As filed with the Securities and Exchange Commission on February 12, 2001
Registration No. ____________
===================================================================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
UNITED COMPANIES CORPORATION
(Name of Registrant in Our Charter)
Nevada 5136 300024898
(State or Other Jurisdiction of (Primary Standard Industrial (Both Avid and United. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
834 RIDGE AVENUE FRANK JAKOVAC
PITTSBURGH, PENNSYLVANIA 15212 834 RIDGE AVENUE
(412) 321-6001 PITTSBURGH, PENNSYLVANIA 15212
(Address and telephone number (412) 321-6001
of Principal Executive Offices and (Name, address and telephone number of
Principal Place of Business) agent for service)
Copies to:
Clayton E. Parker, Esq. Ronald S. Haligman, 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
(305) 539-3300 (305) 539-3300
Telecopier No.: (305) 358-7095 Telecopier No.: (305) 358-7095
Approximate date of commencement of proposed sale to the public: AS SOON
AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
====================================================================================================================================
PROPOSED
PROPOSED MAXIMUM
(1) MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE PRICE (1) FEE
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock, par value $0.01 per share 2,983,666 Shares $0.06 $179,019.96 $42.79
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL 2,983,666 Shares $0.06 $179,019.96 $42.79
====================================================================================================================================
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933.
_______________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
AVID SPORTSWEAR & GOLF CORP.
834 RIDGE AVENUE
PITTSBURGH, PENNSYLVANIA 15212
(412) 321-6001
Dear Shareholders:
You are cordially invited to attend a special meeting of shareholders
of Avid Sportswear & Golf Corp. ("AVID") to be held at the offices of
Kirkpatrick & Lockhart LLP, at 201 South Biscayne Boulevard, Suite 2000, Miami,
Florida 33131, on ____________, 2002, at 11:00 A.M., local time.
At this important meeting, shareholders will consider and vote upon
approval of the Merger Agreement dated ___________, 2002 (the "MERGER
AGREEMENT"), by and among Avid, United Companies Corporation, a Nevada
corporation ("UNITED"), and Merger Co., Inc., a Nevada corporation and a
wholly-owned subsidiary of United ("MERGER CO."), and the related Articles of
Merger which provide for the merger (the "MERGER") of Avid with and into Merger
Co., as a result of which Merger Co. shall be the surviving entity and shall
assume all of Avid's assets and liabilities.
Under the terms of the proposed Merger, upon consummation of the
Merger, shares of Avid common stock will be converted into shares of United
common stock on a fifty (50) for one (1) basis. Avid expects that the Merger
will be treated as a reorganization for federal income tax purposes so that the
receipt of United common stock by Avid shareholders will not be taxed.
Consummation of the Merger is subject to several conditions, including
approval of the Merger Agreement and related Articles of Merger by holders of at
least a majority of the outstanding shares of Avid common stock. YOUR VOTE IS
IMPORTANT.
The Board of Directors of Avid has approved the Merger Agreement and
Articles of Merger and recommends that Avid shareholders vote FOR approval of
the Merger Agreement and Articles of Merger. To assist you in evaluating the
proposed Merger, Avid and United have prepared the accompanying Proxy
Statement/Prospectus, which contains detailed information concerning the Merger.
To assure your representation at the Avid Special Meeting, please
complete, sign, date and return the enclosed proxy, whether or not you plan to
personally attend. Should you desire to revoke your proxy, you may do so as
provided in the accompanying Proxy Statement/Prospectus at any time before the
proxy is voted.
Sincerely,
Frank Jakovac
President and Chief Executive Officer
_______________, 2002
AVID SPORTSWEAR & GOLF CORP.
834 RIDGE AVENUE
PITTSBURGH, PENNSYLVANIA 15212
(412) 321-6001
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
-----------------------------------------
A special meeting of the shareholders of Avid Sportswear & Golf Corp.,
a Nevada corporation ("AVID"), will be held at the offices of Kirkpatrick &
Lockhart LLP, at 201 South Biscayne Boulevard, Suite 2000, Miami, Florida 33131,
on ___________, 2002, at 11:00 A.M., local time, for the following purposes:
1. To consider and vote upon approval of: (a) the Merger Agreement
dated ___________, 2002, by and among Avid, United Companies Corporation, a
Nevada corporation ("UNITED"), and Merger Co., Inc., a Nevada corporation
("MERGER CO."), pursuant to which Merger Co. shall be the surviving entity and
shall assume all of Avid's assets and liabilities and (b) Articles of Merger, to
be dated as of the date of such merger, pursuant to which such merger will be
effected. Copies of the Merger Agreement and Articles of Merger are attached as
Annexes I and II to the accompanying Proxy Statement; and
2. To transact such other business as may properly come before the
meeting.
The close of business on _________________, 2002 has been fixed by the
Board of Directors of Avid as the record date for determination of shareholders
entitled to vote at the meeting.
The meeting may be postponed or adjourned from time to time without any
notice other than by announcement at the meeting of any postponements or
adjournments thereof, and any and all business for which notice is hereby given
may be transacted at any such postponed or adjourned meeting.
Avid shareholders who object to the merger have the right to demand
payment of the "fair value" of any of their common stock.
We hope that you will be able to attend the meeting in person, but, if
you are unable to do so, you are urged to complete, date and sign the enclosed
proxy, which is solicited by the Board of Directors of Avid, and return it
promptly in the enclosed return envelope, so that your shares may be voted in
accordance with your wishes and in order that the presence of a quorum may be
assured. The giving of such proxy does not affect your right to vote in person
in the event you attend the meeting.
By Order of the Board of Directors,
Michelle Mathis, Secretary
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON, IN ORDER FOR
YOUR SHARES TO BE REPRESENTED AND VOTED AT THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY. SHAREHOLDERS WHO EXECUTE A PROXY
CARD MAY NONETHELESS ATTEND THE MEETING, REVOKE THEIR PROXY, AND VOTE THEIR
SHARES IN PERSON.
1
PROXY STATEMENT AND PROSPECTUS
------------------------------
PROSPECTUS OF
UNITED COMPANIES CORPORATION
2,983,666 SHARES OF UNITED COMPANIES CORPORATION
COMMON STOCK, PAR VALUE $0.01 PER SHARE
PROXY STATEMENT OF
AVID SPORTSWEAR & GOLF CORP.
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ________________, 2002
------------------------------------
This Proxy Statement and Prospectus ("PROXY STATEMENT/PROSPECTUS") is
furnished to the shareholders of Avid Sportswear & Golf Corp., a Nevada
corporation ("AVID"), in connection with the solicitation on behalf of the Board
of Directors of proxies for use at its Special Meeting of Avid shareholders to
be held on ________________, 2002, and at any postponements or adjournments
thereof (the "AVID SPECIAL MEETING").
Shareholders will consider and vote upon approval of the Merger
Agreement dated, ___________2002 (the "MERGER AGREEMENT"), by and among Avid,
United Companies Corporation, a Nevada corporation ("UNITED"), and United Merger
Co., a Nevada corporation and a wholly-owned subsidiary of United ("MERGER
CO."), and the related Articles of Merger (the "ARTICLES OF MERGER") which
provide for the merger (the "MERGER") of Avid with and into Merger Co., as a
result of which Merger Co. shall be the surviving entity and shall assume all of
Avid's assets and liabilities. At the time of the Merger, shares of Avid common
stock, par value $0.001 per share, will be converted automatically into shares
of United common stock, par value $0.01 per share, on a fifty (50) for one (1)
basis.
This Proxy Statement/Prospectus constitutes a prospectus of United
under the Securities Act of 1933, as amended (the "1933 ACT"), with respect to
the United common stock to be issued upon consummation of the Merger. The rights
and preferences of United common stock are more fully described in "THE PROPOSED
MERGER - Description of United Capital Stock." Information contained in this
Proxy Statement/Prospectus relating to Avid has been furnished by Avid and
information relating to United and its subsidiaries have been furnished by
United.
THE BOARD OF DIRECTORS OF AVID HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS
UNANIMOUSLY THAT SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER
This Proxy Statement/Prospectus does not cover any re-sales of United
common stock received by Avid shareholders upon consummation of the Merger, and
no person is authorized to make any use of this Proxy Statement/Prospectus in
connection with any such resale.
Avid's principal executive offices are located at 834 Ridge Avenue,
Pittsburgh, Pennsylvania 15212 (telephone: (412) 321-6001).
United's principal executive offices are located at 834 Ridge Avenue,
Pittsburgh, Pennsylvania 15212 (telephone: (412) 321-6001).
THE CONSUMMATION OF THE MERGER
INVOLVES CERTAIN RISKS FOR SHAREHOLDERS
SEE "RISK FACTORS"
----------------------------------------------
THE SHARES OF UNITED COMMON STOCK OFFERED PURSUANT TO THIS
PROXY STATEMENT/PROSPECTUS HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
This Proxy Statement/Prospectus is dated ______________________, 2002.
Copies of this Proxy Statement/Prospectus and accompanying forms of proxy and
Notice of Special Meeting of Shareholders will first be mailed on or about
____________________, 2002.
2
AVAILABLE INFORMATION
United has filed a registration statement on Form S-4 (the
"REGISTRATION STATEMENT") with the Securities and Exchange Commission (the
"COMMISSION") under the 1933 Act with respect to the United common stock offered
hereby. This Proxy Statement/Prospectus does not include all of the information
contained in the Registration Statement, certain parts of which have been
omitted in accordance with the rules and regulations of the Commission. For
further information about United and its stock, reference is made to the
Registration Statement and to the exhibits filed as a part thereof.
Avid is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 ACT") and, in accordance therewith,
files reports, proxy statements and other information with the Commission. The
Registration Statement and Avid's reports, proxy statements and other
information may be inspected and copied at the public reference facility
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N. W., Room
1024, Washington, D.C. Copies of such material may be obtained at prescribed
rates from the Public Reference Section of the Commission, at 450 Fifth Street,
N. W., Room 1024, Washington, D.C. 20549. The Commission maintains a site of on
the World Wide Web (HTTP://WWW.SEC.GOV) that contains reports, registration
statements, proxy and information statements and other information. You may
obtain information on the Public Reference Room by calling the Commission at
1-800-SEC-0330.
Statements made in this Proxy Statement/Prospectus as to the contents
of any contract, agreement or other document referred to are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to such exhibit
for a more complete description of the matter involved, and each such statement
is qualified in its entirety by such reference. Copies of the Registration
Statement and the exhibits may be inspected, without charge, at the offices of
the Commission, or obtained at prescribed rates from the Public Reference
Section of the Commission at the address set forth above.
No person has been authorized to give any information or make any
representation not contained or incorporated by reference in this Proxy
Statement/Prospectus and, if so given or made, such information or
representation must not be relied upon has having been authorized. This Proxy
Statement/Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any securities other than those shares of United common stock to
which it relates, or an offer to sell or a solicitation of an offer to buy any
securities in any jurisdiction where, to any persons to whom, it is unlawful to
make such offer or solicitation. Neither the delivery of this Proxy
Statement/Prospectus nor the sale of any security hereunder shall imply that the
information contained herein is correct at any time subsequent to the date
hereof.
3
JOINT PROXY STATEMENT AND PROSPECTUS
------------------------------------
TABLE OF CONTENTS
-----------------
PAGE
----
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS......................................1
AVAILABLE INFORMATION..........................................................3
SUMMARY........................................................................1
The Parties...............................................................1
The Merger................................................................1
The Avid Special Meeting..................................................3
Comparative Per Share Data................................................4
Historical, Pro Forma and Equivalent Pro Forma Per Share Information......4
RISK FACTORS...................................................................5
Risks Associated With Avid................................................5
Risks Associated With United..............................................7
THE AVID MEETING...............................................................9
UNITED SHAREHOLDER ACTION......................................................9
THE PROPOSED MERGER...........................................................10
DESCRIPTION OF SECURITIES.....................................................19
INFORMATION CONCERNING AVID...................................................21
INFORMATION CONCERNING UNITED.................................................27
UNAUDITED PRO FORMA COMBINED, CONDENSED FINANCIAL STATEMENTS..................27
PRINCIPAL SHAREHOLDERS OF AVID AND SECURITY OWNERSHIP OF
AVID MANAGEMENT.............................................................27
PRINCIPAL SHAREHOLDERS OF UNITED AND SECURITY OWNERSHIP OF
AVID MANAGEMENT.............................................................28
MANAGEMENT....................................................................28
EXPERTS.......................................................................34
LEGAL MATTERS.................................................................34
INDEX TO FINANCIAL STATEMENTS................................................F-1
i
SUMMARY
The following is a summary of, and is qualified in its entirety by
reference to, the more detailed information appearing elsewhere in this Proxy
Statement/Prospectus and the Annexes hereto. Shareholders should read carefully
the detailed sections of this Proxy Statement/Prospectus and the Annexes hereto.
THE PARTIES
UNITED COMPANIES CORPORATION
United is a company formed on November 26, 2001, which is active
seeking potential operating businesses and business opportunities with the
intent to acquire or merge with such businesses. United has not conducted
substantial operations as of the date of this Proxy Statement/Prospectus.
United's principal offices are located at 834 Ridge Avenue, Pittsburgh,
Pennsylvania 15212.
AVID SPORTSWEAR & GOLF CORP.
Avid, a corporation whose shares are quoted on the Over-the-Counter
Bulletin Board, was principally involved in the sports apparel industry prior to
the termination of its Dockers Golf license in May 2001. Currently, Avid has no
on-going operations. Avid's liabilities greatly exceed its tangible assets.
Avid's principal offices are located at 834 Ridge Avenue, Pittsburgh,
Pennsylvania 15212.
Merger Co., Inc.
Merger Co., a wholly-owned subsidiary of United, was formed for the
sole purpose of implementing the Merger. Merger Co. is minimally capitalized and
has not conducted, and is not expected to conduct, any business or operations.
THE MERGER
GENERAL
Avid and Merger Co. entered into the Merger Agreement on
____________________, 2002. When the Merger is completed, Merger Co. shall be
the surviving entity and shall assume all of Avid's assets and liabilities. At
the time of the Merger, outstanding shares of Avid common stock will be
converted automatically into shares of United common stock on a fifty (50) for
one (1) basis.
REASONS FOR THE PROPOSED MERGER
The Merger will implement the creation of a holding company structure
in which the acquisition-seeking activities of Avid and United will be
consolidated in one corporate organization with United as the publicly-owned
parent company. In management's opinion, Avid will be unsuccessful in raising
additional capital without changing its capital structure. Management believes
that the benefits of the Merger for United include, but are not limited to the
business experience and personal contacts of Avid's management, as well as the
public company status of Avid. Management believes that, with this structure in
place, it will have an improved opportunity to attract additional personnel to
complete the company's management team and to obtain the financing necessary to
acquire or merge with a potential business opportunity.
RISK FACTORS
The proposed Merger involves certain risks for the shareholders of
Avid. See "RISK FACTORS."
FAILURE TO CONSUMMATE THE MERGER
In the event the Merger is not consummated, Avid will likely be put
into bankruptcy and liquidate.
1
OUTSTANDING UNITED SECURITIES
United currently has outstanding 333,000 shares of common stock, all of
which are owned by Mr. Frank Jakovac. United's currently outstanding common
stock will remain outstanding upon completion of the proposed Merger. An effect
of the Merger from the standpoint of Avid shareholders will be to increase the
percentage of common stock beneficially owned by directors and officers from
under 1% (representing beneficial ownership as to Avid's common stock) to over
10% (representing anticipated beneficial ownership of United's common stock upon
the Effective Time of the Merger). The book value per share of the Avid common
stock as of September 30, 2001 was $(0.02) versus the anticipated book value of
$(1.54) per share of the United common stock upon the effective time of the
merger, but prior to an equity offering.]
OUTSTANDING AVID SECURITIES
Avid currently has outstanding 148,933,309 shares of common stock,
1,075,000 options and 424,714 warrants. On the effective date of the Merger, (i)
Avid common shareholders will receive one (1) share of United common stock in
exchange for fifty (50) shares of Avid common stock owned; (ii) options
outstanding under the Avid 2000 Stock Incentive Plan shall terminate; and (iii)
outstanding warrants of Avid shall be exchanged for United Common Stock purchase
warrants which represent the right to purchase one(1) share of United Common
Stock in exchange for fifty (50) shares of Avid common stock at an identical
exercise price per share
RECOMMENDATIONS
The disinterested directors of Avid's Board of Directors have approved
the Merger Agreement and Articles of Merger and recommend that the Avid
shareholders vote for approval of the Merger Agreement and Articles of Merger.
United's Board of Directors has unanimously approved the Merger Agreement.
INTERESTS OF CERTAIN AVID DIRECTORS AND OFFICERS IN THE MERGER
Certain directors and officers of Avid have interests in the
consummation of the Merger separate from and in addition to their interests as
Avid shareholders.
CONVERSION OF STOCK - NO EXCHANGE OF CERTIFICATES REQUIRED
Upon consummation of the Merger, outstanding shares of Avid common
stock will automatically become shares of United common stock on a fifty (50)
for one (1) basis. Holders of Avid's Common Stock certificates will not be
required to surrender the certificates representing their shares.
CONDITIONS TO CONSUMMATION OF THE MERGER; AMENDMENT AND TERMINATION OF THE
MERGER AGREEMENT AND ARTICLES OF MERGER
The respective obligations of the parties to consummate the Merger are
subject to certain conditions, including receipt of the requisite approvals of
the Avid shareholders and the United shareholder and the effectiveness of the
attached registration statement. The Board of Directors of Avid or United may
decide to waive any or all of its conditions to the Merger (except for Avid or
United shareholder approval) even after receipt of the requisite approvals of
Avid shareholders and the United shareholder. The Merger Agreement and Articles
of Merger may be amended by action of the Boards of Directors of Avid, United
and Merger Co., respectively. The Merger Agreement may be terminated at any time
by mutual consent of the Boards of Directors of Avid and United or, under
certain conditions, by one of such Boards of Directors without the consent of
the other.
ACCOUNTING TREATMENT
It is intended that the Merger will qualify to be accounted for as a
recapitalization of Avid with Avid as the acquirer (reverse acquisition).
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, we intend the Merger as a
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended. As a result, Avid shareholders who receive United common stock for Avid
common stock in the Merger generally will not recognize gain or loss on the
exchange for United States federal income tax purposes. No ruling will be
requested form the Internal Revenue Service concerning the federal income tax
consequences of the Merger. See "Certain Material United States Federal Income
Tax Consequences."
2
RECENT PRICE OF COMMON STOCK
As reported on the Over-the-Counter Bulletin Board, Avid common stock
was quoted on February 5, 2002 as follows:
AVID
COMMON STOCK PRICES
---------------------------
ASK BID
---------------------------
February 5, 2002 $0.0015 $0.012
Prior to the effective date of this Registration Statement, United was
a privately-held company.
EFFECTIVE DATE OF THE MERGER
The Merger will be consummated as of the time the Articles of Merger
filed with the Nevada Secretary of State are made effective. Assuming all
conditions to the consummation of the Merger are met, it is anticipated that the
Merger will occur as soon as practicable after Avid shareholder approval is
obtained.
THE AVID SPECIAL MEETING
GENERAL
The Avid Special Meeting will be held at the offices of Kirkpatrick &
Lockhart LLP, at 201 South Biscayne Boulevard, Suite 2000, Miami, Florida 33131,
11:00 a.m. local time, on _____________, 2002. At this Special Meeting,
shareholders will be requested to vote upon approval of the Merger Agreement and
Articles of Merger. The record date for the Avid Meeting is the close of
business on ___________, 2002. Only Avid shareholders of record on that date are
entitled to vote at the Avid Meeting.
VOTE REQUIRED
Approval of the Merger Agreement and Articles of Merger requires the
affirmative vote of a majority of the outstanding shares of Avid common stock.
Mr. Jakovac, the sole shareholder of United, has indicated that he will execute
a written consent in favor of the Merger, which written consent will accomplish
all United shareholder action required to approve the Merger.
CHANGES AFFECTING THE RIGHTS OF SHAREHOLDERS OF AVID
The rights of holders of Avid common stock are presently governed by
Avid's Articles of Incorporation and By-Laws and Nevada law. After the Merger is
consummated, their rights as holders of United common stock will be governed by
United's Articles of Incorporation and By-Laws and Nevada law. This change in
governing instruments affects in certain respects the rights of Avid
shareholders.
RIGHTS OF DISSENTING SHAREHOLDERS
Under Nevada law, Avid shareholders who object to the Merger will have
a statutory right to demand payment of the "fair value" of any of their shares
of Avid common stock. If the holders of more than 1% of the outstanding shares
object to the Merger, then the Board of Directors of either United or Avid may
terminate the Merger Agreement.
MANAGEMENT OF THE COMPANY AFTER THE MERGER
Upon consummation of the Merger, Mr. Frank Jakovac, the current
President and sole director of United and Merger Co., respectively, will
remain the President and sole director of United and Exchange Corp.,
respectively. Mr. James Handlon, the current Chief Operating Officer of Avid
will become an executive officer of United and Merger Co.
3
COMPARATIVE PER SHARE DATA
The following tables set forth certain unaudited historical and pro
forma per share data for Avid and United. Pro forma data gives effect to the
Merger as if it were consummated at the beginning of the periods presented
below. This information should be read in conjunction with the other financial
data appearing elsewhere in this Proxy Statement/Prospectus.
There were 147,933,309 shares of common stock outstanding as of
September 30, 2001 for Avid. United was formed on November 26, 2001, and had
333,000 shares of stock outstanding as of December 31, 2001. Based upon the
shares outstanding as of February 5, 2002, after the Merger, there will be
3,311,666 shares of common stock giving effect to a conversion ratio of fifty
(50) shares of Avid common stock for one (1) share of United common stock.
During each of the periods presented, there were no cash dividends declared by
either United or Avid. Options and warrants have been excluded from the
computations of earnings per common share below since they are antidilutive. The
information presented below may not be indicative of the results that would have
occurred if the Merger had been in effect on the dates indicated, and the
information is not indicative of future results.
HISTORICAL, PRO FORMA AND EQUIVALENT PRO FORMA PER SHARE INFORMATION
NINE MONTHS ENDED
SEPTEMBER 30, 2001 (AVID)
AND
PERIOD ENDED
DECEMBER 31, 2001 (UNITED)(1)
-----------------------------
Income (loss) per common share: $ (0.05)
Avid historical net income $(5,390,046)
United historical net (loss) (810)
Pro forma combined net (loss) $(7,138,418)
SEPTEMBER 30, 2001 (AVID)
AND
DECEMBER 31, 2000 (UNITED)
--------------------------
Book value per share:
Avid historical $ (0.02)
United historical -0-
Pro forma combined $ (1.54)
- -------------------
(1) For the purposes of this pro forma information, we are using financial
information for United as of December 31, 2001. United was incorporated in the
State of Nevada on November 26, 2001.
4
RISK FACTORS
RISKS ASSOCIATED WITH AVID
Avid is subject to various risks, which may have a material adverse
effect on Avid's business, financial condition and results of operations.
Certain risks are discussed below:
OUR DOCKERS' TRADEMARK LICENSE HAS BEEN TERMINATED BY LEVI STRAUSS & CO.
On May 9, 2001, Avid received a letter from Levi Strauss & Co. that,
effective May 9, 2001, it was terminating the Dockers' Trademark License
Agreement between Avid's wholly-owned subsidiary, Avid Sportswear, Inc., and
Levi Strauss & Co. as a result of Avid Sportswear, Inc.'s second quality and
closeout or end-of-season sales being greater than 25% of Avid's total product
sales during Year 2000. Avid believes that the loss of the license will have a
material adverse effect on our results of operations in future periods. The loss
of this license will result in lower company sales and a higher net loss in
future periods.
AVID HAS HISTORICALLY LOST MONEY AND LOSSES MAY CONTINUE IN THE FUTURE
Avid has historically lost money. In the three months ended September
30, 2001, Avid sustained a loss of $2.8 million. In the years ended December 31,
2000 and December 31, 1999, Avid sustained losses of $8.7 million and $5.0
million, respectively. Avid currently does not have any operations. Future
losses are likely to occur. For the years ended December 31, 2000 and 1999,
Avid's independent auditors have noted that Avid does not have significant cash
or other material assets to cover its operating costs and to allow it to
continue as a going concern. As of September 30, 2001, its current liabilities
exceeded its current assets. Avid's ability to obtain additional funding will
determine its ability to continue as a going concern. Avid currently has little
or no cash-on-hand. Accordingly, Avid will experience significant liquidity and
cash flow problems if it is not able to raise additional capital as needed and
on acceptable terms. No assurances can be given that Avid will be successful in
reaching or maintaining profitable operations.
AVID WILL NEED TO RAISE ADDITIONAL CAPITAL TO FINANCE OPERATIONS
Avid has relied on significant external financing to fund its
operations. Such financing has historically come from a combination of
borrowings and sale of common stock from third parties and funds provided by
certain officers and directors. Avid will need to raise additional capital to
execute a new business strategy. Among other things, external financing will be
required to cover its operating costs. Avid cannot assure you that financing
whether from external sources or related parties will be available if needed or
on favorable terms. In management's opinion, Avid will be unsuccessful in
raising additional capital without changing its capital structure.
AVID DOES NOT HAVE AUTHORIZED COMMON STOCK AVAILABLE TO RAISE CAPITAL
Avid does not have any authorized common stock available to raise
capital. The sale of Avid's common stock to raise capital may cause dilution to
its existing shareholders. Avid's inability to obtain adequate financing will
result in the need to curtail business operations. Any of these events would be
materially harmful to Avid's business and may result in a lower stock price.
CONTINGENT LIABILITIES
Avid's new management believes that the company issued shares of common
stock without legends restricting the resale of such shares. Avid's new
management believes that at least 19,225,000 shares of common stock have been
resold in the public market in violation of Section 5 of the 1933 Act.
Accordingly, additional shares may have been resold in violation of Section 5 of
the 1933 Act. Avid may be liable for rescission and other damages with respect
to these sales.
THE PRESIDENT OF AVID'S WHOLLY-OWNED SUBSIDIARY, AVID SPORTSWEAR, INC., RESIGNED
ON MAY 17, 2001
On May 17, 2001, Barnum Mow resigned as President of Avid's
wholly-owned subsidiary, Avid Sportswear, Inc. On April 24, 2001, Mr. Mow
resigned as a director of Avid and as a director of Avid Sportswear, Inc. The
operations of Avid largely depended on the efforts and abilities of Mr. Mow.
5
Avid's failure to attract and retain a replacement for Mr. Mow could have a
material adverse effect on its results of operations in future periods. Avid is
evaluating circumstances surrounding Mr. Mow's separation from Avid and Avid
Sportswear, Inc. On July 26, 2001, Mr. Mow filed a complaint against Avid and
its wholly-owned subsidiary alleging breach of contract, breach of implied
covenant of good faith and fair dealing, and violation of California Labor Code
ss. 227.3. Due to the preliminary status of the lawsuit, it is not possible to
evaluate the likelihood of an unfavorable outcome or estimate the extent of
potential loss.
AVID COULD FAIL TO ATTRACT OR RETAIN KEY PERSONNEL
Avid's success largely depends on the efforts and abilities of key
executives and consultants, including Frank Jakovac, Avid's President and Chief
Executive Officer and a Director, James Handlon, Avid's Chief Operational
Officer and a Director, and Michelle Mathis, Avid's Director of Corporate and
Legal Affairs and a Director. The loss of the services of any of these people
could materially harm Avid's 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. Avid was unable to honor its obligations
under these employment agreements and, as a result, Avid and each officer
mutually agreed to terminate their respective employment agreements effective
December 1, 2001. Currently, Avid does not have employment agreements with
Messrs. Jakovac or Handlon or Ms. Mathis. We do not maintain key-man life
insurance policies on any of these people. On May 17, 2001, Barnum Mow, the
President of Avid Sportswear, Inc., resigned. On August 16, 2001, Jerry Busiere
resigned as Secretary, Treasurer and a Director of Avid. On September 24, 2001,
Earl T. Ingarfield, resigned as Chief Executive Officer, Chairman and a Director
of Avid. On December 1, 2001, Michael LaValliere resigned as a Director of Avid.
AVID HAS BEEN THE SUBJECT OF A GOING CONCERN OPINION FROM OUR INDEPENDENT
AUDITOR
Avid's independent auditors have added an explanatory paragraph to
their audit opinions issued in connection with the 2000 and 1999 financial
statements, as well as the company's financial statements as of September 30,
2001, which states that Avid does not have significant cash or other material
assets to cover its operating costs and to allow it to continue as a going
concern. Avid's ability to obtain additional funding will determine its ability
to continue as a going concern. Avid's financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
AVID HAS BEEN AND CONTINUES TO BE SUBJECT TO A WORKING CAPITAL DEFICIT AND
ACCUMULATED DEFICIT
Avid had a working capital deficit of $3.0 million and $1.3 million at
December 31, 2000 and 1999, respectively. At September 30, 2001, Avid had a
working capital deficit of $2.8 million. Avid had an accumulated deficit of
$14.2 million and $5,563,135 at December 31, 2000 and 1999, respectively. At
September 30, 2001, Avid had an accumulated deficit of $19.6 million. Avid
currently does not have any operations.
AVID'S COMMON STOCK MAY FLUCTUATE SIGNIFICANTLY
Avid's 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 its common stock. In addition, Avid's management believes
that factors such as changes in the overall economy or the condition of the
financial markets could cause the price of its common stock to fluctuate
substantially.
AVID COMMON STOCK IS A "PENNY STOCK"
Avid common stock is a "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
6
penny stock is a suitable investment for a prospective investor. These
requirements may reduce the potential market for Avid common stock by reducing
the number of potential investors. This may make it more difficult for investors
in Avid common stock to resell shares to third parties or to otherwise dispose
of them. This could cause Avid's stock price to decline.
AVID COMMON STOCK MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY FLUCTUATE
SIGNIFICANTLY
Historically, there has been a limited public market for Avid's common
stock and there can be no assurance that an active trading market for Avid's
common stock will develop. As a result, this could adversely affect
shareholders' ability to sell Avid's common stock in short time periods, or
possibly at all. Avid's 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 its common stock.
RISKS ASSOCIATED WITH UNITED
United is subject to various risks, which may have a material adverse
effect on United's business, financial condition and results of operations.
Certain risks are discussed below:
UNITED HAS NO OPERATING HISTORY OR REVENUE FROM WHICH TO EVALUATE ITS BUSINESS
United has had no operating history or revenue from operations since
its inception on November 26, 2001. In addition, United has very limited assets
and financial resources. Due to United's lack of operations and revenue, the
company expects to incur operating losses for the foreseeable future. Due to
United's lack of operations, there is limited information upon which investors
can evaluate its business. United does not have significant cash or a source of
revenue to cover its operating costs and to allow it to continue as a going
concern. External capital will be required for United to continue as a going
concern. United has no commitments or other sources of capital available to it.
BECAUSE UNITED HAS NO OPERATIONS ITS FUTURE BUSINESS OPPORTUNITIES ARE HIGHLY
SPECULATIVE
The success of United's proposed plan of operation will be highly
dependent on any business opportunity that the company may acquire or merge with
in the future. There can be no assurance that United will be successful in
identifying possible business opportunities and/or consummating any future
acquisitions or mergers with such opportunities. You should consider the
likelihood of United's future success to be highly speculative in view of its
lack of operating history.
UNITED MAY NOT BE ABLE TO IDENTIFY A BUSINESS OPPORTUNITY DUE TO THE SCARCITY OF
AND COMPETITION FOR SUCH BUSINESS OPPORTUNITIES
United will need to identify an operating business or business
opportunity to merge with or acquire. A large number of established and
well-financed entities, including venture capital firms, are active in mergers
and acquisitions of a relatively small number of suitable business
opportunities. Nearly all of these entities have significantly greater financial
resources, technical expertise and managerial capabilities than United does and,
consequently, United will be at a competitive disadvantage in identifying
possible business opportunities and successfully completing an acquisition or
merger. United's inability to identify and combine with a suitable business
opportunity will have a material adverse effect on the company.
WE COULD FAIL TO RETAIN OR ATTRACT KEY PERSONNEL
United's future success depends, in significant part, on the continued
service of Frank Jakovac, its President. United cannot assure you that it would
be able to find an appropriate replacement for Mr. Jakovac. Any loss or
interruption of the services of Mr. Jakovac could adversely affect its ability
to develop its business plan. United has not entered into an employment
agreement with Mr. Jakovac. United does not presently maintain key-man life
insurance policies on Mr. Jakovac. United cannot assure you that it will be
successful in its efforts to recruit and retain the personnel it will need, and
United's failure to do so could adversely affect its business.
UNITED'S MANAGEMENT IS EXPECTED TO EXERT SIGNIFICANT INFLUENCE OVER THE
DIRECTION OF THE COMPANY
Through his stock ownership, Mr. Frank Jakovac, United's President and
sole director, will be able to exert significant influence over the direction of
United and its business opportunities.
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ADDITIONAL FINANCING REQUIRED
Without additional working capital, United will not be able to achieve
the objectives of management which include assuming an effective management team
and obtaining adequate working capital. There can be no assurance of successful
completion of the equity offering. The consequences of failure to complete the
equity offering include the inability to identify and combine with a suitable
business opportunity. If the equity offering is completed as contemplated, the
ownership interest of the shareholders of Avid and United prior to the equity
offering will be significantly reduced after the equity offering. Also, even if
the equity offering is completed, there is no assurance that Management's goals
as set forth in this Proxy Statement/Prospectus will be attained.
DILUTION OF AVID SHAREHOLDERS
Avid shareholders will experience dilution upon consummation of the
Merger because of the number of shares of common stock outstanding.
8
THE AVID MEETING
This Proxy Statement/Prospectus if furnished to Avid shareholders in
connection with the solicitation on behalf of the Avid Board of Directors of
proxies to be used at the Avid Special Meeting to be held on
___________________, 2002, at 11:00 A.M., local time, at the offices of
Kirkpatrick & Lockhart LLP, at 201 South Biscayne Boulevard, Suite 2000, Miami,
Florida 33131, and at any postponement or adjournment thereof. The form of proxy
to be used in connection with the Avid Special Meeting has been enclosed with
the copies of this Proxy Statement/Prospectus sent to Avid shareholders.
PURPOSE
The purpose of the Avid Special Meeting is to consider and vote upon
approval of the Merger Agreement and Articles of Merger.
RECORD DATE; SHAREHOLDERS ENTITLED TO VOTE; QUORUM
Each Avid shareholder of record at the close of business on
____________________, 2002, will be entitled to one vote for each share then
registered in such shareholder's name. As of that date, there were outstanding
and entitled to vote _____ shares of Avid common stock. A majority of the
outstanding Avid common stock will constitute a quorum for the transaction of
business at the Avid Meeting.
VOTE REQUIRED
Approval of the Merger Agreement and Articles of Merger require the
affirmative vote of a majority of the outstanding shares of Avid common stock.
SOLICITATION, VOTING AND REVOCATION OF PROXIES
A proxy in the form accompanying this Proxy Statement/Prospectus, if
properly executed and received by Avid before the Avid Special Meeting and not
revoked, will be voted as specified therein. If no specification is made, the
shares represented by the proxy will be voted FOR approval of the Merger
Agreement and Articles of Merger. The cost of soliciting proxies from Avid
shareholders will be borne by Avid. Avid will solicit proxies by mail, and
directors, officers and employees of Avid may solicit proxies by telephone,
telegraph or in person. Any proxy relating to the Avid Special Meeting may be
revoked by the person executed it at any time before it is voted, by filing with
the Secretary of Avid a written revocation or duly executed proxy bearing a
later date or by attendance at the Avid Special Meeting and voting in person;
however, mere attendance at the Avid Special Meeting will not itself have the
effect of revoking the proxy.
OTHER BUSINESS
The Avid Board of Directors knows of no other matter that will come
before the Avid Special Meeting. However, if any other matter is properly
brought before the Avid Special Meeting, the proxy holders will vote in
accordance with their best judgment.
UNITED SHAREHOLDER ACTION
Under Nevada law, the action to approve the Merger may be taken by the
unanimous written consent of the holders of all outstanding United common stock.
United has 333,000 shares of common stock outstanding, all of which are held by
Mr. Frank Jakovac. Mr. Jakovac has indicated that he will execute a written
consent in favor of the Merger. Upon obtaining such consent, all required United
shareholder action will have been taken and the Merger Agreement shall thereupon
have been adopted by United.
9
THE PROPOSED MERGER
GENERAL
BASIC TERMS OF MERGER
Upon the consummation of the Merger, Avid will be merged with and into
Merger Co., a wholly-owned subsidiary of United, as a result of which Merger Co.
will be the surviving entity and will assume all of Avid's assets and
liabilities. United is actively seeking potential operating businesses and
business opportunities with the intent to acquire or merge with such businesses.
On the effective date of the Merger, the rights of holders of United
and Avid securities will be affected as follows:
(a) Avid common shareholders will receive one (1) share of United
common stock in exchange for fifty (50) shares of Avid common stock owned; as a
result, Avid common shareholders' rights as Avid shareholders shall terminate
and shall be replaced by their ownership of United common stock.
(b) Options outstanding under the Avid 2000 Stock Incentive Plan shall
terminate effective as of the effective date of the Merger.
(c) The holders of avid common stock purchase warrants, which represent
the right to purchase up to 424,714 shares of avid common stock at exercise
prices ranging from $0.01 To $1.50, shall receive in exchange therefor United
common stock purchase warrants which represent the right to purchase one (1)
share of United common stock in exchange for fifty (50) shares of Avid common
stock at an identical exercise price per share.
(d) All securities of United outstanding prior to the Effective Time
shall remain outstanding after the Effective Time.
As a result of the Merger, Avid will be merged with and into Exchange
Corp., which is a wholly-owned subsidiary of United. Merger Co. will be the
surviving corporation of this Merger, and all rights, powers, duties and
obligations of Avid prior to the Merger shall be assumed by Merger Co. after the
Merger. Avid's creditors prior to the Merger shall become creditors of Merger
Co. after the Merger. Merger Co. is a corporation, which was formed for the
purpose of the Merger and has engaged in no substantial business operations.
BACKGROUND OF MERGER
Consummation of the Merger and the equity offering are, therefore, the
final steps in the process of consolidating the Avid and United business plans
and seeking potential operating businesses and business opportunities with the
intent to acquire or merge. Through the Merger, Avid shareholders will become
shareholders of United.
BUSINESS REASONS FOR THE MERGER
In reaching its decision to approve the Merger Agreement and to
recommend its acceptance by Avid shareholders, the Avid Board of Directors
considered the effects of the Merger through Board of Directors discussions and
discussions with Avid's management, and reviewed the terms and conditions of the
transactions contemplated by the Merger Agreement. The Avid Board of Directors
analyzed the consideration to be received by the Avid shareholders in the
Merger. The Avid Board of Directors considered a number of factors, with the
following being the material factors:
(1) Avid currently has no operations.
(2) Avid's liabilities greatly exceed its tangible assets.
(3) Financing has not been, and is not likely to become, available to
Avid due to recent events; including, but not limited to the
termination of the Dockers Golf license. Management believes
other financing should become feasible to United after the
Merger.
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(4) The Avid shareholders will become United shareholders.
(5) The receipt of United common stock in the Merger is intended to
be a tax-free exchange to the Avid shareholders.
(6) The prospects for assembling a qualified management team and for
obtaining adequate capital and financing to merge with or acquire
a business opportunity, if identified, should be greater than
those available to Avid.
(7) The number of shares of United common stock outstanding will mean
that Avid shareholders will experience substantial dilution upon
consummation of the Merger.
(8) The Board of Directors considered those matters described above
under "RISK FACTORS."
In view of the variety of factors considered, the Board of Directors of
Avid did not find it practical to quantify or otherwise attempt to attach
relative weights to specific factors considered. Based on its deliberations, the
Board of Directors of Avid has determined that the Merger is in the best
interests of Avid and its shareholders. The Board of Directors also considered
and gave weight to the interests which certain officers and directors of Avid
and United have in connection with the Merger. Management believes that the
benefits of the Merger for United include, but are not limited to, the business
experience and personal contacts of Avid's management, as well as the public
company status of Avid.
While there can be no assurance that all the above factors which are
stated as objectives can be fulfilled through the Merger, in assessing the
possibility of merging with or acquiring a business opportunity after the
Merger, management did perform certain inquiries and did consider certain
matters relating to the proposed Merger. With respect to its belief that United,
after the Merger, should have greater prospects for assembling a qualified
management team, management relied upon the experience of Messrs. Jakovac and
Handlon, who have substantial business experience. With respect to its belief
that United after the completion of the Merger should achieve improved financial
conditions and operations, management relied on its internally-generated
business plan, which indicates that United can achieve profitability, assuming
that (i) at least $1,000,000 is raised in an equity or debt financing; (ii)
United successfully consummates a merger or acquisition of a business
opportunity; and (iii) there is continuing availability of qualified management
personnel for what is a relatively new venture. Management has no reason to
believe that the assumptions used in preparing its business plan are not
reasonable.
The Board of Directors of Avid has approved the Merger Agreement and
Articles of Merger and unanimously recommends that the Avid shareholders vote
FOR approval of the Merger Agreement and Articles of Merger.
INTERESTS OF CERTAIN AVID DIRECTORS AND OFFICERS IN THE MERGER
In considering the proposed Merger, shareholders should be aware that
certain members of Avid's and United's management and Board of Directors have
certain interests which might present them with conflicts of interest in
connection with the Merger. Mr. Frank Jakovac, Chief Executive Officer,
President and a director of Avid immediately prior to the effective date of the
Merger, is also currently the President and sole director of United and will
remain a director of United immediately after the effective date of the Merger.
In voting on major corporate transactions such as mergers and
significant acquisitions, corporate boards frequently adopt special procedures
to allow disinterested directors the opportunity to consider and vote upon such
transactions free from the influence of interested directors. Although the term
"interested director" does not have a precise, accepted definition, in its
broadest sense, it would include all persons who are or were officers of a
company, controlling shareholders of the company, and employees or associates of
controlling shareholders. Under this broad definition, Avid has two (2)
disinterested directors.
OUTSTANDING UNITED SECURITIES
United currently has outstanding 333,000 shares of common stock, all of
which are owned by Mr. Frank Jakovac. United's currently outstanding common
stock will remain outstanding upon completion of the proposed Merger. An effect
of the Merger from the standpoint of Avid shareholders will be to increase the
percentage of common stock beneficially owned by directors and officers from
under 1% (representing beneficial ownership as to Avid's common stock) to over
10% (representing anticipated beneficial ownership of United's common stock upon
the effective date of the Merger).
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STOCK OWNERSHIP
At December 31, 2001, officers and directors of Avid held 400,000
shares of common stock, representing under 1% of the shares then outstanding.
EXPENSES OF THE MERGER
If the Merger is not consummated, all costs and expenses incurred in
connection with the Merger Agreement and the transactions contemplated thereby
will be paid by the party incurring such costs and expenses.
ACCOUNTING TREATMENT
It is intended that the Merger will qualify to be accounted for as a
recapitalization of Avid with Avid as the acquirer (reverse acquisition). Avid
will be treated as the acquirer for accounting purposes because it is intended
that the shareholders of Avid will control Merger Co. after the Merger. The
historical financial statements prior to the effective date of the Merger will
be those of Avid.
THE MERGER AGREEMENT
Avid, United and Merger Co. entered into the Merger Agreement on
__________________, 2002. The following description of the Merger Agreement does
not purport to be complete and is qualified in its entirety by reference to the
Merger Agreement and Articles of Merger, copies of which are attached as Annex I
and Annex II to this Proxy Statement/Prospectus and incorporated herein by
reference.
EFFECTIVE DATE OF THE MERGER
The Merger will become effective on the date the Articles of Merger
filed with the Secretary of State of the State of Nevada become effective. Avid
and United intend that the effective date will occur as soon as reasonably
practicable after the Avid Meeting takes place.
EFFECT OF THE MERGER; CONVERSION OF SHARES
On the effective date, Avid will be merged with and into Exchange
Corp., the separate corporate existence of Avid will terminate, and Exchange
Corp., as the surviving corporation, will own all of the assets and will be
responsible for all of the liabilities of Avid and Merger Co. By virtue of the
Merger, fifty (50) issued and outstanding shares of Avid common stock will be
converted into one (1) share of United common stock.
NO EXCHANGE OF CERTIFICATES REQUIRED
Holders of Avid common stock certificates will not be required to
surrender the certificates representing their shares.
AVID ARTICLES OF INCORPORATION AND BY-LAWS; DIRECTORS AND OFFICERS
The Articles of Merger provide that the Articles of Incorporation and
By-Laws of Merger Co., as in effect immediately prior to the effective date,
will be the Articles of Incorporation and By-Laws of Avid immediately after the
effective date and thereafter will continue to be its Articles of Incorporation
and By-Laws until amended as provided therein and under Nevada law.
Mr. Frank Jakovac, a director of Avid holding office immediately prior
to the effective date will be the sole director of Merger Co. and United,
respectively, on the effective date. In addition, Mr. Jakovac, the Chief
Executive Officer and President of Avid immediately prior to the effective date,
and Mr. James Handlon, the Chief Operating Officer of Avid immediately prior to
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the effective date, will be the officers of Merger Co. (holding the same office
as they held with Avid) after the effective date.
UNITED ARTICLES OF INCORPORATION AND BY-LAWS; DIRECTORS AND OFFICERS
The Articles of Incorporation and By-Laws of United, as in effect
immediately prior to the effective date (copies of which are attaches as Annexes
III and IV to this Proxy Statement/Prospectus), will remain the Articles of
Incorporation and By-Laws of United immediately after the effective date until
amended as provided therein and under Nevada law.
Mr. Frank Jakovac, the sole director of United holding office
immediately prior to the effective date, will continue to be the sole director
of United at the effective date.
CONDUCT OF BUSINESS PENDING THE MERGER
Avid currently has no operations and little or no cash on hand. Avid's
liabilities greatly exceed its assets.
CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER
Under the Merger Agreement, the respective obligations of each party to
effect the Merger are subject to the fulfillment of the following conditions:
(a) The Merger Agreement (including, without limitation, the Plan of
Merger contained therein and in the Articles of Merger) and the Merger shall
have been approved by the requisite vote of Avid's shareholders and by United's
shareholders.
(b) The issuance of United common stock in connection with the Merger
shall have been approved by United's shareholders.
(c) The registration statement to which this Proxy Statement/Prospectus
is related shall have become effective with the Securities and Exchange
Commission, and no stop order suspending such effectiveness shall have been
issued or proceedings for such purpose shall have been instituted, and this
Proxy Statement/Prospectus shall not contain an untrue statement of a material
fact and shall not omit any statement required to be contained herein or
necessary to make any statement contained herein, in the light in which made not
misleading.
(d) There shall have been no law, statute, rule or regulation, domestic
or foreign, enacted or promulgated which would make consummation of the Merger
illegal.
(e) No preliminary or permanent injunction or other order by any
federal or state court of competent jurisdiction that makes illegal or otherwise
prevents the consummation of the Merger shall have been issued and shall remain
in effect.
(f) No party to the Merger Agreement shall have terminated the Merger
Agreement as permitted therein.
The obligations of Avid to effect the Merger are subject to the
fulfillment of the following further conditions:
(a) The representations and warranties of United set forth in Article
___ of the Merger Agreement shall be true as of the date of the Merger Agreement
(or, if not, any exceptions shall have been removed on a basis satisfactory to
Avid) and shall be true and correct as of the effective date as if made at the
effective date.
(b) United shall have furnished to Avid certified copies of the text of
the resolutions by which the respective Boards of Directors and shareholders of
United and Merger Co. approved the Merger Agreement, the Merger and the issuance
of United common stock in connection with the Merger, as applicable:
The obligations of United and Merger Co. to effect the Merger are
subject to the fulfillment of the following further conditions:
(a) The representations and warranties of Avid set forth in Article ___
of the Merger Agreement shall be true as of the ate of the Merger Agreement (or,
if not, any exceptions shall have been removed on a basis satisfactory to
United) and shall be true and correct as of the effective date as if made at the
effective date.
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(b) Avid shall have furnished to United certified copies of the text of
the resolutions by which the Board of Directors and shareholders of Avid
approved the Merger Agreement (including, without limitation, the Plan of Merger
contained therein) and the Merger.
(c) There shall not have been any law, rule or regulation enacted or
promulgated after the date of the Merger Agreement, directly or indirectly, (i)
imposing material limitations on the ability of United effectively to acquire or
hold or to exercise full rights of ownership of Avid, or (ii) imposing material
limitations on the ability of either United or Avid to continue effectively all
or any material portion of its respective business as conducted prior to the
date of the Merger Agreement or to continue to own or operate effectively all or
any material portion of its respective assets as owned or operated prior to such
date, or (iii) imposing material limitations on the ability of United to
continue effectively all or any material portion of Avid's business as conducted
prior to the date of the Merger Agreement or to continue to own or operate
effectively all or any material portion of Avid's assets as owned or operated
prior to such date.
Any conditions to a party's obligation to consummate the Merger (other
than Avid and United shareholder approval) may be waived by such party before or
after such party's shareholders taking action on the Merger and the Merger
consummated without another vote of the Avid shareholders subject to the
provision described below under "Amendment and Termination of the Merger
Agreement an the Articles of Merger, Effect of Termination." In general, Avid
would determine to waive a condition only on the basis of a judgment that,
notwithstanding waiver of the particular condition, the Merger is still in the
best interests of its shareholders. If such a waiver would have a material
adverse impact on the Avid shareholders and, under applicable state or federal
law or the terms of the Merger Agreement, Avid would be required to re-solicit
proxies from its respective shareholders, it will do so.
AMENDMENT AND TERMINATION OF THE MERGER AGREEMENT AND THE ARTICLES OF MERGER;
EFFECT OF TERMINATION
The Merger Agreement may be amended by Avid and United (whose approval
shall be binding upon Merger Co.); provided, however, that, after approval of
the Merger by the shareholders of Avid, no amendment may be made which would
materially and adversely affect the shareholders of Avid, without the further
approval of the shareholders of Avid.
The Merger Agreement may be terminated at any time prior to the
Effective Time, whether prior to or after approval by the shareholders of Avid:
(a) by mutual consent of the Boards of Directors of United and Exchange
Corp. and the Avid Board of Directors; or
(b) by United or Avid if the Avid Special Meeting is held and, at such
Special Meeting, the vote regarding the Merger contemplated to be taken thereat
is taken and the requisite approval is not obtained or if the approval of the
shareholders of United is not obtained;
Provided, however, that no party shall have the right to terminate the Merger
Agreement unilaterally if the event giving rise to such right shall be primarily
attributable to such party or to any affiliated party. The termination of the
Merger Agreement shall automatically terminate the Articles of Merger.
In the event of the termination of the Merger Agreement by any party as
provided therein, the Merger Agreement shall become void and there shall be no
liability thereunder on the part of any party or its respective officers and
directors except liability on the part of any party for intentional breach or
misrepresentation or common law fraud and except that the agreements regarding
expenses and confidentiality contained in the Merger Agreement shall survive the
termination thereof.
TREATMENT OF AVID STOCK OPTIONS
As of the effective date, options outstanding under Avid's 2000 Stock
Incentive Plan shall terminate.
RESTRICTIONS ON RE-SALES BY AFFILIATES
The shares of United common stock issuable in the Merger have been
registered under the 1933 Act. Therefore, such shares may be traded freely and
without restriction by those Avid shareholder not deemed to be "affiliates" of
Avid or United (as such term is used in Rule 145 under the 1933 Act). Those
persons who are deemed affiliates of Avid or United will be restricted from
publicly selling the shares of United common stock they receive in connection
with the Merger unless such sales are made pursuant to either an effective
14
registration statement under the 1933 Act or an exemption from registration.
United is not required to provide any such registration statement (and this
Proxy Statement/Prospectus may not be used for selling such shares), nor is it
required to take any action to make any such exemption available.
The Avid shareholders who are deemed to be affiliates of Avid or United
may, however, sell their shares in accordance with Rule 145 under the Securities
Act. Rule 145 requires that affiliates sell shares of United common stock
acquired in the Merger in accordance with certain provisions of Rule 144 under
the Securities Act. Under such provisions, shares of United common stock
acquired by affiliates in the Merger may be sold: (i) if current public
information with respect to United (as required by the reporting requirements of
the Securities Exchange Act of 1934) is available; (ii) if the stock is sold in
a "broker's transaction" (as defined in the Rule); and (iii) if the amount of
stock sold or to be sold by the affiliate within any three-month period does not
exceed the greater of (a) one percent of the outstanding United common stock or
(b) the average weekly volume trading of United common stock on the NASDAQ
system during the four-week period prior to the proposed sale.
APPRAISAL RIGHTS OF DISSENTING SHAREHOLDERS
The shareholders of Avid common stock as of _____________, 2002 are
entitled to dissent from the proposed Merger and obtain payment for the fair
value of their shares under sections 78.3792-78.3793 of the Nevada Revised
Statutes in connection with the Merger. If the Merger is consummated, each Avid
shareholder, who has not voted in favor of the Merger and who otherwise complies
with the Nevada Revised Statutes, will be entitled to such rights. The following
discussion is not a complete statement of laws relating to appraisal rights and
is qualified in its entirety by references to the Nevada Revised Statutes. All
references in NRS Sections and in this summary to "shareholders" or
"shareholders" are to the record holders of the shares of Avid common stock as
to which appraisal rights are asserted.
Under the Nevada Revised Statutes, holders of Avid common stock who
desire to exercise their appraisal rights must satisfy all of the following
conditions. A written notice of the shareholder's intent to demand payment for
his shares if the proposed action is effectuated must be delivered to the
Secretary of Avid before the taking of the vote on the Merger. The shareholder's
notice of intent must be in addition to and separate from any proxy or vote
against the Merger. Voting against, abstaining from voting or failing to vote on
the Merger will not constitute a demand for appraisal within the meaning of the
Nevada Revised Statutes.
Avid shareholders electing to exercise their appraisal rights must
deliver a notice of intent to: Secretary, Avid Sportswear & Golf Corp., 834
Ridge Avenue, Pittsburgh, Pennsylvania 15212, so as to be received prior to
taking the vote at the Special Meeting. The shareholder's notice of intent must
specify the shareholder's name and mailing address, the number of shares of Avid
common stock owned, and that the shareholder is thereby demanding appraisal of
his shares.
The shareholder's notice of intent must be executed by or for the
shareholder of record, fully and correctly, as such shareholder's name appears
on the certificate or certificates representing such shareholder's shares of
Avid common stock. If the Avid common stock is owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, the shareholder's notice
of intent must be executed by the fiduciary. If the Avid common stock is owned
of record by more than one person, as in a joint tenancy in common, the
shareholder's notice of intent must be executed by all joint owners. An
authorized agent, including an agent for two or more joint owners, may executed
the shareholder's notice of intent for a shareholder of record; however, the
agent must identify the record owner. Beneficial owners who are not record
owners and who intend to exercise appraisal rights should instruct the record
owner to comply strictly with the statutory requirements with respect to the
exercise of appraisal rights before the date of the Avid Special Meeting.
NRS Section 92A.400 provides that a shareholder may exercise appraisal
rights for less than all of the shares registered in his name. In that event,
his rights shall be determined as if the shares as to which he has dissented and
his other shares were registered in the names of different shareholders. Where
the number of shares is not expressly stated, the demand will be presumed to
cover all shares of Avid common stock outstanding in the name of such
shareholder.
If the holders of more than one percent (1%) of the outstanding shares
of Avid common stock object to the Merger, the Board of Directors of either
United or Avid may terminate the Merger Agreement.
If the Merger is approved by the holders of the requisite number of
Avid shares, Avid shall give written notice of the adoption of the Merger
Agreement within ten (10) days of such adoption to each Avid shareholder who
filed a notice of intent and who did not vote for adoption of the Merger
Agreement.
15
Within twenty (20) days after the giving of notice to him, any
shareholder who elects to dissent shall file with Secretary of Avid a notice of
election to dissent, stating his name and address, the number, classes and
series of shares as to which he dissents, and a demand for payment of the fair
value of his shares. An Avid shareholder who elects to exercise appraisal rights
must deliver a notice of election to dissent to: Secretary, Avid Sportswear &
Golf. Corp., 834 Ridge Avenue, Pittsburgh, Pennsylvania 15212. Any Avid
shareholder failing to file a notice of election to dissent within such twenty
(20) day period shall be bound by the terms of the proposed corporate action.
Any Avid shareholder filing a notice of election to dissent shall deposit his
certificates for certificated shares with the corporation simultaneously with
the filing to the notice of election to dissent.
Upon filing of a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided for in NRS Section and shall
not be entitled to vote or to exercise any rights of a shareholder. A notice of
election to dissent may be withdrawn in writing by the shareholder at any time
before an offer is made by Avid to pay for his shares. After the time such offer
is made, no such notice of election to dissent may be withdrawn unless Avid
consents thereto. However, the right of such shareholder to be paid the fair
value of his shares shall cease and he shall be reinstated to have all his
rights as a shareholder as of the filing of his notice of election if the notice
of election to dissent is withdrawn, the proposed Merger is abandoned or
rescinded or the shareholders of Avid revoke the authority to effect the Merger,
no demand or petition for the determination of fair value by a court has been
made or filed within the time provided in this section, or a court of competent
jurisdiction determines that such shareholder is not entitled to the relief
provided by the Nevada Revised Statutes.
Within ten (10) days after the expiration of the period in which
shareholders may file their notices of elections to dissent, or within ten (10)
days after the Merger is effected, whichever is later (but in no case later than
ninety (90) days from the date the Merger was approved by the shareholders),
Avid will make a written offer to each dissenting shareholder who has filed a
notice of election to dissent to pay an amount which Avid estimates to be the
fair value for such shares. If the corporate action has not been consummated
before the expiration of the ninety (90) day period after the shareholders'
authorization of the Merger, the offer may be made conditional upon the
consummation of such action.
If within thirty (30) days after the making of such offer the
shareholder accepts the same, payment for his shares shall be made within ninety
(90) days after making of such offer or the consummation of the proposed Merger,
whichever is later. Upon payment of the agreed value, the dissenting shareholder
shall cease to have interest in such shares.
If Avid fails to make such offer within the period set forth above or
if Avid makes the offer and any dissenting shareholder fails to accept the same
within thirty (30) days thereafter, then Avid, within thirty (30) days after
receipt of written demand from any dissenting shareholder given within sixty
(60) days after the date on which such corporate action was effected, shall (or
at its election at any time within such period of sixty days may), file an
action in any court of competent jurisdiction in Nevada, requesting that the
fair value of such shares be determined. The Court shall also determine whether
each dissenting shareholder, as to whom Avid requests the court to make such
determination, is entitled to receive payment for their shares. If Avid fails to
institute the proceeding as set forth herein, any dissenting shareholder may do
so in the name of Avid.
The above information is a summary of the Nevada Revised Statutes
relating to the procedure for the exercise of a shareholders' right of appraisal
and is qualified in its entirety by reference to the full text of the Nevada
Revised Statutes.
CERTAIN MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following is a general summary of certain material United States federal
income tax consequences of the Merger to Avid shareholders upon their exchange
of Avid common stock for United common stock pursuant to the Merger. This
summary is based on provisions of the Internal Revenue Code of 1986, as amended,
Treasury Regulations promulgated thereunder, and administrative and judicial
interpretations of the Internal Revenue Code, all as in effect as of the date of
this proxy statement-prospectus. There can be no assurance that future
legislative, administrative or judicial changes will not affect the accuracy of
the statements or conclusions set forth in this tax summary. Furthermore, this
summary will not be binding on the Internal Revenue Service or the courts, and
no rulings will be sought from the Internal Revenue Service with regard to the
tax treatment of the Merger. Accordingly, there can be no certainty that the
Internal Revenue Service will not challenge the conclusions reflected in this
summary or that a court would not sustain such a challenge. This summary is
limited to Avid shareholders that hold their shares as a capital asset and does
not consider the tax treatment to shareholders that hold their shares through a
partnership or other pass-through entity. This summary does not address all
aspects of United States federal income taxation that may be applicable to Avid
shareholders in light of their particular circumstances or to Avid shareholders
subject to special treatment under United States federal income tax law, such
as:
o certain United States expatriates;
o shareholders that hold Avid common stock as part of a straddle,
appreciated financial position, hedge, conversion transaction or
other integrated investment;
o Avid shareholders whose functional currency is not the United States
dollar;
o Avid shareholders who acquired Avid common shares through exercise of
employee stock options or otherwise as compensation or through a
tax-qualified retirement plan;
o foreign persons and entities;
o financial institutions;
o insurance companies;
o tax-exempt entities;
o dealers in securities; and
o traders in securities that mark-to-market.
Furthermore, this summary does not address any aspect of state, local or foreign
taxation.
MERGER
We intend to treat the Merger as a reorganization within the meaning of Section
368(a) of the Internal Revenue Code. Provided that the Merger is respected as
such: (i) no gain or loss will be recognized by an Avid shareholder who
exchanges Avid shares solely for United shares; (ii) the basis of United shares
received by an Avid shareholder will equal the basis of the Avid shares
exchanged therefor; and (iii) the holding period of the United shares received
by an Avid shareholder in the merger will include the holding period of the
shareholder's Avid shares.
REPORTING REQUIREMENTS
An Avid shareholder who receives United shares in the merger should file a
statement with his or her United States federal income tax return for the
taxable year in which the Merger takes place setting forth his or her tax basis
in the Avid shares exchanged in the Merger and the fair market value of the
United shares and the amount of any cash received in the Merger. In addition,
Avid shareholders will be required to retain permanent records of these facts
relating to the Merger.
THE SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES SET FORTH
ABOVE IS INTENDED TO PROVIDE ONLY A GENERAL SUMMARY AND IS NOT INTENDED TO BE A
COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER. IN ADDITION, THIS SUMMARY DOES NOT ADDRESS TAX
CONSEQUENCES THAT MAY VARY WITH, OR ARE CONTINGENT ON, INDIVIDUAL CIRCUMSTANCES.
MOREOVER, THE SUMMARY DOES NOT ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE,
LOCAL OR OTHER TAX CONSEQUENCES OF ANY TRANSACTION OTHER THAN THE MERGER.
ACCORDINGLY, EACH AVID SHAREHOLDER IS STRONGLY URGED TO CONSULT WITH A TAX
ADVISOR TO DETERMINE THE PARTICULAR FEDERAL, STATE, LOCAL OR FOREIGN INCOME,
REPORTING OR OTHER TAX CONSEQUENCES OF THE MERGER TO THAT SHAREHOLDER.
16
GOVERNMENTAL FILINGS
Avid has determined that no filings or approvals are required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976. Avid and United are not
currently aware that any governmental permits, approvals, consents or similar
actions are required for consummation of the Merger except for federal and state
approvals under applicable securities laws.
MARKET PRICES OF AVID COMMON STOCK
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 Over-the-Counter Bulletin
Board 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. Our company began
trading again on the Over-the-Counter Bulletin Board, May 9, 2000. The company's
high and low bid prices by quarter during 1999, 2000 and 2001 are as follows(1):
CALENDAR YEAR 2001(2)
------------------------
HIGH BID LOW BID
-------- -------
First Quarter $0.1400 $0.0350
Second Quarter $0.1350 $0.0080
Third Quarter $0.1620 $0.0061
Fourth Quarter $0.0400 $0.0019
17
CALENDAR YEAR 2000(2)
-------------------------
HIGH BID LOW BID
-------- -------
First Quarter $0.8100 $0.2500
Second Quarter $0.6250 $0.2500
Third Quarter $0.6875 $0.2550
Fourth Quarter $0.4063 $0.0938
CALENDAR YEAR 1999(2)
-------------------------
HIGH BID LOW BID
-------- -------
First Quarter $2.0000 $0.7500
Second Quarter $1.4688 $0.8750
Third Quarter $1.1250 $0.6875
Fourth Quarter $1.0938 $0.2500
On February 5, 2002, our company's high and low bid prices were
$0.0012, respectively.
(1) These quotations reflect high and low bid prices from the
Over-the-Counter Bulletin Board and the pink sheets.
(2) These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not necessarily represent actual
transactions.
18
DESCRIPTION OF SECURITIES
AUTHORIZED CAPITAL STOCK. The authorized capital stock of our company
consists of 150,000,000 shares of common stock and 10,000,000 shares of
preferred stock. As of February 5, 2002, our company has 148,933,309 shares of
common stock outstanding. The company also has the following options and
warrants outstanding:
TYPE NUMBER OF SHARES EXERCISE PRICE
-------- ---------------- --------------
Options 600,000 $0.30
Options 475,000 $0.35
Warrants 100,000 $0.50
Warrants 285,714 $1.50
Warrants 39,000 $0.01
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
(as amended) filed with the Securities and Exchange Commission.
COMMON STOCK. Each share of common stock entitles the holder to one
vote on each matter submitted to a vote of our shareholders, including the
election of directors. There is no cumulative voting. Subject to preferences
that may be applicable to any outstanding preferred stock, shareholders are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors. Shareholders have no preemptive, conversion
or other subscription rights. There are no redemption or sinking fund provisions
available to the common stock. In the event of liquidation, dissolution or
winding up of 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. Currently, Avid does
not have any available authorized shares of common stock.
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
19
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.
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.
TRANSFER AGENT AND REGISTRAR. Transfer Online is the transfer agent and
registrar for our common stock. Its address is 227 S.W. Pine Street, Suite 300,
Portland, Oregon 97204.
DESCRIPTION OF UNITED CAPITAL STOCK
COMMON STOCK. Each share of common stock entitles the holder to one
vote on each matter submitted to a vote of our shareholders, including the
election of directors. There is no cumulative voting. Subject to preferences
that may be applicable to any outstanding preferred stock, shareholders are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors. Shareholders have no preemptive, conversion
or other subscription rights. There are no redemption or sinking fund provisions
available to the common stock. In the event of liquidation, dissolution or
winding up of 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.
20
COMPARISON OF RIGHTS OF SHAREHOLDERS
Both Avid and United are incorporated under the laws of the State of
Nevada. The rights of Avid shareholders are governed by Nevada law and Avid's
Articles of Incorporation and By-Laws. The rights of United shareholders are
governed by Nevada law and United's Articles of Incorporation and By-Laws. Upon
consummation of the Merger, Avid shareholders will become United shareholders
and their rights will be governed by Nevada law and United's Articles of
Incorporation and By-Laws. Therefore, the differences in the rights of Avid
shareholders just prior to and immediately after the effective date of the
Merger will be those resulting from the differences between the Articles of
Incorporation and By-Laws of Avid and United.
INFORMATION CONCERNING AVID
BUSINESS OF AVID
Currently, Avid has no on-going operations. Avid is seeking potential
operating businesses and business opportunities, with the intent to acquire or
merge with such businesses; however, in management's opinion, the excess of
Avid's liabilities over its assets and the lack of available funding make any
such acquisition or merger other than the Merger with Merger Co. unlikely.
Previously, through Avid's wholly-owned subsidiary, it designed, manufactured
and marketed distinctive premium and moderately-priced sportswear. Avid sold its
products primarily through golf pro shops and resorts, corporate sales accounts
and better specialty stores. Until May, 2001, Avid's sportswear was marketed
under three distinct labels: Avid Sportswear, British Open collection and
Dockers Golf. On January 19, 2001, Avid received a letter from IMG that the
company was in default of the license with The Championship Committee
Merchandising Limited for failure to pay timely its royalty payments for the
second, third and fourth quarters of 2000 of approximately $94,000. On April 30,
2001, IMG subsequently terminated this license. On May 9, 2001, the Dockers Golf
label was terminated by the licensor. From its incorporation on September 19,
1997 until March 1, 1999, Avid had no operations. On March 1, 1999, Avid
acquired Avid Sportswear, Inc., which had 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 Avid's business operations had been conducted through Avid Sportswear, Inc.
On May 9, 2001, Avid received a letter from Levi Strauss & Co. that,
effective May 9, 2001, it was terminating the Dockers Trademark License
Agreement between Avid's wholly-owned subsidiary, Avid Sportswear, Inc. and Levi
Strauss &Co. as a result of Avid Sportswear, Inc.'s second quality and closeout
or end-of-season sales being greater than 25% of the company's total product
sales during the Year 2000. Due to the loss of this license, Avid's operating
results for the quarter ended September 30, 2001 will not be indicative of
future results. Avid believes that the loss of this license will have a material
adverse effect on its results of operations in future periods. As a result of
the loss of this license, Avid has no ongoing operations.
On May 17, 2001, Barnum Mow, the President of Avid Sportswear, Inc.
resigned. In addition, on May 14, 2001, Stephen A. Korn, the Chief Financial
Officer of Avid Sportswear, Inc., was terminated by the company and, on May 29,
2001, the Executive Vice-President of Merchandising and Design of Avid
Sportswear, Inc. resigned.
On July 26, 2001, Avid and its wholly-owned subsidiary were named in
litigation with Mr. Mow. Mr. Mow filed a complaint against Avid and its
wholly-owned subsidiary alleging breach of contract, breach of implied covenant
of good faith and fair dealing and violation of Labor Code ss. 227.3. Mr. Mow
seeks damages in the amount oF $444,307.00, prejudgment interest thereon, costs
of suit incurred, and attorney's fees and costs according to statute. Due to the
preliminary status of the lawsuit, it is not possible to evaluate the likelihood
of an unfavorable outcome or estimate of potential loss.
On August 1, 2001, Avid and its wholly-owned subsidiary were named in
litigation with Mr. Korn. Mr. Korn filed a complaint against Avid and its
wholly-owned subsidiary alleging termination in violation of public policy,
breach of written and implied contract, breach of implied covenant of good faith
and fair dealing, intentional interference with contractual relations, negligent
interference with contractual relations, and violations of Labor Code ss.ss. 201
and 227.3. Mr. Korn seeks damages in an amount proven at trial, prejudgment
interest thereon, a penaLTY in accordance with Labor Code ss. 203, costs of suit
incurred, and attorney's fees and costs according to statute. Due to the
preliminary status of the lawsuit, it is not possible to evaluate the likelihood
of an unfavorable outcome or estimate of potential loss.
On September 26, 2001, Avid and its wholly-owned subsidiary were named
in litigation with David Roderick, former Executive Vice-President of
Merchandising and Design of Avid's wholly-owned subsidiary. Mr. Roderick filed a
complaint against Avid and its wholly-owned subsidiary alleging fraud, negligent
misrepresentation, unjust enrichment, and breach of written contract. Mr.
Roderick seeks damages in an amount proven at trial, punitive damages in an
amount proven at trial, costs of suit incurred, and attorney's fees. Due to the
preliminary status of the lawsuit, it is not possible to evaluate the likelihood
of an unfavorable outcome or estimate the extent of potential loss.
On May 22, 2001, Avid received a letter from GE Capital Commercial
Services, Inc. that, effective May 22, 2001, it was terminating its obligation
to make any further advances to Avid pursuant to the Factoring Agreement between
Avid and GE Capital Commercial Services, Inc. In addition, GE Capital Commercial
Services, Inc. declared all of the advances and other obligations owing by Avid
to GE Capital Commercial Services, Inc. to be immediately due and payable.
Subsequently, on July 20, 2001, the company's wholly-owned subsidiary received
notice from the factor that the obligations under the factoring agreement had
21
been paid in full. Also, on July 20, 2001, the company's wholly-owned subsidiary
received notice from the factor that the company's chairman has no further
obligations as the guarantor of the factoring agreement.
On July 24, 2001, Avid hired Frank Jakovac as its new President and
Chief Executive Officer. Also, on July 24, 2001, Avid hired James Handlon as its
new Chief Operating Officer and Michelle Mathis as its new Director of Corporate
and Legal Affairs. Messrs. Jakovac and Handlon and Ms. Mathis were also elected
as members of its company's Board of Directors. Effective December 1, 2001, the
employment agreements for Messrs. Jakovac and Handlon and Ms. Mathis were
terminated by the mutual consent of Avid and each respective individual. Messrs.
Jakovac and Handlon and Ms. Mathis continue to remain as officers and directors
of Avid.
On August 16, 2001, Jerry L. Busiere resigned as a director of Avid. On
September 24, 2001, Earl T. Ingarfield resigned as Chairman of the Board of
Directors of Avid. On December 1, 2001, Michael LaValliere resigned as a
director of Avid.
AVID MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
AVID'S OPERATIONS
PLAN OF OPERATIONS
Currently, Avid has no on-going operations. We are seeking potential
operating businesses and business opportunities, with the intent to acquire or
merge with such businesses; however, in management's opinion, the excess of
Avid's liabilities over its assets and the lack of available funding make any
such acquisition or merger other than the Merger with Merger Co. unlikely.
ADDITIONAL FUND RAISING ACTIVITIES. As of September 30, 2001, we had
$90,143 cash-on-hand. We currently have little or no cash-on-hand. We have
historically funded our operations through a combination of internally generated
cash, funds loaned to our company by certain of our officers and directors and
through the sale of securities. We will need to raise additional funds to
execute a new business strategy. Our current liabilities exceeded our current
assets as of September 30, 2001.
Avid's new management believes that approximately 19,225,000 shares of
common stock were issued without approval of the board of directors and without
appropriate restrictive legends. The company has retained a consultant
experienced in these matters to perform an independent review of these
transactions, as well as all related party transactions.
SUMMARY OF ANTICIPATED PRODUCT DEVELOPMENT. We spent approximately
$280,000 and $417,000 on product development in 1999 and 2000, respectively. Our
company does not have any available funds for any further product development
and is re-evaluating our product development efforts in light of the termination
of the Dockers Golf label and the British Open Collection label.
SIGNIFICANT PLANT AND EQUIPMENT PURCHASES. In 2000, we purchased
computer hardware and software, telephone and embroidery equipment at a cost of
approximately $734,000. In 2001, we do not anticipate purchasing additional
equipment.
CHANGES IN NUMBER OF EMPLOYEES. We currently have one (1) employee. As
shown in the following chart, we do not anticipate hiring additional personnel
during 2001. We believe that our personnel will be adequate to accomplish the
tasks set forth in the plan.
CURRENT
DEPARTMENT EMPLOYEES
------------------------------------------ ---------
Administrative and Other Support Positions 1
Total Employees 1
22
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
The following table sets forth, for the periods presented, the
percentage of net sales represented by certain items in our company's
Consolidated Statement of Operations for the three and nine months ended
September 30, 2001 and 2000:
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2001 2000 2001 2000
------------ ------------- ------------- -------------
Sales, net 100.0% 100.0% 100.0% 100.0%
Cost of goods sold (82.1%) (73.8%) (72.3%) (85.0%)
Gross margin 17.9% 26.2% 27.7% 15.0%
Operating expenses (188.0%) (107.6%) (53.4%) (111.0%)
(Loss) from operations (170.1%) (81.4%) (25.8%) (96.0%)
Interest expense (4.6%) (0.9%) (2.5%) (5.4%)
Net loss (167.5%) (36.3%) (27.5%) (100.8%)
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
As a result of the termination of the Dockers Golf license, the
following results are not indicative of future results.
Our results of operations for the three-month periods ended September
30, 2001 and 2000, respectively, included three months of operations of our
wholly-owned subsidiary, Avid Sportswear, Inc.
SALES, NET. Sales, net decreased $0.6 million, or 27.5%, from $2.2
million to $1.6 million in the three months ended September 30, 2001 compared to
the same period in the prior year. This decrease was primarily attributable to
our reduced sales subsequent to the termination of the Dockers Golf license on
May 9, 2001.
COST OF GOODS SOLD. Cost of goods sold decreased $0.3 million, or
19.4%, from $1.7 million to $1.3 million in the three months ended September 30,
2001 compared to the same period in the prior year. Cost of goods sold as a
percentage of sales, net, increased from 73.8% in the three months ended
September 30, 2000 to 82.1% in the three months ended September 30, 2001. This
increase was primarily attributable to discounts on prices given in close-out
sales after the termination of the Dockers Golf License.
GROSS PROFIT. Gross profit decreased $0.3 million, or 50.4%, from $0.6
to $0.3 million in the three months ended September 30, 2001, compared to the
same period in the prior year. Gross profit as a percentage of sales, net
decreased from 26.2% to 17.9% in the three months ended September 30, 2000 and
2001, respectively. This decrease was primarily attributable to the decrease in
sales, net in the current period compared to the same period in the prior year.
SELLING EXPENSES. Selling expenses decreased $1.1 million, or 95.5%,
form $1.2 million to $52,929 in the three months ended September 30, 2001
compared to the same period in the prior year. This decrease was primarily
attributable to our reduced sales efforts subsequent to the termination of the
Dockers Golf license on May 9, 2001.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $1.0 million, or 86.5%, from $1.1 million to $2.1 million in
the three months ended September 30, 2001 compared to the same period in the
prior year. This increase was primarily attributable to the increased expense
associated with the addition of management personnel at our wholly-owned
subsidiary.
INTEREST EXPENSE. Interest expense increased $54,245 or 256.9%, in the
three-month period ended September 30, 2001, compared to the same period in the
prior year.
23
NET LOSS. Net loss increased $1.9 million, or 234.2%, from $0.8 million
to $2.7 million in the three months ended September 30, 2001 compared to the
same period in the prior year. This increase was primarily attributable to a
reduction in sales subsequent to the termination of the Dockers Golf label on
May 9, 2001 and the increase in general and administrative expenses. We
anticipate that our net loss will increase as a result of the termination of the
Dockers Golf license.
NINE MONTH PERIODS ENDED SEPTEMBER 30, 2001 AND 2000
As a result of the termination of the Dockers Golf license, the
following results are not indicative of future results.
Our results of operations for the nine-month periods ended September
30, 2001 and 2000, included nine months of operations of our wholly-owned
subsidiary, Avid Sportswear, Inc.
SALES, NET. Sales, net increased $13.7 million, or 231.8%, from $5.9
million to $19.6 million in the nine months ended September 30, 2001, compared
to the same period in the prior year. This increase is primarily attributable to
increased sales efforts in connection with the Dockers golf product line prior
to termination on May 9, 2001.
COST OF GOODS SOLD. Cost of goods sold increased $9.2 million, or
182.2%, from $5.0 million to $14.2 million in the nine months ended September
30, 2001 compared to the same period in the prior year. Cost of goods sold as a
percentage of sales net, decreased from 85.0% in the nine months ended September
30, 2001 to 72.3% in the nine months ended September 30, 2001. This decrease was
primarily attributable to the reduced need to give concessions to customers
caused by late shipping and the decreased liquidation of inventory from prior
seasons.
GROSS PROFIT. Gross profit increased $4.5 million, or 513.2%, from $0.9
million to $5.4 million in the nine months ended September 30, 2001 compared to
the same period in the prior year. Gross profit as a percentage of sales, net
increased from 15.0% to 27.7% in the nine months ended September 30, 2001. This
increase was primarily attributable to the increase in sales, net in the current
period and the decrease of the cost of goods sold as a percentage of sales, net
in the current period compared to the same period in the prior year.
SELLING EXPENSES. Selling expenses decreased $1.2 million, or 46.7%,
from $2.5 million to $1.3 million in the nine months ended September 30, 2001
compared to the same period in the prior year. This decrease was primarily
attributable to our reduced sales efforts subsequent to the termination of the
Dockers Golf license.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative
expenses increased $1.9 million, or 50.3%, from $3.8 million to $5.7 million in
the nine months ended September 30, 2001 compared to the same period in the
prior year. This increase was partially attributable to the operations of our
wholly-owned subsidiary, Avid Sportswear, Inc.
INTEREST EXPENSE. Interest expense increased $0.2 million, or 52.5%, in
the nine-month period ended September 30, 2001, compared to the same period in
the prior year. This increase consisted primarily of $0.2 million of interest
expense to reflect a discount given in connection with the conversion of debt to
equity. In total, during the nine-month period ended September 30, 2001, $1.2
million of debt was converted into 59.3 million shares of common stock at an
average price of $0.01 per share. The company has retained a consultant
experienced in these matters to perform an independent review of these
transactions, as well as all related party transactions.
NET LOSS. Net loss decreased $0.6 million, or 9.5%, from $6.0 million
to $5.4 million in the nine months ended September 30, 2001 compared to the same
period in the prior year. This decrease was primarily attributable to the
increase in sales, net, prior to the termination of the Dockers Golf label on
May 9, 2001, and the decrease in cost of goods sold as a percentage of sales,
net in the nine-month period ended September 30, 2001.
LIQUIDITY AND CAPITAL RESOURCES. As of September 30, 2001, we had
$90,143 cash-on-hand and our current liabilities exceeded our current assets. We
currently have little or no cash-on-hand. A discussion of how we generated and
used cash in the three-month period follows:
OPERATING ACTIVITIES. Our operating activities used $2.0 million in
cash during the nine-month period ended September 30, 2001, consisting mainly of
a net loss of $5.4 million and an increase in accounts receivable of $0.8
million. These items were partially offset by depreciation and amortization
expenses of $2.3 million, a decrease in accounts payable of $1.0 million, a
decrease in inventory of $1.5 million and an increase in due from factor of $0.7
million.
24
INVESTING ACTIVITIES. Our investing activities used $14,854 in cash
during the nine-month period ended September 30, 2001, consisting mainly of the
cost of new financing.
FINANCING ACTIVITIES. Financing activities provided net cash of $2.1
million, generated mainly by the issuance of convertible debentures for cash of
$0.9 million, issuance of common stock for cash of $0.7 million, proceeds from
subscribed stock of $0.2 million, proceeds from related party notes payable of
$0.4 million, partially offset by payments of notes payable of $0.1 million and
payments on related party notes payable of $0.4 million.
Due to our significant quarterly losses and the loss of the Dockers
Golf and British Open Collection product lines, we will need to rely on external
financing to fund our operations for the foreseeable future. Expenses increased
in the nine months ended September 30, 2001 due to, among other things, the
increase in general and administrative expenses.
In August 2000, we entered into a factoring, letter of credit and
revolving inventory facility. On May 22, 2001, the factor terminated its
obligations to make any further advances to our company under the factoring
agreement and declared all of the advances and obligations owing by our company
to the facto to be immediately due and payable. Subsequently, on July 20, 2001,
the company's wholly-owned subsidiary received notice from the factor that the
obligations under the factoring agreement had been paid in full. Also, on July
20, 2001, the company's wholly-owned subsidiary received notice from the factor
that the company's chairman has no further obligations as the guarantor of the
factoring agreement.
As of August 18 2000, the outstanding balance of the company's loan
with First State Bank, including all collateral security and guarantees
associated therewith, were assigned to Earl T. Ingarfield, Michael LaValliere
and Lido Capital Corporation in consideration of payment in full of all
outstanding indebtedness to First State Bank.
In November 2000, our company raised $300,000 in gross proceeds and
$255,000 in net proceeds from the sale of convertible debentures. See "Item 2.
Changes in Securities and Use of Proceeds."
On November 28, 2000, we entered into a Line of Credit with GMF
Holdings, Inc. Pursuant to the Line of Credit, GMF Holdings, Inc. agreed to
acquire up to $10 million of our debentures. The debentures are convertible into
shares of our common stock at a conversion price equal to 80% of the closing bid
price on the Over-the-Counter Bulletin Board or other principal market on which
our company's common stock is traded for the 10 days immediately following the
notice date of conversion. The timing of each sale and the number of debentures
to be sold was at our discretion, subject to various conditions. Through
December 31, 2001, our company has raised $1.2 from the sale of debentures
pursuant to the Line of Credit and 59.3 million shares of our company's common
stock have been issued upon conversion of the debentures. As a result of the
loss of the Dockers' license, no additional funds pursuant to the Line of Credit
are available to our company.
In December 2000, our company raised $400,000 from the sale of
2,000,000 shares of common stock.
On January 19, 2001, we received a letter form IMG that our company is
in default of the license with The Championship Committee Merchandising Limited
for failure to pay timely our royalty payments for the second, third and fourth
quarters of 2000 of approximately $94,000. IMG subsequently terminated this
license.
On May 9, 2001, we received a letter from Levi Strauss & Co. that,
effective May 9, 2001, it was terminating the Dockers' Trademark License
Agreement between our company's wholly-owned subsidiary, Avid Sportswear, Inc.
and Levi Strauss & Co. as a result of Avid Sportswear, Inc.'s second quality and
closeout or end of season sales being greater than 25% of the company's total
product sales during the Year 2000.
CONTINGENT LIABILITIES
The company's new management believes that the company issued shares of
common stock without legends restricting the resale of such shares. The
company's new management believes that at least 19,225,000 shares of common
stock have been resold in the public market in violation of Section 5 of the
1933 Act. Accordingly, additional shares may have been resold in violation of
Section 5 of the 1933 Act. The company may be liable for rescission and other
damages with respect to these sales.
The Company's new management believes that the company may be liable
for unpaid compensation to Mr. Earl Ingarfield pursuant to the Employment
Agreement dated February 29, 2000 between Avid and Mr. Ingarfield.
25
OUR DOCKERS' TRADEMARK LICENSE HAS BEEN TERMINATED BY LEVI STRAUSS & CO.
On May 9, 2001, we received a letter from Levi Strauss & Co. that,
effective May 9, 2001, it was terminating the Dockers' Trademark License
Agreement between our company's wholly-owned subsidiary, Avid Sportswear, Inc.,
and Levi Strauss & Co. as a result of Avid Sportswear, Inc.'s second quality and
closeout or end-of-season sales being greater than 25% of our company's total
product sales during Year 2000. As a result of the loss of the license, our
company has no ongoing operations.
THE PRESIDENT OF OUR WHOLLY-OWNED SUBSIDIARY, AVID SPORTSWEAR, INC.,
RESIGNED ON MAY 17, 2001
On May 17, 2001, Barnum Mow resigned as President of our wholly-owned
subsidiary, Avid Sportswear, Inc. On April 24, 2001, Mr. Mow resigned as a
director of our company and as a director of Avid Sportswear, Inc. The
operations of our company largely depended on the efforts and abilities of Mr.
Mow. On July 26, 2001, Mr. Mow filed a complaint against our company and our
wholly-owned subsidiary alleging breach of contract, breach of implied covenant
of good faith and fair dealing, and violation of California Labor Code ss.
227.3. Due to the preliminary status of the lawsuit, it is not possible to
evaluate the likelihood of an unfavorable outcome or estimate the extent of
potential loss.
LEGAL PROCEEDINGS
On July 26, 2001, Avid and its wholly-owned subsidiary were named in
litigation with Barnum Mow, former Chief Executive Officer of the wholly-owned
subsidiary. Mr. Mow filed a complaint against Avid and its wholly-owned
subsidiary alleging breach of contract, breach of implied covenant of good faith
and fair dealing, and violation of Labor Code ss.ss. 227.3. Mr. Mow seeks
damages in the amount of 444,307.00, prejudgment interest thereon, costs of suit
incurred, and attorney's fees and costs according to statute. Due to the
preliminary status of the lawsuit, it is not possible to evaluate the likelihood
of an unfavorable outcome or estimate of potential loss.
On August 1, 2001, Avid and its wholly-owned subsidiary were named in
litigation with Stephen A. Korn, former CFO of the wholly-owned subsidiary. Mr.
Korn filed a complaint against Avid and its wholly-owned subsidiary alleging
termination in violation of public policy, breach of written and implied
contract, breach of implied covenant of good faith and fair dealing, intentional
interference with contractual relations, negligent interference with contractual
relations, and violation of Labor Code ss.ss. 201 & 227.3. Mr. Korn seeks
damages in an amount proven at trial, prejudgment interest thereon, a penalty in
accordance with Labor Code ss.203, costs of suit incurred, and attorney's fees
and costs according to statute. Due to the preliminary status of the lawsuit, it
is not possible to evaluate the likelihood of an unfavorable outcome or estimate
the extent of potential loss.
On September 26, 2001, Avid and its wholly-owned subsidiary were named
in litigation with David Roderick, former Executive Vice President of
Merchandising and Design of the wholly-owned subsidiary. Mr. Roderick filed a
complaint against Avid and its wholly-owned subsidiary alleging fraud, negligent
misrepresentation, unjust enrichment, and breach of written contract. Mr.
Roderick seeks damages in an amount proven at trial, punitive damages in an
amount proven at trial, costs of suit incurred, and attorney's fees. Due to the
preliminary status of the lawsuit, it is not possible to evaluate the likelihood
of an unfavorable outcome or estimate the extent of potential loss.
DESCRIPTION OF PROPERTY
Avid is currently renting office space on a month-to-month basis for
approximately $2,000 per month. Management believes that the property is in good
condition and is sufficient for its current operating plans.
26
INFORMATION CONCERNING UNITED
BUSINESS OF UNITED
United has been a development stage company that has had no operations
or income since its inception in November 2001. United has been active in
seeking potential business opportunities with the intent to acquire or merge
with such a business. United has limited cash and no other material assets.
United currently does not have a source of revenue to cover operating costs to
allow it to continue as a going concern. Further, there can be no assurance that
United will have the ability to successfully consummate the acquisition or
merger of any business opportunities that will be of material value to it.
UNITED'S PLAN OF OPERATIONS
During the next twelve months, United will actively seek out and
investigate possible business opportunities with the intent to acquire or merge
with one or more business ventures. Because United lacks funds, it may be
necessary for the officers and directors to either advance funds to the company
or to accrue expenses until such time as a successful business consolidation can
be made. Management intends to hold expenses to a minimum and to obtain services
on a contingency basis when possible. Further, United's officers and directors
anticipate deferring any compensation until such time as an acquisition or
merger can be accomplished and will strive to have the business opportunity
provide their remuneration. However, if United engages outside advisors or
consultants in its search for business opportunities, it may be necessary for it
to attempt to raise additional funds. As of the date hereof, United has not made
any arrangements or definitive agreements to use outside advisors or consultants
or to raise any capital United will need to raise capital, most likely, the only
method available to the company would be the private sale of its securities.
Because of the nature of United as a development-stage company, it is unlikely
that it could make a public sale of securities or be able to borrow any
significant sum from either a commercial or private lender. There can be no
assurance that United will be able to obtain additional funding when and if
needed, or that such funding, if available, can be obtained on terms acceptable
to the company.
Currently, United's only officer is Mr. Frank Jakovac. United intends
to hire Mr. James Handlon and Ms. Michelle Mathis upon the successful
consummation of the Merger. Outside advisors or consultants will be used only if
they can be obtained for minimal cost or on a deferred payment basis. management
believes that it will be able to operate in this manner and to continue its
search for business opportunities during the next twelve months.
UNAUDITED PRO FORMA COMBINED, CONDENSED FINANCIAL STATEMENTS
Consolidated Proforma Financial Statements
(Unaudited)
United Proforma
Avid Companies Adjustments
Sportswear & Corp. and Increase Proforma
Golf Corp. Subsidiaries (Decrease) Consolidated
----------------- --------------- --------------- ----------------
(Sept. 30, 2001) (Dec. 31, 2001)
Balance Sheet
Current assets $ 1,616,017 $ - $ (1,525,874) $ 90,143
Equipment, net 88,806 - (88,806) -
Other assets 33,692 - (33,692) -
------------ ----------- --------------- --------------
Total Assets $ 1,738,515 $ - $ (1,648,372) $ 90,143
============ =========== =============== ==============
Current liabilities $ 5,013,805 $ - $ 100,000 $ 5,113,805
Long-term debt 90,610 - - 90,610
------------ ----------- --------------- --------------
Total Liabilities 5,104,415 - 100,000 5,204,415
------------ ----------- --------------- --------------
Common stock; $0.01 par value; 100,000,000
shares authorized; 3,311,666 shares, issued
and outstanding 147,933 750 (115,566) 33,117
Additional paid-in capital 16,818,352 250 118,196 16,936,798
Common stock subscription receivable (717,450) (190) (3,440) (721,080)
Accumulated deficit (19,614,735) (810) (1,747,562) (21,363,107)
------------ ----------- --------------- --------------
Total Stockholders' Equity (Deficit) (3,365,900) - (1,748,372) (5,114,272)
------------ ----------- --------------- --------------
Total Liabilities and Stockholers'
Equity (Deficit) $ 1,738,515 $ - $ (1,648,372) $ 90,143
============ =========== =============== ==============
Income Statement
Total Revenues $ 5,426,333 $ - $ - $ 5,426,333
Total Operating Expenses (10,481,424) (810) (99,190) (10,581,424)
Total Other Income (Expense) (334,955) - - (334,955)
Loss From Discontinued Operations - - (1,648,372) (1,648,372)
------------ ----------- --------------- --------------
Net Loss $ (5,390,046) $ (810) $ (1,747,562) $ (7,138,418)
============ =========== =============== ==============
Basic Loss Per Share $ (0.05) $ (0.01) $ (2.16)
============ =========== ==============
Consolidated Proforma Financial Statements
(Unaudited)
Proforma Adjustments
--------------------
Loss from discontinued operations 1,648,372
Current assets 1,525,874
Equipment, Net 88,806
Other assets 33,692
To adjust for assets sold during fourth quarter 2001.
Stock subscription receivable 3,440
Common stock 2,580
Additional Paid-in Capital 860
To record additional shares issued to founder subsequent to December 31, 2001.
Operating expenses 100,000
Accounts payable 100,000
To record fees associated with merger agreement.
Common stock 118,146
Additional paid-in capital 117,336
Accumulated deficit 810
To record elimination entries for the reverse merger and stock exchange between
Avid and Merger Co. on a 50-to-1 basis.
PRINCIPAL SHAREHOLDERS OF AVID
BENEFICIAL OWNERS
As of February 5, 2002, other than (i) the persons identified in the
following table and (ii) the directors and executive officers identified in the
table under "Directors and Executive Officers" section below, no person owned
beneficially more than five percent (5%) of our common stock.
SHARES
BENEFICIALLY PERCENT
NAME AND ADDRESS TITLE OF CLASS OWNED OF CLASS(1)
- ---------------- -------------- ------------ -----------
Lido Capital Corporation Common Stock 16,756,017 11.23%
- -----------------------
(1) Applicable percentage is based on 148,933,309 shares outstanding, plus
any securities convertible or exchangeable into shares of common stock
for the purpose of computing the percentage ownership of such person
only.
27
DIRECTORS AND EXECUTIVE OFFICERS OF AVID
The following table shows the amount of our capital stock beneficially
owned by our directors, the executive officers named in the Summary Compensation
Table below and by all directors and executive officers as a group as of
February 5, 2002. Unless otherwise indicated, beneficial ownership is direct and
the person indicated has sole voting and investment power. As of February 5,
2002, we had 148,933,309 shares of common stock outstanding.
BENEFICIALLY
NAME AND ADDRESS OWNED SHARES PERCENT OF CLASS(1)
- -------------------------------- ------------ -------------------
Frank Jakovac 400,000(2) *
834 Ridge Avenue
Pittsburgh, Pennsylvania 15212
James Handlon - 0 - 0.0%
834 Ridge Avenue
Pittsburgh, Pennsylvania 15212
Michelle Mathis - 0 - 0.0%
834 Ridge Avenue
Pittsburgh, Pennsylvania 15212
All officers and directors as a group 400,000 *
(3 persons)
- -----------------------
* Less than 1%.
(1) Applicable percentage of ownership is based on 148,933,309 shares of
common stock outstanding, together with applicable options for each
shareholder. Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of common
stock subject to options that are currently exercisable or exercisable
within 60 days of February 5, 2002 are deemed to be beneficially owned
by the person holding such options for the purpose of computing the
percentage of ownership of such person, but are not treated as
outstanding for the purpose of computing the percentage ownership of
any other person.
PRINCIPAL SHAREHOLDERS OF UNITED
AND SECURITY OWNERSHIP OF UNITED MANAGEMENT
Mr. Frank Jakovac is the sole shareholder of United. As of February 5,
2002, United has 333,000 shares of common stock issued and outstanding, all of
which is owned by Mr. Jakovac. Mr. Jakovac is the Chief Executive Officer,
President and sole Director of United.
MANAGEMENT
UNITED'S DIRECTORS AFTER THE MERGER
Mr. Frank Jakovac will remain as United's sole director after the
Merger.
EXECUTIVE OFFICERS
Mr. Frank Jakovac will remain as United's President after the Merger.
28
AVID'S BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
Avid's Board of Directors consists of Messrs. Frank Jakovac and James
Handlon and Ms. Michelle Mathis. All three directors will remain as directors of
Avid after the Merger.
AVID'S 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 2000 and 2001 and who received in excess of $100,000:
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------- -------------------------------------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
SALARY BONUS COMPENSATION AWARD(S) OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION(S) YEAR ($) ($) ($) ($) (#S) ($)
- ------------------------------ ---- ------- ------ ------------ ---------- ---------- -------------
Frank Jakovac(1) 2001 $72,917 -- -- -- -- --
President, Chief Executive 2000 -- -- -- -- -- --
Officer and Director
Earl T. Ingarfield(2) 2001 $216,667 -- -- -- -- --
Former Chief Executive Officer, 2000 $325,000 -- -- -- -- --
President and Chairman of the
Board of Directors
Barnum Mow(3) 2001 $152,692 -- -- -- -- --
Former President of Avid 2000 $300,000 -- -- --(4) --(5) --
Sportswear, Inc.
David Roderick, Executive 2001 $82,958 -- -- -- -- --
Former Vice-President of 2000 $150,000 -- 12,500(6) -- -- --
Merchandising and Design of
Avid Sportswear, Inc.
- ---------------------
(1) Mr. Jakovac became President, Chief Executive Officer and a Director in
June 2001.
(2) Mr. Ingarfield became Chief Executive Officer, President and Chairman
of the Board of Directors in June, 1998. On September 24, 2001, Mr.
Ingarfield resigned as Chief Executive Officer and Chairman of the
Board of Directors of Avid.
(3) Mr. Mow became Chief Executive Officer and President of our wholly-
owned subsidiary on September 17, 1999. On May 17, 2001, Mr. Mow
resigned as Chief Executive Officer and President of our wholly-owned
subsidiary and as a Director of Avid.
(4) On January 17, 2000, our Company issued 1,200,000 shares of our common
stock to Mr. Mow. These shares were forfeited pursuant to an amendment
to Mr. Mow's employment agreement effective January 31, 2001.
(5) On January 17, 2001, our Company granted 864,477 options to purchase
our common stock. All of these options were terminated effective May
17, 2001 pursuant to Mr. Mow's resignation as Chief Executive Officer
and President of our wholly-owned subsidiary and as a Director of Avid.
(6) Mr. Roderick's other annual compensation consists of a company car and
automobile insurance.
EMPLOYMENT AGREEMENTS
On June 25, 2001, the company entered into a three-year employment
agreement with Frank J. Jakovac, to act as President and Chief Executive
Officer. The base salary for services was $127,500 per year, payable in
semi-monthly installments through September 25, 2001. After September 25, 2001,
base salary was $255,000 per year, payable in semi-monthly installments. An
initial bonus of 1,250,000 shares of common stock at $0.01 per share vested
immediately, and $25,000 to be paid upon signing new business equaling or
greater than $1,000,000 of new revenue. Mr. Jakovac was granted and fully vested
in 5% of the company's total shares of issued stock. Avid was unable to honor
29
its obligations under this employment agreement and as a result, Avid and Mr.
Jakovac mutually agreed to terminate the agreement. Mr. Jakovac received no
shares of common stock or options pursuant to the employment agreement.
On June 25, 2001, the company entered into a three-year employment
agreement with James W. Handlon to act as Executive Vice-President and Chief
Operating Officer. The base salary for services was $125,000 per year, payable
in semi-monthly installments through September 25, 2001. After September 25,
2001, base salary was $245,000 per year, payable in semi-monthly installments.
An initial bonus of 1,250,000 shares of common stock at $0.01 per share vested
immediately, and $25,000 to be paid upon signing new business equaling or
greater than $1,000,000 of new revenue. Mr. Handlon was granted and fully vested
in 5% of the company's total shares of issued stock. Avid was unable to honor
its obligations under this employment agreement and as a result, Avid and Mr.
Handlon mutually agreed to terminate the agreement. Mr. Handlon received no
shares of common stock or options pursuant to the employment agreement.
On June 25, 2001, the company entered into a three-year employment
agreement with Michelle Mathis to act as the Director of Corporate and Legal
Affairs. The base salary for services was $50,000 per year, payable in
semi-monthly installments through September 25, 2001. After September 25, 2001,
base salary was $100,000 per year, payable in semi-monthly installments. An
initial bonus of 800,000 shares of common stock at $0.01 per share vested
immediately, and $10,000 to be paid upon signing new business equaling or
greater than $1,000,000 of new revenue. Ms. Mathis was granted and fully vested
in 1% of the company's total shares of issued stock. Avid was unable to honor
its obligations under this employment agreement and as a result, Avid and Ms.
Mathis mutually agreed to terminate the agreement. Ms. Mathis received no shares
of common stock or options pursuant to the employment agreement.
On February 29, 2000, we entered into a three-year employment agreement
with Mr. Ingarfield. Pursuant to this agreement, Mr. Ingarfield was employed as
the Chief Executive Officer and President of Avid. Mr. Ingarfield had an 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) was to be paid quarterly in our company's stock on the last
day of each calendar quarter. In addition, Mr. Ingarfield was to be entitled to
annual incentive bonus compensation in an amount to be determined by the Board
of Directors. Mr. Ingarfield was entitled to a company car. In the event that
Mr. Ingarfield's employment was terminated by our company without "cause" or by
Mr. Ingarfield for "good reason" (which includes a change of control), he was
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 was entitled to
certain relocation expenses incurred in a change of principal residence. The
agreement provided that Mr. Ingarfield will not compete with our company during
his employment and for two years thereafter unless his employment was 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. Mr.
Ingarfield's employment with Avid was terminated on September 24, 2001.
Our wholly-owned subsidiary entered into a three-year employment
agreement with Barnum Mow, commencing September 17, 1999. Mr. Mow resigned from
employment with Avid on May 17, 2001. On July 26, 2001, our company and our
wholly-owned subsidiary were named in litigation with Mr. Mow. Mr. Mow filed a
complaint against our company and our wholly-owned subsidiary alleging breach of
contract, breach of implied covenant of good faith and fair dealing and
violation of Labor Code ss. 227.3. Mr. Mow seeks damages in the amount of
$444,307.00, prejudgment interest thereon, costs of suit incurred, and
attorney's fees and costs according to statute. Due to the preliminary status of
the lawsuit, it is not possible to evaluate the likelihood of an unfavorable
outcome or estimate of potential loss.
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 was $181,000,
subject to increases as determined by the employer. Mr. Roderick resigned from
employment with Avid on May 29, 2001. On September 26, 2001, our company and our
wholly-owned subsidiary were named in litigation with David Roderick, former
Executive Vice-President of Merchandising and Design of our wholly-owned
subsidiary. Mr. Roderick filed a complaint against our company and our
wholly-owned subsidiary alleging fraud, negligent misrepresentation, unjust
enrichment, and breach of written contract. Mr. Roderick seeks damages in an
amount proven at trial, punitive damages in an amount proven at trial, costs of
suit incurred, and attorney's fees. Due to the preliminary status of the
lawsuit, it is not possible to evaluate the likelihood of an unfavorable outcome
or estimate the extent of potential loss.
30
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 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.
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.
o In March 1999, Mr. Ingarfield repaid $500 to our company. In
addition, our company loaned Mr. Ingarfield $15,000.
o In April 1999, Mr. Ingarfield repaid $116,250 to our company and
our company loaned an additional $26,562 to Mr. Ingarfield.
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.
o In June 1999, Mr. Ingarfield loaned $151,000 to our company and
our company repaid $51,000 to Mr. Ingarfield.
o In July 1999, Mr. Ingarfield loaned $30,000 to our company.
o In August 1999, Mr. Ingarfield loaned $30,000 to our company.
o In September 1999, Mr. Ingarfield loaned $53,000 to our company.
o In October 1999, Mr. Ingarfield loaned $25,000 to our company.
o In November 1999, Mr. Ingarfield loaned $53,919 to our company.
o In December 1999, Mr. Ingarfield loaned $394,509 to our company.
In addition, Mr. Browning loaned $300,000 to our company. 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 then
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
31
o 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.
o In February 2000, our company issued 1,200,000 shares of our common
stock to Barnum Mow in consideration of his employment.
o In February 2000, Mr. Ingarfield loaned our company a total of
$182,000. 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.
o 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.
o In March 2000, Mr. Ingarfield loaned our company a total of
$119,462.
o In April 2000, our company repaid $372,964 to Mr. Ingarfield. Also
in April 2000, our company loaned a total of $201,706 to Mr.
Ingarfield upon the same terms as the funds previously borrowed
from Mr. Ingarfield.
o In May 2000, our company loaned a total of $8,500 to
Mr. Ingarfield.
o In June 2000, Mr. LaValliere elected to tender a $60,523
receivable owed to him by the company under the terms of the
private placement offering in exchange for 172,923 shares of our
common stock. In addition, in June 2000, our company loaned Mr.
Ingarfield a total of $207,000.
o In July 2000, Mr. Ingarfield repaid all of the indebtedness owed by
him to our company. In addition, Mr. Ingarfield loaned our company
a total of $111,425.
o In August 2000, the outstanding balance of the company's loan with
First State Bank, including all collateral security and guarantees
associated therewith, were assigned to Mr. LaValliere and Lido
Capital Corporation in consideration of payment in full of all
outstanding indebtedness to First State Bank. The outstanding
amounts owed to Mr. LaValliere and Lido Capital Corporation are
convertible into common stock of our company under the terms of the
December 1, 1999 convertible demand notes.
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 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, 1999:
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.
32
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.
o In June 2000, Mr. LaValliere elected to tender a $60,523
receivable owed to him by the company under the terms of the
private placement offering in exchange for 172,923 shares of our
common stock.
OTHER. In addition to the transactions listed 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 was $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." Subsequently, the options to
Messrs. Ponsler and Abrams were cancelled when our company's senior
lender required payment of its loan facility to our company and
such payment was made solely by Mr. LaValliere and Lido Capital
Corporation.
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. The 1,200,000 shares of our company's common stock
granted on January 17, 2000 were forfeited by Mr. Mow pursuant to an amendment
to Mr. Mow's employment agreement effective January 31, 2001.
AVID'S 2000 STOCK INCENTIVE 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.
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
Steven Ponsler 200,000 $0.30 January 16, 2010
Jeff Abrams 200,000 $0.30 January 16, 2010
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. Subsequently, the options to Messrs. Ponsler
and Abrams were cancelled when our company's senior lender required payment of
its loan facility to our company and such payment was made solely by Mr.
LaValliere and Lido Capital Corporation.
33
EXPERTS
The consolidated financial statements as of December 31, 2000 and for
each of the years ended December 31, 2000 and 1999 included in this Prospectus
have been so included in reliance on the report (which contains an explanatory
paragraph relating to Avid's ability to continue as a going concern as described
in Note 13) to the consolidated financial statements of HJ & Associates, LLC,
independent accountants, given on the authority of said firm's experts in
auditing and accounting.
LEGAL MATTERS
Kirkpatrick & Lockhart LLP, Miami, Florida, will pass upon the validity
of the shares of our common stock.
34
INDEX TO FINANCIAL STATEMENTS
-----------------------------
AVID SPORTSWEATH & GOLF CORP.
- -----------------------------
Consolidated Balance Sheets as of September 30, 2001 (Unaudited) F-2
and December 31, 2000 (Audited)
Consolidated Statements of Operations (Unaudited) for the Three F-4
and Nine Months Ended September 30, 2001 and 2000
Consolidated Statements of Stockholders' Equity (Deficit) F-5
Consolidated Statements of Cash Flows (Unaudited) for the Nine F-12
Months Ended September 30, 2001 and 2000
Notes to Consolidated Financial Statements F-14
Independent Auditors' Report F-19
Consolidated Balance Sheets (Audited) as of December 31, 2000 F-20
and 1999
Consolidated Statements of Operations (Audited) for the Years F-22
Ended December 31, 2000 and 1999
Consolidated Statements of Stockholders' Equity (Deficit) F-23
Consolidated Statements of Cash Flows (Audited) for the Years F-26
Ended December 31, 2000 and 1999
Notes to Consolidated Financial Statements F-28
UNITED COMPANIES CORPORATION
- ----------------------------
Independent Auditors' Report F-50
Consolidated Balance Sheet as of December 31, 2001 F-51
Consolidated Statement of Operations F-52
Consolidated Statement of Stockholders' Equity F-53
Consolidated Statement of Cash Flows F-54
Notes to Consolidated Financial Statements F-55
35
AVID SPORTSWEAR & GOLF CORP.
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001 AND DECEMBER 31, 2000
F-1
AVID SPORTSWEAR & GOLF CORP.
Consolidated Balance Sheets
ASSETS
------
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
CURRENT ASSETS
Cash $ 90,143 $ 25,452
Accounts receivable, net 513,806 75,719
Accounts receivable - related party, net 196,688 -
Inventory 481,776 1,961,464
Due from factor, net 209,801 816,663
Prepaid expenses 28,629 134,900
Other current assets 95,174 71,540
----------- ------------
Total Current Assets 1,616,017 3,085,738
----------- ------------
EQUIPMENT
Machinery and equipment 293,758 484,495
Furniture and fixtures 47,947 90,263
Computers and software 219,651 408,046
Office equipment 15,420 49,770
Show booths 169,387 460,927
Leasehold improvements 22,254 31,470
Less: accumulated depreciation (679,611) (468,861)
----------- ------------
Total Equipment 88,806 1,056,110
----------- ------------
OTHER ASSETS
Goodwill, net - 2,090,171
Debt offering costs - 66,405
Deposits 30,790 15,789
Trademarks 2,902 2,902
----------- ------------
Total Other Assets 33,692 2,175,267
----------- ------------
TOTAL ASSETS $1,738,515 $6,317,115
=========== ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
AVID SPORTSWEAR & GOLF CORP.
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
September 30, December 31,
2001 2000
------------- ------------
(Unaudited)
CURRENT LIABILITIES
Cash overdraft $ - $ 87,534
Accounts payable 4,101,982 5,086,000
Accrued expenses 304,224 479,688
Notes payable - related parties - 166,557
Notes payable - 100,000
Capital leases - current portion 46,074 44,279
Customer deposits - 86,677
------------- ------------
Total Current Liabilities 4,452,280 6,050,735
------------- ------------
SUBORDINATED DEBT
Notes payable - related parties - 547,126
Note payable 561,525 561,525
------------- ------------
Total Subordinated Debt 561,525 1,108,651
------------- ------------
LONG-TERM DEBT
Convertible debentures - 300,000
Capital leases - long term portion 90,610 122,954
------------- ------------
Total Long-Term Debt 90,610 422,954
------------- ------------
Total Liabilities 5,104,415 7,582,340
------------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; 10,000,000 shares
authorized of $0.001 par value, zero
issued and outstanding - -
Common stock; 150,000,000 shares authorized
of $0.001 par value, 147,933,309 and 46,429,406
shares issued and outstanding, respectively 147,933 46,429
Additional paid-in capital 16,818,352 13,855,035
Common stock subscription receivable (717,450) (942,000)
Accumulated deficit (19,614,735) (14,224,689)
------------- ------------
Total Stockholders' Equity (Deficit) (3,365,900) (1,265,225)
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT) $1,738,515 $6,317,115
============= ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Operations
(Unaudited)
For the Nine Months Ended For the Three Months Ended
September 30, September 30,
---------------------------- --------------------------------
2001 2000 2001 2000
------------ ------------ ------------- ---------------
SALES, NET $19,614,710 $5,912,021 $1,626,747 $2,244,097
COST OF GOODS SOLD 14,188,377 5,027,164 1,335,188 1,656,607
------------ ------------ ------------- -------------
Gross Margin 5,426,333 884,857 291,559 587,490
------------ ------------ ------------- -------------
OPERATING EXPENSES
Shipping expenses 256,446 - 55,298 -
Design expense 158,271 - 7,471 -
Selling expenses 1,314,231 2,465,365 52,929 1,178,604
Depreciation and amortization
expense 348,913 321,269 80,446 115,852
General and administrative
expenses 5,669,951 3,773,047 2,090,472 1,120,741
Loss on impairment of
goodwill 1,962,205 - - -
Loss on impairment of assets 771,407 - 771,407 -
------------ ------------ ------------- -------------
Total Operating Expenses 10,481,424 6,559,681 3,058,023 2,415,197
------------ ------------ ------------- -------------
(Loss) from Operations (5,055,091) (5,674,824) (2,766,464) (1,827,707)
------------ ------------ ------------- -------------
OTHER INCOME (EXPENSE)
Interest income 155,835 1,820 116,341 1,632
Interest expense (490,790) (321,902) (75,357) (21,112)
Loss on abandonment of assets - (13,159) - (13,159)
Gain on sale of assets - 50,206 - 44,787
------------ ------------ ------------- -------------
Total Other Income (Expense) (334,955) (283,035) 40,984 12,148
------------ ------------ ------------- -------------
INCOME TAX BENEFIT - - - -
NET LOSS $(5,390,046) $(5,957,859) $(2,725,480) $(815,559)
============ ============ ============ ============
BASIC LOSS PER SHARE $(0.05) $(0.17) $(0.02) $(0.04)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER 102,383,608 35,444,786 144,270,305 44,127,613
OF SHARES OUTSTANDING
============ ============ ============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock
----------------------------
Additional Subscriptions Accumulated
Shares Amount Paid-In Capital Receivable Deficit
------------ ----------- --------------- -------------- -------------
Balance, December 31, 1999 26,374,022 $26,374 $7,092,848 $(30,000) $(5,563,135)
January 17, 2000, common stock
issued for services, valued at
$0.30 per share 1,200,000 1,200 358,800 - -
January 25, 2000, common stock
issued to a related party for
conversion of debt, valued at
$0.38 per share 1,241,874 1,241 464,461 - -
February 1, 2000, common stock
issued to a related party for
conversion of debt, valued at
$0.44 per share 695,583 696 303,274 - -
March 6, 2000, cancellation of
common stock subscription
receivable (100,000) (100) (14,900) 15,000 -
May 17, 2000, through July 11,
2000, common stock issued
pursuant to SB-2 valued at $0.35
per share 14,702,927 14,703 5,131,322 (527,000) -
Stock offering costs - - (268,815) - -
June 30, 2000, common stock issued
for services valued at $0.35 per
share 15,000 15 5,235 - -
November 15, 2000, common stock
issued for services valued at
$0.16 per share 300,000 300 46,575 - -
December 15, 2000, common stock
issued for subscription at $0.20
per share 2,000,000 2,000 398,000 (400,000) -
Warrants and options issued below
market value per FAS 123
valuations - - 338,235 - -
Net loss for the year ended
December 31, 2000 - - - - (8,661,554)
------------ ----------- --------------- -------------- -------------
Balance, December 31, 2000 46,429,406 $46,429 $13,855,035 $(942,000) $(14,224,689)
------------ ----------- --------------- -------------- -------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Stock
----------------------------
Additional Subscriptions Accumulated
Shares Amount Paid-In Capital Receivable Deficit
------------ ----------- --------------- -------------- -------------
Balance, December 31, 2000 46,429,406 $46,429 $13,855,035 $(942,000) $(14,224,689)
January 10, 2001, common stock issued
for conversion of debt, non-related,
valued at $0.065 per share
(unaudited) 374,509 375 24,025 - -
January 19, 2001, common stock issued
for conversion of debt, non-related,
valued at $0.05 per share (unaudited) 360,000 360 17,640 - -
January 23, 2001, common stock issued
for conversion of debt, non-related,
valued at $0.05 per share (unaudited) 1,332,000 1,332 65,268 - -
January 25, 2001, common stock issued
for conversion of debt, non-related,
valued at $0.05 per share (unaudited) 190,000 190 9,310 - -
January 30, 2001, common stock issued
for conversion of debt, non-related,
valued at $0.05 per share (unaudited) 280,000 280 13,720 - -
January 30, 2001, common stock issued
for conversion of debt to related
party, valued at $0.085 per share
(unaudited) 11,500,000 11,500 966,000 - -
January 31, 2001, cancellation of
common stock (unaudited) (1,200,000) (1,200) (358,800) - -
February 5, 2001, common stock issued
for conversion of debt, non-related,
valued at $0.05 per share (unaudited) 82,000 82 4,018 - -
February 13, 2001, common stock issued
for conversion of debt, non-related,
valued at $0.05 per share (unaudited) 812,000 812 39,788 - -
February 14, 2001, common stock issued
for conversion of debt, non-related,
valued at $0.05 per share (unaudited) 11,078 11 554 - -
------------ ----------- ------------- -------------- -------------
Balance Forward 60,170,993 $60,171 $14,636,558 $(942,000) $(14,224,689)
------------ ----------- ------------- -------------- -------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Stock
-----------------------------
Additional Subscriptions Accumulated
Shares Amount Paid-In Capital Receivable Deficit
------------ ---------- --------------- ------------- --------------
Balance Forward 60,170,993 $60,171 $14,636,558 $(942,000) $(14,224,689)
February 19, 2001, common stock issued
for conversion of debt, non-related,
valued at $0.08 per share (unaudited) 2,310,547 2,311 182,533 - -
February 19, 2001, common stock issued
for conversion of debt interest,
non-related, valued at $0.09 per share
(unaudited) 425,939 426 37,909 - -
February 27, 2001, common stock issued
for conversion of debt, non-related,
valued at $0.568 per share (unaudited) 245,775 246 13,714 - -
February 28, 2001, common stock issued
for conversion of debt, non-related,
value at $0.05 per share (unaudited) 80,769 81 4,119 - -
February 28, 2001, common stock issued
for conversion of debt, non-related,
valued at $0.05 per share (unaudited) 80,000 80 3,920 - -
March 13, 2001, common stock issued for
conversion of debt, non-related valued
at $0.048 per share (unaudited) 595,679 596 28,397 - -
March 13, 2001, common stock issued for
cash, non-related, valued at $0.05 per
share (unaudited) 4,000,000 4,000 196,000 (200,000) -
March 21, 2001, common stock issued for
conversion of debt, non-related,
valued at $0.0312 per share (unaudited) 176,300 176 5,324 - -
March 30, 2001, common stock issued for
cash, valued at $0.05 per share
(unaudited) 2,000,000 2,000 98,000 (100,000) -
Receipt of stock subscription receivable
(unaudited) - - - 29,100 -
------------ ---------- -------------- -------------- ------------
Balance Forward 70,086,002 $70,087 $15,206,474 $(1,212,900) $(14,224,689)
------------ ----------- -------------- -------------- -------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Stock
------------------------------
Additional Subscriptions Accumulated
Shares Amount Paid-In Capital Receivable Deficit
------------ ----------- --------------- -------------- --------------
Balance Forward 70,086,002 $70,087 $15,206,474 $(1,212,900) $(14,224,689)
Discount on debentures issued at less
than market value - - 46,371 - -
April 1, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.028 per share (unaudited) 857,142 857 23,143 - -
April 2, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.028 per share (unaudited) 714,285 714 19,286 - -
April 4, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.028 per share (unaudited) 1,546,428 1,547 41,754 - -
April 9, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.028 per share (unaudited) 1,607,141 1,607 43,393 - -
April 10, 2001, common stock issued for
conversion of debt non-related, valued
at $0.028 per share (unaudited) 571,426 572 15,429 - -
April 17, 2001, common stock issued for
consulting services Valued at $0.06 per
share (unaudited) 125,000 125 7,375 - -
April 18, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.028 per share (unaudited) 2,000,000 2,000 54,000 - -
April 30, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.032 per share (unaudited) 1,406,250 1,406 43,594 - -
April 30, 2001, common stock issued for
conversion of interest on debt,
non-related, valued at $0.028 per share
(unaudited) 129,922 130 3,508 - -
------------ ----------- ------------- ------------- -------------
Balance Forward 79,043,596 $79,045 $15,504,327 $(1,212,900) $(14,224,689)
------------ ----------- ------------- ------------- -------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-8
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Stock
------------------------------
Additional Subscriptions Accumulated
Shares Amount Paid-In Capital Receivable Deficit
------------ ----------- --------------- -------------- --------------
Balance Forward 79,043,596 $79,045 $15,504,327 $(1,212,900) $(14,224,689)
April 30, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.0304 per share (unaudited) 164,474 164 4,836 - -
May 8, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.0304 per share (unaudited) 2,434,207 2,434 71,566 - -
May 10, 2001, common stock issued for
cash, non-related, valued at $0.037 per
share (unaudited) 3,000,000 3,000 147,000 (150,000) -
May 10, 2001, common stock issued for
cash, non-related, valued at $0.032 per
share (unaudited) 7,500,000 7,500 232,500 (240,000) -
May 10, 2001, common stock issued for
cash, non-related, valued at $0.0312
per share (unaudited) 1,000,000 1,000 30,200 (31,200) -
May 10, 2001, common stock issued for
consulting services, valued at $0.0335
per share (unaudited) 5,000,000 5,000 162,500 - -
May 17, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.0304 per share (unaudited) 2,467,102 2,467 72,533 - -
May 21, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.028 per share (unaudited) 3,178,568 3,179 85,821 - -
June 4, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.0096 per share (unaudited) 2,979,165 2,979 25,621 - -
June 4, 2001, common stock issued for
conversion of debt, non-related,
valued at $0.014 per share (unaudited) 749,999 750 9,750 - -
June 4, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.014 per share (unaudited) 8,214,278 8,214 106,786 - -
------------ ----------- ------------ ------------- -------------
Balance Forward 115,731,389 $115,732 $16,453,440 $(1,634,100) $(14,224,689)
------------ ----------- ------------ ------------- -------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-9
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Stock
------------------------------
Additional Subscriptions Accumulated
Shares Amount Paid-In Capital Receivable Deficit
------------ ----------- --------------- ------------- --------------
Balance Forward 115,731,389 $115,732 $16,453,440 $(1,634,100) $(14,224,689)
June 4, 2001, common stock issued for
conversion of interest on debt,
non-related, valued at $0.0304 per
share (unaudited) 34,589 35 1,017 - -
June 4, 2001, common stock issued for
conversion of interest on debt,
non-related, valued at $0.028 per share
(unaudited) 119,336 119 3,222 - -
June 4, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.0096 per share (unaudited) 11,020,828 11,021 94,779 - -
June 12, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.0096 per share (unaudited) 18,892,212 18,892 162,473 - -
June 12, 2001, common stock issued for
conversion of interest on debt,
non-related, valued at $0.014 per share
(unaudited) 200,955 201 2,612 - -
June 12, 2001, common stock issued for
conversion of interest on debt,
non-related, valued at $0.0096 per
share (unaudited) 179,330 179 1,542 - -
June 19, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.0088 per share (unaudited) 1,136,363 1,136 8,864 - -
June 19, 2001, common stock issued for
conversion of debt, non-related, valued
at $0.0088 per share (unaudited) 18,307 18 143 - -
June 20, 2001, common stock issued for
conversion of debt, non-related, value
at $0.0335 per share (unaudited) (4,400,000) (4,400) (143,000) - -
Receipt of stock subscription receivable
(unaudited) - - - 199,200 -
------------ ----------- ------------ ------------- -------------
Balance Forward 142,933,309 $142,933 $16,585,092 $(1,434,900) $(14,224,689)
----------- ----------- ------------ ------------- -------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-10
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Stock
------------------------------
Additional Subscriptions Accumulated
Shares Amount Paid-In Capital Receivable Deficit
------------ ----------- --------------- ------------- --------------
Balance Forward 142,933,309 $142,933 $16,585,092 $(1,434,900) $(14,224,689)
Discount on debenture issued at
less than market value
(unaudited) - - 188,260 - -
Common stock issued for consulting
services, valued at $0.01 per
share (unaudited) 5,000,000 5,000 45,000 - -
Write-off of uncollectible stock
subscriptions (unaudited) - - - 717,450 -
Net loss for the nine months ended
September 30, 2001 (unaudited) - - - - (5,390,046)
------------ ----------- ------------ ------------ -------------
Balance, September 30, 2001
(unaudited) 147,933,309 $147,933 $16,818,352 $(717,450) $(19,614,735)
============ =========== ============ ============ =============
The accompanying notes are an integral part of these
consolidated financial statements.
F-11
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30,
------------------------------
2001 2000
------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) $ (5,390,045) $ (4,142,300)
Adjustments to reconcile net (loss) to net cash used in operating activities:
Depreciation and amortization 2,298,930 205,417
Common stock issued for services 77,600 611,935
Conversion of debt below market value 234,631 -
Change in allowance for bad debt 236,564 -
Loss on impairment of fixed assets 771,407 -
Changes in operating assets and liabilities:
Increase (decrease) in due from factor 700,492 -
(Increase) decrease in accounts receivable (768,281) (1,429,873)
(Increase) decrease in prepaid insurance 106,271 (103,826)
(Increase) decrease in deposits (15,001) (5,000)
(Increase) decrease in inventory 1,479,688 888,045
(Increase) decrease in other assets (23,634) (9,520)
Increase (decrease) in accounts payable (984,336) 368,124
Increase (decrease) in other current liabilities (770,700) 621,214
---------- ----------
Net Cash Used in Operating Activities (2,046,414) (2,886,958)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (14,854) (796,173)
---------- ----------
Net Cash Used in Investing Activities (14,854) (796,173)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash overdraft (87,534) 28,355
Debt offering costs 68,695 -
Payments on notes payable (100,000) (1,499,521)
Proceeds from related party notes payable 364,981 1,784,404
Payments on related party notes payable (433,896) -
Proceeds from convertible debentures 874,000 -
Issuance of common stock for cash 721,200 1,013,718
Proceeds from subscribed stock 228,300 1,782,250
Write-off of stock subscription receivable 717,450 -
Payments on capital leases (30,549) -
Increase in related party receivable (393,376) -
Increase in allowance for bad debts - related party 196,688 -
---------- ----------
Net Cash Provided by Financing Activities 2,125,959 4,080,851
---------- ----------
NET INCREASE (DECREASE) IN CASH 64,691 (237,407)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 25,452 237,407
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 90,143 $ -
========== ==========
The accompanying notes are an integral part of these
consolidated financial statements.
F-12
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Cash Flows (Continued)
(Unaudited)
For the Nine Months Ended
September 30,
-----------------------------------
2001 2000
------------- -------------
CASH PAID FOR:
Interest $ 18,546 $ 63,415
Income tax $ $ -
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Issuance of common stock for debt and interest $ 1,818,768 $ 1,222,696
Issuance of common stock for subscription $ 721,200 $ -
Conversion of debt below market value $ 234,631 $ -
Issuance of common stock for services $ 77,600 $ 553,250
The accompanying notes are an integral part of these
consolidated financial statements.
F-13
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
September 30, 2001 and December 31, 2000
NOTE 1 - CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared by the
Company without audit. In the opinion of management, all adjustments (which
include only normal recurring adjustments) necessary to present fairly the
consolidated financial position, results of operations and cash flows at
September 30, 2001 and 2000 and for all periods presented have been made.
Certain information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 2000 audited
consolidated financial statements. The results of operations for the period
ended September 30, 2001 and 2000 are not necessarily indicative of the
operating results for the full years.
NOTE 2 - GOING CONCERN
The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. The Company has generated significant losses from operations for the
nine months ended September 30, 2001 and 2000 and has current liabilities in
excess of current assets at September 30, 2001.
Management believes that the Company's current cash position of $0.1 million
combined with positive cash flow from scaled down operations of $0.5 million
over the next twelve months will provide some of the funds necessary to pursue
new opportunities. Management also recognizes that obtaining favorable
forbearance agreements with its vendors and creditors will be essential for the
Company to execute a new business strategy. Management believes that it will be
able to raise additional working capital to fund its new business strategy with
the continued funding support by certain officers, directors and friendly
shareholders of the Company, which historically has been a source of funding.
There are no assurances that the Company will be able to fund its working
capital needs as outlined.
NOTE 3 - MATERIAL EVENTS
On May 9, 2001, Levi Strauss & Co. terminated the "Dockers Golf" Trademark
License Agreement that gave the Company's wholly-owned subsidiary the exclusive
non-assignable right to use the trademark in connection with the manufacturing,
advertising, distribution and sale of products to approved retailers. Because of
the termination of the trademark license, the goodwill associated with the
purchase of the wholly-owned subsidiary is considered impaired. An impairment
loss has been recorded in the amount of $1,962,205 for the quarter ended June
30, 2001.
F-14
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
September 30, 2001 and December 31, 2000
NOTE 3 - MATERIAL EVENTS (CONTINUED)
On May 22, 2001, the Company's factor provided notice that the Company's
wholly-owned subsidiary was in default of the factoring agreement on account of,
among other things, the termination of the Trademark License Agreement with Levi
Strauss & Co. Subsequently, on July 20, 2001, the Company's wholly-owned
subsidiary received notice from the factor that the obligations under the
factoring agreement had been paid in full. Also on July 20, 2001, the Company's
wholly-owned subsidiary received notice from the factor that the Company's
chairman has no further obligations as the guarantor of the factoring agreement.
On June 25, 2001, the Company entered into a three-year employment agreement
with Frank J. Jakovac, to act as President and Chief Executive Officer. The base
salary for services is $127,500 per year, payable in semi-monthly installments
through September 25, 2001. After September 25, 2001, base salary is $255,000
per year, payable in semi-monthly installments. An initial bonus of 1,250,000
shares of common stock at $0.01 per share vested immediately, and $25,000 to be
paid upon signing new business equaling or greater than $1,000,000 of new
revenue. The CEO is eligible for additional bonuses based on the bonus plan for
senior management established by the CEO and Board of Directors for each fiscal
year. The CEO was granted and fully vested in 5% of the Company's total shares
of issued stock. The 5% ownership percentage applies to all current and future
issuance of stock.
On June 25, 2001, the Company entered into a three-year employment agreement
with James W. Handlon to act as Executive Vice President and Chief Operating
Officer. The base salary for services is $125,000 per year, payable in
semi-monthly installments through September 25, 2001. After September 25, 2001,
base salary is $245,000 per year, payable in semi-monthly installments. An
initial bonus of 1,250,000 shares of common stock at $0.01 per share vested
immediately, and $25,000 to be paid upon signing new business equaling or
greater than $1,000,000 of new revenue. The COO is eligible for additional
bonuses based on the bonus plan for senior management established at the CEO and
Board of Directors for each fiscal year. The COO was granted and fully vested in
5% of the Company's total shares of issued stock. The 5% ownership percentage
applies to all current and future issuances of stock.
On June 25, 2001, the Company entered into a three-year employment agreement
with Michelle Mathis to act as the Director of Corporate and Legal Affairs. The
base salary for services is $50,000 per year, payable in semi-monthly
installments through September 25, 2001. After September 25, 2001, base salary
is $100,000 per year, payable in semi-monthly installments. An initial bonus of
800,000 shares of common stock at $0.01 per share vested immediately, and
$10,000 to be paid upon signing new business equaling or greater than $1,000,000
of new revenue. The Director of Corporate and Legal Affairs is eligible for
additional bonuses based on the bonus plan for senior management established at
the CEO and Board of Directors for each fiscal year. The Director of Corporate
and Legal Affairs was granted and fully vested in 1% of the Company's total
shares of issued stock. The 1% ownership percentage applies to all current and
future issuances of stock.
F-15
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
September 30, 2001 and December 31, 2000
NOTE 3 - MATERIAL EVENTS (CONTINUED)
On July 26, 2001, the Company and its wholly-owned subsidiary were named in
litigation with Barnum Mow, former Chief Executive Officer of the wholly-owned
subsidiary. Mr. Mow filed a complaint against the Company and its wholly-owned
subsidiary alleging breach of contract, breach of implied covenant of good faith
and fair dealing, and violation of Labor Code ss. 227.3. Mr. Mow seeks damages
in the amount of $444,307.00, prejudgment interest thereon, costs of suit
incurred, and attorney's fees and costs according to statute. Due to the
preliminary status of the lawsuit, it is not possible to evaluate the likelihood
of an unfavorable outcome or estimate of potential loss.
On August 1, 2001, the Company and its wholly-owned subsidiary was named in
litigation with Stephen A. Korn, former CFO of the wholly-owned subsidiary. Mr.
Korn filed a complaint against the Company and its wholly-owned subsidiary
alleging termination in violation of public policy, breach of written and
implied contract, breach of implied covenant of good faith and fair dealing,
intentional interference with contractual relations, negligent interference with
contractual relations, and violation of Labor Code ss.ss. 201 & 227.3. Mr. Korn
seeks damages in an amount proven at trial, prejudgment interest thereon, a
penalty in accordance with Labor Code ss.203, costs of suit incurred, and
attorney's fees and costs according to statute. Due to the preliminary status of
the lawsuit, it is not possible to evaluate the likelihood of an unfavorable
outcome or estimate the extent of potential loss.
On September 26, 2001, the Company and its wholly-owned subsidiary were named in
litigation with David Roderick, former Executive Vice President of Merchandising
and Design of the wholly-owned subsidiary. Mr. Roderick filed a complaint
against the Company and its wholly-owned, subsidiary alleging fraud, negligent
misrepresentation, unjust enrichment, and breach of written contract. Mr.
Roderick seeks damages in an amount proven at trial, punitive damages in an
amount proven at trial, costs, of suit incurred, and attorney's fees. Due to the
preliminary status of the lawsuit, it is not possible to evaluate the likelihood
of an unfavorable outcome or estimate the extent of potential loss.
NOTE 4 - CONTINGENT LIABILITIES
The Company's new management believes that the Company issued shares of common
stock without legends restricting the resale of such shares. The Company's new
management believes that at least 19,225,000 shares of common stock have been
resold in the public market in violation of Section 5 of the Securities Act of
1933, as amended. The Company may be liable for rescission and other damages
with respect to these sales.
F-16
AVID SPORTSWEAR & GOLF CORP.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000 AND 1999
F-17
C O N T E N T S
Independent Auditors' Report............................................... F-19
Consolidated Balance Sheet................................................. F-20
Consolidated Statements of Operations...................................... F-22
Consolidated Statement of Stockholders' Equity (Deficit)................... F-23
Consolidated Statements of Cash Flows...................................... F-26
Notes to the Consolidated Financial Statements............................. F-28
F-18
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Avid Sportswear & Golf Corp.
Torrence, California
We have audited the accompanying consolidated balance sheet of Avid Sportswear &
Golf Corp. as of December 31, 2000 and the related consolidated statements of
operations, stockholders' equity (deficit) and cash flows for the years ended
December 31, 2000 and 1999. 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 audits.
We conducted our audits in accordance with generally accepted auditing standards
accepted in the United States. 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. as of December 31, 2000 and the results of their operations and their
cash flows for the years ended December 31, 2000 and 1999 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 13 to the
financial statements, the Company has current liabilities in excess of current
assets of $2,964,997 and has generated significant losses for the years ended
December 31, 2000 and 1999. 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/ HJ & Associates, LLC
Salt Lake City, Utah
January 17, 2001
Except for Note 17,
which is dated March 31, 2001
F-19
AVID SPORTSWEAR & GOLF CORP.
Consolidated Balance Sheet
ASSETS
December 31,
2000
------------
CURRENT ASSETS
Cash $25,452
Accounts receivable, net (Note 1) 75,719
Inventory (Note 2) 1,961,464
Due from factor, net (Note 10) 816,663
Prepaid expenses 134,900
Other current assets 71,540
-------
Total Current Assets 3,085,738
----------
EQUIPMENT
Machinery and equipment 484,495
Furniture and fixtures 90,263
Computers and software 408,046
Office equipment 49,770
Show booths 460,927
Leasehold improvements 31,470
Less: accumulated depreciation (468,861)
---------
Total Equipment 1,056,110
----------
OTHER ASSETS
Goodwill, net (Note 14) 2,090,171
Debt offering costs (Note 6) 66,405
Deposits 15,789
Trademarks 2,902
------
Total Other Assets 2,175,267
----------
TOTAL ASSETS $ 6,317,115
===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-20
AVID SPORTSWEAR & GOLF CORP.
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
December 31,
2000
------------
CURRENT LIABILITIES
Cash overdraft $ 87,534
Accounts payable 5,086,000
Accrued expenses 479,688
Notes payable - related parties (Note 4) 166,557
Notes payable (Note 5) 100,000
Capital leases - current portion (Note 11) 44,279
Customer deposits 86,677
-------
Total Current Liabilities 6,050,735
----------
SUBORDINATED DEBT
Notes payable - related parties (Note 4) 547,126
Note payable (Note 5) 561,525
--------
Total Subordinated Debt 1,108,651
----------
LONG-TERM DEBT
Convertible debentures (Note 6) 300,000
Capital leases - long term portion (Note 11) 122,954
--------
Total Long-Term Debt 422,954
--------
Total Liabilities 7,582,340
----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock; 10,000,000 shares
authorized of $0.001 par value, zero issued
and outstanding -
Common stock; 150,000,000 shares authorized
of $0.001 par value, 46,429,406 shares
issued and outstanding 46,429
Additional paid-in capital 13,855,035
Common stock subscription receivable (942,000)
Accumulated deficit (14,224,689)
------------
Total Stockholders' Equity (Deficit) (1,265,225)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 6,317,115
===========
The accompanying notes are an integral part of these
consolidated financial statements.
F-21
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Operations
For the Years Ended
December 31,
---------------------------------
2000 1999
------------- -----------
SALES, NET $ 11,186,719 $ 2,682,417
COST OF GOODS SOLD 9,951,682 1,854,985
---------- ----------
Gross Margin 1,235,037 827,432
---------- --------
OPERATING EXPENSES
Shipping expenses 498,974 153,848
Design expense 416,552 156,358
Selling expenses 2,833,363 966,065
Depreciation and amortization expense 463,936 369,072
Bad debt expense 6,840 57,039
General and administrative expenses 5,247,097 3,803,463
---------- ----------
Total Operating Expenses 9,466,762 5,505,845
---------- ----------
(Loss) from Operations (8,231,725) (4,678,413)
----------- -----------
OTHER INCOME (EXPENSE)
Interest expense (390,002) (438,269)
Recovery of bad debts - 80,704
Loss on sale of assets (39,827) -
-------- --
Total Other Income (Expense) (429,829) (357,565)
--------- ---------
INCOME TAX BENEFIT - -
-- --
NET LOSS $ (8,661,554) $ (5,035,978)
============ ============
BASIC LOSS PER SHARE (Note 1) $ (0.23) $ (0.25)
======= =======
The accompanying notes are an integral part of these
consolidated financial statements.
F-22
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit)
Common Stock Additional
------------ Paid-In Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
--------- ---------- ----------- -------------- -----------
Balance, December 31, 1998 14,612,000 $ 14,612 $ 893,193 $ (60,000) $ (527,157)
January 5, 1999, common stock
issued for cash, services and debt,
valued at $0.75 per share (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)
---------- ---------- ------------ -------------- ---------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-23
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Stock Additional
------------- Paid-In Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
--------- ---------- ----------- -------------- -----------
Balance Forward 19,271,340 $ 19,272 $ 4,436,270 $ (60,000) $ (527,157)
March 11, 1999, common stock issued
for cash and services valued at
$0.75 per share (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 101,100 101 75,724 - -
for cash at $0.75 per share (Note 3)
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)
--- ---- ------------ ----------- ---------------- --------------- --------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-24
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Stockholders' Equity (Deficit) (Continued)
Common Stock Additional
------------- Paid-In Subscriptions Accumulated
Shares Amount Capital Receivable Deficit
--------- ---------- ----------- -------------- -----------
Balance, December 31, 1999 26,374,022 $ 26,374 $ 7,092,848 $ (30,000) $ 5,563,135)
January 17, 2000, common
stock issued for services,
valued at $0.30 per share 1,200,000 1,200 358,800 - -
January 25, 2000, common
stock issued to a related party
for conversion of debt, valued
at $0.38 per share 1,241,874 1,241 464,461 - -
February 1, 2000, common
stock issued to a related party
for conversion of debt, valued
at $0.44 per share 695,583 696 303,274 - -
March 6, 2000, cancellation of
common stock subscription
receivable (100,000) (100) (14,900) 15,000 -
May 17, 2000, through
July 11, 2000, common stock
issued pursuant to SB-2 valued
at $0.35 per share 14,702,927 14,703 5,131,322 (527,000) -
Stock offering costs - - (268,815) - -
June 30, 2000, common stock
issued for services valued at
$0.35 per share 15,000 15 5,235 - -
November 15, 2000, common
stock issued for services valued
at $0.16 per share 300,000 300 46,575 - -
December 15, 2000, common
stock issued for subscription at
$0.20 per share 2,000,000 2,000 398,000 (400,000) -
Warrants and options issued
below market value per
FAS 123 valuations - - 338,235 - -
Net loss for the year ended
December 31, 2000 - - - - (8,661,554)
---------- ---------- ------------ -------------- ---------------
Balance, December 31, 2000 46,429,406 $ 46,429 $ 13,855,035 $ (942,000) $ (14,224,689)
========== ========== ============ ============== ===============
The accompanying notes are an integral part of these
consolidated financial statements.
F-25
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Cash Flows
For the Years Ended December 31,
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES
- ----------------------------------------------------------------------------------------------------------------------
Net (loss) $ (8,661,554) $ (5,035,978)
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Depreciation and amortization 463,936 369,072
Loss on valuation of asset 39,827 -
Options and warrants issued below market 338,235 53,235
Common stock issued for services 534,625 1,890,000
Conversion of debt below market value 153,656 293,381
Recovery of bad debt expense - (80,704)
Change in allowance for bad debt (44,376) -
Changes in operating assets and liabilities:
Increase in due from factor (910,293) -
(Increase) decrease in accounts receivable 378,091 80,775
(Increase) decrease in inventory (76,074) (876,299)
(Increase) decrease in other assets (187,115) (13,165)
Increase (decrease) in accounts payable 3,632,773 926,954
Increase (decrease) in other current liabilities 365,480 116,461
------------------- -----------------
Net Cash Used in Operating Activities (3,972,789) (2,276,268)
------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment 22,350 -
Purchases of property and equipment (733,915) (343,705)
------------------- ------------------
Net Cash Used in Investing Activities (711,565) (343,705)
------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash overdraft 87,534 -
Cash purchased with Avid Sportswear, Inc. - 34,045
Payment to Avid shareholders - (725,000)
Proceeds from notes payable 261,525 1,962,274
Payments on notes payable (1,160,524) (1,852,869)
Proceeds from related party notes payable 1,307,723 1,479,677
Payments on related party notes payable - (265,058)
Proceeds from convertible debentures 300,000 -
Stock offering costs (268,815) -
Issuance of common stock for cash 4,048,501 1,804,074
Receipt of related party receivable - 253,500
Proceeds from subscribed stock - 12,500
Common stock repurchased (17,500) -
Payments on capital leases (17,350) -
Debt offering costs (68,695) -
------------------- -------------------
Net Cash Provided by Financing Activities $ 4,472,399 $ 2,703,143
------------------- -------------------
The accompanying notes are an integral part of these
consolidated financial statements.
F-26
AVID SPORTSWEAR & GOLF CORP.
Consolidated Statements of Cash Flows (Continued)
For the Years Ended December 31,
--------------------------------
2000 1999
---------- -----------
- -------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH $ (211,955) 83,170
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 237,407 154,237
--------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 25,452 $ 237,407
=============== ================
CASH PAID FOR:
Interest $ 143,545 $ 94,392
Income tax $ - $ -
SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES
Issuance of common stock for subsidiary $ - $ 825,000
Issuance of common stock for debt $ 1,069,039 $ 1,385,724
Issuance of common stock for services $ 534,625 $ 1,890,000
Issuance of common stock for subscription $ 927,000 $ -
Conversion of debt below market value $ 153,656 $ 293,381
Options and warrants issued below market $ 338,235 $ 53,235
Capital leases for equipment $ 184,583 $ -
The accompanying notes are an integral part of these
consolidated financial statements.
F-27
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 1 - NATURE OF ORGANIZATION
This summary of significant accounting policies of Avid
Sportswear & Golf 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. On December 28, 2000, the
shareholders authorized an increase in the number of
common shares to 150,000,000 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 10 years
Show booths 5 years
Leasehold improvements 5 years, or end of lease, whichever is earliest
Office equipment 5 years
Computer equipment 3 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.
F-28
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 1 - NATURE OF ORGANIZATION (Continued)
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. 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,
----------------------------------------
2000 1999
----------------- -----------------
Numerator (net loss) $ (8,661,554) $ (5,035,978)
Denominator (weighted average number of
shares outstanding) 37,696,446 20,264,997
------------- -------------
Loss per share $ (0.22) $ (0.25)
============= =============
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 $13,000,000 at December 31, 2000
which will fully expire in 2020. No tax benefit has been reported
in the financial statements because the Company is uncertain if
the carryforwards will expire unused. Accordingly, the potential
tax benefits are offset by a valuation account of the same amount.
The income tax benefit differs from the amount computed at federal
statutory rates as follows:
For the
Years Ended
December 31,
----------------------------------------
2000 1999
----------------- -----------------
Income tax benefit at statutory rate $ 3,611,857 $ 1,996,318
Change in valuation allowance (3,611,857) (1,996,318)
---------- ----------
$ $ -
========== ==========
F-29
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 1 - NATURE OF ORGANIZATION (Continued)
g. Income Taxes (Continued)
Deferred tax assets (liabilities) at December 31, 2000 are
comprised of the following:
Net operating loss carryforward
$ 5,608,176
Valuation allowance (5,608,176)
$ -
================
h. Change in Accounting Principle
The Company has adopted the provisions of FASB Statement No. 138
"Accounting for Certain Derivative Instruments and Hedging
Activities, (an amendment of FASB Statement No. 133.)" Because the
Company had adopted the provisions of FASB Statement No. 133,
prior to June 15, 2000, this statement is effective for all fiscal
quarters beginning after June 15, 2000. The adoption of this
principal had no material effect on the Company's consolidated
financial statements.
The Company has adopted the provisions of FASB Statement No. 140
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities (a replacement of FASB Statement
No. 125.)" This statement provides accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities. Those standards are based on
consistent application of a financial-components approach that
focuses on control. Under that approach, the transfer of financial
assets, the Company recognized the financial and servicing assets
it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. This statement
provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured
borrowings. This statement is effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring after March 31, 2001. This statement is effective for
recognition and reclassification of collateral and for disclosures
relating to securitization transactions and collateral for fiscal
years ending after December 15, 2000. The adoption of this
principal had no material effect on the Company's consolidated
financial statements.
F-30
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 1 - NATURE OF ORGANIZATION (Continued)
The Company has adopted the provisions of FIN 44 "Accounting for
Certain Transactions Involving Stock Compensation (an
interpretation of APB Opinion No. 25.)" This interpretation is
effective July 1, 2000. FIN 44 clarifies the application of
Opinion No. 25 for only certain issues. It does not address any
issues related to the application of the fair value method in
Statement No. 123. Among other issues, FIN 44 clarifies the
definition of employee for purposes of applying Opinion 25, the
criteria for determining whether a plan qualifies as a
noncompensatory plan, the accounting consequence of various
modifications to the terms of a previously fixed stock option or
award, and accounting for an exchange of stock compensation awards
in a business combination. The adoption of this principal had no
material effect on the Company's consolidated financial
statements.
i. Goodwill
Goodwill generated from the purchase of Avid Sportswear, Inc. is
amortized over a ten-year life using the straight-line method. The
Company will evaluate the recoverability of the goodwill annually.
Any impairment of goodwill will be realized in the period it is
recognized.
j. Allowance for Doubtful Accounts
The Company's accounts receivable and due from factor are shown
net of an allowance for doubtful accounts of $46,906 and $93,630,
respectively, at December 31, 2000.
k. Reclassification
Certain December 31, 1999 balances have been reclassified to
conform with the December 31, 2000 financial statement
presentation.
l. Advertising Expense
The Company expenses advertising costs as incurred.
m. Principles of Consolidation
The consolidated financial statements presented include the
accounts of Avid Sportswear & Golf Corp. and Avid Sportswear, Inc.
All significant intercompany accounts have been eliminated.
n. Revenue Recognition
The Company's revenue is created primarily from the sale of men's
golf apparel. Revenue is recognized when the product is shipped to
the customer.
F-31
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 1 - NATURE OF ORGANIZATION (Continued)
o. Stock Options
The Company applies Accounting Principles Board ("APB") Option 25,
"Accounting for Stock Issued to Employees," and related
interpretations in accounting for all stock option plans. Under
APB Opinion 25, compensation cost is recognized for stock options
granted to employees when the option price is less than the market
price of the underlying common stock on the date of grant.
SFAS Statement No. 123, "Accounting for Stock-Based Compensation"
requires the Company to provide pro forma information regarding
net income as if compensation cost for the Company's stock option
plans had been determined in accordance with the fair value based
method prescribed in SFAS No. 123. To provide the required pro
forma information, the Company estimates the fair value of each
stock option at the grant date by using the Black-Scholes
option-pricing model.
NOTE 2 - INVENTORY
Inventories for December 31, 2000 consisted of the following:
December 31,
2000
--------------
Finished goods $ 1,961,464
--------------
Total $ 1,961,464
==============
The balance at December 31, 2000 is net of a reserve for obsolete
inventory for $100,000.
Inventories for finished goods are stated at the lower of cost or
market and based on the first-in, first-out basis.
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.
F-32
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 3 - EQUITY TRANSACTIONS (Continued)
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.
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.
On January 17, 2000, the Company issued 1,200,000 shares of common
stock valued at $0.30 per share for services of $360,000 to the
President of the Subsidiary. These shares of common stock were
forfeited by the President of the Subsidiary pursuant to an
amendment to his employment agreement effective as of January 31,
2001.
F-33
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 3 - EQUITY TRANSACTIONS (Continued)
On January 25, 2000, the Company issued 1,241,874 shares of common
stock valued at $0.38 per share to related parties for the
conversion of debt of $372,561 and recorded additional expense of
$93,141 as a result of the beneficial conversion below the market.
On February 1, 2000, the Company issued 695,583 shares of common
stock valued at $0.44 per share to a related party for the
conversion of debt of $243,454 and recorded additional expense of
$60,516 as a result of the beneficial conversion below the market.
On March 16, 2000, the Company canceled 100,000 shares of common
stock and the related stock subscription receivable valued at
$15,000. The shares were returned to the treasury and canceled.
From May 17, 2000 to July 11, 2000, the Company sold 14,702,997
shares of common stock valued at $0.35 per share for cash of
$4,061,502, conversion of a note payable of $375,000, conversion
of a related party note payable of $60,523 and services of
$122,000. Additionally, the Company has a stock subscription
receivable of $527,000. These shares as well as 285,714 shares
issued in December 1999, were registered pursuant to an SB-2
offering. The Company paid stock offering costs of $268,815 for
commissions, legal and accounting fees.
On June 30, 2000, the Company issued 15,000 shares of common stock
of $0.35 per share for services of $5,250.
On November 15, 2000, the Company issued 300,000 shares of common
stock valued at $0.16 per share for services of $46,875.
On August 9, 2000, the Company issued 300,000 options to unrelated
parties below market value. The Company recognized additional
compensation expense of $108,759.
On August 14, 2000, the Company issued 175,000 options to an
unrelated party below market value. The Company recognized
additional compensation expense of $43,922.
On December 15, 2000, the Company issued 2,000,000 shares of
common stock to unrelated third parties at $0.20 per share. The
Company recorded a stock subscription receivable of $400,000 in
connection with the transaction.
On December 29, 2000, the Company issued 2,000,000 warrants to an
unrelated party as partial consideration for entering into a line
of credit agreement below market value. The Company recognized
additional compensation expense of $185,554.
F-34
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 4 - NOTES PAYABLE - RELATED PARTIES
Notes payable - related parties consisted of the following at
December 31, 2000:
Note payable to company controlled by CEO, bearing
interest at 10%, unsecured and due on demand. $ 166,557
Notes payable to CEO, bearing interest at 10%,
unsecured and due on demand. 447,126
Note payable to Director dated December 9, 1999,
bearing interest at 10%, unsecured and due on
demand. 100,000
-------------
Total Notes Payable - Related Parties 713,683
Less current portion (166,557)
-------------
Long-Term Portion $ 547,126
=============
The notes payable to the CEO and Director totaling $547,126 have
been subordinated to the GE line of credit (Note 10), accordingly,
they have been classified as subordinated debt between current and
long-term debt.
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following at December 31, 2000:
Note payable to a shareholder dated December 1, 1999 as advanced,
bearing interest at 12%, principal and interest due by January 31,
2000, secured by personal
guarantees of certain officers. $ 561,525
Note payable to an individual dated December 24, 1999, bearing
interest at 12%, secured by personal
guarantee of chief executive officer, due on demand. 100,000
Total notes payable 661,525
Less: amounts due by December 31, 2001 (100,000)
------------
Total long-term debt $ 561,525
============
The note payable to the shareholder of $561,525 has been
subordinated to the GE line of credit (Note 10), accordingly, it
has been classified as subordinated debt between current and
long-term debt.
F-35
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 6 - CONVERTIBLE DEBENTURES
Four (4) convertible debentures
dated October 26, 2000, bearing
interest at 6%, due by November 1,
2005, unsecured, convertible into
the Company's common stock at 120%
of the closing bid price on November
1, 2000 or 80% of the closing bid
price for the lowest trading price
for 20 days immediately prior to the
conversion date. The Company can
require mandatory conversion if the
closing bid price is $1.25 or higher
per share for 10 consecutive trading
days or upon the 5-year anniversary
date.
$ 300,000
---------------
Less current portion -
---------------
Long-term portion $ 300,000
===============
The Company paid debt offering costs of $68,695 associated with
the issuance of the convertible debentures. The costs are being
amortized over the life of the debentures. Amortization expense of
$2,290 has been recognized for the year ended December 31, 2000.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
a. Operating Leases
The Company leases office and warehouse space and other equipment
items under non-cancellable operating leases which expire in May
2003. The monthly office rent amount is $10,349. Rent expense for
the years ended December 31, 2000 and 1999 was $124,590 and
$124,846, respectively.
Future payments required under the lease terms are as follows:
FOR THE
YEARS ENDED COPIER OFFICE CAR PITNEY
DECEMBER 31, LEASE LEASE LEASE BOWES TOTAL
------------ --------- -------- --------- --------- ---------
2001 $ 955 $ 126,067 $ 6,285 $ 1,613 $ 134,920
2002 - 42,336 6,285 1,210 49,831
2003 - - 2,619 - 2,619
--------- -------- --------- --------- ---------
$ 955 $ 168,403 $ 15,189 $ 2,823 $ 187,370
========= ======== ========= ========= =========
Copier lease: $159.13 per month, lease expires June 2001.
Office lease: $10,348.80 per month, expires April 2002.
Car lease: $523.78 per month, expires May 2003.
Pitney Bowes: $403.34 per quarter, expires September 2002.
F-36
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
b. Royalty Agreement - British Open Collection
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 $62,500 for the
first half of the second year minimum guaranteed royalty. This
amount is included in the accrued expenses.
MINIMUM
CONTRACT YEAR ROYALTY
------------- ------------
1 $ 100,000
2 $ 125,000
3 $ 150,000
4 $ 175,000
5 $ 200,000
6 $ 200,000
7 $ 200,000
On January 19, 2001, the Company received a letter from IMG that the Company was
in default of the license with the Championship Committee Merchandising Limited
for failure to pay timely our royalty payments for the send, third and fourth
quarters of 2000 of approximately $94,000.
F-37
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
c. Royalty Agreement - Dockers Golf
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 began in 2000.
MINIMUM
CONTRACT YEAR ROYALTY
------------- ------------
1 $ 250,000
2 $ 540,000
3 $ 765,000
4 $ 990,000
During the year ended December 31, 2000, the Company expensed
$589,076 pursuant to sales of Docker's products.
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. Based on its net sales in 2000, the
wholly-owned subsidiary exceeded the guaranteed minimum royalty.
Royalty expenses for the period ended December 31, 2000 of
$131,348 are accrued and included in accrued expenses.
F-38
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
c. Royalty Agreement (Continued)
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, which commenced on
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 $50,000 in 2000. 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.
On February 1, 2000, the Company signed an Executive Employment
Agreement with Earl Ingarfield, its President and Chief Executive
Officer (CEO). The base compensation for each year will be
$325,000 plus cost of living adjustments. Additionally, the CEO
shall be eligible for incentive bonus compensation as determined
by the Board of Directors. The agreement is for a period of three
years. The Company will reimburse Mr. Ingarfield for all
reasonable expenses incurred in connection with the performance of
his duties.
F-39
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
e. PGA Tour Pro Endorsements
In 2000, Avid Sportswear, Inc. (Avid), the wholly-owned subsidiary
of Avid Sportswear and Golf Corp., entered into individual
Endorsement Agreements, typically for a two-year term, with
individual PGA Tour professionals, whereby the individual is paid
an annual fixed fee to wear Avid products at golf and golf-related
events, and be included in advertising and other promotional
events, including personal appearances. The fixed fee for the
first year is set forth in the Agreement, whereas the second year
fixed fee is determined by that individual's final ranking on the
official PGA Tour Money List at the end of the first year. The
individuals are also eligible to earn a bonus for performance on
individual PGA Tour events and at year-end, based upon the
individual's final ranking of the official PGA Tour Money List at
the end of each contract year. The fixed fee, bonus incentive, and
number of days of personal appearance varies by individual. Avid
has secured insurance coverage to offset the risk associated with
potential bonus payments. The minimum future guaranteed payments
for the years ended December 31, 2001 and 2002 are $185,000 and
$75,000, respectively.
f. Inventory Purchases
The Company has committed to purchase $169,777 in inventory once
it clears customs in Miami, Florida.
g. Letters of Credit
The Company has committed to purchase $366,000 of inventory
currently on order from suppliers off shore under irrevocable
documentary letters of credit once the goods have cleared U.S.
customs in Los Angeles, California.
NOTE 8 - CONCENTRATIONS OF RISK
a. Cash
The Company maintains cash accounts at financial institutions
located in Sarasota, Florida and Torrance, 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 70% of the total
accounts payable.
F-40
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 9 - CUSTOMERS AND EXPORT SALES
During 2000 and 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
Years Ended
December 31,
-------------------------------------
2000 1999
----------------- --------------
Foreign sales $ 27,497 $ -
Domestic sales 11,159,222 2,360,596
------------- -------------
$ 11,186,719 $ 2,360,596
============= =============
NOTE 10 - DUE FROM FACTOR
In August 2000, Avid Sportswear, Inc. (Avid), the wholly-owned
subsidiary of Avid Sportswear and Golf Corp., entered into a
factoring, revolving credit and trade finance agreement with a
factor. Under this agreement which has an initial term expiring
in August 2001 and continuing on an annual basis thereafter, Avid
assigns substantially all of its accounts receivable to the
factor, typically on a non-recourse basis. Avid may request
advances up to 75% of the eligible net sales and up to 40% of
eligible inventory. Advances against inventory may not exceed
$2,500,000 at any one order before shipment. All accounts
receivable at the time of entering into the factor agreement, the
accounts receivable from orders open, but unshipped at the time
of entering into the factor agreement, and any orders shipped
without factor credit approval are on a full recourse basis. The
factor charges Avid a fee on the net sales factored and interest
on the amounts advanced at the factor's index rate plus 4.29%.
The index rate was 6.20% at December 31, 2000, corresponding to
an interest rate of 10.49%. For the year ended, December 31,
2000, Avid paid $110,537 of interest to the factor. Avid is
subject to financial covenants under the agreement including the
requirement to maintain a minimum tangible net worth and minimum
working capital. At December 31, 2000, Avid was in violation of
those covenants, and has received a waiver of this violation from
the factor.
F-41
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 10 - DUE FROM FACTOR (Continued)
Outstanding factored receivables:
Without recourse $ 2,565,373
------------
Full recourse 1,433,982
Total 3,999,355
------------
Less advances (3,089,062)
Less allowance for bad debt (93,630)
------------
Total due from factor $ 816,663
============
The trade finance portion of the agreement with provides for the
factor to open letters of credit to facilitate the purchase of
inventory. Letters of credit are opened as needed, subject to
factor approval, and are secured by the acquired inventories.
Open letters of credit may not exceed $3,500,000 at any time. The
amount of open letters of credit was $366,081 at December 31,
2000.
Obligations due to the factor under the factoring agreement are
collateralized by a continuing security interest in all of the
assets of Avid, except fixed assets, and are guaranteed by the
parent. All indebtedness due to the factor is additionally
guaranteed by a shareholder up to a limit of $375,000.
NOTE 11 - CAPITAL LEASES
Property and equipment payments under capital leases as of
December 31, 2000 is summarized as follows:
Year End
DECEMBER 31,
2001 $ 68,116
2002 68,116
2003 56,320
2004 21,491
-------------
Total minimum lease payments 214,043
Less interest and taxes (46,810)
-------------
Present value of net minimum lease payments 167,233
Less current portion (44,279)
-------------
Long-term portion of capital lease obligations $ 122,954
=============
The Company recorded depreciation on capitalized lease equipment
expense of $13,512 for the year ended December 31, 2000.
F-42
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 12 - RELATED PARTY TRANSACTIONS
During the year ended December 31, 2000, officers and directors
of the company advanced $1,307,723 to the Company under
revolving demand notes bearing interest at 10%. The advances
accrued interest of $66,513. At December 31, 2000, the Company
owed $100,000, and $447,126 to officers and directors of the
Company, and $166,557 to a Company controlled by the CEO of the
Company. (Note 4)
During the year ended December 31, 2000, officers and directors
of the Company converted $676,539 of debt into 2,110,380 shares
of common stock. Additional interest expense of $153,657 was
recorded to reflect the conversions below market value.
During the year ended December 31, 2000, a director of the
Company applied $60,523 of a pledged certificate of deposit for
payment on a note payable to a bank.
On January 17, 2000, the Company issued 1,200,000 shares of
common stock to the president of the subsidiary for services
valued at $360,000.
Effective January 31, 2001, the president of the subsidiary
forfeited all 1,200,000 shares of common stock granted to him on
January 17, 2000, pursuant to an amendment to the president's
employment agreement.
On January 31, 2001, the CEO of the Company personally
guaranteed an $897,895 account payable to Sewn Products
International from the subsidiary in connection with the
subsidiary's purchase of inventory.
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
were converted into 4,397,936 shares on December 31, 1999. At
December 31, 1999, the Company owed an officer and director
$300,000.
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 of the Company have personally
guaranteed the office lease agreement in Torrence, California
and the revolving credit and factoring agreement (Note 10).
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
$2,964,997 and has generated significant losses for the years
ended December 31, 2000 and 1999. For the year ended December
31, 2001, 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 the factoring
agreement, draws on the line of credit and exercises of
warrants.
F-43
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 14 - GOODWILL
On March 1, 1999, the Company acquired its wholly-owned
subsidiary Avid Sportswear, Inc. Goodwill of $2,559,331 was
recorded as part of the transaction. The balance of goodwill is
as follows:
Goodwill $ 2,559,331
Accumulated amortization (468,861)
---------------
$ 2,090,171
===============
The goodwill is being amortized over a 10 year period. Any
impairment of goodwill will be recognized in the year it is
realized.
NOTE 15 - LINE OF CREDIT
In November 2000, the Company signed a Line of Credit Agreement
with GMF Holdings (GMF). The Company has engaged May Davis
Group, Inc. to act as its exclusive placement agent in
connection with the Line of Credit Agreement for the issuance
and sale of debentures by the Company. GMF will sell to the
Company up to $10,000,000 of debentures for a period not to
exceed two years. The Company can make advances no more often
than fifteen trading days after the prior advance notice date.
The advance date occurs when the escrow agent is in receipt of
funds from the investor (GMF) and the placement agent's counsel
is in possession of free trading shares from the Company and can
therefore make an advance. No advance date shall be less than
twenty-five trading days after an advance notice date. The
maximum individual advance shall be equal to one hundred fifty
(150%) percent of the average daily volume of the Company's
common stock multiplied by the purchase price. The purchase
price will be 80% of the market price. The market price will be
the lowest closing bid price over the pricing period. The
agreement was effective on January 8, 2001, which was the date
that the Securities and Exchange Commission declared the SB-2
filed on December 20, 2000 effective. At December 31, 2000, the
Company had not received any advances under the line of credit.
As of March 27, 2001, GMF had advanced approximately $771,503 to
the Company.
NOTE 16 - DILUTIVE INSTRUMENTS
a. Stock Options
The Company applied Accounting Principles Board ("APB") Option
25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for all stock option plans. Under
APB Option 25, compensation cost is recognized for stock options
granted to employees when the option price is less than the
market price of the underlying common stock on the date of
grant. As of December 31, 1999, there were no options
outstanding which were granted to employees.
FASB Statement 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), which requires the Company to estimate the
fair value of each dilutive instrument award at the grant date
by using the Black-Scholes option pricing model.
F-44
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 16 - DILUTIVE INSTRUMENTS (Continued)
a. Stock Options (Continued)
A Summary of the Company's outstanding stock options and
weighted average assumptions used for grants as of December 31,
2000 is presented below:
Vesting
Date of Require- Exercise Exercise Trading Amount
Description Grant ments Number Price Price Exercised
--------------------------------- -------- --------- ---------- ---------- -------- ---------
1) Lone Star Capital 08/14/00 Immediate 175,000 $0.35 $0.31 -
2) D. Aganost 08/09/00 Immediate 200,000 $0.35 $0.38 -
3) D. Blakely 08/09/00 Immediate 100,000 $0.35 $0.38 -
------- ----------
475,000 -
============= ==========
Risk-Free
Expiration Interest Expected Expected Expected Compensation
Description Date Rate Life Volatility Dividends Exercise
--------------------------------- ---------- --------- --------- ---------- --------- ------------
1) Lone Star Capital 08/14/10 6.00% 2 182.84% 0 $ 43,922
2) D. Aganost 08/09/10 6.79% 5 182.83% 0 72,506
3) D. Blakely 08/09/10 6.79% 5 182.83% 0 36,253
--------- ----------
$ 152,681
==========
b. Unqualified Stock Options
In January 2000, the Company granted options to purchase an
aggregate of 1,864,477 shares of its common stock to employees
and directors for services rendered.
FASB Statement 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123") requires the Company to provide pro forma
information regarding net income and net income per share as if
compensation costs for the Company's stock option plans and
other stock awards had been determined in accordance with the
fair value based method prescribed in SFAS No. 123. The Company
estimates the fair value of each stock award at the grant date
by using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants,
respectively; dividend yield of zero percent for all years;
expected volatility of 96 percent for all years; risk-free
interest rates of 5.87 percent and expected lives of 5 years.
F-45
AVID SPORTSWEAR & GOLF CORP.
Notes to the Consolidated Financial Statements
December 31, 2000 and 1999
NOTE 16 - DILUTIVE INSTRUMENTS (Continued)
b. Unqualified Stock Options (Continued)
Under the accounting provisions of SFAS No. 123, the company's
net income would have been decreased by the pro forma amounts
indicated below:
2000 1999
------------ ------------
Net loss:
As reported $ (8,661,554) $ -
Pro forma (8,911,554) -
Net income per share:
As reported $ (0.23) $ -
Pro forma (0.24) $ -
c. Warrants
A summary of the Company's outstanding warrants and weighted
average assumptions used for grants as of December 31, 2000 is
presented below:
Vesting
Date of Require- Exercise Exercise Trading Amount
Description Grant ments Number Price Price Exercised
----------------------------- -------- --------- ---------- ---------- -------- ----------
1) May Davis Group 12/29/00 Immediately 2,000,000 $0.35 $0.13 -
2) J. McKee 12/31/99 Immediately 285,714 $1.50 $0.38 -
3) D. Paetz 12/31/99 Immediately 100,000 $0.50 $0.38 -
4) Tarpon Scurry 01/08/99 Immediately 39,000 $0.01 $1.77 -
--------- ---------
2,424,714 -
========= ==========
Risk-Free
Expiration Interest Expected Expected Expected Compensation
Description Date Rate Life Volatility Dividends Exercise
----------------------------- ----------- ---------- --------- ----------- ---------- ------------
1) May Davis Group 12/29/00 5.13% 3 173.61% 0 $ 185,554
2) J. McKee 08/13/99 5.87% 5 100.63% 0 63,074
3) D. Paetz 08/01/03 5.87% 5 100.63% 0 28,194
4) Tarpon Scurry 01/08/04 5.69% 3 86.94% 0 53,235
--------- --------------
$ 330,057
==============
F-46
NOTE 17- SUBSEQUENT EVENTS
COMMON STOCK ISSUANCES
Subsequent to December 31, 2000, the Company issued 4,620,110
shares of common stock valued at an average price of $0.05 per
share for the conversion of $234,418 of debt associated with
the Company's line of credit.
Subsequent to December 31, 2000, the Company issued 11,500,000
shares of common stock valued at $0.085 per share to a related
party for the conversion of $977,500 of debt.
Subsequent to December 31. 2000, the Company issued 2,736,486
shares of common stock valued at an average price of $0.082
per share for the conversion of debt of $223,179.
Subsequent to December 31, 2000, the Company issued 6,000,000
shares of common stock valued at an average price of $0.05 per
share for subscriptions receivable of $300,000.
DEBENTURE ADVANCES
From January 1, 2001 to March 31, 2001, the Company received
advances of $771,503 from the Company's line of credit.
FORFEITURE OF SHARES
On January 31, 2001, the president of the subsidiary forfeited
all 1,200,000 shares of the Company's common stock issued to
him on January 17, 2000, pursuant to an amendment to the
president's Employment Agreement.
F-47
UNITED COMPANIES CORPORATION
AND SUBSIDIARY
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
F-48
C O N T E N T S
Independent Auditors' Report................................................F-50
Consolidated Balance Sheet..................................................F-51
Consolidated Statement of Operations........................................F-52
Consolidated Statement of Stockholders' Equity .............................F-53
Consolidated Statement of Cash Flows........................................F-54
Notes to the Consolidated Financial Statements..............................F-55
F-49
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
United Companies Corporation
Pittsburgh, Pennsylvania
We have audited the accompanying consolidated balance sheet of United Companies
Corporation as of December 31, 2001 and the related consolidated statements of
operations, stockholders' equity and cash flows from inception on November 26,
2001 through December 31, 2001. 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidate financial position of United
Companies Corporation as of December 31, 2001 and the results of their
operations and their cash flow from inception on November 26, 2001 through
December 31, 2001, in conformity with accounting principles generally accepted
in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in Note 3 to the
consolidated financial statements, the Company has had no established source of
revenue or operations since inception which raises substantial doubt about its
ability to continue as a going concern. Management's plan in regard to these
matters are also described in Note 3. The consolidated financial statements do
not include any adjustments that might result form the outcome of this
uncertainty.
HJ & Associates, LLC
Salt Lake City, Utah
February 7, 2002
F-50
UNITED COMPANIES CORPORATION
(A Development Stage Company)
Consolidated Balance Sheet
ASSETS
December 31,
2001
CURRENT ASSETS
Cash $ -
-----------------
Total Current Assets -
-----------------
TOTAL ASSETS $ -
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Total Current Liabilities $ -
-----------------
STOCKHOLDERS' EQUITY
Common stock: $0.01 par value, 75,000 shares
authorized, issued and outstanding 750
Additional paid-in capital 250
Stock subscription receivable (190)
Deficit accumulated during the development stage (810)
-----------------
Total Stockholders' Equity -
-----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ -
=================
The accompanying notes are an integral part of these consolidated financial
statements.
F-51
UNITED COMPANIES CORPORATION
(A Development Stage Company)
Consolidated Statement of Operations
From
Inception on
November 26,
2001 Through
December 31,
2001
-------------------
REVENUE $ -
-------------------
EXPENSES
General and administrative 810
-------------------
Total Expenses 810
-------------------
NET LOSS $ (810)
===================
BASIC LOSS PER SHARE $ (0.01)
===================
BASIC WEIGHTED AVERAGE
NUMBER OF SHARES
OUTSTANDING 75,000
===================
The accompanying notes are an integral part of these consolidated financial
statements.
F-52
UNITED COMPANIES CORPORATION
(A Development Stage Company)
Consolidated Statement of Stockholders' Equity
Deficit
Accumulated
Common Stock Additional During the
-------------------------------- Paid-in Subscription Development
Shares Amount Capital Receivable Stage
------------------- ------------ ------------------ ---------------- ----------------
Balance at inception -
November 26, 2001 - $ - $ - $ - $ -
Common stock issued to founder
for cash at $0.0133 per share,
November 26, 2001 75,000 750 250 (190) -
Net loss for the period ended
December 31, 2001 (810)
---------------- --------------- --------------- ---------------- ---------------
Balance, December 31, 2001 75,000 $ 750 $ 250 $ (190) $ (810)
================ =============== =============== ================ ===============
The accompanying notes are an integral part of these consolidated financial statements.
F-53
UNITED COMPANIES CORPORATION
(A Development Stage Company)
Consolidated Statement of Cash Flows
From
Inception on
November 26,
2001 Through
December 31,
2000
-------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (810)
------------
Net Cash Flows (Used) by Operating Activities (810)
------------
CASH FLOWS FROM INVESTING ACTIVITIES -
------------
CASH FLOWS FROM FINANCING ACTIVITIES
Receipt of portion of stock subscription receivable 810
------------
Net Cash Flows Provided by Financing Activities 810
------------
NET INCREASE IN CASH -
CASH, BEGINNING OF PERIOD -
------------
CASH, END OF PERIOD $ -
============
CASH PAID FOR:
Interest $ -
Income taxes $ -
NON-CASH FINANCING ACTIVITIES:
Common stock issued for stock subscription receivable $ 190
The accompanying notes are an integral part of these consolidated financial
statements.
F-54
UNITED COMPANIES CORPORATION
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2001
NOTE 1 - ORGANIZATION AND HISTORY
The consolidated financial statements presented are those of
United Companies Corporation (United) and its subsidiary, Merger
Co, Inc. (MCo). Collectively, they are referred to herein as "the
Company".
United was organized on November 26, 2001 under the laws of the
State of Nevada. The purpose of the Company is to perform any
lawful activity permitted by the State of Nevada. MCo has not
commenced operations and in accordance with SFAS No. 7, is
considered a development stage company.
The Subsidiary:
MCo was incorporated on December 7, 2001 under the laws of the
State of Nevada to engage in any lawful act or business for which
corporations may be organized under the State of Nevada. MCo
has not commenced operations and in accordance with SFAS No. 7, is
considered a development stage company.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES
The Company has no operations to date and its accounting policies
and procedures have not been determined, except as follows:
a. Accounting Method
The Company uses the accrual method of accounting and has selected
a December 31 year-end.
b. Basic Loss Per Share
Basic loss per common share has been calculated based on the
weighted average number of shares of common stock outstanding
during the period.
From
Inception on
November 26,
2001 Through
December 31,
2001
------------------
Numerator - loss $ (810)
Denominator - weighted average number of
shares outstanding 75,000
-----------------
Loss per share $ (0.01)
=================
F-55
UNITED COMPANIES CORPORATION
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2001
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES (Continued)
c. Provision for 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 $810 at December 31, 2001 expires
in 2021. 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.
The income tax benefit differs from the amount computed at federal
statutory rates of approximately 38% as follows:
From
Inception on
November 26,
2001 Through
December 31,
2001
-----------------
Income tax benefit at statutory rate $ 308
Change in valuation allowance (308)
-----------------
$ -
=================
Deferred tax assets (liabilities) are comprised of the following:
From
Inception on
November 26,
2001 Through
December 31,
2001
-----------------
Income tax benefit at statutory rate $ 308
Change in valuation allowance (308)
-----------------
$ -
=================
Due to the change in ownership provisions of the Tax Reform Act of
1986, net operating loss carryforwards for Federal income tax
reporting purposes are subject to annual limitations. Should a
change in ownership occur, net operating loss carryforwards might
be limited as to use in future years.
F-56
UNITED COMPANIES CORPORATION
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2001
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES (Continued)
d. Cash and Cash Equivalents
For the purposes of financial statement presentation, the Company
considers all highly liquid investments with a maturity of three
months or less, from the date of purchase to be cash equivalents.
e. Use of 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. Revenue Recognition
The Company currently has no source of revenues. Revenue
recognition policies will be determined when principal operations
begin.
g. Principles of Consolidation
The consolidated financial statements include those of United
Companies Corporation and its subsidiary, Merger Co., Inc.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern that
contemplates the realization of assets and liquidation of
liabilities in the normal course of business. The Company has had
no operations since inception. The Company has not established
revenues sufficient to cover its operating costs and allow it to
continue as a going concern. The Company is currently seeking
merger partners or other business ventures in order to become an
operating company. In the interim, management is committed to
meeting the operational cash flow needs of the Company. There can
be no assurance that the Company will be able to meet its
operational goals.
F-57
UNITED COMPANIES CORPORATION
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2001
NOTE 4 - NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 2001, the Financial Accounting Standards Board adopted the
following Statements of Financial Accounting Standards:
o SFAS No. 141, Business Combinations;
o SFAS No. 142, Goodwill and Other Intangible Assets;
o SFAS No. 143, Accounting for Asset Retirement
Obligations; and
o SFAS No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets.
These newly issued accounting pronouncements had no effect on the
Company's current financial statements and did not impact the
Company.
NOTE 5 - SUBSEQUENT EVENTS
On January 7, 2002, the Company incorporated License Corporation
as a wholly-owned subsidiary under the laws of the State of Nevada
to engage in any lawful act or business for which corporations may
be organized under the State of Nevada.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20: 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 and in any criminal
proceeding in which such person had reasonable cause to believe his conduct was
lawful. 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.
United's Articles of Incorporation do not address indemnification of officers
and directors.
ITEM 21: EXHIBITS.
RIDER Z
-------
The following exhibits are filed as part of this registration statement:
EXHIBIT
NO. DESCRIPTION LOCATION
--- ----------- --------
2.01 Stock Purchase and Sale Agreement dated as of Incorporated by reference to Exhibit 2.01 to the
December 18, 1998 among our company, Avid Registrant's Registration Statement on Form 10-SB (the
Sportswear, Inc. and the shareholders of Avid "Registration Statement")
Sportswear, Inc.
3.01 Articles of Incorporation filed on September 19, Incorporated by reference to Exhibit 3.01 to the
1997 with the Nevada Secretary of State Registration Statement
3.02 Amended Articles of Incorporation filed on May 12, Incorporated by reference to Exhibit 3.02 to the
1999 with the Nevada Secretary of State Registration Statement
3.03 Certificate of Amendment to Articles of Incorporated by reference to Exhibit 3.03 to the
Incorporation filed on May 27, 1999 with the Registration Statement
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 to Amendment
No. 2 to the Registration Statement.
5.01 Form of Opinion re: Legality Provided herewith
10.01 Agreement dated as of December 8, 1998 between the Incorporated by reference to Exhibit 10.01 to the
Championship Committee Merchandising Limited and Registration Statement
Avid Sportswear Inc.
10.02 Lease dated as of March 1, 1999 between F & B Incorporated by reference to Exhibit 10.02 to the
Industrial Investments, LLC and Avid Sportswear, Registration Statement
Inc.
10.03 Lease dated as of April 30, 1999 between Links Incorporated by reference to Exhibit 10.03 to the
Associates, Ltd. and our company Registration Statement
10.04 Employment Agreement dated as of September 11, Incorporated by reference to Exhibit 10.04 to the
1999 between Barnum Mow and Avid Sportswear, Inc. Registration Statement
10.05 Trademark License Agreement dated as of May 10, Incorporated by reference to Exhibit 10.05 to
1999 between Levi Strauss & Co. and Avid Amendment No. 2 to the Registration Statement
Sportswear, Inc.
10.06 Employment Agreement dated as of January 1, 1999 Incorporated by reference to Exhibit 10.06 to the
between David E. Roderick and Avid Sportswear, Inc. Registration Statement
10.07 Promissory Note in the original principal amount Incorporated by reference to Exhibit 10.07 to the
of $180,000 dated as of June 4, 1999 from our Registration Statement
company to First State Bank
10.08 Commercial Security Agreement dated as of November Incorporated by reference to Exhibit 10.08 to the
17, 1999 between First State Bank and our company Registration Statement
10.09 Promissory Note dated as of November 17, 1999 in Incorporated by reference to Exhibit 10.09 to the
the original principal amount of $1,000,000 given Registration Statement
by our company to First State Bank
10.10 Business Loan Agreement dated as of November 17, Incorporated by reference to Exhibit 10.10 to the
1999 between First State Bank and our company Registration Statement
10.11 Convertible Revolving Demand Note dated as of Incorporated by reference to Exhibit 10.11 to
December 1, 1999 in the original principal amount Amendment No. 2 to the Registration Statement
of $550,000 given by our company to Earl Ingarfield
10.12 Convertible Revolving Demand Note dated as of Incorporated by reference to Exhibit 10.12 to
December 1, 1999 in the original principal amount Amendment No. 2 to the Registration Statement
of $1,000,000 given by our company to Lido Capital
Corporation
10.13 Convertible Revolving Demand Note dated as of Incorporated by reference to Exhibit 10.13 to
December 1, 1999 in the original principal amount Amendment No. 2 to the Registration Statement
of $125,000 given by our company to Michael E.
LaValliere
10.14 Convertible Revolving Demand Note dated as of Incorporated by reference to Exhibit 10.14 to
December 1, 1999 in the original principal amount Amendment No. 2 to the Registration Statement
of $500,000 given by our company to Thomas Browning
10.15 Revolving Demand Note dated as of December 1, 1999 Incorporated by reference to Exhibit 10.15 to
in the original principal amount of $200,000 given Amendment No. 2 to the Registration Statement
by our company to Daniel Paetz
10.16 Executive Employment Agreement effective as of Incorporated by reference to Exhibit 10.16 to
February 1, 2000 between our company and Earl T. Amendment No. 2 to the Registration Statement
Ingarfield
10.17 Consulting Agreement dated as of June 22, 2000 Incorporated by reference to Exhibit 10.17 to the
between Persia Consulting Group, Inc. and our Registrant's Registration Statement on Form SB-2
company
10.18 Form of Factoring Agreement between our company Incorporated by reference to Exhibit 10.18 to the
and GE Capital Commercial Services, Inc. Registrant's Form 10-QSB filed on November 17, 2001
10.19 Form of Factoring Agreement Guaranty/Letter of Incorporated by reference to Exhibit 10.19 to the
Credit Supplement between our company and GE Registrant's Form 10-QSB filed on November 17, 2001
Capital Commercial Services, Inc.
10.20 Form of Factoring Agreement - Inventory Supplement Incorporated by reference to Exhibit 10.20 to the
(with advances) between our company and GE Capital Registrant's Form 10-QSB filed on November 17, 2001
Commercial Services, Inc.
10.21 Form of Letter of Agreement between our company Incorporated by reference to Exhibit 10.21 to the
and GE Capital Commercial Services, Inc. Registrant's Form 10-QSB filed on November 17, 2001
10.22 Form of Convertible Debenture Incorporated by reference to Exhibit 10.22 to the
Registrant's Form 10-QSB filed on November 17, 2001
10.23 Form of Registration Rights Agreement between our Incorporated by reference to Exhibit 10.23 to the
company and purchasers of convertible debentures Registrant's Form 10-QSB filed on November 17, 2001
10.24 Line of Credit Agreement dated as of November 28, Incorporated by reference to Appendix "A" to the
2000 between our company and GMF Holdings, Inc. Registrant's Proxy Statement (the "Proxy Statement")
10.25 Form of Debenture dated as of November 28, 2000 Incorporated by reference to Appendix "B" to the
given by our company Registrant's Proxy Statement
10.26 Registration Rights Agreement dated as of November Incorporated by reference to Appendix "C" to the
28, 2000 between our company and GMF Holdings, Inc. Registrant's Proxy Statement
10.27 Form of Warrant dated as of November 28, 2000 Incorporated by reference to Appendix "D" to the
given by our company Registrant's Proxy Statement
10.28 Registration Rights Agreement dated as of November Incorporated by reference to Appendix "E" to the
28, 2000 between our company and the May Davis Registrant's Proxy Statement
Group, inc.
10.29 Placement Agent Agreement as of November 28, 2000 Incorporated by reference to Appendix "F" to the
between our company and the May Davis Group, Inc. Registrant's Proxy Statement
10.30 Escrow Agreement dated as of November 28, 2000 Incorporated by reference to Appendix "G" to the
among our company, the May Davis Group, Inc. and Registrant's Proxy Statement
First Union National Bank
10.31 Amendment to Employment Agreement effective Incorporated by reference to Exhibit 10.31 to the
January 31, 20001 between our company and Barnum Registrant's Form 10-QSB filed on November 17, 2001
Mow
10.32 Forbearance Agreement as of February 16, 2001 Incorporated by reference to Exhibit 10.32 to the
between our company and GE Capital Commercial Registrant's Form 10-QSB filed on November 17, 2001
Services, Inc.
10.33 Employment Agreement dated as of June 25, 2001 Incorporated by reference to Exhibit 10.33 to the
between Frank Jakovac and our company Registrant's Form 10-QSB filed on September 21, 2001
10.34 Employment Agreement dated as of June 25, 2001 Incorporated by reference to Exhibit 10.34 to the
between James Handlon and our company Registrant's Form 10-QSB filed on September 21, 2001
10.35 Employment Agreement dated as of June 25, 2001 Incorporated by reference to Exhibit 10.35 to the
between Michelle Mathis and our company Registrant's Form 10-QSB filed on September 21, 2001
11.01 Statement re: Computation of Earnings Not Applicable
15.01 Letter on unaudited interim financial information Not Applicable
16.01 Letter on Change in Certifying Accountant Not Applicable
20.01 Letter dated May 9, 2001 from Levi Strauss & Co. Incorporated by reference to Exhibit 20.01 to the
Registrant's Form 8-K filed May 18, 2001
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
23.02 Consent of Kirkpatrick & Lockhart LLP Provided herewith
24.01 Power of Attorney Not Applicable
27.01 Financial Data Schedule Not Applicable
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Sections
10(a)(3) of the 1933 Act;
(ii) Reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) Include any material information with respect
to the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under
the 1933 Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be a bona fide
offering thereof.
(3) Remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
II-1
(4) Insofar as indemnification for liabilities arising under
the 1933 Act may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the 1933 Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
(5) For purposes of determining any liability under the 1933
Act, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by United pursuant to Rule 424(b)(1) or (4) or 497(h) under the
1933 Act shall be deemed to be part of this Registration Statement as of the
time it was declared effective.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this firm, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-2
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-4 and authorized this registration
statement to be signed on our behalf by the undersigned, in Pittsburgh,
Pennsylvania, February 7, 2002.
UNITED COMPANIES CORPORATION
By: /s/Frank Jakovac
-----------------------------------
Name: Frank Jakovac
Title:
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates stated.
SIGNATURE TITLE DATE
/s/Frank Jakovac President, Chief Executive Officer February 7, 2002
- ---------------- and Director
Frank Jakovac
II-3
EXHIBIT 5.1
FORM OF OPINION LETTER
_______________ __, 2002
Avid Sportswear & Golf Corp.
834 Ridge Avenue
Pittsburgh, Pennsylvania 15212
RE: AVID SPORTSWEAR & GOLF CORP. (THE "CORPORATION")
REGISTRATION STATEMENT ON FORM S-4 (THE "REGISTRATION STATEMENT")
Gentlemen:
We have acted as special counsel to the Corporation in connection with the
preparation of the Registration Statement filed with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "1933 ACT"),
relating to the proposed public offering of up to 2,983,666 shares of the
Corporation's common stock, par value $0.01 per share (the "COMMON STOCK").
We are furnishing this opinion to you in accordance with Item 601(b)(5) of
Regulation S-B promulgated under the 1933 Act for filing as Exhibit 5.1 to the
Registration Statement.
We are familiar with the Registration Statement, and we have examined the
Corporation's Certificate of Incorporation, as amended to date, the
Corporation's Bylaws, as amended to date, and minutes and resolutions of the
Corporation's Board of Directors and shareholders. We have also examined such
other documents, certificates, instruments and corporate records, and such
statutes, decisions and questions of law as we have deemed necessary or
appropriate for the purpose of this opinion.
Based upon the foregoing, we are of the opinion that the shares of Common Stock
to be sold by the Selling Stockholders (as defined in the Registration
Statement) to the public, when issued and sold in the manner described in the
Registration Statement (as amended), will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to the use of our name in the Prospectus constituting
a part thereof in connection with the matters referred to under the caption
"Legal Matters."
Very truly yours,
Exhibit 23.01
CONSENT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders of
Avid Sportswear & Golf Corporation
Pittsburgh, Pennsylvania
To the Board of Directors and Shareholders of
United Companies Corporation
Pittsburgh, Pennsylvania
We hereby consent to the use of our audit reports dated January 17, 2001 and
February 8, 2002 for the year ended December 31, 2000 and December 31, 2001
which are incorporated in this Form S-4 and the Joint Proxy Statement of Avid
Sportswear & Golf Corporation and United Companies Corporation, respectively. We
also consent to all references to our firm in this Form S-4 and the Joint Proxy
Statement.
HJ & Associates, LLC
Salt Lake City, Utah
February 8, 2002
Exhibit 23.02
Form of Consent of Kirkpatrick & Lockhart LLP
Kirkpatrick & Lockhart LLP's consent to include its opinion to the Registration
Statement on Form S-4 of United Companies Corporation is contained in its
opinion attached hereto as Exhibit 5.1