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, 2000
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.
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(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.)
32751 Middlebelt Road, Suite B
Delavan, Wisconsin 53115 (248) 851-5651
- -------------------------------------- -------------------------
(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 3/31/00 is 4,091,091
Transitional Small Business Disclosure Format
Yes No X
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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, and 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.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31, 2000 December 31,
(Unaudited) 1999
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<S> <C> <C>
ASSETS
Current assets:
Cash $ 264 $ 101
Marketable securities - available for sale 333 348
Trade accounts receivable, net 4,363 3,247
Inventories 3,317 3,969
Prepaid expenses and other 997 1,179
-------------- ---------------
Total current assets 9,274 8,844
Fixed assets, net 1,512 1,693
Other assets 7,023 7,037
Deferred tax benefit 7,172 6,582
Goodwill 1,566 1,577
-------------- ---------------
Total assets $ 26,547 $ 25,733
============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 1,530 $ 995
Accounts payable 5,363 5,043
Accrued expenses 1,548 1,099
-------------- ---------------
Total current liabilities 8,441 7,137
Notes payable to affiliates - long term 2,087 2,087
Notes payable to banks - long term 13,725 13,886
Notes payable - long term 1,200 2,070
Commitments and contingencies - -
-------------- ---------------
Total liabilities 25,453 25,180
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Minority Interest in Subsidiary 16 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,
4,091,091 shares outstanding 41 41
Additional paid-in capital 16,840 15,500
Accumulated deficit (19,337) (18,470)
Accumulated other comprehensive income 45 (31)
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Total stockholders' equity 1,078 529
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Total liabilities and stockholders' equity $ 26,547 $ 25,733
============== =============
</TABLE>
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<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months
Ended March 31,
2000 1999
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<S> <C> <C>
Net sales $ 4,758 $ 4,263
Cost of sales 3,827 3,595
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Gross profit 931 668
Selling, general and
adminisrative expenses 1,474 851
-------------- ------------
Operating income (loss) (543) (183)
Non-operating expense:
Interest expense, net 502 253
Other, net 284 26
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Total non-operating expense 786 279
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(Loss) before minority interest and income taxes (1,329) (462)
Minority interest in (loss) of subsidiary 8 -
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(Loss) before income taxes (1,321) (462)
Income tax (benefit) 462 -
--------------- ------------
Net (loss) $ (867) $ (462)
=============== ============
Basic and diluted earnings (loss) per share $ (0.23) $ (0.14)
=============== ============
Weighted average common shares outstanding 4,091 3,957
=============== ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS), (UNAUDITED)
Three Months
Ended March 31,
2000 1999
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<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (867) $ (462)
Adjustments to reconcile to net cash flows from
operating activities:
Depreciation and amortization 303 95
Change in assets [(increase)/decrease] and
liabilities [increase/(decrease)]:
Trade accounts receivable, net (1,116) (1,462)
Inventories 652 (202)
Prepaid expenses and other current assets 182 (112)
Other assets 24 3
Deferred tax benefits (590) -
Accounts payable 320 43
Accrued expenses 449 187
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Net cash used in operating activities (643) (1,910)
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Cash flows from investing activities:
Acquisitions of fixed assets (18) (19)
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Net cash used in investing activities (18) (19)
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Cash flows from financing activities:
Net change in notes payable 520 1,904
Sales of common stock of subsidiary 297 -
Net change in marketable securities 15 46
Minority interest in loss of subsidiary (8) -
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Net cash provided by financing activities 824 1,950
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Net increase (decrease) in cash 163 21
Cash at beginning of period 101 6
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Cash at end of period $ 264 $ 27
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Supplemental disclosures of cash flow information:
Cash paid for interest $ 502 $ 254
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Cash paid for income tax - -
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</TABLE>
<PAGE>
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, 2000 and the results of operations for the
three and nine-month periods ended March 31, 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.
<PAGE>
2. INVENTORIES
The major classes of inventories (rounded to thousands) are as follows:
March 31, December 31,
1999 1999
Raw Materials $1,086 $ 827
Work in Process 1,103 903
Finished Goods 2,043 2,239
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$4,232 $ 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 is due on June 2, 2000. The interest rate on
advances outstanding on the over advance is prime plus 2%.
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. The loan
was due on the earlier of demand or March 15, 2000. The company is in the
process of converting this loan into long-term financing. The Company expects
the refinancing to be completed during the second quarter of 2000. At March 31,
2000, the principal balance due on this loan was $8,425,000.
<PAGE>
4. SEGMENT INFORMATION
The contribution to net sales, operating income (loss) and identifiable assets
of the Company's industry segments for the quarter ended
March 31, 2000 and 1999 (unaudited) are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Quarter Ended March 31, 2000
GOLF
----------------------
Specialty
Mass Golf
Furniture Merchant Stores Franchise Corporate Consolidated
--------- -------- ---------- --------- --------- -------------
Net Sales $ 1,960 $ 1,298 $ 165 $ 809 $ - $ 4,758
Operating Profit/(Loss) 232 (624) (53) 50 (148) (543)
Total Assets 2,137 3,377 6,325 14,685 - 26,524
Depreciation/Amortization 30 43 13 217 - 303
Capital Expenditures 1 - - 17 - 18
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
Quarter Ended March 31, 1999
GOLF
----------------------
Specialty
Mass Golf
Furniture Merchant Stores Franchise Corporate Consolidated
--------- -------- --------- --------- --------- ------------
Net Sales $ 2,268 $ 1,954 $ 41 $ - $ - $ 4,263
Operating Profit/(Loss) 316 (310) (35) - (154) (183)
Total Assets 4,019 8,997 1,786 - - 14,802
Depreciation/Amortization 24 58 13 - - 95
Capital Expenditures 19 - - - - 19
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
5. DIVIDENDS
Dividends on Series B and C Convertible Preferred Stock have not been
declared for 1997, 1998 or 1999 due to unavailability of funds. Dividends
are in arrears on Series B in the amount of $1,081,575 and on Series C in
the amount of $762,747. Dividends are permitted to be paid under the credit
agreement when sufficient funds become available.
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. At March 31, 2000 the Company had working capital of
$833,000, as compared to $1,707,000 at December 31, 1999. The ratio of current
assets to current liabilities at March 31, 2000 was 1.1, as compared to 1.2 at
December 31, 1999. The Company's borrowings decreased $469,000 since December
31, 1999, largely due to conversions of subordinated debt totaling $870,000 into
common stock of a subsidiary, Pro Golf International, Inc. (PGI), on February
29, 2000. The conversions were at a price of $60 per share of PGI common stock.
The Company is reviewing its current loan positions with its lenders. The
seasonal loan with Wells Fargo Bank has been extended through June 2, 2000. The
Company has been unable to comply with certain financial covenants in its credit
agreement with Wells Fargo and has been operating under a waiver with regards to
this non-compliance. The Company is in negotiations with Wells and is reviewing
with Wells the covenants relative to the Company's financial position in an
effort to modify the covenants until the Company's financial position improves.
The Company also is negotiating with Comerica Bank to extend the bridge loan
obtained by PGI whe PGI purchased Pro Golf during June 1999. This loan,
including extensions, was due on March 15, 2000 and the Company is reviewing a
proposal from Comerica to extend the loan through May 1, 2001.
During the first quarter of 2000, the Company's cash flow from operations was
negative by $643,000. This was attributable to sales decreases at Ajay Leisure
Products, Inc., seasonality of the golf industry, and increased interest costs
due to the acquisition financing obtained when Pro Golf was acquired.
During the past six months, the Company has taken action to lower operating
costs by reducing its work force and cutting certain other selling and
administrative expenses. The Company continues to explore additional cost
cutting measures and expects, in the near term, to reduce its lease rental costs
by consolidating its golf-related operatiion into one geographic area. These
changes also are intended to increase efficiency and reduce excess manufacturing
space. The Company will continue to cut its operating costs whenever feasible.
Cost reductions alone are unlikely in the short term to provide sufficient
capital to fund ongoing operations. Successful ongoing operations also will
require substantial additional capital supported by increased sales.
<PAGE>
The Company needs immediate and substantial capital infusion. The Company is in
the process of offering for sale, in a private offering, shares of common stock
of PGI and another indirect subsidiary, ProGolf.com, Inc. These offerings are in
process and there can be no assurance that the current offerings will yield
sufficient equity capital for the Company's immediate cash needs. The Company is
considering various alternatives for raising additionsl capital, including
possible acquisitions and dispositions of assets and/or operating subsidiaries,
joint venture and other types of arrangements.
The Company's financial position has continued over the past several years to
deteriorate despite management's efforts to cut costs and raise additional
capital. Management believes that the negative financial trend can be turned
around and it is exploring all viable options to achieve that end. The Company
is working with its lenders and vendors to achieve maximum flexibility and their
support in the Company's turnaround efforts.
RESULTS OF OPERATIONS. During the quarter ended March 31, 2000 the Company had
net sales of $4,758,000, a 12% increase compared to $4,263,000 for the same
quarter in 1999. This increase was due to the acquisition of Pro Golf of America
during June 1999, which contributed $801,000 of this quarter's sales, and also
to a new operating subsidiary, Prestige Golf Corp., which had sales of $692,000
during this quarter. Without the year 2000 sales from these entities, sales
would have been $3,265,000, a decrease of $998,000, or 33%, from the same period
in 1999.
These reductions were primarily in the Company's sales to its mass merchant
customers. Sales of outdoor furniture decreased by $308,000, or 13.6%, during
the quarter ended March 31, 2000 as compared to the same quarter in 1999.
The Company had redesigned its bag line for the 2000 season and expected this to
result in increased sales. The Company also anticipated increasing its bag,
cart, and accessory sales as a result of the acquisition of Pro Golf of America.
However, through March 31, 2000 additional sales realized have been minimal.
This is partially due to the Company's tight cash flow position, which affected
Ajay's ability to source and manufacture products at proper price points that
could be delivered on a timely basis.
Gross profit for the three months ended March 31, 2000 was 20% of sales,
compared to 16% for the same period of the prior year. The significant increase
in gross profit is due to the acquisition of Pro Golf.
<PAGE>
Selling, general and administrative expenses were $1,474,000 for the current
quarter as compared to $851,000 for the same quarter of the prior year. The
higher expenses related to the acquisition of Pro Golf. The Company is reviewing
its business models and strategies and anticipates taking action during the
second quarter 2000 which will significantly reduce operating expenses on a
Company-wide basis.
Interest expense for the quarter ended March 31, 2000 was $502,000 compared to
$253,000 for the same quarter of 1999. The increase was due to the financing
obtained to enable the company to acquire Pro Golf in June 1999.
Net loss for the quarter ended March 31, 2000 was $867,000, compared to a loss
of $462,000 during the same quarter of 1999. Due to the continued losses of
certain of the Company's operating subsidiaries, management is reviewing its
business model and expects to reorganize its operations into a leaner Company
with the lower operating costs. In order for this strategy to be successful the
Company must obtain additional financing and capital to fund its operations and
growth.
PART II. OTHER INFORMATION
Item 5. OTHER INFORMATION.
During October 1999 Pro Golf signed internationally known golf pro Gary player
to be its corporate spokesman through, at least, December 31, 2001. An
advertising campaign featuring Mr. Player is in production, targeted at both
increasing retail sales in stores and helping to sell new franchises. Ajay also
has a license to produce and sell certain Gary Player golf products. Pro Golf is
also planning to begin providing additional services to its franchisees designed
to help them increase sales and become more profitable.
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
A) Exhibits:
27 Financial Data Schedule.
B) Forms 8-K:
On July 8, 1999 the Company filed a Form 8-K dated June 23, 1999
reporting under Item 2 that it completed its acquisition of all of the
outstanding capital stock of Pro Golf of America, Inc., all of the
ownership interests in PGD Online, LLC and certain accounts receivable
and certain other assets of State of the Art Golf, Inc.
On September 1, 1999, the Company filed a Form 8-K dated August 27,
1999 to report a change in certifying accountant under Item 4.
On September 7, 1999, the Company filed a Form 8-K/A dated June 23,
1999 reporting financial Statements for the Pro Golf acquisition.
<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/Ronald N. Silberstein
-------------------------------------
Its: Chief Financial Officer
Date: May 22, 2000
-----------------------------------
<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. Dollar
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 264
<SECURITIES> 333
<RECEIVABLES> 4,909
<ALLOWANCES> (546)
<INVENTORY> 3,317
<CURRENT-ASSETS> 9,274
<PP&E> 3,545
<DEPRECIATION> 2,033
<TOTAL-ASSETS> 26,547
<CURRENT-LIABILITIES> 8,441
<BONDS> 0
2,239
1,250
<COMMON> 41
<OTHER-SE> 16,885
<TOTAL-LIABILITY-AND-EQUITY> 26,547
<SALES> 4,758
<TOTAL-REVENUES> 4,758
<CGS> 3,827
<TOTAL-COSTS> 3,827
<OTHER-EXPENSES> 284
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 502
<INCOME-PRETAX> (1,329)
<INCOME-TAX> 462
<INCOME-CONTINUING> (867)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (867)
<EPS-BASIC> (0.00)
<EPS-DILUTED> (0.00)
</TABLE>
