Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. o

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

On August 12, 2007, AVP extended a multi-year sponsorship agreement with Crocs, Inc. pursuant to which Crocs is the title sponsor of the AVP tour through the end of the 2012 tour season.

 

The amount that we charge each national sponsor depends primarily on the number of network or cable advertising units that the national sponsor receives in our broadcasts, as well as the exposure that the national sponsor receives on-site at our tournaments. We hire independent marketing and promotional valuation companies each season to measure the benefits that national sponsors receive and provide these valuation results to our national sponsors to validate their investments in AVP. National sponsorship revenue accounted for 73% of revenue in 2007, with one national sponsor accounting for 17% of total revenue. We conduct national sponsorship sales primarily with our own sales staff.

 

Local Sponsorship Revenue: We also receive revenue from local and regional companies seeking to reach our fan base. We sell a variety of local packages at various financial levels intended to attract a wide range of businesses in each of the regions and cities where our tournaments take place. We rely on combinations of local event promoters, sales forces of local market print, television, and radio stations, and our in-house sales staff to make local and regional sales.

 

Promoter Fee Revenue: In 2007, we entered agreements with event promoters in ten cities for the promoters to either pay AVP a fee or revenue share in exchange for the right to exploit local revenue, including local sponsorship, ticket sales, parking, and concessions. The event promoters also paid for specified event expenses such as the stadium, sand, various operational costs (hotel accommodations, certain event personnel, security, etc.), event permits, and/or marketing costs. In a revenue sharing arrangement the event promoter pays for specified event expenses as described above, and the parties share revenue on a 50:50 basis after recoupment of such event expenses. For 2008, we expect to have agreements with event promoters for 14 cities.

 

Activation Fees: We also receive revenue from AVP sponsors who wish to use AVP's sponsorship services and support personnel to create, build and/or implement on-site activation in support of their sponsorship. This revenue is recognized as activation fees, rather than sponsorship revenue, when the agreement with the sponsor specifically sets out specific activation services and fees that are payable in connection with the sponsor's sponsorship.

 

Suite Sales: We sell corporate "suites", which consist of reserved seating areas at tournaments with table seating, food, and beverages.

 

Ticket Sales: In 2007, we charged for general admission at 8 of 18 events and for reserved seating at all 18 events.

 

Food and Beverage Sales: We generate revenue through food, beverage, and beer sales at events where such concession rights are available. Generally, we engage a third-party concession operator to conduct this activity on our behalf.

 

Registration Fees: Players pay a registration fee to play in AVP events. In 2007, we charged registration fees at 16 of the 18 events. In 2008, we expect to charge registration at 16 events as well.

 

International Television Licensing: We retain all international television rights to our network and cable broadcasts. We engaged SFX, Inc. to license our television programming internationally. Our events were broadcast in over 125 countries.

 

Event Merchandising: We sell event merchandise on-site at our tournaments. Merchandise includes t-shirts, fitness wear, shorts, swimsuits, sweatshirts, hats, and other apparel. In 2007, Warnaco Swimwear, Inc. provided all merchandising services on our behalf at our tournaments. We are negotiating with Crocs to provide all merchandising services on our behalf for the 2008 season.

 

 

Trademark Licensing Revenue: In addition to merchandising, we license our trademarks and logos to Wilson Sporting Goods Co. for volleyballs. In addition, we entered a licensing agreement with Crocs, Inc. for AVP branded footwear. In 2007, we entered a licensing agreement with Warnaco Swimwear, Inc. for AVP-SPEEDO co-branded apparel for sale at AVP events, online and retail for the 2007 season. In 2008, Wilson and Crocs will continue to license our trademark and logos for volleyballs and AVP branded footwear.

 

Distribution. National Broadcasting Company (“NBC”) broadcast certain of our events on network television in 2007, MyNetworkTV broadcast two events on network television in 2007, and Fox Sport Net (“FSN”) broadcast the remainder of our 2007 events on cable and satellite television. By separate agreements, we contracted with NBC and FSN for production of the programming.

 

NBC: NBC broadcast 14 hours of five of our events in 2007. We paid NBC a per program fee for such broadcast time and retained all of the commercial units in the broadcasts. In 2008, we anticipate broadcasting four events and a total of 12 hours on NBC.

 

Fox Sports Net: FSN currently distributes our programming over cable and satellite television. FSN broadcast all 18 events in 2007 (including replaying the events broadcast by NBC). FSN distributed the programming in 2007 in return for the same number of commercial units in the broadcasts as FSN received during 2006 and previously. AVP did not pay FSN any compensation for the broadcast time that FSN provided; FSN's only compensation is the commercial units that FSN retained in the broadcasts. We are negotiating with FSN and other cable broadcasters for our 2008 non-network broadcast schedule.

 

Marketing. We market our tournaments and their broadcasts nationally, regionally, and locally. NBC and MyNetworkTV promoted the 2007 network tournaments nationally, while FSN promoted the 2007 cable tournaments through its regional cable network. We also made promotional arrangements with newspapers and radio and television stations to advertise and promote our events locally. In addition, we engaged public relations firms to generate interest and coverage of our events and broadcasts.

 

We maintain contact with volleyball enthusiasts and seek to increase our fan base through our AVPNext grassroots programs.

 

AVPNext is an outreach program for volleyball players of all skill levels. The program features a national network of recreational tournament and league organizers and offers both children and adults of all skill levels opportunities to participate in the sport of volleyball through weekend tournaments, instructional camps/clinics, and recreational league play.

 

AVPNext also provides aspiring semi-pro players and high-level amateurs the opportunity to play against top-flight competition and potentially earn exemptions into our professional tournaments. In 2007, AVPNext hosted over 350 volleyball tournaments for nearly 30,000 participants. The events were organized by over 40 promoters in an effort to unite the volleyball community and enhance the growth of the game for all enthusiasts.

 

Operations. We own all of our events, and, except for events that we license to local event promoters, we operate and conduct most AVP Tour operations and logistics in-house. These operations include:

 

·

Setting up the event, including loading and transporting the equipment to and from each event; building the volleyball courts; overseeing construction of stadiums by outside bleacher companies; mounting signage and inflatables for sponsors; and constructing media, hospitality, and local sponsorship areas;

 

·

Addressing local regulations and permits;

 

·

Coordinating the beach volleyball competition;

 

·

Organizing officials for the event;

 

·

Managing the tournament and the spectator experience;

 

·

Providing entertainment (e.g., music) at the event;

 

 

·

Providing corporate hospitality; and

 

·

Providing media support, e.g., tournament statistics, press releases, etc.

 

To set up an event for a standard three-day tournament scheduled to begin on a Friday, we generally arrive on Monday and require three full days to complete construction. For tournaments that will be telecast live on NBC, we generally produce four-day events, and the preparations customarily start earlier. We own seven semi-trailers to transport all event equipment from a central warehouse located in Los Angeles to each site. To manage equipment hauling, we try to schedule AVP tour events to occur close to one another or to allow sufficient transportation time.

 

Each host city requires us to obtain a different set of permits to run an AVP tour event. Typical permits include event; filming; bleacher; fire and police departments; and food and concessions. Our staff supervises compliance with local regulations and permits.

 

Our exclusive contracts with more than 200 of the top men and women professional beach volleyball players in the United States prohibit the athletes from competing in non-AVP professional beach volleyball tournaments anywhere in the world, unless specifically provided for in the contract or otherwise agreed by us. All players sign the same standard AVP player contract. The player contracts extend through December 31, 2008 and provide for:

 

·

a minimum amount of prize money during each year of the term ($4,000,000 in 2007 and $4,500,000 in 2008);

 

·

a minimum of ten men’s and ten women’s events per year;

 

·

medical benefits for the top 100 ranked men’s and women’s players; and

 

·

restrictions as to the logos or insignias athletes may wear at AVP events.

 

Each player is responsible for his or her own housing and travel to and from events. We provide players with food during the tournament and make medical services available in case of injury.

 

In 2004, AVP also reserved 597,368 shares for issuance upon exercise of stock options allocated to the players based upon their performance during the 2004 season. These options are exercisable at a price of $1.60 per share and expire in 2009.

 

Other personnel essential to operating a successful event include:

 

·

Officials and referees;

 

·

Local volunteers to assist in the operation of scoreboards and act as ball retrievers;

 

·

Local contract workers to sell tickets, operate concession areas, and, supervise parking; and

 

·

Outside contractors to provide security, waste clean-up, and other services required in connection with the event.

 

We recognize that local support for an AVP tour event is critical to our success. We try to hold events in the same locations and at the same times every year whenever possible, so that the volleyball tournaments become local civic events, enabling retailers and community leaders to anticipate and support the tournament annually. We work with city councils and local leaders and businesses to obtain financial, sales, logistic, marketing, and promotional support for our events. We coordinate youth or amateur tournaments and hold free volleyball clinics in connection with our events to generate local goodwill and enthusiasm.

 

Employees

 

Currently, we have 32 full-time employees and retain 5 independent contractors.

 

 

Competition

 

While we believe we have a loyal fan base, the sports and entertainment industry is highly competitive and is also subject to fluctuations in popularity, which are not easy to predict. Fundamentally, we compete for sponsorship revenue, television ratings, and fan base with other sports leagues and tours, entertainment programming, and other forms of leisure activities. Our success in these areas depends heavily on continuing to grow the sport's popularity.

 

Our programming is directed at a hard to reach demographic group—college educated men and women aged 18 to 34, earning $50,000 or more per year—whom we believe are highly prized by advertisers. We compete for an audience that is fiercely contested.

 

We believe that our exclusive player contracts significantly reduce the likelihood that an attempt to establish a competing professional beach tour in the United States during the terms of the contracts would be successful. Federation International de Volleyball (FIVB) sanctions a series of professional beach volleyball events in various countries throughout the world and sells sponsorships and television programming in connection with these events. We allow our players to compete in some FIVB events, as provided for in our player agreements. Our international television licensing competes with FIVB programming, and we will potentially face competition from the FIVB if we expand our events to non-United States locations. In addition, FIVB might claim the authority, but refuse, to sanction any AVP event in another country.

 

Reports to Security Holders

 

Annual reports. We deliver annual reports containing audited financial statements to security holders.

 

Periodic reports and other information. We file annual and quarterly reports, current reports, proxy statements, and information statements with the SEC.

 

Availability of Filings. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Additionally, the SEC maintains an Internet site (http://www.sec.gov) that contains reports and proxy and information statements and other information regarding issuers that file electronically with the SEC. Our Internet site is http://www.avp.com.

 

 

RISK FACTORS

 

An investment in AVP securities is highly speculative and extremely risky. You should carefully consider the following risks, in addition to the other information contained in this report, before deciding to buy AVP securities.

 

RISKS RELATED TO OUR BUSINESS

 

WE HAVE A HISTORY OF LOSSES AND MAY NEVER BECOME PROFITABLE.

 

AVP has operated at a loss since 2001, when current management was installed. Losses for 2007 and 2006 were $4.0 million and $0.4 million, respectively. (The net loss of $4.0 million includes a $1.4 million charge as a result of the agreement and plan of merger with Shamrock Holdings, Inc., which was terminated in September 2007). We cannot predict whether our current or prospective business activities will ever generate enough revenue to be profitable. If we do not generate enough revenue to be profitable, our business might have to be discontinued, in which case investors would lose all or most of their investment in AVP.

 

WE RELY ON SHORT-TERM SPONSORSHIP AGREEMENTS FOR MOST OF OUR REVENUE, SO WE CANNOT ASSURE, LONG TERM, THAT WE WILL RECEIVE SUFFICIENT CASH FLOW TO MAINTAIN THE VIABILITY OF OUR BUSINESS.

 

In 2007, national sponsorship revenue accounted for 73% of revenue, and three national sponsors accounted for 32% of total revenue. Of AVP’s 18 sponsors in 2007, ten have agreements that extend to 2008; four that extend to 2009; and one through 2012. Accordingly, AVP’s continued operations will depend, among other things, on AVP’s ability to renew current AVP sponsors and attract new sponsors, as well as increase sponsorship rates.

 

AVP’S LIMITED OPERATING HISTORY MAKES AVP HIGHLY RELIANT ON MANAGEMENT.

 

We lack the goodwill of an established business and therefore rely on individual members of current management to create business strategies and relationships, attract sponsors, and develop tournament formats and operating procedures necessary for us to survive and prosper. The departure of one or more of our executives could impair our operations, and, in particular, the services of our Chief Executive Officer and Tour Commissioner, Leonard Armato, would be very difficult to replace. If we are unable to find suitable replacements in the event of management departures, we might incur losses that impair investors’ investments in AVP.

 

OUR SUCCESS DEPENDS ON FAN INTEREST. IF WE ARE UNABLE TO MAINTAIN INTEREST IN OUR SPORT, OUR BUSINESS COULD FAIL.

 

Beach volleyball is a relatively new sport compared to baseball, basketball, football, golf, or auto racing, so its continuing popularity cannot be assumed. Public tastes change frequently, so interest in beach volleyball may decline in the future. Our ability to generate revenue and earn profits would be threatened by a loss of popular interest in the sport. If we do not generate enough revenue to be profitable, our business might have to be discontinued, in which case, investors would lose all or most of their investment in AVP.

 

WE MAY BE UNABLE TO COMPETE WITH LARGER OR MORE ESTABLISHED SPORTS LEAGUES FOR CORPORATE ADVERTISING BUDGETS. 

 

We face a large and growing number of competitors in the sports and entertainment industry. Many of these competitors have substantially greater financial, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition, and more established relationships in the industry than does AVP. As a result, certain of these competitors may be in better positions to obtain corporate advertising. AVP cannot be sure that it will be able to compete successfully with existing or new competitors.

 

 

THERE ARE ONLY A FEW MAJOR BROADCAST AND CABLE NETWORKS THAT CAN DISTRIBUTE OUR PROGRAMMING TO A SUFFICIENTLY LARGE AUDIENCE, SO WE HAVE ONLY VERY LIMITED ALTERNATIVES IF ONE OR MORE OF OUR TELEVISION DISTRIBUTORS PERFORMS UNSATISFACTORILY, INSISTS ON UNFAVORABLE CONTRACT TERMS, OR ELECTS NOT TO CARRY OUR PROGRAMMING.

 

We require widespread distribution of our programming to interest sponsors and other advertisers. There are only four major broadcast networks and only several major cable networks that include sports programming and provide sufficient market reach, so our choices are limited, and our future ability to enter into distribution agreements with major broadcast and/or cable networks cannot be assured. If we are unable to make suitable distribution arrangements, we likely would incur losses that would impair investors' investments in AVP. If we are unable to secure distribution after the expiration of our current network and cable broadcast agreements or if the contract terms become less favorable to AVP, our business will be materially adversely affected.

 

DIFFICULTY IN RETAINING CURRENT PLAYERS OR RECRUITING FUTURE PLAYERS COULD IMPAIR OUR PROSPECTS. 

 

The number of professional beach volleyball players is small in relation to other professional sports, as is the number of elite, amateur players who might play professionally in the future. The players' audience appeal is critical to maintaining popular interest in the sport. Our prospects could decline and investors' investments in AVP impaired, if players on the tour or other qualified players are recruited by competitors or other volleyball organizations or decide to pursue other occupations.

 

IF WE ARE UNABLE TO HIRE ADDITIONAL NEEDED PERSONNEL, OUR GROWTH PROSPECTS WILL BE LIMITED, OR OUR OPERATIONS MAY BE IMPAIRED.

 

Our business requires uniquely trained and experienced professionals, and our success depends in large part upon our ability to attract, develop, motivate, and retain highly skilled personnel. Qualified employees will be a limited resource for the foreseeable future. As a new company with little history, we may have particular difficulty hiring qualified personnel. If we are unable to retain necessary personnel, our business probably will suffer, and investors may incur losses on their investment in AVP.

 

RISKS RELATING TO OUR SECURITIES

 

OUR STOCK PRICE MAY BE VOLATILE. 

 

There has only been a limited public market for our securities, and there can be no assurance that an active trading market will be maintained. The OTCBB is a relatively unorganized, inter-dealer, over-the-counter market that provides significantly less liquidity than NASDAQ and the other national securities markets. The trading price of our common stock is expected to fluctuate significantly, and, as is the case for OTCBB securities generally, is not published in newspapers.

 

LIMITATIONS OF THE OTCBB CAN HINDER COMPLETION OF TRADES. 

 

Trades and quotations on the OTCBB involve a manual process that may delay order processing. Price fluctuations during a delay can result in the failure of a limit order to execute or cause execution of a market order at a price significantly different from the price prevailing when an order was entered. Consequently, one may be unable to trade in our common stock at optimum prices.

 

PENNY STOCK REGULATIONS MAY RESTRICT THE MARKET FOR OUR COMMON STOCK. 

 

The SEC has adopted regulations that generally define a "penny stock" to be any equity security having a market price (as defined) less than $5.00 per share, or an exercise price of less than $5.00 per share, subject to certain exceptions. As a result, broker-dealers selling our common stock are subject to additional sales practices when they sell such securities to persons other than established clients and "accredited investors." For transactions covered by these rules, before the transaction is executed, the broker-dealer must make a special customer suitability determination; receive the purchaser's written consent to the transaction; and deliver a risk disclosure document relating to the penny stock market. The broker-dealer must also disclose the commission payable to both the broker-dealer and the registered representative taking the order; current quotations for the securities; and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer's presumed control over the market. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. Consequently, the "penny stock" rules may restrict trading in our common stock.

 

 

ACCORDING TO THE SEC, THE MARKET FOR PENNY STOCKS HAS SUFFERED IN RECENT YEARS FROM PATTERNS OF FRAUD AND ABUSE. 

 

Such patterns include:

 

·	control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer;

 

·	manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

 

·	“boiler room” practices involving high pressure sales tactics and unrealistic price projections by inexperienced sales persons;

 

·	excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

 

·	dumping of securities after prices have been manipulated to a high level, resulting in investor losses.

 

Our management is aware of the abuses that have occurred historically in the penny stock market.

 

THE OTCBB IS VULNERABLE TO MARKET FRAUD.

 

OTCBB securities are frequent targets of fraud or market manipulation, both because of their generally low prices and because OTCBB reporting requirements are less stringent than those of the stock exchanges or NASDAQ.

 

INCREASED DEALER COMPENSATION COULD ADVERSELY AFFECT STOCK PRICE.

 

OTCBB dealers’ spreads (the difference between the bid and ask prices) may be large, causing higher purchase prices and less sale proceeds for purchasers of sellers of our securities.

 

SHARES OF COMMON STOCK ELIGIBLE FOR FUTURE SALE, INCLUDING SHARES ISSUABLE UPON CONVERSION OR EXERCISE OF OUTSTANDING PREFERRED STOCK, OPTIONS AND WARRANTS, CAN DEPRESS MARKET PRICES. 

 

AVP has reserved for issuance 20,236,669 shares of common stock upon conversion or exercise of convertible preferred stock, stock options, and stock purchase warrants. The market's recognition that a large amount of stock might enter the market suddenly can depress market prices.

 

POTENTIAL CONTROL BY MANAGEMENT. 

 

Currently, all AVP directors and officers as a group hold AVP voting securities representing approximately 8.7% of the votes that can be cast by holders of all AVP voting securities. If AVP's management exercised all rights to acquire AVP voting stock held by them, and no other holder of securities exercisable for AVP voting securities did so, AVP's management would control approximately 36.7% of votes that could be cast. If, in addition, all other holders of AVP rights to acquire AVP voting stock exercised those rights, AVP's management would hold about 24.5% of the outstanding votes.

 

 

LIABILITY OF DIRECTORS FOR BREACH OF DUTY OF CARE IS LIMITED.

 

As permitted by Delaware law, our certificate of incorporation limits the liability of our directors for monetary damages for breach of a director's fiduciary duty, except in certain cases. Our stockholders' ability to recover damages for fiduciary breaches may be reduced by the provision. In addition, we are obligated to indemnify our directors and officers regarding stockholder suits, under some circumstances.

 

 

ITEM 2. Description of Property.

 

We maintain the following properties:

 

We lease approximately 12,000 square feet of office space in Los Angeles, California, which houses our executive and administrative offices, with annual base rent of approximately $339,000. The lease expires March 31, 2010, subject to a five-year renewal option.

 

We sublease approximately 4,500 square feet of warehouse space in Gardena, California pursuant to a sublease that expires on February 28, 2009, with annual base cost of approximately $41,000. The space is used for storing tournament equipment, and our trucks are parked there.

 

We believe that our current facilities are sufficient for our needs.

 

ITEM 3. Legal proceedings.

 

A complaint was filed on June 6, 2007 in the United States Circuit Court of Cook County, Illinois, in which the plaintiff seeks damages for personal injuries relating to a fall the plaintiff suffered during a volleyball tournament taking place at the Hard Rock Hotel & Casino in Las Vegas, Nevada on September 7, 2005. Discovery is still being completed and therefore management is unable to determine or predict the outcome of this claim or the impact, if any, on the Company’s financial condition or results of operations. Accordingly, the Company has not recorded a provision for this matter in its financial statements.

 

ITEM 4. Submission of Matters to a Vote of Security Holders.

 

No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

 

 

PART II

 

ITEM 5. Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities.

 

Market Information

 

The price of our common stock is quoted on the OTCBB under the symbol “AVPI.”

 

As of March 19, 2008, we had 20,551,633 shares of common stock outstanding.

 

The following table sets forth certain information with respect to the high and low market prices of our common stock for the periods indicated.

Year		Quarter			High			Low
		Fourth			$	1.22		$	0.80
		Third				1.24			0.90
		Second				1.50			1.19
		First				2.00			0.70
		Fourth				1.40			0.55
		Third				0.90			0.60
		Second				1.02			0.75
		First				1.95			0.87

 

The high and low prices are based on the average bid and ask prices for common stock, as reported by the OTCBB. Such prices are inter-dealer prices without retail mark-ups, mark-downs or commissions and may not represent actual transactions.

 

Stockholders

 

As of March 24, 2008, there were 371 holders of record of our common stock.