Spin Kicks Limited

Spin Kicks Limited ("Spin Kicks" or the “Company”) is an interactive fitness platform with a
loyal community of Members. The Company created and sells interactive spin bikes ("Spin Bike
Products") and streams immersive, instructor-led boutique classes to its Members anytime,
anywhere. The Company makes fitness entertaining, approachable, effective and convenient
while fostering social connections that encourage its Members to be the best versions of
themselves.
The Company’s primary source of revenue is from sales of its Connected Spin Bike Products and
associated recurring subscription revenue.
Connected Spinning Products
The Company recognizes Connected Spin Bike Product revenue net of sales returns and
discounts when the product has been delivered to the customer.
Subscription
The Company’s subscriptions provide unlimited access to content in its library of live and on-
demand fitness classes. The Company’s subscriptions are offered on a month-to-month basis and
revenue is recorded each month. Members pay their monthly fees in the month the Company
records revenue.
The Company became a public corporation in 2019. Revenues have increased significantly in
2019, however the Company continues to report losses and negative cash from operating
activities. Attached are the financial statements for 2019 and 201

© Beppino Pasquali FCPA,FCA 2020

Required:
You have been asked to prepare a forecasted balance sheet and income statement for the
Company for 2020. You gather the following facts:
- The sale of Connected Spin Bikes is budgeted to increase 200% in 2020, while
subscription revenue is expected to increase 300%. The Company expects gross margins
will remain the same as 2019 and working capital ratios are expected to remain consistent
with 2019.
- The Company has developed and plans to begin selling a Connected Treadmill in 2020.
Sales of Connected Treadmills is expected to be $35,000,000, with gross margins of
65%. Revenue will be reported, and customers will pay for the product, in the same
manner as its Spin Bikes. Working capital ratios, relating to Treadmills, will be consistent
with Spin Bikes.
- The Company continues to research and develop new products and is budgeted to spend
$30,000,000 in 2020 on R&D.
- In addition, the Company is budgeted to spend $500,000,000 on new capital assets, of
which $250,000,000 will be financed with long term debt. No other long-term debt will
be obtained in 2020.
- The Company’s Sales and Marketing (a variable cost relative to total revenue) is
expected to remain consist with total revenue as 2019.
- During 2019 the Company incurred legal fees and settlement costs of $50,000,000
relating to past music streaming royalty costs. The issue has been settled and no
additional liabilities exist for 2020, onward. Other than these legal costs, general
expenses are expected to increase 40% from 2019.
- The Company is required to make a $130,000,000 principal payment on its long-term
debt during the 2021 and subsequent fiscal years.
- As the Company has incurred significant losses in the past, no taxes will be owed for the
next few years.
- Inflation is expected to be 0% in 2020.
Required:
a) Prepare the forecasted balance sheet and income statement for 2020.
b) Did cash increase or decrease from 2019 to 2020? What are the reasons cash changed?

© Beppino Pasquali FCPA,FCA 2020

Spin Kicks Limited
Projected Balance Sheet
As at December 31 ($000)
2019 2018
ASSETS
Cash $ 551,600 $ 198,000
Accounts Receivable 21,000 14,000
Inventories 17,000 7,000
Prepaid Expenses 6,000 8,000
Total Current Assets 595,600 227,000

Capital Assets -Cost 691,000 275,000

Capital Assets - Accumulated Depreciation (85,000) 606,000 (25,000) 250,000
Goodwill 33,000 33,000
Total Assets 1,234,600 510,000

LIABILITIES
Accounts Payable and Accrued Liabilities $ 13,600 $ 5,000
Current portion of long term debt 100,000 41,000
Total Current Liabilities 113,600 46,000

Long Term debt 295,000 61,000

Total Liabilities 408,600 107,000

SHAREHOLDERS' EQUITY
Common Shares 1,550,400 1,033,000
Retained Earnings (724,400) (630,000)
826,000 403,000
Total Liabilities and Shareholders' Equity 1,234,600 510,000

© Beppino Pasquali FCPA,FCA 2020

Spin Kicks Limited
Projected Statement of Operations
For the Year Ended December 31
($000)
2019 2018

Revenue
Spin Bikes Product $ 158,000 $ 78,000
Subscription 70,000 34,000
Total Revenue 228,000 112,000
Cost of Revenue
Spin Bikes Product 68,000 42,000
Subscription 21,000 11,000
Total Cost of Revenue 89,000 53,000
Gross Profit 139,000 59,000
Sales and Marketing 78,000 46,000
General and Administrative 61,000 50,000
Reseach and Development 17,000 12,000
Depreciation 60,000 25,000
Operating Income (77,000) (74,000)
Interest expense 17,400 11,000
Pre-tax Earnings (94,400) (85,000)
Income taxes - -
Net Earnings (94,400) (85,000)

© Beppino Pasquali FCPA,FCA 2020

Spin Kicks Limited
Projected Statement of Cash Flows
For the Year Ended December 31
($000)
2019 2018

Cash Flows From Operating Activities

Net earnings from continuing operations (94,400) (85,000)
Adjustments to reconcile net income to operating cash flows:
Depreciation and amortization of intangible assets 60,000 25,000
Operating assets and liabilities (6,400) (16,000)
Net cash provided (used) by operating activities (40,800) (76,000)

Cash Flows From Investing Activities

Capital expenditures (416,000) (308,000)
Net cash used in Investing Activities (416,000) (308,000)

Cash Flows From Financing Activities

Issuance of debt, net of repayments 293,000 142,000
Issuance of shares 517,400 353,000
Net cash used in Financing Activities 810,400 495,000
Net increase in cash 353,600 111,000
Cash and cash equivalents - beginning of period 198,000 87,000
Cash and cash equivalents - end of period 551,600 198,000

© Beppino Pasquali FCPA,FCA 2020