File No. 000-28321
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 2000
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 4 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)
---------
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
---------
Securities to be registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class to be So Registered On Which Each Class is to be Registered
- --------------------------------------- ---------------------------------------
<S> <C>
None None
</TABLE>
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
<PAGE>
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 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 CERTAIN 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. IN
ADDITION TO THE INFORMATION EXPRESSLY REQUIRED TO BE INCLUDED IN THIS FILING, WE
WILL PROVIDE SUCH FURTHER MATERIAL INFORMATION, IF ANY, AS MAY BE NECESSARY TO
MAKE THE REQUIRED STATEMENTS, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY ARE
MADE, NOT MISLEADING.
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 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. 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.
FINANCIAL PERFORMANCE
We have historically lost money. For the year ended December 31, 1999, we
sustained losses of $5,035,978. For the years ended December 31, 1998 and 1997
(which excludes the operating results of our wholly-owned subsidiary), we
sustained losses of $521,548 and $5,609, respectively. Our independent auditors
have noted that our company does not have significant cash or other material
2
<PAGE>
assets to cover its operating costs and 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.
For more information concerning our financial performance, please see "Risk
Factors - We Have Historically Lost Money and Losses May Continue in the Future"
and "Management's Discussion and Analysis or Plan of Operation."
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
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
3
<PAGE>
products to approved retailers. The licensor is Levi Strauss & Co. This license
is for the United States, its territories and Bermuda. It 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:
CONTRACT YEAR: MINIMUM ROYALTY:
-------------- ----------------
1 $250,000
2 $540,000
3 $765,000
4 $990,000
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, $75,000 on September 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.
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:
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.
4
<PAGE>
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
Our target customers are sports-minded professional men and women who like
casual, high-quality and distinctively styled apparel that reflects an active
lifestyle. We believe golf's popularity has risen in recent years. According to
the National Golf Foundation and McKinsey & Company, the number of rounds played
in the United States was 530 million rounds in 1998 and is projected to increase
to 630 million rounds in 2010. Over this same time frame, according to the
National Golf Foundation and McKinsey & Company, the number of golfers in the
United States is projected to increase from 26 million golfers in 1998 to 29
million golfers by 2010. The National Golf Foundation projects the market for
sales of sportswear 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. We offer distinctive products under the following three labels:
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 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.
5
<PAGE>
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
$350,000 in 1999 and $250,000 in 1998. We expect to spend approximately $350,000
in 2000 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. As
of December 31, 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.
6
<PAGE>
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 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, we 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
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" name and logo. 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 35 full-time employees in the United States. Of the
total number of full-time employees, 5 work in marketing and sales, 11 in
embroidery and sewing, 4 work in warehousing and delivery, 3 work in design and
production control and 12 work in administrative and other support positions.
Currently, we also contract with 31 independent sales representatives. None of
7
<PAGE>
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. 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. For
additional information regarding our facilities, see "Description of Property."
Mr. Ingarfield has personally guaranteed these lease obligations. See "Stock and
Option Issuances for Personal Guarantees."
STOCK AND OPTION ISSUANCES FOR PERSONAL GUARANTEES
Several individuals have personally guaranteed our lease obligations and
other corporate indebtedness. In exchange for these personal guarantees, our
company had agreed to issue the following individuals the number of shares of
common stock opposite their names:
NAME NUMBER OF SHARES
---- ----------------
Earl T. Ingarfield 11,500,000
Thomas Browning 3,000,000
Michael LaValliere 3,000,000
Jeffrey Abrams 2,000,000
Stephen Ponsler 2,000,000
On January 17, 2000, all of the above described transactions were
rescinded and, in lieu thereof, our company granted the following options:
NAME NUMBER OF SHARES EXERCISE PRICE
---- ---------------- --------------
Earl T. Ingarfield 200,000 $0.30
Thomas Browning 200,000 $0.30
Michael LaValliere 200,000 $0.30
Jeffrey Abrams 200,000 $0.30
Stephen Ponsler 200,000 $0.30
MR. INGARFIELD OBTAINED CONTROL OF OUR COMPANY ON JUNE 4, 1998
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, Mr. Ingarfield, 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, our company had 6,300,000 shares of common stock outstanding
(adjusted for a 3 for 1 stock split). As a result, Mr. Ingarfield owned 47.6% of
our company's outstanding capital stock. Mr. Ingarfield currently owns 48.3% of
our 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.
8
<PAGE>
WE HAVE HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE IN THE FUTURE
We have historically lost money. In the years ended December 31, 1999 and
December 31, 1998, we sustained losses of $5,035,978 and $521,548, 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 $1,498,340 in 1998. 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 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
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 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 will 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.
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;
9
<PAGE>
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.
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, and our stock price
may decline.
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 us 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.
10
<PAGE>
OUR COMMON STOCK PRICE MAY BE LOWER DUE TO QUOTATION ON THE "PINK SHEETS"
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 this 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. Generally, common stock which is quoted on the "pink sheets" has less
liquidity than stock quoted on the OTC Bulletin Board because some
broker-dealers will not execute orders for stock quoted on the "pink sheets" and
because pricing information is more difficult to obtain. This illiquidity may
result in a lower stock price.
HOLDERS OF RESTRICTED STOCK WILL NOT BE ALLOWED TO SELL SUCH STOCK FOR
90 DAYS
Much of our outstanding common stock constitutes "restricted securities"
under Rule 144 promulgated under the Securities Act of 1933 (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. Even after the
expiration of this 90 day period, holders of restricted securities must, prior
to selling such securities, present our company with a legal opinion in
satisfactory form stating that such securities may be sold in reliance on Rule
144.
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.
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.
11
<PAGE>
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 66.0%
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 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
12
<PAGE>
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.
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 OUR 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 our company and our predecessor,
Golf Innovations Corp., are included in this filing:
o Audited balance sheet as of December 31, 1999 and audited statements
of income, cash flows and changes in stockholders' equity for the
years' ended December 31, 1999 and 1998; and
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 (predecessor).
Note 6 of our company'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 our
company had acquired Avid Sportswear, Inc. on January 1, 1998 instead of March
1, 1999.
13
<PAGE>
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 our company had acquired Avid Sportswear, Inc. on January 1, 1998 instead
of March 1, 1999.
PLAN OF OPERATIONS
ADDITIONAL FUND RAISING ACTIVITIES. As of December 31, 1999, we had
$237,407 cash-on-hand. Since that time, we have 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 securties. 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. In
addition, through April 26, 2000, we have received subscriptions of
approximately $2.7 million from the sale of our common stock at $0.35 per share
in a private offering. 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
$350,000 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.
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.
14
<PAGE>
CHANGES IN NUMBER OF EMPLOYEES. We currently have 35 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 11 20
Warehousing and Delivery 4 15
Design and Production 3 6
Administrative and other
-------- --------
Total Employees 35 73
-------- --------
Independent Contractors - 31 34
-------- --------
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 year ended December 31, 1999 and in Avid
Sportswear, Inc.'s Statements of Operations for the years ended December 31,
1998 and 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-----------------------
COMPANY AVID SPORTSWEAR, INC. AVID SPORTSWEAR, INC.
YEAR ENDED YEAR ENDED YEAR ENDED
DEC. 31, 1999 DEC. 31, 1998 DEC. 31, 1997
------------- ------------- -------------
<S> <C> <C> <C>
Sales, net 100.0% 100.0% 100.0%
Cost of goods sold (83.0%) (72.0%) (69.0%)
------- ------- -------
Gross margin 17.0% 28.0% 31.0%
------- ------- -------
Operating expenses (212.7%) (43.8%) (44.4%)
------- ------- -------
(Loss) Income from Operations (195.8%) (15.8%) (13.3%)
------- ------- -------
Interest expense (18.6%) (3.6%) (3.7%)
------- ------- -------
Net loss (213.3%) (20.0%) (18.3%)
======== ======= =======
</TABLE>
Our results of operations for the year ended December 31, 1999 include
both our company and Avid Sportswear, Inc. Our operating expenses in this period
were $5.0 million, or 212.7% of net sales. This was primarily attributable to
employment costs of $1.4 million, marketing and advertising of $0.4 million,
travel of $0.3 million and common stock issued for promotional and other
services resulting in a total non-cash operating expense of approximately $1.9
million, consisting of the following issuances:
15
<PAGE>
o 2,580,000 shares of common stock, valued at $0.75 per share, for
total cash consideration and debt conversion of $610,000 and debt
conversion of $35,000, or $0.25 per share. This resulted in a
non-cash operating expense of approximately $1.3 million to reflect
the difference between the $0.25 per share actually paid and the
$0.75 per share which our company had been selling shares of common
stock to independent third parties during the same time period.
o 800,000 shares of common stock, valued at $0.75 per share, for media
services. This resulted in a non-cash operating expense of $600,000.
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 (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.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, we had $237,407 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:
OPERATING ACTIVITIES. Our operating activities used $2.3 million in cash
during the period, consisting mainly of a net loss of $5.0 million, partially
offset by common stock issued for services valued at $1.9 million, depreciation
and amortization of $0.4 million and conversion of debt to equity of $0.3
million.
INVESTING ACTIVITIES. Our investing activities used $0.3 million in cash
during the period, consisting mainly of the purchase of sewing, folding and
steam machines and embroidery equipment.
FINANCING ACTIVITIES. Financing activities provided net cash of $2.7
million, generated mainly by the sale of common stock in the amount of $1.8
million and the receipt of net loan proceeds of $1.3 million. These loan
proceeds consisted primarily of a $1.0 million revolving line of credit from an
institutional lender, loans of $1.2 million from Messrs. Ingarfield, Browning
and LaValliere and $0.3 million for the collection of a receivable from Mr.
Ingarfield. See "Certain Relationships and Related Transactions." This cash
received during the period was partially offset by the cash used to purchase
Avid Sportswear, Inc. The purchase price consisted of $0.7 million paid to the
former shareholders of Avid Sportswear and the issuance of 1.2 million shares.
We also advanced to Avid Sportswear, Inc. $1.8 million to payoff certain
accounts payable.
Since December 31, 1999, we have funded our operations primarily through
funds loaned from certain of our company's officers and directors and the sale
of our common stock in a private offering. These loans totaled $0.9 million
since December 31, 1999, including $0.6 million from Mr. Ingarfield. See
"Certain Relationships and Related Transactions." In addition, we have received
subscriptions of $2.7 million from the sale of our common stock at a price of
$0.35 per share in a private offering. 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.
16
<PAGE>
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.
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 March 6, 2000, the names, addresses
and stock ownership in our company for the current directors and named executive
officers of our company and every person known to our company to own five
percent (5%) or more of the issued and outstanding shares of the common stock:
SHARES
TITLE OF NAME AND ADDRESS OF BENEFICIARY PERCENTAGE
CLASS: BENEFICIAL OWNER: OWNED: OF CLASS(1):
------ ----------------- ----- -----------
Common Earl T. Ingarfield(2),(4) 14,456,017 46.1%
22 South Links Avenue
Suite 204
Sarasota, Florida 34236
Common Jerry L. Busiere 100,000 0.3%
22 South Links Avenue
Suite 204
Sarasota, Florida 34236
Common Thomas L. Browning(4) 1,489,359 4.7%
22 South Links Avenue
Suite 204
Sarasota, Florida 34236
Common Michael LaValliere(4) 1,590,017 5.1%
22 South Links Avenue
Suite 204
Sarasota, Florida 34236
Common David Roderick 1,000,000 3.2%
22 South Links Avenue
Suite 204
Sarasota, Florida 34236
Common Barnum Mow(3) 2,064,477 6.6%
22 South Links Avenue
Suite 204
Sarasota, Florida 34236
Common All Officers and Directors 20,699,870 66.0%
as a Group(4)
----------------------
(1) Based on the number of shares of common stock outstanding as of March 6,
2000. On such date, we had 31,375,956 shares of common stock outstanding,
including options to purchase 864,477 shares at $0.375 per share granted to Mr.
Mow and options to purchase a total of 1,000,000 shares at $0.30 per share
granted under our stock plan to Messrs. Ingarfield, Browning, LaValliere and two
other individuals. See "Executive Compensation - Stock Plan." This excludes
warrants to purchase 100,000 shares at an exercise price of $0.50 per share to
an investor and warrants to purchase 285,714 shares at an exercise price of
$1.50 per share, and warrants to purchase 39,000 shares at $0.01 per share. This
also excludes shares of common stock sold in our on-going private offering. As
of April 26, 2000, we had subscriptions for the purchase of 7,800,308 shares of
common stock. Taking these shares into account would increase our total number
of shares outstanding to 39,176,304.
17
<PAGE>
(2) Includes all stock held by Mr. Ingarfield and Lido Capital Corporation,
an entity in which Mr. Ingarfield is the sole owner, officer and
director.
(3) Includes options granted on January 25, 2000 to purchase 864,477 shares
of $0.375 per share.
(4) Includes options to purchase 200,000 shares at $0.30 per share granted
to each of Messrs. Ingarfield, Browning and LaValliere. See "Executive
Compensation - Stock Plan."
POTENTIAL CHANGE OF CONTROL
To secure some of our indebtedness, Mr. Ingarfield pledged (i.e., tendered
shares of common stock to the lender as security for the indebtedness) 9,000,000
shares of common stock in our company. If we are unable to repay this
indebtedness when due or otherwise default on such indebtedness, then the lender
may foreclose on these shares of common stock in satisfaction of all or part of
such indebtedness. This would result in the lender becoming the owner of these
shares. As a result, the lender would be able to exert significant control over
our company.
18
<PAGE>
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:
----- ---- ---------
NAME: AGE: POSITION:
Earl T. Ingarfield 40 President, Chief Executive Officer and
Chairman
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 Executive Vice-President of Merchandising and
Design of Avid Sportswear, Inc.
EARL T. INGARFIELD has been the Chief Executive Officer, President and
Chairman since June 1998. Since June 30, 1995, Mr. Ingarfield has also been the
sole owner of Lido Capital Corporation, a privately-held company in Sarasota,
Florida. 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 our 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 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 our 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.
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
19
<PAGE>
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
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 our company from March 1, 1999 to
November 26, 1999 and Executive Vice-President of Merchandising and Design of
our wholly-owned subsidiary since September, 1999. In this capacity, Mr.
Roderick is primarily responsible for our 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.
20
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE. The following table provides information about
the compensation paid by our company to its Chief Executive Officer and all
other current executive officers who were serving as executive officers at the
end of 1999 and who received in excess of $100,000:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------------- --------------------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS COMPENSATION
POSITION(S) YEAR SALARY ($) BONUS ($) COMPENSATION ($) (#S)(1) ($)(2)
- --------------------------- --------- ------------- ----------- ------------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Earl T. Ingarfield(1) 1999 -- -- -- -- --
Chief Executive Officer,
President and Chairman of 1998 -- -- -- -- --
the Board of Directors
Jerry L. Busiere(2) 1999 -- -- -- -- --
Secretary, Treasurer and
Director 1998 -- -- -- -- --
Barnum Mow(3) 1999 $70,577 $25,000 -- -- --
President of Avid
Sportswear, Inc.
David Roderick, Executive 1999 $150,000 -- $12,000 -- --
Vice-President of
Merchandising and Design of 1998 $150,000 -- $12,000 -- --
Avid Sportswear, Inc.(4)
- ---------------------
</TABLE>
(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. Mow became Chief Executive Officer and President of our wholly-owned
subsidiary on September 17, 1999.
(4) Mr. Roderick's other annual compensation consists of a company car and
automobile insurance.
EMPLOYMENT AGREEMENTS
On February 29, 2000, we entered into a three-year employment agreement
with Mr. Ingarfield. Pursuant to this agreement, Mr. Ingarfield is employed as
the Chief Executive Officer and President of our company. Mr. Ingarfield will
have a annual base salary of $325,000, plus annual cost of living adjustments
and other increases to be determined by the Board of Directors. Except in the
event of a change of control or other special circumstance, Mr. Ingarfield's
salary (less employment taxes) will be paid quarterly in our company's stock on
the last day of each calendar quarter. In addition, Mr. Ingarfield will be
entitled to annual incentive bonus compensation in an amount to be determined by
the Board of Directors. Mr. Ingarfield is entitled to a company car. In the
event that Mr. Ingarfield's employment is terminated by our company without
"cause" or by Mr. Ingarfield for "good reason" (which includes a change of
control), he is entitled to receive all accrued or earned but unpaid salary,
bonus (defined as an amount equal to the prior years' bonus) and benefits for
the lesser of the balance of the term or three years. In addition, Mr.
Ingarfield is entitled to certain relocation expenses incurred in a change of
principal residence. The agreement provides that Mr. Ingarfield will not compete
with our company during his employment and for two years thereafter unless his
employment is terminated by our company without "cause" or by Mr. Ingarfield for
"good reason." Mr. Ingarfield has demand and piggy-back registration rights with
respect to his stock in our company. Mr. Ingarfield may require our company to
file a registration statement with respect to this stock on an annual basis.
21
<PAGE>
Additional terms of Mr. Ingarfield's employment are set forth in his employment
agreement, which is included as an exhibit to this filing.
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. 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. On January 25, 2000, our company
granted Mr. Mow options to purchase 864,477 shares of our common stock at a
purchase price of $0.375 per share. Additional terms of Mr. Mow's employment are
set forth in his employment agreement, which is included as an exhibit to our
company's Registration Statement on Form 10-SB filed with the Commission on
December 1, 1999.
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 Executive Vice
President of Merchandising and Design. 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 our company's
Registration Statement on Form 10-SB filed with the Commission on December 1,
1999.
We have not entered into an employment agreement with Mr. Busiere.
STOCK PLAN
On January 17, 2000, we adopted our company's 2000 Stock Incentive Plan,
under which our key employees, consultants, independent contractors, officers
and director are eligible to receive grants of stock or stock options. Our
company has reserved a total of 3,000,000 shares of common stock under the
incentive plan. It is presently administered by the Board of Directors. Subject
to the provisions of the incentive plan, the Board of Directors has full and
final authority to select the individuals to whom options will be granted, to
grant the options and determine the terms and conditions and the number of
shares issued pursuant thereto.
The maximum term of any option granted under the incentive plan is ten
years, except that with respect to incentive stock options granted to a person
possessing more than ten percent of the total combined voting power of all our
classes of stock, the maximum term of such options is five years. The exercise
price of incentive stock options under the incentive plan is the fair-market
value of the stock underlying the options on the date of grant and, in the case
of an incentive stock option granted to a ten-percent shareholder, the exercise
price must be at least 110% of the fair-market value of our stock at the time
the option is granted.
On January 17, 2000, we granted stock options as follows:
NAME: NO. OF SHARES: EXERCISE PRICE: EXPIRATION:
---- ------------- -------------- ----------
Earl T. Ingarfield 200,000 $0.30 January 16, 2010
Thomas Browning 200,000 $0.30 January 16, 2010
Michael LaValliere 200,000 $0.30 January 16, 2010
22
<PAGE>
NAME: NO. OF SHARES: EXERCISE PRICE: EXPIRATION:
---- ------------- -------------- ----------
Steven Ponsler 200,000 $0.30 January 16, 2010
Jeff Abrams 200,000 $0.30 January 16, 2010
All of these options were granted in consideration of the recipients' agreement
to cancel certain shares of common stock which had previously been issued as a
result of the individual's agreement to personally guaranty a portion of our
company's indebtedness to unrelated parties.
RESTRICTED STOCK GRANT
On January 17, 2000, we granted Barnum Mow, Chief Executive Officer and
President of our wholly-owned subsidiary, 1.2 million shares of our common
stock, in part, to provide an economic incentive to maximize our financial
results. These shares will be restricted shares, all shares were vested upon
grant and none are subject to any restrictions.
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 our company. The Company
has borrowed money periodically from Messrs. Ingarfield, Browning and
LaValliere. Some of the loans described below have been made by Lido Capital
Corporation, an entity wholly-owned by Mr. Ingarfield. Because Mr.
Ingarfield has exclusive control over Lido Capital Corporation, all loans
from Mr. Ingarfield and Lido Capital Corporation are reflected as loans from
Mr. Ingarfield. Below is a summary of all loans to and from related parties
since January 1, 1998:
o In 1998, our company loaned a total of $253,500 to Mr. Ingarfield,
consisting of a $100,000 loan on June 25, 1998, a $143,500 loan on
November 30, 1998 and a $10,000 loan on December 31, 1998.
o In January 1999, Mr. Browning loaned $50,000 to our company. In
addition, Mr. Ingarfield repaid $237,000. Our Company loaned an
additional $126,500 to Mr. Ingarfield in January 1999. As of the end
of January 1999, Mr. Ingarfield owed our company $143,000.
o In February 1999, Mr. Ingarfield repaid $20,000 to our company and
our company loaned Mr. Ingarfield $5,704. In addition, Mr.
LaValliere and Mr. Browning loaned $35,000 and $47,000,
respectively, to our company. As of the end of February 1999, Mr.
Ingarfield owed $128,704 to our company, our company owed Mr.
LaValliere a total of $35,000 and Mr. Browning a total of $97,000.
o In March 1999, Mr. Ingarfield repaid $500 to our company. In
addition, our company loaned Mr. Ingarfield $15,000. As of the end
of March 1999, Mr. Ingarfield owed our company a total of $143,204.
o In April 1999, Mr. Ingarfield repaid $116,250 to our company and
our company loaned an additional $26,562 to Mr. Ingarfield. As of
the end of April 1999, Mr. Ingarfield owed $53,516 to our company.
o In May 1999, Mr. Ingarfield paid off the balance of his loan to
our company in the amount of $53,516 and loaned our company
$136,484. Further, our company repaid $40,292 to Mr. Ingarfield. As
of the end of May 1999, our company owed Mr. Ingarfield $96,192.
o In June 1999, Mr. Ingarfield loaned $151,000 to our company and
repaid $51,000 to Mr. Ingarfield. As of the end of June 1999, our
company owed Mr. Ingarfield $196,192.
23
<PAGE>
o In July 1999, Mr. Ingarfield loaned $30,000 to our company. As of
the end of July 1999, our company owed Mr. Ingarfield a total of
$226,192.
o In August 1999, Mr. Ingarfield loaned $30,000 to our company. As
of the end of August 1999, our company owed Mr. Ingarfield a total
of 256,192.
o In September 1999, Mr. Ingarfield loaned $53,000 to our company. As
of the end of September 1999, our company owed Mr. Ingarfield a
total of $309,192.
o In October 1999, Mr. Ingarfield loaned $25,000 to our company. As
of the end of October 1999, our company owed Mr. Ingarfield a total
of $334,192.
o In November 1999, Mr. Ingarfield loaned $53,919 to our company. As
of the end of November 1999, our company owed Mr. Ingarfield a total
of 388,111.
o In December 1999, Mr. Ingarfield loaned $394,509 to our company. As
of December 28, 1999, our company owed Mr. Ingarfield a total of
$782,620. In addition, Mr. Browning loaned $300,000 to our company.
As of December 28, 1999, our company owed Mr. Browning a total of
$397,000. Our company's total indebtedness to Messrs. Ingarfield and
Browning as of December 28, 1999 was $1,179,620. As described in
more detail below, the entire outstanding principal balance, plus
accrued interest, of Mr. Ingarfield's loan and $97,000 of Mr.
Browning's loan were converted into shares of our common stock on
December 28, 1999.
Effective December 1, 1999, Messrs. Ingarfield, LaValliere and Browning entered
into revolving convertible demand notes in the amounts of $1,500,000, $125,000
and $500,000, respectively. Each of these notes is due on demand and bears an
annual interest rate of 10%. As of December 28, 1999, accrued but unpaid
interest on these loans was $52,927, owed as follows: $39,131 to Mr. Ingarfield,
$10,659 to Mr. Browning and $3,137 to Mr. LaValliere. Interest on all three
notes is payable monthly commencing on April 1, 2000. The holders can elect to
convert the indebtedness into shares of common stock at any time at a price
equal to 80% of our common stock's closing price on the date of conversion. The
company recognized additional interest expense of $293,381 to reflect the 20%
discount. Effective December 28, 1999, Messrs. Ingarfield, Browning and
LaValliere elected to convert all or a portion of the outstanding principal and
interest under such convertible notes into shares of common stock, as follows:
NAME: INDEBTEDNESS: CONVERSION PRICE: NO. OF SHARES:
---- ------------ ---------------- -------------
Mr. Ingarfield $821,750 $0.22 3,735,227
Mr. Browning $107,659 $0.22 489,359
Mr. LaValliere $38,137 $0.22 173,350
In January 2000, Mr. Ingarfield loaned our company a total of $557,562,
Mr. LaValliere loaned our company a total of $125,000 and Mr. Browning loaned
our company a total of $200,000. Pursuant to the terms of his convertible demand
note, on January 25, 2000, Mr. Ingarfield elected to convert $247,562 into
825,207 shares of our common stock at a conversion price of $0.30 per share, or
80% of the closing price on that date. Also on that date, Mr. LaValliere elected
to convert $125,000 into 416,667 shares of common stock at a conversion price of
$0.30 per share. On February 1, 2000, Mr. Ingarfield elected to convert $236,498
into 695,583 shares of our common stock at a conversion price of $0.34 per
share, or 80% of the closing price on that date. As of February 29, 2000, our
company owed Mr. Ingarfield a total of $73,502, plus accrued interest, and Mr.
Browning a total of $500,000, plus accrued interest.
SALE OF STOCK. In addition to the loans referenced above, our company has
sold common stock to Earl Ingarfield, Thomas Browning and Michael LaValliere in
order to help finance our company's operations. We also issued common stock to
24
<PAGE>
David Roderick in connection with the acquisition of Avid Sportswear, Inc. Below
is a summary of all sales or issuance of common stock to such persons since
January 1, 1998:
o In June 1998, we sold 6,000,000 shares of common stock to Mr.
Ingarfield for $0.05 per share paid in cash and services. Total
consideration paid for these shares was $20,000 in cash and $280,000
in services. An administrative expense was recorded to value the
sale to $0.05 per share. The number of shares issued reflects a
three-for-one split on July 23, 1998.
o In August 1998, we sold 500,000 shares of common stock to each of
Messrs. Browning and LaValliere for $0.15 in cash per share and
100,000 shares of common stock to Mr. Busiere for $0.15 in cash per
share. Total consideration paid for these shares was $165,000.
o In January 1999, we sold 100,000 shares of common stock to the
parents of Mr. Ingarfield for $0.25 in cash per share. Total
consideration paid for these shares was $25,000.
o In January 1999, we 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 $0.75 per share, for total
consideration of $750,000.
o In December 1999, and as noted above, we issued 3,735,227 shares to
Mr. Ingarfield, 489,359 shares to Browning and 173,350 shares to
LaValliere upon the conversion of indebtedness. Messrs. Ingarfield,
Browning and LaValliere converted $821,750, $107,659 and $38,137,
respectively, of indebtedness. These shares were converted at a
price of $0.22 per share.
o In January 2000, we issued 825,207 shares to Mr. Ingarfield upon the
conversion of $247,562 of indebtedness and 416,667 shares to Mr.
LaValliere upon the conversion of $125,000 of indebtedness. On
February 1, 2000, Mr. Ingarfield elected to convert $236,498 of
indebtedness into 695,583 shares of our common stock at a conversion
price of $0.34 per share.
OTHER. In addition to the transactions l isted above, our company
entered into the following transactions with related parties:
o On January 17, 2000, our company granted options to purchase up to
200,000 shares, or a total of 1,000,000 shares, of our stock to each
of Messrs. Ingarfield, Browning, LaValliere, Ponsler and Abrams.
Messrs. Ponsler and Abrams are shareholders of our company. The
purchase price of these options were $0.30 per share, or $0.075 per
share less than the closing price on January 17, 2000. These options
were granted in exchange for these individuals agreement to
personally guaranty certain obligations of our company, including
leases for our facilities. We do not believe that we could have
obtained these leases without the personal guarantees. See
"Executive Compensation - Stock Plan."
o On January 17, 2000, our company granted Mr. Mow 1.2 million shares
of restricted stock in our company. These shares were valued at
$360,000, or $0.30 per share. In addition, Mr. Mow was granted
options to purchase 864,477 shares of stock at $0.375 per share.
ITEM 8. DESCRIPTION OF SECURITIES.
AUTHORIZED CAPITAL STOCK. The authorized capital stock of our company
consists of 50,000,000 shares of common stock and 10,000,000 shares of preferred
stock. As of the date hereof, our company has 31,375,956 shares of common stock
outstanding. The Company also has warrants to purchase 100,000 shares at an
exercise price of $0.50 per share, warrants to purchase 285,714 shares at an
exercise price of $1.50 per share, and warrants to purchase 39,000 shares at
$0.01 per share. In addition, our company has sold subscriptions to purchase an
additional 7,800,348 shares of our common stock. The following description is of
the material terms of our capital stock. Additional information may be found in
our company's articles of incorporation included as an exhibit to our
Registration Statement on Form 10-SB filed with the Securities and Exchange
Commission on December 1, 1999.
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
25
<PAGE>
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 our 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 our 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
preference over the common stock with respect to dividends and other
distributions and upon liquidation of our 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
our company could discourage potential acquisition proposals and could delay or
prevent a change in control of our company. Such provisions may also have the
effect of preventing changes in the management of our company, and preventing
shareholders from receiving a premium on their common stock.
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 our company by means of
a proxy contest, tender offer, merger or otherwise, and thereby protect the
continuity of our 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 our 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.
26
<PAGE>
SPECIAL MEETINGS OF SHAREHOLDERS. Special meetings of the shareholders of
our 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 our company by precluding a dissident shareholder
from forcing a special meeting to consider removing the Board of Directors or
otherwise.
27
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS.
The Company's common stock began trading on the Over-the-Counter Bulletin
Board on March 24, 1998, under the symbol "GFIO." On July 22, 1999, our
company's symbol was changed to "AVSG." On December 2, 1999, our company's
common stock was no longer eligible for quotation on the OTC BB because our
company's Registration Statement on Form 10-SB had not been declared effective
by the Commission as of that date. On that date, our company's common stock
began trading on the "pink sheets." 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 $1.03125 $0.2500
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 December 31, 1999, our company had approximately 83 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. Our loan agreement with
First State Bank prohibits the payment of dividends.
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.
Some of the transactions described below have been made by Lido Capital
Corporation, an entity wholly-owned by Mr. Ingarfield. 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.
28
<PAGE>
On October 8, 1997, our company issued 3,000,000 shares of common stock
for $0.00333 in cash per share to the original founders. The total offering
price of this transaction was $10,000. The number of shares issued reflects a
three-for-one split on July 23, 1998.
In February 1998, our company issued 300,000 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. The number of shares issued reflects a three-for-one split on
July 23, 1998.
In February 1998, our company issued 3,000,000 shares of common stock for
$0.08333 in cash per share. The total offering price of this transaction was
$250,000. The number of shares issued reflects a three-for-one split on July 23,
1998. All of these shares were purchased by unrelated persons.
On June 18, 1998, our company issued 6,000,000 shares of common stock for
$0.05 per share in cash and services. All of these shares were purchased by Mr.
Ingarfield. The total offering price of this transaction was $20,000 in cash and
$280,000 in services. The number of shares issued reflects a three-for-one split
on July 23, 1998. An administrative expense of $280,000 was recorded to value
the shares at $0.05 per share to reflect a discount to the $0.00333 per share
actually paid. The value of $0.05 per share was based on the price Mr.
Ingarfield paid in an arms-length transaction to purchase a controlling interest
in our company on or about June 4, 1998.
On August 17, 1998, our 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. Michael LaValliere, a Director of our company, purchased 500,000 of
these shares for a total purchase price of $75,000 and Jerry L. Busiere, the
Secretary, Treasurer and a Director of our company, purchased 100,000 of these
shares for a total purchase price of $15,000. The remaining shares were
purchased by four unrelated persons for a total purchase price of $135,000.
On August 27, 1998, our company issued 500,000 shares of common stock for
$0.15 in cash per share. All of these shares were purchased by Thomas Browning,
a Director of our company. The total offering price of this transaction was
$75,000.
On December 21, 1998, our 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. All of these shares were purchased by unrelated persons.
On January 5, 1999, our company issued 590,000 shares of common stock
originally valued at $0.25 per share for cash of $117,500 and debt conversion of
$35,000. Additional expense of $295,000 was recorded to reflect the discount
from $0.75 per share which was the price that our company was selling restricted
stock to independent third parties. Of the total number of shares issued on this
date, 100,000 shares were issued to Mr. Ingarfield's parents and the remainder
were issued to unrelated persons.
On January 5, 1999, our company issued 866,670 shares of common stock
valued at $0.75 per share for cash of $475,000 and conversion of debt of
$175,000. All of these shares were purchased by unrelated persons.
On January 8, 1999, our company issued 210,668 shares of common stock
valued at $0.75 per share for cash of $158,000. All of these shares were
purchased by unrelated persons.
On January 11, 1999, our company issued 560,000 shares of common stock for
cash, originally valued at $0.25 per share for $140,000 of cash. Additional
expense of $280,000 was recorded to value the shares at $0.75 per share. All of
these shares were purchased by unrelated persons.
On January 11, 1999, our company issued 800,000 shares of common stock for
media services originally valued at $0.75 per share. All of these shares were
issued by an unrelated marketing firm.
29
<PAGE>
On January 20, 1999, our company issued 160,000 shares of common stock for
cash originally valued at $0.25 per share for $40,000 of cash. Additional
expense of $80,000 was recorded to value the shares at $0.75 per share. All of
these shares were purchased by unrelated persons.
On January 27, 1999, our company issued 1,100,000 shares of common stock
for the purchase of Avid Sportswear, Inc. valued at $0.75 per share. All of
these shares were issued to the former shareholders of Avid Sportswear, Inc.,
including 1,000,000 shares to David Roderick, the Executive Vice-President of
Merchandising and Design of Avid Sportswear, Inc.
On February 4, 1999, our company issued 372,002 shares of common stock at
$0.75 per share for cash of $279,002. All of these shares were purchased by
unrelated persons.
On March 11, 1999, our company issued 1,220,000 shares of common stock for
cash originally valued at $0.25 per share for $305,000 of cash. Additional
expense of $610,000 was recorded to value the shares at $0.75 per share. All of
these shares were purchased by unrelated persons.
On March 11, 1999, our company issued 83,334 shares of common stock for
cash of $67,500. All of these shares were purchased by unrelated persons.
On March 29, 1999, our company issued 18,334 shares of common stock valued
at $0.75 per share for cash of $13,750. All of these shares were purchased by
unrelated persons.
On May 28, 1999, our company issued 101,100 shares of common stock valued
at $0.75 per share for cash of $75,825. All of these shares were purchased by
unrelated persons.
On September 22, 1999, our company issued 50,000 shares of common stock
originally valued at $0.25 per share for cash of $12,500. Additional expense of
$25,000 was recorded to value the shares at $0.75 per share. All of these shares
were purchased by unrelated persons.
On December 31, 1999, our company issued 285,714 shares of common stock
valued at $0.35 per share for cash of $100,000. All of these shares were
purchased by an unrelated party.
In December 1999, our company issued a total of 5,344,200 shares of common
stock for the conversion of debt to equity at a price of $0.22 per share,
including 3,735,227 shares to Mr. Ingarfield, 489,359 shares to Browning and
173,350 shares to LaValliere. Messrs. Ingarfield, Browning and LaValliere
converted indebtedness of $821,750, $107,659 and $38,137, respectively. An
additional interest expense of $293,381 was recorded to value the shares at
$0.275 per share to reflect a 20% discount on the conversion. See "Certain
Relationships and Related Transactions."
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 March 2000 and April 26, 2000, our company sold subscriptions to
purchase 7,800,348 shares of our common stock at a price of $0.35 per share for
cash of $2,730,122. 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
30
<PAGE>
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.
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 our company may and, in certain cases,
must be indemnified by our 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 our 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 our
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 our
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 certain claims, to our company.
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.
31
<PAGE>
PART F/S
Index to Financial Statements:
o The Company's audited balance sheet as of December 31, 1999 and
audited statements of income, cash flows and changes in
stockholders' equity for the years' ended December 31, 1999 and
1998;
o Our predecessor's (Golf Innovations Corp.) audited balance sheet
as of December 31, 1999 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.
32
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(FORMERLY GOLF INNOVATIONS CORP.)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
<PAGE>
C O N T E N T S
Independent Auditors' Report.................................................F-3
Consolidated Balance Sheet...................................................F-4
Consolidated Statements of Operations........................................F-6
Consolidated Statements of Stockholders' Equity..............................F-7
Consolidated Statements of Cash Flows.......................................F-10
Notes to the Consolidated Financial Statements..............................F-12
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Avid Sportswear & Golf Corp.
(Formerly Golf Innovations Corp.)
Carson, California
We have audited the accompanying consolidated balance sheet of Avid Sportswear &
Golf Corp. (formerly Golf Innovations Corp.) as of December 31, 1999 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1999 and 1998. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements are
free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Avid Sportswear &
Golf Corp. (formerly Golf Innovations Corp.) as of December 31, 1999 and the
results of their operations and their cash flows for the years ended December
31, 1999 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 13 to the
financial statements, the Company has current liabilities in excess of current
assets of $1,295,146 and has generated significant losses for the years ended
December 31, 1999 and 1998. These items raise substantial doubt about the
Company's ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 13. 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
February 26, 2000
F-3
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Consolidated Balance Sheet
ASSETS
December 31,
1999
----
CURRENT ASSETS
Cash $ 237,407
Accounts receivable, net (Note 1) 315,804
Inventory (Note 2) 1,885,390
Prepaid expenses 20,000
------------
Total Current Assets 2,458,601
------------
EQUIPMENT
Machinery and equipment 378,531
Furniture and fixtures 253,644
Show booths 298,479
Leasehold improvements 29,398
Less: accumulated depreciation (502,938)
------------
Total Equipment 457,114
------------
OTHER ASSETS
Goodwill, net (Note 6) 2,346,103
Deposits 15,114
Trademarks 2,902
------------
Total Other Assets 2,364,119
------------
TOTAL ASSETS $ 5,279,834
============
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
1999
----
CURRENT LIABILITIES
Accounts payable $ 1,504,858
Accrued expenses 200,865
Notes payable - related party (Note 4) 300,000
Notes payable (Note 5) 1,735,524
Subscribed stock 12,500
------------
Total Current Liabilities 3,753,747
------------
Total Liabilities 3,753,747
------------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY
Preferred stock; 10,000,000 shares authorized of $0.001 par value;
zero shares issued and outstanding, --
Common stock; 50,000,000 shares authorized of $0.001 par value,
26,374,022 shares issued and outstanding 26,374
Additional paid-in capital 7,092,848
Common stock subscription receivable (30,000)
Accumulated deficit (5,563,135)
------------
Total Stockholders' Equity 1,526,087
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,279,834
============
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Consolidated Statements of Operations
For the Years Ended
------------------------------
December 31,
1999 1998
---- ----
<S> <C> <C>
SALES, NET $ 2,360,596 $ --
COST OF GOODS SOLD 1,959,997 --
------------- ---------
Gross Margin 400,599 --
------------- ---------
OPERATING EXPENSES
Selling expenses 837,574 --
Depreciation and amortization expense 369,072 114
General and administrative expenses 3,815,327 465,952
------------- ---------
Total Operating Expenses 5,021,973 466,066
------------- ---------
(Loss) from Operations (4,621,374) (466,066)
------------- ---------
OTHER INCOME (EXPENSE)
Interest income -- 45
Interest expense (438,269) (527)
Bad debt expense (57,039) --
Recovery of bad debts 80,704 --
Loss on valuation of asset (Note 10) -- (55,000)
------------- ---------
Total Other Income (Expense) (414,604) (55,482)
------------- ---------
INCOME TAX BENEFIT -- --
------------- ---------
NET LOSS $ (5,035,978) $ (521,548)
============= =========
BASIC LOSS PER SHARE (Note 1) $ (0.25) $ (0.04)
============= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Consolidated Statements of Stockholders' Equity
Additional
Common Stock Paid-in Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
------ ------ ------- ---------- -------
<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 $0.05 per share
6,000,000 6,000 294,000 -- --
August 1998, common stock issued for
cash at $0.15 per share
1,500,000 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 -- -- -- -- (521,548)
---------- --------- -------- ---------- -----------
Balance, December 31, 1998 14,612,000 $ 14,612 $893,193 $ (60,000) $ (527,157)
---------- --------- -------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-7
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Consolidated Statements of Stockholders' Equity (Continued)
Additional
Common Stock Paid-in Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance Forward 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 (Note 3) 590,000 590 441,910 -- --
January 5, 1999, common stock issued
for cash and debt, valued at $0.75
per share (Note 3) 866,670 867 649,133 -- --
January 8, 1999, common stock issued
for cash at $0.75 per share (Note 3)
210,668 211 157,789 -- --
January 8, 1999, warrants issued
below market value (Note 3)
-- -- 53,235 -- --
January 11, 1999, common stock issued
for cash and services, valued at $0.75
per share (Note 3) 560,000 560 419,440 -- --
January 11, 1999, common stock issued
for media services valued at $0.75 per
share (Note 3) 800,000 800 599,200 -- --
January 20, 1999, common stock issued
for cash and services valued at $0.75
per share (Note 3) 160,000 160 119,840 -- --
January 27, 1999, common stock issued
to purchase Avid Sportswear valued at
$0.75 per share (Note 3) 1,100,000 1,100 823,900 -- --
February 4, 1999, common stock
issued for cash at $0.75 per share
(Note 3) 372,002 372 278,630 -- --
Balance Forward 19,271,340 $ 19,272 $4,436,270 $ (60,000) $(527,157)
---------- --------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-8
<PAGE>
<TABLE>
<CAPTION>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Consolidated Statements of Stockholders' Equity (Continued)
Additional
Common Stock Paid-in Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
------ ------ ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 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 (Note 3) 1,220,000 1,220 913,780 -- --
March 11, 1999, common stock issued
for cash at $0.75 per share (Note 3)
83,334 83 62,417 -- --
March 11, 1999, common stock issued
for cash at $0.75 per share (Note 3)
18,334 18 13,732 -- --
May 28, 1999, common stock issued for
cash at $0.75 per share (Note 3)
101,100 101 75,724 -- --
September 20, 1999, common stock issued
for cash and services, valued at $0.75
per share (Note 3) 50,000 50 37,450 -- --
December 28, 1999, common stock issued
for conversion of debt to equity at $0.22
per share (Note 3) 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
(Note 3) 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>
The accompanying notes are an integral part of these consolidated financial
statements
F-9
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Statements of Cash Flows
For the Years Ended
December 31,
------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $(5,035,978) $ (521,548)
Adjustments to reconcile net (loss) to net
cash used in operating activities:
Depreciation and amortization 369,072 114
Loss on valuation of asset -- 55,000
Common stock issued for services 1,943,235 280,000
Conversion of debt below market value 293,381 --
Recovery of bad debt expense (80,704) --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 80,775 --
(Increase) decrease in inventory (876,299) --
(Increase) decrease in other assets (13,165) (20,949)
Increase (decrease) in accounts payable 926,954 --
Increase (decrease) in accrued expenses 116,461 --
------------ -----------
Net Cash Used in Operating Activities (2,276,268) (207,383)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (343,705) (32,276)
------------ ------------
Net Cash Used in Investing Activities (343,705) (32,276)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash purchased with Avid Sportswear, Inc. 34,045 --
Payments to Avid shareholders (725,000) --
Proceeds from notes payable 1,962,274 210,000
Payments on notes payable (1,852,869) --
Proceeds from related party notes payable 1,479,677 --
Payments on related party notes payable (265,058) --
Loans to related parties -- (352,300)
Stock offering costs -- (65,195)
Issuance of common stock for cash 1,804,074 598,000
Receipt of related party receivable 253,500 --
Proceeds from subscribed stock 12,500 --
------------ ------------
Net Cash Provided by Financing Activities 2,703,143 390,505
------------ ------------
NET INCREASE IN CASH 83,170 150,846
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 154,237 3,391
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 237,407 $ 154,237
============ ============
The accompanying notes are an integral part of these consolidated financial
statements
F-10
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Statements of Cash Flows (Continued)
For the Years Ended
December 31,
------------
1999 1998
---- ----
CASH PAID FOR:
Interest $ 94,392 $ --
Income tax $ -- $ --
SCHEDULE OF NON-CASH FINANCING ACTIVITIES
Issuance of common stock for subsidiary $ 825,000 $ --
Issuance of common stock for debt $ 1,385,724 $ --
Issuance of common stock for services $ 1,943,235 $280,000
Issuance of common stock for subscription $ -- $ 60,000
Issuance of common stock for assets $ -- $ 25,000
Conversion of debt below market value $ 293,381 $ --
The accompanying notes are an integral part of these consolidated financial
statements
F-11
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
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-12
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
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 Years Ended
December 31,
------------
1999 1998
Numerator (net loss) $ (5,035,978) $ (521,548)
Denominator (weighted average number
of shares outstanding) 20,264,997 12,077,400
------------ -------------
Loss per share $ (0.25) $ (0.04)
============ ============
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 $5,200,000 at December 31, 1999 which
expire in 2019. 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
$80,000 at December 31, 1999.
i. Change in Accounting Principle
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which requires companies to record
derivatives as assets or liabilities, measured at fair market value.
Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. The key
criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash
flows. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999. Management believes the adoption
of this statement will have no material impact on the Company's
financial statements.
F-13
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 1 - NATURE OF ORGANIZATION (Continued)
j. 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.
k. Allowance for Doubtful Accounts
The Company's accounts receivable are shown net of an allowance for
doubtful accounts of $184,912 at December 31, 1999.
l. Reclassification
Certain December 31, 1998 balances have been reclassified to conform
with the December 31, 1999 financial statement presentation.
m. Advertising Expense
The Company expenses advertising costs as incurred.
n. 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.
o. 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.
p. Subscribed Stock
Subscribed stock represents cash received from shareholders for the
Company's common shares for which the amount of shares to be issued has
not been determined.
NOTE 2 - INVENTORY
Inventories for December 31, 1999 consisted of the following:
December 31,
1999
----
Finished goods $ 1,703,643
Work-in-process 66,549
Raw materials and supplies 115,198
------------
Total $ 1,885,390
============
F-14
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 2 - INVENTORY (Continued)
Inventories for raw materials, finished goods and work-in-process are
stated at the lower of cost or market.
NOTE 3 - EQUITY TRANSACTIONS
On January 5, 1999, the Company issued 590,000 shares of common stock
at $0.25 per share for cash of $117,500 and debt conversion of $35,000.
Additional expense of $295,000 was recorded to reflect the discount
from $0.75 per share which was the price that the Company was selling
restricted stock to independent third parties.
On January 5, 1999, the Company issued 866,670 shares of common stock
valued at $0.75 per share for cash of $475,000 and conversion of debt
of $175,000.
On January 8, 1999, the Company issued 210,668 shares of common stock
valued at $0.75 per share for cash of $158,000.
On January 11, 1999, the Company issued 560,000 shares of common stock
for cash at $0.25 per share or $140,000. Additional expense of $280,000
was recorded to value the shares at $0.75 per share.
On January 11, 1999, the Company issued 800,000 shares of common stock
for media services at $0.75 per share.
On January 20, 1999, the Company issued 160,000 shares of common stock
for cash at $0.25 per share or $40,000. Additional expense of $80,000
was recorded to value the shares at $0.75 per share.
On January 27, 1999, the Company issued 1,100,000 shares of common
stock for the purchase of Avid Sportswear, Inc. valued at $0.75 per
share.
On February 4, 1999, the Company issued 372,002 shares of common stock
at $0.75 per share for cash of $279,002.
On March 11, 1999, the Company issued 1,220,000 shares of common stock
for cash at $0.25 per share or $305,000. Additional expense of $610,000
was recorded to value the shares at $0.75 per share.
On March 11, 1999, the Company issued 83,334 shares of common stock for
cash of $67,500.
On March 29, 1999, the Company issued 18,334 shares of common stock
valued at $0.75 per share for cash of $13,750.
On May 28, 1999, the Company issued 101,100 shares of common stock for
cash at $0.75 per share for cash of $75,825.
On September 22, 1999, the Company issued 50,000 shares of common stock
at $0.25 per share for cash of $12,500. Additional expense of $25,000
was recorded to value the shares at $0.75 per share.
F-15
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 3 - EQUITY TRANSACTIONS (Continued)
On December 28, 1999, the Company issued 5,344,200 shares of common
stock valued at $0.275 per share for the conversion of $1,175,724 of
debt. The shares are valued at the market price on the date of issuance
with additional interest expense of $293,381, recorded to reflect a 20%
discount on the conversion.
On December 31, 1999, the Company issued 285,714 shares of common stock
valued at $0.35 per share for cash of $100,000.
NOTE 4 - NOTES PAYABLE - RELATED PARTY
Notes payable - related parties consisted of the following at December
31, 1999:
Note payable to Director dated December 9, 1999,
bearing interest at 10%, unsecured and due
on demand $ 300,000
Total Notes Payable - Related Party $ 300,000
============
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following at
December 31, 1999:
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. 160,524
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 the chief
executive officer, due on demand. 375,000
------------
Total notes payable 1,735,524
Less: amounts due by December 31, 2000 (1,735,524)
------------
Total long-term debt $ --
============
F-16
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 6 - PURCHASE OF AVID SPORTSWEAR, INC.
On December 18, 1998, the Company entered into a stock purchase and
sales agreement (Agreement) with Avid Sportswear & Golf Corp. (formerly
Golf Innovations Corp.) (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 a proforma consolidated balance sheet and income
statement reflecting 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 as though the purchase occurred on December 31, 1998 and
for the year ended December 31, 1998. The acquisition of the Company by
GFIO was accounted for as a purchase of the Company by GFIO on March 1,
1999. The actual purchase generated goodwill of $2,559,331. The
difference between the actual goodwill and the proforma goodwill is the
result of the Company's operations from December 31, 1998 to the date
of closing. The goodwill will be amortized over a 10-year period. Any
impairment of goodwill will be recognized in the year it is realized.
<TABLE>
<CAPTION>
ASSETS
------
Proforma
Avid Avid Adjustments
Sportswear Sportswear Increase Proforma
and Golf Corp. Inc. (Decrease) Consolidated
-------------- ---- ---------- ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash $ 154,237 $ 40,282 $ 70,207 $ 264,726
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 70,207 1,473,173
FIXED ASSETS (NET) 2,162 271,293 -- 273,455
---------- ---------- ---------- ----------
OTHER ASSETS
Trademarks -- 2,902 -- 2,902
Goodwill -- -- 2,329,428 2,329,428
Accumulated amortization -- -- (232,942) (232,942)
---------- ---------- ---------- ----------
Total Other Assets -- 2,902 2,096,486 2,099,388
---------- ---------- ---------- ----------
TOTAL ASSETS $ 178,348 $ 1,500,975 $ 2,166,693 $ 3,846,016
========== ========== ========== ==========
</TABLE>
F-17
<PAGE>
<TABLE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 6 - PURCHASE OF AVID SPORTSWEAR, INC. (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
<CAPTION>
Proforma
Avid Avid Adjustments
Sportswear Sportswear Increase Proforma
and Golf Corp. 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 (924,369) 1,138,192
--------- ---------- ---------- ----------
Total Current Liabilities 210,000 2,280,403 (924,369) 1,566,034
--------- ---------- ---------- ----------
TOTAL LIABILITIES 210,000 2,280,403 (924,369) 1,566,034
--------- ---------- ---------- ----------
STOCKHOLDERS' EQUITY
(DEFICIT)
Common stock : 50,000,000 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 893,193 -- 2,539,447 3,432,640
Stock subscription receivable (60,000) -- -- (60,000)
Receivable from related parties (352,300) -- -- (352,300)
Accumulated deficit (527,157) (1,543,598) 1,310,656 (760,099)
--------- ---------- ---------- ----------
Total Stockholders' Equity
(Deficit) (31,652) (779,428) 3,091,062 2,279,982
--------- ---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT) $ 178,348 $ 1,500,975 $ 2,166,693 $ 3,846,016
========== =========== =========== ===========
</TABLE>
F-18
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 6 - PURCHASE OF AVID SPORTSWEAR, INC. (Continued)
<TABLE>
<CAPTION>
Proforma
Adjustments
Avid Sportswear Avid Sportswear Increase Proforma
and Golf Corp. 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 74,441 232,942 307,497
General and administrative 465,952 980,134 -- 1,446,086
------------ ----------- ------------- -----------
Total Operating Expenses 466,066 1,630,835 232,942 2,329,843
------------ ----------- ------------- -----------
OPERATING (LOSS) INCOME (466,066) (587,912) (232,942) (1,286,920)
------------ ----------- ------------- -----------
OTHER INCOME EXPENSES
Bad debt expenses -- (21,554) -- (21,554)
Interest income 45 -- -- 45
Loss of valuation of asset (55,000) -- -- (55,000)
Interest expense (527) (134,384) -- (134,911)
------------ ----------- ------------- -----------
Total Other Income Expenses (55,482) (155,938) -- (211,420)
------------ ----------- ------------- -----------
LOSS BEFORE INCOME TAXES (521,548) (743,850) (232,942) (1,498,340)
INCOME TAXES -- -- -- --
------------ ----------- ------------- -----------
NET LOSS $ (521,548) $ (743,850) $ (232,942) $ (1,498,340)
============ =========== ============= ===========
</TABLE>
F-19
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 6 - PURCHASE OF AVID SPORTSWEAR, INC. (Continued)
Proforma Adjustments
1) Goodwill (Golf Innovations) $ 2,329,428
Common stock (Avid) 764,170
Retained earnings (Avid) (1,543,598)
Common stock (Golf Innovations) (1,100)
Additional paid-in capital (Golf Innovations) (823,900)
Cash (Golf Innovations) (725,000)
------------
$ --
============
To record purchase of Avid through the issuance of 1,100,000 shares of common
stock valued at $0.75 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 $ 232,942
Accumulated amortization - goodwill (232,942)
------------
$ --
============
To record one year of amortization expense based on a ten year life using the
straight-line method.
4) Notes payable (Avid) $ 1,826,119
Cash (Golf Innovations) (1,826,119)
------------
$ --
============
To reflect the payoff of the Avid notes payable.
5) Cash (Golf Innovations) $ 901,750
Notes payable (Golf Innovations) (901,750)
------------
$ --
============
To reflect cash received from notes payable.
F-20
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Financial Statements
December 31, 1998 and 1997
NOTE 7 - COMMITMENTS AND CONTINGENCIES
a. Office Lease
The Company leases its office and warehouse space under a
non-cancellable operating lease which expires on March 31, 2004. The
monthly rent amount is $10,114. Rent expense for the years ended
December 31, 1999 and 1998 was $124,846 and $52,241, respectively.
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 $100,000 for the
first year as a minimum guaranteed royalty. This amount is included in
the accrued expenses.
F-21
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
b. Royalty Agreement (Continued)
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
c. Royalty Agreement
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. 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-22
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
b. 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-23
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 8 - CONCENTRATIONS OF RISK
a. Cash
The Company maintains a cash account at a 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 9 - 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 Year Ended
------------------
December 31, 1999
-----------------
Foreign sales --
Domestic sales $ 2,360,596
------------
$ 2,360,596
------------
NOTE 10 - LOSS ON VALUATION OF ASSET
During the year ended December 31, 1998, the Company purchased the
right to market and distribute the products manufactured by Bo Ah
Industrial Co. for $30,000 cash plus 300,000 shares of common stock
valued at $25,000. The Company elected not to distribute the products
because they were not compatible with the new business plan of the
Company, and the Company had no intent to develop or pursue the
distribution channels. The asset was written off, producing a loss of
$55,000.
F-24
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
NOTE 11 - WARRANTS
The Company had the following warrants outstanding at December 31,
1999:
Number Date Granted Exercise Price Exercise Date
------ ------------ -------------- -------------
39,000 Jan. 8, 1999 $0.01 Jan. 8, 2004
The Company recognized an expense of $53,235 on January 8, 1999 to
reflect the discount from the trading price to the exercise price.
NOTE 12 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999, officers and directors of the
Company advanced $1,479,677 to the Company, of which $265,058 was
repaid during the year, under revolving demand notes bearing interest
at 10.00%. The advances accrued interest of $52,926. The advances and
accrued interest were converted into 4,397,936 shares on December 28,
1999. At December 31, 1999, the Company owed an officer and director
$300,000 (Note 4).
During the year ended December 31, 1999, the Company received $253,500
in full satisfaction of the note receivable - related party from
December 31, 1998.
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.
A non-interest bearing, unsecured, due upon demand loan receivable of
$93,000 was due from Avid Sportswear which was purchased by the
Company on March 1, 1999. Additionally, there was a receivable from an
affiliated company for $5,800 which was non-interest bearing and due
on demand.
During the year ended December 31, 1998, the Company advanced $253,500
to its President. The amount was non-interest bearing and due on
demand.
During June 1998, the Company sold 6,000,000 shares of its common
stock to its President for $20,000, or $0.00333 per share. The Company
has revalued these shares to a pre 3-for-1 forward split price of
$0.15 per share which equals the price that the President paid in June
1998 in an arms-length transaction to acquire a controlling interest
in the Company. On a post-split basis, the shares are valued at $0.05
per share. An additional administrative expense of $280,000 was
recorded to revalue the shares at $0.05 per share on a post-split
basis.
During August 1998, the Company sold 1,000,000 shares of its common
stock to directors of the Company, and 100,000 shares of its common
stock to its Secretary valued at $0.15 per share. Total cash
consideration received was $165,000.
NOTE 13 - 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 has current
liabilities in excess of current assets of $1,295,146 and has
generated significant losses 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
F-25
<PAGE>
AVID SPORTSWEAR & GOLF CORP.
(Formerly Golf Innovations Corp.)
Notes to the Consolidated Financial Statements
December 31, 1999 and 1998
existing shareholders and from the sales of additional shares through
private placements.
NOTE 14 - SUBSEQUENT EVENTS
ISSUANCE OF COMMON STOCK
On January 17, 2000, the Company issued 1,200,000 shares of common
stock to an officer for services to be rendered in 2000.
RELATED PARTY LOANS
Subsequent to December 31, 1999, related parties have loaned the
Company $882,592.
CONVERSION OF RELATED PARTY LOANS
On February 1, 2000, a related party converted $236,498 of debt into
695,583 shares of common stock. Additional interest expense of $67,472
was recorded to reflect the discount on conversion.
On January 25, 2000, related parties converted $372,562 of debt into
1,241,874 shares of common stock. Additional interest expense of
$93,141 was recorded to reflect the discount on conversion.
ISSUANCE OF WARRANTS
The Company failed to repay a note payable of $200,000 at January 31,
2000 as specified by the promissory note. Accordingly, the Company was
required to grant 100,000 warrants which are exercisable at $0.50 per
share and expire on August 1, 2003. The warrants were issued at a
price above the market price of the Company's stock.
STOCK OPTION PLAN
On January 17, 2000, the Company authorized a 2000 stock option
incentive plan (plan). The plan authorizes the issuance of up to
3,000,000 shares of common stock to key employees. On January 17,
2000, the Company granted 1,000,000 options to related parties
exercisable at $0.30 per share which was $0.075 below the trading
price at the date of grant. The remaining options will be issued at
prices as determined by the board of directors.
SALE OF COMMON STOCK
Subsequent to year end, the Company has sold 1,000,000 shares of
common stock for $350,000.
EMPLOYMENT AGREEMENT
On February 29, 2000, the Company entered into a three-year employment
agreement with its Chief Executive Officer, Earl Ingarfield. Mr.
Ingarfield will have a base salary of $325,000, plus annual cost of
living adjustments and other increases as determined by the Board of
Directors. Mr. Ingarfield's salary will be paid quarterly with the
Company's common stock on the last day of each calendar quarter.
F-26
<PAGE>
(Predecessor)
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 893,193
Common stock subscription receivable (Note 4) (60,000)
Receivable - related parties (Note 5) (352,300)
Deficit accumulated during the development stage (527,157)
-----------
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 administrative 465,952 5,609 471,561
--------- --------- ---------
Total Expenses 466,066 5,609 471,561
--------- --------- ---------
LOSS FROM OPERATIONS (466,066) (5,609) (471,561)
--------- --------- ---------
OTHER INCOME (LOSS)
Interest income 45 -- 45
Interest expense (527) -- (527)
Loss on valuation of asset (Note 7) (55,000) -- (55,000)
--------- --------- ---------
Total Other Income (Loss) (55,482) -- (55,482)
--------- --------- ---------
NET LOSS (521,548) (5,609) (527,157)
OTHER COMPREHENSIVE INCOME -- -- --
--------- --------- ---------
NET COMPREHENSIVE LOSS $ (521,548) $ (5,609) $ (527,157)
========= =========
BASIC LOSS PER SHARE $ (0.04) $ (0.00)
========= =========
FULLY DILUTED LOSS PER SHARE $ (0.04) $ (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 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 6,000 294,000 -- --
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 -- -- -- -- (521,548)
--------- ------- ----------- ----------- -----------
Balance,
December 31, 1998 14,612,000 $ 14,612 $ 893,193 $ (60,000) $ (527,157)
========== ========= ========= ========= ==========
</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 $ (521,548) $ (5,609) $(527,157)
Adjustments to reconcile net loss to net cash (used) by operating activities:
Loss on valuation of asset 55,000 -- 55,000
Depreciation 114 -- 114
Common stock issued for services 280,000 -- 280,000
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
Common stock issued for services $ 280,000 $ -- $ 280,000
</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 $527,000 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.
j. Goodwill
Goodwill generated from the purchase of Avid Sportswear will be
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.
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
five 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 $ -- $ 364,489 $ -- $ 364,489
Accrued expenses -- 63,353 -- 63,353
Notes payable 210,000 1,852,561 (924,369) 1,138,192
----------- ----------- ----------- -----------
Total Current Liabilities 210,000 2,280,403 (924,369) 1,566,034
----------- ----------- ----------- -----------
TOTAL LIABILITIES 210,000 2,280,403 (924,369) 1,566,034
----------- ----------- ----------- -----------
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 893,193 -- 2,539,447 3,432,640
Stock subscription receivable (60,000) -- -- (60,000)
Receivable from related parties (352,300) -- -- (352,300)
Accumulated deficit (527,157) (1,543,598) 1,310,656 (760,099)
----------- ----------- ------------ ------------
Total Stockholders' Equity (Deficit) (31,652) (779,428) 3,091,062 2,279,982
----------- ----------- ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT) $ 178,348 $ 1,500,975 $ 2,166,693 $ 3,846,016
=========== =========== ============ ============
</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 74,441 232,942 307,497
General and administrative 465,952 980,134 -- 1,446,086
--------------- -------------- ----------- -----------
Total Operating Expenses 466,066 1,630,835 232,942 2,329,843
--------------- -------------- ----------- -----------
OPERATING (LOSS) INCOME (466,066) (587,912) (232,942) (1,286,920)
--------------- -------------- ----------- -----------
OTHER INCOME EXPENSES
Bad debt expenses -- (21,554) -- (21,554)
Interest income 45 -- -- 45
Loss on valuation of asset (55,000) -- -- (55,000)
Interest expense (527) (134,384) -- (134,911)
--------------- -------------- ----------- -----------
Total Other Income Expenses (55,482) (155,938) -- (211,420)
--------------- -------------- ----------- -----------
LOSS BEFORE INCOME TAXES (521,548) (743,850) (232,942) (1,498,340)
INCOME TAXES -- -- -- --
--------------- -------------- ----------- -----------
NET LOSS $ (521,548) $ (743,850) $ (232,942) $ (1,498,340)
=============== ============== =========== ==========
</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) $ 2,329,428
Common stock (Avid) 764,170
Retained earnings (Avid) (1,543,598)
Common stock (Golf Innovations) (1,100)
Additional paid-in capital (Golf Innovations) (823,900)
Cash (Golf Innovations) (725,000)
-----------------
$ --
=================
To record purchase of Avid through the issuance of 1,100,000 shares of common stock valued at
$0.75 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 $ 232,942
Accumulated amortization - goodwill (232,942)
-----------------
$ --
=================
To record 1 year of amortization expense based on a ten year life.
4) Notes payable (Avid) $ 1,826,119
Cash (Golf Innovations) (1,826,119)
-----------------
To reflect payoff of the Avid notes payable. $ --
=================
5) Cash (Golf Innovations) $ 901,750
Notes payable (Golf Innovations) (901,750)
-----------------
To reflect cash received from notes payable. $ --
=================
</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 $ 70,207 $ 264,726
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 70,207 1,473,173
-------------- -------------- ----------- ----------
FIXED ASSETS (NET) 2,162 271,293 -- 273,455
-------------- -------------- ----------- ----------
OTHER ASSETS
Trademarks -- 2,902 -- 2,902
Goodwill -- -- 2,329,428 2,329,428
Accumulated amortization -- -- (232,942) (232,942)
-------------- -------------- ----------- ----------
Total Other Assets -- 2,902 2,096,486 2,099,388
-------------- -------------- ----------- ----------
TOTAL ASSETS $ 178,348 $ 1,500,975 $ 2,166,693 $ 3,846,016
============== ============== =========== ==========
</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 (924,369) 1,138,192
------------ -------------- --------- ----------
Total Current Liabilities 210,000 2,280,403 (924,369) 1,566,034
------------ -------------- --------- ----------
TOTAL LIABILITIES 210,000 2,280,403 (924,369) 1,566,034
------------ -------------- --------- ----------
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 893,193 -- 2,539,447 3,432,640
Stock subscription receivable (60,000) -- -- (60,000)
Receivable from related parties (352,300) -- -- (352,300)
Accumulated deficit (527,157) (1,543,598) 1,310,656 (760,099)
------------ -------------- --------- ----------
Total Stockholders' Equity (Deficit) (31,652) (779,428) 3,091,062 2,279,982
------------ -------------- --------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $ 178,348 $ 1,500,975 $ 2,166,693 $ 3,846,016
============ ============== ========= ----------
</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 74,441 232,942 307,497
General and administrative 465,952 980,134 -- 1,446,086
------------ --------------- ------------ ------------
Total Operating Expenses 466,066 1,630,835 232,942 2,329,843
------------ --------------- ------------ ------------
OPERATING (LOSS) INCOME (466,066) (587,912) (232,942) (1,286,920)
------------ --------------- ------------ ------------
OTHER INCOME EXPENSES
Bad debt expenses -- (21,554) -- (21,554)
Interest income 45 -- -- 45
Loss on valuation of asset (55,000) -- -- (55,000)
Interest expense (527) (134,384) -- (134,911)
------------ --------------- ------------ ------------
Total Other Income Expenses (55,482) (155,938) -- (211,420)
------------ --------------- ------------ ------------
LOSS BEFORE INCOME TAXES (521,548) (743,850) (232,942) (1,498,340)
INCOME TAXES -- -- -- --
------------ --------------- ------------ ------------
NET LOSS $ (521,548) $ (743,850) $ (232,942) $ (1,498,340)
============ =============== ============ ============
</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) $ 2,329,428
Common stock (Avid) 764,170
Retained earnings (Avid) (1,543,598)
Common stock (Golf Innovations) (1,100)
Additional paid-in capital (Golf Innovations) (823,900)
Cash (Golf Innovations) (725,000)
=======================
$ --
=======================
To record purchase of Avid through the issuance of 1,100,000 shares of common stock valued
at $0.75 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 $ 232,942
Accumulated amortization - goodwill (232,942)
-----------------------
$ --
=======================
To record 1 year of amortization expense based on a ten year life
using the straight-line method.
4) Notes payable (Avid) $ 1,826,119
Cash (Golf Innovations) (1,826,119)
-----------------------
$ --
=======================
To reflect the payoff of the Avid notes payable.
5) Cash (Golf Innovations) $ 901,750
Notes payable (Golf Innovations) (901,750)
-----------------------
$ --
=======================
To reflect the received from notes payable.
</TABLE>
F-16
<PAGE>
PART III
ITEMS 1 AND 2. INDEX TO EXHIBITS AND DESCRIPTION.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
<S> <C> <C>
2.01 Stock Purchase and Sale Agreement Incorporated by reference to Exhibit 2.01
dated as of December 18, 1998 among our to the Registrant's Registration Statement
company, Avid Sportswear, Inc. and the on Form 10-SB (the "Registration Statement")
shareholders of Avid Sportswear, Inc.
3.01 Articles of Incorporation filed on Incorporated by reference to Exhibit 3.01
September 19, 1997 with the Nevada to the Registration Statement
Secretary of State
3.02 Amended Articles of Incorporation filed Incorporated by reference to Exhibit 3.02
May 12, 1999 with the Nevada Secretary to the Registration Statement
of State
3.03 Certificate of Amendment to Articles of Incorporated by reference to Exhibit 3.03
Incorporation filed on May 27, 1999 with to the Registration Statement
the Nevada 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
Amendment No. 2 to the Registration Statement
10.01 Agreement dated as of December 8, 1998 Incorporated by reference to Exhibit 10.01
between the Championship Committee to the Registration Statement
Merchandising Limited and Avid
Sportswear, Inc.
10.02 Lease dated as of March 1, 1999 Incorporated by reference to Exhibit 10.02
between F & B Industrial to the Registration Statement
Investments, LLC and Avid
Sportswear, Inc.
10.03 Lease dated as of April 30, 1999 Incorporated by reference to Exhibit 10.03
between Links Associates, Ltd. and to the Registration Statement
our company
10.04 Employment Agreement dated as of Incorporated by reference to Exhibit 10.04
September 11, 1999 between Barnum Mow to the Registration Statement
and Avid Sportswear, Inc.
10.05 Trademark License Agreement dated as Incorporated by reference to Exhibit 10.05
of May 10, 1999 between Levi Strauss to Amendment No. 2 to the Registration Statement
& Co. and Avid Sportswear, Inc.
10.06 Employment Agreement dated as of Incorporated by reference to Exhibit 10.06
January 1, 1999 between David E. to the Registration Statement
Roderick and Avid Sportswear, Inc.
10.07 Promissory Note in the original amount Incorporated by reference to Exhbit 10.07
of $180,000 dated as of June 4, 1999 to the Registration Statement
from our compnay to First State Bank
10.08 Commercial Security Agreement dated as Incorporated by reference to Exhbit 10.08
of November 17, 1999 between First to the Registration Statement
State Bank and our company
33
<PAGE>
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
<S> <C> <C>
10.09 Promissory Note dated as of Incorporated by reference to Exhibit 10.09
November 17, 1999 in the original to the Registration Statement
principal amount of $1,000,000 given
by our company to First State Bank
10.10 Business Loan Agreement dated as of Incorporated by reference to Exhibit 10.10
November 17, 1999 between First to the Registration Statement
State Bank and our company
10.11 Convertible Revolving Demand Note Incorporated by reference to Exhibit 10.11
dated as of December 1, 1999 in the to Amendment No. 2 to the Registration Statement
in the original principal amount of
$550,000 given by our company to
Earl Ingarfield
10.12 Convertible Revolving Demand Note Incorporated by reference to Exhibit 10.12
dated as of December 1, 1999 in the to Amendment No. 2 to the Registration Statement
in the original principal amount of
$1,000,000 given by our company to
Lido Capital Corporation
10.13 Convertible Revolving Demand Note Incorporated by reference to Exhibit 10.13
dated as of December 1, 1999 in the to Amendment No. 2 to the Registration Statement
in the original principal amount of
$125,000 given by our company to
Michael E. LaValliere
10.14 Convertible Revolving Demand Note Incorporated by reference to Exhibit 10.14
dated as of December 1, 1999 in the to Amendment No. 2 to the Registration Statement
in the original principal amount of
$500,000 given by our company to
Thomas Browning
10.15 Convertible Revolving Demand Note Incorporated by reference to Exhibit 10.15
dated as of December 1, 1999 in the to Amendment No. 2 to the Registration Statement
in the original principal amount of
$200,000 given by our company to
Daniel Paetz
10.16 Executive Employment Agreement Incorporated by reference to Exhibit 10.16 to
effective as of February 1, 2000 Amendment No. 2 to the Registration Statement
between our company and Earl T.
Ingarfield
11.01 Statement re: Computation of Not Applicable
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 Provided herewith
24.01 Power of Attorney Not Applicable
27.01 Financial Data Schedule Provided herewith
</TABLE>
34
<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: April 27, 2000 AVID SPORTSWEAR & GOLF CORP.
By: /s/ Earl T. Ingarfield
-------------------------
Name: Earl Ingarfield
Title: President
35
EXHIBIT 23.01
CONSENT OF INDEPENDENT AUDITORS'
Board of Directors
Avid Sportswear & Golf Corp.
Sarasota, Florida
We consent to the use in this Registration Statement of Avid Sportswear & Golf
Corp. on Form 10-SB, of our report dated February 26, 2000 for Avid Sportswear &
Golf Corp. for the year ended December 31, 1999 and for our reports dated April
22, 1999 and March 4, 1999 of Avid Sportswear, Inc. and Golf Innovations Corp.,
respectively, for the years ended December 31, 1998 and 1997, which are part of
this Registration Statement, and to all references to our firm included in this
Registration Statement.
Jones, Jensen & Company
Salt Lake City, Utah
April 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and consolidated statement of operations of Avid
Sportswear & Golf Corp. and the notes thereto set forth in the filing. This
information is qualified in its entirety by reference to such financial
information.
</LEGEND>
<CIK> 0001100127
<NAME> AVID SPORTSWEAR & GOLF CORP.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 237,407
<SECURITIES> 0
<RECEIVABLES> 500,716
<ALLOWANCES> (184,912)
<INVENTORY> 1,885,390
<CURRENT-ASSETS> 2,458,601
<PP&E> 960,052
<DEPRECIATION> (502,938)
<TOTAL-ASSETS> 5,279,834
<CURRENT-LIABILITIES> 3,753,747
<BONDS> 0
0
0
<COMMON> 26,374
<OTHER-SE> 1,499,713
<TOTAL-LIABILITY-AND-EQUITY> 5,279,834
<SALES> 2,360,596
<TOTAL-REVENUES> 2,360,596
<CGS> 1,959,997
<TOTAL-COSTS> 4,941,269
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 57,039
<INTEREST-EXPENSE> 438,269
<INCOME-PRETAX> (5,035,978)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,035,978)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,035,978)
<EPS-BASIC> (0.25)
<EPS-DILUTED> (0.25)
</TABLE>
