As filed on February 14, 2000 File No. 333-61533
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(POST-EFFECTIVE AMENDMENT NO. 2)
PROFORMANCE RESEARCH ORGANIZATION, INC.
(Name of small business issuer in its charter)
DELAWARE 7999 84-1334921
(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
5335 WEST 48TH AVENUE, DENVER, COLORADO 80212
(303) 458-1000
(Address and telephone number of principal executive offices)
5335 WEST 48TH AVENUE, DENVER, COLORADO 80212
(Address or principal place of business or intended principal
place of business)
WILLIAM D. LEARY, PRESIDENT AND TREASURER
PROFORMANCE RESEARCH ORGANIZATION, INC.
5335 WEST 48TH AVENUE, DENVER, COLORADO 80212
(303) 458-1000
(Name, address and telephone number of agent for service)
Copies of all communications to:
John A. Hutchings, Esq.
Fay M. Matsukage, Esq.
Dill Dill Carr Stonbraker & Hutchings, P.C.
455 Sherman Street, Suite 300
Denver, Colorado 80203
(303) 777-3737; fax (303) 777-3823
Approximate date of proposed sale to public: As soon as practicable after the
effective date of the Registration Statement
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box: [X]
If 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,
please check the following box.[ ]
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
======================= ======================= ======================= ======================= ======================
Title of each class Proposed maximum Proposed maximum
of securities to be Amount to be offering price per aggregate offering Amount of
registered registered unit (1)<F1> price registration fee
- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C>
Common Stock 1,367,800 $2.50 $3,419,500 $902.75
shares
- ----------------------- ----------------------- ----------------------- ----------------------- ----------------------
Total $3,419,500 $902.75
======================= ======================= ======================= ======================= ======================
<FN>
<F1>
(1) Estimated solely for the purpose of calculating the registration fee.
</FN>
</TABLE>
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.
<PAGE>
PROSPECTUS
PROFORM GOLF, INC.
SHARES OF COMMON STOCK
---------------
We will issue 467,800 shares of common stock as payment on our
promissory notes and 190,000 shares when holders convert our Series C preferred
stock into common stock. This prospectus covers the resale of these shares of
common stock. This prospectus also covers 40,000 shares of common stock owned by
our distributors and 670,000 shares owned by two other stockholders. The selling
stockholders may sell the common stock at any time at any price. We will not
receive any proceeds from the resale of these shares. We have agreed to pay for
all expenses of this offering.
No public market currently exists for our common stock. We expect
trading to commence in the OTC Bulletin Board after the date of this prospectus.
We will apply for quotation of our common stock on the NASDAQ SmallCap Market
once we meet listing standards.
---------------
INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. A
DETAILED EXPLANATION OF THESE RISKS IS INCLUDED IN ANOTHER SECTION OF THIS
PROSPECTUS, BEGINNING ON PAGE 4.
---------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------
The information in this prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
______________, 2000
<PAGE>
<TABLE>
TABLE OF CONTENTS
<CAPTION>
PAGE
<S> <C>
PROSPECTUS SUMMARY.............................................................................................. 3
RISK FACTORS.................................................................................................... 4
CAPITALIZATION.................................................................................................. 8
DIVIDEND POLICY................................................................................................. 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF
OPERATIONS............................................................................................ 9
Overview ............................................................................................. 9
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30, 1998................. 9
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997................................. 10
Liquidity and Capital Resources....................................................................... 10
Seasonality........................................................................................... 11
Impact of the Year 2000............................................................................... 12
BUSINESS ...................................................................................................... 13
Overview ............................................................................................. 13
Corporate History..................................................................................... 13
Industry Background................................................................................... 13
Strategy ............................................................................................. 14
Destination Golf Schools.............................................................................. 14
Acquisitions and Site Start-Up Costs.................................................................. 16
International Operations.............................................................................. 16
Marketing............................................................................................. 17
Competition........................................................................................... 17
PROPERTY ...................................................................................................... 18
EMPLOYEES...................................................................................................... 18
MANAGEMENT..................................................................................................... 18
Directors and Executive Officers...................................................................... 18
Key Employees and Consultants......................................................................... 19
CERTAIN TRANSACTIONS........................................................................................... 19
EXECUTIVE COMPENSATION......................................................................................... 20
PRINCIPAL STOCKHOLDERS......................................................................................... 20
DESCRIPTION OF CAPITAL STOCK................................................................................... 21
Common Stock.......................................................................................... 21
Preferred Stock....................................................................................... 21
Section 203 of the Delaware General Corporation Law................................................... 21
Antitakeover Effects of Certificate of Incorporation, Bylaws and Delaware Law......................... 22
Listing ............................................................................................. 22
Transfer Agent and Registrar.......................................................................... 22
SELLING STOCKHOLDERS........................................................................................... 23
Repayment of Short-Term Debt.......................................................................... 23
Series C Preferred Stock.............................................................................. 24
Shares Owned by Distributors.......................................................................... 24
Shares Owned by Other Stockholders.................................................................... 25
PLAN OF DISTRIBUTION........................................................................................... 25
SHARES ELIGIBLE FOR FUTURE SALE................................................................................ 26
LEGAL MATTERS.................................................................................................. 27
EXPERTS ...................................................................................................... 27
ADDITIONAL INFORMATION......................................................................................... 27
REPORTS TO STOCKHOLDERS........................................................................................ 27
FINANCIAL STATEMENTS........................................................................................... F-1
</TABLE>
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus. You should carefully read this entire prospectus and the financial
statements contained in this prospectus before purchasing our securities.
PROFORM GOLF, INC.
We provide golf instruction through Destination Golf Schools located at
independent resorts, to which students generally travel for intensive one to
five-day programs. We target our sales to two audiences: individuals through
solicitation of direct retail sales and corporations through the sale of
"Premium Links(TM)" packages. The sale of Premium Links(TM) packages is
accomplished through a network of distributors located throughout the United
States. We are presently developing our distributor network and generate revenue
from the sale of territories to prospective distributors.
As of February 10, 2000, we had 18 Destination Golf Schools under
contract for full or partial year operation, twelve of which are operating now
and six of which are scheduled to open within the next twelve months. Our
arrangement with independent resorts allows us to offer first-rate golf
facilities at reasonable cost and enables us to take advantage of the course's
or resort's marketing efforts, visibility, and facility quality.
We believe that we are distinguished from our competitors on the basis
of the quality of our facilities, our unique curriculum, and our experienced
management team and staff. Our curriculum is geared toward the marketing premise
that ideas accepted on the professional golf tours are accepted by recreational
golfers. Our teaching curriculum has been "recognized" by the Professional Golf
Association. This recognition allows us to provide PGA instruction by employing
PGA professionals who can work toward or maintain their status in the PGA
program.
We were originally founded in Colorado in 1991 under the name World
Associates, Inc. and were reincorporated in Delaware effective July 31, 1998
under the name Proformance Research Organization, Inc. We currently do business
under the name "Proform golf, inc.," and are in the process of amending our
certificate of incorporation to reflect this.
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Securities offered ............................................ Resale of 467,800 shares of common stock issuable
upon payment of promissory notes
Resale of 190,000 shares of common stock issuable
upon conversion of Series C preferred stock
Resale 40,000 shares of common stock owned by
distributors
Resale of 670,000 shares of common stock owned by
two stockholders
Securities outstanding as of February 11, 2000 5,473,965 shares of common stock
190,000 shares of Series C preferred stock
Securities to be outstanding as of prospectus date ............ 6,131,765 shares of common stock
</TABLE>
We will not receive any of the proceeds from the resale of these securities.
3
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
You should review the information shown below together with our
historical audited financial statements appearing elsewhere in this prospectus.
Our results of operations for any interim period do not necessarily indicate our
results of operations for the full year. You should read this summary financial
data in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business," and our financial statements.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------------
-----------------------------------------
1999 1998 1998 1997
-------------------- ------------------- ----------------- -----------------
OPERATING DATA: (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Revenues.............................. $ 759,169 $ 363,863 $ 189,740 $ 119,072
Gross profit (loss)................... $ 582,304 $ 164,970 $ (353,268) $ 95,545
Net loss.............................. $ (1,480,542) $ (1,093,208) $ (2,133,279) $ (692,998)
Net loss per share.................... $ (0.35) $ (0.68) $ (2.27) $ (0.80)
<CAPTION>
SEPTEMBER 30, 1999 DECEMBER 31,
----------------------------------------- -----------------
ACTUAL AS ADJUSTED(1)<F1> 1998
-------------------- ------------------- -----------------
BALANCE SHEET DATA: (UNAUDITED)
<S> <C> <C> <C>
Working capital (deficiency).......... $ (2,624,852) $ (1,455,352) $ (1,663,880)
Total assets.......................... $ 475,440 $ 475,440 $ 233,403
Total liabilities..................... $ 3,163,298 $ 2,041,298 $ 2,020,027
Shareholders' equity
(deficiency) (2)<F2>................ $ (2,687,858) $ (1,518,358) $ (1,786,624)
- -----------
<FN>
<F1>
(1) Adjusted to reflect the payment of $1,169,500 of outstanding debt through
the issuance of 467,800 shares of common stock.
<F2>
(2) Does not reflect the sale of 974,500 shares of common stock and 150,000
shares of Series C preferred stock for gross proceeds of $1,533,145
subsequent to September 30, 1999.
</FN>
</TABLE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, YOU
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE PURCHASING ANY OF
OUR SECURITIES. THE SECURITIES OFFERED THROUGH THIS PROSPECTUS INVOLVE
SUBSTANTIAL RISKS ASSOCIATED WITH US AND OUR BUSINESS INCLUDING, AMONG OTHERS,
RISKS ASSOCIATED WITH SUBSTANTIAL INDUSTRY COMPETITION, INSUFFICIENT REVENUES,
AND A LIMITED OPERATING HISTORY.
GOING CONCERN QUALIFICATION. As of September 30, 1999, we had an
accumulated deficit of $4,984,444 (unaudited) and a stockholders' deficiency of
$2,687,858 (unaudited). The report of our auditors on the financial statements
for the last fiscal year raised substantial doubt about our ability to continue
as a going concern. Our ability to continue as a going concern will depend upon
our success in obtaining additional capital, paying our obligations timely, and
ultimately achieving profitable operations. If we are unable to achieve these
goals, the company will fail and investors will lose their investment.
PROFITABLE OPERATIONS UNCERTAIN. To date, we have never achieved an
operating profit. We have incurred substantial losses for each of the past five
years, including a net loss of $2,133,279 for 1998. For the nine months ended
September 30, 1999, we incurred a net loss of $1,480,542. We made a strategic
decision to open
4
<PAGE>
several sites for our Destination Golf Schools, despite the significant overhead
expenses associated with opening multiple sites. The resulting overhead expenses
increase the amount of revenue required to achieve profitability. We cannot give
any assurance that we will ever achieve an operating profit in any period, or
that any profitability that may be achieved in the future can be sustained. If
we are unable to achieve profitable operations, the company will ultimately
fail.
SUBSTANTIAL COMPETITION IN OUR BUSINESS. The golf instruction market is
highly fragmented, with lessons available at a vast number of local golf
courses, driving ranges and golf shops, as well as a large number of destination
golf schools. We compete with all of these sources of golf instruction. Shaw
Guides, an Internet travel information source that compiles golf instruction
facilities, lists hundreds of different sources of golf instruction in the
United States. Many of the local sites with which we compete have greater local
name recognition and resources than we do. Our Destination Golf Schools compete
with several destination golf schools operated throughout the United States,
including John Jacobs Golf Schools, David Leadbetter Golf Academy,
Nicklaus/Flick Game Improvement, Arnold Palmer Golf Academy, and Golf Digest
Schools. Many of these schools have greater resources, a larger number of sites,
more prestigious locations, or affiliations with well-known and respected
golfers or golf instructors than we do. While our management believes that our
program is unique in its emphasis on the mental approach to golf and its
emphasis on physical conditioning, there can be no assurances that we will be
able to compete in the marketplace.
SIGNIFICANT DEPENDENCE ON KEY PERSONNEL. We depend heavily on the
efforts of our president, William D. Leary, as well as other key employees and
consultants. Currently, Mr. Leary is responsible for identifying and contracting
with potential distributors. If we were to lose Mr. Leary's services, our
marketing efforts could be severely impacted. Although we have an employment
agreement with Mr. Leary, we cannot assure investors that we will be successful
in retaining Mr. Leary, or in attracting and retaining qualified personnel of
the requisite caliber or in the requisite numbers to enable us to conduct our
business as proposed. We do not have any key man life insurance on Mr. Leary.
SEASONALITY AND RISK OF INCLEMENT WEATHER IMPACT OUR OPERATIONS.
Throughout much of the United States, the golf business is seasonal, operating
primarily in the summer and additionally in the spring and fall. However, in
much of the Southern United States, golf is played either year-round or all year
except for the summer. This is primarily due to an outdoor playing season
limited by inclement weather or excessive heat. We believe that business at our
Destination Golf Schools will be seasonal with increased activity in the winter
as students take winter vacations to warm weather destinations, and decreased
activity in the summer. In particular, management expects decreased revenues
from Destination Golf School operations in May and September each year. We close
down many of our warm weather sites in May, with the staff of those sites moving
to a summer site, and close our summer sites in September, with the staff
returning to their warm weather sites. In each case, we expect a one week lag
between the closing of one site and the opening of the other site. Of our 18
current Destination Golf Schools, three facilities will close during the summer,
twelve will be open only during the summer, and the remaining three will be open
year-round. Also, our operations are subject to the effects of inclement weather
from time to time even during the seasons that they are open. The timing of any
new facility openings, the seasons our facilities are open, the effects of
unusual weather patterns and the seasons in which students are inclined to
attend golf schools are expected to cause our future results of operations to
vary significantly from quarter to quarter. Accordingly, period-to-period
comparisons will not necessarily be meaningful and should not be relied on as
indicative of future results. In addition, our business and results of
operations could be materially and adversely affected by future weather patterns
that cause our sites to be closed, either for an unusually large number of days
or on particular days on which we had booked a special event or a large number
of students. Because most of the students at our Destination Golf Schools attend
the school on vacation, the student may not be able to or interested in
rescheduling attendance at one of our sites. As a result, student-days lost to
inclement weather may truly represent a loss, rather than merely a deferral, of
revenue.
PROPER MANAGEMENT OF GROWTH CRITICAL TO OUR SUCCESS. We are currently
experiencing a period of rapid and substantial growth that has placed, and is
expected to continue to place, a strain on our administrative and operational
infrastructure. The number of employees has increased from 11 full-time
employees at January 31,
5
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1996 to 20 full-time employees at September 30, 1999. The number of sites has
increased from one Destination Golf School in June 1997 to 18 Destination Golf
Schools at February 10, 2000. We need continued improvement in our operational,
financial and management controls, and reporting systems and procedures in order
to manage our staff and growth effectively. In this regard, we are currently
updating our management information systems to integrate financial and other
reporting among our distributors. In addition, we intend to continue to increase
our staff and improve financial reporting and controls for our operations. We
cannot assure you that we will be able to implement improvements to our
management information and control systems in an efficient or timely manner or
that, during the course of this implementation, deficiencies in existing systems
and controls will be discovered. If our management is unable to manage growth
effectively, our business, results of operations and financial condition will be
materially and adversely affected.
LACK OF SUFFICIENT DISINTERESTED INDEPENDENT DIRECTORS. We have entered
into several transactions with our officers, directors, and principal
shareholders. Our board of directors, which authorized the transactions,
consists of Mr. Leary, our president, and two other directors, both of whom are
shareholders of the company. While we believe that these transactions were on
terms that were no less favorable to us than those that could have been obtained
from unaffiliated third parties, these transactions were not approved by a
majority of independent disinterested directors.
LACK OF PUBLIC MARKET FOR THE SECURITIES. There is currently no public
market for the shares and we cannot assure you that a market for our stock will
develop. Consequently, investors may not be able to use their shares for
collateral for loans and may not be able to liquidate at a suitable price in the
event of an emergency. In addition, investors may not be able to resell the
shares, or may not be able to sell their shares at or above the price they paid
for them.
POSSIBLE VOLATILITY OF STOCK PRICE. The stock market has from time to
time experienced significant price and volume fluctuations that may be related
or unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the market price of our stock if a
market develops. In addition, the market price of our stock may be highly
volatile. Factors such as a small market float, fluctuations in our operating
results, failure to meet analysts' expectations, announcements of major
developments by us or our competitors, developments with respect to our markets,
changes in stock market analyst recommendations regarding us, our competitors or
the industry generally, and general market conditions may have a significant
effect on the market price of our stock.
"PENNY STOCK" RULES MAY LIMIT THE MARKETABILITY OF OUR STOCK. Our stock
will be subject to SEC rules relating to "penny stocks," which apply to
non-NASDAQ companies whose stock trades at less than $5.00 per share or whose
tangible net worth is less than $2,000,000. These rules require brokers who sell
"penny stocks" to persons other than established customers and "accredited
investors" to complete required documentation, make suitability inquiries of
investors, and provide investors with specific disclosures concerning the risks
of trading in the security. These rules may restrict the ability of brokers to
sell the common stock and may reduce the secondary market for the common stock.
A limited secondary market may result in a decrease in the shareholder value
and/or a partial or total loss of an investor's investment.
EXERCISE OF CONVERSION OF OUTSTANDING OPTIONS AND WARRANTS COULD RESULT
IN POTENTIAL DILUTION AND IMPAIR MARKET PRICE OF OUR STOCK. As of December 31,
1999, we had outstanding options and warrants to acquire a total of 659,000
shares of common stock. To the extent that these outstanding options and
warrants are exercised, existing stockholders will experience dilution in their
percentage ownership. So longs as these options and warrant are exercisable, the
holders will have the opportunity to profit from a rise in the price of our
stock. The additional shares of common stock available for sale in the market
may have a negative impact on the price and liquidity of the stock that is
currently outstanding.
DEPENDENCE ON DESTINATION GOLF SCHOOL LEASES. As of February 10, 2000,
we had lease contracts with 18 Destination Golf Schools. Our revenue potential
is limited by the number of students we can accommodate at our sites. In
addition, we believe that location is the most important factor for a golfer in
choosing a golf school.
6
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If we would not able to renew these leases, at all or on favorable terms, our
revenue potential could be greatly diminished, due to both a reduction in the
total number of students we could accommodate and a reduction in the number and
variety of sites we could offer. Inability to renew our site leases on favorable
terms or find suitable replacement facilities could have a material adverse
effect on our financial condition and results of operations.
POTENTIAL LOSS OF PGA OF AMERICA RECOGNITION. Our golf schools have
been recognized by the Professional Golf Association, which allows us to employ,
and in turn offer instruction by, PGA-accredited teachers. The PGA is entitled
to withdraw this recognition at any time, without cause, to impose conditions on
this recognition, or to change the terms of this recognition. Any change in the
status of PGA recognition of our golf schools could impair our ability to retain
qualified instructors in the numbers necessary to staff our Destination Golf
Schools, and could negate our ability to train golf instructors for PGA
certification. Loss, or change in the terms or status, of PGA recognition of our
golf schools could have a material adverse effect on our business, financial
condition and results of operations.
IMPACT OF THE YEAR 2000. We use software in our financial, reservation
processing and administrative operations. While we have been informed by
substantially all of our business application software suppliers that their
software is year 2000 compliant, we cannot assure you that year 2000 problems
will not occur with respect to our computer systems. In addition, the year 2000
problem may affect other entities with which we transact business or on which
our golf school students depend, such as airlines and hotels. We cannot predict
the effect of the year 2000 problem on these other entities or its consequent
impact on us.
7
<PAGE>
CAPITALIZATION
The following table sets forth our current liabilities, long-term debt
and capitalization as of September 30, 1999, and as adjusted to give effect to
(1) the repayment of debt through the issuance of 467,800 shares and the
conversion of the Series C preferred stock into common stock. You should read
this table in conjunction with the financial statements appearing elsewhere in
this prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999
------------------------------
(UNAUDITED)
ACTUAL ADJUSTED
-------------- --------------
<S> <C> <C>
Current liabilities ............................................. $ 2,937,993 $ 1,768,493
============= ==============
Long-term debt................................................... $ 184,203 $ 184,203
------------- --------------
Other non-current liabilities ................................... 41,102 41,102
------------- --------------
Stockholders' deficiency:
Preferred stock, Series A, convertible, cumulative,
$.0001 par value per share, 500,000 shares authorized,
no shares issued and outstanding .......................... -- --
Preferred stock, Series B, convertible, cumulative,
$.0001 par value per share, 500,000 shares authorized,
no shares issued and outstanding........................... -- --
Preferred stock, Series C, convertible, cumulative,
$.0001 par value per share, 2,000,000 shares authorized,
40,000 shares issued and outstanding....................... 66,667 --
Common stock, $.0001 par value per share;
10,000,000 shares authorized, 4,499,465 shares issued,
5,007,265 issued as adjusted (1)<F1>....................... 450 500
Additional paid-in capital (1)<F1>............................ 2,229,469 3,465,586
Accumulated deficit........................................... (4,984,444) ( 4,984,444)
------------- --------------
Total stockholders' deficiency (1)<F1>........................... (2,687,858) (1,518,358)
------------- --------------
Total capitalization (1)<F1>..................................... $ (2,462,553) $ (1,293,052)
============= ==============
<FN>
<F1>
(1) Does not reflect the sale of 974,500 shares of common stock and 150,000
shares of Series C preferred stock for gross proceeds of $1,533,145
subsequent to September 30, 1999.
</FN>
</TABLE>
DIVIDEND POLICY
We do not anticipate paying dividends on the common stock at any time
in the foreseeable future. Our board of directors plans to retain earnings for
the development and expansion of our business. The board of directors also plans
to regularly review our dividend policy. Any future determination as to the
payment of dividends will be at the discretion of our board of directors and
will depend on a number of factors, including future earnings, capital
requirements, financial condition and other factors as the board may deem
relevant. We are not restricted by any contractual agreement by paying
dividends.
8
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
As of February 10, 2000, we have 18 Destination Golf Schools under
contract for full or partial year operation. We had expected to be financed in
January of 1998 and the delay in financing created a cash-flow problem due to
the financial commitments that had been made to each of these facilities.
Our Destination Golf Schools have opened at varying times over the past
two and a half years, and most of the Destination Golf Schools are closed during
local off-seasons. As a result of changes in the number of facilities open from
period to period, closing certain of the Destination Golf Schools during local
off-seasons, and overall seasonality of the golf business, results of operations
for any particular period may not be indicative of the results of operations for
any other period.
We made a strategic decision to open several sites for our Destination
Golf Schools, despite the fact that there are significant one-time and recurring
expenses associated with opening each site, and despite the fact that our
existing sites were not operating at capacity.
Originally, most site contracts for our Destination Golf Schools
provided for a fixed amount of monthly rent. We subsequently renegotiated some
site contracts to provide for rent on a per student basis, reducing our fixed
costs.
For each Destination Golf School, we hire a site manager and a number
of certified instructors based on anticipated demand. We provide training for
our site managers and certified instructors at our expense.
For a brief time, we marketed a line of books and related products in
the family self-help market, under the name Team Family(TM). We discontinued
that line of business in 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1998
TOTAL REVENUE. We had total revenue of $759,169 for the nine months
ended September 30, 1999, compared to $363,863 of total revenue for the nine
months ended September 30, 1998. The increase in total revenue was attributable
primarily to the development of our Corporate Sales, selling our Premium
Links(TM) corporate golf school packages, and the development of our distributor
network During the first nine months of 1999, we had 20 Destination Golf Schools
operating, as compared to 7 Destination Golf Schools during the nine months
ended September 30, 1998.
COST OF REVENUE. Cost of revenues for the nine months ended September
30, 1999, was $176,865 or 23% of total revenue, compared to $198,893 or 55% of
total revenue for the nine months ended September 30, 1998. Cost of revenues
consists primarily of instructor salaries and site fees (calculated on a "per
head" basis). The decrease in cost of revenues was due primarily to increased
revenues associated with having more schools operating during the 1999 period
and the decrease in cost of the site fees. In addition, during the nine months
ended September 30, 1998, the opening of several sites was delayed, and revenue
at open sites was negatively impacted by the effects of an unusually wet winter
in January, February and March 1998. See "Seasonality" below.
We made a strategic decision to renegotiate the rent at some of our
sites and have begun an advertising program to promote our sites. Most of the
fixed rent sites are winter sites. We hope that engaging in the planned
advertising campaign will allow volume at the fixed rent sites to be sufficient
to support the fixed fee rents. However, we cannot assure you that the
advertising campaign will result in increased student volume.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, consisting primarily of marketing and advertising
expenses, expenses associated with recruiting and training Destination Golf
9
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School site managers and instructors, salaries for administrative, sales and
marketing staff, and rent at our headquarters, increased from $1,195,063 for the
nine months ended September 30, 1998 to $1,988,760 for the nine months ended
September 30, 1999.
The increase was due primarily to expenses associated with establishing
our distributor network, such as increased salaries, rent, and advertising
expenses. We added more personnel, took on more space, and generated sales
materials and brochures. Also, shares issued as inducements for loan funds
received are accounted for as a financing expense. The amount charged to expense
was approximately $360,000 for the nine months ended September 30, 1999.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
TOTAL REVENUE. We had total revenue of $119,072 for the year ended
December 31, 1997, compared to $189,740 of total revenue for the year ended
December 31, 1998. The increase in total revenue was attributable primarily to
the increase in the number of Destination Golf School sites operating in the
1998 period. During the first ten months of 1997, we had one Destination Golf
School - Keystone, Colorado - open for a total of four months. During the year
ended December 31, 1998, we had several sites open during portions of that year:
Wildfire (Phoenix); Carlton Oaks (San Diego area); Rhodes Ranch (Las Vegas);
Keystone; Brooks (Lake Okoboji); Huff House (Catskills); Scottsdale Learning
Center; and Plum Creek (Denver area) Learning Center.
COST OF REVENUE. Cost of revenues for the year ended December 31, 1997
was $95,545 or 80% of total revenue, compared to $353,268 or 186% of total
revenue for the year ended December 31, 1998. Cost of revenue consists primarily
of instructor salaries and site fees. The increase in cost of revenue as a
percentage of total revenue in 1998 was due primarily to hiring of instructors
for our new sites, which operated below capacity. Opening of several sites was
delayed, and revenue at open sites was negatively impacted, by the effects of an
unusually wet winter in January, February and March 1998. See "Seasonality"
below.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, consisting primarily of marketing and advertising
expenses, expenses associated with recruiting and training our Destination Golf
School site managers and instructors, salaries for administrative, sales and
marketing staff, and rent at our headquarters, increased from $628,214 for the
year ended December 31, 1997 to $2,057,805 for the year ended December 31, 1998.
The increase was due primarily to expenses associated with recruiting and
training instructors for the new sites, expenses associated with opening the new
sites and rent at the new sites, and establishing our distributor network. We
believe that our long-term cost structure will be more advantageous with site
rentals based on fixed fees, and signed our new leases on this basis. However,
we are currently operating below capacity at all of our sites. We determined to
lower our short-term cost structure by negotiating a per-student rent for six
out of our ten summer sites. This decreases our fixed costs. (Our costs could
actually be higher at those sites than at sites with fixed rents if student
volume is increased at the sites with "per head" student rents.)
LIQUIDITY AND CAPITAL RESOURCES
The cash requirements of funding our operations and expansion have
exceeded cash flow from operations. We have satisfied our capital needs
primarily through debt and equity financing.
Of the $184,203 in long-term debt outstanding as of September 30, 1999,
$184,203 bears interest at a fixed rate of 12% and is due in 2002. This
indebtedness is convertible into our common stock at a rate of $1.43 per share
and may be prepaid by us upon 30 days' notice. We presently do not intend to
call this indebtedness for prepayment. The remainder of our long-term debt
relates to a note for an automobile which bears interest at the rate of 8.9% and
is payable in 42 monthly installments. As of December 31, 1999, there are 26
remaining installments.
At September 30, 1999, short-term notes payable was $1,888,700. Of this
amount, $1,169,500 will be paid by issuing 467,500 shares of common stock.
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<PAGE>
We filed a registration statement for a public offering which was
declared effective in February 1999. Due to material changes during the term of
the offering, we did not complete that offering. Since we were in need of cash
for ongoing operations, we incurred additional short-term debt and sold Series C
preferred stock. We determined that it would be in our best interests not to
proceed with an initial public offering, but instead to register shares to be
issued to our creditors and holders of the Series C preferred stock. After
issuing these shares, we will have decreased our working capital deficiency by
$1,169,500.
Since we have already received cash proceeds from the issuance of our
stock, our existing operations must be able to generate enough cash to cover
existing commitments and obligations, such as lease rent for the facilities,
instructors' salaries, and officers' salaries. We are obligated under a
five-year employment agreement to pay William D. Leary, our president, an annual
salary of $120,000.
We believe that our existing cash balances and anticipated cash from
operations will be sufficient to meet our current working capital needs.
However, we cannot assure you that we will not need to raise additional capital
sooner, particularly to take advantage of any expansion opportunities, not
currently anticipated, that may become available. In that event, we cannot
assure you that additional capital would be available at all, at an acceptable
cost, or on a basis that would be timely to allow us to finance opportunities of
this type.
As stated in the auditors' report on the financial statements, we
incurred a net loss of $2,133,279 for the 1998 fiscal year, and at December 31,
1998, our current liabilities exceeded current assets by $1,663,880 and our
total liabilities exceeded total assets by $1,786,624. These factors, among
others, raise substantial doubt about our ability to continue as a going
concern. See the note entitled "Continuing Losses, Deficit in Equity and
Negative Working Capital" in the notes to the financial statements.
SEASONALITY
Throughout much of the United States, the golf business is seasonal,
operating primarily in the summer and additionally in the spring and fall.
However, in much of the Southern United States, golf is played either year-
round or all year except for the summer. This is primarily due to an outdoor
playing season limited by inclement weather or excessive heat. We believe that
business at our Destination Golf Schools will be seasonal with increased
activity in the winter as students take winter vacations to warm weather
destinations, and decreased activity in the summer. In particular, we expect
decreased revenues from Destination Golf School operations in May and September
each year. We anticipate the closing of our warm weather sites in May, with the
staff of those sites moving to a summer site, and anticipate closing our summer
sites in September, with the staff returning to their warm weather sites. In
each case, we expect a one week lag between the closing of one site and the
opening of the other site. For example, our site manager and certified
instructors for Wildfire will generally move to Pole Creek or Haymaker for the
summer and the staff from Rhodes Ranch in Las Vegas will move to Lake Okoboji,
Iowa for the summer. Of our 18 current Destination Golf Schools, three
facilities will close during the summer, twelve will be open only during the
summer, and the remaining three will be open year-round. Also, our operations
are subject to the effects of inclement weather from time to time even during
the seasons that they are open. The timing of any new facility openings, the
seasons our facilities are open, the effects of unusual weather patterns and the
seasons in which students are inclined to attend golf schools are expected to
cause our future results of operations to vary significantly from quarter to
quarter. Accordingly, period-to-period comparisons will not necessarily be
meaningful and should not be relied on as indicative of future results. In
addition, our business and results of operations could be materially and
adversely affected by future weather patterns that cause our sites to be closed,
either for an unusually large number of days or on particular days on which we
had booked a special event or a large number of students. Because most of the
students at our Destination Golf Schools attend the school on vacation, the
student may not be able to or interested in rescheduling attendance at one of
our sites. As a result, student-days lost to inclement weather may truly
represent a loss, rather than merely a deferral, of revenue.
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<PAGE>
IMPACT OF THE YEAR 2000
Our management believes that it is prepared for year 2000 problems.
Management has assessed our operational procedures. Reservations for our golf
schools are generally made four to eight weeks ahead of time. A student provides
us with a credit card number which is processed for payment. Immediately
thereafter, we send a written confirmation of the reservation and payment to the
student. Approximately ten days before the attendance date, we send another
confirmation/itinerary to the student. While we use software for reservation
processing, administrative operations, and certain banking operations such as
credit card processing, physical records of all of these functions are also kept
in individual student files and appropriate office files. We have been informed
by substantially all of our business application software suppliers that their
software is year 2000 compliant. We have been maintaining additional physical
records since the fall of 1999 and will continue into the first part of 2000 as
a safeguard.
Accordingly, we expect that the advent of the millennium will have only
a minimal adverse effect on our business, operating results and financial
condition, due to additional physical record keeping efforts. However, we cannot
assure you that year 2000 problems will not occur. The year 2000 problem may
affect other entities with which we transact business or on which students of
our golf schools depend, such as airlines and hotels. While we are unable to
send questionnaires to each and every airline and hotel that our students may
use, we have been tracking the ability of the airline and hotel industries to
book reservations for the year 2000. Published reports indicate that these
reservations are being made without problems. Accordingly, while we cannot
predict the effect of the year 2000 problem on these other entities or its
consequent impact on us, management believes that any adverse effect on us will
not be material.
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BUSINESS
OVERVIEW
We provide golf instruction through Destination Golf Schools located at
independent resorts, to which students generally travel for intensive one to
five-day programs. We target our sales to two audiences: individuals through
solicitation of direct retail sales and corporations through the sales of
"Premium Links(TM)" packages. The sale of Premium Links(TM) packages is
accomplished through a network of distributors located throughout the United
States. We are presently developing our distributor network and generate revenue
from the sale of territories to prospective distributors.
As of February 10, 2000, we had 18 Destination Golf Schools under
contract for full or partial year operation, twelve of which are operating now
and six of which are scheduled to open within the next twelve months. Our
arrangement with independent resorts allows us to offer first-rate golf
facilities at reasonable cost and enables us to take advantage of the course's
or resort's marketing efforts, visibility, and facility quality.
We believe that we are distinguished from our competitors on the basis
of the quality of our facilities, our unique curriculum, and our experienced
management team and staff. Our curriculum is geared toward the marketing premise
that ideas accepted on the professional golf tours are accepted by recreational
golfers. Our teaching curriculum has been "recognized" by Professional Golf
Association. This recognition allows us to provide PGA instruction by employing
PGA professionals who can work toward or maintain their status in the PGA
program. In the May 1999 issue of GOLF MAGAZINE, we were rated as one of the top
25 golf schools in America. The rating was based on the following criteria:
teaching curriculum, quality of facility, student-teacher ratio, faculty (i.e.,
PGA instructors), and the use of state of the art equipment, such as computer
and video equipment.
CORPORATE HISTORY
We were originally founded in Colorado in 1991 under the name World
Associates, Inc. and remained dormant until 1995. We formed a subsidiary in
Delaware in February 1996 originally called Team Family, Inc., which changed its
name to Proformance Research Organization, Inc. in January 1997. We merged into
this subsidiary effective July 31, 1998, thereby effecting a reincorporation,
changing us from a Colorado corporation to a Delaware corporation. We currently
do business under the name "Proform golf, inc.," and are in the process of
amending our certificate of incorporation to reflect this.
We commenced golf instruction operations in the summer of 1996. We then
negotiated and signed agreements with various golf courses to operate our golf
schools at such courses, beginning with an agreement in March 1997. As outlined
above, we now have 18 Destination Golf Schools under contract. As our business
matures, we continue to modify and update our teaching curriculum
INDUSTRY BACKGROUND
The National Golf Foundation, a non-profit golf research organization
(the "NGF"), conducts various surveys and studies of golfers in the United
States. According to excerpts from various studies by the NGF, there were
approximately 26.5 million golfers in the United States age 12 and over,
compared with 19.9 million golfers in 1986, an increase of 33%. Approximately 12
million of these golfers are between the age of 18 and 39, 5.0 million are
between age 40 and 49 and 6.5 million were over age 50. Approximately 5.6
million U.S. golfers are "avid" golfers, defined as those who play at least 25
rounds of golf per year. Today's typical golfer is male, 39 years old, has a
household income of $63,300 and plays 21 rounds per year. In 1996, golfers spent
about $15.1 billion on equipment, related merchandise and playing fees, compared
to $7.8 billion in 1986. Non-golfers spent an additional $1.25 billion on
golf-related items in 1996.
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STRATEGY
We believe that the three most important criteria used by golfers to
select a school are: (1) location, (2) price, and (3) product. Key elements of
our strategy are (1) to increase the number of our Destination Golf Schools in
the United States; (2) to increase the number of distributors selling our
services; (3) to expand our business into new geographic territories; and (4) to
be price competitive through the sale of Premium Links(TM) packages. We cannot
assure you that we will be able to execute our strategy successfully.
* INCREASE THE NUMBER OF OUR DESTINATION GOLF SCHOOLS. We believe that
the most important consideration for a golfer deciding which golf
school to attend is location. We believe that we can attract more
students by offering more locations. In expanding to new locations, we
intend to add sites that are consistent with our current high quality
of facilities. We intend to maintain a relatively low overhead cost
structure by negotiating site contracts with rent based on the number
of students attending the school. We believe that our existing student
booking and billing operations can service a substantial increase in
volume of students, and that economies of scale can be achieved in
advertising and other marketing expenses as new sites are added. As of
February 10, 2000, we had 18 Destination Golf Schools under contract.
We have incurred significant expenses for site development, personnel
and advertising relating to these sites. We have attempted to locate
our sites in different geographic regions with varying golf seasons,
which we hope will reduce the effect of seasonality on our business. As
described more fully below, we may expand by acquiring existing golf
school operations.
* INCREASE THE NUMBER OF DISTRIBUTORS SELLING OUR SERVICES. To facilitate
the sales of packages of golf instruction into the corporate market
(called the Premium Links(TM)program), we intend to establish a network
of distributor members in defined geographic locations. These
distributors have non-exclusive marketing rights to our Premium
Links(TM)packages within their respective territories. For the
marketing rights to these programs, a distributor pays a one-time fee
of $25,000, which entitles the distributor to an extensive training as
well as the programs, products, and services that we have created. We
pay distributors commissions of up to 25% on the sale of Premium
Links(TM)packages based on a rolling commission schedule. As of
September 30, 1999, we had 20 distributors in 28 territories. Certain
distributors have purchased more than one territory.
* EXPAND OUR BUSINESS INTO NEW GEOGRAPHIC TERRITORIES. We intend to
establish Destination Golf Schools at additional sites within the
United States and at appropriate sites outside the United States. We
currently have an agreement with Sunkyong U.S.A. for that company to
represent us in the Republic of Korea on an exclusive basis and to make
introductions throughout the Pacific Rim on a non-exclusive basis, for
Destination Golf School opportunities.
* BE PRICE COMPETITIVE THROUGH THE SALE OF PREMIUM LINKS(TM) PACKAGES.
Management believes that a significant market exists for the sale of
golf instruction to corporations, which can use them as incentives for
sales and employee performance. Our Premium Links(TM) packages are a
prepaid system in which the purchasing corporation receives a discount
from the direct retail price of a golf school. Corporations spend
millions of dollars on professional and collegiate sporting events,
travel, and entertainment. Premium Links(TM) was developed to capture a
piece of that market and combine the continually growing synergy of
golf and business.
DESTINATION GOLF SCHOOLS
Our strategy is to operate our Destination Golf Schools at high-quality
existing resorts that have golf facilities. As of February 10, 2000, we had 18
Destination Golf Schools under contract for operation during all or portions of
the year. Following is a list of our sites and sites under development, along
with the date the site became available to students and the season the site is
open. Fees for Destination Golf Schools are paid in advance
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and range from $364 for a 2-day school (excluding lodging) at Brooks Golf Club
at Lake Okoboji, Iowa, to $1,392 for a 4-day school (including lodging) at
Wildfire Golf Course at Desert Ridge in Phoenix, Arizona.
Our schools have been recognized by the PGA of America, which allows us
to employ, and in turn offer instruction by, PGA-accredited teachers. At our
Destination Golf Schools, our instructors teach a curriculum called the "Optimum
Impact System" that combines instruction in all areas of golf technique with
instruction in mental aspects of the game and physical conditioning to improve
play. Instructors assess the student's skill level and learning style,
developing a personal golfer profile for individualized instruction. At our
Destination Golf Schools, access to a golf course on site is included in each
2-, 3- or 4-day package.
<TABLE>
<CAPTION>
Date
SITE NAME ADDRESS OPENED SEASON LEASE EXPIRES
- --------- ------- ------ ------ -------------
<S> <C> <C> <C> <C>
The Bog 3121 County Highway 1 April 2000 April - October October 2000
P.O. Box 79
Saukville, WI 53080
Brooks Golf Club 1405 Highway 71 June 1998 Mid-May to September 2000
Lake Okoboji, Iowa mid-September
The Cascades 16325 Silver Oaks Drive February Year round February 2001
Sylmar, CA 91342 2000
Cinnabar Hills Golf Club 23600 McKean Road August Year round August 2000
San Jose, CA 95141 1999
Geneva National Golf Club Geneva National Ave. So. November April - October October 2000
Lake Geneva, WI 53147 1999
Hamlet Windwatch 1715 Vanderbuilt Motors Pkwy. April 2000 April - October September 2004
Hauppauge, NY 11788
Haymaker Golf Course 34856 U.S. Hwy. 40-E May 1999 April - October October 2000
Steamboat Springs, CO 80477
Indian Tree Golf Club 7555 Wadsworth Blvd. April 1998 April - October October 2000
Arvada, CO 80003
The Mission Inn Golf & 10400 County Road 48 April 1998 November - April 2001
Tennis Resort Howie in the Hills, FL 54737 April
Paradise Point Golf Club 8212 Golf Course Road April 2000 April - October December 2001
Smithsfield, MO 64089
Pole Creek Golf Club P.O. Box 3348 March 1999 April - October November 2000
Winter Park, CO
Quicksilver Golf Club 2000 Quicksilver Drive April 2000 April - October October 2000
Midway, PA 15060
Rhodes Ranch 9020 Rhodes Ranch Pkwy March 1998 November - March 2000
Las Vegas, Nevada April
Seven Springs Mountain No. 1 April 2000 April - October October 2000
Resort Golf Course Champion, PA 91935
Steele Canyon Golf Club 3199 Stonefield Drive November Year round November 2000
Jamul, CA 91935 1999
Waverly Woods 2100 Harwick Way April 2000 April - October October 2000
Mariottsville, MD 21104
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<CAPTION>
Date
SITE NAME ADDRESS OPENED SEASON LEASE EXPIRES
- --------- ------- ------ ------ -------------
<S> <C> <C> <C> <C>
Wildfire Golf Course at 5225 East Pathfinder September November - October 2000
Desert Ridge Phoenix, Arizona 1997 April
The Woods Resort P.O. Box 5 April 2000 April - October December 2001
Hedgesville, WV 25427
</TABLE>
We contract with the owners of each facility to provide a golf school
at the existing golf facility and pay rent for the use of a portion of the
facility. Certain golf facilities prefer to outsource the golf school function
rather than be responsible for the overhead of establishing, maintaining and
marketing a golf school, and to date we have had success in negotiating site
agreements with 20 facilities. In addition, our operation of a golf school at an
existing facility provides the facility with higher visibility through our
advertising efforts and additional revenue through guest nights, rounds of golf,
meals, merchandise and other purchases by our golf school students. Due to this
mutually-beneficial arrangement, the rent charged us for using the facilities
has been relatively low, allowing us to maintain low operating costs while
offering our students high-quality facilities. In addition, this arrangement
permits us to offer first rate golf facilities at relatively low facilities cost
and enables us to take advantage of the course's or resort's marketing efforts,
visibility and facility quality without incurring the enormous capital
requirements and advertising budgets needed to establish, maintain and market
such facilities. Initially, we entered into leases that provided for fixed
monthly rental. We have restructured most of our leases for summer sites to
provide for rent based on the number of students attending our golf school at
the site, thereby reducing our fixed expenses. As we expand our network of
distributors throughout the United States, we will increase the number of sites,
basing our selection on proximity to the distributor territories and the ability
to provide for rent based on usage.
ACQUISITIONS AND SITE START-UP COSTS
Our management believes that there are many single-location golf school
and multiple-site golf school operations whose owners may see certain advantages
to being part of a larger organization with several locations. Management
believes that we can acquire such existing golf schools using a combination of
stock and as little cash as possible. Acquisitions of currently operating golf
schools will significantly increase our revenue base. As of the date of this
Prospectus, there are no understandings, agreements, or arrangements for any
acquisitions.
The expenses associated with acquiring golf schools and opening new
sites pertain to recruiting and training instructors and staff, rent, and
advertising. These start-up costs of establishing these new facilities are
incurred in advance of advertising the sites and booking students into the
sites. Having established an infrastructure for our Destination Golf School
operations, management believes that we can now achieve economies of scale in
certain of our operations, in particular advertising, student bookings, and
billing.
INTERNATIONAL OPERATIONS
On May 6, 1997, we signed a five-year agreement with Sunkyong U.S.A.,
under which Sunkyong U.S.A. agreed to represent us in the Republic of Korea
(South Korea) on an exclusive basis and to provide introductions to parties on a
non-exclusive basis throughout the Pacific Rim relating to product sales, and
Destination Golf School opportunities at sites in the Pacific Rim. Details with
respect to each site and fees to be paid to Sunkyong U.S.A. are to be negotiated
on a site-by-site basis. This agreement provides that Sunkyong U.S.A. has the
option of purchasing up to 10,000 shares of our common stock at a price of $5.00
per share for each Destination Golf School site, up to 32 sites in total. Sites
are subject to our approval. If all 32 sites are opened within the 5-year term
of this agreement, we may be obligated to issue 320,000 additional shares of
common stock.
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However, due to the current business and financial conditions in Asia
generally and South Korea in particular, we have done no significant business to
date under this agreement, and expect to do no significant business under this
agreement until such time as Asian business and financial conditions improve.
MARKETING
We market our products and services primarily through distributors who
promote PRO with advertising campaigns in various media. To date, we have had a
limited marketing budget. A key component of our strategy is to use available
working capital to stimulate additional awareness and recognition of us and our
services and products. Our marketing department has conducted research on the
circulation, reader characteristics, and editorial content of various golf
publications. Our advertising and article placement strategy is intended to
provide national exposure, credibility and demand in the golf market. Our
marketing strategy is planned to be broad based, combining advertising in golf
publications, such as Golf Digest, with crossover advertising in other media
intended to reach targeted demographic and psychographic groups. These media
include, but are not limited to, high-end business and travel publications as
well as electronic media, such as cable television network programming.
Available capital would be used for larger ads running for consecutive months to
establish some degree of name recognition with our targeted audience. In
addition, we hope to take advantage of the marketing efforts of the operators of
our Destination Golf School sites, as well as any future strategic alliances to
expose us to a wider audience at no cost to us.
We believe that, historically, recreational golfers have accepted and
adopted ideas used on the professional golf tours. We intend to market our
schools by keying on the physical and mental components of our curriculum in
conjunction with the widespread use of fitness vans that now travel with the PGA
Tour and the fact that many PGA Tour professionals now use sports psychologists
as part of their normal preparation. In addition, we are currently in discussion
with a number of PGA Tour professionals to find one or more spokesmen for us. We
cannot assure you that we will be able to engage a PGA Tour professional to act
as a spokesman. In addition, we expect that engaging a PGA Tour professional
would involve significant compensation to such individual, in the form of cash,
stock, options, or other compensation.
One target of our marketing efforts relating to our Destination Golf
Schools is executive training programs for the corporate market. We have created
incentive packages for corporations to reward performance, entertain clients or
as incentives for sales projects. As of December 31, 1999, we have conducted
approximately 100 such programs to date, with an average attendance of 10
people. Our marketing staff attempts to make direct contact with the corporate
market through advertising in trade journals and appearances at trade shows.
COMPETITION
The golf instruction market is highly fragmented, with lessons
available at a vast number of local golf courses, driving ranges and golf shops,
as well as a large number of destination golf schools. Our Destination Golf
Schools compete with all of these sources of golf instruction. Shaw Guides, an
Internet travel information source that compiles golf instruction facilities,
lists hundreds of different sources of golf instruction in the United States.
Many of the local sites with which our schools compete have greater local name
recognition and resources than us. Our Destination Golf Schools compete with
several destination golf schools operated throughout the United States,
including John Jacobs Golf Schools, David Leadbeateri Golf Academy,
Nicklaus/Flick Game Improvement, Arnold Palmer Golf Academy and Golf Digest
Schools. Many of the schools with which our Destination Golf Schools compete
have greater resources, a larger number of sites, more prestigious locations or
affiliations with well-known and respected golfers or golf instructors than we
do. For example, John Jacobs Golf Schools has 30 schools and Golf Digest Schools
offer instruction at 15 sites. While management believes that our program is
unique in its emphasis on the distributor network for sales to corporations and
growth through acquisitions, we cannot assure you that we will be able to
compete in the marketplace.
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PROPERTY
We lease approximately 7,800 square feet of space for administrative,
office, and marketing functions in Denver, Colorado, through November 30, 2002.
The Company believes that this property will be sufficient to meet our needs for
the duration of the lease.
EMPLOYEES
As of December 31, 1999, we had 20 full-time and 3 part-time employees.
None of our employees is represented by a labor union. We believe that our
relationship with our employees is good.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers, their positions and ages are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
William D. Leary 41 President, Treasurer and Director
Robert B. Lange 73 Director
John C. Weiner 71 Director
</TABLE>
Our bylaws provide for a board of directors ranging from 1 to 9
members, with the exact number to be specified by the board. The number is
currently fixed at 3 directors. All directors hold office until the annual
meeting of stockholders next following their election, and until their
successors have been elected and qualified. Officers serve at the discretion of
the board of directors.
There are no family relationships between any of our directors or
executive officers. We do not pay our directors for their service as directors.
Set forth below are brief descriptions of recent employment and business
experience of our officers and directors.
WILLIAM D. LEARY. From January 1993 until the present time, Mr. Leary
has been our president. From May 1986 until January 1993, Mr. Leary was the
president and CEO of the Innova Corporation, a golf distribution company. Mr.
Leary was employed as a linebacker by the Denver Broncos of the National
Football League from May 1983 to December 1984. From January 1985 through May
1986, Mr. Leary was rehabilitating from an injury that ended his football career
and was employed as a golf teaching professional in the United States, Japan,
Austria and Switzerland. Mr. Leary graduated with a bachelor of science degree
in general education from Mesa College, Grand Junction, Colorado in May 1983.
ROBERT B. LANGE. From 1955 to 1972, Mr. Lange was employed as president
and CEO of Lange Ski Boot. Mr. Lange sold Lange Ski Boot in 1970, and since that
time has been working as an independent consultant. Mr. Lange graduated with a
bachelor of arts degree in economics from Harvard University in the spring of
1949 and earned his master of business administration degree from Southern
Methodist University in 1951.
JOHN C. WEINER. Mr. Weiner has been a director since 1995. Since 1982,
Mr. Weiner has been chairman of the board of JCW Investments, Inc. and JCW
Ventures. From 1971 to 1982, Mr. Weiner was founder and president of Trident
Investment Management, Inc., a public and private pension and other investment
account management service. Mr. Weiner sold Trident Investment Management to
Pacific Inland Bancorp in 1982. From 1956 to 1969, Mr. Weiner was employed by
Moody's Investors Service, serving as president and chief executive officer from
1966 until 1969. Mr. Weiner studied engineering at Westminster College and Yale
University from 1945 to 1946; received a bachelor of arts degree in pre-med and
finance from Ripon College in 1948; received a bachelor of science degree in
finance and economics from the University of Chicago in 1950; and studied
finance
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<PAGE>
at Northwestern University from 1950 to 1952.
KEY EMPLOYEES AND CONSULTANTS
In addition to the foregoing directors and officers, the following
individuals are key employees of or consultants to the company:
CHARLES "VIC" KLINE. Mr. Kline is a former director of the PGA. He is
also a five-time Colorado PGA section president and five-time player of the
year. Mr. Kline is a past Colorado Open and Rocky Mountain Open champion. Mr.
Kline has agreed to join our board of directors when the company's stock is
listed on an exchange.
NEAL LAURIDSEN. As one of the founding principals and former Vice
President and head of marketing for the Nike Corporation, Mr. Lauridsen will
join the Board of Directors in January 2000, bringing 25 years of successful,
worldwide marketing, corporate development, and expansion expertise.
CERTAIN TRANSACTIONS
WEINER SUBSCRIPTION AGREEMENT. On July 15, 1998, we entered into a
binding subscription agreement with Proformance Research Organization/Weiner,
Inc. and/or Vanguard 21st Century Weiner Inc., referred to as "PROW." John C.
Weiner is president and the sole shareholder of PROW and is one of our
directors. Under this subscription agreement, PROW had agreed, on or before the
final day of the offering commenced in February 1999, to subscribe for and
purchase at $5.00 per share all shares not otherwise subject to subscriptions
accepted by us. The offering did not close. PROW has loaned us $125,000, which
was converted into 50,000 shares of common stock.
LEARY EMPLOYMENT AGREEMENT. We entered into an employment agreement
with William D. Leary, one of our officers and directors, dated July 1, 1998.
The employment agreement is for a five-year term and provides for salary to Mr.
Leary in the amount of $120,000 annually. Under the employment agreement, Mr.
Leary is prohibited from competing against us for a period of one year from the
date of termination of Mr. Leary's employment. A state court may determine not
to enforce or only partially enforce this non-compete provision. As of December
31, 1998, we had not paid any salaries to Mr. Leary, resulting in an accrued
expense of $60,000. The amount receivable from Mr. Leary, described in the
paragraph below, has been offset against this accrued salary.
ADVANCES TO OFFICER. During 1997, we advanced varying amounts to
William D. Leary, our president. The balance of these advances at December 31,
1998 was $60,165. The advances are unsecured and have no set interest or
repayment terms. As indicated below in "EXECUTIVE COMPENSATION," Mr. Leary did
not receive any compensation during 1997. We made these advances to enable Mr.
Leary to cover certain personal expenses. As described in the preceding
paragraph, this loan has been offset against accrued salary owed to Mr. Leary.
We believe that with the exception of the advances made to Mr. Leary,
the terms of the above-described transactions were no less favorable to us than
would have been obtained from a nonaffiliated third party for similar
consideration. However, we lacked sufficient disinterested independent directors
to ratify all of the transactions at the time the transactions were initiated.
All ongoing and future transactions between us and our officers, directors or 5%
shareholders will be made or entered into on terms that are no less favorable to
us than those that can be obtained from unaffiliated third parties, and all such
transactions (including forgiveness of any loans) will be approved by a majority
of the independent members of our board of directors who do not have an interest
in the transactions and who have access, at our expense, to our independent
legal counsel. We have agreed with certain state regulatory authorities that so
long as our securities are registered in such states, or one year from the date
of this prospectus, whichever is longer, we will not make loans to its officers,
directors, employees, or principal shareholders, except for loans made in the
ordinary course of business, such as travel advances, expense account advances,
relocation advances, or reasonable salary advances.
19
<PAGE>
EXECUTIVE COMPENSATION
We do not have any employment contracts with any of our officers or
directors, except for Mr. Leary. Persons are employed by us on an at will basis,
and the terms and conditions of employment are subject to change by us. Mr.
Leary, our chief executive officer, did not receive any cash compensation and
was not granted any stock options for the 1998 fiscal year. He had no stock
options at December 31, 1998.
The Company has no stock option plans at present but plans to implement
a plan for its officers, employees, and directors.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding ownership
by each officer and director, and all officers and directors as a group, as well
as all persons who own greater than 5% of our outstanding shares, as of February
11, 2000, and as adjusted to reflect the issuance of the shares covered by this
prospectus:
<TABLE>
<CAPTION>
Percentage of Shares
Beneficially Owned (2)<F2>
--------------------------------------------
Number of Shares Before After
Name of Beneficial Owner (1)<F1> Beneficially Owned Issuance Issuance
<S> <C> <C> <C>
William D. Leary (3)<F3>...................... 1,856,400 33.9% 30.3%
Leah Leary (4)<F4>............................ 946,200 17.3% 15.4%
J Paul Consulting (5)<F5>..................... 600,000 11.0% 9.8%
William Childs (6)<F6>........................ 560,000 10.1% 9.0%
Robert B. Lange .............................. 154,000 2.8% 2.5%
John C. Weiner (7)<F7>........................ 102,500 1.0% 1.7%
All executive officers and directors as a
group (3 persons) (3)<F3>(4)<F4>(7)<F7>....... 2,112,900 37.7% 34.5%
- ---------------
<FN>
<F1>
(1) To our knowledge, except as set forth in the footnotes to this table and
subject to applicable community property laws, each person named in the
table has sole voting and investment power with respect to the shares set
forth opposite such person's name. The address of each of the persons in
this table is as follows: c/o PROform golf, inc., 5335 West 48th Avenue,
Denver, Colorado 80212.
<F2>
(2) Where persons listed on this table have the right to obtain additional
shares of common stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days from
February 11, 2000, these additional shares are deemed to be outstanding for
the purpose of computing the percentage of common stock owned by such
persons, but are not deemed to be outstanding for the purpose of computing
the percentage owned by any other person. Based on 5,473,965 shares of
common stock outstanding as of February 11, 2000, and 6,131,765 shares of
common stock outstanding after the issuance of 467,800 shares for debt and
190,000 upon conversion of Series C Preferred Stock.
<F3>
(3) Includes 50,000 shares owned by Sean Leary and Keenan Leary, minor children
of William D. Leary and Leah Leary. Includes 896,200 shares owned by Leah
Leary, the wife of William D. Leary. William D. Leary has voting control
over the shares owned by Leah Leary pursuant to a Voting Trust Agreement.
<F4>
(4) Includes 50,000 shares owned by Sean Leary and Keenan Leary. Excludes
910,200 shares owned by William D. Leary. William D. Leary has voting
control over shares owned by Leah Leary pursuant to a Voting Trust
Agreement.
20
<PAGE>
<F5>
(5) The address of J Paul Consulting is 6041 South Syracuse Way, Suite 307,
Englewood, Colorado 80111. The resale of these shares is covered by this
prospectus.
<F6>
(6) Includes 70,000 shares issuable upon conversion of a convertible debenture.
<F7>
(7) Before the issuance, Mr. Weiner owns 52,500 shares of common stock. He will
be issued 50,000 shares of common stock for debt conversion.
</FN>
</TABLE>
DESCRIPTION OF CAPITAL STOCK
We are authorized to issue up to 20,000,000 shares of common stock, par
value $0.0001 per share, and up to 1,000,000 shares of preferred stock, par
value $0.0001 per share.
COMMON STOCK
As of February 11, 2000, there were 5,473,965 shares of common stock
outstanding, which were held of record by approximately 250 stockholders. All of
such shares are "restricted securities" within the meaning of Rule 144 under the
federal securities laws and are subject to limitations on resale imposed by Rule
144. There will be 6,131,765 shares of common stock outstanding after giving
effect to the issuance of shares for debt repayment and conversion of the Series
C preferred stock. In addition as of February 11, 2000, 210,000 shares of common
stock were issuable upon conversion of long-term debt (at the election of the
holders thereof) and there were outstanding warrants to acquire 659,000 shares
of common stock.
The holders of the common stock are entitled to one vote for each share
held of record on all matters submitted to a vote of the stockholders. We do not
have cumulative voting rights in the election of directors, and accordingly,
holders of a majority of the shares voting are able to elect all of the
directors. Subject to preferences that may be granted to any then outstanding
preferred stock, holders of common stock are entitled to receive ratably such
dividends as may be declared by the board of directors out of funds legally
available therefor as well as any distributions to the stockholders. In the
event of a liquidation, dissolution or winding up of the company, holders of
common stock are entitled to share ratably in all of our assets remaining after
payment of liabilities and the liquidation preference of any then outstanding
preferred stock. Holders of common stock have no preemptive or other
subscription of conversion rights. There are no redemption or sinking fund
provisions applicable to the common stock.
PREFERRED STOCK
Upon the conversion of the Series C preferred stock and according to
our certificate of incorporation, the board of directors will have the
authority, without further action by the stockholders, to issue up to 1,000,000
shares of preferred stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences,
sinking fund terms and the number of shares constituting any series or the
designation of such series, any or all of which may be greater than the rights
of common stock. The issuance of preferred stock could adversely affect the
voting power of holders of common stock and the likelihood that such holders
will receive dividend payments and payments upon liquidation and could have the
effect of delaying, deferring or preventing a change in control of the company.
We have no present plan to issue any shares of preferred stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
We are subject to Section 203 of the Delaware corporate statutes which,
subject to certain exceptions, prohibits a Delaware corporation from engaging in
any business combination with any interested stockholder for a period of three
years following the date that such stockholder became an interested stockholder,
unless: (i) prior to such date, the board of directors of the corporation
approved either the business combination or the transaction that resulted in the
stockholder becoming an interested holder, (ii) upon consummation of the
transaction that resulted in the stockholder becoming an interested stockholder,
the interested stockholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding for
purposes of determining
21
<PAGE>
the number of shares outstanding those shares owned (a) by persons who are
directors and also officers and (b) by employee stock plans in which employee
participants do not have the right to determine confidentially whether shares
held subject to the plan will be tendered in a tender or exchange offer; or
(iii) at or subsequent to such time, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least 66
2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
In general, Section 203 defines business combination to include: (i)
any merger or consolidation involving the corporation and the interested
stockholder, (ii) any sale, transfer, pledge or other disposition of 10% or more
of the assets of the corporation involving the interested stockholder, (iii)
subject to certain exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the interested
stockholder, (iv) any transaction involving the corporation that has the effect
of increasing the proportionate share of the stock or any class or series of the
corporation beneficially owned by the interested stockholder or (v) the receipt
by the interested stockholder of the benefit of any loss, advances, guarantees,
pledges or other financial benefits by or through the corporation. In general,
Section 203 defines interested stockholder as an entity or person beneficially
owning 15% or more of the outstanding stock of the corporation and any entity or
person affiliated with or controlling or controlled by such entity or person.
ANTITAKEOVER EFFECTS OF CERTIFICATE OF INCORPORATION, BYLAWS AND DELAWARE LAW
As indicated above, our board of directors has the authority to issue
up to 1,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting and conversion
rights, of those shares without any further vote or action by the stockholders.
The rights of the holders of common stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that may
be issued in the future. In addition, the board of directors has the authority
to issue undesignated preferred stock and, subject to certain limitations, to
determine the rights, preferences, privileges and restrictions, including voting
rights, of such shares without any further vote or action by the stockholders.
The issuance of preferred stock could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the company.
In addition, we are subject to the antitakeover provisions of Section
203 of the Delaware corporate statutes, which will prohibit us from engaging in
a "business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
The application of Section 203 also could have the effect of delaying or
preventing a change of control of the company. Further, certain provisions of
our certificate of incorporation and bylaws and of Delaware law could delay or
make more difficult a merger, tender offer or proxy contest involving us, which
could adversely affect the market price of our common stock.
LISTING
We will apply to have the common stock approved for quotation on the
NASDAQ Small Cap Market once we meet listing standards.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Corporate
Stock Transfer. Its address is 3200 Cherry Creek Drive South, #430, Denver,
Colorado 80209 and its telephone number is (303) 282-4800.
22
<PAGE>
SELLING STOCKHOLDERS
REPAYMENT OF SHORT-TERM DEBT
The following table sets forth information regarding holders of
convertible promissory notes as of February 11, 2000. We are registering shares
of common stock to repay this debt. The shares are being registered to permit
public secondary trading of such shares, and each of the selling stockholders
may offer the common stock for resale as they wish. None of the selling
stockholders has had any position, office, or material relationship with us
within the past three years, except as indicated below:
<TABLE>
<CAPTION>
COMMON
SHARES ISSUABLE COMMON
UPON PAYMENT SHARES TO BE PERCENTAGE
AMOUNT OF AND BEING TOTAL COMMON OWNED AFTER OWNERSHIP
SELLING STOCKHOLDER DEBT REGISTERED SHARES OWNED SALE AFTER SALE
<S> <C> <C> <C> <C> <C>
D. Gene & Darlene $ 2,500 1,000 1,500 500 0.01%
Anderson
Barbara Brummet $ 5,000 2,000 3,000 1,000 0.02%
Robert J. Buckley $ 10,000 4,000 5,000 1,000 0.02%
Betty Davis $ 10,000 4,000 6,000 2,000 0.03%
Steven A. Dawes $ 50,000 20,000 22,000 2,000 0.03%
Henry Deyle $ 5,000 2,000 2,000 0 0.00%
Leon Duda $ 10,000 4,000 4,000 0 0.00%
Irvin & Dennis Geffre $ 60,000 24,000 25,000 1,000 0.02%
Mildred J. Geiss $ 50,000 20,000 25,250 5,250 0.09%
John A. Geraghty $ 25,000 10,000 15,000 5,000 0.08%
Daryl C. Geyen $ 15,000 6,000 6,000 0 0.00%
Robert C. Gourlay $ 5,000 2,000 3,000 1,000 0.02%
Revocable Trust
Elgene Graves $ 20,000 8,000 10,000 2,000 0.03%
Michael Grebin $ 15,000 6,000 14,500 8,500 0.14%
Kevin C. Gross $ 2,500 1,000 1,500 500 0.01%
Donald L. Harper $ 20,000 8,000 19,500 11,500 0.19%
Todd Hayes $ 15,000 6,000 9,000 3,000 0.05%
Dr. Mark L. Hedlund $ 100,000 40,000 62,000 22,000 0.36%
Michael Hendricks $ 125,000 50,000 85,000 35,000 0.57%
Dwight Hodges $ 25,000 10,000 27,500 17,500 0.29%
Gary D. Hodgkinson $ 2,500 1,000 1,500 500 0.01%
Bonnie L. Johnson $ 10,000 4,000 4,000 0 0.00%
Monte Jones $ 10,000 4,000 5,000 1,000 0.02%
Randall L. Larson $ 15,000 6,000 6,000 0 0.00%
Larry J. Laughlin $ 10,000 4,000 4,000 0 0.00%
Frank Licata $ 5,000 2,000 2,000 0 0.00%
Robert N. Manniello $ 50,000 20,000 55,000 35,000 0.57%
James S. Manning $ 80,000 32,000 93,350 61,350 1.00%
Joseph Masiak $ 10,000 4,000 8,000 4,000 0.07%
Michael Michog $ 10,000 4,000 5,000 1,000 0.02%
Ross Morgan $ 10,000 4,000 8,000 4,000 0.07%
David M. Munch $ 37,500 15,000 22,500 7,500 0.12%
Geoff Murtha $ 2,000 800 1,200 400 0.01%
Wesley A. Olsen $ 20,000 8,000 17,000 9,000 0.15%
Richard Plahn $ 5,000 2,000 2,000 0 0.00%
Joseph Rogness $ 10,000 4,000 5,000 1,000 0.02%
23
<PAGE>
<CAPTION>
COMMON
SHARES ISSUABLE COMMON
UPON PAYMENT SHARES TO BE PERCENTAGE
AMOUNT OF AND BEING TOTAL COMMON OWNED AFTER OWNERSHIP
SELLING STOCKHOLDER DEBT REGISTERED SHARES OWNED SALE AFTER SALE
<S> <C> <C> <C> <C> <C>
Louis G. Royston (1)<F1> $ 50,000 20,000 261,600 241,600 3.94%
Dale L. Severson $ 10,000 4,000 4,000 0 0.00%
Beverly S. Smith $ 5,000 2,000 3,000 1,000 0.02%
August Stoffel $ 10,000 4,000 4,000 0 0.00%
Paul James Stoll $ 5,000 2,000 9,500 7,500 0.12%
Alfred Supan $ 5,000 2,000 2,000 0 0.00%
John P. Thimmesh $ 10,000 4,000 5,000 1,000 0.02%
James E. Torina $ 50,000 20,000 81,000 61,000 0.99%
Thomas Trainer $ 10,000 4,000 4,000 0 0.00%
Kenneth & Marjorie Utt $ 2,500 1,000 1,500 500 0.01%
Mark B. Ward $ 20,000 8,000 15,500 7,500 0.12%
Robert M. Ward $ 5,000 2,000 2,000 0 0.00%
John C. Weiner, Jr. (2)<F2> $ 125,000 50,000 102,500 52,500 0.86%
Jerry Yoder $ 5,000 2,000 3,000 1,000 0.02%
TOTAL $ 1,169,500 467,800 1,084,900 617,100 10.06%
- ----------
<FN>
<F1>
(1) Mr. Royston has been an employee of the company since December 1996.
(2) Mr. Weiner has been a director of the company since 1995.
</FN>
</TABLE>
SERIES C PREFERRED STOCK
The following table sets forth information regarding beneficial
ownership of shares of our Series C preferred stock as of February 11, 2000. We
are registering shares of common stock issuable upon conversion of the Series C
preferred stock. The shares are being registered to permit public secondary
trading of such shares, and each of the selling stockholders may offer the
common stock for resale as they wish. None of the selling stockholders has had
any position, office, or material relationship with us within the past three
years, except as indicated below:
<TABLE>
<CAPTION>
COMMON
SERIES C SHARES ISSUABLE COMMON
PREFERRED UPONCONVER- SHARES TO BE PERCENTAGE
SHARES SION AND BEING TOTAL COMMON OWNED AFTER OWNERSHIP
SELLING STOCKHOLDER OWNED REGISTERED SHARES OWNED SALE AFTER SALE
<S> <C> <C> <C> <C> <C>
Stanford M. Baratz 40,000 40,000 40,000 0 0.00%
Revocable Trust
Gary Hansberger 20,000 20,000 30,000 10,000 0.16%
Peter E. Phelps 40,000 40,000 102,100 62,100 1.01%
Ed Wilkinson 40,000 40,000 62,000 22,000 0.36%
Kirkland C. Woodhouse 50,000 50,000 75,000 25,000 0.41%
TOTAL 190,000 190,000 309,100 119,100 1.94%
</TABLE>
SHARES OWNED BY DISTRIBUTORS
The following table sets forth information regarding beneficial
ownership of shares by our distributors as of February 11, 2000. We are
registering all of their shares of common stock as an incentive plan to
stimulate sales of Premium Links(TM) packages by them. The shares are being
registered to permit public secondary trading of
24
<PAGE>
such shares, and each of the selling stockholders may offer the common stock for
resale as they wish. None of the selling stockholders has had any position,
office, or material relationship with us within the past three years, except as
indicated below:
<TABLE>
COMMON
COMMON SHARES TO BE PERCENTAGE
SHARES BEING TOTAL COMMON OWNED AFTER OWNERSHIP
SELLING STOCKHOLDER REGISTERED SHARES OWNED SALE AFTER SALE
<S> <C> <C> <C> <C>
Richard D. Cobb 2,000 2,000 0 0.00%
Gerald J. Evans 2,000 2,000 0 0.00%
Jeff Gerbing 2,000 2,000 0 0.00%
James R. Hatfield 2,000 16,000 14,000 0.23%
Mike Kaminsky 1,000 1,000 0 0.00%
Jeffrey T. Kern 2,000 2,000 0 0.00%
Neal Lauridsen 4,000 11,000 7,000 0.11%
Roger Miller 2,000 2,000 0 0.00%
Anthony Monroe 2,000 4,500 2,500 0.04%
Anthony Nappi 1,000 1,000 0 0.00%
Kevin Nelson 2,000 2,000 0 0.00%
Ollie J. Nutt 2,000 2,000 0 0.00%
Robert O'Brien 2,000 2,000 0 0.00%
Scott Simpson 2,000 2,000 0 0.00%
Thomas J. Squier 2,000 2,000 0 0.00%
James E. Tornia 2,000 61,000 59,000 0.96%
Yvonne Woods 2,000 2,000 0 0.00%
Eddy Wilkinson 2,000 22,000 20,000 0.33%
Randall L. Wolff 2,000 2,000 0 0.00%
David & Julianne Worrell 2,000 3,500 1,500 0.02%
TOTAL 40,000 144,000 104,000 1.70%
</TABLE>
SHARES OWNED BY OTHER STOCKHOLDERS
In addition to the shares described above, we agreed to register the
shares owned by the following:
<TABLE>
<CAPTION>
COMMON
COMMON SHARES TO BE PERCENTAGE
SHARES BEING TOTAL COMMON OWNED AFTER OWNERSHIP
SELLING STOCKHOLDER REGISTERED SHARES OWNED SALE AFTER SALE
<S> <C> <C> <C> <C>
A.G. Ligne 70,000 70,000 0 0.00%
J Paul Consulting 600,000 600,000 0 0.00%
TOTAL 670,000 670,000 0 0.00%
</TABLE>
We agreed to register the securities for resale by the selling
stockholders to permit them to sell the shares as they wish in the market or in
privately negotiated transactions. We have agreed to bear the expenses of
registering the common stock, but not broker discounts and commissions if the
selling stockholders resell the common stock.
PLAN OF DISTRIBUTION
All or a portion of the securities offered through this prospectus by
the selling stockholders may be delivered and/or sold in transactions from time
to time on the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale. These transactions will be at market prices
prevailing at the time, at
25
<PAGE>
prices related to such prevailing prices, or at negotiated prices. The selling
stockholders may effect such transactions by selling to or through one or more
broker-dealers, and such broker-dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the selling
stockholders. The selling stockholders and any broker-dealers that participate
in the distribution may under certain circumstances be deemed to be
"underwriters" within the meaning of federal securities laws. Any commissions
received by such broker-dealers and any profits realized on the resale of
securities by them may be deemed to be underwriting discounts and commissions
under federal securities laws.
Any broker-dealer participating in such transactions as agent may
receive commissions from the selling stockholders and, if they act as agent for
the purchaser of the securities, from such purchaser. Broker-dealers may agree
with the selling stockholders to sell a specified number of securities at a
stipulated price per share. To the extent such a broker-dealer is unable to do
so acting as agent for the selling stockholders, it may purchase as principal
any unsold securities at the price required to fulfill the broker-dealer
commitment to the selling stockholders. Broker-dealers who acquire securities as
principal may then resell these securities in transactions which may involve
crosses and block transactions and which may involve sales to and through other
broker- dealers, including transactions of the nature described above in the
over-the-counter market, in negotiated transactions or otherwise at market
prices prevailing at the time of sale or at negotiated prices. In connection
with such resales broker-dealers may pay to or receive from the purchasers of
these securities commissions computed as described above. To the extent required
under the federal securities laws, a supplemental prospectus will be filed,
disclosing
* the name of any such broker-dealers;
* the number of securities involved;
* the price at which such securities are to be sold;
* the commissions paid or discounts or concessions allowed to such
broker-dealers, where applicable;
* that such broker-dealers did not conduct any investigation to verify
the information set out or incorporated by reference in this
prospectus, as supplemented; and,
* other facts material to the transaction.
Under applicable rules and regulations under federal securities laws,
any person engaged in the distribution of the resale of securities may not
simultaneously engage in market making activities with respect to the securities
of our company for a period of two business days prior to the commencement of
such distribution. In addition, the selling stockholders will be subject to
applicable provisions of the federal securities laws, and the rules and
regulations under these laws, including Regulation M, which provisions may limit
the timing of purchases and sales of the securities by the selling stockholders.
The selling stockholders will pay all commissions and other expenses
associated with the sale of the common stock by them. The shares of common stock
offered through this prospectus are being registered because of our contractual
obligations with the selling stockholders, and we have paid the expenses of the
preparation of this prospectus.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of common stock after the date
of this prospectus could adversely affect the market price of the common stock
and could impair our ability to raise additional capital through the future sale
of equity securities. After the issuance of shares to repay debt and convert the
Series C preferred stock, we will have 6,131,765 shares of common stock
outstanding. In addition, we will have outstanding warrants to purchase 659,000
shares of common stock, and 210,000 shares of Common Stock will be issuable upon
conversion of certain long-term debt, at the election of the holders thereof.
Under our agreement with Sunkyong U.S.A., we may also become obligated to issue
up to 320,000 shares of common stock. Of the 6,131,765 shares to be outstanding,
the 1,367,800 shares issued for debt repayment and preferred stock conversion,
as well as the those owned by distributors and the two selling stockholders will
be freely tradeable without restriction under federal securities laws unless
they are held by our "affiliates," as that term is used in Rule 144 under the
Securities Act.
26
<PAGE>
The remaining 4,763,965 outstanding shares are "restricted securities"
within the meaning of Rule 144 and may be resold only in compliance with that
Rule. In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least one year, is entitled to sell, within any three-month period, that number
of shares that does not exceed the greater of (a) one percent of the then
outstanding shares or (b) the average weekly trading volume of the then
outstanding shares during the four calendar weeks preceding each such sale.
Furthermore, a person who is not deemed an "affiliate" of us and who has
beneficially owned shares for at least two years is entitled to sell such shares
under Rule 144 without regard to the volume limitations described above.
There has been no public market for our common stock, and any sale of
substantial amounts in the open market may adversely affect the market price of
the common stock.
LEGAL MATTERS
Dill Dill Carr Stonbraker & Hutchings, P.C., Denver, Colorado, has
given an opinion on the validity of the securities.
EXPERTS
We have included the financial statements of the company as of and for
the two years ending December 31, 1998, in reliance upon the report of Stark
Tinter & Associates, LLC, independent public accountants, whose report has been
included in this prospectus upon the authority of that firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have been subject to the reporting requirements under federal
securities laws since February 1999. We have filed with the SEC a registration
statement on Form SB-2 and amendments to the registration statement with respect
to the securities offered through this prospectus. This prospectus does not
contain all of the information set forth in the registration statement and the
exhibits and schedules that are part of the registration statement. For further
information about the securities and us, you should review the registration
statement and the exhibits and schedules. Statements made in this prospectus
regarding the contents of any contract or document filed as an exhibit to the
registration statement are not necessarily complete. You should review the copy
of such contract or document so filed.
You can inspect the registration statement, as well as the exhibits and
the schedules, filed with the SEC without charge, at the SEC's office at
Judiciary Plaza, 450 Fifth Street, NW, Washington, D.C. 20549. You can also
obtain copies of these materials from the SEC's Public Reference Section at 450
Fifth Street, NW, Washington, D.C. 20549, at prescribed rates. The SEC maintains
a web site on the Internet that contains reports, proxy and information
statements, and other information regarding issuers that file electronically
with the SEC at http://www.sec.gov.
REPORTS TO STOCKHOLDERS
As a result of filing the registration statement, we are subject to the
reporting requirements of the federal securities laws, and are required to file
periodic reports, proxy statements, and other information with the SEC. We will
furnish our shareholders with annual reports containing audited financial
statements certified by independent public accountants following the end of each
fiscal year, proxy statements, and quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year following
the end of such fiscal quarter.
27
<PAGE>
<TABLE>
<CAPTION>
Proformance Research Organization, Inc.
Balance Sheet
September 30, 1999
(Unaudited)
<S> <C>
ASSETS
Current assets
Cash $ 149,059
Accounts receivable 40,459
Deferred financing costs 113,623
Prepaid expenses 10,000
----------------
Total current assets 313,141
----------------
Property and equipment - net of accumulated depreciation 66,888
Deferred offering costs 84,626
Other assets 10,785
----------------
$ 475,440
================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accounts payable and accrued expenses $ 659,005
Current portion of long term debt 7,062
Related party payable 5,476
Notes and bonds payable 265,000
Notes and bonds payable, related party 1,623,700
Deferred revenue and deposits payable 377,750
----------------
Total current liabilities 2,937,993
----------------
Long term debt
Notes and bonds payable 11,703
Bonds payable, related party 172,500
----------------
Total Long term debt 184,203
----------------
Other non-current liabilities
Net liabilities of discontinued operations 41,102
----------------
Commitments and contingencies
Stockholders' deficiency
Preferred stock, Series A, convertible, cumulative, no stated value,
1,000,000 shares authorized, no shares issued and outstanding Preferred
stock, Series B, convertible, cumulative, no stated value,
1,000,000 shares authorized, no shares issued and outstanding Preferred
stock, Series C, convertible, cumulative, no stated value,
2,000,000 shares authorized, 40,000 shares issued and outstanding 66,667
Common stock, $0.0001 par value, 10,000,000 shares authorized,
4,499,465 shares, issued and outstanding 450
Additional paid-in capital 2,229,469
Accumulated deficit (4,984,444)
----------------
Total stockholders' deficiency (2,687,858)
----------------
$ 475,440
================
</TABLE>
See accompanying notes to financial statements.
F-1
<PAGE>
<TABLE>
Proformance Research Organization, Inc.
Statements of Operations
For the nine months and three months ended September 30, 1999 and 1998
(Unaudited)
<CAPTION>
Nine months Ended Three months Ended
1999 1998 1999 1998
------------------ --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenue $ 759,169 $ 363,863 $ 333,652 $ 127,706
Cost of revenues 176,865 198,893 62,916 85,326
------------------ --------------- ---------------- ---------------
Gross (loss) profit 582,304 164,970 270,736 42,380
------------------ --------------- ---------------- ---------------
Operating expenses
Sales, general and administrative 1,988,760 1,195,063 646,120 423,529
Depreciation 6,005 2,700 900 900
------------------ --------------- ---------------- ---------------
Total operating expenses 1,994,765 1,197,763 647,020 424,429
------------------ --------------- ---------------- ---------------
Operating (loss) (1,412,461) (1,032,793) (376,284) (382,049)
Interest expense 66,381 54,265 17,091 18,972
------------------ --------------- ---------------- ---------------
(Loss) from continuing operations (1,478,842) (1,087,058) (393,375) (401,021)
Discontinued operations
(Loss) from discontinued operations (1,700) (6,150) - -
------------------ --------------- ---------------- ---------------
Net (Loss) $ (1,480,542) $ (1,093,208) $ (393,375) $ (401,021)
================== =============== ================ ===============
Per share information
Weighted average shares outstanding 4,191,529 939,287 4,462,532 1,039,287
================== =============== ================ ===============
(Loss) per common share
(Loss) from continuing operations $ (0.35) $ (1.16) $ (0.09) $ (0.39)
(Loss) from discontinued operations - - - -
------------------ --------------- ---------------- ---------------
Net (loss) per common share $ (0.35) $ (1.16) $ (0.09) $ (0.39)
================== =============== ================ ===============
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE>
<TABLE>
Proformance Research Organization, Inc.
Statements of Cash Flows
For the nine months ended September 30, 1999 and 1998
(Unaudited)
<CAPTION>
1999 1998
------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (1,480,542) $ (1,093,208)
Adjustments to reconcile net loss
to net cash (used in) operating
activities:
Depreciation and amortization 6,005 2,700
Changes in assets and liabilities 671,998 116,371
------------------- ------------------
Net cash (used in) operating activities (802,539) (974,137)
------------------- ------------------
Cash flows from investing activities:
Purchase of fixed assets (7,599) (47,686)
------------------- ------------------
Net cash (used in) investing activities (7,599) (47,686)
------------------- ------------------
Cash flows from financing activities:
Net proceeds from notes and bonds payable, related party 842,152 (52,500)
Net proceeds from issuance of preferred stock series A - 496,890
Net proceeds from issuance of preferred stock series C 66,667 -
Net proceeds from issuance of common stock 63,333 -
Net proceeds from note and bonds payable (17,725) 573,826
------------------- ------------------
Net cash provided by financing activities 954,427 1,018,216
------------------- ------------------
Net increase in cash 144,289 (3,607)
Beginning - cash 4,770 4,761
------------------- ------------------
Ending - cash $ 149,059 $ 1,154
=================== ==================
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
PROFORMANCE RESEARCH ORGANIZATION, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
1. ACCOUNTING POLICIES
Basis of presentation - The accompanying unaudited financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and Item 310 (b) of Regulation S-B. They do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the financial information for the periods
indicated have been included. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full year.
The Company was incorporated in 1993 in Colorado under the name of World
Associates, Inc. The accompanying financial statements for the nine months ended
September 30, 1998 include the accounts of the Company and its wholly owned
subsidiary Proformance Research Organization, Inc. ("PRO"), a Delaware
corporation. All significant inter-company accounts and transactions have been
eliminated. In July 1998, the Company merged into PRO, with PRO surviving;
accordingly, these financial statements are not consolidated after that date.
Net loss per share - The net loss per share amounts are based on the weighted
average number of common shares outstanding for the period. Potential common
shares and the computation of diluted earnings per share are not considered, as
their effect would be anti-dilutive.
STOCKHOLDERS' EQUITY
During the nine months ended September 30, 1999 the Company issued 263,605
shares of its Common Stock valued at $1.43 per share as inducements for loan
funds received. In addition the Company issued 37,000 shares of Common Stock
valued at $1.43 per share as extension fees for loans outstanding and 42,000
shares of Common Stock for $63,333 in cash.
During February 1999 all of the issued and outstanding shares of Preferred
Stock, Series A (857,850 shares) and Series B (648,200 shares) were converted
into shares of the Company's Common Stock at the rate of one share of Common
Stock for each share of Preferred Stock.
During September 1999 the Company authorized the issuance 2,000,000 shares of
Preferred Stock, Series C ("Series C"). The Series C has no voting rights and
pays no dividends. Each share of Series C is convertible into one share of
common stock at the effective date of the Company's post effective amendment to
its registration with the Securities and Exchange Commission. The Company issued
40,000 shares of Series C for $66,667 in cash.
F-4
<PAGE>
PROFORMANCE RESEARCH ORGANIZATION, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
CONTINUING LOSSES, DEFICIT IN EQUITY AND NEGATIVE WORKING CAPITAL
The financial statements have been prepared in conformity with generally
accepted accounting principles, which contemplates continuation of the company
as a going concern. However, the Company has sustained substantial operating
losses in recent years. In addition, the Company has used substantial amounts of
working capital in its operations. Further, at September 30, 1999, current
liabilities exceeded current assets by $2,624,852 and total liabilities exceed
total assets by $2,687,858.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The ability of the Company to continue operations
as a going concern is dependent upon its success in (1) obtaining additional
capital; (2) paying its obligations timely; and (3) ultimately achieving
profitable operations. The financial statements do not include any adjustments,
which might result from the outcome of these uncertainties.
The Company intends to file a post-effective amendment to its registration
statement. Proceeds from such an offering would provide the Company with
additional working capital and, to the extent that notes and bonds issued by the
Company are converted into equity, the Company's liabilities would be decreased.
There are no assurances that (1) the Company will be able to complete a
post-effective amendment to its registration statement on a timely basis; (2)
any shares will be sold in the offering; or (3) notes or bonds payable will be
converted into equity as part of the offering.
SUBSEQUENT EVENTS
Earlier in 1999, the Company offered for sale 1,000,000 shares of common stock
in a registered public offering at a price of $5.00 per share. The offering,
which was deemed effective in February 1999 and conducted on a best efforts, all
or none basis, was not successful. The Company is in the process of preparing a
post effective amendment to this registration statement, the terms of which may
change. The Company anticipates filing the post effective amendment to the
registration statement during the fourth quarter of 1999.
F-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Shareholders and Board of Directors
Proformance Research Organization, Inc.
We have audited the accompanying balance sheet of Proformance Research
Organization, Inc. (fka World Associates Inc.) as of December 31, 1998, and the
related statements of operations, stockholders' deficiency, and cash flows for
the years ended December 31, 1998 and 1997. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Proformance Research
Organization, Inc. (fka World Associates Inc.) as of December 31, 1998, and the
results of its operations, and its cash flows for the years ended December 31,
1998 and 1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern.
As shown in the financial statements, the company incurred a net loss of
$2,133,279 for 1998 and has incurred substantial net losses for each of the past
five years. At December 31, 1998, current liabilities exceed current assets by
$1,663,880 and total liabilities exceed total assets by $1,786,624. These
factors, and the others discussed in Note "Continuing Losses, Deficit in Equity
and Negative Working Capital", raise substantial doubt about the company's
ability to continue as a going concern. The financial statements do not include
any adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be necessary
in the event the company cannot continue in existence.
/s/Stark Tinter & Associates, LLC
Stark Tinter & Associates, LLC
Englewood, Colorado
May 25, 1999
F-7
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Balance Sheet
December 31, 1998
ASSETS
Current assets
Cash $ 4,770
Due from employees 6,209
Note receivable 18,000
Deferred financing costs 96,653
-----------
Total current assets 125,632
Property and equipment - net of accumulated depreciation 68,482
Deferred offering costs 34,626
Other assets 4,663
-----------
$ 233,403
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities
Accounts payable and accrued expenses $ 484,970
Current portion of long term debt 7,077
Related party payable 18,524
Notes and bonds payable 265,000
Notes and bonds payable, related party 768,500
Deferred revenue and deposits payable 245,441
-----------
Total current liabilities 1,789,512
-----------
Long term debt
Notes and bonds payable 29,413
Bonds payable, related party 160,000
-----------
Total Long term debt 189,413
-----------
Other non-current liabilities
Net liabilities of discontinued operations 41,102
-----------
Commitments and contingencies
Stockholders' deficiency
Preferred stock, Series A, convertible,
cumulative, no stated value,
1,000,000 shares authorized, 857,850
shares issued and outstanding 1,225,500
Preferred stock, Series B, convertible,
cumulative, no stated value,
1,000,000 shares authorized, 648,200 issued
and outstanding 212,800
Common stock, no par value, 10,000,000 shares
authorized, 2,650,810 shares,
issued and outstanding 278,978
Accumulated deficit (3,503,902)
-----------
Total stockholders' deficiency (1,786,624)
-----------
$ 233,403
===========
See accompanying notes to financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Statements of Operations
For the years ended December 31, 1998 and 1997
1998 1997
---------------- -------------
<S> <C> <C>
Revenue $ 189,740 $ 119,072
Cost of revenues 353,268 95,545
---------------- -------------
Gross (loss) profit (163,528) 23,527
---------------- -------------
Operating expenses
Sales, general and administrative 1,879,183 678,214
Depreciation 8,810 3,616
---------------- -------------
Total operating expenses 1,887,993 681,830
---------------- -------------
Operating (loss) (2,051,521) (658,303)
Interest expense 78,695 31,632
---------------- -------------
(Loss) from continuing operations (2,130,216) (689,935)
Discontinued operations
(Loss) from operations of Team Family segment,
estimated to be disposed of on or before
December 31, 1999 (3,063) (3,063)
---------------- -------------
Net (Loss) $ (2,133,279) $ (692,998)
================ =============
Per share information
Weighted average shares outstanding 939,287 868,188
================ =============
(Loss) per common share
(Loss) from continuing operations $ (2.27) $ (0.80)
(Loss) from discontinued operations NIL NIL
---------------- -------------
Net (loss) per common share $ (2.27) $ (0.80)
================ =============
</TABLE>
F-9
See accompanying notes to financial statements.
<PAGE>
<TABLE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Statements of Stockholders' Deficiency
For the years ended December 31, 1998 and 1997
<CAPTION>
Preferred Stock Preferred Stock
Common Stock Series A Series B
-------------------- ----------------------- ------------------ Accumulated
Shares Amount Shares Amount Shares Amount Deficit Total
--------- -------- ------- ---------- ------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 890,693 $ 82,029 31,000 $ 155,000 135,000 $150,050 $(677,625) $(290,546)
Bonds converted to stock 20,800 104,000 20,000 25,000 129,000
Issuance of stock for cash 63,850 319,250 30,200 37,750 357,000
Stock issued in consideration
for loans received 1,071 11 11
Stock issued in consideration
for services rendered 5,500 55 1,250 6,250 6,305
Net (Loss) for 1997 (692,998) (692,998)
--------- -------- ------- ---------- ------- -------- ------------ ------------
Balance at December 31, 1997 897,534 82,095 116,900 584,500 185,200 212,800 (1,370,623) (491,228)
Issuance of stock for cash
at $5.00 per share 96,300 481,500 481,500
Stock issued in consideration
for loans received at
$4.00 per share 12,500 50,000 50,000
Conversion of shares upon
the Company's merge into
its wholly owned subsidiary 1,638,061 533,000 463,000 -
Issuance of stock for cash
at $1.43 per share 41,650 59,500 59,500
Debt converted to stock
at $1.43 per share 70,000 100,000 100,000
Stock issued in consideration
for loans received at
$1.43 per share 100,213 143,305 143,305
Stock issued in consideration
for services rendered at
$1.43 per share 2,502 3,578 3,578
Net (Loss) for 1998 (2,133,279) (2,133,279)
--------- -------- ------- ---------- ------- -------- ------------ ------------
Balance at December 31, 1998 2,650,810 $278,978 857,850 $1,225,500 648,200 $212,800 $(3,503,902) $(1,786,624)
========= ======== ======= ========== ======= ======== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-10
<PAGE>
<TABLE>
<CAPTION>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Statements of Cash Flows
For the years ended December 31, 1998 and 1997
1998 1997
----------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (2,133,279) $ (692,998)
Adjustments to reconcile net loss
to net cash (used in) operating
activities:
Depreciation and amortization 8,810 3,616
Changes in assets and liabilities:
(Increase) in due from employees (6,209) -
(Increase) in note receivable (18,000) -
(Increase) in deferred offering costs (34,626) -
(Increase) in due from officer - (37,796)
Decrease in prepaid expenses - 4,299
Decrease (increase) in other assets 505 (1,855)
Increase in accounts payable and accrued expenses 340,761 125,161
Increase (decrease) in related party payable 18,524 (1,364)
Increase in deferred revenue and deposits payable 234,330 11,111
(Decrease) in liabilities of discontinued operations (14,038) (17,836)
Total adjustments 530,057 85,336
----------------- --------------
Net cash (used in) operating activities (1,603,222) (607,662)
----------------- --------------
Cash flows from investing activities:
Purchase of fixed assets (59,411) (10,288)
----------------- --------------
Net cash (used in) investing activities (59,411) (10,288)
----------------- --------------
Cash flows from financing activities:
Proceeds from notes and bonds payable, related party 1,035,500 65,000
Payment on notes and bonds payable, related party (407,000) -
Common stock issued for inducements 96,653 -
Net proceeds from issuance of common stock - 65
Net proceeds from issuance of preferred stock series A 641,000 429,500
Net proceeds from issuance of preferred stock series B - 62,750
Proceeds from note and bonds payable 299,166 60,081
Payments on note and bonds payable (2,677) -
----------------- --------------
Net cash provided by financing activities 1,662,642 617,396
----------------- --------------
Net increase (decrease) in cash 9 (554)
Beginning - cash 4,761 5,315
----------------- --------------
Ending - cash $ 4,770 $ 4,761
================= ==============
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE>
<TABLE>
<CAPTION>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Statement of Cash Flows (continued)
For the years ended December 31, 1998 and 1997
Supplemental Cash Flow Information:
1998 1997
---------------- ----------------
<S> <C> <C>
Non-cash Financing activities excluded above-
Preferred Stock, Series A issued for consulting services - 6,000
Common Stock issued for consulting services 3,578 2,320
Common Stock issued as an inducement for notes payable 193,305 25
Preferred Stock, Series A issued for bonds payable converted - 104,000
Preferred Stock, Series B issued for bonds payable converted - 25,000
Notes payable, stockholder converted to bonds payable, stockholder - 50,000
</TABLE>
See accompanying notest to financial statements.
F-12
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated in 1993 in Colorado under the name of World
Associates, Inc. The accompanying financial statements for the year ended
December 31, 1997 include the accounts of the Company and its wholly owned
subsidiary Proformance Research Organization, Inc. ("PRO"), a Delaware
corporation. All significant inter-company accounts and transactions have been
eliminated. On July 31, 1998, the Company merged into PRO, with PRO surviving
(see "Merger"), accordingly, these financial statements are not consolidated
after that date.
The Company conducts destination golf schools by contracting with existing
facilities to provide instruction. The Company also earns annual license fees
from distributors in exchange for certain non-exclusive rights.
Revenue recognition
Revenues are recognized in the period when the customer attends the golf school.
Revenues collected in advance of attendance are deferred. Selling and
promotional expenses are charged to expense as incurred. Revenue from license
fees collected pursuant to distributor agreements is deferred until the Company
fulfills all requirements of the agreement.
Depreciation
The cost of equipment is depreciated over the estimated useful lives (5 years)
of the related assets. Depreciation is computed on the straight-line method for
financial reporting purposes.
Use of estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions the affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the balance sheet date and
the reported amounts of revenues and expenses during the reporting periods.
The Company attempts to make reasonably dependable estimates. However,
uncertainties inherent in the estimation process, actual results could differ
from those estimates.
Net loss per share
The net loss per share amounts are based on the weighted average number of
common shares outstanding for the period. Potential common shares and the
computation of diluted earnings per share are not considered as their effect
would be anti-dilutive.
F-13
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
(continued)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Comprehensive loss
There were no items of comprehensive loss for the years ended December 31, 1998
and 1997, and thus net loss is equal to comprehensive loss for those years.
Reclassifications
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1998 presentation. Such reclassifications had no effect on net
loss as previously reported.
Product Concentration
The Company currently derives most of its revenues from destination golf
schools. The Company expects that these revenues will continue to account for
substantially all of the Company's revenues for the foreseeable future. As a
result, the Company's future operating results are dependent upon continued
market acceptance of destination golf schools and enhancements thereto. There
can be no assurance that these golf schools will achieve continued market
acceptance. A decline in demand for, or market acceptance of, destination golf
schools as a result of competition, technological change or other factors could
have a material adverse effect on the Company's business, operating results and
financial condition.
Fair value
Fair value estimates discussed herein are based upon certain market assumptions
and pertinent information available to management as of December 31, 1998. The
respective carrying value of certain on-balance- sheet financial instruments
approximate their fair values. These financial instruments include cash, notes
receivable, amounts due from and payable to related parties, accounts payable,
accrued expenses and notes and bonds payable. Fair values for their financial
instruments were assumed to approximate carrying values for these financial
instruments because they are short term in nature. The fair value of the
Company's long-term debt approximate its carrying value based on the current
rates offered to the Company for debt of the same remaining maturities.
F-14
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
(continued)
PROPERTY AND EQUIPMENT
The following is a summary of property and equipment at cost, less accumulated
depreciation at December 31, 1998:
Furniture and fixtures $31,429
Leasehold improvements 2,353
Equipment 23,413
Vehicle 32,313
--------
89,508
Less: Accumulated depreciation 21,026
--------
Total $68,482
========
For the years ended December 31, 1998 and 1997, depreciation expense charged to
operations was $8,810 and $3,616, respectively.
MERGER
On July 31, 1998, the Company merged into PRO, its subsidiary, with PRO
surviving. On that date, each issued and outstanding share of the Company's
Series A Convertible Preferred Stock was converted into 3.5 shares of Series A
stock of PRO. Also, each issued and outstanding share of the Company's Series B
Convertible Preferred Stock was converted into 3.5 shares of Series B of PRO.
The Company's issued and outstanding Common Stock were converted into 2.8 shares
common stock of PRO. The currently issued and outstanding shares of PRO held by
the Company were cancelled at the effective time of merger.
LEASE OBLIGATION
The Company leases office space under an operating lease arrangement for $2,500
per month. The lease expires on September 30, 1999.
Minimum future lease payments required as of December 31, 1998 under this
non-cancelable operating lease is $30,000.
For the years ended December 31, 1998 and 1997, the amounts charged to
operations for rent expense were $54,086 and $29,088, respectively.
RELATED PARTY TRANSACTIONS
During 1998, the Company advanced various amounts to the president of the
Company. The balance of the advances at December 31, 1998 was $60,165. These
advances are not collateralized and have no set interest or repayment terms.
F-15
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
(continued)
RELATED PARTY TRANSACTIONS (CONTINUED)
The Company entered into an employment agreement for the position of President
and Chief Executive Officer on July 1, 1998. The agreement has a five-year term
which expires on June 30, 2003. The base compensation is a minimum of $120,000
per year to be paid on the first and fifteenth of each month. In addition to the
base compensation incentive compensation will be determined by the Compensation
Committee of the Board of Directors and begins on January 1, 1999. During the
term of employment and in the event of termination of employment the employee
cannot directly or indirectly own or manage a similar business within a four
hundred-mile radius. As of December 31, 1998 the Company has not paid any
salaries to this employee, therefore there is an accrued expense of $60,000. The
amount receivable from this officer has been offset against amounts owed.
As of December 31, 1998, the Company owes to a shareholder $13,048 in general
and administrative expenses paid for by the shareholder on behalf of the
Company.
On November 2, 1998 the Company entered into a Common Stock Purchase Agreement.
The agreement provides that the investor will purchase a number of shares of the
Company's common stock equal to the number of common shares not purchased in the
Registration Statement on Form SB-2 filed under the Securities Act of 1933 (see
"Subsequent Events").
NOTES AND BONDS PAYABLE
The following is a summary of notes payable at December 31, 1998:
SHORT-TERM:
8% promissory notes payable,
principal and interest due July
15, 1999, warrant inducements
(see "Stock Warrants"), unsecured $ 250,000
10% promissory note payable,
principal and interest due July 4,
1999, unsecured 10,000
12% convertible bonds payable,
interest payable semi-annually
(in default), convertible
at any time into Series A
Convertible Preferred Stock at
rate of $5 per share, annually
redeemable on the anniversary date
of issuance at the holders option,
unsecured 5,000
---------
$ 265,000
=========
F-16
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
(continued)
NOTES AND BONDS PAYABLE (CONTINUED)
The following is a summary of notes payable at December 31, 1998
(continued):
SHORT-TERM, RELATED PARTY:
12% convertible bonds payable
to stockholders, interest payable
semi-annually (currently in default),
convertible at any time into Series A
Convertible Preferred Stock at rate
of $5 per share, annually redeemable
on the anniversary date of issuance at
the holders option, unsecured $ 175,000
8% promissory notes payable to
stockholders, principal and interest
due within five business days of
first available proceeds from the
Company's public offering, common
stock and warrants inducements
(see "Subsequent Events",
"Stockholders' Equity" and "Stock
Warrants"), unsecured 390,000
10% promissory notes payable to
stockholders, principal and interest
due within five business days of
first available proceeds from the
Company's public offering, stock
inducements (see "Stockholders'
Equity"), unsecured 185,000
10% promissory notes payable
to employee, principal and interest
due April 30, 1999 and July 31,
1999, unsecured 18,500
---------
$ 768,500
=========
F-17
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
(continued)
NOTES AND BONDS PAYABLE (CONTINUED)
The following is a summary of notes payable at December 31, 1998
(continued):
LONG-TERM:
8.90% note payable, principal and
interest of $744 due in 42 monthly
installments beginning August 1998,
collateralized by vehicle $ 23,990
12% convertible bonds payable,
interest payable semi-annually (in
default), convertible at any time
into Series A Convertible Preferred
Stock at rate of $5 per share, annually
redeemable on the anniversary date of
issuance at the holders option, unsecured 12,500
--------
36,490
Less current portion 7,077
--------
$ 29,413
========
LONG-TERM, RELATED PARTY:
12% convertible bonds payable to
stockholders, interest payable semi-
annually (currently in default),
convertible at any time into Series A
Convertible Preferred Stock at rate of
$5 per share, annually redeemable on
the anniversary date of issuance at the
holders option, unsecured $ 160,000
=========
DEFERRED REVENUE AND DEPOSITS PAYABLE
During 1998, the Company entered into a number of distributorship agreements.
These agreements required that the distributor pay to the Company an agreed upon
annual license fee in exchange for a non-exclusive right to sell products
created by or manufactured for the Company in a designated territory, as well
as, training, materials and two-days of sales assistance. The Company collected
deposits of license fees in the amount of $115,000, however, recognition of this
revenue was deferred as all of the requirements of the agreement had not been
fulfilled as of December 31, 1998.
F-18
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
(continued)
STOCKHOLDERS' EQUITY
During 1997, the Company issued 1,071 shares of Common Stock as inducements for
loan funds received. Also, during 1997, the Company issued 5,500 shares of
Common Stock and 1,250 shares of Series A Convertible Preferred Stock ("Series
A") in exchange for consulting services rendered. The cost of the services has
been charged to operations.Prior to the Company's merger into its wholly owned
subsidiary (see "Merger"), the Company issued 96,300 shares of Series A at $5.00
per share for cash of $481,500.Also prior to the merger, the Company issued
12,500 shares of Common Stock for $4.00 per share as inducements for loan funds
received.Upon the merger taking place on July 31, 1998 (see "Merger"), the
Company issued 1,638,061 shares of Common Stock, 533,000 shares of Series A and
463,000 of Series B Convertible Preferred Stock ("Series B").During 1998, the
Company issued 41,650 shares of Series A at $1.43 for cash of $59,500. Also
during 1998, the Company converted $100,000 in debt to 70,000 shares of Series
A.
The Company also issued 100,213 shares of Common Stock at $1.43 per share as
inducements for loan funds received.
In addition during 1998, the Company issued 2,502 shares of Common Stock at
$1.43 per share for consulting services rendered. The cost of the services has
been charged to operations and stockholders' equity has been increased by
$3,578.
The Company's Series A and Series B have no voting rights and pay cumulative
dividends at the rate of 0.000492% per share of the Company's pre-tax profits
until such time as the holder shall have received $5 per share. Thereafter, the
dividend rate is 0.00005% of the Company's pre-tax profits. The dividend on the
Series B stock shall be junior in preference to the dividend payable on the
Series A stock and no dividends shall be paid on the Series B stock until the
dividend payable on the Series A stock shall have been declared and paid or a
sum sufficient for payment thereof set apart. There have been no dividends
accrued for 1998 or 1997.
Series A stock and Series B stock is convertible into one share of common stock
at any time at the option of the holder after the date of issuance. Series A
stock will be automatically converted into one share of common stock in February
1999, when the Company's offering document became effective.
F-19
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
(continued)
STOCK WARRANTS
As a loan inducement the Company has granted Common Stock Warrants during the
year ended 1998, at a rate of one warrant for each five dollars invested. The
exercise price of each warrant is $6.00 per share. The maximum term of the
warrant is five years. All of 123,000 warrants granted are fully vested.
The Company applies APB Opinion 25 in accounting for the stock compensation
plan. No compensation cost has been recognized for the year ended December 31,
1998. Had the Company elected to account for stock based compensation pursuant
to SFAS No. 123 "Accounting for Stock Based Compensation" net loss and earnings
per share would have been reduced as follows for the year ended December 31,
1998:
AS REPORTED PRO FORMA
Net loss ($2,133,279) ($2,168,452)
============ ============
Basic earnings per share ($2.27) ($2.31)
======= =======
For pro forma disclosures, the options' estimated fair value was amortized over
their expected 5 year life. The fair value for these options was estimated at
the date of grant using an option pricing model. The model requires the input of
highly subjective assumptions. In management's opinion, the existing models do
not provide a reliable single measure of the value of stock options. The
following weighted average assumptions were used to estimate the fair value of
these options: expected price volatility 352.85%, risk free interest rate 4.8%
and expected life of options 5 years.
Following is a summary of the status of the options during the period ended
December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise
Shares Price
-------- ---------
<S> <C> <C>
Outstanding at January 1, 1998 - -
Granted 123,000 $6.00
Exercised - -
Forfeited - -
Outstanding at December 31, 1998 123,000 $6.00
======= =======
Options exercisable at December 31, 1998 123,000
=======
Weighted average fair value of options
granted during year $1.43
=====
</TABLE>
F-20
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
(continued)
STOCK WARRANTS (CONTINUED)
The status of all options outstanding at December 31, 1998 is 123,000 options
with an exercise price of $6.00, a weighted average remaining contractual life
of 5 years and a weighted average exercise price of $6.00. All of these options
are exercisable at December 31, 1998 at a weighted average exercise price of
$6.00.
DISCONTINUED OPERATIONS
On December 31, 1996, the company adopted a formal plan to dispose of the Team
Family segment of the business, a system of parenting and family development on
videotape and in a booklet. As of December 31, 1998 the disposal has not yet
been completed.
Net liabilities of discontinued operations consisted of the following at
December 31, 1998:
Accounts payable $ 934
Due to distributors 7,300
Short-term note payable 32,868
--------
$ 41,102
========
DESTINATION GOLF SCHOOL AGREEMENTS
The Company has agreements with golf courses located in Arizona, Colorado,
Florida and Nevada. In exchange for $110,000 in annual license fee expense and
other miscellaneous fees varying from course to course, the Company received
supplies, storage and access to golf facilities. The Company's golf school
revenues are generated from schools taught at these locations and these costs
are included in cost of revenues on the income statement.
DEFERRED FINANCING COSTS
During the year ended December 31, 1998, the Company recorded $96,653 in
deferred financing costs as an offset to the common stock issued as inducements
for loan funds received (see "Stockholders' Equity"). One half of the deferred
financing costs were expensed in 1998 and the remaining costs will be expensed
in 1999 in conjunction with the completion of the Initial Public Offering (see
"Subsequent Events" ).
DEFERRED OFFERING COSTS
During the year ended December 31, 1998, the Company incurred $34,626 in
professional fees which relate directly to the initial public offering currently
in process.
F-21
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
(continued)
YEAR 2000 COMPLIANCE
The Company has assessed its exposure to date sensitive computer software
programs that may not be operative subsequent to 1999 and has implemented a
requisite course of action to minimize Year 2000 risk and ensure that neither
significant costs nor disruption of normal business operations are encountered.
However, because there is no guarantee that all systems of outside vendors or
other entities affecting the Company's operations will be 2000 compliant, the
Company remains susceptible to consequences of the Year 2000 issue.
INCOME TAXES
Deferred income taxes may arise from temporary differences resulting from income
and expense items reported for financial accounting and tax purposes in
different periods. Deferred taxes are classified as current or non-current,
depending on the classifications of the assets and liabilities to which they
relate. Deferred taxes arising from temporary differences that are not related
to an asset or liability are classified as current or non-current depending on
the periods in which the temporary differences are expected to reverse.
The net operating loss carryforward as of December 31, 1998 is approximately
$3,500,000, which will expire through year 2018. The tax benefit of the loss
carryforward has been offset by a valuation allowance of the same amount. The
expected tax benefit that would result from applying federal statutory tax rates
to the pre-tax loss differs from amounts reported in the financial statements
because of the increase in the valuation allowance.
CONTINUING LOSSES, DEFICIT IN EQUITY AND NEGATIVE WORKING CAPITAL
The financial statements have been prepared in conformity with generally
accepted accounting principles, which contemplates continuation of the company
as a going concern. However, the Company has sustained substantial operating
losses in recent years. In addition, the Company has used substantial amounts of
working capital in its operations. Further, at December 31, 1998, current
liabilities exceeded current assets by $1,663,880 and total liabilities exceed
total assets by $1,786,624.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern. The ability of the Company to continue operations
as a going concern is dependent upon its success in (1) obtaining additional
capital; (2) paying its obligations timely; and (3) ultimately achieving
profitable operations. The financial statements do not include any adjustments
which might result from the outcome of these uncertainties.
The Company is in the process of completing an offering of common stock for sale
in a Public Offering (see "Subsequent Events"). Management believes this
offering will provide the opportunity to obtain additional capital.
F-22
<PAGE>
Proformance Research Organization, Inc.
(fka World Associates Inc.)
Notes to Financial Statements
(continued)
SUBSEQUENT EVENTS
The Company is in the Process of offering for sale 1,000,000 shares of common
stock in a registered public offering at a price of $5.00 per share. The
offering was deemed effective in February 1999 and is being sold on a best
efforts, all or none basis. Upon successful completion of the offering the
Company anticipates receiving approximately $4,250,000 in net proceeds.
Series A and Series B stock converted to Common Stock at a 1:1 ratio at the
effective date of this offering.
F-23
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the General Corporate Law of the State of
Delaware, the Registrant has broad powers to indemnify its directors and
officers against liabilities they may incur in such capacities, including
liabilities under the Securities Act of 1933, as amended (the "Securities Act").
The Registrant's Bylaws (Exhibit 3.2 hereto) also provide for mandatory
indemnification of its directors and executive officers, and permissive
indemnification of its employees and agents, to the fullest extent permissible
under Delaware law.
The Registrant's Amended and Restated Certificate of Incorporation
(Exhibit 3.1 hereto) provides that the liability of its directors for monetary
damages shall be eliminated to the fullest extent permissible under Delaware
law. Pursuant to Delaware law, this includes elimination of liability for
monetary damages for breach of the directors' fiduciary duty of care to the
Registrant and its Stockholders. These provisions do not eliminate the
directors' duty of care and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Registrant, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for any transaction from which the director derived
an improper personal benefit, and for payment of dividends or approval of stock
repurchases or redemptions that are unlawful under Delaware law. The provision
also does not affect a director's responsibilities under any other laws, such as
the federal securities laws or state or federal environmental laws.
Prior to the effective date of the Registration Statement, the
Registrant will have entered into agreements with its directors and certain of
its executive officers that require the Registrant to indemnify such persons
against expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred (including expenses of a derivative action) in connection
with any proceeding, whether actual or threatened, to which any such person may
be made a party by reason of the fact that such person is or was a director or
officer of the Registrant or any of its affiliated enterprises, provided such
person acted in good faith and in a manner such person reasonably believed to be
in or not opposed to the best interests of the Registrant and, with respect to
any criminal proceeding, had no reasonable cause to believe his or her conduct
was unlawful. The indemnification agreements also set forth certain procedures
that will apply in the event of a claim for indemnification thereunder.
The Registrant intends to obtain in conjunction with the effectiveness
of the Registration Statement a policy of directors' and officers' liability
insurance that insures the Company's directors and officers against the cost of
defense, settlement or payment of a judgment under certain circumstances.
The Agency Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Placement Agent of the Registrant
and its officers and directors for certain liabilities arising under the
Securities Act or otherwise.
II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Registrant in connection with the
distribution of the securities being registered, other than Placement Agent
discounts and commissions, are as follows:
<TABLE>
<CAPTION>
AMOUNT*<F1>
------
<S> <C>
Securities and Exchange Commission Filing Fee................. $ 1,983
NASD Filing Fee............................................... 1,075
Accounting Fees and Expenses.................................. 25,000
Blue Sky Fees and Expenses.................................... 6,785
Placement Agent Expenses...................................... 150,000
Legal Fees and Expenses....................................... 50,000
Transfer Agent and Registrar Fees and Expenses................ 1,500
Printing Expenses............................................. 13,000
Miscellaneous Expenses........................................ 657
------------
Total.................................................... $ 250,000
============
<FN>
<F1>
* All amounts are estimates except the SEC filing fee and the NASD filing fee.
</FN>
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since August 1995, the Registrant has issued and sold the unregistered
securities set forth in the tables below. The information has been adjusted to
reflect the conversion ratios of 3.5-to-1 for the Series A and B Preferred
Stock.
<TABLE>
COMMON STOCK:
<CAPTION>
DATE PERSONS OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
<S> <C> <C> <C> <C>
12/31/95 - 3 consultants and 2 directors 129,800 $.0036/share consulting services
04/04/96 rendered in connection
with the development of
the Physical Edge golf
program and services as
directors valued at
$463.56
07/01/96 Dave Bisbee 87,500 $.0036/share consideration for
Distribution Agreement
07/11/96 - Louis G. Royston, Jr. 28,000 $.0036/share accounting services
06/30/97 (Employee) valued at $100
11/01/96 - Louis G. Royston, Jr., 3 114,500 $.0036/share loan inducements valued
02/08/99 Royston family members at $409
(all of whom are
accredited investors) 4
Global Financial customers
(all of whom are
accredited investors), and
25 other accredited
investors (4 of whom are
past or present business
associates of employees of
the registrant)
10/23/98 - 5 individuals (all of whom 7,000 $0.01/share loan inducements valued
11/02/98 are accredited investors) at $70
II-2
<PAGE>
<CAPTION>
DATE PERSONS OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
<S> <C> <C> <C> <C>
10/01/99 Various distributors 22,000 $2.50/share stock-split to distributors
valued at $55,000
10/10/99 - Peter E. Phelps and James E. Tourina 13,000 $1.43/share consulting services valued at
02/11/00 $18,590
12/31/99 5 individuals 25,500 $1.43/share loan inducements valued at
$36,465
12/31/99 Matthew R. Frederic 10,500 $1.43/share conversion of note in the
amount of $15,000
12/31/99 Alfred Bremmer 100,000 $1.43/share consulting services valued
at $143,000
12/31/99 John Chen 70,000 $1.43/share debt reduction of $100,000
02/01/00 J Paul Consulting 600,000 $1.00/share Cash of $600,000
02/11/00 Co-Ligne A.G. 70,000 $1.43/share debt reduction of $100,000
</TABLE>
<TABLE>
SERIES A PREFERRED STOCK:
<CAPTION>
DATE PERSONS OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
<S> <C> <C> <C> <C>
10/31/96 - 3 individuals (brother of a 35,000 $1.43/share conversion of debentures
09/14/98 director of the registrant, in the total amount of
business associate of William $50,000
Leary, and distributor of the
Company's products)
02/15/96 - 70 individuals, comprised of 508,200 $1.43/share $726,000 cash
10/13/98 Global Financial Group, Inc.
customers (all of whom are
accredited investors), other
accredited investors, family
members of Louis G.
Royston, Louis G. Royston,
and business associates of
employees of the registrant
03/31/98- 26 individuals (customers of 196,000 $1.43/share $280,000 cash
07/10/98 Global Financial Group, Inc.
all of whom are accredited
investors)
</TABLE>
<TABLE>
SERIES B PREFERRED STOCK:
<CAPTION>
DATE PERSONS OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
<S> <C> <C> <C> <C>
02/22/96 William Childs 280,000 $0.36/share $100,000 cash
03/14/97 - Louis G. Royston, Jr. 175,700 $0.36/share $62,500 cash
07/31/97 (Employee), 2 Royston
family members, and one
other accredited individual
who is a past or present
business associate of an
employee of the registrant
</TABLE>
II-3
<PAGE>
<TABLE>
SERIES C PREFERRED STOCK:
<CAPTION>
DATE PERSONS OR CLASS OF PERSONS NUMBER OF SHARES OFFERING PRICE CONSIDERATION
<S> <C> <C> <C> <C>
12/31/99 Stanford M. Baratz 190,000 $2.50/share $475,000 cash
Revocable Trust, Gary
Hansberger, Peter E. Phelps,
Ed Wilkinson, and Kirkland
C. Woodhouse
</TABLE>
<TABLE>
CONVERTIBLE DEBENTURES:
<CAPTION>
DATE PERSONS OR CLASS OF PERSONS PRINCIPAL AMOUNT CONVERSION
<S> <C> <C> <C>
11/30/95 - John C. Weiner (director), $430,500 Convertible into shares of Series A
05/18/98 Louis G. Royston, Jr. Preferred Stock at a conversion price of
(Employee), William Childs, $1.43 per share
a relative of Mr. Weiner, 3
business associates of
employees of the registrant
(all of whom are accredited),
a distributor of the
registrant's products, and 7
other individuals who were
accredited and/or had made
similar types of investments
</TABLE>
<TABLE>
COMMON STOCK PURCHASE WARRANTS:
<CAPTION>
NUMBER OF
DATE PERSONS OR CLASS OF PERSONS WARRANTS EXERCISE PRICE CONSIDERATION
<S> <C> <C> <C> <C>
03/31/98 - 48 individuals (34 of whom 294,000 $6.00 per share bridge loan inducement
11/11/99 were through Global
Financial Group, Inc. and 14
of whom were through the
registrant), all but 2 of whom
are accredited investors; of
the 2 nonaccredited
investors, one is a business
associate of an employee or
the registrant and the other
has made similar
investments in the past
09/14/98 - Mark L. Hedlund 40,000 $1.43 per share bridge loan inducement
03/24/99
08/31/99 Ronald M. Frumkin 40,000 $2.50 per share bridge loan inducement
12/31/99 Global Financial Group, Inc. 285,000 $1.67 per share compensation for
and Lou Royston placement of Series C
Preferred Stock
</TABLE>
The sale and issuance of securities in the transactions described above
were deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2). Appropriate legends were affixed to the stock certificates issued
in the above transactions. Similar legends were imposed in connection with any
subsequent sales of any such securities. The securities were offered and sold by
the registrant without any underwriters, except for the Global
II-4
<PAGE>
Financial Group, Inc. assistance noted above. All of the purchasers were deemed
to be sophisticated with respect to an investment in securities of the
registrant by virtue of their financial condition and/or relationship to members
of management of the registrant. For sales made with the assistance of Global
Financial Group, Inc., Global was paid a cash sales commission of 10% of the
cash consideration received by the registrant and the warrants described above.
<TABLE>
ITEM 27. EXHIBITS
<CAPTION>
EXHIBIT
NO. DOCUMENT
<S> <C>
1.1 Agency Agreement dated ______________, 1999 between the Company and Global Financial
Group, Inc.*<F1>
1.2 Escrow Agreement dated February __, 1999 among the Company, Global Financial Group, Inc.
and Bank Windsor as escrow agent*<F1>
1.3 Warrants to Purchase Common Stock to be issued to Global Financial Group, Inc.*<F1>
1.4 Impoundment Agreement among the Company, Global Financial Group, Inc. and Bank Windsor*<F1>
3.1 Amended and Restated Certificate of Incorporation*<F1>
3.2 Bylaws*<F1>
4.1 Reference is made to Exhibits 3.1 and 3.2*<F1>
5.1 Opinion of Dill Dill Carr Stonbraker & Hutchings, P.C.*<F1>
10.1 Distribution Agreement between the Company and Dave Bisbee, dated August 22, 1996*<F1>
10.2 Distribution Agreement between the Company and William D. Leary*<F1>
10.3 Lease between Fernal Inc. and William D. Leary and the Company, dated May 1, 1997, as
amended by an Addendum to Lease between Mach One and World Associates, Inc. dated April 4,
1998*<F1>
10.4 Common Stock Purchase Agreement with Proformance Research Organization/Weiner, Inc. dated
July 15, 1998*<F1>
10.5 Sublease dated April 21, 1998 between Mach One Corporation and Proformance Research
Organization, Inc.*<F1>
10.6 Employment Agreement between the Company and William D. Leary dated July 1, 1998*<F1>
10.7 Consulting Services Agreement between Sunkyong U.S.A., Inc. and the Company dated May 6,
1997*<F1>
10.8 Distribution Agreement between Renaissance Golf Products Inc. and the Company dated July 21,
1998*<F1>
10.9 Amendment to Common Stock Purchase Agreement with Proformance Research
Oganization/Weiner, Inc. dated November 2, 1998*<F1>
10.10 Form of Stock Escrow Agreement*<F1>
23.1 Consent of Dill Dill Carr Stonbraker & Hutchings, P.C. Reference is made to Exhibit 5.1*<F1>
23.2 Consent of Stark Tinter & Associates, LLC
II-5
<PAGE>
<CAPTION>
EXHIBIT
NO. DOCUMENT
<S> <C>
24.1 Powers of Attorney. Reference is made to page II-4 of the initial Registration Statement.*<F1>
27 Financial Data Schedule*<F1>
- -----------------
<FN>
<F1>
* Filed previously
</FN>
</TABLE>
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes to provide the Placement Agents at the
closing specified in the Placement Agent Agreement certificates in such
denominations and registered in such names as required by the Placement Agents
to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of the issuer pursuant to the foregoing provisions, or
otherwise, the issuer 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 issuer 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
issuer 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.
The Registrant hereby undertakes that:
(1) For determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the issuer pursuant to Rule 424(b)(1) or (4) or 497(h) under
the Securities Act shall be deemed to be part of this Registration Statement as
of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial BONA FIDE
offering of those securities.
The Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
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.
II-6
<PAGE>
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado on the 11th day of February, 2000.
PROFORMANCE RESEARCH ORGANIZATION, INC.
By:/s/WILLIAM D. LEARY
---------------------------------------
William D. Leary
PRESIDENT, TREASURER AND DIRECTOR
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
President, Treasurer and Director
(Principal Executive, Financial and
/s/WILLIAM D. LEARY Accounting Officer) February 14, 2000
- ------------------------------------------------ --------------------
William D. Leary
/s/ROBERT B. LANGE/WDL Director February 14, 2000
- ------------------------------------------------ --------------------
Robert B. Lange, by William D. Leary, his
attorney-in-fact
/s/JOHN C. WEINER/WDL Director February 14, 2000
- ------------------------------------------------ --------------------
John C. Weiner, by William D. Leary, his
attorney-in-fact
</TABLE>
II-8
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation in the Registration Statement
of Proformance Research Organization, Inc. on Form SB-2,
(Post-Effective Amendment No. 2) of our report dated May 25,
1999, on our audit of the financial statements of Proformance
Research Organization, Inc. as of December 31,1998 and for the
year then ended and to refer to us as experts in accounting and
auditing.
/s/Stark Tinter & Associates, LLC
Stark Tinter & Associates, LLC
Certified Public Accountants
February 14, 2000
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET, STATEMENTS OF OPERATIONS, STATEMENTS OF CASH FLOWS, AND THE NOTES
THERETO, WHICH MAY BE FOUND ON PAGES F-1 THROUGH F-23 OF THE COMPANY'S
POST-EFFECTIVE AMENDMENT NO. 2 TO FORM SB-2, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH [FORM] FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 DEC-31-1998
<EXCHANGE-RATE> 1 1
<CASH> 149,059 4770
<SECURITIES> 0 0
<RECEIVABLES> 40,459 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 313,141 125,632
<PP&E> 93,919 89,508
<DEPRECIATION> 27,031 21,026
<TOTAL-ASSETS> 475,440 233,403
<CURRENT-LIABILITIES> 2,937,993 1,789,512
<BONDS> 184,203 189,413
0 0
66,667 1,438,300
<COMMON> 450 278,978
<OTHER-SE> (2,754,975) (3,503,902)
<TOTAL-LIABILITY-AND-EQUITY> 475,440 233,403
<SALES> 0 0
<TOTAL-REVENUES> 759,169 189,740
<CGS> 0 0
<TOTAL-COSTS> 176,865 353,268
<OTHER-EXPENSES> 1,994,765 1,887,993
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 66,381 78,695
<INCOME-PRETAX> (1,478,842) (2,130,216)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,478,842) (2,130,216)
<DISCONTINUED> (1,700) (3,063)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,480,542) (2,133,279)
<EPS-BASIC> (0.35) (2.27)
<EPS-DILUTED> (0.35) (2.27)
</TABLE>
