<PAGE>
As filed with the Securities and Exchange Commission on October 9, 1997
==========================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
CONNECTICUT VALLEY SPORTS, INC.
(Name of Small Business Issuer)
-------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 3484 13-3890380
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) Number)
</TABLE>
-----------------------------
4004 Highway 93 North
Stevensville, Montana 59870
(406) 777-5534
(Address and Telephone Number of Principal Executive
Offices and Place Of Business)
---------------------------------------------------
JOHN TILLELI
Chief Executive Officer
Connecticut Valley Sports, Inc.
4004 Highway 93 North
Stevensville, Montana 59870
(406) 777-5534
(Name. Address and Telephone Number of Agent for Service
--------------------------------------------------------
Copies to:
<TABLE>
<CAPTION>
<S> <C>
Gersten, Savage, Kaplowitz & Fredericks LLP Zimet, Haines, Friedman & Kaplan
Jay M. Kaplowity, Esq. James Kaplan, Esq.
101 East 52nd Street 460 Park Avenue
New York, New York 10022 New York, New York 10022
Telephone: (212) 752-9700 Telephone: (212) 486-1700
Telecopier: (212) 752-9713 Telecopier: (212) 223-1151
</TABLE>
Approximate Date of Proposed Sale to the Public:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box: [ ]
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
an amendment which specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933, as amended or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8 may determine.
<PAGE>
The Exhibit Index required by Item 601 of Regulation S-B is located at page __
of the sequential numbering system appearing in the manually singed copy of this
Registration Statement, totaling pages, filed with the Securities and Exchange
Commission.
ii
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------- ------------------------ ------------------------- ------------------------ ------------------------
Title of Each Class Proposed Maximum
of Securities to be Amount to be Offering Price per Proposed Maximum Amount of
Registered Registered Security (1) Aggregate Offering Price Registration Fee
- --------------------- ------------------------ ------------------------- ------------------------ ------------------------
<S> <C> <C> <C> <C>
Units 1,725,000 (2) $5.10 $8,797,500 $2,665.91
- --------------------- ------------------------ ------------------------- ------------------------ ------------------------
Common Stock, 1,725,000 (3) $5.00 $ $2,613.64
$.01 par value
("Common Stock")
- --------------------- ------------------------ ------------------------- ------------------------ ------------------------
Underwriter 1 (4) $.0001 $10.00 $ --
Warrant
- --------------------- ------------------------ ------------------------- ------------------------ ------------------------
Units 150,000 (5) $ 6.12 $918,000 $ 278.18
- --------------------- ------------------------ ------------------------- ------------------------ ------------------------
Common Stock 150,000 (6) $ 6.00 $900,000 $ 272.73
- --------------------- ------------------------ ------------------------- ------------------------ ------------------------
Total Registration $ $5,830.46
Fee
- --------------------- ------------------------ ------------------------- ------------------------ ------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933,
as amended.
(2) Includes 225,000 Units subject to an over-allotment option granted to the
Underwriter ("Over-Allotment Option").
(3) Represents shares of Common Stock issuable upon exercise of the Warrants
contained in the Units. Pursuant to Rule 416, this Registration Statement
also covers an indeterminable number of additional shares of Common Stock
issuable as a result of any future anti-dilution adjustments in accordance
with the terms of the Warrants contained in the Units.
(4) Issuable to the Underwriter. Exercisable to purchase up to 150,000 Units.
(5) Represents the Units issuable upon exercise of the Underwriter's Warrant.
(6) Represents the Common Stock issuable upon exercise of the Warrants
contained in the Underwriter's Warrant.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
Subject to Completion, Dated October 9, 1997
PROSPECTUS
CONNECTICUT VALLEY SPORTS, INC.
1,500,000 Units
Each Unit Consisting of One Share of Common Stock and
One Redeemable Common Stock
Purchase Warrant.
Connecticut Valley Sports, Inc., a Delaware corporation, ("Company"),
is offering hereby (the "Offering") 1,500,000 Units ("Units"), each Unit
consisting of one share of the Company's common stock, $.01 par value ("Common
Stock"), and one Redeemable Common Stock Purchase Warrant ("Warrant"), through
Briarwood Investment Counsel, Inc. (the "Underwriter"). The Units, Shares and
the Warrants are sometimes collectively referred to as the "Securities." The
Shares and Warrants are immediately separable and separately tradable. Each
Warrant entitles the holder thereof to purchase one share of the Company's
Common Stock ("Share") at an exercise price of $6.00 per Share, subject to
adjustment in certain circumstances, commencing ___________ 1999 [two years from
the effective date of the registration statement of which this Prospectus is a
part ("Effective Date")] and ending on __________ 2002 [five years from the
Effective Date]. The Warrants are subject to redemption by the Company at $.10
per Warrant at any time commencing______________ 1998 [one year from the
Effective Date] with the prior approval of the Underwriter, provided the closing
bid quotation in the market where the Common Stock trades at the time of the
call for redemption has equaled or exceeded $7.50 for 20 days in any 30 day
trading period ending not earlier than 15 days prior to the notice of
redemption. Prior to this Offering there has been no market for the Securities
and there can be no assurance that a market will develop or if developed will be
sustained. It is anticipated that the Units, Common Stock and Warrants will be
traded on the Nasdaq SmallCap Market. See "Risk Factors" and "Underwriting."
Application has been made to have the Units, Common Stock and Warrants
included for quotation on The Nadsaq SmallCap Market under the symbols "CVSPU",
"CVSP" and "CVSPW" respectively. The offering price of the Units and the
exercise price and other terms of the Warrants have been determined by
negotiation between the Company and the Underwriter and do not necessarily bear
any relation to the Company's earnings, assets, book value, net worth or any
other recognized criteria of value. For a discussion of the factors considered
in determining the offering price and exercise price, see "Underwriting."
THE SECURITIES OFFERED INVOLVE A HIGH DEGREE OF RISK AND SHOULD NOT BE
PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTEMENT
SEE SUBSTANTIAL IMMEDIATE SUBSTANTIAL DILUTION "RISK FACTORS" BEGINNING ON
PAGE __ AND "DILUTION" ON PAGE ___
THESE SECURITIES HAVE NOT BEEN APROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE CONMSISION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSIONOR OF ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURANCY OR
AEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ---------------------------- -------------------------------- ---------------------- ----------------------------------
Underwriting
Discount and
Price to Public Commission (1) Proceeds to the Company(2)
- ---------------------------- -------------------------------- ---------------------- ----------------------------------
<S> <C> <C> <C>
Per Unit $5.10 $.51 $4.59
- ---------------------------- -------------------------------- ---------------------- ----------------------------------
Total (3) $7,650,000 $765,000 $6,885,000
- ---------------------------- -------------------------------- ---------------------- ----------------------------------
</TABLE>
1
<PAGE>
(1) In addition, the Company has agreed to pay the Underwriter a non-accountable
expense allowance equal to 3% of the gross proceeds of this Offering, to sell to
the Underwriter a warrant to purchase 150,000 Units at ("Underwriter's Warrant")
and to retain the Underwriter as a financial consultant. The Company has also
agreed to pay the Underwriter a warrant solicitation fee of 5% under certain
circumstances and to indemnify the Underwriter against certain liabilities
arising under the Securities Act of 1933, as amended ("Securities Act"). See
"Underwriting."
(2) Does not include expenses of the Offering, (estimated to be $765,000)
including the Underwriter's non-accountable expense allowance in the amount of
$229,500 ($263,925 if the Underwriters' Over-allotment Option is exercised in
full).
(3) The Company has granted the Underwriter an option exercisable within 45 days
from the Effective Date to purchase up to 225,000 additional Units
("Over-Allotment Option"), on the same terms as set forth above for the purpose
of covering over-allotments, if any. If the Over-Allotment Option is exercised
in full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $8,797,500, $879,750 and $7,917,750, respectively.
See "Underwriting."
The Securities are offered by the Underwriter, as agent for the
Company, subject to prior sale, when, as and if delivered to and accepted by the
Underwriter and subject to its right to reject orders in whole part, the
approval of certain legal matters by counsel and certain other conditions. It is
expected that delivery of the certificates representing the Common Stock and
Warrants comprising the Units will be made against payment therefor at the
offices of Briarwood Investment Counsel, Inc., 1851 East First Street, Suite 950
Santa Ana, California 92705 on or about ______________________ 1997.
BRIARWOOD INVESTMENT COUNSEL, INC.
The date of this Prospectus is ________1997
2
<PAGE>
CERTAIN PERSON'S PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES OFFERED
HEREBY, INCLUDING PURCHASES OF THE UNITS TO STABILIZE THEIR MARKET PRICE,
PUCHASES OF THE UNITS TO COVER SOME OR ALL OF A SHORT POSITION IN THE UNITS
MAINTAINED BY THE UNDERWRITER AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES SEE "UNDERWRITING."
3
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. The
discussions in this Prospectus contain forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ materially from
the results discussed in the forward looking statements. Factors that may cause
such a difference include, but are not limited to, those discussed in "Risk
Factors " beginning on page 8. Each prospective investor is urged to read this
Prospectus in its entirety.
The Company
Introduction
Connecticut Valley Sports, Inc. (the "Company") was formed in April 1996
for the purpose of acquiring the outstanding securities of Connecticut Valley
Classics, Inc. ("CVC"). In September 1997 the Company completed an exchange
offer as a result of which CVC became a majority owned (approximately 97%)
subsidiary of the Company. All references in this Prospectus to the Company
include CVC and its subsidiaries. The Company, through CVC (operations of CVC
exclusive of its subsidiaries shall be referred to as "CVC Classics") and CVC's
two subsidiaries Stock Shop, Inc. ("Stock Shop") and Cooper Firearms, Inc.
("Cooper Arms") designs, engineers, manufactures, markets and sells a line of
high grade hunting and shooting sports equipment including Cooper Arms rifles,
CVC shotguns and Anshutz USA Sporting Rifles. In the fourth quarter of 1997, the
Company intends to commence selling Special Ops Ammunition and Connecticut
Valley Sports apparel and accessories. The Company's goal is to become a leading
manufacturer and distributor of high grade firearms, ammunition and accessories
by targeting the high growth areas of the shooting sports market. See
"Business."
Cooper Arms produces a line of high grade American made bolt action and
falling block rifles for competition and hunting. CVC produces a line of high
grade American made over and under shotguns for competition and hunting. Anshutz
USA Sporting Rifles is a product line of the Stock Shop, which is marketed by
Cooper Arms. Special Ops Ammunition is a line of ultra accurate high performance
ammunition to be sold primarily to military and law enforcement units throughout
the world and will be marketed and sold by Cooper Arms. The Company's shooting
sports apparel and accessories line will consist of high end shooting and
hunting jackets, vests, shirts, caps, shotgun and rifle cases, and other
accessories marketed and sold under the Connecticut Valley name. Currently the
Company's operations are conducted in two facilities in Montana. See "Business -
Property."
History
CVC was formed to re-engineer, produce and market a high-quality,
American-manufactured version of a sporting shotgun produced first in Japan by
the Olin Corporation as the "Winchester Model 101" and until 1988, by Olin
Corporation's successor company as the "Classic Doubles" sporter. In 1993 and
1994, CVC commenced limited production of its American-made model, the "CVC
Classic Sporter" and by 1995 completed the design and engineering of a line of
ten shotguns within the CVC Classic Sporter family. In 1995 and early 1996, CVC
sought to increase production of the CVC Sports Sporter by reaching an
understanding with a manufacturer pursuant to which the manufacturer would
supply and assemble the metal components of the CVC Classic Sporter and CVC
would finish and market the completed product. In mid-1996, management
determined that this arrangement was not performing as expected and it was
discontinued.
In November 1996, CVC acquired all of the issued and outstanding capital
stock of the Stock Shop, and indirectly, the Stock Shop's majority-owned
(approximately 99%) subsidiary Cooper Arms. The Company's senior management and
board of directors believes this acquisition was necessary in order to expand
the Company's business activities to include a greater degree of in-house
manufacturing of CVC shotguns and create economies of scale in the marketing of
the Company's products. The Stock Shop's former majority owner, Victor Wang, is
an officer, director and principal stockholder of the Company.
4
<PAGE>
Products
From its consolidated facilities, the Company manufactures, designs,
engineers, markets or sells the Company's product lines. When it is more cost
efficient, certain aspects of production are contracted, on an OEM basis, to
outside manufacturers.
CVC Classics designs, engineers, manufactures, assembles and markets a
premium line of ten shotguns within the CVC Classic Sporter family for clay
target and bird shooting. This line is an improved version of the famed
Winchester Model 101 and features lengthened forcing cones, overboring,
mechanical triggers, diamond honed barrels, and select American walnut with hand
checkering. The most popular model, the CVC Classic Sporter, is intended for
Sporting Clays competition shooting, which management believes is the largest
and fastest growing market segment of the shotgun industry. See "Business -
Products CVC Classics."
The Stock Shop has entered into an agreement with the world-renowned firm
of J.G. Anschutz GmbH ("Anschutz") relating to the production and marketing of
an American version of Anschutz's sporting rifles under the trade name "Anschutz
USA Sporting Rifles." The Stock Shop manufactures the stocks and hardware, final
assembles, tests and packages the Anshutz USA Sporting Rifle for marketing and
distribution by Cooper Arms. Pursuant to the terms of the agreement, Anschutz
will export and sell its barreled actions to the Stock Shop through its U.S.
importer and distributor. The Stock Shop, through Cooper Arms, sells the
Anschutz USA Sporting Rifles through a dealer direct program. The rifles retail
for approximately $1,550 to $1,895 without options, and can sell for in excess
of $10,000 with options. See "Business Products - The Stock Shop."
Cooper Arms designs, engineers, manufactures, markets and sells a line of
high quality bolt action and falling block rifles for sport hunting and
competition. The Cooper Arms product line consists of five basic models of
rifles ranging in caliber from .17 up to .45-70. The Cooper Arms rifles are
produced in AAA select walnut in a classic design. The rifles are sold dealer
direct and retail from $1,695 to as much $6,000 with options. Cooper Arms also
designs and intends to market Special Ops Ammunition for use by military and law
enforcement units throughout the world. This line of high grade ammunition is
expected to preview at the Brussels Military Procurement Exposition in November
of 1997. See "Business - Products - Cooper Arms."
In addition to the foregoing, the Company intends to commence marketing of
specialty labeled sports apparel and shooting accessories. Products will range
from T-shirts and caps to gun cases and cleaning supplies. The products will be
targeted at the high grade, high margin upscale market.
The Company's address is 4004 Highway 93 North, Stevensville, Montana 59870
and its telephone number is (406) 777-5534.
5
<PAGE>
The Offering
<TABLE>
<CAPTION>
<S> <C>
Units Offered.................... 1,500,000 Units, each Unit consisting of one share of Common Stock and one
Warrant.
Offering-Price..................... $5.10 per Unit
Common Stock Outstanding
Prior to the Offering (1)....... 2,747,476
After the Offering (1).......... 4,247,476
Warrants Outstanding:
Prior to the Offering........... 0
After the Offering.............. 1,500,000
Terms of Warrants:
Exercise Price................. The exercise price is $6.00 per share of Common Stock, subject to
adjustment in certain circumstances.
Exercise Period................ The Warrants are exercisable for a period of three years commencing,
unless adjusted pursuant to the redemption provisions, on _________, 1999
(two years after the Effective Date) and expiring on _______, 2002 (five years
after the Effective Date).
Redemption..................... The Warrants are redeemable by the Company, commencing ___________1998,
one year from the Effective Date (or sooner with the consent of the
Underwriter), at a redemption price of $0.10 per Warrant on not less than
30 days written notice, provided that the closing bid price per share of
Common Stock, for 20 consecutive trading days ending on the third business
day prior to the date of the redemption notice, is at least $7.50, subject
to adjustment for certain events. Upon giving notice of redemption, the
Warrants will become exercisable if they were not otherwise exercisable.
See "Description of Securities - Warrants."
Risk Factors.................... The securities offered hereby involve a high degree of risk and immediate
substantial dilution to public investors. See "Risk Factors" and
"Dilution."
Use of Proceeds................. The net proceeds of the Offering will be used primarily for acquisitions,
to purchase manufacturing equipment, for sales and marketing and for
working capital and general corporate purposes. See "Use of Proceeds".
Proposed NASDAQ Units: CVSPU
Symbols(2) Common Stock: CVSP
Warrants: CVSPW
</TABLE>
(1) Does not include 475,000 shares of Common Stock issuable upon exercise of
currently outstanding options. See "Principal Stockholders," "Management"
and "Description of Securities."
(2) The proposed Nasdaq trading symbols do not imply that a liquid and active
market will be developed or sustained for the Units, Shares and or Warrants
upon completion of the Offering.
6
<PAGE>
Summary of Consolidated Financial Information
The summary consolidated financial information set forth below is derived from
and should be read in conjunction with the financial statements of the Company,
including the notes hereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Year Ended December 31. Six Months Ended June 30.
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
Statement of Operations Data
<S> <C> <C> <C> <C> <C>
Net sales $ 247,950 $ 74,744 $ 244,725 $ 69,291 $ 235,455
Gross profit (loss) (157,491) (264,502) (331,428) (220,374) (300,328)
Operating loss (402,468) (746,708) (1,090,615) (466,339) (656,195)
Net loss (449,480) (782,463) (1,102,664) (486,073) (672,286)
Earnings per share (0.84) (0.75) (0.44) (0.22) (0.24)
Weighted average number of
shares outstanding(1) 535,728 1,040,893 2,488,466 2,254,978 2,791,766
At December 31, At June 30,
1994 1995 1996 1996 As Adjusted(2)
---- ---- ---- ---- --------------
Balance Sheet Data
Working capital (deficit) $ (598,480) $(49,286) $200,083 $ 56,922 $6,139,422
Total assets 500,286 736,095 1,126,112 1,078,680 7,161,180
Long-term debt -- 262,500 300,000 395,364 357,864
Total liabilities 901,291 759,059 999,357 1,032,885 995,385
Stockholders' equity (deficit) (401,005) (22,964) 126,755 45,795 6,165,795
</TABLE>
- ----------
(1) Adjusted for merger with Stock-Shop and recapitalization in 1995. See Note
2 to the financial statements.
(2) Gives effect to the sale of securities offered hereby -- estimated proceeds
of $6,120,000.
7
<PAGE>
RISK FACTORS
History of Losses; Integration of Acquired Operations; No Assurance
of Profitability
For the years ended December 31, 1995, December 31, 1996 and the six
months ended June 30, 1997, the Company had net losses of $782,463, $1,102,664,
and $ 672,286 respectively. There can be no assurance that the Company will be
able to integrate successfully the operations of CVC, the Stock Shop and Cooper
Arms, or that the Company will operate profitably in the future. In addition,
the independent accountants' opinion on the Company's 1996 and 1995 financial
statements indicates that there is a substantial doubt about the Company's
ability to continue as a going concern. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Possible Need for Additional Financing
Although the Company anticipates that the net proceeds of the Offering
will be sufficient to satisfy the Company's anticipated cash requirements for at
least 12 months following the Effective Date, there can be no assurance that the
Company will not require additional financing at an earlier date. If the Company
is required to obtain financing in the future, there can be no assurance that
such financing will be available on terms acceptable to the Company, or at all.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Limited Operations of Operating Subsidiaries.
CVC Classics. On a limited basis in 1993 and 1994, CVC Classics
produced various prototypes and limited production for two shotguns within the
CVC Classic Sporter family--the CVC Classic Sporter and the Waterfowler. In
September 1994, the Company curtailed such limited production due to a lack of
adequate capital and in order to develop its business plan for long-term,
full-scale production of its products. Subsequent to financing activities that
occurred in mid-1995, CVC Classics recommenced operations in October 1995.
Subsequent to the acquisition by CVC Classics of the capital stock of the Stock
Shop and its subsidiary in November 1996, in-house manufacturing and assembly of
CVC Classic's premium line of shotguns commenced. There can be no assurance that
the Company's operations relating to CVC Classic's line of shotguns will produce
significant, or any, revenues or that such operations will be profitable. See
the Financial Statements and Notes thereto included herein and "Business."
Stock Shop. The operations of The Stock Shop commenced in June 1995 and
were conducted by The Stock Shop of Montana LLC, its predecessor, from June 1995
through April 1996. There can be no assurance that the Company's operations
relating to the Stock Shop's products will produce significant, or any, revenues
or that such operations will be profitable. See the Financial Statements and
Notes thereto included herein and "Business."
Broad Discretion in Application of Proceeds; Unspecified Acquisitions.
A substantial portion of the proceeds of this Offering have been
allocated to acquisitions. As of the date of this Prospectus, the Company has
not identified any particular acquisition targets and no discussions or
negotiations regarding any acquisitions are pending. Stockholders of the
Company, therefore, may have no opportunity to approve specific acquisitions or
to review the financial condition of any potential target. In addition a portion
of the proceeds are to be used for working capital and general corporate
purposes. Accordingly, management of the Company will have broad discretion in
the application of the proceeds of this Offering. See "Use of Proceeds."
Absence of Patent Protection; Potential Infringement Claims; Proprietary Rights
The Company does not currently have patent protection on its products
or production processes. Its ability to compete effectively with other companies
will depend in part, on its ability to maintain the proprietary nature of its
products and production processes. The Company may apply for patent protection.
however, there can be no assurance that it will be successful in obtaining such
patents or if obtained that such patents will afford the Company sufficient
protection. The Company intends to rely substantially on unpatented products and
production processes, and there can be no assurance that others will not copy
any of its designs or processes. See "Business Products.
8
<PAGE>
It is not certain that the Company's products or production processes
will not infringe patents or other rights owned by others. Specifically, with
respect to CVC Classics, the basic design and engineering of the CVC Classic
Sporter is largely based on that of the Classic Doubles, previously manufactured
by Sports Japan, Inc. ("Sports Japan"), which Classic Doubles was itself based
upon the shotgun known as the Winchester Model 101 produced by the Winchester
Division of the Olin Corporation ("Winchester"). Management does not believe
that either Sports Japan or Winchester has any viable claims against the Company
based upon unfair competition or protected proprietary rights to such designs
and engineering. Management believes that neither the Winchester Model 101 nor
any of its parts are protected by patents and the shotgun itself is no longer
manufactured. Management also believes that Winchester sold the manufacturing
rights to Sports Japan, whose Classic Doubles was an improved version of the
Winchester Model 101 and which company itself ceased operations and forfeited
its firearms manufacturing license in Japan in 1988. Further, management
believes that the CVC Classic Sporter is differentiated from the Winchester
Model 101 and the Classic Doubles by virtue of the different manufacturing
process and the Company's design enhancement. The Company has not obtained any
opinion from patent counsel and there can be no assurance that any such claims
will not be brought against the Company by Winchester, Sports Japan or persons
connected or previously connected with such entities. In the event that such
claims are brought against the Company, even if the Company were ultimately
found not to be liable, the cost to the Company of defending any such lawsuit
could have a materially adverse effect on the Company's operations.
Cooper Arms holds a registered trademark, No. 74-511,590, granted March
28, 1995 for the mark "17CCM" which is used in connection with a cartridge
developed by Cooper Arms. The Company has applied for the registration of
additional marks, however, there can be no assurance that it will be successful
in obtaining such registrations. Particularly, the Company's trademark counsel
has indicated that the name "Connecticut Valley" may be deemed "confusingly
similar" to another company's name and the Company may be required to change its
name or seek another name under which to market certain products. Although
registration affords the Company the protection of federal trademark laws
against the unauthorized use of the protected mark or a use deemed "confusingly
similar" under federal trademark law, there can be no assurance that third
parties will not infringe on the Company's current or future trademark
registrations or that the Company will have sufficient resources to defend
against any such infringement successfully or at all. See "Business-Proprietary
Rights."
Possible Insufficiency of Insurance
The Company maintains, and intends to continue to maintain, pending
product liability insurance in the amount of $1,000,000 per claim and $1,000,000
in the aggregate, which management believes will be sufficient to cover
liabilities to the Company arising from injury to people or their property from
use of the Company's products. In addition, there can be no assurance that the
Company's current insurance will be adequate to cover unanticipated liabilities.
See "Business-Legal Proceedings. "
Outstanding Federal Excise Tax Liability
As of June 30, 1997 the Company owed approximately $37,000 for federal
excise taxes that were not paid when due during 1996 and 1997, together with
penalties that have accrued. Although no collection or enforcement actions or
proceedings have been commenced or been threatened against the Company to date,
no assurance can be given that an action or proceeding will not be commenced
against the Company or that, if commenced, such action or proceeding will not
materially and adversely affect the Company's business or operations. The
Company intends to pay the balance of its federal excise tax liability from the
net proceeds of the Offering. See "Use of Proceeds."
Dependence Upon Suppliers
Although the Company assembles its own products, it purchases certain
materials and component parts from third-party suppliers. No assurance can be
given that the Company's third-party suppliers will be able to provide the
Company with a timely, uninterrupted and adequate supply of materials. In the
event that any of the Company's third-party suppliers are unable to provide the
Company with a timely, uninterrupted and adequate supply of materials and
products, the Company's ability to meet its production schedule may be adversely
affected. In addition, the Company does not presently have any long-term
contracts with these suppliers and, as a consequence, any of these relationships
may be terminated by either party, at any time. Although the Company believes
that other suppliers are available, there can be no assurance that such
materials would be available to the Company on an immediate basis, if needed, or
at prices similar to those now paid by the Company. See "Business - Suppliers."
9
<PAGE>
Concentration of Credit Risk
From time to time the Company concentrates its credit risk for cash by
investing its cash and cash equivalents with a Montana commercial bank in excess
of federal insurance limits. There can be no assurance that the Company will not
suffer losses due to its concentration of credit risk. See the Financial
Statements and Notes thereto included herein.
Competition
The Company competes in a highly specialized competitive environment
directly with many other national and international sporting firearms
manufacturers. Many of these companies are larger, better known and have
significantly greater financial, manufacturing and marketing resources than the
Company. In addition, unlike the Company, many firearms manufacturers are
subsidiaries of larger, more diverse companies on whom they can rely for
capital. No assurance can be given that the Company will be capable of competing
successfully in the future, or that the Company will be successful in
maintaining or expanding its share of the market for its products. See "Business
- -Competition. "
Licensing and Government Regulation
The firearms manufacturing industry is subject to extensive regulation
by various federal and State regulatory agencies, including the Bureau of
Alcohol, Tobacco and Firearms ("BATF"). The Company maintains licenses issued by
BATF permitting the manufacturing and distribution of firearms to a network of
BATF licensed dealers throughout the United States. The licenses are renewable
every three years and require the Company to maintain certain records relating
to firearms shipments. In April 1995, CVC's original BATF license was renewed
until April 1998. Cooper Arms's BATF license was originally issued in February
1991 and was recently renewed. The loss or suspension of any of the Company's
licenses could have a material adverse effect on the Company.
The sale of firearms is extensively regulated by federal, state and
local governments, while many of the current laws and regulations do not affect
the Company, from time to time, legislation and regulations that could
potentially affect the Company, either beneficially or adversely have been
proposed by federal and state legislators and regulators. Management is not
aware of any currently pending or proposed legislation or regulations which
would have a materially adverse impact on the Company's operations if adopted.
There can be no assurance that BATF or various federal and state regulators will
not adopt regulations or take other actions that would materially adversely
affect the business of the Company. See "Business - Government Regulation. "
Continued Control by Management and/or Existing Stockholders
Following completion of the Offering, the Company's officers, directors
and principal stockholders will own or control an aggregate of approximately 55%
of the Company's issued and outstanding Common Stock. There are no cumulative
voting rights under the Company's Certificate of Incorporation and therefore,
such stockholders will possess the ability to elect all of the directors of the
Company, to increase its authorized capital, to dissolve or merge the Company,
or to sell its assets, and generally to exert substantial control over the
Business and operations of the Company. See "Principal Stockholders" and
"Certain Transactions."
10
<PAGE>
Environmental Regulation. The Companys' facilities in Montana use and
store various hazardous materials and generate small amounts of hazardous waste.
Under various federal, state and locals laws, ordinances and regulations, on
owner or operator of real property is generally liable for the costs of removal
or remediation of hazardous wastes that are released on its property, regardless
of whether the owner or operator know of, or was responsible for, the release of
such hazardous materials. The Company has not been advised of any non-compliance
or violation of any environmental laws, ordinances and regulations and the
Company believes that it is in substantial compliance with all such laws,
ordinances or regulations applicable to its Montana facilities. The Company,
however, has not performed any environmental studies on its Montana facilities,
and as a result, there may be potential liabilities or conditions which could
arise with respect to the Montana facilties and have a material adverse effect
on the Company.
Dependence on Key Personnel
The Company's business is dependent upon the efforts and abilities of
its management and engineering/assembly production personnel, all of whom are
familiar with the specific manufacturing details of the Company's products and
the production processes therefor. The success of the Company is largely
dependent upon the experience and expertise of Dan Cooper, its President. The
Company has entered into an employment agreement with Mr. Cooper, which
employment agreement was assigned to Stock Shop from its predecessor, The Stock
Shop of Montana, LLC. The employment agreement is for a three-year term and
provides that Mr. Cooper will receive an annual salary of $48,000, in addition
to bonuses in certain circumstances and reimbursement of certain expenses. The
Company also intends to enter into employment agreements with each of Messrs.
Tilelli, McCabe, Landis and Wang, each of whom are currently officers of the
Company. Although the specific terms of these employment agreements have not
been negotiated, it is expected that the annual salary for each individual will
not exceed $100,000. The loss of the services of any of the Company's management
or key personnel would likely have a material adverse effect on the business of
the Company. The Company intends to purchase key man life insurance on Mr.
Cooper's life in the amount of $1,000,000. See "Business - Personnel,"
"Management" and "Certain Transactions."
Substantial Dilution; Consideration Paid By Existing Stockholders.
Purchasers of Units in the Offering will suffer immediate dilution of
$3.67 per share of Common Stock (or 73%) in the net tangible book value of their
investment, assuming $.10 of offering price per Unit is attributable to the
Warrants. See "Dilution."
Officers, directors and other existing stockholders acquired their
shares of Common Stock at an average per Share price of $1.23 per share,
substantially less than the initial public offering price of $5.00 per share.
Accordingly, investors in the Offering will bear a disproportionate share of the
risk of an investment in the Company. See "Dilution."
Limitation on Director Liability.
The Company's certificate of incorporation provides that a director of
the Company shall not be personally liable to the Company or its stockholders
for monetary damages for breach of fiduciary duty as a director, with certain
exceptions under Delaware law. This may discourage stockholders from bringing
suit against a director for breach of fiduciary duty and may reduce the
likelihood of derivative litigation brought by stockholders on behalf of the
Company against a director. In addition, the Company's certificate of
incorporation provides for mandatory indemnification of directors and officers.
See "Management - Indemnification of Officers and Directors and Limitation on
Directors' Liability."
Absence of Dividends on Common Stock.
Since inception, the Company has not paid any cash dividends on its
Common Stock and it does not anticipate paying such dividends in the foreseeable
future. The payment of dividends by the Company is within the discretion of its
Board of Directors and depends upon the Company's earnings, capital
requirements, financial condition and other factors deemed relevant by the
Board. The Company intends to retain earnings, if any, to finance its
operations. See "Dividends."
Authorization and Discretionary Issuance of Preferred Stock.
11
<PAGE>
The Company's Certificate of Incorporation, authorizes the issuance of
1,000,000 shares of "blank check" preferred stock with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without stockholder
approval, to issue preferred stock with dividend, liquidation, conversion,
voting or other rights which could decrease the amount of earnings and assets
available for distribution to holders of Common Stock and adversely affect the
relative voting power or other rights of the holders of the Company's Common
Stock. In the event of issuance., the preferred stock could be used, under
certain circumstances, as a method of discouraging, delaying or preventing a
change in control of the Company. The Company has no present intention to issue
any shares of its preferred stock. However, there can be no assurance that the
Company will not issue shares of preferred stock in the future. The Company has
agreed with the Underwriter that, except for issuance's disclosed in or
contemplated by this Prospectus, it will not issue any securities, including but
no limited to any shares of preferred stock, prior to 1999 without the prior
written consent of the Underwriter. See " Certain Transactions " and "
Description of Securities - Preferred Stock. "
No Assurance of Public Market; Determination of Public Offering Price; Possible
Volatility of Market Price for the Units.
Prior to the Offering, there has been no public trading market for the
Units, Common Stock and the Warrants. Consequently, the initial public offering
price of the Units and the exercise price and other terms of the Warrants were
determined through negotiations between the Company and the Underwriter and bear
no relationship whatsoever to the Company's assets, book value per share,
results of operations or other generally accepted criteria of value. The
offering price of the Units, as well as the exercise price of the Warrants,
should not be construed as indicative of their value. There can be no assurance
that an active trading market for the Units will develop after the Offering or
that, if developed, it will be sustained. As a result, investors will be exposed
to a risk of a decline in the market prices of the Units after the Offering. The
market prices of the Units following the Offering may be highly volatile as has
been the case with the securities of many emerging companies. The Company's
operating results and various factors affecting the industry in which the
Company competes may impact the market price of the Company's Securities to a
significant degree. In addition, in recent years the Stock market has
experienced a high level of price and volume volatility, and market prices for
the Securities of many companies have experienced wide price fluctuations not
necessarily related to the operating performance of such companies. There can be
no assurance that the market price of the Units will not experience significant
fluctuations or decline below the initial public offering price.
Limited Underwriting Experience of Underwriter.
Although certain officers of the underwriter have had experience
working on public offerings, and other corporate finance matters, the
Underwriter has not previously served as the sole or managing underwriter of a
firm commitment public offering nor has it participated as member of an
underwriting syndicate. Since the Underwriter's experience in underwriting firm
commitment public offerings is limited, there can be no assurance that the lack
of experience will not adversely affect the public offering of the Company's
Units and the subsequent development, if any, of a trading market for the Units.
See "Risk Factors - Underwriter's Influence on the Market; Possible Limitations
on Market Making Activities."
Underwriter's Influence on the Market; Possible Limitations on Market
Making Activities.
A significant number of Units may be sold to customers of the
Underwriter. Such customers subsequently may engage in transactions for the sale
or purchase of such securities through or with the Underwriter. The Underwriter
has indicated that it intends to act as market-maker and otherwise effect
transactions in the Securities. To the extent the Underwriter acts as
market-maker in the Securities, it may exert a dominating influence in the
markets for those Securities. The price and liquidity of the Securities may be
significantly affected to the extent, if any, that the Underwriter participates
in such markets. Furthermore, the Underwriter may discontinue such activities at
any time and from time to time. The Underwriter also has the right to act as the
Company's exclusive agent in connection with any future solicitation of holders
of Warrants to exercise their Warrants. Applicable rules of the securities and
Exchange Commission prohibit the Underwriter and any other soliciting
broker-dealers from engaging in any market making activities or solicited
brokerage activities with regard to the Units, Common Stock and Warrants for a
period of up to five business days prior to the solicitation of the exercise of
any Warrants until the later of the termination of
12
<PAGE>
such solicitation activity or the termination of any right the Underwriter may
have to receive a fee for the solicitation of the Warrants. As a result, the
Underwriter and such soliciting broker-dealers may be unable to continue to make
a market for the Common Stock and the Warrants during certain periods while the
Warrants are exercisable. Such a limitation, while in effect, could impair the
liquidity and market price of the Common Stock and the Warrants. See
"Underwriting."
Risk of Low-Priced Securities.
The regulations of the Securities and Exchange Commission promulgated
under the Exchange Act require additional disclosure relating to the market for
penny stocks in connection with trades in any stock defined as a penny stock.
Commission regulations generally define a penny stock to be an equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions. Unless an exception is available, those regulations require the
delivery, prior to any transaction involving a penny stock, of a disclosure
schedule explaining the penny stock market and the risks associated therewith
and impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors
(generally institutions). In addition, the broker-dealer must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. Moreover, broker-dealers who recommend such securities
to persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. If the Company's
securities become subject to the regulations applicable to penny stocks, the
market liquidity for the Company's securities could be severely affected. In
such an event, the regulations on penny stocks could limit the ability of
broker-dealers to sell the Company's securities and thus the ability of
purchasers of the Company's securities to sell their securities in the secondary
market.
Shares Eligible for Future Sale.
No assurance can be given as to the effect, if any, that future sales
of Common Stock, or the availability of shares of Common Stock for future sales,
will have on the market price of the Common Stock from time to time. Sales of
substantial amounts of Common Stock (including shares issued upon the exercise
of Warrants or stock options), or the possibility of such sales, could adversely
affect the market price of the Units, Common Stock and Warrants and also impair
the Company's ability to raise capital through an offering of its equity
securities in the future. Upon completion of the Offering, the Company will have
4,247,476 shares of Common Stock outstanding, of which only the 1,500,000 shares
of Common Stock included in the Units offered hereby will be transferable
without restriction under the Securities Act. The remaining 2,747,476 shares,
issued in private transactions, will be "Restricted Securities" (as defined in
Rule 144 promulgated under the Securities Act) which may be publicly sold only
if registered under the Securities Act or if sold in accordance with an
applicable exemption from registration, such as Rule 144. In general, under Rule
144, as currently in effect, subject to the satisfaction of certain other
conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted securities for at least one year, is entitled to
sell (together with any person with whom such individual is required to
aggregate sales), within any three-month period, a number of shares that does
not exceed the greater of 1 % of the total number of outstanding shares of the
same class or, if the Common Stock is quoted on The Nasdaq Stock Market or a
national securities exchange, the average weekly trading volume during the four
calendar weeks preceding the sale. A person who has not been an affiliate of the
Company for at least three months and who has beneficially owned restricted
securities for at least two years is entitled to sell such restricted shares
under Rule 144 without regard to any of the limitations described above.
Officers, directors and other security holders of the Company owning and/or
having rights to acquire in the aggregate 2,747,476 shares of Common Stock, have
entered into agreements not to sell or otherwise dispose of any securities of
the Company, including Common Stock, prior to ______, 1999 (two years from the
Effective Date) (the "Lock-Up Agreements") without the prior written consent of
the Underwriter, which may be granted or withheld in the sole and absolute
discretion of the Underwriter; provided, however, that if prior to __________,
the Company's shares of Common Stock are subject to a tender offer and holders
of the Company's Common Stock (other than the current stockholders) agree to
tender a majority of the outstanding shares of Common Stock to the offeror, then
the Underwriter shall release all stockholders subject to the Lock-Up Agreement
from the restrictions imposed thereby solely for the purposes of tendering their
shares of Common Stock to the offeror pursuant to the terms of the tender offer.
Following expiration of the term of the Lock-Up Agreements, or the earlier
release of the restrictions contained therein, shares will become eligible for
resale pursuant to Rule 144, subject to the volume limitations and compliance
with the other provisions of Rule 144. Furthermore, the holder(s) of the
Underwriter's Warrants (including the securities issuable upon exercise thereof)
have demand and piggyback registration rights with respect to the units issuable
upon exercise of the Underwriter's Warrants. See "Description of Securities -
Registration Rights," "Description of Securities - Shares Eligible for Future
Sale," "Certain Transactions" and "Underwriting."
13
<PAGE>
Adverse Effect of Redemption of Warrants.
Under certain conditions, the Warrants may be redeemed by the Company
with the prior written consent of the Underwriter, at a redemption price of $.10
per Warrant upon not less than 30 days prior written notice to the holders of
such Warrants, provided the closing bid price of the Common Stock has been at
least $7.50 for 20 consecutive trading days ending on the third day prior to the
date the notice of redemption is given. The Warrants will be exercisable until
the close of business on the day immediately preceding the date fixed for
redemption. The redemption of the Warrants could force the holders (i) to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, (ii) to sell the Warrants at the then
current market price when they might otherwise wish to hold the Warrants or
(iii) to accept the redemption price, which is likely to be substantially less
than the market value of the Warrants at the time of redemption. See "
Description of Securities - Warrants."
Need for Future Registration of Warrants; State Blue Sky Registration;
Exercise of Warrants.
The Warrants will not trade separately upon the completion of the
Offering. However, the Warrants may trade separately in future. Purchasers may
buy Warrants in the after-market or may move to jurisdictions in which the
Warrants and the shares of Common Stock underlying the Warrants are not so
registered or qualified. In this event, the Company would be unable to issue
shares of Common Stock to those persons desiring to exercise their Warrants
unless and until the Warrants and the underlying shares of Common Stock are
qualified for sale in jurisdictions in which such purchasers reside, or an
exemption from such qualification exists in such jurisdictions. There can be no
assurance that the Company will be able to effect any required qualification.
The Warrants will not be exercisable unless the Company maintains a current
registration statement on file with the Commission through post-effective
amendments to the registration statement containing the Prospectus. Although the
Company has agreed to file appropriate post-effective amendments to the
registration statement containing the Prospectus and to maintain a current
Prospectus with respect to the Warrants, there can be no assurance that the
Company will file post-effective amendments necessary to maintain a current
Prospectus or that the Warrants will continue to be so registered. See
"Description of Securities - Warrants."
Relationship of Underwriter to Trading. The Underwriter may act as a
broker or dealer with respect to the purchase or sale of the Common Stock and
the Redeemable Warrants in the over-the-counter market where each is expected to
trade. The Underwriter also has the right to act as the Company's exclusive
agent in connection with any future solicitation of Warrantholders to exercise
their Redeemable Warrants. Regulation M, which was recently adopted to replace
Rule 10b-6, under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), may prohibit the Underwriter from engaging in any market-making
activities with regard to the Company's securities for a period of up to five
business days (or such other applicable period as Regulation M may provide)
prior to any solicitation by the Underwriter of the exercise of Warrants until
the later of the termination of such solicitation activity or the termination
(by waiver or otherwise) of any right that the Underwriter may have to receive a
fee for the exercise of Warrants following such solicitation. As a result, the
Underwriter and any solicitating broker/dealer may be unable to provide a market
for the Company's securities during certain periods while the Redeemable
Warrants are exercisable. Any temporary cessation of such market-making
activities could have an adverse effect on the market price of the Company's
securities.
Underwriter's Warrants and Registration Rights. In connection with this
Offering, the Company has agreed to sell to the Underwriter, for nominal
consideration, the Underwriter's Warrants which entitle the Underwriter to
purchase up to 150,000 shares of Common Stock and/or 150,000 Redeemable
Warrants. The securities issuable upon exercise of the Underwriter's Warrants
are identical to those offered pursuant to this Prospectus. The Underwriter's
Warrants are exercisable at a price of $6.00 per share and $.12 per Redeemable
Warrant for a period of four years commencing one year from the date of this
Prospectus. The exercise of the Underwriter's Warrants and the Redeemable
Warrants contained in the Underwriter's Warrants may (i) dilute the value of the
shares of Common Stock to be acquired by holders of the Redeemable Warrants,
(ii) adversely affect the Company's ability to obtain equity capital and (iii)
adversely affect the market price of the Common Stock if the Common Stock
issuable upon the exercise of the Underwriter's Warrants and the Redeemable
Warrants contained in the Underwriter's Warrants are sold in the public market.
The Underwriter has been granted certain "piggyback" and demand registration
rights for a period of five years from the date of this Prospectus with respect
to the registration under the Securities Act of the securities directly or
indirectly issuable upon exercise of the Underwriter's Warrants. The exercise of
such rights could result in substantial expense to the Company. See
"Underwriting."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered hereby, after
underwriting discounts and commissions and other expenses of the Offering are
estimated to be $ 6,120,000 ($7,038,000 if the Over-Allotment Option is
exercised in full). The Company intends to use the net proceeds as follows:
Amount Percent
------ -------
Acquisitions(1) $1,500,000 25%
Research and Development (2) 975,000 16%
Sales and Marketing (3) 750,000 12%
Manufacturing Equipment(4) 500,000 8%
Raw Materials Inventory 300,000 5%
Working Capital 2,095,000 34%
--------- --
Total $6,120,000 100%
========== ===
The foregoing represents the Company's current estimate of the
allocation of the net proceeds of the Offering based upon certain assumptions
relating to the costs associated with the implementation of the Company's
present business plans. Future events, including problems, delays and
complications encountered in implementation of its present plans, as well as
changes in economic conditions, regulatory or competitive conditions and the
success of the Company's marketing activities may make shifts in the allocation
of funds necessary or desirable. There can be no assurance that the Company's
estimates will prove accurate or that unforeseen expenses will not be incurred
with a resulting reallocation of the use of the proceeds of this Offering.
The Company believes that the net proceeds of this Offering will
satisfy the Company's cash requirements for at least 12 months followings the
Effective Date. Pending the utilization, the net proceeds will be invested
primarily in high grade short term interest bearing investments.
(1) The Company, as the opportunity arises, intends to acquire other
companies, products or product lines complementary to its existing
businesses and may use a portion of the proceeds of this Offering to
pay all, or a portion of, the purchase price for such acquisitions.
Additionally, the portion of the proceeds of this Offering allocated
to acquisitions may be used to purchase equipment, or as working
capital, for such acquisitions. Any decision to make such an
acquisition will be based on a variety of factors, including, the
purchase price, and other financial terms of the transaction, and the
business prospects and competitive position of, and technology or
products provided by, the acquisition candidate. As of the Effective
Date, the Company has no agreements, understandings or arrangements
with respect to any such acquisition nor is the Company engaged in any
discussions or negotiations regarding any such acquisition. There can
be no assurance that the Company will successfully consummate any
acquisition or successfully integrate any acquired company or products
into its operations. Investors in this Offering may not have an
opportunity to evaluate the specific merits and risks of any
acquisition. Net proceeds which are allocated for acquisitions but not
used for that purpose may be used for working capital.
(2) Research and development costs include the development of certain new
products, as well as attempts to determine more efficient ways to
manufacture existing products.
(3) Sales and marketing expenses include the production of a catalogue of
all of the Company's products in addition to other advertising
expenses.
(4) The Company's proposed equipment purchases included the purchase of 2
CNC Machining Centers, a CNC Turning Center and other equipment
designed to make production more efficient and to handle volume
increases.
15
<PAGE>
DILUTION
At June 30, 1997, the net tangible book value of the Company was
($37,397) or $(0.01) per share of common stock based on 2,839,464 shares of
common stock outstanding. On an adjusted basis assuming the acquisition of CVC
by CVS had taken place on June 30, 1997, the net tangible book value of the
Company was $(38,890) or $(0.01) per share of common stock based on 2,746,896
shares of common stock outstanding. The net tangible book value per share
represents the amount of the Company's total tangible assets less total
liabilities and minority interests, divided by the number of shares of common
Stock outstanding.
After giving effect to the receipt of the net proceeds (estimated to be
approximately $6,120,000) from the sale of the shares of common stock offered
hereby at an assumed initial public offering price of $5.10 per share, the
proforma net tangible book value of the Company at June 30, 1997 would be
$6,082,603 or $1.40 per share of common stock.. On an adjusted basis, the pro
forma net tangible book value of the Company at June 30, 1997 would be
$6,081,110 or $1.43 per share of common stock. This would result in dilution to
the public investors (i.e. the difference between the estimated initial public
offering price per share of common stock and the tangible book value thereof
after giving effect to this offering) of approximately $3.70 per share on an
actual basis and $3.67 per share on an adjusted basis. The following table
illustrates the per share dilution:
<TABLE>
<CAPTION>
Actual Basis Adjusted Basis
------------ --------------
<S> <C> <C> <C> <C>
Assumed initial public offering price $5.10 $5.10
Net tangible book value at June 30, 1997 (0.01) (0.01)
Increase in proforma net tangible book value
Attributable to new investors 1.41 1.44
---- ----
Proforma net tangible book value after this
Offering 1.40 1.43
----- -----
Proforma dilution of net tangible book value
to the new investors $3.70 $3.67
===== =====
</TABLE>
The following tables set forth on actual basis and adjusted to reflect the
acquisition of CVC by CVS as of June 30, 1997, with respect to the Company's
existing stockholders and investors in this offering, the number of shares of
common stock acquired from the company, the percentage of ownership of such
shares of common stock, the total consideration paid, the percentage of total
consideration paid, and the average price per share paid by the existing
stockholders any by the investors in the offering:
<TABLE>
<CAPTION>
Average
Shares purchased Total consideration Price
Per
Number Percent Number Percent Share
------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Actual Basis:
Existing stockholders 2,839,464 65.43% $ 3,490,650 31.33% $1.23
New investors 1,500,000 34.57 7,650,000 68.67 $5.10
--------- ----- ----------- ----- -----
Total 4,339,464 100.00% $11,140,650 100.00% $2.57
========= ======= =========== ======= -----
Adjusted Basis:
Existing Stockholders 2,746,896 64.68% $ 3,376,853 30.62% $1.23
New Investors 1,500,000 35.32 7,650,000 69.38 $5.10
--------- ----- ----------- ----- -----
Total 4,246,896 100.00% $11,026,853 100.00% $2.60
========= ======= =========== ======= =====
</TABLE>
16
<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the company at June
30, 1997, adjusted to reflect pro forma amounts as if the acquisition of CVC by
CVS had taken place on June 30, 1997, and as further adjusted to give effect to
the sale of 1,500,000 units offered hereby and to the application of the net
proceeds therefrom, at the assumed public offering price of $5.10 per share.
<TABLE>
<CAPTION>
As of June 30, 1997
- -----------------------------------------------------------------------------------------------------------------------------
Actual As adjusted As further adjusted
------ ----------- -------------------
<S> <C> <C> <C>
Stockholders' Equity
Common Stock, $.01 par value,
3,000,000 shares authorized on
an actual and adjusted basis
and 30,000,000 on a further
adjusted basis, 2,839,464
issued and outstanding on an
actual basis, 2,746,896 shares
issued and outstanding on an
adjusted basis 4,246,896
shares issued and outstanding
on a further adjusted basis $ 28,395 $ 27,469 $ 42,469
Additional paid-in capital 3,462,255 3,349,384 9,454,384
Retained earnings (accumulated
deficit) (3,444,855) (3,332,551) (3,332,551)
----------- ----------- -----------
Total stockholders equity $ 45,795 $ 44,302 $6,164,302
======== ======== ==========
</TABLE>
DIVIDEND POLICY
The Company does not anticipate paying any dividends on its Common
Stock in the foreseeable future. Any earnings, which the Company may realize in
the foreseeable future, will be retained to finance the growth of the Company.
Future dividend policy will depend upon the Company's earnings, capital
requirements, financial condition and other factors considered relevant by the
Company's Board of directors. See "Description of Securities-Common Stock."
17
<PAGE>
SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30,
------------------------------------------ -----------------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Net sales $ 247,950 $ 74,744 $ 244,725 $ 69,291 $ 235,455
Cost of good sold 405,441 339,246 576,153 289,665 535,783
Gross profit (loss) (157,491) (264,502) (331,428) (220,374) (300,328)
Operating expenses 244,977 482,206 759,187 245,965 355,867
Operating loss (402,468) (746,708) (1,090,615) (466,339) (656,195)
Other income (expense) (47,012) (35,755) (12,049) (19,734) (16,091)
Net loss (449,480) (782,463) (1,102,664) (486,073) (672,286)
Earnings per share (0.84) (0.75) (0.44) (0.22) (0.24)
Weighted average number of
shares outstanding (1) 535,728 1,040,893 2,488,466 2,254,978 2,791,766
At December 31, At June 30,
--------------- -----------
1994 1995 1996 1997
---- ---- ---- ----
Balance Sheet Data
Working capital (deficit) (598,480) $ (49,286) $ 200,083 $ 56,922
Total assets 500,286 736,095 1,126,112 1,078,680
Long-term debt -- 262,500 300,000 395,364
Total liabilities 901,291 759,059 999,357 1,032,885
Stockholder's equity (deficit) (401,005) (22,964) 126,755 45,795
</TABLE>
(1.) Adjusted for merger with Stock Shop and recapitalization in 1995. See note
2 to the financial statements.
18
<PAGE>
COOPER FIREARMS, INC.
---------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
January 1, 1996 Six months ended
Year ended December 31, to August 13, June 30,
- ----------------------------------------------------------------------------------------------------------------------------
Statement of Operations Data 1994 1995 1996 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 959,206 $ 954,002 $ 589,070 $ 534,420
Cost of goods sold 1,046,630 1,027,871 516,687 461,005
Gross profit (loss) (87,424) (73,869) 72,383 73,415
Operating expenses 182,410 396,278 237,190 209,621
Operating loss (269,834) (470,147) (164,807) (136,206)
Other income (expense) (17,230) (38,809) (20,267) (15,241)
Net loss (287,064) (508,956) (185,074) (151,447)
Earnings per common share (3.17) (4.19) (1.36) (1.13)
Weighted average number of
common shares outstanding 90,565 121,436 135,677 133,465
At December 31,
---------------
1994 1995
---- ----
Balance Sheet Data
Working capital (deficit) $ (2,401) $(117,865)
Total assets 781,774 675,636
Long-term debt 118,621 175,643
Total liabilities 603,957 669,775
Stockholders' equity 177,817 5,861
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and the notes thereto appearing elsewhere in this
Prospectus, this discussion contains forward looking statements that involve
risks and uncertainties. The Company's actual results in the future may differ
materially from the results discussed in such forward looking statements.
Factors that might cause such a difference include, but are not limited to those
discussed in "risk factors."
Certain Factors Affecting Comparability
- ---------------------------------------
On August 13, 1996, the Company acquired all of the preferred stock and 91.65%
of the common stock of Cooper Firearms, Inc. in a transaction accounted for
under the purchase method. This acquisition distorts comparability between
periods. Therefore, pro forma results of operations assuming Cooper Firearms was
acquired on January 1, 1995 have been used in this analysis to provide more
meaningful information in the evaluation of the ongoing performance of the
business.
The following pro forma condensed statements of operations do not purport to be
indicative of the consolidated results of operations of Connecticut Valley
Sports, Inc. that might have occurred had the acquisition actually taken place
on January 1, 1995, nor are they indicative of future results. Furthermore,
these pro forma condensed consolidated statements of operations do not reflect
changes which may occur as a result of post-merger activities or other matters.
<TABLE>
<CAPTION>
Years Ended December 31, Six Months
-------------------------------- Ended June 30,
1995 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales $ 1,028,746 $ 833,795 $ 603,711
Cost of goods sold 1,367,117 1,092,840 750,670
----------- ----------- -----------
Gross profit (loss) ( 338,371) ( 259,045) ( 146,959)
Operating expenses 878,484 996,377 455,586
----------- ----------- -----------
Operating loss (1,216,855) (1,255,422) ( 602,545)
Other expenses 74,564 38,960 34,975
----------- ----------- -----------
Loss before minority interests (1,291,419) (1,294,382) ( 637,520)
Minority interests in net loss of subsidiary 6,644 - -
----------- ----------- -----------
Net loss $(1,284,775) $(1,294,382) $( 637,520)
=========== =========== ===========
</TABLE>
Results of Operations
- ---------------------
Six months ended June 30, 1997 compared to pro forma amounts for six months
ended June 30, 1996.
Net sales declined $368,256 or 61% from $603,711 in 1996 to $235,455 in 1997,
primarily due to lower sales volume. The Company has concentrated its efforts in
1997 on expanding production capacity, improving efficiency and securing capital
required for both. The Company has temporarily reduced its current production
and marketing efforts to accomplish these objectives. Consequently, sales volume
has suffered.
Gross profit (loss) declined from (24.3%) of net sales in 1996 to (127.6%) in
1997, primarily due to inefficiencies in the integration of CVC Classics, Cooper
Arms and Stock Shop production operations.
20
<PAGE>
Operating expenses declined $99,719 or 22% from $455,586 in 1996 to $355,867 in
1997, primarily due to elimination of duplicated costs primarily executive
compensation after the merger of CVC and Cooper Arms. As a percentage of net
sales, operating expenses increased from 75.5% to 151.1%, primarily due to the
decline in net sales.
Loss from operations increased by $53,650 or 8% from $(602,545) in 1996 to
$(656,195) in 1997, primarily due to the decrease in net sales and integration
of production operations which were partially offset by the elimination of
duplicated costs after the merger of CVC and Cooper Arms. As a percentage of net
sales, loss from operations was (99.8%) in 1996 and (278.7%) in 1997, reflecting
a steeper decline in sales volume than the decline in operating expenses.
Interest expense decreased by $17,088 or 49% from $34,975 in 1996 to $17,887 in
1997 reflecting repayments of debt and new low or non-interest-bearing
borrowings from related parties.
There was no income tax expense in either period as a result of the company
incurring a loss.
As a result, the Company's net loss increased by $34,766 or 5% from $(637,520)
in 1996 to $(672,286) in 1997. As a percentage of net sales, net loss was
(105.6%) in 1996 and (285.5%) in 1997.
Pro forma amounts for year ended December 31, 1996 compared to pro forma amounts
for year ended December 31, 1995.
Net sales declined $194,951 or 19% from $1,028,746 in 1995 to $833,795 in 1996,
primarily due to lower sales volumes. Due to financial difficulties, Cooper Arms
temporarily suspended operations for approximately three months in 1996. Cooper
Arms resumed production after it was acquired by CVC funded primarily by the
proceeds of CVC's private placement offering and a capital contribution of
$1,000,000 from an entity controlled by the Company's Chairman and Director of
Marketing. See "Certain Transactions."
Gross profit (loss) improved from (32.8%) of net sales in 1995 to (31.1%) in
1996.
Operating expenses increased $117,893 or 13% from $878,484 in 1995 to $996,377
in 1996, primarily due to an increase of approximately $119,000 in bad debt
expense. As a percentage of net sales, operating expenses increased from 85.4%
in 1995 to 119.5% in 1996, primarily due to the decline in net sales and the
increase in bad debt expense.
Loss from operations increased by $38,567 or 3% from $(1,216,855) in 1995 to
$(1,255,422) in 1996, primarily due to the decrease in net sales and increase in
bad debt expense which were partially offset by the improvement in gross profit
(loss) percentage. As a percentage of net sales, loss from operations was
(118.2%) in 1995 and (150.6%) in 1996, reflecting the decline in sales volume.
Interest expense decreased by $24,374 or 33% from $74,564 in 1995 to $50,190 in
1996, reflecting repayments of debt and new low or non-interest-bearing
borrowings from related parties.
There was no income tax expense in either period as a result of the Company
incurring a loss.
As a result, the Company's net loss increased by $9,607 or 1% from $(1,284,775)
in 1995 to $(1,294,382) in 1996. As a percentage of net sales, net loss was
(124.9%) in 1995 and (155.2%) in 1996.
21
<PAGE>
Liquidity and Capital Resources
The Company has historically met its cash flows needs through loans from
stockholders and sale of common stock.
In 1996, the Company had negative cash flows of $(1,123,583) from operations.
The principal source of cash was a decrease in accounts receivable of $47,915.
The principal uses of cash were the net loss of $1,102,664, an increase in
inventory of $87,873, a decrease in accounts payable and accrued expenses of
$69,000 and a decrease in federal excise tax payable. Inventory increased due to
the increase in volume. Accounts payable and accrued expenses and federal excise
tax payable decreased as old amounts were paid out of the proceeds of the
Private Placement Offering. Cash flows from investing activities was reduced by
$105,728. The principal uses of investing cash were the purchase of Cooper
Firearms, Inc. for $30,000 and purchase of equipment for $126,205. The principal
source of investing cash was the cash acquired from Cooper Firearms, Inc. of
$37,477. Financing activities increased $1,396,641 primarily due to raising
$1,402,383 from the sale of common stock and capital contributions. When
reflecting all transactions, the Company had a net increase in cash of $167,330.
The Company had lease commitments at December 31, 1996 for its facilities
totaling $114,325 of which $55,075 is committed for 1997. The lease commitments
end on September 1, 1999.
The Company was also obligated under an employment contract with its president
of manufacturing at December 31, 1996 at total of $108,000 in salary, of which
$48,000 is to be paid in 1997. The employment contract expires on March 31,
1999.
In the first six months of 1997, the Company used $(673,466) in operating
activities. Cash was provided principally by an increase in customer deposits of
$24,486. The principal uses of cash were the net loss of $(672,286) and the
decease in accounts payable and accrued expenses of $69,762. Cash flows from
investing activities were decreased by $222,474 as a result of the purchase of
equipment and costs incurred related to a public offering of the Company's
common stock. Cash flows from financing activities increased by $681,964 as a
result of $591,326 from the sale of common stock, $83,900 proceeds from a loan
to purchase equipment and a $15,000 advance from an affiliate. When reflecting
all transactions, the Company had a net decrease in cash of $213,976.
The Company will receive net proceeds of this offering in an amount estimated to
be approximately $6,120,000 (or approximately 80% of the estimated gross
proceeds of $7,650,000 to be received before payment of applicable underwriting
discounts and commissions and certain other expenses of the offering). The
Company believes that the proceeds of the offering will fulfill the company's
working capital needs for at least 12 months following the offering. As the
Company continues to grow, bank borrowings, other debt placements and equity
offerings may be considered, in part or in combination, as the situation
warrants.
The Company has incurred substantial recurring operating losses. This raises
substantial doubt about the Company's ability to continue as a going to concern.
The auditors have expressed such doubt in their opinion on the Company's
financial statements. If the Company is not able to complete the Offering,
generate additional revenues or reduce its expenses, it is possible that
operations will be discontinued.
22
<PAGE>
BUSINESS
Introduction
Connecticut Valley Sports, Inc. (the "Company"), was formed in April
1996 for the purpose of acquiring the outstanding securities of Connecticut
Valley Classics, Inc. ("CVC"). In September 1997 the Company completed an
exchange offer as a result of which CVC became an approximately 97% owned
subsidiary of the Company. All references in this Prospectus to the Company
include CVC and its subsidiaries. The Company, through CVC (operations of CVC
exclusive of its subsidiaries shall be referred to as "CVC Classics") and CVC's
two subsidiaries Stock Shop, Inc. ("Stock Shop") and Cooper Firearms, Inc.
("Cooper Arms") designs, engineers, manufactures, markets and sells a line of
high grade hunting and shooting sports equipment including Cooper Arms rifles,
CVC shotguns and Anshhutz USA Sporting Rifles. In the fourth quarter of 1997,
the Company intends to commence selling Special Ops Ammunition and Connecticut
Valley Sports apparel and accessories. The Company's goal is to become a leading
manufacturer and distributor of high grade firearms, ammunition and accessories
by targeting the high growth areas of the shooting sports market.
History
Originally, CVC was formed to re-engineer, produce and market a
high-quality, American-manufactured version of a sporting shotgun produced in
Japan first by the Olin Corporation as the "Winchester Model 101" and until
1988, by its successor company as the "Classic Doubles" Sporter. In 1993 and
1994, CVC commenced limited production of its American-made model, the "CVC
Classic Sporter" and by 1995 completed the design and engineering of a line of
ten shotguns within the CVC Classic Sporter family. In 1995 and early 1996, CVC
sought to increase production of the CVC Sports Sporter by reaching an
understanding with a manufacturer pursuant to which the manufacturer would
supply and assemble the metal components of the CVC Classic Sporter and CVC
would finish and market the completed product. In mid-1996, management
determined that this arrangement was not performing as expected and it was
discontinued.
In November 1996, CVC acquired all of the issued and outstanding
capital stock of the Stock Shop, and indirectly, the Stock Shop's majority-owned
(approximately 99%) subsidiary Cooper Arms. The Company's senior management and
board of directors believes this acquisition was necessary in order to expand
the Company's business activities to include in-house manufacturing of CVC
shotguns and create economies of scale in the marketing of the Company's
products.
Industry Background
The 1995 Annual Firearms Manufacturing, and Exportation Report
("Report") compiled by the Bureau of Alcohol, Tobacco and Firearms ("BATF")
revealed that in 1995, 1,331,780 rifles and 1,173,645 shotguns were manufactured
in the United States. According to the Report, of these Firearms, 88,899 rifles
and 100,877 shotguns were exported.
Management believes that the Company can become a leading manufacturer
of high grade firearms by targeting the high growth areas of the firearms
market. The National Shooting Sports Foundation's Profile of Participation in
the Hunting and Shooting Sports (1995) ("Profile") reveals that hunting is a
stable, if not growing, recreational activity, particularly because annual
hunting license sales have hovered around the 16 million mark since 1983. The
Profile indicates that hunters/shooters between the ages of 35-54 report owning
the most shotguns, while those over 55 own the most centerfire rifles. With
respect to target shooters, the Profile reports that the target shooting segment
of the shooting sports is growing and cites a survey by American Sports Analysis
which reveals that trap and skeet shooting, with over 4.5 million participants,
is on the rise, and that sporting clays is among the fastest growing sports,
which over the course of a few years attracted approximately 3.1 million
participants.
23
<PAGE>
Products
CVC Classics
- ------------
CVC Classics designs, engineers, manufactures and markets a premium
line of ten shotguns for clay target shooting and hunting which retail from
$3,000 to $4,200 and can cost in excess $10,000 with options. The CVC Classics
shotguns are a 12 gauge, over and under third generation rendition of the
renowned Winchester Model 101. The most popular model in the line is the CVC
Classic Sporter offered in three barrel lengths. The CVC Classic Sporter is "out
of the box" ready for Sporting Clay's competition, which, Management believes is
the fastest growing segment of the shotgun industry.
Third generation improvements include lengthened forcing cones,
mechanical triggers, and overboring. Improvements to manufacturing techniques
include a one piece frame machined from ordinance 416 stainless steel a machined
4140 monobloc, and diamond honed barrels. All of these improvements provide
superior balance, lighter weight, reduced recoil and better shot patterning. CVC
is currently perfecting its rib to barrel laser beam welding process known as
"CVC Fusion(TM)" which fuses the barrels and ribs into an inseparable structure
for improved strength and durability. Management believes that this technology
will provide the strongest barrel assembly available because the ribs and barrel
metal are fused into an inseparable structure for the life of the shotgun.
Moreover, in addition to achieving greater barrel strength, lighter weight and a
unique gun balance, CVC Fusion(TM) is expected to lower production costs per
unit due to the accelerated pace at which assembly can occur (as compared to
soldering) and reduced labor needed in the assembly process. The Company does
not hold a patent on its laser-beam welding technology and may seek to secure a
patent in order to license the technology to the industry. There can be no
assurance, however that even if the Company applies for patent protection, a
patent will be issued.
The Stock Shop
- --------------
The Stock Shop designs and manufactures high quality firearms stocks.
Its primary product is the "Anschutz USA Sporting Rifle," based on the Anschutz
Model 1700 series barreled action. The Stock Shop has an agreement with the
world renowned firm of JG Anschutz (GmbH) and its exclusive United States
importer and distributor AcuSport Corporation whereby AcuSport has agreed to
sell the Stock Shop the Anschutz Model 1700 series barreled action which the
Stock Shop will manufacture stocks and assemble the rifle. The Stock Shop also
acquired exclusive American rights to the use of the Anschutz name.
The Stock Shop's Anschutz rifle, which is available in four calibers
and with two stock designs, is marketed and sold by Cooper Arms via its dealer
network. The rifles retail from $1,550 to $1,895 without options, and can cost
in excess of $10,000 with options.
Cooper Arms
- -----------
Cooper Arms designs, engineers, manufactures and markets a line of high
quality bolt rifles for sport hunting and competition. The line consists of five
basic models of rifles, each in various styles, featuring classic American
design, two of which are repeating rifles and three of which are single shot
bolt action varmint rifles. The standard features of the repeating rifles
include three mid-locking lug bolts, box magazine, twin extractors, glass
bedding, single stage fully adjustable match trigger, 24 inch length, chrome
moly match barrel (free floated) with .960-.650 straight taper, competition step
crown and 13 inch length of pull. All metal component parts of the repeating
rifles are machined from solid bar stock steel. The standard features of the
single shot varmint rifles include three front-locking lug bolts, Sako-style
extraction system, glass bedding, matte finish, single stage fully adjustable
match trigger, 24 inch stainless steel match grade barrel (free floated) and 13
inch length of pull. Cooper Arms rifles are sold through a 425 dealer network
and retail from $1,695 without options and can cost in excess of $6,000 with
options.
The Cooper Arms rifles are sold with certain guarantees as to the
accuracy of the rifles. The Cooper Model 36 is the holder of the 1994, 1995,
1996 and 1997 NRA sanctioned Hunter Class Silhouette US National Championships.
Cooper Arms also designs and intends to market Special Ops Ammunition.
This ammunition, which is primarily intended for use by military and law
enforcement units in the United States and abroad, is designed to provide
24
<PAGE>
superior accuracy. Manufacturing of the ammunition is being contracted out to a
manufacturer specializing in the production of high grade ammunition. This
ammunition is expected to preview at the Brussels Military Procurement
Exposition in November of 1997. The ammunition will be sold through the Cooper
Arms distribution network.
Connecticut Valley Sports Apparel and Accessories
- -------------------------------------------------
In the first quarter of 1998, the Company intends to commence marketing
of specialty labeled sports apparel and shooting accessories. The Company is
hoping to capitalize on the consumer's perception and familiarity with its
firearms in order to establish an identifiable brand name. Products will range
from T-shirts and caps to gun cases and cleaning supplies. The products will be
targeted at the high grade, high margin upscale market. Design and selection of
the products will be performed by the Company and the manufacturing of the
products will be contracted out to third parties. The products will be sold
through CVC's distribution network. The Company intends to establish a brand
name which will be recognized and associated with high quality firearms and
accessories.
Competition
The Company competes in a highly specialized, competitive environment
directly with many other national and international sporting firearms
manufacturers. Many of these companies are larger, better known and have
significantly greater financial, manufacturing and marketing resources than the
Company. In addition, unlike the Company, many firearms manufacturers are
subsidiaries of larger, more diverse companies on whom they can rely for capital
and other resources. No assurance can be given that the Company will be capable
of competing successfully in the future, or that the Company will be successful
in maintaining or expanding its share of the market for its products. The
Company's competitors include Dakota, McMillan, Beratta, Perazzi, Krieghoff and
Browning.
Licensing and Government Regulation
The firearms manufacturing industry is subject to extensive regulation
by various Federal and State regulatory agencies, including BATF. The Company
maintains licenses issued by the BATF permitting the distribution of shotguns to
a network of BATF licensed dealers around the country. The licenses are
renewable every three years and require the Company to maintain certain records
relating to Firearms shipments. In April 1995, CVC's original BATF license was
renewed until April 1998. Cooper Arms's BATF license was originally issued in
February 1991 and has expired in February 1997. The license is currently on
extension while the BATF conducts a standard review of Cooper Arm's renewal
application. The loss or suspension of any of the Company's licenses could have
a material adverse effect on the Company.
The manufacture, sale and purchase of firearms is subject to extensive
governmental regulation, including The Gun Control Act of 1968, The National
Firearms Act, The Arms Export Control Act and The Federal Firearms Act. Since
the Company is not presently selling revolvers, pistols or assault weapons, many
of the provisions of presently effective laws and regulations are not applicable
to the Company's present business. There can be no assurance that as the Company
expands its product line or as new laws or regulations are adopted, or current
laws and regulations expanded, that existing or future laws and regulations
would not have a materially adverse effect on the business of the Company.
Moreover, from time to time, legislation and regulations that could
potentially affect the Company, either beneficially or adversely, have been
proposed by federal and state legislators and regulators. Management is not
aware of any currently pending or proposed legislation or regulations which
would have a materially adverse impact on the Company's operations if adopted.
Proprietary Rights
The Company does not currently have patent protection on its products
or production processes. Its ability to compete effectively with other companies
will depend in part on its ability to maintain the proprietary nature of its
products and production processes. The Company holds one registered trademark,
has applied for the registration of
25
<PAGE>
certain marks and may or may not submit applications for the registration of
additional marks. There can be no assurance that any patent or additional
trademark registrations will be applied for, or if applied for and received,
will afford the Company sufficient protection.
Equipment
The Company owns eight milling machines, three lathes, one surface
grinder and other smaller equipment, all of which are used in the production
operations of metal parts in connection with the operations of CVC and Cooper
Arms. All polishing and bluing of metal parts is done in-house using a variety
of polishing equipment. All stock manufacturing is done in-house partly on
manual profilers and partly by hand in order to achieve the custom quality
required for the Company's products. In addition, the Company has purchased a
honing and back-boring machine for its shotgun production and leases a Fadal CNC
milling center for the computerized manufacturing of metal parts. The Company
may lease additional equipment in the future in order to expand in-house
manufacturing of shotgun components.
Personnel
The Company has approximately 18 full time employees, including 15 in
manufacturing and 3 in corporate and general administration, some of whom also
have production responsibilities. Of the 18 employees, 13 are located at the
Stevensville, Montana facility, three at the Victor [Montana] facility. None of
the Company's employees are represented by labor organizations and the Company
is not aware of any activities seeking such organization. The Company considers
its relationships with its employees to be satisfactory. See "Management."
Property
The Company operates two manufacturing facilities. The primary
manufacturing operations are conducted at a 5,200 square foot facility in
Stevensville, Montana, and the manufacturing activities relating to machining
and metal work are conducted at Victor Montana. The Company's executive offices
are located at the Stevensville facility. The Stevensville facility is leased by
the Company for $2,475 per month for the first 12 months and for $2,750 per
month for the remaining 12 months. The lease is due to expire in July 1998, but
is renewable upon 30 days written notice at a rate of $3,000 per month. The
Company also leases the Victor facility for approximately $2,000 per month,
which lease expires in September 1999. The Company believes that these
facilities are adequate for the Company's operations.
Legal Proceedings
The Company has a dispute with a former officer and director of CVC
which may give rise to a claim by the Company against such individual for
damages. The Company is currently investigating the matter.
The Company has been contacted by an individual who injured himself
while firing a firearm manufactured by the Company. This matter was referred to
the Company's insurance carrier. Tests by the insurance carrier have indicated
that the injury was not caused by any defect in the Company's product and the
individual has not pursued any claim against the Company. Management believes
that any exposure relating to this matter in excess of its $25,000 deductible
would be covered by the insurance currently maintained, of which, however, there
can be no assurance.
The Company is not currently a party to any litigation, or aware of any
potential litigation that it believes could have a material adverse effect on
the Company or its business. See "Risk Factors - Possible Insufficiency of
Insurance."
26
<PAGE>
MANAGEMENT
The directors and executive officers of the Company, together with their ages
and a brief Description of their employment histories, are as follows:
Name Age Position and Office
- ---- --- -------------------
Victor Wang 32 Chairman of the Board
Director of Marketing
John Tilleli 26 Chief Executive Officer and
Director
Gary D. Landis 55 Vice President-Marketing,
Secretary and Director
Edward McCabe 40 Treasurer (Chief Financial
Officer) and Director
Daniel Cooper 43 President and Director
None of the Company's executive officers intends to devote his full
business time to the affairs of the Company except for Mr Cooper.
All directors serve for a term of one year or until their respective
successors have been duly elected. Directors of the Company are not compensated
for acting in such capacities.
Victor Wang has served as Chairman of the Board and Director of
Marketing of the Company since its inception. Mr. Wang is a principal
shareholder of Duke & Co., Inc., has served as an officer and director of Duke &
Co., Inc.since 1993. From 1991 to 1993, Mr. Wang Served as Chairman of the Board
and Chief Executive Officer of Questron Technologies Incorporated, a publicly
traded alternate dispute resolution company. Mr. Wang has a BS from Johns
Hopkins University (1989) and is licensed as a General Securities Principal and
Corporate Securities Limited Representative.
John Tilleli has served as a Director and Chief Executive Officer of
the Company since its inception. He has served as Secretary of The Stock Shop of
Montana, LLC, the predecessor of Stock Shop, Inc., since March 1996. Mr. Tilleli
is presently employed as Vice President of Corporate Finance of Duke & Co..
Inc., where he works on mergers, acquisitions, and other corporate finance
matters. He has held that position since February, 1994. From 1993 to 1994, Mr.
Tilleli was employed as a registered representative for Russo Securities, Inc.
Mr. Tilleli has a BBA in Finance from the University of Miami (1993) and is
licensed as a General Securities Representative, General Securities Principal
Options Principal and Uniform Securities Agent.
Gary D. Landis is one of the CVC's founders and has served as a
Director of the Company and CVC since CVC's inception. He also served as CVC's
Chief Executive Officer from 1991 until September 1996, when he was appointed
Vice President of Marketing. Mr. Landis operates consulting business, Garly
Landis Consulting. Mr. Landis was the managing director of all healthcare
businesses at Compton Partners, a division of Saatchi & Saatchi Advertising. Mr.
Landis has been in the advertising business for 33 years, having spent 29 years
with Saatchi & Saatchi both in the United States and abroad. During that period,
Mr. Landis successfully managed subsidiary companies for 19 years. Mr. Landis
has a BA from the University of Illinois.
Edward McCabe has served as a Director, Treasurer and Chief Financial
Officer of the Company since its inception. Mr. McCabe is presently employed as
Chief Financial Officer of Duke & Co., Inc., a position he has held since
December 1995. From January 1993 to November 1995, Mr. McCabe served as the
Controller for Concord Holding Corporation, a publicly traded company engaged in
the business of ______. Prior thereto, he served as the
27
<PAGE>
Controller for Adler Coleman & Co. from December 1984 to July 1992. Mr. McCabe
holds a BS from St. Peter's College (1982).
Daniel Cooper has served as a Director and officer, since September
1996, and has been President of the Company and its subsidiaries since August
1997. He founded The Stock Shop of Montana, LLC, the predecessor of the Stock
Shop, and has served as its President since its inception. Mr. Cooper founded
Cooper Arms and Served as its President and a Director from October 1990 to
February 1995 and from August 1996 to date. Mr. Cooper organized the North
American Divide Expedition in 1980 and led the Expedition on a 6 year hike of
the North American Continental Divide from Mexico to the Bering Strait of
Alaska. This accomplishment was recognized by the Guinness Book of World
Records. Mr. Cooper holds a BS in Environmental Studies and International
Affairs from Lewis and Clark College (1979).
Employment Agreements
None of the Company's executive officers are subject to employment
agreements with the Company, except for Mr. Cooper whose employment agreement
with The Stock Shop of Montana, LLC, Stock Shop's predecessor, was assigned to
Stock Shop in connection with the September 1996 acquisition of The Stock Shop
of Montana, LLC. See "Certain Transactions." Mr. Cooper receives an annual
salary of $48,000 and may receive a performance related bonus or stock options.
Mr. Cooper's three year employment contract expires on March 31, 1997 and
continues on the same terms and conditions until that time. The Company intends
to enter into employment agreements with each of Messrs. Wang, McCabe and
Landis. Although no terms have yet been agreed upon, the Company expects that
none of these employment agreements will provide for an annual salary in excess
of $100,000.
Executive Compensation
The following table Sets forth cash compensation paid by the Company
to, as well as any other compensation paid to or earned by, the Chief Executive
Officer of the Company and those executive officers, if any, compensated at
greater than $100,000 for services rendered to the Company in all capacities
during the fiscal year ended December 31, 1996.
28
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------------------------------- --------------------------------------
Awards
------------------ -------------------
Other Annual
Compen-sation Restricted Securities
Stock Underlying
Name And Year Salary Bonus ($) Award(s) Options/SARs
Principal Position ($) ($) (e) ($) (#)
(a) (b) (c) (d) (f) (g)
- ------------------------------- ------- ------------ ----------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
CEO John Tilleli 1996 0 0 50,000 (1)
- ------------------------------- ------- ------------ ----------- ------------------ ------------------ -------------------
- ------------------------------- ------- ------------ ----------- ------------------ ------------------ -------------------
- ------------------------------- ------- ------------ ----------- ------------------ ------------------ -------------------
A. Dan Cooper, President (2) 1996 19,500 25,000 (3)
- ------------------------------- ------- ------------ ----------- ------------------ ------------------ -------------------
1995 11,153
- ------------------------------- ------- ------------ ----------- ------------------ ------------------ -------------------
- ------------------------------- ------- ------------ ----------- ------------------ ------------------ -------------------
B. Joe Bishoff, President (4) 1996 82,131
- ------------------------------- ------- ------------ ----------- ------------------ ------------------ -------------------
(through July 31, 1996) 1995 48,577
- ------------------------------- ------- ------------ ----------- ------------------ ------------------ -------------------
- ------------------------------- ------- ------------ ----------- ------------------ ------------------ -------------------
- ------------------------------- ------- ------------ ----------- ------------------ ------------------ -------------------
</TABLE>
(1) Represents shares of Common Stock underlying currently exercisable options.
(2) Mr. Cooper's 1995 compensation consists of salary earned at Cooper Arms
until his resignation in February, 1995. Mr. Coopers 1996 compensation
consists of salary earned from his becoming President of Cooper Arms in
September 1996 though the end of the year.
(3) Represents shares of Common Stock underlying options, 6,250 of which are
currently exercisable.
(4) Mr. Bishof served as the Manager of Cooper Arms until shortly prior to the
Company's acquisition of Cooper Arms in 1996.
Employee Stock Option Plan
In August 1997, the Board of Directors adopted and approved the
Company's 1997 Stock Option Plan (the "Plan" or the "1997 Stock Option Plan").
The Plan is to be administered by the Board of Directors or by the committee
appointed by the Board (the "Plan Administrator"). Pursuant to the Plan, options
to acquire an aggregate of 600,000 shares of Common Stock may be granted,
475,000 of which have been granted.
The following table set forth options issued in 1996.
<TABLE>
<CAPTION>
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
- ------------------------------------------------------------------------------------------------------------
Number Of Percent of Total
Securities Options/SARs
Underlying Granted to
Options/ SARs Employees In Exercise Or Base
Name Granted (#) Fiscal Year Price ($/Sh) Expiration Date
(a) (b) (c) (d) (e)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John Tilleli, CEO 50,000 11% $.0001 9/1/2001
- ------------------------------------------------------------------------------------------------------------
Dan Cooper, President 25,000 5% $ 3.45 9/1/2001
- ------------------------------------------------------------------------------------------------------------
Victor Wang, Chairman 150,000 74% $.0001 9/1/2001
- ------------------------------------------------------------------------------------------------------------
Edward McCabe, CFO 50,000 11% $.0001 9/1/2001
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
Indemnification of Officers and Directors
The Company's Certificate of Incorporation and By-laws provide that the
Company shall indemnify all officers and directors of the Company to the full
extent permitted by the Delaware General Corporation Law. Under such provision,
any director or officer who is in his capacity as such is made or threatened to
be made a party to any suit or proceeding, may be indemnified if the Board of
Directors determines such director or officer acted in good faith and in manner
he or she reasonably believed to be in or not opposed to the best interest of
the corporation. The Certificate of Incorporation, By-laws and Delaware law
further provide that such indemnification is not exclusive of any other rights
to which such individual may be entitled under the Certificate of Incorporation,
the By-laws, any agreement, vote of shareholders or disinterested directors or
otherwise.
Insofar as indemnification for liabilities arising under the Securities
Act of l933, as amended may be permitted or directors of officers pursuant to
the foregoing provision otherwise, the Company has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy and therefore is unenforceable.
30
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information concerning stock
ownership of all persons known by the Company to own beneficially five percent
or more of the outstanding Common Stock, each Director and certain executive
officers and all officers and directors as a group, and as adjusted to reflect
the sale of the Units offered hereby.
<TABLE>
<CAPTION>
Name and Address of Amount and Nature Percentage of Outstanding
Beneficial Owner or of Beneficial Common Stock Owned
Identity of Group Ownership
Number of Shares Before Offering After Offering
<S> <C> <C> <C> <C>
Victor Wang (1) 1,730,000 55.9% 37.6%
170 Circle Road
Muttontown, NY 11791
O. Milton Gossett 171,884 6.3% 4.1%
156 Ridgefield Ave.
South Salem, NY 10590
John Tilleli (2) 50,000 1.8% 1.1%
196 Pidgeon Hill Rd.
Huntington, NY 11716
Gary D. Landis 132,446 4.8% 3.1%
12 Taylor Lane
Westport, CT 06880
Edward McCabe (2) 50,000 1.8% 1.1%
26 Bay Bean Rd.
Middletown, NJ 07441
Daniel Cooper (3) 370,595 13.5% 8.7%
4004 Highway 93 North
Stevensville, MT 59870
All officers and directors as a 2,333,041 72.8% 49.6%
Group (5 persons)
</TABLE>
(1) Includes 350,000 shares underlying currently exercisable options.
(2) Includes 50,000 shares underlying currently exercisable options.
(3) Includes 6,250 shares underlying currently exercisable options. Does not
include 17,750 shares issuable upon exercise of options which are not
currently exercisable and will not become exercisable within sixty days
from the date of this Prospectus.
CERTAIN TRANSACTIONS
CVC is currently indebted to Messrs. Landis, Gossett, Dean Jendsen and
George Carey, all of whom are or were officers, directors or stockholders of
CVC, in the aggregate amount of $300,000, plus interest, accruing at the
31
<PAGE>
rate of 9% per annum, of approximately $35,000 since June 1995. The loans are to
be repaid in eight quarterly installments. The first installment will be due on
the earlier of November 1, 1998 or the closing of this Offering.
In December 1995, Mr. Victor Wang, a principal stockholder and director
received 200,000 options to purchase shares of CVC's Common Stock as additional
consideration for a $75,000 loan made by Mr. Wang to the Company. The options
are exercisable at $2.76 per share for a three year period. The Company repaid
the $75,000 loan in March 1996. These 200,000 options were exchanged for 200,000
options to purchase shares of the Company's Common Stock pursuant to the
Company's August 1997 Private Offering.
Between May 1992 and the date of this Prospectus, a Company in which
Victor Wang is a principal loaned CVC approximately $123,323, none of which has
been repaid. In addition, in the third quarter of fiscal 1996, Mr. Wang loaned
an aggregate of $60,000 to Stock Shop and $50,000 to Cooper Arms, the proceeds
of which were used for commitments relating to the acquisition of The Stock Shop
of Montana, LLC and for working capital. These loans are evidenced by a
promissory note bearing interest a rate of 5% per annum, and are due and payable
thirteen months from the Effective Date of this Offering.
In March 1996, Mr. Wang acquired a 70% membership interest in The Stock
Shop of Montana, LLC for $86,500. In connection with this transaction, Mr. Wang
agreed to use his best efforts to assist The Stock Shop of Montana, LLC to (i)
obtain a $200,000 line of credit, and (ii) restructure its secured debt.
In September 1996, the Stock Shop acquired The Stock Shop of Montana,
LLC and changed the entity's structure from a Montana limited liability company
to a Delaware corporation. As a result of this acquisition, Messrs. Wang,
Tilleli and McCabe were appointed as officers and/or directors of the Stock
Shop.
In November 1996, CVC acquired all of the issued and outstanding common
stock of the Stock Shop from its stockholders, which included Mr. Wang and Mr.
Daniel Cooper, officers, directors and stockholders of the CVC, by an exchange
of 1,300,000 shares of the CVC's Common Stock for 1,300,000 shares of the Stock
Shop's common stock.. In addition, CVC replaced options previously issued to
employees of the Stock Shop with options to purchase the same number of shares
of CVC's Common stock on the same terms, which included options to purchase
150,000 shares of the Stock Shop's common stock to Mr. Wang, options to purchase
50,000 shares to each of Messrs. Tilleli and McCabe and options to purchase
25,000 shares to Mr. Cooper. Each of these options to acquire CVC Common Stock
were exchanged in August 1997 for options to acquire the Company's Common Stock.
See "Management" and "Principal Stockholders."
In September 1996, a company in which Victor Wang is a principal paid
$1,000,000 to CVC. No additional stock was issued to Mr. Wang or his company as
part of this transaction. For financial reporting purposes, the Company has
accounted for this as a contribution to additional paid in capital.
In September 1997, the Company completed an exchange offer as a
result of which CVC became a majority owned (approximately 97%) subsidiary of
the Company. Pursuant to the exchange, the Company issued an aggregate of
2,747,476 shares of its Common Stock and granted options to acquire up to
475,000 shares of its Common Stock. There exists the potential that an
additional 230,000 options to acquire stock of CVC will be granted to certain of
CVC's current and former principals, thereby decreasing the percentage of
ownership the Company has in CVC. However, even if all 230,000 CVC options are
granted and exercised, CVC will continue to be a majority owned subsidiary of
the Company.
DESCRIPTION OF SECURITIES
The authorized capital stock of the Company consists of 30,000,000
shares of Common Stock, $.0001 par value per share, and 1,000,000 shares of
"blank check" preferred stock, $.0001 par value per share. As of the date of the
Prospectus, 2,747,476 shares of Common Stock and no shares of Preferred Stock
are issued and outstanding.
The following are brief descriptions of the securities offered hereby
and other securities of the Company. The rights of the holders of shares of the
Company's capital stock are established by the Company's Restated Certificate of
Incorporation, the Company's By-laws and Delaware law. The following statements
do not purport to
32
<PAGE>
be complete or give full effect to statutory or common law, and are subject in
all respects to the applicable provisions of the Restated Certificate of
Incorporation, By-laws and state law.
Common Stock
Holders of the Common Stock are entitled to one vote per share, and
subject to the rights of holders of the of preferred stock, if any, to receive
dividends when, as and if declared by the Board of Directors and to share
ratably in the assets of the Company legally available for distribution to
holders of Common Stock in the event of the liquidation, dissolution or winding
up of the Company. Holders of the Common Stock do not have subscription,
redemption, conversion or preemptive rights.
Each share of Common Stock is entitled to one vote on any matter
submitted to the holders, including the election of directors. Holders of Common
Stock do not have cumulative voting rights,. Therefore, holders of a majority of
the outstanding shares of Common Stock entitled to vote for the election of
Directors may elect all of the Directors to be elected, if they so choose, and
in such event, the holders of the remaining shares will not be able to elect any
of the Company's Directors. Except as otherwise required by the Delaware General
Corporation Law all stockholder action other than the election of Directors, who
are elected by plurality vote), is subject to approval by a majority of the
shares of Common Stock) is present at a stockholders' meeting at which a quorum
(a majority of the issued and outstanding shares of Common Stock) is present in
person or by proxy, or by written consent pursuant to Delaware law.
All shares of Common Stock outstanding are fully paid and
non-assessable, and the shares of Common Stock offered hereby and the shares of
Common Stock issuable upon exercise of the Warrants, when issued upon payment of
the purchase price set forth on the cover page of the Prospectus or payment of
the exercise price specified in the Warrants, as the case may be, will be fully
paid and non-assessable.
The Board of Directors is authorized to issue additional shares of
Common Stock within the limits authorized by the Company's Certificate of
Incorporation without further stockholder action. The Company has agreed with
the Underwriter that it will not issue any securities, including but not limited
to shares of Common Stock, prior to ______________, 1999 except as disclosed in
or contemplated by this Prospectus, without the prior written consent of the
Underwriter.
Warrants
The Warrants offered hereby will be issued in registered form under a
Warrant Agreement (the "Warrant Agreement") between the Company and Continental
Stock Transfer & Trust Company, as Warrant Agent (the "Warrant Agent").
Each Warrant will be separately transferable and will entitle the
registered holder thereof to purchase one share of Common Stock at $6.00 per
share (subject to adjustment as described below) commencing 1999 (two years from
the Effective Date) and ending, 2002 (five years from the Effective Date) (the
"Exercise Period"). The exercise price and the number of shares of Common Stock
issuable upon the exercise of each Warrant are subject to adjustment in the
event of a stock split, stock dividend, recapitalization, merger, consolidation
or certain other events. A holder of Warrants may exercise such Warrants by
surrendering the certificate evidencing such Warrants to the Warrant Agent,
together with the form of election to purchase on the reverse side of such
certificate attached thereto properly completed and executed and the payment of
the exercise price and any transfer tax. If less than all of the Warrants
evidenced by a Warrant certificate are exercised, a new certificate will be
issued for the remaining number of Warrants.
The Company has authorized and reserved for issuance a number of shares
of Common Stock sufficient to provide for the exercise of the Warrants. When
issued, upon payment of the exercise price specified in the Warrants. each share
of Common Stock will be fully paid and nonassessable. Holders of Warrants will
not have any voting or other rights as stockholders of the Company unless and
until Warrants are exercised and shares issued pursuant thereto.
33
<PAGE>
The Warrants may be redeemed by the Company, at a price of $.10 per
Warrant, upon not less than 30 days prior written notice at any time during the
Exercise Period, with the prior written consent of the Underwriter. provided the
average of the closing bid quotations of the Common Stock, during the period of
twenty (20) trading days during any consecutive 30 trading day period, ending on
the fifteenth day prior to the date upon which notice of redemption is given, as
reported upon which the Common Stock is then quoted or listed, or such other
reporting system that provides closing sale prices for the Common Stock, is at
least $8.00 per share. The Warrants will be exercisable until the close of
business on the day immediately preceding the date fixed for the redemption of
the Warrants in the notice of redemption.
The Company will pay the Underwriter a fee of 5% of the exercise price
of each Warrant exercised, provided (i) the market price of the Common Stock on
the date the Warrant was exercised was equal to or greater than the Warrant
exercise price on that date, (ii) the exercise price of the Warrant was
solicited by the Underwriter, (iii) the Warrant was not held in a discretionary
account, (iv) the disclosure of compensation arrangements was made in documents
provided to the holders of the Warrants, (v) the solicitation of the exercise of
the Warrant was not a violation of Rule 101 of Regulation M under the Exchange
Act and (vi) the Underwriter are designated in writing as the soliciting NASD
member. The Underwriter and any other soliciting broker/dealers will be
prohibited from engaging in any market making activities or solicited brokerage
activities with regard to the Company's securities during the periods prescribed
by Rule 101 of Regulation M before the solicitation of any Warrant until the
later of the termination of such solicitation activity or the termination of any
right the Underwriter and any other soliciting broker/dealer may have to receive
a fee for the solicitation of the exercise of the Warrants.
For a holder of a Warrant to exercise the Warrant, there must be a
current registration statement on file with the Securities and Exchange
Commission and various state securities commissions. The Company will be
required to file post-effective amendments to the registration statement when
events require such amendments and to take appropriate action under the state
securities laws. While it is the Company's intention to file post-effective
amendments when necessary and to take appropriate action under state securities
laws, there can be no assurance that the Company will file all post-effective
amendments required to maintain the effectiveness of the registration statement
or that the Company will take all appropriate action under state securities
laws. If the registration statement is not kept current for any reason, the
Warrants will not be exercisable, and holders thereof may be deprived of value.
Preferred Stock
The Company is authorized to issue up to 1,000,000 shares of "blank
check" preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without further stockholder approval, to issue
preferred stock with dividend, liquidation, conversion, voting or other rights
that could decrease the amount of earnings and assets available for distribution
to holders of Common Stock or adversely affect the voting power or other rights
of the holders of the Company's Common Stock. In the event of issuance, the
preferred stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company. As of
the date of the Prospectus, no shares of preferred stock are outstanding. The
Company has no present intention to issue any shares of preferred stock. The
Company has agreed with the Underwriter that, except for issuances disclosed in
or contemplated by this Prospectus, it will not issue any securities, including
but not limited to any shares of preferred stock, prior to _____________, 1999
without the prior written consent of the Underwriter.
Statutory Provisions Affecting Stockholders
Following the consummation of the Offering, the Company will be subject
to Section 293 of the Delaware General Corporation Law, the State of Delaware's
"business combination" statute. In general, such statute prohibits a publicly
held Delaware corporation from engaging in various business combination"
transactions with any "interested stockholder" for a period of three years after
the date of the transaction in which the person became an "interested
stockholder," unless (i) the transaction in which the interested stockholder
obtained such status or the business combination is approved by the Board of
Directors prior to the date the interested stockholder obtained such status or
the business combination is approved by the Board of Directors prior to the date
the interested stockholder obtained such status; (ii) upon consummation of the
transaction which resulted in the stockholder becoming an "interested
stockholder," the 'interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the
34
<PAGE>
time the transaction commenced, excluding for purposes of determining the number
of shares outstanding those shares owned by (a) persons who are directors and
officers and (b) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to the plan
will be tendered in a tender or exchange offer; or (iii) on or subsequent to
such date the "business combination" is approved by the Board of Directors and
authorized at an annual or special meeting of stockholders by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the "interested stockholder." A "business combination" includes mergers, asset
sales and other transactions resulting in financial benefit to a stockholder" is
a person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of a corporation's voting stock. The statute could
prohibit or delay mergers or other takeover or change in control attempts with
respect to the Company and, accordingly, may discourage attempts to acquire the
Company.
Reports to Stockholders
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
certified public accountants after the end of each fiscal year, and will make
available such other periodic reports as the Company may deem to be appropriate
or as may be required by law. The Company's fiscal year end December 31. The
Company has filed a Registration Statement on Form 8-A with the Commission to
register under, and be subject to the reporting requirements of, the Exchange
Act.
Transfer Agent and Warrant Agent
The Company has engaged Continental Stock Transfer to act as Transfer
Agent for the Company's Units and Common Stock and Warrant Agent for the
Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
All of the 2,747,476 shares of Common Stock of the Company outstanding
as of the date of this Prospectus, are "restricted securities." Of this amount
2,048,675 are owned by "affiliates" of the Company, as those terms are defined
in Rule 144 promulgated under the Securities Act. Absent registration under the
Securities Act, the sale of such shares is subject to Rule 144, as promulgated
under the Securities Act. In general, under Rule 144, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company, who has beneficially owned restricted shares of Common Stock for at
least one year is entitled to sell in brokerage transactions, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class, or if the Common Stock
is quoted on NASDAQ or a stock exchange, the average weekly trading volume
during the four calendar weeks preceding the sale. Rule 144 also permits a
person who presently is not and who has not been an affiliate of the Company for
at least three months immediately preceding the sale and who has beneficially
owned the shares of Common Stock for at least two years to sell such shares
without regard to any of the volume limitations as described above. All of the
Company's existing securityholders, have agreed not to sell or otherwise dispose
of any of their shares of Common stock now owned or issuable upon the exercise
of currently exercisable warrants for a period of two years from the date of
this Prospectus, without the prior written consent of the Underwriter. No
prediction can be made as to the effect, if any, that sales of shares of Common
Stock or the availability of such shares for sale will have on the market prices
of the Company's securities prevailing form time to time. The possibility that
substantial amounts of Common Stock may be sold under Rule 144 into the public
market may adversely affect prevailing market prices for the Common Stock and
could impair the Company's ability to raise capital in the future through the
sale of equity securities. See "Shares Eligible for Future Sale."
35
<PAGE>
UNDERWRITING
Briarwood Investment Counsel, Inc. (the "Underwriter") has agreed,
subject to the terms and conditions contained in the Underwriting Agreement, to
purchase from the Company 1,500,000 Units, each consisting of one share of
Common Stock and one Warrant. The Underwriter is committed to purchase and pay
for all of the Units offered hereby if any of such securities are purchased. The
Units are being offered by the Underwriter subject to prior sale, when, as and
if delivered to and accepted by the Underwriter and subject to approval of
certain legal matters by counsel and to certain other conditions.
The Underwriter has advised the Company that it proposes to offer the
Units to the public at the public offering price set forth on the cover page of
this Prospectus. The Underwriter may allow to certain dealers who are members of
the National Association of Securities Dealers, Inc. the ("NASD") concessions,
not in excess of $___ per Unit.
The Company has granted to the Underwriter an option, excercisable
for 465 days from the date of this Prospectus, to purchase up to 225,000
additional Units at the pubic offering price set forth on the cover page of this
Prospectus, less the underwriting discounts and commissions. The Underwriter may
exercise this option from time to time, in whole or in part, solely for the
purpose of covering overallotments, if any, made in connection with the sale of
the Units offered hereby.
The Company has agreed to pay to the Underwriter a nonaccountable
expense allowance of 3% of the gross proceeds of this offering ($229,500), of
which $_____ has been paid as of the date of this Prospectus. The Company has
also agreed to pay all expenses in connection with qualifying the shares of
Common Stock and Warrants included in the Units offered hereby for sale under
the laws of such states as the Underwriter may designate, including expenses of
counsel retained for such purpose by the Underwriter.
The Company has agreed to sell to the Underwriter and its designees,
for an aggregate of $10.00 warrants (the "Underwriter's Warrants") to purchase
up to 150,000 Shares at an exercise price of $7.65 per Unit (147% of the public
offering price per Unit). The Underwriter's Warrants may not be sold,
transferred, assigned or hypothecated or one year from the date of this
Prospectus, except to the officers and partners of the Underwriter or members of
the selling group, and are exercisable during the four-year period commencing
one year from the date of this Prospectus (the "Warrant Exercise Term"). During
the Warrant Exercise Term, the holders of the Underwriter's Warrants are given,
at nominal cost, the opportunity to profit form a rise in the market price of
the Common Stock. To the extent that the Underwriter's Warrants are exercised,
dilution to the interests of the Company's shareholders will occur. Further, the
terms upon which the Company will be able to obtain additional equity capital
may be adversely affected since the holders of the Underwriter's Warrants can be
expected to exercise them at a time when the Company would, in all likelihood,
be able to obtain any needed capital on terms more favorable to the Company than
those provided in the Underwriter's Warrants. Any profit realized by the
Underwriter on the Sale of the Underwriter's Warrants, the underlying shares of
Common Stock or the underlying Warrants, or the shares of Common Stock issuable
upon any exercise of such underlying Warrants, may be deemed additional
underwriting compensation. Subject to certain limitations and exclusions, the
Company has agreed, at the request of the holders of a majority of the
Underwriter's Warrants, at the Company's expense, to register the Underwriter's
Warrants, the shares of Common Stock and Warrants underlying the Underwriter's
Warrants, and the shares of Common Stock issuable upon exercise of the
underlying Warrants, under the Securities Act on one occasion during the
three-year period commencing one year from the date of this Prospectus and to
include such Underwriter's Warrants and such underlying securities in any
appropriate registration statement which is filed by the Company during the
Warrant Exercise Term.
The Company has agreed, in connection with the exercise of the
Warrants pursuant to solicitation (commencing one year from the date of this
Prospectus), to pay to the Underwriter a fee of 5% of the exercise price for
each Warrant exercised, provided, however, that the Underwriter will not be
entitled to receive such compensation in Warrant exercise transactions in which
(i) the market price of Common Stock at the time of exercise is lower than the
exercise price of the Warrants; (ii) the Warrants are held in any discretionary
account; (iii) disclosure of compensation arrangements is not made, in addition
to the disclosure provided in this Prospectus, in documents provided to holders
of the Warrants at the time of exercise; (iv) the exercise of Warrants is
unsolicited by the
36
<PAGE>
Underwriter; or (v) the solicitation of exercise of the Warrants was in
violation of Rule 10b-6 promulgated under the Exchange Act.
The Company has agreed, for a period of three years from the date of
this Prospectus, to engage a designee of the Underwriter as a non-voting advisor
to the Company's Board of Directors or, at the Underwriter's request, to
nominate and use its best efforts to elect a designee of the Underwriter as a
director of the Company. The Underwriter has not yet exercised its right to
designate such person.
In addition, the Company has agreed to enter into a consulting
agreement to retain the Underwriter as a financial consultant for a period of
two years following the consummation of this offering at a monthly fee of
$4,166.67 (or an aggregate of $100,000), $50,000 of which aggregate fee is
payable upon the closing of this Offering and the balance on the first
anniversary thereof. The consulting agreement will not require the consultant to
devote a specific amount of time to the performance of its duties thereunder. It
is anticipated that these consulting services will be provided by principals of
the Underwriter and/or members of the Underwriter's corporate finance department
who, however, have not been designated as of the date hereof. In the event that
the Underwriter originates a financing or a merger, acquisition, joint venture
or other transaction to which the Company is a party, the Underwriter will be
entitled to receive a finder's fee in consideration for origination of such
transaction.
The Company has agreed to indemnify the Underwriter against certain
civil liabilities, including liabilities under the Securities Act.
The Company's officers, directors and shareholders have agreed not to
sell or otherwise dispose of any of their shares of Common Stock for a period of
two years form the date of this Prospectus, without the prior written consent of
the Underwriter [other than in connection with private transfers pursuant to
which the transferees agree to be bound by the same provisions].
Prior to this offering, there has been no public trading market for
the Units or the Common Stock or Warrants. Consequently, the initial public
offering price of the Units and the exercise price of the Warrants have been
determined by negotiations between the Company and the Underwriter. Among the
factors consider in determining the initial public offering price and the
exercise price were the Company's financial condition and prospects, management,
market prices of similar securities of comparable publicly-traded companies,
certain financial and operating information of companies engaged in activities
similar to those of the Company and the general condition of the securities
markets.
Although it has no obligation to do so, the Underwriter intends to
engage in market-making actives or solicited brokerage activities with respect
to the purchase or sale of Common Stock or Warrants in the over-the-counter
market where such securities will trade. However, no assurance can be given that
the Underwriter will continue to participate as a market maker in the securities
of the Company or that another broker/dealer will make a marker in such
securities. The Underwriter has the right to act as the Company's exclusive
agent in connection with any future solicitation of holders of the Warrants to
exercise their Warrants. Unless granted an exemption by the Securities and
Exchange Commission form Rule 10b-6 under the Exchange Act, the Underwriter will
be prohibited from engaging in any market-making activities or solicited
brokerage activities with regard to the Company's securities during the period
prescribed by exemption (xi) to Rule 10b-6 before the solicitation of the
exercise of any Warrant based upon a prior solicitation until the later of the
termination of such solicitation activity or the termination by waiver or
otherwise of any right the Underwriter many have to receive a fee for the
exercise of the Warrants following such solicitation. As a result, the
Underwriter and soliciting broker/dealers may be unable to continue to make a
market for the Company's securities during certain periods while the Warrants
are exercisable. Such a limitation, while in effect, could impair the liquidity
and market price of the Company`s securities.
While certain officers of the Underwriter have significant experience
in corporate financing and the underwriting of securities, the Underwriter has
not previously underwritten any public offering. Accordingly, there can be no
assurance that the Underwriter's limited public offering experience will not
affect the Company's offering of the Units and subsequent development of a
trading market, if any.
37
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with the securities being offered
hereby will be passed upon the Company by Gersten, Savage, Kaplowitz, Fredericks
& Curtin, LLP ("GSKF"). 101 East 52nd Street, New York, New York. GSKF received
owns 60,000 shares of the Company's common stock. Certain legal matters will be
passed upon for the Underwriter by Zimet, Haines, Friedman & Kaplan, New York,
New York.
EXPERTS
The financial statements of the Company included in this
Prospectus have been audited by BDO Seidman, LLP, independent certified public
accountants, to the extent and for the periods (which contain an explanatory
paragragh regarding uncertainties relating to the Company being a going concern)
set forth in their report appearing elsewhere herein, and is included in
reliance upon such report given upon the authority of said firm as experts in
auditing and accounting.
The financial statements of Cooper Firearms, Inc. included in this
Prospectus have been audited by David Tarlow & Co., P.C., independent certified
public accountants, to the extent and for the periods set forth in their report
appearing elsewhere herein, and is included in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act with respect to the
securities offered hereby (the "Registration Statement"). This Prospectus does
not contain all the information set forth in the Registration Statement and the
exhibits thereto as permitted by the Rules and Regulation of the Commission. For
future information with respect to the Company and such securities, reference is
made to the Registration Statement and to the exhibits filed therewith.
Statements contained in this Prospectus as to the contents of any contracts or
other document referred to herein are not necessarily complete and where such
contract or other document is an exhibit to the Registration Statement, each
such statement is qualified in all aspects by the provision of such exhibit to
which reference is made for a full statement of the provisions thereof. The
Registration Statement including exhibits filed therewith, may be inspected,
without charge, at the principal office of the Commission located at 450 Fifth
Street N.W., Room 1024, Washington, D.C. 20549. Copies of all or any part of the
Registration Statement (including the exhibits thereto) also may be obtained
from the Public Reference Section of the Commission at its principal office in
Washington, D.C., at the Commission's prescribed rates. Electronic registration
statements made through the Electronic Data Gathering Analysis and Retrieval
system are publicly available through the Commission's web site at http:
//www.sec.gov.
On the date of the Prospectus, the Company will become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and, in accordance therewith, will file reports, proxy and
information statements and other information with the Securities and Exchange
Commission. Such reports, proxy and information statements and other information
can be inspected and copies at the Public Reference Section of the Commission at
Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of such material also may be obtained from the Public Reference Section
of the Commission at prescribed rates. The Commission maintains a web site at
http: //www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically. The Company
intends to furnish its stockholders with annual reports containing audited
financial statements and such other reports containing audited financial
statements and such other reports as the Company deems appropriate or as may be
required by law.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page No.
--------
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
Report of Independent Certified Public Accountants F- 1
Financial Statements:
Consolidated Balance Sheets F- 2
Consolidated Statements of Operations F- 3
Consolidated Statements of Stockholders' Equity F- 4
Consolidated Statements of Cash Flows F- 5
Notes to Consolidated Financial Statements F- 7
COOPER FIREARMS, INC.
Report of Independent Certified Public Accountants F-21
Financial Statements:
Statements of Operations F-22
Statements of Stockholders' Equity F-23
Statements of Cash Flows F-24
Notes to Financial Statements F-25
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Officers and Directors
Connecticut Valley Sports, Inc.
Stevensville, Montana
We have audited the accompanying consolidated balance sheet of Connecticut
Valley Sports, Inc. (formerly Connecticut Valley Classics, Inc.) and
Subsidiaries as of December 31, 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1996 and 1995. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Connecticut Valley
Sports, Inc. and Subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the years ended December 31, 1996 and 1995,
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
company will continue as a going concern. As discussed in Note 3 to the
financial statements, the company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 3. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ BDO Seidman, LLP
-----------------------
New York, New York BDO Seidman, LLP
February 15, 1997, except for Note 1
which is September 17, 1997
F-1
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Unaudited
----------
December 31, June 30,
1996 1997
------------ ----------
ASSETS
Current Assets
Cash .................................. $ 231,534 $ 17,558
Accounts receivable, net of allowance
for doubtful accounts of $47,860 in
1996 and $21,062 in 1997 ............ 46,653 71,523
Inventories ........................... 475,827 469,524
Other current assets .................. 18,862 10,870
----------- -----------
Total current assets ............... 772,876 569,475
----------- -----------
Property and Equipment
Property and equipment, at cost, less
accumulated depreciation of $182,884
in 1996 and $237,936 in 1997 ........ 278,454 380,653
----------- -----------
Deferred Costs
Deferred costs, less accumulated
amortization of $101,590 in 1996 and
$113,239 in 1997 .................... 29,513 83,192
----------- -----------
Other Assets
Due from stockholders ................. 30,000 30,000
Due from affiliated companies ......... 14,269 14,360
Other assets .......................... 1,000 1,000
----------- -----------
Total other assets ................. 45,269 45,360
----------- -----------
Total assets ....................... $ 1,126,112 $ 1,078,680
=========== ===========
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses . $ 280,022 $ 210,260
Customer deposits ..................... 16,425 40,911
Federal excise tax payable ............ 60,454 36,624
Notes payable ......................... 41,740 22,115
Notes payable to stockholders ......... 23,770 23,770
Accrued interest ...................... 42,150 55,550
Due to affiliated companies ........... 108,232 123,323
----------- -----------
Total current liabilities .......... 572,793 512,553
Notes payable - less current maturities -- 95,364
Notes payable to stockholders ......... 300,000 300,000
Deferred credit on acquisition ........ 126,564 124,968
----------- -----------
Total liabilities .................. 999,357 1,032,885
----------- -----------
Commitments and Contingencies
Stockholders' Equity
Common stock $ .01 par value, 3,000,000
shares authorized, 2,655,471 and
2,839,464 shares issued and
outstanding in 1996
and 1997 respectively ............... 26,555 28,395
Additional paid-in-capital ............ 2,872,769 3,462,255
Accumulated deficit ................... (2,772,569) (3,444,855)
----------- -----------
Total stockholders' equity ......... 126,755 45,795
----------- -----------
Total liabilities and stockholders'
equity ........................... $ 1,126,112 $ 1,078,680
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
--------------------
Years Ended Six Months
December 31, Ended June 30,
------------------------ --------------------
1995 1996 1996 1997
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 74,744 $ 244,725 $ 69,291 $ 235,455
Cost of goods sold 339,246 576,153 289,665 535,783
----------- ----------- --------- ---------
Gross profit (loss) (264,502) (331,428) (220,374) (300,328)
----------- ----------- --------- ---------
Operating Expenses
Selling, general and administrative
expenses 332,206 685,800 232,965 355,674
Writedown of inventory to lower of
cost or market 150,000 - - -
Bad debts - 73,387 13,000 193
----------- ----------- --------- ---------
Total operating expenses 482,206 759,187 245,965 355,867
----------- ----------- --------- ---------
Operating loss (746,708) (1,090,615) (466,339) (656,195)
----------- ----------- --------- ---------
Other Income (Expense)
Other income - 11,230 - 1,796
Interest expense (35,755) (29,923) (19,734) (17,887)
----------- ----------- --------- ---------
Total other income (expense) (35,755) (18,693) (19,734) (16,091)
----------- ----------- --------- ---------
Loss before minority interests (782,463) (1,109,308) (486,073) (672,286)
Minority interests in net loss
of subsidiary - 6,644 - -
----------- ----------- --------- ----------
Net loss $ (782,463) $(1,102,664) $(486,073) $(672,286)
=========== =========== ========= =========
Loss per share $(0.75) $(0.44) $(0.22) $(0.24)
====== ====== ====== ======
Weighted average number of
shares outstanding 1,040,893 2,488,466 2,254,978 2,791,766
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional Total
----------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Deficit Equity
------ ------ ------- ------- ------
Year Ended December 31, 1995
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1995 470,000 $ 210,000 $ 238,442 $ (887,442) $ (439,000)
Issuance of stock 860,000 8,600 39,123 47,723
Reorganization - (205,300) 205,300 -
Proceeds from private placement 237,269 2,373 816,204 818,577
Expenses related to private placement (182,981) (182,981)
Stockholder loans contributed to capital 365,180 365,180
Net loss - year ended December 31, 1995 (782,463) (782,463)
--------- --------- ---------- ----------- -----------
Balance - December 31, 1995 1,567,269 $ 15,673 $1,481,268 $(1,669,905) $ (172,964)
========= ========= ========== =========== ===========
Year Ended December 31, 1996
Balance - January 1, 1996 1,567,269 $ 15,673 $1,481,268 $(1,669,905) $ (172,964)
Issuance of stock 910,000 9,100 58,699 67,799
Contribution of capital 1,000,000 1,000,000
Proceeds from private placement 178,202 1,782 406,606 408,388
Expenses related to private placement (73,804) (73,804)
Net loss - year ended December 31, 1996 (1,102,664) (1,102,664)
--------- --------- ---------- ----------- -----------
Balance - December 31, 1996 2,655,471 $ 26,555 $2,872,769 $(2,772,569) $ 126,755
========= ========= ========== =========== ===========
Six Months Ended June 30, 1997
Unaudited
Balance - January 1, 1997 2,655,471 $ 26,555 $2,872,769 $(2,772,569) $ 126,755
Proceeds from private placement 183,993 1,840 706,533 708,373
Expenses related to private placement (117,047) (117,047)
Net loss - six months ended June 30, 1997 (672,286) (672,286)
--------- --------- ---------- ----------- -----------
Balance - June 30, 1997 2,839,464 $ 28,395 $3,462,255 $(3,444,855) $ 45,795
========= ========= ========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
-------------------
Years Ended Six Months Ended
December 31, June 30,
---------------------- -------------------
1995 1996 1996 1997
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $(782,463) $(1,102,664) $(486,073) $(672,286)
Adjustments to reconcile net loss to net
cash used by operating activities:
Minority interest in net loss of subsidiary - (6,644) - -
Depreciation and amortization 73,874 104,996 42,848 65,001
Changes in operating assets, net of effect of acquisition of Cooper
Firearms, Inc.:
(Increase) decrease:
Accounts receivable (22,188) 47,915 (5,614) (24,870)
Inventories 34,846 (87,873) (20,027) 6,303
Other current assets (14,544) 4,773 (47,417) 7,992
Other assets (1,000) - - -
Increase (decrease) in:
Accounts payable and accrued expenses 125,339 (69,053) (105,040) (69,762)
Customer deposits (12,756) 9,891 - 24,486
Federal excise tax payable - (51,924) - (23,830)
Accrued interest payable 15,150 27,000 17,166 13,500
--------- ----------- --------- ---------
Net cash used by operating activities (583,742) (1,123,583) (604,157) (673,466)
--------- ----------- --------- ---------
Cash Flows from Investing Activities
Repayment of loan receivable - 13,000 13,000 -
Acquisition of subsidiary - (30,000) - -
Cash of acquired subsidiary - 37,477 - -
Purchases of property and equipment (171,401) (126,205) - (157,146)
Advance of loan receivable (13,000) - - -
Deferred costs (4,232) - - (65,328)
--------- ----------- --------- ---------
Net cash provided (used) by investing activities (188,633) (105,728) 13,000 (222,474)
--------- ----------- --------- ---------
Cash Flows from Financing Activities
Proceeds of loans payable 47,115 1,225 6,500 83,900
Advances from stockholders 507,151 92,170 122,680 -
Advances to stockholders - (94,269) - -
Repayment of loan receivable from stockholder - 50,000 - -
Repayments to stockholders - (163,100) - -
Advances from affiliates - 108,232 38,816 15,000
Proceeds from private placement 818,577 408,388 406,205 708,373
Expenses related to private placement (182,981) (73,804) (64,575) (117,047)
Capital contributed - 1,000,000 - -
Issuance of stock 47,723 67,799 15,940 -
Repayment of notes payable (405,000) - - (8,262)
--------- ----------- --------- ---------
Net cash provided by financing activities 832,585 1,396,641 525,566 681,964
--------- ----------- --------- ---------
Net increase (decrease) in cash 60,210 167,330 (65,591) (213,976)
Cash at beginning of period 3,994 64,204 64,204 231,534
--------- ----------- --------- ---------
Cash at end of period $ 64,204 $ 231,534 $ (1,387) $ 17,558
========= =========== ========= =========
</TABLE>
(Continued)
F-5
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
Unaudited
-------------------
Years Ended Six Months Ended
December 31, June 30,
-------------------- -------------------
1995 1996 1996 1997
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Supplemental Schedule of Noncash Investing and Financing Activities
Notes payable to stockholders transferred
to additional paid-in capital $ 365,180 $ - - -
The company purchased all of the preferred stock and 91.65% of the common stock
of Cooper Firearms, Inc. for $30,000. In conjunction with the acquisition,
liabilities were assumed as follows:
Fair value of assets acquired $ - $ 310,479 $ - $ -
Cash paid for the capital stock - ( 30,000) - -
--------- --------- --------- -----
Liabilities assumed $ - $ 280,479 $ - $ -
========= ========= ========= =====
Supplemental Disclosures of Cash Flow Information
Cash paid for interest $ 20,605 $ 23,190 $ 10,768 $ 7,232
Cash paid for income taxes $ 317 $ 1,291 $ - $ 526
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997)
Note 1 - Organization and Nature of Business
Connecticut Valley Sports, Inc. ("CVS") was incorporated on April
11, 1996 under the laws of the State of Delaware.
On September 17, 1997, CVS, an inactive shell corporation
acquired 2,746,896 shares of common stock representing 96.74% of
the outstanding stock of Connecticut Valley Classics, Inc.
("CVC"). The surviving entity changed its name from CVC to
Connecticut Valley Sports, Inc. Pursuant to the terms of the
acquisition, CVC shareholders exchanged their stock for shares in
CVS on a one for one basis.
CVC is the continuing entity for financial reporting purposes,
and the financial statements prior to September 17, 1997
represent its financial position and results of operations. The
assets, liabilities and results of operations of CVS (which were
minimal) will be included as of September 17, 1997.
CVS and its subsidiaries manufacture and sell custom quality
production bolt action rifles and high quality shot guns used for
both sport hunting and competition. The company also manufactures
and sells firearm stocks used in the production of rifles.
Customers are located throughout the United States and parts of
Canada.
Note 2 - Summary of Significant Accounting Policies
a) Principles of consolidation
The consolidated financial statements include the accounts
of Connecticut Valley Sports, Inc., its wholly-owned
subsidiaries Connecticut Valley Classics, Inc. and The Stock
Shop, Inc. and its majority-owned subsidiary Cooper
Firearms, Inc. All material intercompany transactions and
balances have been eliminated. The consolidated statement of
operations reflects amounts for Cooper Firearms, Inc. as of
August 13, 1996, the date it was acquired.
b) Use of estimates
The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of financial statements and
the reported amounts of revenues and expenses during
the reporting period. Actual results could differ
from those estimates.
c) Inventories
Inventories are valued at the lower of cost or market
on a first-in, first-out basis.
F-7
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997)
Note 2 - Summary of Significant Accounting Policies (Contd.)
d) Property and equipment
Property and equipment is stated at cost.
Depreciation is provided using accelerated methods
over the estimated useful lives of the assets.
e) Organization and start-up costs
Organization and start-up costs are stated at cost.
Amortization is provided using the straight line method
over a period of 36-60 months.
f) Income taxes
The company accounts for income taxes in accordance
with the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income
Taxes" ("Statement 109"). Under the asset and
liability method of Statement 109, deferred tax
assets and liabilities are recognized for the future
tax consequences attributable to differences between
the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities, if any, are
measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is
recognized in income in the period that includes the
enactment date.
g) Stock-based compensation
The company accounts for stock-based compensation in
accordance with the provisions of Accounting
Principles Board Opinion No. 25. Stock-based
compensation includes all transactions under which
employees receive shares of stock or other equity
instruments (such as options) in the company or
events where the company incurs liabilities to
employees in amounts that are based on the price of
its stock.
h) Long-lived assets
In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be
Disposed of", which requires that certain long-lived
assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying
amount may not be recoverable. This standard is
effective for fiscal years that begin after December
15, 1995. The company's adoption of this
pronouncement on January 1, 1996 did not have a
material impact on the company's consolidated
financial statements.
F-8
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997)
Note 2 - Summary of Significant Accounting Policies (Contd.)
i) Deferred credit
Deferred credit on acquisition (negative goodwill
arising from the acquisition of Cooper Firearms, Inc.
described in Note 13) is amortized on a straight-line
basis over its estimated useful life of 40 years.
j) Interim financial statements
The unaudited interim financial statements as of June
30, 1997, and for the six months ended June 30, 1996
and 1997 reflect all adjustments (consisting of
recurring accruals) management considers necessary
for a fair presentation of financial position,
results of operations and cash flows. Results of
operations for the six months ended June 30, 1997 are
not indicative of results to be expected for the
year.
k) Loss per share data
Net loss per common and common equivalent share using
the weighted average number of common and common
equivalent shares outstanding was computed by
applying Securities and Exchange Commission Staff
Accounting Bulletin No. 83 (SAB 83). Pursuant to SAB
83, common and common equivalent shares issued by the
company during the twelve months immediately
preceding its initial public offering at a price
below the initial public offering price together with
common share equivalents which result from the grant
of common stock options and warrants having exercise
prices below the initial public offering price during
the same period have been included in the calculation
of the shares used in computing net loss per share as
if they were outstanding for all periods prior to the
initial public offering. Net loss per share for these
periods has been computed using the treasury stock
method, under which the number of shares outstanding
reflects an assumed use of the proceeds from the
issuance of such shares and from the assumed exercise
of such options and warrants to repurchase shares of
the company's common stock at the initial public
offering price.
Note 3 - Going Concern
As shown in the accompanying financial statements, the company
has incurred substantial recurring operating losses. This
raises substantial doubt about the company's ability to
continue as a going concern.
F-9
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997)
Note 3 - Going Concern (Contd)
Management believes the company will generate significant new
business and improve operating efficiency in future years. In
addition, the company intends to raise funds through a public
offering of its common stock. Management believes that the
proceeds from the offering will be sufficient to provide
working capital until the company is able to increase revenues
and improve operating efficiency. If the company is not able
to complete the public offering, generate significant new
business or reduce its expenses, it is possible operations
will be discontinued. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
Note 4 - Inventories
Inventories consisted of the following:
December 31, June 30,
1996 1997
-------- ---------
Finished goods $101,791 $ 70,174
Work in process 42,235 19,690
Raw materials 331,801 379,660
-------- ---------
$475,827 $ 469,524
======== =========
Note 5 - Property and Equipment
Major classifications of property and equipment are as
follows:
December 31, June 30,
1996 1997
-------- ---------
Furniture and fixtures $ 11,159 $ 10,898
Molds and tools 304,625 323,519
Machinery and equipment 132,840 264,568
Leasehold improvements 12,714 19,604
-------- ---------
461,338 618,589
Accumulated depreciation (182,884) (237,936)
-------- ---------
Property and equipment, net $278,454 $ 380,653
======== =========
Depreciation expense amounted to $46,019 and $77,879 for the
years ended December 31, 1995 and 1996, and $28,497 and
$54,948 for the six months ended June 30, 1996 and 1997,
respectively.
F-10
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997
Note 6 - Deferred Costs
Major classifications of deferred costs and their respective
amortization periods are as follows:
Amortization December 31, June 30,
Period 1996 1997
------------ ------------ --------
Display models 36 months $ 15,425 $ 15,425
Organization costs 60 months 36,406 36,406
Start-up costs 60 months 79,272 79,272
Stock issuance costs - 65,328
-------- ---------
131,103 196,431
Accumulated amortization (101,590) (113,239)
-------- ---------
Deferred costs, net $ 29,513 $ 83,192
======== =========
The stock issuance costs are related to a proposed public
offering of the company's common stock. If the offering does
not take place, these costs will be expensed.
Note 7 - Notes Payable
Notes payable consist of the following:
December 31, June 30,
1996 1997
-------- --------
First Security Bank, due July, 1996,
interest at 8.75% per annum, secured
by all of the former assets of SSLLC
with a book value of approximately
$87,000. This note was refinanced
with Rocky Mountain Bank (see below)
in 1997 $ 41,740 $ -
Rocky Mountain Bank, due January, 2000,
interest at 9.25% per annum, collateralized
by a $20,000 Certificate of Deposit
(included in cash), monthly payments
inclusive of interest of $1,339.86 - 35,821
Equipment lease, due January, 2003,
interest at 8.85% per annum, monthly
payments inclusive of interest of
$1,735.30, collateralized by equipment
with a book value of $98,705 at
June 30, 1997 - 81,658
-------- --------
41,740 117,479
Less: Current portion 41,740 22,115
-------- --------
Long-term debt $ - $ 95,364
======== ========
F-11
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997)
Note 7 - Notes Payable (Contd.)
Maturities at June 30, 1997 are as follows:
Years Ended
December 31,
------------
1997 $ 22,115
1998 28,984
1999 31,716
2000 19,350
2001 15,314
--------
$117,479
========
Note 8 - Notes Payable to Stockholders
The company has notes payable to its stockholders as follows:
December 31, June 30,
1996 1997
-------- --------
Notes payable to four (4) stockholders
payable in eight (8) equal quarterly
installments commencing on the earlier
of November 1, 1998 or the closing of
an initial public offering of the
company's securities. Interest
accrues on these notes at 9% per annum $300,000 $300,000
Demand notes, non-interest bearing 23,770 23,770
-------- --------
323,770 323,770
Less: Current portion (23,770) (23,770)
-------- --------
Long-term debt $300,000 $300,000
======== ========
Maturities of long-term debt are as follows:
Years Ended
December 31,
------------
1997 $ 23,770
1998 37,500
1999 150,000
2000 112,500
--------
$323,770
========
F-12
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997)
Note 9 - Related Party Transactions
The company and other entities controlled by its chairman have
advanced funds to each other for operating purposes. Other
than as described in Note 8, related party loans are
non-interest bearing and have no scheduled repayment dates. In
accordance with the intentions of the parties involved, the
balances payable to affiliates have all been classified as
current, and the balances due from shareholders and affiliates
have been classified as non-current.
The company has also issued options to certain executives.
See Note 17.
Note 10 - Income Taxes
The company had available net operating loss carryforwards for
tax purposes at December 31, 1996. Due to a change in
ownership, the availability of these losses to offset future
taxable income is severely restricted. The company must
continue to operate as a firearms manufacturer until 1998, and
an annual limit on the use of prior losses based on the value
of the company at the time of the ownership change multiplied
by the long-term tax exempt rate will apply. This results in a
limitation on utilization of the losses of approximately
$2,000 per year and affects approximately $2,000,000 of the
total available carryforward. The amounts and expiration dates
of these losses are as follows:
Expiration Date
Amount December 31,
------ ------------
$ 559,199 2006
94,026 2007
375,989 2008
275,605 2009
795,863 2010
454,277 2011
----------
$2,554,959
==========
As of December 31, 1996, the company has a net operating loss
carryforward (after applying change of ownership limitations
described above) of approximately $580,000 which results in a
deferred tax asset of approximately $232,000 which has been
offset by a valuation allowance.
F-13
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997)
Note 10 - Income Taxes (Contd.)
The consolidated statements of operations include losses of
$129,766 and $40,939 for the years ended December 31, 1996 and
1995, respectively, incurred by The Stock Shop of Montana, LLC
("SSLLC") prior to its merger with The Stock Shop, Inc. Since
SSLLC was taxed as a partnership under the provisions of
Subchapter K of the Internal Revenue Code, this loss may only
be deducted by SSLLC's members.
Note 11 - Commitments
a) The company conducts its primary operations from a
facility that is leased under an agreement which expires
July 29, 1998. There is an option to renew the lease
for an additional 12 months at $3,000 per month. The
company has an option to purchase the property at fair
market value which expires on July 10, 1998. The
company is responsible for all costs of utilities,
repairs, maintenance, upkeep, insurance, and real estate
taxes in addition to the basic rent.
The company leases a second facility under an
agreement which expires on September 1, 1999.
Future minimum rental payments under these leases are
as follows:
Year Ending
December 31, Amount
------------ ------
1997 $ 55,075
1998 43,250
1999 16,000
--------
$114,325
========
Rent expenses for the years ended December 31, 1995
and 1996 and the six months ended June 30, 1996 and
1997 were $15,188, $29,465, $3,000 and $32,085,
respectively.
F-14
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997)
Note 11 - Commitments (Contd.)
b) The company has employment agreements with its
President of Manufacturing and its Production Manager
that expire on March 31, 1999. Future minimum
payments under the contracts are as follows:
Year Ending
December 31, Amount
------------ ------
1997 $ 78,000
1998 78,000
1999 19,500
--------
$175,500
========
Note 12 - Significant Concentrations of Credit Risk
The company has concentrated its credit risk for cash by
maintaining accounts at Rocky Mountain Bank in excess of
federal insurance limits. The maximum loss that would have
resulted from that risk totalled $127,419 at December 31,
1996, for the excess of deposits over amounts that would have
been covered by federal insurance.
Note 13 - Mergers and Acquisitions
In September 1996, The Stock Shop, Inc. ("SSI") acquired all
of the assets of The Stock Shop of Montana, LLC ("SSLLC"), a
company under common control, in exchange for the assumption
of all of SSLLC's liabilities. The transaction has been
accounted for in a manner similar to that in
pooling-of-interests accounting and the operations of SSLLC
have been recorded by SSI as of the beginning of the year. SSI
did not issue any new shares of stock as part of the
transaction. The book value of SSLLC's net assets
(liabilities) at the date of combination consisted of the
following:
Accounts receivable $ 2,625
Prepaid expenses 452
Property and equipment, net of
accumulated depreciation of $5,595 8,383
Start-up costs, net of accumulated
amortization of $1,058 3,174
Due from member 80,000
Accounts payable and accrued expenses (42,000)
Notes payable (current) (47,215)
Due to affiliated companies (140,602)
---------
$(135,183)
=========
F-15
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997)
Note 13 - Mergers and Acquisitions (Contd.)
On November 15, 1996, CVC acquired all of the outstanding
stock of SSI in exchange for 1,300,000 shares of its own
common stock. The transaction has been accounted for as a
pooling-of-interests, and the operations of SSI are reflected
for all periods presented.
SSI's consolidated balance sheet (including the assets,
liabilities and equity of SSLLC acquired in the pooling
described above) as of December 31, 1995 was as follows:
ASSETS
Current assets
Cash $ 5,565
Accounts receivable 17,366
Inventory 7,319
Other current assets 900
----------
Total current assets $ 31,150
Property and equipment
Property and equipment, at cost,
less accumulated depreciation
of $2,516 11,462
Start-up costs
Start-up costs, net of accumulated
amortization of $423 3,809
----------
Total assets $ 46,421
==========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable and accrued
expenses $ 29,422
Notes payable to LLC members 13,100
Notes payable - bank 47,115
----------
Total liabilities $ 89,637
Members' equity (deficit) (43,216)
----------
Total liabilities and members'
equity (deficit) $ 46,421
==========
F-16
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997)
Note 13 - Mergers and Acquisitions (Contd.)
The company's consolidated statement of operations included
the following amounts attributable to SSI:
Nine Months
Year Ended Ended
December 31, September 30,
1995 1996
------------ -------------
Revenues $ 87,038 $ 51,600
Net income
(loss) (40,939) (129,766)
The consolidated net loss for the year ended December 31, 1995
is comprised of the following:
Net loss of CVC before
effect of merger
with SSI $(741,524)
Net loss of SSLLC ( 40,939)
---------
Consolidated net loss $(782,463)
=========
Consolidated revenue for the year ended December 31, 1995 is
the same amount as originally reported by CVC prior to the
merger with SSI.
On August 13, 1996, the company acquired all of the preferred
stock and 91.65% of the common stock of Cooper Firearms, Inc.
for $30,000. The transaction has been accounted for under the
purchase method for financial reporting purposes. The deferred
credit which arose from the purchase of this stock at a
discount is being amortized over a period of 40 years.
Pro forma information assuming the acquisition had occurred on
January 1, 1995 is as follows:
Six Months
Year Ended Ended
December 31, June 30,
------------------------- ----------
1995 1996 1996
------------ ----------- ----------
Revenues $ 1,028,746 $ 833,795 $ 603,711
Net loss $ (1,284,775) $(1,294,382) $(637,520)
F-17
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997)
Note 14 - Regulation of Firearms by U.S. Government
As a manufacturer of firearms, the company must comply with
the regulations of the Bureau of Alcohol, Tobacco and
Firearms. Requirements include an accountability of each
serial numbered gun and the payment of an 11% federal excise
tax as the guns are shipped and invoiced. Failure to comply
with these regulations can lead to fines and suspension of
manufacturing and sales operations.
Note 15 - Contingencies
The company has been notified that an individual injured
himself while firing a weapon produced by the company. This
individual has retained counsel. Management intends to
vigorously defend this matter and has referred it to its
insurance company. The insurer has not yet determined whether
this is a covered claim under the policy. The amount or range
of potential loss cannot be reasonably estimated at this time,
but management does not expect it to be material. No accrual
has been made for this loss contingency in the financial
statements.
Note 16 - Fair Values of Financial Instruments
The carrying amounts of financial instruments including cash,
accounts receivable and accounts payable and accrued expenses
approximated fair value as of December 31, 1996 because of the
relatively short-term maturity of these instruments. The
carrying values of long-term receivables and long-term debt,
including the current portion, approximated fair value as of
December 31, 1996, based upon quoted market prices.
Note 17 - Stock Options
CVC adopted a stock option plan on August 29, 1995 authorizing
it to issue four members of management options to purchase
230,000 shares of CVC common stock. These options may not be
issued unless CVC attains certain levels of profitability. To
date, CVC has not yet met such criteria. Upon issuance, these
options will vest immediately and have no expiration date.
These options are not exercisable with respect to CVS stock.
To date, no options have been issued pursuant to this plan.
CVC adopted a second stock option plan on August 29, 1995
authorizing it to issue its employees options to purchase an
aggregate of up to 125,000 shares of CVC common stock. These
options are issuable at the discretion of CVC's board of
directors based upon employee performance with terms as the
board deems appropriate. These options will not be exercisable
with respect to CVS stock. To date, no options have been
issued pursuant to this plan.
F-18
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997)
Note 17 - Stock Options (Contd.)
In December 1995, the company issued its chairman an option to
purchase 200,000 shares of the company's common stock at an
exercise price of $2.76 per share. The options were issued as
additional consideration for the company to obtain a $75,000
loan from the chairman. The right to exercise this option
vested immediately and expires in December 1998. The exercise
price of this option exceeds management's estimate of the
market value of the stock on the grant date, and, accordingly,
the option has an immaterial value. The chairman has not yet
exercised any portion of this option.
In September 1996, SSI awarded one of its directors (now a
director of CVS) an option to purchase 25,000 shares of SSI's
common stock at an exercise price of $3.45 per share. Pursuant
to the mergers of SSI and CVC and CVC and CVS, this option is
now available to the individual with respect to CVS common
stock. The right to exercise this option vests in increments
of 6,250 shares per year for four years beginning September 1,
1997. The option expires on September 1, 2001. The exercise
price of this option exceeds management's estimate of the
market value of SSI's common stock on the grant date, and are
considered to have an immaterial value. The director has not
yet exercised any portion of this option.
In September 1996, SSI awarded three of its directors (now
directors of CVS) options to purchase 250,000 shares of SSI's
common stock at an exercise price of $0.0001 per share.
Pursuant to the mergers of SSI and CVC and CVC and CVS, these
options are now available to the individuals with respect to
CVS common stock. The right to exercise these options vested
immediately and expires on September 1, 2001. Management's
estimate of the market value of SSI's common stock on the
grant date exceeds the exercise price of these options by an
amount which results in an immaterial expense. Accordingly,
the options had an immaterial value at the time of their
issuance, and no expense has been recorded in connection
therewith. The directors have not yet exercised any portion of
these options.
Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("Statement 123"),
requires the company to provide pro forma information
regarding net loss and loss per share as if compensation cost
for the company's stock option plans had been determined in
accordance with the fair value-based method prescribed in
Statement 123. The company estimates the fair value of each
stock option at the grant date by using the Black-Scholes
option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996, respectively: no
dividends paid for all years; expected volatility of 40.7% and
38.9%; risk free interest rates of 5.51% and 6.60%; and
expected lives of 5.0 and 4.0 years.
F-19
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1997)
Note 17 - Stock Options (Contd.)
Under the accounting provisions of Statement 123, there would
be no material difference between the company's net loss and
loss per share from that reported in the financial statements
in accordance with Accounting Principles Board Opinion No. 25.
Note 18 - Capital Contribution
In September 1996, a company in which the Chairman is a
principal paid the company $1,000,000. No additional stock was
issued to the Chairman or his company as a result of this
transaction. The company has accounted for this as a
contribution to additional paid-in capital.
Note 19 - Reorganization
In 1995, the company reincorporated in Delaware. As part of
this transaction, the company changed the par value of its
stock from $1 per share to $0.01 per share.
Note 20 - Subsequent Events
The company intends to file a registration statement with the
Securities Exchange Commission for an initial public offering
of 1,500,000 units. Each unit will consist of one share of the
company's common stock and one warrant entitling the holder
thereof to purchase one additional share of the company's
common stock at an exercise price of $6. The offering price is
expected to be $5.10 per unit.
Since June 30, 1997, the company has amended its Certificate
of Incorporation to increase the number of authorized shares
of common stock from 3,000,000 to 30,000,000. In addition the
company has authorized the issuance of 1,000,000 shares of
"blank check" preferred stock. This stock may be issued with
any rights, preferences or designations as determined by the
board of directors at the time of its issuance without
stockholder approval. Management has no present intention to
issue any shares of this preferred stock.
Subsequent to June 30, 1997, the company issued 790 shares of
its common stock in exchange for the remaining minority
interest in Cooper Firearms, Inc. The company issued one share
of CVC stock for every ten shares of Cooper Firearms, Inc.
stock exchanged.
F-20
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Officers and Directors
Cooper Firearms, Inc.
Stevensville, Montana
We have audited the accompanying statements of operations, stockholders' equity
and cash flows of Cooper Firearms, Inc. for the year ended December 31, 1995 and
for the period from January 1, 1996 to August 13, 1996. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 3, on August 13, 1996, The Stock Shop, Inc. acquired
all of the company's preferred stock and 91.65% of its common stock.
In our opinion, the statements of operations, stockholders' equity and cash
flows referred to above present fairly, in all material respects, the results of
operations and cash flows of Cooper Firearms, Inc. for the year ended December
31, 1995 and for the period from January 1, 1996 to August 13, 1996, in
conformity with generally accepted accounting principles.
/s/ David Tarlow & Co., P.C.
---------------------------
New York, New York David Tarlow & Co., P.C.
May 8, 1997
F-21
<PAGE>
COOPER FIREARMS, INC.
STATEMENTS OF OPERATIONS
Unaudited
--------------
Year Ended January 1, 1996 Six Months
December 31, to Ended June 30,
1995 August 13, 1996 1996
------------ --------------- --------------
Net sales $ 954,002 $ 589,070 $ 534,420
Cost of goods sold 1,027,871 516,687 461,005
----------- ----------- ---------
Gross profit (loss) (73,869) 72,383 73,415
----------- ----------- ---------
Operating Expenses
Selling, general and
administrative expenses 316,278 209,828 191,621
Writedown of inventory to
lower of cost or market 80,000 - -
Bad debts - 27,362 18,000
----------- ----------- ---------
Total operating expenses 396,278 237,190 209,621
----------- ----------- ---------
Operating loss (470,147) (164,807) (136,206)
Interest expense 38,809 20,267 15,241
----------- ----------- ---------
Net loss $ (508,956) $ (185,074) $(151,447)
=========== =========== =========
The accompanying notes are an integral part of these financial statements.
F-22
<PAGE>
COOPER FIREARMS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Preferred Stock Treasury Stock -
Stock Class B Class C Common Stock Common Total
---------------- ---------------- ----------------- --------------- Accumulated Stockholders'
Shares Amount Shares Amount Shares Amount Shares Amount Deficit Equity
------ ------ ------ ------- ------ ------ ------ ------ ------- ------
Year Ended December 31, 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1995 28,661 $716,525 10,000 $125,000 117,085 $ 690,221 2,324 $ (23,240) $(1,330,689) $ 177,817
Shares issued 23,000 287,500 6,300 287,500
Shares issued in lieu
of interest 1,100 11,000 11,000
Warrants exercised 6,500 44,000 44,000
Common stock repurchased 550 (5,500) (5,500)
Net loss - year ended
December 31, 1995 (508,956) (508,956)
------ -------- ------ -------- ------- ---------- ----- --------- ----------- ---------
Balance - December 31, 1995 28,661 $716,525 33,000 $412,500 130,985 $ 745,221 2,874 $ (28,740) $(1,839,645) $ 5,861
====== ======== ====== ======== ======= ========== ===== ========= =========== =========
January 1, 1996 to August 13, 1996
Balance - January 1, 1996 28,661 $716,525 33,000 $412,500 130,985 $ 745,221 2,874 $ (28,740) $(1,839,645) $ 5,861
Warrants exercised 5,000 30,000 30,000
Shares issued in lieu
of interest 1,120 14,000 14,000
Debt converted to common
stock 2,424 300,000 300,000
Net loss - period from
January 1, 1996 to
August 13, 1996 (185,074) (185,074)
------ -------- ------ -------- ------- ---------- ----- --------- ----------- ---------
Balance - August 13, 1996 28,661 $716,525 33,000 $412,500 139,529 $1,089,221 2,874 $ (28,740) $(2,024,719) $ 164,787
====== ======== ====== ======== ======= ========== ===== ========= =========== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE>
COOPER FIREARMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
---------------
Year Ended January 1, 1996 Six Months
December 31, to Ended June 30,
1995 August 13, 1996 1996
----------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $ (508,956) $ (185,074) $(151,447)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 25,141 12,738 13,252
Loss on sale of property and equipment - 3,702 3,702
(Increase) decrease in:
Accounts receivable 107,610 29,809 (38,400)
Inventory 39,902 (3,555) (39,469)
Other current assets 9,306 13,328 7,590
Other assets 1,957 16,605 16,605
Increase (decrease) in:
Accounts payable and accrued expenses (55,934) (14,218) 64,853
Customer deposits 12,930 (7,987) (6,191)
Federal excise tax payable 50,290 (16,959) 27,206
----------- ----------- ---------
Net cash used by operating activities (317,754) (151,611) (102,299)
----------- ----------- ---------
Cash Flows from Investing Activities
Purchases of property and equipment (24,303) (10,307) (10,307)
Proceeds from sales of property and equipment - 170,035 170,035
----------- ---------- ---------
Net cash provided (used) by financing
activities (24,303) 159,728 159,728
----------- ---------- ---------
Cash Flows from Financing Activities
Proceeds of loans payable 95,000 - -
Repayments of loans payable (21,026) (188,934) (188,934)
Net advances of bank line-of-credit 24,475 23,700 23,700
Capital stock issued 342,500 44,000 44,000
Purchase of treasury stock (5,500) - -
Advance from stockholder - 100,000 100,000
Financing costs incurred (3,325) - -
----------- ----------- ---------
Net cash provided (used) by
financing activities 432,124 (21,234) (21,234)
----------- ----------- ---------
Net increase (decrease) in cash 90,067 (13,117) 36,195
Cash at beginning of period (39,473) 50,594 50,594
----------- ----------- ---------
Cash at end of period $ 50,594 $ 37,477 $ 86,789
=========== =========== =========
Supplemental Schedule of Noncash Financing
and Investing Activities
Notes payable assumed by purchaser of property
and equipment $ - $ 106,082 $ 106,082
Notes payable to stockholder converted to stock $ - $ 300,000 $ -
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 24,744 $ 20,909 $ 15,241
Cash paid for income taxes $ 51 $ - $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE>
COOPER FIREARMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996)
Note 1 - Organization and Nature of Business
Cooper Firearms, Inc., was incorporated in 1990 under the laws
of the State of Montana. The company manufactures and sells
custom quality production bolt action rifles used for both
sport hunting and competition. Customers are located
throughout the United States and parts of Canada.
Note 2 - Summary of Significant Accounting Policies
a) Use of estimates
The preparation of financial statements in conformity
with generally accepted accounting principles
requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of financial statements and
the reported amounts of revenues and expenses during
the reporting period. Actual results could differ
from those estimates.
b) Inventories
Inventories are valued at the lower of cost or market
on a first-in, first-out basis.
c) Depreciation
Depreciation is provided using accelerated methods
over the estimated useful lives of the assets.
d) Amortization
Amortization of loan fees and start-up costs is
provided using the straight line method over a period
of 36-60 months.
e) Interim financial statements
The unaudited interim financial statements for the
six months ended June 30, 1996 reflect all
adjustments (consisting of recurring accruals)
management considers necessary for a fair
presentation of results of operations and cash flows.
f) Long-lived assets
In March 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be
Disposed of", which requires that certain long-lived
assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying
amount may not be recoverable. This standard is
effective for fiscal years that begin after December
15, 1995. The company's adoption of this
pronouncement on January 1, 1996 did not have a
material impact on the company's financial
statements.
F-25
<PAGE>
COOPER FIREARMS, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED WITH RESPECT TO THE SIX MONTHS
ENDED JUNE 30, 1996)
Note 3 - Subsequent events
On August 13, 1996, The Stock Shop, Inc. acquired all of the
preferred stock and 91.65% of the common stock of the company.
Note 4 - Depreciation
The company recorded depreciation expense of $23,440 for the
year ended December 31, 1995 and $9,967 for both the six
months ended June 30, 1996 and the period from January 1, 1996
to August 13, 1996.
Note 5 - Regulation of Firearms by U.S. Government
As a manufacturer of firearms, the company must comply with
the regulations of the Bureau of Alcohol, Tobacco and
Firearms. Requirements include an accountability of each
serial numbered gun and the payment of an 11% federal excise
tax as the guns are shipped and invoiced. Failure to comply
with these regulations can lead to fines and suspension of
manufacturing and sales operations.
Note 6 - Contingencies
The company has been notified that an individual injured
himself while firing a weapon produced by the company. This
individual has retained counsel. Management intends to
vigorously defend this matter and has referred it to its
insurance company. The insurer has not yet determined whether
this is a covered claim under the policy. The amount or range
of potential loss cannot be reasonably estimated at this time,
but management does not expect it to be material. No accrual
has been made for the loss contingency in the financial
statements.
F-26
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
- -------------------------------------------------- ----------------------------------------------------
No underwriter, dealer, salesman or other
person has been authorized to give any information
or to make and representations other than those
contained in this Prospectus, and, if given or
made, such information or representation must not
be relied on as having been authorized for the
Company. This Prospectus does not constitute an
offer or solicitation to any person in any CONNECTICUT VALLEY
jurisdiction where such offer or solicitation SPORTS, INC.
would be unlawful. Neither delivery of this
Prospectus nor any sale hereunder shall, under any 1,500,000 Units
circumstances, create any implication that there Each Unit Consisting of 1,500,000
has been no change in the affairs of the Company Shares of Common Stock and
since the date hereof. 1,500,000 Redeemable Common
Stock Purchase Warrants
TABLE OF CONTENTS
Page
Prospectus Summary........................
Risk Factors..............................
Use of Proceeds........................... BRIARWOOD INVESTMENT
Dilution.................................. COUNSEL, INC.
Capitalization............................
Dividends.................................
Management's Discussion
and Analysis of Financial
Condition and Results of __________, 1997
Operations................................
Business..................................
Management................................
Certain Relationships and Related
Transactions...........................
Principal Stockholders....................
Description of Securities.................
Shares Eligible for Future Sale...........
Underwriting..............................
Legal Matters.............................
Experts...................................
Financial Statements......................
-----------
Until ________, 1997 (25 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 when acting as underwriters and with
respect to their unsold allotments or
subscription.
- -------------------------------------------------- ----------------------------------------------------
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law, among other
things, and subject to certain conditions, authorizes the Company to indemnify
its officers and directors against certain liabilities and expenses incurred by
such persons in connection with claims made by reason of their being such an
officer or director. The restated Certificate of Incorporation and By-laws of
the Company provide for indemnification of its officers and directors to the
full extent authorized by law.
Reference is made to the Underwriting Agreement, the proposed form of
which is filed as Exhibit 1.1, pursuant to which the Underwriter agrees to
indemnify the directors and certain officers of the Registrant and certain other
persons against certain civil liabilities.
Item 14. Other Expenses of Issuance and Distribution
The following is a statement of the estimated expenses to be paid by
the Company in connection with the issuance and distribution of the securities
being registered:
SEC Registration Fee $ 5,830.46
NASD Filing Fee $ 2,424.05
NASDAQ Filing Fee *$ 25,000.00
Printing Engraving Expenses *$ 75,000.00
Legal Fees and Expenses *$ 125,000.00
Accounting Fees and Expenses *$ 70,000.00
Blue Sky Fees and Expenses *$ 40,000.00
Transfer Agent and Registrar Fees and Expenses *$ 3,500.00
Underwriter's Non-accountable Expense Allowance $ 229,500.00
Miscellaneous *$ 188,745
--------------
Total $765,000.00
*Estimate
Item 15. Recent Sales of Unregistered Securities
---------------------------------------
During the past three years, the Company has sold securities to the
individuals listed below. The issuances of these securities were considered to
be exempt from registration under Rule 505 and 506 of Regulation D of the
II-1
<PAGE>
Act, as amended, and the regulations promulgated thereunder. Each purchaser of
the securities in such transaction represented his intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
certificates for the securities issued in such transaction. Each purchaser of
the securities in such transaction had adequate access to information about the
Registrant. There were no underwriters involved in the transactions and there
were no underwriting discounts or commissions paid in connection therewith.
In September 1997, the Company issued an aggregate of 2,747,476 shares
of its Common Stock to 56 investors in exchange for 2,747,476 shares of Common
Stock of Connecticut Valley Classics, Inc. ("CVC"). As a result of the exchange,
CVC became a 97% owned subsidiary of the Company.
<TABLE>
<CAPTION>
<S> <C>
Item 16. Exhibits
--------
1.1* Form of Underwriting Agreement between the Company and Briarwood Investment Counsel, Inc.
1.2* Form of Underwriter's Warrant
1.3* Form of Investment Banking Agreement between the Company and Briarwood Investment Counsel, Inc.
3.1 Certificate of Incorporation of the Company and Amendments thereto
3.2 By-laws of the Company
4.1* Specimen Common Stock Certificate
4.2* Specimen Warrant Certificate
4.3* Form of Warrant Agreement
4.4* Form of public warrant agreement
5.1* Form of opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP
10.1* Form of employment agreement with Dan Cooper, President of the Company
10.2* The Company's 1997 Stock Option Plan
21.1 List of Subsidiaries
23.1 Consent of BDO Seidman, LLP
23.2 Consent of David A. Tarlow & Co., P.C.
Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP, counsel for the Company (included in
Exhibit 5.1 to this Registration Statement)
24.1 Power of Attorney (included on the signature page of this Registration Statement)
27* Financial Data Schedule
</TABLE>
* to be filed by Amendment
Item 17 Undertakings
------------
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the small business
issuer pursuant to any charter provision, by-law contract arrangements statute,
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 small business
II-2
<PAGE>
issuer in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the small business issuer will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any Prospectus required by section 10(a)(3) of the
Act;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to suit information in the
registration statement.
(2) That, for the purpose of determining any liability under the Act, each
such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the Offering
of such securities at that time shall be deemed to be the initial bona
fide Offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the Offering.
(4) For determining any liability under the Act, treat the information
omitted from the form of Prospectus filed as part of this registration
statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the small business issuer under Rule 424(b)(1), or
(4) or 497(h), under the Act as part of this registration statement as
of the time the Commission declared it effective.
(5) For determining any liability under the Act, treat each post-effective
amendment that contains a form of Prospectus as a new registration
statement at that time as the initial bona fide Offering of those
securities.
(6) To provide to the Underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and
registered in such names as required by the Underwriter to permit
prompt delivery to each purchaser.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Act, the Registrant certifies that
it has reasonable grounds to believe that it meets all of the requirements for
filing on Form SB-2 and has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York and State of New York on October 8, 1997.
CONNECTICUT VALLEY SPORTS, INC.
By: /s/ John Tilleli
---------------------------------
John Tilleli
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints John Tilleli, Chief Executive Officer,
his or her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, ad to file the same
and all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting 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 or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or her substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Act, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- -----
<S> <C> <C>
/s/ John Tilleli Chairman, Chief Executive Officer October 8, 1997
- -------------------------------------
John Tilleli
/s/ Dan Cooper President and Director October 8, 1997
- ---------------------------------
Dan Cooper
/s/ Victor Wang Chairman and Director October 8, 1997
- ---------------------------------
Victor Wang
/s/ Edward McCabe Treasurer and Director October 8, 1997
- ---------------------------------
Edward McCabe
/s/ Gary Landis Vice President-Marketing, October 8, 1997
- --------------------------------- Secretary and Director
Gary Landis
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
<S> <C>
Item 16. Exhibits
--------
1.1* Form of Underwriting Agreement between the Company and Briarwood Investment Counsel, Inc.
1.2* Form of Underwriter's Warrant
1.3* Form of Investment Banking Agreement between the Company and Briarwood Investment Counsel, Inc.
3.1 Certificate of Incorporation of the Company and Amendments thereto
3.2 By-laws of the Company
4.1* Specimen Common Stock Certificate
4.2* Specimen Warrant Certificate
4.3* Form of Warrant Agreement
4.4* Form of public warrant agreement
5.1* Form of opinion of Gersten, Savage, Kaplowitz & Fredericks, LLP
10.1* Form of employment agreement with Dan Cooper, President of the Company
10.2* The Company's 1997 Stock Option Plan
21.1 List of Subsidiaries
23.1 Consent of BDO Seidman, LLP
23.2 Consent of David A. Tarlow & Co., P.C.
Consent of Gersten, Savage, Kaplowitz & Fredericks, LLP, counsel for the Company (included in
Exhibit 5.1 to this Registration Statement)
24.1 Power of Attorney (included on the signature page of this Registration Statement)
27* Financial Data Schedule
</TABLE>
* to be filed by Amendment
<PAGE>
CERTIFICATE OF INCORPORATION
OF
Connecticut Valley Sports, Inc.
* * * * * *
1. The name of the corporation is
Connecticut Valley Sports, Inc.
2. The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
3. The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
4. The aggregate number of shares of all classes of stock
which the Corporation shall have authority to issue is Twenty-One Million
(21,000,000) shares, divided into classes as follows:
(1) Twenty Million (20,000,000) shares of Common
Stock, $.0001 par value per share; and
(2) One Million (1,000,000) shares of Preferred
Stock, $.0001 par value per share, to be issued in
series with such designations, rights and preferences
as shall be determined by the Board of Directors of
the Corporation.
5. The name and address of the sole incorporator is: Denis
Dufresne, c/o Gersten, Savage, Kaplowitz & Curtin, LLP, 575 Lexington Avenue,
<PAGE>
New York, New York 10022.
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
alter or repeal the by-laws of the corporation.
8. Elections of directors need not be by written ballot unless
the by-laws of the corporation shall so provide.
Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the by-laws of the corporation.
9. The corporation reserves the right to amend, alter, change
or repeal any provision contained in this certificate of incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
10. A director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware, do make this certificate, hereby
declaring and certifying that this is my act and deed and the facts herein
stated are true, and accordingly have hereunto set my hand this 28th day of
March, 1996.
-----------------------------------
DENIS DUFRESNE
Gersten, Savage, Kaplowitz & Curtin
575 Lexington Avenue
New York, New York 10022
<PAGE>
CONNECTICUT VALLEY SPORTS, INC.
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
BEFORE PAYMENT OF CAPITAL
I, the undersigned, being the sole incorporator of CONNECTICUT
VALLEY SPORTS, INC., a corporation organized and existing under and by virtue of
the Delaware General Corporation Law, DO HEREBY CERTIFY:
FIRST: that Article 4 of the Certificate of Incorporation of
the Corporation be amended in its entirety to read as follows:
"4. The aggregate number of shares of all classes of
stock which the Corporation shall have authority to
issue is Thirty One Million (31,000,000) shares,
divided into classes as follows:
(1) Thirty Million (30,000,000) shares of Common
Stock, $.0001 par value per share; and
(2) One Million (1,000,000) shares of Preferred
Stock, $.0001 par value per share, to be issued
in series with such designations, rights and
preferences as shall be determined by the Board
of Directors of the Corporation."
SECOND: That the Corporation has not received any payment for
any of its stock.
THIRD: That said amendment was duly adopted in accordance with
the provisions of Section 241 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, I have signed this certificate this 4th
day of August, 1997.
----------------------------
Denis A. Dufresne
Sole Incorporator
<PAGE>
BY-LAWS
OF
CONNECTICUT VALLEY SPORTS, INC.
ARTICLE I - OFFICES
The office of the Corporation shall be located in the City and State designated
in the Articles of Incorporation. The Corporation may also maintain offices at
such other places within or without the United States as the Board of Directors
may, from time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
Section I - Annual Meetings:
The annual meeting of the shareholders of the Corporation shall be held within
five months after the close of the fiscal year of the Corporation, for the
purpose of electing directors, and transacting such other business as may
properly come before the meeting.
Section 2- Special Meetings:
Special meetings of the shareholders may be called at any time by the Board of
Directors or by the President, and shall be called by the President or the
Secretary at the written request of the holders of ten per cent (10%) of the
shares then outstanding and entitled to vote thereat, or as otherwise required
under the provisions of the Business Corporation Act.
Section 3 - Place of Meetings;
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
By-Laws - 1
<PAGE>
Section 4 - Notice of Meetings:
(a) accept as otherwise provided by Statute, written notice of each meeting of
shareholders, whether annual or special, stating the time when and place where
it is to be held, shall be served either personally or by mail, not less than
ten or more than fifty days before the meeting, upon each shareholder of record
entitled to vote at such meeting, and to any other shareholder to whom the
giving of notice may be required by law. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called, and shall
indicate that it is being issued by, or at the direction of, the person or
persons calling the meeting. If, at any meeting, action is proposed to be taken
that would, if taken, entitle shareholders to receive payment for their shares
pursuant to Statute, the notice of such meeting shall include a statement of
that purpose and to that effect. If mailed, such notice shall be directed to
each such shareholder at his address as it appears on the records of the
shareholders of the Corporation, unless he shall have previously filed with the
Secretary of the Corporation a written request that notices intended for him be
mailed to the address designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
Section 5 - Quorum:
(a) Except as otherwise provided herein, or by statute, or in the Certificate of
Incorporation (such Certificate and any amendments thereof being hereinafter
collectively referred to as the "Certificate of Incorporation"), at all meetings
of shareholders of the Corporation, the presence at the commencement of such
meetings in person or by proxy of shareholders holding of record a majority of
the total number of shares of the Corporation then issued and outstanding and
entitled to vote, shall be necessary and
By-Laws - 2
<PAGE>
sufficient to constitute a quorum for the transaction of any business. The
withdrawal of any shareholder after the commencement of a meeting shall have no
effect on the existence of a quorum, after a quorum has been established at
such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
at the meeting as originally called if a quorum had been present.
Section 6 - Voting:
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation, any corporate action, other than the election of directors to be
taken by vote of the shareholders, shall be authorized by a majority of votes
cast at a meeting of shareholders by the holders of shares entitled to vote
thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of stock
of the Corporation entitled to vote thereat, shall be entitled to one vote for
each share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without
a meeting may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attomey-in-fact thereunto duly authorized in writing. No
proxy shall be valid after the expiration of eleven months from the date of its
execution, unless the persons executing it shall have specified therein the
length of time it is to continue in force. Such instrument shall be
exhibited to the Secretary at the meeting and shall be filed with the records of
the Corporation.
By-Laws - 3
<PAGE>
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the same had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III - BOARD OF DIRECTORS
Section 1 - Number, Election and Term of Office:
(a) The number of the directors of the Corporation shall be
five (5) unless and until otherwise determined by vote of a
majority of the entire Board of Directors. The number of
Directors shall not be less than three, unless all of the
outstanding shares are owned beneficially and of record by
less than three shareholders, in which event the number of
directors shall not be less than the number of shareholders
permitted by statute.
(b) Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board of Directors of the Corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares, present in person or by
proxy, entitled to vote in the election.
(c) Each director shall hold office until the annual meeting of the shareholders
next succeeding his election, and until his successor is elected and qualified,
or until his prior death, resignation or removal.
Section 2 - Duties and Powers:
The Board of Directors shall be responsible for the control and management of
the affairs, property and interests of the Corporation, and may exercise all
powers of the Corporation, except as are in the Certificate of Incorporation or
by statute expressly conferred upon or reserved to the shareholders.
Section 3 - Annual and Regular Meetings; Notice:
(a) A regular annual meeting of the Board of Directors shall be held immediately
following the annual meeting of the shareholders, at the place of such annual
meeting of shareholders.
By-Laws - 4
<PAGE>
(b) The Board of Directors, from time to time, may provide by resolution for the
holding of other regular meetings of the Board of Directors, and may fix the
time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been to present at the meeting at which such
action was taken within the time limited, and in the manner set forth in
paragraph (b) of Section 4 of this Article III, with respect to special
meetings, unless such notice shall be waived in the manner set forth in
paragraph (c) of such Section 4.
Section 4 - Special Meetings; Notice:
(a) Special meetings of the Board of Directors shall be held whenever called by
the President or by one of the directors, at such time and place as may be
specified in the respective notices or waivers of notice thereof.
(b) Except as otherwise required by statute, notice of special meeting shall be
mailed directly to each director, addressed to him at his residence or usual
place of business, at least two (2) days before the day. on which the meeting is
to be held, or shall be sent to him at such place by telegram, radio or cable,
or shall be delivered to him personally or given to him orally, not later than
the day before the day on which the meeting is to be held. A notice, or waiver
of notice, except as required by Section 8 of this Article III, need not specify
the purpose of the meeting.
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairman:
At all meetings of the Board of Directors the Chairman of the Board, if any and
if present, shall preside. If there shall be no Chairman, or he shall be absent,
then the President shall preside, and in his absence, a Chairman chosen by the
directors shall preside.
By-laws - 5
<PAGE>
Section 6 - Quorum and Adjournments:
(a) At all meetings of the Board of Directors, the presence of a majority of
the entire Board shall be necessary and sufficient to constitute a quorum for
the transaction of business, except as otherwise provided by law, by the
Certificate of Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
Section 7 - Manner of Acting:
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by statute, by the Certificate of
Incorporation, or these By-Laws, the action of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors. Any action authorized in writing, by all of the directors
entitled to vote thereon and filed with the minutes of the corporation shall be
the act of the Board of Directors with the same force and effect as if the same
had been passed by unanimous vote at a duly called meeting of the Board.
Section 8 - Vacancies:
Any vacancy in the Board of Directors occurring by reason of an increase in the
number of directors, or by reason of the death, resignation, disqualification,
removal (unless a vacancy created by the removal of a director by the
shareholders shall be filled by the shareholders at the meeting at which the
removal was effected) or inability to act of any director, or otherwise, shall
be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 9 - Resignation:
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
By-Laws - 6
<PAGE>
Section 10 - Removal:
Any director may be removed with or without cause at any time by the affirmative
vote of shareholders holding of record in the aggregate at least a majority of
the outstanding shares of the Corporation at a special meeting of the
shareholders called for that purpose, and may be removed for caused by action of
the Board.
Section 11 - Salary:
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board; provided, however, that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 12 - Contracts:
(a) No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated, nor shall any director
be liable in any way by reason of the fact that any one or more of the directors
of this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact
of such interest be disclosed or made known to the Board of Directors, and
provided that the Board of Directors shall authorize, approve or ratify such
contract or transaction by the vote (not counting the vote of any such director)
of a majority of a quorum, notwithstanding the presence of any such director
at the meeting at which such action is taken. Such director or directors may be
counted in determining the presence of a quorum at such meeting. This Section
shall not
By-Laws - 7
<PAGE>
be construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
Section 13 - Committees:
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
ARTICLE IV - OFFICERS
Section 1 - Number, Qualifications, Election and Term of Office:
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may from
time to time deem advisable. Any officer other than the Chairman of the Board of
Directors may be, but is not required to be, a directors the Corporation. Any
two or more offices may be held by the same person.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have
been elected and qualified, or until his death, resignation or removal.
Section 2 - Registration:
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not be necessary to make
it effective.
By-Laws - 8
<PAGE>
Section 3 - Removal:
Any officer may be removed, either with or without cause, and a successor
elected by a majority of the Board of Directors at any time.
Section 4 - Vacancies:
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time. be filled for the
unexpired portion of the term by the Board of Directors.
Section 5 - Duties of Officers:
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these By-laws, or may from time to time be specifically conferred or imposed by
the Board. of Directors. The President shall be the chief executive officer of
the Corporation.
Section 6 - Sureties and Bonds:
In case the Board of Directors shall so require, any officer, employee or agent
of the Corporation shall execute to the Corporation a bond in such sum, and with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
Section 7 - Shares of Other Corporations:
Whenever the Corporation is the holder of shares of any other Corporation, any
right or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders' meetings and execution of waivers, consents,
proxies or other instruments) may be exercised on behalf of the Corporation by
the President, any Vice President, or such other person as the Board of
Directors may authorize.
ARTICLE V - SHARES OF STOCK
Section 1 - Certificate of Stock:
(a) The certificates representing shares of the Corporation shall be in such
form as shall
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be adopted by the Board of Directors, and shall be numbered and registered in
the order issued. They shall bear the holder's name and the number of shares,
and shall be signed by (i) the Chairman of the Board or the President or a Vice
President, and/or the Secretary or Treasurer, or any Assistant Secretary or
Assistant Treasurer, and shall bear the corporate seal.
(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(c) To the extent permitted by law, the Board of Directors may authorize the
issuance of certificates for fractions of a share which shall entitle the holder
to exercise voting rights, receive dividends and participate in liquidating
distributions, in proportion to the fractional holdings; or it may authorize the
payment in cash of the fair value of fractions of a share as of the time when
those entitled to receive such fractions are determined; or it may authorize the
issuance, subject to such conditions as may be permitted by law, of scrip in
registered or bearer form over the signature of an officer or agent of the
Corporation, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a shareholder, except as therein
provided.
Section 2 - Lost or Destroyed Certificates:
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
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Section 3 - Transfers of Shares:
(a) Transfers of shares of the Corporation shall be made on the share records of
the Corporation only by the holder of record thereof, in person or by his duly
authorized attorney, upon surrender for cancellation of the certificate or
certificates representing such shares, with an assignment or power of transfer
endorsed thereon or delivered therewith, duly executed, with such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date:
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty days, nor less than ten days,
as the record date for the determination of shareholders entitled to receive
notice of, or to vote at, any meeting of shareholders, or to consent to any
proposal without a meeting, or for the purpose of determining shareholders
entitled to receive payment of any dividends, or allotment of any rights, or for
the purpose of any other action. If no record date is fixed, the record date for
the determination of shareholders entitled to notice of or to vote at a meeting
of shareholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the resolution of
the directors relating thereto is adopted. When a determination of shareholders
of record entitled to notice of or to vote at any meeting of shareholders has
been made as provided for herein, such determination shall apply to any
adjournment thereof, unless the directors fix a new record date for the
adjourned meeting.
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ARTICLE VI - DIVIDENDS
Subject to Applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed by. the Board of Directors
from time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board of Directors.
ARTICLE IX - AMENDMENTS
Section 1 - B Shareholders:
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by the affirmative vote of shareholders holding of record
in the aggregate at least a majority of the outstanding sham entitled to vote in
the election of directors at any annual or special meeting of shareholders,
provided that the notice or waiver of notice of such meeting shall have
summarized or set forth in full therein, the proposed amendment.
Section 2 - By Directors:
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, by-laws of the Corporation; provided, however, that the
shareholders entitled to vote with respect thereto as in this Article IX
above-provided may alter, amend or repeal by-laws made by the Board of
Directors, except that the Board of Directors shall have no power to change the
quorum for meetings of shareholders or of the Board of Directors, or to change
any provisions of the by-laws with respect to the removal of directors or the
filling of vacancies in the Board resulting from the removal by the
shareholders. If any by-law regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors,
the by-law so adopted, amended or repealed, together with a concise statement of
the changes made.
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ARTICLE X - INDEMNITY
(a) Any person made a party to any action, suit or proceeding, by reason of the
fact that he, his testator or intestate representative is or was a director,
officer or employee of the Corporation, or of any Corporation in which he served
as such at the request of the Corporation, shall be indemnified by the
Corporation against the reasonable expenses, including attorney's fees, actually
and necessarily incurred by him in connection with the defense of such action,
suit or proceedings, or in connection with any appeal therein that such officer,
director or employee is liable for negligence or misconduct in the of his
duties.
(b) The foregoing right of indemnification shall not be deemed exclusive of any
other rights to which any officer or director or employee may be entitled apart
from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be entitled
shall be fixed by the Board of Directors, except that in any case where there is
no disinterested majority of the Board available, the amount shall be fixed by
arbitration pursuant to then existing rules of the American Arbitration
Association.
The undersigned Incorporator certifies that he has adopted the foregoing by-laws
as the first by-laws of the Corporation.
Dated: April 2, 1996
/s/ Denis Dufresne
-------------------------
Incorporator
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Connecticut Valley Sports, Inc. and Subsidiaries
Stevensville, Montana
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 15, 1997, except for Note 1
which is September 17, 1997 relating to the financial statements of Connecticut
Valley Sports, Inc. and Subsidiaries, which is contained in that Prospectus. Our
report contains an explanatory paragraph regarding uncertainties as to the
ability of the Company to continue as a going concern.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
---------------------
BDO Seidman, LLP
New York, New York
October 7, 1997
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Cooper Firearms, Inc.
Stevensville, Montana
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated May 8, 1997 relating to the financial
statements of Cooper Firearms, Inc., which is contained in that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ David Tarlow & Co., P.C.
---------------------------
David Tarlow & Co., P.C.
New York, New York
October 7, 1997
