As filed with the Securities and Exchange Commission on December 18, 1996
Registration No. 33-98898
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 2 TO FORM SB-2*
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CALIFORNIA PRO SPORTS, INC.
-------------------------------------------
(Name of small business issuer in its charter)
Delaware 3949 84-1217733
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
or organization) Code Number)
1221-B South Batesville Road
Greer, SC 29650
(864) 848-5160
-----------------------------------------------------------
(Address and telephone number of principal executive offices)
Michael S. Casazza
1221-B South Batesville Road
Greer, SC 29650
(864) 848-5160
-------------------------------------------------------
(Name, address and telephone number of agent for service)
------------------
Copies of communications, including all
communication sent to the agent for
service, should be sent to:
Gerald Raskin, Esq.
Mary M. Maikoetter, Esq.
Friedlob Sanderson Raskin
Paulson & Tourtillott, LLC
1400 Glenarm Place, Suite 300
Denver, Colorado 80202
Telephone (303) 571-1400
-------------------
Approximate date of commencement of proposed sale to the public: As soon as
practical after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
- ----------
* Pursuant to Rule 429, this Registration Statement also constitutes
Post-Effective Amendment No. 2 to Registration Statement No. 33-85108.
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=======================================================================================================
Proposed Proposed
Maximum Maximum
Title of Each Class Amount Offering Aggregate Amount of
of Securities to to be Price Per Offering Registra-
be Registered Registered Unit Price tion Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 122,500 $4.54(1) $556,150 $192
$.01 par value Shares
Common Stock 450,000 $1.66(2) $747,000 $258
$.01 par value Shares
Common Stock 47,111 $2.28 $107,413 $37
$.01 par value Shares
Warrants to 20,000 N/A (3) N/A (3) N/A (3)
Purchase Shares Warrants
Shares Underlying 20,000 N/A (3) N/A (3) N/A (3)
Warrants to Purchase Shares
- -----------------------------------------------------------------------------------------------------
Totals $1,410,563 $487(4)
=====================================================================================================
</TABLE>
(1) Pursuant to Rule 457(c), the registration fee calculation is based on the
average of the closing bid and asked prices for the Common Stock and
Warrants, as applicable, quoted by Nasdaq on October 3, 1996 (a date within
five business days prior to the initial filing of this registration
statement).
(2) Pursuant to Rule 457(c), the registration fee calculation is based on the
average of the closing bid and asked prices for the Common Stock quoted by
Nasdaq on December 12, 1996 (a date within five business days prior to the
filing of this registration statement).
(3) Registration fees related to these securities were paid in connection with
the filing of Registration Statement on Form SB-2, Registration No.
33-85108. This registration statement constitutes a post-effective
amendment to Registration Statement No. 33-85108, as permitted by Rule 429.
(4) Of which $235 has been previously paid, and $252 is paid with this filing.
--------------------
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Preliminary Prospectus
Subject to Completion, December 18, 1996
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
PROSPECTUS
CALIFORNIA PRO SPORTS, INC.
1221-B South Batesville Road
Greer, SC 29650
619,111 Shares of Common Stock and
20,000 Common Stock Purchase Warrants
This Prospectus relates to the registration of 619,111 shares of Common
Stock (the "Shares") and 20,000 Common Stock Purchase Warrants (the "Warrants")
for resale by the selling stockholders named herein. These securities will be
offered by the holders thereof from time to time in the over-the-counter market.
Only holders who are residents of states in which these securities are
registered will be able to sell their securities pursuant to this Prospectus.
The Company will not receive proceeds from the sale of the Shares or
Warrants offered by this Prospectus; however, it will receive proceeds to the
extent the Shares offered hereunder are acquired upon exercise of privately held
warrants. The Company also will receive proceeds if the Warrants offered by the
holders hereunder ultimately are exercised.
The Common Stock and Warrants are quoted on the Nasdaq SmallCap Market
under the trading symbols CALP and CALPW.
This Offering Involves a High Degree of Risk. See "Risk Factors" beginning
on page 5.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is __________, 1996.
<PAGE>
(inside front cover of prospectus)
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and, in accordance therewith files
periodic reports, proxy statements and other information with the United States
Securities and Exchange Commission (the "Commission"). In addition, the Company
has filed a Registration Statement on Form SB-2 under the Securities Act of 1933
(the "Securities Act") with respect to the securities offered hereby with the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549. This prospectus does
not contain all of the information contained in the Registration Statement. For
further information regarding both the Company and the securities offered
hereby, reference is made to the Registration Statement, including all exhibits
and schedules therein. The Company's periodic reports, proxy statements and
other information, and the Registration Statement may be inspected at the
Commission's Washington, D.C. office, 450 Fifth Street, N.W., Washington, D.C.
20549 and at the regional offices of the Commission located at 7 World Trade
Center, Suite 1300, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661- 2511. Copies of all or any
of the foregoing may be obtained from the Public Reference Section of the
Commission at its Washington, D.C. address upon request and payment of the
prescribed fee. In addition, the Company files its information with the
Commission electronically through EDGAR and the Commission maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied on as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy, by any person
in any jurisdiction in which it is unlawful for such person to make such offer
or solicitation. Neither the delivery of this Prospectus nor any offer,
solicitation or sale made hereunder shall under any circumstances create an
implication that the information herein is correct as of any time subsequent to
the date of this Prospectus.
-2-
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by detailed information
and financial statements appearing elsewhere in this Prospectus. Throughout this
Prospectus, California Pro Sports, Inc. ("California Pro"), its wholly owned
subsidiary, California Pro, Inc. ("CP"), and its predecessor, and its majority
owned subsidiary, USA Skate Corporation ("USA"), are referred to collectively as
the "Company" unless the context requires otherwise.
The Company
The Company markets California Pro(R) in-line skates, Kemper(R) snowboards,
Vic(R) and Victoriaville(TM) ice and street/roller hockey skates and related
gear, protective equipment and other related accessory products. Based on the
Company's review of data published by industry sources, the Company believes
that markets for its principal products are continuing to expand rapidly from
year to year.
The Company's business plan is to increase sales and achieve profitability
by increasing product sales to its existing customers and by attracting new
customers through increased advertising and promotion, new product introductions
and product line acquisitions. Acquisitions to date included the Company's
in-line skate product lines in April 1993, snowboard product lines in August
1994 and its hockey lines in April 1996.
As of April 30, 1996, California Pro, through its majority owned subsidiary
USA, acquired all of the outstanding capital stock of USA Skate Co., Inc., a New
York corporation ("USA Skate"). USA Skate is now a wholly owned subsidiary of
USA. Consideration for the purchase was $5.9 million in a combination of cash,
stock and notes, and assumption of approximately $5.5 million of debt. The
purchase price was paid with funds raised in private securities offerings
conducted by USA and the debt assumption was financed in part by a bank loan
from LaSalle National Bank to USA Skate. USA Skate is based in Long Island, New
York, and markets and distributes, ice and street/roller hockey skates, related
gear and accessories under the Victoriaville(TM) and Vic(R) and McMartin(R)
brands, as well as custom made figure skates. USA Skate has an exclusive
worldwide license for use of the Vic(R) and Victoriaville(TM) brands. See
"Financial Statements" which includes appropriate financial statements of USA
Skate.
The Company sells its products through a network of independent sales
representative groups to over 1,300 accounts, including Big5, Oshmans, J.C.
Penney, Modells, U.S. military exchanges, Sports Authority, Dunhams, Canadian
Tire, Sportmart/Canada and WalMart/Canada. Management believes this sales
strategy has developed high visibility for its products and has created strong
brand name recognition. California Pro(R) in-line skate products are sold by the
Company in the United States, Canada, the Caribbean and U.S. military exchanges
worldwide, to persons of all ages for recreational and fitness purposes.
Kemper(R) snowboard products are sold by the Company primarily in the United
States, Canada, Europe and Japan. The Company sells its Vic(R) and
Victoriaville(TM) ice and street/roller hockey skates and related gear and other
accessory products in the United States through its own sales representatives
and, internationally, through independent distributors located in Germany,
Switzerland, Italy, Austria, Czech Republic, Sweden, Finland, France and Brazil.
The Company has an exclusive manufacturing agreement with Playmaker Co.,
Ltd., a Pacific Rim in-line skate manufacturer which is a minority stockholder
of California Pro. The Company believes its relationship with this manufacturer
gives the Company a strategic advantage of being able to respond to market needs
and demands more rapidly than competitors who rely on outside sourcing
relationships. The Company's snowboards are primarily manufactured in Europe by
a business not affiliated with the Company, Pale Ski & Sport GmbH & Co., one of
the world's largest manufacturers of snowboards. Les Equipements Sportifs
Davtec, Inc. ("Davtec"), a Canadian company indirectly wholly owned by USA,
manufactures hockey sticks, pants and gloves for the Company, and is the
Canadian distributor for all of the Company's hockey related Vic(R),
Victoriaville(TM) and McMartin(R) product lines.
-3-
<PAGE>
At December 1, 1996, the Company had purchase orders for future delivery of
products of approximately $1.1 million, compared with approximately $1.5 million
at December 1, 1995. Although purchase orders are subject to cancellation in the
normal course of business, the Company expects to fill most of these orders by
March 31, 1997. The decrease in purchase orders in 1996 is in part due to the
Company's smaller backlog in its in-line skate and snowboard businesses of
$916,000 offset by the backlog of its hockey related product lines of $486,000
through its majority owned subsidiary, USA, acquired effective as of April 30,
1996.
In the first quarter of 1995, the Company closed its initial public
offering ("IPO") of 1,200,000 shares of Common Stock and 1,380,000 common stock
purchase warrants. After deducting offering expenses, the Company received net
proceeds from the offering of approximately $4.2 million. In connection with the
IPO, the Company also sold an additional 490,000 common stock purchase warrants
which were registered for public resale following the IPO. Substantially all of
these warrants were resold by the holders thereof and are now publicly held.
The principal executive offices of the Company are located at 1221-B South
Batesville Road, Greer, South Carolina 29650 and its telephone number at that
address is (864) 848-5160.
The Offering
Securities offered...................... 619,111 shares of Common Stock by
the holders thereof and 20,000
Warrants. Each Warrant entitles the
holder to purchase one share of
Common Stock for $6.00 per share,
exercisable through January 18,
1998. The Warrants are redeemable
under certain circumstances. See
"Description of Securities."
Shares of Common Stock outstanding
at November 30, 1996 (1)............... 4,219,511
Warrants outstanding
prior to this offering (2)............. 1,870,000
Nasdaq Symbols
Common Stock.......................... CALP
Warrants ............................. CALPW
- ----------
(1) Does not include (i) 915,831 shares issuable upon exercise of privately
held common stock purchase warrants and options, which have a weighted
average exercise price of $2.77 per share, or (ii) 1,870,000 shares of
Common Stock reserved for issuance upon exercise of publicly held warrants
issued in the IPO or in connection therewith, exercisable at $6.00 per
share of Common Stock, or (iii) 240,000 shares of Common Stock reserved for
issuance upon exercise warrants issued to the underwriter of the Company's
IPO which have a weighted average exercise price of $6.75 per share. See
"Description of Securities."
(2) All of these presently are publicly held other than the Warrants offered
herein.
-4-
<PAGE>
<TABLE>
<CAPTION>
Summary Financial Data
(in thousands, except per share amounts)
Nine Months Ended September 30, Year Ended December 31,
------------------------------- -----------------------
1996(1) 1996 1995 1995(1) 1995 1994
------- ---- ---- ------- ---- ----
(Unaudited) (Unaudited) (Unaudited) (Audited)
(Pro Forma) (Pro Forma)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Net sales $17,128 $13,988 $11,692 $31,429 $17,129 $16,469
Gross profit 5,216 4,069 3,478 10,013 4,973 4,604
Net income (loss) (715) (567) (192) (349) 35 (171)
Net income (loss) per share (0.17) (.14) (.05) (.09) .01 (.08)
Weighted average number
of common shares outstanding 4,206 4,030 3,531 3,999 3,599 2,225
</TABLE>
At September 30, At December 31,
1996 1995
---------------- ---------------
(Unaudited) (Audited)
Balance Sheet Data:
Working capital (deficit).............. $ (2,160) $ 2,399
Total assets........................... 31,167 10,290
Total liabilities...................... 24,764 5,300
Shareholders' equity................... 5,435 4,990
- ----------
(1) Presents the unaudited pro forma statement of operations data as if the USA
Skate acquisition had occurred at January 1, 1995.
RISK FACTORS
Any investment in the securities being offered will involve a high degree
of risk and may result in a loss of the entire amount invested. Prospective
investors should carefully consider the following risks, as well as all other
information set forth throughout this Prospectus.
Significant Indebtedness. At September 30, 1996, the Company had incurred
bank indebtedness of approximately $11.7 million which is secured by
substantially all of its operating assets and had trade payables of
approximately $3.0 million. In addition, at September 30, 1996 the Company had
outstanding other indebtedness of approximately $6.6 million consisting of
convertible promissory notes issued in connection with the capitalization of USA
and promissory notes and royalty fees incurred in connection with the USA Skate
acquisition. While funds generated by the Company's operating subsidiaries have
been sufficient to meet its debt service obligations, the related bank loan
agreements restrict the respective subsidiary borrower's ability to pay any
amounts to the Company other than those for which there is a specific provision.
The Company's ability to continue meeting its debt service obligations will
depend on its ability to generate sufficient cash from its operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
-5-
<PAGE>
Working Capital Deficit and Net Losses. At September 30, 1996, the
Company's current liabilities exceeded its current assets by approximately $2.2
million. The Company had marginal net income for the year ended December 31,
1995. It had net losses for the nine months ended September 30, 1996 and the
years ended December 31, 1994, 1993 and 1992. There can be no assurance that the
Company will be able to operate profitably.
Seasonality; Economic Conditions. Historically, the Company has experienced
its strongest in-line skate and hockey related sales during the second and third
calendar quarters. Sales of its snowboard products tend to be strongest during
the third and fourth calendar quarters. Due to this seasonality, the Company is
likely to experience losses during the first calendar quarter each year. The
Company's business also is subject to economic cycles. Purchases of
discretionary sporting goods tend to decline in periods of economic uncertainty.
Any significant decline in general economic conditions or uncertainties
regarding future economic prospects that affect consumer spending could have a
material adverse effect on the Company's business.
Competition. The in-line skate, snowboard and hockey markets are highly
competitive and there are no significant technological or manufacturing barriers
to entry. Two or three companies currently lead in domestic sales in each of the
product categories the Company operates in. Management believes that these
competitors collectively have a market share of over 50% in each of the
respective product lines. As each product category continues to gain in
popularity, competition is expected to continue to be intense. Some of the
Company's competitors have greater financial and other resources than the
Company. See "Business--Competition."
Need for Additional Financing. The Company will have to obtain additional
capital through an increase of its credit line or additional trade credit in
order to expand its business. See "Management's Discussion and Analysis of
Financial Condition and Plan of Operation--Liquidity and Capital Resources."
Dependence on Key Personnel. The Company is dependent upon the efforts of
Michael S. Casazza, its president and chief operating officer, Barry S.
Hollander, its treasurer and chief financial officer and Jonathan C. Hodgins,
President and Chief Executive Officer of the Company's hockey business. The loss
of any of these persons could have a material adverse effect on the Company. The
Company does not have current employment agreements with or key man life
insurance on any of its key personnel. See "Management."
Conflicts of Interest. Certain conflicts of interest may arise with regard
to the negotiation of agreements and business opportunities among the Company
and Messrs. Fong, Casazza and Lin because these directors and officers are also
officers, directors and/or shareholders of other companies which market sports
and fitness related equipment, although not in competition with any of the
Company's products. The Board of Directors has adopted a resolution defining the
Company's areas of interest and all opportunities within the defined parameters
first will be offered to the Company. However, there can be no assurance that
conflicts of interest will not arise or, if they do arise, that they will be
resolved in favor of the Company. See "Management" and "Certain Transactions."
Product Liability. Due to the nature of its products, the Company is
subject to product liability claims. The Company believes that it has adequate
liability insurance for risks arising in the normal course of its business,
including product liability insurance covering all of its products. There can be
no assurance, however, that insurance coverage will be sufficient for every
covered loss or that insurance coverage will continue to be available at premium
rates that the Company can afford.
Limited Proprietary Protection. Currently the Company has only limited
proprietary protection on its own products designs, but plans actively to seek
proprietary protection for its new products and designs as warranted. The
Company derives most of its proprietary protection for its products from
licenses with third parties. To the extent that there is no proprietary
protection for the Company's products, the Company's products are and will
continue to be subject to replication by competitors. There can be no assurance
that infringement claims will not require the Company to enter into royalty
arrangements or will not result in costly litigation or that, if litigation is
commenced, the Company would ultimately prevail. See "Business--Licenses,
Patents and Trademarks."
-6-
<PAGE>
Effect of Exchange Rate Fluctuations. The Company's products are
principally purchased from suppliers located in Taiwan, mainland China, Korea
and Austria. The Company purchases its in-line skate and hockey products for set
prices in U.S. dollars and its snowboards in Deutsche Marks. The Company sells
its snowboard and hockey products both domestically and internationally. As a
result, exchange rate fluctuations may have a significant effect on its sales,
costs of goods sold and the Company's gross margins. The Company does not
currently hedge against fluctuations in exchange rates. Further, extreme
fluctuations could make it uneconomical for the relationship between the Company
and its suppliers to continue.
Foreign Manufacturer. Most of the Company's products are manufactured and
packaged in Taiwan, mainland China, Austria and Canada. Doing business with
foreign manufacturers is subject to the risks of conducting business in foreign
countries, such as export duties, quotas and product deliverability. Although
the Company believes sources are readily available for the manufacture of its
products, there can be no assurance that the loss of any of its suppliers would
not have a materially adverse effect on the Company. Moreover, future changes in
United States political or trade policies, or changes in such policies by
foreign countries in which the Company purchases products or sells products
could have materially adverse effects on its operations.
Limited Sales Territory for In-Line Skate Products. The Company has rights
to sell its in-line skate products in limited territories, including the United
States, Canada, certain areas of the Caribbean and U.S. military exchanges
worldwide. See "Business--Licenses, Patents and Trademarks."
Control by Principal Stockholders. As of December 1, 1996, the Company's
officers and directors and their affiliates and family members beneficially own
approximately 47% of the outstanding Common Stock. There are no cumulative
voting rights under the Company's Certificate of Incorporation and, therefore,
these stockholders possess the ability to elect all of the directors of the
Company, to increase its authorized capital, to dissolve or merge the Company or
to sell its assets and generally to exert substantial control over the business
and operations of the Company. See "Principal Stockholders" and "Description of
Securities."
Possible Volatility of Stock Market. In recent years the stock market has
experienced significant price and volume fluctuations. These fluctuations, which
are often unrelated to the operating performance of specific companies, have had
a substantial effect on the market price for many small capitalization
companies. The Company's Common Stock and Warrants are quoted on the Nasdaq
SmallCap Market under the symbols CALP and CALPW, and are traded in the
over-the-counter market, although continued inclusion cannot be assured.
Shares Eligible for Future Sale. As of the date of this Prospectus, the
Company has outstanding approximately 1,990,489 shares of Common Stock which are
"restricted securities" as that term is defined in Rule 144 promulgated under
the Securities Act, in that such shares were issued and sold by the Company in
transactions not involving a public offering. Most of these shares became
eligible for sale pursuant to Rule 144 in February 1995. The Company's officers
and directors and certain stockholders owning more than one percent of the
Company's Common Stock immediately prior to the Company's IPO have agreed not to
sell any of their shares of Common Stock before January 1997 without the prior
consent of the representative of the underwriters of the Company's IPO. Sales of
substantial numbers of shares of Common Stock under Rule 144 or otherwise could
adversely affect the market price of the Common Stock.
Effect of Resale of Common Stock Issuable upon Exercise of Warrants and/or
Options. On the date of this Prospectus, the Company had outstanding privately
held warrants and/or options to purchase 915,831 shares of Common Stock. In
addition, the Company has outstanding Nasdaq listed warrants to purchase
1,870,000 shares of Common Stock, 1,850,000 of which are publicly held and
20,000 of which are being offered hereunder; and underwriter's warrants issued
in the Company's IPO, exercisable to purchase 240,000 shares of Common Stock.
Although most of these derivative securities are not "in-the-money," the future
exercise of these warrants and/or options and the resale of the underlying
shares of Common Stock could adversely affect the market price of the Common
Stock. See "Description of Securities--Warrants and Options."
-7-
<PAGE>
Authorization of Preferred Stock. The Company's Certificate of
Incorporation authorizes the issuance of 5,000,000 shares of "blank check"
Preferred Stock. The Board of Directors is empowered, without stockholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights which could adversely affect the voting power of other
rights of the holders of the Common Stock. The Preferred Stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. See "Description of
Securities--Preferred Stock."
No Dividends. The Company does not contemplate paying dividends in the
foreseeable future since it will use all of its earnings, if any, to finance
expansion of its operations. See "Dividend Policy."
MARKET FOR THE COMPANY'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and Warrants have been traded over-the-counter
since January 18, 1995 and are quoted on the Nasdaq SmallCap Market under the
symbols CALP and CALPW, respectively. The following table sets forth the range
of high and low bid prices as quoted by Nasdaq. These market quotations reflect
inter-dealer prices without retail mark-up, mark-down or commissions and may not
represent actual transactions.
<TABLE>
<CAPTION>
Common Stock Warrants
Bid Prices Bid Prices
-------------------- -------------------
1995 High Low High Low
---- ---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter (1/18/95-3/31/95) $ 5.25 $ 4.25 $ 1.125 $ .50
Second Quarter (4/1/95-6/30/95) $ 4.75 $ 3.375 $ 1.03125 $ .625
Third Quarter (7/1/95-9/30/95) $ 6.875 $ 2.875 $ 2.6875 $ .50
Fourth Quarter (10/1/95-12/31/95) $ 5.25 $ 3.375 $ 2.625 $ .875
1996
First Quarter (1/1/96-3/31/96) $ 4.625 $ 2.5625 $ 1.9375 $ .65625
Second Quarter (4/1/96-6/30/96) $ 4.00 $ 2.25 $ 1.00 $ .50
Third Quarter (7/1/96-9/30/96) $ 3.0625 $ 1.875 $ .90625 $ .375
Fourth Quarter (10/1/96-11/30/96) $ 2.3125 $ 1.625 $ .5625 $ .375
</TABLE>
The number of record holders of the Company's Common Stock as of November
30, 1996 was approximately 87. Based on informal information provided to the
Company by its market makers, the Company believes that its Common Stock and
Warrants each are held beneficially by more than 300 persons.
DIVIDEND POLICY
The Company has not declared or paid dividends on its Common Stock, nor
does it anticipate paying any cash dividends in the foreseeable future. The
Company currently intends to retain any future earnings to fund operations and
the continued development of its business. Further, the Loan Agreement provides
that without the prior written consent of the lender, the Company may not
declare or pay any dividend on any class of stock until satisfaction of all
liabilities under the Loan Agreement.
-8-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company imports and distributes products in three participant sports
categories. In-line skates and related accessory products are marketed under the
brand names California Pro(R) and Rolling Thunder(TM); since August 1994,
snowboards and snowboard accessory products have been marketed under the
Kemper(R) brand; and since May 1996, ice and street/roller hockey skates,
sticks, related gear and accessories, as well as figure skates are marketed
under the Victoriaville(TM), Vic(R), Hespeler(TM) and McMartin(R) brands.
Management believes that conditional product refinement and new product designs
and development, along with attractive packaging and first class customer
service are vital to continued sales growth. The Company purchases most of its
products from manufacturers in Taiwan, mainland China, Austria and Canada. Some
of the Company's accessory products are purchased from domestic suppliers.
Substantially all hockey sticks sold are manufactured by Davtec and skates and
related gear are purchased from foreign suppliers.
The Company sells its skate products principally to major retail sporting
goods chains in North America and to U.S. military exchanges world-wide, through
independent sales representative groups, under an exclusive royalty free
perpetual license. Snowboard products are sold to regional sporting goods chains
and specialty shops through independent sales agencies in the U.S. and Canada
and directly by the Company to 19 foreign distributors. Hockey products are sold
in North America through a network of independent sales representative groups to
major retail sporting goods chains as well as smaller, specialized independent
sporting goods shops. Internationally, hockey products are sold to and
distributed by independent distributors located primarily in Germany,
Switzerland, Italy, Austria, Czech Republic, Sweden, France, Finland and Brazil.
During the first quarter of 1995 the Company closed its IPO of 1,200,000
shares of Common Stock and 1,380,000 common stock purchase warrants. After
deducting offering expenses, the Company received net proceeds from the offering
of approximately $4,200,000.
-9-
<PAGE>
Results of Operations
The following table sets forth the Company's sales by major product
category for the periods indicated:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended Year Ended
September 30, September 30, December 31,
---------------------- ------------------------ -------------------------
1996 1995 1996 1995 1995 1994
---- ---- ---- ---- ---- ----
$ % $ % $ % $ % $ % $ %
- - - - - - - - - - - -
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
In-line skates
and accessories $4,629 33% $9,055 77% $969 16% $2,671 71% $11,037 64% $13,064 79%
Snowboards and
accessories 1,249 9% 2,637 23% 522 8% 1,113 29% 6,092 36% 3,405 21%
Ice and street/roller
hockey(1) 8,110 58% -- -- 4,739 76% -- -- -- -- -- --
----- --- ------ ----- ----- ---------- -- ------ --- ----- --
$13,988 100% $11,692 100% $6,230 100% $3,784 100% $17,129 100% $16,469 100%
======= ==== ======= ==== ====== ==== ====== ==== ======= ==== ======= ====
</TABLE>
- -------------
(1) Sale of hockey products began May 1, 1996.
The following table sets forth for the periods indicated the percentages
which selected items in the Consolidated Statements of Operations bear to net
sales:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, December 30,
------------------- -------------------
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales.................................. 100.0 100.0 100.0 100.0
Cost of Goods Sold......................... 70.9 70.3 71.0 72.0
Gross Profit............................... 29.1 29.7 29.0 28.0
Sales & Marketing Expenses................. 11.7 12.0 10.3 10.0
General & Administrative Expenses.......... 15.3 14.3 12.3 12.6
Depreciation and Amortization ............. 5.3 3.5 3.2 2.8
Consulting & Management Fees............... 1.0 .7 .7 .7
Income (loss) from Operations.............. (4.2) (.8) 2.5 1.9
Interest and Other Expense (Income)........ 1.2 2.0 1.6 2.7
Income Tax Expense (Benefit)............... (1.6) (1.1) .7 .2
Minority Interest.......................... 0.3 0.0 0.0 0.0
------ ------- ----- ------
Net Income (Loss).......................... (4.1) (1.7) .2 (1.0)
====== ======= ===== ======
</TABLE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
The Company commenced operations on April 1, 1993, when it acquired the
in-line skate business from SCYL, the predecessor company. As described in Note
1 of the Company's consolidated financial statements, the assets acquired from
the predecessor have been recorded at their carrying value to the predecessor.
Except for the amortization of the purchased intangibles, the accounting bases
used by the Company are the same as used by the predecessor.
-10-
<PAGE>
On August 1, 1994 the Company acquired certain assets, including an
exclusive, perpetual worldwide license to the Kemper(R) name and trademark,
subject to a royalty, and approximately $3.5 million of existing purchase orders
for Kemper(R) snowboard products.
For financial statement presentation purposes, the Company reclassified
certain 1994 expenses including the loss of foreign currency to allow for better
comparative information.
Net Sales. Net sales for the year ended December 31, 1995 increased to
$17,128,711 from $16,468,567 for the year ended December 31, 1994, or by
$660,144, representing an approximate increase of 4%. This increase was
primarily attributable to the increase in revenues of $2,687,000 of the
Company's Kemper(R) snowboard products. Revenues were derived from sales under
the Kemper(R) license for the entire 1995 year compared to sales in 1994 which
began August 1, 1994. This increase was offset by a decline of $2,027,000 of the
Company's in-line skate products in 1995 compared to 1994. The Company believes
the decline in sales was caused by high inventory levels of in-line skate
products at some of the Company's major retail accounts as well as the Company's
competitors filling their orders at a higher percent rate in 1995 than they
accomplished in 1994.
Gross Profit. Gross profit increased to $4,973,168 for the year ended
December 31, 1995 compared to $4,603,835 for the period ended December 31, 1994.
As a percent of sales, gross profit was 29% and 28% for the years ended December
31, 1995 and 1994, respectively. The primary reason for the increase was due to
a charge of $425,000 associated with the Company's purchase of $3.5 million of
Kemper(R) open purchase orders in 1994.
Sales and Marketing Expenses. Sales and marketing expenses increased to
$1,758,221 for the year ended December 31, 1995 compared to $1,648,901 for the
year ended December 31, 1994. This represents an increase of $109,320. The
primary reasons for the increase were sales and marketing expenses of Kemper(R)
incurred for the full year in 1995 of $738,853, compared to only five months of
expenses in 1994 of $275,440, as the Kemper(R) license was acquired August 1,
1994. The Kemper(R) increase of $463,413 was offset by a decrease in the
Company's in-line skate sales and marketing expenses of $354,093. The decrease
was primarily attributable to lower commissions earned by sales representatives
of $241,576, as a result of lower sales.
General and Administrative Expenses. General and administrative expenses
increased to $2,121,855 for the year ended December 31, 1995 compared to
$2,071,441 for the year ended December 31, 1994. This represents an increase of
$50,414. The increase is primarily attributable to an increase of $90,362
related to expenses incurred under the operating license of Kemper(R) for the
entire period in 1995, compared to only five months in 1994, as the Kemper(R)
license was acquired August 1, 1994. Additionally, there were increases in the
expenses of the Company's in-line skate business and general corporate activity
related to wages and related benefits of $50,984, travel and expenses incurred
of $112,583 associated with becoming a public company in January 1995. These
increases were partially offset by the Company reducing certain expenses and
recording a receivable from a related party for services rendered and expenses
incurred of $211,200.
Bad Debt Expense. Bad debt expense for the Company decreased for the year
ended December 31, 1995 to $291,488 compared to $324,561 for the year ended
December 31, 1994. The Company provides for bad debts on a monthly accrual of
sales basis, then quarterly reviews the total reserve and makes adjustments as
necessary to reflect management's view of the collectability of its receivables.
The reason for the decrease is that in 1994 the Company recognized additional
expenses related to the write-off of certain accounts receivable.
Depreciation and Amortization. Depreciation and amortization increased from
$461,367 for the year ended December 31, 1994 to $544,245 for the year ended
December 31, 1995. The reason for the increase was due to increases in the
Company's equipment resulting from acquisitions of molds for both in-line skates
and snowboards.
Consulting Fees, Related Party. Consulting fees, related party remained
$120,000 for the years ended December 31, 1995 and 1994, respectively. The
Company pays an officer/shareholder $10,000 per month for services primarily
related to long-term strategic planning, financing and acquisitions.
-11-
<PAGE>
Income from Operations. For the year ended December 31, 1995 the Company
generated income from operations of $428,847 compared to $302,126 for the year
ended December 31, 1994. The increase was a result of an increase in gross
profit of $369,333 offset by an increase of $242,612 in operating expenses as
described above under sales and marketing, general and administrative expenses
and bad debt expense.
Other Income/Expenses. Other expenses for the year ended December 31, 1995
were $280,491 compared to $441,644 for the year ended December 31, 1994. The
decrease of $161,153 was primarily attributable to an increase in royalty income
in 1995 of $61,855, decreases of $90,639 and $15,984 for interest related party
(as that indebtedness was reduced in January 1995) and interest other
respectively. These benefits were partially offset by an increase in foreign
currency loss of $7,325.
Income Tax Expense. Income taxes of $112,900 were incurred for the year
ended December 31, 1995 compared to $31,000 for the year ended December 31, 1994
due to the Company having a greater taxable income in 1995 compared to 1994.
Taxable income is greater than financial income primarily because intangible
assets are being amortized at a faster rate for financial reporting purposes
than allowed for income tax purposes.
Net Income (Loss). Net income in 1995 was $35,456 compared to a loss of
$170,518 in 1994. The increase was due to the increase in gross profit generated
of $369,333, lower interest expense of $106,623 and higher royalties of $61,855,
partially offset by the increases in operating expenses as described above.
Three and Nine Months Ended September 30, 1996 Compared to the Corresponding
Periods Ended September 30, 1995
Net sales. Sales for the three months ended September 30, 1996 increased to
$6,230,078 from $3,783,828 or by $2,446,250, representing a 64.7% increase. This
increase was attributable to the inclusion of approximately $4,739,000 of sales
by USA Skate. This increase was reduced by lower sales of the Company's in-line
skate and snowboard products of $1,702,000 and $591,000, respectively. Net sales
for the nine months ended September 30, 1996 increased to $13,987,601 from
$11,691,767 or by $2,295,834 or approximately 19.6% compared to the nine months
ended September 30, 1995. The increase results from sales of USA Skate
subsequent to May 1, 1996 of approximately $8,110,000, and was partially offset
by decreased sales of the Company's in-line skate product lines and snowboard
product lines of approximately $4,426,000 and $1,388,000, respectively. The
reduction in the in-line skate sales was primarily caused by high inventory
levels of in-line skate products at some of the Company's major retail accounts
as well as the Company's competitors filling their orders at a higher percent
rate in 1996 than previously. Snowboard sales decreased in 1996 compared to the
same period in 1995 due to the Company losing market share as new competitors
have entered the market, some of which may have more financial resources than
the Company.
Gross Profit. For the three months ended September 30, 1996 gross profit
increased to $2,040,289 from $1,196,175 or by $844,114 due to the higher sales
volume in the 1996 period compared to the 1995 period. Gross profit as a percent
of sales increased to 32.7% from 31.6% Gross profit increased to $4,069,188 from
$3,477,655 or by $591,533 for the nine-month period ended September 30, 1996
compared to the 1995 period and, as a percent of sales, gross profit decreased
from 29.7% to 29.1%. The increase in gross profit was primarily attributable to
the gross profit of USA Skate subsequent to the acquisition. The decrease in
gross profit as a percent of sales was primarily due to sales of some of the
Company's in-line skate products at reduced selling prices to lower the
Company's levels of in-line skate inventory. This action was taken because
management believes that some of its competitors have excess inventory in stock
which could ultimately result in flooding the market.
Sales and marketing expenses. Sales and marketing expenses for the three
months ended September 30, 1996 increased to $673,415 from $385,695 or by
$287,720 compared to the three months ended September 30, 1995. The increase was
a result of the sales and marketing expenses of $345,421 related to the revenues
of the Company's hockey business which it acquired effective April 30, 1996.
This increase was partially offset by a reduction of the Company's in-line skate
and snowboard related sales and marketing expense of commissions of $37,608, due
-12-
<PAGE>
to the lower sales volume in the current period. Sales and marketing expenses
for the nine months ended September 30, 1996, increased to $1,641,441 from
$1,406,681 or by $234,760 compared to the nine months ended September 30, 1995.
The increase was a result of the sales and marketing expenses of $665,249
related to the revenues of $8,109,776 of the Company's hockey business acquired
effective April 30, 1996. This was partially offset by reduced commission
expenses of $331,007 related to the Company's in-line skate and snowboard
businesses due to lower commissionable sales. Additionally, the Company
eliminated some other marketing expenses related to its snowboard business by
reducing its team rider staff and their related travel expenses thereby reducing
expenses by $47,300 and $28,228, respectively.
General and administrative expenses. General and administrative expenses
for the three months ended September 30, 1996 increased to $1,067,929 from
$523,268 or by $544,661 compared to the same period in 1995. The increase was
attributable to $549,863 of general and administrative expenses incurred within
the Company's recently acquired hockey business.
During the nine months ended September 30, 1996, general and administrative
expenses increased to $2,134,243 from $1,660,490 or by $473,753 compared to the
nine months ended September 30, 1995. General and administrative expenses of the
Company's in-line skate and snowboard businesses decreased by $295,970. The
primary causes for this decrease are wages and related benefits of approximately
$185,000, reduced insurance premiums (revenue based) of $50,000 and other
general and miscellaneous expenses of $61,000. This decrease was offset by the
general and administrative expenses of $723,544 associated with the newly
acquired (effective April 30, 1996) hockey business.
Bad debt expense. Bad debt expense for the three and nine months ended
September 30, 1996 was $43,597 and $100,897, respectively, compared to $30,269
and $32,894 for the three and nine months ended September 30, 1995. The Company
provides for bad debts on a monthly accrual of sales basis, then quarterly
reviews the total reserve and makes adjustments as necessary to reflect
management's view of the collectability of its receivables. The reason for the
increase in 1996 is primarily attributable to increased activity from the
Company's hockey operations acquired effective as of April 30, 1996.
Depreciation and amortization. Depreciation and amortization increased to
$320,340 and $739,575 for the three and nine months ended September 30, 1996, or
by $186,471 and $331,439, respectively, compared to the periods ended September
30, 1995. The increases are primarily attributable to the acquisition of USA
Skate, effective April 30, 1996, and the corresponding increase in amortization
expense associated with this purchase.
Consulting fees. Consulting fees increased for the three and nine months
ended September 30, 1996 to $60,000 and $140,000 or by $30,000 and $50,000,
respectively, compared to the three and nine months ended September 30, 1995 for
services provided to USA after May 1, 1996.
Income/loss from operations. For the three months ended September 30, 1995
there was income from operations of $123,343 compared to a loss from operations
of $81,395 for the three months ended September 30, 1996. The main reasons for
the change are lower revenues and gross profits of $2,293,000 and $840,000,
respectively, resulting in an operating loss of $510,000 in the Company's
in-line skate and snowboard businesses. Additionally, the Company had income
from operations of its hockey related business of approximately $429,000.
For the nine months ended September 30, 1996, loss from operations
increased to $586,071 from $87,652 for the comparable period ended September 30,
1995. The primary reason for the increase in loss was lower sales of $5,814,000
and gross profit of $2,327,000 of the Company's in-line skate and snowboard
businesses, as partially offset by reduced operating costs of $703,000 resulting
in an operating loss of $1,250,000 related to that business and income from
operations for its hockey operations of approximately $664,000.
Other expenses/income. Other expenses increased from $53,901 for the three
months ended September 30, 1995 compared to $767,455 for the three months ended
September 30, 1996. Interest expense other and interest expense related party
-13-
<PAGE>
increased by $317,373 and $50,682, respectively. The main reason for the
increases was additional bank lines of credit assumed in the acquisition related
to the hockey operations. Additionally, interest expense has been affected by
the issuance of promissory notes to the former shareholders of USA Skate in
connection with the acquisition of USA Skate and USA's issuance of convertible
promissory notes and officer/shareholder notes of $2,518,000 and $1,080,000,
respectively.
In 1996 the Company received marketable securities from an affiliate as
payment of a related party receivable of $373,108 which the Company classified
as trading securities under SFAS No. 115. As of June 30, 1996 the market value
of these securities increased to $789,745 and the Company recognized a net
unrealized holding gain of $416,637 in the three and six months ended June 30,
1996. At September 30, 1996 the market value of the securities decreased from
June 30, 1996 by $394,872. Therefore, the Company recognized a net unrealized
holding loss of $394,872 during the three months ended September 30, 1996.
For the nine months ended September 30, 1996 other expenses decreased from
$231,413 in 1995 to $170,161 in 1996. Interest expense other and related party
increased by $596,246 and $84,444 for the same period in 1996 compared to 1995.
As stated in the three month analysis, this is due to increased borrowings
related to the bank lines of credit assumed in the acquisition of the hockey
related business, and increased debt issued in connection with the formation of
USA and its acquisition of USA Skate.
This increase of interest expense was offset by a year-to-date net increase
of $21,765 in the marketable securities the Company received from an affiliate
in payment of a related party receivable.
Additionally, the Company satisfied $260,000 of payables to
officer/shareholders by transferring to two officers/shareholders a total of
216,667 shares of USA common stock held by the Company. For purposes of
satisfying the $260,000 payable, the USA common stock was valued at $1.20 per
share, the same per share price as USA received in a recent private placement of
its common stock to third parties. The $1.20 per share amount exceeded the
Company's carrying value of USA's common stock by $.69 per share and,
accordingly, the Company recognized a gain of $111,366. Other income also
included an increase in royalty income of $40,534 resulting from the Company's
license for snowboard apparel in effect for the entire period in 1996 compared
to only three months for the same period in 1995. The Company recognized a gain
of $479,100 from the issuance of USA common stock as described in Note 7 of the
consolidated financial statements.
Income tax benefit/expenses. The Company recorded an income tax benefit for
the three months ended September 30, 1996 of $261,000 compared to an expense of
$5,500 for the period ended September 30, 1995. For the nine months ended
September 30, 1996 the Company had an income tax benefit of $225,000 compared to
a benefit for the nine months ended September 30, 1995 of $126,860.
Net income/loss. Net income was $63,942 for the three months ended
September 30, 1995 compared to a loss of $631,184 for the three months ended
September 30, 1996. The primary reasons for the change were losses realized from
operations and increases in interest and other expenses in 1996 compared to the
1995 period.
Net loss increased to $567,210 from $192,205 for the nine months ended
September 30, 1996 compared to September 30, 1995. The primary reason was the
increase in the loss from operations of the Company's in-line skate and
snowboard businesses.
-14-
<PAGE>
Liquidity and Capital Resources
The Company funds its in-line and snowboard operations principally through
a $5.5 million revolving credit facility with a bank, and, to a lesser degree,
loans from private investors and trade credit. During the first quarter of 1995,
the Company completed its IPO, realizing net proceeds of approximately $4.2
million after payment of offering expenses.
At September 30, 1996, the Company had a working capital deficit of
approximately $2,160,320 compared to working capital of approximately $2,399,000
at December 31, 1995. The decrease in working capital is primarily related to
debt issued and assumed in the acquisition of USA Skate.
In May 1996, the Company, through USA, completed the acquisition of the
outstanding capital stock of USA Skate. Consideration for the purchase consisted
of $3,650,000 of cash, a $1,050,000 8% installment note payable, 250,000 shares
of USA common stock valued at $300,000, and assumption of approximately
$5,500,000 of debt. The purchase price was paid with funds raised by USA,
including the private placement of 884,667 shares of common stock of USA for
$961,600, the issuance of $1,080,000 of 9% notes payable to certain
officers/shareholders, and the issuance of $2,515,000 of 9% convertible
promissory notes due January 1997 (which may be extended for six months and are
convertible into USA common stock under certain conditions). The debt assumption
was financed in part by a bank loan to USA Skate. Additionally, the former
controlling shareholder of USA Skate signed consulting and noncompete agreements
in consideration for the issuance of 400,000 shares of the Company's common
stock valued at $900,000, and USA Skate also entered into a worldwide exclusive
license agreement for 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.
The Company intends to continue to fund its hockey operations from two
credit facilities with banks, under $8,600,000 of revolving lines of credit
agreements.
Generally, invoices for the Company's in-line skate and snowboard products
are payable within 60 days. The Company's hockey products are sold customarily
with dating terms normal in the hockey industry. Historically, the Company has
not experienced significant write-offs with respect to trade receivables due to
its credit management procedures. Management believes its allowance for doubtful
accounts is adequate.
For payments to foreign suppliers, the Company currently utilizes trade
acceptances, which generally are payable upon receipt of documentation by the
Company's bank, but no later than time of delivery, utilizing available cash
under the Company's revolving line of credit.
Under the bank credit facility related to the Company's in-line skate and
snowboard businesses, the amount the Company may borrow is limited by the level
of its eligible accounts receivable and inventory. The U.S. and Canadian bank
credit facilities related to the Company's hockey business are structured the
same. Borrowing is limited to 50% of eligible inventory, plus 75% of accounts
receivable, and is collateralized by accounts receivable and inventory. Loans
under the agreements bear interest at one percent above the bank's prime rate
and are due on demand. The loan agreement also requires the respective operating
subsidiaries to maintain a certain tangible net worth and restricts its ability
to (i) incur additional obligations or debt; (ii) pay dividends on its capital
stock; (iii) enter into any transaction of merger, consolidation, acquisition or
sale of assets other than in the ordinary course of business, and (iv) pay
annual aggregate compensation of its officers and directors in excess of a
specified amount, unless the bank consents to such actions and waives or amends
the applicable restrictions in the loan agreement. At September 30, 1996, based
on the limitations described above, under the in-line skate/snowboard line of
credit the Company was eligible to borrow $3,396,000 and the outstanding balance
was approximately $3,281,000. Under the hockey products lines of credit, the
Company was eligible to borrow $7,890,000 and the outstanding balance was
approximately $7,792,000.
-15-
<PAGE>
Seasonality
The Company's in-line skate and hockey related sales are strongest in the
second and third quarters of each calendar year. Snowboard product sales are
strongest during the third and fourth quarters of each calendar year. However,
industry trade shows and other sales, marketing and administrative costs
typically precede the strong selling seasons and, therefore, the Company
anticipates that it may incur a significant loss in the first quarter of each
year, including 1997.
Foreign Exchange
The Company's products are principally purchased from suppliers located in
Taiwan, mainland China, Korea, Austria and Canada. The Company purchases its
in-line skate products for set prices negotiated annually in U.S. dollars at
exchange rates reset annually. The Company purchases its snowboards in Deutsche
Marks. The Company sells its snowboard and hockey products both domestically and
internationally. As a result, extreme exchange rate fluctuations could have a
significant effect on its sales, costs of goods sold and the Company's gross
margins. Further, if exchange rates fluctuate dramatically, it may become
uneconomical for the relationship between the Company and its suppliers to
continue. The Company does not engage in hedging transactions.
Effect of Inflation
Management believes that inflation has not had a significant impact on its
business.
BUSINESS
The Company markets California Pro(R) in-line skates, and related
protective gear and accessories, Kemper(R) snowboards and related snowboard
accessories and Vic(R) and Victoriaville(TM) ice and street/roller hockey
skates, sticks and related protective gear and accessories. The Company acquired
its California Pro(R) in-line skate business in April 1993. The Company's
in-line skate products are sold in the United States, Canada, the Caribbean and
U.S. military bases worldwide, for recreational and fitness purposes. In August
1994, the Company began marketing snowboards and related accessories after
acquiring rights to the Kemper(R) name and trademark and over $3.5 million in
unfilled product purchase orders for Kemper(R) snowboards and related
accessories. The Company sells its hockey related products (acquired in May
1996) in the United States and Canada through independent sales representatives
and internationally through independent distributors located in Germany,
Switzerland, Italy, Austria, Czech Republic, Sweden, Finland, France and Brazil.
Business Development
The Company is a Delaware corporation organized in 1993 in connection with
the acquisition of its in-line skate business. In August 1994, the Company
acquired its snowboard business. The Company completed an IPO in early 1995,
from which it received net proceeds of approximately $4.2 million, after
deduction of offering expenses. In May 1996, the Company acquired its majority
interest in the USA Skate ice and street/roller hockey business. The Company is
primarily a marketer and distributor of its products, although through indirect
affiliates, it also manufactures certain of its products.
California Pro operates its in-line skate and snowboard businesses through
its wholly owned subsidiary, CP. The ice and street/roller hockey skate business
is operated by the Company's majority owned subsidiary, USA. USA owns all of the
outstanding equity securities of USA Skate. California Pro's assets consist of
its stock ownership in CP and USA. Due to the Company's majority ownership
interest in USA, its financial statements have been consolidated with the
Company's for periods ending after April 30, 1996. Unless the context requires
otherwise, the term "Company" includes CP and USA, as well as USA's
subsidiaries.
-16-
<PAGE>
Business Strategy
The Company's plan of operation and business strategy is based on the
following core points:
o Increase sales to existing accounts and expand account base
o Quality products at competitive prices
o Product development and enhancement
o World class service
o Quality sales force
o Experienced sporting goods management
Increase sales to existing accounts and expand customer base. The Company
intends to continue to capture market share through new product development,
entering new product lines within existing product categories, enhancement of
existing products and competitive pricing strategies.
Quality products at competitive prices. The Company has an exclusive
manufacturing agreement with Playmaker Co., Ltd., a Pacific Rim in-line skate
manufacturer which is a minority stockholder of California Pro. The Company
believes its relationship with this manufacturer gives the Company a strategic
advantage of being able to respond to market needs and demands more rapidly than
competitors who rely on outside sourcing relationships. The Company's snowboards
are primarily manufactured in Europe by a business not affiliated with the
Company, Pale Ski & Sport GmbH & Co., one of the world's largest manufacturers
of snowboards. Les Equipements Sportifs Davtec, Inc. ("Davtec"), a Canadian
company indirectly wholly owned by USA, manufactures hockey sticks, pants and
gloves for the Company, and is the Canadian distributor for all of the Company's
hockey related Vic(R), Victoriaville(TM) and McMartin(R) product lines.
Product development and enhancement. The Company believes that new product
introductions and product refinement is essential to its current and long term
success. With the support of its suppliers and industry consultants, the Company
has developed new products and has refined most of its existing product range.
Management continually evaluates product features and benefits in relation to
its competition and new technology.
World class service. The Company believes quality service to be essential
in achieving its long-term goals. From time to time the Company and/or its
suppliers incur air freight costs to meet increases in customer product needs.
Through the Company's on-line Electronic Data Interchange computer network
service, customers can place their orders on a same-day basis with the Company.
Quality sales force. The Company believes quality sales representation must
be in place to achieve acceptable levels of performance and revenue growth. The
Company monitors the individual performances of its independent sales
representative groups and establishes monthly sales goals for them.
Experienced sporting goods management. The Company's operating team
collectively has extensive experience in the sporting goods industry.
Management's general knowledge of the sporting goods industry, industry contacts
and customer base knowledge are important factors in the Company's plans to
expand its business.
Acquisitions
California Pro(R)/Rolling Thunder(TM) In-Line Skate Acquisition. On April
1, 1993, the Company acquired the California Pro(R) in-line skate business from
California Pro USA Corp., subsequently renamed SCYL, Inc. and later dissolved
-17-
<PAGE>
("SCYL"), in exchange for cash and Common Stock. The business consisted
primarily of $4.1 million of current assets, primarily inventory and accounts
receivable, $1.6 million of intangibles, primarily a license for trademarks and
non-compete agreements, and $40,000 of property and equipment. In exchange for
the business, the Company paid $750,000 to the former managers of the seller for
three-year agreements not to compete and management buy-out and short-term
consulting agreements; agreed to pay and subsequently paid approximately $3.7
million to Playmaker, the Taiwanese in-line skate manufacturer and majority
owner of the seller, for the seller's previous inventory purchases; assumed
certain other liabilities aggregating approximately $300,000; and issued 510,000
shares of Common Stock to SCYL, which upon dissolution of SCYL was transferred
to SCYL's shareholders, Playmaker and Steve C.Y. Lin, a director of California
Pro following the acquisition. In connection with this acquisition, Playmaker
granted the Company an exclusive, perpetual, non-royalty bearing license to the
California Pro(R) and Rolling Thunder(TM) names and trademarks and entered into
a five-year manufacturing agreement to supply substantially all of the Company's
in-line skate products.
This acquisition was a taxable transaction and was accounted for as a
purchase. Due to the significant continuing ownership participation of Playmaker
in the Company, the assets acquired were recorded at historical cost. Cash paid
and notes given (which all have been paid) by the Company for the agreements not
to compete, management buy-out and consulting fees, as described above, and the
guaranty fees, as described under "Certain Transactions," were recorded as
intangible assets.
Simultaneously with the closing of the in-line skate acquisition, the
Company entered into a three-year loan agreement with LaSalle National Bank,
N.A. ("LaSalle") for a $4 million revolving line of credit (as amended to date,
the "CP Loan Agreement") to fund a portion of the acquisition costs and to
provide additional working capital for operations. In August 1995 the CP Loan
Agreement was extended for an additional year and the loan limit was increased
to $5.5 million. In April 1996, the CP Loan Agreement was further extended to
May 31, 1999. Borrowings under the CP Loan Agreement are secured by
substantially all of CP's operating assets and are unconditionally guaranteed
individually by Henry Fong and Michael S. Casazza, two directors, officers and
significant stockholders of the Company. In addition Mr. Fong guaranteed $2.7
million of indebtedness in connection with this acquisition, all of which has
been paid. Messrs. Fong and Casazza received guarantee and/or other fees in
connection with the in-line skate acquisition and the CP Loan Agreement. See
"Certain Transactions" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Kemper(R) Snowboard Acquisition. On August 1, 1994, the Company acquired
certain assets, including an exclusive, perpetual world-wide license to the
Kemper(R) name and trademark, subject to a royalty, and over $3.5 million of
existing purchase orders for Kemper(R) snowboard products, for approximately
$1.1 million. The purchase orders were acquired from Kemper Snowboard
Corporation ("Kemper"). The Company acquired its license directly from the
registered owner of the Kemper(R) name and trademark, Front 500 Corporation
("Front 500"). Kemper and Front 500 are parties unrelated to the Company. Mr.
Casazza personally guaranteed a $400,000 promissory note issued in connection
with the purchase price, which subsequently was repaid by the Company.
USA Skate Acquisition. As of April 30, 1996, USA, a 57% subsidiary of the
Company, acquired USA Skate. Consideration for the purchase was $5.9 million in
a combination of cash, stock and notes, and assumption of approximately $5.5
million of debt, substantially all of which has been guaranteed by the Company.
The purchase price was paid with funds raised in private securities offerings
conducted by USA and the debt assumption was financed in part by a bank loan
from LaSalle National Bank to USA Skate, which also is guaranteed by the
Company. USA Skate is based in Long Island, New York, and markets and
distributes, hockey sticks, ice and street/roller hockey skates, related gear
and accessories under the Victoriaville(TM), Vic(R) and McMartin(R) brands, as
well as custom made figure skates. USA Skate has an exclusive worldwide license
for use of the Vic(R) and Victoriaville(TM) brands. See "Financial Statements"
which include historical financial statements of USA Skate.
-18-
<PAGE>
Sales and Marketing
The Company markets its products primarily in retail sporting goods chains
and specialty shops. Distribution is accomplished primarily through national
networks of independent sales representative groups who sell directly to buyers
and retail accounts. The Company has oral agreements with sales representative
groups which cover the United States, Canada, the Caribbean and U.S. military
exchanges worldwide. These sales representative groups are paid on a standard,
commission-only basis. In addition, the Company has foreign distributors, mostly
in European countries, for distribution of Kemper(R) snowboards and accessories,
as well as Vic(R) and Victoriaville(TM) hockey products.
In-Line Skate Advertising and Promotion. The Company advertises and
promotes its in-line skate products through multiple methods customary within
the industry. It participates in all major trade exhibitions, conducts special
promotions and advertises in trade and consumer publications such as Spin and
Outside on a national, regional and local basis. Point of purchase materials and
promotional items are made available to the Company's customer base as well as
directly to consumers through Company and trade supported programs. The Company
also sponsors consumer demonstration days to further promote the California
Pro(R) brand and the sport of in-line skating.
Snowboard Advertising and Promotion. A Company objective is to promote
Kemper(R) as a leading brand within the snowboard industry. The Company believes
that world class customer service is an essential ingredient to successful
promotion of the Kemper(R) brand. The Company focuses its trade and consumer
advertising on leading industry publications such as Transworld Snowboarding and
Snowboarder. The Company intends to adopt a global approach to its advertising
campaign and will allocate advertising and promotional resources to broaden its
international distribution. To promote its Kemper(R) brand, the Company sponsors
various professional snowboarders each season (the "Kemper(R) team riders") to
attend snowboarding events organized by retailers. Videos featuring the
Kemper(R) team riders also are distributed by the Company's sales
representatives to consumers and to the retail trade for promotional purposes.
Hockey Advertising and Promotion. The Company markets its hockey products
primarily to retail sporting goods chains and specialty shops. Its marketing
strategy emphasizes the price/value relationship of its branded products. In
particular, the Company believes that within its hockey business, retailers are
afforded an excellent mark-up for Victoriaville(TM), Vic(R) and McMartin(R)
hockey products when the features are compared to the features of the
competitors at virtually all price points.
The Company sells its products primarily through national networks of
independent sales representative groups who sell through direct contact with
buyers and retail accounts. The Company has oral agreements with ten sales
representatives groups which cover the United States and Canada. These sales
representative groups are paid on a standard, commission-only basis. In
addition, the Company has eight distributors located in Germany, Switzerland,
Italy, Austria, Czech Republic, Sweden, Finland, France and Brazil.
The Company advertises and promotes its hockey products through multiple
methods customary within the industry. It participates in all major trade
exhibits, conducts special promotions and advertises in trade and consumer
publications on a national, regional and local basis. Point of purchase material
and promotional items are made available to the Company's customer base as well
as directly to consumers through USA Skate and trade supported programs. A
critical component of the Company's promotion lies in its ability to attract NHL
players to use and promote the Company's products. At this time, over 100 NHL
players use the Company's Victoriaville(TM), Vic(R) and Hespeler(TM) branded
products, including NHL All-Stars Steve Yzerman, John Vanbiesbrouck and Jeff
Richter.
-19-
<PAGE>
Products
In-Line Skates. The Company currently markets performance, fitness,
recreational and hockey in-line skates for both the adult and youth markets, as
well as a full line of protective gear and other related accessory products. The
Company's in-line skates are constructed of durable, injected molded polymers
and incorporate the latest designs, graphics and technology. Retail prices for
the Company's skates range from approximately $50.00 to $200.00.
The Company markets a full line of in-line skate accessory products,
including protective gear, replacement parts and soft goods for use by in-line
skaters. Protective gear offered by the Company includes an assortment of wrist
guards, knee and elbow pads in both adult and youth sizes which can be purchased
separately or in combination packs. The Company also offers a variety of
replacement parts, including skate laces, brake sets and brake pads, power
straps, wheels, bearings, 8-wheel hardware kits and rink guard axle caps. Soft
goods offered under the California Pro(R) brand name include skate bags and an
assortment of tee shirts.
In addition to its standard models of skates, the Company markets special
models for some of its larger retail customers. These specially designed skates
contain one or more features which vary slightly from the corresponding standard
model based on the preference of the retailer and the retailer's desire to offer
a special model of the Company's in-line skates in their stores at a particular
price point. The Company's close relationship with its primary in-line skate
manufacturer provides the Company with additional flexibility and ease in
meeting its retail customers' market needs with these special models.
The Company offers a competitive limited warranty on workmanship and
materials for six months after the purchase of its in-line skate products from
an authorized California Pro(R) dealer.
Snowboards. The Company offers several series of Kemper(R) snowboards in
different models in various lengths, including a professional series designed,
used and endorsed by Kemper(R) team riders, Martin Gallant and Patrick Klein.
Kemper(R) snowboards come in either wood or a polyurethane matrix, depending on
the series and model, and range in suggested retail price from approximately
$200 to $520, with bindings.
The Kemper(R) snowboard designs are created and modified with the
assistance of the Kemper(R) team riders, European distributors, the manufacturer
and others. The Company acquired updated designs for the 1994-1995 season from
Kemper.
The Kemper(R) PPS+ binding system has become a standard of the industry.
Snowboard manufacturers worldwide employ the Kemper(R) four-hole insert
technology. With the PPS+ binding system, a snowboard rider can quickly adjust
his stance from 11 to 24 inches between runs. The Kemper(R) PPS+ system
accommodates regular footed riders as well as creative footed riders because of
its base rotation feature which permits 360 degrees of rotation.
The Company offers two types of high quality soft boots. The Kemper(R) FS
boot consists of a flexible oil-tanned leather upper and low cuff with zig zag
eyelets for a tighter fit. The Kemper(R) FR boot consists of a stiffer and
taller leather upper with a low profile instep, molded inner tongue, deep tread
sole with a cushioned heel and a velcro heel hold down.
The Company also markets snowboard accessories and clothing such as
leashes, gloves and mitts, hats, sweatshirts, tee shirts and other similar
items.
Hockey Products. The Company currently has five major hockey product
categories consisting of (1) hockey sticks; (2) hockey protective gear; (3)
figure and hockey skates; (4) hockey bags and related accessories; and (5)
-20-
<PAGE>
street/roller hockey skates and protective gear. These products are marketed
under the Victoriaville(TM), Vic(R) and McMartin(R) brands. The Canadian
subsidiary of the Company's hockey division manufactures hockey sticks, pants
and gloves for the Company and is the Canadian distributor for all of the hockey
related Vic(R) and Victoriaville(TM) product lines. The Company's hockey product
lines are constructed of various materials and incorporate the latest designs,
graphics and technology.
Product Design and Development
In-Line Skates. The Company views product design and development as
integral to its continued growth. Since the in-line skate acquisition, the
Company has refined its current skate models by improving the componentry and
appearance, and has introduced eight new skate models. In August 1994, the
Company introduced its first models of in-line skates which incorporate
Sorbothane(R), an innovative visco-elastic material which acts as a shock/impact
absorber.
Jay Turkbas is a consultant to the Company for product design and
marketing. Mr. Turkbas has over ten years of experience in the ski and in-line
skate segments of the sporting goods industry with Nordica, Rollerblade and
Roces. Mr. Turkbas resides in Minneapolis, Minnesota, a large center for the
in-line skate business, and brings to the Company the ability to research market
needs and design new products quickly through the use of rapid prototyping.
Bob Bromley of Kawamura Design Incorporated is a consultant to Playmaker.
He has expertise in both plastics materials and mass production manufacturing
processes. He assisted in the design of the California Pro(R) TXT series in 1991
and later in the design of the California Pro(R) T900 model, using computer
assisted design to achieve a strong and durable skate chassis. In addition to
consulting for Playmaker, Mr. Bromley either provides or has provided design
services to Samsonite Corporation, General Electric, Gerry Baby Products,
Storage Technology Corporation and many other companies.
The Company offers a competitive limited warranty on workmanship and
materials for six months after the purchase of its in-line skate products from
an authorized California Pro(R) dealer.
Snowboards. The Kemper(R) snowboard designs are created and modified with
the assistance of the Kemper(R) team riders, European distributors, the
manufacturer and others. The Company acquired updated designs for the 1995-96
season from Kemper.
Through the 1995 season the professional series of Kemper(R) snowboards
were designed by Martin Gallant, Tom Burt and Patrick Klein. Each of these
professional series of snowboards is marketed under the Kemper(R) brand name and
the designer's name. Tom Burt is a well-known professional snowboarder who was
voted Snowboarder of the Year for the 1989-90 season. Mr. Burt has had extensive
media exposure and he also is quite accomplished at snowboard design. In 1993-94
Mr. Burt organized and taught "Ride with the Pros" snowboard camps.
Hockey Products. The Company's hockey products are designed and developed
through the following methods. Initial product conception is the result of input
from the Company's sales and marketing personnel and/or unsolicited outside
inventor submissions which designs, if accepted by the Company, would either be
licensed or purchased. Design and development of the Company's hockey products
is undertaken by the Company's research and development personnel in conjunction
with outside design firms and vendors, where appropriate. From time to time the
Company solicits input from its sales force and certain key customers regarding
hockey product direction and design.
-21-
<PAGE>
Suppliers and Manufacturing
In-Line Skate Products. The Company has a five-year exclusive manufacturing
agreement with Playmaker, which expires in 1998, under which Playmaker supplies
most of the Company's in-line skates and most of its in-line skate accessory
products. Playmaker manufactures, assembles and packages the Company's in-line
skate products at its facilities in Taiwan and mainland China for set prices in
U.S. dollars negotiated annually. The Company recently began sourcing certain
in-line skate models from an alternative Pacific Rim supplier.
Snowboard Products. The Company's major supplier of snowboards is Pale Ski
& Sport GmbH & Co. of Austria which annually manufactures approximately 40% of
all snowboards sold worldwide. In 1995, the Company began to purchase wood core
boards from a domestic supplier. The Company believes that it could readily
obtain another supplier or multiple suppliers for all of its snowboards if it
were unable to continue its current relationships.
Hockey Products. The Company has two manufacturing facilities, one in
Montreal and the other in Daveluyville, Quebec, Canada. The Daveluyville plant
manufactures hockey sticks and the Montreal plant manufactures premium pants and
gloves. The other products marketed by the Company are sourced from a variety of
suppliers throughout the world. Cortina International Corporation and Superior
Sports are the Company's main suppliers of ice and street/roller hockey
protection products. Figure and hockey skates are supplied by Taiwan Sakuri and
premium quality figure skates are manufactured in the Czech Republic and
supplied to the Company by Benal. The Company has not experienced any
significant difficulty in obtaining raw materials, parts or finished goods
inventory.
Licenses, Patents and Trademarks
The Company derives its proprietary protection primarily from licenses with
others who own patents and trademarks. The Company owns no patents and has
applied for or owns a limited number of trademarks.
In-Line Skate Products. The Company entered into a perpetual license
agreement with Playmaker under which the Company has the exclusive, royalty-free
right to use the California Pro(R) and Rolling Thunder(TM) names and trademarks
on in-line skates, accessories and any other products in the United States,
Canada, certain areas of the Caribbean and U.S. military exchanges worldwide.
The Company also has entered into an agreement with Playmaker under which
Playmaker will pay the Company a five percent royalty on all sales of any
product made by Playmaker to any new customer of Playmaker generated by the
Company. No royalties have been agreed to or paid to date under this agreement.
The Company and Playmaker each have non-exclusive royalty bearing patent
license agreements with Rollerblade, Inc. related to one feature on several of
the Company's in-line skate models. These agreements require payment to
Rollerblade, Inc. of a percentage of the net sales price to retail merchants.
Playmaker reimburses the Company for 90% of the royalties paid by the Company to
Rollerblade under these agreements.
Snowboard Products. In August 1994, the Company entered into an agreement
with Front 500 Corporation, an exclusive, perpetual, worldwide license to use
the name "Kemper Snowboards Inc." and the Kemper(R) design and all derivations
thereof in the manufacture, import, export, design, marketing, promotion and
distribution of Kemper(R) snowboards and related equipment, clothing and
accessories. In return for these license rights the Company pays a royalty of
net sales for products sold under this license.
Hockey Products. The Company owns the exclusive worldwide trademark rights
to the McMartin(TM) name. The Company holds the exclusive worldwide rights to
the Victoriaville(TM) and Vic(R) trademarks for seven years under a royalty
bearing license. If royalties of at least $3 million are paid to the licensor
under the license during the term of the agreement, ownership to the marks will
transfer automatically to the Company.
-22-
<PAGE>
The Company currently manufactures and markets Hespeler(TM) branded
products under a royalty fee arrangement.
Competition
The Company's businesses in general are highly competitive.
In-Line Skate Business. The Company operates in a highly competitive
industry. Some of the Company's competitors have greater financial and other
resources than the Company. With respect to the Company's in-line skate
business, its primary competitors are Rollerblade, Inc., UltraWheels (First Team
Sports, Inc.) and Canstar Sports, Inc. With regard to protective equipment,
Rollerblade, First Team Sports and Franklin are the primary competitors.
Management believes that these competitors collectively have a market share of
over 50%.
The primary competitive factors in the in-line skate business are product
features, quality, price, service and name recognition. Although Rollerblade is
still the most recognized name in the in-line skate industry, consumers are now
comparing features and price more closely. The Company believes that it competes
favorably based on product features, quality, price and service in the in-line
skate industry. Further, the Company believes its relationship with Playmaker
gives the Company a strategic advantage of being able to respond to market needs
and demands more rapidly than competitors who rely on outside sourcing
relationships.
Snowboard Business. Burton Snowboards is the Company's largest competitor,
with a world market share estimated at approximately 50%. Other competitors
include Sims Snowboards and Ride Snowboard Company. The Company believes it
competes in the snowboard business on the basis of product features, quality,
price, service and name recognition. However, since the Company only recently
entered the snowboard market, it is assessing its competitive position with
respect to each of these factors.
Hockey Business. Both ice and street/roller hockey businesses are highly
competitive, with competition predominantly focused on product innovation,
performance and styling, price, marketing and delivery and name recognition. The
hockey markets are dominated by a relatively small number of large companies,
most of whom have greater financial and other resources than the Company. The
primary competitors of USA Skate are SLM International, Inc., Cooper and Canstar
Sports, Inc. Other hockey stick competitors are Sherwood and Karhu Corp. The
Company believes that these competitors collectively have a market share of over
50%. The Company enjoys strong brand recognition and believes it also competes
favorably with respect to the other major competitive factors. There are no
significant technological or capital barriers to entry into markets for many
sporting goods products. These markets compete with other leisure activities
markets for discretionary income spending in a continuously evolving consumer
market.
Purchase Orders and Customers
At December 1, 1996, the Company had purchase orders for future delivery of
products of approximately $1.1 million compared with approximately $1.5 million
at December 1, 1995. Although purchase orders are subject to cancellation in the
normal course of business, the Company expects to fill most of these orders by
March 31, 1997. The decrease in purchase orders in 1996 is in part due to the
Company's smaller backlog in its in-line skate and snowboard businesses of
$916,000, offset by the backlog of its hockey related product lines of $486,000.
For the year ended December 31, 1995, a U.S. governmental agency and C.A.S.
Sports Agency accounted for 10% and 12% of the Company's sales, respectively.
These customers also accounted for 15% and 13% of the Company's sales during
1994. For the nine months ended September 30, 1996, no customers accounted for
10% or more of the Company's sales. The Company does not have ongoing contracts
with any of its customers.
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<PAGE>
Employees
As of November 30, 1996, the Company had 139 employees and 2 consultants.
The Company believes its relations with its employees and its consultants are
good. The Company's employees are not subject to collective bargaining
agreements, except for the employees in the Daveluyville manufacturing facility.
Facilities
The Company's executive offices in Greer, South Carolina consist of
approximately 3,900 square feet leased for monthly payments of $3,250.
The Company leases warehouse facilities located in Commack, New York, for
its hockey business from Mr. Amendola, a former shareholder of USA Skate and
owner of the building. The lease runs through April 2000 and requires payment of
$12,917 per month. The lease terms are as favorable as those which could be
obtained from an unrelated third party. The Commack facility is approximately
31,000 square feet and is maintained as a sales and distribution facility. In
addition, the Company leases approximately 10,000 square feet of warehouse space
located adjacent to USA Skate's facility in Commack, New York, from an unrelated
third party under an agreement that runs through October 31, 1999 for $4,833 per
month. The Company owns its 75,000 square foot manufacturing facility in
Daveluyville, Quebec, Canada and leases approximately 9,600 square feet of
additional manufacturing space in Montreal, Quebec, Canada for $2,200 per month.
Legal Proceedings
The Company is not a party to any material legal proceedings, nor does it
have knowledge of any threatened material litigation. From time to time the
Company may be subject to various legal proceedings which are normal to its
business, including claims for product liability. The Company believes it has
adequate liability insurance for the risks arising in the normal course of its
business, including product liability insurance.
MANAGEMENT
Directors and Executive Officers
The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have been
elected and qualified. Officers of the Company are elected by the Board of
Directors and hold office until their successors are elected and qualified. The
following table sets forth the names and positions of the directors and
executive officers of the Company.
Name Age Positions
---- --- ---------
Henry Fong 61 Chairman of the Board of Directors
and Chief Executive Officer
Michael S. Casazza 46 President, Chief Operating Officer
and Director
Barry S. Hollander 39 Treasurer and Chief Financial Officer
Steve C.Y. Lin 35 Director
Brian C. Simpson 63 Director
Hung-Chang Yang 51 Director
Jonathan C. Hodgins 33 President and Chief Executive Officer
of USA Skate
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<PAGE>
There are no family relationships among the officers, directors and
significant employees. Other than the directors and executive officers, the
Company has no promoters or control persons.
Henry Fong has been the Chief Executive Officer and a director of the
Company since its inception in January 1993. In addition, Mr. Fong serves as a
member of the executive committee of the Company's Board of Directors. Mr. Fong,
a founder of the Company, provides the Company with expertise on long-term
strategic planning, financing and acquisitions, but is not involved in the
Company's day-to-day operations. His principal occupation is that of President,
Chief Executive Officer, Treasurer and a director of Roadmaster Industries,
Inc., positions held since August 1987. Roadmaster Industries, Inc. is a New
York Stock Exchange listed company which is a leading manufacturer of fitness
equipment and toy products in the United States. Since 1983, Mr. Fong also has
served as the President and a director and is a significant stockholder of
Equitex, Inc., a publicly-held business development company. Since December
1991, Mr. Fong also has served as Chairman of the Board of Directors of IntraNet
Solutions, Inc. (f/k/a MacGregor Sports & Fitness, Inc.), a publicly-held
company. In March 1994, Mr. Fong was one of twelve CEOs selected as Silver Award
winners in Financial World magazine's "Corporate American Dream Team."
Michael S. Casazza, a founder of the Company, has been President and a
director of the Company since its inception in 1993. In addition, Mr. Casazza
serves as a member of the executive committee of the Company's Board of
Directors. Since the Company's inception he has acted as Chief Operating Officer
and was formally designated to that position in September 1994. Mr. Casazza
devotes substantially all of his time to the business of the Company. From
December 1991 through July 1996, Mr. Casazza served as President, Chief
Executive Officer and a Director of MacGregor Sports & Fitness, Inc.
(subsequently renamed IntraNet Solutions, Inc.), a publicly-held company. From
1988 to 1990, Mr. Casazza served as Vice President/General Manager, Golf
Division for Wilson Sporting Goods Company. From 1972 to 1988, Mr. Casazza held
various positions with Dunlop-Slazenger Corporation, including President of its
Racket Sports Division and National Sales Manager of its Golf Division.
Barry S. Hollander has served as Treasurer and Chief Financial Officer of
the Company since March 1993. Mr. Hollander devotes substantially all of his
business time to the business of the Company. From May 1991 through July 1996,
Mr. Hollander served as Vice President of Operations and Chief Financial Officer
of MacGregor Sports & Fitness, Inc. (subsequently renamed IntraNet Solutions,
Inc.), a publicly-held company. From August 1989 to May 1991, Mr. Hollander was
employed in various positions with MacGregor Sports, Inc., including Chief
Financial Officer, vice president of the Athletic Products Division and general
manager. From 1986 to 1989, Mr. Hollander held various positions with MacGregor
Sporting Goods, Inc., including accounting manager and chief financial officer
of the athletic products division. Mr. Hollander is a certified public
accountant.
Steve C.Y. Lin has been a director of the Company since May 1994. Since
1989, he also has served as Chairman of the Board of Yuan Fu Brothers Co. Ltd.,
a Taiwanese petroleum equipment distribution company, and executive assistant to
the president of Aicello Taiwan Ltd., a Taiwanese environmental engineering
services company. From 1989 until it was dissolved in 1995, Mr. Lin served as
chairman of the board of the Company's predecessor, SCYL.
Brian C. Simpson has been a director of the Company since November 1994. In
addition, Mr. Simpson serves as a member of the executive, compensation and
audit committees of the Company's Board of Directors. Since 1992, his principal
occupation has been that of an international management consultant, providing
management support and strategic planning services for various companies,
Dunlop-Slazenger and BTR Industries. From 1989 to 1992, Mr. Simpson served as
Strategic Planning Director on a worldwide basis for Dunlop-Slazenger
International Limited. Prior to 1989, Mr. Simpson served as president of
Dunlop-Slazenger Corporation USA and as regional director, North America for
Dunlop-Slazenger International Limited, UK. Mr. Simpson has extensive experience
in sales, licensing, distribution and manufacturing, both nationally and
internationally, in the sporting goods business.
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<PAGE>
Hung-Chang (Hero) Yang was elected as a director of the Company in November
1994. In addition, Mr. Yang serves as a member of the compensation and audit
committees of the Company's Board of Directors. Since 1984, Mr. Yang's principal
occupation has been that of president of Precision Golf Associates Ltd., a
Taiwanese company which engages in the manufacture and sale of golf equipment.
From time-to-time, Mr. Yang has served as an unpaid consultant to the Company in
areas such as quality control of products and components.
Jonathan C. Hodgins joined the Company in September 1996 as President and
Chief Executive Officer of USA Skate. Mr. Hodgins is the principal person
responsible for the Company's hockey division. He has extensive experience in
developing sporting goods sales through marketing, research and development,
team sales, offshore sourcing, competitive analysis, advertising, promotion,
pricing, trade show management, product development, licensing, sales
forecasting and budgeting. From 1990 until the joined the Company in September
1996, Mr. Hodgins was employed by CCM/Sports Maska Inc., Saint Laurent, Quebec,
Canada in various management and executive capacities. From 1986 to 1990, Mr.
Hodgins was employed by Canstar Sports Group Inc., Missasauga, Ontario, Canada,
in product management. Mr. Hodgins earned a Bachelor of Arts degree in business
administration from the University of Western Ontario in 1985.
Summary Compensation Table
The following table sets forth information regarding compensation paid to
(i) the Company's Chief Executive Officer and (ii) each of its other executive
officers whose total annual compensation exceeded $100,000 for the years ended
December 31, 1995, 1994 and 1993. No executive officer received awards or
payments of any long-term compensation from the Company during the period
covered, other than the options reflected in the table below.
<TABLE>
<CAPTION>
Annual Long Term All Other
Compensation Compensation Compensation
---------------------------------- ------------ ------------
($$) ($$)
Securities
Underlying
Name and Position Year Salary Bonus Other Options
- ----------------- ---- ------ ----- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Henry Fong, 1995 120,000(1) -0- -0- -0-
Chief Executive Officer 1994 120,000(1) -0- -0- 148,600 -0-
and Chairman of the Board 1993 90,000(1) -0- -0- 150,000 320,000(2)
Michael S. Casazza, 1995 137,500 -0- -0- -0-
President, Chief 1994 120,000 -0- -0- 51,400 -0-
Operating Officer & Director 1993 90,000 -0- -0- 150,000 190,000(2)
Barry S. Hollander, 1995 116,923 -0- -0- -0-
Treasurer and Chief Financial
Officer
</TABLE>
- ----------
(1) Mr. Fong is not an employee of the Company and he receives fees of $10,000
per month for consulting services rendered to the Company primarily related
to long-term strategic planning, financing and acquisitions and is not
involved in the day-to-day operations of the Company.
(2) Represents transaction and guarantee fees. See "Certain Relationships and
Related Transactions."
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<PAGE>
Option/SAR Grants in Last Fiscal Year Table
The following table sets forth information regarding the grant of options
to the named executive officers during the year ended December 31, 1995. The
Company has not granted any stock appreciation rights to the named executive
officers.
<TABLE>
<CAPTION>
Number of Percent of Total
Securities options granted Exercise or
Underlying to employees in base price Expiration
Name Options Granted (#) Fiscal Year ($/Sh)(1) Date
- ---- ------------------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Henry Fong 150,000 29.0% $ 2.38 8/1/98
Michael S. Casazza 150,000 29.0% $ 2.38 8/1/98
Barry S. Hollander -0-
</TABLE>
- ----------
(1) Granted at $3.56 per share during 1995 and repriced on April 25, 1996. This
price represented 100% of the closing bid price on the date of repricing.
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<PAGE>
Aggregated Option/SAR Exercises and Year-End 1995 Option/SAR Values
The following table sets forth information concerning the value of
unexercised options held by each of the named executive officers at December 31,
1995. No stock appreciation rights are outstanding and no options were exercised
by the named officers during 1995.
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised
Unexercised Options In-the-Money options
at December 31, 1995 (#) at December 31, 1995 (#)
Name Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------------------- -------------------------
<S> <C> <C>
Henry Fong 298,600/0 $(82,950)/0
Michael S. Casazza 201,400/0 $(10,500)/0
Barry S. Hollander 20,000/0 $25,000/0
</TABLE>
Compensation of Directors
Messrs. Lin, Simpson and Yang, the outside directors of the Company, are
paid a retainer of $10,000 per year, paid quarterly, and $1,000 for each Board
of Directors meeting attended in person. In addition, they are reimbursed for
expenses incurred to attend meetings of the Board of Directors or otherwise in
connection with their services as directors of the Company. Directors also are
eligible to receive grants of stock options under the Company's 1994 Stock
Option Plan described below. To date, no options have been granted to the
directors of the Company.
Employment Agreements
During 1995, Michael S. Casazza and Barry S. Hollander entered into
employment agreements with the Company. These employment agreements provided
annual salaries of $150,000 and $95,000, respectively, for 1995. In April 1995,
Mr. Hollander's salary was increased to $125,000 per year. Mr. Casazza was
entitled to an annual bonus of ten percent of the Company's pre-tax earnings up
to $2 million, payable quarterly on a cumulative basis. Mr. Hollander was
entitled to an annual bonus of two and one-half percent of the Company's pre-tax
earnings, payable quarterly on a cumulative basis. Messrs. Casazza and Hollander
waived their 1995 bonuses.
Resolved Legal Matters
In August 1994, Henry Fong, an officer and director of the Company,
resolved a pending matter administratively with the Securities and Exchange
Commission. The sole alleged violation occurred over seven years ago when Mr.
Fong did not obtain technical approval from the Commission for two transactions
in certain securities that Equitex, Inc., a business development company under
the Investment Company Act of 1940 (the "Investment Company Act"), owned in an
investee company. Without admitting or denying the Commission's findings that
the purchases violated Sections 57(a) (1) and (4) of the Investment Company Act
and Rule 17d-1 under the Investment Company Act, Mr. Fong agreed to cease and
desist from committing or causing a violation of Section 57(a) (1) and (4) of
the Investment Company Act and returned the profit made on a transaction,
$73,775 plus interest.
Indemnification and Limitation on Directors' and Officers' Liability
The Company's Certificate of Incorporation and Bylaws provide for the
indemnification of directors and officers of the Company to the maximum extent
permitted by law, including Section 145 of the Delaware General Corporation Law.
That Section generally permits the Company to indemnify its officers, directors
and certain others acting on behalf of the Company as to all expenses incurred
or imposed upon them as a result of actions, suits or proceedings for acts made
in good faith and in a manner they reasonably believe to be in or not opposed to
the best interests of the Company. The Company has entered into agreements to
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<PAGE>
indemnify its directors and officers in accordance with its Certificate of
Incorporation and Bylaws. The Company has no director and officer liability
insurance. There are no pending claims for indemnification, nor is the Company
aware of any pending or threatened claims which would result in a claim for
indemnification.
In addition, the Company's Certificate of Incorporation eliminates
liability of directors to the Company and its stockholders for monetary damages
for breach of a fiduciary duty except in the case of liability: (i) for any
breach of their duty of loyalty to the Company or its stockholders; (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law; or (iv) for any transaction from which the director
derived an improper personal benefit. It does not limit the rights of third
parties, nor does it limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief such as an injunction or rescission if a
director breaches his duty of care. The provision applies only to the duty of
care and not to any other fiduciary duties to the Company and its stockholders.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
PRINCIPAL STOCKHOLDERS
Set forth below is certain information as of November 30, 1996, with
respect to the Company's Common Stock owned of record or beneficially by (i) the
Company's executive officers named in the summary compensation table, (ii) each
director of the Company, (iii) each person owning beneficially more than five
percent of the Company's outstanding Common Stock, and (iv) all directors and
executive officers as a group.
Name and Address Number of Common Percentage
of Beneficial Owner Shares Owned Owned
------------------- ----------------- ----------
Henry Fong 1,128,540 (1) 25.0
2401 PGA Blvd., Suite 280-F
Palm Beach Gardens, FL 33410
Michael S. Casazza 490,360 (2) 11.0
1221-B South Batesville Road
Greer, SC 29650
Steve C.Y. Lin 193,800 4.7
Rm. 906, #111
Nanking E. Road
Section 2
Taipei, Taiwan
Barry S. Hollander 25,000 (3) Less than 1.0
1221-B South Batesville Road
Greer, SC 29650
-29-
<PAGE>
Name and Address Number of Common Percentage
of Beneficial Owner Shares Owned Owned
------------------- ---------------- ----------
Playmaker Co., Ltd. 316,200 7.5
10th Floor 101
Sung Chiang Road
Taipei, Taiwan
Brian C. Simpson -- --
15 Langhams Way
Wargrave, Berkshire
RG 10 8AX U.K.
Hung-Chang Yang -- --
First Floor, No. 16
Lane 238
Taipei, Taiwan
Wayne W. Mills 250,000 (4) 5.9
The Colonnade, Suite 290
5500 Wayzata Blvd.
Golden Valley, MN 55416
All directors and 1,837,700 (1)(2)(3) 38.6
executive officers as
a group (7 persons)
- ----------
(1) Includes warrants currently exercisable to acquire 298,600 shares of Common
Stock.
(2) Includes warrants currently exercisable to acquire 228,900 shares of Common
Stock.
(3) Includes options currently exercisable to acquire 20,000 shares of Common
Stock.
(4) Information obtained from the Schedule 13D on file with the Securities and
Exchange Commission.
CERTAIN TRANSACTIONS
In April 1994, the Company issued warrants to Henry Fong to purchase up to
148,600 shares of Common Stock and warrants to Michael S. Casazza to purchase up
to 51,400 shares of Common Stock, exercisable at $4.50 per share through April
14, 1997. In August 1995, the Company issued warrants to Messrs. Fong and
Casazza each to purchase up to 150,000 shares of Common Stock, exercisable at
$3.56 per share through August 1, 1998. The exercise price of these warrants
represented 100% of the closing bid price of the Common Stock as reported by
Nasdaq on the date of grant. The warrants issued to Messrs. Fong and Casazza in
April 1994 and August 1995 were issued as additional compensation for their
valuable services rendered to the Company. In April 1996, as compensation for
their extra efforts in causing the USA Skate acquisition to close, the Company
lowered the exercise price of all of the warrants held by Messrs. Fong and
Casazza to $2.38 per share, the closing bid price of the Common Stock on the
date the warrants were repriced.
Between February 1994 and April 1994, Messrs. Fong and Casazza loaned
$179,000 and $200,000 to the Company, respectively, and the Company issued
promissory notes to each of them bearing interest at ten percent per annum (the
"Affiliate Notes"). The Company used the proceeds of the Affiliate Notes, plus
proceeds from the private sales of Common Stock, to repay $450,000 principal
amount due to unaffiliated parties under certain promissory notes issued in 1993
in connection with the Company's initial capitalization. The Affiliate Notes
were repaid from the proceeds of the Company's IPO. In March 1996, the Chief
Operating Officer loaned the Company $170,000. During the second quarter
-30-
<PAGE>
of 1996, the Company transferred 141,667 shares of USA Skate common stock to Mr.
Casazza in satisfaction of this debt, based on a price of $1.20 per share of USA
Skate common stock.
At December 31, 1995, the Company owed Mr. Fong $90,000 of accrued but
unpaid fees. During the second quarter of 1996, the Company transferred 75,000
shares of USA Skate common stock to Mr. Fong in satisfaction of this debt, based
on a price of $1.20 per share of USA Skate common stock.
Messrs. Fong and Casazza have personally guaranteed the Company's in-line
skate/snowboard related bank line of credit up to $5.5 million and its hockey
related bank line of credit up to $5 million. In addition, Messrs. Fong and
Casazza have each guaranteed, jointly and severally with other guarantors, an
additional $5.25 million of indebtedness of the Company incurred in connection
with the USA Skate acquisition, and Messrs. Fong and Casazza have guaranteed,
jointly and severally with another guarantor, approximately CDN $650,000 owed by
the Canadian subsidiary to a Canadian bank. The Company has accrued fees of
$300,000 each for Messrs. Fong and Casazza as compensation for their extensive
personal guaranties. None of these fees had been paid at the date of this
Prospectus.
In May 1996, Mr. Fong loaned $680,000, and Mr. Casazza loaned $400,000 to
the Company's majority owned subsidiary, which funds were used to pay a portion
of the purchase price for the USA Skate acquisition. In return for these loans,
the subsidiary issued promissory notes for the principal amount of each loan
with interest at nine percent payable quarterly, due July 1, 1997. In addition,
the subsidiary granted warrants to Mr. Fong to purchase 566,667 shares of USA
Skate common stock and to Mr. Casazza to purchase 333,333 shares of USA Skate
common stock, all exercisable through April 30, 1998 at $1.20 per share of USA
Skate common stock.
From time to time as deemed appropriate and in amounts determined by the
Company's Board of Directors, fees may be paid by the Company to persons who
facilitate acquisitions and/or financing transactions for the Company, which
persons may be directors and/or officers of the Company.
Transactions between the Company and its officers, directors, employees and
affiliates will be on terms no less favorable to the Company than would be
available from unaffiliated parties. Any such transactions will be subject to
the approval of a majority of the disinterested members of the Board of
Directors.
SELLING STOCKHOLDERS
The following table provides certain information with respect to warrants
which may be converted into Common Stock to be offered by Selling Stockholders.
The Selling Stockholders must exercise such warrants prior to the sale of the
Common Stock registered hereby. The Selling Stockholders may offer the 619,111
shares of Common Stock and 20,000 Warrants owned by them for sale as principals
for their own accounts at any time, and from time to time, in the over the
counter market at prices prevailing at the time of sale. The Selling
Stockholders may also offer the Common Stock in private sales at prices to be
negotiated. The Company will not receive any proceeds from the sale of the
Common Stock owned by the Selling Stockholders however, the Company will receive
proceeds from the exercise of warrants. See "Use of Proceeds." Selling
Stockholders are not obligated to reimburse the Company for any portion of the
expenses incurred by the Company in this offering.
-31-
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Number of Shares Percent of
Common Stock Number of Number of Common Stock Common Stock
Name and Address Beneficially Owned Shares Warrants Owned After Owned After
of Selling Stockholder Prior to the Offering to be Offered to be Offered The Offering The Offering
- ---------------------- --------------------- ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Boston Financial Partners 122,500 (1) 122,500 -0- -0- -0-
11 Helen Dr.
Peabody, MA 01960
Michael S. Casazza 490,360 (2) 250,000 -0- 261,460 (2) 5.9
1221-B South Batesville Road
Greer, SC 29650
Henry Fong 1,128,540 (3) 200,000 -0- 928,540 (3) 20.6
2401 PGA Blvd., Suite 280-F
Palm Beach Gardens, FL 33410
Friedlob Sanderson Raskin 36,000 36,000 -0- -0- -0-
Paulson & Tourtillott, LLC
1400 Glenarm Place, Suite 300
Denver, Colorado 80202
L & S Partners 31,111 (2) 11,111 20,000 -0- -0-
Attn: David E. Schaper
11 Oxford Drive
Lincolnshire, IL 60069
</TABLE>
- ----------------
(1) Represents warrants currently exercisable to purchase this number of shares
of common stock. These warrants may not be offered or sold pursuant to this
prospectus.
(2) Includes warrants exercisable to acquire 228,900 shares of Common Stock.
These warrants may not be offered or sold pursuant to this Prospectus.
(3) Includes warrants exercisable to acquire 298,600 shares of Common Stock.
These warrants may not be offered or sold pursuant to this Prospectus.
(4) Includes Shares underlying 20,000 Warrants.
Since July 1995, Boston Financial Partners, Inc. ("BFP") has provided
financial advisory and consulting services to the Company from time to time
pursuant to a financial consulting agreement. BFP has introduced the Company to
various brokers in the financial community identified by BFP and/or the Company.
BFP's services include, among other things, initiation of conference calls and
arranging the opportunity for the Company to make presentations to the financial
community for purposes of familiarizing the financial community with the
Registrant's business and publicly filed reports. Warrants to purchase 150,000
shares of Common Stock were issued by the Company to BFP as consideration for
overall performance under the financial consulting agreement. Subsequently, BFP
transferred 27,500 warrants to an associate and those warrants are not included
herein at the election of the holder.
Henry Fong is Chief Executive Officer and Chairman of the Board of, and is
a paid consultant to, the Company.
Michael S. Casazza is President, Chief Operating Officer and an employee of
the Company.
The law firm of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC
("FSRPT") has represented the Company in general corporate and securities
matters since its inception. In April 1996, the Company issued 36,000 shares of
Common Stock to FSRPT as payment for certain legal services rendered.
L&S Partners is an entity not affiliated with the Company. It acquired the
securities it is offering hereunder in private offerings from the Company in
1994.
DESCRIPTION OF SECURITIES
Common Stock
The authorized capital stock of the Company includes 10,000,000 shares of
Common Stock, $.01 par value per share. The holders of Common Stock (i) have
equal ratable rights to dividends from funds legally available therefor, when,
as and if declared by the Board of Directors of the Company; (ii) are entitled
to share ratably in all of the assets of the Company available for distribution
-32-
<PAGE>
to holders of Common Stock upon liquidation, dissolution or winding up of the
affairs of the Company; (iii) do not have preemptive, subscription or conversion
rights and there are no redemption or sinking fund provisions applicable
thereto; and (iv) are entitled to one vote per share on all matters on which
stockholders may vote at all meetings of stockholders. All shares of Common
Stock now outstanding are fully paid and non-assessable.
The holders of shares of Common Stock of the Company do not have cumulative
voting rights, which means that the holders of a majority of the outstanding
shares represented at any stockholders meeting at which a quorum is present,
voting for the election of directors, can elect all of the directors to be
elected, if they so choose and, in such event, the holders of the remaining
shares will not be able to elect any of the Company's directors.
Warrants and Options
The Non-Public Warrants. On the date of this Prospectus, the Company had
outstanding: (a) warrants to purchase 200,000 shares of Common Stock for $2.38
per share, exercisable through April 14, 1997; (b) warrants to purchase 21,000
shares of Common Stock for $2.50 per share, exercisable through September 7,
1999; (c) warrants to purchase up to 58,331 shares of Common Stock for $4.8125
per share, exercisable through July 25, 2000; (d) warrants to purchase up to
300,000 shares of Common Stock, 150,000 at $2.38 per share, 50,000 shares at
$3.25 per share and 100,000 at $4.00 per share, exercisable through October 24,
1997; and (e) warrants to purchase 300,000 shares of Common Stock for $2.38 per
share, exercisable through August 1, 1998. Of the shares subject of this
Prospectus, 150,000 are shares underlying the warrants referenced in (d) above.
The Warrants. Each of the 1,870,000 Warrants sold in the IPO or in
connection with the IPO, entitles its holder to purchase one share of Common
Stock at an exercise price of $6.00. These Warrants expire on January 17, 1998,
unless extended by the Company's Board of Directors in its sole discretion.
The Warrants may be redeemed, in whole or in part on a pro rata basis, by
the Company at any time prior to their expiration, at a redemption price of $.05
per Warrant, on not less than 30 days' prior written notice to the holders of
the Warrants, if (a) the closing high bid price of the Common Stock has exceeded
the warrant exercise price by 50% or more for at least 20 of the 30 trading days
immediately preceding the mailing of the notice of redemption, and (b) the
Company has in effect a current registration statement registering the Common
Stock issuable upon the exercise of the Warrants. Warrantholders shall have
exercise rights until the close of the business day preceding the date fixed for
redemption.
The exercise price of the Warrants is subject to adjustment upon the
occurrence of certain events, including the issuance of dividends payable in
Common Stock and subdivisions or combinations of the Common Stock.
Stock Options. The Company and its stockholders have adopted the 1994 Stock
Option Plan (the "Option Plan") which provides for the issuance of options to
purchase up to 200,000 shares of Common Stock to employees, officers, directors
of, and consultants to, the Company. As of the date of this Prospectus, of the
options granted under the Option Plan, 20,500 have been exercised, 15,000 have
expired due to changes in employment status and 26,500 are still outstanding and
are exercisable through September 11, 1999 at $2.50 per share. Under the Option
Plan, 153,000 shares are eligible for issuance upon the exercise of future
option grants.
Representative's Securities
In connection with its IPO, the Company sold to Cohig & Associates, Inc.
(the "Representative"), for a nominal amount, warrants to purchase 120,000
shares of Common Stock and 120,000 Warrants (the "Representative's Securities").
The Representative's Securities are not exercisable until January 18, 1996.
Thereafter, for a period of four years, the Representative's Securities are
exercisable at $7.20 (160% of the IPO price) for the Common Stock and $.30 (120%
of the IPO price) for the Warrants. The Warrants included in the
Representative's Securities have the same exercise price and other
characteristics as the Warrants sold in the Company's IPO.
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<PAGE>
The Representative's Securities are non-transferable except between the
underwriters of the Company's IPO and their respective officers or partners. The
Representative's Securities contain anti-dilution provisions for stock splits,
recombinations and reorganizations, a one-time demand registration provision (at
the Representative's expense) and piggyback registration rights (both of which
expire five years from the date of the Prospectus) and otherwise were in form
and substance satisfactory to the Representative.
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares, $.01 par value,
of Preferred Stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights that could
adversely affect the voting power or other rights of the holders of the
Company's Common Stock. In the event of issuance, the Preferred Stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company. The Company has no present
intention to issue any shares of its Preferred Stock, and no shares of Preferred
Stock are currently outstanding.
Transfer Agent
Corporate Stock Transfer, Inc., 370 17th Street, Suite 2350, Denver,
Colorado, 80202, is the Transfer Agent for the Common Stock.
Delaware Statutory Business Combination Provisions
As a Delaware corporation, the Company is subject to Section 203 of the
General Corporation Law. In general, Section 203 prevents an "interested
stockholder" (defined generally as a person owning 15% or more of a Delaware
corporation's outstanding voting stock) from engaging in a "business
combination" (as defined) with such Delaware corporation for three years
following the date such person became an interested stockholder unless (i)
before such person became an interested stockholder, the board of directors of
the corporation approved the transaction in which the interested stockholder
became an interested stockholder or approved the business combination, (ii) upon
consummation of the transaction that resulted in the interested stockholder's
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced (excluding stock held by directors who are also officers
of the corporation and by certain employee stock plans), or (iii) following the
transaction in which such person became an interested stockholder, the business
combination is approved by the Board of Directors of the corporation and
authorized at a meeting of stockholders by the affirmative vote of the holders
of two-thirds of the outstanding voting stock of the corporation now owned by
the interested stockholder. Under Section 203, the restrictions described above
also do not apply to certain business combinations proposed by an interested
stockholder following the public announcement or notification of one of certain
extraordinary transactions involving the corporation and a person who had not
been an interested stockholder during the previous three years or who became an
interested stockholder by a majority of the board members who were directors
prior to any person's becoming an interested stockholder. The provisions of
Section 203 requiring a supermajority vote to approve certain corporate
transactions could have the effect of discouraging, delaying or preventing
hostile takeovers, including those that might result in the payment of a premium
over market price or changes in control of management of the Company.
PLAN OF DISTRIBUTION
The 619,111 shares of Common Stock and 20,000 Warrants offered by this
Prospectus may be sold from time to time by the holders thereof on the Nasdaq
SmallCap Market, in the over-the-counter market, or otherwise at prices and at
terms then prevailing or at prices related to the then current market price, or
in negotiated transactions. The shares of Common Stock or Warrants may be sold
by one or more of the following: (a) a block trade in which the broker or dealer
so engaged will attempt to sell the shares as agent but may position and resell
a portion of the block as principal to facilitate the transaction; (b) purchases
by a broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; and (c) ordinary brokerage transactions and
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<PAGE>
transactions in which the broker solicits purchasers. Brokers or dealers will
receive commissions or discounts from the selling stockholders in amounts to be
negotiated immediately prior to the sale. The brokers or dealers and any other
participating brokers or dealers may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. To the Company's
knowledge, no underwriter has agreed to purchase from the selling stockholders
any particular Common Stock being sold under this Prospectus; nor has any broker
or dealer agreed to act as a placement agent for the selling stockholders. The
selling stockholders may, from time to time during the offering, enter into
agreements with various brokers or dealers for the offer and sale of the Common
Stock or Warrants, but the Company is not aware of any such agreement. In such
an event, each broker or dealer will be obligated to offer and sell all or a
portion of the Common Stock under the terms and conditions and for the fees or
commissions set forth in those agreements.
The Company currently intends to maintain effectiveness of the Registration
Statement to which this Prospectus relates in order to permit sale of the
securities by the selling stockholders.
Upon their sale under this Prospectus, the shares of Common Stock and
Warrants offered by the holders thereof will be freely transferable and
tradeable without restriction or further registration under the Securities Act,
except that any shares purchased or held by any affiliate of the Company will be
subject to certain resale limitations of Rule 144 promulgated under the
Securities Act.
USE OF PROCEEDS
The Company will not receive any proceeds from this offering; however, the
Company has or will receive $291,550 upon exercise of warrants resulting in the
issuance of 122,500 shares of Common Stock offered hereby. These proceeds will
be used by the Company for general working capital purposes. In addition, the
Company received the benefit of legal services of FSRPT which resulted in the
issuance of 36,000 shares of Common Stock to FSRPT which are being offered
hereunder.
LEGAL MATTERS
Friedlob Sanderson Raskin Paulson & Tourtillott, LLC, Denver, Colorado, has
acted as legal counsel to the Company in connection with this offering. The firm
owns 36,000 shares of Common Stock which are being offered under this
Prospectus. Members of the firm and the firm own an aggregate of 38,400 shares
of Common Stock and 2,400 Warrants. In addition, Gerald Raskin, a member of the
firm, is Secretary of the Company.
EXPERTS
The audited consolidated financial statements of the Company and the
audited combined financial statements of the Companies Being Acquired by USA
Skate Corporation included herein have been audited by Gelfond Hochstadt
Pangburn & Co., P.C., independent certified public accountants, for the periods
and to the extent set forth in their reports (the report on the Companies Being
Acquired by USA Skate Corporation includes a paragraph describing the purpose of
the financial statement presentation) appearing herein. Such financial
statements have been so included in reliance on the reports of such firm given
upon their authority as experts in auditing and accounting.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
California Pro Sports, Inc. and Subsidiary
Consolidated Financial Statements
Years Ended December 31, 1995 and 1994..................... F-6
The Companies Being Acquired by USA Skate
Corporation Combined Financial Statements
Years Ended December 31, 1995 and 1994..................... F-24
California Pro Sports, Inc. and Subsidiaries
Unaudited Condensed Pro Forma Consolidated
Financial Statements Nine Months Ended September
30, 1996 and Year Ended December 31, 1995.................. F-43
California Pro Sports, Inc. and Subsidiaries
Unaudited Consolidated Financial Statements
Nine Months Ended September 30, 1996 and 1995.............. F-48
F-1
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
YEARS ENDED DECEMBER 31, 1995 AND 1994
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent auditors' report F-6
Consolidated financial statements:
Balance sheet F-7
Statements of operations F-8
Statements of shareholders' equity F-9
Statements of cash flows F-10
Notes to consolidated financial statements F-12
F-2
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
AND YEARS ENDED DECEMBER 31, 1995 AND 1994 (UNAUDITED)
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent auditors' report F-24
Combined financial statements:
Balance sheet F-25
Statements of operations F-26
Statements of shareholders' equity F-27
Statements of cash flows F-28
Notes to combined financial statements F-30
F-3
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 1996
AND YEAR ENDED DECEMBER 31, 1995
INDEX TO UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Consolidated financial statements:
Statements of operations F-44
Notes to consolidated financial statements F-46
F-4
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
INDEX TO UNAUDITED CONSOLIDATED
FINANCIAL STATEMENTS
Page
----
Consolidated financial statements:
Balance sheets F-47
Statements of operations F-49
Statements of Shareholders' Equity F-51
Statements of Cash Flows F-52
Notes to consolidated financial statements F-54
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
California Pro Sports, Inc.
We have audited the accompanying consolidated balance sheet of California Pro
Sports, Inc. and subsidiary as of December 31, 1995, and the related
consolidated 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 Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of California Pro
Sports, Inc. and subsidiary 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
April 5, 1996
F-6
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
Assets
- ------
Current assets:
Cash $ 8,210
Accounts receivable, less allowance
for doubtful accounts of $62,000 (Note 4) 4,552,582
Due from related parties (Note 7) 298,577
Inventories (Note 4) 2,568,265
Prepaid expenses and other 271,968
------------
Total current assets 7,699,602
------------
Property and equipment, net of accumulated
depreciation (Note 3) 919,381
Intangible and other assets, net of accumulated
amortization (Note 2) 1,671,367
------------
$ 10,290,350
============
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Notes payable, bank (Note 4) $ 3,512,748
Accounts payable and accrued expenses:
Accounts payable, Playmaker (Notes 7 and 9) 208,732
Other accounts payable, trade 1,488,959
Officers/shareholders (Note 7) 90,000
------------
Total current liabilities 5,300,439
------------
Commitments and contingencies (Notes 9,
12, 13, 14, 16, 17, and 18)
Shareholders' equity (Notes 1, 4, 11, and 13):
Preferred stock, $0.01 par value, authorized 5,000,000
shares; no shares issued
Common stock, $0.01 par value, authorized 10,000,000
shares; issued and outstanding 3,783,511 37,835
Warrants 394,200
Capital in excess of par 4,727,492
Deficit (169,616)
------------
Total shareholders' equity 4,989,911
------------
$ 10,290,350
============
See notes to consolidated financial statements.
F-7
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
------------ ------------
Net sales $ 17,128,711 $ 16,468,567
------------ ------------
Cost of sales:
Substantially from a related
party (Note 7) 7,649,290 9,145,415
Other 4,506,253 2,719,317
------------ ------------
12,155,543 11,864,732
------------ ------------
Gross profit 4,973,168 4,603,835
------------ ------------
Operating expenses:
Sales and marketing expenses 1,758,221 1,648,901
General and administrative expenses 2,121,855 2,071,441
Depreciation and amortization 544,245 461,367
Consulting fees, related party (Note 7) 120,000 120,000
------------ ------------
4,544,321 4,301,709
------------ ------------
Income from operations 428,847 302,126
------------ ------------
Other expenses (income):
Interest expense:
Related parties 2,804 93,443
Others 310,379 326,363
Foreign currency loss 33,590 26,265
Royalty income and other (66,282) (4,427)
------------ ------------
280,491 441,644
------------ ------------
Income (loss) before income taxes 148,356 (139,518)
Income tax expense (Note 10) 112,900 31,000
------------ ------------
Net income (loss) $ 35,456 $ (170,518)
============ ============
Net income (loss) per share (Note 2) $ 0.01 $ (0.08)
============ ============
Weighted average number of
shares outstanding 3,599,320 2,225,054
============ ============
See notes to consolidated financial statements.
F-8
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
Capital in
Common stock Warrants excess of par Deficit Total
-------------------- -------- ------------- ------- -----
Shares Amount
------ ------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1994 $ 2,165,750 $ 21,658 $ 103,979 $ (34,554) $ 91,083
Issuance of common
stock (Note 13) 59,304 593 58,933 59,526
Warrants issued in connection
with private placement (Note 11) 100 100
Net loss for 1994 (170,518) (170,518)
----------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 1994 2,225,054 22,251 100 162,912 (205,072) (19,809)
Issuance of common stock
and warrants in initial public
offering, net of offering costs
(Note 11) 1,200,000 12,000 345,100 3,848,447 4,205,547
Issuance of warrants in
connection with private
placement (Note 11) 49,000 49,000
Issuance of common stock in
cancellation of a note payable
(Note 11) 80,000 800 199,200 200,000
Issuance of common stock
upon exercise of warrants
(Note 13) 74,623 746 55,221 55,967
Issuance of common stock in
conversion of notes payable
(Note 11) 183,334 1,833 410,667 412,500
Issuance of common stock from
exercise of employee stock
options (Note 13) 20,500 205 51,045 51,250
Net income for 1995 35,456 35,456
----------- ----------- ----------- ----------- ----------- -----------
Balances, December 31, 1995 3,783,511 $ 37,835 $ 394,200 $ 4,727,492 $ (169,616) $ 4,989,911
=========== =========== =========== =========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
F-9
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 35,456 $ (170,518)
----------- -----------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 544,245 461,367
Provision for losses on accounts receivable 291,488 324,561
Decrease (increase) in assets:
Accounts receivable (489,562) (2,538,786)
Due from related parties (285,203) 46,078
Inventories 234,115 (1,105,487)
Prepaid expenses and other 10,280 (105,096)
Increase (decrease) in liabilities:
Accounts payable:
Playmaker (3,164,769) 711,212
Other accounts payable and accrued
expenses (465,671) 1,518,632
----------- -----------
Total adjustments (3,325,077) (687,519)
----------- -----------
Net cash used in operating activities (3,289,621) (858,037)
----------- -----------
Cash flows from investing activities:
Payment for acquisition of license (600,530)
Capital expenditures (879,324) (103,014)
Acquisition, offering and financing costs (343,030) (828,824)
----------- -----------
Net cash used in investing activities (1,222,354) (1,532,368)
----------- -----------
Cash flows from financing activities:
Bank overdraft (35,499) 35,499
Proceeds from notes payable:
Bank 2,138,507
Related parties 379,000
Convertible 612,500
Other 400,000
Repayment of notes payable:
Related parties (409,000) (870,000)
Other (213,532) (450,000)
Net proceeds from issuance of common stock and warrants 5,178,216 37,378
----------- -----------
Net cash provided by financing activities 4,520,185 2,282,884
----------- -----------
</TABLE>
(Continued)
F-10
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
------------ --------------
Net increase (decrease) in cash 8,210 (107,521)
Cash, beginning 107,521
--------- ---------
Cash, ending $ 8,210 $
========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 369,300 $ 377,000
========= =========
Cash paid for income taxes $ 36,600 $ 107,000
========= =========
Supplemental disclosure of noncash investing and financing activities:
In August 1994, the Company issued 20,600 shares of common stock in
satisfaction of $22,248 of accrued expenses (Note 13).
In August 1994, the Company acquired a license to use the Kemper(R) name on
snowboards at a cost of $700,530 (Note 12). In addition, the Company
acquired $3,575,000 of existing orders at a cost of $425,000. To acquire
the license and orders, the Company paid $400,000 in cash, issued notes
payable of $100,000, assumed liabilities of the seller of $425,000, and
paid other costs of $200,530.
In January 1995, $816,452 of deferred offering costs were deducted from the
proceeds of the initial public offering.
In January 1995, the Company issued 80,000 shares of common stock in
cancellation of a $200,000 note payable (Note 11).
During 1995, $412,500 of convertible notes payable were converted to
183,334 shares of common stock (Note 11).
See notes to consolidated financial statements.
F-11
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. Basis of presentation and acquisition of California Pro U.S.A. Corp.:
The accompanying consolidated financial statements include the accounts of
California Pro Sports, Inc. (the "Company") and its wholly-owned
subsidiary, California Pro, Inc. ("CP"), which were formed in January 1993
for the purpose of acquiring California Pro U.S.A. Corp. subsequently
renamed "SCYL, Inc." Intercompany transactions have been eliminated in
consolidation.
On April 1, 1993, the Company, which previously had no significant
operations, acquired substantially all of the assets, subject to
substantially all of the liabilities, of SCYL, Inc. in exchange for 510,000
shares of common stock. The stock issued to SCYL, Inc. represented
approximately 25% of the total outstanding stock of the Company immediately
after the acquisition. The assets acquired by the Company consisted
primarily of accounts receivable and inventory. The Company assigned the
assets and liabilities of SCYL, Inc. to its subsidiary, California Pro,
Inc. The acquisition has been accounted for as a purchase. Due to the
significant continuing ownership of SCYL, Inc. in the Company, assets
acquired from SCYL, Inc. have been recorded at their carrying value, which
in management's opinion was equivalent to the fair market value at date of
acquisition. Non-compete agreements, trademark license, and guarantee fees
have been recorded at the total consideration (cash and notes) paid by the
Company.
2. Business and summary of significant accounting policies:
Business of the Company:
The Company sells in-line skates and accessories under the brand names
California Pro(TM) and Rolling Thunder(TM) to retail sporting goods stores
principally in North America. Substantially all in-line skates and
accessory products are manufactured or sourced by Playmaker Co., Ltd.
("Playmaker"), a majority shareholder of SCYL, Inc. In August 1994, the
Company began selling snowboards and accessories under the Kemper(R) brand
name to retail sporting goods stores in North America, and distributors in
Europe and Japan (Note 12).
Use of accounting 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 statement and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventories:
Inventories consist of in-line skates, snowboards, and related accessories
and are stated at the lower of cost (first in first out method) or market.
F-12
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
2. 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 ranging from three to seven years.
Intangible and other assets:
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 related annual amortization
expenses. Based on its review, the Company does not believe that an
impairment of its intangible assets has occurred. At December 31, 1995,
intangible and other assets consist of:
Non-compete agreements $ 650,000
Licenses for trademarks 1,432,338
Loan guarantee fees 200,000
Deferred financing costs 48,750
Deferred acquisition costs 343,030
Deposits and other 13,784
------------
2,687,902
Less accumulated amortization 1,016,535
------------
$ 1,671,367
============
Costs of non-compete agreements are amo rtized on the straight-line method
beginning April 1, 1993, over the three year term of the agreements.
Trademark license costs relate to perpetual license agreements entered into
with Playmaker (Note 1) and with the owner of the Kemper trademark (Note
12). Under the Playmaker agreement, the Company was granted an exclusive
license for the California Pro(TM) brand names principally in the United
States and Canada. Under the Kemper agreement, the Company was granted an
exclusive worldwide license for the Kemper(R) brand names. The costs are
amortized on the straight-line method over fifteen years.
Fees to two officers/shareholders of the Company related to their
guarantees of the bank and certain other debt of the Company are amortized
on the straight-line method beginning April 1, 1993, over the three year
term of the guarantees.
Financing costs related to the note payable, bank and convertible
promissory notes are amortized on the straight-line method over the term of
the note agreement.
Costs incurred during 1995 related to a potential acquisition (Note 18)
have been deferred. If the acquisition is successful, total acquisition
costs will be allocated to assets acquired; if the acquisition is
unsuccessful, the costs will be charged to operations.
Costs incurred through December 31, 1994, related to the Company's initial
public offering (Note 11), were deferred until completion of the offering
in January 1995. Total offering costs were deducted from the proceeds of
the offering in January 1995.
F-13
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
2. Business and summary of significant accounting policies (continued):
Foreign currency transactions:
The Company primarily purchases and sells its in-line skate products in
U.S. dollars. The Company primarily purchases its snowboard products in
German Deutsche Marks ("DM") and sells to its customers in either DM or US
dollars. Gains and losses on foreign currency transactions are included in
determining net earnings.
Fair value of financial instruments:
Statement of Financial Standards No. 107, "Disclosures about Fair Value of
Financial Instruments", requires the Company to disclose estimated fair
values for its financial instruments for which it is practicable to
estimate fair value.
The carrying value of the Company's bank loan, which was recently renewed,
approximates the fair value at December 31, 1995 because it bears interest
at current market rates. The carrying amounts reported in the consolidated
balance sheet for the Company's other financial instruments approximates
their fair values because of the short maturity of these instruments.
Net income (loss) per share:
Net income per share for 1995 has been calculated based on the weighted
average number of outstanding common shares. The inclusion of additional
shares assuming the exercise of stock options and warrants would have been
antidilutive. Primary and fully diluted earnings per share are the same.
Net loss per share for 1994 has been calculated assuming that the shares of
stock issued during 1994 had been outstanding at January 1, 1994. The
convertible promissory notes, options and warrants are not considered in
the 1994 calculation as they would decrease loss per share.
Reclassifications:
Certain amounts reported in the 1994 statement of operations have been
reclassified to conform to the 1995 presentation.
Recently issued accounting standards:
Management does not believe that any recently issued accounting standards
will have a material impact on the Company's financial position or results
of operations.
3. Property and equipment:
At December 31, 1995, property and equipment consists of the following:
Furniture and equipment $ 247,710
Molds 833,380
---------
1,081,090
Less accumulated depreciation 161,709
---------
$ 919,381
=========
F-14
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
4. Notes payable, bank:
The Company has a loan agreement with a bank for advances of up to
seventy-five percent of qualifying accounts receivable, fifty percent of
qualifying inventory, and fifty percent of outstanding letters of credit,
with a maximum limit of $5,500,000 which expires in April 1997. At December
31, 1995, the Company could borrow up to approximately $4,055,000 and
approximately $3,513,000 was outstanding under the loan agreement and there
was approximately $2,000,000 of unused letters of credit. Loans under the
agreement bear interest at 1% above the bank's prime rate and are due on
demand. The weighted average interest rate during the years ended December
31, 1995 and 1994 was approximately 9.9% and 8.5%, respectively. The
agreement contains certain financial covenants and restrictions as to the
payment of dividends. Loans are collateralized by substantially all of the
Company's assets and are guaranteed by two officers/shareholders of the
Company.
5. Notes payable, related parties:
In 1993, the Company issued $900,000 of unsecured promissory notes to
various shareholders (the "1993 Notes"). In March and April 1994, the
Company issued $379,000 of promissory notes (the "1994 Notes") to two
officers/shareholders. The notes bear interest at 10%. The Company used the
proceeds from the 1994 Notes plus other funds to pay $450,000 of the 1993
Notes, resulting in the two officers/shareholders holding $479,000 of notes
payable ($100,000 of which are 1993 Notes) and other shareholders holding
the remaining $350,000 of the 1993 Notes.
As discussed in Note 11, the Company completed a private placement in
September 1994 and used a portion of the proceeds to repay the remainder of
the 1993 Notes and $70,000 of the officer/shareholder notes. The $409,000
notes held by the two officers/shareholders at December 31, 1994, were
repaid in January 1995 with a portion of the proceeds from the Company's
initial public offering.
6. Notes payable, other:
Related to the acquisition of the Company's in-line skate business:
In 1991, a company controlled by a former officer of SCYL, Inc. advanced
SCYL, Inc. $100,000 under a 9% note that was due in June 1992 and was
collateralized by substantially all assets of SCYL, Inc. In connection with
the Company's acquisition of its in-line skate business, the interest rate
was changed to 1% over prime, and the guaranty of an officer/shareholder of
the Company was accepted in place of the existing collateral. During 1994,
the note was repaid.
F-15
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
6. Notes payable, other (continued):
Related to the Kemper license acquisition:
In July 1994, the Company issued a $400,000 note to a third party. Each
monthly renewal of the note required a fee of ten percent of the then
outstanding balance. The funds were used to complete the acquisition of a
license to a trademark for snowboards and other assets. The note was
guaranteed by an officer/shareholder of the Company, with interest at 10%,
and $250,000 was repaid by December 31, 1994. The remaining $150,000 was
repaid in January 1995 with a portion of the proceeds from the Company's
initial public offering (Note 11).
In August 1994, the Company issued a $100,000 note to the seller of the
Kemper license and other assets. The Company paid $50,000 during September
1994 and the balance was satisfied in October 1994. The note was
non-interest bearing.
7. Other related party transactions:
Playmaker:
The Company has a manufacturing agreement whereby Playmaker has agreed to
supply in-line skate products through 1998. Accounts payable, Playmaker are
attributable to in-line skate inventory purchases. The Company is charged
interest on balances not paid within 90 days of the date of shipment.
In January 1995, the Company paid $1,500,000 of accounts payable to
Playmaker, with a portion of the proceeds of the initial public offering
(Note 11).
Officers/shareholders:
Accounts payable, officers/shareholders represents amounts due in
connection with the acquisition of the in-line skate business. During 1995,
$10,000 was repaid and $90,000 remains payable at December 31, 1995.
Consulting fees:
On a month to month basis, the Company pays an officer/shareholder
consulting fees at the rate of $10,000 per month.
Due from related parties:
Due from related parties primarily represents amounts due from an affiliate
for expenses paid by the Company on behalf of the affiliate. The advances
are non-interest bearing and are due on demand. The Company anticipates
receiving payment of the amounts by June 30, 1996.
F-16
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
8. Significant concentrations and major customers:
The Company grants credit, generally without collateral, to its customers
in the retail sporting goods industry. The Company's customers are not
concentrated in any specific geographic region. The Company has two
customers that accounted for 22% and 19% of accounts receivable at December
31, 1995. At December 31, 1994, there were no individual customer balances
in excess of 10% of accounts receivable. One U.S. governmental agency
customer accounted for 10% and 15% of sales for each of the years ended
December 31, 1995 and 1994. Two other customers individually accounted for
12% and 13% of sales for each of the years ended December 31, 1995 and
1994, respectively. During the years ended December 31, 1995 and 1994, the
Company's bad debt expense was approximately $291,500 and $135,000,
respectively.
The Company currently buys substantially all of its in-line skate products
from Playmaker (Note 7), and substantially all of its snowboard products
from a third party 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.
9. Commitments and contingencies:
Facility lease:
The Company incurred rent expense for leased offices and warehouse
facilities. Rent expense for the years ended December 31, 1995 and 1994 was
approximately $120,000 and $116,500, respectively.
Facility lease (continued):
The Company's lease for office and warehouse facilities expires in March
1998. Future minimum lease payments are:
1996 $ 120,000
1997 120,000
1998 30,000
----------
$ 270,000
==========
License agreements:
The Company has patent license agreements for certain models of in-line
skates. Under the license agreements, the Company and/or Playmaker pay
royalty fees to the licensor. The Company's share of the fees is the
greater of up to 0.4% or $0.30 per pair of applicable in-line skate sales.
F-17
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
9. Commitments and contingencies (continued):
Litigation:
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material effect on the
financial statements of the Company.
10. Income taxes:
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement carrying amounts and tax bases of assets and
liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse.
The provision for income taxes for the years ended December 31, 1995 and
1994 consists of the following:
1995 1994
---------- ----------
Current:
Federal $ 100,300 $ 26,600
State 12,600 4,400
--------- ----------
112,900 31,000
--------- ----------
Deferred:
Federal (57,000) (95,200)
State (7,200) (15,700)
---------- ----------
(64,200) (110,900)
---------- ----------
Change in valuation
allowance for deferred
tax assets 64,200 110,900
---------- ----------
Income tax
expense $ 112,900 $ 31,000
========= ==========
F-18
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
10. Income taxes (continued):
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate for the years ended December 31, 1995 and 1994 is
as follows:
December 31, December 31,
1995 1994
----------- -----------
Statutory income
tax (benefit) 34 % (34)%
State income taxes 6 % 3 %
Deferred income
tax valuation allowance 34 % 46 %
Nondeductible expense 4 % 4 %
Other (2)% 3 %
------- -------
76 % 22 %
======= =======
The following is a summary of the Company's deferred tax assets and
liabilities:
December 31, December 31,
1995 1994
----------- -----------
Deferred tax assets:
Intangible Assets $ 187,200 $ 108,300
Accounts receivable 23,300 36,100
Inventories 28,600 9,700
Prepaid expenses 3,600 7,200
Accrued expenses 7,600
----------- ----------
242,700 168,900
Valuation allowance
for deferred tax assets (222,500) (158,300)
---------- ----------
$ 20,200 $ 10,600
=========== ==========
Deferred tax liabilities:
Property and equipment $ 20,200 $ 10,600
=========== ==========
F-19
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
11. Private placements and initial public offering:
Private placements:
In September 1994, the Company completed private placements for the sale of
$612,500 of promissory notes. The notes bore interest, payable quarterly,
at 8% and had a maturity date of August 1, 1995. Of the notes, $412,500
were converted into shares of the Company's common stock in 1995, at a
conversion price of $2.25 per share. The Company registered the conversion
shares for resale by the holders thereof concurrently with its initial
public offering. The Company issued the holder of the remaining $200,000
note an option to purchase up to 80,000 shares of common stock at $2.50 per
share, exercisable through August 1, 1995. On January 23, 1995, the note
holder exercised the option and surrendered the $200,000 note in payment of
the exercise price.
For each $2.50 principal amount of notes, the note holders were given a
right to purchase two redeemable common stock purchase warrants for the
price of $0.10 per warrant. These rights were exercised in January 1995 and
the Company issued warrants to purchase 490,000 shares of common stock to
the note holders. The Company registered these warrants for resale by the
holders thereof concurrently with its initial public offering. The warrants
have the same terms and rights as the Warrants issued in the initial public
offering. Under certain conditions, the warrants are redeemable by the
Company prior to their expiration, at a redemption price of $0.05 per
warrant.
The agent for the private placements received warrants, at a nominal cost,
to purchase up to 21,000 shares of the Company's common stock, exercisable
beginning September 1995, and for four years thereafter, at an exercise
price of $2.50 per share. The Company paid the agent a commission of 10%
and a non-accountable expense allowance of 2% of the total principal amount
of the placement.
Initial public offering:
On January 25, 1995, the Company closed an initial public offering of
1,200,000 shares of common stock at $4.50 per share, and 1,200,000 warrants
(the "Warrants") at $0.25 per warrant. Each Warrant is exercisable through
January 1998 and allows for the purchase of one share of common stock at
$6.00 per share. The Company and certain selling shareholders granted an
option, exercisable through March 4, 1995, to the underwriters to purchase
up to an additional 180,000 shares of common stock and/or 180,000 Warrants,
to be exercised to cover over-allotments, if any. The underwriter exercised
its over-allotment option to purchase 180,000 Warrants. The Company also
granted to the underwriter warrants to purchase 120,000 shares of common
stock at $7.20 per share, and warrants to purchase 120,000 Warrants at
$0.30 per Warrant. The warrants to purchase common stock and the warrants
to purchase Warrants are exercisable beginning January 1996 through January
2000. The Company paid the underwriter a non-accountable expense allowance
of 3% of the gross proceeds realized in the public offering and a 10%
commission on the gross proceeds of the public offering. After deducting
offering expenses, the Company received net proceeds from the offering of
approximately $4,200,000.
F-20
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
12. Acquisition of license:
On August 1, 1994, the Company acquired an exclusive perpetual worldwide
license to the Kemper trademark for snowboards and related accessory
products and the right to complete approximately $3,575,000 on previously
placed orders. In consideration, the Company is to pay a royalty of 3% of
net sales of the snowboard products, $700,530 for the license, and $425,000
for the open orders. Of these amounts, $400,000 was paid at closing, the
Company assumed $425,000 of accounts payable of the seller, issued a
sixty-day, non-interest bearing $100,000 promissory note to the seller and
incurred a $50,000 liability to the licensor. In addition, the Company
incurred a $90,000 finder's fee and other transaction costs of $60,530. The
open order costs were charged to cost of sales during 1994.
13. Shareholders' equity:
1994 Stock Option Plan:
In 1994, the Company adopted a stock option plan (1994 Stock Option Plan)
which provides for the issuance to employees, officers, directors, and
consultants of the Company options to purchase up to 200,000 shares of
common stock. Options may be granted as incentive stock options or as
non-statutory options. Only employees are eligible to receive incentive
options. For options that are granted, the exercise period may not exceed
ten years. The exercise price for incentive options may not be less than
100% of the fair market value of the Company's common stock on the date of
grant, except for options issued to persons controlling more than 10% of
the Company's common stock, for which the option price may not be less than
110% of the fair market value of the Company's common stock on the date of
grant. The exercise price for non-statutory options may not be less than
80% of the fair market value of the Company's common stock on the date of
grant. In September 1994, options to purchase 57,000 shares of common
stock, at an exercise price of $2.50 per share, were granted under the 1994
Stock Option Plan. These options expire in September 1999. Management
believes that the exercise price of the options approximated the market
value of the Company's common stock on the date of grant. In 1995, options
to purchase 20,500 shares of common stock were exercised.
Warrants:
In February 1994, the Company issued warrants to purchase 74,623 shares of
common stock at $0.75 per share. Management believes that the exercise
price of the warrants approximated the market value of the Company's common
stock on the date of issuance. These warrants were exercised in January
1995.
In April 1994, the Company issued warrants to purchase 200,000 shares of
common stock to two officers/shareholders, exercisable through April 1997
at $4.50 per share.
In August 1995, the Company issued warrants to purchase 300,000 shares of
common stock to two officers/shareholders, exercisable through August 1998
at $3.56 per share.
F-21
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
13. Shareholders' equity (continued):
Private offering:
In June 1994, 13,704 shares of common stock, were sold at $0.75 per share
to accredited investors in a private offering.
Other issuances of stock:
In July 1994, the Company issued 25,000 shares of common stock at $1.08 per
share pursuant to a subscription agreement. The Company received the
$27,000 under the subscription agreement in September 1994.
During 1994, the Company incurred $22,248 of expense related to consulting
services provided by two individuals, one of whom is a shareholder of the
Company. In August 1994, the Company issued 20,600 shares of common stock
to these individuals in satisfaction of the liabilities.
14. Brake system license:
Effective September 30, 1994, the Company and Playmaker entered into
license agreements with a third party for non-exclusive rights to a ground
engaging movable brake system. The license is for a 3 1/2 year term and
requires royalty payments of 3.2% to 4.2% of the net wholesale price per
unit sold. The initial royalty payment of $200,000, of which the Company's
share is $150,000, was treated as an advance against royalty fees due
through March 1996. The agreements require the Company or Playmaker to
attain specific numbers of unit sales for the 18 months ended March 1996
and for the 12 month periods ended March 1997 and 1998. If the minimum unit
sales are not met, the Company or Playmaker must make up the shortfall in
royalty fees.
15. Export sales:
During the years ended December 31, 1995 and 1994, sales by geographic
regions were as follows:
1995 1994
------------ ------------
Europe and other $ 583,000 $ 1,011,000
Canada 1,976,000 1,089,000
Japan 1,507,000 242,000
----------- -----------
Total exports 4,066,000 2,342,000
USA sales 13,063,000 14,127,000
----------- -----------
Total sales $17,129,000 $16,469,000
=========== ===========
F-22
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
16. Consulting agreements:
The Company entered into a twelve-month consulting agreement with an
unrelated third party, effective July 25, 1995, to provide financial
advisory and consulting services to the Company which will, among other
things, help the Company to broaden its stock market appeal. As
compensation, the consultant is to receive fees of $2,000 per month and
warrants to purchase up to an aggregate of 300,000 shares of common stock,
which expire in July 1996. Warrants to purchase 200,000 shares of common
stock have an exercise price of $3.25 per share and warrants to purchase
100,000 shares have an exercise price of $4.00 per share.
In November 1995, the Company terminated a consulting agreement with
another unrelated third party who was previously providing public relations
consulting. As compensation, the consultant received options to purchase
58,331 shares of common stock at an exercise price of $4.8125 per share,
which expire in July 2000.
17. Kemper manufacturing and distribution agreement:
In May 1995, the Company entered into a three year agreement with a third
party, whereby the third party will manufacture and distribute certain
Kemper(R) apparel and accessories. The third party was granted nonexclusive
manufacturing rights for apparel, gloves, bags and related accessories
worldwide, and exclusive manufacturing and distributor rights for these
products in the Japanese market. The Company receives royalties based on
sales made and the Company received $60,000 in May 1995 as minimum royalty
for the first year of the contract.
18. Potential acquisition:
In August 1995, the Company entered into an agreement in principle to
acquire all of the outstanding capital stock of USA Skate Company, Inc.
("USA Skate") which includes USA Skate's ownership in Les Equipements
Sportifs Davtec Inc. ("Davtec"). The Company expects to account for the
transaction under the purchase method of accounting. USA Skate is based in
Long Island, New York and markets and distributes ice and street/roller
hockey skates, related gear and accessories under the Victoriaville(TM) and
Vic(R) brands. Davtec manufactures hockey sticks, pants and gloves for USA
Skate and is the Canadian distributor for all of the hockey related Vic(R)
and Victoriaville(TM) product lines. Davtec also manufactures the
Hespeler(TM) premium brand for the Canadian hockey equipment market.
Under the agreement in principle, the purchase price consists of $3,950,000
of cash and $750,000 in stock and short-term notes. The principal
shareholder of USA Skate will enter into a five-year consulting and a
ten-year non-compete agreement with the Company in exchange for $1,500,000
of common stock of the Company and will grant the Company license rights to
the Victoriaville(TM) and Vic(R) brands with royalties to be based on a
percentage of sales.
The acquisition closing is subject to certain conditions, including the
completion of a satisfactory due diligence investigation by the parties,
the negotiation of a mutually acceptable definitive purchase agreement, the
Company obtaining financing and approval by the board of directors of the
Company. The Company expects that the closing will occur in April 1996.
F-23
<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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying combined financial statements have been prepared for inclusion
in Form SB-2 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
F-24
<PAGE>
<TABLE>
<CAPTION>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED BALANCE SHEETS
March 31, December 31,
1996 1995
------------ ------------
Assets (Unaudited
- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 541,276 $ 607,992
Accounts receivable, less allowance
for doubtful accounts (1995, $749,000; 1996, $721,000,
Notes 6, 7 and 20) 1,955,875 3,243,214
Receivables from related parties (Note 11) 55,646 80,792
Inventories (Notes 4, 7 and 20) 5,911,349 5,100,677
Refundable income taxes 158,619 159,307
Prepaid expenses 77,616 51,041
----------- -----------
Total current assets 8,700,381 9,243,023
----------- ----------
Property and equipment, net of accumulated
depreciation (Notes 5, 7 and 20) 1,241,539 1,153,908
Intangible assets and other, net of accumulated
amortization (Note 2) 469,733 482,197
---------- ----------
1,711,272 1,636,105
---------- ----------
$ 10,411,653 $ 10,879,128
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt (Note 10) $ 267,911 $ 311,477
Notes payable:
Bank (Notes 7 and 20) 5,043,387 5,263,268
Other (Note 8) 496,172 496,172
Accounts payable and accrued expenses (Note 9) 859,620 904,076
Income taxes payable 389,294 465,537
Interest payable to related parties (Note 8) 32,400 26,700
------------ ------------
Total current liabilities 7,088,784 7,467,230
------------ ------------
Long-term debt, net of current portion (Note 10) 333,433 344,134
Notes payable, related parties (Note 8) 343,750 373,750
------------ -----------
677,183 717,884
------------ -----------
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 2,894,171 2,877,756
Cumulative foreign currency
translation adjustment (269,387) (204,644)
------------ ------------
Total shareholders' equity 2,645,686 2,694,014
------------ ------------
$ 10,411,653 $ 10,879,128
============ ============
</TABLE>
See notes to combined financial statements.
F-25
<PAGE>
<TABLE>
<CAPTION>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED STATEMENTS OF OPERATIONS
Three months ended Year ended Year ended
March 31, December 31, December 31,
1996 1995 1995 1994
------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 2,021,660 $ 1,816,675 $ 14,299,937 $ 16,593,510
Cost of sales 1,278,461 1,054,210 9,260,081 11,072,804
------------ ------------ ------------ ------------
Gross 743,199 762,465 5,039,856 5,520,706
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing expenses 234,530 245,297 1,403,135 1,737,623
General and administrative
expenses 303,196 358,924 1,718,053 2,092,438
License fees, related party
(Note 3) 19,556 24,160 157,126 101,289
Rent expense, related party
(Note 12) 38,750 26,817 116,611 82,847
------------ ------------ ------------ ------------
596,032 655,198 3,394,925 4,014,197
------------ ------------ ------------ ------------
Income from operations 147,167 107,267 1,644,931 1,506,509
------------ ------------ ------------ ------------
Other charges (credits):
Interest expense:
Related parties (Note 8) 7,110 7,149 30,100 10,270
Others 111,251 176,006 771,223 623,052
Interest income, related party
(Note 11) (10,998) (8,516) (39,410) (8,943)
Foreign currency loss (gain) 14,108 (13,579) 106,395 26,117
Rental income and other (3,719) (21,752) (18,272) (99,390)
------------ ------------ ------------ ------------
117,752 139,308 850,036 551,106
------------ ------------ ------------ ------------
Income (loss) before income
taxes 29,415 (32,041) 794,895 955,403
Income tax expense (benefit)
(Note 14) 13,000 (17,000) 422,000 495,000
------------ ------------ ------------ ------------
Net income (loss) $ 16,415 $ (15,041) $ 372,895 $ 460,403
============ ============ ============ ============
See notes to combined financial statements.
F-26
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY (NOTE 1)
THREE MONTHS ENDED MARCH 31, 1996
AND YEARS ENDED DECEMBER 31, 1995 AND 1994 (UNAUDITED)
Foreign
currency
Capital in Retained translation
Common stock excess of par earnings adjustment Total
------------ ------------- -------- ---------- -----
Shares Amount
------ ------
<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
=== === ========= ========== ========== ==========
See notes to combined financial statements.
</TABLE>
F-27
<PAGE>
<TABLE>
<CAPTION>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
Three months ended Year ended Year ended
March 31, December 31, December 31,
1996 1995 1995 1994
----------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 16,415 $ (15,041) $ 372,895 $ 460,403
------------ ---------- ------------ ------------
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization 17,380 30,021 94,490 59,567
Provision for losses on accounts
receivable 28,000 38,000 202,458 213,242
Foreign currency loss (gain) 14,108 (13,579) 106,395 26,117
Decrease (increase) in assets:
Accounts receivable 1,280,036 1,915,053 1,332,665 (1,267,563)
Receivables from related parties 23,395 (49,775) (28,538) (270,705)
Inventories (803,171) (1,650,934) (659,594) 184,546
Refundable income taxes (505) (223,168) (161,087) (214,833)
Prepaid expenses and other assets (26,131) 153,710 213,280 (275,980)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses (94,439) 240,642 (214,810) (752,989)
Income taxes payable (103,079) (32,056) 58,788 124,721
Interest payable to related parties 5,700 16,696 10,004
------------ ---------- ------------ ------------
Total adjustments 341,294 407,914 960,743 (2,163,873)
------------ ---------- ------------ ------------
Net cash (used in) provided by
operating activities 357,709 392,873 1,333,638 (1,703,470)
------------ ---------- ------------ -----------
Cash flows from investing activities:
Capital expenditures (82,802) (15,173) (220,794) (140,352)
Payments for acquisition of subsidiary
interests (1,395,752)
------------- ----------- ------------ ------------
Net cash used in investing activities (82,802) (15,173) (220,794) (1,536,104)
------------- ----------- ------------ ------------
Cash flows from financing activities:
Proceeds from notes payable and
long-term debt 36,829 64,191 227,375 3,466,452
Repayment of notes payable and
long-term debt (367,958) (732,875) (1,185,327) (354,387)
------------ ---------- ------------ ------------
Net cash provided by (used in)
financing activities ( 331,129) (668,684) (957,952) 3,112,065
------------ ---------- ------------ ------------
(Continued)
</TABLE>
F-28
<PAGE>
<TABLE>
<CAPTION>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
Three months ended Year ended Year ended
March 31, December 31, December 31,
1996 1995 1995 1994
----------- ------------- ------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Effect of exchange rate changes on
cash and cash equivalents (10,494) 207 (67,570) 27,591
----------- ---------- ------------ ------------
Net (decrease) increase in cash and
cash equivalents (66,716) (290,777) 87,322 (99,918)
Cash and cash equivalents, beginning 607,992 520,670 520,670 620,588
----------- ---------- ------------ ------------
Cash and cash equivalents, ending $ 541,276 $ 229,893 $ 607,992 $ 520,670
=========== ========== ============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest $ 126,102 $ 153,899 $ 747,648 $ 654,564
=========== ========== ============ ============
Cash paid for income taxes $ 89,243 $ 26,575 $ 410,578 $ 576,518
=========== ========== ============ ============
See notes to combined financial statements.
F-29
</TABLE>
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
AND YEARS ENDED DECEMBER 31, 1995 AND 1994 (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(TM) and Vic(R) 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(TM) and
Vic(R) product lines. Davtec also manufactures the Hespeler(R) premium
brand of hockey equipment for the Canadian market. McMartin manufactures
hockey protective equipment, primarily for USA Skate and Davtec.
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.
F-30
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
1. Basis of presentation, business and summary of significant accounting
policies (continued):
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.
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 primarily consist of goodwill, arising from the
acquisition of Davtec (Note 2). Goodwill is being amortized on the
straight-line method over 25 years.
F-31
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
1. Basis of presentation, business and summary of significant accounting
policies (continued):
Intangible and other assets (continued):
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:
March 31, December 31,
1996 1995
---------- ------------
(Unaudited)
Goodwill $ 504,694 $ 504,694
Other assets 6,188
---------- ----------
504,694 510,882
Less accumulated amortization 34,961 28,685
---------- ----------
$ 469,733 $ 482,197
========== ==========
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.
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.
F-32
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
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.
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(TM) and Vic(R) 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(TM) and Vic(R)
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(TM) and Vic(R)
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(TM) and Vic(R) 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.
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(TM) and Vic(R) 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
F-33
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
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.
3. License Agreements (continued):
Victoriaville(TM) and Vic(R) trademark licenses (continued):
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:
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
Raw materials $ 706,778 $ 649,321
Work-in-process 198,900 272,616
Finished goods 5,005,671 4,178,740
----------- ------------
$ 5,911,349 $ 5,100,677
=========== ============
The elements of cost in inventories include materials, labor and overhead.
5. Property and equipment:
March 31, December 31,
1996 1995
------------ --------------
(Unaudited)
Property and equipment consist of:
Land $ 27,221 $ 26,995
Building and improvements 796,529 790,143
Machinery and equipment 1,022,049 946,546
Office equipment and furniture 250,414 201,909
----------- ------------
2,096,213 1,965,593
Less accumulated depreciation 854,674 811,685
----------- ------------
$ 1,241,539 $ 1,153,908
=========== ============
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.
F-34
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
6. Significant concentrations and major customers (continued):
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.
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 1.5% 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).
F-35
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
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:
March 31, December 31,
1996 1995
------------ -----------
(Unaudited)
Accounts payable $ 458,917 $ 451,317
Accrued wages and employee benefits 281,292 189,414
Commissions payable 37,474 180,148
Interest payable and other 81,937 83,197
----------- ---------
$ 859,620 $ 904,076
=========== =========
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 the 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:
F-36
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
11. Receivables from related parties (continued):
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.
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).
F-37
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
14. Income taxes:
The provisions (benefit) for income taxes consist of the following:
<TABLE>
<CAPTION>
March 31,
1996 1995 1995 1994
---------- ---------- ---------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current:
Federal $ 10,300 $ (12,100) $ 416,000 $ 471,000
State and local 2,700 (4,900) 117,000 131,000
Foreign 29,000 (88,000)
---------- ---------- --------- ----------
13,000 (17,000) 562,000 514,000
---------- ---------- --------- -----------
Deferred:
Federal (96,000) (15,000)
State and local (27,000) (4,000)
Foreign (17,000)
---------- --------- --------- ----------
(140,000) (19,000)
---------- --------- --------- ----------
Income tax provision
(benefit) $ 13,000 $ (17,000) $ 422,000 $ 495,000
========== ========= ========= ==========
</TABLE>
Are conciliation of the statutory federal income tax rate to the Companies'
effective income tax rates is as follows:
<TABLE>
<CAPTION>
March 31,
1996 1995 1995 1994
------------ ------------ ----------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Statutory income tax
expense (benefit) 34% (34)% 34% 34%
State and local income
taxes 9 (9) 9 9
Foreign operations -- (1) 1 4
Other 1 (9) 9 5
--- ----- --- ---
44% (53)% 53% 52%
=== ==== === ===
</TABLE>
F-38
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
14. Income taxes (continued):
The following is a summary of the Companies' deferred tax assets and
liabilities:
March 31, December 31,
1996 1995
----------- -----------
(Unaudited)
Deferred tax assets:
Accounts Receivable $ 81,900 $ 81,900
Inventories 33,500 33,500
Accrued expenses 11,000 23,700
----------- -----------
126,400 139,100
Valuation allowance (114,700) (74,600)
----------- -----------
11,700 64,500
Deferred tax liabilities:
Undistributed foreign earnings (11,700) (64,500)
----------- -----------
$ - $ -
=========== ===========
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:
<TABLE>
<CAPTION>
Year ended
December 31, United Combined
1994 States Canada Eliminations Total
----------------- ------ ------ ------------ --------------
<S> <C> <C> <C> <C>
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
=========== ============ ============= ==============
</TABLE>
F-39
<PAGE>
<TABLE>
<CAPTION>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
15. Foreign operations and export sales (continued):
Year ended United Combined
December 31, 1995 States Canada Eliminations Total
----------------- ------ ------ ------------ ------------
<S> <C> <C> <C> <C>
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
============ ============ ============= =============
</TABLE>
F-40
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
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
=====
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(TM) and Vic(R) 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(TM) and Vic(R) 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.
F-41
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1996 AND 1995 (UNAUDITED)
AND YEARS ENDED DECEMBER 31, 1995 AND 1994
20. Acquisition by USA Skate Corporation (continued):
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.
F-42
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996
YEAR ENDED DECEMBER 31, 1995
In May 1996, California Pro Sports, Inc. (the "Registrant" or "Cal Pro") 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 pro forma consolidated statements of
operations for the year ended December 31, 1995 and the nine months ended
September 30, 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 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%.
F-43
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
Historical
------------------------------
California USA Skate Pro forma Pro forma
Pro Sports, Inc. Corporation adjustments consolidated
---------------- ----------- ----------- ------------
(1)
<S> <C> <C> <C>
Sales $ 13,987,601 $ 3,139,928 $ 17,127,529
Cost of sales 9,918,413 1,992,988 11,911,401
------------ ------------ ------------ ------------
Gross profit 4,069,188 1,146,940 5,216,128
------------ ----------- ------------ ------------
Operating expenses
Sales and marketing expenses 1,641,441 344,676 1,986,117
General and administrative 3,013,818 504,401 3,780,190
40,000 (4)
257,892 (3)
(35,921)
------------ ------------ ------------ ------------
4,655,259 849,077 261,971 5,766,307
------------ ------------ ------------ ------------
Income (loss) from operations (586,071) 297,863 (261,971) (550,179)
------------ ------------ ------------ ------------
Other charges (credits):
Interest expense 911,682 160,854 111,532 (2) 1,184,068
Interest income and other (741,521) (4,222) (745,743)
------------ ------------ ------------ ------------
170,161 156,632 111,532 438,325
------------ ------------ ------------ ------------
Income (loss) before income taxes and
minority interest (756,232) 141,231 (373,503) (988,504)
Income tax (expense) benefit 225,000 (56,400) 56,400 (6) 225,000
------------ ------------ ------------ ------------
Income (loss) before minority interest (531,232) 84,831 (317,103) (763,504)
Minority interest 35,978 (84,082) (48,104)
------------ ------------ ------------ ------------
Net income (loss) $ (567,210) $ 84,831 $ (233,021) $ (715,400)
============ ============ ============ ============
Net income (loss) per share $ (0.14) $ (0.17)
============ ============
Weighted average number of
common shares outstanding 4,029,779 $ 175,824 (7) 4,205,603
============ ============ ============= ============
See notes to unaudited condensed pro forma consolidated financial statements.
F-44
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
Historical
-----------------------------------
California USA Skate Pro forma Pro forma
Pro Sports, Inc. Corporation adjustments consolidated
---------------- ----------- ----------- ------------
(1)
<S> <C> <C> <C> <C>
Sales $ 17,128,711 $ 14,299,937 $ 31,428,648
Cost of sales 12,155,543 9,260,081 21,415,624
------------ ------------ ------------ ------------
Gross profit 4,973,168 5,039,856 10,013,024
------------ ------------ ------------ ------------
Operating expenses
Sales and marketing expenses 1,758,221 1,403,135 3,161,356
General and administrative 2,786,100 1,991,790 5,605,398
144,000 (4)
840,634 (3)
(157,126)(2)
------------ ------------ ------------ ------------
4,544,321 3,394,925 827,508 8,766,754
------------ ------------ ------------ ------------
Income (loss) from operations 428,847 1,644,931 (827,508) 1,246,270
------------ ------------ ------------ ------------
Other charges (credits):
Interest expense 313,183 801,323 570,291 (2) 1,684,797
Interest income and other (32,692) 48,713 16,021
------------ ------------ ------------ ------------
280,491 850,036 570,291 1,700,818
------------ ------------ ------------ ------------
Income (loss) before income taxes
and minority interest 148,356 794,895 (1,397,799) (454,548)
Income tax expense (benefit) 112,900 422,000 (422,000)(6) 112,900
------------ ------------ ------------ ------------
Income (loss) before minority interest 35,456 372,895 (975,799) (567,448)
Minority interest (218,251)(5) (218,251)
------------ ------------ ------------ ------------
Net income (loss) $ 35,456 $ 372,895 $ (757,548) $ (349,197)
============ ============ ============ ============
Net income (loss) per share $ 0.01 $ (0.09)
============ ============
Weighted average number of
common shares outstanding 3,599,320 400,000(7) 3,999,320
============ ============ ============
See notes to unaudited condensed proforma consolidated financial statements.
F-45
</TABLE>
<PAGE>
CALIFORNIA PRO SPORTS, INC, AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996
YEAR ENDED DECEMBER 31, 1995
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 statements of operations:
1. In May 1996, the Company, through USA, completed the acquisition of all of
the outstanding capital stock of USA Skate. The acquisition was effective
as of April 30, 1996 and was accounted for as a purchase. Consideration for
the purchase consisted of $3,650,000 of cash, a $1,050,000 8% installment
note payable due through November 1998, 250,000 shares of USA common stock
valued at $300,000, and assumption of approximately $5,500,000 of debt. The
purchase price was paid with funds raised by USA, including the private
placement of 884,667 shares of common stock of USA for $961,600 (net of
costs of $100,000), the issuance of $1,080,000 of 9% notes payable to
certain officers/shareholders due in January 1997, and the issuance of
$2,515,000 of 9% convertible promissory notes due January 1997 (the due
date of which may be extended for six months and which are convertible into
USA common stock under certain conditions).
The debt assumption was financed in part by a bank loan to USA Skate.
Additionally, the former controlling shareholder of USA Skate signed
consulting and noncompete agreements in consideration for the issuance of
400,000 shares of CPS common stock valued at $900,000. USA Skate also
entered into a worldwide, exclusive license agreement for 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
a value of $2,213,235. Finder's fees, bank origination, legal, accounting
and other costs of the acquisition were approximately $1,284,000, including
guarantee fees to two officers/shareholders of $600,000 related to the
officers'/shareholders' providing personal guarantees of certain of the
debt assumed and issued in the transaction.
The USA skate columns on the accompanying unaudited condensed pro forma
consolidated statements of operations reflect the results of operations of
USA Skate for the year ended December 31, 1995 and the four months ended
April 30, 1996. The purchase price (including $1,284,000 of acquisition
costs) of $6,284,000 was allocated to the assets acquired and liabilities
assumed as follows:
Purchase price $ 6,284,000
Fair value of assets acquired (11,334,000)
Liabilities assumed 9,210,000
------------
Excess of purchase price over fair value of assets
acquired and liabilities assumed allocated to
intangible assets $ 4,160,000
============
The deferred costs and intangible assets that arise in the formation of USA
and acquisition of USA Skate are as follows:
License trademark agreement $ 2,213,000
Consulting and noncompete agreements 900,000
Guarantee agreements 600,000
Goodwill and deferred financing costs 4,160,000
------------
Total $ 7,873,000
============
2. To record interest expense related to the $3,595,000 of formation debt (at
9% interest), the $1,050,000 of acquisition debt (at 8% interest), and the
$125,000 former USA Skate shareholder note (at 8% interest); to record
interest savings related to the $665,000 reduction in Davtec bank debt (at
9.5% interest); and to adjust expense for the terms of the new royalty
agreement.
F-46
<PAGE>
3. 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. The
components of the pro forma amortization adjustments are as follows:
Nine months ended Year ended
September 30, 1996 December 31, 1995
------------------ -----------------
License trademark $ 29,510 $ 88,529
Consulting and noncompete 40,000 120,000
Guarantee agreement 66,667 200,000
Goodwill 121,715 432,105
------- -------
$257,892 $840,634
======== ========
4. To record management fees to be paid to certain officers/shareholders of
Cal Pro.
5. To reflect the 36% minority ownership interest in the net loss of USA for
the year ended December 31, 1995 and the six months ended June 30, 1996
taking into account the above pro forma adjustments. Subsequent, and
unrelated, to the acquisition, in June 1996, the Company satisfied $260,000
of amounts payable to officers/shareholders by transferring to the
officers/shareholders 216,667 shares of its USA common stock. The
transaction reduces the Company's ownership interest in USA and increases
the minority ownership interest from 36% to 43%.
6. To reflect the income tax effect of the above pro forma adjustments.
7. For the year ended December 31, 1995, to reflect the effect on weighted
average number of common shares outstanding of the issuance of 400,000
shares of Cal Pro common stock as if this issuance occurred on January 1,
1995. For the nine months ended September 30, 1996, the historical weighted
average number of shares reflects the issuance of the 400,000 shares for
the period from May 1996 through September 1996. Therefore, the pro forma
adjustment is to reflect the effect on weighted average number of shares
for January 1996 through April 1996.
F-47
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(UNAUDITED)
ASSETS
Current assets:
Cash $ 1,048,965
Accounts receivable, less allowance for
doubtful accounts of $381,000 10,275,377
Due from related parties 39,964
Inventories 6,977,911
Marketable securities (Note 5) 394,873
Prepaid expenses and other 907,924
------------
Total current assets 19,645,014
------------
Property and equipment, net of
accumulated depreciation 2,276,344
Intangible and other assets, net of
accumulated amortization 9,245,498
------------
11,521,842
------------
$ 31,166,856
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of:
Long-term debt $ 248,628
Due to related parties (Note 3) 718,750
License fee payable, related party (Note 3) 163,554
Notes payable:
Bank 11,684,089
Convertible promissory notes (Note 3) 2,518,000
Other 718,172
Officers/shareholders (Note 3) 1,060,000
Accounts payable and accrued expenses:
Accounts payable, PlayMaker 36,804
Other accounts payable, trade 2,946,731
Officers/Shareholders 600,000
Other accrued expenses 1,110,606
------------
Total current liabilities 21,805,334
------------
Long-term debt, net of current portion 461,376
Due to related parties, net of current
portion (Note 3) 350,000
License fee payable, related party, net of
current portion (Note 3) 2,147,141
------------
Total long-term debt 2,958,517
------------
Minority interest 967,627
------------
Shareholders' equity:
Common stock, $.01 par value; authorized
10,000,000 shares; issued and
outstanding 4,219,511 42,195
Warrants 394,200
Capital in excess of par 5,731,132
Deficit (736,826)
Cumulative foreign currency translation adjustment 4,677
------------
Total shareholders' equity 5,435,378
------------
$ 31,166,856
============
See notes to consolidated financial statements
F-48
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
----------- -----------
Net sales $ 6,230,078 $ 3,783,828
----------- -----------
Cost of sales:
Substantially from a related party 683,391 1,828,082
Other 3,506,398 759,571
----------- -----------
4,189,789 2,587,653
----------- -----------
Gross profit 2,040,289 1,196,175
----------- -----------
Operating expenses:
Sales and marketing expense 673,415 385,695
General and administrative expense 1,067,929 523,268
Depreciation and amortization 320,340 133,869
Consulting fees, related party 60,000 30,000
----------- -----------
2,121,684 1,072,832
----------- -----------
Income (loss) from operations (81,395) 123,343
----------- -----------
Other expenses (income):
Interest expense:
Related party 50,682
Other 384,905 67,532
Foreign currency loss 4,962 4,367
Royalty and other income (67,966) (17,998)
Net unrealized holding loss (Note 5) 394,872
----------- -----------
767,455 53,901
----------- -----------
Income (loss) before income taxes
and minority interest (848,850) 69,442
Income tax expense (Benefit) (261,000) 5,500
----------- -----------
Income (loss) before minority interest (587,850) 63,942
Minority interest 43,334
----------- -----------
Net income (loss) $ (631,184) $ 63,942
=========== ===========
Net income (loss) per share $ (0.15) $ 0.02
=========== ===========
Weighted average number
of shares outstanding 4,219,511 3,746,744
=========== ===========
See notes to consolidated financial statements.
F-49
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
------------ ------------
Net sales $ 13,987,601 $ 11,691,767
------------ ------------
Cost of sales:
Substantially from a related party 3,112,007 6,416,656
Other 6,806,406 1,797,456
------------ ------------
9,918,413 8,214,112
------------ ------------
Gross profit 4,069,188 3,477,655
------------ ------------
Operating expenses:
Sales and marketing expense 1,641,441 1,406,681
General and administrative expense 2,134,243 1,660,490
Depreciation and amortization 739,575 408,136
Consulting fees, related party 140,000 90,000
------------ ------------
4,655,259 3,565,307
------------ ------------
Loss from operations (586,071) (87,652)
------------ ------------
Other expenses (income):
Interest expense:
Related party 87,284 2,840
Other 824,398 228,152
Foreign currency loss 40,783 34,991
Royalty and other income (170,073) (34,570)
Net unrealized holding gain (Note 5) (21,765)
Gain on sale of investment in
subsidiary (Note 6) (111,366)
Gain from issuance of common stock
by subsidiary (Note 7) (479,100)
------------ ------------
170,161 231,413
------------ ------------
Loss before income taxes and minority
interest (756,232) (319,065)
Income tax benefit 225,000 126,860
------------ ------------
Loss before minority interest (531,232) (192,205)
Minority interest 35,978
------------ ------------
Net loss $ (567,210) $ (192,205)
============ ============
Net loss per share $ (0.14) $ (0.05)
============ ============
Weighted average number of shares outstanding 4,029,779 3,531,393
============ ============
See notes to consolidated financial statements.
F-50
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA PRO SPORTS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
Cumulative
foreign
Common stock Capital currency
----------------------- In excess translation
Shares Amount Warrants of par Deficit adjustment Total
------ ------ -------- ------ ------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1996 3,783,511 $ 37,835 $ 394,200 $ 4,727,492 $ (169,616) $4,989,911
Issuance of 400,000 shares
of common stock (Note 3) 400,000 4,000 896,000 900,000
Issuance of 36,000 shares of
common stock in settlement of
an account payable (Note 4) 36,000 360 107,640 108,000
Net loss for the nine months
ended September 30, 1996 (567,210) (567,210)
Cumulative foreign currency
translation adjustment $ 4,677 4,677
----------- ----------- ----------- ----------- ----------- ---------- ----------
Balances, September 30, 1996 4,219,511 $ 42,195 $ 394,200 $ 5,731,132 $ (736,826) $ 4,677 $5,435,378
=========== =========== =========== =========== =========== ========== ==========
See notes to consolidated financial statements.
F-51
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
------------ ------------
<S> <C> <C>
Net loss $ (567,210) $ (192,205)
------------ ------------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Net unrealized holding gain (21,765)
Gain on sale of investment in subsidiary (111,366)
Gain from issuance of common stock by subsidiary (479,100)
Depreciation and amortization 739,575 408,136
Provision for bad debt 100,897 32,894
Minority interest 35,978
Decrease (increase) in assets:
Accounts receivable (3,344,437) 1,038,145
Due from related parties 479,976 (40,503)
Inventories 1,875,561 (371,872)
Prepaid expenses (564,992) (146,020)
Increase (decrease) in liabilities:
Accounts payable, PlayMaker (171,928) (2,382,228)
Other 447,062 (743,956)
------------ ------------
Total adjustments (1,014,539) (2,205,404)
------------ ------------
Net cash used in operating activities (1,581,749) (2,397,609)
------------ ------------
Cash flows from investing activities:
Payment for purchase of USA Skate
Co., Inc., net of cash acquired (3,551,760)
Payments for intangible assets (1,507,773)
Capital expenditures (317,886) (735,358)
Deferred financing costs (320,682)
------------ ------------
Net cash used in investing activities (5,377,419) (1,056,040)
------------ ------------
Cash flows from financing activities:
Decrease in bank overdraft (35,499)
Proceeds from notes payable and long term debt 11,534,625
Repayment of notes payable and long term debt (4,496,302) (1,620,273)
Net proceeds from issuance of common
stock by subsidiary 961,600
Net proceeds from issuance
of common stock and warrants 5,153,217
------------ ------------
Net cash provided by financing activities 7,999,923 3,497,445
------------ ------------
Net increase in cash 1,040,755 43,796
Cash beginning 8,210
------------ ------------
Cash ending $ 1,048,965 $ 43,796
============ ============
(Continued)
F-52
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1996 1995
------------ ------------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 820,161 $ 283,718
============ ============
Cash paid for income taxes $ 57,847 $ 36,575
============ ============
Supplemental disclosure of noncash
investing and financing activities:
Issuance of 36,000 shares of common
stock in settlement of an account payable $ 108,000
============
Issuance of 80,000 shares of common
stock in cancellation of note payable $ 200,000
============
Issuance of 183,334 shares of common stock
in cancellation of convertible note payable $ 412,500
============
Deferred offering costs deducted from the
proceeds of the initial public offering $ 816,452
============
Issuance of 400,000 shares of common stock
in exchange for consulting and non-compete
agreements $ 900,000
============
Minimum royalties payable in exchange for
a license agreement $ 2,213,235
============
Purchase of USA Skate Co., Inc.,
net of cash acquired:
Fair value of assets acquired $ 11,334,200
Intangible assets 2,777,774
Liabilities assumed (9,210,214)
Fair value of assets exchanged (1,350,000)
------------
Total cash paid, net of cash acquired $ 3,551,760
============
See notes to consolidated financial statements.
F-53
</TABLE>
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1. The interim financial statements:
The interim financial statements have been prepared by California Pro
Sports, Inc. ("CPS" or the "Company") and, in the opinion of management,
reflect all material adjustments which are necessary to a fair statement of
results for the interim periods presented, including normal recurring
adjustments. Certain information and footnote disclosures made in the last
annual report on Form 10-KSB have been condensed or omitted for the interim
statements. It is the Company's opinion that, when the interim statements
are read in conjunction with the December 31, 1995 Annual Report on Form
10-KSB, and the Forms 8-K and 8-K/A dated May 15, 1996, which reported the
acquisition of USA Skate Co., Inc., the disclosures are adequate to make
the information presented not misleading. The results of operations for the
nine months ended September 30, 1996 are not necessarily indicative of the
operating results for the full year.
2. Organization:
The accompanying consolidated financial statements include the accounts of
California Pro Sports, Inc. and its subsidiaries, California Pro, Inc.
("CP") and USA Skate Corporation ("USA"). USA was formed in 1995 to acquire
USA Skate Co., Inc. (Note 3). Intercompany transactions have been
eliminated in consolidation. At September 30, 1996, the Company owns 100%
of the outstanding CP capital stock and 56.9% of the outstanding USA
capital stock. Minority interest represents USA's minority shareholders
43.1% share of the equity and net income (loss) of USA.
CP sells in-line skates and accessories, under the brand names California
Pro(R) and Rolling Thunder(TM), to retail sporting goods stores principally
in North America. A majority of in-line skates are manufactured by
PlayMaker Co., Ltd. ("PlayMaker"), a minority shareholder of the Company.
In August 1994, CP began selling snowboards and accessories, under the
Kemper(R) brand name to retail sporting goods stores in North America and
distributors in Europe and Japan.
F-54
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
3. Acquisition:
On May 15, 1996, the Company, through USA, completed the acquisition of all
of the outstanding capital stock of USA Skate Co., Inc., a New York
corporation ("USA Skate"). USA Skate owns, directly or indirectly, all of
the capital stock of Les Equipements Sportifs Davtec Inc., a Canadian
corporation ("Davtec"). The acquisition was effective as of April 30, 1996
and was accounted for as a purchase. Accordingly, the consolidated
statements of operations include the results of USA Skate beginning May 1,
1996. Consideration for the purchase consisted of $3,650,000 of cash, a
$1,050,000 8% installment note payable due through November 1998, 250,000
shares of USA common stock valued at $300,000, and assumption of
approximately $5,500,000 of debt. The purchase price was paid with funds
raised by USA, including the private placement of 884,667 shares of common
stock of USA for $961,600 (net of costs of $100,000), the issuance of
$1,080,000 of 9% notes payable to certain officers/shareholders due in
January 1997, and the issuance of $2,515,000 of 9% convertible promissory
notes due January 1997 (the due date of which may be extended for six
months and which are convertible into USA common stock under certain
conditions).
The debt assumption was financed in part by a bank loan to USA Skate.
Additionally, the former controlling shareholder of USA Skate signed
consulting and noncompete agreements in consideration for the issuance of
400,000 shares of CPS common stock valued at $900,000. USA Skate also
entered into a worldwide, exclusive license agreement for 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
a value of $2,213,235. Finder's fees, bank origination, legal, accounting
and other costs of the acquisition were approximately $1,284,000, including
guarantee fees to two officers/shareholders of $600,000 related to the
officers'/shareholders' providing personal guarantees of certain of the
debt assumed and issued in the transaction.
USA Skate is based in Long Island, New York, and markets and distributes
ice and street/roller hockey skates, related gear and accessories under the
VICTORIAVILLE(TM), VIC(R) and McMartin(R) brands as well as figure skates.
USA Skate has an exclusive worldwide license for use of the
VICTORIAVILLE(TM) and VIC(R) brands. For 1995, USA Skate had revenues of
approximately $14.3 million. Davtec, USA Skate's wholly-owned Canadian
subsidiary, manufactures hockey sticks, pants and gloves for USA Skate and
is the Canadian distributor for all of the hockey related VICTORIAVILLE(TM)
and VIC(R) product lines. Davtec also manufactures the Hespeler(TM) premium
brand of hockey sticks which are marketed worldwide.
F-55
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
3. Acquisition (continued):
USA Skate sells its skates and related accessories through a network of
independent sales representative groups to over 1,000 accounts.
Internationally, USA Skate's products are sold and distributed through
independent distributors located primarily in Germany, Switzerland, Italy,
Austria, Czech Republic, Sweden, Finland, France and Brazil.
The unaudited results of operations of the Company, for the nine months
ended September 30, 1996 and 1995, on a pro forma basis as though USA Skate
had been acquired as of January 1, 1996 and 1995, respectively, are as
follows:
1996 1995
-------- --------
Revenue $17,128,000 $23,512,000
Net loss $ (715,000) $ (293,000)
Loss per share $ (.17) $ (.08)
4. Shareholders' equity:
1996 Transactions:
Warrants:
The exercise prices of warrants to purchase 500,000 shares of the Company's
common stock that had been granted to two officers/shareholders of the
Company were reduced from $3.56 and $4.50 per share to $2.38 per share and
warrants to purchase 300,000 shares of common stock issued to a third party
consultant were extended from July 1996 to October 1997 of which the
exercise price for 150,000 shares was reduced from $3.25 to $2.38 per share
(the market value of the stock at the date the Board of Directors
authorized the price reduction in April 1996).
Issuance of stock:
During the nine months ended September 30, 1996, the Company issued 400,000
shares of the Company's common stock to the former controlling shareholder
of USA Skate at an agreed value of $900,000, or $2.25 per share, as
compensation under a consulting and noncompete agreement; and 36,000 shares
of common stock at $3.00 per share (the market value of the stock at the
date the Board of Directors authorized the issuance), in satisfaction of a
$108,000 account payable.
F-56
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
1995 Transactions:
Initial public offering:
On January 25, 1995, the Company completed an initial public offering of
1,200,000 shares of common stock at $4.50 per share, and 1,200,000 warrants
(the "Warrants") at $0.25 per warrant. Each Warrant is exercisable through
January 1998 and allows for the purchase of one share of common stock at
$6.00 per share. In March 1995, the Representative of the underwriters
exercised its option to purchase an additional 180,000 Warrants at $0.25
per Warrant to cover overallotments. The Company sold the securities to the
Representative at a discount of 10% from the public offering price and paid
the Representative an expense allowance of 3% of the gross proceeds of the
public offering. The Company also sold to the Representative for $100,
warrants to purchase 120,000 shares of common stock at $7.20 per share, and
warrants to purchase 120,000 Warrants at $.30 per Warrant. The Warrants to
purchase common stock and the Warrants to purchase Warrants are exercisable
from January 1996 through January 2000. After deducting offering expenses,
the Company received net proceeds from the offering of approximately
$4,200,000.
Exercise of warrants:
In January 1995, warrants to purchase 74,623 shares of restricted common
stock at $0.75 per share were exercised. The Company received proceeds of
$55,967.
Issuance of warrants:
In connection with the initial public offering, the holders of the
Company's convertible promissory notes exercised their option to purchase
490,000 warrants at $0.10 per warrant. The Company received net proceeds of
$49,000. These warrants have been registered by the Company for resale by
the holders and have the same terms and rights as the Warrants sold in the
initial public offering.
Issuance of common stock:
In January 1995, one option holder exercised his option to purchase 80,000
shares of common stock at $2.50 per share. The holder surrendered a
promissory note made to him by the Company in the principal amount of
$200,000 in exchange for the stock.
F-57
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
5. Marketable securities:
In 1996, the Company received marketable securities from an affiliate in
payment of an amount owed to the Company by a related party, which the
Company classified as trading securities under SFAS No. 115. At June 30,
1996, the market value of these securities had increased and, therefore,
the Company recognized a net unrealized holding gain of $416,637 which was
included in net income for the six months ended June 30, 1996. At September
30, 1996 the market value decreased by $394,872 from June 30, 1996.
Therefore, the Company recognized a net unrealized holding loss of $394,872
during the three months ended September 30, 1996.
6. Gain on sale of investment in subsidiary:
In June 1996, the Company satisfied $260,000 of amounts payable to
officers/shareholders by transferring to the officers/shareholders 216,667
shares of USA common stock from the Company's 2,000,000 USA shares. The
recorded cost of the USA shares transferred was $148,634 and the fair value
of those shares was $260,000 ($1.20 per share) resulting in a gain of
$111,366 on this transaction.
7. Gain from issuance of common stock by subsidiaries:
During the quarter ended June 30, 1996, the Company adopted an accounting
policy to recognize in its consolidated financial statements gains and
losses resulting from the sales of previously unissued stock by its
subsidiaries which have the effect of reducing the parent's percentage
equity holding.
As described in Note 3, during the quarter ended June 30, 1996, USA sold
884,667 shares of its common stock at $1.20 per share in a private
placement for $961,600 (net of costs of $100,000) and issued 250,000 shares
of common stock at $1.20 per share valued at $300,000 in connection with
the acquisition of USA Skate. Before these transactions, the Company owned
100% of USA. After these transactions, the Company owned approximately 57%
of the outstanding common stock of USA. These transactions resulted in a
gain from the issuance of stock by the subsidiary of $479,100.
F-58
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
8. Inventories:
Inventories consist of:
Raw materials $ 642,204
Work-in-process 352,064
Finished goods 5,983,643
----------
$6,977,911
==========
9. Export Sales:
Sales by geographic regions were as follows:
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
--------------------------- ---------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Canada $ 3,124,363 $ 511,826 $1,881,500 $ 144,668
Japan 428,884 1,017,508 93,257 302,722
Europe and other 1,970,902 535,396 758,743 165,577
----------- ------------ ---------- ----------
Total exports 5,524,149 2,064,730 2,733,500 612,967
US Sales 8,463,452 9,627,037 3,496,578 3,170,861
----------- ------------ ---------- ----------
Total Sales $13,987,601 $11,691,767 $6,230,078 $3,783,828
=========== =========== ========== ==========
F-59
</TABLE>
<PAGE>
======================================= ==================================
TABLE OF CONTENTS
RISK FACTORS..........................5
619,111 Shares of Common Stock
DIVIDEND POLICY.......................8 and
20,000 Common Stock Purchase
MANAGEMENT'S DISCUSSION AND Warrants
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...........9
BUSINESS ............................16 CALIFORNIA PRO SPORTS, INC.
MANAGEMENT...........................24
PRINCIPAL STOCKHOLDERS...............29 ---------------
CERTAIN TRANSACTIONS.................30 PROSPECTUS
SELLING STOCKHOLDERS.................31 ---------------
DESCRIPTION OF SECURITIES............32
PLAN OF DISTRIBUTION.................34
USE OF PROCEEDS......................35
LEGAL MATTERS........................35
EXPERTS ............................35 ----------, 1996
======================================== ===================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of the Directors and Officers
- -------- ---------------------------------------------
(a) Section 145 of the Delaware General Corporation Law and Article Ninth
of the Registrant's Certificate of Incorporation, under certain circumstances
provide for the indemnification of the Registrant's officers, directors,
employees and agents against liabilities which they may incur in such
capacities. A summarization of the circumstances in which such indemnification
is provided for is contained herein, but that description is qualified in its
entirety by reference to Article Ninth of the Registrant's Certificate of
Incorporation and the relevant Section of the Delaware General Corporation Law.
In general, the statute provides that any director, officer, employee or
agent of a corporation may be indemnified against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement, actually and reasonably
incurred in a proceeding (including any civil, criminal, administrative or
investigative proceeding) to which the individual was a party by reason of such
status. Such indemnity may be provided if the indemnified person's actions
resulting in the liabilities: (i) were taken in good faith; (ii) were reasonably
believed to have been in or not opposed to the Registrant's best interest; and
(iii) with respect to any criminal action, such person had no reasonable cause
to believe the actions were unlawful. Unless ordered by a court, indemnification
generally may be awarded only after a determination of independent members of
the Board of Directors or a committee thereof, by independent legal counsel or
by vote of the stockholders that the applicable standard of conduct was met by
the individual to be indemnified.
The statutory provisions further provide that to the extent a director,
officer, employee or agent is wholly successful on the merits or otherwise in
defense of any proceeding to which he was a party, he is entitled to receive
indemnification against expenses, including attorneys' fees, actually and
reasonably incurred in connection with the proceeding.
Indemnification in connection with a proceeding by or in the right of the
Corporation in which the director, officer, employee or agent is successful is
permitted only with respect to expenses, including attorneys' fees actually and
reasonably incurred in connection with the defense. In such actions, the person
to be indemnified must have acted in good faith, in a manner believed to have
been in the Corporation's best interest and must not have been adjudged liable
to the Corporation unless and only to the extent that the Court of Chancery or
the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expense which the Court of Chancery or such other court shall
deem proper. Indemnification is otherwise prohibited in connection with a
proceeding brought on behalf of the Registrant in which a director is adjudged
liable to the Registrant, or in connection with any proceeding charging improper
personal benefit to the director in which the director is adjudged liable for
receipt of an improper personal benefit.
Delaware law authorizes the Registrant to reimburse or pay reasonable
expenses incurred by a director, officer, employee or agent in connection with a
proceeding in advance of a final disposition of the matter. Such advances of
expenses are permitted if the person furnishes to the Registrant a written
agreement to repay such advances if it is determined that he is not entitled to
be indemnified by the Corporation.
The statutory section cited above further specifies that any provisions for
indemnification of or advances for expenses does not exclude other rights under
the Registrant's Certificate of Incorporation, Bylaws, resolutions of its
stockholders or disinterested directors, or otherwise. These indemnification
provisions continue for a person who has ceased to be a director, officer,
employee or agent of the corporation and inure to the benefit of the heirs,
executors and administrators of such persons.
II-1
<PAGE>
The statutory provision cited above also grants the power to the Registrant
to purchase and maintain insurance policies which protect any director, officer,
employee or agent against any liability asserted against or incurred by him in
such capacity arising out of his status as such. Such policies may provide for
indemnification whether or not the corporation would otherwise have the power to
provide for it. No such policies providing protection against liabilities
imposed under the securities laws have been obtained by the Registrant.
Article VIII of the Registrant's Bylaws provides that the Registrant shall
indemnify its directors, officers, employees and agents to the fullest extent
permitted by the Delaware General Corporation Law. In addition, the Registrant
has entered into agreements with its directors indemnifying them to the fullest
extent permitted by the Delaware General Corporation Law.
The Selling Holders Agreements between the Registrant and each of the
Selling Holders provides that the respective Selling Holders will indemnify and
hold harmless the Registrant, the directors of the Registrant, and each person,
if any, who controls the Registrant within the meaning of Section 15 of the
Securities Act of 1933, as amended (the "Securities Act") against any and all
losses, claims, expenses and liabilities to which it may become subject, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in this Registration Statement or Prospectus or in any
Blue Sky Application, or amendments thereto, or the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, resulting from the use of written
information furnished to the Registrant by said Selling Holders for use in the
preparation of this Registration Statement or the Prospectus, or in any
amendment or amendments to this Registration Statement or Prospectus or in any
Blue Sky application.
The Underwriting Agreement between the Registrant and the underwriters of
Registrant's initial public offering (File No. 33-85108) provides that the
underwriters will indemnify and hold harmless the Registrant, the directors of
the Registrant, and each person, if any, who controls the Registrant within the
meaning of Section 15 of the Securities Act, against any and all losses, claims,
demands, liabilities and expenses (including reasonable legal or other expenses)
to which it may become subject, arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in said
Registration Statement or in any Blue Sky Application or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, resulting from the use
of written information furnished to the Registrant by the underwriters or any
participating dealer for use in the preparation of said Registration Statement
or in any Blue Sky Application.
Item 25. Other Expenses of Issuance and Distribution
- -------- -------------------------------------------
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection with
the issuance and distribution of the securities being offered. All expenses are
estimated except the registration fee.
Registration and filing fee ............. $ 487
Accounting fees and expenses ............ 5,000
Legal fees and expenses ................. 10,000
Blue sky fees and filing fees ........... 2,500
Miscellaneous ........................... 513
-------
Total ................................... $18,500
=======
Item 26. Recent Sales of Unregistered Securities
- -------- ---------------------------------------
Since its inception, the Registrant has sold the securities as described
below, in offerings which were not registered under the Securities Act. No
advertising or general solicitation was employed in any of the described
offerings. The securities were offered for investment only and not for the
purpose of resale or distribution. The transfer of the Common Stock
certificates, Common Stock purchase options and promissory notes have been
II-2
<PAGE>
appropriately restricted by the Company. Except as specifically stated below, no
underwriter was used, or commissions paid, in connection with any of the
described offerings.
Between January 4, 1993 and February 3, 1993 the Company sold 1,200,000
shares of Common Stock to two of its directors and officers at $.05 per share,
or a total of $60,000. The Company relied on the exemptions contained in
Sections 4(2) and/or 4(6) of the Securities Act in its issuance of these shares.
Between January 15, 1993 and March 12, 1993, the Company sold $900,000
principal amount of promissory notes, due March 31, 1994, to five accredited
investors, including one director/officer of the Company. These notes bore
interest at ten percent per annum and fifty percent of the principal amount was
convertible, at the option of the holder, into shares of Common Stock at 75% of
the public offering price per share of Common Stock if the Company effected an
initial public offering. No portion of these notes was converted. The Company
relied on the exemptions contained in Sections 3(b), 4(2) and/or 4(6) of the
Securities Act, and Rules 504, 505 and/or 506 of Regulation D promulgated under
the Securities Act in its issuance of these securities.
Between February 4, 1993 and August 4, 1993, the Company sold 359,500
shares of Common Stock to ten persons, including nine accredited investors and
one non-accredited but sophisticated investor, at $.10 per share, or a total of
$35,950. The Company relied on the exemptions contained in Sections 3(b), 4(2)
and/or 4(6) of the Securities Act, and Rules 504, 505 and/or 506 of Regulation D
promulgated under the Securities Act.
On April 1, 1993, the Company issued 510,000 shares of Common Stock to
SCYL, Inc. in connection with its acquisition of its in-line skate business. The
Company relied on the exemptions contained in Sections 4(2) and/or 4(6) of the
Securities Act in its issuance of these shares.
On August 4, 1993, the Company issued 12,000 shares of Common Stock to one
person who is a director and officer of the Company for $.50 per share or a
total of $6,000. The Company relied on the exemption contained in Section 4(6)
of the Securities Act in its issuance of these shares.
In February 1994, the Company issued warrants to purchase 74,623 shares of
Common Stock to one accredited investor for no consideration. These warrants are
exercisable at $.75 per share through January 25, 1995 and were exercised for
the purchase of Common Stock prior to their expiration. The exercise price of
these warrants was determined by the Board of Directors to be the fair market
value of the underlying shares of Common Stock on the date the warrants were
issued. The Company relied on the exemptions contained in Sections 3(b), 4(2)
and/or 4(6) of the Securities Act, and Rules 504, 505 and/or 506 of Regulation D
promulgated under the Securities Act. All of these warrants have been exercised.
In April 1994, the Company issued warrants to purchase an aggregate of
200,000 shares of Common Stock to two persons who are directors and officers of
the Company for no consideration. These warrants are exercisable for $4.50 per
share of Common Stock through April 14, 1997. The Company relied on the
exemptions contained in Sections 4(2) and/or 4(6) of the Securities Act in its
issuance of these shares. In April 1996, the Company reduced the exercise price
to $2.38 per share, representing 100% of the market value on the repricing date.
Between August 24, 1993 and June 1, 1994, the Company sold 97,754 shares of
Common Stock to nine accredited investors at $.75 per share or a total of
$73,315.50. The Company relied on the exemptions contained in Sections 3(b),
4(2) and/or 4(6) of the Securities Act, and Rules 504, 505 and/or 506 of
Regulation D promulgated under the Securities Act.
Between August 9, 1994 and September 8, 1994, the Company sold $412,500
principal amount of 8% Convertible Promissory Notes (the "Convertible Notes")
due August 1, 1995, to nine accredited investors. These notes bore interest at
eight percent per annum and on July 25, 1995, were converted automatically into
restricted shares of Common Stock at $2.25 per share. The shares issued upon
conversion were registered for public resale in an alternative selling holder
prospectus contained in the Company's Registration Statement on Form SB-2,
Registration No. 33-85108. In addition, on August 26, 1994, the Company sold an
8% Promissory Note (the "Note") in the principal amount of $200,000 and an
II-3
<PAGE>
option to purchase 80,000 shares of Common Stock exercisable at $2.50 per share
through August 1, 1995, to one Canadian investor for $200,000. Subsequently,
this option was exercised to purchase the underlying shares of Common Stock in
reliance on Regulation S. The Convertible Notes and the Note are referred to
collectively as the 1994 Notes. In connection with these note offerings, for
each $2.50 principal amount of 1994 Notes purchased, the investor received a
right to purchase two Warrants in connection with the Company's initial public
offering. Holders of these rights exercised them to purchase 490,000 warrants
with characteristics identical to the Warrants sold by the Company in its
initial public offering under a Registration Statement on Form SB-2,
Registration No. 33-85108. These 490,000 Warrants were registered for public
resale in an alternative selling holder prospectus included in Registration
Statement No. 33-85108. In connection with sale of the 1994 Notes, the Company
paid Tamaron Investments, Inc., as exclusive placement agent, a commission of
ten percent, a non-accountable expense allowance of two percent and issued
warrants to purchase up to 21,000 shares of Common Stock at $2.50 per share,
exercisable for four years commencing September 8, 1995. The Company relied on
the exemptions contained in Sections 3(b), 4(2) and/or 4(6) of the Securities
Act, Rules 504, 505 and/or 506 of Regulation D and Regulation S under the
Securities Act in the issuance of the securities in connection with these
offerings. This registration statement registers for resale 20,000 Warrants.
On August 31, 1994, the Company sold 45,600 shares of Common Stock to three
investors, including one accredited investor and two non-accredited but
sophisticated investors, all unrelated to the Company for $1.08 per share or
aggregate consideration of $49,248, consisting of $27,000 and consulting
services valued at $22,248. The Company relied on the exemptions contained in
Sections 3(b), 4(2) and/or 4(6) of the Securities Act, and Rules 504, 505 and/or
506 of Regulation D promulgated under the Securities Act.
On September 12, 1994, the Company granted incentive stock options to 15 of
its employees under its 1994 Stock Option Plan to purchase up to 57,000 shares
of Common Stock. These options are exercisable through September 11, 1999 at
$2.50 per share of Common Stock purchased. The Company relied on the exemptions
contained in Rule 701 of the Rules and Regulations promulgated under the
Securities Act. Options have been exercised to cause the issuance of 20,500
shares of common stock.
On May 1, 1995, the Company granted an incentive stock option under its
1994 Stock Option Plan to one employee to purchase up to 5,000 shares of Common
Stock, exercisable through April 30, 2000 at $4.41 per share. The Company relied
on the exemptions contained in Sections 3(b), 4(2) and/or 4(6) of the Securities
Act. This option expired on its own terms due to a change in the employment
status of the holder.
On July 25, 1995, the Company agreed to issue warrants to a financial
consultant to purchase up to 300,000 shares of Common Stock as partial
consideration for consulting services provided by the consultant. These warrants
are exercisable through July 24, 1996 with 200,000 exercisable at $3.25 per
share and 100,000 exercisable at $4.00 per share. The Company relied on the
exemptions contained in Sections 3(b), 4(2) and/or 4(6) of the Securities Act.
In April 1996, certain terms of these warrants were amended including a price
adjustment so that 150,000 shares are priced at $2.38 per share, 50,000 are
priced at $3.25 per share and the remaining 100,000 at $4.00 per share; and the
expiration date was extended to October 14, 1997. This registration statement
registers for resale 150,000 of the 122,500 shares underlying these warrants.
On August 2, 1995, the Company issued warrants to two of its executive
officers to purchase an aggregate of 300,000 shares of Common Stock, exercisable
through August 1, 1998 for $3.56 per share. The Company relied on the exemption
contained in Section 4(6) of the Securities Act. In April 1996, the Company
reduced the exercise price of these warrants to $2.38 per share, representing
the market value on the repricing date.
On September 12, 1995, the Company issued options to a public relations
consultant to purchase up to 58,331 shares of Common Stock, exercisable through
November 15, 1996 at $4.8125 per share. The Company relied on the exemptions
contained in Sections 3(b), 4(2) and/or 4(6) of the Securities Act.
II-4
<PAGE>
On April 25, 1996 the Company issued 36,000 shares of common stock to
Friedlob Sanderson Raskin Paulson & Tourtillott, LLC for legal services rendered
valued at $108,000. The Company relied on the exemptions contained in Section
3(b), 4(2) and/or 4(6) of the Securities Act.
Item 27. Exhibits
- -------- --------
The following is a complete list of exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
<TABLE>
<CAPTION>
<S> <C>
3.1 Certificate of Incorporation of the Registrant. (Incorporated by reference to Exhibit 3.1 to the
Registrant's Registration Statement on Form SB-2, Registration No. 33-85108 as filed with the
Securities and Exchange Commission "SEC" on October 13, 1994 (the "1994 Registration
Statement").)
3.2 Bylaws as currently in effect. (Incorporated by reference to Exhibit 3.2 to the 1994 Registration
Statement.)
4.1 Specimen of Common Stock certificate. (Incorporated by reference to Exhibit 4.1 to Amendment
No. 4 to the 1994 Registration Statement, filed with the SEC on December 22, 1994 (" 1994
Amendment #4).)
5.1 Opinion of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC. FILED HEREWITH.
10.1 Manufacturing Agreement, dated April 1, 1993, between the
Registrant and Playmaker. (Incorporated by reference to
Exhibit 10.2 to the 1994 Registration Statement.)
10.2 Exclusive License Agreement, dated April 1, 1993, between
the Registrant and Playmaker. (Incorporated by reference to
Exhibit 10.4 to the 1994 Registration Statement.)
10.3(a) Indemnity letter agreement, dated April 1, 1993, between the
Registrant and Playmaker. (Incorporated by reference to
Exhibit 10.8(a) to the 1994 Registration Statement.)
10.3(b) Patent License Agreement, dated April 1, 1993 and Assignment
thereof. (Incorporated by reference to Exhibit 10.8(b) to
the 1994 Registration Statement.)
10.4 Loan and Security Agreement, dated April 1, 1993, with LaSalle National Bank, N.A. ("Loan
Agreement"). (Incorporated by reference to Exhibit 10.10 to the 1994 Registration Statement.)
10.5(a) Amendment, dated June 15, 1994, to Loan Agreement. (Incorporated by reference to Exhibit
10.10(a) to Amendment No. 1 to the 1994 Registration Statement, filed with the SEC on October
28, 1994 ("1994 Amendment #1).)
10.5(b) Consent and Amendment, dated August 3, 1994, to Loan Agreement. (Incorporated by
reference to Exhibit 10.10(b) to 1994 Amendment #1.)
10.5(c) Amendment, dated August 30, 1995, to Loan Agreement. PREVIOUSLY FILED as Exhibit
10.10(c).
10.6 Demand Note, dated April 1, 1993. (Incorporated by reference to Exhibit 10.11 to the 1994
Registration Statement.)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
10.7 Continuing Unconditional Guaranties, dated April 1, 1993, of Henry Fong and Michael S.
Casazza. (Incorporated by reference to Exhibit 10.12 to the 1994 Registration Statement.)
10.8 Letter Agreement, dated April 1, 1993, from the Registrant
to LaSalle. (Incorporated by reference to Exhibit 10.13 to
the 1994 Registration Statement.)
10.9 1994 Stock Option Plan. (Incorporated by reference to Exhibit 10.14 to the 1994 Registration
Statement.)
10.10 License Agreement, dated July 28, 1994, between Front 500
Corporation and CP. (Incorporated by reference to Exhibit
10.16 to the 1994 Registration Statement.)
10.11 Exclusive Distributorship Agreement, dated March 1994, with Maneuverline Co. Ltd.
(Incorporated by reference to Exhibit 10.20 to the 1994 Registration Statement.)
10.12 Exclusive Distributorship Agreement, dated March 1, 1991, with Airtool Ltd. (Incorporated
by reference to Exhibit 10.21 to the 1994 Registration Statement.)
10.13 Exclusive Distributorship Agreement, dated June 15, 1994, with Wolf Strobel Sportswear
GMBH. (Incorporated by reference to Exhibit 10.22 to the 1994 Registration Statement.)
10.14 License Agreement, dated May 10, 1995, granted by California Pro, Inc. to Big5 Co., Ltd.
PREVIOUSLY FILED as Exhibit 10.23.
10.15 Form of Warrant related to the Registrant's issuance of
warrants to purchase up to 200,000 shares of Common Stock.
(Incorporated by reference to Exhibit 10.29(a) to the 1994
Registration Statement.)
10.16 Form of Warrant related to the issuance of warrants to
purchase up to 21,000 shares of Common Stock. (Incorporated
by reference to Exhibit 10.29(c) to 1994 Amendment #1.)
10.17 Form of Indemnity Agreements for the Registrant's directors and officers. (Incorporated by
reference to Exhibit 10.31 to the 1994 Registration Statement.)
10.18 Lease Agreement, dated February 16, 1993, for office space, as amended by letter agreement
dated February 16, 1994. (Incorporated by reference to Exhibit 10.32 to the 1994 Registration
Statement.)
10.19 Patent License Agreement, with Out of Line Sports, Inc. dated as of September 30, 1994.
(Incorporated by reference to Exhibit 10.33 to the 1994 Registration Statement.)
10.20 Trademark License Agreement, dated as of September 30, 1994. (Incorporated by reference
to Exhibit 10.34 to the 1994 Registration Statement.)
10.21 Agreement, dated October 31, 1994, between California Pro Sports, Inc. and Playmaker related
to royalty payments. (Incorporated by reference to Exhibit 10.35 to Amendment No. 2 to the
Registration Statement, filed with the SEC on November 16, 1994 ("1994 Amendment #2").)
10.22 Employment Agreement effective as of January 1, 1995 between the Registrant and Michael S.
Casazza. PREVIOUSLY FILED as Exhibit 10.35.
II-6
<PAGE>
Exhibit
Number Description
------ -----------
10.23 Employment Agreement effective as of January 1, 1995 between the Registrant and Barry S.
Hollander. PREVIOUSLY FILED as Exhibit 10.36.
10.24 Form of Warrant related to the Registrant's issuance of warrants to purchase up to 300,000
shares of Common Stock. PREVIOUSLY FILED as Exhibit 10.37.
10.25 Letter Agreement dated August 24, 1995 among the Registrant
and Warren Amendola, Patricia Amendola, Three R Sales, Inc.,
Three R Profit Sharing Retirement Plan and USA Skate
Company, Inc. PREVIOUSLY FILED as Exhibit 10.38.
10.26 Form of Warrant related to the Registrant's issuance of warrants to purchase up to 150,000
shares of Common Stock with Registration Rights Agreement. PREVIOUSLY FILED as Exhibit
10.39.
10.27 Stock Purchase Agreement effective as of April 30, 1996 by and among Warren Amendola, Sr.,
Patricia Amendola, Three R Profit Sharing Retirement Plan, Warren Amendola, Jr., Richard
Amendola and Russell Amendola, as sellers, and USA, as purchaser, and the Registrant,
including the following exhibit agreements thereto. (Incorporated by reference to Exhibit 10.1
to the Registrant's Form 8-K, filed May 30, 1996, reporting an event on May 15, 1996,
Commission File No. 0-25114 (the "Form 8-K").)
10.28(a) Exhibit A - USA's Promissory Note to sellers in the principal amount of $1,050,000, with
related Guaranty. (Incorporated by reference to Exhibit 10.1(a) to the Form 8-K).
10.28(b) Exhibit B - License Agreement from Warren Amendola, Sr. to USA Skate, with related
Guaranty. (Incorporated by reference to Exhibit 10.1(b) to the Form 8-K).
10.28(c) Exhibit C - Consulting and Non-Competition Agreement among Warren Amendola, Sr., USA
and the Registrant, with related Guaranty. (Incorporated by reference to Exhibit 10.1(c) to the
Form 8-K).
10.28(d) Exhibit D - Escrow Agreement by and among Warren Amendola, Sr., USA, the Registrant and
Blau, Kramer, Wactlar & Lieberman, P.C. (Incorporated by reference to Exhibit 10.1(d) to the
Form 8-K).
10.28(e)(1) Exhibit E1 - Employment Agreement between USA Skate and Warren Amendola, Sr.
(Incorporated by reference to Exhibit 10.1(e)(1) to the Form 8-K).
10.28(e)(2) Exhibit E2 - Non-Disclosure and Non-Competition Agreement by
and among Warren Amendola, Jr., USA Skate, USA and the
Registrant. (Incorporated by reference to Exhibit 10.1(e)(2)
to the Form 8-K).
10.28(e)(3) Exhibit E3 - Non-Disclosure and Non-Competition Agreement by
and among Richard Amendola, USA Skate, USA and the
Registrant. (Incorporated by reference to Exhibit 10.1(e)(3)
to the Form 8-K).
10.28(f) Exhibit F - Registration Rights Agreement by and among the sellers and USA, with related
Guaranty. (Incorporated by reference to Exhibit 10.1(f) to the Form 8-K).
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<PAGE>
10.28(g) Exhibit G - Guaranty for the benefit of Patricia Amendola. (Incorporated by reference to
Exhibit 10.1(g) to the Form 8-K).
10.28(h) Exhibit H - Davtec's Promissory Note to Warren Amendola, Sr. in the principal amount of
$125,000, with related Guaranty. (Incorporated by reference to Exhibit 10.1(h) to the Form 8-
K).
10.29(a) Loan and Security Agreement between USA Skate and LaSalle National Bank (the "USA Skate
Loan Agreement) with the following related documents: (Incorporated by reference to Exhibit
10.2 to the Form 8-K). (This exhibit was labelled 10.29 in the previous filing.)
10.29(b) Demand Note related to the USA Skate Loan Agreement. (Incorporated by reference to Exhibit
10.2(a) to the Form 8-K). (This exhibit was labelled 10.30(a) in the previous filing.)
10.29(c) Form of Guaranty of the USA Skate Loan by the Registrant, California Pro, Inc., USA, Henry
Fong and Michael Casazza. (Incorporated by reference to Exhibit 10.2(b) to the Form 8-K).
(This exhibit was labelled 10.30(b) in the previous filing.)
10.29(d) Letter from the Registrant, USA and Three R Sales, Inc. to LaSalle National Bank.
(Incorporated by reference to Exhibit 10.2(c) to the Form 8-K). (This exhibit was labelled
10.30(c) in the previous filing.)
10.30(a) Letter Amendment, dated as of April 30, 1996, to the Loan Agreement dated April 1, 1993
between California Pro, Inc. and LaSalle National Bank, as amended (the "CP Loan").
(Incorporated by reference to Exhibit 10.3(a) to the Form 8-K).
10.30(b) Guaranty of the CP Loan by USA Skate. (Incorporated by reference to Exhibit 10.3(b) to the
Form 8-K).
10.31 Lease Agreement, dated November 1, 1996, between Philip Calabrese and USA Skate Co., Inc.
FILED HEREWITH.
11.1 Statement Re: Computation of Per Share Earnings. FILED HEREWITH.
21.1 List of Subsidiaries. PREVIOUSLY FILED as Exhibit 21.1.
23.1 Consent of Friedlob Sanderson Raskin Paulson & Tourtillott, LLC. (Included in Exhibit 5.1
hereto.)
23.2 Consent of Gelfond Hochstadt Pangburn & Co., P.C. FILED HEREWITH.
24.1 Power of Attorney. (Included on signature page of the initial filing of this registration
statement.) PREVIOUSLY FILED.
</TABLE>
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<PAGE>
Item 28. Undertakings
1. The undersigned Registrant will:
(a) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) reflect in
the prospectus any facts or events which, individually or together, represent a
fundamental change in the information in the registration statement; and
Notwithstanding the forgoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospects filed
with the Commission pursuant to Rule 424(b) of the Securities Act) if, in the
aggregate, the changes in the volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement; and (iii)
include any additional or changed material information on the plan of
distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(c) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
2. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Greer, State of South Carolina on December 16, 1996.
CALIFORNIA PRO SPORTS, INC.
By /s/ Michael S. Casazza
-----------------------------------
Michael S. Casazza, President
In accordance with the requirements of the Securities Act of 1933, this
Amendment to Registration Statement on Form SB-2 has been signed by the
following persons in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
** Chief Executive December 16, 1996
- ----------------------------- Officer and Director
Henry Fong
/s/ Michael S. Casazza President and December 16, 1996
- ----------------------------- Director
Michael S. Casazza
/s/ Barry S. Hollander Chief Financial and December 16, 1996
- ----------------------------- Accounting Officer
Barry S. Hollander
** Director December 16, 1996
- -----------------------------
Steve C.Y. Lin
** Director December 16, 1996
- -----------------------------
Brian C. Simpson
** Director December 16, 1996
- -----------------------------
Hung-Chang Yang
**By /s/ Michael S. Casazza
- -----------------------------
Michael S. Casazza,
Attorney-In-Fact
II-10
EXHIBIT 5.1
December 16, 1996
California Pro Sports, Inc.
1221-B South Batesville Road
Greer, South Carolina 29650
Re: Amendment No. 2 to Registration Statement on Form SB-2
Opinion of Counsel
Gentlemen:
As counsel for California Pro Sports, Inc., a Delaware corporation (the
"Corporation"), we have examined the Certificate of Incorporation, as amended,
the bylaws and minutes of the Corporation and such other corporate records,
documents, certificates and other instruments as in our judgment we have deemed
relevant for the purposes of this opinion. As such counsel, we have also
examined Amendment No. 2 to the Registration Statement on Form SB-2 (the
"Registration Statement"), covering the registration on behalf of certain
selling securityholders (the "Selling Securityholders") of (a) 122,500 shares of
the Corporation's common stock, $.01 par value ("Common Stock"), underlying
certain outstanding warrants for the purchase thereof; (b) 497,111 shares of
Common Stock; and (c) 20,000 publicly traded warrants, each exercisable to
purchase one share of Common Stock for $6.00 per share ("Warrants") and the
20,000 shares of Common Stock underlying the Warrants.
Based upon the foregoing, we are of the opinion that:
1. The 122,500 shares Common Stock issuable upon exercise of the 122,500
warrants when exercised in accordance with the terms of the warrants, will be
legally and validly issued, fully paid and non-assessable shares of Common Stock
and, following sale by the selling stockholders pursuant to the Registration
Statement, these shares will remain legally and validly issued, fully paid and
non-assessable.
2. The 497,111 shares of Common Stock are and, following sale by the
selling stockholders pursuant to the Registration Statement will remain, legally
and validly issued, fully paid and non-assessable.
<PAGE>
California Pro Sports, Inc.
December 16, 1996
Page 2
3. The 20,000 Warrants are and, following sale by the selling stockholders
pursuant to the Registration Statement, will remain legally and validly issued,
fully paid and non-assessable.
4. The 20,000 shares Common Stock issuable upon exercise of the 20,000
Warrants when exercised in accordance with the terms of the Warrants, will be
legally and validly issued, fully paid and non-assessable shares of Common
Stock.
This firm is listed in the Registration Statement as a selling stockholder
and a member of this firm is the Secretary of the Corporation.
We know that we are referred to under the caption "Legal Matters" included
in the Prospectus, forming a part of the Registration Statement. We hereby
consent to such use of our name in such Registration Statement and to the filing
of this Opinion as Exhibit 5.1 thereto. In giving this consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the Rules and
Regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
FRIEDLOB SANDERSON RASKIN
PAULSON & TOURTILLOTT, LLC
EXHIBIT 10.31
THIS AGREEMENT BETWEEN
PHILIP CALABRESE, 89 Birch Hill, Albertson, N.Y., 11507,
as Landlord
and
USA SKATE CO., INC., 7 Brayton Ct., Commack, N.Y., 11725,
as Tenant
WITNESSETH: The Landlord hereby leases to the Tenant the following premises;
North section of the building known as 5 Brayton Ct., Commack, N.Y. 11725,
consisting of 10,00 square ft.
for the term of five )5) years,
to commence from the 1st day of November, 1996 and to end on the 31st, day of
October, 2001. to be used and occupied only for Storage, and distribution of
sporting goods,
upon the conditions and covenants following:
1st. That the Tenant shall pay the annual rent of $58,800 from November 1, 1996
to October 31, 1998, $60,270 from November 1, 1998 to October 31, 1999, $61,775
from November 1, 1999 to October 31, 2000; $63,320 from November, 2000 to
October 31, 2001,
said rent to be paid in equal monthly payments in advance on the first day of
each and every month during the term aforesaid, as follows:
$9800, upon the signing of this Lease to cover security payment
of $4900., and rent payment of $4900. for the month of November 1996.
$4900. per month from December 1, 1996 to October 31, 1998.
$5022. per month from November 1, 1998 to October 31, 1991.
$5147 per month from November 1, 1999 to October 31, 2000.
$5275. per month from November 1, 2000 to October 31, 2001.
2nd. That the Tenant shall take good care of the premises and shall, at the
Tenant's own cost and expense make all repairs except structural (See Paragraph
30th.),
and at the end or other expiration of the term, shall deliver up the demised
premises in good order or condition, damages by the elements excepted.
3rd. That the Tenant shall promptly execute and comply with all statutes,
ordinances, rules, orders, regulations and requirement of the Federal, State and
Local Governments and of any and all their Departments and Bureaus applicable to
said premises, for the correction, prevention, and abatement of business or
other grievances, in, upon, or connected with said premises during said term;
and shall also promptly comply with and execute all rules, orders and
regulations of the New York Board of Fire Underwriters, or any other similar
body, at the Tenant's own cost and expense.
4th. That the Tenant, successors, heirs, executors or administrators shall not
assign this Agreement, or underlet or underlease the premises, or any part
thereof, or make any alterations on the premises, without the Landlord's consent
in writing; or occupy, or permit or suffer the same to be occupied for any
business or purpose deemed disreputable or extra-hazardous on account of fire,
under the penalty of damages and forfeiture, and in the event of a breach
thereof, the term herein shall immediately cease and determine at the option of
the Landlord as if it were the expiration of the original term.
<PAGE>
5th. Tenant must give Landlord prompt notice of fire, accident, damage or
dangerous or defective condition. If the Premises can not be used because of
fire or other casualty, Tenant is not required to pay rent for the time the
Premises are unusable. If part of the Premises can not be used, Tenant must pay
rent for the usable part. Landlord shall have the right to decide which part of
the Premises is usable. Landlord need only repair the damaged structural parts
of the Premises. Landlord is not required to repair or replace any equipment,
fixtures, furnishings or decorations unless originally installed by Landlord.
Landlord is not responsible for delays due to settling insurance claims,
obtaining estimates, labor and supply problems or any other cause not fully
under Landlord's control.
If the fire or other casualty is caused by an act or neglect of Tenant,
Tenant's employees or invitees, or at the time of the fire or casualty Tenant is
in default in any term of this Lease, then all repairs will be made at Tenant's
expense and Tenant must pay the full rent with no adjustment. The cost of the
repairs will be added rent.
Landlord has the right to demolish or rebuild the Building if there is
substantial damage by fire or other casualty. Landlord may cancel this Lease
within 30 days after the substantial fire or casualty by giving Tenant notice of
Landlord's intention to demolish or rebuild. The Lease will end 30 days after
Landlord's cancellation notice to Tenant. Tenant must deliver the Premises to
Landlord on or before the cancellation date in the notice and pay all rent due
to the date of the fire or casualty. If the Lease is cancelled Landlord is not
required to repair the Premises or Building. The cancellation does not release
Tenant of liability in connection with the fire or casualty. This Section is
intended to replace the terms of New York Real Property Law Section 227.
6th. The said Tenant agrees that the said Landlord and the Landlord's agents and
other representatives shall have the right to enter into and upon said premises,
or any part thereof, at all reasonable hours for the purpose of examining the
same, or making such repairs or alterations therein as may be necessary for the
safety and preservation thereof.
7th. The Tenant also agrees to permit the Landlord or the Landlord's agents to
show the premises to persons wishing to hire or purchase the same; and the
Tenant further agrees that on and after the sixth month, next preceding the
expiration of the term hereby granted, the Landlord or the Landlord's agents
shall have the right to place notices on the front of said premises, or any part
thereof, offering the premises "To Let" or "For Sale", and the Tenant hereby
agrees to permit the same to remain thereon without hinderance or molestation.
8th. That if the said premises, or any part thereof shall be deserted or become
vacant during said term, of if any default be made in the payment of the said
rent or any part thereof, or if any default be made in the performance of any of
the covenants herein contained, the Landlord or representatives may re-enter the
said premises by force, summary proceedings or otherwise, and remove all persons
therefrom, without being liable to prosecution therefor, and the Tenant hereby
expressly waives the service of any notice in writing of intentions to re-enter,
and the Tenant shall pay at the same time as the rent becomes payable under the
terms hereof a sum equivalent to the rent reserved herein, and the Landlord may
rent the premises on behalf of the Tenant, reserving the right to rent the
premises for a longer period of time than fixed in the original lease without
releasing the original Tenant from any liability, applying any moneys collected.
First to the expense or resuming or obtaining possession, second to restoring
the premises to a restable condition, and then to the payment of the rest and
all other charges due and to grow due to the Landlord, any surplus to be paid to
the Tenant, who shall remain liable for any deficiency.
<PAGE>
9th. Landlord may replace, at the expense of Tenant, any and all broken glass in
and about the demised premises. Landlord may insure, and keep insured, all plate
glass in the demised premises for and in the name of Landlord. Bills, for the
premises therefor shall be tendered by Landlord to Tenant at such times as
Landlord may elect, and shall be due from, and payable by Tenant whom tendered,
and the amount thereof shall be deemed to be, and be paid as, additional rental.
Damage and injury to the said premises, caused by carelessness, negligence or
improper conduct on the part of the said Tenant or the Tenant's agents or
employees shall be repaired as speedily as possible by the Tenant as the
Tenant's own cost and expense.
10th. That the Tenant shall neither encumber nor obstruct the sidewalk in front
of, entrance to, or halls and stairs of said premises, nor allow the same to be
obstructed or encumbered in any manner.
11th. The Tenant shall neither place, or cause or allow to be placed, any sign
or signs of any kind whatsoever at, in or about the entrance to said premises or
any other part of same, except in or at such place or places as may be indicated
by the Landlord and consented to by the Landlord in writing. And in case the
Landlord or the Landlord's representatives shall deem it necessary to remove any
such sign or signs in order to paint the said premises or the building wherein
same is situated or make any other repairs, alterations or improvements in or
upon said premises or building or any part thereof, the Landlord shall have the
right to do so, providing the same be removed and replaced at the Landlord's
expense, whenever the said repairs, alterations or improvements shall be
completed.
12th. That the Landlord is exempt from any and all liability for any damage or
injury to person or property caused by or resulting from steam, electricity,
gas, water, rain, ice or snow, or any leak or flow from or into any part of said
building or from any damage or injury resulting or arising from any other cause
or happening whatsoever unless said damage or injury be caused by or be due to
the negligence of the Landlord.
13th. That if default be made in any of the covenants herein contained, then it
shall be lawful for the said Landlord or re-enter the said premises, and the
same to have again, re-possess and enjoy. The said Tenant hereby expressly
waives the service of any notice in writing of intention to re-enter.
14th. That this instrument shall not be a lien against said premises in respect
to any mortgages that are now on or that hereafter may be placed against said
premises, and that the recording of such mortgage or mortgages shall have
preference and precedence and be superior and prior in lien of this lease,
irrespective of the date of recording and the Tenant agrees to execute without
cost, any such instrument which may be deemed necessary or desirable to further
effect the subordination of this Lease to any such mortgage or mortgages, and a
refusal to execute such instrument shall entitle the Landlord, or the Landlord's
assigns and legal representatives to the option of cancelling this lease without
incurring any expense or damage and the term hereby granted is expressly limited
accordingly.
15th. The Tenant has this day deposited with the Landlord the sum of
$_______________ as security for the full and faithful performance by the Tenant
of all the terms, covenants and conditions of this Lease upon the Tenant's part
to be performed, which said sum shall be returned to the Tenant after the time
fixed as the expiration of the term herein, provided the Tenant has fully and
faithfully carried out all of said terms, covenants, and conditions on Tenant's
part to be performed. In the event of a bona fide sale, subject to this lease,
the Landlord shall have the right to transfer the security to the vendor for the
benefit of the Tenant and the Landlord shall be considered released by the
Tenant from all liability for the return of such security; and the Tenant agrees
to look to the new Landlord solely for the return of the said security, and it
is agreed that this shall apply in every transfer or assignment made of the
security to a new Landlord.
16th. That the security deposited under this lease shall not be mortgaged,
assigned or encumbered by the Tenant without the written consent of the
Landlord.
<PAGE>
17th. It is expressly understood and agreed that in case the demised premises
shall be deserted or vacated, or if default be made in the payment of the rent
or any part thereof as herein specified, or if, without the consent of the
Landlord, the Tenant shall sell, assign, or mortgage this lease or if default be
made in the performance of any of the covenants and agreements in this lease
contained on the part of the Tenant to be kept and performed, or if the Tenant
shall fail to comply with any of the statutes, ordinances, rules, orders,
regulations and requirements of the Federal, State and Local Governments or of
any and all their Departments and Bureaus, applicable to said premises, or if
the Tenant shall file or there be filed against Tenant a petition in bankruptcy
or arrangement, or Tenant be adjudicated a bankrupt or make an assignment for
the benefit of creditors or take advantage of any insolvency act, the Landlord
may, if the Landlord so elects, at any time thereafter terminate this lease and
the term hereof, on giving to the Tenant five days' notice in writing of the
Landlord's intention so to do, and this lease and the term hereof shall expire
and come to an end on the date fixed in such notice as if the said date were the
date originally fixed in this lease for the expiration hereof. Such notice may
be given by mail to the Tenant addressed to the demised premises.
18th. Tenant shall pay to Landlord the rent or charge, which may, during the
demised term, be assessed or imposed for the water used or consumed in or on the
said premises, whether determined by meter or otherwise, as soon as and when the
same may be assessed or imposed, and will also pay the expenses for the setting
of a water meter in the said premises should the latter be required. Tenant
shall pay Tenant's proportionate part of the sewer rent or charge imposed upon
the building. Al such rents or charges or expenses shall be paid as additional
rent and shall be added to the next month's rent thereafter to become due.
19th. That the Tenant will not nor will the Tenant permit undertenants or other
persons to do anything in said premises, or bring anything into said premises,
or permit anything to be brought into said premises to be kept therein, which
will in any way increase the rate of fire insurance on said demised premises,
nor use the demised premises or any part thereof, nor suffer or permit their use
for any business or purpose which would cause and increase in the rate of fire
insurance on said building, and the Tenant agrees to pay on demand any such
increase.
20th. The failure of the Landlord to insist upon a strict performance of any of
the terms, conditions and covenants herein, shall not be deemed a waiver of any
rights or remedies that the Landlord may have, and shall not be deemed a waiver
of any subsequent breach or default in the terms, conditions and covenants
herein contained. This instrument may not be changed, modified, discharged or
terminated orally.
21st. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such preceding and Tenant shall have no claim against
Landlord for the value of any unexpired term of said lease. No part of any award
shall belong to the tenant.
22nd. If after default in payment of rent or violation of any other provision of
this lease, or upon the expiration of this lease, the Tenant moves out or is
dispossessed and fails to remove any trade fixtures or other property prior to
such said default, removal, expiration of lease, or prior to the issuance of the
final order or execution of the warrant, then and in that event, the said
fixtures and property shall be deemed abandoned by the said Tenant and shall
become the property of the Landlord.
<PAGE>
23rd. In the event that the relation of the Landlord and Tenant may cease or
terminate by reason of the re-entry of the Landlord under the terms and
covenants contained in this lease or by the ejectment of the Tenant by summary
proceedings or otherwise, or after the abandonment of the premises by the
Tenant, it is hereby agreed that the Tenant shall remain liable and shall pay in
monthly payments the rent which accrues subsequent to the re-entry by the
Landlord, and the Tenant expressly agrees to pay as damages for the breach of
the covenants herein contained, the difference between the rent reserved and the
rent collected and received, if any, by the Landlord during the remainder of the
unexpired term, such difference or deficiency between the rent herein reserved
and the rent collected if any, shall become due and payable in monthly payments
during the remainder of the unexpired term, as the amounts of such difference or
deficiency shall from time to time be ascertained; and it is mutually agreed
between Landlord and Tenant that the respective parties hereto shall and hereby
do waive trial by jury in any action, proceeding or counterclaim brought by
either of the parties against the other on any matters whatsoever arising out of
or in any way connected with this lease, the Tenant's use or occupancy of said
premises, and/or any claim of injury or damage.
24th. The Tenant waives all rights to redeem under any law of the State of New
York.
25th. This lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in nowise be affected, impaired or excused because Landlord is
unable to supply or is delayed in supplying any service expressly or impliedly
to be supplied or is unable to make, or is delayed in making any repairs,
additions, alterations or decorations or is unable to supply or is delayed in
supplying any equipment or fixtures if Landlord is prevented or delayed from so
doing by reason of governmental preemption in connection with a National
Emergency or in connection with any rule, order or regulation of any department
or subdivision thereof of any governmental agency or by reason of the condition
of supply and demand which have been or are affected by war or other emergency.
26th. No diminution or abatement of rent, or other compensation, shall be
claimed or allowed for inconvenience or discomfort arising from the making of
repairs or improvements to the building or to is appliances, nor for any space
taken to comply with any law, ordinance or order of a governmental authority, in
respect to the various "services," if any, herein expressly or impliedly agreed
to be furnished by the Landlord to the Tenant, it is agreed that there shall be
no diminution or abatement of the rent, or any other compensation, for
interruption or curtailment of such "service" when such interruption or
curtailment shall be due to accident, alterations or repairs desirable or
necessary to be made or to inability or difficulty in securing supplies or labor
for the maintenance of such "service" or in some other cause, not gross
negligence on the part of the Landlord. No such interruption or curtailment of
any such "service" shall be deemed a constructive eviction. The Landlord shall
not be required to furnish, and the Tenant shall not be entitled to receive, any
of such "services" during any period wherein the Tenant shall be in default in
respect to the payment of rent. Neither shall there be any abatement or
diminution of rent because of making of repairs, improvements or decorations to
the demised premises after the date above fixed for the commencement of the
term, it being understood that rent shall, in any event, commence to run at such
date so above fixed.
27th. Landlord shall not be liable for failure to give possession f the premises
upon commencement date by reason of the fact that premises are not ready for
occupancy or because a prior Tenant or any other person is wrongfully holding
over or is in wrongful possession, or for any other reason. The rent shall not
commence until possession is given or is available, but the term herein shall
not be extended.
A Rider, consisting of four (4) pages forms a part of this Lease, and is to
be attached hereto.
Tenant may terminate lease after three (3) years but would be responsible
for twenty-five percent (25%) of each of the remaining two (2) years' rent.
<PAGE>
And the said Landlord doth covenant that the said Tenant on paying the said
yearly rent, and performing the covenants aforesaid, shall and may peacefully
and quietly have, hold and enjoy the said demised premises for the term
aforesaid, provided however, that this covenant shall be conditioned upon the
retention of title to the premises by the Landlord.
And it is mutually understood and agreed that the covenants and agreements
contained in the within lease shall be binding upon the parties hereto and upon
their respective successors, heirs, executors and administrators.
In Witness Whereof, the parties have interchangeably set their hands and
seals (or caused these presents to be signed by their proper corporate officers
and caused their proper corporate seal to be hereto affixed) this ____ day of
_____________ 19__
Signed, sealed and delivered
in the presence of
/s/ Philip Calabrese
------------------------------------
PHILIP CALABRESE - LANDLORD
/s/ John Hodgins
------------------------------------
USA SKATE CO., INC.
JOHN HODGINS - PRES. - TENANT
<PAGE>
Page 1.
RIDER TO LEASE BETWEEN PHILIP CALABRESE,
AS LANDLORD, AND USA SKATE, INC.
AS TENANT DATED:
-----------------------
28th. The parties agree that the Landlord shall not be required to furnish,
or pay for, any type of services, or utilities, including, but not
limited to, heat, power, light, electricity, water, gas, refuse
removal, snow clearing, and removal. Landlord shall be held harmless
from any liability or responsibility for any damage to persons, or
property regarding these services.
29th. The Tenant shall make no changes, alterations, additions, or
improvements, to the building, interior, or exterior, without the
written consent of the Landlord, and when such permission is granted,
it is understood that all work will be in accordance with all
governmental codes, rules, and regulations. Tenant shall obtain all
necessary permits, inspections, approvals, temporary and final
certificates. It is further understood that, unless stated in writing,
Tenant shall return the premises to its original condition, at his own
cost and expense, at least 90 days prior to expiration of this Lease,
or renewal, or holdover occupancy. In the event of any non-compliance
of this paragraph, any securities held by the Landlord may be expended
by him to effect compliance, however, Tenants liability shall not be
limited to the amount of such security.
30th. Structural repairs shall be the obligation of the Landlord, unless the
need for such repairs are caused by the Tenant's use or occupancy of
the premises. All other repairs, and maintenance, including
replacement of any fixture, appliance, or system, shall be the
obligation of the Tenant. "Structural," as intended herein, applies
solely to the walls, and roof of the building.
31st. Tenant shall provide a listing of all flammable, toxic, hazardous,
odorous materials, when use separately, or in combination, and any
air, or water quality diminution considerations, and all chemicals
stored, used, or handled. Landlord assumes no responsibility
whatsoever, in regard to an acceptance, or approval of the use of any,
or all, items listed.
32nd. Tenant shall be wholly responsible for all litigation costs, and
expenses, and payment due for any award, judgement, or settlement, in
regard to claims for air, water, soil, waste and sewerage disposal,
and any other environmental contamination or damage
<PAGE>
Page 2.
RIDER TO LEASE BETWEEN PHILIP CALABRESE,
AS LANDLORD, AND USA SKATE, INC.
AS TENANT DATED:
--------------------------
33rd. Tenant agrees not to block, impede, or encumber in any way, at any
time, all driveways, street aprons, walks, doorways, etc., as these
areas must remain accessable and passable for other Tenant's vehicles,
deliveries, personnel, parking, emergency vehicles and all other
traffic, including maintenance equipment and vehicles.
34th. The demised premises herein, shall be wholly under the control, and
management of the Tenant. and the Landlord shall be under no
responsibility regarding maintenance upkeep, and safety
considerations, in this regard.
35th. Landlord shall be under no obligation, or responsibility whatsoever,
for any theft, or damage of the Tenant's possessions, or other goods
or articles in the building or premises, interior or exterior, and the
Landlord assumes no custodial responsibilities whatsoever. This
paragraph shall also apply to Tenant's fixtures, equipment, valuables,
"Contents" owned, or in the custody of the Tenant.
36th. Any, and all damage to any part of the Leasehold, interior, or
exterior, including fixtures, appliances, equipment, or any other
possession of the Landlord, which forms a part of this Leasehold,
occasioned, by accident, theft, burglary, vandalism, carelessness or
negligence by the Tenant or Tenant's agents, or others, shall be
repaired, or replaced, if necessary, at the sole expense of the
Tenant.
37th. Tenant shall pay any, and all increases in the Real Estate taxes that
are are in effect on the date of commencement of this lease. Tenant
shall make payment to the Landlord within 30 days of receipt of copy
of the appropriate tax bill, and any monies due in this regard shall
be considered as rent, subject to all the terms, and conditions of
this Lease.
38th. Tenant shall have the right to place sings on the demised premises
providing all necessary permits are obtained, all regulatory
ordinances, rules, and regulations are complied with, and no
obstruction, or interference regarding the the conduct of business of
other Tenants in the building. Landlord shall have the final decision
in any dispute concerning placement of signs.
39th. Tenant has the right to sub-lease all or part of the premises,
providing written permission is granted by the Landlord, and when such
permission is granted, the Tenant's obligations to all terms of this
Lease shall remain in effect, and binding. Landlord agrees not to
unreasonably withhold consent, however, the demand that operations of
a sub-tenant be similar that of the Lesse shall not be deemed
unreasonable.
<PAGE>
Page 3.
RIDER TO LEASE BETWEEN PHILIP CALABRESE,
AS LANDLORD, AND USA SKATE, INC.
AS TENANT DATED:
------------------------
40th. In the event of any default by the Tenant on any term or condition of
this Lease, the Tenant shall be liable for any, and all legal fees,
and expenses, incurred by the Landlord, including court costs, to
correct such default, or recover monies due Landlord, or recover
premises. Further if any such default is not cured within 10 days to
the satisfaction of the Landlord, the unpaid balance of any arrears,
and incurred expenses, plus the sum of all remaining rent payments for
the term of this Lease, shall become due and payable immediately.
41st. Tenant shall be responsible for the maintenance of all shrubbery,
lawns, and other landscaping. This shall include cutting, trimming,
fertilizing, watering.
42nd. Landlord shall pay the cost of basic fire insurance, and liability for
the premises, and Tenant shall pay for any excess premium imposed due
to Tenant's operations, if deemed hazardous, or dangerous.
43rd. Tenant shall be responsible for, and will pay for any, and all, costs
in regard to cleaning, and/or repairing of any damage caused by the
storage, use, spillage, handling, or otherwise, of any hazardous
waste, liquids, chemicals, or other materials. This shall include all
ordered cleanups, and/or removals, repairs, cease and desist orders,
and any other demands issued by the Environmental Protection Agency,
Dept. of Environmental Agency, Local, State, & Federal authorities,
and Health Dep't.
44th. Upon early occupancy of the premises, prior to date of Lease
commencement, or date of Lease commencement, whichever is earliest,
and during the term of this Lease, or any renewal thereof, or any
holdover occupancy by the Tenant, Tenant shall provide and maintain in
good standing, a general liability, and property damage insurance
policy, in standard form, protecting the Landlord and Tenant against
any, and all liability occasioned by accident, or disaster. This
coverage shall be effected by a reputable, and authorized Company, in
good standing, in the sums of $1,000,000./2,000,000., and $750,000.
property damage, minimum. All premiums, and charges to be paid by the
Tenant. Coverage shall include sprinkler protection. Tenant shall
supply Landlord with an insurers certificate, as evidence of coverage,
however, any failure to effect such coverage, whether willful, or
inadvertent, shall obligate Tenant to defend any, and all, claims
brought against the Landlord, and further, to pay any and all awards,
judgements, liens, settlements, etc., on behalf of Landlord.
<PAGE>
Page 4.
RIDER TO LEASE BETWEEN PHILIP CALABRESE,
AS LANDLORD, AND USA SKATE, INC.
AS TENANT DATED:
--------------------------
45th. Any, and all, improvements, changes, modifications, additions, to the
building, interior or exterior, attached or not attached, shall, at
the option of the Landlord, become the property of the Leasehold,
subject to all terms and conditions of this Lease.
46th. It is hereby specifically understood that it shall be the obligation,
and responsibility of the Tenant to ascertain, and comply with, all
appropriate governmental rules, and regulations, Local, State,
Federal, regarding Tenant's operations, materials handling, storage,
waste disposal, air and water quality procedures, and all other laws,
rules, and regulations set forth by any other appropriate Authority,
prior to, and subsequently following the execution of this Lease.
47th. Tenant hereby leases the building and premises "As is", and the
Landlord makes no representations or warranties regarding the demised
premises.
48th. Tenant shall pay any, and all increases in the Real Estate taxes
levied, over and above the taxes assessed for the year 1998. Tenant
shall make payment to the Landlord within 30 days of receipt of
appropriate tax bill, and all monies due in this regard shall be
considered as rent, subject to terms of this Lease.
49th. All office areas are to be used and maintained solely for office
purposes.
50th. Regarding Paragraph 41st., landscaping costs shall be shared equally
with Tenant on South side of building. At present time the service
contract is held by Tom Ruffino, Inc., (Copy forwarded). Should
different arrangements be desired, both Tenants should be in
agreement, and if not, the Landlord shall effect final decision.
Contract for snow removal is held by Robert Reggiani, and the same
terms, and conditions as regarding landscaping shall apply to snow
removal.
51st. Any, and all electrical work required by Tenant, shall be the
responsibility of the Tenant, including lighting and distribution.
52nd. All Greenlawn Water District fees, including sprinkler fees, shall be
shared equally by both Tenants.
53rd. Landlord is to remove all existing partitions in the warehouse section
of the building, and also raise the sprinkler system heads in the
removed areas.
<TABLE>
<CAPTION>
EXHIBIT 11.1
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
COMPUTATION OF NET INCOME (LOSS) PER SHARE
Nine Months Ended Three Months Ended Year Ended
September 30, September 30, December 31,
------------------------ -------------------- -------------------
1996 1995 1996 1995 1995 1994
------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ (567,210) $ (192,205) $(631,184) $ 63,942 $ 35,456 $ (170,518)
========== ========== ========= ========= ========= ==========
Weighted average number of
common shares outstanding 4,029,779 3,531,393 4,219,511 3,746,744 3,599,320 2,225,054
Common equivalent shares
representing shares
issuable upon exercise of
outstanding options and
warrants * * * * * *
---------- ----------- ---------- ---------- --------- ----------
4,029,779 3,531,393 4,219,511 3,746,744 3,599,320 2,225,054
========= ========= ========= ========= ========= ==========
Net income (loss) per share $ (0.14) $ (0.05) $ (0.15) $ 0.02 $ 0.01 $ (0.08)
========== ========= ========= ========= ========= ==========
* No impact to weighted average number of shares as the inclusion of
additional shares assuming the exercise of outstanding options and
warrants would have been antidilutive.
N/A = Not applicable.
Fully diluted and supplementary net income (loss) per share are not presented as
the amounts are not dilutively or incrementally different from primary net
income (loss) per share amounts.
</TABLE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated April 5, 1996, relating to the consolidated financial statements of
California Pro Sports, Inc. and subsidiary, and our report dated May 17, 1996,
relating to the combined financial statements of the Companies Being Acquired by
USA Skate Corporation (which includes a paragraph describing the purpose of the
financial statement presentation), and to the reference to our Firm under the
caption "Experts" in the Prospectus.
GELFOND HOCHSTADT PANGBURN & CO.
Denver, Colorado
December 13, 1996
