UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
Mark One
(x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year Ended December 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from_____ to _______
Commission File Number 0-18204
AJAY SPORTS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 39-1644025
- -------------------------------- ----------------------------------
(State or other jurisdiction of (IRS 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)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Units (each consisting of 5 shares of Common
Stock and 2 Warrants) Common Stock
Purchase Warrants
Series C 10% Cumulative Convertible Preferred Stock
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during
the past 12 months (or for such shorter period that the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
<PAGE>
Indicate by checkmark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by nonaffiliates as of
February 12, 1998 was $1,598,711. The number of shares outstanding of the
Registrant's $.01 par value common stock at February 12, 1998 was 23,274,039.
Documents Incorporated by Reference
None
2
<PAGE>
PART III
Item 10. Directors and Executive Officers of the registrant
The Registrant's directors as of March 31, 1998 are as follows:
Positions and 1st Yr. As
Name Age Offices with Company Director
- -------------------- --- -------------------------------- ---------
Anthony B. Cashen 62 Director 1993
Robert R. Hebard 45 Director & Corporate Secretary 1989
Thomas W. Itin 63 Chairman, CEO & President 1993
Robert D. Newman 56 Director 1994
Clarence H. Yahn 61 Director & Chief Operating Officer 1994
Anthony B. Cashen. Mr. Cashen has served as a director of the Company since
1993. For more than the past five years, Mr. Cashen has served as a managing
partner or senior partner of Lamalie Amrop International, a publicly held
management consulting and executive recruiting firm located in New York City. He
has served as Secretary, Treasurer and Director of LBO Capital Corporation, a
publicly held Company, since inception. He currently serves as a Director of
Immucell Corp., a publicly held company. Previously, Mr. Cashen had been an
officer and principal of the investment firms A. G. Becker, Inc. and Donaldson,
Lufkin and Jenrette, Inc. He received an MBA from the Johnson Graduate School of
Management at Cornell University, and a Bachelor of Science degree from Cornell
University.
Robert R. Hebard. Mr. Hebard has served as a Director of the Company since 1989
and Secretary of the Company since September 1990. From June 1993 to the
present, he has been Chairman of the Board and President of Enercorp, Inc., a
publicly traded business development company under the Investment Company Act of
1940, as amended. From June 1986 to January 1992, Mr. Hebard was First Vice
President and Director of Product Management for Comerica Bank, and from
February 1992 to October 1992 he was Director of Retail Marketing for the merged
Comerica/Manufacturers Bank. Mr. Hebard also currently serves as Vice President
of Woodward Partners, Inc., a real estate development company in West
Bloomfield, Michigan. From 1993 to the present, Mr. Hebard has served as Chief
Executive Officer of CompuSonics Video Corp., a publicly held company. He
received an MBA from Canisius College and a Bachelor of Science degree from
Cornell University.
Thomas W. Itin. Mr. Itin was elected Chairman of the Board and President of the
Company in June of 1993, and is the Company's largest single stockholder. Mr.
Itin has been Chairman, President, Treasurer, Chief Executive Officer and Chief
Operating Officer of Williams Controls, Inc. a publicly held company, from May
1993 to the present. From 1989 to May 1993, he held the titles of Chairman,
Chief Executive Officer and Treasurer of Williams Controls. He has served as
Chairman of the Board, Chief Executive Officer and Chief Operating Officer of
LBO Capital Corp. since its inception. Mr. Itin has been Chairman, President and
Owner of TWI International, Inc. since he founded the firm in 1967. Mr Itin also
has been Owner and Principal Officer of Acrodyne Corporation since 1962. He
received a Bachelor of Science degree from Cornell University and an MBA from
New York University.
3
<PAGE>
Robert D. Newman. Mr. Newman became a Director of the Company in August 1994. He
has served as General Manager of Leisure Life, Inc., a wholly owned subsidiary
of the Company since August 1994. Mr. Newman founded Leisure Life, Inc. in
October, 1990 and served as President from its inception until its purchase by
the Company in August 1994. Mr. Newman was President and Chief Executive Officer
of Stone Mountain Millworks from 1985 to 1989. He served as Director of Product
Development for Gold Medal, Inc. from 1989 to October 1990. Mr. Newman attended
Northern Illinois University.
Clarence H. Yahn. Mr. Yahn became a Director of the Company in September 1994,
and has served as Director of Ajay Leisure Products, Inc. a wholly owned
subsidiary of Ajay Sports, Inc. since September 1993 and as Ajay Leisure's
President since January 1994. Mr. Yahn has served as the Chief Operating Officer
of the Company since January 1996. From December 1996 to the present, Mr. Yahn
also serves as Executive Vice President of Williams Controls, Inc. responsible
for the Company's Consumer Durables Group. In 1988, Mr. Yahn joined Gold Medal,
Inc. as its President. Prior to joining Ajay Leisure Products, Mr. Yahn served
as Chief Executive Officer of Melnor, Inc. a consumer durables company from 1992
to 1993. He received a Bachelor of Science degree in mathematics and physics
from the University of Wisconsin and received a Masters degree in International
Business from the American Graduate School of International Management.
Robert R. Hebard is the son-in-law of Thomas W. Itin, the Company's chairman.
Other than this relationship, there are no other family relationships between
any director or executive officers.
The Directors of the Company are not compensated for their services as
directors, but are reimbursed for reasonable costs incurred on behalf of the
Company.
Under the 1994 Stock Option Plan, which was approved by the Company's
Stockholders at the Annual Meeting in October 1994, the non-employee directors
who are members of the Compensation Committee are to receive grants of 5,000
non-statutory stock options under the plan at each Annual Meeting. During 1997,
no grants were made under the 1994 Stock Option Plan to members of the
Compensation Committee.
Executive Officers of the Company
The following table sets forth, as of March 31, 1998, the names and ages of the
Company's executive officers including all positions and offices held by each
such person. These officers are elected to hold office for one year or until
their respective successors are duly elected and qualified.
Name Age Position
- ---------------------- ------ ------------------------
Thomas W. Itin 63 President and Chief Executive Officer
Clarence H. Yahn 61 Chief Operating Officer
Duane R. Stiverson 56 Chief Financial Officer
For information regarding Mr. Yahn and Mr. Itin, see their biographies above.
Duane R. Stiverson has been Chief Financial Officer of Ajay Sports, Inc. since
July 1994. Prior to joining the Company, Mr. Stiverson was the Vice President of
Operations for VariQuest Technologies, Inc. and held that position from 1991
until he joined the Company in July 1994. From 1987 to 1990, Mr. Stiverson was
Vice President of Materials for the Ambrosia Chocolate Company. From 1978 to
1987, he was the Vice President of Finance for Ambrosia, and from 1976 to 1978
was its Controller. Prior to 1978, Mr. Stiverson held various controller and
corporate finance positions with Bendix Corporation. Mr. Stiverson has a
Bachelor of Science degree from the University of Nebraska and an MBA degree
from Michigan State University.
4
<PAGE>
Item 11 Executive Compensation
Summary of Cash and Certain Other Compensation
The following table shows, for the years ending December 31, 1997, 1996 and
1995, the cash compensation paid by the Company and its subsidiaries, as well as
certain other compensation paid or accrued for those years, to each of the
executive officers of the Company who received compensation from all capacities
in which they serve:
Summary Compensation Table
Long Term
Compensation
Annual Securities
Compensation Underlying
Name and Principal Position Year Salary Options(# Shares)
- ----------------------------- ----- ------------- -----------------
Thomas W. Itin, CEO (1) 1997 $1 --
1996 $1 --
1995 $1 --
Clarence H. Yahn, COO (2) 1997 $117,502 --
1996 $100,000 200,000
1995 $104,875 --
Options/SAR Grants
During 1997, no options or SARs were granted to the executive officers named in
the Summary Compensation Table.
Aggregated Option Exercises and Fiscl Year End Option Values
The table below summarizes options exercised during 1997 and year-end option
values of the named executive officers listed in the Summary Compensation Table:
Aggregated Option Exercises in 1997 and December 31, 1997 Option Values
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised Unexercised
Options/FY-End In-the-Money
(#) Options at FY-End
($)
-------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Shs Acquired Value
Name on Exercise ($) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------- --------------- ------------ ------------ ------------- ------------ -------------
Thomas W. Itin 0 0 0 0 -- --
CEO
Clarence H. Yahn 0 0 450,000 100,000 $0 $0
COO
</TABLE>
Compensation of Directors
Currently, directors are not paid a fee for attending regular Board of Directors
meetings. However, they are reimbursed for expenses incurred in attending such
board meetings.
Under the 1994 Stock Option Plan, which was approved by the Company's
Stockholders at the Annual Meeting in October 1994, the non-employee directors
who are members of the Compensation Committee are to receive grants of 5,000
non-statutory stock options under the plan at each Annual Meeting. During 1997,
no grants were made under the 1994 Stock Option Plan to members of the
Compensation Committee.
Employment Contracts
The Company has an employment agreement with Mr. Itin under which he served as
the President and Chief Executive Officer of the Company at a salary of $1 per
year during the years ended December 31, 1994 through 1997. This agreement
expired on December 31, 1997 and Mr. Itin's compensation for 1998 is to be
determined by the Board.
5
<PAGE>
Further Information
Item 12 Security Ownership of Certain Beneficial Owners and Management
- ------- --------------------------------------------------------------
The table below sets forth, as of March 31, 1998, the number of shares of Common
Stock beneficially owned by each director and executive officer (named in the
Summary Compensation Table) of the Company individually, all officers and
directors as a group, and all beneficial owners of more than five percent of the
Common Stock. The following stockholders have sole voting and investment power
with respect to their holdings unless otherwise footnoted.
Number of Shares Percentage
Name and Address Beneficially Owned of Class(1)
- ------------------------------- ------------------------ -----------
Thomas W. Itin 16,549,169 (2)(3)(5)(6)(9) 45.6%
7001 Orchard Lake Road, Suite 424
West Bloomfield, MI 48322
Williams Controls Industries, Inc. 15,228,520 (4) 43.3%
14100 SW 72nd Avenue
Portland, OR 97224
TICO 11,944,484 (5) 38.5%
7001 Orchard Lake Road, Suite 424
West Bloomfield, MI 48322
Acrodyne Profit Sharing Trust 2,773,471 (6) 10.8%
7001 Orchard Lake Road, Suite 424
West Bloomfield, MI 48322
Robert R. Hebard 35,000 (7) ***
7001 Orchard Lake Road, Suite 424
West Bloomfield, MI 48322
Enercorp, Inc. 1,893,797 (8) 7.9%
7001 Orchard Lake Road, Suite 424
West Bloomfield, MI 48322
LBO Capital Corp. 1,680,000 (9) 6.9%
7001 Orchard Lake Road, Suite 424
West Bloomfield, MI 48322
Robert D. Newman 933,600 (10) 3.9%
215 4th Avenue North, P.O. Box 60
Baxter, TN 38544
Clarence H. Yahn 634,100 (11) 2.6%
1501 E. Wisconsin Street
Delavan, WI 53115
Duane R. Stiverson 92,600 (12) ***
1501 E. Wisconsin Street
Delavan, WI 53115
Anthony B. Cashen 20,000 (13) ***
Lamalie Amrop International
200 Park Avenue, Suite 3100
New York, NY 10166
All officers and directors as a 18,113,255 (2)(3)(7)(10) 54.2%
group (6 persons) (11)(12)(13)
*** Less than 1%
- -------------
6
<PAGE>
(1) Where persons listed on this table have the right to obtain additional
shares of Common Stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days
from March 31, 1998, these additional shares are deemed to be
outstanding for the purpose of computing the percentage of Common Stock
owned by such persons, but are not deemed to be outstanding for the
purpose of computing the percentage owned by any other person.
Percentages are based on 23,274,039 shares outstanding.
(2) Mr. Itin may be deemed to be a "control person" of the Company.
Includes Common Stock and shares of Common Stock issuable upon the
exercise of presently exercisable warrants and the conversion of
presently convertible Preferred Stock beneficially owned by Mr. Itin's
spouse and affiliates of Mr. Itin as follows:
Entity Shares Description
- ------ ------ -----------------------
TICO 5,000,040 Common Stock
First Equity Corporation 151,214 Common Stock
Acrodyne Profit Sharing Trust 2,773,471 Common Stock and warrants
LBO Capital Corporation 1,680,000 Common Stock and warrants
---------
9,604,725
TICO (12,500 shares of Series B
preferred stock convertible at one Series "B" Preferred Stock
share for 555.56 shares of Common 6,944,444 conversion
Stock) ----------
16,549,169
==========
Mr. Itin disclaims beneficial ownership in the securities owned by LBO Capital
Corp. and First Equity Corporation in excess of his pecuniary interest. Mr.
Itin's spouse owns an 80% equity interest in First Equity Corp., and Mr. Itin
owns 56% of the outstanding common stock of LBO Capital Corp., a company with
its common stock registered under Section 12(g) of the Securities Exchange Act
of 1934 (the "Exchange Act"). Mr. Itin is also Chairman of the Board and
President of LBO Capital.
(3) Does not include 4,117,647 Common Shares and 11,110,873 options owned by
Williams Controls, Inc. Mr. Itin is Chairman of the Board, President, Chief
Executive Officer, Chief Operating Officer, Treasurer and 26.7% beneficial owner
of Williams Controls, Inc. Even though Mr. itin is a Director of Williams
Controls, he abstains from voting on matters pertaining to the Company in
meetings of the Directors of Williams Controls.
(4) Includes 11,110,873 shares of Common Stock issuable upon the exercise of
outstanding stock options. See "Certain Relationships and Related Transactions."
(5) Includes 6,944,444 shares of Common Stock issuable upon conversion of 12,500
shares of presently convertible Series B Preferred Stock, at a rate of 555.56
shares of Common Stock for every one share of preferred stock. TICO is a
Michigan partnership of which Mr. Itin is the Managing Partner.
(6) Includes 1,597,000 shares of Common Stock issuable upon exercise of options.
Mr. Itin is trustee and beneficiary of Acrodyne Profit Sharing Trust.
(7) Does not include ownership of Enercorp, Inc. Mr. Hebard is the Chairman and
President of Enercorp.
7
<PAGE>
(8) Includes the following Common Stock and shares of Common Stock issuable upon
the conversion of presently convertible Preferred Stock owned by Enercorp, Inc.,
a Colorado corporation, with its Common Stock registered under Section 12(g) of
the Exchange Act:
Common Stock 1,864,706
2,000 shares of Series C preferred stock,
convertible at one preferred share for 29,091
14.5 shares of Common Stock -----------
1,893,797
(9) Includes 200,000 shares of Common Stock issuable upon exercise of warrants.
LBO Capital Corporation is a Colorado corporation of which Mr. Itin is a 56%
shareholder, Chairman of the Board of Directors, and President.
(10) Includes 100,000 shares of Common Stock issuable upon the exercise of
outstanding stock options.
(11) Includes 450,000 shares of Common Stock issuable upon the exercise of
outstanding stock options.
(12) Includes 42,500 shares of Common Stock issuable upon the exercise of
outstanding stock options.
(13) Includes 10,000 shares of Common Stock issuable upon the exercise of
outstanding stock options automatically granted under the 1994 Stock Option
Plan.
Compliance with Section 16(a) of the
Securities Exchange Act of 1934
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") requires executive officers, directors, and persons who
beneficially own more than 10% of the Company's Common Stock to file, with the
SEC, initial reports of beneficial ownership on Form 3, reports of changes in
beneficial ownership on Form 4, and annual statements of changes in beneficial
ownership on Form 5. Persons filing such reports are required under the
regulations promulgated by the SEC pursuant to Section 16 to furnish the Company
with copies of such reports. Based solely upon a review of the copies of the
reports received by the Company during the fiscal year ended December 31, 1997,
the Company believes that all reports were timely filed.
Item 13 Certain Relationships and Related Transactions
- ------- ----------------------------------------------
On July 11, 1997, the Company refinanced its bank debt through a $34,088,000
three-year revolving credit and term loan agreement with Wells Fargo Bank
("Wells"). This loan is a joint and several obligation of the Company and
Williams Controls Industries, Inc. ("Williams") and Williams is the agent for
all of the borrowers under the agreement. The proceeds from the Company's and
Williams' borrowings under the Wells loan were used to repay the Company's and
Williams' loans from the previous lender, U. S. Bank, except for $2,340,000
which represents a bridge loan to the Company by U. S. Bank. This bridge loan is
guaranteed by Williams and is to be repaid from the sale of assets and/or excess
cash flow of Williams and/or the Company. This bridge loan is guaranteed up to
$1,000,000 by the Company's President, Mr. itin.
Since 1994, Williams has made loans and provided capital to the Company to
assist the Company in meeting its financing requirements. In addition to
$560,000 borrowed prior to closing, the Company borrowed $2,268,000 from
Williams in order to close the loan with Wells. The Company granted Williams a
security interest that is subordinate to the security interests of Wells and U.
S. Bank. The Company and Williams have agreed that this is a long-term
investment. Accordingly, the obligation is reported as a long-term liability on
the books and records of the Company. The Company's president is a guarantor of
the Company's loan to Wells.
8
<PAGE>
To compensate Williams for these and other services provided on behalf of the
Company in 1997 and the prior three years, the Board of Directors of the Company
agreed, on November 11, 1997, to reset the price at which Williams' stock
options can be exercised to $.18 per share. Currently, Williams holds the
following options to purchase Common Stock of the Company:
Former Option Current Option
Number of Options Exercise Price Exercise Price Expiration Date
- ------------------- -------------- -------------- ---------------
4,717,219 $.34 $.18 August 1, 1999
3,487,447 $.40 $.18 August 1, 1999
2,906,207 $.50 $.18 August 1, 1999
On November 11, 1997, the Board of Directors of the Company also agreed to
modify the terms of the stock options and preferred stock held by Mr. Itin and
entities related to him. This was done in consideration of loans made and
personal guarantees given by Mr. Itin. The modifications included a reduction in
the exercise price of all stock options and warrants held by Mr. itin and
entities related to him, including Acrodyne Profit Sharing Trust, TICO and LBO
Capital Corporation from their former levels to a revised exercise price of $.18
per share. In addition, the board also agreed to adjust the preferred stock
conversion ratio of the Series B preferred stock held by TICO. The number of
common shares into which the Series B preferred stock was convertible was
originally determined by dividing the face amount of the Series B preferred
stock, $100 per share, by the then current price of Ajay's Common Stock, or $.34
per share. This resulted in a conversion ratio of 294.12 shares of Common Stock
for every one share of Series B preferred stock. Based on the price of Ajay's
Common Stock on or about November 11,1997, the board agreed to adjust the
conversion ratio of the Series B preferred stock from 294.12 shares of Ajay
Sports' Common Stock for every one share of Series B preferred stock to 555.56
shares of Ajay Sports' Common Stock for every one share of Series B preferred
stock, reflecting the Common Stock price of $.18 per share.
Williams had previously guaranteed the debt of the Company to the Company's
previous lender, for which it charged the Company 1/2% per annum of the
outstanding loan balance subject to the Guaranty. In connection with the July
refinancing, the previous lender provided the Company $2,340,000 of bridge
financing and Williams provided the Company with $2,268,000 at loan closing to
repay the previous loan. The sources of repayment for the bridge loan are
expected to be primarily derived from future expected financial transactions of
Williams. Therefore, it is likely that the Company will need to borrow
additional funds from Williams in the future to repay the bridge loan. Williams
has also agreed to purchase approximately $1,000,000 of notes payable from the
Company to affiliated parties which had provided loans to the Company to help it
finance operations during the financial restructuring. Such notes payable have
not yet been purchased.
The Company and Williams have structured a plan (the "Ajay Recapitalization")
whereby the Company plans to obtain permanent bank financing independent of the
joint Wells loan. Management of the Company believes this, along with an
investment by Williams, would result in adequate working capital for the Company
and eliminate any requirements for further advances or guarantees from Williams.
The Company's management informed Williams that it has signed a proposal letter
with a lender for an asset-based loan, which the Company's management, based on
expected loan advance rates, would result in an approximately $2,000,000
shortfall of its projected working capital needs. Williams has indicated that it
intends to invest up to $2,000,000 to provide the Company with adequate working
capital.
First Equity Corporation, a company that is 80% owned by the spouse of the
Company's chairman, has made loans and currently holds demand notes from the
Company in the amount of $748,000, a result of loans made to the Company in 1996
and 1997. Enercorp, Inc., which owns Common Stock and Series C preferred stock
in the Company and whose Chairman is a director of the Company, also holds a
note in the amount of $200,000, payable by the Company on demand as the result
of a loan made to the Company in a prior year.
Mr. Itin is, and at all times since 1994 has been, the chairman, president,
treasurer, chief executive officer and chief operating officer of Williams, a
publicly held corporation, and has been the chairman, chief executive officer,
president and treasurer of the Company.
9
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Form 10-K/A Amendment No. 1 to
be signed on its behalf by the undersigned, thereunto duly authorized.
AJAY SPORTS, INC.
DATE: April 28, 1998 BY \s\ Duane R. Stiverson
-------------- ----------------------
Duane R. Stiverson, Chief Financial Officer
10
