File No. _____________
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1999
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934
AVID SPORTSWEAR & GOLF CORP.
(Name of Small Business Issuer in Its Charter)
NEVADA 88-0374969
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
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22 South Links Avenue, Suite 204
Sarasota, Florida 34236
Telephone: (941) 330-8051
Copies to:
Clayton E. Parker, Esq. Troy J. Rillo, Esq.
Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP
201 S. Biscayne Boulevard, Suite 2000 201 S. Biscayne Boulevard, Suite 2000
Miami, Florida 33131 Miami, Florida 33131
Telephone: (305) 539-3300 Telephone: (305) 539-3300
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Securities to be registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
TITLE OF EACH CLASS TO BE SO ON WHICH EACH CLASS IS TO BE
REGISTERED REGISTERED
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
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PART I
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. THIS FILING CONTAINS
FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS REGARDING, AMONG OTHER THINGS,
(A) AVID SPORTSWEAR & GOLF CORP.'S ("AVID SPORTSWEAR" OR THE "COMPANY")
PROJECTED SALES AND PROFITABILITY, (B) THE COMPANY'S GROWTH STRATEGIES, (C)
ANTICIPATED TRENDS IN THE COMPANY'S INDUSTRY, (D) THE COMPANY'S FUTURE FINANCING
PLANS, (E) THE COMPANY'S ANTICIPATED NEEDS FOR WORKING CAPITAL AND (F) BENEFITS
RELATED TO THE ACQUISITION OF AVID SPORTSWEAR, INC., A CALIFORNIA CORPORATION.
IN ADDITION, WHEN USED IN THIS FILING, THE WORDS "BELIEVES," "ANTICIPATES,"
"INTENDS," "IN ANTICIPATION OF," "EXPECTS," AND SIMILAR WORDS ARE INTENDED TO
IDENTIFY CERTAIN FORWARD-LOOKING STATEMENTS. THESE FORWARD-LOOKING STATEMENTS
ARE BASED LARGELY ON THE COMPANY'S EXPECTATIONS AND ARE SUBJECT TO A NUMBER OF
RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CHANGES IN TRENDS IN THE ECONOMY AND THE COMPANY'S INDUSTRY, DEMAND
FOR THE COMPANY'S PRODUCTS, UNEXPECTED CHANGES IN FASHION TRENDS, PRIOR SEASON
INVENTORIES, COMPETITION, REDUCTIONS IN THE AVAILABILITY OF FINANCING AND
AVAILABILITY OF RAW MATERIALS, THE SEASONAL NATURE OF THE COMPANY'S BUSINESS,
THE EXTREMELY COMPETITIVE NATURE OF THE GOLF APPAREL AND SPORTSWEAR INDUSTRIES
AND OTHER FACTORS. IN LIGHT OF THESE RISKS AND UNCERTAINTIES, THERE CAN BE NO
ASSURANCE THAT THE FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FILING WILL IN
FACT OCCUR. THE COMPANY DOES NOT UNDERTAKE ANY OBLIGATION TO PUBLICLY RELEASE
THE RESULTS OF ANY REVISIONS TO THESE FORWARD-LOOKING STATEMENTS TO REFLECT ANY
FUTURE EVENTS OR CIRCUMSTANCES.
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
Through our wholly-owned subsidiary, Avid Sportswear, Inc., we design,
manufacture and market distinctive premium and moderately-priced sportswear. We
sell our products primarily through golf pro shops and resorts, corporate sales
accounts and better specialty stores. Our sportswear is marketed under the
following labels:
o Avid Sportswear;
o Dockers Golf; and
o British Open Collection.
We market larger size sportswear under the "Avid Sportswear" label, in
both premium and moderately-priced product categories. Our moderately-priced
product, regular size product category is marketed under the "Dockers Golf"
label, while our premium-priced, regular size product category is marketed under
the "British Open Collection" label. Eventually our product line may include
non-apparel, golf-related products. Our products feature distinctive,
comfortable designs made primarily of natural fibers. All of our products are
manufactured by independent contractors located mainly in Southern California.
Embroidering, warehousing and certain other functions are performed in a leased
facility located in Gardena, California. Our goal is to become one of the most
recognized and respected brands in sports apparel by expansion of existing
labels, purchasing other apparel businesses or licensing other brand names. We
believe this industry is highly fragmented and ripe for consolidation.
We were formed on September 19, 1997 in Nevada under the name Golf
Innovations Corp. We had no significant operations until March 1, 1999, at which
time we acquired Avid Sportswear, Inc. From its inception on October 6, 1988 in
California, Avid Sportswear, Inc.'s business has involved the design,
manufacture and marketing of golf apparel. On March 1, 1999, Avid Sportswear,
Inc. became our wholly-owned subsidiary and it continues to operate as a
separate legal entity. To better identify ourselves with the "Avid Sportswear"
brand, we changed our name to Avid Sportswear & Golf Corp. on May 27, 1999. All
of our operations are conducted through Avid Sportswear, Inc.
PURCHASE OF AVID SPORTSWEAR, INC.
On December 18, 1998, we entered into an agreement to purchase Avid
Sportswear, Inc. from its shareholders. The purchase was completed on March 1,
1999. We paid $725,000 in cash and issued 1,100,000 shares of our common stock
to the former shareholders of Avid Sportswear, Inc. In connection with the
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purchase, we were required to advance $1,826,111 to Avid Sportswear, Inc. to be
used to satisfy certain liabilities owed by Avid Sportswear, Inc. Avid
Sportswear, Inc. remains liable for any liabilities which existed on March 1,
1999. We received standard representations and warranties from the former
shareholders of Avid Sportswear, Inc., who also agreed to indemnify us for
certain events.
LICENSES TO USE CERTAIN TRADEMARKS
Of the three labels our products are marketed under, the "Dockers Golf"
and "British Open Collection" are licensed from their respective owners. The
"Avid Sportswear" label is owned by our wholly-owned subsidiary. A description
of these licenses follows:
BRITISH OPEN COLLECTION. On December 8, 1998, our wholly-owned subsidiary
obtained the sole and exclusive right and license to use certain trademarks
associated with the British Open Golf Championship. The licensor is The
Championship Committee Merchandising Limited, which is the exclusive licensor of
certain trademarks from The Royal & Ancient Golf Club of St. Andrews, Scotland.
This license is for the United States and its territories and has a seven year
term. Under this license, our wholly-owned subsidiary may manufacture,
advertise, distribute and sell products bearing the licensed trademarks to
specialty stores and the menswear departments of department stores. It is not
permitted to sell these products to discount stores or mass-market retail
chains. In return for this license, our wholly-owned subsidiary must pay the
licensor, on a quarterly basis, a royalty equal to five percent of net wholesale
sales of products bearing these trademarks, subject to a guaranteed minimum
royalty. Net wholesale sales means the invoiced wholesale billing price, less
shipping, discounts actually given, duties, insurance, sales taxes, value-added
taxes and credits allowed for returns or defective merchandise. Our wholly-owned
subsidiary may also deduct uncollectible accounts up to a total of five percent
of such sales. The guaranteed minimum royalty is as follows:
CONTRACT YEAR: MINIMUM ROYALTY:
-------------- ----------------
1 $100,000
2 $125,000
3 $150,000
4 $175,000
5 $200,000
6 $200,000
7 $200,000
The licensor has the right to approve or disapprove in advance of sale the
quality, style, color, appearance, material and worksmanship of all licensed
products and packaging. It may also approve or disapprove any and all
endorsements, trademarks, trade names, designs and logos used in connection with
the license. Our wholly-owned subsidiary must submit samples of the licensed
products to the licensor for examination and approval or disapproval prior to
sale.
DOCKERS GOLF. On May 10, 1999, our wholly-owned subsidiary obtained the
exclusive, nonassignable right to use the "Dockers Golf" trademark solely in
connection with the manufacturing, advertising, distribution and sale of
products to approved retailers. The licensor is Levi Strauss & Co. This license
is for the United States, its territories and Bermuda. This license requires us
to pay royalties to Levi Strauss & Co., subject to a minimum royalty. A
description of the license has been omitted because the Company has sought
confidential treatment from the Securities and Exchange Commission.
BUSINESS STRATEGY
Our goal is to become one of the most recognized and respected brands in
sports apparel. Key elements of our business strategy include:
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o EXPAND PRODUCT LINE. We intend to expand our product line by
licensing or purchasing existing brands of sportswear. We expect to
target brands which will complement the existing brands by filling a
perceived market niche, having name recognition and/or offering new
price points. We believe this strategy is best demonstrated by the
purchase of the "Avid Sportswear" label and the license of the
"Dockers Golf" and "British Open Collection" labels. We also intend
to continue to expand our product line to include slacks, shorts and
outerwear by capitalizing on our existing and future brands.
o MARKET PENETRATION OF EXISTING LABELS. We hope to leverage our
brands into greater shelf space by cross-promoting our products and
by offering in-store fixturing programs. In addition, we intend to
hire additional sales staff and independent sales representatives to
broaden our customer base. Our customer base consists of
approximately 5,500 customers in the United States compared to a
market, we estimate, of more than 15,000 golf pro shops and 3,500
better specialty stores. We intend to use our labels and sales staff
to broaden our customer base and increase our average order size.
o INTERNATIONAL MARKETS. We believe the international markets will
provide us with new opportunities for the Avid Sportswear label and
other labels we may acquire in the future. We intend to enter these
markets by using distributors and licensees who are familiar with
the local markets. We believe international markets are receptive to
American lifestyle apparel brands in general and will be receptive
to the Avid Sportswear label in particular.
MARKET
According to industry estimates, net sales of apparel at retail were $177
billion in 1998, with $54.3 billion and $92.6 billion spent on men's and women's
apparel, respectively. Sportswear represents a growing portion of consumer
wardrobes because of a trend toward casual dress in the workplace. For example,
according to industry estimates, between 1996 and 1998 sales of men's and
women's apparel grew 10.0% and 8.9%, respectively. Our target customers are
sports-minded professional men and women who like casual, high-quality and
distinctively styled apparel that reflects an active lifestyle.
Golf apparel represents a subset of the apparel industry. Golf's
popularity has risen in recent years. As a result, golf apparel sales at retail
were $1.16 billion in 1996, $1.92 billion in 1997 and were estimated at $2.10
billion in 1998. In addition, the number of rounds played in the United States
increased from 431 million in 1987 to 547 million in 1997. Over this same time
frame, the number of golfers in the United States increased from 21.2 million to
26.5 million. The National Golf Foundation projects the market for sales apparel
sold through all golf facilities to increase between 3% to 5% annually through
2005. As indicated above, we believe there are over 15,000 golf pro shops and
3,500 better specialty stores in the United States.
COMPETITION
The sportswear and outerwear segments of the apparel industry are highly
competitive. Competition is based primarily on brand recognition, product
differentiation and quality, style and production flexibility. Five companies
account for about one-quarter of all apparel sales in the industry. These
companies are: Polo/Ralph Lauren, Cutter & Buck, Ashworth, Antiqua and Izod.
Between 200 and 300 companies account for the remaining apparel sales in the
industry. Many of these companies have greater resources and sell brands with
greater name recognition than us. We are attempting to differentiate ourselves
from our competitors by purchasing or licensing well-established brand names and
producing high quality, stylish sportswear.
PRODUCTS
We design industry-leading products which feature high-quality materials,
such as fine-gauge combed cotton, virgin wools and performance microfibers. Our
products are finished with unique trims, special fabric finishes and washes and
extra needlework. All of our manufacturing is outsourced to independent
contractors located mainly in Southern California. We offer distinctive products
under the following three labels:
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o Avid Sportswear;
o Dockers Golf; and
o British Open Collection.
AVID SPORTSWEAR. The Avid Sportswear label is designed exclusively for the
men's market and is sold in the premium and mid-priced product categories. This
product line features larger sizing, higher quality materials and sewing, and
more detailed designs in the premium category than in the mid-priced category.
It is marketed to golfers and others.
DOCKERS GOLF. The Dockers Golf label is designed for the men's and women's
market. It is marketed to brand-conscious golfers seeking moderately priced,
high quality golf apparel. This label appeals to the casual market, and is
rugged and durable.
BRITISH OPEN COLLECTION. The British Open Collection label is designed for
the men's market. It is marketed exclusively as a premium brand, and will
combine the elegance and tradition that characterizes the British Open Golf
Tournament. This label is made of the finest quality material and features
detailed designs and embroidery.
PRODUCT DEVELOPMENT
Our experienced product development team determines product strategy,
color and fabric selection. With respect to the "British Open Collection" and
"Dockers Golf" labels, the respective licensors have the right to approve or
disapprove the design and other aspects of our products prior to sale and may
require modifications. Our design and production teams coordinate product
development, negotiate price and quantity with cutting and sewing contractors,
purchase fabrics and trim, and establish production scheduling. These teams also
coordinate the inspection of fabric deliveries and perform fabric testing for
shrinkage and color-fastness. Except for embroidering, all manufacturing is
outsourced to independent contractors. We do not have any long-term agreements
with our contractors. Our quality control personnel are responsible for
inspecting finished goods on arrival from our contractors.
The production of our product lines is time sensitive. Due to seasonal
variations in the demand for golf apparel, we are required to forecast market
demand, place raw material orders and schedule cutting and sewing services in
order to have inventory available to meet projected sales. Our designs are
usually finalized between six and nine months prior to the display of our
seasonal product lines by customers. We design for two collections per year, the
spring/summer and winter/fall seasons. Collections are shipped about three to
four months in advance of display by our customers.
Since we did not begin significant operations until March 1, 1999, the
date we acquired Avid Sportswear, Inc., we did not spend any money on product
development in 1998 or 1997. We estimate that Avid Sportswear, Inc. spent
$250,000 in 1998 and $175,000 in 1997. We estimate that Avid Sportswear, Inc.
will spend $350,000 in 1999 on product development. None of these costs were
borne directly by our customers.
SOURCES OF SUPPLY
The design staff is responsible for creating innovative products for our
two seasonal collections. During the design process, our manufacturing sources
develop new seasonal textiles in association with the design team. This enables
us to source a wide variety of textile and printed artwork designs. Our
materials are sourced from a wide variety of domestic and foreign suppliers. The
only key supplier we significantly rely on is Levi Strauss & Co., which sources
some of the products sold under the Dockers Golf label. We believe we can
replace the loss of any supplier other than Levi Strauss & Co. without causing
any material harm to our business.
DISTRIBUTION AND SALES
GENERAL. Our products are distributed in the United States primarily
through golf pro shops, resorts and specialty stores. Our products are sold
through a dedicated sales staff as well as independent sales representatives.
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As of September 30, 1999, our sales staff was composed of five employees and
twenty-two independent sales representatives. Each employee or sales
representative is responsible for serving targeted accounts in a specific
geographic region through merchandise consultation and training, and for meeting
specific account growth and average-order-size goals. They present our
collections each season at national and regional trade shows and at customers'
stores through promotional literature and samples. In addition to other
responsibilities, these employees and sales representatives implement our
merchandise fixturing program with suitable golf pro shops, resorts and
specialty stores. Our products are typically sold on open account with payment
required within thirty days. Department stores and other chains may require
extended credit terms as a condition to carrying a product line. We will where
required conform to this industry practice.
AVID SPORTSWEAR. The Avid Sportswear product line is distributed in the
United States primarily through golf pro shops, resorts and specialty stores.
This product line has a base of approximately 5,500 customers, and is an
approved vendor with Collegiate Licensing Company and sells to several
professional sports teams.
BRITISH OPEN COLLECTION. The British Open Collection product line is
distributed in the United States primarily through department stores and
high-end golf pro shops. This product line has a base of approximately 500
customers. In the upcoming season, we intend to expand our customer base by
targeting high-end golf pro shops, resorts and specialty stores.
DOCKERS GOLF. The Dockers Golf product line is distributed in the United
States primarily through golf pro shops and specialty golf stores. This product
line has a base of approximately 2,000 customers. We believe this product line
will have broad appeal and expect to target traditional mass merchandise retail
outlets as well as the golf pro shops, resorts and specialty stores.
MERCHANDISING AND MARKETING
We believe our three labels are well-positioned to cater to three distinct
product categories - the larger size, premium-priced and moderately-priced
product categories. Avid Sportswear features harder-to-find, larger sizes in the
premium and moderately priced product categories. The British Golf Collection is
an upscale, premium priced product line, and the Dockers Golf is a brand
conscious, moderately priced product line. We hope to leverage these brands to
expand our product offerings, customer base and average-order-size. All of our
products have golf-themes and are color-related. Our labels are generally
featured prominently on our products and displays to help build brand loyalty.
Our products are directed at sports-minded professional men and woman who like
casual, high-quality and distinctively styled apparel that reflects an active
lifestyle. We expect our product lines to appeal to both golfers and others who
identify with an active lifestyle.
We currently advertise in national and regional trade magazines and
participate in various trade shows. Our products are also marketed on the World
Wide Web at http://www.avidsportswear.com, where we provide information and
pictures of products. Our promotional program offers point-of-sale displays
maintained by our sales staff and independent sales representatives. This
in-store fixturing program helps to showcase these collections and enhances our
brand image at the point of sale. The fixtures are designed to display assorted
elements of our collections and allow the consumer to easily assemble and
purchase coordinated outfits.
Our merchandise is sold and shipped to customers in collection groups. We
believe this will help to reinforce the strength of our product offerings.
For specialty items, have developed an in-house embroidery service and
also work with independent embroiderers to embroider the customer's name or logo
on our garments.
ORDER BOOKING CYCLE AND BACKLOG
We receive our orders for a season over a ten month period beginning when
samples are first shown to customers and continuing into the season. We begin to
take orders for our fall collections in January, generally for delivery between
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May and October and for our spring collection in August, generally for delivery
between November and April. Our domestic backlog, which consists of open,
unfilled customer orders, has not historically comprised a significant part of
our business. We expect our domestic backlog to become significant in the future
with the appeal of the Dockers Golf and British Open Collection labels.
INTELLECTUAL PROPERTY
We are attempting to build a brand name in the golf apparel industry. To
that end, we have received trademark protection in the United States for the
"Avid" and "Avid Sportswear" names and logos. We are evaluating whether to apply
for trademark protection in other countries. Our name and logo are regarded as
valuable assets and critical to marketing our products.
The names and logos associated with the "British Open Collection" and
"Dockers Golf" are licensed from their respective owners.
EMPLOYEES
We have a total of 55 full-time employees in the United States. Of the
total number of full-time employees, 5 work in marketing and sales, 25 in
embroidery and sewing, 10 work in warehousing and delivery and 15 work in
administrative and other support positions. We also contract with 22 independent
sales representatives. None of our employees is a member of a union. We consider
our relations with our employees to be good.
FACILITIES
Our corporate headquarters are located at 22 South Links Avenue, Suite
204, Sarasota, Florida 34236. The telephone number is (941) 330-8051. Our
corporate headquarters occupies about 2,017 square feet pursuant to a five year
lease which will expire on June 30, 2004. Most of our operations are conducted
from a 39,640 square foot production and warehouse facility in Gardena,
California leased by our wholly-owned subsidiary. This lease has a five year
term, expiring on March 31, 2004. Mr. Ingarfield has personally guaranteed these
lease obligations. We believe our existing facilities will be adequate for the
foreseeable future.
CHANGE OF CONTROL
As mentioned earlier in this filing, we were formed on September 19, 1997
in Nevada. On or about June 4, 1998, Lido Capital Corporation, an entity
wholly-owned by our President, purchased 3,000,000 shares of common stock
(adjusted for a 3 for 1 stock split) for $150,000 from our founding
shareholders, Thomas Gelfand, Robert Gelfand and Jin Sook Lee. At the time of
the purchase, the Company had 6,300,000 shares of common stock outstanding
(adjusted for a 3 for 1 stock split). As a result, Lido Capital Corporation
obtained a controlling interest in the Company, having acquired 47.6% of its
outstanding capital stock. Lido Capital Corporation currently owns 40.0% of the
Company's outstanding capital stock.
CERTAIN BUSINESS RISK FACTORS
Our Company is subject to various risks which may materially harm our
business, financial condition and results of operations. YOU SHOULD CAREFULLY
CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION
IN THIS FILING BEFORE DECIDING TO PURCHASE OUR COMMON STOCK. THESE ARE NOT THE
ONLY RISKS AND UNCERTAINTIES THAT WE FACE. IF ANY OF THESE RISKS OR
UNCERTAINTIES ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING
RESULTS COULD BE MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF OUR
COMMON STOCK COULD DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
WE HAVE HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE IN THE FUTURE
We have historically lost money. In the years ended December 31, 1998 and
December 31, 1997, we sustained losses of $241,548 and $5,609, respectively.
These losses exclude the operating results of our wholly-owned subsidiary
because it was not acquired until March 1, 1999. Assuming the purchase of our
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wholly-owned subsidiary had occurred on January 1, 1998 instead of on March 1,
1999, we would have sustained losses of $1,163,341 in 1998. For the nine months
ended September 30, 1999 (which includes the operating results of our
wholly-owned subsidiary), we sustained losses of $2,425,565. Future losses are
likely to occur. Our independent auditors have noted that our Company does not
have significant cash or other material assets to cover its operating costs and
to allow it to continue as a going concern. Our ability to obtain additional
funding will determine our ability to continue as a going concern. Accordingly,
we may experience significant liquidity and cash flow problems if we are not
able to raise additional capital as needed and on acceptable terms. No
assurances can be given that we will be successful in reaching or maintaining
profitable operations.
WE RELY ON EXTERNAL CAPITAL TO FINANCE OPERATIONS
We rely on significant external financing to fund our operations. Such
financing has historically come from a combination of borrowings and sale of
common stock. We will continue to depend on external financing for the
foreseeable future. We will need to raise additional capital to fund future
expansion. Among other things, external financing will be required to cover our
operating costs and to fulfill our obligations under the licenses for the
"Dockers Golf" and "British Open Collection" brands. These licenses require the
payment of minimum guaranteed royalties, whether we sell licensed products or
not. We cannot assure you that external financing will be available when needed
or on favorable terms. We do not have a formal commitment for additional capital
and we cannot assure you that any such capital will be forthcoming. The sale of
our common stock to raise capital may cause dilution to our existing
shareholders. Our inability to obtain adequate financing will result in the need
to curtail business operations, and may also jeopardize our ability to satisfy
the guaranteed minimum royalty obligations referred to above. Such an event may
result in the termination of our licenses. Any of these events would be
materially harmful to our business.
WE HAVE BEEN IN BUSINESS FOR A SHORT PERIOD OF TIME
Because we have been in business for a short period of time, there is
limited information upon which investors can evaluate our business. We were
formed on September 19, 1997 but did not begin significant operations until the
purchase of our wholly-owned subsidiary on March 1, 1999. You should consider
the likelihood of our future success to be highly speculative in view of our
limited operating history, as well as the complications frequently encountered
by other companies in the early stages of development, particularly companies in
the highly competitive sports apparel industry.
RELIANCE ON RELATED PARTIES FOR FINANCING
The Company has historically relied on funding provided by certain
officers and directors. See "Certain Relationships and Related Transactions." No
assurance can be given that these officers and directors will fund the Company's
operations in the future, as these related parties have no legal obligation to
provide such funding. Until the Company's operations become self-sufficient, if
at all, or the Company obtains sufficient capital from other sources, the
decision by these officers and directors to stop funding the Company in the
future will have a material adverse effect on the Company's business, financial
condition and results of operation.
OUR PLANNED PURSUIT OF ACQUISITIONS INVOLVES RISKS THAT MAY ADVERSELY
AFFECT OUR OPERATING RESULTS AND FINANCIAL CONDITION
As part of our growth strategy, we plan to pursue acquisitions. Candidates
for acquisition include businesses that are anticipated to allow us to:
o Achieve economies of scale in terms of purchasing, distribution and
profitability;
o Enhance our name recognition and reputation;
o Obtain rights to well-recognized brand names;
o Fill a perceived market niche; or
o Acquire products offering new price points.
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If we are not correct when we assess the value, strength, weaknesses,
liabilities and potential profitability of acquisition candidates or we are not
successful in integrating the operations of the acquired businesses, our results
of operations or financial position could be adversely effected and we could
lose money. We also may not be successful in finding desirable acquisition
candidates or completing acquisitions with candidates that we identify. Future
acquisitions that we finance through issuing equity securities could be dilutive
to existing shareholders. In addition, future acquisitions may require
additional capital and the consent of our lenders. There can be no assurances
that our lenders will consent to any capital raising or acquisitions.
WE MAY BE UNABLE TO MANAGE GROWTH
Successful implementation of our business strategy requires us to manage
our growth. Growth could place an increasing strain on our management and
financial resources. To manage growth effectively, we will need to:
o Implement changes in certain aspects of our business;
o Enhance our information systems and operations to respond to
increased demand;
o Attract and retain qualified personnel; and
o Develop, train and manage an increasing number of management-level
and other employees.
If we fail to manage our growth effectively, our business, financial
condition or operating results could be materially harmed.
WE RELY ON CONTRACTORS FOR OUR PRODUCTION
All of our production is outsourced to independent contractors. We do not
have long-term agreements with contractors. Our contractors are concentrated
over a small number of companies. This concentration could materially harm our
business if the contractors had an interruption of business or were unable or
unwilling to meet our production needs. We would experience significant delays
in shifting our production needs to other contractors because of complex
fabrication, unique trims and extensive detailing of our products. Delays in
production, inconsistent or inferior garment quality and other factors beyond
our control would materially harm our relationship with customers, our
reputation in the industry, our sales and profitability and our relationship
with licensors.
WE RELY ON FOREIGN SUPPLIERS AND BUY MANY PRODUCTS USING LETTERS OF CREDIT
We obtain all of our garments from independent foreign and domestic
suppliers. We do not have formal agreements with these suppliers. Our reliance
on foreign suppliers may be effected by economic, political, governmental and
labor conditions in such foreign countries. This may delay or cut-off our
ability to source materials needed in production or may increase the price of
such materials. Such events would harm our business. In addition, several of our
suppliers have required the Company to obtain a letter of credit prior to
purchasing any garments. The Company may have to utilize a significant portion
of its available working capital to secure these letters of credit.
WE MAY BE HARMED BY IMPORT RESTRICTIONS
Our imported materials are subject to certain quota restrictions and U.S.
customs duties, which are a material part of our cost of goods. A decrease in
quota restrictions or an increase in customs duties could harm our business by
making needed materials scarce or by increasing the cost of such materials.
OUR COMMON STOCK IS NO LONGER QUOTED ON THE OTC BULLETIN BOARD
Our common stock has historically been quoted on the OTC Bulletin Board
under the symbol "AVSG." Our common stock was no longer eligible for such
quotation as of December 2, 1999 because the Company's Form 10-SB had not been
declared effective by the Securities and Exchange Commission by such date. Our
common stock is currently quoted on the "pink sheets" and we anticipate that our
common stock will be quoted again on the OTC Bulletin Board if this Form 10-SB
becomes effective.
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NO SALES OF RESTRICTED STOCK FOR 90 DAYS
Much of our outstanding common stock constitutes "restricted securities"
under Rule 144 promulgated under the Securities Act of 1933, as amended (the
"1933 ACT"). Restricted securities are securities acquired from an issuer or an
affiliate of an issuer in a transaction not involving a public offering (i.e., a
private placement). Such securities may be sold in accordance with Rule 144.
Upon the effective date of this filing, our Company will become a "reporting"
company and will be required to file periodic reports with the Securities and
Exchange Commission. Pursuant to Rule 144, a reporting company must be subject
to the reporting requirements for a period of at least 90 days immediately prior
to a sale of restricted securities. As such, holders of restricted securities
will not be able to rely on Rule 144 to sell restricted securities for a 90 day
period immediately following the effective date of this filing. As a result,
holders of restricted securities will not be able to sell such securities during
the 90 day period. Even after the expiration of this 90 day period, holders of
restricted securities must, prior to selling such securities, present the
Company with a legal opinion in satisfactory form stating that such securities
may be sold in reliance on Rule 144.
OUR COMMON STOCK IS SUBJECT TO SIGNIFICANT PRICE VOLATILITY
Our common stock has experienced, and is likely to experience in the
future, significant price and volume fluctuations which could adversely affect
the market price of our common stock without regard to our operating
performance. In addition, we believe that factors such as quarterly fluctuations
in our financial results, announcements by other designers and marketers of
men's and women's sportswear, and changes in the overall economy or the
condition of the financial markets could cause the price of our common stock to
fluctuate substantially.
OUR COMMON STOCK MAY BE DEEMED TO BE "PENNY STOCK"
Our common stock may be deemed to be "penny stock" as that term is defined
in Rule 3a51-1 promulgated under the Securities Exchange Act of 1934, as amended
(the "1934 ACT"). Penny stocks are stock:
o With a price of less than $5.00 per share;
o That are not traded on a "recognized" national exchange;
o Whose prices are not quoted on the Nasdaq automated quotation system
(Nasdaq listed stock must still have a price of not less than $5.00
per share); or
o In issuers with net tangible assets less than $2.0 million (if the
issuer has been in continuous operation for at least three years) or
$5.0 million (if in continuous operation for less than three years),
or with average revenues of less than $6.0 million for the last
three years.
Section 15(g) of the 1934 Act and Rule 15g-2 promulgated under the 1934
Act require broker/dealers dealing in penny stocks to provide potential
investors with a document disclosing the risks of penny stocks and to obtain a
manually signed and dated written receipt of the document before effecting any
transaction in a penny stock for the investor's account. Potential investors in
our common stock are urged to obtain and read such disclosure carefully before
purchasing any shares that are deemed to be "penny stock." Moreover, Rule 15g-9
promulgated under the 1934 Act requires broker/dealers in penny stocks to
approve the account of any investor for transactions in such stocks before
selling any penny stock to that investor. This procedure requires the
broker/dealer to:
o Obtain from the investor information concerning his or her financial
situation, investment experience and investment objectives;
o Reasonably determine, based on that information, that transactions
in penny stocks are suitable for the investor and that the investor
has sufficient knowledge and experience as to be reasonably capable
of evaluating the risks of penny stock transactions;
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<PAGE>
o Deliver to the investor a written statement setting forth the basis
on which the broker or dealer made the determination required in the
second item above; and
o Receive a signed and dated copy of such statement from the investor,
confirming that it accurately reflects the investor's financial
situation, investment experience and investment objectives.
Compliance with these requirements may make it more difficult for
investors in our common stock to resell shares to third parties or to otherwise
dispose of them.
OUR BUSINESS IS SEASONAL
Our business has been, and will continue to be, highly seasonal, and our
quarterly operating results will fluctuate due to the seasonality of our sales
of sportswear, among other things. Our sales tend to be highest during our first
and second calendar quarters, and lowest during our third and fourth calendar
quarters. Other factors contributing to the variability of our operating results
include:
o Seasonal fluctuation in consumer demand;
o The timing and amount of orders from key customers; and
o The timing and magnitude of sales of seasonal remainder merchandise
and availability of products.
As a result of these and other factors, our operating results may fall
below market analysts' expectations in some future quarters, which could
materially harm the market price of our common stock.
OUR OFFICERS AND DIRECTORS CONTROL A LARGE BLOCK OF STOCK
Our executive officers and directors beneficially own approximately 57.9%
of our outstanding common stock. As a result, these shareholders acting together
would be able to exert significant influence over most matters requiring
shareholder approval, including the election of directors. They would also be
able to delay or deter a change in control.
WE DEPEND UPON KEY PERSONNEL
Our success largely depends on the efforts and abilities of key executives
and consultants, including Earl T. Ingarfield, our Chairman and Chief Executive
Officer, Jerry L. Busiere, our Secretary, Treasurer and a Director, and Barnum
Mow, Chief Executive Officer and President of our wholly-owned subsidiary, and a
Director of the Company. The loss of the services of any of these people could
materially harm our business. We do not have employment agreements with Mr.
Ingarfield or Mr. Busiere. We have entered into three year employment agreement
with Mr. Mow. We do not maintain key-man life insurance policies on any of these
people.
THE YEAR 2000 MAY RESULT IN UNFORESEEN PROBLEMS FOR OUR BUSINESS
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the Year 2000. If not corrected in our
computer applications or those of our suppliers and customers, this problem may
cause computer applications to fail or to create erroneous results by or at the
Year 2000. We expect to complete both our internal and external Year 2000
compliance assessment by December 31, 1999. We do not believe that the cost of
preparing for Year 2000 compliance will exceed $5,000, although we could face
additional expenses to fix any Year 2000 problems if our estimates are
incorrect. In addition, utility companies, third party service providers and
others outside our control may not be Year 2000 compliant. This could result in
a systematic failure beyond our control. Finally, our suppliers may face
difficulties due to the non-compliance of their systems or those of their third
party providers. This could result in our inability to obtain our products in a
timely manner. If we encounter difficulties obtaining our products, our business
could be materially harmed.
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<PAGE>
WE FACE RISKS RELATED TO COLLECTION OF RECEIVABLES
We extend credit to our customers based on an assessment of their
financial circumstances, generally without requiring collateral. Our business is
seasonal and we may, in the future, offer customer discounts for placing
pre-season orders and extended payment terms for taking delivery before the peak
shipping season. Any such extended payment terms increase our exposure to the
risk of uncollectible receivables. Some of our customers have experienced
financial difficulties in the past, and future financial difficulties of
customers could materially harm our business. We have a limited amount of
experience in managing our credit and collection operations. Our inability to
properly manage this credit risk could materially harm our business.
WE COULD FAIL TO ANTICIPATE CHANGES IN FASHION TRENDS
Fashion trends can change rapidly, and our business is particularly
sensitive to such changes because we typically design and arrange for the
manufacture of our apparel substantially in advance of sales of our products to
consumers. We cannot assure you that we will accurately anticipate shifts in
fashion trends, or in the popularity of golf, and adjust our merchandise mix to
appeal to changing consumer tastes in apparel in a timely manner. If we misjudge
the market for our products or are unsuccessful in responding to changes in
fashion trends or in market demand, we could experience insufficient or excess
inventory levels, missed market opportunities or higher markdowns, any of which
could substantially harm our business and our brand image.
WE FACE SUBSTANTIAL COMPETITION IN OUR BUSINESS
The sportswear and outerwear segments of the apparel industry are highly
competitive. Competition is based primarily on brand recognition, product
differentiation and quality, style and production flexibility. Our future growth
and financial success depend on our ability to further penetrate and expand our
distribution channels, including golf, corporate, international and retail
sales. We encounter substantial competition in the golf distribution channel
from Polo/Ralph Lauren, Cutter & Buck, Ashworth, Antiqua and Izod. Many of our
competitors are significantly larger and more diversified than we are and have
substantially greater resources available for developing and marketing their
products. Many of our competitors' brands also have greater name recognition
than our brands. In addition, our competitors may be able to enter the emerging
e-commerce marketplace more quickly or more efficiently than us. We cannot
assure you that we will successfully compete in this industry.
THE APPAREL INDUSTRY IS SENSITIVE TO ECONOMIC CONDITIONS
The apparel industry historically has been subject to substantial cyclical
variations. Any downturn, whether real or perceived, in economic conditions or
prospects could change consumer spending habits and materially harm our
business. During the past several years, various specialty retailers, including
some of our customers, have experienced financial problems which impact the size
of our prospective customer base and increase the risk of extending credit to
those retailers.
WE DO NOT PAY DIVIDENDS
We have never declared or paid any dividends on our common stock. We
intend to retain any future earnings for funding growth and, therefore, do not
expect to pay any cash dividends for the foreseeable future.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
THE FOLLOWING INFORMATION SHOULD BE READ IN CONJUNCTION WITH THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY AND THE NOTES THERETO APPEARING
ELSEWHERE IN THIS FILING.
OVERVIEW
Through our wholly-owned subsidiary, we design, manufacture and market
distinctive premium and moderately-priced sportswear. We sell our products
primarily through golf pro shops and resorts, corporate sales accounts and
better specialty stores. Our sportswear is marketed under three distinct labels:
Avid Sportswear, British Open Collection and Dockers Golf. From our
incorporation on September 19, 1997 until March 1, 1999, we had no operations.
On March 1, 1999, we acquired Avid Sportswear, Inc., which has been in the
business of designing, manufacturing and marketing golf apparel since October 6,
1988. For accounting purposes, the acquisition was treated as a purchase of Avid
Sportswear, Inc. All of our business operations are conducted through Avid
Sportswear, Inc.
The following financial statements of the Company are included in this
filing:
o Audited balance sheet as of December 31, 1998 and audited statements
of income, cash flows and changes in stockholders' equity for the
years' ended December 31, 1998 and 1997; and
o Unaudited balance sheet as of September 30, 1999 and unaudited
statements of income, cash flows and changes in stockholders' equity
for the nine-month period ended September 30, 1999.
The Company's unaudited financial statements for the nine-month period
ended September 30, 1999 include the results of Avid Sportswear, Inc. since
March 1, 1999.
The following financial statements of Avid Sportswear, Inc. are
included in this filing:
o Audited balance sheet as of December 31, 1998 and audited statements
of income, cash flows, and changes in stockholders' equity for the
years ended December 31, 1998 and 1997.
Note 10 of Avid Sportswear, Inc.'s audited financial statements includes
an unaudited consolidated pro forma balance sheet as of December 31, 1998 and an
unaudited consolidated pro forma statement of income for the year ended December
31, 1998. These pro forma financial statements assume for comparison purposes
that the Company had acquired Avid Sportswear, Inc. on January 1, 1998 instead
of March 1, 1999.
Because the Company did not have revenues from operations in each of 1998
and 1997, or 1998 and the nine-month period ended September 30, 1999, we are
required to report our plan of operation.
PLAN OF OPERATIONS
ADDITIONAL FUND RAISING ACTIVITIES. As of September 30, 1999, we had no
cash-on-hand. Since that time, we have funded our operations through a
combination of internally generated cash, drawing down on the line of credit
with First State Bank and funds loaned to the Company by certain of its officers
and directors. See "Certain Relationships and Related Parties." On November 19,
1999, we replaced our existing $500,000 loan with First State Bank with a new
$1,000,000 loan. This revolving line of credit is secured by substantially all
of our assets. If the Company's business does not expand as anticipated, these
funds are expected to last for approximately seven months. We will need to raise
additional funds to meet expected demand for our products in next year's
fall/winter season and beyond. Expenses are anticipated to increase in
preparation of the upcoming season due to, among other things, the addition of
the Dockers Golf and British Open Collection labels. If we underestimate demand
or incur unforeseen expenses in our product design or other areas, such funds
may be required earlier. We expect to raise additional funding from the sale of
unregistered securities. We have had discussions with a registered broker-dealer
about acting as a placement agent in a private placement transaction. The terms
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of such an offering have not been finalized with such broker-dealer. We hope to
raise at least $4.0 million in such a transaction, although no assurances can be
given that we will be successful in so doing or that the terms of such an
offering will not be dilutive to existing shareholders.
SUMMARY OF ANTICIPATED PRODUCT DEVELOPMENT. We expect to spend
approximately $350,000 on product development in each of 1999 and 2000 in
preparing for future seasons and in designing products for the Dockers Golf and
British Open Collection labels. Because these product development efforts are in
their infancy, having obtained the licenses in 1999, we expect these efforts to
continue into the foreseeable future. Initially, these efforts are expected to
focus on golf-related apparel and may eventually include other types of apparel.
Even after our product lines mature, we expect product development to remain a
significant expense due to changing fashions and other factors. We expect a
national roll-out of our Dockers Golf and British Open Collection labels in the
Fall of 2000.
SIGNIFICANT PLANT AND EQUIPMENT PURCHASES.
In 2000, we expect to purchase computer hardware and software, telephone
and embroidery equipment. We estimate that the cost of this equipment to be
approximately $725,000.
CHANGES IN NUMBER OF EMPLOYEES. We currently have 55 employees. As shown
in the following chart, we anticipate hiring additional personnel during 2000 in
connection with our expected growth plans. We believe that these personnel will
be adequate to accomplish the tasks set forth in the plan.
EXISTING PROJECTED
EMPLOYEES EMPLOYEES
DEPARTMENT 1999 2000
---------- ---- ----
Marketing and Sales 5 7
Embroidery and Sewing 25 26
Warehousing and Delivery 10 27
Administrative and other
Support Positions 15 23
-------- --------
Total Employees 55 83
-------- --------
Independent Contractors - 22 26
Sales
-------- --------
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the percentage
of net sales represented by certain items in the Company's Statement of
Operations for the nine months ended September 30, 1999 and in Avid Sportswear,
Inc.'s Statements of Operations for the years ended December 31, 1998 and 1997:
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PERCENTAGE OF NET SALES
COMPANY AVID SPORTSWEAR, AVID SPORTSWEAR,
INC. INC.
NINE MONTHS
ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1999 DEC. 31, 1998 DEC. 31, 1997
-------------- ------------- -------------
Sales, net 100.0% 100.0% 100.0%
Cost of goods (69.4%) (72.0%) (69.0%)
sold
------- ------- -------
Gross margin 30.6% 28.0% 31.0%
------- ------- -------
Operating (135.4%) (43.8%) (44.4%)
expenses
------- ------- -------
(Loss) Income
from (101.9%) (15.8%) (13.3%)
operations
Interest expense (1.7%) (3.6%) (3.7%)
------- ------- -------
Net loss (103.6%) (20.0%) (18.3%)
------- ------- -------
Our results of operations for the nine-month period ended September 30,
1999 include both the Company and Avid Sportswear, Inc. Our operating expenses
in this period were 135.4% of net sales. This was primarily attributable to the
issuance of 1,500,000 shares of common stock to Lido Capital Corporation, an
entity wholly-owned by Earl Ingarfield, President and Chairman of the Company,
1,000,000 shares of common stock to Thomas Browning, a director of the Company,
and 1,000,000 shares of common stock to Michael LaValliere, a director of the
Company. These shares were issued in exchange for guaranteeing a loan owed by
the Company to an institutional lender. We could not have obtained this loan
without the guarantees of Messrs. Ingarfield, Browning and LaValliere. The
issuance of these 3,500,000 shares of common stock, together with the issuance
of 1,600,000 shares of common stock to two other shareholders of the Company for
guaranteeing the same loan, resulted in an operating expense of $1,275,000.
SEASONALITY
Our business has been, and will continue to be, highly seasonal, and our
quarterly operating results will fluctuate due to the seasonality of our sales
of sportswear, among other things. Our sales tend to be highest during our first
and second calendar quarters, and lowest during our third and fourth calendar
quarters. Other factors contributing to the variability of our operating results
include:
o Seasonal fluctuation in consumer demand;
o The timing and amount of orders from key customers; and
o The timing and magnitude of sales of seasonal remainder merchandise
and availability of products.
As a result of these and other factors, our operating results may fall
below market analysts' expectations in some future quarters, which could
materially harm the market price of our common stock.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, we had $154,237 in cash-on-hand, consisting
mainly of the net proceeds form the sale of securities. We used all of these
funds during the nine-month period ended September 30, 1999. As a result, we had
no cash-on-hand on September 30, 1999. A discussion of how we generated and used
cash in the period follows:
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OPERATING ACTIVITIES. Our operating activities used $650,092 in cash
during the period, consisting mainly of a net loss of $2,425,656. Of that net
loss, $1,275,000 was a non-cash operating expense attributable to the issuance
of common stock in exchange for guarantees.
INVESTING ACTIVITIES. Our investing activities used $365,977 in cash
during the period, consisting mainly of sewing, folding and steam machines and
embroidery equipment.
FINANCING ACTIVITIES. Financing activities provided net cash of $861,832,
generated mainly by the sale of common stock in the amount of $1,859,576, the
receipt of a related party receivable of $352,300 and the receipt of loan
proceeds of $1,340,735. These loan proceeds consisted primarily of a $500,000
revolving line of credit from an institutional lender, a convertible note of
$375,000 and term loans of $230,000 from Messrs. Ingarfield, Browning and
LaValliere This cash received during the period was partially offset by the cash
used to purchase Avid Sportswear, Inc. The purchase price consisted of $725,000
paid to the former shareholders of Avid Sportswear and $1,826,111 paid to
satisfy certain liabilities of Avid Sportswear, Inc.
Since September 30, 1999, we have funded our operations through a
combination of internally generated cash, drawing down on the line of credit
with First State Bank and loans from certain of the Company's officers and
directors. On November 19, 1999, we replaced our existing $500,000 loan with
First State Bank with a new $1,000,000 loan. This loan is secured by
substantially all of our assets. If the Company's business does not expand as
anticipated, then these funds are expected to last for approximately seven
months. We will need to raise additional funds to meet expected demand for our
products in next year's fall/winter season and beyond. Expenses are anticipated
to increase in preparation of the upcoming season due to, among other things,
the addition of the Dockers Golf and British Open Collection labels. Our need
for funding will increase likewise. If we underestimate demand or incur
unforeseen expenses in our product design or other areas, such funds may be
required earlier. We expect to raise additional funding from the sale of
unregistered securities. We have had discussions with a registered broker-dealer
about acting as a placement agent in a private placement transaction. The terms
of such an offering have not been finalized with such broker-dealer. We hope to
raise up to $4.0 million in such a transaction, although no assurances can be
given that we will be successful in so doing or that the terms of such an
offering will not be dilutive to existing shareholders.
GOING CONCERN OPINION
Our independent auditors have added an explanatory paragraph to their
audit opinions issued in connection with the 1998 and 1997 financial statements
which states that our Company does not have significant cash or other material
assets to cover its operating costs and to allow it to continue as a going
concern. Our ability to obtain additional funding will determine our ability to
continue as a going concern. Our financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
YEAR 2000 ISSUES
Many currently installed computer systems, software packages and
microprocessor dependent equipment are coded to accept only two-digit entries in
a date code field and cannot reliably distinguish dates into the Year 2000 and
beyond. We may realize exposure and risk if the systems upon which we are
dependent do not correctly process dates beginning in 2000. Our potential areas
of exposure include electronic data exchange systems operated by third parties
with which we transact business, and computers, software, telephone systems and
other equipment purchased from third parties and used internally.
We expect to complete both our internal and external Year 2000 compliance
assessment by December 31, 1999. In addition, utility companies, third party
service providers and others outside our control may not be Year 2000 compliant.
This could result in a systematic failure beyond our control. Finally, our
suppliers may face difficulties due to the non-compliance of their systems or
those of their third party providers. This could result in our inability to
obtain our products in a timely manner. If we encounter difficulties obtaining
our products, our business could be materially harmed. In an attempt to evaluate
our exposure to Year 2000 problems, we have been communicating with the
suppliers and others with whom we do business to assess their Year 2000
readiness. The responses we have received to date generally have indicated that
steps are currently being undertaken by the respondents to address this concern.
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However, if such third parties are not able to make all systems Year 2000
compliant, there could be a material adverse impact on our business and
financial condition.
We do not believe that the cost of preparing for Year 2000 compliance will
exceed $5,000, although we could face additional expenses to fix any Year 2000
problems if our estimates are incorrect. Anticipated costs associated with our
Year 2000 compliance program do not include time costs that may be incurred as a
result of any potential failure of third parties to become Year 2000 compliant
or cost to implement our contingency plans.
ITEM 3. DESCRIPTION OF PROPERTY.
Our corporate headquarters are located at 22 South Links Avenue, Suite
204, Sarasota, Florida 34236. Our corporate headquarters occupies about 2,017
square feet pursuant to a five year lease which will expire on June 30, 2004.
Most of our operations are conducted from a 39,640 square foot production and
warehouse facility in Gardena, California leased by our wholly-owned subsidiary.
This lease has a five year term, expiring on March 31, 2004. We believe our
existing facilities will be adequate for the foreseeable future.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth as of November 1, 1999, the names,
addresses and stock ownership in the Company for the current directors and named
executive officers of the Company and every person known to the Company to own
five percent (5%) or more of the issued and outstanding shares of the common
stock:
<TABLE>
<CAPTION>
SHARES PERCENTAGE
TITLE OF CLASS: NAME AND ADDRESS OF BENEFICIARY OF
BENEFICIAL OWNER: OWNED: CLASS(1):
<S> <C> <C> <C>
Common Lido Capital Corporation(2) 10,500,000 40.0%
22 South Links Avenue, Suite 204
Sarasota, Florida 34236
Common Jerry L. Busiere 100,000 0.4%
22 South Links Avenue, Suite 204
Sarasota, Florida 34236
Common Thomas L. Browning 1,800,000 6.9%
22 South Links Avenue, Suite 204
Sarasota, Florida 34236
Common Michael LaValliere 1,800,000 6.9%
22 South Links Avenue, Suite 204
Sarasota, Florida 34236
Common David Roderick 1,000,000 3.8%
22 South Links Avenue, Suite 204
Sarasota, Florida 34236
Common Barnum Mow 0 0.0%
22 South Links Avenue, Suite 204
Sarasota, Florida 34236
All Officers and Directors as a Group(3) 15,200,000 57.9%
- ----------------------
</TABLE>
(1) Based on the number of shares of common stock outstanding as of
November 1, 1999. On such date, we had 26,244,108 shares of common stock
outstanding, and we had no outstanding options or other securities convertible
into shares of common stock.
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(2) Earl T. Ingarfield, our Chairman, Chief Executive Officer and
President, is the sole owner, officer and director of Lido Capital Corporation.
As a result, Mr. Ingarfield has the sole ability to vote the shares of our
common stock held by Lido Capital Corporation. All of the shares of common stock
of Lido Capital Corporation are deemed to be beneficially owned by Mr.
Ingarfield. Of that total, 9,000,000 shares have been pledged by Lido Capital
Corporation to lenders to secure the Company's indebtedness.
(3) Includes the shares held by Lido Capital Corporation because such
shares are controlled by Mr. Ingarfield.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Information concerning our current executive officers and directors is set
forth in the following table:
NAME: AGE: POSITION:
Earl T. Ingarfield 40 President, Chief Executive Officer and
Director
Jerry L. Busiere 65 Secretary, Treasurer and Director
Michael E. LaValliere 39 Director
Thomas L. Browning 39 Director
Barnum Mow 43 Director and Chief Executive Officer and
President of Avid Sportswear, Inc.
David Roderick 47 Vice-President of Production and Design of
Avid Sportswear, Inc.
EARL T. INGARFIELD has been a the Chief Executive Officer, President and a
Director since June 1998. Since June 30, 1995, Mr. Ingarfield has also been the
owner of Lido Capital Corporation, a privately-held company in Sarasota,
Florida, and a principal shareholder of the Company. From 1979 to 1987, he was a
professional hockey player for the Atlanta Flames, Calgary Flames and Detroit
Red Wings. For many years, he has also been involved in Indy-car racing,
offshore boat racing and is an avid golfer.
JERRY L. BUSIERE has been the Secretary, Treasurer and a Director since
June 1998. Mr. Busiere has over forty-one years of experience in accounting and
taxation. From 1997 to July 1998, he was Controller of Lido Capital Corporation,
a privately-held company owned by Mr. Ingarfield. From 1989 to 1995, he was a
Senior Rate Analyst and Chief Financial Officer of Poly-Portables, Inc., a
Georgia-based manufacturing company. From 1962 to 1988, he owned his own
accounting practice. He has served as a consultant for numerous companies, such
as Wellcraft Boat Manufacturing, Englewood Disposal Service, Poly-Portables,
Inc., Colony Beach Resort, Buccaneer Inn and Far Horizon Resorts. He received an
A.S. Degree in 1973 from the University of South Florida in Sarasota, Florida.
MICHAEL E. LAVALLIERE has been a Director of the Company since June, 1998.
Since 1996, he has also been President and CEO of Collaborative Marketing
Services, Inc. ("CMS"), a leader in the marketing and distribution of kiosk
advertising programs and point of sale machines in a broad range of
applications. Under Mr. LaValliere's leadership, CMS has become an industry
leader in the area of web page design activities for the Internet. From 1993 to
1996, he served as Vice President of Sales and Marketing for Interactive Golf
Services, Inc. ("IGSI"), a company which provided touch screen kiosks to the
golf market. Under Mr. LaValliere's direction, IGSI developed a client base
which included Maxfli Golf Co., Taylor Made Golf Co. and Cleveland Golf Co. From
1981 to 1995, he was a professional baseball player for fourteen years as a
member of the Philadelphia Phillies (1981-1984), St. Louis Cardinals
(1985-1986), Pittsburgh Pirates (1987-1992) and Chicago White Sox (1993-1995).
While a member of the Pirates and White Sox, he was elected to serve as the
player union representative with negotiation responsibilities in the area of
labor contracts, pension plans, player marketing rights and licensing
agreements.
THOMAS L. BROWNING has been a Director of the Company since June, 1998.
From 1992 to 1996, he was a member of the Cincinnati Reds Major League Baseball
team. Since retiring from professional baseball, Mr. Browning has been a General
Partner of Ashley Canterbury, a residential construction company in the greater
Cincinnati area, and also serves an active role in community youth programs and
the United Way. He graduated from Tennessee Wesleyan College in 1982 with a B.A.
Degree in Business Management and Economics.
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BARNUM MOW has been Chief Executive Officer and President of Avid
Sportswear, Inc. since September, 1999. From 1983 until September 1999, Mr. Mow
was Senior Vice President of Bugle Boy Industries, a wholesale and retail
apparel company with combined annual sales of $550,000,000. Over a sixteen year
period of progressive management responsibility, Mr. Mow became responsible for
Bugle Boy's operations, distributions, sales, and management information
systems. Most recently, he led a management team, comprised for four
vice-presidents and four directors, which was responsible for over nine hundred
employees and a $40,000,000 annual operating budget. Mr. Mow managed four
distribution sites, totaling over one million square feet in size and which
supported two thousand five hundred wholesale accounts and two hundred sixty
retail stores; the integration of software development with hardware platforms
used to support Bugle Boy's activities; and Bugle Boy's website, intranet,
telecommunications, video conferencing, and Internet e-commerce. He was fully
responsible for costing, merchandising, product development, production, and
bringing to market four different line breaks per year. Mr. Mow was also the
National Sales Manager for Bugle Boy Active Wear, Swim Wear and T-shirts, which
accounted for $70,000,000 in annual sales. Mr. Mow received a B.S. in Business
Administration from the University of Southern California.
DAVID RODERICK had been a Director of the Company from March 1, 1999 to
November 26, 1999 and Vice-President of Production and Sales of our wholly-owned
subsidiary since September, 1999. In this capacity, Mr. Roderick is primarily
responsible for the Company's three brands: Avid Sportswear, Dockers Golf and
British Open Collection. Mr. Roderick founded Avid Sportswear, Inc. in October
of 1988. He served as President of Avid Sportswear, Inc. until September, 1999,
during which time he was responsible for the product and brand development of
the Avid Sportswear brand name.
19
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE. The following table provides information about
the compensation paid by the Company to its Chief Executive Officer and all
other current executive officers who were serving as executive officers at the
end of 1998 and who received in excess of $100,000:
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------------------
OTHER SECURITIES ALL
ANNUAL UNDERLYING OTHER
NAME AND PRINCIPAL YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
POSITION(S) ($) ($) ($) (#S)(1) ($)(2)
- ------------------ ---- ------ ----- ------------ --------- ------------
Earl T. Ingarfield(1) 1998 -- -- -- -- --
Chief Executive
Officer, Present
and Chairman of the
Board of Directors
Jerry L. Busiere(2) 1998 -- -- -- -- --
Secretary,
Treasurer and
Director
Steven Crowell(3) 1998 $64,704 -- -- -- --
David Roderick, 1998 $150,000 -- $12,000 -- --
President of Avid
Sportswear, Inc.
- ---------------------
(1) Mr. Ingarfield became Chief Executive Officer, President and
Chairman of the Board of Directors in June, 1998.
(2) Mr. Busiere became Secretary, Treasurer and a Director in June,
1998.
(3) Mr. Crowell was an independent contractor who served in a policy
making function during 1998.
EMPLOYMENT AGREEMENTS
We have not entered into employment agreements with Messrs. Ingarfield or
Busiere.
Our wholly-owned subsidiary entered into a three year employment agreement
with Barnum Mow, commencing September 17, 1999. Upon the expiration of the
initial term, the agreement will automatically renew for one year terms unless
either party elects not to renew the agreement by providing written notice to
the other party at least four months' prior to the expiration of any term. Mr.
Mow is employed as the Chief Executive Officer and President of our wholly-owned
subsidiary, Avid Sportswear, Inc. His base salary is $300,000 per year, subject
to increases as determined by the employer. In addition to his salary, Mr.
Barnum also received a bonus of $75,000 in 1999. His bonus will be the same for
each year during the term unless the employer establishes a formal bonus plan.
The employer will reimburse Mr. Mow for all reasonable expenses incurred in
connection with the performance of his duties. Additional terms of Mr. Mow's
employment are set forth in his employment agreement, which is included as an
exhibit to this filing.
Our wholly-owned subsidiary also entered into a five year employment
agreement with David Roderick, effective January 1, 1999. From January, 1999,
until September, 1999, Mr. Roderick was employed as the President of Avid
Sportswear, Inc. In September, 1999, Mr. Roderick became the Vice President of
Production and Sales. His base salary is $150,000, subject to increases as
determined by the employer. In addition, Mr. Roderick will be eligible for
bonuses at the discretion of the Board of Directors. The employer will reimburse
Mr. Roderick for all reasonable expenses incurred in connection with the
performance of his duties. Additional terms of employment are set forth in his
employment agreement, which is included as an exhibit to this filing.
20
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
LOANS. From time to time we have entered into related party transactions
primarily to finance the operations of the Company. The Company has borrowed
money periodically from Messrs. Ingarfield, Browning and LaValliere and from
Lido Capital Corporation. As of December 13, 1999, the Company owed Mr.
Ingarfield a total of $501,442, Mr. Browning a total of $437,000, Mr. LaValliere
a total of $95,000 and Lido Capital Corporation a total of $701, 019.
SALE OF STOCK. In addition to the loans referenced above, the Company has
sold common stock to Lido Capital Corporation, Thomas Browning, Michael
LaValliere and David Roderick in order to help finance the Company's operations.
Below is a summary of all sales of common stock to such persons since January 1,
1999:
o On June 18, 1998, the Company sold 2,000,000 shares of common stock
to Lido Capital Corporation for $0.01 in cash per share. These
shares were split three-for-one on July 23, 1998.
o On August 27, 1998, the Company sold 400,000 shares of common stock
to Mr. Browning for $0.15 in cash per share.
o On January 5, 1999, the Company sold 100,000 shares of common stock
to the parents of Mr. Ingarfield for $0.25 in cash per share.
o On January 27, 1999, the Company issued 1,000,000 shares of common
stock to Mr. Roderick in connection with the acquisition of Avid
Sportswear, Inc. The Company valued these shares at $0.25 per Share.
o On March 11, 1999, the Company issued 1,500,000 shares of common
stock to Lido Capital Corporation in exchange for its guaranty of a
loan owed by the Company to an institutional lender. On that date,
the Company also issued 1,000,000 shares of common stock to Mr.
Browning and 1,000,000 shares of common stock to Mr. LaValliere in
exchange for their guaranty of a loan owed by the Company to an
institutional lender.
ITEM 8. DESCRIPTION OF SECURITIES.
AUTHORIZED CAPITAL STOCK. The authorized capital stock of the Company
consists of 50,000,000 shares of common stock and 10,000,000 shares of preferred
stock. As of the date hereof, the Company has 26,345,108 shares of common stock
outstanding. The following description is a summary of our capital stock and is
subject to and qualified in its entirety by reference to the provisions of the
Articles of Incorporation and the Bylaws of the Company, which are included as
exhibits to this filing.
COMMON STOCK. Each share of common stock entitles the holder to one vote
on each matter submitted to a vote of our shareholders, including the election
of directors. There is no cumulative voting. Subject to preferences that may be
applicable to any outstanding preferred stock, shareholders are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the Board of Directors. Shareholders have no preemptive, conversion or other
subscription rights. There are no redemption or sinking fund provisions
available to the common stock. In the event of liquidation, dissolution or
winding up of the Company, shareholders are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, then outstanding.
PREFERRED STOCK. The Board of Directors is authorized, subject to any
limitations prescribed by the Nevada Revised Statutes, or the rules of any
quotation system or national securities exchange on which stock of the Company
may be quoted or listed, to provide for the issuance of shares of preferred
stock in one or more series; to establish from time to time the number of shares
to be included in each such series; to fix the rights, powers, preferences, and
privileges of the shares of such series, without any further vote or action by
the shareholders. Depending upon the terms of the preferred stock established by
the Board of Directors, any or all series of preferred stock could have
21
<PAGE>
preference over the common stock with respect to dividends and other
distributions and upon liquidation of the Company or could have voting or
conversion rights that could adversely affect the holders of the outstanding
common stock. The Company has no present plans to issue any shares of preferred
stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE ARTICLES OF INCORPORATION, BYLAWS
AND NEVADA LAW
The following provisions of the Articles of Incorporation and Bylaws of
the Company could discourage potential acquisition proposals and could delay or
prevent a change in control of the Company. Such provisions may also have the
effect of preventing changes in the management of the Company.
AUTHORIZED BUT UNISSUED STOCK. The authorized but unissued shares of
common stock and preferred stock are available for future issuance without
shareholder approval. These additional shares may be utilized for a variety of
corporate purposes, including future public offerings to raise additional
capital, corporate acquisitions and employee benefit plans.
BLANK CHECK PREFERRED STOCK. The existence of authorized but unissued and
unreserved shares of preferred stock may enable the Board of Directors to issue
shares to persons friendly to current management which would render more
difficult or discourage an attempt to obtain control of the Company by means of
a proxy contest, tender offer, merger or otherwise, and thereby protect the
continuity of the Company's management.
NEVADA BUSINESS COMBINATION LAW. The State of Nevada has enacted
legislation that may deter or frustrate takeovers of Nevada corporations. The
Nevada Business Combination Law generally prohibits a Nevada corporation from
engaging in a business combination with an "interested shareholder" (defined
generally as any person who beneficially owns 10% or more of the outstanding
voting stock of the Company or any person affiliated with such person) for a
period of three years following the date that such shareholder became an
interested shareholder, unless the combination or the purchase of shares made by
the interested shareholder on the interested shareholder's date of acquiring
shares is approved by the board of directors of the corporation before that
date. A corporation may not engage in any combination with an interested
shareholder of the corporation after the expiration of three years after his
date of acquiring shares unless:
o The combination or the purchase of shares made by the interested
shareholder is approved by the board of directors of the corporation
before the date such interested shareholder acquired such shares;
o A combination is approved by the affirmative vote of the holders of
stock representing a majority of the outstanding voting power not
beneficially owned by the interested shareholder proposing the
combination, or any affiliate or associate of the interested
shareholder proposing the combination, at a meeting called for that
purpose no earlier than three years after the interested
shareholder's date of acquiring shares; or
o The aggregate amount of cash and the market value, as of the date of
consummation, of consideration other than cash to be received per
share by all of the holders of outstanding common shares of the
corporation not beneficially owned by the interested shareholder,
satisfies the fair value requirements of Section 78.441 of Nevada
Revised Statutes.
SPECIAL MEETINGS OF SHAREHOLDERS. Special meetings of the shareholders of
the Company may be called by its Board of Directors or other persons authorized
to do so under Nevada law. Under applicable Nevada law, shareholders do not have
the right to call a special meeting of the shareholders. This may have the
effect of discouraging potential acquisition proposals and could delay or
prevent a change in control of the Company by precluding a dissident shareholder
from forcing a special meeting to consider removing the Board of Directors or
otherwise.
22
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS.
The Company's shares of common stock began trading on the Over-the-Counter
Bulletin Board on March 24, 1998, under the symbol "GFIO." On July 22, 1999, the
Company's symbol was changed to "AVSG." The Company's high and low bid prices by
quarter during 1998 and 1999 are as follows:
CALENDAR YEAR 1999(1)
HIGH BID LOW BID
First quarter $2.0000 $0.7500
Second quarter $1.4688 $0.8750
Third quarter $1.0000 $0.7500
Fourth quarter
CALENDAR YEAR 1998(1)
HIGH BID LOW BID
Second quarter $1.2500 $0.5000
Third quarter $3.0000 $0.7500
Fourth quarter $1.5000 $0.4375
- -------------------------
(1) These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual transactions.
On October 31, 1999, the Company had approximately 81 shareholders of
record. The Company believes that it has in excess of 125 beneficial owners.
We have not paid dividends in the past on any class of stock and we do not
anticipate paying dividends in the foreseeable future. There are no restrictions
that limit the payment of future dividends on any class of stock.
ITEM 2. LEGAL PROCEEDINGS.
We are involved in various claims and legal actions arising in the
ordinary course of business. In our opinion, the ultimate disposition of these
matters will not materially harm our Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On October 8, 1997, the Company issued 1,000,000 shares of common stock
for $0.01 in cash per share to the original founders. The total offering price
of this transaction was $10,000. These Shares were split three-for-one on July
23, 1998.
In February 1998, the Company issued 100,000 shares of common stock to
Y.K. International Co., Ltd. in exchange for the assignment of certain
distribution rights under a Distribution Agreement dated as of September 8,
1997 between Bo Ah Industrial Co. and Y.K. International Co., Ltd. These
rights were valued at $25,000. These Shares were split three-for-one on July
23, 1998.
23
<PAGE>
In February 1998, the Company issued 1,000,000 shares of common stock for
$0.25 in cash per share. The total offering price of this transaction was
$250,000. These Shares were split three-for-one on July 23, 1998.
On June 18, 1998, the Company issued 2,000,000 shares of common stock for
$0.01 in cash per share. All of these shares were purchased by Lido Capital
Corporation. Mr. Ingarfield, our Chairman, Chief Executive Officer and
President, is the sole owner, officer and director of Lido Capital Corporation.
The total offering price of this transaction was $20,000. These shares were
split three-for-one on July 23, 1998.
On August 17, 1998, the Company issued 1,500,000 shares of common stock
for $0.15 in cash per share. The total offering price of this transaction was
$225,000.
On August 27, 1998, the Company issued 400,000 shares of common stock for
$0.15 per share. All of these shares were purchased by Thomas Browning, a
Director of the Company. The total offering price of this transaction was
$60,000. This amount is reflected as a subscriptions receivable in the Company's
financial statements.
On December 21, 1998, the Company issued 412,000 shares of common stock
for $0.25 in cash per share. The total offering price of this transaction was
$103,000.
Between January and March, 1999, the Company issued a total of 9,364,341
shares of common stock, of which 1,351,007 shares were sold for $0.75 in cash
per share, 2,113,334 shares were sold for $0.25 in cash per share, 5,100,000
shares were issued in exchange for guarantees valued at $1,275,000 and 800,000
shares were issued in exchange for advertising and promotional services valued
at $275,000. In these transactions, the parents of Mr. Ingarfield purchased a
total of 100,000 shares of common stock for $0.25 in cash per share, David
Roderick, Vice President of Production and Design for Avid Sportswear, Inc., was
issued a total of 1,000,000 shares for $0.25 per share in exchange for all of
the outstanding capital stock of Avid Sportswear, Inc. In addition, Lido Capital
Corporation, an entity wholly-owned by Mr. Ingarfield, received a total of
1,500,000 shares in exchange for guaranteeing certain loans owed by the Company
to an institutional lender and each of Messrs. Browning and LaValliere received
1,000,000 shares for guaranteeing a loan owed by the Company to an institutional
lender. An additional 1,600,000 shares were issued to two other shareholders in
exchange for guarantees on the same loan. The Company incurred an operating
expense of $875,000 for the issuance of 3,500,000 shares of common stock to Lido
Capital Corporation, Mr. Browning and Mr. LaValliere. The Company incurred an
additional operating expense of $400,000 for the issuance of 1,600,000 shares of
common stock to two other shareholders. The total offering price of these
transactions was $1,816,586.50, plus guarantees valued at $1,275,000 and
advertising and promotional services valued at $275,000.
In April, 1999, the Company issued a total of 2,000,000 shares to two
investors for $100,000 in cash and a guaranty of the Company's indebtedness to
an institutional lender. The Company incurred an operating expense of $400,000
in connection with the shares issued for the guaranty.
In May, 1999, the Company issued a total of 117,767 shares of common stock
for $0.75 in cash per share. The total offering price of these transactions was
$88,325.
On September 22, 1999, the Company issued a total of 50,000 shares of
common stock for $0.25 in cash per share. The total offering price of this
transaction was $12,500.
With respect to the sale of unregistered securities referenced above, all
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the "1933 ACT"), and Regulation D
promulgated under the 1933 Act. In each instance, the purchaser had access to
sufficient information regarding the Company so as to make an informed
investment decision. More specifically, and except with respect to the purchase
by Lido Capital Corporation and Messrs. Ingarfield, Browning, LaValliere and
Roderick, each purchaser signed a written subscription agreement with respect to
their financial status and investment sophistication in which they represented
and warranted, among other things, that they had:
24
<PAGE>
o the ability to bear the economic risks of an investment in the
shares of the Company;
o a certain net worth sufficient to meet the suitability standards of
the Company; and
o been provided with all material information requested by the
purchaser or his or her representatives, and been provided an
opportunity to ask questions of and receive answers from the Company
concerning the Company and the terms of the offering.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 78.751 of Nevada Revised Statutes provides, in effect, that any
person made a party to any action by reason of the fact that he is or was a
director, officer, employee or agent of the Company may and, in certain cases,
must be indemnified by the Company against, in the case of a non-derivative
action, judgments, fines, amounts paid in settlement and reasonable expenses
(including attorneys' fees) incurred by him as a result of such action, and in
the case of a derivative action, against expenses (including attorneys' fees),
if in either type of action he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Company. This
indemnification does not apply, in a derivative action, to matters as to which
it is adjudged that the director, officer, employee or agent is liable to the
Company, unless upon court order it is determined that, despite such
adjudication of liability, but in view of all the circumstances of the case, he
is fairly and reasonably entitled to indemnification for expenses, and, in a
non-derivative action, to any criminal proceeding in which such person had
reasonable cause to believe his conduct was lawful.
As authorized by Section 78.037 of Nevada Revised Statutes, our Articles
of Incorporation eliminate or limit the personal liability of a director to the
Company or to any of its shareholders for monetary damage for a breach of
fiduciary duty as a director, except for:
o Acts or omissions which involve intentional misconduct, fraud or
knowing violation of law; or
o The payment of distributions in violation of Section 78.300 of
Nevada Revised Statutes.
Our Articles of Incorporation provide for indemnification of officers and
directors to the fullest extent permitted by Nevada law. Such indemnification
applies in advance of the final disposition of a proceeding.
The Company maintains an insurance policy that provides protection, within
the maximum liability limits of the policy and subject to a deductible amount
for each claim, to the Company under its indemnification obligations and to the
directors and officers of the Company with respect to certain matters that are
not covered by the Company's indemnification obligations.
At present, there is no pending litigation or proceeding involving any
director or officer as to which indemnification is being sought, nor are we
aware of any threatened litigation that may result in claims for indemnification
by any director or officer.
25
<PAGE>
PART F/S
Index to Financial Statements:
o The Company's unaudited balance sheet as of September 30, 1999 and
unaudited statements of income, cash flows and changes in
stockholders' equity for the nine-month period ended September 30,
1999;
o The Company's audited balance sheet as of December 31, 1998 and
audited statements of income, cash flows and changes in
stockholders' equity for the years' ended December 31, 1998 and
1997; and
o Avid Sportswear, Inc.'s audited balance sheet as of December 31,
1998 and audited statements of income, cash flows, and changes in
stockholders' equity for the years ended December 31, 1998 and 1997.
26
<PAGE>
AVID SPORTSWEAR AND GOLF
(Formerly Golf Innovations Corp. and Subsidiary)
CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 and December 31, 1998
<PAGE>
C O N T E N T S
Consolidated Balance Sheets..................................................F-3
Consolidated Statements of Operations........................................F-5
Consolidated Statement of Stockholders' Equity (Deficit).....................F-6
Consolidated Statements of Cash Flows........................................F-8
Notes to the Consolidated Financial Statements..............................F-10
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR AND GOLF
(Formerly Golf Innovations Corp. and Subsidiary)
Consolidated Balance Sheets
ASSETS
September 30, December 31,
1999 1998
------------------- ----------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash $ -- $ 154,237
Accounts receivable, net 95,572 --
Inventory 1,357,137 --
Prepaid expenses 30,114 21,949
--------- -------
Total Current Assets 1,484,823 176,186
--------- -------
EQUIPMENT
Machinery and equipment 424,210 2,276
Furniture and fixtures 227,414 --
Show booths 298,479 --
Leasehold improvements 29,397 --
Less: accumulated depreciation (417,621) (114)
--------- -------
Total Equipment 561,879 2,162
--------- -------
OTHER ASSETS
Goodwill 1,690,457 --
Trademarks 2,902 --
--------- -------
Total Other Assets 1,693,359 --
--------- -------
TOTAL ASSETS $ 3,740,061 $ 178,348
========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR AND GOLF
(Formerly Golf Innovations Corp. and Subsidiary)
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
September 30, December 31,
1999 1998
---------------------- ----------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES
Cash overdraft $ 79,666 $ --
Accounts payable 658,501 --
Notes payable - related 412,235 --
Notes payable 500,000 --
Convertible notes payable 375,000 210,000
------------ -----------
Total Current Liabilities 2,025,402 210,000
------------ -----------
Total Liabilities 2,025,402 210,000
------------ -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; 10,000,000 share authorized of $0.001 par
value, zero issued and outstanding -- --
Common Stock; 50,000,000 shares authorized of $0.001
par value, 26,464,106 and 14,612,000 shares issued
and outstanding, respectively 26,464 14,612
Additional paid-in capital 4,405,917 613,193
Common stock subscription receivable (45,000) (60,000)
Receivable - related parties -- (352,300)
Accumulated deficit (2,672,722) (247,157)
------------ -----------
Total Stockholders' Equity (Deficit) 1,714,659 (31,652)
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
$ 3,740,061 $ 178,348
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR AND GOLF
(Formerly Golf Innovations Corp. and Subsidiary)
Consolidated Statements of Operations
(Unaudited)
For the Nine Months Ended For the Three Months Ended
September 30, September 30,
-------------------------- -------------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
SALES, NET $ 2,340,939 $ -- $ 781,808 $ --
COST OF GOODS SOLD 1,623,989 -- 402,596
------------ ----------- ------------ ----------
--
Gross Margin 716,950 -- 379,212 --
------------ ----------- ------------ ----------
OPERATING EXPENSES
Selling expenses 529,677 -- 148,456 --
Depreciation and amortization expense 163,010 -- 71,157 --
General and administrative expenses 2,409,958 163,001 256,456 163,001
------------ ----------- ------------ ----------
Total Operating Expenses 3,102,645 163,001 476,069 163,001
------------ ----------- ------------ ----------
(Loss) from Operations (2,385,695) (163,001) (96,857) (163,001)
------------ ----------- ------------ ----------
OTHER INCOME (EXPENSE)
Interest expense (39,870) -- (17,500) --
Loss of valuation of assets -- (25,000) -- --
------------ ----------- ------------ ----------
Total Other Income (Expense) (39,870) (25,000) (17,500) --
------------ ----------- ------------ ----------
NET LOSS $ (2,425,565) $ (188,001) $ (114,357) $ (163,001)
------------ ----------- ------------ ----------
BASIC LOSS PER SHARE $ (0.16) $ (0.01) $ (0.01) $ (0.01)
============ =========== ============ ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR AND GOLF
(Formerly Golf Innovations Corp. and Subsidiary)
Consolidated Statements of Stockholders' Equity (Deficit)
Accumulated
Common Stock Additional During the
------------------------- Paid-in Subscriptions Development
Shares Amount Capital Receivable Stage
------ ------ ---------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 3,000,000 $ 3,000 $ 7,000 $ -- $ (5,609)
February 1998, common stock issued for
assets at $0.08333 per share 300,000 300 24,700 -- --
February 1998, common stock issued for
cash at $0.08333 per share 3,000,000 3,000 247,000 -- --
June 1998, common stock issued for cash
at $0.00333 per share 6,000,000 6,000 14,000 -- --
August 1998, common stock issued for
cash at $0.15 per share 1,500,00 1,500 223,500 -- --
August 1998, common stock issued for
subscriptions at $0.15 per share 400,000 400 59,600 (60,000) --
December 1998, common stock issued for
cash at $0.25 per share 412,000 412 102,588 -- --
Stock offering costs -- -- (65,195) -- --
Net loss for the year ended
December 31, 1998 -- -- -- -- (241,548)
---------- ---------- ---------- ----------- ----------
Balance, December 31, 1998 14,612,000 $ 14,612 $ 613,193 $ (60,000) $ (247,147)
========== ========== ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR AND GOLF
(Formerly Golf Innovations Corp. and Subsidiary)
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Stock Additional
------------------------- Paid-in Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 14,612,000 $ 14,612 $ 613,193 $ (60,000) $ (247,157)
Common stock issued for debt conversion
at $0.56 per share (unaudited)
373,336 373 209,627 -- --
Common stock issued for acquisition of
AVID Sportswear, Inc. at $0.43 per share --
(unaudited) 1,100,000 1,100 273,900 --
--
Common stock issued for cash at $0.43
per share (unaudited) 4,028,770 4,029 1,715,547 -- --
Common stock issued for advertising and
promotion services at $0.25 per share
(unaudited) 800,000 800 199,200 -- --
Receipt of stock subscription
(unaudited) -- -- -- 15,000 --
Common stock issued for personal
guarantee of officers and directors at
$0.25 per share (unaudited) 3,500,000 3,500 871,500 -- --
Common stock issued for personal
guarantee of officers and directors and
cash (unaudited) 2,000,000 2,000 498,000 -- --
Common stock issued for cash at $0.25
per share (unaudited) 50,000 50 24,950 -- --
Net loss for the nine months ended
September 30, 1999 (unaudited) -- -- -- -- (2,425,565)
--------- ---------- ----------- ----------- -------------
Balance, June 30, 1999 (unaudited) 26,464,106 $ 26,464 $ 4,405,917 $ (45,000) $ (2,672,722)
========== ========== =========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR AND GOLF
(Formerly Golf Innovations Corp. and Subsidiary)
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended For the Three Months Ended
September 30, September 30,
------------------------- --------------------------
1999 1998 1999 1998
------------------------- --------------------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (2,425,565) $ (188,001) $ (114,357) $ (163,001)
Adjustments to reconcile net (loss) to net
cash used in operating activities:
Depreciation and amortization 163,010 -- 71,157 --
Loss on valuation of asset -- 25,000 -- --
Common stock issued for services 1,475,000 -- -- --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 199,061 -- 408,113 --
(Increase) decrease in inventory (467,272) -- (270,373) --
(Increase) decrease in prepaid expenses (8,165) (29,417) 33,979 (29,417)
Increase (decrease) in accounts payable 294,012 -- (38,665) --
Increase (decrease) in accrued expenses 119,827 -- 165,249 --
------------- ------------ ---------- ----------
Net Cash Used in Operating Activities (650,092) (192,418) 255,103 (192,418)
------------- ------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (365,977) -- (170,096) --
------------- ------------ ---------- ----------
Net Cash Used in Investing Activities (365,977) -- (170,096) --
------------- ------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash purchased with AVID 40,282 -- -- --
Payment to Avid shareholders (725,000) -- -- --
Payments on notes payable (2,006,061) -- (126,750) --
Proceeds from notes payable 1,340,735 -- 16,743 --
Issuance of stock for cash 1,859,576 250,000 25,000 --
Receipt of related party receivable 352,300 -- -- --
------------- ------------ ---------- ----------
Net Cash Provided by Financing Activities 861,832 250,000 (85,007) --
------------- ------------ ---------- ----------
NET INCREASE (DECREASE) IN CASH (154,237) 57,582 -- (192,418)
CASH AND CASH EQUIVALENT AT
BEGINNING OF PERIOD 154,237 3,391 -- 253,391
------------- ------------ ---------- ----------
CASH AND CASH EQUIVALENT AT
END OF PERIOD -- $ 60,973 $ -- $ 60,973
============= ============ ========= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR AND GOLF
(Formerly Golf Innovations Corp. and Subsidiary)
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Nine Months Ended For the Three Months Ended
September 30, September 30,
------------------------- --------------------------
1999 1998 1999 1998
------------------------- --------------------------
<S> <C> <C> <C> <C>
CASH PAID FOR:
Interest $ 39,870 $ -- $ 17,500 $ --
Income tax $ -- $ -- $ -- $ --
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Issuance of common stock for subsidiary $ 275,000 $ -- $ -- $ --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
AVID SPORTSWEAR AND GOLF
(Formerly Golf Innovations Corp. and Subsidiary)
Notes to the Consolidated Financial Statements
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been
prepared by the Company without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of
operations and cash flows at September 30, 1999 and 1998 and for all
periods presented have been made.
Certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted. It is suggested that these condensed consolidated financial
statements be read in conjunction with the financial statements and
notes thereto included in the Company's December 31, 1998 audited
consolidated financial statements. The results of operations for
periods ended September 30, 1999 and 1998 are not necessarily
indicative of the operating results for the full years.
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
GOLF INNOVATIONS CORP.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE>
C O N T E N T S
Independent Auditors' Report...............................................F-3
Balance Sheet..............................................................F-4
Statements of Operations...................................................F-5
Statement of Stockholders' Equity (Deficit)................................F-6
Statements of Cash Flows...................................................F-7
Notes to the Financial Statements..........................................F-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of Golf Innovations Corp.
(A Development Stage Company)
Sarasota, Florida
We have audited the accompanying balance sheet of Golf Innovations Corp. (a
development stage company) as of December 31, 1998 and the related statements of
operations, stockholders' equity (deficit) and cash flows for the year ended
December 31, 1998 and from inception on September 19, 1997 through December 31,
1997 and 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 audits 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 audits provide 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 Golf Innovations Corp. (a
development stage company) as of December 31, 1998, and the results of its
operations and its cash flows for the year ended December 31, 1998 and from
inception on September 19, 1997 through December 31, 1997 and 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 3 to the
financial statements, the Company is a development stage company with no
significant operating results to date, which raises substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 3. The financial statements do not include
any adjustments that might result from the outcome of the uncertainty.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
March 4, 1999
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
GOLF INNOVATIONS CORP.
(A Development Stage Company)
Balance Sheet
ASSETS
December 31,
1998
------------
CURRENT ASSETS
Cash (Note 1) $ 154,237
Prepaid insurance 21,949
-----------
Total Current Assets 176,186
-----------
FIXED ASSETS (Note 2)
Computers - net 2,162
-----------
Total Fixed Assets 2,162
-----------
TOTAL ASSETS $ 178,348
===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Convertible notes payable (note 8) $ 210,000
-----------
Total Current Liabilities 210,000
-----------
TOTAL LIABILITIES 210,000
-----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 25,000,000 share authorized of $0.001 par
value, 14,612,000 shares issued and outstanding 14,612
Additional paid-in capital 613,193
Common stock subscription receivable (Note 4) (60,000)
Receivable - related parties (Note 5) (352,300)
Deficit accumulated during the development stage (247,157)
-----------
Total Stockholders' Equity (Deficit) (31,652)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 178,348
===========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
GOLF INNOVATIONS CORP.
(A Development Stage Company)
Statements of Operations
From Inception on
September 19, 1997 through
December 31 December 31
--------------------------
1998 1997 1998
----------- --------- ---------
<S> <C> <C> <C>
REVENUE $ -- $ -- $ --
EXPENSES
Depreciation 114 -- 114
General and administration 187,006 5,609 192,615
--------- --------- ---------
Total Expenses 187,120 5,609 192,729
--------- --------- ---------
LOSS FROM OPERATIONS (187,120) (5,609) (192,729)
--------- --------- ---------
OTHER INCOME (LOSS)
Interest income 45 -- 45
Other income 527 -- 527
Loss on valuation of asset (Note 7) (55,000) -- (55,000)
--------- --------- ---------
Total Other Income (Loss) (54,428) -- (54,428)
--------- --------- ---------
NET LOSS (241,548) (5,609) (247,157)
OTHER COMPREHENSIVE INCOME -- -- --
--------- --------- ---------
NET COMPREHENSIVE LOSS $ (241,548) $ (5,609) $ (247,157)
========= =========
BASIC LOSS PER SHARE $ (0.02) $ (0.00)
========= =========
FULLY DILUTED LOSS PER SHARE $ (0.02) $ (0.00)
========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
GOLF INNOVATIONS CORP.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
Deficit
Accumulated
Common Stock Additional During the
----------------------- Paid-in Subscriptions Development
Shares Amount Capital Receivable Stage
------ ------ ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at inception on September 19, 1997 -- $ -- $ -- $ -- $ --
October 1997, common stock issued for
cash at $0.00333 per share 3,000,000 3,000 7,000 -- --
Net loss for the year ended December 31, 1997
-- -- -- -- (5,609)
--------- ------- ----------- ----------- -----------
Balance,
December 31, 1997 300,000 3,000 7,000 -- (5,609)
February 1998, common stock issued
for assets at $0.08333 per share 300,000 300 24,700 -- --
February 1998, common stock issued
for cash at $0.08333 per share 3,000,000 3,000 247,000 -- --
June 1998, common stock issued for
cash at $0.00333 per share 6,000,000 6,000 14,000 -- --
August 1998, common stock issued for
cash at $0.15 per share 1,500,00 1,500 223,500 -- --
August 1998, common stock issued for
subscriptions at $0.15 per share 400,000 400 59,600 (60,000) --
December 1998, common stock issued
for cash at $0.25 per share 412,000 412 102,588 -- --
Stock offering costs -- -- (65,195) -- --
Net loss for the year ended December 31, 1998 -- -- -- -- (241,548)
--------- ------- ----------- ----------- -----------
Balance,
December 31, 1998 14,612,000 $ 14,612 $ 613,193 $ (60,000) $ (247,147)
========== ========= ========= ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
GOLF INNOVATIONS CORP.
(A Development Stage Company)
Statements of Cash Flows
From Inception on
September 19, 1997 through
December 31,
December 31, --------------------------
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (241,548) $ (5,609) $(247,157)
Adjustments to reconcile net loss to net cash (used) by operating activities:
Loss on valuation of asset 55,000 -- 55,000
Depreciation 114 -- 114
Changes in Operating Assets and Liabilities:
(Increase) decrease in prepaid expenses (20,949) (1,000) (21,949)
----------- -------- ---------
Net Cash (Used) by Operating Activities (207,383) (6,609) (213,992)
----------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (32,276) -- (32,276)
----------- -------- ---------
Net Cash (Used) by Investing Activities (32,276) -- (32,276)
----------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings on notes payable 210,000 -- 210,000
Loans to related parties (352,300) -- (352,300)
Common stock issued for cash 598,000 10,000 608,000
Stock offering costs (65,195) -- (65,195)
----------- -------- ---------
Net Cash Provided by Financing Activities 390,505 10,000 400,505
----------- -------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 150,846 3,391 154,237
CASH AND CASH EQUIVALENTS AT BEGINNING 3,391 -- --
OF PERIOD
----------- -------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 154,237 $ 3,391 $ 154,237
=========== ======== =========
Cash Paid For:
Interest $ -- $ -- $ --
Income taxes $ -- $ -- $ --
Non-Cash Financing Activities:
Issuance of common stock on subscription $ 60,000 $ -- $ 60,000
Issuance of common stock for assets $ 25,000 $ -- $ 25,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
GOLF INNOVATIONS CORP.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1998
NOTE 1 - NATURE OF ORGANIZATION
This summary of significant accounting policies of Golf Innovations
Corp. is presented to assist in understanding the Company's financial
statements. The financial statements and notes are representations of
the Company's management, which is responsible for their integrity and
objectivity. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the
preparation of the financial statements.
a. Organization and Business Activities
Golf Innovations Corp. was incorporated under the laws of the State of
Nevada on September 19, 1997. The Company has been in the development
stage since incorporation.
b. Depreciation
Depreciation is provided using the straight-lien method over the
assets' estimated useful life of five years.
c. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year end.
d. Cash and Cash Equivalents
For the purpose of the statement of cash flows, the Company considers
all highly liquid investments purchased with a maturity of three
months or less to be cash equivalents.
e. Estimates
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 the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
f. Basic Loss Per Share
The computation of basic loss per share of common stock is based on
the weighted average number of shares of common stock outstanding
during the period presented. The fully diluted loss per share
computation includes the shares to be issued from the convertible
notes payable.
F-8
<PAGE>
GOLF INNOVATIONS CORP.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1998
NOTE 1 - NATURE OF ORGANIZATION (Continued)
g. Income Taxes
No provision for income taxes has been accrued because the Company has
net operating losses from inception. The net operating loss
carryforwards of approximately $247,000 at December 31, 1998 which
expire in 2013. No tax benefit has been reported in the financial
statements because the Company is uncertain if the carryforwards will
expire unused. Accordingly, the potential tax benefits are offset by a
valuation account of the same amount.
h. Uninsured Corporate Cash Balances
The Company maintains its corporate cash balances at one bank.
Corporate cash accounts at banks are insured by the FDIC for up to
$100,000. Amounts in excess of insured limits were approximately
$54,237 at December 31, 1998.
i. Change in Accounting Principle
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses gains, and losses) in a full set of general
purpose financial statements. This statement requires that an
enterprise (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated
balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a
statement of financial position. SFAS No. 130 is effective for fiscal
years beginning after December 15, 1997. The Company has retroactively
applied the provisions of this new standard by showing the other
comprehensive income for all years presented.
NOTE 2 - FIXED ASSETS
Fixed assets at December 31, 1998 consisted of the following:
December 31,
1998
-----------
Computers $ 2,276
Less accumulated depreciation (114)
-----------------
Net Fixed Assets $ 2,162
=================
Depreciation expense for the year ended December 31, 1998 was $114.
Depreciation expense is computed using the straight-line method over a
three year life.
F-9
<PAGE>
GOLF INNOVATIONS CORP.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1998
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which
contemplates the relation of assets and liquidation of liabilities in
the normal course of business. However, the Company does not have
significant cash or other material assets, nor does it have an
established source of revenues sufficient to cover its operating costs
and to allow it to continue as a going concern. The Company is in the
process of acquiring a company in the sports wear industry and
investigating other companies for possible future acquisition. It also
intends to collect the proceeds of its stock subscriptions and loans
receivable. In the interim, management has committed to meeting its
operating costs.
NOTE 4 - STOCK SUBSCRIPTION RECEIVABLE
The Company has issued 400,000 shares of its common stock pursuant to
a subscription to officers and directors of the Company. The
subscription price is $0.15 per share and the subscription provides
that the principal and interest accrued at 8 percent (8%) per annum
from August 1998 is to be paid in full in August of 1999. In the event
that the borrower is unable to make available the necessary funds to
complete payment upon demand, the Company agrees to negotiate
installment terms to satisfy that demand.
NOTE 5 - RELATED PARTY TRANSACTIONS
At December 31, 1998, the Company was owed in the amount of $412,300
monies from officers, directors or affiliated business ventures
consisting of the following:
Notes receivable $ 253,500
Loans receivable 98,800
Stock subscriptions receivable (Note 4) 60,000
-----------------
$ 412,300
=================
NOTE 6 - ORGANIZATION COSTS
The Company incurred one-time start-up costs since the date of
inception which were accrued as follows:
DECEMBER 31,
----------------------------------
1998 1997
---------------- --------------
Start-up costs $ 47,895 $ 5,609
============== =============
Consistent with the adoption of SOP 98-5, these costs were expensed as
incurred as of the balance sheet dates presented.
F-10
<PAGE>
GOLF INNOVATIONS CORP.
(A Development Stage Company)
Notes to the Financial Statements
December 31, 1998
NOTE 7 - LOSS ON VALUATION OF ASSET
During the year ended December 31, 1998, the Company purchased
distribution rights for $30,000 cash plus 100,000 shares of its common
stock valued at par. Accordingly, an asset was recorded in the amount
of $55,000. As of December 31, 1998, the Company's management
determined that the agreement had a net realizable value of $-0-,
therefore, the asset was written off producing a loss of $55,000.
NOTE 8 - CONVERTIBLE NOTES PAYABLE
On December 30, 1998, the Company received $210,000 cash and issued a
note payable which was convertible into 373,336 shares of the
Company's common stock. The note is unsecured, non-interest bearing
and due upon demand (see Note 9).
NOTE 9 - SUBSEQUENT EVENTS
As of January 28, 1999, payment had been received in the amount of
$237,000 of the loans receivable - related party as presented in the
accompanying balance sheet at December 31, 1998.
Subsequent to the date of the balance sheet, the note payable in the
amount of $210,000 was converted into 373,336 shares of the Company's
common stock.
NOTE 10 - PURCHASE OF AVID SPORTSWEAR, INC.
On December 18, 1998, the Company entered into a stock purchase and
sales agreement (Agreement) with Avid Sportswear, Inc. (AVID), a
California corporation. This Agreement was finalized on March 1, 1999.
The Agreement called for the Company to purchase all of the
outstanding stock of AVID for $725,000 and 1,100,000 shares of stock.
Additionally, the Company was to pay off all of the notes payable to
the shareholders of AVID and the notes payable to Nations Bank, fka
Bank IV. The total amounts of these notes was $1,826,119 at the date
of closing.
The following is an unaudited proforma consolidated balance sheet and
income statement assuming the issuance of 1,100,000 shares of common
stock by the Company to acquire 100% of the outstanding shares of
common stock of AVID. The acquisition of AVID by the Company will be
accounted for as a purchase of AVID.
F-11
<PAGE>
<TABLE>
<CAPTION>
GOLF INNOVATIONS CORP.
Consolidated Proforma Balance Sheet
December 31, 1998
(Unaudited)
ASSETS
Proforma
Adjustments Increase Proforma
Golf Innovations Inc. Avid Sportswear Inc. (Decrease) Consolidated
--------------------- -------------------- ---------- ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 154,237 $ 40,282 $ 994,576 $ 1,189,095
Prepaid insurance 21,949 -- -- 21,949
Accounts receivable (net) -- 296,633 -- 296,633
Inventory -- 889,865 -- 889,865
------------- ------------ ------------- ------------
Total Current Assets 176,186 1,226,780 994,576 2,397,542
------------- ------------ ------------- ------------
FIXED ASSETS (NET) 2,162 271,293 -- 273,455
------------- ------------ ------------- ------------
OTHER ASSETS
Trademarks -- 2,902 -- 2,902
Goodwill -- -- 1,779,428 1,779,428
Accumulated amortization -- -- (177,943) (177,943)
------------- ------------ ------------- ------------
Total Other Assets -- 2,902 1,601,485 1,604,387
------------- ------------ ------------- ------------
TOTAL ASSETS $ 178,348 $ 1,500,975 $ 2,596,061 $ 4,275,384
============= ============ ============= ============
</TABLE>
F-12
<PAGE>
<TABLE>
<CAPTION>
GOLF INNOVATIONS CORP.
Consolidated Proforma Balance Sheet
December 31, 1998
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Proforma
Adjustments Increase Proforma
Golf Innovations Inc. Avid Sportswear Inc. (Decrease) Consolidated
--------------------- -------------------- ---------- ------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable
Accrued expenses -- 63,353 -- 63,353
Notes payable 210,000 1,852,561 -- 2,062,561
----------- ----------- ----------- -----------
Total Current Liabilities 210,000 2,280,403 -- 2,490,403
----------- ----------- ----------- -----------
TOTAL LIABILITIES 210,000 2,280,403 -- 2,490,403
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 25,000,000 shares
authorized of $0.001 par value,
19,740,770 shares issued and
outstanding 14,612 764,170 (759,041) 19,741
Additional paid-in capital 613,193 -- 1,989,447 2,602,640
Stock subscription receivable (60,000) -- -- (60,000)
Receivable from related parties (352,300) -- -- (352,300)
Accumulated deficit (247,157) (1,543,598) 1,365,655 (425,100)
----------- ----------- ------------ ------------
Total Stockholders' Equity (Deficit) (31,652) (779,428) 2,596,061 1,784,981
----------- ----------- ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT) $ 178,348 $ 1,500,975 $ 2,596,061 $ 4,275,384
=========== =========== ============ ============
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
GOLF INNOVATIONS CORP.
Consolidated Proforma Statement of Operations
December 31, 1998
(Unaudited)
Proforma Adjustments Increase Proforma
Golf Innovations Inc. Avid Sportswear Inc. (Decrease) Consolidated
--------------------- -------------------- ---------- ------------
<S> <C> <C> <C> <C>
SALES, NET $ -- $ 3,721,829 $ -- $ 3,721,829
COST OF GOODS SOLD -- 2,678,906 -- 2,678,906
--------------- -------------- ----------- -----------
Gross Profit -- 1,042,923 -- 1,042,923
--------------- -------------- ----------- -----------
OPERATING EXPENSE
Selling expenses -- 576,260 -- 576,260
Depreciation and amortization 114 74,441 177,943 252,498
General and administrative 187,006 980,134 -- 1,167,140
--------------- -------------- ----------- -----------
Total Operating Expenses (187,120) 1,630,835 177,943 1,995,898
--------------- -------------- ----------- -----------
OPERATING (LOSS) INCOME (187,120) (587,912) (177,943) (952,975)
--------------- -------------- ----------- -----------
OTHER INCOME EXPENSES
Bad debt expenses -- (21,554) -- (21,554)
Interest income 45 -- -- 45
Other income 527 -- -- 527
Loss on valuation of asset (55,000) -- -- (55,000)
Interest expense -- (134,384) -- (134,384)
--------------- -------------- ----------- -----------
Total Other Income Expenses (54,428) (155,938) -- (210,366)
--------------- -------------- ----------- -----------
LOSS BEFORE INCOME TAXES (241,548) (743,850) -- (1,163,341)
INCOME TAXES -- -- -- --
--------------- -------------- ----------- -----------
NET LOSS $ (241,548) $ (743,850) $ (177,943) $ (1,163,341)
=============== ============== =========== ==========
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
GOLF INNOVATIONS CORP.
Summary of Proforma Adjustments
December 31, 1998
(Unaudited)
<S> <C>
Proforma Adjustments
1) Goodwill (Golf Innovations) $ 1,779,428
Common stock (Avid) 764,170
Retained earnings (Avid) (1,543,598)
Common stock (Golf Innovations) (1,100)
Additional paid-in capital (Golf Innovations) (273,900)
Cash (Golf Innovations) (725,000)
-----------------
$ --
=================
To record purchase of Avid through the issuance of 1,100,000 shares of common stock valued at
$0.25 per share and $725,000 cash.
2) Cash (Golf Innovations) $ 1,719,576
Common stock (Golf Innovations) (4,029)
Additional paid-in capital (Golf Innovations) (1,715,547)
-----------------
$ --
=================
To record the sale of 4,028,770 shares of common stock to fund the purchase of AVID.
3) Amortization expense $ 177,943
Accumulated amortization - goodwill (177,943)
-----------------
$ --
=================
To record 1 year of amortization expense based on a ten year life.
</TABLE>
F-15
<PAGE>
AVID SPORTSWEAR, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE>
C O N T E N T S
Independent Auditors' Report...............................................F-3
Balance Sheet..............................................................F-4
Statements of Operations...................................................F-5
Statements of Stockholders' Equity (Deficit)...............................F-7
Statements of Cash Flows...................................................F-8
Notes to the Financial Statements..........................................F-9
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Avid Sportswear, Inc.
Carson, California
We have audited the accompanying balance sheet of Avid Sportswear, Inc. as of
December 31, 1998 and the related statements of operations, stockholders' equity
(deficit) and cash flows for the years ended December 31, 1998 and 1997. 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 audits 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 audits provide 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 Avid Sportswear, Inc. as of
December 31, 1998 and the results of its operations and its cash flows for the
years ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
April 22, 1999
F-3
<PAGE>
AVID SPORTSWEAR, INC.
BALANCE SHEET
ASSETS
December 31,
1998
-----------------
CURRENT ASSETS
Cash $ 40,282
Accounts receivable, net (Note 2) 296,633
Inventory (Note 3) 889,865
-----------------
Total Current Assets 1,226,780
-----------------
EQUIPMENT (Note 4)
Machinery and equipment 244,790
Furniture and fixtures 79,304
Show booths 283,406
Leasehold improvements 3,748
Less: accumulated depreciation (339,955)
-----------------
Total Equipment 271,293
-----------------
OTHER ASSETS
Trademarks 2,902
-----------------
Total Other Assets 2,902
-----------------
TOTAL ASSETS $ 1,500,975
=================
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR, INC.
BALANCE SHEET (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
1998
-----------------------
<S> <C>
CURRENT LIABILITIES
Cash overdraft $ --
Accounts payable 364,489
Accrued expenses 63,353
Notes payable - related (Note 5) 943,000
Notes payable (Note 6) 909,561
-----------------
Total Current Liabilities 2,280,403
-----------------
Total Liabilities 2,280,403
-----------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, no par value, 1,000,000 shares
authorized; 34,485.72 and 32,771.42 shares
issued and outstanding, respectively 764,170
Accumulated deficit (1,543,598)
-----------------
Total Stockholders' Equity (Deficit) (779,428)
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ $1,500,975
=================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------------------------------
1998 1997
----------------------- -----------------------
<S> <C> <C>
SALES, NET $ 3,721,829 $ 2,848,815
COST OF GOODS SOLD 2,678,906 1,964,284
----------------------- -----------------------
Gross Margin 1,042,923 884,531
----------------------- -----------------------
OPERATING EXPENSES
Selling expenses 576,260 459,952
Depreciation expense 74,441 53,057
General and administrative expenses 980,134 751,813
----------------------- -----------------------
Total Operating Expenses 1,630,835 1,264,822
----------------------- -----------------------
(Loss) from Operations (587,912) (380,291)
----------------------- -----------------------
OTHER (EXPENSE)
Interest expense (134,384) (105,849)
Bad debt expense (21,554) (36,216)
----------------------- -----------------------
Total Other Income (Expense) (155,938) (142,065)
----------------------- -----------------------
NET (LOSS) $ (743,850) $ (522,356)
======================= =======================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
---------------------------------------
STOCK ACCUMULATED
SHARES AMOUNT SUBSCRIPTION DEFICIT
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 28,142.88 $ $539,170 $ (75,000) $ (277,392)
Issuance of common stock for cash at
$37.81 per share 4,628.54 175,000 -- --
Net loss for the year ended
December 31, 1997 -- -- -- (522,356)
----------------- ----------------- ------------------ ------------------
Balance, December 31, 1997 32,771.42 714,170 -- (799,748)
Receipt of stock subscription -- -- 75,000 --
Common stock issued for cash at $29.17
per share 1,714.30 50,000 -- --
Net loss for the year ended
December 31, 1998 -- -- -- (743,850)
----------------- ----------------- ------------------ ------------------
Balance, December 31, 1998 34,485.72 $ 764,170 $ -- $ (1,543,598)
================= ================= ================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------------------------
1998 1997
------------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) $ (743,850) $ (522,356)
Adjustments to reconcile net (loss) to net cash used in operating activities:
Depreciation and amortization 74,441 53,057
Bad debt expense 21,554 36,216
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 9,810 (93,649)
(Increase) decrease in inventory 108,513 (387,166)
(Increase) decrease in other assets 17,153 2,307
Increase (decrease) in accounts payable (60,977) 225,242
Increase (decrease) in accrued expenses 11,254 6,711
------------------- -------------------
Net Cash Provided (Used) in Operating Activities (562,102) (679,638)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (190,312) (101,089)
------------------- ------------------
Net Cash Used in Investing Activities (190,312) (101,089)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable -- (50,000)
Proceeds from notes payable 99,696 --
Issuance of stock 50,000 250,000
New borrowings from related parties 643,000 180,000
------------------- -------------------
Net Cash Provided by Financing Activities 792,696 380,000
------------------- -------------------
NET INCREASE (DECREASE) IN CASH 40,282 (400,727)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR -- 400,727
------------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 40,282 $ --
=================== ===================
CASH PAID FOR:
Interest $ 42,387 $ 31,592
Income taxes $ -- $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
AVID SPORTSWEAR, INC.
Notes to the Financial Statements
December 31, 1998 and 1997
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The financial statements presented are those of Avid Sportswear, Inc.
(the Company). The Company was incorporated in the state of California
on October 6, 1988 to carry on any lawful activity under the laws of
California. The Company is engaged in the business of designing and
producing golfwear and other custom made clothing.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year end.
b. Income Taxes
The Company had elected to be taxed as a Sub-Chapter S corporation,
accordingly, there is no provision for income taxes at the corporate
level.
c. Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.
d. Inventory
Inventories of raw materials, finished goods and work-in-process are
stated at the lower of cost or market. The cost of the inventory
includes the purchase price and direct costs such as freight-in.
e. Revenue Recognition
The Company's revenue is derived primarily from the sale of apparel.
The revenue is recognized upon completion and shipment to the customer.
The cost of work-in-process and finished goods includes all direct
materials, labor and those indirect costs related to the apparel.
Selling, general and administrative costs are expensed as incurred.
f. Estimates
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 the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
g. Allowance for Doubtful Accounts
The Company's accounts receivable are shown net of an allowance for
doubtful accounts of $250,947 and $124,611 at December 31, 1998 and
1997, respectively.
h. Reclassification
Certain December 31, 1997 balances have been reclassified to conform
with the December 31, 1998 financial statement presentation.
i. Advertising Expense
The Company expenses advertising costs as incurred.
F-9
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR, INC.
Notes to the Financial Statements
December 31, 1998 and 1997
NOTE 3 - INVENTORY
Inventories for December 31, 1998 consisted of the following: December 31,
1998
---------------------
<S> <C>
Finished goods $ 402,222
Work-in-process 149,247
Raw materials and supplies 338,396
---------------------
Total $ 889,865
=====================
</TABLE>
NOTE 4 - EQUIPMENT
All equipment is accounted for at cost. Equipment is depreciated over
its estimated useful lives using accelerated methods. For the years
ended December 31, 1998 and 1997, the Company expensed $74,441 and
$53,057 in depreciation.
NOTE 5 - NOTE PAYABLE - RELATED PARTY
The Company has received advances from related parties which bear
interest at various rates, from 8% to 10.25% are unsecured and due on
demand. The balances due at December 31, 1998 and 1997 were $943,000
and $300,000. All of the notes were paid off subsequent to December 31,
1998 in conjunction with the merger with Golf Innovations, Inc. (Note
10).
NOTE 6 - NOTES PAYABLE
<TABLE>
<CAPTION>
<S> <C>
Notes payable at December 31, 1998 consisted of the following:
Note payable to Nations Bank, fka Bank IV; secured by accounts receivable,
inventory and fixed assets, bearing interest at 10% and due February 1,
1999. $ 469,865
Line of credit payable to Nations Bank, fka Bank IV, secured by accounts
receivable, inventory and fixed assets, bearing interest at 10.25% and
due February 1, 1999. 340,000
Irrevocable letter of credit due to Nations Bank, fka Bank IV, secured by accounts
receivable, inventory and fixed assets, bearing interest at 10.25% and due February 1,
1999. 99,696
---------
$ 909,561
=========
</TABLE>
All of these notes payable were paid off subsequent to year end in
conjunction with the merger with Golf Innovations, Inc. (Note 10).
NOTE 7 - COMMITMENTS AND CONTINGENCIES
a. Office Lease
The Company leases its office and warehouse space on a month-to-month
basis. Rent expense for the years ended December 31, 1998 and 1997 was
$52,241 and $51,600, respectively.
F-10
<PAGE>
AVID SPORTSWEAR, INC.
Notes to the Financial Statements
December 31, 1998 and 1997
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
b. Royalty Agreement
BRITISH OPEN COLLECTION. On December 8, 1998, the Company obtained the
sole and exclusive right and license to use certain trademarks
associated with the British Open Golf Championship. The licensor is The
Championship Committee Merchandising Limited, which is the exclusive
licensor of certain trademarks from The Royal & Ancient Golf Club of
St. Andrews, Scotland. This license is for the United States and its
territories and has a seven year term. Under this license, the Company
may manufacture, advertise, distribute and sell products bearing the
licensed trademarks to specialty stores and the menswear departments of
department stores. It is not permitted to sell these products to
discount stores or mass-market retail chains. In return for this
license, the Company must pay the licensor, on a quarterly basis, a
royalty equal to five percent of net wholesale sales of products
bearing these trademarks, subject to a guaranteed minimum royalty. Net
wholesale sales means the invoiced wholesale billing price, less
shipping, discounts actually given, duties, insurance, sales taxes,
value-added taxes and credits allowed for returns or defective
merchandise.
CONTRACT YEAR MINIMUM ROYALTY
1 $100,000
2 $125,000
3 $150,000
4 $175,000
5 $200,000
6 $200,000
7 $200,000
NOTE 8 - CONCENTRATIONS OF RISK
a. Cash
The Company maintains a cash account at a financial institution located
in Carson, California. The account is insured by the Federal Deposit
Insurance Corporation up to $100,000. The Company's balances
occasionally exceed that amount.
b. Accounts Receivable
The Company provides for accounts receivable as part of operations.
Management does not believe that the Company is subject to credit risks
outside the normal course of business.
c. Royalty Agreement
The Company has signed a licensing agreement with Major League Baseball
which expires on December 31, 1999. The agreement calls for the Company
to pay a royalty fee of 11% of sales of Major League Baseball apparel.
Royalty expense for the years ended December 31, 1998 and 1997 was
$17,942 and $23,500, respectively.
F-11
<PAGE>
AVID SPORTSWEAR, INC.
Notes to the Financial Statements
December 31, 1998 and 1997
NOTE 9 - CUSTOMERS AND EXPORT SALES
During 1998 and 1997, the Company operated one industry segment which
includes the manufacturing and marketing of apparel.
The Company's financial instruments subject to credit risk are
primarily trade accounts receivable from its customers.
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------------------------
1998 1997
----------------------- ---------------------
Foreign sales $ -- $ --
Domestic sales 3,721,829 2,848,815
----------------------- ---------------------
$ 3,721,829 $ 2,848,815
======================= =====================
NOTE 10 - MERGER WITH GOLF INNOVATIONS, INC.
On December 18, 1998, the Company entered into a stock purchase and
sales agreement (Agreement) with Golf Innovations, Inc. (GFIO), a
Nevada corporation. This Agreement was finalized on March 1, 1999. The
Agreement called for GFIO to purchase all of the outstanding stock of
the Company for $725,000 and 1,100,000 shares of GFIO stock.
Additionally, GFIO was to pay off all of the notes payable to the
shareholders of the Company and the notes payable to Nations Bank, fka
Bank IV. The total amounts of these notes was $1,826,119 at the date of
closing.
The following is an unaudited proforma consolidated balance sheet and
income statement assuming the issuance of 1,100,000 shares of common
stock by GFIO to acquire 100% of the outstanding shares of common stock
of the Company. The acquisition of the Company by GFIO will be
accounted for as a purchase of the Company by GFIO.
F-12
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR, INC.
CONSOLIDATED PROFORMA BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
PROFORMA
ADJUSTMENTS
INCREASE PROFORMA
GOLF INNOVATIONS, INC. AVID SPORTSWEAR, INC. (DECREASE) CONSOLIDATED
-----------------------------------------------------------------------------------------------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash $ 154,237 $ 40,282 $ 994,576 $ 1,189,095
Prepaid insurance 21,949 -- -- 21,949
Accounts receivable (net) -- 296,633 -- 296,633
Inventory -- 889,865 -- 889,865
-------------- -------------- ----------- ----------
Total Current Assets 176,186 1,226,780 994,576 2,397,542
-------------- -------------- ----------- ----------
FIXED ASSETS (NET) 2,162 271,293 -- 273,455
-------------- -------------- ----------- ----------
OTHER ASSETS
Trademarks -- 2,902 -- 2,902
Goodwill -- -- 1,779,428 1,779,428
Accumulated amortization -- -- (177,943) (177,943)
-------------- -------------- ----------- ----------
Total Other Assets -- 2,902 1,601,485 1,604,387
-------------- -------------- ----------- ----------
TOTAL ASSETS $ 178,348 $ 1,500,975 $ 2,596,061 $ 4,275,384
============== ============== =========== ==========
</TABLE>
F-13
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR, INC.
CONSOLIDATED PROFORMA BALANCE SHEET
DECEMBER 31, 1998
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
PROFORMA
ADJUSTMENTS
INCREASE PROFORMA
GOLF INNOVATIONS, INC. AVID SPORTSWEAR, INC. (DECREASE) CONSOLIDATED
---------------------- --------------------- ---------- ------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES
Accounts payable $ -- $ 364,489 $ -- $ 364,489
Accrued expenses -- 63,353 -- 63,353
Notes payable 210,000 1,852,561 -- 2,062,561
------------ -------------- --------- ----------
Total Current Liabilities 210,000 2,280,403 -- 2,490,403
------------ -------------- --------- ----------
TOTAL LIABILITIES 210,000 2,280,403 -- 2,490,403
------------ -------------- --------- ----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: 25,000,000 shares
authorized of $0.001 par value,
19,740,770 shares issued and
outstanding 14,612 764,170 (759,041) 19,741
Additional paid-in capital 613,193 -- 1,989,447 2,602,640
Stock subscription receivable (60,000) -- -- (60,000)
Receivable from related parties (352,300) -- -- (352,300)
Accumulated deficit (247,157) (1,543,598) 1,365,655 (425,100)
------------ -------------- --------- ----------
Total Stockholders' Equity (Deficit) (31,652) (779,428) 2,596,061 1,784,981
------------ -------------- --------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 178,348 $ 1,500,975 $ 2,596,061 $ 4,275,384
============ ============== ========= ----------
</TABLE>
F-14
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR, INC.
CONSOLIDATED PROFORMA STATEMENT OF OPERATIONS
DECEMBER 31, 1998
(UNAUDITED)
PROFORMA
ADJUSTMENTS
INCREASE PROFORMA
GOLF INNOVATIONS, INC. AVID SPORTSWEAR, INC. (DECREASE) CONSOLIDATED
---------------------- --------------------- ---------- ------------
<S> <C> <C> <C> <C>
SALES, NET $ -- $ 3,721,829 $ -- $ 3,721,829
------------ --------------- ------------ ------------
COST OF GOODS SOLD -- 2,678,906 -- 2,678,906
------------ --------------- ------------ ------------
Gross Profit -- 1,042,923 -- 1,042,923
------------ --------------- ------------ ------------
OPERATING EXPENSE
Selling expenses -- 576,260 -- 576,260
Depreciation and amortization 114 74,441 177,943 252,498
General and administrative 187,006 980,134 -- 1,167,140
------------ --------------- ------------ ------------
Total Operating Expenses 187,120 1,630,835 177,943 1,995,898
------------ --------------- ------------ ------------
OPERATING (LOSS) INCOME (187,120) (587,912) (177,943) (952,975)
------------ --------------- ------------ ------------
OTHER INCOME EXPENSES
Bad debt expenses -- (21,554) -- (21,554)
Interest income 45 -- -- 45
Other income 527 -- -- 527
Loss on valuation of asset (55,000) -- -- (55,000)
Interest expense -- (134,384) -- (134,384)
------------ --------------- ------------ ------------
Total Other Income Expenses (54,428) (155,938) -- (210,366)
------------ --------------- ------------ ------------
LOSS BEFORE INCOME TAXES (241,548) (743,850) -- (1,163,341)
INCOME TAXES -- -- -- --
------------ --------------- ------------ ------------
NET LOSS $ (241,548) $ (743,850) $ (177,943) $ (1,163,341)
============ =============== ============ ------------
</TABLE>
F-15
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR, INC.
SUMMARY OF PROFORMA ADJUSTMENTS
DECEMBER 31, 1998
(UNAUDITED)
<S> <C>
Proforma Adjustments
1) Goodwill (Golf Innovations) $ 1,779,428
Common stock (Avid) 764,170
Retained earnings (Avid) (1,543,598)
Common stock (Golf Innovations) (1,100)
Additional paid-in capital (Golf Innovations) (273,900)
Cash (Golf Innovations) (725,000)
=======================
$ --
=======================
To record purchase of Avid through the issuance of 1,100,000 shares of common stock valued
at $0.25 per share and $725,000 cash.
2) Cash (Golf Innovations) $ 1,719,576
Common stock (Golf Innovations) (4,029)
Additional paid-in capital (Golf Innovations) (1,715,547)
=======================
$ --
=======================
To record the sale of 4,028,770 shares of common stock to fund the purchase of AVID.
3) Amortization expense $ 177,943
Accumulated amortization - goodwill (177,943)
-----------------------
$ --
=======================
</TABLE>
To record 1 year of amortization expense based on a ten year life using the
straight-line method.
F-16
<PAGE>
PART III
ITEMS 1 AND 2. INDEX TO EXHIBITS AND DESCRIPTION.
EXHIBIT
NO. DESCRIPTION LOCATION
2.01 Stock Purchase and Sale Agreement Incorporated by reference to
dated as of December 18, 1998 among Exhibit 2.01 to the Registrant's
the Company, Avid Sportswear, Inc. Registration Statement on Form
and the shareholders of Avid 10-SB (the "Registration
Sportswear, Inc. Statement"),
3.01 Articles of Incorporation filed Incorporated by reference to
September 19, 1997 with the Nevada Exhibit 3.01 to the Registration
Secretary of State Statement
3.02 Amended Articles of Incorporation Incorporated by reference to
filed on May 12, 1999 with the Nevada Exhibit 3.02 to the Registration
Secretary of State Statement
3.04 Bylaws Incorporated by reference to
Exhibit 3.04 to the Registration
Statement
10.01 Agreement dated as of December 8, Incorporated by reference to
1998 between the Championship Exhibit 10.01 to the
Committee Merchandising Limited Registration Statement
and Avid Sportswear, Inc.
10.02 Lease dated as of March 1, 1999 Incorporated by reference to
between F & B Industrial Exhibit 10.02 to the
Investments, LLC and Avid Registration Statement
Sportswear, Inc.
10.03 Lease dated as of April 30, 1999 Incorporated by reference to
between Links Associates, Ltd. Exhibit 10.03 to the
and the Company Registration Statement
10.04 Employmnent Agreement dated Incorporated by reference to
September 11, 1999 between Barnum Exhibit 10.04 to the
Mow and Avid Sportswear, Inc. Registration Statement
Avid Sportswear Inc.
10.05 Trademark License Agreement dated Incorporated by reference to
as of May 10, 1999 between Levi Exhibit 10.05 to the
Strauss & Co. and Avid Sportswear, Registration Statement
Inc.*
10.06 Employment Agreement dated as of Incorporated by reference to
January 1, 1999 between David E. Exhibit 10.06 to the
Roderick and Avid Sportswear, Inc. Registration Statement
Avid Sportswear Inc.
10.07 Promissory Note in the original Incorporated by reference to
principal amount of $180,000 dated Exhibit 10.07 to the
as of June 4, 1999 from the Company Registration Statement
to First State Bank
10.08 Commercial Security Agreement dated Incorporated by reference to
as of November 17, 1999 between Exhibit 10.08 to the
First State Bank and the Company Registration Statement
10.09 Promissory Note dated as of Incorporated by reference to
November 17, 1999 in the original Exhibit 10.09 to the
27
<PAGE>
principal amount of $1,000,000 Registration Statement
given by the Company to First
State Bank
10.10 Business Loan Agreement dated as Incorporated by reference to
of November 17, 1999 between First Exhibit 10.10 to the
State Bank and the Company Registration Statement
11.01 Statement re: Computation of Not Applicable.
Earnings
16.01 Letter on Change in Certifying Not Applicable.
Accountant
21.01 Subsidiaries of the Company Incorporated by reference to
Exhibit 21.01 to the
Registration Statement
23.01 Consent of Independent Incorporated by reference to
Accountants Exhibit 23.01 to the
Registration Statement
24.01 Power of Attorney Not Applicable.
27.01 Financial Data Schedule Incorporated by reference to
Exhibit 27.01 to the
Registration Statement
- --------------------
* The Company has sought confidential treatment of the License Agreement
with Levi Strauss & Co. As a result, Exhibit 10.05 has been omitted and filed
separately with the Securities and Exchange Commission.
28
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunder duly authorized.
DATE: December 17, 1999 AVID SPORTSWEAR & GOLF CORP.
By: /s/ Earl T. Ingarfield
---------------------------------
Name: Earl T. Ingarfield
Title: President
29
