SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File No.
September 30, 2000 33-19107
- ------------------ --------
LBO Capital Corp.
(Exact name of Registrant as Specified in its Charter)
Colorado 38-2780733
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(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
32751 Middlebelt Road, Suite B
Farmington Hills, MI 48334
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(Address of Principal Executive Offices) (Zip Code)
(248) 851-5651
(Registrant's Telephone 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 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
As of November 4, 2000 a total of 12,100,000 shares, $.0001 par value common
stock, were issued and outstanding.
LBO CAPITAL CORP.
Form 10-Q Filing of Quarter Ended September 30, 2000
INDEX
Page
Number
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements.
Balance Sheets
September 30, 2000 (Unaudited) and December 31, 1999 3
Statements of Operations (Unaudited)
Three and Nine months ended September 30, 2000 and 1999 4
Statements of Cash Flows (Unaudited)
Nine months ended September 30, 2000 and 1999 5
Notes to Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial Statements
(Unaudited) 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 8
Financial Statements of Ajay Sports, Inc.
as of September 30, 2000
Signature Page
Note: No other information is included in answer to any item under Part II as
those other Items are either not applicable, or if applicable, the answer is
negative.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
LBO CAPITAL CORP.
BALANCE SHEETS
(Unaudited)
September 30 December 31,
2000 1999
-------------------------------------
ASSETS
Current Assets:
Cash and Equivalents $ 17 $ 63
Marketable Securities - Available for Sale 17,259 32,600
Interest Receivable -0- 15,780
Note Receivable -0- 300,000
------------ ------------
Total Current Assets 17,276 348,443
Other Assets 321,000 -0-
------------ ------------
Investments
Total Other Assets 321,000 -0-
------------ ------------
TOTAL ASSETS $ 338,276 $ 348,443
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable 731 3,250
Accounts Payable - Related Entities 210 300
Notes Payable - Other 830,251 823,201
Accrued Expenses and Taxes 262,920 194,021
------------ ------------
Total Current Liabilities 1,094,112 1,020,772
Stockholders' Equity
Common Stock, $.0001 par value;
Authorized 100,000,000 Shares;
Issued and Outstanding 12,100,000 shares 1,210 1,210
Additional Paid-In Capital 623,094 623,094
Unrealized Gain(Loss) on Available for Sale
Securities (31,137) (15,796)
Accumulated Deficit (1,349,003) (1,280,837)
------------ ------------
Total Stockholders' Deficit (755,836) (672,330)
------------ ------------
TOTAL LIABILITIES & STOCKHOLDERS' DEFICIT $ 338,276 $ 348,443
============ ============
See notes to financial statements.
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
LBO CAPITAL CORP.
STATEMENTS OF OPERATIONS
For the Three Months Ended September 30 For the Six Months Ended September 30,
2000 1999 2000 1999
------------- --------------------- ---------------- -------------------
REVENUES:
Interest Income - Other $ -0- $ 7,561 $ 5,219 $ 8,219
EXPENSES:
Professional Services 424 513 1,793 1,152
Management Fees 830 840 2,570 2,460
Interest Expense 24,044 21,074 68,900 46,114
Other Expenses 36 30 123 225
----------- ------------- ---------- ----------------
Total Expenses 25,334 22,456 73,385 49,950
----------- ------------- ---------- ----------------
Income (Loss) Before Income Taxes (25,334) (14,895) (68,166) (41,731)
Income Tax Expense (Benefit):
Currently Payable -0- -0- -0- -0-
----------- ------------- ---------- ----------------
Net Income (Loss) $ (25,334) $ (14,895) $ (68,166) $ (41,731)
=========== ============= ========== ===============
Net Income (Loss) per Share $ (.00) $ (.00) $ (.00) $ (.00)
=========== ============= ========== ===============
Weighted Average Number of Common Shares
Outstanding 12,100,000 12,100,000 12,100,000 12,100,000
=========== ============= ========== ===============
See notes to financial statements.
4
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
LBO CAPITAL CORP.
CASH FLOWS
(UNAUDITED)
September 30, September 30,
2000 1999
---------------------------------------
Cash Flows for Operating Activities:
Net Loss $ (68,166) $ (41,731)
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Changes in Assets and Liabilities:
(Decrease) Increase in:
Interest Receivable - Other 15,781 (8,219)
Accounts Payable (2,520) (3,032)
Accounts Payable - Related Entities (90) 30
Accrued Expenses and Taxes 68,900 46,114
----------- ----------
Total Adjustments 82,070 34,893
----------- ----------
Net Cash (Used for) Operations 13,904 (6,838)
Cash (Used for) Investing Activities
Note Receivable - Other -0- (300,000)
Purchase of Investments (21,000) -0-
----------- ----------
(21,000) (300,000)
----------- ----------
Cash Flows from Financing Activities:
Proceeds on Notes Payable 7,050 306,850
----------- ----------
Net Cash Provided by Financing Activities 7,050 306,850
----------- ----------
Net Increase (Decrease) in Cash (46) 12
Cash and Cash Equivalents:
At Beginning of Period 63 73
----------- ----------
At End of Period $ 17 $ 85
=========== ==========
Supplemental Disclosures of Cash Flow Information:
Interest Paid $ -0- $ -0-
=========== ==========
See notes to financial statements.
5
LBO CAPITAL CORP
NOTES TO FINANCIAL STATEMENTS (Unaudited)
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying financial statements of LBO Capital Corp. ("the Company")
have been prepared by the Company without audit by independent accountants,
except for the balance sheet at December 31, 1999. In the opinion of the
Company's management, the financial statements reflect all adjustments necessary
to present fairly the Company's financial position at September 30, 2000 and
December 31, 1999, and the results of operations and cash flows for the nine
month periods ended September 30, 2000 and 1999.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These unaudited financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's Annual Report 10-K. The results for the nine-month
periods ended September 30, 2000 are not necessarily indicative of future
financial results.
NOTE 2. INVESTMENTS.
As previously reported, the Company had acquired 1,880,000 shares of the
restricted common stock of Ajay Sports, Inc. ("Ajay") in April 1989, for
$182,000. Subsequently, this was reduced to 1,480,000 shares. As a result of
recording the Company's equity in net losses of Ajay, the carrying value of this
investment is zero. The Company also obtained 200,000 warrants of Ajay at that
time. Each warrant entitles the Company to purchase one share of Ajay common
stock at $.18.
On August 13, 1998, Ajay announced that its board of directors had
authorized the implementation of a 1-for-6 reverse split of the company's common
stock, effective with the commencement of trading on August 14, 1998. The
reverse split was approved by the stockholders of Ajay at the company's annual
meeting on May 29, 1998.
Following the reverse split, holders of Ajay's common stock received one
new share of $.01 par value common stock for every six shares of common stock
currently held. Therefore, the number of Ajay shares held by the Company is
246,667. The reverse split also affected the number and exercise price of the
Company's warrants, such that the Company now holds 33,333 warrants entitling it
to purchase one share of Ajay's common stock at $1.08 per share.
On February 29, 2000, the Registrant converted its note receivable from
Pro Golf International, Inc. ("PGI"), and the interest accrued but unpaid on
such note receivable, into common stock of PGI. The conversion was made at the
rate of $60 per common share, the price at which PGI was raising equity capital
under a Confidential Private Placement Memorandum dated February 4, 2000. The
Registrant had initially made an investment in the subordinated debt of the
Registrant on June 23, 1999, as part of the purchase of PGI by the Registrant's
investee company, Ajay Sports, Inc. on that date, and the Registrant had held
the note from PGI until the time of this conversion into common stock. In
exchange for converting the $300,000 note and $21,000 of interest, the
Registrant received 5,350 shares of PGI's common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
(a) Material Changes in Financial Condition
Working capital decreased by $83,507 in the nine-month period ended
September 30, 2000 due to the net loss of $68,166 and the decrease in unrealized
gain on investments of $15,341 for the nine months ended September 30, 2000.
(b) Results of Operations
Registrant's operations for the nine months ended September 30, 2000
resulted in a loss of $68,166. This was due mainly to interest expense of
$68,900 and management fees of $2,570 offset by interest income of $5,219.
Liquidity and Capital Resources
The Registrant is currently meeting its cash needs from borrowing from a
company. There is no assurance that this will continue in future years. The
Registrant's principal asset is its investment in marketable securities of Ajay,
which it has held for over nine years. These shares are carried at a zero value
on the Registrant's Balance Sheet as a result of recording the Registrant's
equity in net losses of Ajay. The market value of Ajay stock on September 30,
2000 was $.26 per share. Ajay stock is traded over-the-counter. The approximate
market value of the Registrant's 246,667 shares was $64,133 on that date. The
Registrant also owns 15,341 shares of Enercorp, Inc. common stock. These shares
are carried at their fair market value of $1.125 per share at September 30,
2000, which is $31,137 below cost. These shares could be liquidated to meet cash
flow needs if necessary.
Part II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Pursuant to the provisions of Reg. ss. 210.3-09 of Regulation S-X, the
Registrant is required to file separate financial statements of its equity basis
investee Ajay, which financial statements for September 30, 2000 are filed
herewith.
(b) Reports on Form 8-K.
None
LBO CAPITAL CORP.
FORM 10-Q
For the Quarter Ended September 30, 2000
Signature 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.
LBO CAPITAL CORP.
-----------------
(Registrant)
By: /s/ Thomas W. Itin
----------------------------------
Thomas W. Itin, President,
Chairman of Board of Directors
Date signed: November 13, 2000
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
September 30, December 31,
2000
(Unaudited) 1999
------------- ------------
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
-------- --------
Total assets $ 31,632 $ 25,733
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long term debt $ 900 $ 995
Accounts payable - 5,043
Accrued expenses 1,376 1,099
-------- -------
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
-------- -------
Total liabilities and stockholders' equity $ 31,632 $ 25,733
======== =======
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
---- ----- ------ ------
Net sales $ 1,260 $ 995 $ 3,657 $ 995
Cost of sales 1 - 9 -
------- ------ ------- ------
Gross profit 1,259 995 3,648 995
Selling, general and
administrative expenses 707 950 2,436 950
------ ------ ------- ------
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
------ ------ ------- ------
Total non-operating expense 452 117 1,354 117
------ ------ ------- ------
Income (loss) before minority interest and income taxes 100 -72 -142 -72
Minority interest in income (loss) of subsidiary 3 -1 -3 -1
------ ------ ------- ------
Income (loss) before income taxes 97 -71 -139 -71
Income tax expense (benefit) 34 -25 -49 -25
------ ------ ------- ------
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
------ ------ ------- ------
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
====== ======= ====== ======
AJAY SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS), (UNAUDITED)
Nine Months
Ended September 30,
2000 1999
---------- ---------
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
--------- ----------
Net cash provided (used in) operating activities 219 -10,190
--------- ----------
Cash flows from investing activities:
Acquisitions of fixed assets -170 -234
--------- ----------
Net cash used in investing activities -170 -234
--------- ----------
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
--------- ---------
Net cash provided by (used in)financing activities -90 10,852
--------- ---------
Net increase (decrease) in cash -41 428
Cash at beginning of period 101 6
--------- ---------
Cash at end of period $ 60 $ 434
========= =========
Supplemental disclosures of cash flow information:
Cash paid for interest $ 878 $ 622
========= ===========
Cash paid for income tax $ - $ -
========= =========
Non-cash financing transactions:
Common stock issued for real property $ 13,000 $ -
========== =========
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
--------
Total assets 2,708
--------
Accounts payable 4,792
Accrued expenses 1,486
Notes payable 6,382
Other liabilities 548
--------
Total liabilities 13,208
--------
Excess of liabilities over assets $10,500
=======
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
--------- ------------------
Raw Materials $ - $ 827
Work in Process -
903
Finished Goods 91 2,239
------- -----
$ 91 $ 3,969
======= ======
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.