Total net sales increased to $19.8 million for the three months ended June 30, 2005 from $19.7 million for the comparable period of 2004. Net sales of drivers increased to $6.2 million, or 31.4% of total net sales, for the three months ended June 30, 2005 from $3.2 million, or 16.0% of total net sales, for the comparable period of 2004. A large portion of the driver net sales for the three months ended June 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 $8.4 million, or 42.4% of total net sales, from $9.1 million, or 46.2% of total net sales, for the three months ended June 30, 2005 and 2004, respectively, primarily generated from 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 $4.5 million, or 22.8% of total net sales, from $7.0 million, or 35.6% of total net sales, for the three months ended June 30, 2005 and 2004, respectively, primarily resulting from the decline in sales of the Ovation family of fairway wood, which was introduced in the first quarter of 2004.
For the three months ended June 30, 2005, four customers comprised approximately 27% 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 $3.2 million, or 16.2% of total net sales, from $2.9 million, or 14.8% of total net sales, for the three months ended June 30, 2005 and 2004, respectively.
Cost of goods sold increased to $10.8 million, or 54.4% of total net sales, for the three months ended June 30, 2005 from $9.9 million, or 50.3% 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 decreased to $5.0 million for the three months ended June 30, 2005 from $5.4 million for the comparable period in 2004. The decrease is primarily the result of reduction in marketing related costs.
General and administrative expenses increased to $2.3 million for the three months ended June 30, 2005 from $2.0 million for the comparable period in 2004. The increase in administrative related costs is driven by increases in compensation and healthcare costs.
Research and development expenses, primarily consisting of costs associated with development of new products, were $0.5 million and $0.4 million for the three months ended June 30, 2005 and 2004, respectively.
As a result of the above, the company reported operating income of $1.2 million for the three months ended June 30, 2005 compared to $2.1 million for the comparable period ended June 30, 2004. Net income fell 42.6% to $1.2 million from 2.0 million for last year's quarter.
Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
Total net sales decreased to $36.6 million for the six months ended June 30, 2005 from $37.5 million for the comparable period of 2004 primarily resulting from slower than anticipated sales of fairway woods. Net sales of drivers increased to $11.2 million, or 30.7% of total net sales, for the six months ended June 30, 2005 from $6.4 million, or 17.2% of total net sales, for the comparable period of 2004. A large portion of the driver net sales for the six months ended June 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 $14.1 million, or 38.4% of total net sales, from $14.7 million, or 39.3% of total net sales, for the six months ended June 30, 2005 and 2004, respectively, primarily generated from continued strength of the Idea product lines and the GT2 irons, partially offset by lower sales of maturing product lines. Net sales of fairway woods decreased to $9.8 million, or 26.7% of total net sales, from $14.6 million, or 38.8% of total net sales, for the six months ended June 30, 2005 and 2004, respectively, primarily resulting from the decline in sales of the Ovation family of fairway wood, which was introduced in the first quarter of 2004.
For the six months ended June 30, 2005, four customers comprised approximately 27% 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 $5.4 million, or 14.8% of total net sales, from $5.0 million, or 13.3% of total net sales, for the six months ended June 30, 2005 and 2004, respectively.
Cost of goods sold increased to $18.7 million, or 51.1% of total net sales, for the six months ended June 30, 2005 from $18.0 million, or 47.9% 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 decreased to $9.3 million for the six months ended June 30, 2005 from $10.1 million for the comparable period in 2004. The decrease is primarily the result of decreased commissions expenses coupled with a reduction in marketing related costs.
General and administrative expenses decreased to $3.8 million for the six months ended June 30, 2005 from $4.0 million for the comparable period in 2004. The decrease in administrative related costs is attributable to a decrease in bad debt expenses.
Research and development expenses, primarily consisting of costs associated with development of new products, were $1.1 million and $0.9 million for the six months ended June 30, 2005 and 2004, respectively.
Other income increased to $1.0 million for the six months ended June 30, 2005 from $0.0 million for the comparable period in 2004 which is attributable to the one time receipt by the company of a $1.0 insurance claim paid by the company's insurance carrier in connection with the embezzlement occurrence referenced in Note 13 to the Unaudited Condensed Financial Statements.
The company's inventory balances were approximately $11.1 million and $11.6 million at June 30, 2005 and December 31, 2004, respectively.
The company's net accounts receivable balances were approximately $19.3 million and $9.3 million at June 30, 2005 and at December 31, 2004, respectively. The increase is primarily due to the seasonality of the business, as a large portion of sales are generated in the first and second quarters of the year.
The company's prepaid balances were approximately $2.8 million and $0.2 million at June 30, 2005 and December 31, 2004, respectively. The increase in the prepaid asset is primarily associated with the company's decision to prepay certain strategic marketing expenses.
The company's accounts payable balances were approximately $5.6 million and $3.9 million at June 30, 2005 and December 31, 2004, respectively. The increase in accounts payable is primarily associated with the extension of payment terms with key vendors related to inventory purchases.
As a result of the above, the company reported operating income of $4.7 million for the six months ended June 30, 2005 compared to $4.6 million for the comparable period ended June 30, 2004.
| Three Months Ended | Six Months Ended | |||
| June 30, | June 30, | |||
| 2005 | 2004 | 2005 | 2004 | |
| Net sales | $ 19,792 | $ 19,695 | $ 36,589 | $ 37,493 |
| Cost of goods sold | 10,763 | 9,902 | 18,708 | 17,964 |
| Gross profit | 9,029 | 9,793 | 17,881 | 19,529 |
| Operating expenses: | ||||
| Research and development expenses | 544 | 433 | 1,128 | 889 |
| Selling and marketing expenses | 5,001 | 5,368 | 9,262 | 10,060 |
| General and administrative expenses | 2,298 | 1,950 | 3,825 | 3,975 |
| Total operating expenses | 7,843 | 7,751 | 14,215 | 14,924 |
| Operating income | 1,186 | |||
