<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A3
------------------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported):
DECEMBER 31, 1997
------------------------
WHEELS SPORTS GROUP, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 0-22321 56-2007717
(State of Incorporation) (Commission File No.) (I.R.S. Employer
Identification No.)
149 GASOLINE ALLEY
MOORESVILLE, NORTH CAROLINA 28115
(Address of principal executive offices)
(704) 662-6442
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
This amendment to Form 8-K is being filed subsequent to the date on
which it was required to be filed. As a result of such delay, the Registrant
is able to include historical financial statements and pro forma financial
information which are as of December 31, 1997 and for the year then ended. (If
this Amendment had been timely filed, the Registrant believes that financial
statements and pro forma information for the period September 30, 1997 would
have been filed.)
(a) In accordance with Item 7(a) of Form 8-K, the Registrant
hereby files the required audited financial statements of
Press Pass Partners.
(b) In accordance with Item 7(b) of Form 8-K, the Registrant
hereby files required unaudited proforma financial information
with respect to the Registrant and Press Pass Partners. The
proforma information also includes the acquisition of High
Performance Sports Marketing, Inc. ("High Performance") which
was completed on October 24, 1997.
(c) The following exhibits are furnished herewith in accordance
with the provisions of Item 601 of Regulation S-B:
Reg. S-K
Exhibit No. Description
Item No.
* 2.4 Merger Agreement and Plan of Reorganization among SM 2
Acquisition Company, J/B Acquisition Company, Wheels
Sports Group, Inc., Synergy Marketing, Inc. and J/B
Press Pass, Inc., dated October 3, 1997.
o 2.4.1 Amendment to Merger Agreement and Plan of Reorganization 2
among SM Acquisition Company, J/B Acquisition Company,
Wheels Sport Group, Inc., Synergy Marketing, Inc. and J/B
Press Pass, Inc., dated December 29, 1997.
o 2.4.2 Registration Rights Agreement, dated December 31, 1997, 2
by and among the Company and the shareholders of the
partners of Press Pass.
o 10.1.12 Employment Agreement, dated October 3, 1997 and effective 10
December 31, 1997, by and between Victor Shaffer and
the Company.
o 10.1.13 Employment Agreement, dated October 3, 1997 and effective 10
December 31, 1997, by and between Robert Bove and the
Company.
2
<PAGE> 3
o 10.15.4 Form of Promissory Note, issued in the aggregate principal 10
amount of $1,000,000, dated December 31, 1997, from the
Company to shareholders of Synergy Marketing, Inc. and J/B
Press Pass, Inc.
+ 10.16.1 Credit Agreement, dated December 31, 1997, among the 10
Company and Credit Agricole Indosuez, as agent, and the
lending institutions named therein.
+ 10.16.2 Warrant, dated December 29, 1997, granted by the Company to 10
Credit Agricole Indosuez, to purchase up to 509,358 shares
of Common Stock.
# 99.5 Financial Statements of Press Pass Partners.
# 99.6 Proforma Financial Information of Press Pass Partners and the
Registrant.
* Filed with the Company's Form 8-K on October 17, 1997.
o Filed with the Company's Form 8-K on January 15, 1998.
+ Filed with the Company's Form 8-K on February 3, 1998.
# Filed herewith.
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.
WHEELS SPORTS GROUP, INC.
Date: April 22, 1998 By: /s/ F. Scott M. Chapman
--------------------------------
F. Scott M. Chapman,
Chief Financial Officer
3
<PAGE> 4
EXHIBIT LIST
<TABLE>
<CAPTION>
Reg. S-K
Exhibit No. Description Item No.
- ----------- ----------- --------
<S> <C> <C>
* 2.4 Merger Agreement and Plan of Reorganization among SM Acquisition 2
Company, J/B Acquisition Company, Wheels Sports Group, Inc.,
Synergy Marketing, Inc. and J/B Press Pass, Inc., dated
October 3, 1997.
o 2.4.1 Amendment to Merger Agreement and Plan of Reorganization 2
among SM Acquisition Company, J/B Acquisition Company,
Wheels Sport Group, Inc., Synergy Marketing, Inc. and
J/B Press Pass, Inc., dated December 29, 1997.
o 2.4.2 Registration Rights Agreement, dated December 31, 1997, by and 2
among the Company and the shareholders of the partners of Press
Pass.
o 10.1.12 Employment Agreement, dated October 3, 1997 and effective 10
December 31, 1997, by and between Victor Shaffer and the Company.
o 10.1.13 Employment Agreement, dated October 3, 1997 and effective 10
December 31, 1997, by and between Robert Bove and the Company.
o 10.15.4 Form of Promissory Note, issued in the aggregate principal 10
amount of $1,000,000, dated December 31, 1997, from the Company to
shareholders of Synergy Marketing, Inc. and J/B Press Pass, Inc.
+ 10.16.1 Credit Agreement, dated December 31, 1997, among the Company 10
and Credit Agricole Indosuez, as agent, and the lending
institutions named therein.
+ 10.16.2 Warrant, dated December 29, 1997, granted by the Company to 10
Credit Agricole Indosuez, to purchase up to 509,358 shares of
Common Stock.
# 99.5 Financial Statements of Press Pass Partners.
# 99.6 Proforma Financial Information of Press Pass Partners and
the Registrant.
</TABLE>
* Filed with the Company's Form 8-K on October 17, 1997.
o Filed with the Company's Form 8-K on January 15, 1998.
+ Filed with the Company's Form 8-K on February 3, 1998.
# Filed herewith.
4
<PAGE> 1
EXHIBIT 99.5
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
PRESS PASS PARTNERS
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Balance Sheets as of December 31, 1997 and 1996 . . . . . . . . . . . . . . . . . . . . . . . F-2
Statements of Revenues, Expenses and Changes in Partners' Capital
for the years ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Cash Flow for years ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . F-4
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
</TABLE>
<PAGE> 2
INDEPENDENT AUDITOR'S REPORT
To the Partners of
Press Pass Partners
We have audited the accompanying balance sheets of Press Pass Partners as
of December 31, 1997 and 1996, and the related statements of revenue and
expenses and changes in partners' capital and cash flows for the years ended
December 31, 1997, 1996 and 1995. These financial statements are the
responsibility of 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 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 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 Press Pass Partners 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.
CHESHIER & FULLER, L.L.P.
Dallas, Texas
February 6, 1998
F-1
<PAGE> 3
PRESS PASS PARTNERS
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 186,667 $ 905,546
Accounts and notes receivable-trade, net of allowance for
doubtful accounts of $336,118 and $100,000,
respectively........................................... 866,818 1,433,878
Inventories............................................... 183,232 140,168
Prepaid expenses.......................................... 118,467 69,858
Other current assets...................................... 19,330 --
---------- ----------
1,374,514 2,549,450
Property and equipment, net of accumulated depreciation... 57,618 50,939
Organizational costs, net of accumulated amortization of
$48,478 and $37,680, respectively...................... 1,355 12,152
Receivable from related party............................. 637,427 --
Other assets.............................................. 2,876 5,876
---------- ----------
Total Assets.............................................. $2,073,790 $2,618,417
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Checks drawn against money market funds................... $ 90,220 $ 38,639
Accounts payable.......................................... 487,671 546,903
Accrued payroll and payroll taxes......................... 112,299 41,018
Royalties payable......................................... 138,449 73,335
Reserve for returns....................................... 695,093 584,571
Other accrued liabilities................................. 20,715 40,262
---------- ----------
1,544,447 1,324,728
Commitments and contingencies
Partners' capital........................................... 529,343 1,293,689
---------- ----------
Total Liabilities and Partners' Capital................... $2,073,790 $2,618,417
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE> 4
PRESS PASS PARTNERS
STATEMENTS OF REVENUES, EXPENSES
AND CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net revenues............................................ $ 8,662,193 $7,337,104 $4,805,289
Cost of goods sold...................................... 5,625,664 4,639,285 2,648,671
----------- ---------- ----------
Gross profit............................................ 3,036,529 2,697,819 2,156,618
Selling, general and administrative expenses............ 2,556,415 1,850,200 1,631,920
----------- ---------- ----------
Net operating income.................................... 480,114 847,619 524,698
Other income (expense).................................. 92,228 112,243 127,331
----------- ---------- ----------
Net income.............................................. 572,342 959,862 652,029
Partners' capital, beginning of year.................... 1,293,689 472,257 (179,772)
Capital distributions................................... (1,336,688) (138,430) --
----------- ---------- ----------
Partners' capital, end of year.......................... $ 529,343 $1,293,689 $ 472,257
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 5
PRESS PASS PARTNERS
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income.............................................. $ 572,342 $ 959,862 $ 652,029
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation......................................... 25,542 18,302 15,731
Loss on disposal of property and equipment........... -- -- 195
Provision for bad debts.............................. 236,118 74,617 91,327
Change in assets and liabilities
(Increase) decrease in assets
Accounts receivable -- trade....................... 330,940 (736,946) (342,133)
Inventories........................................ (43,064) 103,057 219,806
Prepaid expenses................................... (48,608) (22,283) 6,902
Other assets....................................... 10,797 10,843 10,107
Increase (decrease) in liabilities
Accounts payable................................... (59,232) (51,400) (173,885)
Accrued payroll and payroll taxes.................. 71,282 1,450 12,722
Customer deposits.................................. -- (8,862) (3,637)
Other accrued liabilities.......................... 156,088 199,110 (94,804)
----------- --------- ---------
Net cash provided (used) by operating
activities.................................... 1,252,205 547,750 394,360
----------- --------- ---------
Cash flows from investing activities
Advances to related parties............................. (653,757) -- --
Purchases of property and equipment..................... (32,221) (17,799) (3,912)
----------- --------- ---------
Net cash provided (used) by investing
activities.................................... (685,978) (17,799) (3,912)
----------- --------- ---------
Cash flows from financing activities
Checks drawn against money market funds................. 51,582 (90,602) 91,301
Capital distributions................................... (1,336,688) (138,430) --
----------- --------- ---------
Net cash provided (used) by financing
activities.................................... (1,285,106) (229,032) 91,301
----------- --------- ---------
Net increase (decrease) in cash and cash equivalents...... (718,879) 300,919 481,749
Cash and cash equivalents at beginning of period.......... 905,546 604,627 122,878
----------- --------- ---------
Cash and cash equivalents at end of period................ $ 186,667 $ 905,546 $ 604,627
=========== ========= =========
Supplemental schedule of cash flow information
Cash paid during the year for:
Interest............................................. $ 60 $ -- $ --
=========== ========= =========
Income taxes......................................... $ -- $ -- $ --
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 6
PRESS PASS PARTNERS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS:
Press Pass Partners ("Press Pass"), a Delaware general partnership was
formed January 1, 1994 and is the successor in interest to Press Pass L.P., a
Delaware limited partnership. Press Pass manufactures and distributes sports
trading cards depicting professional race car drivers and draft pick basketball
and football players. Such products include statistical and biographical
information. Press Pass has licenses pursuant to which they presently produce
and market the trading cards. Press Pass also distributes sports memorabilia
extending from autographs to pieces from race cars.
The partnership agreement provides, among other things, for the allocation
of net income or loss. Those allocations are based upon various factors
including the amount of capital contributions plus a specified internal rate of
return. Distributions to partners are based upon an allocation method similar to
that for allocations of net income or loss.
Press Pass grants credit to customers throughout the United States and
Canada.
ACCOUNTING ESTIMATES:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATION:
Certain amounts have been reclassified to conform with current year
presentation.
INVENTORIES:
Inventories are recorded at the lower of cost, as determined by the
weighted average method, or market.
Trading cards are generally produced to correspond to a certain event, year
or sports season. As a result, once the marketing time frame has passed, the
cards have little or no marketability. Accordingly, at December 31, 1997,
inventory of trading cards related to 1997 and prior has been written down to
their estimated net realizable value, and results of operations for 1997 include
a corresponding charge of approximately $688,000. Similar write downs of
approximately $131,000 and $347,500 were charged to 1996 and 1995 results of
operations, respectively.
INCOME TAXES:
Income taxes are not payable by or provided for at the partnership level.
Partners report their proportionate share of partnership taxable income or loss
in their respective tax returns.
ORGANIZATION COSTS:
Organization costs are amortized under the straight-line method over a period of
5 years.
F-5
<PAGE> 7
PRESS PASS PARTNERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
REVENUE RECOGNITION:
Sales of certain card products require partial or full deposits from
customers. Revenue is recognized when the product is shipped. Revenues are shown
net of discounts and estimated sales returns. Estimated returns are accrued in
the period in which the related sales are recorded.
COST OF SALES:
Cost of sales includes prepress, materials, printing, production, slitting,
packaging, and royalties. Estimated royalties are accrued in the period in which
the related sales are recorded. Royalties are paid primarily to drivers, their
representatives, team owners, and other organizations.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation is provided using
various accelerated methods over estimated useful lives ranging from 3 to 7
years.
Expenditures for maintenance and repairs are charged to operations as
incurred. Expenditures for betterments and major renewals are capitalized. The
cost of assets sold or retired and the related amounts of accumulated
depreciation are eliminated from the accounts in the year of disposal and the
resulting gains or losses are included in operations.
CASH AND CASH EQUIVALENTS:
For purposes of the statement of cash flows, Press Pass considers all
interest bearing accounts and highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents. Cash and cash
equivalents consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash..................................................... $ 44,186 $ 4,709
Money market funds (uninsured)........................... 142,481 900,837
-------- --------
$186,667 $905,546
======== ========
</TABLE>
CONCENTRATION OF CREDIT RISK
Concentration of credit risk is limited to trade accounts receivable and is
subject to the financial conditions of certain major customers. No customer
accounted for more than 10% of net sales during the years ended December 31,
1997 and 1995. One major customer accounted for 18% during the year ended
December 31, 1996. Three major customers accounted for 31% and 16% of accounts
receivable at December 31, 1997 and 1996, respectively. The Company does not
require collateral or other security to support customer receivables. The
Company conducts periodic reviews of its customers' financial conditions and
vendor payment practices to minimize collection risks on trade accounts
receivable.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of cash, receivables, checks drawn against money
market funds, accounts payable and accrued liabilities approximate fair value
because of the short-term nature of the items.
F-6
<PAGE> 8
PRESS PASS PARTNERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
2. MERGER
On December 31, 1997, Wheels Sports Group, Inc. ("Wheels") acquired the
assets and business of Press Pass through a transaction in which Press Pass' two
corporate partners were merged into two newly formed subsidiaries of Wheels.
Wheels is engaged in merchandising NASCAR oriented products, including apparel,
collectible trading cards and accessories, and providing motor sports-related
hospitality management and corporate promotions. The offices of Press Pass are
being relocated to Mooresville, North Carolina, the headquarters of Wheels.
On December 4, 1997, Wheels signed a definitive agreement to merge with
Racing Champions Corporation ("RCC"), a publicly held Delaware corporation
headquartered in Glen Ellyn, Illinois. RCC is a producer and marketer of
collectible scaled die cast vehicle replicas. The transaction is scheduled to
close during the second quarter of 1998.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Work-in-process.......................................... $153,067 $108,080
Finished goods........................................... 30,165 32,088
-------- --------
$183,232 $140,168
======== ========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Office equipment......................................... $111,194 $ 83,121
Furniture and fixtures................................... 20,190 19,325
Leasehold improvements................................... 5,419 5,419
-------- --------
136,803 107,865
Accumulated depreciation................................. 79,185 56,926
-------- --------
$ 57,618 $ 50,939
======== ========
</TABLE>
Depreciation expense was $25,542 and $18,302, and $15,700 for the years
ended December 31, 1997, 1996, and 1995, respectively.
5. COMMITMENTS AND CONTINGENCIES
LICENSING AGREEMENTS:
Memorabilia and trading card sales are permitted under licensing agreements
with the individual race car drivers and with organizations holding licenses
with basketball and football players. The agreements typically call for royalty
payments based on a percentage of net card sales (based on the regular wholesale
price of the cards less discounts, allowances and actual returns). Certain
agreements also call for guaranteed minimum annual payments. The impact on net
sales, operating income, and cash flows due to a loss of any of these
F-7
<PAGE> 9
PRESS PASS PARTNERS
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1997 AND 1996
contracts could be significant. Press Pass' current licensing agreements expire
at various dates through 2000. Most agreements contain options to renew. Future
guaranteed minimum royalty payments are as follows:
<TABLE>
<S> <C>
1998...................................................... $616,000
1999...................................................... 81,500
2000...................................................... 50,000
--------
$747,500
========
</TABLE>
OPERATING LEASES:
Press Pass leases office space and equipment under various operating
leases. During the years ended December 31, 1997, 1996, and 1995, Press Pass
incurred rental expense of approximately $63,000, $61,000, and $32,000,
respectively. Future minimum lease payments under these leases are as follows:
<TABLE>
<S> <C>
1998....................................................... $57,580
1999....................................................... 3,920
-------
$61,500
=======
</TABLE>
PREFERRED RETURN:
Under the terms of the partnership agreement, Press Pass has agreed to
provide a preferred return on the capital contributions at a rate of 14%
compounded daily. Payments of the preferred return are contingent upon the
partnership having sufficient cash available from operations to make these
payments. Payment of the preferred return will be made only after Press Pass has
returned total capital contributions to the partners.
LITIGATION:
Press Pass is involved in various legal matters in the normal course of
business. In the opinion of management and outside counsel, none of these
matters should have a material adverse effect on the financial position of Press
Pass.
RESERVE FOR INVENTORY RETURNS:
At December 31, 1997, Press Pass had a reserve for returns of approximately
$695,000. Management's estimate of this reserve is based upon historical trends,
industry trend and specific evaluation of risks associated with customer
accounts. It is reasonably possible that a change in this estimate could occur
in the near term. Management believes that returns will not exceed this
estimate, and if so, they will not have a material adverse impact on the
financial position of Press Pass.
6. RELATED PARTY TRANSACTIONS
Press Pass has advances of $637,427 receivable from Wheels. The advances
are unsecured and non-interest bearing.
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In early 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." These statements are
effective for periods beginning after December 15, 1997. Adoption of these
statements is not expected to have a material impact on the financial statements
of Press Pass.
F-8
<PAGE> 1
EXHIBIT 99.6
PRO FORMA COMBINED BALANCE SHEET
DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 440
Restricted cash ................................... 3,300
Accounts receivable, net .......................... 1,248
Inventory ......................................... 2,711
Other current assets .............................. 575
--------
Total current assets ......................... 8,274
Property & equipment, net ............................. 1,512
Excess purchase price over net assets acquired, net 17,205
--------
Deferred financing costs .......................... 1,680
Other assets ...................................... 129
--------
Total assets ................................. $ 28,800
========
LIABILITIES & STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses ............. $ 4,251
Due to stockholders/officers ...................... 5,250
Notes payable ..................................... 2,230
Current maturities of long term debt .............. 266
Other current liabilities ......................... 622
--------
Total current liabilities .................... 12,619
Long term portion of capital leases ............... 10
Long term debt, less current maturities ........... 7,727
Debt discount ..................................... (1,647)
--------
Total liabilities ............................ 18,709
STOCKHOLDERS' EQUITY:
Common stock ...................................... 52
Warrants outstanding .............................. 2,376
Additional paid in capital ........................ 14,542
Retained earnings (accumulated deficit) ........... (6,879)
--------
Total stockholders' equity ................... 10,091
--------
Total liabilities & stockholders' equity ..... $ 28,800
========
</TABLE>
<PAGE> 2
PRO FORMA COMBINED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMPANIES ACQUIRED
HISTORICAL --------------------------------------- TOTAL
----------- HIGH PRESS PRO FORMA PRO FORMA
WHEELS PERFORMANCE PASS ADJUSTMENTS(1) COMBINED
----------- ----------- ----- -------------- ---------
<S> <C> <C> <C> <C> <C>
Net sales .................................. $ 7,491 $ 12,890 $ 8,662 $ -- $ 29,043
Cost of sales .............................. 6,765 9,913 5,626 -- 22,304
Gross profit ............................... 726 2,977 3,036 -- 6,739
Selling, general & administrative expense .. 5,964 3,340 2,464 -- 11,768
Amortization of intangible assets .......... -- -- -- 431(2) 431
Operating income ........................... (5,238) (363) 572 (431) (5,460)
Interest expense (income) .................. 94 26 -- 1,519(3) 1,639
Other expense .............................. -- -- -- --
Income before income taxes ................. (5,332) (389) 572 (1,950) (7,099)
Income tax expense (benefit) ............... -- -- -- (534)(4) (534)
Net income (loss) from continuing operations (5,332) (389) 572 (1,416) (6,565)
Discontinued operations .................... 1,460 -- -- -- 1,460
-------- -------- -------- -------- --------
Net income (loss) .......................... $ (6,792) $ (389) $ 572 $ (1,416) $ (8,025)
======== ======== ======== ======== ========
</TABLE>
- -----------------------
(1) Pro forma adjustments reflect the purchases of High Performance and Press
Pass as if the purchases were made on January 1, 1997.
(2) Provides for the pro forma increase from January 1, 1997 in amortization
expense based on amortizing the goodwill associated with the purchases of
High Performance and Press Pass of $17.2 million over 40 years.
(3) Reflects the effect on interest expense of the incurrence of $4.9 million
in debt to effect the High Performance acquisition and $4.8 in debt to
effect the Press Pass acquisition. $7.7 million of the debt used to finance
these acquisitions bears interest at the London Interbank Offering Rate
plus 3.0%, or approximately 8.8% for the year ended December 31, 1997, $1.0
million of the debt bears interest at 8.0% and the other $1.0 million of
debt bears interest at 10.0%. This amount also includes $0.3 million for
amortization of deferred financing costs of $1.6 million and $0.3 million
for amortization of debt discount of $1.6 million incurred to obtain
financing to effect the acquisitions of High Performance and Press Pass.
(4) Reflects the net tax benefit available to the total combined company's
income from the net operating loss of High Performance, offset by the tax
expense on the income of Press Pass, at an effective rate of 40.0%, after
adjustments for interest as noted in note 3 above.
