U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
|X| Quarterly Report Pursuant to Section 13 or 15(d) of Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31, 2000
|_| Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _______.
Commission File No. 000-28321
AVID SPORTSWEAR & GOLF CORP.
----------------------------
(Name of Small Business Issuer in Its Charter)
NEVADA 88-0374969
- ------ ----------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
22 SOUTH LINKS AVENUE, STE. 204
- -------------------------------
SARASOTA, FLORIDA 34236
- -------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(941) 330-8051
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months, and (2) has
been subject to such filing requirements for the past 90 days. Yes |X| No |_|
There were 39,126,420 shares of Common Stock outstanding as of May 15,
2000.
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
2
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND DECEMBER 31, 1999
<PAGE>
C O N T E N T S
Independent Accountants' Review Report................................... F-3
Consolidated Balance Sheets.............................................. F-4
Consolidated Statements of Operations.................................... F-6
Consolidated Statement of Stockholders' Equity (Deficit)................. F-7
Consolidated Statements of Cash Flows.................................... F-11
Notes to the Consolidated Financial Statements........................... F-13
F-2
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Avid Sportswear & Golf Corp.
Sarasota, Florida
We have reviewed the accompanying consolidated balance sheet of Avid Sportswear
& Golf Corp. as of March 31, 2000 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the periods ended
March 31, 2000 and 1999. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
consolidated financial information consists principally of applying analytical
procedures to financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of expressing an opinion
regarding the consolidated financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with accounting principles generally accepted in
the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Avid Sportswear
& Golf Corp. as of December 31, 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended (not
presented herein) and in our report dated February 26, 2000, we expressed an
unqualified opinion on those consolidated financial statements.
/s/ HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
May 9, 2000
F-3
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Consolidated Balance Sheets
ASSETS
March 31, March 31,
2000 1999
-------------- -------------
CURRENT ASSETS
Cash $ 654,992 $237,407
Accounts receivable, net (Note 1) 524,927 315,804
Inventory (Note 2) 1,486,096 1,885,390
Prepaid expenses 15,000 20,000
-------------- -------------
Total Current Assets 2,681,015 2,458,601
-------------- -------------
EQUIPMENT
Machinery and equipment 368,574 378,531
Furniture and fixtures 375,460 253,644
Show booths 643,799 298,479
Leasehold improvements 29,398 29,398
Less: accumulated depreciation (534,551) (502,938)
-------------- -------------
Total Equipment 882,680 457,114
-------------- -------------
OTHER ASSETS
Goodwill, net (Note 1) 2,282,120 2,346,103
Deposits 15,114 15,114
Trademarks 2,902 2,902
-------------- -------------
Total Other Assets 2,300,136 2,364,119
-------------- -------------
TOTAL ASSETS $5,863,831 $5,279,834
============== =============
See Accountants' Review Report and the accompanying notes to the
reviewed financial statements.
F-4
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
March 31 March 31
2000 1999
-------------- -------------
CURRENT LIABILITIES
Accounts payable $ 1,180,502 $ 1,504,858
Accrued expenses 444,378 200,865
Notes payable - related parties (Note 4) 813,175 300,000
Notes payable (Note 5) 1,700,108 1,735,524
Subscribed stock 1,786,175 12,500
-------------- -------------
Total Current Liabilities 5,924,338 3,753,747
-------------- -------------
Total Liabilities 5,924,338 3,753,747
-------------- -------------
`
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; 10,000,000 shares
authorized of $0.001 par value,
zero issued and outstanding -- --
Common stock; 50,000,000 shares
authorized of $0.001 par value,
29,411,479 and 26,374,022 shares
issued and outstanding 29,412 26,374
Additional paid-in capital 8,279,483 7,092,848
Common stock subscription receivable (285,000) (30,000)
Accumulated deficit (8,084,402) (5,563,135)
-------------- -------------
Total Stockholders' Equity (Deficit) (60,507) 1,526,087
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 5,863,831 $ 5,279,834
============== =============
See Accountants' Review Report and the accompanying notes to the
reviewed financial statements.
F-5
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Operations
For the Three Months Ended
------------------------------
March 31,
2000 1999
-------------- --------------
SALES, NET $ 1,029,308 $ 397,043
COST OF GOODS SOLD 774,293 124,339
------- -------
Gross Margin 255,015 272,704
------- -------
OPERATING EXPENSES
Selling expenses 611,484 112,712
Depreciation and amortization expense 95,596 33,170
General and administrative expenses 1,823,838 1,611,817
--------- ---------
Total Operating Expenses 2,530,918 1,757,699
--------- ---------
Loss from Operations (2,275,903) (1,484,995)
----------- -----------
OTHER INCOME (EXPENSE)
Interest income 188 2,941
Interest expense (250,971) (46,394)
Bad debt expense -- (595)
Gain on sale of asset 5,419 --
----- --------
Total Other Income (Expense) (245,364) (44,048)
--------- --------
INCOME TAX BENEFIT -- --
--------- --------
NET LOSS $ (2,521,267) $(1,529,043)
============= ============
BASIC LOSS PER SHARE (Note 1) $ (0.09) $ (0.08)
============= ============
See Accountants' Review Report and the accompanying notes to the
reviewed financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit)
Additional
Common Stock Paid-in Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
------ ------ ------- ---------- -------
<S> <C> <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 -
related party at $0.05 per share
6,000,000 6,000 294,000 -- --
August 1998, common stock issued to
related parties for subscriptions and cash
at $0.15 per share 1,100,000 1,100 163,900 (15,000) --
August 1998, common stock issued for cash
and subscriptions at $0.15 per share
800,000 800 119,200 (45,000) --
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 -- -- -- -- (521,548)
---------- --------- -------- --------- ----------
Balance, December 31, 1998 14,612,000 $ 14,612 $893,193 $ (60,000) $ (527,157)
---------- --------- -------- --------- ----------
</TABLE>
See Accountants' Review Report and the accompanying notes to the
reviewed financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Additional
Common Stock Paid-in Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 14,612,000 $ 14,612 $ 893,193 $ (60,000) $ (527,157)
January 5, 1999, common stock
issued for cash, services and debt,
valued at $0.75 per share 590,000 590 441,910 -- --
January 5, 1999, common stock issued for
cash and debt, valued at $0.75 per share
866,670 867 649,133 -- --
January 8, 1999, common stock issued for
cash at $0.75 per share
210,668 211 157,789 -- --
January 8, 1999, warrants issued below
market value -- -- 53,235 -- --
January 11, 1999, common stock issued for
cash and services, valued at $0.75 per
share
560,000 560 419,440 -- --
January 11, 1999, common stock issued for
media services valued at $0.75 per share
800,000 800 599,200 -- --
January 20, 1999, common stock issued for
cash and services valued at $0.75 per
share
160,000 160 119,840 -- --
January 27, 1999, common stock issued to
purchase Avid Sportswear valued at $0.75
per share 1,100,000 1,100 823,900 -- --
February 4, 1999, common stock issued
for cash at $0.75 per share
372,002 372 278,630 -- --
---------- --------- ---------- ---------- ---------
Balance Forward 19,271,340 $ 19,272 $4,436,270 $ (60,000) $ (527,157)
---------- --------- ---------- ---------- ---------
</TABLE>
See Accountants' Review Report and the accompanying notes to the
reviewed financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Additional
Common Stock Paid-in Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance Forward 19,271,340 $ 19,272 $ 4,436,270 $ (60,000) $ (527,157)
March 11, 1999, common stock issued for
cash and services valued at $0.75 per
share
1,220,000 1,220 913,780 -- --
March 11, 1999, common stock issued for
cash at $0.75 per share
83,334 83 62,417 -- --
March 11, 1999, common stock issued for
cash at $0.75 per share
18,334 18 13,732 -- --
May 28, 1999, common stock issued for
cash at $0.75 per share
101,100 101 75,724 -- --
September 20, 1999, common stock issued
for cash and services, valued at $0.75
per share
50,000 50 37,450 -- --
December 28, 1999, common stock issued
for conversion of debt to equity at $0.22
per share
5,344,200 5,344 1,170,380 -- --
Conversion of debt below market value
-- -- 293,381 -- --
December 31, 1999, common stock issued
for cash at $0.35 per share
285,714 286 99,714 -- --
Stock offering costs -- -- (10,000) -- --
Receipt of stock subscription -- -- -- 30,000 --
Net loss for the year ended December
31,1999 -- -- -- -- (5,035,978)
---------- --------- ----------- --------- -----------
Balance, December 31, 1999 26,374,022 $ 26,374 $ 7,092,848 $ (30,000) $(5,563,135)
========== ========= =========== ========= ===========
</TABLE>
See Accountants' Review Report and the accompanying notes to the
reviewed financial statements.
F-9
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Additional
Common Stock Paid-in Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 26,374,022 $ 26,374 $ 7,092,848 $ (30,000) $ (5,563,135)
January 17, 2000, common stock issued
for services at $0.30 per share
1,220,000 1,220 358,800 (270,000) --
January 17, 2000 options granted below
market value -- -- 75,000 -- --
January 25, 2000, common stock issued
for conversion of debt to equity at
$0.375 per share 1,241,874 1,242 464,461 -- --
February 1, 2000, common stock issued
for conversion of debt to equity at
$0.437 per share 695,583 696 303,274 -- --
March 6, 2000 canceled 100,000 shares
common stock, issued in February 1998,
at $0.15 per share and canceled
subscription receivable in the amount
of $15,000 (100,000) (100) (14,900) 15,000 --
Net loss for the three months ended
March 31, 2000 -- -- -- -- (2,521,267)
---------- --------- ----------- ----------- -----------
Balance, March 31, 2000 29,411,479 $ 29,412 $ 8,279,483 $ (285,000) $(8,084,402)
========== ========= =========== =========== ===========
</TABLE>
See Accountants' Review Report and the accompanying notes to the
reviewed financial statements.
F-10
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Cash Flows
For the Three Months Ended
March 31,
------------------------------
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (2,521,267) $ (1,529,043)
Adjustments to reconcile net (loss) to net
cash used in operating activities:
Depreciation and amortization 95,596 40,196
Common stock issued for services 327,613 1,075,000
Changes in operating assets and liabilities:
(Increase) in accounts receivable (209,123) (49,559)
Increase for prepaid insurance 5,000 3,169
(Increase) decrease in inventory 397,294 (80,000)
Increase (decrease) in accounts payable (324,356) 223,761
Increase (decrease) in accrued expenses 243,513 (4,282)
------------ ----------
Net Cash Used in Operating Activities (1,985,730) (320,758)
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (457,179) (5,847)
------------ ----------
Net Cash Used in Investing Activities (457,179) (5,847)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash purchased with Avid Sportswear, Inc. -- 40,282
Payment to Avid shareholders -- (725,000)
Proceeds from notes payable -- 973,450
Payments on notes payable (35,416) (1,852,561)
Proceeds from related party notes payable 1,122,235 --
Issuance of common stock for cash -- 1,464,708
Receipt of related party receivable -- 352,300
Proceeds from subscribed stock 1,773,675 --
------------ ------------
Net Cash Provided by Financing Activities 2,860,494 253,179
------------ ------------
NET INCREASE (DECREASE) IN CASH 417,585 (73,426)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 237,407 154,237
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 654,992 $ 80,811
============ ============
See Accountants' Review Report and the accompanying notes to the
reviewed financial statements.
F-11
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Cash Flows (Continued)
For the Three Months
Ended
March 31,
--------------------------
2000 1999
--------------------------
CASH PAID FOR:
Interest $ 90,783 $ 36,592
Income tax $ -- $ --
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Issuance of common stock for subsidiary $ -- $ 275,000
Issuance of common stock for debt $ 615,738 $ --
Issuance of common stock for services $ 90,000 $ --
Conversion of debt below market $ 237,613 $ --
See Accountants' Review Report and the accompanying notes to the
reviewed financial statements.
F-12
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - NATURE OF ORGANIZATION
This summary of significant accounting policies of Avid
Sportswear & Golf Corp. (formerly Golf Innovations Corp.) is
presented to assist in understanding the Company's consolidated
financial statements. The consolidated 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
consolidated financial statements.
a. Organization and Business Activities
Avid Sportswear & Golf Corp. was incorporated under the laws of
the State of Nevada on September 19, 1997 as Golf Innovations
Corp. On April 19, 1999, the board of directors voted to change
the name of the Company to Avid Sportswear & Golf Corp. to better
reflect the business of the Company. Additionally, the board of
directors voted to change the authorized capitalization to
50,000,000 shares of common stock with a par value of $0.001 and
10,000,000 shares of preferred stock with a par value of $0.001.
On July 13, 1998, the board of directors authorized a 3-for-1
forward stock split. All references to common stock have been
retroactively restated. The rights and preferences of the
preferred stock are to be set at a later date. The Company is
engaged in the business of producing and selling golf wear
related products.
b. Depreciation
Depreciation is provided using the straight-line method over the
assets' estimated useful lives as follows:
Machinery and equipment 5-10 years
Furniture and fixtures 3-5 years
Show booths 5 years
Leasehold improvements 5 years
c. Accounting Method
The Company's consolidated 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 the estimates.
F-13
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - NATURE OF ORGANIZATION (Continued)
f. Basic Loss Per Share
The computation of basic loss per share of common stock is based on the
weighted average number of shares outstanding during the period of the
financial statements as follows:
For the Three Months Ended
March 31,
------------- -------------
2000 1999
------------- -------------
Numerator (net loss) $ (2,561,267) $ (1,529,043)
Denominator (weighted average
number of shares outstanding) 28,674,056 19,695,388
------------- -------------
Loss per share $ (0.09) $ (0.08)
============= =============
Fully diluted loss per share is not presented as any common stock
equivalents are antidilutive in nature.
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 $8,000,000 at March 31, 2000 which
expire in 2020. 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 two banks.
Corporate cash accounts at banks are insured by the FDIC for up to
$100,000. Amounts in excess of insured limits were approximately
$400,000 at March 31, 2000.
i. Goodwill
Goodwill generated from the purchase of Avid Sportswear, Inc. is
amortized over a ten-year life using the straight-line method. The
Company will evaluate the recoverability of the goodwill annually. Any
impairment of goodwill will be realized in the period it is recognized
per the requirements of SFAS No. 121.
j. Allowance for Doubtful Accounts
The Company's accounts receivable are shown net of an allowance for
doubtful accounts of $177,202 and $184,912 at March 31, 2000 and
December 31, 1999, respectively.
k. Reclassification
Certain March 31, 2000 balances have been reclassified to conform with
the March 31, 1999 financial statement presentation.
l. Advertising Expense
The Company expenses advertising costs as incurred.
F-14
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 1 - NATURE OF ORGANIZATION (Continued)
m. Principles of Consolidation
The consolidated financial statements presented include the accounts of
Avid Sportswear & Golf Corp. and Avid Sportswear, Inc. All significant
intercompany accounts have been eliminated.
n. Revenue Recognition
The Company's revenue is created primarily from the sale of men's golf
apparel. Revenue is recognized when the product is shipped to and
accepted by the customer.
o. Subscribed Stock
Subscribed stock represents cash received from shareholders for the
Company's common shares for which the shares to be issued have not been
issued. The balance of $1,773,675 will be converted into 5,067,612
shares of common stock at $0.35 per share.
NOTE 2 - INVENTORY
Inventories for March 31, 2000 consisted of the following:
March 31,
2000
-----------------
Finished goods $ 1,464,691
Raw materials and supplies $ 21,405
Total $ 1,486,096
=================
Inventories for raw materials, finished goods and work-in-process are
stated at the lower of cost or market.
NOTE 3 - EQUITY TRANSACTIONS
The following are the equity transactions for quarter ended March 31,
2000:
On January 17, 2000, the Company issued 1,200,000 shares of common
stock for services to be rendered in 2000 at $0.30 per share.
On January 17, 2000, the Company granted options to purchase 1,000,000
shares of common stock at $0.30 per share. The Company recorded
additional expense of $75,000 to reflect the discount.
On January 25, 2000, the Company issued 1,241,874 shares of common
stock for conversion of debt to equity at $0.375 per share. The Company
recorded additional interest expense of $93,141 to reflect the discount
on conversion.
On February 1, 2000, the Company issued 695,583 shares of common stock
for conversion of debt to equity at $0.437 per share. The Company
recorded additional interest expense of $67,472 to reflect the discount
on conversion.
F-15
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 3 - EQUITY TRANSACTIONS (Continued)
On March 6, 2000, the Company canceled 100,000 shares of common stock
issued in February 1998, at $0.15 per share and canceled the
subscription receivable in the amount of $15,000.
On March 6, 2000, the Company authorized issuance of 7,124,858 shares
for a total price of $2,500,000 or $0.35 per share.
NOTE 4 - NOTES PAYABLE - RELATED PARTIES
Note payable - related party consisted of the following at March 31,
2000:
Note payable to Director dated December 9, 1999,
bearing interest at 10%, unsecured and due on demand. $ 300,000
Notes payable to officers and directors, bearing interest
at 10%, unsecured and due on demand. 513,175
------------
Total Notes Payable - Related Parties $ 813,175
============
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following at March 31, 2000:
Note payable to bank bearing interest at 9.25%,
requiring monthly interest payments of $7,708 with
the principal due on November 17, 2000, secured by
assets of the Company, personal guarantees of
certain officers and certificates of deposits of
the officers at the bank. $1,000,000
Note payable to the bank bearing interest at 8.25%,
requiring monthly interest payments of $1,106 with
the principal due on June 14, 2000, secured by
assets of the Company, personal guarantees of
certain officers and certificates of deposits of
the officers at the bank. 125,108
Note payable to individual dated December 24, 2000,
bearing interest at 12%, principal and interest due
by January 31, 2000, secured by personal guarantees
of certain officers. 200,000
Note payable to shareholder dated January 29, 1999,
bearing interest at 8.50%, secured by personal
guarantee of chief executive officer, due on demand. 375,000
------------
Total notes payable 1,700,108
Less: amounts due by December 31, 2000 (1,700,108)
------------
Total long-term debt $ -
============
F-16
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 6 - COMMITMENTS AND CONTINGENCIES
a. Office Lease
The Company leases its office and warehouse space under a
non-cancelable operating lease which expires on March 31, 2004. The
monthly rent amount is $10,113. Rent expense for the three months ended
March 31, 2000 was $30,339.
Future payments required under the lease terms are as follows:
For the
Years Ended
December 31,
------------
2000 $ 91,026
2001 121,368
2002 121,368
2003 121,368
2004 30,342
-------------
$ 485,472
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. The Company 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. The Company has accrued a payable of $131,250 as of March
31, 2000 as a minimum guaranteed royalty. This amount is included in
the accrued expenses.
F-17
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
b. Royalty Agreement (Continued)
Minimum
Contract Year Royalty
------------- -------
1 $ 100,000
2 $ 125,000
3 $ 150,000
4 $ 175,000
5 $ 200,000
6 $ 200,000
7 $ 200,000
c. Royalty Agreement
DOCKERS GOLF. On May 10, 1999, our wholly-owned subsidiary obtained the
exclusive, non-assignable 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. The license has an initial term expiring on December 31,
2003 and will renew for an additional three year term expiring December
31, 2006 if: (i) net sales of the licensed products for calendar year
2002 are at least $17.0 million and (ii) our wholly-owned subsidiary
has not violated any material provisions of the license. Thereafter,
the licensor will negotiate in good faith for up to two additional
three year terms if: (i) the license is renewed for the initial renewal
period, (ii) our wholly-owned subsidiary's net sales for each year in
the initial renewal period have exceeded its projected sales for each
such year and (iii) our wholly-owned subsidiary has not violated any
material provisions of the license. Subject to a guaranteed minimum
royalty, our wholly-owned subsidiary must pay the licensor a royalty of
six percent of net sales of first quality products and four percent of
net sales of second quality products and close-out or end-of season
products. If second quality products and close-out or end-of-season
products account for more than ten percent of total licensed product
sales, then the royalty on such products will be six percent instead of
four percent. The guaranteed minimum royalty is as follows: The minimum
guaranteed royalties will begin in 2000 when the Company begins
marketing the product.
Minimum
Contract Year Royalty
------------- -------
1 $ 250,000
2 $ 540,000
3 $ 765,000
4 $ 990,000
F-18
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 6 - COMMITMENTS AND CONTINGENCIES (Continued)
c. Royalty Agreement (Continued)
The guaranteed minimum royalty in the initial renewal period, if any,
will be equal to seventy-five percent of our wholly-owned subsidiary's
projected earned royalty derived from the sales plan provided for each
annual period contained in the initial renewal period. The guaranteed
minimum royalty is payable quarterly, except for the first year in
which it is payable as follows: $25,000 on March 31, 2000, $50,000 on
June 30, 2000, and $100,000 on December 31, 2000.
Our wholly-owned subsidiary is required to spend at least three percent
of its projected sales of licensed products for each year on
advertising for this brand. Between June 1, 1999 and December 31, 1999,
it was required to spend at least $240,000 on initial product launch
advertising. The license requires our wholly-owned subsidiary to
produce two collections per year for the spring/summer and winter/fall
seasons, in at least 52 styles, of which 40 must be tops and 12
bottoms. The licensor has the right to approve or disapprove in advance
of sale the trademark use, styles, designs, dimensions, details,
colors, materials, workmanship, quality or otherwise, and packaging.
The licensor also has the right to approve or disapprove any and all
endorsements, trademarks, trade names, designs and logos used in
connection with the license. Samples of the licensed products must be
submitted to the licensor for examination and approval or disapproval
prior to sale.
d. Employment Agreements
The Company's wholly-owned subsidiary has 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 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.
Mow also received a bonus of $25,000 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.
The Company's wholly-owned subsidiary has 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.
F-19
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 7 - CONCENTRATIONS OF RISK
a. Cash
The Company maintains cash accounts at financial institutions located
in Sarasota, Florida and Carson, California. The accounts are 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. Accounts Payable
The Company has one vendor which accounts for 40% of the total accounts
payable.
NOTE 8 - CUSTOMERS AND EXPORT SALES
During 1999, the Company operated one industry segment which was the
manufacturing and marketing of sports apparel.
The Company's financial instruments subject to credit risk are
primarily trade accounts receivable from its customers.
For the Three Months
Ended
March 31,
--------------------------
2000 1999
--------------------------
Foreign sales $ -- $ --
Domestic sales 1,029,308 397,043
------------ ------------
$ 1,029,308 $ 397,043
============ ============
NOTE 9 - OPTIONS AND WARRANTS
The Company had the following options and warrants outstanding at
March 31, 2000:
Number Date Granted Exercise Price Exercise Date
------ ------------ -------------- -------------
100,000 Feb. 1, 2000 $ 0.50 Aug. 1, 2003
39,000 Jan. 8, 1999 $ 0.01 Jan. 16, 2005
1,000,000 Jan. 17, 2000 $ 0.30 Jan. 16, 2005
864,477 Jan. 25, 2000 $ 0.375 Jan. 24, 2005
285,714 Dec. 31, 1999 $ 1.50 Nov. 30, 2004
The Company recognized an expense of $53,235 on January 8, 1999.
F-20
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
March 31, 2000 and December 31, 1999
NOTE 10 - RELATED PARTY TRANSACTIONS
During the three months ended March 31, 2000, officers and directors
of the Company advanced an additional $513,175 to the Company. The
total amount owed by the Company to officers and directors of the
Company as of March 31, 2000 was $813,175 (Note 4).
Certain officers and directors have pledged certificate of deposits as
additional collateral for the notes payable to the bank. Additionally,
these officers and directors have personally guaranteed the notes
payable to the banks, as well as the office lease agreement in Carson,
California.
NOTE 11 - 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. At March 31, 2000, Company has current
liabilities in excess of current assets of $3,243,323 and has
generated significant losses for the three months ended March 31, 2000
and 1999 and for the years ended December 31, 1999 and 1998. For the
year ended December 31, 2000, the Company anticipates that it will
need $2,000,000 to $4,000,000 of cash above the cash generated by
operations in order to meet operating requirements. Management
anticipates that the necessary cash will be provided from existing
shareholders and from the sales of additional shares through private
placements.
F-21
<PAGE>
ITEM 2. MANAGEMENT'S PLAN OF OPERATION AND DISCUSSION AND ANALYSIS.
-----------------------------------------------------------
INTRODUCTORY STATEMENTS
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. THIS FILING CONTAINS
FORWARD-LOOKING STATEMENTS, INCLUDING STATEMENTS REGARDING, AMONG OTHER THINGS,
(A) OUR COMPANY'S PROJECTED SALES AND PROFITABILITY, (B) OUR COMPANY'S GROWTH
STRATEGIES, (C) ANTICIPATED TRENDS IN OUR COMPANY'S INDUSTRY, (D) OUR COMPANY'S
FUTURE FINANCING PLANS, (E) OUR 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 FORWARD-LOOKING STATEMENTS. THESE
FORWARD-LOOKING STATEMENTS ARE BASED LARGELY ON OUR COMPANY'S EXPECTATIONS AND
ARE SUBJECT TO A NUMBER OF RISKS AND UNCERTAINTIES, MANY OF WHICH ARE BEYOND OUR
COMPANY'S CONTROL. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THESE
FORWARD-LOOKING STATEMENTS AS A RESULT OF CHANGES IN TRENDS IN THE ECONOMY AND
OUR COMPANY'S INDUSTRY, DEMAND FOR OUR 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 OUR 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.
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.
PLAN OF OPERATIONS
ADDITIONAL FUND RAISING ACTIVITIES. As of March 31, 2000, we had
$654,992 cash-on-hand. We have historically funded our operations through a
combination of internally generated cash, funds loaned to our company by certain
of its officers and directors and through the sale of securities. Since March
31, 2000, we have raised approximately $2.5 million from the sale of securities.
See "Changes in Securities and Use of Proceeds." Our company intends to register
these securities (approximately 10,000,655 shares of common stock) and any
additional securities sold in our company's private offering with the Securities
and Exchange Commission as soon as reasonably practicable. See "Certain Business
Risk Factors - Sales of common stock by private placement investors may cause
our stock price to decline." We will need to raise additional funds to meet
expected demand for our products in 2000 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.
SUMMARY OF ANTICIPATED PRODUCT DEVELOPMENT. We spent approximately
$350,000 on product development in 1999 and expect to spend approximately
$500,000 on product development in 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, 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.
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<PAGE>
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 60 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.
PROJECTED
CURRENT EMPLOYEES
DEPARTMENT EMPLOYEES 2000
---------- --------- ----
Marketing and Sales 5 7
Embroidery and Sewing 27 32
Warehousing and Delivery 9 10
Design and Production Control 3 5
Administrative and Other
Support Positions 16 21
-------- -------
Total Employees 60 75
-------- -------
Independent Contractors - Sales 31 34
-------- -------
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the
percentage of net sales represented by certain items in our company's
Consolidated Statement of Operations for the quarter ended March 31, 2000 and
1999:
PERCENTAGE OF SALES
QUARTER ENDED QUARTER ENDED
MAR. 31, 2000 MAR. 31, 1999
------------- -------------
Sales, net 100.0% 100.0%
Cost of goods sold (75.2%) (31.3%)
Gross margin 24.8% 68.7%
Operating expenses (245.9%) (442.7%)
(Loss) from operations (221.1%) (374.0%)
Interest expense (24.4%) (11.7%)
Net loss (245.0%) (385.1%)
4
<PAGE>
THREE-MONTH PERIODS ENDED MARCH 31, 2000 AND 1999
Our results of operations for the three-month period ended March 31,
1999, included one month of operations of our wholly-owned subsidiary, Avid
Sportswear, Inc. We acquired Avid Sportswear, Inc. on March 1, 1999. Our results
of operations in the three-month period ended March 31, 2000, included three
months of operations of our wholly-owned subsidiary.
SALES, NET. Sales, net increased $0.6 million, or 159.2%, from $0.4
million to $1.0 million in the three months ended March 31, 2000 compared to the
same period in the prior year. This increase was primarily attributable to the
operations of our wholly-owned subsidiary, Avid Sportswear, Inc. The three-month
period ended March 31, 2000, included three months of operating results compared
to one month of operating results in the same period in the prior year.
COST OF GOODS SOLD. Cost of goods sold increased $0.6 million, or
522.7%, from $0.1 million to $0.7 million in the three months ended March 31,
2000 compared to the same period in the prior year. Cost of goods sold as a
percentage of sales, net, increased from 31.3% in the three months ended March
31, 1999 to 75.2% in the three months ended March 31, 2000. This increase was
primarily attributable to increased sales, net and the higher cost of materials
incurred in connection with the introduction of the Dockers Golf and British
Open Collection product lines.
GROSS PROFIT. Gross profit decreased $17,689 in the three months ended
March 31, 2000 compared to the same period in the prior year. Gross profit as a
percentage of sales, net decreased from 68.7% to 24.8% in the three months ended
March 31, 1999 and 2000, respectively. This decrease was primarily attributable
to the increase in cost of goods sold in the current period compared to the same
period in the prior year.
SELLING EXPENSES. Selling expenses increased $0.5 million, or 442.5%,
from $0.1 million to $0.6 million in the three months ended March 31, 2000
compared to the same period in the prior year. This increase was primarily
attributable to the start-up costs incurred in connection with the introduction
of the Dockers Golf and British Open Collection product lines.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $0.2 million, or 13.2%, from $1.6 million to $1.8 million in
the three months ended March 31, 2000 compared to the same period in the prior
year. This increase was primarily attributable to the issuance of common stock
for services, including 1.2 million shares of common stock issued to Barnum Mow,
a director of our company and Chief Executive Officer of our wholly-owned
subsidiary, Avid Sportswear, Inc. and options to purchase a total of 1.0 million
shares of common stock issued below market value to Earl T. Ingarfield, our
Chairman and Chief Executive Officer of our company, Thomas Browning, a director
of our company, Michael LaValliere, a director of our company, and two
shareholders of our company. These options were granted in exchange for personal
guaranties of corporate indebtedness. These transactions accounted for
approximately $0.3 million of general and administrative expenses in the
three-month period ended March 31, 2000.
INTEREST EXPENSE. Interest expense increased $0.2 million, or 441.0%,
in the three-month period ended March 31, 2000, compared to the same period in
the prior year. This increase consisted primarily of $0.2 million of interest
expense to reflect a discount given in connection with the conversion of debt to
equity. In total, $0.6 million of debt was converted into 1.9 million shares of
common stock at an average price of $0.314 per share.
NET LOSS. Net loss increased $1.0 million, or 64.9%, from $1.5 million
to $2.5 million in the three months ended March 31, 2000 compared to the same
period in the prior year. This increase was primarily attributable to the
increase in cost of goods sold, general and administrative expenses and interest
expense in the three-month period ended March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000, we had $654,992 in cash-on-hand, consisting
mainly of the net proceeds from the sale of common stock. A discussion of how we
generated and used cash in the period follows:
5
<PAGE>
OPERATING ACTIVITIES. Our operating activities used $2.0 million in
cash during the three-month period ended March 31, 2000, consisting mainly of a
net loss of $2.5 million, partially offset by common stock issued for services
valued at $0.4 million.
INVESTING ACTIVITIES. Our investing activities used $0.5 million in
cash during the three-month period ended March 31, 2000, consisting mainly of
the purchase of steam machines, embroidery equipment, exhibit booths for trade
shows and computer equipment.
FINANCING ACTIVITIES. Financing activities provided net cash of $2.9
million, generated mainly by the sale of common stock in the amount of $1.8
million and the receipt of net loan proceeds of $1.1 million.
Since March 31, 2000, we have funded our operations primarily through
the sale of our common stock in a private offering, including subscriptions of
approximately $2.5 million from the sale of our common stock at a price of $0.35
per share. 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.
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 (i.e., January through June), and lowest
during our third and fourth calendar quarters (i.e., July through December).
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.
GOING CONCERN OPINION
Our independent auditors have added an explanatory paragraph to their
audit opinions issued in connection with the 1999 and 1998 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.
CERTAIN BUSINESS RISK FACTORS
We are subject to various risks, which may have a material adverse
effect on our company's business, financial condition and results of operations.
Certain risks are discussed below:
WE HAVE HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE IN THE FUTURE
We have historically lost money. In the three months ended March 31,
2000, we sustained a loss of $2.5 million. In the years ended December 31, 1999
and December 31, 1998, we sustained losses of $5.0 million and $0.5 million,
respectively. The losses for 1998 exclude the operating results of our
wholly-owned subsidiary because it was not acquired until March 1, 1999.
Assuming the purchase of our wholly-owned subsidiary had occurred on January 1,
1998 instead of on March 1, 1999, we would have sustained losses of $1.5 million
in 1998. Future losses are likely to occur. For the years ended December 31,
1999 and 1998, 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,
6
<PAGE>
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 our
anticipated operating expenses and 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
and may result in a lower stock price.
RELIANCE ON RELATED PARTIES FOR FINANCING
We have 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 our operations in the
future, as these related parties have no legal obligation to provide such
funding. Until our operations become self-sufficient, if at all, or we obtain
sufficient capital from other sources, the decision by these officers and
directors to stop funding us in the future may result in the need to curtail
business operations, and may also jeopardize our ability to satisfy the minimum
royalty payments payable under the Dockers Golf and British Open Collection
licenses. This outcome may result in a lower stock price.
SALE OF COMMON STOCK BY PRIVATE PLACEMENT INVESTORS MAY CAUSE OUR STOCK
PRICE TO DECLINE
We intend to file a registration statement on behalf of the private
placement shareholders with the Securities and Exchange Commission. This
registration statement will permit such private placement shareholders to freely
sell their shares of common stock into the open market. Such sales without
corresponding demand may cause our stock price to decline.
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.
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
7
<PAGE>
o Acquire products offering new price points.
If we are not correct when we assess the value, strengths, 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, and our stock price
may decline.
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 us to obtain a letter of credit prior to purchasing any
garments. We may have to utilize a significant portion of our available working
capital to secure these letters of credit.
IMPORT RESTRICTIONS MAY HARM US
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 MAY FLUCTUATE SIGNIFICANTLY
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
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.
8
<PAGE>
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.
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.
Broker/dealers dealing in penny stocks are required to provide
potential investors with a document disclosing the risks of penny stocks.
Moreover, broker/dealers are required to determine whether an investment in a
penny stock is a suitable investment for a prospective investor. These
requirements may reduce the potential market for our common stock by reducing
the number of potential investors. This may make it more difficult for investors
in our common stock to resell shares to third parties or to otherwise dispose of
them. This could cause our stock price to decline.
OUR STOCK PRICE COULD DECLINE DUE TO SEASONAL FLUCTUATIONS IN THE
DEMAND FOR OUR PRODUCTS AND GENERAL ECONOMIC CONDITIONS
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 (i.e., January through June), and lowest
during our third and fourth calendar quarters (i.e., July through December).
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.
In addition, any downturn, whether real or perceived, in general
economic conditions or prospects could change consumer spending habits and
decrease demand for our products.
As a result of these and other factors, our operating results may fall
below market analysts' expectations in some future quarters, and our stock price
may decline.
OUR OFFICERS AND DIRECTORS EXERCISE CONTROL OF THE COMPANY
Our executive officers and directors beneficially own approximately
52.9% 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, which may result in
shareholders not receiving a premium on their stock.
WE COULD FAIL TO ATTRACT OR RETAIN 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 our company. The loss of the services of any of
these people could materially harm our business because of the cost and time
necessary to replace and train such personnel. Such a loss would also divert
management attention away from operational issues. We do not have an employment
agreement with Mr. Busiere. We have entered into three year employment
9
<PAGE>
agreements with Mr. Ingarfield and Mr. Mow, respectively. We do not maintain
key-man life insurance policies on any of these people.
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 and to collect trade credit will further strain
our cash position and hamper our ability to pay our bills.
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.
OUR FLEXIBILITY TO USE ANY CASH FROM OUR OPERATIONS OR EXTERNAL
FINANCING MAY BE LIMITED DUE TO MINIMUM ROYALTY PAYMENTS
We are required to pay minimum royalty payments under the licenses for
the "Dockers Golf" and "British Open Collection," whether we sell licensed
products or not. Our ability to use available cash as we see fit may be
restricted due to our obligation to pay these minimum royalty payments. This
could place a strain on our ability to pay other bills or to spend such cash in
the most productive manner. As a result, we may not be able to purchase
equipment, to take advantage of corporate opportunities or to maximize our
operating results.
10
<PAGE>
PART II
OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
We are not aware of any legal proceedings involving our company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
(a), (b) and (d) None.
(c) SALES OF UNREGISTERED SECURITIES. Some of the transactions
described below have been made by Lido Capital Corporation, an entity
wholly-owned by Mr. Ingarfield, our Chairman and Chief Executive Officer.
Because Mr. Ingarfield has exclusive control over Lido Capital Corporation, all
transactions involving either Mr. Ingarfield or Lido Capital Corporation are
reflected as transactions with Mr. Ingarfield.
In January 2000, our company issued a total of 825,207 shares of common
stock to Mr. Ingarfield for the conversion of $247,562 of indebtedness to equity
at a price of $0.30 per share. In addition, our company issued a total of
416,667 shares of common stock to Mr. LaValliere for the conversion of $125,000
of indebtedness to equity at a price of $0.30 per share. An additional interest
expense of $93,141 was recorded to value the shares at $0.375 per share to
reflect a 20% discount on the conversion.
In February 2000, our company issued a total of 695,583 shares of
common stock to Mr. Ingarfield for the conversion of $236,498 of indebtedness to
equity at a price of $0.34 per share. An additional interest expense of $67,472
was recorded to reflect to value the shares at $0.275 per share to reflect a 20%
discount on the conversion. In addition, in February 2000, our company issued
1,200,000 shares to Barnum Mow in consideration of his employment. These shares
were valued at $0.30 per share. See "Executive Compensation - Restricted Stock
Grant."
Between February 22, 2000 and May 12, 2000, our company sold
subscriptions to purchase 9,714,941 shares of our common stock at a price of
$0.35 per share for cash of $3.4 million. All of these shares were purchased by
unrelated persons.
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 (the "1933 ACT"), and Regulation D promulgated under the
1933 Act. In each instance, the purchaser had access to sufficient information
regarding our company so as to make an informed investment decision. More
specifically, and except with respect to the purchases 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:
o the ability to bear the economic risks of an investment in the
shares of common stock of our company;
o a certain net worth sufficient to meet the suitability standards of
our 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 our company
concerning our company and the terms of the offering.
The sale of unregistered securities to Lido Capital Corporation and
Messrs. Ingarfield, Browning, LaValliere and Roderick were exempt from
registration pursuant to Section 4(2) of the 1933 Act and Regulation D
promulgated under the 1933 Act. Each of these investors was an officer or
director of our company at the time of purchase, except for Lido Capital
Corporation, which was wholly-owned and controlled by an officer and director of
our company, Mr. Ingarfield.
11
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
--------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
None.
ITEM 5. OTHER INFORMATION.
------------------
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
---------------------------------
(A) EXHIBITS.
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
2.01 Stock Purchase and Sale Agreement Incorporated by reference to
dated as of December 18, 1998 Exhibit 2.01 to the Registrant's
among our company, Avid Sportswear, Registration Statement on
Inc. and the shareholders of Avid Form 10-SB (the "Registration
Sportswear, Inc. Statement")
3.01 Articles of Incorporation filed on 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 Exhibit 3.02 to the Registration
Nevada Secretary of State Statement
3.03 Certificate of Amendment to Incorporated by reference to
Articles of Incorporation filed Exhibit 3.03 to the Registration
on May 27, 1999 with the Nevada Statement
Secretary of State
3.04 Bylaws Incorporated by reference to
Exhibit 3.04 to the Registration
Statement
4.01 2000 Stock Incentive Plan Incorporated by reference to
Exhibit 4.01 to Amendment No. 2
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 our company Registration Statement
10.04 Employment Agreement dated as of, Incorporated by reference to
September 11, 1999 between Barnum Exhibit 10.04 to the
Mow and Avid Sportswear, Inc. Registration Statement
10.05 Trademark License Agreement dated Incorporated by reference to
as of May 10, 1999 between Levi Exhibit 10.05 to Amendment No. 2
Strauss & Co. and Avid Sportswear, to the Registration Statement
Inc.
12
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
10.06 Employment Agreement dated as of Incorporated by reference to
January 1, 1999 between Exhibit 10.06 to the
David E. Roderick and Avid Registration Statement
Sportswear, Inc.
10.07 Promissory Note in the original Incorporated by reference to
principal amount of $180,000 Exhibit 10.07 to the
dated as of June 4, 1999 from our Registration Statement
company to First State Bank
10.08 Commercial Security Agreement Incorporated by reference to
dated as of November 17, 1999 Exhibit 10.08 to the
between First State Bank and Registration Statement
our company
10.09 Promissory Note dated as of Incorporated by reference to
November 17, 1999 in the Exhibit 10.09 to the
original principal amount of Registration Statement
$1,000,000 given by our
company to First State Bank
10.10 Business Loan Agreement dated as Incorporated by reference to
of November 17, 1999 between Exhibit 10.10 to the
First State Bank and our company Registration Statement
10.11 Convertible Revolving Demand Note Incorporated by reference to
dated as of December 1, 1999 in Exhibit 10.11 to Amendment
the original principal amount of No. 2 to the Registration
$550,000 given by our company to Statement
Earl Ingarfield
10.12 Convertible Revolving Demand Note Incorporated by reference to
dated as of December 1, 1999 in Exhibit 10.12 to Amendment
the original principal amount of No. 2 to the Registration
$1,000,000 given by our company to Statement
Lido Capital Corporation
10.13 Convertible Revolving Demand Note Incorporated by reference to
dated as of December 1, 1999 in Exhibit 10.13 to Amendment
the original principal amount of No. 2 to the Registration
$125,000 given by our company to Statement
Michael E. LaValliere
10.14 Convertible Revolving Demand Note Incorporated by reference to
dated as of December 1, 1999 in Exhibit 10.14 to Amendment
the original principal amount of No. 2 to the Registration
$500,000 given by our company to Statement
Thomas Browning
10.15 Convertible Revolving Demand Note Incorporated by reference to
dated as of December 1, 1999 in Exhibit 10.15 to Amendment
the original principal amount of No. 2 to the Registration
$200,000 given by our company to Statement
Daniel Paetz
10.16 Executive Employment Agreement Incorporated by reference to
effective as of February 1, 2000 Exhibit 10.16 to Amendment
between our company and Earl T. No. 2 to the Registration
Ingarfield Statement
11.01 Statement re: Computation of Not Applicable
Earnings
15.01 Letter on unaudited interim Provided herewith
financial information
16.01 Letter on Change in Certifying Not Applicable
Accountant
21.01 Subsidiaries of our company Incorporated by reference to
Exhibit 21.01 to the
Registration Statement
23.01 Consent of Independent Accountants Not Applicable
24.01 Power of Attorney Not Applicable
13
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
27.01 Financial Data Schedule Provided herewith
(B) REPORTS ON FORM 8-K.
None.
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Date: May 22, 2000 AVID SPORTSWEAR & GOLF CORP.
By: /s/ Jerry Busiere
-----------------
Jerry Busiere, Secretary
15
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To the Board of Directors
Avid Sportswear & Golf Corp.
Sarasota, Florida
We have reviewed the accompanying consolidated balance sheet of Avid Sportswear
& Golf Corp. as of March 31, 2000 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the periods ended
March 31, 2000 and 1999. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
consolidated financial information consists principally of applying analytical
procedures to financial data, and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in scope than an
audit conducted in accordance with generally accepted auditing standards, which
will be performed for the full year with the objective of expressing an opinion
regarding the consolidated financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with accounting principles generally accepted in
the United States.
We have previously audited, in accordance with auditing standards generally
accepted in the United States, the consolidated balance sheet of Avid Sportswear
& Golf Corp. as of December 31, 1999, and the related consolidated statements of
operations, stockholders' equity, and cash flows for the year then ended (not
presented herein) and in our report dated February 26, 2000, we expressed an
unqualified opinion on those consolidated financial statements.
/s/ HJ & Associates, LLC
HJ & Associates, LLC
Salt Lake City, Utah
May 9, 2000
<TABLE> <S> <C>
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<NAME> AVID SPORTSWEAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 654,992
<SECURITIES> 0
<RECEIVABLES> 524,927
<ALLOWANCES> 177,202
<INVENTORY> 1,486,096
<CURRENT-ASSETS> 2,681,015
<PP&E> 882,680
<DEPRECIATION> 534,551
<TOTAL-ASSETS> 5,863,831
<CURRENT-LIABILITIES> 5,924,338
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0
0
<COMMON> 29,412
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<TOTAL-LIABILITY-AND-EQUITY> 5,863,831
<SALES> 1,029,308
<TOTAL-REVENUES> 1,029,308
<CGS> 774,293
<TOTAL-COSTS> 2,530,918
<OTHER-EXPENSES> (5,607)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 250,971
<INCOME-PRETAX> (2,521,267)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,521,267)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (2,521,267)
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<EPS-DILUTED> (0.09)
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