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