FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
(Mark One)
[X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to _______________________
Commission File Number 0-24829
FULL TILT SPORTS, INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1416864
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
212 North Wahsatch, Suite 205, Colorado Springs, CO 80903
- --------------------------------------------------- ----------
(Address of principal executive office) (Zip Code)
(719) 630-0980
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of Issuer's classes of common equity as
of May 10, 2000.
Common Stock, par value $.001 7,667,513
----------------------------- ------------------
Title of Class Number of Shares
Transitional Small Business Disclosure Format yes no X
--- ---
<PAGE>
Full Tilt Sports, Inc.
Index
Part I
Item 1. Financial Statements
Balance Sheet as of March 31, 2000 1
Statements of Operations for the Three Months Ended
March 31, 2000 and 1999 and the Period From Inception
(June 30, 1997) through March 31, 2000 2
Statements of Cash Flows for the Three Months Ended
March 31, 2000 and 1999 and the Period From Inception
(June 30, 1997) through March 31, 2000 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis or Plan of Operation 6
Part II
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
ii
<PAGE>
FULL TILT SPORTS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
MARCH 31, 2000
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash $ 4,493
Accounts receivable 52,583
Inventory 155,491
Prepaid expenses 287,965
------------
Total current assets 500,532
------------
PROPERTY AND EQUIPMENT, net of depreciation 23,352
------------
OTHER ASSETS
Deposits 4,493
------------
$ 528,377
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 268,718
Accrued expenses 8,431
Deferred income - trade agreements 25,020
------------
Total current liabilities 302,169
------------
LONG-TERM LIABILITIES
Deferred Income - trade agreements 328
------------
STOCKHOLDERS' EQUITY
10% Convertible preferred stock, Series A, $0.01 par
value, 150,000 shares authorized, 50,000 shares issued
and outstanding 50,000
Preferred stock, $0.01 par value, 4,850,000 undesignated
shares authorized -
Common stock, $0.001 par value, 25,000,000 shares
authorized, 4,073,257 shares issued
and outstanding 4,073
Additional paid in capital 2,166,611
Deficit accumulated during the development stage (1,994,804)
------------
Total stockholders' equity 225,880
------------
$ 528,377
============
<PAGE>
<TABLE>
FULL TILT SPORTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<CAPTION>
JUNE 30, 1997
THREE MONTHS THREE MONTHS (INCEPTION)
ENDED ENDED THROUGH
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 2000
----------------- --------------- ---------------
REVENUES
<S> <C> <C> <C>
Sales of merchandise $ 58 $ 845 $ 207,099
Advertising/Promotion income - - 17,500
Trade agreements 11,230 3,900 92,733
Miscellaneous 11 1,517 2,153
----------------- --------------- ---------------
11,299 6,262 319,485
----------------- --------------- ---------------
COST OF GOODS SOLD 1,914 486 107,441
----------------- --------------- ---------------
GROSS PROFIT 9,385 5,776 212,044
----------------- --------------- ---------------
GENERAL AND ADMINISTRATIVE EXPENSES 254,924 150,609 2,209,359
----------------- --------------- ---------------
(LOSS) FROM OPERATIONS (245,539) (144,833) (1,997,315)
----------------- --------------- ---------------
OTHER INCOME (EXPENSE)
Interest income 4 2,313 9,707
Interest expense (2,205) - (7,196)
----------------- --------------- ---------------
(2,201) 2,313 2,511
----------------- --------------- ---------------
NET (LOSS) (247,740) (142,520) (1,994,804)
PREFERRED DIVIDENDS - - (8,589)
----------------- --------------- ---------------
NET (LOSS) APPLICABLE TO COMMON STOCK $ (247,740) $ (142,520) $(2,003,393)
================= =============== ===============
PER SHARE INFORMATION:
WEIGHTED AVERAGE SHARES OUTSTANDING (BASIC AND DILUTED) 4,042,674 3,467,828 3,412,584
================= =============== ===============
NET (LOSS) PER COMMON SHARE (BASIC AND DILUTED) $ (0.06) $ (0.04) $ (0.59)
================= =============== ===============
</TABLE>
2
<PAGE>
<TABLE>
FULL TILT SPORTS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<CAPTION>
JUNE 30, 1997
THREE MONTHS THREE MONTHS (INCEPTION)
ENDED ENDED THROUGH
MARCH 31, 2000 MARCH 31, 1999 MARCH 31, 2000
----------------- --------------- ---------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net cash flow from operating activities $ (13,416) $ (86,702) $ (829,352)
INVESTING ACTIVITIES
Acquisition of fixed assets (1,176) (13,433) (33,870)
----------------- --------------- ---------------
Net cash (used in) investing activities (1,176) (13,433) (33,870)
----------------- --------------- ---------------
FINANCING ACTIVITIES
Common stock issued, net of offering costs - 354,055 765,906
Preferred stock issued - - 50,000
Proceeds from note payable 78,393 - 120,393
Repayment of notes payable (64,995) - (64,995)
Preferred dividends paid - - (3,589)
----------------- --------------- ---------------
Net cash provided by financing activities 13,398 354,055 867,715
----------------- --------------- ---------------
Net increase (decrease) in cash (1,194) 253,920 4,493
CASH AT BEGINNING OF PERIOD 5,687 101,716 -
----------------- --------------- ---------------
CASH AT END OF PERIOD $ 4,493 $ 355,636 $ 4,493
================= =============== ===============
</TABLE>
3
<PAGE>
FULL TILT SPORTS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
(1) Basis Of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles ("GAAP") for interim
financial information and Item 310(b) of Regulation SB. They do not include all
of the information and footnotes required by GAAP for complete financial
statements. In the opinion of management, all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair presentation have
been included. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full year. For
further information, refer to the financial statements of the Company as of
December 31, 1999 and for the two years then ended, including notes thereto
included in the Company's Form 10-KSB.
(2) Earnings Per Share
The Company calculates net income (loss) per share as required by SFAS No.
128, "Earnings per Share." Basic earnings (loss) per share is calculated by
dividing net income (loss) by the weighted average number of common shares
outstanding for the period. Diluted earnings (loss) per share is calculated by
dividing net income (loss) by the weighted average number of common shares and
dilutive common stock equivalents outstanding. During the periods presented
common stock equivalents were not considered as their effect would be anti
dilutive
(3) Inventory
Inventories are stated at the lower of cost or market using the weighted
average method.
(4) Equity
The Company has authorized 30,000,000 shares of stock, of which 25,000,000
shares are $.001 par value common stock and 5,000,000 shares are $.01 par value
preferred stock. The Board of Directors is authorized to divide the class of
preferred shares into series and to fix and determine the relative rights and
preferences of those shares.
During the three month period ended March 31, 2000, the Company issued
133,535 shares of common stock at prices ranging from $.75 to $1.38 per share
for services. The value of the common shares which corresponds to the fair
market value of the common stock on the date it was agreed to issue said shares
was recorded as prepaid services and will be charged to operations.
(5) Subsequent Event
During April, 2000, the Company entered into an agreement to sell 3,594,256
shares of its common stock to a single individual . The purchase price consisted
of cash of $1,000,000, rent for a two year tenancy of office space valued at
$193,744, office equipment valued at $32,192, and consulting services for one
year valued at $117,844. The Company has agreed to file a registration statement
within 180 days of the closing of the transaction with the Securities and
Exchange Commission to register these shares.
4
<PAGE>
FULL TILT SPORTS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
The Company has also agreed to issue 12,500 shares of common stock per
month to the purchaser commencing upon the closing of the transaction up to the
effective date of the above registration statement.
As further consideration the Company agreed to issue to the purchaser a
stock purchase warrant for the purchase of 1,036,000 shares of common stock at
$1.50 per share at any time through April 19, 2010. The Company has also agreed
to register these shares as described above.
In addition, the Company entered into a two year consulting agreement with
the purchaser. The compensation to be paid in year one is described above. The
compensation to be paid in year two is the equivalent of $220,000, payable at
the sole discretion of the Company either in cash or common stock valued at 75%
of the average between the bid and ask price at December 31, 2000.
Contemporaneously with the closing of the transaction, the purchaser was
elected as Chairman of the Board.
5
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operations.
The following discussion and analysis covers material changes in the
Company's financial condition since December 31, 1999 and material changes in
the results of operations for the three months ended March 31, 2000, as compared
to the same period in 1999. This discussion and analysis should be read in
conjunction with "Management's Discussion and Analysis and Results of
Operations" included in the Company's Form 10-KSB for the year ended December
31, 1999.
Results of Operations
Full Tilt Sports, Inc. (the "Company") remained in the development stage
during the three month period ended March 31, 2000, as the Company has not yet
received significant revenues from operations. During the quarter then ended,
the Company realized a net loss of $247,740, or $.06 per share, on total
revenues of $11,299. This compares to a net loss of $142,520 on revenues of
$6,262 for the three month period ended March 31, 1999.
Revenues from the sale of merchandise during the first quarter of 2000 were
insignificant. A majority of the revenues during that time were realized from
trade agreements, where the Company trades the services of its contract athletes
for services or merchandise from third parties. The same situation was generally
true during the first quarter of 1999.
In the opinion of management, the lack of merchandise sales during the
first quarter of 2000 was primarily related to the Company's lack of working
capital. The Company's inability to obtain funding during the fourth quarter of
1999 caused a lack of working capital to acquire inventory for delivery to
retailers during the first quarter of 2000. In the future, management
anticipates that the first calendar quarter will be one of the strongest
quarters, as retailers traditionally stock up during that time for spring and
summer sales. Management hopes that the private placement completed by the
Company in April and the line of credit will assist in alleviating the lack of
working capital (see Liquidity below).
Management believes the Company's merchandise concept is gaining a greater
acceptance in the marketplace, especially in Colorado. The Company received a
sizable order for delivery in the second quarter of 2000. The Company is also
entertaining significant orders for the fall of 2000, although lack of
sufficient working capital may effect the Company's ability to accept such
orders.
The Company's gross profit during the first quarter of 2000 was
insufficient to finance general and administrative expenses. These expenses
increased approximately $100,000 from the three months ended March 31, 1999 to
the three months ended March 31, 2000, as the Company expands its operations. A
significant portion of those general and administrative expenses, in the amount
of $140,701, were comprised of stock issued to vendors and consultants for
services. During the three months ended March 31, 2000, the Company issued an
aggregate of 133,535 shares of its common stock at prices ranging from $.75 to
$1.38 for services. Management has endeavored to utilize equity compensation in
an effort to conserve its working capital. In conjunction with the private
placement discussed below, the Company also issued an aggregate of $117,844
worth of common stock in exchange for consulting services and additional shares
in satisfaction of office rent for a two-year term. A prorated portion of those
expenses will contribute to general and administrative expenses in the future.
Management is of the opinion that the Company will continue to incur losses
until such time as the sale of its merchandise results in a sufficient profit
margin to cover general, administrative and other expenses.
6
<PAGE>
Liquidity and Capital Resources
The Company's financial condition declined slightly from fiscal year end
December 31, 1999. At March 31, 2000, the Company had working capital of
$198,363, a decrease of $111,060 from fiscal year end. Shareholders' equity also
decreased, from $332,919 at December 31, 1999 to $225,880 at March 31, 2000.
Management attributes this erosion in the Company's financial condition to
continuing losses from operations and a failure to obtain additional capital
from outside sources.
Historically, the Company has financed its operations through the sale of
equity securities. As a development stage entity, the Company uses, rather than
generates, cash from operations. However, during the last six months, the
Company has been unable to obtain sufficient additional funding. Management
attributes this failure to the investment community interest in
technology-related companies, as well as the Company's status as a development
stage enterprise. During the three months ended March 31, 2000, the Company
relied on the proceeds of $78,393 of notes issued to a private party to meet its
cash requirements. Those notes were subsequently converted to common stock with
the noteholder's approval.
The Company's greatest need for working capital at present is to finance
acquisition of additional inventory. The Company also requires cash to pay
general and administrative expenses pending collection of accounts receivable.
The Company completed a private placement in April, 2000 in an effort to
satisfy its working capital needs. The Company sold an aggregate of 3,594,256
shares of its common stock to a single individual in a transaction completed
April 19, 2000. The proceeds of that offering to the Company included $1,000,000
in cash, satisfaction of rent on its principal office facilities for two years
valued at $193,744, office equipment and improvements in the amount of $32,192
and consulting services valued at $117,844.
Also subsequent to the end of the quarter, the Company finalized an
agreement for a line of credit to help finance working capital requirements.
Effective May 12, 2000, the Company executed an agreement with Bank One,
Colorado N.A. for a loan of $1,200,000 to finance the acquisition of
merchandise. The loan is payable interest only monthly beginning June 12, 2000
at the existing prime rate and is due and payable in full on or before November
15, 2000. Repayment of the loan is secured by a security interest in all assets
of the Company and by the personal guarantees of two of its officers and
directors. The entire amount of the line of credit was subsequently used to
secure a letter of credit in favor of a manufacturer of merchadise to fill an
order received by the Company. It is expected that this order will be delivered
in the Fall of 2000.
Management is of the opinion that the Company remains dependent on receipt
of capital from outside sources to become profitable.
Cautionary Note Regarding Forward-Looking Statements
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"), the Company is hereby
providing cautionary statements identifying important factors that could cause
the Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made by
or on behalf of the Company herein or orally, whether in presentations, in
response to questions or otherwise. Any statements that express, or involve
discussions as to expectations, beliefs, plans, objectives, assumptions or
future events or performance (often, but not always, through the use of words or
phrases such as "will result", "are expected to", "will continue", "is
anticipated", "estimated", "projection" and "outlook") are not historical facts
and may be forward-looking and, accordingly, such statements involve estimates,
assumptions, and uncertainties which could cause actual results to differ
materially from those expressed in the forward-looking statements.
7
<PAGE>
The Company cautions that actual results or outcomes could differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company. Any forward-looking statement speaks only as of the date
on which such statement is made, and the Company undertakes no obligation to
update any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time, and it
is not possible for management to predict all of such factors. Further,
management cannot assess the impact of each such factor on the business or the
extent to which any factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statements.
8
<PAGE>
Part II: Other Information
Item 1: Legal Proceedings
None
Item 2: Changes in Securities
None.
Item 3: Defaults Upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security Holders
None
Item 5: Other information
None
Item 6: Exhibits and Reports on Form 8-K
A. Exhibits
10.1 Material Contracts, Promissory Note by and between the
Company and Bank One, Colorado, N.A., dated May 12, 2000
27.1 Financial Data Schedule
B. Reports on Form 8-K
The Company filed a Current Report dated January 4, 2000
reporting a change in its certifying accountants.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FULL TILT SPORTS, INC.
Date: May 17, 2000 By: /s/ Roger K. Burnett
------------ ------------------------------
Roger K. Burnett, President
(Principal Financial Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,493
<SECURITIES> 0
<RECEIVABLES> 52,583
<ALLOWANCES> 0
<INVENTORY> 155,491
<CURRENT-ASSETS> 500,532
<PP&E> 23,352
<DEPRECIATION> 0
<TOTAL-ASSETS> 528,377
<CURRENT-LIABILITIES> 302,169
<BONDS> 0
0
50,000
<COMMON> 4,073,257
<OTHER-SE> 171,807
<TOTAL-LIABILITY-AND-EQUITY> 528,377
<SALES> 58
<TOTAL-REVENUES> 11,299
<CGS> 1,914
<TOTAL-COSTS> 1,914
<OTHER-EXPENSES> 254,924
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,205
<INCOME-PRETAX> (247,740)
<INCOME-TAX> 0
<INCOME-CONTINUING> (247,740)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (247,740)
<EPS-BASIC> (.06)
<EPS-DILUTED> (.06)
</TABLE>
PROMISSORY NOTE
Borrower: Lender:
FULL TILT SPORTS, INC., A COLORADO Bank One, Colorado, NA
CORPORATION Colorado Springs Banking Center
212 N. WAHSATCH AVE., STE 205 1125 17th Street
COLORADO SPRINGS, CO 80918 Denver, CO 80217
- --------------------------------------------------------------------------------
Principle Amount: $1,200,000.00 Date of Note: May 12, 2000
PROMISE TO PAY. For value received, FULL TILT SPORTS, INC., A COLORADO
CORPORATION ("Borrower") promises to pay to Bank One, Colorado, NA ("Lender"),
or order, in lawful money of the United States of America, the principal amount
of One Million Two Hundred Thousand & 00/100 Dollars ($1,200,000.00) ("Total
Principal Amount") or so much as may be outstanding, together with interest on
the unpaid outstanding principal balance from the date advanced until paid in
full.
PAYMENT. This Note shall be payable as follows: Interest shall be due and
payable monthly as it accrues, commencing on June 12, 2000 and continuing on the
same day of each month thereafter during the term of this Note, and the
outstanding principal balance of this Note, together with all accrued but unpaid
interest, shall be due and payable on November 15, 2000. The annual interest
rate for this Note is computed on a 365/360 basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by the
outstanding principal balance, multiplied by the actual number of days the
principal balance is outstanding. Borrower will pay Lender at the address
designated by Lender from time to time in writing. If any payment of principal
of or interest on this Note shall become due on a day which is not a Business
Day, such payment shall be made on the next succeeding Business Day. As used
herein, the term "Business Day" shall mean any day other than a Saturday,
Sunday, or any other day on which national banking associations are authorized
to be closed. Unless otherwise agreed to, in writing, or otherwise required by
applicable law, payments will be applied first to accrued, unpaid interest, then
to principal, and any remaining amount to any unpaid collection costs, late
charges and other charges, provided, however, upon delinquency or other default,
Lender reserves the right to apply payments among principal, interest, late
charges, collection costs and other charges at its discretion. The books and
records of Lender shall be prima facie evidence of all outstanding principal of
and accrued but unpaid interest on this Note. This Note may be executed in
connection with a loan agreement. Any such loan agreement may contain additional
rights, obligations and terms.
VARIABLE INTERST RATE. The interest rate on this Note is subject to fluctuation
based upon the Prime Rate of interest in effect from time to time (the "Index")
(which ratio may not be the lowest, best or most favorable rate of interest
which Lender may charge on loans to its customers). "Prime Rate" shall mean the
rate announced from time to time by Lender as its prime rate. Each change in the
rate to be charged on this Note will become effective without notice on the same
day as the Index changes. Except as otherwise provided herein, the unpaid
principal balance of this Note will accrue interest at a rate per annum which
will from time to time be equal to the sum of the Index, plus 0.000%, NOTICE:
Under no circumstances will the interest rate on this Note be more than the
maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance charges
are earned fully as of the date of the loan and will not be subject to refund
upon early payment (whether voluntary or as a result of default), except as
otherwise required by law. Except for the foregoing, Borrower may pay without
fee all or a portion of the principal amount owed hereunder earlier than it is
due. All prepayments shall be applied to the indebtedness owing hereunder in
such order and manner as Lender may from time to time determine in its sole
discretion.
LATE CHARGE. If a payment is 10 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $25.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment of principal or interest when due under this
Notice or any other indebtedness owing now or hereafter by Borrower to Lender;
(b) failure of Borrower or any other party to comply with or perform any term,
obligation, covenant or condition contained in this Note or in any other
promissory note, credit agreement, loan agreement, guaranty, security agreement,
mortgage, deed of trust or any other instrument, agreement or document, whether
now or hereafter existing, executed in connection with this Note (the Note and
all such other instruments, agreements, and documents shall be collectively
known herein as the "Related Documents"); (c) Any representation or statement
made or furnished to Lender herein, in any of the Related Documents or in
connection with any foregoing is false or misleading in any material respect;
(d) Borrower or any other party liable for the payment of this Note, whether as
maker, endorser, guarantor, surety or otherwise, becomes insolvent or bankrupt,
has a receiver or trustee appointed for any part of its property, makes an
assignment for the benefit of its creditors, or any proceeding is commenced
either by any such party or against it under any bankruptcy or insolvency laws;
(e) the occurrence of any event of default specified in any of the other Related
Documents or in any other agreement now or hereafter arising between Borrower
and Lender; (f) the occurrence of any event which permits the acceleration of
the maturity of any indebtedness owing now or hereafter by Borrower to any third
party; or (g) the liquidation, termination, dissolution, death or legal
incapacity of Borrower or any other party liable for the payment of this Note,
whether as maker, endorser, guarantor, surety, or otherwise.
LENDER'S RIGHTS. Upon default, Lender may at its option, without further notice
or demand (i) declare the entire unpaid principal balance on this Note, all
accrued unpaid interest and all other costs and expenses for which Borrower is
responsible for under this Note and any other Related Document immediately due,
(ii) refuse to advance any additional amounts under this Note, (iii) foreclose
all liens securing payment hereof, (iv) pursue any other rights, remedies and
recourse available to the Lender, including without limitation, and such rights,
remedies or recourses under the Related Documents, at law or in equity, or (v)
pursue any combination of the foregoing. Upon default including failure to pay
upon final maturity, Lender, at its option, may also, if permitted under
applicable law, do one or both of the following: (a) increase the variable
interest rate on this Note to 3.000 percentage points over the Index, and (b)
add any unpaid accrued interest to principal and such sum will bear interest
therefrom until paid at the rate provided in this Note (including any increased
rate). The interest rate will not exceed the maximum rate permitted by
applicable law. Lender may hire an attorney to help collect this Note if
Borrower does not pay and Borrower will pay Lender's reasonable attorneys' fees
and all other cost of collection, unless prohibited by applicable law. This Note
has been delivered to Lender and accepted by Lender in the State of Colorado.
Subject to the provision on arbitration, this Note shall be governed by and
construed in accordance with the laws of the State of Colorado without regard to
any conflict of laws or provisions thereof.
PURPOSE. Borrower agrees that no advances under this Note shall be used for
personal, family, or household purposes and that all advances hereunder shall be
used solely for business, commercial, agricultural or other similar purposes.
JURY WAIVER. THE BORROWER AND LENDER (BY ITS ACCEPTANCE HEREOF) HEREBY
VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE
A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT
OR OTHERWISE) BETWEEN OR AMONG THE BORROWER AND LENDER ARISING OUT OF OR IN ANY
WAY RELATED TO THIS NOTE, ANY OTHER RELATED DOCUMENT, OR ANY RELATIONSHIP
BETWEEN LENDER AND BORROWER. THIS PROVISION IS A MATERIAL INDUCEMENT TO LENDER
TO PROVIDE THE FINANCING EVEIDENCED BY THIS NOTE.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $20.00 if Borrower
makes a payment on Borrower's loan and the check or preauthorized charge with
which Borrower pays is later dishonored.
RIGHT OF SETOFF. Unless a lien would be prohibited by law or would render a
nontaxable account taxable, Borrower grants to Lender a contractual security
interest in, and hereby assigns, conveys, delivers, pledges, and transfers to
Lender all Borrower's right title and interest in and to, Borrower's accounts
with Lender (whether checking, savings, or any other account), including without
limitation all accounts held jointly with someone else and all accounts Borrower
may open in the future. Borrower authorizes Lender, to the extent permitted by
applicable law, to charge or setoff all sums owing on this Note against any and
all such accounts.
LINE OF CREDIT. This Note evidences a revolving line of credit. Borrower may
request advances and make payments hereunder from time to time, provided that it
is understood and agreed that the aggregate principal amount outstanding from
time to time hereunder shall not at any time exceed the Total Principal Amount.
The unpaid principal balance of this Note shall increase and decrease with each
new advance or payment hereunder, as the case may be. Subject to the terms
hereof, Borrower may borrow, repay and reborrow hereunder. Advances under this
Note, as well as directions for payment from Borrower's accounts, may be
requested orally or in writing by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing.
Borrower agrees to be liable for all sums either: (a) advanced in accordance
with the instructions of an authorized person or (b) credited to any of
Borrower's accounts with Lender.
ARBRITRATION. Lender and Borrower agree that upon the written demand of either
party, whether made before or after the institution on any legal proceedings,
but prior to the rendering of any judgement in that proceeding, all disputes,
claims and controversies between them, whether individual, joint, or class in
nature, arising from this Note, any Related Document or otherwise, including
without limitation contract disputes and tort claims, shall be resolved by
binding arbitration pursuant to the the Commercial Rules of the American
Arbitration Association ("AAA"). Any arbitration proceeding held pursuant to
this arbitration provision shall be conducted in the city nearest the Borrower's
address having an AAA regional office, or at any other place selected by mutual
agreement of the parties. No act to take or dispose of any collateral shall
constitute a
<PAGE>
05-12-2000 PROMISSORY NOTE Page 2
Loan No (Continued)
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waiver of this arbitration agreement or be prohibited by this arbitration
agreement. This arbitration provision shall not limit the right of either party
during any dispute, claim or controversy to seek, use , and employ ancillery, or
preliminary rights and/or remedies, judicial or otherwise, for the purposes of
realizing upon, preserving, protecting, foreclosing upon or proceeding under
forcible entry and detain for possession of, any real or personal property, and
any such action shall not be deemed an election of remedies. Such remedies
include, without limitation, obtaining injunctive relief or a temporary
restraining order, invoking a power of sale under any deed of trust or mortgage,
obtaining a writ of attachment or imposition of a receivership, or exercising
any rights relating to personal property, including exercising the right of
set-off, or taking or disposing of such property with or without judicial
process pursuant to the Uniform Commercial Code. Any disputes, claims, or
controversies concerning the lawfulness or reasonableness of an act, or exercise
of any right or remedy, concerning any collateral, including any claim to
rescind, reform, or otherwise modify any agreement relating to the collateral,
shall also be arbitrated; provided, however that no arbitrator shall have the
right or the power to enjoin or restrain any act of either party. Judgement upon
any award rendered by any arbitrator may be entered in any court having
jurisdiction. The statute of limitations, estoppel, waiver, laches and similar
doctrines which would otherwise be applicable in an actin brought by a party
shall be applicable in any arbitration proceeding, and the commencement of an
arbitration proceeding shall be deemed the commencement of any action for these
purposes. The Federal Arbitration Act (Title 9 of the United States Code) shall
apply to the construction, interpretation, and enforcement of this arbitration
provision.
ADDITIONAL PROVISION REGARDING LATE CHARGES. In the "Late Charge" provision set
forth above, the following language is hereby added after the word "greater":
"up to the maximum amount of One Thousand Five Hundred Dollars ($1500.00) per
late charge".
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, not
party who signs this Note, whether as maker, guarantor, accommodation maker of
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this Note, or
release any party or guarantor or collateral; or unjustifiably impair, fail to
realize upon or perfect Lender's security interest in the collateral; and take
any other action deemed necessary by Lender without the consent of or notice to
anyone. All such parties also agree that Lender may modify this Note without the
consent of or notice to anyone other than the party with whom the modification
is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORRWOER AGREES TO
THE TERMS OF THE NOTE AND ACKOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS NOTE.
BORROWER:
FULL TILT SPORTS, INC., A COLORADO CORPORATION
By: /s/ Roger Burnett
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Roger K. Burnett, President
