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 September 30, 2000
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
AJAY SPORTS, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 39-1644025
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(State or other jurisdiction of (I.R.S.EmployerIdentification No.)
Incorporation or Organization)
32751 Middlebelt Rd., Suite B
Farmington Hills, Michigan 48334 (248)851-5651
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(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 9/30/00 is 4,120,367
Transitional Small Business Disclosure Format
Yes No X
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C> <C>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
2000
(Unaudited) 1999
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ASSETS
Current assets:
Cash $ 52 $ 101
Marketable securities - available for sale - 348
Trade accounts receivable, net 1,795 3,247
Inventories 91 3,969
Prepaid expenses and other 601 1,179
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Total current assets 2,539 8,844
Fixed assets, net 13,104 1,693
Other assets, net 6,747 7,037
Deferred tax benefit 9,242 6,582
Goodwill - 1,577
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Total assets $ 31,632 $ 25,733
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 900 $ 995
Accounts payable - 5,043
Accrued expenses 1,376 1,099
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Total current liabilities 2,276 7,137
Notes payable to affiliates - long term - 2,087
Notes payable to banks - long term 7,575 13,886
Notes payable - long term 7,700 2,070
Commitments and contingencies - -
Net liabilities of discontinued operations 10,500 -
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Total liabilities 28,051 25,180
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Minority interest in subsidiary 21 24
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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, 217,939 shares
outstanding at stated value 2,179 2,179
Series D, $0.01 par value, 6,000,000 shares 60 60
Common stock, $.01 par value 100,000,000 shares authorized,
4,120,017 and 4,091,091 shares outstanding 41 41
Additional paid-in capital 23,263 15,500
Accumulated deficit -23,119 -18,470
Accumulated other comprehensive income -114 -31
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Total stockholders' equity 3,560 529
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Total liabilities and stockholders' equity $ 31,632 $ 25,733
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</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
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Net sales $ 1,260 $ 995 $ 3,657 $ 995
Cost of sales 1 - 9 -
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Gross profit 1,259 995 3,648 995
Selling, general and
administrative expenses 707 950 2,436 950
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Operating income (loss) 552 45 1,212 45
Non-operating (income) expense:
Interest expense, net 255 122 754 122
Other, net 197 -5 600 -5
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Total non-operating expense 452 117 1,354 117
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Income (loss) before minority interest and income taxes 100 -72 -142 -72
Minority interest in income (loss) of subsidiary 3 -1 -3 -1
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Income (loss) before income taxes 97 -71 -139 -71
Income tax expense (benefit) 34 -25 -49 -25
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Net income (loss) from continuing operations 63 -46 -90 -46
Discontinued operations:
(Loss) from operations of golf wholesale segment
to be disposed of (net of income tax benefit
of $601 in 2000 and $867 in 1999) - -650 -1,130 -1,611
(Loss) on disposal of golf wholesale segment
(net of income tax benefit of $1,708) -3,158 - -3,158 -
(Loss) from operations of furniture operations to be
disposed of (net of income tax benefit of $135
in 2000 and $235 in 1999) -63 -423 -248 -436
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Total (loss) from discontinued operations -3,221 -1,073 -4,536 -2,047
------ ------ ------- ------
Net (loss) $ -3,158 $ -1,119 $ -4,626 $ -2,093
====== ======= ====== ======
Earnings (loss) per share - primary and fully diluted
Income (loss) from continuing operations $ 0.00 $ -0.01 $ -0.02 $ -0.01
(Loss) from discontinued operations -0.79 -0.27 -1.17 -0.52
------ ------- ------ ------
Net (loss) per share $ -0.79 $ -0.28 $ -1.19 $ -0.53
====== ======= ====== ======
Weighted average common shares outstanding 4,120 3,957 4,104 3,957
====== ======= ====== ======
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS), (UNAUDITED)
Nine Months
Ended September 30,
2000 1999
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Cash flows from operating activities:
Net (loss) from operations $ -4,626 $ -2,093
Adjustments to reconcile to net cash flows from
operating activities:
Depreciation and amortization 1,987 303
Loss on dispositions of property and equipment 290
Change in assets [(increase)/decrease] and
liabilities [increase/(decrease)]:
Trade accounts receivable, net 140 -1,025
Inventories 3,691 1,448
Prepaid expenses and other current assets 376 -377
Other assets - -34
Deferred tax benefits -2,660 -3,624
Accounts payable 188 1,545
Accrued expenses 833 656
Trademarks - -6,989
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Net cash provided (used in) operating activities 219 -10,190
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Cash flows from investing activities:
Acquisitions of fixed assets -170 -234
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Net cash used in investing activities -170 -234
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Cash flows from financing activities:
Net change in notes payable -570 10,509
Sales of common stock of subsidiary 357 -
Common stock issued for accounts payable 43 -
Net change in marketable securities 83 16
Net change from conversion of preferred stock - 303
Minority interest in loss of subsidiary -3 24
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Net cash provided by (used in)financing activities -90 10,852
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Net increase (decrease) in cash -41 428
Cash at beginning of period 101 6
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Cash at end of period $ 60 $ 434
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Supplemental disclosures of cash flow information:
Cash paid for interest $ 878 $ 622
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Cash paid for income tax $ - $ -
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Non-cash financing transactions:
Common stock issued for real property $ 13,000 $ -
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This report contains forward-looking statements including statements containing
words such as "believes", "anticipates", " expects" and the like. All statements
other than statements of historical fact included in this report are forward
looking statements. The Company believes that its expectations reflected in its
forward looking statements are reasonable, but it can give no assurance that the
expectations ultimately will prove to be correct. Important factors including,
without limitation, statements relating to planned acquisitions, development of
new products, the financial condition of the Company, the ability to increase
distribution of the Company's products, integration of businesses the Company
has acquired, disposition of any current business of the Company, a change in
the Company's relationships with its bank lenders and/or the Company's
relationship with Williams Controls, Inc., a related company, could cause the
Company's actual results to differ materially from those anticipated in these
forward-looking statements. The Company does not intend to update the
forward-looking statements contained in this report.
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 September 30, 2000 and the results of operations for
the nine-month periods ended September 30, 2000 and 1999 and the cash flows for
the same nine-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, 1999.
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 interim period results are not necessarily indicative of results, which may
be expected for any other interim period, 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.
On June 1, 2000, the Company adopted a formal plan to discontinue its golf
manufacturing and wholesale distribution businesses (Ajay Leisure Products,
Inc., Palm Springs Golf, Inc., Prestige Golf, Inc. and Ajay De Mexico, Inc.)
and to sell its furniture manufacturing business (Leisure Life, Inc.). In
accordance with generally accepted accounting principles, operating results for
these businesses for the shown separately in the accompanying statement of
operations, and the statement of operations for 1999 has been restated and
operating results of the segments to be discontinued and sold are also shown
separately.
Net sales of the discontinued segments (000's) were $6,979 and $478 for the nine
months and three months ended September 30, 2000, respectively, and were $10,512
and $1,689 for the nine months and three months ended September 30, 1999,
respectively. These amounts are not included in net sales in the accompanying
statement of operations.
Assets and liabilities, at book values, of the discontinued segments consisted
of the following at September 30, 2000 (000's):
Cash $ 7
Accounts receivable 1,312
Inventories 187
Prepaid expenses 194
Property, plant, and equipment 933
Other assets 75
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Total assets 2,708
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Accounts payable 4,792
Accrued expenses 1,486
Notes payable 6,382
Other liabilities 548
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Total liabilities 13,208
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Excess of liabilities over assets $10,500
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<PAGE>
Liabilities of the operations being discontinued exceeded assets of those
operations at September 30, 2000. The net liability has been separately
classified in the accompanying balance sheet at September 30, 2000. The December
31, 1999 balance sheet has not been restated.
2. INVENTORIES
The major classes of inventories (rounded to thousands) are as follows:
September 30, December 31,
2000 1999
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Raw Materials $ - $ 827
Work in Process -
903
Finished Goods 91 2,239
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$ 91 $ 3,969
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3. NOTES PAYABLE TO BANKS
On February 2, 1999, the Company entered an agreement with Wells Fargo Bank for
a seasonal over advance of up to $750,000 beginning February 2, 1999. The full
amount of this over advance was due June 2000. The Company has been operating
under a forbearance agreement since June 2, 2000, as it was unable to repay the
loan when it was due. Other Wells loans are also under this forbearance
agreement. Proceeds from assets sold as part of its discontinuance and sale of
the discontinued operations are expected to provide funds to satisfy the Wells
loans.
The Company also was not able to repay its loan with U.S. National Bank of
Oregon when the principle amount of $1,315,000 became due on July 1, 2000 and
has been operating under a forbearance agreement that expired on October 31,
2000 and is being renegotiated.
On June 23, 1999 the Company, through a newly formed subsidiary, Pro Golf
International, Inc. increased its borrowings by $8,500,000 with a 75-day bridge
loan from Comerica Bank. The proceeds of this loan were used toward the purchase
of 100% of the outstanding common stock of Pro Golf of America, Inc. Effective
June 22, 2000 the loan was extended and became a demand note, with interest due
monthly and principal of $75,000 a month beginning September 1, 2000. The
Company was declared to be in default of the loan provisions on September 1,
2000 and has been operating under a forbearance agreement since that time. The
forbearance agreement calls for monthly payments of interest, with all principal
and fees due by December 1, 2000. At September 30, 2000 the principal balance
due on this loan was $8,425,000, and fees were owed of $300,000.
4. DIVIDENDS
Dividends on Series B and C Convertible Preferred Stock have not been declared
for 1997,1998, 1999 or 2000 due to unavailability of funds. Dividends are in
arrears on Series B in the amount of $1,181,575 and on Series C in the amount of
$986,467. Dividends are permitted to be paid under the credit agreement when
sufficient funds become available.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See "Cautionary Statement" at the beginning of the "Notes to Consolidated
Financial Statements".
.
FINANCIAL CONDITION AND LIQUIDITY - At September 30, 2000, the Company's
continuing operations had working capital of $263,000 as compared to $1,707,000
at December 31, 1999, which includes the operations being discontinued and sold.
The ratio of current assets to current liabilities at September 30, 2000 was
1.1, as compared to 1.2 as of December 31, 1999.
During late 1999 and into 2000, the Company took action to reduce operating
costs by reducing its work force and cutting certain other selling and
administrative expenses. The Company also closed its Mexicali, Mexico facility
during June 2000. On June 1, 2000 the Company adopted a strategic plan calling
for the liquidation of its Delavan, Wisconsin operations (Ajay Leisure Products,
Inc., Palm Springs Golf Inc., and Prestige Golf Inc.) and the sale of its
Baxter, Tennessee operation (Leisure Life, Inc.). The Company completed the
closing of the Wisconsin facility on August 31, 2000. The Company has been
attempting to sell Leisure Life, Inc. and has made a proposal to Wells that
funding continue through the current season so that cash flow can further reduce
the loan balance and a qualified buyer can be located.
It is expected that most, if not all, of the proceeds from the discontinuance of
these operations will be used to pay the Company's secured creditors.
At September 30, 2000 and into the fourth quarter, the Company is reviewing its
current loan positions with its lenders. Its seasonal loan with Wells Fargo Bank
was extended through June 2, 2000 and the Company has been operating under a
forbearance agreement since that time on that loan and its other loans with
Wells. The Company also was not able to repay its loan with U.S. National Bank
of Oregon when the principle amount of $1,340,000 became due on July 1, 2000 and
has been operating under a forbearance agreement that expired on October 31,
2000 and is being renegotiated. The Company is also operating under a
forbearance agreement with Comerica Bank that calls for loan principal of
$8,425,000 and fees of $300,000 to be paid in full on December 1, 2000. The
Company is in need of substantial additional capital, and has engaged
professional advisors to assist it in raising equity and debt capital to permit
it to repay its bank lenders in full, have sufficient working capital to fund
operations during seasonal downturns in the golf industry, and to help it
achieve its expansion goals with Pro Golf of America and Pro Golf Online, Inc.
As of November 20, 2000, new financing has begun to come in through a private
offering of 5,000,000 shares of common stock of Pro Golf Online. Subscriptions
for _____ shares at $2.50 per share have been received and paid for as of that
date. The Company is also proceeding with efforts to raise up to $13,000,000 in
a combination of equity, subordinated debt, and senior debt in its Pro Golf
International, Inc. subsidiary, the proceeds of which may be used to refinance
its bank debt and subordinated debt and for working capital.
In July 2000, Pro Golf International, Inc. acquired golf real estate in Birch
Run, Michigan and vacant land in Vero Beach, Florida in exchange for 108,334
common shares of PGI. The properties had appraised values of $13,000,000 and
debt approximating $6,500,000. The Company presently is conducting interviews
with commercial real estate brokers and intends to list the properties for sale
during the fourth quarter of 2000.
<PAGE>
RESULT OF OPERATIONS - Due to the continued losses of certain of the Company's
operating subsidiaries, management adopted a formal plan of liquidation and sale
of it's Delavan, Wisconsin operations (Ajay Leisure Products, Inc., Palm Springs
Golf Inc., and Prestige Golf Inc.) and the sale of its Baxter, Tennessee
operation (Leisure Life, Inc.). Activities for these operations were reported as
"discontinued operations" in the September 30, 2000 and 1999 (restated)
Statement of Operations.
During the quarter ended September 30, 2000, the Company had net sales from
continuing operations of $1,260,000 compared to $995,000 for the quarter ended
September 30, 1999. This increase was due to increased royalties earned by its
franchise operations, new franchise sales during the quarter ended September 30,
2000, and rental income accrued on its golf real estate that was acquired in
July 2000.
Interest expense on continuing operations for the quarter ended September 30,
2000 was $255,000 and related to the financing obtained to enable the Company to
acquire Pro Golf in June 1999.
Net income from continuing operations for the quarter ended September 30, 2000
was $63,000 compared to a (restated to remove discontinued operations) loss of
$46,000 during the same quarter of 1999. Prior to restatement, the loss from
operations for the nine months ended September 30, 1999 was $2,093,000.
Cash flows for the nine months ended September 30, 2000 from discontinued
operations were as follows:
Net cash provided by operating activities $ 79
Net cash used in investing activities $ 0
Net cash used in financing activities $ 704
PART II. OTHER INFORMATION
Item 5. Other Information.
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
A) Exhibits:
27 Financial Data Schedule.
B) Forms 8-K:
Not Applicable.
<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.
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By: /s/Robert R. Hebard
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Its: Corporate Secretary
By: /s/Ronald N. Silberstein
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Its: Chief Financial Officer
Date: November 20, 2000
