Gateway Center
Pittsburgh, PA 15222
Mary Ann Jorgenson 12,995 *
Director
4900 Key Tower
127 Public Square
Cleveland, OH 44114-1304
-21-
Frederick B. Ziesenheim 12,978 *
Director
700 Koppers Building
436 7th Avenue
Pittsburgh, PA 15219-1818
Douglas A. Buffington 87,375 2.6%
President, Chief Financial
Officer, Chief Operating
Officer and Treasurer
18 Gloria Lane
Fairfield, NJ 07004
Randy A. Hamill (5) 74,142 2.3%
Senior Vice President
of Manufacturing and Resources
and Assistant Secretary
18 Gloria Lane
Fairfield, NJ 07004
James E. Jones 775,000 24.1%
Director and Vice President
of Marketing
3803 Corporex Park Drive
Tampa, FL 33619
Brian Christopher 225,000 7.0%
3803 Corporex Park Drive
Tampa, FL 33619
Wesmar Partners (6) 1,399,096 43.4%
MR & Associates
Maurer, Ross & Co., Incorporated
Three Gateway Center
Pittsburgh, PA 15222
All directors and executive
officers as a group (7 persons)(7) 2,527,552 72.2%
*Less than 1%.
(1) The numbers shown include shares covered by options that are currently
exercisable as of March 18, 2002. 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 - 67,500,
Robert L. Ross - 67,500, Douglas A. Buffington - 85,375, Randy A.
Hamill - 59,892 and all directors and executive officers as a group -
280,267.
(2) Does not include 730 shares owned by various members of Mr. Jeffrey's
family with respect to which shares he disclaims any beneficial
ownership.
-22-
(3) Includes 25,300 shares which are held directly by three trusts of which
Mr. Maurer is co-trustee and with respect to which he shares voting and
investment power, 1,399,096 shares owned directly by Wesmar Partners
with respect to which he shares voting and investment power and 67,500
shares underlying the options held directly by Mr. Maurer. Mr. Maurer
is an officer, director and principal shareholder of Maurer Ross & Co.,
Incorporated, the general partner of MR & Associates, and the managing
general partner of Wesmar Partners.
(4) Includes 1,399,096 shares owned directly by Wesmar Partners and 67,500
shares underlying the options held by Mr. Ross. 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. Hamill's 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).
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Transactions With Management and Others
---------------------------------------
During the fiscal year ended December 31, 2001, MR & Associates provided
consulting services to the Company for $5,000 per month. 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 more than five percent of the Common Stock.
Messrs. Maurer and Ross, as indirect owners of more than five percent of the
Common Stock, had an interest in the Company's acquisition in July of the assets
of NancyLopezGolf(TM), and acquisition in December of 2000, through S2
Acquisition, of Ladies Golf.
Nancy Lopez, a director of the Company as of January 1, 2001, is the President
of Lopez Enterprises, which receives royalty payments and, if certain targets
are met, options to purchase Common Stock as well as bonuses for certain
tournament winnings under the licensing agreement with the Company, into which
the Company entered pursuant to the July 2000 transaction to acquire the assets
of NancyLopezGolf(TM). In 2001, Lopez Enterprises received royalty payments of
$200,000 from the Company.
-23-
James E. Jones, a director of the Company as of January 1, 2001, became the
holder of more than five percent of the Company's Common Stock and entered into
an employment agreement with the Company and S2 Acquisition pursuant to the
Company's acquisition of Ladies Golf in December of 2000. He is also the holder
of a promissory note of the Company, as restated, in the principal amount of
$1,000,000, which is due in 3 installments in 2002.
During the fiscal year ended December 31, 2001, the Company retained the law
firm of Squire, Sanders & Dempsey L.L.P. ("Squire, Sanders"), of which Mary Ann
Jorgenson, a director of the Company, is a partner, to represent the Company in
various matters for which the Company paid to Squire, Sanders fees of $49,615
during the year.
PART IV
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 is filed as part of this report.
(3) The Exhibits listed in the accompanying Exhibit Index are
filed as part of this report.
(b) No reports on Form 8-K were filed for the fourth quarter ended
December 31, 2001.
-24-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
WOMEN'S GOLF UNLIMITED, INC.
Dated: March 29, 2002 By: /s/ Douglas A. Buffington
---------------------------
Douglas A. Buffington
President, Chief Financial Officer,
Chief Operating Officer and Treasurer
-25-
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Independent Auditors' Report F-2
Balance Sheets as of December 31, 2001 and 2000 F-3
Statements of Operations for the Years
Ended December 31, 2001, 2000 and 1999 F-4
Statements of Cash Flows for the Years Ended
December 31, 2001, 2000 and 1999 F-5
Statements of Changes in Shareholders' Equity for the
Years Ended December 31, 2001, 2000 and 1999 F-7
Notes to Financial Statements F-8 - F-18
Financial Statement Schedule II - Valuation and
Qualifying Accounts and Reserves F-19
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 Shareholders and Board of Directors of Women's Golf Unlimited, Inc
(formerly known as S2 Golf Inc.)
We have audited the accompanying balance sheets of Women's Golf Unlimited, Inc.
(formerly known as S2 Golf Inc.) as of December 31, 2001 and 2000, and the
related statements of operations, changes in shareholders' equity, and cash
flows and financial statement schedule for each of the years in the three-year
period ended December 31, 2001. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Women's Golf Unlimited, Inc.
(formerly known as S2 Golf Inc.) as of December 31, 2001 and 2000, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion, the financial statement schedule referred to above, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
March 1, 2002
F-2
WOMEN'S GOLF UNLIMITED, INC.
(FORMERLY KNOWN AS S2 GOLF INC.)
BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000
2001 2000
---- ----
ASSETS
Current Assets
Cash $7,717 $9,886
Accounts Receivable - Net 3,092,565 3,567,768
Inventories 4,406,117 4,046,122
Prepaid Expenses 137,799 205,982
Deferred Income Taxes 173,000 214,000
----------------- ------------------
Total Current Assets 7,817,198 8,043,758
Plant and Equipment - Net 140,347 195,907
Deferred Income Taxes 30,000 6,000
Goodwill - Net 4,896,568 5,307,919
Other Assets - Net 110,255 125,056
----------------- ------------------
Total Assets $12,994,368 $13,678,640
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion Long-Term Debt $1,307,243 $1,447,189
Short-Term Borrowings 3,780,465 3,460,828
Accounts Payable 373,189 936,614
Accrued Expenses 348,310 442,335
Other Current Liabilities 19,735 83,847
----------------- ------------------
Total Current Liabilities 5,828,942 6,370,813
Long-Term Liabilities
Long-Term Debt, less Current Portion 202,413 509,847
Other Long-Term Liabilities 2,258
----------------- ------------------
Total Liabilities 6,031,355 6,882,918
Commitments
Shareholders' Equity
Common Stock, $.01 Par; 12,000,000 Authorized
Shares: 3,225,173 and 3,223,039 Issued and
Outstanding at December 31, 2001 and 2000,
respectively 32,252 32,231
Additional Paid-in-Capital 6,350,736 6,347,757
Accumulated Profit 580,025 415,734
----------------- ------------------
Total Shareholders' Equity 6,963,013 6,795,722
----------------- ------------------
Total Liabilities and Shareholders' Equity $ 12,994,368 $ 13,678,640
================= ==================
The accompanying notes are an integral
part of these statements.
F-3
WOMEN'S GOLF UNLIMITED, INC.
(FORMERLY KNOWN AS S2 GOLF, INC.)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
---- ---- ----
Net Sales $ 16,144,947 $ 12,510,314 $ 11,003,556
Cost of Goods Sold 9,369,532 8,251,834 7,428,130
----------------- ------------------ -----------------
Gross Profit 6,775,415 4,258,480 3,575,426
----------------- ------------------ -----------------
Operating Expenses:
Selling 3,495,523 2,093,938 1,641,744
General & Administrative 2,759,711 1,647,827 1,302,325
----------------- ------------------ -----------------
Total Operating Expenses 6,255,234 3,741,765 2,944,069
----------------- ------------------ -----------------
Operating Income 520,181 516,715 631,357
----------------- ------------------ -----------------
Other Income (Expense)
Interest Expense (413,111) (233,385) (158,892)
Other Income (Expense) 269,313 (5,307) 562
----------------- ------------------ -----------------
(143,798) (238,692) (158,330)
----------------- ------------------ -----------------
Income Before Income Taxes 376,383 278,023 473,027
Provision for Income Taxes 212,092 57,369 166,901
----------------- ------------------ -----------------
Net Income $ 164,291 $ 220,654 $ 306,126
================= ================== =================
Earnings per Common Share - Basic $ 0.05 $ 0.10 $ 0.14
================= ================== =================
Diluted $ 0.05 $ 0.10 $ 0.14
================= ================== =================
Weighted Average Number of Shares Outstanding -
Basic 3,223,850 2,226,312 2,219,700
Diluted 3,266,819 2,264,065 2,263,876
The accompanying notes are an integral
part of these statements.
F-4
WOMEN'S GOLF UNLIMITED, INC.
(FORMERLY KNOWN AS S2 GOLF, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999
---- ---- ----
OPERATING ACTIVITIES
--------------------
Net Income $164,291 $220,654 $306,126
Adjustments to Reconcile Net Income to
Net Cash Provided By
Operating Acitvities:
Depreciation 109,032 56,222 46,637
Amortization 380,396 108,003 16,862
Deferred Income Taxes 63,000 25,600 88,428
Issuance of Stock for Compensation 3,000 5,000 2,000
Allowance for Doubtful Accounts 331,121 321,000 272,919
Allowances for Returns 41,553 116,410 190,586
Inventory Obsolescence Reserve 28,724 45,558 75,000
Changes in Assets and Liabilities:
Accounts Receivable 102,529 150,836 199,176
Inventory (388,719) 16,529 1,010,387
Prepaid Expenses 68,183 (73,004) (26,860)
Other Assets (244) (301) (889)
Accounts Payable (563,423) 454,027 75,015
Accrued Expenses (94,025) 127,485 (116,656)
Other Liabilities (66,372) (90,241) (56,075)
--------------- ---------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 179,046 1,483,778 2,082,656
--------------- ---------------- ----------------
INVESTING ACTIVITIES
--------------------
Acquisitions, Net of Cash Acquired (4,486,687)
Purchase of Equipment (53,472) (68,273) (91,671)
--------------- ---------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (53,472) (4,554,960) (91,671)
--------------- ---------------- ----------------
FINANCING ACTIVITIES
--------------------
Proceeds from (Repayments of) Short-Term Borrowings, Net 319,637 2,285,586 (1,992,411)
Proceeds from Long-Term Debt 900,000
Repayments of Long-Term Debt (447,380) (104,668)
--------------- ----------------- ----------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (127,743) 3,080,918 (1,992,411)
--------------- ----------------- ----------------
INCREASE (DECREASE) IN CASH (2,169) 9,736 (1,426)
CASH - BEGINNING OF PERIOD 9,886 150 1,576
--------------- ----------------- ----------------
CASH - END OF PERIOD $7,717 $9,886 $150
=============== ================ ===============
SUPPLEMENTAL CASH FLOW DISCLOSURES
----------------------------------
Cash Paid During the Year For:
Interest $ 342,903 $222,719 $158,892
=============== ================== ==================
Income Taxes $ 174,368 $28,591 $79,500
=============== ================== ==================
The accompanying notes are an integral
part of these statements.
F-5
WOMEN'S GOLF UNLIMITED, INC.
(FORMERLY KNOWN AS S2 GOLF, INC.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (CONTINUED)
SUPPLEMENTAL SCHEDULES OF NON-CASH
INVESTING AND FINANCING ACTIVITES
2001 2000 1999
---- ---- ----
Long-Term Debt Incurred in
Connection with Acquisition $ - $1,000,000 $ -
==== ========== ===
Common Stock Issued in
Connection with Acquisition $ - $2,310,000 $ -
==== ========== ===
Equipment Financed Through
Long-Term Debt $ - $ 21,730 $ -
==== ========== ===
The accompanying notes are an integral
part of these statements.
F-6
WOMEN'S GOLF UNLIMITED, INC.
(FORMERLY KNOWN AS S2 GOLF, INC.)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
TOTAL
COMMON STOCK ADDITIONAL SHARE-
------------ PAID-IN ACCUMULATED HOLDERS'
SHARES AMOUNT CAPITAL PROFIT EQUITY
------ ------ ------- ------ ------
Balance - January 1, 1999 2,219,313 $22,193 $4,040,795 $(111,046) $3,951,942
Issuance of Common Stock 800 8 1,992 - 2,000
Net Income 1999 -------- ------- 306,126 306,126
---------- -------- --------
Balance - December 31, 1999 2,220,113 $22,201 $4,042,787 $ 195,080 $4,260,068
--------- ------- ---------- --------- ----------
Issuance of Common Stock 2,926 30 4,970 5,000
Issuance of Common Stock
for Acquisition 1,000,000 10,000 2,300,000 2,310,000
Net Income 2000 220,654 220,654
--------- ------- ---------- --------- ----------
Balance - December 31, 2000 3,223,039 $32,231 $6,347,757 $ 415,734 $6,795,722
--------- ------- ---------- --------- ----------
Issuance of Common Stock 2,134 21 2,979 3,000
Net Income 2001 164,291 164,291
--------- ------- ---------- --------- ---------
Balance - December 31, 2001 3,225,173 $32,252 $6,350,736 $ 580,025 $6,963,013
========= ======= ========== ========= ==========
The accompanying notes are an integral
part of these statements.
F-7
WOMEN'S GOLF UNLIMITED, INC.
(FORMERLY KNOWN AS S2 GOLF, INC.)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Women's Golf Unlimited, 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 shoes, golf balls and accessories. The Company markets these products under
various trade names and uses several additional trademarks.
ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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
allowances, will be collected, the Company anticipates that in the event of
default it would follow normal collection procedures. Overall, management
believes 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 values 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 their carrying value due to their
variable interest rate features, which reprise quarterly. The fair value of
long-term borrowings approximate their carrying value due to the interest rate
which is variable based upon the prime rate.
INVENTORIES
Inventories are valued at the lower of cost, determined on the basis of the
first-in, first-out method, or market. Inventories consist of materials, labor
and manufacturing overhead.
PLANT AND EQUIPMENT
Equipment is stated at cost, less accumulated depreciation. 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.
F-8
Maintenance and repairs are charged to operations as incurred.
REVENUE RECOGNITION
The Company recognizes revenue upon the shipment of merchandise in fulfillment
of orders. As of December 31, 2001 and 2000, the Company had an allowance for
doubtful accounts of $237,692 and $320,936, respectively, allowance for
discounts of $40,000, in each year, and an allowance for returns of $103,393 and
$93,000, respectively.
ADVERTISING COSTS
The Company expenses costs of advertising as incurred. Advertising expenses
included in selling expenses for the years ended December 31, 2001, 2000, and
1999 were approximately $1,238,000, $589,000 and $511,000, respectively.
INCOME TAXES
The Company complies with Statement of Financial Accounting Standards ("SFAS")
No. 109, "Accounting for Income Taxes," which requires an asset and liability
approach to financial recording for income taxes. Deferred income tax assets and
liabilities are computed for differences between the financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates applicable to the
periods in which the differences are expected to affect taxable income.
Valuation allowances are established, when necessary, to reduce the deferred tax
assets to the amount expected to be realized.
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 fully amortized in 1997. Management periodically evaluates the
recoverability of intangible assets based upon current and anticipated net
income and undiscounted future cash flows.
EARNINGS PER SHARE
The Company complies with SFAS No. 128, "Earnings per Share." SFAS No. 128
revises certain methodologies for computing earnings per share ("EPS") and
requires the dual presentation of basic and diluted earnings per share. 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. 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.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company complies with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. The Company
continually evaluates whether events and circumstances have occurred that
indicated the remaining estimated useful life of long-lived assets, such as
property, plant and equipment, identifiable tangibles, and goodwill may warrant
revision, or the remaining balance my not be recoverable.
F-9
RECLASSIFICATIONS
Certain reclassifications to prior years' financial statements were made in
order to conform to the 2001 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2001, the Financial Accounting Standard Board ("FASB") issued SFAS Nos.
141 and 142, "Business Combinations" and "Goodwill and Other Intangibles". SFAS
No. 141 requires all business combinations initiated after June 30, 2001 to be
accounted for using the purchase method. Under SFAS No. 142, goodwill is no
longer subject to amortization over its estimated useful life. Rather, goodwill
is subject to at least an annual assessment for the impairment applying a
fair-value based test. Additionally, an acquired intangible asset should be
separately recognized if the benefit of the intangible asset is obtained through
contractual or other legal rights, or if the intangible asset can be sold,
transferred, licensed, rented, or exchanged, regardless of the acquirer's intent
to do so. The Company is currently determining the impact of adopting of these
statements on its financial position and results of operations.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets." This statement will be effective for fiscal
years beginning after December 15, 2001. This statement established a single
accounting model, based upon the framework established in SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," for long-lived assets to be disposed of by sale or to address
significant implementation issues. The Company is in the process of assessing
the impact of the adoption of this statement on its consolidated financial
position, results of operations and cash flows.
2. INVENTORIES
Inventories consists of the following components at December 31:
2001 2000
---- ----
Finished Goods $ 793,101 $ 641,522
Raw Materials 3,613,016 3,404,600
---------- ---------
$4,406,117 $4,046,122
========== ==========
3. PLANT AND EQUIPMENT
Plant and equipment at December 31, 2001 and 2000 were as follows:
2001 2000
---- ----
Machinery and Equipment $1,106,981 $1,054,746
Furniture and Fixtures 103,262 94,646
Leasehold Improvements 43,554 43,554
---------- ----------
Total 1,253,797 1,192,946
Less: Accumulated Depreciation and Amortization 1,113,450 997,039
---------- ----------
$ 140,347 $ 195,907
========== ==========
Depreciation for the years ended 2001, 2000 and 1999 was $109,032, $56,222 and
$46,637, respectively.
4. GOODWILL (SEE NOTE 1)
Goodwill consists of the excess of cost over fair value of net assets purchased
in connection with the acquisitions consummated during 2000. Goodwill is being
amortized over 10 years for NancyLopezGolf(TM) and 25 years for Ladies Golf.
Amortization expense for the years ended 2001 and 2000 was $365,351 and $91,304,
respectively.
F-10
5. OTHER ASSETS
Other assets consist of the following at December 31, 2001, and 2000:
2001 2000
---- ----
Covenant Not to Compete $436,277 $436,277
Patents and Trademarks 223,809 223,809
Security Deposits 53,858 53,613
-------- --------
Total 713,944 713,699
Less: Accumulated Amortization 603,689 588,643
-------- --------
$110,255 $125,056
======== ========
Amortization expense for the years ended 2001, 2000, and 1999 was $15,045,
$16,699 and $16,862, respectively.
6. SHORT-TERM BORROWINGS
The Company has negotiated a new revolving line of credit with PNC Bank,
National Association (the "Bank") allowing a maximum credit limit of $8,000,000,
less 50% of the aggregate face amount of all outstanding letters of credit,
subject to various borrowing bases. 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 60% of qualified inventory. Substantially all of the
Company's assets are used as collateral for the credit line. Interest rates are
at prime plus one-quarter percent, paid monthly; the interest rate as of
December 31, 2001 was 5.00% and 9.75% as of December 31, 2000. At December 31,
2001 and 2000, unused funds available to the Company under the line of credit
were approximately $679,000 and $895,000, respectively. There were no
outstanding letters of credit as of December 31, 2001 and 2000.
The credit facility contains certain covenants, which, among other items,
require the maintenance of certain financial ratios including tangible net worth
and working capital. Any event of default under the credit facility permits the
lender to cease making additional loans there-under.
7. LONG-TERM LOAN
At December 31, 2001 and 2000 long-term debt consists of the following:
2001 2000
---- ----
Note payable in monthly installments of $25,000, $ 500,000 $ 800,000
through August 2003, plus interest at prime plus one and one-half
percent. The interest rate was 6.25% at December 31, 2001.
Promissory note payable to a related party, installments
of $ 250,000 on June 30, 2002, and September 30, 2002 1,000,000 1,000,000
and a final payment of $ 500,000 on December 31, 2002 plus
interest of prime plus one-fourth of one percent. This note was
originally due on December 31, 2001. The interest rate was 5.00%
at December 31, 2001.
Other 9,656 157,036
---------- ----------
1,509,656 1,957,036
Less current portion 1,307,243 1,447,189
---------- ----------
$ 202,413 $ 509,847
========== ==========
F-11
Maturities of long-term debt are as follows:
Year ending December 31,
2002 $1,307,243
2003 202,413
----------
$1,509,656
==========
8. PURCHASE TRANSACTIONS
During 2000, the Company made the following acquisitions:
On July 31, 2000, the Company acquired from The Arnold Palmer Golf Company (the
"Seller") substantially all of the net assets of its NancyLopezGolf (TM)
division, for a cash purchase price of $4,633,333 (the "Purchase Price"). The
Purchase Price was a function of projected sales volume, with a post-closing
adjustment to be based on (i) changes in the net asset value between April 29,
2000 and the closing date and (ii) realization on accounts receivable in the
first six months after closing. On the closing date the Company paid $3,000,000
of the Purchase Price to the Seller, using the principal amount of a $900,000
term loan extended to the Company by the Bank together with funds available
under the Company's existing revolving line of credit with the Bank. On August
10, the Company, using funds available to it under an amendment to its existing
revolving line of credit with the Bank, deposited $150,000 of the Purchase Price
into escrow pending the final determination of the purchase price adjustment and
paid to the Seller $1,009,405, representing the remaining balance of the
Purchase Price adjusted pursuant to a mutual agreement of the parties in
anticipation of the post-closing purchase price adjustment. The Company has
allocated the excess cost over the fair value of net assets acquired to
goodwill, which amounted to $2,156,369, and is being amortized on a straight
line basis over a period of ten years.
The acquired assets were comprised of intellectual property, accounts
receivable, inventory of golf equipment and manufacturing and other physical
equipment used by the Seller in the manufacture and sale of golf clubs and other
golf equipment. The Company intends to use all equipment and physical property
acquired to continue manufacturing and distributing the NancyLopezGolf(TM)
equipment line.
On December 29, 2000, Acquisition Corp. acquired from James E. Jones and Brian
Christopher (the "Selling Shareholders") all of the issued and outstanding
shares of Ladies Golf, and on December 31, 2000, Ladies Golf was merged with and
into Acquisition Corp., with Acquisition Corp. as the surviving entity. The
purchase price was comprised of 1,000,000 shares of Common Stock of the Company,
par value $0.01 per share, and a promissory note of the Company in the principal
amount of $1,000,000 with a maturity date of December 31, 2001. Consideration
for the acquisition was a function of projected sales volume, with a potential
post-closing adjustment in the merger consideration shares to be based on (i)
realization on accounts receivable in the first six months after the effective
date of the merger, and (ii) losses on non-current inventory in the first nine
months after the effective date of the merger. On May 25, 2001 Acquisition Corp.
was merged with and into the Company, with the Company as the surviving entity.
The Company has allocated the excess cost over the fair value of net assets
acquired to goodwill, which amounted to $3,242,854 and is being amortized on a
straight line basis over a period of 25 years.
F-12
The acquired assets were comprised of intellectual property, accounts
receivable, inventory of Lady Fairway(TM) goLf shoes and golf accessories and
other physical equipment used by Ladies Golf in the design and distribution of
women's golf shoes and golf accessories. The Company intends to use all
equipment and physical property acquired to continue designing and distributing
the Lady Fairway(TM) shoe and accessory lines.
Both acquisitions were accounted for using the purchase method of accounting.
The operations of each company acquired have been included in the Company's
Statement of Operations from the respective dates of acquisitions. The purchase
price was allocated to the assets and liabilities based on their estimated fair
value as of the dates of acquisitions.
The following unaudited proforma consolidated results of operations are
presented as if the acquisitions had been made at the beginning of the
respective periods.
YEAR ENDED DECEMBER 31 (UNAUDITED),
2000 1999
---- ----
Sales $18,830,000 $17,446,600
Net Loss (152,000) (1,326,000)
Basic loss per common share (.07) (.60)
Diluted loss per common share (.07) (.60)
9. INCOME TAXES
The provision for income taxes for the years ended December 31, 2001, 2000 and
1999 consists of the following:
2001 2000 1999
---- ---- ----
Current
Federal $115,496 $13,851 $62,173
State 33,596 17,918 16,300
-------- ------- -------
149,092 31,769 78,473
-------- ------- -------
Deferred
Federal 53,550 21,760 62,784
State 9,450 3,840 25,644
-------- ------- -------
63,000 25,600 88,428
-------- ------- -------
Total Provision
for Income Taxes $212,092 $57,369 $166,901
======== ======= ========
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:
2001 2000 1999
---- ---- ----
Federal Tax at
Statutory Rate $127,970 $ 94,528 $160,829
Increase (Decrease) in Taxes
Resulting From:
Permanent Differences 55,419 2,081
State Tax, Net of Federal
Tax Benefit 28,410 1,806 28,382
Reversal of Reserves (15,665) (8,000)
Other 293 (23,300) (16,391)
-------- -------- --------
Total Income Tax Provision $212,092 $ 57,369 $166,901
======== ======== ========
F-13
The tax effects of temporary differences that give rise to significant portions
of the current and non-current deferred tax assets at December 31, 2001 and
December 31, 2000 are as follows:
December 31, December 31,
2001 2000
---- ----
Accounts Receivable Allowances $152,000 $181,000
Accrued Expenses 14,000 9,000
Non-Compete Agreement 7,000 24,000
------ -------
Current Deferred Income Tax Assets $173,000 $214,000
======== ========
Non-Compete Agreement $36,000 $10,000
Other (6,000) (4,000)
------ -------
Non Current Deferred Income Tax Assets $30,000 $6,000
======= ======
10. OPERATING LEASE
The Company currently leases its manufacturing facility and sales and executive
offices located at 18 Gloria Lane, Fairfield, New Jersey 07004, comprising a
total of 28,442 square feet of space. As of December 1, 2001 the Company entered
into a new lease agreement for the Fairfield location for a period of three
years, expiring on November 30, 2004. In December 2001, the Company consolidated
the Lady Fairway(TM) operations into its Fairfield location. The Company
maintains a small office in Lutz, Florida for the administrative office of Lady
Fairway(TM) of approximately 800 square feet.
The annual total base rent for 2002 will be $192,489. 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, 2001, 2000 and 1999 was $164,697, $163,977 and $152,339,
respectively.
As of December 31, 2001, future minimum rental commitments under non-cancelable
operating leases with terms in excess of one year are as follows:
YEAR'S ENDING DECEMBER 31
-------------------------
2002 192,489
2003 192,489
2004 175,574
-------
560,552
=======
11. COMMITMENTS
LICENSING AGREEMENTS
LADIES PROFESSIONAL GOLF ASSOCIATION
------------------------------------
Under the terms of an agreement with the Ladies Professional Golf Association
("LPGA"), the Company is obligated to pay a license and royalty fee
F-14
based upon sales volume. Beginning in 1998, the minimum annual license and
royalty fee is $200,000 through December 31, 2003 payable in equal quarterly
installments. In the event that the sum of (A) 5% of the net sales of the
licensed products (other than golf shoes) up to $1,000,000 in any calendar year,
(B) 2.5% of the net sales of the licensed products (other than golf shoes) in
excess of $1,000,000 and less than $5,000,000 in any calendar year, (C) 1% of
the net sales of the licensed products (other than golf shoes) in excess of
$5,000,000, and (D) 1% of the net sales of golf shoes in any calendar year,
exceeds the minimum license fee, the excess shall be paid as a royalty fee.
Royalty expense for years ended December 31, 2001, 2000 and 1999 was $200,000,
$200,000 and $200,000, respectively.
In addition, the Company is obligated to spend a minimum of $100,000 per year on
various advertising programs and to be a "Title Sponsor" of the LPGA Teaching
and Club Professionals Division Team Classic at an annual cost of $35,000
beginning in 1999 and increasing by $2,500 per year through the term of the
agreement.
Kathy Whitworth
---------------
In October 1999, the Company entered into an Endorsement Agreement with former
LPGA Tour Golf Professional Kathy Whitworth, effective January 1, 2000 through
December 31, 2005. Under the terms of the agreement, Ms. Whitworth grants the
Company an exclusive license to use her name, likeness, image and personal
identification, singly or in any combination, in connection with the production,
marketing and sale of a "Kathy Whitworth" signature line of women's golf clubs.
In addition, the Company has the right to include Ms. Whitworth in two print and
one television advertisement per year. The Company will pay Ms. Whitworth a base
fee of $36,000 per year in equal quarterly payments. In addition, Ms. Whitworth
will receive a royalty fee of 2% of net sales of "Kathy Whitworth" line of
clubs.
Ms. Whitworth agrees to use only the golf clubs and golf bags of the Company in
any golf event, either professional or social, during the term of the agreement.
Ms. Whitworth will serve as a golf instructor at up to 10 golf clinics per
calendar year. In addition, Ms. Whitworth will represent the Company at 2
Professional Golf Association merchandise shows as their spokesperson each
calendar year. The Company will reimburse Ms. Whitworth for all reasonable and
necessary travel expenses in connection with her performance of the services.
Royalty expense under this agreement for the years ended December 31, 2001 and
2000 was $66,695 and $61,484, respectively.
Nancy Lopez Enterprises, Inc.
-----------------------------
In July 2000, the Company entered into a licensing agreement with Nancy Lopez
Enterprises, Inc., as part of the acquisition of NancyLopezGolf(TM), effective
July 31, 2000 through December 31, 2007. Under the terms of the agreement, the
Company must pay the licensor an annual fixed royalty in the amount of $200,000.
The Company is required to pay a royalty based on percentages of sublicense fees
paid to the Company and of gross revenues as specified within the agreement if
the sum of these amounts exceeds the fixed royalty amount of $200,000. In
addition, the Company issues stock options to the licensor if certain revenue
targets are met and, in recognition of the increased value of the golfer
identification resulting in achievements in certain tournaments, the Company
agrees to pay bonuses to the licensor as specified within the agreement.
Royalty expense under this agreement for the years ended December 31, 2001 and
2000 was $200,000 and $83,332, respectively.
EMPLOYMENT AGREEMENTS
The Company entered into a new employment agreement with a key executive officer
effective January 1, 2001 and terminating on December 31, 2005 unless terminated
sooner as provided in the agreement. The base annual salary under the agreement
is $175,000. An incentive cash bonus and stock option program are incorporated
into the agreement. Additional stock options, other than those provided in the
F-15
incentive program, may be granted at the discretion of the Company. The
agreement also contains a "non-compete" clause and an "invention and secrecy"
clause.
On December 29, 2000, the Company entered into an employment agreement with a
key executive officer effective as of January 1, 2001 and terminating on
December 31, 2005 unless terminated sooner as provided in the agreement. Under
this agreement, the key executive officer's annual base salary is $100,000 and
he may also receive grants of options to purchase shares of the Company's Common
Stock. The agreement also contains "non-compete" and "invention and secrecy"
clauses.
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 through March 2002
as consideration for his covenant not to compete with the Company. 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
("Common Stock") at an exercise 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.
12. STOCK OPTIONS AND GRANTS OF STOCK
Options have been granted to current and former officers, employees and
directors of the Company at the discretion of the Company's Board of Directors.
Options have also been granted in connection with endorsement agreements. The
table below summarizes all outstanding stock options.
RANGE OF WEIGHTED
NUMBER EXERCISE AVERAGE
OF SHARES PRICE EXERCISE PRICE
--------- -------------- --------------
Outstanding at January 1, 1999 567,670 $0.938 - $5.00 3.330
Granted 28,875 $2.313 - $3.00 2.608
------- --------------- ------
Outstanding at December 31, 1999 596,545 $0.938 - $5.0 3.295
Granted 76,307 $0.750 - $2.563 1.479
Cancelled (10,000) ($4.375) (4.375)
------- --------------- ------
Outstanding at December 31, 2000 662,852 $0.750 - $5.00 3.070
Granted 4,687 $1.250 - $1.650 1.432
------- --------------- ------
Outstanding at December 31, 2001 667,539 $0.075 - $5.000 $3.058
======= =============== ======
The Company applies the intrinsic value method in accounting for its stock
plans. Accordingly, no compensation cost has been recognized for stock option
grants issued to employees under any of the Company's stock option plans. If
compensation cost for stock option grants issued during 2001, 2000 and 1999 had
been determined under the provisions
F-16
of SFAS No. 123, the Company's net income would have been $164,291 $177,188, and
$276,504, respectively. The Company's net income per share for basic and diluted
in 2001, 2000 and 1999 would have been $.05, $.08, and $.12, respectively.
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 2001, 2000 and 1999:
2001 2000 1999
---- ---- ----
Annualized Volatility 66% 53% 46%
Risk-Free Interest Rate 4.5% 5% 5%
Expected Term of Option (in years) 3.5 3.5 3.5
Dividend Yield N/A N/A N/A
The weighted average fair values per share of stock options granted during 2001,
2000 and 1999 were $.67 $.60, and $3.00, respectively.
The exercise price ranges for options outstanding and exercisable at December
31, 2001 were:
NUMBER OF SHARES WEIGHTED
OUTSTANDING AND AVERAGE
EXERCISABLE AT EXERCISE CONTRACTUAL
EXERCISE PRICE RANGE DECEMBER 31, 2001 PRICE
-------------------- ----------------- ------
$0.50 to $2.00 253,901 $1.460
$2.01 to $5.00 413,638 4.039
------- ------
Total 667,539 $3.058
======= ======
The Company has generally granted options that do not expire.
GRANTS OF STOCK TO DIRECTORS
The Company compensates its non-employee directors by granting such persons
shares of Common Stock having a value of $1,000 for every meeting of the Board
of Directors or committee thereof attended by such person, and 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. The value of the shares issued is charged to
operations as incurred.
13. RELATED PARTY TRANSACTIONS
During the fiscal years ended December 31, 2001 and 2000, MR & Associates
provided the Company with consulting services for $5,000 per month. 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 more than five percent of the Common Stock.
During the fiscal years ended December 31, 2001, 2000 and 1999, the Company
retained the law firm of Webb Ziesenheim Logsdon Orkin & Hanson, P.C., of which
Frederick B. Ziesenheim, a director of the Company, is Vice Chairman of the
Board of Directors, to represent the Company on various intellectual property
matters. The Company had paid fees to Webb Ziesenheim Logsdon Orkin & Hanson,
P.C. of $48,222, $20,520 and $22,807, in 2001, 2000 and 1999, respectively.
F-17
During the fiscal years ended December 31, 2001, 2000 and 1999, the Company
retained the law firm of Squire, Sanders & Dempsey L.L.P., of which Mary Ann
Jorgenson, a director of the Company, is a partner, to represent the Company on
various matters. The Company had paid Squire, Sanders & Dempsey L.L.P. $49,615,
$125,200 and $22,494 in 2001, 2000 and 1999, respectively.
14. QUARTERLY SELECTED DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
2001
Net Sales $4,521,595 $5,402,339 $3,484,474 $2,736,539
Gross Profit 1,871,704 2,347,175 1,449,367 1,107,169
Net Income (Loss) 173,928 36,248 60,681 (106,566)
Income per common
and common equivalent
share Basic .05 .01 .02 (0.03)
Dilutive .05 .01 .02 (0.03)
2000
Net Sales $2,864,570 $3,927,376 $3,091,279 $2,627,089
Gross Profit 950,843 1,454,317 1,035,529 817,791
Net Income (Loss) 114,037 288,705 60,013 (242,101)
Income per common
and common equivalent
share
Basic .05 .13 .03 (0.11)
Dilutive .05 .13 .03 (0.11)
F-18
WOMEN'S GOLF UNLIMITED, INC.
(FORMERLY KNOWN AS S2 GOLF, INC.)
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING COSTS AND TO OTHER AT END
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
--------- -------- -------- ---------- ---------
ALLOWANCE FOR DOUBTFUL ACCOUNTS
December 31, 1999 212,562 272,919 --- 270,481(1) 215,000
December 31, 2000 215,000 321,000 --- 215,064(1) 320,936
December 31, 2001 320,936 331,121 --- 414,365(1) 237,692
ALLOWANCE FOR RETURNS
December 31, 1999 88,000 190,586 --- 195,586 83,000
December 31, 2000 83,000 116,410 --- 106,410 93,000
December 31, 2001 93,000 41,553 --- 31,160 103,393
ALLOWANCE FOR DISCOUNTS
December 31, 1999 40,000 236,974 --- 236,974 40,000
December 31, 2000 40,000 261,270 --- 261,270 40,000
December 31, 2001 40,000 265,242 --- 265,242 40,000
(1) Uncollectible Accounts Written Off, Net of Recoveries.
F-19
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT*
3.1 Amended and Second Restated Certificate of Incorporation of
the registrant 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 Certificate of Amendment to the Amended and Second Restated
Certificate of Incorporation of the registrant (incorporated
by reference to Exhibit 99.0 to the registrant's current
report on Form 8-K reporting the event dated June 12, 2001).
3.3 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 Loan 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 First Amendment to Loan and Security Agreement between the
registrant and Midlantic Bank, National Association made as of
April 9, 1996 (incorporated by reference to Exhibit 10.1 of
the registrant's Annual Report on Form 10-K for the year ended
December 31, 2000).
10.2 Second Amendment to Loan and Security Agreement between
registrant and PNC Bank, National Association as successor in
interest of Midlantic Bank, National Association made as of
December 1, 1997 (incorporated by reference to Exhibit 10.12
of the registrant's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.3 Fourth Amendment to Loan and Security Agreement between the
registrant and PNC Bank, National Association dated as of July
3l, 2000 (incorporated by reference to Exhibit 10.14 to the
registrant's Registration Statement No. 333-47908 on Form
S-4).
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT*
10.4 Fifth Amendment to Loan and Security Agreement between the
registrant and PNC Bank, National Association made of January
3, 2001 (incorporated by reference to Exhibit 10.4 of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 2000).
10.5 Sixth Amendment to Loan and Security Agreement between the
registrant and PNC Bank, National Association made as of
August 13, 2001 (incorporated by reference to Exhibit 10.20 of
the registrant's Quarterly Report on Form 10-Q for the quarter
ended September 28, 2001).
10.6 Replacement Promissory Note of the registrant in favor of
James E. Jones dated December 29, 2000 and letter agreement in
connection with same.
10.7 Lease between the registrant and Kobrun Investments, III,
L.L.C. dated August 30, 2001.
10.8 Amended and Restated Licensing Agreement between Ladies
Professional Golf Association and the registrant dated January
1, 1999 (incorporated by reference to Exhibit 10.2 of the
registrant's Annual Report on Form 10-K for the year ended
December 31, 1999).
10.9 Endorsement Agreement between the registrant and Kathy
Whitworth dated October 13, 1999 (incorporated by reference to
Exhibit 10.13 to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1999).
10.10 Licensing Agreement between Nancy Lopez Enterprises, Inc. and
the registrant made as of July 31, 2000 (incorporated by
reference to Exhibit 10.10 of the registrant's Annual Report
on Form 10-K for the year ended December 31, 2000).
10.11 License Agreement between the registrant and Raymond Lanctot
Ltee/Ltd. dated June 28, 1999 (incorporated by reference to
Exhibit 10.12 to the registrant's Annual Report on Form 10-K
for the year ended December 31, 1999).
10.12 Asset Purchase Agreement among the registrant, APGC Holdings
Company, LLC and The Arnold Palmer Golf Company dated July 31,
2000 (incorporated by reference to Exhibit 2.0 to the
registrant's Current Report on Form 8-K reporting the event
dated July 31, 2000).
10.13 Agreement and Plan of Reorganization, dated as of June 22,
2000, among the registrant, S2 Golf Acquisition Corp., Ladies
Golf Equipment Company, Inc., James E. Jones and Brian
Christopher (incorporated by reference to Exhibit 2.0 of the
registrant's Registration Statement No. 333-47908 on Form
S-4).
10.14 1992 Stock Plan for Independent Directors of S2 Golf Inc.
dated December 29, 1992 (incorporated by reference to Exhibit
10.11 to the registrant's Annual Report on Form 10-K for the
year ended December 31, 1992).
-2-
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT*
10.15** 1998 Employee Stock Plan of the registrant (incorporated by
reference to Exhibit 10.15 to the registrant's Annual Report
on Form 10-K for the year ended December 31, 2000).
10.16** Agreement between the registrant and Randy A. Hamill dated
January 2, 1997 (incorporated by reference to Exhibit 10.10 to
the registrant's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.17** Employment Agreement between the registrant and Douglas A.
Buffington, made April 3, 2001 and effective as of January 1,
2001 (incorporated by reference to Exhibit 10.17 of the
registrant's Quarterly Report on Form 10-Q for the quarter
ended March 30, 2001).
10.18** Consulting Services Agreement between the registrant and MR &
Associates made as of December 15, 2000, effective as of
January 1, 2000 (incorporated by reference to Exhibit 10.18 of
the registrant's Annual Report on Form 10-K for the year ended
December 31, 2000).
10.19** Employment Agreement among the registrant, S2 Golf Acquisition
Corp. and James E. Jones dated as of January 1, 2001
(incorporated by reference to Exhibit 10.19 of the
registrant's Annual Report on Form 10-K for the year December
31, 2000).
10.20 Agreement and Plan of Merger between the registrant and its
wholly-owned subsidiary S2 Golf Acquisition Corp. dated as of
June 15, 2001 (incorporated by reference to Exhibit 10.20 of
the registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2001).
* 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.
-3-