<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
December 31, 1995 33-19107
(For the fiscal year ended) (Commission FileNo.)
LBO CAPITAL CORP.
(Exact name of Registrant as specified in its charter)
Colorado 38-2780733
(State or other jurisdiction of organization) (I.R.S. Employer
Identification Number)
Orchard Lake Road, Suite 424
West Bloomfield, MI 48322
- ----------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(810) 851-5651
Securities registered pursuant to Section 12 (b) of
the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.0001 Par Value
(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 (or for 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 December 31, 1995, a total of 12,100,000 shares of common stock,
$.0001 par value, were outstanding and the aggregate market value of the voting
stock held by nonaffiliates of the Registrant was approximately $ 665,500 based
on the average of the bid and asked prices on that date ($ .055) as reported by
The National Quotation Bureau, Inc.
<PAGE>
LBO CAPITAL CORP.
FORM 10-K
PART 1
ITEM 1. BUSINESS
General
LBO Capital Corp. (the "Registrant") was organized under the laws of
the State of Colorado on October 8, 1987. The Registrant was formed based on the
belief of its management that there are business opportunities that, for one or
more reasons, are available for acquisition by the Registrant.
On March 15, 1988, the Registrant completed a public offering of
3,000,000 Units, each Unit consisting of one share of its common stock, one
Callable Class A Warrant, one Callable Class B Warrant and one Callable Class C
Warrant. The Warrants are detachable from the Units and may be traded separately
in the over-the-counter market. Each Class A Warrant entitles the holder thereof
to purchase at a price of $0.50, one share of Common Stock at any time until
February 26, 1989. Each Class B Warrant entitled the holder thereof to purchase
at a price of $0.75 one share of Common Stock at any time until August 26, 1989.
Each Class C Warrant entitled the holder thereof to purchase at a price of
$1.00, one share of Common Stock at any time until February 26, 1990. The
expiration dates of these warrants were subsequently extended by the Board of
Directors to expire on various dates, the latest being July 25, 1996. A Form 8-K
was filed on June 19, 1995 reporting this extension. The Registrant received net
proceeds of approximately $474,300 after payment of all costs of the offering.
Since its inception, the Registrant has directed its activities toward
evaluating potential business opportunities with the goal of acquiring and
continuing one or more business opportunities. The Registrant may acquire an
existing business which may be a corporation, partnership or sole
proprietorship. One form which such a business combination might take would be
an exchange of the Registrant's stock for stock of the acquired business.
However, the Registrant may exchange its common stock to acquire the assets of
this entity, or may purchase a percentage of the entity outright.
The Registrant has evaluated and attempted to acquire a number of
entities to date.
2
<PAGE>
ACQUISITION OF ASSETS
Ajay Sports, Inc.
On April 3, 1989 LBO acquired an aggregate of 1,880,000 shares of the
restricted common stock of Ajay Sports, Inc. ("Ajay") for a total cash purchase
price of $182,000.
In 1991, the Registrant pledged 400,000 shares of Ajay to a bank as
collateral for $300,000 in loans to Hendricks. On July 1, 1991, this bank
declared the loan in default and foreclosed on the shares.
The 1,480,000 and 200,000 warrants owned by the Registrant represented
6.00% of the total shares of Ajay common stock outstanding as of December 31,
1995 and 7.39% at December 31, 1994. The decrease is the result of new shares
issued.
Ajay's Common Stock ("AJAY"), Units ("AJAYU") and Warrants ("AJAYW")
have been traded over-the-counter since 1989 and are reported by the National
Quotation Service. The following table sets forth the range of high and low bid
quotes for the common stock:
BID ASK
HI LOW HI LOW
1995
First Quarter $ .59 $ .38 $ .66 $ .44
Second Quarter $ .75 $ .47 $ .78 $ .53
Third Quarter $ .69 $ .56 $ .75 $ .59
Fourth Quarter $ .63 $ .34 $ .66 $ .41
On June 10, 1993, Thomas W. Itin, President and Chairman of the Board
of Directors of the Registrant, was elected to the positions of Chairman of the
Board of Directors and Chief Executive Officer of Ajay Sports, Inc. It is felt
that the direct intervention by the Registrant's management into the operations
of Ajay will have a positive effect on the Ajay earnings and the value of the
Ajay stock held by the Registrant.
BusinessAjay Sports, Inc., through its operating subsidiaries Ajay
Leisure Products, Inc., Palm Springs Golf and Leisure Life, Inc., is a leading
manufacturer and distributor of golf bags, clubs, carts, accessories; billiard
equipment and casual living furniture throughout the United States.
3
<PAGE>
Enercorp, Inc.
On November 21, 1994, the Registrant bought 200,000 shares of Enercorp,
Inc. for $8,702.
Enercorp, Inc. is a business development company under the Investment
Company Act of 1940, as amended.
Competition
The Registrant expects to encounter substantial competition in its
efforts to locate businesses for acquisition. The primary competition for
desirable business acquisitions is expected to come from other small companies
organized and funded for purposes similar to the Registrant, small venture
capital partnerships and corporations, small business investment companies and
wealthy individuals. Should the Registrant elect to engage in a leveraged buyout
acquisition, competition may also be anticipated from investment bankers. Many
of these entities have significantly greater experience, resources and
managerial capabilities than the Registrant and are therefore in a better
position than the Registrant to obtain access to businesses.
Employees
As of December 31, 1995, the Registrant had no employees.
ITEM 2. PROPERTIES
The Registrant currently uses office space provided by Acrodyne
Corporation, a company whose Chairman and President is also Chairman and
President of the Registrant. The space is used for purposes of administration
and development. While the Registrant does not pay any rent, it does pay a
monthly fee of $150 for the direct operating expenses. The Registrant believes
its current facilities are sufficient for its present business activity.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not a present party to any material pending legal
proceedings and no such proceedings were known as of the filing date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Registrant's shareholders
during the fiscal year ended December 31, 1995.
4
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Common Stock
The principal market on which the Registrant's common stock, $.0001 par
value, on traded is the over-the-counter market.
Prices for the Common Stock have been reported in the National Daily
Quotation Service "Pink Sheets" published by the National Quotation Bureau since
March 15, 1988. The range of the bid and ask quotations for the Registrant's
Common Stock during the quarters ended on the dates listed below is as follows:
Bid* Ask*
HI LOW HI LOW
1994
First Quarter $ .03 $ .01 $ .10 $ .06
Second Quarter $ .03 $ .01 $ .10 $ .06
Third Quarter $ .02 $ .02 $ .10 $ .08
Fourth Quarter $ .02 $ .02 $ .10 $ .08
1995
First Quarter $ .03 $ .02 $ .08 $ .06
Second Quarter $ .03 $ .02 $ .08 $ .06
Third Quarter $ .03 $ .03 $ .08 $ .08
Fourth Quarter $ .03 $ .03 $ .08 $ .08
On December 31, 1995, the bid reported for the Common Stock was $ .03*
and the ask price was $.08*.
As of December 31, 1995, the number of record holders of the
Registrant's Common Stock was 1,054. This figure excludes an undetermined number
of shareholders whose shares are held in "street" or "nominee" name.
The Registrant has never paid a dividend with respect to its Common
Stock and does not intend to pay a dividend in the foreseeable future.
Units
Prices for the Units have been reported in the National Daily Quotation
Service "Pink Sheets" published by the National Quotation Bureau since March 15,
1988. The range of the bid and ask quotations for the Registrant's Units during
the quarters ended on the dates listed below is as follows:
5
<PAGE>
Bid* Ask*
HI LOW HI LOW
1994
First Quarter $ .03 $ .01 $ .10 $ .06
Second Quarter $ .03 $ .01 $ .10 $ .06
Third Quarter $ .02 $ .02 $ .10 $ .08
Fourth Quarter $ .02 $ .02 $ .10 $ .08
1995
First Quarter $ .03 $ .02 $ .08 $ .06
Second Quarter $ .03 $ .02 $ .08 $ .06
Third Quarter $ .03 $ .03 $ .08 $ .08
Fourth Quarter $ .03 $ .03 $ .08 $ .08
Each Unit consists of one share of the Registrant's Common Stock, one
Callable Class A Warrant, one Callable Class B Warrant and one Callable Class C
Warrant.
On December 31, 1995, the bid and the ask prices reported for the Units
were $ .03* and $ .08*, respectively.
Warrants
No ask or bid quotations were reported by the National Quotation Bureau, Inc.
since December, 1989.
*Prices are inter-dealer quotations as reported by the National
Quotation Bureau, Inc., New York, New York, without adjustment for
retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
ITEM 6. SELECTED FINANCIAL DATA
December 31
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------
Working Capital $(427,094) $(397,542) $(353,982) $(238,364) $(265,472)
Cash 78 811 11,912 577 170
Marketable Securities 8,000 0 0 0 0
Notes Receivable 0 0 0 0 0
Investments in
operating companies 0 0 0 0 0
Total Assets 8,251 15,887 44,364 62,551 124,701
Total Liabilities 435,345 407,106 375,570 282,780 368,016
Shareholders' Equity (427,094) (391,219) (331,206) (220,229) (243,315)
6
<PAGE>
December 31
1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------
Total Operating Revenue $ 0 $ 0 $ 0 $ 0 $ 66,391
Total Operating Exp. 35,173 60,014 110,976 96,914 130,870
Net income (loss) before
equity loss of affiliate (35,173) (60,014) (110,976) (96,914) (107,194)
Equity in net loss of
affiliated company 0 0 0 0 0
Net income (loss) (35,173) (60,014) (110,976) (96,914) (107,194)
Net Income (loss)
per common share ( .00) ( .00) (.01) (.01) (.01)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Working capital at December 31, 1995 was decreased by $29,552 from the
period ended December 31, 1994. This was mainly caused by a net loss of $35,173.
On September 22, 1995, the Registrant had a change in its borrowing
arrangements. The Registrant borrowed $325,000 from Michigan National Bank on a
line of credit to provide working capital and to partially repay a note payable
to Dearborn Wheels, Inc. The loan is at prime plus 1/2% interest, is due on
September 22, 1996, and is secured by all the intangible assets of the
Registrant.
During the year, the Registrant repaid in full a note payable of $5,953
to Acrodyne Corporation, a related company.
7
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements required to be furnished hereunder are
attached hereto under Item 14.
Supplementary Financial Schedules for which provision is made in
applicable Regulations of the Securities and Exchange Commission, have been
omitted or the required information is not required under the related
instructions, or the information is presented in the Financial Statements and
Notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors and Executive Officers
The following table sets forth the name, address, age and position of each
officer and director of the Registrant:
Term
Name and Address Age Position as Director
Thomas W. Itin 61 President and Since
7001 Orchard Lake Rd. Chairman of the Inception
West Bloomfield, MI 48322 Board of Directors
Anthony B. Cashen 59 Secretary, Since
RD 2 Box 203 Treasurer and Inception
Ghent, NY 12075 Director
Robert W. Schwartz 51 Director Since
120 DeFreest Drive March 28,
Troy, NY 12180 1991
All directors of the Registrant will hold office until their successors
have been elected and qualified or until their death, resignation or removal.
The bylaws of the Registrant provide that the number on the Board of Directors
shall be determined by resolution of the Board of Directors.
The officers of the Registrant are elected at the annual meeting of the
Board of Directors and hold office until their successors are chosen and
qualified or until their death, resignation or removal.
8
<PAGE>
The Registrant is subject to Section 13(a) of the Securities Exchange
Act of 1934 and is therefore not required to identify or disclose information
concerning its significant employees.
There are no family relationships between any director, executive
officer or person nominated or chosen by the Registrant to become a director or
executive officer.
Below is a summary description of educational and professional
background of each executive officer and director of the Registrant.
Thomas W. Itin. Mr. Itin has served as the Chairman and President of the
Board of Directors of the Registrant since inception. Since 1967 Mr. Itin has
also served as the Chairman of the Board and President of TWI International,
Inc., West Bloomfield, Michigan, a firm engaged in providing consulting services
for mergers, acquisitions, financial structuring, new ventures, private
investments, joint ventures, asset management, export/import, training seminars
and executive and professional searches. Mr. Itin is Chairman of the Board and
President of Acrodyne Corporation. Mr. Itin also is Chairman of the Board of
Directors of Ajay Sports, Inc. and Chairman of the Board of Directors and
President of Williams Controls, Inc., both of which are publicly held companies.
Since August, 1989, Mr. Itin has been an officer and Director of MGS
Acquisitions, Inc., and its subsidiary, MacGregor Sports, Inc. On February 15,
1991, MacGregor Sports, Inc., filed for protection under Chapter 11 of the
United States Bankruptcy Code, and on September 12, 1991, it filed under Chapter
7 of the United States Bankruptcy Code. Mr. Itin was a co-founder of Roadmaster
Industries, Inc. in 1987 and served as a Director thereof from October 1987
until June 1993. From December 1987 until October 1993, Mr. Itin was an Officer
and Director of CompuSonics Video Corporation. Mr. Itin received a BS degree
from Cornell University in 1957 at which time he also attended the Graduate
School of Business. He received his M.B.A. in 1959 from New York University, New
York.
Anthony B. Cashen. Mr. Cashen has served as the Registrant's Secretary,
Treasurer and Director since inception. He is director of Ajay Sports, Inc., a
publicly held corporation. He also currently is a Managing Partner in Lamalie
Amrop, International, a management consulting and executive recruiting firm in
New York City. Prior to his joining Lamalie (formerly Flanagan & Webster), he
was President and owner of Elliot Hardwood, an integrated lumber manufacturer
located in upstate New York. Previously, Mr. Cashen had been an officer and
Principal of the investment firms of A.G. Becker, Inc. and Donaldson, Lufkin &
Jenrette, Inc. He serves as Director of PW Communications and Immucell
Corporation, both of which are publicly-held companies. Mr. Cashen is also
President of the Sagamore Institute. Mr. Cashen has an M.B.A. from the Graduate
School of Management (1958) and a B.S. degree from Cornell University.
Robert W. Schwartz Mr. Schwartz has served as Director of the
Registrant since March 28, 1991. Since 1985 he has been Chairman and President
of Schwartz, Gordon, Heslin & Associates, Inc., a management and financial
consulting firm in Troy, New York. From 1987 until 1991 he was a Director and
Vice President and Treasurer of ESARCO International, Inc., a publicly held
company which licenses and markets all-terrain trucks. Previously Mr. Schwartz
was President and Director of Winsources, Inc., a telephone equipment supplier,
President and Director of Cordian Corporation of Latham, New York, a telephone
equipment manufacturer, and Vice President of Finance of Garden Way
Manufacturing Company, Inc., a manufacturer of rototillers and outdoor
equipment. Mr. Schwartz received a B.S. degree in industrial and labor relations
from Cornell University and did graduate work at State University of New York at
Albany.
9
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The Registrant reimburses its directors for expenses incurred by them
in connection with business performed on the Registrant's behalf, including
expenses incurred in attending meetings. In addition, directors receive a fee of
$250 for each Board of Directors meeting attended. No such reimbursements were
made for the period from January 1, 1990 to December 31, 1995. While none of the
officers received any salary, such individuals are reimbursed for all
accountable expenses incurred on behalf of the Registrant.
See Item 13 - Certain Business Relationships and Related Transactions
under Acrodyne Corporation for additional information.
The Registrant has no defined benefit and actuarial plan providing for
payments to employees upon retirement. The Registrant also has no plans for
awarding stock options. No other compensation was paid to officers or directors
of the Registrant from January 1, 1990 to December 31, 1995.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information as of February 20, 1996 with
respect to beneficial ownership of the Registrant's Common stock by each person
known by the Registrant to be the beneficial owner of more than five percent
thereof, by the executive officers and directors of the Registrant and by all
executive officers and directors of the Registrant as a group:
10
<PAGE>
Common Stock
Beneficially Percent
Owned (1) of Class
Thomas W. Itin 7,237,073 (2)(3)(4) 54.0%
Anthony B. Cashen 400,000 (4) 3.3%
Robert W. Schwartz 100,000 (4) .8%
Officers and Directors 7,737,073 (3) 57.7%
as a group (3 persons)
James T. Emerson 695,000 5.7%
221 E. Colonial Drive
Orlando, FL 60605
(1) Without giving effect to the exercise of outstanding Warrants
except as noted in footnote 4 below.
(2) These shares are held of record by entities of which Mr. Itin
is either a principal or a beneficiary.
(3) Includes 300,000 shares held by Mr. Itin's wife, Shirley B.
Itin, either as beneficiary or custodian, of which Mr. Itin
disclaims any beneficial ownership.
(4) These shares include warrants granted on June 3, 1992
expiring December 4, 1996, to purchase one share of common
stock per warrant for $.04. (Thomas W. Itin, 1,000,000,
Anthony B. Cashen, 200,000, Robert W. Schwartz, 100,000)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others.
None of the Registrant's officers and directors devote their full time
to the Registrant's affairs and such persons may be affiliated with other
business entities and enterprises, some of which may be formed for similar
purposes as the Registrant and thus be in direct competition with the
Registrant. Such activities may result in such persons being exposed to
conflicts of interests from time to time. The Registrant has adopted no conflict
of interest policy with respect to such transactions. However, the officers and
directors of the Registrant recognize their fiduciary obligation to treat the
Registrant and its shareholders fairly in any such future activities.
11
<PAGE>
Certain Business Relationships.
In the Registrant's last full fiscal year the Registrant made payments
for property and services in excess of five percent of the Registrant's
consolidated gross revenues to Acrodyne, a company whose Chairman, President and
major stockholder of the Registrant. The Board of Directors of the Registrant
has reviewed and approved the use of Acrodyne and has determined that the fees
charged the Registrant by Acrodyne are as favorable as could be incurred by any
other independent, third party business consultant. It is anticipated that the
Registrant will continue to utilize Acrodyne in the future. The total sum which
the Registrant paid Acrodyne for the year ended December 31, 1995 was $4,780 for
the above mentioned consulting services and out-of-pocket travel expenses, staff
time spent for accounting, record keeping, and utilities, but did not include
fees for services of the Chairman.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The Financial Statements are listed in the "Index to Financial
Statements" filed as part of this Annual Report, on page F-2.
(a) (2) Financial Statement Schedules
Supplementary Financial Schedules for which provision is made in
applicable Regulations of the Securities and Exchange Commission, have been
omitted or the required information is not required under the related
instructions, or the information is presented in the Financial Statements and
Notes thereto.
Pursuant to the provisions of Rule 3-09 of Regulation S-X, the
Registrant is required to file separate audited financial statements of its
equity basis investee, Ajay Sports, Inc. ("Ajay"). Ajay's audited financial
statements for December 31, 1995 are filed within this report.
(a) (3) Exhibits
The Articles of Incorporation and By-Laws of the Corporation are incorporated by
reference to the Registrant's Registration Statement on Form S-18, effective
December 16, 1987.
(b) Reports on Form 8-K.
A Form 8-K was filed on June 19, 1995 regarding the extension of the expiration
date of the Registrant's warrants from July 25, 1995 to July 25, 1996. A Form
8-K was filed on November 9, 1995 to extend the exercise period of the
Registrant's warrants issued to its directors from December 4, 1995 to December
4, 1996.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
LBO CAPITAL CORP.
(Registrant)
By: s\Thomas W. Itin
Thomas W. Itin,
President
By: s\Frances Bucholz
Frances Bucholz, CPA,
Controller
Date:
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the (date)
Signature Title
s\Thomas W. Itin Chairman of the Board of Directors,
ThomasW. Itin Chief Executive Officer and President
s\Anthony B. Cashen Secretary, Treasurer and Director
Anthony B. Cashen
s\Robert W. Schwartz Director
Robert W. Schwartz
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
LBO Capital Corp.
We have audited the accompanying balance sheets of LBO Capital Corp. as of
December 31, 1995 and 1994, and the related statements of operations, changes in
stockholders' deficit, and cash flows for the years ended December 31, 1995,
1994 and 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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
the amounts and disclosures in the financial statements. An audit also includes
assessing the account 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 LBO Capital Corp. as of
December 31, 1995 and 1994 and the results of its operations and its cash flows
for the years ended December 31, 1995, 1994 and 1993 in conformity with
generally accepted accounting principles.
Hirsch & Silberstein, P.C.
Farmington Hills, Michigan
March 9, 1996
F1
<PAGE>
LBO CAPITAL CORP.
BALANCE SHEETS
As of December 31, 1995 and 1994
ASSETS 1995 1994
---------- --------- C
Current Assets
Cash and Equivalents $ 78 $ 811
Marketable Securities - Available for Sale 8,000 8,702
Prepaid Expenses 173 51
---------- ---------
Total Current Assets 8,251 9,564
---------- ---------
Equipment, Net of Accumulated Depreciation
of $8,639 and $81,395 at December 31, 1995
and 1994 respectively -0- 6,323
Other Assets
Investments -0- -0-
Total Assets $ 8,251 $ 15,887
========== =========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts Payable $ 4,414 $ 34,262
Accounts Payable - Related Entities 2,620 2,033
Notes Payable - Related Entity -0- 5,953
Notes Payable - Other 99,801 342,100
Notes Payable - Bank 325,000 -0-
Accrued Expenses and Taxes 3,510 22,758
----------- ---------
Total Current Liabilities 435,345 407,106
Stockholders' Deficit
Common Stock, $.0001 Par Value
Authorized 100,000,000 Shares:
Issued and Outstanding 12,100,000
in 1995 and 1994 1,210 1,210
Additional Paid-In Capital 623,094 623,094
Unrealized (Loss) on Available
for Sale Securities (702) -0-
Accumulated Deficit (1,050,696) (1,015,523)
----------- -----------
Total Stockholders' Deficit (427,094) (391,219)
----------- ----------
Total Liabilities and Stockholders' Deficit 8,251 15,887
========== =========
The accompanying notes are an integral
part of this financial statement
F2
<PAGE>
LBO CAPITAL CORP.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
--------- ---------- ----------
Revenues $ -0- $ -0- $ -0-
Expenses
Professional Services (15,834) 12,730 42,916
Management Fees 4,780 6,537 11,286
Depreciation and Amortization 6,323 16,453 17,604
Interest Expenses 38,629 29,133 25,547
Uncollectible Accounts Rec -0- -0- 11,275
Other Expenses 1,275 1,286 2,366
(Gain)on Disposal of
Fixed Assets -0- (6,125) (18)
--------- ---------- ----------
Total Expenses 35,173 60,014 110,976
--------- ---------- ----------
Loss before Income Taxes (35,173) (60,014) (110,976)
Income Tax Expense -0- -0- -0-
Equity in Net Loss of Affiliate -0- -0- -0-
--------- ---------- ----------
Net Loss $ (35,173) $ (60,014) $ (110,976)
========= ========= ==========
Net Loss Per Share $ (0.00) $ (0.00) $ (0.01)
========= ========= ==========
Weighted Average Number of 12,100,000 12,100,000 12,100,000
Common Shares Outstanding ========= ========= ==========
The accompanying notes are an integral
part of this financial statement
F3
<PAGE>
LBO CAPITAL CORP. q
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT For the Years
Ended December 31, 1995, 1994, and 1993
Unrealized
(Loss) on
Additional Available Total
Common Stock Paid-In Accum For Sale Sockholders'
Shares Amount Capital Deficit Secr. Deficit
Balances at
December 31, 1992 12,100,000 1,210 623,094 (844,533) -0- (220,229)
Net Loss for the Year
Ended December 31, 1993 -0- -0- -0- (110,976) -0- (110,976)
---------- ----- ------- -------- - --------
Balances at
December 31, 1993 12,100,000 1,210 623,094 (955,509) -0- (331,205)
Net Loss for the Year
Ended December 31, 1994 -0- -0- -0- (60,014) -0- (60,014)
---------- ----- ------- -------- - --------
Balances at
December 31, 1994 12,100,000 1,210 623,094 (1,015,523) -0- (391,219)
Net Loss for the Year
Ended December 31, 1995 -0- -0- -0- (35,173) (702) (35,875)
---------- ----- ------- -------- - --------
Balances at
December 31, 1995 12,100,100 $ 1,210 $623,094 $(1,050,696)(702) $(427,094)
========== ======= ======== =========== ==== =========
The accompanying notes are an integral
part of this financial statement
F4
<PAGE>
LBO CAPITAL CORP.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
Cash Flow From Operating Activities
Net Loss $ (35,173) $ (60,014) $(110,977)
--------- --------- ---------
Adjustment to Reconcile Net Loss to
Net Cash Provided by (Used For)
Operating Activities
Depreciation and Amortization 6,323 16,453 17,605
Loss on Uncollectible Receivable -0- -0- 11,275
(Gain)Loss on Disposal of Fixed -0- -0- (18)
Change in Assets and Liabilities
(Increase) Decrease In:
Receivables From Related Entitie -0- -0- 136
Accounts Receivable - Other -0- 9,625 -0-
Prepaid Expenses and Deposits (122) -0- 199
(Decrease) Increase In:
Accounts Payable (29,849) 2,908 29,838
Accrued Expenses and Taxes (18,661) 22,641 (6,169)
------- ------ ------
Total Adjustments (43,308) 51,628 52,866
------- ------ ------
Net Cash (Used For) Operations (77,481) (8,386) (58,111)
------- ------ -------
Cash Provided by (Used For) Investing Activities
Purchase of Marketable Securities -0- (8,702) -0-
Proceeds from Disposal of Fixed Assets -0- -0- 325
------- ------ -------
Net Cash Provided By (Used For)
Investing Activities -0- (8,702) 325
------- ------ -------
Cash Provided by (Used For) Financing Activities
Payments on Notes - Related (5,953) (343,647) (230,097)
Payments on Notes - Bank -0- (342,066) (35,082)
Payments on Notes - Other (242,299) -0- -0-
Proceeds from Notes - Other -0- 342,100 -0-
Proceeds from Notes - Related -0- 349,600 9,300
Proceeds from Notes - Bank 325,000 -0- 325,000
------- ------ -------
Net Cash Provided By (Used For)
Financing Activities 76,748 5,987 69,121
------- ------ -------
Increase (Decrease)in Cash and Equivalents (733) (11,101) 11,335
Cash and Equivalents at Beginning of Year 811 11,912 577
------- ------ -------
Cash and Equivalents at End of Year $ 78 $ 811 $ 11,912
====== ========= ========
The accompanying notes are an integral
part of this financial statement
F5
<PAGE>
LBO CAPITAL CORP.
TABLE OF CONTENTS
Page
Independent Auditor's Report
Financial Statements:
Balance Sheets F2
Statements of Operations F3
Statements of Changes in Stockholders' Deficit F4
Statements of Cash Flows F5
Notes to Consolidated Financial Statements F6-F10
<PAGE>
LBO CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
Note 1. Summary of Significant Accounting Policies
Organization and Business
LBO Capital Corp. (the "Company") was incorporated on October
8, 1987 under the laws of the State of Colorado. The Company
is engaged in evaluating and investing in other companies. The
Company was considered to be in the development stage in 1987
and began operations on March 15, 1988.
Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less cash equivalents.
Equipment and Depreciation
Equipment is stated at cost. Depreciation is computed for
financial reporting purposes on a straight-line basis over an
estimated life of 5 years. Depreciation expense for the years
ended December 31, 1995, 1994 and 1993 was $6,323, $16,453 and
$17,604 respectively. At Decemer 31, 1995, the remaining
computer equipment that was previously leased to an investee
was determined to be obsolete and written off the books of the
Company.
Income Taxes
At December 31, 1995, the Company has a net operating loss
available for carryforward totalling approximately $794,075.
The operating loss carryforward expires in various amounts by
the year ended December 31, 2010.
Net Loss Per Share
Net loss per share is computed using weighted average shares
outstanding without giving effect to the common stock
warrants, as the effect would be antidilutive.
F6
<PAGE>
LBO CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
Note 2. Marketable Securities
The Company's marketable securities available for sale are recorded at
fair market value.
Market Value
Investment Per Share* Aggregrate
1994
Enercorp, Inc. $8,702 $3.26 $8,702
1995
Enercorp, Inc. $8,702 $3.00 $8,000
* Adjusted to reflect a 75 to 1 reverse stock split on December 13,
1995.
Note 3. Receivables
Other
In June 1994, the Registrant received payment from an insurance company
for the theft of computer equipment in 1991 in the amount of $15,750,
which resulted in a $6,125 gain on disposal of fixed assets.
Note 4. Investments
On April 3, 1989, the Company acquired an aggregate of 1,880,000
restricted common shares of Ajay Sports, Inc. ("Ajay") for a total
purchase price of $182,000. As a result of recording the Company's
equity in net losses of Ajay, the carrying value of this investment is
zero at December 31, 1993 and 1992. The Company also obtained 200,000
stock warrants of Ajay at that time. Each warrant enables the Company
to purchase one share of Ajay common stock at $2.40 and was
subsequently reduced to $.34 per share. These warrants expire June 13,
1999.
In March 1991, the Company pledged 400,000 shares of its Ajay
investment as security for bank loans to an acquisition candidate. On
June, 1, 1991, the bank declared the loan in default and foreclosed on
the shares.
F7
<PAGE>
LBO CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
All of the Ajay shares are pledged as security for a note payable (see
note 6).
The stock of Ajay is traded over- the -counter and is reported by the
National Quotation Service. The following table sets forth the range of
high and low bid and ask quotations.
BID ASK
HI LOW HI LOW
1995
First Quarter $ .59 $ .38 $ .66 $ .44
Second Quarter $ .75 $ .47 $ .78 $ .53
Third Quarter $ .69 $ .56 $ .75 $ .59
Fourth Quarter $ .63 $ .34 $ .66 $ .41
Note 5. Notes Payable - Related Entities
There was a note payable for $5,953 to Acrodyne Corporation and repaid
in full in 1995. Acrodyne Corporation is an entity controlled by the
Company's President and Chairman of the Board.
Note 6. Notes Payable - Other
During 1994, the Company borrowed $342,100 from Dearborn Wheels, Inc.
The proceeds were used to repay a note to the bank and to meet current
operating needs.
During 1995, the Company borrowed funds from Michigan National Bank.
The proceeds were used to partially repay a note to Dearborn Wheels,
Inc. (see note 7) and to meet current operating needs. This note,
payable in full on August 13, 1996, bears interest of prime plus 2% and
is secured by all the assets of the Company.
Note 7. Note Payable - Bank
In September 1995, the Company borrowed $325,000 from Michigan
National Bank to repay Dearborn Wheels, Inc. (see note 6) and to
meet current operating needs. The note payable to Michigan National
Bank is secured by all the assets of the Company and has an interest
rate of prime plus 1/2% and matures on September 22, 1996.
F8
<PAGE>
LBO CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
Note 8. Capital Stock
The Company completed a public offering on March 15, 1988 consisting of
3,000,000 units at $.20 each. Each unit consisted of one common share,
one callable class A common stock purchase warrant,, one callable Class
B common stock purchase warrant and one callable Class C common stock
purchase warrant. Each Class A warrant entitles the warrant holder to
purchase one share of common stock for $.50, each Class B warrant
entitles the warrant holder to purchase one share of common stock for
$.75, and each Class C common stock purchase warrant entitles the
warrant holder to purchase one share of common for $1.00. The Class A,
B and C warrants were originally exercisable within twelve, eighteen
and twenty-four months respectively, from February 26, 1988. All
warrants have been extended until July 25, 1995. As of December 31,
1994, no warrants had been exercised. The Company has the right to call
any or all warrants at a redemption price of $.0001 per warrant.
On June 3, 1992 the Company issued 3,000,000 shares of its common
stock, valued at $.04 per share (fair market value on that date, per
the National Quotation Bureau, Inc.), to an officer and director in
exchange for a reduction of $120,000 in a note to a related company.
The Company granted to its directors a total of 1,300,000 warrants,
expiring December 4, 1995. Each warrant enables the owner to purchase
one share of common stock for $.04 per share.
Note 9. Management Fees
The Company does not employ any personnel. Per a management fee
agreement with Acrodyne Corporation, a related entity, the Company pays
direct labor costs plus overhead for management services rendered.
Note 10. Cash Flows Disclosure
Interest and income taxes paid for the years ended December 31, 1995,
1994 and 1993 were as follows:
F9
<PAGE>
LBO CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
1995 1994 1993
-------- ---------- --------
Interest $ 57,878 $ 6,374 $ 28,916
======== ========== =========
Income Taxes $ -0- $ -0- $ -0-
========= =========== ==========
F10
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
Board of Directors
Ajay Sports, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Ajay
Sports, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. We have also audited the related consolidated financial
statement schedule listed in the index in Item 14 of this Form 10-K for the
years ended December 31, 1995 and 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements and financial statement schedule of Ajay Sports, Inc. and
Subsidiaries as of December 31, 1993 were audited by other auditors whose report
dated March 25, 1994, included an explanatory paragraph describing going concern
uncertainties.
We conducted our audits in accordance with generally accepted auditing
standards. 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
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Ajay Sports, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
- -------------------------------
Hirsch & Silberstein, P.C.
Farmington Hills, Michigan
March 21, 1996
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Shareholders and Board of Directors
Ajay Sports, Inc. and Subsidiary
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Ajay Sports, Inc. and Subsidiary for the
year ended December 31, 1993. We have also audited the related consolidated
financial statement schedule listed in the index in item 14 of this Form 10-K.
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 audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated results of operations
and cash flows of Ajay Sports, Inc. and Subsidiary for the year ended December
31, 1993, in conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
The accompanying consolidated financial statements and financial
statement schedule have been prepared assuming that the Company will continue as
a going concern. As discussed in Note 1 to the consolidated financial
statements, the Company has suffered significant losses in the current year and
is not in compliance with certain of its debt covenants, which raises
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements and financial statement schedule do not include any
adjustments that might result from the outcome of this uncertainty.
Coopers & Lybrand, L.L.P.
Milwaukee, Wisconsin
March 25, 1994
F-1a
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
as of December 31, 1995 and 1994
(in thousands, except share amounts)
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 362 $ 105
Accounts receivable, net of allowance of $287 and $101,
respectively 5,196 1,700
Inventories 8,909 5,786
Prepaid expenses and other 365 211
Deferred tax benefit 102 -0-
------ ------
Total current assets 14,934 7,802
Fixed assets, net 1,888 1,357
Other assets 236 206
Deferred tax benefit 106 -0-
Goodwill 1,322 -0-
------ ------
Total assets $ 18,486 $ 9,365
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to affiliate $ -0- $ 5,369
Notes payable to banks 5,793 12
Current portion of capital lease 6 9
Accounts payable 2,181 1,329
Accrued expenses 631 490
------ ------
Total current liabilities 8,611 7,209
Notes payable - long term 5,111 121
Stockholders equity:
Preferred stock - 10,000,000 shares authorized
Series B, $0.01 par value, 12,500
shares outstanding at liquidation valu 1,250 1,250
Series C, $10.00 par value 313,790 shares outstanding at stated
value 3,138 -0-
Common stock, $0.01 par value, 100,000,000 shares authorized,
23,337,746 and 22,686,873 shares outstanding, respectively 234 225
Additional paid-in capital 9,123 8,961
Accumulated deficit (8,981) (8,401)
------ ------
Total stockholders' equity 4,764 2,035
------ ------
Total liabilities and stockholders' equity $ 18,486 $ 9,365
====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations for the years ended December 31, 1995,
1994, and 1993 (in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended
------------------------------------------
December 31, December 31, December 31,
1995 1994 1993
----------- ----------- ------------
<S> <C> <C> <C>
Operating data:
Net sales $ 18,728 $ 12,899 $ 15,902
Cost of sales 15,291 12,291 14,172
Gross profit 3,437 608 1,730
Selling, general and administrative expenses 3,247 2,747 2,834
Operating income (loss) 190 (2,139) (1,104)
Nonoperating income (expense):
Interest expense - net (801) (614) (697)
Loss on write down of investment in affiliate -0- -0- (123)
Gain (loss) on disposition of investment -0- (38) -0-
Other, net (842) (941) (817)
Income (loss) from operations before income taxes (652) (3,080) (1,921)
Income tax expense (benefit) (208) -0- -0-
Net loss $ (444) $ (3,080) $ (1,921)
Net loss per share $ (0.03) $ (0.27) $ (0.24)
Weighted average common and common stock
equivalent shares outstanding 22,722 12,218 8,812
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Additional Total
Preferred Stock Common Stock Paid - in Accum Stockholders'
Shares Amount Shares Amount Capital (Deficit) Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1993 29,500 $ 2,950 8,774,773 $ 88 $ 4,217 $ (3,400) $ 3,855
Common stock grant to
management - - 50,000 - 29 - 29
Net loss - - - - - (1,921) (1,921)
Balance at December 31, 1993 29,500 2,950 8,824,773 88 4,246 (5,321) 1,963
Common stock issued to fund
acquisition - - 1,500,000 15 685 - 700
Common stock issued in lieu of
wages to officer - - 150,000 2 50 - 52
Preferred stock converted into
common stock (17,000) (1,700) 5,000,040 50 1,650 - -
Common stock issued to
affiliate to reduce debt - - 4,117,647 41 1,359 - 1,400
Common stock sold to affiliate - - 2,941,177 29 971 - 1,000
Net loss - - - - - (3,080) (3,080)
Balances at December 31, 1994 12,500 1,250 22,533,637 225 8,961 (8,401) 2,035
Common stock issued to ESOP - - 12,000 - 4 - 4
Common stock issued to
fund acquisition - - 895,054 9 572 - 581
Common stock issued to affiliate
for acquisition services - - 100,000 1 37 - 38
Common stock issued in lieu of
wages to officer - - 34,000 1 9 - 10
Preferred stock public offer 325,000 3,250 - - (386) - 2,864
Preferred stock converted into
common stock (11,210) (112) 163,055 2 110 - -
Common shares received as
an acquisition cost adjust - - (400,000) (4) (184) - (188)
Dividends - - - - - (136) (136)
Net loss - - - - - (444) (444)
Balances at December 31, 1995 326,290 $ 4,388 23,337,746 $ 234 $ 9,123 $ (8,981) $ 4,764
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-4
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the years ended December 31, 1995, 1994 and 1993 (in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (444) $(3,080) $ (1,921)
Adjustments to reconcile to net cash flows from operating
activities:
Loss on sale of assets -0- 162 -0-
Depreciation and amortization 219 129 128
Loss on write down of investment in and advances to affilate -0- -0- 123
Stock issued to officer and employees -0- 52 -0-
(Increase) decrease in accounts receivable, net (3,496) 299 980
(Increase) decrease in inventories (3,123) 1,662 1,144
(Increase) in deferred tax benefits (208) -0- -0-
(Increase) decrease in prepaid expenses (154) (112) 114
(Increase) decrease in other assets (66) 22 -0-
Increase (decrease) in accounts payable 852 (1,530) 611
Increase (decrease) in accrued expenses 141 18 (108)
(Decrease) in due to affiliates - (240) (17)
------ ------ ------
Net cash provided by (used in) operating activit (6,279) (2,618) 1,054
------ ------ ------
Cash flows from investing activities:
Acquisitions of property plant and equipment (787) (115) (226)
Goodwill associated with acquisitions (1,329) -0-
Proceeds from sale of equipment 5 4 -0-
Proceeds from sale of investment -0- 86 -0-
Investments in and advances to affiliates -0- -0- 15
------ ------ ------
Net cash (used in) investing activities (2,111) (25) (211)
------ ------ ------
Cash flows from financing activities:
Cash acquired (expended) in acquisitions -0- 2 -0-
Proceeds from issuance of notes payables to affili -0- 6,770 -0-
Net increase (decrease) in bank notes payable 10,777 (5,026) (841)
Payments on notes payable - affiliate (5,369) -0- -0-
Dividends paid (58) -0- -0-
Proceeds from preferred stock offering, net of rel 2,864 -0- -0-
Stock issued in acquisitions 433 -0- -0-
Proceeds from private placements, net of related c -0- 1,000 -0-
------ ------ ------
Net cash provided by (used in) financing activit 8,647 2,746 (841)
------ ------ ------
Net increase in cash 257 103 2
Cash at beginning of period 105 2 -0-
------ ------ ------
Cash at end of period $ 362 $ 105 $ 2
====== ====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F - 5
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GOING CONCERN PRESENTATION
As discussed in Note 6 to the consolidated financial statements,
as of December 31, 1993 the Company was not in compliance with certain of
its debt covenants. The Company was also relying on related parties to
fund its operations. As a result of sales declines and significant net
losses, the Company was uncertain of its ability to extend and/or
refinance its debt. These factors raised substantial doubt about the
Company's ability to continue as a going concern as of December 31, 1994
and 1993. The consolidated financial statements for the years 1994 and
1993 do not include any adjustments that might have been necessary if the
Company was unable to continue as a going concern.
The Company received an equity infusion in October, 1994 of
$2,400,000 as a result of a private placement of 2,941,177 shares of
common stock with affiliated Companies and through the exercise of options
to purchase 4,117,647 shares by a related party, Williams Controls, Inc.
Also in October 1994 the holder of the Company's Series B 8% Cumulative
Convertible Preferred Stock (the "Series B Preferred Stock") converted
17,000 shares of Series B Preferred Stock into 5,000,040 shares of common
stock.
Additionally, late in the third quarter of 1993, management
instituted a cost reduction program which included a reduction in salary
and labor positions, along with related fringe benefits. The Company also
obtained more favorable material costs, enhanced its material utilization
methods and instituted more efficient manufacturing techniques. The
Company strengthened its sales coverage by appointment of additional
experienced independent sales representatives and increased its emphasis
on product development which resulted in several new product introductions
in late 1994.
In July 1995 the Company was able to obtain new financing with
United States National Bank of Oregon which enabled it to reduce its
reliance on related parties for funding. Also during July 1995 the Company
completed a Preferred Stock Offering which provided approximately
$2,800,000 for working capital, net of related fees and costs. See Notes 6
and 8.
In October 1995 the Company acquired substantially all of the
operating assets of Korex Corporation and Palm Springs Golf Company, Inc..
Management has instituted certain expense reducing programs related to
these acquisitions along with expansion of sales, marketing, and product
development activities.
The above factors contributed to the substantial improvement in
operating performance during 1995 and management feels these factors will
enable the Company to achieve profitability during 1996.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Ajay Sports, Inc. ("Sports") and its wholly-owned operating
company subsidiaries, Ajay Leisure Products, Inc. ("Ajay"), Leisure Life,
Inc. ("Leisure"), and Palm Springs Golf Company ("Palm Springs"),
collectively referred to herein as the "Company". The inventories and
fixed assets purchased from Korex Corporation have been merged with Ajay
Leisure Products, Inc. All significant intercompany balances and
transactions have been eliminated.
INVENTORIES - Inventories are stated at the lower of cost or market with
cost determined using the first-in, first-out method.
F-6
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. SIGNIFICANT ACCOUNTING POLICIES, Continued
FIXED ASSETS - Fixed assets are stated at cost, less accumulated
depreciation of $545,000 and $243,000 as of December 31, 1995 and 1994
respectively. Fixed assets of the Company consist primarily of machinery
and equipment, office equipment, and a building. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets, which range from four to thirty-nine years.
GOODWILL - The Company has recorded goodwill as a result of the
acquisitions of Palm Springs and Korex. The goodwill is being amortized
over forty years. Amortization expense related to the goodwill was $7,000
for the year ended December 31, 1995.
OTHER ASSETS - Other assets at December 31, 1995 consists of patents and
trademarks held and applied for by Leisure Life and Palm Springs (See Note
8c). Other assets at December 31, 1994 consists of patents and trademarks
held and applied for by Leisure Life.
PRODUCT LIABILITY AND WARRANTY COSTS - Product liability exposure is
insured with insurance premiums provided during the year. Product warranty
costs are based on experience and attempt to match such costs with the
related product sales.
REVENUE RECOGNITION - The Company recognizes revenue when goods are
shipped.
INCOME TAXES - Effective January 1, 1992, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 109, Accounting for Income
Taxes. Under SFAS No. 109, deferred income taxes are recognized for the
tax consequences of temporary differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities,
using enacted statutory rates applicable to future years.
F-7
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
3. RELATED PARTY TRANSACTIONS
The Company's related parties include the following:
Roadmaster Industries, Inc. ("Roadmaster") - Prior to June 1989, all the
Company's common stock was owned by Roadmaster and the companies had
common investors. Roadmaster owned all of the Company's preferred stock
prior to the consummation of the Exchange Agreement.
Pro Mark, Inc. ("Pro Mark") - The Company owns 40% of the outstanding
shares of Pro Mark.
Equitex, Inc. ("Equitex") - Prior to the consummation of the Exchange
Agreement, Equitex owned 189,000 shares of the Company's common stock and
1,100,000 warrants to purchase additional common stock. Additionally, the
chairman of Roadmaster is the president of Equitex.
First Equity Corporation ("First Equity") - First Equity is owned by a
family member of the president, chief executive officer, and chairman of
the Company.
TICO - TICO is controlled by the Company's president, chief executive
officer, and chairman.
ACRODYNE PROFIT SHARING TRUST - ("Acrodyne") is a profit sharing trust.
The Company's president, chief executive officer and chairman is trustee
and beneficiary of the trust. The trust acquired 1,176,471 common shares
on October 3, 1994.
ENERCORP, INC. - ("Enercorp") is a business development company engaged in
the business of investing in and providing managerial assistance to
developing companies. The Company's president, chief executive officer,
chairman and principal shareholder is a major shareholder in Enercorp and
a Director of the Company. Enercorp acquired 1,764,706 common shares on
October 3, 1994. In 1995 Enercorp acquired 2,000 shares of series C
preferred stock. In 1995 Enercorp also received 100,000 shares of common
stock for services rendered in connection with the Palm Springs
acquisition.
WILLIAMS CONTROLS, INC. - ("Williams") - Williams has the same chairman as
the Company, which individual is a major shareholder of each company.
F-8
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(a) Roadmaster
Ajay purchased various finished goods inventory, primarily
hand-pulled golf carts, from Roadmaster. Purchases in 1993 were
approximately $123,000. Prior to 1993, Ajay leased certain
machinery and equipment from Roadmaster. The net result of this
activity represented amounts due to Roadmaster of $42,000 at
December 31, 1993. The December 31, 1993 balance was transferred
to TICO as part of the Exchange Agreement and paid during the six
months ended June 30, 1994.
During 1993, the Company entered into an agreement with certain
parties (as described in Note 3c). As of December 31, 1993, Ajay
owed $197,000 on the promissory note with accrued interest of
$17,000. During the year ended December, 1994 the $197,000 and
interest of $24,719 were paid to TICO.
(b) Pro Mark, Inc.
The Company had an exclusive marketing agreement with Pro Mark for
the "Double Eagle" product line. In 1993 Pro Mark discontinued
operations.
Due to operating losses of Pro Mark and the cessation of
operations in 1993, the Company did not assign any value to the
shares of Pro Mark common stock received in the transaction and no
gain or loss was recognized on this transaction.
During 1993, the Company wrote off advances to Pro Mark, Inc.
totaling $87,000.
(c) Exchange Agreement
During 1993, the Company entered into an agreement, whereby
Roadmaster and Equitex agreed to substantially divest of all their
interest in the Company by transferring to TICO all of the
Company's outstanding common stock purchase warrants held by them,
the $217,000 principal amount note payable to Roadmaster, the
29,500 shares of the Company's Series A 8% Cumulative Convertible
Preferred Stock and all Roadmaster's outstanding accounts
receivable due from the Company.
Additionally, Roadmaster agreed to transfer to TICO all marketing
and distribution rights for golf products in Canada, all tooling
exclusively associated with the manufacture of hand-pulled golf
carts, the "Ajay" name and agreed to grant TICO a 10 year
exclusive license for the use of the "Ajay" trademark and trade
name.
The Company and TICO agreed to obtain the release and satisfaction
in full of any and all obligation, guarantees and collateral of
Equitex under the revolving credit facility, described in Note 6
including the release of 1,000,000 shares of Roadmaster common
stock owned by Equitex and pledged to a bank as collateral. The
Company's president and TICO further agreed to transfer to
Roadmaster all the Roadmaster common stock purchase warrants held
by the Company's president along with TICO's payment of $200,000
to Roadmaster.
Based upon completion of the Exchange Agreement in 1994 and
refinancing of debt obligations, the Board of Directors of the
Company approved a plan to, at the option of TICO or its assigns,
convert the value of instruments transferred to TICO under the
Exchange Agreement, in whole
F-9
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
or in part, into Preferred Stock, which could be converted to
Common Stock of the Company at a price $.34 per share. On October
3, 1994 the Company created a new class of Series B 8% Cumulative
Convertible Preferred Stock and allowed for its exchange, on a
share-for-share basis, with the Company's Series A Preferred
Stock. On that same day, TICO notified the Company that it wished
to exchange the 29,500 shares of Series A Preferred Stock for
29,500 shares of the newly issued Series B Preferred Stock, as was
permitted under the Certificate of Designations of Rights and
Preferences of the Series B Preferred Stock. On that same day,
TICO notified the Company that it wished to convert 17,000 shares
of its Series B Preferred Stock for 5,040,000 shares of the Common
Stock of the Company, as the Series B Preferred Stock allows for a
conversion rate of 1 share of Series B Preferred Stock for 294.12
shares of the Company's Common Stock.
(d) Other
In 1994, Equitex earned a fee of $40,000 as a result of the
extension of the revolving credit facility with the bank. As part
of the Exchange Agreement this amount was transferred to TICO and
paid in June, 1994
First Equity established a letter of credit on behalf of the
Company in December, 1993, which was amended during 1994, totaling
$271,200. This letter was established to purchase inventory. In
addition, First Equity advanced the Company $250,000 during
January, 1994 which was repaid in June, 1994.
The Company has agreed to pay Williams 0.5% per annum of the
outstanding U. S. Bank revolving loan balances on a quarterly
basis in consideration for providing its guarantee of the
revolving loan. This fee was $18,083 for the year ended December
31, 1995.
The Company's interest expense for Williams was $448,000 and
$385,000 for the years ended December 31, 1995 and 1994.
In 1995 the Company issued Enercorp 100,000 shares of common stock
for services rendered in connection with the Palm Springs
acquisition.
F-10
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
4. INVENTORIES
Inventories consist of the following (in thousands):
December 31,
1995 1994
Raw materials $4,608 $ 2,901
Work-in-progress 1,014 919
Finished goods 3,287 1,966
------ ------
$8,909 $ 5,786
===== ======
5. INVESTMENT IN AND ADVANCES TO AFFILIATES
A former officer of the Company is an officer of MacGregor, and
MacGregor and the Company have common investors. During the year ended
December 31, 1994 the Company sold its remaining 125,106 shares of
MacGregor for $69,000, resulting in a loss of $38,000.
6. DEBT
Primarily as a result of net losses experienced in 1993, the
Company was not in compliance with financial covenants regarding interest
coverage ratios and adjusted tangible net worth under its revolving credit
facility. As a result, the revolving credit facility was reduced to $6
million effective April 1, 1994.
On April 14, 1994 the Company was advised by Bank America that the
Second Amended Restated Loan and Security Agreement ("Credit Agreement")
between Bank America and Ajay had been purchased by Roadmaster. On May 5,
1994 Ajay paid Roadmaster in full all outstanding obligations due under
its Credit Agreement and entered into a Loan and Security Agreement ("Loan
Agreement") with Williams for a term loan of up to $7,000,000. The Loan
Agreement required monthly interest only payments at the prime rate of
First Interstate Bank of Oregon plus 2%, was originally scheduled to
expire on November 4, 1994 and was extended to May 5, 1995. The terms and
conditions of the Loan Agreement were substantially the same as the prior
Credit Agreement with Bank America, except that the Loan Agreement was a
term loan.
The Williams loan was paid on July 25, 1995, when the Company entered into
a Revolving Loan Agreement with United States National Bank of Oregon ("U.
S. Bank") for a credit facility of up to $8,500,000. All of the Company's
subsidiaries and Williams have guaranteed payment of this credit facility
and the Company and its subsidiaries have pledged their inventory and
receivables as collateral. The Revolving Loan is evidenced by demand
notes, requires monthly interest only payments at the prime rate of U. S.
Bank (currently 8.25%) and will be reviewed on May 31, 1996. On October 2,
1995 the Company and U. S. Bank agreed to modifications to the Revolving
Loan Agreement increasing the credit facility from $8,500,000 to
$13,500,000. The Company may now borrow up to $8,500,000 against 80% of
eligible accounts receivable and 50% of eligible inventory and up to an
additional $5,000,000 through its 2-year bulge loan facility. The
increased facility provided the Company the funds necessary to acquire
certain assets of both Korex Corporation and Palm Springs Golf Company,
Inc. in early October, 1995. The Company is required to maintain a minimum
tangible net worth of $2,000,000 and a debt leverage ratio of not greater
than 4.5 to 1. The Company has requested that U. S. Bank increase the debt
leverage ratio to 6.0 from January, 1996 through June 1996 and to 5.5 from
July, 1996 to December 1996. The Company has agreed to pay Williams 0.5%
per annum of the outstanding Revolving Loan balance on a quarterly basis
in consideration for providing its guarantee of the Revolving Loan.
F-11
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The Company's borrowings consisted of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
---------- ---------
<S> <C> <C>
Revolving credit facility:
Balance $10,792,706 $5,369,000
Interest rate 10.5%
Unused amount of facility $ 2,707,294 $1,631,000
Average amount outstanding
during the period $ 9,758,991 $5,626,861
Weighted average interest
rate 8.72% 8.0%
Maximum amount outstanding
during the period $10,936,687 $6,651,341
</TABLE>
Outstanding commercial letters of credit totaled approximately
$717,000 and $1,100,000 at December 31, 1995 and 1994 respectively.
The seasonal nature of the Company's sales creates fluctuating
demands on its cash flow, due to the temporary build-up of inventories in
anticipation of, and receivables subsequent to, the peak seasonal period
which historically has been from February through May of each year. The
Company has relied and continues to rely heavily on its revolving credit
facility for its working capital requirements.
7. INCOME TAXES
As discussed in Note 2, the Company adopted SFAS No. 109 at the
beginning of 1992. There was no cumulative effect of this accounting
change and its adoption had no impact on 1992 net income.
F-12
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The actual income tax expense (benefit) differs from the statutory
income tax expense (benefit) as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Statutory tax expense
(benefit) at 34% $(208) $(1,047) $(653)
Utilization of net
operating loss
carry forward - - -
Loss producing no current
tax benefit 208 1,047 653
----- ------ ------
$ - $ - $ -
===== ====== ======
</TABLE>
The components of the net deferred tax asset/liability were as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1995 1994
------ -----
<S> <C> <C>
Deferred tax asset,
principally accrued
expenses, reserves
and loss carry forwards $2,339 $ 2,116
Deferred tax liability,
principally depreciation (83) (68)
Valuation allowance (2,048) (2,048)
------- ------
Net $ 208 $ -
======= ======
</TABLE>
The Company has assessed its past earnings history and trends,
sales backlog, budgeted sales, and expiration dates of carryforwards and
has determined that it is more likely than not that $208,000 of deferred
tax assets will be realized. The remaining valuation allowance of
$2,048,000 is maintained on deferred tax assets which the Company has not
determined to be more likily than not realizable at this time. The Company
will continue to review this vauluation allowance on a quarterly basis and
make adjustments as appropriate.
The Company had net operating loss carry forwards for Federal
tax purposes of approximately $5,785,000 at December 31, 1995, which
expire in varying amounts in the years 2006 through 2010. Operating loss
carry forwards totaling $210,000, $4,325,000, $856,000 and $179,000 are
available to offset future state taxable income of Sports, Ajay, Leisure
Life and Palm Springs respectively, which expire in varying amounts in the
years 2006 through 2010. Future changes in ownership, as defined by
section 382 of the Internal Revenue Code, could limit the amount of net
operating loss carryforwards used in any one year.
F-13
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
8. STOCKHOLDERS' EQUITY
(a) Preferred Stock
On October 3, 1994 the Company created a new class of
Series B 8% Cumulative Convertible Preferred Stock and allowed for
its exchange, on a share-for-share basis, with the Company's
Series A Preferred Stock. On that same day, TICO notified the
Company that it wished to exchange the 29,500 shares of Series A
Preferred Stock for 29,500 shares of the newly issued Series B
Preferred Stock, as was permitted under the Certificate of
Designations of Rights and Preferences of the Series B Preferred
Stock. On that same day, TICO notified the Company that it wished
to convert 17,000 shares of its Series B Preferred Stock for
5,040,000 shares of the Common Stock of the Company, as the Series
B Preferred Stock allows for a conversion rate of 1 share of
Series B Preferred Stock for 294.12 shares of the Company's Common
Stock.
Cumulative dividends are payable on the Series C Preferred
Stock at any time through December 31, 1996 at an annual rate of
$1.00 per share. The Warrants are redeemable by the Company at
$0.5 per Warrant under certain conditions. The terms of these
Warrants are identical to the Company's publicly-held Warrants to
purchase Common Stock. The Company used the $2.8 million of net
proceeds for inventory and accounts receivable financing and to
acquire certain assets of Korex and Palm Springs.
On July 26, 1995 the Company's Registration Statement filed
in connection with an offering of 325,000 shares of Series C 10%
cumulative Convertible Preferred Stock and 325,000 Warrants was
declared effective. The Series C Preferred Stock is convertible
into shares of the Company's Common Stock based on a value of
$10.00 for each Preferred share and $.6875 for the Common.
(b) Stock issued to officers
The Company has a stock incentive plan for officers of the
Company, under which up to 150,000 shares of the Company's stock
may be granted. In 1994, the Company issued 150,000 shares of
common stock to an officer in lieu of compensation and in 1995 the
Company issued 34,000 shares.
F-14
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(c) Stock Issued for Acquisitions
On August 1, 1994 the Company reached an agreement in
principle to acquire the outstanding common stock of Leisure Life,
Inc. In exchange for acquiring all the common stock of Leisure
Life, the Company issued 1,500,000 shares of its common stock to
the owners of Leisure Life, with 400,000 of those shares being
issued subject to certain performance requirements being met by
Leisure Life.
In November 1995 the former owner of Leisure Life returned
400,000 shares of stock to the Company and in March 1996 returned
200,000 shares due to unmet performance requirements.
(d) Warrants and Options
A summary of activity related to warrants and options to
purchase Company common stock is as follows:
<TABLE>
<CAPTION>
Warrants and Price
Options Per Share
------------ ---------
<S> <C> <C>
Balance, January 1, 1993 3,450,687 $ .34 - 1.00
Expired (564,717) .34
----------
Balance, December 31, 1993 2,885,970 .34 - 1.00
Expired (450,000) .80 - 1.00
Reissued 200,000 .34 (i)
Reissued 94,500 .34 (ii)
Issued to Williams 16,274,754 .34 - 1.00 (iii)
Exercised by Williams (4,117,647) .34 (iv)
Issued to Directors 10,000 .44 (v)
Issued to Employees 840,000 .40 - .80 (vi)
----------
Balance, December 31, 1994 15,737,577 .34 - 1.00
Issued to employees 295,000 .625 -.6875 (vii)
Williams options adjusted (1,046,234) .50 - 1.00 (viii)
Issued - public offering 373,750 1.00 (ix)
Issued to Directors 10,000 .66 (x)
----------
Balance, December 31, 1995 15,370,093 $ .34 - 1.00
</TABLE>
(i) Warrants originally issued to Roadmaster in 1990. Transferred to
Acrodyne under the Exchange Agreement, expired and reissued.
(ii) Warrants originally issued to Equitex in connection with the
Company's private placement. Transferred to Acrodyne, expired and
reissued.
(iii)Warrants issued to Williams as consideration for loans to Ajay
Leisure as part of a joint venture implementation agreement dated
May 1994.
(iv) Exercised and applied proceeds ($1,400,000) against debt.
(v) Director stock options of which 3,333 have vested.
(vi) Employee stock options of which 499,584 shares have vested.
F-15
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(vii) Employee stock options of which 45,000 shares have vested.
(viii) Warrants referred by Williams as consideration for early loan
payoff.
(ix) Public offering of 7/26/95.
(x) Director stock options of which none have vested.
(e) Private Placements
In 1994, the Company issued to related parties, via private
placement, 2,941,177 shares of common stock and received proceeds of
$1,000,000. The Company also issued 4,117,647 shares of common stock to
a related party in exchange for a reduction of debt totaling
$1,400,000.
9. MAJOR CUSTOMERS
The Company operates in two lines of business, the manufacture and
distribution of sports equipment and in outdoor leisure furniture. The
Company's customers are principally in the retail sales market. The
Company performs ongoing credit evaluations of its customers' financial
conditions and does not generally require collateral.
Sales to customers which represent over 10% of the Company's net
sales are as follows:
Year ended December 31,
Customer 1995 1994 1993
-------- ---- ---- ----
A 36% 41% 32%
B * * 12%
* Amounts are less than 10% of net sales.
As a result of acquisitions made by the Company during 1994 and
1995, sales to Customer A are expected to be less than 10% of consolidated
net sales for 1996.
10. BUSINESS SEGMENT REPORTING
The relative contributions to net sales, operating profit and
identifiable assets of the Company's two industry segments for the year
ended December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Golf and
Furniture Billiards Consolidated
--------- --------- ------------
<S> <C> <C> <C>
Sales $1,414 $17,314 $18,728
Operating profit/(loss) (591) 781 190
Assets 2,041 16,445 18,486
Depreciation/Amortization 82 137 219
Capital Expenditures 130 106 236
</TABLE>
F-16
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
11. SPALDING LICENSE AGREEMENT
Ajay has a license from Spalding Sports Worldwide to utilize the
Spalding trademark in conjunction with the sale and distribution of golf
bags, golf gloves, hand pulled golf carts and certain other golf
accessories in the United States. As consideration for this license,
Ajay is required to pay royalties to Spalding based on a percentage of
sales, subject to annual minimums of $500,000 for the year ended June
30, 1995, and $550,000 for the years ended June 30, 1996 through June
30, 1998. The current agreement expires June 30, 1998. Other conditions
of the agreement require the Company to expend 2% of sales under the
agreement on advertising and related costs, with 1% remitted to
Spalding. The Company must also maintain a current ratio of 1.0 to 1.0.
Approximately 53% of the Company's 1995 and 61% of 1994 sales were
Spalding products.
Royalty expense due Spalding was $484,000, $494,000, and $702,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
12. LEASES
Future aggregate minimum lease payments under noncancelable
operating leases with initial or remaining terms in excess of one year
are as follows (in thousands):
1996 $ 766
1997 623
1998 469
1999 452
2000 448
2001 and thereafter 170
-------
$2,928
Total rental expense (in thousands) under operating leases
(net of sublease rental income from an affiliate of $13, $8 and $38,
respectively) was $627, $556 and $409 for the years ended December 31,
1995, 1994 and 1993, respectively.
13. NET (LOSS) PER COMMON SHARE
Earnings or loss per share has been computed by dividing net
income or loss, after reduction for preferred stock dividends in 1995
($136,000), 1994 ($202,000) and 1993 ($236,000) by the weighted average
number of common shares outstanding. No exercise of warrants
outstanding was assumed in 1995, 1994, or 1993, since any exercise of
warrants would be antidilutive.
14. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest was $762,157, $607,000, and $633,000 for the
years ended December 31, 1995, 1994 and 1993, respectively.
Noncash financing and investing transactions were as follows:
. During 1993, 50,000 shares of the Company's common stock valued at
$29,500 were issued to an officer of the Company. This was
recorded in accrued expenses at December 31, 1992.
F-17
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
. During 1994, 150,000 shares of the Company's common stock were
issued to an officer of the Company in lieu of wages.
. In exchange for acquiring in 1994 all of the common stock of
Leisure Life, Inc. the Company issued 1,500,000 shares of its
common stock to the owner of Leisure Life. In November, 1995 the
former owner of Leisure Life surrendered 400,000 shares of the
Company's common stock and in March, 1996 surrendered 200,000
shares of the Company's common stock due to unmet performance
requirements.
. During 1994, 4,117,647 shares of the Company's common stock were
issued to a related party in exchange for a reduction in debt
totaling $1,400,000.
. In 1995 11,210 preferred stock shares were converted into 163,055
shares of common stock.
. During 1995 the Company issued common stock to the following:
Issued to Shares
--------- ------
Employees 12,000
Fund acquisitions 895,054
Affiliate in lieu of payment for services 100,000
Officer in lieu of bonus 34,000
15. CONTINGENCIES
The Company is subject to certain claims in the normal course of
business which management intends to vigorously contest. The outcomes
of these claims are not expected to have a material adverse affect on
the Company's consolidated financial position or results of operations.
F-18
<PAGE>
Schedule VIII
AJAY SPORTS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1995, 1994, and 1993
(Amounts in Thousands)
<TABLE>
<CAPTION>
Balance Charged to Balance
beginning costs and Deductions at end
expenses expenses (describe) of period
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Reserve for Product Warranty:
Year ended:
December 31, 1995 $ 139 $ 198 $ 201 (1) $ 136
December 31, 1994 112 276 249 139
December 31, 1993 105 360 353 112
Allowance for Doubtful Receivables:
Year ended:
December 31, 1995 $ 101 $ 330 $ 144 (2) $ 287
December 31, 1994 230 62 191 101
December 31, 1993 150 159 79 230
Reserve for Inventory Obsolescence:
Year ended:
December 31, 1995 $ 430 $ 378 $ 424 $ 384
December 31, 1994 160 430 160 430
December 31, 1993 150 87 77 160
</TABLE>
Notes:
(1) Represents amounts paid for product warranty claims.
(2) Represents amounts charged off as uncollectible.
F-19
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 78
<SECURITIES> 8,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,251
<PP&E> 8,639
<DEPRECIATION> 8,639
<TOTAL-ASSETS> 8,251
<CURRENT-LIABILITIES> 435,345
<BONDS> 0
0
0
<COMMON> 1,210
<OTHER-SE> (428,304)
<TOTAL-LIABILITY-AND-EQUITY> 8,251
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> (3,456)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,629
<INCOME-PRETAX> (35,173)
<INCOME-TAX> 0
<INCOME-CONTINUING> (35,173)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35,173)
<EPS-PRIMARY> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
