================================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
================================================================================
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934. For the
quarterly period ended March 31, 1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934. For the
transition period from _______to _______.
Commission File Number 0-16611
GLOBAL SPORTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2958132
(State or other jurisdiction (I.R.S. Employer of incorporation or organization)
Identification Number)
555 S. HENDERSON ROAD, KING OF PRUSSIA, PA 19406
(Address of principal executive offices)
(Zip Code)
610-768-0900
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
<PAGE>
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of May 14, 1999:
Common Stock, $.01 par value 12,116,253
------------------------------ -------------------
(Title of each class) (Number of Shares)
<PAGE>
- --------------------------------------------------------------------------------
GLOBAL SPORTS, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1999
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
PAGE
-----------
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets
as of March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statements of Operations
for the three-month periods ended March 31, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
for the three-month periods ended March 31, 1999 and 1998 5
Notes to Condensed Consolidated Financial 6
Statements
Item 2. Management's Discussion and Analysis of Results of Operations
and Financial Condition 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 15
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults on Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
SIGNATURES 17
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
<TABLE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1999 1998
----------------------- ------------------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 619,906 $ 856,085
Accounts receivable, net of allowance for doubtful
accounts of $919,222 in 1999 and $928,693 in 1998 40,592,316 36,782,732
Inventory 17,472,869 20,954,168
Prepaid expenses and other current assets 3,510,779 1,435,744
----------------------- ------------------------
Total current assets 62,195,870 60,028,729
Property and equipment, net of accumulated depreciation
and amortization 4,420,670 4,385,906
Goodwill and intangibles, net of accumulated amortization 13,929,700 14,174,127
Other assets 261,252 277,424
----------------------- ------------------------
Total assets $ 80,807,492 $ 78,866,186
======================= ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion - notes payable, banks $ 34,469,902 $ 14,529,576
Current portion - notes payable, other 711,933 712,815
Current portion - capital lease obligation, related party 131,111 127,966
Accounts payable and accrued expenses 21,132,565 21,223,798
Subordinated notes payable 3,305,143 3,804,906
----------------------- ------------------------
Total current liabilities 59,750,654 40,399,061
Notes payable, banks 289,712 19,106,535
Notes payable, other 2,347,731 2,493,743
Capital lease obligation, related party 2,147,284 2,181,265
Mandatorily redeemable preferred stock 100 100
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized; 10,000 shares issued as mandatorily
redeemable preferred stock -- --
Common stock, $0.01 par value, 20,000,000 shares
authorized, 13,109,348 and 12,994,464 shares issued in
1999 and 1998;
12,040,262 and 11,925,378 shares outstanding in 1999 and 1998 131,093 129,947
Additional paid in capital 15,737,522 14,624,541
Accumulated other comprehensive income -- (47,431)
Retained earnings 617,213 192,242
----------------------- ------------------------
16,485,828 14,899,299
Less: Treasury stock, at cost 213,817 213,817
----------------------- ------------------------
Total stockholders' equity 16,272,011 14,685,482
----------------------- ------------------------
Total liabilities and stockholders' equity $ 80,807,492 $ 78,866,186
======================= ========================
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
3
<PAGE>
<TABLE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------------------
1999 1998
---------------- -------------------
<S> <C> <C>
Net sales $ 33,723,869 $ 28,148,378
33,723,869
---------------- -------------------
Costs and expenses:
Cost of goods sold 24,311,632 20,023,899
Selling, general and administrative expense 8,900,124 5,380,723
---------------- -------------------
33,211,756 25,404,622
---------------- -------------------
Operating income 512,113 2,743,756
Other (income) expense:
Interest expense, net 847,464 619,271
Other, net (74,889) (57,088)
---------------- -------------------
772,575 562,183
---------------- -------------------
Income (loss) before income taxes (260,462) 2,181,573
Provision for (benefit from) income taxes (685,433) 650,000
---------------- -------------------
Net income $ 424,971 $ 1,531,573
================ ===================
Basic earnings per share $ .04 $ .15
================ ===================
Diluted earnings per share $ .03 $ .14
================ ===================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
4
<PAGE>
<TABLE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------------------
1999 1998
------------------- ------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 424,971 $ 1,531,573
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 430,759 272,388
Provision for losses on accounts receivable 60,674 (175,077)
Warrant expense 398,266 --
Changes in operating assets and liabilities:
Accounts receivable (3,870,258) (5,253,350)
Inventory 3,481,299 (919,151)
Prepaid expenses and other current assets (660,768) 214,994
Other assets 46,172 40,293
Accounts payable and accrued expenses (1,220,424) 2,762,827
------------------- -----------------
Net cash used in operating activities (909,309) (1,525,503)
------------------- -----------------
Cash Flows from Investing Activities:
Capital expenditures (221,096) (45,449)
------------------- -----------------
Net cash used in investing activities (221,096) (45,449)
------------------- -----------------
Cash Flows from Financing Activities:
Net borrowings under lines of credit 1,130,519 2,491,044
Repayments of capital lease obligation (30,836) (27,982)
Repayments of notes payable (153,910) --
Proceeds from issuance of common stock 478,216 1,920
Costs of debt issuance (30,000) --
Repayments on subordinated debt (499,763) --
------------------- -----------------
Net cash provided by financing activities 894,226 2,464,982
------------------- -----------------
Effect of exchange rate on cash and cash equivalents -- 2,671
------------------- -----------------
Net increase (decrease) in cash and cash equivalents (236,179) 896,701
Cash and cash equivalents, beginning of period 856,085 98,881
------------------- -----------------
Cash and cash equivalents, end of period $ 619,906 $ 995,582
=================== =================
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
5
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
================================================================================
NOTE 1 - BASIS OF PRESENTATION
Global Sports, Inc. ("Global" or the "Company"), a Delaware corporation, is a
diversified sporting goods company consisting of three divisions: Global Sports
Interactive, the Branded division and the Off-Price and Action Sports division.
Global Sports Interactive is an e-Commerce company that is in the process of
developing the internet businesses of several sporting goods retailers. The
Branded division designs and markets the RYKA and Yukon footwear brands. The
Off-Price and Action Sports division is a leading third-party distributor and
make-to-order marketer of off-price footwear, apparel and sporting goods.
On December 15, 1997, the Company consummated a reorganization (the
"Reorganization") among RYKA Inc. ("RYKA"), KPR Sports International, Inc.
("KPR"), Apex Sports International, Inc., MR Management, Inc. (the last three
companies collectively referred to as the "KPR Companies"), and Michael G.
Rubin, the former sole shareholder of the KPR Companies and now the Chairman and
Chief Executive Officer of the Company. Immediately after the Reorganization,
Mr. Rubin then owned approximately 78% of the outstanding voting power of the
Company. Accordingly, the Reorganization was accounted for as a reverse purchase
under generally accepted accounting principles pursuant to which the KPR
Companies were considered to be the acquiring entity and the Company was the
acquired entity for accounting purposes, even though the Company was the
surviving legal entity. As a result of this reverse purchase accounting
treatment, (i) the historical financial statements presented for periods prior
to the date of the Reorganization are no longer the historical financial
statements of RYKA; (ii) the historical financial statements for periods prior
to the date of the Reorganization are those of the KPR Companies, (iii) all
references to the historical financial statements of the Company apply to the
historical financial statements of the KPR Companies prior to and subsequent to
the Reorganization, and (iv) any references to RYKA apply solely to that company
and its financial statements prior to the Reorganization.
Effective May 12, 1998, the Company acquired Gen-X Holdings Inc. and Gen-X
Equipment Inc. (collectively, the "Gen-X Companies"). The Gen-X Companies were
privately-held companies based in Toronto, Ontario specializing in selling
off-price sporting goods and winter sports equipment (including ski and
snowboard equipment), in-line skates, sunglasses, skateboards and specialty
footwear.
Effective July 27, 1998, the Company acquired Lamar Snowboards, Inc. ("Lamar"),
a privately-held manufacturer of snowboards, bindings and related products based
in San Diego, California.
The accompanying condensed financial statements of Global have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions for Form 10-Q and Rule 10-01
of Regulation S-X. 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
the Company's management, all adjustments (consisting solely of normal recurring
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.
Certain 1998 balances have been reclassified to conform with the 1999 financial
statement presentation.
This quarterly report should be read in conjunction with the financial
statements and notes thereto included in the Company's audited financial
statements as of December 31, 1998 as presented in the Company's Annual Report
on Form 10-K.
NOTE 2 - DEBT
Notes Payable, Banks
Under its primary loan agreement, as subsequently amended (the "Loan
Agreement"), the Company has access to a combined credit facility of
$40,000,000, which is comprised of the KPR Companies' credit facility of
$35,000,000 and RYKA's credit facility of $5,000,000. The term of the Loan
Agreement is five years expiring on November 19, 2002. The KPR Companies and
RYKA have an interest rate choice of prime plus 1/4% or LIBOR (Adjusted
Eurodollar Rate) plus two hundred seventy-five basis
6
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
================================================================================
points. Under the Loan Agreement, both the KPR Companies and RYKA may borrow up
to the amount of their revolving line based upon 85% of their eligible accounts
receivable and 65% of their eligible inventory, as those terms are defined in
the Loan Agreement. The Loan Agreement also includes 50% of outstanding import
letters of credit as collateral for borrowing.
In addition to the revolving lines of credit described above, the lender will
over-advance to the Company an additional $3,000,000, over the existing
collateral, for additional import letters of credit needed for seasonal
production of new merchandise for the Spring 1999 and Fall 1999 seasons.
Among other things, the Loan Agreement, as amended, requires the KPR Companies
and RYKA to achieve annual earnings before interest, taxes, depreciation and
amortization ("EBITDA") of $5,000,000 and it limits the Company's ability to
incur additional indebtedness, make payments on subordinated indebtedness, make
capital expenditures, sell assets, and pay dividends. At March 31, 1999, the
Company was not in compliance with the EBITDA covenant. The Company obtained a
waiver from the bank with respect to this covenant. Because there can be no
assurance that the Company will be in compliance with this covenant for any
period subsequent to March 31, 1999, the Company has classified the amounts
outstanding under this line as a current liability. The Company plans to enter
into negotiations with its lender to modify the terms of the Loan Agreement to
return itself to compliance.
At March 31, 1999, the aggregate amount outstanding under this line was
$24,442,675. At March 31, 1999, based on available collateral and outstanding
import letters of credit commitments, an additional $116,792 (including the
seasonal over-advance) was available on this line for borrowing. The total
interest incurred in connection with this facility was $491,505 for the
three-month period ending March 31, 1999.
The Company has an additional line of credit of approximately $20,000,000 for
use by the Gen-X Companies, which 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 substantially
all of the Gen-X Companies' assets. At March 31, 1999, draws of $10,000,000 plus
net bank overdrafts of $173,607 were committed under this line and, based on
available collateral and outstanding import letters of credit commitments, an
additional $4,331,613 was available for borrowing. The total interest expense
incurred in connection with this facility was $226,232 for the three-month
period ending March 31, 1999.
Notes payable, banks also includes a mortgage note secured by land and building
in Ontario, Canada of $316,939, of which $27,227 is classified as current. The
mortgage note bears interest at the bank's cost of funds plus 2.5% and matures
on August 15, 2009. For the three-month period ending March 31, 1999, interest
expense included $8,298 related to this mortgage note.
Notes Payable, Other
Other debt related to the Gen-X Companies includes an outstanding loan payable
for $1,500,000, of which $400,000 is classified as current. The original loan of
$2,000,000 is repayable in equal quarterly installments of $100,000, which
commenced on March 31, 1998, and bears interest at the prime lending rate.
Notes payable, other also includes $1,000,000 of promissory notes payable to the
former shareholders of Lamar. The notes are payable in five equal annual
installments and bear interest at 6% per annum. At March 31, 1999, $200,000 of
such notes is classified as current. At the time of the acquisition, Lamar also
executed a note payable in the principal amount of $553,447, plus $74,954 in
accrued interest, for amounts owed to a shareholder. This note, which was
assumed by the Company in the acquisition of Lamar, is payable in five equal
annual installments and bears interest at 6% per annum. The amount currently
outstanding on this note is $559,664, of which $111,933 is classified as
current.
Subordinated Notes Payable
At March 31, 1999, the Company had $1,805,841 in outstanding subordinated notes
payable held by its Chairman and CEO, plus accrued interest on such notes of
$49,389 recorded in accrued expenses. This debt consisted primarily of a note
representing undistributed Subchapter S corporation retained earnings previously
taxed to him as the sole shareholder of the KPR Companies prior to the
Reorganization. Interest accrues on such notes at the Company's choice of prime
plus 1/4% or LIBOR (Adjusted Eurodollar Rate) plus two hundred seventy-five
basis points. At March 31, 1999, the interest rate on these notes was 8 1/4% and
7
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
================================================================================
interest recorded during the three-month period ending March 31, 1999 was
$36,735. Based on its Loan Agreement, the Company is permitted to make continued
regular payments of interest on the subordinated debt and to further reduce
principal on a quarterly basis, commencing subsequent to the first quarter of
1998, in an amount up to 50% of the cumulative consolidated net income of the
Company. During 1998, aggregate principal payments of $250,000 were made. No
payments on this subordinated debt have been made to date in 1999.
Upon closing the acquisition of the Gen-X Companies, several subordinated notes
payable were executed with the former shareholders of the Gen-X Companies for an
aggregate of $1,999,065 which is payable upon the earlier of the Company raising
certain additional capital or in four equal consecutive quarterly payments
beginning March 31, 1999. The first quarterly payment of $499,763 was made on
March 31, 1999. This note bears interest at 7% until December 31, 1998 and the
prime lending rate thereafter. For the three-month period ending March 31, 1999,
interest expense included $10,577 related to these notes.
NOTE 3 - RELATED PARTIES
The Company is located in King of Prussia, Pennsylvania where it conducts a
significant portion of its operations and warehouses inventory in a facility
leased from the Company's Chairman and CEO. The lease has been accounted for as
a capital lease, which resulted in $57,013 recorded to interest expense for the
three-month period ended March 31, 1999. At March 31, 1999, the Company's
investment in the capital lease was $1,955,747, which is included in property
and equipment.
The Company also has subordinated notes payable outstanding with its Chairman
and CEO, as referred to in Note 2 above.
NOTE 4 - EARNINGS PER SHARE
Earnings per share for all periods have been computed in accordance with SFAS
No. 128, Earnings Per Share. Basic earnings per share is computed by dividing
net income by the weighted average number of shares of common stock outstanding
during the year. Diluted earnings per share is computed by dividing the net
income by the weighted average number of shares outstanding during the year,
assuming dilution by outstanding common stock options and warrants.
The amounts used in calculating earnings per share data are as follows:
THREE MONTHS ENDED
MARCH 31,
--------------------------------
1999 1998
---------------- ---------------
Net income $ 424,971 $ 1,531,573
================ ===============
Weighted average shares
outstanding - basic 12,018,517 10,418,198
Dilutive common stock options 584,269 107,060
Dilutive common stock warrants 173,868 49,400
---------------- ---------------
Weighted average shares
outstanding - diluted 12,776,654 10,574,658
================ ===============
Outstanding common stock
options having no
dilutive effect 98,404 205,675
================ ===============
Outstanding common stock
warrants having no
dilutive effect 35,566 203,034
================ ===============
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Purchase Commitments
As of March 31, 1999, outstanding purchase commitments exist totaling
$5,278,643, for which commercial import letters of credit have been issued.
8
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
================================================================================
Employment Agreements
At March 31, 1999, the Company has employment agreements with several of its
officers for an aggregate annual base salary of $1,178,000 plus bonus and
increases in accordance with the terms of the agreements. Terms of such
contracts range from three to five years and are subject to automatic annual
extensions.
E-Commerce
At March 31, 1999, the Company has contractually committed to develop the
internet businesses of several sporting goods retailers. The Company's failure
to meet these commitments could result in a forfeiture of the contracts and the
exclusive rights to certain future internet business.
NOTE 6 - COMPREHENSIVE INCOME
Comprehensive income for the three-month periods ended March 31, 1999 and 1998
was as follows:
THREE MONTHS ENDED
MARCH 31,
-------------------------------
1999 1998
------------------ -----------
Net income $ 424,971 $ 1,531,573
Foreign currency translation 47,431 2,671
adjustment
------------------ -----------
Comprehensive income $ 472,402 $ 1,534,244
================== ===========
NOTE 7 - BUSINESS SEGMENTS
The Company's reportable segments include the Branded segment, the Off-Price and
Action Sports segment and the E-Commerce segment. Under the Branded segment, the
Company designs, develops and markets each of its footwear brands to appeal to a
targeted consumer group. Brands offered by the Company include the RYKA and
Yukon brands and are primarily sold to athletic footwear stores, sporting goods
stores, department stores and independent retailers. Under the Off-Price and
Action Sports segment, the Company purchases manufacturers' closeout
merchandise, overstocks and canceled orders, as well as excess inventories of
athletic, outdoor and casual footwear, athletic apparel and sporting goods from
retailers, for resale to retailers principally in the United States and Canada.
The Company resells this merchandise to sporting goods stores, off-price
specialty stores, department stores, family footwear stores, and independent
retailers. The Company also designs and distributes special make-up snowboards
and other sport-related merchandise for selected retailers under its Off-Price
and Action Sports segment. Under the E-Commerce segment, the Company is in the
process of developing the internet businesses of several sporting goods
retailers.
Information by operating segment is as follows:
<TABLE>
Branded Off-Price & Consolidated
Action Sports E-Commerce Total
---------------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Three Months Ended March 31, 1999:
Net sales $13,158,203 $ 20,565,666 -- $ 33,723,869
Cost of sales 8,900,764 15,410,868 -- 24,311,632
---------------- ----------------- ---------------- ------------------
Gross margin $ 4,257,439 $ 5,154,798 -- 9,412,237
================ =================
Operating expenses $ 954,078 8,900,124
---------------- ------------------
Operating income $ (954,078) $ 512,113
================ ==================
</TABLE>
9
<PAGE>
GLOBAL SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
================================================================================
<TABLE>
Off-Price & Consolidated
Branded Action Sports E-Commerce Total
---------------- ----------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Three Months Ended March 31, 1998:
Net sales $ 7,341,646 $ 20,806,733 -- $ 28,148,379
Cost of sales 4,841,975 15,181,924 -- 20,023,899
---------------- ----------------- ---------------- ------------------
Gross margin $ 2,499,671 $ 5,624,809 -- 8,124,480
================ =================
Operating expenses -- 5,380,723
---------------- ------------------
Operating income -- $ 2,743,757
================ ==================
</TABLE>
Assets by reportable segment at March 31, 1999 and December 31, 1998 are as
follows:
<TABLE>
Segment March 31, 1999 December 31, 1998
------------ ------------------------ ----------------------
<S> <C> <C>
Branded $ 23,862,101 $ 20,279,475
Off-Price and Action Sports 48,940,168 52,343,839
E-Commerce -- --
------------------------ ----------------------
Operating segment assets 72,802,269 72,623,314
Assets not attributable to segments 8,005,223 6,242,872
------------------------ ----------------------
Consolidated assets $ 80,807,492 $ 78,866,186
======================== ======================
</TABLE>
NOTE 8 - SUBSEQUENT EVENT
On May 10, 1999, the Company announced a new division, Global Sports
Interactive. This e-Commerce division is in the process of developing the
internet businesses of several other major sporting goods retailers.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FORWARD LOOKING STATEMENTS
Certain information contained in this Form 10-Q contains forward looking
statements (as such term is defined in the Securities Exchange Act of 1934 and
the regulations thereunder), including without limitation, statements as to the
Company's financial condition, results of operations and liquidity and capital
resources and statements as to management's beliefs, expectations or options.
Such forward looking statements are subject to risks and uncertainties and may
be affected by various factors which may cause actual results to differ
materially from those in the forward looking statements. Certain of these risks,
uncertainties and other factors, as and when applicable, are discussed in the
Company's filings with the Securities and Exchange Commission, including its
most recent Form 10-K, a copy of which may be obtained from the Company upon
request and without charge (except for the exhibits thereto).
STRATEGIC BUSINESS DEVELOPMENTS
Effective May 12, 1998, the Company acquired Gen-X Holdings Inc. and Gen-X
Equipment Inc. (collectively, the "Gen-X Companies") in a purchase transaction.
The Company's reported results of operations include those of the Gen-X
Companies only for periods subsequent to the date of acquisition.
On May 10, 1999, the Company announced a new division, Global Sports
Interactive. This e-Commerce division is in the process of developing the
internet businesses of several other major sporting goods retailers.
RESULTS OF OPERATIONS
The Three-Month Period Ended March 31, 1999 Compared to The Three-Month Period
Ended March 31, 1998
The following table sets forth, for the periods indicated, the relative
percentages that certain items in the Company's Statements of Operations bear to
net sales:
<TABLE>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------
1999 1998
--------------------------------- ----------------------------------
$ % of Sales $ % of Sales
---------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Net sales $ 33,723,869 100.0% $28,148,378 100.0%
---------------- --------------- ----------------- ---------------
Cost & expenses:
Cost of
goods sold 24,311,632 72.1% 20,023,899 71.1%
Operating
expense 8,900,124 26.4% 5,380,723 19.1%
---------------- --------------- ----------------- ---------------
Operating income 512,113 1.5% 2,743,756 9.8%
Other expense,
net 772,575 2.3% 562,183 2.0%
---------------- --------------- ----------------- ---------------
Income (loss) before
income taxes (260,462) (0.8)% 2,181,573 7.8%
Provision for
(benefit from)
income taxes (685,433) (2.0)% 650,000 2.3%
---------------- --------------- ----------------- ---------------
Net income $ 424,971 1.2% $1,531,573 5.5%
================ =============== ================= ===============
</TABLE>
Net Sales
Net sales for the first quarter of 1999 increased by $5.6 million, or 20%, to
$33.7 million compared to net sales of $28.1 million in the first quarter of
1998. Net sales for the Branded division, which includes the RYKA and Yukon
brands, were approximately $13.2 million for the first quarter of 1999, a 79%
increase from the prior year's quarter and both brands experienced double-digit
increases over the same quarter in the prior year. Sales for the Off-Price and
Action Sports division were $20.6 million
11
<PAGE>
for the first quarter of 1999. This division experienced an unusually large,
high margin sale in the first quarter of 1998 which was the result of a
one-time, opportunistic purchase that management did not expect to repeat in
1999.
Cost of Goods Sold/Gross Margin
Gross margin for the first quarter of 1999 decreased to 27.9% from 28.9% for the
same quarter in the prior year. The Branded and Off-Price and Action Sports
divisions both experienced declines in gross margin over the prior year's
quarter. The Branded division's margins were down as a result of a shift of
revenues to the larger national chains, which is consistent with the trends in
the sporting goods retail sector. These larger chains typically require price
breaks above certain volume levels and have a generally higher discount
structure. The decrease in the Off-Price and Action Sports division margins are
the result of management's continued efforts to reduce off-price inventory
levels, as well as the unusually high margin sale in the first quarter of 1998
referred to above.
Operating Expense
As a percentage of net sales, operating expense for the first quarter of 1999
increased to 26.4% from 19.1% in the prior year's quarter. In absolute dollars,
operating expense increased by $3.5 million, or 65%, to $8.9 million in the
first quarter of 1999 from $5.4 million over the prior year's quarter. A
substantial portion of this increase is attributable to the Company's
expenditures for its new e-Commerce business, Global Sports Interactive.
Included in operating expense for the first quarter of 1999 is approximately
$1.0 million in expenses related to management salaries, web site development
and related travel expenses. The increase in operating expense also shows
management's continued commitment to investing in the Branded division, with a
strengthening of the production and sourcing function and increased marketing
and advertising. First quarter 1999 operating expense was also impacted by
incremental overhead of $1.5 million related to the Gen-X Companies acquired in
May of 1998.
Other Expense, Net
Other expense, net increased by $.2 million, or 37%, to $.8 million in the first
quarter of 1999 from $.6 in the prior year's quarter. Interest charges have
increased due to increases in general business levels and the Company's
assumption of the Gen-X Companies' credit line as part of the acquisition. These
increases were partially offset by substantial reductions in the Company's
average borrowing costs.
Income Taxes
The income tax benefit of $685,433 for the first quarter of 1999 results from a
consolidated loss before income taxes. The consolidated loss before income taxes
is comprised of income before income taxes generated by a foreign subsidiary
which is taxed at a lower rate offset by losses before income taxes generated by
certain other subsidiaries which are taxed at higher rates.
FINANCIAL CONDITION
Cash Flows
Historically, the operations of the Company have been financed by a combination
of internally generated resources, equity transactions, subordinated borrowings,
annual increases in the size of the bank credit facility and seasonal
over-advances. Increases in the bank credit facilities for the KPR Companies and
RYKA were required to fund the Company's increased investment in accounts
receivable and inventory necessary to support the increases in revenue. As of
March 31, 1999, the Company had net working capital of $2,445,216. The Company
used $909,309 in cash flows from operating activities for the three months ended
March 31, 1999, whereas in the same period of the prior year the Company used
$1,525,503 in cash flows from operating activities.
Liquidity
Under its primary loan agreement, as subsequently amended (the "Loan
Agreement"), the Company has access to a combined credit facility of
$40,000,000. The term of the Loan Agreement is five years. The loans have an
interest rate choice of prime plus 1/4% or LIBOR (Adjusted Eurodollar Rate) plus
two hundred seventy-five basis points. Under this credit facility, both the KPR
Companies and RYKA may borrow up to the amount of their revolving line based
upon 85% of their eligible accounts receivable and 65% of their eligible
inventory, as those terms are defined in the Loan Agreement. The Loan Agreement
also includes 50% of outstanding import letters of credit as collateral for
borrowing.
12
<PAGE>
In addition to the revolving lines of credit described above, the lender will
over-advance to the Company an additional $3,000,000, over the existing
collateral, for additional import letters of credit needed for seasonal
production of new merchandise for the Spring 1999 and Fall 1999 seasons.
Among other things, the Loan Agreement, as amended, requires the KPR Companies
and RYKA to achieve annual earnings before interest, taxes, depreciation and
amortization ("EBITDA") of $5,000,000 and it limits the Company's ability to
incur additional indebtedness, make payments on subordinated indebtedness, make
capital expenditures, sell assets, and pay dividends. At March 31, 1999, the
Company was not in compliance with the EBITDA covenant. The Company obtained a
waiver from the bank with respect to this covenant. Because there can be no
assurance that the Company will be in compliance with this covenant for any
period subsequent to March 31, 1999, the Company has classified the amounts
outstanding under this line as a current liability. The Company plans to enter
into negotiations with its lender to modify the terms of the Loan Agreement to
return itself to compliance.
At March 31, 1999, the aggregate outstanding under this line was $24,442,675. At
March 31, 1999, based on available collateral and outstanding import letters of
credit commitments, an additional $116,792 (including the seasonal over-advance)
was available on this line for borrowing.
The Company has an additional line of credit of approximately $20,000,000 for
use by the Gen-X Companies, which 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 certain of the
Gen-X Companies' assets. At March 31, 1999, draws of approximately $10,000,000
plus net bank overdrafts of $173,607 were committed under this line and, based
on available collateral and outstanding import letters of credit commitments, an
additional $4,331,613 was available on this line for borrowing.
As of the closing of the Loan Agreement, the KPR Companies owed Michael Rubin,
its Chairman and CEO, subordinated debt of $3,055,841 which is comprised of (i)
a loan from Mr. Rubin to the KPR Companies in the principal amount of $851,440,
plus accrued and unpaid interest on such loan of $180,517 through October 31,
1997 and (ii) a note in the principal amount of $2,204,401 representing
undistributed Subchapter S corporation retained earnings previously taxed to him
as the sole shareholder of the KPR Companies. No interest accrued on the note
representing Subchapter S corporation earnings until December 15, 1997 at which
time the interest began to accrue on such note at a choice of prime plus 1/4% or
LIBOR (Adjusted Eurodollar Rate) plus two hundred seventy-five basis points. The
Loan Agreement and the related Subordination Agreement allowed the Company to
repay Mr. Rubin $1,000,000 of the subordinated debt principal and the accrued
interest of $180,517 at the time of the closing of the Loan Agreement or within
five days thereafter, subject to there being $2,000,000 of availability under
the KPR Companies' credit line after taking into account such payments. Such
payments were made to Mr. Rubin on November 26, 1997. In addition, the Loan
Agreement and the Subordination Agreement permit the KPR Companies to make
continued regular payments of interest on the subordinated debt and to further
reduce principal on a quarterly basis, commencing with the first quarter of
1998, in an amount up to 50% of the cumulative consolidated net income of both
borrowers, reduced by net losses of the borrowers during such period. During
1998, aggregate principal payments of $250,000 were made. No payments on this
subordinated debt have been made to date in 1999.
The Company has made certain commitments with respect to developing the internet
businesses of several sporting goods retailers. The Company is going to have to
raise significant capital to meet these commitments and to continue to support
its existing Branded and Off-Price and Action Sports divisions. The Company is
currently evaluating several proposals to raise additional capital and expects
to raise such capital by the end of the second quarter of 1999. There are,
however, no assurances that the Company will be able to raise such capital.
13
<PAGE>
YEAR 2000
The Company recognizes the importance of advanced computerization in maintaining
and improving its level of service, internal and external communication and
overall competitive position. The Company maintains a management information
system that provides, among other things, comprehensive customer order
processing, inventory, production, accounting and management information for the
marketing, selling, manufacturing and distribution functions of the Company's
business. The Company has created a Year 2000 project team which is coordinating
efforts to evaluate, identify, correct or reprogram, and test the Company's
existing systems Year 2000 compliance. The Company is currently enhancing its
key information systems to improve their functionality and increase performance.
These upgrades will also make these applications Year 2000 compliant. The
Company expects to finish this upgrade prior to the end of the second quarter of
1999 and does not expect the costs of such steps to have a material impact on
the Company's results of operations, financial position, liquidity or capital
resources. The Company is in the process of developing a contingency plan in the
event that the above modifications do not result in Year 2000 compliance. In
addition to making its own systems Year 2000 compliant, the Company is in the
process of contacting its key suppliers and customers to determine the extent to
which the systems of such suppliers and customers are Year 2000 compliant and
the extent to which the Company could be effected by the failure of such third
parties to become Year 2000 compliant. The Company cannot presently estimate the
impact of the failure of such third parties to become Year 2000 Compliant. See
"Risk Factors - Risks Relating to Year 2000 Compliance" in the Company's most
recent Form 10-K.
14
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the information set forth in Item 7A of the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
15
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.19 Employment Agreement dated March 28, 1999 by and
between the Registrant and Michael
Golden.
10.40-G Consent and Amendment No. 7 to the Loan Documents by
and among KPR Sports International,
Inc., RYKA Inc. and Foothill Capital Corporation.
27.1 Financial data schedule for the three-month
period ended March 31, 1999 (electronic
filing only).
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K/A (Amendment to
Form 8-K dated May 12, 1998) on February 8, 1999 containing the
Gen-X Companies historical financial statements and Company pro
forma financial information.
16
<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.
DATE: May 14, 1999 By: /s/ Michael G. Rubin
----------------------------------------------
Michael G. Rubin
Chairman of the Board &
Chief Executive Officer
DATE: May 14, 1999 By: /s/ Steven A. Wolf
----------------------------------------------
Steven A. Wolf
Vice President &
Chief Financial Officer
17
EXHIBIT 10.19
KEY EMPLOYEE AGREEMENT
To: Michael Golden
38 W. 21st Street, 7th Floor
New York, NY 10010
The undersigned, Global Sports, Inc., a Delaware corporation with its
principal place of business located at 555 S. Henderson Road, King of Prussia,
Pennsylvania 19406 (the "Company"), hereby agrees with you as follows:
Position and Responsibilities.
1.1 You shall serve as Executive Vice President Global Sports
Interactive ("GSI") (or in such other executive capacity as shall be designated
by the Board of Directors or Executive Committee of the Company and is
reasonably acceptable to you) and shall perform the duties customarily
associated with such position from time to time. In such capacity, you will be
responsible for overall account management of GSI outsourcing clients, on and
off-line marketing, business development, technology, creative, production,
customer service and fulfillment operations.
1.2 You will devote your full time and your best efforts to the
performance of your duties hereunder and the business and affairs of the
Company. You agree to perform such executive duties as may be assigned to you by
or on authority of the Company's Board of Directors or Executive Committee from
time to time. You will report directly to the Chief Executive Officer.
1.3 You will duly, punctually, and faithfully perform and observe any
and all rules and regulations which the Company may or shall hereafter
reasonably establish governing your conduct as an employee and the conduct of
its business.
2. Term of Employment.
2.1 The initial term of this Agreement shall be for the period set
forth in Exhibit "A" annexed hereto. Thereafter, the term of this Agreement
shall be automatically renewed for successive periods of one (1) year each
unless you or the Company shall give the other not less than three (3) months
prior written notice of non-renewal. Notwithstanding anything contained herein
to the contrary, your employment by the Company may be terminated as provided in
the following Sections 2.2 and 2.3.
2.2 The Company shall have the right to terminate your employment at
any time under this Agreement prior to the expiration of the stated term in any
of the following ways:
(a) on thirty (30) days prior written notice to you in
the event of your disability (disability shall be
defined as your inability to perform duties under
this Agreement for an aggregate of ninety (90) days
out of any one hundred eighty(180) day period due to
mental or physical disability);
<PAGE>
(b) immediately, without prior notice to you by the
Company, for "Cause", as defined in Section 2.3 of
this Agreement;
(c) immediately, without prior notice to you by the
Company, upon your death or in the event of the
liquidation or reorganization of the Company under
the federal Bankruptcy Code or any state insolvency
or bankruptcy law; or
(d) at any time, without Cause (as defined herein);
provided, however, that if the Company terminates
your employment without Cause (as defined herein)
prior to the expiration of the stated term, the
Company shall continue to pay you your Base Salary,
as severance pay, and provide you with your benefits
that you are entitled to under paragraph 4 (a), (b)
and (c) of the attached Exhibit "A", for a period of
six (6) months after the effective date of your
termination (the "Severance Period").
2.3 For purposes of this Agreement, "Cause" shall mean: (i) the
falseness or material inaccuracy of any of your warranties or representations
contained herein; (ii) your willful failure or refusal to comply with explicit
directives of the Board of Directors or Executive Committee or to render the
services required herein after notice thereof from the Company and your failure
to cure such failure or refusal within ten days of receipt of such notice; (iii)
a determination by the Company acting in good faith that you are responsible for
fraud or embezzlement involving assets of the Company, its customers, suppliers
or affiliates or other misappropriation of the Company's assets or funds; (iv)
your conviction of a criminal felony offense; (v) the willful breach or habitual
neglect of your obligations under this Agreement or your duties as an employee
of the Company and your failure to cure such breach or neglect after notice from
the Company and your failure to cure such notice or neglect within ten days of
receipt of such notice; and/or (vi) habitual use of drugs.
The existence of Cause (as defined herein) for termination of your
employment by the Company shall be subject, upon the written election by you or
the Company, to binding arbitration as provided in Section 9 hereof. Further,
any dispute, controversy or claim arising out of, in connection with, or in
relation to, the definition of Cause as set forth in Section 2.3 of this
Agreement shall be settled by arbitration as provided in Section 9 hereof. Any
award or determination shall be final, binding and conclusive upon the parties,
and a judgment rendered may be entered in any court having jurisdiction thereof.
2.4 If your employment is terminated because of your death, all
obligations of the Company hereunder shall cease, except with respect to amounts
and obligations accrued to you through the thirtieth day after the date on which
your death has occurred. Except as specifically provided in Section 2.2(d), if
your employment is terminated by the Company for any other reason, all
obligations of the Company (except with respect to amounts and obligations
accrued to you prior to the date of termination) shall cease immediately as of
the date of termination.
2.5 In addition to the Company's termination rights set forth above,
you shall have the right to terminate this Agreement for "Good Cause", as
hereinafter defined. As used herein, the term "Good Cause" shall mean the
failure of the Company to employ you in the capacity and with the
<PAGE>
responsibilities for which you were hired as described in paragraph 1 above, and
the Company's failure to correct such failure within thirty days of notice from
you of the Company's alleged failure. Should the Company not correct the
situation, then you may again notify the Company of your election to terminate
this Agreement, effective thirty days from the date of the second notice. Such
termination by you shall be treated as a termination without Cause by the
Company and you shall be entitled to the benefits set forth in paragraph 2.2(d)
above.
The existence of Good Cause (as defined herein) for termination of your
employment by you shall be subject, upon the written election by you or the
Company, to binding arbitration as provided in Section 9 hereof. Further, any
dispute, controversy or claim arising out of, in connection with, or in relation
to, the definition of Good Cause as set forth in Section 2.5 of this Agreement
shall be settled by arbitration as provided in Section 9 hereof. Any award or
determination shall be final, binding and conclusive upon the parties, and a
judgment rendered may be entered in any court having jurisdiction thereof.
3. Compensation.
You shall receive the compensation and benefits set forth in Exhibit
"A" attached hereto ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights, if any, pursuant to an
agreement between you and the Company relating to proprietary information and
inventions dated of even date herewith, a copy of which is attached hereto as
Exhibit "C" (the "Proprietary Information Agreement").
4. Other Activities During Employment
4.1 Except for any outside directorships currently held by you, as
listed on Exhibit "B" attached hereto, and except with the prior written consent
of a disinterested majority of the Company's Board of Directors, which consent
will not be unreasonably withheld, you will not, during the term of this
Agreement, undertake or engage in any other employment, occupation or business
enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit "B" attached
hereto, you will not, during your employment hereunder, directly or indirectly,
engage (i) individually, (ii) as an officer, (iii) as a director, (iv) as an
employee, (v) as a consultant, (vi) as an advisor, (vii) as an agent (whether a
salesperson or otherwise), (viii) as a broker, or (ix) as a partner,
co-venturer, stockholder or other proprietor owning directly or indirectly more
than five percent (5%) interest in any firm, corporation, partnership, trust,
association or other organization which is engaged in the planning, research,
development, production, manufacture, marketing, sales or distribution of
athletic footwear, rugged outdoor footwear, sportswear, licensed products,
related products, equipment or services or any other line of business engaged in
or under demonstrable development by the Company, or any of its subsidiary
corporations, or their successors and assigns (such firm, corporation,
partnership, trust, association, or other organization being hereinafter
referred to as a "Prohibited Enterprise"). Except as may be shown on Exhibit "B"
attached hereto, you hereby represent that you are not presently engaged, in any
of the foregoing capacities (i) through (ix), in any Prohibited Enterprise.
<PAGE>
5. Former Employment.
5.1 You represent and warrant that your employment by the Company will
not conflict with and will not be constrained or restricted by any prior or
current employment, consulting agreement or relationship, whether oral or
written. You further represent and warrant that you do not possess confidential
information arising out of any such employment, consulting agreement or
relationship which, in your best judgment, would be utilized in connection with
your employment by the Company in the absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should find
that confidential information belonging to any other person or entity might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during your
employment by the Company you will use in the performance of your duties only
information which is generally known and used by persons with training and
experience comparable to your own and information which is common knowledge in
the industry or otherwise legally in the public domain.
6. Proprietary Information.
You agree to execute, deliver and be bound by the provisions of the
Proprietary Information Agreement attached hereto as Exhibit "C".
7. Post-Employment Activities.
7.1 For a period of one (1) year after the termination of your
employment with the Company or its successors and assigns, for any reason
whatsoever, the provisions of Section 4.2 shall remain applicable to you and you
shall comply therewith.
7.2 For a period of one (1) year after the termination or expiration of
your employment with the Company or its successors and assigns, for any reason
whatsoever, you will not, absent the Board of Directors' prior written approval,
directly or indirectly, engage in activities similar to those described in
Section 4.2, nor render services similar or reasonably related to those which
you shall have rendered hereunder, to any person or entity whether now existing
or hereafter established which directly or indirectly competes with (or proposes
or plans to compete with) the Company or any of its subsidiaries or their
successors and assigns ("Direct Competitor") in the sale, either traditionally
or through the Internet, of sporting goods, athletic footwear, rugged outdoor
footwear, sportswear, licensed products and related products and services,
whether with respect to merchandise manufactured by the Company or any of its
subsidiaries or their successors and assigns for resale or purchased by the
Company or any of its subsidiaries or their successors and assigns as "closeout"
merchandise for resale. Nor shall you entice, induce or encourage any other
employees of the Company or any of its subsidiaries or their successors or
assigns to engage in any activity which, were it done by you, would violate any
provision of the Proprietary Information Agreement or this Section 7. As used in
this Agreement, the term "any line of business engaged in or under demonstrable
development by the Company or any of its subsidiaries or their successors and
assigns" shall be applied as of the date of termination of your employment
hereunder or as of the
<PAGE>
date of termination of any post-employment consultation, whichever occurs later.
7.3 Notwithstanding anything contained in Section 7.1 or 7.2 of this
Agreement to the contrary, if your employment by the Company is terminated by
the Company without Cause (as defined herein), then you will be bound by the
provisions of Sections 7.1 and 7.2 only for the duration of the Severance
Period.
7.4 No provision of this Agreement shall be construed to preclude you
from performing, upon the expiration or termination of your employment (or any
post-employment consultation), the same services which the Company hereby
retains you to perform for any person or entity which is not a Direct Competitor
of the Company or its subsidiaries or their successors and assigns, so long as
you do not thereby violate any term of this Agreement or the Proprietary
Information Agreement.
8. Remedies.
Your obligations under the Proprietary Information Agreement and the
provisions of Sections 4.2, 7, 8, 9 and 11 of this Agreement shall survive the
expiration or termination of your employment with the Company or its successors
and assigns (whether through your resignation or otherwise). You acknowledge
that a remedy at law for any breach or threatened breach by you of the
provisions of the Proprietary Information Agreement or Sections 4 or 7 hereof
would be inadequate and you therefore agree that the Company shall be entitled
to injunctive relief in case of any such breach or threatened breach.
9. Arbitration.
Any dispute concerning this Agreement, including, but not limited to,
its existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Philadelphia, Pennsylvania, in accordance with the
expedited procedures of the commercial rules then in effect of the American
Arbitration Association. Judgment upon any award may be entered in the highest
court, state or federal, having jurisdiction. The cost of such arbitration shall
be borne equally between the parties thereto unless the arbitrator elects to
award costs and reasonable attorneys fees as part of the award which the
arbitrator shall have the authority to do.
10. Assignment.
This Agreement and the rights and obligations of the parties hereto
shall bind and inure to the benefit of any successor or successors of the
Company by reorganization, merger or consolidation and any assignee of all or
substantially all of its business and properties, but, except as to any such
successor or assignee of the Company, neither this Agreement nor any rights or
benefits hereunder may be assigned by the Company or by you, except by operation
of law or by a further written agreement by the parties hereto.
<PAGE>
11. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT, in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT, if any one or more of the provisions contained in this Agreement
is or becomes or is deemed invalid, illegal or unenforceable or in case any
provision of this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable laws
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
12. Notices.
Any notice which the Company is required to or may desire to give you
shall be given by registered or certified mail, return receipt requested,
addressed to you at your address of record with the Company, or at such other
place as you may from time to time designate in writing, with a copy to
_________________________________________. Any notice which you are required or
may desire to give to the Company hereunder shall be given by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to time
designate in writing with a copy to Arthur H. Miller, Esquire, Blank Rome
Comisky & McCauley LLP, One Logan Square, Philadelphia, Pennsylvania 19103.
13. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any right arising from any breach or failure to perform shall be
deemed to be a waiver of any future such right or of any other right arising
under this Agreement.
14. Complete Agreement; Amendments.
The foregoing, including Exhibits "A", "B" and "C" attached hereto,
constitutes the entire agreement of the parties with respect to the subject
matter hereof, superseding any previous oral or written communications,
representations, understandings, or agreements with the Company or any officer
or representative thereof. This Agreement may be amended or modified or certain
provisions waived only by a written instrument signed by the parties hereto,
upon authorization of the Company's Board of Directors.
15. Headings.
The headings of the sections contained in this Agreement are inserted
for convenience and
<PAGE>
reference only and in no way define, limit, extend or describe the scope of this
Agreement, the intent of any provisions hereof, and shall not be deemed to
constitute a part hereof nor to affect the meaning of this Agreement in any way.
16. Counterparts.
This Agreement may be signed in two counterparts, each of which shall
be deemed an original and both of which shall together constitute one agreement.
17. Governing Law.
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Pennsylvania.
If you are in agreement with the foregoing, please sign your name below
and at the bottom of the Proprietary Information Agreement attached hereto,
whereupon both Agreements shall become binding in accordance with their terms,
and return this Agreement to the Company. (You may retain the accompanying
counterpart of this Agreement enclosed herewith for your records).
Very truly yours,
GLOBAL SPORTS, INC.
By: __/s/ Michael G. Rubin_________
Name: Michael G. Rubin
Title: Chairman and Chief Executive Officer
ACCEPTED AND AGREED:
_/s/ Michael Golden_______
MICHAEL GOLDEN
Date: ____3/28/99_________
<PAGE>
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF
MICHAEL GOLDEN, EXECUTIVE VICE PRESIDENT GLOBAL SPORTS INTERACTIVE
1. Term.
The term of the Agreement to which this Exhibit "A" is annexed and
incorporated (the "Agreement") shall commence on February 4, 1999 and shall
terminate on December 31, 2003, unless renewed in accordance with Section 2.1 of
the Agreement or terminated prior thereto in accordance with Sections 2.2 or 2.3
of the Agreement.
2. Compensation.
a. Base Salary. During the term of the Agreement you will be paid an
annual Base Salary based as follows:
PERIOD ANNUAL BASE SALARY
Execution of the Agreement through
December 31, 1999 $150,000
January 1, 2000 through
December 31, 2000 $160,000
January 1, 2001 through
December 31, 2001 $170,000
January 1, 2002 through
December 31, 2002 $180,000
January 1, 2003 through
December 31, 2003 $190,000
b. Signing Bonus. Upon execution of this Agreement, you will receive a
bonus in the amount of $30,000.
c. Performance Bonuses. You will have the opportunity to earn
performance bonuses during each fiscal year of the Agreement, in an amount not
to exceed 60% of your Base Salary.
During the first fiscal year of the Agreement, you may receive a
performance bonus as follows:
<PAGE>
(i) up to 15% of your Base Salary, based upon the timely
launch (October 1, 1999) of all Global Sports
Interactive ("GSI") outsourcing clients signed by
March 1, 1999, not to exceed 12 retailers; and/or
(ii) up to 15% of your Base Salary based upon the gross
revenues of the Company's GSI business for the fiscal
year ending December 31, 1999, which revenues shall
be mutually agreed upon by you and the Company on or
before March 31, 1999; and/or
(iii) up to 15% of your Base Salary based upon your success
in creating the Company's GSI business, keeping its
overhead within budget and effectively using funds
allocated to the GSI business, as determined by the
Company's Chief Executive Officer; and/or
(iv) up to 15% of your Base Salary based upon your overall
performance review, as determined by the Company's
Chief Executive Officer.
During each subsequent fiscal year of the Agreement, you may receive a
performance bonus in an amount not to exceed 60% of your then Base Salary, as
determined by the Company's Board of Directors following consultation and
discussion between you and the Board.
All determinations as to meeting objective standards for bonuses shall
be made solely by the Company's regularly retained certified public accountants,
whose determinations shall be final and binding upon the parties and shall not
be subject to any appeal.
d. Payment of Base Salary. Base Salary and Bonuses shall be payable in
accordance with the Company's payroll policies.
3. Vacation.
You shall be paid for and be entitled to all legal and religious
holidays and two weeks paid vacation per annum, commencing the first year of the
Agreement; provided, however, you may not take more than one week of vacation at
a time. All vacation time shall be earned on a quarterly basis. You shall
arrange for vacations in advance and at such time or times as shall be mutually
agreeable to you and the Company. You shall be entitled to carry forward into
the subsequent year up to one (1) week of unused vacation time. You do not have
the right to receive pay in lieu of vacation.
4. Insurance and Benefits.
The Company, at its expense, shall provide you with the following
benefits in the same amounts and manner as provided to the members of the
Company's senior management:
(a) health insurance;
(b) long term disability insurance;
<PAGE>
(c) term life insurance; and
(d) participation in the Company's 401K Plan.
In addition, the Company shall provide you with the following other
benefits at the Company's expense:
(a) automobile allowance not to exceed $500 per month, which
includes automobile
insurance; and
(b) cell phone and cell phone account.
5. Expenses.
The Company shall reimburse you promptly for all reasonable and
ordinary business and out-of-pocket expenses incurred by you in connection with
the Company's business and in the scope of your employment hereunder, as
approved by the Company, including, without limitation, reasonable and necessary
travel, lodging, entertainment and meals incurred by you during the term of the
Agreement, provided the expenses are incurred in furtherance of the Company's
business and at the request of the Company. You agree to keep and maintain
records of the aforesaid expenses as may be requested by the Company and to
account to the Company for the expenses prior to reimbursement.
6. Stock Option.
Pursuant to the terms of the Company's 1996 Equity Incentive Plan (the
"Plan"), upon the execution of the Agreement, the Company shall grant to you a
five year option (such option is intended to be an "incentive stock option" as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, but is
subject to the requirements set forth therein) to purchase up to seventy-five
thousand (75,000) shares of the Company's common stock at an exercise price
equal to the fair market value (determined by the trading price) of the
underlying common stock on the date that you commence your employment pursuant
to the Agreement, which option shall vest as follows: fifteen thousand (15,000)
shares shall vest on December 31, 1999; fifteen thousand (15,000) shares shall
vest on December 31, 2000; fifteen thousand (15,000) shares shall vest on
December 31, 2001; fifteen thousand (15,000) shares shall vest on December 31,
2002; and fifteen thousand (15,000) shares shall vest on December 31, 2003.
The complete terms and conditions of this award shall be set forth in
the Option Grant Letter (the "Option Grant Letter") delivered to you
simultaneous herewith. Any conflict between the terms of the Option Grant Letter
and the Agreement shall be governed by the Option Grant Letter.
In the event of the termination of your employment caused by your
resignation, your dismissal with or without Cause (as defined herein), your
disability or your death, or in the event of a change in control as defined in
Section 6.3(b) of the Plan, your rights in the options shall be as set forth in
Article 6 of the Plan.
<PAGE>
7. Relocation.
You agree to establish your residency in the King of Prussia,
Pennsylvania area within (3) months from the date of the Agreement, with the
cost of such relocation to be borne by you.
INITIALS:
Employee: __/s/ MG___
Company: ________
<PAGE>
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS
OF
MICHAEL GOLDEN
Outside Directorships Company Ownership Percentage
1. Chairman of the Board Iguana Studios 250 shares 25%
2. Director Worldly Investor 10,000 shares less than 1%
3. Organic 185,000 shares 2.25%
4. Organic Holdings 20,000 shares 1%
5. Bd. of Advisors Stan Lee Media 100,000 shares 1.5%
<PAGE>
EXHIBIT C
- --------------------------------------------------------------------------------
PROPRIETARY INFORMATION AGREEMENT
- --------------------------------------------------------------------------------
To: GLOBAL SPORTS, INC.
555 South Henderson Road
King of Prussia, PA 19406
The undersigned ("Employee"), in consideration of and as a condition of
my employment or continued employment by you and/or by companies which you own,
control, or are affiliated with or their successors in business (collectively,
the "Company"), hereby agrees as follows:
1. Confidentialitv.
I agree to keep confidential, except as the Company may otherwise
consent in writing, and, except for the Company's benefit, not to disclose or
make any use of at any time either during or subsequent to my employment, trade
secrets and Confidential Information (as hereinafter defined), knowledge, data
or other information of the Company or any of its subsidiaries relating to
products, processes, know-how, techniques, methods, designs, formulas, test
data, customer lists, business plans, marketing plans and strategies, pricing
strategies, or other subject matter pertaining to any business of the Company or
any of its affiliates or subsidiaries, which I may produce, obtain, or otherwise
acquire during the course of my employment, except as herein provided. I further
agree not to deliver, reproduce or in any way allow any such trade secrets,
Confidential Information, knowledge, data or other information, or any
documentation relating thereto, to be delivered to or used by any third parties
without specific direction or consent of a duly authorized representative of the
Company.
As used herein, "Confidential Information" shall mean information or
materials that I know or have reason to know is the confidential or proprietary
information of the Company, either because such information is marked or
otherwise identified by the Company as confidential or proprietary, has
commercial value, or is not generally known in the Company's trade or industry.
Confidential Information shall include, without limitation: (a) concepts and
ideas relating to the development and distribution of content in any medium; (b)
trade secrets, drawings, inventions, know-how, software programs, and software
source documents; (c) information regarding plans for research, development, new
service offerings or products, marketing and selling, business plans, business
forecasts, budgets and unpublished financial statements, licenses and
distribution arrangements, prices and costs, suppliers and customers; and (d)
existence of any business discussions, negotiations or agreements between
parties.
<PAGE>
2. Conflicting Employment; Return of Confidential Information.
I agree that during my employment with the Company I will not engage in
any other employment, occupation, consulting or other activity relating to the
business in which the Company is now or may hereafter become engaged, or which
would otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, computer disks, documents and data of which I may obtain or produce
during the course of my employment, and I will not take with me any description
containing or pertaining to any confidential information, knowledge or data of
the Company which I may produce or obtain during the course of my employment.
3. Trade Secrets of Others.
I represent that my performance of all the terms of this Agreement and
as an employee of the Company does not and will not breach any agreement to keep
confidential proprietary information, knowledge or data acquired by me in
confidence or in trust prior to my employment with the Company, and I will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. I agree not to enter into any agreement either written or oral in
conflict herewith.
4. Modification.
I agree that any subsequent change or changes in my employment duties,
salary or compensation or, if applicable, in any Employment Agreement between
the Company and me, shall not affect the validity or scope of this Agreement.
5. Arbitration.
Any dispute concerning this Agreement including, but not limited to,
its existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Philadelphia, Pennsylvania, in accordance with the
expedited procedures of the commercial rules then in effect of the American
Arbitration Association. Judgment upon any award may be entered in the highest
court, state or federal, having jurisdiction. The cost of such arbitration shall
be borne equally between the parties thereto unless the arbitrator elects to
award costs and reasonable attorneys fees as part of the award which the
arbitrator shall have the authority to do.
6. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives and successors.
<PAGE>
7. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any one or more of the provisions of this Agreement is or
becomes or is deemed invalid, illegal or unenforceable or in case any one or
more of the provisions contained in this Agreement shall for any reason be held
to be excessively broad as to duration, geographical scope, activity or subject,
such provision shall be construed by amending, limiting and/or reducing it to
conform to applicable laws so as to be valid and enforceable or, if it cannot be
so amended without materially altering the intention of the parties, it shall be
stricken and the remainder of this Agreement shall remain in full force and
effect.
8. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any right arising from any breach or failure to perform shall be
deemed to be a waiver of any future such right or of any other right arising
under this Agreement.
9. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and
supersedes any prior oral or written communications, representations,
understandings or agreements concerning the subject matter hereof with the
Company or any officer or representative thereof. This Agreement may be amended,
modified, or certain provisions waived only by a written instrument signed by
the parties hereto, upon authorization of the Company is Board of Directors.
10. Headings.
The headings of the Sections contained in this Agreement are inserted
for convenience and reference only and in no way define, limit, extend or
describe the scope of this Agreement, the intent of any provisions hereof, and
shall not be deemed to constitute a part hereof nor to affect the meaning of
this Agreement in any way.
11. Counterparts.
This Agreement may be signed in two counterparts, each of which shall
be deemed an original and both of which shall together constitute one agreement.
12. Governing Law.
This Agreement shall be governed and construed in accordance with the
laws of the
<PAGE>
Commonwealth of Pennsylvania.
13. Notices.
All notices, requests, demands and communications which are or may be
required to be given hereunder shall be deemed given if and when sent by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses (or, by written notice to the other party, to such other
address as may be specified by either party):
If to the Company: GLOBAL SPORTS, INC.
555 South Henderson Road
King of Prussia, PA 19406
Attention: President
With a copy to: Arthur H. Miller, Esquire
Blank Rome Comisky & McCauley LLP
One Logan Square
Philadelphia, PA 19103
If to Employee: Michael Golden
705 Gawain Road
Plymouth Meeting, PA 19462
With a copy to:
In witness whereof, the undersigned Employee has placed his/her hand
and seal hereto and the Undersigned Employer has caused this Agreement to be
executed with intent to be legally bound hereby, the day and year first above
written.
EMPLOYEE:
Date: _____3/28/99_ ___/s/ Michael Golden___________
MICHAEL GOLDEN
ACCEPTED AND AGREED:
GLOBAL SPORTS, INC.
By: __/s/ Michael G. Rubin_____________
Name: Michael G. Rubin
Title: Chairman and Chief Executive Officer
Date: ___________________
EXHIBIT 10.40-G
CONSENT AND AMENDMENT NO. 7 TO LOAN DOCUMENTS
March 19, 1999
Foothill Capital Corporation
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025
Ladies and Gentlemen:
Foothill Capital Corporation ("Foothill") and KPR Sports International,
Inc. ("KPR") and RYKA Inc. ("Ryka", and together with KPR, individually,
"Borrower" and collectively, "Borrowers") have entered into certain financing
arrangements pursuant to the Amended and Restated Loan and Security Agreement
dated as of December 15, 1997 ("Restated Loan Agreement") by and among Foothill
and Borrowers as amended by Consent, Amendment No. 1 to Loan Documents and
Subordination Agreement, dated January 28, 1998, Amendment No. 1 to Amended and
Restated Loan and Security Agreement dated February 20, 1998, Consent, Amendment
No. 2 to Loan Documents and Waiver as to Certain Events of Default dated March
25, 1998, and Consent and Amendment No. 3 to Loan Documents dated as of May 12,
1998 and Amendment No. 4 to Loan Documents and Waiver, dated July __, 1998,
Amendment No. 5 to Loan Documents, dated December 3, 1998 (collectively, the
"Loan Agreement") and Consent and Amendment No. 6 to Loan Documents dated
January 29, 1999 and all agreements, documents and instruments at any time
executed and/or delivered in connection therewith or related thereto (together
with the Loan Agreement as the same are amended hereby, and as the same may be
amended, modified, supplemented, extended, renewed, restated or replaced,
collectively, the "Loan Documents"). All capitalized terms used herein shall
have the meanings assigned thereto in the Restated Loan Agreement, unless
otherwise defined herein.
Borrowers have requested that Foothill consent to the formation of a
new [indirectly] wholly-owned subsidiary of Global Sports, Inc. (the "Holding
Company"), namely, Global Sports Interactive, Inc., a Pennsylvania corporation
(the "Web Subsidiary").
Foothill is willing to consent to the foregoing subject to the terms
and conditions contained herein. By this Consent and Amendment, Foothill and
Borrowers desire and intend to evidence such consent and amendments.
In consideration of the foregoing, the parties hereto agree as follows:
1. Schedule 5.8. Schedule 5.8 of the Restated Loan Agreement is hereby
amended by adding the following to the end thereof:
- 1 -
<PAGE>
- Global Sports Interactive, Inc.
- PENNSYLVANIA CORPORATION
- 10,000 SHARES OF COMMON STOCK AUTHORIZED
- 100 SHARES OWNED BY GLOBAL SPORTS, INC.
WHICH IS 100% OF THE ISSUED AND
OUTSTANDING STOCK
2. Consent to Formation of Web Subsidiary. Pursuant to Section 7.13 of
the Restated Loan Agreement, Section 5.7(c) of the General Security Agreement
dated as of December 15, 1997 executed and delivered by Holding Company and any
other applicable provision of the Loan Documents, Borrowers and Guarantors
hereby request and Lender hereby consents to the formation of Global Sports
Interactive, Inc., a Pennsylvania corporation, to be owned as set forth on
amended Schedule 5.8 of the Restated Loan Agreement; provided, that, Borrowers
and Guarantors covenant that Borrowers and Guarantors shall not contribute more
than $1,000,000 (including all contributions made through the date hereof) in
the aggregate to Web Subsidiary until such time as Web Subsidiary is made a
party to the Loan Documents on terms and conditions acceptable to Lender.
3. Representations and Warranties. In addition to, and not in
limitation of, the continuing representations, warranties and covenants
heretofore or hereafter made by Borrowers to Foothill pursuant to the Loan
Documents, each Borrower hereby represents, warrants and covenants with and to
Foothill as follows (which representations, warranties and covenants are
continuing and shall survive the execution and delivery hereof and shall be
incorporated into and made a part of the Loan Documents):
(a) As of the date hereof, and after giving effect to the
consents set forth in paragraph 2 hereof, there exists no Event of Default and
no condition or event or other state of facts which, with the giving of notice
or lapse of time, or both, would constitute an Event of Default.
(b) This Consent and Amendment has been duly executed and
delivered by each Borrower and each Guarantor and is in full force and effect as
of the date hereof, and the agreements and obligations of each Borrower and each
Guarantor contained herein constitute legal, valid and binding obligations of
each Borrower and each Guarantor enforceable against each Borrower and each
Guarantor in accordance with their respective terms.
(c) All of the representations and warranties set forth in the
Loan Agreement and the other Loan Documents are true and correct in all material
respects on and as of the date hereof as if made on the date hereof, after
giving effect to the consent set forth in paragraph 2 hereof and the
consummation of the formation of the Web Subsidiary, except to the extent any
such representation or warrant is made as of a specified date, in which case
such representation or warranty shall have been true and correct as of such
date.
4. Conditions Precedent. The consent and amendments herein shall be
effective upon the receipt by Foothill of a counterpart of this Consent and
Amendment, duly authorized, executed and delivered by Borrowers and Guarantors.
- 2 -
<PAGE>
5. Effect of this Consent and Amendment.
(a) Except as modified pursuant hereto, no other changes or
modifications to the Loan Documents are intended or implied and in all other
respects the Loan Documents are hereby specifically ratified, restated and
confirmed by all parties hereto as of the effective date hereof. To the extent
of any conflict between the terms hereof and the other Loan Documents, the terms
hereof shall control.
(b) In addition to, and not in limitation of, any term or
provision contained in the Loan Agreement or any other Loan Document that
prohibits the disposal of assets of any Borrower or Guarantor, including,
without limitation, Section 7.4 of the Restated Loan Agreement, none of
Borrowers or Guarantors shall, without the prior written consent of Foothill in
each instance, dispose of any assets of any Borrower or Guarantor to any Person.
6. Further Assurances. The parties hereto shall execute and deliver
such additional documents and take such additional action as may be necessary or
desirable to effectuate the provisions and purposes of this Consent and
Amendment.
7. Governing Law. The rights and obligations hereunder of each of the
parties hereto shall be governed by and interpreted and determined in accordance
with the laws of the State of New York.
8. Binding Effect. This Consent and Amendment shall be binding upon and
inure to the benefit of each of the parties hereto and their respective
successors and assigns.
9. Counterparts. This Consent and Amendment may be executed in any
number of counterparts, but all of such counterparts shall together constitute
but one and the same agreement. In making proof of this Consent and Amendment,
it shall not be necessary to produce or account for more than one counterpart
thereof signed by each of the parties hereof.
Please sign the enclosed counterpart of this Consent and Amendment in
the space provided below, whereupon this Consent and Amendment, as so accepted
by Foothill, shall become a binding agreement among Borrowers and Foothill.
Very truly yours,
KPR SPORTS INTERNATIONAL, INC.
By: /s/ Michael G. Rubin
Title: Chairman and CEO
[SIGNATURES CONTINUE ON NEXT PAGE]
- 3 -
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
RYKA, INC.
By: /s/ Michael G. Rubin
Title: Chairman and CEO
AGREED:
FOOTHILL CAPITAL CORPORATION
By: /s/ Erik R. Sawyer
Title: Vice President
ACKNOWLEDGED AND AGREED TO
IN ALL RESPECTS:
APEX SPORTS INTERNATIONAL, INC.
By: /s/ Michael G. Rubin
Title: Chairman and CEO
MR MANAGEMENT INC.
By: /s/ Michael G. Rubin
Title: Chairman and CEO
GLOBAL SPORTS, INC.
By: /s/ Michael G. Rubin
Title: Chairman and CEO
[SIGNATURES CONTINUE ON NEXT PAGE]
- 4 -
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
G.S.I., INC.
By: /s/ Michael G. Rubin
Title: Chairman and CEO
GLOBAL SPORTS INTERACTIVE, INC.
By: /s/ Michael G. Rubin
Title: Chairman and CEO
/s/ Michael G. Rubin
MICHAEL RUBIN
- 5 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND THE RELATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31,
1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 619,906
<SECURITIES> 0
<RECEIVABLES> 41,511,538
<ALLOWANCES> 919,222
<INVENTORY> 17,472,869
<CURRENT-ASSETS> 62,195,870
<PP&E> 5,983,494
<DEPRECIATION> 1,562,824
<TOTAL-ASSETS> 80,807,492
<CURRENT-LIABILITIES> 59,750,654
<BONDS> 0
100
0
<COMMON> 131,093
<OTHER-SE> 16,140,918
<TOTAL-LIABILITY-AND-EQUITY> 80,807,492
<SALES> 33,723,869
<TOTAL-REVENUES> 33,723,869
<CGS> 24,311,632
<TOTAL-COSTS> 33,211,756
<OTHER-EXPENSES> 772,575
<LOSS-PROVISION> 60,674
<INTEREST-EXPENSE> 847,464
<INCOME-PRETAX> (260,462)
<INCOME-TAX> (685,433)
<INCOME-CONTINUING> 424,971
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 424,971
<EPS-PRIMARY> .04
<EPS-DILUTED> .03
</TABLE>
