-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GnOQINLKIRYJHjQ+MFxNRihz3Hm2DNYRKiHkYaG2qyciLHzTnhgHGkg9GV8nsG5d Pc4GvCe2FFU3EOi0oGtxoQ== 0001036050-99-000193.txt : 19990209 0001036050-99-000193.hdr.sgml : 19990209 ACCESSION NUMBER: 0001036050-99-000193 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19980512 ITEM INFORMATION: FILED AS OF DATE: 19990208 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL SPORTS INC CENTRAL INDEX KEY: 0000828750 STANDARD INDUSTRIAL CLASSIFICATION: RUBBER & PLASTICS FOOTWEAR [3021] IRS NUMBER: 042958132 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-16611 FILM NUMBER: 99524026 BUSINESS ADDRESS: STREET 1: 555 S HENDERSON ROAD SUITE B STREET 2: RTE 3 INDUSTRIAL PARK CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 BUSINESS PHONE: 6103372200 MAIL ADDRESS: STREET 1: 555 S HENDERSON RD CITY: KING OF PRUSSIA STATE: PA ZIP: 19406 8-K/A 1 FORM 8-K/A ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ================================================================================ FORM 8-K/A AMENDMENT NO. 1 TO CURRENT REPORT Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 Date of Report: May 12, 1998 -------------------------------- (Date of earliest event reported) GLOBAL SPORTS, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter)
Delaware 0-16611 04-2958132 - -------------------------------------------------------------------------------- (State or other jurisdiction (Commission (I.R.S. Employer of incorporation or organization) File Number) Identification Number)
555 S. Henderson Road, King of Prussia, PA 19406 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (800) 352-3331 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) ================================================================================ ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS --------------------------------- Item 7 of the Current Report on Form 8-K dated May 12, 1998 and filed May 27, 1998 is amended to include the historical financial statements of Gen-X Equipment Inc. and Gen-X Holdings Inc. (the "Gen-X Companies"), and predecessor companies C.A.S. Sports International Inc. and C.A.S. Sports Agency, Inc. and the pro forma combined financial information of Global Sports, Inc. (the "Company"). (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED Historical financial statements of: (i) C.A.S. Sports International Inc. and C.A.S. Sports Agency, Inc. as of and for the year ended December 31, 1995 (Audited). (ii) C.A.S. Sports International Inc. and C.A.S. Sports Agency, Inc. as of October 10, 1996 and for the period from January 1, 1996 through October 10, 1996 (Audited). (iii) Gen-X Equipment Inc. as of September 30, 1997 and for the period from October 10, 1996 through September 30, 1997 (Audited). (b) PRO FORMA COMBINED FINANCIAL INFORMATION (i) Pro forma combined financial statements of Global Sports, Inc. and the Gen-X Companies as of and for the three months ended March 31, 1998 (Unaudited). (ii) Pro forma combined statement of operations of Global Sports, Inc. and the Gen-X Companies for the year ended December 31, 1997 (Unaudited). 2 ITEM 7. (a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED ITEM 7. (a) (i) Combined Financial Statements C.A.S. Sports International, Inc. and C.A.S. Sports Agency, Inc. Year Ended December 31, 1995 with Report of Independent Auditors 3 CONTENTS Report of Independent Auditors 1 Audited Combined Financial Statements Combined Balance Sheet 2 Combined Statement of Income 3 Combined Statement of Stockholder's Equity 4 Combined Statement of Cash Flows 5 Notes to Combined Financial Statements 6
Note: Above page numbers refer to pagination of original report. 4 Report of Independent Auditors The Board of Directors C.A.S. Sports International, Inc. and C.A.S. Sports Agency, Inc. We have audited the accompanying combined balance sheet of C.A.S. Sports International, Inc. and C.A.S. Sports Agency, Inc. as of December 31, 1995, and the related combined statements of income, stockholder's equity, and cash flows for the year then ended. These financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of C.A.S. Sports International, Inc. and C.A.S. Sports Agency, Inc. at December 31, 1995, and the combined results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles. February 28, 1996 /s/ Ernst & Young, LLP Seattle, Washington 5 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. COMBINED BALANCE SHEET DECEMBER 31, 1995
ASSETS Current assets: Cash and cash equivalents $ 1,123,739 Accounts receivable, less allowance for doubtful accounts of $50,000 7,662,850 Inventories 125,543 Prepaid expenses 118,003 Deferred tax assets (Note 5) 16,000 ---------------- Total current assets 9,046,135 Equipment and leasehold improvements, at cost: Furniture and equipment 190,554 Leasehold improvements 57,239 ---------------- 247,793 Less accumulated depreciation and amortization 67,967 ---------------- Net equipment and leasehold improvements 179,826 Goodwill, net of accumulated amortization of $114,121 (Note 2) 3,243,134 Other assets 88,149 ---------------- Total assets $ 12,557,244 ================ LIABILITIES AND STOCKHOLDER'S EQUITY Current liabilities: Accounts payable $ 3,661,321 Accrued expenses 376,540 Customer deposits 145,582 Income taxes payable (Note 5) 300,005 Due to affiliates 1,247,037 ---------------- Total current liabilities 5,730,485 Note payable to Parent (Note 3) 997,511 Stockholder's equity Capital stock 3,478,318 Retained earnings 2,350,930 ---------------- Total stockholder's equity 5,829,248 ---------------- Total liabilities and stockholder's equity $ 12,557,244 ================
See accompanying notes. 6 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. COMBINED STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1995 Net sales $ 35,375,565 Cost of goods sold 28,603,529 ----------------- Gross profit 6,772,036 Selling, general, and administrative expenses 3,071,526 ----------------- Operating income 3,700,510 Interest expense - affiliates (240,380) Interest income 47,604 ----------------- Interest before income tax provision 3,507,734 Income tax provision 1,299,757 ----------------- Net Income $2,207,977 =================
See accompanying notes. 7 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. COMBINED STATEMENT OF STOCKHOLDER'S EQUITY
Capital Retained Stockholder's Stock Earnings Equity -------------- --------------- ------------------ Balance, January 1, 1995 $ 3,435,999 $ 142,953 $ 3,578,952 Net income for the year --- 2,207,977 2,207,977 Contribution of capital 42,319 --- 42,319 -------------- --------------- ------------------ Balance, December 31, 1995 $ 3,478,318 $ 2,350,930 $ 5,829,248 ============== =============== ==================
See accompanying notes. 8 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. COMBINED STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1995
OPERATING ACTIVITIES Reconciliation of net income to net cash used in operating activities: Net income $ 2,207,977 Depreciation and amortization 147,422 Deferred income tax benefit (16,000) Changes in operating assets and liabilities: Increase in accounts receivable (5,760,407) Increase in inventories (125,543) Increase in prepaid expenses (118,003) Increase in accounts payable and accrued expenses 2,380,263 Increase in customer deposits 35,483 Decrease in income taxes payable (282,366) Increase in amounts due to affiliates 1,247,037 ---------------- Net cash used in operating activities (284,137) INVESTING ACTIVITIES Purchases of equipment and leasehold improvements (149,311) Increase in other assets (37,061) ---------------- Net cash used in investing activities (186,372) FINANCING ACTIVITIES Advances from affiliates 6,271,558 Repayment of advances from affiliates (6,271,558) ---------------- Net cash used in financing activities 0 ---------------- Net decrease in cash and cash equivalents (470,509) Cash and cash equivalents at beginning of year 1,594,248 ---------------- Cash and cash equivalents at end of year $ 1,123,739 ================ SUPPLEMENTAL DISCLOSURE Cash paid for interest to affiliates $ 37,281 ================ Cash paid for income taxes $ 1,633,672 ================ NONCASH FINANCING ACTIVITIES Noncash contribution of capital: Increase in capital stock $ 42,319 ================ Increase in goodwill $ (42,319) ================
See accompanying notes. 9 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1995 1. SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS The combined financial statements include the accounts of C.A.S. Sports International, Inc., a Canadian corporation, and C.A.S. Sports Agency, Inc., a U.S. corporation, (collectively, the "Companies"). The Companies are both wholly owned subsidiaries of Ride, Inc. (the "Parent"). The Companies distribute snowboards and related products, other sporting goods, and sports apparel to retailers and wholesalers in the United States and Canada and to international distributors in several foreign countries. All intercompany transactions between the Companies have been eliminated. The functional currency of the Companies is the U.S. dollar. All amounts in the accompanying financial statements are presented in U.S. dollars. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. FOREIGN CURRENCY Accounts receivable and accounts payable denominated in foreign currencies are translated to U.S. dollars at the exchange rate on the balance sheet date. Revenues, costs, and expenses are translated at the prevailing exchange rate at the time the transaction occurs. Adjustments resulting from foreign exchange transactions are recorded in the combined income statement. The Companies enter into foreign currency futures and forward contracts, generally with terms of 270 days or less, as a hedge against some of its foreign currency commitments. Offsetting gains and losses on these contracts are recognized concurrently with the exchange gains and losses stemming from the associated commitments. The Companies are exposed to certain losses in the event of nonperformance by the counter parties to the futures contracts. The Companies' exposure, however, is not considered significant. 10 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CASH EQUIVALENTS All highly liquid investments with a maturity of three months or less when purchased are considered to be cash equivalents. CONCENTRATION OF CREDIT RISK The Companies perform ongoing credit evaluations of their customers. Based on the Companies' assessment of credit risk, sales in the United States and Canada are made on a letter of credit basis, open credit, C.O.D, cash in advance, or by postdated check. International sales are generally made on a cash in advance or letter of credit basis. Sales to one customer accounted for approximately 17% of net sales during 1995. INVENTORIES Inventories are comprised of finished goods and are carried at the lower of cost or market using the first-in, first-out method. EQUIPMENT AND LEASEHOLD IMPROVEMENTS Depreciation of office furniture and equipment is computed using the straight- line method over the estimated useful lives of the assets, generally five years. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the term of the related lease. GOODWILL Goodwill is being amortized over 40 years using the straight-line method. The Company periodically reviews the carrying value of goodwill to determine if the facts and circumstances suggest that the value may be impaired. REVENUE RECOGNITION The Company recognizes revenue from the sale of its products when the products are shipped to customers. 11 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INCOME TAXES The Companies file a consolidated U.S. federal income tax return with the Parent. The Companies' income tax provision has been prepared as if they were filing a separate U.S. income tax return in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under Statement No. 109, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the tax rates that will be in effect when the differences are expected to reverse. NEW ACCOUNTING PRONOUNCEMENTS In March 1995, the Financial Accounting Standards Board (FASB) issued Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amounts. The Company will adopt Statement No. 121 in 1996 and, based on current circumstances, does not believe the effect of adoption will be significant.. 2. GOODWILL In August 1994, the Companies were acquired by the Parent. At that time, the Parent's basis in the Companies' net assets, including goodwill, was pushed down to the separate financial statements of the Companies. During 1995, the Parent incurred $42,319 of additional costs in relation to its 1994 acquisition of the Companies. These costs have been contributed to capital as additional goodwill by the Parent. 3. NOTE PAYABLE TO PARENT The Companies have a note payable to the Parent which accrues interest at 12% per annum. All principal and accrued interest on the note is due in 2004. During 1995, the Companies recorded approximately $115,000 in interest expense related to this note. 12 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 4. LINE OF CREDIT The Companies have three available credit facilities with a Canadian bank. The first facility provides a $1.5 million line of credit for direct advances. The second facility provides for a $5.5 million line for letters of credit. The third facility provides for a $435,000 foreign exchange forward contract line. Borrowings under these facilities bear interest at the bank's prime U.S. lending rate plus 1%. As of December 31, 1995, the Companies had approximately $728,000 in outstanding import letters of credit drawn against the letter-of-credit facility. The credit facilities are guaranteed by the Parent. 5. INCOME TAXES Deferred tax assets as of December 31, 1995 are attributable to the Companies' allowance for bad debts. Significant components of the provision (benefit) for income taxes are as follows: Current provisions: Federal $ 1,177,000 State (5,000) Canada 143,757 ------------- 1,315,757 Deferred benefit - federal (16,000) ------------- Total provision $ 1,299,757 ============= The Company's effective income tax rate for 1995 varied from the U.S. federal statutory tax rate as follows: U.S. federal statutory tax rate 34.0% Change in tax rate resulting from: Foreign taxes 2.2 Nondeductible goodwill amortization 0.8 Other 0.1 ------------- Effective tax rate 37.1% =============
13 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) 6. FOREIGN CURRENCY TRANSACTIONS The Companies recognized approximately $418,000 in gains on foreign currency forward contracts during 1995. This amount is included in cost of goods sold in the accompanying statement of operations. At December 31, 1995, the Companies had open forward contracts to purchase an aggregate of 4.8 million Deutsche Marks for approximately $3.3 million. Ile contracts mature from January 1996 through August 1996. The net loss on these forward contracts as of December 31, 1995 of approximately $15,000 has been deferred and will be recognized when the related commitments are settled. 7. RELATED-PARTY TRANSACTIONS During 1995, the Companies borrowed approximately $6.3 million from affiliates for working capital. Such amounts were repaid during the year. Approximately $125,000 in interest expense related to these borrowings was incurred during 1995. An affiliate charges the Companies for warehousing and handling costs related to inventories held in the United States. During 1995, approximately $10,000 was paid to the affiliate for these services. During 1995, the Companies purchased $848,000 in inventories from affiliates. 8. LEASES The Company is committed under noncancellable operating leases expiring at various dates through February 1999 for office facilities and equipment. The leases generally require that the payments of taxes, insurance, and maintenance are the responsibility of the Company. Approximate future minimum lease payments for all of the Company's noncancellable operating leases are as follows: 1996 $ 59,000 1997 55,000 1998 53,000 1999 5,000 ------------- $172,000 =============
Rent expense for the year ended December 31, 1995 was approximately $84,000. 14 ITEM 7. (a) (ii) C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. COMBINED FINANCIAL STATEMENTS OCTOBER 10, 1996 TOGETHER WITH AUDITOR'S REPORT 15 ================================================================================ AUDITORS' REPORT ================================================================================ To the Board of Directors of C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC.: We have audited the accompanying combined balance sheet of C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. as at October 10, 1996 and the related combined statements of income, retained earnings and statement of cash flows for the period from January 1, 1996 to October 10, 1996. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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 accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these combined financial statements present fairly, in all material respects, the financial position of C.A.S. Sports International, Inc. and C.A.S. Sports Agency, Inc. as at October 10, 1996 and the results of their operations and their cash flows for the period from January 1, 1996 to October 10, 1996 in accordance with generally accepted accounting principles. /s/ Arthur Andersen & Company July 17, 1998. Toronto, Canada. 16 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. COMBINED BALANCE SHEET OCTOBER 10, 1996 (WITH COMPARATIVE FIGURES FOR THE PRECEDING YEAR - NOTE 11) (EXPRESSED IN U.S. DOLLARS) ASSETS
OCTOBER 10, December 31, 1996 1995 ----------- ----------- CURRENT ASSETS Cash and cash equivalents $ - $ 1,123,739 Accounts receivable 10,313,695 7,662,850 Inventories 1,452,883 125,543 Prepaid expenses and deposits 510,111 165,940 ----------- ----------- 12,276,689 9,078,072 CAPITAL ASSETS (Note 2) 187,115 179,826 OTHER ASSETS 82,910 56,212 GOODWILL, net of accumulated amortization of $179,728 (1995 - $114,121) (Note 3) 3,177,527 3,243,134 ----------- ----------- $15,724,241 $12,557,244 =========== =========== LIABILITIES AND SHAREHOLDER'S EQUITY CURRENT LIABILITIES Bank indebtedness (Note 4) $2,698,680 $ - Accounts payable and accrued liabilities 2,300,664 4,037,861 Customer deposits - 145,582 Income taxes payable 181,905 300,005 Due to parent (Note 5) 4,372,335 1,247,037 ----------- ----------- 9,553,584 5,730,485 ----------- ----------- NOTE PAYABLE TO PARENT (Note 6) 125,679 997,511 ----------- ----------- SHAREHOLDER'S EQUITY Capital stock (Note 7) 3,478,318 3,478,318 Retained earnings 2,566,660 2,350,930 ----------- ----------- 6,044,978 5,829,248 ----------- ----------- $15,724,241 $12,557,244 =========== ===========
The accompanying notes are an integral part of this balance sheet 17 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE PERIOD FROM JANUARY 1, 1996 TO OCTOBER 10, 1996 (WITH COMPARATIVE FIGURES FOR THE PRECEDING YEAR - NOTE 11) (EXPRESSED IN U.S. DOLLARS)
OCTOBER 10, December 31, 1996 1995 ----------- ----------- REVENUE $20,600,013 $35,375,565 COST OF SALES 17,399,618 28,603,529 ----------- ----------- GROSS PROFIT 3,200,395 6,772,036 OPERATING EXPENSES (Note 8) 2,717,233 3,071,526 ----------- ----------- INCOME BEFORE INTEREST INCOME (EXPENSE) AND PROVISION FOR TAXES 483,162 3,700,510 INTEREST EXPENSE (Note 6) (211,023) (240,380) INTEREST INCOME 35,287 47,604 ----------- ----------- INCOME BEFORE PROVISION FOR TAXES 307,426 3,507,734 PROVISION FOR INCOME TAXES 91,696 1,299,757 ----------- ----------- NET INCOME 215,730 2,207,977 RETAINED EARNINGS, beginning of period 2,350,930 142,953 ----------- ----------- RETAINED EARNINGS, end of period $ 2,566,660 $ 2,350,930 =========== ===========
The accompanying notes are an integral part of this balance sheet 18 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. STATEMENT OF CASH FLOWS FOR THE PERIOD FROM JANUARY 1, 1996 TO OCTOBER 10, 1996 (WITH COMPARATIVE FIGURES FOR THE PRECEDING YEAR - NOTE 11) (EXPRESSED IN U.S. DOLLARS)
OCTOBER 10, December 31, 1996 1995 ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 215,730 $ 2,207,977 Adjustments for: Depreciation and amortization of capital assets 63,560 147,422 Amortization of goodwill 65,607 - Deferred income tax 16,000 (16,000) ----------- ----------- 360,897 2,339,399 Changes in non-cash working capital (6,339,235) (2,623,536) ----------- ----------- (5,978,338) (284,137) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchase of capital assets (70,849) (149,311) Increase in other assets (26,698) (37,061) ----------- ----------- (97,547) (186,372) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Repayment of note payable to Parent (871,832) - Advances from Parent 3,125,298 - ----------- ----------- 2,253,466 - ----------- ----------- NET INCREASE IN BANK INDEBTEDNESS (3,822,419) (470,509) CASH AND CASH EQUIVALENTS, beginning of period 1,123,739 1,594,248 ----------- ----------- CASH AND CASH EQUIVALENTS (BANK INDEBTEDNESS), end of period $(2,698,680) $ 1,123,739 =========== ===========
The accompanying notes are an integral part of this balance sheet 19 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS OCTOBER 10, 1996 (WITH COMPARATIVE FIGURES FOR THE PRECEDING YEAR - NOTE 11) (EXPRESSED IN U.S. DOLLARS) 1. SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS The combined financial statements include the accounts of C.A.S. Sports International, Inc. ("C.A.S. International"), a Canadian corporation, and C.A.S. Sports Agency, Inc. ("C.A.S. Agency"), a U.S. corporation, (collectively, the "Companies"). The Companies are both wholly owned subsidiaries of Ride, Inc. (the "Parent"). The Companies distribute snowboards and related products, other sporting goods, and sports apparel to retailers and wholesales in the United States and Canada and to international distributors in several foreign countries. BASIS OF PRESENTATION All intercompany transactions between the Companies have been eliminated. The functional currency of the Companies is the U.S. dollar. All amounts in the accompanying financial statements are presented in U.S. dollars. These statements have been prepared immediately prior to the sale of the "closeout" portion of business to Gen-X Holdings Inc. ("Gen-X") at October 11, 1996 including prepaid expenses of $96,094 and fixed assets of $187,115 for consideration of $3,000,000. The balance of the "branded" product business was maintained by the Parent. In addition to the purchase of assets above, Gen-X acquired substantially all of the inventory on various dates until December 20, 1996 for cash consideration. Gen-X collected substantially all of the accounts receivable of the Companies at October 10, 1996 over a period from October 11, 1996 to June 30, 1997 and received a collection fee from the Parent equal to 1.75% of the balance collected. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 20 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS OCTOBER 10, 1996 (WITH COMPARATIVE FIGURES FOR THE PRECEDING YEAR - NOTE 11) (EXPRESSED IN U.S. DOLLARS) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FOREIGN CURRENCY Accounts receivable and accounts payable denominated in foreign currencies are translated into U.S. dollars at the exchange rate on the balance sheet date. Revenues, costs, and expenses are translated at the prevailing exchange rate at the time the transaction occurs. Adjustments resulting from foreign exchange transactions are recorded in the combined income statement. The Companies enter into foreign currency futures and forward contracts, generally with terms of 270 days or less, as a hedge against some of its foreign currency commitments. Offsetting gains and losses on these contracts are recognized concurrently with the exchange gains and losses stemming from the associated commitments. The Companies are exposed to certain losses in the event of nonperformance by the counterparties to the futures contracts. The Companies' exposure, however, is not considered significant. CONCENTRATION OF CREDIT RISK The Company performs ongoing credit evaluations of its customers. Based on the Company's assessment of credit risk, sales in the United States and Canada are made on open credit, C.O.D., cash in advance or by post-dated cheque. International sales are generally made on cash in advance or letter of credit basis. INVENTORIES Inventories are carried at the lower of cost and market using the first-in, first-out method. CAPITAL ASSETS Furniture and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally five years. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the term of the related lease. GOODWILL Goodwill is being amortized over forty years using the straight-line method. Goodwill is written down when there has been a permanent impairment in the value of unamortized goodwill. A permanent impairment in goodwill is determined by comparison of the carrying value of unamortized goodwill with discounted future earnings of the related business. 21 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS OCTOBER 10, 1996 (WITH COMPARATIVE FIGURES FOR THE PRECEDING YEAR - NOTE 12) (EXPRESSED IN U.S. DOLLARS) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) REVENUE RECOGNITION The Company recognizes revenue from the sale of its products when the products are shipped to customers. INCOME TAXES The Companies file a consolidated U.S. federal income tax return with the Parent. The Companies' income tax provision has been prepared as if they were filing a separate U.S. income tax return in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under Statement No. 109, deferred tax assets and liabilities are determined based on the differences between financial reporting and tax bases of assets and liabilities and are measured using the tax rates that will be in effect when the differences are expected to reverse. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE Most entities depend on computerized systems and therefore are exposed to the Year 2000 conversion risk, which, if not properly addressed, could affect an entity's ability to conduct normal business operations. Management is addressing this issue, however, given the nature of this risk, it is not possible to be certain that all aspects of the Year 2000 Issue affecting the Company and those with whom it deals such as customers, suppliers or other third parties, will be fully resolved without adverse impact on the Company's operations. 2. CAPITAL ASSETS The Company has the following capital assets as of October 10, 1996: 1996 ------------------------------------- ACCUMULATED NET BOOK COST DEPRECIATION VALUE ---------- ------------ ----------- Furniture and equipment $ 260,909 $ 108,041 $ 152,868 Leasehold improvements 57,733 23,486 34,247 ---------- ------------ ----------- $ 318,642 $ 131,527 $ 187,115 ========== ============ =========== 22 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS OCTOBER 10, 1996 (WITH COMPARATIVE FIGURES FOR THE PRECEDING YEAR - NOTE 11) (EXPRESSED IN U.S. DOLLARS) 2. CAPITAL ASSETS (CONTINUED) 1995 --------------------------------------- Accumulated Net Book Cost Depreciation Value ------------ ------------ ----------- Furniture and equipment $ 190,554 $ 53,606 $ 136,948 Leasehold improvements 57,239 14,361 42,878 ------------ ------------ ----------- $ 247,793 $ 67,967 $ 179,826 ============ ============ =========== 3. GOODWILL In August 1994, the Companies were acquired by the Parent. At that time, the Parent's basis in the Companies' net assets, including goodwill, was pushed down to the separate financial statements of the Companies. During 1995, the Parent incurred $42,319 of additional costs in relation to its 1994 acquisition of the Companies. These costs have been contributed to capital as additional goodwill by the Parent. 4. BANK INDEBTEDNESS The Companies have three available credit facilities with a Canadian bank. The first facility provides a $1,500,000 line of credit for direct advances. The second facility provides for a $5,500,000 line for letters of credit. The third facility provides for $435,000 foreign exchange forward contract line. Borrowings under these facilities bear interest at the bank's prime U.S. lending rate plus 1%. As of October 10, 1996, the Companies had approximately $1,560,142 in outstanding import letters of credit drawn against the letter-of-credit facility. The credit facilities are guaranteed by the Parent. 5. DUE TO PARENT Due to parent amounts are non-interest bearing and due on demand. 23 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS OCTOBER 10, 1996 (WITH COMPARATIVE FIGURES FOR THE PRECEDING YEAR - NOTE 11) (EXPRESSED IN U.S. DOLLARS) 6. NOTE PAYABLE TO PARENT The Companies have a note payable to the Parent which accrues interest at 12% per annum. All principal and accrued interest on the note is due in 2004. During the period from January 1, 1996 to October 10, 1996, the Companies recorded approximately $56,000 (1995 - $115,000) in interest expense related to this note. 7. CAPITAL STOCK Capital stock consists of the following: Authorized Unlimited number of common shares of C.A.S. International 100,000 common shares of C.A.S. Agency
1996 1995 ---------- ---------- Issued and outstanding 10,000 common shares of C.A.S. International $ 87,347 $ 87,347 100,000 common shares of C.A.S. Agency 1,000 1,000 Paid up capital 3,389,971 3,389,971 ---------- ---------- $3,478,318 $3,478,318 ========== ==========
8. RELATED-PARTY TRANSACTIONS During the year, the Companies borrowed from affiliates to fund working capital needs. The companies were charged approximately $395,000 in management fees by the Parent, and is included in operating expenses. An affiliate charges the Companies for warehousing and handling costs related to inventories held in the United States. During 1996, the Companies purchased $1,903,117 in inventories from affiliates. 24 C.A.S. SPORTS INTERNATIONAL, INC. AND C.A.S. SPORTS AGENCY, INC. NOTES TO COMBINED FINANCIAL STATEMENTS OCTOBER 10, 1996 (WITH COMPARATIVE FIGURES FOR THE PRECEDING YEAR - NOTE 11) (EXPRESSED IN U.S. DOLLARS) 9. FOREIGN CURRENCY TRANSACTIONS The Companies recognized approximately $63,000 in gains on foreign currency forward contracts during 1996. This amount is included in cost of goods sold in the accompanying statement of operations. 10. LEASES The Company is committed under noncancelable operating leases expiring at various dates through February 1999 for office facilities and equipment. The leases generally require that the payment of taxes, insurance, and maintenance are the responsibility of the Company. Approximate future minimum lease payments for all of the Company's noncancelable operating leases are as follows:
1997 $ 55,675 1998 53,448 1999 17,816 -------- $126,939 ========
11. COMPARATIVE FIGURES The financial statements for 1995, which are presented for comparative purposes only, were audited by another firm of chartered accountants which issued an unqualified opinion dated February 28, 1996. Certain amounts in the 1995 financial statements have been reclassified to conform to the 1996 presentation. 25 ITEM 7. (a) (iii) GEN-X EQUIPMENT INC. CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 TOGETHER WITH AUDITORS' REPORT 26 ================================================================================ AUDITORS' REPORT ================================================================================ To the Shareholders of GEN-X EQUIPMENT INC.: We have audited the consolidated balance sheet of GEN-X EQUIPMENT INC. as at September 30, 1997 and the consolidated statement of income and retained earnings for the period from October 10, 1996 to September 30, 1997. 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 audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance 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 accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at September 30, 1997 and the results of its operations and the changes in its financial position for the period from October 10, 1996 to September 30, 1997 in accordance with generally accepted accounting principles. /s/ Arthur Andersen & Co. October 31, 1997. Toronto, Canada. 27 GEN-X EQUIPMENT INC. CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1997 (EXPRESSED IN U.S. DOLLARS) ASSETS
CURRENT ASSETS Accounts receivable, net $ 9,102,304 Inventories 2,158,886 Prepaids and other assets 228,569 ----------- 11,489,759 ----------- CAPITAL ASSETS (Note 3) Furniture and fixtures 462,650 Moulds 400,000 Less: Accumulated depreciation (193,762) ----------- 668,888 ----------- OTHER ASSETS 74,978 ----------- GOODWILL, net of accumulated amortization of $52,272 (Note 2) 2,129,515 ----------- $14,363,140 =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank loan (Note 3) $ 1,976,352 Accounts payable and accrued liabilities 6,229,291 Income taxes payable 200,176 Current portion of long-term debt (Note 4) 300,000 ----------- 8,705,819 ----------- LONG-TERM DEBT (Note 4) 3,199,299 ----------- SHAREHOLDERS' EQUITY Capital stock (Note 5) 500,766 Retained earnings 1,957,256 ----------- 2,458,022 ----------- $14,363,140 ===========
The accompanying notes are an integral part of this consolidated statement. 28 GEN-X EQUIPMENT INC. CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS FOR THE PERIOD FROM OCTOBER 10, 1996 TO SEPTEMBER 30, 1997 (EXPRESSED IN U.S. DOLLARS)
REVENUE $ 31,420,379 COST OF SALES 24,839,964 ------------ GROSS PROFIT 6,580,415 ------------ OPERATING EXPENSES Salaries and employee benefits 2,087,734 Commissions 761,855 Professional fees 254,159 Depreciation and amortization 246,033 Trade shows 157,496 Rent and equipment leases 121,044 Office expense 105,636 Bank charges and interest 105,548 Travel and entertainment 102,309 Interest on shareholders' loans 99,726 Telephone and fax 86,942 Bad debts 77,715 Credit insurance 68,383 Insurance 47,405 Maintenance 21,717 Advertising 20,081 Interest income (44,791) Miscellaneous income (72,051) ------------ 4,246,941 ------------ INCOME BEFORE INCOME TAXES 2,333,474 INCOME TAXES 342,976 ------------ NET INCOME 1,990,498 PREFERRED SHARE DIVIDEND 33,242 ------------ RETAINED EARNINGS, end of period $ 1,957,256 ============
The accompanying notes are an integral part of this consolidated statement. 29 GEN-X EQUIPMENT INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (EXPRESSED IN U.S. DOLLARS) 1. SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS The consolidated financial statements of Gen-X Equipment Inc. (the "Company") include the accounts of its wholly-owned subsidiaries: C.A.S. Sports International Inc., C.A.S. Sports Agency, Inc., and Gen-X Equipment AG. The Company is a leading distributor of excess inventories of sports equipment and accessories and specializes in acquiring excess inventories of snowboards, snowboard boots and bindings, in-line skates, premium sunglasses and sports goggles, skateboards, mountain bikes, wakeboards and specialty footwear from manufacturers and other suppliers and reselling these products to sporting goods retailers worldwide. USES OF ESTIMATES The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. FOREIGN CURRENCY Accounts receivable and accounts payable denominated in foreign currencies are translated into U.S. dollars at the exchange rate as of the balance sheet date. Revenues, costs of sales and expenses are translated at the prevailing exchange rate at the time the transaction occurs. Adjustments resulting from foreign exchange transactions are recorded in the consolidated income statement. CONCENTRATION OF CREDIT RISK The Company performs ongoing credit evaluations of its customers. Based on the Company's assessment of credit risk, sales in the United States and Canada are made on open credit, C.O.D., cash in advance or by post-dated cheque. International sales are generally made on cash in advance or letter of credit basis. Effective with sales made on February 1, 1997 and thereafter, the majority of accounts are credit insured with the Export Development Corporation of Canada. INVENTORIES Inventories are carried at the lower of cost and market using the first-in, first-out method. 30 GEN-X EQUIPMENT INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (EXPRESSED IN U.S. DOLLARS) 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) CAPITAL ASSETS Furniture, fixtures and computer equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally five years. Snowboard binding moulds are amortized using the straight-line method over four years. GOODWILL Goodwill is being amortized over forty years using the straight-line method. Goodwill is written down when there has been a permanent impairment in the value of unamortized goodwill. A permanent impairment in goodwill is determined by comparison of the carrying value of unamortized goodwill with discounted future earnings of the related business. REVENUE RECOGNITION The Company recognizes revenue from the sale of its products when the products are shipped to customers. 2. ACQUISITIONS The Company was formed on October 10, 1996 for the purpose of acquiring the shares of C.A.S. Sports International, Inc., and C.A.S. Sports Agency, Inc. from Ride Inc. for the amount of $3,030,115. The Company paid cash of $1,000,000 to Ride Inc. on closing of the transaction and Ride Inc. took back loans payable in the amount of $2,000,000. Goodwill generated as a result of the purchase transaction was determined as follows: Purchase price $3,030,115 Allocated as follows: Capital assets (800,000) Other assets (48,328) ---------- Goodwill $2,181,787 ========== As part of the acquisition, the Company agreed to purchase all of the inventory carried by the predecessor company by no later than December 31, 1996. 31 GEN-X EQUIPMENT INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (EXPRESSED IN U.S. DOLLARS) 3. BANK INDEBTEDNESS The Company has a line of credit available with the Hongkong Bank of Canada in the U.S. equivalent amount of $10,000,000. The loan is available for either direct borrowing or for import letters of credit. The loan bears interest at prime plus one half percent and is secured by a general security agreement covering all of the Company's assets. As at September 30, 1997, the Company had an obligation under import letters of credit in the amount of $2,276,187 and import bills payable in the amount of $437,760. 4. LONG-TERM DEBT Long-term debt is comprised of:
Loans payable to Ride Inc., interest at U.S. prime rate, secured by a pledge of the shares of C.A.S. Sports International Inc., and C.A.S. Sports Agency Inc. The loan is repayable in equal quarterly installments of $100,000. Principal and interest payments commence on March 31, 1998. $ 2,000,000 7% loans payable to shareholders, unsecured, interest due monthly, maturing September 30, 2006. 1,499,299 ----------- 3,499,299 Less: Current portion of long-term debt 300,000 ----------- $ 3,199,299 =========== Long-term debt is repayable as follows: 1998 $ 300,000 1999 400,000 2000 400,000 2001 400,000 2002 and thereafter 1,999,299 ----------- $ 3,499,299 ===========
32 GEN-X EQUIPMENT INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1997 (EXPRESSED IN U.S. DOLLARS) 5. CAPITAL STOCK Capital stock consists of the following:
Authorized- 1,000,000 Preferred shares, non-voting, 7% cumulative dividend, redeemable at $10 per share 1,000,000 Class A Common shares 1,000,000 Class V Common shares Issued and outstanding- 9,650 Class A common shares $ 965 350 Class V common shares 35 49,975 Preferred shares 499,766 -------- $500,766 ========
The Company declared and paid dividends of $33,242 on Preferred shares during the period from October 10, 1996 to September 30, 1997. 6. COMMITMENTS At September 30, 1997, the Company had committed to purchase a building at 25 Vanley Crescent, North York, Ontario in the amount of $488,200. Deposits in the amount of $142,600 have been made and are included in prepaids and other assets. The Company entered into a mortgage payable in the amount of $326,000 on the closing date for the acquisition of land and building which was October 1, 1997. 7. STATEMENT OF CHANGES IN FINANCIAL POSITION The Company has determined that a statement of changes in financial position would not provide additional meaningful information that could not be readily determined from the accompanying financial statements. Accordingly, a statement of financial position has not been presented. 33 ITEM 7. (b) PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION The following unaudited pro forma combined condensed financial information reflects the Company's acquisition of Gen-X Holdings, Inc. and Gen-X Equipment Inc. (the "Gen-X Companies") effective May 12, 1998 for an aggregate purchase price of $6.8 million plus contingent consideration as described in Item 2 of the Form 8-K dated May 12, 1998. This unaudited pro forma financial information also reflects the reorganization of RYKA Inc. ("RYKA") and KPR Sports International, Inc. and affiliates ("KPR") consummated on December 15, 1997 as previously reported in a separate Form 8-K dated thereon. Refer to Item 2 of the Forms 8-K filed on December 30, 1997 and May 27, 1998 for more information on the reorganization and acquisition, respectively. The following unaudited pro forma combined balance sheet gives effect to the reorganization and acquisition as if they had occurred on March 31, 1998. The following unaudited pro forma combined statements of operations for the year ended December 31, 1997 and the three months ended March 31, 1998 give effect to the reorganization and acquisition as if they had occurred January 1, 1997. The pro forma financial information is based on the historical financial statements of RYKA, KPR and the Gen-X Companies after giving effect to the reorganization and acquisition using the purchase method of accounting and assumptions and adjustments deemed appropriate by management, certain of which are described in the accompanying notes to the pro forma combined financial statements. For 1997 pro forma income statement purposes, the Gen-X Companies' historical financial information represents the period from October 11, 1996 (the inception of Gen-X Holdings, Inc.) through September 30, 1997 (fiscal period end). The pro forma combined condensed financial information does not purport to represent what the combined company's results of operations and financial position actually would have been had the reorganization and acquisition occurred on the dates specified, or to project the combined company's results of operations or financial position for any future period or date. The pro forma adjustments are based upon available information and certain adjustments that management believes are reasonable. In the opinion of management, all adjustments have been made that are necessary to present fairly the pro forma data. The pro forma combined condensed financial information should be read in conjunction with the separate audited historical financial statements of the Company and the notes thereto set forth in the Company's 1997 Annual Report on Form 10-K and the historical financial statements of the Gen-X Companies and the notes thereto set forth in Item 7(a) of this Form 8-K/A. 34 GLOBAL SPORTS, INC. AND THE GEN-X COMPANIES UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
Pro Forma Historical Global Gen-X For the 12 For the period Pro Forma months ended 10/11/96 - Adjustments Pro Forma 12/31/97 9/30/97 (Note 1) Combined -------------------------------------------------------------------------- Net Sales...................................... $ 73,728,395 $ 31,420,379 $ - $ 105,148,774 Costs and Expenses: Cost of Sales............................ 57,920,340 24,839,964 - 82,760,304 Selling, General & Administrative Expenses........................... 19,342,320 4,363,783 (711,478) 22,994,625 ------------------------------------------------------------------------------ Operating Income (Loss)........................ (3,534,265) 2,216,632 711,478 (606,155) Other (Income) Expenses........................ 2,630,538 (83,600) - 2,546,938 ------------------------------------------------------------------------------ Income (Loss) before Income Taxes.............. (6,164,803) 2,300,232 711,478 (3,153,093) Provision for Income Taxes..................... - 342,976 357,587 700,563 ----------------------------------------------------------------------------- Net Income (Loss).............................. $ ( 6,164,803) $ 1,957,256 $ 353,891 $ (3,853,656) ============================================================================== Losses per share - Basic & Diluted............. $ (.33) ================= Average Common Shares Outstanding - Basic & Diluted................................... (11,572,465) =================
See accompanying notes. 35 GLOBAL SPORTS, INC. AND THE GEN-X COMPANIES UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998
Pro Forma Historical Historical Adjustments Pro Forma Global Gen-X (Note 1) Combined ------------------------------------------------------------------------------- Net Sales................................. $28,148,378 $6,827,726 $ $34,976,104 Costs and Expenses: Cost of Sales....................... 20,023.899 5,355,015 25,378,914 Selling, General & Administrative Expenses......................... 5,380,723 1,231,126 72,131 6,683,980 ------------------------------------------------------------------------------- Operating Income.......................... 2,743,756 241,585 (72,131) 2,913,210 Other (Income) Expense.................... 562,183 (11,666) 550,517 ------------------------------------------------------------------------------- Income before Income Taxes................ 2,181,573 253,251 (72,131) 2,362,693 Provision for Income taxes................ 650,000 (7,949) (10,603) 631,448 ------------------------------------------------------------------------------- Net Income................................ $ 1,531,573 $ 261,200 $(61,528) $ 1,731,245 =============================================================================== Earnings per share - Basic................ $ .15 =========== Average Common Shares Outstanding - Basic................................ 11,918,198 =========== Earnings per share - Diluted.............. $ .14 =========== Average Common Shares Outstanding - Diluted.............................. 12,074,658 ==========
See accompanying notes. 36 GLOBAL SPORTS, INC. AND THE GEN-X COMPANIES UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET AS OF MARCH 31, 1998
Historical Historical Pro Forma Pro Forma Global Gen-X Adjustments Combined -------------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 995,582 $ - $ - $ 995,582 Accounts receivable 21,489,338 8,098,142 29,587,480 Inventory 17,825,322 4,011,845 21,837,167 Prepaid expenses and other current assets 718,554 35,867 754,421 -------------------------------------------------------------------------------- Total current assets 41,028,796 12,145,854 - 53,174,650 Property and equipment, net of accumulated depreciation and amortization 3,211,271 1,108,267 447,491 4,767,029 Goodwill and intangibles, net 5,991,784 2,101,438 3,336,264 11,429,486 Other assets 8,257 88,439 96,696 -------------------------------------------------------------------------------- Total assets $ 50,240,108 $ 15,443,998 $ 3,783,755 $ 69,467,861 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion - notes payable $ 2,000,000 $ 2,083,923 $ - $ 4,083,923 Current portion - capital lease obligation 118,978 - 118,978 Accounts payable and accrued expenses 18,877,132 5,536,221 327,795 24,741,148 Subordinated note payable, related party 2,114,798 - 2,114,798 -------------------------------------------------------------------------------- Total current liabilities 23,110,908 7,620,144 327,795 31,058,847 Capital lease obligation, related party and other liabilities 2,278,395 - 2,278,395 Notes payable 21,157,292 4,314,823 499,766 25,971,881 Commitments and contingencies Stockholders equity: Preferred stock - 499,766 (499,766) - Common stock 114,881 1,000 14,000 129,881 Additional paid in capital 8,003,046 - 6,450,225 14,453,271 Cumulative translation adjustment (32,849) - (32,849) Retained earnings (accumulated deficit) (4,177,748) 3,008,265 (3,008,265) (4,177,748) -------------------------------------------------------------------------------- 3,907,330 3,509,031 2,956,194 10,372,555 Less: Treasury stock, at cost 213,817 - 213,817 -------------------------------------------------------------------------------- 3,693,513 3,509,031 2,956,194 10,158,738 -------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 50,240,108 $ 15,443,998 $ 3,783,755 $ 69,467,861 ================================================================================
37 GLOBAL SPORTS, INC. AND THE GEN-X COMPANIES NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS -------------------------------------------------------------------------- NOTE 1. PRO FORMA ADJUSTMENTS A. In consideration for acquiring the stock of Gen-X Holdings Inc. and it's wholly owned subsidiaries, the Company issued 1.5 million shares of it's common stock and contingent consideration in the form of noninterest-bearing notes and shares of mandatorily redeemable preferred stock in the aggregate of $5 million. The notes and shares are payable or redeemable at $1 million per year over a 5-year period upon achieving certain sales and gross profit targets. In consideration for acquiring the stock of Gen-X Equipment, Inc., the Company issued $1,350,000 of contingent subordinated promissory notes. B. The total purchase price, including acquisition expenses of $327,795 but excluding the contingent consideration described above, was $6,793,020. This purchase price is based on the 10-day average market price of the 1.5 million shares discounted to reflect that these shares represent a large block of the Company's stock. The preliminary purchase price allocation is as follows:
As of May 12, 1998 -------------------------- Property, plant and equipment....................... $ 447,491 Goodwill............................................ 6,644,083 -------------------------- Total fair value adjustments........................ 7,091,574 Carrying amount of net assets acquired.............. (298,554) -------------------------- Aggregate purchase price............................ $ 6,793,020 ==========================
C. Amortization expense related to incremental goodwill was recorded assuming a 20-year amortization period. D. Depreciation expense resulting from fair value adjustments to property, plant and equipment were recorded assuming a 30-year depreciable life. E. Adjustments have been made to SG&A expenses to eliminate two $1 million bonuses paid to senior management of the Gen-X Companies in 1997 and 1998 which are not expected to reoccur in the future. F. Income tax expense adjustments are computed at the statutory tax rates relative to the originating country. G. The effect of cost saving and sale synergies expected to be realized as a result of the acquisition have not been reflected in pro forma financial information. 38 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, hereunto duly authorized. GLOBAL SPORTS, INC. --------------------------------- (Registrant) DATE: February 8, 1999 BY: /s/ Michael G. Rubin -------------------------- Michael G. Rubin Chief Executive Officer DATE: February 8, 1999 BY: /s/ Steven A. Wolf -------------------------- Steven A. Wolf Vice President of Finance & Chief Financial Officer 39 -----END PRIVACY-ENHANCED MESSAGE-----