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, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from to
Commission File No. 0-18204
AJAY SPORTS, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 39-1644025
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1501 E. Wisconsin Street,
Delavan, Wisconsin 53115 (414) 728-5521
- ----------------------------------------- -------------------
(Address of principal executive offices (Registrant's Telephone
including Zip Code) 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 4/7/97 was 23,274,039 .
<PAGE>
Item 1. FINANCIAL STATEMENTS
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
March 31, 1997 December 31,
(Unaudited) 1996
--------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 190 $ 64
Trade accounts receivable, net 7,236 5,274
Inventories 7,489 7,957
Prepaid expenses and other current assets 598 362
Deferred tax benefit 363 363
-------- --------
Total current assets 15,876 14,020
Fixed assets, net 1,785 1,822
Other assets 316 320
Deferred tax benefit 754 756
Goodwill 1,699 1,709
------- ------
Total assets $20,430 $18,627
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to affiliates $ 885 $ 885
Notes payable to banks 6,934 6,104
Current portion of capital lease 8 9
Accounts payable 3,801 3,107
Accrued expenses 705 567
------- -------
Total current liabilities 12,333 10,672
Notes payable - long term 5,432 5,213
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
296,170 shares outstanding at stated value,
respectively 2,962 2,962
Common stock, $.01 par value 100,000,000
shares authorized, 23,274,039 and
23,274,039 shares outstanding, respectively 233 233
Additional paid-in capital 9,313 9,313
Accumulated deficit (11,093) (11,016)
-------- --------
Total stockholders' equity 2,665 2,742
Total liabilities and stockholders'equity $20,430 $ 18,627
======== ======
2
<PAGE>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months
Ended March 31,
1997 1996
------- -------
Net sales $ 7,601 $ 6,262
Cost of sales 6,143 5,133
------- -------
Gross profit 1,458 1,129
Selling, general and
administrative expenses 1,168 1,192
------- -------
Operating income (loss) 290 (63)
Non-operating (income) expense:
Interest expense, net 278 279
Other, net 5 2
------- -------
Total non-operating expense 283 281
Income (loss) before income taxes 7 (344)
Income tax expense (benefit) 2 (117)
------- -------
Net income (loss) $ 5 $ (227)
======= =======
Income (loss) per common share outstanding* $ .00 $ (.01)
======= =======
Income (loss) per common share & equivalents $ .00 $ (.01)
outstanding** ======= =======
Weighted average common shares outstanding 23,274 23,345
======= ======
* 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)
Three Months
Ended March 31,
1997 1996
-------- --------
Cash flows from operating activities:
Net income (loss) $ 5 $ (227)
Adjustments to reconcile to net cash
provided by operating activities:
Depreciation and amortization 81 119
Change in assets [(increase)/decrease] and
liabilities [increase/(decrease)]:
Trade accounts receivable, net (1,962) (1,069)
Inventories 468 (181)
Prepaid expenses and other current assets (236) (261)
Other assets 4 (128)
Deferred tax benefits 2 (117)
Accounts payable 694 38
Accrued expenses 137 (126)
Goodwill 10 --
-------- -------
Net cash used in operating activities (797) (1,952)
-------- -------
Cash flows from investing activities:
Purchase of property, plant, equipment (44) (155)
-------- -------
Net cash used in investing activities (44) (155)
-------- -------
Cash flows from financing activities:
Net change in bank loan 1,049 2,012
Preferred stock conversion -- 1
Dividends (82) (79)
-------- -------
Net cash provided by financing activities 967 1,934
-------- -------
Net increase (decrease) in cash and cash equivalents 126 (173)
Cash and cash equivalents at beginning of period 64 362
-------- -------
Cash and cash equivalents at end of period $ 190 $ 189
======== =======
Supplemental disclosures of cash flow information:
Cash paid for interest $ 277 $ 263
======== =======
Cash paid for income tax -- --
======== =======
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 March 31, 1997 and the results of operations for the
three-month periods ended March 31, 1997 and 1996 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 Annual Report on Form
10-K for the fiscal year ended December 31, 1996.
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:
March 31, December 31,
1997 1996
--------- ------------
Raw Materials $ 3,601 $ 4,153
Work in Process 1,144 995
Finished Goods 2,744 2,809
--------- --------
$ 7,489 $ 7,957
========= ========
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D)
Note 3. DEBT
The Company's current bank lender advised the Company that the bank
contends that the Company is in technical default under its loan agreement due
to the default of the guarantor, Williams Controls, Inc. (Williams).
Accordingly, the loan must be paid by June 30, 1997. Ajay had been operating up
until February 12, 1997 on a revolver limit of $8.5 million. On February 12 the
line was reduced to $7 million and the bank restricted further advances from
Williams to the Company advising the Company that the Company was in technical
default under its loan agreement as a result of the default of the guarantor,
Williams Controls, Inc. The Company did and has continued to make all interest
payments on time and has operated within the limit amounts contained in the loan
facility. Restrictions during February and March curtailed operating capability
and reduced sales and profitability opportunities otherwise available. On April
14 the bank agreed to waive the existing default and restructured the loan on
less favorable formula advance rates and at an increased interest rate. In
addition, the bank is requiring that the Company make a $500,000 term loan
payment in June, 1997.
Ajay has signed loan proposal agreements with two different asset based
lenders who have begun their respective due diligence investigations. The loans
under each of the proposed agreements would supply funds sufficient to repay the
current lender. As the new loan proposals are presently structured, Williams
Controls, Inc. the guarantor of the Company's loan, would be required to invest
approximately $5 million into the Company. The terms and conditions of such
investment have not yet been negotiated or determined. The Company believes that
the new financing, including the Williams investment, would be sufficient to
provide for its needs through 1998 and can be put in place by June 30, 1997. If
the Company does not close the new loan and repay the current lender by June 30,
1997, the current lender could demand payment of the loan.
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 ended March 31,
1997 (unaudited) are as follows (in thousands):
Quarter Ended
March 31, 1997
-------------------------------------------------
Furniture Golf Corporate Consolidated
--------- ------ --------- ------------
Net Sales $ 1,890 $ 5,711 $ - $ 7,601
Operating Profit/(Loss) 394 (41) (63) 290
Total Assets 3,475 16,955 - 20,430
Depreciation/Amortization 16 65 - 81
Capital Expenditures 10 34 - 44
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION - At March 31, 1997 the Company had working capital of
$3,543,000 as compared with $3,348,000 at December 31, 1996. The ratio of
current assets to current liabilities at March 31, 1997 was 1.3 to 1, no change
from the ratio at December 31, 1996.
At March 31, 1997 the Company had increased its short term borrowings by
$830,000 since December 31, 1996. This was used to finance an increase in
receivables as a result of a $1.3 million sales increase during the quarter.
LIQUIDITY - The Company's liquidity is primarily affected by its financing
requirements. At March 31, 1997 the Company had $11,934,000 outstanding under
its $13,500,000 loan agreement with U. S. Bank. The seasonal nature of the
Company's sales creates fluctuating cash flow, due to the temporary build-up of
inventories in anticipation of, and receivables during, the peak seasonal period
which historically has been from February through May of each year. The Company
has relied and continues to rely heavily on revolving credit facilities and
financial support from affiliates for its working capital requirements.
On February 12, the Company's current bank lender reduced the Company's
revolver limit from $8.5 million to $7 million and prevented further advances,
loans and investments in the Company by Williams because it contended that the
Company was in technical default under its loan agreement based on a default by
Williams Controls, Inc. as guarantor. The Company did and has continued to make
all interest payments on time and has operated within the limit amounts
contained in the old and new facility lines, although restrictions during
February and March curtailed operating capability and reduced sales and
profitability opportunities otherwise available. This constriction forced the
Company to rely on extended credit terms from its venders and additional funds
from affiliated parties. The bank subsequently restructured the agreement and on
April 14 the bank agreed to waive the existing default and restructured the line
on less favorable terms. The restructured facility will terminate on June 30,
1997 and contains language that reduces the advance rate. The line also carries
an increased interest rate of prime plus 3 percentage points. The restructured
line will provide the liquidity the Company needs during the 2nd quarter. In
connection with the restructured facility the Company must also pay a $500,000
term loan payment on June 1, 1997.
In order to find a more permanent solution to easing the liquidity
situation, the Company has been seeking alternative financing. The Company has
signed loan proposal agreements with two different asset based lenders who have
begun their due diligence investigations. The loans under each of the proposal
agreements would supply funds sufficient to repay the current lender; however,
as these loan proposals are presently structured, Williams Controls, Inc., the
guarantor of the Company's loan, would be required to advance approximately $5
million into the Company. The terms and conditions of such investment
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Cont'd)
have not yet been negotiated or determined. The Company believes it will be
able to put new financing into place by June 30, 1997; however the current
lender could demand payment of the existing bank loans if it is not repaid by
June 30, 1997.
RESULTS OF OPERATIONS - During the quarter ended March 31, 1997 the Company
had net sales of $7,601,000, compared to $6,262,000 for the same period in 1996.
The 21% sales increase reflects the strength of the Company's rapidly growing
furniture business which contributed 69% of the sales increase. The golf
business was up 7.7%.
Gross profit for the three months ended March 31, 1997 was 19% of net
sales, compared to 18% for the same period in 1996. This reflects the
improvement in margins in the furniture business partly offset by margin
decreases in golf.
Selling, general and administrative expenses expressed as a percentage of
sales were 15.4% for the first quarter of 1997, versus 19% for 1996. This
improvement is a result of sales increases and expense decreases. Expenses were
decreased by eliminating duplicate selling expenses connected with the Korex
product line acquired in October 1995.
Operating income for the first quarter of 1997 was $290,000 compared to an
operating loss of $63,000 for the first quarter of 1996. This improvement
primarily results from the strong sales increase in furniture.
Interest expense remained the same in the first quarter of 1997 compared to
the first quarter of 1996.
As a result of the above, net income for the first quarter ending March 31,
1997 was $5,000 compared to a net loss of $227,000 for the same period last
year.
8
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) No reports on Form 8-K were filed during the quarter ended March 31,
1997.
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: May 14, 1997
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000854858
<NAME> Ajay Sports, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 190
<SECURITIES> 0
<RECEIVABLES> 7,236
<ALLOWANCES> 0
<INVENTORY> 7,489
<CURRENT-ASSETS> 15,876
<PP&E> 2,730
<DEPRECIATION> 945
<TOTAL-ASSETS> 20,430
<CURRENT-LIABILITIES> 12,333
<BONDS> 0
2,962
1,250
<COMMON> 233
<OTHER-SE> (1,780)
<TOTAL-LIABILITY-AND-EQUITY> 20,430
<SALES> 7,601
<TOTAL-REVENUES> 7,601
<CGS> 6,143
<TOTAL-COSTS> 1,168
<OTHER-EXPENSES> 5
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 278
<INCOME-PRETAX> 7
<INCOME-TAX> 2
<INCOME-CONTINUING> 5
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
