SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
December 31, 1997 33-19107
- --------------------------- ---------------------
(For the fiscal year ended) (Commission File No.)
LBO CAPITAL CORP.
(Exact name of Registrant as specified in its charter)
Colorado 38-2780733
- -------------------------------------------- --------------------
(State or other jurisdiction of organization) (I.R.S. Employer
Identification Number)
7001 Orchard Lake Road, Suite 424
West Bloomfield, MI 48322
- ---------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(248) 851-5651
Securities registered pursuant to Section 12 (b) of the Act:
None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, $.0001 Par Value
(Title of Class)
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 reports), and (2) has been subject to such filing
requirements for the past 90 Days: Yes X No
As of December 31, 1997, a total of 12,100,000 shares of common stock,
$.0001 par value, were outstanding and the aggregate market value of the voting
stock held by nonaffiliates of the Registrant was approximately $220,039 based
on the average of the bid and asked prices on that date ($ .055) as reported by
The National Quotation Bureau, Inc.
LBO CAPITAL CORP.
FORM 10-K
PART 1
ITEM 1. BUSINESS
General
LBO Capital Corp. (the "Registrant") was organized under the laws of the
State of Colorado on October 8, 1987. The Registrant was formed based on the
belief of its management that there are business opportunities that, for one or
more reasons, are available for acquisition by the Registrant.
On March 15, 1988, the Registrant completed a public offering of 3,000,000
Units, each Unit consisting of one share of its common stock, one Callable Class
A Warrant, one Callable Class B Warrant and one Callable Class C Warrant. The
Warrants are detachable from the Units and may be traded separately in the
over-the-counter market. Each Class A Warrant entitles the holder thereof to
purchase at a price of $0.50, one share of Common Stock at any time until
February 26, 1989. Each Class B Warrant entitled the holder thereof to purchase
at a price of $0.75 one share of Common Stock at any time until August 26, 1989.
Each Class C Warrant entitled the holder thereof to purchase at a price of
$1.00, one share of Common Stock at any time until February 26, 1990. The
expiration dates of these warrants were subsequently extended by the Board of
Directors to expire on various dates, the latest being July 25, 1998. A Form 8-K
was filed on July 14, 1997 reporting this extension. The Registrant received net
proceeds of approximately $474,300 after payment of all costs of the offering.
Since its inception, the Registrant has directed its activities toward
evaluating potential business opportunities with the goal of acquiring and
continuing one or more business opportunities. The Registrant may acquire an
existing business which may be a corporation, partnership or sole
proprietorship. One form which such a business combination might take would be
an exchange of the Registrant's stock for stock of the acquired business.
However, the Registrant may exchange its common stock to acquire the assets of
this entity, or may purchase a percentage of the entity outright.
The Registrant has evaluated and attempted to acquire a number of entities
to date.
ACQUISITION OF ASSETS
Ajay Sports, Inc.
On April 3, 1989 LBO acquired an aggregate of 1,880,000 shares of the
restricted common stock of Ajay Sports, Inc. ("Ajay") for a total cash purchase
price of $182,000.
In 1991, the Registrant pledged 400,000 shares of Ajay to a bank as
collateral for $300,000 in loans to Hendricks Manufacturing Company. On July 1,
1991, this bank declared the loan in default and foreclosed on the shares.
The 1,480,000 and 200,000 warrants owned by the Registrant represented
7.16% of the total shares of Ajay common stock outstanding as of December 31,
1997 and December 31, 1996. The decrease is the result of new shares issued.
Ajay's Common Stock ("AJAY") and Units ("AJAYU") are trading on the Nasdaq
Small Cap and the Warrants ("AJAYW") have been traded over-the-counter since
1989 and are reported by the National Quotation Service. The following table
sets forth the range of high and low trade prices for the common stock:
HI LOW
------ ------
1997
----
First Quarter $ .31 $ .16
Second Quarter $ .34 $ .13
Third Quarter $ .28 $ .19
Fourth Quarter $ .34 $ .13
On June 10, 1993, Thomas W. Itin, President and Chairman of the Board of
Directors of the Registrant, was elected to the positions of Chairman of the
Board of Directors and Chief Executive Officer of Ajay Sports, Inc. It is felt
that the direct intervention by the Registrant's management into the operations
of Ajay would have a positive effect on the Ajay earnings and the value of the
Ajay stock held by the Registrant.
Business Ajay Sports, Inc., through its operating subsidiaries Ajay
Leisure Products, Inc., Palm Springs Golf and Leisure Life, Inc., is a leading
manufacturer and distributor of golf bags, clubs, carts, accessories and casual
living furniture throughout the United States.
Enercorp, Inc.
On November 21, 1994, the Registrant bought 2,667 shares of Enercorp,
Inc. for $8,702. During 1996, the Registrant bought 12,674 additional shares
of Enercorp, Inc. for $39,694.
Enercorp, Inc. is a business development company under the Investment
Company Act of 1940, as amended.
Competition
The Registrant expects to encounter substantial competition in its efforts
to locate businesses for acquisition. The primary competition for desirable
business acquisitions is expected to come from other small companies organized
and funded for purposes similar to the Registrant, small venture capital
partnerships and corporations, small business investment companies and wealthy
individuals. Should the Registrant elect to engage in a leveraged buyout
acquisition, competition may also be anticipated from investment bankers. Many
of these entities have significantly greater experience, resources and
managerial capabilities than the Registrant and are therefore in a better
position than the Registrant to obtain access to businesses.
Employees
As of December 31, 1997, the Registrant had no employees.
ITEM 2. PROPERTIES
The Registrant currently uses office space provided by Acrodyne
Corporation, a company whose Chairman and President is also Chairman and
President of the Registrant. The space is used for purposes of administration
and development. While the Registrant does not pay any rent, it does pay a
monthly fee of $150 for the direct operating expenses. The Registrant believes
its current facilities are sufficient for its present business activity.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is not a present party to any material pending legal
proceedings and no such proceedings were known as of the filing date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the Registrant's shareholders during
the fiscal year ended December 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Common Stock
The principal market on which the Registrant's common stock, $.0001 par
value, is traded on the Over-The-Counter market.
Prices for the Common Stock have been reported in the National Daily
Quotation Service "Pink Sheets" published by the National Quotation Bureau since
March 15, 1988. The range of the bid and ask quotations for the Registrant's
Common Stock during the quarters ended on the dates listed below is as follows:
Bid* Ask*
---------- ----------
HI LOW HI LOW
-------- -------- -------- --------
1996
- -------
First Quarter $ .03 $ .03 $ .08 $ .07
Second Quarter $ .03 $ .03 $ .08 $ .06
Third Quarter $ .03 $ .03 $ .08 $ .08
Fourth Quarter $ .03 $ .03 $ .08 $ .08
1997
- -------
First Quarter $ .03 $ .03 $ .10 $ .06
Second Quarter $ .03 $ .03 $ .10 $ .08
Third Quarter $ .03 $ .01 $ .10 $ .08
Fourth Quarter $ .03 $ .01 $ .10 $ .08
On December 31, 1997, the bid reported for the Common Stock was $ .03*
and the ask price was $.10*.
As of December 31, 1997, the number of record holders of the Registrant's
Common Stock was 246. This figure excludes an undetermined number of
shareholders whose shares are held in "street" or "nominee" name.
The Registrant has never paid a dividend with respect to its Common Stock
and does not intend to pay a dividend in the foreseeable future.
Units
Prices for the Units have been reported in the National Daily Quotation
Service "Pink Sheets" published by the National Quotation Bureau since March 15,
1988. The range of the bid and ask quotations for the Registrant's Units during
the quarters ended on the dates listed below is as follows:
Bid* Ask*
---------- ----------
HI LOW HI LOW
-------- -------- -------- --------
1996
- -------
First Quarter $ .03 $ .03 $ .08 $ .07
Second Quarter $ .03 $ .03 $ .08 $ .06
Third Quarter $ .03 $ .03 $ .08 $ .08
Fourth Quarter $ .03 $ .03 $ .08 $ .08
1997
- -------
First Quarter $ .03 $ .03 $ .10 $ .06
Second Quarter $ .03 $ .03 $ .10 $ .08
Third Quarter $ .03 $ .01 $ .10 $ .08
Fourth Quarter $ .03 $ .01 $ .10 $ .08
Each Unit consists of one share of the Registrant's Common Stock, one
Callable Class A Warrant, one Callable Class B Warrant and one Callable Class C
Warrant.
On December 31, 1997, the bid and the ask prices reported for the Units
were $ .03* and $ .10*, respectively.
Warrants
No ask or bid quotations were reported by the National Quotation Bureau, Inc.
since December, 1989.
*Prices are inter-dealer quotations as reported by the National Quotation
Bureau, Inc., New York, New York, without adjustment for retail mark-up,
mark-down or commission and may not necessarily represent actual
transactions.
ITEM 6. SELECTED FINANCIAL DATA
December 31
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------
Working Capital $(560,736) $(498,352) $(427,094) $(397,542)$(353,982)
Cash 43 78 78 811 11,912
Marketable Securities 24,972 28,765 8,000 0 0
Notes Receivable 0 0 0 0 0
Investments in
operating companies 0 0 0 0 0
Total Assets 24,972 28,843 8,251 15,887 44,364
Total Liabilities 585,708 527,195 435,345 407,106 375,570
Shareholders' Equity (560,736) (498,352) (427,094) (391,219) (331,206)
December 31
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------
Total Operating Revenue $0 $0 $0 $0 $0
Total Operating Exp. 58,549 52,328 35,173 60,014 110,976
Net income (loss) before
equity loss of affiliate (58,549) (52,328) (35,173) (60,014) (110,976)
Equity in net loss of
affiliated company 0 0 0 0 0
Net income (loss) (58,549) (52,328) (35,173) (60,014) (110,976)
Net Income (loss)
per common share ( .00) ( .00) (.00) (.00) (.01)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Working capital at December 31, 1997 was decreased by $62,384 from the
period ended December 31, 1996. This was mainly caused by a net loss of $58,549
and a decrease of $3,835 in the market value of securities available for sale.
On December 2, 1996, the Registrant had a change in its borrowing
arrangements. The Registrant borrowed $325,790 from Dearborn Wheels, Inc. to
repay a note payable to Michigan National Bank. The principal balance as of
December 31, 1997, was $506,971. The loan is at prime plus 2% interest and
is secured by all the intangible assets of the Registrant. Dearborn Wheels,
Inc. is held in majority by the Registrant's President's spouse.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements required to be furnished hereunder are attached
hereto under Item 14.
Supplementary Financial Schedules for which provision is made in
applicable Regulations of the Securities and Exchange Commission, have been
omitted or the required information is not required under the related
instructions, or the information is presented in the Financial Statements and
Notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Identification of Directors and Executive Officers
The following table sets forth the name, address, age and position of each
officer and director of the Registrant:
Term
Name and Address Age Position as Director
- -------------------------- ----- ------------------ ------------
Thomas W. Itin 63 President and Since
7001 Orchard Lake Rd. Chairman of the Inception
West Bloomfield, MI 48322 Board of Directors
Anthony B. Cashen 61 Secretary, Since
RD 2 Box 203 Treasurer and Inception
Ghent, NY 12075 Director
Robert W. Schwartz 53 Director Since
120 DeFreest Drive March 28,
Troy, NY 12180 1991
All directors of the Registrant will hold office until their successors
have been elected and qualified or until their death, resignation or removal.
The bylaws of the Registrant provide that the number on the Board of Directors
shall be determined by resolution of the Board of Directors.
The officers of the Registrant are elected at the annual meeting of the
Board of Directors and hold office until their successors are chosen and
qualified or until their death, resignation or removal.
The Registrant is subject to Section 13(a) of the Securities Exchange Act
of 1934 and is therefore not required to identify or disclose information
concerning its significant employees.
There are no family relationships between any director, executive officer
or person nominated or chosen by the Registrant to become a director or
executive officer.
Below is a summary description of educational and professional background
of each executive officer and director of the Registrant.
Thomas W. Itin. Mr. Itin has served as the Chairman and President of
the Board of Directors of the Registrant since inception. Since 1967 Mr.
Itin has also served as the Chairman of the Board and President of TWI
International, Inc., West Bloomfield, Michigan, a firm engaged in providing
consulting services for mergers, acquisitions, financial structuring, new
ventures, private investments, joint ventures, asset management,
export/import, training seminars and executive and professional searches.
Mr. Itin is Chairman of the Board and President of Acrodyne Corporation. Mr.
Itin also is Chairman of the Board of Directors of Ajay Sports, Inc. and
Chairman of the Board of Directors and President of Williams Controls, Inc.,
both of which are publicly held companies. Mr. Itin was a co-founder of RDM
Sports Group, Inc. (previously known as Roadmaster Industries, Inc.) in 1987
and served as a Director thereof from October 1987 until June 1993. From
December 1987 until October 1993, Mr. Itin was an Officer and Director of
CompuSonics Video Corporation. Mr. Itin received a BS degree from Cornell
University in 1957 at which time he also attended the Graduate School of
Business. He received his M.B.A. in 1959 from New York University, New York.
Anthony B. Cashen. Mr. Cashen has served as the Registrant's
Secretary, Treasurer and Director since inception. He is director of Ajay
Sports, Inc., a publicly held corporation. He also currently is a Managing
Partner in Lamalie Amrop, International, a management consulting and
executive recruiting firm in New York City. Prior to his joining Lamalie
(formerly Flanagan & Webster), he was President and owner of Elliot Hardwood,
an integrated lumber manufacturer located in upstate New York. Previously,
Mr. Cashen had been an officer and Principal of the investment firms of A.G.
Becker, Inc. and Donaldson, Lufkin & Jenrette, Inc. He serves as Director of
PW Communications and Immucell Corporation, both of which are publicly-held
companies. Mr. Cashen is also President of the Sagamore Institute. Mr.
Cashen has an M.B.A. from the Graduate School of Management (1958) and a B.S.
degree from Cornell University.
Robert W. Schwartz Mr. Schwartz has served as Director of the Registrant
since March 28, 1991. Since 1985 he has been Chairman and President of Schwartz,
Gordon, Heslin & Associates, Inc., a management and financial consulting firm in
Troy, New York. From 1987 until 1991 he was a Director and Vice President and
Treasurer of ESARCO International, Inc., a publicly held company which licenses
and markets all-terrain trucks. Previously Mr. Schwartz was President and
Director of Winsources, Inc., a telephone equipment supplier, President and
Director of Cordian Corporation of Latham, New York, a telephone equipment
manufacturer, and Vice President of Finance of Garden Way Manufacturing Company,
Inc., a manufacturer of rototillers and outdoor equipment. Mr. Schwartz received
a B.S. degree in industrial and labor relations from Cornell University and did
graduate work at State University of New York at Albany.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant reimburses its directors for expenses incurred by them in
connection with business performed on the Registrant's behalf, including
expenses incurred in attending meetings. In addition, directors receive a fee of
$250 for each Board of Directors meeting attended. No such reimbursements were
made for the period from January 1, 1990 to December 31, 1997. While none of the
officers received any salary, such individuals are reimbursed for all
accountable expenses incurred on behalf of the Registrant.
See Item 13 - Certain Business Relationships and Related Transactions
under Acrodyne Corporation for additional information.
The Registrant has no defined benefit and actuarial plan providing for
payments to employees upon retirement. The Registrant also has no plans for
awarding stock options. No other compensation was paid to officers or directors
of the Registrant from January 1, 1990 to December 31, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table contains information as of March 31, 1998 with respect
to beneficial ownership of the Registrant's Common stock by each person known by
the Registrant to be the beneficial owner of more than five percent thereof, by
the executive officers and directors of the Registrant and by all executive
officers and directors of the Registrant as a group:
Common Stock
Beneficially Percent
Owned (1) of Class
------------- ----------
Thomas W. Itin 7,599,293 (2)(3)(4) 56.3%
Anthony B. Cashen 400,000 (4) 3.3%
Robert W. Schwartz 100,000 (4) .8%
Officers and Directors 8,099,293 (3) 60.4%
as a group (3 persons)
James T. Emerson 695,000 5.7%
221 E. Colonial Drive
Orlando, FL 60605
(1) Without giving effect to the exercise of outstanding Warrants
except as noted in footnote 4 below.
(2) These shares are held of record by entities of which Mr. Itin is
either a principal or a beneficiary.
(3) Includes 300,000 shares held by Mr. Itin's wife, Shirley B. Itin,
either as beneficiary or custodian, of which Mr. Itin disclaims
any beneficial ownership.
(4) These shares include warrants granted on June 3, 1992 expiring
December 4, 1998, to purchase one share of common stock per
warrant for $.04. (Thomas W. Itin, 1,000,000, Anthony B. Cashen,
200,000, Robert W. Schwartz, 100,000)
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others.
None of the Registrant's officers and directors devote their full time to
the Registrant's affairs and such persons may be affiliated with other business
entities and enterprises, some of which may be formed for similar purposes as
the Registrant and thus be in direct competition with the Registrant. Such
activities may result in such persons being exposed to conflicts of interests
from time to time. The Registrant has adopted no conflict of interest policy
with respect to such transactions. However, the officers and directors of the
Registrant recognize their fiduciary obligation to treat the Registrant and its
shareholders fairly in any such future activities.
Certain Business Relationships.
In the Registrant's last full fiscal year the Registrant made payments for
property and services in excess of five percent of the Registrant's consolidated
gross revenues to Acrodyne, a company whose Chairman and President is a major
stockholder of the Registrant. The Board of Directors of the Registrant has
reviewed and approved the use of Acrodyne and has determined that the fees
charged the Registrant by Acrodyne are as favorable as could be incurred by any
other independent, third party business consultant. It is anticipated that the
Registrant will continue to utilize Acrodyne in the future. The total sum which
the Registrant paid Acrodyne for the year ended December 31, 1997 was $1,880 for
the above mentioned consulting services and out-of-pocket travel expenses, staff
time spent for accounting, record keeping, and utilities, but did not include
fees for services of the Chairman.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The Financial Statements are listed in the "Index to Financial Statements"
filed as part of this Annual Report, on page F-2.
(a) (2) Financial Statement Schedules
Supplementary Financial Schedules for which provision is made in
applicable Regulations of the Securities and Exchange Commission, have been
omitted or the required information is not required under the related
instructions, or the information is presented in the Financial Statements and
Notes thereto.
Pursuant to the provisions of Rule 3-09 of Regulation S-X, the Registrant
is required to file separate audited financial statements of its equity basis
investee, Ajay Sports, Inc. ("Ajay"). Ajay's audited financial statements for
December 31, 1997 are filed within this report.
(a) (3) Exhibits
The Articles of Incorporation and By-Laws of the Corporation are incorporated by
reference to the Registrant's Registration Statement on Form S-18, effective
December 16, 1987.
(b) Reports on Form 8-K.
A Form 8-K was filed on July 14, 1997 regarding the extension of the expiration
date of the Registrant's warrants from July 25, 1997 to July 25, 1998. A Form
8-K was filed on December 1, 1997 to extend the exercise period of the
Registrant's warrants issued to its directors from December 4, 1997 to December
4, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
LBO CAPITAL CORP.
(Registrant)
By: s\Thomas W. Itin
--------------------------
Thomas W. Itin, President
& Chief Financial Officer
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the (date)
Signature Title
- ------------------------- ------------------------------------
s\Thomas W. Itin Chairman of the Board of Directors,
- ------------------------- Chief Executive Officer and
Thomas W. Itin President
s\Anthony B. Cashen Secretary, Treasurer and Director
- -------------------------
Anthony B. Cashen
s\Robert W. Schwartz Director
- -------------------------
Robert W. Schwartz
LBO CAPITAL CORP.
TABLE OF CONTENTS
Page
Independent Auditor's Report
Financial Statements:
Balance Sheets ........................................................ F2
Statements of Operations .............................................. F3
Statements of Changes in Stockholders' Deficit......................... F4
Statements of Cash Flows .............................................. F5
Notes to Consolidated Financial Statements ............................ F6-F10
INDEPENDENT AUDITOR'S REPORT
Board of Directors
LBO Capital Corp.
We have audited the accompanying balance sheets of LBO Capital Corp. as of
December 31, 1997 and 1996, and the related statements of operations, changes in
stockholders' deficit, and cash flows for the years ended December 31, 1997,
1996 and 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the account principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LBO Capital Corp. as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the years ended December 31, 1997, 1996 and 1995 in conformity with
generally accepted accounting principles.
- -----------------------------
Hirsch & Silberstein, P.C.
Farmington Hills, Michigan
March 24, 1998
F1
LBO CAPITAL CORP.
BALANCE SHEETS
As of December 31, 1997 and 1996
ASSETS 1997 1996
------------ ------------
Current Assets
Cash and Equivalents $ 43 $ 78
Marketable Securities - Available for Sale 24,929 28,765
------------ ------------
Total Current Assets 24,972 28,843
Other Assets
Investments -0- -0-
------------ ------------
Total Assets $ 24,972 $ 28,843
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts Payable $ 4,202 $ 3,703
Accounts Payable - Related Entities 1,060 960
Notes Payable - Other 506,971 501,791
Accrued Expenses and Taxes 73,475 20,741
------------ ------------
Total Current Liabilities 585,708 527,195
Stockholders' Deficit
Common Stock, $.0001 Par Value
Authorized 100,000,000 Shares:
Issued and Outstanding 12,100,000
in 1997 and 1996 1,210 1,210
Additional Paid-In Capital 623,094 623,094
Unrealized (Loss) on Available for Sale Securities (23,467) (19,632)
Accumulated Deficit (1,161,573) (1,103,024)
------------ ------------
Total Stockholders' Deficit (560,736) (498,352)
------------ ------------
Total Liabilities and Stockholders' Deficit 24,972 28,843
============ ============
The accompanying notes are an integral
part of this financial statement
F2
LBO CAPITAL CORP.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997, 1996, and 1995
1997 1996 1995
------------ ------------ ------------
Revenues $ -0- $ -0- $ -0-
------------ ------------ ------------
Expenses
Professional Services 3,820 3,351 (15,834)
Management Fees 2,900 3,410 4,780
Depreciation and Amortization -0- -0- 6,323
Interest Expenses 52,735 44,651 38,629
Other Expenses (906) 916 1,275
(Gain) on Disposal of Fixed Assets -0- -0- -0-
------------ ------------ ------------
Total Expenses 58,549 52,328 35,173
------------ ------------ ------------
Loss before Income Taxes (58,549) (52,328) (35,173)
Income Tax Expense -0- -0- -0-
------------ ------------ ------------
Net Loss $ (58,549) $ (52,328) $ (35,173)
============ ============ ============
Net Loss Per Share $ (0.00) $ (0.00) $ (0.00)
============ ============ ============
Weighted Average Number of 12,100,000 12,100,000 12,100,000
Common Shares Outstanding ============ ============ ============
The accompanying notes are an integral
part of this financial statement
F3
LBO CAPITAL CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
For the Years Ended December 31, 1997, 1996, and 1995
Unrealized
(Loss) on
Common Stock Additional Available Total
--------------------------- Paid-In Accumulated For Sale Stockholders'
Shares Amount Capital Deficit Securities Deficit
----------- ----------- ---------- ----------- ----------- --------------
Balances at
December 31, 1994 12,100,000 $ 1,210 $ 623,094 $ (1,015,523) $ -0- $ (391,219)
Net Loss for the Year
Ended December 31, 1995 -0- -0- -0- (35,173) (702) (35,875)
----------- ----------- ---------- ----------- ----------- --------------
Balances at
December 31, 1995 12,100,000 $ 1,210 $ 623,094 $ (1,050,696) $ (702) $ (427,094)
Net Loss for the Year
Ended December 31, 1996 -0- -0- -0- (52,328) (18,930) (71,258)
----------- ----------- ---------- ----------- ----------- --------------
Balances at
December 31, 1996 12,100,000 $ 1,210 $ 623,094 $ (1,103,024) $ (19,632) $ (498,352)
Net Loss for the Year
Ended December 31, 1997 -0- -0- -0- (58,549) (3,835) (62,384)
----------- ----------- ---------- ----------- ----------- --------------
Balances at
December 31, 1997 12,100,000 $ 1,210 $ 623,094 $ (1,161,573) $ (23,467) $ (560,736)
=========== =========== ========== =========== =========== ==============
The accompanying notes are an integral
part of this financial statement
F4
LBO CAPITAL CORP.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1997, 1996, and 1995
1997 1996 1995
----------- ----------- ----------
Cash Flow From Operating Activities
Net Loss $ (58,549) $ (52,328) $ (35,173)
----------- ----------- ----------
Adjustment to Reconcile Net Loss to
Net Cash Provided by (Used For)
Operating Activities
Depreciation and Amortization -0- -0- 6,323
(Increase) Decrease In:
Prepaid Expenses and Deposits -0- 173 (122)
Increase (Decrease) In:
Accounts Payable 499 (2,371) (29,849)
Accrued Expenses and Taxes 52,836 17,231 (18,660)
----------- ----------- ----------
Total Adjustments 53,335 15,033 (42,308)
----------- ----------- ----------
Net Cash Used For Operations (5,214) (37,295) (77,481)
----------- ----------- ----------
Cash Used For Investing Activities
Purchase of Marketable Securities -0- (39,695) -0-
----------- ----------- ----------
Net Cash Used For
Investing Activities -0- (39,695) -0-
----------- ----------- ----------
Cash Provided by (Used For) Financing Activities
Payments on Notes - Related -0- -0- (5,953)
Payments on Notes - Bank -0- (325,000) -0-
Payments on Notes - Other -0- -0- (242,299)
Proceeds from Notes - Other 5,180 401,990 -0-
Proceeds from Notes - Bank -0- -0- 325,000
----------- ----------- ----------
Net Cash Provided By
Financing Activities 5,180 76,990 76,748
----------- ----------- ----------
Decrease in Cash and Equivalents (35) 0 (733)
Cash and Equivalents at Beginning of Year 78 78 811
----------- ----------- ----------
Cash and Equivalents at End of Year $ 43 $ 78 $ 78
=========== =========== ==========
The accompanying notes are an integral
part of this financial statement
F5
LBO CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
Note 1. Summary of Significant Accounting Policies
Organization and Business
LBO Capital Corp. (the "Company") was incorporated on October 8,
1987 under the laws of the State of Colorado. The Company is
engaged in evaluating and investing in other companies. The
Company was considered to be in the development stage in 1987 and
began operations on March 15, 1988.
Cash Equivalents
The Company considers all highly liquid investments with a
maturity of three months or less cash equivalents.
Equipment and Depreciation
Equipment was stated at cost. Depreciation was computed for
financial reporting purposes on a straight-line basis over an
estimated life of 5 years. Depreciation expense for the years
ended December 31, 1997, 1996 and 1995 was $0, $0 and $6,323
respectively. At December 31, 1995, the remaining computer
equipment that was previously leased to an investee was
determined to be obsolete and written off the books of the
Company.
Income Taxes
At December 31, 1997, the Company has a net operating loss
available for carryforward totaling approximately $903,878. The
operating loss carryforward expires in various amounts by the
year ended December 31, 2012.
F6
Net Loss Per Share
Net loss per share is computed using weighted average shares
outstanding without giving effect to the common stock warrants,
as the effect would be antidilutive.
Note 2. Marketable Securities
The Company's marketable securities available for sale are recorded at
fair market value.
Market Value
----------------------------------------
Investment Per Share Aggregate
1997
-------
Enercorp, Inc. $48,397 $1.625 $24,929
1996
-------
Enercorp, Inc. $48,397 $1.875 $28,765
Note 3. Investments
On April 3, 1989, the Company acquired an aggregate of 1,880,000
restricted common shares of Ajay Sports, Inc. ("Ajay") for a total
purchase price of $182,000. As a result of recording the Company's
equity in net losses of Ajay, the carrying value of this investment is
zero at December 31, 1996 and 1995. The Company also obtained 200,000
stock warrants of Ajay at that time. Each warrant enables the Company
to purchase one share of Ajay common stock at $2.40 and was
subsequently reduced to $.34 per share. These warrants expire June 13,
1999.
F7
In March 1991, the Company pledged 400,000 shares of its Ajay
investment as security for bank loans to an acquisition candidate. On
June, 1, 1991, the bank declared the loan in default and foreclosed on
the shares.
All of the Ajay shares are pledged as security for a note payable (see
note 4).
The stock of Ajay is traded over-the-counter and is reported by the
National Quotation Service. The following table sets forth the range
of high and low trade prices given quarterly by NASDAQ.
HI LOW
------- -------
1997
-----
First Quarter $ .31 $ .16
Second Quarter $ .34 $ .13
Third Quarter $ .28 $ .19
Fourth Quarter $ .34 $ .13
Note 4. Notes Payable
During 1997, the Company borrowed $5,180 from Dearborn Wheels, Inc. The
proceeds were used to meet current operating needs.
On December 2, 1996, the Registrant had a change in its borrowing
arrangements. The Registrant borrowed $325,790 from Dearborn Wheels,
Inc. to repay a note payable to Michigan National Bank. The principal
balance as of December 31, 1997, was $506,971. The loan is at prime
plus 2% interest and is secured by all the intangible assets of the
Registrant. Dearborn Wheels, Inc. is held in majority by the
Registrant's President's spouse. This note bears interest of prime
plus 2%, matures on August 26, 1998 and is secured by all the assets of
the Company.
F8
Note 5. Capital Stock
The Company completed a public offering on March 15, 1988 consisting of
3,000,000 units at $.20 each. Each unit consisted of one common share,
one callable class A common stock purchase warrant, one callable Class
B common stock purchase warrant and one callable Class C common stock
purchase warrant. Each Class A warrant entitles the warrant holder to
purchase one share of common stock for $.50, each Class B warrant
entitles the warrant holder to purchase one share of common stock for
$.75, and each Class C common stock purchase warrant entitles the
warrant holder to purchase one share of common for $1.00. The Class A,
B and C warrants were originally exercisable within twelve, eighteen
and twenty-four months respectively, from February 26, 1988. All
warrants have been extended until July 25, 1998. As of December 31,
1997, no warrants had been exercised. The Company has the right to
call any or all warrants at a redemption price of $.0001 per warrant.
On June 3, 1992 the Company issued 3,000,000 shares of its common
stock, valued at $.04 per share (fair market value on that date, per
the National Quotation Bureau, Inc.), to an officer and director in
exchange for a reduction of $120,000 in a note to a related company.
The Company granted to its directors a total of 1,300,000 warrants,
expiring December 4, 1998. Each warrant enables the owner to purchase
one share of common stock for $.04 per share.
Note 6. Management Fees
The Company does not employ any personnel. Per a management fee
agreement with Acrodyne Corporation, a related entity, the Company pays
direct labor costs plus overhead for management services rendered.
Note 7. Cash Flows Disclosure
Interest and income taxes paid for the years ended December 31, 1997,
1996 and 1995 were as follows:
1997 1996 1995
------------ ---------- ----------
Interest $ -0- $ 27,420 $ 57,878
============ ========== ==========
Income Taxes $ -0- $ -0- $ -0-
============ ========== ==========
F9
Note 8. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
F10
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
as of December 31, 1997 and 1996
(in thousands, except share amounts)
ASSETS December 31, December 31,
1997 1996
---------------- ----------------
Current assets:
Cash $ 234 $ 64
Accounts receivable, net of allowance of $243 and $140,
respectively 5,060 5,274
Inventories 6,398 7,957
Prepaid expenses and other 304 362
Deferred tax benefit 363 363
---------------- ----------------
Total current assets 12,359 14,020
Fixed assets, net 1,723 1,822
Other assets 106 320
Deferred tax benefit 756 756
Goodwill 1,670 1,709
---------------- ----------------
Total assets $ 16,614 $ 18,627
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable to affiliates $ 160 $ 885
Notes payable to banks 107 6,104
Current portion of capital lease 4 9
Accounts payable 3,204 3,107
Accrued expenses 684 567
---------------- ----------------
Total current liabilities 4,159 10,672
Notes payable to affiliates - long term 4,212 -0-
Notes payable to banks - long term 9,017 5,213
Commitments and contingencies -0- -0-
---------------- ----------------
17,388 15,885
---------------- ----------------
Stockholders' equity (deficit):
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, $10.00 par value, 296,170 shares
outstanding at stated value 2,962 2,962
Common stock, $0.01 par value, 100,000,000 shares authorized,
23,274,039 shares outstanding 233 233
Additional paid-in capital 9,313 9,313
Accumulated deficit (14,532) (11,016)
---------------- ----------------
Total stockholders' equity (deficit) (774) 2,742
---------------- ----------------
Total liabilities and stockholders' equity $ 16,614 $ 18,627
================ ================
The accompanying notes are an integral part of the consolidated financial statements.
F-2
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
for the years ended December 31, 1997, 1996 and 1995
(in thousands, except per share amounts)
Year Ended
------------------------------------------------------
December 31, December 31, December 31,
1997 1996 1995
---------------- ---------------- ---------------
Operating data:
Net sales $ 30,330 $ 24,341 $ 18,728
Cost of sales 26,585 20,759 15,291
---------------- ---------------- ---------------
Gross profit 3,745 3,582 3,437
Selling, general and administrative expenses 5,837 5,067 3,247
---------------- ---------------- ---------------
Operating income (loss) (2,092) (1,485) 190
---------------- ---------------- ---------------
Nonoperating income (expense):
Interest expense - net (1,280) (1,103) (801)
Other, net (144) (38) (41)
---------------- ---------------- ---------------
Total non operating expense (1,424) (1,141) (842)
---------------- ---------------- ---------------
Income (loss) before income taxes (3,516) (2,626) (652)
Income tax expense (benefit) -0- (893) (208)
---------------- ---------------- ---------------
Net loss $ (3,516) $ (1,733) $ (444)
================ ================ ===============
Basic and diluted earnings per share $ (0.17)$ (0.09) $ (0.03)
================ ================ ===============
Weighted average common and common stock
equivalent shares outstanding 23,274 23,242 22,722
================ ================ ===============
The accompanying notes are an integral part of the consolidated financial statements.
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995
(in thousands, except shares)
Preferred Stock Common Stock Total
----------------------------------------------- Add'l Paid-in Accum Stockholders-
Shares Amount Shares Amount Capital (Deficit) Equity
----------- --------- -------------- --------- -------------- ----------- ---------------
Balances at January 1, 1995 12,500 1,250 22,533,637 $ 225 8,961 $ (8,401) 2,035
Common stock issued to ESOP - - 12,000 - 4 - 4
Stock issued to fund acquisition - - 895,054 9 572 - 581
Common stock issued to affiliate
for acquisition services - - 100,000 1 37 - 38
Common stock issued in lieu of
wages to officer - - 34,000 1 9 - 10
Preferred stock public offering 325,000 3,250 - - (386) - 2,864
Preferred stock converted into
common stock (11,210) (112) 163,055 2 110 - -
Common shares received as
an acquisition cost adjustment - - (400,000) (4) (184) - (188)
Dividends - - - - - (136) (136)
Net loss - - - - - (444) (444)
----------- --------- -------------- --------- -------------- ----------- --------------
Balances at December 31, 1995 326,290 4,388 23,337,746 234 9,123 (8,981) 4,764
Common shares received as an
acquisition incentive adjustment - - (350,000) (3) 4 - -
Preferred stock converted into
common stock (17,620) (176) 256,293 2 174 - -
Stock option exercise - - 30,000 - 12 - 12
Dividends - - - - - (301) (301)
Net loss - - - - - (1,733) (1,733)
----------- --------- -------------- --------- -------------- ----------- ---------------
Balances at December 31, 1996 308,670 4,212 23,274,039 233 9,313 (11,015) 2,742
Net loss - - - - - (3,516) (3,516)
--------------------------------------------------------------------------------------------
Balances at December 31, 1997 308,670 $ 4,212 23,274,039 $ 233 $ 9,313 $ (14,531) (774)
=========== ========= ============== ========= ============== =========== ==============
The accompanying notes are an integral part of the consolidated financial statements.
F-4
AJAY SPORTS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
for the years ended December 31, 1997, 1996 and 1995
(in thousands)
1997 1996 1995
------------ ------------ -------------
Cash flows from operating activities:
Net loss $ (3,516) $ (1,733) $ (444)
Adjustments to reconcile to net cash flows from operating
activities:
Loss on sale of assets 42 6 -0-
Depreciation and amortization 358 366 219
(Increase) decrease in accounts receivable, net 214 (78) (3,496)
(Increase) decrease in inventories 1,559 952 (3,123)
(Increase) in deferred tax benefits -0- (911) (208)
(Increase) decrease in prepaid expenses 58 3 (154)
(Increase) decrease in other assets 202 (84) (66)
Increase in accounts payable 97 945 852
Increase (decrease) in accrued expenses 186 (64) 141
------------ ------------ -------------
Net cash (used in) operating activities (800) (598) (6,279)
------------ ------------ -------------
Cash flows from investing activities:
Acquisitions of property plant and equipment (250) (276) (787)
Goodwill associated with acquisitions -0- (387) (1,329)
Proceeds from sale of equipment -0- -0- 5
Disposal of equipment -0- (29) -0-
------------ ------------ -------------
Net cash (used in) investing activities (250) (692) (2,111)
------------ ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of notes payable to affiliates 3,487 885 -0-
Net increase (decrease) in bank notes payable (2,193) 396 10,777
Payments on notes payable - affiliate -0- -0- (5,369)
Dividends paid (74) (301) (58)
Proceeds from preferred stock offering, net of related costs -0- -0- 2,864
Stock issued in acquisitions -0- -0- 433
Stock options exercised -0- 12 -0-
------------ ------------ -------------
Net cash provided by financing activities 1,220 992 8,647
------------ ------------ -------------
Net increase (decrease) in cash 170 (298) 257
Cash at beginning of period 64 362 105
------------ ------------ -------------
-------------
Cash at end of period $ 234 $ 64 $ 362
============ ============ =============
The accompanying notes are an integral part of the consolidated financial statements.
F -5