<PAGE>
As filed with the Securities and Exchange Commission on August 7, 1997
Registration No. 333-4873
===============================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 10
to
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
---------------------
U.S. GOLF AND ENTERTAINMENT INC.
(Name of small business issuer in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 7999 11-3320969
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
4 Henry Street
Commack, New York 11725
(516) 499-7007
(Address and telephone number of principal executive
offices and principal place of business)
---------------------
Edward C. Ross, Chairman
U.S. Golf and Entertainment Inc.
4 Henry Street
Commack, New York 11725
(516) 499-7007
(Name, address and telephone number of agent for service)
---------------------
Copies to:
Norman M. Friedland, Esq. Alan I. Annex, Esq.
David R. Fishkin, Esq. Camhy Karlinsky & Stein LLP
Ruskin, Moscou, Evans & Faltischek, P.C. 1740 Broadway
170 Old Country Road New York, New York 10019
Mineola, New York 11501 (212) 977-6600
(516) 663-6600 (212) 977-8389 (fax)
(516) 663-6641 (fax)
---------------------
Approximate Date of Proposed Sale to the Public: As soon as practicable
after the Registration Statement becomes effective.
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
of 1933, check the following box: [X]
===============================================================================
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===========================================================================================================================
Proposed Maximum Proposed Maximum
Title of Each Class of Securities to be Amount to be Offering Price Per Aggregate Offering Amount of
Registered Registered Security (1) Price (1) Registration Fee
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting of one share
of Common Stock, $.001 par
value, and one Redeemable
Warrant to purchase one share
of Common Stock(2) ..................... 1,265,000 $ 6.10 $7,716,500 $2,338.33
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share
issuable upon exercise of
Representatives' Warrants(4) ........... 1,265,000 $ 7.20 $9,108,000 $2,760.00
- --------------------------------------------------------------------------------------------------------------------------
Representative Warrants(3) ............ 110,000 $ .0001 $ 11 $ --
- --------------------------------------------------------------------------------------------------------------------------
Units issuable upon exercise of the
Representatives' Warrants ............. 110,000 $ 7.93 $ 872,300 $ 264.33
- --------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per share
underlying the Redeemable Warrants
included in the Representatives'
Warrants(6)............................. 110,000 $ 7.80 $ 858,000 $ 260.00
- --------------------------------------------------------------------------------------------------------------------------
Total Registration Fee(7) ........................................................................... $5,662.66
</TABLE>
================================================================================
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933.
(2) Based on the offering of 1,100,000 Units and 165,000 Units pursuant to the
over-allotment.
(3) No Fee is required pursuant to Rule 457(g) under the Securities Act.
(4) Issuable upon the exercise of Redeemable Warrants to be offered to the
public pursuant to Rule 416 under the Securities Act, this Registration
Statement covers any additional shares of Common Stock which may become
issuable by virtue of the anti-dilution provisions of such Redeemable
Warrants.
(5) These Units are identical to the Units offered to the public. Pursuant to
Rule 416 under the Securities Act, this Registration Statement also covers
any additional Units which may become issuable by virtue of the anti-
dilution provisions of the Representatives' Warrants.
(6) Issuable upon the exercise of the Redeemable Warrants included in the
Representatives' Warrants. Pursuant to Rule 416 under the Securities Act,
this Registration Statement also covers any additional shares of Common
Stock which may become issuable by virtue of the anti-dilution provision of
the Redeemable Warrants.
(7) A Registration Fee of $13,141 was paid in connection with the initial
filing of the Registration Statement on May 31, 1996.
---------------------
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>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
PROSPECTUS
SUBJECT TO COMPLETION, DATED AUGUST 7, 1997
U.S. GOLF AND ENTERTAINMENT INC.
1,100,000 Units
Each Unit consisting of One Share of Common Stock and
One Redeemable Common Stock Purchase Warrant
U.S. Golf & Entertainment Inc (the "Company") is hereby offering (the
"Offering") 1,100,000 units (the "Units"), each unit consisting of one share of
Common Stock (the "Common Stock"), $.001 par value per share, and one Redeemable
Common Stock Purchase Warrant (the "Warrants"). The Units, the Common Stock and
the Warrants are sometimes referred to as the "Securities." The Common Stock and
the Warrants included in the Units may not be separately traded until February ,
1998, unless earlier separated upon three days' prior written notice from
Westport Resources Investment Services, Inc. and National Securities Corporation
(the "Representatives") to the Company at the discretion of the Representatives.
Each Warrant entitles the holder thereof to purchase one share of Common Stock
(a "Warrant Share") at an exercise price of 120% of the offering price per Unit
at any time commencing on August , 1998 until August , 2002, unless earlier
redeemed. The Warrants are subject to redemption by the Company at a price of
$0.05 per Warrant at any time commencing August , 1998, on thirty days prior
written notice, provided that the closing price per share for the Common Stock
has equaled or exceeded $12.25 for twenty consecutive trading days within the
thirty-day period immediately preceeding such notice. See "Description of
Securities" and "Underwriting."
As of March 31, 1997, the Company and its constituents had accumulated
losses of $1,871,996. The Company is continuing to incur losses and could incur
significant additional losses for the foreseeable future.
Prior to the Offering, there has been no market for the Securities and
there can be no assurance that an active trading market will develop or be
maintained. It is currently estimated that the initial public offering price of
the Units will be $6.10 per Unit. The offering price of the Units is not
necessarily related to the Company's assets, book value, results of operations,
or other established criteria of value, and should not be regarded as any
indication of the future market price of the Securities. The Company
anticipates that the Units will be quoted on the NASDAQ SmallCap Market under
the proposed symbol USGOU. See "Risk Factors," "Description of Securities" and
"Underwriting."
---------------------
THE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY
PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. IN ADDITION,
PURCHASERS OF THE SECURITIES WILL SUFFER IMMEDIATE SUBSTANTIAL DILUTION.
SEE "RISK FACTORS" COMMENCING ON PAGE 6 OF THIS PROSPECTUS AND
"DILUTION" ON PAGE 13.
---------------------
THE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR BY ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE>
<TABLE>
<CAPTION>
=========================================================================================================
Underwriting Discounts Proceeds to the Company
Price to the Public and Commissions (1) (2)(3)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit ............... $ $ $
- ---------------------------------------------------------------------------------------------------------
Total Offering (3) ...... $ $ $
=========================================================================================================
</TABLE>
(1) Does not include additional compensation payable to the Representatives of
the several underwriters (the "Underwriters") consisting of (i) two and
one-half (2.5%) percent of the gross proceeds of the Offering and (ii)
warrants (the "Representative Warrants") exercisable for four years,
commencing one year from the Effective Date, to purchase 110,000 Units at
130% of the initial public offering price per Unit. In addition, the Company
has agreed to indemnify the Underwriters against civil liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting" for other agreements between the Company and the Underwriters
which may be considered additional underwriting compensation.
(2) Assuming the Over-Allotment Option is not exercised, and before deducting
offering expenses payable by the Company.
(3) The Company has granted to the Underwriters a 45-day option to purchase up
to an additional 165,000 Units at the price to the public less Underwriter's
discounts and commissions, solely to cover over allotments, if any (the
"Over-Allotment Option"). If the Over-Allotment Option is exercised in full
the total price to the public, Underwriters' discounts, commissions and
expenses and proceeds to the Company will be $7,716,500, $964,563 and
$6,201,937, respectively. See "Underwriting".
The Securities offered by this Prospectus are offered by the Underwriters
on a firm commitment basis subject to prior sale, when, as and if accepted by
the Underwriters and subject to certain other conditions. The Underwriters
reserve the right to withdraw, cancel or modify the Offering and to reject any
order in whole or in part. It is expected that delivery of certificates
evidencing the Securities will be made against payment at the offices of
National Securities Corporation in Seattle, Washington on or about
August , 1997.
------------
WESTPORT RESOURCES NATIONAL SECURITIES
INVESTMENT SERVICES, INC. CORPORATION
The date of this Prospectus is August __, 1997
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
INCLUDING PURCHASES OF THE SECURITIES TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE SECURITIES TO COVER SOME OR ALL OF A SHORT POSITION IN THE SECURITIES
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
A SIGNIFICANT AMOUNT OF THE SECURITIES TO BE SOLD IN THIS OFFERING MAY BE
SOLD TO CUSTOMERS OF THE REPRESENTATIVE. THIS MAY AFFECT THE MARKET FOR AND
LIQUIDITY OF THE COMPANY'S SECURITIES IN THE EVENT THAT ADDITIONAL
BROKER-DEALERS DO NOT MAKE A MARKET IN THE COMPANY'S SECURITIES, OF WHICH THERE
CAN BE NO ASSURANCE.
ALTHOUGH THE REPRESENTATIVE HAS NO OBLIGATION TO DO SO, THE REPRESENTATIVE
MAY FROM TIME TO TIME ACT AS A MARKET MAKER AND OTHERWISE EFFECT TRANSACTIONS
IN THE COMPANY'S SECURITIES. IF THE REPRESENTATIVE PARTICIPATES IN THE MARKET,
IT MAY BECOME A DOMINATING INFLUENCE IN THE MARKET FOR THE SECURITIES. HOWEVER,
THERE IS NO ASSURANCE THAT THE REPRESENTATIVE WILL BE A DOMINATING INFLUENCE.
THE PRICES AND LIQUIDITY OF THE SECURITIES OFFERED HEREBY MAY BE SIGNIFICANTLY
AFFECTED BY THE DEGREE OF THE REPRESENTATIVE'S PARTICIPATION IN SUCH MARKET.
THE REPRESENTATIVE MAY DISCONTINUE SUCH ACTIVITIES AT ANY TIME OR FROM TIME TO
TIME. SEE "RISK FACTORS -- NO PRIOR TRADING MARKET."
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2, pursuant to the Securities
Act of 1933, as amended (the "Act"), with respect to the Units offered by this
Prospectus. This Prospectus does not contain all the information set forth in
said Registration Statement and the exhibits thereto. For further information
with respect to the Company and the Units offered hereby, reference is made to
said Registration Statement and exhibits which may be inspected without charge
at the Commission's principal office at Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549. The Registration Statement including the exhibits
thereto, can also be accessed through the EDGAR terminals in the Commission's
Public Interest Rooms in Washington D.C. or through the World Wide Web at
http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such interim reports as it deems
appropriate or as may be required by law. The Company's fiscal year ends
December 31.
The Company will provide without charge to each person who receives this
Prospectus, upon written or oral request of such person, a copy of the
Registration Statement (excluding exhibits) by contacting the Company at 4
Henry Street, Commack, New York 11725, telephone (516) 499-7007, attention:
Chief Financial Officer.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including risk factors, and the financial statements appearing
elsewhere in this Prospectus. The Units offered hereby involve a high degree of
risk, including, without limitation, risks relating to the Company's limited
history of operations, operating losses which are expected to continue,
potential need for additional funds, intense competition, dependence on key
personnel, and the compensation payable to the Representatives. See "Risk
Factors." Unless otherwise indicated, (i) all information in this Prospectus
assumes no exercise of the Over-Allotment Option and (ii) reference to the
Company means the Company and its constituent entities.
The Company
U.S. Golf and Entertainment Inc. (the "Company") is seeking to become a
national owner/operator of upscale, high-volume, golf practice and instructional
centers and related recreational facilities. The Company's facilities are
intended to provide attractive and affordable practice and teaching venues to a
large and increasing golf population. The Company currently operates the Commack
Golf and Family Recreation Center, a modern 19-acre, 120-tee facility located in
central Long Island (the "Commack Golf Center"). The Commack Golf Center offers
year-round facilities for driving and pitching, as well as an 18-hole miniature
golf course, a snack bar, and a golf learning center. The Company is developing,
and expects to open in early 1998, an upscale golf driving range and teaching
center on 7.5 acres in Englewood, New Jersey (the "Englewood Facility"), and is
a limited partner (with a 50% ownership interest) in a newly-organized
partnership (the "Monticello Partnership") that is planning to develop an
18-hole daily fee public golf course, driving range and instructional center in
Monticello, New York (the "Monticello Facility"). The Company's management
believes that their business experience, marketing skills and industry
relationships will provide the Company with opportunities to acquire, develop
and/or open other golf practice facilities and learning centers.
Over the past decade, the popularity of golf throughout the United States
and the demand for golf courses and golf driving range facilities has
experienced continued growth. According to the National Golf Foundation
("NGF"), the number of golfers in the United States increased to approximately
25 million players in 1995 from approximately 21.2 million players in 1987.
Management believes that this trend will continue for the foreseeable future as
golf becomes an increasingly popular recreational activity. Industry statistics
of the NGF indicate that women and juniors are learning and playing golf in
increasing numbers. Management believes these population segments will be
important factors in increasing the demand for golf practice and instructional
facilities of the type the Company presently owns and intends to open in the
future.
The Commack Golf Center was opened in March, 1995, and incurred losses of
$423,419 for the period from March 1, 1995 to December 31, 1995 on revenues of
$719,374, $937,167 for the year ended December 31, 1996 on revenues of
$818,211, and $511,410 for the three (3) month period ended March 31, 1997 on
revenues of $125,087 respectively, for such periods.
The Company's strategy involves opening new golf practice centers and
acquiring existing well-located centers. The Company believes that the existence
of more than 2,000 stand-alone golf ranges in the United States presents
numerous opportunities for the Company to acquire, upgrade and renovate golf
facilities and to realize economies of scale through efficiencies of management,
purchasing and marketing. The Company's management team, which includes Chuck
Workman who has more than 25 years experience in operating and managing golf
facilities, believes that it has the necessary industry experience and, upon
consummation of the Offering, will have the financial resources to effectively
implement its strategy. The Company currently has no definitive agreements with
respect to the acquisition or development of additional golf practice centers or
related recreational facilities, except for the Englewood Facility, the
Monticello Facility and an option to acquire, from its Senior Vice President at
fair market value, rights to operate a golf practice facility and pro shop at
Bethpage State Park, a well-known multiple golf course facility (the "Bethpage
Facility").
The Company was incorporated in the State of Delaware on May 17, 1996. The
Company's executive offices are located at 4 Henry Street, Commack, New York
11725. The Company's telephone number is (516) 499-7007.
3
<PAGE>
The Offering
Securities Offered by the
Company ............... 1,100,000 Units, each Unit consisting of one share
of Common Stock and one Warrant, each Warrant
entitling the holder to purchase one share of Common
Stock at a price of 120% per Unit exercisable on
August , 1998 until August , 2002, unless earlier
redeemed.
Warrants ............... Each Warrant will entitle the holder thereof to
purchase one share of Common Stock. The Warrants are
exercisable commencing on August , 1998 until
August , 2002, unless earlier redeemed, for one
share of Common Stock each, at an exercise price of
120% of the offering price per Unit in this
Offering. The Warrants may not be separately traded
until February , 1998, unless earlier separated
upon three days prior written notice by the
Representatives to the Company at the discretion of
the Representatives. The Warrants are redeemable by
the Company at $0.05 per Warrant at any time
commencing February , 1998, on thirty days prior
written notice, provided that the closing sale price
per share for the Common Stock has equaled or
exceeded $12.25 for twenty consecutive trading days
within the thirty-day period immediately preceding
such notice. See "Description of Securities."
Offering Price ...... $6.10 per Unit
Common Stock Outstanding:
Prior to the Offering(1) 1,265,000 shares of Common Stock
After the Offering(1)(2) 2,365,000 shares of Common Stock
Use of Proceeds ...... Repayment of Bridge Loans and certain short term
liabilities; development of the Englewood Facility;
capital contribution to the partnership which is
developing the Monticello Facility; development of
additional recreational facilities at the Commack
Golf Center and working capital. See "Use of
Proceeds."
Proposed NASDAQ
SmallCap Symbols (3)
Units............... USGOU
Common Stock........ USGO
Redeemable Warrants USGOW
- ------------
(1) Does not include: (i) 900,000 shares of Common Stock reserved for issuance
upon the exercise of options under the Company's 1996 Stock Option Plan, of
which options to purchase an aggregate of 650,000 have been granted to
Messrs. Stuart Goldstein, Edward Ross and Chuck Workman, executive officers
of the Company, each at exercise prices per share of $5.00; and (ii) 100,000
shares of Common Stock reserved for issuance upon the exercise of options
under the Company's 1996 Non-Employee Director Stock Option Plan, of which
options to purchase 5,000 shares have been granted to Mr. Garry Howatt, a
non-employee director of the Company's Board of Directors. See "Management
-- Stock Option Plans" and "Certain Transactions."
(2) Does not include: (i) 1,100,000 shares of Common Stock issuable upon
exercise of the Warrants; (ii) 110,000 shares of Common Stock issuable
upon exercise of the Representative Warrants and 110,000 shares of Common
Stock issuable upon exercise of warrants issuable upon the Representative
Warrants; (iii) up to 330,000 shares of Common Stock issuable upon the
exercise of the Underwriter's Over-Allotment Option; or (iv) 150,000
shares of Common Stock issuable upon the exercise of warrants issued
pursuant to a private offering to accredited investors of (x) an aggregate
of 150,000 common stock purchase warrants (the "Bridge Warrants") and (y)
$1,140,000 of 15% promissory notes (the "Bridge Loans"), pursuant to a
Confidential Private Placement Memorandum dated October 23, 1996, as
amended.
(3) The Company has been approved for listing on the NASDAQ SmallCap Market. A
NASDAQ SmallCap listing provides no assurance that an active, liquid
trading market will develop or, if developed, will be sustained. See "Risk
Factors -- Possible Delisting from NASDAQ System and Market Illiquidity."
4
<PAGE>
Summary Financial Data
<TABLE>
<CAPTION>
For the Years Ended For the Three Months
December 31, Ended March 31,
---------------------------------- ----------------------------
Statement of Operations Data 1995(3) 1996 1996 1997
---------------------------- --------------- ---------------- ------------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Operating Revenue ........................... $ 719,374 $ 818,211 $ 123,112 $ 125,087
Operating Expenses ........................... $ 1,021,666 $ 1,275,666 $ 274,910 $ 287,467
Selling, General and Administrative Expenses . $ 87,555 $ 173,150 $ 6,855 $ 37,282
Loss From Operations ........................ $ (389,847) $ (630,605) $ (158,653) $ (199,662)
Amortization of Discounts attributable to
Warrants .................................... $ -- $ 226,000 $ -- $ 272,000
Interest Expense ........................... $ 33,572 $ 80,562 $ 8,397 $ 39,748
Net Loss .................................... $ (423,419) $ (937,167) $ (167,050) $ (511,410)
Pro Forma Net Loss(1) ........................ $ (929,419) $ (1,416,667) $ -- $ --
Pro Forma Net Loss Per Share(1) ............... $ (.73) $ (1.12) $ -- $ --
</TABLE>
<TABLE>
<CAPTION>
December 31,
1996 March 31, 1997 (unaudited)
---------------- ----------------------------------
Actual Actual As Adjusted(2)
---------------- ---------------- ---------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and Cash Equivalents ...... $ 149,965 $ 118,998 $4,179,110
Working Capital (Deficit) ...... $ (1,112,741) $ (1,267,330) $3,645,757
Total Assets ..................... $ 3,096,160 $ 3,026,634 $6,912,909
Current Liabilities ............ $ 1,298,533 $ 1,436,938 $ 583,963
Total Stockholders' Equity ...... $ 1,550,789 $ 1,327,379 $6,066,629
</TABLE>
- ------------
(1) See Note (1) of Notes to Financial Statements of the Company.
(2) Assumes (i) net proceeds of $5,321,250 from the issuance of 1,100,000 Units
at an estimated price of $6.10 per Unit and (ii) the repayment of debt.
See "Use of Proceeds."
(3) Operations commenced March 1, 1995.
TO CALIFORNIA RESIDENTS ONLY:
California residents can only purchase the Units if they had (i) a minimum
gross income of at least $65,000 during the last tax year, expect to have a
minimum gross income of at least $65,000 during the current tax year, and have a
net worth, individually, of at least $250,000 (exclusive of home, home
furnishings and automobiles), or (ii) have a net worth, individually, of at
least $500,000 (exclusive of home, home furnishings and automobiles).
5
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other information in this Prospectus, in connection with
investments in the Securities offered hereby. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The Company's
actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain factors, including those set
forth below and elsewhere in this Prospectus. An investment in the Securities
offered hereby involves a high degree of risk.
Limited History. The Company's only golf practice and instructional
center, a 120-hitting tee facility located in central Long Island, (the
"Commack Golf Center") opened in March, 1995 and, accordingly, has only a
limited history of operations. The Commack Golf Center revenues during 1996
were $818,211 as compared to $719,374 for the preceding ten month period.
Revenues for the quarter ended March 31, 1997 were $125,087 as compared to
$123,112 for the quarter ended March 31, 1996. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Company's
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by a small business in a highly competitive industry.
Net Losses Since Inception. Net losses for the Company were ($423,419) for
the period from March 1, 1995 to December 31, 1995 (on revenues of $719,374),
($937,167) for the year ended December 31, 1996 (on revenues of $818,211), and
($511,410) for the three (3) months ended March 31, 1997 (on revenues of
$125,087). Management believes it incurred net losses at the Commack Golf
Center for several reasons, which include one-time start-up expenses; an
unusually harsh winter season that extended through April, 1996; the fact that
the miniature golf course and related recreation amenities were not operational
until the summer of 1996; the unforseen delay in implementing a well-publicized
golf instruction program (including group and private lessons); and the
construction activity which was occurring on a neighboring parcel, which
affected the Commack Golf Center's upscale image. The Company's operating
expenses can be expected to continue to increase as a result of the Company's
proposed expansion strategy. See "Possible Difficulties in Implementing
Expansion Strategy" below. Accordingly, although the Company has experienced
increased revenues at the Commack Golf Center in fiscal year 1996 (see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"), the Company expects to continue to incur losses until revenues
generated by expanded operations are sufficient to offset operating and
expansion costs. There can be no assurance, however, that the Company will
operate profitably in the future or that the Company will successfully acquire
or develop other profitable operating facilities. See "Business" and "Financial
Statements."
Dependence on Single Location. The Commack Golf Center is the only
facility currently operated by the Company, and there can be no assurance that
the Englewood Facility will be opened as scheduled. Accordingly, a variety of
factors relating to operating at only one location could affect the ongoing
viability of the Company's business. These factors include local economic
conditions, adverse publicity, accidents that could damage or destroy the
Commack Golf Center and competition from other golf facilities.
Possible Difficulties in Implementing Expansion Strategy. The Company's
ability to significantly increase revenue and operating cash flow over time
depends in large part upon its success in developing and opening the Englewood
Facility and the Monticello Facility and operating, acquiring and opening
additional golf centers and related recreational facilities. There can be no
assurance that additional suitable expansion opportunities will be available,
or that the Company will be able to open or acquire additional facilities on
satisfactory terms, if at all. The development and opening of the Englewood
Facility and the Monticello Facility as well as the construction of new golf
practice centers are subject to all of the delays and uncertainties associated
with construction projects generally. In addition, the Company's ability to
expand beyond the Englewood Facility and the Monticello Facility will be
dependent on an availability of additional financing, and there can be no
assurance that such financing will be available or, if available, on terms
acceptable to the Company. See "--Additional Financing Requirements" below.
To successfully implement its expansion strategy, the Company must develop
administrative operating systems and procedures to manage multiple facilities
and there can be no assurance that these systems and procedures can be
developed or implemented in an efficient, cost-effective manner. If new
facilities are opened in the future, they must be integrated into the Company's
existing operations, and there can be no assurance that these
6
<PAGE>
additional facilities can be easily assimilated into the Company's operating
structure. If the Company is not able to efficiently develop appropriate
operating systems and procedures or integrate acquired or newly-opened centers
with its existing operations, the Company's financial condition and results of
operations could be materially adversely affected. Except for the Englewood
Facility, the Monticello Facility and an option to acquire, from its Senior
Vice President, the rights to operate the golf practice facility and pro shop
at Bethpage State Park, the Company currently has no definitive agreements with
respect to the acquisition or opening of additional golf practice centers.
There can be no assurance that the option for the Bethpage Facility would be
exercised prior to late 1997, nor can there be any assurance that such option
will be exercised at all, or, if it is exercised, that it will be on terms that
are favorable to the Company.
Significant Competition. The golf driving range business is competitive
and includes competition from golf courses as well as other forms of
recreation. Certain of the Company's competitors have considerably greater
financial, marketing, personnel and other resources than the Company, as well
as greater experience and customer recognition than the Company. In the Long
Island market, the Company faces strong competition from other freestanding
golf driving ranges and from numerous public and private golf courses which
offer golf practice facilities. While management believes that the location and
the amenities associated with the Commack Golf Center provide it with certain
competitive advantages, there can be no assurance that the Company will be able
to successfully compete with its competitors.
Seasonal and Quarterly Fluctuations in Operating Results. The Company's
revenues from April through October from the Commack Golf Center and from other
facilities the Company may open or acquire are expected to account for the
greatest portion of the Company's operating revenue. This seasonal pattern is
expected to cause the Company's results of operations to vary significantly
from quarter to quarter. Accordingly, period-to-period comparisons are not
necessarily meaningful and should not be relied on as indicative of future
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Management's Broad Discretion in Application of Proceeds. After giving
effect to the prepayment of certain expenses in connection with the Offering
totalling $173,837, $4,060,112 (or 73.9%), of the net proceeds of the Offering,
after repayment of the Bridge Loans and certain short-term liabilities, will be
used for working capital and for the acquisition, opening and operation of
additional golf and recreation centers. Accordingly, management will have broad
discretion as to the allocation and use of such proceeds. See "Use of
Proceeds."
Offering Proceeds to Benefit Affiliated Parties. $1,434,975 (or 26.1%) of
the net proceeds of the Offering will be used to repay short-term debt, which
will benefit certain affiliates of the Company. See "Use of Proceeds."
Additional Financing Requirements. Management believes that the proceeds
of the Offering and the cash flow from the Commack Golf Center operations will
be sufficient to permit the Commack Golf Center to conduct its operations as
currently contemplated for a minimum of 18 months, to fund the development of
the Englewood Facility and to fund its capital contribution to the Monticello
Partnership. This belief is principally founded in the assumption that improved
advertising and marketing in connection with the Commack Golf Center will
substantially improve the operating income of the Company. Although such belief
is based on management's best judgment, there can be no assurance that the
assumptions underlying this belief will prove accurate or that circumstances
beyond the Company's control will not materially adversely affect the Company's
financial condition and results of operations, requiring the Company to seek
additional capital. The Company has not generated positive cash flow in the
last two (2) fiscal years. The Company's losses from operations for the years
ended December 31, 1995 and December 31, 1996 and for the three (3) months
ended March 31, 1997 were ($389,847), ($630,605) and ($199,662), respectively.
Possible Inability to Obtain Debt Financing. The Company's expansion
strategy for the Englewood Facility and for certain other potential
acquisitions is dependent upon the availability of the capital to be raised in
the Offering and the availability of debt financing to cover approximately 50%
of the cost of developing each additional facility. There can be no assurance,
however, that such debt financing will be available or that the funds to be
raised in the Offering in combination with such debt financing will be
sufficient to enable the Company to acquire and/or develop additional golf and
related recreational facilities. In connection with any such debt financing,
the Company may be required to pledge its assets to a lender, may be restricted
in its ability to
7
<PAGE>
incur additional obligations or to make capital expenditures, and/or may be
required to abide by certain financial covenants. Moreover, if the Company
defaults on any of its obligations with respect to any such debt financing, the
lender could declare its loan to become immediately due and payable and subject
the Company's assets to foreclosure.
Dependence Upon Key Employees. The Company is heavily dependent on the
services of Stuart Goldstein, the Company's President and Chief Executive
Officer. Mr. Goldstein has entered into an employment agreement with the Company
for a term expiring December 31, 2001, which provides that he will work full-
time for the Company. In addition, Messrs. Edward Ross and Chuck Workman have
entered into employment agreements with the Company that provide that Messrs.
Ross and Workman will provide services to the Company on an as-needed basis.
Each of Messrs. Goldstein and Ross is subject to a covenant not to compete with
the Company which prohibits each of them from competing with the Company in the
United States during the terms of their respective employment agreements and for
a period of two (2) years thereafter. The loss of the services of either Messr.
Goldstein, Ross or Workman could materially adversely affect the Company. In
addition, other than Mr. Workman, the Company lacks significant managerial
experience in the golf industry. The inability to secure additional experienced
executives/officers may materially adversely affect the Company. See
"Management."
Prior Business Bankruptcy Filings Involving Company Executive. Two real
estate investment partnerships in which Edward C. Ross, the Company's Chairman,
serves as the chief executive of the corporate general partner, have
experienced financial difficulties. In February, 1994, Mr. Ross was President
of Coastal Riverview Development Corp. ("Coastal"), which served as the general
partner of Coventry Shopping Plaza Associates ("Coventry"), a limited
partnership and the owner and operator of a shopping center in Providence,
Rhode Island. On February 1, 1994, Coventry filed a petition for reorganization
under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court,
Eastern District of New York. The petition was dismissed at the debtor's
request in October, 1994. Mr. Ross was also President of Coastal when it was
the general partner of Conrans Plaza Associates ("Conrans"), a limited
partnership which owned and operated a shopping center in East Hanover, New
Jersey and which filed a petition for reorganization under Chapter 11 in the
U.S. Bankruptcy Court, Eastern District of New York on July 11, 1995. Conrans
successfully emerged from these proceedings in March, 1996.
Criminal Accusations Concerning Company's Prior Underwriter. In early 1996,
the Company entered into a letter of intent with A.R. Baron & Company
("Baron"), a New York City based broker-dealer, whereby Baron would act as the
lead underwriter for the Company's initial public offering. In July, 1996,
Baron ceased operations as a broker-dealer following securities industry
regulatory actions, and the Company ceased doing business with Baron and its
executives. In May, 1997, Baron, together with 13 employees of Baron, were
indicted by the New York County District Attorney on counts of enterprise
corruption and grand larceny in connection with allegations that Baron and its
employees defrauded investors out of more than $75 million. Although the
Company's securities were referenced in two (2) counts of the indictment, the
Company does not believe that its securities were involved in any of these
activities, and the Company is not a party to these criminal proceedings. The
Company had no knowledge of Baron's activities, and redeemed the interests of
all former shareholders of the Company that the Company believed were in any
way associated with Baron once the Company became aware of such activities.
However, in the event that any former Baron employees or related or associated
persons of Baron still beneficially hold stock in the Company without the
Company's knowledge, such individuals could effect or attempt to effect market
manipulations of the Company's securities in violations of federal and state
securities laws, which could materially adversely affect the price of the Units
and the Common Stock.
Dependence on Discretionary Consumer Spending. The amount spent by
consumers on discretionary items, such as golf and family and entertainment
activities, is dependent upon consumers' levels of discretionary income, which
may be adversely affected by general or local economic conditions. A decrease
in consumer spending on such activities will have a material adverse effect on
the Company's financial condition and results of operations.
Termination Provisions of Commack Golf Center Lease and the Englewood
Facility. The lease for the Commack Golf Center is scheduled to expire in
April, 2010, subject to renewals, at the Company's sole
8
<PAGE>
option, to April, 2020. The lease for the Englewood Facility is scheduled to
expire on April 30, 2022, subject to renewals, at the Company's sole option, to
2031. Both leases provide the landlord with a variety of remedies, including
termination rights and eviction, in the event the Company breaches any one of a
number of covenants, including its obligation to make timely rent payments and
maintenance of adequate insurance coverage. (See "Business-- Properties"). If
either of these leases is terminated, the Company will be materially adversely
affected.
Arbitrary Determination of Offering Price; Potential Price Volatility. The
offering price of the Units has been determined by negotiation between the
Company and the Representatives and does not necessarily relate to the
Company's assets, book value, results of operations, or other established
criteria of value. As of December 31, 1996, the Common Stock had an actual loss
per share of $.74. There has been significant volatility in the market price of
securities of companies with small capitalizations. Period-to-period
fluctuations in the Company's revenues and financial results may have a
significant impact on the Company's business and on the market price of the
Company's securities. See "Underwriting."
Immediate and Substantial Dilution. Investors in the Offering will
experience immediate and substantial dilution of the net tangible book value of
their shares of Common Stock ($3.51 per share, or 58.5%). In addition, if the
Company obtains additional funds through private or public equity or debt
financings, or if the Company issues options pursuant to the Company's 1996
Stock Option Plan, or if the Company issues stock in connection with
acquisitions at prices below fair market value, the purchasers of the Common
Stock may experience substantial dilution as a consequence of such future
financings, the exercise of such options, or acquisitions. See "Dilution," "Use
of Proceeds," "Capitalization," "Management -- Stock Option Plans" and
"Underwriting."
Adverse Effect of Uninsured Losses. The Company carries property and
liability insurance in amounts it deems adequate. While the Company will make
every effort to maintain adequate insurance by industry standards, the Company
could suffer a loss from a casualty or liability for an event not covered by
insurance or in amounts in excess of coverage. Any such loss could have a
material adverse effect on the Company.
Possible Adverse Consequences of Environmental Regulation. Golf and
recreational centers use and store various hazardous materials. Under various
federal, state and local laws, ordinances and regulations, an owner or operator
of real property is generally liable for the costs of removal or remediation of
hazardous substances that are released on its property, regardless of whether
the owner or operator knew of, or was responsible for, the release of such
hazardous materials. The Company has not been advised of any non-compliance or
violation of any environmental laws, ordinances or regulations and the Company
believes that it is in substantial compliance with all such laws, ordinances
and regulations applicable to the Commack Golf Center. The Company, however,
has not performed any environmental studies on the Commack Golf Center and, as
a result, there may be potential liabilities and/or conditions of which the
Company is not aware. The Company expects to perform preliminary environmental
testing at the site for the Englewood Facility, and environmental testing has
occurred at the site for the Monticello Facility. If any such liabilities or
conditions arise with respect to the Commack Golf Center or any other facility
which may be constructed, acquired or operated by the Company in the future,
there could be a material adverse effect on the Company.
Limited Liability of Directors. As permitted by the Delaware General
Corporation Law, the Company's Certificate of Incorporation eliminates personal
liability of a director to the Company and its stockholders for monetary
damages for breach of fiduciary duty as a director, except in certain
circumstances. Accordingly, stockholders may have limited rights to recover
money damages against the Company's directors for breach of fiduciary duty.
No Prior Trading Market. Prior to the Offering, there has not been a
public market for the Units, the Common Stock or the Warrants. There can be no
assurance that an active trading market on the NASDAQ SmallCap Market will
develop or be sustained after the Offering. The absence of an active trading
market would reduce the liquidity of an investment in the Company's Securities.
The Representatives have indicated that they intend to act as market makers and
otherwise effect transactions in the Company's Securities. To the extent the
Representatives participate, they may be dominating influences in any market
that might develop, and the degree of participation by the Representatives may
significantly affect the price and liquidity of the Securities. The
Representatives may discontinue such activities at any time or from time to
time.
9
<PAGE>
Possible Delisting from NASDAQ System and Market Illiquidity. If the Units
or the Common Stock are initially quoted on the NASDAQ SmallCap Market (as to
which there can be no assurance), then continued inclusion of such securities
on the NASDAQ SmallCap Market will require that (i) the Company maintain at
least $2,000,000 in total assets and $1,000,000 in capital and surplus, (ii)
the minimum bid price for the Units or the Common Stock be at least $1.00 per
share, (iii) the public float consist of at least 100,000 shares of Common
Stock, valued in the aggregate at more than $200,000, (iv) the Units have at
least two active market makers, and (v) the Units or the Common Stock be held
by at least 300 holders. If the Company is unable to satisfy NASDAQ's
maintenance requirements, the Company's securities may be delisted from NASDAQ
SmallCap Market. In such event, trading, if any, in the Units or the Common
Stock would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or the Electronic Bulletin Board of the National
Association of Securities Dealers, Inc. (the "NASD") and it would be more
difficult to dispose of the Units or to obtain as favorable a price for such
securities. Consequently, the liquidity of the Company's securities could be
impaired, not only in the number of securities that could be bought and sold at
a given price, but also through delays in the timing of transactions. In
addition, there could be a reduction in security analysts' and the news media's
coverage of the Company, which could result in lower prices for the Company's
securities than might otherwise be attained and in a larger spread between the
bid and asked prices for the Company's securities. Recently, a proposal has
been made to increase the criteria for continued listing on the Nasdaq SmallCap
Market. If implemented as proposed, stricter criteria for continued listing on
The Nasdaq SmallCap Market would be imposed, including the implementation of a
$2,000,000 net tangible assets test, higher public float and market value of
public float criteria and the implementation of new corporate governance rules.
No assurance can be given that such proposal will be adopted or if adopted,
that it will be adopted in its current form.
Penny Stock Regulation. Broker-dealer practices in connection with
transactions in "penny stocks" are regulated by certain penny stock rules
adopted by the Securities and Exchange Commission (the "SEC") . Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on certain national securities exchanges or quoted on the
NASDAQ system, provided that current price and volume information with respect
to transactions in such securities is provided by the exchange or system). The
penny stock rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer
with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. In addition, the penny stock rules generally require that prior to a
transaction in a penny stock the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. If the Units
do not qualify for quotation on the NASDAQ SmallCap Market, or if it qualifies
and is later delisted from such Market and has a price of less than $5.00 per
Unit, then unless another exemption is available, the Units and the underlying
Common Stock would be subject to the penny stock rules. These disclosure
requirements may have the effect of reducing the level of trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
If the Securities become subject to the penny stock rules, investors in the
Offering may find it more difficult to sell their Securities.
Adverse Consequences Associated with Shares of Common Stock Reserved for
Issuance. The Company has reserved 1,100,000 shares of Common Stock for
issuance upon exercise of the Warrants, 330,000 shares of Common Stock for
issuance upon exercise of the Over-Allotment Option, 110,000 shares of Common
Stock issuable upon exercise of the Representative Warrants, 110,000 shares of
Common Stock issuable upon exercise of warrants issuable upon exercise of the
Representative Warrants, an aggregate of 900,000 shares of Common Stock for
issuance upon the exercise of options, of which 650,000 have been granted to
Messrs. Stuart Goldstein, Edward Ross and Chuck Workman and 250,000 that may be
granted in the future pursuant to the Company's 1996 Stock Option Plan, and an
aggregate of 100,000 shares of Common Stock for issuance upon exercise of
options, of which 5,000 have been granted to Mr. Garry Howatt and 95,000 which
may be granted in the future under the Company's 1996 Non-Employee Director
Stock Option Plan. In addition, the Company has reserved 150,000 shares of
Common Stock for issuance upon the exercise of the Bridge Warrants. Holders of
such warrants and options are likely to exercise them when, in all likelihood,
the Company could obtain additional capital on terms more favorable than those
provided thereby. Furthermore, such warrants and options may adversely affect
the terms on which the Company could obtain additional capital. Should a
significant portion of such warrants and options be exercised, the resulting
increase in the amount of Common Stock in the public
10
<PAGE>
market may have the effect of reducing the per share market price thereof. See
"Management -- Stock Option Plans", "Shares Eligible for Future Sale" and
"Certain Transactions."
Representative Warrants May Inhibit Company's Ability to Raise
Capital. The Company has reserved 110,000 shares of Common Stock issuable upon
exercise of the Representative Warrants and 110,000 shares of Common Stock
issuable upon exercise of warrants issuable upon exercise of the Representative
Warrants. The Company may find it more difficult to raise additional equity
capital if it should be needed for the business of the Company while the
Representative Warrants are outstanding. At any time when the holder or holders
of the Representative Warrants might be expected to exercise them, the Company
would probably be able to obtain additional equity capital on terms more
favorable than those provided in the Representative Warrants.
Potential Depressive Effect on Market Price Due to Future Sales of Common
Stock. 1,265,000 shares of Common Stock outstanding prior to the Offering and
150,000 shares issuable pursuant to the exercise of the Bridge Warrants will be
"restricted securities" as that term is defined in Rule 144 promulgated under
the Act (the "Restricted Securities"). All of the Restricted Securities will be
eligible for sale in the public market pursuant to the provisions of Rule 144
or Rule 701 under the Act at various times after the Effective Date, subject to
the "lock-up" agreements with the Representative described below.
The Company has adopted the 1996 Stock Option Plan pursuant to which it
has granted options to acquire 500,000, 100,000, and 50,000 shares of Common
Stock to Messrs. Stuart Goldstein, Edward Ross, and Chuck Workman, respectively
(the "Employee Options"), and may issue options to purchase up to an additional
250,000 shares of Common Stock. The Company has also adopted the 1996
Non-Employee Director Stock Option Plan pursuant to which it has issued an
option to purchase 5,000 shares of Common Stock (the "Director Options") and
may issue options to purchase up to an additional 95,000 shares of Common
Stock.
Holders of all outstanding securities of the Company have agreed that they
will not, without the Representatives' written consent, sell, transfer, assign,
pledge, hypothecate or otherwise dispose of any shares of Common Stock or other
capital stock of the Company, or any securities convertible into, or
exercisable or exchangable for, any shares of Common Stock or other capital
stock of the Company for a period of 13 months except that (i) holders of
125,000 shares of Common Stock have agreed to such restrictions for a period of
3 months, (ii) holders of 35,000 shares of Common Stock have agreed to such
restrictions for a period of 4 months, (iii) holders of 35,000 shares of Common
Stock have agreed to such restrictions for a period of 6 months, respectively,
from the Effective Date, and (iv) holders of 38,000 shares of Common Stock have
not agreed to any such restrictions. At the request of NASDAQ, the
Representatives have agreed not to release the Bridge Warrants or the shares of
common stock issuable upon exercise thereof from the lock-up sooner than one
(1) year from the Effective Date.
Any substantial sale of the Bridge Warrants, the Restricted Securities, or
the shares of Common Stock issuable upon exercise of the Director Options or
the Employee Options pursuant to Rule 144 or otherwise may have an adverse
effect on the market price of the Company's securities. See "Description of
Securities" and "Shares Eligible for Future Sale."
Potential Adverse Effect of Redemption of Warrants. The Warrants are
subject to redemption by the Company at a price of $.05 per Warrant under
certain conditions at any time commencing twelve months after the date of this
Prospectus on at least 30 days prior written notice. If the Warrants are
redeemed, Warrant holders will lose their right to exercise the Warrants except
during such 30-day redemption period. Upon receipt of a notice of redemption,
Warrant holders would be required to: (i) exercise the Warrants and pay the
exercise price at a time when it may be disadvantageous for them to do so, (ii)
sell the Warrants at the then market price, if any, when they might otherwise
wish to hold the Warrants, or (iii) accept the redemption price, which is
likely to be substantially less than the market value of the Warrants at the
time of redemption. See "Description of Securities -- Warrants."
Warrants to Representatives. Upon completion of the Offering, the Company
will sell to the Representatives, for nominal consideration, Representative
Warrants to purchase 110,000 Units. To the extent that the Representative
Warrants are exercised, they would have a dilutive effect on the percentage of
outstanding shares held by stockholders purchasing Units in the Offering. The
exercise of the Representative Warrants is likely to occur at a time when the
Company could probably obtain additional equity capital on terms more favorable
than those provided by the Representative Warrants. See "Underwriting."
11
<PAGE>
Potential Adverse Effect of Issuance of any Authorized Preferred
Stock. The Company has the right to issue shares of preferred stock in the
future without further stockholder approval and upon such terms and conditions,
and having such rights, privileges, and preferences, as the Board of Directors
of the Company may determine. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of holders of any
preferred stock that may be issued in the future. In addition, the issuance of
preferred stock could have the effect of making it more difficult for a third
party to acquire control of, or of discouraging bids for, the Company. This
could limit the price that certain investors might be willing to pay in the
future for the securities offered hereby. See "Description of Securities."
Dividends Not Likely. The Company has not paid any cash dividends on the
Common Stock. For the foreseeable future, it is anticipated that earnings, if
any, which may be generated from the Company's operations will be used to
finance the operations of the Company and that cash dividends will not be paid
to holders of Units and underlying shares of Common Stock. See "Dividend
Policy."
Stockholders' Inability to Vote on or Review Transactions. As is customary
under the Delaware General Corporation Law, the Board of Directors, not the
stockholders, of the Company have authority to review prospective business
transactions and approve or disapprove of the same. As such, the stockholders
of the Company will neither have the opportunity to review the terms of any
prospective transactions, including any golf-related acquisitions, nor review
the financial statements of any entities relating to any such transactions.
FOR ALL OF THE AFORESAID REASONS AND OTHERS SET FORTH HEREIN, THE PURCHASE
OF UNITS OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. ANY PERSON CONSIDERING
AN INVESTMENT IN THE UNITS OFFERED HEREBY SHOULD BE AWARE OF THESE AND OTHER
FACTORS SET FORTH IN THIS PROSPECTUS. THE UNITS SHOULD BE PURCHASED ONLY BY
PERSONS WHO CAN AFFORD TO ABSORB A TOTAL LOSS OF THEIR INVESTMENT IN THE
COMPANY AND HAVE NO NEED FOR A RETURN ON THEIR INVESTMENT.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Offering (assuming an initial
public offering price of $6.10 per Unit) are estimated at approximately
$5,321,250 ($6,201,937 if the Over-Allotment Option is exercised in full) after
deducting underwriting commissions and discounts and the estimated expenses of
the Offering. Such net proceeds are expected to be expended approximately as
follows:
<TABLE>
<CAPTION>
Application of Proceeds: Amount Percent
------------ --------
<S> <C> <C>
Repayment of Bridge Loans and short-term debt(1) ...... $1,434,975 27.0%
Acquiring and opening the Englewood Facility ......... $2,136,275 40.1%
Capital contribution to Monticello Partnership ......... $1,000,000 18.8%
Improvements to Commack Golf Center .................. 250,000 4.7%
Working capital ....................................... $ 500,000 9.4%
----------- ------
Total ............................................. $5,321,250 100.0%
=========== ======
</TABLE>
- ------------
(1) The Bridge Loans consist of an aggregate of $1,140,000 principal amount of
promissory notes accruing interest at a rate of 15% per annum. The Bridge
Loans are due on the earlier of five (5) days following the Effective Date
or October 23, 1998. An aggregate of $601,125 of the proceeds from the
Bridge Loans have been used to redeem 845,000 shares of Common Stock and
2,020,000 Class A Warrants (See "Certain Transactions"), and the remaining
$538,875 of such proceeds have been used by the Company for working
capital and to pay ongoing legal and accounting fees. Short term debt to
be paid consists of (i) a $120,000 note payable to a bank bearing interest
at the rate of 10.5% per annum as of March 31, 1997, maturing in August
1997, collateralized by all of the assets of the Company and guaranteed by
Edward C. Ross, (ii) an $85,000 note from another bank bearing interest at
10% per annum as of March 31, 1997, maturing in August 1997 and guaranteed
by Edward C. Ross, and (iii) loans made by stockholders of the Company who
were formerly limited partners of the Commack Partnership in the aggregate
amount of approximately $89,975. Proceeds from short-term debt were used
for working capital.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of the Offering based upon the Company's currently
contemplated operations, the Company's development plans, and current economic
and industry conditions, and is subject to reapportionment among the categories
listed above or to new categories in response to, among other things, changes
in its plans, industry conditions, and future revenues and expenditures. The
amount and timing of expenditures will vary depending on a number of factors,
including the availability and cost of sites for new golf centers and whether
such centers will be owned or leased. The Company has no definitive agreements
with respect to the acquisition or development of additional golf practice
centers or related recreational facilities, except an option to acquire from
the Company's Senior Vice President. rights to operate a golf practice facility
and pro shop at Bethpage State Park.
Management believes that the net proceeds of the Offering and revenue from
operations will be sufficient to permit the Company to conduct its existing
operations for at least the next 12 months. The Company's plan of opening the
Englewood Facility and the Monticello Facility over the next 12 to 18 months
(which could involve the use of the Company's Common Stock to pay for some
portion of such acquisitions) is dependent upon the Company's ability to obtain
debt financing to cover approximately 50% of the cost of the new centers. The
Company will be required to raise substantial additional capital in the future
in order to meet its goal of opening at least 10 additional golf and recreation
centers over the next three to five years. There can be no assurance that the
Company will be able to obtain such debt financing and/or capital on favorable
terms, if at all. See "Risk Factors -- Additional Financing Requirements,"
"Capitalization" and "Business -- Site Location Strategy and Planned
Expansion."
The Company intends to invest the net proceeds of the Offering, until
used, in government securities and insured, short-term, interest-bearing
investments of varying maturities.
13
<PAGE>
DILUTION
At March 31, 1997, the unaudited net tangible book value per share of the
Common Stock after giving effect to the redemption by the Company of Common
Stock and warrants from the proceeds of the Bridge Loans was $.78. The "net
tangible book value per share" represents the amount of the Company's tangible
assets, less the amount of its liabilities, divided by the number of shares of
Common Stock outstanding. The calculation of net tangible book value as of
March 31, 1997 reflects operations through March 31, 1997 as set forth in the
Financial Statements. The following table illustrates the per share dilution:
<TABLE>
<CAPTION>
<S> <C> <C>
Public offering price per share of Common Stock(1) .............................. $6.00
Net tangible book value per share as of March 31, 1997 (unaudited) ............ $ .78
Increase per share attributable to the sale by the Company of one share of Com-
mon Stock offered hereby (at an assumed initial public offering price of $6.00
per share) (2) .................................................................. $1.71
------
Net tangible book value per share after Offering .............................. $2.49
-----
Dilution of net tangible book value per share of Common Stock to new investors . $3.51
=====
</TABLE>
- ------------
(1) Before deducting underwriting discounts and commissions and estimated
offering expenses to be paid by the Company.
(2) After deducting underwriting discounts and commissions and estimated
offering expenses to be paid by the Company net of discounts of $582,000
attributable to the warrants issued in connection with the Bridge Loans.
The following table summarizes as of the date of this Prospectus, after
giving effect to (i) the Company's acquisitions of Commack Golf and Family
Recreation Center, L.P. (the "Commack Partnership") and U.S. Golf and
Entertainment Corp. and (ii) the redemption by the Company of Common Stock and
warrants from the proceeds of the Bridge Loans, and assuming completion of the
Offering at an assumed initial public offering price of $6.00 per share of
Common Stock, the differences between existing stockholders and the new
investors with respect to (x) the aggregate cash consideration (before
deducting issuance expenses) paid for Common Stock purchased from the Company,
and (y) the average price per share paid for Common Stock purchased from the
Company.
<TABLE>
<CAPTION>
Percentage of Aggregate Cash Percentage of
Shares Equity Consideration Total Cash Average
Purchased Owned Paid Invested Price
----------- --------------- ---------------- -------------- --------
<S> <C> <C> <C> <C> <C>
Existing shareholders ...... 1,265,000 53.5% $2,150,875 24.6% $1.70
New investors ............... 1,100,000 46.5% $6,600,000 75.4% $6.00
---------- ------ ---------- ------ -----
Total ..................... 2,365,000 100.0% $8,750,875 100.0%
========== ====== ========== ======
</TABLE>
The above table assumes no exercise of outstanding options, the
Over-Allotment Option, or the Stock Purchase Warrants. If the Over-Allotment
Option is exercised in full, the new investors will have paid $7,590,000 for
1,265,000 shares of Common Stock, representing 77.9% of the net consideration
paid for 50% of the net number of shares of Common Stock outstanding.
Accordingly, investors in the Offering, on a fully diluted basis, will
experience an immediate dilution of $3.32 per share.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at March
31, 1997, and as adjusted to reflect the sale of the Units at an assumed
offering price of $6.10 per Unit of Common Stock. See "Use of Proceeds."
<TABLE>
<CAPTION>
March 31, 1997 (UNAUDITED)
---------------------------------------
Actual As Adjusted(1)
--------------- ---------------------
<S> <C> <C>
Short-term debt(2)(3) ....................................... $ 1,743,975 $ 309,000
=========== ==============
Stockholders' Equity:
Preferred Stock -- $.001 par value, Authorized -- 1,000,000
shares; Issued and outstanding -- None .................. -- --
Common Stock -- $.001 par value, Authorized-- 20,000,000
shares; issued and outstanding 1,265,000 shares actual;
2,365,000 shares, as adjusted ........................... $ 1,265 $ 2,365
Additional paid-in-capital ................................. 3,198,110 10,047,010
Deficit ................................................... (1,871,996) (2,453,996)(4)
----------- --------------
Total stockholders' equity ................................. 1,327,379 7,595,379
----------- --------------
Total Capitalization .................................... $ 1,327,379 $ 7,595,379
=========== ==============
</TABLE>
- ------------
(1) Adjusted to reflect (i) the sale by the Company of the Units offered hereby
at an assumed initial public offering price of $6.10 per Unit and (ii) the
repayment of debt. See "Use of Proceeds" and "Certain Transactions."
(2) Inclusive of short-term debt to banks of $205,000, to stockholders of
$386,475 and $1,140,000 of indebtedness relating to the Bridge Loans, and
other debt of $12,500.
(3) Assumes no exercise of the Over-Allotment Option.
(4) Adjusted to reflect the amortization of the discounts attributable to
warrants issued in connection with the Bridge Loans, which are to be
repaid.
15
<PAGE>
DIVIDEND POLICY
The Company has not paid cash dividends on the Common Stock since
inception and does not anticipate paying any cash dividends to its stockholders
in the foreseeable future. The Company currently intends to retain earnings, if
any, for the development and expansion of its business. The declaration of
dividends in the future will be at the election of the Board of Directors and
will depend upon the earnings, capital requirements and financial position of
the Company, general economic conditions and other pertinent factors.
SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Company's financial statements and related notes thereto and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
For the years For the Three Months
ended December 31, Ended March 31,
-------------------------------- ----------------------------
1995 1996 1996 1997
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ....................................... $ 719,374 $ 818,211 $ 123,112 $ 125,087
----------- ------------ ---------- ----------
Operating expenses ........................... 1,021,666 1,275,666 274,910 287,467
Selling, general and administrative expenses . 87,555 173,150 6,855 37,282
----------- ------------ ---------- ----------
1,109,221 1,448,816 281,765 324,749
----------- ------------ ---------- ----------
Operating loss ................................. (389,847) (630,605) (158,653) (199,662)
Other expenses:
Amortization of discounts attributable to
warrants .................................... -- 226,000 -- 272,000
Interest .................................... 33,572 80,562 8,397 39,748
----------- ------------ ---------- ----------
Net loss ....................................... $ (423,419) $ (937,167) $ (167,050) $ (511,410)
----------- ------------ ---------- ----------
Pro forma net loss (1) ........................ $ (929,419) $ (1,416,667) $ -- $ --
----------- ------------ ---------- ----------
Pro forma net loss per share (1) ............... $ (.73) $ (1.12) $ -- $ --
----------- ------------ ---------- ----------
Shares used in computing net loss per share (1) 1,265,000 1,265,000 -- --
=========== ============ ========== ==========
</TABLE>
December 31, March 31,
-------------- ---------------
1996 1997
(unaudited)
BALANCE SHEET DATA:
Current assets .................. $ 185,792 $ 169,608
Current liabilities ............ 1,298,533 1,436,938
Working capital deficiency ...... (1,112,740) (1,267,330)
Total assets ..................... 3,096,160 3,026,634
Shareholders' equity ............ 1,550,789 1,327,379
(1) See Note 1 of Notes to Financial Statements of the Company.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In July, 1994, Commack Golf and Family Recreation Center, L.P. (the
"Commack Partnership") was organized to construct, develop and operate the
Commack Golf Center, which commenced operations in March, 1995. In April, 1996,
United Acquisition I Corp. (which was incorporated by persons with no
affiliation to the Commack Partnership) (i) loaned $41,200 to the Commack
Partnership in anticipation of its acquisition of the Commack Partnership and
(ii) changed its name to U.S. Golf and Entertainment Corp. ("U.S. Golf Corp.").
In May, 1996, U.S. Golf Corp. raised an additional $500,000 from the sale of
common stock and warrants of which approximately $450,000 was loaned to the
Commack Partnership. In May, 1996, the Company was organized as a vehicle by
which (i) the general and limited partners of the Commack Partnership exchanged
their partnership interests for an aggregate of 1,045,000 shares of the
Company's Common Stock; and (ii) the stockholders of U.S. Golf Corp. exchanged
their shares of common stock and warrants for 1,045,000 shares of the Company's
Common Stock and 2,020,000 Class A Warrants. In November, 1996 the Company (A)
redeemed, for an aggregate purchase price of $601,125, 845,000 shares of the
Company's Common Stock and all 2,020,000 Class A Warrants from persons who were
formerly stockholders of U.S. Golf Corp., and issued 20,000 shares of the
Company's Common Stock to one (1) U.S. Golf Corp. stockholder as additional
consideration for the surrender of his warrants, (B) obtained bridge loans of
$836,000 from accredited investors (the proceeds of which were used in part for
the aforesaid redemption) (the "Bridge Loans") and (C) issued warrants to
purchase a total of 110,000 shares of the Company's Common Stock, at $.10 per
share, to the aforesaid accredited investors (the "Bridge Warrants"). In March
1997, the Company obtained additional Bridge Loans of $380,000 from, and issued
Bridge Warrants to purchase an additional 50,000 shares of Common Stock to,
accredited investors, the proceeds of which were used to redeem $76,000 of
Bridge Loans and 10,000 Bridge Warrants from an investor in the November, 1996
private offering, and for working capital and preliminary expenses in
connection with the Englewood Facility. See "Certain Transactions." The
following discussion assumes the Company has owned and operated the Commack
Golf Center since it first commenced operations in March 1995.
Results of Operations. The following table sets forth selected operations
data of the Company expressed as a percentage of total revenues (except for
operating expenses which is expressed as a percentage of operating revenues)
for the periods indicated below:
<TABLE>
<CAPTION>
For the Three For the Three
For the Years Ended Months Ended Months Ended
December 31, March 31, March 31,
---------------------- --------------- --------------
1995(1) 1996 1996 1997
--------- ---------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Operating revenues ................................. 100.0% 100.0% 100.0% 100.0%
Operating expenses ................................. 142.0 155.9 223.3 229.8
Selling, general and administrative expenses ...... 12.2 21.2 5.6 29.8
Loss from operations .............................. (54.2) (77.1) (128.9) (159.6)
Amortization of discounts attributable to warrants. -- 27.6 0 217.4
Interest expense ................................. 4.7 9.8 6.8 31.8
Net loss .......................................... (58.9) (114.5) (135.7) (408.8)
Pro forma net loss .............................. (129.2) (173.1) -- --
</TABLE>
- ------------
(1) Operations commenced March 1, 1995
Year Ended December 31, 1995. During 1995, the Company had total revenues
of $719,374 and a net loss of $423,419.
Results of operations for the year ended December 31, 1995 reflect 10
months of operations of the Commack Golf Center, but do not reflect any
operations of the Commack Golf Center's miniature golf facility, children's
party room facility, snack bar or rental payments from the golf instruction
lessee.
Operating revenues consisted of driving range sales, lesson sales and
rental income from the pro shop which was opened for only five months in 1995.
Although the Commack Golf Center was opened in March, 1995, a number of related
amenities (i.e., the 18-hole miniature golf course, the golf teaching center,
the children's party room and the snack bar) were not completed or fully
operational until the second quarter of 1996, which negatively affected the
Company's operating revenues in 1995.
17
<PAGE>
Operating expenses, consisting of land rent, depreciation and amortization
of golf driving range facilities and equipment, operating wages and employee
costs, utilities and all other facility operating costs, aggregated $1,021,666
for 1995.
Selling, general and administrative expenses were $87,555 for the year
ended December 31, 1995, consisting of approximately $49,000 in advertising
expenses, approximately $11,000 in sales promotion and commission expenses,
approximately $15,600 in general office expenses, and the remainder in
miscellaneous expenses. These expenses do not include the payment of any
salaries to the Company's executive officers, the anticipated costs of
recruiting and hiring additional executives and do not reflect the anticipated
expenses associated with the Company's plans to acquire or develop additional
golf and recreational centers, including marketing and advertising costs
relating to the opening of new locations.
Interest expense (net of capitalized interest costs) was $33,572,
reflecting borrowings outstanding as a result of the debt financing related to
the construction of the Commack Golf Center which was opened in March, 1995.
Year Ended December 31, 1996. During the year ended December 31, 1996, the
Company had total revenues of $818,211 and a net loss of $937,167. Because the
Commack Golf Center commenced operations in March, 1995, there can be no
meaningful comparison of the results of operations during the year ended
December 31, 1996 and the comparable 1995 period. The results for this period
reflect the effect of unusually severe weather during the first 100 days of
1996.
Operating revenues consisted of driving range sales, mini-golf sales and
lesson sales. The Company received limited rental revenue from the pro shop
during this period.
Operating expenses, consisting of land rent, depreciation and amortization
of golf driving range facilities and equipment, operating wages and employee
costs, utilities and all other facility operating costs, aggregated $1,275,666
for this period.
Selling, general and administrative expenses were $173,150 for the year
ended December 31, 1996, which included $9,900 in amortization expenses,
$33,000 in professional fees, $36,700 in advertising expenses, $17,300 in
commissions/promotion expenses, $6,300 in telephone expenses, $17,600 in office
expenses, $36,000 as salary to the president of the Company and the remainder
in miscellaneous expenses. These expenses do not include the payment of any
salaries to the other Company's executive officers or the anticipated costs of
recruiting and hiring additional executives and do not reflect the anticipated
expenses associated with the Company's plans to acquire or develop additional
golf centers, including related marketing and advertising costs.
Interest expense (net of capitalized interest costs) was $80,562
reflecting borrowings outstanding as a result of the debt financing related to
the construction of the Commack Golf Center. Amortization of discounts
attributable to warrants associated with the cost of funding the redemption of
shares of Common Stock amounted to $226,000 (See Note 12 in the Notes to the
Financial Statements).
Three Months Ended March 31, 1996. During the three (3) months ended March
31, 1996, the Company had total revenues of $123,112 and a net loss of
($167,050).
Operating revenues consisted of driving range sales, mini-golf sales and
lesson sales. The Company received limited rental revenue from the pro shop
during this period.
Operating expenses, consisting of land rent, depreciation and amortization
of golf driving range facilities and equipment, operating wages and employee
costs, utilities and all other facility operating costs, aggregated $274,910
for this period.
Selling, general and administrative expenses were $6,855 for the three (3)
months ended March 31, 1996, which included amortization expenses, professional
fees, advertising expenses, telephone expenses, and miscellaneous expenses.
These expenses do not include the payment of any salaries to the Company's
executive officers or the anticipated costs of recruiting and hiring additional
executives and do not reflect the anticipated expenses associated with the
Company's plans to acquire or develop additional golf centers, including
related marketing and advertising costs.
Interest expense (net of capitalized interest costs) was $8,397 reflecting
borrowings outstanding as a result of the debt financing related to the
construction of the Commack Golf Center.
18
<PAGE>
Three Months Ended March 31, 1997. During the three (3) months ended March
31, 1997, the Company had total revenues of $125,087 and a net loss of
$511,410.
Operating revenues consisted of driving range sales, mini-golf sales and
lesson sales. Operating expenses, consisting of land rent, depreciation and
amortization of golf driving range facilities and equipment, operating wages
and employee costs, utilities and all other facility operating costs,
aggregated $287,467 for this period.
Selling, general and administrative expenses were $37,282 for the three
(3) months ended March 31, 1997, which included amortization expenses,
professional fees, advertising expenses, commissions/promotion expenses,
telephone expenses, office expenses, salary to the President of the Company and
miscellaneous expenses. These expenses do not include the payment of any
salaries to the other Company's executive officers or the anticipated costs of
recruiting and hiring additional executives and do not reflect the anticipated
expenses associated with the Company's plans to acquire or develop additional
golf centers, including marketing and advertising costs relating to the opening
of new locations.
Interest expense (net of capitalized interest costs) was $39,748
reflecting borrowings outstanding as a result of the debt financing related to
the construction of the Commack Golf Center. Amortization of discounts
attributable to warrants associated with the cost of funding the redemption of
shares of Common Stock amounted to $272,000 (See Note 12 in the Notes to the
Financial Statements).
Liquidity and Capital Resources. The Commack Partnership's partners
provided the Commack Partnership's initial capital in 1994 through
subscriptions for limited partnership interests in the aggregate amount of
$2,190,000, general partner contributions aggregating $10,000 and loans by
certain general and limited partners to the Commack Partnership in the
aggregate amount of $404,475 through December 31, 1996.
The Company has taken a number of steps to improve the operations of the
Commack Golf Center which include opening the miniature golf course in April,
1996, increasing the advertising and marketing of the Commack Golf Center
within the community (including establishing a summer golf camp and high school
golf team practice program), and implementing a well-publicized golf
instruction program for group and individual instructions.
The Commack Partnership had a $215,000 note payable to a bank with an
interest at the rate of 2% above the bank's prime lending rate (10 3/4% per
annum) at December 31, 1995. This note, which is payable on demand and is
collateralized by all the assets of what was the Commack Partnership, is
guaranteed by certain former general and limited partners of the Commack
Partnership. During the year ended December 31, 1996, $75,000 was repaid to the
bank, reducing the outstanding balance to $140,000 at December 31, 1996,
bearing interest at the rate of 10 1/4% per annum. During the three (3) months
ended March 31, 1997, $20,000 was repaid to the bank. The note, as amended,
matures in August 1997 and bears interest at the rate of 10.5% per annum.
In addition, the Commack Partnership borrowed $110,000 from another bank.
This note bears interest at the rate of 1 1/2% above the bank's prime interest
rate per annum (10 1/4% at December 31, 1995). During the year ended December
31, 1996, $25,000 was repaid to the bank, reducing the outstanding balance to
$85,000 at December 31, 1996 and March 31, 1997. The note, as amended, matures
in August 1997 with an interest rate of 9 3/4% and 10% at December 31, 1996 and
March 31, 1997, respectively. The obligation is guaranteed by certain former
general and limited partners.
The Commack Partnership's outstanding indebtedness to these banks and to
its general and limited partners has been assumed by the Company.
In April, 1996, U.S. Golf Corp. (which was incorporated and received
equity investments from its founding stockholders in the amount of $54,500 in
November, 1995), loaned $41,200 to the Commack Partnership in anticipation of
the acquisition of the Commack Partnership. In May, 1996, U.S. Golf Corp.
raised an additional $500,000 from the sale of common stock and warrants to a
limited number of investors in a private financing. In May, 1996, the Company
was organized as the corporate entity through which this acquisition could
occur on a tax-free basis to the stockholders of U.S. Golf Corp. and the
general and limited partners of the Commack Partnership. In connection with the
Company's private offering of the Bridge Loans and Bridge Warrants in November,
1996, the Company redeemed, for an aggregate purchase price of $601,125,
845,000 shares of the Company's Common Stock and all 2,020,000 Class A Warrants
from persons who were formerly stockholders
19
<PAGE>
of U.S. Golf Corp. and issued 20,000 shares of the Company's Common Stock to
one (1) U.S. Golf Corp. stockholder as additional consideration for the
surrender of his warrants. In addition, the Company obtained $234,875 in
additional working capital from the proceeds of such private offering. In March
1997, the Company obtained additional Bridge Loans of $380,000 from, and issued
Bridge Warrants to purchase an additional 50,000 shares of Common Stock to,
accredited investors, the proceeds of which were used to redeem $76,000 of
Bridge Loans and 10,000 Bridge Warrants from an investor in the November, 1996
private offering, and for working capital and preliminary expenses in
connection with the Englewood Facility.
The Company anticipates making substantial additional expenditures in
connection with the opening of the Englewood Facility and the Monticello
Facility. See "Use of Proceeds." These expenditures primarily relate to
projected acquisition, development and opening costs, associated marketing
activities and the addition of personnel. Based on the Company's experience
with its existing golf center, the Company estimates that the average cost of
opening a center will be approximately $1,000,000 to $3,000,000 depending on
size and location; however, there can be no assurance that these costs will not
exceed $3,000,000.
The Company anticipates that it will continue to generate negative cash
flows from investing activities for the acquisition and opening of new
facilities which will exceed its operating cash flows until the Company has
more golf centers in operation. The Company anticipates that its inability to
generate operating cash flow in amounts necessary to offset its anticipated
negative cash flow from investing activities will be addressed by cash flow
from financing activities, including the net proceeds of this Offering and the
50% debt financing projected to be available for new centers as discussed
below.
The Commack Golf Center was financed with approximately 85% equity and 15%
debt. The Company believes that the net proceeds of the Offering and the
Company's operating cash flow will be sufficient to provide the Company with
the financial resources to develop and open the Englewood Facility and fund its
capital contribution to the Monticello Partnership within the next 12 to 18
months. The Company believes that it can finance future projects at a 50/50
debt to equity ratio; however, there can be no assurance that it will be able
to do so. The Company will be required to raise additional capital to meet its
goal of acquiring or opening at least 10 new facilities over the next three to
five years. There can be no assurance that the Company will be able to raise
such additional financing on favorable terms, if at all. See "Risk Factors --
Additional Financing Requirements."
The loss of the Commack Golf Center, which is the Company's only golf
center, would have a material adverse effect on the Company's financial
condition and results of operations. See "Risk Factors -- Single Location" and
"-- Lease."
Trends. The Company plans to open additional golf centers. Management
believes that over time, the Company's revenues and operating income from the
Commack Golf Center and the additional centers it intends to open should
increase due to customer awareness, programs marketing the golf centers to
various special interest groups, expanding ties to the local business and
golfing community, and the growing popularity of golf. The Company expects
that, in the near term, it will continue to experience losses from pre-opening
costs and initial operating expenses associated with new centers.
The Company's interest expenses will likely increase as a result of
borrowings to fund the opening and acquisition of new facilities.
Seasonality. The Company's revenues from the Commack Golf Center for the
period from April through October (the second and third quarters of the year)
are expected to account for a greater portion of the Company's operating
revenue than will the first and fourth quarters of the year. Similar results
are expected for the other facilities the Company may acquire or open in
climates similar to that of the northeastern United States. Although some
portions of the Commack Golf Center are protected from inclement weather, other
portions of the Commack Golf Center, such as the miniature golf course, the
putting green and related recreational amenities, are outdoors and vulnerable
to weather conditions. Moreover, golfers may be less inclined to practice when
weather conditions limit their ability to play golf on outdoor courses. This
seasonal pattern is expected to cause the Company's results of operations to
vary significantly from quarter to quarter. Accordingly, period-to-period
comparisons are not necessarily meaningful and should not be relied on as
indicative of future results.
20
<PAGE>
BUSINESS
Introduction. U.S. Golf and Entertainment Inc. (the "Company") is seeking
to become a national owner/operator of upscale, high-volume, year-round golf
practice and instructional centers and related recreational facilities. The
Company's facilities are intended to provide attractive and affordable practice
and teaching venues to a large and increasing golf population. The Company
currently operates the Commack Golf and Family Recreation Center, a modern
19-acre, 120-tee facility located in central Long Island (the "Commack Golf
Center"). The Commack Golf Center, which commenced operations in March, 1995,
offers practice opportunities for driving and pitching, as well as an 18-hole
miniature golf course, a snack bar, and a golf learning center. The Commack
Golf Center offers a comfortable year-round environment for beginner and
experienced golfers to practice and improve their game. The Company is
developing, and expects to open in early 1998, an upscale golf driving range
and teaching center on 7.5 acres in Englewood, New Jersey (the "Englewood
Facility"), and is a limited partner (with a 50% ownership interest) in a
newly-organized partnership (the "Monticello Partnership") that is developing
an 18-hole daily fee public golf course, driving range and instructional center
in Monticello, New York (the "Monticello Facility"). The Company's management
believes that its business experience, marketing skills and industry
relationships will provide the Company with opportunities to acquire, develop
and/or open other golf practice facilities and learning centers.
Industry Overview. Over the past decade, the popularity of golf
throughout the United States and the demand for golf courses and golf driving
range facilities has experienced continued growth. According to the National
Golf Foundation, the number of golfers in the United States increased to
approximately 25 million players in 1995, from approximately 21.2 million
players in 1987, and the total number of rounds played increased by a
proportionate amount. Management believes that these trends will continue for
the foreseeable future as golf becomes an increasingly popular recreational
activity. Industry statistics indicate that women and juniors comprised 55% of
all new golfers in 1995. Management believes that its strategy of
owning/operating upscale, family-oriented golf practice facilities in prime
suburban locations will exploit the opportunities presented by these
demographic trends.
According to the Golf Range and Recreation Association of America (the
"GRRA"), as of December 1996, there were a reported 2,052 freestanding golf
driving ranges in the United States, an increase of 120 facilities over the
prior year's total. Management believes the following factors account for the
growth in the number of golf practice centers, and that such factors will
continue to provide demand for such facilities: steady inflow of new players; a
limited number of golf courses available for daily fee play; and flexible time
considerations for the use of golf practice facilities.
The Commack Golf Center. The Commack Golf Center is a modern 19-acre
facility that features a double decker range with 120 hitting tees, 60 of which
are heated and 20 of which are situated on natural grass. The hitting field is
tree lined and covered with sodded grass, sand traps, and water hazards.
Golfers can practice a full array of golf shots by aiming at any one of the
five greens located at varying distances from the hitting tees.
In April, 1996, the Commack Golf Center opened an 18-hole miniature golf
course that is lighted for night play. The miniature golf course offers an
attraction for children while parents use the driving range. The Company
expects that other golf practice facilities that it acquires or opens in the
future will also have related miniature golf facilities.
The Commack Golf Center is open year-round, seven days a week. During the
spring and summer seasons, it is open from 7:00 a.m. to midnight and during the
winter and fall seasons, from 8:00 a.m. to 8:00 p.m. It is located at Exit 52
of the Long Island Expressway in Commack, New York, a central Long Island
location, and is conveniently located near that highway. Commack, together with
the neighboring townships of Huntington and Smithtown, has a population of more
than 304,000 people with a median household income of nearly $77,000.
The Commack Golf Center's revenues are derived from selling buckets of
balls for use on the driving range, charging for rounds of miniature golf, fees
for lessons, rental payments from the golf instruction concession, and
21
<PAGE>
a percentage of revenues from the food and beverages sold at the concession.
The Commack Golf Center also generates revenue by selling club memberships. For
a membership fee of $1,000 a year, members are entitled to unlimited golf balls
and practice time at the range. Additionally, club members receive a videotaped
golf lesson.
The Commack Golf Center offers group lessons for players at every level,
from beginners to serious club players, using the instruction techniques
developed over many years by respected golf instruction professionals. The
Commack Golf Center instruction area is housed in an all-weather facility that
has three eleven foot high doors to allow golfers the opportunity to drive
balls on to the hitting field. Lesson packages can be purchased in conjunction
with prepaid buckets of range balls. The teaching center is the ideal spot for
touring professionals to conduct clinics or golf schools. The Commack Golf
Center also offers individual golf lessons under the supervision of Chuck
Workman, a respected teaching and touring professional. In October 1996, the
GRRA awarded the Commack Golf Center with "Honorable Mention" as one of the
best golf ranges in the United States.
The Company anticipates using a portion of the proceeds in connection with
improving the Commack Golf Center to open a golf pro shop. The golf pro shop
will be located at the Commack Golf Center and will offer its customers a full
range of golf equipment and accessories.
The Commack Golf Center is located within a high traffic commercial
district that includes the Commack Multiplex, a 16-screen facility. In August
of 1995, a Costco Price Club opened directly across from the Commack Golf
Center.
Planned Expansion. The Company will seek to acquire or open new centers in
locations that have similar characteristics to that of the Commack Golf Center:
Upscale market demographics, high traffic commercial area and easy access. The
Company expects to (1) improve the operations of acquired facilities with its
professional management staff, (2) upgrade the Commack Golf Center with
additional amenities, including related recreational and entertainment
facilities, (3) establish professional golf training centers, and (4) enhance
such facilities' advertising and marketing activities with strategically
designed programs that will take advantage of the Company's access to well
known golf professionals. The Company anticipates that most of the centers to
be acquired or opened in the future will have between 50 and 100 hitting tees,
will be lighted to permit night play and will be partially enclosed and/or
heated to permit all weather play.
The Company has entered into a lease to operate the Englewood Facility, the
term of which is 25 years (with an additional 10 year renewal option) for
approximately 7.5 acres. Construction of the Englewood facility, which is
subject to zoning and environmental reviews, is expected to commence in the
fourth quarter of 1997. The Englewood Facility is located adjacent to a popular
18-hole municipal golf course in an upscale suburban area (approximately 160,000
persons living within a 3 mile radius with a median household income of
approximately $62,000). The Englewood Facility is accessible from a major
highway and is less than 10 miles from Manhattan. The Company estimates total
construction for the multilevel 45-50 tee facility, complete with a miniature
golf course, pro shop, a golf instruction facility and a food and beverage area,
will cost approximately $2 million.
The Monticello Partnership, in which the Company has acquired a 50%
limited partnership interest, is developing the Island Glen County Club, on
approximately 200 acres. Access to the property is from a major road, 7 miles
from the New York State Thruway. The Monticello Partnership plans an 18 hole
golf course with a full service clubhouse, a 50 tee golf driving range and
practice facility (including putting green and short game area), golf pro shop
and golf instruction center. Construction of the Monticello Facility is
expected to commence by September, 1997, with portions of the facility expected
to open in mid-1998. The overall projected cost of the Monticello Facility is
approximately $2 million, with the Company contributing a total of $1 million
in two installments. Island Glen County Club is expected to attract local
residents and area visitors with affordable memberships and daily rates. The
Monticello Partnership currently intends to sell a portion of the property
(approximately 20 acres) to one or more developers, who would subdivide and
develop this area for residential homesites.
The Company is actively pursuing acquisition opportunities throughout the
northeast United States and, in addition to the Englewood Facility and the
Monticello Facility, currently has approximately five opportunities
22
<PAGE>
under active review. Such opportunities are in preliminary stages of
development, and consummation of any acquisition is subject to satisfaction of
various conditions, including due diligence and negotiation of definitive
agreements. The Company has not concluded any definitive terms with respect to
any potential acquisition or expansion opportunities, except for the Englewood
Facility and the Monticello Facility and an exclusive option to acquire, from
its Senior Vice President at fair market value (to be determined by an
independent appraiser), rights to operate a 20 tee golf practice facility and
pro shop at Bethpage State Park, a well-known municipal facility which includes
five golf courses, the "Black Course" of which has been selected to host the
U.S. Open Golf Championship in 2002. The Company acquired the option from its
Senior Vice President for nominal consideration. The term of such option is for
a period commencing on October 1, 1996 and terminating on December 31, 1999 and
is contingent upon any necessary approvals of the New York State Department of
Parks. The Company will only consider exercising this option in the event the
current lease for these facilities, which expires in 1998, is extended by the
New York State Department of Parks.
Management believes that its real estate contacts and golf industry
relationships will enable it to identify acquisition, expansion and promotional
opportunities that might not otherwise be available to its competitors.
Management believes that these factors, together with the fragmented state of
the golf center industry, should provide the Company with a large number of
potential expansion or acquisition options over the next three to five years,
notwithstanding that competitors also may be seeking to expand their existing
operations.
Management believes that the net proceeds of the Offering, debt financing
and cash flow from operations, will be sufficient to permit the Company to
acquire and open the Englewood Facility and to contribute its required capital
to the Monticello Partnership over the next 12 to 18 months. Such belief is
based on certain assumptions, including assumptions as to the availability and
cost of suitable locations and the availability of debt financing to cover at
least 50% of the cost of acquiring and opening each center. There can be no
assurance that the Company can obtain such debt financing. See "Risk Factors"
and "Use of Proceeds."
Golf School. The Company owns and operates the Chuck Workman Tour Players
School (the "Golf School"). The Golf School offers golf instruction to
individuals of all ages and abilities at a flat rate of $99 for four (4) months
of instruction. In addition, the Company plans to expand the Golf School to
include multi-day and weekly golf instructional programs at the Monticello
Facility.
Marketing And Advertising. Management intends to develop marketing and
advertising programs that will allow it to take advantage of its relationship
with prominent teaching and touring professionals, including its Senior Vice
President, Chuck Workman. The Company expects to advertise in local and
community newspapers, on radio and local cable television channels, use direct
mailings and have a regular series of promotions, discounts, teaching clinics,
and equipment demonstrations to increase awareness of its golf centers. The
Company also will seek to work with professional golf tour organizers when a
major golf event (such as the Long Island Northville Open, one of the leading
Senior Tour events) occurs near the Commack Golf Center or one of the other
golf centers the Company intends to open in the future.
Competition. The golf driving range business is competitive and includes
competition from golf courses as well as other forms of recreation. Certain of
the Company's competitors have considerably greater financial, marketing,
personnel and other resources than the Company, as well as greater experience
and customer recognition than the Company. In the Long Island market, the
Company faces strong competition from several nearby freestanding golf driving
ranges and from local public and private golf courses which offer golf practice
facilities. While management believes that the location of and the amenities
associated with the Commack Golf Center provide it with certain competitive
advantages, there can be no assurance that the Company will be able to
successfully compete with its competitors.
Within the past five years, one company, Family Golf Centers, Inc.,
headquartered in Melville, New York, has become the nation's largest owner and
operator of golf driving ranges and that company is pursuing an aggressive
development and acquisition strategy that has increased the number of ranges
(to 51) under its operation as of July 1, 1997. This company's substantial
capital and track record gives it a significant competitive advantage over the
Company in acquiring or developing golf practice facilities. The Company is
aware of several other public and private companies that are also pursuing
multi-site acquisition and development opportunities in the golf driving range
and practice facility segment and that may compete directly or indirectly with
the
23
<PAGE>
Company. Several other large and well-financed companies are active in the
management of 18-hole golf courses; however, none of these companies has
focused on the driving range, golf practice and learning center segments,
although there can be no assurance that they may not do so in the future.
The Company purchases golf balls and other equipment from a number of
suppliers. The Company anticipates that it will have no difficulty in obtaining
golf balls from such suppliers.
Properties. The Commack Golf Center is the only facility currently
operated by the Company, and there can be no assurance that the Englewood
Facility and the Monticello Facility will be opened as scheduled or at all. The
Company occupies the site for the Commack Golf Center pursuant to a commercial
lease with an initial term of fifteen (15) years (until April, 2010) with two
(2) five (5) year renewal terms at the option of the Company. The rent for the
premises is $500,000 per year through April, 1998 with increases of
approximately 2.75% per year thereafter so that in year fifteen (15), the
rental is $665,000 per year. After year fifteen (15), the lease is renewable at
continuing increases of approximately 2.75% or the fair market value rent at
the time of the increase, whichever is greater. As additional rent, the Company
will pay twenty-five (25%) percent of its gross revenue from $2,400,000 to
$3,000,000 and ten (10%) percent of its gross revenue over $3,000,000.
The Company has entered into a lease in connection with the Englewood
Facility. The principal terms of the lease include an initial term of
twenty-five (25) years, with a ten (10) year renewal term at the option of the
Company, and annual rent for the premises at the higher of (i) $200,000 or (ii)
twenty-five (25%) percent of the gross revenue of the Englewood Facility. The
lease is subject to all necessary zoning and regulatory approvals.
These leases require the Company to observe certain covenants, in addition
to its obligation to make timely rent payments. These covenants include a
limitation on the property's use as a golf driving range, and related
recreational facilities; payment of applicable real estate taxes and
assessments; timely payment for improvements to the property so as to avoid the
creation of liens against the property; maintenance of adequate insurance for
property damage and personal injury (including worker's compensation); and
compliance with laws and ordinances. The Company is currently in full
compliance with its warranties and obligations under the lease for the Commack
Golf Center. If the Company fails to comply with any of these covenants, the
landlord has rights against the Company, including the right to terminate the
lease and evict the Company from the premises.
Employees. As of July 15, 1997, the Company had five (5) full-time
employees and seventeen (17) part-time employees. The Company anticipates that
the additional golf centers it intends to open in the future will be staffed in
a manner consistent with the Commack Golf Center. None of the Company's
employees is represented by a collective bargaining agreement. The Company has
never experienced a strike or work stoppage, and considers its relationship with
its employees to be good.
Environmental Regulation. Golf and recreational centers use and store
various hazardous materials such as motor oil, gasoline, pesticides, herbicides
and paint. Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property is generally liable for the
costs of removal or remediation of hazardous substances that are released on its
property, regardless of whether the owner or operator knew of, or was
responsible for, the release of such hazardous materials. The Company has not
been advised of any non-compliance or violation of any environmental laws,
ordinances or regulations and the Company believes that it is in substantial
compliance with all such laws, ordinances and regulations applicable to its
Commack Golf Center. The Company, however, has not performed any environmental
studies on the Commack Golf Center and, as a result, there may be potential
liabilities and/or conditions of which the Company is not aware. If any such
liabilities or conditions arise with respect to the Commack Golf Center or any
other facility which may be opened, acquired or operated by the Company in the
future, there could be a material adverse effect on the Company.
The Company's obligations under the lease for the Englewood Facility are
subject to the Company obtaining appropriate zoning, environmental and
construction permits and the development of the Monticello Facility is subject
to the issuance of construction permits. While the Company does not anticipate
any difficulties in obtaining these permits and approvals, unforeseen
circumstances could occur to delay and increase the anticipated costs of
opening these facilities.
The Company is subject to the Fair Labor Standards Act and various state
laws governing such matters as minimum wage requirements, overtime and other
working conditions and citizenship requirements.
24
<PAGE>
Insurance. The Company carries property and liability insurance that it
believes is adequate. While the Company will make every effort to maintain
insurance by industry standards, the Company could suffer a loss from a
casualty or liability for an event not covered by insurance or in amounts in
excess of coverage. Any such loss could have a material adverse effect on the
Company.
Legal Proceedings. An underwriter with which the Company originally
negotiated a letter of intent with in 1996, A.R. Baron & Company ("Baron")
together with 13 employees of Baron, were indicted in May, 1997 on counts of
enterprise corruption and grand larceny in connection with allegations that
Baron and its employees defrauded investors out of more than $75 million.
Although the Company's securities were referenced in two (2) counts of the
indictment, the Company does not believe that its securities were involved in
any of these activities, and the Company is not a party to these criminal
proceedings. The Company had no knowledge of Baron's activities, and redeemed
the interests of all former shareholders of the Company that the Company
believed were in any way associated with Baron once the Company became aware of
such activities. The Company does not believe that it will be made a party to
any such proceedings in the future.
25
<PAGE>
MANAGEMENT
Directors and Executive Officers
The directors and executive officers of the Company, their positions held
with the Company, and their ages are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- ----- --------
<S> <C> <C>
Edward C. Ross ............ 53 Chairman of the Board, Chief Financial Officer
and Director
Stuart M. Goldstein ......... 37 President, Chief Executive Officer and Director
Chuck Workman ............... 60 Senior Vice President, Secretary and Director
Garry Howatt ............... 43 Director
Michael L. Faltischek ...... 49 Director -- nominee
Robert J. Schwartz ......... 38 Director -- nominee
</TABLE>
The following is a brief summary of the background of each director and
executive officer of the Company:
Edward C. Ross has served as the Chairman of the Board, Chief Financial
Officer and a director of the Company since May, 1996. From March, 1994 to May,
1996, Mr. Ross was the founding general partner of the Commack Golf and Family
Recreation Center, L.P., the entity that developed the Commack Golf Center. Mr.
Ross has been a partner in the accounting firm of Finkle, Ross & Rost since
1975. He also has been involved as a principal in various start-up companies as
well as established operating businesses, ranging from manufacturing to real
estate to financial consulting. Mr. Ross is a Certified Public Accountant in New
York and New Jersey, and is a member of the American Institute of Certified
Public Accountants. Mr. Ross is a director of Sel-Leb Marketing, Inc., a
publicly traded company. In February, 1994, Mr. Ross was President of Coastal
Riverview Development Corp. ("Coastal"), which served as the general partner of
Coventry Shopping Plaza Associates ("Coventry"), a limited partnership and the
owner and operator of a shopping center in Providence, Rhode Island. On February
1, 1994, Coventry filed a petition for reorganization under Chapter 11 of the
U.S. Bankruptcy Code in the U.S. Bankruptcy Court, Eastern District of New York.
The petition was dismissed at the debtor's request in October, 1994. Mr. Ross
was also President of Coastal when it was the general partner of Conrans Plaza
Associates ("Conrans"), a limited partnership which owned and operated a
shopping center in East Hanover, New Jersey and which filed a petition for
reorganization under Chapter 11 in the U.S. Bankruptcy Court, Eastern District
of New York on July 11, 1995. Conrans emerged from these proceedings in March,
1996.
Stuart M. Goldstein has served as President, Chief Executive Officer and
director of the Company since September 1996. From June 1992 through September
1996, Mr. Goldstein was Vice President of Wharton Management Group, Inc., a
registered investment advisor specializing in the management of a diversified
core of investment portfolios valued in excess of $500 million. From August
1989 through May 1992, Mr. Goldstein was a principal with Constable Partners
L.P., where he was active in the management of the company's interests in
mergers and acquisitions, spin-offs and special situations. Since 1991, Mr.
Goldstein has been a member of the Metropolitan Golf Association, a governing
body overseeing approximately 300 golf facilities and clubs in the New York
tri-state area, where he serves as a member of the Public Golf and Junior
Committees. Mr. Goldstein received a B.S. in finance from Syracuse University.
Chuck Workman has served as the Senior Vice President and a director of
the Company since May, 1996. Since 1980, Mr. Workman has been the Director of
Golf for the five golf courses located at Bethpage State Park, Bethpage, New
York. As the Director of Golf at this facility, Mr. Workman operates the golf
driving range, owns and manages the Chuck Workman Pro Shop and supervises golf
instruction offered by more than five teaching professionals. Mr. Workman also
organizes various golf tournaments at Bethpage State Park. Since 1985, Mr.
Workman has played in approximately 100 PGA Senior Tour Golf Tournaments.
Garry Howatt has been a director of the Company since May, 1996. Since
1985, Mr. Howatt has been the Managing Partner and President of Mt. Freedom
Golf (in New Jersey), which operates an upscale driving range, miniature golf
course, batting range and golf pro shop. From 1972 through 1984, Mr. Howatt was
a professional hockey player with the New York Islanders (1972-1981), the
Hartford Whalers (1981-1982) and the New Jersey Devils (1982-1984).
26
<PAGE>
Michael L. Faltischek is a senior partner at the firm of Ruskin, Moscou,
Evans & Faltischek, P.C., a general practice law firm located in Mineola, New
York, where he has served as managing partner since 1976. Since September,
1995, Mr. Faltischek has served as a trustee on the Board of the Long Island
Power Authority. Mr. Faltischek was admitted to practice law in the State of
New York in 1974, having received his Juris Doctor degree, cum laude, from
Brooklyn Law School in 1973. Mr. Faltischek will be elected to the Company's
Board of Directors after the closing of the Offering.
Robert J. Schwartz has been a Vice President, Director of Marketing for
Golf Magazine Properties, a division of Times Mirror Magazines since August,
1993. From May 1984, through August 1993, Mr. Schwartz was a Senior Vice
President at NW Ayer, Inc., a major advertising agency, where he was a
management supervisor for Maxfli Golf. Mr. Schwartz received an MBA in
marketing from New York University and a B.S. in advertising from the Newhouse
School at Syracuse University. Mr. Schwartz will be elected to the Company's
Board of Directors after the closing of the Offering.
Vacancies and newly-created directorships resulting from any increase in
the number of authorized directors may be filled by a majority vote of the
directors then in office. Officers are elected by, and serve at the pleasure
of, the Board of Directors. The loss of services of Edward Ross, Stuart
Goldstein or Chuck Workman could have a material adverse effect on the Company.
See "Risk Factors -- Dependence on Key Employees." The Board of Directors
intends to establish Audit and Compensation Committees following the completion
of the Offering. Michael L. Faltischek will be appointed as Chairman of both
such committees.
The Company's employee directors do not receive any additional
compensation for their services as directors. Non-employee directors do not
receive a cash compensation for serving as such, but are reimbursed for
expenses. Pursuant to the Company's 1996 Non-Employee Director Stock Option
Plan, each non-employee director will receive options to purchase 5,000 shares
of Common Stock upon initial election to the Board of Directors and will
receive 5,000 additional options upon each annual re-election.
The Representative has a five-year right, effective upon the closing of the
Offering, to designate two (2) nominees to the Company's Board of Directors. As
of the date of this Prospectus, the Representative has not yet determined who it
will nominate.
Employment Agreements. The Company has entered into a five (5) year
employment agreement with Stuart M. Goldstein commencing on September 16, 1996.
Mr. Goldstein shall serve as President and Chief Executive Officer and will
devote his full-time services to the Company. The Agreement provides for annual
compensation of $125,000 through the period ending December 31, 1997, $150,000
for the year ending December 31, 1998 and $200,000 per year for the remainder
of the term, as well as options to purchase 500,000 shares of Common Stock. In
addition, Messrs. Edward Ross and Chuck Workman have entered into five (5) year
employment agreements with the Company. In accordance with their respective
contracts, each of Messrs. Ross and Workman is entitled to annual compensation
of $30,000 and $25,000, respectively, as well as options to purchase 100,000
and 50,000 shares of Common Stock, respectively, each at exercise prices per
share of $5.00. Each of Messrs. Ross and Workman shall devote their respective
time to the business of the Company on an as-needed basis. Each of Messrs.
Goldstein and Ross is subject to a covenant not to compete with the Company
which prohibits each of them from competing with the Company in the United
States during the terms of their respective employment agreements and for a
period of two (2) years thereafter.
Stock Option Plans. The Company maintains two stock option plans, as
amended, pursuant to which an aggregate of 1,000,000 shares of Common Stock may
be granted.
1996 Stock Option Plan. The 1996 Stock Option Plan (the "1996 Plan") was
adopted by the Board of Directors and the stockholders of the Company in May,
1996. Under the 1996 Plan, as amended, 900,000 shares of Common Stock have been
reserved for issuance upon exercise of options designated as either (i)
incentive stock options ("ISOs") under the Internal Revenue Code (the "Code"),
or (ii) non-qualified options. ISOs may be granted under the 1996 Plan to
employees and officers of the Company. Non-qualified options may be granted to
consultants, directors (whether or not they are employees), employees or
officers of the Company.
The purpose of the 1996 Plan is to encourage stock ownership by certain
directors, officers and employees of the Company and certain other persons
instrumental to the success of the Company and to give them a greater personal
interest in the success of the Company. The 1996 Plan is administered by the
Board of Directors or by a stock option committee selected by the Board. The
Board or such committee, within the limitations of the 1996 Plan, shall
determine the persons to whom options will be granted, the number of shares to
be covered by each
27
<PAGE>
option, whether the options granted are intended to be ISOs, the duration and
rate of exercise of each option, the option purchase price per share and the
manner of exercise, the time, manner and form of payment upon exercise of an
option, and whether restrictions such as repurchase rights by the Company are to
be imposed on shares subject to options. ISOs granted under the 1996 Plan may
not be granted at a price less than the fair market value of the Common Stock on
the date of grant (or 110% of fair market value in the case of persons holding
10% or more of the voting stock of the Company). Non-qualified options granted
under the 1996 Plan may not be granted at a price less than 85% of the fair
market value of the Common Stock on the date of grant (or the fair market value
in the case of persons holding 10% or more of the voting stock of the Company).
The aggregate fair market value of shares for which ISOs granted to any person
are exercisable for the first time by such person during any calendar year
(under all stock option plans of the Company and any related corporation) may
not exceed $100,000. The 1996 Plan will terminate in December, 2006. The term of
each option granted under the 1996 Plan will expire not more than ten years from
the date of grant (or five years from the date of grant in the case of persons
holding 10% or more of the voting stock of the Company). Options granted under
the 1996 Plan are not transferable during an optionee's lifetime but are
transferable at death by will or by the laws of descent and distribution. As of
the date hereof, 500,000 options have been granted under the 1996 Plan to Stuart
Goldstein, the President and Chief Executive Officer of the Company; 120,000 of
such options are designated as ISOs as defined in the Code (20,000 of which
vested on December 31, 1996 and the balance of which will vest ratably per
quarter for 20 quarters commencing on March 31, 1997). The remaining 380,000
options are Non-Qualified Options as defined in the Code, 30,000 of which
vested on December 31, 1996 and the remainder of which will vest ratably per
quarter for 20 quarters commencing on March 31, 1997. Mr. Goldstein has the
right to require the Company, at its expense, to register the shares issuable
upon exercise of the options after thirty- six (36) months from the Effective
Date. In addition, 100,000 options have been granted under the 1996 Plan to
Edward Ross, the Chairman of the Company and 50,000 to Chuck Workman, the
Company's Senior Vice President, all of which are ISOs. Messrs. Ross and
Workman's options will vest ratably per quarter over a period of five (5) years
commencing December 31, 1996. All the aforementioned options granted are
exercisable at a price of $5.00 per share and expire ten years from the date of
grant.
1996 Non-Employee Director Stock Option Plan. The 1996 Non-Employee
Director Stock Option Plan (the "Directors Plan") was adopted and approved by
the Board of Directors and the stockholders of the Company in May, 1996.
Options to purchase an aggregate of 100,000 shares of Common Stock may be
issued pursuant to the Directors Plan. Pursuant to the terms of the Directors
Plan, each independent unaffiliated director automatically shall be granted,
subject to availability, without any further action by the Board of Directors:
(i) a non-qualified option to purchase 5,000 shares of Common Stock upon
election to the Board of Directors; and (ii) a non-qualified option to purchase
5,000 shares of Common Stock on the date of each successive annual meeting of
stockholders following election to the Board of Directors at which such
directors are re-elected to the Board. The exercise price of each option is the
fair market value of the Common Stock on the date of grant. Each option expires
five years from the date of grant and vests in two annual installments of 50%
each on the first and second anniversary of the date of grant. Options granted
under the Directors Plan generally are not transferable during an optionee's
lifetime but are transferable at death by will or by the laws of descent and
distribution. In the event an optionee ceases to be a member of the Board of
Directors (other than by reason of death or disability), then the vested
portion of the option may be exercised for a period of 180 days from the date
the optionee ceased to be a member of the Board of Directors. In the event of
death or permanent disability of an optionee, all options accelerate and become
immediately exercisable until the scheduled expiration date of the option. As
of the date hereof, options to acquire 5,000 shares of Common Stock have been
granted to Mr. Garry Howatt under the Directors Plan.
Limitation of Liability and Indemnification Matters. The Company's
Certificate of Incorporation: (i) eliminates the liability of the directors of
the Company for monetary damages to the fullest extent permitted by Delaware
law; and (ii) authorizes the Company to indemnify its officers and directors to
the fullest extent permitted by Delaware law. The By-Laws of the Company
provide broad indemnification for officers and directors against expenses
(including legal fees, judgments and Company-approved settlements) incurred in
connection with any civil or criminal action which arises from the performance
of duties for the Company.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed 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.
Key Man Insurance. The Company is the sole beneficiary of a $1,000,000
term life insurance policy covering Stuart M. Goldstein.
28
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of the date hereof, the ownership of
the Common Stock by (i) each person who is known by the Company to own of
record or beneficially more than 5% of the outstanding Common Stock, (ii) each
of the Company's directors, nominees for directors, and executive officers, and
(iii) all directors, nominees for directors, and executive officers of the
Company as a group. Except as otherwise indicated, the stockholders listed in
the table have the sole voting and investment power with respect to the shares
indicated.
<TABLE>
<CAPTION>
Percentage Percentage
Name and Address of Number of Shares Before After
Beneficial Owner Beneficially Owned Offering(1) Offering(1)
- ----------------------------------- -------------------- ------------- ------------
<S> <C> <C> <C>
Edward C. Ross(2) 84,350 6.59% 3.54%
c/o the Company
4 Henry Street
Commack, NY 11725
Stuart M. Goldstein(3) 95,000 6.99% 3.86%
c/o the Company
4 Henry Street
Commack, N.Y. 11725
Chuck Workman(4) 66,302 5.21% 2.79%
c/o the Company
4 Henry Street
Commack, NY 11725
Garry Howatt(5) 53,749 4.23% 2.27%
c/o the Company
4 Henry Street
Commack, NY 11725
Robert Schwartz -- -- -- -- -- --
c/o the Company
4 Henry Street
Commack, NY 11725
Michael L. Faltischek -- -- -- -- -- --
c/o Ruskin, Moscou, Evans
& Faltischek, P.C.
170 Old Country Road
Mineola, NY 11501
All directors, nominees for 299,401 21.58% 12.04%
directors, and executive
officers of the Company as a
group (6 persons) (1)(2)(3)(4)(5)
</TABLE>
(1) Does not include shares issued pursuant to the exercise of the
Over-Allotment Option.
(2) Includes 15,000 shares of Common Stock issuable upon the exercise of
options within 60 days of the date of this Prospectus.
(3) Includes 95,000 shares of Common Stock issuable upon the exercise of
options within 60 days of the date of this Prospectus.
(4) Includes 7,500 shares of Common Stock issuable upon the exercise of options
within 60 days of the date of this Prospectus.
(5) Includes 5,000 shares of Common Stock issuable upon the exercise of options
within 60 days of the date of this Prospectus.
29
<PAGE>
CERTAIN TRANSACTIONS
The Commack Partnership was organized in 1994 to construct, develop and
operate the Commack Golf Center. The Commack Partnership's limited partners
provided the Commack Partnership with capital of $2,190,000 through a private
placement of limited partnership interests that was exempt from the
registration requirements of the Act pursuant to Regulation D thereunder. The
general partners contributed $10,000 of capital to the Commack Partnership.
In the latter part of 1995 and the first quarter of 1996, the Commack
Partnership borrowed a total of $404,475 from the limited partners and two
general partners in connection with the development of the Commack Golf Center.
The indebtedness from the limited partners will be repaid from the proceeds of
the Offering. The indebtedness to the general partners ($314,500) is
non-interest bearing and due on demand.
In November, 1995, United Acquisition I Corp., was incorporated and
received equity investments from its founding stockholders in the amount of
$54,500. This company had no affiliation with the Commack Partnership at the
time of its formation. In April, 1996, this company (whose name was changed to
U.S. Golf and Entertainment Corp., herein referred to as "U.S. Golf Corp.")
loaned $41,200 to the Commack Partnership in anticipation of the purchase (the
"Purchase") of the partnership interests of the Commack Partnership for its
stock. In May, 1996, U.S. Golf Corp. raised an additional $500,000 from the
sale of common stock and warrants (which was a precondition to the Purchase) of
which approximately $450,000 was loaned to the Commack Partnership in
anticipation of the Purchase. The Purchase was effected through the
organization of the Company (May, 1996) as the corporate entity which would (i)
exchange, on a tax-free basis, the partnership interests in the Commack
Partnership for 1,045,000 shares of Common Stock in the Company; and (ii)
exchange, on a tax-free basis, the stock and warrants of U.S. Golf Corp (i.e.,
1,045,000 shares and 2,020,000 warrants) for an identical amount of Common
Stock and warrants in the Company. These exchanges were consummated on June 3,
1996. Subsequent to the Purchase, the terms of the warrants were modified to
reflect the exercise price of the Class A Warrants offered by the Company in
exchange for their registration in the Registration Statement.
In November, 1996 the Company (A) redeemed, for an aggregate purchase
price of $601,125, 845,000 shares of the Company's Common Stock and all
2,020,000 Class A Warrants from persons who were formerly stockholders of U.S.
Golf Corp. and issued 20,000 shares of the Company's Common Stock to one (1)
U.S. Golf Corp. stockholder as additional consideration for the surrender of
his warrants, (B) obtained Bridge Loans of $836,000 from accredited investors
(the proceeds of which were used in part for the aforesaid redemption) and (C)
issued Bridge Warrants to purchase a total of 110,000 shares of the Company's
Common Stock, at $0.10 per share, to the aforesaid accredited investors. The
aggregate purchase price of $601,125 described in (A) above was allocated as
follows: 325,000 shares of the Company's Common Stock plus 975,000 warrants
were redeemed for $1.00 per unit, 520,000 shares of Common Stock plus 520,000
warrants were redeemed for $0.53 per unit ($275,600) and the remaining 525,000
warrants were redeemed for a total of $525. The business principle underlying
these redemption prices was the agreement between the Company and the
securityholders that such amounts provided each securityholder with a full
return of his invested amount, and, in the case of certain securityholders who
had provided investment capital at an earlier date, a return on their
investment that reflected the risk associated with the investment at the time
it was made.
In March, 1997, the Company obtained additional Bridge Loans of $380,000
from, and issued Bridge Warrants to purchase an additional 50,000 shares of
Common Stock to, accredited investors, the proceeds of which were used to
redeem $76,000 of Bridge Loans and 10,000 Bridge Warrants from an investor in
the November, 1996 private offering, and for working capital and preliminary
expenses in connection with the Englewood Facility.
In March, 1997, the Company entered into a Limited Partnership Agreement
of the Island Glen County Club, L.P., with the Island Glen County Club, Inc.,
as general partner, and the Company and International Business Advisory Group
Inc., as limited partners, for the operation of the Monticello Facility. The
Company will contribute $25,000 to the Monticello Partnership and has agreed to
commit $475,000 within five (5) days after completion of the Offering. The
terms of the Limited Partnership Agreement include profit and loss sharing in
accordance with respective percentage ownership interests, limited liability
for limited partners not to exceed their respective capital interests, and
limitation on transfer of ownership interests.
30
<PAGE>
The Company believes that all of the foregoing transactions and
arrangements were fair and reasonable to the Company and were on terms no less
favorable than could have been obtained from unaffiliated third parties. There
can be no assurance, however, that future transactions or arrangements between
the Company and affiliates will continue to be advantageous to the Company,
that conflicts of interest will not arise with respect thereto, or that if
conflicts do arise, they will be resolved in a manner favorable to the Company.
Any such future transactions will be on terms no less favorable to the Company
than could be obtained from unaffiliated parties and, where deemed appropriate
by the Board of Directors, will be approved by a majority of the independent
and disinterested members of the Board of Directors, outside the presence of
any interested directors and, to the extent deemed appropriate by the Board of
Directors, the Company will obtain shareholder approval of fairness opinions in
connection with any such transaction.
DESCRIPTION OF SECURITIES
The following summary descriptions are qualified in their entirety by
reference to the Company's Certificate of Incorporation, a copy of which has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
Common Stock. The Company is authorized to issue 20,000,000 shares of
common stock, par value $.001 per share (the "Common Stock"). As of the date of
this Prospectus, 1,265,000 shares of Common Stock were issued and outstanding
and held of record by 56 stockholders. Each stockholder is entitled to one vote
per share of Common Stock owned by such stockholder on all matters submitted to
a vote of the stockholders.
The Common Stock is not entitled to preemptive rights and is not subject
to redemption. Subject to the dividend rights of holders of any then
outstanding preferred stock, holders of Common Stock are entitled to receive
dividends at such times and in such amounts as the Board of Directors, from
time to time, may determine. Subject to the liquidation preference of any then
outstanding preferred stock, holders of Common Stock are entitled to receive,
on a pro rata basis, all remaining assets of the Company available for
distribution to the holders of Common Stock in the event of the liquidation,
dissolution or winding up of the Company.
All outstanding shares of Common Stock are, and the shares of the Common
Stock issued pursuant to the Offering will be, validly issued, fully paid and
non-assessable.
Preferred Stock. The Board of Directors has the authority to cause the
Company to issue, without any further vote or action by the stockholders, up to
1,000,000 shares of preferred stock, par value $.001 per share (the "Preferred
Stock"), in one or more series, to designate the number of shares constituting
any series, and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, voting rights, rights and terms of
redemption, redemption price or prices and liquidation preferences of such
series. The issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the stockholders. The issuance of Preferred Stock with voting and
conversion rights may adversely effect the voting power of the holders of
Common Stock, including the loss of voting control. The Company has no present
plans to issue any shares of Preferred Stock. See "Risk Factors -- Potential
Adverse Effect of Issuance of any Authorized Preferred Stock."
Warrants. The Warrants sold in this Offering will be issued pursuant to a
warrant agreement (the "Warrant Agreement") among the Company, the
Representatives and American Stock Transfer and Trust Company (the "Warrant
Agent"), and will be evidenced by warrant certificates in registered form. The
following summary is qualified in its entirety by the text of the Warrant
Agreement.
Each Warrant entitles the registered holder thereof to purchase one share
of Common Stock at a price of $7.20, subject to adjustment, at any time from
the date of this Prospectus until the close of business on the fifth
anniversary date of this Prospectus, unless previously redeemed. The Warrants
comprising part of the Units will not be transferable separately from the Units
until six (6) months from the Effective Date unless separated earlier at the
sole discretion of the Representatives.
The Warrants are subject to redemption by the Company, beginning twelve
months after the Effective Date, at $0.05 per Warrant, upon 30 day's prior
written notice if either (i) the last sale price (or highest closing bid
31
<PAGE>
price) of the Common Stock as reported by NASDAQ (or on such exchange on which
the Common Stock is then traded), exceeds $12.25 per share for 20 consecutive
trading days ending within 15 days prior to the date of notice of redemption,
or (ii) the Company shall have obtained written consent of the Underwriter to
call the Warrants for redemption.
The exercise price of the Warrants and the number of shares of Common
Stock or other securities issuable upon the exercise thereof are subject to
adjustment in certain circumstances, including, but not limited to, any stock
dividend on the Common Stock, any subdivision, combination or reclassification
of the Common Stock, any distribution to all stockholders of rights, warrants
or options to subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock), or any distribution to all stockholders of
assets or evidence of indebtedness of the Company. An adjustment also would be
made upon a merger or consolidation where the Company is not the surviving
entity, or the sale of all or substantially all of the assets of the Company,
so as to enable warrantholders to purchase the kind and number of shares of
stock or other securities or property (including cash) receivable in such event
by a holder of the number of shares of Common Stock that might otherwise have
been purchased upon exercise of such Warrant.
The exercise price of the Warrants bears no relation to any objective
criteria of value and should not be regarded as an indication of the future
market price of the Securities offered hereby.
The Warrants do not confer upon the holder any voting or any rights of a
stockholder of the Company. Upon written notice to the warrantholders, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
Bridge Warrants. In connection with the Company's private offerings
consummated in November 1996 and March 1997, the Company issued an aggregate of
150,000 Bridge Warrants, each such warrant entitling the holder thereof to
purchase one (1) share of Common Stock at an exercise price of $0.10 per share,
subject to adjustment. The Bridge Warrants are exercisable commencing one (1)
year from the Effective Date until October 23, 2001.
Delaware Takeover Statute. The Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203"), 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 Company approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder; (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 Company outstanding at the time the transaction commenced, excluding for
purposes of determining the number of shares outstanding those shares owned (x)
by persons who are directors and also officers and (y) 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) on or subsequent to such date, 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 that is
not owned by the interested stockholder.
Section 203 defines business combination to include, among other things:
(i) any merger or consolidation involving the Company and the interested
stockholder; (ii) any sale, lease, exchange, mortgage, transfer, pledge or
other disposition of 10% or more of the assets of the Company involving the
interested stockholder; (iii) subject to certain exceptions, any transaction
that results in the issuance or transfer by the Company of any stock of the
Company to the interested stockholder; (iv) any transaction involving the
Company that has the effect of increasing the proportionate share of the stock
of any class or series of the Company beneficially owned by the interested
stockholder; or (v) the receipt by the interested stockholder of the benefit of
any loans, advances, guarantees, pledges or other financial benefits provided
by or through the Company. In general, Section 203 defines an "interested
stockholder" as any entity or person beneficially owning 15% or more of the
outstanding voting stock of the Company and any entity or person affiliated
with or controlling or controlled by such entity or person.
Transfer Agent and Warrant Agent. American Stock Transfer and Trust
Company, 40 Wall Street, New York, New York 10005, has been appointed as the
transfer agent for the Common Stock.
32
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Securities.
No prediction can be made of the effect, if any, that future market sales of
the Securities, or the availability of such Securities, will have on the
prevailing market price of the Securities following the Offering. Nevertheless,
sales of substantial amounts of such Securities in the open market following
the Offering could adversely affect the prevailing market price of the
Securities.
The Company will have issued and outstanding following the completion of
the Offering 1,100,000 Units. The Securities sold in the Offering and,
commencing twelve months after the date of this Prospectus, up to 1,100,000
shares of Common Stock issuable upon execise of the Warrants, subject to any
applicable state law registrations and secondary trading, will be freely
tradeable without restriction under the Securities Act, except that any shares
purchased by an "affiliate" of the Company (as that term is defined in Rule 144
under the Securities Act) will be subject to the resale limitations of Rule 144.
The remaining 1,265,000 shares of Common Stock outstanding upon completion
of the Offering, as well as 150,000 shares of Common Stock issuable pursuant to
the exercise of the Bridge Warrants will be "restricted securities" as that
term is defined in Rule 144 promulgated under the Securities Act (the
"Restricted Securities"). As described below, Rule 144 permits resales of
restricted securities subject to certain restrictions. As of the date of this
Prospectus, 1,245,000 of such 1,265,000 shares will be eligible for sale under
Rule 144 and the remaining 20,000 shares will be eligible for sale under Rule
144 on November 1, 1997, subject to the "lock-up" agreements with the
Representatives described below.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including persons who may be deemed to be
"affiliates" of the Company, as that term is defined under Rule 144, is
entitled to sell within any three-month period a number of restricted shares
beneficially owned for at least one year that does not exceed the greater of
(i) one percent of the then outstanding shares of Common Stock, or (ii) the
average weekly trading volume in the Common Stock during the four calendar
weeks preceding the filing of a Form 144 with the Securities and Exchange
Commission with respect to such sale. Sales under Rule 144 also are subject to
certain requirements as to the manner of sale, notice and the availability of
current public information about the Company. A person who is not an affiliate
of the Company any time during the 90-day period preceding such sale and has
beneficially owned such shares for at least two years is entitled to sell such
shares without regard to the volume or other requirements pursuant to Rule
144(k).
Any employee, officer, or director of, or consultant to, the Company, who
purchased his or her shares pursuant to a written compensatory plan or contract
may be entitled to rely on the resale provisions of Rule 701 under the Act,
which permits non-affiliates to sell their Rule 701 shares of Common Stock
without having to comply with the public information, holding period, volume
limitations, or notice provisions of Rule 144, and which permits affiliates to
sell their Rule 701 shares without having to comply with Rule 144's holding
period restrictions, in each case commencing 90 days after the Company becomes
subject to the reporting requirements of Sections 13 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
Following the Offering, 1,265,000 shares of Common Stock currently
outstanding as well as 150,000 common shares issuable pursuant to the exercise
of the Bridge Warrants will be "restricted securities" as that term is defined
in Rule 144 promulgated under the Act (the "Restricted Securities"). All of
such shares of Common Stock will be eligible for sale in the public market
pursuant to the provisions of Rule 144 or Rule 701 under the Act at various
times after the Effective Date, subject to the "lock-up" agreements with the
Representative described below.
The Company has adopted the 1996 Stock Option Plan, as amended, pursuant
to which it has issued options to purchase 500,000, 100,000 and 50,000 shares
of Common Stock to each of Messrs. Stuart Goldstein, Edward Ross and Chuck
Workman, respectively.
<PAGE>
The Company has adopted the 1996 Non-Employee Director Stock Option Plan
pursuant to which it has issued options to purchase 5,000 shares of Common
Stock to Mr. Garry Howatt and may issue options to purchase up to an additional
95,000 shares of Common Stock.
Holders of all outstanding securities of the Company have agreed that they
will not, without the Representatives' written consent, sell, transfer, assign,
pledge, hypothecate or otherwise dispose of any shares of Common Stock or other
capital stock of the Company, or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company for a period of 13 months except that (i) holders of
125,000 shares of Common Stock have agreed to such restrictions for a period of
3 months, (ii) holders of 35,000 shares of Common Stock have agreed to such
restrictions for a period of 4 months, (iii) holders of 35,000 shares of Common
Stock have agreed to such restrictions for a period of 6 months, respectively,
from the Effective Date, and (iv) holders of 38,000 shares of Common Stock have
not agreed to any such restrictions. At the request of NASDAQ, the
Representatives have agreed not to release the Bridge Warrants or the shares of
common stock issuable upon exercise thereof from the lock-up sooner than one
(1) year from the Effective Date.
Following the expiration of the lock-up period (or prior thereto if the
Representative should so agree) and/or restrictive periods described above, a
substantial sale of securities pursuant to Rule 144 or otherwise could occur
and might have an adverse effect on the market price of the Company's
securities.
33
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), for whom Westport
Resources Investment Services, Inc. and National Securities Corporation are
acting as representatives (in such capacity, the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement between the Company and the Underwriters (the "Underwriting
Agreement"), to purchase from the Company, and the Company has agreed to sell to
the Underwriters on a firm commitment basis, the respective number of Units set
forth opposite their names:
Underwriter Number of Shares
------------ -----------------
Westport Resources Investment Services, Inc. .....
National Securities Corporation ..................
Total .......................................... 1,100,000
==========
The Underwriters are committed to purchase all of the Units offered
hereby, if any of such Units are purchased. The Underwriting Agreement provides
that the obligations of the several Underwriters are subject to conditions
precedent specified therein.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the Units to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such prices less concessions not in excess of $ per Unit. Such
dealers may re-allow a concession not in excess of $ per Unit to certain
other dealers. After the commencement of the Offering, the public offering
price concession and reallowance may be changed by the Representative.
In connection with the Offering, the Company has agreed to sell to the
Representatives, for nominal consideration, warrants to purchase from the
Company up to 110,000 Units (the "Representative Warrants"). The Representative
Warrants are initially exercisable at a price of $7.80 per Unit for a period of
four years commencing at the beginning of the second year after their issuance
and sale. The Representative Warrants may not be sold, transferred, assigned or
hypothecated for a period of one year from the date of this Prospectus, except
to officers and directors of the Representative, Underwriters, or members of
the selling group. The Representative Warrants provide for adjustments in the
number of shares of Common Stock and Warrants and in the exercise price of the
Representative Warrants as a result of certain events, including subdivisions
and combinations of the securities. The Representative Warrants grant to the
holders thereof certain rights of registration for the Common Stock and
Warrants issuable upon exercise of the Representative Warrants.
In connection with the Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Units. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M, pursuant to which, such person may bid for or
purchase Units for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of the
Underwriters by selling more Units in connection with the Offering than they
are committed to purchase from the Company, and in such case may purchase Units
in the open market following completion of the Offering to cover all or a
portion of such short position. The Underwriters may also cover all or a
portion of such short position by exercising the Over-Allotment Option referred
to above. In addition, the Representatives, on behalf of the Underwriters, may
impose "penalty bids" under contractual arrangements with the Underwriters
whereby they may reclaim from an Underwriter (or dealer participating in the
Offering) for the account of other Underwriters, the selling concession with
respect to Units that are distributed in the Offering but subsequently
purchased for the account of the Underwriters in the open market. Any of the
transactions described in this paragraph may stabilize or maintain the price of
the Units at a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is required, and,
if they are undertaken, they may be discontinued at any time.
The initial public offering price of the Units has been determined by
negotiation between the Company and the Representatives and is not necessarily
related to the Company's assets, book value, results of operations, or other
established criteria of value, and should not be regarded as an indication of
the future market price of the Units. Factors considered in determining the
offering price of the Units consisted of the present state of the Company's
development, the future prospects of the Company, an assessment of management,
the general condition of the securities markets, the demand for similar
securities of companies comparable in development or markets, and prevailing
economic condition.
34
<PAGE>
The Company has granted to the Representatives an option exercisable for 45
days from the date of this Prospectus, to purchase up to 165,000 Units at the
initial public offering price per Unit offered hereby, less underwriting
discounts and commissions, if any (the "Over-Allotment Option"). The
Representatives may exercise this option, in whole or in part, from time to
time, solely for the purpose of covering over-allotments, if any, made in
connection with the sale of the Units. To the extent the Over-Allotment Option
is exercised in whole or in part, each Underwriter will have a firm commitment,
subject to certain conditions, to purchase the number of Units proportionate to
its initial commitment.
The Company has agreed to pay to the Representatives a non-accountable
expense allowance equal to 2.5% of the gross proceeds of the Offering. The
Company has treated this payment as a deferred offering cost. The Company has
also agreed to pay all of the costs of qualifying the Unit under federal and
state securities laws, together with legal and accounting fees, printing and
other costs in connection with the Offering.
Holders of all outstanding securities of the Company have agreed that they
will not, without the Representatives' written consent, sell, transfer, assign,
pledge, hypothecate or otherwise dispose of any shares of Common Stock or other
capital stock of the Company, or any securities convertible into, or
exercisable or exchangeable for, any shares of Common Stock or other capital
stock of the Company for a period of 13 months except that (i) holders of
125,000 shares of Common Stock have agreed to such restrictions for a period of
3 months, (ii) holders of 35,000 shares of Common Stock have agreed to such
restrictions for a period of 4 months, (iii) holders of 35,000 shares of Common
Stock have agreed to such restrictions for a period of 6 months, respectively,
from the Effective Date, and (iv) holders of 38,000 shares of Common Stock have
not agreed to any such restrictions. At the request of NASDAQ, the
Representatives have agreed not to release the Bridge Warrants or the shares of
common stock issuable upon exercise thereof from the lock-up sooner than one
(1) year from the Effective Date.
The Company has agreed that, for a period of five (5) years after the date
of this Prospectus, the Company shall use its best efforts to cause two (2)
individuals designated by the Representatives to be elected as members of the
Board of Directors of the Company. Such persons may be directors, officers,
employees or affiliates of the Representatives. In the event that the
Representatives elect not to designate such persons to serve on the Board of
Directors of the Company, the Representatives shall have the right to designate
two (2) persons to attend meetings of the Board of Directors of the Company.
Such persons shall be entitled to attend all such meetings and to receive all
notices and other correspondence and communications sent by the Company to
members of its Board of Directors. The Company has agreed to reimburse the
designees of the Representatives for such designees' out-of-pocket expenses
incurred in connection with such designees' attendance of meetings of the
Company's Board of Directors.
Prior to the Offering, there has been no public trading market for the
Units. Consequently, the initial public offering price of the Units has been
determined by negotiations between the Company and the Representatives. Among
the factors considered in determining the offering price were the Company's
financial condition, prospects and management. There can be no assurance
however, that the price at which the Units will sell in any public market after
the Offering will not be lower than the offering price. Neither the
Representatives nor any of the participants of the underwriting group have a
material relationship with the promoters, officers and/or directors of the
Company.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriters against certain liabilities in connection with
the Registration Statement, including liabilities under the Act.
The foregoing includes a brief summary of the Underwriting Agreement, a
copy of which has been filed with the Securities and Exchange Commission as an
Exhibit to the Registration Statement.
35
<PAGE>
INDEMNIFICATION AND ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation provides that the Company
shall, to the fullest extent permitted by the laws of the State of Delaware, as
the same may be amended and supplemented, indemnify its offi- cers and
directors, and the indemnification provided for therein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in which official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
Company will have the power to purchase and maintain officers' and directors'
liability insurance in order to insure against the liabilities for which such
officers and directors are indemnified.
Certain provisions of the Company's Certificate of Incorporation and
By-Laws could have an anti-takeover effect, in that they could discourage
acquisition bids for the Company or could make such an acquisition more
difficult to accomplish. The provisions of the Certificate of Incorporation
which could have such an effect, in addition to the provisions which authorize
the Company to issue shares of preferred stock and additional shares of Common
Stock, include the prohibition of taking of stockholder action by written
consent without a meeting and provisions restricting to the Board of Directors
the right to fill newly created directorships and preventing removal of
directors without cause. The provisions of the By-Laws which may have such
effect include advance notice requirements for stockholders' proposals and
director nominations and, under certain circumstances, voting requirements with
respect to amendment of the By-Laws.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES
ACT OF 1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISION, OR OTHERWISE, THE COMPANY HAS BEEN
INFORMED 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.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for
the Company by Ruskin, Moscou, Evans & Faltischek, P.C., Mineola, New York.
Michael L. Faltischek, a partner of such law firm, will become a director of
the Company following the completion of the Offering. Certain legal matters
will be passed upon for the Underwriters by Camhy Karlinsky & Stein LLP, New
York, New York.
EXPERTS
The financial statements included in this Prospectus and Registration
Statement for the years ended December 31, 1995 and December 31, 1996 with
respect to the Company, have been audited by Farber, Blicht & Eyerman, L.L.P.,
independent certified public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said report.
36
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, 450
Fifth Street, N.W., Washington, D.C. 20549, the Registration Statement on Form
SB-2 under the Act for the Units offered hereby. This Prospectus, which is a
part of the Registration Statement, does not contain all of the information
contained in the Registration Statement. For further information with respect
to the Company and the Securities offered hereby, reference is made to the
Registration Statement, including the Exhibits thereto, which may be inspected,
without charge, at the Securities and Exchange Commission, or copies of which
may be obtained from the Securities and Exchange Commission in Washington,
D.C., and at the Northeast Regional Office at Seven World Trade Center, New
York, New York 10048, upon payment of the requisite SEC fees. Statements
contained in this Prospectus as to the content of any contract or other
document referenced are qualified by reference to the copy of such contract or
other document filed as an Exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as
management may determine to be appropriate and as may be required by law.
37
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
FINANCIAL STATEMENTS
AND AUDITORS' REPORT
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1996
F-1
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Number
------------
<S> <C>
Report of Independent Auditors ......................................................... F-3
Balance Sheets at December 31, 1996 and March 31, 1997 (unaudited) ..................... F-4 - F-5
Statements of Operations for the years ended December 31, 1995 and 1996 and the three
months ended March 31, 1996 and 1997 (unaudited) ....................................... F-6
Statements of Shareholders' Equity for the years ended December 31, 1995 and 1996 and the
three months ended March 31, 1997 (unaudited) .......................................... F-7
Statements of Cash Flows for the years ended December 31, 1995 and 1996 and the three
months ended March 31, 1996 and 1997 (unaudited) ....................................... F-8 - F-9
Notes to Financial Statements ......................................................... F-10 - F-16
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
FARBER, BLICHT & EYERMAN, LLP
- --------------------------------------------------------------------------------
Certified Public Accountants 255 Executive Drive, Suite 215 Telephone: (516)576-7040
Plainview, NY 11803-1715 Facsimile: (516) 576-1232
</TABLE>
To the Board of Directors
U.S. Golf and Entertainment Inc.
Commack, New York
We have audited the accompanying balance sheet of U.S. Golf and
Entertainment Inc. as of December 31, 1996, and the related statements of
operations, shareholders' equity and cash flows for each of the two years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our 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 made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of U.S. Golf and Entertainment
Inc. at December 31, 1996 and the results of its operations and its cash flows
for each of the two years then ended, in conformity with generally accepted
accounting principles.
Plainview, New York
March 14, 1997 (except for Notes 5 and 14,
the latest of which is dated July 28, 1997)
F-3
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
BALANCE SHEETS
ASSETS (Note 5)
<TABLE>
<CAPTION>
December 31, March 31,
-------------- ------------
1996 1997
-------------- ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents (Notes 1(b)) ........................ $ 149,965 $ 118,998
Due from shareholder (Note 2) ................................. 8,588 8,588
Prepaid expenses ............................................. 27,239 42,022
----------- -----------
Total current assets ....................................... 185,792 169,608
----------- -----------
Property and equipment, at cost, less accumulated depreciation and
amortization (Note 3) .......................................... 2,603,348 2,552,472
----------- -----------
Other assets:
Deferred costs, net of accumulated amortization of $16,814;
$19,280 at March 31, 1997 (Note 4) ........................... 131,183 128,717
Deferred public offering costs (Note 4) ........................ 173,837 173,837
Deposits ...................................................... 2,000 2,000
----------- -----------
307,020 304,554
----------- -----------
$3,096,160 $3,026,634
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, March 31,
-------------- ---------------
1996 1997
-------------- ---------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable -- banks (Note 5) .................................... $ 225,000 $ 205,000
Notes payable -- other, net of discounts of $566,000;
$582,000 at March 31, 1997 (Note 12) .............................. 270,000 558,000
Accounts payable ................................................... 178,117 141,688
Due to shareholders (Note 6) ....................................... 404,475 386,475
Unearned income (Note 1(e)) ....................................... 8,449 15,003
Loan payable (Note 7) ............................................. 12,500 12,500
Accrued expenses and other current liabilities (Note 8) ............ 199,992 118,272
----------- -----------
Total current liabilities ....................................... 1,298,533 1,436,938
----------- -----------
Deferred rent costs (Note 9) .......................................... 246,838 262,317
----------- -----------
Commitments and contingencies (Note 9)
Shareholders' equity (Notes 1 and 11 through 14):
Preferred stock -- par value $.001 per share: Authorized --
1,000,000 shares; issued and outstanding -- none
Common stock -- par value $.001 per share: Authorized --
20,000,000 shares; issued and outstanding -- 1,265,000 shares ... 1,265 1,265
Additional paid-in-capital .......................................... 2,910,110 3,198,110
Deficit ............................................................ (1,360,586) (1,871,996)
----------- -----------
1,550,789 1,327,379
----------- -----------
$ 3,096,160 $ 3,026,634
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the For the For the For the
year year three months three months
ended ended ended ended
December 31, December 31, March 31, March 31,
-------------- -------------- -------------- -------------
1995 1996 1996 1997
-------------- -------------- -------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues ........................... $ 719,374 $ 818,211 $ 123,112 $ 125,087
----------- ----------- ----------- -----------
Operating expenses .................. 1,021,666 1,275,666 274,910 287,467
Selling, general and administrative
expenses ........................... 87,555 173,150 6,855 37,282
----------- ----------- ----------- -----------
1,109,221 1,448,816 281,765 324,749
----------- ----------- ----------- -----------
Operating loss ..................... (389,847) (630,605) (158,653) (199,662)
Other expenses:
Amortization of discounts
attributable to warrants issued
(Note 12) ........................ -- (226,000) -- (272,000)
Interest ........................... (33,572) (80,562) (8,397) (39,748)
----------- ----------- ----------- -----------
Net loss ........................... $ (423,419) $ (937,167) $ (167,050) $ (511,410)
=========== =========== =========== ===========
Net loss per share .................. $ (.33) $ (.74) $ (.13) $ (.40)
=========== =========== =========== ===========
Number of shares used in
computing net loss per share ...... 1,265,000 1,265,000 1,265,000 1,265,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996 and
THE THREE MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
Common Shares
------------------------
Number of Additional
Shares Paid-In
Issued Amount Capital Deficit Total
------------ --------- ------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1995 ......... 1,045,000 $ 1,045 $ 2,174,955 $ -- $ 2,176,000
Net loss for the year ended
December 31, 1995 ............... -- -- -- (423,419) (423,419)
--------- ------- ----------- ------------ -----------
Balance, December 31, 1995 ...... 1,045,000 1,045 2,174,955 (423,419) 1,752,581
Proceeds from the issuance of
common shares (net of related
expenses of $10,000) ............ 1,045,000 1,045 543,455 -- 544,500
Redemption of common shares and
warrants ........................ (845,000) (845) (470,280) -- (471,125)
Common shares issued in
connection with redemption of
warrants ........................ 20,000 20 (130,020) -- (130,000)
Value attributed to warrants issued
in connection with redemption of
common shares and warrants ...... -- -- 792,000 -- 792,000
Net loss for the year ended
December 31, 1996 ............... -- -- -- (937,167) (937,167)
--------- ------- ----------- ------------ -----------
Balance, December 31, 1996 ...... 1,265,000 1,265 2,910,110 (1,360,586) 1,550,789
Value attributed to warrants issued
in connection with redemption of
common shares and warrants ...... -- -- 288,000 -- 288,000
Net loss for the three months ended
March 31, 1997 (unaudited) ...... -- -- -- (511,410) (511,410)
--------- ------- ----------- ------------ -----------
Balance, March 31, 1997
(unaudited) ..................... 1,265,000 $1,265 $ 3,198,110 $ (1,871,996) $1,327,379
========= ======= =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the For the three For the three
year ended year ended months ended months ended
December 31, December 31, March 31, March 31,
-------------- -------------- --------------- --------------
1995 1996 1996 1997
-------------- -------------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss .................................... $ (423,419) $ (937,167) $ (167,050) $ (511,410)
---------- ---------- ---------- ----------
Adjustments to reconcile net loss to net cash
used in operations:
Depreciation and amortization ............... 169,845 218,402 54,060 54,929
Deferred rent costs ........................ 168,260 78,578 27,975 15,479
Amortization of discounts attributable to
warrants issued ........................... -- 226,000 -- 272,000
Issuances of common shares for services
rendered ................................. -- 2,500 -- --
Changes in assets and liabilities:
Construction bond receivable ............... (65,000) 65,000 65,000 --
Prepaid expenses ........................... 16,948 25,098 (1,899) (14,783)
Accounts payable ........................... 28,117 (256,310) (119,509) (36,429)
Unearned income ........................... 16,908 (8,459) 2,773 6,554
Accrued expenses and other current
liabilities .............................. 5,655 187,469 73,099 (81,726)
---------- ---------- ---------- ----------
Total adjustments ........................ 340,733 538,278 101,499 216,024
---------- ---------- ---------- ----------
Net cash used in operations .................. (82,686) (398,889) (65,551) (295,386)
---------- ---------- ---------- ----------
Cash flows used in investing activities:
Purchase of property and equipment ......... (747,627) (11,921) (7,418) (1,581)
Deferred public offering costs ............ -- (173,837) -- --
Other deferred costs incurred ............... (16,848) (22,948) -- --
---------- ---------- ---------- ----------
Total cash used in investing activities ...... (764,475) (208,706) (7,418) (1,581)
---------- ---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
For the For the For the three For the three
year ended year ended months ended months ended
December 31, December 31, March 31, March 31,
-------------- -------------- --------------- --------------
1995 1996 1996 1997
-------------- -------------- --------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Balance brought forward ........................ $ (847,161) $ (607,595) $ (72,969) $ (296,967)
---------- ---------- ---------- ----------
Cash flows from financing activities:
Proceeds from issuance of common shares 660,000 552,000 -- --
Short-term financing, bank .................. 215,000 -- -- --
Payments on short-term financing, bank ......... (190,000) (100,000) -- (20,000)
Borrowings from shareholders .................. 199,450 80,025 -- --
Loans to shareholders and collections
thereof .................................... (15,588) -- 76,625 (18,000)
Other short-term borrowings .................. -- 12,500 41,200 --
Collection of shareholder loans ............... -- 7,000 -- --
Cash overdraft .............................. (21,456) (19,185) (19,185) --
Net proceeds from private placement ......... -- 836,000 -- 304,000
Redemption of common shares and
warrants .................................... -- (601,125) -- --
Costs associated with the issuance of
common shares .............................. -- (10,000) -- --
---------- ---------- ---------- ----------
Net cash provided by financing activities ...... 847,406 757,215 98,640 266,000
---------- ---------- ---------- ----------
Net increase (decrease) in cash ............... 245 149,620 25,671 (30,967)
Cash, beginning of period ..................... 100 345 345 149,965
---------- ---------- ---------- ----------
Cash, end of period ........................... $ 345 $ 149,965 $ 26,016 $ 118,998
========== ========== ========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during period:
Interest .................................... $ 37,000 $ 28,000 $ 8,000 $ 5,000
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited)
1. Summary of Significant Accounting Policies
a. Description of operations and basis of preparation
On May 17, 1996, U.S. Golf and Entertainment Inc. (the "Company") was
incorporated in the State of Delaware to develop and become a national
owner/operator of upscale, high-volume, golf practice and instructional centers
and related recreational facilities. The Company has had no operations since
inception through March 31, 1997 except as discussed in the following
paragraph.
Commack Golf and Family Recreation Center, L.P., a New York limited
partnership (the "Partnership") was organized in July, 1994, to construct,
develop and operate the Commack Golf and Family Recreation Center, which
commenced operations in March, 1995. In November, 1995, United Acquisition I
Corp. (whose name was changed to U.S. Golf and Entertainment Corp. in April,
1996, ("US Golf Corp.")), was incorporated and through March 31, 1997,
basically has had no operations. US Golf Corp. was not affiliated with the
Partnership when incorporated. US Golf Corp. received equity investments from
its founding shareholders in the amount of $54,500, $41,200 of which were
loaned to the Partnership in March, 1996 in anticipation of the Company's
acquisition of the Partnership. In May, 1996, US Golf Corp. raised an
additional $500,000 from the sale of its common shares and warrants, of which
approximately $450,000 was also loaned to the Partnership. In June, 1996, the
Company, entered into exchange agreements with (i) the shareholders of US Golf
Corp., whereby the shareholders of US Golf Corp. exchanged their common shares
and warrants for 1,045,000 common shares and 2,020,000 warrants of the Company
and (ii) the general and limited partners of the Partnership, whereby the
partners exchanged their partnership interests for an aggregate of 1,045,000
common shares of the Company. In November, 1996, 845,000 common shares of the
Company and warrants to purchase 2,020,000 common shares of the Company which
were issued in connection with the aforementioned exchange with US Golf Corp.
was redeemed by the Company in consideration of $601,125 (Note 12). The
aforementioned exchanges were accounted for as a reverse acquisition, since the
transaction was in effect, equivalent to the issuance of common shares by the
Partnership for the net monetary assets of the aforementioned other entities,
accompanied by a recapitalization where no goodwill or other intangible was
recorded. The financial statements of the Company at December 31, 1996 and
March 31, 1997 represent the combined financials of all the aforementioned
entities.
The following unaudited pro forma summary combines the results of
operations of the entities from the commencement of operations, after giving
effect to the increase in officer's compensation based upon employment
agreements (Note 13), the interest expense associated with the acquisition
funding and the amortization of the discount attributable to the value of the
warrants issued in connection with the private placement (Note 12). The pro
forma financial information is presented for informational purposes only and is
not necessarily indicative of the results of operations as they would have
been, had the transactions been effective on the assumed dates.
<TABLE>
<CAPTION>
Pro forma (unaudited)
Years ended
December 31,
----------------------------------
1995 1996
--------------- ----------------
<S> <C> <C>
Revenue ................................................... $ 719,374 $ 818,211
Net loss ................................................... $ (929,419) $ (1,416,667)
Net loss per share .......................................... $ (.73) $ (1.12)
Number of shares used in computing net loss per share ...... 1,265,000 1,265,000
</TABLE>
b. Cash equivalents
The Company considers time deposits with an original maturity of less than
three months when purchased to be cash equivalents. At December 31, 1996 and
March 31, 1997, the Company had $152,000 and $77,000, respectively, on deposit
in a money market account, the value of which approximated market.
F-10
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited) -- (Continued)
1. Summary of Significant Accounting Policies -- (Continued)
c. Method of depreciation
Depreciation and amortization of property and equipment has been
calculated on the straight-line method for financial reporting purposes. For
tax reporting purposes, the Company uses the straight-line or accelerated
methods of depreciation.
Expenditures for maintenance, repairs, renewal and betterments are
reviewed by the Company and only those expenditures representing improvements
to property and equipment are capitalized. At the time property and equipment
are retired or otherwise disposed of, the cost and accumulated depreciation are
eliminated from the asset and accumulated depreciation accounts and the gain or
loss on such disposition is reflected in income.
In 1995, the Company adopted Financial Accounting Standards ("FAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". The adoption of FAS 121 had no material effect on
the financial statements.
d. Fair value of financial instruments
Effective for fiscal years ending after December 15, 1995, Statement of
Financial Accounting Standards No. 107 requires entities with total assets less
than $150 million to disclose the fair value of financial instruments
recognized in the balance sheet. At December 31, 1996, the carrying amounts of
the Company's financial instruments, including cash, receivables, accounts
payable, and notes and non-related loans payable approximate fair value. It is
not practicable to determine the fair values of the receivable from and loans
payable to certain shareholders.
e. Revenue recognition
Revenue is recognized by the Company when its services are rendered to its
customers. Revenues from annual membership and the sale of gift certificates
are deferred as unearned income at the time of receipt and are credited to
income when earned on a straight-line basis or redeemed.
f. Use of estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements
and revenues and expenses during the reporting period. The most significant
estimates made are for the recoverability of property and equipment and
deferred costs. Actual results could differ from those estimates.
g. Concentration of credit risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of periodic temporary
investments of excess cash. The Company places its excess cash in high quality,
short-term and uninsured money market instruments through one financial
institution. In addition, the Company maintains its daily cash balances with
financial institutions insured by the FDIC. At times, such cash balances may be
in excess of the FDIC insurance limit.
h. Loss per share
Loss per share is computed based on the weighted average number of common
shares outstanding. In computing loss per share, common share equivalents are
omitted because they are antidilutive. The loss per share was computed giving
effect to 2,090,000 shares issued in connection with the exchange agreements
(Note 1a) and the Company's net redemption of 825,000 common shares (Note 12).
F-11
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited) -- (Continued)
1. Summary of Significant Accounting Policies -- (Continued)
i. Interim financial information
The accompanying financial statements as of March 31, 1997 and the three
months ended March 31, 1996 and 1997, are unaudited but, in the opinion of
management of the Company, reflects all adjustments (consisting of normal and
recurring adjustments) necessary for a fair presentation.
The financial position as of March 31, 1997, and the results of operations
and cash flows for the three months ended March 31, 1996 and 1997 are not
necessarily indicative of the results that may be expected for the entire year.
2. Due From Shareholder
The amount due from a shareholder of $8,588 at December 31, 1996 and March
31, 1997 is due on demand and is non-interest bearing.
3. Property and Equipment
Property and equipment consists of the following at December 31, 1996 and
March 31, 1997:
Estimated
useful
lives 1996 1997
------------- ------------ -----------
Leasehold improvements ...... 15 years(*) $2,873,387 $2,873,387
Furniture and fixtures ...... 7 years 34,798 34,798
Machinery and equipment ...... 5 years 66,596 68,177
----------- -----------
2,974,781 2,976,362
Accumulated depreciation and
amortization ............... 371,433 423,890
----------- -----------
$2,603,348 $2,552,472
=========== ===========
(*) Over life of lease (Note 9)
4. Deferred Costs
Deferred costs consist substantially of costs to acquire the land lease.
These costs are being amortized on a straight-line basis over the life of the
lease (fifteen years).
Deferred public offering costs arose from the incurrence of certain
professional fees and other related costs in connection with the proposed
public sale of the Company's common shares (Note 14). These costs have been
deferred and will be charged to shareholders' equity upon successful completion
of the sale of the Company's common shares or charged to operations if the sale
is not completed.
5. Notes Payable - Banks
The Company, at December 31, 1996 had a $140,000 note payable to a bank
bearing interest at the rate of 2% above the banks prime lending rate (10.25%
per annum at December 31, 1996). The note, which is payable on demand and
collateralized by all the assets of the Company, is guaranteed by certain
shareholders. During the three months ended March 31, 1997, $20,000 was repaid
to the bank. The note, as amended, matures in August, 1997 and bears interest
at the rate of 10.50% per annum.
F-12
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited) -- (Continued)
5. Notes Payable - Banks -- (Continued)
In addition, the Company, at December 31, 1996 and March 31, 1997 has a
note payable of $85,000 to another bank. The note bears interest at the rate of
1 1/2% above the bank's prime interest rate per annum (9.75% and 10% at
December 31, 1996 and March 31, 1997, respectively). The note, as amended,
matures in August, 1997 and is guaranteed by certain shareholders of the
Company.
6. Due to Shareholders
The amounts payable to shareholders as at December 31, 1996 and March 31,
1997 are non-interest bearing and are payable on demand.
7. Loan Payable
As at December 31, 1996 and March 31, 1997, the Company is obligated under
a non-interest bearing demand loan in the amount of $12,500.
8. Accrued Expenses and Other Current Liabilities
Accrued expenses at December 31, 1996 and March 31, 1997, are comprised of
the following:
<TABLE>
<CAPTION>
1996 1997
---------- ---------
<S> <C> <C>
Payroll ................................................... $ 33,000 7,000
Interest ................................................... 55,000 90,000
Professional fees .......................................... 30,000 10,000
Balance of obligation relating to the Company's redemption of
common shares and warrants (Note 12) ..................... 64,000 --
Sundry ...................................................... 17,992 11,272
--------- ---------
$199,992 $118,272
========= =========
</TABLE>
9. Commitments and Contingencies
a. The Company leases its land under a ground lease for an initial term of
15 years, with two successive renewal periods of five years each. The lease is
scheduled to expire in April, 2010. Future minimum annual rentals required as
of December 31, 1996 and March 31, 1997 under the lease are as follows:
1996 1997
------------ -----------
1997 ............ $ 500,000 $ --
1998 ............ 509,000 500,000
1999 ............ 523,000 513,000
2000 ............ 537,000 526,000
2001 ............ 550,000 540,000
2002 ............ -- 553,000
Thereafter ...... 5,120,000 4,982,000
----------- -----------
$7,739,000 $7,614,000
=========== ===========
The Company records a liability for deferred rent costs to the extent that
the rental commitment, amortized on a straight-line basis over the term of the
lease, exceeds actual lease payments.
Rental payments under the lease range from an initial $450,000 to $665,000
per annum. The lease also provides for rent increases based upon various
percentages over stated gross revenue of the Company. The Com-
F-13
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited) -- (Continued)
9. Commitments and Contingencies -- (Continued)
pany is responsible for all related rental expenses on the property. Rent
expense for the years ended December 31, 1995 and 1996 approximated $469,000
and $562,000, respectively, and was $141,000 and $140,000, for the three months
ended March 31, 1996 and 1997, respectively.
b. The Company is subject to a broad range of various federal, state and
local laws, ordinances and regulations, that as an owner or operator of real
property, may involve general liability for the costs of removal or remediation
of hazardous substances. The Company has not been advised of any non-compliance
or violation of any environmental laws or regulations and the Company believes
that it is in substantial compliance with all such laws and regulations
applicable to the Commack Golf Center. The Company, however, has not performed
any environmental studies on the Commack Golf Center and, as a result, there
may be potential liabilities and/or conditions of which the Company is not
aware. If any such liabilities or conditions arise with respect to the Commack
Golf Center or any other facility which may be constructed, acquired or
operated by the Company in the future, said liabilities and remedial cost could
be material.
10. Income Taxes
The Company, as of March 31, 1997, has available approximately $1,218,000
of net operating loss carry forwards (expiring through the year 2012) to reduce
future Federal and state income taxes. Since there is no guarantee that the
related deferred tax asset will be realized by reduction of taxes payable on
taxable income during the carry forward period, a valuation allowance has been
computed to offset in its entirety the deferred tax asset attributable to this
net operating loss in the amount of approximately $487,000. Prior to the
exchanges (Note 1), losses incurred by the Partnership were included in the
personal returns of the former partners. The Partnership does not pay any
income taxes.
11. Stock Option Plans
The Company maintains two stock option plans, as amended, pursuant to
which an aggregate of 1,000,000 shares of Common Stock may be granted.
The 1996 Stock Option Plan (the "1996 Plan") was adopted by the Board of
Directors and the stockholders of the Company on November 4, 1996. Under the
1996 Plan, as amended, 900,000 shares of Common Stock have been reserved for
issuance upon exercise of options designated as either (i) incentive stock
options ("ISOs") under the Internal Revenue Code (the "Code"), or (ii)
non-qualified options. ISOs may be granted under the 1996 Plan to employees and
officers of the Company. Non-qualified options may be granted to consultants,
directors (whether or not they are employees), employees or officers of the
Company.
The 1996 Plan is administered by the Board of Directors or by a stock
option committee selected by the Board. ISOs granted under the 1996 Plan may
not be granted at a price less than the fair market value of the Common Stock
on the date of grant (or 110% of fair market value in the case of persons
holding 10% or more of the voting stock of the Company). Non-qualified options
granted under the 1996 Plan may not be granted at a price less than 85% of the
fair market value of the Common Stock on the date of grant (or the fair market
value in the case of persons holding 10% or more of the voting stock of the
Company). The 1996 Plan will terminate in December, 2006. The term of each
option granted under the 1996 Plan will expire not more than ten years from the
date of grant (or five years from the date of grant in the case of persons
holding 10% or more of the voting stock of the Company). As of the date hereof,
500,000 options have been granted under the 1996 Plan to the Company's
President; 120,000 of such options are designated as ISOs as defined in the
Code (20,000 of which was vested on December 31, 1996 and the balance of which
will vest ratably per quarter for 20 quarters commencing on March 31, 1997).
The remaining 380,000 options are Non-Qualified Options as defined in the Code,
30,000 of which was vested on December 31, 1996 and the remainder of which will
vest ratably per
F-14
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited) -- (Continued)
11. Stock Option Plans -- (Continued)
quarter for 20 quarters commencing on March 31, 1997. In addition, 100,000
options have been granted under the 1996 Plan to the Chairman of the Board of
Directors of the Company and 50,000 to the Company's Vice President. Their
options vest ratably per quarter over a period of five years commencing
December 31, 1996. All the aforementioned granted options are exercisable at a
price of $6.50 per share and expire in ten years from date of grant.
The 1996 Non-Employee Director Stock Option Plan (the "Directors Plan")
was adopted and approved by the Board of Directors and the stockholders of the
Company on November 4, 1996. Options to purchase an aggregate of 100,000 shares
of Common Stock may be issued pursuant to the Directors Plan. Pursuant to the
terms of the Directors Plan, each independent unaffiliated Director
automatically will be granted, subject to availability, without any further
action by the Board of Directors; (i) a non-qualified option to purchase 5,000
shares of Common Stock upon their elections to the Board of Directors; and (ii)
a non-qualified option to purchase 5,000 shares of Common Stock on the date of
each annual meeting of stockholders following their election to the Board of
Directors at which they are re-elected to the Board. The exercise price of each
option is the fair market value of the Common Stock on the date of grant. Each
option expires five years from the date of grant and vests in two annual
installments of 50% each on the first and second anniversary of the date of
grant. As of December 31, 1996 and March 31, 1997, options to acquire 5,000
shares of Common Stock at an exercise price of $6.50 per share, have been
granted under the Directors Plan.
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standard No 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"). Accordingly, no compensation cost has been recognized for the
stock option plans for the year ended December 31, 1996 and the three months
ended March 31, 1997. Had compensation cost for the Company's two stock option
plans been determined based on the fair value at the vesting date for awards in
1996 and 1997 consistent with the provisions of SFAS No. 123, the Company's net
losses and loss per share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
For the year For the three
ended months ended
December 31, March 31,
----------------- --------------
1996 1997
----------------- --------------
<S> <C> <C>
Net Loss - as reported ..................... $ (937,167) $ (511,410)
Net Loss - pro forma (unaudited) ............ $ (1,136,194) $ (833,834)
Loss per share - as reported ............... $ (.74) $ (.40)
Loss per share - pro forma (unaudited) ...... $ (.90) $ (.66)
</TABLE>
The fair values of each option granted is estimated on the vesting date
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996 and 1997: dividend yield of
0%, expected volatility of 30.00%, risk-free interest rate of 6.7% and expected
lives of 10 years.
12. Private Placements
On November 8, 1996, the Company obtained bridge financing of $836,000 from
the private sale of eleven Units, each Unit consisting of (i) a 15% promissory
note (the "Note") of the Company in the principal amount of $76,000 and (ii)
warrants to purchase 10,000 shares of common shares of the Company (subject to
anti-dilution provisions). Each Warrant entitles the holder to purchase,
commencing 12 months after the effective date of the Proposed Public Offering
(Note 14), one common share at an exercise price equal to $0.10 per share
(subject to anti-dilution provisions) through the period ending October 23,
2001. The notes are payable upon the earlier to occur of October 23, 1998 or
five business days following the closing of the proposed public offering of
F-15
<PAGE>
U.S. GOLF AND ENTERTAINMENT INC.
NOTES TO FINANCIAL STATEMENTS
(Information with respect to the three months
ended March 31, 1996 and 1997 is unaudited) -- (Continued)
12. Private Placements -- (Continued)
the securities of the Company. The proceeds from the sale of these Units were
used to redeem 845,000 common shares and warrants to purchase 2,020,000 common
shares of the Company for a total consideration of $601,125 (Note 1). The
Company used the balance of the proceeds for working capital.
In connection with the redemption of the aforementioned common shares and
warrants, the Company issued 20,000 common shares to one of the Company's
shareholders as additional consideration for the surrender of 150,000 of his
warrants. The Company has attributed a value of $792,000 to the warrants as a
discount associated with the cost of selling the Units.
In March, 1997, the Company obtained additional financing of $380,000 from
the private sale of another five Units, with the same terms as the original
private sale, the proceeds of which were used to redeem one unit from an
investor in the November, 1996 bridge financing and working capital. The
Company has attributed a value of $288,000 to these warrants as a discount
associated with the cost of selling the units.
The Company is amortizing all of the aforementioned costs over the period
the related debt is contemplated to be outstanding. Amortization expense
approximated $226,000 for the year ended December 31, 1996 and $272,000 for the
three months ended March 31, 1997. The unamortized portion of these costs as of
December 31, 1996 and March 31, 1997, aggregated $566,000 and $582,000,
respectively, and have been offset against the related notes payable.
13. Employment Agreements
The Company entered into an employment agreement commencing on September
16, 1996 with its President. The Agreement provides for annual base
compensation of $125,000 through the period ending December 31, 1997, $150,000
for the year ending December 31, 1998 and $200,000 per year through the period
ending December 31, 2001, as well as options to purchase 500,000 shares of
Common Stock. In addition, the Company entered into five year employment
agreements, commencing with the effective date of the proposed public offering
(Note 14), with its Chairman of the Board of Directors and Vice President. In
accordance with their respective contracts, the Chairman of the Board of
Directors and Vice President are entitled to annual compensation of $30,000 and
$25,000, respectively, as well as options to purchase 100,000 and 50,000 common
shares, respectively. See Note 11 for details of the options granted the
aforementioned officers. The Chairman of the Board of Directors and the
Company's President will devote their respective time to the business of the
Company on an as-needed basis.
14. Proposed Public Offering
The Company entered into a letter of intent, the terms of which were
amended on July 28, 1997, with a managing underwriter to sell, on a firm
commitment basis, 1,100,000 units (each unit consisting of one share of Common
Stock of the Company and one (1) redeemable Common Stock purchase warrant) at
6.10 per unit subject to an additional 165,000 units if the underwriter
exercises its over-allotment option in full. The warrants are exercisable at
7.20 per share and expire in five years. Reference is made to "Underwriting" in
the Registration Statement for further details of the Underwriting Agreement.
15. Limited Partnership Agreement
On March 14, 1997, the Company entered into a Limited Partnership
Agreement (the "Agreement"), to develop an 18-hole public golf course, driving
range and instructional center in Monticello, New York. The Company will
contribute $25,000 and pursuant to the Agreement, agreed to commit another
$475,000 within five days after completion of the proposed public offering. The
Company will also contribute $500,000 no later than July 1, 1997, at which time
the Company's percentage share of the profits and losses in the Limited
Partnership will be 50%.
F-16
<PAGE>
===============================================================================
No person is authorized in connection with any offering made hereby to
give any information or to make any representation not contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company or any Underwriter.
This Prospectus does not constitute an offer to sell or a solicitation of any
offer to buy any of the securities offered hereby to any person in any
jurisdiction in which it is unlawful to make such an offer or solicitation.
Neither the delivery of this Prospectus nor any sale made hereunder shall under
any circumstance create any implication that the information contained herein
is correct as of any date subsequent to the date hereof or that there has been
no change in the affairs of the Company since such date.
-----------------------------------
TABLE OF CONTENTS
Page
----
Prospectus Summary ..................... 3
Risk Factors ........................ 6
Use of Proceeds ........................ 13
Dilution. .............................. 14
Capitalization. ........................ 15
Dividend Policy ........................ 16
Selected Financial Data ............... 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ........................ 17
Business .............................. 21
Management ........................... 26
Principal Stockholders ............... 29
Certain Transactions .................. 30
Description of Securities ............ 31
Shares Eligible for Future Sale ...... 33
Underwriting ........................... 34
Indemnification and Anti-takeover
Provisions ........................ 36
Legal Matters ........................ 36
Experts .............................. 36
Additional Information ............... 37
Financial Statements .................. F-1
-----------------------------------
Until 25 days after the date of this Prospectus, all dealers effecting
transactions in registered securities, whether or not participating in this
distribution, may be required to deliver a prospectus. This is in addition to
the obligation of dealers to deliver a prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
===============================================================================
<PAGE>
===============================================================================
U.S. GOLF AND ENTERTAINMENT INC.
1,100,000 Units
Each Unit Consisting of
One Share of Common Stock
and One Warrant
----------
PROSPECTUS
----------
Westport Resources
Investment Services, Inc.
National Securities Corporation
August , 1997
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law (the "DGCL") gives a
corporation power to indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
same Section also gives a corporation power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise for expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability, but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper. Also, the Section states
that, to the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
such action, suit or proceeding, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Article Twelfth of the Registrant's Certificate of Incorporation provides
that: The corporation shall, to the fullest extent permitted by the provisions
of Section 145 of the DGCL, as the same may be amended and supplemented,
indemnify any and all persons whom it shall have power to indemnify under said
section from and against any and all of the expenses, liabilities, or other
matters referred to in or covered by said section, and the indemnification
provided for herein shall not be deemed exclusive of any other rights to which
those indemnified may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person."
The Registrant's by-laws provide language substantially in the following
form: (a) The Corporation shall, to the maximum extent permitted from time to
time under the law of the State of Delaware, indemnify and upon request shall
advance expenses to any person who is or was a party to any threatened, pending
or completed action, suit, proceeding or claim, whether civil, criminal,
administrative or investigative, by reason of the fact that he or she is or was
or has agreed to be a trustee, director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
trustee, director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees and expenses), judgment, fines, penalties and
amounts paid in settlement incurred in connection with the investigation,
preparation to defend or defense of any such action, suit, proceeding or claim.
Such indemnification shall not be exclusive of other indemnification rights
arising under any by-law, agreement, vote of directors or stockholders or
otherwise and shall inure to the benefit of the heirs and legal representatives
of such person; (b) The Corporation may purchase and maintain insurance on any
person who is or was a trustee, director, officer,
II-1
<PAGE>
employee or agent of the Corporation or is or was serving at the request of the
Corporation as a trustee, director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against any
liability incurred by him in any such position or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability.
Section 102(b)(7) of the DGCL enables corporations to adopt provisions in
their certificates of incorporation eliminating or limiting the personal
liability of directors to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director provided that such provision
shall not eliminate or limit the liability of a director: (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders; (ii) for
acts and omissions not in good faith or which involve intentional misconduct or
a knowing violation of law; (iii) under section 174 of the DGCL; or (iv) for
any transaction from which the director derived an improper personal benefit.
Such provision does not eliminate or limit the liability of a director for any
act or omission occurring prior to the date when such provision became
effective. Section 102(b)(7) has no effect on the availability of equitable
remedies, such as injunctions or rescission, for breach of fiduciary duty. The
registrant's Certificate of Incorporation provides that the personal liability
of the directors of the corporation is eliminated to the fullest extent
permitted by the provisions of paragraph (7) of subsection (b) of Section 102
of the DGCL, as the same may be amended or supplemented.
See Section 7 of the form of the Underwriting Agreement filed as Exhibit
1.1 to the Registration Statement for certain provisions relating to
indemnification of the registrant and its officers, directors and controlling
persons.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses payable by the
Registrant, in connection with the sale and distribution of the securities
being registered, other than underwriting discounts and commissions. All of the
amounts shown are estimated except the Securities and Exchange Commission
registration fee, the NASDAQ listing fee, the NASD filing fee and the
Underwriter's non-accountable expense allowance.
SEC registration fee .................................... $ 13,141
NASDAQ listing fee .................................... 10,000
NASD filing fee ....................................... 1,765
Blue Sky fees and expenses .............................. 30,000
Printing and engraving expenses ........................ 215,000
Legal fees and expenses ................................. 225,000
Accounting fees and expenses ........................... 50,000
Miscellaneous .......................................... 5,094
---------
Total ................................................ $550,000
=========
Item 26. Recent Sales of Unregistered Securities
Within the past three years, the Registrant has issued securities without
registration under the Act, as follows:
1. In November, 1995, U.S. Golf Corp. issued and sold 545,000 shares of
common stock and 520,000 common stock purchase warrants to various
founding stockholders for an aggregate purchase price of $54,500.
2. In May, 1996, U.S. Golf Corp. issued and sold 500,000 shares of common
stock and 1,500,000 common stock purchase warrants to various purchasers
in connection with a private financing for an aggregate purchase price of
$500,000.
II-2
<PAGE>
3. In June, 1996, (i) the general and limited partners of the Commack
Partnership exchanged their partnership interests for an aggregate of
1,045,000 shares of Common Stock and (ii) the stockholders of U.S. Golf
Corp. exchanged their shares of common stock and warrants for 1,045,000
shares of Common Stock and 2,020,000 Class A Warrants.
4. In November, 1996, the Company issued and sold to various accredited
investors for an aggregate of $836,000, an aggregate of (i) $836,000 of
15% promissory notes and (ii) warrants to acquire 110,000 shares of Common
Stock.
5. In November, 1996, the Company issued 20,000 shares of Common Stock to a
former stockholder of U.S. Golf Corp. in exchange for the surrender of his
Class A Warrants.
6. In March, 1997, the Company issued and sold to various accredited
investors for an aggregate of $380,000, an aggregate of (i) $380,000 of
15% promissory notes and (ii) warrants to acquire 50,000 shares of Common
Stock.
The issuances described above were deemed to be exempt from registration
under the Securities Act in reliance on Section 4(2) of such Act as
transactions by an issuer not involving any public offering. In addition, the
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the certificates issued in such transactions. All recipients had
adequate access, through their relationships with the Registrant or otherwise
to information about the Registrant.
Item 27. Exhibits
<TABLE>
<S> <C>
*1.1 Form of Amended Underwriting Agreement
*3.1 Certificate of Incorporation of Registrant
*3.2 By-Laws of Registrant
*4.1 Form of Common Stock Certificate
*4.2 Form of Amended Representative's Warrant Agreement
*4.3 Form of Redeemable Warrant Agreement
5.1 Opinion of Ruskin, Moscou, Evans & Faltischek, P.C.
*10.1 1996 Stock Option Plan, as amended
*10.2 1996 Non-Employee Director Stock Option Plan
*10.4 Form of Exchange Agreement (U.S. Golf Corp.)
*10.5 Form of Exchange Agreement (U.S. Golf Corp.)
*10.6 Form of Amended Employment Agreement (Chairman)
*10.7 Form of Employment Agreement (President)
*10.8 Form of Amended Employment Agreement (Vice President)
*10.9 Option Agreement between Registrant and Senior Vice President
*10.11 Form of Lock-Up Agreement
*10.13 Form of Lease Agreement with Murray L. Beer
*10.14 Limited Partnership Agreement of The Island Glen Country Club, L.P.
24.1 Consent of Farber, Blicht & Eyerman, LLP, Independent Certified Public Accountants
24.2 Consent of Ruskin, Moscou, Evans & Faltischek, P.C.
25.1 Power of Attorney (included on signature page)
*27.1 Financial Data Schedule
</TABLE>
- ------------
*Previously filed with the Registrant's Registration Statement and/or
Amendments thereto.
II-3
<PAGE>
Item 28. Undertakings
(a) The undersigned Company hereby undertakes that:
(1) It will 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 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.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Act, it shall 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) It will file a post-effective amendment to remove from registration
any of the Common Stock that remains unsold at the end of the offering.
(4) It will provide to the Underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the Underwriter to permit prompt delivery to
each purchaser.
(5) For purposes of determining any liability under the 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 Company pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(6) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company 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 Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant has duly caused
this Registration Statement to be signed on its behalf by the undersigned
thereunto duly authorized, in Commack, New York, on August 7, 1997.
U.S. GOLF AND ENTERTAINMENT INC.
By: /s/ EDWARD C. ROSS
---------------------------------
Edward C. Ross, Chairman
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated. Each person whose signature appears below hereby authorizes each of
Edward C. Ross, Stuart Goldstein and Chuck Workman with full power of
substitution to execute in the name of such person and to file any amendment or
post-effective amendment to this Registration Statement (or any Registration
Statement filed pursuant to Rule 462) making such changes in this Registration
Statement as the Registrant deems appropriate and appoints each of Edward C.
Ross, Stuart M. Goldstein and Chuck Workman with full power of substitution,
attorney-in-fact to sign and to file any amendment and post-effective amendment
to this Registration Statement.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------ ------------------------------------ --------------
<S> <C> <C>
/s/ EDWARD C. ROSS Chairman of the Board, Chief August 7, 1997
- --------------------------- Financial Officer and Director
Edward C. Ross (Principal Financial and
Accounting Officer)
/s/ STUART M. GOLDSTEIN President, Chief Executive Officer August 7, 1997
- --------------------------- and Director
Stuart M. Goldstein
/s/ CHUCK WORKMAN Senior Vice President and Director August 7, 1997
- ---------------------------
Chuck Workman
/s/ GARRY HOWATT Director August 7, 1997
- ---------------------------
Garry Howatt
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
- ---------
<S> <C>
*1.1 Form of Amended Underwriting Agreement
*3.1 Certificate of Incorporation of Registrant
*3.2 By-Laws of Registrant
*4.1 Form of Common Stock Certificate
*4.2 Form of Amended Representative's Warrant Agreement
*4.3 Form of Redeemable Warrant Agreement
5.1 Opinion of Ruskin, Moscou, Evans & Faltischek, P.C.
*10.1 1996 Stock Option Plan, as amended
*10.2 1996 Non-Employee Director Stock Option Plan
*10.4 Form of Exchange Agreement (U.S. Golf Corp.)
*10.5 Form of Exchange Agreement (U.S. Golf Corp.)
*10.6 Form of Amended Employment Agreement (Chairman)
*10.7 Form of Employment Agreement (President)
*10.8 Form of Amended Employment Agreement (Vice President)
*10.9 Option Agreement between Registrant and Senior Vice President
*10.11 Form of Lock-Up Agreement
*10.13 Form of Lease Agreement with Murray L. Beer
*10.14 Limited Partnership Agreement of The Island Glen Country Club, L.P.
24.1 Consent of Farber, Blicht & Eyerman, LLP, Independent Certified Public Accountants
24.2 Consent of Ruskin, Moscou, Evans & Faltischek, P.C.
25.1 Power of Attorney (included on signature page)
*27.1 Financial Data Schedule
</TABLE>
- ------------
*Previously filed with the Registrant's Registration Statement and/or
Amendments thereto.
<PAGE>
Exhibit 5
August 7, 1997
U.S. Golf and Entertainment Inc.
4 Henry Street
Commack, New York 11725
Re: REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentlemen:
You have requested our opinion in connection with the above-captioned
Registration Statement on Form SB-2 to be filed by U.S. Golf and Entertainment
Inc., a Delaware corporation (the "Company"), with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations promulgated thereunder (the "Rules"). The Registration
Statement relates to the offering of up to 1,265,000 units ("Units"), each Unit
consisting of one share of common stock, par value $.001 per share (the "Common
Stock") and one redeemable warrant to purchase our share of Common Stock
("Warrants"); 1,265,000 shares of Common Stock underlying the Warrants; 110,000
Units issued pursuant to the Representative's Warrant, and 110,000 shares of
Common Stock issuable upon exercise of warrants issuable upon exercise of the
Representative's Warrant.
We have examined such records and documents and have made such examination
of law as we considered necessary to form a basis for the opinions set forth
herein. In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity with the originals of all documents submitted to us as copies
thereof.
Based upon such examination, it is our opinion that when the Underwriting
Agreement, a form of which will be filed as an exhibit to the Registration
Statement, is duly and validly executed and delivered, the Units, Common Stock
and Warrants, when issued, delivered and paid for in the manner described in
such Underwriting Agreement, will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement. In so doing, we do not admit that we are
in the category of persons whose consent is required under Section 7 of the Act
or under the Rules.
Very truly yours,
/s/ RUSKIN, MOSCOU, EVANS & FALTISCHEK, P.C.
------------------------------------------------
Ruskin, Moscou, Evans & Faltischek, P.C.
<PAGE>
EXHIBIT 24.1
<TABLE>
<CAPTION>
<S> <C> <C>
FARBER, BLICHT & EYERMAN, LLP
- --------------------------------------------------------------------------------
Certified Public Accountants 255 Executive Drive, Suite 215 Telephone: (516)576-7040
Plainview, NY 11803-1715 Facsimile: (516) 576-1232
</TABLE>
INDEPENDENT AUDITOR'S CONSENT
To the Board of Directors of
U.S. Golf and Entertainment Inc.
Commack, New York
We hereby consent to the use in the Prospectus constituting part of the
Registration Statement on Form SB-2 of our report dated March 14, 1997 (except
for Notes 5 and 14, the latest of which is dated July 28, 1997), on the
financial statements of U.S. Golf and Entertainment Inc. as of December 31,
1996 and for each of the two years then ended which appear in such Prospectus.
We also consent to the reference to our firm under the caption "Experts" in
such Prospectus.
/s/ Farber, Blicht & Eyerman, LLP
---------------------------------
Plainview, New York
August 7, 1997
