asw v1

American SportWorks

American SportWorks

June 24, 2014 © 2013 Ambassador Enterprises, LLC. All Rights Reserved. Page 1

American SportWorks For more than 50 years, American SportWorks has been distributing and manufacturing on and off – road

vehicles, with over a million vehicles sold to date. The LANDMASTER brand is a full line of Utility Vehicles,

ranging from 150cc “Light Utility Vehicles” to mid-size 2WD and 4WD models all the way to 4-seater crew

vehicles and optional 6-seat configurations.

The LANDMASTER family was designed with your every need in mind, work or play. The LM200 runabout is a

quick, lighter duty vehicle perfect for adding to the enjoyment of your land while helping to maintain your

residential, vacation or small commercial property. Medium duty jobs such as moving mulch, logs, or towing

a mower or trailer can be handled with ease by the LM300 or LM400.

American SportWorks


Kart 200 Model 400 Model 700 Model

Investment Transaction

Summary Report

Updated to include under #1 a Sources and Uses (“Follow the Money”) Analysis

American SportWorks


1. Basic terms and conditions of the sale:

Agreed price before adjustments $6,750,000

Reduction for Menards commitment ( 390,000)

Reduction for Pep Boys commitment ( 40,000)

5 Year escrow for product liability /

material reps to be given to AE now

without condition ( 250,000)

Reduction for Net Working Capital ( 679,785)

Reduction for Net Working Capital ( 87,097)

Purchase price $5,303,118

Fee to Metropolitan Title of Indiana, LLC 1,530

Fee to LeClere Law Firm / Alliance Title 7,939

Final purchase price $5,312,587

Notes:

Working Capital Adjustment made prior to closing and injected into ASW, LLC to

account for and cover the increase in accounts payable and other working capital

deterioration from due diligence to closing.

Working Capital Adjustment post-closing retained by AE.

Sources: Funded through $2,992,587 equity contribution plus a $2,320,000 advance on ASW, LLC

Line of Credit at Wells Fargo Bank.

Uses of Funds (“Follow the Money):

$300,000 to indemnification escrow account

$250,000 to working capital escrow account

$4,238,532 PNC to payoff loan

$3,191 to Bank of America for payment of DLA Piper LLP for its services as counsel

to PNC Bank

$45,554 to U.S. Bank, N.A. for funds owed to Monitor Manufacturing Company

$187,018 to The Bank of New York Mellon for funds owed to Blackrock Kelso Capital

Corporation

$230,920 to JPMorgan Chase Bank for payment of seller’s obligation to Livingstone

for its services as transaction facilitator / advisor

ASW, LLC d/b/a American SportWorks Investment Transaction Summary Report

Transaction Date: November 14, 2012

American SportWorks


$50,000 to Citizens Bank for payment of seller’s obligation to Goodwin Procter, LLP

for its services as counsel to member

$85,000 to Citibank, N.A. for payment of seller’s obligation to McDermott Will &

Emery, LLP for its services as counsel to seller

$1,530 to 1st Source Bank for payment of Metropolitan Title of Indiana, LLC for its

services on Indiana title matters

$7,939 to Bancorp South for payment of LeClere Law Firm/Alliance Title, LLC for its

services on Louisiana title matters

$87,097 to AE post-closing retained for net working capital adjustment

Post closing transaction: Sub-debt from AE of $350,000 at 8% to cure Tangible Net Worth shortfall.

2. EBITDA and how we arrived at it:

Final purchase price was $5,303,118. Using a 5 multiple would imply an EBITDA of $1,060,623.

See # 3 below for Valuation calculation during due diligence. The following details the adjustments

to arrive at the Adjusted EBITDA and the Adjusted EBITDA for resulting interest.

(Note: The numbers shown in these financial schedules in response to Questions # 2 & # 3 were

provided by Livingstone Partners, LLC, ASW’s Investment Banker.)

Actual Actual

2010 2011

EBITDA 1,745,254$ (91,039)$

Adjustments:

w Restructuring Initiatives 668,556$ 1,153,647$

w Consulting 158,185$ 156,153$

w Blackrock Charges 50,000$ 50,000$

w Professional fees- transaction 700,000$ -$

w Start up costs in China 5,391$ 171,142$

w Menards snow plow installation 31,200$ -$

w Menards electric produced at a loss -$ 167,899$

w Menards road show -$ 135,227$

Total Adjustments 1,613,332$ 1,834,068$

Adjusted EBITDA 3,358,586$ 1,743,029$

Rounded 3,359,000$ 1,743,000$

Additional Adjustment:

w Dilutive effect of giving Chinese supplier/shareholder

5.6% ownership

(188,104)$ (97,608)$

Adjusted EBITDA for resulting interest 3,170,896$ 1,645,392$

Project Duke

Adjusted EBITDA for 2010 & 2011

American SportWorks


3. Multiple and how we arrived at it:

The following EBITDA Multiple calculation was completed. This was as of June 20, 2012 and then as

the due diligence took place combined with the continued deterioration in the financial condition of

American SportWorks, the final purchase price was $5,303,118 (See # 1 Above )

4. Ending balance sheet (prior to sale):

American SportWorks, LLC 11/13/2012

Assets:

Cash $ 75,649

Accounts Receivable $ 2,687,078

Inventory $ 7,448,122

Prepaid Expenses $ 525,995

Note Receivable $ 185,179

Net Plant, Property & Equipment $ 517,522

Net Deferred Financing Costs $ 110,243

Total Assets $11,549,788

Liabilities:

Accounts Payable $ 4,048,847

Accrued Liabilities $ 1,838,237

Revolving Line of Credit $ 4,237,140

Note Payable $ 255,017

Blackrock Subordinated Debt $ 9,255,662

Total Liabilities $19,634,903

Stockholder’s Equity:

Paid In Capital $17,499,494

Total Stockholder’s Equity ($25,584,609)

Total Liabilities & Stockholder’s Equity $11,549,788

Actual Actual Budgeted

2010 2011 2012

Adjusted EBITDA 3,359,000$ 1,743,000$ 1,560,000$

Dilutive effect of giving Chinese supplier/shareholder 5.6% ownership (188,104)$ (97,608)$ (87,360)$

Adjusted EBITDA for resulting interest 3,170,896$ 1,645,392$ 1,472,640$

Weight 1 2 3

Weighted average 1,813,267$

Multiple 5

Valuation 9,066,333$

Project Duke

Valuation--EBITDA Multiple

June 20, 2012Fiscal Years Ended December 31

American SportWorks


5. Beginning balance sheet (after sale):

ASW,LLC 11/14/2012

Assets:

Accounts Receivable $ 2,872,257

Inventory $ 7,067,837

Prepaid Expenses $ 525,995

Net Plant, Property & Equipment $ 577,127

Total Assets $11,043,216

Liabilities:

Accounts Payable $ 3,978,843

Accrued Liabilities $ 1,496,768

Revolving Line of Credit $ 2,320,000

Note Payable $ 255,017

Total Liabilities $ 8,050,629

Stockholder’s Equity:

Paid In Capital $ 2,992,587

Total Stockholder’s Equity $ 2,992,587

Total Liabilities & Stockholder’s Equity $11,043,216

6. Financial history and projections:

American SportWorks


7. Terms of all loans:

Wells Fargo Bank

Revolving line of credit:

Amount $5,000,000 (Advanced $2,320,000 for purchase)

Rate Prime (variable)

Due Interest payable monthly

Borrowing base 50% of inventory (Not to exceed $2,500,000) & 75% of

accounts receivable

Security: All ASW, LLC assets

Loan Covenant: Minimum Tangible Net Worth of $3,250,000 Calculated Annually

Subordination Agreement: Ambassador Enterprises, LLC to Wells Fargo Bank

8. Discounted cash flow analysis and any other means used to arrive or look at returns:

Discounted cash flow method used for comparison

Forecast 3 Months Forecast Forecast Forecast Forecast

2012 2013 2014 2015 2016

Revenues

UTV 6,415,863$ 69.4% 22,242,578$ 63.7% 24,524,529$ 61.0% 26,969,020$ 60.2% 29,623,616$ 58.9%

LUTV 1,613,264$ 17.4% 8,665,800$ 24.8% 9,756,094$ 24.3% 10,925,627$ 24.4% 12,126,844$ 24.1%

Go-Karts 1,352,826$ 14.6% 4,515,864$ 12.9% 6,482,502$ 16.1% 7,511,435$ 16.8% 9,281,409$ 18.4%

Other -$ 0.0% -$ 0.0% 0.0% 0.0% 0.0%

Less: Discounts (135,951)$ -1.5% (489,911)$ -1.4% (574,085)$ -1.4% (639,753)$ -1.4% (720,185)$ -1.4%

9,246,002$ 100.0% 34,934,331$ 100.0% 40,189,040$ 100.0% 44,766,329$ 100.0% 50,311,684$ 100.0%

Growth % 15.0% 11.4% 12.4%

Cost of goods sold

Cost of materials incl freight (variable) 6,075,137$ 65.7% 23,930,947$ 68.5% 27,719,111$ 69.0% 30,883,949$ 69.0% 34,697,401$ 69.0%

Direct labor (variable) 169,105$ 1.8% 595,795$ 1.7% 696,661$ 1.7% 776,324$ 1.7% 870,673$ 1.7%

Quality expense (fixed) 35,151$ 0.4% 185,893$ 0.5% 204,824$ 0.5% 221,671$ 0.5% 241,661$ 0.5%

FW Manufacturing expense (fixed) 418,490$ 4.5% 1,847,394$ 5.3% 2,051,994$ 5.1% 2,238,528$ 5.0% 2,487,782$ 4.9%

LA Manufacturing expense (fixed) 617,154$ 6.7% 2,362,454$ 6.8% 2,573,021$ 6.4% 2,798,741$ 6.3% 3,068,317$ 6.1%

7,315,037$ 79.1% 28,922,483$ 82.8% 33,245,611$ 82.7% 36,919,213$ 82.5% 41,365,834$ 82.2%

Gross profit 1,930,965$ 20.9% 6,011,848$ 17.2% 6,943,429$ 17.3% 7,847,116$ 17.5% 8,945,850$ 17.8%

Growth % 15.5% 13.0% 14.0%

Operating expenses

Commissions (variable) 92,460$ 1.0% 349,343$ 1.0% 401,890$ 1.0% 447,663$ 1.0% 503,117$ 1.0%

Selling expense (fixed) 386,570$ 4.2% 1,549,457$ 4.4% 1,692,810$ 4.2% 1,821,234$ 4.1% 1,972,640$ 3.9%

Marketing expense (fixed) 112,775$ 1.2% 550,885$ 1.6% 633,747$ 1.6% 705,927$ 1.6% 793,373$ 1.6%

FW engineering expense (fixed) 128,690$ 1.4% 543,493$ 1.6% 587,280$ 1.5% 626,925$ 1.4% 673,187$ 1.3%

LA engineering expense (fixed) -$ 0.0% -$ 0.0% 0.0% 0.0% 0.0%

Administrative expenses (fixed) 620,456$ 6.7% 2,306,920$ 6.6% 2,474,526$ 6.2% 2,626,059$ 5.9% 2,799,876$ 5.6%

Amortization-goodwill 0.0% 0.0% 0.0% 0.0% 0.0%

Interest expense 18,850$ 0.2% 75,400$ 0.1% 67,275$ 0.2% 38,025$ 0.1% (2,600)$ 0.0%

Cost & expense reductions--net (14,000)$ -0.2% (597,000)$ -1.7% (1,602,000)$ -4.0% (1,576,000)$ -3.5% (1,629,000)$ -3.2%

Depreciation adjustment (24,817)$ -0.3% (206,754)$ -0.6% (241,614)$ -0.6% (271,980)$ -0.6% (308,768)$ -0.6%

1,320,984$ 14.3% 4,571,744$ 13.1% 4,013,914$ 10.0% 4,417,853$ 9.9% 4,801,825$ 9.5%

Growth % -12.2% 10.1% 8.7%

Net income before taxes 609,981$ 6.6% 1,440,104$ 4.1% 2,929,515$ 7.3% 3,429,263$ 7.7% 4,144,025$ 8.2%

Growth % 103.4% 17.1% 20.8%

Taxes -$ 0.0% -$ 0.0% 0.0% 0.0% 0.0%

Net income 609,981$ 6.6% 1,440,104$ 4.1% 2,929,515$ 7.3% 3,429,263$ 7.7% 4,144,025$ 8.2%

Growth % 103.4% 17.1% 20.8%

Depreciation 6,250$ 25,000$ 25,000$ 25,000$ 25,000$

Interest expense 18,850$ 75,400$ 67,275$ 38,025$ (2,600)$

EBITDA 635,081$ 6.9% 1,540,504$ 4.4% 3,021,790$ 7.5% 3,492,288$ 7.8% 4,166,425$ 8.3%

Growth % 96.2% 15.6% 19.3%

= Estimated AE-driven cost & expense reductions

= Seller forecast includes excessive amount-this is the excess

Project Duke

Forecasted Income Statement and EBITDA

2012 Remainder and Fiscal Year 2013 - 2016

American SportWorks


ROI return analysis evaluated

5 Months Normalized

2012 2013 2014 2015 2,016 Terminal

Net Revenue 14,416,000$ 35,399,000$ 41,134,000$ 45,819,000$ 50,865,000$ 50,865,000$

2.3% 16.2% 11.4% 11.0% 0.0%

EBITDA 650,000$ 1,277,000$ 2,237,000$ 2,869,000$ 3,688,000$ 3,688,000$

Capital expenditures (not financed) -$ (100,000)$ (100,000)$ (100,000)$ (100,000)$ (100,000)$

Dilutive effect of giving Chinese supplier/shareholder 5.6% ownership (36,400)$ (65,912)$ (119,672)$ (155,064)$ (200,928)$ (200,928)$

Annualization of initial short period 859,040$

Free cash flow 1,472,640$ 1,111,088$ 2,017,328$ 2,613,936$ 3,387,072$

Terminal value in 2016 -$ -$ -$ -$ 14,536,184$

DCF rate 27.00% 0.8699 0.6849 0.5393 0.4247 0.3344 0.3344

Present value of free cash flow 1,280,986$ 761,014$ 1,087,970$ 1,110,022$ 1,132,550$ 4,860,527$

Terminal year growth rate and value 3.00%

Sum of present values 10,233,069$

DCF rate--build up method (Duff & Phelps)

Risk free rate 2.00%

Equity risk premium 7.00%

Small company risk premium 6.00%

Industry risk premium 6.00%

Specific company risk premium:

Volatility/uncertainty caused by past performance 2.00%

Barriers to entry -1.00%

Competition 1.00%

Customer concentration 1.00%

Employee stability -1.00%

Product liability issues associated with industry 2.00%

Reliance on significant supplier 2.00%

6.00%

27.00%

Project Duke

Valuation--Discounted Cash Flow Method

July 9, 2012 (Orig Plan But Assuming $2 million Sales Reduction/31% Contribution Margin)Fiscal Years Ending December 31

Opening Forecast 3 Months Forecast Forecast Forecast Forecast

Balance Sheet 2012 2013 2014 2015 2016

EBITDA 635,081$ 1,540,504$ 3,021,790$ 3,492,288$ 4,166,425$

Revolver Payments (Interest) (18,850)$ (75,400)$ (67,275)$ (38,025)$ 2,600$

Term Debt Payments (Principle and Interest) -$ -$ -$ -$ -$

CapEx -$ (100,000)$ (100,000)$ (100,000)$ (100,000)$

Free Cash Flow After Debt Service (CFADS) 616,231$ 1,365,104$ 2,854,515$ 3,354,263$ 4,069,025$

Enterprise Value 6,070,000$

Revolver Borrowings 2,320,000$

Term Debt Borrowings -$

Total Debt 2,320,000$

Equity Investment 3,750,000$

ROI (CFADS / Equity Investment) 16.4% 36.4% 76.1% 89.4% 108.5%

Annualized 65.7%

Unleveraged return 10.5% 25.4% 49.8% 57.5% 68.6%

Annualized 41.9%

Project Duke

Return on Investment

Inception through 2016

American SportWorks


9. Anything else you feel should be included:

Ownership Structure

Proforma with Reductions

American SportWorks


Forecast Forecast Forecast Forecast Forecast Forecast Total Forecast Forecast Forecast Forecast

Period 7 Period 8 Period 9 Period 10 Period 11 Period 12 2012 2013 2014 2015 2016

Restructure of leadership:

Current CEO compensation 390,000 390,000 390,000 390,000

New CEO compensation

Salary (12,500) (12,500) (12,500) (37,500) (150,000) (200,000) (250,000) (250,000)

Performance-based (50,000) (75,000) (75,000) (75,000)

Benefits (2,000) (2,000) (2,000) (6,000) (24,000) (25,000) (26,000) (26,000)

SVP-Sales/Mktg reduction to half time 100,000 100,000 100,000 100,000

- - - (14,500) (14,500) (14,500) (43,500) 266,000 190,000 139,000 139,000

Consolidation of Roseland into Ft Wayne:

Costs of move:

1 Unplug, transportation, setup of equip & inventory (75,000)

2 Reactivation of paint system (150,000)

3 Temp. outsourcing of painting

4 Severance costs--Roseland (100,000)

5 Recruitment/training costs--Ft Wayne (100,000)

6 Extra travel during transition (25,000)

7 Ft Wayne plant re-arrangement (25,000)

8 Carrying costs-inventory pre-build (25,000)

9 Consideration granted to Master Dealer (30,000) (30,000) (30,000)

(500,000) (30,000) (30,000) (30,000)

Savings from move:

10 Eliminate of duplicate indirect comp 198,750 477,000 477,000 477,000

11 Eliminate Roseland rent 168,000 168,000 168,000

12 Eliminate other Roseland housing costs 62,382 165,053 177,977 191,805

13 Eliniate other Roseland overhead 14,356 39,738 44,054 48,702

275,488 849,791 867,031 885,508

Eliminate excessive bank/finance charges:

PNC 6,000 6,000 6,000 18,000 72,000 72,000 72,000 72,000

Elimination of excessive professional fees:

Total forecasted 21,233 21,237 21,233 63,703 275,000 291,748 283,250 300,500

Less audit, plan admin & other appropriate (8,000) (8,000) (8,000) (24,000) (100,000) (103,000) (106,090) (109,273)

- 13,233 13,237 13,233 39,703 175,000 188,748 177,160 191,227

Eliminate excessive administrative travel:

75% of admin travel 36,000 36,000 36,000 36,000

Reduction in engineering consumed by R&D:

Fort Wayne department budget - 545,542 590,733 629,644 671,096

50% reduction (reflecting Sr Dev Engr & Engr Tech) - (272,771) (295,367) (314,822) (335,548)

- - - - - 272,771 295,367 314,822 335,548

NOTE: There may be savings possible by repatriating

work from China--none is assumed here.

Total estimated reductions - 4,733 4,737 4,733 14,203 597,259 1,601,905 1,576,013 1,629,283

Project Duke

Proforma Cost Reductions

2012 Remaining Months and 2013 - 2016

American SportWorks


Kart 200 Model 400 Model 700 Model

Executive Summary

American SportWorks


2013 Review: Year-to-Date Financial Summary through December 31, 2013 (Normalized – See Note 1): 2013 Actual 2013 Plan Over/(Under)

# of Unit Sales 10,162 11,085 (923) Gross Sales $31,760,509 $31,996,813 ($236,303) Gross Margin $5,137,223 $4,491,864 $645,359 Gross Margin % 16.4% 14.2% 2.2% Net Income $410,096 $300 $409,796 Adjusted EBITDA $842,152 $354,951 $487,200

Note 1: For 2013, Normalized financial results exclude the impact of the Menards rework and would result in a $304,299 reduction to net income and EBITDA. Sell Through 2013: # of Units Sold

Channel # of Stores 2013 2012 Increase / (Decrease)

Home Depot In 133 out of 1,971 1,041 787 +32% Increase of 254 Units

Menards In 225 out of 262 1,608 1,100 +46% Increase of 508 Units

Tractor Supply In 300 out of 1,200 1,988 2,578 -22% Decrease of 590 Units

Dunhams In 200 out of 200 1,117 0 Increase of1,117 Units

2014 Plan: 2014 Plan / 2013 Results / 2013 Favorable Variance to 2013 Plan / 2012 Comparative Results: 2014 Plan 2013 Results Favorable Variance 2012 Results

Gross Sales $35,077,000 $31,760,509 ($236,303) $29,651,706 Gross Margin % 17.9% 16.4% 2.2% 11.9% EBIT $1,153,461 $630,263 $523,199 ($1,358,126) Adjusted EBITDA $1,487,830 $842,152 $645,677 ($907,591)

American SportWorks


2014 Plan Units: 2014 Plan 2013 Results 2012 Results

Karts 3,075 3,301 3,206 Scooter & Mini Bikes 0 0 21 LUTV 3,162 2,743 2,304 UTV 4,739 4,273 3,864 Total Units 10,976 10,317 9,395

2014 Plan Gross Sales: 2014 Plan 2013 Results 2012 Results

Karts $ 2,933,000 $ 3,199,514 $ 3,662,414 Scooter & Mini Bikes $ 0 $ 0 $ 10,284 LUTV $ 8,025,000 $ 6,960,346 $ 5,528,481 UTV $20,169,000 $17,925,157 $16,780,435 Parts $ 3,950,000 $ 3,675,493 $ 3,670,092 Total Gross Sales $35,077,000 $31,760,510 $29,651,706

2014 Year-to-Date Results: January & February 2014 Results:

January sales were right on the 2014 Plan; however February sales fell short of the 2014 Plan. YTD results show sales of $3,394,754 vs. Plan of $3,658,425.

Number of units sold YTD were 1,228 vs. Plan of 1,023. This shows 205 units over plan were sold but the mix of units (Karts, UTV, and LUTV) was different than projected which produced a $640 shortfall per unit on the price per average unit.

Some of this shortfall is attributable to the EPA issue at Tractor Supply. March Plan is 997 units and $3.1 million in sales. As of March 24, 2014, the month is currently

tracking at potential for 767 units resulting in $1.1 million behind plan with 11 days to go. EPA Evaporative Emission issues at Tractor Supply have impacted the results. EPA issues have been resolved and units are now actively being sold at Tractor Supply.

Big Rocks: Strategic Execution Plan

Execute in 2014 to advance towards achievement of BHAG 2014 Tactical Objectives identified and being tracked

Project Kart

After additional analysis and discussion, the ASW team made the decision to not move forward with Carter. ASW ‘s LOI provided for tranche funding as metrics such as sales and expansion of distribution channels are attained and product royalties are limited to a period of 3 years. Carter’s counter proposal is guaranteed payment for these tranches with no metrics but willing to give up royalties.

ASW is now working on costs, timing, restructuring internal engineering resources and developing partnerships for outside innovation, design and engineering capabilities.

American SportWorks


Big Rocks: (Continued) ASW’s Real Estate Lease

ASW was notified that the owner of the building that ASW leases has sold the building. The Fort Wayne facility has been sold. New buyers are very flexible and have offered us a

short term extension of our current lease at current rates. I am working on a "lease extension" to document the terms. Current owner will not approve any revisions to the current lease. If the buyer can close on the sale, we are good. If they don't close we will pay double rent for any holdover period. The option we were pursuing has changed and no longer looks like a good option. We have added three more buildings to look at. We are getting quotes from movers and we are interviewing additional candidates for project management.

ASW’s lease expires at the end of May 2014. AE’s Real Estate Team evaluated purchase option and decided to “Pass”. ASW engaged CBRE to represent them in lease negotiations and to determine alternative

properties for leasing.

Next Steps: Continue to manage the business to meet/exceed the 2014 Plan. Strategic Execution Plan utilized as

key guide for advancement in 2014 towards BHAG.

ASW working on costs, timing, restructuring internal engineering resources and developing partnerships for outside innovation, design and engineering capabilities.

Finalize Real Estate lease options.

asw v1

Documents

net working capital

pnc bank

working capital deterioration

bank of america

source bank

citizens bank

capital escrow account

llc line of credit