Adams Golf reported that total net sales for the three months ended September 30 decreased 7.0% to $10.2 million from $11.0 million for the comparable period of 2004.
The company posted a $404,000 operating loss for the 2005 quarter, compared to an operating income of $61,000 for the comparable period last year.
Net sales of drivers increased to $3.3 million, or 32.6% of total net sales, for Q3 from $2.1 million, or 19.3% of total net sales, for the comparable period of 2004. A large portion of the driver net sales for the three months ended September 30, 2005 was generated by the RPM and Ovation driver product lines, introduced in the fourth quarter of 2004 and the first quarter of 2005, respectively, which was partially offset by lower sales of maturing product lines.
Net sales of irons decreased to $4.2 million, or 40.8% of total net sales, from $4.8 million, or 43.8% of total net sales, for the three months ended September 30, 2005 and 2004, respectively, primarily generated from the recent introduction of Idea A2 and A2 OS irons during the third quarter of 2005, continued strength of the Idea irons product family, and the GT2 irons, partially offset by lower sales of maturing product lines.
Net sales of fairway woods decreased to $2.6 million, or 25.5% of total net sales, from $4.0 million, or 36.9% of total net sales, for the three months ended September 30, 2005 and 2004, respectively, primarily resulting from the decline in sales of the Ovation family of fairway woods, which was introduced in the first quarter of 2004.
For the three months ended September 30, 2005, three customers comprised approximately 25% of net sales while two customers individually represented greater than 5% but less than 10% of total net sales. Should these customers or the Company's other customers fail to meet their obligations to the Company, the Company's results of operations and cash flows would be adversely impacted.
Net sales of the company's products outside the U.S. increased to $1.2 million, or 11.9% of total net sales, from $0.6 million, or 5.3% of total net sales, for the three months ended September 30, 2005 and 2004, respectively.
Cost of goods sold increased to $6.0 million, or 59.2% of total net sales, for the three months ended September 30, 2005 from $6.0 million, or 54.8% of total net sales, for the comparable period of 2004. The increase as a percentage of total net sales is primarily due to lower average selling prices of certain wood product lines.
Selling and marketing expenses increased to $4.2 million for the three months ended September 30, 2005 from $2.8 million for the comparable period in 2004. The increase is primarily the result of an increase in marketing related costs.
General and administrative expenses remained constant at $1.6 million for the three months ended September 30, 2005 and the comparable period in 2004.
Research and development expenses, primarily consisting of costs associated with development of new products, were $0.6 million and $0.5 million for the three months ended September 30, 2005 and 2004, respectively.
During the three months ended September 30, 2005, the Company reversed settlement expense of $1.8 million, which is attributable to the reversal of the accrued expenses for the settlement agreement that was reached with Mr. Nick Faldo in regards to the dispute regarding provisions of his prior professional services agreement with Adams Golf. Since Mr. Faldo did not perform the minimum requirements of his contract, the Company is no longer due to make any future payments.
