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.
September 30, 1997 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)
(248) 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 November 11, 1997 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 September 30, 1997
INDEX
Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets
September 30, 1997 (Unaudited) and December 31, 1996 3
Statements of Operations (Unaudited)
Nine months ended September 30, 1997 and 1996 4
Statements of Cash Flows (Unaudited)
Nine months ended September 30, 1997 and 1996 5
Notes to Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Statements (Unaudited) 6-7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 7
Financial Statements of Ajay Sports, Inc.
as of September 30, 1997 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.
<TABLE>
<CAPTION>
LBO CAPITAL CORP.
BALANCE SHEETS
(Unaudited)
September 30, December 31,
1997 1996
-------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Equivalents $ 87 $ 78
Marketable Securities - Available for Sale 25,384 28,765
------------ ------------
Total Current Assets 25,472 28,843
Equipment, Net of Accumulated Depreciation
of $8,639 and $8,639 at September 30, 1997 and
December 31, 1996 respectively -0- -0-
Other Assets
Investments -0- -0-
------------ ------------
TOTAL ASSETS $ 25,472 $ 28,843
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable $ 731 $ 3,703
Accounts Payable - Related Entities 460 960
Notes Payable - Other 506,641 501,791
Accrued Expenses and Taxes 60,064 20,741
------------ ------------
Total Current Liabilities 567,896 527,195
Stockholders' Equity
Common Stock, $.0001 par value;
Authorized 100,000,000 Shares;
Issued and Outstanding 12,100,000 shares 1,210 1,210
Additional Paid-In Capital 623,094 623,094
Unrealized Gain(Loss) on Available for Sale Securities (23,012) (19,632)
Accumulated Deficit (1,143,717) (1,103,024)
------------ ------------
Total Stockholders' Deficit (542,425) (498,352)
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 25,472 $ 28,843
============ ============
See notes to financial statements.
</TABLE>
3
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
LBO CAPITAL CORP.
STATEMENTS OF OPERATIONS
For the Three Months Ended September 30, For the Nine Months Ended September 30,
1997 1996 1997 1996
-------------- ----------------- --------------- -------------
<S> <C> <C> <C> <C>
REVENUES: $ -0- $ -0- $ -0- $ -0-
EXPENSES:
Professional Services 223 224 160 143
Management Fees 670 750 2,300 2,700
Interest Expense 13,399 11,437 39,324 32,502
Recovery of Bad Debt 0 -0- (810) -0-
Other Expenses 75 46 (283) 737
----------- ------------- ----------- -------------
Total Expenses 14,367 12,457 40,692 36,082
----------- ------------- ----------- -------------
Income (Loss) Before Income Taxes (14,367) (12,457) (40,692) (36,082)
Income Tax Expense (Benefit):
Currently Payable -0- -0- -0- -0-
----------- ------------- ----------- -------------
Net Income (Loss) $ (14,367) $ (12,457) $ (40,692) $ (36,082)
=========== ============= =========== =============
Net Income (Loss) per Share $ (.00) $ (.00) $ (.00) $ (.00)
=========== ============= =========== =============
Weighted Average Number of Common Shares
Outstanding 12,100,000 12,100,000 12,100,000 12,100,000
=========== ============= =========== =============
See notes to financial statements.
</TABLE>
4
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
LBO CAPITAL CORP.
CASH FLOWS
(Unaudited)
September 30, September 30,
1997 1996
--------------- --------------
<S> <C> <C>
Cash Flows for Operating Activities:
Net Loss $ (40,692) $ (36,082)
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Changes in Assets and Liabilities:
(Increase) Decrease in:
Prepaid Expenses and Deposits -0- 173
(Decrease) Increase in:
Accounts Payable (2,973) (3,635)
Accounts Payable - Related Entities (500) 2,700
Accrued Expenses and Taxes 39,324 10,692
----------- -----------
Total Adjustments 35,851 9,930
----------- -----------
Net Cash (Used for) Operations (4,841) (26,152)
Cash (Used for) Investing Activities
Marketable Securities Available for Sale -0- (39,694)
----------- -----------
-0- (39,694)
Cash Flows from Financing Activities:
Proceeds on Notes Payable 4,850 65,900
----------- -----------
Net Cash Provided by Financing Activities 4,850 65,900
----------- -----------
Net Increase (Decrease) in Cash 9 54
Cash and Cash Equivalents:
At Beginning of Period 78 78
----------- -----------
At End of Period $ 87 $ 132
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ -0- $ 21,810
=========== ===========
</TABLE>
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, 1996. In the opinion of the
Company's management, the financial statements reflect all adjustments necessary
to present fairly the Company's financial position at September 30, 1997 and
December 31, 1996, and the results of operations and cash flows for the nine
month periods ended September 30, 1997 and 1996.
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 nine-month
periods ended September 30, 1997 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 $44,072 in the nine-month period ended
September 30, 1997 due to the net loss of $40,692 and an decrease in unrealized
gain on investments of $3,380 for the nine months ended September 30, 1997.
6
<PAGE>
(b) Results of Operations
---------------------
Registrant's operations for the nine months ended September 30, 1997
resulted in a loss of $40,692. This was due mainly to interest expense of
$39,324.
Liquidity and Capital Resources
- -------------------------------
The Registrant is currently meeting its cash needs from borrowing from a
company. There is no assurance that this will be available in future years.
The Registrant's principal asset is its investment in marketable securities of
Ajay, which it has held for over eight 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
September 30, 1997 as listed in the NASDAQ Small-Cap Issues was $0.1880
per share. The approximate market value of the Registrant's 1,480,000
shares was $277,500 on that date. The Registrant also owns 15,341 shares of
Enercorp, Inc. common stock. These shares are carried at their fair market
value of $1.50 per share at September 30, 1997, which is $25,384 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 September 30, 1997 are filed
herewith.
(b) Reports on Form 8-K.
None
7
<PAGE>
LBO CAPITAL CORP.
FORM 10-Q
For the Quarter Ended September 30, 1997
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
Date signed: November 13, 1997
8
<PAGE>
Item 1. FINANCIAL STATEMENTS
<TABLE>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<CAPTION>
September 30, 1997 December 31,
(Unaudited) 1996
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 118 $ 64
Trade accounts receivable, net 6,004 5,274
Inventories 6,999 7,957
Prepaid expenses and other current assets 780 362
Deferred tax benefit 363 363
------ ------
Total current assets 14,264 14,020
Fixed assets, net 1,791 1,822
Other assets 226 320
Deferred tax benefit 756 756
Goodwill 1,676 1,709
-------- -------
Total assets $ 18,713 $ 18,627
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to affiliates $ 1,108 $ 885
Notes payable to bank 2,340 6,104
Current portion of capital lease 6 9
Accounts payable 3,508 3,107
Accrued expenses 828 567
-------- -------
Total current liabilities 7,790 10,672
Notes payable to affiliates - long term 2,828 -
Notes payable to banks - long term 6,460 5,196
Long term portion of capital lease 14 17
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, 296,170 shares
outstanding at stated value 2,962 2,962
Common stock, $.01 par value 100,000,000 shares authorized, 23,274,039
shares outstanding 233 233
Additional paid-in capital 9,313 9,313
Accumulated deficit (12,137) (11,016)
------- --------
Total stockholders' equity 1,621 2,742
------- --------
Total liabilities and stockholders' equity $ 18,713 $ 18,627
======= ========
1
</TABLE>
<PAGE>
<TABLE>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net sales $ 6,854 $ 4,730 $ 24,039 $ 19,317
Cost of sales 6,248 4,022 20,356 15,824
------ ------ ------- -------
Gross profit 606 708 3,683 3,493
Selling, general and 1,248 1,253 3,710 3,711
administrative expenses
------ ------ ------- -------
Operating income (642) (545) (27) (218)
Non-operating expense:
Interest expense, net 330 263 1046 840
Other, net 24 14 44 19
------ ------ ------- -------
Total non-operating expense 354 277 1090 859
------ ------ ------- -------
Income (loss) before income taxes (996) (822) (1,117) (1,077)
Income tax expense (benefit) - (280) - (360)
------ ------ ------- -------
Net income (loss) $ (996) $ (542) $ (1,117) $ (717)
======= ======= ======= =======
Income (loss) per common share outstanding* $ (.05) $ (.03) $ (.06) $ (.04)
======= ======= ======= =======
Income (loss) per common share & equivalents $ (.05) $ (.03) $ (.06) $ (.04)
outstanding**
======= ======= ======= =======
Weighted average common shares outstanding 23,274 23,257 23,274 23,264
======= ======= ======= =======
* 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.
2
</TABLE>
<PAGE>
<TABLE>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS), (UNAUDITED)
<CAPTION>
Nine Months
Ended September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (1,117) $ (717)
Adjustments to reconcile net cash flows from
operating activities:
Depreciation and amortization 292 286
Change in assets [(increase)/decrease] and
liabilities [increase/(decrease)]:
Trade accounts receivable, net (730) 592
Inventories 958 703
Prepaid expenses and other current assets (418) (192)
Other assets 86 (162)
Deferred tax benefits - (360)
Accounts payable 401 356
Accrued expenses 333 (19)
Goodwill - (300)
--------- ---------
Net cash used in
operating activities (195) 187
--------- ---------
Cash flows from investing activities:
Acquisitions of property, plant, equipment (220) (194)
Dispositions of fixed assets - (64)
--------- ---------
Net cash used in
investing activities (220) (258)
--------- ---------
Cash flows from financing activities:
Net change in bank loans (2,500) (396)
Net change in notes payable to affiliates 3,051 560
Preferred stock conversion - 12
Dividends (82) (228)
--------- ---------
Net cash provided by
financing activities 469 (52)
--------- ---------
Net increase in cash and cash equivalents 54 (123)
Cash and cash equivalents at beginning of period 64 362
--------- ---------
Cash and cash equivalents at end of period $ 118 $ 239
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 880 $ 881
========= =========
Cash paid for income tax - -
========= =========
3
</TABLE>
<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 September 30, 1997 and the results of operations for
the three-month and nine-month periods ended September 30, 1997 and 1996 and the
cash flows for the same nine-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 Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
The interim period results are not necessarily indicative of results which may
be expected for any other interim or for the full year. Certain costs are
estimated for the full year and allocated to interim periods based on activity
associated with the interim period.
Accordingly, such costs are subject to year end adjustment.
Note 2. INVENTORIES
The major classes of inventories (rounded to thousands) are as follows:
September 30, December 31,
1997 1996
------------------- ------------------
Raw Materials $2,042 $4,153
Work in Process 825 995
Finished Goods 4,132 2,809
----- -----
$6,999 $ 7,957
===== =====
4
<PAGE>
Note 3. DEBT
On July 11, 1997, the Company refinanced its bank debt through a $34,088,000
three-year revolving credit and term loan agreement with a new lender (the
"Loan"). This Loan is a joint and several obligation of the Company with
Williams Controls, Inc. ("Williams"), under which Williams is the agent for all
of the borrowers. The combined Loan facility consists of a $26,000,000 revolving
loan facility (the "Revolver"), a $2,658,000 real estate loan (the "Real Estate
Loan"), a $4, 430,000 machinery and equipment loan ("Term Loan I"), and a
$1,000,000 term loan II ("Term Loan II").
At the closing date, the Company borrowed $6,825,000 under the Revolver and
$566,000 under Term Loan I. At the date of closing, Williams borrowed a total of
$17,141,000, consisting of $9,619,000 under the Revolver, $2,658,000 under the
Real Estate Loan, $3,864,000 under Term Loan I, and $1,000,000 under Term Loan
II. The proceeds from the Company's and Williams' borrowings under the Loan were
used to repay the Company's and Williams' loans from their previous lender,
except for $2,340,000 which represents a bridge loan to the Company by the
previous lender. This bridge loan is to be repaid from the sale of assets and/or
excess cash flow and is guaranteed up to $1,000,000 by the Company's President.
Under the Revolver, the Company and Williams can borrow up to $26,000,000 based
upon a borrowing base availability calculated using specified percentages of
eligible accounts receivable and inventory. The Revolver bears interest at the
Bank's prime rate plus 0.5%. The Real Estate Loan and Term Loan I bear interest
at the Bank's prime rate plus 0.75%. At the Agent's option, funds may be
borrowed under the Revolver, the Real Estate Loan and the Term Loan I at the
London InterBank Offering Rate ("Libor") plus 2.75%, 3% and 3% respectively. The
Revolver, Real Estate Loan and Term Loan I mature on July 11, 2000 and are
secured by substantially all of the assets of the Company and Williams. The Real
Estate Loan is being amortized over 20 years and the machinery and Term Loan are
being amortized over seven years with all remaining principal outstanding due on
July 11, 2000. At July 11, 1997, after the Loan closing, approximately
$1,545,000 was available for borrowing under the New Loan. Term Loan II matures
on June 1, 1999 with principal payments based upon an amortization period of 24
months plus additional principal payments equal to any excess proceeds from the
sale of one of Williams' subsidiaries after repayment of any indebtedness under
the Revolver borrowing due from the Williams subsidiary being sold plus
principal payments equal to 50% of the Company's and Williams' annual
consolidated excess cash flow as defined. The Loan agreement restricts payment
of any dividends by the Company, requires the Company and Williams in the
aggregate to maintain minimum working capital of $25,000,000 exclusive of the
Revolver and maintain minimum tangible net worth of $11,000,000. The Loan also
restricts additional indebtedness and common stock repurchases and restricts
combined Company and Williams' annual capital expenditures and increased
operating lease obligations to $2,500,000 and $600,000, respectively. The
Company is in compliance with the covenants of the Loan Agreement as of 9/30/97.
The Loan agreement imposes a prepayment penalty of 3%-5%, which is waived if the
Loan is repaid with proceeds from the sale of assets or equity or is refinanced
with an affiliate of the Bank.
5
<PAGE>
Note 3. DEBT (Cont'd)
Williams has made loans and provided capital to the Company to assist the
Company in meeting its financing requirements. In addition to $560,000 at
closing, the Company borrowed $2,268,000 from Williams in order to close the
loan. The Company agreed to grant Williams a security interest junior to the
bank's security interest. The characterization of the Company's obligation to
Williams as equity or debt has not yet been determined. The Company and Williams
have, however, agreed that this is a long-term investment. Accordingly, the
obligation is reported as a long-term liability. The Company, however, continues
to rely on extended vendor terms and affiliate financing to meet its financing
needs.
Ajay continues to focus on obtaining additional financing availability.
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 and nine months
ended September 30, 1997 (unaudited) are as follows (in thousands):
<TABLE>
Quarter Ended September 30, 1997
<CAPTION>
Furniture Golf Corporate Consolidated
---------- -------- --------- ------------
<S> <C> <C> <C> <C>
Net Sales $ 403 $6,451 $ - $ 6,854
Operating Profit/(Loss) (340) (174) (128) (642)
Total Assets 2,365 16,348 - 18,713
Depreciation/Amortization 31 68 - 99
Capital Expenditures 47 74 - 121
Nine Months Ended September 30, 1997
Furniture Golf Corporate Consolidated
---------- --------- --------- ------------
Net Sales $3,764 $20,275 $ - $ 24,039
Operating Profit/(Loss) 103 107 (237) (27)
Total Assets 2,365 16,348 - 18,713
Depreciation/Amortization 67 225 - 292
Capital Expenditures 102 118 - 220
</TABLE>
Note 5. DIVIDENDS
Dividends on Series C Convertible Preferred Stock have not been declared for the
first three quarters of 1997 due to unavailability of funds. Series C dividends
are permitted to be paid under the new loan agreement when sufficient funds
become available.
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000753557
<NAME> LBO
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 9-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jul-01-1997
<PERIOD-END> Sep-30-1997
<EXCHANGE-RATE> 1
<CASH> 87
<SECURITIES> 25,384
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25,472
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 25,472
<CURRENT-LIABILITIES> 567,896
<BONDS> 0
0
0
<COMMON> 1,210
<OTHER-SE> (543,635)
<TOTAL-LIABILITY-AND-EQUITY> 25,472
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 968
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,399
<INCOME-PRETAX> (14,367)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,367)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
