<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): May 15, 1996
CALIFORNIA PRO SPORTS, INC.
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-25114 84-12117733
-------- ------- -----------
(STATE OR OTHER (COMMISSION (I.R.S. EMPLOYER
JURISDICTION FILE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION)
8102 WHITE HORSE ROAD
GREENVILLE, SC 29611
------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (864) 294-5370
NOT APPLICABLE
--------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED.
1. Audited financial statements for the companies acquired by
USA Skate Corporation (which include U S A Skate Co., Inc.,
Les Equipements Sportifs Davtec Inc., and 811300 Ontario Inc.
D/B/A McMartin Hockey Protection) for the years ended December 31,
1994 and 1995 and unaudited financial statements of these companies
for the three months ended March 31, 1995 and 1996.
(b) PRO-FORMA FINANCIAL INFORMATION.
1. Unaudited condensed pro forma consolidated financial
statements for the year ended December 31, 1995 and the
three months ended March 31, 1996 for the Registrant and
its subsidiaries.
SIGNATURE
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.
CALIFORNIA PRO SPORTS, INC.
Date: July 29, 1996 By /s/ Barry S. Hollander
-----------------------------------
Chief Financial Officer
-2-
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent auditors' report 1
Combined financial statements:
Balance sheets 2
Statements of operations 3
Statements of shareholders' equity 4
Statements of cash flows 5-6
Notes to combined financial statements 7-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
USA Skate Corporation
We have audited the accompanying combined balance sheet of the Companies
Being Acquired by USA Skate Corporation (the "Companies", Note 1) as of
December 31, 1995, and the related combined statements of operations,
shareholders' equity and cash flows for each of the years in the two-year
period ended December 31, 1995. 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.
The accompanying combined financial statements have been prepared for
inclusion in Form 8-K being filed by California Pro Sports, Inc. to comply
with the rules and regulations of the Securities and Exchange Commission in
reporting its acquisition effective April 30, 1996 of a majority ownership
interest in the Companies. However, the combined financial statements are
not necessarily indicative of the financial position or results of operations
that would have been attained had the Companies actually been operating as a
combined entity during the periods being presented.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of the Companies as
of December 31, 1995, and the results of their operations and their cash
flows for each of the years in the two-year period ended December 31, 1995,
in conformity with generally accepted accounting principles.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
May 17, 1996
1
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED BALANCE SHEETS
December 31, March 31,
1995 1996
----------- -----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 607,992 $ 541,276
Accounts receivable, less allowance
for doubtful accounts (1995, 749,000; 1996,
$721,000, Notes 6, 7 and 20) 3,243,214 1,955,875
Receivables from related parties (Note 11) 80,792 55,646
Inventories (Notes 4, 7 and 20) 5,100,677 5,911,349
Refundable income taxes 159,307 158,619
Prepaid expenses 51,041 77,616
----------- -----------
Total current assets 9,243,023 8,700,381
----------- -----------
Property and equipment, net of accumulated
depreciation (Notes 5, 7 and 20) 1,153,908 1,241,539
Intangible assets and other, net of accumulated
amortization (Note 2) 482,197 469,733
----------- -----------
1,636,105 1,711,272
----------- -----------
$10,879,128 $10,411,653
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 10) $ 311,477 $ 267,911
Notes payable:
Bank (Notes 7 and 20) 5,263,268 5,043,387
Other (Note 8) 496,172 496,172
Accounts payable and accrued expenses (Note 9) 904,076 859,620
Income taxes payable 465,537 389,294
Interest payable to related parties (Note 8) 26,700 32,400
----------- -----------
Total current liabilities 7,467,230 7,088,784
----------- -----------
Long-term debt, net of current portion (Note 10) 344,134 333,433
Notes payable, related parties (Note 8) 373,750 343,750
----------- -----------
717,884 677,183
----------- -----------
Commitments and contingencies (Notes 2, 3, 12,
13, 18 and 20)
Shareholders' equity (Notes 7, 17, 19 and 20):
Common stock 18 18
Capital in excess of par 20,884 20,884
Retained earnings 2,877,756 2,894,171
Cumulative foreign currency
translation adjustment (204,644) (269,387)
----------- -----------
Total shareholders' equity 2,694,014 2,645,686
----------- -----------
$10,879,128 $10,411,653
----------- -----------
----------- -----------
See notes to combined financial statements.
2
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
Three months ended
Year ended Year ended March 31,
December 31, December 31, --------------------------
1994 1995 1995 1996
------------ ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $16,593,510 $14,299,937 $ 1,816,675 $2,021,660
Cost of sales 11,072,804 9,260,081 1,054,210 1,278,461
----------- ---------- ----------- ----------
Gross profit 5,520,706 5,039,856 762,465 743,199
----------- ---------- ----------- ----------
Operating expenses:
Sales and marketing expenses 1,737,623 1,403,135 245,297 234,530
General and administrative
expenses 2,092,438 1,718,053 358,924 303,196
License fees, related party
(Note 3) 101,289 157,126 24,160 19,556
Rent expense, related party
(Note 12) 82,847 116,611 26,817 38,750
----------- ---------- ----------- ----------
4,014,197 3,394,925 655,198 596,032
----------- ---------- ----------- ----------
Income from operations 1,506,509 1,644,931 107,267 147,167
----------- ---------- ----------- ----------
Other charges (credits):
Interest expense:
Related parties (Note 8) 10,270 30,100 7,149 7,110
Others 623,052 771,223 176,006 111,251
Interest income, related party
(Note 11) (8,943) (39,410) (8,516) (10,998)
Foreign currency loss (gain) 26,117 106,395 (13,579) 14,108
Rental income and other (99,390) (18,272) (21,752) (3,719)
----------- ---------- ----------- ----------
551,106 850,036 139,308 117,752
----------- ---------- ----------- ----------
Income (loss) before income
taxes 955,403 794,895 (32,041) 29,415
Income tax expense (benefit)
(Note 14) 495,000 422,000 (17,000) 13,000
----------- ---------- ----------- ----------
Net income (loss) $ 460,403 $ 372,895 $ (15,041) $ 16,415
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
See notes to combined financial statements. 3
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY (NOTE 1)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
<TABLE>
Foreign
Common stock currency
---------------- Capital in Retained translation
Shares Amount excess of par earnings adjustment Total
------ ------ ------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994,
as previously reported 200 $18 $20,884 $1,895,105 $ (73,696) $1,842,311
Prior year adjustments
(Note 17) 6,340 6,340
--- --- ------- ---------- --------- ----------
Balances, January 1, 1994,
as restated 200 18 20,884 1,901,445 (73,696) 1,848,651
Foreign currency
translation adjustment (158,480) (158,480)
Net income, as restated 460,403 460,403
--- --- ------- ---------- --------- ----------
Balances,
December 31, 1994 200 18 20,884 2,361,848 (232,176) 2,150,574
Net income 372,895 372,895
Foreign currency
translation adjustment 27,532 27,532
Adjustment for
combination of company
with different fiscal
year end (Note 1) 143,013 143,013
--- --- ------- ---------- --------- ----------
Balances,
December 31, 1995 200 18 20,884 2,877,756 (204,644) 2,694,014
Net income (unaudited) 16,415 16,415
Foreign currency translation
adjustment (unaudited) (64,743) (64,743)
--- --- ------- ---------- --------- ----------
Balances, March 31, 1996
(unaudited) 200 $18 $20,884 $2,894,171 $(269,387) $2,645,686
--- --- ------- ---------- --------- ----------
--- --- ------- ---------- --------- ----------
</TABLE>
See notes to combined financial statements. 4
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
Three months ended
Year ended Year ended March 31,
December 31, December 31, ---------------------------
1994 1995 1995 1996
------------ ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 460,403 $ 372,895 $ (15,041) $ 16,415
------------ ----------- ----------- -----------
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization 59,567 94,490 30,021 17,380
Provision for losses on accounts
receivable 213,242 202,458 38,000 28,000
Foreign currency loss (gain) 26,117 106,395 (13,579) 14,108
Decrease (increase) in assets:
Accounts receivable (1,267,563) 1,332,665 1,915,053 1,280,036
Receivables from related parties (270,705) (28,538) (49,775) 23,395
Inventories 184,546 (659,594) (1,650,934) (803,171)
Refundable income taxes (214,833) (161,087) (223,168) (505)
Prepaid expenses and other assets (275,980) 213,280 153,710 (26,131)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses (752,989) (214,810) 240,642 (94,439)
Income taxes payable 124,721 58,788 (32,056) (103,079)
Interest payable to related parties 10,004 16,696 5,700
------------ ----------- ----------- -----------
Total adjustments (2,163,873) 960,743 407,914 341,294
------------ ----------- ----------- -----------
Net cash (used in) provided by
operating activities (1,703,470) 1,333,638 392,873 357,709
------------ ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (140,352) (220,794) (15,173) (82,802)
Payments for acquisition of subsidiary
interests (1,395,752)
------------ ----------- ----------- -----------
Net cash used in investing activities (1,536,104) (220,794) (15,173) (82,802)
------------ ----------- ----------- -----------
Cash flows from financing activities:
Proceeds from notes payable and
long-term debt 3,466,452 227,375 64,191 36,829
Repayment of notes payable and
long-term debt (354,387) (1,185,327) (732,875) (367,958)
------------ ----------- ----------- -----------
Net cash provided by (used in)
financing activities 3,112,065 (957,952) (668,684) (331,129)
------------ ----------- ----------- -----------
</TABLE>
(Continued) 5
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
Three months ended
Year ended Year ended March 31,
December 31, December 31, ---------------------------
1994 1995 1995 1996
------------ ----------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Effect of exchange rate changes on
cash and cash equivalents 27,591 (67,570) 207 (10,494)
------------ ----------- ----------- -----------
Net (decrease) increase in cash and
cash equivalents (99,918) 87,322 (290,777) (66,716)
Cash and cash equivalents, beginning 620,588 520,670 520,670 607,992
------------ ----------- ----------- -----------
Cash and cash equivalents, ending $ 520,670 $ 607,992 $ 229,893 $ 541,276
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 654,564 $ 747,648 $ 153,899 $ 126,102
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
Cash paid for income taxes $ 576,518 $ 410,578 $ 26,575 $ 89,243
------------ ----------- ----------- -----------
------------ ----------- ----------- -----------
</TABLE>
See notes to combined financial statements.
6
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
1. Basis of presentation, business and summary of significant accounting
policies:
Basis of presentation:
The accompanying combined financial statements include the combined results
of operations, changes in shareholders' equity and cash flows of USA Skate
Co., Inc. ("USA Skate"), Les Equipements Sportifs Davtec Inc. ("Davtec"),
and 811300 Ontario Inc. (d/b/a McMartin Hockey Protection) ("McMartin") for
the years ended December 31, 1994 and 1995 and the three months ended
March 31, 1995 and 1996, and the combined financial position of USA Skate,
Davtec and McMartin as of December 31, 1995 and March 31, 1996. USA
Skate, Davtec and McMartin are collectively referred to as the "Companies".
The significant subsidiaries of USA Skate are Davtec, acquired by USA Skate
in 1994, and McMartin, acquired by Davtec in March 1996. All material
intercompany accounts and transactions have been eliminated in combination.
Effective April 30, 1996, USA Skate and its subsidiaries were acquired by
USA Skate Corporation pursuant to the terms of a stock purchase agreement
(the "Purchase Agreement"). USA Skate Corporation is a majority owned
subsidiary of California Pro Sports, Inc.
Subsequent to USA Skate's acquisition of Davtec (Note 2), the year end of
Davtec was changed from March 31 to December 31 to conform with the year
end of USA Skate. This change took effect during the year ended December
31, 1995. Accordingly, Davtec's 1995 statement of operations has been
recast to provide a full twelve months of operations from January 1, 1995
to December 31, 1995. For the year ended December 31, 1994, Davtec is
combined on the basis of its March 31, 1995 fiscal year. The results of
operations of Davtec for the three months ended March 31, 1995, which
resulted in a net loss of $143,013, have been adjusted for in the combined
statements of shareholders' equity. For the years ended December 31, 1994
and 1995, McMartin is combined on the basis of its January 31, 1995 and
1996 fiscal years, respectively.
Business of the Companies:
The Companies market and distribute ice and street/roller hockey skates,
related gear and accessories under the Victoriaville and Vic brands to
retail sporting goods stores principally in North America. Davtec
manufactures hockey sticks, pants and gloves for USA Skate and is the
Canadian distributor for all of the hockey-related Victoriaville and Vic
product lines. Davtec also manufactures the Hespeler premium brand of
hockey equipment for the Canadian market. McMartin manufactures hockey
protective equipment, primarily for USA Skate and Davtec.
7
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
1. Basis of presentation, business and summary of significant accounting
policies (continued):
Unaudited financial statements:
The combined balance sheet as of March 31, 1996, the combined statements
of operations and cash flows for the three months ended March 31, 1995 and
1996, and the combined statements of shareholders equity for the three
months ended March 31, 1996 have been prepared by the Companies without
audit. In the opinion of management, all adjustments (which include normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows for all such periods have been made.
The results of operations for the three months ended March 31, 1996 are not
necessarily indicative of the operating results for the full year.
Use of estimates in financial statement preparation:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Foreign currency translation:
The balance sheet accounts of Davtec and McMartin are translated from
Canadian dollars to U.S. dollars at the rates of exchange at the balance
sheet date. The resultant translation adjustments are included in a
cumulative foreign currency translation adjustment, a separate component of
shareholders' equity. Income and expense accounts are translated at
average rates of exchange during the periods. Gains and losses from foreign
currency transactions are included in net earnings.
Cash and cash equivalents:
Cash and cash equivalents include all cash balances and highly liquid money
market accounts with original maturities of three months or less.
Inventories:
Inventories are stated at the lower of cost (first-in first-out method)
or market.
8
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
1. Basis of presentation, business and summary of significant accounting
policies (continued):
Property, equipment, and depreciation:
Property and equipment are stated at cost. Depreciation is provided by
use of accelerated and straight-line methods over the estimated useful
lives of the related assets as follows: building and improvements, 20
years; machinery, equipment, office equipment and furniture, 5 to 10 years.
Intangible and other assets:
Intangible and other assets primarily consist of goodwill, arising from
the acquisition of Davtec (Note 2). Goodwill is being amortized on the
straight-line method over 25 years.
At each balance sheet date, management assesses whether there has been an
impairment in the carrying value of intangible assets, primarily by
comparing current and projected sales, operating income, and annual cash
flows on an undiscounted basis, with the assets' carrying value. Based on
its review, the Companies do not believe that an impairment of intangible
assets exists. Intangible and other assets consist of:
December 31, March 31,
1995 1996
------------ -----------
(Unaudited)
Goodwill $504,694 $504,694
Other assets 6,188
-------- --------
510,882 504,694
Less accumulated amortization 28,685 34,961
-------- --------
$482,197 $469,733
-------- --------
-------- --------
Product warranty:
The manufacturing Companies provide a product warranty covering defects
in workmanship and materials for a period of one month from the date of
purchase.
9
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
1. Basis of presentation, business and summary of significant accounting
policies (continued):
Income taxes:
Deferred income taxes are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred taxes of a change in tax rates will be recognized in operations
in the period of the enactment date.
All U.S. federal and state income taxes and foreign taxes are provided
currently on the undistributed earnings of foreign subsidiaries, giving
recognition to current tax rates and applicable foreign tax credits.
Canadian investment tax credits for Davtec are deferred and included in
income as a reduction of depreciation expense over the estimated useful
lives of the assets that gave rise to the credits.
Recently issued accounting standards:
Management does not believe that any recently issued accounting standards
will have a material impact on the Companies' combined financial position
or results of operations.
2. Acquisition of Davtec and McMartin:
In 1987, Davtec was formed by USA Skate and unrelated third parties,
with USA Skate owning one-third of the outstanding common stock. In August
1994, USA Skate, through its non-operating subsidiaries, acquired another
one-third interest, and in December 1994 acquired the remaining interest
in Davtec for a total of approximately $1,396,000 in cash. The
acquisition transactions have been accounted for under the purchase method
of accounting. USA Skate's total investment in Davtec, of approximately
$1,777,000, was allocated to the estimated fair value of the assets
acquired and liabilities assumed resulting in approximately $505,000 of
goodwill, which is being amortized on the straight line method over
25 years.
10
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
2. Acquisition of Davtec and McMartin (continued):
In March 1996, Davtec acquired all of the issued and outstanding common
stock of McMartin for approximately $330,000 in cash and two non-interest
bearing secured promissory notes of approximately $266,000. One of the
promissory notes for $182,000 is due in annual installments equal to 7% of
McMartin's gross sales, with the unpaid balance due February 2002. The
second promissory note is due in 1996. The acquisition was accounted for
under the purchase method of accounting, and the total purchase price of
approximately $596,000 was allocated to the fair value of the assets
acquired and liabilities assumed. The excess of the purchase price over the
fair value of approximately $182,000 was allocated to goodwill and is being
amortized on the straight line method over 25 years.
3. License agreements:
Victoriaville and Vic trademark licenses:
In 1984 and 1987, USA Skate and Davtec entered into trademark license
distribution agreements with a third party, which granted USA Skate and
Davtec exclusive worldwide rights to the Victoriaville and Vic trademarks
in return for license fees based on certain percentages of sales of the
related products.
In September 1994, these agreements were terminated, and the controlling
shareholder of USA Skate acquired the Victoriaville and Vic trademark
licenses. In connection with this transaction, USA Skate paid approximately
$500,000 of previously unpaid royalty fees to a third party, due under the
1984 agreements. In addition, USA Skate advanced approximately $447,000 to
the controlling shareholder of USA Skate (Note 11), for which the
controlling shareholder has allowed USA Skate to continue to use the
trademarks. Davtec entered into an agreement with the controlling
shareholder for the exclusive Canadian trademark rights in return for
license fees based on 2% of Davtec's related product sales. License fees
under the Victoriaville and Vic trademarks were $167,258 and $157,126 in
1994 and 1995, and $24,160 (unaudited) and $19,556 (unaudited) for the
three months ended March 31, 1995 and 1996, respectively.
11
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
3. License agreements (continued):
Effective April 30, 1996, pursuant to the terms of the Purchase Agreement,
the existing Davtec license agreement was terminated, and USA Skate entered
into an exclusive license agreement with the controlling shareholder of USA
Skate. The April 1996 license agreement grants USA Skate the exclusive
worldwide rights to the Victoriaville and Vic trademarks through February
2003, in return for royalties of 1% of net sales, as defined, which exceed
$50,000,000 in the first contract year and $75,000,000 in subsequent years,
subject to guaranteed minimum royalties of $3,000,000, to be paid in two
$150,000 installments in February and June 1997, and $300,000 semi-annual
installments beginning in December 1997, subordinated to a new credit
facility obtained in April 1996 (Note 20). Upon the payment of $3,000,000
in royalties, all right, title and interest in and to the trademarks will
vest to USA Skate.
In 1995, Davtec entered into an agreement, which allows Davtec to
manufacture and sell certain licensed hockey stick products in Canada, in
return for license fees based on 2% of sales, as defined, from April 1995
through October 2002. License fees under this agreement were approximately
$15,000 in 1995, and none (unaudited) for the three months ended March 31,
1996.
Davtec manufactures hockey equipment under the Hespeler trademark. During
1994 and 1995, Davtec agreed to pay fees based on 2% of Hespeler sales, as
defined, to the trademark owner. Fees related to Hespeler sales were
approximately $38,000 and $53,000 in 1994 and 1995, respectively, and
$5,000 (unaudited) and $5,070 (unaudited) for the three months ended March
31, 1995 and 1996, respectively.
4. Inventories:
Inventories consist of:
December 31, March 31,
1995 1996
------------ -----------
(Unaudited)
Raw materials $ 649,321 $ 706,778
Work-in-process 272,616 198,900
Finished goods 4,178,740 5,005,671
---------- ----------
$5,100,677 $5,911,349
---------- ----------
---------- ----------
The elements of cost in inventories include materials, labor and overhead.
12
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
5. Property and equipment:
December 31, March 31,
1995 1996
------------ -----------
(Unaudited)
Property and equipment consist of:
Land $ 26,995 $ 27,221
Building and improvements 790,143 796,529
Machinery and equipment 946,546 1,022,049
Office equipment and furniture 201,909 250,414
---------- ----------
1,965,593 2,096,213
Less accumulated depreciation 811,685 854,674
---------- ----------
$1,153,908 $1,241,539
---------- ----------
---------- ----------
6. Significant concentrations and major customers:
The Companies grant credit, generally without collateral, to customers
in the retail sporting goods industry. The Companies' customers are not
concentrated in any specific geographic region. Bad debt expense was
approximately $213,000, and $202,000 in 1994 and 1995, respectively and
$38,000 (unaudited) and $28,000 (unaudited) for the three months ended
March 31, 1995 and 1996, respectively.
During 1994 and 1995, approximately 23% and 27%, respectively, of the
Companies' purchases were from one supplier, and for the three months ended
March 31, 1995 and 1996, approximately 51% (unaudited) and 29% (unaudited)
were from one supplier. Management believes that other suppliers could
provide similar products on comparable terms. A change in suppliers,
however, could cause a delay in manufacturing and a possible loss of sales
which would affect operating results adversely.
13
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
7. Notes payable, bank:
At December 31, 1995, USA Skate had $2,673,479 of borrowings outstanding
under a loan agreement with a bank, $2,394,867 (unaudited) at March 31,
1996, which are collateralized by substantially all of USA Skate's assets,
$300,000 of liquid collateral provided by two shareholders of USA Skate,
and personal guarantees of two shareholders of USA Skate. Additionally,
$221,770 of shareholder loans are subordinated to the notes payable. Loans
under the agreement bear interest at 1% above the bank's prime rate of 8.5%
at December 31, 1995 and 8.25% (unaudited) at March 31, 1996 for working
capital loans and 1.50% above the bank's prime rate for acceptances
financing, and are due on demand. The agreement contains certain financial
covenants and restrictions as to the payment of dividends.
Subsequent to December 31, 1995, the bank notified USA Skate that it was
not in compliance with certain financial covenants, and therefore, was
in default on the loan agreement. The bank waived the default subject to
the acquisition of the Companies by USA Skate Corporation, which occurred
on April 30, 1996. Pursuant to terms of the Purchase Agreement, USA Skate
Corporation paid the bank the indebtedness outstanding at April 30, 1996
and terminated the loan agreement. This loan agreement was replaced with a
$5,000,000 credit facility with a new bank (Note 20).
At December 31, 1995, Davtec had $2,589,789 outstanding under a line of
credit agreement with a Canadian bank, $2,648,520 (unaudited) at March 31,
1996. Advances are based on 75% of qualifying accounts receivable,
including USA Skate receivables, plus 50% of inventories, excluding
work-in-process and net of accounts payable less than 30 days in inventory,
with a maximum limit of $3,648,000. Loans under the Davtec line of credit
agreement bear interest at the bank's prime rate plus 1%. The agreement
contains provisions whereby Davtec may not, without prior consent, provide
third parties with guarantees having precedence over the claims of the
lender, pay dividends or bonuses or make any payments to any director, or
effect any share redemptions. The agreement also contains certain financial
covenants. Loans are collateralized by Davtec's accounts receivable,
inventories, and personal guarantees of approximately $973,000 from the
controlling shareholder of USA Skate.
In March 1996, the bank notified Davtec that it was overdrawn on the line
of credit and was deemed to be in default on the agreement. However,
subject to certain terms and conditions of the April 30, 1996 Purchase
Agreement, the bank agreed to waive the default and extend the line of
credit through July 31, 1997 (Note 20).
14
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
8. Notes payable, related parties and other:
At December 31, 1995 and March 31, 1996 (unaudited), notes payable, related
parties, consist of $88,750 of non-interest bearing shareholder notes due
on demand and $285,000 ($255,000, unaudited, at March 31, 1996) under notes
issued in September 1994 to shareholders, management and affiliates of the
Companies in connection with the acquisition of Davtec and the trademark
licenses (Notes 2 and 3). The original amount of notes issued in September
1994 was $375,000, of which $90,000 was paid in 1995. These notes bear
interest at 8%, and are due December 31, 1997.
Notes payable, other, consist of a non-interest bearing note, due on
demand, to a third party, issued in September 1994 in connection with the
acquisition of Davtec and trademark licenses.
9. Accounts payable and accrued expenses:
Accounts payable and accrued expenses consist of:
December 31, March 31,
1995 1996
------------ -----------
(Unaudited)
Accounts payable $ 451,317 $458,917
Accrued wages and employee benefits 189,414 281,292
Commissions payable 180,148 37,474
Interest payable and other 83,197 81,937
--------- --------
$ 904,076 $859,620
--------- --------
--------- --------
15
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
10. Long-term debt:
Long-term debt consists of bank and other loans obtained by Davtec for
land, building, machinery and equipment purchases. The loans bear interest
at rates ranging from prime rate to prime plus 1.5%, and fixed rates of
8.38% to 11% and are generally collateralized by land, building, machinery
and equipment as well as certain personal guarantees of the controlling
shareholder of USA Skate. The loans are payable in aggregate monthly
installments of approximately $21,000 and are due from 1996 through 2002.
Aggregate long-term debt maturities are as follows:
1996 (remaining nine months) $267,911
1997 121,455
1998 73,033
1999 73,325
2000 62,047
Thereafter 3,573
--------
$601,344
--------
--------
11. Receivables from related parties:
During 1994 and 1995, the Companies made advances to a controlling
shareholder of USA Skate, which are due on demand. The Companies also have
certain notes and accrued interest payable to the controlling, and other
shareholders of USA Skate. The net receivable balance of $80,792 ($55,646,
unaudited, at March 31, 1996) consists of the following:
a) A receivable of $447,160, ($417,160, unaudited, at March 31, 1996)
which bears interest at 8%, due from the controlling shareholder of USA
Skate, which represents amounts paid by USA Skate on behalf of the
shareholder in connection with his acquisition of certain trademarks
(Note 3).
b) Advances of $137,900, ($137,900, unaudited, at March 31, 1996 which
bear interest at 8%, and interest of $39,410 ($50,410, unaudited, at
March 31, 1996 due from the controlling shareholder of USA Skate.
16
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
11. Receivables from related parties (continued):
c) Payables, which consist of $133,020 ($133,020, unaudited, at March 31,
1996) of noninterest bearing shareholder notes due on demand, $63,816,
($63,816, unaudited, at March 31, 1996) of 8% and 9% shareholder notes
due on demand, and $346,842 ($352,988, unaudited, at March 31, 1996) of
royalties, interest and other due to the controlling shareholder of USA
Skate.
Subsequent to December 31, 1995, approximately $41,000 of the net
receivable was satisfied through 1996 royalties due to the controlling
shareholder. The remaining balance, of $40,000, was received in connection
with acquisition of the Companies by USA Skate Corporation (Note 20).
12. Facilities leases:
The Companies lease certain facilities under non-cancelable operating
leases. USA Skate leases its warehouse facilities under a five-year lease
from its controlling shareholder, and Davtec leases office and factory
space from unrelated third parties. Future minimum lease payments are as
follows:
Related party Other Total
------------- -------- --------
1996 (remaining
nine months) $116,800 $ 34,300 $151,100
1997 155,800 33,200 189,000
1998 155,800 32,800 188,600
1999 155,800 9,500 165,300
2000 157,200 157,200
-------- -------- --------
$741,400 $109,800 $851,200
-------- -------- --------
-------- -------- --------
Total rent expense for 1994 and 1995 was approximately $117,000 and
$152,000, respectively, and $38,573 (unaudited) and $52,240 (unaudited) for
the three months ended March 31, 1995 and 1996.
13. Profit sharing plan:
On January 1, 1993, USA Skate established a profit sharing plan for its
eligible employees. USA Skate's contributions are made at the discretion
of USA Skate's Board of Directors, up to the lesser of 15% of eligible
compensation or annual profits in excess of $10,000. The contribution for
the year ended December 31, 1994 was $67,000. No contribution was made for
1995 or for the three months ended March 31, 1996 (unaudited).
17
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
14. Income taxes:
The provisions (benefit) for income taxes consist of the following:
March 31,
-------------------------
1994 1995 1995 1996
-------- --------- ----------- -----------
(Unaudited) (Unaudited)
Current:
Federal $471,000 $ 416,000 $(12,100) $10,300
State and local 131,000 117,000 (4,900) 2,700
Foreign (88,000) 29,000
-------- --------- -------- -------
514,000 562,000 (17,000) 13,000
-------- --------- -------- -------
Deferred:
Federal (15,000) (96,000)
State and local (4,000) (27,000)
Foreign (17,000)
-------- --------- -------- -------
(19,000) (140,000)
-------- --------- -------- -------
Income tax provision
(benefit) $495,000 $ 422,000 $(17,000) $13,000
-------- --------- -------- -------
-------- --------- -------- -------
A reconciliation of the statutory federal income tax rate to the
Companies' effective income tax rates is as follows:
March 31,
--------------------------
1994 1995 1995 1996
---- ---- ----------- -----------
(Unaudited) (Unaudited)
Statutory income tax
expense (benefit) 34% 34% (34)% 34%
State and local income
taxes 9 9 (9) 9
Foreign operations 4 1 (1) 1
Other 5 9 (9) 1
-- -- --- --
52% 53% (53)% 44%
-- -- --- --
-- -- --- --
18
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
14. Income taxes (continued):
The following is a summary of the Companies' deferred tax assets and
liabilities:
December 31, March 31,
1995 1996
------------ -----------
(Unaudited)
Deferred tax assets:
Accounts receivable $ 81,900 $ 81,900
Inventories 33,500 33,500
Accrued expenses 23,700 11,000
-------- ---------
139,100 126,400
Valuation allowance (74,600) (114,700)
-------- ---------
64,500 11,700
Deferred tax liabilities:
Undistributed foreign earnings (64,500) (11,700)
-------- ---------
$ - $ -
-------- ---------
-------- ---------
The valuation allowance increased by approximately $70,000 and $5,000
during the years ended December 31, 1994 and 1995, remained the same for
the three months ended March 31, 1995 (unaudited) and increased by
approximately $40,000 (unaudited) for the three months ended March 31,
1996.
15. Foreign operations and export sales:
Information about the Companies' operations in the U.S. and Canada for
the years ended December 31, 1994 and 1995 and for the three months ended
March 31, 1995 and 1996 (unaudited) is as follows:
Year ended
December 31, United Combined
1994 States Canada Eliminations Total
------------ ----------- ---------- ------------ -----------
Sales to unaffiliated
customers $ 9,477,486 $7,116,024 $16,593,510
Intercompany sales 786,943 1,997,644 $(2,784,587)
----------- ---------- ----------- -----------
Net sales $10,264,429 $9,113,668 $(2,784,587) $16,593,510
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
Income from operations $ 1,532,757 $ 28,633 $ (54,881) $ 1,506,509
----------- ---------- ----------- -----------
----------- ---------- ----------- -----------
19
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
15. Foreign operations and export sales (continued):
Year ended
December 31, United Combined
1995 States Canada Eliminations Total
------------ ---------- ---------- ------------ -----------
Sales to unaffiliated
customers $7,547,053 $6,752,884 $14,299,937
Intercompany sales 707,231 2,018,184 $(2,725,415)
---------- ---------- ----------- -----------
Net sales $8,254,284 $8,771,068 $(2,725,415) $14,299,937
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Income from operations $1,065,090 $ 565,607 $ 14,234 $ 1,644,931
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Identifiable assets $8,006,977 $6,175,585 $(3,303,434) $10,879,128
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Three months ended United Combined
March 31, 1995 States Canada Eliminations Total
------------------ ---------- ---------- ------------ -----------
(Unaudited)
Sales to unaffiliated
customers $1,104,765 $ 711,910 $1,816,675
Intercompany sales 41,026 686,509 $(727,535)
---------- ---------- ---------- ----------
Net sales $1,145,791 $1,398,419 $(727,535) $1,816,675
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Income from operations $ 63,502 $ 15,998 $ 27,767 $ 107,267
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Three months ended United Combined
March 31, 1996 States Canada Eliminations Total
------------------ ---------- ---------- ------------ -----------
(Unaudited)
Sales to unaffiliated
customers $1,372,780 $ 648,880 $ 2,021,660
Intercompany sales 5,175 462,940 $ (468,115)
---------- ---------- ----------- -----------
Net sales $1,377,955 $1,111,820 $ (468,115) $ 2,021,660
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Income (loss) from
operations $ 171,631 $ (32,665) $ 8,201 $ 147,167
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Identifiable assets $7,190,089 $5,505,554 $(2,283,990) $10,411,653
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
20
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
16. Fair value of financial instruments:
Statement of Financial Accounting Standards No. 107, "DISCLOSURES ABOUT THE
FAIR VALUE OF FINANCIAL INSTRUMENTS," requires the Companies to disclose
estimated fair values for its financial instruments, for which it is
practicable to estimate fair value. The carrying value of long-term debt
and long-term notes payable to a bank and related parties approximates the
fair values at December 31, 1995 and March 31, 1996 (unaudited) because the
instruments bear interest at current market rates. The carrying amounts of
the Companies' other financial instruments approximates fair values
primarily because of the short maturity of these instruments.
17. Prior period adjustments:
In preparing the combined financial statements, certain adjustments were
necessary to correct for 1994 and prior year-end accounting entries that
had previously been made incorrectly by USA Skate. The effect of these
adjustments is to increase retained earnings at January 1, 1994 by $10,570,
$6,340 net of applicable income taxes, and to increase income for the year
ended December 31, 1994, from what was previously reported by USA
Skate, by $275,300, $165,195 net of applicable income taxes. These errors
have been corrected by retroactively restating the combined financial
statements for the prior years.
18. Litigation:
The Companies are involved in various routine litigation incidental to the
Companies' business. Many of these proceedings are covered in whole or
in part by insurance. At December 31, 1995 and March 31, 1996 (unaudited),
management does not believe that the Companies' potential exposure related
to these matters would have a material adverse effect on the Companies'
financial position or results of operations.
19. Shareholders' equity:
At December 31, 1995, and March 31, 1996 (unaudited) common stock consists
of:
USA Skate common stock, $0.10 par value,
100 shares authorized and outstanding $10
McMartin common stock, no par value,
100 shares authorized and outstanding 8
---
$18
---
---
21
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
20. Acquisition by USA Skate Corporation:
Effective April 30, 1996, USA Skate and its subsidiaries were acquired by
USA Skate Corporation, a majority owned subsidiary of California Pro
Sports, Inc., pursuant to terms of the Purchase Agreement, which include
various provisions relating to the Companies' trademark licenses, bank debt
and other agreements. The existing Victoriaville and Vic trademark license
agreements were terminated, and USA Skate entered into a license agreement
with the former controlling shareholder of USA Skate for the exclusive
worldwide rights to the Victoriaville and Vic trademarks (Note 3).
USA Skate Corporation paid the outstanding indebtedness of USA Skate owed
to a bank as of April 30, 1996 (Note 7), and posted cash collateral for
outstanding letters of credit and bankers acceptances. USA Skate
Corporation received statements terminating all security interests related
to this indebtedness, and the former controlling shareholder of USA Skate
was released from guarantees and collateral.
In connection with the termination of the existing loan agreement, USA
Skate entered into a new loan agreement with a bank for advances up to 75%
of qualifying accounts receivable, 50% of qualifying inventories and 50% of
outstanding letters of credit, with a maximum limit of $5,000,000, which
expires in May 1999. Loans under the agreement bear interest at 1% above
the bank's prime rate and are due on demand. The loan agreement provides
for financing fees of $100,000 upon initial disbursement and $50,000
annually. The agreement contains certain financial covenants and
restrictions regarding payment of dividends, officers' compensation and
consulting fees, as well as restrictions on USA Skate's loans and
investments. Loans are collateralized by substantially all of USA Skate's
assets and are guaranteed by USA Skate Corporation and certain of its
affiliates and shareholders.
USA Skate Corporation made a capital contribution of $500,000 to Davtec,
and the former controlling shareholder of USA Skate paid Davtec $165,000
in return for a $125,000, 8% promissory note due December 31, 1996 and
payment of a $40,000 outstanding receivable. The proceeds of $665,000
were used to reduce Davtec's indebtedness to the Canadian bank (Note 7).
In connection with the payments, and subject to certain other terms and
conditions, the Canadian bank agreed to extend the existing line of credit
with Davtec through July 31, 1997.
USA Skate entered into a one year employment agreement with the former
controlling shareholder of USA Skate, that provides for annual compensation
of $90,000.
22
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
THREE MONTHS ENDED MARCH 31, 1996
In May 1996, California Pro Sports, Inc. (the Registrant) through USA Skate
Corporation ("USA"), a newly formed majority owned subsidiary, acquired USA
Skate Co., Inc. and its subsidiaries in a transaction accounted for as a
purchase. The significant subsidiaries of USA Skate Co., Inc. ("USA Skate") are
Les Equipements Sportifs Davtec Inc. ("Davtec") and 811300 Ontario Inc. (d/b/a
McMartin Hockey Protection) ("McMartin"). USA Skate, Davtec and McMartin are
collectively referred to as the "Companies" or the "Companies Being Acquired by
USA Skate Corporation." The accompanying unaudited pro forma consolidated
balance sheet as of March 31, 1996 gives effect to the acquisition as if the
transaction had been consummated on March 31, 1996. The accompanying pro forma
consolidated statements of operations for the year ended December 31, 1995 and
the three months ended March 31, 1996 give effect to the acquisition as if the
transaction had been consummated on January 1, 1995.
The unaudited pro forma consolidated financial statements should be read in
conjunction with the historical financial statements of the Companies Being
Acquired by USA Skate Corporation (included herein) and those of the Company.
The unaudited pro forma consolidated financial statements do not purport to be
indicative of the financial position of the Company had the acquisition
occurred on March 31, 1996. Nor do the unaudited pro forma financial statements
purport to be indicative of the results of operations that actually would have
occurred had the acquisition occurred on January 1, 1995 or to project the
Company's financial position or results of operations for any future period.
USA Skate Corporation has entered into a non-binding letter of intent with an
underwriter for a proposed public offering of its common stock which, if
completed, would reduce California Pro Sports, Inc.'s ownership interest in
USA Skate Corporation to less than 50%.
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
<TABLE>
<CAPTION>
California Pro forma Pro forma
Pro Sports, Inc. adjustments consolidated
---------------- ----------- ------------
<S> <C> <C> <C>
Cash $ 16,567 $ 4,656,600 (1) $ 624,143
(4,049,024)(2)
Accounts receivable 2,799,775 1,955,875 (2) 4,755,650
Receivables from related parties 318,958 15,646 (2) 334,604
Inventories 3,418,686 5,911,349 (2) 9,330,035
Other current assets 457,769 236,235 (2) 694,004
---------- ----------- -----------
Total current assets 7,011,755 8,726,681 15,738,436
---------- ----------- -----------
Property and equipment 902,260 1,241,539 (2) 2,143,799
Intangible assets 1,657,812 236,800 (1) 9,081,894
4,074,047 (2)
3,113,235 (3)
---------- ----------- -----------
2,560,072 8,665,621 11,225,693
---------- ----------- -----------
$9,571,827 $17,392,302 $26,964,129
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
(Continued)
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED BALANCE SHEET (CONTINUED)
MARCH 31, 1996
<TABLE>
<CAPTION>
California Pro forma Pro forma
Pro Sports, Inc. adjustments consolidated
---------------- ----------- ------------
<S> <C> <C> <C>
Current portion of long-term debt $ 267,911 (2) $ 267,911
Short term notes payable $2,927,904 2,515,000 (1) 11,492,463
6,049,559 (2)
Related party notes payable 1,080,000 (1) 1,080,000
Accounts payable and accrued expenses 2,045,296 336,800 (1) 4,473,110
2,091,014 (2)
---------- ----------- -----------
Total current liabilities 4,973,200 12,340,284 17,313,484
---------- ----------- -----------
Long-term debt, net of current portion 333,433 (2) 333,433
Notes payable, related parties 343,750 (2) 343,750
License fees payable 2,213,235 (3) 2,213,235
---------- ----------- -----------
2,890,418 2,890,418
---------- ----------- -----------
Minority interest 778,176 (4) 778,176
---------- ----------- -----------
Shareholders' equity 4,598,627 961,600 (1) 5,982,051
300,000 (2)
900,000 (3)
(778,176)(4)
---------- ----------- -----------
4,598,627 1,383,424 5,982,051
---------- ----------- -----------
$9,571,827 $17,392,302 $26,964,129
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
See notes to unaudited condensed pro forma consolidated financial statements.
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
California Pro forma Pro forma
Pro Sports, Inc. adjustments consolidated
---------------- ------------ ------------
<S> <C> <C> <C>
Sales $ 1,786,675 $ 2,021,660 (5) $ 3,808,335
Cost of sales 1,435,396 1,278,461 (5) 2,713,857
------------- ------------ ------------
Gross profit 351,279 743,199 1,094,478
------------- ------------ ------------
Operating expenses
Sales and marketing expenses 303,094 234,530 (5) 537,624
General and administrative 640,367 303,196 (5) 1,184,288
204,725 (7)
36,000 (8)
License fees, related parties 19,556 (5)
(19,556)(6)
Rent expense, related parties 38,750 (5) 38,750
Consulting expense, related parties 30,000 30,000
------------- ------------ ------------
973,461 817,201 1,790,662
------------- ------------ ------------
Loss from operations (622,182) (74,002) (696,164)
------------- ------------ ------------
Other charges (credits):
Interest expense 75,941 118,361 (5) 336,877
142,575 (6)
Interest income and other (13,839) (609)(5) (14,448)
------------- ------------ ------------
62,102 260,327 322,429
------------- ------------ ------------
Loss before income taxes and
minority interest (684,284) (334,329) (1,018,613)
Income tax benefit (293,000) (293,000)
------------- ------------ ------------
Loss before minority interest (391,284) (334,329) (725,613)
Minority interest (121,026)(9) (121,026)
------------- ------------ ------------
Net loss $ (391,284) $ (213,303) $ (604,587)
------------- ------------ ------------
------------- ------------ ------------
Net loss per share $ (0.10) $ (0.14)
------------- ------------
------------- ------------
Weighted average number of
shares outstanding 3,783,511 400,000 (3) 4,183,511
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See notes to unaudited condensed pro forma consolidated financial statements.
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
California Pro forma Pro forma
Pro Sports, Inc. adjustments consolidated
---------------- ----------- ------------
<S> <C> <C> <C>
Sales $ 17,128,711 $ 14,299,937 (5) $ 31,428,648
Cost of sales 12,155,543 9,260,081 (5) 21,415,624
------------- ------------ ------------
Gross profit 4,973,168 5,039,856 10,013,024
------------- ------------ ------------
Operating expenses
Sales and marketing expenses 2,049,709 1,403,135 (5) 3,452,844
General and administrative 2,374,612 1,718,053 (5) 5,077,299
144,000 (8)
840,634 (7)
License fees, related parties 157,126 (5)
(157,126)(6)
Rent expense, related parties 116,611 (5) 116,611
Consulting expense, related parties 120,000 120,000
------------- ------------ ------------
4,544,321 4,222,433 8,766,754
------------- ------------ ------------
Income from operations 428,847 817,423 1,246,270
------------- ------------ ------------
Other charges (credits):
Interest expense 313,183 801,323 (5) 1,684,797
570,291 (6)
Interest income and other (32,692) 48,713 (5) 16,021
------------- ------------ ------------
280,491 1,420,327 1,700,818
------------- ------------ ------------
Income (loss) before income taxes
and minority interest 148,356 (602,904) (454,548)
Income tax expense 112,900 112,900
------------- ------------ ------------
Income (loss) before minority interest 35,456 (602,904) (567,448)
Minority interest (218,251)(9) (218,251)
------------- ------------ ------------
Net income (loss) $ 35,456 $ (384,653) $ (349,197)
------------- ------------ ------------
------------- ------------ ------------
Net income (loss) per share $ 0.01 $ (0.09)
------------- ------------
------------- ------------
Weighted average number of
shares outstanding 3,599,320 400,000 (3) 3,999,320
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
See notes to unaudited condensed pro forma consolidated financial statements.
<PAGE>
CALIFORNIA PRO SPORTS, INC, AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
THREE MONTHS ENDED MARCH 31, 1996
The purchase method of accounting conforms the accounting policies followed by
the consolidated entities. There were no accounting policy differences or other
items which required adjustment in the unaudited pro forma consolidated
financial statements.
Notes to the unaudited pro forma consolidated balance sheet:
1. To reflect the initial formation of USA Skate Corporation (USA) including
the private placement of $1,061,600 of USA common stock and $2,515,000 of
9% convertible promissory notes, the issuance of $1,080,000 of 9% notes
payable to certain officers/shareholders, and the accrual of $100,000 of
costs related to the stock placement and $236,800 of costs related to the
debt placement.
2. To reflect the acquisition of all of the issued and outstanding common
stock of USA Skate Co., Inc. (USA Skate) with the consideration given
consisting of cash of $3,650,000, a $1,050,000 8% note payable, common
stock of USA valued at $300,000, and finders fees, debt guarantee fees and
other acquisition costs of $1,250,000 (of which $809,700 is accrued and
$440,300 was paid in cash). This adjustment also reflects a $665,000
payment on Davtec's bank debt that was required to be made in connection
with the acquisition. Funding for the bank debt payment consisted of cash
of $500,000, an 8% $125,000 note payable, and a $40,000 reduction of a note
receivable from the former controlling shareholder of USA Skate.
3. To reflect consulting and non-compete agreements entered into with the
former controlling shareholder of USA Skate in consideration for the
issuance of 400,000 shares of Cal Pro common stock, valued at $900,000, and
to reflect USA entering into a license agreement for the use of certain
trademarks owned by the former controlling shareholder of USA Skate in
exchange for minimum royalty payments due on or before December 2001 with
an imputed (9.5%) present value of $2,213,235.
4. To reflect the 36% minority ownership interest of USA at March 31, 1996.
Notes to the unaudited pro forma consolidated statements of operations:
5. To include the results of operations of USA Skate as if the acquisition had
occurred on January 1, 1995.
6. To record interest expense related to the $3,595,000 of formation debt, the
$1,050,000 of acquisition debt, and the $125,000 former USA Skate
shareholder note; to record interest savings related to the $665,000
reduction in Davtec bank debt; and to adjust expense for the terms of the
new royalty agreement.
<PAGE>
CALIFORNIA PRO SPORTS, INC, AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
THREE MONTHS ENDED MARCH 31, 1996
7. To record amortization of deferred costs, goodwill and other intangible
assets resulting from the formation of USA and the acquisition of USA
Skate. Goodwill and license costs are assumed to be amortized on the
straight-line method over 25 years. Deferred debt issue costs are assumed
to be amortized on the straight-line method over the term of the related
debt. Other intangible assets (primarily costs of guarantee, consulting
and non-compete agreements) are assumed to be amortized on the straight-
line method over the three to ten year terms of the related agreement.
8. To record management fees to be paid to certain officers/shareholders of
Cal Pro.
9. To reflect the 36% minority ownership interest of USA for the year ended
December 31, 1995 and the three months ended March 31, 1996.
