UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
EXECUTE SPORTS, INC.
(Name of small business issuer in its charter)
Nevada 2320 30-0038070
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
Execute Sports, Inc.
1284 Puerta Del Sol, Suite 150
San Clemente, CA 92673
(949) 498-5990
(Address and telephone number of principal (Address and telephone number of agent for
executive offices and principal place of business) service)
----------------------
Copies To:
Michael L. Corrigan
Attorney At Law
4275 Executive Square Suite 215
La Jolla, CA 92037
(858) 362-1440
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date hereof.
----------------------
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) 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(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 under
the Securities Act, check the following box. |_|
1
CALCULATION OF REGISTRATION FEE
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Proposed maximum Proposed maximum
Title of each class of Amount to be offering price aggregate offering Amount of
securities to be registered registered per share price(3) registration fee
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Common stock, par value
$.001 per share, included
by Company pursuant to
this offering (1) 3,571,428 $.35 $1,250,000 $418.21
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Common stock, par value
$.001 per share, held by
current shareholders
subject to this
registration statement (2) 6,679,350 $.35 $2,337,773 $772.15
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Totals 10,250,778 $.35 $3,587,773 $1200.36
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Estimated solely for the purpose of calculating the registration fee pursuant to
Rule 457(o) promulgated under the Securities Act of 1933, as amended.
(1) These shares are the new distribution shares. These shares represent the
shares with respect to which the Company will receive proceeds from the
sale of such shares. The Company will not receive proceeds from the sale
of any shares currently held by the Company's shareholders. See also "Plan
of Distribution" on page 19. The initial offering price of all shares of
common stock offered for sale by the Company pursuant to this registration
statement will be $.35 per share for the duration of this offering until
all such shares are sold to third-parties by the Company. The $.35 per
share price for shares of common stock sold by the Company will not be
changed by the Company regardless of the prevailing market prices of
shares of common sold on any securities exchange or privately negotiated
transaction.
(2) This amount includes all shares of common stock issued to the Company's
shareholders who may sell or distribute shares which are subject to this
registration statement. See "Plan of Distribution" on page 19. The selling
security holders are offering up to 6,679,350 shares at $.35 per share
until our common stock is quoted on the OTC Bulletin Board or other
secondary trading marketplace. Thereafter, the selling security holders
may sell their shares of common stock subject to this registration
statement at prevailing market prices or privately negotiated prices.
(3) Estimated solely for the purpose of calculating the registration fee under
Rule 457(c) or (g) under the Securities Act of 1933 based on the per share
book value of the registrant as of March 31, 2005. No market currently
exists for the shares.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTES AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFULOE PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE
- --------------------------------------------------------------------------------
2
PROSPECTUS
Shares of Common Stock of Execute Sports, Inc.
This prospectus relates to the registration, distribution and sale of the common
shares of Execute Sports, Inc., consisting of:
(1) up to 6,679,350 shares currently held by the Company's shareholders who
are specified on page 36 "Selling Shareholders"; and
(2) up to 3,571,428 new distribution shares which may be issued by the Company
in this offering.
This is our initial public offering of shares of our common stock. The Company
is registering these shares with the SEC using a shelf registration process
which will allow the sales of shares held by our current shareholders over a
period of time in varying amounts as described under "Plan of Distribution" on
page 19. We will receive no proceeds from the sale of any shares made by any
selling shareholders. We will receive proceeds from the sale of any new
distribution shares pursuant to this offering. There is no minimum number of
shares that we have to sell pursuant to this offering. There will be no escrow
account, trust or similar account established for the sale of new distribution
shares. All consideration received from the offering of the new distribution
shares by the Company will be immediately used by us and there will be no
refunds. The Company may also issue new distribution shares in exchange for
non-cash consideration.
We have arbitrarily set the offering price for our shares at $.35, and the
offering price does not bear any relationship to our assets, book value, net
worth, earnings, results of operations or other established valuation criteria.
We plan to list our shares on the OTC Bulletin Board. The Company has not yet
applied for a listing and does not yet have a ticker symbol. No market maker has
yet undertaken to sponsor the Company's stock. The Company has not engaged and
does not anticipate engaging any underwriter to assist in the distribution of
the shares at this time. The Company anticipates that all offers, sales and
other distributions of the new distribution shares will be by or through the
Company's officers or other representatives (who fall within the requirements of
Rule 3a4-1 of the Securities Act of 1934), without special compensation or
commission with respect to any such sales or distributions of such new
distribution shares. However, the Company reserves the right to engage an
underwriter at some future date and upon compliance with any disclosure
obligations associated herewith. This offering shall end on October 31, 2005.
Investing in our common stock involves risks. See "Risk Factors" beginning on
page __.
Per Share Total
--------- ----------
Public offering price $.35 $1,250,000
Underwriting discounts and
commissions $0.00 $0.00
Delivery of the shares will be made on or about September 30, 2005.
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 information in this prospectus is not complete. No one is
allowed to distribute the common stock offered by this prospectus until the
registration statement that we have filed with the SEC becomes effective. This
prospectus is not an offer to sell our common stock - and does not solicit
offers to buy - in any state where the offer or sale is not permitted.
The date of this prospectus is June __, 2005, subject to completion.
3
Table of Contents
PART I
Prospectus Summary ....................................................... 5
Risk Factors ............................................................. 10
Note Regarding Forward Looking Statements ................................ 15
Use of Proceeds .......................................................... 15
Determination of Offering Price .......................................... 16
Capitalization ........................................................... 17
Dilution ................................................................. 18
Plan of Distribution ..................................................... 19
Management's Discussion and Analysis ..................................... 23
Description of Business .................................................. 28
Directors, Executive Officers, Promoters, Control Persons ................ 31
Security Ownership of Certain Beneficial Owners and Management ........... 33
Executive Compensation ................................................... 34
Description of Property .................................................. 35
Certain Relationships and Related Transactions ........................... 35
Selling Shareholders ..................................................... 36
Legal Proceedings ........................................................ 39
Description of Securities ................................................ 39
Interest of Named Experts and Counsel .................................... 41
Transfer Agent and Registrar ............................................. 41
Market for Common Equity and Related Stockholder Matters ................. 41
Financial Statements ..................................................... F-1
PART II
Indemnification of Directors and Officers ................................ 71
Other Expenses of Issuance and Distribution .............................. 72
Recent Sales of Unregistered Securities .................................. 72
Exhibits ................................................................. 73
Undertakings ............................................................. 74
Certifications ........................................................... 75
Exhibit Index ............................................................ 76
You should rely only on the information contained in this prospectus. We have
not authorized any other person to provide you with information that is
different from that contained in this prospectus. If anyone provides you with
different or inconsistent information, you should not rely on it. The
information contained in, or that can be accessed through, our websites is not a
part of this prospectus. We are not making an offer to sell these securities in
any jurisdiction where the offer or sale is not permitted. You should assume the
information appearing in this prospectus is accurate only as of the date on the
front cover of the prospectus. Our business, financial condition, results of
operations and prospects may have changed since that date.
We use market data and industry forecasts and projections throughout this
prospectus, which we have obtained from third party market research, publicly
available information and industry publications. These sources generally state
that the information they provide has been obtained from sources believed to be
reliable, but that the accuracy and completeness of the information are not
guaranteed. The forecasts and projections are based on industry surveys and the
preparers' experience in the industry and there is no assurance that any of the
projected amounts will be achieved. Similarly, we believe that the surveys and
market research others have performed are reliable, but we have not
independently verified and do not guarantee the accuracy or completeness of this
information.
This prospectus refers to brand names, trademarks, service marks and trade names
of other companies and organizations. We have registered the following marks
with the United States Patent and Trademark Office: Execute Sports(SM). Each
other trademark, trade name or service mark appearing in this prospectus belongs
to its respective owner.
PROSPECTUS SUMMARY
This summary does not contain all of the information you should consider before
buying shares of our common stock. You should read the entire prospectus
carefully, especially the "Risk Factors" section and our financial statements
and the related notes appearing at the end of this prospectus, before deciding
to invest in shares of our common stock.
EXECUTE SPORTS, INC.
Our Company
We design, manufacture, market and distribute "Execute Sports" branded products
to the motor sport and water sports markets. The Company's products include team
and factory graphics kits for motocross, ancillary clothing and travel bags,
wetsuits, vests and gloves, dry jackets and graphics kits for NASCAR and leading
wakeboarding brands and athletes.
The Company has international operations, with headquarters in San Clemente,
California and offices in Taipei, Taiwan R.O.C., as well as manufacturing
representatives in Mainland China. Execute Sport's mandate is to design, develop
and distribute the best quality products at the most reasonable prices.
The Company markets its products through a network of independent dealers
located throughout the United States, and through distributors representing
dealers in Europe, Australia, South Africa, Asia and other international
markets. The "Execute Sports" brand name has existed for two years and is
already becoming one of the most widely recognized and respected names in the
Powersports industry - specifically, amongst wakeboard and motocross consumers.
Key to the extension of its brand, and the acceptance of its products in the
marketplace is the Company's aggressive marketing strategy which consists in
aligning its brand with leading wakeboard, motocross, NASCAR and Formula 1
athletes. In doing so, the Company establishes brand credibility amongst its
target consumer base and provides its distributors with a greater ability to
push its products through their channels.
Recent Developments
In July, 2004, we commenced a private placement offering of 2,918,000 shares of
common stock at $.25 per share. On May 27, 2005, we closed the private placement
offering, having received gross proceeds of $729,500.
Our Industry
The "power sports" industry is composed of motorcycles, personal watercraft
(PWC), all-terrain vehicles (ATVs) and snowmobiles. Emergent Growth Analytics
estimates that the segments in which Execute Sports, Inc. competes (wetsuits,
ski/wakeboard vests, graphics kits, accessories and apparel) represents an
addressable market of close to $1 billion in annual sales.
Motocross
Annual sales of off-road motorcycles have doubled in recent years to nearly
500,000, demonstrating more than 25 percent growth on an annual basis. In the
U.S. alone, annual sales are approaching 300,000 units. Last year, the American
Motorcycle Association, the sport's main organizing body, sanctioned 2,844
racing events, the vast majority of those off-road, and this year that number
had already exceeded 3,200. Supercross racing, held in arenas, is second only to
NASCAR racing in attendance, and on television, ESPN's Moto-X freestyle jumping
events are a huge draw to action sports enthusiasts. The Motorcycle Industry
Council (MIC) estimates that there are more than 2,000,000 off-road motorcycles
in use at present.
ATV
The worldwide market for ATVs stands at an estimated $5 billion, according to
the Motorcycle Industry Council. The ATV market can be divided into three market
segments, broadly defined. The Recreation/Utility segment (designed for trail
riding, hunting, farming, etc.) is the largest, representing 71 percent of units
sold. Sport ATVs (designed for racing and desert dune riding) represent 21
percent of the volume. Youth ATVs represent the remaining 8 percent.
Watersports
Water skiing and wakeboarding participation are driving sales in the water
sports industry. The growth of wakeboarding has been a `shot in the arm' to the
water sports industry and is one of the few water sports that could be called
"hot."
Wakeboarding has been one of the biggest sports-related phenomena of the past
decade. Once considered an obscure addition to the family of water sports, it
now is recognized as the fastest growing water sport in the world. Last year,
nearly 4 million people worldwide participated in this fast moving sport. More
than 11 million people water ski in the U.S. alone.
Our Strategy
The following strategies will assist the Company in achieving its growth
initiatives:
Develop an extensive worldwide distribution network. To date, the Company has
established several key distribution relationships in channels throughout the
United States, Great Britain, South Africa and Australia. In order to ensure its
success, The Company must continue to maintain and expand upon its distribution
channels by maintaining a compelling product mix offering supported by the
highest level of quality and sufficient pricing elasticity to incent
distribution partners to push its products.
Establish the "Execute Sports" brand through leveraging its association with
world-class athletes. The Company has established several licensing and
sponsorship arrangements with leading athletes in motocross, wakeboarding,
NASCAR and Formula 1 Racing for its "Execute Sports" brand. By doing so, the
Company is able to leverage the broad appeal and awareness of each athlete
amongst its target consumer base for its branded products that are affiliated
with the athletes. Moreover, the affiliation of world-class athletes with its
branded products establishes the greatest level of credibility amongst
consumers. An additional benefit of this strategy is that it provides the
Company's distribution partners the best chances of establishing shelf space for
its products at the retail level.
Establish and maintain position in marketplace as leading low-cost, premium
quality provider. Through its manufacturing resources in Mainland China, Execute
Sports is able to produce the best quality products at the lowest possible
prices. In turn, this provides the Company with the ability to compete with
larger, more established companies on price points.
Leverage the "Cross-Over" characteristic of the marketplace to extend the
"Execute Sports" brand. The action and power sports market is characterized by
participants that take part in multiple sports. For example, more than 70% of
those who ride off-road motorcycles also participate in wakeboarding. This
crossover is exemplified by the fact that leading manufacturers of motorcycles
including Yamaha and Honda have entered the personal watercraft market. The
Company's decision to produce both motocross and water sports products under its
"Execute Sports" brand will enable it to introduce its water sports line to
"core" motocross participants and its motocross products to "core" water sports
participants.
Identify Synergistic Businesses and Implement Acquisition/Roll-Up Strategy. The
Company believes that the power sports markets, and in particular, the action
sports segments, are extremely fragmented and that the industry is
consolidating. This is demonstrable by recent acquisition strategies implemented
by market leaders such as K2, Inc. (NYSE:KTO) and Quicksilver (NYSE:ZQK) over
the past few years. The Company has identified and is in discussions with
several businesses that management believes are extremely synergistic to its
own, and intends to initiate an acquisition/roll-up strategy of a number of
these businesses after its has successfully established itself as a publicly
traded company. The Company believes that this strategy should contribute to
substantially growing the Company's revenues and footprint for the foreseeable
future.
Expand The Company's Line of Products. Large sporting goods retailers and other
key sales channels prefer to work with suppliers that offer a broader selection
of brands and products that span several sports and seasons. Execute Sports,
Inc. intends to expand its product offerings both organically and through
consolidation that will provide retailers with a "one stop shop" for power
sports and action sports products.
Summary of the Offering
The Company We were incorporated in Nevada in January 2002 under the
name "Padova International USA, Inc." and in March, 2005
changed our name to "Execute Sports, Inc." to more
accurately reflect the nature of our business and
products to the market place. The name change took
effect on March 15, 2005.
Our executive offices are located at 1284 Puerta Del
Sol, Suite 150, San Clemente, California 92673 and our
telephone number is (949) 498-5990. Our Internet site is
www.executesports.com.
Capital Structure We are authorized to issue 75,000,000 shares of common
stock, having par value of $.001 per share. Immediately
prior to the filing of this registration statement the
Company had outstanding 15,644,928 shares of common
stock.
The Offering;
Shares Registered In addition to the 3,571,428 shares that are being
initially offered by the Company in this prospectus, the
selling stockholders identified on page 36 of this
prospectus are offering 6,679,350 shares on a resale
basis for a total of 10,250,778 shares:
o 2,918,000 shares of our outstanding common stock
issued in connection with our September, 2004
private placement;
o 171,350 shares of our outstanding common stock
issued in connection with debt conversion in
February 2005;
o 3,340,000 shares of our outstanding common stock
issued in connection with professional services
contracts and consulting fees in February 2005;
o 250,000 shares of our outstanding common stock
issued to employees in February 2005.
Common stock offered............................. 10,250,778 shares
Common stock outstanding after this offering(1).. 19,216,356 shares
(1) If the maximum of 3,571,428 new distribution
shares are sold.
Proposed
Trading Market OTC Bulletin Board
Offering Period The Company is registering the current holder shares
under a shelf registration to allow the Company's
current shareholders the opportunity to sell their
shares over an extended period of time.
The new distribution shares are being offered to the
public upon effectiveness of this registration statement
by the Company. Unless all of the offered shares are
sold earlier or we decide to terminate this offering
sooner, the offering of the new distribution shares will
end on October 31, 2005.
Determination of
Offering Price We arbitrarily determined the offering price for our
shares, and the offering does not bear any relationship
to our assets, book value, net worth, earnings, results
of operations or other established valuation criteria.
Investor Suitability A purchase of our shares involves very high risk and
should not be purchased by investors who cannot afford
the loss of their entire investment.
Risk Factors The shares being offered are speculative and involve
very high risks, including those listed in "Risk
Factors".
Net Proceeds The Company will not receive any proceeds from the sale
of any shares by any selling shareholder. The Company
will only receive proceeds from the sale of new
distribution shares pursuant to this offering. If the
maximum number of 3,571,428 new distribution shares are
sold for cash consideration, our net proceeds will be
$1,250,000, excluding costs of this offering. However,
the Company may not sell the maximum number of new
distribution shares in this offering.
Use of Proceeds We intend to use the net proceeds from this offering for
working capital, marketing activities, inventory,
international expansion, the payment of certain
outstanding obligations and other general corporate
purposes. See "Use of Proceeds" on page 15 below.
The remainder of this page is left intentionally blank.
Summary Financial Data
The following table summarizes historical financial data regarding our business
and should be read together with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our financial statements and
the related notes included elsewhere in this prospectus. The summary information
for the years ended December 31, 2003 and 2004 and the three months ended March
31, 2005 and 2004, that have been derived from our financial statements, which
were audited by Bedinger & Company, and are included elsewhere in this
prospectus.
Year ended December 31, Three Months ended
March 31,
2004 2003 2005 2004
---------- ---------- ---------- ----------
Revenues $1,384,188 $ 726,048 $ 639,610 $ 618,797
Operating Expenses 611,723 295,991 128,014 115,338
Net (Loss) Income (521,997) (288,854) 65,365 60,291
Weighted Avg. Shares Out 84,500 0 764,667 0
Net (Loss) Income
Per Common Share,
Basic and Diluted $ (0.16) $ 0.00 $ 0.09 $ 0.00
Year ended December 31, Three Months Ended
March 31,
2004 2003 2005
---------- ---------- ----------
Cashflows From
Operating Activities
Net loss $ (521,997) $ (288,854) $ 65,365
Cash and Cash
Equivalents (end of period) 5,154 40,244 29,393
Total Current Assets 224,603 424,238 610,114
Total Assets 246,409 447,567 630,432
Total Current Liabilities 1,137,925 886,586 1,284,083
Total Stockholder's Equity (891,516) (429,019) (653,651)
RISK FACTORS
Investing in our common stock involves a high degree of risk. You should
carefully consider the risks described below with all of the other information
included in this prospectus before making an investment decision. If any of the
possible adverse events described below actually occur, our business, results of
operations or financial condition would likely suffer. In such an event, the
market price of our common stock could decline and you could lose all or part of
your investment. The risks and uncertainties described below are not the only
ones we face. Additional risks and uncertainties not presently known to us or
that we currently believe to be immaterial may also adversely affect our
business, results of operations or financial condition.
Risks Relating to Our Business
We have historically incurred losses and may continue to incur losses in the
future, which may impact our ability to implement our business strategy and
adversely affect our financial condition.
We have a history of losses. We had a net loss of $521,997 for the fiscal year
ended December 31, 2004 and a net loss of $288,854 for the fiscal year ended
December 31, 2003. While we did record net income in the first fiscal quarter
ended March 31, 2005 of $65,365 as well as net income in the same quarterly
period for fiscal 2003 of $60,291, this was due in large part to the cyclical
nature of our waters sports business wherein we receive a relatively larger
portion of revenue. We anticipate this cyclical aspect of our water sports
business to continue for the foreseeable future but can make no assurances that
will be the case.
The report accompanying our first quarter of 2005, as well as fiscal year ended
2004 and 2003 financial statements by our independent registered public
accounting firm states that our operating results, working capital deficit, net
capital deficit and limited available financing sources raise substantial doubt
about our ability to continue as a going concern. We may never achieve sustained
profitability.
We expect to significantly increase our operating expenses by expanding our
marketing operations and increasing our level of capital expenditures in order
to grow our business and further develop and maintain our services. Such
increases in operating expense levels and capital expenditures may adversely
affect our operating results if we are unable to immediately realize benefits
from such expenditures. We also expect that our operating expenses will
significantly increase as a result of becoming a public company following this
offering. We cannot assure you that we will be profitable or generate sufficient
profits from operations in the future. If our revenue growth does not continue,
we may experience a loss in one or more future periods. We may not be able to
reduce or maintain our expenses in response to any decrease in our revenue,
which may impact our ability to implement our business strategy and adversely
affect our financial condition.
Our industry is highly competitive and we may not be able to compete
effectively, which could reduce demand for our services.
The power sports market is intensely competitive. Our current primary
competitors for motocross graphics include One Industries Graphics, Factory
Effex, NStyle, and our primary competitors for wetsuits includes Oneil, Rip Curl
and Quicksilver. The market for the Company's products is characterized by
competing businesses introducing products similar to those offered by the
Company. There are relatively low barriers to entry into the business. Many of
the Company's competitors or potential competitors have longer operating
histories, longer customer relationships and significantly greater financial,
managerial, sale and marketing and other resources than does the Company. The
Company is vulnerable to a competitor making a late, but well-funded, run at the
Company if it is not aggressive in quickly attaining a critical mass of
consumers, strategic partners, and affiliate, as well as establishing a strong
brand identity.
Our Success is Tied to Dependence on Key Personnel.
The Company's success depends to a significant extent upon efforts and abilities
of its key personnel, including Don Dallape, Chief Executive Officer and Scott
Swendener, President, as well as other key creative and strategic marketing
personnel. Competition for highly qualified personnel is intense. The loss of
any executive officer, manager or other key employee could have a material
adverse effect upon the Company's business, operating results and financial
condition. No assurances can be given that a replacement for Mr. Dallape or Mr.
Swendener could be located if their services were no longer available. At
present, we do not have key man insurance for either Mr. Dallape or Mr.
Swendener.
We Are a High Risk Early Stage Company.
The Company is a high-risk early stage company with limited operating history in
a competitive industry. In addition, the Company's limited operating history
provides a limited basis on which to base an evaluation of its business and
prospects. In addition, the Company's revenue model relies substantially on the
assumption that the Company will be able to successfully expand its sales and
distribution channels in key markets. The Company's prospects must be considered
in light of the risks, uncertainties, expenses and difficulties frequently
encountered by companies in the earliest stages of development. To be successful
in this market, the Company must, among other things:
o Continue to expand distribution and sales channels for its products;
o Attract and maintain customer loyalty;
o Continue to establish and increase awareness of the Company's brand
and develop customer loyalty;
o Provide desirable products to customers at attractive prices;
o Establish and maintain strategic relationships with strategic
partners and affiliates;
o Rapidly respond to competitive developments;
o Build an operations and customer service structure to support the
Company's business; and
o Attract, retain and motivate qualified personnel.
The Company cannot guarantee that it will be able to achieve these goals, and
its failure to do so could have a material adverse effect on the Company's
business, results of operations and financial condition. Moreover, there can be
no assurance that the Company's financial resources will be sufficient to enable
it to operate for the length of time that management expects, or that the
Company will be able to obtain additional funding when the Company's current
financial resources are exhausted. The Company expects that its revenues and
operating results will fluctuate significantly in the future.
There can be no assurance that any or all of the Company's efforts will be
successful or that the Company will ever be profitable. If the Company's efforts
are unsuccessful or other unexpected events occur, purchasers of the Shares
offered hereby could lose their entire investment.
We may need additional financing to support business growth, and this capital
might not be available on acceptable terms, or at all, which could adversely
affect our financial condition.
The Company's financial resources are limited and the amount of funding that it
will require to develop and commercialize its products is highly uncertain.
Adequate funds may not be available when needed or on terms satisfactory to the
Company. Lack of funds may cause the Company to delay, reduce and/or abandon
certain of all aspects of its product development programs. The Company plans
to, upon completion of this Offering, seek immediately additional financing
through a subsequent offering, which may include the issuance of equity
securities. If additional funds are raised through the issuance of equity or
convertible debt securities, the percentage ownership of the stockholders of the
Company will be reduced, stockholders may experience additional dilution and
such securities may have rights, preferences and privileges senior to those of
the Company's Common Stock. There can be no assurance that additional financing
will be available on terms favorable to the Company or at all. If adequate funds
are not available or are not available on acceptable terms, the Company may not
be able to fund its expansion, take advantage of unanticipated acquisition
opportunities, develop or enhance products or respond to competitive pressures.
Such inability could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Use of Proceeds."
Our quarterly operating results may fluctuate in future periods and, as a
result, we may fail to meet investor expectations, which could cause the price
of our common stock to decline.
As a result of our history of incurring net losses, the relatively short-term
nature of our licensing, distribution and partner agreements, we may not be able
to accurately predict our operating results on a quarterly basis, if at all. We
expect to experience significant fluctuations in our future quarterly operating
results due to a variety of factors, many of which are outside of our control,
including:
o the Company's ability to establish and strengthen brand awareness;
o the Company's success, and the success of its strategic partners, in
promoting the Company's products;
o the overall market demand for motorcycle and water sports products
of the type offered by the Company and in general;
o pricing changes for motorcycle and water sports products as a result
of competition or otherwise;
o the amount and timing of the costs relating to the Company's
marketing efforts or other initiatives;
o the timing of contracts with strategic partners and other parties;
o fees the Company may pay for distribution and promotional
arrangements or other costs it incurs as it expands its operations;
o the Company's ability to compete in a highly competitive market, and
the introduction of new products by the Company; and
o economic conditions specific to the motorcycle and water sports
industries and general economic conditions.
We believe period-to-period comparisons of our operating results are not
necessarily meaningful, and you should not rely upon them as indicators of
future performance. It is also possible that in the future, our operating
results will be below the expectations of public market analysts and investors
due to quarterly fluctuations rather than our overall performance. In that
event, the trading price of our common stock may decline.
We Could Have Difficulty in the Management of Potential Growth.
The Company anticipates that a period of significant expansion will be required
to address potential growth in its customer base, market opportunities and
personnel. This expansion will place a significant strain on the Company's
management, operational and financial resources. To manage the expected growth
of its operations and personnel, the Company will be required to implement new
operational and financial systems, procedures and controls, and to expand, train
and manage its growing employee base. The Company also will be required to
expand its finance, administrative and operations staff. Further, the Company
anticipates entering into relationships with various strategic partners and
third parties necessary to the Company's business. There can be no assurance
that the Company's current and planned personnel, systems, procedures and
controls will be adequate to support the Company's future operations, that
management will be able to hire, train, retain, motivate and manage required
personnel for planned operations, or that Company management will be able to
identify, manage and exploit existing and potential strategic relationship and
market opportunities. The failure of the Company to manage growth effectively
could have a material adverse effect on the Company's business, results of
operations and financial condition.
If we chose to acquire new or complementary businesses, services or
technologies, we may not be able to complete those acquisitions or successfully
integrate them.
In addition to organic growth to expand our operations and market presence, we
intend to pursue a growth strategy driven by acquisitions and business
combinations of complementary business, services or technologies or engage in
other strategic alliances with third parties. Any such transactions would be
accompanied by the risks commonly encountered in such transactions, including,
among others, the difficulty of assimilating operations, technology and
personnel of the combined companies, the potential disruption of our ongoing
business, the inability to retain key technical and managerial personnel, the
inability of management to maximize our financial and strategic position through
the successful integration of acquired businesses, additional expenses
associated with amortization of acquired intangible assets, the maintenance of
uniform standards, controls and policies and the impairment of relationships
with existing employees and customers. We may not be successful in overcoming
these risks or any other potential problems. Any acquisition may have a material
adverse effect on our business, prospects, financial condition and results of
operations.
We will incur increased costs as a result of being a public company and this may
adversely affect our operating results.
As a public company, we will incur significant legal, accounting and other
expenses that we did not incur as a private company. We also anticipate that we
will incur costs associated with recently adopted corporate governance
requirements, including requirements under the Sarbanes-Oxley Act of 2002, as
well as new rules implemented by the SEC and the OTCBB. We expect these rules
and regulations will increase our legal and financial compliance costs and make
some activities more time consuming and costly. We are currently evaluating and
monitoring developments with respect to these new rules, and we cannot predict
or estimate the amount of additional costs we may incur or the timing of such
costs.
New rules, including those contained in and issued under the Sarbanes-Oxley Act
of 2002, may make it difficult for us to retain or attract qualified officers
and directors, which could adversely affect the management of our business and
our ability to obtain or retain the listing of our common stock on the Over the
Counter Bulletin Board Market.
We may be unable to attract and retain qualified officers, directors and members
of board committees required for our effective management as a result of the
recent and currently proposed changes in the rules and regulations which govern
publicly-held companies, including, but not limited to, certifications from
executive officers and requirements regarding audit committee financial experts.
The perceived increased personal risk associated with these recent changes may
deter qualified individuals from accepting these roles. The enactment of the
Sarbanes-Oxley Act of 2002 has resulted in the issuance of a series of new rules
and regulations and the strengthening of existing rules and regulations by the
SEC, as well as the adoption of new and more stringent rules by OTCBB.
Furthermore, certain aspects of these recent and proposed changes heighten the
requirements for board and committee membership, particularly with respect to an
individual's independence from the corporation and level of experience in
finance and accounting matters. We may have difficulty attracting and retaining
directors with the requisite qualifications. If we are unable to attract and
retain qualified officers and directors, we may be unable to maintain the
listing of our common stock on the OTCBB Market.
If we fail to maintain an effective system of internal controls, we may not be
able to accurately report our financial results or prevent fraud. As a result,
current and potential stockholders could lose confidence in our financial
reporting, which would harm our business and the trading price of our stock.
Effective internal controls are necessary for us to provide reliable financial
reports and effectively prevent fraud. If we cannot provide reliable financial
reports or prevent fraud, our operating results could be harmed. Any failure to
implement required new or improved controls, or difficulties encountered in
their implementation, could harm our operating results or cause us to fail to
meet our reporting obligations. Inferior internal controls could also cause
investors to lose confidence in our reported financial information, which could
have a negative effect on the trading price of our stock.
Risks Relating to this Offering and Ownership of Our Common Stock
The market price of our common stock is likely to be highly volatile, which
could cause investment losses for our stockholders and result in stockholder
litigation with substantial costs, economic loss and diversion of our resources.
The trading price of our common stock is likely to be highly volatile and could
be subject to wide fluctuations as a result of various factors, many of which
are beyond our control, including:
o developments concerning licenses and trademarks by us or a
competitor;
o announcements by us or our competitors of significant contracts,
acquisitions, commercial relationships, joint ventures or capital
commitments;
o actual or anticipated fluctuations in our operating results;
o introductions of new products by us or our competitors;
o changes in the number of our distribution partners;
o loss of key employees;
o changes in the market valuations of similar companies; and
o changes in our industry and the overall economic environment.
In addition, the stock market in general, and the OTCBB and the market for
online commerce companies in particular, have experienced extreme price and
volume fluctuations that have often been unrelated or disproportionate to the
operating performance of the listed companies. These broad market and industry
factors may seriously harm the market price of our common stock, regardless of
our operating performance. In the past, following periods of volatility in the
market, securities class action litigation has often been instituted against
these companies. Litigation against us, whether or not a judgment is entered
against us, could result in substantial costs, and potentially, economic loss,
and a diversion of our management's attention and resources.
We cannot assure you that a market will develop for our common stock or what the
market price of our common stock will be.
Prior to this offering, there was no public trading market for our common stock,
and we cannot assure you that one will develop or be sustained after this
offering. We cannot predict the extent to which investor interest will lead to
the development of an active and liquid trading market for our common stock. The
initial public offering price will be determined by negotiations between the
underwriters and us and may bear no relationship to the price at which our
common stock will trade upon completion of this offering. You may not be able to
resell your shares above the initial public offering price and may suffer a loss
in your investment.
Management has broad discretion to use the proceeds from this offering for
business activities that may not be successful, which could affect the trading
price of our common stock.
We intend to use the net proceeds from this offering to pay certain outstanding
obligations, increase working capital, fund capital expenditures (including the
establishment of new co-location facilities), finance our international
expansion and fund marketing activities. Accordingly, management will have
significant flexibility in applying the net proceeds of this offering. The
failure of management to apply such funds effectively could have a material
adverse effect on our business, results of operations and financial condition.
Future sales of shares of our common stock that are eligible for sale by our
stockholders may decrease the price of our common stock.
We had 15,644,928 shares of common stock outstanding on May 31, 2005. Based on
shares outstanding as of May 31, 2005, upon completion of this offering, we will
have 19,216,356 shares of common stock outstanding. Of these shares, 7,900,000
are held by directors, executive officers and other affiliates and will be
subject to volume limitations under Rule 144 under the Securities Act. Actual
sales, or the prospect of sales by our present stockholders or by future
stockholders, may have a negative effect on the market price of our common
stock.
You will incur immediate and substantial dilution in the net tangible book value
of the common stock you purchase, which could adversely affect the market price
of our common stock.
Upon the completion of this Offering (assuming Maximum Subscription is
attained), there will be an immediate dilution in net tangible book value of
$.33 per share. Additional dilution will occur if less subscriptions are
received. Accordingly, the investors will bear the preponderant part of the
financial risk associated with the Company's business, while effective control
will remain with the Principal Stockholders. See "Dilution", "Description of
Capital Stock", and "Capitalization".
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements contained in this prospectus that are not purely historical are
forward-looking statements that are based on our management's beliefs and
assumptions and on information currently available to our management. The
forward-looking statements are contained principally in the sections entitled
"Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Use of Proceeds" and
"Business." In some cases, you can identify forward-looking statements by terms
such as "anticipates," "believes," "could," "estimates," "expects," "intends,"
"may," "plans," "possible," "potential," "predicts," "projects," "should,"
"will," "would" and similar expressions intended to identify forward-looking
statements.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance or achievements to
be materially different from any future results, performances or achievements
expressed or implied by the forward-looking statements. We discuss many of these
risks in this prospectus in greater detail under the heading "Risk Factors."
Given these uncertainties, you should not place undue reliance on these
forward-looking statements. Also, forward-looking statements represent our
management's beliefs and assumptions only as of the date of this prospectus. You
should read this prospectus and the documents that we reference in this
prospectus and have filed as exhibits to the registration statement, of which
this prospectus is a part, completely and with the understanding that our actual
future results may be materially different from what we expect.
Except as required by law, we assume no obligation to update these
forward-looking statements publicly, or to update the reasons actual results
could differ materially from those anticipated in these forward-looking
statements, even if new information becomes available in the future.
USE OF PROCEEDS
This prospectus relates to 10,250,778 shares of our common stock, of which, we
will not receive any part of the proceeds of the sale of 6,679,350 of the shares
that are being offered by the selling shareholders on page 36. The net proceeds
to the Company from the sale of the remaining 3,571,428 shares, at the offering
price of $.35 per share, is estimated to be approximately $1,100,000, after
deducting the estimated costs and expenses of this offering.
The Company intends to use the net proceeds of this Offering to continue its
development, manufacturing and marketing of its products. The Company may also
use the proceeds of this Offering maintain optimal inventory levels, to reduce
debt, and, to the extent available, to fund other working capital needs
(including SEC compliance and related public company costs). The proceeds of
this offering are not expected to be sufficient to provide funding to pursue and
execute the Company's acquisition strategy.
The Company has not yet determined all of its expected expenditures, and cannot
estimate the amounts to be used for each purpose set forth above. Accordingly,
management will have significant flexibility in applying a substantial portion
of the net proceeds of this Offering.
At the Maximum Offering
-----------------------
Marketing and Sales $ 375,000
Inventory 150,000
Working Capital 300,000
Operating Expenses 100,000
Debt Reduction 175,000
----------
Net Proceeds 1,100,000
The amounts and timing of the Company's actual expenditures will depend upon
numerous factors, including the progress of the Company's efforts. The foregoing
discussion represents the Company's best estimate of its allocation of the net
proceeds of this Offering based upon current plans and estimates regarding
anticipated expenditures. Actual expenditures may vary substantially from these
estimates, and the Company may find it necessary or advisable to reallocate the
net proceeds within the above-described uses for other purposes.
The Company anticipates, based on management's current plans and assumption
relating to its operations, that the net proceeds of this Offering will be
sufficient to satisfy its contemplated cash requirements to implement its
business plan for its core business for the foreseeable future. In the event
that the proceeds of the Offering prove to be less or are insufficient to fund
the implementation of its business plan (due to a change in the Company's plans
or a material inaccuracy in its assumptions, or as a result of unanticipated
expenses, or other unanticipated problems), the Company will be required to seek
additional financing sooner than currently anticipated in order to proceed with
such implementation.
THE FOREGOING REFLECTS ONLY ESTIMATES OF THE USE OF THE PROCEEDS IF THE MAXIMUM
SUBSCRIPTION IS ATTAINED. IF LESS THAN THE MAXIMUM SUBSCRIPTION IS ATTAINED, THE
AMOUNTS WILL BE ADJUSTED APPROPRIATELY. ACTUAL EXPENDITURES MAY VARY MATERIALLY
FROM THESE ESTIMATES.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of our board of directors and will depend
upon our financial condition, operating results, capital requirements, covenants
in our debt instruments, and such other factors as our board of directors deems
relevant.
DETERMINATION OF OFFERING PRICE
As no underwriter has been retained to offer our securities, the offering price
of our shares was not determined by negotiation with an underwriter as is
customary in underwritten public offerings. The offering price of $.35 per share
of common stock has been arbitrarily determined by us and bears no relationship
between the offering price of the shares and our assets, earnings, book value,
net worth or other economic or recognized criteria or future value of our
shares. The factors considered were:
o our relatively short operating history;
o the proceeds to be raised by this offering;
o our relative cash requirements; and
o the price that we believe a purchase is willing to pay for our
shares.
The selling shareholders will sell our shares at $0.35 per share until our
shares are quoted on the OTC Bulletin Board, and thereafter at prevailing market
prices or privately negotiated prices.
CAPITALIZATION
The following table sets forth our cash and cash equivalents and capitalization
as of December 31, 2004 on:
o an actual basis, and
o a pro forma, as adjusted basis to reflect our sale of 10,250,778
shares of common stock in this offering at an assumed public
offering price of $.35 per share and the receipt and application of
the proceeds from the sale of 3,571,428 of those shares, estimated
offering expenses
You should read this table in conjunction with our consolidated financial
statements and related notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations," including elsewhere in this
prospectus.
March 31, 2005
-----------------------------
Actual Pro Forma
-----------------------------
Cash and cash equivalents $ 29,393 $ 1,616,893
=============================
Short-term debt $ 628,000 $ 628,000
Long-term debt -- --
-----------------------------
Total debt 628,000 628,000
Stockholders' equity
Common Stock: $0.001 par value, 100,000,000 shares
authorized, 968,000 shares issued and outstanding,
actual; 19,216,356 shares issued and outstanding, proforma 968 19,216
Preferred Stock: $0.001 par value, 100,000,000 shares
authorized, no shares issued or outstanding, actual and
pro forma -- --
Additional paid-in capital 241,032 2,867,015
Retained Earnings (895,651) (1,952,383)
-----------------------------
Total stockholders' equity (653,651) 933,849
-----------------------------
Total capitalization $ (25,651) $ 1,561,849
=============================
DILUTION
Purchasers of our common stock in this offering will experience immediate and
substantial dilution in the pro forma net tangible book value of the common
stock from the initial public offering price. In our calculations, we have
assumed an initial public offering price of $.35 per share of common stock.
Pro forma net tangible book value per common share is determined by dividing pro
forma net tangible book value (total tangible assets less total liabilities) by
the pro forma number of shares of common stock outstanding as of March 31, 2005.
As of March 31, 2005, our pro forma net tangible book value of our common stock
was approximately $(653,651), or approximately $(.68) per share of our common
stock.
As of June 1, 2005, after giving effect to the sale of 3,571,428 shares of
common stock offered by this prospectus (after deduction of estimated offering
expenses of $150,000), our adjusted net tangible book value would have been
approximately $446,349, or $.02 per share of common stock.
The offering, therefore, will result in an immediate increase in net tangible
book value of $.69 per share to existing stockholders and an immediate dilution
in net tangible book value of $.34 per share to new investors purchasing shares
of our common stock in this offering.
The following table illustrates the per share dilution to the new investors:
Public offering price per share $ .35
-----
Pro forma net tangible book value per share as
of March 31, 2005 $(.68)
Increase in net tangible book value per share
attributable to this offering $ .70
As adjusted pro forma net tangible book value
per share after this offering $ .02
-----
Dilution per share to new investors in this offering $ .33
=====
The following table summarizes, on a pro forma basis as of June 1, 2005, after
giving effect to this offering, the differences between existing holdings of
common stock and the new investors with respect to the number of shares of
common stock purchased from us, the total cash consideration paid and the
average price per share paid by existing holders and investors in this offering,
in each case before deducting estimated offering expenses.
- ----------------------------------------------------------------------------------------------------------
Shares Purchased Total Cash Consideration Average Price
----------------------------------- ----------------------------------- Per Share
Number Percent Amount Percent
- ----------------------------------------------------------------------------------------------------------
Existing 15,644,928 81.4% $ 729,500 37% $.046
stockholders
- ----------------------------------------------------------------------------------------------------------
New investors 3,571,428 18.6% $ 1,250,000 63% $ .35
- ----------------------------------------------------------------------------------------------------------
Total 19,216,356 $ 1,979,500 100% $.103
- ----------------------------------------------------------------------------------------------------------
The above discussion and table are based on pro forma shares outstanding as of
June 1, 2005.
PLAN OF DISTRIBUTION
This offering shall commence upon effectiveness of this registration statement
and will expire whenever all of the units have been sold or 12 months after the
date of effectiveness, whichever comes first. The Company does not anticipate
engaging an underwriter for the sale or distribution of the shares at this time.
All sales of the shares will be effected by officers or other representatives of
the Company (who fall within the requirements of Rule 3a4-1 of the Securities
Exchange Act of 1934), who will not receive any special compensation in
connection with such sale or distribution. The Company reserves the right to
engage an underwriter in the future for the purpose of offering and selling
shares. Any underwriter will only be engaged upon compliance with requisite
disclosure obligations of the Company.
We are managing this offering without an underwriter. The shares will be offered
and sold by our officers and directors. These officers and directors will not
receive a sales commission or any other form of compensation for this offering.
In connection with their efforts, our officers and directors will rely on the
safe harbor provisions of Rule 3a4-1 of the Securities and Exchange Act of 1934.
Generally speaking, Rule 3a4-1 provides an exemption from the broker/dealer
registration requirements of the 1934 act for associated persons of an issuer.
No one has made any commitment to purchase any or all of the shares being
offered. Rather, the officers and directors will use their best efforts to find
purchasers for the shares. We cannot predict how many shares, if any, will
successfully be sold.
Don Dallape, our President is responsible for the sale of the securities on
behalf of Execute Sports. Mr. Dallape shall not be compensated in connection
with his participation by the payment of commissions or other remuneration based
either directly or indirectly on transactions in our securities. Neither Mr.
Dallape, nor any other of our officers and directors associated with offering
and selling the shares are considered associated persons of any broker or
dealer.
Our officers meet all of the following conditions:
o They primarily perform, or intend to primarily perform at the end of
the offering, substantial duties for or on behalf of Execute Sports
otherwise than in connection with the sale and distribution of the
shares;
o They were not a broker or dealer, or an associated person of a
broker or dealer, within the preceding twelve months;
o The officers do not participate in selling and offering of
securities for any issuer more than once every twelve months other
than in reliance certain exemptions provided for under Rule
3a4-1(a)(4)(i) and (a)(4)(iii), except that for securities issued
pursuant to Rule 415 under the Securities Act 1933, the twelve
months shall begin with the last sale of any security included
within one Rule 415 registration.
In the past, we have received unsolicited indications of interest in Execute
Sports from persons familiar with us. Our officers will deliver prospectuses to
these individuals and to others who they believe might have interest in
purchasing all or part of this offering. We also may retain licensed
broker/dealers to assist us in the offering and selling of shares, if we deem
such to be in our best interest. At this time we do not have any commitments,
agreements or understandings with any broker/dealers. The maximum underwriting
discount and commissions we are willing to pay to engage broker/dealers is 10%.
In the event we retain any broker/dealers to assist in the offering and selling
of units we will update this prospectus accordingly.
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this prospectus and if given or made, that information or representation must
not be relied on as having been authorized by Execute Sports. This prospectus is
not an offer to sell or a solicitation of an offer to buy any of the securities
to any person in any jurisdiction in which that offer or solicitation is
unlawful.
Neither the delivery of this prospectus nor any sale hereunder shall under any
circumstances, create any implication that the information in this prospectus is
correct as of any date later than the date of this prospectus.
We have the right to accept or reject subscriptions in whole or in part, for any
reason of for no reason. All monies from rejected subscriptions will be returned
immediately to the subscriber, without interest or deductions. Subscriptions for
securities will be accepted or rejected within 48 hours after we receive them.
Any purchases made by officers, directors, and their affiliates shall be for
investment purposes and not for resale. In addition, no proceeds from this
offering will be used to finance any such purchases.
Purchasers of share either in this offering or in any subsequent trading market
that may develop must be residents of states in which the securities are
registered or exempt from registration. Some of the exemptions are
self-executing, that is to say that there are no notice or filing requirements,
and compliance with the conditions of the exemption render exemption applicable.
We are registering the shares offered by this prospectus in part on behalf of
the selling stockholders. The selling stockholders, which as used herein
includes donees, pledges, transferees or other successors-in-interest selling
shares of common stock or interests in shares of common stock received after the
date of this prospectus from a selling stockholder as a gift, pledge,
partnership distribution or other transfer, may, from time to time sell,
transfer or otherwise dispose of any or all of their shares of common stock or
interests in shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These
dispositions may be at fixed prices, at prevailing market prices at the time of
sale, at prices related to the prevailing market price, at varying prices
determined at the time of sale, or at negotiated prices.
The selling stockholders may use any one or more of the following methods when
disposing of shares or interests therein:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent, but may position and resell a portion of the block
as principle to facilitate the transaction;
o purchases by a broker-dealer as principle and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transaction;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
New Distribution Shares
We are registering for sale or distribution a maximum of 3,571,428 shares of
common stock at the initial offering price of $.35 per share. There is no
minimum number of shares that must be sold in this offering. There will be no
escrow account. All money received from this offering will be immediately used
by us and there will be no refunds. Shares may also be distributed in exchange
for non-cash consideration or provided to persons in consideration of services
provided to the Company.
The total number of shares of common stock we have issued and outstanding prior
to the offering of the new distribution shares is 15,644,928 shares. None of the
holders of our shares have made any distribution, transfer or sale of the shares
we issued to them except as described in "Recent Sales of Unregistered
Securities" in Part II below.
In order to purchase shares you must complete and execute the subscription
agreement and return it to us at 1284 Puerta Del Sol, Suite 150, San Clemente,
CA 92673. Payment for the purchase price must be made by check payable to the
order of "Execute Sports, Inc." The check may be delivered directly to us at the
abovementioned address.
We have the right to accept or reject subscriptions in whole or in part, for any
reason or for no reason. All monies from rejected subscriptions will be returned
immediately by us to the subscriber, without interest or deductions.
Subscriptions for shares will be accepted or rejected within 48 hours after we
receive them.
Offers by Selling Shareholders
The Company is registering the shares currently held by the Company's
shareholders to permit the shareholders and their transferees or other
successors in interest to offer the shares from time to time. The Company will
not offer any shares on behalf of any selling shareholder. None of the Company's
shareholders are required to sell their shares, nor as of the date of this
prospectus, has any shareholder indicated an intention to the Company to sell
his, her or its shares. The selling shareholders will sell their shares of
common stock at the offering price of $.35 per share until our common stock is
quoted on the OTC Bulletin Board, or other recognized secondary trading system.
At such time, if ever, the selling shareholders may sell their shares of our
common stock at prevailing market prices or privately negotiated prices.
The shares being offered by the selling shareholders may be sold from time to
time in one or more transactions (which may involve block transactions):
o on the OTC Bulletin Board or on such other market on which the
common stock may from time to time be trading;
o in privately-negotiated transactions; or
o any combination of the above.
As of the date of this prospectus, the Company has no information on the manner
or method by which any selling shareholder may intend to sell shares. The sale
price to the public may be the market price prevailing at the time of sale, a
price related to such prevailing market price, at negotiated prices or such
other price as the selling shareholders determine from time to time. The shares
may also be sold pursuant to Rule 144. The selling shareholders have the sole
and absolute discretion not to accept any purchase offer or make any sale of
shares if they deem the purchase price to be unsatisfactory at any particular
time.
The selling shareholders may also sell the shares directly to market makers
acting as principals and/or broker-dealers acting as agents for themselves or
their customers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the selling shareholders and/or the
purchasers of shares for whom such broker-dealers may act as agents or to whom
they sell as principal, or both, which compensation as to a particular
broker-dealer might be in excess of customary commissions. Market makers and
block purchasers purchasing the shares will do so for their own account and at
their own risk. It is possible that a selling shareholder will attempt to sell
shares of common stock in block transactions to market makers or other
purchasers at a price per share which may be below the then market price. There
can be no assurance that all or any of the shares offered by this prospectus
will be issued to, or sold by, the selling shareholders. The selling
shareholders and any brokers, dealers or agents, upon effecting the sale of any
of the shares offered by this prospectus, may be deemed "underwriters" as that
term is defined under the Securities Act of 1933 or the Securities Exchange Act
of 1934, or the rules and regulations thereunder.
The selling shareholders, alternatively, may sell all or any part of the shares
offered by this prospectus through an underwriter. No selling shareholder has
entered into an agreement with a prospective underwriter. If a selling
shareholder enters into such an agreement or agreements, the relevant details
will be set forth in a supplement or revision to this prospectus.
The selling shareholders and any other persons participating in the sale or
distribution of the shares will be subject to applicable provisions of the
Securities Exchange Act of 1934 and the rules and regulations thereunder,
including, without limitation, Regulation M, which may restrict certain
activities of, and limit the timing of purchases and sales of any of the shares
by the selling shareholders or any other such person. Furthermore, under
Regulation M, persons engaged in a distribution of securities are prohibited
from simultaneously engaging in market making and certain other activities with
respect to such securities for a specified period of time prior to the
commencement of such distributions, subject to specified exceptions or
exemptions. All of these limitations may affect the marketability of the shares.
Under the regulations of the Securities Exchange Act of 1934, any person engaged
in a distribution of the shares offered by this prospectus may not
simultaneously engage in market making activities with respect to the common
stock of Execute Sports during the applicable "cooling off" periods prior to the
commencement of such distribution. In addition, and without limiting the
foregoing, the selling shareholders will be subject to applicable provisions,
rules and regulations of the Exchange Act, which provisions may limit the timing
of purchases and sales of common stock by the selling shareholders.
We have advised the selling shareholders that, during such time as they may be
engaged in a distribution of any of the shares we are registering on their
behalf in this registration statement, they are required to comply with
Regulation M as promulgated under the Securities Exchange Act of 1934. In
general, Regulation M precludes any selling shareholder, any affiliated
purchasers and any broker-dealer or other person who participates in such
distribution from bidding for or purchasing, or attempting to induce any person
to bid for or purchase, any security which is the subject of the distribution
until the entire distribution is complete. Regulation M defines a "distribution"
as an offering of securities that is distinguished from ordinary trading
activities by the magnitude of the offering and the presence of special selling
efforts and selling methods. Regulation M also defines a "distribution
participant" as an underwriter, prospective underwriter, broker, dealer, or
other person who has agreed to participate or who is participating in a
distribution. Our officers and directors, along with affiliates, will not engage
in any hedging, short, or any other type of transaction covered by Regulation M.
Regulation M prohibits any bids or purchases made in order to stabilize the
price of a security in connection with the distribution of that security, except
as specifically permitted by Rule 104 of Regulation M. These stabilizing
transactions may cause the price of the common stock to be higher than it would
otherwise be in the absence of those transactions. We have advised the selling
shareholders that stabilizing transactions permitted by Regulation M allow bids
to purchase our common stock so long as the stabilizing bids do not exceed a
specified maximum, and that Regulation M specifically prohibits stabilizing that
is the result of fraudulent, manipulative, or deceptive practices. Selling
shareholders and distribution participants will be required to consult with
their own legal counsel to ensure compliance with Regulation M.
Listing and Trading of Execute Sports Common Stock
Prior to the date of this document, there has not been any established trading
market for our common stock. Following the consummation of this offering, we
will seek a market maker to sponsor our common stock on the OTC Bulletin Board.
Application will then be made by the market maker to list the shares of Execute
Sports common stock on the OTC Bulletin Board. No market maker has yet
undertaken to sponsor our common stock on the OTC Bulletin Board, and there can
be no assurance as to the prices at which the our common stock will trade, if at
all. Until our common stock is fully distributed and an orderly market develops,
if ever, in our common stock, the price at which it trades may fluctuate
significantly. Prices for our common stock will be determined in the marketplace
and may be influenced by many factors, including the depth and liquidity of the
market for shares of our common stock, developments affecting the businesses of
Execute Sports generally, including the impact of the factors referred to in
"Risk Factors," on page 10 above, investor perception of Execute Sports and
general economic and market conditions. No assurances can be given that an
orderly or liquid market will ever develop for the shares of our common stock.
Shares of common stock distributed to Execute Sports stockholders will be freely
transferable, except for shares of Execute Sports common stock received by
persons who may be deemed to be "affiliates" of Execute Sports under the
Securities Act of 1933, as amended. Persons who may be deemed to be affiliates
of Execute Sports generally include individuals or entities that control, are
controlled by or are under common control with Execute Sports, and may include
senior officers and directors of Execute Sports, as well as principal
stockholders of Execute Sports. Persons who are affiliates of Execute Sports
will be permitted to sell their shares of common stock only pursuant to an
effective registration statement under the Securities Act or an exemption from
the registration requirements of the Securities Act, such as the exemption
afforded by Section 4(1) of the Securities Act or Rule 144 issued under the
Securities Act.
If securities are sold for the account of an affiliate, the securities may only
be sold in "brokers transactions", and the amount of securities sold, together
with all sales of restricted and other securities of the same class for the
account of the person deemed an affiliate within the preceding three months,
shall not exceed the greater of:
o one percent of the shares or other units of the class outstanding,
or
o the average weekly reported volume of trading in such securities on
all national securities exchanges and/or reported through the
automated quotation system of a registered securities association
during the four calendar weeks preceding the filing of notice, or
o the average weekly volume of trading in such securities reported
through the consolidated transaction reporting system during the
four-week period.
We will endeavor to apply to have our shares of common stock listed and traded
on the OTC Bulletin Board. Execute Sports, however, cannot give any assurances
as to whether it will be successful in having its shares listed on the OTC
Bulletin Board.
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with our financial statements and
related notes included elsewhere in this prospectus. This discussion contains
forward-looking statements that involve risks, uncertainties and assumptions.
Our actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors discussed in "Risk
Factors" and elsewhere in this prospectus.
Overview
Execute Sports Inc. is a premier, branded consumer products company with
targeting its "Execute Sports", "White Rapids" and "Water Skeeter" branded
apparel, graphics kits, and sportswear to the Power Sports and Action Sports
markets. In addition to its branded products, the Company also licenses leading
brands such as NASCAR and EagleRider, Inc. to provide a line of products for the
retail market for sports racing and Harley Davidson enthusiasts, respectively.
The Company derives its revenue primarily from the design, manufacturing and
retail sales of its "Execute Sports" branded products into two business
segments: waters sports and motor sports. In the water sports segment, the
majority of our revenue is from the sales of wetsuits, rash guards, life jackets
and ancillary products to the wakeboarding market. We also private label these
products to select customers. In the motor sports segment, the majority of our
revenue is from the sales of graphics kits, seat covers and number plates for
leading Motorcycle brands including Honda, Kawaski, Suzuki, KTM and Yamaha.
Execute Sports intends to continue to leverage its existing operations and to
complement and diversify its product offerings within the sporting goods and
recreational products industries. We intend to implement our internal growth
strategy by continuing to improve operating efficiencies, extending its product
offerings through new product launches and maximizing its extensive distribution
channels. In addition, we will seek strategic acquisitions of other Power Sports
and Action Sports companies with well-established brands and with complementary
distribution channels.
Our ability to service and expand existing distribution channels both domestic
and internationally, as well as open new distribution channels is key to our
revenue growth. General economic and industry conditions could also affect our
revenue performance.
Summary of Significant Accounting Principles
Basis of Presentation
The financial statements include the accounts of Execute Sports, Inc. under the
accrual basis of accounting.
Accounting estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Accounts receivable
The Company has entered into a factoring agreement with Benefactors, Inc. In the
agreement Benefactors, Inc. will provide account receivable financing and
factoring to the Company. Benefactors, Inc. will purchase from the Company the
accounts receivable and may pay a portion of the purchase price, or lend money
to the Company based upon accounts receivable of the Company.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined using
the average costing method. Management performs periodic assessments to
determine the existence of obsolete, slow moving and non-salable inventories,
and records necessary provisions to reduce such inventories to net realizable
value.
Property and equipment
Property and equipment are stated at cost. Major renewals and improvements are
charged to the asset accounts while replacements, maintenance and repairs, which
do not improve or extend the lives of the respective assets, are expensed. At
the time property and equipment are retired or otherwise disposed of, the asset
and related accumulated depreciation accounts are relieved of the applicable
amounts. Gains or losses from retirements or sales are credited or charged to
income.
Depreciation is provided using the 200% declining balance method. It is
calculated over recovery periods as prescribed by management that range from 5
years for equipment to 7 years for furniture.
Long-lived assets
The Company has adopted Statement of Financial Accounting Standards No. 144
(SFAS 144). The Statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
historical cost-carrying value of an asset may no longer be appropriate. The
Company assesses recoverability of the carrying value of an asset by estimating
the future net cash flows expected to result from the asset, including eventual
disposition. If the future net cash flows are less than the carrying value of
the asset, an impairment loss is recorded equal to the difference between the
asset's carrying value and fair value.
Revenue recognition policy
Revenue from the sale of water sports clothing and apparel, and motorcycle
accessories is recognized when the earning process is complete and the risk and
rewards of ownership have transferred to the customer, which is generally
considered to have occurred upon the shipment to the customer.
Shipping and handling costs
The Company's policy is to classify shipping and handling costs as selling,
general and administrative expenses.
Advertising
The Company expenses all advertising costs as incurred. For the three months
ended March 31, 2005 and 2004 the Company incurred approximately $23,165 and
$22,025 in advertising expenses, respectively.
Loss per common share
The Company adopted Statement of Financial Accounting Standards No. 128 that
requires the reporting of both basic and diluted earnings (loss) per share.
Basic loss per share is calculated using the weighted average number of common
shares outstanding in the period. Diluted loss per share includes potentially
dilutive securities such as outstanding options and warrants, using the
"treasury stock" method and convertible securities using the "if-converted"
method. There were no adjustments required to net loss for the period presented
in the computation of diluted earnings per share.
Issuance of common stock
The issuance of common stock for other than cash is recorded by the Company at
management's estimate of the fair value of the assets acquired or services
rendered.
Comprehensive loss
The Company adopted Financial Accounting Standards Board Statement of Financial
Standards No. 130, "Reporting Comprehensive Income", which establishes standards
for the reporting and display of comprehensive income and its components in the
financial statements. There were no items of comprehensive income (loss)
applicable to the Company during the periods covered in the financial
statements.
Income taxes
On November 1, 2004, the Company amended its Articles of Incorporation to make
the transition from an S-Corporation to a C-Corporation. Prior to that the S
Corporation was not a tax paying entity for federal or state income tax purposes
and thus no provision for income taxes was recognized. Subsequent to the change
the Company began recognizing the full valuation for deferred tax assets (See
Note E).
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Results of Operations for the Three Months Ended March 31, 2005 and March 31,
2004
Three Months Ended
March 31,
-------------------------
2005 2004
---------- ----------
REVENUES
Sales $ 639,610 $ 618,797
Cost of sales 425,784 378,396
---------- ----------
Gross profit 213,826 240,401
EXPENSES
General and administrative expenses 94,529 41,818
Selling and advertising 31,997 71,974
Depreciation expense 1,488 1,546
---------- ----------
Total expense 128,014 115,338
Loss from operations 85,812 125,063
OTHER INCOME AND EXPENSES
Interest income
Interest expense (20,447) (64,772)
---------- ----------
Total other income and expenses (20,447) (64,772)
---------- ----------
NET INCOME (LOSS) $ 65,365 $ 60,291
========== ==========
Weighted averge shares outstanding 764,667 0
========== ==========
Earnings per share $ 0.09 $ 0.00
========== ==========
During the three months ended March 31, 2005, the Company achieved revenues of
$639,610 compared with revenue of $618,797 for the same period in 2004. The
increase in revenue was the result in increased orders from a key account and
demand for the Company's watersports products.
For the three months ended March 31, 2005, SG&A expenses increased to $126,526
from $113,792 in the same period last year. The increase in SG&A expenses was
the result of increased selling and advertising expenses to support increasing
demand for the Company's products as well as entrance into new product lines.
The Company achieved net income for the three months ended March 31, 2005 of
$65,365, an increase from the $60,291 in net income achieved for the three month
period ended March 31, 2004. The increase was due to increased sales and
maturing sales channels that did not require start-up fees for the period in
2005.
Financial Condition
From inception to March 31, we incurred an accumulated deficit of $895,651, and
we expect to incur additional losses for the foreseeable future. This loss has
been incurred through a combination of selling and operating expenses supporting
our plans to expand sales and distribution channels, as well as to develop new
products.
We have financed our operations since inception primarily through a combination
of debt and equity financing. During the three months ended March we had a net
increase of cash of $24,239. Total cash resources as of March 31, 2005 were
$29,393, compared with $13,478 at March 31, 2004.
Our available working capital and capital requirements will depend on numerous
factors, including progress in our distribution and sales of our products, the
timing and cost of expanding into new markets, the cost of developing new
products, changes in our existing collaborative and licensing relationships, the
resources that we devote to developing new products and commercializing
capabilities, the status of our competitors, our ability to establish
collaborative arrangements with other organizations, our ability to attract and
retain key employees, our management of inventory and our need to purchase
additional capital equipment.
The Company's Liquidity Plan
Recent operating results give rise to concerns about the Company's ability to
generate cash flow from operations sufficient to sustain ongoing viability.
During the first three months of 2005 and the latter half of 2004, the Company's
cost control strategies focused on managing general and administrative expenses
through keeping headcount growth to a minimum, amongst other things, and
maintaining a focused marketing and sales strategy that leverages existing
channel partnerships. These cost control strategies were the primary reason the
Company was able to produce cash flow from operations.
The Company's need to raise additional equity or debt financing and the
Company's ability to generate cash flow from operations will depend on its
future performance and the Company's ability to successfully implement business
and growth strategies. The Company's performance will also be affected by
prevailing economic conditions. Many of these factors are beyond the Company's
control. If future cash flows and capital resources are insufficient to meet the
Company's commitments, the Company may be forced to reduce or delay activities
and capital expenditures or obtain additional equity capital. In the event that
the Company is unable to do so, the Company may be left without sufficient
liquidity.
In September, 2004 we commenced a private placement to sell up to 7,000,000
shares at a per share cost of $.25. We closed the financing on May 27, 2005, and
received proceeds of $729,500 in connection with the financing.
Off-Balance Sheet Arrangements
At March 31, 2005, the Company had no obligations that would qualify to be
disclosed as off-balance sheet arrangements.
Outlook for Our Business
Due to strong secular trends in the action sports and power sports markets, we
have experienced significant revenue growth since 2002. We anticipate continued
revenue growth in the future due to our planned expansion of products,
distribution channels and our acquisition strategy. Our revenue has grown from
$337,258 in 2002 to $1,393,938 in 2004. Our revenue growth has been and will
continue to be dependent, in part, on our ability to increase production and
respond efficiently to market demand for our products. In addition, we believe
that continued revenue growth is dependent, in part, on growing our distribution
channels and retail points of presence overseas.
We have increased our operating expenses to support the growth in our business
and to develop and market our products. Our wetsuit and graphics products are
our largest expenses and have increased as our revenue has increased. Our
personnel expenses are our next largest expense and consist of salaries,
commissions, benefit plans and other payroll costs. We intend to hire additional
personnel primarily in the areas of sales and marketing to support our
anticipated growth.
Our revenue, profitability and future growth depend not only on our ability to
execute our business plan, but also, among other things, on customer acceptance
of our services, the growth of the paid-search market and competition from other
providers of paid-search technologies and services. See "Risk Factors" for a
more detailed discussion of these and other risks.
Results of Operations for the Years Ended December 31, 2004 and December 31,
2003
During the year ended December 31, 2004, the Company achieved revenues of
$1,384,188 compared with revenue of $726,048 for the year ended December 31,
2003. The increase in sales was the result of increased distribution and market
demand for the Company's products.
For the year ended December 31, 2004 SG&A expenses were $611,723 compared with
SG&A expenses of $295,991 for the year ended December 31, 2003. The increase in
SG&A expenses was the result of increased selling expenses to support the
Company's growth initiatives.
Net loss for the year ended December 31, 2004 was $521,997 as compared with a
net loss of $288,854 for the year ended December 31, 2003. The increase in net
loss was in part due to an increase in SG&A expenses and also due to increases
in interest expenses.
DECSRIPTION OF BUSINESS
Execute Sports, Inc. is a Nevada Corporation incorporated under the name Padova
International USA, Inc. on January 31, 2002. Effective March 15, 2005, the
Company changed its name to Execute Sports, Inc. to more accurately reflect the
nature of its business. The Company is an early-stage business that
manufactures, markets and sells graphics kits, wetsuits, vests and ancillary
products to the power sports industry. The registered office and agent for
service is located at 350 S. Center St. Reno, Nevada 89501-2114 and the phone
number is 1-775-329-7721. The Company's telephone and fax numbers are
1-866-498-5990 and 1-949-498-6122, respectively, and its corporate website is
www.executesports.com .
The Company has international operations, with headquarters in San Clemente,
California and offices in Taipei, Taiwan R.O.C. as well as manufacturing
representatives in Mainland China. Execute Sports' mandate is to design, develop
and distribute the best quality products at the most reasonable prices.
The Company markets its products through a network of independent dealers
located throughout the United States, and through distributors representing
dealers in Europe, Australia, South Africa, Asia and other international
markets. The "Execute Sports" brand name has existed for two years and is
already becoming one of the most widely recognized and respected names in the
power sports industry - specifically, amongst wakeboard and motocross consumers.
Key to the extension of its brand, and the acceptance of its products in the
marketplace is the Company's aggressive marketing strategy which consists in
aligning its brand with leading wakeboard, motocross, NASCAR and Formula 1
athletes. In doing so, the Company establishes brand credibility amongst its
target consumer base and provides its distributors with a greater ability to
push its products through their channels.
Industry Background
Execute Sports, Inc. competes in the "Powersports" industry, which is composed
of motorcycles, personal watercraft (PWC), all-terrain vehicles (ATVs) and
snowmobiles. We estimate that the segments in which Execute Sports competes
(wetsuits, ski/wakeboard vests, graphics kits, accessories and apparel)
represents an addressable market of close to $1 billion in annual sales.
Motocross
Annual sales of off-road motorcycles have doubled in recent years to nearly
500,000, demonstrating more than 25 percent growth on an annual basis. In the
U.S. alone, annual sales are approaching 300,000 units. Last year, the American
Motorcycle Association, the sport's main organizing body, sanctioned 2,844
racing events, the vast majority of those off-road, and this year that number
had already exceeded 3,200. Supercross racing, held in arenas, is second only to
NASCAR racing in attendance, and on television, ESPN's Moto-X freestyle jumping
events are a huge draw to action sports enthusiasts.
The Motorcycle Industry Council (MIC) estimates that there are more than
2,000,000 off-road motorcycles in use at present.
ATV
The worldwide market for ATVs stands at an estimated $5 billion, according to
the Motorcycle Industry Council. The ATV market can be divided into three market
segments, broadly defined. The Recreation/Utility segment (designed for trail
riding, hunting, farming, etc.) is the largest, representing 71 percent of units
sold. Sport ATVs (designed for racing and desert dune riding) represent 21
percent of the volume. Youth ATVs represent the remaining 8 percent.
Watersports
Water skiing and wakeboarding participation are driving sales in the water
sports industry. The growth of wakeboarding has been a `shot in the arm' to the
water sports industry and is one of the few water sports that could be called
"hot."
Wakeboarding has been one of the biggest sports-related phenomena of the past
decade. Once considered an obscure addition to the family of water sports, it
now is recognized as the fastest growing water sport in the world. Last year,
nearly 4 million people worldwide participated in this fast moving sport. More
than 11 million people water ski in the U.S. alone.
According to a recent study by the Sporting Goods Manufacturer's Association,
U.S. sales for water-ski, wakeboard and water sports equipment increased by $22
million. This increase in sales does not take into account increases in the
sales of watercraft.
Growth Strategy
The Company's mission is to create and maintain the leading product and
accessory mix to the burgeoning water sports and motor sports markets. The
following strategies will assist Execute Sports in achieving its growth
initiatives:
Develop an extensive worldwide distribution network. To date, the Company has
established several key distribution relationships in channels throughout the
United States, Great Britain, South Africa and Australia. In order to ensure its
success, Execute Sports must continue to maintain and expand upon its
distribution channels by maintaining a compelling product mix offering supported
by the highest level of quality and sufficient pricing elasticity to incentivize
distribution partners to push its products.
Establish the "Execute Sports" brand through leveraging its association with
world-class athletes. Execute Sports has established several licensing and
sponsorship arrangements with leading athletes in motocross, wakeboarding,
NASCAR and Formula 1 Racing for its "Execute Sports" brand. By doing so, the
Company is able to leverage the broad appeal and awareness of each athlete
amongst its target consumer base for its branded products that are affiliated
with the athletes. Moreover, the affiliation of world-class athletes with its
branded products establishes the greatest level of credibility amongst
consumers. An additional benefit of this strategy is that it provides the
Company's distribution partners the best chances of establishing shelf space for
its products at the retail level.
Establish and maintain position in marketplace as leading low-cost, premium
quality provider. Through its manufacturing resources in Mainland China, Execute
Sports is able to produce the best quality products at the lowest possible
prices. In turn, this provides the Company with the ability to compete with
larger, more established companies on price points.
Leverage the "Cross-Over" characteristic of the marketplace to extend the
"Execute Sports" brand. The action sports market is characterized by
participants that take part in multiple sports. For example, more than 70% of
those who ride off-road motorcycles also participate in wakeboarding. This
crossover is exemplified by the fact that leading manufacturers of motorcycles
including Yamaha and Honda have entered the personal watercraft market.
Execute's decision to produce both motocross and water sports products under its
"Execute Sports" brand will enable it to introduce its water sports line to
"core" motocross participants and its motocross products to "core" water sports
participants.
Identify Synergistic Businesses and Implement Acquisition/Roll-Up Strategy. The
Company believes that the Powersports markets, and in particular, the action
sports segments, are extremely fragmented and that the industry is
consolidating. This is demonstrable by recent acquisition strategies implemented
by market leaders such as K2, Inc. (NYSE:KTO) and Quicksilver (NYSE:ZQK) over
the past few years. Execute Sports has identified and is in discussions with
several businesses that its management believes are extremely synergistic to its
own, and intends to initiate an acquisition/roll-up strategy of a number of
these businesses after its has successfully established itself as a publicly
traded company. The Company believes that this strategy should contribute to
substantially growing the Company's revenues and footprint for the foreseeable
future.
Expand The Company's Line of Products. Large sporting goods retailers and other
key sales channels prefer to work with suppliers that offer a broader selection
of brands and products that span several sports and seasons. Execute Sports
intends to expand its product offerings both organically and through
consolidation that will provide retailers with a "one stop shop" for Powersports
and action sports products.
Competition
Our products are not unique and our competition is made up of companies from
several industries including graphics, wetsuits and apparel. The overwhelming
majority of our competitors are larger than us and have a longer history of
operations and greater financial resources.
The $50 million motorcycle and ATV graphics industry is dominated by a few large
companies including NStyle, One Industries and Factory Effex. The Company has
been establishing a footprint in the graphics market by combining lower price
points and more consistent delivery to its retail points of presence and
distribution channels.
The $1 billion wetsuit, vest and lycra industry is dominated by a few large
companies including O'neil, Rip Curl, Billabong, Quicksilver and Excel. Execute
Sports' strategy for entrance into the marketplace has been to focus on the
wakeboarding and water ski market, which is substantially less competitive. As
with its graphics business, price points and delivery are also integral to the
continued growth of its footprint in the market.
Products
Execute's products include motorcycle accessories such as graphics kits, seat
covers and apparel, as well as water sports products including wet suits,
wakeboard/water ski vests, gear bags, and accessory products to media, sport
specific, sportswear, and licensed merchandise outlets.
MX & ATV Graphics
Execute has designed "works kits" (includes graphics, fender kit and grip seat)
and "team kits" (includes graphics, fender kit, grip seat, backgrounds and
numbers) for each of the leading manufacturers including Honda, Yamaha, Suzuki,
Kawasaki and KTM. The Company has also created graphics kits for Honda and
Yamaha ATVs.
Wetsuits & USCG Approved Ski/Wakeboard Vests
Execute's wetsuit line includes spring suits, full suits, rash guards, shorts,
water sports gloves and booties for men, women and youth. The Company has also
developed US Coast Guard approved vests and competition vests for men, women and
youth.
Pro Rider Graphic Kits
Execute has created pro rider graphics kits that include two 12x20" 4mm Die-Cut
Vinyl Sheets of Stickers and a 12x20" Color Glossy Photo of featured world-class
wakeboard athletes including: Parks Bonifay, Scott Byerly, Brett Eisenhauer,
Thomas Horrell, Keith Lyman, Cobe Mikacich, Shaun Murray, Gregg Necrason, Erik
Ruck, Josh Sanders, Darin Shapiro and Daniel Watkins.
Gear Bags and Ancillary Goods
Execute designs and distributes wakeboard/snowboard travel bags, motocross gear
bags and multi-sport travel bags. The Company also intends to support and build
its "Execute Sports" brand through the design, manufacturing and distribution of
hats, shirts and other "Execute" - branded goods.
Sales and Distribution
The Company's products are currently sold through an extensive network of
independent dealers located throughout the United States, and through
distributors representing dealers in Europe, South Africa, Australia and other
international markets. To promote new dealerships and to service its existing
dealer network, the Company also contracts on an independent basis with sales
representatives throughout the United States to represent the Company and its
products.
Through its direct efforts, as well as through independent sales
representatives, Execute has established distribution to more than 200 retail
stores in the United States, including Cycle Gear, Bass Pro, Galyan's, GI Joes,
Bart's, Ski World, Performance, Ski Masters and Active. Worldwide, Execute
Sports relies on strategic distribution partnerships to establish retail
channels. Management believes the Company's relationship with its distributors
will be a major strength.
The Company utilizes exclusive distributors outside the United States to take
advantage of their knowledge and experience in their respective markets and to
increase market penetration of the Company's products. Each distributor is
subject to a distribution agreement that stipulates an exclusive territory for a
term ranging from one to three years with specified minimum sales and service
requirements for their territory.
DIRECTORS EXECUTIVE OFFICERS, PROMOTERS CONTROL PERSONS
Prior to the consummation of this Offering, the executive officers and directors
of the Company will be as follows:
Name Age Position
- --------------------------------------------------------------------------------
Scott Swendener 48 Vice-President
Don Dallape 46 President, Chief Executive Officer & Chairman
Geno Apicella 40 Vice President, Watersports
Sheryl Gardner 43 Financial Controller
Todd M. Pitcher 37 Director
Craig Washington 42 Director
Background of Officers and Directors
Scott Swendener, 48, completed his education at the University of California at
Los Angeles in 1978. He was a licensed California building contractor for 12
years and began his career in the apparel industry. He has an extensive
worldwide sourcing background with substantial expertise in consulting and
production of full package apparel programs to large retailers such as Galyan's,
Limited, Dick's Sporting Goods, Sports Authority and Big 5 Sporting Goods. Scott
also brings extensive knowledge and experience in manufacturing both hard and
soft goods.
Don Dallape, 46, started in the apparel industry in 1986 after completing his
education at San Diego State University. Since then, he has provided services in
marketing and manufacturing for leading companies such as Sony Signatures, JEM
Sportswear, Walt Disney Corp., Quicksilver, O'Neil, Bear Surf and a number of
other leading businesses operating in the action sports lifestyle marketplace.
Geno Apicella, 40, was graduated from San Francisco State University in 1983. He
was the Executive Vice President of Zakk Sports, which held the water sports
license for "Hang 10" for almost a decade. Geno's innovative designs in wetsuits
and ski vests are currently present in the marketplace today. He is responsible
for the marketing, design and distribution for all watersports products at the
company.
Sheryl Gardner, 43, completed her education at the University of Alabama,
Tuscaloosa in 1985. Sheryl brings more than two decades experience and expertise
in contract and forensic accounting.
Todd M. Pitcher, 37, Mr. Pitcher is currently the Chairman of Superclick, Inc.,
a publicly traded provider of IP management solutions and sits on the board of
directors of a number of other early stage companies. Mr. Pitcher has several
years experience in the investment banking, business consulting and equity
research, serving as Director of Equity Research at Equity Securities in Golden
Valley, Minnesota and several other regional investment banking firms. Mr.
Pitcher has a B.A. in Philosophy from the University of California at Berkeley
and has attended graduate school at the University of California at Santa
Barbara and Claremont Graduate School.
Craig Washington , 42, is a licensed CPA and Real Estate Broker. Prior to
founding the real estate firm where he is currently a principal, Washington &
Associates, Mr. Washington served as an accountant at Arthur Anderson. Mr.
Washington was graduated from San Francisco State University in 1984.
Code of Ethics.
The Company has adopted a Code of Ethics and Business Conduct which applies to
our principal executive and financial officers and other senior management
(including our principal accounting officer, controller and persons performing
similar functions). A copy of the Code of Ethics is included as an exhibit to
this registration statement. The Company will provide a copy of its Code of
Ethics to any person making a request for a copy of the Code of Ethics in
writing by first class mail addressed to the President of the Company.
Conflicts of Interest Between Management.
There are no family relationships or understandings between any of the directors
and executive officers of the Company. In addition, there was no arrangement or
understanding between any executive officer and any other person pursuant to
which any person was selected an executive officer.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Capitalization. The Company only has one class of equity security outstanding as
described herein.
Security Ownership of Management. The following table sets forth certain
information regarding beneficial ownership of the Company's common and preferred
stock as of the date of this prospectus by (i) each person known by us to be the
beneficial owner of more than 5 percent of the outstanding common stock, (ii)
each director, (iii) each executive officer, and (iv) all executive officers and
directors as a group. The number of shares beneficially owned is determined
under the rules promulgated by the SEC, and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under those rules,
beneficial ownership included any shares as to which the individual has sole or
shared voting power or investment power and also any shares which the individual
has the right to acquire within 60 days of the date hereof, through the exercise
or conversion of any stock option, convertible security, warrant or other right.
Including those shares in the tables does not, however, constitute an admission
that the named stockholder is a direct or indirect beneficial owner of those
shares. Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power (or shares that power with that person's
spouse) with respect to all shares of capital stock listed as owned by that
person or entity. Unless otherwise indicated, the address of each of the
following persons is 1284 Puerta Del Sol, Suite 150, San Clemente, CA 92673,
Tel: 949-498-5990, Fax: 949-498-6122.
Common Stock
- ------------------------------------------------------------------------------------------------
Beneficial Ownership Before Offering Beneficial Ownership After Offering (1)
- ------------------------------------------------------------------------------------------------
Shareholder Shares Percent Shares Percent
- ------------------------------------------------------------------------------------------------
Don Dallape 2,500,000 15.97% 2,500,000 13.0%
- ------------------------------------------------------------------------------------------------
Scott Swendener 2,500,000 15.97% 2,500,000 13.0%
- ------------------------------------------------------------------------------------------------
Geno Apicella 2,500,000 15.97% 2,500,000 13.0%
- ------------------------------------------------------------------------------------------------
Todd M. Pitcher 400,000 2.5% 400,000 2.0%
- ------------------------------------------------------------------------------------------------
Total 7,900,000 50.49% 7,900,000 41.11%
- ------------------------------------------------------------------------------------------------
(1) Assumes Maximum Subscription
Preferred Stock
- ------------------------------------------------------------------------------------------------
Beneficial Ownership Before Offering Beneficial Ownership After Offering (1)
- ------------------------------------------------------------------------------------------------
Shareholder Shares Percent Shares Percent
- ------------------------------------------------------------------------------------------------
None Outstanding -- -- -- --
- ------------------------------------------------------------------------------------------------
(1) Assumes Maximum Subscription
The remainder of this page is left intentionally blank.
EXECUTIVE COMPENSATION
Director and Officer Compensation. The members of our board of directors who are
not our employees are reimbursed for travel, lodging and other reasonable
expenses incurred in attending board and committee meetings. Board members do
not receive cash compensation for attending board and committee meetings.
The following table sets forth, for the last two fiscal years, the compensation
earned for the services rendered in all capacities by the Company's executive
officers serving as such at the end of 2004. The individuals in the table will
be hereinafter referred to as the "Named Officers."
Summary Compensation Table
- ------------------------------------------------------------------------------------------------
Long-Term
Compensation All Other
Awards Compensation
Securities
- ------------------------------------------------------------------------------------------------
Other Annual
Name and Principle Position Year Salary Bonus Compensation
- ------------------------------------------------------------------------------------------------
Don Dallape 2005 $132,000 -- --- 2,500,000
President, Chief Executive Officer 2004 -- -- --- ----
2003 -- -- --- ----
- ------------------------------------------------------------------------------------------------
Scott Swendener 2005 $72,000 -- --- 2,500,000
Vice-President 2004 -- -- --- ----
2003 -- -- --- ----
- ------------------------------------------------------------------------------------------------
Geno Apicella 2005 $72,000 -- --- 2,500,000
Vice President 2004 -- -- --- ----
2003 -- -- --- ----
- ------------------------------------------------------------------------------------------------
Options and Stock Appreciation Rights
We currently do not have any stock option plan for executive officers in place.
Long Term Incentive Plan Awards
No long term incentive plan awards were made to any of our executive officers
during the last fiscal year.
Executives' Compensation Policies
Compensation of our executives is intended to attract, retain and award persons
who are essential to the corporate enterprise. The fundamental policy of our
executive compensation program is to offer competitive compensation to
executives that appropriately rewards the individual executive's contribution to
corporate performance. The board of directors utilizes subjective criteria for
evaluation of individual performance and relies substantially on our executives
in doing so. The Board focuses on two primary components of our executives
compensation program, each of which is intended to reflect individual and
corporate performance: base salary and long-term incentive compensation.
Executives' base salaries are determined primarily by reference to compensation
packages for similarly situated executives of companies of similar size or in
comparable lines of business with whom we expect to compete for executive talent
and with reference to revenues, gross profits and other financial criteria. The
Board also assesses subjective qualitative factors to discern a particular
executive's relative value to the corporate enterprise in establishing base
salaries.
It is the Board's philosophy that significant stock ownership by management
creates a powerful incentive for executives to build long-term shareholder
value. Accordingly, the board believes that an integral component of executive
compensation is the award of equity-based compensation, which is intended to
align executives' long-term interests with those of our shareholders. The board
believes that option grants should be considered on an annual basis.
Employment Agreements
Don Dallape. Mr. Dallape's employment with us is governed by an employment
agreement which provides for a base salary at the rate of one hundred and thirty
two thousand ($132,000.00) per year under employment. In addition to his base
salary, Mr. Dallape has been granted 2,500,000 shares of the Company's
restricted common stock. The Company may also provide Mr. Dallape with bonuses
in cash or other compensation.
Scott Swendener. Mr. Swendener's employment with us is governed by an employment
agreement which provides for a base salary at the rate of seventy two thousand
($72,000.00) per year under employment. In addition to his base salary, Mr.
Swendener has been granted 2,500,000 shares of the Company's restricted common
stock. The Company may also provide Mr. Swendener with bonuses in cash or other
compensation.
Geno Apicella. Mr. Apicella's employment with us is governed by an employment
agreement which provides for a base salary at the rate of seventy two thousand
($72,000.00) per year under employment. In addition to his base salary, Mr.
Apicella has been granted 2,500,000 shares of the Company's restricted common
stock. The Company may also provide Mr. Apicella with bonuses in cash or other
compensation.
Employees
As of the date of this prospectus, Execute Sports had five employees. Management
believes that its relationship with its employees is good. The Company believes
that additional employees may be required in the near future.
DESCRIPTION OF PROPERTY
The business and operations of the Company are currently conducted at the
following location:
Location Approximate Square Feet Date Current Monthly Rent
Lease Expires
- ---------------------------------------------------------------------------------------------
1284 Puerta Del Sol Suite 150 8,883 March, 2006 $6,395.99
CERTAIN RELATIONSHIPS AND PARTY RELATED TRANSACTIONS
We have described below transaction in the last two years between Execute Sports
and an officer, director, 5% stockholder or any of their immediate family
members that have been entered. For information about compensation paid in
connection with employment or Board service for Named Officers and directors,
see "Executive Compensation" beginning on page 34.
Related Party Transactions.
In 2003, the Company issued unsecured promissory Notes (the "Notes") bearing 2%
interest per month to Don Dallape and Scott Swendener, two of our executive
officers, each of whom was also one of our directors, who provided financing to
our Company in the aggregate principle amount of $585,762.
In 2004, the Company issued additional unsecured promissory Notes (the "Notes")
bearing 2% interest per month to Don Dallape and Scott Swendener who provided
financing to our Company in the aggregate principle amount of $92,353.
Later in 2004, all of the Notes issued to Don Dallape and Scott Swendener were
converted to outside, non-affiliated individuals to the Company. In February
2005, the Notes were renegotiated by the Company to bear 2% annual interest, and
all unpaid back interest totaling $104,232,54 will be converted to the Company's
common stock at $.25 per share, or 4 shares for each unpaid $1.00 of interest.
Each of the restructured notes is included in the Exhibit section of this
Registration Statement.
In 2004, the Company entered into a Consulting Agreement with Todd M. Pitcher,
one of the Company's directors, to provide business consulting services on an
ongoing basis to the Company. Such services include the maintaining of corporate
minutes and related administrative documentation, shareholder recordkeeping,
debt restructuring and distribution of shareholder reports. The Consulting
Agreement commenced in August, 2004 remains in effect until August, 2006. Under
the terms of the Agreement the Company will pay Mr. Pitcher at a rate of
$2,000.00 per month and a grant of 400,000 shares of the Company's restricted
Common Stock.
SELLING SHAREHOLDERS
The Company is registering the shares, in part, on behalf of the Company's
current shareholders and the Company. The Company will pay all costs, expenses
and fees related to the registration, including all registration and filing
fees, printing expenses, fees and disbursements of its counsel, blue sky fees
and expenses. The Company will not offer any shares on behalf of any selling
shareholder.
This prospectus relates, in part, to the continued offering of 6,679,350- shares
of our common stock by the persons listed below under the heading "Selling
Shareholders". None of the Company's shareholders are required to sell their
shares, nor has any shareholder indicated to the Company, as of the date of this
prospectus, an intention to sell his, her or its shares. Any shares offered by
current selling shareholders were acquired in private placement transactions.
Any selling shareholders are offering the common stock for their own accounts.
Any material relationship between the Company and a shareholder is identified
below in the footnotes to the table of stockholders. The Company's shareholders
are under no obligation to sell all or any portion of their shares. Particular
shareholders may not have a present intention of selling their shares and may
sell less than the number of shares indicated.
For purposes of illustration only, the following table assumes that all of the
Company's shareholders will sell all of their shares. Alternatively, the current
shareholders may choose not to sell any shares current held by them, or they may
sell some lesser portion of their holdings. In these three possible
circumstances, respectively, the selling shareholders would then own no shares
in the Company, all of the shares they currently hold in the Company, or some
number of shares less than the number of shares they currently hold in the
Company.
The following table sets forth the number of shares of the common stock owned by
the selling stockholders as of January 21, 2004 and after giving affect to this
offering.
Shares Issued in Connection with September 8, 2004 Private Placement
Name Shares beneficially Number of outstanding Percentage of beneficial
owned before offering shares offered by selling ownership after offering
shareholder
- ----------------------------------------------------------------------------------------------------------------
Victor Varela 20,000 20,000 *
Chris Loriditch 4,000 4,000 *
Mary Lou Manson 2,000 2,000 *
Craig Washington 20,000 20,000 *
Joseph Szlammik 4,000 4,000 *
Erik Hagestedt 4,000 4,000 *
William J. Paolantonio 4,000 4,000 *
Rebecca A. Paolantonio 4,000 4,000 *
Michael A. Paolantonio 4,000 4,000 *
Jonathan Lopez 4,000 4,000 *
Andrew Shlapak 1,000 1,000 *
Ron Kumiesky 10,000 10,000 *
David Shlapak 1,000 1,000 *
Mathew Lopez 4,000 4,000 *
Veronica Lopez 4,000 4,000 *
Dwayne C. Kirkwood 4,000 4,000 *
Sascha Schneider 16,000 16,000 *
Chester Spirlin 8,000 8,000 *
Thomas S. Bridges 200,000 200,000 1.04%
Robert C. Bridges 160,000 160,000 *
Radosveta Rizzo 400,000 400,000 2.08%
Casey Smart 50,000 50,000 *
Joe Spadafore 40,000 40,000 *
Coastal Asset Mgt. 100,000 100,000 *
Brad Stuit 400,000 400,000 2.08%
Ben Johnson 100,000 100,000 *
Beatrice Anne Rizzo 320,000 320,000 1.66%
Electronic Relationship
Marketing Solutions, Inc. 320,000 320,000 1.66%
Florian Zuniga 50,000 50,000 *
InterInvest LLP 200,000 200,000 1.04%
Frank Hoffman 40,000 40,000 *
Lawrence Isen 100,000 100,000 *
Marcus New 100,000 100,000 *
Franz Joseph 80,000 80,000 *
Sam Maywood 100,000 100,000 *
Alex London 40,000 40,000 *
Total 2,918,000 2,918,000 15.18%
Shares Issued in Connection with Business Related Expenses
Name Shares beneficially Number of outstanding Percentage of beneficial
owned before offering shares offered by selling ownership after offering
shareholder
- ----------------------------------------------------------------------------------------------------------------
Ron & Dori Arko 25,492 12,746 *
Sheryl Gardner(1) 556,000 278,000 2.89%
Mrywood & Coral Guy 9,374 4,686 *
Ty Guy 7,441 3,720 *
John Helms 109,196 54,598 *
New Heart Ministries 35,200 17,600 *
Michael L. Corrigan 100,000 30,000 *
Sundar Communications
Group, Inc. 700,000 700,000 3.64%
Crail Capital SA 700,000 700,000 3.64%
Valley Financial Corp. 750,000 750,000 3.90%
Blue Water Capital 750,000 750,000 3.90%
EGA, LLC 250,000 250,000 1.30%
Faber West Construction 120,000 120,000 *
Chris Martin 40,000 40,000 *
Stephen Carter 400,000 25,000 *
Cobe Mikacich 200,000 25,000 *
Total 4,752,703 3,761,350 24.7%
(1) Ms. Gardner is a controller of the Company.
Selling shareholders may sell their shares to purchasers from time to time
directly by and subject to the discretion of the selling shareholders. The
selling shareholders may, from time to time, offer their securities for sale
through underwriters, dealers, or agents, who may receive compensation in the
form of underwriting discounts, concessions, or commissions from the selling
shareholders and/or the purchasers of the securities for whom they may act as
agents.
As of the date of this prospectus, the Company has no information on the manner
or method by which any selling shareholder may intend to sell shares.
The securities sold by the selling shareholders may be sold from time to time in
one or more transactions at an offering price that is fixed or that may vary
from transaction to transaction depending upon the time of sale or at prices
otherwise negotiated at the time of sale. Such prices will be determined by the
selling shareholders or by agreement between the selling shareholders and any
underwriters.
Any underwriters, brokers, dealers, or agents who participate in the
distribution of the securities may be deemed to be "underwriters" under the
Securities Act, and any discounts, commissions, or concessions received by any
such underwriters, dealers, or agents may be deemed to be underwriting discounts
and commissions under the Securities Act. Accordingly, any commission, discount
or concession received by them and any profit on the resale of the shares
purchased by them may be deemed to be underwriting discounts or commissions
under the Securities Act. Because the selling shareholders may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act, the
selling shareholders will be subject to the prospectus delivery requirements of
the Securities Act. Each selling shareholder has advised the Company that the
stockholder has not yet entered into any agreements, understandings or
arrangements with any underwriters or broker-dealers regarding the sale of the
shares.
The selling shareholders have agreed to sell the shares only through registered
or licensed brokers or dealers if required under applicable state securities
laws. In addition, in certain states the selling shareholders' shares may not be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from registration or qualification is available and has
been complied with by the selling shareholder.
The sale of the selling shareholders' shares may be affected from time to time
in transactions, which may include block transactions, in:
o the over-the-counter market;
o in negotiated transactions; or
o a combination of such methods of sale or otherwise.
Sales may be made at fixed prices that may be changed, at market prices
prevailing at the time of sale, or at negotiated prices. Selling shareholders
may effect such transactions by selling their securities directly to purchasers:
o through broker-dealers acting as agents; or
o to broker-dealers who may purchase shares as principals and
thereafter sell the securities from time to time in the market in
negotiated transactions or otherwise.
Broker-dealers, if any, may receive compensation in the form of discounts,
commissions, or concessions and/or the purchasers from whom such broker-dealers
may acts as agents or to whom they may sell as principals or otherwise, which
compensation as to a particular broker-dealer may exceed customary commissions.
If any of the following events occurs, the Company will amend this prospectus to
include additional disclosure before the selling shareholder makes offers and
sales of their shares:
o to the extent such securities are sold at a fixed price or by option
at a price other than the prevailing market price; such price would
be set forth in this prospectus;
o if the securities are sold in block transactions and the purchaser
wishes to resell; such arrangements would be described in this
prospectus;
o if a compensation paid to broker-dealers is other than usual and
customary discounts, commissions, or concessions, disclosure of the
terms of the transaction would be included in this prospectus.
This prospectus would also disclose if there are other changes to the stated
plan of distribution, including arrangements that either individually or as a
group would constitute an orchestrated distribution of the selling shareholders'
shares.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the selling shareholders' shares may not
simultaneously engage in market making activities with respect to any securities
of the Company for a period of at least two (and up to nine) business days
before beginning such distribution. In addition, each selling shareholder
desiring to sell shares will be subject to the applicable provisions of the
Exchange Act and the rules and regulations thereunder, including, without
limitation, Regulation M, which provisions may limit the timing of the purchases
and sales of shares of the Company' securities by such selling shareholders.
None of the selling shareholders are presently "brokers" or "dealers" within the
meaning of Sections 2(4) or 2(5), respectively, of the Securities Act.
LEGAL PROCEEDINGS
As of the date of this Offering, the Company is not party to any lawsuits or
legal proceedings, the adverse outcome of which, in management's opinion,
individually or in the aggregate, would have a material adverse affect on the
Company's results of operations and financial position, and has no knowledge of
any threatened or potential lawsuits or legal proceedings against the Company.
DESCRIPTION OF SECURITIES
The Certificate of Incorporation ("Certificate") and Bylaws of the Company have
recently been approved by the Board of Directors and the majority Shareholders
of the Company. The following description of the Company's Certificate and
Bylaws is only a summary of certain significant provisions of these documents
and Nevada law. For a complete description of the rights and preferences of the
capital stock of the Company, please contact the Company to review the Bylaw of
the Company.
Authorized Capital Stock
The authorized capital stock of the Company consists of 100,000,000 shares, of
which, 90,000,000 shares are common stock, $.001 par value per share (the
"Common Stock") and 10,000,000 shares are preferred stock, $.001 par value per
share (the "Preferred Stock"). The authorized shares of Preferred Stock, as well
as shares of Common Stock, are available for issuance without further action by
shareholders of the Company.
Common Stock
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of shareholders and do not have cumulative voting
rights. Holders of Common Stock are entitled to receive ratably such dividends,
if any, as may be declared by the Board of Directors out of funds legally
available therefore, subject to any preferential dividend rights, if any of
outstanding Preferred Stock. Upon the liquidation, dissolution or winding-up of
the Company, the holders of Common Stock are entitled to receive ratably the net
assets of the Company available after the payment of all debts and other
liabilities and subject to the prior rights of the Preferred Stock. Holders of
the Common Stock have no preemptive, subscription, redemption or conversion
rights. The rights, preferences and privileges of holders of Common Stock are
subject to, and may be adversely affected by, the rights of the holders of
shares of any series of Preferred Stock, which the Company has or may designate
and issue in the future.
Preferred Stock
General. The Board of Directors of the Company is authorized, subject to certain
limitations prescribed by law, without further shareholder approval, to issue
from time to time up to an aggregate of 10,000,000 shares of Preferred stock in
one or more series and to fix or alter the designations, preferences, rights and
any qualifications, limitations or restrictions of the shares of each such
series, including the dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption price or prices, liquidation preferences
and the number of shares constituting any series or designation of series.
Restrictions on Transfer of Securities
The Shares purchased by Investors in this Offering will be subject to
restrictions on transfer. The Shares have not been registered under the
Securities Act and must be held indefinitely unless a transfer of the Shares is
subsequently registered or an exemption from such registration is available. The
Shares may not be transferred unless (i) there is in effect a registration
statement under the Securities Act covering the proposed disposition and such
disposition is made in accordance with such registration statement; (ii) the
holder of such Shares had notified the Company of such disposition and, if
reasonably requested by the Company, such holder has furnished the Company with
an opinion of counsel, reasonable satisfactory to the Company, that such
disposition will not require registration under the Securities Act; or (iii) the
Shares are sold pursuant to Rule 144 or Rule 144A of the Securities Act. The
Shares will bear a legend setting forth these restrictions on transfer as well
as any additional legends required by state securities laws.
Indemnification of Officers and Directors
The Company's Articles of Incorporation and Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted under
Nevada law. The Board of Directors are exploring the advisability of obtaining
an insurance policy covering officers and directors for claims made that such
officers and directors may otherwise be required to pay for or for which the
Company is required to indemnify them, subject to certain exclusions.
Insofar as indemnification by the Company for liability arising under the Act
may be permitted to director, officers and controlling persons of the Company
pursuant to provisions of the Articles of Incorporation and Bylaws, or
otherwise, the Company has been advised that in the opinion of the SEC, such
indemnification is against public policy and is, therefore, unenforceable. In
the event that a claim for indemnification by such director, officer or
controlling person of the Company 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 offered, the Company 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 act and will
be governed by the final adjudication of such issue.
At present time, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding which may result in a claim for such
indemnification.
Reports to Shareholders
We intend to furnish shareholders with annual reports containing audited
financial statements and such other periodic reports as we may determine to be
appropriate or as may be required by law. Upon the effectiveness of this
Registration Statement, we will be required to comply with periodic reporting,
proxy solicitation and certain other requirements by the Securities Exchange Act
of 1934. 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. The SEC maintains and Internet site that contains
reports, proxy and information statements, and other information regarding us at
the SEC website (http://www.sec.gov).
INTEREST OF NAMED EXPERTS AND COUNSEL
The financial statements of Execute Sports, Inc. as of and for the year ended
December 31, 2004 and for the quarter ended March, 31, 2005 appearing in the
prospectus and registration statement have been audited by Bedinger & Company,
independent accountants, to the extent and for the periods indicated in their
report appearing herein, which report expresses an unqualified opinion and are
included in reliance upon such report and upon authority of such Firm as experts
in accounting and auditing.
Michael L. Corrigan, attorney at law, 4275 Executive Square, Suite 215, La
Jolla, CA 92037, has rendered an opinion that the shares of common stock of
Execute Sports being registered hereunder were, when sold, legally issued, fully
paid and nonassessable under the Nevada Law. None of the above experts or
counsel has any undisclosed interest in the Company or this offering.
TRANSFER AGENT AND REGISTRAR
The Company's transfer agent is First American Stock Transfer, Inc. located at
706, East Bell Road, Suite #202, Phoenix, Arizona 85022 and its phone number is
1-602-485-1346.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
At present, our securities are not traded publicly. There is no assurance that a
trading market will develop, or, if developed, that it will be sustained. We
plan to seek listing on the OTC Bulletin Board once our registration statement
has been declared effective by the Securities and Exchange Commission. We cannot
guarantee that we will obtain a listing. A market maker sponsoring a company's
securities is required to obtain a listing of the securities listed on any of
the public trading markets, including the OTC Bulletin Board. If we are unable
to obtain a market maker for our securities, we will be unable to develop a
trading market for our common stock. We may be unable to locate a market maker
that will agree to sponsor our securities. Even if we do locate a market maker,
there is no assurance that our securities will be able to meet the requirements
for a quotation or that the securities will be accepted for listing on the OTC
Bulletin Board.
A purchase of shares may, therefore, find it difficult to resell the securities
offered herein should he or she desire to do so when eligible for public resale.
Furthermore, the shares are not marginable and it is unlikely that a lending
institution would accept our common stock as collateral for a loan.
Pursuant to this registration statement, we propose to publicly offer 10,250,778
shares. To date, none of our outstanding shares of common stock are subject to
outstanding options, warrants to purchase or securities convertible into common
stock. We have not agreed to register shares of common stock held by existing
security holders for resale. We currently have 58 shareholders.
FINANCIAL STATEMENTS
Contents
PAGE
Report of Independent Registered Public Accounting Firm.......................................... F-1
Prior Year Report of Independent Registered Public Accounting Firm............................... F-2
FINANCIAL STATEMENTS
Balance Sheets as of December 31, 2004 and 2003.................................................. F-3
Statements of Operations for the years ended December 31, 2004 and 2003.......................... F-4
Statements of Stockholders' Equity for the years ended December 31, 2004 and 2003............... F-5
Statements of Cash Flows for the years ended December 31, 2004 and 2003.......................... F-6
Notes to the Financial Statements ............................................................... F-7
FINANCIAL STATEMENTS
Balance Sheets as of March 31, 2005 and March 31, 2004........................................... F-16
Statements of Operations for the three months ended March 31, 2005 and 2004...................... F-17
Statements of Stockholder's Equity for the three months ended March 31, 2005 and 2004............ F-18
Statements of Cashflows for the three months ended March 31, 2005 and 2004....................... F-19
Notes to the Financial Statements ............................................................... F-20
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Padova International U.S.A., Inc.
(dba Execute Sports)
We have audited the accompanying balance sheet Padova International U.S.A., Inc.
(dba Execute Sports) (the "Company"), as of December 31, 2004 and the related
consolidated statements of operations, stockholder's equity (deficit) and cash
flows for the year then ended, These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the financial position of Padova
International U.S.A., Inc. (dba Execute Sports) as of December 31, 2004 and the
related consolidated statements of operations, stockholder's equity (deficit),
and cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. However, the Company has suffered
recurring losses from operations that raises substantial doubt about its ability
to continue as a going concern. Management plans in regards to these matters are
also described in Note E. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Bedinger & Company
Certified Public Accountants
Concord, California
February 2, 2005, except
for Note J which
is February 28, 2005
F-1
INDEPENDENT AUDITORS' REPORT
To the Board of Directors:
Padova International U.S.A., Inc.
I have audited the balance sheet of Padova International U.S.A., Inc. as of
December 31, 2003, and the related statements of operations, stockholders'
equity, and cash flows for the years ended December 31, 2003 and 2002. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
our audit.
I conducted my audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I 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. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Padova International U.S.A., Inc.
as of December 31, 2003, and the results of its operations and its cash flows
for the years ended December 31, 2003 and 2002 in conformity with U.S. generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has suffered recurring losses, has
negative working capital, and has yet to generate an internal cash flow that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are described in Note 6. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Traci J. Anderson, CPA
Huntersville, North Carolina
January 11, 2005
F-2
PADOVA INTERNATIONAL U.S.A., INC.
(DBA EXECUTE SPORTS)
Balance Sheets
December 31, 2004 and 2003
- --------------------------------------------------------------------------------
December 31,
-----------------------------
2004 2003
------------ ------------
ASSETS
CURRENT ASSETS
Cash $ 5,154 $ 40,244
Accounts receivable, net 107,708 84,808
Inventory (Note B) 111,741 299,186
------------ ------------
TOTAL CURRENT ASSETS 224,603 424,238
------------ ------------
Fixed assets (Note D)
Cost 35,443 29,037
Accumulated Depreciation (17,197) (9,268)
------------ ------------
Net 18,246 19,769
Deposits 3,560 3,560
------------ ------------
TOTAL ASSETS $ 246,409 $ 447,567
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note C) $ 523,125 $ 300,824
Notes Payable (Note H) 614,800 585,762
------------ ------------
TOTAL CURRENT LIABILITIES 1,137,925 886,586
------------ ------------
COMMITMENT (Note I)
STOCKHOLDERS' EQUITY (Note G)
Common stock, par value $.001, 75,000,000 shares
authorized; issued and outstanding 278,000 and 0
at December 31, 2004 and 2003, respectively 278 --
Additional paid-in capital 69,222 --
Retained earnings (961,016) (439,019)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (891,516) (439,019)
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 246,409 $ 447,567
============ ============
F-3
PADOVA INTERNATIONAL U.S.A., INC.
(DBA EXECUTE SPORTS)
Statements of Operations
For the Years Ended December 31, 2004 and 2003
- --------------------------------------------------------------------------------
December 31,
-----------------------------
2004 2003
------------ ------------
REVENUES
Sales $ 1,384,188 $ 726,048
Cost of sales (1,135,303) (606,729)
------------ ------------
Gross profit 248,885 119,319
------------ ------------
EXPENSES
Selling, general and administrative 611,723 295,991
------------ ------------
Total expense 611,723 295,991
------------ ------------
Loss from operations (362,838) (176,672)
------------ ------------
OTHER INCOME AND EXPENSES
Interest income 2 14
Interest expense 159,161 112,196
------------ ------------
Total other income and expenses (159,159) (112,182)
------------ ------------
NET INCOME (LOSS) $ (521,997) $ (288,854)
============ ============
Weighted averge shares outstanding 84,500 0
============ ============
Loss per share ($ 0.16) $ 0.00
============ ============
F-4
PADOVA INTERNATIONAL U.S.A., INC.
(DBA EXECUTE SPORTS)
Statements of Stockholder's Equity
For the Years Ended December 31, 2004 and 2003
- --------------------------------------------------------------------------------
Common Stock
-------------------------- Additional Total
Number of Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
------------ ------------ ------------- --------------- -----------------
BALANCES
December 31, 2002 -- -- -- (150,165) (150,165)
Net loss (288,854) (288,854)
BALANCES
------------ ------------ ------------- --------------- -----------------
December 31, 2003 -- -- -- (439,019) (439,019)
Shares issued during the period:
Shares issued for
cash (range $0.25 per share) 278,000 278 69,222 69,500
Net loss (521,997) (521,997)
BALANCES
------------ ------------ ------------- --------------- -----------------
December 31, 2004 278,000 $ 278 $69,222 $ (961,016) $ (891,516)
============ ============ ============= =============== =================
F-5
PADOVA INTERNATIONAL U.S.A., INC.
(DBA EXECUTE SPORTS)
Statements of Cash Flows
For the Years Ended December 31, 2004 and 2003
- --------------------------------------------------------------------------------
Year Ended December 31,
-----------------------------
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (521,997) $ (288,854)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation 7,929 6,855
CHANGES IN CURRENT ASSETS AND CURRENT
LIABILITIES: (Net of effect of acquisition)
(Increase) decrease in current liabilities:
Accounts receivable (22,900) (37,568)
Inventory 187,445 (227,924)
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses 222,301 297,078
------------ ------------
NET CASH USED FOR OPERATING ACTIVITIES (127,222) (250,413)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of furniture and equipment (6,406) (16,813)
------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES (6,406) (16,813)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 69,500 --
Related party loan 29,038 271,112
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 98,538 271,112
------------ ------------
NET (DECREASE) INCREASE IN CASH (35,090) 3,886
CASH, beginning of period 40,244 36,358
------------ ------------
CASH, end of period $ 5,154 $ 40,244
============ ============
SUPPLEMENTAL DISCLOSURE:
Taxes paid $ 1,088 $ --
Interest paid $ 108,576 $ 112,196
F-6
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Padova International U.S.A., Inc. (the Company) markets and sells water sports
clothing and apparel and motorcycle accessories. The Company was certified as
incorporated in the State of Nevada officially on March 13, 2002 and filed the
Articles of Incorporation on January 30, 2002.
Summary of Significant Accounting Principles
Basis of Presentation
The financial statements include the accounts of Padova International U.S.A.,
Inc. under the accrual basis of accounting.
Accounting estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Accounts receivable
The Company has entered into a factoring agreement with Benefactors, Inc. In the
agreement Benefactors, Inc. will provide account receivable financing and
factoring to the Company. Benefactors, Inc. will purchase from the Company the
accounts receivable and may pay a portion of the purchase price, or lend money
to the Company based upon accounts receivable of the Company.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined using
the average costing method. Management performs periodic assessments to
determine the existence of obsolete, slow moving and non-salable inventories,
and records necessary provisions to reduce such inventories to net realizable
value.
Property and equipment
Property and equipment are stated at cost. Major renewals and improvements are
charged to the asset accounts while replacements, maintenance and repairs, which
do not improve or extend the lives of the respective assets, are expensed. At
the time property and equipment are retired or otherwise disposed of, the asset
and related accumulated depreciation accounts are relieved of the applicable
amounts. Gains or losses from retirements or sales are credited or charged to
income.
Depreciation is provided using the 200% declining balance method. It is
calculated over recovery periods as prescribed by management that range from 5
years for equipment to 7 years for furniture.
F-7
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-lived assets
The Company has adopted Statement of Financial Accounting Standards No. 144
(SFAS 144). The Statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
historical cost-carrying value of an asset may no longer be appropriate. The
Company assesses recoverability of the carrying value of an asset by estimating
the future net cash flows expected to result from the asset, including eventual
disposition. If the future net cash flows are less than the carrying value of
the asset, an impairment loss is recorded equal to the difference between the
asset's carrying value and fair value.
Revenue recognition policy
Revenue from the sale of water sports clothing and apparel, and motorcycle
accessories is recognized when the earning process is complete and the risk and
rewards of ownership have transferred to the customer, which is generally
considered to have occurred upon the shipment to the customer.
Shipping and handling costs
The Company's policy is to classify shipping and handling costs as selling,
general and administrative expenses.
Advertising
The Company expenses all advertising costs as incurred. For the years ended
December 31, 2004 and 2003 the Company incurred approximately $90,000 and
$30,000 in advertising expenses, respectively.
Loss per common share
The Company adopted Statement of Financial Accounting Standards No. 128 that
requires the reporting of both basic and diluted earnings (loss) per share.
Basic loss per share is calculated using the weighted average number of common
shares outstanding in the period. Diluted loss per share includes potentially
dilutive securities such as outstanding options and warrants, using the
"treasury stock" method and convertible securities using the "if-converted"
method. There were no adjustments required to net loss for the period presented
in the computation of diluted earnings per share.
Issuance of common stock
The issuance of common stock for other than cash is recorded by the Company at
management's estimate of the fair value of the assets acquired or services
rendered.
Comprehensive loss
The Company adopted Financial Accounting Standards Board Statement of Financial
Standards No. 130, "Reporting Comprehensive Income", which establishes standards
for the reporting and display of comprehensive income and its components in the
financial statements. There were no items of comprehensive income (loss)
applicable to the Company during the periods covered in the financial
statements.
F-8
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income taxes
On November 1, 2004, the Company legally amended its Articles of Incorporation
to make the transition from an S-Corporation to a C-Corporation. Prior to that
the S Corporation was not a tax paying entity for federal or state income tax
purposes and thus no provision for income taxes was recognized. Subsequent to
the change the Company began recognizing the full valuation for deferred tax
assets (See Note E).
Impact of accounting standards
In January 2003 the FASB issued Interpretation 46 "Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51". This Interpretation
requires a Company to consolidate the financial statements of a "Variable
Interest Entity" "VIE", sometimes also known as a "special purpose entity", even
if the entity does not hold a majority equity interest in the VIE. The
Interpretation requires that if a business enterprise has a "controlling
financial interest" in a VIE, the assets, liabilities, and results of the
activities of the VIE should be included in consolidated financial statements
with those of the business enterprise, even if it holds a minority equity
position. This Interpretation was effective immediately for all VIE's created
after January 31, 2003; for the first fiscal year or interim period beginning
after June 15, 2003 for VIE's in which a Company holds a variable interest that
it acquired before February 1, 2003. The adoption this interpretation did not
have any impact on the Company's financial condition or results of operations.
In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends SFAS 133 to
provide clarification on the financial accounting and reporting of derivative
instruments and hedging activities and requires contracts with similar
characteristics to be accounted for on a comparable basis. The adoption of SFAS
149 did not have any impact on the Company's financial condition or results of
operations.
In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
establishes standards on the classification and measurement of financial
instruments with characteristics of both liabilities and equity. The adoption of
SFAS 150 did not have any impact on the Company's financial condition or results
of operations.
In December 2003, the FASB issued SFAS 132r, Employers' Disclosures about
Pensions and Other Postretirement Benefits--an amendment of FASB Statements No.
87, 88, and 106. SFAS 132r revises employers' disclosures about pension plans
and other postretirement benefit plans. It does not change the measurement or
recognition of those plans required by FASB Statements No. 87, Employers'
Accounting for Pensions, No. 88, Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and
No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions.
This Statement retains the disclosure requirements contained in FASB Statement
No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits, which it replaces. It requires additional disclosures to those in the
original Statement 132 about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. The adoption of SFAS 132r did not have any impact on the
Company's financial condition or results of operations.
In December 2003, the FASB issued FIN No. 46R, "Consolidation of Variable
Interest Entities." This requires that the assets, liabilities and results of
the activity of variable interest entities be consolidated into the financial
statements of the company that has a controlling financial interest. It also
provides the framework for determining whether an entity should be consolidated
based on voting interest or significant financial support provided to it. The
adoption of FIN No. 46R did not have any impact on the Company's financial
condition or results of operations.
F-9
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In November 2004, the FASB issued SFAS 151, Inventory Costs--an amendment of ARB
No. 43, Chapter 4. The Statement amends the guidance of ARB No. 43, Chapter 4,
Inventory Pricing, by clarifying that abnormal amounts of idle facility expense,
freight, handling costs, and wasted materials (spoilage) should be recognized as
current-period charges and by requiring the allocation of fixed production
overheads to inventory based on the normal capacity of the production
facilities. The adoption of SFAS 151 did not have any impact on the Company's
financial condition or results of operations.
In December 2004, the FASB issued a revision to SFAS 123 (revised 2004),
Share-Based Payment. The revision requires all entities to recognize
compensation expense in an amount equal to the fair value of share-based
payments granted to employees. The statements eliminates the alternative method
of accounting for employee share- based payments previously available under APB
25. The provisions of SFAS 123R are effective as of the first interim period
that begins after June 15, 2005. The Company does not believe that this recent
accounting pronouncement will have a material impact on their financial position
or results of operations.
In December 2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary
Assets-amendment of APB Opinion No. 29". Statement 153 eliminates the exception
to fair value for exchanges of similar productive assets and replaces it with a
general exception for exchange transaction that do not have commercial
substance, defined as transaction that are not expected to result in significant
changes in the cash flows of the reporting entity. This statement is effective
for exchanges of nonmonetary assets occuring after June 15, 2005. The Company
does not believe that this recent accounting pronouncement will have a material
impact on their financial position or results of operations.
Concentrations of credit risk
The Company performs ongoing credit evaluations of its customers. For the year
ended December 31, 2004, four customers individually accounted for 71% of sales
(32%, 15%, 13% and 11%). Three customers represented 85% (48% 22% and 14%) of
accounts receivable for the year ended December 31, 2004.
For the year ended December 31, 2003, four customers individually accounted for
81% of sales (24%, 21%, 20% and 16%) and 92% (42%, 29%, 13%, and 8%) of accounts
receivable.
For the years ended December 31, 2004 and 2003, approximately 18% and less than
1%, respectively, of the Company's net sales were made to customers outside the
United States.
The Company is dependent of third-party manufacturers and distributors for all
of its supply of inventory. For the years ended December 31, 2004 and 2003, the
Company's three largest suppliers accounted for 73% and 73% of product
purchases, respectively. The Company is dependent on the ability of its
suppliers to provide products and services on a timely basis and on favorable
pricing terms. The loss of certain principal suppliers or a significant
reduction in product availability from principal suppliers could have a material
adverse effect on the Company.
The Company estimates that the fair value of all financial instruments at
December 31, 2004 and 2003, as defined in FASB 107, does not differ materially
from the aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is required in interpreting
market data to develop the estimates of fair value, and
F-10
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
NOTE B - INVENTORY
Inventories are comprised of finished goods ready for resale and are stated at
the lower of cost or market, as determined using the average costing method. The
following table represents the major components of inventory at December 31,
2004 and 2003.
- --------------------------------------------------------------------------------
2004 2003
-------- --------
- --------------------------------------------------------------------------------
Finished goods $111,741 $299,186
======== ========
- --------------------------------------------------------------------------------
NOTE C - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31, 2004 and 2003 consist of
the following
2004 2003
---------- ----------
Payables to vendors $ 375,072 $ 300,824
Accrued taxes 8,963 0
Payable to Factor 64,708 0
Accrued interest payable (Note H) 74,382 0
---------- ----------
$ 523,125 $ 300,824
========== ==========
The Company factors its accounts receivable to Benefactor Funding Corp. which
allows the Company to borrow approximately 80% of the invoice amount at an
interest rate of 1.5% per month.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment at December 31, 2004 and 2003 consist of the following:
2004 2003
---------- ----------
Computer and office equipment $ 24,700 $ 21,866
Furniture and fixtures 2,281 2,281
Machinery and equipment 8,462 4,890
---------- ----------
$ 35,443 29,037
Less: Accumulated Depreciation (17,197) (9,268)
---------- ----------
$ 18,246 $ 19,769
========== ==========
Depreciation expense for the years ended December 31, 2004 and 2003 was $7,929
and $6,855, respectively.
F-11
NOTE E - NET OPERATING LOSS CARRY FORWARD
In assessing the ability to realize deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. At December 31, 2004 a
valuation allowance for the full amount of the net deferred tax asset was
recorded because of uncertainties as to the amount of taxable income that would
be generated in future years.
United States Corporation Income Taxes
- --------------------------------------------------------------------------------
Period of Loss Amount Expiration Date
- --------------------------------------------------------------------------------
December 31, 2004 $420,935 December 31, 2024
- --------------------------------------------------------------------------------
Prior to November 2004 the Company was organized as an S-Corporation and all
losses were distributed and recognized through the tax returns of the owners.
NOTE F - GOING CONCERN AND MANAGEMENT'S PLANS
The Company has suffered recurring losses from operations since inception. In
addition, the Company has yet to generate an internal cash flow from its
business operations. These factors give raise substantial doubt about its
ability to continue as a going concern.
Management's plans with regard to these matters encompass the following actions:
1) obtain funding form new investors to alleviate the Company's working
deficiency, and 2) implement a plan to generate sales. The Company's continued
existence is dependent upon its ability to resolve its liquidity problems and
increase profitability in its current business operations. However, the outcome
of management's plans cannot be ascertained with any degree of certainty. The
accompanying financial statements do not include any adjustments that might
result from the outcome of these risks and uncertainty.
NOTE G- STOCKHOLDER'S EQUITY
On September 9, 2004, the Company commenced a limited Private Placement
Memorandum (PPM) to raise up to $1,750,000 through the sale of the Company's
common stock at a price of $0.25 per share. During the year ended December 31,
2004, the Company sold 278,000 shares of common stock for $0.25 per share
totaling approximately $69,500 in cash.
On September 22, 2004, the Company increased its number of authorized shares
from 75,000 to 75,000,000. The par value increased from no par value to $0.001
per share.
During the year ended December 31, 2003, the Company did not issue any stock.
F-12
NOTE H - NOTES PAYABLE
Notes payable at December 31, 2004 and 2003, are as follows:
-----------------------------------------------------------------------
2004 2003
-----------------------------------------------------------------------
Unsecured note payable to Donald A.
Dallape, President, bearing interest at
2% per month due every 30 days. $271,354
-----------------------------------------------------------------------
Unsecured note payable to Scott
Swendener, Vice-President, bearing
interest at 2% per month due every 30
days. 314,408
-----------------------------------------------------------------------
Unsecured demand note payable to Ron and
Dori Arks, bearing interest at 1.5% per
month. 29,800
-----------------------------------------------------------------------
Unsecured demand note payable to Ron and
Dori Arks, bearing interest at 2% per
month. 35,000
-----------------------------------------------------------------------
Unsecured demand note payable to Sheryl
Gardner , bearing interest at 2% per
month. 100,000
-----------------------------------------------------------------------
Unsecured demand note payable to Myrwood
and Coral Guy, bearing interest at 2%
per month. 100,000
-----------------------------------------------------------------------
Unsecured demand note payable to Ty Guy,
bearing interest at 2% per month. 90,000
-----------------------------------------------------------------------
Unsecured demand note payable to John
Helms, bearing interest at 2% per month. 210, 000
-----------------------------------------------------------------------
Unsecured demand note payable to New
Heart Ministries, bearing interest at 2%
per month. 50,000
-----------------------------------------------------------------------
$614,800 $585,762
=========== ===========
-----------------------------------------------------------------------
During 2004, the notes payable to the two officers of the Company were replaced
by notes payable to outside individuals. Also, see Note J regarding subsequent
event.
F-13
NOTE I - COMMITMENT
The Company leases office and warehouse space at a rate of $6,396 per month with
lease terms extending through April 30, 2005. Future lease payments under this
operating lease are as follows:
Year Ending December 31,
2005 25,584
The Company incurred $63,960 and $53,772 in rent expense during the years ended
December 31, 2004 and 2003, respectively.
NOTE J - SUBSEQUENT EVENT
As of February 28, 2005, all of the notes payable outstanding at December 31,
2004, totaling $614,800, were cancelled and a new note payable was issued
accruing interest at 2% per annum until February 28, 2006. At that time, the
remaining outstanding principal balance and all interest accrued but unpaid can
be paid in the Company's common stock at a conversion price of $0.25 per share
for every dollar of interest owed to the note holder. All interest accrued but
unpaid as of February 28, 2005 was converted to the Company's common stock at
the conversion price of $0.25 per share for every dollar of interest owed to the
note holder representing an addition to stockholders' equity of approximately
$104,232. In addition through February 28, 2005, approximately $150,000 worth of
common shares were sold.
F-14
EXECUTE SPORTS., INC.
UNAUDITED FINANCIAL STATEMENTS
THREE MONTHS ENDED
MARCH 31, 2005 AND 2004
F-15
EXECUTE SPORTS, INC.
Balance Sheet
March 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash $ 29,393
Accounts receivable, net 354,538
Inventory (Note B) 167,843
Prepaid expenses 58,340
------------
TOTAL CURRENT ASSETS 610,114
Fixed assets (Note D)
Cost 35,443
Accumulated Depreciation (18,685)
------------
Net 16,758
Deposits 3,560
------------
TOTAL ASSETS $ 630,432
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses (Note C) $ 655,783
Notes Payable (Note H) 628,300
------------
TOTAL CURRENT LIABILITIES 1,284,083
COMMITMENT (Note I)
STOCKHOLDERS' EQUITY (Note G)
Common stock, par value $.001, 75,000,000 shares
authorized; issued and outstanding 968,000 and 0
at March 31, 2005 968
Additional paid-in capital 241,032
Retained earnings (Deficit) (895,651)
------------
TOTAL STOCKHOLDERS' EQUITY (653,651)
------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 630,432
============
F-16
EXECUTE SPORTS, INC.
Statements of Operations
Three Months Ended March 31, 2005 and 2004 (Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
-------------------------
2005 2004
---------- ----------
REVENUES
Sales $ 639,610 $ 618,797
Cost of sales 425,784 378,396
---------- ----------
Gross profit 213,826 240,401
EXPENSES
General and administrative expenses 94,529 41,818
Selling and advertising 31,997 71,974
Depreciation expense 1,488 1,546
---------- ----------
Total expense 128,014 115,338
Loss from operations 85,812 125,063
OTHER INCOME AND EXPENSES
Interest income
Interest expense (20,447) (64,772)
---------- ----------
Total other income and expenses (20,447) (64,772)
---------- ----------
NET INCOME (LOSS) $ 65,365 $ 60,291
========== ==========
Weighted averge shares outstanding 764,667 0
========== ==========
Earnings per share $ 0.09 $ 0.00
========== ==========
F-17
EXECUTE SPORTS., INC.
Statements of Stockholders' Equity
Three Months Ended March 31, 2005 and 2004 (Unaudited)
- --------------------------------------------------------------------------------
Common Stock
-------------------------------- Additional Retained Total
Number of Paid-in Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
------------------ ------------ --------------- ---------------- --------------
BALANCES at December 31, 2003 -- -- -- $(439,019) $ (439,019)
Net income 60,291 60,291
------------------ ------------ --------------- ---------------- --------------
BALANCES at March 31, 2004 -- -- -- (378,728) (378,728)
Shares issued for cash ($0.25 per share) 278,000 $ 278 $69,222 69,500
Net loss (582,288) (582,288)
------------------ ------------ --------------- ---------------- --------------
BALANCE at December 31, 2004 278,000 278 69,222 (961,016) (891,516)
Shares issued for cash ($0.25 per share) 273,072 273 67,995 68,268
Shares issued for accrued
interest ($0.25 per share) 416,928 417 103,815 104,232
Net income 65,365 65,365
------------------ ------------ --------------- ---------------- --------------
BALANCES at March 31, 2005 968,000 $ 968 $ 241,032 $(895,651) $ (653,651)
================== ============ =============== ================ ==============
F-18
EXECUTE SPORTS., INC.
Statements of Cash Flows
Three Months Ended March 31, 2005 and 2004 (Unaudited)
- --------------------------------------------------------------------------------
Three Months Ended
March 31,
-----------------------------
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ 65,365 $ 60,291
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation 1,488 1,546
CHANGES IN CURRENT ASSETS AND CURRENT
LIABILITIES: (Net of effect of acquisition)
(Increase) decrease in current assets:
Accounts receivable (246,831) 11,355
Inventory (56,102) (10,673)
Prepaid expenses (58,340) (14,000)
Increase (decrease) in current liabilities:
Accounts payable and accrued expenses 132,659 (73,326)
------------ ------------
NET CASH USED FOR OPERATING ACTIVITIES (161,761) (24,807)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of furniture and equipment -- (760)
------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES -- (760)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 172,500 --
Issuance of notes payable 16,000 --
Repayment of notes payable (2,500) (1,199)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 186,000 (1,199)
NET INCREASE (DECREASE) IN CASH 24,239 (26,766)
CASH, beginning of period 5,154 40,244
------------ ------------
CASH, end of period $ 29,393 $ 13,478
============ ============
SUPPLEMENTAL DISCLOSURE:
Taxes paid $ -- $ 1,050
Interest paid $ 20,447 $ 31,410
F-19
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Execute Sports, Inc. (the Company) markets and sells water sports clothing and
apparel and motorcycle accessories. The Company was certified as incorporated in
the State of Nevada officially on March 13, 2002 and filed the Articles of
Incorporation on January 30, 2002.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP) for interim financial
information and item 301(b) of Regulation S-B. They do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for the periods presented are not necessarily
indiciative of the results to be expected for the full year. For further
information, refer to the financial statements for the Company as of December
31, 2004 and for the two years then ended, including notes thereto.
Summary of Significant Accounting Principles
Basis of Presentation
The financial statements include the accounts of Execute Sports, Inc. under the
accrual basis of accounting.
Accounting estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents.
Accounts receivable
The Company has entered into a factoring agreement with Benefactors, Inc. In the
agreement Benefactors, Inc. will provide account receivable financing and
factoring to the Company. Benefactors, Inc. will purchase from the Company the
accounts receivable and may pay a portion of the purchase price, or lend money
to the Company based upon accounts receivable of the Company.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined using
the average costing method. Management performs periodic assessments to
determine the existence of obsolete, slow moving and non-salable inventories,
and records necessary provisions to reduce such inventories to net realizable
value.
Property and equipment
Property and equipment are stated at cost. Major renewals and improvements are
charged to the asset accounts while replacements, maintenance and repairs, which
do not improve or extend the lives of the respective assets, are expensed. At
the time property and equipment are retired or otherwise disposed of,
F-20
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
the asset and related accumulated depreciation accounts are relieved of the
applicable amounts. Gains or losses from retirements or sales are credited or
charged to income.
Depreciation is provided using the 200% declining balance method. It is
calculated over recovery periods as prescribed by management that range from 5
years for equipment to 7 years for furniture.
Long-lived assets
The Company has adopted Statement of Financial Accounting Standards No. 144
(SFAS 144). The Statement requires that long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
historical cost-carrying value of an asset may no longer be appropriate. The
Company assesses recoverability of the carrying value of an asset by estimating
the future net cash flows expected to result from the asset, including eventual
disposition. If the future net cash flows are less than the carrying value of
the asset, an impairment loss is recorded equal to the difference between the
asset's carrying value and fair value.
Revenue recognition policy
Revenue from the sale of water sports clothing and apparel, and motorcycle
accessories is recognized when the earning process is complete and the risk and
rewards of ownership have transferred to the customer, which is generally
considered to have occurred upon the shipment to the customer.
Shipping and handling costs
The Company's policy is to classify shipping and handling costs as selling,
general and administrative expenses.
Advertising
The Company expenses all advertising costs as incurred. For the three months
ended March 31, 2005 and 2004 the Company incurred approximately $23,165 and
$22,025 in advertising expenses, respectively.
Loss per common share
The Company adopted Statement of Financial Accounting Standards No. 128 that
requires the reporting of both basic and diluted earnings (loss) per share.
Basic loss per share is calculated using the weighted average number of common
shares outstanding in the period. Diluted loss per share includes potentially
dilutive securities such as outstanding options and warrants, using the
"treasury stock" method and convertible securities using the "if-converted"
method. There were no adjustments required to net loss for the period presented
in the computation of diluted earnings per share.
Issuance of common stock
The issuance of common stock for other than cash is recorded by the Company at
management's estimate of the fair value of the assets acquired or services
rendered.
Comprehensive loss
The Company adopted Financial Accounting Standards Board Statement of Financial
Standards No. 130, "Reporting Comprehensive Income", which establishes standards
for the reporting and display of comprehensive income and its components in the
financial statements. There were no items of
F-21
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
comprehensive income (loss) applicable to the Company during the periods covered
in the financial statements.
Income taxes
On November 1, 2004, the Company legally amended its Articles of Incorporation
to make the transition from an S-Corporation to a C-Corporation. Prior to that
the S Corporation was not a tax paying entity for federal or state income tax
purposes and thus no provision for income taxes was recognized. Subsequent to
the change the Company began recognizing the full valuation for deferred tax
assets (See Note E).
Impact of accounting standards
In January 2003 the FASB issued Interpretation 46 "Consolidation of Variable
Interest Entities, an interpretation of ARB No. 51". This Interpretation
requires a Company to consolidate the financial statements of a "Variable
Interest Entity" "VIE", sometimes also known as a "special purpose entity", even
if the entity does not hold a majority equity interest in the VIE. The
Interpretation requires that if a business enterprise has a "controlling
financial interest" in a VIE, the assets, liabilities, and results of the
activities of the VIE should be included in consolidated financial statements
with those of the business enterprise, even if it holds a minority equity
position. This Interpretation was effective immediately for all VIE's created
after January 31, 2003; for the first fiscal year or interim period beginning
after June 15, 2003 for VIE's in which a Company holds a variable interest that
it acquired before February 1, 2003. The adoption this interpretation did not
have any impact on the Company's financial condition or results of operations.
In April 2003, the FASB issued SFAS 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends SFAS 133 to
provide clarification on the financial accounting and reporting of derivative
instruments and hedging activities and requires contracts with similar
characteristics to be accounted for on a comparable basis. The adoption of SFAS
149 did not have any impact on the Company's financial condition or results of
operations.
In May 2003, the FASB issued SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. SFAS 150
establishes standards on the classification and measurement of financial
instruments with characteristics of both liabilities and equity. The adoption of
SFAS 150 did not have any impact on the Company's financial condition or results
of operations.
In December 2003, the FASB issued SFAS 132r, Employers' Disclosures about
Pensions and Other Postretirement Benefits--an amendment of FASB Statements No.
87, 88, and 106. SFAS 132r revises employers' disclosures about pension plans
and other postretirement benefit plans. It does not change the measurement or
recognition of those plans required by FASB Statements No. 87, Employers'
Accounting for Pensions, No. 88, Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and
No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions.
This Statement retains the disclosure requirements contained in FASB Statement
No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits, which it replaces. It requires additional disclosures to those in the
original Statement 132 about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and other defined benefit
postretirement plans. The adoption of SFAS 132r did not have any impact on the
Company's financial condition or results of operations.
In December 2003, the FASB issued FIN No. 46R, "Consolidation of Variable
Interest Entities." This requires that the assets, liabilities and results of
the activity of variable interest entities be consolidated into the financial
statements of the company that has a controlling financial interest. It also
provides the framework for determining whether an entity should be consolidated
based on voting interest or significant financial support provided to it. The
adoption of FIN No. 46R did not have any impact on the Company's financial
condition or results of operations.
F-22
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impact of accounting standards (Continued)
In November 2004, the FASB issued SFAS 151, Inventory Costs--an amendment of ARB
No. 43, Chapter 4. The Statement amends the guidance of ARB No. 43, Chapter 4,
Inventory Pricing, by clarifying that abnormal amounts of idle facility expense,
freight, handling costs, and wasted materials (spoilage) should be recognized as
current-period charges and by requiring the allocation of fixed production
overheads to inventory based on the normal capacity of the production
facilities. The adoption of SFAS 151 did not have any impact on the Company's
financial condition or results of operations.
In December 2004, the FASB issued a revision to SFAS 123 (revised 2004),
Share-Based Payment. The revision requires all entities to recognize
compensation expense in an amount equal to the fair value of share-based
payments granted to employees. The statements eliminates the alternative method
of accounting for employee share- based payments previously available under APB
25. The provisions of SFAS 123R are effective as of the first interim period
that begins after June 15, 2005. The Company does not believe that this recent
accounting pronouncement will have a material impact on their financial position
or results of operations.
In December 2004, the FASB issued SFAS No. 153 "Exchanges of Nonmonetary
Assets-amendment of APB Opinion No. 29". Statement 153 eliminates the exception
to fair value for exchanges of similar productive assets and replaces it with a
general exception for exchange transaction that do not have commercial
substance, defined as transaction that are not expected to result in significant
changes in the cash flows of the reporting entity. This statement is effective
for exchanges of nonmonetary assets occuring after June 15, 2005. The Company
does not believe that this recent accounting pronouncement will have a material
impact on their financial position or results of operations.
Concentrations of credit risk
The Company performs ongoing credit evaluations of its customers. For the three
months ended March 31, 2005, three customers individually accounted for
approximately 85% of sales (59%, 19% and 7%). Three customers represented
approximately 86% (47% 23% and 16%) of accounts receivable at March 31, 2005.
For the three months ended March 31, 2004, four customers individually accounted
for approximately 83% of sales (26%, 19%, 19% and 19%). Three customers
represented approximately 84% (42%, 28%, and 14%) of accounts receivable at
March 31, 2004.
For the three months ended March 31, 2005 and 2004, approximately 8% and 10%,
respectively, of the Company's net sales were made to customers outside the
United States.
The Company is dependent of third-party manufacturers and distributors for all
of its supply of inventory. For the three months ended March 31, 2005 and 2004,
the Company's three largest suppliers accounted for 65% and 69% of product
purchases, respectively. The Company is dependent on the ability of its
suppliers to provide products and services on a timely basis and on favorable
pricing terms. The loss of certain principal suppliers or a significant
reduction in product availability from principal suppliers could have a material
adverse effect on the Company.
Disclosure about Fair Value of Financial Instruments
The Company estimates that the fair value of all financial instruments at March
31, 2005 and 2004, as defined in FASB 107, does not differ materially from the
aggregate carrying values of its financial instruments recorded in the
accompanying balance sheet. The estimated fair value amounts have been
determined by the Company using available market information and appropriate
valuation methodologies. Considerable judgment is
F-23
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Disclosure about Fair Value of Financial Instruments (Continued)
required in interpreting market data to develop the estimates of fair value, and
accordingly, the estimates are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
NOTE B - INVENTORY
Inventories are comprised of finished goods ready for resale and are stated at
the lower of cost or market, as determined using the average costing method. The
following table represents the major components of inventory at March 31, 2005
and 2004.
- --------------------------------------------------------------------------------
2005 2004
- --------------------------------------------------------------------------------
Finished goods $167,843 $309,859
======== ========
- --------------------------------------------------------------------------------
NOTE C - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at March 31, 2005 and 2004 consist of the
following
2005 2004
---------- ----------
Payables to vendors $ 325,181 $ 255,889
Accrued taxes 3,366 474
Payable to (due from) Factor 249,879 (28,837)
Accrued interest payable (Note H) 77,357 0
---------- ----------
$ 655,783 $ 227,526
========== ==========
The Company factors its accounts receivable to Benefactor Funding Corp. which
allows the Company to borrow approximately 80% of the invoice amount at an
interest rate of 1.5% per month.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment at March 31, 2005 and 2004 consist of the following:
2005 2004
---------- ----------
Computer and office equipment $ 24,700 $ 22,404
Furniture and fixtures 2,281 2,281
Machinery and equipment 8,462 5,112
---------- ----------
$ 35,443 $ 29,797
Less: Accumulated Depreciation (18,685) (10,815)
---------- ----------
$ 16,758 $ 18,982
========== ==========
Depreciation expense for the years ended March 31, 2005 and 2004 was $1,488 and
$1,546, respectively.
NOTE E - NET OPERATING LOSS CARRY FORWARD
At March 31, 2005, the Company has a net operating loss carryforward of
approximately $365,056 which is due to expire in 2024.
F-24
In assessing the ability to realize deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. At March 31, 2005 a
valuation allowance for the full amount of the net deferred tax asset was
recorded
NOTE F - GOING CONCERN AND MANAGEMENT'S PLANS
The Company has suffered recurring losses from operations since inception. In
addition, the Company has yet to generate an internal cash flow from its
business operations. These factors give raise substantial doubt about its
ability to continue as a going concern.
Management's plans with regard to these matters encompass the following actions:
1) obtain funding form new investors to alleviate the Company's working capital
deficiency, and 2) implement a plan to generate additional sales. The Company's
continued existence is dependent upon its ability to resolve its liquidity
problems and increase profitability in its current business operations. However,
the outcome of management's plans cannot be ascertained with any degree of
certainty. The accompanying financial statements do not include any adjustments
that might result from the outcome of these risks and uncertainty.
NOTE G - STOCKHOLDERS' EQUITY
On September 9, 2004, the Company commenced a limited Private Placement
Memorandum (PPM) to raise up to $1,750,000 through the sale of the Company's
common stock at a price of $0.25 per share. During the year ended December 31,
2004, the Company sold 278,000 shares of common stock for $0.25 per share
totaling approximately $69,500 in cash. During the period January 1, 2005 to
March 31, 2005 the Company issued 690,000 shares of common stock for $0.25 per
share, totaling approximately $68,268 in cash and converted accrued interest of
$104,232.
On September 22, 2004, the Company increased its number of authorized shares
from 75,000 to 75,000,000. The par value increased from no par value to $0.001
per share.
During the year ended December 31, 2003, the Company did not issue any stock.
NOTE H - NOTES PAYABLE
Notes payable at March 31, 2005 and 2004, are as follows:
-----------------------------------------------------------------------
2005 2004
-----------------------------------------------------------------------
Unsecured note payable to Donald A.
Dallape, President, bearing interest at
2% per month due every 30 days. $271,705
-----------------------------------------------------------------------
Unsecured note payable to Scott
Swendener, Vice-President, bearing
interest at 2% per month due every 30
days. 312,858
-----------------------------------------------------------------------
Unsecured demand note payable to Ron and
Dori Arks, bearing interest at 1.5% per
month. $ 29,800
-----------------------------------------------------------------------
Unsecured demand note payable to Ron and
Dori Arks, bearing interest at 2% per
month. 32,500
-----------------------------------------------------------------------
F-25
-----------------------------------------------------------------------
Unsecured demand note payable to Sheryl
Gardner , bearing interest at 2% per
month. 100,000
-----------------------------------------------------------------------
Unsecured demand note payable to Myrwood
and Coral Guy, bearing interest at 2%
per month. 100,000
-----------------------------------------------------------------------
Unsecured demand note payable to Ty Guy,
bearing interest at 2% per month. 90,000
-----------------------------------------------------------------------
Unsecured demand note payable to John
Helms, bearing interest at 2% per month. 210, 000
-----------------------------------------------------------------------
Unsecured demand note payable to New
Heart Ministries, bearing interest at 2%
per month. 50,000
-----------------------------------------------------------------------
Unsecured note payable to Scott
Swendener, Vice-President, bearing
interest at 2% per annum until February
28, 2006 16,000
-----------------------------------------------------------------------
$628,300 $584,563
======== ========
-----------------------------------------------------------------------
During 2004, the notes payable to the two officers of the Company were replaced
by notes payable to outside individuals. A note payable to the Company
Vice-President was issued in February 2005.
As of February 28, 2005, all of the notes payable outstanding at December 31,
2004, totaling $614,800, were cancelled and new notes payable was issued
accruing interest at 2% per annum until February 28, 2006. At that time, the
remaining outstanding principal balance and all interest accrued but unpaid can
be paid in the Company's common stock at a conversion price of $0.25 per share
for every dollar of interest owed to the note holder. All interest accrued but
unpaid as of February 28, 2005 was converted to the Company's common stock at
the conversion price of $0.25 per share for every dollar of interest owed to the
note holder representing an addition to stockholders' equity of approximately
$104,232.
NOTE I - COMMITMENT
The Company leases office and warehouse space at a rate of $6,396 per month with
lease terms extending through April 30, 2005. Future lease payments under this
operating lease are as follows:
Year Ending December 31,
2005 25,584
The Company incurred $13,612 and $12,792 in rent expense during the three months
ended March 31, 2005 and 2004, respectively.
NOTE J - SUBSEQUENT EVENT
Subsequent to March 31, 2005, the Company issued 580,000 shares of common stock
for cash at $0.25 per share totaling $145,000.
F-26
NOTE J - SUBSEQUENT EVENT (Continued)
In April, the Company raised $460,000 in equity financing at a price of $.25 per
share of common stock. Subsequently, the Company closed its private placement to
any further investment so that it could submit an SB-2 registration statement
pursuant to an initial offering through which the Company intends to become
publicly traded on the Over-the-Counter Bulletin Board.
In April the Company also issued 8,500,000 shares of its common stock to its
founding members and key employees, and 3,650,000 shares of its common stock in
consideration for professional and consulting services rendered.
F-27
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
As permitted by Section NRS 78.138 of the Nevada State Corporation Law, we have
adopted provisions in our certificate of incorporation and bylaws that will be
in effect upon the completion of this offering that limit or eliminate the
personal liability of our directors for a breach of their fiduciary duty of care
as a director. The duty of care generally requires that, when acting on behalf
of the corporation, directors exercise an informed business judgment based on
all material information reasonably available to them. Consequently, a director
will not be personally liable to us or our stockholders for monetary damages or
breach of fiduciary duty as a director, except for liability for:
o any breach of the director's duty of loyalty to us or our
stockholders;
o any act or omission not in good faith or that involves intentional
misconduct or a knowing violation of law;
o any act related to unlawful stock repurchases, redemptions or other
distributions or payments of dividends; or
o any transaction from which the director derived an improper or
personal benefit.
These limitations of liability do not affect the availability of equitable
remedies such as injunctive relief or rescission. Our amended and restated
certificate of incorporation also authorizes us to indemnify our officers,
directors and other agents to the fullest extent permitted under Nevada law.
As permitted by Section NRS 78.138 of the Nevada State Corporation Law, our
bylaws provide that:
o we may indemnify our directors, officers, and employees to the
fullest extent permitted by the Nevada State Corporation Law,
subject to limited exceptions;
o we may advance expenses to our directors, officers and employees in
connection with a legal proceeding to the fullest extent permitted
by the Nevada State Corporation Law, subject to limited exceptions;
and
o the rights provided in our amended and restated bylaws are not
exclusive.
Our certificate of incorporation, attached as Exhibit __ hereto, and our bylaws,
attached as Exhibit __ hereto, provide for the indemnification provisions
described above and elsewhere herein.
Reference is made to the following documents filed as exhibits to this
registration statement regarding relevant indemnification provisions described
above and elsewhere in this registration statement:
Exhibit
Document Number
Articles of Incorporation Exhibit 3.1
Bylaws Exhibit 3.2
1
Item 25. Other Expenses Of Issuance And Distribution
The following table sets forth the costs and expenses payable by us in
connection with the offering of the common stock being registered. All amounts
are estimates except the SEC Registration Fee.
SEC registration fee $422.28
Accounting fees and expenses $50,000.00
Legal fees and expenses $50,000.00
Transfer agent and registrar fees and expenses $10,000.00
Directors and officers insurance premium $25,000.00
Miscellaneous $15,000.00
Total $150,422.28
Item 26. Recent Sales of Unregistered Securities
The following list sets forth information regarding all securities we have sold
since September 2004.
1. In the period beginning in July 2004 through May 27, 2005, we issued
and sold an aggregate of 2,918,000 shares of our common stock for
aggregate cash consideration of $729,500.
a. In July, 2004, we issued 24,000 shares of common stock to 18
individuals for consideration of $6,000.
b. In August, 2004 we 94,000 shares of common stock to 18
individuals for consideration of $.25 per share or a total of
$23,500.
c. In October, 2004 we issued 120,000 shares of common stock to 2
individuals for consideration of $.25 per share for a total of
$30,000.
d. In January, 2005, we issued 600,000 shares of common stock to
two individuals for consideration of $.25 per share or a total
of $150,000.
e. In February, 2005, we issued 80,000 shares of common stock to
two individuals for consideration of $.25 per share for a
total of $20,000.
f. In March, 2005, we issued 50,000 shares of common stock to one
individual for consideration of $.25 per share for a total of
$12,500.
g. In April, 2005, we issued 1,050,000 shares of common stock to
two individuals for consideration of $.25 per share for a
total of $262,500.
h. In May, 2005 we issued 900,000 shares of common stock to ten
individuals for consideration of $.25 per share for a total of
$225,000.
All such sales of the Company's stock did not involve any public offering. All
sales were completed as private offerings to accredited investors/affiliates of
the issuer without general solicitation.
The issuance of securities in the transactions described above were deemed
exempt from registration under the Securities Act in reliance on Section 4(2) or
Regulation D promulgated thereunder as transactions by an issuer not involving
any public offering. The recipients of securities in each such transaction
represented their level of sophistication or status as an accredited investor
and their intention to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates and other instruments issued in
such transactions. All recipients either received adequate information about us
or had access, through employment or other relationships, to such information.
There were no underwriters employed in connection with any of the transactions
set forth in this Item 26.
2
Item 27. Exhibits
Exhibit
Number Exhibit Description
- --------------------------------------------------------------------------------
3.1. Articles of Incorporation of the Registrant
3.2. Bylaws
3.3. Amended Articles of Incorporation of the Registrant
4.1. Specimen common stock certificate
4.2. Promissory Note, dated January 28, 2005 by and between Registrant and Ron
and Dori Arko
4.3. Promissory Note, dated January 28, 2005 by and between Registrant and Don
Dallape and Scott Swendener
4.4. Promissory Note, dated January 28, 2005 by and between Registrant and
Sheryl Gardner
4.5. Promissory Note, dated January 28, 2005 by and between Registrant and John
Helms
4.6. Promissory Note, dated January 28, 2005 by and between Registrant and
Myrwood and Coral Guy
4.7. Promissory Note, dated January 28, 2005 by and between Registrant and Ty
Guy
4.8. Promissory Note, dated January 28, 2005 by and between Registrant and New
Heart Ministries
5.1 Opinion of Michael L. Corrigan, Atty. At Law
10.1 Material Contracts - IR Agreement
10.2 Material Contracts - Consulting Agreement
10.3 Material Contracts - Consulting Agreement
10.4 Material Contracts - Consulting Agreement
10.5 Material Contracts - Consulting Agreement
10.6 Material Contracts - Consulting Agreement
10.7 Material Contracts - Legal Services Agreement
10.8 Lease Agreement
10.9 Employment Agreement - Don Dallape
10.10 Employment Agreement - Scott Swendener
10.11 Employment Agreement - Gino Apicella
10.12 Factor Agreement, dated as of May 10, 2004 by and between the Registrant
and Bennefector Funding Inc.
10.13 License Agreement, dated as of April 28, 2005 by and between the
Registrant and Eagle Rider, Inc.
10.14 License Agreement, dated as of March 18, 2003 by and between the
Registrant and Yamaha Motor Corp.
10.15 License agreement dated as of March 25, 2003 by and between the Registrant
and KTM of America.
10.16 License agreement dated as of September 27, 2004, by and between the
Registrant and Redline Racing
10.17 License agreement dated as of March 24, 2003, by and between the
Registrant and AMA Inc.
10.18 Form of Indemnity Agreement between the Registrant and each of its
directors and executive officers
23.1 Consent of Bedinger & Company independent registered public accounting
firm
23.2 Consent of Michael L. Corrigan (included in Exhibit 5.1)
3
Item 28. Undertakings
The undersigned registrant hereby undertakes:
1. To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statements to:
a. include any prospectus required by Section 10(a)(3) of the
Securities Act;
b. reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
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
c. include any additional or changed material information on the
plan of distribution.
2. That, for determining liability under the Securities Act, it will
treat each post-effective amendment as a new registration statement
of the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
3. To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
4. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 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 Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the 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
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.
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Clemente, State of California, on the 23rd day of
March, 2005.
EXECUTE SPORTS, INC.
/s/ Don Dallape
---------------------------------
Don Dallape
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
4
Signature Title Date
- ------------------- --------------------------------------------- -----------------
/s/ Donald Dallape Chief Executive Officer and March 23, 2005
- -------------------- Chairman of the Board
Donald Dallape (principal executive officer)
/s/ Sheryl Gardner Chief Financial Officer and Secretary March 23, 2005
- -------------------- (principal financial and accounting officer)
Sheryl Gardner
/s/ Scott Swendener Director March 23, 2005
- --------------------
Scott Swendener
/s/ Gino Apicella Director March 23, 2005
- --------------------
Gino Apicella
5
Item 27. Exhibits
Exhibit
Number Exhibit Description
- --------------------------------------------------------------------------------
3.4. Articles of Incorporation of the Registrant
3.5. Bylaws
3.6. Amended Articles of Incorporation of the Registrant
4.9. Specimen common stock certificate
4.10. Promissory Note, dated January 28, 2005 by and between Registrant and Ron
and Dori Arko
4.11. Promissory Note, dated January 28, 2005 by and between Registrant and Don
Dallape and Scott Swendener
4.12. Promissory Note, dated January 28, 2005 by and between Registrant and
Sheryl Gardner
4.13. Promissory Note, dated January 28, 2005 by and between Registrant and John
Helms
4.14. Promissory Note, dated January 28, 2005 by and between Registrant and
Myrwood and Coral Guy
4.15. Promissory Note, dated January 28, 2005 by and between Registrant and Ty
Guy
4.16. Promissory Note, dated January 28, 2005 by and between Registrant and New
Heart Ministries
5.2 Opinion of Michael L. Corrigan, Atty. At Law
10.1 Material Contracts - IR Agreement
10.2 Material Contracts - Consulting Agreement
10.3 Material Contracts - Consulting Agreement
10.4 Material Contracts - Consulting Agreement
10.5 Material Contracts - Consulting Agreement
10.6 Material Contracts - Consulting Agreement
10.7 Material Contracts - Legal Services Agreement
10.8 Lease Agreement
10.9 Employment Agreement - Don Dallape
10.10 Employment Agreement - Scott Swendener
10.11 Employment Agreement - Gino Apicella
10.12 Factor Agreement, dated as of May 10, 2004 by and between the Registrant
and Bennefector Funding Inc.
10.13 License Agreement, dated as of April 28, 2005 by and between the
Registrant and Eagle Rider, Inc.
10.14 License Agreement, dated as of March 18, 2003 by and between the
Registrant and Yamaha Motor Corp.
10.15 License agreement dated as of March 25, 2003 by and between the Registrant
and KTM of America.
10.16 License agreement dated as of September 27, 2004, by and between the
Registrant and Redline Racing
10.17 License agreement dated as of March 24, 2003, by and between the
Registrant and AMA Inc.
10.18 Form of Indemnity Agreement between the Registrant and each of its
directors and executive officers
23.1 Consent of Bedinger & Company independent registered public accounting
firm
23.2 Consent of Michael L. Corrigan (included in Exhibit 5.1)
6