UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB/A-1
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES ACT OF 1934
For the transition period from ______ to ______
Commission File Number 0-25114
CALIFORNIA PRO SPORTS. INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 84-1217733
- - ---------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
1221 B South Batesville Road, Greer, South Carolina 29650
---------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(864) 848-5160
---------------------------------------------------
(Registrants telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such report(s)
and (2) has been subject to such filing requirements for the past 90 days.
YES [X] NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: 11,479,727 common shares, par value
$.01 per share, outstanding at July 31, 1998.
Transitional Small Business Disclosure Format YES [ ] NO [X]
Page 1 of ___ total pages on this document.
<PAGE>
CALIFORNIA PRO SPORTS, INC.
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION
2
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
ASSETS
------
<TABLE>
<CAPTION>
Unaudited
Pro forma Historical
--------- ----------
(Note 4)
<S> <C> <C>
Current assets:
Cash ............................................................... $ 2,181,599 $ 1,141,599
Accounts receivable, related parties ............................... 248,504 248,504
Notes receivable:
Related parties ................................................ 217,500 127,500
Other .......................................................... 245,500 245,500
Prepaid expenses and other ......................................... 73,322 73,322
Assets of subsidiary held for sale (Note 3) ........................ 904,358
------------ ------------
Total current assets ................................ 2,966,425 2,740,783
------------ ------------
Furniture and equipment, net of accumulated
depreciation of $403,393 ................................................. 68,660 68,660
------------ ------------
Intangible assets, net of accumulated
amortization of $106,790:
Trademark license and other costs .................................. 612,253 612,253
Goodwill ........................................................... 94,483
------------ ------------
612,253 706,736
------------ ------------
$ 3,647,338 $ 3,516,179
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses .............................. $ 410,516 $ 291,516
Liabilities of subsidiary held for sale (Note 3) ................... 1,345,696
------------ ------------
Total liabilities (all current) ..................... 410,516 1,637,212
------------ ------------
Minority interest ......................................................... 420,266
------------ ------------
Shareholders' equity (Note 4):
Preferred stock, $0.01 par value;
authorized 5,000,000 shares:
Series A Preferred stock, issued 1,327,606 ...................... 13,277
Series B/C Preferred stock, issued 1,430 ........................ 556,201 337,451
Common stock, $0.01 par value; authorized
10,000,000 shares; issued 7,496,908 ............................. 120,296 74,969
Warrants ........................................................... 394,200 394,200
Capital in excess of par ........................................... 13,919,245 13,232,818
Accumulated deficit ................................................ (11,753,120) (11,777,026)
Treasury stock held by subsidiary; consisting of 750,471
shares of Series A Preferred Stock; 86,000 shares of
common stock ..................................................... (816,988)
------------ ------------
Total shareholders' equity .......................... 3,236,822 1,458,701
------------ ------------
$ 3,647,338 $ 3,516,179
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1998 1997
----------- -----------
Net sales ................................... $ $ 4,010,430
----------- -----------
Cost of sales:
Substantially from a related party ... 22,869
Other ................................ 2,730,122
----------- -----------
2,752,991
----------- -----------
Gross profit ................................ 1,257,439
----------- -----------
Operating expenses:
Sales and marketing expense .......... 394,975
General and administrative expense ... 357,898 1,160,103
Depreciation and amortization ........ 62,090 198,185
Consulting fees, related party ....... 30,000 60,000
----------- -----------
449,988 1,813,263
----------- -----------
Loss from operations ........................ (449,988) (555,824)
----------- -----------
Other expenses (income):
Interest expense:
Related party .................... 27,746 71,583
Other ............................ 284,140
Foreign currency loss ................ 11,589
Royalty income and other ............. (17,792) (19,200)
Finance fees (Note 4) ................ 119,537
----------- -----------
129,491 348,112
----------- -----------
Loss before minority interest ............... (579,479) (903,936)
Minority interest ........................... 11,410 (172,347)
----------- -----------
Net loss .................................... (590,889) (731,589)
Other comprehensive income (loss):
Foreign currency translation adjustments (7,260)
----------- -----------
Comprehensive loss .......................... $ (590,889) $ (738,849)
=========== ===========
Net loss per share .......................... $ (.08) $ (.14)
=========== ===========
Weighted average number of shares outstanding 7,302,939 5,270,492
=========== ===========
See notes to consolidated financial statements.
4
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1998 1997
----------- -----------
Net sales ........................................ $ $ 6,776,239
----------- -----------
Cost of sales:
Substantially from a related party ........ 42,516
Other ..................................... 4,929,631
----------- -----------
4,972,147
----------- -----------
Gross profit ..................................... 1,804,092
----------- -----------
Operating expenses:
Sales and marketing expense ............... 4,084 837,171
General and administrative expense ........ 697,366 1,989,640
Depreciation and amortization ............. 124,181 391,968
Consulting fees, related party ............ 60,000 120,000
----------- -----------
885,631 3,338,779
----------- -----------
Loss from operations ............................. (885,631) (1,534,687)
----------- -----------
Other expenses (income):
Interest expense:
Related party ......................... 148,739
Other ................................. 60,345 530,867
Foreign currency gain ..................... (34,354)
Royalty income and other .................. (58,926) (26,462)
Gain on sale of investment in subsidiary (Note 8) (87,593)
Loss on sale of marketable securities (Note 5) 62,392
Finance fees and other (Note 5) ........... 300,145
----------- -----------
301,564 593,589
----------- -----------
Loss before minority interest and
extraordinary items (1,187,195) (2,128,276)
Minority interest ................................ 35,118 (701,543)
----------- -----------
Loss before extraordinary item ................... (1,222,313) (1,426,733)
----------- -----------
Extraordinary item, debt forgiveness ............. 197,901
----------- -----------
Net loss ......................................... (1,222,313) (1,228,832)
Other comprehensive income (loss):
Foreign currency translation adjustments .... (14,952)
----------- -----------
Comprehensive loss ............................... $(1,222,313) $(1,243,784)
=========== ===========
Loss per share before extraordinary item ......... $ (.17) $ (.29)
Extraordinary item ............................... .04
----------- -----------
Loss per share ................................... $ (.17) $ (.25)
=========== ===========
Weighted average number of shares outstanding .... 7,110,717 4,986,747
=========== ===========
See notes to consolidated financial statements.
5
<PAGE>
CALIFORNIA PRO SPORTS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Series A Series B & C
Common stock Preferred stock Preferred stock
------------------------------ ----------------------------- --------------------------
Shares Amount Shares Amount Shares Amount Warrants
------------- ------------ ------------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1,
1998 6,734,430 $ 67,344 1,099,685 $ 10,997 $ 394,200
Issuance of 209,278
shares of common
stock in
consideration for
extending the date
on certain notes
(Note 5) 209,278 2,093
Issuance of 50,000
shares of common
stock for consulting
services (Note 5) 50,000 500
Issuance of 434,200
shares of common
stock upon exercise
of options (Note 5) 434,200 4,342
Issuance of 18,500
shares of series A
preferred stock
(Note 5) 18,500 185
Issuance of 167,754
shares of Series A
preferred stock in a
private placement
(Note 3)
167,754 1,678
</TABLE>
(Continued)
6
<PAGE>
CALIFORNIA PRO SPORTS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Capital in Treasury
excess of stock
par Deficit Total
-------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
Balances, January 1,
1998 $ 11,080,758 $ (10,554,713) $ (893,640) $ 104,946
Issuance of 209,278
shares of common
stock in
consideration for
extending the date
on certain notes
(Note 5) 298,052 300,145
Issuance of 50,000
shares of common
stock for consulting
services (Note 5) 68,250 68,750
Issuance of 434,200
shares of common
stock upon exercise
of options (Note 5) 460,068 464,410
Issuance of 18,500
shares of series A
preferred stock
(Note 5) 76,128 76,313
Issuance of 167,754
shares of Series A
preferred stock in a
private placement
(Note 3)
164,975 166,653
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
CALIFORNIA PRO SPORTS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Series A Series B & C
Common stock Preferred stock Preferred stock
------------------------------ ----------------------------- --------------------------
Shares Amount Shares Amount Shares Amount Warrants
------------- ------------ ------------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of 224,000
shares of common
stock owned by
Skate Corp. In
satisfaction of
$224,000 of
liabilities
Issuance of 69,000
shares of common
stock in satisfaction
of $34,500 of
liabilities 69,000 690
Issuance of 41,667
shares of Series A
preferred stock in
satisfaction of
$150,000 of
liabilities 41,667 417
Issuance of 1,430
shares of Series B
and C preferred
stock in connection
with private
placement, net of
costs (Note 4) 1,430 337,451
Net loss for the six
months ended
June 30, 1998
------------- ------------ ------------- ----------- ----------- --------- -----------
Balances, June
30, 1998 7,496,908 $ 74,969 1,327,606 $ 13,277 1,430 $ 337,451 $ 394,200
============= ============ ============= =========== =========== ========= ===========
</TABLE>
(Continued)
8
<PAGE>
CALIFORNIA PRO SPORTS, INC., AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Capital in Treasury
excess of stock
par Deficit Total
-------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C>
Issuance of 224,000
shares of common
stock owned by
Skate Corp. In
satisfaction of
$224,000 of
liabilities 147,348 76,652 224,000
Issuance of 69,000
shares of common
stock in satisfaction
of $34,500 of
liabilities 33,810 34,500
Issuance of 41,667
shares of Series A
preferred stock in
satisfaction of
$150,000 of
liabilities 149,583 150,000
Issuance of 1,430
shares of Series B
and C preferred
stock in connection
with private
placement, net of
costs (Note 4) 753,846 1,091,297
Net loss for the six
months ended
June 30, 1998 (1,222,313) (1,222,313)
-------------- ----------------- ------------- ---------------
Balances, June
30, 1998 $ 13,232,818 $ (11,777,026) $ (816,988) $ 1,458,701
============== ================= ============= ===============
</TABLE>
See notes to consolidated financial statements.
9
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ........................................................... $ (1,222,313) $ (1,228,832)
------------ ------------
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Extraordinary gain ............................................... (197,901)
Gain on sale of investment in subsidiary ......................... (87,593)
Loss on sale of marketable securities ............................ 62,392
Foreign currency gain ............................................ (34,354)
Depreciation and amortization .................................... 115,323 391,968
Provision for bad debts .......................................... 50,836
Expense incurred upon issuance
of common stock (Note 5) ....................................... 445,208 187,813
Minority interest ................................................ 35,118 (701,543)
Decrease (increase) in assets:
Accounts receivable ............................................ (248,504) (67,404)
Income taxes receivable ........................................ 186,091
Inventories .................................................... 398,755
Prepaid expenses and other ..................................... (45,181) 154,795
Assets of subsidiary held for sale ............................. 200,169
Increase (decrease) in liabilities:
Accounts payable and accrued expenses .......................... 227,123 1,443,720
Payable to officers/shareholders and
other related parties ......................................... (22,178)
Liabilities of subsidiary held for sale ........................ 40,057
------------ ------------
Total adjustments ................................................ 769,313 1,734,366
------------ ------------
Net cash provided by (used in) operating activities ....................... (453,000) 503,534
------------ ------------
Cash flows from investing activities:
Capital expenditures ............................................... (56,962)
Proceeds from sale of marketable securities ........................ 166,260
Increase in notes receivable ....................................... (141,730)
------------ ------------
Net cash provided by (used in) investing activities ....................... (141,730) 109,298
------------ ------------
Cash flows from financing activities:
Proceeds from notes payable and long term debt ..................... 1,449,347
Repayments of notes payable and long term debt ..................... (2,019,475)
Proceeds from issuance of preferred stock .......................... 1,257,950
Proceeds from exercise of options .................................. 464,410
------------ ------------
Net cash provided by (used in) financing activities ....................... 1,722,360 (570,128)
------------ ------------
Net increase in cash ...................................................... 1,127,630 44,704
</TABLE>
(Continued)
10
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATES STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash beginning ............................................................ 13,969 59,098
------------ ------------
Cash ending ............................................................... $ 1,141,599 $ 103,802
============ ============
Supplemental disclosure of cash flow information:
Cash paid for interest ............................................. $ $ 458,659
============ ============
Supplemental disclosure of noncash investing and financing activities:
Issuance of 224,000 shares of
treasury stock in 1998 and 606,368
shares in 1997, in settlement
of amounts due ................................................... $ 224,000 $ 718,656
============ ============
Issuance of 303,333 shares of
common stock in exchange in for
392,667 shares of company's subsi-
diary stock ...................................................... $ 328,132
============
Issuance of 50,000 shares of common
stock in exchange for consulting services ........................ $ 68,750
============
Issuance of 69,000 shares of common stock
stock and 41,667 shares of preferred stock
in settlement of amounts due ..................................... $ 184,500
============
</TABLE>
See notes to consolidated financial statements.
11
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1. The interim financial statements:
The interim financial statements have been prepared by California Pro
Sports, Inc. (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, 1997
Annual Report on Form 10-KSB, the disclosures are adequate to make the
information presented not misleading. The results of operations for the
three and six months ended June 30, 1998 and 1997 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"), USA Skate Corporation ("Skate Corp.") and ImaginOn
Acquisition Corp. (Note 10). Skate Corp. was formed in 1995 to acquire
USA Skate Co., Inc. ("USA Skate"). At June 30, 1998, the Company owned
100% of the outstanding CP and ImaginOn Acquisition Corp. capital stock
and 62.3% of the outstanding Skate Corp. capital stock. Minority
interest represents Skate Corp.'s minority shareholders' 37.7%
ownership interest in Skate Corp. Intercompany transactions have been
eliminated in consolidation.
In 1996 and 1997, due to continuing operating losses, management decided
to restructure and deleverage the Company. Prior to the second quarter
of 1997, the Company sold in-line skates and accessories, under the
brand names California Pro(R) and Rolling Thunder(TM), to retail
sporting goods stores principally in North America, and sold snowboards
and accessories under the Kemper(R) brand name to retail sporting goods
stores in North America and distributors in Europe and Japan. A
majority of the in-line skates were manufactured for the Company by
Playmaker Co. Ltd. ("Playmaker"), a minority shareholder of the
Company. In September 1997, Skate Corp. sold substantially all of the
operating assets of USA Skate and Davtec, which manufactured, imported
and marketed VICTORIAVILLE(TM), VIC(R), and McMartin(TM) ice and
street/roller hockey skates, sticks and related protective gear and
12
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
2. Organization (continued):
accessories for sale to retail sporting goods stores in the United
States and Canada and independent distributors primarily located in
Europe.
3. Sale of USA Skate assets and subsequent sale of the Company's investment
in Skate Corp.:
Sale of USA Skate assets:
On September 12, 1997, the Company sold substantially all of the
operating assets of USA Skate for $14,500,000, with $1,000,000 held in
escrow for potential purchase price adjustments and other claims. The
proceeds of the sale were used to repay the Company's outstanding lines
of credit and other liabilities. Subsequent to September, purchase
price and other adjustments have reduced the escrow account by
approximately $422,000 of which approximately $105,000 was disbursed
and used to repay a trade liability. The balance of the escrow account
is to be disbursed to the Company in 1998, subject to resolution of any
additional adjustments or claims that arise.
The remaining account balances of Skate Corp. have been classified as
assets and liabilities of subsidiary held for sale in the accompanying
consolidated balance sheet and consist of the following at June 30,
1998:
Assets of subsidiary held for sale:
Cash held in escrow $ 472,002
Accounts receivable:
Trade 40,722
Related parties 391,634
-----------------
$ 904,358
=================
Liabilities of subsidiary held for sale:
Accounts payable and accrued expenses $ 484,546
Convertible promissory notes payable 861,150
-----------------
$ 1,345,696
=================
13
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
3. Sale of USA Skate assets and subsequent sale of the Company's investment
in Skate Corp. (continued):
Subsequent sale of the Company's investment in Skate Corp.:
In April 1998, the Company received commitments from a group of
accredited investors to purchase for $1,400,000 the shares of common
stock of Skate Corp. that are currently owned by the Company along with
an option to acquire shares of the Company in exchange for the
purchased shares of Skate Corp. The options allowed the investors to
exchange each common share of Skate Corp. for 1.5 shares of the
Company's common stock. In April and May 1998, the Company received
$255,000 from investors acquiring 335,507 shares of Skate Corp. Each of
the investors exercised their options to exchange those shares for
167,754 shares of the Company's Series A preferred stock, which
automatically converted to 503,261 shares of the Company's common stock
on July 15, 1998 upon the shareholders approving an increase in the
authorized common shares of the Company from 10,000,000 to 20,000,000.
Subsequent to the receipt of the $255,000, this offering was closed to
further investors, and two officers/shareholders of the Company have
agreed to purchase the shares of Skate Corp. from the Company for
$90,000 with no conversion rights. This purchase price is based on the
net book value of the Company's investment in Skate Corp. The offering
was closed to further investors as the Company was able to obtain
similar financing on terms more beneficial to the Company as discussed
in Note 4.
4. Preferred stock offering and proforma balance sheet:
Preferred stock offering:
During the second quarter of 1998, the Company began working with a
business and financial consultant to assist the Company in completing a
private placement and engaged the consultant to refer potential
investors to the Company. The Company has received $1,192,000 (net of
offering costs) from the accredited investors introduced to the Company
by the consultant, for the purchase of 1,430 shares of Series B and C
Convertible Preferred Stock, par value $.01 ("Series B/C") at a price
of $1,000 per share. The Series B/C stock is convertible at the option
of the holder at any time after 90 days from the closing date, into a
number of shares of common stock equal to $1,000 divided by the lower
of 65% of the average market price of the common stock for the five
14
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
4. Preferred stock offering and proforma balance sheet (continued):
Preferred stock offering (continued):
trading days immediately prior to the conversion date, or the market
price on the day of first closing.
Proforma balance sheet:
The unaudited pro forma balance sheet includes pro forma adjustments to
record the receipt of $400,000 cash from investors who acquired 500,000
shares of the restricted common stock from the Company. The pro forma
balance sheet also includes the receipt of committed funds from
accredited investors of $600,000 cash to purchase 600 series B/C
Convertible Preferred Stock, less estimated fees associated with the
offering. In addition, the proforma balance sheet includes a $90,000
receivable from two officers/shareholders of the Company to purchase
the shares of Skate Corp.
The accompanying unaudited consolidated balance sheet includes an
unaudited pro forma consolidated balance sheet as of June 30, 1998,
that gives effect to the above transactions as if they had been
consummated on June 30, 1998. The unaudited pro forma consolidated
balance sheet should be read in conjunction with the historical
financial statements of the Company. The unaudited pro forma
consolidated balance sheet does not purport to be indicative of the
financial position of the Company had the transactions occurred on June
30, 1998.
5. Shareholders' equity:
Preferred stock:
The Company, as of June 30, had Series A, B and C Convertible Preferred
Stock outstanding. The holders of the Company's Series A Preferred
Stock are entitled to vote on any matter submitted to the shareholders
of the Company. Each share of Series A Convertible Preferred Stock is
entitled to one vote. Each share of outstanding Series A Convertible
Preferred Stock automatically converted to three shares of common stock
on July 15, 1998 upon shareholder approval of a recapitalization
measure that increases the authorized number of common shares of the
Company, from 10,000,000 to 20,000,000. Upon the conversion of the
Series A Preferred Stock into common stock, there are no Series A
15
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
5. Shareholders' equity (continued):
Preferred stock (continued):
Preferred shareS outstanding and accordingly all rights for Series A
stockholders have been terminated.
During the first quarter of 1998, the Company issued 18,500 shares of
Series A Preferred Stock to an officer of the Company. The shares were
valued based upon the trading price of the Company's common stock,
adjusted for the one for three conversion feature of the preferred
stock, and accordingly, the Company recognized an expense of
approximately $76,313 in the three months ended March 31, 1998. The
18,500 shares of Series A Preferred Stock automatically converted to
55,500 shares of the Company's common stock on July 15, 1998 upon the
shareholders of the Company approving an increase to the authorized
shares of common stock of the Company from 10,000,000 to 20,000,000.
Issuances of common stock:
During the six months ended June 30, 1998, the Company issued 209,278
shares of its common stock at prices from $1.15 to $1.72 per share in
exchange for the extensions of the maturity date on notes of Skate
Corp. The Company recognized finance fee expense of $300,145 related to
these services. Additionally, the Company issued 50,000 shares of its
common stock at $1.375 per share (the market value of the stock on the
effective date of issuance) to a consultant who was a former director
and officer of the Company. The Company recognized $68,750 of
consulting expenses related to this issuance. During the six months
ended June 30, 1998, 434,200 options and/or warrants were exercised at
$1.00 per share, by officers (211,700), consultant (200,000), director
(15,000) and an employee (7,500).
Issuance of treasury stock:
During the six months ended June 30, 1998, the Company issued 224,000
treasury shares owned by Skate Corp. with a carrying value of $76,652
in satisfaction of $224,000 of Skate Corp. liabilities held for sale.
As a result of this transaction, the treasury stock balance has been
reduced by $76,652.
16
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
6. 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. During the
quarter ended March 31, 1997, the Company sold the securities for
$166,260 and reduced its bank indebtedness with the proceeds. The
Company recorded a loss of $62,392 on the transactions.
7. Export sales:
Sales by geographic regions were as follows for the three and six months
ended June 30, 1997:
June 30, 1997 June 30, 1997
Three months Six months
----------------- -----------------
Canada $ 1,182,051 $ 2,282,502
Europe and other 811,545 1,267,520
----------------- -----------------
Total exports 1,993,596 3,550,022
US sales 2,016,834 3,226,217
----------------- -----------------
Total sales $ 4,010,430 $ 6,776,239
================= =================
8. Gain on sale of investment in subsidiary:
In March 1997, the Company satisfied $106,500 of payables by exchanging
88,750 shares of Skate Corp. common stock held by the Company. The
recorded cost of the USA shares transferred was $61,237 and the fair
value of those shares at the date of exchange was $106,500 ($1.20 per
share). The Company also sold 83,000 shares of Skate Corp. common stock
held by the Company to a third party. The carrying value of the Skate
Corp. shares was $57,270 and the fiar value of those shares was $99,600
($1.20 per share). These transactions resulted in total gains of
$87,593.
17
<PAGE>
CALIFORNIA PRO SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
8. Gain on sale of investment in subsidiary (continued):
In June 1997, the Company issued 170,000 shares of its common stock to an
officer/director for 141,667 shares of USA common stock. Additionally,
the Company issued 133,333 shares of its common stock to acquire
250,000 shares of USA stock, that otherwise the Company would have been
obligated to redeem. The Company accounted for these transactions under
the purchase method of accounting, based upon the market value of the
common stock issued by the Company. The Company's ownership of USA was
increased from 51% to 62.5% due to these transactions.
9. Extraordinary item:
InMarch 1997, the Company recognized an extraordinary gain of $197,901
from the extinguishment of debt for amounts less than the carrying
value of the liabilities.
10. Merger agreement:
On January 30, 1998, the Company, through ImaginOn Acquisition Corp., a
newly formed, wholly-owned subsidiary of the Company, signed an
agreement and plan of merger with ImaginOn, Inc. of San Carlos,
California ("ImaginOn"), a privately held company. The agreement
provides for an exchange of 100% of the outstanding shares of ImaginOn
for an amount equal to 60% of the outstanding post-merger common stock
of California Pro, subject to certain adjustments.
ImaginOn designs, manufactures and sells consumer software products for
Internet users. The merger transaction, which is expected to be
completed in the fall of 1998, is contingent upon certain customary
conditions including, but not limited to, approval by the boards of
directors of both companies, a vote by the Company's shareholders (to
approve the merger and increase the authorized shares the Company may
issue), and the completion of a fairness opinion by an independent
valuation company.
11. Comprehensive income:
On January 1,1998 the company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This standard
establishes requirements for disclosure of comprehensive income which
includes certain items previously not included in the statement of
operations including minimum pension liability adjustments and foreign
currency translation adjustments, among others. For the three and six
months ended June 30, 1998, the company had no items of comprehensive
income. The financial statements for the three and six months ended
June 30, 1997 and 1998 have been reclassified to disclose items of
comprehensive income. There are no significant tax effects related to
these items.
18
<PAGE>
ITEM TWO
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
THIS REPORT MAY CONTAIN CERTAIN "FORWARD-LOOKING" STATEMENTS AS SUCH TERM IS
DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 OR BY THE
SECURITIES AND EXCHANGE COMMISSION IN ITS RULES, REGULATIONS AND RELEASES, WHICH
REPRESENT THE REGISTRANT'S EXPECTATIONS OR BELIEFS, INCLUDING BUT NOT LIMITED
TO, STATEMENTS CONCERNING THE REGISTRANT'S OPERATIONS, ECONOMIC PERFORMANCE,
FINANCIAL CONDITION, GROWTH AND ACQUISITION STRATEGIES, INVESTMENTS, AND FUTURE
OPERATIONAL PLANS. FOR THIS PURPOSE, ANY STATEMENTS CONTAINED HEREIN THAT ARE
NOT STATEMENTS OF HISTORICAL FACT MAY BE DEEMED TO BE FORWARD-LOOKING
STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, WORDS SUCH AS
"MAY," "WILL," "EXPECT," "BELIEVE," "ANTICIPATE," "INTENT," "COULD," "ESTIMATE,"
"MIGHT," OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR COMPARABLE
TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE
STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES, CERTAIN
OF WHICH ARE BEYOND THE REGISTRANT'S CONTROL, AND ACTUAL RESULTS MAY DIFFER
MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT FACTORS, INCLUDING UNCERTAINTY
RELATED TO ACQUISITIONS, GOVERNMENTAL REGULATION, MANAGING AND MAINTAINING
GROWTH, VOLATILITY OF STOCK PRICE AND ANY OTHER FACTORS DISCUSSED IN THIS AND
OTHER REGISTRANT FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
During 1997, the Company had limited operating revenues in its in-line
skate and snowboard businesses, and in September 1997, sold
substantially all of the assets of its ice and street/roller hockey
business ("Hockey"). In 1998, the Company had no operating revenues,
but did realize income from sub-licensing agreements. The following
discussion pertains to the business operations for in-line skates,
snowboards and hockey for the three and six months ended June 30, 1997.
The Company imported and distributed products in three participant sports
categories. In-line skates and related accessory products were marketed
under the brand names California Pro(R) and Rolling Thunder(TM); since
August 1, 1994, snowboards and snowboard accessory products were
marketed under the Kemper(R) brand; and from May 1996 to September 1,
1997, ice and street/roller hockey skates, sticks, related gear and
accessories, as well as figure skates were marketed under the
VICTORIAVILLE(TM), VIC(R), Hespeler(TM) and cMartin(R) brands. The
Company purchased most of its in-line skate and snowboard products from
manufacturers in Taiwan, mainland China, Austria and Canada. Some of
the Company's accessory products were purchased from domestic
suppliers. Approximately 70% of all hockey products sold were
manufactured by Davtec and skates and related gear were purchased from
foreign suppliers.
The Company sold its in-line skate products principally to major retail
sporting goods chains in North America and to U.S. military exchanges
worldwide, through independent sales representative groups, under an
exclusive royalty free perpetual license. Snowboard products were 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 its foreign distributors. Hockey products were 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 were
sold to and distributed by independent distributors located primarily
in Germany, Switzerland, Italy, Austria, Czech Republic, Sweden,
France, Finland and Brazil.
19
<PAGE>
ITEM TWO
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
In 1997, due to continuing operating losses, management decided to
restructure and deleverage the Company. In connection with these plans,
the Company:
a. Ceased distribution of products covered under the California Pro and
Kemper licenses, thereby eliminating most of the operating and
overhead expenses associated with its sporting goods business and
began to concentrate on sub- licensing the Company's trademark
rights. Accordingly, in 1996 the Company recorded restructuring
charges of $1,229,000 and in the second quarter of 1997, the Company
began liquidating remaining in-line skate, snowboard and accessories
inventories.
b. Completed the sale of substantially all of the operating assets of
USA Skate nd Davtec.
c. Commenced a search for sub-licensees of its California Pro and Kemper
licenses.
d. Commenced a search for a merger candidate. As a result of its search,
on October 2, 1997, the Company signed a letter of intent to merge
with ImaginOn, Inc., a privately held company, and on January 30,
198, the Company signed an agreement and plan of merger with
ImaginOn.
e. Began investigating other options, including the sale of subsidiries
and potential private offerings.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company has incurred
significant operating losses in 1997 and in the six months ended June
30, 1998 and has accumulated deficit at June 30, 1998. These conditions
raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments
to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of
liabilities that may result from the outcome of these uncertainties.
As a result of the sale of the Company's hockey business to Rawlings, and
other restructuring and de-leveraging activities, including the
assumption and assignment of certain notes and trade payables to third
parties in exchange for common and/or preferred stock of the Company,
the Company has reduced its liabilities from approximately $18,988,000
as of December 31, 1996 to approximately $1,637,000 as of June 30,
1998.
Having taken major steps to de-leverage the Company and redirect the
Company towards profitability, three other parts of the Company's plan
remain to be completed. The Company has completed private placements
generating aggregate proceeds of $2,342,000. In addition, $464,410 has
been received from the exercise of stock options for the purchase of
434,200 shares of the Company's common stock. Additionally, in
conjunction with dramatically reduced overhead, a plan to restore
operating profitability to the remaining sporting goods businesses is
in place through licensing programs. Finally, the Company is seeking to
diversify its business through a merger with ImaginOn, Inc. Each part
of the Company's plan is discussed in detail below.
20
<PAGE>
ITEM TWO
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
On March 13, 1998, the Company began a private placement for the sale of
the 1,842,000 shares of Skate Corp. common stock it owns, which
includes an option to acquire 2,763,000 shares of the Company's common
stock in exchange for the Skate Corp. shares. The Company intended to
sell 14 units at $100,000 each for total aggregate proceeds of
$1,400,000. Each unit consists of 131,571 shares of Skate Corp. with an
option to acquire 197,357 shares of the Company's common stock in
exchange for the Skate Corp. shares. The Company received $255,000 cash
from purchasers acquiring 335,507 shares of Skate Corp. Each of the
investors exercised their options to exchange those shares for 167,754
shares of the Company's Series A preferred stock which automatically
converted to 503,261 shares of the Company's common stock on July 15,
1998 upon shareholder approval of increasing the authorized shares of
common stock from 10,000,000 to 20,000,000. Subsequent to the receipt
of the $255,000, this offering was closed to further investors, and two
officers/shareholders of the Company have agreed to purchase the shares
of Skate Corp. from the Company for $90,000.
The Company's business and financial consultant has introduced to the
Company accredited investors who have purchased a combination of the
Company's Series B and C Preferred Stock and restricted common stock
for net proceeds of $2,082,000. The Series B and C Preferred Stock will
be convertible at the option of the holder at any time after 90 days
from the closing date into a number of shares of common stock equal to
$1,000 divided by the lower of 65% of the average market price of the
common stock for five days immediately prior to the conversion date, or
the market price at the first day of closing. These private placements
were completed August 1998.
As part of its restructuring plan, the Company has eliminated most of the
overhead expenses associated with its sporting goods business and has
begun to concentrate on sub- licensing its trademark rights to the
Kemper and California Pro trade names.
The Company recently entered into two sub-license agreements regarding
the use of the Kemper name. After considerable consolidation in the
snowboard industry in 1997, the Company believes the snowboard market
is rebounding. Kemper, one of the original snowboard brands, could
prosper in this new environment. The combined minimum annual royalty of
these licenses is $55,000, and based upon discussions with the
sub-licensors and review of their sales plans, management projects that
the actual combined royalty income from these two licenses may be
$125,000 and $175,000 in 1998 and 1999, respectively.
The Company also believes that there is value in the marketplace for the
California Pro brand, not only in-line skates, but in other sporting
goods categories such as skateboards and waterskis. The Company has
begun to discuss these, as well as other product categories, with
various sub-licenses.
The Company believes it can achieve profits based on its sub-licenses of
its existing sporting goods brands in conjunction with the limited
overhead expenses associated with licensing operations.
In August 1997, the Company began negotiating with ImaginOn, Inc.
("ImaginOn") of San Carlos, California, a privately held company, to
acquire, in an exchange of stock, all of the outstanding capital stock
of ImaginOn. ImaginOn, formed in March 1996, designs, manufactures and
sells: (I) consumer software products for the CD/DVD-ROM market and
(ii) a navigational tool for sophisticated Internet users. ImaginOn's
proprietary technology, called "Transformational Database Processing
and Playback" ("TDPP"), enables the creation of new business and
consumer products that provide user-friendly and entertaining access to
multimedia databases.
21
<PAGE>
ITEM TWO
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
The Company signed an Agreement and Plan of Merger as of January 30, 1998
whereby there would be an exchange of 100% of the outstanding shares of
ImaginOn for an amount equal to 60% of the outstanding post-merger
common stock of the Company, subject to certain adjustments. The
transaction, which is expected to be completed in the fall of 1998, is
contingent upon certain customary conditions including, but not limited
to, approval by the boards of directors of both companies, a vote by
the Company's stockholders (to approve the merger and increase the
authorized shares the Company may issue), and the completion of a
fairness opinion by an independent valuation company.
ImaginOn has developed and manufactured a general purpose software
application, named "WebZinger" for internet browsers. WebZinger(TM)
mediates Web searches for both naive and sophisticated users,
increasing efficiency and saving time. ImaginOn's core technology,
TDPP, has enabled the creation of a new class of business and consumer
products; a hybrid of local and remote database content with seamless
real-time access to video, audio, graphics and text. ImaginOn has
designed eleven software tools based on TDPP. The first software title
"World Cities 2000 San Francisco," an interactive travelogue is
substantially complete.
ImaginOn's potentially largest marketing partner for WorldCities 2000
travelogues has requested that two cities be completed prior to
starting their marketing effort: San Francisco and New York which
will be complete by December 1998.
WebZinger(TM) will be marketed during 1998 via electronic downloads from
multiple websites by distributors who specialize in that channel. In
the future, WebZinger(TM) will be distributed on CD-ROM within
conventional retail channels. ImaginOn has entered into a co- marketing
arrangement with AT&T whereby the WebZinger(TM) CD includes the
built-in option of using AT&T WorldNet as an internet service provider.
WebZinger(TM) can also be purchased through Netscape's Software Depot
and Testdrive.Com. Additionally, co-marketing arrangements are under
negotiation with other leading software providers.
Management believes it has begun the successful implementation of a plan
that will provide the Company with the liquidity necessary to continue
as a going concern.
22
<PAGE>
ITEM TWO
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION (CONTINUED)
RESULTS OF OPERATIONS:
The following table sets forth the Company's sales by major product category for
the period indicated:
Three Months Ended Six Months Ended
June 30 June 30
1997 1997
---- ----
Dollars Percent Dollars Percent
------- ------ ------- -------
In-line skates and accessories . $ 188 5% $ 639 9%
Snowboards and accessories ..... 223 6% 317 5%
Ice and street/roller hockey (1) 3,599 89% 5,820 86%
------ ------ ------ ------
$4,010 100% $6,776 100%
====== ====== ====== ======
THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO JUNE 30, 1997
NET SALES: Sales for the three and six months ended June 30, 1997 and 1998 were
$4,010,430 and $6,776,239, respectively. For the three and six months ended June
30, 1998, the Company recorded royalty income of $23,820 and $58,926,
respectively.
GROSS PROFIT: For the three and six months ended June 30, 1997 and 1998, gross
profit was $1,257,439 and $91,804,092, respectively.
SALES AND MARKETING EXPENSES: There were no sales and marketing expenses during
the three months ended June 30, 1998 compared to $394,975 for the three months
ended June 30, 1997. For the six months ended June 30, 1998, sales and marketing
expenses were $4,084 compared to $837,171 for the six months ended June 30,
1997. These decreases were a result of the company ceasing its sales and
marketing activities in 1998, as it sub-licensed its rights to the Kemper
Trademark, and no longer incurred sales and marketing expense. The 1997 sales
and marketing expenses also included those of USA Skate. In September 1997, the
Company completed the sale of substantially all of the operating assets of USA
Skate.
GENERAL AND ADMINISTRATIVE EXPENSES: General and administrative expenses
decreased to $357,898 for the three months ended June 30, 1998 from $1,160,103
to the three months ended June 30, 1997. During the six months ended June 30,
1998, general and administrative expenses decreased to $697,366 from $1,989,640
for the six months ended June 30, 1997. These decreases were attributable to
significantly reduced general and administrative expenses due to the sale of the
Company's hockey business in September, 1997.
The primary expenses for the three months ended June 30, 1998 were legal and
accounting $80,578, consulting expenses $130,000, payroll, payroll taxes and
expense reimbursement of $60,994. The primary expenses for the six months ended
June 30, 1998 were legal and accounting $187,871, consulting expenses $238,750,
payroll, payroll taxes, and expense reimbursement of $218,532.
DEPRECIATION AND AMORTIZATION: Depreciation and amortization expense for the
three months ended June 30, 1998 was $62,090 compared to $198,185 for the three
months ended June 30, 1997. Of the 1997 three month expense $142,975 was related
to Company's hockey business which was sold in September 1997. For the six
months ended June 30, 1998 depreciation and amortization expense was $124,181
compared to $391,968 for the six months ended June 30, 1997. The 1997 six month
expenses included approximately $250,000 related to the Company's hockey
business.
23
<PAGE>
ITEM TWO
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION (CONTINUED)
CONSULTING EXPENSES: Consulting expenses were $30,000 and $60,000 for the three
and six months ended June 30, 1998, respectively, compared to $60,000
and$120,000 for the three and six months ended June 30, 1997, respectively. The
reason for the decrease was attributable to including USA Skate fees for the
full three and six months in 1997.
LOSS FROM OPERATIONS: For the three and six months ended June 30, 1998, the loss
from operations was $449, 988 and $885,631, respectively, compared to the loss
from operations for the three and six months ended June 30, 1997 of $555,824 and
$1,534,687, respectively. The primary reason for the decrease in operating
losses in the 1998 periods compared to the 1997 periods are decreases in
operating costs. These decreases were caused by the reduced operating expenses
due to the sale of the Company's hockey business and the reduction in operating
costs from restructuring operating the remaining trademarks and licenses to
entering into sub-license agreements.
OTHER EXPENSE/INCOME: Other expenses for the three months ended June 30, 1998
were $129,491 compared to $348,122 for the three months ended June 30, 1997.
Other expenses for the six months ended June 30, 1998 were $301,564 compared to
$593,589 for the six months ended June 30, 1997.
NET LOSS: Net loss for the three and six months ended June 30, 1998 was $590,889
and $1,222,313 respectively, compared to net loss for the three and six months
ended June 30, 1997 of $731,589 and 1,228,832, respectively. The primary reasons
for the decreases were reductions in the losses from operations of $105,836 and
$649,236 for the three and six months ended June 30, 1998 compared to the three
and six months ended June 30, 1997 as described above, and decreases in interest
and other expenses. These decreases were offset by extraordinary income of
$197,901 for debt forgiveness and $736,661 for minority interest in the 1997
period.
LIQUIDITY AND CAPITAL RESOURCES: The Independent Auditors' Report on the
Company's consolidated financial statements for the year ended December 31, 1997
included a "going concern" explanatory paragraph which means that the Auditors
have expressed substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regards to the factors which prompted the
explanatory paragraph are discussed in Note 1 to those financial statements.
Through September 1, 1997, the Company funded its operations principally through
a revolving credit facility with a bank, and, to a lesser degree, loans from
private investors and trade credit. Concurrent with the sale of the USA Skate
assets, the revolving line of credit facility was repaid in full and other
indebtedness of the Company was significantly reduced.
On September 12, 1997, the Company sold substantially all of the assets of its
hockey business for $14,500,000 inclusive of $1,000,000 retained in escrow for
purchase price adjustments and proven claims by the purchasers, and assumption
of trade payables and accrued liabilities of approximately $1,600,000 related to
the assets purchased. The proceeds were utilized as follows:
Secured revolving lines of credit $ 7,984,000
Convertible noteholders 949,000
Secured debt 519,000
Other notes 100,000
Stockholder notes 505,000
Payment to previous USA Skate owners 2,678,000
Interest payments 85,000
Cash to escrow account 1,000,000
Cash in bank 680,000
-------------
$ 14,500,000
=============
24
<PAGE>
ITEM TWO
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION (CONTINUED)
In February 1998, Rawlings and the Company agreed to a purchase price reduction
of $395,108 due to a final valuation by Rawlings of the fair value of the net
assets purchased.
At June 30, 1998, the Company had working capital of approximately $1,103,571
compared to a deficit of $400,625 at December 31, 1997. The increase in the
working capital is primarily related to the Company realizing net proceeds of
approximately $1,420,000 from various private placements as further described in
Notes 3 and 4. Additionally, the Company has converted $243,000 of debt to
equity.
In addition, the Company announced that the exercise price of its publicly
traded common stock purchase warrants has been reduced from $6.00 to $1.50 per
share and the expiration date has been extended from January 18, 1998 to
December 31, 1998.
25
<PAGE>
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES.
a. N/A
b. N/A
c. During the three month period covered by this report, the
Registrant issued the following securities:
On April 5, 1998, the Registrant issued 37,467 shares of its
common stock in exchange for the extensions of the maturity date
to May 5, 1998 on notes of Skate Corp. The amount was owed based
upon 5% of the outstanding principal balance, and payment was
based on $1.43 per share. The Registrant relied on the exemption
from registration provided by Section 4(6) of the Securities Act
related to the issuance of these shares.
On April 1, 1998 the registrant issued 200,000 shares of its
common stock to a consultant to the Company upon the exercise of
a previously granted option.
On May 5, 1998, the Registrant issued 25,047 shares of its common
stock in exchange for the extensions of the maturity date to June
5, 1998 on notes of Skate Corp. The amount was owed based upon 5%
of the outstanding principal balance and payment was made based
on $1.72 per share. The Registrant relied on the exemption from
registration provided by Section 4(6) of the Securities Act
related to the issuance of these shares.
On May 15, 1998, the Registrant issued 49,500 shares of its
common stock to an officer of the Company upon the exercise of
previously granted option under the Company's 1994 Stock Option
Plan.
On June 5, 1998, the Registrant issued 34,950 shares of its
common stock in exchange for the extensions of the maturity date
to July 5, 1998 on notes of Skate Corp. The amount owed was based
upon 5% of the outstanding principal balance and payment was made
based on $1.23 per share. The Registrant relied on the exemption
from registration provided by Section 4(6) of the Securities Act
related to the issuance of these shares.
On June 5, 1998, the Registrant issued 60,000 shares of its
common stock to a an officer/director of the Company upon the
exercise of previously granted warrants.
On June 20, 1998, the Company issued 17,200 shares of its common
stock to an officer/director of the Company upon the exercise of
previously granted warrants.
On June 30, 1998, the Registrant issued 69,000 shares of its
common stock to an entity in exchange for assumptionof certain
liabilities of the Company totalling $34,500. The Registrant
relied on the exemptions from registration provided by Sections
4(2) and/or 4(6) of the Securities Act because the recipient of
these shares was an accredited investor.
26
<PAGE>
PART II
OTHER INFORMATION
ITEM 4. Submission of matters to a vote of security holders.
None.
ITEM 5. Other information.
None.
ITEM 6. Exhibits and Reports on Form 8-K:
a. Exhibits
3.(I).1 Certificate of Designation of California Pro Sports,
Inc., - Designation of Preferences, Limitations and
Relative Rights of the Series B preferred Convertible
Stock of California Pro Sports, Inc. (INCORPORATED BY
REFERENCE TO EXHIBIT 3.(I).1 TO THE COMPANY'S FORM 10-QSB
FOR THE QUARTER ENDED JUNE 30, 1998 (THE "1998 JUNE FORM
10-QSB")
3.(I).2 Certificate of Designation of California Pro Sports, Inc.
- Designation of Preferences, Limitations and Relative
Rights of the Series C Preferred Cohnvertible Stock of
California Pro Sports, Inc. (INCORPORATED BY REFERENCE TO
EXHIBIT 3.(I).2 TO THE 1998 JUNE FORM 10-QSB)
3.(I).3 Certificate of Amendment to Certificate of Incorporation
of California Pro Sports, Inc. dated July 22, 1998.
(INCORPORATED BY REFERENCE TO EXHIBIT 3.(I).3 TO THE 1998
JUNE FORM 10-QSB)
27.1 Financial Data Schedule. (INCORPORATED BY REFERENCE TO
EXHIBIT 27.1 TO THE 1998 JUNE FORM 10-QSB)
b. Reports on Form 8-K
1. Form 8-K dated June 25, 1998 reporting "Other Events" under
Item 5, and "Pro Forma Financial Statements" under Item 7(b).
27
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CALIFORNIA PRO SPORTS, INC.
Dated: October 23, 1998 By: Henry Fong
/S/ HENRY FONG
----------------------------------
Henry Fong
Chairman/Chief Executive Officer
Dated: October 23, 1998 By: Barry S. Hollander
/S/ BARRY S. HOLLANDER
----------------------------------
Barry S. Hollander
Chief Financial Officer
28
