<PAGE>
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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 March 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from _____ to _____
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Commission File No. 0-18204
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AJAY SPORTS, INC.
(Exact name of Registrant as specified in its charter)
Delaware 39-1644025
(State or other jurisdiction of (I.R.S. Employer Identification Nubmer)
incorporation or organization)
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 4/17/95 is 22,545,537.
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<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands)
<TABLE>
<CAPTION>
March 31,
1995 December 31,
(Unaudited) 1994
-------- --------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................................ $ 22 $ 105
Trade accounts receivable, net ................................................... 3,812 1,700
Inventories ...................................................................... 5,478 5,786
Prepaid expenses and other current assets ........................................ 249 211
-------- --------
Total current assets ............................................................. 9,561 7,802
Fixed assets, net ................................................................... 1,369 1,357
Investments ......................................................................... 0 0
Other assets ........................................................................ 195 206
-------- --------
Total assets ............................................................ $ 11,125 $ 9,365
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to affiliate ........................................................ 6,790 5,370
Note payable to bank ............................................................. 12 12
Accounts payable ................................................................. 1,499 1,337
Accrued expenses ................................................................. 523 490
-------- --------
Total current liabilities ............................................... 8,824 7,209
Note payable - long term ............................................................ 106 121
Stockholders' equity:
Preferred stock , $.01 par value, 10,000,000 shares authorized, 12,500
shares issued, at liquidation value ............................................ 1,205 1,205
Common stock, $.01 par value, 50,000,000 shares authorized, 22,545,537 and
22,533,637 shares outstanding, respectively .................................... 225 225
Additional paid-in capital ....................................................... 8,961 8,961
Accumulated deficit .............................................................. (8,241) (8,401)
-------- --------
Total stockholders' equity .............................................. 2,195 2,035
-------- --------
Total liabilities and stockholders' equity .......................................... $ 11,125 $ 9,365
======== ========
</TABLE>
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
-------- --------
<S> <C> <C>
Net sales .................................................................................................. $ 5,454 $ 3,663
Cost of sales .............................................................................................. 4,362 3,187
-------- --------
Gross profit ................................................................................... 1,092 476
Selling, general and
administrative expenses .................................................................................. 752 632
-------- --------
Operating income (loss) ........................................................................ 340 (156)
Non-operating (income) expense:
Interest expense, net ................................................................................... 185 154
Other, net .............................................................................................. 0 10
-------- --------
Total non-operating expense ............................................................................. 185 164
-------- --------
Income (loss) before income taxes .......................................................................... 155 (320)
Income taxes ............................................................................................... 0 0
-------- --------
Net income (loss) .......................................................................................... $ 155 $ (320)
======== ========
Income (loss) per common share outstanding* ................................................................ $ .01 $ (.04)
======== ========
Income (loss) per common share & equivalents ............................................................... $ .00 $ (.04)
outstanding** .............................................................................................. ======== ========
Weighted average common shares outstanding ................................................................. 22,546 8,825
======== ========
Weighted average common and common
equivalents outstanding .................................................................................. 32,629 8,825
======== ========
<FN>
* Computed by dividing net income or loss, after reduction for preferred
stock dividends, by the weighted average number of common shares outstanding.
**Computed by dividing net income or loss, after reduction for preferred stock
dividends, by the weighted average number of common share and common share
equivalents outstanding.
</FN>
</TABLE>
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................................................ $ 155 $ (320)
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization .............................................................. 52 47
Adjustment to retained earnings ............................................................ 5
Change in assets [(increase)/decrease] and
liabilities [increase/(decrease)]:
Trade accounts receivable, net ............................................................. (2,112) (618)
Inventories ................................................................................ 308 745
Prepaid expenses and other current assets .................................................. (38) (80)
Other assets ............................................................................... 11 ---
Accounts payable ........................................................................... 162 (168)
Accrued expenses ........................................................................... 33 19
Due to affiliates .......................................................................... --- 250
-------- --------
Net cash provided by (used in)
operating activities .............................................................. (1,424) (125)
-------- --------
Cash flows from investing activities:
Purchase of property, plant, equipment ....................................................... (64)
Disposition of fixed assets .................................................................. 0 7
Investments in and advances to affiliates .................................................... 0 18
-------- --------
Net cash provided by (used in)
investing activities ................................................................ (64) 25
-------- --------
Cash flows from financing activities:
Net change in bank loan ...................................................................... (15) 102
Net change in note payable to affiliate ...................................................... 1,420 ---
-------- --------
Net cash provided by
financing activities ................................................................ 1,405 102
-------- --------
Net increase/(decrease) in cash and cash equivalents ............................................ (83) 2
Cash and cash equivalents at beginning of period ................................................ 105 2
-------- --------
Cash and cash equivalents at end of period ...................................................... $ 22 $ 4
======== ========
Supplemental disclosures of cash flow information:
Cash paid for interest ....................................................................... $ 185 $ 115
======== ========
0 0
Cash paid for income taxes ................................................................... ======== ========
</TABLE>
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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 March 31, 1995 and the results
of operations for the three-month periods ended March 31, 1995 and
1994 and the cash flows for the same three-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>
March 31, December 31,
1995 1994
------ ------
<S> <C> <C>
Raw Materials .............................. $3,164 $2,902
Work in Process ............................ 908 943
Finished Goods ............................. 1,406 1,941
------ ------
$5,478 $5,786
====== ======
</TABLE>
Note 3. NOTES PAYABLE
On April 14, 1994 the Company was advised by BankAmerica Business
Credit, Inc. ("BankAmerica") that the Second Amended Restated Loan
and Security Agreement ("Credit Agreement") between BankAmerica and
the Company's wholly-owned subsidiary, Ajay Leisure Products, Inc.
("Ajay"), had been purchased by Roadmaster Industries, Inc.
("Roadmaster"). On May 5, 1994 Ajay paid Roadmaster in full all
outstanding obligations under The Total Credit Facility and entered
into a Loan and Security Agreement ("Loan Agreement") with Williams
Controls Industries, Inc. ("Williams") for a term loan of up to
4
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$7,000,000. The Loan Agreement required monthly interest only
payments at the prime rate of First Interstate Bank of Oregon plus
2% and was originally scheduled to expire on November 4, 1994 and
was later extended to May 5, 1995. On February 1, 1995 the
interest rate went to prime plus 3.25%. On April 5, 1995 the Loan
Agreement was extended to expire on February 1, 1996 providing, as
of August 1, 1995 the line of credit is reduced to $5,600,000. The
Loan Agreement is secured by a lien on substantially all of the
assets of Ajay and is guaranteed by the Company. The guaranty is
secured by a pledge of all of the outstanding stock of Ajay.
The Company received an equity infusion in early October 1994 of
$2,400,000 as a result of a private placement of 2,941,177 shares
of Common Stock and the exercise of options by Williams Controls
Incorporated for 4,117,647 shares. Proceeds from the Williams
Controls Inc. Common Stock purchase were used to reduce the
Company's loan balance with Williams by $1,400,000. Also on
October 3, 1994, the holder of the Company's Series B Preferred
Stock converted 17,000 shares of Series B Preferred Stock into
5,000,040 shares of Common Stock.
In addition, concurrent with the establishment of the Loan
Agreement with Williams, the Company and Ajay entered into a Joint
Venture Agreement with Williams in which the Company granted
Williams the option to purchase up to 51% of the common stock of
the Company at various option prices. As part of this agreement
the Company granted Williams the right to purchase up to 8,834,866
shares of the Company's common stock at $.34 per share, exercisable
for a four-year period. On October 3, 1994 Williams exercised its
option and purchased 4,117,647 shares of the Company's common stock in
exchange for a reduction in the note payable from Ajay to Williams
of $1,400,000. Williams retains the remaining options granted
under the Joint Venture Agreement to purchase up to another 14,879,775
shares of the Company's common stock at higher prices.
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 include (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 is 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.
5
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION - At March 31, 1995 the Company had working
capital of $737,000, as compared with $593,000 at December 31,
1994. The ratio of current assets to current liabilities at March
31, 1995 was 1.1 to 1, which was unchanged from December 31, 1994.
Working capital was primarily used to finance seasonal growth in
accounts receivable.
At March 31, 1995 the Company had increased its short term
borrowings by $1,420,000 since December 31, 1994. This was
primarily due to seasonal increases in accounts receivable which
increased by $2,112,000 due to sales increases.
LIQUIDITY - At March 31, 1995 Ajay had $6,790,000 outstanding under
its $7,000,000 loan agreement with Williams. As indicated under
Note 3 above, the loan agreement with Williams was extended to
February 1, 1996. The Company continues to seek alternative financing
and maintains communications with alternative sources in that regard.
RESULTS OF OPERATIONS - During the quarter ended March 31, 1995 the
Company had net sales of $5,454,000, compared to $3,663,000 for the
same period in 1994. The overall sales increase of 49% has occurred
throughout all of its product lines and with respect to several
major customers, along with increases with smaller customers and
sales to new customers.
Gross profit for the three months ended March 31, 1995 expressed as
a percentage of net sales, increased to 20%, compared to 13% for
the same period in 1994.
Selling, general and administrative expenses expressed as a
percentage of sales were 13.8% for the first quarter of 1995,
versus 17.3% for 1994. The lower percentage in 1995 resulted from
increased sales volume.
Operating profit for the first quarter of 1995 was $340,000, an
increase of $496,000, compared to operating loss of $156,000 for
the first quarter of 1994. This is due to a decrease in the cost
of sales which was 80% for the first quarter of 1995 and 87% for
the first quarter of 1994 plus the positive effect of a 49% sales
increase.
Interest expense increased $31,000 in the first quarter of 1995
compared to the first quarter of 1994 as a result of higher debt
and higher interest rates.
As a result of the above, the net income for the first quarter
ending March 31, 1995 was $155,000, compared to a net loss of
$320,000 for the same period last year.
6
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Part II. OTHER INFORMATION
Item 5. OTHER INFORMATION
On April 17, 1995 the License Agreement between Ajay and Spalding
Sports Worldwide was extended to June 30, 1998.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit #10: Revised Spalding Contract
b) No reports on Form 8-K were filed during the
quarter ended March 31, 1995.
c) Exhibit #27: Financial Data Schedule
7
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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.
Date April 28, 1995 By: /s/Robert R. Hebard
--------------------------------
Its: Corporate Secretary
Date April 28, 1995 By: /s/Duane R. Stiverson
----------------------------------
Its: Chief Financial Officer
8
<PAGE>
THIRD AMENDMENT TO LICENSE AGREEMENT EXHIBIT #10
THE LICENSE AGREEMENT made and entered into the day of April
1992 and amended on April 2, 1993, May 11, 1993 and July 1, 1994,
by and between Spalding Sports Worldwide, a division of Spalding &
Evenflo Companies, Inc., (hereinafter referred to as "Spalding")
and Ajay Leisure Products Inc., (hereinafter referred to as
"Company") is further amended as follows:
Section 3.1: Term - is modified to add the following language:
- ------------------
Company shall have the right to exercise an additional two year
option period July 1, 1996 to June 30, 1998 based on Spalding
earning and receiving on Company's actual net sale the minimum
royalties as set forth in Exhibit D for the year ended June 30,
1995 and further provided that as of March 31, 1996 Spalding has
earned and received the actual net sales sixty percent (60%) of the
minimum royalties for the contract year ended June 30, 1996,
provided this Agreement has not been terminated in accordance with
its provisions.
Section 4.2: Minimum Royalty
- -----------------------------
- The second and third paragraphs are deleted in its entirety
and are replaced by the following language:
Except for the balance of the current contract year which covers
July 1, 1994 to June 30, 1995, effective July 1, 1995 on or before
the 25th of the first month of each quarter of any contract year
(July 25, October 25, January 25, April 25) Company shall pay
Spalding a percentage of the total annual minimum as designated in
Exhibit E. However, if during the course of a contract year
Company's total royalty payments to Spalding (earned and minimum
royalties) exceed the total minimum royalty for that year, then
only earned royalties shall be paid to Spalding by Company during
the balance of that year (See Exhibit E).
Section 6.4: Trademark Notice
- ------------------------------
- - Paragraph 1 is deleted in its entirety and is replaced by the
following language:
"Company agrees that whenever the Trademark is used, there will be
notice of the fact that "Trademark is owned by Lisco Inc., a
Spalding company" or such other notice as specified by Spalding
from time to time in form, size, and location approved by Spalding
in writing",
Exhibits "D", "E" and "G" are deleted in their entirety and are
replaced by revised Exhibits "D", "E", and "G" which are attached.
9
<PAGE>
Except as modified herein, the provisions of this License Agreement
as amended shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to the
License Agreement to be effective the ----- day of ---------- 1995.
SPALDING & EVENFLO COMPANIES, INC. AJAY LEISURE PRODUCTS INC.
By: ----------------------------- By: -----------------------
C. H. Yahn
Title & Date: ------------------- Title & Date: -------------
President 4/17/95
10
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 3,812
<ALLOWANCES> 0
<INVENTORY> 5,478
<CURRENT-ASSETS> 9,561
<PP&E> 1,588
<DEPRECIATION> 219
<TOTAL-ASSETS> 11,125
<CURRENT-LIABILITIES> 8,824
<BONDS> 0
<COMMON> 225
0
1,250
<OTHER-SE> 8,961
<TOTAL-LIABILITY-AND-EQUITY> 11,125
<SALES> 5,454
<TOTAL-REVENUES> 5,454
<CGS> 4,362
<TOTAL-COSTS> 752
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 185
<INCOME-PRETAX> 155
<INCOME-TAX> 0
<INCOME-CONTINUING> 340
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 155
<EPS-PRIMARY> 0.010
<EPS-DILUTED> 0.000
</TABLE>
