<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K\A2
----------------
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported):
OCTOBER 24, 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 2. ACQUISITION OR DISPOSITION OF ASSETS
On October 3, 1997, Wheels Sports Group, Inc. (the "Company") entered
into an Agreement and Plan of Reorganization (the "Agreement") with High
Performance Sports Marketing, Inc., a North Carolina corporation ("High
Performance"). The Agreement, as amended October 24, 1997, November 26, 1997
and December 17, 1997, provides for the merger of High Performance with and into
a wholly-owned subsidiary of the Company formed for the sole purpose of
completing the merger (the "HP Subsidiary"). The merger was completed on
October 24, 1997, on the terms set forth below (substantially as disclosed in
the Company's Form 8-K as filed on October 17, 1997).
The consideration paid by the Company pursuant to the Agreement
consisted of cash in the amount of $1,672,000 (the "Initial Cash Payment");
444,445 shares of the Company's Common Stock; and promissory notes in the
aggregate principal amount of $1 million (the "Notes"). The Company was
obligated to make an additional cash payment of $3.25 million at the time of
closing (the "Final Cash Payment"). Effective as of December 17, 1997, the
Final Cash Payment date was extended to April 30, 1998 in consideration of an
agreement by certain principal shareholders of Wheels (the "Pledgors") to pay
the former High Performance shareholders (the "Sellers") an additional $250,000
(the "Extension Consideration") plus certain expenses incurred by Sellers in
connection with the transaction. The Pledgors also pledged certain shares of
the Company's Common Stock owned by them to secure the Final Cash Payment. The
parties are currently negotiating an additional extension of the Final Cash
Payment.
All principal and accrued interest under the Notes are due on October
24, 1998, subject to prepayment at the Company's option. The Notes are
unsecured and bear interest at the rate of 10% per annum. The shares of Common
Stock were issued without registration under the Act, and the Company granted
"piggyback" registration rights to the holders of the Common Stock. The
Company has entered into employment agreements with two High Performance
officers, Randy C. Baker and David W. Dupree.
In order to fund the Initial Cash Payment, the Company obtained a
$1,672,000 unsecured bank loan on October 24, 1997. As disclosed in the
Company's Form 8-K as filed on January 15, 1998, the Company has obtained a
long- term financing and a portion of the proceeds refinanced the short-term
bank loan. Morgan Keegan & Company, Memphis, Tennessee, served as an advisor
to the Company in obtaining the financing.
FORWARD LOOKING STATEMENTS
The statements contained in this report that are not purely historical
are forward looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including statements regarding the Company's expectations, hopes, intentions or
strategies regarding the future. Forward looking statements include
expectations of trends to continue through the remainder of the year. Forward
looking
2
<PAGE> 3
statements involve a number of risks and uncertainties. Among other factors
that would cause actual results to differ materially are the following: business
conditions and growth in the markets for collectible sports trading cards and
other NASCAR related merchandise; competitive factors, such as the entry of new
competitors into the NASCAR trading card and merchandise markets; the loss of
license agreements with certain NASCAR drivers or team owners; inventory risks
due to shifts in market demand; changes in product mix; and the risk factors
listed from time to time in the Company's SEC reports, including but not limited
to the Company's reports on Form 10-QSB, 8-K, 10-KSB, Annual Reports to
Shareholders, and reports or other documents filed pursuant to the Securities
Act of 1933 or the Securities Exchange Act of 1934. All forward looking
statements included herein are based on information available to the Company on
the date hereof, and the Company assumes no obligation to update any such
forward looking statements. It is important to note that the Company's actual
results could differ materially from those in such forward looking statements
due to the factors cited above. As a result of these factors, there can be no
assurance the Company will not experience material fluctuations in future
operating results on a quarterly or annual basis, which would materially and
adversely affect the Company's business, financial condition and results of
operations.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
This amendment to Form 8-K is being filed subsequent to the date 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 and 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 audited financial statements of High Performance Sports Marketing,
Inc.
(b) In accordance with Item 7(b), the Registrant hereby files unaudited
proforma financial information with respect to the Registrant and High
Performance Sports Marketing, Inc. The proforma information also
includes the acquisition of Press Pass Partners ("Press Pass") which
was completed on December 31, 1997.
(c) The following exhibits are furnished herewith in accordance with the
provisions of Item 601 of Regulation S-B:
<TABLE>
<CAPTION>
Reg. S-K
Exhibit No. Description Item No.
- ----------- ----------- --------
<S> <C> <C>
+ 2.4 Agreement and Plan of Reorganization among Wheels Sports 2
Group, Inc., High Performance Acquisition Company, High
Performance Sports Marketing, Inc., Randy C. Baker and
David W. Dupree dated October 3, 1997.
</TABLE>
3
<PAGE> 4
<TABLE>
<S> <C> <C>
* 2.5.1 First Amendment to Agreement and Plan of Reorganization 2
among Wheels Sport Group, Inc., High Performance Acquisition
Company, High Performance Sports Marketing, Inc., Randy C.
Baker and David W. Dupree dated October 24, 1997.
# 2.5.2 Second Amendment to Agreement and Plan of Reorganization 2
among Wheels Sport Group, Inc., High Performance Acquisition
Company, High Performance Sports Marketing, Inc., Randy C.
Baker and David W. Dupree dated November 26, 1997.
# 2.5.3 Third Amendment to Agreement and Plan of Reorganization among 2
Wheels Sport Group, Inc., High Performance Acquisition
Company, High Performance Sports Marketing, Inc., Randy C.
Baker and David W. Dupree dated December 17, 1997.
* 10.1.8 Employment Agreement dated October 3, 1997, by and between 10
Randy C. Baker and the Company.
* 10.1.9 Employment Agreement dated October 3, 1997, by and between 10
David W. Dupree and the Company.
* 10.9.4 Lease Agreement dated March 1, 1997, by and between 10
Beale Street Realty, LLC as landlord and High Performance
Sports Marketing, Inc. as tenant.
* 10.15.1 Promissory Note in the principal amount of $850,000 dated 10
October 24, 1997, from the Company to Randy C. Baker.
* 10.15.2 Promissory Note in the principal amount of $150,000 dated 10
October 24, 1997, from the Company to David W. Dupree.
* 10.15.3 Promissory Note in the principal amount of $1,672,000 from 10
the Company to Peoples Bank.
# 99.3 Financial Statements of High Performance Sports Marketing, 99
Inc.
# 99.4 Proforma Financial Information of High Performance Sports 99
Marketing, Inc. and the Registrant.
</TABLE>
+ Filed with the Company's Form 8-K on October 17, 1997.
* Filed with the Company's Form 8-K on November 7, 1997.
# Filed herewith.
4
<PAGE> 5
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
5
<PAGE> 6
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S><C> <C>
+ 2.4 Agreement and Plan of Reorganization among Wheels Sports Group,
Inc., High Performance Acquisition Company, High Performance
Sports Marketing, Inc., Randy C. Baker and David W. Dupree
dated October 3, 1997.
* 2.5.1 First Amendment to Agreement and Plan of Reorganization among
Wheels Sports Group, Inc., High Performance Acquisition
Company , High Performance Sports Marketing, Inc., Randy C.
Baker and David W. Dupree dated October 24, 1997.
# 2.5.2 Second Amendment to Agreement and Plan of Reorganization among
Wheels Sports Group, Inc., High Performance Acquisition
Company, High Performance Sports Marketing, Inc., Randy C.
Baker and David W. Dupree dated November 26, 1997.
# 2.5.3 Third Amendment to Agreement and Plan of Reorganization among
Wheels Sports Group, Inc., High Performance Acquisition
Company, High Performance Sports Marketing, Inc., Randy C.
Baker and David W. Dupree dated December 17, 1997.
* 10.1.8 Employment Agreement dated October 3, 1997, by and between
Randy C. Baker and the Company.
* 10.1.9 Employment Agreement dated October 3, 1997, by and between
David W. Dupree and the Company.
* 10.9.4 Lease Agreement dated March 1, 1997, by and between Beale
Street Realty, LLC as landlord and High Performance Sports
Marketing, Inc. as tenant.
* 10.15.1 Promissory Note in the principal amount of $850,000 dated
October 24, 1997, from the Company to Randy C. Baker.
* 10.15.2 Promissory Note in the principal amount of $150,000 dated
October 24, 1997, from the Company to David W. Dupree.
* 10.15.3 Promissory Note in the principal amount of $1,672,000 from the
Company to Peoples Bank.
# 99.3 Financial Statements of High Performance Sports Marketing, Inc.
# 99.4 Proforma Financial Statements of High Performance Sports
Marketing, Inc. and the Registrant.
</TABLE>
+ Filed with the Company's Form 8-K on October 17, 1997.
* Filed with the Company's Form 8-K on November 7, 1997.
# Filed herewith.
<PAGE> 1
EXHIBIT 2.5.2
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION
THIS SECOND AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION (the
"Second Amendment") is made and entered into effective as of November 26, 1997,
by and among WHEELS SPORTS GROUP, INC., a North Carolina corporation
("Parent"), HP ACQUISITION COMPANY, a North Carolina corporation ("HPAC"), HIGH
PERFORMANCE SPORTS MARKETING, INC., a North Carolina corporation ("High
Performance"), RANDY C. BAKER and DAVID W. DUPREE (together, the
"Shareholders").
Statement of Purpose
Parent, HPAC, High Performance and the Shareholders are parties to
that certain Agreement and Plan of Reorganization dated as of October 3, 1997
and as amended on October 24, 1997 (as amended, the "Agreement") and desire to
enter into this Second Amendment to amend certain provisions of the Agreement.
All capitalized terms used and not otherwise defined in this Second Amendment
have the meaning assigned to them in the Agreement.
Therefore, the parties hereto agree as follows:
A. Amendment to Agreement. The following amendment to the
Agreement is effective as of the date of this Second Amendment:
1. Modification of Cash Payment Date. The Cash Payment Date
specified in Section 2.6(b) is hereby amended to be no later than December 12,
1997.
B. Miscellaneous.
1. Ratification of Agreement. Other than as expressly modified
by this Second Amendment, all terms of the Agreement are hereby affirmed and
ratified.
2. Counterparts. This Second Amendment may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3. Governing Law. This Second Amendment shall be governed by the
laws of the State of North Carolina applicable to agreements made and to be
performed entirely within North Carolina.
The parties have executed and delivered this Second Amendment as of
the date first written above.
WHEELS SPORTS GROUP, INC.
By: /s/ Howard L. Correll
--------------------------------
Howard L. Correll, President
<PAGE> 2
HP ACQUISITION COMPANY
By: /s/ Howard L. Correll
-----------------------------------
Howard L. Correll, President
HIGH PERFORMANCE SPORTS MARKETING, INC.
By: /s/ Randy C. Baker
-----------------------------------
Randy C. Baker, President
SHAREHOLDERS
By: /s/ Randy C. Baker
-----------------------------------
Randy C. Baker
By: /s/ David W. Dupree
-----------------------------------
David W. Dupree
-2-
<PAGE> 1
EXHIBIT 2.5.3
THIRD AMENDMENT TO
AGREEMENT AND PLAN OF REORGANIZATION
THIS THIRD AMENDMENT TO AGREEMENT AND PLAN OF REORGANIZATION (the
"Third Amendment") is made and entered into effective as of December 17, 1997,
by and among WHEELS SPORTS GROUP, INC., a North Carolina corporation
("Parent"), High Performance Sports Marketing, Inc., a North Carolina
corporation (formerly HP ACQUISITION COMPANY) ("HPAC"), RANDY C. BAKER
("Baker"), DAVID W. DUPREE ("Dupree") (Baker and Dupree are hereinafter the
"Shareholders"), HOWARD L. CORRELL, JR. ("Correll"), RANDY E. DUNCAN ("RED"),
TERRY J. POWELL ("TJP"), and W. CONRAD POWELL ("WCP") (Correll, RED, TJP and
WCP are hereinafter the "Obligors").
Statement of Purpose
Parent, HPAC, HIGH PERFORMANCE SPORTS MARKETING, INC., a North
Carolina corporation ("High Performance") and the Shareholders are parties to
that certain Agreement and Plan of Reorganization dated as of October 3, 1997
and as amended on October 24, 1997 and November 26, 1997 (as amended, the
"Agreement") and desire to enter into this Third Amendment to amend certain
provisions of the Agreement. The Obligors are principal shareholders of Parent
and will receive substantial and direct benefits from the consummation of the
transactions contemplated by the Agreement and would suffer direct financial
detriment from the unwinding of the results of the Agreement. All capitalized
terms used and not otherwise defined in this Third Amendment have the meaning
assigned to them in the Agreement.
Therefore, the parties hereto agree as follows:
A. Amendments to Agreement. The following amendments to the
Agreement are effective as of the date of this Third Amendment:
1. Financing with Credit Agricole Indosuez. Shareholders hereby
release and terminate the Pledge Agreement effective as of October 24, 1997
between Parent and Shareholders and the pledge of the Pledged Securities (as
defined therein) to allow for the proposed financing by Parent with Credit
Agricole Indosuez (the "Financing"). Within seven (7) days of the completion
of the current audit of High Performance, Parent agrees to cause proceeds from
the Financing to be used to satisfy in full all obligations of Parent or HPAC
to Peoples Bank. Additionally, upon satisfaction of the requirements for the
release of the Escrowed Amount (as defined in the Financing documents) pursuant
to the terms of the Financing, the Cash Payment, plus accrued interest at no
less than the federal funds rate in effect from time to time (hereinafter for
purposes of this Third Amendment the "Cash Payment"), shall be promptly paid to
the Shareholders.
2. Modification of Cash Payment Provisions.
(a) Subject to the terms herein, Section 2.6(b) is
amended to provide that (i) on the earliest of the various dates at
which the Escrowed Amount may be released to the Shareholders (the
"Cash Payment Date"), Parent shall pay the Cash Payment to the
Shareholders and (ii) on or before April 30, 1998, the Obligors shall
jointly and severally be obligated to pay $250,000 cash (the
"Extension Consideration") to the Shareholders, with payment in both
cases in the form of cashier's checks or a wire transfer of
immediately available funds to a financial institution designated by
the Shareholders.
<PAGE> 2
(b) Notwithstanding the provisions of Section 2(a) above,
the Obligors acknowledge and agree that failure to pay the Cash
Payment on or before April 30, 1998 shall constitute a default under
the Pledge Agreement described in Section 5 below.
3. Payment of Shareholders Expenses. Notwithstanding Section
12.4 or any other provision to the contrary in the Agreement, any reasonable
expenses incurred by the Shareholders in connection with the consummation of
the Agreement and the transaction contemplated hereunder not paid or reimbursed
by Parent and/or HPAC shall be paid by Obligors upon receipt of an itemization
of such expenses within five (5) days of the Cash Payment Date.
4. Termination of the Proposed Acquisition of Parent by Racing
Champions Corporation ("RCC"). The giving of notice by Parent or RCC that the
proposed acquisition of Parent by RCC is terminated for any reason shall
constitute a default under the Pledge Agreement described in Section 5 below.
Immediately upon such notice, Baker shall provide Parent with all required
information for Parent to comply with Rule 14f-1 promulgated under the
Securities Exchange Act of 1934, as amended, and Parent shall make all required
filings within five (5) business days of receipt of such information. Provided
that if the Directors of Wheels within twenty (20) days of such filing take
such action as may be required to provide Baker the right to appoint a majority
of the Board of Directors of Parent and such Directors elect Baker CEO and COO
of Parent, such default under the Pledge Agreement shall be deemed to be cured,
but the Pledge Agreement shall continue in effect pursuant to its terms.
5. Pledge of Parent Shares as Security. Obligors shall
simultaneously, with the execution of this Agreement, execute Pledge Agreements
for an aggregate of 1.0 million shares of common stock of Parent in the form
attached hereto as Exhibit I to secure the timely payment of the Cash Payment
and Extension Consideration. Shareholders agree to exercise their remedies
under the Pledge Agreements for any failure of Obligors to satisfy their
obligations hereunder, prior to pursuing any other remedies available to them.
B. Miscellaneous.
1. Ratification of Agreement. Other than as modified by this
Third Amendment, all terms of the Agreement are hereby affirmed and ratified.
2. Counterparts. This Third Amendment may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3. Governing Law. This Third Amendment shall be governed by the
laws of the State of North Carolina applicable to agreements made and to be
performed entirely within North Carolina.
-2-
<PAGE> 3
The parties have executed and delivered this Third Amendment as of the
date first written above.
WHEELS SPORTS GROUP, INC.
By: /s/ Howard L. Correll
------------------------------------
Howard L. Correll, President
HIGH PERFORMANCE SPORTS MARKETING, INC.
(formerly HP ACQUISITION COMPANY)
By: /s/ Howard L. Correll
------------------------------------
Howard L. Correll, President
SHAREHOLDERS
By: /s/ Randy C. Baker
------------------------------------
Randy C. Baker
By: /s/ David W. Dupree
------------------------------------
David W. Dupree
OBLIGORS
By: /s/ Howard L. Correll, Jr.
------------------------------------
Howard L. Correll, Jr.
By: /s/ Terry J. Powell
------------------------------------
Terry J. Powell
By: /s/ W. Conrad Powell
------------------------------------
W. Conrad Powell
By: /s/ Randy E. Duncan
------------------------------------
Randy E. Duncan
-3-
<PAGE> 1
EXHIBIT 99.3
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
HIGH PERFORMANCE SPORTS MARKETING, INC.
<S> <C>
Report of Independent Public Accountants . . . . . . . . . . . . . . F-1
Balance Sheets as of September 30, 1997 and December 31, 1996 . . . F-2
Statements of Operations for the nine month period ended
September 30, 1997 and the year ended December 31, 1996 . . . . . . F-3
Statements of Stockholders' Equity for the nine month period ended
September 30, 1997 and the year ended December 31, 1996 . . . . . . F-4
Statements of Cash Flows for the nine month period ended
September 30, 1997 and the year ended December 31, 1996 . . . . . . F-5
Notes to Financial Statements for the nine month period ended
September 30, 1997 and the year ended December 31, 1996 . . . . . . F-6
</TABLE>
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
High Performance Sports Marketing, Inc.:
We have audited the accompanying balance sheets of High Performance Sports
Marketing, Inc. as of September 30, 1997 and December 31, 1996, and the related
statements of operations and stockholders' equity and statements of cash flows
for the nine month period ended September 30, 1997 and the year ended December
31, 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 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 High Performance Sports
Marketing, Inc. as of September 30, 1997 and December 31, 1996 and the results
of its operations and its cash flows for the nine month period ended September
30, 1997 and the year ended December 31, 1996 in conformity with generally
accepted accounting principles.
As discussed in Note 10 to the financial statements, on October 24, 1997,
the Company was acquired by Wheels Sports Group, Inc. The financial statements
do not reflect any adjustments arising from the transaction.
Coopers & Lybrand LLP
Greensboro, North Carolina
February 6, 1998
F-1
<PAGE> 3
HIGH PERFORMANCE SPORTS MARKETING, INC.
BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 42,104 $ 36,173
Receivables:
Trade, net of allowance of $50,000 at September 30,
1997.................................................. 503,765 339,538
Other.................................................. 10,262 --
Inventories............................................... 1,472,026 672,988
Other current assets...................................... 3,430 --
---------- ----------
Total current assets................................. 2,031,587 1,048,699
Property and equipment, net................................. 341,505 227,204
Other assets................................................ 8,993 9,023
---------- ----------
Total assets......................................... $2,382,085 $1,284,926
========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Current portion of long term debt......................... $ 116,976 $ 27,239
Line of credit............................................ 350,000 200,000
Accounts payable.......................................... 856,168 809,956
Other accrued expenses.................................... 192,190 129,285
Other current liabilities................................. 36,550 17,210
---------- ----------
Total current liabilities............................ 1,551,884 1,183,690
Long term debt.............................................. 31,085 68,639
---------- ----------
Total liabilities.................................... 1,582,969 1,252,329
---------- ----------
Stockholders' equity:
Common stock, .01 par value, 10,000 shares authorized,
1,147 and 1,000 shares issued and outstanding at
September 30, 1997 and December 31, 1996,
respectively........................................... 11 10
Additional paid in capital................................ 1,220,989 990
Retained earnings/(accumulated deficit)................... (421,884) 31,597
---------- ----------
Total stockholders equity............................ 799,116 32,597
---------- ----------
Total liabilities and stockholders' equity........... $2,382,085 $1,284,926
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 4
HIGH PERFORMANCE SPORTS MARKETING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND THE YEAR ENDED DECEMBER
31, 1996
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK ADDITIONAL EARNINGS TOTAL
---------------- PAID-IN PARTNERSHIP (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT) EQUITY
------ ------ ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1995
(unaudited).................. 500 $ 5 $ 495 $(35,866) $ 215,057 $ 179,691
Issuance of common stock....... 500 5 495 -- 500
Adjustment to combine RCB
Enterprise, Inc. and High
Performance Sports Marketing
L.L.C. (Note 1).............. 35,866 (35,866) --
Distributions to owners........ (584,363) (584,363)
Net income..................... 436,769 436,769
----- --- ---------- -------- --------- ----------
At December 31, 1996........... 1,000 10 990 -- 31,597 32,597
Issuance of common stock for
employee stock award......... 147 1 1,219,999 1,220,000
Distributions to owners........ (224,001) (224,001)
Net loss....................... (229,480) (229,480)
----- --- ---------- -------- --------- ----------
At September 30, 1997.......... 1,147 $11 $1,220,989 $ -- $(421,884) $ 799,116
===== === ========== ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 5
HIGH PERFORMANCE SPORTS MARKETING, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND THE YEAR ENDED DECEMBER
31, 1996
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (229,480) $ 436,769
Adjustments to reconcile net income to net cash from
operating activities:
Depreciation........................................... 58,471 50,035
Loss on sale of property and equipment................. 5,566 --
Bad debt expense....................................... 50,000
Compensation expense for stock award................... 1,220,000 --
Change in operating assets and liabilities:
Trade receivables.................................... (214,227) 114,709
Other receivables.................................... (10,262) 110,953
Inventories.......................................... (799,038) (545,156)
Other assets......................................... (3,400) (4,308)
Accounts payable and accrued expenses................ 109,117 524,254
Other liabilities.................................... 19,340 (1,865)
---------- ---------
Net cash provided by operating activities......... 206,087 685,391
---------- ---------
Cash flows from investing activities:
Purchases of property and equipment....................... (199,156) (59,610)
Proceeds from sale of property and equipment.............. 20,818 --
---------- ---------
Net cash used in investing activities............. (178,338) (59,610)
---------- ---------
Cash flows from financing activities:
Distributions to stockholders............................. (224,001) (584,363)
Borrowings under line of credit........................... 350,000 106,000
Proceeds from issuance of long term debt.................. 100,000 --
Payments on line of credit................................ (200,000) --
Payment of long term debt................................. (47,817) (130,224)
Issuance of stock......................................... -- 500
---------- ---------
Net cash used in financing activities............. (21,818) (608,087)
---------- ---------
Increase in cash and cash equivalents....................... 5,931 17,694
Cash and cash equivalents at beginning of year.............. 36,173 18,479
---------- ---------
Cash and cash equivalents at end of year.................... $ 42,104 $ 36,173
========== =========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest.................... $ 27,731 $ 22,508
========== =========
Non-cash investing and financing activities:
Long term debt issued for vehicles........................ $ -- $ 65,193
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 6
HIGH PERFORMANCE SPORTS MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND THE YEAR ENDED DECEMBER
31, 1996
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION:
High Performance Sports Marketing, Inc. (the "Company") is a North Carolina
corporation headquartered in Mooresville, North Carolina. The Company
distributes a variety of licensed NASCAR merchandise including apparel, hats,
and novelties to national retailers, such as convenience stores, grocery stores,
auto dealerships, and other retail chains. The Company is the result of a 1996
merger between RCB Enterprises, Inc. and High Performance Sports Marketing
L.L.C., which were previously affiliated through common interest of the
Company's stockholders. The financial statements of these two entities were
combined at historical cost in a manner similar to a pooling-of-interest since
its operations were under common management and control.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH AND CASH EQUIVALENTS:
The Company's cash and cash equivalents are placed in major domestic banks
which limits the amount of credit exposure. Periodically throughout the year,
the Company has maintained balances in excess of federally insured limits of
$100,000. Cash equivalents consist of money market funds.
INVENTORIES:
Inventories are stated at lower of cost or market with cost determined by
the first-in, first-out method.
PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost. Depreciation is computed by
using the straight-line method over the estimated useful lives ranging from 3 to
7 years. Expenditures for repairs and maintenance are charged to expense as
incurred. The costs of major renewals and betterments are capitalized. The cost
of property and equipment and accumulated depreciation are removed from the
accounts upon retirement or other disposition with any resulting gain or loss
reflected as other income or expense.
FINANCIAL INSTRUMENTS:
The carrying amounts for certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable and
accrued liabilities approximate fair value because of their short maturities.
The estimated fair value of long-term debt is primarily based on quoted market
prices as well as borrowing rates currently available to the Company for bank
loans with similar terms and maturities. The carrying amount of the debt
approximates fair value.
REVENUE RECOGNITION:
Sales and related costs are recognized at the time of shipment to
customers.
INCOME TAXES:
The financial statements do not include a provision for income taxes
because the taxable income or loss is included in the income tax returns of the
individual shareholders under the S corporation election.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the
F-5
<PAGE> 7
HIGH PERFORMANCE SPORTS MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND THE YEAR ENDED DECEMBER
31, 1996
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
3. PROPERTY AND EQUIPMENT:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Furniture and fixtures............................... $ 205,099 $141,177
Office machinery and equipment....................... 206,337 71,103
Vehicles............................................. 76,667 111,011
--------- --------
488,103 323,291
Less accumulated depreciation........................ (146,598) (96,087)
--------- --------
$ 341,505 $227,204
========= ========
</TABLE>
4. LINE OF CREDIT:
At September 30, 1997 and December 31, 1996, the Company had a line of
credit with Peoples Bank. This agreement provides a maximum borrowing limit of
$1,000,000 with interest payable monthly at the bank's prime rate (8.5% at
September 30, 1997). Borrowings outstanding under the line at September 30, 1997
and December 31, 1996 were $350,000 and $200,000, respectively. The line is
collateralized by accounts receivable and inventory and expires on April 15,
1998.
5. LONG TERM DEBT:
Long term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- ------------
<S> <C> <C>
Note payable to Peoples Bank for working capital, interest
payable monthly, bearing interest at the bank's prime rate
(8.5%, at September 30, 1997), due January 14, 1998....... $ 92,635 $ --
Note payable to NationsBank, payable in monthly installments
of $600, including principal and interest, bearing
interest at 9.1%.......................................... 20,320 24,060
Note payable to NationsBank, payable in monthly installments
of $982, including principal and interest, bearing
interest at 10.7%......................................... 12,715 20,301
Note payable to United Carolina Bank, payable in monthly
installments of $473, including principal and interest,
bearing interest at 9%.................................... 11,902 15,210
Note payable to GMAC, payable in monthly installments of
$303, including principal and interest, bearing interest
at 4.9%................................................... 10,489 13,695
Note payable to NationsBank, payable in monthly installments
of $510, including principal and interest, bearing
interest at 8%............................................ -- 22,612
-------- -------
148,061 95,878
Less current portion...................................... 116,976 27,239
-------- -------
$ 31,085 $68,639
======== =======
</TABLE>
Each of the notes payable are collateralized by equipment or vehicles, with
the exception of the working capital loan with Peoples Bank which is
collateralized by accounts receivable and inventory.
F-6
<PAGE> 8
HIGH PERFORMANCE SPORTS MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND THE YEAR ENDED DECEMBER
31, 1996
Future minimum payments under long-term agreements as of September 30, 1997
are as follows:
<TABLE>
<S> <C>
October 1, 1997 to December 31, 1997...................... $ 98,139
1998................................................. 24,035
1999................................................. 14,960
2000................................................. 10,927
--------
$148,061
========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases its building, equipment and certain vehicles under
operating leases that expire at various dates through February 28, 2012. Under
most lease agreements, the Company pays insurance, taxes and maintenance. Rental
expense for operating leases approximated $173,000 and $89,000, respectively,
for the nine month period ended September 30, 1997 and the year ended December
31, 1996, respectively. Minimum rental commitments under all non-cancelable
operating leases with an initial term in excess of one year are as follows:
<TABLE>
<S> <C>
October 1, 1997 to December 31, 1997.................... $ 54,178
1998............................................... 216,714
1999............................................... 207,994
2000............................................... 194,029
2001............................................... 194,029
2002 and thereafter................................ 1,972,628
----------
$2,839,572
==========
</TABLE>
LICENSE AGREEMENTS
The Company's ability to produce and market its products is based on its
license agreements with various parties. The agreements permit the Company, on a
non-exclusive basis, to use logos, trademarks, facsimile signatures, likenesses
of persons, automobiles, etc. to produce and sell specified products. The terms
of the various license agreements vary and in some cases require the Company to
pay royalties based on a specified percentage of net sales (usually 15%), with
aggregate guaranteed minimum royalties relating to future periods totaling
approximately $213,000 through December 31, 1998. Royalty expense for the nine
month period ended September 30, 1997 and for the year ended December 31, 1996
approximated $872,000 and $440,000, respectively. Although there can be no
assurance that new licenses will be granted to the Company upon expiration of
the current agreements, the Company anticipates that it will be able to obtain
new licenses on favorable terms.
7. RELATED-PARTY TRANSACTIONS:
The Company entered into a lease on March 1, 1997 with a company affiliated
through common ownership. Required monthly lease payments are $16,169 and the
lease expires on February 28, 2012. Lease expense on the building approximated
$113,000 for the nine month period ended September 30, 1997.
F-7
<PAGE> 9
HIGH PERFORMANCE SPORTS MARKETING, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1997 AND THE YEAR ENDED DECEMBER
31, 1996
8. STOCK BONUS AWARD:
A stock bonus award was granted by the Company to one of the
officers/shareholders of the Company effective on September 30, 1997. The
officer/shareholder received 147 shares of common stock (approximately 12.5%
ownership of the Company) for services rendered in 1997. Compensation expense
was recorded for the award, based on the estimated fair value of the stock, in
the amount of $1,220,000 for the year ended September 30, 1997.
9. CONCENTRATIONS OF CREDIT RISK:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade accounts receivable.
Although the Company sells its products and services to a significant number of
customers, certain major third-party customers comprise substantially all of the
customer base. If the financial condition of these customers significantly
deteriorates, the Company's operating results could be adversely affected. As of
September 30, 1997 and December 31, 1996, approximately 80% and 72%,
respectively of trade receivables were concentrated with three and four
customers, respectively. Although the Company does not require collateral, it
performs ongoing evaluations of its customers' financial condition to reduce
credit risk. In addition, approximately 22% of 1997 net sales for the nine
months ended were to one customer and approximately 24% of 1996 net sales were
to two customers and approximately 24% of 1996 net sales were to two customers.
10. SUBSEQUENT EVENTS:
On October 24, 1997, the Company was acquired by Wheels Sports Group, Inc.,
a public company, for total consideration, in notes payable and cash, of
approximately $10,000,000. These financial statements do not include any
adjustments that might result from this transaction.
F-8
<PAGE> 1
EXHIBIT 99.4
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.
