As filed with the Securities and Exchange Commission on August 14, 2000
Registration No. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
AMERICAN INFLATABLES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 3069 95-4702570
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(State or other jurisdiction of (Primary Standard Industrial (IRS Employer
incorporation or organization) Classisfication Code Number) Ident. No.)
947 Newhall Street, Costa Mesa, California 92627, telephone number 949.515.1776
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(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Warren J. Soloski
A Professional Corporation
11300 West Olympic Boulevard, Suite 800, Los Angeles, CA 90064
Telephone 310.477.9742 Facsimile 310.473.1470
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(Name, Address and Telephone Number of Agent for Services)
Approximate date of proposed sale to the public: From time to time after this
Registration Statement becomes effective.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until this Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities act registration statement number of the earlier effective
registration statement for the same offering. [ ]
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If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Proposed
maximum maximum
Title of each class Amount offering aggregate Amount
of Securities to be price per offering of Reg.
to be Registered registered share price Fee
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Common Stock, 1,600,000 (1) $ .842 (2) $1,344,000.00 $403.20
$0.01 par value
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(1) Represents the number of shares of our common stock that we are obligated
to register pursuant to Registration Rights Agreements.
(2) Calculated pursuant to Rule 457(c) of Regulation C using the average of the
bid and ask prices per share of the Registrant's common stock, as reported
on the OTC Bulletin Board for June 30, 2000.
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Preliminary Prospectus
AMERICAN INFLATABLES, INC.
a Delaware Corporation
1,600,000 Shares of $0.01 Par Value Common Stock
This Prospectus relates to 1,600,000 shares of our $0.01 par value common stock.
We are registering these shares by filing a registration statement with the
Securities and Exchange Commission. Of these shares, 600,000 issued, represent
the number of our common shares and 1,000,000 common shares to be issued upon
exercise of warrants outstanding. We are required to register these shares
pursuant to a registration rights agreement with the following shareholders (the
"Investors").
State of Number Number
Name Incorporation of Shares of Warrants
---- ------------- --------- -----------
Apollo One, Inc. Nevada 50,000 175,000
Prestige Financial, Inc. Nevada 100,000 150,000
Universal Consultants, Inc. Nevada 35,000 120,000
Dylans Dancehall, Inc. Nevada 15,000 60,000
Apex One, Inc. Nevada 25,000 100,000
National Financial, Inc. Nevada 250,000 ---
TNR Development Corporation California 25,000 75,000
Silver County Financial, Inc. Nevada 60,000 180,000
Certified One, Inc. Nevada 40,000 140,000
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Total 600,000 1,000,000
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Upon exercise of the warrants into our common stock, the Investors may offer all
or some portion of those shares of our common stock for sale from time to time.
We will receive no part of the proceeds from any sale by The Investors of our
common stock. PROSPECTIVE PURCHASERS OF OUR COMMON STOCK SHOULD CAREFULLY REVIEW
THE "RISK FACTORS" SECTION OF THIS PROSPECTUS BEGINNING ON PAGE 3.
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Our common stock is currently trading on the Over The Counter (OTC) Bulletin
Board Market under the trading symbol "BLMP". The Investors may from time to
time sell the shares on OTC Bulletin Board Market, on any other national
securities exchange or automated quotation system on which our common stock may
be listed or traded, in negotiated transactions or otherwise, at prices then
prevailing or related to the then current market price or at negotiated prices.
The shares may be sold directly or through brokers or dealers. On June 30, 2000,
the average of the closing bid and asked prices of our common stock as reported
on the OTC Bulletin Board Market was $.84.
The Investors and any broker-dealers participating in the distribution of shares
of our common stock may be deemed to be "underwriters" within the meaning of the
1933 Act, and any commissions or discounts given to any such broker-dealer may
be regarded as underwriting commissions or discounts under the 1933 Act. The
shares have not been registered for sale by the Investors under the securities
laws of any state as of the date of this Prospectus. Brokers or dealers
effecting transactions in the shares should confirm the registration thereof
under the securities laws of the states in which transactions occur or the
existence of any exemption from registration.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is August --, 2000
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Part I - Information required in Prospectus
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ITEM 3. SUMMARY INFORMATION AND RISK FACTORS.
BACKGROUND OF THE COMPANY. We were originally formed as GlobaLock Corporation in
Delaware on August 5, 1998, for the purpose of engaging in a merger or other
business combination with an operating company. We had no predecessors and never
engaged in any business activity, other than organizational matters.
We were a development stage company and had no operating history. No
representation was made nor was any intended that our activities would be
profitable and that we would be able to effect a business combination. We
remained inactive until our reverse merger with Can / Am Marketing Group, LLC
(see Item 17. Management's Discussion and Analysis Reverse Merger Treatment).
As a result of the reverse merger we acquired the business assets of Can / Am
Marketing Group, LLC. It was organized in California in 1997. Pursuant to the
merger agreement, the GlobaLock Corporation directors and officers resigned and
the management of Can / Am filled the vacancies and the former membership
interest holders of Can / Am obtained 77.9% of the total voting power at the
time. Our short operating history and operating losses raise substantial doubt
about our ability to continue as a going concern. This fact is reported by our
auditors, Siegel-Smith.
Can / Am since 1998 has operated under the "American Inflatables" trade name.
Can / Am was formed to manufacture and market an alternative advertising medium:
inflatable blimps and other custom inflatable products. Can / Am has developed a
strong reputation for high quality inflatable products used for advertising and
marketing applications while enhancing its product design through innovation in
raw materials and manufacturing techniques.
We, through Can / Am, currently maintain one of the largest and most
comprehensive inventories of custom inflatable patterns. Whether floating,
tethered, flying, this innovative advertising medium creates strong brand
awareness and low cost advertising.
SUMMARY OF THE OFFERING
Securities Offered............. We are registering 1,600,000 shares of our
common stock. Of these shares, 1,000,000
represent the number of shares of our common
stock that we will issue upon exercise of all
the warrants which are currently issued and
outstanding.
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Dividends...................... We have not paid any cash dividends on our
common stock during the last fiscal year.
Payment of dividends is at the sole
discretion of our Board of Directors and it
is unlikely that holders of our common stock
will receive dividends during the next fiscal
year.
Voting Rights.................. Each holder of shares of our common stock is
entitled to one vote for each share on all
matters on which our shareholders are
entitled to vote. The warrants have no voting
rights.
Ownership Limit................ None.
RISK FACTORS
A purchase of our common stock involves risks; you should consider these risks
before making a decision to purchase our common stock. Prospective Purchasers of
our common stock must be prepared for the possible loss of their entire
investments. The order in which the following risk factors are presented is
arbitrary, and you should not conclude, because of the order of presentation,
that one risk factor is more significant than another risk factor.
WE ARE OPERATING AT A LOSS AND HAVE ACCUMULATED A DEFICIT. Our short operating
history and operating losses raise substantial doubt about our ability to
continue as a going concern. This fact has been reported by our auditors, Siegel
- Smith.
WE USE DEBT FINANCING. Our corporate bylaws do not contain any limitation on the
amount of indebtedness, funded or otherwise, we might incur. Accordingly, we
could become more highly leveraged, resulting in an increase in debt service
that could adversely affect our ability to pay dividends to our stockholders and
result in an increased risk of default on our obligations. We are also subject
to other risks normally associated with debt financing. We expect to use
indebtedness and leveraging to finance development and acquisition.
WE NEED SUBSTANTIAL ADDITIONAL CAPITAL. Our future capital requirements will
depend upon many factors, including our ability to obtain new customers and to
execute our business plan. Capital will be necessary to fund our activities.
There can be no assurance that sufficient financing will be available to us on a
timely basis, or on acceptable terms. If we do not have adequate funds, we may
be required to delay, scale back or eliminate our efforts to expand our
activities. Accordingly, our business, financial condition and results of
operations could be materially and adversely affected. If additional funds are
raised by issuing equity or convertible debt securities, options or warrants,
the ownership interest of our existing stockholders would be diluted.
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DEPENDENCE ON KEY PERSONNEL. Our future success will depend in part on the
service of our key personnel and, additionally, our ability to identify, hire
and retain additional qualified personnel. There is significant competition for
qualified personnel in our areas of activity, and there can be no assurance that
we will be able to continue to attract and retain such personnel necessary for
the development of our business. Because of the significant competition, there
can be no assurance that we will be successful in adding personnel as needed to
satisfy our staffing requirements. Failure to attract and retain qualified
personnel could have a material adverse effect on us.
We are dependent on the efforts and abilities of our senior management. The loss
of various members of that management could have a material adverse effect on
our business and prospects. Our Board of Directors believes that all
commercially reasonable efforts have been made to minimize the risks attendant
with the departure by qualified personnel from the Company. There is no
assurance, however, that upon the departure of qualified personnel from the
Company that replacement personnel will cause us to operate profitably. As
owners of significant portions of our issued and outstanding common stock,
management has every incentive to remain.
RELIANCE ON MANAGEMENT. All decisions regarding management affairs will be made
exclusively by our officers and directors. The Purchasers of the shares may not
participate in our management and, therefore, are dependent upon the management
abilities of our officers and directors. The only assurance that our
shareholders have that officers and directors will not abuse their discretion in
making decisions with respect to our shares and other business decisions is the
fiduciary obligations and business integrity of the officers and directors.
Accordingly, no person should purchase shares unless that person is willing to
entrust all aspects of management to our officers and directors, or their
successors. Potential Purchasers of the shares must carefully evaluate the
personal experience and business performance of our officers and directors. Our
officers and directors may retain independent contractors to provide services to
us. Those contractors have no fiduciary duty to our shareholders and may not
perform as expected.
RECEIPT OF COMPENSATION REGARDLESS OF PROFITABILITY. Our officers, directors,
and employees are entitled to receive significant compensation, payments and
reimbursements regardless of whether we operate at a profit or a loss. Any
compensation received by officers, directors, and management personnel will be
determined from time to time by our Board of Directors. Officers, directors, and
management personnel will be reimbursed for any out-of-pocket expenses incurred
on our behalf.
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LIMITATION ON LIABILITY OF OFFICERS AND DIRECTORS. Our Articles of Incorporation
include a provision eliminating or limiting the personal liability of our
officers and directors for damages for breach of fiduciary duty as a director or
officer. Accordingly, our officers and directors may have no liability to our
shareholders for any mistakes or errors of judgment or for any act of omission,
unless such act or omission involves intentional misconduct, fraud, or a knowing
violation of law or results in unlawful distributions to our shareholders.
DISCLOSURE OF POSITION OF COMMISSION REGARDING INDEMNIFICATION FOR SECURITIES
ACT OF 1933 LIABILITIES: INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING
UNDER THE SECURITIES ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR
PERSONS CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, THE
COMPANY HAS BEEN INFORMED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE
COMMISSION THAT SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN
THE SECURITIES ACT OF 1933 AND IS, THEREFORE, UNENFORCEABLE.
INFLUENCE OF THE INTERNET ON MARKETING. The Internet has changed marketing
patterns in a wide variety of industries. The significant amount of personal
computer usage has resulted in entirely new methods of marketing and sales of
products. We may establish home pages on the Internet for its products. We may
be able to keep pace with the rate of change in its markets brought about the
Internet and may invest in Internet-based projects which future changes may
render obsolete.
COMPLIANCE WITH GOVERNMENT REGULATIONS. We are subject to various forms of
government regulations, including safety laws and regulations. Any future
violation of, and the cost of compliance with, these laws and regulations could
have a material adverse effect on our business, financial condition and results
of operations.
Although we believe we are in material compliance with all applicable laws,
rules, regulations, and policies, there can be no assurance that our business,
financial condition and results of operations will not be materially adversely
affected by current or future laws, rules, regulations, and policies or by
liability arising out of any of our past or future conduct.
MARKET ACCEPTANCE AND DEPENDENCE ON PRINCIPAL PRODUCTS. Our strategy for growth
is substantially dependent upon our ability to market and distribute products
successfully. There can be no assurance that our products will achieve
significant market acceptance, and that acceptance, if achieved, will be
sustained for any significant period of that product life cycles will be
sufficient (or substitute products developed) to permit us to recover associated
costs. Failure of our products to achieve or sustain market acceptance could
have a material adverse effect on our business, financial conditions, and
results of operations.
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RISK OF PRODUCT RECALL, PRODUCT RETURNS. Product recalls may be issued at our
discretion or government agencies having regulatory authority for product sales
and may occur due to disputed labeling claims, manufacturing issues, quality
defects or other reasons. No assurance can be given that product recalls will
not occur in the future. Any product recall could materially adversely affect
our business, financial condition or results of operations. There can be no
assurance that future recalls or returns would not have a material adverse
effect upon our business, financial condition and results of operations.
FAILURE TO MANAGE GROWTH. We expect to experience significant growth and expect
such growth to continue for the foreseeable future. Our growth may result in
significant pressure on our management, financial, operating and technical
resources. Failure to manage this growth effectively could have a material
adverse effect on our financial condition or results of operations.
LOSS ON DISSOLUTION OF THE COMPANY. In the event of our dissolution, the
proceeds realized form the liquidation of our assets, if any will be distributed
to our shareholders only after satisfaction of claims of our creditors. The
ability of a Purchaser of shares to recover all or any portion of his or her
purchase price for the shares in that event will depend on the amount of funds
realized and the claims to be satisfied therefrom.
OUR ABILITY TO IMPLEMENT ITS BUSINESS STRATEGIES. Implementation of our business
strategies will depend in large part on our ability to (i) establish a
significant customer base and maintain favorable relationships with those
customers; (ii) effectively introduce acceptable products to our customers;
(iii) obtain adequate financing on favorable terms to fund our business
strategies; (iv) maintain appropriate procedures, policies, and systems; (v)
hire, train, and retain skilled employees; and (vi) continue to operate with
increasing competition. Our inability to obtain or maintain any or all these
factors could impair our ability to implement our business strategies
successfully, which could have a material adverse effect on our results of
operations and financial condition.
LIQUIDITY. The prices of our common stock are quoted in the Over The Counter
Bulletin Board, an electronic quotation service maintained by the National
Quotation Bureau for the National Association of Securities Dealers, Inc. for
securities not traded on a national, regional or other securities exchange,
under the symbol "BLMP". The OTC Bulletin Board does not provide the level of
liquidity provided by securities exchanges and the public market may not develop
for our shares. Purchasers of the shares will have no right to present the
shares to us for repurchase. Purchasers of shares who wish to terminate their
investment in the shares must rely solely upon their ability to sell or
otherwise transfer their shares, subject to applicable securities laws.
Consequently, the purchase of shares should be considered only a long-term
investment. Moreover, we may require additional cash to implement our business
strategies, including cash for (i) payment of increased operating expenses and
(ii) further implementation of those business strategies. No assurance can be
given, however, that we will have access to the capital markets in the future,
or that financing will be available on acceptable terms to satisfy our cash
requirements to implement our business strategies. Our inability to access the
capital markets or obtain acceptable financing could have material adverse
effects on our results of operations and finance.
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UNCERTAINTY OF FUTURE RESULTS, FLUCTUATIONS IN OPERATING RESULTS. Our results of
operations may vary from period to period due to a variety of factors, including
the introduction of new products by us or our competitors, cost increase form
third-party manufacturers, supply interruptions, the availability and cost of
raw materials, the mix of our products sold, changes in marketing and sales
expenditures, market acceptance of our products, competitive pricing pressures,
and general economic and industry conditions that effect customer demand.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING. To achieve and
maintain competitiveness of our products, we may require substantial funds. Our
forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that involves
risks and uncertainties, and actual results could vary as a result of a number
of factors, including those described in these Risk Factors and elsewhere in
this Prospectus.
We anticipate that we will require additional cash to develop, promote, produce
and distribute our various products. Such additional cash may be received from
public or private financing transactions, as well as borrowing and other
resources. To the extent that additional cash is received by the sale of equity
or equity-related securities, the issuance of such securities could result in
dilution to our stockholders. There can be no assurance that additional funding
will be available on favorable terms, if at all. If adequate cash is not
available, we will be required to curtail operations significantly or to obtain
cash by entering into arrangements with collaborative partners or other persons
that may require us to relinquish rights to certain of its products that we
would not otherwise relinquish.
GREATER COSTS THAN ANTICIPATED. We have used reasonable efforts to assess and
predict costs and expenses related to our operations. However, there can be no
assurance that implementing our business plan may require more employees,
capital equipment, supplies or other expenditure items than we have predicted.
Similarly, the cost of compensating additional management, employees and
consultants or other operating costs may be more than our estimates, which could
result in sustained losses.
COMPETITION. Competition in the advertising industry is intense. Many of our
competitors have substantially more experience, financial and technical
resources and production, marketing and development capabilities than we do.
HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS. Our research, development,
manufacturing and production processes may involve the controlled use of
hazardous materials. We may be subject to various laws and regulations governing
the use, manufacture, storage, handling, and disposal of such materials and
certain waste products. Although we believe that our safety procedures for
handling and disposing of such materials comply with the standards prescribed by
such laws and regulations, the risk of accidental contamination or injury from
hazardous materials cannot be completely eliminated. In the event of such an
accident, we could be held liable for any damages that result and any such
liability could exceed our financial resources. In addition, there can be no
assurance that in the future we will not be required to incur significant costs
to comply with environmental laws and regulations relating to hazardous
materials nor that our operations, business or assets will not be materially or
adversely affected by current or future environmental laws or regulations.
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PENNY STOCK REGULATIONS. The SEC has adopted rules that regulate broker-dealer
practices in connection with transactions in "penny stocks". Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in penny stock
not otherwise exempt from those rules, deliver a standardized risk disclosure
document prepared by the SEC, which specifies information about penny stocks and
the nature and significance of risks of the penny stock market. The
broker-dealer also must provide the customer with bid and other quotations for
the penny stock, the compensation of the broker-dealer and its salesperson on
the transaction, and monthly account statements specifying the market value of
each penny stock held in the customer" account. In addition, the penny stock
rules require that, prior to a transaction in a penny stock not otherwise exempt
from those rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the Purchaser and receive the
Purchaser's written agreement to that transaction. These disclosure requirements
may have the effect of reducing the trading activity in the secondary market for
an equity security (capital stock) that becomes subject to the penny stock
rules. Our common stock is subject to the penny stock rules, and Purchasers of
shares may determine that it is quite difficult to sell their shares.
SECURITIES MARKET FACTORS. There is currently a limited public market for our
common stock. Should there develop a significant market for our common stock,
the market price for our common stock may be significantly affected by such
factors as our financial results and introduction of new products and
technologies. Additionally, in recent years, the stock market has experienced
significant price and volume volatility, and market prices for many companies,
particularly small and emerging growth companies, have experienced significant
price fluctuations not necessarily related to the operating performance of such
companies. In the event a market for our common stock develops, the market price
for our common stock may be affected by general stock market volatility.
NO FORESEEABLE DIVIDENDS. We do not anticipate paying dividends on our common
stock in the foreseeable future; but, rather, we plan to retain earnings, if
any, for the operation and expansion of business.
NO ASSURANCES OF REVENUE OR OPERATING PROFITS. There can be no assurance that we
will be able to develop consistent revenue sources or that our operations will
become profitable.
UNINSURED LOSS; ACTS OF GOD. We may, but are not required to, obtain
comprehensive liability and other business insurance of the types customarily
maintained by similar businesses. However, there are certain types of
extraordinary occurrences which may be either uninsurable or not economically
insurable. For example, in the event of a major earthquake, our
telecommunications and computer systems could be rendered inoperable for
protracted periods of time, which would adversely affect our financial
condition. In the event of a major civil disturbance, our operations could be
adversely affected. Should such an uninsured loss occur, we could lose
significant revenues and financial opportunities in amounts which would not be
partially or fully compensated by insurance proceeds.
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WE DO NOT HAVE ENVIRONMENTAL LIABILITY INSURANCE. We do not have environmental
liability insurance now, and we may not be able to obtain such insurance at a
reasonable cost. If we decide to become insured for environmental liability, we
will probably carry the minimum insurance required by regulatory permits. In
addition, the extent of insurance coverage under certain forms of policies has
been the subject in recent years of litigation in which insurance companies
have, in some cases, successfully taken the position that certain risks are not
covered by such policies. If we incur liability for environmental damages while
we are uninsured, it could have a material adverse effect on the Company and its
financial condition.
SOME OF OUR OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST. Several of our
directors are independently employed and, by engaging in other business
activities, have conflicts of interest in allocating their time and resources.
For a more detailed account of those existing and potential conflicts of
interest, see the information contained under the heading "Certain Relationships
and Related Transactions" in this Prospectus.
ITEM 4. USE OF PROCEEDS.
We will not receive any of the proceeds from the sale of the shares of our
common stock offered by the Selling Stockholders.
ITEM 5. DETERMINATION OF OFFERING PRICE.
Our common stock has traded in the over-the-counter market since 1999 and is
currently trading on the OTC Bulletin Board market. We have calculated the
registration fees for the common stock pursuant to Rule 457(c) of Regulation C
using the average of the bid and ask prices per share of our common stock, as
reported on the OTC Bulletin Board market for June 30, 2000. On June 30, 2000,
the bid price was $.75 and the ask price was $.93.
ITEM 6. DILUTION.
At June 1, 2000, there were 5,305,000 outstanding shares of our only class of
$0.01 par value common stock.
We are registering 1,600,000 shares of our common stock. Of these shares,
1,000,000 represent the number of shares of our common stock equal to common
stock that we will issue upon exercise of all of the warrants which are
currently issued and outstanding.
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The following table sets forth the difference between the average offering price
of the shares of our common stock being registered by this registration
statement, the net tangible book value per share, and the net tangible book
value per share after giving effect to the offering by the Company, assuming
that all of the shares registered by the Company are distributed. Net tangible
book value per share represents the amount of total tangible assets less total
liabilities divided by the number of shares outstanding as of March 31, 2000.
Net tangible book value at March 31, 2000 $(0.03) per share
Net tangible book value after giving effect
to distribution of 1,000,000 shares at $1.00 $0.13 per share
Per Share Dilution to New Investor
(conversion shares only) $0.87 per share
Percent Dilution to New Investor
(conversion shares only) 87%
ITEM 7. SELLING SECURITY HOLDERS.
The Investors are the only holders of our warrants to purchase common stock.
Upon exercise of those warrants into common stock, The Investors may offer all
or some portion of those shares of our common stock for sale from time to time.
The shares of our common stock which may be offered for sale by The Investors
constitute all of the shares of common stock known to the Company to be
beneficially owned by The Investors. The Investors are not affiliates of the
Company and none of their officers or directors are also officers or directors
of the Company.
On or about April 30, 2000, pursuant to the agreement by which The Investors
acquired their shares of common stock and warrants to purchase common stock, we
agreed to prepare and file a registration statement for the resale of the shares
of common stock purchased by The Investors and the shares of common stock to be
issued upon exercise of the warrants held by The Investors. We also agreed to
pay all expenses, other than underwriting discounts and commissions and other
fees and expenses of investment bankers and other than brokerage commissions, in
connection with the registration and sale of the shares of common stock which
may be offered for sale by The Investors including the shares purchased and
pursuant to the exercise of the warrants.
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ITEM 8. PLAN OF DISTRIBUTION.
The Selling Stockholders, may, from time to time, sell all or a portion of their
common stock in the over-the-counter market, or on any other national securities
exchange on which our common stock is or becomes listed or traded. The shares
will not be sold in an underwritten public offering, but may be sold directly or
through brokers or dealers.
The shares may be sold in a block trade in which the broker or dealer will
attempt to sell the common stock as agent but may buy and resell a portion of
the block as principal to facilitate the transaction. A broker or dealer may buy
the shares as principal and resell them or keep them for its own account. The
shares may also be sold in ordinary brokerage transactions and transactions in
which the broker solicits Purchasers, or in privately negotiated transactions.
Brokers and dealers engaged in the sale of shares may receive commissions or
discounts from The Investors or the Purchaser of the shares.
Broker-dealers may agree to sell a specified number of shares at a stipulated
price per share, and to purchase any unsold shares at the price required to
fulfill the broker-dealer commitment to the Investors. Broker-dealers who
acquire shares as principal may thereafter resell the shares from time to time
in crosses and block transactions and sales to and through other broker-dealers.
The Investors may enter into hedging transactions with broker-dealers, who may
engage in short sales of our common stock. The Investor may also sell its common
stock and redeliver its common stock to close out its short positions. The
Investors may also enter into option or other transactions with broker-dealers
which require the delivery to the broker-dealer of its common stock. The
Investors may also lend or pledge its common stock to a broker-dealer and, upon
default, sell those common shares. In addition to the foregoing, the Investors
may enter into, from time to time, other types of hedging transactions.
The Investors and any broker-dealers participating in the distributions of our
common stock may be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act of 1933, and any profit on the sale of our common
stock by the Investors, and any commissions or discounts given to any such
broker-dealer, may be deemed to be underwriting commissions or discounts
pursuant to the Securities Act of 1933.
Our common stock may also be sold pursuant to Rule 144 promulgated pursuant to
the Securities Act of 1933 beginning one year after the shares of our common
stock were issued, provided such date is at least 90 days after the date of this
Prospectus.
We have filed the Registration Statement, of which this Prospectus forms a part,
for the sale of the Investors' share of our common stock. We will pay all of the
expenses incident to the registration of the Investors' common stock, other than
commissions, discounts and fees of underwriters, dealers or agents. We can give
no assurance that the Investors will sell any or all of their shares of our
common stock.
12
<PAGE>
Pursuant to the Securities Exchange Act of 1934, any person engaged in a
distribution of the common stock offered by this Prospectus may not
simultaneously engage in market making activities for our common stock during
the applicable "cooling off" periods prior to the commencement of such
distribution. In addition, the Investors will be required to comply with all the
requirements of the Securities Exchange Act of 1934.
We have advised the Investors that, during such time as it may be engaged in a
distribution of any of the shares or our common stock we are registering by this
Registration Statement, it is required to comply with Regulation M promulgated
under the Securities Exchange Act of 1934. In general, Regulation M precludes
any Selling Stockholder, any affiliated Purchasers and any broker-dealer or
other person who participates in such distribution from bidding for or
purchasing, or attempting to induce any person to bid for or purchase, any
security which is the subject of the distribution until the entire distribution
is complete. Regulation M defines a "distribution" as an offering of securities
that is distinguished from ordinary trading activities by the magnitude of the
offering and the presence of special selling efforts and selling methods.
Regulation M also defines a "distribution participant" as an underwriter,
prospective underwriter, broker, dealer, or other person who has agreed to
participate or who is participating in a distribution.
Regulation M prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security, except
as specifically permitted by Rule 104 of Regulation M. These stabilizing
transactions may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. We have advised the Investors
that stabilizing transactions permitted by Regulation M allow bids to purchase
our common stock so long as the stabilizing bids do not exceed a specified
maximum, and that Regulation M specifically prohibits stabilizing that is the
result of fraudulent, manipulative, or deceptive practices. The Investors and
distribution participants will be required to consult with their own legal
counsel to ensure compliance with Regulation M.
ITEM 9. LEGAL PROCEEDINGS.
During June 1999 Can / Am was in breach of contract in the amount of $4,000.00,
for advertising purchased. Virgo Publishing, Inc. obtained a default judgment in
the amount of $5,500.00, plus attorney fees and costs.
During 1999, S.D.D. Enterprise, Inc. obtained a judgment from Can / Am of
$7,144.00 requiring payment April 1, 1999. The judgment was for breach of
contract and non-payment. We paid the judgment subsequent to year-end.
During 1999, Glasforms, Inc. obtained a judgment from Can / Am in the amount of
$3,000.00. The judgment was for breach of contract and non-payment.
During December 1999, FedEx Corporation filed an action, which was later settled
for approximately $19,500.00. We have been notified of a re-filing in the amount
of $25,000.00.
There are no other material legal proceedings to which we are currently a party
or to which our property is subject.
13
<PAGE>
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
DIRECTORS AND EXECUTIVE OFFICERS. Our current executive officers are as follows:
Name Age Title
---- --- -----
Gregg Mulholland 31 Chairman of the Board, Chief Executive Officer
Jeffrey Jacobson 52 Vice President, Chief Financial Officer, Director
David Ariss 60 Director
Gregg R. Mulholland, age 31, is the Company's Chief Executive Officer and has
served in that capacity since inception. From February 1995 to May 1997, Mr.
Mulholland was President / CEO at Hurlys Roadhouse Inc. From March 1993 to
January 1995, Mr. Mulholland was General Partner at Arpatia Inc. Mr. Mulholland
attended California State University at Long Beach.
Jeffrey Jacobson, age 52, is the Company's Chief Operations Officer and has
served in that capacity since February 1999. From January 1997 to February 1999,
Mr. Jacobson was National Sales Manager at Giant Advertising. From June 1987 to
June 1995, Mr. Jacobson was President of Micro Warehouse. Mr. Jacobson holds a
Bachelor of Commerce degree from the University of Witwatersrand.
David Ariss, age 60, is on the Board of Directors and was appointed during
December 1999. Mr. Ariss spent the majority of his professional career in the
Industrial and Commercial Real Estate Industry. Mr. Ariss is Principal with
P.I.B. Realty Advisors, a real estate consulting firm, and was recently
appointed to the California World Trade Commission.
All directors hold office until the next annual stockholders' meeting or until
their respective successors are elected or until their earlier death,
resignation or removal. Officers are appointed by, and serve at the discretion
of, our Board of Directors.
Compliance with Beneficial Ownership Reporting Rules. Section 16(a) of the
Securities Exchange Act of 1934, as amended, requires our executive officers and
directors and persons who beneficially own more than 10% of a registered class
of our common stock to file initial reports of ownership and reports of changes
in ownership with the Securities and Exchange Commission. Such reporting persons
are required to furnish us with copies of all such reports that they file.
Based solely upon our review of copies of such reports furnished to the Company
during the year ended December 31, 1999 and thereafter, or any written
representations received by the Company from reporting persons that no other
reports were required, we believe that, during the last fiscal year, all Section
16(a) filing requirements applicable to the Company's reporting persons were
complied with.
14
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of June 1, 2000, information with respect to
(1) each director of the Company, (2) the named executives and (3) all directors
and executive officers of the Company as a group. Other than as described below,
no other person is known to the Company to be the beneficial owner of more than
5% of our common stock. Unless otherwise indicated, the address of each named
beneficial owner is that of the Company's principal offices located at 947
Newhall Street, Costa Mesa, California 92627.
Name and address of Number of shares Percentage of shares
beneficial owner beneficially owned beneficially owned(1)
------------------- ------------------ ---------------------
Gregg Mulholland 3,000,000 57.0%
Jeffrey Jacobson -- 0.0%
David Ariss -- 0.0%
All officers and directors 3,000,000 --
as a group (3 persons)
--------
(1) Based on 5,305,000 shares outstanding.
ITEM 12. DESCRIPTION OF SECURITIES.
We are authorized to issue 20,000,000 shares of common stock, $0.01 par value,
each share of common stock having equal rights and preferences, including voting
privileges. There were 5,305,000 shares of common stock outstanding at June 1,
2000.
The shares of our common stock constitute equity interests in the Company
entitling each shareholder to a pro rata share of cash distributions made to
common stock shareholders, including dividend payments. We had significant
losses in our last fiscal year. Therefore, it is unlikely that we will pay
dividends on our common stock in the next year. We currently intend to retain
our future earnings, if any, for use in our business. Any dividends declared in
the future will be at the discretion of our Board of Directors and subject to
any restrictions that may be imposed by our lenders.
15
<PAGE>
The holders of our common stock are entitled to one vote for each share of
record. There is no cumulative voting with respect to the election of directors
of the Company or any other matter, with the result that the holders of more
than 50% of the shares voted for the election of those directors can elect all
of the Directors. In the event of liquidation, dissolution or winding up of the
Company, the holders of common stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of our liabilities
and after provision has been made for each class of stock, having preference in
relation to our common stock. Holders of our common stock have no conversion,
preemptive or other subscription rights, and there are no redemption provisions
applicable to our common stock. All of the outstanding shares of our common
stock are duly authorized, validly issued, fully paid and non-assessable.
ITEM 13. INTEREST OF NAMED EXPERTS AND COUNSEL.
No "expert," as that term is defined pursuant to Regulation Section 228.509(a)
of Regulation S-B, or our "counsel," as that term is defined pursuant to
Regulation Section 228509(b) of Regulation S-B, was hired on a contingent basis,
or will receive a direct or indirect interest in the Company, or was a promoter,
underwriter, voting trustee, director, officer, or employee of the Company, at
any time prior to the filing of this Registration Statement.
ITEM 14. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES
ACT VIOLATIONS.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION FOR
LIABILITIES ARISING PURSUANT TO THE SECURITIES ACT OF 1933 IS CONTRARY TO PUBLIC
POLICY AND, THEREFORE, UNENFORCEABLE.
ITEM 15. ORGANIZATION WITHIN LAST FIVE YEARS.
Not applicable.
ITEM 16. DESCRIPTION OF BUSINESS.
The Company was originally formed as GlobaLock Corporation ("Globalock") under
the laws of Delaware on August 5, 1998, for the purpose of engaging in a merger
or other business combination with an operating company. Globalock had no
predecessors and never engaged in any business activity, other than
organizational matters.
16
<PAGE>
Globalock was a development stage company and had no operating history. No
representation was made nor was any intended that Globalock's activities would
be profitable and that Globalock would be able to effect a business combination.
Globalock remained inactive until our reverse merger with Can / Am Marketing
Group, LLC (see Item 17 Management's Discussion and Analysis Reverse Merger
Treatment).
As a result of the reverse merger the business assets of Can / Am Marketing
Group, LLC (Can / Am) were acquired and its operations were organized under the
laws of the state of California in 1997. Pursuant to the merger agreement, the
Globalock directors and officers resigned and the management of Can / Am filled
the vacancies and the former membership interest holders of Can / Am obtained
77.9% of the total voting power at the time. Our short operating history and
operating losses raise substantial doubt about our ability to continue as a
going concern. This fact is reported by our auditors, Siegel - Smith.
Can / Am since 1998 has operated under the "American Inflatables" trade name.
Can / Am was formed to manufacture and market an alternative advertising medium:
inflatable blimps and other custom inflatable products. Can / Am has developed a
strong reputation for high quality inflatable products used for advertising and
marketing applications while enhancing its product design through innovation in
raw materials and manufacturing techniques.
We, through Can / Am, currently maintain one of the largest and most
comprehensive inventories of custom inflatable patterns. Whether floating,
tethered, flying, this innovative advertising medium creates strong brand
awareness and low cost advertising.
OPERATIONS AND PRODUCTS. The Company both designs and manufactures hot air and
cold air inflatables. Hot air inflatables are usually filled with helium, a
non-flammable gas, which floats effortlessly through the air. Cold air
inflatables are usually powered by an electrical fan, which the Company
currently manufactures, providing a constant flow of air. Both styles of
inflatables can either be rooftop based or ground based.
The Company's inflatable products are primarily manufactured at the Company's
Costa Mesa Facilities. The Company uses lightweight and durable fabrics
primarily composed of coated nylon webbing and stainless steel rivets. The
Company believes that this makes each inflatable product easy to handle,
portable, and easily installed / dismantled without special equipment. The
Company believes that it is a competitive manufacturer and supplier of
alternative promotional balloon solutions that are highly cost effective and
easy to use. the Company's products range from custom inflatable designs and
huge product replicas to standard, low cost, designs such as: cold air and
helium filled advertising balloons, airships, `hot air balloon' rooftop
displays, airborne helium balls and large flying signs.
17
<PAGE>
The Company seeks to maintain its commitment or producing radically effective
promotional specialties of the highest caliber in quality, durability and
craftsmanship. This continues the Company's tradition of providing quality
inflatable display media with unique capabilities, attention to detail, and
variety.
The Company's products are designed with businesses in mind. The Company's
advertising inflatables have the ability to expand profits by attracting
customers. The unique nature of this alternative advertising medium can lure
passerby with its strong visual appeal to generate an increase in business
turnover. Among the variety of promotional activities, they can be used in
retail as a sophisticated point-of-purchase display aid. The manners in which
these sales enhancement tools are applied are as flexible as your marketing
prowess.
The Company's strategy is to offer the most cost-effective solutions and options
in the industry. Easy and quick set-up along with quick deflation and packing
are second nature to this medium. From huge oversized product replica models and
corporate logo and standard designs such as custom detailed spheres and globes
floating above a stand. This ensures that the customer promotes its stand and
product effectively, and believes that they have received the best value for
their advertising dollar.
The Company believes that the most unusual form of advertising display is also
the most portable. Displays can be inflated and deflated within minutes. Unlike
billboards, these publicity-generating tools are reusable both indoors and
outdoors. The choice of helium inflatables offers an aerial advantage with
greater visibility from a great distance. This medium provides the power of
billboard advertising without the expense along with the benefits of portability
and reusability.
While the Company's product designs vary and reflect customer preferences, most
inflatable products incorporate specially coated nylon webbing and stainless
steel rivets as raw material components. These raw materials are purchased from
specific suppliers under purchasing agreements the Company has with each
supplier. The Company believes that it is not dependent upon its suppliers since
the raw materials it requires can be obtained from many sources.
The Company's management believes that through its efforts it will be successful
in the introduction of the Company's design and manufacturing capabilities to
the industry. As of December 31, 1999, the Company had approximately 15,000
customers. The Company's sales records show that the average customer order is
$2,500.00. As a group, the Company's customers are concentrated as follows: 50%
of sales have been made to customers in the auto industry, 20% of sales have
been made to customers in the housing industry, and 30% of these have been made
to customers in the various miscellaneous retail industries.
18
<PAGE>
SALES AND MARKETING. The Company secures orders through its own in-house
marketing and sales staff. Currently, the Company has nine people devoted to
full-time marketing and sales of the Company's products. Each account
representative ("Account Representative") receives 80 hours of training from
management. Account Representatives are compensated with basic salary and
commission.
Each Account Representative is required to meet a minimum sales quota of
$25,00.00 each month (the "Quota Amount"). After an Account Representative meets
or exceeds the Quota Amount, he is eligible to receive a 10% commission on each
additional sales order. The Company anticipates that it will need to increase
the number of its Account Representatives by a minimum of five (5) in the next
twelve (12) months. After the Company receives an order for the sale of the
Company's products, the Company's design staff works with the Account
Representative that generated the order to develop the most effective design.
The mock up design is then submitted to the customer for approval. After the
customer approves the design, the Company's manufacturing staff commences work
on the product. For most orders, the Company has found that from product design
to product completion, the Company's manufacturing process requires seven (7) to
ten (10) days. After completion, each product is then shipped to the customer
via FedEx. Each inflatable product is packaged and delivered to the customer
with instructions to assist the customer in erecting the product for maximum
marketing impact. Customers are responsible for all installations.
The Company will pursue a strategy of attracting proven management talent from
within the industry and outside to expand its sales and marketing efforts. The
Company will further use its management in developing a strategy of rapid but
sustainable growth. This strategy the Company believes can be achieved by
implementing an aggressive acquisition strategy centered on local and regional
competitors, which can enhance the Company's overall business objective.
ITEM 17. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
This Prospectus specifies forward-looking statements that involve risks and
--------------------------------------------------------------------------------
uncertainties. Our actual results may differ materially from these
--------------------------------------------------------------------------------
forward-looking statements.
---------------------------
"Forward looking statements" can be identified by the use of forward-looking
--------------------------------------------------------------------------------
terminology such as "believes", "could", "possibly", "anticipates", "estimates",
--------------------------------------------------------------------------------
"projects", "expects", "may", "will", or "should". Such statements are subject
--------------------------------------------------------------------------------
to certain risks, uncertainties and assumptions. No assurances can be given that
--------------------------------------------------------------------------------
the future results anticipated by forward looking statements will be achieved.
--------------------------------------------------------------------------------
You should not place undue reliance on these forward-looking statements, which
--------------------------------------------------------------------------------
apply only as of the date of this Prospectus.
---------------------------------------------
19
<PAGE>
Prior to December 28, 1999, we were a non-operating business. Pursuant to a Plan
of Reorganization Agreement, we merged with Can / Am Marketing Group, LLC. The
Financial Statements included with this Prospectus are the combined Financial
Statements as of and for the year ended December 31, 1999 of the Company and
Can / Am Marketing Group, LLC.
The operations discussion that follows is the result of the Company which
consists of Globalock and Can / Am on a pro forma basis.
RESULTS OF OPERATIONS. Net sales were $1,034,100.00 in fiscal 1999, an increase
of $583,700.00 or 129.5% compared to net sales of $450,400.00 for fiscal 1998.
The increase in sales is due to our substantial increase in our customer base.
Sales continue to grow at an increasing rate not just from repeat customers but
from new customers. We have increased out presence and exposure in the
advertising markets.
Gross margin in fiscal 1999 was 60.8%, compared to 21.7% for fiscal 1998. The
$629,100.00 gross profit for fiscal 1999 compares to $97,600.00 for fiscal 1998.
The increase in net sales and production efficiencies are the primary cause for
the increase in gross margin as a percentage of sales. We, through our use of
higher quality materials for production, which decreased replacement and
provided a stronger product for sale. During fiscal 1999, we increased our
production and manufacturing staff but at a lower rate than sales increase,
enabling us to utilize our production staff to increase gross margin.
Our selling expense totaled $356,600.00 for fiscal 1999 compared to $137,400.00
for fiscal 1998, an increase of $219,200.00 or 159.6%. During fiscal 1999, we
substantially increased our trade show presence 700% fold from fiscal 1998. We
believe that the additional trade show costs associated with this presence will
be realized in creased sales over the next year as evidence by our first quarter
of fiscal 2000.
Our total general and administrative expenses increased by $486,900.00 or
332.5%, in fiscal 1999 due to increased costs related to our activities in
preparation for going public and legal fees as well as an increase in personnel.
We added two (2) experienced senior management to our staff, and several other
positions. Total general and administrative expenses as a percentage of sales
were 61.6% for fiscal 1999, up from 35.1% for fiscal 1998. General and
administrative as a percentage of revenues increase, related to our expansion
efforts and its preparation for going public.
Interest expense was $39,400.00 in fiscal 1999 and $0.00 in fiscal 1998. The
increase in interest expense during fiscal 1999 compared to fiscal 1998 is due
to the interest expense associated with the convertible notes and other short
term financing.
20
<PAGE>
REVERSE MERGER TREATMENT. On December 27, 1999, the merger with Can / Am was
completed. Can / Am was formed during 1997 as a limited liability company. As a
result of the merger, we acquired the business operations, services and assets
of Can / Am which are a significant part of our ongoing business and product
that we sell. In conformance with generally accepted accounting principles, the
merger has been accounted for as a "reverse merger" and the accounting survivor
is Can / Am.
The reverse merger was completed pursuant to the statutory requirements of
California and Delaware through the exchange of 3,518,000 shares of American
Inflatables, Inc. common stock for 100% of outstanding membership interests of
Can / Am Marketing Group, LLC. The merger was treated as a reverse merger for
accounting purposes, therefore the Financial Statements of the Company are the
Financial Statements of Globalock and Can / Am.
LIQUIDITY AND CAPITAL RESOURCES. Our capital requirements have been nominal,
and, to date, our cash requirements have exceeded our cash flow from operations.
We historically have satisfied cash requirements through borrowing and the
private sale of equity. As of December 31, 1999, we had limited cash and / or
cash equivalents.
Our success will be dependent upon our ability to generate sufficient cash flow
to meet our obligations on a timely basis, to obtain financing or refinancing as
may be required, and ultimately to attain profitability. We believe that we may
not have sufficient cash resources to fund our operations through fiscal 2000.
As of December 31, 1999, we had begun our efforts of obtaining financing. We are
currently conducting a private placement. Even with our current private
placement plans we may not be able to obtain sufficient financing to satisfy our
cash requirements. We may be required to obtain financing on terms that are not
favorable to us and our shareholders. If we are unable to obtain additional
financing when needed, we may be required to delay or scale back, which could
have a material adverse effect on our business, financial condition and results
of operations.
Once this private placement is completed, we anticipate that we will need to
raise additional capital on a private placement basis through the sale of our
common stock, preferred stock, debt securities, or some combination thereof. We
believe that if we are able to raise additional financing, this will meet our
external financing requirements for a period of about twelve (12) to twenty-four
(24) months, after which we may need additional financing on such terms as may
then be available. The amount of additional financing that we will need has not
been determined. While we are currently exploring opportunities we may have to
raise the additional capital, we have not received any commitment from any
investor, underwriter, or broker-dealer to provide any such funds. There can be
no assurance that we will be successful in raising additional funds, or, if it
is successful, that any such funds can be raised on terms that are reasonable in
view of our current circumstances.
21
<PAGE>
Three Months Ended March 31, 2000
Compared to Three Months Ended March 31, 1999
---------------------------------------------
RESULTS OF OPERATIONS. Net sales were $441,100.00 for the three (3) months ended
March 31, 2000, an increase of $224,100.00 or 103.3% compared to net sales of
$217,000.00 for the three (3) months ended March 31, 1999. The increase in sales
is due to our increasing customer base. Sales continue to grow at an increasing
rate not just from repeat customers but from new customers. We continue to
increase our presence and exposure in the advertising markets through increased
attendance at trade shows and other advertising mediums that provide greater
exposure.
Gross margin for the three (3) months ended March 31, 2000 was 54.9%, compared
to 53.7% for the three (3) months ended March 31, 1999. We realized $242,500.00
in gross profit for the three (3) months ended March 31, 2000 compared to
$116,600.00 for the three (3) months ended March 31, 1999. The increase in net
sales and production efficiencies contributed to the increase in gross margin as
a percentage of sales. Our use of higher quality materials for production, which
decreased replacements and warranty coverage and provides a stronger product for
sale to the customer. During fiscal 1999 and the first quarter of 2000 we
increased production and manufacturing staff, in order to increase sales,
enabling us to fully utilize our production staff to increase gross margins.
This is evident by our continuing ability to increase its sales and maintain a
production facility that keeps up with this growth.
Selling expense (which consists of sales expense, marketing costs and trade show
expense) totaled $85,100.00 for the three (3) months ended March 31, 2000
compared to $29,500.00 for the three (3) months ended March 31, 1999, an
increase of $55,600.00 or 188.5%. During fiscal 1999, we substantially increased
our trade show presence 700% fold from fiscal 1998. We believe that the
additional trade show costs associated with this present will be realized in
increased sales over the next year as evidenced by our first quarter sales for
fiscal 2000.
Total general and administrative expenses (less selling expense mentioned above)
increased costs related to our activities in preparation for going public and
legal fees as well as an increase in personnel. We continue to add management to
our staff.
ITEM 18. DESCRIPTION OF PROPERTY.
The Company has twenty-two (22) employees of whom eight (8) employees are
employed in administrative, sales, marketing and an additional fourteen (14)
employees who work in manufacturing and production. The Company believes it has
an excellent relationship with its employees. None of its employees are
represented by a collective bargaining agreement.
22
<PAGE>
The Company leases 10,000 square feet of office and manufacturing facilities at
947 Newhall Street, Costa Mesa, California 92627 under the terms of a one-year
lease (the "Lease") with ten (10) one-year renewal options. Under the terms of
the Lease the Company pays $6,800.00 in monthly rent and common area operating
expenses. The Company's Chief Executive Officer, Gregg R. Mulholland, has
personally guaranteed the Company's obligations under the Lease.
ITEM 19. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
There are no material relationships or related transactions between the Company
and its officers or directors.
ITEM 20. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
On December 28, 1999 the Company's common stock began trading on the OTC
Bulletin Board Market under the symbol "BLMP". Prior to December 28, 1999, there
was no public market for the Company's common stock. The following sets forth
the quarterly high and low bid prices during the fourth quarter 1999 as reported
on OTC Bulletin Board. These prices are based on quotations between dealers,
which do not reflect retail mark-up, markdown or commissions and may not reflect
actual transactions.
Price
---------------------
Quarter Ended High Low
------------- ----- -----
December 31, 1999 $4.00 $4.00
March 31, 2000 $5.25 $2.75
June 30, 2000 $3.25 $0.75
On June 30, 2000, the closing bid price of the Company's common stock (which
currently trades under the symbol BLMP) on the OTC Bulletin Board Market was
$0.75 per share. The Company has approximately 200 holders of record of its
common stock and estimates that it has approximately 300 beneficial holders.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted
to a vote of security holders during the last quarter of the fiscal year ended
December 31, 1999.
23
<PAGE>
ITEM 21. EXECUTIVE COMPENSATION.
The following summary compensation table sets forth the aggregate compensation
paid or accrued by the named executive officers and our executive officers whose
annual compensation exceeded $100,000 for fiscal 1999 and who are no longer
serving in such capacity at December 31, 1999, for services rendered during the
fiscal years ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
--------------------------------------------- -------------------------------------------
All
Restricted Securities other
Name and Bonus Other Annual Stock Underlying compensation
Principal Position Year Salary ($) ($) (1) Compensation ($) Awards ($) Options (#) ($)
------------------ ---- ---------- ------- ---------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Gregg Mulholland 1999 $80,000 --- --- --- --- ---
Chairman & President, 1998 $45,050 --- --- --- --- ---
Chief Executive Officer
Jeffrey Jacobson 1999 $60,050 --- --- --- --- ---
Vice President, Chief
Financial Officer, Director
</TABLE>
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth certain information regarding stock options
granted to the named executive officers during the fiscal year ended December
31, 1999. No stock appreciation rights were granted to these individuals during
such year.
Individual Grants
Number of Percent of
Securities Total Options
Underlying granted to
Options Employees in Exercise or Expiration
Name Granted Fiscal Year Base price Date
---------------- ---------- ------------- ----------- -----------
Gregg Mulholland -- -- $0.000 --
Jeffrey Jacobson -- -- $0.000 --
David Ariss -- -- $0.000 --
DIRECTORS' COMPENSATION. Our directors do not receive cash compensation for
attending Board of Directors meetings.
24
<PAGE>
ITEM 22. FINANCIAL STATEMENTS.
Can / Am Marketing Group, LLC as of December 27, 1999
American Inflatables, Inc. as of December 31, 1999
American Inflatables, Inc. as of March 31, 2000 (unaudited)
25
<PAGE>
INDEPENDENT AUDITORS' REPORT
Members
Can-Am Marketing Group LLC
dba American Inflatables
947 Newhall Street
Costa Mesa, CA 92627
We have audited the accompanying balance sheet of Can-Am Marketing Group LLC as
of December 27, 1999, and the related statements of operations, changes in
members equity, and cash flows for the pre merger period, January 1, 1999
through December 27, 1999 and the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Can-Am Marketing Group LLC as
of December 31, 1999, and the results of its operations and its cash flows for
the pre merger period, January 1, 1999 through December 27, 1999, and the year
ended December 31, 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note I to the
financial statements, the Company has suffered recurring losses from operations
and a net working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note I. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The proforma financial statements are
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has not been subjected to the
auditing procedures applied in the audit of the basic financial statements, and
accordingly we express no opinion on it.
Siegel - Smith
April 10, 2000
26
<PAGE>
CAN/AM MARKETING GROUP, LLC
BALANCE SHEET
PRE MERGER DECEMBER 27, 1999
ASSETS
Current assets:
Cash......................................................... $ 900
Inventory.................................................... 59,600
Prepaid expenses and other current assets.................... 53,300
----------
Total current assets.................................... 113,800
Fixed assets
Display and promotional blimps, net.......................... 22,300
Computers, furniture and office equipment, net............... 34,000
Leasehold improvements, net.................................. 51,600
---------
Total fixed assets...................................... 107,900
Other assets:
Deposits..................................................... 7,000
----------
Total assets........................................... $ 228,700
==========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable................................................ $ 323,000
Notes payable investors...................................... 259,000
Accounts payable............................................. 113,300
Accrued payroll liabilities.................................. 289,500
Accrued liabilities.......................................... 48,700
----------
Total current liabilities.............................. 1,033,500
Member's equity (deficit)......................................... (804,800)
Total liabilities and members' equity (deficit)........ $ 228,700
==========
See accompanying notes to financial statements
27
<PAGE>
CAN/AM MARKETING GROUP, LLC
STATEMENTS OF OPERATIONS AND CHANGES IN MEMBERS' DEFICIT
FOR THE PRE MERGER PERIOD ENDED DECEMBER 27, 1999
AND YEAR ENDED DECEMBER 31, 1998
1999 1998
---------- ----------
Revenues......................................... $1,034,100 $ 450,400
Cost of goods sold.......................... 405,000 352,800
---------- ----------
Gross profit..................................... 629,100 97,600
---------- ----------
Selling and tradeshow expenses
Sales commission............................ 62,000 60,300
Trade show expense.......................... 138,000 29,300
Trade show travel and entertainment......... 71,500 800
Other selling and marketing expenses........ 85,100 47,000
---------- ----------
Total................................... 356,600 137,400
---------- ----------
Office expense.............................. 80,300 50,500
Other administrative expenses............... 72,300 21,500
Salaries and payroll expenses............... 361,700 65,500
---------- ----------
Total................................... 637,400 150,500
---------- ----------
Net loss from operations........... (364,900) (190,300)
Other Expenses
Interest expense............................ 39,400 7,100
Other losses................................ 4,300 11,800
---------- ----------
Total................................... 43,700 18,900
---------- ----------
Net loss........................... $ (408,600) $ (209,200)
Beginning members' deficit.................. (333,500) (61,800)
Member draws................................ ( 62,700) (62,500)
---------- ----------
Members' deficit........................ $ (804,800) $ (333,500)
========== ==========
See accompanying notes to financial statements
28
<PAGE>
<TABLE>
<CAPTION>
CAN/AM MARKETING GROUP, LLC
STATEMENTS OF CASH FLOWS
FOR THE PRE MERGER PERIOD ENDED DECEMBER 27, 1999
AND YEAR ENDED DECEMBER 31, 1998
Period Ended Year Ended
December 27, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Cash Flows from operating activities
Net loss................................................ $ (408,600) $ (209,200)
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation........................................ 14,100 4,200
Amortization................................... 6,200 3,800
Changes in:
Inventory...................................... (55,200) (4,400)
Prepaid expenses............................... (46,000) (7,300)
Accounts payable............................... 107,200 9,200
Accrued payroll liabilities.................... 232,000 21,200
Accrued liabilities............................ 11,900 2,500
Deposits....................................... (400) (5,000)
---------- ----------
Net cash used in operating activities........................ (138,800) (185,000)
Cash flows from investing activities
Promotional blimps constructed................. (24,400) (3,000)
Purchase of office equipment & computers....... (10,000) (17,100)
Purchase of manufacturing equipment............ (11,400) (10,400)
Leasehold improvements......................... (800) (60,700)
---------- ----------
Net cash used by investing activities........................ (46,600) (91,200)
Cash flows from financing activities
Notes payable.................................. 275,000 340,300
Member draws................................... (62,700) (62,500)
Debt reduction................................. (33,300) 0
---------- ----------
Net cash provided by financing activities.................... 179,000 277,800
Net increase in cash (decrease)................ (6,400) 1,600
Cash, beginning of the year......................... 7,300 5,700
---------- ----------
Cash, December 27 and December 31................... $ 900 $ 7,300
---------- ----------
Supplemental Information:
Interest Paid................................................ $ 0 $ 0
Taxes Paid................................................... $ 0 $ 0
</TABLE>
See accompanying notes to financial statements
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
American Inflatables
947 Newhall Street
Costa Mesa, CA 92627
We have audited the accompanying balance sheet of American Inflatables, Inc. as
of December 31, 1999, and the related statements of operations, stockholders'
equity, and cash flows for the post merger period December 27, 1999 through
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American Inflatables, Inc. as
of December 31, 1999, and the results of its operations and its cash flows for
the post merger period, December 27, 1999 through December 31, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note I to the
financial statements, the Company has suffered recurring losses from operations
and a net working capital deficiency that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note I. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The proforma financial statements are
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has not been subjected to the
auditing procedures applied in the audit of the basic financial statements, and
accordingly we express no opinion on it.
Siegel - Smith
Del Mar, California
April 10, 2000
30
<PAGE>
AMERICAN INFLATABLES, INC.
BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Current assets:
Cash..................................................... $ 900
Inventory................................................ 59,600
Prepaid expenses and other current assets................ 53,300
Total current assets................................ 113,800
--------------
Fixed assets
Display and promotional blimps, net...................... 22,300
Computers, furniture and office equipment, net........... 34,000
Leasehold improvements, net.............................. 51,600
--------------
Total fixed assets.................................. 107,900
Other assets:
Deposits................................................. 7,000
Goodwill, net............................................ 818,400
--------------
Total other assets................................. $ 825,400
Total assets....................................... $ 1,047,100
=============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable............................................ $ 323,000
Accounts payable......................................... 113,300
Accrued payroll liabilities.............................. 289,500
Accrued liabilities...................................... 48,700
-------------
Total current liabilities.......................... $ 774,500
Long term liabilities
Stockholders equity .......................................... 45,400
Common stock............................................. 254,600
Accumulated deficit...................................... (27,400)
-------------
Total stockholders' equity......................... 272,600
-------------
Total liabilities and stockholders' equity.... $ 1,047,100
=============
See accompanying notes to financial statements
31
<PAGE>
AMERICAN INFLATABLES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
Post merger
December 27- Year Ended
December 31, 1999
1999 Unaudited
----------- ----------
Revenue...................................... $ 0 $ 0
Cost of goods sold...................... 0 0
----------- ----------
Gross profit................................. 0 0
Administrative expenses
Depreciation and amortization........... 0 0
Legal and accounting.................... 0 14,300
Office expense.......................... 0 0
Other administrative expenses........... 0 2,900
Salaries and payroll expenses................ 0 0
----------- ----------
Total............................... 0 (17,200)
----------- ----------
Net loss from operations....... 0 (17,200)
Income tax (benefit)
Income tax expense (benefit)............ 0 (2,600)
Valuation allowance (benefit)........... 0 2,600
----------- ----------
Total............................... 0 0
----------- ----------
Net loss $ 0 $ (17,200)
=========== ===========
Loss per share.......................... (0.01)
Weighted average shares................. 1,251,648
See accompanying notes to financial statements
32
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INFLATABLES, INC.
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
Post Merger Year
December 27- Ended
December 31, 1999
1999 Unaudited
------------ ----------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss............................................. $ 0 $ (17,200)
----------- ----------
Net cash used in Operating Activities..................... (17,200)
Cash flows From Financing activities
Sale of common stock........................ 900 13,800
Assumption of debt.......................... 0 4,300
------------ ----------
Net cash provided by financing activities................. 18,100
Net Increase in cash ....................... 900 900
Cash, beginning of the year...................... 0 0
------------ ----------
Cash, December 27 and December 31................ $ 900 $ 900
=========== ==========
Supplemental Non Cash Investing and Financing Activities:
The Company acquired all the assets and liabilities of
Can/Am Marketing Group, LLC, for 2,910,000 shares of
the Company's Common Stock
Supplemental Information
Interest Paid............................................. $ 0 $ 0
Taxes Paid................................................ $ 0 $ 0
</TABLE>
See accompanying notes to financial statements
33
<PAGE>
<TABLE>
<CAPTION>
AMERICAN INFLATABLES, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE POST MERGER PERIOD DECEMBER 27, 1999 THROUGH DECEMBER 31, 1999
Common Stock
--------------------- Additional Paid Accumulated
Date Description Shares Dollars in Capital Deficit Total
---- ----------- ------ ------- --------------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
-- Beginning 1,019,921 $10,200 $ 800 $ (10,200) $ 800
Balance
December 27, 1999 Shares issued 3,000,000 30,000 30,000
to LLC Member
December 27, 1999 Convertible debt 518,000 5,200 253,800 259,000
December 31, 1998 Net loss (17,200) (17,200)
Balance December 31, 1999 4,537,921 $45,400 $254,600 $ (27,400) $272,600
--------- ------- ----------- ---------- --------
</TABLE>
See notes to financial statements
34
<PAGE>
<TABLE>
<CAPTION>
CAN/AM LLC / AMERICAN INFLATABLES, INC.
PROFORMA BALANCE SHEET
DECEMBER 31, 1999
ASSETS
Proforma
Adjust- Balance
Can/Am GlobaLock ments Sheet
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Current assets:
Cash .............................................. $ 900 $ $ $ 900
Inventory............................................. 59,600 59,600
Prepaid expenses and other current assets............. 53,300 51,300
----------- ---------- --------- ----------
Total current assets.............................. 113,800 113,800
Fixed Assets
Display and promotional blimps, net................... 22,300 22,300
Computers, furniture and office equipment net......... 34,000 34,000
Leasehold improvements, net........................... 51,600 51,600
----------- ---------- --------- ----------
Total fixed assets................................ 107,900 107,900
Other Assets:
Deposits.............................................. 7,000 7,000
Goodwill, net......................................... 0 0 818,400 818,400
----------- ---------- --------- ----------
Total other assets................................ 7,000 0 818,400 825,400
----------- ---------- --------- ----------
Total Assets.......................................... $ 228,700 $ 0 $ 818,400 $1,047,100
=========== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
35
<PAGE>
<TABLE>
<CAPTION>
CAN/AM LLC / AMERICAN INFLATABLES, INC.
PROFORMA BALANCE SHEET (continued)
DECEMBER 31, 1999
LIABILITIES AND STOCKHOLDERS' DEFICIT
Proforma
Adjust- Balance
Can/Am GlobaLock ments Sheet
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Current liabilities:
Notes payable......................................... $ 323,000 $ 11,900 $ (11,900) $ 323,000
Notes payable investors............................... 259,000 (259,000)
Accounts payable...................................... 113,300 4,500 (4,500) 113,300
Accrued payroll liabilities........................... 289,500 289,500
Accrued liabilities................................... 48,700 48,700
----------- ---------- --------- ----------
Total current liabilities.......................... 1,033,500 16,400 (275,400) 774,500
Long Term Liabilities
Members' deficit........................................... (804,800) (804,800) 0
Stockholders' equity (deficit)
Common stock.......................................... 0 10,200 35,200 45,400
Additional paid in capital............................ 0 800 253,800 254,600
Accumulated deficit................................... 0 (27,400) (27,400)
Total stockholders' equity (deficit)............... 0 (16,400) 289,000 272,600
----------- ---------- --------- ----------
Total liabilities and Stockholders' (deficit) equity....... $ 228,700 $ 0 $ 818,400 $1,047,100
=========== ========== ========= ==========
</TABLE>
See accompanying notes to financial statements.
36
<PAGE>
<TABLE>
<CAPTION>
CAN/AM, LLC / AMERICAN INFLATABLES, INC.
PROFORMA STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
Adjust-
Can/Am GlobaLock ments Proforma
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Sales...................................................... $ 1,034,100 $ 0 $ $1,034,100
Cost of goods sold......................................... 405,000 405,000
----------- ---------- --------- ----------
Gross profit............................................... 629,100 629,100
Selling and tradeshow expenses
Sales commissions..................................... 62,000 62,000
Trade show expense.................................... 138,000 138,000
Trade show travel and entertainment................... 71,500 71,500
Other selling and marketing expenses.................. 85,100 85,000
----------- ---------- --------- ----------
Total............................................ 356,600 356,600
Administrative expenses
Depreciation and amortization......................... 20,300 20,300
Legal and accounting.................................. 102,800 14,300 117,100
Office expense........................................ 80,300 80,300
Other administrative expenses......................... 72,300 2,900 75,200
Salaries and payroll expenses......................... 361,700 361,700
----------- ---------- --------- ----------
Total............................................ 637,400 (17,200) 654,600
----------- ---------- --------- ----------
Net Loss from operations........................ (364,900) (382,100)
----------- ---------- --------- ----------
Other expenses
Interest expense...................................... 39,400 39,400
Other losses.......................................... 4,300 4,300
----------- ---------- --------- ----------
Total .......................................... 43,700 43,700
Income tax (benefit)
Income tax expense (benefit).......................... 0 (2,600) (61,300) (61,300)
Valuation allowance................................... 0 2,600 61,300 61,300
----------- ---------- --------- ----------
Total .......................................... 0 0 0
Net loss................................. $ (408,600) $ (17,200) $ 0 $(425,800)
----------- ---------- --------- ----------
</TABLE>
See accompanying notes to financial statements
37
<PAGE>
NOTES TO FINANCIAL STATEMENTS
Note A. ORGANIZATION AND BASIS OF PRESENTATION
American Inflatables, Inc., (the "Company") (a Delaware Corporation) provides,
manufactures and markets alternative advertising products such as, inflatable
blimps and other custom inflatable products.
Effective December 27, 1999 (the Acquisition Date) the company acquired the
alternative advertising medium business from Cam/Am Marketing Group, LLC in an
exchange of common stock of the Company for assets of Can/Am Marketing Group,
LLC. The closing for this transaction occurred on December 27, 1999. The
acquisition was accounted for under the purchase method of accounting.
Accordingly, the acquired assets and liabilities were recorded at fair market
value, deemed to be the net book value carried by Can/Am. The difference between
fair market value and purchase price was charged to goodwill.
Note B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS: Cash and cash equivalents include all cash balances
and highly liquid investments having original maturities of three months or
less.
INVENTORY: Finished goods and raw materials are valued at the lower of cost
(first in first out) or market. Work-in-process, consisting of labor, materials,
and overhead on partially completed projects, are recorded at cost but not in
excess of net realizable value.
PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment is stated at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which generally range from three years for computer
software to seven years for equipment. Leasehold improvements and Goodwill are
amortized on a straight-line method over ten years.
REVENUE AND EXPENSE RECOGNITION: Revenue from product sales is generated
primarily from the manufacturing and selling of advertising products, which
consist of inflatable blimps and other custom inflatables. The period of time
from initial order to final shipment of the product typically ranges from seen
to ten days. Revenue is recognized when the product is shipped by the Company to
the client.
Expenses are recorded when incurred.
ADVERTISING: The Company follows the policy of charging the costs of advertising
to expense as incurred. The Company's significant advertising expenses are trade
show costs. The Company depreciates the trade show blimps over 60 months.
38
<PAGE>
Note B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES: The newly merged Company accounts for income taxes under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes." Can/Am Marketing Group, LLC was treated as a
partnership for federal and state income tax purposes, prior to the acquisition
date income or losses from Can/Am passes to the members.
ESTIMATES: The preparation of these financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities.
Actual results could differ from those estimates.
Note C. INVENTORY
Inventories as of December 27, 1999 and December 31, 199 by major
classification, were as follows:
1999
----
Finished Goods $25,700
Work-in-Process 5,400
Raw Materials 28,500
-------
$59,600
Inventory is valued using the first in first out (FIFO) method.
Note D. PREPAID EXPENSES
The Company markets its products by attending trade shows. To secure strategic
locations and favorable rates a deposit is required to be placed in excess of
nine months prior to the show. Accordingly the Company has $49,503 in deposits
as of December 27, 1999 and December 31, 1999. These amounts are expensed in the
period of the trade show.
Note E. PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment as of December 27, 1999 and December 31, 1999
consisted of the following:
1999
-------
Machinery and equipment...............................$20,200
Leasehold improvements.................................61,500
Computer and software..................................17,300
Furniture and fixtures..................................8,500
Trade show blimps......................................28,700
-------
136,200
Less accumulated depreciation 28,300
-------
$107,900
========
39
<PAGE>
Note E. PROPERTY, PLANT, AND EQUIPMENT (continued)
Depreciation and amortization expense for the period ended December 27, 1999 and
year end 1999 was $20,290.
Note F. NOTES PAYABLE
Notes payable as of December 27, 1999 and December 31, 1999 consisted of
Short Term Note $ 23,000
Convertible Notes 300,000
Membership Subscriptions 259,000
--------
$582,000
The convertible notes in the amount of $50,000 in 1998 and $250,000 during 1999
provide for a term loan and include interest payable at 12%. These loans are
secured by shares owned by an officer of the Company. The Company is required to
either make payment for principal and interest or make payment in the form of
common stock of the Company once the Company becomes a publicly traded company.
The lenders have the option to convert the debt to common shares at $1.00 per
share. The total accrued interest at December 27, 1999 and December 31, 1999 was
$23,000. No conversions have been made as of December 31, 1999.
Individual investors have purchased unsecured membership subscriptions totaling
$259,00 in Can/Am, in return they were issued common shares at $.50 per share.
No interest was paid on these subscriptions.
As of December 31, 1999 the Company owed Rettberg $23,000 which is unsecured and
bears no interest. This loan was a result of the purchase of his interest in
Can/Am.
Note G. RELATED PARTY TRANSACTIONS
The officers and directors of the Company are involved in other business
activities and may, in the future, become involved in additional business
opportunities. If a specific business opportunity becomes available, such
persons may face a conflict in selecting between the Company and their other
business interests. The Company has not formulated a policy for the resolution
of such conflicts.
The Company's officer has received funds on a secured basis from the Company.
These borrowings occurred during the period that the Company was a limited
liability company (LLC). Upon termination of the Company's LLC operation and
organization these advances were reclassified as draws and netted against member
equity.
40
<PAGE>
Note G. RELATED PARTY TRANSACTIONS (continued)
Scott Rettberg, a former member of Can/Am, agreed to sell his Can/Am interest in
May 1998. The agreement offered Mr. Rettberg 50,000 shares of common stock when
the Company becomes a publicly trade company in addition to a cash payment of
$39,600 paid in 24 monthly installments. Subsequent to the balance sheet date
the 50,000 shares were issued.
Note H. WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional shares of
common stock.
Note I. GOING CONCERN
The Company's financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company had not commenced its planned principal
operations. Prior to the merger, Can/Am sustained significant losses and has
negative working capital. Without the realization of additional capital, it may
be unlikely for the Company to continue as a going concern.
Note J. COMMITMENTS & CONTINGENCIES
The financial statements reflect accruals management believes sufficient to the
mentioned pending legal proceedings.
The Company's sales to the automobile industry exceed 50% of the Company's total
sales. An economic downturn to the auto industry could seriously impact Company
sales.
Note K. LEASES
The Company leases a combination of offices and production facility in Costa
Mesa, California totaling 10,000 square feet. The lease is accounted for as an
operating lease, under the terms of a one-year lease with ten one-year
consecutive renewal options.
Note L. STOCK
The Company has authorized 20,000,000 shares of $0.01 par value common stock. As
of December 31, 1999 there were 4,537,921 shares issued and outstanding.
41
<PAGE>
AMERICAN INFLATABLES, INC.
BALANCE SHEET
MARCH 31, December 31,
2000 1999
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash ............................................$ 10,200 $ 900
Inventory........................................ 66,400 59,600
Prepaid expenses and other current assets........ 119,600 53,300
--------- ---------
Total current assets....................... 196,200 113,800
Fixed assets
Display and promotional blimps, net.............. 25,000 22,300
Computers, furniture and office equipment, net... 33,900 34,000
Leasehold improvements, net...................... 54,300 51,600
--------- ---------
Total fixed assets......................... 113,200 107,900
Other assets:
Deposits......................................... 7,000 7,000
Goodwill, net.................................... 805,100 818,400
--------- ---------
Total other assets......................... 812,100 825,400
--------- ---------
Total assets...............................$1,121,500 $1,047,100
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable....................................$ 323,000 $ 323,000
Accounts payable................................. 102,500 113,300
Accrued payroll liabilities...................... 293,100 289,500
Accrued liabilities.............................. 33,300 48,700
--------- ---------
Total current liabilities.................. 751,900 774,500
Long term liabilities
Stockholders' equity
Common stock.................................... 46,550 45,400
Additional paid in capital...................... 368,450 254,600
Accumulated deficit............................. (45,400) (27,400)
--------- ---------
Total stockholders' equity................... 369,600 272,600
--------- ---------
Total liabilities and stockholders' equity $1,121,500 $1,047,100
========= =========
See accompanying notes to financial statements
42
<PAGE>
AMERICAN INFLATABLES, INC.
STATEMENTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2000
PROFORMA
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(UNAUDITED) (UNAUDITED)
Revenues..........................................$ 441,100 $ 217,000
Cost of goods sold........................... 198,600 100,400
--------- ---------
Gross profit...................................... 242,500 116,600
--------- ---------
Administrative expenses
Depreciation and amortization................ 18,600 5,200
Legal and accounting......................... 13,800 17,000
Office expense............................... 38,300 20,900
Other administrative expenses................ 16,000 6,200
Salaries and payroll expenses................ 67,700 40,700
Selling Expenses............................. 11,300 1,300
Marketing.................................... 11,200 7,600
Trade Show................................... 62,600 20,600
Travel & Entertainment....................... 21,000 3,400
--------- ---------
Total................................... 260,500 122,900
--------- ---------
Net loss from operations............ (18,000) (6,300)
Income tax (benefit)
Income tax expense (benefit)................. (7,100) (2,600)
Valuation allowance(benefit)................. 7,100 2,600
--------- ---------
Total................................... 0 0
--------- ---------
Net loss $ (18,000) $ (6,300)
========= =========
Loss per share............................... (0.00) (0.00)
Weighted average shares...................... 4,565,000 4,540,000
========= =========
See accompanying notes to financial statement
43
<PAGE>
AMERICAN INFLATABLES, INC.
STATEMENTS of CASH FLOWS
QUARTER ENDED MARCH 31, 2000
PROFORMA
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)............................... $ (18,000) $ ( 6,300)
Adjustments to Reconcile
Net Income (Loss) to Net Cash Provided
By (Used In) Operating Activities
Depreciation and Amortization................... 18,600 5,200
(Increase) Decrease in:
Prepaid Expense and Other Assets................ (62,300) (19,200)
Inventory....................................... (6,800) (4,200)
Increase (Decrease) in:
Accounts Payable............................... (10,800) 2,000
Accrued Expenses............................... (11,800) 25,500
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES........... (91,100) 2,500
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of Equipment/Leaseholds................ (10,600) (32,100)
Advances to officer............................. (4,000) (24,000)
----------- -----------
NET CASH USED INVESTMENT ACTIVITIES............. (14,600) (56,100)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of Common Stock........................ 115,000 0
Increase in Long Term Debt, net................. 0 100,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES....... 115,000 100,000
----------- -----------
NET INCREASE (DECREASE) IN CASH................. 9,300 46,400
CASH AT BEGINNING OF PERIOD..................... 900 5,700
----------- -----------
CASH AT END OF PERIOD........................... $ 10,200 $ 52,100
=========== ===========
See accompanying notes to financial statements
44
<PAGE>
Notes to Financial Statements
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION
American Inflatables, Inc., (the "Company") (a Delaware Corporation) provides,
manufactures and markets alternative advertising products such as inflatable
blimps and other custom inflatable products.
Effective December 27, 1999 (the Acquisition Date) the Company acquired the
alternative advertising medium business from Can / Am Marketing Group, LLC in an
exchange of common stock of the Company for the assets of Can / Am Marketing
Group, LLC. The transaction closed on December 27, 1999. The acquisition was
accounted for under the purchase method of accounting. Accordingly, the acquired
assets and liabilities were recorded at fair market value, deemed to be the net
book value carried by Can / Am. The difference between fair market value and
purchase price was charged to goodwill.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting: The Company uses the accrual method of accounting and
prepares and presents financial statements that conform to generally accepted
accounting principles. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates.
Basis of Presentation: The accompanying unaudited condensed financial statements
and related notes have been prepared pursuant to the rules and regulations of
the Securities Exchange Commission ("SEC") for Form 10-QSB. Accordingly, they do
not include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments, consisting of a normal recurring nature and
considered necessary for a fair presentation, have been included. It is
suggested that these financial statements are read in conjunction with the
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB for the year ended December 31, 1999. The results of operations
for the three (3) month period ended March 31, 2000 are not necessarily
indicative of the operating results for the year end December 31, 2000. For
further information, refer to the financial statements and notes thereto
included in the Company's annual report on Form 10-KSB for the fiscal year
December 31, 1999.
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Reclassifications: Certain March 31, 1999 balances have been reclassified to
conform to the March 31, 2000 financial statement presentation.
Inventory: Finished goods and raw materials are valued at the lower of cost
(first in first out) or market. Work-in-process, consisting of labor, materials,
and overhead on partially completed projects, are recorded at cost but not in
excess of net realizable value.
Property, Plant, and Equipment: Property, plant, and equipment are stated at
cost. Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, which generally range from three (3) years for
computer software to seven (7) years for equipment. Leasehold improvements and
goodwill are amortized on a straight-line method over ten (10) years.
Revenue and Expense Recognition: Revenue from product sales are generated
primarily from the manufacturing and selling of advertising products, which
consist of inflatable blimps and other custom inflatables. The period of time
from initial order to final shipment of the product typically ranges from seven
(7) to ten (1) days. Revenue is recognized when the Company ships the product to
the client. Expenses are recorded when incurred.
Advertising: The Company follows the policy of charging the costs of advertising
to expense as incurred. The Company's significant advertising expenses are trade
show costs. The Company depreciates the trade show blimps over sixty (60)
months.
Income Taxes: The newly merged Company accounts for income taxes under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Account for Income Taxes."
3. INVENTORY
Inventories as of March 31, 2000 by major classification were as follows:
Finished goods ...................$ 25,700.00
Work-in-process................... 12,200.00
Raw materials ................... 28,500.00
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$ 66,400.00
Inventory is valued using the first in first out (FIFO) method.
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4. NOTES PAYABLE:
Notes payable as of March 31, 2000 consisted of:
Short term note...................$ 23,000.00
Convertible notes................. 300,000.00
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$323,000.00
Convertible notes in the amount of $300,000.00 provide for a term loan and
include interest payable at 12%. Shares owned by an officer of the Company
secure these loans. The Company is required to either make payment for principal
and interest or make payment in the form of common stock of the Company once the
Company becomes a publicly traded company. The lenders have the option to
convert the debt to common shares at $1.00 per share. No conversions have been
made as of March 31, 2000.
5. GOING CONCERN:
The Company's financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. However, the Company had not commenced its planned principal
operations. Prior to the merger, Can / Am sustained significant losses and has
negative working capital. Without the realization of additional capital, it may
be unlikely for the Company to continue as a going concern.
6. LEASES:
The Company leases a combination of offices and production facility in Costa
Mesa, California totaling 10,000 square feet. The lease is accounted for as an
operating lease, under the terms of a one-year lease with ten (10) one-year
consecutive renewal options.
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ITEM 23. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART II - Information Not Required in Prospectus.
Item 24. Indemnification of Officers and Directors.
Limitation on Liability of Officers and Directors of the Company. Section 145 of
the Delaware General Corporation Law specifies that the Certificate of
Incorporation of a Delaware corporation may include a provision eliminating or
limiting the personal liability of a director or officer to that corporation or
its stockholders for damages for breach of fiduciary duty as a director of
officer, but such a provision must not eliminate or limit the liability of a
director or officer for (a) acts or omissions which involve intentional
misconduct, fraud, or a knowing violation of law; or (b) unlawful distributions
to stockholders. Our Certificate of Incorporation includes a provision
eliminating or limiting the personal liability of our officers and directors to
the Company and our shareholders for damages for breach of fiduciary duty as a
director or officer. Moreover, Sections 6.1 through 6.6 of our By-laws provide
[material deleted] indemnity to a controlling person, director or officer which
affects such a person's liability while acting in a corporate capacity.
Accordingly, our officers and directors may have no liability to our
shareholders for any mistakes or errors of judgment or for any act or omission,
unless such act or omission involves intentional misconduct, fraud, or a knowing
violation of law or results in unlawful distributions to our shareholders.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
We will pay all expenses in connection with the registration and sale of the
shares of our common stock specified in this Prospectus, except any selling
commissions or discounts allocable to sales of that common stock, fees and
disbursements of counsel and other representatives of the Investors, and any
stock transfer taxes payable by reason of any such sale. The estimated expenses
of issuance and distribution are set forth below.
Approximately
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Registration fees $ 1,764.67
Transfer agent fees $500.00
Costs of printing and engraving $300.00
Legal fees $15,000.00
Accounting fees $10,000.00
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ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In April 2000, we sold 350,000 shares of common stock and warrants to purchase
1,000,000 shares of common stock at $1.00 per share. These shares and warrants
were issued in reliance upon the exemption from registration under Section 4(2)
of the Securities Act of 1933 as transactions not involving a public offering.
Exemption from the registration provisions of the Securities Act of 1933 is
claimed on the basis that such transactions did not involve any public offering
and the Purchasers were sophisticated with access to the kind of information
registration would provide. In June 2000, we issued 400,000 shares to a
consultant for acquisition services. These shares were registered under Form
S-8.
ITEM 27. EXHIBITS.
1 Not applicable
2 Plan of Reorganization (1)
4 Not applicable
5 Opinion re: Legality
8 Not applicable
10 Not applicable
11 Statement re: Computation of Per Share Earnings (loss) (2)
12 Not applicable
13 Not applicable
15 Not applicable
16 Not applicable
23.1 Consent of Independent Auditors
23.2 Consent of Counsel (included in 5)
24 Not applicable
25 Not applicable
26 Not applicable
27 Financial Data Schedule (3)
(1) Filed as an Exhibit to the Company's Form 8-K Current Report dated December
29, 1999, filed January 13, 2000, and incorporated by reference.
(2) Included in financial statements.
(3) Filed as an Exhibit to the Company's Form 10-KSB filed with the Commission
on April 14, 2000 and incorporated by reference.
ITEM 28. UNDERTAKINGS.
A. Insofar as indemnification for liabilities arising under the 1933 Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
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indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the 1933 Act and will be governed by the final
adjudication of such issue.
B. We hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement.
(i) To include any prospectus required by Section 10(a)(3) of the 1933
Act;
(ii) To specify in the prospectus any facts or events arising after
the effective date of the Registration Statement (or most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) (Section 230.424(b) of Regulation S-B) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective Registration
Statement; and
(iii)To include any additional or changed material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the 1933 Act,
each such post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered with remain unsold at the termination of the
offering.
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Signatures
In accordance with the requirements of the 1933 Act, as amended, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form SB-2 to be signed on our behalf by the
undersigned, in the City of Costa Mesa, California, on August 11, 2000.
American Inflatables, Inc.
a Delaware corporation
/s/ Gregg Mulholland
By: -----------------------
Gregg Mulholland
Its: Chief Executive Officer
Date: August 11, 2000
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement on Form SB-2 was signed by the following persons in the
capacities and on the dates stated.
/s/ Jeffrey Jacobson
By:----------------------------
Jeffrey Jacobson
Its: Chief Financial Officer
Date: August 11, 2000
