As filed with the Securities and Exchange Commission on November 27, 2002.
Registration No. 333-_______.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
AMERICAN SPORTS DEVELOPMENT GROUP, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 5990 95-4847818
--------------------- ------------------ ---------------------------
(State or other Juris- (Primary Standard (IRS Employer
diction of Incorporation Industrial Identification Number)
or Organization) Classification
Code Number)
155 VERDIN ROAD, GREENVILLE, SC 29607 TEL: (864) 458-7221
(Address and telephone number of principal executive offices)
155 VERDIN ROAD, GREENVILLE, SC 29607
(Address of principal place of business or intended principal place of business)
CORPORATE CREATIONS NETWORK, INC., 2530 CHANNIN DR., WILMINGTON, DE 19810
TEL: (800) 672-9110
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(Name, address, and telephone number of agent for service)
Copies to:
Eric K. Graben., Esq.
Wyche, Burgess, Freeman & Parham, P.A.
Post Office Box 728, Greenville, SC 29602-0728
(864) 242-8200 (telephone) (864) 235-8900 (facsimile)
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 464(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 464(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 this Form is a post-effective amendment filed pursuant to Rule 462(d) 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
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Registered Offering Price per Unit Aggregate Offering Price Registration Fee (1)
(1) (1)
- ---------------------------- ------------------- --------------------------- ---------------------------- -----------------------
Common Stock 11,919,128 $0.20 $2,383,825.60 $219.31
(par value $.001 per share)
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(c) under the Securities Act of 1933 as amended. The
calculation of the registration fee was based upon a per share price of $0.20,
which was the average of the high ($0.20) and low ($0.20) sales price of
Registrant's common stock on November 20, 2002 as reported on the
Over-the-Counter Electronic Bulletin Board.
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
PROSPECTUS
AMERICAN SPORTS DEVELOPMENT GROUP, INC.
[11,919,128] Shares of Common Stock, par value $.001 per share
This prospectus covers the resale of [11,919,128] shares of common
stock, par value $.001 per share (the "Common Stock") of American Sports
Development Group, Inc. ("we", "us", "ASDG" or the "Company") by certain selling
security holders identified in this prospectus (the "Selling Shareholders").
ASDG's Common Stock is traded on the NASD Over-The-Counter Bulletin Board under
the market symbol "ASDP" (sic). We will not receive any proceeds from the sale
of the shares by the Selling Shareholders. The Selling Shareholders may, in
their sole discretion, sell all or part of the shares offered by this prospectus
either in the Over-the-Counter Bulletin Board market from time to time at the
prevailing market price, which is likely to be the bid price for the Common
Stock on the sale date, or in private transactions at negotiated prices.
THE PURCHASE OF SECURITIES OFFERED THROUGH THIS PROSPECTUS INVOLVES A
HIGH DEGREE OF RISK. YOU SHOULD PURCHASE SHARES ONLY IF YOU CAN AFFORD A
COMPLETE LOSS OF YOUR INVESTMENT. SEE SECTION ENTITLED "RISK FACTORS" ON PAGE
3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is November 27, 2002.
TABLE OF CONTENTS
Summary......................................................................................................1
Risk Factors.................................................................................................3
Business....................................................................................................10
The Paintball Business..................................................................................10
The Inflatables Business................................................................................13
Properties..............................................................................................14
Legal Proceedings.......................................................................................15
Managements' Discussion and Analysis of Operations..........................................................15
Management..................................................................................................19
Executive Compensation..................................................................................21
Security Ownership of Certain Beneficial Owners and Management..............................................22
Certain Relationships and Related Transactions..............................................................23
Description of Securities...................................................................................31
Issued and Outstanding Securities.......................................................................31
Market Information......................................................................................32
Changes in Control, Business Combinations and Anti-takeover Provisions..................................32
The Distribution............................................................................................34
Selling Shareholders....................................................................................34
Plan of Distribution....................................................................................37
Use of Proceeds.........................................................................................37
Determination of Offering Price.........................................................................37
Indemnification.............................................................................................38
Experts.....................................................................................................39
Additional Information Available from the SEC...............................................................39
Financial Statements
Audited Consolidated Financial Statements..............................................................F-1
Interim Unaudited Consolidated Financial Statements...................................................F-16
AMERICAN SPORTS DEVELOPMENT GROUP, INC.
155 VERDIN ROAD
GREENVILLE, SC 29607
TEL: (864) 458-7221
This Prospectus contains forward-looking statements within the meaning
of the "safe harbor" provisions under Section 27 of the Securities Act of 1933,
as amended (the "Securities Act"), Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and the Private Securities Litigation
Reform Act of 1995. We use forward-looking statements in our description of our
plans and objectives for future operations and assumptions underlying these
plans and objectives. Forward-looking terminology includes the words "may,"
"expects," "believes," "anticipates," "intends," "projects," or similar terms,
variations of such terms or the negative of such terms. These forward-looking
statements are based on management's current expectations and are subject to
factors and uncertainties which could cause actual results to differ materially
from those described in such forward-looking statements. We expressly disclaim
any obligation or undertaking to release publicly any updates or revisions to
any forward-looking statements contained in this Form SB-2 to reflect any change
in our expectations or any changes in events, conditions or circumstances on
which any forward-looking statement is based. Factors that could cause such
results to differ materially from those described in the forward-looking
statements include those set forth under the heading "Risk Factors" and
elsewhere in, or incorporated by reference into this Prospectus.
SUMMARY
The terms "ASDG," "us," "we," "our" and the "Company" refer to American
Sports Development Group, Inc. and, unless the context otherwise requires, its
consolidated subsidiaries, American Inflatables, Inc. and Paintball
Incorporated.
THE COMPANY
ASDG is engaged in two business lines, manufacturing and distributing
paintball gaming supplies (the "Paintball Business") and manufacturing and
marketing inflatable blimps and other custom inflatable products for advertising
purposes (the "Inflatables Business"). ASDG operates the Paintball Business
through its wholly-owned subsidiary Paintball Incorporated ("Paintball"), a
South Carolina corporation formerly known as American Sports Development Group,
Inc. and also National Paintball Supply Company, Inc. ASDG operates the
Inflatables Business through its wholly-owned subsidiary American Inflatables,
Inc. ("Inflatables"), a Delaware corporation. ASDG acquired the Inflatables
Business in December 1999 and the Paintball Business in May 2002.
The Company was formed in August 1998 under the laws of the State of
Delaware under the name Global Lock Corporation ("Globalock") for the purpose of
engaging in a merger with an operating entity. In December 1999, Globalock
merged with Can/Am Marketing Group, LLC, a California limited liability company
formed in 1997 and engaged in the Inflatables Business. After the merger,
Globalock changed its name to "American Inflatables, Inc." and continued to
operate the Inflatables Business. Its stock traded on the NASD Over-the-Counter
Bulletin Board under the symbol "BLMP."
On May 17, 2002, the Company, still known as American Inflatables,
Inc., acquired Paintball, then known as American Sports Development Group, Inc.
For accounting purposes, the transaction was treated as the acquisition of the
Company by Paintball in a reverse acquisition. The Company issued 50,612,159
shares of its common stock, or 83% of the total outstanding shares on a fully
1
diluted basis after the issuance, to the three shareholders of Paintball for all
the issued and outstanding shares of Paintball making Paintball a wholly owned
subsidiary of the Company.
In June 2002, after the reverse acquisition, the Company was
restructured as follows:
(1) Paintball's wholly-owned subsidiary Paintball Incorporated was
merged into Paintball with Paintball as the surviving company but
with its name changed from "American Sports Development Group,
Inc." to "Paintball Incorporated";
(2) The Company 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) The Company 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 of the June 2002 restructuring was that the Company survived
as the parent company with the name "American Sports Development Group, Inc."
and with two wholly owned operating subsidiaries: (1) Paintball, a South
Carolina corporation named "Paintball Incorporated," conducting the Paintball
Business and (2) the new American Inflatables, Inc., a Delaware corporation,
conducting the Inflatable Business. The Company's stock symbol was also changed
from "BLMP" to "ASDP" (sic).
THE OFFERING
All of the [11,919,128] shares of Common Stock to be sold under this
prospectus is offered by the Selling Shareholders. ASDG is not offering any
shares under this prospectus and will not receive any proceeds from the sale of
Common Stock by the Selling Shareholders. The Selling Shareholders may, in their
sole discretion, sell all or part of the shares offered by this prospectus
either in the Over-the-Counter Bulletin Board market from time to time at the
prevailing market price, which is likely to be the bid price for the Common
Stock on the sale date, or in private transactions at negotiated prices.
2
RISK FACTORS
A purchase of our Common Stock involves risks, and you should consider
these risks before making a decision to purchase our common stock. Prospective
purchasers of our common stock must be prepared for the possible loss of their
entire investments. The order in which the following risks factors are presented
is arbitrary, and you should not conclude, because of the order of presentation,
that one risk factor is more significant than another risk factor.
IT MAY BE DIFFICULT TO ASSIMILATE THE PAINTBALL BUSINESS WITH THE INFLATABLES
BUSINESS.
The acquisition of the Paintball Business in May 2002 represented
ASDG's largest acquisition to date. ASDG may encounter problems in assimilating
the Paintball Business with the Inflatables Business, which could have a
material adverse effect on ASDG, its operations, and earnings. These problems
could include, among others, problems related to the conversion of ASDG's data
processing systems to those used by the Paintball Business and an inability of
management to have a seamless transition. This could result because the
Inflatables Business is fundamentally different from the Paintball Business. It
will be incumbent on management to work together and blend these divergent
operations into a single operation.
THE INFLATABLES BUSINESS HAS OPERATED AT A LOSS.
ASDG's short operating history raises substantial doubt about the
ability to continue to operate the Inflatables Business as a going concern. This
fact has been reported by our auditors, Merdinger, Fruchter, Rosen & Company,
P.C. There can be no assurance that the acquisition of the Paintball Business
will have a positive effect on the Inflatables Business. The failure of the
Inflatables Business to become profitable would have a material adverse effect
on ASDG.
ASDG'S COMPETITORS COULD HARM ITS BUSINESS OPERATIONS.
The paintball industry is a very competitive and quickly evolving
industry. Certain competitors of the Paintball Business are significantly larger
and have significantly greater resources than ASDG. Such competitors include
public companies, as well as smaller companies. ASDG estimates that there may be
as many as 100 competitors that compete in one manner or another against the
Paintball Business. This situation causes a very competitive pricing
environment, which can hurt ASDG's operating margins with respect to the
Paintball Business. Competitors can also introduce new and different products,
thereby causing ASDG's inventory costs to increase in order to remain
competitive and provide the wide array of products that the Paintball Business
has provided to date. Moreover, competition in the advertising industry, the
industry in which the Inflatables Business operates, is intense. Many of our
competitors have substantially more experience, financial and technical
resources and productions, marketing and development capabilities than we do.
ASDG IS HEAVILY DEPENDENT UPON ITS CEO, AND THE LOSS OF THIS INDIVIDUAL WOULD
HAVE A MATERIAL ADVERSE EFFECT ON ASDG.
ASDG is dependent upon the services of William R. Fairbanks, Jr., its
President and Chief Executive Officer. The loss of services of Mr. Fairbanks
would have an adverse effect on ASDG. No assurance can be given that a
replacement for Mr. Fairbanks could be found if his services were no longer
available. Mr. Fairbanks is a professional racecar driver, and as a result, has
an increased risk of serious injury or death.
3
ASDG IS HEAVILY DEPENDENT ON RETAINING AND ATTRACTING KEY PERSONNEL AND OUR
FAILURE TO DO SO WOULD HAVE A MATERIAL ADVERSE EFFECT ON ASDG.
Our future success will depend in part on the service of our key
personnel and, additionally, our ability to identify, hire and retain additional
qualified personnel. There is significant competition for qualified personnel in
our areas of activity, and there can be no assurance that we will be able to
continue to attract and retain such personnel necessary for the development of
our business. Because of the significant competition, there can be no assurance
that we will be successful in adding personnel as needed to satisfy our staffing
requirements. Failure to attract and retain qualified personnel could have a
material adverse effect on us.
ASDG'S SUCCESS DEPENDS ON MANAGEMENT'S ABILITIES.
All decisions regarding management affairs are made exclusively by our
officers and directors. The purchasers of shares will not participate in our
management and, therefore, are dependent upon the management abilities of our
officers and directors. The only assurance that our shareholders have that
officers and directors will not abuse their discretion in making decisions with
respect to our shares and other business decisions is the fiduciary obligations
and business integrity of the officers and directors. Accordingly, no person
should purchase shares unless that person is willing to entrust all aspects of
management to our officers and directors, or their successors. Potential
purchasers of the shares must carefully evaluate the personal experience and
business performance of our officers and directors. Our officers and directors
may retain independent contractors to provide services to us. Those contractors
have no fiduciary duty to our shareholders and may not perform as expected.
OUR PRESIDENT OWNS A MAJORITY OF OUR STOCK AND CONTROLS ASDG.
Mr. Fairbanks, our President and Chief Executive Officer, owns
approximately 72.0% of our Common Stock, either directly or indirectly, and
controls ASDG. Accordingly, he has the ability to determine the outcome of most
corporate transactions and business decisions, and potential purchasers of the
shares will have limited ability to affect decisions made by management.
WE USE DEBT FINANCING.
Our corporate bylaws do not contain any limitation on the amount of
indebtedness, funded or otherwise, we might incur. According, we could become
more highly leveraged, resulting in an increase in debt service that could
adversely affect our ability to pay dividends to our stockholders and result in
an increased risk of default on our obligations. We are also subject to other
risks normally associated with debt financing. We expect to use indebtedness and
leveraging to finance operations development and acquisition.
OUR PERSONNEL RECEIVE COMPENSATION REGARDLESS OF PROFITABILITY.
Our officers, directors, and employees are entitled to receive
significant compensation, payments and reimbursements regardless of whether we
operate at a profit or a loss. Any compensation received by officers, directors,
and management personnel will be determined from time to time by our board of
directors. officers, directors, and management personnel will be reimbursed for
any out-of-pocket expenses incurred on our behalf.
4
THE LIABILITY OF OUR OFFICERS AND DIRECTORS IS LIMITED.
ASDG's certificate of incorporation, as amended, includes a provision
eliminating or limiting the personal liability of our officers and directors for
damages for breach of fiduciary duty as a director or officer. Accordingly, our
officers and directors may have no liability to our shareholders for any
mistakes or errors of judgment or for any act of omission, unless such act or
omission involves intentional misconduct, fraud, or a knowing violation of law
or results in unlawful distributions to our shareholders.
OUR MARKETING STRATEGIES MAY BE NEGATIVELY AFFECTED BY THE INTERNET.
The Internet has changed marketing patterns in a wide variety of
industries. The significant amount of personal computer usage has resulted in
entirely new methods of marketing and sales of products. We may establish home
pages on the Internet for our products. We may not be able to keep pace with the
rate of change in its markets brought about the Internet and may invest in
Internet-based projects which future changes may render obsolete.
WE ARE SUBJECT TO GOVERNMENT REGULATIONS AND HAVE PREVIOUSLY FAILED TO PAY
TAXES.
We are subject to various forms of government regulations, including
safety laws and regulations. Any future violation of, and the cost of compliance
with, these laws and regulations could have a material adverse effect on our
business, financial condition and results of operations. Immigration and
Naturalization Service ("INS") regulations require that ASDG obtain a complete
Form I-9 regarding eligibility to work from each of its employees. We believe
that all of our employees are eligible to work in the United States; however,
prior to the acquisition of the Paintball Business in May 2002, ASDG
inadvertently had not always obtained a properly completed form I-9 from each of
its employees. ASDG could be subject to fines for its non-compliance. ASDG
believes that it has corrected all known deficiencies with respect to its Forms
I-9. Although we believe we are now in material compliance with all the
applicable laws, rules, regulations, and policies, there can be no assurance
that our business, financial condition and results of operations will not be
materially adversely affected by current or future laws, rules, regulations, and
policies or by liability arising out of any of our past or future conduct.
ASDG IS OVER $300,000 IN ARREARS ON ITS FEDERAL PAYROLL WITHHOLDINGS.
Prior to ASDG's acquisition of the Paintball Business in May 2002, ASDG
failed to pay to federal and state taxing authorities an aggregate of
approximately $317,000 in payroll income tax withholdings. As of September 30,
2002, this amount had increased to approximately $322,000. If the Company cannot
arrange a suitable payment plan with the IRS, the Company could be materially
adversely affected. The Company began utilizing a payroll service in 2002 that
causes the Company's payroll withholdings to be paid to the IRS. ASDG is
currently undergoing a California state sales tax audit related to sales
Paintball made from Texas. Final results of this audit are not yet known, but we
currently estimate the ASDG's total liability at approximately $100,000. Prior
to the acquisition of the Paintball Business in May 2002, the Company did not
file returns or pay sales tax for the year 2001. Were the Company to be liable
for significant sales taxes, the Company could be materially adversely affected.
WE ARE DEPENDENT ON PRINCIPAL PRODUCTS.
Our strategy for growth is substantially dependent upon our ability to
market and distribute products successfully. There can be no assurance that our
products will achieve significant market acceptance, and that acceptance, if
achieved, will be sustained for any significant period or that product life
cycles will be sufficient (or substitute products developed) to permit us to
recover associated costs. Failure of our products to achieve or sustain market
5
acceptance could have a material adverse effect on our business, financial
conditions, and results of operations.
OUR PRODUCTS MAY BE RECALLED OR RETURNED.
Product recalls may be issued at our discretion or at the discretion of
government agencies having regulatory authority for product sales and may occur
due to disputed labeling claims, manufacturing issues, quality defects or other
reasons. No assurance can be given that product recalls will not occur in the
future. Any product recall could materially adversely affect our business,
financial condition or results of operations. There can be no assurance that
future recalls or returns would not have a material adverse effect upon our
business, financial condition and results of operations.
OUR FAILURE TO MANAGE GROWTH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
OPERATIONS.
We hope to experience significant growth and hope such growth will
continue for the foreseeable future; however, there can be no assurance such
growth will occur. If we experience significant growth, such growth may result
in significant pressure on our management, financial, operating and technical
resources. Failure to manage this growth effectively could have a material
adverse effect on our financial condition or results of operations.
OUR FAILURE TO EFFECTIVELY IMPLEMENT OUR BUSINESS STRATEGIES WOULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR OPERATIONS.
Implementation of our business strategies will depend in large part on
our ability to (i) establish a significant customer base and maintain favorable
relationships with those customers; (ii) effectively introduce acceptable
products to our customers; (iii) obtain adequate financing on favorable terms to
fund our business strategies; (iv) maintain appropriate procedures, policies,
and systems; (v) hire, train, and retain skilled employees; and (vi) continue to
operate with increasing competition. Our inability to obtain or maintain any or
all these factors could impair our ability to implement our business strategies
successfully, which could have a material adverse effect on our results of
operations and financial conditions.
OUR SHARES MAY NOT BECOME LIQUID.
The prices of our Common Stock are quoted under the symbol "ASDP" (sic)
in the Over-the-Counter Bulletin Board (the "OTC-BB"), an electronic quotation
service maintained by the National Quotation Bureau for the National
Associations of Securities Dealers, Inc. for securities not traded on a
national, regional or other securities exchange. The OTC-BB does not provide the
level of liquidity provided by securities exchanges and the public market may
not develop for our shares. Purchasers of shares will have no right to present
shares to us for repurchase. Purchasers of shares who wish to terminate their
investment in the shares must rely solely upon their ability to sell or
otherwise transfer their shares, subject to applicable securities laws.
Consequently, purchase of shares should be considered only as a long-term
investment.
OUR FUTURE RESULTS ARE UNCERTAIN AND MAY FLUCTUATE.
Our results of operations may vary from period to period due to a
variety of factors, including the introduction of new products by our
competitors or us, cost increases from third-party manufacturers, supply
interruptions, the availability and cost of raw materials, the mix of our
products sold, changes in marketing and sales expenditures, market acceptance
for our products, competitive pricing pressures, and general economic and
industry conditions that affect customer demand.
6
WE WILL NEED TO OBTAIN CAPITAL, AND THE AVAILABILITY OF ADDITIONAL FUNDING IS
UNCERTAIN.
To achieve and maintain competitiveness of our products, we may require
substantial funds. We anticipate that we will require additional cash to
develop, promote, produce and distribute our various products. Such additional
cash may be received from public or private funding transactions, as well as
borrowing and other resources. To the extent that additional cash is received by
the sale of equity or equity-related securities, the issuance of such securities
could result in dilution to our stockholders. There can be no assurance that
additional funding will be available on favorable terms, if at all. If adequate
cash is not available, we will be required to curtail operations significantly
or obtain cash by entering into arrangements with collaborative partners or
other persons that may require us to relinquish rights to certain of our
products that we would not otherwise relinquish.
COSTS MAY BE GREATER THAN ANTICIPATED.
We have used reasonable efforts to assess and predict costs and
expenses related to our operations. However, there can be no assurance that
implementing our business plan will not require more employees, capital
equipment, supplies or other expenditure items than we have predicted.
Similarly, the cost of compensating could result in sustained losses.
WE MAY USE HAZARDOUS MATERIALS AND BE SUBJECT TO ENVIRONMENTAL LAWS.
Our research development, manufacturing and production processes may
involve the controlled use of hazardous materials. We may be subject to various
laws and regulations governing the use, manufacture, storage, handling, and
disposal of such materials and certain waste products. Although we believe that
our safety procedures for handling and disposing of such materials comply with
the standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from hazardous materials cannot be completely
eliminated. In the event of such an accident, we could be held liable for any
damages that result and any such liability could exceed our financial resources.
In addition, there can be no assurance that in the future we will not be
required to incur significant costs to comply with environmental laws and
regulations relating to hazardous materials nor that our operations, business or
assets will not be materially or adversely affected by current or future
environmental laws or regulations.
WE MAY BE SUBJECT TO PENNY STOCK REGULATIONS.
The SEC has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the NASDAQ
system, provided that current private and volume information with respect to
transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from those rules to deliver a standardized risk
disclosure document prepared by the SEC, which specifies information about penny
stocks and the nature and significance of risks of the penny stock market. The
broker-dealer also must provide the customer with bid and other quotations for
the penny stock, the compensation of the broker-dealer and its salesperson on
the transaction, and monthly account statements specifying the market value of
each penny stock held in the customer account. In addiction, the penny stock
rules require that, prior to a transaction in a penny stock not otherwise exempt
from those rules; the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the shareholder and receive
the shareholder's written agreement to that transaction. These disclosure
requirements may have the effect of reducing the trading activity in the
secondary market for an equity security (capital stock) that becomes subject to
the penny stock rules. Our Common Stock is subject to the penny stock rules, and
purchasers of shares may determine that is it quite difficult to sell their
shares.
7
THE SECURITIES MARKET IS VOLATILE.
There is currently a limited public market for our Common Stock. Should
there develop a significant market for our Common Stock, the market price for
our Common Stock may be significantly affected by such factors as our financial
results and introduction of new products and technologies. Additionally, in
recent years, the stock market has experience significant price and volume
volatility, and market prices for many companies, particularly small and
emerging growth companies, have experienced significant price fluctuations not
necessarily related to the operating performance of such companies. In the event
a market for our Common Stock develops, the market price for our Common Stock
may be affected by general stock market volatility.
WE MAY BE SUBJECT TO EXPOSURE TO CONTINGENT LIABILITIES IN CONNECTION WITH PRIOR
PERIODIC REPORTS.
Prior to ASDG's acquisition of Paintball in May 2002, ASDG may have
failed to timely file several periodic reports required to be filed under the
Exchange Act although all such reports have now been filed. We believe that ASDG
may have made material errors in, and omitted material information from prior
periodic reports. Upon discovery of errors and/or omissions, ASDG filed amended
reports which noted and corrected those errors and/or omissions or corrected
those errors and/or omissions in subsequent reports. These errors and omission
were inadvertent. Nevertheless, we could be subject to liability for these
errors and omissions. We cannot predict the likelihood that any such contingent
liabilities will become actual liabilities, nor can we predict the magnitude of
such liabilities; however, were such liabilities to materialize and be
substantial, our consolidated financial condition could suffer a material
adverse effect.
WE DO NOT ANTICIPATE PAYING DIVIDENDS.
We do not anticipate paying dividends on our common stock in the
foreseeable future. We plan to retain earnings, if any, for the operation and
expansion of business.
NO ASSURANCES OF REVENUE OR OPERATING PROFITS.
There can be no assurance that we will be able to develop consistent
revenue sources or that our operations will become profitable.
WE MAY EXPERIENCE UNINSURED LOSS DUE TO ACTS OF GOD.
We may, but are not required to, obtain comprehensive liability and
other business insurance of the types of customarily maintained by similar
businesses. However, there are certain types of extraordinary occurrences which
may be either uninsurable or not economically insurable. For example, in the
event of a major earthquake, our telecommunications and computer systems could
be rendered inoperable for protracted periods of time, which would adversely
affect our financial condition. In the event of a major civil disturbance, our
operations could be adversely affected. Should such an uninsured loss occur, we
could lose significant revenues and financial opportunities in amounts which
would not be partially or fully compensated by insurance proceeds.
8
WE DO NOT HAVE ENVIRONMENTAL LIABILITY INSURANCE.
We do not have environmental liability insurance now, and we may not be
able to obtain such insurance at a reasonable cost. If we decide to become
insured for environmental liability, we will probably carry the minimum
insurance required by regulatory permits. In addition, the extent of insurance
coverage under certain forms of policies has been the subject in recent years of
litigation in which insurance companies have, in come cases, successfully taken
the position that certain risks are not covered by such policies. If we incur
liability for environmental damages while we are uninsured, it could have a
material adverse effect on ASDG and its financial condition.
ASDG DID NOT HAVE WORKERS COMPENSATION INSURANCE IN 2001.
ASDG did not carry workers compensation insurance in 2001. ASDG could
be subject to fines for its failure to carry such insurance. ASDG is not aware
of any employees who were injured on the job in 2001. Were ASDG to be subject to
substantial fines or were an employee or former employee to successfully
establish that he suffered an injury on the job in 2001 for which ASDG is
liable, ASDG could be materially adversely affected.
TERRORISTS ATTACKS HAVE ADVERSELY AFFECTED OUR BUSINESS.
The September 11, 2001 terrorist attack on the World Trade Center and
Pentagon and related events (collectively, "September 11") have had an adverse
effect on our Inflatables Business, including the cancellation of various
industry trade shows relating to the Inflatables Business. In addition,
participation at other trade shows by prospective customers has declined from
prior years. In past years, trade shows provided the majority of our sales with
respect to the Inflatables Business. In addition, the general economic downturn
in the United States resulting from September 11 has made it difficult to
develop and implement business strategies, engage in financial planning and
forecasting and effectively manage a distracted workforce. Were a similar event
to happen in the future we could similarly suffer a material adverse effect to
its business. We cannot predict the magnitude and nature of such an adverse
effect prior to the occurrence of such an event.
PRIOR PRIVATE PLACEMENTS AND STOCK ISSUANCES.
ASDG has issued stock in several private placements and in transactions
registered on Forms S-8. ASDG believes that all of its private placements have
complied with one or more exemptions from the registration requirements of the
Securities Act and applicable state securities laws and that all transactions
registered on Form S-8 have met the requirements for the use of Form S-8;
however, there can be no assurance that this is the case. A claim against ASDG
for a violation of the registration requirements of applicable law could have a
material adverse effect on ASDG.
PRIOR STOCK ISSUANCES COULD RESULT IN DILUTION.
ASDG has issued numerous warrants, options or rights to acquire its
common stock and its records regarding such issuances may not be accurate.
Stockholders could suffer unforeseen dilution in the event that unrecorded
warrants, options or rights are presented and exercised.
9
BUSINESS
HISTORY
The Company was formed in August 1998 under the laws of the State of
Delaware under the name Global Lock Corporation ("Globalock") for the purpose of
engaging in a merger with an operating entity. In December 1999, Globalock
merged with Can/Am Marketing Group, LLC, a California limited liability company
formed in 1997 and engaged in the Inflatables Business. After the merger,
Globalock changed its name to "American Inflatables, Inc." and continued to
operate the Inflatables Business. Its stock traded on the NASD Over-the-Counter
Bulletin Board under the symbol "BLMP."
On May 17, 2002, the Company, still known as American Inflatables,
Inc., acquired American Sports Development Group, Inc., a South Carolina
corporation formerly known as National Paintball Supply Company, Inc. and now
known as Paintball Incorporated ("Paintball"). For accounting purposes, the
transaction was treated as the acquisition of the Company by Paintball in a
reverse acquisition. The Company 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 Paintball for all the issued and
outstanding shares of Paintball making Paintball a wholly owned subsidiary of
the Company.
In June 2002, after the reverse acquisition, the Company was
restructured as follows:
(1) Paintball's wholly-owned subsidiary Paintball Incorporated was
merged into Paintball with Paintball as the surviving company but
with its name changed from "American Sports Development Group,
Inc." to "Paintball Incorporated";
(2) The Company 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) The Company 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 of the June 2002 restructuring was that the Company survived
as the parent company with the name "American Sports Development Group, Inc."
and with two wholly owned operating subsidiaries: (1) Paintball, a South
Carolina corporation named "Paintball Incorporated," conducting the Paintball
Business and (2) the new American Inflatables, Inc., a Delaware corporation,
conducting the Inflatable Business. The Company's stock symbol was also changed
from "BLMP" to "ASDP" (sic).
THE PAINTBALL BUSINESS
Paintball was organized in 1989. ASDG believes that over the past
thirteen years, Paintball has become a leading distributor and manufacturer of
paintball gaming supplies, both in terms of revenues as well as number of
customers, and range of products offered. "Paintballing" is considered an
"extreme sport" and involves participants shooting "paintballs" at targets or
other persons, generally in a competitive situation. Paintballing is an
international sport that is played in virtually all industrialized countries, as
well as the Eastern Bloc countries and the Far East. Paintball's sales are
predominately in the United States, with less than 5% of its sales coming from
overseas markets. Paintball currently distributes more than 4,000 products used
by the paintball industry. Examples of these products include paintball guns
(sometimes called "markers"), paintballs, and safety equipment such as goggles.
ASDG believes that Paintball has the most comprehensive product line in
paintball, aimed primarily at the second stage and more "advanced" player base.
Paintball's primary customers are paintball fields and stores worldwide, and to
a lesser extent, the mass merchant arena through certain key customers.
Paintball generally does not compete in the "beginner" market, believing that
10
many of those purchasers only use the products to a limited extent. Because of
the disposable nature of paintballs and the increasing technical sophistication
of the products, advanced players may spend thousands of dollars per year on the
sport. ASDG believes that these players require a level of equipment that is not
typically found in a mass merchant environment, except to a limited extent among
specialized sporting goods retailers.
ASDG believes that the sport of paintball has had excellent growth over
the past several years, helped in part by the sport now being considered a
mainstream extreme sport. This is evidenced by the availability of paintball
products in the sporting goods department of nearly every major sporting goods
chain. This has helped to expand paintball to the general public, instead of
just enthusiasts. ASDG believes that the sport will continue to grow in
popularity at all levels.
PAINTBALL PRODUCTS
ASDG believes that Paintball carries the most comprehensive line of
paintball products in the business, with over 4,000 line items specifically for
paintball. In addition to carrying nearly every major brand in most categories,
Paintball also manufactures through exclusive arrangements with various
subcontractors, nearly 300 various items, which it distributes under a variety
of brand names it controls.
Paintballs. Paintballs are made from a gelatin-encapsulated product
very similar to bath oil capsules. The product is non-toxic, biodegradable, and
washable. Paintballs come in a variety of colors and fills. Paintballs are
produced in factories set up exclusively for their manufacture or as an
ancillary product by large drug and nutritional product manufacturers. Good
quality paintballs are extremely hard to manufacture due to exacting
requirements expected by advanced players. A slight deviation in the roundness,
thickness of the shell or fill, along with a myriad of other details, can
significantly affect the accuracy and breaking characteristics of a paintball.
Because of certain problems inherent in manufacturing paintballs (such
as significant capital costs) and an extremely competitive environment among
manufacturers, Paintball has chosen not to manufacture paintballs. Instead it
has several brands private-labeled on its behalf. Paintball believes that it has
some of the premier brands among paintballs today. They include Proball,
Powerball, 98 Degrees, and Vortex. All of these brands include several different
levels of product names within the overall level brand names. Paintball also
distributes several other well-known brands, giving it one of the most
comprehensive lineups of paintballs available in the industry.
Paintball Markers or Guns. Paintball carries an extensive line of
paintball "markers" or "guns," including such well known names as Tippmann,
Kingman, Sheridan, Worr Games, WDP, Airgun Designs and GT. Through an affiliated
company, Genesis Trading, Paintball has exclusive distribution rights for the
premier paintball manufacturing operation in mainland China.
Accessory Items. Paintball carries thousands of accessory items,
ranging from goggles, soft goods, after market parts, barrels and clothing. Many
of these involve other manufacturers' brand name accessories, as well as many of
its own brands. The accessory market accounts for nearly half of its sales and a
larger portion of its profits. Paintball believes that the accessory market will
continue to be of prime importance, as players continue to spend a high
proportion of their paintball dollars on accessorizing their equipment.
11
PAINTBALL SALES AND DISTRIBUTION
Paintball has three warehouses and sales offices, which are located in
Paramount, CA, Irving, TX, and the home office and operations center located in
Greenville, SC. Total office and warehousing among the three locations is
approximately 70,000 square feet. The majority of its sales from these locations
are to existing paintball fields and stores. These range from "paintball only"
stores, to hobby and hardware stores, skateboard shops, and gun shops.
Paintball's sales staff, most of whom, have been, or are currently, top line
players, possess a significant knowledge about the sport and offer significant
assistance to new dealers and fields. ASDG tends to concentrate its efforts on
the small to intermediate size customer, offering them competitive pricing and
exceptional service that they are not likely to get from other distributors.
Paintball also maintains three retail facilities associated with their
warehouse locations. Besides servicing the local players, these retail
facilities enable Paintball to get immediate customer feedback on new products
and keep up-to-date on current trends. Paintball also maintains several web
sites, as well as providing fulfillment functions for other third party
websites. Paintball believes that its involvement in websites will increase as
paintball web sites continue to proliferate. In connection with its fulfillment
functions, other website owners send their customers' orders to Paintball, and
Paintball ships products directly to the customers. The customer pays full
retail price (as set forth on the third party website) and the third party owner
is paid an agreed upon amount.
ASDG believes that Paintball is one of the leading companies in
servicing the larger sporting goods retailers and has carved out an attractive
niche in this end of the market. Paintball's approximate sales breakdown for the
first nine months of 2002 is as follows: Retail - 4%; Internet - 4%; Mass
Merchant - 1%; Wholesale - 92%. Currently, Paintball is not overly dependent
upon any one customer; however, in 2001, The Sports Authority constituted
approximately 18% of Paintball's revenues. Paintball no longer does business
with The Sports Authority and is currently involved in litigation against The
Sports Authority. See "-- Legal Proceedings."
Paintball purchases a substantial portion of its goods from Tippmann
Neumatics, Inc. and Nelson Technologies, Inc. During the year ended December 31,
2001 and the nine months ended September 30, 2002, purchases from these
suppliers approximated 46% and 30%, respectively. At December 31, 2001 and
September 30, 2002, amounts due to these suppliers included in accounts payable
were $2,610,303 and $1,699,263, respectively.
PAINTBALL INTELLECTUAL PROPERTY
Paintball owns the registered trademarks "Proball" and "Powerball."
Paintball sells paintballs under these trademarks manufactured by third parties
under contract from Paintball. Paintball also owns in excess of a dozen web site
domains.
PAINTBALL COMPETITION
The paintball market is extremely competitive and fragmented. Certain of
Paintball's competitors are significantly larger and have significantly greater
resources than Paintball. Competitors include public companies, as well as
smaller operations. Paintball estimates that there may be as many as 100
competitors that compete in one manner or another against Paintball. On the
wholesale side of the business, there are two other large distributors that
Paintball considers to be significant competitors. Also, manufacturers at times
distribute products and are, therefore, competitive with Paintball.
12
The principal competitive factors in this market are price, product
range, product availability, brand name recognition and awareness, customer
service, and warehouse and shipping capabilities. Paintball believes that it is
competitive in each of these categories, although in many instances, it does not
seek to be the "low cost provider."
THE INFLATABLES BUSINESS
ASDG's wholly-owned subsidiary American Inflatables, Inc. is engaged in
the manufacturing and marketing of inflatable blimps and other custom inflatable
products. These products are typically used for advertising purposes.
Inflatables maintains what it believes to be one of the largest and most
comprehensive inventories of custom inflatable patterns. Its products (whether
floating, flying or tethered) are designed to create strong brand awareness and
offer an effective low cost form of advertising.
INFLATABLES OPERATIONS AND PRODUCTS
Inflatables designs and manufactures both hot air and cold air
inflatables. Hot air inflatables are usually filled with helium, a non-flammable
gas that floats through the air. Cold air inflatables are usually powered by an
electrical fan, providing a constant flow of air. Both styles of inflatables can
either be rooftop-based or ground-based.
Inflatables' inflatable products are primarily manufactured at the
Company's facility in Greenville, South Carolina. Inflatables uses lightweight
and durable fabrics, primarily composed of coated nylon webbing and stainless
steel rivets. ASDG believes that this makes each inflatable product easy to
handle, portable, and easily installed/dismantled without special equipment.
Inflatables' products range from custom inflatable designs and huge product
replicas, to low cost designs such as cold air and helium filled advertising
balloons, airships, `hot air balloon' rooftop displays, airborne helium balls
and large flying signs. Inflatables seeks to maintain its commitment of
producing effective promotional specialties of the highest caliber in quality,
durability and craftsmanship.
Inflatables' strategy is to offer the most cost-effective solutions and
options in the industry. Its products are designed for rapid set-up and quick
deflation/breakdown and packing. Unlike billboards, these products are reusable
both indoors and outdoors. Also, helium inflatables offer an aerial advantage
with greater visibility from a great distance. ASDG believes that these products
provide the power of billboard advertising, at a lower cost, and with greater
portability and reusability. Inflatables can also be used in retail situations
as a sophisticated point-of-purchase display aid.
Inflatables has approximately 500 customers that purchase products on a
regular basis. A typical Inflatables' customer order ranges from $1,000 to
$10,000. Inflatables' customers are currently categorized as follows:
o approximately 50% of sales have been made to customers in the auto
industry,
o approximately 20% of sales have been made to customers in the oil and
gas industry, and
o approximately 30% of sales have been made to customers in the various
miscellaneous retail industries.
INFLATABLES SALES AND MARKETING
Inflatables' products are marketed as being an effective medium for
attracting new customers. Inflatables secures orders through its in-house
marketing and sales staff who follow leads obtained at various industrial trade
shows, advertising in industry trade magazines and the use of ASDG's broadcast
fax capabilities. After Inflatables receives an order, Inflatables' design staff
works with the account representative that generated the order to develop the
design. The mock up design is then submitted to the customer for approval. After
13
the customer approves the design, Inflatables' manufacturing staff commences
work on the product. For most orders, Inflatables has found that from product
design to product completion, Inflatables' manufacturing process requires seven
to 10 days. After completion, each product is then shipped to the customer via
overnight carrier. Each inflatable product is packaged and delivered to the
customer with instructions to assist the customer in erecting the product for
maximum marketing impact. Customers are responsible for all installation.
INFLATABLES COMPETITION
The inflatable advertising market is very competitive. It is a very
fragmented industry, with numerous competitors manufacturing and selling several
different types of products. These types of products include helium blimps,
spheres and custom shapes that fly on a tether, as well as products that are
ground-based. These include "regular hot air shaped balloons", custom shaped
cold air units and the super fan dancing inflatables. Certain manufacturers of
inflatables focus on only one of these product types. Inflatables manufactures
and distributes all of these general types.
The principal competitive factors in the inflatable advertising market
are price, durability, quality of construction, timely delivery, and the ability
to produce custom shaped products. Inflatables believes that its prices are
similar to those of its competitors, and it is not aware of any competitor that
has a production cost advantage. Quality control is a priority in the production
process of inflatables. Inflatables believes its products are of the highest
quality in the industry. Inflatables believes its custom design capability is
among the best in its industry. Inflatables is not aware of any competitor that
can design and produce the variety of products that it has produced.
A large part of Inflatables' sales are of custom or one-of-a-kind
products. Therefore, Inflatables does not maintain an inventory of completed or
partially completed products. As all of its products are produced to order,
production, planning and control are critical to meet customer delivery
requirements. Inflatables' delivery schedule is generally two to four weeks,
which Inflatables believes is industry norm.
For each of these product types, competitors range from smaller private
companies to divisions of larger companies, many of which are significantly
larger than Inflatables and have significantly greater resources. Inflatables
estimates that no competitor has more than 10% of the overall inflatables
market.
EMPLOYEES
As of the date of this Prospectus, ASDG has a total of 49 employees, 45
of which are full-time employees.
PROPERTIES
ASDG's headquarters are located in Greenville, South Carolina. ASDG
operates three warehouses and sales offices, which are located in Paramount,
California, Irving, Texas, and the Greenville, South Carolina headquarters.
Total office and warehousing between the three locations is approximately 70,000
square feet. All office and warehousing facilities are leased. ASDG's office,
retail and warehousing facility in South Carolina is leased from NP Realty
Company, Inc., which is related to the Company through common ownership. Minimum
rentals under this lease are $160,000 per year through its expiration in
December 2004. (See Notes 7 and 11 of the "Notes to the Consolidated Financial
Statements for December 31, 2001, 2000 and 1999" included in this Prospectus and
incorporated herein by reference.) Monthly rent for the California and Texas
leases is approximately $5,200 and $5,420, respectively. The California lease is
month-to-month and the Texas lease expires in March 2003. Both leases are
renewable. All inflatables manufacturing is conducted at ASDG's Greenville,
14
South Carolina location. ASDG warehouses paintball products and conducts
paintball sales out of all three locations. ASDG believes that all three
properties are in good condition and adequate for the conduct of ASDG's
business. ASDG has no current plans to improve or further develop any of its
properties. ASDG maintains casualty and property-owners liability insurance on
all three facilities with coverage that ASDG believes is commercially
reasonable.
Paintball's line of credit with SouthTrust Bank provides that the line
is secured by all of Paintball's current and after-acquired inventory,
intangibles, accounts receivable and furniture, fixtures and equipment, and
proceeds and products thereof. See "Managements' Discussion and Analysis -
Liquidity and Capital Resources" which information is incorporated herein by
reference.
Property and equipment is stated at cost in the ASDG's consolidated
financial statements. Leasehold improvements are depreciated using the
straight-line method over the shorter of 39 years or the life of the lease.
Property tax expense for the South Carolina, California and Texas properties
totaled approximately $42,500 for fiscal year 2001.
ASDG generally does not invest in real estate, mortgages or securities
of or interests in entities engaged in real estate activities.
LEGAL PROCEEDINGS
On July 23, 2002, ASDG filed suit against The Sports Authority, Inc. in
the South Carolina Court of Common Pleas in Greenville, South Carolina. The
complaint alleges that The Sports Authority, Inc. (1) conspired with certain
persons to order paintball guns from ASDG, falsely claimed the paintball guns
were defective, refused to pay ASDG for the paintball guns and then resold or
otherwise used the paintball guns, (2) engaged in unfair trade practices under
South Carolina law that damaged and continue to damage ASDG in an amount in
excess of $1,000,000 and (3) converted ASDG's property. ASDG seeks actual
damages of $1,000,000, an additional amount equal to three times actual damages,
consequential and incidental damages, costs and attorney's fees and punitive
damages. The parties are in the early stages of discovery.
From time to time, ASDG is party to ordinary routine product liability
litigation, contract breach litigation, or employment litigation incident to its
business that does not depart from the normal kind of such actions. ASDG
believes that none of these actions, if adversely decided, would have a material
adverse effect on its results of operations or financial condition taken as a
whole.
MANAGEMENTS' DISCUSSION AND ANALYSIS OF OPERATIONS
RESULTS OF OPERATIONS
The Company's results of operations for the years ended December 31,
2000 and 2001 include the results of operations of Paintball Incorporated only
and do not include the results of operations of the Company's Inflatables
Business. The Company's results of operations for the nine months ended
September 30, 2002 include the results of operations of Inflatables from the
date of the Company's acquisition of Paintball Incorporated, May 17, 2002,
through September 30, 2002 but do not include any effect of this acquisition.
15
There is an element of seasonality to the Paintball Business. Paintball
gamers generate significant amounts of body heat due to intense physical
activity and the wearing of necessary protective clothing during paintball
games. As a result, demand for the company's products has historically been
strongest during the first and fourth quarters of the year. The fourth quarter
is also aided by holiday shopping. Demand generally trends downward in the
second quarter and is weakest during the third quarter due mainly to warmer
average temperatures nationwide during the summer months.
YEAR ENDED DECEMBER 31, 2001 V. YEAR ENDED DECEMBER 31, 2000
The Company's net sales for the year ended December 31, 2001 declined
$2,192,000 (8.5%) compared to fiscal year 2000. This decrease was due mainly to
lower realized prices for paint, markers and plastic products resulting from
increased levels of industry competition. In addition, sales to the Company's
traditional wholesale accounts declined significantly in fiscal 2001 as these
customers faced new competition from mass merchants that previously did not
carry paintball gaming products. Approximately half the decline in Company sales
to traditional wholesale customers was offset by Company sales to mass
merchants. The Company's internet sales also declined in 2001 due to the
increased number of web sites offering paintball products.
Gross profit percentage for the year ended December 31, 2001 decreased
2.3 percentage points to 17.9%, when compared to the same period of the prior
year. This resulted from the above-mentioned competitive pressure on prices and
a higher proportion of total sales to mass merchants at lower gross margins.
Selling, general and administrative expenses for the year ended
December 31, 2001 were $342,000 (6.7%) lower than those for the year ended
December 31, 2000. The largest reduction in expense came from lower advertising
and promotion costs and lower employment related costs. The decrease in
advertising and promotion cost resulted from the Company's decision to curtail
certain promotional programs during 2001. These favorable expense variances were
partially offset by higher professional fees in 2001 resulting from the
company's proposed acquisition of American Inflatables, Inc.
In September 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 was received in five equal installments of $30,000.
Interest expense for the year ended December 31, 2001 decreased by
$14,000 (9.9%) compared to the prior year, as a significant decrease in prime
rates more than offset higher average outstanding borrowings during the year.
The benefit for taxes recoverable has been provided at statutory rates.
The increase in tax benefit for the year ended December 31, 2001 is due to the
higher level of pre-tax losses in fiscal 2001 compared to fiscal 2000, as
explained above.
16
YEAR ENDED DECEMBER 31, 2000 V. YEAR ENDED DECEMBER 31, 1999
The Company's net sales for the year ended December 31, 2000 increased
$820,000 (3.3%) from the same period of the prior year. This increase is due
primarily to sales associated with Paintball Games of Dallas, Inc., ("Dallas")
which was acquired in May 2000. This acquisition was accounted for using the
purchase method. Exclusive of sales associated with the Dallas acquisition, the
Company shipped higher volumes of product in fiscal year 2000 than the prior
year, but average sales prices for paint, markers and accessories were reduced
slightly due to competitive pressures. In addition, unusually warm weather
during the summer of 2000 resulted in less than anticipated sales levels.
Gross margin for the year ended December 31, 2000 rose to 20.2%
compared to 19.4% in 2000, due primarily to increased retail and internet sales
which carry a higher margin than traditional wholesale sales. Sales associated
with the acquisition of Dallas are primarily internet and retail in nature.
Also, the Company benefited from lower costs of purchased goods as competitive
pressures were extended to the Company's suppliers.
Selling, general and administrative expense for fiscal year 2000 rose
20.2%, or $857,000 compared to fiscal year 1999. This increase was due to higher
costs for advertising, occupancy, professional fees, salaries and depreciation
and amortization. Much of this increase is directly attributable to the
Company's acquisition of Dallas in May 2000, as Dallas' retail activities
require a higher level of advertising support than the Company's wholesale
operations. In addition, the Company relocated to new headquarters and warehouse
space at the end of 1999, which is reflected in the increased occupancy cost.
Higher professional fees are associated with the Company's proposed acquisition
of American Inflatables, Inc.
Interest expense for the year ended December 31, 2000 increased by
$69,000 compared to the year ended December 31, 1999. This resulted from higher
average levels of debt outstanding in 2000, incurred to finance the acquisitions
of Dallas in May 2000 and Powerball, Inc. in the fourth quarter of 1999.
A provision (or benefit) for income taxes payable (or recoverable) has
been provided at statutory rates in fiscal years 2000 and 1999, based on
reported pretax income or loss.
NINE MONTHS ENDED SEPTEMBER 30, 2002 V. NINE MONTHS ENDED SEPTEMBER 30,
2001
The Company's results of operations for the nine months ended September
30, 2002 include the results of operations of Inflatables from the date of the
Company's acquisition of Paintball Incorporated, May 17, 2002, through September
30, 2002. Results of operations for the nine month period ended September 30,
2001 do not include any effect of this acquisition.
During the nine months ended September 30, 2002, the Company's sales
(excluding Inflatables) declined $1,925,000 (or 11.2 percent) compared to the
same period of the prior year. This decrease is primarily attributable to the
Company's decision in 2002 to not ship paintball products to The Sports
Authority, Inc. due to disagreements in payment policies. For the nine months
ended September 30, 2002 the Company shipped approximately $3,253,000 less of
paintball products to The Sports Authority, Inc compared to the same period in
2001. To offset this decline, the Company placed renewed emphasis on its
traditional wholesale sales channel and recorded an increase of approximately
$1,634,000 in wholesale sales for the first three quarters of 2002 compared to
the first three quarters of 2001. Although wholesale volume has increased in
2002, high levels of industry competition continue to hamper the Company's
ability to increase sales prices, most notably among commodity products such as
paintballs and CO2 bottles.
17
Partly offsetting the overall drop in sales was an increase in gross
margin from 19.4 percent during the first nine months of 2001 to 20.4 percent
during the same period in 2002, due mainly to the above mentioned lack of lower
margin shipments to The Sports Authority, Inc.
Selling, general and administrative costs (excluding Inflatables)
increased by approximately $320,000 during the first nine months of 2002
compared to the same period of 2001. This increase is attributable primarily to
higher legal and professional fees incurred in 2002 related to the Company's
reverse acquisition of Inflatables during the second quarter of 2002. SG&A
expenses represented 22.9 percent of sales in the first nine months of 2002
compared to 18.4 percent of sales during 2001, reflecting both the higher level
of expense and the lower sales level during the first three quarters of 2002
compared to the first three quarters of 2001.
Interest expense for the first nine months of 2002 declined
approximately $30,000, or 32 percent, compared to the first nine months of the
prior year, due mainly to lower interest rates on the Company's bank line of
credit.
Other income during the first nine months of 2001 is almost entirely
due to the settlement of a dispute with a former distributor over ownership of
the name "National Paintball Supply". The Company agreed to change its name to
"Paintball Incorporated" and received in return $150,000 in cash and a note
receivable for $150,000 with a one-year term from the former distributor. At
September 30, 2002, there were no amounts outstanding related to this
settlement.
A benefit for income taxes recoverable, based on the pre-tax loss
(excluding Inflatables) has been provided in 2002 at statutory rates. No such
benefit has been provided for Inflatables since the realization of future
earnings to absorb a tax loss carryforward is uncertain at this time.
RESULTS OF OPERATIONS OF INFLATABLES FOR THE PERIOD MAY 17, 2002 TO
SEPTEMBER 30, 2002
For the period May 17, 2002 to September 30, 2002, Inflatables recorded
sales of approximately $386,000, gross profit of approximately $217,000 and a
net loss of approximately $193,000. The net loss was attributable to a high
level of selling, general and administrative expenses.
Since the Company's acquisition of Paintball Incorporated on May 17,
2002, the Company has taken steps to improve Inflatables' financial results.
Inflatables has historically generated sales through leads obtained at various
industrial trade shows. In a revamping of Inflatables' sales strategy, the
Company has shifted its marketing emphasis to more cost effective methods of
generating sales, such as advertising in industry trade magazines and the use of
the Company's broadcast fax capabilities. Additionally, new sales personnel have
been added during the fourth quarter of 2002 in an effort to increase sales
volume. The Company has also restructured Inflatables' management, reduced
overhead and invested in new productivity software. During the third quarter of
2002, the Company transferred Inflatables' manufacturing operations from
California to South Carolina, thereby making more efficient use of available
company resources.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically satisfied its capital requirements through
a combination of internally generated cash and borrowings on its bank line of
credit. The Company's subsidiary Paintball has a $1,327,813.38 line of credit
with SouthTrust Bank, dated October 30, 2002 that expires on December 30, 2002.
The line of credit bears interest at a variable base rate established by the
lender from time to time. At October 30, 2002, the interest rate was 4.75% per
annum. The line of credit provides that it is secured by all of Paintball's
18
presently-existing and after-acquired inventory, intangibles, accounts
receivable and furniture, fixtures and equipment and proceeds and products
thereof. The line of credit has a 30-day annual "clean-up" provision that
requires the entire outstanding balance to be paid in full for at least 30
consecutive days during the term of the loan. The line of credit is personally
guaranteed by ASDG's two directors, William R. Fairbanks, who is also ASDG's
President, Chief Executive Officer and majority shareholder, and Douglas L.
Brown, who is also ASDG's Vice President, Secretary and Treasurer. The line of
credit is a renewal of a previously-existing line with a maximum principal
amount of $1,400,000. At September 30, 2002, borrowings under this line of
credit were $1,380,909.
Prior to the Company's acquisition of Paintball, the Company failed to
pay to federal and state taxing authorities an aggregate of approximately
$317,000 in payroll income tax withholdings. As of September 30, 2002, this
amount had increased to approximately $322,000 and is included in the
accompanying Consolidated Balance Sheet in "Accounts payable and accrued
expenses".
The Company is currently undergoing a California state sales tax audit
related to sales Paintball made from Texas. Final results of this audit are not
yet known, but the Company estimates its total liability at approximately
$100,000. Due to the uncertainty of the final outcome of this audit, the Company
has not recorded any liability related to this matter.
MANAGEMENT
The following table sets forth the names and ages of ASDG's directors
and executive officers and the positions and offices held by them.
Name Age Position
William R. Fairbanks 52 Director, President, Chief Executive Officer,
Assistant Secretary & Assistant Treasurer
Douglas L. Brown 44 Director, Vice President, Treasurer
& Secretary
William B. Kearney 56 Consultant performing certain services commonly performed
by a Chief Financial Officer
WILLIAM R. FAIRBANKS. Mr. Fairbanks has served as a director and the
President, and Chief Executive Officer of ASDG since it acquired Paintball
Incorporated in May 2002. Mr. Fairbanks founded Paintball Incorporated in 1989,
and has served as its President and Chief Executive Officer, and as a director
of it, since its formation in 1989. Prior to founding Paintball, Mr. Fairbanks
had extensive experience in the securities industry with Merrill, Lynch as well
as Robinson-Humphrey and Co. and Caine Equities. Mr. Fairbanks also served as
President of The Fairbanks Company, a land development and general contracting
firm. Mr. Fairbanks is also the President and Chief Executive Officer of and a
driver for Genesis Racing, Inc., which owns and races sports cars. Mr. Fairbanks
is a graduate of Furman University and attended the Furman/Clemson Universities
joint MBA program.
DOUGLAS L. BROWN. Mr. Brown has served as a director and Vice
President, Secretary and Treasurer of ASDG since it acquired Paintball in May
2002. Mr. Brown has served as a director and Vice-President in charge of sales
of Paintball since 1990. Prior to joining Paintball Incorporated, Mr. Brown was
a manager with R.R. Donnelly. He attended the University of Georgia.
19
WILLIAM B. KEARNEY. Mr. Kearney has been a certified public accountant
for over 20 years and has served ASDG in the capacity of a consultant,
performing certain services commonly performed by a chief financial officer,
since shortly after ASDG acquired Paintball Incorporated in May 2002. Mr.
Kearney has been a partner with Tatum CFO Partners, LLP since February 2001.
Tatum CFO Partners, LLP is in the business of providing emerging growth,
middle-market and large multinational companies with experienced chief financial
officers on a permanent, interim or project basis. From 1998 to 2000, Mr.
Kearney was Director of Planning and Analysis for Sterling Diagnostic Imaging,
Inc., a manufacturer of medical imaging technology. From 1995 to 1998, Mr.
Kearney was Vice President and Controller of Umbro International, Inc. (formerly
Stone Manufacturing), a manufacturer of sports apparel. From 1980 to 1995, Mr.
Kearney was employed in various capacities, including Director of Accounting and
Assistant Controller with Bowater Incorporated, a manufacturer of newsprint,
coated and uncoated ground wood papers, bleached kraft pulp and lumber products
whose stock is traded on the New York Stock Exchange under the symbol BOW.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
ASDG's board of directors currently comprises only two directors,
William R. Fairbanks and Douglas L. Brown. The board does not have any
committees, and the entire board performs the functions commonly assigned to
committees on larger boards of directors. The Company currently intends to hire
three new independent directors who will meet the requirements for independent
directors set forth in the rules of the NASD's new Bulletin Board Exchange. The
Company currently intends for these new independent directors to comprise
to-be-created audit, nominating, compensation and corporate governance
committees.
ASDG's two existing directors are also officers and employees of ASDG
and regularly work full time in ASDG's principal office in Greenville, South
Carolina. Because of their regular close proximity, the directors do not hold
regular periodic formal meetings but take formal action from time to time either
by written consent or by meetings held by unanimous consent with prior notice
waived. Consequently, no director has missed any meetings. If the Company
retains new independent directors as it currently intends to do, the Company
expects the board to meet regularly in formal meetings on at least a quarterly
basis.
DIRECTOR COMPENSATION
The Company currently does not pay its directors any fees for their
service as director. The Company does reimburse directors for out-of-pocket
expenses incurred in connection with the rendering of services as a director.
20
EXECUTIVE COMPENSATION
The following table shows the cash compensation paid by ASDG, as well as
certain other compensation paid or accrued, to ASDG's current Chief Executive
Officer, ASDG's previous Chief Executive Officer and ASDG's other executive
officers who earned in excess of $100,000 in base salary plus bonus for the year
ending December 31, 2001 (collectively, the "Named Executive Officers").
ANNUAL COMPENSATION (1)
-------------------------------
ALL OTHER
NAME AND SALARY BONUS COMPEN-
PRINCIPAL POSITION YEAR ($) ($) SATION($)
- -----------------------------------------------------------------------------------------------
William R. Fairbanks (2) 2001 $156,500 $113,821 $12,375 (6)
Chairman, President, 2000 155,000 127,427 15,320
CEO, Assistant Secretary 1999 145,000 135,080 16,991
and Assistant Treasurer
Gregg R. Mulholland (3) 2001 $150,000 (4) -- --
Former Chairman, President 2000 131,135 -- $410,000 (7)
and CEO 1999 80,000 (5) -- --
(1) Certain amounts may have been expended by ASDG or Paintball, which may have
had value as a personal benefit to the executive officer. However, the
total value of such benefits did not exceed the lesser of $50,000 or 10% of
the annual salary and bonus of such executive officer.
(2) Mr. Fairbanks became Chairman, President, Chief Executive Officer,
Assistant Secretary and Assistant Treasurer of ASDG in May 2002. The
amounts shown for Mr. Fairbanks were paid to him by Paintball Incorporated
which was acquired by ASDG in May 2002.
(3) Mr. Mulholland served as ASDG's President and Chief Executive Officer until
May 2002 when he resigned in connection with ASDG's acquisition of
Paintball Incorporated.
(4) This amount represents unpaid salary for the year ended December 31, 2001.
In connection with ASDG's acquisition of Paintball Incorporated in May
2002, Mr. Mulholland surrendered the right to receive this amount, which
was treated as a contribution to the capital of the Company with respect to
shares of Common Stock held by Mr. Mulholland.
(5) ASDG did not have significant operations until it acquired Can/Am Marketing
Group, LLC in December 1999. The amount shown for Mr. Mulholland for 1999
represents salary paid to Mr. Mulholland by Can/Am Marketing Group, LLC.
(6) This amount is comprised of (i) $7,106 contributed to Paintball's Profit
Sharing Plan by Paintball, all of which was vested, and (ii) $5,269 in
premiums paid by Paintball with respect to insurance not generally
available to all Paintball employees.
(7) The Company issued 1,053,984 shares of its Common Stock valued at $410,000
to Mr. Mulholland in the fourth quarter of 2000. The shares were restricted
within the provisions of Rule 144.
OPTION GRANTS IN LAST FISCAL YEAR
Neither ASDG nor Paintball Incorporated granted any options, SARs or
similar securities to the Named Executive Officers during 2001.
OPTION EXERCISES AND YEAR END OPTION VALUES
None of the Named Executive Officers exercised any options, SARs or
similar securities of ASDG or Paintball Incorporated during 2001 or had any
options, SARs or similar securities of ASDG or Paintball Incorporated
outstanding at the end of 2001.
21
EMPLOYMENT AGREEMENTS
William B. Kearney provides certain services to ASDG commonly performed
by a chief financial officer pursuant to a Project Work Agreement dated May 27,
2002 (the "Consulting Agreement") by and between Tatum CFO Partners, LLP
("Tatum") and ASDG. The Consulting Agreement requires Tatum to assign one or
more of its partners to perform services for ASDG, and Mr. Kearney is the
assigned partner. The Consulting Agreement provides that the Tatum partner
performing services for ASDG will not be an officer, employer, director or
manager of ASDG. The Consulting Agreement provides that ASDG will pay Tatum CFO
$150.00 per hour for Mr. Kearney's services with a daily maximum of $1,200.00,
and ASDG will reimburse Mr. Kearney for reasonable travel and out-of-pocket
business expenses. Either party may terminate the Consulting Agreement without
cause on 30 days written notice. The Consulting Agreement also has common
termination for cause provisions. The Consulting Agreement requires ASDG to
indemnify Tatum against losses, costs, damages and expenses, including
reasonable attorneys fees, as they are incurred by Tatum in connection with any
cause of action or proceeding arising in connection with Tatum's engagement
under the Consulting Agreement, Tatum's provision of services to ASDG, or ASDG's
use of analysis or information provided by Tatum or arising in connection with
any legal proceeding in which Tatum may be required or agree to participate;
provided, that the indemnity will not apply to Tatum's gross negligence or
willful misconduct or actions taken in bad faith. The Consulting Agreement
requires Tatum and ASDG to submit disputes arising thereunder to arbitration.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information as of November
19, 2002 with respect to shares of Common Stock owned by (i) each person known
to beneficially own more than 5% of the outstanding common stock, (ii) each
director and named executive officer of the Company, and (iii) all executive
officers and directors of the Company as a group. Unless otherwise indicated,
each person has sole voting and investment power over the shares beneficially
owned by him. The address for Messrs. Fairbanks and Brown is 155 Verdin Road,
Greenville, South Carolina 29607.
NUMBER OF SHARES PERCENT
NAME AND ADDRESS BENEFICIALLY OWNED OF CLASS (4)
---------------------------------- ----------------------- -------------------
UCI/NFI Affiliates 5,864,333 (1) 9.3%
3885 South Decatur Blvd., Suite 2010
Las Vegas, Nevada 89103
William R. Fairbanks 45,643,244 (2) 72.0%
Douglas L. Brown 5,153,516 (3) 8.1%
Directors & Executive Officers 50,704,460 80.0%
As a Group (3 persons)
(1) Includes (a) 1,713,633 shares beneficially owned by Universal Consultants,
Inc., a Nevada corporation ("UCI"), (b) 1,720,000 shares beneficially owned by
National Financial, Inc., a Nevada corporation ("NFI"), (c) 755,700 shares owned
directly by Yvonne M. Hines, (d) 1,400,000 shares owned directly by William E.
Heldman, (e) 25,000 shares beneficially owned by Apex One, Inc., a Nevada
corporation ("Apex One"), (f) 50,000 shares beneficially owned by Apollo One,
Inc., a Nevada corporation ("Apollo One"), (g) 40,000 shares beneficially owned
by Certified One, Inc., a Nevada corporation ("Certified One"), (h) 100,000
shares beneficially owned by Prestige Financial, Inc., a Nevada corporation
("Prestige"), and (i) 60,000 shares beneficially owned by Silver County
Financial, Inc., a Nevada corporation ("Silver County"). William Carroll is a
director and 50% shareholder of UCI, a director and 25% shareholder of NFI and
President of Apollo One. Mr. Carroll has informed ASDG that he disclaims
beneficial ownership of all shares of ASDG Common Stock other than the shares
described in clauses (a), (b) and (f) of this note and claims beneficial
ownership of only 5.5% of the outstanding shares of ASDG's Common Stock. Ms.
Hines is an officer and 50% shareholder of NFI. Ms. Hines has informed ASDG that
she disclaims beneficial ownership of all shares of ASDG Common Stock other than
the shares described in clauses (b) and (c) of this note and claims beneficial
ownership of only 3.9% of the outstanding shares of ASDG's Common Stock. Mr.
Heldman is an officer, director, and 25% shareholder of NFI, President of
Prestige and President of Silver County. Mr. Heldman has informed ASDG that he
disclaims beneficial ownership of all shares of ASDG Common Stock other than the
shares described in clauses (b), (d), (h) and (i) of this note and claims
beneficial ownership of only 5.2% of the outstanding shares of ASDG Common
Stock.
22
(2) Includes 6,073,459 shares held by Red Oak Limited Partnership of which Mr.
Fairbanks and his wife are the general partners and 92,300 shares
beneficially owned by International Management Associates, Inc. of which
Mr. Fairbanks is the President, a director and 70% beneficial owner.
(3) Includes 92,300 shares beneficially owned by International Management
Associates, Inc., of which Mr. Brown is Vice President and Secretary, a
director and 30% beneficial owner.
(4) As of November 20, 2002 there were 63,355,836 shares of the Registrant's
common stock, $.001 par value per share, issued and outstanding.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
FEBRUARY 2000 OPTION TO NATIONAL FINANCIAL, INC.
On February 7, 2000, Gregg Mulholland, ASDG's Chairman and Chief
Executive Officer at that time, and ASDG entered into an Option Agreement (the
"February 2000 Option Agreement") with National Financial, Inc., a Nevada
corporation ("NFI") pursuant to which Mr. Mulholland, in exchange for $250,000,
sold NFI options to purchase an aggregate of 1,500,000 shares of ASDG stock
owned by Mr. Mulholland. The February 2000 Option Agreement gave NFI options to
purchase 1,000,000 shares of ASDG stock from Mr. Mulholland for $1.00 per share
and 500,000 shares for $2.00 per share. At the time, the total number of
Inflatables shares outstanding was 4,518,000, and Mr. Mulholland owned 3,000,000
or 66.4% of those shares.
The proceeds of the sale of the options were paid into a real estate
purchase escrow account for the purchase of a house (the "Ocean Vista Property")
in the name of David W. Ariss, Sr. a director of ASDG at that time and Mr.
Mulholland's first cousin, once removed. The Ocean Vista Property has been Mr.
Mulholland's personal residence since February 2000. A Trust Deed was also
executed on the Ocean Vista Property to secure performance by Mr. Mulholland
under the February 2000 Option Agreement.
Mr. Mulholland caused ASDG to be a party to the February 2000 Option
Agreement in connection with which ASDG made certain representations and
warranties and subjected itself to certain restrictive covenants. The February
2000 Option Agreement provided that (1) Mr. Mulholland could satisfy his
obligations thereunder by causing ASDG to issue to NFI the shares subject to the
option rather than transferring Mr. Mulholland's own shares to NFI if NFI
exercised the option and (2) ASDG was required to register as soon as
practicable the issuance of at least 1,500,000 shares of its common stock with
the Securities and Exchange Commission and other applicable authorities and upon
effectiveness of the registration statement, Mr. Mulholland would cause ASDG to
issue either 1,500,000 shares of its stock or warrants to acquire such shares to
NFI relieving Mr. Mulholland from the obligation to satisfy the option with his
personal shares.
ASDG' entry into the February 2000 Option Agreement was not approved by
ASDG' board of directors or the independent shareholders of ASDG. ASDG received
no consideration in exchange for entering into the February 2000 Option
Agreement. In addition to the foregoing, the representations, warranties and
covenants given by ASDG in the February 2000 Option Agreement included but were
not limited to the following:
o Until such time, if any, as NFI exercised its right to purchase the
Stock, there would be no declaration, setting aside, or payment of a
dividend in respect to the Stock, or any direct or indirect
redemption, purchase, or other acquisition by ASDG of any of its
shares of capital stock, and there would be no declaration, payment,
or commitment or obligation of any kind for the payment, by ASDG, of a
bonus or other additional salary or compensation to any of its
officers, directors, or employees.
23
o Until such time, if any, as NFI exercised its right to purchase the
Stock, there would be no sale or transfer of any asset of ASDG, except
in the ordinary course of business, and there would be no amendment or
termination of any contract, agreement, or license to which ASDG is a
party, except in the ordinary course of business.
o Until such time, if any, as NFI exercised its right to purchase the
Stock, there would be no waiver or release of any right or claim of
ASDG, except in the ordinary course of business.
o Until such time, if any, as NFI exercised its right to purchase the
Stock, there would be no destruction, damage to, or loss of any asset
of ASDG not covered by insurance and which materially or adversely
affects the financial condition of ASDG.
o None of the representations and warranties made by Mr. Mulholland and
ASDG contained any untrue statement of a material fact or omits any
material fact, the omission of which would be misleading.
o Mr. Mulholland and ASDG would jointly and severally indemnify NFI
against and hold it harmless from any and all liability, loss or
damage (including reasonable attorneys' fees) which it may incur under
the February 2000 Option Agreement or by reason of the February 2000
Option Agreement, and from any and all claims and demands whatsoever
which may be asserted against it by reason of any alleged obligation
or undertaking on its part to perform or discharge any of the terms of
the February 2000 Option Agreement, and for any breach by Mr.
Mulholland or ASDG of any covenant, warranty, duty or obligation under
the February 2000 Option Agreement.
o ASDG agreed not to use or permit any capital stock of ASDG to be
issued, bought, sold or used in violation of any provision of the
February 2000 Option Agreement or any applicable law, statute, rule,
regulation or ordinance.
o ASDG agreed to not (i) amend its articles of incorporation or bylaws
in a manner which would impair, decrease or diminish the value of
NFI's option or ASDG stock, (ii) issue any shares of its capital stock
to third parties for cash, (iii) issue or create any warrants,
obligations, subscriptions, options, convertible securities, or other
commitments under which any additional shares of its capital stock of
any class might be directly or indirectly authorized, issued, or
transferred to third parties from treasury for cash, or (iv) agree to
do any of the acts listed above. Notwithstanding the foregoing, ASDG
could issue shares of its capital stock in exchange for assets or
equity of other entities of greater or equal value which are to be
acquired by or merged into ASDG.
In addition to the foregoing, ASDG made numerous representations and
warranties about the financial condition of its business, its legal status, its
business dealings, its compliance with applicable laws and regulations and the
information provided to NFI by Mr. Mulholland and ASDG.
David Ariss personally guaranteed Mr. Mulholland's and ASDG's
performance of their obligations under the February 2000 Option Agreement.
Subsequent to the execution of the February 2000 Option Agreement, ASDG
issued 1,053,984 additional shares of its stock to Mr. Mulholland in lieu of the
payment of cash salary to, and cash advances by, Mr. Mulholland, payment of and
reimbursement for which were due and owing as of the date of issuance of those
shares.
24
The foregoing description of the February 2000 Option Agreement is only
a summary and is qualified in its entirety by the actual agreement, a copy of
which is filed as Exhibit 10.4 to the Registration Statement of which this
Prospectus is a part.
The February 2000 Option Agreement was substantially affected by the
settlement of a lawsuit brought by NFI, UCI (defined below) and William Carroll
against Mr. Mulholland and Mr. Ariss in their individual capacities as described
below. See "--Third Party Lawsuit Against Gregg Mulholland and David Ariss in
their Individual Capacities." William Carroll is a director of both NFI and UCI.
He is also a 50% shareholder of UCI and a 25% shareholder of NFI.
DECEMBER 2000 LOAN FROM UNIVERSAL CONSULTANTS, INC.
On December 12, 2000, ASDG borrowed $330,000 from Universal
Consultants, Inc., a Nevada corporation ("UCI") pursuant to a secured promissory
note (the "UCI Note"), with a maturity date of March 12, 2001 and bearing
interest at a rate of 10% per annum. The UCI Note was secured by all of ASDG's
real and personal property pursuant to a separate security agreement (the "UCI
Security Agreement"). ASDG borrowed the $330,000 from UCI in order to pay ASDG's
federal taxes and to provide ASDG with operating capital. Mr. Mulholland
personally guaranteed ASDG's performance under the UCI Note and the UCI Security
Agreement. The UCI Note went into default and the total amount of unpaid
principal and accrued interest due and owing thereunder was $378,761 as of May
17, 2002 when the UCI Note was satisfied in connection with ASDG's acquisition
of Paintball Incorporated.
In connection with the loan, ASDG also issued a warrant to UCI for the
purchase of up to 1,320,000 shares of ASDG' stock for $0.25 per share (the "UCI
Warrant"). The UCI Warrant was exercisable at any time from the date of issuance
to December 31, 2003 and included a mechanism for cashless conversion of the
warrant into shares of ASDG Common Stock. The Warrant on its face referred to a
contemporaneous Securities Purchase Agreement and a contemporaneous Registration
Rights Agreement and contemplated the filing with the SEC of a registration
statement pertaining to the shares issuable upon exercise of the warrant within
30 days of a "Closing Date."
The transaction involving the UCI Note, the UCI Security Agreement and
the UCI Warrant is collectively referred to hereafter as the "December 2000
Loan".
The foregoing descriptions of the UCI Note, the UCI Security Agreement,
Mr. Mulholland's guarantee thereof and the UCI Warrant are qualified in their
entireties by the actual documents, copies of which are filed as Exhibits A, B
and E to Exhibit 10.4 and Exhibit 10.5 of the Registration Statement of which
this Prospectus is a part.
The UCI Note, UCI Security Agreement and UCI Warrant were
substantially affected by the settlement of a lawsuit brought by UCI, NFI and
William Carroll against Mr. Mulholland and Mr. Ariss in their individual
capacities described below. See "--Third Party Lawsuit Against Gregg Mulholland
and David Ariss in their Individual Capacities." William Carroll is a director
of both NFI and UCI. He is also a 50% shareholder of UCI and a 25% shareholder
of NFI.
THIRD PARTY LAWSUIT AGAINST GREGG MULHOLLAND AND DAVID ARISS IN THEIR INDIVIDUAL
CAPACITIES
On November 13, 2001, UCI, NFI, and William Carroll (collectively, the
"Plaintiffs") filed suit against Gregg Mulholland and David Ariss solely in
their individual capacities and not in their capacities as officers and
25
directors of ASDG (the "Lawsuit"). The Plaintiffs also obtained a temporary
protective order that generally temporarily prohibited Mr. Mulholland until
December 31, 2001, from transferring any of the shares of stock of ASDG
personally owned by Mr. Mulholland.
The Lawsuit generally arose out of the February 2000 Option Agreement
and the December 2000 Loan. The Lawsuit involved causes of action based on (1)
breach of contract, fraud, breach of covenant of good faith and fair dealing,
quiet title, constructive trust, and constructive trust - fraud in connection
with the February 2000 Option Agreement, (2) breach of contract and fraud with
respect to the December 2000 Loan and (3) breach of fiduciary duty and
indemnification. The Plaintiffs sought actual damages, damages for emotional
distress, indemnification damages and legal costs, punitive damages of
$1,000,000 from each defendant plus treble damages, prejudgment attachment and
other provisional equitable relief, quiet title and constructive trust,
reasonable attorneys' fees, costs and such other relief as the court may deem
necessary and proper.
The Lawsuit was settled on December 31, 2001 pursuant to a settlement
agreement filed with and approved by the court (the "Settlement Agreement"). Set
forth below is a summary of certain significant provisions of the agreement
contained in the Settlement Agreement and related documents. This summary is
qualified in its entirety by the complete Settlement Agreement, including all
related exhibits, that has been filed as Exhibit 10.4 to the Registration
Statement of which this Prospectus is a part.
In connection with claims related to the December 2000 Loan, Mr.
Mulholland agreed to secure the payment of the UCI Note and interest with all of
his own personal shares of ASDG, which were held in an escrow until the
obligations were paid. UCI retained the right to exercise the UCI Warrant, and
if it exercised the UCI Warrant, the principal amount of the UCI Note would be
exonerated to the extent of the exercise price paid by UCI (100% of the
principal amount of the UCI Note if the UCI Warrant were exercised in full).
Claims related to the February 2000 Option Agreement were settled by Mr.
Mulholland's agreement to transfer to NFI 1,250,000 of his personally owned
shares through the escrow arrangement. The trust deed on the Ocean Vista
Property was amended to secure Mr. Mulholland's and Mr. Ariss' performance under
the Settlement Agreement.
ASDG was released from any further obligations under the February 2000
Option Agreement, the UCI Note and the UCI Security Agreement (except for
exoneration of the principal amount of the UCI Note by exercise of the UCI
Warrant as described above) once (1) all settlement implementation documents
were executed, (2) the temporary protective order was replaced with a permanent
protective order, (3) Mr. Mulholland delivered to the escrow all of his
remaining personally owned shares to comply with his obligations under the
Settlement Agreement, and (4) the amended second trust deed on the Ocean Vista
Property was recorded. All of these events occurred. This release would become
void and of no effect if either ASDG or ASDG voided or prevented any part of the
settlement or if either Mr. Mulholland or Mr. Ariss breached or failed to
perform any part of the settlement at the behest of ASDG or ASDG.
The Settlement Agreement provided that the Plaintiffs would permanently
release Mr. Mulholland and Mr. Ariss from all claims by the Plaintiffs once (1)
Mr. Mulholland and Mr. Ariss timely performed all of their obligations under the
Settlement Agreement and any incorporated agreements, a merger agreement
pertaining to the business combination of ASDG and Paintball Incorporated, the
permanent protective order and the escrow arrangement, without any material
breaches or failures to perform during the terms of those agreements and orders,
and (2) the Plaintiffs certified to the escrow officer that these conditions
have been satisfied and the escrow has been closed.
Mr. Mulholland and Mr. Ariss executed a confession to judgment against
themselves personally, which was held in abeyance pending full performance under
26
the Settlement Agreement, and once the latter occurred, would be voided. Mr.
Mulholland bore full personal responsibility for all legal costs and damages of
the Plaintiffs.
SETTLEMENT OF THIRD PARTY LAWSUIT AT CLOSING OF ASDG ACQUISITION OF PAINTBALL
INCORPORATED
In connection with the closing on May 17, 2002 of ASDG's acquisition of
Paintball Incorporated, shares of Mr. Mulholland's personally-owned ASDG Common
Stock were distributed out of escrow to UCI and NFI in satisfaction of Mr.
Mulholland's obligations under the Settlement Agreement as follows:
o 1,250,000 shares to NFI pursuant to the February 2000 Option
Agreement;
o 48,365 shares to UCI in satisfaction of accrued interest on the UCI
Note;
o 220,000 shares to NFI to reimburse NFI for its legal costs and fees in
connection with the Settlement Agreement; and
o 225,235 shares to UCI to reimburse UCI for its legal costs and fees in
connection with the Settlement Agreement.
Also in connection with the closing, UCI exercised the UCI Warrant, and ASDG
issued 1,320,000 shares of Common Stock in satisfaction of its obligations under
the UCI Warrant which also exonerated all obligations to pay the principal
amount of the UCI Note.
The remaining 1,245,351 shares of Mr. Mulholland placed in the escrow
remain in escrow pending resolution of a legal action brought by Paul D.
Copenbarger, dba Copenbarger & Associates ("Copenbarger"), against UCI, NFI,
ASDG, Paintball, William Carroll and Gregg Mulholland related to a claim by
Copenbarger that he is a judgement creditor of Mr. Mulholland in connection with
a cause of action that arose prior to the May 17, 2002 acquisition of Paintball
by ASDG (the "Copenbarger Action").
ASDG believes that the distribution of Mr. Mulholland's shares to NFI and
UCI described above and the issuance of shares to UCI pursuant to the UCI
Warrant have resolved all claims related to the Lawsuit other than the
obligations of Mr. Mulholland to NFI, UCI and William Carroll related to the
Copenbarger Action; however, there can be no assurance to this effect.
ASDG ACQUISITION OF PAINTBALL INCORPORATED
On May 17, 2002, the Company, then known as American Inflatables, Inc.,
acquired Paintball, then known as American Sports Development Group, Inc. and
formerly known as National Paintball Supply Company, Inc. For accounting
purposes, the transaction was treated as the acquisition of ASDG by Paintball in
a reverse acquisition. ASDG 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 Paintball for all the issued and outstanding shares of
Paintball (the "Share Exchange") making Paintball a wholly owned subsidiary of
the Company.
Set forth below is a summary description of agreements entered into in
connection with the Share Exchange. The summaries are general in nature and are
qualified in their entireties by the texts of the agreements, all of which are
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
SHARE EXCHANGE AGREEMENT
The Share Exchange occurred pursuant to a Share Exchange Agreement dated
May 16, 2002 and executed on May 17, 2002 (the "Share Exchange Agreement") by
and between ASDG and the three pre-Share Exchange shareholders of Paintball -
William R. Fairbanks, Red Oak Limited Partnership and Douglas L. Brown
(Collectively, the "Old Paintball Shareholders"). William R. Fairbanks and his
wife are the general partners of Red Oak Limited Partnership. Prior to the Share
Exchange, Mr. Fairbanks directly owned 78.0% of the outstanding common stock of
Paintball, Red Oak Limited Partnership directly owned 10.0% and Mr. Brown owned
12.0%. Mr. Fairbanks was the President and Chief Executive Officer, Mr. Brown
was the Vice President and Mr. Fairbanks and Mr. Brown were the sole directors
of Paintball prior to the Share Exchange.
27
The Share Exchange Agreement provided for the issuance of 38,335,014
shares of ASDG Common Stock to Mr. Fairbanks, 5,897,694 shares to Red Oak
Limited Partnership and 4,914,745 shares to Mr. Brown. The Share Exchange
Agreement contains a "gross-up" clause that provides that in the event the Old
Paintball Shareholders did not receive shares in the Share Exchange constituting
83% of the aggregate voting power and distributional rights of all ASDG
shareholders on a fully-diluted, post-exchange basis, then ASDG is required to
issue additional shares of its Common Stock to them to ensure that they received
such 83%. Pursuant to this clause, ASDG issued an additional 1,142,471 shares to
Mr. Fairbanks, 175,765 shares to Red Oak Limited Partnership and 146,471 shares
to Mr. Brown after the May 17, 2002 closing of the Share Exchange.
The Share Exchange Agreement provided for the mutual consensual
termination without penalty of a prior Reorganization Agreement dated October
12, 2000, as amended, between ASDG and Paintball that contemplated the merger of
a wholly-owned subsidiary of Paintball into ASDG that would result in ASDG
becoming a wholly-owned subsidiary of Paintball. The Share Exchange Agreement
contained a representation and warranty from ASDG to the Paintball Shareholders
that ASDG's "Total Pro Forma Closing Debt" as defined in the Share Exchange
Agreement, would not exceed $400,000 on the date of consummation of the Share
Exchange and other representations and warranties customary in business
combination agreements. The Share Exchange Agreement requires ASDG to indemnify,
to the maximum extent permitted by applicable law, the Old Paintball
Shareholders against losses and liability arising in connection with alleged
untrue statements of material fact or material omissions of information
concerning ASDG in any statement and application made to any governmental agency
in connection with the transactions contemplated in the Share Exchange Agreement
or provided or made to any Old Paintball Shareholder. The Share Exchange
Agreement also required the contemporaneous execution and delivery of the
Mulholland Employment Agreement, the Mulholland Guaranty, the Joint Escrow
Agreement, the Paisley Consulting Agreement and the Shareholders Agreement, each
of which is described below.
MULHOLLAND EMPLOYMENT AGREEMENT
As required by the Share Exchange Agreement, ASDG's pre-Share Exchange
Chairman, Chief Executive Officer and largest shareholder Gregg Mulholland on
May 17, 2002 entered into an Employment Agreement dated May 16, 2002 with ASDG
(the "Mulholland Employment Agreement"). The agreement provides that Mr.
Mulholland will report to ASDG's Chief Executive Officer and have such offices
and titles and perform such duties as the Chief Executive Officer chooses. The
agreement has a three-year term that expires on May 16, 2005 and shall continue
on a month-to-month basis thereafter until terminated. The agreement provides
Mr. Mulholland with an annual base salary of $144,000 and a quarterly bonus of
2.5% of the total gross sales in excess of $500,000 of the Inflatables division
of ASDG for that quarter if (i) the gross sales of the inflatables division for
the quarter equal or exceed $500,00 and (ii) the gross margin on the gross sales
of the inflatables division exceeds 32.5%. The bonus is capped at $350,000 per
year. The agreement has customary termination-for-cause provisions and customary
confidentiality and non-competition provisions. The agreement provides that
disputes between ASDG and Mr. Mulholland regarding his employment are subject to
arbitration.
MULHOLLAND GUARANTY
As required by the Share Exchange Agreement, on May 17, 2002, Mr.
Mulholland entered into a Guaranty and Indemnification Agreement dated May 16,
2002 with the Old Paintball Shareholders (the "Mulholland Guaranty"). In the
Mulholland Guaranty, Mr. Mulholland guaranteed to the Old Paintball Shareholders
the full and prompt performance by ASDG of all of its agreement, covenants and
obligations in connection with the Share Exchange Agreement and any related
agreement or instrument and the truthfulness, completeness and correctness of
all of ASDG's representations and warranties contained in the Share Exchange
Agreement and any related agreement or instrument. Mr. Mulholland also agreed to
indemnify the Old Paintball Shareholders against any breach by ASDG of any of
28
its representations, warranties, agreement, covenants or obligations in the
Share Exchange Agreement or any related agreement or instrument or any breach by
Mr. Mulholland of any of his representations, warranties, agreements, covenants
or obligations in the Shareholders Agreement described below. To ensure his
performance under the guaranty, Mr. Mulholland agreed to place 875,000 of his
personally-owned shares of ASDG Common Stock in escrow pursuant to the Escrow
Agreement as described below. Mr. Mulholland also covenanted to exert his best
efforts to resolve certain claims brought against him in the Superior Court of
the State of California, County of Orange, that also named ASDG, Paintball, UCI,
NFI and William Carroll as defendants.
JOINT ESCROW AGREEMENT
As required by the Share Exchange Agreement, on May 17, 2002, Mr.
Mulholland entered into an Escrow Agreement dated May 16, 2002 (the "Joint
Escrow Agreement") with the Old Paintball Shareholders, the Plaintiffs in the
Lawsuit (see "-- Third Party Lawsuit Against Gregg Mulholland and David Ariss in
their Individual Capacities") and the attorneys for Mr. Mulholland, the Old
Paintball Shareholders and the Plaintiffs (the "Three Attorneys"). The Joint
Escrow Agreement provided for the delivery to the Three Attorneys as escrow
agents of all of Mr. Mulholland's ASDG Common Stock (3,053,984 shares). The
Joint Escrow Agreement generally provided for the subsequent distribution of
these shares as follows: (i) first shares would be distributed to the Plaintiffs
to satisfy Mr. Mulholland's obligations under the Settlement Agreement resolving
the Lawsuit, (ii) then 875,000 shares would remain in escrow for at least one
year to satisfy Mr. Mulholland's obligations under the Mulholland Guaranty and
(iii) any balance would be returned to Mr. Mulholland. ASDG's rights to the
875,000 shares described in clause (ii) above are expressly subordinated by the
Joint Escrow Agreement to any order of the court in the Copenbarger Action
pertaining to such shares. After the consummation of the Share Exchange,
1,743,600 shares were distributed from escrow to the Plaintiffs in satisfaction
of Mr. Mulholland's obligations under the Settlement Agreement (see "--
Settlement of Third Party Lawsuit at Closing of ASDG Acquisition of Paintball
Incorporated"). The balance of the escrowed shares (1,245,351 shares) remain in
escrow pending resolution of the Copenbarger Action.
PAISLEY CONSULTING AGREEMENT
Prior to the consummation of the Share Exchange, Dale Paisley
performed certain services for ASDG commonly performed by a chief financial
officer without a written agreement. As required by the Share Exchange
Agreement, on May 17, 2002, Mr. Paisley entered into a written Consulting
Agreement dated May 16, 2002 (the "Paisley Consulting Agreement") with ASDG to
document the terms of his consulting arrangement with ASDG. The term of the
agreement was from August 9, 2000 until the earlier of consummation of a
business combination with Paintball Incorporated (such as the Share Exchange) or
August 9, 2002. The agreement provided that Mr. Paisley would be paid for his
services on an hourly basis at a rate of $175.00 per hour (which amounted to
$100,000 as of May 13, 2002); however, in the event a business combination was
consummated with Paintball Incorporated before May 31, 2002, Mr. paisley would
receive 175,000 shares of ASDG Common Stock in lieu of any other compensation.
These shares would be restricted shares within the meaning of Rule 144
promulgated under the Securities Act, but ASDG covenanted to register the resale
of the shares as promptly as practical after consummation of the business
combination. Because the Share Exchange closed on May 17, 2002, Mr. Paisley was
issued 175,000 shares of ASDG Common Stock, the resale of which has been
registered with the Registration Statement of which this Prospectus is a part.
The Paisley Consulting Agreement also contained customary expense reimbursement,
termination-for-cause and non-disclosure provisions.
29
SHAREHOLDERS AGREEMENT
As required by the Share Exchange Agreement, on May 17, 2002, the
pre-Share Exchange ASDG management (Gregg Mulholland, David Ariss and Jeff
Jacobson), the Lawsuit Plaintiffs (see "-- Third Party Lawsuit Against Gregg
Mulholland and David Ariss in their Individual Capacities") and certain related
parties of the Lawsuit Plaintiffs (collectively with pre-Share Exchange ASDG
management, the "Inflatables Shareholders") entered into a Shareholders
Agreement dated May 16, 2002 (the "Shareholders Agreement") with the Old
Paintball Shareholders as an inducement to the Old Paintball Shareholders to
enter into the Share Exchange Agreement.
In the Shareholders Agreement, the Inflatables Shareholders gave the
Old Paintball Shareholders certain representations and warranties regarding the
Inflatables Shareholders' beneficial ownership of ASDG securities and
outstanding agreements to which the Inflatables Shareholders and ASDG were
parties. The Inflatables Shareholders gave a release of claims intended by the
Old Paintball Shareholders to release substantially all claims of the
Inflatables Shareholders against ASDG, Paintball and their affiliated parties
arising prior to the date of closing of the Share Exchange except for ASDG's
obligation to issue shares pursuant to the UCI Warrant and Gregg Mulholland's
and David Ariss' obligations under the Settlement Agreement. The Shareholders
Agreement further provides that the Inflatables Shareholders would assign to the
Old Paintball Shareholders any such claims that were not released.
The Shareholders Agreement provides that at the closing of the Share
Exchange, Gregg Mulholland, David Ariss and Jeff Jacobson would resign from all
offices they held with ASDG and cause William R. Fairbanks to be appointed
Chairman, President and Chief Executive Officer, Douglas L. Brown to be
appointed as Vice President, Mr. Jacobson to be reappointed as Vice President
and Chief Operating Officer, and Mr. Fairbanks and Mr. Brown to be appointed the
sole directors of ASDG.
The Shareholders Agreement required certain Inflatables Shareholders to
pay to ASDG in full notes in the aggregate principal amount of $250,000 that
they had made to ASDG to purchase an aggregate of 1,000,000 shares of ASDG
Common Stock. It also required UCI to exercise the UCI Warrant and accept the
1,320,000 shares subject to the warrant in satisfaction of the principal amount
of the UCI Note. Mr. Mulholland agreed to forgive the amount of debts owed to
him by ASDG necessary to reduce ASDG's Total Pro Forma Closing Debt (as defined
in the Share Exchange Agreement) to $400,000. The agreement required the amounts
forgiven to be treated as a contribution to the capital of ASDG with respect to
Mr. Mulholland's already outstanding ASDG Common Stock.
Each party to the Shareholders Agreement agreed to defend and indemnify
ASDG, Paintball and the other parties and their affiliated parties against
losses and obligations arising in connection with the breach by the indemnifying
party of any of its representations, warranties or covenants in the Shareholders
Agreement.
600,000 SHARES PLEDGED TO SECURE PROMISSORY NOTE TO ASDG
TNR Development Company ("TNR"), of which Timothy N. Roberts is the
principal, acquired an option for 600,000 shares with an exercise price of $1.00
per share from NFI on May 1, 2000 in a private transaction. On May 8, 2000, TNR
acquired 210,000 shares and a warrant for 600,000 shares with an exercise price
of $0.25 per share from the Company in a private placement of units consisting
of thirty five (35) shares and a warrant to purchase one hundred (100) shares
with an exercise price of $0.25 per share for an aggregate purchase price of
$25.00 per unit. The warrant for 600,000 shares with an exercise price of $0.25
per share (the "TNR Warrant Shares") TNR acquired in the private placement
replaced the option for 600,000 shares with an exercise price of $1.00 per share
that TNR acquired from NFI on May 1, 2000, which option was thereafter null and
void. TNR exercised the warrant on September 20, 2000 by delivery to the Company
of a Secured Promissory Note dated September 20, 2000, $150,000 in principal
amount (the "TNR Note"). The TNR Note was secured by a pledge of the shares
purchased with the note.
30
TNR is the parent company of Yorba Linda Estates, LLC ("Yorba Linda
Estates"). William E. Heldman made loans to Yorba Linda Estates and purchased a
house from Yorba Linda Estates. In May 2002, about the time of ASDG's
acquisition of Paintball, Yorba Linda Estates filed for protection of its
creditors under Chapter 11 of the U.S. Federal Bankruptcy Code. On May 7, 2002,
TNR, Yorba Linda Estates, and Timothy N. Roberts, the principal of TNR, entered
into a Settlement memorandum pursuant to which TNR transferred the 600,000 TNR
Warrant Shares to William E. Heldman, and Mr. Heldman assumed TNR's obligations
under the TNR Note. The Shareholders Agreement required the TNR Note to be paid
by June 17, 2002. ASDG consented to the assingment of the TNR Warrant Shares and
the obligations under the TNR Note to Mr. Heldman and gave Mr. Heldman a 60-day
forebearance on his obligation to pay the TNR Note. As of the date hereof, Mr.
Heldman has not paid the amount oustanding on the TNR Note, and the TNR Warrant
Shares remain pledged to secure the TNR Note. The acquired principal and
interest due under the Note was $168,000 as of November 20, 2002.
LOANS TO ASDG FROM GREGG MULHOLLAND
Prior to the Company's acquisition of Paintball, Gregg Mulholland, then
the Company's Chairman, Chief Executive Officer and largest shareholder, made
loans to the Company from his personal funds and permitted his salary to accrue
unpaid. These advances were unsecured, payable on demand and did not accrue
interest. The Company believes that as of the closing of ASDG's acquisition of
Paintball on May 17, 2002, the total accrued and unpaid salary ASDG owed Mr.
Mulholland was $206,250 and the total advances ASDG owed Mr. Mulholland were
$211,819. As described above, the Shareholders Agreement required Mr. Mulholland
to forgive the amount of debts owed to him by ASDG necessary to reduce ASDG's
Total Pro Forma Closing Debt (as defined in the Share Exchange Agreement) to
$400,000 and required the amounts forgiven to be treated as a contribution to
the capital of ASDG with respect to Mr. Mulholland's already outstanding ASDG
Common Stock. Prior to closing, ASDG issued 653,232 shares of its Common Stock
to Mr. Mulholland purportedly in satisfaction of the obligations mentioned
above. ASDG believes these shares were issued out of a misunderstanding of the
terms of the Shareholders Agreement, and ASDG has obtained the return of the
stock certificate representing these shares. ASDG believes that Mr. Mulholland
was required to forgive all of the pre-closing debts ASDG owed to him to fulfill
his obligations under the Shareholders Agreement.
TRANSACTIONS WITH COMPANIES CONTROLLED BY WILLIAM R. FAIRBANKS
William R. Fairbanks is ASDG's Chairman, President, Chief Executive
Officer, Treasurer and majority shareholder. Prior to ASDG's acquisition of
Paintball, he was the President, Chief Executive Officer, majority shareholder
and one of two directors of Paintball. Douglas L. Brown is ASDG's Vice President
and Secretary, one of its two directors and the beneficial owner of
approximately 8.1% of ASDG's Common Stock. Prior to ASDG's acquisition of
Paintball, he was Paintball's Vice President and Secretary and one of its two
directors. Mr. Fairbanks owns 70% and Mr. Brown owns 30% of the equity interests
in, and are the sole directors of, International Management Associates, Inc.
("IMA"). Mr. Fairbanks is the President of IMA, and Mr. Brown is the Vice
President and Secretary of IMA. Genesis Trading Corporation ("Genesis") is a
wholly-owned subsidiary of IMA. Mr. Fairbanks and Mr. Brown own 90% and 10%,
respectively, of the equity interests in NP Realty Company, LLC ("NPR").
31
INTERNATIONAL MANAGEMENT ASSOCIATES, INC. AND GENESIS TRADING
CORPORATION
ASDG purchases a certain style of an imported paintball gun from
Genesis. For the nine months ended September 30, 2002 and the years ended
December 31, 2001 and 2000, purchases of paintball guns from Genesis were
$271,518, $419,261 and $491,150, respectively. 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 nine months ended
September 30, 2002 and the years ended December 31, 2001 and 2000, advertising
expense associated with the race car was $120,028, $248,107 and 674,136,
respectively. The balance due from ASDG to Genesis at September 30, 2002,
December 31, 2001 and December 31, 2000 was $252,838, $247,577 and $141,643,
respectively. Balances bear no interest and are due on demand.
NP REALTY COMPANY, LLC (NPR)
ASDG leases office and warehouse facilities in Greenville, South
Carolina from NPR. 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. At
September 30, 2002, December 31, 2001 and December 31, 2000, the balance due
from NPR was $0, $0 and $222,167, respectively.
DESCRIPTION OF SECURITIES
ISSUED AND OUTSTANDING SECURITIES
ASDG's authorized capital consists of 100,000,000 shares of Common
Stock, par value $.001 per share and 100,000 shares of "blank check" preferred
stock, par value $.001 per share. No shares of ASDG's "blank check" preferred
stock have been designated or issued. As of November 19, 2002, there were
63,355,836 shares of Common Stock issued and outstanding, and ASDG had granted
options covering 1,325,000 shares of Common Stock to certain of its employees
pursuant to its new Stock Option Plan, subject to shareholder approval of the
plan. ASDG expects to submit the plan to its shareholders for approval at the
next annual meeting of shareholders, which ASDG currently expects to be held in
the first quarter of 2003. Holders of Common Stock do not have preemptive
rights.
MARKET INFORMATION
ASDG's Common Stock is currently traded on the NASD Over-the-Counter
Bulletin Board exchange (the "OTC-BB") under the symbol "ASDP" (sic). From April
24, 2001 to July 10, 2002, the stock traded on the OTC-BB under the market
symbol "BLMP". From December 28, 1999 to April 23, 2001, the stock traded on the
OTC-BB under the market symbol "GLLK." Prior to December 28, 1999, there was no
public market for ASDG's common stock. Since the commencement of trading in the
Common Stock, there has not been a firmly established public trading market for
the Common Stock. Set forth below is the high and low bid price for the Common
Stock on the OTC-BB for the 2000 and 2001 fiscal years and the first three
quarters of 2002 as listed on Nasdaq's web site at www.nasdaq.com. Quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
32
2000 2001 2002
- ---------------------------------------- -------------------------------------- --------------------------------------
Quarter High Low Quarter High Low Quarter High Low
- -------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------
1st $5.25 $4.00 1st $1.00 $0.44 1st $0.25 $0.11
2nd 3.13 1.13 2nd 0.56 0.33 2nd 0.77 0.18
3rd 1.13 0.38 3rd 0.47 0.12 3rd 0.47 0.26
4th 0.85 0.44 4th 0.52 0.08
As of November 20, 2002, there were approximately 400 record holders of
ASDG's Common Stock and the closing bid price of the Common Stock was $0.20 per
share. The Company has never paid dividends with respect to its Common Stock.
CHANGE IN CONTROL, BUSINESS COMBINATIONS AND ANTI-TAKEOVER PROVISIONS
Section 203 of the Delaware General Corporation Law (the "DGCL")
prohibits certain transactions between a Delaware corporation, the shares of
which are listed on a national securities exchange, and an "interested
stockholder," unless the bylaws or certificate of incorporation of the
corporation contains a provision expressly electing not to be governed by
Section 203 of the DGCL. ASDG has expressly elected not to be governed by
Section 203 in its Certificate of Incorporation.
Article VII(a) of ASDG's Certificate of Incorporation, as amended,
provides that, subject to the rights of holders of any series of preferred
stock, once ASDG's Common Stock has been registered under the Exchange Act
(which it has), (i) any action required or permitted to be taken by ASDG's
shareholders must be effected at an annual or special meeting of shareholders
and may not be effected by written consent, (ii) special meetings of
shareholders may only be called by resolution of the board of directors adopted
by a majority of the directors then in office or by ASDG's chief executive
officer, and (iii) advance notice of shareholder nominations for directors and
business to be brought before the annual meeting of shareholders shall be given
in the manner specified in ASDG's bylaws. These provisions may have an
anti-takeover effect.
Article VII(c) of ASDG's Certificate of Incorporation, as amended,
generally prohibits directors from being removed without cause, except that if
holders of a class or series of stock are entitled by the Certificate of
Incorporation, as amended, to elect one or more directors, such director(s) may
be removed without cause by a vote of holders of a majority of the outstanding
shares in that class. This provision may have an anti-takeover effect.
33
THE DISTRIBUTION
SELLING SHAREHOLDERS
The following table sets forth (i) the names of each Selling
Shareholder; (ii) the number of shares of ASDG Common Stock beneficially owned
by each Selling Shareholder prior to the offering; (iii) the number of shares of
ASDG Common Stock offered by each Selling Shareholder pursuant to this
prospectus; and (iii) the amount and percentage of ASDG Common Stock to be owned
by each Selling Shareholder after the offering is complete.
NUMBER OF SHARES NUMBER OF
OF COMMON STOCK SHARES PERCENTAGE OF
COMMON STOCK NUMBER OF OF COMMON STOCK SHARES
BENEFICIALLY SHARES OF BENEFICIALLY BENEFICIALLY
OWNED BEFORE COMMON STOCK OWNED AFTER THE OWNED AFTER THE
NAME OF BENEFICIAL OWNER THE OFFERING OFFERED OFFERING OFFERING
- ------------------------------------- -------------------- ------------------- -------------------- ------------------
UCI/NFI Affiliates 5,864,333 (1) 5,264,333 (1) 600,000 (1) 0.9%
William Carroll 3,483,633 (2) 3,483,633 (2) 0 0.0%
National Financial, Inc. 1,720,000 1,720,000 0 0.0%
Universal Consultants, Inc. 1,713,633 1,713,633 0 0.0%
Yvonne M. Hines 2,475,700 (3) 2,475,700 (3) 0 0.0%
TNR Development Company 25,000 25,000 0 0.0%
William E. Heldman 3,280,000 (4) 2,680,000 (4) 600,000 0.9%
Apex One, Inc. 25,000 25,000 0 0.0%
Apollo One, Inc. 50,000 50,000 0 0.0%
Certified One, Inc. 40,000 40,000 0 0.0%
Dylan's Dancehall, Inc. 415,000 415,000 0 0.0%
Prestige Financial, Inc. 100,000 100,000 0 0.0%
Silver County Financial, Inc. 60,000 60,000 0 0.0%
Theodore Richard Neil Gellert 250,000 250,000 0 0.0%
Larry and Marcella Cossio 897,495 897,495 0 0.0%
Gregg R. Mulholland (5) 1,898,583 600,000 1,298,583 2.1%
Dale Paisley (6) 175,000 175,000 0 0.0%
William R. Fairbanks (7) 45,643,244 (11) 3,692,300 (12) 41,950,994 (13) 65.3%
Red Oak Limited Partnership (8) 6,073,459 600,000 5,473,459 8.6%
Int'l Mgt. Assoc., Inc. (9) 92,300 92,300 0 0.0%
Douglas L. Brown (10) 5,153,516 (14) 692,300 (15) 4,461,216 7.0%
- ------------------------------------- -------------------- ------------------- -------------------- ------------------
Total 60,229,871 11,919,128 48,310,743 76.3%
(1) Includes (a) 1,713,633 shares beneficially owned by Universal Consultants,
Inc., a Nevada corporation ("UCI"), (b) 1,720,000 shares beneficially owned
by National Financial, Inc., a Nevada corporation ("NFI"), (c) 755,700
shares owned directly by Yvonne M. Hines, (d) 1,400,000 shares owned
directly by William E. Heldman pre-offering and 800,000 of such shares
post-offering, (e) 25,000 shares beneficially owned by Apex One, Inc., a
Nevada corporation ("Apex One"), (f) 50,000 shares beneficially owned by
Apollo One, Inc., a Nevada corporation ("Apollo One"), (g) 40,000 shares
beneficially owned by Certified One, Inc., a Nevada corporation ("Certified
One"), (h) 100,000 shares beneficially owned by Prestige Financial, Inc., a
Nevada corporation ("Prestige"), and (i) 60,000 shares beneficially owned
by Silver County Financial, Inc., a Nevada corporation ("Silver County").
(2) Includes (a) 1,713,633 shares beneficially owned by UCI, of which Mr.
Carroll is a director and 50% shareholder, (b) 1,720,000 shares
beneficially owned by NFI, of which Mr. Carroll is a director and 25%
shareholder and (c) 50,000 shares beneficially owned by Apollo One, Inc., a
Nevada corporation ("Apollo One") of which Mr. Carroll is a President. Mr.
Carroll has informed ASDG that he disclaims beneficial ownership of all
other shares set forth in the table above.
(3) Includes (a) 1,720,000 shares beneficially owned by NFI, of which Ms. Hines
is an officer, director, and 50% shareholder and (b) 755,700 shares held
directly or through a broker by Ms. Hines. Ms. Hines has informed ASDG that
she disclaims beneficial ownership of all other shares set forth in the
table above.
(4) Includes (a) 1,720,000 shares beneficially owned by NFI, of which Mr.
Heldman is an officer, director, and 25% shareholder, (b) 100,000 shares
beneficially owned by Prestige of which Mr. Heldman is President, (c)
60,000 shares beneficially owned by Silver County of which Mr. Heldman is
President and (d) 1,400,000 shares held directly by Mr. Heldman. Mr.
Heldman has informed ASDG that he disclaims beneficial ownership of all
other shares set forth in the table above.
34
(5) Mr. Mulholland was the Chairman and Chief Executive Officer of the Company
and its largest individual shareholder from December 29, 1999 to May 17,
2002. The share number includes 875,000 shares held of record by Mr.
Mulholland but placed in escrow to secure Mr. Mulholland's obligations
under the Mulholland Guarantee. See "Certain Relationships and Related
Transactions - ASDG Acquisition of Paintball Incorporated - Mulholland
Guaranty and -- Joint Escrow Agreement."
(6) Mr. Paisley was a consultant of ASDG prior to its acquisition of Paintball
Incorporated in May of 2002.
(7) Mr. Fairbanks is the Chairman, President, Chief Executive Officer,
Assistant Secretary, and Assistant Treasurer and a director of ASDG.
(8) Mr. Fairbanks and his wife are the general partners of Red Oak Limited
Partnership.
(9) Mr. Fairbanks is the President and a director and 70% shareholder of
International Management Associates, Inc. ("IMA"). Mr. Brown is the
Vice President and Secretary and a director and 30% shareholder of IMA.
(10) Mr. Brown is the Vice President, Secretary and Treasurer and a director of
ASDG.
(11) Includes 6,073,459 shares held by Red Oak Limited Partnership and 92,300
held by IMA.
(12) Includes 600,000 shares to be sold by Red Oak Limited Partnership and
92,300 to be sold by IMA.
(13) Includes 5,473,459 shares held by Red Oak Limited Partnership.
(14) Includes 92,300 shares held by IMA.
(15) Includes 92,300 shares to be sold by IMA.
MATERIAL RELATIONSHIPS WITH THEODORE RICHARD NEIL GELLERT, PAINTBALL GAMES OF
DALLAS, INC. & POWER PAINTBALL PRODUCTS, INC.
On April 17, 2000, the Company's subsidiary Paintball Incorporated acquired
certain of the assets of Paintball Games of Dallas, Inc. and Power Paintball
Products, Inc., both Texas corporations. The purchase price was $696,847,
comprised of a cash payment of $119,015, forgiveness of accounts receivable due
to Paintball Incorporated of $238,917, and a note payable to Paintball Games of
Dallas, Inc. and Power Paintball Products, Inc., jointly, in the original
principal amount of $338,915 maturing on May 1, 2003 bearing interest at a rate
of 7.5% per annum. The note was secured by a lien on inventory of Paintball
Incorporated having a fair market value equal to 110% of the outstanding
obligations under the note. The note provided that, in the event that the common
stock of Paintball Incorporated became publicly traded before the note was paid
in full, the creditors could elect to convert all or part of the outstanding
balance on the note into Paintball Incorporated common stock based on current
fair value of the stock. The note remains outstanding with an unpaid balance of
approximately $102,000.
In connection with the acquisition, Theodore Richard Neil Gellert, the
principal shareholder of Paintball Games of Dallas, Inc. and Power Paintball
Products, Inc. entered into an employment agreement with Paintball Incorporated.
The employment agreement had an initial term of 2 years and provided Mr. Gellert
with a salary of $80,000 per year, Paintball Incorporated's normal employee
benefits, health insurance for Mr. Gellert's wife and children, a $500 per month
vehicle allowance and a commission equal to 20% of the net profit actually
received by Paintball Incorporated on sales of the Scorpion paintball gun
marketed by Mr. Gellert. The employment agreement also provides that in the
event that Paintball Incorporated becomes a public company under Section 12 or
15 of the Exchange Act while Mr. Gellert is employed by Paintball Incorporated,
upon consummation of Paintball Incorporated becoming a public company, Paintball
Incorporated shall issue to Mr. Gellert $100,000 of common stock of Paintball
Incorporated. The employment agreement contains customary confidentiality and
non-competition provisions. Mr. Gellert's employment with Paintball Incorporated
was terminated in October 2001 prior to the expiration of his employment
agreement. Pursuant to a termination agreement, Mr. Gellert agreed to serve as a
consultant to Paintball Incorporated through April 17, 2002 for a lump sum
payment of $20,000 plus payment of his health insurance premiums through April
30, 2002. The obligation of Paintball Incorporated to issue $100,000 of its
common stock to Mr. Gellert described above was reduced to $50,000. Paintball
Incorporated also released all of its rights to the trade names "Paintball Games
of Dallas" and "Paintball Games" to Mr. Gellert. Mr. Gellert entered into a
Stock Subscription Agreement with ASDG dated November 21, 2002 providing for the
issuance of 250,000 shares of Common Stock to Mr. Gellert to satisfy any
obligation of Paintball Incorporated to issue $50,000 worth of stock to Mr.
Gellert, and these shares are included in the shares to which this Prospectus
pertains.
35
Also in connection with the acquisition, Paintball Incorporated
entered into an agreement to lease its Texas warehouse and retail space from
Shield Building Services, Inc., an affiliate of Ted Gellert. The lease covers
20,200 square feet, has a three year term expiring in March 2003, and provides
for monthly rent of approximately $5420.00. The lease gives Paintball
Incorporated an option to buy the leased premises and a right-of-first-refusal
in the event the landlord receives an offer to purchase the leased premises.
MATERIAL RELATIONSHIPS WITH LARRY AND MARCELA COSSIO
On July 11, 2001, Paintball Incorporated acquired certain assets of
Cossio Enterprises, Inc., doing business as National Paintball Association and
Warrior Sports Gear. The purchase price was $302,334, comprised of a cash
payment of $122,835 and two notes payable jointly to Larry and Marcela Cossio,
the owners of Cossio Enterprises, Inc., in the principal amounts of $75,000 and
$104,499. The principal amounts of the notes were payable in lump sums on
October 11, 2001 and October 11, 2002, respectively. The notes bore interest at
a rate of 7% per annum payable monthly. The principal amounts of the notes were
not paid at maturity, and Paintball Incorporated continued to pay monthly
interest. The notes provided that, in the event that the common stock of
Paintball Incorporated became publicly traded before the notes were paid in
full, the creditors could elect to convert all or part of the outstanding
balance on the notes into Paintball Incorporated common stock based on current
fair value of the stock. Pursuant to a Stock Subscription Agreement dated
November 12, 2002, the creditors agreed to purchase 897,495 shares of the
Company's Common Stock at a price of $0.20 per share in exchange for the
$179,499.00 outstanding aggregate principal balance of the notes. The Company
agreed to register the resale of such shares by December 18, 2002, and these
shares are included in the shares offered by this Prospectus.
In connection with the asset purchase, Paintball Incorporated's
subsidiary ILM, Inc. entered into an employment agreement with Larry Cossio
pursuant to which Mr. Cossio is employed as the President of ILM, Inc. with an
annual salary of $99,600 per year and an annual bonus equal to 10% of the net
operating profit of the division that includes ILM, Inc. The employment
agreement also entitled Mr. Cossio to Paintball Incorporated's normal employee
benefits, reimbursement of $5,000 of moving expenses, and an expense allowance
of $700 per month. The original term of the agreement expires in 2006 and will
automatically renew yearly until terminated by either party. Either party may
terminate the agreement early at will, but Paintball Incorporated will be liable
for severance pay equal to Mr. Cossio's base salary for the duration of the
original term, payable in bi-weekly increments, if Paintball Incorporated
terminates Mr. Cossio's employment without cause. The employment agreement
contains customary confidentiality and non-competition provisions. Marcella
Cossio entered in a confidentiality and non-competition agreement with Paintball
Incorporated restricting her right to sell commercial and personal insurance
policies.
OTHER MATERIAL RELATIONSHIPS WITH SELLING SHAREHOLDERS
For a description of other material relationships between the Selling
Shareholders and ASDG and its predecessors and affiliates in addition to those
described in the notes to the preceding table, see "Certain Relationships and
Related Transactions" and "Management" above, which discussions are incorporated
herein by reference.
36
PLAN OF DISTRIBUTION
The Selling Shareholders may offer to sell their shares from time to
time in the over-the-counter market, on any exchange on which the shares may
hereafter be listed, or in negotiated transactions at prevailing market prices
or at negotiated prices. Some or all of the Selling Shareholders may also sell
their shares in open market transactions in reliance upon Rule 144 under the
Securities Act, provided that such Selling Shareholders comply with all
applicable requirements under the Rule.
The Selling Shareholders may use broker-dealers to sell their shares,
who may receive commissions from the Selling Shareholders or from purchase of
the shares. The Selling Shareholders and any broker-dealers who act in
connection with the sale of the shares may be deemed to be statutory
underwriters under the Securities Act. Any commissions received by such
broker-dealers and profit on any resale of the shares may be deemed to be
underwriting discounts and commissions under the Securities Act.
ASDG has informed the Selling Shareholders that the anti-manipulative
provisions of Regulation M promulgated under the Securities Exchange Act of
1934, as amended ("Regulation M"), may apply to their sales in the market. With
certain exceptions, Regulation M precludes any Selling Shareholder, any
affiliated purchaser, and any broker-dealer or other person who participates in
the distribution from bidding for or purchasing or attempting to induce any
person to bid for or purchase any security that is the subject of the
distribution until the entire distribution is complete. Regulation M also
prohibits any bid or purchase made in order to stabilize the price of a security
in connection with an offering.
ASDG will pay all costs relating to the preparation of this prospectus
and the registration of common stock hereunder. The Selling Shareholders will
pay all commissions and other fees payable to broker-dealers in connection with
any sale of Common Stock by them.
ASDG has not been informed that any of the Selling Shareholders will
engage in passive market-making as permitted by Rule 103 of Regulation M and
believes that none of the Selling Shareholders meet the requirements to engage
in passive market-making as permitted by Rule 103 of Regulation M.
USE OF PROCEEDS
ASDG will not receive any proceeds from the sale of the shares of
Common Stock received by the Selling Shareholders. If, and when, the Selling
Shareholders actually sell their shares, the proceeds from such sale shall
belong to the Selling Shareholders and be used for such purposes as they
determine in their independent judgment.
DETERMINATION OF OFFERING PRICE
ASDG's common stock is traded on the Over-The-Counter Bulletin Board.
The Selling Shareholders may, in their sole discretion, sell all or part of
their shares in the over-the-counter market from time to time at the prevailing
market price, which is likely to be the bid price for ASDG's common stock on the
applicable sale date, or in private transaction at negotiated prices.
37
INDEMNIFICATION
Article 10 of ASDG's Certificate of Incorporation, as amended
("Certificate of Incorporation"), Article VII of ASDG's Bylaws and Section 145
of the Delaware General Corporate Law (the "DGCL") all provide for
indemnification by ASDG of its officers and directors and permit ASDG to
maintain insurance to protect its officers and direct
Section 145 of the DGCL generally gives a corporation the power to
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding (other than
an action by or in the right of the corporation) by reason of the fact that the
person is or was a director or officer of the corporation or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another entity (an "Indemnity") against expenses (including reasonable
attorneys' fees), judgments, fines and amounts paid in settlement if the person
to be indemnified acted in good faith and in a manner the person reasonably
believed to be in or not opposed to the best interests of the corporation (and
with respect to a criminal action, the person had no reasonable cause to believe
was not unlawful). With respect to actions brought by or in the right of the
corporation, such persons are not entitled to indemnification unless the
applicable court so determines. To the extent the Indemnitee is successful in
his defense, the corporation is required to indemnify him for his expenses
actually incurred, including reasonable attorneys' fees. Indemnification must be
approved by a majority of directors not involved in the proceeding or a
committee of independent directors (or by independent legal counsel if there are
no such directors) or by the stockholders. The corporation may advance expenses
to the Indemnitee if the Indemnitee gives an undertaking to repay advances if it
is ultimately determined that the indemnitee is not entitled to the
indemnification. The DGCL permits a corporation to purchase insurance coverage
for Indemnitees against liability asserted against such person incurred by such
person in any capacity or arising out of such person's status regardless of
whether the corporation is allowed to indemnify such person.
Article 10 of ASDG's Certificate of Incorporation generally provides
that if any officer or director is made a party to, or threatened to be made a
party to or otherwise involved in, any action, suit or proceeding, whether civil
or criminal, administrative or investigative, by reason of the fact that he or
she was an officer or director or serving as an officer or director of another
company at ASDG's request, then that officer or director shall be indemnified to
the fullest extent permitted by the Delaware General Corporation Law. The
indemnification continues after the indemnitee ceases to be an officer or
director. The Certificate of Incorporation requires ASDG to advance expenses of
officers and directors incurred in defending proceedings provided the indemnitee
undertakes in writing to repay all amounts advanced if an unappealable
adjudication determines the indemnitee is not entitled to indemnification for
such expenses. The right to indemnification in the Certificate of Incorporation
is not exclusive.
Article VII of ASDG's Bylaws ("Bylaws") generally require ASDG to
indemnify any person who was or is an officer or director of ASDG to the fullest
extent permitted by applicable law against all costs and liabilities, including
fines and attorneys fees, arising out of his or her status as an officer or
director. The Bylaws authorize ASDG to advance expenses provided the officer or
director provides an undertaking to repay the advances if it is ultimately
determined that the person is not entitled to be indemnified. ASDG's Bylaws
permit ASDG to maintain insurance to protect ASDG and its officers and directors
against fines, liabilities, costs and expenses. The right to indemnification in
the Bylaws is not exclusive.
The Share Exchange Agreement dated May 16, 2002 by and between ASDG and
William R. Fairbanks, Red Oak Limited Partnership and Douglas L. Brown (the "Old
Paintball Shareholders") requires ASDG to indemnify, to the maximum extent
permitted by applicable law, the Old Paintball Shareholders against losses and
liability arising in connection with alleged untrue statements of material fact
or material omissions of information concerning ASDG in any statement and
38
application made to any governmental agency in connection with the transactions
contemplated in the Share Exchange Agreement or provided or made to any Old
Paintball Shareholder. Mr. Fairbanks is the Chairman, President, Chief Executive
Officer, Assistant Secretary, Assistant Treasurer and controlling shareholder of
ASDG. Mr. Brown is the Vice President, Secretary and Treasurer of ASDG. Mr.
Fairbanks and Mr. Brown are the sole directors of ASDG.
Insofar as indemnification of liabilities arising under the Securities
Act of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the small business issuer pursuant to the forgoing 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 Act and is, therefore, unenforceable.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 2001
and December 31, 2000 and the consolidated income statements, statements of
shareholders' equity and statements of cash flows of the Company for each of the
years in the three year period ended December 31, 2001 have been included in
this Prospectus in reliance upon the report of Merdinger, Fruchter, Rosen &
Company, P.C., independent certified public accountants, which is also included
in this Prospectus, and upon the authority of such firm as experts in accounting
and auditing.
ADDITIONAL INFORMATION AVAILABLE FROM THE SEC
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended. Pursuant to the provisions of the
Exchange Act, the Company files reports, proxy statements and other information
with the Securities and Exchange Commission (the "SEC"). The public may read and
copy any materials the Company files with the SEC at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy
and information statements, and other information regarding issuers that file
electronically with the SEC (such as the Company) at http://www.sec.gov.
The Company has filed with the SEC a Registration Statement (which
shall include any amendments thereto) on Form SB-2 under the Securities Act with
respect to the Shares offered by this Prospectus. This Prospectus does not
contain all the information set forth in the Registration Statement, certain
parts of which are omitted in accordance with the rules and regulations of the
SEC. The Registration Statement and the annexes and schedules thereto are
available for inspection and copying as set forth in the preceding paragraph.
For further information with respect to the Company and the Shares offered by
this Prospectus, reference is hereby made to the Registration Statement,
including the annexes and schedules thereto.
39
AMERICAN SPORTS DEVELOPMENT GROUP, INC.
AND SUBSIDIARIES
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 2001, 2000 AND 1999
And
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIOD ENDED
SEPTEMBER 30, 2002
F-i
INDEX TO THE FINANCIAL STATEMENTS
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN SPORTS DEVELOPMENT GROUP,
INC. AND SUBSIDIARIES FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
Independent Auditor's Report F-1
Consolidated Balance Sheets F-2
Consolidated Income Statements F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to the Consolidated Financial Statements F-6
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN SPORTS DEVELOPMENT
GROUP, INC. AND SUBSIDIARIES FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2002
Consolidated Balance Sheets F-16
Consolidated Income Statements F-17
Consolidated Statements of Cash Flows F-18
Notes to the Consolidated Financial Statements F-19
F-ii
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.
F-1
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.
F-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.
F-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.
F-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.
F-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.
F-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.
F-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.
F-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.
F-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.
F-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.
F-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:
F-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).
F-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
============= ============
F-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.
F-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.
F-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.
F-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.
F-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.
F-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.
F-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.
F-21
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 2002 AND DECEMBER 31, 2001
SEPTEMBER 30, 2002 DECEMBER 31, 2001
(unaudited)
ASSETS
Current Assets:
Cash and cash Equivalents $ 448,285 $ 304,239
Accounts receivable 1,693,195 2,607,121
Other receivables- employees 40,001 27,247
Recoverable income taxes 257,968 84,419
Note receivable - 30,000
Loans receivable- related parties - 95,554
Prepaid and other current assets 13,362 150,360
Inventory 2,448,259 2,311,065
------------- ------------
Total Current Assets 4,901,070 5,610,005
Property and Equipment-net of accumulated depreciation
and amortization of $734,378 and $579,578, respectively 539,775 601,864
Goodwill, net of accumulated amortization of $69,952 and
$69,952, respectively 2,090,721 529,112
Other intangibles, net of accumulated amortization of
$71,188 and $25,250, respectively 469,812 241,150
Other assets 70,625 53,060
------------- ------------
TOTAL ASSETS $ 8,072,003 $ 7,035,191
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank line of credit 1,380,909 1,086,074
Accounts payable and accrued expenses 3,859,572 4,164,863
Due to affiliate 252,838 247,577
Notes payable-current portion 383,252 649,876
------------- -------------
Total Current Liabilities 5,876,571 6,148,390
Notes payable, less current portion - 64,924
------------- -------------
TOTAL LIABILITIES 5,876,571 6,213,314
------------- -------------
Stockholders' Equity
Note receivable (150,000)
Preferred stock-0 par value , authorized 20,000,000 shares,
Common Stock - $.001 par value, authorized 100,000,000
shares, 5,948,295 shares and 62,540,835 shares
issued and outstanding at December 31, 2001 and
September 30, 2002, respectively 62,541 5,948
Additional Paid-In Capital 2,140,931 216,485
Retained Earnings 141,960 599,444
------------- -------------
Total Stockholders' Equity 2,195,432 821,877
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,072,003 $ 7,035,191
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2002 2001
---- ----
Net sales $ 15,626,199 $ 17,165,696
Cost of sales 12,306,181 13,835,294
--------------------- ----------------------
Gross profit 3,320,018 3,330,402
Selling, general and administrative expenses 3,900,975 3,166,139
--------------------- ----------------------
Income (Loss) from operations (580,957) 164,263
Other income (expense):
Interest expense, net (65,082) (95,341)
Other income 15,103 303,300
--------------------- ----------------------
Income (loss) before income taxes (630,936) 372,222
Income tax expense (benefit) (173,452) 148,578
--------------------- ----------------------
Net income (loss) $ (457,484) $ 223,644
===================== ======================
Net income (loss) per common share
--------------------- ----------------------
Basic and diluted $ (0.01) $ 0.04
===================== ======================
--------------------- ----------------------
Weighted average shares outstanding 33,783,278 5,948,295
===================== ======================
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
AMERICAN SPORTS DEVELOPMENT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 31,
2002 2001
---- ----
Cash flows from operating activities:
Net income (loss) $ (457,484) $ 223,644
Adjustments to reconcile Net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 200,638 185,854
Bad debt expense 44,216 49,600
(Increase) decrease in accounts receivable 869,710 (533,325)
Increase in other receivables (12,754) (100,516)
(Increase) decrease in recoverable income taxes (173,549) 3,862
(Increase) decrease in inventory (124,422) 260,679
Decrease in prepaid expenses 173,132 49,732
(Increase) decrease in due from affiliates 95,554 (33,722)
Increase in other assets (15,341) (55,951)
Decrease in accounts payable and accrued expenses (679,341) (13,512)
Increase in due to affiliate 5,261 41,701
Increase in income taxes payable - 144,538
------------------------------------
Total cash provided by (used for) operating activities (74,380) 222,584
Cash flows from investing activities:
Purchase of fixed assets (20,361) (43,074)
Cash paid for acquisition - (122,835)
Acquisition of domain name (24,500) (84,450)
(Increase) decrease in notes receivable 130,000 (150,000)
-------------------------------------
Total cash provided by (used for) by investing activities 85,139 (400,359)
Cash flows from financing activities:
Proceeds under bank line of credit 6,088,909 5,581,000
Payments under bank line of credit (5,794,074) (5,060,000)
Repayment of notes payable (331,548) (306,190)
Sale of common stock 170,000 -
-------------------------------------
Total cash provided by financing activities 133,287 214,810
Net increase in cash and cash equivalents 144,046 37,035
Cash and cash equivalents - beginning of period 304,239 241,787
-------------------------------------
Cash and cash equivalents - end of period $ 448,285 $ 278,822
=====================================
Supplemental disclosure of cash flow information:
Cash paid during period for:
Interest $ 65,588 $ 97,017
Income taxes $ - $ -
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
AMERICAN SPORTS DEVELOPMENT GROUP, INC.
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2002
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. and Subsidiaries (the Company),
incorporated under the law of the state of Delaware on August 5, 1998. Results
of operations of American Inflatables, Inc. are included in the accompanying
unaudited interim Consolidated Statements of Income from May 17, 2002, its date
of acquisition. (See "Acquisitions" below.) All significant intercompany
accounts and transactions have been eliminated in consolidation.
Line of Business
The Company is primarily 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. In addition, the
company's subsidiary American Inflatables, Inc. manufactures and markets
inflatable products used for advertising purposes by a wide array of retail and
industrial customers. (See "Acquisition" below.)
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 for the year ended December 31, 2001, as contained in the Company's
reports on Form 10-KSB filed with the Securities and Exchange Commission on
April 16, 2002 and an amendment thereto filed on May 9, 2002, and in conjunction
with the audited financial statements and related notes for the year ended
December 31, 2001 of the Company's wholly-owned subsidiary Paintball
Incorporated (formerly known as American Sports Development Group, Inc. and
National Paintball Supply Company, Inc.) as contained in the Company's report on
Form 8-K/A filed with the Securities and Exchange Commission on July 31, 2002.
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 and nine month periods ended September 30, 2002 are
not necessarily indicative of results of operations to be expected for the full
year.
F-25
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, Paintball Incorporated 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 Paintball Incorporated was $30,000, which
was received during the first quarter of 2002.
NOTE 3. ACQUISITION
On May 17, 2002, the Company (then known as American Inflatables, Inc.) acquired
American Sports Development Group, Inc., a South Carolina corporation formerly
known as National Paintball Supply Company, Inc. ("Paintball"). For accounting
purposes, the transaction was treated as the acquisition of the Company by
Paintball in a reverse acquisition. The Company 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 Paintball for all the issued
and outstanding shares of Paintball making Paintball a wholly owned subsidiary
of the Company.
In June 2002, after the reverse acquisition, the Company was restructured as
follows:
(1) Paintball's wholly-owned subsidiary Paintball Incorporated was
merged into Paintball with Paintball as the surviving company but
with its name changed from "American Sports Development Group,
Inc." to "Paintball Incorporated";
(2) The Company 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) The Company 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 the Company survived as the parent company with the name
"American Sports Development Group, Inc." and with two wholly owned operating
subsidiaries: (1) Paintball, a South Carolina corporation named "Paintball
Incorporated," conducting the paintball gaming business and (2) the new American
Inflatables, Inc., a Delaware corporation, conducting the inflatable advertising
business. The Company's stock symbol was also changed from "BLMP" to "ASDP"
(sic).
F-26
NOTE 3. ACQUISITION (CONTINUED)
The Company has assigned a value of $1,801,757 to this acquisition, based on the
publicly quoted fair value of its common stock. In accordance with EITF 99-12,
this value was calculated using the average closing stock price of the Company's
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 approximately $1,800,000. 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 is being amortized over its remaining
useful life of 5 years. Approximately $1,560,000 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. PRO FORMA FINANCIAL INFORMATION
The following summarized unaudited pro forma financial information assumes the
acquisition described in Note 3 above had occurred on January 1 of each of the
periods presented. The summarized unaudited pro forma financial information is
provided for informational purposes only and is not necessarily indicative of
actual results that would have been realized had the acquisition occurred at the
assumed dates and is not necessarily indicative of future results. The following
summarized unaudited pro forma financial information does not reflect any
potential benefits from cost savings or synergies expected to be realized
following the acquisition.
Nine Months Ended
Sept. 30, 2002 Sept. 30, 2001
-------------- --------------
Sales $16,096,901 $17,427,396
Loss from continuing operations (912,877) (49,837)
Net income (loss) (795,087) 9,544
Net income (loss) per share:
Basic and diluted $(0.01) $0.00
F-27
NOTE 5. 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. The Company has not recorded expense related to
goodwill amortization for the three and nine months ended September 30, 2002.
For the three and nine months ended September 30, 2001, the Company recorded
expense related to the amortization of goodwill of $10,819 and $25,454,
respectively.
NOTE 6. SALE OF COMMON STOCK
In September 2002, the Company sold 680,000 shares of unregistered common stock
at $.25 per share to an accredited investor pursuant to a stock subscription
agreement dated October 1, 2002. In October 2002, the Company sold 800,000
shares of unregistered common stock at $.25 per share to an accredited investor
pursuant to a stock subscription agreement dated October 3, 2002.
During September 2002 and October 2002, the Company also issued 54,028 and
15,000 shares, respectively, of its common stock to two consultants in
transactions registered on Forms S-8 filed with the Securities and Exchange
Commission on September 30, 2002 and October 22, 2002 in satisfaction of
payables owed to the consultants totaling approximately $14,300.
F-28
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 10 of the Company's Certificate of Incorporation, as amended,
Article VII of the Company's Bylaws and Section 145 of the Delaware General
Corporate Law all provide for indemnification by the Company of its officers and
directors and permit the Company to maintain insurance to protect its officers
and directors against fines, liabilities, costs and expenses. The Company does
not currently have any such insurance.
The Share Exchange Agreement dated May 16, 2002 by and between ASDG and
William R. Fairbanks, Red Oak Limited Partnership and Douglas L. Brown (the "Old
Paintball Shareholders") requires ASDG to indemnify, to the maximum extent
permitted by applicable law, the Old Paintball Shareholders against losses and
liability arising in connection with alleged untrue statements of material fact
or material omissions of information concerning ASDG in any statement and
application made to any governmental agency in connection with the transactions
contemplated in the Share Exchange Agreement or provided or made to any Old
Paintball Shareholder. Mr. Fairbanks is the Chairman, President, Chief Executive
Officer, Assistant Secretary, Assistant Treasurer and controlling shareholder of
ASDG. Mr. Brown is the Vice President, Secretary and Treasurer of ASDG. Mr.
Fairbanks and Mr. Brown are the sole directors of ASDG.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is ASDG's current estimate of the expenses of the
offering to which this Registration Statement pertains, all of which will be
borne by ASDG:
Registration Fee $225
Printing and Engraving Costs $5,000
Legal Fees $15,000
Accounting Fees $5,000
---------------------------------------------------
TOTAL $25,225
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The Company believes that the following transaction were exempt from the
registration requirements of the Securities Act pursuant to Section 4(2)
thereof.
FOURTH QUARTER 2002
o On October 9, 2002, the Company's Board of Directors adopted a 2002
Stock Option Plan (the "Plan") that is subject to the subsequent
approval and adoption by the Company's shareholders. A copy of the
Plan is filed as Exhibit 10.10 to this quarterly report and is
incorporated herein by reference. The Company expects to submit the
Plan to its shareholders for their approval at the next annual meeting
of shareholders, currently expected to be held in the first or second
quarter of 2003. If the Plan is approved by the Company's
shareholders, the Company expects to register the issuance of shares
pursuant to the Plan on Form S-8. On October 22, 2002, the Board
granted options covering an aggregate of 1,325,000 shares to an
aggregate of 32 employees, subject to approval of the Plan by the
Company's shareholders. These options have an exercise price of $0.25
per share ($0.01 per share greater than the closing stock price on
October 21, 2002), begin vesting on June 1, 2003 and are expected to
II-1
be subject to a yet-to-be-determined vesting schedule and other
yet-to-be-determined terms and conditions. The Plan provides that
these options must expire no later than the tenth anniversary of the
grant date.
o In October 2002, the Company sold 800,000 shares of unregistered
common stock at $.25 per share to an accredited investor pursuant to a
stock subscription agreement dated October 3, 2002.
THIRD QUARTER 2002
o In September 2002, the Company sold 680,000 shares of unregistered
common stock at $.25 per share to an accredited investor pursuant to a
stock subscription agreement dated October 1, 2002.
SECOND QUARTER 2002
o On April 1, 2002, the Company issued a convertible note in the
principal amount of $30,000 bearing interest at an annual rate equal
to10% that was convertible into 200,000 shares of the Company's common
stock. The note was issued to Spartan Limited Partnership, the general
partner of which is an employee of Paintball Incorporated. The note
was converted in accordance with its terms on June 27, 2002.
o On May 16, 2002, the Company issued 653,232 shares of its common stock
to Gregg Mulholland, the President and Chief Executive Officer and a
director and substantial shareholder of the Company in satisfaction of
$206,250 in accrued unpaid salary and $211,819 of cash advances by Mr.
Mulholland to the Company.
o On May 16, 2002, the Company issued 175,000 shares of its common stock
to Dale Paisley, a consultant who performed many of the duties
ordinarily performed by a chief financial officer prior to the
Company's acquisition of Paintball, in satisfaction of $100,000 of
accrued payables owed to Mr. Paisley.
o On May 16, 2002, the Company issued 100,000 shares of its common stock
to Jeff Jacobson, the Company's chief operating officer prior to the
Company's acquisition of Paintball, in satisfaction of oral promises
made to Mr. Jacobson by the Company's chief executive officer prior to
the Paintball acquisition, Gregg Mulholland.
o On May 17, 2002, in accordance with the Company's acquisition of
Paintball Incorporated, the Company 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
Paintball for all the issued and outstanding shares of Paintball,
making Paintball a wholly owned subsidiary of the Company.
FIRST QUARTER 2002
o On February 6, 2002, the Company issued 125,000 shares to Spartan
Limited Partnership for $.25 per share.
FOURTH QUARTER 2001
o In the fourth quarter of 2001, the Company sold 125,000 shares of its
common stock pursuant to a private offering at $.25 per share.
THIRD QUARTER 2001
o None
SECOND QUARTER 2001
o None
II-2
FIRST QUARTER 2001
o In the first quarter of 2001, the Company sold 26,548 shares of its
Common stock pursuant to a private offering at $.37 2/3 per share.
FOURTH QUARTER 2000
o The Company issued 1,000,000 shares of its Common Stock upon exercise
of warrants. The proceeds of $250,000 are in the form of a note
receivable.
o The Company issued 1,053,984 shares of its Common Stock to Gregg
Mulholland, then the Company's Chairman and Chief Executive Officer,
for compensation of $410,000.
o The Company sold 146,016 shares of its Common Shares for cash of
$45,000, pursuant to a private offering.
o The Company issued a warrant to Universal Consultants, Inc. to
purchase 1,320,000 shares of its Common Shares with an exercise price
of $.25 per share (the UCI Warrant) pursuant to a private offering.
THIRD QUARTER 2000
o The Company issued 163,500 shares of its Common Stock upon conversion
of a note payable of $150,000 and accrued interest of $13,500.
o The Company issued 37,000 shares of its Common Stock for financial and
accounting services valued at $25,088.
o The Company issued 116,425 shares of its Common Stock in cancellation
of liabilities totaling $76,300.
o The Company issued 100,000 shares of its Common Stock for financial
and accounting services valued at $26,000.
SECOND QUARTER 2000
o The Company issued 120,000 shares of its Common Stock to an officer
for compensation of $103,000.
o The Company issued 50,000 shares of its Common Stock to a director for
fees valued at $76,800.
o The Company issued 175,000 shares of its common stock for investor
relations services valued at $175,000.
o The Company sold 350,000 shares of its Common Stock and warrants to
purchase 1,000,000 shares of its Common Stock with an exercise price
of $0.25 per share for total consideration of $250,000, pursuant to a
private offering.
o The Company issued 163,500 shares of its Common Stock upon conversion
of a note payable of $150,000 and accrued interest of $13,500.
FIRST QUARTER 2000
o The Company sold 132,500 shares of its Common Stock pursuant to a
private offering at $1.00 per share.
FOURTH QUARTER 1999
o The Company issued 3,050,000 shares of its Common Stock pursuant to
the reverse merger transaction with Can/Am Marketing Group, LLC.
o The Company issued 518,000 shares of its common stock upon conversion
of notes payable issued in a private placement.
II-3
ITEM 27. EXHIBITS.
2.1.1 Reorganization Agreement dated October 12, 2000 by and among National Paintball Supply Company, Inc. (now known as
Paintball Incorporated) and American Inflatables, Inc. (now known as American Sports Development Group, Inc.):
Incorporated by reference to Exhibit 2.1 to Amendment No. 5 filed with the Commission on November 6, 2001 to the
Registration Statement on Form S-4 of National Paintball Supply Company, Inc. filed with the Commission on February
26, 2001 (Commission File No. 333-56198) (the "Paintball S-4").
2.1.2 Amendment No. 1 to Reorganization Agreement entered into as of January 31, 2001: Incorporated by reference to Exhibit
2.1 to the Paintball S-4.
2.1.3 Amendment No. 2 to Reorganization Agreement, entered into as of August 13, 2001: Incorporated by reference to Exhibit
2.1 to the Paintball S-4.
2.1.4 Amendment No. 3 to Reorganization Agreement, entered into as of October 29, 2001: Incorporated by reference to Exhibit
2.1 to the Paintball S-4.
2.2.1 Stock Purchase Agreement dated May 16, 2002 by and between the Shareholders of American Sports Development Group,
Inc. (f/k/a National Paintball Supply Co., Inc. and n/k/a Paintball Incorporated) and American Inflatables, Inc.
(n/k/a American Sports Development Group, Inc.): Incorporated by reference to Exhibit 2.1.1 to the Company's Current
Report on Form 8-K dated May 17, 2002 filed with the Commission on June 3, 2002 (Commission File No. 0-26943) (the "May
17, 2002 8-K").
2.2.2 Guaranty and Indemnification Agreement of Gregg R. Mulholland dated May 16, 2002: Incorporated by reference to
Exhibit 2.1.2 to the May 17, 2002 8-K.
2.2.3 Escrow Agreement dated May 16, 2002 by and among William R. Fairbanks, Red Oak Limited Partnership, Douglas A. Brown,
Gregg R. Mulholland, Robert B. Beauchamp, Universal Consultants, Inc., National Financial, Inc., William Carroll,
Meir J. Westreich, and Douglas R. Holmes: Incorporated by reference to Exhibit 2.1.3 to the May 17, 2002 8-K.
3.1.1 Amended and Restated Certificate of Incorporation of the Company: Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form 10SB of the Company filed with the Commission on August 4, 1999 (Commission
File No. 000-26943) (the "Form 10SB").
3.1.2 Certificate of Ownership and Merger of Wholly-Owned Subsidiary Pursuant to Section 253 of the Delaware General Corporate
Law dated June 18, 2002 (providing for merger of American Sports Development Group, Inc., a Delaware corporation, with
and into American Inflatables, Inc., a Delaware corporation, with American Inflatables, Inc. as the surviving
corporation but with the name "American Sports Development Group, Inc."): Incorporated by reference to the Company's
Registration Statement on Form S-8 filed with the Commission on September 30, 2002 (Commission File No. 333-100192).
3.2 Bylaws of the Company: Incorporated by reference to Exhibit 3.2 to the Form SB10.
4.1 Specimen of Common Stock Certificate: Incorporated by reference to Exhibit 4.1 to the Form SB10.
4.2 Stock Subscription Agreement dated October 1, 2002 by and between the Company and Yvonne Hines: Incorporated by
reference to Exhibit 4.2 to the Company's Quarterly Report on Form 10-QSB for the quarter ended September 30, 2002 filed
with the Commission on November 6, 2002 (Commission File No. 000-26943) (the "September 30, 2002 10-QSB").
4.3 Stock Subscription Agreement dated October 3, 2002 by and between the Company and Bill Heldman: Incorporated by
reference to Exhibit 4.3 to the September 30, 2002 10-QSB.
4.4 Stock Subscription Agreement dated November 21, 2002 by and between the Company and Theodore Richard Neil Gellert.
II-4
4.5 Stock Subscription Agreement dated November 21, 2002 by and between the Company and Larry Cossio and Marcella Cossio.
4.6 See Exhibits 3.1.1, 3.1.2 and 3.2 above.
5.1 Opinion of Warren J. Soloski, Esq.
5.2 Opinion of Wyche, Burgess, Freeman & Parham, P.A.
10.1 Promissory Note dated October 30, 2002 by ASDG to SouthTrust Bank in the principal amount of $1,327,813.38.
10.2 Employment Agreement dated May 16, 2002 by and between American Inflatables, Inc. and Gregg R. Mulholland: Incorporated
by reference to Exhibit 10.2 to the May 17, 2002 8-K.
10.3 Option Agreement between Gregg Mulholland and National Financial, Inc. dated February 20, 2000: Incorporated by
reference to Exhibit 10.3 to Amendment No. 1 filed with the Commission on May 9, 2002 to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 2001 (Commission File No. 000-26943) (the "2001 10-KSB/A").
10.4 Note Payable to Universal Consultants, Inc. dated December 12, 2000: Incorporated by reference to Exhibit 10.4 to the
2001 10-KSB/A.
10.5 Warrant to purchase 1,320,000 shares issued to Universal Consultants, Inc. dated December 20, 2000: Incorporated
by reference to Exhibit 10.5 to the 2001 10-KSB/A.
10.6 Guarantee of Note Payable to Universal Consultants, Inc. by Gregg Mulholland dated December 12, 2000: Incorporated
by reference to Exhibit 10.6 to the 2001 10-KSB/A.
10.7 Note receivable from TNR Development Company dated September 20, 2000: Incorporated by reference to Exhibit 10.7 to the
2001 10-KSB/A.
10.8 Security Agreement from TNR Development Company dated September 20, 2000: Incorporated by reference to Exhibit 10.8 to the
2001 10-KSB/A.
10.9 Note receivable from Dylans Dancehall, Inc. dated September 20, 2000: Incorporated by reference to Exhibit 10.9 to the
2001 10-KSB/A.
10.10 Security Agreement from Dylans Dancehall, Inc. dated September 20, 2000: Incorporated by reference to Exhibit 11.1 (sic)
to the 2001 10-KSB/A.
10.11 Settlement Agreement between Gregg Mulholland, American Inflatables, Inc., National Financial, Inc., William Carroll, and
Universal Consultants Inc. dated December 31, 2000: Incorporated by reference to Exhibit 11.2 (sic) to the 2001 10-KSB/A.
10.12 2002 Stock Option Plan adopted by the Company's Board of Directors on October 9, 2002: Incorporated by reference to
Exhibit 10.13 to the September 30, 2002 10-QSB.
10.13 Project Work Agreement dated May 27, 2002 by and between Tatum CFO partners, LLP and the Company: Incorporated by
reference to Exhibit 4.3 to the September 30, 2002 10-QSB.
10.14 Paintball Profit Sharing Plan: Incorporated by reference to Exhibit 10.1 to the Paintball S-4 (included in the initial
filing).
10.15 See Exhibits 4.2 through 4.5 above.
21.1 Subsidiaries of the Company.
II-5
23.1 Consent of Merdinger, Fruchter, Rosen and Company, P.A.
23.2 Consent of Warren J. Soloski, Esq.: Included in Exhibit 5.1.
23.3 Consent of Wyche, Burgess, Freeman & Parham, P.A.: Included in Exhibit 5.2.
24.1 Power of Attorney: Included on signature page.
ITEM 28. UNDERTAKINGS.
(a) ASDG hereby undertakes to:
(1) File, during any period in which it offers or sells the securities
registered hereby, a post-effective amendment to this registration
statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii)Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information 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) promulgated under the Securities Act if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii)Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(e) Insofar as indemnification for liabilities arising under the Securities 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 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 Securities Act and will be governed by the final adjudication of such
issue.
II-6
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
city of Greenville, State of South Carolina, on November 27, 2002.
AMERICAN SPORTS DEVELOPMENT GROUP, INC.
By: /s/ William R. Fairbanks
----------------------------------------------
William R. Fairbanks
Chairman, President & Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement was signed by the following persons in the
capacities and on the dates stated.
NAME & SIGNATURE TITLE DATE
/s/ William R. Fairbanks Director, Chairman, President & November 27, 2002
- --------------------------------------- Chief Executive Officer
William R. Fairbanks
/s/ Douglas L. Brown Director, Vice President, November 27, 2002
- -------------------------------------- Secretary & Treasurer
Douglas L. Brown
/s/ William B. Kearney Consultant performing services November 27, 2002
- --------------------------------------- commonly performed by a
William B. Kearney Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William R. Fairbanks and Douglas L.
Brown, and each of them individually, his or her true and lawful
attorney(s)-in-fact and agent(s), with full power of substitution and
re-substitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments to this registration statement
and to file the same, with all exhibits and schedules thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney(s)-in-fact and agent(s) full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorney(s)-in-fact and agent(s), or their substitute(s), may lawfully do or
cause to be done by virtue hereof.
Date: November 27, 2002
/s/ William R. Fairbanks /s/ Douglas L. Brown
- -------------------------------------- -------------------------------
William R. Fairbanksiam F. Fairbanks Douglas L. Brown
Director, Chairman, President & Director, Vice President,
Chief Executive Officer Secretary & Treasurer