UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTER PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-26943
AMERICAN INFLATABLES, INC.
--------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4702570
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
947 NEWHALL STREET, COSTA MESA, CA 92627
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 949-515-1776
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR
VALUE $.01 PER SHARE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No[ ]
As of May 14, 2000, there were 4,655,000 shares of the Registrant's common
stock, $.01 par value per share, issued and outstanding.
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<PAGE>
PAGE
PART I FINANCIAL INFORMATION................................. 2
Item 1. Financial Statements.................................. 3
Balance Sheet......................................... 3
Statement of Operations for the Three Months
Ended March 31, 2000 and 1999 (Proforma)............ 4
Statement of Cash Flows For the Three Months
Ended March 31, 2000 and 1999 (Proforma)............ 5
Notes to Financial Statements
as of March 31, 2000................................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 8
PART II OTHER INFORMATION..................................... 9
Item 1: Legal Proceedings..................................... 9
Item 2: Changes in Securities................................. 9
Item 3: Defaults Upon Senior Securities....................... 9
Item 4: Submission of Matters to a Vote of Security Holders... 9
Item 5: Other Information..................................... 9
Item 6(a): Exhibits.............................................. 9
Item 6(b): Reports on Form 8.K................................... 9
SIGNATURES....................................................... 10
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<PAGE>
PART I - FINANCIAL INFORMATION
NOTE REGARDING FORWARD-LOOKING STATEMENTS.
This Form 10-QSB contains forward-looking statements within the meaning of the
"safe harbor" provisions under Section 21E of the Securities Exchange Act of
1934 and the Private Securities Litigation Reform Act of 1995. We use forward-
looking statements in our description of our plans and objectives for future
operations and assumptions underlying these plans and objectives. Forward-
looking terminology includes the words "may," "expects," "believes,"
"anticipates," "intends," "projects," or similar terms, variations of such
terms or the negative of such terms. These forward-looking statements are based
on management's current expectations and are subject to factors and
uncertainties, which could cause actual results to differ materially from
those, described in such forward-looking statements. We expressly disclaim any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained in this Form 10-QSB to reflect any change
in our expectations or any changes in events, conditions or circumstances on
which any forward-looking statement is based. Factors, which could cause such
results to differ materially from those described in the forward-looking
statements, and elsewhere in, or incorporated by reference into this
Form 10-QSB.
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<PAGE>
ITEM 1 Financial Statements
AMERICAN INFLATABLES, INC.
BALANCE SHEET
<TABLE>
MARCH 31, December 31,
2000 1999
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(UNAUDITED)
<S> <C> <C>
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 $1,047,100
========= =========
</TABLE>
See accompanying notes to financial statements
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<PAGE>
AMERICAN INFLATABLES, INC.
STATEMENTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 2000
<TABLE>
PROFORMA
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Revenues..........................................$ 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
========= =========
</TABLE>
See accompanying notes to financial statements
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<PAGE>
AMERICAN INFLATABLES, INC.
STATEMENTS of CASH FLOWS
QUARTER ENDED MARCH 31, 2000
<TABLE>
PROFORMA
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
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
=========== ===========
</TABLE>
See accompanying notes to financial statements
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<PAGE>
Notes to Financial Statements
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 affects 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 and Exchange Commission 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 month period ended March 31, 2000 are not necessarily indicative
of the operating results for the year ended 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.
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 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 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
to ten 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 tradeshow blimps
over 60 months.
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."
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<PAGE>
3. INVENTORY
Inventories as of March 31, 2000 by major classification, were as follows:
Finished Goods.......................... $ 25,700
Work-in-Process......................... 12,200
Raw Materials........................... 28,500
--------
$ 66,400
========
Inventory is valued using the first in first out (FIFO) method.
4. NOTES PAYABLE
Notes payable as of March 31, 2000 consisted of:
Short Term Note......................... $ 23,000
Convertible Notes....................... 300,000
--------
$323,000
========
Convertible notes in the amount of $300,000 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 one-year
consecutive renewal options.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULT OF OPERATIONS
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.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
RESULTS OF OPERATIONS. Net sales were $441,100 for the three months ended
March 31, 2000, an increase of $224,100 or 103.3% compared to net sales of
$217,000 for the three months ended March 31, 1999. The increase in sales is
due to the Company increasing its customer base. Sales for the Company
continue to grow at an increasing rate not just from repeat customers but from
new customers. The Company continues to increase its 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 months ended March 31, 2000 was 54.9%, compared to
53.7% for the three months ended March 31, 1999. The Company earned $242,500 in
gross profit for the three months ended March 31, 2000 compared to $116,600 for
the three 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. The Company through its 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 the Company increased production and manufacturing staff, in order to
increase sales, enabling the Company to fully utilize its production staff to
increase gross margins. This is evident by the Company's continuing ability to
increase its sales and maintain a production facility that keeps up with this
growth.
The Company's selling expense (which consists of sales expense, marketing costs
and tradeshow expense)totaled $85,100 for the three months ended March 31, 2000
compared to $29,500 for the three months ended March 31, 1999, an increase of
$55,600 or 188.5%. The Company during fiscal 1999 substantially increased its
trade show presence 700% fold from fiscal 1998. Management believes that the
additional tradeshow costs associated with this presence will be realized in
increased sales over the next year as evidenced by the Company's first quarter
sales for fiscal 2000.
The Company's total general and administrative expenses (less selling expense
mentioned above)increased by $82,000 or 87.8%, for the three months ended
March 31, 2000 due to increased costs related to the Company's activities in
preparation for going public and legal fees as well as an increase in
personnel. The Company continues to add management to its staff.
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<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
During June 1999 Can/Am was in breach of contract in the amount of $4,000, for
advertising purchased. Virgo Publishing, Inc. obtained a default judgement in
the amount of $5,500 plus attorney fees and costs.
During 1999, S.D.D. Enterprises, Inc. obtained a judgment from Can/Am of $7,144
requiring payment April 1, 1999. The judgment was for breach of contract and
non-payment. The Company paid the judgement subsequent to year-end.
During 1999, Glasforms, Inc. obtained a judgement from Can/Am in the amount of
$3,000. 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. The Company has been notified of a refiling
in the amount of $25,000.
There are no other material legal proceedings to which the Company is currently
a party or to which the property of the Company is subject.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBIT AND REPORTS ON FORM 8-K
a) Financial Statements filed as part of this Form 10-QSB
b) Subsequent to the quarter ended March 31, 2000 the Company
filed on April 5, 2000, a Current Report on Form 8-K/A with a
date of report of April 10, 2000. This Current Report disclosed
the acquisition of Can/Am Marketing Group, LLC.
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<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: May 15, 2000 By: /s/ Gregg Mulholland
---------------------------
Gregg Mulholland
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: May 15, 2000 By: /s/ Gregg Mulholland
---------------------------
Gregg Mulholland
Chairman of the Board
Chief Executive Officer
Date: May 15, 2000 By: /s/ Jeffrey Jacobsen
---------------------------
Jeffrey Jacobsen
Chief Operating Officer
Director
Date: May 15, 2000 By: /s/ David Ariss
---------------------------
David Ariss
Director
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<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,200
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 66,400
<CURRENT-ASSETS> 196,200
<PP&E> 113,200
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,121,500
<CURRENT-LIABILITIES> 751,900
<BONDS> 0
0
0
<COMMON> 46,550
<OTHER-SE> 323,050
<TOTAL-LIABILITY-AND-EQUITY> 1,121,500
<SALES> 441,100
<TOTAL-REVENUES> 441,100
<CGS> 198,600
<TOTAL-COSTS> 260,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (18,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (18,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18,000)
<EPS-BASIC> .00
<EPS-DILUTED> .00
</TABLE>
