UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
FOR THE QUARTER PERIOD ENDED MARCH 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-26943
AMERICAN INFLATABLES, INC.
--------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4695878
-------- ----------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
947 NEWHALL STREET, COSTA MESA, CA 92627
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 949-515-1776
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR
VALUE $.01 PER SHARE
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No[ ]
As of May 15, 2001, there were 8,621,346 shares of the Registrant's common
stock, $.01 par value per share, issued and outstanding.
PAGE
PART I FINANCIAL INFORMATION................................. 2
Item 1. Financial Statements (Unaudited)...................... 3
Balance Sheet......................................... 3
Statement of Operations for the Three Months
Ended March 31, 2001 and 2000....................... 4
Statement of Cash Flows For the Three Months
Ended March 31, 2001 and 2000....................... 5
Notes to Financial Statements
as of March 31, 2001................................ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 11
PART II OTHER INFORMATION..................................... 13
Item 1: Legal Proceedings..................................... 13
Item 2: Changes in Securities................................. 13
Item 3: Defaults Upon Senior Securities....................... 13
Item 4: Submission of Matters to a Vote of Security Holders... 13
Item 5: Other Information..................................... 13
Item 6(a): Exhibits.............................................. 13
Item 6(b): Reports on Form 8.K................................... 13
SIGNATURES....................................................... 14
1
PART I - FINANCIAL INFORMATION
NOTE REGARDING FORWARD-LOOKING STATEMENTS.
This Form 10-QSB contains forward-looking statements within the meaning of the
safe harbor" provisions under Section 21E of the Securities Exchange Act of 1934
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 10-QSB to reflect any change in our
expectations or any changes in events, conditions or circumstances on which any
forward-looking statement is based. Factors, which could cause such results to
differ materially from those described in the forward-looking statements, and
elsewhere in, or incorporated by reference into this Form 10-QSB.
2
ITEM 1 Financial Statements
AMERICAN INFLATABLES, INC.
BALANCE SHEET
MARCH 31, December 31,
2001 2000
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash ............................................$ 8,200 $ 3,900
Accounts Receivable............................. 19,400 -0-
Inventory........................................ 10,800 10,800
Prepaid expenses and other current assets........ 51,800 50,400
--------- ---------
Total current assets....................... 90,200 65,100
Fixed assets
Display and promotional blimps, net.............. 15,200 16,600
Computers, furniture and office equipment, net... 34,300 36,900
Leasehold improvements, net..........................55,400 57,000
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Total fixed assets.......................... 104,900 110,500
Deposits........................................... 15,400 13,400
--------- ---------
Total assets...............................$ 210,500 $ 189,000
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable....................................$ 330,000 $ 330,000
Accounts payable................................. 62,200 77,700
Accrued payroll liabilities...................... 160,660 162,300
Accrued liabilities.............................. 49,000 6,100
Due to related party............................. 48,600 43,600
--------- ---------
Total current liabilities.................. 650,400 619,700
Stockholders' equity
Common stock..................................... 86,000 86,000
Additional paid in capital....................... 3,154,100 3,154,100
Note receivable.................................. (250,000) (250,000)
Accumulated deficit............................. (3,430,000) (3,420,800)
--------- ---------
Total stockholders' equity (deficit)....... (439,900) (430,700)
--------- ---------
Total liabilities and
stockholders' (deficit) equity $ 210,500 $ 189,000
========= =========
See accompanying notes to financial statements
3
AMERICAN INFLATABLES, INC.
STATEMENTS OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31,
2001 2000
-------------- --------------
(UNAUDITED) (UNAUDITED)
Revenues.........................................$ 508,500 $ 441,100
Cost of goods sold.......................... 230,000 198,600
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Gross profit..................................... 278,500 242,500
---------- ----------
Administrative expenses
Depreciation and amortization............... 5,600 5,300
Legal and accounting........................ 19,700 13,800
Office expense.............................. 73,800 54,300
Salaries and payroll expenses............... 51,600 67,700
Marketing................................... 75,900 85,100
Travel & entertainment...................... 61,100 21,000
---------- ----------
Total.................................. 287,700 247,200
---------- ----------
Net loss ..........................$ (9,200) $ (4,700)
========== ==========
Loss per share..............................$ (0.00) $ (0.00)
========== ==========
Weighted average shares..................... 8,621,000 4,565,000
========== ==========
See accompanying notes to financial statements
4
AMERICAN INFLATABLES, INC.
STATEMENTS OF CASH FLOWS
QUARTER ENDED MARCH 31,
2001 2000
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss)............................... $ (9,200) $ (4,700)
Adjustments to Reconcile
Net Income (Loss) to Net Cash Provided
By (Used In) Operating Activities
Depreciation and amortization................... 5,600 5,300
(Increase) Decrease in:
Accounts receivable............................ (19,400) -0-
Prepaid expense and other assets................ (1,400) 62,300
Inventory....................................... -0- 6,800
Deposits........................................ (2,000) -0-
Increase (Decrease) in:
Accounts payable............................... (15,500) 10,800
Accrued expenses............................... (41,200) 11,800
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES........... (700) (91,100)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment/leaseholds................ -0- (10,600)
Advances to/from related party.................. (5,000) (4,000)
----------- -----------
NET CASH USED IN INVESTMENT ACTIVITIES.......... 5,000 (14,600)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock........................ -0- 115,000
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES....... -0- 115,000
----------- -----------
NET INCREASE (DECREASE) IN CASH................. 4,300 9,300
CASH AT BEGINNING OF PERIOD..................... 3,900 900
----------- -----------
CASH AT END OF PERIOD........................... $ 8,200 $ 10,200
=========== ===========
See accompanying notes to financial statements
5
Notes to Financial Statements (Unaudited)
Note A. ORGANIZATION AND BASIS OF PRESENTATION
American Inflatables, Inc., (the Company") (a Delaware Corporation) provides,
manufactures and markets alternative advertising products such as inflatable
blimps and other custom inflatable products.
Note B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all cash balances and highly liquid
investments having original maturities of three months or less.
INVENTORY
Raw materials are valued at the lower of cost (first in first out) or market.
Work-in-process, consisting of labor, materials, and overhead on partially
completed projects, are recorded at cost but not in excess of net realizable
value. The Company produces its products to specific customer orders and
therefore does not have an inventory of finished goods.
PROPERTY PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
generally range from three years for computer software to seven years for
equipment. Leasehold improvements are amortized on a straight-line basis over
ten years.
REVENUE AND EXPENSE RECOGNITION
Revenue from product sales are generated primarily from the manufacturing and
selling of advertising products, which consist of inflatable blimps and other
custom inflatables. The period of time from initial order to final shipment of
the product typically ranges from seven to ten days. Revenue is recognized when
the product is shipped by the Company to the client. Expenses are recorded when
incurred.
ADVERTISING
The Company follows the policy of charging the costs of advertising to expense
as incurred. The Company's significant advertising expenses are trade show
costs. The Company has produced several products for display at trade shows.
These products are not for sale and the Company depreciates the tradeshow blimps
over their estimated lives of 60 months.
6
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards (SFAS) No.109, "Accounting for Income Taxes."
Deferred income taxes reflect the net tax effects of temporary differences
between the financial statement carrying amounts and the tax rates in effect in
the years in which the differences are expected to reverse. The Company has a
net operating loss ("NOL") as of December 31, 2000 of approximately $2,500,000
for federal and state purposes. This NOL will begin to expire in the year 2015
if not previously utilized.
ESTIMATES
The preparation of these financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the financial statements and the reported amounts of revenues and
expenses during each period. Actual results could differ from those estimates.
BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is calculated in accordance with SFAS 128, Earnings Per Share
for each period presented. Basic net loss is based upon weighted average number
of common shares outstanding during each period. Diluted loss per share is based
on the assumption that all dilutive convertible debt and warrants were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.
COMPREHENSIVE INCOME
The Company adopted SFAS 130, Reporting Comprehensive Income, which establishes
standards for reporting comprehensive loss and its components in the financial
statements. To date, the Company's comprehensive loss equals its net loss.
REPORTABLE OPERATING SEGMENTS
SFAS 131, Segment Information, amends the requirements for companies to report
financial and descriptive information about their reportable operating segments.
Operating segments, as defined in SFAS 131, are components of an enterprise for
which separate financial information is available and is evaluated regularly by
a company in deciding how to allocate resources and in assessing performance.
The financial information is required to be reported on the basis that is used
internally for evaluating segment performance. The Company currently operates in
a single reportable operating segment.
7
ACCOUNTING FOR STOCK-BASED COMPENSATION
Statement of Financial Standards No. 123 "Accounting for Stock-Based
Compensation" (SFAS No.123) prescribes a fair value method of accounting for
stock based compensation plans and for transactions in which stock options or
other equity instruments are exchanged for goods or services. The Company
adopted this accounting standard at inception. Accordingly, the fair value of
the equity instruments issued is used to account for the payment of services
rendered. Also, in accordance with SFAS No. 123, the Company has footnote
disclosure with respect to stock-based non-employee compensation. The cost of
stock based compensation is measured at the grant date on the value of the award
and recognizes this cost over the service period. The value of the stock-based
award is determined using a pricing model whereby compensation cost is the
excess of the fair market value of the stock as determined by the model at grant
date or other measurement date over the amount an employee must pay to acquire
the stock.
NEW ACCOUNTING PRONOUNCEMENTS
In December 1999, the Staff of the Securities and Exchange Commission released
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition, to provide
guidance on the recognition, presentation and disclosure of revenues in
financial statements. In June 2000, the SEC staff amended SAB 101 to provide
registrants with additional time to implement SAB 101. The Company will be
required to adopt SAB 101 by the fourth quarter of fiscal 2001. The Company
adopted the revenue the revenue recognition practices to conform to SAB 101. The
adoption of SAB 101 has not had a material effect on the Company's financial
position or results of operations.
Note C. INVENTORY
All inventories as of March 31, 2001 and December 31, 2000 were raw materials.
Inventory is valued using the first in first out (FIFO) lower cost or market
method.
Note D. PREPAID EXPENSES
The Company markets its products by attending trade shows. To secure strategic
locations and favorable rates a deposit is required to be placed in excess of
nine months prior to the show. Accordingly the Company has $51,800 at March 31,
2001 and $50,400 as of December 31,2000 in deposits. These amounts are expensed
in the period of the trade show.
Note E. NOTES PAYABLE
The note matures in May 2000 and bears 10% interest annually. The note is
secured by the assets of the Company as well as a personal guarantee by the
Company's CEO. The note also includes warrants to purchase common stock of the
Company as described in Note I.
8
Note F. COMMON STOCK
The Company has 20,000,000 authorized shares of $0.001 par value preferred
shares. As of December 31, 2000 and 1999 there were no shares issued and
outstanding.
The Company has authorized 20,000,000 shares of $0.01 par value common stock. As
of March 31, 2001, and December 31, 2000 were 8,594,798 and 4,537,921 shares
issued and outstanding, respectively.
Note G. RELATED PARTY TRANSACTIONS
The officers and directors of the Company are involved in other business
activities and may, in the future become involved in additional business
opportunities. If a specific business opportunity becomes available, such
persons may face a conflict in selecting between the Company and their other
business interests. The Company has not formulated a policy for the resolution
of such conflicts.
As of March 31, 2001 and December 31, 2000 the Company its CEO $48,600 and
$43,600, respectively. The CEO advanced these funds to meet working capital
needs of the Company. These advances are due on demand and are unsecured.
Additionally, the Company has not accrued interest on these advances as the
Company's CEO has waived any demand for such interest.
The Chief Executive Officer personally guarantees the lease on the Company's
facility as well as the $330, 000 short-term note payable, (Note E).
Note H. WARRANTS AND OPTIONS
In connection with the $330,000 short term note payable, the Company issued
warrants to purchase 1,320,000 shares of its common stock at $0.25 a share. The
warrants may be exercised in whole or part at any time and expire December 31,
2003.
In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation", the Company determined the value of
these warrants using The Black-Scholes Option Model. The resulting value was
greater than the total proceeds, and therefore the warrants are recorded at face
value of the related notes payable. As the warrants can be exercised
immediately, the resulting debt discount of $330,000 was recorded as interest
expense during the year ended December 31, 2000.
9
Note I. GOING CONCERN
The Company's financial statements are prepared using the generally accepted
accounting principles applicable to a going concern, which contemplates the
realization of assets and liquidation of liabilities in the normal course of
business. The Company has sustained significant losses and has negative working
capital. Without the realization of additional capital, it may be unlikely for
the Company to continue as a going concern. The Company's plan for survival is
based upon several factors including the continued increase in revenue, which
has occurred over the last two years. Management believes however that it will
achieve breakeven by the end of 2001. The Company's large 2000 loss is partially
the result of non-cash expenses satisfied through the issuance of shares of its
common stock. Further, the Company has generated working capital through sales
of its common stock.
In October 2000 the Company agreed to be acquired by National Paintball Supply
Co., Inc., ("National"). If the acquisition is completed, the Company will
become a wholly owned subsidiary of National and therefore will not depend upon
its own operations to continue.
If the acquisition does not occur, the Company believes it will be able to raise
sufficient capital through borrowings and/or the sale of equity securities to
meet its obligations until profitable operations are achieved.
Note J. COMMITMENTS & CONTINGENCIES
The Company's sales to the automobile industry exceed 50% of the Company's total
sales. An economic downturn to the auto industry could seriously impact Company
sales.
Note K. LEASES
The Company leases a combination of offices and production facility in Costa
Mesa, California totaling 10,000 square feet. The lease is accounted for as an
operating lease, under the terms of a one-year lease with ten one-year
consecutive renewal options and is personally guaranteed by the Company's Chief
Executive Officer.
10
Item 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company has authorized 20,000,000 shares of $0.01 par value common stock. As
of March 31, 2001 there were 8,594,798 shares issued and outstanding.
THREE MONTHS ENDED MARCH 31, 2001 COMPARED TO THREE MONTHS ENDED MARCH 31, 2000
RESULTS OF OPERATIONS. Net sales were $508,550 for the three months ended March
31, 2001, an increase of $67,400 or 15% compared to net sales of $441,000 for
the three months ended March 31, 2000. The increase in sales is due to the
Company increasing its customer base. Sales for the Company continue to grow at
an increasing rate not just from repeat customers but from new customers. The
Company continues to increase its presence and exposure in the advertising
markets through increased attendance at trade shows and other advertising
mediums that provide greater exposure.
Gross margin as a percentage of sales for the three months ended March 31, 2001
was 55%, which was the same as for the three months ended March 31, 2000. The
Company earned $278,500 in gross during the three months ended March 31, 2001.
The increase in net sales contributed to the increase in gross margin. The
Company through its use of higher quality materials for production, decreased
replacements and warranty coverage and provides a stronger product for sale to
the customer. During Fiscal 2000 and the first quarter of 2001 the Company
increased production and manufacturing staff, in order to increase sales,
enabling the Company to fully utilize its production staff to increase gross
margins. This is evident by the Company's continuing ability to increase its
sales and maintain a production facility that keeps up with this growth.
Legal and accounting costs increased $5,900 or 43% in the first quarter of 2001
compared to the same period in 2000, primarily as a result of fees associated
with the Company's proposed acquisition by National Paintball Supply Co., Inc.
Office expense increased $19,500 or 36% in the first quarter of 2001 compared to
the same period in 2000 as a result of the Company's increased infrastructure
needed to support growth and its proposed merger.
Payroll costs decreased $16,100 or 24% in the first quarter of 2001 compared to
the first quarter of 2000 due to a more stable work force in 2001, which is more
efficient and resulted in less training time for new employees.
Marketing costs decreased $9,200 or 11% during the first quarter of 2001
compared to the same period in 2000 as a result of the Company's more focused
approach to its target market.
Travel and entertainment costs increased $40,100 or 191% in the first quarter of
2001 compared to the first quarter of 2000 as a result of the Company sending
more representatives to trade shows and attending trade shows more distant from
its offices.
11
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2001, the Company had cash and cash equivalents of $8,200, an
increase of $4,300 from $3,900 at December 31, 2000.
Cash used in operating activities was $700 during the quarter ended March 31,
2001. Use of cash in operating activities consisted mainly of the net loss for
the three month period of $9,200, the offsetting effects of depreciation and
amortization of $5,600, and fluctuations in certain assets and liabilities.
To date, the Company has not invested in derivative securities or any other
financial instruments that involve a high level of complexity or risk. Cash has
been, and the Company contemplates that it will continue to be, used for general
operating purposes.
From time to time, the Company may evaluate potential acquisitions of products,
businesses, and technologies that may complement or expand the Company's
business. Any such transactions consummated may use a portion of the Company's
working capital and/or require the issuance of equity or debt.
The Company believes that its current cash and cash equivalent balance along
with the additional financing is insufficient to meet its working capital
expenditures through the near term and will require the Company in seeking
additional capital and/or equity. The Company is currently exploring various
financing and credit facilities and is in the process of being acquired by
National Paintball Supply Co., Inc.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including some derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for other hedging activities. The Company will adopt SFAS 133
in Fiscal 2001, in accordance with SFAS 137, which deferred the effective date
of SFAS 133. The adoption of this standard in Fiscal 2001 is not expected not
have a material impact on the Company's consolidated financial statements.
12
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
There are no material legal proceedings to which the Company is currently a
party or to which the property of the Company is subject.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBIT AND REPORTS ON FORM 8-K
a) Exhibits
b) Reports on Form 8-K
None.
13
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Date: May 18, 2001 By: /s/ Gregg Mulholland
---------------------------
Gregg Mulholland
Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Date: May 18, 2001 By: /s/ Gregg Mulholland
---------------------------
Gregg Mulholland
Chairman of the Board
Chief Executive Officer
Date: May 18, 2001 By: /s/ Jeffrey Jacobsen
---------------------------
Jeffrey Jacobsen
Chief Operating Officer
Director
Date: May 18, 2001 By: /s/ David Ariss
---------------------------
David Ariss
Director
14