<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, 1996
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 Identification No.)
Incorporation or Organization)
1501 E. Wisconsin Street,
Delavan, Wisconsin 53115 (414) 728-5521
- ----------------------------------------- ---------------------------------
(Address of principal executive offices (Registrant's Telephone Number,
including Zip Code) 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 6/28/96 is 23,244,039
<PAGE>
Item 1. FINANCIAL STATEMENTS
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, 1996 December 31,
(Unaudited) 1995
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 308 $ 362
Trade accounts receivable, net 7,052 5,196
Inventories 8,461 8,909
Prepaid expenses and other current assets 647 365
Deferred tax benefit 83 102
------- -------
Total current assets 16,551 14,934
Fixed assets, net 1,896 1,888
Other assets 355 236
Deferred tax benefit 223 106
Goodwill 1,305 1,322
------- -------
Total assets $20,330 $18,486
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 7,800 $ 5,793
Current portion of capital lease 7 6
Accounts payable 2,421 2,181
Accrued expenses 545 631
------- -------
Total current liabilities 10,773 8,611
Note payable - long term 5,102 5,111
Long term portion of capital lease 20 --
Stockholders' equity:
Preferred stock, 10,000,000 shares authorized,
Series B, $0.01 par value,12,500 shares outstanding at
liquidation value 1.250 1,250
Series C, $10.00 par value, 296,170 and 313,790 shares
outstanding at stated value, respectively 2,962 3,138
Common stock, $.01 par value 50,000,000 shares authorized, 23,244,039 and
23,337,746 shares outstanding, respectively 233 234
Additional paid-in capital 9,301 9,123
Accumulated deficit (9,311) (8,981)
------- -------
Total stockholders' equity 4,435 4,764
------- -------
Total liabilities and stockholders' equity $20,330 $ 18,486
====== =======
</TABLE>
2
<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,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 8,325 $ 4,485 $ 14,587 $ 9,939
Cost of sales 6,669 3,570 11,802 7,932
------- ------- ------- -------
Gross profit 1,656 915 2,785 2,007
Selling, general and
administrative expenses 1,266 696 2,458 1,448
------- ------- ------- -------
Operating income (loss) 390 219 327 559
Non-operating (income) expense:
Interest expense, net 298 212 577 397
Other, net 3 (2) 5 (2)
------- ------- ------- -------
Total non-operating expense 301 210 582 395
------- ------- ------- -------
Income (loss) before income taxes 89 9 (255) 164
Income tax expense (benefit) 37 -- (80) --
------- ------- ------- -------
Net income (loss) $ 52 $ 9 $ (175) $ 164
======= ======= ======= ======
Income (loss) per common share outstanding $ .00 $ .00 $ (.02) $ .01
======= ======= ======= ======
Income (loss) per common share & equivalents $ .00 $ .00 $ (.02) $ .01
======= ======= ======= ======
outstanding**
Weighted average common shares outstanding 23,190 22,546 23,268 22,546
====== ====== ====== ======
</TABLE>
* 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.
3
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS), (UNAUDITED)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1996 1995
------- -------
Cash flows from operating activities:
<S> <C> <C>
Net income (loss) $ (175) $ 164
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 229 92
Change in assets [(increase)/decrease] and
liabilities [increase/(decrease)]:
Trade accounts receivable, net (1,856) (1,599)
Inventories 448 350
Prepaid expenses and other current assets (299) (185)
Other assets (179) 13
Deferred tax benefits (81) --
Accounts payable 260 (206)
Accrued expenses (88) (30)
------- -------
Net cash used in
operating activities (1,741) (1,301)
------- -------
Cash flows from investing activities:
Purchase of property, plant, equipment (161) (80)
------- -------
Net cash used in
investing activities (161) (80)
------- -------
Cash flows from financing activities:
Net change in bank loan 2,001 (18)
Net change in note payable to affiliate -- 1,316
Issuance of common shares -- 4
Preferred stock conversion 1 --
Dividends (154) --
------- -------
Net cash provided by
financing activities 1,848 1,302
------- -------
Net increase in cash and cash equivalents (54) (79)
Cash and cash equivalents at beginning of period 362 105
------- -------
Cash and cash equivalents at end of period $ 308 $ 26
======= =======
Supplemental disclosures of cash flow information:
Cash paid for interest $ 587 $ 398
======= =======
Cash paid for income tax -- --
======= =======
</TABLE>
4
<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, 1996 and the results of operations for the
three-month and six month periods ended June 30, 1996 and 1995 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 Annual Report on Form
10-K for the fiscal year ended December 31, 1995.
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,
1996 1995
------ ------
<S> <C> <C>
Raw Materials $ 5,198 $ 4,608
Work in Process 919 1,014
Finished Goods 2,344 3,287
------ ------
$ 8,461 $ 8,909
====== =====
</TABLE>
5
<PAGE>
Note 3. LIQUIDITY
The Company's loan agreement with the United States National Bank of Oregon ("U.
S. Bank") has been renewed as of July 31, 1996 and is subject to a future review
date of May 31,1997. The renewal includes an increase in the tangible net worth
minimum covenant from $2.0 million to $2.5 million. Additionally, the debt
leverage ratio maximum was increased from 4.5 to 5.5 for 1996 and 6.0 for 1997.
During the quarter the Company has made use of a significant amount of liquidity
as a result of funding additional needs for its October 1995 acquisition, Palm
Springs Golf, Inc. Since acquisition the Company has invested $1.4 million to
reposition Palm Springs Golf for the 1997 product year. The Company has taken
the position of investing in the future by totally closing out all old products
and shifting to totally new products for future growth and profitability. This
has had a short term adverse effect on profitability for 1996 and requires
additional funds for the transition to growth and profitability. In this effort
the Company has strengthened its market position and created, through new
product development, a multi-faceted line of golf clubs and golf bags unique to
Palm Springs Golf, Inc. This will be the most innovative and expanded line of
bags in the history of Palm Springs Golf. The new golf club line incorporates
the latest features and technology including oversize woods and irons and
titanium clubs. The line is totally new and is expected to be very strong in the
marketplace. Additionally, the Company has added golf accessory and golf cart
lines to Palm Springs' product offerings for 1997, thus creating a broad lines
supplier. In support of this effort, Ajay has also upgraded its production
capacity in its Mexicali plant for both club manufacturing and bag
manufacturing. This will support the expected sales increases for the 1997
product year. To support the present transition to growth and profitability and
to provide financing for its short and long-term needs, the Company is presently
working on a plan to raise additional capital and debt. The Company anticipates
additional funds will be available by the end of 1996.
Note 4. BUSINESS SEGMENT REPORTING
The relative contributions to net sales, operating profit and identifiable
assets of the Company's two industry segments for the quarter and six months
ended June 30, 1996 (unaudited) are as follows (in thousands):
Quarter Ended June 30, 1996
Furniture Golf Consolidated
--------- ---- ------------
Net Sales $ 763 $ 7,562 $ 8,325
Operating Profit/(Loss) 32 358 390
Total Assets 2,096 18,234 20,330
Depreciation/Amortization 23 87 110
Capital Expenditures 1 5 6
Six Months Ended June 30, 1996
Furniture Golf Consolidated
--------- ---- ------------
Net Sales $ 1,723 $12,864 $14,587
Operating Profit/(Loss) 62 265 327
Total Assets 2,096 18,234 20,330
Depreciation/Amortization 54 175 229
Capital Expenditures 9 152 161
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION - At June 30, 1996 the Company had working capital of
$5,778,000 as compared with $6,324,000 at December 31, 1995. The ratio of
current assets to current liabilities at June 30, 1996 was 1.5 to 1, compared to
1.7 at December 31, 1995. Working capital was primarily used to finance seasonal
growth in accounts receivable.
At June 30, 1996 the Company had increased its short term borrowings by
$2,007,000 since December 31, 1995. This was primarily due to the first quarter
operating loss and seasonal increases in accounts receivable by $1,856,000 and
other current assets by $264,000.
LIQUIDITY - At June 30, 1996 Ajay had $12,800,000 outstanding under its
$13,500,000 loan agreement with U. S. Bank. The seasonal nature of the Company's
sales creates fluctuating cash flow. With the October 1995 acquisition of Palm
Springs Golf, Inc. the Company has undertaken an effort to discontinue existing
products within Palm Springs Golf's lines and replaced them with all new product
for 1997. This has had an adverse impact on Palm Springs Golf's earnings for
1996 and additional demands for working capital. The effort will result in a
complete new line-up for golf clubs, golf bags, gloves and two additional lines
not heretofore carried, those being golf accessories and golf carts. All of this
is targeted to provide the off-course specialty golf shop market with one source
purchasing. The off course golf specialty sporting goods market is believed to
be four times the size of the mass market. The company has expanded its golf bag
and golf club production facilities to accommodate anticipated additional volume
for 1997. This effort has resulted in an increased cash need at Palm Springs
Golf of $1.4 million. To provide for the additional short and long-term cash
needs and to improve liquidity, the Company is exploring the need to raise
additional capital and debt and anticipates a favorable conclusion to this
effort by year end 1996.
RESULTS OF OPERATIONS - During the quarter ended June 30, 1996 the Company had
net sales of $8,325,000, compared to $4,485,000 for the same period in 1995. The
overall sales increase of 86% was a result of the two fourth quarter 1995
acquisitions and a 31% increase in sales on existing operations.
Gross profit for the three months ended June 30, 1996 was 20% of net sales,
compared to 20% for the same period in 1995.
Selling, general and administrative expenses expressed as a percentage of sales
were 15% for the second quarter of 1996, versus 16% for 1995.
Operating income for the second quarter of 1996 was $390,000 compared to
operating income of $219,000 for the second quarter of 1995.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Cont'd)
Interest expense increased $86,000 in the second quarter of 1996 compared to the
second quarter of 1995 as a result of higher debt to finance the needs of two
4th quarter acquisitions, offset by a lower rate that the Company paid on its
bank lines in the second quarter of 1996 versus the same period of 1995.
As a result of the above, the net income for the second quarter ending June 30,
1996 was $51,000 compared to net income of $9,000 for the same period last year.
8
<PAGE>
PART II. OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 23, 1996, 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.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
b) Exhibit #27: Financial Data Schedule
9
<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: August 12, 1996
------------------------
10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 308
<SECURITIES> 0
<RECEIVABLES> 7,052
<ALLOWANCES> 0
<INVENTORY> 8,461
<CURRENT-ASSETS> 16,551
<PP&E> 2,591
<DEPRECIATION> 695
<TOTAL-ASSETS> 20,330
<CURRENT-LIABILITIES> 10,773
<BONDS> 0
2,962
1,250
<COMMON> 233
<OTHER-SE> 10
<TOTAL-LIABILITY-AND-EQUITY> 20,330
<SALES> 14,587
<TOTAL-REVENUES> 14,587
<CGS> 11,802
<TOTAL-COSTS> 2,458
<OTHER-EXPENSES> 5
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 577
<INCOME-PRETAX> (255)
<INCOME-TAX> (80)
<INCOME-CONTINUING> (175)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (175)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.02)
