<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 7, 1997
REGISTRATION NO. 333-32117
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
SFORZA ENTERPRISES INC.
(Name of small business issuer in its charter)
---------------------
<TABLE>
<S> <C> <C>
FLORIDA 5812 65-0580931
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
330 CLEMATIS STREET, #211
WEST PALM BEACH, FLORIDA 33401
(561) 802-3535
(Address and telephone number of principal executive offices)
MARK H. MIRKIN, ESQ.
MIRKIN & WOOLF, P.A.
1700 PALM BEACH LAKES BOULEVARD #580
WEST PALM BEACH, FLORIDA 33401
(561) 687-4460
(Address and telephone number of agent for service)
---------------------
with a copy to:
SCOTT W. ALDERTON, ESQ.
TROOP MEISINGER STEUBER & PASICH LLP
10940 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90024-3902
(310) 824-7000
---------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
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.
PRELIMINARY PROSPECTUS DATED NOVEMBER 7, 1997
SUBJECT TO COMPLETION
SFORZA ENTERPRISES INC.
650,000 UNITS
EACH UNIT CONTAINING ONE SHARE OF COMMON STOCK AND
ONE REDEEMABLE WARRANT
Sforza Enterprises Inc., a Florida corporation (the "Company"), is offering
hereby 650,000 units (the "Units") each containing one share of common stock,
par value $0.01 per share (the "Common Stock"), and one redeemable Common Stock
purchase warrant (the "Warrants"). The Units, the Common Stock and the Warrants
are sometimes collectively referred to as the "Securities". The Common Stock and
the Warrants included in the Units will not be separately transferable until
November , 1998, or such earlier date as Joseph Charles & Associates, Inc. may
determine in its sole discretion. Each Warrant entitles the registered holder
thereof (a "Warrantholder") to purchase one share of Common Stock at an exercise
price of $9.50 at any time during the period commencing on the effective date of
this Prospectus and terminating five years thereafter (the "Warrant Exercise
Period"). All, but not less than all, of the Warrants are subject to redemption
by the Company, at $0.01 per Warrant, at any time during the Warrant Exercise
Period on 30 days prior written notice to the Warrantholders if the per share
closing price of the Common Stock as reported by the Over the Counter Electronic
Bulletin Board (the "OTCBB") or the National Quotation Bureau, as the case may
be, equals or exceeds $10.05 for any 20 consecutive trading days ending within
five days of the notice of redemption. See "Description of Securities".
Prior to this offering, there has been no public market for the Units, the
Common Stock or the Warrants and there can be no assurance that any such market
will develop or, if developed, that it will be sustained. It is anticipated that
the Units, and the Common Stock and the Warrants, when separately transferable,
will be quoted on the OTCBB under the symbols "SFZAU", "SFZA" and "SFZAW",
respectively. For a discussion of the factors considered in determining the
initial public offering price of the Units, see "Underwriting".
---------------------
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK
AND IMMEDIATE AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING ON PAGE 7
AND "DILUTION" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY INVESTORS.
---------------------
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>
==================================================================================================================
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit $7.75 $0.775 $6.975
- ------------------------------------------------------------------------------------------------------------------
Totals(3) $5,037,500.00 $503,750.00 $4,533,750.00
==================================================================================================================
</TABLE>
(1) The Company has agreed to issue and sell to the Underwriter, for nominal
consideration, warrants to purchase 65,000 Units exercisable at $11.625 per
Unit (150% of the Price to Public) and to pay the Underwriter a
non-accountable expense allowance equal to 3% of the aggregate gross
proceeds from sale of the Units which are not included. The Company has also
agreed to indemnify the Underwriter against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting".
(2) Before deducting offering expenses payable by the Company estimated at
approximately $275,000, and the non-accountable expense allowance.
(3) The Company has granted the Underwriter a 60-day option to purchase an
aggregate of up to 97,500 additional Units solely to cover over-allotments,
if any. If this option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$5,793,125, $579,313 and $5,213,812, respectively. See "Underwriting".
-------------------------
The Units are being offered by the Underwriter subject to prior sale when,
as and if delivered to and accepted by it, and subject to the right of the
Underwriter to withdraw, cancel or modify this offering and reject any order in
whole or in part. It is expected that delivery of the certificates representing
the Units will be made against payment therefor at the office of Joseph Charles
& Associates, Inc., Beverly Hills, California or through the facilities of The
Depositary Trust Company on or about November , 1997.
JOSEPH CHARLES & ASSOCIATES, INC.
THE DATE OF THIS PROSPECTUS IS NOVEMBER , 1997
<PAGE> 3
[PHOTO OR RENDERING]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES,
INCLUDING PURCHASES OF THE SECURITIES TO STABILIZE THE MARKET PRICE, PURCHASES
OF THE SECURITIES TO COVER SOME OR ALL OF A SHORT POSITION IN THE SECURITIES
MAINTAINED BY THE UNDERWRITER AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information, including
financial information, included elsewhere in this Prospectus. Unless otherwise
indicated, (a) all references to shares give effect to the November 3, 1997
reverse stock split of the Company, and (b) the "Company" refers to Sforza
Enterprises Inc. and its wholly owned subsidiaries: Castle Room, Inc., Clematis
Bistro Corporation and Sushi Enterprises, Inc.
THE COMPANY
The Company has three wholly-owned subsidiaries, each of which owns or is
developing one restaurant (the West Palm Beach Restaurants), and has entered
into an agreement to acquire 51 percent equity interests in four entities, each
of which owns one restaurant (the Max's Grille Restaurants). Currently, two of
the West Palm Beach Restaurants are open and one of the Max's Grille Restaurants
is open.
The Company's strategy is to own upscale, moderately priced, casual dining
restaurants that are known for providing quality, affordable, contemporary food,
service and ambiance in South Florida. Ultimately the Company plans to open
restaurants in selected markets outside of South Florida.
Unique Restaurant Concepts, Inc. ("URCI"), a professional developer and
manager of restaurants and the owner of the Max's Grille Restaurants, operates
the current and will operate the future West Palm Beach Restaurants and Max's
Grille Restaurants owned by the Company. Three principals of URCI serve as
directors of the Company. See "Certain Transactions".
THE WEST PALM BEACH RESTAURANTS
Sforza Ristorante. Sforza Ristorante is a full-service, mid-priced, casual
dining northern Italian restaurant which opened in February 1996 on Clematis
Street in downtown West Palm Beach, Florida. Sforza Ristorante offers an
extensive menu featuring a wide variety of seafood, chicken and pasta dishes,
appetizers, salads and desserts and full bar service. The restaurant serves
generous portions at moderate prices while providing friendly and efficient
service in a high-energy casual atmosphere intended to appeal to a broad
customer base, particularly young upscale adults. The restaurant has generated a
high level of repeat business and customer loyalty. Sforza Ristorante reflects
an elegant yet casual European concept featuring a plush red and gold decor. The
eclectic design blends the ambiance of renaissance Tuscany with the energy of a
rejuvenated urban area. Lush fabrics and red velvet drapery treatments are
enhanced by unique hand faux finished walls. Contemporary styled sconces and
pendants illuminate the dining and bar areas with soft, inviting light,
enhancing the casual upscale dining experience and establishing a distinct
identity for the restaurant.
My Martini Grille. My Martini Grille is a full-service upscale grill which
opened in February 1997 on Clematis Street in downtown West Palm Beach, Florida,
next to Sforza Ristorante. My Martini Grille was designed to serve a
sophisticated clientele, including business diners. The My Martini Grille
concept embraces an elegant and timeless early twentieth century motif. My
Martini Grille is Gotham City revisited. This sleek art nouveau restaurant and
bar recaptures the sophisticated allure of the martini culture. Smooth cocktails
are complemented with deep mahogany walls and rich purples and golds. Stylish
stainless steel accents mix with unique Italian light fixtures to create a
relaxed sexy elegance. All of the elements enhance the dining experience and
establish a distinct identity for My Martini Grille.
Planned sushi restaurant. The Company plans to open a full-service,
mid-priced casual dining sushi restaurant in December 1997 just off Clematis
Street in downtown West Palm Beach, Florida, next to My Martini Grille. The
planned restaurant has been designed to reflect Tokyo in the year 2050. An ocean
green tile floor, blonde maple sushi bar and stainless steel highlights will
create a unique techno atmosphere. Japanese animation and comic books will
assume larger than life scale in artwork incorporated into the design and
construction. Large TV screens over the sushi bar will transform Godzilla, Ultra
Man and Speed Racer into animated art. The funky, innovative design will make
dining an experience, not just fish and rice.
3
<PAGE> 5
THE MAX'S GRILLE RESTAURANTS
The Company intends to use the bulk of the proceeds of this offering to
acquire 51 percent equity interests in the entities that own the Max's Grille
Restaurants located in the Beach Place and Las Olas Riverfront developments in
Fort Lauderdale, Florida, in Weston, Florida and the entity that will own the
next Max's Grille to be developed, the location of which is to be determined.
Max's Beach Place Grille opened in May, 1997. The Las Olas Riverfront and Weston
restaurants are expected to open in early 1998.
Max's Grille in Boca Raton, Florida, the model for the Max's Grille
Restaurants, incorporates casual dining, moderate prices and a cosmopolitan
ambiance in a comfortable relaxed ambiance. Opened in 1991, the 225-seat
restaurant has been serving a mix of new American and Continental cuisine with a
wide variety of wines and a full-service bar. The decor features a free-standing
mahogany bar, high ceilings with star chandeliers and floating window
treatments. Its fresh, simply-prepared dishes are imaginative but not
intimidating, enhanced with the flavors of Florida, California, New Orleans,
Europe and the Pacific.
The Max's Grille concept was first replicated in 1995 in Celebration,
Florida, The Walt Disney Co.'s planned community near Orlando, Florida.
RESTAURANT MANAGEMENT
The Company believes that achieving customer satisfaction by providing
knowledgeable, friendly, efficient service is critical to its restaurants'
long-term success. Consequently, the Company has contracted with URCI to operate
all of its restaurants (including the Max's Grille Restaurants to be developed
with the proceeds of this offering). In order to foster the level of customer
satisfaction desired by the Company, URCI's training program teaches restaurant
managers to promote the Company's team-oriented atmosphere among restaurant
employees, with emphasis on preparing and serving food in accordance with strict
standards and providing friendly, courteous and attentive service. The Company
believes that the quality and training of its restaurant managers and staff
results in friendly, courteous, efficient service which contributes to a casual
and pleasurable dining experience for the customer. See "Business -- Restaurant
Management". Three of URCI's principals serve as directors of the Company.
THE OFFERING
Securities offered
hereby..................... 650,000 Units, each Unit consisting of one Share
and one Warrant, at an initial public offering
price of $7.75 per Unit. Each Warrant entitles the
registered holder thereof to purchase at any time
during the Warrant Exercise Period one share of
Common Stock at an exercise price of $9.50 per
share. The Warrants are subject to redemption by
the Company for $0.01 per Warrant at any time
during the Warrant Exercise Period, on 30 days
written notice, provided that the closing price of
the Common Stock equals or exceeds $10.05 per share
for any 20 consecutive trading days ending within
five days of the notice of redemption to the
Warrantholders.
Outstanding Securities before the
Offering:
Common Stock............. 1,020,000 Shares(1)
Options and Warrants..... 75,000
Preferred Stock.......... 160,000 Shares
Outstanding Securities after
the Offering:
Common Stock............. 1,710,000 Shares(2)
4
<PAGE> 6
Options and Warrants..... 730,000(3)
Preferred Stock.......... None
Proposed Symbols
Units.................... SFZAU
Common Stock............. SFZA
Warrants................. SFZAW
Use of Proceeds.......... The net proceeds (after payment of underwriting
discounts and a non-accountable expense allowance
to the Underwriter and other expenses of the
Offering) to the Company from the sale of the Units
offered hereby are expected to be approximately
$4,107,625 (assuming an initial public offering
price of $7.75 per Unit), $4,765,018 if the
Underwriter's Over-Allotment Option is exercised in
full. Such net proceeds will be used to finance the
construction, development and opening of four
restaurants that replicate Max's Grille of Boca
Raton, Florida, to repay certain short-term
indebtedness and accrued interest thereon, to
redeem outstanding preferred stock and for general
corporate purposes. See "Use of Proceeds".
Risk Factors............... An investment in the Securities offered hereby is
speculative and involves a high degree of risk.
Purchasers of the Units offered hereby will
experience immediate and substantial dilution with
respect to their investment. See "Risk Factors".
- ---------------
(1) Does not include shares of Common Stock issuable upon the exercise of (a)
the Warrants; (b) the Underwriter's Over-Allotment Option; or (c) options
granted to the Underwriter to purchase up to 65,000 Units.
(2) Excludes exercise of any options or warrants but includes conversion of
80,000 shares of the Series A Preferred Stock.
(3) Excludes the Underwriter's Option but includes the Warrants comprising the
Units and the warrant to be issued to Company counsel.
5
<PAGE> 7
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEAR ENDED -----------------------
DECEMBER 31, 1996 1996 1997
----------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Selected Statement of Operations Data:
Net sales............................................ $2,333,530 $ 925,555 $2,679,903
---------- ---------- ----------
Cost and expenses:
Cost of sales........................................ 1,299,501 470,920 1,524,705
Operating expenses................................... 881,856 349,920 1,129,779
Interest expense, net................................ -- -- 24,500
---------- ---------- ----------
Total cost and expenses................................ 2,181,357 820,840 2,678,984
---------- ---------- ----------
Operating income....................................... 152,173 104,715 919
Other income, net...................................... 3,051 160 87
---------- ---------- ----------
Income before income taxes............................. 155,224 104,875 1,006
Income tax expense..................................... 9,319 -- 300
---------- ---------- ----------
Net income............................................. $ 145,905 $ 104,875 $ 706
========== ========== ==========
Earnings per common share(1):
Primary.............................................. $ 0.15 $ 0.11 $ --
========== ========== ==========
Fully diluted........................................ $ 0.13 $ 0.10 $ 0.01
========== ========== ==========
Weighted average common shares outstanding:
Primary.............................................. 1,003,138 969,117 1,031,987
========== ========== ==========
Fully diluted........................................ 1,103,138 1,069,117 1,128,672
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
DECEMBER 31, 1996 ACTUAL AS ADJUSTED(2)
----------------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Selected Balance Sheet Data:
Cash and cash equivalents.......................... $ 202,639 $ 110,502 $3,693,127
Working capital (deficit).......................... (59,502) 118,671 3,826,296
Total assets....................................... 1,086,151 1,602,823 5,185,448
Total liabilities.................................. 462,940 422,656 297,656
Series A Preferred Stock........................... -- 400,000 --
Common shareholders' equity........................ 623,211 780,167 4,887,792
</TABLE>
- ---------------
(1) See "Selected Financial Data" for an explanation of the computations of
primary and fully diluted earnings per common share.
(2) As adjusted to give effect to (i) the sale of 650,000 Units offered by the
Company hereby at the initial offering price of $7.75 per Unit after
deducting underwriting discounts and commissions and estimated offering
expenses, (ii) the conversion of 80,000 shares of Series A Preferred Stock
into 40,000 shares of Common Stock of the Company, (iii) the redemption of
80,000 shares of Series A Preferred Stock and (iv) the repayment of a
$125,000 note payable. See "Use of Proceeds".
6
<PAGE> 8
RISK FACTORS
The Securities offered hereby involve a high degree of risk. Each
prospective investor should carefully consider the following risk factors before
making an investment decision.
Limited Operating History. The Company was formed in July 1996 to serve as
a holding company for Castle Room, Inc., which was formed in May 1995, Clematis
Bistro Corporation, which was formed in April 1996, and Sushi Enterprises, Inc.,
which was formed in July 1996. The Company's initial restaurant, Sforza
Ristorante, was opened in February 1996 by Castle Room, Inc., then owned by Dale
J. Brisson and Joseph C. Visconti. The Company's second restaurant, My Martini
Grille, was opened in February 1997 by Clematis Bistro Corporation. Accordingly,
the Company has a limited relevant operating history upon which an evaluation of
its current operations and prospects can be made. The Company's prospects must
be considered in light of the risks, expenses and difficulties frequently
encountered in the operation of a new business in the highly competitive
restaurant industry, which is characterized by a high failure rate. There can be
no assurance that the Company's rate of revenue growth will continue in the
future or that the Company's operations will be profitable. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Selected Financial Data".
Significant Capital Requirements; Dependence on Proceeds of this Offering;
Need for Additional Financing. The Company's capital requirements for the
operations of its existing restaurants and proposed restaurants are significant.
The Company will be dependent upon the proceeds of this offering to fund its
proposed expansion. Although the pre-opening costs, including capital
improvements, of each Max's Grille Restaurant are estimated to exceed
$1,000,000, landlord contributions for tenant improvements are expected to
decrease those costs. Management believes that cash flow generated from
operations, together with current financing and the net proceeds from this
offering, will be sufficient to meet the Company's working capital requirements
and anticipated capital through the fall of 1998. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." However, if the proceeds of this offering prove to be
insufficient to fund the Company's proposed expansion, the Company could be
required to modify its proposed expansion plans or to seek additional financing
from sources not currently identified. The Company has no current commitments or
arrangements with respect to, or current sources of, such additional financing.
There can be no assurance that such financing will be available to the Company
when needed, on acceptable terms, or at all. Any inability to obtain such
financing or other additional financing when required could have a material
adverse effect on the Company. Any additional equity financing may involve
substantial dilution to the interests of the Company's shareholders. See "Use of
Proceeds" and "Business".
Dependence Upon Limited Restaurant Base; Proposed Expansion. In light of
the Company's current portfolio of two wholly-owned restaurants and expected
year-end 1997 portfolio of three wholly-owned restaurants and one partly-owned
restaurant, the lack of success or closing of any of the restaurants could have
an adverse effect upon the financial condition and results of operations of the
Company.
The Company intends to open a new sushi restaurant in December 1997. With
the proceeds of this offering, the Company intends to acquire 51 percent equity
interests in four entities, each of which will own a Max's Grille Restaurant,
one of which opened in May 1997 and three of which are anticipated to open in
1998. The Company's profitability will be dependent on, among other things, (i)
achieving positive cash flow from operations, (ii) market acceptance for the
Company's sushi concept, (iii) timely development and construction of the Max's
Grille Restaurants, (iv) securing of required governmental permits and approvals
therefor, (v) hiring, training and retention of skilled management and other
personnel, (vi) the ability to integrate the new restaurants into its
operations, and (vii) the general ability to successfully manage growth, if any,
(including successfully monitoring the restaurants, controlling costs and
maintaining effective quality controls). Three of the four proposed Max's Grille
Restaurants and the Company's planned sushi restaurant are not yet in operation
and there can be no assurance that the Company will be successful in its
proposed expansion. Additionally, there can be no assurance that the Company's
planned expansion will not result in reduced sales at existing restaurants to
the benefit of the newly opened restaurants. See "Management's
7
<PAGE> 9
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- The West Palm Beach Restaurants" and "The Max's Grille
Restaurants".
Seasonality; Geographic Concentration; Fluctuations in Operating
Results. The Company's existing restaurants and its planned sushi restaurant
(the "West Palm Beach Restaurants") are located in adjacent storefronts in
downtown West Palm Beach, Florida. The restaurant interests to be acquired with
the proceeds of the offering will also be developed in South Florida (the "Max's
Grille Restaurants"). The Company thus faces risks tied to a single geographic
region, including seasonality and the health of South Florida's economy and the
tourism industry, as well as the continuing popularity of downtown West Palm
Beach as a social gathering spot. Quarterly operating results may thus fluctuate
significantly. Furthermore, given the Company's geographic concentration,
adverse publicity relating to the Company's restaurants could have a more
pronounced adverse effect on the Company's operating results than might be the
case if the Company's restaurants were geographically dispersed. A decline in
tourism in South Florida, or in general economic conditions, which would likely
affect the South Florida economy or the tourism industry, could have a material
adverse effect on the Company's operations and prospects. In addition, the
geographic concentration has the result of causing the Company's restaurants to
compete with each other for the same customers, which would not be the case if
the restaurants were more geographically dispersed. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations".
Dependence on Management Company. The success of the Company is largely
dependent upon the efforts of the management company, Unique Restaurant
Concepts, Inc. ("URCI"), operating the Company's two existing restaurants. URCI,
which is controlled by Company directors Catalfumo, Max and Rapoport, also
manages Max's Beach Place Grille, one of the Max's Grille Restaurants, and will
manage all of the West Palm Beach Restaurants and the proposed Max's Grille
Restaurants. The Management Agreement in effect between the Company and URCI
runs through May 1998 for Sforza Ristorante and My Martini Grille. In addition,
the Company intends to enter into a new two-year management agreement with URCI
pursuant to which URCI will continue to operate the Company's existing
restaurants, and will manage all future Max's Grille Restaurants owned by the
Company. Under the new management agreement, URCI will have the option to
acquire the Company's equity interests in the Max's Grille Restaurants in the
event that URCI involuntarily ceases to manage the Max's Grille Restaurants. In
such event, URCI will have an option, exercisable for a 60 day period, to
acquire the Company's equity interests in the Max's Grille Restaurants for the
appraised fair market value thereof. Although the Company has demonstrated an
ability to operate a restaurant, having operated Sforza Ristorante during the
first year of its existence, and although Company personnel have been studying
the procedures utilized by URCI, there can be no assurance that the cessation of
management by URCI would not have a material adverse effect on the Company. In
addition, in the event that URCI exercises its option to purchase the Max's
Grille Restaurants, the Company's operating results would be materially
adversely affected.
The Company believes that it will need, both in the short-term and
long-term, to hire additional qualified administrative and management personnel
to manage and support planned expansion. Competition for qualified employees in
the restaurant industry is intense, and the Company may not be able to find
suitable personnel to meet its immediate needs. The inability to recruit and
hire necessary personnel could have a material adverse effect on the Company's
business, financial condition and results of operations. The Company does not
maintain key man life insurance on any employee.
Risks of Growth and Expansion. The Company is in an early stage of
development and has yet to establish substantial internal management, personnel
and other resources. Any measurable growth in the Company's business will result
in additional demands on its infrastructure, and will place a significant strain
on the Company's management, administrative, operational, financial and
technical resources and increased demands on its systems and controls. There can
be no assurance that the Company's resources will be adequate to support future
operations and growth. The inability to continue to upgrade the operating and
financial control systems, the emergence of unexpected expansion difficulties or
failure to manage the Company's proposed expansion properly could have a
material adverse effect on the Company's business, financial condition and
results of operations.
8
<PAGE> 10
Fluctuations in Food and Other Costs. The Company's profitability is
dependent on its ability to anticipate and react to increases in food, labor,
employee benefits and similar costs over which the Company has limited control.
During its limited operating history, the Company has been able to anticipate
and react to fluctuations in food costs at its two existing restaurants through
selected menu price adjustments. However, there can be no assurance that the
Company will be able to continue to anticipate and respond to supply and price
fluctuations in the future, and significantly increased costs in the future
could have a material adverse effect on the Company's operations. See
"Business".
Seafood Supply and Quality. The Company plans to open a sushi restaurant
in December 1997. Sushi is a Japanese style of seafood. All of the other Company
restaurants offer traditionally-prepared seafood. In recent years, the
availability of certain types of seafood has fluctuated, resulting in
corresponding fluctuations in prices. Substantial price increases could have a
material adverse effect on the Company. Failure to obtain adequate supplies of
seafood could have a material adverse effect on the Company's operations and
profitability. Seafood contamination, a greater risk in uncooked seafood such as
sushi than in cooked seafood, or consumer perception of inadequate seafood
quality, in the industry in general or as to the Company specifically, could
have a material adverse effect on the Company. See "Business".
Competition. The restaurant industry, particularly the full-service casual
dining segment, is intensely competitive with respect to price, service, food
quality (including taste, freshness, and nutritional value), ambiance and
location, as well as other factors. There are many well-established competitors
that possess greater financial, marketing, personnel and other resources than
the Company. Many of the Company's competitors have achieved significant
national, regional and local brand name and product recognition and engage in
extensive advertising and promotional programs, both generally and in response
to efforts by additional competitors to enter new markets or introduce new
products. These competitors include national, regional and local full-service
casual dining chains. The Company believes that the full-service casual dining
segment is likely to attract a significant number of new entrants. The Company
can also be expected to face competition from a broad range of other restaurants
and food service establishments, including fast food restaurants which
specialize in a variety of cuisines.
The full-service restaurant industry is also characterized by the frequent
introduction of new food products, accompanied by substantial promotional
campaigns. In recent years, numerous companies in the full-service restaurant
industry have introduced products intended to capitalize on growing consumer
preference for food products which are, or are perceived to be, healthy,
nutritious, low in calories and low in fat content. It can be expected that the
Company will be subject to increasing competition from companies whose products
or marketing strategies address these consumer preferences. While the Company
believes that it offers a broad variety of quality food products, there can be
no assurance that consumers will regard the Company's products as sufficiently
distinguishable from competitive products, that substantially equivalent food
products will not be introduced by the Company's competitors or that the Company
will be able to compete successfully. Additionally, because of their geographic
concentration, the Company's restaurants compete with each other for the same
customers. Consequently, even when a customer patronizes one of the Company's
restaurants, the Company's operations could be impacted by shifting of customers
from a higher priced Company restaurant to a lower priced one, or from one
operated by a wholly-owned subsidiary to one operated by a partly-owned
subsidiary, either of which events could adversely affect the Company's
operating results. See "Business -- Competition".
Certain Factors Affecting the Full-service Restaurant Industry. The
Company will be required to respond to various factors affecting the restaurant
industry including changes in consumer preferences, tastes and eating habits;
demographic trends and traffic patterns; increases in food and labor costs;
inflation; and national, regional and local economic conditions. A number of
full-service restaurant companies have experienced declining growth rates
resulting from general market saturation, in response to which certain of these
companies have adopted "value pricing" strategies. These strategies could have
the effect of drawing customers away from restaurants such as those owned by the
Company that do not engage in discount pricing and could also negatively affect
the Company's operating margins. The continued or sustained practice of price
discounting in the restaurant industry could have an adverse effect on the
results of operations of the Company. See "Business -- Competition".
9
<PAGE> 11
Potential Liability for Sale of Alcoholic Beverages. The Company's
restaurants serve alcoholic beverages and consequently the Company is subject to
"dram-shop" laws, which generally provide a person injured by an intoxicated
person the right to recover damages from an establishment that wrongfully served
alcoholic beverages to the intoxicated person. Florida law currently provides
that a vendor of alcoholic beverages may be held liable in a civil cause of
action for injury or damage caused by or resulting from the intoxication of a
minor (under 21 years of age) if the vendor willfully, knowingly and unlawfully
sells or furnishes alcoholic beverages to the minor and knows that the minor
will soon thereafter be driving a motor vehicle. A vendor may be similarly held
liable if it knowingly provides alcoholic beverages to a person who is in a
noticeable state of intoxication, knows that the person will soon thereafter be
driving a motor vehicle and injury or damage is caused by that person. In
addition, significant national attention is focused on the problem of drunk
driving, which could result in the adoption of additional legislation and
increased potential liability of the Company for damage or injury caused by its
customers. Such liability is uninsurable. See "Business -- Governmental
Regulation".
Limited Servicemark Protection and Protection of Proprietary
Information. The Company has obtained Florida servicemark registration for
Sforza Ristorante and My Martini Grille. Florida servicemark registration is a
ministerial act of the Florida State Department intended solely to provide
public notice of the registrant's ownership rights based on usage of the
servicemark in Florida in the ordinary course of trade. Such ownership rights
can only be rebutted by another's prior appropriation and use. Usage of the
marks in interstate commerce will provide the Company with ownership rights
similar to those provided by federal registration, but enforcement is limited to
Florida. The Company believes that its servicemarks have significant value and
are essential to its ability to create demand for and awareness of its
restaurants. There can be no assurance, however, that the Company's servicemarks
do not or will not violate the proprietary rights of others, that they would be
upheld if challenged or that the Company, in such an event, would not be
prevented from using its servicemarks, any of which events could have a material
adverse effect on the Company. In addition, there can be no assurance that the
Company will have the financial resources necessary to enforce or defend its
servicemarks. The Company also relies on trade secrets and proprietary know-how
to protect its concepts and recipes. However, such methods may not afford
complete protection and there can be no assurance that others will not
independently develop similar know-how or obtain access to the Company's
know-how, concepts and recipes. Furthermore, although the Company expects to
have confidentiality and non-competition agreements with certain of its
executives and key management, there can be no assurance that such agreements
will adequately protect the Company's trade secrets. See
"Business -- Servicemarks and Proprietary Information".
Government Regulation. The Company is subject to extensive state and local
government regulation by various governmental agencies, including state and
local licensing, zoning, land use, construction and environmental regulations
and various regulations relating to the sale of food and alcoholic beverages,
sanitation, disposal of refuse and waste products, public health, safety and
fire standards. The Company's restaurants are subject to periodic inspections by
governmental agencies to ensure conformity with such regulations.
Although seafood is not currently subject to a nationwide program of
inspection by the U.S. Food and Drug Administration (the "FDA"), the FDA has in
the past proposed such a program for inspection of seafood suppliers and
processors, but not restaurants. If such a program were to be implemented, the
Company's seafood costs could increase as a result of the increased expense to
seafood suppliers and processors in complying with such a program. There can be
no assurance that such costs could be passed on to customers.
Difficulties or failure in obtaining required licensing or other regulatory
approvals could delay or prevent the opening of a new restaurant, and the
suspension of, or inability to renew a license at an existing restaurant, would
adversely affect the operations of the Company. Restaurant operating costs are
also affected by other government actions which are beyond the Company's
control, including increases in the minimum hourly wage requirements, workers
compensation insurance rates, health care insurance costs and unemployment and
other taxes. These and other initiatives could adversely affect the Company, as
well as the restaurant industry in general. See "Business -- Governmental
Regulation".
10
<PAGE> 12
Insurance and Potential Liability. The Company maintains insurance,
including insurance relating to personal injury, in amounts which the Company
currently considers adequate. Nevertheless, a partially or completely uninsured
claim against the Company, if successful, could have a material adverse effect
on the Company.
Control by Management. Upon consummation of this offering, executive
officers and directors of the Company beneficially will own, in the aggregate,
approximately half of the Company's outstanding Common Stock. As a result, such
persons, acting together, will be able to control the Company, cause the
dissolution, merger or sale of the assets of the Company, and generally direct
the affairs of the Company. Moreover, pursuant to the terms of the Funding
Agreement, Mr. Max can designate one-half of the Company's directors. See
"Management" and "Principal Shareholders".
Benefits to Related Parties. Certain of the Company's directors and
officers are directors and/or officers of companies with which the Company does
business. These relationships may give rise to conflicts of interest between the
Company, on the one hand, and one or more of its directors or officers and/or
their affiliates, on the other hand. Company director Joseph C. Visconti founded
Joseph Charles & Assoc., Inc. ("JCA"), the managing underwriter of this
offering. Mr. Visconti is the largest shareholder of JCA and serves as its
chairman and chief executive officer. JCA shall receive a commission of 10
percent of the offering proceeds, a non-accountable expense allowance of three
percent of the offering proceeds, a consulting agreement pursuant to which it
shall earn $2,500 per month for 24 months, a five-year option to purchase 65,000
Units for $11.625 per Unit and a warrant solicitation fee. See "Underwriting".
Mr. Visconti is also a principal in Clematis Development Group L.C., the
landlord to the West Palm Beach Restaurants ("CDG"). CDG has been paid rent and
other tenant charges from the Company in 1997 in the amount of $165,576 through
September 30, 1997 and shall receive an additional $59,557 this year. See
"Certain Transactions". Company directors Catalfumo, Max and Rapoport are
principals in URCI, the restaurant management firm that manages the West Palm
Beach Restaurants, the one Max's Grille Restaurant that is already open and the
three as yet unopened Max's Grille Restaurants that the Company shall partly
own. Pursuant to the terms of the Management and Consulting Agreement dated June
1, 1997 each of the existing West Palm Beach Restaurants generally will pay URCI
one percent of net sales per month plus 20 percent of net operating profits
after October 31, 1997. See "Certain Transactions". Director Catalfumo is a
principal in Catalfumo Construction and Development, Inc., the construction firm
building the Max's Grille Restaurants in Las Olas Riverfront and Weston.
Pursuant to the terms of the Funding Agreement dated July 1, 1997, $3,000,000 of
the proceeds of the offering shall be deposited in a Construction Fund, the
ultimate recipient of which shall primarily be Mr. Catalfumo, owner of Catalfumo
Construction & Development, Inc. Additionally, the Company intends to use
$125,000 of the proceeds of the offering to repay a debt to Mr. Catalfumo. See
"Certain Transactions" and "Use of Proceeds". All future transactions with
affiliated parties will be approved by a majority of the disinterested directors
of the Company and will be on terms no less favorable to the Company than those
that could be obtained from unaffiliated third parties.
Pending Litigation Against Company's Directors. Messrs. Catalfumo, Max and
Rapoport are defendants along with URCI in a civil lawsuit pending in the
Florida state court in Palm Beach County, Florida brought in May 1996 by former
partners in a defunct URCI restaurant who have alleged, among other things, that
the three men breached their fiduciary duties to the limited partners. The
defendants have filed motions attacking the plaintiffs' complaint and are
awaiting a hearing on their motions. See "Management."
Lack of Independent Directors. The Company's Audit Committee and
Compensation Committee consist of directors who are also officers of the Company
or who are directors and/or officers of companies with which the Company does
business. As such, the decisions of the Audit Committee and Compensation
Committee will not be made by a majority of independent directors. See
"Management."
Immediate and Substantial Dilution. This offering involves an immediate
and substantial dilution of $4.89 per share (63.1%) between the adjusted net
tangible book value per share of Common Stock after this offering and the
proposed maximum initial public offering price. See "Dilution".
Shares Eligible for Future Sale. Upon the consummation of this offering,
the Company will have 1,710,000 shares of Common Stock outstanding (including
the Underwriter's Over-Allotment Option). The shares of Common Stock being
offered hereby, unless purchased by affiliates of the Company, will be freely
11
<PAGE> 13
tradeable without restriction or further registration under the Securities Act
of 1933, as amended (the "Securities Act"). The remaining shares of Common Stock
are deemed to be "restricted securities", as that term is defined in Rule 144
promulgated under the Securities Act, and may only be sold pursuant to an
effective registration statement under the Securities Act, in compliance with
the exemption provisions of Rule 144 or pursuant to another exemption under the
Securities Act. In addition, the holders of such shares of Common Stock have
entered into lock-up agreements restricting the sale or disposition of such
shares of Common Stock for 12 months from the date of this Prospectus without
the prior written consent of the underwriter. Accordingly, subject to Rule 144
volume limitations, 1,060,000 shares of Common Stock may be sold in the public
market beginning in November 1998, which may adversely affect prevailing prices
for the Common Stock and could impair the Company's ability to raise additional
capital through the sale of its equity securities. See "Shares Eligible for
Future Sale" and "Underwriting".
No Assurance of Public Market; Arbitrary Determination of Public Offering
Price; Possible Volatility of Common Stock Price. Prior to this offering, there
has been no public trading market for the Company's Units, Common Stock or
Warrants. Consequently, the proposed initial public offering price of the Units
has been determined by negotiation between the Company and the "qualified
independent underwriter" and does not necessarily reflect the Company's book
value or other established criteria of value. Although the Company anticipates
listing on the OTCBB, there can be no assurance that a regular trading market
for the Units, Common Stock or Warrants will develop after this offering or
that, if developed, it will be sustained. The market price of the Units, Common
Stock and Warrants following the consummation of this offering may be highly
volatile as has been the case with the securities of many emerging companies.
Factors such as the Company's financial results, quarter-to-quarter variations
in operating results, announcements by the Company or its competitors, general
market trends and various factors affecting the restaurant industry generally,
may have a significant impact on the market price of the securities. In
addition, in recent years, the stock market has experienced a high level of
price and volume volatility and market prices for the stock of many companies
have experienced wide fluctuations which have not necessarily been related to
the operating performances of such companies. See "Underwriting".
Current Prospectus and State Registration Required to Exercise
Warrants. The Company will be able to issue shares of Common Stock upon
exercise of the Warrants only if there is a current prospectus relating to such
Common Stock under an effective registration statement filed with the Securities
and Exchange Commission and only if such shares of Common Stock are qualified
for sale or exempt from qualification under applicable state securities laws of
the jurisdictions in which the various Warrantholders reside. Although the
Company has agreed to use its best efforts to meet such regulatory requirements,
there can be no assurance that the Company will be able to do so. Although the
Warrants will not knowingly be sold to purchasers in jurisdictions in which the
Warrants are not registered or otherwise qualified for sale, purchasers may buy
Warrants in the aftermarket or may move to jurisdictions in which the Common
Stock issuable upon exercise of the Warrants is not so registered or qualified.
In this event, the Company would be unable to issue shares of Common Stock to
those Warrantholders upon exercise of the Warrants unless and until the Common
Stock issuable upon exercise of the Warrants is qualified for sale or exempt
from qualification in jurisdictions in which such holders reside. Accordingly,
the Warrants may be deprived of any value if a then current prospectus covering
the Common Stock issuable upon exercise of the Warrants is not effective
pursuant to an effective registration statement or if such Common Stock is not
qualified or exempt from qualification in the jurisdictions in which the
Warrantholders reside. There can be no assurance that the Company will be able
to effect any required registration or qualification.
Potential Adverse Effect of Redemption of Warrants; Market
Overhang. During the Warrant Exercise Period the Company may redeem all, but
not less than all, of the Warrants for $0.01 per warrant on 30 days prior
written notice to the Warrantholders if the per share closing price of the
Common Stock as reported by the OTCBB or the National Quotation Bureau, as the
case may be, equals or exceeds $10.05 for any 20 consecutive trading days ending
within five days of the notice of redemption. Redemption of the Warrants could
force the Warrantholders 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 then current market price when they might otherwise wish to hold the
Warrants for possible additional appreciation, or to accept the redemption
price, which is likely to be substantially less than the market value of the
Warrants at the time of redemption. Any
12
<PAGE> 14
Warrantholder who does not exercise its Warrants prior to their expiration or
redemption, as the case may be, will forfeit such holder's right to purchase the
shares of Common Stock underlying the Warrants.
OTCBB; No Separate Transfer of Common Stock or Warrants. The Units, Common
Stock and Warrants will be traded in the over-the-counter market, however, the
Common Stock and the Warrants included in the Units will not be separately
transferable and thus may only be purchased together as Units until November ,
1998, or such earlier date as JCA may determine in its sole discretion. It is
anticipated that they will be quoted on the OTCBB, an NASD-sponsored and
operated inter-dealer automated quotation system for equity securities not
included in the NASDAQ SmallCap Market or National Market. The liquidity and
stock price of the Company's securities in the secondary market may be adversely
affected in that there can be no assurance that any holder of the Company's
securities will be able to sell his securities readily or that, if able to sell,
the sales price will not represent a significant discount from the value he
might otherwise realize if the securities were listed on the NASDAQ SmallCap
Market or National Market.
Disclosure Relating to Low-Priced "Penny" Stocks. If the trading price of
the Common Stock falls below $5.00 per share, trading in the Common Stock would
become subject to certain rules promulgated under the Securities Exchange Act of
1934 which require additional disclosure by broker-dealers in connection with
any trades involving a stock defined as a penny stock (generally, any equity
security that has a market price of less than $5.00 per share). 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 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, thereby
severely limiting the market liquidity of the Common Stock and the ability of
purchasers in this offering to sell the Common Stock in the secondary market.
Dividends. The Company currently anticipates that, following the
completion of this offering, all of its earnings will be retained for use in the
operation of its business, and the Company has no current intention to pay any
dividends in the foreseeable future. See "Dividend Policy".
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
and Warrants offered hereby are estimated to be approximately $4,107,625
($4,765,018 if the Underwriter's Over-Allotment Option is fully exercised).
The following table summarizes the anticipated application of the estimated
net proceeds of this offering:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
AMOUNT OF OF
APPLICATION NET PROCEEDS NET PROCEEDS
- ----------- ------------ ------------
<S> <C> <C>
Acquisition of Max's Grille Restaurants(1).................. $3,000,000 73.0%
Redemption of Series A Preferred Stock(2)................... 400,000 9.7
Repayment of Debt(3)........................................ 125,000 3.0
Working Capital(4).......................................... 582,625 14.3
---------- -----
$4,107,625 100.0%
========== =====
</TABLE>
- ---------------
(1) The Company expects to use $3,000,000 of the net proceeds to cover the
pre-opening costs and expenses (including construction and equipment) of
four Max's Grille Restaurants. On July 1, 1997 the Company entered into an
agreement with URCI pursuant to which the Company committed $3,000,000 in
net proceeds of this offering in exchange for 51 percent equity interests in
the entities that own or will own the four Max's Grille Restaurants. These
entities are Florida limited partnerships, the limited partner of which is
Unique Restaurant Concepts, Ltd., the general partner of which is URCI, the
owners of which are Company directors Catalfumo, Max and Rapoport, and the
general partner of which is a Florida corporation owned by Company directors
Catalfumo, Max and Rapoport. See "Business -- The Max's Grille Restaurants".
Such proceeds will ultimately be paid to Catalfumo Construction and
Development, Inc., the construction firm controlled by Company director
Daniel Catalfumo. URCI, which is owned by Company directors Catalfumo, Max
and Rapoport, will be beneficiaries of the proceeds, insofar as payment to
the construction company will ensure that the Max's Grille Restaurants shall
be built.
(2) The Company expects to use $400,000 of the net proceeds to redeem 80,000
shares of its outstanding Series A Preferred Stock. See "Description of
Securities".
(3) The Company expects to use $125,000 of the net proceeds to repay its debt to
director Catalumo. Mr. Catalfumo is a principal of URCI, owns the
above-referenced construction company that has built several restaurants for
URCI and which built Max's Beach Place Grille (one of the Max's Grille
Restaurants) and is building the other Max's Grille Restaurants. See
"Description of Securities".
(4) The balance of the net proceeds will be utilized by the Company to cover its
working capital needs.
Proceeds not immediately required for the purposes described above will be
invested principally in short-term bank certificates of deposit, United States
Government obligations, money market instruments or short-term investment grade
securities.
DIVIDEND POLICY
The Company generally has not paid dividends in the past and anticipates
that earnings will be retained by the Company for the operation of its business.
Accordingly, the Company does not anticipate paying cash dividends on the Common
Stock in the foreseeable future. Future financing entered into by the Company
may contain provisions prohibiting the Company's ability to pay dividends.
DILUTION
The difference between the initial public offering price per Unit and the
adjusted net tangible book value per share of Common Stock after this offering
constitutes the dilution to investors in this offering. Net tangible book value
per share on any given date is determined by dividing the net tangible book
value of the Company on that date by the number of shares of Common Stock
outstanding on that date.
14
<PAGE> 16
At June 30, 1997 the pro forma net tangible book value of the Company was
$780,167 or $0.74 per share of Common Stock after giving effect to the
conversion of 80,000 shares of Series A Preferred Stock into 40,000 shares of
Common Stock and the redemption of 80,000 shares of Series A Preferred Stock.
After giving effect to the sale of 650,000 Units being offered hereby (excluding
the Underwriter's Over-Allotment Option) at an offering price of $7.75 and the
anticipated application of the net proceeds therefrom, the adjusted net tangible
book value of the Company at June 30, 1997 would have been $4,887,792 or $2.86
per share, representing an immediate increase in net tangible book value of
$2.12 per share to existing shareholders and an immediate dilution of $4.89 per
share to new investors. The following table illustrates the foregoing
information with respect to dilution to new investors on a per share basis:
<TABLE>
<S> <C> <C>
Combined public offering price(1)........................... $7.75
Pro forma net tangible book value per share at June 30,
1997(2)................................................ $ .74
Increase per share attributable to investors in this
offering............................................... 2.12
-----
Adjusted net tangible book value after offering............. 2.86
-----
Dilution per share to new investors(3)...................... $4.89
=====
</TABLE>
- ---------------
(1) Represents the purchase price of one Unit.
(2) Represents net tangible book value, adjusted for conversion of 80,000 shares
of Series A Preferred Stock into 40,000 shares of Common Stock and the
redemption of 80,000 shares of Series A Preferred Stock.
(3) Assumes no exercise of options or warrants, or exercise of Underwriters
Over-Allotment Option. If the Over-Allotment Option were fully exercised,
the pro forma tangible book value at June 30, 1997 would be $5,545,185 and
the adjusted net tangible book value after offering and the dilution per
share to new investors would be $3.07 and $4.68, respectively.
The following table sets forth a comparison of the number of shares of
Common Stock acquired from the Company by the Company's shareholders as of June
30, 1997 and to be acquired from the Company by investors in this offering, the
percentage ownership of such shares, the total consideration paid, the
percentage of total consideration paid and the average price per share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
-------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE/UNIT(3)
--------- ------- ---------- ------- -----------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1).............. 1,060,000 59% $ 860,000 13% $0.81
New Investors......................... 747,500(2) 41 5,793,125 87 $7.75
--------- --- ---------- ---
Total....................... 1,807,500 100% $6,653,125 100%
========= === ========== ===
</TABLE>
- ---------------
(1) Includes conversion of Series A Preferred Stock into 40,000 shares of Common
Stock.
(2) Includes Underwriter's Over-Allotment Option.
(3) For existing shareholders price is per share of Common Stock. For new
investors, price is per Unit.
15
<PAGE> 17
SELECTED FINANCIAL DATA
The following presents selected consolidated financial data of the Company
at the dates and for the periods indicated. The historical statement of
operations and balance sheet data at and for the year ended December 31, 1996
have been derived from the financial statements of the Company, which have been
audited by Templeton & Company, P.A., independent public accountants, whose
report on the consolidated balance sheet as of December 31, 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year ended December 31, 1996 and the period May 17, 1995 (inception) to
December 31, 1995, is included elsewhere herein. The historical statement of
operations and balance sheet data at June 30, 1997 and for the half year ended
June 30, 1997 and 1996 have been derived from unaudited consolidated financial
statements and include all adjustments, consisting only of normal recurring
adjustments, which the Company considers necessary for a fair presentation of
the Company's financial statements for these interim periods. The results for
the half year ended June 30, 1997 are not necessarily indicative of the results
that may be expected for any other interim period or the entire year ending
December 31, 1997. The following selected financial information should be read
in conjunction with the financial statements and the related notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" presented elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------------
1996 1996 1997
----------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Selected Statement of Operations Data:
Net sales................................................. $2,333,530 $ 925,555 $2,679,903
---------- ---------- ----------
Cost and expenses:
Cost of sales........................................... 1,299,501 470,920 1,524,705
Operating expenses...................................... 881,856 349,920 1,129,779
Interest expense, net................................... -- -- 24,500
---------- ---------- ----------
Total cost and expenses............................. 2,181,357 820,840 2,678,984
---------- ---------- ----------
Operating income.......................................... 152,173 104,715 919
Other income, net......................................... 3,051 160 87
---------- ---------- ----------
Income before income taxes................................ 155,224 104,875 1,006
Income tax expense........................................ 9,319 -- 300
---------- ---------- ----------
Net income................................................ $ 145,905 $ 104,875 $ 706
========== ========== ==========
Earnings per common share(1):
Primary................................................... $ 0.15 $ 0.11 $ --
========== ========== ==========
Fully diluted............................................. $ 0.13 $ 0.10 $ 0.01
========== ========== ==========
Weighted average common shares outstanding:
Primary................................................... 1,003,138 969,117 1,031,987
========== ========== ==========
Fully diluted............................................. 1,103,138 1,069,117 1,128,672
========== ========== ==========
Selected Balance Sheet Data:
Cash and cash equivalents................................. $ 202,639 $ 110,502
Working capital deficit................................... (59,502) 118,671
Total assets.............................................. 1,086,151 1,602,823
Total liabilities......................................... 462,940 422,656
Series A Preferred Stock.................................. -- 400,000
Common shareholders' equity............................... 623,211 780,167
</TABLE>
- ---------------
(1) Primary earnings per common share is based on the average number of common
shares outstanding during each period, adjusted retroactively for the
reverse stock split on November 3, 1997, assuming the effect of exercising
options which have an exercise price less than the average market price of
common stock (assumed to be $7.75 per share) using the modified treasury
stock method. In addition, primary per share amounts include the dilutive
effect of common shares issued for cash consideration below the assumed
average market price during the one year period prior to July 1997. The
fully diluted earnings per common share calculation assumes the conversion
of the promissory note and Series A Preferred Stock, issued by the Company
subsequent to December 31, 1996, into shares of common stock. The net income
for the six months ended June 30, 1997 used in the fully diluted calculation
was adjusted for interest incurred on the promissory note, net of tax
benefits, and dividends accrued on the Series A Preferred Stock.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The historical financial statements appearing elsewhere in this Prospectus
present the consolidated historical results of operations and financial
condition of Sforza Enterprises Inc. and its subsidiaries (Castle Room, Inc.,
Clematis Bistro Corporation and Sushi Enterprises, Inc.) The following
discussion is based upon the consolidated results of operations of the Company.
The Company's net sales comprise the food and beverage sales by the
restaurants it operates. The first restaurant, Sforza Ristorante, opened in
February 1996 and the second restaurant, My Martini Grille, opened in February
1997. A third restaurant is expected to open in December 1997. The Company's
expenses include the cost of food and beverages sold, salaries and wages for
food and beverage preparation and service, rent and other occupancy expenses,
advertising, repairs and maintenance, general supplies, depreciation and
amortization, interest and administrative expenses.
The following discussion and analysis should be read in conjunction with
the Company's audited financial statements and related notes thereto, which are
presented elsewhere herein.
RESULTS OF OPERATIONS
The following table sets forth selected historical consolidated operating
results for the Company as a percentage of net sales.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ----------------
1996 1996 1997
------------ ----- -----
(UNAUDITED)
<S> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0%
----- ----- -----
Cost and expenses:
Cost of sales............................................ 55.7 50.9 56.9
Operating expenses....................................... 37.8 37.8 42.1
Interest expense, net.................................... -- -- .9
----- ----- -----
Total cost and expenses.......................... 93.5 88.7 99.9
----- ----- -----
Operating income........................................... 6.5 11.3 .1
Other income, net.......................................... .1 -- --
----- ----- -----
Income before income taxes................................. 6.6 11.3 .1
Income tax expense......................................... (.3) -- (.1)
----- ----- -----
Net income................................................. 6.3% 11.3% --%
===== ===== =====
</TABLE>
Six months ended June 30, 1997 compared to six months ended June 30, 1996
Net Sales. Net sales increased from $925,555 for the six months ended June
30, 1996 to $2,679,903 for the six months ended June 30, 1997, an increase of
189.5%. Sforza Ristorante's net sales were $1,455,564 for the six months ended
June 30, 1997 and $925,555 for the comparable period in 1996. My Martini
Grille's net sales totaled $1,224,339 for the six months ended June 30, 1997. My
Martini Grille opened in February 1997. The increase in Sforza Ristorante's net
sales was due to increased customer counts and the additional days of operation
during the full six month period in 1997; Sforza Ristorante was not open for
business until February 1996.
Cost of Sales. Total cost of sales increased from $470,920 for the six
months ended June 30, 1996, to $1,524,705 for the six months ended June 30,
1997, an increase of 223.8% due principally to the increase in sales volume. The
cost of sales for Sforza Ristorante, as a percentage of net sales, was 50.9% and
53.4%, respectively, for the six months ended June 30, 1996 and 1997. The cost
of sales percentage for My Martini
17
<PAGE> 19
Grille for the six months ended June 30, 1997 was 61.0%. Sforza Ristorante's
costs of sales as a percentage of net sales are lower than those of My Martini
Grille because the former sells primarily pasta, which is less expensive than
steak, the food item sold primarily by the latter.
Operating Expenses. Operating expenses increased by $779,859 from $349,920
in 1996 to $1,129,779 in 1997, a 222.9% increase. Such expenses totaled 37.8%
and 42.1% of net sales, respectively, for the six months ended June 30, 1996 and
1997. This increase was due to the additional expenses attendant with the
increased level of sales, additional administrative personnel and other costs
associated with the development of the Company's corporate infrastructure,
certain non-recurring compensation paid to certain principals during the six
months ended June 30, 1997 aggregating $64,970, pre-opening expense amortization
of $25,470 for the six months ended June 30, 1997 and management fee expense of
$27,599 incurred during the six months ended June 30, 1997.
Income Tax Expense. During the six months ended June 30, 1996, the Company
operated as an S corporation for income tax purposes, whereby taxable income or
loss was apportioned among the share-holders rather than taxed to the Company.
Interest Expense. During the six months ended June 30, 1996, the Company
capitalized all of the interest incurred in connection with the construction of
its restaurants approximating $12,000. During the six months ended June 30,
1997, $24,000 of interest cost was charged to income, net of $2,675 interest
capitalized.
Other Income, Net. Other income, net for the six months ended June 30,
1997, includes a charge approximating $4,400 for accrued dividends to holders of
Series A Preferred Stock.
Net Income. As a result of the above, the Company's net income
attributable to common shareholders was $706 for the six months ended June 30,
1997 versus prior year net income of $104,875.
Year ended December 31, 1996
Results of operations for 1996 solely include the operations of Sforza
Ristorante which opened in February 1996. There were no comparable restaurant
operations for 1995. The Company opened its second restaurant, My Martini
Grille, in February 1997 and expects to open a third restaurant in December
1997. The openings of these restaurants will significantly increase the
Company's reported revenue and related costs. During 1997, the Company entered
into a management agreement for the management of its restaurants. The
management fee will result in additional operating expenses over amounts
reported in 1996. See "Certain Transactions". There were no significant unusual
or non-recurring items materially impacting reported revenue and expenses for
1996 other than income tax expense as discussed below.
Prior to July 1, 1996, Castle Room, Inc. operated as an S corporation for
federal income tax purposes and its taxable income was not subject to corporate
income taxes. Unaudited pro forma consolidated statements of income for the year
ended December 31, 1996 and the six months ended June 30, 1997, after adjusting
1996 for assumed corporate income taxes prior to July 1, 1996, are presented as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1996 1997
------------ --------------
<S> <C> <C>
Net sales................................................... $2,333,530 $2,679,903
---------- ----------
Cost and expenses:
Cost of sales............................................. 1,299,501 1,524,705
Operating expenses........................................ 881,856 1,129,779
Interest expense, net..................................... -- 24,500
---------- ----------
Total cost and expenses................................... 2,181,357 2,678,984
---------- ----------
Operating income............................................ 152,173 919
Other income, net........................................... 3,051 87
---------- ----------
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
1996 1997
------------ --------------
<S> <C> <C>
Income before income taxes.................................. 155,224 1,006
Pro forma income tax expense................................ 40,674 300
---------- ----------
Pro forma net income........................................ $ 114,550 $ 706
========== ==========
Pro forma earnings per common share:
Primary................................................... $ 0.11 $ --
========== ==========
Fully diluted............................................. $ 0.10 $ 0.01
========== ==========
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's two operating restaurants are located in West Palm Beach,
Florida and are therefore subject to the seasonality of the tourist industry in
South Florida. Restaurant sales are expected to be very brisk in the tourist
season, which is generally from mid-fall to mid-spring and slow during the
off-season. The Company expects to require working capital to fund operations
during the off-season.
The Company's principal financing for the construction and opening of its
restaurants through December 31, 1996 was provided by its shareholders. During
the six months ended June 30, 1997, the Company borrowed $250,000 from URCI
(subsequently assigned to Daniel Catalfumo, a principal thereof and a director
of the Company) pursuant to a promissory note and raised $31,250 through the
issuance of 12,500 shares of its common stock. Mr. Catalfumo subsequently
converted $125,000 in principal into 20,000 shares of Common Stock. During May
1997, the Company raised $400,000 through the issuance of 160,000 shares of
Series A Preferred Stock at $2.50 per share. Such funding was obtained to
complete construction and opening of the sushi restaurant in December 1997
(estimated to require $250,000), and provide working capital to support
operations during the off-season. The Company does not have an existing
arrangement for a credit facility with a financial institution for short-term
financing. Management believes that cash flow generated from operations,
together with the above financing transactions and the net proceeds from this
offering, will be sufficient to meet the Company's working capital requirements
and anticipated capital expenditures through fall 1998. In order to continue to
open additional restaurants, the Company is likely to require additional
financing.
The Company expects to redeem 80,000 shares of the Series A Preferred Stock
for $400,000 with the proceeds from this offering and convert the remaining
80,000 shares into 40,000 shares of Common Stock. The redemption will result in
a preferred stock dividend in the amount of $200,000 which will be recorded as a
deduction from earnings attributable to common shareholders and the Common Stock
conversion will result in a $200,000 increase to common shareholders' equity. If
the initial public offering does not occur by January 1, 1998, the preferred
shares will be redeemed at cost plus four percent.
On July 1, 1997, the Company entered into a Funding Agreement with URCI
which provides that the Company will receive a 51% equity interest in each of
four limited partnerships, each of which was or will be formed to construct and
operate a Max's Grille Restaurant, in exchange for an aggregate commitment of
$3,000,000 of the proceeds from this offering. In addition, on July 1, 1997 the
Company granted an option to URCI to purchase 75,000 shares of Common Stock at
an exercise price of $5.00 per share, exercisable through December 31, 1999.
Such grant will result in a charge to earnings of approximately $206,000. Unless
extended by the parties, such commitment terminates in the event the offering is
not completed and sufficient funds raised by November 30, 1997.
The Company may seek to obtain a line of credit for working capital from a
bank following this offering. There can be no assurance, however, that the
Company will be successful in obtaining a bank line of credit on acceptable
terms or at all.
IMPACT OF INFLATION
The Company has not operated in a highly inflationary period and its
management does not believe that inflation has had a material effect on sales or
expenses. As operating expenses increase, the Company expects
19
<PAGE> 21
to recover increased costs by increasing prices, to the extent permitted by
competition. Because the Company's business is somewhat dependent on tourism in
Florida, any significant decrease in tourism caused by inflation would likely
have a material adverse effect on revenues and profitability.
SEASONALITY
The Company's business exhibits some seasonality. Historically, net sales
have been the highest in the winter and spring seasons, when Florida is a
popular warm weather tourist destination.
ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS123"). FAS123 establishes financial accounting
and reporting standards for stock-based employee compensation plans. FAS123 is
effective for stock options granted in fiscal years beginning after December 15,
1995. The Company plans to use the intrinsic value method to account for its
stock options as permitted by FAS123.
20
<PAGE> 22
BUSINESS
GENERAL
The Company has three wholly-owned subsidiaries, each of which owns one
restaurant (the West Palm Beach Restaurants), and entered into an agreement to
acquire 51 percent equity interests in four entities, each of which owns or is
developing one restaurant (the Max's Grille Restaurants). Currently, two of the
West Palm Beach Restaurants are open and one of the Max's Grille Restaurants is
open.
HISTORY
Castle Room, Inc. was incorporated in May 1995 by Company directors Brisson
and Joseph Visconti to develop Sforza Ristorante. Clematis Bistro Corporation
was incorporated in April 1996 by Mr. Visconti to develop My Martini Grille.
Sushi Enterprises, Inc. was incorporated in early July 1996 by Messrs. Brisson
and Visconti to develop a sushi restaurant. Sforza Enterprises Inc. was
incorporated in late July 1996 as a holding company for the three corporations.
Messrs. Brisson and Visconti exchanged their founders' shares in Castle Room,
Inc. for founders' shares in the Company and the Company capitalized Clematis
Bistro Corporation and Sushi Enterprises, Inc. as founder of each in late July
1996 with proceeds of private securities offerings.
CONCEPTS AND DESIGN
The Company's strategy is to own upscale, moderately priced, casual dining
restaurants that are known for providing quality, affordable, contemporary food,
service and ambiance. Although the Company's existing and presently planned
restaurants are in South Florida, ultimately the Company plans to open
restaurants in selected markets outside of South Florida. The Company strives to
provide excellent values and an enjoyable and distinctive dining experience by
offering first quality food in high energy yet casual settings with efficient,
attentive and friendly service.
SITE SELECTION
The Company believes that the downtown West Palm Beach sites are critical
to the success of its West Palm Beach Restaurants, with the high levels of
pedestrian traffic and close proximity to heavily populated residential and/or
tourist areas. According to the Palm Beach County, Florida Planning, Zoning and
Building Department, Palm Beach County's population is expected to grow from
981,793 in 1996 to 1,067,900 by the end of the decade and to 1,271,100 by the
year 2010, making Palm Beach County one of the country's fastest growing areas.
West Palm Beach is an exciting example of urban revitalization. Located across
the intracoastal waterway from the storied island of Palm Beach and less than 10
minutes from Palm Beach International Airport, downtown West Palm Beach is
benefitting immensely from the growth the county continues to experience.
In response to the swelling influx of visitors, second home buyers and
relocating and expanding businesses, anticipated county employment growth is
also extremely strong. According to the Florida Department of Labor and
Employment Security, Palm Beach County's employment is expected to grow from
443,403 in 1994 to 559,844 by the year 2005, a 26.26 percent increase.
URCI selected the two Fort Lauderdale locations and the Weston location for
its newest Max's Grille Restaurants because of their proximity to Boca Raton,
where the original Max's Grille has been thoroughly and successfully tested.
Additional high-profile upscale communities and developments are targeted for
future expansion.
THE WEST PALM BEACH RESTAURANTS
Sforza Ristorante. The Company owns a full-service, mid-priced, casual
dining northern Italian restaurant named "Sforza Ristorante". Sforza Ristorante
offers an extensive menu featuring a wide variety of seafood, chicken and pasta
dishes, appetizers, salads and desserts. The restaurant offers full bar service.
Since its February 1996 opening, food and alcoholic beverages have accounted for
approximately 57% and 43% of
21
<PAGE> 23
restaurant sales, respectively. The restaurant offers generous portions at
moderate prices while providing friendly and efficient service in a high-energy
casual atmosphere intended to appeal to a broad customer base, particularly
young upscale adults. As a result, the Company believes that the restaurant has
generated a high level of repeat business and customer loyalty. Sforza
Ristorante offers dinner entrees between $8 and $18, with an average dinner
entree price of $14. The Company believes that by emphasizing casual dining,
high quality, large portions and moderate prices, Sforza Ristorante will remain
popular with consumers.
Sforza Ristorante reflects an elegant yet casual European concept featuring
a plush red and gold decor. The eclectic design blends the ambiance of
renaissance Tuscany with the energy of a rejuvenated urban area. Lush fabrics
and red velvet drapery treatments are enhanced by unique hand faux finished
walls. Contemporary styled sconces and pendants illuminate the dining and bar
areas with soft, inviting light, enhancing the casual upscale dining experience
and establishing a distinct identity for the restaurant.
My Martini Grille. The Company owns a full-service upscale grill named "My
Martini Grille". My Martini Grille, which opened in February 1997, was designed
to serve a sophisticated clientele, including business diners. The My Martini
Grille concept embraces an elegant and timeless early twentieth century motif.
My Martini Grille is Gotham City revisited. This sleek art nouveau restaurant
and bar recaptures the sophisticated allure of the martini culture. Cocktails
are complemented with deep mahogany walls and rich purple and golds. Stylish
stainless steel accents mix with unique Italian light fixtures to create a
relaxed sexy elegance. All of the elements enhance the dining experience and
establish a distinct identity for My Martini Grille. My Martini Grille offers
dinner entrees between $16 and $30, with an average dinner entree price of $20.
Planned Sushi Restaurant. The Company plans to open a full-service,
mid-priced casual dining sushi restaurant in December 1997. The planned
restaurant has been designed to reflect Tokyo in the year 2050. An ocean green
tile floor, blonde maple sushi bar and stainless steel highlights will create a
unique techno atmosphere. Japanese animation and comic books will assume larger
than life scale in artwork incorporated into the design and construction. Large
TV screens over the sushi bar will transform Godzilla, Ultra Man and Speed Racer
into animated art. The funky, innovative design will make dining an experience,
not just fish and rice. The Company's sushi restaurant will offer dinner entrees
between $15 and $30, with an average dinner entree price of $24.
THE MAX'S GRILLE RESTAURANTS
The Company intends to acquire 51 percent equity interests in the entities
that own the Max's Grille Restaurant located at 17 South Atlantic Boulevard
("Beach Place") and the Max's Grille Restaurants under construction at 300
Southwest First Avenue ("Las Olas Riverfront") in Fort Lauderdale, Florida and
at 2210 Weston Road, in Weston, Florida ("Weston") plus the entity that will own
the next Max's Grille to be developed, the location of which is to be
determined. Each of the Max's Grille Restaurants will replicate the Max's Grille
restaurant in Boca Raton, Florida. Beach Place opened in May 1997. Las Olas
Riverfront and Weston are expected to open in early 1998.
The Las Olas Riverfront, a new 270,000 square foot shopping center on the
New River, the main water thoroughfare dissecting the downtown, will be anchored
by a 24 screen stadium seating movie theater and an 80,000 square foot amusement
center. The Max's Grille Restaurant will be 6,500 square feet, seating 200
inside and 40 on an outside patio when it opens for business in early 1998.
In Weston, the Max's Grille Restaurant will co-anchor the new 200,000
square foot Waterway Shoppes. It will also be 6,500 square feet, seating 200
inside and 40 on an outside lakefront patio when it opens for business in early
1998.
Max's Grille in Boca Raton, Florida, the model for the Max's Grille
Restaurants, incorporates casual dining, moderate prices and a cosmopolitan
ambiance in a comfortable relaxed atmosphere. Opened in 1991, the 225-seat
restaurant has been serving a mix of new American and Continental cuisine with a
wide variety of wines and a full-service bar. The decor features a free-standing
mahogany bar, high ceilings with star
22
<PAGE> 24
chandeliers and floating window treatments. Its fresh, simply-prepared dishes
are imaginative but not intimidating, enhanced with the flavors of Florida,
California, New Orleans, Europe and the Pacific.
Each of the Max's Grille Restaurants is owned by a distinct Florida limited
partnership formed exclusively to own, develop and operate one restaurant. The
sole general partner of each limited partnership is a Florida corporation owned
by Company directors Catalfumo, Max (and his wife Patti Max) and Rapoport. The
sole limited partner of each limited partnership is a limited partnership
ultimately owned by Company directors Catalfumo, Max and Rapoport. URCI manages
every restaurant in which Messrs. Catalfumo, Max and Rapoport have an interest.
The typical setting for a Max's Grille restaurant is a high-profile upscale
community, where an average food and beverage check of $25 could foster repeat
visits by patrons. Young professional and prosperous active "golden
agers" -- the demographic group that according to the National Restaurant
Association spends more money dining out than any other age group -- comprises
Max's Grille's regular clientele.
The Max's Grille concept was first replicated in 1995 in Celebration,
Florida, The Walt Disney Co.'s planned community near Orlando, Florida. URCI
successfully competed against restaurant companies from across the nation for
the right to open a restaurant in that community. The Max's Grille restaurant in
Celebration is owned by The Celebration Company, an unaffiliated third party,
and managed by Unique Orlando Inc., a Florida corporation owned by Company
directors Catalfumo, Max (and his wife Patti Max) and Rapoport ("UOI"). UOI
receives a percentage of the gross for managing the restaurant pursuant to the
terms of a Management Agreement. The Management Agreement further provides that
upon achievement of a certain annualized gross revenue figure UOI becomes the
lessee of the restaurant, and continues to operate it. A lease agreement is
annexed to the Management Agreement to take effect upon such occurrence.
URCI is also known for its successful Maxaluna, Max's Cafe and Coffee Shop
(2 locations), Prezzo's (3 locations) and Astor Place restaurants.
RESTAURANT MANAGEMENT
URCI, the restaurant management company owned by Company directors
Catalfumo, Max (and his wife Patti Max) and Rapoport, operates the current and
will operate the future West Palm Beach Restaurants and Max's Grille Restaurants
as well as nine other existing restaurants. From February through May 1997 URCI
provided management services pursuant to an informal arrangement. URCI has since
then managed the West Palm Beach Restaurants pursuant to the terms of a
Management and Consulting Agreement dated June 1, 1997. Under these
arrangements, URCI's management fees will total $58,000 through October 31,
1997. Thereafter URCI will receive one percent of net sales plus 20 percent of
the net operating profit, paid monthly. (Net operating profit equals net sales
less direct operating and other allocable expenses.) URCI is responsible for
determining menu and bar items, designing menus, creating recipes, taste testing
and costing; interviewing, hiring and training personnel and developing
personnel policies and manuals; developing operating policies and manuals;
developing and implementing a marketing plan; and otherwise operating the
restaurants. The agreement can be terminated by the Company in the event of
misappropriation of Company funds, disreputable conduct on the part of either
Messrs. Rapoport or Max or breach.
In addition, the Company intends to enter into a new two-year management
agreement with URCI pursuant to which URCI will continue to operate the
Company's existing restaurants, and will manage all future Max's Grille
Restaurants owned by the Company. Under the new management agreement, URCI will
have the option to acquire the Company's equity interests in the Max's Grille
Restaurants in the event that URCI involuntarily ceases to manage the Max's
Grille Restaurants. In such event, URCI will have an option, exercisable for a
60 day period, to acquire the Company's equity interests in the Max's Grille
Restaurants for the appraised fair market value thereof.
The staff of each Company restaurant consists of a general manager, a chef
and between 20 and 70 other employees managed by URCI. Restaurant managers are
entitled to participate in an annual discretionary bonus program based upon the
financial and operational results of their particular restaurant.
23
<PAGE> 25
The Company believes that achieving customer satisfaction by providing
knowledgeable, friendly, efficient service is critical to the restaurants'
long-term success. During URCI's training program, restaurant managers are
taught to promote the Company's team-oriented atmosphere among restaurant
employees, with emphasis on preparing and serving food in accordance with strict
standards and providing friendly, courteous and attentive service. The Company
believes that the quality and training of its restaurant managers and staff
results in friendly, courteous, efficient service which contributes to a casual
and pleasurable dining experience for the customer.
COMMITMENT AND CUSTOMER SATISFACTION
The Company's utilization of URCI evidences the Company's commitment to
providing its customers with efficient and friendly service, keeping
table-to-wait staff ratios low and staffing each restaurant with an experienced
management team to help ensure attentive customer service and a pleasurable
dining experience. The Company's commitment is further underscored by URCI's
employee training program, which is required for all Company personnel. URCI has
refined its training program over 10 years, producing manuals on policies and
procedures and an employee handbook. The Company's restaurant employees spend a
full week training, from orientation on cultures and standards to classroom
lessons to hands-on instruction. Tests are given each day to monitor retention.
Food tasting is included. The final step is a three-day mock service for family,
friends and vendors.
Through the use of comment cards and table visits, Company management and
URCI receive valuable customer feedback and, through prompt responses,
demonstrate a continuing devotion to customer satisfaction.
QUALITY CONTROL
The Company maintains a continuous inspection program for all its food
purchases. Each shipment of food is inspected upon receipt for quality and
conformance to the Company's specifications. In addition, fresh fish is
inspected by kitchen staff at the time of delivery. The restaurants' employees
are educated as to the correct handling and proper physical characteristics of
each product.
The Company's general managers are all responsible for properly training
hourly employees and ensuring that the Company's restaurants are operated in
accordance with strict health and quality standards. The Company believes that
its inspection procedures and its employee training practices help the Company
to maintain a high standard of quality for the food and service it provides.
PURCHASING
Obtaining a reliable supply of quality food at competitive prices is
critical to the Company's success. By affiliating with URCI, the Company is part
of a group that purchases over $14 million of food and other products and
services for 13 restaurants. Food and supplies are shipped directly to the
Company's restaurants. The Company does not maintain a central product warehouse
or commissary. The Company believes its diverse menu selection reduces the risk
and minimizes the effect of the shortage of any food products. To date, the
Company generally has not experienced any significant delays in receiving its
food and beverage inventories, restaurant supplies or equipment.
ADVERTISING AND MARKETING
Advertising and marketing expenditures in 1996 and the first half of 1997
were approximately 2% of sales. The Company sponsored charitable events,
participated in cooking competitions (regional and national), advertised in
local magazines and newspapers and gave away drinks and meals at tables and on
the radio.
MANAGEMENT INFORMATION
The Company maintains financial and accounting controls for each restaurant
through a central management information system. Sales data is collected daily,
and managers are provided with daily sales and
24
<PAGE> 26
cash information for their respective restaurants. A point-of-sale accounting
and cash management system enables the Company to access each restaurant's
sales, inventory, costs and other financial data on a real-time basis. The
point-of-sale accounting and cash management system enables both restaurant
management and Company management to react quickly to changing sales trends,
better manage food, beverage and labor costs, minimize theft and improve the
quality and efficiency of accounting and audit procedures. State-of-the-art
software programs enable the Company to forecast and schedule labor
requirements.
COMPETITION
Competition in the restaurant industry is intense. The industry,
particularly the full-service casual dining segment, is likely to attract a
significant number of new entrants. The Company also expects to face competition
from a broad range of other restaurants and food service establishments,
including fast food restaurants which specialize in a variety of cuisines. In
addition, the full-service restaurant industry is characterized by the frequent
introduction of new food products accompanied by substantial promotional
campaigns. In recent years, numerous companies in the full-service restaurant
industry have introduced products intended to capitalize on growing consumer
preference for food products which are, or are perceived to be, healthy,
nutritious, low in calories and low in fat content. It can be expected that the
Company will be subject to increasing competition from companies whose products
or marketing strategies address these consumer preferences.
The Company competes with other restaurants on the basis of price,
atmosphere, decor and service.
GOVERNMENT REGULATION
The Company is subject to extensive state and local government regulation
by various governmental agencies, including state and local licensing, zoning,
land use, construction and environmental regulations and various regulations
relating to the sale of food and alcoholic beverages, sanitation, disposal of
refuse and waste products, public health, safety and fire standards. The
Company's restaurants are subject to periodic inspections by governmental
agencies to ensure conformity with such regulations. The Company believes it
complies with all applicable government regulations.
The Company is also subject to laws governing its relations with employees,
including wage and hour laws, and laws and regulations relating to working and
safety conditions and citizenship or immigration status.
SERVICEMARKS AND PROPRIETARY INFORMATION
The Company has registered the servicemarks "Sforza" and "My Martini" with
the Secretary of State of Florida. The Company believes that its servicemarks
have significant value and are essential to its ability to create demand for and
awareness of its restaurants. See "Risk Factors".
PROPERTIES
The Company leases 450 square feet of space at 330 Clematis Street #211 in
West Palm Beach, Florida for its executive offices from Renaissance Partners
LLC. The lease runs month to month and is terminable by either party upon one
month's prior written notice. The monthly rent payable under the lease is
$1,166.
All of the Company's West Palm Beach Restaurants are housed in adjacent
storefronts leased from Clematis Development Group, L.C., a real estate holding
company partly owned by Joseph C. Visconti, a principal in the Company and in
the Underwriter. See "Certain Transactions". Each restaurant lease provides that
the tenant pay rent plus the cost of insurance, taxes and a portion of the
landlord's operating costs to maintain common areas. The leases have initial
terms of 10 years with renewal options. The Company leases properties with 2,500
to 5,500 square feet total space and seating capacity for 90 to 220 persons.
EMPLOYEES
The Company employs approximately 145 persons, of whom 10 are management or
administrative personnel and the rest are employed in non-management restaurant
positions. Approximately 130 of these
25
<PAGE> 27
individuals are employed by the Company on a full-time basis. All management and
administrative personnel are salaried and non-management personnel are on an
hourly basis. The Company considers its employee relations to be good. None of
the Company employees is covered by a collective bargaining agreement.
LEGAL PROCEEDINGS
From time to time the Company has been involved in minor legal disputes
customary in the dining industry, none of which is believed by management to be
material to its operating results. The Company is not currently a party to any
threatened or pending legal proceedings.
26
<PAGE> 28
MANAGEMENT
DIRECTORS AND OFFICERS
The Company's directors and officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Dale J. Brisson.................................... 37 President and Director
Gerald J. Visconti Jr.............................. 34 Vice President, Chief Financial
Officer, Secretary and
Director
Daniel S. Catalfumo................................ 41 Director
Dennis R. Max...................................... 52 Director
Burton M. Rapoport................................. 47 Director
Joseph C. Visconti................................. 33 Director
</TABLE>
Mr. Brisson has served as president and as a director of the Company since
its inception in July 1996. He has served as president and as a director of
Castle Room, Inc. since May 1995, Clematis Bistro Corporation since April 1996
and Sushi Enterprises, Inc. since July 1996. Born and raised in Palm Beach
County, Florida, Mr. Brisson has spent his entire career in the restaurant
business. In 1986 he opened the first Rosie's Key West Grille in Lake Worth,
Florida, which by 1994 had grown into a chain of four restaurants in Palm Beach
County with 110 employees.
Mr. G. Visconti has served as an officer and director of the Company since
its inception in July 1996. He established the Company's accounting and
management information systems departments. Prior to joining the Company he
owned and operated a trucking company in Los Angeles for 11 years. Mr. Visconti
graduated from Morrisville Agricultural and Technical College, Morrisville, New
York in 1983 with a degree in automotive technology. He is the older brother of
Joseph Visconti. Mr. Visconti has no ownership interest in the underwriter.
Mr. Catalfumo has spent his entire career in South Florida in the
construction industry. He founded Catalfumo Construction & Development Inc. in
West Palm Beach in 1978 and has built over 12 million square feet of office,
medical, warehouse, country club, industrial, retail and residential space. He
is a part owner of URCI with Messrs. Max (and his wife Patti Max) and Rapoport.
Mr. Max has served as a director of the Company since May 1997. After a
short stint in the banking and brokerage industries, he entered the restaurant
industry in 1972, where he has spent his entire career. He has been successful
in national chains and as an entrepreneur. He has enjoyed tremendous success in
South Florida, where his restaurants are well-known. Mr. Max owns URCI with his
wife, Patti Max, and Messrs. Catalfumo and Rapoport, which he serves as
president.
Mr. Rapoport has spent his entire career in the restaurant industry,
beginning as a bartender at the Victoria Station chain in Los Angeles in 1971,
where he met Mr. Max. In 1978 Messrs. Rapoport and Max created Carlos & Pepe's
in Ft. Lauderdale, Florida, a tremendous success, followed by Raffles in Miami,
which grew to 11 locations before being sold. Mr. Rapoport served for 12 years
on the Advisory Board of Johnson & Wales University, the large culinary
institute based in Providence, Rhode Island. Mr. Rapoport owns URCI with Messrs.
Catalfumo and Max (and Patti Max), which he serves as vice president.
Mr. J. Visconti has served as a director of the Company since its inception
in July 1996. Mr. Visconti has served as vice president, secretary and treasurer
and as a director of Castle Room, Inc. since May 1995, Clematis Bistro
Corporation since April 1996 and Sushi Enterprises, Inc. since July 1996. A
Syracuse, New York native, Mr. Visconti founded Joseph Charles & Assoc., Inc.,
the full-service brokerage firm underwriting the offering, in 1991, which he
serves as chairman, president and chief executive officer. The firm employs over
300 people in its two Florida and its Beverly Hills, Denver and Phoenix offices.
In 1993 Mr. Visconti founded Clematis Development Group, L.C. ("CDG") to acquire
and develop vacant buildings in downtown
27
<PAGE> 29
West Palm Beach. CDG leases storefronts to the Company for the West Palm Beach
Restaurants. In 1995 he teamed with Mr. Brisson to form Castle Room, Inc. which
opened Sforza Ristorante in February 1996.
Messrs. Catalfumo, Max and Rapoport are defendants along with URCI in a
civil lawsuit pending in the Florida state court in Palm Beach County, Florida
brought in May 1996 by former partners in a defunct URCI restaurant who have
alleged, among other things, that the three men breached their fiduciary duties
to the limited partners. The defendants have filed motions attacking the
plaintiffs' complaint and are awaiting a hearing on their motions. Discovery is
underway. The limited partners invested $400,000 in the subject partnership and
one of the limited partners also made a loan of $60,000 to the partnership.
Presumably, with respect to rescission claims, these plaintiffs would want to
recover the entire $460,000 plus interest and attorneys' fees, although no
specific request for damages has been made. The other claims being made are
derivative in nature as they challenge the appropriateness of certain charges
made to the partnership by URCI in its capacity as manager. These claims would
seek to require the corporate general partner, Unique Restaurant of South Beach,
Inc., and URCI to refund these expenditures. There is no specific, complete
listing of these expenditures but, in the aggregate, they are substantially less
than $100,000.
The defendants believe there is no merit whatsoever to the claims seeking
rescission. The plaintiffs assert that they were defrauded because Mr. Max
advised them that he had elected not to proceed with the restaurant he had been
considering at the Astor Hotel (three blocks north of the subject site) and that
$400,000 would be sufficient to open the restaurant for business. In fact, Mr.
Max did become involved in the establishment of a restaurant in the Astor Hotel
and the cost of readying the subject restaurant for opening turned out to be
$550,000. The defendants do not deny that either of these representations were
made; however, they vehemently deny that they were false when made, known to be
false by Mr. Max or any other party related to URCI or made with an intention of
misleading any of the plaintiffs. In fact, the Astor Hotel deal had terminated
when Mr. Max so advised the plaintiffs. At a subsequent point in time, the
principals of the Astor Hotel again approached Mr. Max with an entirely
different economic proposal pursuant to which they would fully fund construction
of the restaurant as opposed to the prior proposal in which he was being asked
to do so. Under that revised economic arrangement, Mr. Max proceeded to get
involved in a restaurant in the Astor Hotel. The defendants deny that the
involvement of URCI in the Astor Hotel had anything to do with the economic
failure of the subject restaurant. The Astor Hotel did not even open by the time
it had been determined that the subject restaurant was not going to succeed.
Moreover, the existence of a nearby restaurant enabled some cost savings for the
subject restaurant by sharing certain personnel expenditures between the two
locations. It is also important to note that the plaintiffs were well aware that
Mr. Max and URCI continue, at all times, to get involved in new restaurant
opportunities and had no reasonable basis for assuming or concluding that the
subject restaurant would be the last restaurant with which they become involved.
No such provision existed in the Partnership Agreement. With respect to the cost
overruns, they were simply initial estimates that turned out to be wrong. The
party that bore the brunt of the underestimate was URCI as it funded $90,000 of
the $150,000 deficit. One of the limited partners funded the other $60,000 as a
loan.
With respect to the alleged improper expenditures of funds, to the extent
specific expenditures have been noted by the plaintiffs, the defendants believe
that, for the most part, there are proper justifications with respect to each
expenditure. For example, the plaintiffs list a trip to New York by Mr. Max and
Carre Simon, the subject restaurant's chef, as an example of improper
expenditures. This trip was, in fact, taken to receive an award from Esquire
Magazine as one of the best new restaurants in the United States. A significant
amount of free publicity attended the receipt of that award. In connection with
reviewing the expenditures that have been noted, URCI is undertaking an overall
review of the manner in which it allocates charges to the various restaurants it
manages. To the extent it determines any expenditures were inappropriately
charged, it will make appropriate credits.
Each director of the Company is elected for a term of one year which
expires at the annual meeting of the Company's shareholders or at such other
time as his successor is duly elected and qualified. Pursuant to the Funding
Agreement dated July 1, 1997 among the Company, URCI, Mr. Max and others,
Messrs. Brisson, G. Visconti and J. Visconti agreed to vote their shares to
elect three designees of Mr. Max as directors to the
28
<PAGE> 30
Company's six member Board of Directors. Each officer is appointed by the Board
of Directors and serves at the pleasure of the Board. See "Certain
Transactions".
Directors are not compensated for their services on the Board of Directors.
The Company will reimburse directors for reasonable travel expenses incurred in
connection with their activities on behalf of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS
Subsequent to the offering, the Company will have an Audit Committee and a
Compensation Committee. The Audit Committee will be responsible for (i)
reviewing the scope of, and the fees for, the annual audit, (ii) reviewing with
the independent auditors the corporate accounting practices and policies and
recommending to whom reports should be submitted within the Company, (iii)
reviewing with the independent auditors their final report, (iv) reviewing with
the independent auditors the overall accounting and financial controls, and (v)
being available to the independent auditors during the year for consultation
purposes. The Compensation Committee will determine the compensation of the
officers of the Company and will perform other similar functions and grant
options under the Company's 1997 Equity Incentive Plan. Messrs. Max, Rapoport
and G. Visconti shall serve on the Audit Committee. Messrs. Max, Rapoport, G.
Visconti and J. Visconti shall serve on the Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information for 1996
concerning all cash and non-cash compensation awarded to, earned by or paid to
the Company's president and vice president. No officer of the Company earned
$100,000 or more during 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
COMPENSATION
--------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- --------------------------- ---- ------- ----- ------- ------------
<S> <C> <C> <C> <C> <C>
Dale J. Brisson..................................... 1996 $69,230 0 N/A N/A
President and Director
Gerald J. Visconti.................................. 1996 $ 0 0 N/A $8,000
Vice President, Chief
Financial Officer and Director
</TABLE>
In the first half of 1997 Mr. Brisson and Joseph Visconti each received
$32,485 in total compensation and Gerald Visconti $27,000. Clematis Development
Group L.C., landlord of Sforza Ristorante and My Martini Grille, was paid
$165,576 in 1996 and $59,557 in 1997 as rent; Joseph Visconti is a principal of
that entity.
EMPLOYMENT AGREEMENTS
The Company is not a party to any employment agreements.
STOCK OPTION PLANS
On July 1, 1997, the Company's Board of Directors enacted the 1997 Equity
Incentive Plan (the "Plan") which provides for the issuance of options to
purchase a total of 142,500 shares of the Company's Common Stock. The Plan
authorizes the Board of Directors to issue incentive stock options ("ISOs") as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and stock options that do not conform to the requirements of that Code
section ("Non-ISOs"). The exercise price of an ISO may not be less than 100% of
the fair market value of the Common Stock at the time of grant, except that in
the case of a grant to an employee who owns (within the meaning of Code Section
422) 10% or more of the outstanding stock of the Company (a "10% Shareholder"),
the exercise price shall not be less than 110% of such fair market value.
Options may not be exercised prior to the first anniversary, or on or after the
tenth anniversary (fifth anniversary in the case of an ISO granted to a 10%
Shareholder), of his grant. Options may not be transferred during the lifetime
of an optionee.
29
<PAGE> 31
The Plan is administered by the Board of Directors. Subject to the
provisions of the Plan, the Board of Directors has the authority to determine
the individuals to whom stock options are to be granted, the number of shares to
be covered by each option, the option price, the type of option, the option
period, the restrictions, if any, on the exercise of the option, the terms for
the payment of the option price and other terms and conditions. Payment by
optionees upon exercise of an option may be made (as determined by the Board of
Directors) in cash, by promissory note or other such form of payment acceptable
to the Board of Directors, including shares of Common Stock.
As of the date of this Prospectus, the Company has not granted any options
under the Plan.
PRINCIPAL SHAREHOLDERS
As of the date of this Prospectus, the Company has issued 1,020,000 shares
of Common Stock and 160,000 shares of Series A Preferred Stock. The Preferred
Stock will be converted in part and redeemed in part in connection with the
offering. The following table sets forth, as of the date of this Prospectus,
certain information regarding the beneficial ownership of the Common Stock
giving effect to conversion of the Preferred Stock, by (i) each person known to
the Company as having beneficial ownership of more than 5% of the Common Stock,
(ii) each director of the Company, (iii) each officer of the Company, and (iv)
all directors and officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
BENEFICIALLY OWNED(1)
----------------------
NUMBER OF PRIOR
SHARES OF TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER COMMON STOCK OFFERING OFFERING(4)
- ------------------------------------ ------------ -------- -----------
<S> <C> <C> <C>
Dale J. Brisson(2)(6)....................................... 381,250 35.97% 22.30%
2815 Hampton Ct. E
Delray Beach, FL 33445
Gerald J. Visconti Jr.(2)................................... 51,961 4.90% 3.04%
3500 N. Flagler Dr.
West Palm Beach, FL 33401
Daniel S. Catalfumo(3)(5)................................... 95,000 8.96% 5.56%
4300 Catalfumo Way
Palm Beach Gardens, FL 33410
Dennis R. Max(3)(5)......................................... 75,000 7.08% 4.39%
490 E. Palmetto Park Rd. #110
Boca Raton, FL 33432
Burton M. Rapoport(3)(5).................................... 75,000 7.08% 4.39%
490 E. Palmetto Park Rd. #110
Boca Raton, FL 33432
Joseph C. Visconti(3)(6).................................... 377,750 35.64% 22.09%
525 S. Flagler Dr. #400
West Palm Beach, FL 33401
All directors and officers as a group (6 persons)(5)........ 905,961 85.47% 52.99%
</TABLE>
- ---------------
(1) A person is deemed to be the beneficial owner of voting securities that can
be acquired by such person within 60 days from the date of this Prospectus
upon the exercise of options or warrants or conversion of convertible
securities. Each beneficial owner's percentage ownership is determined by
assuming that options, warrants and convertible securities that are held by
such person (but not those held by any other person) and which are
exercisable or convertible within 60 days of the date of this prospectus
have been exercised or converted. Unless otherwise indicated, the beneficial
owner has sole voting and investment power.
30
<PAGE> 32
(2) An officer and director.
(3) A director.
(4) Assumes that no person listed in the table acquires shares in the offering
and excludes underwriter's overallotment option.
(5) Includes 75,000 shares of Common Stock underlying an option granted to URCI.
Messrs. Catalfumo, Max and Rapoport are principals of URCI. See "Certain
Transactions".
(6) Includes 150,000 shares of Common Stock owned by Vask Enterprises, Inc., a
Florida corporation owned by Messrs. Brisson and J. Visconti.
- ------------------------------------------------------
The Series A Preferred Stock, half of which shall be redeemed for $400,000
and half of which shall be converted into Common Stock on a one-to-one basis
upon consummation of the offering, is owned as follows:
<TABLE>
<S> <C>
CBM of America, Inc.:...................................... 80,000 shares
Lawrence M. Dezenzo
Revocable Trust f/b/o
Lawrence M. Dezenzo,
Trustee:................................................. 40,000 shares
Bruce J. Simonson:......................................... 40,000 shares
</TABLE>
None of these shareholders is affiliated with the Company. They are retail
brokerage clients of the underwriter.
CERTAIN TRANSACTIONS
The information set forth below briefly describes certain transactions
between the Company and certain parties who or which may be deemed to be
affiliated with the Company. The Company believes all of the following
transactions were or are on terms no less favorable to the Company than those
that could be obtained from unaffiliated third parties. All future transactions
with affiliated parties (including forgiveness of currently outstanding loans)
will be subject to approval of a majority of the disinterested directors of the
Company and will be on terms no less favorable to the Company than those that
could be obtained from unaffiliated third parties.
Notes Payable; Shareholders. During 1995 and 1996 Dale J. Brisson and
Joseph C. Visconti lent an aggregate of $175,000 to the Company or its
subsidiaries pursuant to notes collateralized by substantially all of the
Company's assets. In addition, such shareholders made uncollateralized loans to
the Company aggregating $63,445 for working capital purposes. All such loans
have been repaid as of June 30, 1997. See "Restaurant Management" and
"Construction" below in this section.
Premises Leases. The Company leases the spaces for its three restaurants
from Clematis Development Group, L.C., a Florida limited liability company
partly owned by Joseph C. Visconti. Castle Room, Inc.'s lease expires in
December 2005 and calls for annual rent of $51,500 in the first year, gradually
rising to $94,125 in 2005. Clematis Bistro Corporation's lease expires in
January 2006 and calls for annual rent of $96,250 in the first year, gradually
rising to $145,750 in the final year. Sushi Enterprises, Inc.'s lease expires in
January 2006 and calls for annual rent of $20,000 in the first year, gradually
rising to $46,875 in the final year. Each lease is "triple net", meaning that
the tenant pays for insurance, taxes and maintenance. The Company believes that
each lease is on terms no less favorable than those obtainable from an unrelated
third party.
Underwriting. The offering is being underwritten by Joseph Charles &
Assoc., Inc., a full-service broker-dealer owned in part by several of the
Company's shareholders, including Joseph Visconti. See "Underwriting".
Restaurant Management. URCI, the restaurant management company controlled
by Messrs. Max, Rapoport and Catalfumo, manages and operates the Company's
restaurants. Its responsibilities include the determination of dining room and
bar menus, design of the menus, creation of recipes, testing of menu items,
pricing, interviewing, training and hiring personnel, developing personnel
systems and manuals, developing
31
<PAGE> 33
operations manuals covering product purchasing, vendor selection, developing
operating forms and checklists covering ordering, inventory, preparation and
sanitation, developing marketing plans covering advertising and promotional
programs, developing signage, conducting market research and related duties.
Compensation for management services through October 31, 1997 totals $58,000.
Subsequently, URCI shall receive a fee of one percent of net sales plus 20
percent of the net operating profit, monthly. (Net operating profit equals net
sales less direct operating and other allocable expenses.) On January 31, 1997
URCI lent the Company $250,000 pursuant to the terms of a Fixed Rate Promissory
Note (the "Note") with interest accruing thereon at the rate of 15 percent per
annum. The Note is secured by a lien on all the Company's assets and guaranteed
by Joseph Visconti and Dale Brisson. On June 1, 1997 URCI assigned the Note to
Daniel Catalfumo.
In addition, the Company intends to enter into a new two-year management
agreement with URCI pursuant to which URCI will continue to operate the
Company's existing restaurants, and will manage all future Max's Grille
Restaurants owned by the Company. Under the new management agreement, URCI will
have the option to acquire the Company's equity interests in the Max's Grille
Restaurants in the event that URCI involuntarily ceases to manage the Max's
Grille Restaurants. In such event, URCI will have an option, exercisable for a
60 day period, to acquire the Company's equity interests in the Max's Grille
Restaurants for the appraised fair market value thereof.
Construction. Mr. Catalfumo's construction company built Max's Beach Place
Grille, one of the Max's Grille Restaurants, and is building the Max's Grille
Restaurants in the Las Olas Riverfront development, Ft. Lauderdale, Florida and
in Weston, Florida. Mr. Catalfumo acquired the Note from URCI on June 1, 1997
and immediately converted $125,000 of the unpaid principal into 20,000 shares of
the Company's Common Stock. The conversion price of $6.25 was negotiated between
the parties.
Funding Agreement. The Company, URCI, Dennis Max and related parties
entered into a Funding Agreement on July 1, 1997 pursuant to which the Company
agreed to devote $3,000,000 of the proceeds of this offering to the construction
and pre-opening expenses of four Max's Grille Restaurants and to grant URCI an
option to acquire 75,000 shares of the Company's Common Stock exercisable at
$5.00 per share through December 31, 1999 (see "Description of
Securities -- Option") in exchange for 51 percent equity interests in such Max's
Grille Restaurants and URCI's agreement to manage such restaurants at a
discounted rate. The $3,000,000 shall be deposited into a Construction Fund at
such time as the limited partnership interests in each of the Max's Grille
Restaurants are conveyed to the Company. Mr. Max shall be responsible for
Construction Fund disbursement among the Max's Grille Restaurants. Messrs.
Catalfumo, Max and Rapoport shall own, in the aggregate, the remaining 49
percent equity interest in the Max's Grille Restaurants. URCI shall manage the
restaurants for a fee of one-and-one-half percent, half of its standard fee of
three percent, of net sales. Joseph Visconti has the right to designate a
majority of the directors of the corporations serving as general partner.
Additionally, Mr. Max received the right to designate three of the Company's six
directors, obtaining the agreement of Joseph Visconti, Gerald Visconti and Dale
Brisson to vote their Company shares in favor of his director nominees. A
Joinder setting forth such agreement is attached to the Funding Agreement, which
is attached as an exhibit to the Registration Statement of which this Prospectus
is a part. In addition, URCI will have the option to acquire the Company's
equity interests in the Max's Grille Restaurants in the event that URCI
involuntarily ceases to manage the Max's Grille Restaurants. In such event, URCI
will have an option, exercisable for a 60 day period, to acquire the Company's
equity interest in the Max's Grille Restaurants for the appraised fair market
value thereof.
DESCRIPTION OF SECURITIES
GENERAL
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, $0.01 par value per share, and 400,000 shares of Preferred Stock,
$0.01 par value per share. As of September 30, 1997 there were 1,020,000 shares
of Common Stock issued and outstanding, held by 18 holders of record, and
160,000 shares of Series A Preferred Stock issued and outstanding, held by three
holders of record.
32
<PAGE> 34
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share owned of
record on all matters voted upon by shareholders, and a majority vote is
required for all actions to be taken by shareholders. In the event of a
liquidation, dissolution or winding-up of the Company, the holders of Common
Stock are entitled to share equally and ratably in the assets of the Company, if
any, remaining after the payment of all debts and liabilities of the Company.
The Common Stock has no preemptive rights, no cumulative voting rights and no
redemption, sinking fund or conversion provisions.
Holders of Common Stock are entitled to receive dividends if, as and when
declared by the Board of Directors out of funds legally available therefor,
subject to any dividend restrictions imposed by the Company's creditors. No
dividend or other distribution (including redemptions or repurchases of shares
of capital stock) may be made if, after giving effect to such distribution, the
Company would not be able to pay its debts as they become due in the normal
course of business, or the Company's total assets would be less than the minimum
of its total liabilities.
If the Company realizes net profits in the future, its foreseeable policy
will be to retain such earnings for the operation and expansion of its business.
PREFERRED STOCK
The Board of Directors of the Company is authorized (without any further
action by the shareholders) to issue Preferred Stock in one or more series and
to fix the voting rights, liquidation preferences, dividend rates, conversion
rights, redemption rights and terms, including sinking fund provisions, and
certain other rights and preferences. Satisfaction of any dividend preferences
of outstanding Preferred Stock would reduce the amount of funds available for
the payment of dividends, if any, on the Common Stock. Also, holders of the
Preferred Stock would normally be entitled to receive a preference payment in
the event of any liquidation, dissolution or winding up of the Company before
any payment is made to holders of Common Stock. In addition, under certain
circumstances, the issuance of Preferred Stock may render more difficult or tend
to discourage a merger, tender offer or proxy contest, the assumption of control
by a holder of a large block of the Company's securities, or the removal of
incumbent management. The Board of Directors of the Company, without shareholder
approval, may issue Preferred Stock with dividend, liquidation, redemption,
voting and conversion rights which could adversely affect the holders of Common
Stock.
As of September 30, 1997, 160,000 of the 400,000 authorized shares of
Preferred Stock were outstanding. Series A Preferred Stock was issued to three
investors on May 19, 1997 who invested $400,000 in the aggregate as follows: CBM
of America Inc. (80,000 shares), Lawrence M. Dezenzo Revocable Trust f/b/o
Lawrence M. Dezenzo, Trustee (40,000 shares), and Bruce J. Simonson (40,000
shares), all of whom are retail brokerage clients of Joseph Charles & Assoc.,
Inc., the underwriter, but are otherwise unaffiliated with the Company. The
Series A Preferred Stock is entitled to cumulative cash dividends at a rate of
10 percent per annum and a liquidation preference of $2.50 per share. Upon
completion of an initial public offering raising gross proceeds of at least
$4,000,000, 80,000 shares of Series A Preferred Stock automatically convert into
40,000 shares of Common Stock while the other 80,000 shares of Series A
Preferred Stock are to be redeemed for $400,000 in the aggregate. If such an
initial public offering shall not have occurred by January 1, 1998 all Series A
Preferred Stock shall be redeemed at cost plus four percent. The Company has no
present intention to issue any additional shares of Preferred Stock.
OPTION
Pursuant to the terms of the Funding Agreement, the Company granted URCI an
option, exercisable through December 31, 1999, to acquire 75,000 shares of
Common Stock for an exercise price of $5.00 per share. The shares of Common
Stock underlying the option are restricted and cannot be sold before March 31,
1999 but bear "piggyback" registration rights. In the event the Company proposes
to file a registration statement under the Securities Act which relates to a
current offering of securities of the Company (except in connection with an
offering on Form S-8 or Form S-4 or any other inappropriate form), URCI may
request
33
<PAGE> 35
that the Company include all or a portion of the option shares therein and the
Company must honor such request.
REDEEMABLE WARRANTS
The Units being offered hereby include 650,000 Warrants.
The Warrants will be issued under and governed by the provisions of a
Warrant Agreement (the "Warrant Agreement") between the Company and Florida
Atlantic Stock Transfer, Inc. as warrant agent (the "Warrant Agent") and will be
evidenced by warrant certificates in registered form. The following summary of
the Warrant Agreement is not complete and is qualified in its entirety by
reference to the Warrant Agreement, a copy of which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at a price equal to $9.50 per share during the Warrant Exercise
Period -- the period commencing on the date of this Prospectus and terminating
five years thereafter. The shares of Common Stock underlying the Warrants will,
upon exercise of the Warrants, be validly issued, fully paid and non-assessable.
The Warrants are redeemable by the Company at any time during the Warrant
Exercise Period for $0.01 per Warrant if the average closing price of a share of
Common Stock, as reported by the OTCBB or the National Quotation Bureau, equals
or exceeds $10.05 for any 20 consecutive trading days ending within five days
prior to the date of the notice of redemption.
The Warrants can only be exercised when there is a current effective
registration statement covering the shares of Common Stock underlying the
Warrants. If the Company does not or is unable to maintain a current effective
registration statement, the Warrantholders will be unable to exercise the
Warrants and the Warrants may become valueless. Moreover, if the shares of
Common Stock underlying the Warrants are not registered or qualified for sale in
the state in which a Warrantholder resides, such holder might not be permitted
to exercise the Warrants. In the event that the Warrants are called for
redemption, the Warrantholders may not be able to exercise their Warrants in the
event that the Company has not updated this Prospectus in accordance with the
requirements of the Securities Act or the Warrants have not been qualified for
sale under the laws of the state where the Warrantholder resides. In addition,
in the event that the Warrants have been called for redemption, such call for
redemption could force the Warrantholder either to (i) assuming the necessary
updating to the Prospectus and state blue sky qualifications have been effected,
exercise the Warrants and pay the exercise price at a time when, in the event of
a decrease in market price from the period preceding the issuance of the call
for redemption, it may be less than advantageous economically to do so, or (ii)
accept the redemption price, which, in the event of an increase in the price of
the Common Stock, could be substantially less than the market value thereof at
the time of redemption. See "Risk Factors".
The Warrantholders are not entitled to vote, receive dividends or exercise
any of the rights of holders of shares of Common Stock for any purpose. The
Warrants are in registered form and may be presented for transfer, exchange or
exercise at the office of the Warrant Agent. Although the Company has applied
for listing of the Warrants under the symbol SFZAW, there can be no assurance
that the Warrants will be quoted or under such symbol. There is currently no
established market for the Warrants, and there is no assurance that any such
market will develop.
Assuming there is a current effective registration statement covering the
shares of Common Stock underlying such Warrants, each Warrant may be exercised
by surrendering the Warrant certificate, with the form of election to purchase
on the reverse side of the Warrant certificate properly completed and executed,
together with payment of the exercise price to the Warrant Agent. The Warrants
may be exercised from time to time in whole or in part. If less than all of the
Warrants evidenced by a Warrant certificate are exercised, a new Warrant
certificate will be issued for the remaining number of Warrants.
The Warrant Agreement provides for adjustment of the exercise price and the
number of shares of Common Stock purchasable upon exercise of the Warrants to
protect Warrantholders against dilution in the event of stock dividends and
distributions, stock splits, recapitalizations, mergers, consolidations and
similar transactions.
34
<PAGE> 36
DIRECTORS' LIABILITY
Under the Florida Business Corporation Act (the "FBCA"), a director of a
Florida corporation is not personally liable for monetary damages to the
corporation or any other person for any statement, vote, decision or failure to
act, regarding corporate management or policy, by a director unless (i) the
director breached or failed to perform his duties as a director; and (ii) the
director's breach of, or failure to perform, those duties constitutes: (1) a
violation of the criminal law, unless the director had reasonable cause to
believe his conduct was lawful or had no reason to believe his conduct was
unlawful; (2) a transaction from which the director derived an improper personal
benefit, either directly or indirectly; (3) a circumstance under which an
unlawful distribution is made; (4) in a proceeding by or in the right of the
corporation to procure a judgment in its favor by or in the right of a
shareholder, conscious disregard for the best interest of the corporation or
willful misconduct; or (5) in a proceeding by or in the right of someone other
than the corporation or a shareholder, recklessness or an act or omission which
was committed in bad faith or with malicious purpose or in a manner exhibiting
wanton and willful disregard of human rights, safety or property. A corporation
may purchase and maintain insurance on behalf of any director or officer against
any liability asserted against him and incurred by him in his capacity or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liability under the FBCA. The Company may
elect to purchase such insurance on behalf of its directors and officers.
The Bylaws provide that the Company shall indemnify all directors and
officers of the Company, as well as any employees or agents of the Company to
whom the Company has agreed to grant indemnification. Section 607.0850(1) of the
FBCA provides that a Florida corporation, such as the Company, shall have the
power to indemnify any person who is or was a party to any proceeding (other
than an action by, or in the right of, the corporation) by reason of the fact
that he is or was a director, officer, employee or agent of the corporation or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against liability incurred in connection with such proceeding,
including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful, to the fullest extent
permitted by applicable law, as amended from time to time. This indemnification
includes the right to advancement of expenses when allowed pursuant to
applicable law.
In addition, the Bylaws provide that a director of the Company shall not be
personally liable to the Company or its shareholders for monetary damages for
breach of the director's fiduciary duty. However, the Bylaws do not eliminate or
limit the liability of a director for any of the following reasons: (i) a breach
of the director's duty of loyalty to the shareholders; (ii) acts or omissions
not in good faith or that involve intentional misconduct or a knowing violation
of law; (iii) a violation under Section 607.0834 of the FBCA (which imposes
liability upon directors for unlawful dividends and other distributions); (iv) a
transaction from which the director derived an improper personal benefit; or (v)
an act or omission occurring before the effective date of the Articles of
Incorporation.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
LIABILITY INSURANCE
The Company intends to procure and maintain a policy of insurance under
which the directors and officers of the Company will be insured, subject to the
limits of the policy, against certain losses arising from claims made against
such directors and officers by reason of any acts or omissions covered under
such policy in their respective capacities as directors or officers, including
liabilities under the Securities Act.
35
<PAGE> 37
ANTI-TAKEOVER PROVISIONS OF FLORIDA LAW
Following the offering to which this Prospectus relates, the Company may be
subject to the anti-takeover provisions of Section 607.0901 of the FBCA (the
"Affiliated Transaction Statute"). In general, the Affiliated Transaction
Statute requires the approval of the holders of two-thirds of the voting shares
of a corporation, other than shares owned by an "interested shareholder", in
order to effectuate an "affiliated transaction", such as a merger, sale of
assets or sale of shares, between a corporation and an interested shareholder.
An "interested shareholder" is defined as the beneficial owner of more than 10%
of the outstanding voting securities of the corporation. Such approval is not
required where the (i) affiliated transaction is approved by a majority of the
disinterested directors, (ii) an interested shareholder owns 90% or more of the
corporation's outstanding voting stock, or has owned 80% or more for five years,
or (iii) consideration paid in connection with the affiliated transaction
satisfies the statutory "fair price" formula and the transaction meets certain
other requirements. A corporation may elect, by the vote of a majority of the
outstanding voting securities of the corporation (not including shares held by
an interested shareholder), or by amendment to the articles or bylaws of the
corporation, not to be subject to the provisions of the Affiliated Transaction
Statute. The election will not be effective until 18 months after it is made,
and will not apply to any affiliated transaction between the corporation and
someone who was an interested shareholder prior to the effective date of the
election.
The application of the Affiliated Transaction Statute could prohibit or
delay a merger, takeover or other change in control of the Company, and
therefore could discourage attempts to acquire the Company.
TRANSFER AGENT
Florida Atlantic Stock Transfer, Inc., 5701 North Pine Island Rd. #310A,
Tamarac, Florida 33321, is the transfer agent and registrar for the Common Stock
and Warrants.
REPORTS TO SHAREHOLDERS
Subject to the sale of the shares of Common Stock offered hereby, the
Company will register its Common Stock under the provisions of Section 12(g) of
the Exchange Act. Such registration will require the Company to comply with the
periodic reporting, proxy solicitation and certain other requirements of the
Exchange Act.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this offering, the Company will have 1,710,000
shares of Common Stock outstanding (1,807,500 if the Underwriter's
Over-Allotment option is fully exercised). Of those shares, the 650,000 shares
and 650,000 Warrants being offered hereby will be freely tradeable without
restriction (except as to affiliates of the Company) or further registration
under the Securities Act. Notwithstanding Rule 144 of the Securities Act,
1,060,000 of the remaining shares of Common Stock outstanding after this
offering would be immediately eligible for sale in the public market without
registration except that the holders thereof have agreed not to sell their
Shares before the first anniversary of the effective date of the registration
statement of which this Prospectus is a part.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted securities
within the meaning of Rule 144 for at least one year, including the holding
period of any prior owner except an affiliate, would be entitled to sell within
any three-month period a number of shares that does not exceed the greater of
one percent of the then outstanding shares of Common Stock or the average weekly
trading volume of the Common Stock in the over-the-counter market during the
four calendar weeks preceding such sale. Sales under Rule 144 are also subject
to certain manner of sale provisions, notice requirements and the availability
of current public information about the Company. Any person (or persons whose
shares are aggregated) who is not deemed to have been an affiliate of the
Company at any time during the three months preceding a sale, and who has
beneficially owned shares for at least two years, would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitations, manner of
sale provisions, public information requirements or notice requirements. An
"affiliate" is a person
36
<PAGE> 38
that directly, or indirectly through one or more intermediaries, controls, or is
controlled by, or under common control with, such issuer.
Prior to this offering, there has been no public trading market for the
Common Stock. The Company intends to list its registered securities on the OTCBB
upon completion of this offering.
37
<PAGE> 39
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, the Company has agreed to sell to Joseph Charles & Associates, Inc.
("JCA"), as representative of the several underwriters (the "Underwriters"), and
the Underwriters have agreed to purchase from the Company all 650,000 Units to
be sold in this offering.
The Securities are being sold on a firm commitment basis. The Underwriting
Agreement provides, however, that the obligations of the Underwriters are
subject to certain conditions precedent. The Underwriters are committed to
purchase all the Securities offered hereby if any are purchased.
The Underwriters have advised the Company that they propose to offer the
Units directly to the public at the initial public offering price set forth on
the cover page of this Prospectus, and to selected dealers at that price, less a
concession of not more than $ per share. The Underwriters may allow a
discount of not more than $ per share on sales to certain other
dealers. After the initial public offering, the price to the public of the
Units, Common Stock and Warrants and the other terms may be changed.
The Units, Common Stock and Warrants will be traded in the over-the-counter
market, however, the Common Stock and the Warrants included in the Units will
not be separately transferable and thus may only be purchased together as Units
until November , 1998, or such earlier date as JCA may determine in its sole
discretion.
Two shareholders of the Company, Joseph Visconti and Richard Rappaport, are
shareholders of JCA, which Joseph Visconti founded in 1991. Joseph Visconti
serves JCA as a director and officer and as its largest shareholder and serves
the Company as a director and as its second largest shareholder, owning 35.64
percent of the Company's Common Stock prior to completion of this offering. The
offering, therefore, is being conducted in accordance with the applicable
provisions of Rule 2720 (previously Schedule E to the Bylaws of the NASD) of the
Conduct Rules of the NASD, which provides that, among other things, when an NASD
member participates in an underwriting of equity securities in which it or its
affiliates has an economic interest, the initial public offering price can be no
higher than that recommended by a "qualified independent underwriter" meeting
certain standards. In accordance with this requirement, National Securities
Corporation will serve in such role and will recommend a price in compliance
with the requirements of Rule 2720. The initial public offering price of the
Common Stock set forth on the cover page of this Prospectus will be no higher
than such recommended price. In addition, JCA may not confirm sales to any
discretionary account without the prior specific written approval of the
customer. JCA has informed the Company that it does not expect to sell any
Securities to any account over which it has discretionary authority.
The Company has granted the Underwriters an option (the "Underwriters'
Over-Allotment Option"), exercisable during the 60-day period following the date
of this Prospectus, to purchase up to 97,500 additional Units, at the initial
public offering price less the underwriting discount. The Underwriters may
exercise such option only for the purpose of covering any over-allotments in the
sale of the Units offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, losses and expenses, including liabilities under the Securities
Act, or to contribute to payments that the Underwriters may be required to make
in respect thereof.
The Company has agreed to pay the Underwriters a non-accountable expense
allowance of 3% of the gross proceeds from the sale of Securities and to pay a
consulting fee to JCA of $60,000 for 24 months of consulting services to be
rendered.
The officers, directors and shareholders of the Company have agreed that
they will not offer, sell or otherwise dispose of any Common Stock of the
Company owned by them to the public for a period of at least 12 months from the
closing of this offering without the prior written consent of JCA. JCA may in
its discretion and without notice to the public waive these lock up agreements
and permit holders otherwise agreeing to lock up their shares to sell any or all
of their shares of Common Stock, although JCA has no current intention of doing
so.
The Company has agreed with JCA not to solicit Warrant exercises other than
through JCA. Upon exercise of any Warrants commencing one year from the date of
this Prospectus, the Company will pay JCA a
38
<PAGE> 40
fee of 4% of the aggregate exercise price, if (i) the market price of the
Company's Common Stock on the date the Warrant is exercised is greater than the
then exercise price of the Warrants; (ii) the exercise of the Warrant was
solicited by a member of the NASD who is so designated in writing by the holder
exercising the Warrant; (iii) the Warrant is not held in a discretionary
account; (iv) disclosure of compensation arrangements was made both at the time
of the offering and at the time of exercise of the Warrant; and (v) the
solicitation of the exercise of the Warrant was not in violation of Regulation M
promulgated under the Exchange Act. No solicitation fee will be paid to the
Underwriter for Warrants exercised within one year of the date of this
Prospectus or for Warrants voluntarily exercised at any time without
solicitation.
At the closing of this offering, the Company will sell and deliver to JCA
for an aggregate purchase price of $65.00, the "Underwriter's Option" to
purchase 65,000 Units at a price that is equal to 150% of the initial public
offering price for the Units. The Warrants underlying the Underwriter's Option
will have an exercise price and other terms identical to the Warrants being
offered to the public pursuant to this Prospectus except that the Underwriter's
Option shall not be redeemable.
The Underwriter's Option will be non-transferable for a period of one year
following the date of this Prospectus except to officers of JCA. The
Underwriter's Option will also contain antidilution provisions for stock splits,
stock dividends, recombinations and reorganizations, a one-time demand
registration provision (at the Company's expense) and piggyback registration
rights (which registration rights will expire five years from the date of this
Prospectus).
The Underwriters may engage in over-allotment, stabilizing transactions,
syndicate-covering transactions and penalty bids in accordance with Rule 104 of
Regulation M under the Exchange Act. Over-allotment involves syndicate sales in
excess of the offering size, which creates a syndicate short position.
Stabilizing transactions permit bids to purchase the underlying security so long
as the stabilizing bids do not exceed a specified maximum. Syndicate-covering
transactions involve purchases of Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the underwriter to reclaim a selling concession from a
syndicate member when the Common Stock originally sold by such syndicate member
is purchased in a syndicate-covering transaction to cover syndicate short
positions. Such stabilizing transactions, syndicate-covering transactions and
penalty bids may cause the price of the Common Stock to be higher than it would
otherwise be in the absence of such transactions. These transactions may be
effected on the OTCBB or otherwise and, if commenced, may be discontinued at any
time.
Prior to this offering, there has been no public market for the Units,
Common Stock or Warrants and there can be no assurance that a market will
develop or be sustained following this offering. The initial public offering
price of the Units and the exercise price of the Warrants were determined taking
into account the prospects for the Company, an assessment of the industry in
which the Company operates, the assessment of management, the number of Units,
shares of Common Stock and Warrants offered, the price that purchasers of such
Securities might be expected to pay given the nature of the Company and the
general condition of the securities markets at the time of the offering.
Accordingly, the offering price set forth on the cover page of this Prospectus
should not necessarily be considered an indication of the actual value of the
Company or the Units, Common Stock or Warrants.
LEGAL MATTERS
The validity of the Securities offered hereby will be passed upon for the
Company by Mirkin & Woolf, P.A., West Palm Beach, Florida. Mirkin & Woolf, P.A.
has represented JCA from time to time on other matters. Mirkin & Woolf, P.A.
shall receive, upon effectiveness of the Registration Statement, a warrant to
acquire 5,000 shares of the Company's Common Stock at an exercise price of
$12.00 per share. The warrant shall be exercisable at any time, in whole or in
parts, through February 2002. Certain legal matters will be passed upon for the
Underwriters by Troop Meisinger Steuber & Pasich, LLP, Los Angeles, California.
39
<PAGE> 41
EXPERTS
The consolidated balance sheet of the Company as of December 31, 1996 and
the consolidated statements of operations, shareholders' equity and cash flows
for the year ended December 31, 1996 and the period May 17, 1995 (inception) to
December 31, 1995 included in this Prospectus have been included herein in
reliance on the report of Templeton & Company, P.A., independent accountants,
given upon their authority as experts in accounting and auditing.
AVAILABLE INFORMATION
A Registration Statement on Form SB-2 relating to the Units offered hereby
has been filed by the Company with the Securities and Exchange Commission in
Washington, D.C. This Prospectus does not contain all the information set forth
in the Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete and in each instance reference
is made to the copy of such contract or other document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. For further information with respect to the Company and the
Units offered hereby, reference is hereby made to the Registration Statement and
to the exhibits and schedules thereto. A copy of the Registration Statement may
be inspected by anyone without charge and may be obtained at prescribed rates at
the Securities and Exchange Commission at the Public Reference Section of the
Commission, maintained by the Commission at its principal office located at 450
Fifth Street N.W., Washington, D.C. 20549 and at the Midwest Regional Office at
the Commission located at 500 West Madison Street #1400, Chicago, IL 60661-2511
and at 7 World Trade Center #1300, New York, NY 10048 and copies of all or any
part thereof may be obtained from such office after payment of the fees
prescribed by the Commission.
The Securities and Exchange Commission maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Commission. The Commission's
address on the Web is http://www.sec.gov.
40
<PAGE> 42
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
Report of Independent Accountants......................... F-2
Consolidated Balance Sheet as of December 31, 1996........ F-3
Consolidated Statements of Operations for the year ended
December 31, 1996 and the period May 17, 1995
(inception) to December 31, 1995....................... F-4
Consolidated Statements of Shareholders' Equity for the
year ended December 31, 1996 and the period May 17,
1995 (inception) to December 31, 1995.................. F-5
Consolidated Statements of Cash Flows for the year ended
December 31, 1996 and the period May 17, 1995
(inception) to December 31, 1995....................... F-6
Notes to Consolidated Financial Statements................ F-7
Consolidated Balance Sheet as of June 30, 1997
(unaudited)............................................ F-13
Consolidated Statements of Income for the six months ended
June 30, 1997 and 1996 (unaudited)..................... F-14
Consolidated Statements of Cash Flows for the six months
ended June 30, 1997 and 1996 (unaudited)............... F-15
Notes to Interim Consolidated Financial Statements
(unaudited)............................................ F-16
</TABLE>
F-1
<PAGE> 43
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Sforza Enterprises Inc.
We have audited the accompanying consolidated balance sheet of Sforza
Enterprises Inc. and subsidiaries as of December 31, 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the year ended December 31, 1996 and the period May 17, 1995 (inception) to
December 31, 1995. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Sforza Enterprises Inc. and
subsidiaries as of December 31, 1996, and the results of their operations and
their cash flows for the year ended December 31, 1996 and the period May 17,
1995 (inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
TEMPLETON & COMPANY, P.A.
Royal Palm Beach, Florida
March 28, 1997, except for
Notes 2 and 9, as to which
the date is November 3, 1997
F-2
<PAGE> 44
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 202,639
Accounts receivable....................................... 2,238
Inventories............................................... 38,661
Deferred income taxes..................................... 13,583
Other current assets...................................... 54,829
----------
Total current assets................................... 311,950
Property and equipment, net................................. 495,370
Other assets, net........................................... 278,831
----------
Total assets........................................... $1,086,151
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 917
Accrued expenses.......................................... 84,981
Unearned revenue.......................................... 61,759
Income taxes payable...................................... 15,387
Due to shareholders....................................... 63,445
Current portion of long-term debt......................... 114,874
Current portion of obligations under capital leases....... 30,089
----------
Total current liabilities.............................. 371,452
Long-term debt, net......................................... 30,014
Obligations under capital leases, net....................... 53,959
Deferred income taxes....................................... 7,515
----------
Total liabilities...................................... 462,940
----------
Shareholders' equity (Note 9):
Common stock, $.01 par value; 20,000,000 shares
authorized; 987,500 shares issued and outstanding...... 9,875
Additional paid-in capital................................ 500,425
Retained earnings......................................... 112,911
----------
Total shareholders' equity............................. 623,211
----------
Total liabilities and shareholders' equity............. $1,086,151
==========
</TABLE>
See accompanying notes.
F-3
<PAGE> 45
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD MAY 17, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net sales................................................... $2,333,530 $ --
---------- ----------
Cost and expenses:
Cost of sales............................................. 1,299,501 --
Operating expenses........................................ 881,856 12,244
Interest expense, net..................................... -- 555
---------- ----------
Total cost and expenses........................... 2,181,357 12,799
---------- ----------
Income (loss) before other income........................... 152,173 (12,799)
Other income, net........................................... 3,051 --
---------- ----------
Income (loss) before provision for income taxes............. 155,224 (12,799)
Provision for income taxes.................................. 9,319 --
---------- ----------
Net income (loss)................................. $ 145,905 $ (12,799)
========== ==========
Earnings (net loss) per common share:
Primary................................................... $ .15 $ (.01)
========== ==========
Fully diluted............................................. $ .13 $ (.01)
========== ==========
Weighted average common shares outstanding (Notes 2 and 9):
Primary................................................... 1,003,138 969,117
========== ==========
Fully diluted............................................. 1,103,138 1,069,117
========== ==========
</TABLE>
See accompanying notes.
F-4
<PAGE> 46
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD MAY 17, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
---------------------- PAID-IN EARNINGS
NO. SHARES AMOUNT CAPITAL (DEFICIT)
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Balance, May 17, 1995 (inception)................... -- $ -- $ -- $ --
Issuance of 500 shares of common stock by Castle
Room, Inc......................................... -- -- 10,000 --
Net loss for the period May 17, 1995 to December 31,
1995.............................................. -- -- -- (12,799)
---------- --------- -------- --------
Balance, December 31, 1995.......................... -- -- 10,000 (12,799)
Issuance of 1,655,000 shares of common stock in
exchange for 500 shares of Castle Room, Inc....... 1,655,000 16,550 (10,000) (6,550)
Issuance of 320,000 shares of common stock.......... 320,000 3,200 490,550 --
Net income for the year ended December 31, 1996..... -- -- -- 145,905
Distributions to shareholders of Castle Room,
Inc............................................... -- -- -- (13,645)
Reverse stock split adjustment (Note 9)............. (987,500) (9,875) 9,875 --
---------- --------- -------- --------
Balance, December 31, 1996 (Note 9)................. 987,500 $ 9,875 $500,425 $112,911
========== ========= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 47
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
THE PERIOD MAY 17, 1995 (INCEPTION) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $145,905 $(12,799)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization.......................... 33,946 146
Deferred income taxes.................................. (6,068) --
Increase in accounts receivable........................ (2,238) --
Increase in inventories................................ (38,661) --
Increase in other current assets....................... (47,435) (7,394)
Increase in accounts payable........................... 917 --
Increase in accrued expenses........................... 84,426 555
Increase in unearned revenue........................... 11,759 50,000
Increase in income taxes payable....................... 15,387 --
-------- --------
Net cash provided by operating activities................... 197,938 30,508
-------- --------
Cash flows from investing activities:
Purchase of property and equipment........................ (335,349) (102,843)
Increase in other assets.................................. (274,648) (4,580)
-------- --------
Net cash used in investing activities....................... (609,997) (107,423)
-------- --------
Cash flows from financing activities:
Proceeds from shareholder borrowings...................... 168,445 70,000
Repayment of notes payable, shareholders.................. (75,897) --
Proceeds from issuance of long-term debt.................. 6,242 60,000
Principal payments on long-term debt...................... (20,457) --
Principal payments on obligations under capital leases.... (6,825) --
Proceeds from issuance of common stock.................... 493,750 10,000
Distributions to shareholders of Castle Room, Inc......... (13,645) --
-------- --------
Net cash provided by financing activities................... 551,613 140,000
-------- --------
Net increase in cash and cash equivalents................... 139,554 63,085
Cash and cash equivalents, beginning of period.............. 63,085 --
-------- --------
Cash and cash equivalents, end of period.................... $202,639 $ 63,085
======== ========
</TABLE>
See accompanying notes.
F-6
<PAGE> 48
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND DESCRIPTION OF BUSINESS
Sforza Enterprises Inc. was formed in July 1996 and issued 1,655,000 shares
of its common stock (827,500 shares after the reverse split on November 3, 1997,
see Note 9) in exchange for all of the outstanding shares of common stock of
Castle Room, Inc. (formed May 17, 1995), Clematis Bistro Corporation (formed
April 12, 1996), and Sushi Enterprises, Inc. (formed July 3, 1996). The exchange
was accounted for as a pooling of interests and, accordingly, the accompanying
consolidated financial statements include the results of operations from the
inception date of May 17, 1995.
Sforza Enterprises Inc. and subsidiaries (the "Company") operate Sforza
Ristorante, an upscale Northern Italian restaurant located in downtown West Palm
Beach, Florida, which opened for business on February 2, 1996. The Company plans
to open two new restaurants, My Martini Grille and a sushi restaurant, in
locations adjacent to Sforza Ristorante during 1997.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies used in preparing the
accompanying financial statements follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Sforza
Enterprises Inc. and subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
temporary cash investments with maturities of three months or less, when
purchased, to be cash equivalents.
INVENTORIES
Inventories consist of various food and beverage items which are stated at
the lower of cost or market using the first-in, first-out method.
RESTAURANT START-UP COSTS
The Company defers certain restaurant start-up costs associated with the
opening of new restaurants (included in other current assets) and amortizes such
costs ratably over twelve months.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets, which
range from three to ten years. Leasehold improvements are amortized using the
straight-line method over the estimated useful lives of the improvements or the
term of the lease, whichever is shorter. Equipment leased under capital leases
is amortized over the lives of the respective leases.
ORGANIZATION COSTS
Organization costs (included in other assets) are amortized by the
straight-line method over five years.
F-7
<PAGE> 49
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
UNEARNED REVENUE
The Company is obligated to provide meals to individuals pursuant to an
agreement with an entity which enrolled such individuals in a restaurant
discount program. Amounts received from the entity are recorded as unearned
revenue and amortized ratably to income over the term of the agreement.
EARNINGS (NET LOSS) PER COMMON SHARE
Primary earnings (net loss) per common share is based on the average number
of common shares outstanding during each period, after giving retroactive effect
to the reverse stock split on November 3, 1997 (see Note 9) and assuming the
effect of exercising the options (see Note 9) which have an exercise price less
than the average market price of common stock (assumed to be $7.75 per share)
using the modified treasury stock method. In addition, primary per share amounts
include the dilutive effect of common shares issued for cash consideration below
the assumed average market price during the one year period prior to July 1997.
The fully diluted earnings (net loss) per common share calculation assumes
the conversion of certain convertible debt instruments issued by the Company
subsequent to December 31, 1996 (see Note 9) into shares of common stock.
MANAGEMENT ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31, 1996:
<TABLE>
<S> <C>
Operating properties:
Leasehold improvements.................................... $134,456
Equipment leased under capital leases..................... 90,873
Furniture and fixtures.................................... 239,063
--------
464,392
Less accumulated depreciation and amortization.............. (33,695)
--------
430,697
Properties undergoing renovation:
Leasehold improvements in progress........................ 64,673
--------
$495,370
========
</TABLE>
The Company capitalizes interest on qualifying expenditures in accordance
with Statement of Financial Accounting Standards Number 34. Total interest
incurred and capitalized for the period May 17, 1995 to December 31, 1995 and
for the year ended December 31, 1996 are presented as follows:
<TABLE>
<CAPTION>
1996 1995
------- ----
<S> <C> <C>
Interest incurred........................................... $23,005 $555
Interest capitalized........................................ 23,005 --
------- ----
Interest expense, net..................................... $ -- $555
======= ====
</TABLE>
Depreciation and amortization of property and equipment for the year ended
December 31, 1996 amounted to $33,695. There was no depreciation or amortization
charged for the period May 17, 1995 to December 31, 1995 as assets were placed
in service in 1996. Included in other assets at December 31, 1996 is $231,801 in
deposits on pending restaurant property and equipment purchases.
F-8
<PAGE> 50
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- DESCRIPTION OF LEASING ARRANGEMENTS
The Company operates primarily in facilities leased from an entity
partially owned by certain of the Company's shareholders under three separate
leases. The leases have specified monthly payments over their ten-year terms and
require the Company to pay its proportionate share of common area maintenance
costs and real estate taxes. Certain of the Company's shareholders have
personally guaranteed an amount aggregating $125,000 in lieu of cash security
deposits. The Company leases certain equipment from unrelated parties under
capital leases. The consolidated balance sheet at December 31, 1996 includes the
following regarding equipment leased under capital leases:
<TABLE>
<S> <C>
Equipment leased under capital leases....................... $90,873
Accumulated amortization.................................... (4,991)
-------
$85,882
=======
</TABLE>
Minimum annual rentals for leases in effect at December 31, 1996 follow:
<TABLE>
<CAPTION>
EQUIPMENT UNDER OPERATING
YEAR ENDING DECEMBER 31, CAPITAL LEASES LEASES
- ------------------------ ---------------- ---------
<S> <C> <C>
1997..................................................... $32,859 $ 58,125
1998..................................................... 32,859 62,625
1999..................................................... 26,694 67,125
2000..................................................... 22,508 71,625
2001..................................................... -- 76,125
Thereafter............................................... -- 357,375
------- --------
Total minimum rentals...................................... 114,920 $693,000
========
Less interest portion...................................... (30,872)
-------
Present value of net minimum rentals....................... $84,048
=======
</TABLE>
Total rent expense under operating leases for the year ended December 31,
1996 amounted to $80,410. There was no rent expense for the period May 17, 1995
to December 31, 1995.
NOTE 5 -- LONG-TERM DEBT
Long-term debt includes the following at December 31, 1996:
<TABLE>
<S> <C>
Note payable, requires monthly payments of principal and
interest at prime plus 2%, 10.25% at December 31, 1996,
and is due in 1998. The note is uncollateralized and
personally guaranteed by certain shareholders.......... $ 41,986
Note payable, requires monthly payments of principal and
interest at 12%, and is due in 1997. The note is
collateralized by certain equipment.................... 3,799
Notes payable, shareholders, represents loans from certain
shareholders for working capital purposes pursuant to
uncollateralized notes which are due in monthly
installments of principal and interest at 10% through
January 1998. Interest incurred on such notes amounted
to $13,758 for 1996.................................... 99,103
--------
$144,888
========
</TABLE>
F-9
<PAGE> 51
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Principal payments due on long-term debt in each of the years subsequent to
December 31, 1996 follow:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ --------
<S> <C>
1997...................................................... $114,874
1998...................................................... 30,014
--------
$144,888
========
</TABLE>
NOTE 6 -- DUE TO SHAREHOLDERS
Due to shareholders represents outstanding borrowings from certain
shareholders for working capital purposes. Such borrowings are uncollateralized,
non-interest bearing, and due on demand.
NOTE 7 -- INCOME TAXES
The shareholders of Castle Room, Inc. elected for it to be treated as an S
Corporation for federal income tax purposes, whereby taxable income or loss is
apportioned among shareholders rather than taxed directly to the corporation.
Accordingly, the financial statements for the period May 17, 1995 to December
31, 1995 do not reflect a provision for income taxes.
Effective July 29, 1996, in connection with the exchange of shares between
the shareholders of Castle Room, Inc. and Sforza Enterprises Inc. (see Note 1),
Castle Room, Inc. became a wholly-owned subsidiary of Sforza Enterprises Inc.
and no longer qualified for treatment as an S Corporation for federal income tax
purposes for periods subsequent to July 29, 1996. The Company filed a
consolidated federal income tax return for the period July 29, 1996 to December
31, 1996.
The income tax provision for the year ended December 31, 1996 consists as
follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- ------
<S> <C> <C> <C>
Federal................................................ $11,791 $(5,881) $5,910
State.................................................. 3,596 (187) 3,409
------- ------- ------
$15,387 $(6,068) $9,319
======= ======= ======
</TABLE>
A reconciliation of the effective income tax rate with the U.S. statutory
income tax rate is presented as follows:
<TABLE>
<S> <C>
U.S. statutory rate......................................... 34.0%
S Corporation income of subsidiary taxed directly to
shareholders.............................................. (20.2)
Surtax bracket difference................................... (7.5)
State income tax, net of federal benefit.................... .8
Other....................................................... (1.1)
-----
Effective income tax rate................................... 6.0%
=====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes and tax
F-10
<PAGE> 52
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
carryforwards. The following is a summary of the significant components of the
Company's net deferred tax assets and liabilities as of December 31, 1996:
<TABLE>
<CAPTION>
NET DEFERRED TAX
-------------------------
ASSETS LIABILITIES
TEMPORARY DIFFERENCE/TAX CARRYFORWARD (CURRENT) (NON-CURRENT)
- ------------------------------------- --------- -------------
<S> <C> <C>
Capitalized interest per financial statements............... $ -- $ 8,650
Depreciation difference..................................... -- (1,135)
Accrued expenses not deducted............................... 8,004 --
Tax inventories over financial statement amount............. 790 --
Tax credit carryforward..................................... 4,789 --
------- -------
$13,583 $ 7,515
======= =======
</TABLE>
NOTE 8 -- SUPPLEMENTAL STATEMENT OF CASH FLOWS INFORMATION
Supplemental statement of cash flows information for the year ended
December 31, 1996 and the period May 17, 1995 to December 31, 1995 follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Non-cash investing and financing activities:
Equipment recorded under capital leases................... $90,873 $ --
======= =======
Cash payments for:
Interest.................................................. $22,697 $ --
======= =======
Income taxes.............................................. $ -- $ --
======= =======
</TABLE>
NOTE 9 -- SUBSEQUENT EVENTS
PREFERRED STOCK
During May 1997, the Company amended its articles of incorporation to
authorize the issuance of up to 400,000 shares of preferred stock and issued
160,000 shares of Series A convertible preferred stock (the Series A shares) for
$400,000. The Series A shares have a liquidation preference of $2.50 per share
and carry a cumulative dividend of ten percent (10%) per annum. Upon the
completion of a public offering of the Company's common stock (see below),
80,000 of the Series A shares will convert into 40,000 common shares while the
other 80,000 Series A shares will be redeemed for $400,000 with proceeds from
the public offering.
MANAGEMENT AGREEMENT
On June 1, 1997, the Company consummated a one-year agreement with Unique
Restaurant Concepts, Inc. (URCI) for the management of its restaurants (see Note
1). URCI provided management services pursuant to an informal agreement from
February through May 1997. Under these arrangements, URCI's management fees will
total $58,000 through October 31, 1997. Thereafter, URCI will receive a fee
equal to one percent of net sales plus twenty percent of the net operating
profit of the restaurants as defined in the agreement.
FIXED RATE PROMISSORY NOTE
During 1997, the Company borrowed $250,000 pursuant to a fixed rate
promissory note. The note is payable to a principal of the company which manages
its restaurants (see above), is collateralized by substantially all of the
Company's assets, bears interest at 15% and is due on demand. In addition,
repayment of the note is guaranteed by certain shareholders. On June 1, 1997,
the terms of the loan were modified to
F-11
<PAGE> 53
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
convert $125,000 of the principal balance into 20,000 shares of common stock
with the remaining $125,000 payable on demand.
STOCK OPTION PLAN
On June 1, 1997, the Company adopted the equity incentive plan (the Plan)
which provides for the granting of options to key employees and consultants to
purchase up to 142,500 shares of the Company's common stock. No options were
granted pursuant to the Plan.
COMMON STOCK ISSUANCE
Subsequent to December 31, 1996, the Company issued 12,500 shares of its
common stock for total proceeds of $31,250 ($2.50 per share).
REGISTRATION STATEMENT
The Company expects to file a registration statement with the Securities
and Exchange Commission to offer 650,000 units (consisting of 650,000 shares of
its common stock and 650,000 warrants to purchase shares of common stock) at a
price of $7.75 per unit.
FUNDING AGREEMENT
On July 1, 1997, the Company consummated a funding agreement with an
affiliate of URCI and four limited partnerships which have been formed or are
expected to be formed each for the purpose of owning and operating a restaurant.
One of the restaurants opened in May 1997 and the others are expected to be
constructed and opened as soon as possible thereafter.
Under the funding agreement, the Company will provide $3,000,000 of the
proceeds from its proposed initial public offering (see above) to the limited
partnerships to fund the construction and opening of the restaurants in exchange
for a 51% equity interest in each of the limited partnerships. Management of the
restaurants will be provided by URCI pursuant to separate management agreements.
The funding agreement provides for URCI to manage such restaurants as long as
the Company maintains an equity ownership interest therein. The Company expects
to account for the investment using the equity method of accounting.
In addition, on July 1, 1997, the Company granted to URCI options to
purchase 75,000 shares of its common stock at an exercise price of $5.00 per
share which will be exercisable through December 31, 1999. Such grant will
result in a charge to earnings of approximately $206,000. Under the terms of the
option agreement, no options or shares issued pursuant to the option agreement
may be sold or transferred prior to March 31, 1999.
In the event the Company's initial public offering is not completed by
November 30, 1997, the funding agreement will terminate.
REVERSE STOCK SPLIT
On November 3, 1997, the Board of Directors authorized a two-for-one
reverse stock split. The change in the capital structure was given retroactive
effect in the consolidated balance sheet at December 31, 1996 and all per share
data have been restated to reflect the reverse split. In connection with the
reverse split, common stock was debited and additional paid in capital was
credited, effective December 31, 1996, for the aggregate par value attributable
to the share reduction. The numbers of shares set forth in Note 9 have been
adjusted to reflect the reverse split.
F-12
<PAGE> 54
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1997
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 110,502
Accounts receivable....................................... 6,459
Inventories............................................... 94,385
Deferred income taxes..................................... 13,583
Other current assets...................................... 239,702
----------
Total current assets.............................. 464,631
Property and equipment, net................................. 913,007
Other assets, net........................................... 225,185
----------
Total assets...................................... $1,602,823
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable.............................................. $ 125,000
Accounts payable.......................................... 76,372
Accrued expenses.......................................... 97,604
Income taxes payable...................................... 300
Current portion of long-term debt......................... 25,528
Current portion of obligations under capital leases....... 21,156
----------
Total current liabilities......................... 345,960
Long-term debt, net......................................... 15,584
Obligations under capital leases, net....................... 53,597
Deferred income taxes....................................... 7,515
----------
Total liabilities................................. 422,656
----------
Series A convertible preferred stock........................ 400,000
----------
Common shareholders' equity:
Common stock, $.01 par value; 20,000,000 shares
authorized; 1,020,000 shares issued and outstanding.... 10,200
Additional paid-in capital............................. 656,350
Retained earnings...................................... 113,617
----------
Total common shareholders' equity................. 780,167
----------
Total liabilities and shareholders' equity........ $1,602,823
==========
</TABLE>
See notes to interim consolidated financial statements.
F-13
<PAGE> 55
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net sales................................................... $2,679,903 $ 925,555
---------- ----------
Cost and expenses:
Cost of sales............................................. 1,524,705 470,920
Operating expenses........................................ 1,129,779 349,920
Interest expense, net..................................... 24,500 --
---------- ----------
Total cost and expenses........................... 2,678,984 820,840
---------- ----------
Income before other income.................................. 919 104,715
Other income, net........................................... 87 160
---------- ----------
Income before provision for income taxes.................... 1,006 104,875
Income tax expense.......................................... 300 --
---------- ----------
Net income............................................. $ 706 $ 104,875
========== ==========
Earnings per common share:
Primary................................................... $ -- $ .05
========== ==========
Fully diluted............................................. $ .01 $ .05
========== ==========
Weighted average common shares outstanding:
Primary................................................... 1,031,987 969,117
========== ==========
Fully diluted............................................. 1,128,672 1,069,117
========== ==========
</TABLE>
See notes to interim consolidated financial statements.
F-14
<PAGE> 56
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 706 $ 104,875
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 65,123 16,303
Increase in accounts receivable........................ (4,221) (924)
Increase in inventories................................ (55,724) (33,451)
(Increase) decrease in other current assets............ (184,873) 4,615
Increase in accounts payable........................... 75,455 2,668
Increase in accrued expenses........................... 12,623 38,619
Decrease in unearned revenue........................... (61,759) (9,797)
Decrease in income taxes payable....................... (15,087) --
--------- ---------
Net cash provided by (used in) operating activities......... (167,757) 122,908
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment....................... (482,633) (178,793)
(Increase) decrease in other assets....................... 53,520 (1,399)
--------- ---------
Net cash used in investing activities....................... (429,113) (180,192)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 156,250 --
Proceeds from issuance of preferred stock................. 400,000 --
Proceeds from notes payable, shareholders................. -- 105,000
Other debt issuance proceeds.............................. 133,250 6,242
Repayment of due to shareholders.......................... (63,445) --
Repayment of notes payable, shareholders.................. (99,103) --
Principal payments on long-term debt...................... (12,924) (9,434)
Principal payments on obligations under capital leases.... (9,295) --
Distributions to shareholders of Castle Rock, Inc......... -- (13,645)
--------- ---------
Net cash provided by financing activities................... 504,733 88,163
--------- ---------
Net increase (decrease) in cash and cash equivalents........ (92,137) 30,879
Cash and cash equivalents, beginning of period.............. 202,639 63,085
--------- ---------
Cash and cash equivalents, end of period.................... $ 110,502 $ 93,964
========= =========
Total interest paid during the period....................... $ 13,611 $ 12,620
========= =========
Total income taxes paid during the period................... $ 15,387 $ --
========= =========
</TABLE>
See notes to interim consolidated financial statements.
F-15
<PAGE> 57
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
BASIS OF PRESENTATION
The consolidated statements as of June 30, 1997 and for the six months
ended June 30, 1997 and 1996 are unaudited; however, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the consolidated financial statements for
these interim periods have been included. The results of the interim period
ended June 30, 1997 are not necessarily indicative of the results to be obtained
for the full fiscal year ending December 31, 1997.
SIGNIFICANT TRANSACTIONS
FIXED RATE PROMISSORY NOTE
During 1997, the Company borrowed $250,000 pursuant to a fixed rate
promissory note. The note is payable to a principal of the Company which manages
its restaurants (see below), is collateralized by substantially all of the
Company's assets, bears interest at 15% and is due on demand. In addition,
repayment of the note is guaranteed by certain shareholders. On June 1, 1997,
the terms of the loan were modified to convert $125,000 of the principal balance
into 20,000 shares of common stock with the remaining $125,000 payable on
demand.
COMMON STOCK ISSUANCE
During January 1997, the Company issued 12,500 shares of its common stock
for total proceeds of $31,250 ($2.50 per share).
PREFERRED STOCK
During May 1997, the Company amended its articles of incorporation to
authorize the issuance of up to 400,000 shares of preferred stock and issued
160,000 shares of Series A convertible preferred stock (the Series A shares) for
$400,000. The Series A shares have a liquidation preference of $2.50 per share
and carry a cumulative dividend of ten percent (10%) per annum.
Upon the completion of a public offering of the Company's common stock (see
below), 80,000 of the Series A shares will convert into 40,000 common shares
while the other 80,000 Series A shares will be redeemed for $400,000 with
proceeds from the public offering. The Series A shares are classified as
temporary equity in the consolidated balance sheet at June 30, 1997. The
redemption of the 80,000 Series A shares will result in a $200,000 preferred
stock dividend which will be recorded as a deduction from earnings attributable
to common shareholders. The conversion of the remaining 80,000 Series A shares
will result in a $200,000 increase in common shareholders' equity. If the
initial public offering does not occur by January 1, 1998, the Series A shares
will be redeemed at cost plus four percent.
Accrued dividends to preferred shareholders approximating $4,400 were
charged to other income, net in the accompanying statement of income for the six
months ended June 30, 1997.
MANAGEMENT AGREEMENT
On June 1, 1997, the Company consummated a one-year agreement with Unique
Restaurant Concepts, Inc. (URCI) for the management of its Company-owned
restaurants. URCI provided management services pursuant to an informal agreement
from February through May 1997. Under these arrangements, URCI's management fees
will total $58,000 through October 31, 1997. Thereafter, URCI will receive a fee
equal to one percent of net sales plus twenty percent of the net operating
profit of the restaurants as defined in the agreement.
F-16
<PAGE> 58
SFORZA ENTERPRISES INC. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
STOCK OPTION PLAN
On June 1, 1997, the Company adopted the equity incentive plan (the Plan)
which provides for the granting of options to key employees and consultants to
purchase up to 142,500 shares of the Company's common stock. No options were
granted pursuant to the Plan.
SUBSEQUENT EVENTS
REGISTRATION STATEMENT
The Company expects to file a registration statement with the Securities
and Exchange Commission to offer 650,000 units (consisting of 650,000 shares of
its common stock and 650,000 warrants to purchase shares of common stock) at a
price of $7.75 per unit.
FUNDING AGREEMENT
On July 1, 1997, the Company consummated a funding agreement with an
affiliate of URCI and four limited partnerships which have been formed or are
expected to be formed each for the purpose of owning and operating a restaurant.
One of the restaurants opened in May 1997 and the others are expected to be
constructed and opened as soon as possible thereafter.
Under the funding agreement, the Company will provide $3,000,000 of the
proceeds from its proposed initial public offering (see above) to the limited
partnerships to fund the construction and opening of the restaurants in exchange
for a 51% equity interest in each of the limited partnerships. Management of the
restaurants will be provided by URCI pursuant to separate management agreements.
The funding agreement provides for URCI to manage such restaurants as long as
the Company maintains an equity ownership interest therein. The Company expects
to account for the investment using the equity method of accounting.
In addition, on July 1, 1997, the Company granted to URCI options to
purchase 75,000 shares of its common stock at an exercise price of $5.00 per
share which will be exercisable through December 31, 1999. Such grant will
result in a charge to earnings of approximately $206,000. Under the terms of the
option agreement, no options or shares issued pursuant to the option agreement
may be sold or transferred prior to March 31, 1999.
In the event the Company's initial public offering is not completed by
November 30, 1997, the funding agreement will terminate.
REVERSE STOCK SPLIT
On November 3, 1997, the Board of Directors authorized a two-for-one
reverse stock split. The change in the capital structure was given retroactive
effect in the consolidated balance sheet at June 30, 1997 and all per share data
have been restated to reflect the reverse split. In addition, the numbers of
shares set forth in the Notes to Interim Consolidated Financial Statements have
been adjusted to reflect the reverse split.
EARNINGS PER COMMON SHARE
Primary earnings per common share is based on the average number of common
shares outstanding during each period, after giving retroactive effect to the
reverse stock split on November 3, 1997 (see above) and assuming the effect of
exercising warrants which have an exercise price less than the average market
price of common stock (assumed to be $7.75 per share) using the modified
treasury stock method. In addition, primary per share amounts include the
dilutive effect of common shares issued for cash consideration below the assumed
average market price during the one year period prior to July 1997.
The fully diluted earnings per common share calculation assumes the
conversion of the convertible promissory note and convertible Series A shares,
issued by the Company subsequent to December 31, 1996, into shares of common
stock. The net income for the six months ended June 30, 1997 used in the fully
diluted calculation was adjusted for accrued preferred stock dividends and
interest incurred on the convertible promissory note, net of tax benefits.
F-17
<PAGE> 59
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS 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. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE UNITS
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER IS NOT QUALIFIED TO DO SO,
OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
UNDER NO CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE
PURSUANT TO THIS PROSPECTUS CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED IN THIS PROSPECTUS 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.......................... 7
Use of Proceeds....................... 14
Dividend Policy....................... 14
Dilution.............................. 14
Selected Financial Data............... 16
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 17
Business.............................. 21
Management............................ 27
Principal Shareholders................ 30
Certain Transactions.................. 31
Description of Securities............. 32
Shares Eligible for Future Sale....... 36
Underwriting.......................... 38
Legal Matters......................... 39
Experts............................... 40
Available Information................. 40
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL DECEMBER , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
======================================================
======================================================
SFORZA
ENTERPRISES INC.
650,000 SHARES
OF COMMON STOCK
AND 650,000
REDEEMABLE WARRANTS
(IN UNITS)
--------------------
PROSPECTUS
--------------------
JOSEPH CHARLES & ASSOCIATES, INC.
NOVEMBER , 1997
======================================================
<PAGE> 60
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 607.0850(1) of the Florida Business Corporation Act, as amended
(the "Florida Act"), provides that, in general, a Florida corporation may
indemnify any person who was or is a party to any proceeding (other than an
action by, or in the right of, the corporation), by reason of the fact that he
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against liability incurred in connection with such proceeding,
including any appeal thereof, if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
corporation and, with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful.
In the case of proceedings by or in the right of the corporation, Section
607.0850(2) of the Florida Act provides that, in general, a corporation may
indemnify any person who was or is a party to any such proceeding by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation against expenses and amounts paid in settlement actually and
reasonably incurred in connection with the defense or settlement of such
proceeding, including any appeal thereof, provided that such person acted in
good faith and in a manner he reasonably believed to be in, or not opposed to,
the best interests of the corporation, except that no indemnification shall be
made in respect of any claims as to which such person is adjudged liable unless
a court of competent jurisdiction determines upon application that such person
is fairly and reasonably entitled to indemnity.
Section 607.0850 further provides that to the extent a director, officer,
employee or agent of a corporation is successful on the merits or in the defense
of any proceeding referred to in subsections (1) or (2) of Section 607.0850 or
in the defense of any claim, issue or matter therein, he shall be indemnified
against expenses actually and reasonably incurred by him in connection
therewith; that the corporation may advance such expenses; that indemnification
provided for by Section 607.0850 shall not be deemed exclusive of any other
rights to which the indemnified party may be entitled; and that the corporation
may purchase and maintain insurance on behalf of such person against any
liability asserted against him or incurred by him in any such capacity or
arising out of his status as such, whether or not the corporation would have the
power to indemnify him against such liabilities under such Section 607.0850.
Section 607.0850 of the Florida Act further provides that, in general,
indemnification or advancement of expenses shall not be made to or on behalf of
any director, officer, employee or agent if a judgment or other final
adjudication establishes that such person's actions, or omissions to act, were
material to the cause of action so adjudicated and constitute: (i) a violation
of the criminal law, unless such person had reasonable cause to believe his
conduct was lawful or had no reasonable cause to believe his conduct was
unlawful; (ii) a transaction from which such person derived an improper personal
benefit; (iii) in the case of a director, a circumstance under which the
director has voted for or assented to a distribution made in violation of the
Florida Act or the corporation's articles of incorporation; or (iv) willful
misconduct or a conscious disregard for the best interests of the corporation in
a proceeding by or in the right of the corporation to procure a judgment in
favor or in a proceeding by or in the right of a shareholder.
The Company's Articles of Incorporation and Bylaws provide that the Company
shall indemnify its directors and officers to the fullest extent permitted by
Florida law.
II-1
<PAGE> 61
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the Company's estimates (other than the
Commission registration fee) of the expenses in connection with the issuance and
distribution of the shares of Common Stock being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 3,316
NASD filing fee............................................. 1,006
Printing expenses........................................... 75,000
Legal fees and expenses..................................... 75,000
Accounting fees and expenses................................ 45,000
Blue sky fees and expenses.................................. 50,000
Transfer agent and registrar fees and expenses.............. 5,000
Miscellaneous expenses...................................... 20,678
Total............................................. $275,000
========
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since the Company's inception, the Company has sold unregistered securities
in the amounts, at the times and for the aggregate amounts of consideration
listed as follows (all share amounts are pre-reverse stock split):
In July 1996 the Company sold (i) 802,500 shares of Common Stock to Joseph
C. Visconti in consideration for the transfer by Mr. Visconti to the Company of
250 shares of the common stock of Castle Room, Inc., and (ii) 802,500 shares of
Common Stock to Dale J. Brisson in consideration for the transfer by Mr. Brisson
to the Company of 250 shares of the common stock of Castle Room, Inc.
Between August and January 1997 the Company sold 420,000 common shares in
the aggregate to the following persons at a price of $1.25 per share, paid in
cash.
<TABLE>
<CAPTION>
NAME SHARES
---- -------
<C> <S> <C>
1. Gerald J. Visconti Jr....................................... 107,000
2. Patrick L. Amarante......................................... 100,000
3. James M. Hall............................................... 100,000
4. Milton H. Barbarosh......................................... 20,000
5. Eric and Ann Fishman........................................ 20,000
6. Allan R. Lyons.............................................. 20,000
7. Robert M. Samuels........................................... 20,000
8. Suzanne M. Trapani.......................................... 19,000
9. Richard A. Rappaport........................................ 10,000
10. Robert and Aby Schmeltzer................................... 4,000
</TABLE>
In June 1997 the Company sold 40,000 shares to Daniel S. Catalfumo at a
price of $3.125 per share.
Several of the investors listed above have acquired or sold shares of the
Company's Common Stock in private transactions in 1997.
On August 21, 1996 Joseph C. Visconti transferred 7,000 common shares to
Suzanne M. Trapani.
On December 27, 1996 Joseph C. Visconti transferred 12,500 common shares to
Robert D. Hall.
On December 28, 1996 Dale J. Brisson transferred 12,500 common shares to
Robert D. Hall.
On December 28, 1996 Dale J. Brisson transferred 15,000 common shares to
Charles V. Maida Jr.
On December 28, 1996 Joseph C. Visconti transferred 15,000 common shares to
Charles V. Maida Jr.
On June 1, 1997 Dale J. Brisson transferred 12,500 common shares to James
M. Hall.
On June 1, 1997 Joseph C. Visconti transferred 12,500 common shares to
James M. Hall.
On July 10, 1997 Gerald J. Visconti Jr. transferred 3,077 common shares to
John U. Harrold.
On August 21, 1997 Charles V. Maida Jr. transferred 1,000 common shares to
Robert D. Rhoades.
On August 27, 1997 Charles V. Maida Jr. transferred 500 common shares to
Paul Hollis and 1,000 common shares to Robert D. Rhoades.
II-2
<PAGE> 62
On September 23, 1997 Charles V. Maida Jr. transferred 1,000 common shares
to the Elaine Rowe Trust and 1,000 common shares to Steven E. Schultz.
On October 9, 1997 Charles V. Maida Jr. transferred 6,500 common shares to
Frank Ugarte.
Prices for all of the foregoing private transfers ranged from $2.00 to
$4.00.
In May 1997 the Company sold 160,000 shares of Series A Preferred Stock to
CBM of America, Inc. (80,000 shares), Lawrence M. Dezenzo Revocable Trust f/b/o
Lawrence M. Dezenzo, Trustee (40,000 shares) and Bruce J. Simonson (40,000
shares) in a private placement for $400,000 in the aggregate.
The Securities issued by the Company in the foregoing transactions were not
registered under the Securities Act of 1933 in reliance upon exemptions
contained in Section 4(2) thereof.
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1 -- Form of Underwriting Agreement (with form of Underwriter's
Warrant)*
3.1 -- Articles of Incorporation, as amended*
3.2 -- Bylaws*
4.1 -- Specimen Common Stock Certificate*
4.2 -- Specimen Redeemable Warrant*
4.3 -- Form of Warrant Agreement*
4.4 -- Fixed Rate Promissory Note in principal amount of $250,000
dated January 31, 1997 payable to Unique Restaurant Concepts
Ltd.*
4.5 -- Fixed Rate Promissory Note in principal amount of $125,000
dated June 1, 1997 payable to Daniel S. Catalfumo*
4.6 -- Promissory Note in the principal amount of $60,000 dated
December 1, 1995 by the Company payable to First Union
National Bank of Florida*
4.7 -- Form of Stock Option Agreement dated July 1, 1997 between
the Company and Unique Restaurant Concepts Ltd.*
5 -- Form of Opinion of Mirkin & Woolf, P.A.*
10.1 -- 1997 Equity Incentive Plan*
10.2 -- Certificate of registration of My Martini Grille as a
servicemark*
10.3 -- Certificate of registration of Sforza Ristorante as a
servicemark*
10.4 -- Office lease*
10.5 -- Sforza Ristorante lease*
10.6 -- My Martini Grille lease*
10.7 -- Planned sushi restaurant lease*
10.8 -- Management and Consulting Agreement, as amended*
10.9 -- Funding Agreement, as amended*
10.10 -- Form of Lock-up Agreement*
21 -- Subsidiaries of the Registrant*
23.1 -- Consent of Templeton & Company, P.A.*
23.2 -- Consent of Mirkin & Woolf, P.A. (contained in Exhibit 5)*
25 -- Power of Attorney (included on signature page)*
27.1 -- Financial Data Schedule for 1997 (for SEC use only)
27.2 -- Financial Data Schedule for 1996 (for SEC use only)
</TABLE>
- ---------------
* Previously filed
II-3
<PAGE> 63
ITEM 28. UNDERTAKINGS
A. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Act");
(ii) To reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the
information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if
the total dollar value or securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To provide to the Underwriter at the Closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the Underwriter to permit prompt delivery to each
purchaser.
B. Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
C. For purposes of determining any liability under the Act, the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be
deemed to be part of this registration statement as of the time the Commission
declared it effective.
D. For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering of those securities.
II-4
<PAGE> 64
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in the City of West Palm
Beach, State of Florida, on the 7th day of November, 1997.
SFORZA ENTERPRISES INC.
By: /s/ DALE J. BRISSON
--------------------------------------
Dale J. Brisson
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Dale J. Brisson and Gerald J. Visconti Jr. his
true and lawful attorney-in-fact, each acting alone, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities to sign any and all amendments including post-effective
amendments to this registration statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact or their substitutes, each acting alone may lawfully do
or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<C> <S> <C>
/s/ DALE J. BRISSON President, Chief November 7, 1997
- ----------------------------------------------------- Executive Officer and
Dale J. Brisson Director
/s/ GERALD J. VISCONTI JR. Vice President, Chief November 7, 1997
- ----------------------------------------------------- Financial Officer,
Gerald J. Visconti Jr. (Principal Accounting
Officer), Secretary
and Director
/s/ DANIEL S. CATALFUMO Director November 7, 1997
- -----------------------------------------------------
Daniel S. Catalfumo
/s/ DENNIS R. MAX Director November 7, 1997
- -----------------------------------------------------
Dennis R. Max
/s/ BURTON M. RAPOPORT Director November 7, 1997
- -----------------------------------------------------
Burton M. Rapoport
/s/ JOSEPH C. VISCONTI Director November 7, 1997
- -----------------------------------------------------
Joseph C. Visconti
</TABLE>
II-5
<PAGE> 65
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S> <C>
1 -- Form of Underwriting Agreement (with form of Underwriter's
Warrant)*
3.1 -- Articles of Incorporation, as amended*
3.2 -- Bylaws*
4.1 -- Specimen Common Stock Certificate*
4.2 -- Specimen Redeemable Warrant
4.3 -- Form of Warrant Agreement*
4.4 -- Fixed Rate Promissory Note in principal amount of $250,000
dated January 31, 1997 payable to Unique Restaurant Concepts
Ltd.*
4.5 -- Fixed Rate Promissory Note in principal amount of $125,000
dated June 1, 1997 payable to Daniel S. Catalfumo*
4.6 -- Promissory Note in the principal amount of $60,000 dated
December 1, 1995 by the Company payable to First Union
National Bank of Florida*
4.7 -- Form of Stock Option Agreement dated July 1, 1997 between
the Company and Unique Restaurant Concepts Ltd.*
5 -- Form of Opinion of Mirkin & Woolf, P.A.*
10.1 -- 1997 Equity Incentive Plan*
10.2 -- Certificate of registration of My Martini Grille as a
servicemark*
10.3 -- Certificate of registration of Sforza Ristorante as a
servicemark*
10.4 -- Office lease*
10.5 -- Sforza Ristorante lease*
10.6 -- My Martini Grille lease*
10.7 -- Planned sushi restaurant lease*
10.8 -- Management and Consulting Agreement, as amended*
10.9 -- Funding Agreement, as amended*
10.10 -- Form of Lock-up Agreement*
21 -- Subsidiaries of the Registrant*
23.1 -- Consent of Templeton & Company, P.A.*
23.2 -- Consent of Mirkin & Woolf, P.A. (contained in Exhibit 5)*
25 -- Power of Attorney (included on signature page)*
27.1 -- Financial Data Schedule for 1997 (for SEC use only)
27.2 -- Financial Data Schedule for 1996 (for SEC use only)
</TABLE>
- ---------------
* Previously Filed
<PAGE> 1
EXHIBIT 4.2
EXHIBIT A
No. _____________ Certificate for ______ Warrants
THIS WARRANT CERTIFICATE MAY BE
TRANSFERRED SEPARATELY FROM THE COMMON STOCK CERTIFICATE
WITH WHICH IT IS INITIALLY ISSUED
EXERCISABLE ON OR BEFORE, AND VOID AFTER,
5:00 P.M. FLORIDA TIME, OCTOBER 31, 2002
SFORZA ENTERPRISES INC.
WARRANTS TO PURCHASE COMMON STOCK OF
SFORZA ENTERPRISES INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA
CUSIP No. _________
This certifies that ____________________ or assigns, is the owner of the number
of Warrants set forth above, each of which represents the right to purchase
from Sforza Enterprises Inc., a Florida corporation (the "Company"), at any time
on or before 5:00 Florida time, October 31, 2002, upon compliance with and
subject to the conditions set forth herein and in the Warrant Agreement
hereinafter referred to, one share (subject to adjustments referred to below) of
the Common Stock of the Company (such shares or other securities or property
purchasable upon exercise of the Warrants being herein called the "Shares"), by
surrendering this Warrant Certificate, with the Purchase Form on the reverse
side duly executed, at the principal office of Florida Atlantic Stock Transfer,
Inc., or its successor, as warrant agent (the "Warrant Agent"), and by paying in
full, in cash or by certified or official bank check payable to the order of
the Company, the exercise price of $9.50 per Share.
Upon any exercise of less than all the Warrants evidenced by this Warrant
Certificate, there shall be issued to the holder a new Warrant Certificate in
respect of the Warrants as to which this Warrant Certificate was not exercised.
Upon the surrender for transfer or exchange hereof, properly endorsed, to the
Warrant Agent, the Warrant Agent at the Company's expense will issue and deliver
to the order of the holder hereof a new Warrant Certificate or Warrant
Certificates of like tenor, in the name of such holder or as such holder (upon
payment by such holder of any applicable transfer taxes) may direct, calling in
the aggregate on the face or faces thereof for the number of shares of Common
Stock called for on the face hereof.
<PAGE> 2
The Warrant Certificates are issued only as registered Warrant Certificates.
Until this Warrant Certificate is transferred in the Warrant Register, the
Company and the Warrant Agent may treat the person in whose name this Warrant
Certificate is registered as the absolute owner hereof and of the Warrants
represented hereby for all purposes, notwithstanding any notice to the contrary.
This Warrant Certificate is issued under the Warrant Agreement dated as of
October ___, 1997 between the Company and the Warrant Agent. The Warrant
Agreement is hereby incorporated by reference into this Warrant Certificate and
this Warrant Certificate is subject to the terms and provisions contained in
said Warrant Agreement, to all of which terms and provisions the registered
holder of this Warrant Certificate consents by acceptance hereof. Copies of said
Warrant Agreement are on file at the principal office of the Warrant Agent in
Tamarac, Florida, and may be obtained by writing to the Warrant Agent.
The number of Shares receivable upon the exercise of the Warrants represented by
this Warrant Certificate and the exercise price per share are subject to
adjustment upon the happening of certain events specified in the Warrant
Agreement.
No fractional Shares of the Company's Common Stock will be issued upon the
exercise of Warrants. As to any final fraction of a Share which a holder of
Warrants exercised in the same transaction would otherwise be entitled to
purchase on such exercise, the Company shall pay a cash adjustment in lieu of
any fractional Share determined as provided in the Warrant Agreement.
The Warrants may be redeemed at the option of the Company, at any time following
a period of 20 consecutive trading days where the per share average closing bid
price of the Common Stock exceeds $10.05, on notice as set forth in the Warrant
Agreement, and at a redemption price equal to $.01 per Warrant. If notice of
redemption shall have been given as provided in the Warrant Agreement and cash
sufficient for the redemption be deposited by the Company for that purpose, the
exercise rights of the Warrants identified for redemption shall expire at the
close of business on such date of redemption unless extended by the Company.
This Warrant Certificate shall not entitle the holder hereof to any of the
rights of a holder of Common Stock of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, to
exercise any preemptive right, or to receive any notice of, or to attend
meetings of holders of Common Stock or any other proceedings of the Company.
This Warrant Certificate shall be void and the Warrants and any rights
represented hereby shall cease unless exercised on or before 5:00 p.m. Florida
time on October 31, 2002, unless extended by the Company.
-2-
<PAGE> 3
This Warrant Certificate shall not be valid for any purpose until it shall have
been countersigned by the Warrant Agent.
WITNESS the facsimile signatures of the Company's duly authorized officers.
SFORZA ENTERPRISES INC.
By:___________________________
Name:______________________
Title:_____________________
COUNTERSIGNED AND REGISTERED:
as Warrant Agent
FLORIDA ATLANTIC STOCK
TRANSFER, INC.
By:___________________________
Name:______________________
Title:_____________________
[REVERSE OF WARRANT CERTIFICATE]
THE CORPORATION WILL FURNISH ANY HOLDER UPON REQUEST AND WITHOUT CHARGE, A COPY
OF THE ARTICLES OF INCORPORATION AND A FULL STATEMENT OF THE DESIGNATIONS,
PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR
SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE
AUTHORITY OF THE BOARD TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF
SUBSEQUENT CLASSES OR SERIES.
TO: Sforza Enterprises Inc.
c/o Florida Atlantic Stock Transfer, Inc.,
Warrant Agent
PURCHASE FORM
(To be Executed by the Registered Holder
in Order to Exercise of Warrant Certificates)
The undersigned hereby irrevocably elects to exercise __________* of the
Warrants represented by the Warrant Certificate and to purchase for cash the
Shares issuable upon the exercise of said Warrants and requests that
certificates for such Shares shall be issued in the name of:
-3-
<PAGE> 4
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF
REGISTERED HOLDER OF CERTIFICATE
- --------------------------------------------------------------------------------
(Print Name)
- --------------------------------------------------------------------------------
(Address)
- --------------------------------------------------------------------------------
Dated:_______________ Signature:_________________________
- -------------------------
* Insert here the number of Warrants evidenced on the face of this Warrant
Certificate (or, in the case of a partial exercise, the portion thereof being
exercised), in either case without making any adjustment for additional Common
Stock or any other securities or property or cash which, pursuant to the
adjustment provisions referred to in this Warrant Certificate, may be deliv-
erable upon exercise.
ASSIGNMENT FORM
(To be Executed by the Registered Holder
in Order to Transfer Warrant Certificates)
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE:_____________________
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
___________________________________ of the Warrants to purchase shares of Common
Stock represented by this Warrant Certificate unto_____________________________
______________________ (Please print or typewrite name and address including
postal zip code of assignee)____________________________________________________
________________________________________________________________________________
and does hereby irrevocably constitute and appoint _____________________________
Attorney to transfer this Warrant Certificate on the records of the Company
with full power of substitution in the premises.
Dated:_______________ Signature(s) ______________________
-4-
<PAGE> 5
SIGNATURE(S) GUARANTEED:
- ------------------------------
NOTICE
The signature(s) to the Purchase Form or the Assignment Form must correspond to
the name as written upon the face of this Warrant Certificate in every
particular without alteration or enlargement or any change whatsoeve.
-5-
<PAGE> 1
EXHIBIT 23.1
Templeton & Company, P.A.
Certified Public Accountants
540 Royal Palm Beach Boulevard
Royal Palm Beach, Florida 33411
--------------------
(561) 798-9988
Fax (561) 798-4053
CONSENT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders
Sforza Enterprises Inc.
We consent to the inclusion in this registration statement on Form SB-2 of our
report dated March 28, 1997, except for notes 2 and 9, as to which the date is
November 3, 1997, on audits of the consolidated financial statements of Sforza
Enterprises, Inc. and subsidiaries. We also consent to the reference to our
firm under the caption "Experts."
/s/ Templeton & Company, P.A.
-----------------------------
Templeton & Company, P.A.
Royal Palm Beach Florida
November 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND RELATED NOTES THERETO AS SET FORTH IN THE COMPANY'S FILING ON
FORM SB-2.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 110,502
<SECURITIES> 0
<RECEIVABLES> 6,459
<ALLOWANCES> 0
<INVENTORY> 94,385
<CURRENT-ASSETS> 464,631
<PP&E> 1,011,698
<DEPRECIATION> 98,691
<TOTAL-ASSETS> 1,602,823
<CURRENT-LIABILITIES> 345,960
<BONDS> 69,181
400,000
0
<COMMON> 10,200
<OTHER-SE> 769,967
<TOTAL-LIABILITY-AND-EQUITY> 1,602,823
<SALES> 2,679,903
<TOTAL-REVENUES> 2,679,903
<CGS> 1,524,705
<TOTAL-COSTS> 1,524,705
<OTHER-EXPENSES> 1,129,779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,500
<INCOME-PRETAX> 1,006
<INCOME-TAX> 300
<INCOME-CONTINUING> 706
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 706
<EPS-PRIMARY> .00
<EPS-DILUTED> .01
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER
31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS AND REALTED NOTES THERETO AS SET FORTH IN THE COMPANY'S FILING ON
FORM SB-2.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 202,639
<SECURITIES> 0
<RECEIVABLES> 2,238
<ALLOWANCES> 0
<INVENTORY> 38,661
<CURRENT-ASSETS> 311,950
<PP&E> 529,065
<DEPRECIATION> 33,695
<TOTAL-ASSETS> 1,086,151
<CURRENT-LIABILITIES> 371,452
<BONDS> 83,973
0
0
<COMMON> 9,875
<OTHER-SE> 613,336
<TOTAL-LIABILITY-AND-EQUITY> 1,086,151
<SALES> 2,333,530
<TOTAL-REVENUES> 2,333,530
<CGS> 1,299,501
<TOTAL-COSTS> 1,299,501
<OTHER-EXPENSES> 881,856
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 155,224
<INCOME-TAX> 9,319
<INCOME-CONTINUING> 145,905
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 145,905
<EPS-PRIMARY> .15
<EPS-DILUTED> .13
</TABLE>
