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, 1998
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 5/11/98 is 23,274,039.
Transitional Small Business Disclosure Format
Yes No x
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, 1998 December 31,
(Unaudited) 1997
ASSETS ------------------- ----------------
<S> <C> <C>
Current assets:
Cash $ 99 $ 234
Trade accounts receivable, net 5,999 5,060
Inventories 6,765 6,398
Prepaid expenses and other 305 304
Deferred tax benefit 363 363
---------- ----------
Total current assets 13,531 12,359
Fixed assets, net 1,661 1,723
Other assets 261 106
Deferred tax benefit 756 756
Goodwill 1,654 1,670
---------- ----------
Total assets $ 17,863 $ 16,614
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (deficit)
Current liabilities:
Notes payable to affiliates $ 160 $ 160
Notes payable to banks 105 107
Current portion of capital lease 4 4
Accounts payable 4,000 3,204
Accrued expenses 714 684
---------- -----------
Total current liabilities 4,983 4,159
Notes payable to affiliates - long term 4,224 4,212
Notes payable to banks - long term 9,393 9,017
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, $0.01 par value, 296,170 shares
outstanding at stated value 2,962 2,962
Common stock, $.01 par value 100,000,000 shares authorized,
23,274,039 shares outstanding 233 233
Additional paid-in capital 9,313 9,313
Accumulated deficit (14,495) (14,532)
---------- -----------
Total stockholders' equity (deficit) (737) (774)
---------- -----------
Total liabilities and stockholders' equity $ 17,863 $ 16,614
========== ===========
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months
Ended March 31,
1998 1997
---------- ----------
<S> <C> <C>
Net sales $ 7,598 $ 7,601
Cost of sales 6,330 6,143
------------ ---------- -
Gross profit 1,268 1,458
Selling, general and 1,028 1,168
administrative expenses ------------ ----------
Operating income 240 290
Non-operating expense:
Interest expense, net 335 278
Other, net (136) 5
------------- -----------
Total non-operating expense 199 283
------------- -----------
Income (loss) before income taxes 41 7
Income tax expense (benefit) - 2
------------- ----------- -
Net income (loss) $ 41 $ 5
============= ===========
Basic and diluted earnings per share * $ 0.00 $ 0.00
============= ===========
Weighted average common shares outstanding 23,274 23,274
============= ===========
* Computed by dividing net income or loss, after reduction for preferred stock dividends,
by the weighted average number of common shares outstanding.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS), (UNAUDITED) )
Three Months
Ended March 31,
1998 1997
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 41 $ 5
Adjustments to reconcile to net cash flows from
operating activities:
Depreciation and amortization 101 91
Change in assets [(increase)/decrease] and
liabilities [increase/(decrease)]:
Trade accounts receivable, net (939) (1,962)
Inventories (367) 468
Prepaid expenses and other current assets - (236)
Other assets (155) 4
Deferred tax benefits - 2
Accounts payable 796 694
Accrued expenses 25 137
----------- ------------
Net cash used in
operating activities (498) (797)
----------- ------------
Cash flows from investing activities:
Acquisitions of property, plant, equipment (23) (44)
----------- ------------
Net cash used in
investing activities (23) (44)
----------- ------------
Cash flows from financing activities:
Proceeds from notes payable to affiliates 12 -
Net change in bank loan 374 1,049
Dividends - (82)
----------- ------------
Net cash provided by
financing activities 386 967
----------- ------------
Net increase (decrease) in cash (135) 126
Cash at beginning of period 234 64
----------- ------------
Cash at end of period $ 99 $ 190
=========== ============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 286 $ 277
=========== ============
Cash paid for income tax - -
=========== ============
</TABLE>
3
<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 material adjustments, which
consist only of normal recurring adjustments, necessary to present fairly the
financial position of the Company at March 31, 1998 and the results of
operations for the three-month periods ended March 31, 1998 and 1997 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. These condensed
financial statements should 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, 1997.
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.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
The interim period results are not necessarily indicative of results which may
be expected for any other interim or for the full year. Certain costs are
estimated for the full year and allocated to interim periods based on activity
associated with the interim period.
Accordingly, such costs are subject to year end adjustment.
Note 2. INVENTORIES
The major classes of inventories (rounded to thousands) are as follows:
March 31,1998 December 31,1997
---------------- -----------------
Raw Materials $1,599 $1,499
Work in Process 1,301 1,026
Finished Goods 3,865 3,873
----- -----
$6,765 $6,398
===== =====
4
<PAGE>
Note 3. DEBT
The Company has two sources of debt, $4.2 million due to affiliates, and $9.5
million due to banks. Of the notes owed to affiliates, over $3 million is owed
directly to Williams Controls, Inc. The bank debt is long term and consists of a
revolver at $6.4 million and $3.1 million in term loans. The bank debt consists
of a joint and several loan with Williams Controls, Inc. As part of the "Ajay
Restructuring Plan", on March 13, 1998, the Company's bank, Wells Fargo Bank,
agreed to make revisions in the existing revolving loan agreement. Under this
plan, Wells Fargo has committed to provide the Company with a separate loan
facility and to increase availabilities. This is in consideration of Williams
Controls investing $2 million as part of the Ajay Restructuring Plan and
converting sufficient notes receivable from Ajay into permanent capital so that
the minimum tangible net worth covenant of $825,000 can be achieved. Completion
of the Ajay Restructuring Plan would eliminate any further guarantees of the
bank debt by Williams or Ajay's affiliates. Subsequent to March 31, 1998,
Williams has invested $1 million during the month of April. The additional $1
million will be invested by Williams upon execution of the new bank loan
agreement. The interest rate on the new loans will be prime plus 1% on the
revolver and prime plus 1.5% on the term. The maturity date of the new loan is
May 2001. This Ajay Restructuring Plan is expected to be completed by the end of
May 1998. Completion of this plan should provide the Company with sufficient
capital to operate through the next 12 months.
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,
1998 and 1997 (unaudited) are as follows (in thousands):
<TABLE>
<CAPTION>
Quarter Ended March 31, 1998
GOLF
-----------------------------
Mass Specialty
Furniture Merchant Golf Stores Corporate Consolidated
--------- --------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 1,760 $ 5,318 $ 520 $ - $ 7,598
Operating Profit/(Loss) 220 273 (110) (143) 240
Total Assets 2,930 12,061 2,872 - 17,863
Depreciation/Amortization 26 55 20 - 101
Capital Expenditures 23 - - - 23
Quarter Ended March 31, 1997
GOLF
------------------------------
Mass Specialty
Furniture Merchant Golf Stores Corporate Consolidated
---------- ----------- ------------- ---------- --------------
Net Sales $ 1,890 $ 4,712 $ 999 $ - $ 7,601
Operating Profit/(Loss) 394 141 (182) (63) 290
Total Assets 3,475 11,345 5,610 - 20,430
Depreciation/Amortization 16 50 15 - 81
Capital Expenditures 10 31 3 - 44
</TABLE>
5
<PAGE>
The reduction in both total assets and those in the specialty golf store segment
result from the Company closing its California facility and more efficiently
redirecting its resources. Receivables from specialty golf stores were reduced
by $675,000 and inventories by $1,675,000. All other assets were reduced by
$388,000.
Note 5. DIVIDENDS
Dividends on Series B and C Convertible Preferred Stock have not been declared
for 1997 or 1998 due to unavailability of funds. Dividends are permitted to be
paid under the new loan agreement when sufficient funds become available.
Dividends are in arrears on Series B in the amount of $931,500 and on Series C
in the amount of $370,000.
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION - At March 31, 1998 the Company had working capital of
$8,547,000 as compared with $8,011,000 at December 31, 1997. The ratio of
current assets to current liabilities at March 31, 1998 was 2.7 to 1, as
compared to 2.8 as of December 31, 1997. The Company's borrowings increased
$386,000 since December 31, 1997. This and increased accounts payable helped
finance a $939,000 increase in trade receivables and a $367,000 increase in
inventories during the quarter as a result of a seasonally normal $1.3 million
increase in sales during the quarter.
LIQUIDITY - 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.
During the Company's first quarter, operating cash flow was negative by
$(498,000) which was primarily financed by increased borrowing from banks.
Liquidity remains firm with excess availability of $591,000 as of March 31,
1998. The Company believes that if the current refinancing effort is concluded
by the end of May as anticipated, liquidity tightness will be eased and it will
have sufficient funds to operate through the next 12 months.
RESULTS OF OPERATIONS - During the quarter ended March 31, 1998, the Company
reported net sales of $7,598,000, compared to $7,601,000 for the same period in
1997. Flat sales were primarily a result of closing the Company's Palm Springs
Golf facility in California and integrating the business into the Company's
Delavan, Wisconsin facility, and in connection with that, de-emphasizing golf
club sales. This restructuring activity reduced sales by $479,000, but added to
operating profit by reducing losses in the Palm Springs Golf specialty golf
store lines. The furniture line sales were off $130,000 due to a weather-related
late start to its spring outdoor furniture season. This contributed to reducing
operating profit in the furniture segment by $174,000. The mass market segment
of the golf business increased its sales by $606,000 and likewise, its operating
earnings increased $132,000.
Gross profit for the three months ended March 31, 1998 was $1,268,000 or 17% of
sales, compared to $1,458,000 or 19% for the same period in 1997. The decline in
margins was due to a sales shortfall in the outdoor furniture business.
Selling, general and administrative expenses were $1,028,000 or 13.5% of sales
for the first quarter of 1998, versus $1,168,000 or 15.4% in the same period the
prior year. This was primarily due to the restructuring of Palm Springs Golf.
Interest expense increased by $58,000 reflecting an increase in debt and a
decrease in equity. Non-operating income of $136,000 reflects the result of a
favorable judgment from a law suit settlement. As a result of the above factors,
net income for the first quarter ended March 31,1998 was $41,000 which compares
to a prior year income of $5,000 for the same period.
7
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
A) Exhibit #27: Financial Data Schedule.
B) No reports on Form 8-K were filed during the quarter ended
March 31, 1998.
8
<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: Duly Authorized Officer
By: /s/Duane R. Stiverson
--------------------------
Its: Chief Financial Officer
Date: May 14, 1998
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000854858
<NAME> Ajay Sports, Inc.
<MULTIPLIER> 1,000
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-START> Jan-01-1998
<PERIOD-END> Mar-31-1998
<EXCHANGE-RATE> 1.000
<CASH> 99
<SECURITIES> 0
<RECEIVABLES> 5,999
<ALLOWANCES> 0
<INVENTORY> 6,765
<CURRENT-ASSETS> 13,531
<PP&E> 2,771
<DEPRECIATION> 1,110
<TOTAL-ASSETS> 17,863
<CURRENT-LIABILITIES> 4,983
<BONDS> 0
2,962
1,250
<COMMON> 233
<OTHER-SE> (737)
<TOTAL-LIABILITY-AND-EQUITY> 17,863
<SALES> 7,598
<TOTAL-REVENUES> 7,598
<CGS> 6,330
<TOTAL-COSTS> 1,028
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 335
<INCOME-PRETAX> 41
<INCOME-TAX> 0
<INCOME-CONTINUING> 41
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
