sec document
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 8-K/A
(AMENDMENT NO. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 1, 2002
----------------
SPORTING MAGIC, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-25247 95-4675095
-------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
7625 Hamilton Park Drive, Suite 12, Chattanooga, Tennessee 37421
-----------------------------------------------------------------
Address of principal executive offices
Registrant's telephone number, including area code: 423-296-8213
------------
-------------------------------------------------------------
(Former name or former address, if changed since last report.)
This form 8-K/A amends the current report on Form 8-K filed February 19,
2002 to include Item 7 Financial Statements of Next, Inc.
Item 7. Financial Statements and Exhibits
(a) Consolidated Financial Statements of Next, Inc.:
1
NEXT INC. AND SUBSIDIARIES
CONTENTS
--------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS
Balance Sheet F-2
Statements of Income F-4
Statements of Changes in Stockholders' Equity F-5
Statements of Cash Flows F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-8
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors
Next Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Next Inc. and
Subsidiaries as of November 30, 2001, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for the eleven month
period ended November 30, 2001 and the year ended December 31, 2000. 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 auditing standards generally accepted
in the United States of America. 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 consolidated financial position of Next
Inc. and Subsidiaries as of November 30, 2001, and the consolidated results of
their operations and consolidated cash flows for the eleven month period ended
November 30, 2001 and the year ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America.
s\ Marcum & Kliegman LLP
January 25, 2002, except for Note 2
as to which the date is February 1, 2002
New York, New York
F-1
NEXT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
November 30, 2001
--------------------------------------------------------------------------------
ASSETS
------
CURRENT ASSETS
--------------
Cash $ 105,212
Restricted investment 277,848
Accounts receivable, less allowance for doubtful accounts
of $508,000 3,019,058
Inventories 3,054,098
Prepaid expenses and other current assets 320,947
-----------
TOTAL CURRENT ASSETS $6,777,163
PROPERTY, PLANT AND EQUIPMENT, Net 1,663,583
----------------------------- ----------
TOTAL ASSETS $8,440,746
==========
The accompanying notes are an integral part of these financial statements.
F-2
NEXT INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
November 30, 2001
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
-------------------
Accounts payable $1,504,687
Accrued expenses and other current liabilities 225,935
Short-term debt 3,236,806
Current maturities of long term debt 148,028
----------
TOTAL CURRENT LIABILITIES $5,115,456
OTHER LIABILITIES
-----------------
Long-term debt, less current maturities 1,838,935
---------
TOTAL OTHER LIABILITIES 1,838,935
----------
TOTAL LIABILITIES 6,954,391
COMMITMENTS AND CONTINGENCIES
-----------------------------
STOCKHOLDERS' EQUITY
--------------------
Preferred Stock, Series A, Cumulative, $.0001 par value;
9,500,000 shares authorized, 7,000,000 shares issued
and outstanding (liquidating preference $1.00 per share) 700
Common stock, $.001 par value; 25,000,000 shares
authorized, 6,000,000 shares issued and outstanding 6,000
Additional paid-in capital 111,352
Retained earnings 1,368,303
----------
TOTAL STOCKHOLDERS' EQUITY 1,486,355
---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $8,440,746
==========
The accompanying notes are an integral part of these financial statements.
F-3
NEXT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Eleven Months Ended November 30, 2001
and Year Ended December 31, 2000
--------------------------------------------------------------------------------
2001 2000
-----------------------------
NET SALES $ 10,822,517 $ 7,043,715
---------
COST OF SALES 8,064,400 5,382,922
------------- ------------ ------------
GROSS PROFIT 2,758,117 1,660,793
OPERATING EXPENSES
------------------
General Administrative and Selling Expenses 2,142,306 1,020,100
------------ ------------
OPERATING INCOME 615,811 640,693
------------ ------------
OTHER INCOME AND (EXPENSE)
--------------------------
Interest expense (339,492) (457,603)
Interest income 16,538 33,075
------------ ------------
TOTAL OTHER EXPENSE (322,954) (424,528)
------------ ------------
NET INCOME $ 292,857 $ 216,165
============ ============
NET INCOME PER SHARE
--------------------
Weighted average shares outstanding 6,000,000 6,000,000
============ ============
Net income per share, basic and diluted $ 0.05 $ 0.04
============ ============
The accompanying notes are an integral part of these financial statements.
F-4
NEXT INC AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Common Stock Additional
---------------- ------------- Paid-In Retained
Shares Amount Shares Amount Capital Earnings Total
----------------------------------------------------------------------------------------------
BALANCE - January 1, 2000 7,000,000 $700 6,000,000 $6,000 $ -- $ 859,281 $ 865,981
-------
Net income -- -- -- -- -- 216,165 216,165
BALANCE - December 31, 2000 7,000,000 700 6,000,000 6,000 -- 1,075,446 1,082,146
-------
Capital contribution by stockholders -- -- -- -- 111,352 -- 111,352
Net income -- -- -- -- -- 292,857 292,857
----------- ----- ---------- ------- -------- ---------- -----------
BALANCE - November 30, 2001 7,000,000 $700 6,000,000 $6,000 $111,352 $1,368,303 $ 1,486,355
------- ========== ==== ========= ======= ======== ========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
NEXT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Eleven Months Ended November 30, 2001
and Year Ended December 31, 2000
--------------------------------------------------------------------------------
2001 2000
---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
------------------------------------
Net income $ 292,857 $ 216,165
----------- -----------
Adjustments to reconcile net income to net
Cash (used in) provided by operating activities:
Depreciation and amortization 108,553 112,178
Provision for bad debts 507,512 --
Changes in operating assets and liabilities:
Accounts receivable (2,117,942) 226,333
Inventories (373,445) 310,630
Prepaid expenses and other current assets (30,936) (169,938)
Accounts payable 1,188,405 (34,644)
Accrued expenses and other current liabilities 141,720 (42,993)
----------- -----------
TOTAL ADJUSTMENTS (576,133) 401,566
----------- -----------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES (283,276) 617,731
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
------------------------------------
Short Term Investment - Restricted -- (277,848)
Purchases of property, plant and equipment (33,063) (88,898)
----------- -----------
NET CASH USED IN INVESTING
ACTIVITIES (33,063) (366,746)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
------------------------------------
Proceeds from loans and notes payable, bank 4,970,418 2,900,561
Repayments of loans and notes payable, bank (4,117,254) (2,829,454)
Advances on notes receivable, stockholders (275,000) (162,152)
Advances to stockholder -- (6,496)
Principal repayments of long-term debt (191,393) (189,121)
Principal repayments on capital lease obligations (46,213) (32,657)
----------- -----------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES $ 340,558 $ (319,319)
----------- -----------
The accompanying notes are an integral part of these financial statements.
F-6
NEXT INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW, Continued
For the Eleven Months Ended November 30, 2001
and Year Ended December 31, 2000
--------------------------------------------------------------------------------
2001 2000
----------------------
NET INCREASE IN CASH $ 24,219 $ (68,334)
CASH - Beginning 80,993 149,327
---- --------- ---------
CASH - Ending $ 105,212 $ 80,993
---- ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-------------------------------------------------
Cash paid during the period for:
Interest $ 339,492 $ 454,267
Non-cash investing and financing activities:
For the eleven months ended November 30, 2001 and the year ended December 31,
2000 the Company purchased equipment under capital lease obligations of $248,790
and $27,998, respectively.
The accompanying notes are an integral part of these financial statements.
F-7
NOTE 1 - Summary of Significant Accounting Policies
------------------------------------------
The Company
-----------
Next Inc. (the "Company") was incorporated on November 19, 2001, under
the laws of the State of Delaware. The Company is the successor entity
to Next Inc. ("Next IN"), and Blue Sky Graphics Inc., ("Blue Sky IN"),
both incorporated under the laws of the State of Indiana, as "S"
Corporations in August 1997 and April 1989 respectively.
On November 26, 2001, Next Marketing Inc., ("Next Marketing"), and Blue
Sky Graphics Inc., ("Blue Sky DE"), were formed under the laws of the
State of Delaware as wholly owned subsidiaries of the Company.
On November 28, 2001 the stockholders of Next IN and Blue Sky IN,
exchanged all shares owned by them in Next IN and Blue Sky IN with the
Company for 13,000,000 shares of common stock. Next IN and Blue Sky IN
were merged into Next Marketing and Blue Sky DE, respectively.
Effective as of November 30, 2001, the Company's three stockholders
exchanged 7,000,000 shares of common stock on a pro rata basis for
7,000,000 shares as Series A, $.0001 par value Cumulative Preferred
stock. Such Preferred stock has a liquidation value of $1 per share.
This Preferred stock will pay dividends at the rate of $.10 per
outstanding share of Preferred stock in Common stock as defined in the
Agreement.
The above series of transactions are being treated as a
recapitalization of Next IN and Blue Sky IN, and have been accounted
for on a historical cost basis for all periods presented.
Nature of Business
------------------
The Company is a sales and marketing organization that designs,
develops, markets and distributes branded promotional products and
imprinted sportswear, primarily under licensing agreements. The primary
industries served by the Company are two interrelated industries,
promotional products and imprinted sportswear throughout the United
States.
Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts
of Next, Inc., and its two wholly owned subsidiaries. All material
intercompany accounts and transactions have been eliminated in
consolidation.
Change in Year-end
------------------
The Company determined to change its fiscal year end from December 31
to November 30 effective for the year beginning January 1, 2001.
Accordingly, the Company is presenting financial information and
accompanying notes, for the eleven months ended November 30, 2001.
F-8
NOTE 1 - Summary of Significant Accounting Policies, continued
------------------------------------------
Change in Year-end, continued
------------------
The following summary unaudited financial information for the Company
for the eleven months ended November 30, 2000 is as follows:
Net sales $6,859,000
==========
Operating income $ 749,000
==========
Net income $ 346,000
==========
Net income per share $ .06
==========
Property, Plant and Equipment
-----------------------------
Property, plant, and equipment are valued at cost and are being
depreciated using the straight-line method over the estimated useful
lives. Upon sale or retirement, asset cost and its related accumulated
depreciation are eliminated from the respective accounts and any
resulting gain or loss is recognized in income. Routine maintenance and
repairs are charged to expense as incurred. Expenditures, which
materially increase the value or extend useful lives, are capitalized.
Concentration of Credit Risk
----------------------------
The Company extends credit to customers which results in accounts
receivable arising from its normal business activities. The Company
does not require collateral from its customers but assesses the
financial strength of its customers. Based on such assessment, the
Company has provided a specific allowance for doubtful accounts in the
approximate amount of $333,000 related to a major customer which filed
for protection under Chapter 11 of the United States Bankruptcy Code in
January 2002. The amount due from such customer at November 30, 2001 is
approximately $848,000. Sales to this customer approximated $3,378,000
(31%) and $4,055,000 (56%) for the eleven months ended November 30,
2001 and the year ended December 31, 2000, respectively. In addition,
as of November 30, 2001, the Company provided an allowance for doubtful
accounts in the amount of $175,000 as an allowance for the accounts
receivable balances of two other customers that may be uncollectible.
The Company believes that its credit risk exposure based upon the
financial strength of its customers, other than disclosed above, is
limited. Such estimate may change in the near future.
Sales to two other major customers approximated $2,503,000 (23%) and
$1,561,000 (14%) for the eleven months ended November 30, 2001. At
November 30, 2001, accounts receivable from such customers were
$986,000 and $1,130,000, respectively. Sales to one other major
customer were $950,000 (13%) for the year ended December 31, 2000.
Revenue Recognition
-------------------
The Company recognizes revenue once goods are shipped.
F-9
NOTE 1 - Summary of Significant Accounting Policies, continued
------------------------------------------
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of current assets, current liabilities, and short
and long-term debt approximate their fair market values.
Earnings Per Share
------------------
The Company accounts for earnings per share ("EPS") in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share". SFAS No. 128 requires presentation of basic and
diluted EPS. Basic EPS is computed by dividing income available to
common stockholders by the weighted-average number of common shares
outstanding for the period. The effect of the recapitalization on the
Company has been given retroactive application in the earnings per
share calculation. The Company does not have any outstanding common
stock equivalents. Accordingly, basic and diluted earnings per share
are identical.
Income Taxes
------------
The Company, with the consent of its stockholders, has elected to be
taxed as an "S" corporation under the Internal Revenue Code and
similar state statutes. In lieu of corporate income taxes, the
stockholders of an "S" corporation are taxed on their proportionate
share of the corporation's taxable income. Accordingly, no provision
or liability for Federal or State income taxes has been included in
the financial statements.
As a result of the Merger (see Note 2), the Company will terminate its
"S" corporation status and will become taxable as a "C" corporation.
If the Company were taxable as a "C" corporation for all periods
presented, proforma net income for the eleven months ended November
30, 2001 and the year ended December 31, 2000 would have been
approximately $176,000 and $0.03 per share and $130,000 and $.02 per
share, respectively.
Advertising Costs
-----------------
Advertising costs are expensed as incurred. For the eleven months
ended November 30, 2001 and the year ended December 31, 2000
advertising and promotion expenses were approximately $3,500 and
$5,000, respectively.
Use of Estimates in Preparation of Consolidated Financial Statements
--------------------------------------------------------------------
The preparation of the accompanying consolidated financial statements
in conformity with generally accepted accounting principles requires
management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Significant estimates that are particularly susceptible to change are
those assumptions used in determining the allowance for doubtful
accounts receivable.
F-10
NOTE 1 - Summary of Significant Accounting Policies, continued
------------------------------------------
New Pronouncements
------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141 ("SFAS No. 141"), "Business Combinations." SFAS No. 141
requires the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminates the pooling-of-interest
method. The Company does not believe that the adoption of SFAS No. 141
will have a significant impact on its financial statements.
In July 2001, the FASB issued SFAS No. 142 ("SFAS No. 142"), "Goodwill
and Other Intangible Assets", which is effective for the Company in
fiscal 2003. SFAS No. 142 requires, among other things, the
discontinuance of goodwill amortization. In addition, the standard
includes provisions for the reclassification of certain existing
recognized intangibles as goodwill, reassessment of the useful lives
of existing recognized intangibles, reclassification of certain
intangibles out of previously reported goodwill and the identification
of reporting units for purposes of assessing potential future
impairment of goodwill. SFAS No. 142 also requires the Company to
complete a transitional goodwill impairment test six months from the
date of adoption. The Company does not believe the adoption of SFAS
No. 142 will have a significant impact on its financial statements.
Impairment of Long-Lived Assets
-------------------------------
The Company reviews long-lived assets held and used for possible
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
NOTE 2 - Merger
------
In February 2002, Sporting Magic Inc., ("Sporting Magic"), a public
entity with minimal assets and operations, acquired all of the
outstanding common stock of the Company in exchange for 6,000,000
shares of the common stock of Sporting Magic (the "Merger"). On the
closing date of the Merger, all of the present directors and executive
officers of Sporting Magic were replaced by individuals nominated by
the Board of Directors of the Company. In addition, as a part of the
closing transaction, Sporting Magic authorized, subject to approval by
the Company's stockholders, the issuance of 10% Cumulative, Series A
Preferred Stock. In addition, the Company issued 1,959,411 shares of
common stock to various individuals in exchange for services rendered
in the reverse Merger transaction. Also, the former principal
stockholder of Sporting Magic is entitled to receive up to a $350,000
cash payment and 300,000 shares of Next Inc. preferred stock pursuant
to a non compete agreement negotiated with such individual, in exchange
for all of his common stock
F-11
NOTE 2 - Merger, continued
------
ownership. The 300,000 shares of Next Inc. preferred stock will be
converted into 3,000 shares of the newly authorized preferred stock.
Upon consummation of the Merger, 9,489,225 shares of common stock will
be outstanding. For accounting purposes, the Merger has been treated as
an acquisition of Sporting Magic by the Company and a recapitalization
of the Company. For all periods presented, the Company's historical
financial statements have been restated to reflect the issuance of
6,000,000 shares of common stock to the stockholders of the Company.
Since this transaction is in substance a recapitalization of the
Company, and not a business combination, proforma information is not
presented.
NOTE 3 - Restricted Investment
---------------------
As a condition of the AmSouth Bank of Chattanooga, Tennessee ("AmSouth
Bank") revolving credit facility and note payable (see Note 6), a
stockholder of the Company assigned, transferred and delivered to the
Company a personal time deposit account ("investment") in the amount of
$277,848, which is maintained at AmSouth Bank. The investment earns
interest at 4.25%, which is paid directly to the stockholder by the
Company, and matures in July 2002.
NOTE 4 - Inventories
-----------
Inventories are stated at the lower of cost (first-in, first out basis)
or market and consist of the following at November 30, 2001:
Raw Materials $2,624,804
Work in progress 326,525
Finished products 102,769
----------
Total $3,054,098
==========
F-12
NOTE 5 - Property Plant and Equipment
----------------------------
Property, plant and equipment at November 30, 2001 consists of the
following:
Estimated
Amount useful lives
----------------------------
Land $ 10,000
Building and building improvements 1,016,951 7-39 years
Machinery and equipment 1,624,117 3-20 years
Furniture and fixtures 273,057 3-10 years
Vehicles 60,374 5-10 years
----------
2,984,499
Less: Accumulated depreciation (1,320,916)
----------
Property Plant and Equipment, Net $ 1,663,583
===========
Depreciation expense for the eleven months ended November 30,2001 and
the year ended December 31, 2000 was $108,553 and $112,176
respectively.
NOTE 6 - Short-Term Debt
---------------
Short-term debt at November 30, 2001 consists of the following:
AmSouth Bank - revolving credit facility (a) $1,931,920
AmSouth Bank - note payable (b) 250,000
First Federal - line of credit (c) 554,886
Frances Slocum - note payable (d) 500,000
-----------
Total Short-Term Debt $3,236,806
==========
(a) The Company has a $3,000,000 revolving credit facility agreement
with AmSouth Bank, which expires on April 30, 2002. The Company
may draw up to the sum of 80% of eligible accounts receivable, as
defined, 50% of eligible raw materials inventory, as defined, and
40% of eligible finished goods inventory, as defined. In
addition, the agreement provides for monthly payments of interest
at a nationally published prime rate (5% at November 30, 2001)
and the Company must comply with certain financial and other
covenants. Borrowings under the facility are collateralized by
accounts receivable, inventory, a certain personal asset of the
stockholder of the Company (see Note 3) and personal guarantees
of the Company's stockholders.
F-13
NOTE 6 - Short-Term Debt, continued
---------------
(b) At November 30, 2001, the Company has a note payable to AmSouth
Bank for $250,000, bearing interest at 8%. The note requires
monthly interest payments only and is payable in full on April
30, 2002. The note is secured by accounts receivable, inventory
and a certain personal asset of a stockholder of the Company (see
Note 3) and carries the personal guarantees of the Company's
stockholders. In addition, the Company must comply with certain
financial and other covenants.
(c) On September 4, 2001 the Company was extended a $585,000 line of
credit from First Federal Savings Bank of Wabash ("First
Federal"). The line of credit was extended to the Company for the
borrowings under letters of credit and expired on December 31,
2001. In addition, the agreement provides for the payment of
accrued interest at maturity at a rate of 7.5%. The financing
agreement is collateralized by substantially all of the assets of
the Company and carries the personal guarantees of the Company's
stockholders. On December 19, 2001 the Company's outstanding
balance due was paid in full.
(d) At November 30, 2001, the Company has a note payable to Frances
Slocum Bank of Wabash ("Frances Slocum"), for $500,000, bearing
interest at a nationally published prime rate plus 1% (6.0% at
November 30, 2001). The note requires monthly interest payments
only and is payable in full on March 1, 2002. The note is secured
by a mortgage on the property and carries the personal guarantees
of the Company's stockholders.
NOTE 7 - Long-Term Debt
--------------
Long-term debt at November 30, 2001 consists of the following:
First Federal - line of credit (a) $ 492,670
First Federal - note payable (b) 300,000
First Federal - note payable (c) 468,518
Frances Slocum - notes payable (d) 605,947
Other 16,450
Capital Lease Obligations (e) 103,378
-----------
Total Long-Term Debt $1,986,963
===========
F-14
NOTE 7 - Long-Term Debt, continued
--------------
(a) The Company had a $500,100 line of credit with First Federal
which originally matured on May 1, 2002. The agreement provided
for monthly payments of interest at a nationally published prime
rate less .5% (4.5% at November 30, 2001). On January 25, 2002,
First Federal converted this facility to a note payable maturing
on May 3, 2003. The note requires monthly interest payments at a
nationally published prime rate less .5% and carries the personal
guarantees of the Company's stockholders.
(b) At November 30, 2001, the Company had a note payable to First
Federal for $300,000, bearing interest at a nationally quoted
prime rate less .5% (4.5% at November 30, 2001). The note
required monthly interest payments only and was originally
payable in full on May 1, 2002. On January 25, 2002, First
Federal renewed this note extending the maturity date to May 3,
2003. The note requires monthly interest payments at a nationally
published prime rate less .5% and carries the personal guarantees
of the Company's stockholders.
(c) At November 30, 2001, the Company had a note payable to First
Federal for $432,032, dated April 12, 1999, payable in monthly
installments of $7,526 including interest at a nationally
published prime rate plus 1%, having an original maturity in July
2005. In June 2001 the Company refinanced the outstanding
principal into a new note for $495,975, due in monthly
installments of $8,524 including interest at 7.25% through June
2007. The note is collateralized by the underlying equipment and
is guaranteed by the Company's stockholders.
(d) At November 30, 2001, the Company had three notes payable to
Frances Slocom due in monthly installments totaling $13,983,
including interest at a nationally published prime rate plus 1%,
through March 2005, collateralized by the underlying equipment, a
mortgage on the property and guaranteed by the Company's
stockholders. On January 25, 2002, the Company consolidated the
outstanding principal balances on these notes into a new note,
due in monthly installments of $5,231, including interest at 6.5%
through January 2017, collateralized by a mortgage on the
property and guaranteed by the Company's stockholders.
(e) The Company periodically acquires computers, embroidery,
ticketing and packaging equipment under capital lease
obligations. These obligations expire through December 2005. The
assets and liabilities under capital leases are recorded at the
lower of the present value of the minimum lease payments (with
implicit interest rates ranging from 8% to 21%) or the fair
values of the assets. The net book value of the assets, $165,000
at November 30, 2001, are included in property, plant and
equipment and are being depreciated over the assets estimated
useful lives.
F-15
NOTE 7 - Long-Term Debt, continued
--------------
Aggregate maturities of long-term debt, giving effect to the various
refinancings, are as follows:
For the Year
Ending November 30, Amount
----------------------------------------------
2002 $ 148,028
2003 931,243
2004 132,474
2005 111,836
2006 127,604
Thereafter 535,778
----------
Total $1,986,963
==========
NOTE 8 - Stockholders' Equity
--------------------
On November 30, 2001, the Company's stockholders approved a conversion
of advances made by the stockholders of the Company to equity in the
amount of $111,352. The Company has recorded such conversion as a
capital contribution by the stockholders.
NOTE 9 - Employee Benefit Plan
---------------------
The Company maintains a 401(k) retirement plan for its employees.
Employees are eligible to participate after one year of service and
attaining the age of 18. Under the terms of the Plan, employees are
entitled to contribute up to 15% of their total compensation, within
limits established by the Internal Revenue Code. At the discretion of
the Board of Directors, the Company may make a matching contribution up
to a 6% of each employee's contribution. For the eleven months ended
November 30, 2001 and the year ended December 31, 2000, the Company
chose to make matching contributions of $0 and $2,800, respectively.
NOTE 10 - Major Suppliers
---------------
The Company purchased a substantial portion of its inventory from two
suppliers. During the eleven months ended November 30, 2001 and the
year ended December 31, 2001, purchases from these suppliers were
$2,716,121(57%) and $1,882,268 (64%), respectively. At November 30,
2001 and December 31, 2000, the amounts due to these suppliers included
in accounts payable were approximately $154,187 and $-0-, respectively.
F-16
NOTE 10 - Major Suppliers, continued
---------------
The Company is not reliant on these suppliers as the criteria utilized
for any vendor selection is based on cost and quality. There are a
variety of suppliers to choose from in the market, but they must meet
the Company's standards.
NOTE 11 - Commitments and Contingencies
-----------------------------
Litigation
----------
From time to time, the Company is a party to litigation arising in the
normal course of its business operations. In the opinion of management,
it is not anticipated that the matters will have a material adverse
impact on the Company's financial condition, liquidity or results of
operations.
F-17
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SPORTING MAGIC, INC.
Dated: April 8, 2002 By: /s/ Dan F. Cooke
------------------------------
Name: Dan F. Cooke
Title: Chairman
2