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): June 1, 2002
------------
SPORTING MAGIC, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-25247 95-4675095
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
7625 Hamilton Park Drive, Suite 12, Chattanooga, Tennessee 37421
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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 June 17,
2002 to include Item 7.
Item 7. Financial Statements and Exhibits
(a) Consolidated Financial Statements of CMJ Ventures, Inc.:
CMJ VENTURES, INC.
CONTENTS
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Page
INDEPENDENT AUDITORS' REPORT F-1
FINANCIAL STATEMENTS
Balance Sheet F-2-3
Statement of Income F-4
Statement of Changes in Stockholders' Equity F-5
Statement of Cash Flows F-6-7
NOTES TO FINANCIAL STATEMENTS F-8-14
PRO FORMA FINANCIAL INFORMATION
Introduction to Unaudited Pro Forma Condensed Combined
Financial Information F-15
Unaudited Pro Forma Condensed Combined Balance Sheet May 31, 2002 F-16-17
Unaudited Pro Forma Condensed Combined Statement of Operations
for the eleven months ended November 30, 2001 F-18
Unaudited Pro Forma Condensed Combined Statement of Operations
for the six months ended May 31, 2002 F-19
Notes to Unaudited Pro Forma Condensed Combined Financial Information F-20-21
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders of
CMJ Ventures, Inc.
We have audited the accompanying balance sheet of CMJ Ventures, Inc. (the
"Company") as of December 31, 2001, and the related statements of operations,
stockholders' equity and cash flows for each of the two years in the period
ended December 31, 2001. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of CMJ Ventures, Inc.
as of December 31, 2001, and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
April 19, 2002 except for Note 11
As to which the date is June 2, 2002
New York, New York
F-1
CMJ VENTURES, INC.
BALANCE SHEETS
May 31, 2002 (Unaudited) and December 31, 2001
--------------------------------------------------------------------------------
ASSETS
------
2002
(Unaudited) 2001
-----------------------
CURRENT ASSETS
--------------
Cash $ 80,846 $ 12,722
Accounts receivable, less allowance for doubtful accounts
of $151,294 and $18,652, respectively 463,091 118,552
Due from stockholder 8,859 --
Inventories 264,768 253,614
Other current assets 135,383 4,000
---------- ----------
Total Current Assets 952,947 388,888
PROPERTY AND EQUIPMENT, Net 36,696 39,946
OTHER ASSETS 347,140 158,375
------------ ---------- ----------
TOTAL ASSETS $1,336,783 $ 587,209
========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
CMJ VENTURES, INC.
BALANCE SHEETS
May 31, 2002 (Unaudited) and December 31, 2001
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS EQUITY
-----------------------------------
2002
(Unaudited) 2001
-----------------------------
CURRENT LIABILITIES
Accounts payable $1,048,797 $ 162,090
Accrued expenses and other current liabilities 43,315 35,172
Current maturities of long-term debt 40,535 40,406
---------- ----------
Total Current Liabilities 1,132,647 237,668
OTHER LIABILITIES
Long-term debt, less current maturities 20,734 34,626
Due to stockholder -- 5,028
---------- ----------
TOTAL OTHER LIABILITIES 20,734 39,654
---------- ----------
TOTAL LIABILITIES 1,153,381 277,322
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY 183,402 309,887
---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,336,783 $ 587,209
========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
CMJ VENTURES, INC.
STATEMENTS OF INCOME
-------------------------------------------------------------------------------------------------------
Five Months Ended Years Ended
May 31 December 31
--------------------------------------------------------
2002 2001 2001 2000
--------------------------------------------------------
(Unaudited) (Unaudited)
NET SALES $ 1,332,829 $ 834,892 $ 2,295,926 $ 1,076,114
COST OF SALES 1,017,627 573,548 1,497,142 746,205
----------- ----------- ----------- -----------
GROSS PROFIT 315,202 261,344 798,784 329,909
OPERATING EXPENSES
General administrative and selling expenses 423,631 116,393 594,569 248,210
----------- ----------- ----------- -----------
OPERATING (LOSS) INCOME (108,429) 144,951 204,215 81,699
----------- ----------- ----------- -----------
OTHER (EXPENSE) INCOME (18,056) 5,854 12,647 (21,469)
----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (126,485) $ 150,805 $ 216,862 $ 60,230
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-4
CMJ VENTURES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2001 and 2000
and Five Months Ended May 31, 2002 (Unaudited)
--------------------------------------------------------------------------------
Additional
Common Paid-In Retained
Stock Capital Earnings Total
------------------------------------------------
BALANCE - January 1, 2000 500 $ -- $ (27,705) $ (27,205)
Issuance of common stock 50 59,950 -- 60,000
Net income -- -- 60,230 60,230
--------- --------- --------- ---------
BALANCE - December 31, 2000 550 59,950 32,525 93,025
Net income -- -- 216,862 216,862
--------- --------- --------- ---------
BALANCE - December 31, 2001 550 59,950 249,387 309,887
Net loss -- -- (126,485) (126,485)
--------- --------- --------- ---------
BALANCE - May 31, 2002 (Unaudited) 550 $ 59,950 $ 122,902 $ 183,402
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
F-5
CMJ VENTURES, INC.
STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
Five Months Ended Years Ended
May 31 December 31
--------------------------------------------------
2002 2001 2001 2000
--------------------------------------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net (loss) income $(126,485) $ 150,805 $ 216,862 $ 60,230
--------- --------- --------- ---------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 11,546 8,567 24,926 15,292
Changes in operating assets and liabilities:
Accounts receivable, net (344,539) (308,499) (74,101) (8,045)
Inventories (11,154) (159,270) (133,173) 53,007
Other current assets (4,050) -- -- --
Accounts payable 886,707 379,901 119,631 (34,616)
Accrued expenses and other current liabilities 8,143 13,056 13,228 14,804
--------- --------- --------- ---------
TOTAL ADJUSTMENTS 546,653 (66,245) (49,489) 40,442
--------- --------- --------- ---------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 420,168 84,560 167,373 100,672
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of art work and other intangible assets (197,061) (51,682) (51,682) (2,282)
Purchases of property and equipment -- -- (43,651) --
--------- --------- --------- ---------
NET CASH USED IN
INVESTING ACTIVITIES $(197,061) $ (51,682) $ (95,333) $ (2,282)
--------- --------- --------- ---------
The accompanying notes are an integral part of these financial statements.
F-6
CMJ VENTURES, INC.
STATEMENTS OF CASH FLOWS, Continued
--------------------------------------------------------------------------------
Five Months Ended Years Ended
May 31, December 31,
---------------------------------------------------
2002 2001 2001 2000
---------------------------------------------------
(Unaudited) (Unaudited)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from line of credit, bank $ -- $ 56,156 $ -- $ 100,000
Repayment of line of credit, bank -- -- (50,409) (49,591)
Proceeds from long-term debt -- -- 96,061 126,602
Principal repayment of long-term debt (13,763) (15,579) (108,432) (349,199)
Proceeds from stockholders' loans -- -- -- 500
Repayment of stockholders' loans (5,028) -- (29,972) --
Loan to stockholder (8,859) -- -- --
Advances to related party (127,333) -- -- --
Contribution by stockholder -- -- -- 60,000
--------- --------- --------- ---------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES (154,983) 40,577 (92,752) (111,688)
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH 68,124 73,455 (20,712) (13,298)
CASH - Beginning 12,722 33,434 33,434 46,732
--------- --------- --------- ---------
CASH - Ending $ 80,846 $ 106,889 $ 12,722 $ 33,434
========= ========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the periods for:
Interest $ 2,642 $ 8,331 $ 7,869 $ 26,367
The accompanying notes are an integral part of these financial statements.
F-7
CMJ VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
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NOTE 1 - Summary of Significant Accounting Policies
------------------------------------------
The Company
-----------
CMJ Ventures, Inc., ("the Company") was incorporated on July 1, 1999,
under the laws of the State of Florida.
Nature of Business
------------------
The Company is engaged in manufacturing outsourcing and distribution of
trademarked, pre-printed and embroided merchandise. The Company markets
its products to specialty retail, wholesale and corporate markets
throughout the United States of America.
Property and Equipment
----------------------
Property and equipment is stated at cost and is being depreciated
using the straight-line method over the estimated useful lives. The
cost of leasehold improvements is amortized over the lesser of the
estimated useful lives of the assets or the length of the related
leases. 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 for an allowance for doubtful accounts in the
approximate amount of $19,000 as an allowance for accounts receivable
balances that it determined may be uncollectible as of December 31,
2001, and $151,000 at May 31, 2002 (unaudited).
Revenue Recognition
-------------------
The Company recognizes revenue once goods are shipped.
Fair Value of Financial Instruments
-----------------------------------
The carrying amounts of current assets, current liabilities and short
and long-term debt approximate their fair market values.
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.
F-8
CMJ VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - Summary of Significant Accounting Policies, continued
-----------------------------------------------------
Advertising Costs
-----------------
Advertising costs are expensed as incurred. For the years ended
December 31, 2001 and 2000 advertising and promotion expenses were
$33,266 and $24,397 respectively.
Use of Estimates in Preparation of Financial Statements
-------------------------------------------------------
The preparation of the accompanying 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.
New Pronouncements
------------------
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards 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 Statement of Financial Accounting
Standards No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible
Assets", which is effective for all fiscal years beginning after
December 15, 2001. 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 expects to adopt SFAS No. 142 in January
2002. The Company does not believe the adoption of SFAS No. 142 will
have a significant impact on its financial statements.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment Disposal of Long-Lived Assets". SFAS No. 144 addresses the
accounting model for long-lived assets to be disposed of by sale and
resulting implementation issues. This statement requires that those
long-lived assets be measured at the lower of carrying amount or fair
value less cost to sell, whether reported in continuing operations or
in discontinued operations. Therefore, discontinued operations will no
longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. It also broadens the
reporting of discontinued operations to include all components of an
entity with operations that can be distinguished from the rest of the
entity and that will be eliminated from the ongoing operations of the
entity in a disposal transaction. The Company is evaluating the impact
that implementation of SFAS No. 144 may have on the financial
statements of the Company.
F-9
CMJ VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - Summary of Significant Accounting Policies, continued
-----------------------------------------------------
New Pronouncements, continued
-----------------------------
On April 30, 2002, the Financial Accounting Standards Board issued
SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical Corrections". SFAS
No. 145 eliminates the requirement that gains and losses from the
extinguishments of debt be aggregated and, if material, classified as
an extraordinary item, net of the related income tax effect and
eliminates an inconsistency between the accounting for sale-leaseback
transactions. Generally, SFAS 145 is effective for transactions
occurring after May 15, 2002. The adoption of this standard is
expected to have no impact to the Company.
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 many not be recoverable.
NOTE 2 - Inventories
-----------
Inventories are stated at the lower of cost (first-in, first out basis)
or market and consists of $264,768 and $253,614 in finished goods at
May 31, 2002 (Unaudited) and December 31, 2001, respectively.
NOTE 3 - Property and Equipment
----------------------
Property and equipment consists of the following as of May 31, 2002
(Unaudited) and December 31, 2001:
May 31, 2002 December 31, Estimated
(Unaudited) 2001 useful lives
----------------------------------------
Vehicle $ 39,000 $ 39,000 5 years
Furniture and fixtures 4,650 4,650 5 years
Leasehold improvements 1,952 1,952 Life of lease
-------- --------
45,602 45,602
Less: Accumulated depreciation
and amortization (8,906) (5,656)
-------- ---------
Property and Equipment, Net $ 36,696 $ 39,946
======== =========
Depreciation and amortization expenses were $3,250 and $271 for the
five months ended May 31, 2002 and 2001 (Unaudited) and $5,015 and $525
for the years ended December 31, 2001 and 2000, respectively.
F-10
CMJ VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 4 - Intangible Assets
-----------------
Intangible assets consists of the following as of May 31, 2002
(Unaudited) and December 31, 2001:
May 31, Estimated
2002 December 31, Useful
(Unaudited) 2001 Lives
---------------------------------------------
Artwork $ 390,100 $ 193,039 10 years
Customer lists 6,068 6,068 10 years
--------- ---------
396,168 199,107
Less: accumulated amortization (49,028) (40,732)
--------- ---------
Intangible Assets, Net $ 347,140 $ 158,375
========= =========
Amortization expenses were $8,296 and $8,296 for the five months ended
May 31, 2002 and 2001 (Unaudited) and $19,911 and $14,767 for the years
ended December 31, 2001 and 2000, respectively.
NOTE 5 - Line of Credit, Bank
--------------------
On May 17, 2001 the Company was extended a $200,000 line of credit from
Fifth Third Bank, Kentucky, Inc. ("Fifth Third") for working capital
purposes. The agreement provides for monthly payments of interest at
Fifth Third's prime rate (5% at December 31, 2001) and expires on May
17, 2002. Borrowings under the line are collateralized by substantially
all of the assets of the Company. At December 31, 2001 and May 31, 2002
(Unaudited) there were no balances outstanding under the line.
NOTE 6 - Long-Term Debt
--------------
Long-term debt at May 31, 2002 (Unaudited) and December 31, 2001
consists of the following:
May 31,
2002 December 31,
(Unaudited) 2001
------------------------------
On May 17, 2001, the Company obtained a $51,521 note
from Fifth Third payable in monthly installments
totaling $3,224, including interest at Fifth Third's prime
rate (5% at December 31, 2001). The note is collateralized
by substantially all of the assets of the Company and
matures in May 2004. (Forward) $39,479 $51,521
------- -------
F-11
CMJ VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 6 - Long-Term Debt, continued
-------------------------
May 31,
2002 December 31,
(Unaudited) 2001
-----------------------------
(Forward) $39,479 $51,521
On September 19, 2001, the Company
obtained a $23,511 note from Fifth
Third payable in monthly installments
totaling $481, including interest
at 7.2%. The note is collateralized
by a vehicle and matures in October
2006. 21,790 23,511
------- -------
Total notes payable 61,269 75,032
Less: current maturities 40,535 40,406
------- -------
Notes payable, less current maturities $20,734 $34,626
======= =======
As of December 31, 2001, aggregate maturities of long-term debt are as
follows:
For the Year
Ending December 31, Amount
-----------------------------------------------
2002 $40,406
2003 19,865
2004 4,870
2005 5,233
2006 4,658
-------
Total $75,032
=======
NOTE 7 - Related Party Transactions
--------------------------
Due to Stockholder
------------------
Amount represents advances made between the Company and the
stockholder. These advances are non-interest bearing and have no
definitive repayment terms.
F-12
CMJ VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 8 - Economic Dependency
-------------------
Major Suppliers
---------------
The Company purchased a substantial portion of its inventory from three
suppliers in 2001. During the year ended December 31, 2001, purchases
from these suppliers were $717,000 (46.1%) (Sporting Magic, Inc. - see
Note 11), $269,000 (17.3%) and $220,000 (14.2%). At December 31, 2001,
the amounts due to these suppliers included in accounts payable were
$92,791, $8,187 and $548, respectively. Management believes that
numerous other vendors could provide the Company with similar
merchandise on comparable terms.
The Company purchased a substantial portion of its inventory from five
suppliers in 2000. During the year ended December 31, 2000, purchases
from these suppliers were $131,000 (19.3%), $132,100 (19.5%) (Sporting
Magic, Inc. - see Note 11), $91,000 (13.4%), $126,000 (18.5%) and
$79,000 (11.7%).
Major Customers
---------------
The Company sold a substantial portion of its products to one customer
in 2001. During the year ended December 31, 2001, sales to this
customer were $359,000 (15.6%). At December 31, 2001, the amount due
from this customer included in accounts receivable was $14,478.
The Company sold a substantial portion of its products to three
customers in 2000. During the year ended December 31, 2000, sales to
these customers were $217,000 (20.2%), $107,000 (9.9%) and $164,000
(15.2%).
NOTE 9 - Commitments and Contingencies
-----------------------------
Operating Lease Arrangements
----------------------------
The Company conducts its operations from a facility that is leased
under a three (3) year non-cancelable operating lease expiring in
October 2002. The Company pays property taxes, insurance, maintenance
and other expenses related to the leased property. Rent expense for the
year ended December 31, 2001 and 2000 was approximately $27,000 and
$26,000, respectively.
The Company leases an automobile under a four (4) year operating lease
expiring in May 2005.
F-13
CMJ VENTURES, INC.
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 9 - Commitments and Contingencies, continued
----------------------------------------
Operating Lease Arrangements
----------------------------
Future minimum rental payments under the above non-cancelable operating
leases as of December 31, 2001 are as follows:
Year Ending
December 31, Amount
--------------------------------------------
2002 $27,357
2003 6,344
2004 6,344
2005 2,644
-------
Total $42,689
=======
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.
NOTE 10 - Common Stock
------------
At December 31, 2001 the Company's common stock had a par value of $1,
1,000 shares authorized and 550 shares issued and outstanding.
NOTE 11 - Subsequent Event
----------------
Acquisition Agreement
---------------------
On June 2, 2002, Sporting Magic, Inc. acquired 100% of the issued and
outstanding common stock of the Company in a stock exchange for
1,400,000 shares of Sporting Magic, Inc.'s common stock.
NOTE 12 - Interim Financial Information
-----------------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and should be read in conjunction with CMJ
Ventures, Inc. audited financial information. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments considered necessary for a
fair presentation have been included. Such adjustments are of a normal
recurring nature. Operating results for the five months ended May 31,
2002 and 2001 are not necessarily indicative of the results that may be
expected for any other period or for a full fiscal year.
F-14
(b) Pro Forma Financial Statements of Sporting Magic, Inc.:
SPORTING MAGIC, INC.
INTRODUCTION TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
The following unaudited pro forma condensed combined balance sheet as of May 31,
2002 and the unaudited pro forma condensed combined statements of operations for
the eleven months ended November 30, 2001 and for the six months ended May 31,
2002, are based on the historical financial statements of Sporting Magic, Inc.
and CMJ Ventures, Inc. and give effect to the proforma adjustments described
herein as though the acquisition of CMJ Ventures, Inc. dated as of June 2, 2002
had been consummated at May 31, 2002 for the unaudited condensed combined
balance sheet and at January 1, 2001 and December 1, 2001 for the unaudited
condensed combined statements of operations for the eleven months ended November
30, 2001 and the six months ended May 31, 2002, respectively.
The unaudited pro forma condensed combined financial statements should be read
in conjunction with the notes thereto and with the historical financial
statements of Sporting Magic, Inc., as filed in its current report on Form 8-K/A
filed on April 8, 2002 and previously filed Form 10-QSB and the historical
financial statements of CMJ Ventures, Inc. included elsewhere herein. The
Unaudited pro forma combined financial statements are not necessarily indicative
of the Company's combined financial position or results of operations that would
have been achieved had the acquisition been consummated at May 31, 2002 for the
unaudited condensed combined balance sheet, and at January 1, 2001 and December
1, 2001 for the unaudited condensed combined statements of operations for the
eleven months ended November 30, 2001 and the six months ended May 31, 2002,
respectively.
Under the terms of a merger agreement dated as of March 1, 2002 and as amended
on May 16, 2002 and consummated on June 2, 2002, Sporting Magic, Inc. purchased
all of the issued and outstanding stock of CMJ Ventures, Inc. The pro forma
adjustments reflect the transaction using the purchase method of accounting, and
are based on available information and certain estimates and assumptions set
forth in the notes to the unaudited pro forma condensed combined financial
information. Sporting Magic, Inc. will establish a new basis for CMJ Ventures,
Inc., assets and liabilities based upon an allocation of the fair value of the
acquisition. The unaudited pro forma financial information reflects Sporting
Magic, Inc.'s best estimates; however, the actual amounts may differ from the
pro forma amounts.
F-15
SPORTING MAGIC, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
May 31, 2002
--------------------------------------------------------------------------------
ASSETS
------
Sporting CMJ Pro Forma
Magic, Inc. Ventures, Inc. Adjustments Pro Forma
---------------------------------------------------------
CURRENT ASSETS
Cash $ 91,914 $ 80,846 $ -- $ 172,760
Restricted investment 277,848 -- -- 277,848
Accounts receivable, net 2,679,898 463,091 (955,611) 2,187,378
Inventories 2,857,824 264,768 -- 3,122,592
Loans to stockholders 671,320 8,859 -- 680,179
Deferred taxes 179,485 -- -- 179,485
Other current assets 208,450 135,383 (342,205) 1,682
----------- ----------- ----------- -----------
Total Current Assets 6,966,739 952,947 (1,297,816) 6,621,870
PROPERTY AND EQUIPMENT, Net 1,774,517 36,696 -- 1,811,213
OTHER ASSETS
Intangible - art work -- 347,140 -- 347,140
Goodwill -- -- 919,146 919,146
----------- ----------- ----------- -----------
TOTAL ASSETS $8,741,256 $1,336,783 $ (378,670) $ 9,699,369
=========== =========== =========== ===========
See notes to unaudited proforma condensed combined financial information.
F-16
SPORTING MAGIC, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
May 31, 2002
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Sporting CMJ Pro Forma
Magic, Inc. Ventures, Inc. Adjustments Pro Forma
-----------------------------------------------------
CURRENT LIABILITIES
Accounts payable $ 303,896 $1,048,797 $ (955,611) $ 397,082
Accrued expenses and other
current liabilities 486,534 43,315 154,143 683,992
Short-term debt and current maturities 5,376,529 40,535 -- 5,417,064
---------- ---------- ---------- ----------
Total Current Liabilities 6,166,959 1,132,647 (801,468) 6,498,138
OTHER LIABILITIES
Long-term debt, less current maturities 1,051,249 20,734 -- 1,071,983
---------- ---------- ---------- ----------
TOTAL LIABILITIES 7,218,208 1,153,381 (801,468) 7,570,121
STOCKHOLDERS' EQUITY 1,523,048 183,402 422,798 2,129,248
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $8,741,256 $1,336,783 $ (378,670) $9,699,369
========== ========== ========== ==========
See notes to unaudited proforma condensed combined financial information.
F-17
SPORTING MAGIC, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF OPERATIONS
For the Eleven Months Ended November 30, 2001
--------------------------------------------------------------------------------
For the Eleven For the Twelve
Months Ended Months Ended
November 30, December 31,
2001 2001
Sporting CMJ Pro Forma
Magic, Inc. Ventures, Inc. Adjustments Pro Forma
---------------------------------------------------------------
NET SALES $ 10,822,517 $ 2,295,926 $ (716,635) $ 12,401,808
COST OF SALES 8,064,400 1,497,142 (716,635) 8,844,907
------------ ------------ ------------ ------------
GROSS PROFIT 2,758,117 798,784 -- 3,556,901
OPERATING EXPENSES 2,142,306 594,569 -- 2,736,875
------------ ------------ ------------ ------------
OPERATING INCOME 615,811 204,215 -- 820,026
OTHER (EXPENSE) INCOME (322,954) 12,647 -- (310,307)
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 292,857 216,862 -- 509,719
PROVISION FOR INCOME TAXES -- -- 200,000 200,000
------------ ------------ ------------ ------------
NET INCOME $ 292,857 $ 216,862 $ (200,000) $ 309,719
============ ============ ============ ============
Net income per share, basic and diluted $ 0.05 $ 0.04
============ ============
Weighted average shares outstanding 6,000,000 1,400,000 7,400,000
============= ============ ============
See notes to unaudited proforma condensed combined financial information.
F-18
SPORTING MAGIC, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT
OF OPERATIONS
For the Six Months Ended May 31, 2002
--------------------------------------------------------------------------------
For the Six For the Five
Months Ended Months Ended
May 31, 2002 May 31, 2002
Sporting CMJ Pro Forma
Magic, Inc. Ventures, Inc. Adjustments Pro Forma
------------------------------------------------------------
NET SALES $ 4,160,427 $ 1,332,829 $ (961,757) $ 4,531,499
COST OF SALES 3,118,630 1,017,627 (961,757) 3,174,500
----------- ----------- ----------- -----------
GROSS PROFIT 1,041,797 315,202 -- 1,356,999
OPERATING EXPENSES 1,308,131 423,631 -- 1,731,762
----------- ----------- ----------- -----------
OPERATING LOSS (266,334) (108,429) -- (374,763)
OTHER EXPENSE (133,378) (18,056) -- (151,434)
----------- ----------- ----------- -----------
LOSS BEFORE INCOME TAXES (399,712) (126,485) -- (526,197)
BENEFIT FROM INCOME TAXES (179,485) -- -- (179,485)
------------------------- ----------- ----------- ----------- -----------
NET LOSS $ (220,227) $ (126,485) $ -- $ (346,712)
=========== =========== =========== ===========
Net loss per share, basic and diluted $ (0.03) $ (0.04)
=========== ===========
Weighted average shares outstanding 8,300,588 1,400,000 9,700,588
=========== ========== ===========
See notes to unaudited proforma condensed combined financial information.
F-19
SPORTING MAGIC, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION
--------------------------------------------------------------------------------
No. Account Description Debit Credit
--------------------------------------------------------------------------------------
May 31, 2002 Proforma Condensed Combined Balance Sheet Adjustments:
[1] Goodwill $919,146
--------
Stockholders equity $422,798
Other current assets 342,205
Accrued expenses and other liabilities 154,143
--------
$919,146 $919,146
======== ========
To record and allocate the purchase price as follows:
Fair Value
Shares Per Share Fair Value
-------------------- --------------------
Common stock 1,400,000 $ 0.433 $ 606,200
Relocation expenses 125,000
Acquisition expenses 371,348
----------
Total Purchase Price $1,102,548
==========
Fair value of net assets acquired
Current assets 952,947
Property and equipment 36,696
Other assets 347,140
Liabilities assumed (1,153,381)
-----------
Fair value of indentifiable net assets
acquired $183,402
Goodwill 919,146
----------
$1,102,548
==========
[2] Accounts payable 955,611
Accounts receivable
To eliminate intercompany 955,611
payable/receivable
See notes to unaudited proforma condensed combined financial information.
F-20
SPORTING MAGIC, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
FINANCIAL INFORMATION, Continued
--------------------------------------------------------------------------------
No. Account Description Debit Credit
----------------------------------------------------------------------------------
Proforma Condensed Combined Statement of Operations Adjustments for the Eleven
Months Ended November 30, 2001:
[3] Net sales 716,635
Cost of sales 716,635
To eliminate intercompany sales
and purchases
[4] Provision for income taxes 200,000
Income tax payable 200,000
To provide income taxes as if
these entities were taxed as C
corporations
Proforma Condensed Combined Statement of Operations Adjustments for the Six
Months Ended May 31, 2002:
[5] Net sales 961,757
Cost to sales 961,757
To eliminate intercompany sales
and purchases
(c) Exhibits
Exhibit 99.1 Certificate of Chief Executive and Chief
Financial Officers
See notes to unaudited proforma condensed combined financial information.
F-21
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: August 14, 2002 By: /s/ Dan Cooke
--------------------------
Name: Dan Cooke
Title: Chief Executive Officer