SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File No.
March 31, 1996 33-19107
LBO Capital Corp.
(Exact name of Registrant as Specified in its Charter)
Colorado 38-2780733
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
7001 Orchard Lake Road, Suite 424
West Bloomfield MI 48322-3608
(Address of Principal Executive Offices) (Zip Code)
(810) 851-5651
(Registrant's Telephone Number Including Area Code)
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 (or such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of May 10, 1996 a total of 12,100,000 shares, $.0001 par value common stock,
were issued and outstanding.
<PAGE>
LBO CAPITAL CORP.
Form 10-Q Filing of Quarter Ended March 31, 1996
INDEX
Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets
March 31, 1996 (Unaudited) and December 31, 1995 3
Statements of Operations (Unaudited)
Three months ended March 31, 1996 and 1995 4
Statements of Cash Flows (Unaudited)
Three months ended March 31, 1996 and 1995 5
Notes to Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial
Statements (Unaudited) 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Financial Statements of Ajay Sports, Inc.
as of March 31, 1996 9-x
Signature Page x
Note: No other information is included in answer to any item under Part 11 as
those other Items are either not applicable, or if applicable, the answer is
negative.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
LBO CAPITAL CORP.
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1996 1995
ASSETS
Current Assets:
Cash and Equivalents $ 93 $ 78
Marketable Securities Avail. for Sale 30,065 8,000
Prepaid Expenses 71 173
-------- --------
Total Current Assets 30,229 8,251
-------- --------
TOTAL ASSETS $ 30,229 $ 8,251
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable $ 2,779 $ 4,414
Accounts Payable - Related Entities 3,850 2,620
Notes Payable - Other 131,051 99,801
Notes Payable - Bank 325,000 325,000
Accrued Expenses and Taxes 6,292 3,510
-------- --------
Total Current Liabilities 468,972 435,345
Stockholders' Equity
Common Stock, $.0001 par value;
Authorized 100,000,000 Shares;
Issued and Outstanding 12,100,000 shrs 1,210 1,210
Additional Paid-In Capital 623,094 623,094
Unrealized Gain(Loss) on Avail. for Sale (877) (702)
Accumulated Deficit (1,062,171) (1,050,696)
----------- ----------
Total Stockholders' Deficit (438,744) (427,094)
----------- ----------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 30,229 $ 8,251
=========== ==========
See notes to financial statements.
3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
LBO CAPITAL CORP.
STATEMENTS OF OPERATIONS
For the Three Months Ended March
1996 1995
REVENUES: $ -0- $ -0-
EXPENSES:
Professional Services 146 237
Management Fees 1,230 1,850
Depreciation & Amortization Expense -0- 1,658
Interest Expense 10,059 8,989
Other Expenses 214 463
--------- -----------
Total Expenses 11,649 13,196
--------- -----------
Income (Loss) Before Income Taxes (11,649) (13,196)
Income Tax Expense (Benefit):
Currently Payable -0- -0-
----------- ------------
Net Income (Loss) $ (11,649) $ (13,196)
=========== ============
Net Income (Loss) per Share $ (.00) $ (.00)
=========== ============
Weighted Average Number of Common
Shares Outstanding 12,100,000 12,100,000
=========== ============
See notes to financial statements.
4
<PAGE>
PART I. FINANCIAL INFORMATION
LBO CAPITAL CORP.
CASH FLOWS
(Unaudited)
March 31, March 31,
1996 1995
Cash Flows for Operating Activities:
Net Loss $ (11,649) $ (13,196)
------- -------
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation and Amortization -0- 1,658
Changes in Assets and Liabilities:
(Increase) Decrease in:
Prepaid Expenses and Deposits 102 (31)
(Decrease) Increase in:
Accounts Payable (1,636) (1,345)
Accounts Payable - Related Entities 1,230 1,850
Accrued Expenses and Taxes 2,783 8,915
------- -------
Total Adjustments 2,479 11,046
Net Cash (Used for) Operations (9,170) (2,150)
Cash (Used for) Investing Activities
Marketable Securities Available for Sale (22,065) -0-
------- ------
(22,065) -0-
Cash Flows from Financing Activities:
Payments on Notes Payable - Related Entity -0- (6,277)
Proceeds on Notes Payable 31,250 7,700
------- -------
Net Cash Provided by Financing Activities 31,250 1,423
------- -------
Net Increase (Decrease) in Cash 15 (727)
Cash and Cash Equivalents:
At Beginning of Period 78 811
------- -------
At End of Period $ 93 $ 83
====== =======
Supplemental Disclosures of Cash Flow Information
Interest Paid $ 7,276 $ 324
====== =======
See notes to financial statements
5
<PAGE>
LBO CAPITAL CORP
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying financial statements of LBO Capital Corp. ("the Company")
have been prepared by the Company without audit by independent accountants,
except for the balance sheet at December 31, 1995. In the opinion of the
Company's management, the financial statements reflect all adjustments necessary
to present fairly the Company's financial position at March 31, 1996 and
December 31, 1995, and the results of operations and cash flows for the three
month periods ended March 31, 1996 and 1995.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These unaudited financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's Annual Report 10-K. The results for the three month periods ended
March 31, 1996 are not necessarily indicative of future financial results.
NOTE 2. INVESTMENTS.
As previously reported, the Company had acquired 1,880,000 shares of the
restricted common stock of Ajay Sports, Inc. ("Ajay") in April 1989, for
$182,000. Subsequently, this was reduced to 1,480,000 shares. As a result of
recording the Company's equity in net losses of Ajay, the carrying value of this
investment is zero. The Company also obtained 200,000 warrants of Ajay at that
time. Each warrant entitles the Company to purchase one share of Ajay common
stock at $.34. These warrants expire June 13, 1999.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
(a) Material Changes in Financial Condition
Working capital decreased by $11,649 in the three month period ended March
31, 1996 due to the net loss of $11,649 for the three months ended March 31,
1996.
6
<PAGE>
(b) Results of Operations
Registrant's operations for the three months ended March 31, 1996 resulted
in a loss of $11,649. This was due mainly to interest expense of $10,059.
Liquidity and Capital Resources
The Registrant is currently meeting its cash needs from borrowing from a
company. There is no assurance that this will continue in future years. The
Registrant's principal asset is its investment in marketable securities of Ajay
which it has held for over four years. These shares are carried at a zero value
on the Registrant's Balance Sheet as a result of recording the Registrant's
equity in net losses of Ajay. The market value of Ajay stock on March 31, 1996
as listed in the NASDAQ Small-Cap Issues was $0.6250 per share. The approximate
market value of the Registrant's 1,480,000 shares was $925,000 on that date. The
Registrant also owns 9,341 shares of Enercorp, Inc. common stock. These shares
are carried at their fair market value of $3.3125 per share at March 31, 1996,
which is $877 below cost. These shares could be liquidated to meet cash flow
needs if necessary.
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Pursuant to the provisions of Reg. ss. 210.3-09 of Regulation S-X, the
Registrant is required to file separate financial statements of its equity
basis investee Ajay, which financial statements for March 31, 1996 are
filed herewith.
(b) Reports on Form 8-K.
None
7
<PAGE>
LBO CAPITAL CORP.
FORM 10-Q
For the Quarter Ended March 31, 1996
Signature Page
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LBO CAPITAL CORP.
(Registrant)
By s\Thomas W. Itin
-----------------------
Thomas W. Itin, President,
Chairman of Board of Directors
By s\Frances B. Bucholz
-----------------------
Frances B. Bucholz, Controller
Date signed: May 13, 1996
<PAGE>
Item 1. FINANCIAL STATEMENTS
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
March 31, 1996 December 31,
(Unaudited) 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 189 $ 362
Trade accounts receivable, net 6,265 5,196
Inventories 9,090 8,909
Prepaid expenses and other current assets 626 365
Deferred tax benefit 102 102
------ ------
Total current assets 16,389 14,934
Fixed assets, net 1,933 1,888
Other assets 364 236
Deferred tax benefit 223 106
Goodwill 1,313 1,322
------ ------
Total assets $20,105 $18,486
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 7,788 $ 5,793
Current portion of capital lease 7 6
Accounts payable 2,218 2,181
Accrued expenses 505 631
------ ------
Total current liabilities 10,518 8,611
Note payable - long term 5,128 5,111
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized
Series B, $0.01 par value, 12,500 shares
outstanding at liquidation value 1,250 1,250
Series C, $10.00 par value, 313,290 and 313,790 shares
outstanding at stated value, respectively 3,133 3,138
Common stock, $.01 par value, 50,000,000
shares authorized, 23,345,018 and
23,337,746 shares outstanding, respectively 234 234
Additional paid-in capital 9,129 9,123
Accumulated deficit (9,287) (8,981)
------ ------
Total stockholders' equity 4,459 4,764
------ ------
Total liabilities and stockholders' equity $20,105 $18,486
====== ======
</TABLE>
2
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
-------------------------
<S> <C> <C>
Net sales $6,262 $5,454
Cost of sales 5,133 4,362
----- -----
Gross profit 1,129 1,092
Selling, general and
administrative expenses 1,192 752
----- -----
Operating income (loss) (63) 340
Non-operating (income) expense:
Interest expense, net 279 185
Other, net 2 ---
----- -----
Total non-operating expense 281 185
----- -----
Income (loss) before income taxes (344) 155
Income tax expense (benefit) (117) ---
----- -----
Net income (loss) $(227) $ 155
====== ======
Income (loss) per common share outstanding* $ (.01) $ .01
====== ======
Income (loss) per common share & equivalents $ (.01) $ .00
====== ======
outstanding**
Weighted average common shares outstanding 23,345 22,546
====== ======
Weighted average common and common
equivalents outstanding 36,600 32,629
====== ======
</TABLE>
* Computed by dividing net income or loss, after reduction for preferred stock
dividends, by the weighted average number of common shares outstanding.
** Computed by dividing net income or loss, after reduction for preferred stock
dividends, by the weighted average number of common share and common share
equivalents outstanding.
3
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1996 1995
------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (227) $ 155
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 119 52
Adjustment to retained earnings - 5
Change in assets [(increase)/decrease] and liabilities [increase/(decrease)]:
Trade accounts receivable, net (1,069) (2,112)
Inventories (181) 308
Prepaid expenses and other current assets (261) (38)
Other assets (128) 11
Deferred tax benefits (117)
Accounts payable 38 162
Accrued expenses (126) 33
------ ------
Net cash used in
operating activities (1,952) (1,424)
------ ------
Cash flows from investing activities:
Purchase of property, plant, equipment (155) (64)
Net cash used in
investing activities (155) (64)
------ ------
Cash flows from financing activities:
Net change in bank loan 2,012 (15)
Net change in note payable to affiliate - 1,420
Preferred stock conversion 1
Dividends (79)
Net cash provided by
financing activities 1,934 1,405
------ ------
Net decrease in cash and cash equivalents (173) (83)
Cash and cash equivalents at beginning of period 362 105
------ ------
Cash and cash equivalents at end of period $ 189 $ 22
====== ======
Supplemental disclosures of cash flow information:
Cash paid for interest $ 263 $ 185
====== ======
Cash paid for income tax --- ---
====== ======
</TABLE>
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by Ajay Sports, Inc. (the "Company") without audit and pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of the Company, the financial statements reflect all adjustments, which consist
only of normal recurring adjustments, necessary to present fairly the financial
position of the Company at March 31, 1996 and the results of operations for the
three-month periods ended March 31, 1996 and 1995 and the cash flows for the
same three-month periods.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the SEC rules and regulations dealing
with interim financial statements. However, the Company believes that the
disclosures made in the condensed financial statements included herein are
adequate to make the information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's 1995 Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
The year-end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
Note 2. INVENTORIES
The major classes of inventories (rounded to thousands) are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
Raw Materials $5,460 $4,608
Work in Process 959 1,014
Finished Goods 2,671 3,287
------ ------
$9,090 $8,909
====== ======
</TABLE>
5
<PAGE>
Note 3. LIQUIDITY
As part of the Company's loan agreement with the United States National Bank of
Oregon ("U. S. Bank") the Company is required to maintain a minimum tangible net
worth of $2,000,000 and a ratio of liabilities to tangible net worth of not
greater than 4.5 to 1. On April 3, 1996 U. S. Bank approved a temporary waiver
(through May 1996) to increase the ratio of liabilities to tangible net worth to
not greater than 6.0 to 1. The ratios for January, February and March were 4.91,
5.25 and 5.18 respectively. The ratios increased as a result of goodwill
generated from two 4th quarter acquisitions.
Note 4. BUSINESS SEGMENT REPORTING
The relative contributions to net sales, operating profit and identifiable
assets of the Company's two industry segments for the quarter ended March 31,
1996 (unaudited) are as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Ended March 31, 1996
Furniture Golf Consolidated
<S> <C> <C> <C>
Net sales 960 5,302 6,262
Operating income/(loss) 30 (93) (63)
Total assets 2,207 17,898 20,105
Depreciation/amortization 31 88 119
Capital expenditures 8 147 155
</TABLE>
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION - At March 31, 1996 the Company had working capital of
$5,871,000, as compared with $6,324,000 at December 31, 1995. The ratio of
current assets to current liabilities at March 31, 1996 was 1.6 to 1, compared
to 1.7 at December 31, 1995. Working capital was primarily used to finance
seasonal growth in accounts receivable.
At March 31, 1996 the Company had increased its short term borrowings by
$1,995,000 since December 31, 1995. This was primarily due to the first quarter
operating loss and seasonal increases in accounts receivable $1,069,000,
inventories $181,000 and other current assets $205,000.
LIQUIDITY - At March 31, 1996 Ajay had $12,788,000 outstanding under its
$13,500,000 loan agreement with U. S. Bank. The seasonal nature of the Company's
sales creates fluctuating cash flow. The peak seasonal period has historically
been from February through May. The Company believes its line is sufficient to
finance its needs for 1996.
RESULTS OF OPERATIONS - During the quarter ended March 31, 1996 the Company had
net sales of $6,262,000 compared to $5,454,000 for the same period in 1995. The
overall sales increase of 15% was a result of the increase in sales in the
furniture business. The golf business has had a slower start due to timing in
customer order placement. It is expected that volume will increase throughout
the balance of the year more than offsetting the slow first quarter.
Gross profit for the three months ended March 31, 1996 was 18% of net sales,
compared to 20% for the same period in 1995. This resulted from the Company
selling, at low margins, slow moving inventory obtained in connection with its
4th quarter acquisitions.
Selling, general and administrative expenses expressed as a percentage of sales
were 19.0% for the first quarter of 1996, versus 13.8% for 1995. Contributing to
this was the acquisition in the 4th quarter of 1995 of Palm Springs Golf whose
business runs at an SG&A rate nearly twice that of the balance of the Company's
business.
Operating loss for the first quarter of 1996 was $63,000 compared to operating
income of $340,000 for the first quarter of 1995. This is due primarily to a
timing variance in customer orders and a loss at the recently acquired Palm
Springs Golf subsidiary.
Interest expense increased $94,000 in the first quarter of 1996 compared to the
first quarter of 1995 as a result of higher debt to finance the needs of two 4th
quarter acquisitions, offset by a lower rate that the Company paid on its bank
lines in the first quarter of 1996 versus the same period of 1995.
As a result of the above, the net loss for the first quarter ending March 31,
1996 was $227,000, compared to net income of $155,000 for the same period last
year.
7
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000753557
<NAME> LBO Capital Corp.
<MULTIPLIER> 1
<CURRENCY> 1
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-1-1996
<PERIOD-END> Mar-31-1996
<EXCHANGE-RATE> 1
<CASH> 93
<SECURITIES> 30,065
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,229
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 468,972
<BONDS> 0
0
0
<COMMON> 1,210
<OTHER-SE> (439,954)
<TOTAL-LIABILITY-AND-EQUITY> 30,229
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,590
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,059
<INCOME-PRETAX> (11,649)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,649)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,649)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
