<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.
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 20, 1996
PROSPECTUS
[LOGO]
1,150,000 SHARES OF COMMON STOCK AND
1,150,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
All of the 1,150,000 shares of common stock ("Common Stock") and 1,150,000
Redeemable Common Stock Purchase Warrants ("Warrants") offered hereby (together,
the "Securities") are being sold by TearDrop Golf Company ("Company" or
"TearDrop"). Each Warrant entitles the holder to purchase one share of Common
Stock for $4.00 during the five-year period commencing on the date of this
Prospectus. The Company may redeem the Warrants at a price of $.01 per Warrant
on not less than 30 days' prior written notice if the last sale price of the
Common Stock has been at least 162.5% of the then-exercise price of the Warrants
(initially $6.50) for the 20 consecutive trading days ending on the third day
prior to the date on which notice is given. See "Description of Securities."
Prior to this Offering, there has been no public market for the Securities and
there can be no assurance that any such market will develop. See "Underwriting"
for information relating to the factors considered in determining the initial
public offering price of the Securities and the exercise price of the Warrants.
The Company has applied for quotation of the Common Stock and Warrants on the
Nasdaq SmallCap Market under the symbols "TDRP" and "TDRPW", respectively.
------------------------
The Securities offered hereby are speculative in nature and involve a high
degree of risk and substantial dilution. See "Risk Factors" at page 6 and
"Dilution" at page 13.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR 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.
<TABLE>
<CAPTION>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share............................................. $4.75 $.475 $4.275
Per Warrant........................................... $.10 $.01 $.09
Total (3)............................................. $5,577,500 $557,750 $5,019,750
</TABLE>
(1) Does not include a 3% nonaccountable expense allowance which the Company has
agreed to pay to the Underwriter. The Company has also agreed to sell the
Underwriter an option to purchase 115,000 shares of Common Stock and/or
115,000 Warrants ("Underwriter's Purchase Option"), to retain the
Underwriter as a financial consultant and to indemnify the Underwriter
against certain liabilities, including liabilities under the Securities Act
of 1933. See "Underwriting."
(2) Before deducting expenses payable by the Company, including the
nonaccountable expense allowance in the amount of $167,325 ($192,424 if the
Underwriter's over-allotment option is exercised in full), estimated at
approximately $517,325.
(3) The Company has granted the Underwriter an option, exercisable within 45
days from the date of this Prospectus, to purchase up to an additional
172,500 shares of Common Stock and/or 172,500 Warrants on the same terms set
forth above, solely for the purpose of covering over-allotments, if any. If
such over-allotment option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$6,414,125, $641,413 and $5,772,712, respectively. See "Underwriting."
The Securities are being offered by the Underwriter on a firm commitment basis
subject to prior sale, when, as and if delivered to and accepted by the
Underwriter and subject to the approval of certain legal matters by counsel and
certain other conditions. The Underwriter reserves the right to withdraw, cancel
or modify this Offering and to reject any order in whole or in part. It is
expected that delivery of certificates representing the Securities will be made
against payment therefor at the offices of the Underwriter in New York City, on
or about , 1996.
[LOGO]
, 1996
<PAGE>
[GRAPHICS TO BE PROVIDED]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE COMMON STOCK
OR WARRANTS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
"TEARDROP-REGISTERED TRADEMARK-" IS A REGISTERED TRADEMARK OF TEARDROP GOLF
COMPANY. THE UNITED STATES PATENT AND TRADEMARK OFFICE HAS ISSUED A NOTICE OF
ALLOWANCE TO TEARDROP GOLF COMPANY FOR THE TRADEMARK "SPIN MASTER-TM-."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE
FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS
PROSPECTUS. EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS
ENTIRETY. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS HAS
BEEN ADJUSTED TO REFLECT THE REINCORPORATION OF THE COMPANY IN THE STATE OF
DELAWARE, EFFECTED ON OCTOBER 21, 1996 AND A 3,333.33-FOR-ONE SHARE CONVERSION
IN CONNECTION THEREWITH (THE "REINCORPORATION"). THIS PROSPECTUS CONTAINS, IN
ADDITION TO HISTORICAL INFORMATION, FORWARD LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE RESULTS DISCUSSED IN THE FORWARD LOOKING STATEMENTS. FACTORS THAT COULD
CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE
DISCUSSED IN "RISK FACTORS" AS WELL AS THOSE DISCUSSED ELSEWHERE IN THIS
PROSPECTUS.
THE COMPANY
The Company designs, develops and markets high-quality, premium-priced golf
clubs based on its proprietary technologies, including its
TearDrop-Registered Trademark- line of putters and its new line of Spin
Master-TM- wedges. The TearDrop putter is used by professional golfers on the
Professional Golf Association ("PGA") Tour, the Senior PGA Tour and the Nike
Tour, including Brett Ogle (1995 Hawaiian Open and Pebble Beach Golf Tournament
Champion), Dustin Phillips, Dino Lucchesi, Dennis Zinkon and P.J. Cowan. The
TearDrop putter was reported in 1995 as having achieved a top-ten ranking on
both the PGA Tour and the Senior PGA Tour for top-ten finishes among all putters
used. The Company believes that its products address the demand for innovative
short-game clubs that has not been adequately met by the golf equipment
industry, which recently has stressed technological advancement in the design of
drivers.
Gross retail sales of golf clubs in the United States have grown from
approximately $2.1 billion in 1986 to approximately $5.0 billion in 1994. With
increasing sales, golf equipment manufacturers have invested more in research
and development, designing clubs by combining new materials and technologies
with advanced remodeling, testing and manufacturing techniques in order to
provide golfers with clubs (primarily drivers) that allow for greater distance
and control. While it is estimated that between 10 to 12 million putters were
purchased worldwide during 1995, there have been relatively few advances in the
design and manufacture of putters and other short-game clubs.
To exploit the niche for innovative short-game clubs, the Company introduced
its first product, the TearDrop putter, in 1993, and has since developed and
introduced six additional putters, all based on TearDrop putter technology. The
TearDrop putter features a rounded hitting surface rather than the flat hitting
surface found on most other putters. This technology allows for the striking of
the ball directly at or below center, eliminating most skidding and developing a
high overspin, resulting in a superior roll for more precise putts. The Company
broadened its product line in Spring 1996 with the introduction of its Spin
Master wedges, which feature a titanium-treated friction surface to provide
enhanced backspin and added durability.
The Company's objective is to become a leading supplier of high-quality
specialty clubs, including putters and wedges and, in the longer term, drivers.
To achieve this objective, the Company is focusing on increasing awareness, as
well as enhancing the reputation of its products; increasing market penetration
of its products; and continuing the development of innovative clubs and the
refinement and improvement of existing products. An integral part of this
strategy is the expansion of the Company's marketing and advertising efforts for
which the Company intends to use a substantial portion of the proceeds of this
Offering. The Company's domestic marketing strategy targets on-course golf pro
shops and selected off-course specialty stores and will include print
advertising, television commercials and infomercials and other promotional
activities. An important feature of the Company's overall marketing effort is
the endorsement of its products by touring professional golfers who will
demonstrate the effectiveness of the TearDrop putter and provide valuable
exposure. These professionals also provide important feedback to the
3
<PAGE>
Company regarding future product introductions and existing product refinements.
The Company also intends to expand its line of clubs by developing, acquiring or
licensing advanced technologies for other specialty clubs, including drivers.
The Company's executive offices are located at 32 Bow Circle, Building #1,
Hilton Head Island, South Carolina 29928 and its telephone number is (803)
686-4995. The Company was incorporated in South Carolina in 1992 under the name
"Teardrop Putter Corporation" and merged into the "TearDrop Golf Company," a
Delaware corporation, in October 1996 as part of the Reincorporation.
THE OFFERING
<TABLE>
<S> <C>
Securities Offered........................... 1,150,000 shares of Common Stock and
1,150,000 Warrants. Each Warrant entitles
the registered holder thereof to purchase
one share of Common Stock for $4.00 during
the five-year period commencing on the date
of this Prospectus. The Company may redeem
the Warrants at a price of $.01 per Warrant
on not less than 30 days' prior written
notice if the last sale price of Common
Stock has been at least 162.5% of the then-
exercise price of the Warrants (initially
$6.50) for the 20 consecutive trading days
ending on the third day prior to the date
on which notice of redemption is given. See
"Description of Securities."
Common Stock Outstanding Prior to the
Offering................................... 750,000 shares
Common Stock to be Outstanding After the
Offering................................... 1,900,000 shares
Proposed Nasdaq SmallCap
Market Symbols............................. Common Stock: TRDP
Warrants: TRDPW
</TABLE>
USE OF PROCEEDS
The Company intends to apply approximately $2,200,000 of the net proceeds of
this Offering to its marketing and advertising activities, approximately
$300,000 to repay indebtedness to NationsBank of South Carolina ("NationsBank"),
approximately $250,000 to improve its manufacturing operations and approximately
$100,000 to research and development. The remaining $1,652,425 will be used for
working capital and general corporate purposes. See "Use of Proceeds."
RISK FACTORS
The securities offered hereby involve a high degree of risk, including,
without limitation, the Company's limited operating history; a history of losses
and accumulated and stockholders' deficits; recent decreases in net sales and
increases in net loss; the possible need for additional capital; and the highly
competitive nature of the sporting goods industry generally and the golf
equipment segment specifically. An investment in the Securities offered hereby
should be considered only by investors who can afford the loss of their entire
investment. See "Risk Factors."
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial data presented below for the fiscal years ended
December 31, 1994 and December 31, 1995 is derived from the audited financial
statements of the Company included herein. The summary financial data as of and
for the nine months ended September 30, 1995 and September 30, 1996 are derived
from the unaudited financial statements of the Company. In the opinion of
management, the summary financial data presented below as of and for the nine
months ended September 30, 1995 and September 30, 1996 include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations for these
periods. The nine month results are not necessarily indicative of the results to
be expected for the full year. This information should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Plan of
Operations" and the financial statements of the Company, including the notes
thereto, appearing elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------ -------------------------
<S> <C> <C> <C> <C>
1996 1995 1995 1994
----------- ----------- ------------ -----------
STATEMENT OF OPERATIONS DATA:
Sales..................................................... $ 715,495 $ 820,746 $ 1,057,306 $ 784,519
Loss from operations...................................... (251,785) (214,602) (434,637) (443,653)
Net loss.................................................. (372,930) (293,135) (542,425) (552,044)
Pro forma net loss per share (1).......................... $ (.50) $ (.39) $ (.72) $ (.74)
Shares used in computing pro forma net loss per share
(1)..................................................... 750,000 750,000 750,000 750,000
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------------------------------
<S> <C> <C> <C>
PRO FORMA
AS
ACTUAL PRO FORMA(2) ADJUSTED(2)(3)
------------- ------------- ----------------
BALANCE SHEET DATA:
Working capital (deficit)...................................... $ (160,297) $ (160,297) $ 4,342,128
Total current assets........................................... 446,552 446,552 4,648,977
Total assets................................................... 643,820 643,820 4,846,245
Total liabilities.............................................. 2,384,881 1,301,555 1,001,555
Accumulated deficit............................................ (1,741,286) (1,741,286) (1,741,286)
Total stockholders' equity (deficit)........................... $ (1,741,061) $ (657,735) $ 3,844,690
</TABLE>
- ------------------------
(1) See Note 2 of Notes to Financial Statements for an explanation of the
determination of the number of shares used in computing pro forma net loss
per share.
(2) Gives effect to the forgiveness by certain stockholders of the Company of an
aggregate of $1,083,326 of indebtedness of the Company as of September 30,
1996 and the Reincorporation.
(3) Reflects the receipt by the Company of the net proceeds from the sale of the
Securities offered hereby and the application thereof.
UNLESS OTHERWISE INDICATED, ALL SHARE, PER-SHARE AND FINANCIAL INFORMATION
SET FORTH HEREIN HAS BEEN ADJUSTED TO GIVE EFFECT TO THE REINCORPORATION;
ASSUMES NO EXERCISE OF THE UNDERWRITER'S OVER-ALLOTMENT OPTION, THE WARRANTS,
OTHER OUTSTANDING OPTIONS TO ACQUIRE UP TO AN AGGREGATE OF 250,000 SHARES OF
COMMON STOCK AND OPTIONS TO ACQUIRE UP TO AN AGGREGATE OF 200,000 SHARES OF
COMMON STOCK WHICH MAY BE GRANTED UNDER THE COMPANY'S 1996 EMPLOYEE STOCK OPTION
PLAN; AND GIVES PRO FORMA EFFECT TO THE FORGIVENESS OF AN AGGREGATE OF
$1,083,326 OF INDEBTEDNESS BY CERTAIN STOCKHOLDERS OF THE COMPANY AS OF THE
EFFECTIVE DATE OF THIS OFFERING.
5
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A HIGH
DEGREE OF RISK. ACCORDINGLY, IN ANALYZING AN INVESTMENT IN THESE SECURITIES,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER, ALONG WITH THE OTHER MATTERS
REFERRED TO HEREIN, THE FOLLOWING RISK FACTORS. NO INVESTOR SHOULD PARTICIPATE
IN THIS OFFERING UNLESS SUCH INVESTOR CAN AFFORD A COMPLETE LOSS OF HIS
INVESTMENT.
LIMITED OPERATING HISTORY; HISTORY OF LOSSES; ACCUMULATED DEFICIT;
STOCKHOLDER DEFICIT; RECENT DECREASE IN NET SALES AND INCREASE IN NET LOSS. The
Company has a short operating history. It commenced operations in August 1992,
shipped its first products in 1993 and commenced substantial sales activities in
1994. Although the Company had net sales of approximately $1,057,000 during 1995
and net sales of approximately $785,000 during 1994, the Company has incurred
operating losses since its inception, which losses have continued to date. As of
September 30, 1996 and December 31, 1995, the Company had accumulated deficits
of approximately $1,741,000 and $1,368,000, respectively, and stockholders'
deficits of approximately $1,741,000 and $1,368,000, respectively. During late
1995 and early 1996, the Company discontinued its previous line of putters and
introduced its current line. However, because of delays in manufacturing, the
Company was not able to ship any products until April 1996. This resulted in a
decrease in sales from approximately $821,000 for the nine months ended
September 30, 1995 to approximately $715,000 for the nine months ended September
30, 1996 and an increase in net loss from approximately $293,000 during the nine
months ended September 30, 1995 to approximately $373,000 during the nine months
ended September 30, 1996. See Financial Statements and "Management's Discussion
and Analysis and Plan of Operations."
CONTINUED LOSSES EXPECTED. The Company will not be able to achieve
profitability unless it is able to increase substantially sales of its existing
line of putters and wedges, successfully introduce new products in a timely
manner and finance improvements to its production capabilities. In order to
increase sales, the Company will spend substantially increased amounts for
advertising and marketing. The Company expects that losses will continue for at
least the immediate future because it is not anticipated that such increased
expenditures will result in immediate proportionate increases in sales as the
Company develops its reputation and brand name recognition. There can be no
assurance that the Company will be able to sustain net sales in the future or
achieve or sustain profitability. See Note 12 to the Notes to Financial
Statements, "Use of Proceeds" and "Management's Discussion and Analysis of
Financial Condition and Plan of Operations."
GOING CONCERN OPINION. The Company's accountants have included a statement
in their opinion on the financial statements for the Company to the effect that
the Company's loss from operations raises substantial doubt about its ability to
continue as a going concern.
WORKING CAPITAL DEFICIT; DEPENDENCE UPON LOANS FROM STOCKHOLDERS; NEED FOR
ADDITIONAL CAPITAL. Since its inception, the Company's internally generated cash
flow has not been sufficient to finance its operations. The Company has
experienced severe working capital shortfalls in the past, which have restricted
the Company's ability to conduct its business. As of September 30, 1996 and
December 31, 1995, the Company had working capital deficits of approximately
$160,000 and $332,000, respectively. Through the date of this Offering, the
Company has been primarily dependent upon loans from its current stockholders in
order to maintain its operations. It can be expected that following this
Offering, additional loans from such stockholders will no longer be available.
Although the Company believes that the proceeds from this Offering will be
sufficient for the Company to maintain its operations as planned for at least
the next 18 months, if the Company's sales do not increase substantially, it
will likely need additional financing after such time in order to continue
operations. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, if at all, when required by the
Company. The inability to obtain additional financing when needed would have a
material adverse effect on the Company's operating results and, as a result, the
Company could be required to significantly reduce or
6
<PAGE>
suspend its operations, seek a merger partner or sell some or substantially all
of its assets. See "Use of Proceeds" and "Management's Discussion and Analysis
of Financial Condition and Plan of Operations."
LOAN FROM NATIONSBANK; PLEDGE OF SUBSTANTIALLY ALL ASSETS. The Company has
borrowed $300,000 from NationsBank which was originally due and payable on March
15, 1996. NationsBank has extended the due date for such indebtedness to
December 31, 1996. On several occasions, the Company has been in default on this
loan, each of which defaults has been subsequently waived by NationsBank. The
loan is secured by all of the assets of the Company. Although the Company has
designated a portion of the proceeds of this Offering to repay the loan, it may
obtain alternative financing from another lender and it may be expected that any
such debt will also be secured by the assets of the Company. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition and
Plan of Operations."
DEPENDENCE ON KEY PERSONNEL; LIMITED INDUSTRY EXPERIENCE. The Company
believes its success will depend to a significant extent on the efforts and
abilities of certain of its senior management, particularly those of its Chief
Executive Officer and Chairman of the Board, Rudy A. Slucker. The Company will
maintain "key person" life insurance in the amount of $1,000,000 on the life of
Mr. Slucker under which the Company will be the sole beneficiary. Although the
Company has entered into an employment agreement with Mr. Slucker, effective
upon consummation of the Offering and expiring on December 31, 1999, the loss of
Mr. Slucker or other key management, marketing or technical employees could have
a material adverse effect on the Company's operating results and financial
condition. Management has only a limited history in the golf club industry.
There is strong competition for qualified personnel in the golf club industry,
and the loss of key personnel or an inability on the Company's part to attract,
retain and motivate key personnel could adversely affect the Company's business,
operating results and financial condition. There can be no assurance that the
Company will be able to retain its existing key personnel or attract additional
qualified personnel. See "Business--Employees" and "Management."
IMMEDIATE AND SUBSTANTIAL DILUTION. Purchasers of the Securities offered
hereby will incur an immediate and substantial dilution of approximately 59% of
their investment in the Common Stock because the net tangible book value of the
Company's Common Stock after the Offering will be approximately $2.01 per share
as compared with the initial public offering price of $4.75 per share of Common
Stock and $.10 per Warrant. See "Dilution."
DEPENDENCE UPON ENDORSEMENTS. As an integral part of its marketing
strategy, the Company seeks to obtain endorsements of its clubs from touring
professionals. Typically, the Company's agreements with its endorsing
professionals provide for the use of the professionals' names in connection with
the marketing of the Company's clubs and the use of the clubs by such
professionals in tournament play. The effect of a particular professional's
endorsement on the successful marketing of the Company's clubs, and the
heightening of awareness of the Company's brand name, is directly related to the
success of such professional in tournament play. However, the amount of
remuneration required to be paid or provided by the Company under a typical
endorsement agreement is not substantially dependent on the tournament success
of such professional. Accordingly, if the Company's endorsing professionals do
not have substantial tour victories, the Company likely will receive less
exposure, yet would still be required to pay endorsement fees. To date, only a
limited number of touring professional golfers have signed endorsement
agreements with the Company. In order to succeed with its marketing strategy,
the Company will be required to enter into endorsement agreements with
additional professional golfers. The inability of the Company to maintain its
relationships with its existing endorsing professionals, to enter into
endorsement agreements with additional professional golfers, or the failure of
the Company's endorsing professionals to achieve tournament success, would
diminish the effectiveness of the Company's marketing strategy and may result in
declining sales. See "Business--Sales and Marketing."
7
<PAGE>
DEPENDENCE ON INDEPENDENT DESIGNERS. The Company does not employ any
research and development or design personnel, but instead works closely with
component manufacturers, independent design consultants and touring
professionals in the development of new products and the improvement of existing
products. The Company does not have any written agreements with design
consultants, but believes that to the extent design services are needed,
designers having suitable technical design expertise would be readily available.
However, if the Company is unable to retain qualified design consultants who are
able to devote the necessary attention to the Company's needs when required, or
if the cost of utilizing such experts proves to be too high, the Company may be
unable to develop new products or improved products on a cost-effective or
timely basis. The inability of the Company to develop new products and improve
its current products on commercially reasonable terms could have a material
adverse effect on the Company's operating results and financial condition. See
"Business--Products."
DEPENDENCE ON LIMITED NUMBER OF COMPONENT SUPPLIERS. The Company assembles
all of its clubs at its Hilton Head Island, South Carolina facility. The Company
does not manufacture the components required to assemble its golf clubs. The
Company relies on one supplier for putter heads, a different supplier for wedge
heads and a small number of suppliers for shafts and grips. The Company does not
have written supply agreements with any of its current suppliers. Therefore, the
Company's success will be dependent on maintaining its relationships with
existing suppliers and developing relationships with new suppliers. Any
significant delay or disruption in the supply of components from the Company's
suppliers or any diminution of quality resulting from such supplier's
insufficient controls or inadequate component testing, would have a material
adverse effect on the Company's business, operating results and financial
condition. Further, given the highly seasonal nature of the golf equipment
industry, such adverse effect would be exacerbated should any supply delay or
quality problem occur immediately prior to or during the six month period ending
June 30 (the period during which sales of golf equipment generally are expected
to be the highest). See "Management's Discussion and Analysis of Financial
Condition and Plan of Operations" and "Business--Assembly."
RELIANCE ON INDEPENDENT DOMESTIC SALES REPRESENTATIVES. Sales of the
Company's products are dependent, in part, on its nationwide network of
independent sales representatives. While the Company believes that its
relationships with its sales representatives and customers are satisfactory,
there can be no assurance that the Company will be able to maintain such
relationships in the future. The Company's sales representatives may also
provide services for other golf club manufacturers that offer product lines
competitive with those of the Company. Although the Company works closely with
its sales representatives, the Company cannot directly control such
representatives' sales and marketing activities. There can be no assurance that
these representatives will effectively manage the sale of the Company's products
or that their selling efforts will prove effective. See "Business--Sales and
Marketing."
INTERNATIONAL SALES; RELIANCE ON LIMITED NUMBER OF FOREIGN DISTRIBUTORS.
During the years ended December 31, 1994 and 1995, and during the nine months
ended September 30, 1996, sales to international customers, primarily through
one distributor which markets products in Japan, accounted for approximately
21%, 30% and 41% of the Company's net sales, respectively. Accordingly, if this
distributor ceases to purchase golf clubs from the Company, the Company's sales
will be reduced significantly. The Company relies exclusively on this and other
foreign distributors to market and sell the Company's products outside the
United States. Although the Company works closely with its foreign distributors,
the Company cannot directly control such distributors' sales and marketing
activities and, accordingly, cannot manage the Company's product sales in
foreign markets. The Company's foreign distributors may also distribute, either
on behalf of themselves or other golf club manufacturers, other product lines,
including product lines that may be competitive with those of the Company. There
can be no assurance that these distributors will effectively manage the sale of
the Company's products worldwide or that their marketing efforts will prove
effective. Additionally, the Company's international sales may be disrupted or
adversely affected by events beyond the Company's control, including currency
fluctuations and political or regulatory changes. See "Business--Sales and
Marketing."
8
<PAGE>
NEW PRODUCTS; USGA REGULATION. The Company believes that the introduction
of innovative technologies and club designs will be crucial to its future
success. New models and basic design changes are frequently introduced into the
golf club market but are often met with consumer rejection. Although the Company
has achieved certain successes in the introduction of its golf putters, no
assurances can be given that the Company will be able to continue to design and
manufacture golf clubs that meet with market acceptance. In addition, prior
successful designs may be rendered obsolete within a relatively short period of
time as new products are introduced into the market. There can be no assurances
that the Company will be able to continue to design innovative products that can
achieve market acceptance.
The design of new golf clubs is also greatly influenced by rules and
interpretations of the United States Golf Association ("USGA"). Although the
golf equipment standards established by the USGA generally apply only to
competitive events sanctioned by that organization, it has become critical for
designers of new clubs to assure compliance with USGA standards. To the extent
that the Company's clubs are ruled ineligible under USGA standards, even
non-professional golfers will likely be unwilling to purchase them. The Company
has received approval for its primary putter designs by the USGA. However, the
Company's current wedges have not yet been submitted to the USGA for approval,
and the Company believes that further modifications will be necessary to bring
the wedges within USGA guidelines. No assurance can be given that the wedges or
any new products will receive USGA approval or that existing USGA standards will
not be revised in ways that adversely affect the sales of the Company's
products. See "Business--Products" and "--Regulatory Matters."
MANAGEMENT OF GROWTH. Following the completion of this Offering, the
Company will substantially expand its operations. It can be expected that this
expansion will place a significant strain on the Company's management and other
resources. The Company's ability to manage its growth effectively will require
it to hire additional management personnel to improve its operational, financial
and management information systems, to accurately forecast sales demand and
calibrate manufacturing to such demand, to accurately forecast retail sales, to
control its overhead, to manage its advertising and marketing programs in
conjunction with actual demand, and to attract, train, motivate and manage its
employees effectively. If the Company's management is unable to manage growth
effectively, the Company's operating results and financial condition will be
adversely affected.
SEASONAL BUSINESS; QUARTERLY FLUCTUATIONS. Golf is primarily a warm weather
sport. The purchasing decisions of most customers are typically made in the fall
and a vast majority of sales are expected to occur during the first six months
of the year. In addition, quarterly results may vary from year to year due to
the timing of new product introductions, orders and sales, advertising
expenditures, promotional periods and shipments. Accordingly, comparisons of
quarterly information of the Company's results of operations may not be
indicative of the Company's overall annual performance. See "Management's
Discussion and Analysis of Financial Condition and Plan of Operations" and
"Business--Sales and Marketing."
SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS. Sales of golf equipment have
historically been dependent on discretionary consumer spending. As a result, the
Company's revenues will be subject to fluctuations based upon general economic
conditions in the United States and in the foreign countries where the Company
sells its products. If there is a general economic downturn or recession in the
United States or in foreign countries in which the Company markets its clubs,
general consumer spending on golf equipment could be expected to decline, which
would have a material adverse effect on the Company's business, operating
results and financial condition.
UNCERTAINTY OF PROPRIETARY RIGHTS; EXPENSE OF INTELLECTUAL PROPERTY
LITIGATION. The Company relies on a combination of patents, trademarks and
trade secret protection to establish and protect the proprietary rights it has
in its products. The ability of the Company's competitors to acquire
technologies or other proprietary rights equivalent or superior to those of the
Company or the inability of the Company to enforce its proprietary rights would
have a material adverse effect on the Company's operating results and financial
condition. There can be no assurance that the Company's competitors will not
independently
9
<PAGE>
develop or acquire patented or other proprietary technologies that are
substantially equivalent or superior to those of the Company. There also can be
no assurance that the measures adopted by the Company to protect its proprietary
rights will be adequate to do so or that the Company's products do not infringe
on third party intellectual property rights, including patents. Intellectual
property matters are frequently litigated on allegations that third-party
proprietary rights have been infringed. The Company may have to defend against
such lawsuits, which could be expensive and time-consuming. See
"Business--Proprietary Rights."
COMPETITION. The market for high quality, premium-priced golf clubs is
highly competitive and includes a number of well-established companies that have
more readily recognizable brand names and larger, more widely known corps of
endorsing golf professionals, as well as greater market access and financial
resources than the Company. Many purchasers of premium clubs desire golf clubs
that feature the most recent technology, innovative designs and recognized brand
names. Additionally, purchases are often made based upon highly subjective
decisions that may be influenced by numerous factors, many of which are out of
the Company's control. Golfers' subjective preferences are subject to rapid and
unanticipated changes. As a result, the Company will face substantial
competition from existing and new companies that market golf clubs which are
perceived to enhance performance, are visually appealing or appeal to other
consumer preferences. Further, the golf club industry is subject to rapid and
widespread imitation of golf club designs which, not withstanding the existence
of any proprietary rights, could further hamper the Company's ability to
compete. In addition, there are several manufacturers that do not currently
compete with the Company that could pose significant competition if they enter
the market for golf putters and wedges, or concentrate greater resources upon
their efforts in this market. There can be no assurance as to the market
acceptance of the Company's golf clubs in relation to its competition. See
"Business-- Competition."
BROAD DISCRETION IN APPLICATION OF NET PROCEEDS. The Company intends to use
approximately $1,652,000, or 36.7%, of the net proceeds of this Offering for
working capital and general corporate purposes, and accordingly, management will
have broad discretion in the application of such proceeds. See "Use of
Proceeds."
USE OF PROCEEDS TO REPAY INDEBTEDNESS; USE OF PORTION OF PROCEEDS OF
OVER-ALLOTMENT OPTION TO REPAY INSIDER INDEBTEDNESS. The Company intends to use
$300,000 of the proceeds to repay NationsBank. Since Rudy Slucker, the Chairman
of the Board, and Fred Hochman, a director and principal stockholder of the
Company, have each provided a personal guarantee for portions of the Company's
$300,000 indebtedness to NationsBank, they will benefit to the extent of the
release of their respective guarantees. Additionally, the Company has agreed to
allocate up to $500,000 from the proceeds, if any, received by the Company upon
the exercise of the Underwriter's over-allotment option, to the repayment of
indebtedness to certain stockholders of the Company, including members of
management. See "Use of Proceeds" and "Certain Transactions."
CONTROL OF THE COMPANY BY OFFICERS AND DIRECTORS. Immediately following
this Offering, the Company's officers and directors will beneficially own
approximately 47.4% of the outstanding shares of the Company's Common Stock. As
a result, such persons, acting together, have the ability to exercise
significant influence over all matters requiring stockholder approval. The
concentration of ownership could delay or prevent a change in control of the
Company. See "Management" and "Principal Stockholders."
NO PRIOR MARKET; POTENTIAL LIMITED TRADING MARKET; POSSIBLE VOLATILITY OF
STOCK PRICE. There has been no prior market for the Company's Common Stock or
Warrants, and there can be no assurance that a public market for the Common
Stock or the Warrants will develop or be sustained after the Offering. Although
the Company has applied for quotation of the Common Stock and Warrants on the
Nasdaq Small Cap Market upon the effective date of this Prospectus, in order to
continue such quotation after the Offering, the Company must satisfy certain
maintenance criteria. The failure to meet these maintenance
10
<PAGE>
criteria may result in the Common Stock or Warrants no longer being eligible for
quotation on Nasdaq and trading, if any, of the Common Stock and the Warrants
would thereafter be conducted in the non-Nasdaq over-the-counter market. As a
result of such delisting, an investor may find it more difficult to dispose of
or to obtain accurate quotations as to the market value of the Company's
securities. In addition, if the Common Stock was to become delisted from trading
on Nasdaq and the trading price of the Common Stock was to fall below $5.00 per
share, trading in the Common Stock would also be subject to the requirements of
certain rules promulgated under the Securites Exchange Act of 1934, as amended
(the "Exchange Act"), which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny stock
(generally, any non-Nasdaq equity security that has a market price of less than
$5.00 per share, subject to certain exceptions). Such rules require the
delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and must have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage them
from effecting transactions in the Common Stock and Warrants, which could
severely limit the liquidity of the Common Stock and Warrants and the ability of
purchasers in this offering to sell the Common Stock and Warrants in the
secondary market.
The public offering prices of the Securities and the exercise price and
other terms of the Warrants being offered hereby were established by negotiation
between the Company and the Underwriter and may not be indicative of prices that
will prevail in the trading market. In the absence of an active trading market,
purchasers of the Common Stock or the Warrants may experience substantial
difficulty in selling their securities. The trading price of the Company's
Common Stock and Warrants is expected to be subject to significant fluctuations
in response to variations in quarterly operating results, changes in analysts'
earnings estimates, announcements of technological innovations by the Company or
its competitors, general conditions in the golf club industry and other factors.
In addition, the stock market is subject to price and volume fluctuations that
affect the market prices for companies and that are often unrelated to operating
performance. See "Underwriting."
WARRANT PRICE AND EFFECT ON TRADING PRICE OF COMMON STOCK. The Warrants
being offered hereby have an exercise price below the initial offering price of
the Common Stock. It therefore may be possible that a substantial number of the
Warrants will be exercised within a short time following the Effective Date of
the Offering. Such exercise would be dilutive to the net tangible book value of
the Common Stock being offered hereby. In addition, purchasers in the public
offering may be willing to sell their Common Stock into the public market at
prices less than the initial offering price because of gains in the market price
of or realized on the sale or exercise of their Warrants. Such sales could
adversely affect the public market price of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE. Sales of the Company's Common Stock in the
public market after this Offering could adversely affect the market price of the
Common Stock or the Warrants. See "Shares Eligible for Future Sale."
CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. The Company will be able to issue shares of its Common Stock upon
exercise of the Warrants only if there is then a current prospectus relating to
such Common Stock and only if such Common Stock is qualified for sale or exempt
from qualification under applicable state securities laws of the jurisdictions
in which the various holders of the Warrants reside. The Company has undertaken
to file and keep current a prospectus which will permit the purchase and sale of
the Common Stock underlying the Warrants, but there can be no assurance that the
Company will be able to do so. Although the Company intends to seek to qualify
for sale the shares of Common Stock underlying the Warrants in those states in
which the securities are to be offered, no
11
<PAGE>
assurance can be given that such qualification will occur. The Warrants may be
deprived of any value and the market for the Warrants may be limited if a
current prospectus covering the Common Stock issuable upon the exercise of the
Warrants is not kept effective or if such Common Stock is not qualified or
exempt from qualification in the jurisdictions in which the holders of the
Warrants then reside. See "Underwriting."
POTENTIAL ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants may be
redeemed by the Company at any time at a redemption price of $.01 per Warrant on
not less than 30 days' prior written notice if the last sale price of the Common
Stock has been at least 162.5% of the then-exercise price of the Warrants
(initially $6.50) for the 20 consecutive trading days during a period ending on
the third trading day prior to the date of the notice of redemption. Notice of
redemption of the Warrants could force the holders to exercise the Warrants and
pay the exercise price at a time when it may be disadvantageous for them to do
so, to sell the Warrants at the current market price when they might otherwise
wish to hold the Warrants, or to accept the redemption price which would be
substantially less than the market value of the Warrants at the time of
redemption. See "Description of Securities--Warrants."
EFFECT OF OUTSTANDING OPTIONS AND WARRANTS. As of the date of this
Prospectus, there are outstanding options to purchase an aggregate of 250,000
shares of Common Stock at per-share exercise price of $4.75 and the Company has
reserved 200,000 shares for issuance under the 1996 Employee Stock Option Plan.
In addition, in connection with this Offering, the Company will issue the
Warrants and the Underwriter's Purchase Option. The exercise of such outstanding
options, Warrants and Underwriter's Purchase Option would dilute the
then-existing stockholders' percentage ownership of the Company's stock, and any
sales in the public market of Common Stock underlying such stock options could
adversely affect prevailing market prices for the Common Stock. Moreover, the
terms upon which the Company would be able to obtain additional equity capital
could be adversely affected since the holders of such securities can be expected
to exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital on terms more favorable to the Company than those
provided in such stock options. See "Management-- Employee Benefit Plans,"
"Certain Transactions," "Description of Securities" and "Underwriting."
POTENTIAL ADVERSE EFFECTS OF PREFERRED STOCK ISSUANCE. The Board of
Directors has the authority, without further stockholder approval, to issue up
to 1,000,000 shares of preferred stock, in one or more series, and to fix the
number of shares and the rights, preferences and privileges of any such series.
The issuance of preferred stock by the Board of Directors could affect the
rights of the holders of the Common Stock. For example, such an issuance could
result in a class of securities outstanding that would have dividend,
liquidation, or other rights superior to those of the Common Stock or could make
a takeover of the Company or the removal of management of the Company more
difficult. There are no issued and outstanding shares of preferred stock, and
the Board of Directors does not currently intend to issue any such shares. See
"Description of Securities--Preferred Stock."
DIVIDENDS UNLIKELY. The Company has never declared or paid dividends on its
Common Stock and currently does not intend to pay dividends in the foreseeable
future. The payment of dividends in the future will be at the discretion of the
Board of Directors. The Company's credit facility with NationsBank prohibits the
payment of dividends while any amount is outstanding under the credit facility.
See "Dividend Policy."
12
<PAGE>
DILUTION
The difference between the initial public offering price per share of Common
Stock and the pro forma net tangible book value per share of Common Stock after
this Offering constitutes the dilution per share of Common Stock to investors in
this Offering (after giving effect to the forgiveness by certain stockholders of
the Company of $1,083,326 of indebtedness as of September 30, 1996 and to the
Reincorporation). Net tangible book value per share is determined by dividing
the net tangible book value (total tangible assets less total liabilities) by
the number of outstanding shares of Common Stock. As of September 30, 1996, the
Company had a pro forma net tangible book value of $(688,379), or approximately
$(.92) per share of Common Stock (based on 750,000 shares of Common Stock
outstanding at September 30, 1996). After giving effect to the sale of the
Securities offered hereby (less underwriting discounts and estimated expenses of
this Offering) and the application of the net proceeds therefrom, the pro forma
net tangible book value at that date would have been $3,814,046, or
approximately $2.01 per share. This represents an immediate increase in net
tangible book value of approximately $2.93 per share to existing stockholders
and an immediate dilution of approximately $2.84 per share or approximately 59%
to investors in this Offering.
The following table illustrates the per share dilution without giving effect
to operating results of the Company subsequent to September 30, 1996.
<TABLE>
<S> <C> <C>
Public offering price of the Securities....................... $ 4.85
Pro forma net tangible book value before Offering........... $ (.92)
Increase attributable to investors in this Offering......... $ 2.93
---------
Pro forma net tangible book value after Offering.............. $ 2.01
---------
Dilution to investors in this Offering........................ $ 2.84
---------
---------
</TABLE>
The following table summarizes the number and percentage of shares of Common
Stock purchased from the Company, the amount and percentage of consideration
paid, and the average price per share paid by existing stockholders (after
giving effect to the forgiveness by certain stockholders of the Company of
$1,083,326 of indebtedness as of the date of this Prospectus) and by investors
pursuant to this Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................................ 750,000 39.5% $ 1,083,551 16.3% $ 1.44
Investors in this Offering........................... 1,150,000 60.5 5,577,500 83.7 $ 4.75
---------- ----- ------------ -----
Total............................................ 1,900,000 100.0% $ 6,661,051 100.0%
---------- ----- ------------ -----
</TABLE>
The foregoing analysis assumes no exercise of the Warrants or outstanding
options or the Underwriter's Purchase Option (or the Warrants included in the
Underwriter's Purchase Option). In the event any such options or warrants are
exercised, the percentage ownership of the investors in this Offering will be
reduced and the dilution per share of Common Stock to investors in this Offering
will increase.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby, after deducting underwriting discounts and commissions and estimated
expenses payable by the Company in connection with this offering, are estimated
to be approximately $4.5 million (approximately $5.25 million if the
Underwriter's over-allotment option is exercised in full). The Company intends
to apply the net proceeds approximately as follows:
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT
- ------------------------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
Marketing and advertising.................................................................. $ 2,200,000 48.9%
Repayment of debt.......................................................................... 300,000 6.7
Manufacturing operations................................................................... 250,000 5.5
Research and development................................................................... 100,000 2.2
Working capital and general corporate purposes............................................. 1,652,425 36.7
------------ -----
Total................................................................................ $ 4,502,425 100%
------------ -----
------------ -----
</TABLE>
Approximately $2,200,000 of the net proceeds is allocated for marketing and
advertising purposes, including the development and placement of advertisements
in various forms of media, including print and television, and making payments
to touring professional golfers in consideration of their endorsements of the
Company's products, which will include payment of approximately $320,000 over
the next twelve months under the Company's advertising agreement with the Golf
Channel Inc.-Registered Trademark- (the "Golf Channel") and which may include
payments under the Company's "Player Pool" program under which the Company will
provide rewards on a weekly basis to professional golfers who win tournaments
using TearDrop golf clubs. See "Business--Strategy" and "--Sales and Marketing."
Approximately $300,000 of the net proceeds will be used to repay
indebtedness plus interest to NationsBank that is due December 31, 1996. The
debt accumulates interest at the per annum rate equal to the prime rate plus 1%.
Approximately $250,000 of the net proceeds of this Offering is allocated for
improving the Company's manufacturing and assembly operations to meet
anticipated growth. In addition, the Company may use such proceeds for the
development of facilities capable of manufacturing certain of its TearDrop club
heads.
The Company is continually seeking to improve the design of the TearDrop
putters and, in addition, is seeking to develop additional golf clubs such as
wedges and drivers. Accordingly, approximately $100,000 of the net proceeds of
this Offering is allocated for the development and/or licensing of new
technologies for golf club design.
The balance of the net proceeds of this Offering is allocated for working
capital and general corporate purposes including, among other things, payment of
expenses incurred or to be incurred by the Company in connection with its
operations, costs associated with additional inventory, payment of general
corporate expenses, including salaries of additional officers and financial and
management personnel, and the fee of $60,000 payable to the Underwriter for
financial consultant services.
If the Underwriter exercises the over-allotment option in full, the Company
will realize additional net proceeds of approximately $725,000, of which up to a
maximum of $400,000 will be used to repay certain indebtedness owed by the
Company to its Chairman and Chief Executive Officer, Rudy A. Slucker, and the
next $100,000 of which will be used to repay certain indebtedness to other
current stockholders of the Company (including an additional $40,000 to Mr.
Slucker), and any remaining amount will be added to the Company's working
capital. The above debt owed to such stockholders of the Company is payable with
interest at the rate of 8% per annum upon the earlier of the exercise by the
Underwriter of the over-
14
<PAGE>
allotment option (to the extent proceeds derived therefrom are sufficient to
make repayment) and two years from the date of this Prospectus.
If the Warrants are exercised in full, the Company will receive additional
net proceeds of approximately $4,370,000, the first $400,000 of which will be
used to repay certain additional indebtedness owed by the Company to Mr.
Slucker. This $400,000 debt owed to Mr. Slucker is payable with interest at 8%
per annum upon the earlier of the exercise of the Warrants offered hereby (to
the extent proceeds derived therefrom are sufficient to make repayment) and
three years from the date of this Prospectus.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based upon the Company's currently
contemplated operations, business plans, as well as 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
the Company's plans, unanticipated future revenues and expenditures, and
unanticipated industry conditions. The amount and timing of expenditures will
vary depending on a number of factors, including, without limitation, the
results of operations and changing industry conditions. To the extent deemed
appropriate by management, the Company may acquire fully developed products or
businesses that are complementary to the Company's operations. To the extent
that the Company identifies any such oportunities, an acquisition may involve
the expenditure of significant cash or the issuance of Common Stock. Any
expenditure of cash will reduce the amount of cash available for working capital
or marketing and advertising activities. Although the Company has been engaged
in discussions with a number of potential candidates, the Company currently has
no commitments, understandings or arrangements with respect to any such
acquisition.
Although the Company believes that the proceeds from this Offering will be
sufficient for the Company to maintain its operations as planned for at least
the next 18 months, if the Company's sales do not increase substantially, it
will likely need additional financing after such time in order to continue
operations. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, if at all, when required by the
Company. The inability to obtain additional financing when needed would have a
material adverse effect on the Company's operating results, and as a result, the
Company could be required to significantly reduce or suspend its operations,
seek a merger partner or sell some or substantially all of its assets. See
"Management's Discussion and Analysis of Financial Condition and Plan of
Operations."
Proceeds not immediately required for the purposes described above will be
invested in United States government securities, short-term certificates of
deposit, money market funds or other investment grade short-term
interest-bearing investments.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1996 (i) on a historical basis, (ii) pro forma, to reflect the
forgiveness of certain debt by certain current stockholders of the Company and
the Reincorporation and (iii) pro forma, as adjusted to give effect to the sale
of the 1,150,000 shares of Common Stock and 1,150,000 Warrants offered hereby
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
-----------------------------------
PRO FORMA
PRO AS
ACTUAL FORMA(1) ADJUSTED(1)(2)
---------- ---------- -----------
<S> <C> <C> <C>
Stockholders' loans....................................... $1,713,860 $ 630,534 $ 630,534
---------- ---------- -----------
Obligation under capital lease, less current portion...... 64,172 64,172 64,172
---------- ---------- -----------
Stockholders' equity (deficit):
Common stock, $1.00 par value, authorized 100,000
shares, issued and outstanding 225 shares............. 225
Pro forma-preferred stock, $.01 par value, authorized
1,000,000 shares, issued and outstanding none.........
Pro forma-common stock, $.01 par value, authorized
10,000,000 shares, issued and outstanding 750,000
shares and 1,900,000 shares as adjusted............... 7,500 19,000
Capital in excess of par value.......................... 1,076,051 5,569,976
Accumulated deficit..................................... (1,741,286) (1,741,286) (1,741,286)
---------- ---------- -----------
Total stockholders' equity (deficit)................ (1,741,061) (657,735) 3,844,690
---------- ---------- -----------
Total capitalization.............................. $ 36,971 $ 36,971 $4,539,396
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
- ------------------------
(1) Gives effect to the forgiveness by certain stockholders of the Company of an
aggregate of $1,083,326 of indebtedness and the Reincorporation. See Note 2
of Notes to Financial Statements for an explanation of the determination of
the number of shares used in computing pro forma net loss per share.
(2) Reflects the receipt by the Company of the net proceeds from the sale of the
Securities offered hereby and the application thereof.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and it is currently the intention of the Company not to pay cash dividends
on its Common Stock in the foreseeable future. Management intends to reinvest
earnings, if any, in the development and expansion of the Company's business.
Any future declaration of cash dividends will be at the discretion 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. The Company's credit facility with NationsBank prohibits the
payment of dividends while any amount is outstanding under the credit facility.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND PLAN OF OPERATIONS
OVERVIEW
The Company introduced its first product, the TearDrop putter, in 1993 and
commenced significant marketing and sales activities in 1994. Since the
introduction of the TearDrop putter, the Company has expanded its product line
to include six additional putters and three wedges. A significant percentage of
sales made during the introductory phase of the Company's initial products were
made at discounted prices as part of the Company's marketing strategy to
introduce and increase market awareness of the Company and its clubs.
In order to achieve profitability, the Company will be required to address
numerous issues, including, among others: (i) increasing market awareness of,
and demand for, its existing products, (ii) effectively introducing, over time,
additional innovative golf clubs to the market, (iii) accurately gauging demand
for its products, (iv) determining viable price points for such products, (v)
maintaining and strengthening its supply channels, (vi) designing efficient
manufacturing and assembling systems to meet demand for its products, and (vii)
continuing to build efficient channels of distribution. There can be no
assurance that the Company will ever achieve profitability, or that if such
profitability is obtained, that it can be maintained.
The Company believes that an important element for introducing and
increasing awareness of its golf clubs is the building of a corps of touring
professional golfers that will endorse, use and win with the Company's clubs.
Accordingly, as an integral part of its marketing strategy, the Company
continually seeks to obtain professional endorsements of its clubs. Typically,
the Company's agreements with its endorsing professionals provide for the use of
the professionals' names in connection with the marketing of the Company's clubs
and the use of the clubs by such professionals in tournament play. The effect of
a particular professional's endorsement on the successful marketing of the
Company's clubs, and the heightening of awareness of the Company's name, may be
directly related to the success of such professional in tournament play. To
date, only a limited number of touring professional golfers have signed
endorsement agreements with the Company. In order to succeed with its marketing
strategy, the Company will be required to enter into endorsement agreements with
additional touring professional golfers.
The Company does not maintain an in-house research and development or design
department. Rather, the Company works closely with component manufacturers,
independent design consultants and the Company's endorsing golf professionals in
the design and development of new products and product improvements.
Accordingly, the Company does not incur regular, ongoing expenses relating to
salaries of in-house design personnel, but does incur design consulting fees
when a new club or product improvement is in the development phase. The Company
does not have any agreements with independent design consultants, but has
historically been able to retain the services of qualified designers when
needed. The inability on the part of the Company to retain qualified design
consultants possessing suitable technical expertise when needed in the future
could result in delays in the introduction of a new product or product
improvement, which could adversely affect sales.
The Company does not manufacture the components required to assemble its
golf clubs, relying instead on a small number of component suppliers. The
Company does not have supply agreements with any of its current suppliers.
Therefore, the Company's success will be dependent, in part, on maintaining its
relationships with its existing suppliers and developing relationships with new
suppliers.
The Company believes that there are readily available alternative sources
for each of the components comprising its clubs, although there can be no
assurance of this. Any significant delay or disruption in the supply of
components from the Company's suppliers or any quality problems with the
suppliers' components would delay the Company's delivery of finished products
and adversely affect current sales and could adversely affect future sales
potential if distributors lose faith in the Company's ability to deliver a high-
17
<PAGE>
quality product on a timely basis. Further, given the highly seasonal nature of
the golf equipment industry, such adverse affect would be exacerbated should any
such supply delay or quality problem occur immediately prior to or during the
six-month period ending June 30 (the period during which sales of golf equipment
have historically been the highest).
Under an agreement with Wayne R. Wooten, the designer of the original
TearDrop putter, the Company has agreed to pay royalties on the sale of putters
developed, designed or modified by Mr. Wooten. The Company has agreed to pay Mr.
Wooten $1.00 per putter for each of the first 40,000 putters sold by the Company
during each of the one-year periods commencing on July 27, 1995, July 27, 1996
and July 27, 1997. The Company is required to pay Mr. Wooten $2.00 per putter
for each putter in excess of 40,000 sold by the Company during each of the
respective one-year periods. The Company is also required to pay Mr. Wooten
$2.00 for every "cavity back" putter and $3.00 per putter for each new putter
design or modification or other product developed or designed by Mr. Wooten and
accepted for production by the Company for a period of four years following the
date of the sale of such putter. Additionally, the Company is required to pay
Mr. Wooten $5,000 each time any major professional golfing event or tournment is
won by a player using a TearDrop putter. Fred K. Hochman, a director and
principal stockholder of the Company, provided a personal guarantee of the
Company's obligations to Mr. Wooten.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
The Company had sales of approximately $715,000 during the nine months ended
September 30, 1996 as compared to sales of approximately $821,000 during the
nine months ended September 30, 1995, a decrease of 13%. This decrease is
attributable to difficulties initially encountered by the Company in developing
the manufacturing molds for its new line of clubs introduced in late 1995, which
resulted in the Company's inability to produce and deliver clubs during the
important Spring 1996 buying season. Because of these delays, the Company was
unable to fill orders until late into Spring 1996, resulting in substantially
reduced sales during the nine months ended September 30, 1996.
The cost of sales primarily consists of amounts paid for the purchase of the
components used in the assembly of the Company's golf clubs and costs relating
to the machining and milling of such components and assemblage thereof into
finished golf clubs. Cost of sales was approximately $300,000 (42% of sales)
during the nine months ended September 30, 1996 as compared to approximately
$390,000 (48% of sales) during the nine months ended September 30, 1995. This
decline in costs is directly attributable to reduced sales during the first half
of 1996 resulting from the difficulties encountered in developing necessary
manufacturing molds. Because of the reduction in production during the nine
months ended September 30, 1996, the Company had reduced machining and milling
costs during such period. However, because the Company purchased the milling
equipment necessary for the production of the golf club heads in April 1996,
reducing the per-club manufacturing cost, there was a slight decline in cost of
sales as a percentage of sales. The Company does not expect to encounter similar
production delays during the remainder of 1996 and, accordingly, expects the
costs of sales to decrease correspondingly with increased production and sales,
if such increases occur.
During the nine months ended September 30, 1996, selling, general and
administrative expenses were approximately $668,000 (93% of sales) as compared
to approximately $645,000 (79% of sales) during the nine months ended September
30, 1995. This increase is attributable to the Company's overall growth,
including the hiring of additional marketing and sales personnel and stepped up
marketing activities.
As a result of increasing expenses and costs relating to the growth of the
Company, the Company experienced a net loss of approximately $373,000 during the
nine months ended September 30, 1996 and $293,000 during the nine months ended
September 30, 1995. The Company's inability to offset such increased costs and
expenses by increasing its sales (as a result of the aforementioned production
delays),
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resulted in the increase in net loss during the nine months ended September 30,
1996 as compared to the same period of the prior year.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
The Company had sales of approximately $1,057,000 during the year ended
December 31, 1995 as compared to sales of approximately $785,000 during the year
ended December 31, 1994, an increase of 35%. This increase is attributable to
the Company's increased marketing efforts and greater awareness and acceptance
of the TearDrop putter, among both the print media and touring professionals.
During 1995, cost of sales was approximately $549,000 (52% of sales) as
compared to $446,000 (57% of sales) during 1994. This increase was primarily a
result of increased production of clubs to address increased sales.
Selling, general and administrative expenses consist of, among other things,
salaries, advertising expenses and endorsement fees. During 1995, these costs
were approximately $943,000 as compared to $782,000 during 1994. This increase
is attributable to the Company's overall growth, including the hiring of
additional personnel and the retention of additional endorsing golf
professionals. The Company anticipates that as it increases substantially its
marketing and sales activities, that marketing costs, including payments to
endorsing golf professionals will be substantially higher during the next 12
months than in the past.
As a result of costs and expenses associated with the growth of the Company
and the ramp up of production, the Company experienced a net loss of
approximately $542,000 during 1995 and a net loss of approximately $552,000
during 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficit of approximately $160,000 at
September 30, 1996. Since inception, the Company's internally generated cash
flow has not been sufficient to finance operations. Further, the Company has
experienced severe working capital shortfalls in the past, which have restricted
the Company's ability to conduct its business as anticipated. As a result, the
Company has been substantially dependent upon loans from its current
stockholders in order to maintain its operations. Upon the closing of the
Offering, certain stockholders will forgive approximately $1,100,000 of debt
owed by the Company to such stockholders. Of the remaining debt, (i) $500,000
will be payable with interest at the rate of 8% per annum, upon the earlier of
the exercise by the Underwriter of the over-allotment option (to the extent
proceeds derived therefrom are sufficient to make repayment) or two years from
the date of this Prospectus, and (ii) $400,000 will be payable upon the earlier
of the date of exercise of the Warrants offered hereby (to the extent proceeds
derived therefrom are sufficient to make repayment) and three years from the
date of this Prospectus.
The Company has borrowed $300,000 from NationsBank, which is payable on
December 31, 1996, with interest at the per annum rate of prime plus 1%.
Although the Company has designated a portion of the proceeds of this Offering
to repay such loan, it may seek an alternative line of credit with which to
repay NationsBank. No assurance can be given that the Company will identify or
obtain any such line of credit.
The Company has entered into an advertising agreement with the Golf Channel
which commences January 1, 1997 and ends on December 31, 1998. The agreement
provides that the Company will pay $770,000 to the Golf Channel over the term of
the agreement for the broadcast of commercial advertising during, and
sponsorship of certain television programming produced by the Golf Channel.
Although the Company believes that the proceeds from this Offering will be
sufficient for the Company to maintain its operations as planned for at least
the next 18 months, if the Company's sales do not increase substantially, it
will likely need additional financing after such time in order to continue
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operations. There can be no assurance that any additional financing will be
available to the Company on acceptable terms, if at all, when required by the
Company. The inability to obtain additional financing when needed would have a
material adverse effect on the Company's operating results, and, as a result,
the Company could be required to significantly reduce or suspend its operations,
seek a merger partner or sell some or all of its assets.
SEASONALITY
The purchasing decisions of most customers are typically made in the autumn
and a vast majority of sales are expected to occur during the first six months
of the year. In addition, quarterly results may vary from year to year due to
the timing of new product introductions, orders and sales, advertising
expenditures, promotional periods and shipments. Accordingly, comparisons of
quarterly information of the Company's results of operations may not be
indicative of the Company's overall annual performance.
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BUSINESS
GENERAL
The Company designs, develops and markets high-quality, premium-priced golf
clubs based on its proprietary technologies, including its TearDrop line of
putters and its new line of Spin Master wedges. The TearDrop putter is used by
professional golfers on the Professional Golf Association ("PGA") Tour, the
Senior PGA Tour and the Nike Tour, including Brett Ogle (1995 Hawaiian Open and
Pebble Beach Golf Tournament Champion), Dustin Phillips, Dino Lucchesi, Dennis
Zinkon and P.J. Cowan. The Tear Drop putter was reported in 1995 as having
achieved a top-ten ranking on both the PGA Tour and the Senior PGA Tour for
top-ten finishes among all putters used. The Company believes that its products
address the demand for innovative short-game clubs that has not been adequately
met by the golf equipment industry, which recently has stressed technological
advancement in the design of drivers.
To exploit the niche for innovative short-game clubs, the Company introduced
its first product, the TearDrop putter, in 1993, and has since developed and
introduced six additional putters, all based on the TearDrop putter technology.
The Company broadened its product line in Spring 1996 with the introduction of
its Spin Master Wedges.
Gross retail sales of golf clubs in the United States has grown from
approximately $2.1 billion in 1986, to approximately $5.0 billion in 1994. With
increasing sales, the golf club industry has adopted dramatic new technologies
in club design, materials and manufacturing processes resulting in the
introduction of numerous new club designs. Most of the innovations have been in
the design and construction of drivers. Manufacturers have stressed evolving
materials in the shafts and the club head (even increasing the size of the club
head) to enable players to hit their drives farther. However, while it is
estimated that between 10 to 12 million putters were purchased worldwide during
1995, there have been relatively few advances in the design and manufacture of
putters and other short-game clubs.
STRATEGY
The Company's objective is to become a leading supplier of high-quality
specialty clubs, including putters and wedges, and, in the longer term, drivers.
To achieve this objective, the Company is focusing on increasing product
awareness, as well as enhancing the reputation of its products; increasing
market penetration of its products; and continuing the development and
introduction of innovative clubs and refinement and improvement of existing
products. An integral part of this strategy is the substantial expansion of the
Company's marketing and advertising efforts for which the Company intends to use
a substantial portion of the proceeds of this Offering. The Company believes
that golfers tend to purchase specialty clubs, such as putters, wedges and
drivers, more frequently than other clubs since these clubs may be purchased
separately and need not necessarily match a set. The Company will focus its
initial efforts on the TearDrop putters and Spin Master wedges.
EXPANDED MARKETING. The Company's domestic marketing strategy targets
on-course golf pro shops and selected off-course specialty stores and will
include print advertising, television commercials and infomercials and other
promotional activities. An important feature of the Company's overall marketing
effort includes the endorsement of its products by touring professional golfers
who will demonstrate the effectiveness of the TearDrop putter and provide
valuable exposure. The Company's domestic marketing strategy targets on-course
golf pro shops and selected off-course specialty stores and includes print
advertising. An important feature of the Company's overall marketing effort
includes the endorsement of its products by touring professional golfers who
will demonstrate the effectiveness of the TearDrop putter and provide invaluable
exposure. The Company intends to use a substantial portion of the proceeds of
this Offering for the expansion of its advertising and marketing activities,
including the production and placement of television commercials, infomercials
and print advertisements and the expansion of the corps of touring pros
endorsing the Company's clubs. The Company also intends to expand its line of
clubs by acquiring or licensing advanced technologies for other specialty clubs,
including drivers.
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HIGH-QUALITY PRODUCTION. The Company assembles all of its products at its
corporate headquarters in Hilton Head Island, South Carolina. After receiving
the components for its products, including clubheads, shafts and grips, the
Company's production personnel review the components for quality control and
assemble the components to exacting specifications. The Company intends to
expand its manufacturing capability by purchasing additional club head milling
machines and overseeing the manufacturing and production of the club heads
itself. This would allow the Company to reduce its costs as well as maintain
more control over the manufacturing process. See "--Manufacturing and Assembly."
CONTINUED DEVELOPMENT OF INNOVATIVE CLUBS. The Company intends to continue
to seek innovative technologies to develop additional specialty clubs, and
eventually, to offer a full line of golf clubs and related equipment. The
Company intends to form a Professional Advisory Board made up of touring
professional golfers to provide design and development advice to the Company for
the development of new products and the improvement of its existing products.
PRODUCTS
TEARDROP PUTTERS
The Company currently manufactures and markets seven putters. The Company's
TearDrop putters are manufactured with the Company's exclusive roll face head
distinguishing them from most other putters, which have a standard flat face.
With a standard flat faced putter, if a golfer twists his wrist forward, he will
tend to hit the ball down into the green, causing it to bounce slightly as it
travels forward. This slight bounce tends to alter the true trajectory of the
ball rolling towards the cup. With the same standard flat faced putter, if the
golfer twists his wrist backward, he will tend to impart backspin on the ball,
causing it to skid slightly as it begins its roll, also affecting its true
trajectory. In both cases, the problem is especially pronounced on long putts,
when the ball is struck harder. The TearDrop putter, however, is designed to
strike the ball directly on or slightly below the center of the ball, which
eliminates most skidding and develops a high overspin, resulting in a superior
roll for a more precise shot. The rounded barrel of the TearDrop roll face
putter is designed to keep ball-to-club contact and the angle of impact
constant.
During assembly, the TearDrop putter is balanced by hand using the Company's
face weighting system to provide uniform weighting across the face of the
putter, providing for a larger "sweet spot." The weighting system is designed to
allow a golfer to strike the ball on a straighter line rather than with a semi-
circular motion, also encouraging a steadier, more constant stroke. In addition,
the heavy milled aluminum-titanium alloy head is designed to slow a golfer's
backswing and encourage acceleration all the way through the moment of impact.
In addition, the TearDrop design, with its rounded fin, helps prevent stubbing
of the club on the swing and follow-through.
Each of the TearDrop putter models incorporates the roll face into different
putter designs to accommodate golfer's varying tastes, preferences and habits.
The original TearDrop design was invented by one of the Company's founders and
further developed by its current management. The designs for the subsequent
models were developed by the Company with assistance and input from its touring
professionals, its component manufacturers and independent design consultants.
The Company does not have any agreements with golf club designers, but believes
that to the extent any services may be needed, designers having suitable
technical design expertise may be located. However, if the Company is unable to
retain qualified experts who may be able to devote the necessary attention
during the time required, or if the cost proves to be too high, the Company may
be unable to develop new products or improved products on a cost effective or a
timely basis. The Company's agreement with Wayne R. Wooten, the designer of the
original TearDrop putter, provides that the Company is obligated to pay Mr.
Wooten a royalty on the sales of certain models. These royalties range from
$1.00 to $3.00 per club.
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The following is a list of the seven TearDrop putters currently manufactured
and marketed by the Company:
ORIGINAL TEARDROP--The Original TearDrop was first introduced in 1993 and
was refined in 1996. The TearDrop features the roll face to eliminate skid and
produce a purer roll. It is precision milled from titanium-aluminum alloy and
has a horizontally hand-weighted and face balanced head to eliminate stubbing
and enhance control.
LADY TEARDROP--The Company's woman's club is designed and weighted
especially for women with a specifically developed lighter weighting system for
more control and a better feel for women.
TEARDROP TOUR II--The TearDrop Tour II was designed specifically in response
to input provided by certain of the Company's touring pros, and has a slightly
modified shape and less pronounced roll, for use on faster, better kept greens.
TEARDROP MALLET--The Company's mallet was designed in response to popular
demand for a wide putter, with horizontal as well as heel and toe weighting and
the Company's roll face for more stable support.
OVERSIZED TEARDROP--The Company's long putter is available in 48 inch and 52
inch lengths. This club is the club used by the Company's primary sponsor, Brett
Ogle, the winner of the Pebble Beach and Hawaiian Open Championships. The
Oversized TearDrop was remodeled in 1996, primarily as a result of Mr. Ogle's
input.
CLASSIC I AND II--The Company designed the Classic series of putters in
response to demand for a putter with more visual similarity to classic looking
putters. The Classic putter is cast from stainless steel and features
traditional heel and toe weighting and design with the Company's roll face. The
Classic II also features a semi-mallet design.
THE TEARDROP SPIN MASTER WEDGE
The TearDrop Spin Master wedge features a classic-shape stainless steel
clubhead with a coarse, abrasive titanium treated surface. The rough face
creates a greater spin, and the liquid titanium prevents the face from becoming
smooth with use. The titanium treated friction face of the Spin Master wedges
are designed to impart a backward spin on the golf ball that will help the ball
resist rolling after it hits the green. The wedges are offered in lofts of 52,
56 and 61 degrees for use as a pitching wedge, a sand wedge and a lob wedge,
respectively. Each of the wedges have a traditional shaft and grip.
SALES AND MARKETING
NATIONWIDE DISTRIBUTION NETWORK. The Company markets its clubs primarily
through sales representatives primarily to on-course golf pro shops and
specialty stores, general sporting goods stores and specialty sporting goods
stores. The Company believes that its marketing approach allows it to maintain
its high-quality reputation while at the same time generating loyalty from its
customer base. At September 30, 1996, the Company had 20 independent sales
representatives who call upon and service the needs of the on-course golf
professionals, off-course specialty store operations and sporting goods stores.
These sales representatives receive a commission on qualifying sales. All of the
sales representatives exclusively sell TearDrop putters and wedges although many
also sell apparel, bags, shoes and gloves made by other companies.
Working together with the on-course golf professionals and off-course
specialty store sales force, the independent sales representatives help
introduce and explain the various characteristics of new golf clubs, respond to
questions concerning product support, prepare customers for new product
introductions, provide liaison services to communicate delivery and special
customer needs, and obtain in-field feedback with respect to the market appeal
of the Company's and competitors' products.
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The independent sales representative network is supported by the Company's
executive officers who meet with the sales representatives, customers and
potential new customers, and by technical representatives who demonstrate the
Company's golf equipment at various customer locations. While the Company
believes that its relationships with its sales representatives and customers are
satisfactory, there can be no assurance that the Company will be able to
maintain such relationships in the future. Although the Company works closely
with its sales representatives, the Company cannot directly control such
representatives' sales and marketing activities. There can be no assurance that
these representatives will effectively manage the sale of the Company's products
or that their marketing efforts will prove effective.
CUSTOMER SERVICE AND SUPPORT. The Company believes that its relationships
with its distributors and golfing customers have contributed significantly to
its past success and should continue to enhance its prospects. The Company
supports these relationships through programs developed to select its customers
in the sale of its products.
DEMONSTRATION/LOANER PROGRAM. The Company believes that a significant
contribution to its sales effort is provided by its demonstration/loaner
program. This program generally permits each qualifying on-course golf
professional and off-course specialty store operator to purchase demonstration
clubs within the Company's product line at a discount dependent upon the number
of clubs purchased for resale. Demonstration clubs are available on the basis of
one demonstration club for each six clubs of the same model ordered. The
customer lends a "demo" set or club to the golfer for on-course trial use,
which, in management's judgment, substantially increases the probability of
purchases by the golfer who might otherwise be reluctant to purchase premium
clubs without having on-course experience with them.
INTERNATIONAL DISTRIBUTION. The Company markets its products
internationally on a limited basis through exclusive licensees and distributors.
The Company's products are sold on a non-exclusive basis through independent
distributors. International sales accounted for 21%, 30% and 41% of the
Company's gross sales in 1994, 1995 and the first nine months of 1996,
respectively. The Company intends to continue to explore opportunities to expand
its activities in international markets. To such end, the Company's distributor
in Japan produced an infomercial in Japan regarding the TearDrop putter which
the Company believes generated significant sales
PRODUCT WARRANTIES. The Company supports its golf clubs with a lifetime
quality guaranty, entitling the purchaser to return the clubs for repair or
replacement. The Company has not experienced a material level of product
warranty claims.
ADVERTISING AND PROMOTION. The Company uses various forms of media,
including print advertising campaigns, to market and promote its products. In
the United States, the Company concentrates its print advertising in golf
magazines such as Golf World and Golf Illustrated and in trade magazines such as
Golf Shop Operations. The Company has entered into an advertising agreement with
the Golf Channel which commences on January 1, 1997 and ends on December 31,
1998. Pursuant to this Agreement, the Company will broadcast commercial
advertising during, and sponsor certain television programming produced by the
Golf Channel. Following this Offering, the Company intends to begin television
advertising in support of its products and to commence the production of an
infomercial. The Company's advertising spending in the first nine months of 1996
was approximately $101,000 or 14% of net sales, compared with approximately
$139,000, or 17% of net sales, in the first nine months of 1995.
The Company believes that the endorsement of its products by touring
professional golfers is an important feature of its overall marketing effort.
Brett Ogle, an internationally recognized golf professional and 1995 Hawaiian
Open and Pebble Beach Golf Tournament Champion, heads a group of touring
professionals, including Dustin Phillips, Dino Luchesi, Dennis Zinkon and P.J.
Cowan who currently use or endorse the Company's products. Mr. Ogle's agreement
extends through December 31, 1998. Following the completion of this offering,
the Company intends to develop and institute a "Player Pool" program, under
which the Company will provide rewards on a weekly basis to professional players
who win
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tournaments using TearDrop golf clubs. With the exception of the endorsement
contract with Mr. Ogle, endorsement commitments are made on a year-to-year
basis.
ASSEMBLY
The Company assembles all of its putters for the domestic market and for
sales to selected foreign markets at its 4,000 square foot corporate
headquarters in Hilton Head Island, South Carolina. Stainless steel and titanium
aluminum clubheads are cast or forged by outside suppliers utilizing
Company-owned tooling and are inspected on-site by Company representatives.
Production personnel receive and review incoming components, such as steel
shafts and grips, most of which are supplied to the proprietary specifications
of the Company. All assembly operations, including painting, stenciling and the
application of all trade dress, are completed at the corporate headquarters,
which include finishing and warehousing facilities, from which finished clubs
are shipped. In order to maintain a high level of quality control, the Company
performs numerous visual and machine inspections at various points along the
assembly process, intended to detect any non-conforming clubs or subassemblies.
The Company relies on a limited number of suppliers for materials and
clubheads. The Company's primary putter club head manufacturer manufactures club
heads at its facilities using equipment leased by the Company and provided to
the manufacturer. Under the equipment lease, the Company has the option to
purchase the manufacturing equipment at various times during the lease. They may
also remove the equipment from the manufacturer's facilities at any time. While
management believes that alternative sources of supply either exist or could be
developed, in the event that it should lose its present sources of supply for
these materials and components, or experience delays in receiving delivery from
such sources, the Company would sustain at least temporary shortages of
materials and components, which could have a material adverse effect on the
Company's operating results.
NEW CLUB DEVELOPMENT
The Company works closely with component manufacturers, independent design
consultants and touring professionals in the development of new products and the
improvement of its existing designs. The Company relies on the input and advice
of its consulting pros to modify its putters. For example, Brett Ogle was
instrumental in designing the TearDrop Pro Model. The Company intends to form a
Professional Advisory Board consisting of touring professional golfers who will
meet at least two times a year to review design plans and comment on the
Company's expansion plans, club designs and general issues regarding the
Company.
COMPETITION
The Company competes in the premium-priced game-improvement segment of the
golf club manufacturing industry. The market for premium-priced golf clubs is
highly competitive and a number of established companies compete in this market,
many of which have greater financial and other resources than the Company. The
Company's competitors include Callaway Golf Company, Kersten Manufacturing
Corporation (Ping), Taylor-Made Golf Company, Cobra Golf Incorporated and Tommy
Armour Golf Company. The Company also competes with numerous smaller,
specialized companies that may compete effectively on a regional basis.
The golf club industry is generally characterized by rapid and widespread
imitation of popular golf club designs pioneered by new or existing competitors.
Occasionally, new market entrants may develop innovative club designs which meet
with acceptance from golf club purchasers, leading to unanticipated changes in
consumer preferences. Many purchasers of premium-priced game-improvement clubs
desire golf clubs that feature the latest technological innovations and cosmetic
designs, and their purchasing decisions are often the result of highly
subjective preferences which can be influenced by many factors, including, among
others, advertising, media and product endorsement. The Company could therefore
face substantial competition from existing or new competitors that introduce and
successfully promote golf clubs perceived to offer performance advantages and
greater aesthetic appeal. In addition, there are
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several manufacturers that do not currently compete with the Company that could
pose significant competition if they were to enter the market of premium-priced
high-quality clubs..
REGULATORY MATTERS
The design of new golf clubs is greatly influenced by rules and
interpretations of the USGA. Although the golf equipment standards established
by the USGA generally apply only to competitive events sanctioned by that
organization, it has become critical for designers of new clubs to assure
compliance with USGA standards. To the extent that the Company's clubs are ruled
ineligible by the USGA standards, professional golfers, including the Company's
paid touring professional golfers, will be unable to use the clubs and even
non-professional golfers will likely be unwilling to purchase them. The Company
believes that its putters all comply with USGA standards. However, the Company's
current wedges have not yet been submitted to the USGA for approval, and the
Company believes that further modifications will be necessary to bring the
wedges within USGA guidelines. No assurance can be given that the wedges or any
new products will receive USGA approval or that existing USGA standards will not
be altered in ways that adversely affect the sales of the Company's products.
The Company's facilities are subject to numerous federal, state and local
laws and regulations designed to protect the environment from waste emissions
and hazardous substances. The Company is also subject to the federal
Occupational Safety and Health Act and other laws and regulations affecting the
safety and health of employees in the production areas of its facilities. The
Company believes it is in compliance in all material respects with all
applicable environmental and occupational safety regulations.
EMPLOYEES
At June 30, 1996, the Company had six full-time employees engaged in
manufacturing and assembly, sales support and in management and administration.
The Company intends to use the proceeds from this Offering to expand
substantially its sales and marketing staff and retain personnel for certain
management positions, including a Chief Financial Officer and other
administrative personnel. The Company believes that additional manufacturing
personnel will be available as needed.
PROPRIETARY RIGHTS
The Company relies on a combination of patents, trademark and trade secret
protection to establish and protect the proprietary rights it has in its
products. The Company has been issued three patents relating to various aspects
of the TearDrop putter head. The Company's "TearDrop" trademark is registered
with the United States Patent and Trademark Office (the "U.S. Patent Office"),
and the U.S. Patent Office has issued a notice of allowance to the Company for
the trademark "Spin Master."
LEGAL PROCEEDINGS
The Company is not involved in any material legal proceedings.
PROPERTIES
The Company occupies 4,000 square feet of office, manufacturing and
warehouse and distribution space in Hilton Head Island, South Carolina under a
three-year lease terminating in 1998. Rental payments under the lease are $3,200
per month. The Company conducts its corporate, research and development,
assembly, warehouse and distribution activities from these facilities. Following
the offering, the Company intends to relocate its facility to or establish
additional facilities in the New York metropolitan area, where the Company
intends to expand its executive and production capabilities.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- --------------------------------------------------------------------
<S> <C> <C>
Rudy A. Slucker.................... 47 Chairman of the Board, President and Chief Executive Officer
John Zeravica...................... 51 Vice President
Charles A. Gerber.................. 42 Vice President
Fred K. Hochman.................... 50 Director
Jeffrey Baker...................... 41 Director
Leslie E. Goodman.................. 53 Director
</TABLE>
RUDY A. SLUCKER has served as Chairman of the Board, President and Chief
Executive Officer of the Company since September 1996. Mr. Slucker was the Chief
Executive Officer of the Atlas Group of Companies, Inc. ("Atlas"), which
imported and marketed hardware and consumer products, from 1978 until 1990, when
it was sold. Since 1990, Mr. Slucker has been a venture capital investor. He
currently serves on the board of directors and/or is a principal stockholder of
the following companies: Lilli Group, a knitwear manufacturer; The Sled Dogs
Company, a Nasdaq-listed manufacturer of sporting goods; Diplomat Optical, Inc.,
a manufacturer and distributor of designer brand eyeglass frames under the names
of Playskool, Jones New York, Coventry, Harve Benard and Kathy Ireland; Major
League Fitness, a chain of fitness centers associated with Major League Baseball
through a licensing agreement; and Babylon Enterprises and Beacon Concessions,
which, together, currently own and operate the Beacon Theater in Manhattan.
JOHN ZERAVICA became vice president of the Company in September 1996. From
1990 through May 1996, Mr. Zeravica served as Director of Operations for the
U.S. division of Bridgestone Sports, USA, Inc., an international manufacturer
and distribution of sporting goods. From 1983 to 1990, Mr. Zeravica served as
operating manager of Mizuno, USA, a sports product manufacturing and marketing
company.
CHARLES A. GERBER became vice president of the Company in October 1996. From
April 1994 through September 1996, Mr. Gerber served as vice president of sales
for Bobby Grace Golf Design Inc. From February 1993 to April 1994, Mr. Gerber
served as a director of sales for American Companies. From 1978 to 1992, Mr.
Gerber served as a regional sales manager for the Dial Corporation. From 1976 to
1978, Mr. Gerber served as a sales representative for W.H. Reynolds Company.
FRED K. HOCHMAN has been a director of the Company since its incorporation
and was its Chief Executive Officer from inception through April 1996. In
October 1996, Mr. Hochman became senior vice president of Orix-Commercial
Alliance Corporation, part of the Orix Corporation, a diversified services
corporation. From September 1992 through October 1996, Mr. Hochman served as
President of the finance division of Financial Federal Credit, Inc., a company
listed on the American Stock Exchange which specializes in the financing of
computer numerically controlled machine tools, which are the type of tools used
to manufacture the TearDrop putter heads. From November 1982 through August
1992, he was Chairman of Machine Tool Finance Corporation, a company he
co-founded, which is now a subsidiary of US Bancorporation.
JEFFREY BAKER has been a Director of the Company since September 1996. Since
1986, Mr. Baker has served as Senior Vice President of GoodTimes Entertainment,
where he is responsible for licensing, marketing and merchandising of video
products. Mr. Baker's prior experience includes more than twelve years of
service in various marketing and sales positions including marketing manager for
Prodigy Services, director of national account sales for RCA Video Disc,
director of video sales for Pickwick International and regional sales manager
for Data Packaging Corp.
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LESLIE E. GOODMAN has been a director of the Company since November 1996.
From January 1996 through November 1996, Mr. Goodman served as North Jersey Area
President of First Union National Bank overseeing consumer and commercial
banking in northern New Jersey. Mr. Goodman also served as a senior executive
vice president of First Union Corporation. From January 1990 through December
1995, Mr. Goodman served as a member of the Office of the Chairman of First
Fidelity Bancorporation overseeing the Community Business Bank, Corporate and
Institutional Trust. Mr. Goodman was a member of the board of directors of First
Fidelity Bancorporation from January 1990 through December 1995. Mr. Goodman
served as President of First Fidelity Bank, N.A., New Jersey from September 1990
to January 1994. From 1988 to 1990, Mr. Goodman served as chairman and chief
executive officer of Fidelity Bank, Philadelphia, a subsidiary of First Fidelity
Bancorporation. Mr. Goodman currently is a member of the board of directors of
Wawa Inc., the board of governors of the Hackensack Medical Center and the board
of trustees of Rutgers University.
DIRECTOR COMPENSATION
The Company intends to compensate directors $500 per meeting attended.
EXECUTIVE COMPENSATION
No executive officer of the Company received cash compensation in excess of
$100,000, or stock options or other long-term compensation during 1995.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Rudy A. Slucker
which commences on the consummation of this Offering and expires on December 31,
1999. Pursuant to the agreement, Mr. Slucker will serve as the Company's Chief
Executive Officer and President for an annual salary of $175,000. Mr. Slucker
will also be entitled to receive bonuses at the discretion of the Board of
Directors and in accordance with certain performance criteria. The agreement
further provides that Mr. Slucker will not engage in activities competitive with
the Company for a period of two years after the expiration of his employment
agreement. In the event that the Company terminates Mr. Slucker's employment
without cause, such provision would not apply.
The Company has also entered into an employment agreement with John
Zeravica. Pursuant to the agreement, Mr. Zeravica will serve as Vice President
of the Company for an annual salary of $100,000. The agreement with Mr. Zeravica
may be terminated either by the Company or Mr. Zeravica upon two weeks notice.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation limits the liability of directors
to the maximum extent permitted by Delaware law. The Company's By-laws provide
that the Company shall indemnify its directors and executive officers and may
indemnify its other officers, employees, agents and other agents to the fullest
extent permitted by law. The Company's By-laws also permit the Company to secure
insurance on behalf of any officer, director, employee or other agent for any
liability arising out of his or her actions in such capacity, regardless of
whether the By-laws would permit indemnification. Although the Company does not
currently maintain liability insurance for its officers and directors, the
Company's By-laws provide that the Company may purchase and maintain such
insurance.
The Company has entered into indemnification agreements with each of its
executive officers and directors.
At present, there is no pending litigation or proceeding involving any
director, officer, employee or agent of the Company where the Company currently
anticipates indemnification will be required.
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<PAGE>
AUDIT COMMITTEE
The Board of Directors has an audit committee comprised of Jeffrey Baker and
Leslie E. Goodman. The Audit Committee reviews the results and scope of the
audit and other services provided by the Company's independent accountants and
all transactions between the Company and any of its officers, directors or
principal stockholders.
STOCK OPTION PLANS
On October 18, 1996, the Board of Directors and the stockholders of the
Company adopted the 1996 Employee Stock Option Plan ("Plan") and reserved
200,000 shares of Common Stock for issuance thereunder. The Plan provides for
the granting to employees (including employees who are also directors and
officers) of options intended to qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended
("Code"), and for the granting of nonstatutory stock options to employees and
consultants. The Plan is currently administered by the entire Board of Directors
of the Company.
The exercise price per share of incentive stock options granted under the
Plan must be at least equal to the fair market value of the Common Stock on the
date of grant. In addition, in accordance with the Underwriting Agreement
relating to this Offering, the Company has agreed not to grant any options under
the Plan with an exercise price per share less than the initial public offering
price of the Common Stock. With respect to any participant who owns shares
representing more than 10% of the voting power of all classes of the Company's
outstanding capital stock, the exercise price of any incentive or nonstatutory
stock option must be equal to at least 110% of the fair market value on the
grant date, and the maximum term of the option must not exceed five years. The
terms of all other options granted under the Plan may not exceed ten years. Upon
a merger of the Company, the options outstanding under the Plan will terminate
unless assumed or substituted by the successor corporation. To date, no options
have been granted under the Plan.
OTHER OPTIONS
On October 21, 1996, the Company granted five-year options (outside of the
Plan) to acquire 250,000 shares of Common Stock for $4.75 per share to Rudy A.
Slucker, the Chairman of the Board and Chief Executive Officer of the Company.
In addition, the Company may grant five-year options to purchase up to an
aggregate of 250,000 shares of Common Stock for $4.75 per share to touring golf
professionals who perform consulting and promotional services for the Company.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the capital stock of the Company as of the date of this
Prospectus for (i) each person who is known by the Company to beneficially own
more than 5% of the capital stock, (ii) each of the Company's directors, and
(iii) all directors and executive officers as a group. The Company believes that
each of the beneficial owners of the Common Stock listed in the table, based on
information furnished by such owner, has sole investment and voting power with
respect to such shares.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE
BENEFICIALLY ----------------------------------
NAME OWNED BEFORE OFFERING AFTER OFFERING
- --------------------------------------------------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Rudy A. Slucker (1)............................................ 730,000 73.0% 34.0%
Fred K. Hochman(2)............................................. 153,000 20.4% 8.1%
Frank Grace.................................................... 50,000 6.7% 2.6%
518 Route 513
Caliphon, New Jersey 07830
Richard Rizzuto................................................ 41,667 5.6% 2.2%
518 Route 513
Caliphon, New Jersey 07830
Jeffrey Baker.................................................. -0- -- --
Leslie E. Goodman.............................................. -0- -- --
All directors and executive officers as a group
(6 persons).................................................. 883,000 88.3% 41.1%
</TABLE>
- ------------------------
(1) Includes (i) 250,000 shares subject to options exercisable at $4.75 per
share and (ii) an aggregate of 75,000 shares of Common Stock owned by the
children and wife of Mr. Slucker.
(2) Mr. Hochman has pledged his shares to NationsBank to secure the Company's
indebtedness of $300,000 plus interest. See "Certain Transactions."
CERTAIN TRANSACTIONS
The Company was initially capitalized in October 1992 through the sale of
333,333 shares of its Common Stock for $.01 per share, including 133,333 shares
purchased by Fred K. Hochman, 133,333 shares purchased by Wayne R. Wooten, and
50,000 shares purchased by Frank Grace, each of whom was a director and/or
officer of the Company. On March 13, 1994, Messrs. Hochman and Wooten each sold
16,667 shares of Common Stock to Richard Rizzuto, then a director of the
Company.
On July 27, 1994, the Company entered into a Consulting and Non-Competition
Agreement with Mr. Wooten providing for payments by the Company in the form of
royalties on the sale of certain putters through July 26, 1996. An aggregate of
$33,070 was paid through such date to Mr. Wooten under the Agreement. At such
time, Mr. Hochman purchased from Mr. Wooten 116,666 shares of Common Stock of
the Company for approximately $75,000. In addition, Mr. Wooten resigned as an
officer and director of the Company.
In November 1994, the Company borrowed $300,000 from NationsBank. Mr.
Hochman provided a personal guarantee for the loan. In addition, the Company
guaranteed a personal loan of $100,000 from NationsBank to Mr. Hochman, which
guarantee was released in October 1996. Mr. Hochman has pledged all of his
shares of Common Stock of the Company to secure his personal indebtedness.
On December 31, 1994, Mr. Hochman transferred 50,000 shares of Common Stock
to Rudy A. Slucker in consideration of $1.00 and the agreement to loan the
Company $140,000 at an interest rate of 8% per annum and payable over a
three-year term. On October 1, 1995, Mr. Slucker purchased 66,666
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<PAGE>
shares from Mr. Hochman for $1.00 and Mr. Slucker's agreement to loan additional
sums to the Company, to the extent necessary.
In April 1996, in consideration of Mr. Slucker's agreement to loan the
Company up to $300,000, and to guarantee the NationsBank loan, Mr. Slucker was
issued 416,666 shares of Common Stock. In April 1996, Mr. Slucker sold 53,000
shares of Common Stock to Mr. Hochman for $80,000, represented by a promissory
note due April 1, 1998.
From time to time, the Company has borrowed funds from its officers,
directors and stockholders. Since the inception of the Company in August 1992,
the Company has borrowed the following amounts (inclusive of accrued interest
through September 30, 1996) from officers, directors and beneficial owners of 5%
or more of the Company's Securities: $742,276 from Rudy A. Slucker, $406,348
from Fred Hochman, $257,188 from Richard Rizzuto, $44,192 from John Schubert and
$263,856 from Frank Grace. Pursuant to an agreement dated as of October 18,
1996, $400,000 of debt owed by the Company to Mr. Slucker will be extended and
paid with interest from and after the consummation of this Offering at the rate
of 8% per annum until three years after the consummation of the Offering, except
that the Company may prepay such amounts from net proceeds received from the
exercise of the Warrants. In addition, an additional aggregate amount of
$100,000 of debt owed by the Company to Messrs. Slucker, Hochman, Rizzuto,
Schubert and Grace will be extended and paid with interest from and after the
consummation of this Offering at 8% per annum until two years after the
consummation of the Offering, except that the Company may prepay such amounts
from net proceeds received from the exercise by the Underwriter of its
over-allotment option. The balance of $171,742, $376,348, $244,688, $41,692 and
$248,856, plus interest will be forgiven by Messrs. Slucker, Hochman, Rizzuto,
Schubert and Grace upon the consummation of this Offering.
From August 1, 1996 through November 15, 1996, Mr. Slucker advanced an
additional $307,000 to the Company for its business operations. The Company has
agreed to repay the amounts advanced by Mr. Slucker through November 15, 1996
and any additional amounts loaned through the date of this Prospectus (which
amount will not exceed $400,000 in the aggregate), with interest at 8% per annum
payable at maturity no earlier than two years from the date of this Prospectus,
except that the Company may prepay such amounts from net proceeds received from
the exercise by the Underwriter of its over-allotment option. See "Management's
Discussion and Analysis of Financial Condition and Plan of Operations--
Liquidity and Capital Resources."
All ongoing and any future transactions with affiliates of the Company, if
any, will be on terms believed by the Company to be no less favorable than are
available from unaffiliated third parties and will be approved by a majority of
disinterested directors.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company is 11,000,000, consisting of
10,000,000 shares of Common Stock, $.01 par value and 1,000,000 shares of
Preferred Stock, $.01 par value. As of the date of this Prospectus, 750,000
shares of Common Stock are outstanding and held of record by five stockholders.
Upon the completion of this Offering there will be 1,900,000 shares of Common
Stock outstanding (2,072,500 if the Underwriter's over-allotment option is
exercised in full).
PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
1,000,000 shares of Preferred Stock without further stockholder appoval. The
Preferred Stock may be divided into such classes or series as the Board of
Directors may determine by resolution. The Board of Directors is authorized to
determine and alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock and to fix the
number of shares of any series of Preferred Stock and the
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<PAGE>
designation of any such series of Preferred Stock. Currently no Preferred Stock
is outstanding, and the Board of Directors has no current plans to issue any
such shares.
COMMON STOCK
The holders of shares of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of stockholders. Subject
to preferences that may be applicable to any outstanding shares of preferred
stock, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available for the payment of dividends. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, subject to the
liquidation preferences of preferred stock, the holders of Common Stock are
entitled to receive any declared and unpaid dividends, in addition to being
entitled to share ratably in all assets remaining after payment of liabilities
and liquidation preferences of any then outstanding shares of preferred stock.
Holders of Common Stock have no preemptive rights or rights to convert their
Common Stock into any other securities. There are no redemption or sinking fund
provisions applicable to the Common Stock.
All outstanding shares of Common Stock have been duly authorized and validly
issued and are fully paid and non-assessable, and the shares of Common Stock
issued upon completion of this Offering have been duly authorized and, when
issued, will be fully paid and nonassessable.
WARRANTS
Each Warrant will entitle the registered holder to purchase one share of the
Company's Common Stock at an exercise price of $4.00 per share for five years
from the date of this Prospectus. No fractional shares of Common Stock will be
issued in connection with the exercise of Warrants. Upon exercise, the Company
will pay the holder the value of any such fractional shares in cash, based upon
the market value of the Common Stock at such time.
Unless extended by the Company at its discretion, the Warrants will expire
at 5:00 p.m., New York time, on the fifth anniversary of the date of this
Prospectus. In the event a holder of Warrants fails to exercise the Warrants
prior to their expiration, the Warrants will expire and the holder thereof will
have no further rights with respect to the Warrants.
The Company may, with the consent of the Underwriter, redeem not less than
all of the outstanding Warrants at a price of $.01 per Warrant upon not less
than 30 days' prior written notice if the last sale price of the Common Stock
has been at least 162.5% of the then-exercise price of the Warrants (initially
$6.50) for the 20 consecutive trading days ending on the third day prior to the
date on which the notice is given.
No Warrants will be exercisable unless at the time of exercise there is a
current prospectus covering the shares of Common Stock issuable upon exercise of
such Warrants under an effective registration statement filed with the
Commission and such shares have been qualified for sale or are exempt from
qualification under the securities laws of the state or residence of the holder
of such Warrants. Although the Company intends to have all shares so qualified
for sale in those states where the Securities are being offered and to maintain
a current prospectus relating thereto until the expiration of the Warrants,
subject to the terms of the Warrant Agreement, there can be no assurance that
the Company will be able to do so.
A holder of Warrants will not have any rights, privileges or liabilities as
a stockholder of the Company prior to the exercise of the Warrants. The Company
is required to keep available a sufficient number of authorized shares of Common
Stock to permit exercise of the Warrants.
The exercise price of the Warrants and the number of shares issuable upon
exercise of the Warrants will be subject to adjustment to protect against
dilution in the event of stock dividends, stock splits, combinations,
subdivisions and reclassifications. No assurance can be given that the market
price of the
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<PAGE>
Company's Common Stock will exceed the exercise price of the Warrants at any
time during the exercise period.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's securities is Continental
Stock Transfer & Trust Company, New York, New York.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding
1,900,000 shares of Common Stock, not including shares of Common Stock issuable
upon exercise of outstanding options, warrants and assuming no exercise of the
over-allotment option granted to the Underwriters.
Of these outstanding shares, the 1,150,000 shares of Common Stock sold to
the public in this Offering may be freely traded without restriction or further
registration under the Securities Act of 1993, as amended (the "Securities
Act"), except that any shares that may be held by an "affiliate" of the Company
(as that term is defined in the rules and regulations under the Securities Act)
may be sold only pursuant to a registration under the Securities Act or pursuant
to an exemption from registration under the Securities Act, including the
exemption provided by Rule 144 adopted under the Securities Act.
The 750,000 shares of Common Stock outstanding prior to this Offering are
"restricted securities" as that term is defined in Rule 144 under the Securities
Act and may not be sold unless such sale is registered under the Securities Act
or is made pursuant to an exemption from registration under the Securities Act,
including the exemption provided by Rule 144. Of such shares, approximately
333,000 may be sold under Rule 144 within 12 months of the date of this
Prospectus and the remaining shares may be sold within 24 months of the date of
this Prospectus; however, all the stockholders of the Company have agreed that
for a period of 24 months from the date of this Prospectus, they will not sell
any of their securities without the prior consent of the Underwriter.
The shares of Common Stock issuable upon exercise of options outstanding as
of the date hereof are subject to lock-up provisions that prevent their resale
for a period of two years following the date of this Prospectus. See
"Management--Other Options."
In general, under Rule 144 as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned any
Restricted Securities for at least two years (including a stockholder who may be
deemed to be an affiliate of the Company), will be entitled to sell, within any
three-month period, that number of shares that does not exceed the greater of
(i) 1% of the then outstanding shares of Common Stock or (ii) the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
date on which such notice of such sale is given to the Securities and Exchange
Commission (the "Commission"), provided certain public information, manner of
sale and notice requirements are satisfied. A stockholder who is deemed to be an
affiliate of the Company, including members of the Board of Directors and senior
management of the Company, will still need to comply with the restrictions and
requirements of Rule 144, other than the two-year holding period requirement, in
order to sell shares of Common Stock that are not Restricted Securities, unless
such sale is registered under the Securities Act. A stockholder (or stockholders
who shares are aggregated) who is deemed not to have been an affiliate of the
Company at any time during the 90 days preceding a sale by such stockholder, and
who has beneficially owned Restricted Securities for at least three years, will
be entitled to sell such shares under Rule 144 without regard to the volume
limitations described above.
The Company is unable to estimate the number of shares that may be sold in
the future by its existing stockholders or in the effect, if any, that sales of
shares by such stockholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
existing stockholders could adversely affect prevailing market prices.
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<PAGE>
UNDERWRITING
GKN Securities Corp. ("Underwriter") has agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company a total
of 1,150,000 shares of Common Stock and 1,150,000 Warrants.
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to approval of certain legal matters by counsel and various other
conditions precedent, and that the Underwriter is obligated to purchase all of
the Securities offered by this Prospectus (other than the Securities covered by
the over-allotment option described below), if any are purchased.
The Underwriter has advised the Company that the Underwriter proposes to
offer the Securities to the public at the initial offering prices set forth on
the cover page of this Prospectus and to certain dealers at that price less a
concession not in excess of $ per share of Common Stock and $. per
Warrant. The Underwriter may allow, and such dealers may re-allow, a concession
not in excess of $ per share of Common Stock and $. per Warrant to
certain other dealers. After this Offering, the offering price and other selling
terms may be changed by the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
agreed to pay to the Underwriter an expense allowance on a nonaccountable basis
equal to 3% of the gross proceeds derived from the sale of the Securities
underwritten (including the sale of any Securities subject to the Underwriter's
over-allotment option), $50,000 of which has been paid to date. The Company also
has agreed to pay all expenses in connection with qualifying the Securities
offered hereby for sale under the laws of such states as the Underwriter may
designate, and for obtaining the clearance of this Offering with the National
Association of Securities Dealers, Inc., including fees and expenses of counsel
retained for such purposes by the Underwriter. The Company has agreed to retain
the Underwriter to act as a financial consultant for a two-year period
commencing on the date of this Prospectus at an annual fee of $30,000 per year,
payable in advance at the closing of this Offering.
The Company has granted to the Underwriter an option to purchase up to an
aggregate of 172,500 additional shares of Common Stock and/or 172,500 additional
Warrants at the offering price, less underwriting discounts and the
nonaccountable expense allowance, for the sole purpose of covering over-
allotments, if any.
The Company has engaged the Underwriter, on a non-exclusive basis, as its
agent for the solicitation of the exercise of the Warrants. To the extent not
inconsistent with the guidelines of the NASD and the rules and regulations of
the Commission, the Company has agreed to pay the Underwriter for bona fide
services rendered a commission equal to 5% of the exercise price for each
Warrant exercised after one year from the date of this Prospectus if the
exercise was solicited by the Underwriter. In addition to soliciting, either
orally or in writing, the exercise of the Warrants, such services may also
include disseminating information, either orally or in writing, to warrant
holders about the Company or the market for the Company's securities, and
assisting in the processing of the exercise of Warrants. No compensation will be
paid to the Underwriter in connection with the exercise of the Warrants if the
market price of the underlying shares of Common Stock is lower than the exercise
price, the Warrants are held in a discretionary account, the Warrants are
exercised in an unsolicited transaction, the warrantholder has not confirmed in
writing that the Underwriter solicited such exercise or the arrangement to pay
the commission is not disclosed in the prospectus provided to warrantholders at
the time of exercise. In addition, unless granted an exemption by the Commission
from Rule 10b-6 under the Exchange Act, while it is soliciting exercise of the
Warrants, the Underwriter will be prohibited from engaging in any market
activities or solicited brokerage activities with regard to the Company's
securities unless the Underwriter has waived its right to receive a fee for the
exercise of the Warrants.
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<PAGE>
In connection with this Offering, the Company has agreed to sell to the
Underwriter and its designees, for an aggregate of $100, the Underwriter's
Purchase Option to purchase up to an aggregate of 115,000 shares of Common Stock
and/or 115,000 Warrants. The Underwriter's Purchase Option is exercisable at a
price equal to % of the initial offering price of the securities for a period
of four years commencing one year from the date of this Prospectus. The
securities purchasable upon exercise of the Underwriter's Purchase Option are
identical to those offered hereby. The Underwriter's Purchase Option grants to
the holder thereof certain "piggyback" rights and one demand right for a period
of seven and five years, respectively, from the date of this Prospectus with
respect to the registration under the Securities Act of the securities directly
and indirectly issuable upon exercise of the Underwriter's Purchase Option. The
Underwriter's Purchase Option cannot be transferred, sold, assigned or
hypothecated during the one-year period following the date of this Prospectus,
except to officers of the Underwriter and to selected dealers and their officers
or partners.
Prior to this Offering, there has been no public market for any of the
Company's securities. Accordingly, the offering price of the Securities and the
terms of the Warrants have been determined by negotiation between the Company
and the Underwriter and do not necessarily bear any relating to established
valuation criteria. Factors considered in determining such prices and terms, in
addition to prevailing market conditions, included an assessment of the
prospects for the industry in which the Company will compete, the Company's
management and the Company's capital structure.
Pursuant to the Underwriting Agreement, all of the holders of the
outstanding Common Stock of the Company prior to this Offering have agreed not
to sell any of their shares of Common Stock for a period of two years from the
date of this Prospectus without the prior written consent of the Underwriter. In
addition, the Underwriting Agreement provides that, for a period of five years
from the date of this Prospectus, the Company will permit the Underwriter to
designate one person to the Board of Directors, or alternatively, to send a
representative to observe meetings of the Board of Directors. Such
representative will not be a member of the Board of Directors and will not be
entitled to vote on any matters before the Board. The Underwriter has not yet
selected a designee or representative.
LEGAL MATTERS
Certain matters with respect to the legality of the issuance of the
Securities offered hereby will be passed upon for the Company by Crummy, Del
Deo, Dolan, Griffinger & Vecchione, a Professional Corporation, Newark, New
Jersey. Graubard Mollen & Miller, New York, New York, has served as counsel to
the Underwriter in connection with this Offering.
EXPERTS
The financial statements and schedules of TearDrop Golf Company at December
31, 1994 and 1995 appearing in this Prospectus and the Registration Statement
have been audited by Rothstein, Kass & Company, P.C., independent auditors, as
set forth in their report thereon (which contains an explanatory paragraph which
raises substantial doubt about the Company's ability to continue as a going
concern) appearing elsewhere herein and in the Registration Statement, and are
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement with
respect to the Securities offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits
thereto, having been omitted from this Prospectus in accordance with the rules
and regulations of the Commission. For further information with respect to the
Company, the securities offered by this Prospectus and such omitted information,
reference is made to the Registration Statement,
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<PAGE>
including any and all exhibits and amendments thereto. Statements contained in
this Prospectus concerning the provisions of any document filed as an exhibit
are of necessity brief descriptions thereof and are not necessarily complete,
and in each instance reference is made to the copy of the document filed as an
exhibit to the Registration Statement, each such statement being qualified in
its entirety by this reference.
Following the effectiveness of the Registration Statement, the Company will
be subject to the informational requirements of the Exchange Act of 1934 and in
accordance therewith the Company will file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at public reference facilities of the
Commission at 450 Fifth Street, N.W., Washington D.C. 20549; Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661; and 7
World Trade Center, New York, New York 10048. Copies of such material, including
the Registration Statement, can be obtained from the Public Reference Section of
the Commission, 450 Fifth Street, N.W., Washington D.C. 20549, at prescribed
rates. The Commission maintains a Web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited and reported on by its independent public
accounting firm and such other periodic reports as the Company may determine to
be appropriate or as may be required by law.
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TEARDROP GOLF COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report..................................................... F-2
Financial Statements
Balance Sheets................................................................. F-3
Statements of Operations....................................................... F-4
Statements of Stockholders' Deficit............................................ F-5
Statements of Cash Flows....................................................... F-6
Notes to Financial Statements.................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
TearDrop Golf Company
We have audited the accompanying balance sheet of TearDrop Golf Company as
of December 31, 1995, and the related statements of operations, stockholders'
deficit and cash flows for the years ended December 31, 1995 and 1994. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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 TearDrop Golf Company as of
December 31, 1995, and the results of its operations and its cash flows for the
years ended December 31, 1995 and 1994 in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 12 to the
financial statements, the Company has, since inception, an accumulated loss from
operations, which raises substantial doubt about its ability to continue as a
going concern. Management's plan in regard to these matters are also described
in Note 12. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ROTHSTEIN, KASS & COMPANY, P.C.
Roseland, New Jersey
September 28, 1996, except for Note 13
as to which the date is October 21, 1996
F-2
<PAGE>
TEARDROP GOLF COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
SEPTEMBER 30,
SEPTEMBER 30, 1996 DECEMBER 31,
1996 (NOTE 2) 1995
------------- ------------- ------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
ASSETS
Current assets:
Cash...................................................................... $ 4,079 $ 4,079 $ 15,868
Accounts receivable, less allowance for doubtful accounts of $17,000 in
1996 and 1995........................................................... 268,242 268,242 79,497
Inventories............................................................... 101,064 101,064 121,035
Prepaid expenses and other current assets................................. 73,167 73,167 13,333
------------- ------------- ------------
Total current assets.................................................. 446,552 446,552 229,733
Property and equipment, less accumulated depreciation and amortization...... 166,624 166,624 184,927
Other assets, intangible assets, less accumulated amortization.............. 30,644 30,644 33,635
------------- ------------- ------------
$ 643,820 $ 643,820 $ 448,295
------------- ------------- ------------
------------- ------------- ------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable.......................................................... $ 240,884 $ 240,884 $ 230,284
Notes payable............................................................. 300,000 300,000 300,000
Obligation under capital lease............................................ 15,101 15,101 15,226
Other current liabilities................................................. 50,864 50,864 15,824
------------- ------------- ------------
Total current liabilities............................................. 606,849 606,849 561,334
------------- ------------- ------------
Obligation under capital lease, less current portion........................ 64,172 64,172 76,629
------------- ------------- ------------
Stockholders' loans (Note 8 and 13)......................................... 1,713,860 630,534 1,178,588
------------- ------------- ------------
Commitments and contingencies
(Notes 10 and 11)
Stockholders' deficit:
Common stock, $1 par value in 1996 and 1995, authorized 100,000 shares,
issued and outstanding 225 shares in 1996 and 100 shares in 1995........ 225 100
Pro forma--preferred stock, $.01 par value, authorized 1,000,000 shares,
issued and outstanding none (Note 2)....................................
Pro forma--common stock, $.01 par value, authorized 10,000,000 shares,
issued and outstanding 750,000 shares (Note 2).......................... 7,500
Capital in excess of par value (Note 2)................................... 1,076,051
Accumulated deficit....................................................... (1,741,286) (1,741,286) (1,368,356)
------------- ------------- ------------
Total stockholders' deficit............................................... (1,741,061) (657,735) (1,368,256)
------------- ------------- ------------
$ 643,820 $ 643,820 $ 448,295
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-3
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------ YEARS ENDED DECEMBER 31,
-------------------------
1996 1995 1995 1994
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Sales....................................................... $ 715,495 $ 820,746 $ 1,057,306 $ 784,519
Cost of sales............................................... 299,521 390,396 549,305 446,057
----------- ----------- ------------ -----------
Gross profit................................................ 415,974 430,350 508,001 338,462
Selling, general and administrative expenses................ 667,759 644,952 942,638 782,115
----------- ----------- ------------ -----------
Loss from operations........................................ (251,785) (214,602) (434,637) (443,653)
Interest expense............................................ 121,145 78,533 107,788 108,391
----------- ----------- ------------ -----------
Net loss.................................................... $ (372,930) $ (293,135) $ (542,425) $(552,044)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Loss per common share....................................... $ (.50) $ (.39) $ (.72) $ (.74)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Weighted average number of common shares outstanding........ 750,000 750,000 750,000 750,000
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-4
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
------------------------ ACCUMULATED
SHARES AMOUNT DEFICIT
----------- ----------- -------------
<S> <C> <C> <C>
Balances, January 1, 1994....................................................... 100 $ 100 $ (273,887)
Net loss........................................................................ (552,044)
--- ----- -------------
Balances, December 31, 1994..................................................... 100 100 (825,931)
Net loss........................................................................ (542,425)
--- ----- -------------
Balances, December 31, 1995..................................................... 100 100 (1,368,356)
Common stock issued for services (UNAUDITED).................................... 125 125
Net loss (UNAUDITED)............................................................ (372,930)
--- ----- -------------
Balances, September 30, 1996 (UNAUDITED)........................................ 225 $ 225 $ (1,741,286)
--- ----- -------------
--- ----- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-5
<PAGE>
TEARDROP GOLF COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEARS ENDED DECEMBER
SEPTEMBER 30, 31,
------------------------ --------------------
1996 1995 1995 1994
----------- ----------- --------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss....................................... $(372,930) $(293,135) $(542,425) $(552,044)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.............. 26,368 14,761 19,682 18,684
Provision for doubtful accounts............ 3,795 7,355 4,317 27,276
Accrued interest on stockholders' loans.... 74,147 49,122 75,420 83,876
Loss on abandoned assets................... 74,443
Common stock issued for services........... 125
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable............................. (192,540) 10,234 29,297 (77,214)
(Increase) decrease in inventories....... 19,971 (34,387) (93,679) 67,321
(Increase) decrease in prepaid expenses
and other current assets............... (59,834) 1,355 (5,581) 37,964
Increase in accounts payable............. 10,600 30,111 79,678 16,783
Increase in other current liabilities.... 35,040 1,907 7,841 3,811
----------- ----------- --------- ---------
Net cash used in operating
activities..................... (455,258) (212,677) (351,007) (373,543)
----------- ----------- --------- ---------
Cash flows from investing activities:
Purchase of property and equipment............. (5,074) (19,140) (29,479) (7,061)
Payments for patents and trademarks............ (18,786)
----------- ----------- --------- ---------
Net cash used in investing
activities..................... (5,074) (19,140) (29,479) (25,847)
----------- ----------- --------- ---------
Cash flows from financing activities:
Payments on capital lease obligations.......... (12,582) (1,202)
Proceeds from notes payable.................... 8,750 8,750 207,250
Loans from stockholders........................ 461,125 225,375 380,577 192,873
----------- ----------- --------- ---------
Net cash provided by financing
activities..................... 448,543 234,125 388,125 400,123
----------- ----------- --------- ---------
Net increase (decrease) in
cash........................... (11,789) 2,308 7,639 733
Cash, beginning of period........................ 15,868 8,229 8,229 7,496
----------- ----------- --------- ---------
Cash, end of period.............................. $ 4,079 $ 10,537 $ 15,868 $ 8,229
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Supplemental disclosure of cash flow information:
Cash paid during the periods for interest...... $ 28,498 $ 27,584 $ 32,626 $ 22,901
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Supplemental schedules of noncash investing and
financing activities:
Capital lease obligation incurred for lease
of new equipment........................... $ -- $ -- $ 93,057 $ --
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Costs of equipment included in accounts
payable.................................... $ -- $ -- $ 37,000 $ --
----------- ----------- --------- ---------
----------- ----------- --------- ---------
Cost of equipment included in stockholders'
loans...................................... $ -- $ -- $ 18,500 $ --
----------- ----------- --------- ---------
----------- ----------- --------- ---------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
F-6
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND NATURE OF OPERATIONS
The Teardrop Putter Corporation ("TPC") was formed as a South Carolina
corporation in 1992 and subsequently merged with the Teardrop Golf Company, (the
"Company) a Delaware corporation, (SEE NOTE 13). The Company manufactures and
markets golf putters and wedges within and outside the United States. The
Company intends to relocate its production and executive facilities to or
establish additional facilities in the New York metropolitan area.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES--Inventories are stated at cost on a first-in, first-out basis,
which does not exceed market value.
PROPERTY AND EQUIPMENT--Property and equipment is stated at cost less
accumulated depreciation and amortization. The Company provides for depreciation
and amortization as follows:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
ASSET LIVES PRINCIPAL METHOD
- ---------------------------------------------------------- ----------- --------------------
<S> <C> <C>
Office furniture and equipment............................ 5 Years Declining-balance
Machinery and equipment................................... 10 Years Declining-balance
</TABLE>
INTANGIBLE ASSETS--Patents and trademarks relate to costs associated with
obtaining patents and trademarks within and outside the United States. These
costs are amortized on a straight-line basis over 17 years.
Organization costs relate to costs associated with the formation of TPC.
These costs are amortized on a straight-line basis over 5 years.
INCOME TAXES--TPC is an "S" corporation and, as a result, the earnings and
losses have been included in the personal income tax returns of the respective
stockholders. Upon completion of the proposed public offering, the "S" election
will be terminated.
The Company complies with Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes," which requires an asset and liability
approach to financial reporting of income taxes. Deferred income tax assets and
liabilities are computed for differences between financial statement and tax
bases of assets and liabilities that will result in taxable or deductible
amounts in the future, based on enacted tax laws and rates applicable to the
periods in which the differences are expected to effect taxable income.
Valuation allowances are established, when necessary, to reduce the deferred
income tax assets to the amount expected to be realized.
LOSS PER COMMON SHARE--Loss per common share is computed based on net loss
applicable to common stockholders divided by the weighted average number of
common shares outstanding, after giving effect to the merger (SEE NOTE 13).
The weighted average includes shares issued within one year of the Company's
proposed initial public offering (IPO) with an issue price less than the IPO
price.
IMPAIRMENT OF LONG-LIVED ASSETS--The Company periodically assesses the
recoverability of the carrying amounts of long-lived assets, including
intangible assets. A loss is recognized when expected undiscounted future cash
flows are less than the carrying amount of the asset. The impairment loss is the
difference by which the carrying amount of the asset exceeds its fair value.
F-7
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The fair value of the Company's assets
and liabilities which qualify as financial instruments under SFAS No. 107
approximate the carrying amounts presented in the balance sheet. It is not
practicable to estimate the fair value of amounts due to stockholders.
UNAUDITED FINANCIAL STATEMENTS--The unaudited financial statements, in the
opinion of management, include all adjustments of a normal and recurring nature,
which are necessary for a fair presentation. The results of operations for the
nine months ended September 30, 1996 and 1995 are not necessarily indicative of
the results expected for the full year.
PRO FORMA--The pro forma amounts shown in the financial statements reflect
the anticipated capitalization of stockholder loans (and accrued interest) as a
contribution to capital in excess of par value upon the effective date of the
Registration Statement relating to the IPO, and after giving effect to the
merger (SEE NOTE 13).
NOTE 3--INVENTORIES
Inventories comprised the following at September 30, 1996 (UNAUDITED) and
December 31, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
(UNAUDITED)
Raw materials................................................... $ 28,593 $ 111,073
Finished goods.................................................. 72,471 9,962
------------- ------------
$ 101,064 $ 121,035
------------- ------------
------------- ------------
</TABLE>
NOTE 4--PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30, 1996
(UNAUDITED) and December 31, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
(UNAUDITED)
Office furniture and equipment.................................. $ 33,063 $ 29,489
Machinery and equipment......................................... 174,547 173,047
------------- ------------
207,610 202,536
Accumulated depreciation and amortization (includes $9,974 for
the nine months ended September 30, 1996 (UNAUDITED) under a
capital lease)................................................ 40,986 17,609
------------- ------------
$ 166,624 $ 184,927
------------- ------------
------------- ------------
</TABLE>
F-8
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--INTANGIBLE ASSETS
Intangible assets consist of the following at September 30, 1996 (UNAUDITED)
and December 31, 1995:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
(UNAUDITED)
Patents and trademarks.......................................... $ 33,786 $ 33,786
Organization costs.............................................. 10,000 10,000
------------- ------------
43,786 43,786
Accumulated amortization........................................ 13,142 10,151
------------- ------------
$ 30,644 $ 33,635
------------- ------------
------------- ------------
</TABLE>
Amortization for the years ended December 31, 1995 and 1994 was $3,987 and
$3,435, respectively, and $2,991 for the nine months ended September 30, 1996
and 1995 (UNAUDITED).
NOTE 6--NOTES PAYABLE
Notes payable consist of two lines of credit under which the Company can
borrow up to $300,000 and bear interest at 1% over the prime lending rate (9.5%
at December 31, 1995 and 9.25% at September 30, 1996 (UNAUDITED)). The lines of
credit are collateralized by a security interest in all assets of the Company
and are guaranteed by a stockholder. These notes became due on March 15, 1996
(SEE NOTE 13).
NOTE 7--OBLIGATION UNDER CAPITAL LEASE
Machinery and equipment includes a milling machine stated at $93,057
recorded under a capital lease which was acquired in December 1995.
Aggregate future lease payments at September 30, 1996 (UNAUDITED) and
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
-------------- -------------
<S> <C> <C>
Years ending
1996........................................................... $ -- $ 23,726
1997........................................................... 23,726 23,726
1998........................................................... 23,726 23,726
1999........................................................... 23,726 23,726
2000........................................................... 23,726 21,749
2001........................................................... 1,977
------- -------------
Total future lease payments.................................... 96,881 116,653
Less amount representing interest.............................. 17,608 24,798
------- -------------
Present value of future minimum lease payments................. 79,273 91,855
Less current portion........................................... 15,101 15,226
------- -------------
Long-term portion.............................................. $ 64,172 $ 76,629
------- -------------
------- -------------
</TABLE>
F-9
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--RELATED PARTY TRANSACTIONS
Stockholders' loans represent cash advances with no stated repayment date.
The loans bear interest at 9% per annum (SEE NOTE 13).
In August 1996, the Company issued a note to the Company's Chief Executive
Officer (CEO) up to a maximum of $300,000 which bears interest at 8% per annum
and is due on the earlier of two years following the effective date the
Company's Registration Statement relating to the IPO, or July 31, 1997 if the
effective date has not yet occurred (SEE NOTE 13). At September 30, 1996
(UNAUDITED), stockholders' loans includes $130,000 under this note.
The Company is a guarantor of a stockholder's personal loan of $100,000.
NOTE 9--PROPOSED PUBLIC OFFERING
In August 1996, the Company signed a letter of intent with an investment
banking firm for the purpose of underwriting an IPO.
NOTE 10--ECONOMIC DEPENDENCY
During the year ended December 31, 1995, the Company derived revenues of
approximately $256,000 from one customer. During the nine months ended September
30, 1996 (UNAUDITED), the Company derived revenues of approximately $179,000
from two customers.
During the years ended December 31, 1995 and 1994, the Company purchased
approximately $389,000 and $165,000 of its inventory from three and two
suppliers, respectively. During the nine months ended September 30, 1996 and
1995 (UNAUDITED), the Company purchased approximately $132,000 and $165,000 of
its inventory from two and one suppliers, respectively.
NOTE 11--COMMITMENTS AND CONTINGENCIES
In July 1994, the Company entered into a consulting and non-competitive
agreement with a former stockholder of the Company, which provided for payments
by the Company in the form of royalties on the sale of certain putters through
July 1996. In addition, the former stockholder will receive $5,000 for each
major golfing event or tournament (as defined in the agreement) won by a player
using a TearDrop Putter. This agreement is personally guaranteed by one of the
Company's stockholders. The Company paid royalties under this agreement of
$21,652 and $1,445 in the years ended December 31, 1995 and 1994, respectively,
and $9,973 and $14,712 in the nine months ended September 30, 1996 and 1995
(UNAUDITED), respectively.
The Company rents its current office and assembly facilities under a lease
which expires on November 30, 1998. The lease requires that rent be adjusted
annually for cost of living increases.
Future aggregate minimum rental payments are as follows:
<TABLE>
<S> <C>
Years ending December 31:
1996.............................................................. $ 38,400
1997.............................................................. 38,400
1998.............................................................. 35,200
---------
$ 112,000
---------
---------
</TABLE>
F-10
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 11--COMMITMENTS AND CONTINGENCIES (CONTINUED):
Rent expense approximated $27,000 and $19,400 in the years ended December
31, 1995 and 1994, respectively, and $33,600 and $18,400 in the nine months
ended September 30, 1996 and 1995 (UNAUDITED), respectively.
On June 26, 1996, the Company entered into an employment agreement with one
of the Company's sales representatives which provides for compensation of
$70,000 annually beginning July 1996 and $100,000 annually upon the effective
date of the Registration Statement relating to the IPO. The agreement may be
terminated by either party upon two weeks notice. In October 1996, the Company
intends to enter into an employment agreement with its CEO (SEE NOTE 13).
NOTE 12--OPERATING RESULTS AND MANAGEMENT'S PLANS
The Company has expended significant amounts in the development and
introduction of its initial products. As a result, the Company incurred a net
loss of $542,425 for 1995 and has incurred substantial net losses for each of
the past two years. At September 30, 1996 (UNAUDITED), current liabilities
exceed current assets by $160,297 and total liabilities exceed total assets by
$1,741,061. These factors raise substantial doubt about the Company's ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
assets, or the amounts and classification of liabilities that might be necessary
in the event the Company cannot continue in existence. Management plans to raise
equity capital and, in August 1996, has retained the services of an investment
banking firm and entered into a letter of intent to raise approximately
$4,500,000 (after registration costs) in an IPO of its common stock.
NOTE 13--SUBSEQUENT EVENTS
The Company's stockholders intend to execute an agreement under which, upon
the effective date of the Registration Statement relating to the IPO, $1,083,326
of stockholder loans and accrued interest will be contributed to capital in
excess of par value. Of the remaining balance, $500,000 will be converted to (i)
five promissory notes in various amounts, which aggregate $100,000, bearing
interest at 8% per annum and are due no earlier than two years from the date the
Company's Registration Statement relating to the IPO becomes effective, and (ii)
one $400,000 promissory note which bears interest at 8% per annum and is due no
earlier than three years from the date the Company's Registration Statement
relating to the IPO becomes effective. In addition, these notes contain
provisions under which, upon the exercise of certain warrants, the notes became
immediately payable.
On October 18, 1996, the Company's stockholders adopted a stock option plan
("Plan") providing for incentive stock options ("ISOs") and non-qualified stock
options ("NQSOs"). The Company has reserved 200,000 shares of common stock for
issuance upon the exercise of stock options granted under the Plan. The exercise
price of an ISO or NQSO will not be less than 100% of the fair market value of
the Company's common stock at the date of the grant. The exercise price of an
ISO granted to an employee owning greater than 10% of the Company's common stock
will not be less than 110% of the fair market value of the Company's common
stock at the date of the grant and will have a maximum term of five years. All
other options granted under the Plan will have a maximum term of ten years.
On October 21, 1996, TPC merged with Teardrop Golf Company ("TGC"), a
Delaware corporation. Each share of TPC's common stock issued and outstanding
immediately prior to the merger will be converted to 3333.33 shares of TGC's
common stock. The authorized capital stock of TGC is 10,000,000
F-11
<PAGE>
TEARDROP GOLF COMPANY
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 13--SUBSEQUENT EVENTS (CONTINUED):
shares of common stock, $.01 par value per share, and 1,000,000 shares of
preferred stock, $.01 par value per share.
The Company intends to enter into an employment agreement with its CEO as of
the effective date of the Registration Statement relating to the IPO. The
agreement will provide for compensation of $200,000 annually for three years
with a one year renewal term. In addition, the CEO will receive a performance
bonus as defined. The agreement will further provide that he may not engage in
certain competitive activities, as defined, for one year after termination of
the employment agreement.
On October 21, 1996, the Company granted five-year options (outside the
Plan) to acquire 250,000 shares of the Company's common stock for $4.75 per
share to the Company's CEO. In addition, the Company intends to grant five-year
options to purchase up to an aggregate of 250,000 shares of the Company's common
stock for $4.75 per share to touring golf professionals.
At March 15, 1996, the Company was in default of the lines of credit as a
result of the failure to pay when due. The Company's CEO is expected to
guarantee these notes. In addition, the Company expects to receive a waiver of
the defaults and an extension on the notes until December 31, 1996.
F-12
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. THE
DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THIS PROSPECTUS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 3
Risk Factors.................................... 6
Dilution........................................ 13
Use of Proceeds................................. 14
Capitalization.................................. 16
Dividend Policy................................. 16
Management's Discussion and Analysis
of Financial Condition and Plan
of Operations.................................. 17
Business........................................ 21
Management...................................... 27
Principal Stockholders.......................... 30
Certain Transactions............................ 30
Description of Securities....................... 31
Shares Eligible for Future Sale................. 33
Underwriting.................................... 34
Legal Matters................................... 35
Experts......................................... 35
Available Information........................... 35
Index to Consolidated Financial
Statements..................................... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
AFFECTING TRANSACTIONS IN THE COMMON STOCK AND THE WARRANTS, 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.
[LOGO]
1,150,000 SHARES OF COMMON STOCK
AND
1,150,000 REDEEMABLE COMMON STOCK
PURCHASE WARRANTS
--------------
PROSPECTUS
--------------
[LOGO]
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
