<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
October 6, 1995
(Date of Report)
AJAY SPORTS, INC.
(Exact name of Registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
0-18204 39-1644025
(Commission File Number) (I.R.S. Employer Identification
Number
1501 E. Wisconsin Street, Delavan, Wisconsin 53115
(Address of principal executive offices including zip code)
(414) 728-5521
(Registrant's telephone number, including area code)
1
<PAGE>
Item 7. Financial Statements and Exhibits
a) Financial statements of business acquired.
The financial statements of Palm Springs Golf Company, Inc. for the
years ended December 31, 1994, 1993 and 1992 and reports of Independent
Certified Public Accountants.
The interim financial statements of Palm Springs Golf Company, Inc. for
the nine months ended September 30, 1995 and 1994.
b) Unaudited pro forma financial information.
The pro forma financial statements are presented to show the financial
position of Ajay Sports, Inc. (Ajay) and Palm Springs Golf Company,
Inc. (PSG), as if the purchase of Palm Springs Golf Company, Inc.
occurred September 30, 1995 and the results of their operations for the
nine months ended September 30, 1995 and the year ended December 31,
1994, as if the acquisition had occurred on the first day of each
respective period. The acquisition has been accounted for using the
purchase method of accounting.
These pro forma financial statements have been prepared for comparative
purposes only and do not purport to indicate what necessarily would
have occurred had the entities been combined since the applicable date,
or what results may be in the future.
(1)(a) Pro forma condensed consolidated balance sheet of Ajay and PSG as of
September 30, 1995.
(1)(b) Pro forma condensed consolidated statement of operations of Ajay and
PSG for the nine months ended September 30, 1995.
(1)(c) Pro forma condensed consolidated statement of operations of Ajay and
PSG for the year ended December 31, 1994.
(1)(d) Notes to pro forma condensed consolidated financial statements.
2
<PAGE>
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 hereunto duly authorized.
December 12, 1995 AJAY SPORTS, INC.
\s\Duane R. Stiverson
-----------------------
Duane R. Stiverson
Chief Financial Officer
3
<PAGE>
PALM SPRINGS GOLF COMPANY, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Palm Springs Golf Company, Inc.
We have audited the accompanying balance sheets of Palm Springs Golf Company,
Inc. as of December 31, 1994 and 1993, and the related statements of operations,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 Palm Springs Golf Company, Inc.
as of December 31, 1994 and 1993, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
Singer, Lewak, Greenbaum & Goldstein (Successors to the practice of Shillan
Abrams & Company, who audited the financial statements for the year ended
December 31, 1993)
Los Angeles, California
February 3, 1995
5
<PAGE>
Palm Springs Golf Company, Inc.
BALANCE SHEETS
December 31, 1994 and 1993
ASSETS
<TABLE>
<CAPTION>
December 31,
1994 1993
Current Assets ------------- ------------
<S> <C> <C>
Cash $ 153,234 $ 40,500
Accounts receivable, net of allowance for doubtful
accounts of $150,000 and $125,000 (note 5) 1,775,796 1,951,651
Inventories (notes 2 and 5) 1,867,513 2,241,407
Current portion of notes receivable (note 3) 91,416
Income taxes receivable 83,424
Deferred income taxes (note 9) 190,000 100,000
Prepaid expenses and other current assets 248,657 58,396
Current Assets ------------- ------------
Total current assets 4,326,616 4,475,378
Property and equipment, net (notes 4 and 5) 89,135 116,316
Long-term notes receivable (note 3) 268,162
Other assets 6,793 6,789
Deferred offering costs (note 11) 393,436 92,893
Current Assets ------------- ------------
$ 5,084,142 $ 4,691,376
============= ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current Liabilities
Line of credit (note 5) $ 3,100,000 $ 2,725,000
Accounts payable 378,990 154,572
Accrued expenses 45,385 44,999
Preferred stock dividends payable (note 8) 18,967
Current portion of capital lease obligations (note 7) 2,292 12,784
Current Assets ------------- ------------
Total current liabilities 3,526,667 2,956,322
Long-term portion of capital lease obligations (note 7) 4,482 7,237
Deferred income taxes (note 9) 17,000 17,000
Stockholders' equity (notes 8, 10 and 11) Redeemable preferred stock, $2.00 par
value, 1,000,000
shares authorized, 710,000 shares issued and outstanding 1,420,000 1,420,000
Common stock, no par value, 8,000,000 shares authorized,
3,000,000 issued and outstanding 137,914 137,914
Retained earnings (accumulated deficit) (21,921) 152,903
Current Assets ------------- ------------
Total stockholders' equity 1,535,993 1,710,817
Current Assets ------------- ------------
$ 5,084,142 $ 4,691,376
============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE>
Palm Springs Golf Company, Inc.
STATEMENTS OF OPERATIONS
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
----------- -----------
<S> <C> <C>
Revenues $ 7,004,274 $ 5,488,603
Cost of sales 5,621,880 4,251,311
----------- -----------
Gross profit 1,382,394 1,237,292
Selling, general and administrative expenses 1,289,351 1,238,431
Provision for doubtful accounts 123,074 127,356
----------- -----------
Loss from operations (30,031) (128,495)
Other income (expense)
Interest expense (233,993) (183,722)
Other income 4,567
----------- -----------
Other income (expense) (233,993) (179,155)
----------- -----------
Loss before income tax benefit (264,024) (307,650)
----------- -----------
Income tax benefit (note 9) (89,200) (129,368)
----------- -----------
Net loss $ (174,824) (178,282)
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
3
<PAGE>
Palm Springs Golf Company, Inc.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
Retained
Earnings
Preferred Stock Common Stock (Accumulated
Shares Amount Shares Amount Deficit) Total
------- ------------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 710,000 $ 1,420,000 3,069,000 $ 388,373 $ 450,785 $ 2,259,158
Stock recision (note 10) (69,000) (250,459) (250,459)
Dividends on preferred stock (119,600) (119,600)
Net loss (178,282) (178,282)
------- ------------- --------- --------- ----------- ------------
Balance, December 31, 1993 710,000 1,420,000 3,000,000 137,914 152,903 1,710,817
Net loss (174,824) (174,824)
------- ------------- --------- --------- ----------- ------------
Balance, December 31, 1994 710,000 $ 1,420,000 3,000,000 $ 137,914 $ (21,921) $ 1,535,993
======= ============= ========= ========= =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
4
<PAGE>
Palm Springs Golf Company, Inc.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (174,824) $ (178,282)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 30,494 32,976
Provision for losses on accounts receivable 123,074 127,356
Interest amortization 6,667
Deferred income taxes (90,000) (83,000)
(Increase) decrease in:
Accounts receivable (306,797) (123,904)
Inventories 373,894 81,143
Income taxes receivable 83,424 (83,424)
Other current assets (190,261) 28,053
Other assets (4) 9,072
Increase (decrease) in:
Accounts payable and accrued expenses 49,339 80,052
Income taxes payable (80,519)
------------- -------------
Net cash used in operating activities (101,661) (183,810)
------------- -------------
Cash flows used in investing activities:
Purchases of property and equipment (3,313) (20,455)
------------- -------------
Cash flows from financing activities:
Principal payments on capital lease obligations (13,247) (1,634)
Net borrowings on line of credit 375,000 580,466
Preferred stock dividends (18,967) (119,600)
Deferred offering costs (125,078) (227,304)
------------- -------------
Net cash provided by financing activities 217,708 231,928
------------- -------------
Net increase in cash 112,734 27,663
Cash, beginning of year 40,500 12,837
------------- -------------
Cash, end of year $ 153,234 $ 40,500
============= =============
Supplemental Disclosure of Cash Flow Information
Interest paid $ 223,114 $ 185,290
Taxes paid (received) (83,424) 116,773
</TABLE>
The accompanying notes are an integral part of these financial statements
5
<PAGE>
Supplemental Schedule of Noncash Investing and Financing Activities:
In 1993, $11,240 of machinery and equipment were acquired through capitalized
lease obligations.
The accompanying notes are an integral part of these financial statements
6
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1994 and 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
Palm Springs Golf Company, Inc. (the Company) is incorporated in the State
of California. The Company is a manufacturer and distributor of golf clubs
and a distributor of golf bags and other golf accessories which it sells to
retail outlets.
Inventories
Inventories are stated at the lower of cost or market with cost being
determined on the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the related
assets of five to ten years. Leasehold improvements are being amortized over
the shorter of the estimated useful lives or term of the lease.
Deferred Offering Costs
Amounts paid for costs associated with an anticipated initial public
offering (IPO) are capitalized and will be recorded as a reduction to
additional paid-in capital upon the completion of the IPO. In the event that
the IPO is not successful the deferred offering will be charged off to
expense (Note 11).
Revenue Recognition
The Company records revenue as goods are shipped to customers.
Income Taxes
In fiscal 1993, the Company adopted Statement of Financial Accounting
Standard No. 109, Accounting for Income Taxes ("SFAS 109"). Prior to
adoption of SFAS 109, the Company reported the effects of income taxes
pursuant to Accounting Principles Board Opinion No. 11, Accounting for
Income Taxes ("APB 11").
The adoption of SFAS 109 changes the Company's method of accounting for
income taxes from the deferred method to an asset and liability method.
Previously, the Company deferred the past tax effects of timing differences
between financial reporting and taxable income. The asset and liability
method requires the recognition of deferred tax assets and liabilities for
the future tax consequences of temporary differences between the financial
statement basis and the tax basis of assets and liabilities. Prior year
financial statements were not restated for SFAS 109. The current and
cumulative effect of this accounting change did not have a material effect
on the financial statements.
NOTE 2 - INVENTORIES
Inventories consist of the following:
December 31,
1994 1993
--------- ---------
Raw materials $ 793,767 $ 1,017,717
Work-in-process 24,364 6,847
Finished goods 1,049,382 1,216,843
--------- ---------
$ 1,867,513 $ 2,241,407
========= =========
7
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1994 and 1993
NOTE 3 - NOTE RECEIVABLE
In February 1995, the Company converted $359,578 of an accounts receivable
into long-term notes receivable. The notes are due in monthly payments of
$11,268, including interest at 8% per annum.
8
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1994 and 1993
NOTE 4 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
------- -------
<S> <C> <C>
Land $ 15,000 $ 15,000
Machinery and equipment 159,747 159,456
Furniture and fixtures 120,395 117,373
Vehicles 20,306 20,306
Leasehold improvements 55,502 55,502
------- -------
370,950 367,637
Less accumulated depreciation and amortization 281,815 251,321
------- -------
$ 89,135 $ 116,316
======= =======
</TABLE>
NOTE 5 - LINE OF CREDIT
The line of credit has a maximum availability of $4,000,000, of which
$3,100,000 has been drawn as of December 31, 1994. The line of credit is due
September 1995. The line bears interest at the prime interest rate. The
interest rate was 9.25% at December 31, 1994.
Borrowings under the line of credit are secured by trade accounts
receivable, inventories and property and equipment. In addition, the line of
credit is collateralized by letters of credit with banks and a personal
guarantee by the president of the Company. There are certain covenants under
the line of credit agreements, some of which restrict the payment of
dividends to common stockholders and limit property and equipment
acquisitions. The Company is in compliance with all covenants at December
31, 1994.
NOTE 6 - LINE OF CREDIT - AFFILIATE
In February 1994, the Company entered into an agreement with an affiliate of
an officer/stockholder. Pursuant to this agreement the affiliate has
provided the Company with a revolving line of credit with a maximum
availability of $300,000. Interest is at 8% per annum. The unpaid amounts
are payable on demand. At December 31, 1994, no amounts were owed under this
agreement.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases its operating facilities and equipment under operating
leases which expire through 1997. Certain leases require the Company to pay
maintenance, insurance and property taxes in addition to the minimum lease
payments.
Minimum rental commitments under noncancellable operating leases are as
follows:
Year ending
December 31,
1995 $ 161,000
1996 161,000
1997 54,000
-------
Total $ 376,000
=======
9
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1994 and 1993
Rental expense for the years ended December 31, 1994 and 1993 amounted to
approximately $163,000 and $166,000, respectively.
10
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1994 and 1993
NOTE 7 - COMMITMENTS AND CONTINGENCIES (continued)
Capital Lease Obligations
The Company leases equipment under capital lease obligations which expire
through 1997. Future minimum payments by the Company under the capital
leases consist of the following at:
Year ending
December 31,
1995 $ 3,232
1996 3,232
1997 1,885
-----
Total minimum lease payment 8,349
Amount representing interest 1,575
Present value of minimum lease payments 6,774
Current portion 2,292
Long-term portion $ 4,482
=====
NOTE 8 - PREFERRED STOCK
In September 1992, $1,120,000 of notes payable to related parties was
converted into 560,000 shares of redeemable preferred stock. The shares are
noncumulative, and each share has a liquidation preference of $2.00 per
share, and are redeemable at the discretion of the Company. The president of
the Company purchased 150,000 shares of redeemable preferred stock for the
purchase price of $300,000.
NOTE 9 - INCOME TAXES
The Company provides for income taxes as required by Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" .
Income tax expense (benefit) consisted of the following:
1994 1993
------- -------
Current
Federal $ 0 $ (47,168)
State 800 800
Deferred (90,000) (83,000)
------- -------
$ (89,200) $ (129,368)
======= =======
Deferred income tax provisions, resulting from differences between
accounting for financial statement purposes and accounting for tax purposes,
were immaterial.
11
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1994 and 1993
NOTE 9 - INCOME TAXES (continued)
The differences between the provision for income taxes and income taxes
computed using the federal income tax rate were as follows:
<TABLE>
<CAPTION>
1994 1993
------ -------
<S> <C> <C>
Amount computed using the federal statutory rate $ (89,800) $ (104,601)
State income tax benefit, net of federal tax benefit (15,200) (30,145)
Permanent differences 14,000 9,457
Other 1,800 (4,079)
------ -------
Actual expense benefit $ (89,200) $ (129,368)
====== =======
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
for federal and state income taxes are as follows:
<TABLE>
<CAPTION>
December 31,
1994 1993
------- -------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ 144,000 $ 44,000
Accounts receivable and warranty reserves 55,000 65,000
Other, net 3,000 3,000
------- -------
Total deferred tax assets 202,000 112,000
Valuation allowance for deferred tax assets (12,000) (12,000)
------- -------
190,000 100,000
Deferred tax liabilities
Differences between book and tax basis of property and
equipment (17,000) (17,000)
------- -------
Net deferred tax assets $ 173,000 $ 83,000
======= =======
</TABLE>
SFAS No. 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. The Company
believes that some uncertainty exists with respect to future realization of
a portion of certain state net operating loss carryforwards. Therefore, the
Company established a valuation allowance relating to these carryforwards of
$12,000 as of December 31, 1994 and 1993.
At December 31, 1994, the Company had federal net operating loss
carryforwards of approximately $340,000, which expire in 2009.
NOTE 10 - STOCK ACQUISITION
In September 1992, the stockholders of the Company entered into an agreement
whereby Taft Capital, Inc. (whose name was subsequently changed to Palm
Springs Golf Company, Inc.) acquired 100% of the Company's stock and the
stockholders of the Company acquired 3,000,000 shares of Taft Capital, Inc.
(of which 2,900,000 were contingent bonus shares held in escrow).
Taft Capital, Inc. was considered a public shell, and accordingly the
transaction was not considered a business combination and was accounted for
as a reverse merger. As a result of certain alleged misrepresentations made
by Taft Capital, Inc., the aforementioned transaction was rescinded on June
29, 1993. All shares issued, including
12
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1994 and 1993
those held in escrow pursuant to the stock acquisition agreement were
cancelled. As a result of this transaction, common stock decreased by
$250,459, and deferred offering costs decreased by $250,459.
13
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1994 and 1993
NOTE 11 - SUBSEQUENT EVENTS
In connection with an initial public offering by the Company, the Company
completed a series of actions or transactions (the Reorganization) pursuant
to which: (I) the jurisdiction of incorporation was changed from the State
of California to the State of Delaware through a merger of Palm Springs Golf
Company, Inc. into Palm Springs Golf Company, Inc., a Delaware Corporation
(Palm Springs Golf Delaware); (ii) the Company was recapitalized whereby all
of the outstanding shares of common stock were converted into 1,737,308
shares of common stock of Palm Springs Golf Delaware and all of the
outstanding shares of preferred stock were converted into 710,000 shares of
preferred stock of Palm Springs Golf Delaware; and (iii) the adoption of an
incentive stock option plan and a non-qualified stock option plan.
In February 1995, the initial public offering was aborted. The company is in
the process of rescinding all of the reorganization transactions described
above, and accordingly, the financial statements have been restated assuming
incorporation in California.
In connection with the initial public offering the Company deferred $393,436
of offering costs. These costs will be written off to expense in 1995.
14
<PAGE>
PALM SPRINGS GOLF COMPANY, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1992 AND 1993
AND TEN MONTHS ENDED
OCTOBER 31, 1993 AND 1994 (UNAUDITED)
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Palm Springs Golf Company, Inc.
We have audited the accompanying balance sheet of Palm Springs Golf Company,
Inc. as of December 31, 1993, and the related statements of operations,
stockholders' equity and cash flows for the year then ended. 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.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Palm Springs Golf Company, Inc.
as of December 31, 1993, and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
Singer, Lewak, Greenbaum & Goldstein (Successors to the practice of Shillan
Abrams & Company, who audited the financial statements for the year ended
December 31, 1993)
Los Angeles, California
January 28, 1994
F16
<PAGE>
Palm Springs Golf Company, Inc.
BALANCE SHEETS
December 31, 1992 and 1993, and
October 31, 1994 (Unaudited)
ASSETS
<TABLE>
<CAPTION>
October 31,
December 31, 1994
1992 1993 (Unaudited)
--------- --------- ---------
<S> <C> <C> <C>
Current Assets
Cash $ 12,837 $ 40,500 $ 20,042
Accounts receivable, net of allowance for doubtful
accounts of $70,736, $150,000 and $154,207 (note 4) 1,994,587 1,951,651 2,486,650
Inventories (notes 2 and 4) 2,322,550 2,241,407 2,017,438
Income taxes receivable 83,424
Deferred income taxes (note 9) 100,000 130,500
Other current assets 86,449 58,396 207,782
--------- --------- ---------
Total current assets 4,416,423 4,475,378 4,862,412
Property and equipment, net (notes 3 and 4) 60,233 116,316 93,368
Other assets 15,861 6,789 7,303
Deferred offering costs 116,048 92,893 289,313
--------- --------- ---------
$ 4,608,565 $ 4,691,376 $ 5,252,396
========= ========= =========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C> <C>
Current Liabilities
Line of credit (note 4) $ 2,137,867 $ 2,725,000 $ 3,050,000
Accounts payable 76,630 154,572 480,548
Accrued expenses 27,319 44,999 46,368
Preferred stock dividends payable (note 8) 16,567 18,967 99,667
Current portion of capital lease obligations (note 6) 1,634 12,784 2,201
Income taxes payable 80,519
--------- --------- ---------
Total current liabilities 2,340,536 2,956,322 3,678,784
Long-term portion of capital lease obligations (note 6) 8,871 7,237 5,091
Deferred income taxes (note 9) 17,000 17,000
Commitments and Contingencies (note 6)
Stockholders' equity (notes 7, 8 and 10)
Series A convertible redeemable preferred stock, $.0001 par
value, 560,000 shares authorized, issued and outstanding 56 56 56
Series B convertible redeemable preferred stock, $.0001 par
value, 150,000 shares authorized, issued and outstanding 15 15 15
Common stock, $.0001 par value, 8,000,000 shares authorized,
1,805,908, 1,737,308 and 1,737,308 issued and outstanding 181 174 174
Additional paid-in capital 1,808,121 1,557,669 1,557,669
Retained earnings (accumulated deficit) 450,785 152,903 (6,393)
--------- --------- ---------
Total stockholders' equity 2,259,158 1,710,817 1,551,521
--------- --------- ---------
$ 4,608,565 $ 4,691,376 $ 5,252,396
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F2
<PAGE>
Palm Springs Golf Company, Inc.
STATEMENTS OF OPERATIONS
Years ended December 31, 1992 and 1993, and
ten months ended October 31, 1993 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, Ten Months Ended October 31,
1992 1993 1993 1994
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Revenues $ 7,626,760 $ 5,488,603 $ 4,916,265 $ 6,112,671
Cost of sales 5,538,951 4,251,311 3,748,167 4,823,654
--------- --------- --------- ---------
Gross profit 2,087,809 1,237,292 1,168,098 1,289,017
Selling, general and administrative expenses 1,446,426 1,238,431 1,035,093 1,063,866
Provision for doubtful accounts 147,088 127,356 98,502 120,114
--------- --------- --------- ---------
Income (loss) from operations 494,295 (128,495) 34,503 105,037
Other income (expense)
Interest expense (244,919) (183,722) (152,409) (194,367)
Other income 28,153 4,567
--------- --------- --------- ---------
Other income (expense) (216,766) (179,155) (152,409) (194,367)
-------- -------- -------- --------
Income (loss) before income
taxes expense (benefit) 277,529 (307,650) (117,906) (89,330)
Income taxes expense (benefit)(note 9) 132,387 (129,368) (39,600) (29,700)
------- -------- -------- --------
Income (loss) before extraordinary item 145,142 (178,282) (78,306) (59,630)
Extraordinary item - utilization of
operating loss carryforward 51,011
--------- --------- --------- ---------
Net income (loss) $ 196,153 $ (178,282) $ (78,306) $ (59,630)
========= ========= ========= =========
Net income (loss) applicable to common
stockholders $ 168,308 $ (297,882) $ (177,972) $ (159,296)
========= ========= ========= =========
Per share data
Income (loss) before extraordinary item $ .07 $ (.17) $ (.10) $ (.09)
========= ========= ========= =========
Net income (loss) $ .10 $ (.17) $ (.10) $ (.09)
========= ========= ========= =========
Weighted average common shares outstanding 1,603,616 1,737,308 1,737,308 1,737,308
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F3
<PAGE>
Palm Springs Golf Company, Inc.
STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1992 and
1993, and ten months ended October
31, 1994 (Unaudited)
<TABLE>
<CAPTION>
Retained
Additional Earnings
Preferred Stock Common Stock Paid-In (Accumulated
Shares Amount Shares Amount Capital Deficit) Total
------- --- --------- --- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 1,443,347 $ 145 $ 117,769 $ 282,477 $ 400,391
Shares issued in connection with
financing (note 7) 293,961 29 19,971 20,000
Acquired equity in stock acquisition
(note 10) 68,600 7 250,452 250,459
Conversion of notes payable to
preferred stock (note 8) 560,000 $ 56 1,119,944 1,120,000
Preferred stock issued 150,000 15 299,985 300,000
Dividends on preferred stock (27,845) (27,845)
Net income 196,153 196,153
------- --- --------- --- --------- --------- ----------
Balance, December 31, 1992 710,000 71 1,805,908 181 1,808,121 450,785 2,259,158
Stock recision (note 10) (68,600) (7) (250,452) (250,459)
Dividends on preferred stock (119,600) (119,600)
Net loss (178,282) (178,282)
------- --- --------- --- --------- --------- ----------
Balance, December 31, 1993 710,000 71 1,737,308 174 1,557,669 152,903 1,710,817
Dividends on preferred stock
(unaudited) (99,666) (99,666)
Net loss (unaudited) (59,630) (59,630)
------- --- --------- --- --------- --------- ----------
Balance, October 31, 1994 (unaudited) 710,000 71 1,737,308 $ 174 $ 1,557,669 $ (6,393) $ 1,551,521
======= === ========= === ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F4
<PAGE>
Palm Springs Golf Company, Inc.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1992 and 1993, and
ten months ended October 31, 1993 and 1994
(Unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, Ten Months Ended October 31,
Cash flows from operating activities: 1992 1993 1993 1994
--------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C>
Net income (loss) $ 196,153 $ (178,282) $ (78,306) $ (59,630)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 33,110 32,976 22,659 25,971
Provision for losses on accounts receivable 147,088 127,356 98,502 120,114
Interest amortization 13,333 6,667
Deferred income taxes (83,000) (30,500)
Other
(Increase) decrease in:
Accounts receivable (521,481) (123,904) (65,380) (655,113)
Inventories (537,575) 81,143 10,180 223,969
Income taxes receivable (83,424) (76,456) 83,424
Other current assets 23,888 28,053 2,623 (149,386)
Other assets 10,318 9,072 8,137 (514)
Increase (decrease) in:
Accounts payable and accrued expenses 8,311 80,052 18,285 208,529
Income taxes payable 80,519 (80,519) (80,519)
--------- --------- --------- ---------
Total adjustments (742,489) (5,528) (61,969) (173,506)
--------- --------- --------- ---------
Net cash used in operating activities (546,336) (183,810) (140,275) (233,136)
--------- --------- --------- ---------
Cash flows used in investing activities:
Purchases of property and equipment (54,289) (20,455) (21,341) (3,023)
--------- --------- --------- ---------
Cash flows from financing activities:
Principal payments on capital lease obligations (489) (1,634) 12,313 (12,729)
Increase in line of credit - net 145,000 580,466 337,133 325,000
Preferred stock dividends (14,215) (119,600) (99,667) (18,966)
Sale of preferred stock 300,000
Sale of common stock 250,933
Deferred offering costs (116,048) (227,304) (101,000) (77,604)
--------- --------- --------- ---------
Net cash provided by financing activities 565,181 231,928 148,779 215,701
--------- --------- --------- ---------
Net increase (decrease) in cash (35,444) 27,663 (12,837) (20,458)
Cash, beginning of period 48,281 12,837 12,837 40,500
--------- --------- --------- ---------
Cash, end of period $ 12,837 $ 40,500 $ 0 $ 20,042
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements
F5
<PAGE>
Palm Springs Golf Company, Inc.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1992 and 1993, and
ten months ended October 31, 1993 and 1994
(Unaudited)
Supplemental Disclosure of Cash Flow Information
<TABLE>
<CAPTION>
Year Ended December 31, Ten Months Ended October 31,
1992 1993 1993 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest paid $ 313,150 $ 185,290 $ 151,494 $ 178,251
Taxes paid (received) 800 116,773 36,040 (54,924)
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities:
During the year ending December 31, 1992, 293,961 shares of stock were issued in
exchange for services rendered in obtaining financing (note 7).
In September 1992, $1,120,000 in notes payable were converted to preferred stock
(note 8).
In 1992 and 1993, $10,994 and $11,240, respectively, of machinery and equipment
were acquired through capitalized lease obligations.
The accompanying notes are an integral part of these financial statements
F6
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS Years
ended December 31, 1992 and 1993, and ten
months ended October 31, 1993 and 1994
(Information with respect to the ten months ended
October 31, 1993 and 1994 is unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Line of Business
Palm Springs Golf Company, Inc. (the Company) was incorporated in the State
of California. The Company is a manufacturer and distributor of golf clubs
and a distributor of golf bags and other golf accessories which it sells to
retail outlets.
Reorganization
In connection with the initial public offering contemplated by this
Prospectus, the Company intends to complete a series of actions or
transactions (the Reorganization) pursuant to which: (I) the jurisdiction of
incorporation will be changed from the State of California to the State of
Delaware through a merger of Palm Springs Golf Company, Inc. into Palm
Springs Golf Company, Inc., a Delaware Corporation (Palm Springs Golf
Delaware); (ii) the Company will be recapitalized whereby all of the
outstanding shares of common stock will be converted into 1,737,308 shares
of common stock of Palm Springs Golf Delaware and all of the outstanding
shares of preferred stock will be converted into 710,000 shares of preferred
stock of Palm Springs Golf Delaware; and (iii) the adoption of an incentive
stock option plan and a non-qualified stock option plan. Common stock will
be reserved for issuance to officers, directors, key employees and certain
consultants of the Company. The financial statements for all dates and
periods presented give effect to these transactions.
Unaudited Interim Financial Statements
The accompanying financial statements of the Company as of October 31, 1994,
and for the ten month periods ended October 31, 1993 and 1994 are unaudited,
but, in the opinion of management, reflect the adjustments, all of which are
of a normal recurring nature, necessary for a fair presentation of such
financial statements in accordance with generally accepted accounting
principles. The results of operations for an interim period are not
necessarily indicative of results for a full year.
Inventories
Inventories are stated at the lower of cost or market with cost being
determined on the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided using
the straight line method over the estimated useful lives of the related
assets of five to ten years. Leasehold improvements are being amortized over
the shorter of the estimated useful lives or term of the lease.
Deferred Offering Costs
Amounts paid for costs associated with an anticipated initial public
offering (IPO) are capitalized and will be recorded as a reduction to
additional paid-in capital upon the completion of the IPO.
Revenue Recognition
The Company records revenue as goods are shipped to customers.
Income Taxes
In fiscal 1993, the Company adopted Statement of Financial Accounting
Standard No. 109, Accounting for Income Taxes ("SFAS 109"). Prior to
adoption of SFAS 109, the Company reported the effects of income taxes
pursuant to Accounting Principles Board Opinion No. 11, Accounting for
Income Taxes ("APB 11").
F7
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS Years
ended December 31, 1992 and 1993, and ten
months ended October 31, 1993 and 1994
(Information with respect to the ten months ended
October 31, 1993 and 1994 is unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The adoption of SFAS 109 changes the Company's method of accounting for
income taxes from the deferred method to an asset and liability method.
Previously, the Company deferred the past tax effects of timing differences
between financial reporting and taxable income. The asset and liability
method requires the recognition of deferred tax assets and liabilities for
the future tax consequences of temporary differences between the financial
statement basis and the tax basis of assets and liabilities. Prior year
financial statements were not restated for SFAS 109. The current and
cumulative effect of this accounting change did not have a material effect
on the financial statements.
Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of
common shares outstanding during each period. Net income (loss) has been
adjusted for dividends on convertible preferred stock.
Cash Equivalents
For purposes of the statements of cash flows the Company considers all
highly liquid investments purchased with original maturities of three months
or less to be cash equivalents.
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
October 31,
December 31, 1994
1992 1993 (Unaudited)
--------- --------- ---------
<S> <C> <C> <C>
Raw materials $ 1,225,508 $ 1,017,717 $ 923,219
Work-in-progress 10,100 6,847 143,595
Finished goods 1,086,942 1,216,843 950,624
--------- --------- ---------
$ 2,322,550 $ 2,241,407 $ 2,017,438
========= ========= =========
</TABLE>
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
October 31,
December 31, 1994
1992 1993 (Unaudited)
-------- ------- -------
<S> <C> <C> <C>
Land $ 15,000 $ 15,000 $ 15,000
Machinery and equipment 158,291 159,456 159,457
Furniture and fixtures 98,583 117,373 120,395
Vehicles 20,306 20,306 20,306
Leasehold improvements 53,040 55,502 55,502
-------- ------- -------
345,220 367,637 370,660
Less accumulated depreciation and amortization 284,987 251,321 277,292
------- ------- -------
$ 60,233 $ 116,316 $ 93,368
====== ======= ======
</TABLE>
F8
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS Years
ended December 31, 1992 and 1993, and ten
months ended October 31, 1993 and 1994
(Information with respect to the ten months ended
October 31, 1993 and 1994 is unaudited)
NOTE 4 - LINE OF CREDIT
The line of credit has an availability of $3,000,000 as of December 31,
1993, and was due June 1, 1994. The line bears interest at the prime
interest rate. The interest rate was 6.75% at December 31, 1993 (6% at
December 31, 1992). The December 31, 1992 balance is net of deferred
financing costs of $6,667. In September 1994 the line of credit was renewed
with an availability of $4,000,000 due September 1995.
Borrowings under the line of credit are secured by trade accounts
receivable, inventories and property and equipment. In addition, the line of
credit is collateralized by letters of credit with banks and a personal
guarantee of the president of the Company (note 7). There are certain
covenants under the line of credit agreements, some of which restrict the
payment of dividends to common stockholders and limit property and equipment
acquisitions.
The Company is in compliance with all covenants at December 31, 1993.
NOTE 5 - LINE OF CREDIT - AFFILIATE
In February 1994, the Company entered into an agreement with an affiliate of
an officer/stockholder. Pursuant to this agreement the affiliate has
provided the Company with a revolving line of credit with a maximum
availability of $300,000. Interest is at 8% per annum. The unpaid amounts
are payable on demand. At October 31, 1994, no amounts were owed under this
agreement, however, accrued expenses includes $11,933 of unpaid interest.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
Distributorship Agreement
In May 1991, the Company entered into a distributorship agreement with an
Australian company granting it the exclusive right to distribute and market
all of its golf clubs and related products in Australia. The term of the
agreement is five years with an option to extend the agreement for one year
periods based on the amount of purchases and sales set forth in the
agreement.
Operating Leases
The Company leases its operating facilities and equipment under operating
leases which expire through 1997. Certain leases require the Company to pay
maintenance, insurance and property taxes in addition to the minimum lease
payments.
Minimum rental commitments under noncancellable operating leases are as
follows:
Year ending
December 31,
------------
1994 $ 161,000
1995 161,000
1996 161,000
1997 54,000
-------
Total $ 537,000
=======
Rental expense for the years ended December 31, 1992 and 1993 amounted to
approximately $151,000 and $166,000, respectively.
F9
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS Years
ended December 31, 1992 and 1993, and ten
months ended October 31, 1993 and 1994
(Information with respect to the ten months ended
October 31, 1993 and 1994 is unaudited)
NOTE 6 - COMMITMENTS AND CONTINGENCIES (continued)
Capital Lease Obligations
The Company leases equipment under capital lease obligations which expire
through 1997. Future minimum payments by the Company under the capital
leases consist of the following at:
Year ending
December 31,
1994 $ 14,608
1995 3,232
1996 3,232
1997 2,155
------
Total minimum lease payment 23,227
Amount representing interest 3,206
------
Present value of minimum lease payments 20,021
Current portion 12,784
------
Long-term portion $ 7,237
======
NOTE 7 - CAPITAL STOCK TRANSACTIONS
In June 1992 the Company issued 293,961 shares of stock to the President of
the Company in exchange for his arranging a bank loan and collateralizing
the loan with personal assets. This was accounted for as a deferred charge
in the amount of $20,000, with interest expense being amortized over twelve
months.
NOTE 8 - PREFERRED STOCK
In September 1992, $1,120,000 of the notes payable to related parties was
converted into 560,000 shares of Series A convertible redeemable preferred
stock. One share of Series A convertible redeemable preferred stock is
convertible into two shares of common stock at the option of the holder at
any time after December 31, 1995. The shares have a cumulative dividend of
$.16 per share per annum, payable quarterly. Each share has a liquidation
preference of $2.00 per share.
The president of the Company purchased 150,000 shares of series B
convertible redeemable preferred stock for the purchase price of $300,000.
One share of series B convertible redeemable preferred stock is convertible
into two shares of common stock at the option of the holder at anytime. The
shares have a cumulative dividend of $.20 per share per annum, payable
quarterly. Each share of series B redeemable preferred stock has a
liquidation preference of $2.00 per share.
The series A and B redeemable preferred stock are redeemable at the
discretion of the Company.
NOTE 9 - INCOME TAXES
Through December 31, 1992, the Company provided for income taxes as required
under Accounting Principles Board Opinion No. 11 (deferred method).
Effective October 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (liability
method (note 1).
F10
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS Years
ended December 31, 1992 and 1993, and ten
months ended October 31, 1993 and 1994
(Information with respect to the ten months ended
October 31, 1993 and 1994 is unaudited)
NOTE 9 - INCOME TAXES (continued)
Income tax expense (benefit) consisted of the following:
1992 1993
------- -------
Current
Federal $ 48,946 $ (47,168)
State 32,430 800
Extraordinary Item (NOL) 51,011
Deferred (83,000)
------- -------
$ 132,387 $ (129,368)
======= ========
Income tax expense for the year ending December 31, 1992 contains a charge
in lieu of federal and state income taxes that would have been required to
be paid had the Company not been able to utilize an operating loss
carryforward. The tax benefit, $51,011, resulting from such utilization is
shown as an extraordinary item for the year ending December 31, 1992.
Deferred income tax provisions, resulting from differences between
accounting for financial statement purposes and accounting for tax purposes,
were immaterial.
The differences between the provision for income taxes and income taxes
computed using the federal income tax rate were as follows:
<TABLE>
<CAPTION>
1992 1993
------- -------
<S> <C> <C>
Amount computed using the federal statutory rate $ 94,360 $ (104,601)
State income tax benefit (expense), net of federal
tax benefit 21,404 (30,145)
Permanent differences 10,614 9,457
Other 6,009 (4,079)
------- -------
Actual expense (benefit) $ 132,387 $ (129,368)
======= =======
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
for federal and state income taxes of December 31, 1993 are as follows:
<TABLE>
<S> <C>
Deferred tax assets
Net operating loss carryforwards $ 44,000
Accounts receivable and warrants reserves 65,000
Other, net 3,000
-------
Total deferred tax assets 112,000
Valuation allowance for deferred tax assets (12,000)
-------
100,000
Deferred tax liabilities
Differences between book and tax basis of property and equipment (17,000)
-------
Net deferred tax assets $ 83,000
=======
</TABLE>
F11
<PAGE>
Palm Springs Golf Company, Inc.
NOTES TO FINANCIAL STATEMENTS Years
ended December 31, 1992 and 1993, and ten
months ended October 31, 1993 and 1994
(Information with respect to the ten months ended
October 31, 1993 and 1994 is unaudited)
NOTE 9 - INCOME TAXES (continued)
SFAS No. 109 requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets will not be realized. The Company
believes that some uncertainty exists with respect to future realization of
a portion of certain state net operating loss carryforwards. Therefore, the
Company established a valuation allowance relating to these carryforwards of
$12,000 as of December 31, 1993.
At December 31, 1993, the Company had federal net operating loss
carryforwards of approximately $60,000, which expire in 2008.
NOTE 10 - STOCK ACQUISITION
In September 1992, the stockholders of the Company entered into an agreement
whereby Taft Capital, Inc. (whose name was subsequently changed to Palm
Springs Golf Company, Inc.) acquired 100% of the Company's stock and the
stockholders of the Company acquired 3,000,000 shares of Taft Capital, Inc.
(of which 2,900,000 were contingent bonus shares held in escrow).
Taft Capital, Inc. was considered a public shell, and accordingly the
transaction was not considered a business combination and was accounted for
as a reverse merger. As a result of certain alleged misrepresentations made
by Taft Capital, Inc., the aforementioned transaction was rescinded on June
29, 1993. All shares issued, including those held in escrow pursuant to the
stock acquisition agreement were cancelled. As a result of this transaction,
common stock decreased by $7, paid-in capital decreased by $250,452 and
deferred offering costs decreased by $250,459.
NOTE 11 - NEW AUTHORITATIVE PRONOUNCEMENTS
The Financial Accounting Standards Board has issued FAS No. 106, "Employers
Accounting for Post-retirement Benefits Other Than Pensions"; FAS No. 107,
"Disclosure about Fair Value of Financial Instruments"; and FAS No. 112,
"Accounting for Post-employment Benefits." Companies are required to adopt
the new methods of accounting and disclosure within the next few years.
However, the adoption of the new statements is not expected to have a
material impact on the Company's financial position or results of
operations.
F12
<PAGE>
ADDITIONAL SCHEDULES
TABLE OF CONTENTS
Condensed Balance Sheets (September 30, 1995 and 1994)
Condensed Statement of Operations (For Nine Months ended Sept. 30, 1995 and
1994)
Condensed Statement of Cash Flows (For Nine Months ended Sept. 30, 1995 and
1994)
<PAGE>
<TABLE>
<CAPTION>
September 30,
1995 1994
------ ------
<S> <C> <C>
ASSETS
Cash $ (1) $ 60
Accounts receivable - net 1,401 2,121
Inventories 2,164 1,874
Notes receivable - current 123 -
Deferred taxes 335 143
Prepaid expenses 115 146
------ ------
Total current assets $4,137 $4,344
Fixed assets, net 95 95
Deferred offering costs 436 271
Other assets 199 7
------ ------
Total Assets $4,867 $4,717
===== =====
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable to bank $3,130 $2,675
Accounts payable 466 394
Accrued expenses 50 143
------ ------
Total current liabilities $3,646 $3,212
Stockholders' equity 1,221 1,505
----- -----
Total Liabilities and Shareholders' equity $4,867 $4,717
===== =====
</TABLE>
1
<PAGE>
Palm Springs Golf Company, Inc.
CONDENSED STATEMENT OF OPERATIONS
For the Nine Months ended September 30, 1995 and 1994
(thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Net sales $4,183 $5,353
Total Cost of Goods Sold 3,333 4,312
----- -----
Gross Profit $ 850 $1,041
Total Operating Expenses 1,070 1,042
Interest Expense 261 174
Miscellaneous (income) (5)
Income (loss) from operations before income tax (476) (175)
Income tax benefit 161 59
----- -----
Net income (loss) $ (315) $ (116)
===== =====
</TABLE>
2
<PAGE>
Palm Springs Golf Co., Inc.
CONDENSED STATEMENT OF CASH FLOWS
For the Nine Months ended September 30, 1995 and 1994
(Thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(315) $(116)
Depreciation and amortization (6) 24
(Increase) decrease in accounts rec. 375 (169)
(Increase) decrease in inventories (296) 368
(Increase) decrease in notes rec. 56
(Increase) decrease in deferred taxes (162) 23
(Increase) decrease in other assets 114 (88)
Increase (decrease) in accounts
payable and accrued expenses 92 240
------ ------
Net cash provided by (used in) operating activities (142) 282
------ ------
Cash flows used in investing activities:
Purchases of property and equipment - (3)
Principal payments on capital leases - (13)
Increase (decrease) in note payable 30 (50)
Preferred Stock dividend - (19)
Deferred offering costs (42) (178)
------ ------
Net cash provided by (used in) financing activities (12) (263)
------ ------
Net increase (decrease) in cash (154) 19
Cash, beginning of period 153 41
------ ------
Cash, end of period $ (1) $ 60
====== ======
</TABLE>
3
<PAGE>
AJAY SPORTS, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
<PAGE>
AJAY SPORTS, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
(Unaudited)
Overview
Ajay Sports, Inc. ("the Company") formed a wholly owned subsidiary, Palm Springs
Golf, Inc. In October 1995 the subsidiary acquired substantially all the assets
of Palm Springs Golf Co., Inc. for approximately $3,656,000 and 666,667 shares
of Ajay Sports, Inc. common stock valued at $407,000. Palm Springs Golf Co.,
Inc. designs, manufactures and markets a full line of golf clubs along with a
line of golf bags and gloves under the Palm Springs Golf name. The acquisition
has been accounted for as a purchase.
The pro forma condensed consolidated balance sheet as of September 30, 1995 is
based on the historical balance sheets of the Company and Palm Springs Golf Co.,
Inc. (included elsewhere herein) as of that date and assumes the acquisition
took place on that date. The pro forma condensed consolidated statement of
operations for the nine months ended September 30, 1995 and for the year ended
December 31, 1994 include the historical statement of operations of the Company
as reported on Form 10-Q for the quarter ended September 30, 1995 and Form 10-K
for the year ended December 31, 1994. The pro forma condensed consolidated
statement of operations for the nine months ended September 30, 1995 includes
Palm Springs Golf Co., Inc.'s historical statement of operations for the nine
months ended September 30, 1995. The pro forma condensed consolidated statement
of operations for the year ended December 31, 1994 includes Palm Springs Golf
Co., Inc.'s audited statement of operations for the year ended December 31,
1994.
These pro forma financial statements have been prepared for comparative purposes
only and do not purport to indicate what necessarily would have occurred had the
entities been combined since the applicable date, or what results may be in the
future. The accompanying pro forma condensed consolidated financial statements
should be read in conjunction with the historical financial statements of the
Company and Palm Springs Golf Co., Inc. (included herein).
1
<PAGE>
Ajay Sports, Inc. And Subsidiaries
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 1995
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Ajay Palm Springs Pro Forma Pro Forma
Sports, Inc. Golf Co., Inc.. Adjustments Consolidated
-------- ------- -------- --------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 153 $ (1) $ - $ (1)
Accounts receivable, net 3,623 1,401 (175) (1) 1,226
Inventories 5,256 2,164 (431) (1) 1,733
Notes Receivable - 123 (123) (1) -
Prepaid expenses 373 115 (100) (1) 15
Deferred taxes - 335 (335) (1) -
-------- ------- -------- --------
Current assets 9,405 4,137 (1,164) 2,973
Fixed assets, net 1,307 95 71 (1) 166
Deferred offering costs - 436 (436) (1) -
Goodwill - - 835 (1) 835
Other assets 270 199 (80) (1) 119
-------- ------- -------- --------
Total assets $10,982 $4,867 $ (774) $4,093
======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable to bank $1,238 $3,130 $ - $3,130
Accounts payable 1,141 466 - 466
Accrued expenses 491 50 40 (1) 90
-------- ------- -------- --------
Current liabilities 2,870 3,646 40 3,686
Note payable - long term 3,600 - - -
Stockholders'equity 4,512 1,221 (814) (1) 407
-------- ------- -------- --------
Total liabilities and
Stockholders' equity $10,982 $4,867 $(774) $4,093
======== ======= ======== ========
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
2
<PAGE>
Ajay Sports, Inc. and Subsidiaries
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months ended September 30, 1995
( In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Ajay Palm Springs Pro Forma Pro Forma
Sports, Inc. Golf Co., Inc. Adjustments Consolidated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $ 13,376 $ 4,183 $(506) (2) $ 17,053
Cost of sales 10,858 3,333 (491) (2) 13,700
-------- -------- -------- --------
Gross profit 2,518 850 (15) 3,353
Selling, general and
administrative expenses 2,118 1,070 6 (5) 3,194
Interest expense 564 261 -- 825
Other expenses (inc.) 12 (5) -- 7
-------- -------- -------- --------
Income (loss) from operations
before income taxes (176) (476) (21) (673)
Income taxes (expense) benefit -- 161 (161) --
-------- -------- -------- --------
Net income (loss) $ (176) $ (315) $ (182) $ (673)
======== ======== ======== ========
Net income (loss) per share $ (.01) $ (.03)
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
3
<PAGE>
Ajay Sports, Inc. and Subsidiaries
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year ended December 31, 1994
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Ajay Palm Springs Pro Forma Pro Forma
Sports, Inc. Golf Co., Inc. Adjustments Consolidated
------- ------ ----- -------
<S> <C> <C> <C> <C>
Net sales $12,899 $7,004 $ (96) (2) $19,807
Cost of sales 12,291 5,622 (94) (2) 17,819
------- ------ ----- -------
Gross profit 608 1,382 (2) 1,988
Selling, general and
administrative expenses 2,747 1,412 8 (5) 4,167
Interest expense 614 234 848
Other expenses 327 - 327
------- -------- ------ ------
Income (loss) from operations
before income taxes (3,080) (264) (10) (3,354)
Income taxes (exp.) benefit - 89 (89) (3) -
--------- ------ ---- ---------
Net income (loss) $(3,080) $ (175) $ (99) $(3,354)
====== ===== ==== ======
Net income (loss) per share (.27) (.25)
Weighted average
shares outstanding 12,218 667 (4) 12,885
</TABLE>
See notes to unaudited pro forma condensed consolidated financial statements.
4
<PAGE>
Ajay Sports, Inc.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(Unaudited)
Note 1.
The pro forma financial statements are presented to show the financial position
and results of operations of Ajay Sports, Inc. and Palm Springs Golf Co., Inc.
as if the purchase of Palm Springs Golf Co., Inc. had occurred on the dates
discussed in the overview. The acquisition has been accounted for using the
purchase method of accounting.
The pro forma adjustments to the condensed consolidated balance sheet are as
follows:
(1) To reflect the purchase of Palm Springs Golf Co., Inc. and the
allocation of the purchase to assets acquired and liabilities assumed
and to eliminate assets and equity not purchased.
<TABLE>
<S> <C>
Accounts receivable $(175)
Inventories (431)
Notes receivable (123)
Prepaid expenses (100)
Fixed assets 71
Goodwill 835
Other assets (80)
Deferred tax asset (335)
Deferred offering costs (436)
Accrued liabilities 40
Equity (814)
----
$ -
====
</TABLE>
The pro forma adjustments to the condensed consolidated statements of operations
are as follows:
(2) Elimination of Intercompany sales and profit in inventory.
<TABLE>
<CAPTION>
1995 1994
----- ----
<S> <C> <C>
Year to date sales by Ajay to Palm Springs Golf $506K $96K
Inventory on hand 9/30
at Intercompany sales prices 154K 20K
Profit in inventory at 9/30 $ 15K $ 2K
</TABLE>
To eliminate intercompany sales and profit in intercompany inventory.
(Ajay was a supplier to Palm Springs Golf Company, Inc.)
<TABLE>
<CAPTION>
Year ended Nine Months ended
($000) December 31, 1994 September 30, 1995
----------------- ------------------
<S> <C> <C>
Sales $(96) $(506)
Cost of Sales (94) (491)
</TABLE>
5
<PAGE>
Ajay Sports, Inc.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands)
(Unaudited) (Cont'd)
(3) Eliminate tax benefit not acquired.
1994 1995
---- ----
$(89) $(161)
(4( Ajay common stock issued as part of acquisition financing, 666,667
shares.
(5) Increase in depreciation expense as a result of purchase accounting.
Year ended Nine Months ended
December 31, 1994 September 30, 1995
----------------- ------------------
$ 8 $ 6
6
<PAGE>
