<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------
FORM 10-Q
MARK ONE:
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from _____ to _____
---------------------------
Commission File No. 0-18204
---------------------------
AJAY SPORTS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 39-1644025
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1501 E. Wisconsin Street, Delavan, Wisconsin 53115
(Address of principal executive offices) (Zip Code)
(414) 728-5521
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /x/ No / /
Number of shares of common stock outstanding at 6/30/95 is 22,545,537.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, 1995 December 31,
(Unaudited) 1994
--------------- -------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 26 $ 105
Trade accounts receivable, net 3,299 1,700
Inventories 5,437 5,786
Prepaid expenses and other current assets 295 211
----- -----
Total current assets 9,057 7,802
Fixed assets, net 1,345 1,357
Investments --- ---
Other assets 193 206
------ ------
Total assets $10,595 $ 9,365
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to affiliate $ 3,186 $ 5,370
Note payable to bank 12 12
Accounts payable 1,131 1,337
Accrued expenses 460 490
------ ------
Total current liabilities 4,789 7,209
Note payable - long term 3,603 121
Stockholders' equity:
Preferred stock, $.01 par value,
10,000,000 shares authorized, 12,500
shares issued, at liquidation value 1,250 1,250
Common stock, $.01 par value 100,000,000
shares authorized, 22,545,537 and
22,533,637 shares outstanding,
respectively 225 225
Additional paid-in capital 8,965 8,961
Accumulated deficit (8,237) (8,401)
------- -------
Total stockholders' equity 2,203 2,035
------- -------
Total liabilities and stockholders' equity $10,595 $ 9,365
======= =======
1
</TABLE>
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales ..................................................................... $ 4,485 $ 4,090 $ 9,939 $ 7,753
Cost of sales ................................................................. 3,570 3,504 7,932 6,691
-------- -------- -------- --------
Gross profit ...................................................... 915 586 2,007 1,062
Selling, general and
administrative expenses ..................................................... 696 646 1,448 1,278
-------- -------- -------- --------
Operating income (loss) ........................................... 219 (60) 559 (216)
Non-operating (income) expense:
Interest expense, net ...................................................... 212 159 397 313
Other, net ................................................................. (2) 288 (2) 298
-------- -------- -------- --------
Total non-operating expense ................................................ 210 447 395 611
-------- -------- -------- --------
Income (loss) before income taxes ............................................. 9 (507) 164 (827)
Income taxes .................................................................. -- -- -- --
-------- -------- -------- --------
Net income (loss) ............................................................. $ 9 $ (507) $ 164 $ (827)
======== ======== ======== ========
Primary earnings per share .................................................... $ .00 $ (.06) $ .01 $ (.11)
======== ======== ======== ========
Fully diluted earnings per share .............................................. $ .00 $ (.06) $ .01 $ (.11)
======== ======== ======== ========
</TABLE>
2
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS), (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1995 1994
------ -----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ........................................................... $ 164 $ (827)
Adjustments to reconcile to net cash
provided by operating activities:
Loss on sale of assets ............................................. -- 42
Depreciation and amortization ...................................... 92 68
Change in assets [(increase)/decrease] and liabilities [increase/(decrease)]:
Trade accounts receivable, net ..................................... (1,599) (1,078)
Inventories ........................................................ 350 1,610
Prepaid expenses and other current assets .......................... (85) 12
Other assets ....................................................... 13 157
Accounts payable ................................................... (206) (1,025)
Accrued expenses ................................................... (30) (54)
Due to affiliates .................................................. -- (240)
-------- --------
Net cash provided by (used in)
operating activities ............................................... (1,301) (1,335)
-------- --------
Cash flows from investing activities:
Purchase of property, plant, equipment ...................................... (80) (3)
Disposition of fixed assets ................................................. -- 4
Investments in and advances to affiliates ................................... -- --
Proceeds from sale of investment ............................................ -- 52
-------- --------
Net cash provided by (used in)
investing activities ............................................... (80) 53
-------- --------
Cash flows from financing activities:
Net change in bank loan ..................................................... (18) (5,019)
Net change in note payable to affiliate ..................................... 1,316 6,363
Issuance of common shares ................................................... 4 ---
-------- --------
Net cash provided by
financing activities ............................................... 1,302 1,344
-------- --------
Net increase in cash and cash equivalents .......................... (79) 62
Cash and cash equivalents at beginning of period ............................... 105 2
-------- --------
Cash and cash equivalents at end of period ..................................... $ 26 $ 64
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest ...................................................... $ 398 $ 269
======== ========
Cash paid for income taxes .................................................. -- --
======== ========
3
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by Ajay Sports, Inc. (the "Company") without audit and pursuant to the
rules and regulations of the Securities and Exchange Commission. In the opinion
of the Company, the financial statements reflect all adjustments, which consist
only of normal recurring adjustments, necessary to present fairly the financial
position of the Company at June 30, 1995 and the results of operations for the
three-month and six month periods ended June 30, 1995 and 1994 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. It is suggested that
these condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's 1994 Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
The year-end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
Note 2. INVENTORIES
The major classes of inventories (rounded to thousands) are as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
--------- ------------
<S> <C> <C>
Raw Materials $ 3,253 $ 2,902
Work in Process 755 943
Finished Goods 1,429 1,941
------- -------
$ 5,437 $ 5,786
======= =======
</TABLE>
4
<PAGE>
Note 3. NOTES PAYABLE
Ajay has operated within a $7,000,000 Loan Agreement and Joint Venture
Implementation Agreement with Williams Controls Industries, Inc. and its
wholly-owned subsidiary ("Williams") since May 5, 1994. The loan with Williams
was paid off on July 25, 1995 with funds made available from a new Loan
Agreement with U. S. Bank.
On April 5, 1995, the Company and Williams agreed to modifications of the terms
of the Loan Agreement and the Joint Venture Implementation Agreement. The
changes included (1) a waiver of Williams' preemptive right to purchase up to
51% under certain circumstances, (2) an extension of the loan term until
February 1, 1996, (3) a reduction in the maximum loan amount from $7.0 million
to $5.6 million as of August 1, 1995, (4) a reduction in the number of $1.00
options granted to Williams from 1,394,979 to 348,745 if the loan was repaid by
August 1, 1995, (5) a reduction in the exercise price of the $1.00 options
granted to Williams to $.50, (6) an extension of the expiration date of all
options granted to Williams from May 5, 1998 to August 1, 1999, and (7) an
additional four-year extension of the manufacturing joint venture at the
Company's Delavan, Wisconsin and Mexicali, Mexico, facilities.
Mr. Itin, the Chairman, Treasurer and a Director of the Company, is also
Chairman, a Director and principal stockholder of Williams.
On July 25, 1995 the Company entered into a Revolving Loan Agreement with United
States National Bank of Oregon (U. S. Bank) for a credit facility of up to
$8,500,000, replacing the Loan Agreement with Williams. All of the Company's
subsidiaries and Williams have guaranteed payment of this credit facility and
the Company and its subsidiaries have pledged their inventory and receivables as
collateral. Accordingly, as of July 25, 1995 approximately $6.4 million is owed
to U. S. Bank. The Revolving Loan is evidenced by demand notes, requires monthly
interest only payments at the prime rate of U. S. Bank (currently 8.75%) and
will be reviewed on May 31, 1996. The Company may borrow up to $5,000,000
against 80% of eligible accounts receivable and 50% of eligible inventory. In
addition, the Company may borrow up to an additional $3,500,000 through its
2-year bulge loan facility. The Company is required to maintain a minimum
tangible net worth of $2,000,000 and a ratio of debt to tangible net worth of
not greater than 4.5 to 1. The Company has agreed to pay Williams 0.5% per annum
of the outstanding Revolving Loan balance on a quarterly basis in consideration
for providing its guarantee of the Revolving Loan. The consolidated statements
of the Company reflect the terms of the new financing package with U. S. Bank.
5
<PAGE>
Note 4. STOCKHOLDERS EQUITY
At the annual meeting held May 24, 1995, the Shareholders voted to increase the
number of authorized common shares to 100,000,000 from 50,000,000.
On July 26, 1995 the Company's Registration Statement filed in connection with
an offering of 325,000 shares of Series C Preferred Stock and 325,000 Warrants
was declared effective. The Series C Preferred Stock is convertible into shares
of the Company's Common Stock at a conversion price of $.6875. Cumulative
dividends are payable on the Series C Preferred Stock. Each Warrant entitles the
holder to purchase one share of Common Stock at any time through December 31,
1996 at a price of $1.00. The Warrants are redeemable by the Company at $.05 per
Warrant under certain conditions. The terms of these Warrants are identical to
publicly-held Warrants to purchase Common Stock. The Company intends to use the
estimated net proceeds of this $3.3 million offering for inventory and accounts
receivable financing, to improve and enhance its manufacturing capabilities, and
to provide working capital which may be used to expand product lines, develop
new markets and acquire companies or product lines compatible with or
complementary to its present products in order to expand its leisure and
recreational business.
Note 5. BUSINESS SEGMENT REPORTING
The relative contributions to net sales, operating profit and identifiable
assets of the Company's two industry segments for the six months and quarter
ended June 30, 1995 (unaudited) are as follows (in thousands):
SIX MONTHS ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
Golf and
Furniture Billiards Consolidated
--------- ------- ------------
<S> <C> <C> <C>
Sales $ 783 $9,156 $ 9,939
Operating profit/(loss) (217) 776 559
Assets 1,763 8,832 10,595
Depreciation 52 40 92
Capital expenditures 51 29 80
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 1995
Golf and
Furniture Billiards Consolidated
--------- ------- ------------
<S> <C> <C> <C>
Sales $ 421 $4,064 $ 4,485
Operating profit/(loss) (83) 302 219
Assets 1,763 8,832 10,595
Depreciation 33 7 40
Capital expenditures 16 0 16
</TABLE>
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION - At June 30, 1995 the Company had working capital of
$4,268,000, as compared with $593,000 at December 31, 1994. The $3.7 million
increase in working capital reflects the terms of the new loan agreement with U.
S. Bank, which includes a $3.5 million long-term bulge loan facility. (See Note
3 of Notes to Consolidated Financial Statements). The ratio of current assets to
current liabilities at June 30, 1995 was 1.9 which compares to 1.1 for December
31, 1994.
LIQUIDITY - Subsequent to June 30, 1995 Ajay improved its liquidity through
obtaining a new $8.5 million credit facility with U. S. Bank on July 25, 1995.
The new credit facility interest rate is at prime, replacing the old credit
facility rate which was at prime plus 3%. Further liquidity improvement resulted
from receiving proceeds from a $3.3 million preferred stock and warrants
offering which went effective on July 26. These two important events position
Ajay for future growth.
RESULTS OF OPERATIONS - During the quarter ended June 30, 1995 the Company had
net sales of $4,485,000, compared to $4,090,000 for the same period in 1994. For
the six months ended June 30, 1995 the Company had net sales of $9,939,000
compared to $7,753,000 for the same period in 1994. The overall sales increase
has occurred throughout all of its product lines and with respect to several
major customers, along with increases in secondary customers and sales to new
customers. The furniture line acquired August 1, 1994 contributed 36% of the
6-month sales increase of $2.2 million.
Gross profit for the three months ended June 30, 1995, expressed as a percentage
of net sales, increased to 20.4%, compared to 14.3% for the same period in 1994.
Gross profit for the six months ended June 30, 1995 expressed as a percentage of
net sales, increased to 20.2% compared to 13.7% for the same period in 1994.
Golf margins in 1995 improved as a result of increased sales volume and product
mix resulting in efficiencies and cost reductions in materials and manufacturing
costs. This improvement was diminished by the unfavorable results of the
furniture business, where material costs and labor were higher than planned.
Through extensive redesign, costs for the 1996 furniture line are being reduced
and management expects this to result in improved margins in 1996. The furniture
product line was targeted to smaller customers during 1994-95. The 1996
furniture products have been engineered to target the mass market as well as the
current customer base of independent dealers. This broadens the available market
and supports plans for growth. Management expects furniture products to be
profitable in 1996.
Selling, general and administrative expenses were 15.5% of sales for the second
quarter of 1995, versus 15.8% for 1994. The six
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
months results were 14.6% and 16.5%, respectively for 1995 and 1994. Selling
expenses for the start-up furniture business have been relatively high per sales
dollar due to the higher cost inherent in the present effort to develop the
sales base of new customers which will benefit future periods. This included
such expenses as trade shows, travel and advertising to reach potential
customers. Overall expenses as a percent of sales were favorable due to the 28%
sales increase for the first 6 months.
Operating profit for the second quarter of 1995 was $219,000, an increase of
$279,000, compared to an operating loss of $60,000 for the second quarter of
1994. This was due primarily to a decrease in the cost of sales which was 80%
for the second quarter of 1995 and 86% for the second quarter of 1994 plus the
positive effect of a 10% sales increase. The core golf business improved during
the second quarter from a prior year loss of $60,000 to a current year profit of
$302,000. This profit was partially offset by an $83,000 loss in the furniture
business.
Interest expense increased $53,000 in the second quarter of 1995 compared to the
second quarter of 1994 as a result of higher debt and higher interest rates. The
revolving loan interest rate during the quarter was 12.00%. A new $8.5 million
credit facility was placed effective July 25, 1995 and provides for interest at
U. S. Bank's prime rate which was 8.75% on that date. The new credit facility
should provide lower interest expense for the future.
As a result of the above, the net income for the six months ended June 30, 1995
was $164,000, compared to a net loss of $827,000 for the same period last year.
This is an improvement of $991,000. For the three months ended June 30, 1995 the
net income was $9,000 compared to a net loss of $507,000 for the same period
last year. This is an improvement of $516,000.
8
<PAGE>
PART II. OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
On July 26, 1995, the Company filed a Certificate of Designation of Rights and
Preferences of the Series C 10% Cumulative Convertible Preferred Stock,
consisting of 500,000 shares (the "Series C Preferred Stock"). The Series C
Preferred Stock shares a preference as to the payment of dividends and as to any
distribution of assets upon liquidation with the Series B Preferred Stock. The
Series C Preferred Stock is convertible into shares of common stock at a
conversion price of $.6875 at the option of the holder and is subject to
mandatory conversion if the trading price of the common stock reaches a certain
level. The Series C Preferred Stock may be redeemed by the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 24, 1995, the Company held its annual meeting of shareholders. Proxies
were solicited pursuant to Regulation 14 under the Securities Exchange Act of
1934. All of the incumbent directors were re-elected. Shareholders also adopted
the Certificate of Amendment to the Certificate of Incorporation increasing the
authorized shares of common stock to 100,000,000. Of the 20,446,318 shares that
voted on this matter, only 327,290 voted against and 97,024 abstained.
Item 5. OTHER INFORMATION
On April 17, 1995 the License Agreement between Ajay and Spalding Sports
Worldwide was extended to June 30, 1998.
9
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibits:
Regulation
S-K Number Exhibit
3.1 Certificate of Amendment of Certificate
of Incorporation.
4.1 Certificate of Designation of Rights and
Preferences of the Series C 10% Cumulative
Convertible Preferred Stock. (1)
10.1 Third Amendment to the April 14, 1992
salding License Agreement dated
June 5, 1995. (1)
10.2 revolving Loan Agreement dated as of July
25, 1995 between Ajay Sports, Inc. and
United States National Bank of Oregon. (1)
27 Financial Data Schedule
B) Forms 8-K:
1. The Company filed a Form 8-K, dated April 28, 1995,
reporting the extension of the expiration date of its common
stock purchase warrants.
(1) Previously filed with and incorporated by reference from the
Registrant's Registration Statement on Form S-2, File No. 33-58753.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AJAY SPORTS, INC.
By: /s/Robert R. Hebard
--------------------------------
Its: Corporate Secretary
By: /s/Duane R. Stiverson
----------------------------------
Its: Chief Financial Officer
Date:
---------------------------------
11
<PAGE>
EXHIBIT 3.1
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 06/12/1995
950129646 - 2169842
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
AJAY SPORTS, INC.
AJAY SPORTS, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the Board of Directors of AJAY SPORTS, INC., by the
unanimous written consent of its members, filed with the minutes of the board,
duly adopted resolutions setting forth a proposed amendment to the Certificate
of Incorporation of said corporation declaring said amendment to be advisable
and calling a meeting of the stockholders of said corporation for consideration
thereof. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of Ajay Sports, Inc. be
amended by changing the Fourth Paragraph thereof so that as amended,
said Paragraph shall be and read as follows:
4.
The authorized capital stock of the Corporation shall consist of
One Hundred Million (100,000,000) shares of One Cent ($.01) par value
common stock, (hereinafter called the "Common Stock"), and Ten Million
(10,000,000) shares of One Cent ($.01) par value preferred stock
(hereinafter called the
"Preferred Stock").
Pursuant to Section 151(a) of the Delaware General Corporation
Law ("DGCL"), the Board of Directors is expressly authorized and
empowered to divide any or all of the shares of common stock and/or
preferred stock into series and, within the limitations set forth in
the DGCL, to fix and determine the relative rights and preferences of
the shares of any series established.
12
<PAGE>
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a meeting of the stockholders of said corporation was duly called and
held, upon notice in accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number of shares as
required by statute were voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said AJAY SPORTS, INC. has caused this certificate
to be signed by Thomas W. Itin, its President, this 24th day of May, 1995.
AJAY SPORTS, INC.
BY __________________________
Thomas W. Itin, President
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 26
<SECURITIES> 0
<RECEIVABLES> 3,299
<ALLOWANCES> 0
<INVENTORY> 5,437
<CURRENT-ASSETS> 9,057
<PP&E> 1,537
<DEPRECIATION> 311
<TOTAL-ASSETS> 10,595
<CURRENT-LIABILITIES> 4,789
<BONDS> 0
<COMMON> 225
0
1,250
<OTHER-SE> 8,965
<TOTAL-LIABILITY-AND-EQUITY> 10,595
<SALES> 9,939
<TOTAL-REVENUES> 9,939
<CGS> 7,932
<TOTAL-COSTS> 1,448
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 397
<INCOME-PRETAX> 164
<INCOME-TAX> 0
<INCOME-CONTINUING> 559
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 164
<EPS-PRIMARY> 0.010
<EPS-DILUTED> 0.000
</TABLE>
