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, 1999 33-19107
- --------------------------- ---------------------
(For the fiscal year ended) (Commission File No.)
LBO CAPITAL CORP.
(Exact name of Registrant as specified in its charter)
Colorado 38-2780733
- ---------------------------- -------------------------------
(State or other jurisdiction (I.R.S. Employer Identification
of organization) Number)
7001 Orchard Lake Road, Suite 424
West Bloomfield, MI 48322
- --------------------------------------- -------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(248) 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, 1999, 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 $116,488 based
on the average of the bid and asked prices on that date $.03 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, 2000. A Form 8-K
was filed on July 12, 1999 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.
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 Manufacturing Company. On July 1,
1991, this bank declared the loan in default and foreclosed on the shares.
<PAGE>
On August 13, 1998, Ajay announced that its board of directors had
authorized the implementation of a 1-for-6 reverse split of the company's common
stock, effective with the commencement of trading on August 14, 1998. The
reverse split was approved by the stockholders of Ajay at the company's annual
meeting on May 29, 1998.
Following the reverse split, holders of Ajay's common stock received one
new share of $.01 par value common stock for every six shares of common stock
currently held. Therefore, the number of Ajay shares held by the Company is
246,667. The reverse split also affected the number and exercise price of the
Company's warrants, such that the Company now holds 33,333 warrants entitling it
to purchase one share of Ajay's common stock at $1.08 per share.
The 246,667 common stock and 33,333 warrants owned by the Registrant
represented 6.7% of the total shares of Ajay common stock outstanding as of
December 31, 1999. The decrease is the result of new shares issued.
Ajay's Common Stock ("AJAY") and Units ("AJAYU") are trading on the Nasdaq
Small Cap and the 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 trade prices for the common stock:
HI LOW
------ ------
1999
----
First Quarter $ 1.063 $ .688
Second Quarter $ 3.000 $ .688
Third Quarter $ 2.063 $ .813
Fourth Quarter $ .938 $ .500
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 would have a positive effect on the Ajay earnings and the value of the
Ajay stock held by the Registrant.
Business Ajay 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 and casual
living furniture throughout the United States.
Enercorp, Inc.
--------------
On November 21, 1994, the Registrant bought 2,667 shares of Enercorp, Inc.
for $8,702. During 1996, the Registrant bought 12,674 additional shares of
Enercorp, Inc. for $39,694.
Enercorp, Inc. is a business development company under the Investment
Company Act of 1940, as amended.
<PAGE>
On June 22, 1999, the Company loaned $300,000 to Pro Golf International,
Inc. ("PGI"), a subsidiary of Ajay Sports, Inc. The Company received two
promissory notes that is subordinated to PGI's primary lender. The unpaid
principal balance will bear an interest rate of 10% and will be due and payable
in full on July 22, 2000. The balance ,including interest, at December 31, 1999
was $315,781. The proceeds were used to purchase all the outstanding capital
stock of Pro Golf of America, Inc., franchiser of Pro Golf Discount retail golf
stores. Ajay owns over 80% of the stock of Pro Golf International, with the
remaining shares held by a group of investors.
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, 1999, 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.
<PAGE>
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, 1999.
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, is traded on 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 high and low trade price quotations for the Registrant's
Common Stock during the quarters ended on the dates listed below is as follows:
Trade Prices
------------
HI LOW
---- -----
1998
----
First Quarter $ .035 $ .03
Second Quarter $ .03 $ .25
Third Quarter $ .03 $ .02
Fourth Quarter $ .03 $ .02
1999
----
First Quarter $ .025 $ .025
Second Quarter $ .03 $ .025
Third Quarter $ .03 $ .03
Fourth Quarter $ .03 $ .03
On December 31, 1999, the high trade price reported for the Common Stock
was $.03 and the low trade price was $.03.
As of December 31, 1999, the number of record holders of the Registrant's
Common Stock was 265. This figure excludes an undetermined number of
shareholders whose shares are held in "street" or "nominee" name.
<PAGE>
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 high and low quotations for the Registrant's Units during the quarters
ended on the dates listed below is as follows:
Trade Price
-----------
HI LOW
---- -----
1998
----
First Quarter $ .035 $ .03
Second Quarter $ .03 $ .025
Third Quarter $ .03 $ .02
Fourth Quarter $ .03 $ .02
1999*
-----
*No units traded in 1999.
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.
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.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
December 31
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Working Capital $(672,330) $(599,097) $(560,736) $(498,352) $(427,094)
Cash 63 73 43 78 78
Marketable
Securities 32,600 46,023 24,972 28,765 8,000
Notes Receivable 300,000 0 0 0 0
Interest Receivable 15,780 0 0 0 0
Total Assets 348,443 49,096 24,972 28,843 8,251
Total Liabilities 1,020,773 645,193 585,708 527,195 435,345
Shareholders'
Equity (672,330) (599,097) (560,736) (498,352) (427,094)
December 31
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------
Total Operating
Revenue $15,781 $0 $0 $0 $0
Total Operating
Exp. 75,590 59,454 8,549 52,328 35,173
Net income (loss)
before equity loss
of affiliate (59,809) (59,454) (58,549) (52,325) (35,173)
Equity in net loss
of affiliated
company 0 0 0 0 0
Net income (loss) (59,809) (59,454) (58,549) (52,328) (35,173)
Net Income (loss)
per common share ( .00) ( .00) ( .00) ( .00) ( .00)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
- -------------------------------
Working capital at December 31, 1999 was decreased by $73,232 from the
period ended December 31, 1998. This was mainly caused by a net loss of $59,809,
a decrease of $13,423 in the market value of securities available for sale.
On December 2, 1996, the Registrant had a change in its borrowing
arrangements. The Registrant borrowed $325,790 from Dearborn Wheels, Inc. to
repay a note payable to Michigan National Bank. The principal balance as of
December 31, 1999, was $823,201 and the interest due was $194,021. The loan is
at prime plus 2% interest and is secured by all the intangible assets of the
Registrant. Dearborn Wheels, Inc. is held in majority by the Registrant's
President's spouse.
<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 65 President and Since
7001 Orchard Lake Rd. Chairman of the Inception
West Bloomfield, MI 48322 Board of Directors
Anthony B. Cashen 63 Secretary, Since
RD 2 Box 203 Treasurer and Inception
Ghent, NY 12075 Director
Robert W. Schwartz 55 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.
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. <PAGE>
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. Mr. Itin was elected Chairman of
the Board and President of Ajay Sports, Inc. in June of 1993, and is the largest
single stockholder. Mr. Itin has been a director of Williams Controls, Inc., a
publicly held company since its inception in November 1988. Mr. Itin serves on
the Cornell University Council and is Chairman of the Technology Transfer
Committee of the Council. Mr. Itin has been Chairman, President and Owner of TWI
International Inc. since he founded that entity in 1967. TWI acts as consultant
for mergers, acquisitions, financial structuring, new ventures and asset
management. Mr. Itin also is the owner and principal officer of Acrodyne
Corporation since 1962. Mr. Itin was awarded a Masters of Business
Administration degree from New York University and received a Bachelor of
Sciencee degree from Cornell University.
Anthony B. Cashen. Mr. Cashen has served as the Registrant's Secretary,
- --------------------
Treasurer and Director since inception. He has also served as a director of Ajay
Sports, Inc. since 1993. For the past five years and until his retierment in
December 1999, Mr. Cashen has served as managing partner, then as a Senior
Partner of LAI Ward Howell a publicly held management consulting and executive
recruiting firm located in New York City. He currently serves as a Director of
Immucell Corp., and Williams Controls, Inc., both publicly held companies.
Previously, Mr. Cashen has been an officer and principal of the investment firms
A.G. Becker Inc. and Donaldson, Lufkin and Jenrette, Inc. He received an MBA
from the Johnson Graduate School of Management at Cornell University, and a
Bachelor of Science 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.
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, 1999. While none of the
officers received any salary, such individuals are reimbursed for all
accountable expenses incurred on behalf of the Registrant.
<PAGE>
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, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information as of March 31, 2000 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:
Common Stock
Beneficially Percent
Owned (1) of Class
-------------------------------------
Thomas W. Itin 7,717,073 (2)(3)(4) 57.2%
Anthony B. Cashen 400,000 (4) 3.3%
Robert W. Schwartz 100,000 (4) .8%
Officers and Directors 8,217,073 (3) 61.3%
as a group (3 persons)
James T. Emerson 695,000 5.7%
221 E. Colonial Drive
Orlando, FL 32801
(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, 2000, 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)
<PAGE>
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.
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, 1999 was $3,300 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, 1999 are filed within this report.
<PAGE>
(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. Exhibit 27.0 Financial Data Schedule is filed herewith.
(b) Reports on Form 8-K.
A Form 8-K was filed on July 12, 1999 regarding the extension of the expiration
date of the Registrant's warrants from July 25, 1999 to July 25, 2000. A Form
8-K was filed on December 1, 1999 to extend the exercise period of the
Registrant's warrants issued to its directors from December 4, 1999 to December
4, 2000.
<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
& Chief Financial Officer
Date: April 14, 2000
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,
- --------------------- Chief Executive Officer and President
Thomas W. Itin
\s\Anthony B. Cashen Secretary, Treasurer and Director
- ---------------------
Anthony B. Cashen
\s\Robert W. Schwartz Director
- -----------------------
Robert W. Schwartz
<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>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
of LBO Capital Corp
We have audited the accompanying balance sheet of LBO Capital Corp., as of
December 31, 1999, and the related statements of operations, changes in
stockholders' deficit, and cash flows for the year ended December 31, 1999.
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 of LBO Capital Corp. as of December 31,
1998 and 1997 were audited by other auditors whose reports dated March 23, 1999
and March 24, 1998 expressed an unqualified opinion on those statements.
We conducted our audit 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 financial statements referred to above present fairly, in
all material respects, the financial position of LBO Capital Corp. as of
December 31, 1999, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
/S/ J L Stephan Co, PC
- -----------------------
J L Stephan Co, PC
Traverse City, Michigan
March 30, 2000
F1
<PAGE>
<TABLE>
<CAPTION>
LBO CAPITAL CORP.
BALANCE SHEETS
As of December 31, 1999 and 1998
1999 1998
----------------------------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and Equivalents $ 63 $ 73
Marketable Securities - Available for Sale 32,600 46,023
Interest Receivable 15,780 0
Notes Receivable 300,000 0
-------------- ------------
Total Current Assets 348,443 46,096
-------------- ------------
TOTAL ASSETS $ 348,443 $ 46,096
============== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable 3,250 3,763
Accounts Payable - Related Entities 300 210
Notes Payable - Other 823,201 514,901
Accrued Expenses and Taxes 194,021 126,319
-------------- ------------
Total Current Liabilities 1,020,773 645,193
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 (15,796) (2,373)
Accumulated Deficit (1,280,836) (1,221,027)
-------------- ------------
Total Stockholders' Deficit (672,330) (599,097)
-------------- ------------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 348,443 $ 46,096
============== ============
The accompanying notes are an integral part of of this
financial statement.
F2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LBO CAPITAL CORP.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
-------------- ---------------------- --------------
<S> <C> <C> <C>
REVENUES: $ 15,781 $ -0- $ -0-
------------ ------------- --------------
EXPENSES:
Professional Services 4,243 3,659 3,820
Management Fees 3,300 2,790 2,900
Interest Expense 67,701 52,843 52,735
Other Expenses 346 162 (906)
------------ ------------- --------------
Total Expenses 75,590 59,454 58,549
------------ ------------- --------------
Income (Loss) Before Income Taxes (59,809) (59,454) (58,549)
Income Tax Expense (Benefit):
Currently Payable -0- -0- -0-
------------ ------------- --------------
Net Income (Loss) $ (59,809) $ (59,454) $ (58,549)
============ ============= ==============
Net Income (Loss) per Share $ (.00) $ (.00) $ (.00)
============ ============= ==============
Weighted Average Number of Common Shares
Outstanding 12,100,000 12,100,000 12,100,000
============ ============= ==============
The accompanying notes are an intergral
part of this financial statement
F3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES
IN STOCKHOLDERS' DEFICIT
For the Years Ended
December 31, 1999, 1998,
and 1997
Additional Total
Common Stock Paid-In Accumulated Other Stockholders'
---------------------------- Comprehensive
Shares Amount Capital Deficit Income Deficit
--------- --------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1996 12,100,000 $ 1,210 $ 623,094 $ (1,103,024) $(19,632) $ (498,352)
Unrealized Gain (Loss) on Securities (3,835)
Net Loss for the Year
Ended December 31, 1997 -0- -0- -0- (58,549) (62,384)
----------- ---------- ----------- ----------- ----------- ------------
Balances at
December 31, 1997 12,100,000 $ 1,210 $ 623,094 $ (1,161,573) $(23,467) $ (560,736)
Unrealized Gain (Loss) on Securities 21,094
Net Loss for the Year
Ended December 31, 1998 -0- -0- -0- (59,454) (38,361)
----------- ---------- ----------- ------------ ----------- -----------
Balances at
December 31, 1998 12,100,000 $ 1,210 $ 623,094 $ (1,221,027) $(2,373) $ (599,097)
Unrealized Gain (Loss) on Securities (13,423)
Net Loss for the Year
Ended December 31, 1999 -0- -0- -0- (59,809) (73,232)
----------- --------- ----------- ------------ ----------- ----------
Balances at
December 31, 1999 12,100,000 $ 1,210 $ 623,094 $ (1,280,836) $(15,796) $ (672,330)
=========== ========== =========== ============ ========== ==========
The accompanying notes are an integral
part of this financial statement
F4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
LBO CAPITAL CORP.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows for Operating Activities:
Net Loss $ (59,809) $ (59,454) $ (58,549)
-------------- ------------- -------------
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- -0- -0-
(Decrease) Increase in:
Accounts Payable (423) (440) 499
Accrued Expenses and Taxes 67,702 51,994 52,836
-------------- ------------- -------------
Total Adjustments 67,279 51,554 53,335
-------------- ------------- -------------
Net Cash (Used for) Operations 7,470 (7,900) (5,214)
-------------- ------------- -------------
Cash (Used for) Investing Activities
Investment (300,000) -0- -0-
-------------- ------------- -------------
(300,000) 0 -0-
Cash provided by (used for) Financing Activities:
Proceeds from Notes - Other 308,300 7,930 5,180
Interest Income (15,781) -0- -0-
-------------- ------------- -------------
Net Cash Provided by Financing Activities 292,519 7,930 5,180
-------------- ------------- -------------
Net Increase (Decrease) in Cash (11) 30 (35)
Cash and Cash Equivalents:
At Beginning of Period 73 43 78
-------------- ------------- -------------
At End of Period $ 63 $ 73 $ 43
============== ============= =============
The accompanying notes are an integral part of
this financial statement
F5
</TABLE>
<PAGE>
LBO CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
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 was stated at cost. Depreciation was 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, 1999, 1998 and 1997 was $0, $0 and $0 respectively. At
December 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, 1999, the Company has a net operating loss available
for carryforward totaling approximately $1,023,141. The operating
loss carryforward expires in various amounts by the year ended
December 31, 2020.
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.
Note 2. Marketable Securities
The Company's marketable securities available for sale are recorded at
fair market value.
<PAGE>
LBO CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
Market Value
----------------------------------------------------
Investment Per Share Aggregate
1999
----
Enercorp, Inc. $48,397 $2.125 $32,600
1998
----
Enercorp, Inc. $ 48,397 $3.000 $46,023
Note 3. 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, 1999 and 1998. The Company also obtained 200,000 stock
warrants of Ajay at that time.
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.
On August 13, 1998, Ajay announced that its board of directors had
authorized the implementation of a 1-for-6 reverse split of the company's
common stock, effective with the commencement of trading on August 14,
1998. The stockholders of Ajay at the company's annual meeting on May 29,
1998 approved the reverse split.
Following the reverse split, holders of Ajay's common stock received one
new share of $.01 par value common stock for every six shares of common
stock currently held. Therefore, the number of Ajay shares held by the
Company is 246,667. The reverse split also affected the number and
exercise price of the Company's warrants, such that the Company now holds
33,333 warrants entitling it to purchase one share of Ajay's common stock
at $1.08 per share. These warrants expire June 30, 2000.
All of the Ajay shares are pledged as security for a note payable (see
note 4).
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 trade prices given quarterly by NASDAQ.
<PAGE>
LBO CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
HI LOW
---- -----
1999
First Quarter $ 1.063 $ .688
Second Quarter $ 3.000 $ .688
Third Quarter $ 2.063 $ .813
Fourth Quarter $ .938 $ .500
Note 4. Note Receivable
On June 22, 1999, the Company loaned $300,000 to Pro Golf International,
Inc. ("PGI"), a subsidiary of Ajay Sports, Inc. The Company received two
promissory notes that is subordinated to PGI's primary lender. The unpaid
principal balance will bear an interest rate of 10% and will be due and
payable in full on July 22, 2000. The balance ,including interest, at
December 31, 1999 was $315,781. The proceeds were used to purchase all the
outstanding capital stock of Pro Golf of America, Inc., franchiser of Pro
Golf Discount retail golf stores. Ajay owns over 80% of the stock of Pro
Golf International, with the remaining shares held by a group of
investors.
Note 5. Notes Payable
During 1998, the Company borrowed $308,300 from Dearborn Wheels, Inc. The
proceeds were used to meet current operating needs and the investment in
Pro Golf International.
On December 2, 1996, the Registrant had a change in its borrowing
arrangements. The Registrant borrowed $325,790 from Dearborn Wheels, Inc.
to repay a note payable to Michigan National Bank. The principal balance
as of December 31, 1998, was $514,901. The loan is at prime plus 2%
interest and is secured by all the intangible assets of the Registrant.
Dearborn Wheels, Inc. is held in majority by the Registrant's President's
spouse. This note bears interest of prime plus 2%, matures on September
27, 2000 and is secured by all the assets of the Company.
<PAGE>
Note 6. 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, 2000. As of December 31, 1999, 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, 2000. Each warrant enables the owner to purchase one
share of common stock for $.04 per share.
Note 7. 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 8. Cash Flows Disclosure
Interest and income taxes paid for the years ended December 31, 1999, 1998
and 1997 were as follows:
1999 1998 1997
-------- ---------- -----------
Interest $ -0- $ -0- $ -0-
========== ========== ===========
Income Taxes $ -0- $ -0- $ -0-
========== ========== ===========
<PAGE>
LBO CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
Note 9. Use of Estimates
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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000753557
<NAME> LBO Capital Corp.
<MULTIPLIER> 1
<CURRENCY> US Dollar
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-2000
<PERIOD-END> Dec-31-1999
<EXCHANGE-RATE> 1
<CASH> 63
<SECURITIES> 32,600
<RECEIVABLES> 315,780
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 348,443
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 348,443
<CURRENT-LIABILITIES> 1,020,773
<BONDS> 0
0
0
<COMMON> 1,210
<OTHER-SE> (673,540)
<TOTAL-LIABILITY-AND-EQUITY> 348,443
<SALES> 0
<TOTAL-REVENUES> 15,781
<CGS> 0
<TOTAL-COSTS> 7,889
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 67,701
<INCOME-PRETAX> (59,809)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,809)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
as of December 31, 1999 and 1998
(in thousands, except share amounts)
December 31, December 31,
ASSETS 1999 1998
<S> <C> <C>
----------- -----------
Current assets:
Cash $ 101 $ 6
Marketable securities - available for sale 348 396
Accounts receivable, net of allowance of $558 and $95,
respectively 3,247 1,889
Inventories 3,969 5,680
Prepaid expenses and other 1,179 485
----------- -----------
Total current assets 8,844 8,456
Fixed assets, net 1,693 1,708
Other assets 7,037 179
Deferred tax benefit 6,582 1,119
Goodwill 1,577 1,621
----------- -----------
Total assets $ 25,733 $ 13,083
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 995 $ 199
Accounts payable 5,043 2,225
Accrued expenses 1,099 380
----------- -----------
Total current liabilities 7,137 2,804
Notes payable to affiliates - long term 2,087 1,587
Notes payable to banks - long term 13,886 5,951
Notes payable - long term 2,070 -
Commitments and contingencies - -
----------- -----------
25,180 10,342
----------- -----------
Minority interest in subsidiary 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 and
264,177 shares outstanding, respectively,
at stated value 2,179 2,642
Series D, $0.01 par value, 6,000,000 shares 60 60
Common stock, $0.01 par value, 100,000,000 shares
authorized, 4,091,091 and 3,956,815 shares
outstanding, respectively 41 40
Additional paid-in capital 15,500 14,762
Accumulated deficit (18,470) (16,006)
Accumulated other comprehensive income (31) (7)
----------- -----------
Total stockholders' equity 529 2,741
----------- -----------
Total liabilities and stockholders' equity $ 25,733 $ 13,083
=========== ===========
The accompanying notes are an integral part of the
consolidated financial statements.
F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the years ended December 31, 1999, 1998 and 1997
(in thousands, except per share amounts)
Year Ended
--------------------------------------------
December 31, December 31, December 31,
1999 1998 1997
<S> <C> <C> <C>
---------- ---------- ----------
Operating data:
Net sales $ 14,340 $ 22,925 $ 30,330
Cost of sales 12,790 19,477 26,585
---------- ---------- ----------
Gross profit 1,550 3,448 3,745
Selling, general and administrative
expenses 4,866 3,868 5,837
---------- ---------- ----------
Operating (loss) (3,316) (420) (2,092)
---------- ---------- ----------
Nonoperating income (expense):
Interest expense (1,625) (1,139) (1,280)
Other, net 638 84 (144)
---------- ---------- ----------
Total non operating expense (987) (1,055) (1,424)
---------- ---------- ----------
(Loss) before minority interest and
income taxes (4,303) (1,475) (3,516)
Minority interest in (loss) of subsidiary 6 - -
---------- ---------- ----------
(Loss) before income taxes (4,297) (1,475) (3,516)
Income tax (benefit) (1,833) - -
---------- ---------- ----------
Net (loss) $ (2,464) $ (1,475) $ (3,516)
========== ========== ==========
Basic and diluted earnings per share (a) $ (0.70) $ (0.47) $ (1.01)
========== ========== ==========
Weighted average common shares
outstanding (b) 4,013 3,909 3,879
========== ========== ==========
Net loss as reported above (2,464) (1,475) (3,516)
Undeclared cumulative preferred dividends (341) (380) (396)
---------- ---------- ----------
Loss applicable to common stock $ (2,805) $ (1,855) $ (3,912)
========== ========== ==========
(a) Computed by dividing net loss after deducting undeclared,
cumulative preferred stock dividends, by the weighted average
number of common shares outstanding.
(b) Current and prior years restated to reflect result of reverse 1:6
common stock split effective August 14, 1998.
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997
(in thousands, except shares)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Preferred Stock Common Stock Add'l Accum Total
--------------- ------------ Paid-in Accum Comprehensive Stockholders'
Shares Amount Shares Amount Capital (Deficit) Income (Loss) Equity
-------- ------ -------- ------- -------- ---------- ------------ -----------
Balances at December 31,1996 3,086,706 $4,212 3,879,007 $ 233 $9,313 $ (11,015) $ - $ 2,743
Net loss - - - - - (3,516) - (3,516)
-------- ------ --------- ------- -------- ---------- ------------ ------------
Balances at December 31, 1997 3,086,707 4,212 3,879,007 233 9,313 (14,531) - (773)
Common stock reverse 1:6 split - - 250 (194) 194 - - -
Other adjustments - - - (4) - - - (4)
Preferred stock converted into
common stock (31,993) (320) 77,558 1 319 - - -
Debt converted into
preferred stock 6,000,000 60 - - 4,940 - - 5,000
COMPREHENSIVE INCOME
Net loss - - - - - (1,475) - (1,475)
Other Comprehesive Income (Loss) - - - - - - (7) (7)
--------- ------ -------- ------- -------- --------- ------------ ------------
Balances at December 31, 1998 6,276,677 3,952 3,956,815 40 14,762 (16,006) (7) 2,741
Preferred stock converted into
common stock (46,238) (463) 134,276 1 738 - - 276
COMPREHENSIVE INCOME
Net Loss (2,464) (2,464)
Other Comprehesive Income (Loss) (24) (24)
-------- ------ -------- ------- --------- --------- ----------- -------------
Balances at December 31, 1999 6,230,439 $3,489 4,091,09 $ 41 $15,500 $ (18,470) (31) $ 529
======== ======== ======== ======= ========= ========== =========== =============
The accompanying notes are an integral
part of the consolidated financial
statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the years ended December 31, 1999, 1998 and 1997
(in thousands)
<S> <C> <C> <C>
December 31,
------------------------------
1999 1998 1997
-------- --------- --------
Cash flows from operating activities:
Net (loss) $ (2,464) $ (1,475) $ (3,516)
Adjustments to reconcile to net cash flows
from operating activities:
(Gain) loss on sale of assets (7) - 42
Depreciation and amortization 335 381 358
Income tax provision (1,833) - -
(Increase) decrease in marketable securities 48 (396) -
(Increase) decrease in accounts receivable, net (1,358) 3,171 214
Decrease in inventories 1,711 718 1,559
(Increase) decrease in prepaid expenses (694) (181) 58
(Increase) decrease in other assets - (75) 202
Increase(decrease) in accounts payable 2,818 (979) 97
Increase (decrease) in accrued expenses 719 (303) 186
-------- --------- --------
Net cash provided by (used in) operating
activities (725) 861 (800)
-------- --------- --------
Cash flows from investing activities:
Acquisitions of property plant and equipment (281) (319) (250)
Disposal of equipment 19 - -
-------- --------- --------
Net cash (used in) investing activities (262) (319) (250)
-------- --------- --------
Cash flows from financing activities:
Net increase in advances from affiliates 500 2,215 3,487
Net increase (decrease) in bank notes payable 306 (2,978) (2,193)
Dividends paid - - (74)
Minority interest in subsidiary 300
Unrealized losses from securities (24) (7) -
-------- --------- --------
Net cash provided by (used in) financing
activities 1,082 (770) 1,220
-------- --------- --------
Net increase (decrease) in cash 95 (228) 170
Cash at beginning of period 6 234 64
-------- --------- --------
Cash at end of period $ 101 $ 6 $ 234
======== ========= ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
</TABLE>
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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"), Palm Springs Golf, Inc. ("Palm Springs"), Prestige Golf
Corp. ("Prestige"), and majority-owned subsidiaries, Pro Golf
International, Inc. ("PGI"), Pro Golf of America, Inc. ("PGOA"), and
ProGolf.com, Inc. ("PG.com") collectively referred to herein as the
"Company". 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.
FIXED ASSETS - Fixed assets are stated at cost, less accumulated
depreciation of $1,834,000 and $1,329,000 as of December 31, 1999 and 1998
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 three to thirty-nine years.
GOODWILL - The Company has recorded goodwill as a result of the 1995
acquisitions of Palm Springs and Korex. The goodwill is being amortized
over forty years. Amortization expense related to the goodwill was $43,900
for the year ended December 31, 1999. As of each annual year-end date,
management assesses whether there has been an impairment in the carrying
value of goodwill. This assessment involves comparing the unamortized
goodwill carrying value with undiscounted cumulative estimated future cash
flows expected to be derived from utilization of the intangibles underlying
the related goodwill. To the extent that undiscounted cumulative cash flow
is expected to exceed the carrying value of goodwill, the asset is
considered to be unimpaired.
OTHER ASSETS - Other assets at December 31, 1999 and 1998 consist of
trademarks and brand names held by PGI (1999 only) and patents and
trademarks held and applied for by Leisure, and additionally, at December
31, 1998 a lawsuit judgment. Amortization expense related to trademarks and
patents is being deducted straight-line over the estimated useful lives of
these assets. Amortization expense related to the other assets was $193,000
for the year ended December 31, 1999.
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 from sales of product
when title to the product has passed, which is generally the date the
product is shipped. PGOA recognizes Initial Franchise Fee revenue when all
material services or conditions relating to the sale have been
substantially performed or satisfied by the franchiser.
<PAGE>
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.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
COMMON STOCK - The Company reverse split its common stock in a 1-for-6
ratio effective with commencement of trading on August 14, 1998. As a
result of this transaction, all historic data in the financial statements
that reference common shares, options, earnings per share or preferred
conversion ratios have been restated to reflect this split as if it
preceded all prior reporting. Historic actual common shares outstanding at
December 31, 1997 were 23,274,039 and were restated to 3,879,007 in this
report.
2. RELATED PARTY TRANSACTIONS
--------------------------
The Company's related parties include the following:
First Equity Corporation ("First Equity") - First Equity is owned by a
family member of the president, chief executive officer, and chairman of
the Company. First Equity held, at December 31, 1997, demand notes in the
amount of $748,000 as a result of loans made to the company in 1996 and
1997. Williams assumed these notes in the financial restructuring in 1998.
First Equity made short-term working capital loans to Ajay during 1999,
with interest at various market rates. The balance due on these loans at
December 31, 1999 was $445,647, including accrued interest of $5,647.
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 significant shareholder in
Enercorp. Enercorp holds 310,787 common shares acquired in 1994 and 1995
and 2,000 shares of series C preferred stock. Enercorp held at December 31,
1997, demand notes in the amount of $200,000 as a result of loans made to
the Company. Williams assumed these notes in the financial restructuring in
1998. During 1999, Enercorp loaned PGI $420,000 under a 13 month, 10%
subordinated note. In February, 2000 Enercorp converted the note and
accrued interest of $27,000 into 7,450 shares of PGI at $60 each.
Williams Controls, Inc. ("Williams") - Williams has the same chairman as
the Company, which individual is a major shareholder of each company.
Williams owns 686,274 shares of the Company's common stock, 1,851,813
common stock options and 6,000,000 shares of Series D cumulative
convertible preferred stock as of December 31, 1999, convertible into
3,333,333 shares of the Company's common stock.
During 1996 and 1997 the Company paid Williams 0.50% per annum of the
outstanding revolving loan balances in consideration for providing its
guarantee of a revolving loan from U. S. Bank. Fees totaled $39,750 and
$60,411 for the years ended December 31, 1997 and 1996 respectively. From
July 11, 1997 through June 30, 1998 the Company and Williams shared a joint
and several loan obligation. On June 30, 1998, the Company restructured its
credit facility with Wells Fargo Bank, N.A. ("Wells") to separate its
credit facility from that of Williams. As a result of this transaction, the
Company will no longer have joint and several liability, cross collateral
agreements or guarantees with Williams.
<PAGE>
In connection with the restructuring of the Wells credit facility, the
Company was advanced $2,000,000 additional funds by Williams in the form of
a long term note and marketable securities and Williams converted
$5,000,000 of Company debt into a newly created series D cumulative
convertible preferred stock.
The Company's interest expense paid to Williams was $62,900 and $346,000
for the years ended December 31, 1999 and 1998 respectively. (See Note 4).
The Company received 166,719 shares of Williams as part of the
restructuring agreement with Williams dated June 30, 1998. These shares
have been pledged to Wells Fargo as collateral for the Company's loans. The
common stock is classified as marketable securities available for sale and
are valued at $2.08 per share, which is the last trade for 1999.
During 1999, the Company had borrowings from affiliated parties, in
addition to those mentioned above, to finance its acquisition of PGOA and
PG.com. These borrowings totalled $450,000, with interest at an annual rate
of 10%. In February, 2000, these borrowings (and accrued interest totalling
$30,000) were converted into 8,000 shares of PGI common stock at $60 per
share. During 1997 and 1996 the Company borrowed from related and
affiliated parties until it obtained bank financing in mid 1997. As of
December 31, 1997, the Company owed $4,372,000 to related and affiliated
parties at interest rates ranging from 9.0% to 9.5%. These notes were
converted to preferred stock in 1998. (See Note 4).
3. INVENTORIES
-----------
Inventories consist of the following (in thousands):
December 31
1999 1998
-------- --------
Raw materials $ 827 $ 1,493
Work-in-progress 903 1,052
Finished goods 2,239 3,135
-------- --------
Total $ 3,969 $ 5,680
======== ========
4. DEBT
----
On December 31, 1999 the Company's total debt was $19,038,000 owed to
banks, Williams, and other affiliates. This compares to $7,724,000 for
December 31, 1998. The increase from 1998 is principally due to debt
incurred to purchase the Pro Golf companies. From July 11, 1997 until June
30, 1998 the Company shared in a combined credit agreement with Williams
(the "Joint Loan"). As of June 30, 1998 the Company restructured its credit
facility with Wells to separate from the joint and several credit facility
with Williams. This new credit facility eliminates cross collateral and
guarantee agreements involving the Company and Williams. The revolving loan
facility allows the Company to borrow up to the lesser of $9,500,000 or the
Borrowing Base. The Borrowing Base consists of a formula including certain
eligible receivables, inventories and letters of credit at rates
established by Wells. The present credit agreement matures June 30, 2001.
The proceeds from the Joint Loan were used to repay the Company's and
Williams then outstanding loans from the previous lender, U. S. Bank,
except for a bridge loan in the total amount of $2,140,000 to the Company
by U. S. Bank. This bridge loan is to be repaid from the sale of assets
and/or excess cash flows of Williams and/or the Company, and is guaranteed
up to $1,000,000 by the Company's president. The balance owed on this
bridge loan at December 31, 1999 is $1,365,000. In connection with the 1998
credit facility restructuring, the Company was advanced $2,000,000 of
additional funds by Williams and Williams converted $5,000,000 of company
debt into preferred stock.
<PAGE>
The Company's Bank borrowings consisted of the following (dollars in
thousands):
December 31,
Revolving credit facility: 1999 1998
-------- --------
Balance $ 3,862 $ 3,467
Interest rate 8.5% 8.75%
Unused amount of facility $ -0- $ 350
Average amount outstanding
during the period $ 4,258 $ 4,997
Weighted average interest rate 8.2% 9.1%
Maximum amount outstanding
during the period $ 5,295 $ 6,771
Master revolving note:
Balance $ 8,425 $ -
Weighted average interest rate 9.0% -
Average amount outstanding
during the period $ 8,479 $ -
Outstanding commercial letters of credit totaled approximately $309,000 and
$60,000 at December 31, 1999 and 1998 respectively.
Other December 31, 1999 debt consisted of $2,087,900 from related and
affiliated parties, a $412,500 machinery and equipment term loan with Wells
Fargo, the $1,364,538 (bridge) term loan with U. S. Bank, a $173,000 real
estate loan, a $8,425,000 bridge loan with Comerica Bank, and $1,200,000
with private individuals.
At December 31, 1999 the Company was liable to Comerica Bank in the amount
of $8,425,000 on a master revolving note entered into to effect the
acquisition of Pro Golf of America, Inc. and ProGolf.com, Inc. The note has
been extended through April 30, 2000. The Company anticipates refinancing
this loan into an amortizing long-term loan during the second quarter 2000.
(See Note 16).
Debt payments are as scheduled (dollars in thousands):
2000 995
2001 6,354
2002 1,000
2003 10,689
2004 and thereafter -0-
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 and loans from related parties and affiliated companies for its
working capital requirements. (See Note 16).
<PAGE>
5. 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.
The actual income tax expense (benefit) differs from the statutory income
tax expense (benefit) as follows (in thousands):
Year Ended December 31,
-----------------------
1999 1998 1997
------ ------ -----
Statutory tax expense
(benefit) $(1,833) $( 502) $(1,195)
Utilization of net
operating loss
carry forward - - -
Loss producing no current
tax benefit - 502 1,195
-------- ------- ---------
$(1,833) $ - $ -
======== ======= =========
The components of the net deferred tax asset/liability were as follows (in
thousands):
December 31,
------------
1999 1998
---- ----
Deferred tax assets:
Accrued expenses $ 45 $ 45
Reserves 78 151
NOL carry forwards 6,473 4,766
------ ------
Sub total $ 6,596 $ 4,962
Deferred tax liability,
principally depreciation and
amortization (13) (99)
Valuation allowance - (3,744)
Net $ 6,583 $ 1,119
======= =======
At December 31, 1999, the Company assessed its past earnings history and
trends, sales backlog, budgeted sales, and expiration dates of carry
forwards and has determined that it is more likely than not that 100% of
deferred tax assets will be realized. This change versus 1998 is
principally due to the profits to be realized from operations of PGOA and
PG.com. The valuation allowance of $3,744,000 at December 31, 1998 was
maintained on deferred tax assets which the Company had determined to be
more likely than not unrealizable at that time.
<PAGE>
The Company had net operating loss carry forwards for Federal tax purposes
of approximately $18,567,000 at December 31, 1999, which expire in varying
amounts in the years 2006 through 2019. Substantial operating loss carry
forwards are available to offset future state taxable income of the
Company, which expire in varying amounts in the years 2006 through 2019.
Future changes in ownership, as defined by section 382 of the Internal
Revenue Code, could limit the amount of net operating loss carry forwards
used in any one year.
6. STOCKHOLDERS' EQUITY
--------------------
(a) Preferred Stock
In October 1994 the Company created its 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. The holder exchanged 29,500
shares of Series A preferred stock for 29,500 shares of the newly issued
Series B preferred stock and immediately converted 17,000 shares of its
Series B preferred stock for 5,040,000 (840,000 post split) shares of the
common stock of the Company, as the Series B preferred stock allowed for a
conversion rate of 1 share of Series B preferred stock for 294.12 shares of
the Company's common stock. In November 1997, the conversion rate on the
remaining 12,500 Series B shares was revised to 555.56 and after the 1:6
reverse common stock split of August 14, 1998 the conversion rate as of
December 31, 1998 is 92.5926.
In July 1995 the Company sold 325,000 shares of Series C 10% cumulative
convertible preferred stock and 325,000 warrants in a registered public
offering. The Series C preferred stock is convertible into shares of the
Company's common stock at a conversion rate of 2.42424 common shares for
each share of preferred stock. Cumulative dividends are payable on the
Series C preferred stock at an annual rate of $1.00 per share. The warrants
are redeemable by the Company at $0.05 per warrant under certain
conditions. The terms of these warrants are identical to the Company's
publicly held warrants to purchase common stock. In 1995 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.
At December 31, 1999, 1998 and 1997, dividends in arrears on the 8%
cumulative convertible preferred Series B stock were $1,106,575, $1,006,575
and $906,575 respectively. Dividends on the Series C cumulative convertible
preferred stock were declared and paid through December 31, 1996. No
dividends were declared or paid for 1999, 1998 or 1997. At December 31,
1999, 1998 and 1997, dividends in arrears on the 10% cumulative convertible
preferred Series C stock were $817,232, $576,174 and $296,000. The Company
has dedicated all available funds to support continuing operations of the
Company until sufficient cash availability allows declaration and payment
of dividends.
(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 annually.
No stock was issued to officers under this plan in 1999, 1998 or 1997.
<PAGE>
(c) Stock Issued for Acquisitions
In 1994 the Company acquired the outstanding common stock of Leisure Life,
Inc. for 1,500,000 (post split 250,000) shares of its common stock to the
owner of Leisure Life. During the periods 1995, 1996 and 1997 one half of
the originally issued shares were returned to the Company 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:
Warrants and Price
Options (i) Per Share(i)
------- ------------ -------------
Balance, December 31, 1996 2,767,935 $ 2.04 - 6.00
Issued to Employees 8,334 2.40 (ii)
Expired (27,500) 2.40 - 3.75
Repriced options (2,151,313) 2.04 - 3.00 (iii)
Repriced options 2,151,313 1.08 (iii)
---------
Balance, December 31, 1997 2,748,769 $ 1.08 - 6.00
Expired (122,287) 2.40 - 4.125
Issued to Directors 1,668 1.50 (iv)
------------
Balance, December 31, 1998 2,628,150 $ 1.08 - 6.00
Issued to Employees 50,000 1.00
Expired 83,334 2.40 - 4.125
------
Balance, December 31, 1999 2,594,816 $ 1.00 - 6.00
<PAGE>
(i) All options were adjusted for the effect of a 1:6 reverse common stock
split effective August 14, 1998.
(ii) Employee stock options of which none were vested.
(iii) All non-public, non-employee, non-board member options were repriced
to $.18 market in November 1997.
(iv) Director options - 67% vested.
7. MAJOR CUSTOMERS
---------------
The Company operates in three lines of business, the manufacture and
distribution of sports equipment, outdoor leisure furniture, and
franchising. 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 1999 1998 1997
A 25% 28% 30%
B * 26% 15%
C * * 11%
* Amounts are less than 10% of net sales.
<PAGE>
8. BUSINESS SEGMENT REPORTING
--------------------------
The relative contributions to net sales, operating profit and identifiable
assets of the Company's two industry segments for the years ended December
31, 1999 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
GOLF
-------------------------------------------
Mass Specialty
1999 Furniture Merchant Golf Stores Franchise Corporate Consolidated
-------------- --------- --------- ----------- --------- --------- ------------
Sales $ 4,766 $ 6,751 $ 1,080 $ 1,743 $ - $ 14,340
Oper profit/(loss) (398) (2,370) (191) 469 (704) (3,194)
Assets 2,487 2,345 6,338 14,563 - 25,733
Depn/Amort 151 223 51 318 - 425
Capital Exp. - 57 - 224 - 281
GOLF
-------------------------------------------
Mass Specialty
1998 Furniture Merchant Golf Stores Franchise Corporate Consolidated
-------------- --------- --------- ----------- --------- --------- -------------
Sales $ 3,785 $ 17,916 $ 1,224 - $ - $ 22,925
Operating profit/(loss) (241) 863 (494) - (548) (420)
Assets 2,673 8,564 1,846 - - 13,083
Depreciation/Amortization 92 229 60 - - 381
Capital Expenditures 175 144 - - - 319
</TABLE>
9 . GARY PLAYER AND SPALDING LICENSE AGREEMENTS
-------------------------------------------
On March 8, 1999 the Company entered into a new license agreement with Gary
Player Group, Inc. The Company will work toward developing the Gary Player
brand for marketing its products. The Gary Player agreement has a 5-year
term and covers golf bags, gloves, carts and certain other golf accessories
sold into the U. S. market. This agreement requires an annual $25,000
rights fee and a minimum annual royalty of $5,000 for the sixteen months
commencing on March 8, 1999 through June 30, 2000 and increases annually by
$5,000 for each of the remaining 4 years of the contract.
Ajay had operated since 1983 under 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. On March 8, 1999, the Company
announced a limited extension of its existing agreement to provide a
phaseout period of up to 18 months for its Spalding labeled products. The
Company agreed to pay Spalding $240,000 during the phase out period. The
prior agreement contained a minimum annual royalty of $550,000 plus 2%
advertising of which 1% was paid direct.
Earned royalty expense due Spalding was $160,000, $448,000 and $553,000 for
the years ended December 31, 1999, 1998 and 1997, respectively.
<PAGE>
10. LEASES
------
Future aggregate minimum lease payments under noncancelable operating
leases with initial or remaining terms in excess of one year are as follows
(dollars in thousands):
2000 719
2001 507
2002 213
2003 175
2004 and thereafter 149
-------
$1,763
=======
Total rental expense ($000) under operating leases was $652, $605 and $701
for the years ended December 31, 1999, 1999 and 1997, respectively.
11. 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 1999 ($341,000),
1998 ($380,000), and 1997 ($396,000) by the weighted average number of
common shares outstanding. No exercise of outstanding warrants was assumed
in 1999, 1998 or 1997, since any exercise of warrants would be
antidilutive.
SFAS No. 128, "Earnings Per Share", became effective for fiscal years
ending after December 15, 1997. This statement replaces the presentation of
primary earnings per share ("EPS") with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires reconciliation of the numerator and denominator of the basic EPS
computations to the numerator and denominator of the diluted EPS
computation. Basic EPS excludes dilution. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared the earnings of
the entity.
12. SUPPLEMENTAL CASH FLOW INFORMATION
----------------------------------
Cash paid for interest was $1,124,526, $1,209,693 and $776,077 for the
years ended December 31, 1999, 1998 and 1997, respectively.
Non cash financing and investing transactions were as follows:
In exchange for acquiring in 1994 all of the common stock of Leisure
Life, Inc. the Company issued 1,500,000 (post split 250,000) shares of
its common stock to the owner of Leisure Life. During the periods
1995, 1996 and 1997 one half of the originally issued shares were
returned to the Company due to unmet performance requirements.
<PAGE>
In 1997 there were no stock transactions.
During 1998 preferred stock in the quantity of 31,993 shares were
converted into 77,558 shares of common stock.
During 1998 long-term debt of $5,000,000 was converted into 6,000,000
shares of Series D preferred stock.
The Company added new leases during 1998 and 1997 that represent asset
values respectively, if purchased, of approximately $103,000 and
$57,000 and result in annual lease payments of $27,000 and $18,732
with terms expiring up to the year 2003.
During 1999 Series C preferred stock in the quantity of 46,238 shares
were converted into 112,085 shares of common stock.
The Company borrowed $10,750,000 from a bank and others to acquire
PGOA and acquired PGD Online, LLC during 1999.
13. COMMITMENTS AND CONTINGENCIES
-----------------------------
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial
statements, the Company has net losses before taxes of $4,297,000,
$1,475,000 and $3,516,000 for the years ended December 31, 1999, 1998 and
1997. A bank loan to one of the Companies subsidiaries has been extended to
April 30, 2000. The Company has is seeking a long-term extension of this
loan, and to raise equity capital. The Company's ability to continue as a
going concern is partially dependent on ability of management to
successfully implement these plans. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
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. (See Notes 4 and
9).
14. ACQUISITIONS
------------
In June 1999, Ajay, through a newly formed majority owned subsidiary (PGI)
acquired 100% of the outstanding ownership interests of PGOA and PG.com.
This acquisition was accounted for using the purchase method of accounting.
The results of operations of the acquired companies have been included in
Ajay's consolidated financial statements from the date of acquisition.
Intercompany accounts and transactions between the acquired companies and
Ajay, as applicable, have been eliminated.
The acquisition price of $10,500,000 was paid in cash and financed through
borrowings with a bank ($8,500,000) affiliated companies ($870,000) and
private individuals ($1,200,000). The portion of the purchase price in
excess of net book value was allocated to "Trademarks" and, net of the
related income tax benefit and related trademark amortization, is shown in
the consolidated balance sheet with "Other assets".
15. NEW ACCOUNTING PRONOUNCEMENTS
-----------------------------
In March 1998, the Accounting Standards Committee of the American Institute
of Certified Public Accountants issued Statement of Position ("SOP") 98-1,
"Accounting for Costs of Computer Software Developed or Obtained for
Internal Use." SOP 98-1 provides guidance for an enterprise on accounting
for the costs of computer software developed or obtained for internal use.
The Company adopted this statement during the year ended December 31, 1999
and has capitalized software costs according to the provisions of the
standard. These costs are amortized on a straight-line basis over the
useful life of the software once it is placed into service.
<PAGE>
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting
and reporting standards for derivative instruments and hedging activities.
The statement was amended by SFAS No. 137 and will be effective for
financial statements for fiscal years beginning after June 15, 2000. The
Company believes SFAS No. 133 will not have a material impact on its
financial statements or accounting policies. The Company will adopt the
provisions of SFAS No. 133 in the first quarter of 2001.
16. SUBSEQUENT EVENTS
-----------------
During late 1999 and into 2000, the Company began selling equity in PGI in
a private placement offering and entered into an agreement to acquire
developed and undeveloped real estate for existing and planned golf-related
activities, including golf domes with retail stores inside. As of April 14,
2000, the Company had committed to issue 138,750 shares of PGI stock at $60
per share, which represents 12.18% of the total shares of PGI stock
outstanding at that date. Of the new shares committed to, $375,000 cash had
been received with signed subscription documents, $870,000 was a conversion
of subordinated debt into common stock, and the remaining $7,080,000 a
combination of equity securities and golf-related real property.
The Company anticipates substantial additional cash flows resulting from
the debt conversions and the rents and fees to be received from the golf
properties during the initial twelve-month period beginning July 1, 2000.
These revenues are expected to increase in the future after the start-up
period is over. Additionally, the dome and retail store combination is
planned as the new PGOA franchise of the future and could substantially
increase revenues and cash flow of the Company's PGOA operations.
The Company began an offering of PG.com common stock in late April 2000 to
raise up to $12,500,000 in gross offering proceeds. If the maximum offering
is sold, the shares sold in this offering will represent approximately 33%
of the total PG.com common shares outstanding after the offering. Proceeds
from these private placements will be used for working capital,
acquisitions, and growth.
Effective March 15, 2000 PGI obtained an extension through April 30, 2000
on its master revolving note with Comerica Bank. PGI anticipates
refinancing this loan into a long-term amortizing loan during the second
quarter of 200.
<PAGE>
Schedule II
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
Years ended December 31, 1999, 1998, and 1997
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Balance
Beginning Charged to Deducted from at end
Balance expense Reserve of period
--------- ---------- ------------- ----------
Reserve for Product Warranty:
Year ended:
December 31, 1999 $103 $271 $295 (1) $ 79
December 31, 1998 152 70 119 103
December 31, 1997 85 309 242 152
Reserve for Doubtful Receivables:
Year ended:
December 31, 1999 $318 (3) $263 $23 (2) $558
December 31, 1998 243 50 198 95
December 31, 1997 140 355 252 243
Reserve for Inventory Obsolescence:
Year ended:
December 31, 1999 $300 $350 $257 $393
December 31, 1998 425 292 417 300
December 31, 1997 491 398 464 425
Notes:
(1) Represents amounts paid for product warranty claims.
(2) Represents amounts charged off as uncollectible.
(3) Includes $223 balance on books of company which was acquired in June, 1999
</TABLE>
