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 SEPTEMBER 30, 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 November 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 September 30, 2001 and 2000................... 4
Statement of Operations for the Nine Months
Ended September 30, 2001 and 2000................... 5
Statement of Cash Flows For the Nine Months
Ended September 30, 2001 and 2000................... 6
Notes to Financial Statements
as of September 30, 2001............................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 8
PART II OTHER INFORMATION..................................... 11
Item 1: Legal Proceedings..................................... 11
Item 2: Changes in Securities................................. 11
Item 3: Defaults Upon Senior Securities....................... 11
Item 4: Submission of Matters to a Vote of Security Holders... 11
Item 5: Other Information..................................... 11
Item 6(a): Exhibits.............................................. 11
Item 6(b): Reports on Form 8.K................................... 11
SIGNATURES....................................................... 12
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
September 30, December 31,
2001 2000
------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash ............................................$ 1,200 $ 3,900
Accounts Receivable............................. 22,800 -0-
Inventory........................................ 10,800 10,800
Prepaid expenses and other current assets........ 49,800 50,400
--------- ---------
Total current assets....................... 84,600 65,100
Fixed assets
Display and promotional blimps, net.............. 16,600 16,600
Computers, furniture and office equipment, net... 30,200 36,900
Leasehold improvements, net..........................53,700 57,000
--------- ---------
Total fixed assets.......................... 100,500 110,500
Deposits........................................... 15,400 13,400
--------- ---------
Total assets...............................$ 200,500 $ 189,000
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable.................................... $330,000 $ 330,000
Accounts payable................................. 101,100 77,700
Accrued payroll liabilities...................... 196,700 162,300
Accrued liabilities.............................. 85,800 6,100
Due to related party............................. 158,200 43,600
--------- ---------
Total current liabilities.................. 871,800 619,700
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............................. (3,661,400) (3,420,800)
--------- ---------
Total stockholders' equity (deficit)....... (671,300) (430,700)
--------- ---------
Total liabilities and
stockholders' (deficit) equity $ 200,500 $ 189,000
========= =========
See accompanying notes to financial statements
3
AMERICAN INFLATABLES, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30,
2001 2000
----------- ----------
(UNAUDITED) (UNAUDITED)
Revenues.........................................$ 261,700 $ 613,000
Cost of goods sold.......................... 153,700 249,000
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Gross profit 108,000 363,700
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Administrative expenses:
Depreciation and amortization............... 2,000 10,000
Professional fees........................... 16,000 46,200
Office expense.............................. 51,200 25,900
Salaries and payroll expenses............... 87,200 48,400
Marketing................................... 128,200 132,300
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Total.................................. 284,600 262,800
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Net (loss) income...................$ (176,600) $ 100,900
========== ===========
Loss income per share......................$ (0.02) $ 0.02
========== ===========
Weighted average shares.................... 8,594,792 6,188,884
========== ===========
See accompanying notes to financial statements
4
AMERICAN INFLATABLES, INC.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30,
(UNAUDITED)
2001 2000
----------- -----------
(UNAUDITED) (UNAUDITED)
Revenues.........................................$ 1,164,100 $1,4583,300
Cost of goods sold.......................... 624,400 716,200
---------- ----------
Gross profit..................................... 539,700 737,100
---------- ----------
Administrative expenses
Depreciation and amortization............... 10,000 45,100
Legal, accounting and consulting............ 77,100 1,928,700
Office expense.............................. 143,600 190,400
Salaries and payroll expenses............... 165,600 331,600
Marketing................................... 359,300 356,600
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Total.................................. 755,600 2,852,500
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Operating loss................................... (215,900) (2,115,400)
Interest expense................................. 24,700 -
Net loss.........................................$ (240,600) $ (2,115,400)
========= ===========
Loss per share..............................$ (0.03) $ (0.38)
========== ===========
Weighted average shares..................... 8,594,792 5,499,884
========== ===========
See accompanying notes to financial statements
5
AMERICAN INFLATABLES, INC.
STATEMENTS of CASH FLOWS
For The Nine Month Periods Ended September 30,
2001 2000
----------- -----------
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss)............................... $ (240,600) $(2,115,400)
Adjustments to Reconcile
Net Income (Loss) to Net Cash Provided
By (Used In) Operating Activities
Stock issued for services....................... -0- 1,122,700
Depreciation and amortization................... 10,000 45,100
(Increase) Decrease in:
Accounts receivable............................ (22,800) (37,000)
Prepaid expense and other assets................ 600 (8,100)
Inventory....................................... -0- (31,500)
Deposits........................................ (2,000) -0-
Increase (Decrease) in:
Accounts payable............................... 23,400 (57,500)
Accrued expenses............................... 114,100 822,800
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES........... (117,300) (258,900)
----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES
Issuance of common stock........................ -0- 332,300
Advances from related party..................... 114,600 -0-
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES....... 114,600 332,300
----------- -----------
NET INCREASE (DECREASE) IN CASH................. (2,700) 73,400
CASH AT BEGINNING OF PERIOD..................... 3,900 900
----------- -----------
CASH AT END OF PERIOD........................... $ 1,200 $ 74,300
=========== ===========
See accompanying notes to financial statements
6
Notes to Financial Statements (Unaudited)
Note A. BASIS OF PRESENTATION
The unaudited financial statements of American Inflatables, Inc. have been
prepared in accordance with the instructions to Form 10-QSB and do not include
all of the information and note disclosures required by generally accepted
accounting principles. However, management has included all adjustments
necessary so the financial statements are not misleading in the opinion of
management. These statements should be read in conjunction with the financial
statements and notes thereto included in our last audited financial statements.
Note B. NOTES PAYABLE
The note payable an September 30,2001 of $330,000 and accrued interest thereon
of $24,700 was due in May 2001. The note and accrued interest has not been paid
and is in default. The holder of this note has demanded payment.
7
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 September 30, 2001 there were 8,594,792 shares issued and outstanding.
THREE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2000
RESULTS OF OPERATIONS. Sales in the three month period in 2001 decreased
$351,300 (57%) to $261,700 from $613,000 in 2000. This decrease is a result of
the cancellation of three trade shows after September 11. These three trade
shows generated over $200,000 in 2000. Further, two trade shows held in the
third quarter of 2000 are being held in the fourth quarter of 2001.
Gross margin as a percentage of sales was 41% in 2001 compared to 59% in 2000, a
decrease of 18%. This decrease is due primarily to large special orders in 2001
that required substantial design costs that could not be passed on to the
customer. The Company believes that it will have additional sales to these
customers in the future.
Legal, accounting and consulting costs decreased $30,200 (65%) to $16,000 in
2001 as a result of non recurring merger and acquisition costs and professional
fees associated with the merger with National Paintball Supply Company, Inc. and
a cancelled registration statement in 2000.
Office expenses increased $25,300 (98%) to $51,200 in 2001 as a result of
increased infrastructure called for by the proposed merger with National
Paintball Supply Company, Inc.
Payroll costs increased $38,800 (89%) to $87,200 in 2001 as a result of
increased administrative costs and officers salaries.
Marketing costs decreased 3% to $128,200 in 2001 as a result of three cancelled
and two postponed trade shows partially offset by costs associated with trade
shows more geographically distant than those attended in 2000.
NINE MONTHS ENDED SEPTEMBER 30, 2001 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2000
RESULTS OF OPERATIONS. Net sales were $1,164,100 for the nine months ended
September 30 2001, an decrease of $289,200 (20%) compared to net sales of
$1,453,300 for the nine months ended September 30, 2000. The de crease in sales
is due to the cancellation of three trade shows in September after September 11.
In 2000 these trade shows generated over $200,000 in sales. Further, two trade
shows held in the third quarter of 2000 are being held in the fourth quarter of
2001.
8
Gross margin as a percentage of sales for the nine months ended September 30,
2001 was 46%, an decrease of 3% from the nine months ended September 30, 2000.
This decrease results primarily to sales in 2001 of large special order products
from large customers. The Company was not able to pass on all of its design
costs of these orders but believes that it will receive future orders from these
customers.
Legal, accounting and consulting costs decreased $1,851,600 during the first
nine months of 2001 compared to the same period in 2000. The decrease results
from non recurring merger and acquisition costs and professional fees associated
with a cancelled registration statement incurred during the six months ended
June 30, 2000.
Office expense decreased $46,800 or 25% in the first nine months of 2001
compared to the same period in 2000 as a result of efficiencies realized with
the maturity of the Company's systems and procedures.
Payroll costs decreased $166,000 or 50% in the first nine months of 2001
compared to the first nine months of 2000 due to a more stable work force in
2001, which is more efficient and resulted in less training time for new
employees. In addition, the number of administrative employees was reduced by
three.
Marketing costs were about the same in 2001 as in 2000 as the increase in the
number of trade shows attended in 2001 offset the cancellation of three trade
shows after September 11 and the movement of three trade shows from the third
quarter to the fourth quarter in 2001.
LIQUIDITY AND CAPITAL RESOURCES
At September 30 the Company had a cash and cash equivalents of $1,200, a
decrease of $2,700 from $3,900 at December 31, 2000.
Cash used in operating activities was $117,300 during the nine month period
ended September 30, 2001. Use of cash in operating activities consisted mainly
of the net loss for the nine month period of $240,600, reduced by the increase
in other current liabilities. The operating use of cash was funded through
advances to the Company by its Chief Executive Officer.
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.
9
The Company's success will be dependent upon its ability to generate sufficient
cash flow to meet its obligations on a timely basis, to obtain financing or
refinancing as may be required, and ultimately to achieve profitability. The
Company believes that its current cash resources to fund its operations through
fiscal 2001 without additional financing. The Company may not be able to obtain
sufficient financing to satisfy its cash requirements. The Company may be
required to obtain financing on terms that are not favorable to the Company or
its shareholders. If the Company is unable to obtain additional financing when
needed, it may be required to delay or scale back its operations, which could
have a material adverse effect on its business, financial condition and results
of operations.
The Company anticipates that it will need to raise additional capital on a
private placement basis through the sale of the Company's common stock,
preferred stock, debt or convertible debt, or some combination thereof. The
Company believes that if it is unable to raise additional equity or debt capital
sufficient to meet its current needs, the Company may need additional capital
soon thereafter. This additional capital, if needed, will be on such terms as
may then be available.
While the Company is currently exploring opportunities available to raise
additional capital, it has not received any commitment from any investor,
underwriter, lender or broker dealer to provide any funds. There is no assurance
that the Company will be successful in raising additional funds, or, if is
successful, that, in view of the Company's current circumstances, and funds can
be raised on terms that are reasonable.
The Company is in the process of being acquired by National Paintball Supply
Co., Inc. The Company believes that National Paintball Supply Co., Inc. has the
ability to, and will provide the necessary liquidity to the Company after the
acquisition is completed.
RECENT ACCOUNTING PRONOUNCEMENTS
During 2000, the Emerging Issues Task Force issued EITF 00-10 "Accounting for
Shipping and Handling Fees and Costs" and EITF 00-14 "Accounting for Certain
Sales Incentives." Both of these required implementation during the second
quarter of 2001. The Company does not believe the implementation of either of
these pronouncements have had a material effect on its financial statements.
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.
10
In July 2001 the FASB issued SFAS 141, "Business Combinations" and SFAS 142,
"Goodwill and Other Intangible Assets." SFAS 141 requires that the purchase
method of accounting be used to account for all business combinations entered
into after June 30, 2001. SFAS 142 requires that goodwill and other intangible
assets with indefinite lives be tested for impairment annually and not be
subjected to amortization. The provisions of SFAS 142 will apply to the Company
beginning January 1, 2002.
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.
11
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: November 16, 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: November 16, 2001 By: /s/ Gregg Mulholland
---------------------------
Gregg Mulholland
Chairman of the Board
Chief Executive Officer
Date: November 16, 2001 By: /s/ Jeffrey Jacobsen
---------------------------
Jeffrey Jacobsen
Chief Operating Officer
Director
Date: November 16, 2001 By: /s/ David Ariss
---------------------------
David Ariss
Director
12