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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
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AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30,2000 December 31,
(Unaudited) 1999
ASSETS ------------ ------------
Current assets:
Cash $ 20 $ 101
Marketable securities - available for sale 291 348
Trade accounts receivable, net 1,537 3,247
Inventories 16 3,969
Prepaid expenses and other 963 1179
--------------- --------------
2,827 8,844
Fixed assets, net 133 1,693
Other assets 6,784 7,037
Deferred tax benefit 7,543 6,582
Goodwill 1,566 1,577
--------------- --------------
Total assets $ 18,853 $ 25,733
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 900 $ 995
Accounts payable - 5,043
Accrued expenses 1,176 1,099
--------------- --------------
Total current liabilities 2,076 7,137
Notes payable to affiliates - long term - 2,087
Notes payable to banks - long term 7,575 13,886
Notes payable - long term 1,200 2,070
Commitments and contingencies - -
Net liabilities of discontinued operations 7,730 -
--------------- --------------
Total liabilities 18,581 25,180
--------------- --------------
Minority Interest in Subsidiary 18 24
--------------- --------------
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, $0.01 par value, 217,939 shares
outstanding at stated value 2,179 2,179
Series D, $0.01 par value, 6,000,000 shares 60 60
Common stock, $.01 par value 100,000,000 shares authorized,
4,120,017 and 4,091,091 shares outstanding 41 41
Additional paid-in capital 16,763 15,500
Accumulated deficit (19,961) (18,470)
Accumulated other comprehensive income (78) (31)
---------------- ----------------
Total stockholders' equity 254 529
---------------- ----------------
Total liabilities and stockholders' equity $ 18,853 $ 25,733
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<S> <C> <C> <C> <C
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
----- ----- ----- -----
Net sales $ 1,589 $ - $ 2,397 $ -
Cost of sales 3 - 8 -
-------- -------- ----------- -------
Gross profit 1,586 - 2,389 -
Selling, general and
administrative expenses 976 - 1,729 -
-------- -------- ----------- -------
Operating income (loss) 610 - 660 -
Non-operating expense:
Interest expense, net 249 - 499 -
Other, net 174 403 -
-------- -------- ----------- -------
Total non-operating expense 423 - 902 -
-------- -------- ----------- -------
Income (loss) before minority interest and
income taxes 187 - (242) -
Minority interest in income (loss) of subsidiary 2 - (6) -
-------- -------- ------------ -------
Income (loss) before income taxes 185 - (236) -
Income tax expense (benefit) 65 - (83) -
-------- -------- ------------ -------
Net income (loss) from continuing operations 120 - (153) -
Discontinued operations:
(Loss) from operations of golf wholesale segment
to be disposed of (net of income tax
benefit of $601 in 2000 and $268 in 1999) (559) (363) (1,130) (961)
(Loss) from operations of furniture operations
to be disposed of (net of income tax benefit$112
of in 2000 and $7 in 1999) (185) (149) (208) (13)
--------- --------- ------------ --------
Total (loss) from discontinued operations (744) (512) (1,338) (974)
--------- --------- ------------ --------
Net (loss) $(624) $ (512) $ (1,491) $ (974)
========= ========= ============ =========
Earnings (loss) per share - primary and fully diluted
Income (loss) from continuing operations $ 0.03 $ - $ (0.04) $ -
(Loss) from discontinued operations (0.23) (0.15) (0.37) (0.29)
--------- --------- ------------ --------
Net (loss) per share (0.20) $ (0.15) $ (0.41) $ (0.29)
========= ========= ============ =========
Weighted average common shares outstanding 4,101 3,957 4,096 3,957
========= ========= ============ =========
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AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Six Months
Ended June 30,
2000 1999
--------------- --------------
Cash flows from operating activities:
Net (loss) $ (1491) $ (974)
Adjustments to reconcile to net cash flows from
operating activities:
Depreciation and amortization 502 196
Change in assets [(increase)/decrease] and
liabilities [increase/(decrease)]:
Trade accounts receivable, net (343) (2,325)
Inventories 1718 738
Prepaid expenses and other current assets 196 (302)
Deferred tax benefits (961) (4,019)
Accounts payable (413) 913
Accrued expenses 309 389
Goodwill (6,044)
------------------ ----------------
Net cash used in operating activities (483) (11,428)
------------------ ----------------
Cash flows from investing activities:
Acquisitions of fixed assets (24) (215)
------------------ ----------------
Net cash used in investing activities (24) (215)
------------------ ----------------
Cash flows from financing activities:
Net change in notes payable 24 11,757
Sales of common stock of subsidiary 357 246
Common stock issued for accounts payable 28 0
Net change in marketable securities 57 97
Minority interest in loss of subsidiary (6) 0
------------------ ---------------
Net cash provided by financing activities 460 12,100
------------------ ----------------
Net increase (decrease) in cash (47) 457
Cash at beginning of period 101 6
------------------ ----------------
Cash at end of period $ 54 $ 463
================= ================
Cash paid for interest $ 1,083 $ 215
================= ================
Cash paid for income tax - -
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NOTES TO CONSOLIDATED FINANCIAL STATEMENT
This report contains forward-looking statements including statements containing
words such as "believes", "anticipates", "expects" and the like. All statements
other than statements of historical fact included in this report are forward
looking statements. The Company believes that its expectations reflected in its
forward looking statements are reasonable, but it can give no assurance that the
expectations ultimately will prove to be correct. Important factors including,
without limitation, statements relating to planned acquisitions, development of
new products, the financial condition of the Company, the ability to increase
distribution of the Company"s products, integration of businesses the Company
has acquired, disposition of any current business of the Company, a change in
the Company's relationships with its bank lenders and/or the Company"s
relationship with Williams Controls, Inc., a related company, could cause the
Company"s actual results to differ materially from those anticipated in these
forward-looking statements. The Company does not intend to update the
forward-looking statements contained in this report.
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 June 30, 2000 and the results of operations for the
six-month periods ended June 30, 2000 and 1999 and the cash flows for the same
six-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. These condensed
financial statements should 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, 1999.
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 interim period results are not necessarily indicative of results, which may
be expected for any other interim period, 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.
On June 1, 2000, the Company adopted a formal plan to discontinue its golf
manufacturing and wholesale distribution businesses (Ajay Leisure Products,
Inc., Palm Springs Golf, Inc., and Prestige Golf, Inc.) and to sell its
furniture manufacturing business (Leisure Life, Inc.). In accordance with
generally accepted accounting principles, operating results for these businesses
are shown separately in the accompanying statement of operations, and the
statement of operations for 1999 has been restated and operating results of
the segments to be discontinued and sold are also shown separately.
Net sales of the discontinued segments (000's) were $6,501 and $3,950 for the
six months and three months ended June 30, 2000, respectively, and were $8,823
and $4,262 for the six months and three months ended June 30, 1999,
respectively. These amounts are not included in net sales in the accompanying
statement of operations.
Assets and liabilities, at book values, of the discontinued segments consisted
of the following at June 30, 2000 (000's):
Cash $ 34
Accounts receivable 2,054
Inventories 2,235
Prepaid expenses 240
Property, plant, and equipment 1,329
Other assets 90
------
Total assets 5,982
------
Accounts payable 4,630
Accrued expenses 1,197
Notes payable 7,528
Other liabilities 357
------
Total liabilities 13,712
Excess of liabilities over assets $ 7,730
=====
Liabilities of the operations being discontinued exceeded assets of those
operations at June 30, 2000. The net liability has been separately classified in
the accompanying balance sheet at June 30, 2000. The December 31, 1999 balance
sheet has not been restated.
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2. INVENTORIES
The major classes of inventories (rounded to thousands) are as follows:
June 30, December 31,
2000 1999
-------- ------------
Raw Materials $ - $ 827
Work in Process -
903
Finished Goods 16 2,239
------ ------
$ 16 $ 3,969
$====== $======
3. NOTES PAYABLE TO BANKS
On February 2, 1999, the Company entered an agreement with Wells for a seasonal
over advance of up to $750,000 beginning February 2, 1999. The full amount of
this over advance was due June 2000. The interest rate on advances outstanding
on the over advance is prime plus 2%. The Company has been operating under a
forbearance agreement since June 2, 2000 as it was unable to repay the
overadvance when it was due. Other Wells loans are also under this
forbearance agreement. Proceeds from assets sold as part of its
discontinuance and sale of the discontinued operations are expected to
provide funds to satisfy the Wells loans.
On June 23, 1999 the Company, through a newly formed subsidiary, Pro Golf
International, Inc. increased its borrowings by $8,500,000 with a 75-day bridge
loan from Comerica Bank. The proceeds of this loan were used toward the purchase
of 100% of the outstanding common stock of Pro Golf of America, Inc. Effective
June 22, 2000 the loan was extended and is now a demand note, with interest due
monthly and principal payment of $75,000 a month beginning September 1, 2000.
At June 30, 2000 the principal balance due on this loan was $8,425,000 plus fees
due of $300,000.
On July 1, 2000 the Company was unable to repay the principal amount of
$1,304,538, which was due under its loan from U.S. National Bank of Oregon. The
Company expects to be notified that it is considered in default of the loan
agreement, and is in the process of raising additional equity and/or debt which
can be used in part to satisfy its debt with this Bank.
4. DIVIDENDS
Dividends on Series B and C Convertible Preferred Stock have not been declared
for 1997,1998,1999 or 2000 due to unavailability of funds. Dividends are in
arrears on Series B in the amount of $1,156,575 and on Series C in the amount
of $926,202. Dividends are permitted to be paid under the credit agreements
when sufficient funds become available.
