Estate/Court File No. 32-1998693 Estate/Court File No. 32-1997883 ONTARIO SUPERIOR COURT OF JUSTICE

Estate/Court File No. 32-1998693
Estate/Court File No. 32-1997883
ONTARIO
SUPERIOR COURT OF JUSTICE
IN BANKRUPTCY AND INSOLVENCY
(COMMERCIAL LIST)
IN THE MATTER OF THE NOTICE OF INTENTION TO MAKE A PROPOSAL OF
R.M.P. ATHLETIC LOCKER LIMITED AND CORE SPORTS INC., CORPORATIONS
WITH A HEAD OFFICE IN THE CITY OF MISSISSAUGA IN THE PROVINCE OF
ONTARIO
Applicants
FIRST REPORT OF PRICEWATERHOUSECOOPERS INC.
AS PROPOSAL TRUSTEE
UNDER THE NOTICE OF INTENTION TO FILE A PROPOSAL
JUNE 18, 2015
A.
INTRODUCTION .................................................................................................................... 3
B.
PREVIOUS DEALINGS WITH PwC LLP................................................................................ 5
C.
BACKGROUND ....................................................................................................................... 5
D.
CAUSES OF FINANCIAL DIFFICULTY, DEFAULTS, FORBEARANCES AND
INSOLVENCY.........................................................................................................................12
E.
COMPANIES’ ACTIVITIES SINCE THE FILING.................................................................. 17
F.
CASH FLOW FORECAST.......................................................................................................18
G.
CASH FLOW FORECAST VARIANCE ANALYSIS FOR THE PERIOD TO JUNE 6, 2015 ...19
H. REQUEST TO CONSOLIDATE NOI PROCEEDINGS...........................................................21
I.
ADMINISTRATION CHARGE.............................................................................................. 22
J.
DISTRIBUTION TO BNS DURING EXTENSION PERIOD................................................. 22
K.
PROPOSAL TRUSTEE'S ACTIVITIES .................................................................................. 24
L.
STAY EXTENSION................................................................................................................ 25
M. PROPOSAL TRUSTEE’S RECOMMENDATIONS................................................................ 27
APPENDICES
A.
B.
C.
Certificates of Appointment of PwC as Trustee under the Notice of Intention to File a Proposal
Cash Flow Forecasts for R.M.P. Athletic Locker Limited and Core Sports Inc.
Cash Flow Forecast to Actual Comparison for R.M.P. Athletic Locker Limited and Core Sports
Inc.
2
A.
INTRODUCTION
1.
This report (the “First Report”) is filed by PricewaterhouseCoopers Inc. (“PwC”) in its
capacity as proposal trustee (“Proposal Trustee”) in connection with the Notices of
Intention to Make a Proposal (“NOIs”) filed by R.M.P. Athletic Locker Limited (“RMP”)
and Core Sports Inc. (“Core”) (collectively the “Companies”).
2.
On May 25, 2015 (the “Core Filing Date”) and May 27, 2015 (the “RMP Filing Date”)
(the Core Filing Date and the RMP Filing Date collectively are the “Filing Dates”), Core
and RMP, respectively, each filed an NOI pursuant to Section 50.4(1) of the Bankruptcy
and Insolvency Act, R.S.C. 1985, c. B-3, as amended (“BIA”) and PwC was appointed as
Proposal Trustee under each NOI. Copies of the Certificates of Appointment confirming
PwC’s appointment as Proposal Trustee are attached as Appendix “A”.
3.
The Companies have brought a motion returnable June 19, 2015 (the “Stay Extension
Motion”) to the Ontario Superior Court of Justice In Bankruptcy and Insolvency
(Commercial List) (the “Court”) seeking an order (the “Stay Extension Order”),
among other things:
a) extending Core’s and RMP’s time for filing a proposal pursuant to section 50.4(9) of
the BIA to August 8, 2015 and August 10, 2015, respectively (“Stay Extension”);
b) approving the administrative consolidation of the Companies’ NOI proceedings (the
“Consolidation”);
c) approving the E-Service Protocol (as defined in the Stay Extension Order);
d) granting a priority charge (the “Administration Charge”) in favour of the
Proposal Trustee, counsel for the Proposal Trustee and the Companies' counsel over
all assets, rights, undertakings and properties (the “Property”) of the Companies,
as security for their professional fees and disbursements incurred at their standard
rates and charges, both before and after making of the orders in respect of these NOI
proceedings, up to a maximum aggregate amount of $125,000; and
e) approving this First Report and the activities of the Proposal Trustee as described
herein.
4.
The purpose of this First Report to the Court is to provide the Court with the following:
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a) the Companies’ previous dealings with PwC LLP (as defined herein);
b) background information on the Companies, including their financial position,
financial results, causes of financial difficulties, and insolvency;
c) a summary of the Companies’ activities since the Filing Dates;
d) a summary of the Core 10-Day CFF (as defined herein) for the period from May 26,
2015 to August 22, 2015 and the RMP 10-Day CFF (as defined herein) for the period
May 28, 2015 to August 22, 2015;
e) actual cash flow for Core and RMP for the period May 26, 2015 to June 13, 2015 and
May 28, 2015 to June 13, 2015, respectively;
f) distribution to BNS (as defined herein) during the NOI proceedings and a review of
the security position of BNS against RMP and the Guarantors (as defined herein);
g) a summary of the Proposal Trustee's activities since the Filing Dates; and
h) the Proposal Trustee’s recommendations in respect of the Companies’ request for
the relief sought in this motion.
5.
In preparing this First Report and conducting its analysis, the Proposal Trustee has
obtained and relied upon certain unaudited financial information of the Companies, the
Companies’ books and records, information obtained from the Companies’ management
(“Management”), and discussions with various parties including the Companies,
employees and certain of its directors (collectively, the “Information”).
6.
In accordance with industry practice, except as described in this First Report, the
Proposal Trustee has not audited, reviewed or otherwise attempted to verify the accuracy
or completeness of the Information in a manner that would comply with Generally
Accepted Assurance Standards pursuant to the Chartered Professional Accountants
Canada Handbook - Assurance.
7.
Future oriented financial information referred to in this First Report is based on
estimates and assumptions. Actual results may vary from forecasts, even if the
assumptions materialize, and such variances may be significant.
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8.
The Proposal Trustee reserves the right to refine or amend its comments and findings as
further information is obtained or brought to its attention subsequent to the date of this
First Report.
9.
Unless otherwise stated, all monetary amounts noted herein are expressed in Canadian
dollars.
B.
PREVIOUS DEALINGS WITH PwC LLP
10.
On December 12, 2014, PricewaterhouseCoopers LLP (“PwC LLP”), an affiliate of PwC,
was engaged by the RMP Group to perform audit services for the RMP Group for the
fiscal year ended December 31, 2014. PwC LLP did not issue financial statements or an
audit opinion on RMP Group. On May 6, 2015, PwC LLP and the RMP Group, by mutual
agreement, terminated the engagement. As a result, PwC LLP was neither the auditor
nor the accountant of the Companies within the two year period prior to the Filing Dates
and accordingly the Proposal Trustee is of the view that there is no conflict of interest or
prejudice to the Companies or their creditors by PwC taking on the role of Proposal
Trustee under the NOIs.
C.
BACKGROUND
RMP Group
11.
The Proposal Trustee has been informed by Management that RMP and Core are whollyowned operating subsidiaries of a group of holding and operating companies. RMP,
Core and operating subsidiaries Advanced Sports Inc. (“ASI”), Benchmark Athletic Inc.
(“BMK”) and Ripzone LP (“RLP”) are known as the RMP Athletic Group of Companies
(the “RMP Group”) and share management, facilities and employees. ASI, BMK and
RLP have not commenced NOI proceedings and are continuing to operate in the normal
course.
12.
The Proposal Trustee is further informed that Mike Dyon and Paul Dyon (collectively,
the “Shareholders”) each own 50% of Core. Through their various holding companies,
the Shareholders each indirectly own 50% of RMP. Mike Dyon and Paul Dyon are also
directors of the Companies.
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13.
Set out below is the Companies’ corporate structure (the “Organizational Chart”) as
provided to the Proposal Trustee by the Companies:
RMP
14.
The Proposal Trustee understands that RMP was established in 1977 and is a full service
wholesale distributor and retailer of athletic apparel, footwear and sporting goods.
RMP’s products are sold to end-customers and retailers under privately-owned brands
and pursuant to various third-party licensing and distribution arrangements (the
“License and Distribution Agreements”).
15.
RMP serves its customers from a system of leased warehouses and retail locations
throughout Ontario, a third party logistics facility the United States, and a sales office in
Quebec.
16.
RMP is headquartered in Mississauga, Ontario where it leases its main 176,245 square
foot warehouse facility which houses state-of-the-art systems for picking and shipping
orders. RMP’s has retail warehouse locations in Cambridge, Kitchener, Oakville and a
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sales office in Montreal, Quebec. There is also inventory held at a third party logistics
facility in Linden, New Jersey.
17.
Prior to the filing of the NOI, RMP had approximately 123 active and 2 inactive
employees comprised of salaried and hourly employees and commissioned sales staff
located at its head office, warehouses and sales office. RMP also hires temporary
workers, paid hourly, to assist at various retail warehouse sales events. RMP’s employees
are not unionized and RMP does not sponsor any registered pension plans.
18.
Subsequent to the filing of the NOI, RMP terminated 101 employees; 31 of which were
terminated immediately following the filing of the NOI, while a further 70 were
terminated with working notice. Specific details on employee-related matters are
discussed later in this First Report.
Core
19.
The Proposal Trustee understands that Core was established in 1999 and is a full service
wholesale distributor of athletic apparel and sporting goods. Core’s products are sold to
end-customers and retailers pursuant to various License and Distribution Agreements.
20.
Core has no employees, infrastructure or leased premises. Historically, RMP has
provided Core with various management, finance, accounting, marketing, sales,
warehousing, sourcing, logistics, product design, retail, customer service and related
services (“Management Services”) for which Core has paid an annual fee (the
“Management Services Fee”), pursuant to a long-term oral agreement between the
Companies.
21.
Upon Core filing an NOI, Core and RMP entered into a management services agreement
(“MSA”) pursuant to which RMP will agree to continue to provide Core with certain
Management Services. The MSA provides that Core will make weekly payments to RMP
in respect of the Management Services in accordance with a schedule of weekly payments
for the period May 26, 2015 to August 22, 2015. The Proposal Trustee understands that
the weekly payments are based on a pro rata allocation of RMP’s rent, salary and benefits
expenses and sales and general administrative expenses based on the value of Core
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inventory held at the RMP warehouses and the value of Core sales. A copy of the MSA is
attached as an Exhibit to the Holmes Affidavit (as defined below).
22.
Additional information on RMP and Core is provided in the affidavit of Robert Holmes,
the President and General Manager of each of the Companies, sworn June 15, 2015 (the
“Holmes Affidavit”) in support of the Companies’ Stay Extension Motion.
FINANCIAL POSITIONS
RMP
23.
A summary of RMP’s internal draft balance sheet as at April 30, 2015 is set out above.
RMP held assets with a total book value of approximately $50.4 million, comprised
mainly of accounts receivable, inventory and advances to related parties; and liabilities
with a recorded value of approximately $50.2 million, consisting mainly of indebtedness
(the “Indebtedness”) owed to the Bank of Nova Scotia (“BNS”) pursuant to a Credit
Agreement (as defined below), advances from related parties pursuant to a General
Security Agreement (“GSA”), and accounts payable and accrued liabilities.
24.
RMP, as borrower, entered into a credit agreement (“Credit Agreement”) with BNS
dated December 17, 2013. The Credit Agreement provides for a revolving credit facility
8
available by way of Canadian and US prime loans and certain Ancillary Facilities (as
defined in the Credit Agreement) including a letter of credit facility and a credit card
facility.
25.
The maximum borrowings under the Credit Agreement are $15.0 million (the
“Maximum Borrowings”) and are based on the RMP Group’s eligible weekly account
receivables and inventory balances. Borrowings under the Credit Agreement are secured
by way of a GSA dated December 17, 2013 granted by RMP in favour of BNS, which
grants BNS a security interest in the inventory, equipment, accounts receivable, among
other assets. In addition, BNS has taken the assignment of two life insurance policies in
favour of Michael Dyon and Paul Dyon.
26.
As at the RMP Filing Date, the Indebtedness under the Credit Agreement was $9.7
million. In addition, RMP had issued a Stand-by Letter of Credit in the amount of
$250,000 to Intact Insurance Company in respect of custom bonds provided to Her
Majesty in right of Canada on behalf of RMP ($132,000), Core ($80,000), ASI ($25,ooo)
and BK ($13,000).
27.
Core, ASI and BMK and RLP have guaranteed RMP’s obligations and Indebtedness to
BNS pursuant to guarantees dated February 19, 2007 and December 17, 2013 (the
“Guarantee(s)”) (individually a “Guarantor” and collectively the “Guarantors”).
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Core
28.
A summary of Core’s internal draft balance sheet as at April 30, 2015 is set out above.
Core held assets with a total book value of approximately $19.1 million, comprised
mainly of accounts receivable, inventory and prepaid assets; and total recorded liabilities
of approximately $23.9 million, consisting mainly of amounts due to RMP, subject to a
GSA, and accounts payable and accrued liabilities. Core was indebted to RMP in the
approximate amount of $14.7 million as at April 30, 2015, in large part due to the
Management Services Fee that RMP charges Core for certain Management Services.
RECENT FINANCIAL RESULTS
RMP
29.
Set out below is a summary of RMP’s unconsolidated, audited income statements for the
fiscal years ended December 31, 2011, December 31, 2012 and December 31, 2013 as well
as a summary of the unaudited draft internal income statements for the fiscal year ended
December 31, 2014 and the four month period ended April 30, 2015.
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30.
In two of the preceding three audited fiscal years, RMP reported negative earnings
before interest, taxes, depreciation and amortization (“EBITDA”), with a total loss over
the three year period in excess of $5.4 million.
31.
In the recent unaudited fiscal year ended December 31, 2014, RMP’s financial results
continued to be negative with sales of $28.1 million, an EBITDA loss of approximately
$490,000 and a net loss of approximately $1.9 million.
32.
In the interim four months ended April 30, 2015, RMP’s financial results continued to
deteriorate, with RMP reporting an EBITDA loss of approximately $1.7 million and a net
loss of approximately $2.0 million.
33.
RMP’s losses in the period 2012 to 2015 were attributed to the loss of a major License
and Distribution Agreement, the unprofitability of certain brands in the current retail
environment, the inability to successfully restructure its overhead expenses and higher
product costs related to the decline of the Canadian dollar, all of which are discussed
further in this First Report and the Holmes Affidavit.
Core
34.
Set out below is a summary of Core’s unconsolidated, audited income statements for the
fiscal years ended December 31, 2011, December 31, 2012 and December 31, 2013, as well
as a summary of the unaudited draft internal income statements for the fiscal year ended
December 31, 2014 and four months ended April 30, 2015.
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35.
In two of the preceding three audited fiscal years, Core reported negative earnings before
EBITDA, with a total loss over the three year period in excess of $1.9 million.
36.
In the recent unaudited fiscal year ended December 31, 2014, Core’s financial results
continued to be negative with an EBITDA loss of approximately $3.2 million and a net
loss of approximately $3.3 million.
37.
In the interim four months ended April 30, 2015, Core’s financial results continued to
deteriorate, with an EBITDA loss and net loss of approximately $1.4 million after
accruing for the Management Services Fee.
38.
The Proposal Trustee understands that Core’s losses in the period 2012 to 2015 were
attributed to the reduction in profitability of certain brands in the current retail
environment, the inability to successfully reduce and restructure its overhead expenses
and higher product costs related to the decline of the Canadian dollar, all of which are
discussed further in this First Report and the Holmes affidavit.
D.
CAUSES OF FINANCIAL DIFFICULTY, DEFAULTS, FORBEARANCES AND
INSOLVENCY
39.
The Companies have incurred losses since 2012 and are insolvent.
40.
The Proposal Trustee is advised by Management that the causes of financial difficulties
generally relate to the following four main areas.
a) Loss of major License and Distribution Agreement – Intense price competition in
the retail market resulted in the loss of a longstanding and significant License and
Distribution Agreement by RMP, which expired December 31, 2013 and was not
12
renewed. Compounding the loss of revenue and contribution margin associated
with this contract was the difficulty encountered by RMP in eliminating the fixed
costs associated with servicing the lost contract.
b) Change in consumer taste and demand – Beginning in 2011, certain brands sold
through retail stores experienced a decline in sales due to changing consumer tastes
and warm weather, which negatively impacted sales of RMP’s winter sports apparel.
c) Inability to reduce fixed costs – The Companies attempted to reduce their overhead
and operating expenses by reducing staff which resulted in high termination and
severance costs and negatively impacted certain functional areas of the business.
Unfortunately, the Companies were unable to scale back their overhead and cost
structure sufficiently to offset the decline in revenue and contribution margin,
leading to sustained unprofitability.
d) Depreciation of the Canadian dollar – In the two month period beginning December
2014, the Canadian dollar weakened by approximately 11% or 13 cents against the
US dollar. The currency decline occurred around the same time as the arrival of
several large shipments of the Companies’ USD denominated inventory from Asia,
which were paid for after the currency weakness. The Companies did not have the
necessary currency hedges in place to address such a rapid change in exchange rates
and accordingly, the Companies experienced a significant deterioration in their
profitability.
DEFAULTS AND FORBEARANCES
41.
As discussed earlier in this First Report, RMP and Core incurred collective losses in
excess of $7.4 million and $5.3 million respectively in the four fiscal years ended
December 31, 2014. As a result, RMP breached the EBITDA covenant under its Credit
Agreement in the third quarter of fiscal 2014. The Proposal Trustee understands that
BNS did not waive the covenant breach, but advised RMP that it would not immediately
enforce its rights and remedies in respect of the breach nor would it require immediate
repayment of the Indebtedness at that time. RMP subsequently took steps to attempt to
refinance the BNS debt.
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42.
On March 19, 2015, RMP and the Guarantors entered into a Forbearance Agreement (the
“First Forbearance Agreement”) with BNS, wherein BNS agreed to forbear from
enforcing its remedies against RMP and the Guarantors until the earlier of April 30, 2015
or the occurrence of any Intervening Event (as defined in the First Forbearance
Agreement) on the understanding that RMP would secure alternative financing during
the forbearance period.
43.
Pursuant to the First Forbearance Agreement, certain amendments were made to the
borrowing base under the Credit Agreement, including a temporary accommodation
provided by BNS on the borrowing base calculation to increase the Maximum
Borrowings available under the Credit Agreement by $2.0 million.
44.
On May 15, 2015, the Companies entered into a second forbearance agreement with BNS
(dated May 1, 2015) (the “Second Forbearance Agreement”), which extended the
forbearance period granted under the First Forbearance Agreement to the earlier of July
31, 2015 or the occurrence of any Intervening Event (as defined in the Second
Forbearance Agreement) (the “Second Forbearance Date”).
45.
Pursuant to the Second Forbearance Agreement, certain amendments were made under
the Credit Agreement, including a temporary accommodation provided by BNS to
increase the Maximum Borrowings to $16.0 million, subject to borrowing base
availability. In addition, BNS was entitled to deliver formal demand for payment of
RMP’s Indebtedness to BNS, together with a Notice of Intention to Enforce Security
under section 244(1) of the BIA (the “NITES Notice”). RMP and the Guarantors agreed
to waive the ten (10) day notice period provided for in the NITES Notice and to repay the
Indebtedness on or before July 31, 2015. RMP also agreed to engage PwC as financial
advisor and to file a NOI by May 31, 2015.
46.
On May 22, 2015, BNS issued to RMP and Core demand letters (the “Demands”)
outlining the Indebtedness accompanied by NITES Notices. On May 22, 2015, the
Companies waived the 10 day notice period required under the BIA. Pursuant to the
Demands, as of May 22, 2015, RMP (and Core as Guarantor) was indebted to BNS in the
total amount of approximately $10.7 million.
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OTHER SECURED CREDITORS
RMP
47.
As detailed in the PPSA search attached as an Exhibit to the Holmes Affidavit, in
addition to BNS, the following companies (“Other RMP Secured Creditors”) had
registered their security interest against RMP under the Personal Property Security Act
(“PPSA”) Registration System as at March 18, 2015.
48.
As discussed earlier in this First Report, the following Other RMP Secured Creditors are
related to RMP. As at the RMP Filing Date, these related parties (“RMP Related
Secured Creditors”) were collectively owed approximately $31.8 million by RMP.
49.
The Proposal Trustee understands that the RMP Related Secured Creditors entered into
subordination and postponement agreements with BNS dated December 17, 2013
15
whereby the RMP Related Secured Creditors agreed to defer, postpone and subordinate
to the prior repayment in full by RMP of obligations owing by RMP to BNS.
Core
50.
As outlined in an exhibit to the Holmes Affidavit, as at March 18, 2015 in addition to
BNS, the following creditors (“Other Core Secured Creditors”) had registered their
security against Core under the PPSA Registration System.
51.
As discussed earlier in this First Report, the following Other Core Secured Creditors are
related to Core (“Core Related Secured Creditors”). The Proposal Trustee understands
that as at the Core Filing Date, the only debt outstanding under these registrations was to
RMP in the amount of $15.1 million. All of the obligations pursuant to the other
registrations have never been incurred or have been repaid.
52.
The Proposal Trustee understands that the Core Related Secured Creditors have entered
into subordination and postponement agreements with BNS dated December 17, 2013
16
whereby the Core Related Secured Creditors agreed to defer, postpone and subordinate
to the prior repayment in full by Core of obligations owing by Core to BNS.
E.
COMPANIES’ ACTIVITIES SINCE THE FILING
EMPLOYEE TERMINATIONS
53.
As discussed earlier in this First Report, the Companies’ revenues have declined
significantly over the past 3-4 years and can no longer support their overhead structure.
54.
Accordingly, on May 27, 2015, upon the filing of the NOI, RMP terminated 31 employees
with immediate effect. On June 3 and 4, 2015, RMP issued working notice of
termination to a total of 70 employees, providing notice periods of one to six months to
coincide with the Companies’ downsizing and restructuring. The terminated employees
worked in segments of the business which supported underperforming brands or License
and Distribution Agreements.
COMMERCIAL LEASE D ISCLAIMER
55.
On May 29, 2015, RMP issued a Notice of Disclaimer, disclaiming the commercial lease
of a sales centre in Montreal effective June 30, 2015, which would not be required
following its restructuring.
56.
The Proposal Trustee understands that RMP is continuing to assess its warehouse
requirements in conjunction with a reduction in sales volume, its assessment of
underperforming brands and the potential sale of its Private Brands (as defined herein).
10-DAY CASH FLOW F ORECAST
57.
Core and RMP, with the assistance of the Proposal Trustee, have each prepared a cash
flow forecast of their receipts and disbursements for the period May 26, 2015 to August
22, 2015 (the “Core 10-Day CFF”), and May 28, 2015 to August 22, 2015, respectively
(the “RMP 10-Day CFF”) (together the “10-Day CFFs”). Copies of the 10-Day CFFs
and assumptions thereto are attached as Appendix “B”.
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MARKETING AND SALE OF ASSETS
58.
In addition to various License and Distribution Agreements, RMP designs, markets and
distributes sports apparel under its trademarked private brands RPZN®, PWDR
ROOM® and EIRA® (the “Private Brands”).
59.
As part of its restructuring, RMP is considering the sale of these Private Brands and
recently engaged PricewaterhouseCoopers Corporate Finance Inc. to market and sell its
Private Brands and related operating assets.
DISCUSSIONS WITH SUPPLIERS
60.
Since the Filing Dates, the Companies have entered into discussions and negotiation
with certain licensors and third parties in respect to the Companies’ License and
Distribution Agreements.
61.
These discussions are part of Management’s assessment as to which Licence and
Distribution Agreements are financially viable and will form part of the Companies’ go
forward restructuring strategy, and accordingly the terms, conditions, timing and
support required to transition any terminated License and Distribution Agreements.
F.
CASH FLOW FORECAST
62.
As discussed earlier in this report Core and RMP, with the assistance of the Proposal
Trustee, have each prepared their respective 10-Day CFFs.
63.
The 10-Day CFFs forecast that as a result of the prior extension of the forbearance
period, a seasonal slowdown in purchases, discontinuation of certain License and
Distribution Agreements and the selloff of certain branded inventory, RMP and Core will
have sufficient cash flow to fund operations during the initial 30 day stay period under
the NOIs as well as during the requested 45 day extension to the time to file a proposal.
64.
In addition, the Core 10-Day CFF forecasts that during the cash flow period Core will
make payments in the total amount of $1.75 million to BNS (the “Core Guarantee
Payment”) pursuant to its Guarantee.
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65.
The RMP 10-Day CFF forecasts that in addition to the Core Guarantee Payment, RMP
will generate sufficient surplus cash flow to repay the Indebtedness in full to BNS by July
31, 2015 (the “BNS Repayment Date”) pursuant to the terms of the Second
Forbearance Date.
G.
CASH FLOW FORECAST VARIANCE ANALYSIS FOR THE PERIOD TO JUNE
6, 2015
66.
A comparison of the actual cash flows for Core in the period of May 26, 2015 to June 6,
2o15 (the “Core Period”) to the Core 10-Day CFF is summarized in the table below. A
copy of the actual weekly cash flow variance analysis for the Core Period in respect of
Core is attached as Appendix “C” hereto.
67.
During the Core Period, Core reported cash flow of $1.0 million as compared to
forecasted cash flow of approximately $493,000. The variance in the amount of
approximately $512,000 was due to the following:
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a) higher than forecast receipts as a result of early payments from large customers; and
b) lower than forecast disbursements primarily due to timing differences resulting
from the delayed receipt of invoices.
68.
A comparison of the actual cash flows for RMP in the period of May 28, 2015 to June 6,
2o15 (the “RMP Period”) to the RMP 10-Day CFF is summarized in the table below. A
copy of the actual weekly cash flow variance analysis for the RMP Period in respect of
RMP is attached as Appendix “C” hereto.
69.
During the RMP Period, RMP reported cash flow of approximately $1,123,000 as
compared to forecasted cash flow of approximately $766,000. The variance in the
amount of approximately $357,000 was due to the following:
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a) lower than forecast cash receipts of approximately $19,000, due to a delay in the
collection of accounts receivables which is expected to reverse; and
b) lower than forecast cash disbursements of approximately $376,000, due to:
(i) product purchases, which were approximately $159,000 lower than forecast due
to timing. This is expected to reverse in the week ended June 13, 2015 (week 3);
(ii) rent at the Kitchener store, whose lease expires on June 30, 2015, was lower
than forecast due to a rent deposit, which was used to fund June 2015 rent. This
was not reflected in the RMP 10-Day CFF Forecast and is a permanent
favourable difference;
(iii) selling, general and administrative expenses were approximately $106,000
lower than forecast as a function of timing in receipt, approval and payment of
invoices;
(iv) interest and bank fees, which were approximately $29,000 lower than forecast
due to a lower average loan balance than originally forecast as a result of lower
than expected disbursements; and
(v) restructuring fees were approximately $24,000 lower than forecast as invoices
were delayed. This trend is expected to reverse in the week ended June 20, 2015
(week 4).
H.
REQUEST TO CONSOLIDATE NOI PROCEEDINGS
70.
RMP and Core are seeking an order consolidating the administration of their NOI
proceedings into one estate for the purposes of filing court materials and the Proposal
Trustee reporting to the Court.
71.
For greater certainty, RMP and Core would remain separate estates for the purposes of
statutory reporting with the Official Receiver, running any claims processes, and making
any proposals or other distributions to their respective creditors.
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72.
As discussed earlier in this First Report, RMP and Core are related companies with
common ownership and management. The Companies are operated out of the same
leased premises and share one back office that provides certain Management Services.
73.
The Proposal Trustee is supportive of the Companies’ request for the Consolidation as it
is of the view that consolidation of the estates would avoid duplication of efforts in
reporting and be more efficient and cost effective.
I.
ADMINISTRATION CHARGE
74.
The Companies have requested that the Court grant an Administration Charge in favour
of the Proposal Trustee, counsel for the Proposal Trustee and the Companies' counsel on
the Property of the Companies, as security for their professional fees and disbursements
incurred at their standard rates and charges, both before and after making of the order in
respect of these NOI proceedings, up to a maximum aggregate amount of $125,000. The
quantum of the Administration Charge is reasonable relative to the book value of the
Companies’ assets and secured debt.
75.
BNS has advised that they have no objection to the Administration Charge and that the
Proposal Trustee understands from the Holmes Affidavit that the RMP Related Secured
Creditors and the Core Related Secured Creditors and Core have no objections to the
Administration Charge.
76.
Accordingly, the Proposal Trustee supports the Companies’ request for the
Administrative Charge.
J.
DISTRIBUTION TO BNS DURING EXTENSION PERIOD
77.
As discussed earlier in this report, RMP and the Guarantors are required to repay the
Indebtedness under the Credit Agreement on or before July 31, 2015, during the period
of the Stay Extension.
78.
The Proposal Trustee engaged its independent legal counsel, Stikeman Elliott LLP to
conduct a security review and provide opinions (the “Opinions”) in respect of BNS’
security interests in the assets of RMP and Core in Ontario.
22
79.
Subject to standard assumptions and qualifications, the Opinions state that:
a) the personal property security documents reviewed constitute legal, valid and
binding obligations of RMP and Core (as applicable), enforceable against such party
by BNS in accordance with the terms thereof;
b) the personal property security documents reviewed each create a valid security
interest in favour of BNS in the personal property of the applicable Company
described therein to which the Personal Property Security Act (Ontario) applies and
in which the applicable Company has rights, in each case to secure the payment and
performance of the obligations described therein;
c) registration has been made in all public offices provided for under the laws of
Ontario where such registration is necessary to perfect the security interests; and
d) the respective security interests are enforceable by BNS against a trustee in
bankruptcy of each of the respective Companies.
80.
The Proposal Trustee has analysed RMP’s records to assess the extent of any priority
claims of employees under section 60(1.3) (a) of the BIA (“Priority Claim(s)”).
According to RMP’s records and discussions with Management, RMP has paid or intends
to pay all accrued and unpaid wages owing to employees in respect of the period prior to
May 27, 2015 (the “Pre-filing Period”), hence no employee is expected to have an
outstanding claim for accrued and unpaid wages in the NOI proceedings.
81.
With respect to accrued vacation pay for the Pre-filing Period:
a) employees terminated without notice on May 27, 2015 were paid their pre-filing
vacation pay to the extent of their Priority Claim under section 60(1.3) (a) of the
BIA; and
b) the remaining employees, including employees terminated with notice, may have a
claim for accrued vacation pay, which may be considered a Priority Claim.
82.
As of the RMP Filing Date, there was estimated accrued and unpaid vacation pay owing
to employees in respect of the Pre-Filing Period in the approximate amount of $113,430.
23
In respect of the period from and after May 27, 2015, RMP intends to continue to pay its
employees in the normal course.
83.
RMP uses a payroll service provider to process its payroll. Wages and employee
withholding taxes are funded in advance by RMP, and the payroll service provider remits
required source deductions to the Canada Revenue Agency (“CRA”). RMP remits the
employer’s portion of Employment Insurance Act and Canada Pension Plan Act
obligations directly to CRA. According to RMP’s records, there were no deducted but
unremitted source deductions owing to CRA as at the RMP Filing Date.
84.
As discussed earlier in this First Report and as set out in the RMP 10-Day CFF, which is
attached as Appendix C to this First Report, RMP forecasts that it will have a cash
balance of nearly $3.5 million at the end of the Stay Extension period.
85.
Accordingly, the Proposal Trustee is of the view that RMP will have sufficient assets and
liquidity to satisfy any potential Priority Claims after the repayment of the BNS
Indebtedness.
K.
PROPOSAL TRUSTEE'S ACTIVITIES
86.
Since the Filing Dates, the Proposal Trustee has, among other things:
a) assisted RMP and Core with the preparation of their 10-Day CFFs pursuant to s.
50.4(1.2) of the BIA;
b) filed with the Official Receiver the Core 10-Day CFF, the assumptions thereto, the
Insolvent Person’s Reports on the cash flow forecast and the Trustee’s Report on the
cash flow forecast pursuant to section 50.4(2) of the BIA;
c) filed with the Official Receiver the RMP 10-Day CFF, the assumptions thereto, the
Insolvent Person’s Reports on the cash flow forecast and the Trustee’s Report on the
cash flow forecast pursuant to section 50.4(2) of the BIA;
d) monitored the Companies' business and financial affairs, including the review of
receipts, disbursements and the Companies’ performance relative to the Core 10-
24
Day CFF and RMP 10-Day CFF pursuant to s. 50.4(7) of the BIA;
e) set up a hotline to address calls and inquiries from stakeholders, employees, clients,
suppliers and creditors;
f) established a website (www.pwc.com/car-rmpathletic) for creditors, customers and
other stakeholders to obtain further information on the NOI proceedings pursuant
to the E-Service Protocol;
g) prepared and sent notification of the NOI to all known creditors of the Companies
pursuant to section 50.4(6) of the BIA;
h) established and maintained a log of all communication and correspondence with all
stakeholders in relation to the NOI proceedings;
i) assisted Management in the preparation of RMP’s disclaimer of its commercial lease
in Montreal; and
j) engaged in discussions with licensees in respect of the terms and conditions of a
termination and/or transition of certain License and Distribution Agreements.
L.
STAY EXTENSION
87.
The Proposal Trustee understands that it is the Companies’ intention to repay the BNS
Indebtedness and to restructure and downsize their operations to focus on the license
and/or distribution of brands that have a strong market presence, supportable cost
structure and a commercial reasonable level of profitability.
88.
The Companies are seeking an order granting a Stay Extension, which will allow for the
following, among other things:
a) RMP to conduct a sale process in respect of its Private Brands in order to maximize
the market value and realizations thereof;
b) RMP and Core to assess each of their respective License and Distribution
Agreements for profitability and long-term viability and to consider whether a
disclaimer any of these agreements is necessary to enhance the Companies’
25
prospects of making viable proposals;
c) RMP to assess its warehouse needs in conjunction with a reduction in sales volume,
its assessment of underperforming brands and the potential sale of its Private
Brands and to consider whether a disclaimer of any of its commercial leases is
necessary to enhance the Companies’ prospects of making viable proposals;
d) an orderly transition of exclusive territory License and Distribution Agreement that
are not being retained by the Companies;
e) an orderly sale of inventory of discontinued brands in the normal course of business
which is expected to maximize realizations for stakeholders, as opposed to
liquidation; and
f) the Companies to develop proposals to their unsecured creditors.
89.
The Proposal Trustee supports the request for a Stay Extension. The Proposal Trustee is
of the view that the Stay Extension will provide the Companies with additional time to
assess the License and Distribution Agreements and to formulate a restructuring plan.
The Proposal Trustee is also of the view that the sale of the Private Brands and an orderly
sale of inventory of discontinued brands in the normal course will generate higher
realizations than in a liquidation thus enhancing the returns for all stakeholders.
90.
The Companies appear to be acting in good faith and with due diligence and it appears
that RMP and Core could be in a position to make a viable proposal to their creditors if
the Stay Extension is granted by the Court and RMP is able to repay the Indebtedness by
the BNS Repayment Date, and maximize recoveries from the sale of its assets.
Furthermore, the Proposal Trustee is not aware of any creditor who would be materially
prejudiced if the Stay Extension were granted.
91.
Counsel to BNS has advised the Proposal Trustee that it does not oppose the Stay
Extension.
26
M.
PROPOSAL TRUSTEE’S RECOMMENDATIONS
92.
The Proposal Trustee supports the Company’s motion for an order:
a) extending the Stay Extension for Core to August 8, 2015 and for RMP to August 10,
2015;
b) approving the E-Service Protocol;
c) consolidating the NOI proceedings for Core and RMP;
d) granting of the Administration Charge; and
e) approving this First Report and the activities of the Proposal Trustee described
herein.
This report is respectfully submitted this 18th day of June, 2015.
PricewaterhouseCoopers Inc.
Proposal Trustee under the Notices of Intention to File a Proposal
of R.M.P. Athletic Locker Limited and Core Sports Inc.
Michelle Pickett, CIRP
Senior Vice President
27
APPENDIX A
28
District of
Division No.
Court No.
Estate No.
Ontario
09 - Mississauga
32-1998693
32-1998693
In the Matter of the Notice of Intention to make a
proposal of:
R.M.P. Athletic Locker Limited
Insolvent Person
PRICEWATERHOUSECOOPERS INC.
Trustee
Date of the Notice of Intention:
May 27, 2015
CERTIFICATE OF FILING OF A NOTICE OF INTENTION TO MAKE A PROPOSAL
Subsection 50.4 (1)
I, the undersigned, Official Receiver in and for this bankruptcy district, do hereby certify that the aforenamed
insolvent person filed a Notice of Intention to Make a Proposal under subsection 50.4 (1) of the Bankruptcy and
Insolvency Act.
Pursuant to subsection 69(1) of the Act, all proceedings against the aforenamed insolvent person are stayed as of
the date of filing of the Notice of Intention.
E-File/Dépôt Electronique
Date: May 27, 2015, 13:43
Official Receiver
Federal Building - Hamilton, 55 Bay Street N, 9th Floor, Hamilton, Ontario, Canada, L8R3P7, (877)376-9902
District of
Division No.
Court No.
Estate No.
Ontario
09 - Mississauga
32-1997883
32-1997883
In the Matter of the Notice of Intention to make a
proposal of:
Core Sports Inc.
Insolvent Person
PRICEWATERHOUSECOOPERS INC.
Trustee
Date of the Notice of Intention:
May 25, 2015
CERTIFICATE OF FILING OF A NOTICE OF INTENTION TO MAKE A PROPOSAL
Subsection 50.4 (1)
I, the undersigned, Official Receiver in and for this bankruptcy district, do hereby certify that the aforenamed
insolvent person filed a Notice of Intention to Make a Proposal under subsection 50.4 (1) of the Bankruptcy and
Insolvency Act.
Pursuant to subsection 69(1) of the Act, all proceedings against the aforenamed insolvent person are stayed as of
the date of filing of the Notice of Intention.
E-File/Dépôt Electronique
Date: May 25, 2015, 16:08
Official Receiver
Federal Building - Hamilton, 55 Bay Street N, 9th Floor, Hamilton, Ontario, Canada, L8R3P7, (877)376-9902
APPENDIX B
29
RM.F. Athletic Locker Limited
Cash Flow Forecast
For the period May 28,2015 to August 22,2015
CADs
Weekendisag
Opening Cash/(Loan Ealance) per GL
contorts Receivables Collecttons
Retaol-Warehouse Sates
Management Fee from Core Sports Ire.
l'otal Osfiows
Weeks
Actual
Notes
3
3
4
Week 2
F orecast
Jo0 06
May o
(9,742,244)
597,288
8,090
605,376
Week 3
F orecast
J ssol3
Week 4
Forecast
(9,1.54,220)
(8,976,037)
Jun20
(9,178,841)
726,086
30,000
156
. , 676
912,762
789,451
30,000
156 , 876
976,127
776,510
185,000
136 , 6 7 6
1,118,186
497,608
335,000
-
Week 3
Forecast
Jun27
(8,256,655)
825,162
185,000
15 6 , 6 76
1,166,838
Week 6
Forecast
Ju104
(7, 200 , 228)
847,234
6o,ooo
90,873
998,107
Week 7
Forecast
Julit
(7, 147662)
1,446,754
85,000
90,873
1,622,606
Week 8
Forecast
Jolt8
(5, 248 , 409)
1,505,703
135,000
90,873
1,731 , 575
Week 9
Forecast
Week to
Week 12
Forecast
Week to
Week 13
Forecast
Aug15
875,483
Forecast
Aug22
2,349.896
Forecast
Aug08
5,40 6 ,316
3,253,355
90,000
95,581
3 , 438 , 932
576,918
130,000
95,581
802 ,498
0,261,833
250,000
95,581
1 , 60 7,4 1 3
1,373,239
240.000
95.581
1,708 , 8 19
15 , 487, 934
1,498,090
1,372,515
1 8 ,35 8 ,539
185.000
90,000
100,577
1.50,000
-
15,772
-
979,713
185,000
745,145
5,000
65,003
-
237,642
231,947
141.560
392.206
5,050
76,000
-
351,611
5,0005
138,920
-
i , 658 , 86o
813,581
1,142,184
498.081
100 ,00 0
69,400
-
-
-
248 , 200
100,000
-
42 , 000
45 , 000
383 , 100
115,000
133,000
10,000
566,303
120,000
6,873,873
Jul25
(3. 68 4,433)
Forecast
Aug01
(1 ,8 5 6 , 6 1 0)
1,508,426
70,000
90,873
1 , 669 ,299
TOTAL
(9,742,244)
D i s b oesements
Product CosO
Product Perchases
Royalties
Pterght Costs
Lppersses
Payroll & BeneSts (mci. Source Deductoons)
Ren t
5
6
7
-
158,991
-
8
9
10
10
9, 8 44
304,687
147,500
-
237,442
5.000
75, 88 0
-
12
13
-
89,400
-
-
14
7,500
24,000
18.000
105,000
12,000
11,000
5
17,344
10,000
734,579
10.000
1,178,930
10,000
196,000
10,000
460,311
10,000
945,641
-
206,774
-
-
170 , 145
-
-
5.000
76.000
-
320,131
5,000
113,180
-
231,947
110,500
105,875
231,142
5,000
77,210
-
5,000
65,000
-
-
-
89,400
-
-
-
-
87,600
Operating
SG&A
GSTJHST
firou.tscing Costs
Interest & Bank Peen
Forbearance Per
Professional Fees
Restructuring
Other Disbursements
General Contlngest
Tstal Outhows
Net Change its Cash (follow / (Outflow))
Closing Cash/(Loan Balance) pee DL
Outstanding ChequesjReversed
PaymentUnderLoassGsaaraogee
Adjusted Closing Cash/(Loao Balance) per DL
588,034
16
178,183
(9.154.220)
(8,976,037)
(9,154,220)
(8,976,037)
Doted at Mossissauga, Ontario, thos 8 day of June noos.
7r)(
(202,804)
922,186
706,527
52,466
50,000
323,352
10,000
167,600
280,891
5,000
45,590
.-
21,000
10,000
341,481
10,000
476,000
10,000
1,324,332
1.299,254
1,563,975
1,327,818
2,962,932
(530,833)
1,474,413
0,142,516
11,484,666
(9,178,841)
(8,256,655)
(7,550,028)
(7,147,662)
(s,8S4o9)
(3,684,433)
(2,356,656)
1 , 006 , 316
875 , 483
2 , 349 , 896
3 ,492 , 412
1 ,742 ,4 12
-
(9,078,841)
(8,256,655)
350,000
(7,200,128)
(7,147,662)
600,000
(5,248,409)
(3,684,433)
500,000
(1,856,616)
300.000
s,406,316
875,483
2,349,896
3,492,412
1 , 750 , 000
3,492,412
This statement of projected cash flow for R.M.P. Athletic Locker Limited is prepared ho accordance with section 50.4(2) of the
Bankruptcy and IrosuloeecyAct and should be read its conjunction with th e Trttstee's Report on the Cash -Plow Statement dated
June 8, 2015.
dL-
Rob Holmes, Prrssdent & General Mansger of RM.8'. Athletic Locker Limited
-
________
MicEll i cIt - Senior Vice
indent, Pricewate ouseCoopers trw, - Trustee
R..M.P. Atlilefic Locker Limited
Assumptions tea Consolidated Cash Flow Forecast
for the period May 28, 2015 to August 22, 2015
a R.IsI.P. Athletic Locker Lnmted ("EMP") filed a Notice of Intention to make a proposal ("NOt') on May 27, 2015
(the "Filing Date"). This projected Cash Flow Forecast ("CFF') for the period May 28, 2005 to August 22, 2015 is prepared
pursuant to the requirements of 50.4(2) of the Bankruptcy and InsotoeeacyAcr.
Management of RMP has prepared this CFF based on the probable and hypothetical assumptions detailed below. Actual results will likely vary from the
projections and ouch variations maybe material.
a The statement af projected cash flow has bees prepared in a going concern scenario as operating activities will continue by RE!?.
Non-retail receipt projections are based unhistorical accounts receivable collection activity and management'sbest estimates. Retail sates cash receipt estimates arebascd on scheduled retail warehouse sales events and historical
performance in the some or similar geographic locations.
4 Historically, related company Core Sports Inc. ('CS!") has paid RMP an annual management fee for certain management, finance, accounting, marketing, soles, warehousing and related services. Pursuant too Management Services
Agreement between CSt and liMP, the management fee became payable on a weekly basis subsequent to CS! filing a NOt an May 25, 2015.
5 Supply of essential goods and services are assumed Is continue to be available to RN? post-NO! filing with payments Is vendors assumed robe on cash on delivery basis, other than amounts that may become due to taxing authorities.
6 Royalty payments are based on open orders and known royalty percentages pursuanl to various licensing agreements.
7 Freight costs ore in respect of the delivery post-NOt filing of certain prepoid product shipped from Asia as well as the payment of certain pre-fihing amounts in respect of goods being held under possessoty liens claimed by freight carriers.
8 Payroll and related employee costs reflect certain staff reductions coniaoescing on May 27, 2015 and roiling out over the next few months, temporary hourly staff used to run the retail sales and forecasted payments under a key employee
retention plan ("KEEP') for select key employees. The KERP is subject to Court approval.
9 Rent estimates are based on the terms of various lease agreements and assumes that certain leases will be disclaimed or terminated during the CFF period.
10 SG&A esttnaales are based on historical SGtcA expense in respect of niamlenance & repairs, limited travel & entertainment, IT, office & svarehouse expenses, phone & mobile, vehicle, marketing expenses, etc. Included in the SG&A expenses
is an estimate for deposits that maybe required in respect of utilities.
so Harmonized Sates Toe is assumed lobe paid one month in arrears, nel of input lax credits.
12 Rank fee estimates ore based on historical fees. Interest expense estimate is based on declining average loan balance throughout the CFF period.
03 Forbearance fee is pursuant to the Second Forbearance Agreement dated Maya, 2015 between PM?, BNS and the guarantors ('Second Forbearance Agreement").
t4 Resinacturing fees represent the anticipated fees and disbursements of the Proposal Trustee and its legal counsel, and RMP's legal counsel.
15 Management have provided for a general canlingency as o procision for any unforeseen cools relating to the operation of the business and the NOt proceedings.
t6 Pursuant to the terms of the Second Forbearance Agreement, RMP and the guarantors have agreed to repay the autslanding loan to BNS in full soar before July
31, 2015. On May 22, 2005, fiNS issued its demand letter and s. 244 Notice of
Intention to Enforce its Security. liMP waieed the to-day notice period.
17 The CFF is denominated in CAD.
Dated at Toronto, Ontario, this 8 day of June 2015. This statement of projected cash flow of R.M.P. Athletic Locker Limited isprepared in accordance with section 50.4(2) of the Bankruptcy and
InsoluenqjAct and shouldbe read isa conjunction
section 50.4(2) of the Bankruptcy and Insolvency Act and with the Trustee's Report of the Cash-Flow Statement dated the 8 day of June 2015.
Rob Holmes, President & General Manager - R.N.P. Athletic Locker Limited
Micheltcett!. Sr. 'ice FresideiljPrice
terhous,Coopers Inc. - Trustee
Core Sports Inc.
Cash Flow Forecast
For the period May 26, 2015 to August 22, 2015
CAD$
Week ending
Opening cash/(Loan Balance) per GL
Receipts
Disbursements
Prodsct Costs
Royalhes
Freight Colts
Operotmq Espesss
Management Fee to RM.F. Athletic Locker Limtted
SG&A
GST/HST
Flouncing Costs
Iuterrst & Bank Fees
Professional Fees
Restructuring
Other Disbursements
Pasnnent Under Loan Guarantee
eeency
Total outflows
fote
4
Weeki
Actual
May30
5
753,508
6
7
146,562
8
9
10
-
Week 2
Forecast
Jun06
606,946
Week
Forecast
Jun13
493,184
Week 4
Forecast
Jun20
436,893
Weekg
Forecast
Jun27
503,209
Week 6
Forecast
Jul04
370,41.3
Week 7
Forecast
Joist
440,745
WeekS
Forecast
Jul18
329,619
Week 9
Forecast
Ju123
551,133
Week so
Forecast
Aug01
302,214
Week is
Forecast
Aug08
342,504
Week 12
Forecast
Aug15
840,427
Week 13
Forecast
Aug22
986243
64,213
267,385
297,991
86,88o
242,485
584,747
375,786
384,954
649,871
828,697
274,397
37,884
150,000
156,676
500
-
156.676
500
-
156,676
500
-
300
156,676
500
S,000
90,873
2,500
34,125
90,573
500
-
70,000
146,562
177,976
323,676
231,676
Net change in cash [inflow / (onOlow)]
606,946
(1l3,762)
Closing cash! (Loan Balance) perCh
Outstanding Cheques/Reversed
Adjusted Closing Cash/(Loan Balance) per GL
606,946
493,184
436,893
503,209
370,413
440,743
606,946
493,184
436,893
503,209
370,413
440,745
329,619
-
Dated at Mississauga, Ontario, this 4th day of Jutte 2015.
Rob Holmes, President & General Manager of Core Sports Inc.
-
(56,295)
66,315
350.000
519,676
(132,796)
90,873
500
-
90,873
38,500
185,000
10,000
95,581
501)
-
172,133
70,333
58,400
600.000
-
14,000
95,581
500
229,893
-
95,581
500
-
95,551
500
-
1,372,515
46,000
264,015
28,000
30,000
250,400
4,500
ia8,8s
4,500
130,581
1,750,000
54,000
4,255,250
900
500,000
300,000
695,873
154,273
633,873
609,581
(itt,ta6)
221,513
(248,919)
40,290
497,923
545,816
(92,697)
893,546
329,619
551,133
302,214
342,504
840,427
986,243
893,546
893,546
551,133
302,214
342,504
840,427
986,243
893,546
893,546
4,500
330,773
This statement of projected cash flow for Core Sports Inc is prepared in accordance with section o .4(2) of the
Bankruptcy and Insolvency Act and shoold be read in conjunction with the 'I'rustee's Report on the Cash-Flow
Statement dated June 4, 2015.
Mid
5,148,796
331,562
185,855
300
14,000
12,000
12
13
-
300
16000
11
25,855
Forecast
TOTAL
Er rrkeC Senior Vice kiesideut, PricewaterhouseCoopers Inc. - Trustee
Core Spoils Inc.
Assumptions to Consolidated Cash Flow Forecast
for the period May afi, 2015 to August xa, 2015
1 Core Sports Inc. ("CSI") filed a Nohce of Intention to make o proposal ("NO!") on May 25, 2015. This projected Cash Flow Forecast ('CFF') for the
iserlod May aS, 2015 to August 22, 2015 is prepared pursaast to the requirements of 50.4(2) of the Bankruptcy and Insolvency Act Management
of CS! has prepared this CFF bused or the probable sod hypothetical assumptions detailed below, Actual results will Iikelyvaiy from the
projections and such variations may be material,
a The Statement of projected cash flow hss been prepared in a going concern scenario as operating activities will continue by CS!.
3 Supply of essential goods and scrvicos will continue to be available to CSI with payments to vendors assumed to be on cash on delivoiy terms oIlier
than alneauts that may become due to taxing authorities,
i Opening caslt is nil a prior to tile filing of the Not CSI dill not Itave a separate hank accoant, CS! is a guarantor to a credit agreement ("Credit
Agreement) between related company R.M. P. Atltletic Locker Limited ("RMP") and leach of Nova Scotia ("tINS") December 17, 2013. Pursuant to
the terms of the Credit Agreement, all receipts in respect of the goarauters to tile Credit Agroettlent were deposited to a blocked BNS bank account
ltetd by teMp. CS! receipts collected by RMI' lucre appliect against the intercompany balauce swing Is RMP. Management is in the process of
settiug up a separate fiNS bank account tar CSI.
5 Receipt projections are basest on historical accounts receivable collection act icily and nlattageutettt's best esOijiates,
h Royalty payments represent withltoldittg taxes payable to Canada Revenue Agency ('CRA") ill leaped! of royalty payments on pre-fihiug sales
pm'suant to varietis license agreements, Canada Reventie Agency has a deemed mast in respect of these witlsttotding taxes.
7 Freigttt costs are ill respect of the delivery post-NO! of certain prepaid product shipped froxn Asia as well as the Ilaylnent of certain pre-fihing
amounts in respect of goods being Iteld under possessory liens elairtsed by certain freight mrriers,
8 CSI has no employees or leased premises. Flislsrically, CS! has paid a management fee to related company RMP, whicit provides Inanagentent,
finance, accounting, marketing, sales, warettossing and related services. The CFF asutitsies titat CSI will pay RMP a weekly tttanagetnettt fee
cellslsteltcing iii Week 2, pursusltt to a Management Services Agreeineitt betweeu CSI site! RMP.
9 SG&A is consprised of nsiscehlaneoss items itcltiding, among stiter tilitigs, income tax return preporatiolt and global marketing fund amount
pursuant to a I icensing agreenleilt.
10 1 tamatoltized Sales 'lax is assamed to he paid sue ttiottthi itt arrears, tset of Itiptit Tax Credits.
ii Rcstrstcttiring fees represent the anticipated fees and disbursements of the Proposal 'trtistee attd its legal counsel, sod CSI's legal counsel.
to CSI is a gsarantor under ttte Credit Agreement betweett RMP and fiNS dated December17, 2013. Persttant to the terms of the Second Forbearance
Agl'eenleltt dated May 1, 2015 hetsseen ttNS and RMt', RMP and the gusrauters base agreed to repay the outstansling loan to fiNS in full onor
before tuly 31, 20t5.
13 Management taco provided for a general cotltingelicy of appt'oxitsalely 54,5110 iiem week as a provision for any unforeseen costs relatitsgto tlte
operatislt of ttte bnsitess and she NOt proceedings.
14 'l'lte CFF is denominated in CAD.
Dated at Miosissauge, Ontai'in, title 4 day ofJtmue 2015. This otatenterit of prsjedted casit flow of Core Sports Inc. is prepared in accordance with section
50.4)2) of tlte Bankruptcy utd lttaeltiettcy Act and should be read in conjttltctioll sectiOn 50.4(2) of the Buskraplcy alidl Iliseleettey Act atod with tite
'l'ruotee's Report of the Caslt-Flow Statement dated tlte 4 day of Jails 2015.
Rob lIesPesiden&GcncniM't,irtgetCoieSportutnc
Michelle l'h tt Sr VIce Picoident Prices ateihouseCoopore Inc
Trnntce
APPENDIX C
30
R.M.P. Athletic Locker Limited
Cash Flow Forecast to Actual
For the period May 28, 2015 to June 6, 2015
CAD$
Week ending
Opening Cash/(Loan Balance) per GL
Receipts
Accounts Receivables Collections
Retail - Warehouse Sales
Management Fee from Core Sports Inc.
Total Receipts
Disbursements
Product Costs
Product Purchases
Royalties
Freight Costs
Operating Expenses
Payroll & Benefits (incl. Source Deductions)
Rent
SG&A
GST/HST
Financing Costs
Interest & Bank Fees
Forbearance Fee
Professional Fees
Restructuring
Other Disbursements
General Contingency
Total Outflows
Net Change in Cash [Inflow / (Outflow)]
Closing Cash/(Loan Balance) per GL
Payment Under Loan Guarantee
Adjusted Closing Cash/(Loan Balance) per GL
1
Actual
(9,742,254)
597,288
8,090
605,378
Week 1
May 30
Actual
(9,742,254)
597,288
8,090
605,378
Variance
-
2
2
Forecast
(9,154,220)
Week 2
Jun 06
Actual
(9,154,220)
Variance
-
Cumulative Weeks Ended to Week 2
Cumulative May 28, 2015 to June 6, 2015
Forecast
Actual
Variance
(9,742,254)
(9,742,254)
-
Notes
-
726,086
30,000
156,676
912,762
647,640
89,501
156,676
893,817
(78,446)
59,501
(18,945)
1,323,374
38,090
156,676
1,518,139
1,244,928
97,591
156,676
1,499,195
(78,446)
59,501
(18,945)
1
2
3
-
-
-
158,991
-
8,372
(158,991)
8,372
158,991
-
8,372
(158,991)
8,372
9,844
-
9,844
-
-
304,687
147,500
-
229,141
41,127
-
(75,546)
(106,373)
-
304,687
157,344
-
229,141
50,971
-
(75,546)
(106,373)
-
-
-
-
89,400
-
60,602
-
(28,798)
-
89,400
-
60,602
-
(28,798)
-
7
7,500
7,500
-
24,000
-
(24,000)
31,500
7,500
(24,000)
8
17,344
17,344
-
10,000
734,579
19,345
358,587
9,345
(375,992)
10,000
751,923
19,345
375,931
9,345
(375,992)
9
588,034
588,034
-
178,183
535,230
357,048
766,217
1,123,264
357,048
(8,618,990)
(8,618,990)
357,048
357,048
(9,154,220)
(9,154,220)
(9,154,220)
(9,154,220)
-
(8,976,037)
(8,976,037)
(8,618,990)
(8,618,990)
357,048
357,048
(8,976,037)
(8,976,037)
Notes:
1) Accounts receivable collections were lower than expected as a result of timing.
2) Warehouse sales event and retail sales were were higher than expected.
3) Lower than forecast product purchases related to timing. Disbursement expected to be made in Week 3.
4) Higher than expected freight costs as a result of certain carriers requiring cash on demand payments or deposits post NOI, which were not forecasted.
5) Lease on Kitchener store expired on June 30, 2015. Last month rent deposit on Kitchener store will be used to cover June 2015 rent. This was not reflected in the forecast.
6) Lower than forecast selling, general and administrative expenses a function of timing in receipt, approval and payment of invoices.
7) Lower than expected interest and bank fees due to lower average loan balance (i.e. lower than expected disbursements) than originally forecast.
8) Lower than forecast restructuring fees primarily a function of timing in receipt of invoices. Fees expected to be paid in Week 3.
9) Variance due to a number of smaller disbursements, which were not included in the forecast.
4
5
6
Core Sports Inc.
Cash Flow Forecast to Actual
For the period May 26, 2015 to June 6, 2015
1
CAD$
Week ending
Opening cash/(Loan Balance) per GL
Receipts
Actual
-
2
Week 1
May 30
Actual
-
Variance
-
753,508
753,508
-
146,562
-
146,562
-
-
Disbursements
Product Costs
Royalties
Freight Costs
Operating Expenses
Management Fee to R.M.P. Athletic Locker Limited
SG&A
GST/HST
Financing Costs
Interest & Bank Fees
Professional Fees
Restructuring
Other Disbursements
Payment Under Loan Guarantee
General Contingency
Total outflows
146,562
Net change in cash [inflow / (outflow)]
Closing Cash/(Loan Balance) per GL
2
Forecast
606,946
Week 2
Jun 06
Actual
606,946
64,213
554,649
-
156,676
-
Variance
490,436
Cumulative Weeks Ended to Week 2
Cumulative May 26, 2015 to June 6, 2015
Forecast
Actual
Variance
817,721
1,308,157
146,562
-
146,562
-
(500)
-
156,676
500
-
156,676
-
-
490,436
1
-
-
-
-
156,676
500
-
-
-
-
300
-
(300)
300
-
(300)
-
-
-
16,000
-
(16,000)
16,000
-
(16,000)
146,562
-
4,500
177,976
156,676
(4,500)
(21,300)
4,500
324,538
303,238
606,946
606,946
-
(113,762)
397,973
511,736
493,184
1,004,919
511,736
606,946
606,946
-
493,184
1,004,919
511,736
493,184
1,004,919
511,736
Notes:
1) Accounts receivable collections higher than expected as a result of early receipt of payments from large customers.
2) Lower than forecast restructuring fees primarily a function of timing in receipt of invoices. Fees expected to be paid in Week 3.
Notes
(500)
-
(4,500)
(21,300)
2