As filed with the Securities and Exchange Commission on October 10, 1996
Registration No. 33-98898
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 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 (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Classification Identificatiion No.)
incorporation or Code Number)
organization)
8102 White Horse Road
Greenville, SC 29611
(864) 294-5370
-----------------------------------------------------------
(Address and telephone number of principal executive offices)
Michael S. Casazza
8102 White Horse Road
Greenville, SC 29611
(864) 294-5370
---------------------------------------------------------
(Name, address and telephone number of agent for service)
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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 47,111 $2.28 $107,413 $37
$.01 par value Shares
Warrants to 20,000 N/A (2) N/A (2) N/A (2)
Purchase Shares Warrants
Shares Underlying 20,000 N/A (2) N/A (2) N/A (2)
Warrants to Purchase Shares
- ----------------------------------------------------------------------------------------------------------------------------
Totals $663,563 $229(3)
============================================================================================================================
(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
filing of this registration statement).
(2) 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.
(3) Paid previously.
--------------------
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.
</TABLE>
<PAGE>
Preliminary Prospectus
Subject to Completion, October 10, 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.
8102 White Horse Road
Greenville, SC 29611
174,611 Shares of Common Stock and
20,000 Common Stock Purchase Warrants
This Prospectus relates to the registration of 174,611 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 Shares 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.
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<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. ("CPI"), and its predecessor, and its majority
owned subsidiary, USA Skate Corporation ("Skate Corp."), are referred to
collectively as the "Company" unless the context requires otherwise.
The Company
The Company markets California Pro(TM) 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
Skate Corp., 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 Skate Corp. 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 Skate Corp. 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(TM) 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
-3-
<PAGE>
the world's largest manufacturers of snowboards. Les Equipements Sportifs
Davtec, Inc. ("Davtec"), a Canadian company indirectly wholly owned by Skate
Corp., 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.
At July 1, 1996, the Company had purchase orders for future delivery of
products of approximately $5.8 million, compared with approximately $4 million
at June 30, 1995. Although purchase orders are subject to cancellation in the
normal course of business, the Company expects to fill most of these orders by
December 31, 1996. The increase in purchase orders in 1996 is in part due to the
Company's acquisition of its hockey related product lines through its majority
owned subsidiary, Skate Corp., 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 8102 White
Horse Road, Greenville, South Carolina 29611 and its telephone number at that
address is (864) 294-5370.
The Offering
Securities offered..................... 174,611 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 September 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 of
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.
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<PAGE>
<TABLE>
<CAPTION>
Summary Financial Data
(in thousands, except per share amounts)
Year Ended December 31, Six Months Ended June 30,
----------------------- -------------------------
1994 1995 1995(1) 1995 1996 1996(1)
---- ---- ------- ---- ---- -------
(Audited) (Unaudited) (Unaudited) (Unaudited)
(Pro Forma) (Pro Forma)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C> <C>
Net sales $16,469 $17,129 $31,429 $7,908 $7,758 $10,897
Gross profit 4,604 4,973 10,013 2,281 1,899 3,046
Net income (loss) (171) 35 (349) (256) 67 (84)
Net income (loss) per share. (.08) .01 (.09) (.07) .02 (.02)
Weighted average number
of common shares outstanding 2,225 3,599 3,999 3,422 3,933 4,198
</TABLE>
At December 31, At June 30,
--------------- -----------
1995 1996
---- ----
(Audited) (Unaudited)
Balance Sheet Data:
Working capital (deficit)................ $ 2,399 $ (1,584)
Total assets............................. 10,290 31,378
Total liabilities........................ 5,300 24,369
Shareholders' equity..................... 4,990 6,085
- ----------
(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 August 30, 1996, the Company had incurred bank
indebtedness of approximately $10.4 million which is secured by substantially
all of its operating assets and had trade payables of approximately $4 million.
In addition, at August 30, 1996 the Company had outstanding other indebtedness
of approximately $6.3 million consisting of convertible promissory notes issued
in connection with the capitalization of Skate Corp. 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."
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<PAGE>
Working Capital Deficit and Net Losses. At June 30, 1996, the Company's
current liabilities exceeded its current assets by approximately $1.6 million.
The Company had marginal net income for the year ended December 31, 1995 and the
six months ended June 30, 1996. It had net losses for the years ended December
31, 1994, 1993 and 1992 and the six months ended June 30, 1995. 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.
Reliance on Major Customers. For the six months ended June 30, 1996, three
customers accounted for 12%, 12% and 11% of the Company's sales. Two of the
customers are European distributors of the Company and it does not have a
contract with the other customer and its loss could have a material adverse
effect on the Company's business. See "Business--Purchase Orders and Customers."
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 September 30, 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/Penny Stock Regulation. 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. There currently is a public market for the
Company's securities. 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.
Securities which are not listed on a national securities exchange or quoted on
the Nasdaq system, which have a share price of less than $5.00 (provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system) may be classified as "penny
stocks." Broker-dealers trading in penny stocks must provide potential
purchasers certain risk disclosure information about penny stock in accordance
with Securities and Exchange Commission regulations. These disclosure
requirements may have the effect of reducing the level of trading activity in
the secondary market.
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.
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<PAGE>
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."
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 (7/1/96-8/31/96) $ 3.0625 $ 2.1875 $ .90625 $ .50
</TABLE>
The number of record holders of the Company's Common Stock as of September
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.
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<PAGE>
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.
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(TM) 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, Sweden, France and Finland.
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.
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<PAGE>
Results of Operations
The following table sets forth the Company's sales by major product
category for the periods indicated:
<TABLE>
<CAPTION>
Years Ended Three Months Ended Six Months Ended
December 31, June 30, June 30,
--------------------------- --------------------------- -------------------------------
1994 1995 1996 1995 1996 1995
--------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ % $ % $ % $ % $ % $ %
- - - - - - - - - - - -
(Dollars in thousands)
In-line skates
and accessories $13,064 79% $11,037 64% $2,223 38% $3,606 72% $3,660 47% $6,384 81%
Snowboards and
accessories 3,405 21% 6,092 36% 377 6% 1,363 28% 727 9% 1,524 19%
Ice and street/roller
hockey(1) -- -- -- -- 3,371 56% -- -- 3,371 44% -- --
------ --- ------ --- ------ --- ------ --- ------ --- ------ ---
$16,469 100% $17,129 100% $5,971 100% $4,969 100% $7,758 100% $7,908 100%
======= === ======= === ====== === ====== === ====== === ====== ===
</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>
Year Ended Six Months Ended
December 31, June 30,
------------------ -------------------
1994 1995 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales................................ 100.0 100.0 100.0 100.0
Cost of Goods Sold....................... 72.0 71.0 71.1 75.5
----- ----- ----- -----
Gross Profit............................. 28.0 29.0 28.9 24.5
Sales & Marketing Expenses............... 12.0 12.0 12.8 12.8
General & Administrative Expenses........ 10.6 10.5 14.5 11.3
Depreciation and Amortization............ 2.8 3.2 3.5 5.4
Consulting & Management Fees............. .7 .7 .8 1.1
Income (loss) from Operations............ 1.8 2.5 (2.7) (6.1)
Interest and Other Expense (Income)...... 2.7 1.6 2.2 (7.3)
Income Tax Expense (Benefit)............. .2 .7 (1.7) .4
Minority Interest........................ 0.0 0.0 0.0 (.1)
------ ----- ----- -----
Net Income (Loss)........................ (1.0) (.2) (3.2) .9
====== ====== ===== =====
</TABLE>
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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.
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 by
$660,144 or approximately 4%. This increase was primarily attributable to the
increase in revenues of $2,687,000 or 79% 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 for 1995 increased by 8% or $369,333 compared to
1994. Gross profit as a percent of sales increased from 28% to 29%. 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 expense during 1995
increased by $76,247. 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 $463,414 was
offset by a decrease in the Company's in-line skate sales and marketing expenses
of $387,167. The decrease was primarily attributable to lower commissions earned
by sales representatives of $241,576, as a result of lower sales and decrease in
bad debt expense of $143,118.
General and Administrative Expenses. General and administrative expenses
increased by $83,487 for the year ended December 31, 1995 compared to December
31, 1994. 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, travel and expenses incurred 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.
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 the
same for the years December 31, 1995 and 1994. 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 a slight increase in
sales, along with an increase in gross margin, offset by a slight increase in
operating expenses.
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 $35,452 compared to a loss of
$170,518 in 1994. The increase was due to the increase in gross profit
generated, lower interest expense and higher royalties, partially offset by the
increases in operating expenses as described above.
Three and Six Months Ended June 30, 1996 Compared to the Corresponding Periods
Ended June 30, 1995
Net sales. Sales for the three months ended June 30, 1996 increased by
$1,002,156 or 20.2%. This increase was attributable to the inclusion of
approximately $3,371,000 of sales by USA Skate subsequent to May 1, 1996. This
increase was reduced by lower sales of the Company's in-line skate and snowboard
products of $1,383,000 and $986,000, 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's foreign distributors taking delivery of their orders
later in 1996 than in 1995. Net sales for the six months ended June 30, 1996
decreased by $150,416 or approximately 1.9% compared to the six months ended
June 30, 1995. The decrease was caused by sales of the Company's in-line skate
product lines and snowboard product lines decreasing by approximately $2,724,000
and $797,000, respectively. This decrease was partially offset by sales of
approximately $3,371,000 related to the acquisition of USA Skate.
Gross Profit. For the three months ended June 30, 1996 gross profit
decreased by $97,329 due to the higher sales volume in the 1996 period compared
to the 1995 period. Gross profit as a percent of sales decreased from 29.2% to
25.9%, primarily due to sales of some of the Company's in-line skate production
at below normal selling prices to reduce 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. Gross profit decreased by $382,554 for the six month period
ended June 30, 1996 compared to the 1995 period, and as a percent of sales,
gross profit decreased from 28.9% to 24.5%.
Sales and marketing expenses. Sales and marketing expenses for the three
months ended June 30, 1996 increased by $144,256 compared to the three months
ended June 30, 1995. The increase was a result of the sales and marketing
expenses of $319,828 related to the revenues of the Company's hockey business
which it acquired May 1, 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 $175,572, due to the lower sales volume in the current period.
Sales and marketing expenses for the six months ended June 30,1996, decreased by
$18,692 compared to the six months ended June 30, 1995. The reduction was a
result of the sales and marketing expenses of the Company's in-line skate and
snowboard businesses decreasing by approximately $338,520 due to the reduction
in sales, and the related reduction in commission expense of $293,000, in those
product lines. This was offset by the sales and marketing expenses of $319,828
related to the Company's newly acquired hockey business.
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<PAGE>
General and administrative expenses. General and administrative expenses
for the three months ended June 30, 1996 decreased by $181,202 compared to the
same period in 1995. The decrease was attributable to a reduction of general and
administrative expenses within the Company's in-line skate and snowboard
businesses of $253,000 which was offset by $72,000 of general and administrative
expenses incurred within the Company's recently acquired hockey business. During
the six months ended June 30, 1996, general and administrative expenses
decreased by $269,169 compared to the six months ended June 30, 1995. General
and administrative expenses of the Company's in-line skate and snowboard related
products decreased by $257,083. The primary causes for this decrease is wages
and related benefits of $174,000, reduced insurance premiums (revenue based) of
$40,000 and other miscellaneous expenses of $44,000. This decrease was offset by
the general and administrative expenses of $72,000 associated with the newly
acquired (May 1, 1996) hockey business.
Depreciation and amortization. Depreciation and amortization increased by
$115,170 and $144,969 for the three and six months ended June 30, 1996,
respectively, compared to the periods ended June 30, 1995. The increases are
primarily attributable to the May 1 acquisition of USA Skate and the
corresponding increase in amortization expense associated with such purchase.
Consulting fees. Consulting fees increased for the three and six months
ended June 30, 1996 by $24,000 compared to the three and six months ended June
30, 1995 for services provided to Skate Corp. (a majority owned subsidiary of
the Company).
Income\loss from Operations. For the three months ended June 30, 1996 and
June 30, 1995 income from operations was $147,525 and $152,420 respectively. The
reason for the slight decrease was income from operations received from the
hockey business of approximately $300,000 offset by an operating loss from the
Company's in-line skate and snowboard businesses. During the six months ended
June 30, 1996, the Company had a loss from operations of $474,657 compared to
$210,995 for the six months ended June 30, 1995. The primary reason for the
increase in the loss was the lower sales and gross profit of the Company's
in-line skate business. This was partially offset by the lower associated
operating costs and income from operations from its hockey business of
approximately $300,000.
Other expenses/income. Other expenses/income improved from a net expense of
$69,435 for the three months ended June 30, 1995 to income of $629,374 for the
three months ended June 30, 1996. In 1996, the Company received marketable
securities from an affiliate as payment of a related party receivable. At June
30, 1996, the market value of such security had increased and the Company
recognized an unrealized holding gain of $416,637. Additionally, the Company
satisfied $260,000 of payables to officers/shareholders by transferring to two
officers/shareholders a total of 216,667 shares of Skate Corp. common stock held
by the Company. For purposes of satisfying the $260,000 payable, the Skate Corp.
common stock was valued at $1.20 per share which is the same per share price as
Skate Corp. 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 the
subsidiary'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
being in effect for the entire period in 1996 compared to only three months for
the same period in 1995. The Company also recognized a gain of $479,100 from the
issuance of Skate Corp. common stock as described in Note 7 of the consolidated
financial statements. These increases in other income were offset by increased
interest expense of $317,682 for the three months ended June 30, 1996 compared
to June 30, 1995. The increase in interest expense was attributable to increased
borrowings under bank credit lines for the Company's in-line skate and snowboard
businesses as well as interest expense on the lines of credit 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 of $1,175,000, and Skate Corp.'s
issuance of convertible promissory notes and officer/shareholder notes of
$2,515,000 and $1,080,000, respectively. For the six months ended June 30, 1996
other expenses/income improved by $744,782 from an expense of $177,511 to income
of $567,271. The increase was attributable to the gains recognized in the second
quarter of $1,007,103 offset by increased interest expense of $312,658.
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<PAGE>
Income tax benefit/expense. The Company had an income tax expense of
$303,000 for the three months ended June 30, 1996 compared to $27,940 for the
period ended June 30, 1995. The increase is due directly to the increase in
earnings before income taxes. For the six months ended June 30, 1996 the Company
had an income tax expense of $36,000 compared to an income tax benefit for the
six months ended June 30, 1995 of $132,360.
Net income. Net income increased $429,278, or 787%, for the three months
ended June 30, 1996 compared to the three months ended June 30, 1995. The net
income for the six months ended June 30, 1996 was $66,528 compared to a net loss
of $256,146 for the six months ended June 30, 1995. The primary reason for the
increase in the net income for the three month and six month periods was due to
the increase in other income discussed above plus the lower sales and gross
profit in the current six months of the Company's in-line skate business,
partially offset by a decrease in the regular operating expenses of the Company
and income realized from its newly acquired (May 1, 1996) hockey business.
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 available through May 31,
1999, 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.
In May 1996, Skate Corp., a majority (57%) owned subsidiary of the Company,
purchased all of the outstanding capital stock of USA Skate. Consideration for
the purchase consisted of $3,650,000 of cash, an 8% installment note payable for
$1,050,000, 250,000 shares of Skate Corp. common stock valued at $300,000, and
assumption of approximately $5,500,000 of debt. The purchase price was paid with
funds raised by Skate Corp., including the private placement of 884,667 shares
of common stock of Skate Corp. 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 (convertible to Skate Corp.
common stock under certain conditions). The debt assumption was financed in part
by a loan from LaSalle National Bank to USA Skate which is guaranteed by the
Company. 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 Skate Corp.
also entered into a worldwide exclusive license agreement for use of certain
trademarks owned by the former shareholder in exchange for minimum royalty
payments due on or before December 2001, with an imputed (9.5%) present value of
$2,213,235. USA Skate has a Canadian subsidiary which has a CDN $5,000,000
revolving credit line with a Canadian bank. The Company intends to continue to
fund its hockey operations from these two bank credit facilities for up to
$8,600,000 on an aggregate basis.
At June 30, 1996, the Company had a working capital deficit of
approximately $1,583,446 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.
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, as well as letters 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
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<PAGE>
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
subsidiary 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 August 31, 1996, based on
the limitations described above, under the in-line skate/snowboard line of
credit the Company was eligible to borrow $2,991,000 and the outstanding balance
was approximately $2,920,000. Under the hockey products lines of credit, the
Company was eligible to borrow $7,807,000 and the outstanding balance was
approximately $7,487,000.
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(TM) 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(TM) 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, 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
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<PAGE>
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, CPI. The ice and street/roller hockey skate
business is operated by the Company's majority owned subsidiary, Skate Corp.
Skate Corp. owns all of the outstanding equity securities of USA Skate.
California Pro's assets consist of its stock ownership in CPI and Skate Corp.
Due to the Company's majority ownership interest in Skate Corp., 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 CPI and Skate Corp., as well as Skate Corp.'s subsidiaries.
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 Skate Corp., 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.
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<PAGE>
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(TM)/Rolling Thunder(TM) In-Line Skate Acquisition. On April
1, 1993, the Company acquired the California Pro(TM) in-line skate business from
California Pro USA Corp., subsequently renamed SCYL, Inc. and later dissolved
("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(TM) 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 "CPI Loan Agreement") to fund a portion of the acquisition costs and to
provide additional working capital for operations. In August 1995 the CPI Loan
Agreement was extended for an additional year and the loan limit was increased
to $5.5 million. In April 1996, the CPI Loan Agreement was further extended to
May 31, 1999. Borrowings under the CPI Loan Agreement are secured by
substantially all of CPI'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 CPI 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 was subsequently repaid by the Company.
USA Skate Acquisition. As of April 30, 1996, Skate Corp., 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 Skate Corp. and the debt assumption
-17-
<PAGE>
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.
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(TM) 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. Videos featuring the Kemper(R) team riders, 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 and France.
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.
-18-
<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(TM) 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(TM) 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 their snowboarding 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 $200.00 to $520.00, 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 three types of high quality soft boots. These boots
differ in style and function and are suited for individual needs such as
freestyle and freeriding.
The Company markets snowboard accessories and clothing such as leashes,
gloves and mitts, hats, sweatshirts, tee shirts and other similar items. The
Company also has an agreement with Big5, a division of Toyota Nissan, a Japanese
company to produce and distribute snowboard outerwear for the Japanese market.
Big5 will also produce goods for the world-wide market.
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)
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<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(TM) TXT series in
1991 and later in the design of the California Pro(TM) 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(TM) 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.
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.
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<PAGE>
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.
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%.
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<PAGE>
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 June 30, 1996, the Company had purchase orders for future delivery of
products of approximately $5.8 million compared with approximately $4 million at
June 30, 1995. The increase in orders for future delivery is due primarily to
the addition of the Company's hockey product lines as of May 1, 1996. This
increase was partially offset by a decrease in future orders for the Company's
in-line skate products caused by customers ordering later (i.e. closer to the
delivery date) than in the past. Although purchase orders are subject to
cancellation in the normal course of business, the Company expects to fill most
of these orders by December 31, 1996.
For the year ended December 31, 1995, the Company had two customers that
accounted for 10% and 12% of its sales, respectively, compared with two
customers that accounted for 15% and 13% of its sales for the year ended
December 31, 1994. For the six months ended June 30, 1996, three customers
accounted for 12%, 12% and 11% and for the six months ended June 30, 1995 two
customers accounted for 15% and 12%, respectively, of its year-to-date sales.
The Company does not have ongoing contracts with any of its customers.
Employees
As of August 31, 1996, the Company had 145 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.
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<PAGE>
Facilities
The Company's facilities, which house its offices and warehouse for in-line
skate and snowboard products, consist of approximately 60,000 square feet leased
until March 1998 for annual payments of $120,000.
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. 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
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,
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<PAGE>
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.
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.
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<PAGE>
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, 1993, 1994 and 1995. 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, 1993 90,000(1) -0- -0- 150,000 320,000(2)
Chief Executive Officer 1994 120,000(1) -0- -0- 148,600 -0-
and Chairman of the Board 1995 120,000(1) -0- -0- -0-
Michael S. Casazza, 1993 90,000 -0- -0- 150,000 190,000(2)
President, Chief 1994 120,000 -0- -0- 51,400 -0-
Operating Officer & Director 1995 137,500 -0- -0- -0-
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
$10,000 per month for consulting services rendered to the Company
primarily related to long-term strategic planning, financing and
acquisitions and is not involved in the day-to-day operations of the
Company.
(2) Represents transaction and guarantee fees. See "Certain Relationships
and Related Transactions."
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<PAGE>
Option/SAR Grants in Last Fiscal Year Table
The following table sets forth information regarding the grant of options
to the named executive officers during the year ended December 31, 1995. The
option and Stock Appreciation Rights granted to the named executive officer have
not been exercised.
<TABLE>
<CAPTION>
Number of Percent of Total
Securities options granted Exercise or
Underlying to employees in base price Expiration
Name Options Granted (#) Fiscal Year ($/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.
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.
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
- ---- ------------------------- -------------------------
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
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 bonus.
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<PAGE>
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. Mr. Fong also agreed that while he is associated
with Equitex, Inc., he will obtain legal advice before he buys or sells
securities in a company with which he is associated or affiliated. Mr. Fong has
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
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 September 15, 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.
-27-
<PAGE>
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
8102 White Horse Rd.
Greenville, SC 29611
Steve C.Y. Lin 193,800 4.7
Rm. 906, #111
Nanking E. Road
Section 2
Taipei, Taiwan
Barry S. Hollander 25,000 (3) >1.00
8102 White Horse Road
Greenville, SC 29611
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
Warren Amendola 200,000 4.7
7 Brayton Court
Commack, NY 11725
All directors and 2,237,700 (1)(2)(3) 46.9
executive officers as
a group (6 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.
-28-
<PAGE>
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 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, Mr. Fong may be paid transaction and/or guarantee
fees in connection with acquisitions by the Company.
Transactions between the Company and its officers, directors, employees and
affiliates will be on terms no less favorable to the Company than can be
obtained 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
-29-
<PAGE>
Common Stock registered hereby. The Selling Stockholders may offer the 174,611
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.
Since July 1995, Boston Financial Partners, Inc. ("BFP") has provided
financial advisory and consulting services to the Company pursuant to a
financial consulting agreement. Warrants to purchase 150,000 shares of Common
Stock were issued by the Company to BFP as consideration 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.
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.
<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
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 shares
of common stock. These warrants may not be offered or sold pursuant to this
prospectus.
(2) Includes Shares underlying 20,000 Warrants.
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
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.
-30-
<PAGE>
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. Of the options granted under the Option
Plan, 20,500 have been exercised, 5,000 have expired due to changes in
employment status and 36,500 are still outstanding and are exercisable through
September 11, 1999 at $2.50 per share. Under the Option Plan, 143,000 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.
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
-31-
<PAGE>
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 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 174,611 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
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
-32-
<PAGE>
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.
-33-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
California Pro Sports, Inc. and Subsidiary
Consolidated Financial Statements
Years Ended December 31, 1994 and 1995.................... F-6
The Companies Being Acquired by USA Skate
Corporation Combined Financial Statements
Years Ended December 31, 1994 and 1995.................... F-24
California Pro Sports, Inc. and Subsidiaries
Unaudited Condensed Pro Forma Consolidated
Financial Statements Year Ended December 31, 1995
and Six Months Ended June 30, 1996........................ F-43
California Pro Sports, Inc. and Subsidiaries
Unaudited Consolidated Financial Statements
Six Months Ended June 30, 1995 and 1996................... F-47
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
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent auditors' report 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
YEAR ENDED DECEMBER 31, 1995 AND
SIX MONTHS ENDED JUNE 30, 1996
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
SIX MONTHS ENDED JUNE 30, 1995 AND 1996
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 2,049,709 1,973,462
General and administrative expenses 1,830,367 1,746,880
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>
<TABLE>
<CAPTION>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1994 AND 1995
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.
F-9
</TABLE>
<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)
------------ ------------
Net cash used in investing activities (879,324) (703,544)
------------ -------------
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
Acquisition, offering and financing costs (343,030) (828,824)
------------ ------------
Net cash provided by financing activities 4,177,155 1,454,060
----------- ------------
(Continued
F-10
</TABLE>
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ ----------
<S> <C> <C>
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
============ =========
</TABLE>
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 amortized 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
161,709
---------
Less accumulated depreciation $ 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
December 31, March 31,
1995 1996
------------ -----------
Assets (Unaudited)
- ------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 607,992 $ 541,276
Accounts receivable, less allowance
for doubtful accounts (1995, $749,000; 1996, $721,000,
Notes 6, 7 and 20) 3,243,214 1,955,875
Receivables from related parties (Note 11) 80,792 55,646
Inventories (Notes 4, 7 and 20) 5,100,677 5,911,349
Refundable income taxes 159,307 158,619
Prepaid expenses 51,041 77,616
------------ ------------
Total current assets 9,243,023 8,700,381
------------ ------------
Property and equipment, net of accumulated
depreciation (Notes 5, 7 and 20) 1,153,908 1,241,539
Intangible assets and other, net of accumulated
amortization (Note 2) 482,197 469,733
------------ ------------
1,636,105 1,711,272
------------ ------------
$ 10,879,128 $ 10,411,653
============ ============
Liabilities and Shareholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt (Note 10) $ 311,477 $ 267,911
Notes payable:
Bank (Notes 7 and 20) 5,263,268 5,043,387
Other (Note 8) 496,172 496,172
Accounts payable and accrued expenses (Note 9) 904,076 859,620
Income taxes payable 465,537 389,294
Interest payable to related parties (Note 8) 26,700 32,400
------------ ------------
Total current liabilities 7,467,230 7,088,784
------------ ------------
Long-term debt, net of current portion (Note 10) 344,134 333,433
Notes payable, related parties (Note 8) 373,750 343,750
------------ ------------
717,884 677,183
------------ ------------
Commitments and contingencies (Notes 2, 3, 12,
13, 18 and 20)
Shareholders' equity (Notes 7, 17, 19 and 20):
Common stock 18 18
Capital in excess of par 20,884 20,884
Retained earnings 2,877,756 2,894,171
Cumulative foreign currency
translation adjustment (204,644) (269,387)
------------ ------------
Total shareholders' equity 2,694,014 2,645,686
------------ ------------
$ 10,879,128 $ 10,411,653
============ ============
See notes to combined financial statements.
F-25
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED STATEMENTS OF OPERATIONS
Year ended Year ended Three months ended
December 31, December 31, March 31,
1994 1995 1995 1996
-------------- ---------------- ------------- ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $16,593,510 $ 14,299,937 $ 1,816,675 $ 2,021,660
Cost of sales 11,072,804 9,260,081 1,054,210 1,278,461
------------ ------------- ------------- -----------
Gross profit 5,520,706 5,039,856 762,465 743,199
------------ ------------- ------------ ------------
Operating expenses:
Sales and marketing expenses 1,737,623 1,403,135 245,297 234,530
General and administrative
expenses 2,092,438 1,718,053 358,924 303,196
License fees, related party
(Note 3) 101,289 157,126 24,160 19,556
Rent expense, related party
(Note 12) 82,847 116,611 26,817 38,750
------------- ------------- ------------ ------------
4,014,197 3,394,925 655,198 596,032
------------- ------------- ------------ ------------
Income from operations 1,506,509 1,644,931 107,267 147,167
------------- ------------- ------------ ------------
Other charges (credits):
Interest expense:
Related parties (Note 8) 10,270 30,100 7,149 7,110
Others 623,052 771,223 176,006 111,251
Interest income, related party
(Note 11) (8,943) (39,410) (8,516) (10,998)
Foreign currency loss (gain) 26,117 106,395 (13,579) 14,108
Rental income and other (99,390) (18,272) (21,752) (3,719)
------------- -------------- ------------ -------------
551,106 850,036 139,308 117,752
------------- ------------- ------------ ------------
Income (loss) before income
taxes 955,403 794,895 (32,041) 29,415
Income tax expense (benefit)
(Note 14) 495,000 422,000 (17,000) 13,000
------------- ------------- ------------ ------------
Net income (loss) $ 460,403 $ 372,895 $ (15,041) $ 16,415
============= ============= ============ ============
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)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1996 (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.
F-27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
Year ended Year ended Three months ended
December 31, December 31, March 31,
1994 1995 1995 1996
------------- -------------- ----------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 460,403 $ 372,895 $ (15,041) $ 16,415
------------ ------------ ---------- ------------
Adjustments to reconcile net income
(loss) to net cash (used in) provided
by operating activities:
Depreciation and amortization 59,567 94,490 30,021 17,380
Provision for losses on accounts
receivable 213,242 202,458 38,000 28,000
Foreign currency loss (gain) 26,117 106,395 (13,579) 14,108
Decrease (increase) in assets:
Accounts receivable (1,267,563) 1,332,665 1,915,053 1,280,036
Receivables from related parties (270,705) (28,538) (49,775) 23,395
Inventories 184,546 (659,594) (1,650,934) (803,171)
Refundable income taxes (214,833) (161,087) (223,168) (505)
Prepaid expenses and other assets (275,980) 213,280 153,710 (26,131)
Increase (decrease) in liabilities:
Accounts payable and accrued
expenses (752,989) (214,810) 240,642 (94,439)
Income taxes payable 124,721 58,788 (32,056) (103,079)
Interest payable to related parties 10,004 16,696 5,700
------------ ------------ ---------- -----------
Total adjustments (2,163,873) 960,743 407,914 341,294
------------ ------------ ---------- -----------
Net cash (used in) provided by
operating activities (1,703,470) 1,333,638 392,873 357,709
------------ ------------ ---------- ------------
Cash flows from investing activities:
Capital expenditures (140,352) (220,794) (15,173) (82,802)
Payments for acquisition of subsidiary
interests (1,395,752)
------------ ------------ ---------- ------------
Net cash used in investing activities (1,536,104) (220,794) (15,173) (82,802)
------------ ------------ ---------- ------------
Cash flows from financing activities:
Proceeds from notes payable and
long-term debt 3,466,452 227,375 64,191 36,829
Repayment of notes payable and
long-term debt (354,387) (1,185,327) (732,875) (367,958)
------------ ------------ ---------- ------------
Net cash provided by (used in)
financing activities 3,112,065 (957,952) (668,684) ( 331,129)
------------ ------------ ---------- ------------
(Continued)
F-28
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
Year ended Year ended Three months ended
December 31, December 31, March 31,
1994 1995 1995 1996
-------------- -------------- ----------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Effect of exchange rate changes on
cash and cash equivalents 27,591 (67,570) 207 (10,494)
------------- ------------- ------------ ------------
Net (decrease) increase in cash and
cash equivalents (99,918) 87,322 (290,777) (66,716)
Cash and cash equivalents, beginning 620,588 520,670 520,670 607,992
------------- -------------- ---------- -----------
Cash and cash equivalents, ending $ 520,670 $ 607,992 $ 229,893 $ 541,276
============ ============ ========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 654,564 $ 747,648 $ 153,899 $ 126,102
============ ============ ========== ===========
Cash paid for income taxes $ 576,518 $ 410,578 $ 26,575 $ 89,243
============ ============ ========== ==========
See notes to combined financial statements.
F-29
</TABLE>
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
1. Basis of presentation, business and summary of significant accounting
policies:
Basis of presentation:
The accompanying combined financial statements include the combined results
of operations, changes in shareholders' equity and cash flows of USA
Skate Co., Inc. ("USA Skate"), Les Equipements Sportifs Davtec Inc.
("Davtec"), and 811300 Ontario Inc. (d/b/a McMartin Hockey Protection)
("McMartin") for the years ended December 31, 1994 and 1995 and the
three months ended March 31, 1995 and 1996, and the combined financial
position of USA Skate, Davtec and McMartin as of December 31, 1995 and
March 31, 1996. USA Skate, Davtec and McMartin are collectively referred
to as the "Companies". The significant subsidiaries of USA Skate are
Davtec, acquired by USA Skate in 1994, and McMartin, acquired by Davtec
in March 1996. All material intercompany accounts and transactions have
been eliminated in combination. Effective April 30, 1996, USA Skate and
its subsidiaries were acquired by USA Skate Corporation pursuant to the
terms of a stock purchase agreement (the "Purchase Agreement"). USA
Skate Corporation is a majority owned subsidiary of California Pro
Sports, Inc.
Subsequent to USA Skate's acquisition of Davtec (Note 2), the year end of
Davtec was changed from March 31 to December 31 to conform with the year
end of USA Skate. This change took effect during the year ended December
31, 1995. Accordingly, Davtec's 1995 statement of operations has been
recast to provide a full twelve months of operations from January 1,
1995 to December 31, 1995. For the year ended December 31, 1994, Davtec
is combined on the basis of its March 31, 1995 fiscal year. The results
of operations of Davtec for the three months ended March 31, 1995, which
resulted in a net loss of $143,013, have been adjusted for in the
combined statements of shareholders' equity. For the years ended
December 31, 1994 and 1995, McMartin is combined on the basis of its
January 31, 1995 and 1996 fiscal years, respectively.
Business of the Companies:
The Companies market and distribute ice and street/roller hockey skates,
related gear and accessories under the Victoriaville(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)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
1. Basis of presentation, business and summary of significant accounting
policies (continued):
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)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
1. Basis of presentation, business and summary of significant accounting
policies (continued):
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:
December 31, March 31,
1995 1996
------------ ----------
(Unaudited)
Goodwill $ 504,694 $ 504,694
Other assets 6,188
----------- ---------
510,882 504,694
Less accumulated amortization 28,685 34,961
----------- ---------
$ 482,197 $ 469,733
========== =========
Product warranty:
The manufacturing Companies provide a product warranty covering defects in
workmanship and materials for a period of one month from the date of
purchase.
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)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
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
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.
F-33
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
3. License Agreements (continued):
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:
December 31, March 31,
1995 1996
------------- ------------
(Unaudited)
Raw materials $ 649,321 $ 706,778
Work-in-process 272,616 198,900
Finished goods 4,178,740 5,005,671
------------- ------------
$ 5,100,677 $ 5,911,349
============ ===========
The elements of cost in inventories include materials, labor and overhead.
5. Property and equipment:
December 31, March 31,
1995 1996
------------- ------------
(Unaudited)
Property and equipment consist of:
Land $ 26,995 $ 27,221
Building and improvements 790,143 796,529
Machinery and equipment 946,546 1,022,049
Office equipment and furniture 201,909 250,414
------------- -------------
1,965,593 2,096,213
Less accumulated depreciation 811,685 854,674
------------- -------------
$ 1,153,908 $ 1,241,539
============ ===========
6. Significant concentrations and major customers:
The Companies grant credit, generally without collateral, to customers in
the retail sporting goods industry. The Companies' customers are not
concentrated in any specific geographic region. Bad debt expense was
approximately $213,000, and $202,000 in 1994 and 1995, respectively and
$38,000 (unaudited) and $28,000 (unaudited) for the three months ended
March 31, 1995 and 1996, respectively.
F-34
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
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)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
8. Notes payable, related parties and other:
At December 31, 1995 and March 31, 1996 (unaudited), notes payable, related
parties, consist of $88,750 of non-interest bearing shareholder notes
due on demand and $285,000 ($255,000, unaudited, at March 31, 1996)
under notes issued in September 1994 to shareholders, management and
affiliates of the Companies in connection with the acquisition of Davtec
and the trademark licenses (Notes 2 and 3). The original amount of notes
issued in September 1994 was $375,000, of which $90,000 was paid in
1995. These notes bear interest at 8%, and are due December 31, 1997.
Notes payable, other, consist of a non-interest bearing note, due on
demand, to a third party, issued in September 1994 in connection with
the acquisition of Davtec and trademark licenses.
9. Accounts payable and accrued expenses:
Accounts payable and accrued expenses consist of:
December 31, March 31,
1995 1996
------------ ------------
(Unaudited)
Accounts payable $ 451,317 $ 458,917
Accrued wages and employee benefits 189,414 281,292
Commissions payable 180,148 37,474
Interest payable and other 83,197 81,937
--------- ----------
$ 904,076 $ 859,620
========= ==========
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)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
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)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
14. Income taxes:
The provisions (benefit) for income taxes consist of the following:
<TABLE>
<CAPTION>
March 31,
1994 1995 1995 1996
-------------- ------------ ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Current:
Federal $ 471,000 $ 416,000 $ (12,100) $ 10,300
State and local 131,000 117,000 (4,900) 2,700
Foreign (88,000) 29,000
---------- ---------- ---------- ----------
514,000 562,000 (17,000) 13,000
---------- ---------- ---------- ----------
Deferred:
Federal (15,000) (96,000)
State and local (4,000) (27,000)
Foreign (17,000)
---------- --------- ---------- ----------
(19,000) (140,000)
---------- --------- ---------- ----------
Income tax provision
(benefit) $ 495,000 $ 422,000 $ (17,000) $ 13,000
========== ========= ========= ==========
</TABLE>
A reconciliation of the statutory federal income tax rate to the Companies'
effective income tax rates is as follows:
<TABLE>
<CAPTION>
March 31,
1994 1995 1995 1996
------------ ------------ ----------- ----------
(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 4 1 (1) 1
Other 5 9 (9)
--- --- ----- ----
52% 53% (53)% 44%
== == ==== ===
</TABLE>
F-38
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
14. Income taxes (continued):
The following is a summary of the Companies' deferred tax assets and
liabilities:
December 31, March 31,
1995 1996
------------ ------------
(Unaudited)
Deferred tax assets:
Accounts Receivable $ 81,900 $ 81,900
Inventories 33,500 33,500
Accrued expenses 23,700 11,000
---------- ----------
139,100 126,400
Valuation allowance (74,600) (114,700)
---------- ---------
64,500 11,700
Deferred tax liabilities:
Undistributed foreign earnings (64,500) 11,700
---------- ---------
$ - $ -
========== =========
The valuation allowance increased by approximately $70,000 and $5,000
during the years ended December 31, 1994 and 1995, remained the same for
the three months ended March 31, 1995 (unaudited) and increased by
approximately $40,000 (unaudited) for the three months ended March 31,
1996.
15. Foreign operations and export sales:
Information about the Companies' operations in the U.S. and Canada for the
years ended December 31, 1994 and 1995 and for the three months ended
March 31, 1995 and 1996 (unaudited) is as follows:
<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
============ ============ ============ =============
F-39
</TABLE>
<PAGE>
THE COMPANIES BEING ACQUIRED BY USA SKATE CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
15. Foreign operations and export sales (continued):
<TABLE>
<CAPTION>
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)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
16. Fair value of financial instruments:
Statement of Financial Accounting Standards No. 107, "Disclosures About the
Fair Value of Financial Instruments," requires the Companies to disclose
estimated fair values for its financial instruments, for which it is
practicable to estimate fair value. The carrying value of long-term debt
and long-term notes payable to a bank and related parties approximates
the fair values at December 31, 1995 and March 31, 1996 (unaudited)
because the instruments bear interest at current market rates. The
carrying amounts of the Companies' other financial instruments
approximates fair values primarily because of the short maturity of
these instruments.
17. Prior period adjustments:
In preparing the combined financial statements, certain adjustments were
necessary to correct for 1994 and prior year-end accounting entries that
had previously been made incorrectly by USA Skate. The effect of these
adjustments is to increase retained earnings at January 1, 1994 by
$10,570, $6,340 net of applicable income taxes, and to increase income
for the year ended December 31, 1994, from what was previously reported
by USA Skate, by $275,300, $165,195 net of applicable income taxes.
These errors have been corrected by retroactively restating the combined
financial statements for the prior years.
18. Litigation:
The Companies are involved in various routine litigation incidental to the
Companies' business. Many of these proceedings are covered in whole or
in part by insurance. At December 31, 1995 and March 31, 1996
(unaudited), management does not believe that the Companies' potential
exposure related to these matters would have a material adverse effect
on the Companies' financial position or results of operations.
19. Shareholders' equity:
At December 31, 1995, and March 31, 1996 (unaudited) common stock consists
of:
USA Skate common stock, $0.10 par value,
100 shares authorized and outstanding $ 10
McMartin common stock, no par value,
100 shares authorized and outstanding 8
----
$ 18
====
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)
YEARS ENDED DECEMBER 31, 1994 AND 1995
AND THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (UNAUDITED)
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
YEAR ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996
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 six months ended June
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
YEAR ENDED DECEMBER 31, 1995
California Pro forma Pro forma
Pro Sports, Inc. adjustments consolidated
---------------- ----------- ------------
<S> <C> <C> <C>
Sales $ 17,128,711 $ 14,299,937 (1) $ 31,428,648
Cost of sales 12,155,543 9,260,081 (1) 21,415,624
------------- ------------- -------------
Gross profit 4,973,168 5,039,856 10,013,024
------------- ------------- -------------
Operating expenses
Sales and marketing expenses 2,049,709 1,403,135 (1) 3,452,844
General and administrative 2,494,612 1,991,790 (1) 5,313,910
144,000 (4)
840,634 (3)
(157,126) (2)
4,544,321 4,222,433 8,766,754
------------- ------------- -------------
Income from operations 428,847 817,423 1,246,270
------------- ------------- -------------
Other charges (credits):
Interest expense 313,183 801,323 (1) 1,684,797
570,291 (2)
Interest income and other (32,692) 48,713 (1) 16,021
------------- ------------- --------------
280,491 1,420,327 1,700,818
------------- ------------- -------------
Income (loss) before income taxes
and minority interest 148,356 (602,904) (454,548)
Income tax expense 112,900 112,900
------------- ------------- --------------
Income (loss) before minority interest 35,456 (602,904) (567,448)
Minority interest (218,251) (5) (218,251)
-------------- ------------- --------------
Net income (loss) $ 35,456 $ (384,653) $ (349,197)
============= ============= =============
Net income (loss) per share $ 0.01 $ (0.09)
============= =============
Weighted average number of
common shares outstanding 3,599,320 400,000 (6) 3,999,320
============= ============= =============
See notes unaudited condensed pro forma consolidated financial statements.
</TABLE>
F-44
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996
California Pro forma Pro forma
Pro Sports, Inc. adjustments consolidated
---------------- ----------- ------------
<S> <C> <C> <C> <C>
Sales $ 7,757,522 $ 3,139,928 (1) $ 10,897,450
Cost of sales 5,858,597 1,992,988 (1) 7,851,585
-------------- ------------- -------------
Gross profit 1,898,925 1,146,940 3,045,865
-------------- ------------- -------------
Operating expenses
Sales and marketing expenses 990,282 344,676 (1) 1,334,958
General and administrative 1,383,300 504,401 (1) 2,182,592
272,966 (3)
48,000 (4)
(26,075) (2)
2,373,582 1,143,968 3,517,550
-------------- ------------- -------------
Income (loss) from operations (474,657) 2,972 (471,685)
-------------- ------------- -------------
Other charges (credits):
Interest expense 476,117 160,854 (1) 719,220
82,249 (2)
Interest income and other (1,043,388) (4,222) (1) (1,047,610)
--------------- ------------- -------------
(567,271) 238,881 (328,390)
--------------- ------------- -------------
Income (loss) before income taxes and
minority interest 92,614 (235,909) (143,295)
Income tax (expense) benefit (36,000) (36,000)
--------------- ------------- -------------
Income (loss) before minority interest 56,614 (235,909) (179,295)
Minority interest 9,914 85,399 (5) 95,313
--------------- ------------- -------------
Net income (loss) $ 66,528 $ (150,510) $ (83,982)
=============== ============= =============
Net income (loss) per share $ (0.02) $ (0.02)
=============== =============
Weighted average number of
common shares outstanding 3,933,235 265,193 (6) 4,198,428
=============== ============= =============
See notes to unaudited condensed pro forma consolidated financial statements.
</TABLE>
F-45
<PAGE>
CALIFORNIA PRO SPORTS, INC, AND SUBSIDIARIES
UNAUDITED CONDENSED PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
SIX MONTHS ENDED JUNE 30, 1996
The purchase method of accounting conforms the accounting policies followed by
the consolidated entities. There were no accounting policy differences or other
items which required adjustment in the unaudited pro forma consolidated
financial statements.
Notes to the unaudited pro forma consolidated statements of operations:
1. To include the results of operations of USA Skate as if the acquisition
had occurred on January 1, 1995.
2. To record interest expense related to the $3,595,000 of formation debt,
the $1,050,000 of acquisition debt, and the $125,000 former USA Skate
shareholder note; to record interest savings related to the $665,000
reduction in Davtec bank debt; and to adjust expense for the terms of
the new royalty agreement.
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.
4. To record management fees to be paid to certain officers/shareholders of
Cal Pro.
5. To reflect the 36% minority ownership interest of USA for the year ended
December 31, 1995 and the six months ended June 30, 1996. 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 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 at the beginning of the period.
F-46
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1996
(UNAUDITED)
ASSETS
------
Current assets:
Cash $ 1,536,047
Accounts receivable, less allowance
for doubtful accounts of $527,000 8,539,911
Due from related parties 41,087
Inventories 8,201,210
Marketable securities (Note 5) 789,745
Prepaid expenses and other 651,275
-------------
Total current assets 19,759,275
-------------
Property and equipment, net of
accumulated depreciation 2,178,407
Intangible and other assets, net
of accumulated amortization 9,440,043
------------
11,618,450
------------
$ 31,377,725
============
(Continued)
F-47
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (CONTINUED)
JUNE 30, 1996
(UNAUDITED)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of:
Long-term debt $ 279,904
Due to related parties (Note 3) 1,168,750
License fee payable, related party (Note 3) 66,094
Notes payable:
Bank 10,537,707
Convertible promissory notes,
related parties(Note 3) 2,518,000
Other 486,172
Officers/shareholders (Note 3) 1,060,000
Accounts payable and accrued expenses:
Accounts payable, PlayMaker 945,372
Other accounts payable, trade 2,394,830
Officers/shareholders 600,000
Other accrued expenses 1,285,892
------------
Total current liabilities 21,342,721
------------
Long-term debt, net of current portion 528,652
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 3,025,793
------------
Minority interest 924,140
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
Retained earnings (103,088)
Cumulative foreign currency
translation adjustment 20,632
-----------
Total shareholders' equity 6,085,071
-----------
$31,377,725
===========
See notes to consolidated financial statements.
F-48
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
---- ----
<S> <C> <C>
Net sales $ 5,970,847 $ 4,968,691
----------- -----------
Cost of sales:
Substantially from a related party 1,865,614 2,599,128
Other 2,557,587 919,246
----------- -----------
4,423,201 3,518,374
----------- -----------
Gross profit 1,547,646 1,450,317
----------- -----------
Operating expenses:
Sales and marketing expense 676,974 532,718
General and administrative expense 416,428 597,630
Depreciation and amortization 252,719 137,549
Consulting fees, related party 54,000 30,000
----------- -----------
1,400,121 1,297,897
----------- -----------
Income from operations 147,525 152,420
----------- -----------
Other expenses (income):
Interest expense:
Related party 36,622
Other 363,554 82,494
Foreign currency loss 34,659 4,023
Royalty and other income (57,106) (16,572)
Net unrealized holding gain (Note 5) (416,637)
Gain on sale of investment
in subsidiary (Note 6) (111,366)
Gain from issuance of common stock
by subsidiary (Note 7) (479,100)
----------- -----------
(629,374) 69,945
----------- -----------
Income before income taxes and
minority interest 776,899 82,475
Income tax expense 303,000 27,940
----------- -----------
Income before minority interest 473,899 54,535
Minority interest 9,914
----------- -----------
Net income $ 483,813 $ 54,535
=========== ===========
Net income per share $ 0.12 $ 0.02
=========== ===========
Weighted average number
of shares outstanding 4,081,313 3,623,182
=========== ===========
See notes to consolidated financial statements.
F-49
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
---- ----
<S> <C> <C>
Net sales $ 7,757,522 $ 7,907,938
----------- -----------
Cost of sales:
Substantially from a related party 2,987,275 4,588,574
Other 2,871,322 1,037,885
------------ ------------
5,858,597 5,626,459
------------ ------------
Gross profit 1,898,925 2,281,479
------------ ------------
Operating expenses:
Sales and marketing expense 990,282 1,008,974
General and administrative expense 880,065 1,149,234
Depreciation and amortization 419,235 274,266
Consulting fees, related party 84,000 60,000
------------ ------------
2,373,582 2,492,474
------------ ------------
Loss from operations (474,657) (210,995)
------------ ------------
Other expenses (income):
Interest expense:
Related party 36,622 2,840
Other 439,495 160,619
Foreign currency loss 35,821 30,624
Royalty and other income (72,106) (16,572)
Net unrealized holding gain (Note 5) (416,637)
Gain on sale of investment in
subsidiary (Note 6) (111,366)
Gain from issuance of common stock
by subsidiary (Note 7) (479,100)
------------ ------------
(567,271) 177,511
------------ ------------
Income (loss) before income taxes and
minority interest 92,614 (388,506)
Income tax (expense) benefit (36,000) 132,360
------------ ------------
Income (loss) before minority interest 56,614 (256,146)
Minority interest 9,914
------------ ------------
Net income (loss) $ 66,528 $ (256,146)
============ ============
Net income (loss) per share $ 0.02 $ (0.07)
============ ============
Weighted average number
of shares outstanding 3,933,235 3,421,931
============ ============
See notes to consolidated financial statements.
F-50
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA PRO SPORTS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 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 36,000 360 107,640 108,000
Net income for the six months
ended June 30, 1996 66,528 66,528
Cumulative foreign currency
translation adjustment $20,632 20,632
--------- --------- -------- ----------- --------- ------- ----------
Balances, June 30, 1996 4,219,511 $ 42,195 $394,200 $ 5,731,132 $(103,088) $20,632 $6,085,071
========= ========= ======== =========== ========= ======= ==========
See notes to consolidated financial statements.
F-51
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
1996 1995
---------- -----------
<S> <C> <C>
Net income (loss) $ 66,528 $ (256,146)
---------- -----------
Adjustments to reconcile netincome (loss)
to net cash provided by (used in)
operating activities:
Net unrealized holding gain (416,637)
Gain on sale of investment in subsidiary (111,366)
Gain from issuance of common stock by subsidiary (479,100)
Depreciation and amortization 419,235 274,160
Provision for bad debt 57,300 2,625
Minority interest (9,914)
Decrease (increase) in assets:
Accounts receivable (1,568,774) 528,324
Due from related parties 478,853 5,460
Inventories 652,262 (54,736)
Prepaid expenses (308,323) (353,040)
Increase (decrease) in liabilities:
Accounts payable Playmaker 736,640 (3,077,140)
Other 41,539 (964,384)
---------- -----------
Total adjustments (508,285) (3,638,731)
---------- -----------
Net cash provided by (used in)
operating activities (441,757) (3,894,877)
---------- -----------
Cash flows from investing activities:
Payment for purchase of USA Skate Corporation,
net of cash acquired (3,551,760)
Payments for intangible assets (1,507,773)
Capital expenditures (141,064) (263,147)
---------- -----------
Net cash used in investing activities (5,200,597) (263,147)
---------- -----------
Cash flows from financing activities:
Decrease in bank overdraft (35,499)
Proceeds from notes payable and long term debt 10,146,443
Repayment of notes payable and long term debt (3,937,852) (885,824)
Net proceeds from issuance of common stock
by subsidiary 961,600
Net proceeds from issuance
of common stock and warrants 5,127,966
Deferred financing costs (40,000)
---------- ----------
Net cash provided by
financing activities 7,170,191 4,166,643
---------- ----------
Net increase in cash 1,527,837 8,619
Cash beginning 8,210
---------- ----------
Cash ending $1,536,047 $ 8,619
========== ==========
(Continued)
F-52
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1996 AND 1995 (CONTINUED)
(UNAUDITED)
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 490,411 $ 216,186
========== ==========
Cash paid for income taxes $ 51,448 $ 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 100,000 shares of common stock
in cancellation of convertible note payable $ 225,000
==========
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 Corporation, net of cash acquired:
Fair value of assets acquired $11,334,200
Intangible assets 2,777,774
Liabilities assumed (9,210,214)
Notes and common stock issued to seller (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 SIX MONTHS ENDED JUNE 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 six
months ended June 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.
CP 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. 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.
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
F-54
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
3. Acquisition (continued):
(convertible to 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, and USA also entered into a worldwide
exclusive license agreement for use of certain trademarks owned by the
former shareholder 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
on 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 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.
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, Czechoslovakia, Sweden, Finland, France and Brazil.
The unaudited results of operations of the Company, for the six months ended
June 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 $ 10,897,000 $14,971,000
============ ===========
Net loss $ (84,000) $ (445,000)
============ ===========
Loss per share $ (.02) $ (0.12)
============ ============
F-55
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
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 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 six months ended June 30, 1996, the Company issued 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 issue), in satisfaction of
$108,000 of an amount payable.
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 an
exercise price of $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 over allotments. The Company sold the
securities to the Representative at a discount of 10% of the public offering
price and paid the Representative's 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 beginning January 1996 through January 2000. After deducting
offering expenses, the Company received net proceeds from the offering of
approximately $4,200,000.
F-56
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
(UNAUDITED)
4. Shareholders' equity (continued):
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 the price of $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.
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 is
included in net income for the three and six months ended June 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,
resulting in a gain of $111,366.
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 the outstanding common stock of USA. After these transactions, the
Company owned approximately 64% of the outstanding common stock of USA.
These transactions resulted in a gain from the issuance of stock by the
subsidiary of $479,100. Deferred income taxes related to this gain have been
included in the provision for income taxes.
F-57
<PAGE>
===================================== ====================================
TABLE OF CONTENTS
RISK FACTORS....................... 5 174,611 Shares of Common Stock and
20,000 Common Stock
DIVIDEND POLICY.................... 9 Purchase Warrants
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS........ 9 CALIFORNIA PRO SPORTS, INC.
BUSINESS ..........................15
MANAGEMENT.........................23 ---------------
PRINCIPAL STOCKHOLDERS.............27 PROSPECTUS
CERTAIN TRANSACTIONS...............29 ---------------
SELLING STOCKHOLDERS...............29
DESCRIPTION OF SECURITIES..........30 , 1996
-----------
PLAN OF DISTRIBUTION...............32
USE OF PROCEEDS....................33
LEGAL MATTERS......................33
EXPERTS ..........................33
====================================== ====================================
<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 ............... $ 235
Accounting fees and expenses .............. 5,000
Legal fees and expenses ................... 10,000
Blue sky fees and filing fees ............. 2,500
Miscellaneous ............................. 765
-------
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
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<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.
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<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.
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.)
10.3A Indemnity letter agreement, dated April 1, 1993, between the
Registrant and Playmaker. (Incorporated by reference to Exhibit 10.8A
to the 1994 Registration Statement.)
10.3B Patent License Agreement, dated April 1, 1993 and Assignment thereof.
(Incorporated by reference to Exhibit 10.8B 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.)
10.5A Amendment, dated June 15, 1994, to Loan Agreement. (Incorporated by
reference to Exhibit 10.10A to Amendment No. 1 to the 1994
Registration Statement, filed with the SEC on October 28, 1994 ("1994
Amendment #1).)
10.5B Consent and Amendment, dated August 3, 1994, to Loan Agreement.
(Incorporated by reference to Exhibit 10.10B to 1994 Amendment #1.)
10.5C Amendment, dated August 30, 1995, to Loan Agreement. PREVIOUSLY FILED.
10.6 Demand Note, dated April 1, 1993. (Incorporated by reference to
Exhibit 10.11 to the 1994 Registration Statement.)
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.)
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<PAGE>
Exhibit
Number Description
------ -----------
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 CPI. (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.
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 10.29A 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
10.29C 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.
10.23 Employment Agreement effective as of January 1, 1995 between the
Registrant and Barry S. Hollander. PREVIOUSLY FILED.
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<PAGE>
Exhibit
Number Description
------ -----------
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.
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.
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.
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 Skate Corp., 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 15, 1996, Commission File No.
0-25114 (the "Form 8- K").)
10.28(a) Exhibit A - Skate Corp.'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., Skate Corp. 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.,
Skate Corp., 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, Skate Corp. 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, Skate Corp. 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 Skate Corp., with related Guaranty. (Incorporated by
reference to Exhibit 10.1(f) to the Form 8-K).
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).
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<PAGE>
Exhibit
Number Description
- ------ -----------
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 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).
10.30(a) Demand Note related to the USA Skate Loan Agreement.
(Incorporated by reference to Exhibit 10.2(a) to the Form 8-K).
10.30(b) Form of Guaranty of the USA Skate Loan by the Registrant,
California Pro, Inc., Skate Corp., Henry Fong and Michael
Casazza. (Incorporated by reference to Exhibit 10.12(b) to the
Form 8-K).
10.30(c) Letter from the Registrant, Skate Corp. and Three R Sales, Inc.
to LaSalle National Bank. (Incorporated by reference to Exhibit
10.2(c) to the Form 8-K).
10.31(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 "CPI Loan"). (Incorporated
by reference to Exhibit 10.3(a) to the Form 8-K).
10.31(b) Guaranty of the CPI Loan by USA Skate. (Incorporated by reference
to Exhibit 10.3(b) to the Form 8-K).
21.1 List of Subsidiaries. FILED HEREWITH.
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. PREVIOUSLY FILED.
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.
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<PAGE>
(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.
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<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 Greenville, State of South Carolina on October 9, 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 October 9, 1996
Henry Fong Officer and Director
/S/ MICHAEL S. CASAZZA
- ----------------------------- President and Director October 9, 1996
Michael S. Casazza
/S/ BARRY S. HOLLANDER
- ----------------------------- Chief Financial and October 9, 1996
Barry S. Hollander Accounting Officer
**
- ----------------------------- Director October 9, 1996
Steve C.Y. Lin
**
- ----------------------------- Director October 9, 1996
Brian C. Simpson
**
- ---------------------------- Director October 9, 1996
Hung-Chang Yang
**By /S/ MICHAEL S. CASAZZA
-------------------------------------
Michael S. Casazza, Attorney-In-Fact
EXHIBIT 5.1
-----------
October 8, 1996
California Pro Sports, Inc.
8102 White Horse Road
Greenville, SC 29611
Re: Amendment No. 1 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. We have also, as such counsel,
examined Amendment No. 1 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) 47,111 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 these 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 47,111 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.
October 8, 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 21.1
------------
California Pro Sports, Inc.
List of Subsidiaries
Jurisdiction of
Incorporation or Percent
Name of Subsidiary Organization Owned
- ------------------ ------------ -----
California Pro, Inc. Delaware 100%
USA Skate Corporation Delaware 56%
Three R Sales, Inc. New York 100%
USA Skate Co., Inc. New York 100%
Amskate Holding, Ltd. Canada 100%
2984334 Canada, Ltd. Canada 100%
Gestion Pirtade Inc. Quebec 100%
Gestion Camille Lainesse Inc. Quebec 100%
3102-1991 Quebec Inc. Quebec 100%
3102-1983 Quebec Inc. Quebec 100%
Gestion Davtec Inc. Canada 100%
Les Equipements Sportifs Davtec Inc. Canada 100%
811300 Ontario Inc. Quebec 100%
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
October 7, 1996
