As filed with the Securities and Exchange Commission on July 30, 1998
Registration No. 333-53737
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(Amendment No. 2)
MCHENRY METALS GOLF CORP.
(Name of small business issuer in its charter)
Nevada 3939 87-0429261
(State or other jurisdiction of (Primary S.I.C. (I.R.S. Employer
incorporation or organization) Code Number) Identification No.)
1945 Camino Vida Roble, Suite J, Carlsbad, CA 92008 (760) 929-0015
(Address & phone number of principal executive office & place of business)
Gary V. Adams
1945 Camino Vida Roble, Suite J, Carlsbad, CA 92008 (760) 929-0015
(Name, address & telephone number of agent for service)
Copies to:
Thomas G. Kimble & Van L. Butler THOMAS G. KIMBLE & ASSOCIATES
311 South State Street, #440, Salt Lake City, Utah 84111
(801) 531-0066
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this registration statement.
______________________________________________________________________________
CALCULATION OF REGISTRATION FEE
(previously paid)
Title of Each Class|Amount to be|Proposed Maximum |Proposed Maximum|Amount
of Securities to be|Registered |Offering Price/Unit|Aggregate Price |of fee
Registered
- ------------------------------------------------------------------------------
Series A Warrants &
Common Stock 1,271,094 $ 2.00 $2,542,188 $749.95
Shop & Pro Warrants
& Common Stock 1,300,000 $ 5.44 (1) $7,072,000 $2,086.24
--------
TOTAL FEE $2,836.19
========
- ------------------------------------------------------------------------------
(1) Calculated pursuant to Rule 457(c), based on the average of the bid and
asked price as of May 21, 1998.
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>
MCHENRY METALS GOLF CORP.
2,571,094 WARRANTS AND UNDERLYING SHARES OF COMMON STOCK
McHenry Metals Golf Corp. (the "Company") is registering:
bullet 1,271,094 redeemable warrants ("Series A Warrants") to be
distributed as soon as practicable after the date of this
prospectus, to common stockholders of record as of March 31, 1997;
bullet 1,300,000 redeemable warrants ("Shop Warrants" and "Pro Warrants")
to be granted to certain dealers of the Company's products, and to
golf professionals who use and endorse the Company's products; and
bullet 2,571,094 shares of $.001 par value common stock, (the "Common
Stock" or the "Shares") issuable upon exercise of these Warrants.
Each Warrant entitles the holder to purchase one share of Common Stock of the
Company. Each Series A Warrant is exercisable at $1.00 per share during the
first year, $1.50 per share during the second year, and $2.00 per share during
the third year following the date of this prospectus. Each Shop Warrant and
Pro Warrant will be exercisable at a price equal to the fair market value of
the Common Stock at the time of issuance of the Warrant, determined by taking
the average of the bid and asked prices quoted by the 3 highest market makers,
during the 5 trading days preceding the date of grant of the Warrant. All of
the Warrants will be callable and can be redeemed by the Company for $.01 per
Warrant on 30 days notice at any time after the closing bid price of the
Common Stock equals or exceeds the exercise price of that Warrant for 10
consecutive trading days (or, in the case of Series A Warrants, 200% of the
exercise price then in effect, for 20 consecutive trading days). Warrants may
only be exercised or redeemed if a current prospectus is in effect. The
exercise and redemption prices of the Warrants were arbitrarily determined by
the Company and bear no relationship to assets, shareholders equity or any
other objective criteria of value. The Company's Common Stock is quoted on
the NASD Electronic Bulletin Board under the Symbol "GLFN" and the current
(July , 1998) bid price quotation is $ .
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK AND SUBSTANTIAL AND IMMEDIATE
DILUTION AND SHOULD NOT BE PURCHASED BY PERSONS WHO CANNOT AFFORD TO RISK THE
LOSS OF THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS" ON PAGE .
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE
SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THE PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The Warrants are being distributed without any cash consideration. The Shares
are being offered by the Company only to the holders of the Warrants, and will
be sold by the Company without any underwriting discounts or other
commissions. The offering price of the Shares is payable in cash upon
exercise of the Warrants. No minimum number of Warrants must be exercised,
and no assurance exists that any Warrants will be exercised.
The date of this Prospectus is , 1998
<PAGE>
TABLE OF CONTENTS Page
PROSPECTUS SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . 3
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
DILUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . .13
MARKET INFORMATION & DIVIDEND POLICY . . . . . . . . . . . . . . . .14
MANAGEMENT'S PLAN OF OPERATIONS. . . . . . . . . . . . . . . . . . .14
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
AVAILABLE INFORMATION. . . . . . . . . . . . . . . . . . . . . . . .22
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
CERTAIN TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . .29
DESCRIPTION OF SECURITIES. . . . . . . . . . . . . . . . . . . . . .31
SHARES ELIGIBLE FOR FUTURE SALE. . . . . . . . . . . . . . . . . . .34
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . .35
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . .36
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . See Index
2
<PAGE>
PROSPECTUS SUMMARY
This summary is qualified in its entirety by the more detailed
information appearing elsewhere in the Prospectus.
THE COMPANY
McHenry Metals Golf Corp. (the "Company") is in the business of
designing, developing, marketing and distributing premium quality golf
clubs using its own design concepts, which utilize state-of-the-art
engineering technology, manufacturing processes, and the newest
materials available to the golf industry. The Company is led by Mr.
Gary V. Adams, who previously founded Taylor Made Golf Company, where
he first introduced the "metal wood" golf club driver, and later
started Founders Club Golf Company. The management team has extensive
relationships and product development, sales and marketing experience in
the golf industry. Four of the Company's executives have over thirty
years of experience in the golf industry, two have been in the business
for over twenty years, and two others played key roles in developing a
golf company within the past decade.
The Company's long term objective is to build a diversified golf
equipment company with a market leadership position in domestic and
international markets. In the short-term, the Company will focus on
developing a business in the metal wood product category. The Company is
currently focusing the majority of its product research and development
efforts on becoming a successful metal wood company. The Company
introduced its first product, the TourPure driver, at the PGA
International Golf Show in Las Vegas during September, 1997. The Company
began shipping product to sales representatives in January, 1998 and to
customers in February, 1998. A complete line of metal fairway woods
complementing the TourPure driver was introduced at the PGA Merchandise
Show in Orlando, Florida, held January 30 - February 2, 1998. The
Company is adding a 3, 4, 5, 7, and 9 wood to the TourPure family. The
metal fairway woods incorporate the features of the TourPure driver,
plus design enhancements for weight distribution. As of March 31, 1998,
the Company had recorded $1.2 million in revenues from net sales
associated with the TourPure driver.
The Company's principal executive offices are located at 1945 Camino
Vida Roble, Suite J, Carlsbad, California 92008. The Company's
telephone number is (760) 929-0015.
THE OFFERING
Securities 1,271,094 redeemable Series A Warrants, 1,000,000
offered redeemable Shop Warrants, 300,000 redeemable Pro
Warrants, and 2,571,094 Shares of Common Stock, $.001
par value of the Company issuable upon exercise of
the Series A Warrants, Shop Warrants and Pro Warrants.
See "Description of Securities".
3
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Offering Prices Series A Warrants will be distributed at no cost;
the Shop and Pro Warrants will be distributed
without cash consideration. The Shares underlying
the Series A Warrants will be sold at $1.00 per
share during the first year, $1.50 per share
during the second year and $2.00 per share during the
third year following the date of this prospectus. The
Shares underlying the Shop and Pro Warrants will be
sold at the exercise prices of those warrants, which
will be based on the fair market value of the Common
Stock at the time of granting of those warrants.
Plan of Series A Warrants will be distributed as soon as
Distribution practicable after the date of this prospectus, to
the common stockholders of the Company of record as
of March 31, 1997. Shop Warrants and Pro Warrants
will be distributed to certain dealers of the
Company's products and to golf professionals who
agree to use and endorse the Company's products. The
Shares will be offered and sold by the Company
without any underwriting discounts or other commissions,
to the holders of these Warrants, upon the exercise
thereof. See "Plan of Distribution."
Securities The Company is authorized to issue up to 50,000,000
Outstanding shares of Common Stock. At March 31, 1998,
10,994,110 shares were issued and outstanding. The
Company has since issued or agreed to issue 41,700
shares, and has reserved from its authorized but
unissued capital 2,571,094 shares of Common Stock for
issuance upon exercise of the Series A, Shop and Pro
Warrants. 319,033 shares are reserved for issuance
upon exercise of Unit Warrants already outstanding.
The Company is also authorized to issue up to
5,000,000 shares of Preferred Stock in one or more
series with such rights and preferences as the Board
of Directors may designate. The Board of Directors
has not designated any series of Preferred Stock.
See "Description of Securities."
Warrants Each Warrant entitles the holder to purchase one
share of Common Stock. Series A Warrants are
exercisable at $1.00 during the first year, $1.50
during the second year, and $2.00 during the third
year, after the date of this Prospectus. The
Series A Warrants are callable and can be redeemed
by the Company for $.01 per Series A Warrant on 30
days notice at any time after the date of this
Prospectus if the closing bid
4
<PAGE>
price of the Common Stock equals or exceeds 200% of the
exercise price for 20 consecutive trading days. Each
Shop Warrant and Pro Warrant is callable and can
be redeemed by the Company for $.01 per Warrant on 30
days notice at any time after the date of this Prospectus
if the closing bid price of the Common Stock equals
or exceeds the exercise price of that Warrant, for
10 consecutive trading days. The exercise prices for
the Warrants are subject to adjustment in certain
events. See "Description of Securities."
Use of Proceeds There is no assurance as to the amount of proceeds
that may be received from the exercise of any of the
Warrants. Any proceeds that are received will be
used generally to provide additional working capital,
but have not been specifically allocated, inasmuch as
there is no assurance when or how many (if any)
Warrants will be exercised.
Transfer Agent Interwest Transfer Company, Inc., 1981 East 4800
South, Suite 100, Salt Lake City, Utah 84117,(801)
272-9294, serves as transfer agent and registrar
for the Company's outstanding securities.
Risk Factors An investment in the Company is highly speculative.
Investors will suffer substantial dilution in the
book value per share of the Common Stock compared to
the purchase price. If substantial funds are not
received from exercise of the Warrants, of which
there is no assurance, the Company may require
additional funding for which it has no commitments.
No person should invest in the Company who cannot
afford to risk loss of the entire investment. See
"Risk Factors."
5
<PAGE>
RISK FACTORS
This prospectus contains certain forward-looking statements. Prospective
investors and other readers are cautioned not to place undue reliance upon
such forward looking statements, which represent only the plans, beliefs,
estimates, expectations and/or anticipation of management as of the date of
this prospectus. Forward looking statements are subject to certain
uncertainties and other factors which could cause actual results in the future
to differ materially from the results contemplated in and by such statements.
Such uncertainties and other factors include those enumerated below as risk
factors.
The securities being offered hereby involve a high degree of risk.
Prospective investors should carefully consider the following risk factors
before investing in the Company.
RISKS INHERENT IN A NEW START UP COMPANY
Lack of Operating History. The Company is a recently formed enterprise with
very limited operating history. All of the risks associated with a start-up
company are inherent in any ownership or investment in this venture. The
Company has no commitments for the future funding that it may require and has
only recently established relationships with suppliers or manufacturers with
respect to production and assembly of the products it is now marketing or
proposes to market in the future.
Operating Losses. Since inception the Company has incurred substantial
operating losses. No assurance can be given when or if the Company will
operate on a profitable basis.
Need for Additional Funding. The Company estimates that it may need
substantial funding, in addition to its present capital, to be able to fully
develop and expand its business. However, the Company has no commitment for
additional funding and may have to seek further equity financing in order to
continue to develop and expand its business, in the event less than the full
amount of this Offering is received. There is no assurance that the Company
will be able to obtain such funding and if obtained it could dilute the
ownership of present shareholders and investors in this Offering.
Dependence on Key Personnel. The Company is dependent upon the management and
leadership skills of Gary V. Adams, the Company's founder and Chief Executive
Officer, and the other members of its management team. Development of
innovative golf clubs will be dependent upon the product development personnel
including Mr. Adams. The research and development team is headed by Mario
Cesario. There is intense competition for qualified personnel in the golf
club industry, and the loss of key personnel or an inability to attract,
retain and motivate key personnel could adversely affect the Company's
business. The Company has no key man life insurance on Mr. Adams or other
members of management. There is no assurance that the Company will be able to
retain its existing management personnel or to attract additional qualified
personnel. See "Management".
No Cash Dividends. The Company does not currently intend to pay cash
dividends on its Common Stock and does not anticipate paying such dividends at
any time in the foreseeable future. At present, the Company will follow a
policy of retaining all of its earnings, if any, to finance development and
expansion of its business. See "Dividend Policy."
6
<PAGE>
RISKS RELATED TO THE NATURE OF THE PROPOSED BUSINESS
New Product Risks. The Company's business involves relatively new products
which have not established their market share or demand. The products have
only been in use a short time, have a limited track record, and are still
being developed. There is no assurance of feasibility or that such products
will be favorably received by consumers in the golf industry. The Company's
business will be subject to all the risks associated with introduction of new
products.
Competition. The market for premium-quality golf clubs is highly competitive
and is served by a number of well-established, well-financed companies with
recognized brand names. In addition, there are several golf club
manufacturers with substantial resources that, although they do not currently
manufacture premium-quality golf clubs, could pose significant competition to
the Company if they were to enter the market for premium-quality golf clubs.
The golf club industry, in general, has been characterized by widespread
imitation of popular club designs. A company's ability to compete is in part
dependent upon its ability to satisfy various subjective requirements of
golfers, including the golf club's look and "feel" and the level of acceptance
that the golf club has among professional and other golfers. The subjective
preferences of golf club purchasers may also be subject to rapid and
unanticipated changes. There can be no assurances as to whether or how long
the Company's golf clubs will receive market acceptance. A decline in the
size of the golf club market, whether from a decrease in the popularity of
golf or otherwise would have a material adverse effect on the Company's
proposed business.
New Product Introduction. The basis of the Company's future is the
introduction of new, innovative golf clubs. New models and basic design
changes are frequently introduced into the golf club market but are often met
with consumer rejection. No assurances can be given that the Company will be
able to design and market golf clubs that meet with market acceptance. In
addition, prior successful designs may be rendered obsolete within a
relatively short period of time as new products are introduced into the
market. The design of new golf clubs is also greatly influenced by rules and
interpretations of the United States Golf Association ("USGA"). Although the
golf equipment standards established by the USGA generally apply only to
competitive events sanctioned by that organization, it has become critical for
designers of new clubs to assure compliance with USGA standards. Although the
Company has been notified by the USGA that its TourPure driver conforms with
its standards, and believes that all its clubs will comply with USGA
standards, no assurance can be given that any new products will receive USGA
approval or that USGA existing standards will not be altered in ways that
adversely affect the future sales of the Company's products.
Technological Changes. The manufacture and design of golf clubs has undergone
significant changes with respect to design and materials in recent years. The
introduction of new or enhanced technologies or designs by competitors could
render the Company's products less marketable. The ability of the Company to
compete successfully will depend to a large degree on its ability to innovate
and respond to changes and advances in its industry. There can be no
assurance that the Company will be able over the long term to keep pace with
the demands of the marketplace.
7
<PAGE>
Dependence on Certain Suppliers. The Company intends to purchase most of its
metal wood club heads from certain well-known casting houses on a purchase
order basis and to purchase club shafts from certain shaft manufacturers which
may have to make modifications in their standard products to accommodate the
Company's golf club designs. Any significant delay or disruption in the
supply of club heads or shafts would have a material adverse effect on the
company's business. In such event, the Company believes that suitable club
heads and shafts could be obtained from other manufacturers, although the
transition to another supplier could result in production delays of several
weeks. The Company currently is dealing with approximately ten different
suppliers of its product components, but has only a limited experience with
such suppliers.
Developing Markets. The market for the Company's proposed products has
experienced recent growth and appears to be rapidly evolving as new products
are regularly being introduced. The market is characterized by a few dominant
entrants with widely accepted and recognized products. Because the markets
for the Company's products are evolving and because the Company has no
operating experience, it is difficult to assess or predict with any assurance
the growth rate, if any, and the size of the market for the Company's
products. There can be no assurance that a market for the Company's products
will develop. If such a market fails to develop or develop more slowly than
anticipated, the Company's business, operating results and financial condition
will be materially adversely affected.
Risks of Technical Problems or Product Defects. There is no assurance,
despite testing and quality assurance efforts that may be performed by the
Company and/or its industry partners, that technical problems or product
defects will not be found, resulting in loss of or delay in market acceptance
and sales, diversion of development resources, injury to the Company's
reputation or increased service and support costs, any of which could have a
material adverse effect on the Company's business. Moreover, there is no
assurance that the Company will not experience difficulties that could delay
or prevent the development and introduction of its products and services, that
new or enhanced products and services will meet with market acceptance, or
that advancements by competitors will not erode the Company's position or
render the Company's products and services obsolete.
Dependence on Proprietary Technology. The Company's success will be heavily
dependent upon a combination of proprietary design and technology developed
internally. The Company intends to pursue trademark and patent protection and
also expects to rely on a combination of trade secrecy, non-disclosure
agreements and contractual provisions with respect to the proprietary nature
of its technology. However, there can be no assurance that any steps taken by
the Company will prevent misappropriation of this technology. Effective legal
protection of these technologies may be unavailable or limited in certain
foreign countries. Third parties could independently develop competing
technologies that are substantially equivalent or superior to the Company's
technologies. Although the Company believes that its products and the
proprietary rights developed by it do not infringe upon any proprietary rights
of others, there is no absolute assurance of this. An infringement claim has
already been asserted against the Company, and whether or not such claim has
any merit, there is no assurance regarding the outcome of this litigation.
See "Legal Proceedings"
8
<PAGE>
Ability to Manage Growth. The Company intends to pursue a strategy of rapid
growth. The Company plans to significantly expand marketing efforts and to
devote substantial resources to operations and support areas, including
administrative services. There can be no assurance that the Company will
attract qualified personnel or will successfully manage such expanded
operations. The failure to properly manage growth could have a material
adverse effect on the Company.
RISKS RELATED TO THE OFFERING
No Assurance of Warrant Exercise and No Escrow of Funds. There is no
assurance that any proceeds will be received from exercise of Warrants in
this offering. Proceeds may be insufficient to defray offering expenses. No
minimum number of Warrants must be exercised and there is no escrow of funds
received upon exercise. Any proceeds received will immediately be retained by
the Company to be used in its business. In the event that any proceeds from
this offering and the Company's existing capital are not sufficient to enable
the Company to develop and expand its business and generate a profit, the
Company may need to seek additional financing from commercial lenders or other
sources, for which it presently has no commitments or arrangements. This
creates an increased risk to persons who exercise Warrants, because there is
no assurance that any additional Warrants will be exercised or that the
Company will receive any further funding.
Risks of Warrant Exercise. There is no assurance that exercising Warrant
holders will be able to sell their Common Stock in the future at a price which
equals or exceeds their exercise price.
Outstanding Warrants, Options and Other Rights. In addition to the 1,271,094
Series A Warrants, 1,000,000 Shop Warrants and 300,000 Pro Warrants, the
Company has 319,033 Unit Warrants and 1,295,000 management stock options
already outstanding and has authorized up to 1,000,000 warrants/options to be
granted in the future in connection with an employee incentive stock option
program. The holders of such options, warrants or rights are given an
opportunity during the term of such rights to profit from a rise in the market
price of the Company's common stock, with a resultant dilution of the
interests of all other stockholders. The holders thereof are likely to
exercise them only if the then prevailing market price exceeds such exercise
prices, which would be at a time when, in all likelihood, the Company would
otherwise be able to obtain funds from the sale of its securities on terms
more favorable than those provided by the options and warrants. Accordingly,
the Company may find it more difficult to raise additional capital while the
options and warrants are outstanding.
Qualification for Listing on NASDAQ. The Company intends to apply as soon as
possible for listing of its common stock on the NASDAQ Small-cap Market.
There is no assurance when, if ever, the company will meet the requirements
for such listing or, in any event, be accepted for such listing. Furthermore,
if the Company's common stock were to qualify for listing there is no
assurance that the Company would be able to continue to satisfy the listing
requirements. In the event of delisting or failure to qualify initially,
trading in the Company's common stock is expected to continue on the
Electronic Bulletin Board. As a result, investors may find it more difficult
to dispose of, or to obtain quotations as to the price of the common stock.
9
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Current Prospectus and Registration Required for Exercise. Holders of the
Warrants will only be able to exercise such securities to acquire the
underlying Common Stock if a current prospectus relating to the Common Stock
is then in effect and such exercise is qualified or exempt from qualification
under applicable securities laws of the states in which such holders of the
Warrants reside. Although the Company intends to use its best efforts to
update this prospectus as necessary to maintain a current prospectus and
federal and state registration/qualification for such exercise, there is no
assurance that the Company will be able to do so at such time as such persons
may wish to exercise Warrants. The value of the Warrants may be greatly
diminished if the ability to exercise them is not maintained. If a current
prospectus is in effect, each of the Warrants is redeemable for nominal
consideration at any time after the date hereof upon 30 days notice, if the
bid price of the common stock equals or exceeds the exercise price of a Shop
or Pro Warrant for 10 consecutive trading days, or 200% of the exercise price
of the Series A Warrants for 20 consecutive trading days. If redeemed when a
current prospectus is in effect, Warrant holders would have 30 days to
exercise the Warrants, after which they would be compelled to accept the
nominal redemption price.
Dilution. Warrant holders who exercise their Warrants to purchase the
underlying Shares of Common Stock will suffer substantial dilution in the
purchase price of the Shares compared to the net tangible book value per share
immediately after the purchase. The exact amount of dilution will vary
depending upon the total number of Warrants exercised, and will be greater if
less than all the Warrants are exercised. The fewer Warrants exercised, the
greater dilution will be with respect to the Warrants that are exercised. See
"Dilution."
Potential Issuance of Additional Common and Preferred Stock. The Company is
authorized to issue up to 50,000,000 shares of Common Stock. To the extent of
such authorization, the Board of Directors of the Company will have the
ability, without seeking shareholder approval, to issue additional shares of
Common Stock in the future for such consideration as the Board of Directors
may consider sufficient. The issuance of additional Common Stock in the
future will reduce the proportionate ownership and voting power of the Common
Stock offered hereby. The Company is also authorized to issue up to 5,000,000
shares of preferred stock, the rights and preferences of which may be
designated in series by the Board of Directors. To the extent of such
authorization, such designations may be made without shareholder approval.
The Board of Directors has not yet designated any series of Preferred Stock.
The designation and issuance of series of preferred stock will create
additional securities which will have dividend and liquidation preferences
over the Common Stock offered hereby. See "Description of Securities."
Potential Anti-Takeover Measures. Certain provisions in the articles of
incorporation or bylaws of the Company, such as authorization to issue
additional common or preferred stock and designate the rights and preferences
of the preferred stock without further approval of shareholders, could be used
as anti-takeover measures. Provisions such as these could result in the
Company being less attractive to anyone who might consider a takeover attempt,
and result in shareholders receiving less than they otherwise might in the
event of a takeover attempt.
10
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Limited Liability of Management. The Company has adopted provisions to its
Articles of Incorporation and Bylaws which limit the liability of Officers and
Directors and provides for indemnification by the Company of Officers and
Directors to the full extent permitted by Nevada law, which provides that
officers and directors shall have no personal liability to a Company or its
stockholders for monetary damages for breach of fiduciary duties as directors,
except for a breach of their duty of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or knowing violation of law,
unlawful payment of dividends or unlawful stock purchases or redemptions, or
any transaction from which a director derives an improper personal benefit.
Such provisions substantially limit the shareholders' ability to hold officers
and directors liable for breaches of fiduciary duty, and may require the
Company to indemnify its officers and directors. See "Certain Transactions -
Conflicts of Interest".
Determination of Offering Prices. The exercise prices of the Warrants were
arbitrarily determined by management of the Company and set at levels
substantially in excess of prices recently paid for securities of the same
class. The prices bear no relationship to the Company's assets, book value,
net worth or other economic or recognized criteria of value. In no event
should the exercise prices be regarded as an indicator of any future market
price for the Company's securities.
No Assurance of a Liquid Public Market for Securities. Although the Company's
shares of common stock are quoted on the Electronic Bulletin Board maintained
by the NASD, there can be no assurance that a regular and established market
will continue for the securities upon completion of this offering. There can
also be no assurance as to the depth or liquidity of any market for common
stock or the prices at which holders may be able to sell the Shares. As a
result, an investment in the Shares may be totally illiquid and investors may
not be able to liquidate their investment readily or at all when they need or
desire to sell.
Volatility of Stock Prices. In the event that an established public market
does develop for the Shares, market prices will be influenced by many factors,
and will be subject to significant fluctuation in response to variations in
operating results of the Company and other factors such as investor
perceptions of the Company, supply and demand, interest rates, general
economic conditions and those specific to the industry, international
political conditions, developments with regard to the Company's activities,
future financial condition and management. See "Plan of Distribution."
Shares Eligible for Future Sale. Of the 11,035,810 shares of the Company's
common stock outstanding prior to the exercise of any Warrants, 1,271,094
shares are freely tradeable or are eligible to be sold in the public market.
All the shares of Common Stock to be issued in this offering will also be
freely tradeable immediately upon issuance. All the remaining shares of
Common Stock presently outstanding are restricted and/or affiliate securities
which are not presently, but may in the future be sold into any public market
that may exist for the Common Stock, pursuant to Rule 144 promulgated pursuant
to the Securities Act of 1933, as amended (the "Securities Act"). Future
sales by current shareholders of substantial amounts of Common Stock into the
public market could depress the market prices of the Common Stock in any such
market. See "Shares Eligible for Future Sale".
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Applicability of Low Priced Stock Risk Disclosure Requirements. The common
stock of the Company may be considered a low priced security under rules
promulgated under the Exchange Act. Under these rules, broker-dealers
participating in transactions in low priced securities must first deliver a
risk disclosure document which describes the risks associated with such
stocks, the broker-dealer's duties, the customer's rights and remedies, and
certain market and other information, and make a suitability determination
approving the customer for low priced stock transactions based on the
customer's financial situation, investment experience and objectives. Broker-
dealers must also disclose these restrictions in writing and provide monthly
account statements to the customer, and obtain specific written consent of the
customer. With these restrictions, the likely effect of designation as a low
priced stock is to decrease the willingness of broker-dealers to make a market
for the stock, to decrease the liquidity of the stock and increase the
transaction cost of sales and purchases of such stocks compared to other
securities.
DILUTION
Dilution is the difference between the price per share being paid for the
Common Stock offered hereby pursuant to the exercise of the Warrants, and the
net tangible book value per share of the Common Stock immediately after its
purchase. The Company's net tangible book value per share of Common Stock is
calculated by subtracting the Company's total liabilities from its total
assets less any intangible assets and liquidation preferences, then dividing
by the number of shares of Common Stock then outstanding. Based on the
unaudited interim financial statements, the Company had 10,994,110 shares of
Common Stock outstanding at March 31, 1998, with a net tangible book value of
$5,741,663 or approximately $.52 per share. These amounts do not give effect
to operating results or any other changes in net tangible book value of the
Company occurring after March 31, 1998. Subsequent to March 31, 1998, the
Company has issued or committed to issue another 41,700 shares, for services
rendered or to be rendered.
If all Series A Warrants were to be exercised during the first year at $1.00
per share (of which there is no assurance), upon the exercise thereof, but
before exercise of any other Warrants, the estimated net tangible book value
of the Company after the offering, on a pro forma basis (which gives effect to
receipt of the estimated net proceeds from such exercise and issuance of the
underlying Shares of Common Stock, but does not take into consideration any
other changes in net tangible book value of the Company subsequent to March
31, 1998), would be $6,952,757 or approximately $.57 per share. This would
result in dilution to persons exercising Series A Warrants of $.43 per share,
or 43% of the exercise price of $1.00 per share. Net tangible book value per
share would increase to the benefit of present stockholders from $.52 prior to
the offering to $.57 after the offering, or an increase of $.05 per share
attributable to the exercise of the Series A Warrants.
If less than all the Series A Warrants are exercised during the first year,
dilution to the Series A Warrant holders who do exercise during the first year
will be greater than the amount shown. The fewer Series A Warrants exercised,
the greater dilution will be to those who do exercise.
The following table sets forth the estimated net tangible book value ("NTBV")
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per share assuming exercise of all Series A Warrants during the first year,
and the dilution to persons purchasing the underlying Shares of Common Stock.
<TABLE>
<S> <C> <C>
Exercise of all Series A Warrants:
Series A Warrant exercise price/share (1st year) $1.00
NTBV/share prior to exercise $ .52
Increase attributable to Series A Warrant exercise .05
Pro forma NTBV/share after exercise .57
Dilution $ .43
</TABLE>
If any Series A Warrants not exercised during the first year are subsequently
exercised during the second or third years at the higher exercise prices of
$1.50 or $2.00 per share, any dilution to such Warrant holders is not
presently determinable and may be higher or lower than the foregoing amount,
depending upon the net tangible book value of the Company immediately prior to
such exercise. Similarly, the exact amount of dilution which exercising
holders of the Shop Warrants and Pro Warrants may suffer is also not presently
determinable and may differ from warrant holder to warrant holder, because the
exercise prices of such warrants may be different. The amount of such
dilution will vary depending on a number of factors presently unknown, such as
exercise price and the number of warrants exercised.
USE OF PROCEEDS
Net proceeds to the Company from sale of the Shares of Common Stock underlying
the Warrants will vary depending upon the total number of Warrants exercised,
and the timing of and prices at which they are exercised. If all Series A
Warrants were to be exercised during the first year at $1.00 per share (of
which there is absolutely no assurance, nor any assurance that any Series A
Warrants will be exercised), the Company would receive gross proceeds of
$1,271,094 from Series A Warrants. If all Shop Warrants and Pro Warrants were
to be exercised, the total amount of proceeds that may be received from those
Warrants will depend upon the exercise prices established for such warrants as
well as the total number of such warrants issued, and is not presently
determinable. Regardless of the timing and number of Warrants exercised, the
Company expects to incur offering expenses presently estimated at $60,000 for
legal, accounting, printing and other costs in connection with the offering
pursuant to this prospectus. Inasmuch as there is no assurance that all
Series A, Shop or Pro Warrants will be exercised nor any requirement that any
minimum amount of the Series A, Shop or Pro Warrants be exercised, there are
no escrow provisions and any proceeds that are received will be immediately
available to the Company to provide additional working capital to be used for
general corporate purposes. Proceeds will be used generally to provide
working capital for whatever working capital needs the Company may have at the
time funds are received. The exact uses of any proceeds will depend on the
amounts received and the timing of receipt. Management's general intent is to
use whatever additional funds may be generated from Warrant exercise to
finance further development and expansion of the Company's business. See
"Management's Plan of Operations."
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MARKET INFORMATION & DIVIDEND POLICY
The common stock of the Company has traded in the over-the-counter market
since the acquisition of McHenry on April 1, 1997, and is quoted on the
National Association of Securities Dealers, Inc. Electronic Bulletin Board
under the symbol GLFN. There was no price quoted for the stock prior to the
acquisition. Set forth below is high and low bid information for the Common
Stock as reported on the Bulletin Board system for each calendar quarter
during such part of the past two fiscal years that price quotations have been
available. These prices represent interdealer quotations, without retail
markup, markdown or commissions, and may not represent actual transactions.
As of June 30, 1998, there were approximately 500 record holders of the
Company's common stock.
1997 HIGH BID PRICE LOW BID PRICE
Second Quarter $4.875 $2.50
Third Quarter $7.250 $4.75
Fourth Quarter $6.125 $4.625
1998
First Quarter $8.625 $3.875
Second Quarter $6.125 $4.687
DIVIDEND POLICY
The Company has not previously paid any cash dividends on its common stock and
does not anticipate or contemplate paying dividends on common stock in the
foreseeable future. It is the present intention of management of the Company
to utilize all available funds for the development of the Company's business.
The only restrictions that limit the ability to pay dividends on common or
preferred equity or that are likely to do so in the future, are those
restrictions imposed by law. Under Nevada corporate law, no dividends or
other distributions may be made which would render the Company insolvent or
reduce assets to less than the sum of its liabilities plus the amount needed
to satisfy outstanding liquidation preferences.
MANAGEMENT'S PLAN OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes associated with them
contained elsewhere in this prospectus. The financial statements of the
Company referred to in this discussion include and reflect the financial
condition and operating results of McHenry Metals Golf Corp. and its
consolidated subsidiaries for the period since its acquisition of McHenry
Metals, Inc. on April 1, 1997, through March 31, 1998, and of McHenry Metals,
Inc. and its consolidated subsidiaries for the period prior to such
acquisition back its date of inception on January 13, 1997. This discussion
should not be construed to imply that the results discussed herein will
necessarily continue into the future or that any conclusion reached herein
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will necessarily be indicative of actual operating results in the future.
PLAN OF OPERATIONS.
Management's plan of operations for the next twelve months is to continue
pursuing a strategy of rapid growth in attempting to build a successful golf
equipment company based on its own product concepts. To accomplish this
objective, the company has raised substantial funds and will seek to raise
additional funds through this Offering, to provide the necessary capital to
finance the continuation and expansion of its business operations. The new
capital will fund the Company's production activities, acquisition of
inventory and accounts receivable, and marketing efforts.
The Company, through its wholly owned subsidiary, is in the business of
designing, developing and marketing premium-quality golf clubs. The Company
is currently focusing the majority of its product research and development
efforts on becoming a successful metal wood company. The Company has
formulated several proprietary concepts which management believes are unique,
which are being incorporated into the design and manufacture of its golf
clubs. The Company has secured certain trademarks associated with its
business and filed patent applications relative to its first product, the
TourPure titanium/tungsten driver. The TourPure driver was introduced
September 8-10, 1997 at the PGA International Golf Show in Las Vegas. The
Company began shipping product to sales representatives in January, 1998 and
to customers in February, 1998. As of March 31, 1998, the Company had
received in excess of $5 million in sales orders (orders received from
customers for delivery of product) associated with the TourPure golf clubs, of
which approximately $1.2 million had been shipped based on confirmed orders,
recognized as revenue (i.e. net sales) and recorded in receivables. A
complete line of metal fairway woods complementing the TourPure driver was
introduced at the PGA Merchandise Show in Orlando, Florida, held January 30 -
February 2, 1998. The Company is adding a 3, 4, 5, 7, and 9 wood to the
TourPure family. The metal fairway woods incorporate the features of the
TourPure driver, plus design enhancements in terms of weight distribution.
The Company will continue to devote substantial resources to product research
and development as part of its plan of operations. The Company also
anticipates hiring additional hourly wage employees for inventory management,
quality assurance and distribution. The Company is having its products
manufactured by outside manufacturers, rather than make significant purchases
or other acquisitions of its own manufacturing plant and equipment.
The Company anticipates that the funding potentially receivable from this
Offering, together with existing capital and any revenues it receives from
sales of its products, will be sufficient to fund operations for at least the
next twelve months, but there is no assurance any funding will be received
from this offering. However, the Company has already raised several million
dollars to provide funding for product development, operations infrastructure,
marketing and tour promotion and working capital, through several private
placements it has completed, including $700,000 raised in April, 1997, $2.9
million raised in August-September, 1997, approximately $2.4 million raised in
a units offering of common stock and warrants which commenced in December,
1997, and was completed in March, 1998, and nearly $3.5 million raised from a
small group of private investors at the end of March, 1998.
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BUSINESS
HISTORY AND DEVELOPMENT OF THE COMPANY
The Company was incorporated in Utah on October 31, 1985, originally under the
name of White Pine, Inc. The Company was organized initially for the purpose
of creating a vehicle to obtain capital and to seek out, investigate and
acquire interests in products and businesses with the potential for profit.
In 1986, the Company completed a public offering of common stock, conducted
pursuant to the exemption from the registration requirements of the Securities
Act of 1933 provided by Rule 504 of Regulation D promulgated thereunder and
was registered by qualification in the State of Utah. The Company changed its
corporate domicile to the State of Nevada in December, 1993.
On April 1, 1997, the Company (which was then known as Micro-ASI
International, Inc.) entered into an Agreement and Plan of Reorganization with
McHenry Metals, Inc. ("MMI") and changed its name to McHenry Metals Golf Corp.
MMI was incorporated in January, 1997, under the laws of the State of
Illinois to design and market golf clubs and related equipment.
Pursuant to the Agreement, the Company forward split its common stock on a 2.2
for 1 basis, and then issued 5,650,000 post split shares of its authorized but
previously unissued common stock to acquire all the issued and outstanding
stock of MMI in a stock for stock exchange (the "Acquisition") whereupon MMI
became a wholly-owned subsidiary of the Company. The Acquisition is treated
as a "reverse merger" for accounting purposes and MMI is deemed to be the
successor entity with a recapitalization of the stockholders equity portion of
its financial statements. In conjunction with the Acquisition, the Company
declared a distribution to shareholders of the Company, of record as of March
31, 1997, (immediately prior to the Acquisition) of 1,271,094 Series A
Warrants to be distributed in the future, upon effectiveness of a registration
statement covering the offer and sale of shares issuable upon exercise of such
warrants.
BACKGROUND OF MMI
MMI is an Illinois corporation with offices in Illinois and California. The
Company's principal business office is located at 1945 Camino Vida Roble,
Suite J, Carlsbad, California, 92008. MMI is the third golf equipment company
to be founded by Gary V. Adams. Mr. Adams assembled a management team along
with a carefully selected group of investors, consultants and advisors to
launch MMI as a golf equipment company developing and marketing unique
proprietary golf clubs. Mr. Adams has an extensive background in the golf
equipment industry, having introduced the first "metal wood" golf club at
Taylor Made Golf Company, which Mr. Adams founded in McHenry, Illinois in
1979. Mr. Adams later started Founders Club Golf Company.
MMI designs, develops and markets premium-quality golf clubs. The clubs are
being sold at premium prices to both average and skilled golfers on the basis
of high performance, ease of use and attractive appearance. Mr. Adams has
formulated several unique and proprietary concepts which are being used in the
design and manufacture of the clubs.
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INDUSTRY BACKGROUND
The development and introduction of new golf club designs and technological
advances have dramatically influenced the golf club industry. In the late
1960's cavity-backed, perimeter-weighted irons were successfully introduced.
The "sweet spot" on these irons was significantly increased, making the club
more forgiving to off-center hits and providing the opportunity for many
golfers to make better golf shots. The golf club market was further advanced
in the late 1970's with the introduction of metal woods, which increased the
distance golfers could achieve with drivers or fairway woods and in the early
1990's oversized metal wood clubs were introduced.
Recently, the industry has experienced a return to mid-sized metal wood clubs
to provide greater controllability, reduced wind resistance, and improved club
aesthetics. The Company's TourPure driver is an example of this shift in
product design which has been stimulated by customer demand.
BUSINESS STRATEGY
Several important elements of the Company's business strategy are intended to
enhance its business prospects and to establish a reputation for quality and
innovation.
Active Product Development. The Company's strategy is to develop new golf
clubs that appeal to both average and skilled golfers on the basis of
performance, ease of use and appearance. In order to develop such products,
the Company is committing substantial resources to its product development
activities.
Manufacturing Differentiation. The Company strives to differentiate its
products in part on the basis of the specialized manufacturing process
required by the unique design of its products.
Premium Brand Franchise. The Company intends to build a premium brand
franchise to reflect the innovation, performance and quality of its products.
As a part of this strategy, the Company intends to support its products with
extensive customer service. Consistent with the premium quality image that
the Company seeks to convey, prices for the Company's products will be at the
high end of the U. S. market. The Company will seek to enhance this image by
actively advertising and promoting its products, including entering into
endorsement arrangements with leading golf professionals.
Quality. The Company believes that product quality and responsiveness to
customers are critical factors for success in the market for premium golf
clubs. The Company has adopted a number of quality improvement and
measurement techniques to establish and then monitor all aspects of its
proposed business. To achieve excellence in product quality, the Company
emphasizes inspection throughout the production process, and devotes
significant resources to its research, development and design systems and
maintains close relations with key suppliers and manufacturers. The Company
is establishing extensive customer service to enhance its reputation for
producing high quality golf clubs.
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International Expansion. After a launch of products in the U.S., the Company
intends to explore international distribution of its products.
Protection of Intellectual Property. The Company believes that its golf club
designs, development processes and name recognition will represent valuable
intellectual property rights. The Company intends to aggressively seek to
protect these rights by obtaining and enforcing patents, trademarks, trade
secrets, trade dress and other intellectual property rights.
PRODUCTS
The Company intends to offer a broad line of golf clubs including oversized
metal woods, conventional-sized metal woods, fairway woods, irons, wedges and
putters.
Metal Woods. The Company initially is concentrating on bringing to market its
new and unique designs in its metal wood drivers. These clubs are being
offered in a variety of lofts with titanium, graphite or steel shafts. A
proprietary design in the club heads being marketed as the "Compression
Matched" series in various weights. Mr. Adams believes that his new concepts
will be revolutionary in the industry.
Other Clubs and Products. The Company expects to follow development of its
metal wood drivers and fairway woods, with irons, putters and wedges until it
offers a complete line of its own premium golf clubs. The Company also
expects to offer a limited line of other golf products including golf bags,
apparel and other accessories.
PRODUCT DEVELOPMENT
The Company will not limit itself in its research efforts by trying to
duplicate designs that are traditional or conventional and believes it will
create an environment in which new ideas are valued and explored. Product
development at the Company is expected to be a result of the integrated
efforts of its sales and product development staff and outside manufacturers,
all of which will work together to generate new ideas for golf equipment. The
Company's product development department will refine these ideas and work with
outside firms to create prototypes, masters and the necessary tooling.
The design of new golf clubs is greatly influenced by rules and
interpretations of the United States Golf Association ("USGA"). Although golf
equipment standards established by the USGA generally apply only to
competitive events sanctioned by that organization, it has become critical for
designers of new clubs to assure compliance with USGA standards. The
Company's new product design and development process will involve coordination
with the USGA staff regarding such compliance. The Company has been notified
by the USGA that its TourPure driver conforms with these standards.
The Company's first product, the TourPure driver, was introduced in September,
1997 and is currently in production. The Company began shipping product to
sales representatives in January, 1998 and to customers in February, 1998.
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Meanwhile, product design and engineering is underway for left-handed versions
of the driver along with a line of fairway metal woods which complements the
TourPure driver. The Company introduced the new products at the PGA
Merchandise Show in Orlando, Florida held January 30 - February 2, 1998. The
TourPure driver is available in three lofts of 7.5 degrees, 9.5 degrees and
10.5 degrees with a proprietary low torque, low frequency shaft that is
designed to accommodate different swing speeds between 70 to 110 mph. The
separate face is constructed of high quality beta titanium which management
believes gives greater feel and transfers more energy to the ball. The 235cc
driver uses the concentrated weight of a tungsten/copper ring in the back of
the club head to maintain the center of gravity and face size advantage of
drivers that are 300cc or larger. Five shafts are offered to cater to all
skill levels.
Design work is also being completed on club face thickness and related matters
for other clubs, after which the Company will have an outside design firm
complete prototypes to undergo a thorough testing program. Tooling will then
be completed and the products will be ready for manufacturing.
SALES AND MARKETING
Sales for Distribution in the United States
The Company targets those golf retailers who sell professional quality golf
clubs and provide the level of customer service appropriate for the sale of
premium golf clubs. This includes "green grass" golf pro shops as well as
off-course golf specialty stores.
The Company has created a national field sales organization with a senior vice
president of sales, a national sales manager, six regional sales managers, and
a network of approximately 30 manufacturer's representatives. The Company is
developing a telephone-based inside sales and customer service function to
generate additional volume and to provide sales support. Each region is
expected to be covered by field and inside sales efforts, targeting
prospective customers with in-person visits and telephone solicitation.
Advertising and Promotion.
The Company initially commenced advertising in trade publications such as PGA
Magazine, Golf Week, Golf Product News, Golf Shop Operations and Golf Pro to
build the company's name awareness within the industry and to promote its
products. In 1998, the Company also began to utilize additional publications
and television advertising to generate brand interest among the consumer
market. The television phase of the advertising commitment includes the
continuation of McHenry Metals' TourPure advertisement on the Golf Channel (5-
times-per-day/7-days-a-week). Since this ad began running in January, the
Company has received over 3,000 requests for its TourPure video. In addition,
TourPure television commercials will be seen on NBC and Fox networks. The
campaign extends into the print media with 4-color, full-page advertisements
in golf publications that reach the upscale, serious golfer. The print media
schedule includes Sports Illustrated Golf Plus Editions featuring the Masters,
US Open, British Open and PGA Championship.
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The Company is establishing relationships with golf professionals and other
celebrities in order to promote its products among both professional and
amateur golfers. The Company is entering into endorsement arrangements with
members of the Professional Golf Association Tour and the Professional Golf
Association Senior Tour, as well as other celebrities associated with golf.
Already this season, golf professionals who were using the Company's TourPure
driver have won two Senior PGA Tour events and finished in second place in
another two events on the PGA and Senior PGA Tours. In addition, McHenry
Metals staff player, Fred Funk, continues to place in the top five in driving
accuracy on the PGA Tour, and has increased his distance off the tee.
MARKET
According to Golf Pro, a trade magazine, sales of golf clubs in the U.S. in
1995 reached a level of $1.2 billion. The top three premium brands accounted
for over one-half of these sales, the next five companies accounted for
approximately 27% of such sales and approximately thirty other companies
accounted for the balance of 18%.
A publication by the National Golf Foundation entitled Trends in the Golf
Industry 1986-1995 has stated that the number of golfers in the U.S. rose by
more than five million between 1986 and 1995 and that the annual expenditure
on golf clubs saw a 10.6% increase in 1995 (over 1994) and 16.6% increase in
1996 (over 1995). The explanation for these increases, generally, is the
well-being of the U.S. economy, shifting age concentration of the population
and overall increased recreational spending. The publication indicates that
"the long-term growth potential for golf spending is very encouraging".
MANUFACTURING
The manufacture of premium golf clubs involves a number of specialized
processes required by the unique design of the products. The Company is
having its products manufactured by outside manufacturers most of whom are
located in or near Carlsbad, California. The Company believes that there are
numerous manufacturers which can manufacture the Company products to the high
standards developed by the Company. Clubheads, shafts, grips and other
components are being supplied by independent vendors with whom the Company has
established a relationship.
All McHenry products are being manufactured to the Company's precise
specifications by highly competent manufacturers based in part on processes
which are proprietary to the Company. The Company will work closely with its
casting houses, which will enable it to monitor the quality and reliability of
clubhead productions. Any significant delay or disruption in the supply of
clubheads by the casting houses or graphite shaft manufacturers would have a
material adverse effect on the Company's business. In such event, the Company
believes that suitable heads and shafts could be obtained from other
manufacturers, although the transition to another supplier could result in
production delays of several months. The Company is currently in discussions
with potential suppliers of product components and manufacturers, although no
assurance is given that the Company will be able to establish arrangements
with any supplier or manufacturer.
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COMPETITION
The golf club business is highly competitive. The industry has been
characterized by widespread imitation of popular club designs. The
preferences of golf club purchasers may also be subject to rapid and
unanticipated changes. There are several golf club manufacturers that,
although they do not currently manufacture premium-quality golf clubs, could,
in light of their substantial resources, pose significant competition to the
Company if they were to enter the market for premium-quality golf clubs.
The Company's principal competition will come from several large well-
established and recognized leaders in the sale of premium golf clubs. Each of
these companies has substantially more financial, management and technical
resources than does the Company. The Company proposes to compete based on its
own designs and concepts and the recognition of the name of Gary V. Adams and
other persons involved with the Company.
INTELLECTUAL PROPERTY
The Company intends to aggressively seek to protect its intellectual property,
such as product designs, manufacturing processes, new product research and
concepts and trademarks. These rights will be protected through the
acquisition of utility and design patents and trademark registrations, the
maintenance of trade secrets, the development of trade dress, and, when
necessary and appropriate, litigation against those who are, in the Company's
opinion, unfairly competing.
The Company has applied for patents for certain features of its products.
Additionally, it has applied for trademark registration for McHenry Metals and
Compression Matched and for several other product names and descriptions.
There is no assurance that, prior to a court of competent jurisdiction
validating them, any of these patents or trademarks will be enforceable. The
Company intends to aggressively assert its rights against infringers. There
can be no assurance that other golf club manufacturers will not be able to
produce successful golf clubs which imitate the Company's designs without
infringing on any of the Company's intellectual property rights.
The Company is developing stringent procedures to maintain the secrecy of its
confidential business information, which it believes gives it a distinct
competitive advantage. These procedures will include a "need to know"
criteria for dissemination of information and written confidentiality
agreements from visitors and employees. Suppliers, when engaged in joint
research projects will be required to enter into additional confidentiality
agreements.
SEASONALITY
Golf is generally regarded as a warm weather sport. Sales of golf equipment
have historically been strongest during the second and third quarters. To
minimize the disruption caused by these anticipated sales fluctuations, the
Company proposes to increase its product inventories during the fourth
quarter.
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Although the golf club business generally follows this seasonal
trend, the Company hopes its new products will tend to mitigate the impact of
seasonality. No assurances can be given, however, that the Company will be
able to successfully introduce new products to offset the impact of
seasonality.
PRODUCT WARRANTIES
The Company intends to support all of its golf clubs with a two year written
warranty. Since the Company does not rely upon traditional designs in the
development of its golf clubs, its products may be more likely to develop
unanticipated problems than those of many of its competitors that use
traditional designs. The Company intends to monitor closely the level and
nature of any product breakage and, where appropriate, incorporate design and
production changes to assure its customers of the highest quality available on
the market. If McHenry clubs were to experience a significant increase in the
incidence of breakage or other product problems, the Company's sales and image
with golfers could be materially adversely affected.
EMPLOYEES
The Company currently has approximately 30 full-time employees, including
persons employed in sales, marketing, research and development, operations,
administration and support. The Company anticipates hiring additional hourly
wage employees for inventory management, quality assurance and distribution.
None of the Company's employees is expected to be represented by unions.
FACILITIES
The Company's principal executive offices are located in Carlsbad, California.
The Company there leases approximately 5,800 square feet of office space which
serves as its corporate headquarters, for $4,261 per month, and 1,500 square
feet of warehouse space for $1,100 per month. The office lease expires in
October, 1998, with option to renew for two years. The warehouse lease
expires January 1, 1999. The Company is also leasing approximately 1,400
square feet of office space in McHenry, Illinois which serves as the office of
its National Sales Manager and his staff. The lease for this space expires
December 31, 1998. The monthly lease payment is $1,500.
AVAILABLE INFORMATION
The Company has filed with the United States Securities and Exchange
Commission (the "Commission") a Registration Statement on Form SB-2, under the
Securities Act of 1933, as amended (the "Securities Act), with respect to the
securities offered hereby. As permitted by the rules and regulations of the
Commission, this Prospectus does not contain all of the information contained
in the Registration Statement. For further information regarding both the
Company and the Securities offered hereby, reference is made to the
Registration Statement, including all exhibits and schedules thereto, which
may be inspected without charge at the public reference facilities of the
Commission's Washington, D.C. office, 450 Fifth Street, NW, Washington, D.C.
20549. Copies may be obtained from the Washington, D.C. office upon request
and payment of the prescribed fee.
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As of the date of this Prospectus, the Company became subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(The "Exchange Act") and, in accordance therewith, will file reports and other
information with the Commission. Reports and other information filed by the
Company with the Commission pursuant to the informational requirements of the
Exchange Act will be available for inspection and copying at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the following regional offices of
the Commission: New York Regional Office, 7 World Trade Center, New York, New
York 10007; Chicago Regional Office, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material may be obtained from the public
reference section of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, at prescribed rates. The Commission maintains an Internet Web
site that contains reports, proxy and information statements and other
information regarding issuers that file such reports electronically with the
Commission. Such site is accessible by the public through any Internet access
service provider and is located at http://www.sec.gov. Copies of the
Company's Annual, Quarterly and other Reports which will be filed by the
Company with the Commission commencing with the Quarterly Report for the first
quarter ended after the date of this Prospectus (due 45 days after the end of
such quarter) will also be available upon request, without charge, by writing
McHenry Metals Golf Corp., 1945 Camino Vida Roble, Suite J, Carlsbad,
California 92008.
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND SIGNIFICANT EMPLOYEES
The following table sets forth the directors, executive officers and other
significant employees of the Company, their ages, terms of office and all
positions. Directors are elected for a term of one year, and serve until the
next annual meeting or until their successors are duly elected by the
stockholders and qualify. Officers and other employees serve at the will of
the Board of Directors.
Name of
Director/Officer & Age Term served Positions with the Company
Gary V. Adams 54 Apr 1997 Chairman, Chief Executive Officer,
Director
Bradley J. Wilhite 33 May 1997 President, Chief Administrative
Officer & Director
Theodore Aroney 58 Apr 1997 Secretary, Vice Chairman & Director
Mark Bergendahl 37 Apr 1997 Director
Mario Cesario 63 May 1997 Director of Product Research &
Development
Blake Clark 38 Jun 1998 Chief Financial Officer
Henry J. Fleming 54 Apr 1997 Director
Sal Lupo 64 Apr 1997 Senior Vice President- Marketing &
Director
Gary L. Moles 45 Apr 1997 Chief Operating Officer
Thomas Williams 60 May 1997 National Sales Manager
Phillip A. Ward 56 May 1998 Director
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Except for Theodore Aroney, Mark Bergendahl, Henry J. Fleming and Phillip A.
Ward, each of these individuals devotes full time to the Company as employees.
A brief description of these individuals and their background and business
experience follows:
GARY V. ADAMS. Mr. Adams grew up in the golf industry as the son of a golf
professional and worked for many years at the McHenry, Illinois Country Club.
He also played college golf. From 1964-1968, Mr. Adams was vice president-
sales for Wittek Golf Supply Company in Chicago. From 1968-1979, he was a
regional manager for PGA/Victor Golf (now Tommy Armour). In 1979, Gary
founded Taylor Made Golf Company and served as its CEO and President until
early 1989 when he left the company to start Founders Club, a golf company
headquartered in California, of which he served as CEO and President until
1994. Mr Adams is successfully recovering from a serious occurrence of cancer
and established McHenry Metals, Inc. in January 1997. Mr. Adams was elected
to the Illinois PGA Hall Of Fame in 1994, was named "Man of the Year" by the
National Golf Association in 1994, was named "Golf Innovator of the Decade" by
the International Network of Golf in 1995, and in September 1995 received the
"Ernie Sabayrac Award" from the PGA as one of the most acclaimed leaders in
the golf industry.
BRADLEY J. WILHITE. Mr. Wilhite's business background includes over ten years
in the financial service industry with two of the nation's top six banking
organizations - NationsBank and First Union Corporation. During his career, he
served as a corporate banker working with emerging growth companies, managed
several lines of business, directed successful product launches and brand
development programs and led merger and acquisition teams. Mr. Wilhite is the
son of a PGA golf professional, his grandfather was in the golf business and
his sister is currently a PGA golf professional. A native of the Kansas City
area, he was an accomplished junior, collegiate and amateur golfer himself. He
played college golf at Oklahoma State University and Texas Christian
University where his teammates included several current PGA Tour players. He
briefly pursued a professional career upon graduation from TCU. Mr. Wilhite
received a bachelor's degree in business administration and finance from Texas
Christian University and a master's degree in business administration and
marketing from Wichita State University.
THEODORE ARONEY. Mr. Aroney is currently owner of Halo Farms Breeding and
Racing Operation for thoroughbred horses. Mr. Aroney has been associated with
this operation since 1970. From 1985-1990 Mr. Aroney was president of Rancho
Real, Inc., a developer of town houses in LaCosta, California. From 1990-
1993, Mr. Aroney was the founding director of Odyssey Sports, Inc., a golf
company. Mr. Aroney is a private investor and consultant with experience in
many other businesses.
MARK A. BERGENDAHL. Mr. Bergendahl is the President of Redfield Taylor &
Associates, Inc., an investment firm which focuses on investing in small cap
and start up companies, President of Jacobson, Larson Management, Inc., and
managing partner of Edie-Wig-BB, a California limited partnership. Mr.
Bergendahl's experience in the golf industry includes being an initial
investor in Odyssey Sports, Inc. as well as serving on the board of directors
of Odyssey from 1992 through early 1995. From 1989 through 1994, Mr.
Bergendahl was the President of the international weight loss company, Gloria
Marshall Figure Salons. From 1986 to present, Mr. Bergendahl has held various
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posts including Director of Marketing and Corporate Managing Director of
Gloria Marshall Figure Salons of Australia, Pty, Ltd., one of Australia's
leading weight loss companies. Additionally, Mr. Bergendahl was a co-
developer of The Jockey Club luxury condominium development at the La Costa
resort. Mr. Bergendahl is a graduate of the Entrepreneurship Program at the
University of Southern California.
MARIO CESARIO. Mr. Cesario brings to the Company over 40 years of experience
in the design of high-performance, quality golf clubs. Since 1962, he has
provided assistance to tour professionals and top amateurs from his custom
club design and fitting operation in Redlands, California. His clients have
included Tom Watson, Craig Stadler, Dave Stockton, and Bob Rosburg, to name a
few. Mr. Cesario has also been a club design consultant to several golf
equipment companies over the years. In addition to his credentials as a golf
club designer, Mr. Cesario is an Honorary Life Member of the Southern
California PGA.
BLAKE CLARK. Prior to joining the Company, Mr. Clark was chief financial
officer, treasurer and secretary for Nuworld Marketing Limited, a company
engaged in coupon redemption processing (1998-1996). From 1991 to 1996, he
was controller at GTI Corporation, a manufacturer and marketer of network
access products and networking systems. From 1986 to 1991 he worked for
Maxwell Laboratories in various controller and corporate finance positions.
Prior to that he was employed in the public accounting firm of Ernst & Young.
Mr. Clark graduated with a Bachelor of Art degree in Accounting from Claremont
Men's College in 1981.
HENRY J. FLEMING, JR. Mr. Fleming graduated with a Bachelor of Arts Degree in
accounting from Lewis College in Lockport, Illinois and became a certified
public accountant in 1973. Mr. Fleming has been employed by Fleming and
Company, Certified Public Accountants since 1974. While practicing as a
certified public accountant Mr. Fleming has had extensive experience working
with private industry. Mr. Fleming was involved with Taylor Made Golf
Company. He was also involved with Allison America, a manufacturer of tanning
beds, Ex-Tec Plastics and Advantage Rental, Inc. Mr. Fleming serves on the
board of directors of Amcore Bank Northwest and with various closely-held
corporations. Mr. Fleming is also a member of various professional and civic
associations.
SAL LUPO. Since the late 1970s, Mr. Lupo has served as Mr. Adams' key
marketing resource, providing marketing planning and execution support for the
introduction and development of the Taylor Made Golf Company and Founders
Club. Through his marketing and communications company, Lupo and Associates,
he has provided a variety of services ranging from traditional advertising to
event planning and management. His extensive network of contacts and
knowledge of media outlets are additional strengths he brings to the Company.
In addition to the work with Mr. Adams, Mr. Lupo's firm provided strategic
planning and marketing development for other golf equipment companies such as
Aldila, United Sports Technologies, Wilson, Cleveland Golf, and Tiger Shark.
Non-golf clients included Budget Rent-a-Car of Southern California and Furon.
Prior to forming his own company, Mr. Lupo held marketing and management posts
at Helene Curtis Industries, including new products manager, corporate
director of marketing, and president of the Hair Fashions Division.
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GARY L. MOLES. Mr. Moles received a Bachelor of Science Degree in business
administration from Tennessee Technological University, in Cookeville,
Tennessee in 1978. During 1973-1990 Mr. Moles was an employee of Wilson
Sporting Goods involved as a director of raw material purchases. During 1991-
1992 Mr. Moles served as director of purchasing of Sunbeam-Oster Household
Products. During 1993-1995 Mr. Moles served as vice president of operations
of Founders Club Golf Company in Vista, California.
THOMAS WILLIAMS. Mr. Williams' background in the golf industry includes
thirty-five years experience in all facets of sales, marketing, promotion and
product development in both established and start-up companies. He was a
principal in the development and marketing of the "three wedge concept" as
well as the introduction of frequency matched golf clubs. Recent management
experience includes his position as general sales manager of Ram Golf Corp.,
and most recently as president of Honours Marketing Group, Ltd. Mr. Williams
graduated from DePaul University with a degree in economics.
PHILLIP A. WARD. President and CEO of Bignell-Ward-Bignell, Inc., a
commercial real estate brokerage company and Hawk Financial Services, a
premium finance company; Executive Vice President and CEO of Big Bear
Supermarkets; formerly Executive Director of Finance and Investments for
Golden Eagle Insurance Company and currently Deputy Trustee on the Golden
Eagle Insurance Liquidating Trust. Pension and Profit Sharing Plan trustee
for Golden Eagle Insurance Company and Big Bear Supermarkets; Director, Cook's
Valley Foods, Inc. Golf and sports related organization involvement includes
former Chairman, Century Club of San Diego (the organization that runs the PGA
Tour's Buick Invitational annually in San Diego); member and former director,
Ranch Santa Fe Golf Club; director, Pro Kids Golf Academy; member, Stardust
Country Club; partner, Double Eagle Golf Center. Mr. Ward has played most of
the top ranked golf courses.
There are no arrangements or understandings regarding the length of time a
director is to serve in such capacity, except as otherwise described herein.
The Company may adopt provisions in its by-laws and/or articles of
incorporation to divide the board of directors into more than one class and to
elect each class for a certain term. These provisions may have the effect of
discouraging takeover attempts or delaying or preventing a change of control
of the Company.
CONSULTANTS
The Company is presently negotiating with several well-recognized industry
leaders to retain such persons as consultants to the Company in various
capacities and to use the services of such persons in promoting the name and
products of the Company.
EXECUTIVE COMPENSATION
The following table summarizes executive compensation paid or accrued during
the past three fiscal years for the Company's Chief Executive Officer during
that period and the most highly compensated executive officers whose total
annual salary and bonus exceeded $100,000 during those years.
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Long Term Compensation
Annual Compensation Awards Payouts
- -----------------------------------------------------------------------------
Name and Restricted Securities
Principal Stock Underlying LTIP All Other
Position Year Salary($) Bonus($) Awards Options/SARS Payout Compensation($)
- -----------------------------------------------------------------------------
CEO - 1997 95,000 600,000
Gary 1996 -0- -0-
Adams 1995 -0- -0-
- -----------------------------------------------------------------------------
The Company granted the foregoing options to Gary Adams contemporaneously with
and as a part of the acquisition of MMI, on April 1, 1997. The exercise price
was set at $.50 per share, based on the fair market value of the common stock
as of that date, as determined by the Board of Directors. The Company has
entered into an employment agreement with Mr. Adams for a period of three
years commencing April 2, 1997. Mr. Adams is required to devote his full-time
business efforts to the Company for which he is paid an annual salary,
initially at a rate of $120,000 per year, which was later increased to
$150,000 per year. In addition, Mr. Adams is to be paid a royalty upon the
sale or license of "metal woods" designed by him at the rate of $1.00 per club
for the first 500,000 clubs; at $.50 per club for the next 500,000 clubs; and
$.25 per club for all sales in excess of 1,000,000 clubs.
The Company is also developing employment agreements with the other members of
management. The agreements are expected to have an initial term of one to
three years, renewable for additional one year terms. These agreements will
provide that these persons are entitled to be reimbursed for out of pocket
expenses and may include other benefits including life insurance, health
insurance, an automobile allowance and similar items standard in such
agreements.
STOCK OPTION PLAN
Effective April 1, 1997, the Company adopted the McHenry Metals Golf Corp.
Stock Option Plan which authorizes the issuance of up to 2,295,000 shares of
common stock to employees and consultants. Of the 1,295,000 options issued by
the Company under the Plan to date, 362,768 are qualified Incentive Stock
Options under Section 422 of the Internal Revenue Code of 1986, as amended,
and the balance are nonqualified stock options.
OTHER CONTRACTS
The Company has signed endorsement contracts with four PGA tour professionals
for product promotion. The first is for a period of three years beginning
January 1, 1997, and calls for payments of $150,000 cash and 60,000 shares of
stock in 1997, $275,000 in 1998 and $300,000 in 1999. In addition, bonuses
will be paid based upon golf tournament performance. The second contract
requires payments of $50,000 per year for three years commencing in 1997, plus
various bonuses. The third contract requires payments of $7,500 in 1998 and
1999, plus various bonuses based upon golf tournament performance. The fourth
contract is through 1998, and requires payment of $75,000 plus 10,000 shares
of common stock. Additional incentives are based on tournament performance.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of the Company's common stock by each director of the Company, all
directors and executive officers as a group, and each person individually, or
group of persons whose shares are required to be aggregated, known to the
Company to beneficially own more than five percent (5%) of said securities:
Title of Amount and Nature of Percent1
Name and Address Class Beneficial Ownership1 of Class
Gary V. Adams Common 2,600,500 shares2 22%
2532 LaCosta Ave
Carlsbad, CA 92008
Theodore Aroney Common 1,305,000 shares3 12%
7220 Arenal Lane
Carlsbad, CA 92009
Mark Bergendahl Common 545,500 shares3 5%
2796 Harbor Blvd #375
Costa Mesa, CA 92626
Henry J. Fleming, Jr. Common 100,000 shares3 1%
1322 Surrey Ct
Alonquin, IL 60102
Bradley J. Wilhite Common 205,000 shares3 2%
1736 Woodbine Place
Oceanside, CA 92054
Sal Lupo Common 225,000 shares 2%
41 Antigua
Dana Point, CA 92629
Phillip A. Ward Common 100,000 shares3 1%
3604 Curtis St
San Diego, CA 92106
All officers & directors
as a group (11 persons) Common 5,296,000 shares 44%
Craig, Sidney Common 900,000 shares 8%
11355 N Torrey Pines
LaJolla, CA 92037
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1The foregoing amounts include any shares not presently outstanding, which
each person or group listed has the right to acquire within 60 days from the
date hereof, pursuant to any warrant, option or other right. Percentages are
calculated alternatively for each person or group listed, by adding to the
total outstanding, only the shares which that person or group has the right to
acquire.
2Includes 600,000 shares not presently outstanding which Mr. Adams presently
has the right to acquire through the exercise of outstanding options.
3Includes 100,000 shares not presently outstanding which Mr. Aroney, Mr.
Bergendahl, Mr. Fleming and Mr. Wilhite each presently has the right to
acquire through the exercise of outstanding options.
CERTAIN TRANSACTIONS
THE COMPANY
Prior to completing the acquisition of MMI, the Company had received advances
from an officer, director and shareholder of the Company in order to pay
minimal operating expenses. As of March 11, 1997, September 30, 1996 and
September 30, 1995, $10,500, $8,350 and $6,000, respectively was payable by
the Company as a result of these advances. These debts were forgiven by the
officer-director at closing of the acquisition of MMI, as a contribution to
the capital of the Company.
Upon closing the acquisition of MMI the Company had 6,921,094 shares of its
common stock outstanding. Subsequent to closing the acquisition of MMI, the
Company issued common stock and/or granted stock options to various persons as
consideration for services or to acquire certain assets. Those transactions
involving management are summarized below. The Company has issued or granted
to:
Gary Adams (Chairman/CEO), 600,000 options exercisable at $.50 per share
for 5 years from April 1, 1997, to acquire Mr. Adams' design work.
Ted Aroney (Vice Chairman), 150,000 options exercisable at $1.75 per
share for 5 years from April 2, 1997, for services.
Mark Bergendahl (Director), 50,000 shares to purchase office
furnishings, and 150,000 options exercisable at $1.75 per share for 5
years from April 2, 1997, for services.
Mario Cesario (V.P.-Product Research), 30,000 shares to purchase
equipment. The Company also agreed to issue 60,000 shares for services,
subject to certain buy back provisions.
Henry Fleming (Director), 250,000 options exercisable at $.50 per share
for 5 years from April 1, 1997, for consulting services.
Brad Wilhite (President-CAO), 100,000 shares and 100,000 options
exercisable at $4.125 per share for 5 years from September 29, 1997, for
services.
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Fred Funk (Company Golf Pro), 60,000 shares for services.
Gary Moles (COO), 100,000 shares for services, subject to certain buy
back provisions.
Thomas Williams (V.P.- National Sales Manager), 25,000 shares for
services, subject to certain buy back provisions.
The Company has purchased advertising services from a Company owned by Sal
Lupo, an employee stockholder. Total fees billed for services during 1997
and the first half of 1998 amounted to $784,154.
MMI
In January 1997, MMI issued 4,250,000 shares of common stock at a price of
$.0005 per share to its founding shareholders which included Gary V. Adams,
Ted Aroney and Sal Lupo. MMI subsequently sold 1,400,000 of its shares at
$.50 per share to investors including persons who may serve as officers or
directors of the Company. Therefore, MMI had 5,650,000 shares of its common
stock outstanding prior to its acquisition by the Company. All of such
shares were acquired by the Company in exchange for the issuance of 5,650,000
shares of the Company's common stock.
CONFLICTS OF INTEREST
Other than as described herein the Company is not expected to have significant
dealings with affiliates. However, if there are such dealings the parties
will attempt to deal on terms competitive in the market and on the same terms
that either party would deal with a third person. Presently none of the
officers and directors have any transactions which they contemplate entering
into with the Company, aside from the matters described herein. Management
will attempt to resolve any conflicts of interest that may arise in favor of
the Company. Failure to do so could result in fiduciary liability to manage-
ment.
INDEMNIFICATION AND LIMITATION OF LIABILITY OF MANAGEMENT
The General Corporation Law of Nevada permits provisions in the articles, by-
laws or resolutions approved by shareholders which limit liability of
directors for breach of fiduciary duty to certain specified circumstances,
namely, breaches of their duties of loyalty, acts or omissions not in good
faith or which involve intentional misconduct or knowing violation of law,
acts involving unlawful payment of dividends or unlawful stock purchases or
redemptions, or any transaction from which a director derives an improper
personal benefit. The Company's by-laws indemnify its Officers and Directors
to the full extent permitted by Nevada law. The by-laws with these exceptions
eliminate any personal liability of a Director to the Company or its
shareholders for monetary damages for the breach of a Director's fiduciary
duty and therefore a Director cannot be held liable for damages to the Company
or its shareholders for gross negligence or lack of due care in carrying out
his fiduciary duties as a Director. The Company's Articles provide for
indemnification to the full extent permitted under law which includes all
liability, damages and costs or expenses arising from or in connection with
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service for, employment by, or other affiliation with the Company to the
maximum extent and under all circumstances permitted by law. Nevada law
permits indemnification if a director or officer acts in good faith in a
manner reasonably believed to be in, or not opposed to, the best interest's of
the corporation. A director or officer must be indemnified as to any matter
in which he successfully defends himself. Indemnification is prohibited as to
any matter in which the director or officer is adjudged liable to the
corporation. 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
Act and is, therefore, unenforceable.
DESCRIPTION OF SECURITIES
The following statements do not purport to be complete and are qualified in
their entirety by reference to the detailed provisions of the Company's
Articles of Incorporation and Bylaws, copies of which will be furnished to an
investor upon written request therefor.
COMMON STOCK
The Company is presently authorized to issue 50,000,000 shares of $.001 par
value common stock. The Company presently has 11,035,810 shares of common
stock outstanding. The Company has reserved from its authorized but unissued
shares a sufficient number of shares of common stock for issuance of the
Shares offered hereby. The shares of common stock issuable on completion of
the offering will be, when issued in accordance with the terms of the
offering, fully paid and non-assessable.
The holders of common stock, including the Shares offered hereby, are entitled
to equal dividends and distributions, per share, with respect to the common
stock when, as and if declared by the Board of Directors from funds legally
available therefor. No holder of any shares of common stock has a pre-emptive
right to subscribe for any securities of the Company nor are any common shares
subject to redemption or convertible into other securities of the Company.
Upon liquidation, dissolution or winding up of the Company, and after payment
of creditors and preferred stockholders, if any, the assets will be divided
pro-rata on a share-for-share basis among the holders of the shares of common
stock. All shares of common stock now outstanding are fully paid, validly
issued and non-assessable. Each share of common stock is entitled to one vote
with respect to the election of any director or any other matter upon which
shareholders are required or permitted to vote. Holders of the Company's
common stock do not have cumulative voting rights, so that the holders of more
than 50% of the combined shares voting for the election of directors may elect
all of the directors, if they choose to do so and, in that event, the holders
of the remaining shares will not be able to elect any members to the Board of
Directors.
PREFERRED STOCK
The Company is also presently authorized to issue 5,000,000 shares of $.001
par value Preferred Stock. Under the Company's Articles of Incorporation, as
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amended, the Board of Directors has the power, without further action by the
holders of the common stock, to designate the relative rights and preferences
of the preferred stock, and issue the preferred stock in such one or more
series as designated by the Board of Directors. The designation of rights and
preferences could include preferences as to liquidation, redemption and
conversion rights, voting rights, dividends or other preferences, any of which
may be dilutive of the interest of the holders of the common stock or the
Preferred Stock of any other series. The issuance of Preferred Stock may have
the effect of delaying or preventing a change in control of the Company
without further shareholder action and may adversely effect the rights and
powers, including voting rights, of the holders of common stock. In certain
circumstances, the issuance of preferred stock could depress the market price
of the common stock. The Board of Directors effects a designation of each
series of Preferred Stock by filing with the Nevada Secretary of State a
Certificate of Designation defining the rights and preferences of each such
series. Documents so filed are matters of public record and may be examined
in accordance with procedures of the Nevada Secretary of State, or copies
thereof may be obtained from the Company.
SERIES A WARRANTS
In connection with and as part of the terms of the acquisition of McHenry,
shortly prior to consummating such acquisition the Company declared a
distribution of Series A Warrants, to common stockholders of record as of
March 31, 1997, on a 1 for 1 basis, with such distribution to be made subject
to the effectiveness and upon the Effective Date of the registration statement
covering sale of the shares underlying the Warrants (of which this prospectus
is part); so the Company now has 1,271,094 Series A common stock purchase
warrants (the "Warrants") outstanding. The Warrants are exercisable at $1.00
per share during the first year after the Effective Date, $1.50 per share
during the second year after the Effective Date, and $2.00 per share during
the third year after the Effective Date. Warrants are exercisable only if the
registration statement is then in effect, and the exercise is registered or
otherwise qualified in any state or other jurisdiction where required.
(a) The Company may redeem all or a portion of the Warrants, at $.01
per warrant upon 30 days' prior written notice to the warrant holders in
the event the Closing bid price of the Company's common stock exceeds or
equals 200% of the exercise price per share for 20 consecutive trading
days. The warrants may be redeemed only if a current registration
statement is in effect with respect thereto. Any warrant holder who
does not exercise his Warrants prior to the Redemption Date, as set
forth on the Company's Notice of Redemption, will forfeit his right to
purchase the shares of Common Stock underlying such Warrants, and after
such Redemption Date any outstanding Warrants referred to in such Notice
will become void and be canceled. If the Company does not redeem such
Warrants, such warrants will expire at the conclusion of the exercise
period unless extended by the Company.
(b) The Company may at any time, and from time to time, extend the
exercise period of the Warrants provided that written notice of such
extension is given to the warrant holders prior to the expiration date
thereof. Also, the Company may, at any time, reduce the exercise price
thereof by written notification to the holders thereof. The Company
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<PAGE>
does not presently contemplate any extensions of the exercise period or
reduction in the exercise price of the Warrants.
(c) The Warrants contain anti-dilution provisions with respect to the
occurrence of certain events, such as stock splits or stock dividends.
The anti-dilution provisions do not apply in the event of a merger or
acquisition. In the event of liquidation, dissolution or winding-up of
the Company, warrant holders will not be entitled to participate in the
assets of the Company. Warrant holders have no voting, preemptive,
liquidation or other rights of a stockholder of a Company, and no
dividends may be declared on the Warrants.
(d) The Warrants may be exercised by surrendering to the Company, a
Warrant certificate evidencing the Warrants to be exercised, with the
exercise form included therein duly completed and executed, and paying
to the Company the exercise price per share in cash or check payable to
the Company. Stock certificates will be issued as soon thereafter as
practicable.
(e) The Warrants were not exercisable until the Warrants and the shares
of Common Stock underlying the Warrants were registered. The Company
filed with the Commission a registration statement with respect to the
issuance of such shares underlying the Warrants as soon as practicable
following the Acquisition. This Prospectus is part of such registration
statement and the date of this Prospectus is the effective date of the
registration statement. The effective date of such registration
statement is the "Commencement Date" for determining the exercise period
of such Warrants. The Company will also seek to register or qualify the
Common Stock issuable upon the exercise of the Warrants under the Blue
Sky laws of all states in which holders of the Warrants may reside.
SHOP WARRANTS AND PRO WARRANTS
The Company is proposing to grant up to 1,000,000 warrants, referred to herein
as "Shop Warrants" to dealers of the Company's products who are the first to
purchase certain quantities of the Company's products. The Company is also
proposing to grant up to 300,000 warrants, referred to herein as "Pro
Warrants" to golf professionals who enter into agreements with the Company to
use and endorse the Company's products in connection with Professional Golf
Association events.
It is intended that these warrants will be exercisable for a two year term
after their issuance, and will be issued in the future with exercise prices
equal to their current fair market value at the time of issuance, determined
by taking the average of the bid and asked prices quoted by the three highest
market makers during the five trading days immediately preceding the issuance
of the warrant. The Company will have the ability to redeem all or a portion
of these Warrants also, at $.01 per warrant upon 30 days' prior written notice
to the warrant holders in the event the Closing bid price of the Company's
common stock exceeds or equals the exercise price per share for 10 consecutive
trading days. Otherwise, these Warrants will have the same provisions as the
Series A Warrants previously described.
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TRANSFER AGENT
The transfer agent for the Company is Interwest Transfer Co., Inc., 1981 East
4800 South, Suite 100, Salt Lake City, Utah 84117.
ANNUAL REPORTS
The Company intends to furnish annual reports to shareholders which will
contain financial statements audited by independent certified public
accountants and such other interim reports as the Company may determine.
DIVIDEND POLICY
The Company has not paid any cash dividends on common stock to date and does
not anticipate paying cash dividends on common stock in the foreseeable
future. The Company intends for the foreseeable future to follow a policy of
retaining all of its earnings, if any, to finance the development and
expansion of its business. The Company does intend to pay stock dividends on
its preferred stock in accordance with the terms thereof.
SHARES ELIGIBLE FOR FUTURE SALE
Of the 11,035,810 shares of the Company's common stock outstanding prior to
the exercise of any Warrants, 1,271,094 shares are freely tradeable or
eligible to be sold in the public market that exists for the Common Stock. In
addition, the 2,571,094 shares of Common Stock underlying the Warrants will
also be freely tradeable into the public market immediately upon issuance.
Sales of substantial amounts of this common stock in the public market could
adversely affect the market price of the common stock. Furthermore, all of
the remaining shares of Common Stock presently outstanding are restricted
and/or affiliate securities which are not presently, but may in the future be
sold into any public market that may exist for the Common Stock, pursuant to
Rule 144 promulgated pursuant to the Securities Act of 1933, as amended (the
"Securities Act"). In general, under Rule 144 as currently in effect, a
person (or group of persons whose shares are aggregated), including affiliates
of the Company, can sell within any three-month period, an amount of
restricted securities that does not exceed the greater of 1% of the total
number of outstanding shares of the same class, or (if the Stock becomes
quoted on NASDAQ or a stock exchange), the reported average weekly trading
volume during the four calendar weeks preceding the sale; provided, that at
least one year has elapsed since the restricted securities being sold were
acquired from the Company or any affiliate of the Company, and provided
further that certain other conditions are also satisfied. If at least two
years have elapsed since the restricted securities were acquired from the
Company or an affiliate of the Company, a person who has not been an affiliate
of the Company for at least three months can sell restricted shares under Rule
144 without regard to any limitations on the amount. Future sales by current
shareholders of substantial amounts of Common Stock into the public market
could depress the market prices of the Common Stock in any such market.
34
<PAGE>
PLAN OF DISTRIBUTION
This Prospectus and the registration statement of which it is part relate to
the offer and sale of 1,271,094 redeemable Series A Warrants, 1,000,000
redeemable Shop Warrants, 300,000 redeemable Pro Warrants, and 2,571,094
shares of Common Stock of the Company underlying these Warrants. As soon as
practicable after the date of this Prospectus, the Series A Warrants will be
distributed to the record holders of the Company's Common Stock as of March
31, 1997. Series A Warrants are exercisable at a price of $1.00 per share
during the first year, at $1.50 during the second year and at $2.00 during the
third year after the date of this Prospectus. The Shop Warrants and Prop
Warrants will be issued at various dates in the future, and will be
exercisable at prices to be determined at such times, by reference to the
current fair market value of the Common Stock. The Warrants were not
distributed and did not constitute an offer by the Company to sell the Shares
prior to the date of this prospectus.
The offering will be managed by the Company without an underwriter, and the
Shares will be offered and sold by the Company, without any discount, sales
commissions or other compensation being paid to anyone in connection with the
offering. In connection therewith, the Company will pay the costs of
preparing, mailing and distributing this Prospectus to the holders of the
Warrants. Brokers, nominees, fiduciaries and other custodians will be
requested to forward copies of this Prospectus to the beneficial owners of
securities held of record by them, and such custodians will be reimbursed for
their expenses.
There is no assurance that all or any of the Shares will be sold, nor any
requirement, or escrow provisions to assure that, any minimum amount of
Warrants will be exercised. All funds received upon the exercise of any
Warrants will be immediately available to the Company for its use.
EXERCISE PROCEDURES
Warrants may be exercised in whole or in part by presentation of the Warrant
Certificate, with the Purchase Form on the reverse side thereof filled out and
signed at the bottom thereof, together with payment of the Exercise Price and
any applicable taxes at the principal office of Interwest Transfer Co., Inc.,
1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117. Payment of the
Exercise Price shall be made in lawful money of the United States of America
by wire transfer or check payable to the order of "McHenry Metals Golf Corp."
All holders of warrants will be given an independent right to exercise their
purchase rights. If, as and when properly completed and duly executed notices
of exercise are received by the Transfer Agent and/or Warrant Agent, together
with the Certificates being surrendered and full payment of the Exercise Price
in cleared funds, the checks or other funds will be delivered to the Company
and the Transfer Agent and/or Warrant Agent will promptly issue certificates
for the underlying Common Stock. It is presently estimated that certificates
for the shares of Common Stock will be available for delivery in Salt Lake
City, Utah at the close of business on the tenth business day after the
receipt of all required documents and funds.
35
<PAGE>
LEGAL PROCEEDINGS
On January 30, 1998, Pacific Golf Holdings, a California corporation operating
as GolfGear International, filed a lawsuit against McHenry Metals Golf Corp.
in U.S. District Court for the Southern District of California, alleging
patent infringement. GolfGear claims that the Company's TourPure line of golf
clubs infringes on two of GolfGear's U.S. patents relating to the materials
and construction of the club face. The suit seeks injunctive relief to enjoin
the alleged infringement, and monetary relief for damages arising from the
alleged infringement, in unspecified amounts. These claims were presented to
the Company prior to filing of the lawsuit, but were rejected by the Company
as being unfounded. The Company has been advised by its patent counsel that
the claims have substantive shortcomings; therefore the Company will
vigorously defend the case against claims which are believed to be invalid.
However, there can be no assurance regarding the outcome of this litigation,
and no assurance exists that the litigation will not have a material adverse
effect on the Company and its business.
To the knowledge of management, there is no other material litigation pending
or threatened against the Company. The validity of the issuance of the Shares
offered hereby will be passed upon for the Company by Thomas G. Kimble &
Associates, Salt Lake City, Utah.
EXPERTS
The December 31, 1997 consolidated financial statements of the Company
(formerly known as McHenry Metals, Inc.), included in this Prospectus have
been audited by Clumeck, Stern, Phillips & Schenkelberg, independent certified
public accountants, as indicated in their report with respect thereto, and are
included herein in reliance on such report given upon the authority of that
firm as experts in accounting and auditing.
36
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
FINANCIAL REPORT
MARCH 31, 1998
TABLE OF CONTENTS
Page
Independent Accountants' Report 2
Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statement of Operations 5
Consolidated Statement of Cash Flows 6
Notes to Consolidated Financial Statements 7-10
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
McHenry Metals Golf Corp. and Subsidiary
Carlsbad, California
We have reviewed the accompanying consolidated balance sheet
of McHenry Metals Golf Corp. and Subsidiary as of March 31,
1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the three months then
ended. These financial statements are the responsibility of
the company's management.
We conducted our review in accordance with standards
established by the American Institute of Certified Public
Accountants. A review of interim financial information
consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for
financial and accounting matters. It is substantially less in
scope than an audit conducted in accordance with generally
accepted accounting standards, the objective of which is the
expression of any opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material
modifications that should be made to the accompanying
financial statements for them to be in conformity with
generally accepted accounting principles.
CLUMECK, STERN, PHILLIPS & SCHENKELBERG
Certified Public Accountants
Encino, California
April 29, 1998
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
MARCH 31, 1998
ASSETS
CURRENT ASSETS
Cash $ 5,212,694
Accounts receivable, net of allowance of $77,800 1,202,388
Inventory 1,366,194
Prepaid expenses 162,363
Advances to employees 13,390
---------
Total Current Assets 7,957,029
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $71,677 452,745
OTHER ASSETS
Patents and trademarks, net of
accumulated amortization of $1,796 30,126
Deposits 7,026
----------
TOTAL ASSETS $ 8,446,926
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,459,091
Accrued expenses 171,261
Leases payable - current portion 13,095
---------
Total Current Liabilities 2,643,447
---------
LONG TERM LIABILITIES
Leases payable, net of current portion 31,690
---------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, authorized
50,000,000 shares; issued and outstanding
10,994,110 shares 10,994
Preferred stock, $.001 par value, authorized
5,000,000 shares; no shares issued or
outstanding -
Additional paid in capital 10,022,183
Unearned compensation ( 471,967)
Accumulated deficit ( 3,789,421)
----------
5,771,789
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,446,926
==========
(See Accountants' Report and Notes to Financial Statements)
3
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
Common Stock Additional
Number of Paid - In Accumulated
Shares Amount Capital Deficit
Balance, December 31, 1997 8,790,794 $ 8,791 $ 3,759,381 $(2,599,758)
Common stock issued
for cash 2,032,066 2,032 5,875,717
Common stock issued
for compensation 171,250 171 405,662
Options granted to vendors - - 16,725
Cost of raising capital ( 35,302)
Net loss (1,189,663)
---------- ------ ---------- ---------
Balance, March 31, 1998 10,994,110 $10,994 $10,022,183 $(3,789,421)
========== ====== ========== =========
(See Accountants' Report and Notes to Financial Statements)
4
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
NET SALES $ 1,238,489
COST OF SALES 748,268
---------
GROSS PROFIT 490,221
---------
OPERATING EXPENSES
Marketing 538,450
Tour promotion 174,282
Sales and service 472,109
Research and development 110,545
General and administrative 390,054
---------
1,685,440
---------
OPERATING LOSS (1,195,219)
INTEREST INCOME, net 7,181
---------
LOSS BEFORE PROVISION FOR INCOME TAXES (1,188,038)
PROVISION FOR INCOME TAXES
Current 1,625
---------
NET LOSS $(1,189,663)
=========
NET LOSS PER SHARE $( .13)
=========
(See Accountants' Report and Notes to Financial Statements)
5
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,189,663)
----------
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 39,869
Expenses paid by the issuance of stock 38,943
(Increase) decrease in operating assets
Accounts receivable (1,178,388)
Inventory (1,256,490)
Prepaid expenses ( 87,330)
Deposits ( 1,535)
Increase (decrease) in operating liabilities
Accounts payable 2,160,167
Accrued expenses 102,342
Contract payable ( 50,000)
Common stock payable ( 28,389)
----------
Total adjustments ( 260,811)
----------
NET CASH USED IN OPERATING ACTIVITIES (1,450,474)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment ( 90,239)
Patents and trademarks ( 3,856)
Advances to employees ( 1,940)
----------
NET CASH USED IN INVESTING ACTIVITIES ( 96,035)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 5,877,749
Cost of raising capital ( 35,302)
Payment on leases payable ( 4,338)
----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 5,838,109
----------
NET INCREASE IN CASH 4,291,600
CASH, January 1 921,094
----------
CASH, March 31 $ 5,212,694
==========
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID:
Income taxes $ 1,625
==========
Interest $ 405
==========
(See Accountants' Report and Notes to Financial Statements)
6
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
NOTE 1 - FINANCIAL STATEMENTS
The accompanying financial statements include the accounts of
McHenry Metals Golf Corp. and its wholly owned subsidiary McHenry
Metals, Inc. All intercompany transactions have been eliminated.
Prior to 1998, the Company was a development stage company.
In 1998, the Company started the manufacture and sale of its
line of golf clubs.
The Company's financial statements have been prepared assuming
that the Company will continue as a going concern. The
consolidated financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
The financial statements presented are unaudited and prepared
in accordance with generally accepted accounting principles
for interim reporting. Accordingly, they do not include all
the information and disclosures required by generally accepted
accounting principles for complete financial statements.
These statements should be read in conjunction with the
financial statements and related notes included in the
Company's annual report for the period ended December 31,
1997.
NOTE 2 - INVENTORY
Inventory consists of the following at March 31, 1998
Raw Material $ 708,029
Work-in-process 584,197
Finished goods 73,968
----------
$ 1,366,194
==========
NOTE 3 - LOSS PER SHARE
The computation of loss per share of common stock was based on
the weighted average number of shares outstanding of
9,173,847.
(See Accountants' Report)
7
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
NOTE 4 - LEASES PAYABLE
The Company leases equipment with a cost of $51,775 under
capital leases. The following is a schedule of future minimum
payments required under the leases together with their present
value as of March 31, 1998.
December 31,
1998 $ 14,040
1999 21,055
2000 17,691
2001 7,435
-------
Total minimum lease payments 60,221
Less amount representing interest 15,436
-------
Present value of minimum lease payments $ 44,785
=======
NOTE 5 - RESTRICTED STOCK AND STOCK OPTIONS GRANTED
The Company has awarded restricted stock to some of its
employees and others as part of their compensation package. It
also granted, in 1997, stock options to other employees as
part of their compensation package. The Company applies APB
Opinion No. 25 and related interpretations in accounting for
its plans. Accordingly, for the stock options, no
compensation cost has been recognized. Had compensation cost
for the stock options been determined based on the fair value
at the grant dates, consistent with the alternative method set
forth under SFAS 123, the Company's net loss for 1998 would
have been increased by an immaterial amount.
(See Accountants' Report)
8
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
NOTE 5 - RESTRICTED STOCK AND STOCK OPTIONS GRANTED (CONTINUED)
The Board of Directors has granted the following stock options:
Options Option Price Exercise date
Options granted 600,000 $ .500 Up to September 1, 2000
Options granted 250,000 $ .500 100,000 on or after
December 31, 1997;
150,000 on or after
December 31, 1998
Options granted 300,000 $ 1.750 200,000 on or after
December 31, 1997;
100,000 on or after
December 31, 1998
up to May 27, 2000
Options granted 125,000 $ 4.125 Up to September 29, 2000
Options granted 20,000 $ 4.125 Before September 1, 2000
Options granted 20,000 $ 4.750 2,500 shares per quarter
beginning April 15, 1998
Expire January 4, 2000
Series A warrants 1,271,094 $1 - 2.00 Up to June, 2001
---------
Options outstanding
at March 31, 1998 2,586,094
=========
Options exercisable
at March 31, 1998 1,045,000
=========
The following stock was issued for compensation:
Shares Date Market Value Purpose Earning Period
85,000 4/01/97 $ .50 Employee compensation 24-36 months
20,000 8/11/97 Invoice payment -
2,500 9/22/97 Invoice payment -
1,250 9/30/97 Invoice payment -
50,000 1/02/98 5.00 Pro-player/Celebrity
promotions 24 months
12,500 4/02/98 5.00 Employee compensation 24 months
-------
171,250
=======
(See Accountants' Report)
9
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1998
NOTE 5 - RESTRICTED STOCK AND STOCK OPTIONS GRANTED (CONTINUED)
Unearned compensation has been charged for the value of the
stock on the date of grant based upon the market value of the
stock at that date. These amounts are amortized over the
earning period. The unamortized portion is shown as a
reduction of stockholders' equity.
NOTE 6 - STOCK OPTION PLAN
The Company has an employee incentive stock option plan under
Internal Revenue Code Section 422. One million three hundred fifteen
thousand options have been granted under this plan.
NOTE 7 - SUBSEQUENT EVENTS
The Board of Directors authorized the registration for public
sale of 300,000 warrants for the purchase of 300,000 shares of
common stock at the current market price of the stock on the
date such warrants are issued.
The Company has committed to issue 41,700 shares in exchange
for services.
The Company is negotiating with a bank for a $4,000,000 line
of credit. The current letter of intent would require the
issuance of 25,000 warrants as a loan fee. The line of credit
would be collateralized by the Company's assets excluding
inventory and leased equipment.
(See Accountants' Report)
10
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
(A Development Stage Company)
FINANCIAL REPORT
DECEMBER 31, 1997
TABLE OF CONTENTS
Page
Independent Auditors' Report 2
Financial Statements
Consolidated Balance Sheet 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statement of Operations 5
Consolidated Statement of Cash Flow 6
Notes to Consolidated Financial Statements 7-14
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
McHenry Metals Golf Corp. and Subsidiary
Carlsbad, California
We have audited the consolidated balance sheet of McHenry Metals Golf
Corp. and Subsidiary (a development stage company), as of December 31,
1997 and the related consolidated statements of stockholders' equity,
operations and cash flows for the period January 13, 1997 to December
31, 1997. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
McHenry Metals Golf Corp. and Subsidiary as of December 31, 1997 and the
results of its operations and its cash flow for the period January 13,
1997 to December 31, 1997 in conformity with generally accepted
accounting principles.
CLUMECK, STERN, PHILLIPS & SCHENKELBERG
Certified Public Accountants
Encino, California
February 12, 1998
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
CURRENT ASSETS
Cash $ 921,094
Inventory 109,704
Prepaid expenses 75,033
Advances to employees 11,450
Note receivable 24,000
---------
Total Current Assets 1,141,281
PROPERTY AND EQUIPMENT, net of
accumulated depreciation of $32,814 401,369
OTHER ASSETS
Patents and trademarks, net of
accumulated amortization of $790 27,276
Deposits 5,491
---------
TOTAL ASSETS $ 1,575,417
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 298,924
Accrued salaries and benefits 68,919
Common stock payable 28,389
Contract payable 50,000
Leases payable 12,243
---------
Total Current Liabilities 458,475
---------
LONG TERM LIABILITIES
Leases payable, net of current portion 36,880
---------
COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, authorized 50,000,000
shares; issued and outstanding 8,790,794 shares 8,791
Preferred stock, $.001 par value, authorized 5,000,000
shares; no shares issued or outstanding -
Additional paid in capital 3,759,381
Unearned compensation ( 88,352)
Deficit accumulated during development stage (2,599,758)
---------
1,080,062
---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,575,417
=========
(See Notes to Financial Statements)
3
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
JANUARY 13, 1997 TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Total
Number of Paid - In Unearned Development Stockholders
Shares Amount Capital Compensation Stage Equity
--------- ------ ---------------------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Common stock issued
for cash
February, 1997 4,250,000 $ 4,250 $( 2,125)
March, 1997 1,390,000 1,390 693,610
April, 1997 10,000 10 4,990
September, 1997 1,447,000 1,447 2,892,553
--------- ------ ---------- ------- ---------- ---------
7,097,000 7,097 3,589,028 $3,596,125
--------- ------ ---------- ------- ---------- ---------
Common stock issued
in subsidiary
acquisition transaction 1,271,094 1,271 ( 1,271) -
Common stock issued
for furniture
And compensation 422,700 423 288,427 (88,352) 200,498
Cost of raising capital ( 116,803) ( 116,803)
Common stockholder loss
for the period
January 13 to
December 31, 1997 (2,599,758) (2,599,758)
--------- ------ ---------- ------- ---------- ---------
8,790,794 $ 8,791 $ 3,759,381 $(88,352) $(2,599,758) $1,080,062
========= ====== ========== ======= ========== =========
</TABLE>
(See Notes to Financial Statements)
4
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
JANUARY 13, 1997 TO DECEMBER 31, 1997
SALES $ -
-----------
EXPENSES
Contract labor $ 325,014
Depreciation and amortization 33,604
Event sponsorship 5,900
Insurance 14,037
Legal and professional 94,820
Marketing costs 472,355
Office expense 79,372
Payroll taxes and benefits 53,375
Postage and delivery 42,003
Professional players fees 312,500
Rent 54,182
Research and development 123,595
Salaries 788,713
Supplies 37,547
Telephone 33,839
Travel and entertainment 101,331
Miscellaneous 47,590
-----------
2,619,777
INTEREST INCOME 20,819
-----------
LOSS BEFORE PROVISION FOR INCOME TAXES (2,598,958)
PROVISION FOR INCOME TAXES
Current 800
-----------
NET LOSS $ (2,599,758)
===========
NET LOSS PER SHARE $ ( .38)
===========
(See Notes to Financial Statements)
5
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
JANUARY 13, 1997 TO DECEMBER 31, 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(2,599,758)
----------
Adjustments to reconcile net loss to net
cash (used in) operating activities
Depreciation and amortization 33,604
Expenses paid by the issuance of stock 136,648
(Increase) decrease in operating assets
Inventory ( 109,704)
Prepaid expenses ( 75,033)
Deposits ( 5,491)
Increase (decrease) in operating liabilities
Accounts payable 277,149
Accrued salaries and benefits 68,919
Contract payable 50,000
Common stock payable 28,389
----------
Total adjustments 404,481
----------
NET CASH USED IN OPERATING ACTIVITIES (2,195,277)
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Property and equipment ( 296,782)
Patents and trademarks ( 28,066)
Advances to employees ( 11,450)
Increase in note receivable ( 24,000)
----------
NET CASH USED IN INVESTING ACTIVITIES ( 360,298)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 3,596,125
Cost of raising capital ( 116,803)
Payment on leases payable ( 2,653)
----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,476,669
----------
NET INCREASE IN CASH 921,094
CASH, Beginning of period -
----------
CASH, End of period $ 921,094
==========
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID:
Income taxes $ 800
==========
Interest $ 618
==========
NON CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of equipment under capitalized leases $ 51,775
==========
(See Notes to Financial Statements)
6
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 13, 1997 TO DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
McHenry Metals Golf Corp. was incorporated in 1985 in Utah under the
name of White Pine, Inc.. In 1986 the name was changed to Symphony
Holding Company. In 1993 the corporate domicile was changed from
Utah to Nevada and the corporation changed its name to Symphony
Ventures, Inc.. In 1996, the name was changed to Micro-ASI
International, Inc.. Upon the acquisition of 100% ownership of
McHenry Metals, Inc. (subsidiary) in April, 1997, the company's name
was changed to McHenry Metals Golf Corp..
McHenry Metals, Inc., the subsidiary, was organized under the laws
of Illinois on January 13, 1997, to engage in the manufacture and
sale of a new line of golf related equipment. It is currently in
the developmental stage of operations devoting its time to raising
capital, promotion of future products and administrative functions.
The acquisition of McHenry Metals, Inc. is accounted for as a
reverse acquisition that results in a recapitalization of
Subsidiary as it is deemed to be the acquiring corporation.
All intercompany transactions have been eliminated.
Inventory
Inventory is valued at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
Raw materials $ 84,693
Work in process 25,011
---------
$ 109,704
=========
Property and Equipment
Property and equipment are stated at cost. Those items that had been
placed in service are being depreciated over their estimated useful
lives of two to seven years using the straight-line method.
Patents and Trademarks
The patents and trademarks are recorded at cost and amortized over
seventeen years using the straight-line method.
7
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 13, 1997 TO DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results
could differ from those estimates.
Stock Based Compensation
In October, 1995, the Financial Accounting Standards Board issued
Statement 123, Accounting for Stock-Based Compensation. This
statement permits a company to choose either a new fair value based
method or the current APB Opinion 25 intrinsic value based method of
accounting for its stock-based compensation arrangements. The
statement requires pro forma disclosures of net income and earnings
per share computed as if the fair value method had been applied in
financial statements of companies that continue to follow current
practice in accounting for such arrangements under Opinion 25. The
Company has elected to follow Opinion 25 and make the required
disclosures as outlined in Statement 123 (see Note 9).
Income Taxes
The Company accounts for income taxes in accordance with statement
Financial Accounting Standards No. 109, Accounting for Income Taxes,
which requires recognition of deferred tax liabilities and assets for
the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on
the difference between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for the year
which the differences are expected to be settled or realized.
Loss per Share
The computations of loss per share of common stock are based on the
weighted average number of shares outstanding of 6,897,795 shares.
Advertising Costs
The Company expenses advertising costs when incurred. Trade and
consumer ad space and event sponsorships totaled $248,103.
Revenue Recognition
Sales revenue is recognized at the date of shipment to customers.
Provision is made for an estimate of product returns and doubtful
accounts and is based on estimates due to lack of historical
experience.
8
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 13, 1997 TO DECEMBER 31, 1997
NOTE 2 - PROPERTY & EQUIPMENT
Property and equipment are recorded as follows:
Capitalized lease equipment $ 51,775
Office equipment and furniture 95,672
Computer equipment and software 65,099
Machinery and equipment 10,536
Show booth 75,250
Leasehold improvements 21,493
Tooling 114,358
---------
434,183
Accumulated depreciation 32,814
---------
$ 401,369
=========
NOTE 3 - COMMON STOCK PAYABLE
The Company has committed to issue 108,750 shares in connection with
employee compensation and the purchase of services from vendors.
NOTE 4 - LEASES PAYABLE
The Company leases equipment with a cost of $51,775 under capital leases
and accumulated depreciation of $1,202 at December 31, 1997. The
following is a schedule of future minimum payments required under the
leases together with their present value as of December 31, 1997:
1998 $ 21,055
1999 21,055
2000 17,691
2001 7,435
---------
Total minimum lease payments 67,236
Less amount representing interest 18,113
---------
Present value of minimum lease payments $ 49,123
=========
9
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 13, 1997 TO DECEMBER 31, 1997
NOTE 5 - INCOME TAXES
The Company has an operating loss for the year that can be used to
offset future taxable income. Since this is a development stage company
and the future taxable income stream is uncertain, no deferred tax
benefit has been recorded for the possible use of this operating loss.
If unused, the loss will expire for federal purposes in 2012.
NOTE 6 - COMMITMENTS
Lease
The Company has signed a lease for office space in Illinois beginning
January 1, 1998 and ending December 31, 2000. The lease calls for
monthly payments of $1,500, plus escalations.
The Company has also signed a lease for space in California beginning
May 1, 1997 and ending October 31, 1998. The lease calls for monthly
payments of $4,261 plus increases in maintenance charges. The
Company has an option to extend the lease an additional two years.
The future minimum rentals including the anticipated option period
are:
1998 $ 68,858
1999 71,529
2000 65,407
--------
$ 205,794
========
Rent expense, representing minimum rents, amounted to $49,836.
Contracts
The Company has signed three contracts for product promotion for
periods through December 31, 1999. The contracts call for payments of
$179,167 cash and 80,000 shares of stock in 1997, $332,500 in 1998 and
$357,500 in 1999. The value assigned to the stock of $133,333 was
determined in renegotiations with the principals for payment of a
portion of the cash compensation required by the contracts. The
annual contract amount is charged to expense ratably over the year.
The amount expensed in 1997 was $312,500. In addition, bonuses will
be paid up to $151,000 for each major tournament victory. Placement
in tournaments in less than first place calls for a smaller bonus as
specified in each contract. The stock has not yet been issued on one
of the contracts.
10
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 13, 1997 TO DECEMBER 31, 1997
NOTE 6 - COMMITMENTS (CONTINUED)
Employment Contracts
An employment contract has been signed with an officer/stockholder
for a term of three years. The minimum annual compensation is
$150,000. Employment contracts with other employees of the Company
do not exceed one year.
Warrants
The Board of Directors has authorized the registration for restricted
public sale up to a maximum of 1,000,000 warrants representing the
right to purchase a maximum of 1,000,000 shares of common stock. The
purchase price of the shares will be the trading price of the Company
stock on the date the warrants are issued. The warrants will be
offered to a limited number of customers.
The Company has declared a warrant distribution of Common Stock
Purchase Warrants to all stockholders of the Parent who were
stockholders of record as of March 31, 1997. These warrants and the
common stock underlying the warrants will be registered with the
Securities and Exchange Commission.
NOTE 7 - CONCENTRATION OF RISK
The Company maintains its cash in bank deposit and brokerage accounts
which, at times, may exceed federally insured limits. The Company
believes it is not exposed to any significant credit risk on cash.
11
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 13, 1997 TO DECEMBER 31, 1997
NOTE 8 - FORWARD STOCK SPLIT
As a negotiated term of the acquisition of the subsidiary, the Parent's
Board of Directors approved a 2.2 to 1 forward split of its outstanding
common stock effective April 1, 1997. This increased the number of
shares outstanding, from 577,770 shares to 1,271,094 shares, before the
issuance of shares for the acquisition of the subsidiary.
NOTE 9 - RESTRICTED STOCK AND STOCK OPTIONS GRANTED
The Company has awarded restricted stock to some of its employees as
part of the compensation package under the employment contracts being
finalized. It has also granted stock options to other employees as part
of their compensation package. The Company applies APB Opinion No. 25
and related interpretations in accounting for its plans. Accordingly,
for the stock options, no compensation cost has been recognized. The
compensation cost charged against income for the restricted stock award
was $48,837. Had compensation cost for the stock options been
determined based on the fair value at the grant dates, consistent with
the alternative method set forth under SFAS 123, the Company's net loss
would have been increased by $99,000.
The Board of Directors has granted the following stock options:
Options Option Price Exercise date
Options granted 600,000 $ .500 Up to September 1, 2000
Options granted 250,000 $ .500 100,000 on or after
December 31, 1997;
150,000 on or after
December 31, 1998
Options granted 300,000 $ 1.750 200,000 on or after
December 31, 1997;
100,000 on or after
December 31, 1998
up to May 27, 2000
12
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 13, 1997 TO DECEMBER 31, 1997
NOTE 9 - RESTRICTED STOCK AND STOCK OPTIONS GRANTED (CONTINUED)
Options Option Price Exercise date
Options granted 125,000 $ 4.125 Up to September 28, 2000
Options granted 20,000 $ 4.125 After January 31, 1998 and
before September 1, 2000
Series A warrants 1,271,094 $1 - 2.00 Up to June, 2001
---------
Options outstanding
at December 31, 1997 2,566,094
=========
Options exercisable
at December 31, 1997 725,000
=========
Unearned compensation has been charged for the value of the stock
granted to employees on the date of grant based upon the value of the
stock at that date. These amounts are amortized over the earning
period. The unamortized portion is shown as a reduction of
stockholders' equity.
NOTE 10 - STOCK OPTION PLAN
The Board of Directors and the Shareholders have approved a stock option
plan effective April 1, 1997. The plan authorized the granting of
options to purchase an aggregate of 2,295,000 shares of common stock of
the Company. The purchase price of each share of stock covered by the
option plan shall be equal to the fair market value of the Company's
common stock on the date of grant. Options granted to a ten percent or
more shareholder will have a price equal to one hundred ten percent (110%)
of the fair market value on the grant date. One million two hundred
ninety-five thousand options have been granted under this plan.
NOTE 11 - RELATED PARTY TRANSACTIONS
The Board of Directors approved the issuance of 107,700 shares of stock
to stockholders, board members and others for purchase of furniture and
equipment from them valued at $53,850.
The Company purchased advertising services from a company owned by an
employee/stockholder. Total was approximately $300,000.
13
<PAGE>
MCHENRY METALS GOLF CORP. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 13, 1997 TO DECEMBER 31, 1997
NOTE 12 401(k) PLAN
The Company adopted a 401(k) plan effective February 1, 1998. Employees
who have reached the age of 21 and have completed one year of service
or were employees as of the effective date are eligible to participate.
Contributions by the Company will be made at the discretion of the Board
of Directors.
NOTE 13 SUBSEQUENT EVENTS
The Company is a defendant in a patent infringement lawsuit filed in
1998. McHenry Metals has been advised by its patent counsel that in his
opinion, the claims made in the suit have substantive shortcomings.
However, there can be no assurance regarding the outcome of the
litigation; and no assurance exists that the litigation will not have
a material adverse effect upon the Company and its business.
Effective January 1, 1998, the Company signed professional endorsement
agreements with two individuals. The agreements are for a two year
term. Compensation will be the issuance of 40,000 shares of the Company
stock.
14
<PAGE>
NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATIONS OTHER THAT THOSE CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
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 ANY OF THE SECURITIES COVERED HEREBY IN ANY
JURISDICTION OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, IN ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
UNTIL [90 DAYS AFTER THE DATE OF THIS PROSPECTUS], 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 WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS. . . . . . . . . . . . . . . . . .INSIDE FRONT COVER
MCHENRY METALS GOLF CORP.
2,571,094 WARRANTS AND
UNDERLYING SHARES
WARRANTS AND
COMMON STOCK
PROSPECTUS
, 1998
<PAGE>
PART II - INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The statutes, charter provisions, bylaws, contracts or other arrangements
under which controlling persons, directors or officers of the registrant are
insured or indemnified in any manner against any liability which they may
incur in such capacity are as follows:
(a) Section 78.751 of the Nevada Business Corporation Act provides that each
corporation shall have the following powers:
1. A corporation may indemnify any person who was or is a party or is
threatened to be made party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments,
fines and amounts paid in settlement actually and reasonably incurred by him
in connection with the action, suit or proceeding if he acted in good faith
and in a manner which he reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, does not, of
itself create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and that, with respect to any criminal action or
proceeding, he had reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses,
including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement of
the action or suit if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim, issue or matter
as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction, determines upon application that in
view of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
3. To the extent that a director, officer, employee or agent of a corporation
has been successful on the merits or otherwise in defense of any action, suit
or proceeding referred to in subsections 1 and 2, or in defense of any claim,
issue or matter therein, he must be indemnified by the corporation against
expenses, including attorneys' fees, actually and reasonably incurred by him
in connection with the defense.
<PAGE>
4. Any indemnification under subsections 1 and 2, unless ordered by a court
or advanced pursuant to subsection 5, must be made by the corporation only as
authorized in the specific case upon a determination that indemnification of
the director, officer, employee or agent is proper in the circumstances. The
determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum consisting of
directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors who were not
parties to the act, suit or proceeding so orders, by independent legal
counsel, in a written opinion; or
(d) If a quorum consisting of directors who were not parties to the act, suit
or proceeding cannot be obtained, by independent legal counsel in a written
opinion.
5. The certificate or articles of incorporation, the bylaws or an agreement
made by the corporation may provide that the expenses of officers and
directors incurred in defending a civil or criminal action, suit or proceeding
must be paid by the corporation as they are incurred and in advance of the
final disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if
it is ultimately determined by a court of competent jurisdiction that he is
not entitled to be indemnified by the corporation. The provisions of this
subsection do not affect any rights to advancement of expenses to which
corporate personnel other than director of officers may be entitled under any
contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or ordered
by a court pursuant to this section:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the
certificate or articles of incorporation or any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, for either an action in
his official capacity or an action in another capacity while holding his
office, except that indemnification, unless ordered by a court pursuant to
subsection 2 or for the advancement of expenses made pursuant to subsection 5,
may not be made to or on behalf of any director or officer if a final
adjudication establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action.
(b) Continues for a person who has ceased to be a director, officer, employee
or agent and inures to the benefit of the heirs, executors and administrators
of such a person."
(b) The registrant's Articles of Incorporation limit liability of its
Officers and Directors to the full extent permitted by the Nevada Business
Corporation Act.
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION*
The following table sets forth all estimated costs and expenses, other than
underwriting discounts, commissions and expense allowances, payable by the
registrant in connection with the maximum offering for the securities included
in this registration statement:
Amount
SEC registration fee $ 2,896.19
Blue sky fees and expenses 4,500.00
Printing and shipping expenses 500.00
Legal fees and expenses 45,000.00
Accounting fees and expenses 6,000.00
Transfer and Miscellaneous expenses 1,103.81
-----------------
Total $ 60,000.00
* All expenses are estimated except the Commission filing fee.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
On April 1, 1997, the Company entered into an Agreement and Plan of
Reorganization with McHenry Metals, Inc. ("MMI"). Pursuant to the Agreement,
the Company forward split its common stock on a 2.2 for 1 basis, and then
issued 5,650,000 post split shares of its authorized but previously unissued
common stock to all the existing shareholders of MMI (fewer than 35 persons),
and acquired all the issued and outstanding stock of MMI in a stock for stock
exchange (the "Acquisition") whereupon MMI became a wholly-owned subsidiary of
the Company. The Acquisition was not registered under the Securities Act of
1933 (the "Act") in reliance on the exemption from registration in Section
4(2) of the Act, as a transaction not involving any public offering. These
securities were issued as restricted securities and the certificates were
stamped with restrictive legends to prevent any resale without registration
under the Act or in compliance with an exemption.
MMI was incorporated in January, 1997, under the laws of the State of Illinois
to design and market golf clubs and related equipment. In February, 1997,
shortly after incorporation, MMI issued 4,250,000 shares to its 4 initial
founding stockholders in exchange for $2,125 cash. These persons became the
initial officers, directors and counsel for the Company. This transaction was
not registered under the Act in reliance on the exemption from registration in
Section 4(2) of the Act, as a transaction not involving any public offering.
These securities were issued as restricted securities and the certificates
were stamped with restrictive legends to prevent any resale without
registration under the Act or in compliance with an exemption.
Contemporaneous with the Acquisition, MMI issued 1,400,000 shares of common
stock to 30 accredited investors and raised $700,000 in a non public offering
of its securities. These persons were all business and professional
associates and acquaintances of officers or directors and also included
existing officers or directors of the Company. There were no underwriting
discounts or commissions. These transactions were not registered under the
Act, in reliance on the exemption from registration in Section 4(2) of the
Act, as transactions not involving any public offering. These securities were
issued as restricted securities and the certificates were stamped with
restrictive legends to prevent any resale without registration under the Act
or in compliance with an exemption.
<PAGE>
Subsequent to the Acquisition, in September, 1997, the Company issued
1,447,000 shares of common stock to 90 accredited investors and 13 other
persons, and raised $2,894,000 of capital through a non public offering of
its securities. These persons were business and professional associates and
acquaintances of management and existing stockholders, as well as persons who
had previously invested. There were no underwriting discounts or commissions.
These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2) of the Act, and Rule 506 of
Regulation D promulgated thereunder, as transactions not involving any public
offering. Form D was filed with the Securities and Exchange Commission.
These securities were issued as restricted securities and the certificates
were stamped with restrictive legends to prevent any resale without
registration under the Act or in compliance with an exemption.
During 1997, the Company has issued a total of 422,700 shares of its common
stock in privately negotiated transactions, to 9 different persons, in
exchange for furniture or other assets, or as compensation. These persons
were all employees, suppliers and vendors with whom the Company did business,
who accepted stock in lieu of cash for goods and services. These transactions
were not registered under the Act in reliance on the exemption from
registration in Section 4(2), as transactions not involving any public
offering. These securities were issued as restricted securities and the
certificates were stamped with restrictive legends to prevent any resale
without registration under the Act or in compliance with an exemption.
During December, 1997, to March, 1998, the Company conducted a non public
offering of units consisting of common stock and warrants. Pursuant thereto,
the Company sold 638,066 shares of common stock and 319,033 warrants to 84
accredited investors and 4 other persons, and raised $2,392,747.50 in gross
proceeds. These persons were business and professional associates and
acquaintances of management and existing stockholders, as well as persons who
had previously invested. There were no underwriting discounts or commissions.
These transactions were not registered under the Act in reliance on the
exemption from registration in Section 4(2) of the Act, and Rule 506 of
Regulation D promulgated thereunder. Form D was filed with the Securities and
Exchange Commission. These securities were issued as restricted securities
and the certificates were stamped with restrictive legends to prevent any
resale without registration under the Act or in compliance with an exemption.
During April, 1998, the Company offered and sold 1,394,000 shares of common
stock to a small group of investors, and raised $3,485,000. These persons
were existing stockholders who had previously invested and/or accredited
investors, and were business and professional associates and acquaintances of
management. This transaction was not registered under the Act in reliance on
the exemption from registration in Section 4(2), as a transaction not
involving any public offering. These securities were issued as restricted
securities and the certificates were stamped with restrictive legends to
prevent any resale without registration under the Act or in compliance with an
exemption.
During 1998, the Company has thus far issued a total of 204,250 shares of its
common stock in privately negotiated transactions, to 14 different persons, in
exchange for furniture or other assets, or as compensation. These persons
were golf professionals and others with whom the Company was entering into
endorsement contracts, or employees, suppliers and vendors with whom the
Company did business, who accepted stock in lieu of cash for goods and
services. These transactions were not registered under the Act in reliance on
the exemption from registration in Section 4(2), as transactions not involving
any public offering. These securities were issued as restricted securities
and the certificates were stamped with restrictive legends to prevent any
resale without registration under the Act or in compliance with an exemption.
<PAGE>
ITEM 27. EXHIBITS INDEX
SEC No. Document Exhibit No.
2 Agreement & Plan of Reorganization 2.1*
3 Articles of Incorporation 3.1*
3 Articles of Amendment 3.2*
3 Articles of Amendment 3.3*
3 By-Laws 3.4*
4 Common Stock Specimen Certificate 4.1*
4 Form of Warrant Agreement 4.2*
4 Form of Warrant Certificate 4.3*
5,24 Opinion & Consent of Counsel 5.1 & 24.1*
10 Lease Agreement - Carlsbad, CA 10.1*
10 Lease Agreement - McHenry, IL 10.2*
10 Stock Option Plan 10.3*
10 Employment Agreement - Gary Adams 10.4*
10 Employment Agreement - Bradley Wilhite 10.5*
10 Employment Agreement - Mario Cesario 10.6*
10 Employment Agreement -Thomas Grimley 10.7*
10 Employment Agreement - Eddie Langert 10.8*
23 Consent of Accountants 10.9
27 Financial Data Schedules 27*
* (exhibits previously filed)
<PAGE>
ITEM 28. UNDERTAKINGS
The registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells securities, a post-
effective amendment to this Registration Statement to:
(i) Include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;
(ii) Include any additional or changed material information on the plan of
distribution; and
(iii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
Registration Statement.
(2) For determining any liability under the Securities Act, treat each post-
effective amendment as a new Registration Statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 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.
<PAGE>
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 Carlsbad, State of California, on July 30, 1998.
McHENRY METALS GOLF CORP.
By: /s/ Gary V. Adams
Gary V. Adams, Chairman (Chief Executive Officer)
By: /s/ Blake Clark
Blake Clark, (Chief Financial Officer)
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Thomas G. Kimble or Van L. Butler, the
undersigned's true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for the undersigned and in the undersigned's
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 all documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorney-in-fact and agent, full power and authority to do and
perform each and every act and thing, requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitutes, may lawfully do or cause to be
done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
Signature: /s/ Gary V. Adams Date: July 30, 1998
Gary V. Adams, Director
Signature: /s/ Theodore Aroney Date: July 30, 1998
Theodore Aroney, Director
Signature: Date: , 1998
Mark Bergendahl, Director
Signature: Date: , 1998
Henry J. Fleming, Director
Signature: /s/ Bradley J. Wilhite Date: July 30, 1998
Bradley J. Wilhite, Director
Signature: /s/ Sal Lupo Date: July 30, 1998
Sal Lupo, Director
Signature: /s/ Phillip A. Ward Date: July 30, 1998
Phillip A. Ward, Director
<PAGE>
INDEPENDENT ACCOUNTANTS' CONSENT
We consent to the use in this Registration Statement of McHenry
Metals Golf Corp. and Subsidiary on Form SB-2 of our report dated
February 12, 1998 for the audited financial statements as of
December 31, 1997 and the period then ended and our report dated
April 29, 1998 for the unaudited financial statements as of March
31, 1998 and the three months then ended appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts"
in such Prospectus.
Clumeck, Stern, Phillips & Schenkelberg
July 30, 1998
