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: December 15, 1997
(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, Suite B, King of Prussia, PA 19406
(Address of principal executive offices) (Zip Code)
(610) 337-2200
(Registrant's telephone number, including area code)
RYKA INC.
(Former name or former address, if changed since last report)
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
Item 7 of the Current Report on Form 8-K dated December 15, 1997 and filed
December 30, 1997 is amended to include the financial statements of KPR Sports
International, Inc. and Affiliates and the pro forma combined financial
information of RYKA Inc. and KPR Sports International, Inc. and
Affiliates as follows:
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
(i) Historical condensed combined financial statements of KPR Sports
International, Inc. and Affiliates as of September 30, 1997 (Unaudited)
and December 31, 1996 (Audited) and for the nine months ended
September 30, 1997 and 1996. (Unaudited).
(b) PRO FORMA COMBINED FINANCIAL INFORMATION
(i) Pro forma combined financial statements of RYKA Inc. and KPR Sports
International, Inc. and Affiliates as of September 30, 1997 and for the
nine months then ended. (Unaudited)
(ii) Pro forma combined financial statements of RYKA Inc. and KPR Sports
International, Inc. and Affiliates for the year ended December 31,
1996. (Unaudited) *
____________________
* Incorporated herein by reference to RYKA Inc.'s Definitive Proxy Materials
filed November 12, 1997 (Commission File No. 0-16611).
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ITEM 7.(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED
KPR SPORTS INTERNATIONAL, INC. AND AFFILIATES
CONDENSED COMBINED BALANCE SHEETS
ASSETS
September 30, 1997 December 31, 1996
(Unaudited)
Current assets:
Cash and cash equivalents. $ 692,978 $ 275,871
Accounts receivable, net of
allowance for doubtful accounts
of $392,196 and $279,682 14,070,731 9,660,543
Inventory 8,075,418 10,749,460
Prepaid expenses and other
current assets 925,592 1,197,819
------------ ------------
Total current assets 23,764,719 21,883,693
Property and equipment, net of
accumulated depreciation 3,132,925 3,331,540
Investment in and advances to
RYKA Inc 928,402 1,167,986
Other assets 274,537 295,325
------------ ------------
Total assets $ 28,100,583 $26,678,544
============ =============
LIABILITIES AND COMBINED EQUITY (DEFICIT)
Current liabilities:
Note payable, bank $11,906,596 $ 10,682,171
Current portion of capital
lease obligation shareholder 113,339 105,378
Accounts payable 11,002,302 9,664,321
Accrued expenses 356,901 579,292
Payroll and sales tax payable 221,670 212,809
Income taxes payable --- 81,481
------------ -------------
Total current liabilities 23,600,808 21,325,452
Capital lease obligation --
shareholder 2,339,327 2,425,355
Subordinated note payable --
shareholder 3,123,844 3,479,870
Combined equity (deficit):
Common stock no par value; 1,000 shares
authorized, 200 shares issued
and outstanding 2,000 2,000
Additional paid in capital 1,412,916 1,066,758
Foreign currency translation
adjustment (48,609) (41,865)
Accumulated deficit (2,304,703) (1,554,026)
------------- ------------
(938,396) (527,133)
Less treasury stock at cost (25,000) (25,000)
------------- ------------
Net combined deficit (963,396) (552,133)
------------- ------------
Total liabilities and combined
equity (deficit) $28,100,583 $26,678,544
============ ============
See notes to condensed combined financial statements.
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KPR SPORTS INTERNATIONAL, INC. AND AFFILIATES
CONDENSED COMBINED STATEMENT OF OPERATIONS
Nine Months Ended September 30,
1997 1996
(Unaudited)
Net sales $ 43,888,180 $ 32,549,413
Cost of goods sold 34,266,455 24,928,447
Gross profit 9,621,725 7,620,966
Operating expenses 9,010,813 5,571,201
------------- --------------
Operating income 610,912 2,049,765
Other income (expenses):
Interest expense (1,339,460) (767,376)
Interest income 49,022 67,777
Royalty income 67,447 --
Rental income 35,625 35,625
Loss on disposal of assets (71,393) (5,820)
------------ ------------
(1,258,759) (669,794)
------------ ------------
Equity in losses of RYKA Inc (102,830) (191,706)
------------ ------------
Net income (loss) $ (750,677) $ 1,188,265
============= ===========
See notes to condensed combined financial statements.
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KPR SPORTS INTERNATIONAL, INC. AND AFFILIATES
STATEMENT OF COMBINED EQUITY (DEFICIT)
<TABLE>
Foreign
Additional Currency
Common Paid-in Translation Accumulated Treasury Stock
Stock Capital Adjustment Deficit Shares Cost
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $2,000 $1,066,758 $(41,865) $(1,554,026) 100 $(25,000)
Net loss (750,677)
Equity in stock issuance
ofRYKA Inc. 193,825
Warranty compensation related
to former officer 152,333
Cumulative foreign currency
translation adjustment (6,744)
--------- ----------- --------- ----------- ------ ----------
Balance,
September 30, 1997 $2,000 $1,412,916 $(48,609) $(2,304,703) 100 $(25,000)
======== ========== ======== ========== ===== ==========
See notes to condensed consolidated financial statements.
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KPR SPORTS INTERNATIONAL, INC. AND AFFILIATES
STATEMENT OF CASH FLOWS
Nine Months
Ended September 30,
1997 1996
INCREASE (DECREASE) IN CASH
Cash flows from operating activities:
Net income (loss) $(750,677) $ 1,188,265
Adjustments to reconcile net
income to net cash provided by (used in)
operating activities:
Depreciation and amortization 317,744 189,270
Allowance for doubtful accounts 112,514 20,646
Equity in undistributed loss
of RYKA Inc 102,830 57,536
Gain on sale of equipment 48,000 --
Warrant expense 152,333 --
Provisions for loss on inventory 182,021 (250,000)
(Increase) decrease in operating assets:
Accounts receivable (4,522,702) (2,413,055)
Inventory 2,492,021 (1,750,148)
Prepaid expenses and
other current assets 272,227 (130,643)
Other assets (43,580) 20,021
Increase (decrease) in
operating liabilities:
Accounts payable 1,337,981 2,211,169
Accrued expenses (235,037) 67,026
----------- -----------
Net cash provided by (used in)
operating activities (534,325) (789,913)
Cash flows from investing activities:
Acquisition of property and equipment (242,182) (688,178)
Proceeds from sale of assets 85,000 --
----------- ------------
Net cash provided by (used in)
investing activities (157,182) (688,178)
Cash flows from financing activities:
Net borrowings under line-of-credit 1,224,425 2,463,148
Distribution to shareholder -- (872,342)
Repayment of capitalized
lease obligation (78,067) (40,705)
Repayment of subordinated
shareholder's advances (416,000) --
Proceeds from retirement of
subordinated debt 385,000 --
------------ -------------
Net cash provided by (used in)
financing activities 1,115,358 1,550,101
Foreign currency translation
adjustment (6,744) (16,978)
------------ -------------
Net increase in cash 417,107 55,032
Cash, beginning of period 275,871 19,475
----------- -------------
Cash, end of period $ 692,978 $ 74,507
============ =============
See notes to condensed consolidated financial statements.
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KPR SPORTS INTERNATIONAL, INC. AND AFFILIATES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed combined financial statements of KPR Sports
International, Inc. and Affiliates (the Company) have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all information
and footnotes required by generally accepted accounting principles for
complete financial statements.
The accompanying financial information is unaudited; however, in the
opinion of management, all adjustments (consisting solely of normal
receiving accruals) necessary for a fair presentation of the operating
results of the periods reported have been included. The results of
operations for the periods reported are not necessarily indicative of
those that may be expected for a full year.
This quarterly report should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company's
Audited Combined Financial Statements as of December 31, 1996.
NOTE 2. INVESTMENT IN AND ADVANCES TO RYKA
Investment in and advances to RYKA, December 31, 1996 $1,167,986
Equity in net loss of RYKA (102,830)
Equity in stock issuance of RYKA 193,825
Amortization of negative goodwill 9,741
RYKA partial repayment of initial advance (385,000)
Additional RYKA advances 44,680
-----------
Investment in and advances to RYKA, September 30, 1997 $ 928,402
===========
NOTE 3. NOTE PAYABLE, BANK
The Company's credit facility consists of a $15,000,000 asset based
revolving credit facility. The facility makes funds available to the
Company based upon a percentage of inventory and accounts receivable,
as defined in the agreement. At September 30, 1997 $11,906,596 was
outstanding under the revolver with $2,252,536 in outstanding letters
of credit. The revolving credit facility is payable upon demand and is
collateralized by all the assets of the Company and a $2,000,000 limited
personal guaranty by the sole shareholder of the Company. The revolving
credit facility is subject to certain covenants including the maintenance of
prescribed amounts of net worth and leverage ratios.
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KPR SPORTS INTERNATIONAL, INC. AND AFFILIATES
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
On February 7, 1997, the Company entered into a forbearance agreement with
the bank requiring the Company to obtain new financing by March 31, 1997.
This refinancing was not successfully completed by March 31, 1997,
therefore, the bank provided a further extension through April 18, 1997.
On June 4, 1997, the Company obtained an extension through November 30, 1997
to allow the Company time to obtain new financing. The terms of the
extension provided for a seasonal increase of the credit line of up
to $5.75 million, with seasonal advances of up to $5.2 million in excess of
the collateral value as defined by the bank. In consideration for these
conditions, the interest rate on the borrowing under this facility increased
to prime plus 2 1/4% for the first thirty days ended June 30, 1997,
increasing 1% per month through the termination date of the loan
(November 30, 1997). In addition, the bank obtained the shareholder's
guaranty of the debt and placed certain additional financial covenants on
the Company. See Note 5 for the subsequent refinancing of this credit line.
Interest expense related to the existing revolving credit facility was
$1,021,536 for the nine months ended September 30, 1997.
NOTE 4. RELATED PARTY TRANSACTIONS
The Company subleases a portion of its facility to RYKA at a rate of
approximately $4,000 per month. Rental income pursuant to the sublease
was $35,625 for the nine months ended September 30, 1997 and 1996.
The Company has advanced certain funds to RYKA on a temporary basis in the
ordinary course of business and RYKA has advanced certain funds to the
Company. Such amounts are included in the balance sheet as either a current
asset due from affiliate or a current liability due to affiliate.
In connection with the subordinated note receivable from RYKA
(originally $851,440), the Company recorded interest income of
$59,974 and $47,575 for the nine months ended September 30, 1997 and 1996,
respectively. On April 21, RYKA repaid $385,000 of the subordinated note
receivable; therefore, the balance outstanding as shown in the accompanying
balance sheet as of September 30, 1997 was $466,440.
NOTE 5. SUBSEQUENT EVENTS
Refinancing
On November 20, 1997 the Company entered into an agreement with a new lender
for a revolving line of credit of $20,000,000, availability on which is
based on a percentage of accounts receivable and inventory. The term of the
loan is 5 years and has an interest rate choice of prime plus 1/4% or
LIBOR (Adjusted Eurodollar Rate) plus 2.75%. The new lender has consented to
the reorganization and merger as described below.
Reorganization and Merger
On December 15, 1997, the Company completed a reorganization of its
affiliated companies and merged into RYKA as a wholly-owned subsidiary.
The combined entity subsequently changed its name to Global Sports, Inc.
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ITEM 7.(b) PRO FORMA COMBINED FINANCIAL INFORMATION
RYKA INC.
AND
KPR SPORTS INTERNATIONAL, INC. AND AFFILIATES
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma financial information reflects the
reorganization of RYKA Inc. ("RYKA") and KPR Sports International, Inc. and
Affiliates ("KPR") on December 15, 1997. Refer to Item 2 of the Form 8-K
dated December 30, 1997 for more information on the transaction. The
following unaudited pro forma combined balance sheet gives effect to the
reorganization as if it had occurred on September 30, 1997. The following
unaudited pro forma combined statements of operations for the nine months ended
September 30, 1997 give effect to the reorganization as if it had occurred
January 1, 1997. The pro forma financial information is based on the
historical financial statements of RYKA and KPR after giving effect to the
reorganization 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.
The pro forma combined 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 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 financial information should be read in conjunction with the
separate audited historical financial statements of RYKA Inc. and the
notes thereto set forth in RYKA's 1996 Annual Report on Form 10-K and the
historical financial statements of KPR and the notes thereto set forth
in Item 7(a) of this Form 8-K/A.
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RYKA INC.
AND
KPR SPORTS INTERNATIONAL, INC. AND AFFILIATES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 1997
Historical Historical Pro Forma Pro Forma
RYKA KPR Adjustments Combined
ASSETS
Current Assets:
Cash $ 506,069 $ 692,978 $ 1,199,047
Accounts Receivable,
net of Allowance for
Doubtful Accounts 3,965,559 14,070,731 18,036,290
Inventory 2,100,281 8,075,418 10,175,699
Prepaid Expenses and
Other Current Assets 385,645 925,592 1,311,237
Note Receivable, Officer 20,000 -- 20,000
---------- ----------- -----------
Total Current Assets 6,977,554 23,764,719 30,742,273
Property and Equipment, Net 231,025 3,132,925 3,363,950
Investment in and Advances
to RYKA -- 928,402 (60,745)(a)
(466,440)(b)
(401,217)(c) --
Goodwill -- -- 4,074,746 (c) 4,074,746
Other Assets 80,947 274,537 1,762,800 (c) 2,118,284
------------ ------------ -----------
Total Assets $ 7,289,526 $ 28,100,583 $40,299,253
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Note Payable, Bank $ 2,855,221 $ 11,906,596 $14,761,817
Current Portion of
Capital Lease
Obligation -- 113,339 113,339
Accounts Payable and
Accrued Expenses 2,245,013 11,580,873 13,825,886
Due to Affiliate 527,185 -- (60,745)(a)
(466,440)(b) --
------------- ------------ -----------
Total Current
Liabilities 5,627,419 23,600,808 28,701,042
Capital Lease Obligation -- 2,339,327 2,339,327
Subordinated Stockholder's
Advances -- 3,123,844 3,123,844
Stockholders' Equity:
Common Stock 612,671 2,000 (2,000)(c)
1,471,000 (c) 2,083,671
Additional Paid
In Capital 21,146,844 1,412,916 (16,007,079)(c)
347,000 (d) 6,899,681
Cumulative Foreign
Currency Translation
Adjustment -- (48,609) (48,609)
Retained Earnings
(Accumulated Deficit) (20,097,408) (2,304,703) 20,097,408 (c)
(347,000)(d) (2,651,703)
Less Treasury
Stock, at Cost -- (25,000) 25,000 (c)
(148,000)(c) (148,000)
---------- ---------- ----------
Total Stockholders'
Equity 1,662,107 (963,396) 6,135,040
---------- ---------- ----------
Total Liabilities and
Stockholders' Equity $7,289,526 $28,100,583 $40,299,253
========== =========== ===========
See Notes to Unaudited Pro Forma Combined Financial Statements.
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RYKA INC.
AND
KPR SPORTS INTERNATIONAL, INC. AND AFFILIATES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1997
Historical Historical Pro Forma Pro Forma
RYKA KPR Adjustments Combined
----------- ----------- -------------- ----------
Net Sales $12,067,933 $43,888,180 $55,956,113
Costs and Expenses:
Costs of Goods Sold 8,639,014 34,266,455 42,905,469
Operating Expenses 3,498,369 9,010,813 437,816 (h)
(35,625)(g) 12,911,373
----------- ---------- -----------
Total Costs and
Expenses 12,137,383 43,277,268 55,816,842
----------- ---------- -----------
Income (Loss) before
Other Expenses (69,450) 610,912 139,271
Other Expenses, net 299,717 1,258,759 35,625 (g)
210,000 (e) 1,804,101
---------- ---------- -----------
Loss before Equity
in Net Loss of RYKA (369,167) (647,847) (1,664,830)
Equity in Net Loss
of RYKA -- (102,830) (102,830)(f) --
----------- ---------- -----------
Loss before Provision
for Income Taxes (369,167) (750,677) (1,664,830)
Provisions for Income Taxes -- -- --
---------- ---------- -----------
Net Loss $(369,167) $(750,677) $(1,664,830)
========== ========== ===========
See Notes to Unaudited Pro Forma Combined Financial Statements.
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RYKA INC.
AND
KPR SPORTS INTERNATIONAL, INC. AND AFFILIATES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 1. GENERAL
The historical cost of assets and liabilities recorded by RYKA as of the
date of the reorganization equals fair value. An independent valuation has
been performed to identify and value intangible assets (patents and
trademarks). The value of such intangibles are included in these pro forma
financial statements. These intangibles will be amortized over ten years.
The remainder of the purchase price will be allocated to goodwill.
RYKA has authorized the issuance of stock warrants to athletes endorsing its
products contingent upon the consummation of the reorganization. The
pro forma results of operations do not give effect for the resolution of
the contingent stock warrants issued to athletes endorsing KPR products
as the adjustment is considered to result directly from the reorganization
and will be included in the results of operations of RYKA within twelve months
following the reorganization.
There are no undistributed earnings in KPR to distribute to the shareholder
upon the termination of KPR's status as an S-Corporation.
The termination of KPR's status as an S-Corporation does not give rise to
deferred taxes which require recording.
RYKA has entered into an agreement with an employee which stipulates that
upon the date of the reorganization, RYKA will grant such employee a
five-year option to purchase 30,000 shares of RYKA Common Stock at an
exercise price equal to the lesser of the fair market value of the
underlying common stock on the date of the grant or $8.00 per share.
In the event the fair market value of the underlying shares is greater
than $8.00 per share on the grant date, RYKA will recognize compensation
expense equal to the number of shares multiplied by the amount the fair
value exceeds $8.00. Fair market value at December 15, 1997 (the date
of the reorganization) was $3.20 per share, after giving effect to
RYKA's 20:1 reverse stock split.
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RYKA INC.
AND
KPR SPORTS INTERNATIONAL, INC. AND AFFILIATES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 2. PRO FORMA BALANCE SHEET ADJUSTMENTS
(a) To eliminate the amount due to RYKA from KPR.
(b) To eliminate the subordinated note payable by RYKA to KPR.
(c) To record the reverse acquisition entries based on a purchase price
of $6,299,565 computed as follows:
Number of RYKA shares outstanding at merger date 66,367,100
Fair value per share as determined by an independent
valuation x $0.14 *
Percentage of RYKA not already owed by KPR x 67.8 %
--------------
$6,299,565
Above share and per share amounts do not give effect for the proposed
1-for-20 reverse stock split.
_____________________________
* This amount is discounted 25% from the current value of RYKA stock for
the following reasons:
1. Recent purchases of large blocks of RYKA common stock sold at a 25%
discount from the trading price of the stock.
2. The shares to be issued in connection with the reorganization also
represents a large block of RYKA stock.
_____________________________
(1) eliminates KPR's investment in RYKA;
(2) records identified intangible assets (patents and trademarks) of RYKA
which were valued by an independent valuation. Amount recorded is
limited to the percentage RYKA was not already owned by KPR;
(3) records goodwill and intangible assets;
(4) eliminates RYKA's historical accumulated deficit;
(5) eliminates KPR's common stock;
(6) creates treasury shares due to RYKA's acquisition of KPR, which owned
RYKA shares prior to the reorganization. Treasury shares are valued
at KPR's original cost;
(7) eliminates KPR's treasury shares;
(8) records issuance of 142,000,000 shares to MR; and
(9) records adjustment to additional paid in capital for above.
(d) To record the effects of the resolution of the contingency surrounding
the issuance of contingent stock purchase warrants to athletes endorsing
KPR products. Such stock purchase warrants will be issued with the
exercise price equal to the market value of the stock immediately after
the reorganization ($3.20 per share as of December 15, 1997, after
giving effect to RYKA's 20:1 reverse stock split occuring on the same
date). An independent valuation concludes that the value of such
warrants issued to non-employees is $347,000. Such amount will be
included in the results of operations of RYKA at the time they are
issued.
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RYKA INC.
AND
KPR SPORTS INTERNATIONAL, INC. AND AFFILIATES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
NOTE 3. PRO FORMA STATEMENTS OF OPERATIONS ADJUSTMENTS
(e) Upon the consummation of the transaction, the subordinated shareholder's
advance will no longer be non interest bearing, but will bear interest at
the prime lending rate. This adjustment records such interest at 8.375%.
A variance of 1/8% in the rate used would increase or decrease this
adjustment by approximately $4,400.
(f) To eliminate the equity in the net loss of RYKA which had been recorded
KPR as a result ofits equity ownership of RYKA.
(g) To eliminate intercompany transactions.
(h) To record the effect of the amortization expense related to the goodwill
that was recorded in relation to the reverse acquisition
($4,074,746 amortized over 10 years). Also to record amortization of
intangibles ($1,762,800 amortized over 10 years). RYKA's accounting
policy regarding goodwill and intangibles will be as follows:
The cost of goodwill and intangibles are amortized on a straight-line basis
over ten years. The realizability of goodwill and intangibles are evaluated
periodically as events or circumstances indicate a possible inability to
recover their carrying amount. Such evaluation is based on various analyses,
including undiscounted cash flow and profitability projections that
incorporate, as applicable, the impact on existing company businesses. The
analyses necessarily involve significant management judgment.
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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 13, 1997 By: /s/ Michael G. Rubin
-----------------------------
Michael G. Rubin
Chief Executive Officer
Date: February 13, 1997 By: /s/ Steven A. Wolf
----------------------------
Steven A. Wolf
Vice President of Finance &
Chief Financial Officer
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