UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest Event Reported) January 19, 2006
EXECUTE SPORTS, INC.
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(Name of Small Business Issuer in its charter)
NEVADA 33-125868
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1284 Puerta del Sol Suite 150 San Clemente CA 92673
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(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number (858) 518-1387
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Issuer's Fax Number (858) 279-1799
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Check the appropriate box if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17
CFR14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 13e-4(c))
Item 2.01 Completion of Acquisition or Disposition of Assets.
On January 16, 2006, Execute Sports, Inc. ("Execute Sports", "we", the
"Company") completed the acquisition of Pacific Sports Group, Inc., a California
corporation ("PSG"), pursuant to a Share Exchange Agreement dated January 16,
2006 ("Agreement"), the form of which has been filed as Exhibit 2.1 on the
Company's Form 8-K with the Securities and Exchange Commission herein.
Pursuant to the Agreement, and certain adjustments made in accordance with
outstanding debt and accounts payable on behalf of PSG, Execute Sports issued
PSG's shareholders 1,932,569 shares of its restricted common stock and paid
PSG's shareholder's USD $150,000 in cash.
Subject to and upon the terms and conditions of the Agreement, PSG will, upon
fulfillment of all conditions precedent to the acquisition, merge with and into
Execute Sports, Inc., and thereafter the separate existence of PSG, Inc. will
cease. As of the Effective Date, PSG shall succeed to all of the rights,
privileges, powers and property, including, without limitation, all rights,
privileges, franchises, patents, trademarks, licenses, registrations, bank
accounts, contracts, patents, copyrights and other assets of every kind and
description of PSG, and Execute Sports shall assume all of the obligations and
liabilities of PSG. The Acquisition will occur in accordance with the General
Corporation Law of the State of Nevada.
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Audited Financial Statements for Pacific Sports Group, Inc. for the Years
Ended December 31, 2005 and 2004
(b) Pro Forma financial information
Consolidated Pro forma Financial Statements for Execute Sports for the
Years Ended December 31, 2005 and 2004.
(c) Exhibits
2.1 Membership Interest Purchase Agreement incorporated herein by
reference filed originally on Form 8-K with the Securities and Exchange
Commission on September 9, 2005.
23.1 Consent of Independent Public Accountant
SIGNATURES
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.
Dated: March 20, 2006
EXECUTE SPORTS, INC.
By /s/ Todd M. Pitcher
------------------------------
Todd M. Pitcher
President and Secretary
PACIFIC SPORTS GROUP, INC.
REPORT ON AUDIT OF FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
CONTENTS
PAGE
Report of Independent Registered Public Accounting Firm....................... 1
FINANCIAL STATEMENTS
Balance Sheet................................................ 2
Statements of Operations..................................... 3
Statements of Stockholder's Equity .......................... 4
Statements of Cash Flows .................................... 5
Notes to the Financial Statements ........................ 6-15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Pacific Sports Group, Inc.
We have audited the accompanying balance sheet of Pacific Sports Group, Inc.
(the "Company"), as of December 31, 2005 and 2004 and the related statements of
operations, shareholder's equity (deficit) and cash flows for the years ended
December 31, 2005 and 2004. 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 audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of Pacific
Sports Group, Inc. as of December 31, 2005 and 2004 and the related statements
of operations, shareholder's equity (deficit), and cash flows for the year ended
December 31, 2005 and 2004, in conformity with accounting principles generally
accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, the Company has suffered
recurring losses from operations that raises substantial doubt about its ability
to continue as a going concern. Management plans in regards to these matters are
also described in Note M. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Bedinger & Company
Certified Public Accountants
Concord, California
February 14, 2006
1
Pacific Sports Group, Inc.
Balance Sheets
December 31, 2004 and 2005
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December 31, December 31,
2005 2004
--------- ---------
ASSETS
CURRENT ASSETS
Cash $ 48,320 $ 1,691
Accounts receivable (Note B) 45,079 45,708
Inventory (Note C) 38,368 --
Prepaid expenses 2,255 --
Prepaid services (Note D) 25,000
--------- ---------
TOTAL CURRENT ASSETS 159,022 47,399
Fixed assets, net (Note E) -- 2,439
Deposits (Note F) 2,200 2,200
--------- ---------
TOTAL ASSETS $ 161,222 $ 52,038
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note G) 218,485 135,118
Customer deposits (Note H) 25,262 15,914
Due to related entity (Note I) 150,000 --
Secured borrowings (Note J) 274,276 131,778
Notes Payable (Note K) 105,376 15,188
--------- ---------
TOTAL CURRENT LIABILITIES 773,399 297,998
Long term debt (Note K) -- 63,978
--------- ---------
TOTAL LIABILITIES 773,399 361,976
COMMITMENT (Note L) -- --
STOCKHOLDERS' EQUITY (Note N)
Common stock, zero par value, 30,000,000 shares
authorized; issued and outstanding 4,140,000 and 0 at
December 31, 2005 and 2004, respectively -- --
Additional paid-in capital 35,000 --
Common stock payable 50,000
Retainediearningsl(Deficit) (697,177) (309,938)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (612,177) (309,938)
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 161,222 $ 52,038
========= =========
2
Pacific Sports Group, Inc.
Statements of Operations
Twelve Months Ended December 31, 2005 and 2004
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Year Ended December 31,
--------------------------
2005 2004
----------- -----------
REVENUES
Sales $ 466,867 $ 522,598
Cost of sales 235,944 794,857
----------- -----------
Gross profit 230,923 (272,259)
EXPENSES
General and administrative expenses 319,752 499,892
Selling and advertising 168,917 174,144
Depreciation & Amortization 2,439 10,427
----------- -----------
Total expense 491,108 684,463
Income (loss) from operations (260,185) (956,722)
OTHER INCOME AND EXPENSES
Gain on the disposal of assets -- 5,675
Other income 20,309 --
Other expense (4,808) (52,967)
Interest expense (142,555) (22,617)
----------- -----------
Total other income and expenses (127,054) (69,909)
NET INCOME (LOSS) $ (387,239) $(1,026,631)
=========== ===========
Weighted average shares outstanding
basic and diluted 2,526,027 --
=========== ===========
Earnings per share $ (0.15) $ --
=========== ===========
3
Pacific Sports Group, Inc.
Statements of Stockholders' Equity
Twelve Months Ended December 31, 2005 and 2004
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Common Stock
-------------------------- Common Additional Retained Total
Number of Stock Paid-in Earnings Stockholders'
Shares Amount Payable Capital (Deficit) Equity
----------- ----------- ----------- ----------- ----------- -----------
December 31, 2003 -- $ -- $ -- $ 716,693 $ 716,693
Net loss (1,026,631) (1,026,631)
----------- ----------- ----------- ----------- ----------- -----------
December 31, 2004 -- $ -- $ -- $ -- $ (309,938) $ (309,938)
Shares issued to founders 4,000,000 --
Shares issued for debt 40,000 10,000 10,000
Shares issued for services 100,000 25,000 25,000
Common stock payable 200,000 50,000 50,000
Net loss (387,239) (387,239)
----------- ----------- ----------- ----------- ----------- -----------
December 31, 2005 4,340,000 $ -- $ 50,000 $ 35,000 $ (697,177) $ (612,177)
=========== =========== =========== =========== =========== ===========
4
Pacific Sports Group, Inc.
Statements of Cash Flows
Twelve Months Ended December 31, 2005 and 2004
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Year Ended December 31,
--------------------------
2005 2004
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (387,239) $(1,026,631)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation & Amortization 2,439 10,427
Gain on the disposal of assets -- (5,675)
Common stock issued for services 75,000
CHANGES IN CURRENT ASSETS AND CURRENT LIABILITIES:
(Increase) decrease in current assets:
Accounts receivable 629 63,854
Inventory (38,368) 506,817
Prepaid expenses (27,255) 4,137
Other current assets -- 14,196
Deposits -- 5,649
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses 83,367 15,512
Customer deposits 9,348 15,914
----------- -----------
NET CASH USED FOR OPERATING ACTIVITIES (282,079) (395,800)
CASH FLOWS FROM FINANCING ACTIVITIES:
Investment by former shareholder -- 146,391
Proceeds from purchaser 150,000 --
Issuance of common stock in settlement of debt 10,000 --
Notes payable 26,210 78,880
Secured borrowings 142,498 131,778
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 328,708 357,049
NET INCREASE (DECREASE) IN CASH 46,629 (38,751)
CASH, beginning of period 1,691 40,442
----------- -----------
CASH (OVERDRAFT), end of period $ 48,320 $ 1,691
=========== ===========
SUPPLEMENTAL DISCLOSURE:
Taxes paid $ 2,182 $ 3,468
Interest paid $ 71,494 $ 5,763
Other non-cash investing and financing activities:
Shares issued for debt $ 10,000 $ --
5
PACIFIC SPORTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
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NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Pacific Sports Group, Inc ("PSG" or the "Company") develops and wholesales
action sports gear and accessories under the brands of Academy, Collective
Development and Kampus. The Company sells primarily to specialty shops and
distributors through a network of independent sales reps.
Pacific Sports Group was formed as a limited liability corporation under the
laws of the State of Delaware in 2002. In early 2005, the Company changed its
status to C Coporation.
Summary of Significant Accounting Principles
Basis of Presentation
The financial statements include the accounts of Pacific Sports Group, Inc.
under the accrual basis of accounting.
Accounting estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Accounts receivable
Accounts receivable are reported at the customers' outstanding balances less any
allowance for doubtful accounts. The Company has entered into factoring
agreements with two financing companies. In the agreements the factors will
provide accounts receivable financing and factoring to the Company. As discussed
further in Note J, the companies will purchase from the Company the accounts
receivable and may pay a portion of the purchase price, or lend money to the
Company based upon accounts receivable of the Company. Interest is not accrued
on overdue accounts receivable. The Company evaluates receivables on a regular
basis for potential reserve.
6
PACIFIC SPORTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
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NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
Inventories are valued at the lower of cost or market. Cost is determined using
the average costing method. Management performs periodic assessments to
determine the existence of obsolete, slow moving and non-salable inventories,
and records necessary provisions to reduce such inventories to net realizable
value.
Property and equipment
Property and equipment are stated at cost. Major renewals and improvements are
charged to the asset accounts while replacements, maintenance and repairs, which
do not improve or extend the lives of the respective assets, are expensed. At
the time property and equipment are retired or otherwise disposed of, the asset
and related accumulated depreciation accounts are relieved of the applicable
amounts. Gains or losses from retirements or sales are credited or charged to
income.
Depreciation is provided using the straight-line method. It is calculated over
recovery periods as prescribed by management that range from 3 years for
equipment to 5 years for furniture.
Long-lived assets
The Company has adopted Statement of Financial Accounting Standards No. 144
(SFAS 144). The Statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
historical cost-carrying value of an asset may no longer be appropriate. The
Company assesses recoverability of the carrying value of an asset by estimating
the future net cash flows expected to result from the asset, including eventual
disposition. If the future net cash flows are less than the carrying value of
the asset, an impairment loss is recorded equal to the difference between the
asset's carrying value and fair value.
Revenue recognition policy
Revenue from the sale of sporting equipment and accessories is recognized when
the earning process is complete and the risk and rewards of ownership have
transferred to the customer, which is generally considered to have occurred upon
shipment.
Shipping and handling costs
The Company's policy is to classify shipping and handling costs as selling,
general and administrative expenses.
7
PACIFIC SPORTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
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NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Advertising
The Company expenses all advertising costs as incurred. For the years ended
December 31, 2005 and 2004 the Company incurred approximately $19,096 and
$26,301 in advertising expenses, respectively.
Income taxes
Prior to May 2005, PSG operated as a limited liability company and was not a tax
paying entity for federal or state income tax purposes and thus no provision for
income taxes was recognized. The partners of the Limited Liability Corporation
paid tax individually based on their portion of ownership.
Impact of accounting standards
In December 2003, the FASB issued SFAS 132r, Employers' Disclosures about
Pensions and Other Postretirement Benefits--an amendment of FASB Statements No.
87, 88, and 106. SFAS 132r revises employers' disclosures about pension plans
and other postretirement benefit plans. It does not change the measurement or
recognition of those plans required by FASB Statements No. 87, Employers'
Accounting for Pensions, No. 88, Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and
No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions.
This Statement retains the disclosure requirements contained in FASB Statement
No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits, which it replaces. It requires additional disclosures to those in the
original Statement 132 about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. The adoption of SFAS 132r did not have any impact on the
Company's financial condition or results of operations.
In December 2003, the FASB issued FIN No. 46R, "Consolidation of Variable
Interest Entities." This requires that the assets, liabilities and results of
the activity of variable interest entities be consolidated into the financial
statements of the company that has a controlling financial interest. It also
provides the framework for determining whether an entity should be consolidated
based on voting interest or significant financial support provided to it. The
adoption of FIN No. 46R did not have any impact on the Company's financial
condition or results of operations.
8
PACIFIC SPORTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impact of accounting standards (Continued)
In November 2004, the FASB issued SFAS 151, Inventory Costs--an amendment of ARB
No. 43, Chapter 4. The Statement amends the guidance of ARB No. 43, Chapter 4,
Inventory Pricing, by clarifying that abnormal amounts of idle facility expense,
freight, handling costs, and wasted materials (spoilage) should be recognized as
current-period charges and by requiring the allocation of fixed production
overheads to inventory based on the normal capacity of the production
facilities. The adoption of SFAS 151 did not have any impact on the Company's
financial condition or results of operations.
In December 2004, the FASB issued a revision to SFAS 123 (revised 2004),
Share-Based Payment. The revision requires all entities to recognize
compensation expense in an amount equal to the fair value of share-based
payments granted to employees. The statements eliminate the alternative method
of accounting for employee share- based payments previously available under APB
25. The provisions of SFAS 123R are effective as of the first interim period
that begins after June 15, 2005. The Company does not believe that this recent
accounting pronouncement will have a material impact on their financial position
or results of operations.
In December 2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary
Assets-amendment of APB Opinion No. 29". Statement 153 eliminates the exception
to fair value for exchanges of similar productive assets and replaces it with a
general exception for exchange transaction that do not have commercial
substance, defined as transaction that are not expected to result in significant
changes in the cash flows of the reporting entity. This statement is effective
for exchanges of nonmonetary assets occurring after June 15, 2005. The Company
does not believe that this recent accounting pronouncement will have a material
impact on their financial position or results of operations.
In May 2005, the FASB issued SFAS No. 154 "Accounting Changes and Error
Corrections - a replacement of APB Opinion No. 20 and FASB Statement No. 3."
This Statement replaces APB Opinion No. 20, "Accounting Changes", and FASB
Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements"
and changes the requirements for the accounting for and reporting of a change in
accounting principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provision. When a pronouncement includes specific transition
provisions, those provisions should be followed. The Company has no transactions
that would be subject to SFAS 154.
9
PACIFIC SPORTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Concentrations of credit risk
The Company performs ongoing credit evaluations of its customers. For the year
ended December 31, 2005, one customer individually accounted for 18% of sales.
Three customers represented 47% (21%, 16% and 10%) of accounts receivable for
the year ended December 31, 2005.
For the year ended December 31, 2004, three customers individually accounted for
35% of sales (12%, 12% and 11%). One customer represented 24% of accounts
receivable for the year ended December 31, 2004.
Disclosure about Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments at
December 31, 2005 and 2004, as defined in FASB 107, does not differ materially
from the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is required in interpreting
market data to develop the estimates of fair value, and accordingly, the
estimates are not necessarily indicative of the amounts that the Company could
realize in a current market exchange.
NOTE B - ACCOUNTS RECEIVABLE
Accounts receivable are factored and used as collateral for secured borrowings
(see Note J).
NOTE C - INVENTORY
During the year inventory is comprised of snowboards, softgoods and accessories
and is stated at the lower of cost or market, as determined using the average
cost method. December 31 falls in between the selling cycle and the Company
typically has sold out of inventory as of that date. The following table
represents the major components of inventory at December 31, 2005 and 2004.
2005 2004
---------- ----------
Supplier deposits $ 38,368 $ --
---------- ----------
NOTE D - PREPAID SERVICES
10
PACIFIC SPORTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
The Company issued 100,000 shares of its common stock for endorsement and
promotion of a new product in their existing line of snowboards by a known
singer. Subsequent to delivery of the stock it was discovered that the singer
was already in contract, which superseded any and all contracts. PSG is seeking
legal remedy to cancel the outstanding shares. PSG has accrued an amount equal
to the shares valued at $0.25 per share, fair value, in their prepaid expenses,
common stock and additional paid in capital at December 31, 2005. The outcome of
the legal proceedings is unknown as of the date of the report.
NOTE E - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2005 and 2004:
2005 2004
-------- --------
Computer hardware $ 9,756 $ 9,756
Tooling 2,800 2,800
-------- --------
12,556 12,556
Accumulated depreciation (12,556) (10,117)
-------- --------
Fixed assets, net $ -- $ 2,439
======== ========
During the year ended December 31, 2004, the Company disposed of a ski boat
whose historical cost was $47,950. The disposal resulted in a write-down in
accumulated depreciation of $11,988, a decrease in related debt of $41,638 and a
gain of $5,675.
Depreciation expense for the years ended December 31, 2005 and 2004 was $2,439
and $10,427, respectively.
NOTE F - DEPOSITS
Deposits represent amounts paid to the Company's landlord as part of their
rental agreement for their facility.
NOTE G - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
11
PACIFIC SPORTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
Accounts payable and accrued expenses at December 31, 2005 and 2004 consist of
the following:
2005 2004
---------------- ---------------
Payables to vendors $ 83,331 $ 58,822
Payables for inventory 117,687 72,616
Payables for professional services 14,856 2,007
Accrued sales tax payable 2,611 1,673
---------------- ---------------
$218,485 $135,118
================ ===============
NOTE H - CUSTOMER DEPOSITS
Large customers typically advance 50% of their purchase prior to delivery. The
December 31, 2005 balance represents such payments received from three
customers. The December 31, 2004 balance represents such payments received from
two customers.
NOTE I - INTERCOMPANY LOAN
On December 15, 2005, the Company received $150,000 from Execute Sports, Inc.
(Execute) in anticipation of acquisition by Execute. The payment was recognized
as a binder payment for which the Company would be bound to repay Execute should
the letter of intent or purchase agreement not be consummated. Subsequent to
year-end the Company and Execute consummated the agreement (See Note O).
NOTE J- SECURED BORROWINGS
In 2004, the Company entered into an agreement with Internet LC to secure
financing for production in exchange for the assignment of international
letter's of credit ("LC") issued to the company from various customers. Internet
LC typically advances up to 80% of the face amount of the LC. Upon delivery of
goods by the company to the customer, Internet LC collects against the LC and
remits back to the Company any amounts owed less interest and fees. The
agreement provides that Internet LC will receive interest at the rate of 2% per
month on amounts loaned. As of December 31, 2005 and 2004, the Company owed
Internet LC principle, interest and fees of $275,462 and $131,778, respectively.
In July 2005, the Company entered into an agreement with Rocklan Credit Finance,
LLC (Rocklan) to secure financing for production up to $300,000 in exchange for
the assignment of domestic letter's of credit ("LC") issued to the company from
various customers. Rocklan typically advances up to 100% of the product cost.
Upon delivery of goods by the company to the customer, Rocklan collects against
the LC and remits back to the Company any amounts owed less interest and fees.
The agreement provides that Rocklan will receive interest at the rate of 3.5%
per transaction on amounts loaned. As of December 31, 2005 and 2004, the Company
was due $1,186 from Rocklan.
The Company is reporting the lines of credit as secured borrowing in accordance
with FAS 140, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities". As of December 31, 2005 and 2004, the net
balance due to the Factors was $274,286 and $131,778.
12
PACIFIC SPORTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
NOTE K - NOTES PAYABLE
The Company had the following notes payable as of December 31, 2005 and 2004:
2005 2004
-------- --------
Unsecured demand note payable, bearing
NOTE A interest at 10% per annum $ 8,000 $ 15,188
Unsecured demand note payable, bearing
NOTE B interest at 11.5% per month 27,000 --
Unsecured note payable, bearing interest
NOTE C at 10% per annum. Matures September
15,2006 70,376 --
-------- --------
Total Current Notes Payable $105,376 $ 15,188
Unsecured note payable, bearing interest
NOTE C at 10% per annum. Matures September
15, 2006 $ -- $ 63,978
Total interest expense recognized during the years ended December 31, 2005 and
2004 was $142,555 and $22,617, respectively.
NOTE L - COMMITMENT
The Company leases office and warehouse space at a rate of $1,350 per month and
is obligated on a month-to-month basis.
The Company incurred $14,304 and $49,225 in rent expense during the years ended
December 31, 2005 and 2004, respectively. The decrease in 2005 was due to moving
to a significantly smaller space compared to 2004.
NOTE M - GOING CONCERN AND MANAGEMENT'S PLANS
13
PACIFIC SPORTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
The Company has suffered recurring losses from operations since inception. In
addition, the Company has yet to generate an internal cash flow from its
business operations. These factors give raise substantial doubt about its
ability to continue as a going concern.
Management's plans with regard to these matters encompass the following actions:
1) obtain funding form new investors to alleviate the Company's working
deficiency, and 2) implement a plan to generate sales. The Company's continued
existence is dependent upon its ability to resolve its liquidity problems and
increase profitability in its current business operations. However, the outcome
of management's plans cannot be ascertained with any degree of certainty. The
accompanying financial statements do not include any adjustments that might
result from the outcome of these risks and uncertainty.
NOTE N - COMMON STOCK
PSG operated as a limited liability company during 2004.
In May of 2005, PSG changed its status to a C Corporation and issued two million
shares to each of its founders. Fair value was determined to be zero as the
shares had no determinable trading value and the Company's fair value at that
time was in a deficit position.
In July of 2005, PSG issued 100,000 shares in exchange for future promotional
services valued at $25,000 as detailed in Note C.
Also in July of 2005, PSG issued 40,000 shares of common stock in exchange for
the retirement of $10,000 of debt.
In October of 2005, PSG committed to issue 200,000 shares for professional
services received. PSG recognized professional services expense of $50,000, fair
value. The shares were not issued as of December 31, 2005 and are included in
common stock payable.
NOTE O - ACQUISITION BY EXECUTE SPORTS, INC.
As filed by Execute Sports, Inc. on January 3, 2006 with the Securities and
Exchange Commission on Form 8-K, On December 28, 2005, Execute Sports, Inc., a
corporation formed under the laws of the State of Nevada (the "Company"), and
Pacific Sports Group, Inc., a corporation formed under the laws of the State of
Delaware ("PSG") and the stockholders of PSG ("PSG Stockholders") entered into a
binding letter of intent ("LOI") providing for the acquisition of PSG (the "PSG
Shares") from the PSG Stockholders.
Consummation of the transaction is subject to a number of conditions,
including:
o The execution of a definitive agreement;
14
PACIFIC SPORTS GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2005 AND 2004
- --------------------------------------------------------------------------------
o The delivery to the Company of fully executed releases by all PSG
Stockholders to the effect that no such PSG Stockholder is owed any
form of payment or other obligation by PSG in addition to the terms
set forth in the binding LOI;
o Restructuring of certain debt outstanding;
o Completion of a satisfactory due diligence investigation by both
parties;
o The entry into certain employment agreements by and among the
Company and certain stockholders of PSG; and
o Definitive approval by the board of directors of the Company of the
Purchase Agreement and all transactions and developments
contemplated thereby.
As filed on January 20, 2006, the Company closed its definitive agreement to
purchase 100% of the outstanding stock of PSG as of January 16, 2006. Pursuant
to the terms of the definitive agreement, the Company issued PSG's shareholders
4,714,285 shares of its restricted common stock and paid PSG's shareholder's USD
$150,000 in cash, in exchange for 4,150,000 validly issued shares of PSG common
stock, no par value per share constituting all of the issued and outstanding
capital stock of PSG.
As of the date of this report the Company had received $150,000 in cash from
Execute Sports, Inc.
NOTE P - SUBSEQUENT EVENT
PSG shareholders returned 2,781,714 shares of Execute Sports, Inc. common stock
to effectively reduce the purchase price of PSG by Execute Sports, Inc. due to
an increase in liabilities of PSG greater than agreed upon by both companies on
the date of the purchase agreement, and lower than expected historical revenues.
As of the date of this report, the total shares issued in connection with the
purchase of PSG are 1,932,571 compared to the original number of shares, or
4,714,285 shares as filed by Execute Sports, Inc. on Form 8-k on January 20,
2006 with the Securities and Exchange Commission.
15
Proforma disclosure
ACQUISITION BY EXECUTE SPORTS, INC.
Execute Sports, Inc.. (the Company), a publicly traded company listed on the OTC
Bulletin Board, was incorporated in the state of Nevada. Pacific Sports Group
(PSG) is was incorporated in the state of California.
On December 28, 2005, the Company and the stockholders of PSG entered into a
binding letter of intent (LOI) providing for the acquisition of PSG by the
Company in a step transaction.
Under the terms of the purchase agreement, as filed on January 3, 2006, the
Company agreed to purchase 100% of the issued and outstanding stock of PSG as of
December 31, 2005. Pursuant to the terms of the agreement, PSG received $150,000
and 1,932,571 shares of the Company's stock in exchange for all their issued and
outstanding stock of PSG.
The following summarized consolidated pro forma balance sheets and statements of
revenue and expenses assumes the acquisition occurred as of January 1, 2004 and
for the years ended December 31, 2005 (the most recent audited year-end
financial statements of the Company) and December 31, 2004. The unaudited pro
forma consolidating financial statements are based on available information and
the assumptions and adjustments described in the accompanying notes. The
unaudited pro forma consolidating financial statements do not purport to
represent what the results of operations actually would have been if the events
described had occurred as of the dates indicated or what such results will be
for any future periods.
6
Execute Sports, Inc.
Consolidated Pro Forma Balance Sheet
December 31, 2005
- ------------------------------------------------------------------------------------------------------------------------------------
Pacific Sports . December 31,
Group, Inc. Execute Sports, Inc 2005
December 31, December 31, Pro Forma Pro Forma
2005 2005 Entries Consolidated
----------- ----------- ----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 48,320 $ 322,815 -- $ 371,135
Accounts receivable, net 45,079 98,259 -- 143,338
Inventory 38,368 213,420 -- 251,788
Prepaid expenses 27,255 337,474 -- 364,729
Loans receivable -- 237,253 -- 237,253
----------- ----------- ----------- -----------
TOTAL CURRENT ASSETS 159,022 1,209,221 -- 1,368,243
Fixed assets
Cost 12,556 35,443 47,999
Accumulated Depreciation (12,556) (23,150) (35,706)
----------- ----------- ----------- -----------
Net -- 12,293 -- 12,293
Investments, stock issued -- 676,400 (2) (676,400) --
Investments, Cash -- 150,000 (1) (150,000) --
Goodwill 1,288,577 1,288,577
Deposits 2,200 3,560 5,760
----------- ----------- ----------- -----------
TOTAL ASSETS $ 161,222 $ 2,051,474 $ 462,177 $ 2,674,873
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY -- $ 1,056,400 -- --
-----------
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 218,485 $ 408,595 -- $ 627,080
Customer deposits 25,262 -- 25,262
Due to related entity 150,000 -- (1) (150,000) --
Secured borrowings 274,276 10,525 -- 284,801
Notes Payable 105,376 336,424 -- 441,800
Related party notes payable -- 75,466 -- 75,466
----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 773,399 831,010 (150,000) 1,454,409
Long term debt -- -- --
----------- ----------- ----------- -----------
TOTAL LIABILITIES 773,399 831,010 (150,000) 1,454,409
COMMITMENT -- -- --
STOCKHOLDERS' EQUITY
Common stock par value $.001,
75,000,000 shares authorized, 18,706,501
issued and outstanding -- 18,702 -- 18,702
Additional paid-in capital 35,000 4,958,951 (2) (35,000) 4,958,951
Common stock payable/subscribed 50,000 788,900 (2) (50,000) 788,900
Accumulatedcdeficited (697,177) (4,546,089)(2) 697,177 (4,546,089)
----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY (612,177) 1,220,464 612,177 1,220,464
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 161,222 $ 2,051,474 $ 462,177 $ 2,674,873
=========== =========== =========== ===========
(1) Represents cash paid to Pacific Sports Group, Inc. upon the execution of
the Letter of Intent
(2) The company issued an adjusted 1,932,571 shares of common stock to the
shareholders of Pacific Sports Group, Inc. ($676,400 to common stock
payable/subscribed), in additon to $150,000 in cash and elimination of the
accumulated deficit prior to the acqusition.
7
Execute Sports, Inc.
Consolidated Pro Forma Balance Sheet
December 31, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Pacific Sports December 31,
Group, Inc. Execute Sports, Inc. 2004
December 31, December 31, Pro Forma Pro Forma
2004 2004 Entries Consolidated
----------- ----------- ----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 151,691 $ (144,846) -- $ 6,845
Accounts receivable, net 45,708 107,708 -- 153,416
Inventory -- 111,741 -- 111,741
Prepaid expenses -- 81,507 -- 81,507
----------- ----------- ----------- -----------
TOTAL CURRENT ASSETS 197,399 156,110 -- 353,509
Fixed assets
Cost 12,556 35,443 -- 47,999
Accumulated Depreciation (10,117) (17,197) -- (27,314)
----------- ----------- ----------- -----------
Net 2,439 18,246 -- 20,685
Investments, stock issued -- 676,400 (676,400) --
Investments, Cash -- 150,000 (150,000) --
Goodwill (2) 986,338 986,338
Deposits 2,200 3,560 5,760
----------- ----------- ----------- -----------
TOTAL ASSETS $ 202,038 $ 1,004,316 $ 159,938 $ 1,366,292
=========== =========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 135,118 $ 458,417 -- $ 593,535
Customer deposits 15,914 -- -- 15,914
Due to related entity 150,000 -- (1) (150,000) --
Secured borrowings 131,778 64,708 -- 196,486
Notes Payable 15,188 514,800 -- 529,988
Related party notes payable -- 100,000 -- 100,000
----------- ----------- ----------- -----------
TOTAL CURRENT LIABILITIES 447,998 1,137,925 (150,000) 1,435,923
Long term debt 63,978 -- 63,978
----------- ----------- ----------- -----------
TOTAL LIABILITIES 511,976 1,137,925 (150,000) 1,499,901
COMMITMENT -- -- -- --
STOCKHOLDERS' EQUITY
Common stock par value $.001, 75,000,000 shares
authorized, 0 issued and outstanding -- -- -- --
Additional paid-in capital -- -- -- --
Common stock payable/subscribed -- 845,900 845,900
Accumulatedcdeficited (309,938) (979,509)(2) 309,938 (979,509)
----------- ----------- ----------- -----------
TOTAL STOCKHOLDERS' EQUITY (309,938) (133,609) 309,938 (133,609)
----------- ----------- ----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 202,038 $ 1,004,316 $ 159,938 $ 1,366,292
=========== =========== =========== ===========
(1) Represents cash paid to Pacific Sports Group, Inc. upon the execution of
the Letter of Intent
(2) The company issued an adjusted 1,932,571 shares of common stock to the
shareholders of Pacific Sports Group, Inc. ($676,400 to common stock
payable/subscribed), in additon to $150,000 in cash and elimination of the
accumulated deficit prior to the acqusition.
8
Execute Sports, Inc.
Consolidated Pro Forma Statement of Revenue and Expense
Twelve Months Ended December 31, 2005
- ------------------------------------------------------------------------------------------------------------------------
Pacific Sports
Group, Inc. Execute Sports, Inc. Consolidated
1/1/2005 1/1/2005 1/1/2005
through through through
12/31/2005 12/31/2005 12/31/2005
------------ ------------ ------------
REVENUES
Sales $ 466,867 $ 1,389,163 $ 1,856,030
Cost of sales 235,944 1,056,441 1,292,385
------------ ------------ ------------
Gross profit 230,923 332,722 563,645
EXPENSES
General and administrative expenses 319,752 3,582,721 3,902,473
Selling and advertising 168,917 240,247 409,164
Depreciation & Amortization 2,439 5,953 8,392
------------ ------------ ------------
Total expense 491,108 3,828,921 4,320,029
Income (loss) from operations (260,185) (3,496,199) (3,756,384)
OTHER INCOME AND EXPENSES
Gain on the disposal of assets -- -- --
Other income 20,309 11 20,320
Other expense (4,808) (3) (4,811)
Interest expense (142,555) (70,389) (212,944)
------------ ------------ ------------
Total other income and expenses (127,054) (70,381) (197,435)
NET INCOME (LOSS) $ (387,239) $ (3,566,580) $ (3,953,819)
============ ============ ============
Weighted average shares outstanding
Basic and diluted 11,982,506 11,982,506
Shares to be issued for acqusition 1,932,571 1,932,571
------------ ------------
Total Weighted average common shares outstanding 13,915,077 13,915,077
Net (loss) per common share (basic and diluted) $ (0.26) $ (0.28)
============ ============
9
Execute Sports, Inc.
Consolidated Pro Forma Statement of Revenue and Expense
Twelve Months Ended December 31, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Pacific Sports Group, Inc. Execute Sports, Inc. Consolidated
1/1/2004 1/1/2004 1/1/2004
through through through
12/31/2004 12/31/2004 12/31/2004
----------- ----------- -----------
REVENUES
Sales $ 522,598 $ 1,384,188 $ 1,906,786
Cost of sales 794,857 1,135,303 1,930,160
----------- ----------- -----------
Gross profit (272,259) 248,885 (23,374)
EXPENSES
General and administrative expenses 499,892 384,486 884,378
Selling and advertising 174,144 237,802 411,946
Depreciation & Amortization 10,427 7,928 18,355
----------- ----------- -----------
Total expense 684,463 630,216 1,314,679
Income (loss) from operations (956,722) (381,331) (1,338,053)
OTHER INCOME AND EXPENSES
Gain on the disposal of assets 5,675 -- 5,675
Other income -- 2 2
Other expense (52,967) -- (52,967)
Interest expense (22,617) (159,161) (181,778)
----------- ----------- -----------
Total other income and expenses (69,909) (159,159) (229,068)
NET INCOME (LOSS) $(1,026,631) $ (540,490) $(1,567,121)
=========== =========== ===========
Weighted average shares outstanding
Basic and diluted 224,773 224,773
Shares to be issued for acqusition 1,932,571 1,932,571
----------- -----------
Total Weighted average common shares outstanding 2,157,344 2,157,344
Net (loss) per common share (basic and diluted) $ (0.25) $ (0.73)
=========== ===========
10