Exhibit 99.1
AMERICAN SPORTS DEVELOPMENT GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2001, 2000 AND 1999
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
INDEX
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED BALANCE SHEETS 2
CONSOLIDATED INCOME STATEMENTS 3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 6 - 21
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of AMERICAN SPORTS
DEVELOPMENT GROUP, INC. AND SUBSIDIARIES as of December 31, 2001 and 2000, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES as of December 31, 2001
and 2000, and the consolidated results of its operations and its cash flows for
each of the three years in the period ended December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
March 1, 2002, except for
Note 16 as to which the
date is May 17, 2002
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
ASSETS 2001 2000
------------ ------------
Current assets
Cash and cash equivalents $ 304,239 $ 241,787
Accounts receivable 2,607,121 1,451,273
Other receivables - employees 27,247 27,960
Recoverable income taxes 84,419 3,862
Note receivable 30,000 -
Loans receivable - related parties 95,554 9,366
Prepaid expenses 150,360 49,732
Inventory 2,311,065 2,961,219
------------ ------------
Total current assets 5,610,005 4,745,199
Property and equipment, at cost, net of accumulated depreciation and
amortization of $579,578 and $397,535, respectively 601,864 671,205
Goodwill, net of accumulated amortization of $69,952 and $35,347, respectively 529,112 403,717
Other intangibles, net of accumulated amortization of $25,350 and $-0-, respectively 241,150 79,000
Note receivable - 27,083
Due from affiliates - 223,167
Other assets 53,060 20,026
-------------- --------------
TOTAL ASSETS $ 7,035,191 $ 6,169,397
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank line of credit $ 1,086,074 $ 633,074
Accounts payable and accrued expenses 4,164,863 3,450,029
Due to affiliate 247,577 141,643
Notes payable - current portion 649,876 337,786
--------------- --------------
Total current liabilities 6,148,390 4,562,532
Notes payable, less current portion 64,924 560,572
-------------- --------------
Total liabilities 6,213,314 5,123,104
-------------- --------------
Commitments and contingencies - -
Stockholders' equity
Preferred Stock - no par value, authorized 20,000,000 shares;
-0- shares issued - -
Common Stock - $0.001 par value, authorized 50,000,000 shares;
5,948,295 shares issued and outstanding 5,948 5,948
Additional paid-in capital 216,485 216,485
Retained earnings 599,444 823,860
-------------- --------------
Total stockholders' equity 821,877 1,046,293
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,035,191 $ 6,169,397
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
- 2 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31,
2001 2000 1999
--------------- --------------- --------------
Net sales $ 23,496,789 $ 25,688,906 $ 24,868,882
Cost of sales 19,283,966 20,489,705 20,048,018
--------------- --------------- --------------
Gross profit 4,212,823 5,199,201 4,820,864
Selling, general and administrative expenses 4,755,295 5,097,657 4,240,858
--------------- --------------- --------------
(Loss) income from operations (542,472) 101,544 580,006
Other income (expense)
Interest expense, net (125,544) (139,331) (70,082)
Gain on sale of assets - - 50,508
Assignment of logo 300,000 - -
Loss on investments - (4,925) -
Other income 3,300 10,178 4,800
---------------- --------------- --------------
(Loss) income before income taxes (364,716) (32,534) 565,232
Income taxes (140,300) (12,339) 219,200
----------------- ---------------- --------------
Net (loss) income $ (224,416) $ (20,195) $ 346,032
================= ================ ==============
Net (loss) income per common share
Basic and diluted $ (0.04) $ (0.00) $ 0.06
================ =============== ===============
Weighted average shares outstanding 5,948,295 5,948,295 5,948,295
================ =============== ===============
The accompanying notes are an integral part of these consolidated financial
statements.
- 3 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Common Stock Additional Total
------------------------------- Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
------------- ------------- ----------- -------------- ---------------
Balance at January 1, 1999 5,948,295 $ 5,948 $ 216,485 $ 498,023 $ 720,456
Net income for the year ended
December 31, 1999 - - - 346,032 346,032
-------------- ------------- ----------- ------------ ------------
Balance at December 31, 1999 5,948,295 5,948 216,485 844,055 1,066,488
Net loss for the year ended
December 31, 2000 - - - ( 20,195) ( 20,195)
-------------- -------------- ------------ ------------- -------------
Balance at December 31, 2000 5,948,295 5,948 216,485 823,860 1,046,293
Net loss for the year ended
December 31, 2001 - - - (224,416) (224,416)
-------------- ------------- ------------- ------------- -------------
Balance at December 31, 2001 5,948,295 $ 5,948 $ 216,485 $ 599,444 $ 821,877
============== ============= ============= ============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
- 4 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
2001 2000 1999
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ ( 224,416) $( 20,195) $ 346,032
Adjustments to reconcile net (loss) income to
net cash provided by operating activities
Depreciation and amortization 253,126 199,245 135,507
Gain on sale of fixed assets - - ( 50,508)
Bad debt expense 85,377 94,505 101,374
Loss on investments - 4,925 -
Changes in certain assets and liabilities:
(Increase) in accounts receivable (1,241,225) ( 157,725) ( 471,562)
(Increase) decrease in other receivables ( 85,475) 67,964 ( 100,903)
(Increase) in recoverable income taxes ( 80,557) ( 3,862) -
(Increase) decrease in inventory 691,989 ( 142,631) ( 852,286)
(Increase) in prepaid expenses ( 130,628) ( 7,077) ( 5,953)
(Increase) decrease in due from affiliates 223,167 44,113 ( 267,280)
(Increase) in other assets ( 33,034) ( 10,492) ( 9,534)
Increase in accounts payable and accrued expenses 714,834 788,274 1,178,503
Increase in due to affiliate 105,934 31,866 -
(Decrease) in income taxes payable - ( 180,637) ( 1,051)
-------------- ------------ ------------
Total cash provided by operating activities 279,092 708,273 2,339
-------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets ( 93,267) ( 219,727) ( 221,306)
Proceeds from sale of fixed assets - 50,508
Cash paid for acquisition ( 122,835) ( 119,015) -
Acquisition of domain name ( 91,500) ( 79,000) -
Decrease in investment, at cost - 2,575 -
Decrease in notes receivable 27,083 - 2,917
-------------- ------------ -------------
Total cash used by investing activities ( 280,519) ( 415,167) ( 167,881)
-------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds under bank line of credit 7,103,000 8,774,000 4,406,000
Payments under bank line of credit (6,650,000) (8,620,458) (3,926,468)
Repayment of notes payable ( 389,121) ( 348,493) ( 303,420)
Proceeds from notes payable - - 35,000
-------------- ------------ ------------
Total cash (used) provided by financing activities 63,879 ( 194,951) 211,112
-------------- ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 62,452 98,155 45,570
CASH AND CASH EQUIVALENTS - beginning of year 241,787 143,632 98,062
-------------- ------------ ------------
CASH AND CASH EQUIVALENTS - end of year $ 304,239 $ 241,787 $ 143,632
============== ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest Expense $ 127,528 $ 106,779 $ 76,467
============== =========== ===========
Income Taxes $ 547 $ 174,442 $ 215,639
============== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
- 5 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying financial statements include the accounts of
American Sports Development Group, Inc., formerly National
Paintball Supply Co., Inc., and Subsidiaries (the "Company"),
incorporated under the laws of the State of South Carolina on
November 14, 1989 and its wholly owned subsidiaries:
a) PaintballGames.com, Inc. ("PbGames"), incorporated under
the laws of the State of South Carolina on June 19, 2000.
b) ILM, Inc. ("ILM"), incorporated under the laws of the State
of South Carolina on June 4, 2001.
c) Paintball Incorporated ("Paintball, Inc."), incorporated
under the laws of the State of South Carolina on November
8, 2001.
All significant intercompany accounts and transactions have
been eliminated in consolidation.
Line of Business
----------------
The Company is a wholesaler of equipment and supplies used in
the paintball game industry. Sales are made to retailers
throughout the United States, as well as Europe. The Company
also operates retail stores in Greenville, South Carolina,
Paramount, California, and Irving, Texas. ILM is an
independent insurance agent representing several insurance
companies/brokers who insure mostly paintball fields, stores,
distributors and manufacturers. ILM is also a wholesaler of
paintball related soft goods products.
Use of Estimates
----------------
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America 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.
Fair Value of Financial Instruments
-----------------------------------
The carrying value of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses,
approximates fair value due to the relatively short maturity
of these instruments. The amounts shown for notes payable and
line of credit approximate fair value since the interest rates
are at fair market value.
- 6 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-Lived Assets
-----------------
Long-lived assets are reviewed for impairment whenever events
or changes in circumstances indicate that the related carrying
amount may not be recoverable. Recovery of assets to be held
and used is measured by a comparison of the carrying amount of
the assets to the future net cash flows expected to be
generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value
less the cost to sell.
Stock-Based Compensation
------------------------
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" encourages, but does
not require, companies to record compensation cost for
stock-based employee compensation plans at fair value. The
Company has chosen to account for stock-based compensation
using the instrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess,
if any, of the quoted market price of the Company's stock at
the date of the grant over the amount an employee must pay to
acquire the stock.
Revenue Recognition
-------------------
The Company recognizes revenue upon shipment of its products.
Revenue includes shipping and handling charge to customers.
Revenue from broker commission and association dues are
recognized when premiums are billed to clients.
Cost of Sales
-------------
Cost of sales consists primarily of purchased products. Other
costs include freight and shipping costs.
Earnings Per Share
------------------
SFAS No. 128, "Earnings Per Share" requires presentation of
basic earnings per share ("Basic EPS") and diluted earnings
per share ("Diluted EPS").
The computation of basic earnings per share is computed by
dividing income available to common stockholders by the
weighted average number of outstanding common shares during
the period. Diluted earnings per share gives effect to all
dilutive potential common shares outstanding during the
period. The computation of diluted EPS does not assume
conversion, exercise or contingent exercise of securities that
would have an anti-dilutive effect on earnings. During the
periods presented, the Company had no potentially dilutive
securities outstanding.
- 7 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Earnings Per Share (continued)
------------------------------
On October 12, 2000, the Company effected a 108.86 for 1 stock
split. On January 31, 2001, the Company effected a 1 for 2.57
reverse split. The net effect of these splits was an effective
42.37 for 1 stock split. All shares and per share amounts have
been retroactively restated to reflect this stock split.
Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments purchased
with original maturities of three months or less to be cash
equivalents.
Accounts Receivable
-------------------
The Company provides for losses and future returns by
utilizing the reserve method. The balances in these reserves
are determined by management and considered adequate.
Inventory
---------
The Company's inventory is valued at the lower of cost or
market, determined by the first-in, first-out method.
Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation and
amortization is computed using the straight-line method. The
estimated useful lives of the assets are as follows:
Leasehold improvements 39 years or life of lease
Automobiles 5 years
Furniture, Fixtures and Equipment 5 to 7 years
The costs of maintenance and repairs are charged to expense
when incurred; costs of renewals and betterments are
capitalized. Upon the sales or retirement of property and
equipment, the cost and related accumulated depreciation are
eliminated from the respective accounts and the resulting gain
or loss is included in operations.
Intangible Assets
-----------------
Intangible assets consist of goodwill, domain names and
customer lists. Goodwill, which represents the excess of
acquisition cost over the net assets acquired in a business
combination, is amortized on the straight-line method over 15
years. Management reviews, on an annual basis, the carrying
value of goodwill in order to determine whether an impairment
has occurred. Impairment is based on several factors including
the Company's projection of future undiscounted operating cash
flows. If an impairment of the carrying value were to be
indicated by this review, the Company would adjust the
carrying value of goodwill to its estimated fair value. Domain
names and customer lists are being amortized on a
straight-line basis over a period of 10 and 5 years,
respectively.
- 8 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Intangible Assets (continued)
-----------------------------
Should events or circumstances occur subsequent to the
acquisition of intangibles which bring into question the
realizable value or impairment of the related intangible
asset, the Company will evaluate the remaining useful life and
balance of the intangible asset and make adjustments, if
required. The Company's principal consideration in determining
an impairment includes the strategic benefit to the Company of
the particular asset as measured by undiscounted current and
expected future operating income of that specified group of
assets and expected undiscounted future cash flows. Should an
impairment be identified, a loss would be reported to the
extent that the carrying value of the related intangible asset
exceeds the fair value of that intangible asset as determined
by discounted cash flows.
Investments
-----------
Investments in certain companies in which the Company owns a
20% or less interest are accounted for under the cost method.
Investments in companies in which the Company has a 20% to 50%
interest are carried at equity, adjusted for the Company's
proportionate share of their undistributed earnings or losses.
Advances and distributions are charged and credited directly
to the investment account.
Income Taxes
------------
Income taxes are provided for based on the liability method of
accounting pursuant to SFAS No. 109, "Accounting for Income
Taxes." The liability method requires the recognition of
deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between the
reported amount of assets and liabilities and their tax basis.
Advertising Costs
-----------------
Advertising costs, except for costs associated with
direct-response advertising, are charged to operations when
incurred. The costs of direct-response advertising, if any,
are capitalized and amortized over the period during which
future benefits are expected to be received. The Company had
no direct-response advertising during the periods presented.
Concentration of Credit Risk
----------------------------
The Company places its cash in what it believes to be
credit-worthy financial institutions. However, cash balances
may exceed FDIC insured levels at various times during the
year.
- 9 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income
--------------------
SFAS No. 130, "Reporting Comprehensive Income," establishes
standards for the reporting and display of comprehensive
income and its components in the financial statements. The
items of other comprehensive income that are typically
required to be displayed are foreign currency items, minimum
pension liability adjustments, and unrealized gains and losses
on certain investments in debt and equity securities. At
December 31, 2001, 2000 and 1999, the Company had no items
that represent other comprehensive income and, therefore, has
not included a schedule of comprehensive income in the
financial statements.
Sales Incentives and Allowances
-------------------------------
The Company provides sales incentives and allowances to
certain of its customers, computed as a percentage of sales.
These incentives and allowances are classified as a reduction
of revenue at the time the related revenue is recognized.
Recent Accounting Pronouncements
--------------------------------
In June 2001, SFAS No. 141, "Business Combinations," and SFAS
No. 142, "Goodwill and Other Intangible Assets," were issued.
SFAS No. 141 requires that all business combinations initiated
after June 30, 2001 be accounted for using the purchase method
of accounting, and that identifiable intangible assets
acquired in a business combination be recognized as an asset
apart from goodwill, if they meet certain criteria. The impact
of the adoption of SFAS No. 141 on our reported operating
results, financial position and existing financial statement
disclosure is not expected to be material.
SFAS No. 142 applies to all goodwill and identified intangible
assets acquired in a business combination. Under the new
standard, all goodwill and indefinite-lived intangible assets,
including that acquired before initial application of the
standard, will not be amortized but will be tested for
impairment at least annually. The new standard is effective
for fiscal years beginning after December 15, 2001. Adoption
of SFAS No. 142 effective January 1, 2002, will result in the
elimination of approximately $73,587 of annual amortization
($59,954 of amortization expense was recorded during the year
ended December 31, 2001). The Company does not expect to
recognize any impaired goodwill as of January 1, 2002.
In July 2001, SFAS No. 143, "Accounting for Asset Retirement
Obligations" was issued, which requires the recognition of a
liability for an asset retirement obligation in the period in
which it is incurred. When the liability is initially
recorded, the carrying amount of the related long-lived asset
is correspondingly increased. Over time, the liability is
accreted to its present value and the related capitalized
charge is depreciated over the useful life of the asset. SFAS
No. 143 is effective for fiscal years beginning after June 15,
2002. The impact of the adoption of SFAS No. 143 on the
Company's reported operating results, financial position and
existing financial statement disclosure is not expected to be
material.
- 10 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recent Accounting Pronouncements (continued)
--------------------------------------------
In August 2001, SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets," was issued. This statement
addresses the financial accounting and reporting for the
impairment or disposal of long-lived assets and broadens the
definition of what constitutes a discontinued operation and
how results of a discontinued operation are to be measured and
presented. The provisions of SFAS No. 144 are effective for
financial statements issued for fiscal years beginning after
December 15, 2001. The impact of the adoption of SFAS No. 144
on our reported operating results, financial position and
existing financial statement disclosure is not expected to be
material.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
December 31,
------------------------------
2001 2000
------------- -----------
Leasehold improvements $ 162,396 $ 153,872
Automobiles 261,359 186,674
Furniture, fixtures and equipment 757,687 728,194
------------- -----------
1,181,442 1,068,740
Less: accumulated depreciation
and amortization 579,578 397,535
------------- -----------
$ 601,864 $ 671,205
============= ===========
The property and equipment is pledged as collateral for a line
of credit with SouthTrust Bank (see Note 7).
Depreciation and amortization expense for the years ended
December 31, 2001, 2000 and 1999 was $193,171, $176,398 and
$125,507, respectively.
During 1999, the Company sold a motor home for cash proceeds
of $50,508. The assets were fully depreciated and a gain has
been recorded for the full amount of the proceeds.
NOTE 3 - NOTE RECEIVABLE
On September 10, 2001, the Company entered into an agreement
with a competitor to sell the "National Paintball Supply" and
other logos for $300,000. The Company received $150,000
pursuant to the execution of this agreement and the remainder
of $150,000 was received in five equal installments of $30,000
starting September 30, 2001. At December 31, 2001, the balance
due from the competitor was $30,000.
- 11 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 3 - NOTE RECEIVABLE (Continued)
During 1998, the Company sold land for $10,000 cash and a note
receivable in the amount of $30,000, for an aggregate selling
price of $40,000, the book value. No gain or loss was recorded
in the financial statements. The Company was to receive 48
monthly installments of $500, including interest, commencing
on January 15, 1999 and a balloon payment of $10,000 at
January 15, 2003. On February 6, 2001, the Company reacquired
the land pursuant to default of the note receivable and
foreclosure on the property. The balance of this note at
December 31, 2000 was $27,083 and has been included in the
financial statements as a non-current asset. At December 31,
2001, the value of the land is included in "other assets" on
the balance sheet.
NOTE 4 - ACQUISITIONS
On April 30, 2000, the Company acquired certain assets of
Paintball Games of Dallas, Inc. ("PGD"). The purchase price
was $696,847, comprised of a cash payment of $119,015,
forgiveness of accounts receivable due the Company from PGD of
$238,917, and a note payable of $338,915. The estimated fair
value of assets acquired is as follows:
Inventory $ 363,845
Fixed assets 43,938
Goodwill 289,064
------------
$ 696,847
============
On July 11, 2001, the Company acquired certain assets of
National Paintball Association and Warrior Sports Gear. The
purchase price was $302,334, comprised of a cash payment of
$122,835 and a note payable of $179,499. The estimated fair
value of assets acquired is as follows:
Inventory $ 41,835
Fixed assets 4,499
Goodwill 160,000
Domain name 20,000
Customer list 76,000
-----------
$ 302,334
===========
All acquisitions have been accounted for as purchases and the
results of operations of the acquired businesses are included
in the financial statements from the dates of acquisition. The
following represents the unaudited pro forma results of
operations as if the above-noted business combinations had
occurred at the beginning of the respective year in which the
companies were acquired, as well as at the beginning of the
preceding year:
- 12 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 4 - ACQUISITIONS (Continued)
2001 2000 1999
---------------- --------------- ---------------
Net sales $ $ 26,583,272 $ 28,647,231
================ =============== ===============
Net income $ - $ 11,800 $ 357,089
================ =============== ===============
Earnings per share $ - $ - $ 0.06
================ =============== ===============
The pro forma results do not represent the Company's actual
operating results had the acquisitions been made at the
beginning of 2001, 2000 and 1999, or the results which may be
expected in the future.
On October 12, 2000, the Company entered into an agreement to
acquire all of the issued and outstanding common stock of
American Inflatables, Inc. through the issuance of
approximately 1,667,575 shares of common stock. Inflatables is
a publicly held company. The acquisition is subject to
approval by Inflatables' shareholders. The acquisition is
expected to be consummated in the year 2002 and will be
accounted for as a purchase (see Note 16).
NOTE 5 - INVENTORY
Inventories are summarized as follows:
December 31,
-------------------------------
2001 2000
------------- ---------------
Guns $ 446,280 $ 415,880
Barrels 245,797 336,520
Paint 298,410 370,528
Parts and Accessories 555,744 674,546
Others 764,834 1,163,745
------------- -------------
Total $ 2,311,065 $ 2,961,219
============= =============
The inventories are pledged as collateral for a line of credit
with SouthTrust Bank (see Note 7).
- 13 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 6 - INTANGIBLES
Intangibles consist of the following at:
December 31,
-------------------------------
2001 2000
------------ -------------
Goodwill $ 599,064 $ 439,064
Domain name 190,500 79,000
Customer list 76,000 -
------------ -------------
865,564 518,064
Less: accumulated amortization 95,302 35,347
------------ -------------
$ 770,262 $ 482,717
============ =============
Amortization expense for the years ending December 31, 2001,
2000 and 1999 was $59,954, $22,847 and $10,000, respectively.
NOTE 7 - BANK LINE OF CREDIT
At December 31, 2001, the Company had a $1,400,000 line of
credit with SouthTrust Bank. The line of credit is payable on
May 16, 2002 with interest at prime rate payable on a monthly
basis. The interest rates at December 31, 2001 and 2000 were
4.75% and 9.50%, respectively. The line of credit is secured
by substantially all the Company's assets and personal
guarantees of the Company's officers. At December 31, 2001 and
2000, borrowings due under this line of credit were $1,086,074
and $633,074, respectively.
NOTE 8 - NOTES PAYABLE
The notes payable consisted of the following at December 31,:
2001 2000
------------ ------------
(A)SouthTrust Bank, N.A. $ 5,528 $ 53,502
(B)Powerball, Inc. - 175,171
(C)Powerball, Inc. 329,034 375,000
(D)Wachovia Bank of South Carolina 16,077 24,654
(E)Paintball Games of Dallas, Inc. 160,046 270,031
(F)Larry and Marcela Cossio 179,499 -
(G)GMAC 24,616 -
------------ ------------
714,800 898,358
Less: current portion 649,876 337,786
------------ ------------
Total long-term notes payable $ 64,924 $ 560,572
============= ============
- 14 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 8 - NOTES PAYABLE (Continued)
Following are maturities of Notes Payable:
December 31,
2002 $ 649,876
2003 56,960
2004 7,964
------------
$ 714,800
(A) This represents a loan payable to SouthTrust Bank in the
original amount of $160,000. The loan is due January 5, 2002
and is payable in 36 equal monthly installments of $5,006,
including interest at 7.9% per annum. The note is secured by
an unconditional guaranty from the officers of the Company.
(B) On September 28, 1998, the Company issued a promissory note
payable to Powerball, Inc. and Matthew E. Brown, jointly, in
the original amount of $642,000. The note is given pursuant to
the Company's purchase of certain assets from the creditors.
The note was due September 28, 2001 and was payable in 36
equal monthly installments of $20,118, including interest at
8% per annum.
(C) On September 28, 1998, the Company issued a promissory note
payable to Powerball, Inc. and Matthew E. Brown, jointly, in
the original amount of $375,000. The note was given pursuant
to the Company's purchase of certain assets from the
creditors. The note is due September 28, 2002 and is payable
in 12 equal monthly installments of $37,621 commencing October
28, 2001, including interest from September 28, 1999 at 8% per
annum. In the event that common stock of the Company becomes
publicly traded before this note is paid in full, the
creditors may elect to receive common stock jointly in full or
partial payment of this note provided that the creditors give
the Company adequate notice in accordance with the agreement.
Upon conversion, the creditors would receive that number of
shares of common stock with a value that equals the amount of
the debt converted, based on current fair value of the stock.
The Company has the right to prepay this note at any time in
whole or in part without penalty.
(D) Promissory note payable, due August 10, 2003, and bearing
interest at 7.99% per annum. The note is payable in monthly
installments of $856, with all unpaid interest and principal
due at maturity. The note is secured by the vehicle acquired
with this note.
- 15 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 8 - NOTES PAYABLE (Continued)
(E) On April 17, 2000, the Company issued a promissory note
payable to Paintball Games of Dallas, Inc. and Power Paintball
Products, Inc. jointly in the original amount of $338,915. The
note is given pursuant to the Company's purchase of certain
assets from the creditors. The note is due May 1, 2003 and is
payable in 36 equal monthly installments of $10,543 commencing
June 1, 2000, including interest from May 1, 2000 at 7.5% per
annum. In the event that common stock of the Company becomes
publicly traded before this note is paid in full, the
creditors may elect to receive common stock jointly in full or
partial payment of this note, provided that the creditors give
the Company adequate notice in accordance with the agreement.
Upon conversion, the creditors would receive that number of
shares of common stock with a value that equals the amount of
the debt converted, based on current fair value of the stock.
The Company has the right to prepay this note at any time in
whole or in part without penalty.
(F) On July 18, 2001, the Company issued two promissory notes
payable to Larry Cossio and Marcela Cossio, jointly, in the
original amounts of $75,000 and $104,499. The notes are given
pursuant to the Company's purchase of certain assets from the
creditors. The notes are payable in a one lump sum of
$75,000 on October 11, 2001 and $104,499 on October 11, 2002,
including interest at 7% per annum on the unpaid balance. At
December 31, 2001, the Company did not pay the balance of
$75,000 due on October 11, 2001. Under the terms of the
payment, the Company paid interest on a monthly basis for any
unpaid balance. In the event that common stock of the Company
becomes publicly traded before this note is paid in full, the
creditors may elect to receive common stock jointly in full
or partial payment of this note provided that the creditors
give the Company adequate notice in accordance with the
agreement. Upon conversion, the creditors would receive
that number of shares of common stock with a value that equals
the amount of the debt converted, based on current fair value
of the stock. The Company has the right to prepay this note
at any time in whole or in part without penalty.
(G) Non-interest bearing note payable to GMAC in the original
amount of $26,064. The note is due November 6, 2004 and is
payable in 36 equal monthly installments of $724. The note is
secured by the vehicle acquired with this note.
NOTE 9 - PROFIT SHARING PLAN
The Company has a profit sharing plan that covers all eligible
employees. Contributions to the plan are at the discretion of
management. During 2001, 2000 and 1999, contributions to the
plan charged to operations were $37,000, $60,000 and $70,000,
respectively.
- 16 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 10 - ECONOMIC DEPENDENCY - MAJOR SUPPLIERS
The Company purchases a substantial portion of its goods from
two suppliers. During the year ended December 31, 2001,
purchases from these suppliers approximated 46%. During the
years ended December 31, 2000 and 1999, the Company purchased
approximately 52% and 62%, respectively, of its goods from
four suppliers. At December 31, 2001 and 2000, amounts due to
these suppliers included in accounts payable were $2,610,303
and $1,893,681, respectively.
NOTE 11 - RELATED PARTIES
Elite Skateboards (Elite)
-------------------------
The Company owned a less than 20% interest in Elite, the
balance of which is owned by an employee of the Company. Elite
rented retail sales space from the Company at $200 per month.
The investment of $7,500 in Elite was accounted for under the
cost method. During 2000, operations ceased, Elite was
dissolved and the Company received a $2,575 cash distribution.
The dissolution resulted in a loss on the investment of
$4,925.
International Management Associates, Inc. (IMA)
-----------------------------------------------
IMA is owned directly or indirectly by the Company's
stockholders. The Company purchases imported paintball
products from IMA's wholly owned subsidiary - Genesis Trading
Corporation (see below). In addition, the Company sponsors a
race car owned by Genesis racing, a division of IMA. The
Company pays expenses of the car in exchange for advertising.
This arrangement is pursuant to a verbal agreement and can be
cancelled by either party. For the years ended December 31,
2001, 2000 and 1999, advertising expense associated with the
race car was $248,107, $674,136 and $343,765, respectively.
There were no balances due from/to IMA and its division at
December 31, 2001 and 2000.
Genesis Trading Corporation (Genesis)
-------------------------------------
The Company purchases a certain style of an imported paintball
gun from Genesis (a wholly owned subsidiary of IMA). For the
years ended December 31, 2001, 2000 and 1999, purchases of
paintball guns from Genesis were $419,261, $491,150 and
$300,407, respectively.
National Sports Marketing, Inc. (NSM)
-------------------------------------
NSM is owned by the Company's majority shareholder. There were
no transactions with NSM for the years ended December 31,
2001, 2000 and 1999, except for advances to NSM of $10,000 in
1999, and repayment of $9,000 from NSM in 2000 and $1,000 in
2001.
- 17 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 11 - RELATED PARTIES (Continued)
NP Realty Company, Inc. (NPR)
----------------------------
The Company leases office and warehouse facilities in South
Carolina from NPR (a company related by common ownership). The
lease is classified as an operating lease and provides for
minimum rentals of $160,000 per year ($800,000 total) through
December 2004. Advances, primarily for the construction of
office and warehouse facilities, were made in the amount of
$257,280 for the year ended December 31, 1999 and included in
"Due from Affiliates" on the Balance Sheet. At December 31,
2001 and 2000, the balance due from NPR was $-0- and $222,167,
respectively.
Loans Receivable - Related parties
----------------------------------
The Company has loans receivable from its majority shareholder
and other employees. These advances are due on demand and bear
no interest.
The amounts due from/to the affiliated companies above are
summarized as follows:
December 31,
-----------------------------------
2001 2000
------------ ------------
Due from IMA $ - $ -
Due from NSM - 1,000
Due from NPR - 222,167
------------ ------------
Total due from affiliates $ - $ 223,167
============ ============
Due to Genesis $ 247,577 $ 141,643
============ ============
The balances due from/to affiliates bear no interest and are
due on demand.
NOTE 12 - ECONOMIC DEPENDENCY - MAJOR CUSTOMER
The Company sells a substantial portion of its product to one
customer. During 2001, 2000 and 1999, sales to the customer
aggregated approximately $4,250,000, $2,890,000 and
$3,270,000, respectively. At December 31, 2001 and 2000,
amounts due from this customer included in accounts receivable
were $1,031,931 and $214,150, respectively.
- 18 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 13 - INCOME TAXES
The components of the provision for income taxes are as
follows:
For the years ended
December 31,
--------------------------------------------------------
2001 2000 1999
--------------- ---------------- -------------
Current tax expense (benefit)
U.S. federal $ (118,500) $ (11,642) $ 182,700
State and local ( 21,800) ( 697) 36,500
-------------- ---------------- -------------
Total current (140,300) (12,339) 219,200
-------------- ---------------- -------------
Deferred tax expense (Income)
U.S. federal - - -
State and local - - -
-------------- ---------------- -------------
Total deferred - - -
-------------- ---------------- -------------
Total tax provision (benefit) from
continuing operations $ (140,300) $ (12,339) $ 219,200
============== =============== ============
Reconciliation of the statutory federal income tax rate to the
Company's effective tax rate is as follows:
2001 2000 1999
-------- -------- --------
U.S. statutory rate 33% 34% 34%
Non-deductible item - (1%) -
State taxes on income,
net of federal tax benefit 5% 5% 5%
----- ----- -----
Effective tax rate 38% 38% 39%
===== ===== =====
NOTE 14 - COMMITMENTS AND CONTINGENCIES
Operating Leases
----------------
The Company leases automobiles and other office equipment
under operating leases expiring at various times between March
9, 2002 through October 5, 2003. Lease expense under these
operating leases included in the income statement for the
years ended December 31, 2001, 2000 and 1999, totaled $49,409,
$38,201 and $34,247, respectively.
As described in Note 11 above, the Company conducts its South
Carolina operations in premises pursuant to a lease, through
December 2004. Minimum rentals are $160,000 per year.
- 19 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 14 - COMMITMENTS AND CONTINGENCIES (Continued)
The Company occupies a California office and store on a
month-to-month basis.
The Company also maintains facilities in Texas pursuant to a
lease with a term from May 1, 2000 to April 30, 2003. The
monthly rent is $5,471.
Rent expense for the years ended December 31, 2001, 2000 and
1999 was $286,609, $276,063 and $136,959, respectively.
Future minimum lease payments are as follows for the years
ended December 31:
2002 $ 258,344
2003 196,444
2004 146,663
-------------
$ 601,451
=============
Purchase Commitment
-------------------
During the year ended December 31, 1998, the Company entered
into a three-year agreement with System Power Specialties,
Inc. to provide one style of gun related to the paintball
industry. Under this agreement, the Company is required to
purchase at least 300 guns per month. The agreement allows for
cancellation after the completion of the third year, and will
be automatically extended for additional consecutive renewals
of one year each, unless terminated or amended pursuant to the
terms of this agreement. During 1999, the Company stopped
purchasing these guns pursuant to System Power Specialties
Inc.'s cessation of operations.
Employment Contract and Non-competition Agreements
--------------------------------------------------
On September 28, 1998, the Company entered into an employment
contract with one of its key employees. The agreement provides
for the employee to earn a minimum base salary of $75,000
adjusted annually for changes in consumer price index per year
through September 28, 2001. Following the termination of
employment, the employee agrees not to compete with the
Company for a fair and reasonable period of time required for
the protection of the interest of the Company and its
officers, shareholders and other employees. Following
expiration of the agreement in September 2001, the employee
has been retained at a reduced salary.
On April 17, 2000, the Company entered into an employment
contract with one of its key employees, in connection with the
acquisition of Paintball Games of Dallas, Inc. (see Note 4).
The agreement provides for the employee to earn a minimum base
salary of $80,000 plus commission equal to 20% of net profit
actually received by the Company on the sale of certain
paintball guns. Following the termination of employment, the
employee agrees not to compete with the Company for a fair and
reasonable period of time required for the protection of the
interest of the Company and its officers, shareholders and
other employees. On October 23, 2001, the employment agreement
was terminated. The Company retained the former employee as
a consultant.
- 20 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000 AND 1999
NOTE 14 - COMMITMENTS AND CONTINGENCIES (Continued)
On July 23, 2001, the Company entered into an employment
contract with one of its key employees in connection with the
acquisition of National Paintball Association and Warrior
Sports Gear (see Note 4). The agreement provides for the
employee to earn a minimum base salary of $99,600 plus a bonus
equal to 10% of net operating profit of a division of ILM,
Inc. The agreement expires July 23, 2006 and automatically
renews for additional one-year terms unless terminated.
Following the termination of employment, the employee agrees
not to compete with the Company for a fair and reasonable
period of time required for the protection of the interest of
the Company and its officers, shareholders and other
employees.
NOTE 15 - ADVERTISING
Advertising costs incurred and recorded as expense in the
income statement were $700,329, $1,203,044 and $865,870, for
the years ended December 31, 2001, 2000 and 1999,
respectively.
NOTE 16 - SUBSEQUENT EVENTS
On May 17, 2002, the Company was acquired by American
Inflatables, Inc. ("Inflatables"). The shareholders of the
Company received 50,612,159 shares of Inflatables common stock
in exchange for all of their shares of the Company. The
Company thus became a wholly owned subsidiary of Inflatables.
The former shareholders of the Company exercised control over
approximately 83% of Inflatables' outstanding common stock
after the acquisition. Accordingly, the transaction will be
accounted for a as a reverse acquisition of Inflatables by the
Company.
- 21 -
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31,
ASSETS 2002
------------
Current assets
Cash and cash equivalents $ 360,639
Accounts receivable 2,449,073
Other receivables - employees 37,802
Recoverable income taxes 70,531
Note receivable -
Loans receivable - related parties 85,000
Prepaid and other current assets 23,300
Inventory 2,531,429
------------
Total current assets 5,557,774
Property and equipment, at cost, net of accumulated depreciation and
amortization of $631,178 and $579,578, respectively 550,264
Goodwill, net of accumulated amortization of $69,952 and $69,952, respectively 529,112
Other intangibles, net of accumulated amortization of $25,350 and $25,350, respectively 251,650
Other assets 53,420
------------
TOTAL ASSETS $ 6,942,220
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Bank line of credit $ 1,046,074
Accounts payable and accrued expenses 4,188,949
Due to affiliate 258,829
Notes payable - current portion 565,425
------------
Total current liabilities 6,059,277
Notes payable, less current portion 38,958
------------
Total liabilities 6,098,235
------------
Commitments and contingencies -
Stockholders' equity
Preferred Stock - no par value, authorized 20,000,000 shares;
-0- shares issued -
Common Stock - $0.001 par value, authorized 50,000,000 shares;
5,948,295 shares issued and outstanding 5,948
Additional paid-in capital 216,485
Retained earnings 621,552
------------
Total stockholders' equity 843,985
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 6,942,220
============
The accompanying notes are an integral part of these consolidated financial
statements.
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
FOR THE THREE MONTHS ENDED
March 31,
------------------------------
2002 2001
------------- --------------
Net sales $ 6,036,136 $ 6,367,526
Cost of sales 4,813,291 5,099,102
------------- --------------
Gross profit 1,222,845 1,268,424
Selling, general and administrative expenses 1,175,380 1,018,823
------------- --------------
Income from operations 47,465 249,601
Other income (expense)
Interest expense, net (19,522) (32,413)
Other income 8,053 -
------------- --------------
(11,469) (32,413)
Income before income taxes 35,996 217,188
Income taxes 13,888 82,979
------------- --------------
Net income $ 22,108 $ 134,209
============== ==============
Net income per common share
Basic and diluted $ - $ 0.02
============== ==============
Weighted average shares outstanding 5,948,295 5,948,295
============== ==============
The accompanying notes are an integral part of these consolidated financial
statements.
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
FOR THE THREE MONTHS ENDED
March 31,
-----------------------------
2002 2001
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 22,108 $ 134,209
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 51,600 60,268
Bad debt expense 2,651 15,998
Changes in certain assets and liabilities:
(Increase) decrease in accounts receivable 155,397 (596,831)
(Increase) in other receivables ( 10,555) ( 95,891)
Decrease in recoverable income taxes 13,888 3,862
(Increase) decrease in inventory ( 220,364) 39,042
Decrease in prepaid and other assets 127,060 49,732
Decrease in loans receivable - related parties 10,554 -
(Increase) in other assets ( 360) ( 2,000)
Increase in accounts payable and accrued expenses 24,086 460,768
Increase in due to affiliate 11,252 18,668
Increase in income taxes payable - 78,938
------------ ------------
Total cash provided by operating activities 187,317 166,763
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - ( 27,647)
Cash paid for acquisition - ( 59,000)
Acquisition of domain name ( 10,500) -
Decrease in notes receivable 30,000 -
------------ ------------
Total cash (used) provided by investing activities 19,500 ( 86,647)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds under bank line of credit 2,132,000 7,000
Payments under bank line of credit (2,172,000) -
Repayment of notes payable ( 110,417) (100,082)
------------ ------------
Total cash (used) by financing activities ( 150,417) ( 93,082)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 56,400 ( 12,966)
CASH AND CASH EQUIVALENTS - beginning of period 304,239 241,787
------------ ------------
CASH AND CASH EQUIVALENTS - end of period $ 360,639 $ 228,821
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest Expense $ 19,926 $ 25,301
============ ============
Income Taxes $ - $ -
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
AMERICAN SPORTS DEVELOPMENT GROUP
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 2002 AND 2001
Note 1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited interim financial statements include the accounts of
American Sports Development Group, Inc., formerly National Paintball Supply Co.
Inc., and Subsidiaries (the "Company"), incorporated under the law of the state
of South Carolina on November 14, 1989. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Line of Business
The Company is a wholesaler of equipment and supplies used in the paintball game
industry. Sales are made to retailers throughout the United States, as well as
Europe. The company owns and operates retail stores in Greenville, SC,
Paramount, CA and Irving, TX. The Company also owns ILM, Inc., an independent
insurance agent representing several insurance companies/brokers who insure
mostly paintball fields, stores, distributors and manufacturers. ILM is also a
wholesaler of paintball related soft goods products.
Interim Financial Information
The accompanying unaudited interim financial statements have been prepared by
the Company in accordance with generally accepted accounting principles pursuant
to Regulation S-K of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in audited financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted. Accordingly, these interim financial statements should be
read in conjunction with the Company's audited financial statements and related
notes as contained in this Form 8-K/A for the year ended December 31, 2001. In
the opinion of the management of the Company, the interim unaudited financial
statements reflect all adjustments, including normal recurring adjustments,
necessary for a fair presentation of the interim periods presented. The results
of operations for the three months ended March 31, 2002 are not necessarily
indicative of results of operations to be expected for the full year.
Revenue Recognition
The Company recognizes revenue upon shipment of its products. Revenue includes
shipping and handling charges to customers. Revenues from broker commission and
association dues are recognized when premiums are billed to clients.
Note 2. Note Receivable
In September 2001, the Company entered into an agreement with a competitor to
sell the "National Paintball Supply" and other logos for $300,000. At December
31, 2001 the balance due the company was $30,000, which was received during the
first quarter of 2002.
Note 3. Acquisition
On May 17, 2002, the Company was acquired by American Inflatables, Inc.
("Inflatables") For accounting purposes the transaction was treated as the
acquisition of Inflatables by the Company in a reverse acquisition. Inflatables
issued 50,612,159 shares of its common stock, or 83% of the total outstanding
shares on a fully diluted basis after the issuance, to the three shareholders of
the Company for all the issued and outstanding shares of the Company making the
Company a wholly owned subsidiary of Inflatables.
In June 2002, after the reverse acquisition, Inflatables was restructured as
follows:
(1) The Company's wholly-owned operating subsidiary Paintball Incorporated was
merged into the Company with the Company as the surviving company but with
its name changed from "American Sports Development Group, Inc." to
"Paintball Incorporated";
(2) Inflatables changed its name from "American Inflatables, Inc." to "American
Sports Development Group, Inc." by means of a merger with a wholly owned
shell subsidiary formed for the purpose of effecting the name change; and
(3) Inflatables formed a new Delaware subsidiary named "American Inflatables,
Inc." and transferred the assets and liabilities of its pre-acquisition
inflatable advertising business down to the new subsidiary.
The result was that Inflatables survived as the parent company with the name
"American Sports Development Group, Inc." and with two wholly owned operating
subsidiaries: (1)the Company, a South Carolina corporation now named "Paintball
Incorporated," conducting the paintball gaming business and (2) the new American
Inflatables, Inc., a Delaware corporation, conducting the inflatable advertising
business. Inflatables' stock symbol was also changed from "BLMP" to "ASDP"
(sic).
The Company has assigned a value of $1,801,747 to this acquisition, based on the
publicly quoted fair value of Inflatables' common stock. In accordance with EITF
99-12, this value was calculated using the average closing stock price of
Inflatables' common stock for the five-day period beginning two days before and
ending two days after the arrangement date of April 11, 2002, when all material
aspects of the transaction were agreed to by all parties.
The excess of the purchase price over the fair value of the net assets acquired
is estimated to total $1,809,410. Of this amount, $250,000 has been accounted
for as an intangible asset representing the fair value of custom design patterns
and customer lists, and will be amortized over its remaining useful life of 5
years. The remaining $1,559,410 has been classified as Goodwill and its value
will be tested for impairment at least annually. The company has accounted for
this transaction as a purchase as of the date of acquisition.
Note 4. Recent Accounting Pronouncements
In June 2001, SFAS 141 "Business Combinations" and SFAS 142 "Goodwill and Other
Intangible Assets" were issued. SFAS 141 requires that all business combinations
initiated after June 20, 2001 be accounted for using the purchase method and
that identifiable intangible assets acquired in a business combination be
recognized as an asset apart from goodwill if they meet certain criteria.
SFAS 142 applies to all goodwill and identified intangible assets acquired in a
business combination. The new standard requires that all goodwill and indefinite
lived intangible assets, including those acquired before initial application of
SFAS 142, not be amortized systematically but will rather be tested for
impairment at least annually. SFAS 142 is effective for fiscal years beginning
after December 15, 2001. For the three months ended March 31, 2002 and 2001, the
Company recorded expense related to the amortization of goodwill of $0 and
$7,300, respectively.