As Filed with the Securities and Exchange Commission on June 8, 2005
Registration No. 333-124084
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
AVP, INC.
(Exact name of Small Business Issuer in its charter)
DELAWARE 7929 98-0142664
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. employer identification
incorporation or organization) Classification Code Number) number)
6100 Center Drive, Suite 900
Los Angeles, CA 90045
(310) 426-8000
(Address of Principal Place of Business or Intended Principal
Place of Business)
Leonard Armato
Chief Executive Officer
6100 Center Drive, Suite 900
Los Angeles, CA 90045
(310) 426-8000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
David C. Fischer, Esq.
Loeb & Loeb LLP
345 Park Avenue
New York, NY 10154-0037
(212) 407-4000 (212)
407-4990 (fax)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: FROM TIME TO
TIME AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on the Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box. [X]
If the Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act of 1933, as amended (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 the Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If 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: [ ]
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 SECTION 8(A), MAY
DETERMINE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
2
SUBJECT TO COMPLETION, DATED June 8, 2005
PROSPECTUS
114,248,948 SHARES
AVP, INC.
COMMON STOCK
This prospectus relates to an aggregate of up to 114,248,948 shares of our
common stock, which may be offered by the selling stockholders identified in
this prospectus for their own account. See Selling Stockholders, beginning on
page 37. We will not receive any proceeds from the sale of the shares by these
selling stockholders. We may, however, receive proceeds in the event that some
or all of the options or warrants held by the selling stockholders are exercised
for cash.
Unless the context otherwise requires, the terms "we," "us" or "our" refer to
AVP, Inc. and its consolidated subsidiaries.
Prices of our common stock are quoted on the OTC Bulletin Board under the symbol
"AVPN." Until March 21, 2005, our common stock traded on the OTCBB under the
symbol "ONET." The last reported sales price per share of our common stock, as
reported by the OTCBB on May 31, 2005, was $0.20.
INVESTING IN OUR COMMON STOCK IS EXTREMELY RISKY. SEE "RISK FACTORS" BEGINNING
ON PAGE 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is June 8, 2005.
3
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY..............................................................................................1
RISK FACTORS....................................................................................................3
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS........................................................7
BUSINESS........................................................................................................9
LEGAL PROCEEDINGS..............................................................................................15
DESCRIPTION OF PROPERTY........................................................................................16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.........................17
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE..........................26
MANAGEMENT.....................................................................................................27
EXECUTIVE COMPENSATION.........................................................................................28
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................................................................30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.................................................31
DESCRIPTION OF SECURITIES......................................................................................32
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES.................................................................34
PLAN OF DISTRIBUTION...........................................................................................34
SELLING STOCKHOLDERS...........................................................................................37
LEGAL MATTERS..................................................................................................43
EXPERTS .......................................................................................................43
AVAILABLE INFORMATION..........................................................................................44
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS....................................................................F-1
ITEM 24. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES......................................II-1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION...............................................II-1
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES...................................................II-1
ITEM 27. EXHIBITS..................................................................................II-3
ITEM 28. UNDERTAKINGS..............................................................................II-5
i
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU SHOULD
NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL
OR BUY ANY SHARES IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL. THE INFORMATION
IN THIS PROSPECTUS IS CURRENT AS OF THE DATE ON THE COVER.
ii
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in our securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements and the notes to the financial
statements.
Business Overview
AVP, Inc. owns and operates the sole nationally and internationally recognized
U.S. professional beach volleyball tour. AVP has more than 125 of the top
professional players under exclusive contracts, as well as a sizable base of
spectators and television viewers that represents an attractive audience for
national, regional, and local sponsors. AVP's business includes establishing and
managing tournaments; sponsorship sales and sales of broadcast, licensing, and
trademark rights; sales of food, beverage, and merchandise at tournaments;
contracting with players on the tour; and associated activities. AVP produced 12
men's and 12 women's professional beach volleyball tournaments throughout the
United States in 2004 and has scheduled 14 each for 2005.
1
Summary Financial Information
The following summary financial information is derived from our financial
statements included at the end of this prospectus.
Statement of Operations Data Three Months Ended Year Ended
March 31, December 31,
------------------------------- -------------------------------
2005 2004 2004 2003
- ------------------------------------------ ------------- ------------- ------------- -------------
Revenue $ 103,956 $ 52,698 $ 12,309,005 $ 7,294,128
Loss $ (4,881,230) $ (967,423) $ (2,873,112) $ (3,700,971)
Source of revenue as a percent of revenue
Sponsorship 0.0% 0.0% 80.1% 84.3%
Activation fees 0.0% 0.0% 6.8% 0.0%
Local Revenue
Merchandising 1.8% 1.1% 2.6% 2.2%
Ticket sales and parking 0.0% 0.0% 2.5% 0.7%
Registration fees 0.0% 0.0% 1.0% 1.6%
Beach Club (corporate hospitality) 0.0% 0.0% 1.0% 0.1%
Food and beverages 0.0% 0.0% 0.4% 0.2%
------------- ------------- ------------- -------------
1.8% 1.1% 7.6% 4.8%
Miscellaneous Revenue
Trademark licensing 87.3% 98.9% 2.7% 3.1%
Site fees and state grants 0.0% 0.0% 0.9% 0.9%
Grass roots marketing 10.8% 0.0% 0.7% 1.2%
International television licensing 0.0% 0.0% 0.6% 0.3%
Interest income 0.0% 0.0% 0.5% 1.2%
Other 0.0% 0.0% 0.0% 4.1%
------------- ------------- ------------- -------------
98.2% 98.9% 5.5% 10.9%
------------- ------------- ------------- -------------
Total 100.0% 100.0% 100.0% 100.0%
============= ============= ============= =============
March 31, December 31,
------------------------------- -------------------------------
Balance Sheet Data 2005 2004 2004 2003
------------- ------------- ------------- -------------
Working capital 87,243 (1,658,706) (3,604,731) 427,528
Total assets 7,634,042 4,336,733 2,433,779 3,550,030
Total liabilities 7,488,841 10,145,682 10,148,417 8,391,556
Stockholders equity (deficit) 145,201 (5,808,949) (7,714,638) (4,841,526)
Company Information
On February 28, 2005, a wholly owned subsidiary of AVP, then known as Othnet,
Inc., merged with the Association of Volleyball Professionals, Inc., (the
"Association") pursuant to an Agreement and Plan of Merger, as amended. As a
result of the merger, the Association became Othnet's wholly-owned subsidiary.
In connection with the merger, Othnet changed its name to AVP, Inc. and the
Association changed its name to AVP Pro Beach Volleyball Tour, Inc. Our
corporate address is 6100 Center Drive, Suite 900, Los Angeles, CA 90045. Our
telephone number is (310) 426-8000.
Summary of the Offering
Common stock offered by AVP, Inc.: None
Common stock offered by selling stockholders: 114,248,948 shares of common
stock.
2
Capital stock outstanding: As of May 31, 2005, we had outstanding 30,035,615
shares of common stock, 334,485 shares of Series A Preferred Stock, and 116,412
shares of Series B Preferred Stock, each convertible into 243 shares of common
stock; and options and warrants to purchase 155,257,124 shares of common stock.
Proceeds to AVP, Inc.: We will not receive proceeds from the resale of shares by
the selling stockholders. We may, however, receive proceeds in the event that
some or all of the options or warrants held by the selling stockholders are
exercised for cash.
OTC Bulletin Board Symbol: AVPN
Shares Being Offered for Resale:
We are registering for resale shares of AVP Common Stock issued or issuable upon
conversion or exercise of AVP equity securities issued as follows:
o 44,761,815 shares issued or issuable upon conversion of Series B
Convertible Preferred Stock or exercise of warrants included in
units sold in the $5,000,000 gross proceeds offering that closed
February 28, 2005;
o 26,536,903 shares included in units of 10% convertible notes or
issued or issuable upon conversion of the notes or the warrants
included in the units, sold in the second half of 2004;
o 67,106,813 shares issuable on conversion of series a convertible
preferred stock issued pursuant to the February 28, 2005 merger of
AVP's wholly owned subsidiary, Othnet Acquisition, Inc. with AVP
Professional Beach Volleyball Tour, Inc., f/k/a Association of
Volleyball Professionals, Inc., in exchange for Association Series A
Preferred Stock and following the merger for Association convertible
debt.
RISK FACTORS
An investment in AVP securities is highly speculative and extremely risky. You
should carefully consider the following risks, in addition to the other
information contained in this prospectus, before deciding to buy AVP securities.
Risks Related to our Business
We have a history of losses and anticipate future losses. AVP has
operated at a loss since 2001, when current management was installed. Losses for
2004 and 2003 were $2,900,000 and $3,700,000. (Losses for the first quarters of
2005 and 2004, were $4,900,000 and $1,000,000, respectively, but first quarter
results reflect the absence of revenue, substantially all of which is recorded
in the second and third quarters of each year.) We cannot predict whether our
current or prospective business activities will ever generate enough revenue to
be profitable. If we do not generate enough revenue to be profitable, our
business might have to be discontinued, in which case, investors would lose all
or most of their investment in AVP.
We may require additional financing. In 2004, our net use of cash from
operations (cash receipts from revenue less operating disbursements including
overhead departments: executive, administrative, marketing; and event related
disbursements) was approximately $94,000 per month. At this rate, we would use
all of our cash on hand at March 31, 2005 by June 30, 2009. However, lower
revenue or increased expenses could reduce this period.
We rely on short-term sponsorship agreements for most of our revenue.
In 2004, national sponsorship revenue accounted for 75% of revenue, and one
national sponsor accounted for 18%. Of AVP's 15 current sponsors, only four have
agreements that extend to 2006; three that extend to 2007; and one through 2008.
AVP does not have a contract beyond 2005 with the sponsor that contributed the
greatest amount of revenue for 2004. Accordingly, AVP's continued operations
will depend, among other things, on AVP's annual successful negotiation of
sponsorships agreements.
AVP's management began operating AVP only recently. Our management
began operating AVP in 2001, so it has only a limited track record at AVP upon
which investors can assess management's effectiveness. Consequently, investors
are likely to have greater difficulty in accurately predicting whether an
investment in AVP will be prosperous.
3
AVP's limited operating history makes AVP highly reliant on management.
We lack the goodwill of an established business and therefore rely on individual
members of current management to create business strategies and relationships,
attract sponsors, and develop tournament formats and operating procedures
necessary for us to survive and prosper. The departure of one or more of our
executives could impair our operations, and, in particular, the services of our
Chief Executive Officer and Tour Commissioner, Leonard Armato, would be very
difficult to replace. If we are unable to find suitable replacements for
departed management, we might incur losses that impair investors' investments in
AVP.
Our success depends on fan interest. Beach volleyball is a relatively
new sport, so its long-term popularity cannot be assumed, as in the cases of
major league baseball, basketball, football, and basketball, golf, or auto
racing. Public tastes change frequently, so interest in beach volleyball may
decline in the future. Our ability to generate revenue and earn profits would be
threatened by a loss of popular interest in the sport. If we do not generate
enough revenue to be profitable, our business might have to be discontinued, in
which case, investors would lose all or most of their investment in AVP.
We compete with other sports leagues for corporate advertising budgets.
We face a large and growing number of competitors in the sports entertainment
industry. Many of these competitors have substantially greater financial,
technical and marketing resources, larger customer bases, longer operating
histories, greater name recognition, and more established relationships in the
industry than does AVP. As a result, certain of these competitors may be in a
better position to obtain corporate advertising. AVP cannot be sure that it will
be able to compete successfully with existing or new competitors.
We rely on major television networks for distribution. We require
widespread distribution of our programming, to interest sponsors and other
advertisers. There are only four major networks that provide sufficient market
reach, so our choices are limited, and our future ability to enter into
distribution agreements with major networks cannot be assured. If we are unable
to make suitable distribution arrangements, we likely would incur losses that
impair investors' investments in AVP. If we are unable to secure distribution
after the expiration of Fox and NBC agreements, our business will be materially
adversely affected.
Future difficulty in recruiting players could impair our prospects. The
number of professional beach volleyball players is small in relation to other
professional sports, as is the number of first-rate, non-pro players who might
play professionally in the future. The players' audience appeal is critical to
maintaining popular interest in the sport. Our prospects could decline,
investors' investments in AVP impaired, if players on the tour or other
qualified players are recruited by competitors or other volleyball
organizations, or decide to pursue other occupations.
We need to hire additional personnel. Our business requires uniquely
trained and experienced professionals, and our success depends in large part
upon our ability to attract, develop, motivate, and retain highly skilled
personnel. Qualified employees will be a limited resource for the foreseeable
future. Our chief financial officer lacks experience in public accounting or as
a public company principal financial officer, as well. As a new company with
little history, we may have particular difficulty hiring qualified personnel. If
we are unable to retain necessary personnel, our business probably will suffer,
and investors may incur losses on their investments in AVP.
Risks Relating to our Securities
Our currently authorized common stock is less than the total amount of
shares issuable upon conversion of exercisable outstanding securities. We intend
to hold a stockholder meeting to authorize additional common stock. Pending such
approval, a holder of securities convertible into or exercisable for common
stock wishing to convert or exercise may be unable to do so.
Holders of Series B Convertible Preferred Stock have a contingent right
to put their stock to AVP. If AVP fails to increase its authorized Common Stock
to 300,000,000 shares by August 27, 2005, holders of the Series B Convertible
Preferred Stock will have the right to sell their shares back to AVP at a total
price of $3,500,000. If holders of a substantial number of shares exercised
their put right with respect to their shares, AVP's financial condition would
become dire.
4
We are subject to cash penalties under a registration rights agreement.
We agreed to register for resale the shares of common stock underlying the
Series B Preferred Stock we issued. The agreement provides that if the
registration statement of which this prospectus forms a part does not become
effective by June 28, 2005, we must pay a penalty to the purchasers of the
Series B Preferred Stock of approximately $50,000 for each month thereafter that
the penalty condition is not satisfied, until August 28, 2005, when the monthly
penalty increases to $100,000. AVP's liquidity, and therefore, our chances of
business success would be reduced by paying these penalties.
Our stock price may be volatile. There has only been a limited public
market for our securities, and there can be no assurance that an active trading
market will be maintained. The OTCBB is a relatively unorganized, inter-dealer,
over-the-counter market that provides significantly less liquidity than NASDAQ
and the national securities exchanges. The trading price of our common stock is
expected to fluctuate significantly, and, as is the case for OTCBB securities
generally, is not published in newspapers.
Limitations of the OTCBB can hinder completion of trades. Trades and
quotations on the OTCBB involve a manual process that may delay order
processing. Price fluctuations during a delay can result in the failure of a
limit order to execute or cause execution of a market order at a price
significantly different from the price prevailing when an order was entered.
Consequently, one may be unable to trade in our common stock at optimum prices.
Penny stock regulations may restrict the market for our common stock.
The SEC has adopted regulations that generally define a "penny stock" to be any
equity security having a market price (as defined) less than $5.00 per share, or
an exercise price of less than $5.00 per share, subject to certain exceptions.
As a result, broker-dealers selling our common stock are subject to additional
sales practices when they sell such securities to persons other than established
clients and "accredited investors." For transactions covered by these rules,
before the transaction is executed, the broker-dealer must make a special
customer suitability determination; receive the purchaser's written consent to
the transaction; and deliver a risk disclosure document relating to the penny
stock market. The broker-dealer must also disclose the commission payable to
both the broker-dealer and the registered representative taking the order;
current quotations for the securities; and, if the broker-dealer is the sole
market maker, the broker-dealer must disclose this fact and the broker-dealer's
presumed control over the market. Finally, monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. Consequently, the "penny
stock" rules may restrict trading in our common stock.
According to the SEC, the market for penny stocks has suffered in
recent years from patterns of fraud and abuse. Such patterns include:
o control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer;
o manipulation of prices through prearranged matching of purchases and
sales and false and misleading press releases;
o boiler room" practices involving high pressure sales tactics and
unrealistic price projections by inexperienced sales persons;
o excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and
o dumping of securities after prices have been manipulated to a high
level, resulting in investor losses.
Our management is aware of the abuses that have occurred historically in the
penny stock market.
The OTC BB is vulnerable to market fraud. OTC BB securities are
frequent targets of fraud or market manipulation, both because of their
generally low prices and because OTCBB reporting requirements are less stringent
than those of the stock exchanges or NASDAQ.
5
Increased dealer compensation could adversely affect stock price. OTC
BB dealers' spreads (the difference between the bid and ask prices) may be
large, causing higher purchase prices and less sale proceeds for purchasers of
sellers of our securities.
Shares of Common Stock eligible for future sale, including shares
issuable upon conversion or exercise of outstanding securities convertible into
or exercisable for AVP Common Stock can depress market prices. Legal
restrictions on the sale by former stockholders of our operating subsidiary of
approximately 46,816,000 shares of common stock will lapse on February 28, 2006.
Sales may then be made pursuant to Securities Act Rule 144, which permits a
holder in each three-month period to sell shares in an amount up to the greater
of the average weekly trading volume or 1% of the outstanding class subject to
procedural conditions. All restrictions will lapse respecting 28,860,000 shares
on February 28, 2007. An additional 225,531,000 shares of common stock are
reserved for issuance upon conversion or exercise of convertible preferred
stock, stock options, and stock purchase warrants, including shares being
offered by this prospectus. Included in the total are approximately 83,300,000
shares into which AVP's outstanding Series A Convertible Preferred Stock
automatically will convert upon authorization of sufficient Commons Stock. The
market's recognition that a large amount of stock might enter the market
suddenly can depress market prices.
Potential control by management. Currently, all AVP directors and
officers as a group hold AVP voting securities representing approximately 12.9%
of the votes that can be cast by holders of all AVP voting securities. If AVP's
management exercised all rights to acquire AVP voting stock held by them, and no
other holder of securities exercisable for AVP voting securities did so, AVP's
management would control approximately 72.1% of votes that could be cast. If, in
addition, all other holders of AVP rights to acquire AVP voting stock exercised
those rights, AVP's management would hold about 38.4% of the outstanding votes.
In the former case, AVP's management could elect all directors and take any
other action authorized for stockholders to take (other than actions requiring
the class vote of holders of Series B Convertible Preferred Stock). In the
latter case, although management would not control a majority of the outstanding
votes, its 38.4% ownership would give it a strong advantage in regard to
election of directors or other action requiring stockholder approval, because
management would need holders of more than 11.6% of the votes to vote for
management's proposals. Defeat of a management proposal would require votes
against by holders of more than 81.2% of all votes held my non-management
stockholders, a very difficult vote to achieve.
Potential control by holders of Series B Convertible Preferred Stock.
Until AVP's Certificate of Incorporation is amended to increase the authorized
Common Stock to 300,000,000 shares, holders of Series B Convertible Preferred
Stock will be entitled to cast, with respect to each share held, ten times the
number of votes to which they otherwise would be entitled. As a class, these
holders are entitled to cast approximately 283,000,000 votes, until the
Certificate of Incorporation is so amended. The holders of the Series B
Convertible Preferred Stock have agreed and given irrevocable proxies to vote
their stock in favor of the amendment, so its adoption is assured, when
submitted to stockholders. AVP is preparing for a meeting at which the
amendment, among other things, will be voted upon.
Liability of directors for breach of duty of care is limited. As
permitted by Delaware law, our certificate of incorporation limits the liability
of our directors for monetary damages for breach of a director's fiduciary duty,
except in certain cases. Our stockholders' ability to recover damages for
fiduciary breaches may be reduced by the provision. In addition, we are
obligated to indemnify our directors and officers regarding stockholder suits,
under some circumstances.
6
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The price of our common stock is quoted on the OTCBB under the symbol "AVPN."
Until March 21, 2005, our common stock traded on the OTCBB under the symbol
"ONET."
As of May 31, 2005, we had 30,035,615 outstanding shares of common stock.
The following table sets forth certain information with respect to the high and
low market prices of our common stock for each quarter during the fiscal years
ended 2003 and 2004:
Year Period High Low
- -------------------------- -------------- -------- -------
2005 First Quarter $0.44 $0.32
Fiscal Year 2004 Fourth Quarter $0.47 $0.26
Third Quarter $0.54 $0.21
Second Quarter $0.38 $0.16
First Quarter $0.42 $0.17
"Fiscal Year 2003 Fourth Quarter $0.22 $0.14
Third Quarter $0.29 $0.14
Second Quarter $0.35 $0.04
First Quarter * *
* For the first quarter 2003, our common stock traded on the pink sheets, and
the price information is not available at a reasonable cost.
The closing price of our common stock on May 31, 2005 was $0.20.
The high and low prices are based on the average bid and ask prices for common
stock, as reported by the OTCBB. Such prices are inter-dealer prices without
retail mark-ups, mark-downs or commissions and may not represent actual
transactions.
Stockholders
As of May 31, 2005, there were 334 holders of record of our common stock.
Transfer Agent
Our transfer agent is U.S. Stock Transfer Corporation, 1745 Gardena Avenue,
Suite 200, Glendale, CA 91204-2991. Our transfer agent's telephone number is
(818) 502-1404.
Dividends
We have never declared or paid any cash dividends, and we expect to not do so
for the foreseeable future. We expect to retain earnings, if any, to fund our
business.
Information regarding equity compensation plans, as of December 31, 2004, is set
forth in the table below:
7
Securities Authorized for Issuance Under Equity Compensation Plans
Number of Securities to Weighted average
be issued upon exercise exercise price of Number of securities
of outstanding options, outstanding options, remaining available
Plan Category warrants and rights warrants and rights for future issuance
(a) (b) (c)
--------------------- ------------------- --------------------
Equity compensation plans
approved by security holders -- $ -- --
Equity compensation plans not approved
by security holders 4,100,000 0.25 --
--------------------- ------------------- --------------------
Total 4,100,000 $ 0.25 --
===================== =================== ====================
8
The information below sets forth information relating to the equity compensation
plans of our wholly owned subsidiary, AVP Pro Beach Volleyball Tour, Inc., as of
December 31, 2004, on a pro forma basis, as it would have been adjusted, if the
merger of Association of Volleyball Professionals, Inc. with Othnet Sub, Inc.
had been consummated as of December 31, 2004.
Weighted average
Number of Securities to exercise price of
be issued upon exercise outstanding Number of securities
of outstanding options, options, remaining available
Plan Category warrants and rights warrants and rights for future issuance
(a) (b) (c)
Equity compensation plans approved by
security holders -- $ -- --
Equity compensation plans not
approved by security holders 88,866,377 0.03 2,142,276
--------------------- ------------------- --------------------
Total 88,866,377 $ 0.03 2,142,276
===================== =================== ====================
BUSINESS
Business Development
We originally incorporated under the name Malone Road Investments, Ltd., on
August 6, 1990 in the Isle of Man. We re-domesticated in the Turks and Caicos
Islands in 1992, and subsequently domesticated as a Delaware corporation in
1994. Pursuant to Delaware law, we are deemed to have been incorporated in
Delaware as of the date of our formation in the Isle of Man. We changed our name
to PL Brands, Inc. in 1994; changed our name to Othnet, Inc. in March 2001; and
changed our name to AVP, Inc. on March 9, 2005. Since December 2001 until the
merger with the Association, we had no business operations other than to attempt
to locate and consummate a business combination with an operating company.
AVP Acquisition
On February 28, 2005, a wholly owned subsidiary of AVP and the Association
consummated a merger pursuant to a merger agreement signed in June 2004, as
amended. The name of the subsidiary before it merged with AVP was Othnet Merger
Sub, Inc. As a result of the merger, the Association became our wholly owned
subsidiary, and we issued to the former Association stockholders Series A
Preferred Stock, which will be converted automatically into our common stock
upon authorization of a sufficient amount of common stock.
In the second half of 2004, we issued $2.36 million principal amount of 10%
convertible notes and lent $2.0 million of the proceeds of the notes to the
Association (the notes were issued in units that included common stock and
common stock purchase warrants). It was a condition to the closing of the
merger, among other things, that at least $2.0 million principal amount of the
notes (and accrued interest) were converted into our Series A Preferred Stock.
Another condition was the closing of a private placement of units of our Series
B Preferred Stock and common stock purchase warrants, which occurred
concurrently with the closing of the merger. Each share of Series A Preferred
Stock and Series B Preferred Stock is convertible into 243 shares of common
stock and carries the number of votes that equals the number of shares into
which it is convertible, except that, until the authorization of additional
shares of common stock, the Series B Preferred Stock will carry ten times the
vote per share that it otherwise would carry.
9
Upon consummation of the merger and the private placement, AVP's former
stockholders (including holders of stock options and stock purchase warrants)
beneficially owned 61.2% of all common stock beneficially owned by all
beneficial owners of our capital stock.
Immediately after the merger, the amounts of our outstanding equity securities
were as follows:
Amount of common stock
outstanding or issuable on
Class or type of security Amount of security exercise
- ----------------------------------------------- ------------------ -------------------------
Common Stock 22,514,742 22,514,742
Series A Preferred Stock 334,485(1) 81,279,855
Series B Preferred Stock 147,364 35,809,452
-------------------------
Total voting
securities
outstanding 139,604,049
Stock options and warrants 104,503,534
Stock options and warrants reserved for issuance(2) 50,753,590
-------------------------
Total 294,861,173
=========================
(1) Includes 46,471 shares reserved for issuance.
(2) To be granted to players and for services in connection with merger,
principally to AVP directors and executive officers.
Pursuant to the merger agreement, our sole officer and director resigned his
officer positions and elected the Association's designees as executive officers.
Jeffrey Wattenberg also elected the Association's designees, effective March 25,
2005, following filing and distribution of a statement pursuant to Exchange Act
Rule 14f-1. Othnet's pre-merger director will continue to serve on the board for
at least two years. Additional information regarding arrangements between AVP
and its directors, executive officers, and principal stockholders is set forth
below under "Management," "Executive Compensation," "Certain Relationships and
Related Transactions," and "Security Ownership of Certain Beneficial Owners and
Management."
In connection with the Series B Preferred Stock and Common Stock Purchase
Warrants Units private placement, we agreed, at our expense, to file a
registration statement with the SEC covering resale of the common stock
underlying the shares of Series B Preferred Stock, the warrants, and a warrant
issued to the placement agent, within 45 days following the closing of the
offering and to cause the registration statement to become effective within 120
days from the closing date. If the registration statement is not filed or
declared effective in the required time periods following the closing, we must
pay to the holders of the Series B Preferred Stock, monthly, cash equal to 1% of
the issue price of the Series B Preferred Stock until the registration statement
becomes effective. If the registration statement is not filed or declared
effective within 180 days following the date of closing, the monthly payments
increase to 2%.
In addition, for a period of 18 months from the date of the closing of the
offering, subject to conditions, the placement agent has a right of first
refusal to lead manage any private or public sale of our securities. We also
agreed that, if we are a party to any merger, acquisition, or any other business
combination within 18 months from the closing of the offering and decide to
engage a financial advisor in connection with the transaction, the placement
agent will have the exclusive right to act as our financial advisor and receive
customary fees in that capacity.
Our Business
We own and operate every significant professional beach volleyball event in the
United States. The AVP Tour is the sole nationally recognized U.S. professional
beach volleyball tour, as well as internationally under an agreement expiring at
the end of 2005. Every top U.S. men's and women's beach volleyball professional,
including the women's gold and bronze medalists in the 2004 Olympic Games,
competes on the AVP Tour. Our business includes establishing and managing
tournaments; sponsorship sales and sales of broadcast, licensing, and trademark
rights; sales of food, beverage, and merchandise at the tournaments; contracting
with players in the tour; and associated activities.
10
We produced 12 men's and 12 women's professional beach volleyball tournaments
throughout the United States in 2004. We have more than 125 of the top
professional players under exclusive contracts, as well as a sizable and growing
base of spectators and television viewers that represent an attractive audience
for national, regional and local sponsors. We have scheduled 14 events for April
through October 2005, to be held in Fort Lauderdale, FL; Tempe, AZ; Austin, TX;
Santa Barbara, CA; San Diego, CA; Belmar, NJ; Hermosa Beach, CA; Huntington
Beach, CA; Manhattan Beach, CA; Chicago, IL; Las Vegas, NV; Oahu, HA;
Cincinnati, OH; and Boulder, CO. The tournaments are returning to each city in
which events were held in 2004; the Cincinnati and Boulder events are new for
2005.
We believe that beach volleyball has potential for continuing commercial growth,
because of its popularity with a demographic group considered highly desirable
by advertisers--educated, affluent, 18 to 34 year-old, consumers. Moreover,
beach volleyball enjoys significant popularity in the United States and
worldwide and as evidenced by NBC's strong television ratings and the attendance
figures for beach volleyball at the 2004 Athens Summer Games.
Sources of Revenue. We generate revenue principally as follows:
o National Sponsorships: We currently generate by far the greatest
amount of our revenue by selling to national sponsors fully integrated
sponsorships, which include both advertising time during live or previously
taped broadcasts of our tournaments, and significant on-site exposure at the
tournaments in the form of signage, interactive areas, and the like. In addition
to paying for such advertising time and on-site exposure, sponsors also support
the AVP Tour through retail activation (e.g., national in-store promotions
featuring our brand), media buys that support our events, and television
broadcasts and other promotional activities that support our brand (e.g.,
national commercials featuring AVP). National sponsors that have renewed their
agreements with us for 2005 include Nissan, Anheuser-Busch, Pepsi, McDonald's,
Microsoft (through 2007), Gatorade, Sirius Radio, Halls, Nature Valley, Nautica,
Paul Mitchell and Wilson (through 2008).
The amount that we charge each national sponsor depends primarily on the
number of network or cable advertising units that the national sponsor receives
in our broadcasts, as well as the exposure that the national sponsor receives
on-site at our tournaments. We hire independent marketing and promotional
valuation companies each season, to measure the benefits that national sponsors
receive, and provide the valuation results to the national sponsors, to justify
the sponsorship revenues they pay. A large majority of our sponsors have been in
place since 2003 or earlier. In 2004, national sponsorship revenue accounted for
75% of revenue, with one national sponsor accounting for 18% of revenue in 2004.
We primarily conduct national sponsorship sales with our own sales staff.
o Local Sponsorship Revenue: We also receive revenue from local and
regional companies seeking to reach our fan base. We sell a variety of local
packages at various financial levels intended to attract a wide range of
businesses in each of the regions and cities where our tournaments take place.
We rely on a combination of local event promoters, the sales forces of local
market print, television (including the Fox regional sports network), and radio
stations, and our in-house sales staff to make local and regional sales.
o Corporate Hospitality: We sell corporate hospitality packages
called "Beach Club Packages," which consist of reserved seating areas and table
seating, food, and beverages.
o Ticket Sales: Increasingly, we are charging admission for events
that previously were free to the general public. In 2004, we charged for general
admission at 6 of 12 men's and women's events and charged for reserved seating
at all 12 men's and women's events. In 2005, we expect to charge admission at 10
of our 14 men's and women's events.
o Food and Beverage Sales: We generate revenue through food,
beverage, and beer sales at events where such concession rights are available.
Generally, we engage a third-party concession operator to conduct this activity.
11
o International Television Licensing: We retain all international
television rights to our network and cable broadcasts. In 2004, our events were
broadcast in South Korea, Japan, Canada, France, and Latin America. For 2005, we
have entered an agreement to broadcast over 60 hours of our programming in
China.
o Event Merchandising: We sell event merchandise on-site at our
tournaments as well as through our website. Merchandise includes t-shirts,
fitness wear, shorts, swimsuits, sweatshirts, hats, and other apparel. We have
entered a two-year agreement with Anschutz Entertainment Group (AEG) for AEG to
provide all merchandising services on our behalf at our tournaments, as well as
to host our online store and assume responsibility for fulfillment.
o Trademark Licensing and Other Ancillary Revenue: In addition to
merchandising, we license our trademarks and logos to Wilson Sporting Goods Co.,
for volleyballs, and Sport Fun, Inc., for volleyball sets.
Distribution. We have distribution agreements with NBC, to broadcast
certain events on network television, and with Fox to broadcast the remainder of
our events on cable and satellite television. By separate agreement, we contract
with NBC and Fox for production of the programming.
o NBC: NBC broadcasted, live, 10 1/2 hours of five of our events in
2004. We paid NBC a per program fee for such broadcast time and retained all of
the commercial units in such broadcasts. We recently agreed with NBC to increase
the amount of broadcast time to 14 hours in 2005.
o Fox: Fox distributes our programming over cable and satellite
television. In 2004, Fox broadcast over 40 hours of live or taped programming.
We recently entered into a production and distribution agreement with Fox for
2005 and 2006, pursuant to which Fox agreed to provide increased coverage in
both years, and the related production services, in return for the same number
of commercial units in the broadcasts as Fox received from the previous
agreement. Under this new agreement, AVP does not pay Fox any compensation for
the broadcast time or product services that Fox provides; Fox's only
compensation is the commercial units in the broadcasts that Fox retains.
o Outdoor Life Network: We recently entered into an agreement with
Outdoor Life Network, a cable network distributed in over 60 million households
("OLN"), for OLN to broadcast over 28 hours of coverage of the men's and women's
semifinals of the 2005 AVP Tour-the finals being telecast on NBC or Fox, as
applicable-and also to provide all production related services. We will receive
several commercial units per hour in return for giving OLN these television
rights.
Marketing. We market and broadcast our tournaments nationally, regionally
and locally. NBC promotes the network tournaments nationally, while Fox promotes
the cable tournaments through its regional network. We also make promotional
arrangements with newspapers and radio and television stations to advertise and
promote our events locally. In addition, we engage public relations firms to
generate interest and coverage of our events and broadcasts.
We maintain contact with volleyball enthusiasts and seek to increase our fan
base through two grassroots programs, AVPNext Amateur and the AVPNext Semi-pro
circuit.
AVPNext Amateur is an outreach program for volleyball players of all skill
levels. AVPNext Amateur, through a national network of recreational tournament
and league organizers, offers both children and adults of all skill levels the
opportunity to participate in the sport of volleyball through weekend
tournaments, instructional camps and clinics, and recreational league play.
AVPNext Semi-pro circuit provides players aspiring to play professionally and
high-level amateurs with opportunities to hone their skills against top-flight
competition and potentially earn exemptions into our professional tournaments.
The 2004 AVPNext Semi-pro circuit included 60 semi-professional tournaments
across the nation, run by local promoters, that offered modest prize purses, a
national ranking, and automatic entries into our pro events.
12
We recently agreed to form a beach volleyball council with USA Volleyball
(USAV), which is recognized by the Federation International de Volleyball (FIVB)
and the United States Olympic Committee as the national governing body for
volleyball in the United States, to oversee the growth and development of beach
volleyball in the U.S. In addition to various growth and development
initiatives, the council will be responsible for developing and overseeing the
Olympics' beach volleyball selection process, including the conduct and
marketing of any Olympic trials, and selecting athletes to represent the United
States in any other international beach volleyball competitions. Although issues
have arisen with respect to the decision-making authority of the beach council,
we expect to either resolve these issues or form an alternative organization to
conduct such activities.
Operations. We own and operate all of our events and conduct most AVP Tour
operations and logistics in-house. These operations include:
o Setting up the event, including (i) loading and transporting the
equipment to and from each event; (ii) building the volleyball
courts; (iii) overseeing construction of stadiums by outside
bleacher companies; (iv) mounting signage and inflatables for
sponsors; and (v) constructing media, hospitality, and local
sponsorship areas;
o Addressing local regulations and permits;
o Coordinating the professional players (including registration for
the qualifying and main events);
o Organizing officials for the event;
o Managing the tournament and the spectator experience;
o Providing entertainment (e.g., music) at the event;
o Providing corporate hospitality; and
o Providing media support, e.g., statistics from the tournament, press
releases, etc.
To set up an event for a standard three-day tournament scheduled to begin on a
Friday, we will arrive on Tuesday and require two full days to complete
construction. For tournaments that will be telecast live on NBC, we generally
produce four-day events, and the preparations start one day earlier. We own four
semi-trailers to transport all needed event equipment from a central warehouse
located in Los Angeles to each site. To manage equipment hauling, we schedule
AVP Tour events to occur close to one another or to allow sufficient
transportation time.
Each host city requires us to obtain a different set of licenses to run an AVP
Tour event, a majority of which the city provides without charge. Typical
licenses include event; filming; bleacher; fire and police departments; and food
and concessions. Our staff supervises compliance with local regulations and
permits.
Our exclusive contracts with more than 125 of the top men and women professional
beach volleyball players in the United States prohibit the athletes from
competing in non- AVP professional beach volleyball tournaments anywhere in the
world, unless specifically agreed by us. All players sign the same standard AVP
player contract. The player contracts extend through December 31, 2008 and
provide for:
o a minimum amount of prize money during each year of the term
($3,000,000 in 2005, with $500,000 increases for each subsequent
year);
o a minimum of ten men's and ten women's events per year;
o medical benefits for the top 100 ranked men's and women's players;
and
o restrictions as to the logos or insignias athletes may wear at AVP
events.
13
In 2004, AVP also reserved 6,524,941 shares for issuance upon exercise of stock
options allocated to the players based upon their performance during the 2004
season. These stock options will be distributed to the players pursuant to an
effective registration statement under the Securities Act, unless an exemption
is determined to be available. Each player is responsible for his or her own
housing and travel to and from events. We provide players with food during the
tournament and make medical services available in case of injury.
Other personnel essential to operating a successful event include:
o Officials and referees;
o Local volunteers to act as scorekeepers and ball retrievers;
o Local contract workers to sell tickets, operate concession areas,
and, when necessary, parking.
o Outside contractors to provide security, waste clean-up, and other
services required in connection with the event.
We recognize that local support for an AVP Tour event is critical to our
success. We try to hold events in the same locations and at the same times every
year, so that the volleyball tournaments become local civic events, enabling
retailers and community leaders to anticipate and support the tournament
annually. We work with city councils and local leaders and businesses to obtain
financial, sales, logistic, marketing, and promotional support for our events.
Communities often waive the cost of city services, recognizing the benefit of
making our tournaments a regular event. Likewise, we coordinate youth or amateur
tournaments and hold free volleyball clinics in connection with our events, to
generate local goodwill and enthusiasm.
Employees
Currently, we have 22 full-time employees and retain 2 independent contractors.
Competition
While we believe we have a loyal fan base, the sports and entertainment industry
is highly competitive and is also subject to fluctuations in popularity, which
are not easy to predict. Fundamentally, we compete for sponsorship dollars,
television ratings, and fan base with other sports leagues and tours,
entertainment programming, and other forms of leisure activities. Our success in
these areas depends heavily on continuing to grow the sport's popularity and
audience draw.
Our programming is directed at a hard to reach demographic
group--college-educated men and women aged 18 to 34, earning $50,000 or more per
year--highly prized by advertisers: We compete for an audience that is fiercely
contested.
We believe that our exclusive player contracts significantly reduce the
likelihood that an attempt to establish a competing professional beach tour in
the United States during the term of the contracts would be successful. FIVB
sanctions a series of professional beach volleyball events in various countries
throughout the world and sells sponsorships and television programming in
connection with these events. Our international television licensing competes
with such programming, and we will potentially face competition from such
events, if we expand our events to non-United States locations. In addition,
FIVB might claim the authority but refuse to sanction any AVP event in another
country.
Reports to Security Holders
Annual reports. We intend to deliver annual reports containing audited financial
statements to security holders.
14
Periodic reports and other information. We file annual and quarterly reports,
current reports, proxy statements, and information statements with the SEC.
Availability of Filings. You may read and copy any materials we file with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an
Internet site (http://www.sec.gov) that contains reports and proxy and
information statements and other information regarding issuers that file
electronically with the SEC. Our Internet site is http://www.avp.com. The
content maintained on our website shall not be deemed to be part of this
prospectus.
LEGAL PROCEEDINGS
We are not a party to any legal or administrative proceedings.
15
DESCRIPTION OF PROPERTY
We maintain the following properties:
We lease approximately 9,800 square feet of office space in Los Angeles,
California, which houses our executive and administrative offices. The lease
expires March 31, 2010, subject to a five-year renewal option.
We sublease approximately 4,500 square feet of warehouse space in Gardena,
California pursuant to a sublease that expires on February 15, 2008. The space
is used for storing tournament equipment and our trucks are parked there.
We believe that our current facilities are sufficient for our needs.
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the Financial Statements and the
related notes. This discussion contains forward-looking statements based upon
current expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions. Our actual results and the timing of
certain events could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth under "Risks Relating to our Business," "Description of Business" and
elsewhere in this document.
Overview
AVP owns and operates professional beach volleyball tournaments in the United
States. AVP's revenue comes from national, regional, and local sponsorships;
ticket sales (admissions), Beach Club (corporate hospitality) sales, food and
beverage sales, and merchandise sales; trademark licensing; and other ancillary
sources.
AVP operates its business through its wholly owned subsidiary, AVP Pro Beach
Volleyball Tour, Inc., the predecessor of which was founded in 1983 by AVP's
current CEO, Leonard Armato, and top players, under the name Association of
Volleyball Professionals. In 1990, to concentrate on other business, Mr. Armato
left the company, which continued under management of the players, but declared
bankruptcy in 1999. Mr. Armato bought control of the company in 2001 through the
Association, signed more than 100 of beach volleyball's top players, and
obtained FIVB recognition as the U.S. official national tour under an agreement
expiring at the end of this year. Since then, the Association has steadily
expanded its tour, sponsorships, and revenue.
On February 28, 2005, the Association consummated a merger with Othnet Merger
Sub, Inc., a wholly owned subsidiary of AVP, as a result of which the
Association became AVP's wholly owned subsidiary, and the Association's 2004 and
2003 financial statements included in this registration statement, to which this
management's discussion and analysis relates in part, became AVP's financial
statements. Consummation of the merger changed the Association's name to its
current name, and AVP's name was changed to its current name on March 9, 2005.
First Quarter 2005 versus First Quarter 2004
Results of Operations
Results of Operations
Operating Income (Loss) and
Net Income (Loss) % Revenue
Three Months Ended March 31, Three Months Ended March 31,
2005 2004 2005 2004
------------ ------------- ------------- --------------
Operating Income (Loss) $ (4,826,028) $ (953,940) (4,642)% (1,810)%
Net Income (Loss) $ (4,881,230) $ (967,423) (4,695)% (1,836)%
The 406% increase in quarterly operating loss primarily reflects a $3,498,022
charge to consulting expense as a result of non-employee warrant valuations
under SFAS 123. In addition, there are merger-related legal costs, SEC reporting
requirements costs, and consulting fees payable in connection with the merger
and miscellaneous other expenses as well as budgeted 2005 salary increases,
which contributed to the increase in quarterly operating loss for March 31,
2005.
Revenue
The following chart reflects comparative revenues with respect to AVP's
significant revenue drivers. The majority of AVP's revenues are derived from
sponsorship and advertising contracts with national and local sponsors. AVP
recognizes sponsorship revenue pro rata over each event during the tour season
as the events occur and collection is reasonably assured. AVP's beach volleyball
tournament season customarily commences in early April and continues until late
September or early October. AVP did not produce any beach volleyball events in
the first quarter of 2005 or 2004. Accordingly, AVP did not recognize any
sponsorship revenue or activation fees in the quarters ending March 31, 2005 and
2004.
17
Summary Revenue
- --------------------------------------------------------------------------------
Three Months Ended March 31, Percentage
2005 2004 Increase
------------- ------------- ------------
Sponsorship $ - $ - -
Activation Fees - - -
Local Revenue - - -
Miscellaneous Revenue 103,956 52,698 97 %
------------- ------------- ----
$ 103,956 $ 52,698 97 %
============= ============= ====
The increase in revenue primarily reflects an increase in trademark licensing
revenue relating to AVP's volleyball license agreement with Wilson Sporting
Goods. AVP and Wilson entered into a new license agreement effective January 1,
2005 which provided for an increase in the royalty and minimum guarantee payable
to AVP in connection with volleyball sales.
Operating Expenses
Summary Costs % Revenue (Increase)
- ------------------------------------------------------------------ ------------------------------ Decrease as
Three Months Ended March 31, Three Months Ended March 31, % of Revenue
2005 2004 2005 2004 2005 vs. 2004
-------------- ----------- ------------- ----------- --------------
Event Costs $ - $ - 0% 0% -
Administrative 4,518,384 677,653 4346% 1286% (3,061)%
Marketing 411,600 328,985 396% 624% 228 %
Interest Expense 70,559 38,000 68% 72% 4 %
----------- ----------- ----- ----- --------
Total Costs $ 5,000,543 $ 1,044,638 4810% 1982% (2,828)%
=========== =========== ===== ===== ========
Event costs include the direct costs of producing an event and costs related to
television airing of broadcasted events. Event costs are recognized on an
event-by-event basis and event costs billed and/or paid prior to their
respective events are recorded as deferred costs and expensed at the time the
event occurs. Since no event took place in the quarters ended March 31, 2005 and
2004, no event costs were recognized.
The increase in administrative costs of $3,840,731 (or 567%) primarily reflects
a $3,498,022 charge to consulting expense as a result of non-employee warrant
valuation under SFAS 123 for warrants granted on February 28, 2005 as a result
of the merger. In addition, the increase in administrative costs include
merger-related legal costs, SEC reporting requirements costs, consulting fees
payable in connection with the merger aggregating $130,000 and budgeted 2005
salary increases.
The increase in marketing costs of $82,615 (or 25%) primarily reflects an
outside third party public relations agency engaged by AVP in January 2005.
The increase in interest expense of $32,559 (or 86%) is due to the interest
incurred in connection with the $2,000,000 loan that AVP made to the Association
in 2004.
18
Depreciation and Amortization Expense
- --------------------------------------------------------------------------------
Percentage
Three Months Ended March 31, Increase
2005 2004 (Decrease)
------------- ------------- ------------
Depreciation Expense $ 21,050 $ 4,993 322 %
Amortization Expense 66,396 73,726 (10)%
------------- ------------- ----
$ 87,447 $ 78,719 11 %
============= ============= ====
The increase in depreciation expense of $16,057 resulted from an increase in
depreciable assets, including banners and flags and equipment; information
technology equipment (e.g., servers); activation equipment (e.g., kiosks and
digital information screens); and leasehold improvements (e.g., installation of
an air conditioning unit in AVP's server room).
Liquidity and Capital Resources
Cash flows from operating activities for the three months ended March 31, 2005
and 2004 were $1,005,005 and $547,530, respectively. Working capital, consisting
of current assets less current liabilities, was $87,243 at March 31, 2005 and
$(1,658,706) at March 31, 2004.
Cash flows provided from financing activities for the three months ended March
31, 2005 and 2004 were $3,297,023 and $0, respectively. As a result of the
consummation of the $5,000,000 private placement Series B Convertible Preferred
Stock on February 28, 2005, AVP realized net proceeds of $4,247,023. AVP repaid
$950,000 on a note payable owed to Management Plus Enterprises, Inc., a related
party, in connection with sponsorship sales services.
Capital expenditures for the three months ended March 31, 2005 and 2004 were
$137,384 and $14,497, respectively. During the three months ended March 31,
2005, AVP purchased banners and flags and a trailer in preparation for the 2005
tour season, as well as computer equipment.
In June 2004, the Association borrowed $2,000,000 from AVP, at an interest rate
of 10% per annum. As part of the merger, this liability was converted to equity.
In addition, NBC and Fox had the right to put their Series A preferred stock
investment back to the Association at the end of the 2005 and 2006 seasons for
the amount of their respective investments. Prior to the merger, both NBC and
Fox agreed to waive their put rights and converted the Association preferred
stock holdings aggregating $3,657,600 into AVP Series A Preferred Stock.
Revenue and Expense Recognition
The majority of AVP's revenues are derived from sponsorship and advertising
contracts with national and local sponsors. AVP recognizes sponsorship revenue
pro rata over each event during the tour season as the events occur and
collection is reasonably assured. Revenues invoiced and/or collected prior to
their respective events are recorded as deferred revenue. Event costs are
recognized on an event-by-event basis. Event costs billed and/or paid prior to
their respective events are recorded as deferred costs and expensed at the time
the event occurs.
Income Taxes
AVP provides deferred income taxes to reflect the impact of temporary
differences between the recorded amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations.
Temporary differences result from differences between the amounts reported for
financial statement purposes and corresponding amounts for tax purposes.
Deferred income tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
19
Off-Balance Sheet Arrangements
As part of its ongoing business, AVP does not participate in transactions with
unconsolidated entities such as special purpose entities or structured finance
entities, which would have been established for the purpose of facilitating
off-balance sheet arrangements or other limited purposes.
Year Ended December 31, 2004 versus December 31, 2003
Operating Income (Loss) and Net Income (Loss)
Operating Income (Loss) and Net Income (Loss) % Revenue
- -------------------------------------------------------------------------- -------------------------
2004 2003 2004 2003
------------ ------------ ---------- -------
Operating Income (Loss) $(2,694,427) $(3,421,614) (22)% (47)%
Net Income (Loss) $(2,873,112) $(3,700,971) (23)% (51)%
The 22% decrease in annual operating loss in 2004 reflects that revenue
increased at a rate exceeding the rate of event costs increases necessary to
generate the revenue. Revenue increased 69% in 2004, producing a 26% gross
profit margin, compared with an 11% gross profit margin in 2003.
We believe that any increased revenue will yield increased gross profit margins,
without requiring material capital investment, for the next several years.
Revenue
Summary Revenue
- ------------------------------------------------------------------------------------ Percentage Increase
2004 2003 (Decrease)
------------ ----------- -------------------
Sponsorship $9,918,117 $6,222,371 59%
Activation Fees 838,776 -- --
Local Revenue 936,110 357,459 162%
Miscellaneous Revenue 683,186 802,049 (15)%
----------- ---------- -----
$12,376,189 $7,381,879 68%
=========== ========== =====
Revenue per event averaged $1,031,000 in 2004 (based on 12 events) compared with
$738,000 in 2003 (based on 10 events).
Sponsorship Revenue. The 59% increase in national, regional, and local
sponsorship revenue reflects increases in the number of events, the amount of
network and cable commercial units available for sale to sponsors, and the
prices paid by national sponsors for commercial units and on-site exposure. In
2004, 18% of revenue came from one national sponsor, a decrease from 23% from
that sponsor in 2003.
Activation Fees. In 2004, AVP substantially increased its activation services
for sponsors, which AVP began providing in 2003. 2003 amounts were negligible.
AVP operates information booths, distributes handouts, or employs live or
interactive means of providing information about or generating interest in
sponsors' products. Activation services also include arranging for local media
buys or other promotional opportunities in event markets.
A detailed analysis of local and miscellaneous sources of revenue for 2004 and
2003 follows:
20
Local and Miscellaneous Revenue
- ------------------------------------------------------------------------------------- Percentage Increase
2004 2003 (Decrease)
----------- ----------- -------------------
Local Revenue
Merchandising $327,182 $164,826 99%
Ticket Sales and Parking 304,875 52,909 476%
Registration Fees 126,506 114,798 10%
Beach Club (Corporate Hospitality) 123,688 9,780 1,165%
Food and Beverages 53,859 15,146 256%
-------- -------- ------
$936,110 $357,459 162%
======== ======== ======
Percentage Increase
2004 2003 (Decrease)
----------- ----------- -------------------
Miscellaneous Revenue
Trademark Licensing $339,740 $228,494 49%
Site Fees and State Grants 116,934 70,000 67%
Grass Roots Marketing 81,627 89,047 (8)%
International Television Licensing 75,000 22,000 241%
Interest Income 67,185 87,751 (23)%
Other 2,700 304,757 (99)%
-------- -------- -----
$683,186 $802,049 (15)%
======== ======== =====
Local Revenue. The increase in local revenue reflects increases in the number of
events, attendance at events, the number of events at which AVP charged for
general or reserved seating, and intensified local marketing and sales efforts.
In 2004, AVP employed local sales forces (including local promoters and local
market print, cable, and radio operators) to assist with local sponsorship sales
and corporate hospitality sales.
Gross merchandising revenue increased, but profitability of sales decreased,
sharply, from 2004 to 2003. Merchandising revenue in 2003 consisted of advances
under an agreement giving a third-party vendor exclusive merchandising rights,
which agreement was not renewed for 2004. The third party vendor assumed all
costs of merchandise sales under the agreement. Merchandising revenue in 2004
came from direct sales by AVP, with the cost of merchandise sales of $290,000
included in event costs. The net merchandising revenue after the deduction of
cost of merchandise sales was $37,182.
In 2004, AVP charged for general admission at six of its 12 men's and women's
events, compared with three men's and women's paid admission events in 2003, and
charged for reserved seating at all 12 AVP men's and women's events in 2004
compared with none in 2003. This resulted in the large increase in ticket sales
revenue in 2004.
Registration fees are the fees paid by players to compete in both event
qualifying and main draw rounds. The increase in registration fees resulted
primarily from the addition of one full field event in 2004.
The increase in Beach Club (corporate hospitality) revenue in 2004 primarily
reflects increased local sales efforts and promotion at each AVP event.
The increase in food and beverage sales in 2004 reflects an increase in the
number of events where AVP retained food and beverage sale rights as well as an
increase in attendance at events where AVP previously retained such rights.
21
Miscellaneous Revenue. Trademark licensing increased in 2004 due to increased
ball sales by Wilson Sporting Goods (AVP's ball licensee), increased sales of
volleyball sets by Sport-Fun (AVP's volleyball set licensee), and international
television licensing.
AVP realized site fees and state or local government grants of $116,934 in 2004
(compared to $70,000 in 2003) primarily due to an increase in the site fees paid
by the Hard Rock Hotel and Casino in Las Vegas, Nevada to hold an AVP event at
the hotel.
Grassroots marketing revenue declined from $89,047 in 2003 to $81,627 in 2004.
This 8% decline was primarily due to a decrease in the amount of membership fees
collected by AVPNext, a division of AVP that organizes tournaments for aspiring
professional and high-level amateur players.
AVP engaged a television licensing agent in 2004 to license AVP's television
programming outside of the United States and expects to realize approximately
$75,000 in licensing fees for airing of AVP tournaments in foreign territories
including South Korea, Japan, Latin America, and France. AVP engaged a different
licensing agent for 2005, which has sold 65 hours of programming to a major
broadcaster in China.
AVP currently leases furniture and personal property to Northrop Grumman
pursuant to a lease expiring in November 2008 that requires payments to AVP of
$13,200 per month. The lease is treated as an investment in sales type lease,
and the interest component of the lease payments is included in interest income.
Other revenue in 2003 primarily reflects a management fee that AVP received in
connection with an international beach volleyball event that AVP co-promoted
with two other organizations in 2003 (the event operated at a loss and was
discontinued), and a sanctioning fee that AVP received in connection with an
event in Hermosa Beach, California in 2003 (AVP elected to hold its own event in
Hermosa Beach, California in 2004 rather than sanction an event owned by a third
party).
Operating Expenses
Decrease as
Summary Costs % Revenue % of Revenue
2004 2003 2004 2003 2004 vs. 2003
----------- ----------- --------- -------- --------------
Event Costs $9,125,829 $6,506,613 74% 89% 15%
Administrative 3,442,479 2,184,557 28% 30% 2%
Marketing 2,435,124 2,024,572 20% 28% 8%
Interest Expense 245,870 182,396 2% 3% 1%
Joint Venture Loss -- 184,712 0% 3% 3%
----------- ----------- ---- ---- ---
Total Costs $15,249,302 $11,082,850 124% 152% 28%
=========== =========== ==== ==== ===
Event costs include the direct costs of producing an event and costs related to
television airing of broadcasted events. Event costs in 2004 increased 40%,
primarily as a result of the number of events and increases in the size and
scope of events to accommodate and entertain a larger fan base. Event costs in
2004 also included costs of merchandise sales. Event costs as a percentage of
revenue improved from 89% in 2003 to 74% in 2004.
Increases in marketing costs resulted from full time employment of AVP's Chief
Marketing Officer; the hiring of a Vice President of Marketing, a Director of
Sponsor Activation, and other marketing support staff; expansion of activation
services; and increases in related marketing expenses. These amounts, which
totaled $2,029,000 in 2004, compared with $1,648,000 in 2003, were partially
offset by a $314,000 reduction in amortization of commissions owed to a related
party, Management Plus Enterprises (MPE), for sponsorship sales services
provided in 2001 and 2002. Amounts incurred for advertising, public relations,
and website services, which totaled approximately $406,000 in 2004, increased
only slightly over 2003 and decreased as a percentage of total marketing costs.
Administrative costs rose 58% in 2004, due primarily to a $270,000 increase in
executive compensation, reflecting full time employment of AVP's CEO; a $250,000
increase in accounting expenses required by AVP's business combination with
Othnet; a $210,000 increase in legal and consulting fees associated with AVP's
business combination with Othnet; a $190,000 increase in administrative salary
reflecting hiring two administrative support staff, and salary increases to
administrative staff and management staff; a $117,000 in increased office rent;
and a $260,000 increase in other assorted administrative expenses.
22
Interest expense in 2004, comprised of interest accrued on debt to Othnet, MPE,
Major League Volleyball, Inc., and Anschutz Entertainment Group, Inc., increased
from 2003 due to higher level of debt.
Joint venture loss of $184,712 in 2003 was AVP's portion of the loss from the
discontinued international beach volleyball event that AVP co-promoted in 2003
with two other organizations.
Depreciation and Amortization Expense
- --------------------------------------------------------------------------------
Percentage Increase
2004 2003 (Decrease)
------------- ------------- -------------------
Depreciation Expense $ 57,561 $ 14,529 296%
Amortization Expense 688,437 1,004,799 (31)%
------------- ------------- -------------
$ 745,998 $ 1,019,328 (27)%
============= ============= =============
The increase in depreciation expense in 2004 resulted from a 307% increase in
depreciable assets, including banners and flags and equipment; information
technology equipment (e.g., servers); activation equipment (e.g., kiosks and
digital information screens); and leasehold improvements (e.g., installation of
an air conditioning unit in AVP's server room). Furniture and fixtures include
office furniture, and vehicles include trailers used to transport event
equipment.
Amortization expenses decreased 31% from 2003, in part because MPE deferred
contract costs were being amortized at a declining rate, reflecting that
contract commission rates under the agreement decrease from year to year.
Deferred commissions charged to operations were $294,904 in 2004, compared to
$609,256 in 2003. In each of 2004 and 2003, amortization also included $387,500
of contract costs, which reflects charges in excess of Fox broadcast and
production services for 2003 and 2004, which AVP prepaid in 2003 by issuing
equity to Fox.
Liquidity and Capital Resources
Cash flows from operating activities for 2004 was ($1,118,589) and included a
net loss of ($2,873,112), a $1,720,000 increase as a result of non-cash
transactions including amortization and depreciation, a $94,000 decrease in
operating assets, and a ($60,000) decrease in operating liabilities. Current
liabilities in 2004 included $2,000,000 of notes to Othnet (described below).
Cash flows from operating activities for 2003 was ($2,937,562) and included a
net loss of ($3,700,971), a $1,023,000 increase as a result of non-cash
transactions including amortization and depreciation, a ($700,000) increase in
operating assets including accounts receivable and investment in and due from
joint venture, and a $439,000 increase in operating liabilities including
accrued expenses and accrued officer compensation. In 2004, AVP incurred capital
expenditures of approximately $228,000, consisting of banner and flags,
activation equipment, air conditioning unit, furniture, information technology
equipment, and trailers. Banner and flags expenditure was the result of
replacement of older banners, as well as, new event locations. Activation
equipment expenditure was the result of providing the necessary equipment to
fulfill activation services, such as an electronic message board and DJ booth.
Furniture expenditures resulted from AVP's lease of new offices. An air
conditioning unit was required in the new office space in order to maintain the
temperature in the information technology server room. Information technology
equipment expenditures included replacing a server, license agreements, and
computer equipment that was obsolete or broken. Trailer expenditure was the
result of replacing one of the older trailers with a newer trailer.
In June 2004, the Association borrowed $2,000,000, at an interest rate of 10%
per annum, through a series of debentures payable to AVP. As part of the merger
of the Association with Othnet Merger Sub, Inc., this liability was converted to
equity. In addition, NBC and Fox had the right to put their Series A preferred
stock investment back to the Association at the end of the 2005 and 2006 seasons
for the amount of their respective investments plus interest at prime plus 2%.
Prior to the merger, both NBC and Fox agreed to waive their put rights.
23
As a result of the consummation of the $5,000,000 private placement of units of
AVP Series B Convertible Preferred Stock and Common Stock purchase warrants, we
realized net proceeds of approximately $4,300,000. As of March 30, 2005, AVP's
adjusted working capital aggregated $1,445,000, (inclusive of $3,100,000 in
deferred revenue to be recognized as revenue in the second, third, and fourth
quarters of 2005).
24
Critical Accounting Policies
Revenue and Expense Recognition
The majority of AVP's revenues are derived from sponsorship and advertising
contracts with national and local sponsors. AVP recognizes sponsorship revenue
pro rata over each event during the tour season as the events occur and
collection is reasonably assured. Revenues invoiced and/or collected prior to
their respective events are recorded as deferred revenue. Event costs are
recognized on an event-by-event basis. Event costs billed and/or paid prior to
their respective events are recorded as deferred costs and expensed at the time
the event occurs.
Income Taxes
AVP provides deferred income taxes to reflect the impact of temporary
differences between the recorded amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations.
Temporary differences result from differences between the amounts reported for
financial statement purposes and corresponding amounts for tax purposes.
Deferred income tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
Recently Issued Accounting Standards
In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities which was subsequently amended in December 2003 and Accounting Research
Bulletin (ARB) No. 51, Consolidated Financial Statements was issued. In general
a variable entity is a corporation, partnership, trust, or any other legal
structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities.
FIN 46 requires a variable interest entity to be consolidated by a company if
that company is subject to a majority of the risk of loss from the variable
interest entity's activities or entitled to receive a majority of the entity's
residual returns or both. Special provisions apply to enterprises that have
fully or partially applied Interpretation 46 (Interpretation) prior to issuance
of this Interpretation. Otherwise, application of this Interpretation is
required in financial statements of public entities that have interests in
variable interest entities or potential variable interest entities commonly
referred to as special-purpose entities for periods ending after December 15,
2003. Application by small business issuers, to entities other than
special-purpose entities and by nonpublic entities and all other types of
entities is required at various dates in 2004 and 2005. In some instances,
enterprises have the option of applying or continuing to apply Interpretation 46
for a short period of time before applying this Interpretation. The adoption of
the Interpretation did not have any impact on AVP's financial statements.
In December 2003, the SEC released Staff Accounting Bulletin (SAB) No. 104,
Revenue Recognition. SAB No. 104 revises or rescinds portions of the
interpretive guidance related to revenue recognition included in Topic 13 of the
codification of the staff accounting bulletins. SAB No. 104 became effective
when issued, and adoption by AVP did not have a material impact on its financial
position or results of operations.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs. SFAS No. 151
amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). ARB 43 previously stated that "...under
some circumstances, items such as idle facility expense, excessive spoilage,
double freight, and re-handling costs may be so abnormal as to require treatment
as current period charges...". This Statement requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal". In addition, this Statement requires that allocation
of fixed production overhead to the costs of conversion be based on the normal
capacity of the production facilities. The provisions of this Statement shall be
effective for inventory costs incurred during fiscal years beginning after June
15, 2005. Earlier application is permitted for inventory costs incurred during
fiscal years beginning after the date this Statement is issued. The provisions
of this Statement shall be applied prospectively. The adoption of this Statement
is not expected to have any impact on AVP's financial statements.
25
In December 2004, the FASB issued SFAS No. 153, Exchange of Nonmonetary Assets,
which amended APB Opinion No. 29, Accounting for Nonmonetary Transactions. This
Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. The
provisions of this Statement shall be effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. Earlier application
is permitted for nonmonetary asset exchanges occurring in fiscal periods
beginning after the date this Statement is issued. The provisions of this
Statement shall be applied prospectively. The adoption of this Statement is not
expected to have any impact on AVP's financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based
Payment. Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based upon the
fair value of the equity or liability instruments issued. Statement 123(R)
covers a wide range of share-based compensation arrangements including share
options, restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans. Statement 123(R) replaces FASB
Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. Statement 123, as
originally issued in 1995, established as preferable a fair-value-based method
of accounting for share-based payment transactions with employees. However, that
Statement permitted entities the option of continuing to apply the guidance in
Opinion 25, as long as the footnotes to financial statements disclosed what net
income would have been had the preferable fair-value-based method been used.
Public entities that file as small business issuers will be required to apply
Statement 123(R) as of the first interim or annual reporting period that begins
after December 15, 2005. AVP has not yet evaluated the impact of the adoption of
SFAS 123(R) and has not determined the impact on AVP's financial position or
results of operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as defined in Item 303(c) of
Regulation S-B.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On March 1, 2005, we replaced Malone & Bailey, PC as our independent
accountants. The decision was approved by our Board of Directors.
Malone & Bailey's reports on our financial statements for the fiscal years ended
April 30, 2004 and 2003 did not contain an adverse opinion or disclaimer of
opinion, except that the reports stated that they were prepared assuming that we
will continue as a going concern, as to which our recurring operating losses
raised substantial doubt. During our fiscal years ended April 30, 2003 and 2004
and the subsequent interim period preceding the termination, there were no
disagreements with Malone & Bailey on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure, which
disagreements, if not resolved to the satisfaction of Malone & Bailey, would
have caused Malone & Bailey to make reference to the subject matter of the
disagreements in connection with its report on the financial statements for such
years or subsequent interim periods.
On March 17, 2005, Malone & Bailey provided the SEC with a letter stating that
it agreed with the foregoing statements.
On March 2, 2005, we engaged Mayer Hoffman McCann P.C. as our new independent
accountants. During the two most recent fiscal years and the interim period
preceding the engagement of Mayer Hoffman, we have not consulted with Mayer
Hoffman regarding either the application of accounting principles to a specified
transaction, either completed or proposed, or the type of audit opinion that
might be rendered on our financial statements, or any matter that was either the
subject of a disagreement or an event identified in paragraph (a)(1)(iv) of Item
304 of Regulation S-B.
26
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information with respect to each of our
executive officers and directors as of May 31, 2005.
Name of Nominee Age Position
--------------- --- --------
Leonard Armato 52 Chief Executive Officer and Chairman of the
Board of Directors
Bruce Binkow 48 Chief Marketing Officer and Director
Philip Guarascio 63 Director
Scott Painter 37 Director
Andrew Reif 40 Chief Operating Officer, Chief Financial
Officer and Director
Jeffrey Wattenberg 49 Director
Leonard Armato, our Chief Executive Officer and Tour Commissioner, has been
Chairman, Chief Executive Officer, Tour Commissioner and a director of the
Association since 2001. Previously, Mr. Armato was Chief Executive of Management
Plus Enterprises, Inc., a sports representation and marketing firm owned by Mr.
Armato. Mr. Armato founded MPE in 1988. Mr. Armato will serve as Chairman of the
Board.
Bruce Binkow, our Chief Marketing Officer, has been Chief Marketing Officer and
a director of the Association since 2001. From 1996, Mr. Binkow worked as
executive vice president at MPE, a sports representation and marketing firm
owned by Mr. Armato. Previously, Mr. Binkow was an Executive Vice President of
Marketing at Playboy Enterprises, Inc. from 1987 to 1991.
Philip Guarascio has been a member of the Board of Directors of the Association
since May 2002. Mr. Guarascio has been a consultant for the National Football
League since October 2000 and has been a consultant for the William Morris
Agency, a talent agency, since October 2001. In 2000, he retired as the Vice
President of Marketing and Advertising for General Motors' North American
operations.
Scott Painter has been a member of the Board of Directors of the Association
since May 2002. He was a founder and former Chief Executive Officer of
CarsDirect.com, an online car dealership, from October 1998 to November 1999.
Before then, Mr. Painter was a Vice President and Director of Marketing of
1-800-DENTIST, a dentist referral service, from 1995 to 1997, and Vice President
of Marketing and Corporate Development of 1-800-CAR-SEARCH, a new and used
vehicle location and pricing service, from 1992 to 1993.
Andrew Reif, our Chief Operating Officer and Chief Financial Officer, has been
Chief Operating Officer of the Association since 2001 and Chief Financial
Officer since 2005. Mr. Reif was Co-President of Baldwin/Cohen Productions, a
motion picture and television programming production company overseeing the
development and production of motion pictures and television productions, from
1999 to 2000. From 1995 to 1999, Mr. Reif was a Vice President at International
Creative Management, a talent agency.
Jeffrey Wattenberg is a member of our Board of Directors. Mr. Wattenberg had
been president, secretary, and director since May 2002. For the last five years,
he has been a private investor and has served as an independent consultant to
various entities seeking to raise venture capital.
Board of Directors
Our Board of Directors consists of six (6) seats. Except for Mr. Wattenberg,
each person who serves on our Board of Directors was appointed on March 25, 2005
in connection with the transactions contemplated by the merger. Directors will
be elected at each annual meeting and thereafter serve until the next annual
meeting at which their successors will be duly elected.
27
Committees
Following the approval and consummation of the transactions contemplated by the
merger on February 28, 2005, we formed an Audit Committee, Compensation
Committee and Nominating Committee.
The Audit Committee of the Board of Directors consists of Messrs. Guarascio,
Painter and Wattenberg. The Audit Committee recommends engagement of our
independent auditors, approves services performed by such auditors and reviews
and evaluates our accounting system and our system of internal accounting
controls. Mr. Guarascio is "independent" as defined by the SEC. Currently, the
Board of Directors does not have an "audit committee financial expert" as
defined in Item 401(e) of Regulation S-B promulgated by the SEC.
Family Relationships
No director or executive officer is related to any other director or executive
officer by blood or marriage.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following summary compensation tables set forth information concerning the
annual and long-term compensation for services in all capacities for the fiscal
years ended December 31, 2004, December 31, 2003 and December 31, 2002, of those
persons who were, at December 31, 2004 (i) the chief executive officer of AVP
(AVP had no other officers as of that date) and (ii) the chief executive officer
of the Association and its other most highly compensated executive officers,
whose annual base salary and bonus compensation was in excess of $100,000 (the
"Named Executive Officers"):
Summary Compensation Table
- ----------------------------------- -------------------------------- -----------------
Long Term
Annual Compensation Compensation
- ----------------------------------- -------------------------------- -----------------
Shares
Name and Principal Position Fiscal Year Salary(1) Underlying
Options
- ----------------------------------- --------------- ---------------- -----------------
Leonard Armato, 2004 $385,000 0
Chief Executive Officer 2003 350,000 10,097,675
2002 -0- 0
- ----------------------------------- --------------- ---------------- -----------------
Bruce Binkow, 2004 $220,000 0
Chief Marketing Officer 2003 200,000 2,019,535
2002 -0- 0
- ----------------------------------- --------------- ---------------- -----------------
Andrew Reif, 2004 $220,200 0
Chief Operating Officer and Chief 2003 200,000 2,019,535
Financial Officer 2002 175,000 5,360,351
- ----------------------------------- --------------- ---------------- -----------------
Thomas Torii, 2004 $135,000 125,000
Chief Accounting Officer 2003 100,000 0
- ----------------------------------- --------------- ---------------- -----------------
Jeffrey Wattenberg, 2004 $40,000 2,000,000(2)
Chief Executive Officer 2003 -0- 825,000(3)
2002 -0- 0
- ----------------------------------- --------------- ---------------- -----------------
(1) No bonuses were paid in any of the relevant years.
(2) On February 5, 2004, Mr. Wattenberg was granted an option to acquire up to
2,000,000 shares of Common Stock of at an exercise price of $0.25 per share.
28
(3) On March 19, 2003, Mr. Wattenberg was granted 825,000 restricted shares of
AVP's Common Stock. The value of the shares as of the date of grant equaled
$156,750 and the value as of April 30, 2004 equaled $165,000, based on the stock
prices on such dates.
Stock Option Grants
The following table sets forth certain information with respect to stock options
granted to the person named in the Summary Compensation Table during the fiscal
year ended December 31, 2004.
Option Grants in Last Fiscal Year
Percent of
Number of Total Options
Shares Granted to Exercise
Underlying Employees in Price Per Expiration
Options Granted Fiscal Year Share Date
--------------- ----------- ---------- ------------
Jeffrey Wattenberg 2,000,000 94.1% $0.25 2/4/2009
Thomas Torii* 125,000 5.9% $0.1600 04/13/2009
* Information as to Mr. Torii is pro forma, as if the merger of AVP's wholly
owned subsidiary into the Association had occurred on December 31, 2004.
Option Exercises and Fiscal Year-End Values
The following table sets forth certain information as to each exercise of stock
options during the year ended December 31, 2004, by the persons named in the
Summary Compensation Table and the fiscal year-end value of unexercised options:
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
Number of Securities Value of Unexercisable
Shares Underlying Unexercised In-the-Money Options at
Acquired on Value Options at FY-End Fiscal Year-End (1)(2)
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------- --------- --------- --------- ----------- ----------- -------------
Jeffrey Wattenberg -0- $ 0 2,000,000 -0- $ -0- $ -0-
(1) None of the options were "in-the-money" as of December 31, 2004.
(2) There was no public market for the Association's Common Stock as of December
31, 2004 with respect to which stock options held by the current CEO and other
executive officers was exercisable. On a pro forma basis, using the excess of
AVP's closing stock price on December 31, 2004 over the exercise prices of stock
options held by AVP's CEO and other current executive officers at that date,
after adjustment for the merger, all options would be exercisable and would have
had the indicated values: Mr. Armato, $12,505,653; Mr. Binkow, $3,845,832; Mr.
Reif, $1,770,695; Mr. Torii, $12,500.
Compensation of Directors
Our directors currently do not receive any compensation for service on our Board
of Directors or any committee thereof. The board is considering plans for
compensation of non-management directors.
Employment Agreements
Pursuant to the merger agreement, the Association entered into employment
agreements with Messrs. Leonard Armato, the Association's CEO and Chairman and a
director; Bruce Binkow, Chief Marketing Officer and a director; and Andrew Reif,
Chief Operating Officer, Chief Financial Officer and a director. Mr. Armato's
at-will employment agreement provides for an annual salary of $350,000; an
annual bonus in the range of fifty percent (50%) of annual salary (based on
certain to-be-determined milestones); health and disability insurance; a
$1,000,000 term life insurance policy; and a monthly car allowance in the amount
of $1,000.00. In the event that Mr. Armato's employment is terminated other than
for good cause, he will receive a payment of one year's base salary. Messrs.
Binkow's and Reif's employment agreements are of substantially the same form as
Mr. Armato's, except that the salaries are $250,000 and $240,000, respectively.
29
In addition, Messrs. Armato, Binkow and Reif will receive five-year common stock
purchase warrants to purchase a total of 10,779,230 shares of our common stock
in the aggregate, at an exercise price equal to 110% of the market price of a
share on the date of grant, and participate in a profit sharing pool equal to
ten percent (10%) of our EBITDA.
Mr. Scott Painter, a member of the Board of Directors, entered into a consulting
agreement with us whereby he will be compensated as a financial advisor in
specified areas relating to our operations and fund-raising efforts. For his
services, Mr. Painter received compensation equal to $150,000 in cash and will
receive five-year common stock purchase warrants to purchase a total of
5,272,132 shares of our common stock in the aggregate, at an exercise price
equal to 110% of the market price of a share on the date of grant.
For one year following the close of the merger on February 28, 2005, we have
retained a firm controlled by Jeffrey Wattenberg, a member of our Board of
Directors, for a $20,000 monthly fee. This fee is expressly for the provision of
consulting, advisory and investor relations services.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Armato is the sole owner of MPE which owned MPE LLC prior to its sale to the
Association. MPE entered into an agreement with the Association on August 15,
2001 pursuant to which MPE was engaged to secure sponsorship agreements in
return for a commission (the "Sales Agreement"). The Sales Agreement remained in
place through December 31, 2002, and MPE was projected to earn approximately
$1.6 million in commissions through 2005 based upon the sponsorship agreements
secured by MPE during the term of the Sales Agreement. MPE assigned the Sales
Agreement to MPE LLC in 2003. MPE LLC was subsequently acquired by the
Association in 2003 for a convertible promissory note with a principal amount of
approximately $1.4 million, of which $250,000 was paid from the proceeds of the
private placement. The remaining balance of $416,737 will be paid one year from
the closing date of the offering.
Mr. Painter, a member of the Board of Directors, entered into a consulting
agreement with us, whereby he will be compensated as a financial advisor in
specified areas relating to our operations and fund-raising efforts. For his
services, Mr. Painter received compensation equal to $150,000 in cash and will
receive five-year common stock purchase warrants to purchase a total of
5,272,132 shares of our common stock in the aggregate, at an exercise price
equal to 110% of the market price of a share on the date of grant.
For one year following the close of the merger on February 28, 2005, we have
retained a firm controlled by Jeffrey Wattenberg, a member of our Board of
Directors, for a $20,000 monthly fee. This fee is expressly for the provision of
consulting, advisory and investor relations services. We are including among the
shares offered by this prospectus 2,825,000 shares of common stock held by Mr.
Wattenberg, including 2,000,000 shares of common stock underlying an employee
stock option.
NBC distributes our programming on broadcast television, and Fox distributes our
programming on cable television. NBC and Fox own Series A Preferred Stock
convertible into 17.53% and 35.85%, respectively, of the common stock that would
be outstanding following such conversion (assuming conversion of only their
Series A Preferred Stock), which we have agreed to register for resale at the
same time we register the common stock underlying the Series B Preferred Stock
for resale.
30
We entered into a two-year agreement with AEG for AEG to provide all
merchandising services on our behalf at our tournaments, as well as to host our
online store and assume responsibility for fulfillment. AEG is the holder of a
note that is convertible into 27.32% of the common stock that would be
outstanding following such conversion (assuming conversion of only the note),
which we have agreed to register for resale at the same time we register the
common stock underlying the Series B Preferred Stock for resale.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of our common stock, Series A Preferred Stock and Series B Preferred
Stock as of May 31, 2005, by (i) each person known by us to be the beneficial
owner of more than five percent (5%) of any class of our stock, (ii) each of our
directors and nominees for director, (iii) each of the Chief Executive Officer
and Named Executive Officers, and (iv) all directors and executive officers as a
group.
Beneficial ownership is determined in accordance with the rules of the SEC and
generally includes voting or investment power with respect to securities. Shares
of our stock which are purchasable under options or warrants which are currently
exercisable, or which will become exercisable no later than 60 days after May
31, 2005, are deemed outstanding for computing the percentage of the person
holding such convertible securities, but are not deemed outstanding for
computing the percentage of any other person. Except as otherwise indicated, the
stockholders listed in the table below have sole voting and investment power
with respect to the shares indicated.
Series A Preferred Stock(*) Series B Preferred Stock Common Stock (1)
-------------------------- ----------------------- -----------------------
Number Percent Number Percent Number Percent
of Shares of Class of Shares of Class of Shares of Class
---------- --------- ---------- -------- --------- ---------
Leonard Armato (2)(3) 73,901 11.71 -0- -0- 67,604,813 69.24
Bruce Binkow (2)(4) -0- -0- -0- -0- 15,483,096 34.01
Philip Guarascio (2)(4) -0- -0- -0- -0- 1,209,208 3.87
Scott Painter (2)(4) -0- -0- -0- -0- 1,209,208 3.87
Andrew Reif (2)(4) -0- -0- -0- -0- 7,884,770 20.79
Jeffrey Wattenberg (2)(5) -0- -0- -0- -0- 2,825,000 8.60
AEG (6) -0- -0- -0- -0- 11,292,614 27.32
BBVA (7) -0- -0- -0- -0- 8,954,550 22.96
Crestview Capital (8) -0- -0- 9,472 20.00 8,952,120 22.96
Highbridge (9) -0- -0- 9,472 20.00 8,952,120 22.96
FOX (10) 69,078 20.65 -0- -0- 16,785,929 35.85
NBC (11) 26,280 7.86 -0- -0- 6,385,951 17.53
All directors and executive
officers as a group,
including those named
above (6 persons) 73,901 11.71 -0- -0- 96,216,095 76.21
* To be converted automatically into common stock upon authorization of
sufficient shares.
(1) Includes shares issuable upon conversion of Series A Preferred Stock and
Series B Preferred Stock reflected in the table opposite the identified person,
as well as exercise of currently exercisable stock options or warrants to
acquire shares, as set forth in the succeeding notes. In accordance with SEC
rules, each owner's percentage is computed assuming conversion or exercise of
only that person's convertible securities, options, or warrants.
(2) Address is c/o AVP Pro Beach Volleyball Tour, Inc., 6100 Center Drive, Suite
900, Los Angeles, CA 90045.
(3) Common stock includes 49,540,720 shares issuable upon exercise of currently
exercisable stock options.
(4) All shares of common stock are issuable upon exercise of currently
exercisable stock options and warrants.
(5) Common stock includes 2,000,000 shares issuable upon exercise of currently
exercisable stock options. Excludes unallocated shares underlying a warrant to
be granted to Mr. Wattenberg from among 15,588,186 shares reserved for grant of
such warrants.
(6) Anschutz Entertainment Group, Inc., 1100 South Flower Street, Suite 300, Los
Angeles, CA 90015. All shares of common stock are issuable upon conversion of a
convertible note.
31
(7) BBVA, Castellana, 81, Planta 22, Madrid, Spain 28046. Common stock includes
1,790,910 shares issuable upon exercise of currently exercisable warrant.
(8) Crestview Capital Master LLC, 95 Revere Drive, Suite A, Northbrook, IL
60062. Common stock includes 1,790,424 shares issuable upon exercise of a
currently exercisable warrant.
(9) Highbridge Capital Management LLC, 9 West 57th Street, 27th Floor, New York,
NY 10019. Common stock includes 1,790,424 shares issuable upon exercise of a
currently exercisable warrant.
(10) National Sports Partners, c/o Fox Sports Net, 10201 W. Pico Boulevard,
Building 101, Suite 5420, Los Angeles, CA 90035.
(11) National Broadcasting Company, Inc., 30 Rockefeller Plaza, New York, NY
10112.
DESCRIPTION OF SECURITIES
The following description includes the material terms of our capital stock.
However, it is a summary and is qualified in its entirety by the provisions of
our Certificate of Incorporation, with amendments, all of which have been filed
as exhibits to our registration statement of which this prospectus is a part.
Capitalization
We are currently authorized to issue 40,000,000 shares of common stock, $0.001
par value and 2,000,000 shares of preferred stock, $0.001 par value. As of May
31, 2005, we had outstanding 30,035,615 shares of common stock, 334,485 shares
of Series A Preferred Stock, and 116,412 shares of Series B Preferred Stock,
each convertible into 243 shares of common stock; and options and warrants to
purchase 111,014,528 shares of common stock; and 50,753,590 shares are reserved
for exercise stock options to be granted to players and warrants to be granted
pursuant to the Merger Agreement, principally to AVP directors and executive
officers, for services in connection with the merger.
We intend to hold a stockholders' meeting to seek approval to amend our
Certificate of Incorporation to increase the amount of common stock authorized
for issuance in order to allow for conversion of the Series B Preferred Stock
and the exercise of the warrants issued in the private placement.
Common Stock
The holders of our common stock are entitled to one vote for each share of
record on all matters to be voted on by stockholders. Our stockholders are not
entitled to cumulative voting. The holders of our common stock are entitled to
receive dividends when, and if, declared by our Board of Directors from funds
legally available therefore. In the event of liquidation, dissolution or winding
up, our holders of common stock are entitled to share ratably in all assets
remaining available for distribution to them after payment of our liabilities,
and after provision has been made for each class of stock having preference over
the common stock, including the shares of Series B Preferred Stock. Holders of
the shares of our common stock have no conversion, preemptive or other
subscription rights, and there are no redemption provisions applicable to the
common stock. All of the outstanding shares of our common stock are duly
authorized, validly issued, fully paid and non-assessable.
Currently, the amount of our common stock authorized for issuance is less than
the amount into which the Series A Preferred Stock and Series B Preferred Stock
and the warrants issued and outstanding after the completion of our private
placement in February 2005 are convertible. We intend to hold a stockholders'
meeting to seek approval to amend our Certificate of Incorporation to increase
our authorized common stock to allow for conversion of the Series A Preferred
Stock and Series B Preferred Stock and the exercise of the Warrants.
Preferred Stock
Series A Preferred Stock
The Series A Preferred Stock has the same terms as the Series B Preferred Stock,
except for the voting rights described below and that the Series A Preferred
Stock will be junior to the Series B Preferred Stock on liquidation. Upon
amendment of our Certificate of Incorporation to increase our authorized common
stock available for issuance, the Series A Preferred Stock will convert
automatically into our common stock at the same conversion rate as is applicable
to the Series B Preferred Stock.
32
Series B Preferred Stock
A holder of the Series B Preferred Stock has no preemptive rights. The Series B
Preferred Stock is not subject to any sinking fund or other obligation to redeem
or retire the Series B Preferred Stock. Unless converted or redeemed, the Series
B Preferred Stock has a perpetual term.
The Series B Preferred Stock is senior to the common stock and the Series A
Preferred Stock with respect to payment of dividends and amounts upon
liquidation, dissolution or winding up. While any Series B Preferred Stock is
outstanding, we cannot authorize, create, or increase the authorized amount of
any class or series of stock that ranks prior or senior to, or in parity with,
the Series B Preferred Stock with respect to the payment of dividends or amounts
upon liquidation, dissolution, or winding up, without the consent of the holders
of a majority of the Series B Preferred Stock.
The holders of Series B Preferred Stock will receive dividends when, and if,
declared on our common stock, on an as-converted basis. The holders of Series B
Preferred Stock will be entitled to receive, in the event of liquidation,
dissolution, whether voluntary or involuntary, payment of $33.93 for each share
of Series B Preferred Stock held, in preference to holders of any junior class
of stock.
The holders of Series B Preferred Stock have the right, exercisable at any time,
to convert each share into 243 shares of common stock. The conversion ratio may
be increased, on a weighted average basis, upon issuances of the common stock or
securities convertible into common stock at a purchase price or conversion price
less than the Series B Preferred Stock conversion price then in effect.
The holders of Series B Preferred Stock vote with holders of common stock in all
matters in which they are entitled to vote. Until our authorized common stock
has been increased to allow for conversion of the Series B Preferred Stock, each
share of Series B Preferred Stock will have 10 times the number of votes the
share would carry if converted into common stock. Thereafter, each share of
Series B Preferred Stock will carry a number of votes equal to the number of
shares of common stock into which such share is convertible. The approval of the
holders of a majority of the outstanding Series B Preferred Stock is required to
amend our Certificate of Incorporation, which may materially adversely affect
the rights of holders of Series B Preferred Stock, or to authorize, create, or
increase the authorized amount of any class of stock giving rights senior to, or
in parity with, the holders of Series B Preferred Stock with respect to payment
of dividends or amounts upon liquidation, dissolution, or winding up. Until our
authorized common stock is increased as stated above, holders of Series B
Preferred Stock will possess votes constituting a majority of votes entitled to
be cast by our stockholders. Each purchaser of Series B Preferred Stock has
agreed and gave an irrevocable proxy to vote in favor of increasing our common
stock authorized for issuance in connection with the closing of the merger and
the offering.
The Series B Preferred Stock may be redeemed at our election, after the fifth
anniversary of issuance on 30 days notice, at a redemption price of $33.93 per
share. On or after February 28, 2006, we will have the option to convert the
Series B Preferred Stock into common stock on 30 days notice, if (1) a resale
registration statement covering the underlying common stock is effective, (2)
our common stock is quoted on the OTCBB or a similar electronic quotation system
or stock exchange, (3) the closing price per share, or the average of the
closing bid and ask prices per share, if applicable, have been at least twice
the quotient obtained by dividing the Series B Preferred Stock redemption price
by its conversion rate, and (4) the daily trading volume of our common stock for
30 consecutive trading days averages at least 2,000,000 shares.
If such authorization does not occur within 180 days from closing of the private
placement, holders will have the right to put their Series B Preferred Stock to
us and obtain the complete return of their funds, although there can be no
assurance that any such funds will be available for distribution to the holders
of the Series B Preferred Stock.
33
Warrants
In connection with the sale of 10% convertible notes, we issued two-year
warrants to purchase a total of 4,720,000 shares of common stock at a purchase
price of $0.21 per share.
Upon the consummation of the private placement, we issued 36,841 warrants to
purchase common stock to multiple investors. One warrant was attached to every
four (4) shares of Series B Preferred Stock sold in the offering. Each warrant
entitles the holder to purchase 243 shares of our common stock for a period of
five years at an exercise price of $0.19548 per share, subject to adjustment for
anti-dilution or changes in outstanding Common Stock.
In connection with the offering, the placement agent in the Series B Preferred
Stock and Warrant Units offering, received warrants to purchase up to 3,580,945
shares of our common stock. The warrants are exercisable for a period of five
years at an exercise price of $0.13963 per share and may be exercised on a
cashless basis.
Under the Merger Agreement, 44,242,596 shares of Common Stock have been reserved
for issuance for services in connection with the merger, principally to AVP
directors and executive officers.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
The Delaware General Corporation Law and our Bylaws provide for indemnification
of our directors for liabilities and expenses that they may incur in such
capacities. In general, our directors and officers are indemnified with respect
to actions taken in good faith and in a manner such person believed to be in our
best interests, and with respect to any criminal action or proceedings, actions
that such person has no reasonable cause to believe were unlawful. Furthermore,
the personal liability of our directors is limited as provided in our
Certificate of Incorporation.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
PLAN OF DISTRIBUTION
We are registering the shares of common stock on behalf of the selling
stockholders. Sales of shares may be made by the selling stockholders, including
their respective donees, transferees, pledgees or other successors-in-interest
directly to purchasers or to or through underwriters, broker-dealers or through
agents. Sales may be made from time to time on the over-the-counter market, or
on any other exchange upon which our shares may trade in the future, at market
prices prevailing at the time of sale, at prices related to market prices, or at
negotiated or fixed prices.
The shares may be sold by one or more of, or a combination of, the following:
o a block trade in which the broker-dealer so engaged will attempt to sell
the shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction (including crosses in which the
same broker acts as agent for both sides of the transaction);
o purchases by a broker-dealer as principal and resale by such
broker-dealer, including resales for its account, pursuant to this
prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchases;
o through options, swaps or derivatives;
o in privately negotiated transactions;
o in making short sales or in transactions to cover short sales; and
o put or call option transactions relating to the shares.
If the selling stockholders effect such transactions by selling their shares of
common stock to or through underwriters, brokers, dealers or agents, such
underwriters, brokers, dealers or agents may receive compensation in the form of
discounts, concessions or commissions from the selling stockholders or
commissions from purchasers of common stock for whom they may act as agent
(which discounts, concessions or commissions as to particular underwriters,
brokers, dealers or agents may be in excess of those customary in the types of
transactions involved). Any brokers, dealers or agents that participate in the
distribution of the common stock are deemed to be underwriters, and any profit
on the sale of common stock by them and any discounts, concessions or
commissions received by any such underwriters, brokers, dealers or agents are
deemed to be underwriting discounts and commissions under the Securities Act.
34
The selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions. In connection with those transactions, the
broker-dealers or other financial institutions may engage in short positions or
other derivative transactions relating to the shares of our common stock or of
securities convertible into or exchangeable for the shares of our common stock
in the course of hedging positions they assume with the selling stockholders and
may deliver such securities to close out their short positions or otherwise
settle short sales or other transactions. The selling stockholders may also loan
or pledge shares to broker-dealers or other third parties. In connection with
those transactions, the broker-dealers or other third parties may sell such
loaned or pledged shares. The selling stockholders may also enter into options
or other transactions with broker-dealers or other financial institutions which
require the delivery of shares offered by this prospectus to those
broker-dealers or other financial institutions. The broker-dealer or other
financial institution may then resell the shares pursuant to this prospectus (as
amended or supplemented, if required by applicable law, to reflect those
transactions).
Under the securities laws of certain states, the shares of common stock may be
sold in such states only through registered or licensed brokers or dealers. The
selling stockholders are advised to ensure that any underwriters, brokers,
dealers or agents effecting transactions on behalf of the selling stockholders
are registered to sell securities in all fifty states. In addition, in certain
states the shares of common stock may not be sold unless the shares have been
registered or qualified for sale in such state or an exemption from registration
or qualification is available and is complied with.
Our common stock is deemed to be "penny stock" as that term is defined in Rule
3a51-1 promulgated under the Exchange Act. Penny stocks are stock: (i) with a
price of less than $5.00 per share; (ii) that are not traded on a "recognized"
national exchange; (iii) whose prices are not quoted on the Nasdaq automated
quotation system (Nasdaq listed stock must still have a price of not less than
$5.00 per share); or (iv) in issuers with net tangible assets less than $2.0
million (if the issuer has been in continuous operation for at least three
years) or $5.0 million (if in continuous operation for less than three years),
or with average revenues of less than $6.0 million for the last three years.
Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common
stock to sell shares to third parties or to otherwise dispose of them. This
could cause our stock price to decline.
The selling stockholders should be aware that the anti-manipulation provisions
of Regulation M under the Exchange Act will apply to purchases and sales of
shares of common stock by the selling stockholders, and that there are
restrictions on market-making activities by persons engaged in the distribution
of the shares. Under Regulation M, the selling stockholders or their agents may
not bid for, purchase, or attempt to induce any person to bid for or purchase,
our shares of common stock while such selling stockholder is distributing shares
covered by this prospectus. Accordingly, except as noted below, the selling
stockholders are not permitted to cover short sales by purchasing shares while
the distribution is taking place. The selling stockholders are advised that if a
particular offer of common stock is to be made on terms constituting a material
change from the information set forth above with respect to the Plan of
Distribution, then, to the extent required, a post-effective amendment to the
accompanying registration statement must be filed with the SEC.
The selling stockholders also may resell all or a portion of their shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of Rule 144.
35
We will pay all the expenses incident to the registration, offering and sale of
the shares of common stock to the public hereunder other than commissions, fees
and discounts of underwriters, brokers, dealers and agents. We will not receive
any proceeds from the sale of any of the shares of common stock by the selling
stockholders.
36
SELLING STOCKHOLDERS
Selling Stockholder Table
This prospectus covers the offer and sale by the selling stockholders of up to
114,248,948 shares of common stock. All such shares issued or to be issued are
and will be restricted securities as that term is defined in Rule 144 under the
Securities Act, and will remain restricted unless and until such shares are sold
pursuant to this prospectus or otherwise are sold in compliance with Rule 144.
Each of the selling stockholders has represented that it acquired the shares for
investment purposes only and with no present intention of distributing those
shares, except in compliance with all applicable securities law. In addition,
each of the selling stockholders has represented that each qualifies as an
"accredited investor" as such term is defined in Rule 501 under the Securities
Act. The selling stockholders might be considered underwriters.
The table below sets forth information concerning the resale of the shares of
common stock by the selling stockholders. We will not receive any proceeds from
the resale of the common stock by the selling stockholders. We will receive
proceeds from the options and the warrants, if exercised for cash. The following
table also sets forth the name of each person who is offering the resale of
shares of common stock by this prospectus, the number of shares of common stock
beneficially owned by each person, the number of shares of common stock that may
be sold in this offering and the number and percentage of shares of common stock
each person will own after the offering, assuming they sell all of the shares
offered.
The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Exchange Act, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under such
rule, beneficial ownership includes any shares as to which the selling
stockholder has sole or shared voting power or investment power and also any
shares the selling stockholder has the right to acquire within 60 days.
Percentage Percentage
of of
Shares Outstanding Outstanding
Beneficially Shares Shares Shares
Owned Beneficially to be Sold Beneficially
Before Owned Before in the Owned After
Selling Stockholder Offering Offering Offering Offering
- ---------------------------- ----------------- --------------- ------------ -------------
AEG 11,292,614(1) 33.40% 11,292,614 0%
BBVA 8,954,550(2) 28.46% 8,954,550 0%
Steven Berkowitz 223,560(3) 0.98% 223,560 0%
Paul Chiumento 243,000(4) 1.07% 243,000 0%
Sheila G. Corvino 88,695(5) 0.39% 88,695 0%
Crestview Capital Master LLC 8,952,120(6) 28.45% 8,952,120 0%
Meir Duke 894,240(7) 3.82% 894,240 0%
Joseph English 894,240(8) 3.82% 894,240 0%
Gideon Feingold 447,120(9) 1.95% 447,120 0%
FOX 16,785,929(10) 42.71% 16,785,929 0%
Grossman Family Trust 223,560(11) 0.98% 223,560 0%
Daniel D. Hickey 224,775(12) 0.99% 224,775 0%
Highbridge International LLC 8,952,120(13) 28.45% 8,952,120 0%
37
Percentage Percentage
of of
Shares Outstanding Outstanding
Beneficially Shares Shares Shares
Owned Beneficially to be Sold Beneficially
Before Owned Before in the Owned After
Selling Stockholder Offering Offering Offering Offering
- ---------------------------- ----------------- --------------- ------------ -------------
Kellogg Capital Group LLC 447,120(14) 1.95% 447,120 0%
Shalom Maidenbaum 243,000(15) 1.07% 243,000 0%
Gil Makov 447,120(16) 1.95% 447,120 0%
Maxim 3,580,945(17) 13.72% 3,580,945 0%
MeadowBrook Opportunity Fund LLC 2,430,000(18) 9.74% 2,430,000 0%
NBC 6,385,951(19) 22.10% 6,385,951 0%
Carole Rosenblatt 894,240(20) 3.82% 894,240 0%
Wayne Saker 223,560(21) 0.98% 223,560 0%
SF Capital Partners Ltd. 4,476,060(22) 16.58% 4,476,060 0%
MacAllister Smith 133,650(23) 0.59% 133,650 0%
Stepping Stone Partners 895,455(24) 3.83% 895,455 0%
A. Michael Storiazzi 894,240(25) 3.82% 894,240 0%
James D. Sullivan 224,775(26) 0.99% 224,775 0%
Raymond & Liana Szeto 447,120(27) 1.95% 447,120 0%
The Jay Goldman Master LP 1,342,575(28) 5.63% 1,342,575 0%
Boris Volman 447,120(29) 1.95% 447,120 0%
Jerold & Lilli Weinger 670,680(30) 2.89% 670,680 0%
Jay & Toni Youngeman 447,120(31) 1.95% 447,120 0%
Special K Investors Inc. 2,381,175(32)* 8.09% 2,381,175 0%
Eamonn McConnell 1,190,588(33)* 4.21% 1,190,588 0%
Stephen Caragol and Michelle
Caragol, joint tenants 1,190,588(34)* 4.21% 1,190,588 0%
UEB Switzerland 3,571,762(35)* 11.66% 3,571,762 0%
Bay Point Investment Partners,
LLC 595,294(36)* 2.15% 595,294 0%
Lawrence Berk 297,647(37)* 1.09% 297,647 0%
Timothy E. Lutes 297,647(38)* 1.09% 297,647 0%
Figeac S.A 2,381,175(39)* 8.09% 2,381,175 0%
Shai Stern and Michelle Stern,
joint tenants 297,647(40)* 1.09% 297,647 0%
Robert Tucker 1,190,588(41)* 4.21% 1,190,588 0%
Brent A. Lind 416,706(42)* 1.52% 416,706 0%
UEB Switzerland 1,190,588(43)* 4.21% 1,190,588 0%
Winchester Land Company Limited 1,190,588(44)* 4.21% 1,190,588 0%
38
Percentage Percentage
of of
Shares Outstanding Outstanding
Beneficially Shares Shares Shares
Owned Beneficially to be Sold Beneficially
Before Owned Before in the Owned After
Selling Stockholder Offering Offering Offering Offering
- ---------------------------- ----------------- --------------- ------------ -------------
Jay Mittman 1,190,588(45)* 4.21% 1,190,588 0%
Lawrence Investments, LLC 1,190,588(46)* 4.21% 1,190,588 0%
Jerry Cohen 595,294(47)* 2.15% 595,294 0%
Velma Iva Raleigh Trust 595,294(48)* 2.15% 595,294 0%
Elliot Braun 400,000(49)* 0.88% 400,000 0%
J. Mittman & Co. Inc. 5,357,643(50)* 18.00% 5,357,643 0%
Robert J. Braun and Janet L.
Braun, joint tenants 400,000(51)* 0.88% 400,000 0%
Stephen Caragol 397,647(52)*+ 1.73% 397,647 0%
Robert A. Raleigh 297,647(53)* 1.09% 297,647 0%
Jeffrey Wattenberg 2,825,000(54) 11.15% 2,825,000 0%
Robert Richman 750,000(55)+ 3.22% 750,000 0%
Ron Bearpark 750,000(56)+ 3.22% 750,000 0%
J.T.R. Baines 500,000(57)+ 2.17% 500,000 0%
------------- ------------
114,248,948 87.10%(58) 114,248,948
============= ============
* Each selling stockholder has agreed not to sell, offer to sell, contract to
sell (including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of (other to donees who agree to be
similarly bound), pledge, hypothecate or otherwise transfer (except for estate
planning purposes to a family member or trust) any shares of common stock
registered in this offering, except for 20% of such shares commencing on the
effective date of the registration statement, an additional 20% of such shares
commencing 90 days from the effective date of the registration statement, and
the remaining 60% of such shares commencing 180 days from the effective date of
the registration statement, without the prior written consent of Maxim.
+ Each selling stockholder has agreed not to sell, offer to sell, contract to
sell (including, without limitation, any short sale), grant any option to
purchase or otherwise transfer or dispose of (other to donees who agree to be
similarly bound), pledge, hypothecate or otherwise transfer (except for estate
planning purposes to a family member or trust) any shares of common stock
registered in this offering, except for 50% of such shares commencing 90 days
from the effective date of the registration statement, and the remaining 50% of
such shares commencing 180 days from the effective date of this registration
statement, without the prior written consent of Maxim.
(1) Consists of 11,292,614 shares of common stock issuable upon conversion of a
convertible note.
(2) Includes 1,790,910 shares of common stock issuable upon exercise of
outstanding warrants. The selling stockholder is controlled by Juan Jose
Peralta.
(3) Consists of 178,848 shares of common stock issuable upon assumed conversion
of 736 shares of Series B Preferred Stock, and an additional 44,712 shares of
common stock issuable upon exercise of outstanding warrants.
(4) Consists of 194,400 shares of common stock issuable upon assumed conversion
of 800 shares of Series B Preferred Stock, and an additional 48,600 shares of
common stock issuable upon exercise of outstanding warrants.
39
(5) Consists of 70,956 shares of common stock issuable upon assumed conversion
of 292 shares of Series B Preferred Stock, and an additional 17,739 shares of
common stock issuable upon exercise of outstanding warrants.
(6) Consists of 7,161,696 shares of common stock issuable upon assumed
conversion of 29,472 shares of Series B Preferred Stock, and an additional
1,790,424 shares of common stock issuable upon exercise of outstanding warrants.
(7) Consists of 715,392 shares of common stock issuable upon assumed conversion
of 2,944 shares of Series B Preferred Stock, and an additional 178,848 shares of
common stock issuable upon exercise of outstanding warrants.
(8) Consists of 715,392 shares of common stock issuable upon assumed conversion
of 2,944 shares of Series B Preferred Stock, and an additional 178,848 shares of
common stock issuable upon exercise of outstanding warrants.
(9) Consists of 357,696 shares of common stock issuable upon assumed conversion
of 1,472 shares of Series B Preferred Stock, and an additional 89,424 shares of
common stock issuable upon exercise of outstanding warrants.
(10) Consists of 16,785,929 shares of common stock issuable upon conversion of
Series A Preferred Stock.
(11) Consists of 178,848 shares of common stock issuable upon assumed conversion
of 736 shares of Series B Preferred Stock, and an additional 44,712 shares of
common stock issuable upon exercise of outstanding warrants.
(12) Consists of 79,820 shares of common stock issuable upon assumed conversion
of 740 shares of Series B Preferred Stock, and an additional 44,955 shares of
common stock issuable upon exercise of outstanding warrants.
(13) Consists of 7,161,696 shares of common stock issuable upon assumed
conversion of 29,472 shares of Series B Preferred Stock, and an additional
1,790,424 shares of common stock issuable upon exercise of outstanding warrants.
(14) Includes 89,424 shares of common stock issuable upon exercise of
outstanding warrants.
(15) Consists of 194,400 shares of common stock issuable upon assumed conversion
of 800 shares of Series B Preferred Stock, and an additional 48,600 shares of
common stock issuable upon exercise of outstanding warrants.
(16) Consists of 357,696 shares of common stock issuable upon assumed conversion
of 1,472 shares of Series B Preferred Stock, and an additional 89,424 shares of
common stock issuable upon exercise of outstanding warrants. The selling
stockholder is controlled by Michael Ragins.
(17) Consists of 3,580,945 shares of common stock issuable upon exercise of
outstanding warrants.
(18) Consists of 1,944,000 shares of common stock issuable upon assumed
conversion of 8,000 shares of Series B Preferred Stock, and an additional
486,000 shares of common stock issuable upon exercise of outstanding warrants.
(19) Consists of 6,385,951 shares of common stock issuable upon conversion of
Series A Preferred Stock.
(20) Consists of 715,392 shares of common stock issuable upon assumed conversion
of 2,944 shares of Series B Preferred Stock, and an additional 178,848 shares of
common stock issuable upon exercise of outstanding warrants.
(21) Consists of 178,848 shares of common stock issuable upon assumed conversion
of 736 shares of Series B Preferred Stock, and an additional 44,712 shares of
common stock issuable upon exercise of outstanding warrants.
(22) Consists of 3,580,848 shares of common stock issuable upon assumed
conversion of 14,736 shares of Series B Preferred Stock, and an additional
895,212 shares of common stock issuable upon exercise of outstanding warrants.
The exercise of the warrants is restricted to limit the holder's beneficial
ownership to less than 5% and 10% of the common stock. The selling stockholder
is controlled by Michael A. Roth and Brian J. Stark.
40
(23) Consists of 106,920 shares of common stock issuable upon assumed conversion
of 440 shares of Series B Preferred Stock, and an additional 26,730 shares of
common stock issuable upon exercise of outstanding warrants.
(24) Consists of 716,364 shares of common stock issuable upon assumed conversion
of 2,948 shares of Series B Preferred Stock, and an additional 179,091 shares of
common stock issuable upon exercise of outstanding warrants.
(25) Consists of 715,392 shares of common stock issuable upon assumed conversion
of 2,944 shares of Series B Preferred Stock, and an additional 178,848 shares of
common stock issuable upon exercise of outstanding warrants.
(26) Consists of 179,820 shares of common stock issuable upon assumed conversion
of 740 shares of Series B Preferred Stock, and an additional 44,955 shares of
common stock issuable upon exercise of outstanding warrants.
(27) Consists of 357,696 shares of common stock issuable upon assumed conversion
of 1,472 shares of Series B Preferred Stock, and an additional 89,424 shares of
common stock issuable upon exercise of outstanding warrants.
(28) Consists of 1,074,060 shares of common stock issuable upon assumed
conversion of 1,105 shares of Series B Preferred Stock, and an additional
268,515 shares of common stock issuable upon exercise of outstanding warrants.
(29) Consists of 357,696 shares of common stock issuable upon assumed conversion
of 1,472 shares of Series B Preferred Stock, and an additional 89,424 shares of
common stock issuable upon exercise of outstanding warrants.
(30) Consists of 536,544 shares of common stock issuable upon assumed conversion
of 2,208 shares of Series B Preferred Stock, and an additional 134,136 shares of
common stock issuable upon exercise of outstanding warrants.
(31) Consists of 357,696 shares of common stock issuable upon assumed conversion
of 1,472 shares of Series B Preferred Stock, and an additional 89,424 shares of
common stock issuable upon exercise of outstanding warrants.
(32) Includes 1,581,175 shares of common stock issuable upon conversion of
Series A Preferred Stock, and an additional 400,000 shares of common stock
issuable upon exercise of outstanding warrants.
(33) Includes 790,588 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 200,000 shares of common stock issuable
upon exercise of outstanding warrants.
(34) Includes 790,588 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 200,000 shares of common stock issuable
upon exercise of outstanding warrants.
(35) Includes 2,371,762 shares of common stock issuable upon conversion of
Series A Preferred Stock, and an additional 600,000 shares of common stock
issuable upon exercise of outstanding warrants.
(36) Includes 395,294 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 100,000 shares of common stock issuable
upon exercise of outstanding warrants.
(37) Includes 197,647 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 50,000 shares of common stock issuable upon
exercise of outstanding warrants.
(38) Includes 197,647 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 50,000 shares of common stock issuable upon
exercise of outstanding warrants.
(39) Includes 1,581,175 shares of common stock issuable upon conversion of
Series A Preferred Stock, and an additional 400,000 shares of common stock
issuable upon exercise of outstanding warrants.
(40) Includes 197,647 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 50,000 shares of common stock issuable upon
exercise of outstanding warrants.
41
(41) Includes 790,588 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 200,000 shares of common stock issuable
upon exercise of outstanding warrants.
(42) Includes 276,706 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 70,000 shares of common stock issuable upon
exercise of outstanding warrants.
(43) Includes 790,588 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 200,000 shares of common stock issuable
upon exercise of outstanding warrants.
(44) Includes 790,588 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 200,000 shares of common stock issuable
upon exercise of outstanding warrants.
(45) Includes 790,588 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 200,000 shares of common stock issuable
upon exercise of outstanding warrants.
(46) Includes 790,588 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 200,000 shares of common stock issuable
upon exercise of outstanding warrants.
(47) Includes 395,294 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 100,000 shares of common stock issuable
upon exercise of outstanding warrants.
(48) Includes 395,294 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 100,000 shares of common stock issuable
upon exercise of outstanding warrants.
(49) Includes 200,000 shares of common stock issuable upon exercise of
outstanding warrants.
(50) Includes 1,581,175 shares of common stock issuable upon conversion of
Series A Preferred Stock, and an additional 400,000 shares of common stock
issuable upon exercise of outstanding warrants. Includes 1,976,468 shares of
common stock issuable upon conversion of Series A Preferred Stock, and an
additional 500,000 shares of common stock issuable upon exercise of outstanding
warrants.
(51) Includes 200,000 shares of common stock issuable upon exercise of
outstanding warrants.
(52) Includes 197,647 shares of common stock issuable upon conversion of Series
A Preferred Stock, 50,000 shares of common stock issuable upon exercise of
outstanding warrants, and 100,000 shares of common stock issuable upon exercise
of an outstanding stock option.
(53) Includes 197,647 shares of common stock issuable upon conversion of Series
A Preferred Stock, and an additional 50,000 shares of common stock issuable upon
exercise of outstanding warrants.
(54) Includes 2,000,000 shares of common stock issuable upon exercise of an
outstanding stock option. Mr. Wattenberg has agreed not to sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other to donees who
agree to be similarly bound), pledge, hypothecate or otherwise transfer (except
for estate planning purposes to a family member or trust) 2,000,000 shares of
common stock registered in this offering, except for 50% of such shares
commencing ninety (90) days from the effective date of the registration
statement, and the remaining 50% of such shares commencing one hundred eighty
(180) days from the effective date of the registration statement, without the
prior written consent of Maxim.
(55) Consists of 750,000 shares of common stock issuable upon exercise of an
outstanding stock option.
(56) Consists of 750,000 shares of common stock issuable upon exercise of an
outstanding stock option.
(57) Consists of 500,000 shares of common stock issuable upon exercise of an
outstanding stock option.
42
(58) Assumes that all selling stockholders convert or exercise their securities
into or for AVP Common Stock and that no other such outstanding securities have
been converted or exercised.
Relationships with Selling Stockholders
The following information contains a description of how each selling stockholder
acquired the shares to be sold in this offering. None of the selling
stockholders have held a position or office, or had any other material
relationship, with us, except as follows:
James Sullivan is a registered representative with Maxim Group, LLC, which acted
as placement agent for the Series B Preferred Stock and Common Stock Purchase
Warrants private offering.
All of the selling stockholders, except for Fox, NBC, AEG and five optionees,
acquired their shares either pursuant to the sale of 10% convertible notes in
2004 or on February 28, 2005, in connection with the consummation the private
placement of units of Series B Preferred Stock and common stock purchase
warrants that closed on the date of the merger.
The notes were issued in units that included common stock and common stock
purchase warrants. It was a condition to the closing of the merger, among other
things, that at least $2.0 million principal amount of the notes (and accrued
interest) were converted into our Series A Preferred Stock. A total of
26,516,694 shares of common stock issued as part of the units, underlying the
warrants included in the units, or issuable on conversion of the Series A
Preferred Stock into which the notes were converted are being registered.
Holders of the notes and the optionees, who hold options exercisable in total
for 4,100,000 shares, have agreed to refrain from selling their shares for
periods of 90 to 180 days from effectiveness of the registration statement, as
set forth in the notes to the table.
We sold an aggregate of 36,841 units of Series B Preferred Stock and common
stock purchase warrants for an aggregate purchase price of $5,000,060.52 and
issued the placement agent a warrant to purchase 3,580,945 shares of common
stock. A total of 48,342,760 shares of common stock underlying these units are
being registered.
In addition, we are registering 23,171,880 shares of common stock issuable upon
the conversion of our Series A Preferred Stock that we issued to Fox and NBC.
NBC distributes our programming on broadcast television, and Fox distributes our
programming on cable television. NBC and Fox own Series A Preferred Stock
convertible into 22.1% and 42.7%, respectively, of the common stock that would
be outstanding following such conversion (assuming conversion of only their
Series A Preferred Stock).
We are also registering 11,292,614 shares of common stock issuable upon
conversion of a convertible note issued to AEG. AEG provides all merchandising
services on our behalf at our tournaments. AEG's note is convertible into 33.4%
of the common stock that would be outstanding following such conversion
(assuming conversion of only the note).
We are also including among the shares offered by this prospectus 4,825,000
shares of common stock, including 4,000,000 shares of common stock underling
stock option grants made to certain individuals. Of such 4,825,000 shares of
common stock, Mr. Wattenberg, a member of our Board of Directors, holds
2,825,000 shares, including 2,000,000 shares of common stock underlying an
employee stock option.
LEGAL MATTERS
The validity of the shares of common stock being offered hereby will be passed
upon for us by Loeb & Loeb LLP.
EXPERTS
Our financial statements as of December 31, 2004 and for the years ended
December 31, 2004 and 2003 appearing in this prospectus and registration
statement have been audited by Mayer Hoffman McCann P.C., independent registered
public accounting firm as set forth in their report appearing elsewhere herein,
and are included in reliance upon the authority of such firm as experts in
accounting and auditing in issuing such reports.
43
AVAILABLE INFORMATION
We are subject to the informational requirements of the Exchange Act, which
requires us to file reports, proxy statements and other information with the
SEC. Such reports, proxy statements and other information may be inspected at
the public reference room of the SEC at Judiciary Plaza, 450 Fifth Street N.W.,
Washington D.C. 20549. Copies of such material can be obtained from the facility
at prescribed rates. Please call the SEC toll free at 1-800-SEC-0330 for
information about its public reference room. Because we file documents
electronically with the SEC, you may also obtain this information by visiting
the SEC's Internet website at http://www.sec.gov or our website at
http://www.avp.com. Information contained in our web site is not part of this
prospectus.
Our statements in this prospectus about the contents of any contract or other
document are not necessarily complete. You should refer to the copy of our
contract or other document we have filed as an exhibit to the registration
statement for complete information.
You should rely only on the information incorporated by reference or provided in
this prospectus. We have not authorized anyone else to provide you with
different information. The selling stockholders are not making an offer of these
securities in any state where the offer is not permitted. You should not assume
that the information in this prospectus is accurate as of any date other than
the date on the front of the document.
We furnish our stockholders with annual reports containing audited financial
statements.
44
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Registered Public Accounting Firm Report..................................................... F-2
Balance Sheet as of December 31, 2004 and March 31, 2005 (Unaudited)..................................... F-3
Statements of Operations for the Years Ended
December 31, 2004 and 2003 and for the three months ended March 31, 2005 and 2004 (Unaudited)......... F-4
Statement of Changes in Stockholders' Equity (Deficiency) for the Years ended
December 31, 2004 and 2003 and for the three months ended March 31, 2005 and 2004 (Unaudited)......... F-5
Statements of Cash Flows for the Years Ended
December 31, 2004 and 2003 and for the three months ended March 31, 2005 and 2004 (Unaudited) ........ F-6
Notes to Financial Statements............................................................................ F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of AVP Pro Beach Volleyball Tour, Inc.
We have audited the accompanying balance sheet of AVP Pro Beach Volleyball Tour,
Inc. f/k/a Association of Volleyball Professionals, Inc. (AVP) as of December
31, 2004 and the related statements of operations, changes in stockholders'
equity (deficiency) and cash flows for the years ended December 31, 2004 and
2003. These financial statements are the responsibility of AVP's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 financial statements referred to above present fairly, in
all material respects, the financial position of AVP as of December 31, 2004 and
the results of its operations and its cash flows for the years ended December
31, 2004 and 2003 in conformity with U.S. generally accepted accounting
principles.
Mayer Hoffman McCann P.C.
New York, New York
March 18, 2005
F-2
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
Balance Sheet
(Unaudited)
December 31, March 31,
2004 2005
------------ ------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 631,933 $ 4,820,821
Accounts receivable, net of
allowance for doubtful accounts of $10,000 649,137 1,102,843
Prepaid expenses 26,606 554,082
Deferred commission-related party 253,339 190,004
------------ ------------
TOTAL CURRENT ASSETS 1,561,015 6,667,750
------------ ------------
PROPERTY AND EQUIPMENT, net 201,703 316,986
------------ ------------
OTHER ASSETS
Investment in sales-type lease 628,323 604,078
Other assets 42,738 45,228
------------ ------------
TOTAL OTHER ASSETS 671,061 649,306
------------ ------------
TOTAL ASSETS $ 2,433,779 $ 7,634,042
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES
Notes payable - related party $ 2,000,000 $ --
Current portion of long-term debt 1,633,333 1,330,070
Accounts payable 57,157 479,177
Accrued expenses 790,368 1,215,861
Accrued interest 316,630 260,502
Accrued officer compensation 43,208 --
Deferred revenue 325,050 3,294,897
------------ ------------
TOTAL CURRENT LIABILITIES 5,165,746 6,580,507
------------ ------------
OTHER LIABILITIES
Long-term deferred revenue 225,000 225,000
Long-term debt - less current portion 1,100,071 683,334
------------ ------------
TOTAL OTHER LIABILITIES 1,325,071 908,334
------------ ------------
TOTAL LIABILITIES 6,490,817 7,488,841
------------ ------------
REDEEMABLE SERIES A PREFERRED STOCK 3,657,600 --
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (DEFICIENCY)
Series A-1 preferred stock, $.001 par value, 2,000,000 shares authorized,
122,381 and 0 shares issued and outstanding 122 --
Series A convertible preferred stock, $.001 par value, 2,000,000 shares authorized,
0 and 288,014 shares issued and outstanding -- 288
Series B convertible preferred stock, $.001 par value, 2,000,000 shares authorized,
0 and 147,364 shares issued and outstanding -- 147
Common stock, $.001 par value, 40,000,000 shares authorized,
0 and 22,514,742 shares issued and outstanding -- 22,515
Additional paid-in capital 999,190 13,717,431
Accumulated deficit (8,713,950) (13,595,180)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIENCY) (7,714,638) 145,201
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY) $ 2,433,779 $ 7,634,042
============ ============
See notes to financial statements.
F-3
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Year Ended December 31, Three Months Ended March 31,
---------------------------- -----------------------------
2004 2003 2005 2004
------------ ------------ ------------ ------------
REVENUE
Sponsorships $ 9,918,117 $ 6,222,371 $ -- $ --
Other 2,390,888 1,071,757 103,956 52,698
------------ ------------ ------------ ------------
TOTAL REVENUE 12,309,005 7,294,128 103,956 52,698
EVENT COSTS 9,125,829 6,506,613 -- --
------------ ------------ ------------ ------------
Gross Profit 3,183,176 787,515 103,956 52,698
------------ ------------ ------------ ------------
OPERATING EXPENSES
Marketing 2,435,124 2,024,572 411,600 328,985
Administrative 3,442,479 2,184,557 4,518,384 677,653
------------ ------------ ------------ ------------
TOTAL OPERATING EXPENSE 5,877,603 4,209,129 4,929,984 1,006,638
------------ ------------ ------------ ------------
OPERATING LOSS (2,694,427) (3,421,614) (4,826,028) (953,940)
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE)
Interest expense (245,870) (182,396) (70,558) (38,000)
Interest income 67,185 87,751 15,356 24,517
Joint venture loss -- (184,712) -- --
------------ ------------ ------------ ------------
TOTAL OTHER EXPENSE (178,685) (279,357) (55,202) (13,483)
------------ ------------ ------------ ------------
LOSS BEFORE INCOME TAXES (2,873,112) (3,700,971) (4,881,230) (967,423)
INCOME TAXES -- -- -- --
------------ ------------ ------------ ------------
NET LOSS $ (2,873,112) $ (3,700,971) $ (4,881,230) $ (967,423)
============ ============ ============ ============
Basic and diluted loss per share $ (0.10) $ (0.12) $ (0.13) $ (0.03)
============ ============ ============ ============
Weighted average common shares
outstanding 29,738,605 29,738,605 37,493,683 29,738,605
============ ============ ============ ============
See notes to financial statements.
F-4
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY )
Series A-1 Series A Series B
Preferred Stock Preferred Stock Preferred Stock
-------------------------- -------------------------- -----------------------
Shares Amount Shares Amount Shares Amount
---------- ------------ ----------- ------------ --------- -----------
Balance, January 1, 2003 -- $ -- -- $ -- -- $ --
Redemption of shares -- -- -- -- -- --
Conversion of loan payable to officer and stockholder -- -- -- -- -- --
Conversion of DMC payable into common stock -- -- -- -- -- --
Cancellation of shares of AVP in transaction with DMC -- -- -- -- -- --
Issuance of preferred stock in transcation with DMC 122,381 122 -- -- -- --
Compensation from issuance of stock options -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ------------ ----------- ------------ --------- -----------
Balance, December 31, 2003 122,381 122 -- -- -- --
Net loss -- -- -- -- -- --
---------- ------------ ----------- ------------ --------- -----------
Balance, December 31, 2004 122,381 122 -- -- -- --
Merger of AVP, Inc. into the Association
("the reverse merger") (Unaudited) (122,381) (122) 122,381 122 -- --
Conversion of 10% convertible notes (Unaudited) -- -- 70,275 70 -- --
Conversion of redeemable preferred
stock (Unaudited) -- -- 95,358 96 -- --
Private placement units (Unaudited) -- -- -- -- 147,364 147
Consulting expense from issuance of
stock options (Unaudited) -- -- -- -- -- --
Net loss (Unaudited) -- -- -- -- -- --
---------- ------------ ----------- ------------ --------- -----------
Balance, March 31, 2005 (Unaudited) -- $ -- 288,014 $ 288 147,364 $ 147
========== ============ =========== ============ ========= ===========
Total
Common Stock Additional Stockholders'
---------------------------- Paid in Accumulated Equity
Shares Amount Capital Deficit (Deficiency)
------------ ------------ ------------ ------------ ------------
Balance, January 1, 2003 674,100 $ 674 $ 1,936,826 $ (5,519,186) $(3,581,686)
Redemption of shares (98,870) (99) (549,901) -- (550,000)
Conversion of loan payable to officer and stockholder 48,528 49 269,906 -- 269,955
Conversion of DMC payable into common stock 309,520 309 1,721,555 -- 1,721,864
Cancellation of shares of AVP in transaction with DMC (933,278) (933) (3,378,386) 3,379,319 --
Issuance of preferred stock in transcation with DMC -- -- 995,381 -- 995,503
Compensation from issuance of stock options -- -- 3,809 -- 3,809
Net loss -- -- -- (3,700,971) (3,700,971)
------------ ------------ ------------ ------------ -----------
Balance, December 31, 2003 -- -- 999,190 (5,840,838) (4,841,526)
Net loss -- -- -- (2,873,112) (2,873,112)
------------ ------------ ------------ ------------ -----------
Balance, December 31, 2004 -- -- 999,190 (8,713,950) (7,714,638)
Merger of AVP, Inc. into the Association
("the reverse merger") (Unaudited) 22,514,742 22,515 (974,439) -- (951,924)
Conversion of 10% convertible notes (Unaudited) -- -- 2,290,278 -- 2,290,348
Conversion of redeemable preferred
stock (Unaudited) -- -- 3,657,504 -- 3,657,600
Private placement units (Unaudited) -- -- 4,246,876 -- 4,247,023
Consulting expense from issuance of
stock options (Unaudited) -- -- 3,498,022 -- 3,498,022
Net loss (Unaudited) -- -- -- (4,881,230) (4,881,230)
------------ ------------ ------------ ------------ -----------
Balance, March 31, 2005 (Unaudited) 22,514,742 $ 22,515 $ 13,717,431 $(13,595,180) $ 145,201
============ ============ ============ ============ ===========
See notes to financial statements.
F-5
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Year Ended December 31, Three Months Ended March 31,
-------------------------- --------------------------
2004 2003 2005 2004
----------- ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,873,112) $(3,700,971) $(4,881,230) $ (967,423)
Adjustments to reconcile net loss to net cash
flows from operating activities:
Depreciation and amortization of property and equipment 57,561 14,529 22,101 4,993
Other amortization 6,033 8,043 2,011 --
Amortization of deferred commissions 294,904 609,256 63,335 73,726
Allowance for doubtful accounts 10,000 -- -- --
Amortization of deferred costs 1,352,100 387,500 -- --
Compensation from issuance of stock options -- 3,809 -- --
Consulting expense from issuance of stock options -- -- 3,498,022 --
Decrease (increase) in operating assets:
Accounts receivables (169,442) (451,483) (453,706) (328,430)
Investment in and due from joint venture 291,084 (291,084) -- 291,084
Prepaid expenses (26,606) 58,994 (527,476) (275,767)
Other assets (1,305) (15,466) (4,500) (5,028)
Increase (decrease) in operating liabilities:
Accounts payable (625,052) 35,046 164,381 (509,342)
Accrued expenses 211,950 305,932 251,555 (317,196)
Accrued officer compensation (167,625) 210,833 (43,208) 169,230
Accrued interest 245,871 -- (56,127) 157,698
Deferred revenue 275,050 (112,500) 2,969,847 2,253,985
----------- ----------- ----------- -----------
NET CASH FLOWS FROM
OPERATING ACTIVITIES (1,118,589) (2,937,562) 1,005,005 547,530
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in property and equipment (228,416) (25,722) (137,384) (14,497)
Investment in sales-type lease 91,215 42,344 24,244 21,967
Cash received in acquisition -- 769,450 -- --
----------- ----------- ----------- -----------
NET CASH FLOWS FROM
INVESTING ACTIVITIES (137,201) 786,072 (113,140) 7,470
----------- ----------- ----------- -----------
See notes to financial statements.
F-6
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
STATEMENTS OF CASH FLOWS
(CONTINUED)
(Unaudited)
Year Ended December 31, Three Months Ended March 31,
-------------------------- --------------------------
2004 2003 2005 2004
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt $ 2,000,000 $ 1,217,238 $ -- $ --
Repayment of long-term debt (183,333) (80,000) (950,000) --
Increase (decrease) in payable to DMC
and other related party debt -- (65,995) -- --
Proceeds from private placement units -- -- 4,247,023 --
Issuance of preferred stock -- 910,000 -- --
----------- ----------- ----------- -----------
NET CASH FLOWS FROM
FINANCING ACTIVITIES 1,816,667 1,981,243 3,297,023 --
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 560,877 (170,247) 4,188,888 555,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 71,056 241,303 631,933 71,056
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 631,933 $ 71,056 $ 4,820,821 $ 626,056
=========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 48,939 $ -- $ 48,939 $ --
----------- ----------- ----------- -----------
Income taxes -- -- -- --
----------- ----------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING INFORMATION
Note payable incurred in connection with stock redemption $ -- $ 550,000 $ -- $ --
----------- ----------- ----------- -----------
Note payable incurred in connection with the acquisition
of commission rights -- 1,157,499 -- --
----------- ----------- ----------- -----------
Conversion of intercompany payable and loan payable
to officer and stockholder into common stock -- 1,991,819 -- --
----------- ----------- ----------- -----------
Issuance of preferred stock for deferred costs -- 1,739,600 -- --
----------- ----------- ----------- -----------
Net liabilities assumed in merger
Cash -- -- 4,217 --
Accounts payable -- -- (261,857) --
Accrued expenses -- -- (173,934) --
----------- ----------- ----------- -----------
-- -- (431,574) --
----------- ----------- ----------- -----------
Conversion of Association redeemable preferred stock into
Series A convertible preferred stock -- -- 3,657,600 --
----------- ----------- ----------- -----------
Conversion of notes payable into
Series A convertible preferred stock -- -- 2,290,348 --
----------- ----------- ----------- -----------
See notes to financial statements.
F-7
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
AVP Pro Beach Volleyball Tour, Inc. f/k/a Association of Volleyball
Professionals, Inc. (AVP), incorporated in Delaware on May 29, 2001, is the sole
nationally and internationally recognized U.S. professional beach volleyball
tour for the sport of men's and women's professional beach volleyball in the
United States. AVP operates professional beach volleyball activities in the
United States, including tournaments, sponsorships sales, broadcast rights,
licensing and trademark agreements, sales of food, beverage and merchandise at
tournaments, player contracts and other associated activities.
On July 28, 2003, AVP merged with Digital Media Campus, Inc. (DMC), its then
sole stockholder, in a transaction accounted for as a transfer between entities
under common control with AVP as the surviving entity (Note 13). The
accompanying financial statements have been prepared including the net assets
and results of operations of DMC from the transaction date of July 28, 2003.
2. SUBSEQUENT EVENT
On June 29, 2004, Othnet, Inc. (Othnet), a publicly traded company, and AVP
signed a merger agreement pursuant to which AVP agreed to merge with a
wholly-owned subsidiary of Othnet, Othnet Merger Sub. Inc. Among other
conditions, closing of the merger was contingent upon Othnet's lending to AVP
$2,000,000 of proceeds from issuing units consisting of 10% convertible notes
due June 2005 and two shares of Othnet common stock and a two-year common stock
purchase warrant to purchase two shares of common stock at $.21 per share for
each dollar of principal amount of notes, and Othnet's completing a minimum
$4,300,000 net proceeds equity financing including the required conversion of
$2,000,000 principal amount of notes. In a November 10, 2004 amendment to the
agreement, the parties agreed to engage an exclusive placement agent to
privately offer a minimum of $3,000,000 of Othnet Series B preferred stock and
conditioned closing the merger upon consummation of the private placement,
which, in turn, was conditioned, among other things, upon conversion of the
convertible notes.
On February 28, 2005, the merger was consummated, as a result of which AVP
became Othnet's wholly owned subsidiary, and AVP's former stockholders were
issued Othnet Series A Convertible Preferred Stock, (shown as Series A-1
preferred stock in the accompanying financial statements) which will convert
automatically into common stock upon authorization of a sufficient amount of
common stock. As a result of the merger, AVP's name was changed to its current
name, AVP Pro Beach Volleyball Tour, Inc.
As such, for all disclosures referencing shares authorized and issued, shares
reserved for issuance, per share amounts and other disclosures relating to
equity, amounts have been retroactively restated to reflect share quantities as
altered by the terms of the merger agreement.
Concurrently with the merger, pursuant to the private placement, Othnet sold
$5,000,000 of units consisting of four shares of Othnet Series B preferred stock
and a five-year warrant to purchase 243 shares of common stock at $.20 per
share, and approximately $2,160,000 of the Othnet notes including accrued
interest, were converted into Series A preferred stock.
F-8
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
2. SUBSEQUENT EVENT (CONTINUED)
Each share of Series A preferred stock and Series B preferred stock is
convertible into 243 shares of common stock and carries the number of votes that
equals the number of shares into which it is convertible, except that, until the
authorization of additional shares of common stock, the Series B preferred stock
will carry ten times the vote per share that it otherwise would carry.
AVP agreed to register for resale the shares of common stock underlying the
Series B preferred stock. The agreement provides that if a registration
statement is not filed by April 15, 2005 or does not become effective by June
28, 2005, AVP must pay a penalty to the Series B preferred stock stockholder of
approximately $50,000 and thereafter for each month that the penalty condition
is not satisfied, until August 28, 2005, when the monthly penalty increases to
$100,000.
Upon consummation of the merger and the private offering, AVP's former
stockholders including holders of stock options and stock purchase warrants
beneficially owned approximately 61.2% of all common stock beneficially owned by
all beneficial owners of Othnet common stock.
On March 9, 2005, Othnet changed its name to its current name, AVP, Inc.
In February 2005, the two television networks waived their put rights on their
redeemable Series A preferred stock that AVP respectively issued to them, and
subsequently converted the preferred stock into Othnet Series A preferred stock
pursuant to the merger.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reclassifications
Certain prior period amounts have been reclassified to conform to current period
presentations.
Revenue and Expense Recognition
The majority of AVP's revenues are derived from sponsorship and advertising
contracts with national and local sponsors. AVP recognizes sponsorship revenue
pro rata over each event during the tour season as the events occur and
collection is reasonably assured. Revenues invoiced and/or collected prior to
their respective events are recorded as deferred revenue. Event costs are
recognized on an event-by-event basis. Event costs billed and/or paid prior to
their respective events are recorded as deferred costs and expensed at the time
the event occurs.
F-9
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue and Expense Recognition (Continued)
AVP also derives additional revenue from activation services, event ticket
sales, concession rights, event merchandising, licensing, and sanctioning fees.
Revenues and expenses from foregoing ancillary activities are recognized on an
event-by-event basis as the revenues are realized and collection is reasonably
assured. Licensing revenue is recognized as royalties are earned and collection
is reasonably assured.
During 2004 and 2003, the same sponsor accounted for 18% and 23% of revenue,
respectively.
Unaudited Interim Financial Statements
The financial statements as of March 31, 2005 and for the three months ended
March 31, 2005 and 2004 are unaudited, however, in the opinion of the management
of AVP, all adjustments (consisting solely of normal recurring adjustments)
necessary to a fair presentation of the financial statements for the interim
periods have been made.
Bartering Transactions
AVP barters advertising for products and services. Revenue and related expenses
from barter transactions are recorded at fair value in accordance with EITF
99-17, Accounting for Advertising Barter Transactions. Revenue from barter
transactions is recognized in accordance with AVP's revenue recognition
policies. Expense for barter transactions is generally recognized as incurred.
Revenue and expense from barter transactions were not significant during 2004
and 2003.
Accounts Receivable
Accounts receivable consist primarily of amounts due from sponsors and licensees
for sponsorship fees and royalties, respectively. Such amounts are billed when
due under the terms of the respective sponsorship agreements, or, in the case of
royalties, when earned. AVP grants credit to all qualified customers. Accounts
receivable are carried at cost less an allowance for doubtful accounts, if an
allowance is deemed necessary. AVP does not accrue finance or interest charges.
On a periodic basis, AVP evaluates its accounts receivable and determines the
requirement for an allowance for doubtful accounts, based on history of past
write-offs, collections, and current credit conditions. A receivable is written
off when it is determined that all collection efforts have been exhausted. The
allowance for doubtful accounts as of December 31, 2004 was $10,000.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-10
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risks
Financial instruments that potentially subject AVP to a concentration of credit
risk consist principally of cash deposits and receivables. AVP places its cash
deposits with what management believes are high-credit quality financial
institutions. At times, balances with any one financial institution may exceed
the Federal Deposit Insurance Corporation (FDIC) limit of $100,000. Receivables
are due mainly from sponsors and licensees, all of whom are large national or
international consumer products companies, which management considers to be low
credit risks and with whom management has not experienced any problems in
collecting amounts due.
Depreciation
Depreciation of property and equipment are provided for using the straight-line
method over the estimated useful lives of the assets as follows:
Assets Useful Lives
- -------------------------------- ---------------------
Furniture and equipment 3 years
Transportation equipment 3 years
Leasehold improvements 6 years
Long-Lived Assets
When facts and circumstances indicate that the cost of long-lived assets may be
impaired, an evaluation of the recoverability is performed by comparing the
carrying value of the assets to the estimated undiscounted future cash flows.
Upon indication that the carrying value of such assets may not be recoverable,
AVP recognizes an impairment loss by a charge against current operations. If
there is an impairment, an impairment charge would be determined by comparing
the carrying amount of the assets to the applicable estimated future cash flows,
discounted at a risk-adjusted rate or market appraisals. In addition, the
remaining estimated useful life or amortization period for the impaired asset
would be reassessed and revised if necessary.
Comprehensive Income
Comprehensive income consists of net income (loss) and other gains and losses
affecting stockholders' equity that, under U.S. generally accepted accounting
principles are excluded from net income (loss). Such items consist primarily of
unrealized gains and losses on marketable equity securities and foreign
translation gains and losses. AVP has not had any such items in the prior two
years and, consequently, net income (loss) and comprehensive income (loss) are
the same.
Advertising
AVP advertises primarily through radio and print media. AVP's policy is to
expense advertising costs, including production costs, as incurred. Advertising
expense was $646,394 in 2004 and $327,488 in 2003.
Cash and Cash Equivalents
For purposes of the statements of cash flows, AVP considers all highly liquid
investments with a maturity of three months or less at the date of purchase to
be cash equivalents.
F-11
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
AVP provides deferred income taxes to reflect the impact of temporary
differences between the recorded amounts of assets and liabilities for financial
reporting purposes and such amounts as measured by tax laws and regulations.
Temporary differences result from differences between the amounts reported for
financial statement purposes and corresponding amounts for tax purposes.
Deferred income tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
Stock Based Compensation
AVP accounts for stock-based compensation in accordance with the provisions of
Accounting Principles Board (APB) No. 25, Accounting for Stock Issued to
Employees, and related interpretations, and complies with the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation. Under APB
25, compensation expense is recognized based on the difference, if any, on the
date of grant between the fair value of AVP's common stock and the amount an
employee must pay to acquire the stock. The expense associated with stock-based
compensation is amortized over the periods the employee performs the related
services, generally the vesting period, consistent with the multiple option
method described in Financial Accounting Standards Board Interpretation (FIN)
No. 28, Accounting for Stock Appreciation Rights and Other Variable Stock Option
or Award Plans.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" which amends SFAS No. 123. SFAS No. 148
provides alternative methods of transition for a voluntary change to the fair
value based method of accounting for stock-based employee compensation. SFAS No.
148 also requires disclosure about the method of accounting and the effect of
the method used on reported results in both annual and interim financial
statements.
AVP adopted SFAS No. 148 effective for the year ended December 31, 2002, and has
elected to continue to account for its stock-based compensation in accordance
with the provisions of APB No. 25, Accounting for Stock Issued to Employees.
Under APB 25, compensation expense is recognized over the vesting period based
on the excess of the fair market value over the exercise price on the grant
date. If AVP had elected to recognize compensation expense based upon the fair
value at the grant date for awards under its stock-based compensation plans
consistent with the methodology prescribed by SFAS No. 123, AVP's net loss would
increase to the following pro forma amounts:
(Unaudited)
Year Ended December 31, Three Months Ended March 31,
----------------------------- -----------------------------
2004 2003 2005 2004
----------- ----------- ----------- -----------
Net loss applicable to common shareholders,
as reported $(2,873,112) $(3,700,971) $(4,881,230) $ (967,423)
Less stock based employee compensation
expense determined under fair-value-based
methods for all awards, net of related tax effects (133,288) (53,721) -- (33,322)
----------- ----------- ----------- -----------
Pro forma net loss $(3,006,400) $(3,754,692) $(4,881,230) $(1,000,745)
=========== =========== =========== ===========
F-12
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock Based Compensation (Continued)
The fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions for the years
ended December 31, 2004 and 2003:
(Unaudited)
Year Ended December 31, Three Months Ended March 31,
---------------------------------- -------------------------------------
2004 2003 2005 2004
------------- ------------- ------------- -------------
Risk-free interest rate 3.86 - 4.19% 4.0 - 4.5% -- 3.86 - 4.19%
Expected life 4 to 10 years 10 years -- 4 to 10 years
Expected volatility 0% 0% -- 0%
Expected dividend yield 0% 0% -- 0%
RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest
Entities which was subsequently amended in December 2003 and Accounting Research
Bulletin ("ARB") No. 51, Consolidated Financial Statements was issued. In
general a variable entity is a corporation, partnership, trust, or any other
legal structure used for business purposes that either (a) does not have equity
investors with voting rights or (b) has equity investors that do not provide
sufficient financial resources for the entity to support its activities.
FIN 46 requires a variable interest entity to be consolidated by a company if
that company is subject to a majority of the risk of loss from the variable
interest entity's activities or entitled to receive a majority of the entity's
residual returns or both. Special provisions apply to enterprises that have
fully or partially applied Interpretation 46 ("Interpretation") prior to
issuance of this Interpretation. Otherwise, application of this Interpretation
is required in financial statements of public entities that have interests in
variable interest entities or potential variable interest entities commonly
referred to as special-purpose entities for periods ending after December 15,
2003. Application by small business issuers, to entities other than
special-purpose entities and by nonpublic entities and all other types of
entities is required at various dates in 2004 and 2005. In some instances,
enterprises have the option of applying or continuing to apply Interpretation 46
for a short period of time before applying this Interpretation. The adoption of
the Interpretation did not have any impact on AVP's financial statements.
In December 2003, the Securities and Exchange Commission ("SEC") released Staff
Accounting Bulletin ("SAB") No. 104, Revenue Recognition. SAB No. 104 revises or
rescinds portions of the interpretive guidance related to revenue recognition
included in Topic 13 of the codification of the staff accounting bulletins. SAB
No. 104 became effective when issued, and adoption by AVP did not have a
material impact on its financial position or results of operations.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs. SFAS No. 151
amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). ARB 43 previously stated that "...under
some circumstances, items such as idle facility expense, excessive spoilage,
double freight, and re-handling costs may be so abnormal as to require treatment
as current period charges...". This Statement requires that those items be
recognized as current-period charges regardless of whether they meet the
criterion of "so abnormal". In addition, this Statement requires that allocation
of fixed production
F-13
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Standards (Continued)
overhead to the costs of conversion be based on the normal capacity of the
production facilities. The provisions of this Statement shall be effective for
inventory costs incurred during fiscal years beginning after June 15, 2005.
Earlier application is permitted for inventory costs incurred during fiscal
years beginning after the date this Statement is issued. The provisions of this
Statement shall be applied prospectively. The adoption of this Statement is not
expected to have any impact on AVP's financial statements.
In December 2004, the FASB issued SFAS No. 153, Exchange of Nonmonetary Assets,
which amended APB Opinion No. 29, Accounting for Nonmonetary Transactions. This
Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges
of similar productive assets and replaces it with a general exception for
exchanges of nonmonetary assets that do not have commercial substance. A
nonmonetary exchange has commercial substance if the future cash flows of the
entity are expected to change significantly as a result of the exchange. The
provisions of this Statement shall be effective for nonmonetary asset exchanges
occurring in fiscal periods beginning after June 15, 2005. Earlier application
is permitted for nonmonetary asset exchanges occurring in fiscal periods
beginning after the date this Statement is issued. The provisions of this
Statement shall be applied prospectively. The adoption of this Statement is not
expected to have any impact on AVP's financial statements.
In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share - Based
Payment. Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share - based payment transactions be
recognized in financial statements. That cost will be measured based upon the
fair value of the equity or liability instruments issued. Statement 123(R)
covers a wide range of share - based compensation arrangements including share
options, restricted share plans, performance - based awards, share appreciation
rights, and employee share purchase plans. Statement 123(R) replaces FASB
Statement No. 123, Accounting for Stock - Based Compensation, and supersedes APB
Opinion No. 25, Accounting for Stock Issued to Employees. Statement 123, as
originally issued in 1995, established as preferable a fair - value - based
method of accounting for share - based payment transactions with employees.
However, that Statement permitted entities the option of continuing to apply the
guidance in Opinion 25, as long as the footnotes to financial statements
disclosed what net income would have been had the preferable fair - value -
based method been used. Public entities that file as small business issuers will
be required to apply Statement 123(R) as of the first interim or annual
reporting period that begins after December 15, 2005. AVP has not yet evaluated
the impact of the adoption of SFAS 123(R) and has not determined the impact on
AVP's financial position or results of operations.
Pro Forma Net Loss per Basic and Diluted Share of Common Stock
Basic earnings (loss) per share is calculated using the average number of common
shares outstanding. Diluted earnings (loss) per share is computed on the basis
of the average number of common shares outstanding during the period increased
by the dilutive effect of outstanding stock options using the "treasury stock"
method. The pro forma net loss per basic and diluted share of common stock gives
effect to the conversion of the Series A-1 preferred stock as if it occurred at
the beginning of the periods presented. The March 31, 2005 and 2004 weighted
average shares outstanding gives effect to the Series A-1 preferred stock
conversion to Series A convertible preferred stock as if it were converted to
common stock as of the beginning of the periods presented. Options, warrants,
and other incremental shares to purchase 123,330,871 and 115,036,340 shares of
common stock at December 31, 2004 and 2003, respectively, and 122,116,791 and
115,163,529 shares of common stock at March 31, 2005 and 2004 (unaudited),
respectively, were excluded from the computation of diluted earnings (loss) per
share as their effect would be anti-dilutive.
F-14
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
4. JOINT VENTURE
During 2003, AVP and two unrelated organizations jointly sponsored an event in
which AVP retained a 1/3 interest. The joint venture was accounted for using the
equity method of accounting.
The joint venture's 2003 operations are summarized as follows:
Revenues $ 643,547
Expenses 1,197,683
-----------
Loss (554,136)
===========
AVP's share of loss $ (184,712)
===========
Under the terms of the continuing joint venture agreement, additional events
were to be sponsored, one each in 2004 and 2005. No such event was held in 2004
or will be held in 2005 as one of the joint venture partners declined to
participate, and AVP and the other partner agreed not to hold events in 2004 or
2005.
5. DEFERRED COSTS
In 2003, AVP entered into a production and distribution agreement for the 2003
and 2004 tour events with a major television network valued at $2,649,600. AVP
issued preferred stock in payment under the agreement and capitalized the costs,
which were amortized as the events specified in the agreement occurred. Deferred
costs under this agreement at December 31, 2003 aggregated $1,352,100,
consisting of $964,600 of deferred event costs and $387,500 of unamortized
contract costs which were amortized to expense in 2004.
6. DEFERRED COMMISSION - RELATED PARTY
On April 6, 2003, AVP acquired from an officer and stockholder the commissions
the officer was entitled to receive on sponsorship revenues under sponsorship
agreements. The officer had secured the sponsorships for AVP under a 2001
agreement the officer had with AVP. The aggregate cost of acquiring the rights
of $1,366,737 is being charged to operations over the term of the related
sponsorship agreements and projected revenues thereunder.
Deferred commissions charged to operations aggregated $294,904 in 2004 and
$609,256 in 2003.
F-15
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
7. PROPERTY AND EQUIPMENT
Property and equipment consist of:
2004
---------
Cost
Furniture and equipment $ 228,489
Transportation equipment 29,244
Leasehold improvements 23,704
---------
Total Cost 281,437
Less accumulated depreciation
and amortization (79,734)
---------
Net property and equipment $ 201,703
=========
Depreciation and amortization expense was $57,561 in 2004 and $14,529 in 2003.
8. INVESTMENT IN SALES-TYPE LEASE
In 2001, AVP leased furniture and equipment associated with a former office
facility to a third party in a lease classified as a sales-type lease. The
unearned lease income is being amortized to income over the lease term, using
the effective interest method. The lease expires in October 2008. AVP's
investment in the sales-type lease at December 31, 2004 is as follows:
Minimum lease payments $ 607,200
Estimated unguaranteed
residual value 183,600
Less unearned lease income (162,477)
---------
Investment in sales-type lease, net $ 628,323
=========
F-16
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
8. INVESTMENT IN SALES-TYPE LEASE (CONTINUED)
The following is a schedule of future minimum lease payments to be received:
Years Ending December 31,
2005 $158,400
2006 158,400
2007 158,400
2008 132,000
--------
$607,200
========
The lease obligation is collateralized by the underlying assets.
9. ACCRUED OFFICER COMPENSATION
At December 31, 2004, one officer has elected to defer the payment of salaries
owed to him.
10. NOTES PAYABLE - RELATED PARTY
During 2004, in connection with Othnet's issuing 10% Convertible Debentures due
June 3, 2005 in an aggregate principal amount up to $2,360,000, AVP issued
debentures aggregating $2,000,000 to Othnet, with whom AVP had entered into a
merger agreement. The debenture and accrued interest may be converted by the
holder at any time, based on a conversion price of the lower of $.08 per share
of common stock or 85% of the offering price in the next round of financing of
Othnet common stock, as defined in the debenture agreement, or any other equity
financing consummated by AVP prior to the maturity of this debenture. As part of
the consummated merger on February 28, 2005, the notes and accrued interest were
converted into common stock.
F-17
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
11. LONG-TERM DEBT
Long-term debt consists of the following:
Note dated August 2002 to an entity who is a partner with AVP in a joint venture
payable, including interest at 5% per annum, $500,000 in September 2003 and
$500,000 in September 2006.
In April 2003, AVP entered into an option agreement with the note holder whereby
the note holder has the option to acquire up to $1,000,000 of AVP common stock.
The option price per share of common stock is based upon an aggregate valuation
of AVP equal to the lesser of $10,000,000 or the aggregate post-money valuation
implied by the terms of any sale or issuance of equity in AVP subsequent to
April 21, 2003. Based on the $10,000,000 valuation, the option price at December
31, 2003 was $.11 per share of common stock. The note holder may exercise its
option at any time prior to the repayment of the note.
The holder agreed to defer the September 2003 payment aggregating $556,081,
including interest, in anticipation of converting the note into equity. $ 1,000,000
Related party note dated April 2003, payable in installments through January
2006 plus interest at 3.75% per annum. The related party had agreed to defer the
payments due August 2003, January 2004 and August 2004 aggregating $700,000,
until February 2005. $950,000 was paid (the $750,000 deferred until February
2005 and $250,000 due on January 31, 2005) through March 18, 2005. 1,366,737
Convertible note dated July 2003 payable to a former stockholder in annual
installments of $183,333, plus interest at 5% per annum, through November 2006.
The unpaid principal and any unpaid interest may be exchanged on or after
November 2004 by the note holder for shares of common stock of AVP at a per
share common stock price equal to the per share common stock price paid to AVP
under AVP's most recent round of equity financing. The borrowings are
collateralized by AVP's accounts receivable and property and equipment. 366,667
-----------
Total Long-Term Debt 2,733,404
Less current portion 1,633,333
-----------
Noncurrent portion $ 1,100,071
===========
F-18
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
11. LONG-TERM DEBT (CONTINUED)
Maturities of long-term debt are as follows:
Years Ending December 31,
2005 $1,633,333
2006 1,100,071
----------
Total Long-Term Debt $2,733,404
==========
12. REDEEMABLE PREFERRED STOCK
In July 2003, as payment under a production contract with a major television
network whose services were valued at $1,008,000, AVP issued 950,943 shares of
Series A preferred stock valued at $1,008,000. AVP gave the network the right to
put, at the network's option, any or all of its equity interest to AVP in 2005
and 2006. The Series A preferred stock was valued at $1,008,000 plus interest at
the prime rate (5.15% at December 31, 2004) plus 2%. On February 22, 2005, in
conjunction with the merger, the network waived its put option. $ 1,008,000
In July 2003, as payment under a production contract with a major television
network whose services were valued at $2,649,600, AVP issued 2,498,183 shares of
Series A preferred stock valued at $2,649,600. AVP gave the network the right to
put, at the network's option, all of its equity interest at either the
conclusion of the 2005 AVP tour season, the conclusion of the 2006 AVP tour
season, or the first time the network's equity interest in AVP is less than 8%
on a fully diluted basis. The Series A preferred stock was valued at $2,649,600
plus interest at an annual rate of prime (5.15% at December 31, 2004) plus 2%.
On February 17, 2005, in conjunction with the merger, the network waived its put
option. 2,649,600
-----------
Total $ 3,657,600
===========
F-19
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
13. TRANSACTION WITH DMC
On July 28, 2003, AVP merged with DMC, its sole stockholder, in a transaction
accounted for as a transfer between entities under common control, with AVP as
the surviving entity. To effect the transfer, DMC shares of Series A-1 Preferred
Stock and options to purchase shares of common stock were exchanged for shares
of AVP common stock and options to purchase shares of AVP common stock on a
one-to-one basis.
Simultaneously, each share of AVP common stock issued and outstanding was
cancelled and extinguished without consideration.
In consummating the transfer, AVP cancelled 933,278 shares of common stock and
issued 122,381 shares of Series A-1 preferred stock in exchange for DMC's net
assets of $995,503.
DMC's assets and liabilities acquired in the transaction are summarized as
follows.
Current assets $ 769,450
Investment in sales-type lease 761,882
Other 5,000
1,536,332
Less current liabilities 540,829
----------
Net assets $ 995,503
==========
The accompanying financial statements have been prepared including the net
assets and results of operation of DMC from the transaction date of July 28,
2003.
The following summarized pro forma information is provided assuming the merger
had taken place January 1, 2003.
Year Ended
December 31, 2003
(Unaudited)
-----------------
Revenues $ 7,294,128
Expenses 12,092,187
------------
Net loss $ (4,798,059)
============
F-20
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
14. STOCKHOLDERS' EQUITY
CAPITALIZATION
Outstanding shares and their par value give effect to the merger with Othnet.
However, the authorized shares of common stock have not yet been increased. AVP
is in the process of amending its articles of incorporation to increase the
authorized number of shares of common stock and the par value of the common
stock.
The Series A preferred stock was converted into Series A-1 preferred stock in
February 2005. The Series A-1 preferred stock will automatically convert into
common stock after AVP amends its articles of incorporation to increase the
number of authorized shares of common stock.
STOCK ISSUANCES
In July 2003, 98,870 shares of common stock were reacquired by AVP in exchange
for a $550,000 note payable.
In July 2003, a note payable to an officer aggregating $269,955 was exchanged
for 48,528 shares of common stock.
In connection with the merger with DMC, an intercompany payable due DMC of
$1,721,864 was exchanged for 309,520 shares of common stock.
To effect the merger with DMC in July 2003, 122,381 shares of Series A-1
preferred stock were issued to the DMC stockholders.
15. STOCK OPTIONS
STOCK OPTION PLANS
In 2002, AVP established a stock option plan (the "Plan"). Under the provisions
of the Plan, AVP has reserved 13,500,000 shares of its common stock for
issuance. The Plan provides for the granting of incentive and non-qualified
stock options to purchase common stock to employees, directors, officers and
independent consultants of AVP. All stock options granted under the Plan are
granted and exercisable at such time or times as determined by AVP's
compensation committee (the "Committee").
Outstanding options give effect to the merger with Othnet. However, the
authorized shares under the Plan have not yet been increased. AVP is in the
process of amending the plan to increase the authorized number of shares under
the plan.
As part of the transaction with DMC, existing DMC stock options aggregating
54,475,838 shares were converted on a share for share basis into AVP
non-qualified options.
F-21
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
15. STOCK OPTIONS (CONTINUED)
STOCK OPTION PLANS (CONTINUED)
The exercise price of each optioned share is determined by the Committee;
however the exercise price for incentive stock options, will not be less than
100%, and in the case of a nonqualified stock option, not less than 85%, of the
fair market value of the optioned shares on the date of grant. Except as
otherwise determined by the Committee, options vest and become exercisable on
the first anniversary of the date of grant, and each year thereafter at a rate
of 25% per year. The expiration date of each option shall be determined by the
Committee at the date of grant; however, in no circumstances shall the option be
exercisable after 10 years from the date of grant.
The following table contains information on the stock options under the Plan for
the years ended December 31, 2004 and 2003. The outstanding options expire from
April 16, 2008 to September 1, 2013.
Weighted Average
Number of Shares Exercise Price
---------- ----------
Options outstanding at January 1, 2003 6,485,091 $ .02
Granted 16,577,467 .08
Converted DMC options 54,475,838 --
Exercised -- --
Cancelled -- --
---------- ----------
Options outstanding at December 31, 2003 77,538,396 .02
Granted 8,294,531 .16
Exercised -- --
Cancelled -- --
---------- ----------
Options outstanding at December 31, 2004 85,832,927 $ .04
========== ==========
The weighted average fair value of options granted was $ -0- in 2004 and $.02 in
2003.
F-22
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
15. STOCK OPTIONS (CONTINUED)
The following table summarizes information about AVP's stock-based compensation
plan at December 31, 2004:
Options outstanding and exercisable by price range as of December 31, 2004:
Options Outstanding Options Exercisable
-------------------------------------------- ---------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life in Years Price Exercisable Price
- -------------- ----------- ------------- -------- ----------- --------
$ -- - .03 60,960,929 6.3 $ -- 60,960,929 $ --
$.03 - .09 16,577,467 9.6 $ 0.08 7,269,855 $ 0.08
$.09 - .16 8,294,531 3.3 $ 0.16 8,294,531 $ 0.16
- -------------- ---------- -------- -------- ---------- --------
$ -- - .16 85,832,927 5.7 $ 0.03 76,525,315 $ 0.03
============== ========== ======== ======== ========== ========
In connection with stock options granted to employees to purchase common stock,
AVP recorded stock-based compensation expense of $ -0- for the year ended
December 31, 2004 and $3,809 for the year ended December 31, 2003. Such amounts
represent, for each employee stock option, the difference between the grant date
exercise price and the stock price on the date of the grant.
OTHER STOCK OPTIONS
As part of the transaction with DMC, existing DMC non-qualified stock options
granted to other individuals aggregating 3,033,450 shares were converted on a
share-for-share basis into AVP non-qualified options retaining the original
exercise price and expiration date. The outstanding options expire in June 2010.
The following table contains information on all of AVP's non-plan stock options
for the years ended December 31, 2004 and 2003.
Weighted
Average
Number of Exercise
Shares Price
--------- ---------
Options outstanding at January 1, 2003 -- $ --
Granted -- --
Converted DMC options 3,033,450 0.03
Exercised -- --
Cancelled -- --
--------- ---------
Options outstanding at December 31, 2003 3,033,450 0.03
Granted -- --
Exercised -- --
Cancelled -- --
--------- ---------
Options outstanding at December 31, 2004 3,033,450 $ 0.03
========= =========
F-23
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
Disclosures about fair value of financial instruments for AVP's financial
instruments are presented in the table below. These calculations are subjective
in nature and involve uncertainties and significant matters of judgment and do
not include income tax considerations. Therefore, the results cannot be
determined with precision and cannot be substantiated by comparison to
independent market values and may not be realized in actual sale or settlement
of the instruments. There may be inherent weaknesses in any calculation
technique, and changes in the underlying assumptions used could significantly
affect the results.
The following table presents a summary of AVP's financial instruments as of
December 31, 2004:
2004
----------------------------
Carrying Estimated
Amount Fair Value
---------- ----------
Financial Assets:
Cash $ 631,933 $ 631,933
Financial Liabilities:
Notes payable-related party $2,000,000 *
Long-term debt $2,733,404 *
The carrying amounts for cash, receivables, accounts payable and accrued
expenses approximate fair value because of the short maturities of these
instruments.
* The fair value for the Company's long term debt cannot be determined as the
instrument is not actively traded.
17. COMMITMENTS AND CONTINGENCIES
OPERATING LEASE
AVP is obligated under a noncancellable operating lease for its office
facilities. The lease expires March 31, 2010 subject to a five-year renewal
option.
F-24
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
17. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OPERATING LEASE (CONTINUED)
The future minimum rental payments, excluding cost escalations, are as follows:
Years Ending December 31,
2005 $ 282,000
2006 329,000
2007 338,000
2008 347,000
2009 356,000
Thereafter 91,000
----------
Total $1,743,000
==========
Rent expense was $ 282,442 in 2004 and $165,684 in 2003.
OFFICER INDEMNIFICATION
Under the organizational documents, AVP's directors are indemnified against
certain liabilities arising out of the performance of their duties to AVP. AVP
also has an insurance policy for its directors and officers to insure them
against liabilities arising from the performance of their duties required by
their positions with AVP. AVP's maximum exposure under these arrangements is
unknown as this would involve future claims that may be made against AVP that
have not yet occurred. However, based on experience, AVP expects the risk of
loss to be remote.
F-25
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
18. INCOME TAXES
The components of the provision (benefit) for income taxes are as follows:
2004 2003
---------- ----------
Current
Federal $ -- $ --
State -- --
---------- ----------
Total -- --
---------- ----------
Deferred
Federal -- --
State -- --
---------- ----------
Total -- --
---------- ----------
Total Income Tax Provision (Benefit) $ -- $ --
========== ==========
The provision (benefit) for income taxes reconciles to the amount computed by
applying the federal statutory rate to income before the provision (benefit) for
income taxes as follows:
2004 2003
------ ------
Federal statutory rate (34)% (34)%
State income taxes, net of federal benefits (6) (6)
Valuation allowance 40 40
------ ------
Total --% --%
====== ======
Significant components of deferred income taxes as of December 31, 2004 are as
follows:
Net operating loss $ 4,815,000
Accrued compensation 17,000
Valuation allowance (4,832,000)
-----------
Net Deferred Tax $ --
===========
F-26
AVP PRO BEACH VOLLEYBALL TOUR, INC.
F/K/A
ASSOCIATION OF VOLLEYBALL PROFESSIONALS, INC.
NOTES TO FINANCIAL STATEMENTS
18. INCOME TAXES (CONTINUED)
AVP records a valuation allowance for certain temporary differences for which it
is more likely than not that it will not receive future tax benefits. AVP
assesses its past earnings history and trends and projections of future net
income. AVP recorded a valuation allowance for the entire amount of the net
deferred assets in 2004 and 2003, as it had determined that it was more likely
than not that no deferred tax assets would be realized. The net change in the
valuation allowance for deferred tax assets was an increase of $1,065,000. AVP
will continue to review this valuation allowance on a quarterly basis and make
adjustments as appropriate.
The tax benefits associated with employee exercises of stock options reduces
income taxes currently payable. However, no benefits were recorded to additional
paid in capital in 2004 and 2003 because their realization was not more likely
than not to occur and consequently, a valuation allowance was recorded against
the entire benefit.
At December 31, 2004, AVP had federal net operating loss carryforwards
aggregating approximately $15,800,000 which expire in the years 2019 through
2024. The amount and availability of the carryforwards are subject to
limitations as the result of changes in ownership.
19. PENSION PLAN
AVP sponsors a 401(k) pension plan for all eligible employees. The Plan provides
for annual contributions at the discretion of AVP. No amounts were contributed
in 2004 or 2003 to the plan.
F-27
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS OR
ANY PROSPECTUS SUPPLEMENT. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION.
NEITHER THIS PROSPECTUS NOR ANY PROSPECTUS SUPPLEMENT IS AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THESE SECURITIES IN ANY JURISDICTION
WHERE AN OFFER OR SOLICITATION IS NOT PERMITTED. NO SALE MADE PURSUANT TO THIS
PROSPECTUS SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE AFFAIRS OF AVP, INC. SINCE THE DATE OF THIS
PROSPECTUS.
AVP, INC.
114,248,948 SHARES OF COMMON STOCK
PROSPECTUS
APRIL 15, 2005
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
The Delaware General Corporation Law and the Registrant's Bylaws provide for
indemnification of the Registrant's officers and directors for liabilities and
expenses that they may incur in such capacities. In general, the Registrant's
directors and officers are indemnified with respect to actions taken in good
faith and in a manner such person believed to be in the Registrant's best
interests, and with respect to any criminal action or proceedings, actions that
such person has no reasonable cause to believe were unlawful. Furthermore, the
personal liability of the Registrant's directors is limited as provided in the
Registrant's Certificate of Incorporation.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "Securities Act"), may be permitted to directors, officers
or persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission (the "SEC"), such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses of the Registrant in connection with the issuance and distribution of
the securities being registered, other than the underwriting discount, are
estimated as follows:
SEC Registration Fee................................................. $*
Printing and Engraving Expenses...................................... $*
Legal Fees and Expenses.............................................. $*
Accountants' Fees and Expenses....................................... $*
Miscellaneous Costs.................................................. $*
Total................................................................ $*
* To be filed by amendment.
All of these expenses, except for the SEC registration and filing fees,
represent estimates only. The Registrant will pay all of the expenses of this
offering.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
In April 2002, the Registrant received $300,000 in equity financing from a
private investor by selling 600,000 shares of its common stock at a purchase
price of $0.50 per share. Because only one investor was involved, the common
stock was issued under the exemption from registration provided in Section 4(2)
of the Securities Act.
On January 31, 2003, the Registrant agreed to settle $138,653 of accounts
payable owed to a creditor for 200,000 shares of common stock and an unsecured
$30,000 promissory note payable, bearing 10% interest, maturing on March 31,
2003. Because only one creditor was involved, the common stock was issued under
the exemption from registration provided in Section 4(2) of the Securities Act.
In March 2003, the Registrant issued to five persons (which included Mr.
Wattenberg) a total of 4,000,000 shares of common stock for services rendered.
Because of the small number of investors involved, the common stock was issued
under the exemption from registration provided in Section 4(2) of the Securities
Act.
II-1
As of December 30, 2003, the Registrant obtained a $100,000 loan from an
unrelated party and issued a $100,000 convertible promissory note, convertible
into shares of common stock of the Registrant at a rate of $0.25 per share. In
connection with the loan, the Registrant issued to the unrelated party 100,000
shares of common stock, and an option to purchase an additional 100,000 shares
of common stock at an exercise price of $0.18 per share. In March 2004, such
party exercised the option to convert the entire principal balance and interest
into shares of common stock. In connection with the conversion, such party was
issued 430,000 shares of common stock which represented (i) the number of shares
on account of the conversion of the entire principal balance and interest
together with (ii) additional shares as an inducement to such person to exercise
such option to convert. Because only one investor was involved, the foregoing
securities were issued under the exemption from registration provided in Section
4(2) of the Securities Act.
In February 2004, Mr. Wattenberg and two other persons previously known to him
were granted options to acquire up to an aggregate of 4,000,000 shares of common
stock at an exercise price of $0.25 per share. Because of the small number of
investors involved, the options were granted under the exemption from
registration provided in Section 4(2) of the Securities Act.
During the months of June through August 2004, the Registrant raised $2,360,000
through the sale of units to certain private investors ($2,060,000 was raised as
of July 31, 2004 and $300,000 was raised in August 2004). Each unit consisted of
a $100,000 principal amount of a 10% convertible promissory note due one year
from its issuance (the "Bridge Notes"), 200,000 shares of common stock (the
"Bridge Stock") and 200,000 common stock purchase warrants (the "Bridge
Warrants"). Accordingly, 4,720,000 shares of Bridge Stock and 4,720,000 Bridge
Warrants were issued. The investors were previously known to the Registrant's
CEO, Mr. Wattenberg; all investors completed questionnaires showing each to be
an accredited investor; each investor represented as to an absence of intent to
distribute the securities; and all securities bore Securities Act restrictive
legends. Accordingly, the securities were issued in reliance upon an exemption
from registration pursuant to Section 4(2) of the Securities Act.
On February 28, 2005, the Registrant consummated a private placement. Each unit
sold in the offering consisted of 4 shares of the Registrant's Series B
Preferred Stock, each share convertible into 243 shares of the Registrant's
common stock, and a five-year warrant to purchase up to 243 shares of the
Registrant's common stock at an exercise price of $0.19548 per share. As part of
the offering, the Registrant sold an aggregate of 36,841 units for an aggregate
purchase price of $5,000,060.52. Investors were solicited by Maxim Group, LLC,
an NASD member. In connection with the offering, Maxim, the placement agent in
the offering, received a cash commission fee of $500,000 and warrants to
purchase 3,580,945 shares of common stock. The warrants are exercisable for a
period of five years at an exercise price of $0.13963 per share. All investors
completed questionnaires showing each to be an accredited investor; each
investor represented as to an absence of intent to distribute the securities;
and all securities bore Securities Act restrictive legends. Accordingly, the
units were issued under the exemption from registration provided in Section 4(2)
of the Securities Act.
II-2
As a further inducement to the investors participating in the offering, the
Registrant agreed to file with the SEC a registration statement covering the
shares of common stock issuable upon conversion of the Series B Preferred Stock,
and the shares of common stock underlying the warrants purchased by each
investor as part of the units. The cash proceeds of the above sales of
securities of the Registrant will be used for general corporate purposes.
Since 2002, the Association granted stock options to officers, directors,
employees, and players, converted pursuant to the merger into options to
purchase AVP common stock, as follows:
During 2002 and 2003, options to purchase 21,915,152 shares were granted to
executive officers and directors, which grants were exempt under Section 4(2),
given the limited number of grantees and their relationship with the issuer.
During 2002, options to purchase a total of 1,071,700 shares, for a total
exercise price of $21,434, were granted to an officer, which grants were exempt
under Section 4(2), because there was only a single grantee of securities having
a total exercise price equal to less than $21,500.
During 2004, stock options to purchase 1,631,235 shares, for a total exercise
price of $261,000, were granted to employees, which grants were exempt under
Rule 701.
During 2004, stock options to purchase 6,524,941 shares, for a total purchase
price of $1,044,000, were allocated to players, but will not be granted, except
pursuant to a Securities Act registration statement or exemption from
registration.
ITEM 27. EXHIBITS.
The following exhibits are included as part of this Form SB-2.
Incorporated by
Exhibit Number Name of Exhibit Reference to
- -------------- -------------------------------------------------------------- ---------------
2.1 Merger Agreement, dated as of June 29, 2004 among Othnet, Exhibit 10.2(1)
Inc., Othnet Merger Sub, Inc. and Association of Volleyball
Professionals, Inc.
2.2 First Amendatory Agreement, dated February 28, 2005, to Exhibit 2.2(2)
Agreement and Plan of Merger, dated June 29, 2004, between
Othnet and AVP.
2.3 Agreement detailing Othnet's liabilities, dated February 28, Exhibit 2.3(2)
2005 between Othnet and AVP.
2.4 Supplement to Merger Agreement, dated as of November 10, 2004 *
among Othnet, Inc., Othnet Merger Sub, Inc. and Association of
Volleyball Professionals, Inc.
3.1 Certificate of incorporation, dated May 12, 1994; amendment Exhibit 3(2)
thereto, dated March 22, 2001; certificate of designation,
dated February 25, 2005.
3.2 Bylaws. Exhibit 3.2(4)
4.1 Registration Rights Agreement, dated January 5, 2005, between Exhibit 4.1(2)
Othnet and units investors.
4.2 Form of units warrant. Exhibit 4.2(2)
4.3 Form of warrant for Maxim Group, LLC Exhibit 4.3(4)
5.1 Opinion of Loeb & Loeb LLP **
10.1 Executive Employment Agreement between Leonard Armato and Exhibit 10.1(4)
Association of Volleyball Professionals, Inc., dated as of
January 3, 2005.
10.2 Executive Employment Agreement between Bruce Binkow and Exhibit 10.2(4)
Association of Volleyball Professionals, Inc., dated as of
January 3, 2005.
10.3 Executive Employment Agreement between Andrew Reif and Exhibit 10.3(4)
Association of Volleyball Professionals, Inc., dated as of
January 3, 2005.
10.4 Stock Option Agreement between Leonard Armato and Association Exhibit 10.4(4)
of Volleyball Professionals, Inc., dated as of September 1,
2003.
10.5 Stock Option Agreement between Bruce Binkow and Association of Exhibit 10.5(4)
Volleyball Professionals, Inc., dated as of September 1, 2003.
II-3
10.6 Stock Option Agreement between Andrew Reif and Association of Exhibit 10.6(4)
Volleyball Professionals, Inc., dated as of September 1, 2003.
10.7 Pursuant to the Executive Employment Agreements executed by
Messrs. Armato, Binkow and Reif, each will receive five-year
common stock purchase warrants to purchase a total of
10,779,230 of AVP common stock at a price of $0.31 per share.
Mr. Wattenberg be granted a warrant covering an undetermined
number of shares from among 15,588,186 shares reserved for a
grant of such warrants.
10.8 Anschutz Entertainment Group, Inc. Promissory Note, dated as Exhibit 10.8(4)
of August 1, 2002 in the principal sum of $1,000,000 and
Option Agreement, dated as of April 21, 2003 between AEG and
AVP.
10.9 Non-negotiable Promissory Note, dated April 6, 2003 made by Exhibit 10.9(4)
Association of Volleyball Professionals, Inc. to Management
Plus Enterprises, Inc., dated January 3, 2005
10.10 Major League Volleyball, Inc. Secured Convertible Promissory Exhibit 10.10(4)
Note, dated as of July 28, 2003.
10.11 Consulting Agreement between Scott Painter and Association of Exhibit 10.11(4)
Volleyball Professionals, Inc., dated as of June 11, 2003 and
amendment dated January 3, 2005.
10.12 Consulting Agreement between Association of Volleyball Exhibit 10.12(4)
Professionals, Inc. and Montecito Capital Partners, Inc.,
dated as of February 28, 2005.
10.13 2002 Stock Option Plan, as amended Exhibit 10.13(4)
10.14 Form of Player Agreement *
10.15 Lockup Agreements for AVP executive officers and Othnet *
stockholders
16.1 Letter regarding Change in Certifying Accountant. Exhibit 16.1(3)
21 Subsidiaries of AVP, Inc. Exhibit 21(5)
23.1 Consent of Loeb & Loeb LLP (included in Exhibit 5.1) **
23.2 Consent of Mayer Hoffman McCann P.C. Exhibit 23.2(5)
24 Power of Attorney (included in the signature page of this Exhibit 24(5)
registration statement).
* Filed herewith.
** To be filed by amendment.
(1) Filed as an exhibit to Othnet, Inc.'s Annual Report on Form 10-KSB for year
ended April 30, 2004, and incorporated by reference herein.
(2) Filed as an exhibit to AVP, Inc.'s Current Report on Form 8-K dated March 2,
2005, and incorporated by reference herein.
(3) Filed as an exhibit to AVP, Inc.'s Current Report on Form 8-K dated March
17, 2005, and incorporated by reference herein.
(4) Filed as an exhibit to AVP, Inc.'s Annual Report on Form 10-KSB for year
ended December 31, 2004, and incorporated by reference herein.
II-4
(5) Filed as an exhibit to AVP, Inc.'s Registration Statement on Form SB-2,
dated April 15, 2005, and incorporated by reference herein.
ITEM 28. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to:
File, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
1. Include any prospectus required by Section 10(a)(3) of the Securities Act;
2. 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 the 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 SEC pursuant to Rule 424(b) 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
3. Include any additional or changed material information on the plan of
distribution.
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.
File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the SEC such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant 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 Registrant 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-5
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 of filing on this Amendment No. 1 to the Form SB-2 and
authorizes this registration statement to be signed on its behalf by the
undersigned, in the City of Los Angeles, State of California, on this 8th day of
June, 2005.
AVP, INC.
By: /s/Andrew Reif
----------------------
Name: Andrew Reif
Title: Chief Operating Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, as amended this
registration statement on Form SB-2 has been signed below by the following
persons in the capacities and on the dates indicated:
Signature Title Date
/s/ Leonard Armato* Chairman, Chief Executive Officer, Tour June 8, 2005
- ---------------------------------- Commissioner, and Director (Principal Executive
Leonard Armato Officer)
/s/ Andrew Reif Chief Operating Officer, Chief Financial June 8, 2005
- ---------------------------------- Officer, and Director (Principal Financial
Andrew Reif Officer)
/s/ Bruce Binkow* Chief Marketing Officer and Director June 8, 2005
- ----------------------------------
Bruce Binkow
/s/ Thomas Torii* Controller (Principal Accounting Officer) June 8, 2005
- ----------------------------------
Thomas Torii
/s/ Scott Painter* Director June 8, 2005
- ----------------------------------
Scott Painter
/s/ Philip Guarascio* Director June 8, 2005
- ----------------------------------
Philip Guarascio
/s/ Jeffrey Wattenberg* Director June 8, 2005
- ----------------------------------
Jeffrey Wattenberg
*By: /s/Andrew Reif
--------------
Andrew Reif,
Attorney-in-Fact