<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
(AMENDMENT NO. 3)
STARLIGHT ENTERTAINMENT, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
COLORADO 7830 84-1457591
(State of jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
9025 EAST KENYON, SUITE 209, DENVER, COLORADO 80237
(303) 889-5927
(Address and telephone number of principal executive offices)
9025 EAST KENYON, SUITE 209, DENVER, COLORADO 80237
(Address or principal place of business or intended principal place of business)
R. HAYDN SILLECK, PRESIDENT
STARLIGHT ENTERTAINMENT, INC.
9025 EAST KENYON, SUITE 209
DENVER, COLORADO 80237
(303) 889-5927
(Name, address and telephone number of agent for service)
Copies of all communications to:
Fay M. Matsukage, Esq. Norman R. Miller, Esq.
Dill Dill Carr Stonbraker & Hutchings, P.C. Wolin, Ridley & Miller LLP
455 Sherman Street, Suite 300 3100 Bank One Center
Denver, Colorado 80203 1717 Main Street
(303) 777-3737 Dallas, Texas 75201-4681
fax (303) 777-3823 (214) 939-4900
(214) 939-4949 fax
Approximate date of proposed sale to public: As soon as practicable after the
effective date of the Registration Statement
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_] __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] __________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Title of each class Dollar Proposed maximum Proposed maximum
of securities to be amount to be offering price per aggregate offering Amount of
registered registered unit (1) price registration fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each Unit 1,150,000 $7.50 $ 8,625,000 $2,544.38
consisting of one
share of Common
Stock and one
Common Stock
Purchase Warrant
- ---------------------------------------------------------------------------------------------------------
Common Stock 1,150,000 (2) (2) (2)
- ---------------------------------------------------------------------------------------------------------
Common Stock 1,150,000 (2) (2) (2)
Purchase Warrants
- ---------------------------------------------------------------------------------------------------------
Common Stock 1,150,000 $9.00 $10,350,000 $3,053.25
underlying (3)
Common Stock
Purchase Warrants
- ---------------------------------------------------------------------------------------------------------
Representative's 100,000 $.001 $ 100 $ 0.03
Warrants
- ---------------------------------------------------------------------------------------------------------
Units underlying 100,000 $9.00 $ 900,000 $ 265.50
Representative's
Warrants
- ---------------------------------------------------------------------------------------------------------
Common Stock 100,000 (2) (2) (2)
underlying (3)
Representative's
Warrants
- ---------------------------------------------------------------------------------------------------------
Common Stock 100,000 (2) (2) (2)
Purchase Warrants (3)
underlying
Representative's
Warrants
- ---------------------------------------------------------------------------------------------------------
Common Stock 100,000 $9.00 $ 900,000 $ 265.50
underlying (3)
Common Stock
Purchase Warrants
- ---------------------------------------------------------------------------------------------------------
Total $20,775,100 $6,128.66
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) Pursuant to Rule 457(g), a separate registration fee is not required.
(3) An indeterminate number of additional securities are registered hereunder
which may be issued, as provided in the Representative's Warrants and
Warrant Agreement, in the event provisions against dilution become
operative. No additional consideration will be received by the Registrant
upon issuance of such additional securities.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF 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 DECEMBER 4, 1998
PROSPECTUS
1,000,000 UNITS
STARLIGHT ENTERTAINMENT, INC.
CONSISTING OF 1,000,000 SHARES OF COMMON STOCK AND1,000,000 REDEEMABLE COMMON
STOCK PURCHASE WARRANTS
Starlight Entertainment, Inc. (the "Company") is hereby offering 1,000,000
Units, each unit (the "Unit") consisting of one share (the "Shares") of Common
Stock, no par value (the "Common Stock"), and one Redeemable Common Stock
Purchase Warrant (the "Warrants"). The Units, the Shares and the Warrants are
referred to collectively as the "Securities." The Shares and Warrants included
in the Units may not be separately traded until [six months after the date of
this Prospectus], unless earlier separated upon ten days' prior written notice
from the Representatives to the Company. Each Warrant entitles the holder
thereof to purchase one share of Common Stock at an exercise price of $9.00 per
share, commencing at any time after the Shares and Warrants become separately
tradable and until [five years from the date of this Prospectus]. Commencing on
[12 months from the date of this Prospectus], the Warrants are subject to
redemption by the Company at $0.01 per Warrant at any time on thirty days'
prior written notice, provided that the closing sale price for the Common Stock
has equalled or exceeded $ for ten consecutive trading days. The Warrant
exercise price is subject to adjustment under certain circumstances. See
"Description of Securities."
Prior to this offering, there has been no public market for the Securities,
and there can be no assurance that an active market will develop. It is
currently anticipated that the initial public offering price of the Units will
be $7.50 per Unit. See "Underwriting" for information relating to the factors
considered in determining the initial public offering price. The Company has
applied to list the Units, Common Stock and Warrants on the Pacific Exchange
("PCX") under the symbols "SLL.U", "SLL" and "SLL.W", respectively. There can
be no assurance that the application for listing on the PCX will be approved.
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SECTION ENTITLED "RISK
FACTORS" BEGINNING ON PAGE 6 HEREOF CONCERNING THE COMPANY AND THIS OFFERING.
PROSPECTIVE INVESTORS SHOULD ALSO CONSIDER THE FACT THAT THEIR INVESTMENT WILL
RESULT IN IMMEDIATE SUBSTANTIAL DILUTION. SEE "DILUTION."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit.................................. $ $ $
- --------------------------------------------------------------------------------
Total(3).................................. $ $ $
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
(1) In addition, the Company has agreed to pay the Representatives, a 2.00%
nonaccountable expense allowance and to sell to the Representatives
warrants exercisable for four years commencing one year from the date of
this Prospectus to purchase 100,000 Warrants at 120% of the public offering
price (the "Representatives' Warrants"). The Company has agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended (the "Securities
Act"). See "Underwriting."
(2) Before deducting estimated expenses of $475,000 payable by the Company,
including the Representatives' 2.00% nonaccountable expense allowance.
(3) The Company has granted to the Underwriters an option, exercisable within
45 days from the date of this Prospectus, to purchase up to 150,000 Units
on the same terms set forth above, solely for the purpose of covering over-
allotments, if any. If the Underwriters' over-allotment option is exercised
in full, the total Price to the Public, Underwriting Discounts and
Commissions, and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
The Securities are being offered, subject to prior sale, when, as and if
delivered to and accepted by the Underwriters and subject to approval of
certain legal matters by counsel and subject to certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify the offering
without notice and to reject any order, in whole or in part. It is expected
that delivery of Common Stock and Warrant certificates will be made against
payment therefor at the offices of Tejas Securities Group, Inc. in Austin,
Texas on or about , 1998.
TEJAS SECURITIES GROUP, INC. NEIDIGER, TUCKER, BRUNER, INC.
The date of this Prospectus is , 1998.
<PAGE>
ADDITIONAL INFORMATION
The Company has not previously been subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company has filed with the Securities and Exchange Commission (the "Commission")
a Registration Statement on Form SB-2 (including amendments thereto, the
"Registration Statement") under the Securities Act with respect to the
Securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Securities, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements made in this Prospectus regarding the contents of
any contract or document filed as an exhibit to the Registration Statement are
not necessarily complete and, in each instance, reference is hereby made to the
copy of such contract or document so filed. Each such statement is qualified in
its entirety by such reference. The Registration Statement and the exhibits and
the schedules thereto filed with the Commission may be inspected, without
charge, at the office of the Commission at Judiciary Plaza, 450 Fifth Street,
NW, Washington, D.C. 20549. Copies of such materials may also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the Commission at
http://www.sec.gov.
As a result of this offering, the Company will become subject to the
reporting requirements of the Exchange Act, and in accordance therewith will
file periodic reports, proxy statements, and other information with the
Commission. The Company will furnish its shareholders with annual reports
containing audited financial statements certified by independent public
accountants following the end of each fiscal year, proxy statements, and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year following the end of such fiscal quarter.
The Company has applied to list the Securities on the Pacific Exchange. If
the Company's application is accepted, then reports, proxy statements, and other
information concerning the Company will be available for inspection at the
principal office of the Pacific Exchange at 301 Pine Street, San Francisco,
California 94104.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING THE ENTRY OF STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS, OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, the information
herein assumes the Underwriters' over-allotment option and the Representatives'
Warrants are not exercised. The securities offered hereby involve a high degree
of risk. Investors should carefully consider the information set forth under
"Risk Factors."
Prospective investors should note that this Prospectus contains certain
"forward-looking statements," including without limitation, statements
containing the words "believes," "anticipates," "expects," "intends," "plans,"
"should," "seeks to," and similar words. Prospective investors are cautioned
that such forward-looking statements are not guarantees of future performance
and involve risks and uncertainties. Actual results may differ materially from
those in the forward-looking statements as a result of various factors,
including but not limited to, the risk factors set forth in this Prospectus.
The accompanying information contained in this Prospectus identifies certain
important factors that could cause such differences.
THE COMPANY
The Company owns Cinema Saver Theatre Corporation ("Cinema Saver"), which
operates four movie theatre with 21 screens, and Pitchers! Inc. ("Pitchers!"),
which operates four sports restaurants, all of which are located in Colorado.
Cinema Saver currently has one first-run movie theatre and one discount
admission theatre in the suburbs of Denver and two discount admission theatres
in towns within one hour from Denver. Pitchers! has three sports restaurants in
the suburbs of Denver and one in a town within one hour from Denver. Through its
ownership of Cinema Savers and Pitchers!, the Company expects to combine certain
administrative functions and achieve operating efficiencies.
The Company plans to construct and operate new destination entertainment
complexes initially in secondary markets and suburban areas of Colorado in which
both Cinema Saver theatres and Pitchers! sports restaurants, as well as other
entertainment-oriented businesses, will be located. The Company expects that
Cinema Saver theatres, Pitchers! sports restaurants and the other attractions to
be located in the new destination entertainment complexes will draw a
significant number of customers and permit the Company to engage in joint
marketing of its theatres and sports restaurants.
The new destination entertainment complexes which the Company plans to
build will range from approximately 35,000 square feet to 60,000 square feet at
a cost of roughly $6,000,000 to $7,500,000. A Pitchers! sports restaurant is
expected to occupy approximately 12,000 square feet, with seating capacity of
450-500, and a Cinema Saver theatre will occupy approximately 20,000 to 24,000
square feet. The remainder, if any, will be leased to other entertainment-
oriented businesses such as a video game arcade, pizza restaurants, ice cream
shops and video rental stores. The Company estimates that construction of a
complex would take from 8 to 18 months, depending upon the size of the complex,
zoning requirements, and other factors particular to the site. The first such
complex, to be located in Parker, Colorado, is proposed to be built in 1999 with
a 10-screen theatre and 12,000 square-foot Pitchers! restaurant.
The Company's theatres typically contain auditoriums consisting of 100 to
300 seats each and feature large screens, modern seating with cupholder
armrests, digital sound, attractive and functional concession stands, and video
game areas. New theatres will have all of these amenities as well as a modified
stadium seating configuration and will generally contain from 8 to 12
auditoriums. The Company's discount admission theatres generally have higher
attendance, lower film costs and a greater proportion of concession revenues
than its first run theatres. As of the date of this Prospectus, 56% of the
Company's screens were located in its discount admission theatres.
Each Pitchers! sports restaurant combines casual dining with specific
entertainment alternatives, such as large screen TV's, dancing, pool tables,
video games, and other amusement games. Separate customer areas permit
different customer groups to enjoy the facility simultaneously. The varied uses
of the restaurant space allows for greater continuous occupancy throughout the
day and evening. The Company believes that this results in more even monthly
and seasonal revenue flows, plus an ability to compete more effectively in
saturated markets. Pitchers! serves casual American fare, with menu items
ranging from $4.95 to $15.95. Pitchers! derives revenues primarily from sales
of alcoholic beverages (approximately 65%) and food (approximately 30%), with
video games, pool, and clothing accounting for the remainder.
The Company, which was formed as a Colorado corporation on April 10, 1998,
acquired Cinema Saver and Pitchers! as wholly-owned subsidiaries through a
stock-for-stock exchange effective as of June 4, 1998, accounted for as a
pooling of interests. Cinema Saver was incorporated in Colorado in 1991, and
Pitchers! was incorporated in Colorado in 1989. The Company, a holding company,
has executive offices located at 9025 East Kenyon, Suite 209, Denver, Colorado
80237, and its telephone number is (303) 889-5927.
3
<PAGE>
THE OFFERING
Securities offered hereby 1,000,000 Units, each Unit consisting
of one share of Common Stock and one
Common Stock Purchase Warrant. See
"Description of Securities."
Description of the Warrants The Warrants are not immediately
exercisable and are not transferable
separately from the Shares until
______, 1999 [six months after the date
of this Prospectus], unless earlier
separated upon 10 days' prior written
notice from the Representatives to the
Company. Each Warrant entitles the
holder to purchase one share of Common
Stock at a price of $9.00 per share at
any time after the Shares and Warrants
become separately tradable and until
___________, 2003 [5 years after the
date of this Prospectus]. Commencing on
[12 months from the date of this
Prospectus], the Warrants are
redeemable by the Company at $0.01 per
Warrant under certain conditions. See
"Description of Securities."
Common Stock outstanding
before the offering 1,234,355 Shares
after the offering 2,234,355 Shares (1)
Warrants to be outstanding
after the offering 1,000,000 Warrants (2)
Use of proceeds The net proceeds of this offering,
estimated to be approximately
$6,275,000, will be used primarily to
expand the operations of the Company.
See "Use of Proceeds."
Risk factors The Securities offered hereby are
speculative and involve a high degree
of risk and should not be purchased
by investors who cannot afford the
loss of their entire investment. See
"Risk Factors."
Proposed Pacific Exchange symbols
Units "SLL.U"
Common Stock "SLL"
Warrants "SLL.W"
- -----------------------------
(1) Does not include an aggregate up to 1,599,903 shares issuable upon exercise
of (i) the Warrants, (ii) the Underwriters' over-allotment option, (iii) the
Representatives' Warrants and (iv) existing stock options. See "Certain
Relationships and Related Transactions" and "Underwriting."
(2) Does not include up to 150,000 Warrants issuable upon exercise of the
Underwriters' over-allotment option or the 100,000 Warrants underlying the
Representatives' Warrants.
4
<PAGE>
SUMMARY SELECTED FINANCIAL INFORMATION
On May 20, 1998, the shareholders of Cinema Saver and Pitchers! approved an
Agreement and Plan of Share Exchange (the "Plan") pursuant to which Cinema Saver
and Pitchers! were acquired by the Company, a corporation which was formed for
this purpose (the "Acquisition"). As a result of the Acquisition, Cinema Saver
and Pitchers! became wholly-owned subsidiaries of the Company. The Plan, which
was effected as of June 4, 1998, provided for the exchange of the outstanding
shares of Cinema Saver common stock and Pitchers! common stock for restricted
shares of the Company's Common Stock.
The Acquisition was accounted for as a pooling of interests of Cinema Saver
and Pitchers!. Accordingly, the interim period financial statements are
prepared based on the assumption that the companies were combined for the full
nine-month period. The information shown below as of and for the years ended
December 31, 1997 and 1996 were derived from pro forma financial statements,
which give effect to the pooling of interests of Cinema Saver and Pitchers! as
wholly-owned subsidiaries of the Company as if such transaction had occurred at
the beginning of each period presented. The pro forma financial statements were
derived from the historical audited financial statements of Cinema Saver and
Pitchers!. Accordingly, the information shown below should be read in
conjunction with the Company's historical financial statements, pro forma
financial statements, and the notes thereto appearing elsewhere in this
Prospectus. The interim period information is not necessarily indicative of the
Company's results for the remainder of the year. See the Financial Statements.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------------- --------------------------
1998 1997 1997 1996
---------- ----------- ---------- ----------
OPERATING DATA: (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
- --------------
<S> <C> <C> <C> <C>
Total revenues $5,817,445 $ 5,712,655 $7,928,138 $7,117,017
Gross profit $3,698,574 $ 3,712,913 $3,986,245 $3,526,622
Net income $ 95,187 $ 250,544 $ 338,412 $ 138,937
Net income per share $0.08 $0.21 $0.27 $ 0.11
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31,
--------------------------
ACTUAL AS ADJUSTED* 1997
---------- ------------ ----------
BALANCE SHEET DATA: (UNAUDITED) (UNAUDITED)
- -------------------
<S> <C> <C> <C>
Working capital $ (192,844) $ 6,082,156 $ 420,800
Total assets $5,417,160 $11,692,160 $6,251,092
Total liabilities $4,082,662 $ 4,082,662 $5,011,781
Shareholders' equity $1,334,498 $ 7,609,498 $1,239,311
Shares outstanding 1,234,355 2,234,355 1,234,355
</TABLE>
- --------------------
* Adjusted to reflect the sale of the Units offered by this Prospectus at an
assumed offering price of $7.50 per Unit and application of the net proceeds
of $6,275,000.
5
<PAGE>
RISK FACTORS
This offering involves substantial risks associated with the Company and
its business including, among others, risks associated with substantial industry
competition, significant indebtedness, and dependence on management. Prospective
investors should consider carefully, among other factors, the risk factors and
other special considerations relating to the Company and this offering set forth
below.
THE COMPANY
PLANS FOR EXPANSION NOT PROVEN. The Company's plan for expansion into
additional secondary markets has not been proven or tested by the Company. In
recent years, entertainment complexes have been constructed in urban areas
supported by large populations, but not outlying areas. Management believes
that the Company will have less competition by expanding in the secondary
markets; however a lack of competition may be an indication that the secondary
markets will not support an entertainment complex. Management's plans are based
on the historical operations of Cinema Saver and Pitchers! and their perceptions
of the market, as opposed to market research. See "Business - Expansion
Concept."
PROBLEMS ASSOCIATED WITH EXPANSION EFFORTS. While a portion of the
proceeds of this offering has been allocated for the land acquisition costs and
the purchase of furniture, fixture, and equipment in connection with
entertainment complexes to be built by the Company, such proceeds will provide
roughly half of the estimated cost of such complexes. The Company proposes to
finance the other half of the estimated cost through bank or other institutional
debt financing. There can be no assurance that the Company will be able to
obtain such financing on terms favorable to the Company. In addition, the
Company will likely encounter problems generally associated with the expansion
of a business: selecting the right location of its new entertainment complexes,
negotiating favorable terms for the purchase of land and construction of
facilities, keeping construction costs within the established budget, hiring and
training competent personnel, opening the facility on schedule, and attracting
and keeping customers in the new market. See "Use of Proceeds" and "Business -
Expansion Concept."
SIGNIFICANT INDEBTEDNESS. At September 30, 1998, the Company, on a
consolidated basis, had liabilities of $4,082,662 (unaudited), as compared to
stockholders' equity of $1,334,498 (unaudited). The bank debt of Cinema Saver
and Pitchers! is secured by substantially all of the assets of these companies.
If either company should fail to generate sufficient cash flow to service the
bank debt, foreclosure on the pledged assets would impair the operations of the
Company. None of the net proceeds from this offering has been allocated to
reduce debt. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements.
RESTAURANT INDUSTRY. The restaurant industry is subject to certain risks,
including rapidly changing public tastes, generally high working capital
requirements, high volumes and relatively low profit margins, the need for
effective quality control in food processing and preparation, the need for
effective inventory control over alcoholic beverages, the need for strict
supervision over the handling, storage, and dispensing of alcoholic beverages,
and the risk of employee dishonesty. Although the Company believes that it
adequately addresses these risks, no assurance can be given that the Company
will be successful in meeting all of them. See "Business."
COMPETITION. Cinema Saver and Pitchers! compete with other similar types
of theatres and restaurants, as well as other forms of entertainment. These
other forms of entertainment include sporting events, concerts, museums, and
outdoor activities, among many others, some of which have greater assets, name
recognition, and financial, managerial, and marketing resources than the
Company. See "Business - Competition."
GEOGRAPHIC CONCENTRATION. All of the Company's theatres and restaurants
are located in the Front Range of Colorado, within one hour of Denver. The
Company intends to continue to open new locations in the State of Colorado.
There is no assurance that the Company will enter these or other markets or that
if the Company does expand to new markets, it will generate sufficient revenues
that exceed the costs associated with activities in such new markets. There is
no assurance that business activity in the new markets will match that achieved
in the Front Range area. Whether the Company enters into new geographic
markets, the Company's results of operations and financial condition will be
significantly affected by general trends in the economy of the greater Denver
area for the foreseeable future. See "Business."
6
<PAGE>
AUTHORIZATION OF PREFERRED STOCK. The Company is authorized to issue up to
10,000,000 shares of preferred stock, in one or more series, with such rights,
preferences, qualifications, limitations, and restrictions as shall be fixed and
determined by the Company's Board of Directors from time to time. Any such
preferences may operate to the detriment of the rights of the holders of the
Common Stock. See "Description of Securities - Preferred Stock."
DEPENDENCE ON MANAGEMENT. The Company is dependent upon the management of
Cinema Saver and Pitchers! for the day-to-day operation of its business and in
particular is dependent upon the services of R. Haydn Silleck, Clifford E.
Godfrey, Herbert I. Lee, and Lorry Hanson. The loss of services of any of these
officers for any reason could have a material adverse effect on the Company's
existing business and its plans for expansion. No assurance can be given that
the Company would be able to replace any of these men should the Company lose
their services. The Company does not carry key man insurance. See
"Management."
LIABILITY CLAIMS. The Company faces the risk of exposure to premises
liability claims if customers are injured while in the Company's theatres or
restaurants. While the Company will continue to attempt to take appropriate
precautions, there can be no assurance that it will avoid significant premises
liability exposure. In addition, the Company and Pitchers! are exposed to
further liability if patrons of Pitchers! should consume alcoholic beverages and
injure others. While the Company will continue to attempt to take appropriate
precautions, there can be no assurance that it will avoid significant product
liability exposure. Although management believes that the Company has adequate
liability insurance based on its historical coverage, there can be no assurance
that its current insurance coverage is adequate, that economically affordable
insurance coverage can be maintained or will be available at all in the future,
or that a liability claim would not materially adversely affect the business or
financial condition of the Company. See "Business - Legal Proceedings."
LICENSING AND REGULATION. The Company is subject to a variety of
regulations at the state, county, and municipal levels which pertain to
environmental, building, and zoning requirements; the preparation and sale of
food; designation of non-smoking areas; the operation of amusement devices, such
as billiard tables and pinball machines; accessibility of the premises to
disabled customers; and minimum wage and overtime requirements. In addition,
Pitchers! must comply with significant federal, state, and municipal alcoholic
beverage control regulations. The failure to comply with these regulations
could cause Pitchers!' licenses to be revoked and force it to cease the sale of
alcoholic beverages at its restaurants. In connection with its proposed
expansion, the Company will need to obtain construction and operating licenses,
permits, and approvals. Delays or failures in obtaining such licenses, permits,
and approvals could delay or prevent the opening of new theatres and
restaurants. See "Business - Licensing and Regulation."
INDEMNIFICATION AND LIMITATION OF LIABILITY OF DIRECTORS AND OFFICERS.
Pursuant to the Articles of Incorporation and Bylaws of the Company, the
officers, directors, employees and agents of the Company are entitled to
indemnification from the Company for liabilities incurred in connection with the
business or activities undertaken in their official capacities where the acts
involved did not constitute intentional misconduct, a knowing violation of the
law, or the receipt of an impermissible personal benefit. Furthermore, the
Articles of Incorporation of the Company limit the personal liability of
directors to the Company and its shareholders for monetary damages, except for
liability for any breach of the director's duty of loyalty, for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, for unlawful payment of dividends, for unlawful stock purchase
or redemption, or for any transaction from which the director derived any
improper personal benefit. Therefore, while the directors and officers may be
accountable to the Company and its shareholders as fiduciaries, the Company and
its shareholders have a more limited right of action than they would, absent the
indemnification and limitation of liability provisions contained in the
Company's Articles of Incorporation and Bylaws.
DEPENDENCE ON DISCRETIONARY CONSUMER SPENDING. The entertainment industry
is dependent on the amount of discretionary spending by consumers, which may be
adversely affected by general economic conditions. A decrease in the disposable
income of residents in the markets in which the Company operates could have an
adverse effect on the Company's financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations" and "Business."
7
<PAGE>
THE OFFERING
CONTROL BY MANAGEMENT. Following completion of this offering, the present
management of the Company will own, assuming no exercise of the Warrants or
other stock options, approximately 36.5% of the outstanding Common Stock. Given
the lack of cumulative voting and the fact that one-third of the Company's
outstanding Common Stock constitutes a quorum, persons not affiliated with
management may not have the power to elect a single director. As a practical
matter, the current management will continue to effectively control the Company.
See "Principal Shareholders."
ABSENCE OF A PUBLIC MARKET; PACIFIC EXCHANGE LISTING. Prior to this
offering, there has been no public market for the Common Stock. The Company has
applied to have the Common Stock listed on the Pacific Exchange. There can be
no assurance that the Company's Common Stock will be approved for listing. Such
listing, if granted, does not imply that a meaningful, sustained market for the
Common Stock will develop. There can be no assurance that an active trading
market for the Common Stock offered hereby will develop or, if it should
develop, will continue. From time to time after this offering, there also may
be significant volatility in the market price for the Common Stock. See
"Underwriting."
ACQUISITION BY EXISTING STOCKHOLDERS AT LESS COST THAN INVESTORS IN THIS
OFFERING. The existing shareholders of the Company acquired their shares at an
average cost of $0.44 per share, substantially less than the offering price of
the Common Stock. Investors in this offering will experience dilution in
ownership of the Company and in their investment. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. All of the 1,234,355 shares of Common
Stock currently outstanding are "restricted securities" and may in the future be
sold in compliance with Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). Rule 144 generally provides that beneficial owners of
shares who have held such shares for one year may sell within a three-month
period a number of shares not exceeding 1% of the total outstanding shares or
the average trading volume of the shares during the four calendar weeks
preceding such sale. Sales of substantial amounts of Common Stock in the public
market after the offering pursuant to Rule 144 or otherwise, or the perception
that such sales could occur, may adversely affect prevailing market prices of
the Common Stock. See "Shares Eligible for Future Sale."
DIVIDENDS. The Company does not contemplate paying cash dividends on
Common Stock in the foreseeable future since it will use all of its earnings, if
any, to finance expansion of its operations. See "Dividend Policy" and
"Description of Securities."
UNDERWRITERS' INFLUENCE ON THE MARKET. A significant amount of the Units
may be sold to customers of the Underwriters. Such customers subsequently may
engage in transactions for the sale or purchase of such securities through or
with the Underwriters. Although they have no legal obligation to do so, the
Underwriters from time to time in the future may make a market in and otherwise
effect transactions in the Company's securities. To the extent the Underwriters
do so, they may be a dominating influence in any market that might develop and
the degree of participation by the Underwriters may significantly affect the
price and liquidity of the Company's securities. Such market making activities,
if commenced, may be discontinued at any time or from time to time by the
Underwriters without obligation or prior notice. If a dominating influence at
such time, the Underwriters' discontinuance of market making activities could
adversely affect the price and liquidity of the securities. See "Underwriting."
CURRENT PROSPECTUS REQUIRED TO EXERCISE WARRANTS. Holders of Warrants may
exercise them only if a current prospectus relating to the Common Stock
underlying the Warrants is then in effect. Although the Company has undertaken
to make a good faith effort to maintain the effectiveness of a current
prospectus covering the Common Stock underlying the Warrants, there can be no
assurance that the Company will be able to do so. The Warrants may be deprived
of any value in the event this Prospectus or another prospectus covering the
shares issuable upon exercise of the Warrants is not kept effective. See
"Description of Securities - Warrants."
8
<PAGE>
POTENTIAL DILUTION AND ADVERSE IMPACT ON ADDITIONAL FINANCING DUE TO
OUTSTANDING OPTIONS. As of the date of this Prospectus, the Company had
outstanding options to acquire an aggregate of 99,903 shares of Common Stock. To
the extent that the outstanding options are exercised, dilution to the interests
of the Company's shareholders may occur. For the life of the options described
above, the holders will have the opportunity to profit from a rise in the price
of the underlying Common Stock. The existence of such options may adversely
affect the terms on which the Company can obtain additional financing, and the
holders of such options can be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain additional capital by an
offering of its unissued capital stock on terms more favorable to the Company
than those provided by such options. See "Shares Eligible for Future Sale."
RISK OF REDEMPTION OF WARRANTS. Commencing twelve months from the date of
this Prospectus, the Company may redeem the Warrants for $0.01 per Warrant at
any time upon 30 days' prior written notice, provided that the closing sale
price of the Common Stock on the Pacific Exchange has been at least $______ for
ten consecutive trading days. Notice of redemption of the Warrants could force
the holders thereof: (i) to exercise the Warrants and pay the exercise price at
a time when it may be disadvantageous or difficult for the holders to do so;
(ii) to sell the Warrants at the current market price when they might otherwise
wish to hold the Warrants; or (iii) to accept the redemption price, which is
likely to be less than the market value of the Warrants at the time of the
redemption. See "Description of Securities -Warrants."
EFFECT OF THE WARRANTS AND REPRESENTATIVES' WARRANTS. Until the expiration
of five years from the date of this Prospectus, the holders of the Warrants and
Representatives' Warrants are given an opportunity to profit from a rise in the
market price of the Common Stock, with a resulting dilution in the interests of
the other shareholders. The shares of Common Stock underlying the
Representatives' Warrants have certain registration rights. Further, the terms
on which the Company might obtain additional financing during that period may be
adversely affected by the existence of the Warrants and Representatives'
Warrants. The holders of the Warrants and Representatives' Warrants may
exercise the Warrants and Representatives' Warrants at a time when the Company
might be able to obtain additional capital through a new offering of securities
on terms more favorable than those provided herein. The Company has agreed
that, under certain circumstances, it will register under federal and state
securities laws the Representatives' Warrants and/or the securities issuable
thereunder. Exercise of these registration rights could involve substantial
expense to the Company at a time when it could not afford such expenditures and
may adversely affect the terms upon which the Company may obtain financing. See
"Description of Securities - Warrants" and "Underwriting."
9
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company are estimated to be $6,275,000 ($7,265,000
if the Underwriters' over-allotment option is exercised in full). The Company
intends to use the net proceeds as follows:
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT
----------- --------
<S> <C> <C>
Land acquisition costs for new locations........................... $2,850,000 45.4%
Furniture, fixtures and equipment for new Cinema Saver locations... 1,630,000 26.0%
Furniture, fixtures and equipment for new Pitchers! locations...... 1,000,000 15.9%
Improvements to existing locations................................. 220,000 3.5%
Working capital (1)................................................ 575,000 9.2%
---------- -----
Total.............................................................. $6,275,000 100.0%
========== =====
</TABLE>
- --------------------
(1) Elements of working capital include cash, accounts receivable, inventory,
accounts payable, accrued expenses, and other current assets and
liabilities. These elements fluctuate with the day-to-day operations of
the Company.
While most of the net proceeds of this offering have been allocated for
expansion, such proceeds will provide roughly half of the estimated cost of the
entertainment complexes to be constructed by the Company. The Company proposes
to finance the other half of the estimated cost through bank or other
institutional debt financing. There can be no assurance that the Company will
be able to obtain such financing on terms favorable to the Company. Further,
pending final approval and receipt of funds through such debt financing, it is
possible that the Company will provide its own bridge financing and that more
than the amounts allocated above will be used on a temporary basis for expansion
costs. See "Business - Expansion Concept."
These allocations indicate the Company's present intentions for the use of
proceeds. However, future events may require a change in the allocation of
funds. Any changes in proposed expenditures will be made at the discretion of
the Board of Directors of the Company.
The proceeds from any exercise of the Underwriters' over-allotment option,
and Warrants, and the Representatives' Warrants will be added to working
capital.
Pending such uses, the Company intends to invest the proceeds from this
offering in short term, investment-grade, interest bearing securities.
10
<PAGE>
DILUTION
As of September 30, 1998, the Company had an unaudited net tangible book
value of $823,134 or $0.67 per share of Common Stock. Net tangible book value
per share of Common Stock represents total tangible assets reduced by total
liabilities, divided by the number of outstanding shares of Common Stock.
Without taking into account any changes in net tangible book value after
September 30, 1998, after giving effect to the sale by the Company of the
1,000,000 Units offered hereby for net proceeds of $6,275,000 (and attributing
no part of the proceeds to the Warrants), the pro forma net tangible book value
of the Company's Common Stock at September 30, 1998 would have been $7,098,134
or $3.18 per share. Accordingly, after the offering, the net tangible book value
of the shares of Common Stock held by the present shareholders would have
increased $2.51 per share. Concurrently, new investors purchasing Units in this
offering would suffer substantial immediate dilution of $4.32 per share.
The following table illustrates the foregoing dilution of a new investor's
equity in a share of Common Stock assuming that the entire offering price is
attributed to the Common Stock:
<TABLE>
<S> <C>
Offering price per share of Common Stock $7.50
Net tangible book value per common share before offering... $0.67
Increase per share attributable to new investors........... $2.51
-----
Pro forma net tangible book value per common
share after offering $3.18
-----
Dilution per common share to new investors $4.32
Percentage Dilution 57.6%
</TABLE>
The following table sets forth, as of the date of this Prospectus, a
comparison of the respective investment and equity of the current shareholders
and investors purchasing Units in this offering. Such table assumes that no
part of the proceeds is attributed to the Warrants.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Existing shareholders 1,234,355 55.2% 546,087 6.8% $0.44
New investors 1,000,000 44.8% 7,500,000 93.2% $7.50(2)
--------- ----- --------- -----
Total 2,234,355(1) 100.0% 8,046,087 100.0%
========= ===== ========= =====
</TABLE>
___________
(1) Does not include an aggregate up to 1,599,903 shares issuable upon exercise
of (i) the Warrants, (ii) the Underwriters' over-allotment option, (iii) the
Representatives' Warrants and (iv) existing stock options. To the extent
that these options and warrants are exercised, there will be further share
dilution to new investors.
(2) This amount assumes the attribution of the Unit purchase price solely to the
Common Stock included in each Unit. See "Use of Proceeds."
11
<PAGE>
CAPITALIZATION
The following table sets forth the current liabilities, long-term debt and
capitalization of the Company as of September 30, 1998, and as adjusted to give
effect to the sale by the Company of 1,000,000 Units offered hereby at an
assumed offering price of $7.50 per Unit and the application of the net proceeds
of $6,275,000. The table should be read in conjunction with the financial
statements and notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------------
(UNAUDITED)
ACTUAL ADJUSTED
---------- -----------
<S> <C> <C>
Current liabilities........................................ $ 497,949 $ 497,949
========== ===========
Long-term debt............................................. $3,584,713 $ 3,584,713
---------- -----------
Stockholders' equity:
Common stock, no par value per share;
25,000,000 shares authorized, 1,234,355 shares issued,
2,234,355 issued as adjusted for the offering (1)........ 546,087 6,821,087
Retained earnings......................................... 788,411 788,411
---------- -----------
Total stockholders' equity................................. 1,334,498 7,609,498
---------- -----------
Total capitalization $4,919,211 $11,194,211
========== ===========
</TABLE>
- ------------
(1) Does not include an aggregate up to 1,599,903 shares issuable upon exercise
of (i) the Warrants, (ii) the Underwriters' over-allotment option, (iii) the
Representatives' Warrants and (iv) existing stock options. See "Certain
Relationships and Related Transactions" and "Underwriting."
DIVIDEND POLICY
The Company does not anticipate paying dividends on the Common Stock at any
time in the foreseeable future. The Company's Board of Directors plans to retain
earnings for the development and expansion of the Company's business. The Board
of Directors also plans to regularly review the Company's dividend policy. Any
future determination as to the payment of dividends will be at the discretion of
the Board of Directors of the Company and will depend on a number of factors,
including future earnings, capital requirements, financial condition and such
other factors as the Board of Directors may deem relevant.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1998 AND SEPTEMBER 30, 1997
For the nine months ended September 30, 1998, revenues increased to
$5,817,445 from $5,712,655, a 1.8% increase over the same period in 1997. Net
profit for 1998 increased to $95,187 as compared to $250,544 for the 1997 nine-
month period, a 62% increase.
Revenues at the Company's movie theatres were down slightly from the prior
year's results ($2,010,566 in 1998 as compared to $2,081,498 in 1997) due
primarily to the lack of any summer "blockbuster" releases through September 30,
1998. With the added screens in Evergreen and the closure of the theatre in
Parker, it is anticipated that revenues for the full year will be essentially
unchanged. General and administrative expenses increased in 1998 primarily as a
result of increased labor costs. These costs were the direct result of the
addition of one theatre and the closing of another in the third quarter. This
resulted in a decrease in theatre net profit of approximately $36,000 over the
same period in 1997.
Revenues increased, but gross profit decreased slightly, at the Company's
restaurant operations for the nine months ended September 30, 1998 as compared
to 1997. Cost of goods sold as a percentage of revenues increased approximately
3.5% as a result of increased food and beverage costs which were not offset by
increased prices. The restaurant operations have increased prices in the fourth
quarter which should offset these increased costs. Net profit decreased
approximately $119,000 primarily as a result of continuing costs, without
associated revenues, from the closed Denver facility which was sold on September
30, 1998, as well as the costs of an expired option on a facility in Arvada,
Colorado. In addition, the restaurant operations incurred higher administrative
costs in gearing up for the anticipated expansion as a result of this public
offering.
COMPARISON OF THE YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
CINEMA SAVER. Revenues in 1997 were $2,681,545 compared to $2,656,821 in
1996, an increase of 1.0%. The increase was primarily due to improvement in the
Company's concessions revenues, although admissions and other operating revenues
experienced modest growth.
Operating expenses increased as a percentage of revenues to 84.4% in 1997
versus 83.6% in the prior year. The increase reflects increased spending on
advertising and film expense, offset by lower concession costs and general and
administrative expenses. Due to the increase in operating expenses in 1997,
operating income declined to $419,385 during the year compared to $434,729 in
1996.
Despite the decline in revenues and operating income, net income increased
to $235,795 in 1997 compared to $88,792 in 1996. The improvement in net income
was primarily due to a gain before taxes of $215,594 from the sale of one of
the Company's theatres which was subsequently leased back to the Company. Net
income also benefited from a moderate decline in interest expense stemming from
a reduction in long term debt.
PITCHERS!. Revenues for the fiscal year ended December 31, 1997 improved
to $5,246,593 from $4,460,196 in fiscal year 1996, an increase of 17.6%. The
increase was primarily due to an additional Pitchers! location opened up in 1997
combined with increased awareness of existing locations, resulting in increased
customer visits.
Operating expenses increased to $5,004,861 in 1997 versus $4,238,290 in
1996. The increase reflected the additional support needed for the new
Pitchers! location opened in 1997. Operating expenses as a percentage of
revenues were relatively stable at 95.4% compared to 95.0% in the prior year.
Operating income was $241,732 in 1997 compared to $221,906, an increase of
8.9%. The increase in operating income was primarily due to the increased
revenue base from the expansion in 1997.
Net income increased by 104.6% to $102,617 in 1997 from $50,145 in 1996.
The increase was primarily due to the increase in revenues combined with a one-
time loss of $62,934 in 1996 that negatively impacted net income in
13
<PAGE>
that year. The reported financial results include losses (net of tax) of $50,591
in 1997 and $48,785 in 1996 from unprofitable operations at two of the Company's
locations. These two operating facilities have since been closed.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced a net decrease in cash of $913,900 for the nine
months ended September 30, 1998, as compared to a net decrease of $47,063 for
the nine months ended September 30, 1997. The difference can be attributed
primarily to the following 1998 events: the expansion and upgrade of the theatre
in Evergreen, the sale of the Company's restaurant facility in Denver, the
payoff of the mortgage debt associated with that restaurant property, and the
decision to engage in this public offering. Through September 30, 1998, the
Company incurred $758,847 in expansion/upgrade costs and approximately $150,000
in deferred offering costs.
Cinema Saver experienced a net increase in cash of $729,332 during 1997
from the sale/leaseback of a theatre which generated $697,534 from the sale of
the property. These proceeds were used to expand and upgrade the Evergreen
theatre.
During 1997, Pitchers! had a net decrease in cash of $74,582 due to the
purchase of equipment for the Lakewood restaurant. During 1996, cash increased
$88,877.
The Company had a working capital deficiency of $192,844 at September 30,
1998, as compared to positive working capital of $415,800 at December 31, 1997,
due to the capital expense of the Evergreen theatre expansion of approximately
$632,000. Total assets have also decreased slightly at September 30, 1998, due
primarily to decreases in both current assets and long-term debt, which are also
consistent with the increase in retained earnings.
The Company's normal operations have generated sufficient cash flow to meet
all normal operating requirements. Management believes that it has adequate
liquidity and capital to fund its operating activities (exclusive of any
expansion) for at least twelve months without having to incur additional debt.
The costs incurred in conjunction with this offering have been funded through a
combination of cash flow from operations and short-term borrowings.
To date, expansion of both subsidiaries has been funded primarily through
bank debt, relying upon the personal guarantees of the officers, directors, and
principal shareholders of the respective companies. See "Certain Relationships
and Related Transactions." As of September 30, 1998 and December 31, 1997, total
bank debt was $3,315,935 and $3,993,406, respectively. The Company currently has
no commitments that would require funds beyond those required and generated
through normal, ongoing operations. The Company is negotiating to purchase two
parcels of land which would be consistent with the expansion plans discussed
elsewhere in this Prospectus, but any commitments that might be entered into in
this regard will be subject to the successful completion of this offering. See
"Business - Expansion Concept."
14
<PAGE>
BUSINESS
GENERAL
The Company owns Cinema Saver Theatre Corporation ("Cinema Saver"), which
operates four movie theatres with 21 screens, and Pitchers! Inc. ("Pitchers!"),
which operates four sports restaurants, all of which are located in Colorado.
Cinema Saver currently has one first-run movie theatre and one discount
admission theatre in the suburbs of Denver and two discount admission theatres
in towns within one hour from Denver. Pitchers! has three sports restaurants in
the suburbs of Denver and one in a town within one hour from Denver. Through
its ownership of Cinema Savers and Pitchers!, the Company expects to combine
certain administrative functions and achieve operating efficiencies.
The Company plans to construct and operate new destination entertainment
complexes initially in secondary markets (generally towns with a population of
25,000 to 200,000) and suburban areas of Colorado in which both Cinema Saver
theatres and Pitchers! sports restaurants, as well as other entertainment-
oriented businesses, will be located. The Company expects that Cinema Saver
theatres, Pitchers! sports restaurants and the other attractions to be located
in the new destination entertainment complexes will draw a significant number of
customers and permit the Company to engage in joint marketing of its theatres
and sports restaurants.
The new destination entertainment complexes which the Company plans to
build will range from approximately 35,000 square feet to 60,000 square feet at
a cost of roughly $6,000,000 to $7,500,000. A Pitchers! sports restaurant is
expected to occupy approximately 12,000 square feet, with seating capacity of
450-500, and a Cinema Saver theatre will occupy approximately 20,000 to 24,000
square feet. The remainder, if any, will be leased to other entertainment-
oriented businesses such as a video game arcade, pizza restaurants, ice cream
shops and video rental stores. The Company estimates that construction of a
complex would take from 8 to 18 months, depending upon the size of the complex,
zoning requirements, and other factors particular to the site. The first such
complex, to be located in Parker, Colorado, is proposed to be built in 1999
with a 10-screen theatre and 12,000 square foot Pitchers! restaurant.
In addition to co-locating in new entertainment complexes, Cinema Saver and
Pitchers! may expand by opening separate facilities, should the right situations
be presented.
The Cinema Saver locations are set forth below:
<TABLE>
<CAPTION>
CINEMA SAVER LOCATIONS TYPE OF OPERATION NUMBER OF SCREENS NUMBER OF SEATS
- ---------------------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
Basemar Cinema Saver discount admission 2 570
2490 Baseline Road, Boulder
Bergen Park Cinemas first-run 7 1,041
1204 Bergen Parkway, Evergreen
Cinema Saver 6 discount admission 6 1,179
2525 Worthington Circle, Fort Collins
Cinema Saver 6 discount admission 6 1,342
6014 South Kipling, Littleton
</TABLE>
The Pitchers! locations are set forth below:
<TABLE>
<CAPTION>
PITCHERS! LOCATIONS SIZE OF FACILITY CAPACITY
- ------------------- ---------------- --------
<S> <C>
1670 South Chambers Road, Aurora 6,500 square feet 195
1100 West Drake Road, Fort Collins 8,300 square feet 248
146 Van Gordon, Lakewood 12,100 square feet 491
2852 West Bowles Avenue, Littleton 11,500 square feet 450
</TABLE>
15
<PAGE>
HISTORY
The Company was formed as a Colorado corporation on April 10, 1998 for the
purpose of acquiring Cinema Saver and Pitchers! and has no other business other
than as a holding company. On May 20, 1998, the shareholders of Cinema Saver
and Pitchers! approved an Agreement and Plan of Share Exchange (the "Plan")
pursuant to which Cinema Saver and Pitchers! were acquired by the Company (the
"Acquisition"). As a result of the Acquisition, Cinema Saver and Pitchers!
became wholly-owned subsidiaries of the Company. The Plan provided for the
exchange of the outstanding shares of Cinema Saver common stock and Pitchers!
common stock solely for restricted shares of the Company's Common Stock.
Cinema Saver was founded on August 23, 1991 as a Colorado corporation to
develop a movie theatre company based on a combination of first-run and discount
admission theatres. That company's first efforts were directed toward
remodeling an older, first-run theatre in Boulder, Colorado, which had been
dormant for over a year, and re-opening it as Boulder's first discount admission
theatre in November 1991. The Basemar Cinema Saver, with two screens and 570
seats, has been operating profitably since early 1992. In 1994, Cinema Saver
expanded its operations with two first-run theatres in the suburbs of Denver,
Colorado. Cinema Saver purchased an existing 784-seat four-plex in Parker,
Colorado, in May 1994, and built a new 800-seat four-plex in Evergreen,
Colorado, which opened in May 1994. In December 1993, Cinema Saver purchased a
3.3-acre parcel of land in Fort Collins, Colorado, and built a 1,179-seat six-
plex which opened in March 1995 as a discount admission operation. In March
1998, Cinema Saver completed the expansion of the Evergreen location to 1,041
seats with seven screens. In July 1998, at the request of the landlord Cinema
Saver took over the operation of an existing 1,342-seat six-screen theatre in
Littleton, which operates as a discount admission theatre. On August 30, 1998,
Cinema Saver closed the first-run 784-seat four-plex in Parker and plans to open
a new theatre in Parker in 1999, described below.
Pitchers! was incorporated on July 28, 1989, as a Colorado corporation, to
operate a sports restaurant in Aurora, Colorado. In 1993, Pitchers! expanded by
leasing a facility in Fort Collins, Colorado, and purchasing a building in
Denver, Colorado, in 1994. In 1996, the fourth facility was leased in
Littleton, Colorado, and a fifth location was leased in Lakewood, Colorado, in
1997. Pitchers! closed the Denver location in January 1998 and sold it in
September 1998, leaving Pitchers! with four operating restaurants.
EXPANSION CONCEPT
As indicated above, Cinema Saver and Pitchers! operate in both secondary
markets and Denver suburban areas. These companies combined on the assumption
that they could expand more rapidly as one company. Management believes that
the combination of two "destination" type of entertainment venues, together with
complementary smaller businesses, will create a new complex that can dominate
the entertainment options in the right secondary markets. Using the latest
Pitchers! (Lakewood) as the model, which has incorporated the best aspects of
each of the other operations, and putting it together with either a first-run or
discount admission movie theatre, management believes that it will create the
core critical mass necessary to insure that the Company's complex is the
entertainment "hot spot" of the town. These targeted secondary markets will
typically have a population of 25,000 to 200,000. While the Company's complexes
will not be of the size of some of the entertainment mega-complexes being built
in large cities throughout the United States, it is expected they will have the
same relative impact in the secondary markets in which the Company plans to
expand.
The Company believes that the attractiveness, comfort and viewing
experience that will be provided by its new modern facilities will result in the
Company's theatres being the preferred destination for moviegoers in its
markets.
Management believes the Company's new multiplex facilities will increase
per screen revenues and operating margins and enhance its operating
efficiencies. Such theatres allow the Company to present films appealing to
several segments of the moviegoing public while serving patrons from common
facilities (such as box office, concession stands, restrooms and game areas).
Larger multiplexes will also provide increased flexibility in the length of time
that a film will play. The Company can lengthen the run of a film by switching
it to a smaller auditorium after the initial peak weeks. The later weeks of a
film's run have the potential to generate higher profits as film license
agreements typically provide for lower film rent to be paid.
16
<PAGE>
The Company intends to continue operating both first run and discount
admission theatres. The decision as to which to operate will be made on a
market by market basis. Generally, if there is little or no first run
competition, the Company will operate as a first run theatre. In other markets,
however, the company will operate discount admission theatres. The Company
believes that its discount admission theatres allow it to serve patrons who miss
a film during its first run exhibition or who may not be able to afford to
attend first run theatres on a frequent basis, thereby increasing the number of
potential customers beyond traditional first run moviegoers.
The Company's theatres typically contain auditoriums consisting of 100 to
300 seats each and feature large screens, modern seating with cupholder
armrests, digital sound, attractive and functional concession stands, and video
game areas. New theatres will have all of these amenities as well as a modified
stadium seating configuration and will generally contain from 8 to 12
auditoriums. The Company's discount admission theatres generally have higher
attendance, lower film costs and a greater proportion of concession revenues
than its first run theatres. As of the date of this Prospectus, 56% of the
Company's screens were located in its discount theatres.
The Company proposes to acquire land in these markets and build new
facilities in a development that would range from approximately 35,000 square
feet to 60,000 square feet. The Cinema Saver theatre and Pitchers! restaurant
would occupy 35,000 to 40,000 square feet of the space, while the balance, if
any, would be leased to other businesses that are compatible with or complement
the entertainment theme, such as a video game arcade, ice cream/sandwich shop,
video rental outlet, or pizza restaurant. As the destination entertainment
center in a market, management believes that each operation in the complex will
be able to draw customers from the other, thereby attracting more customers
collectively than individually and creating an operating synergy.
The Company estimates that construction of a complex would take from 8 to
18 months, depending upon the size of the complex, zoning requirements, and
other factors particular to the site, at a cost of roughly $6,000,000 to
$7,500,000.
As separate companies, Cinema Saver and Pitchers! lacked the size to
justify certain operating mechanisms. There is now sufficient mass as a combined
company to bring certain operating functions in-house and operate more
efficiently and, in some cases, economically. Management plans to combine the
administrative functions of both companies and to engage in joint marketing
efforts.
While the trend among both major theatre operators and national restaurant
operators has been away from the smaller markets in favor of the larger ones,
with the construction of multi-plexes and large expensive decor restaurants,
management of the Company believes that on a per capita basis the secondary
markets can be just as profitable as the larger ones. With less competition in
these secondary markets, the Company can obtain a much greater market share than
is possible in the large markets. Actual attendance at Cinema Saver's theatres
appear to validate this assumption. Also, many operating expenses in these
markets are considerably less than in the large urban areas, particularly
advertising, wages, and occupancy costs. Finally, it is much easier to maintain
a market share in small communities because new forms of entertainment are
established with less frequency in these communities than in the cities.
Management believes that all of these factors create a stable operating and
marketing environment.
With Cinema Saver having developed and built new theatre complexes in
Evergreen and Fort Collins and Pitchers! having remodeled four restaurant
facilities, the Company has basic architectural, mechanical, and engineering
plans for both theatre and restaurant facilities. These plans have been
developed and designed to promote operating efficiencies for the Company while
providing a first-class entertainment environment for the customers. The
theatre auditoriums have been designed with digital surround sound, wide
screens, and reclining seats with cup holders, while lobbies have been designed
with common box office and concession areas enabling Cinema Saver to more
efficiently utilize staff and minimize congestion. As a result of having to
adapt to existing leased spaces, Pitchers! has had to operate in several very
different configurations, each of which has succeeded in some way. With each
new location, Pitchers! has gained experience in what works best, and the newest
location (Lakewood) has been remodeled to take advantage of this experience.
That location, in particular, has attractive eating, dancing, and amusement
spaces, which includes an outdoor patio, excellent transition between the
different venues, and an efficient kitchen. It is anticipated that future
restaurant facilities, proposed to range between 10,000 and 14,000 square feet,
will incorporate all of these attributes.
17
<PAGE>
On August 15, 1998, the Company entered into a contract to purchase
approximately 8.5 acres of vacant land in Parker, Colorado. The
Company executed a promissory note for $25,000 as an earnest money deposit
toward the purchase price of $1,650,000. The purchase of the property is
expressly contingent upon the Company completing this offering by February 12,
1999. The Company proposes to construct a 10-screen theatre and a 12,000 square-
foot Pitchers! restaurant on the site. The total construction cost, which
excludes the land cost, is estimated to be approximately $4,400,000. Depending
upon weather conditions during the winter, completion of construction is
scheduled for the summer of 1999.
OPERATIONS
CINEMA SAVER. Cinema Saver was founded for the purpose of developing a
movie theatre company based on a combination of first-run and discount admission
theatres in secondary markets. Revenues are derived primarily from box office
receipts (approximately 68%) and concession sales (approximately 30%).
Additional revenues, which are not material, come from video games installed in
the theatre lobbies and on-screen advertising, both of which have been managed
by outside, independent companies on a revenue-sharing basis.
Theatrical exhibition is the primary distribution outlet for new motion
picture releases. The Company believes that the successful domestic release of
a motion picture plays an important role in the success of the "downstream"
outlets such as home video, pay-per-view, network and syndicated television.
The Company further believes that the emergence of new outlets for motion
pictures has not adversely affected attendance at theatres, as they do not
provide an experience that can compare to that of viewing a movie in a state-of-
the-art theatre. The Company believes the public will continue to prefer the
viewing of movies on large screens with superior sound and visual quality while
enjoying a snack of choice from the concession stand.
The Company's corporate office is responsible for theatre development and
site selection, lease negotiation, theatre design and construction, film
licensing and settlements, concession vendor negotiations, and financial and
accounting activities. Theatre managers are responsible for the day-to-day
operations of the Company's theatres including optimizing staffing, developing
innovative theatre promotions, preparing movie schedules, purchasing concession
inventories, maintaining a clean and functioning facility, and training theatre
staff.
The Company continually evaluates existing and new markets for potential
theatre locations. The Company generally seeks to develop theatres in markets
that are under-screened as a result of changing demographic trends or that are
served by distant or aging theatre facilities. Some of the factors the Company
considers in determining whether to develop a theatre in a particular location
are the market's population and average household income, the proximity to
retail corridors, convenient roadway access and the proximity to competing
theatres.
Films are typically licensed from film distributors owned by major film
production companies and from independent film distributors that distribute
films for smaller production companies. Prior to negotiating for a particular
film, Cinema Saver's management evaluates its prospects. The criteria used
include, but are not limited to, the cast, director, plot, MPAA rating, past
performance of similar films, and expected film rental terms. Success in
booking depends on the availability of commercially popular films and an
understanding of the tastes of residents in each particular market.
The Company licenses films through its corporate headquarters. The
Company's management has significant experience in the theatre industry and has
developed long-standing relationships with film distributors. The Company
licenses films from all of the major distributors and is not dependent on any
one studio for motion picture product.
A film license typically specifies a rental fee to be paid to the
distributor based on the higher result of either a gross receipts formula or a
theatre admissions revenue sharing formula. Under a gross receipts formula, the
distributor receives a specified percentage of the box office receipts, with the
percentage generally declining over the term of the run. First run film rental
percentages usually begin at 70% of box office receipts and gradually decline to
as low as 30% over a period of four to seven weeks. Second run film rental
percentages typically begin at 35% of box office receipts and often decline to
30% after the first week. Under the theatre admissions revenue sharing formula
(commonly known
18
<PAGE>
as the "90/10" clause), the distributor receives a specified percentage (i.e.
90%) of the excess of box office receipts over a negotiated reimbursement for
theatre expenses. In general, most distributors follow an industry practice of
adjusting or renegotiating the terms of a film license subsequent to exhibition
based upon the film's success.
Concession sales are the Cinema Saver's second largest revenue source,
representing 30% of total revenues for the twelve months ending December 31,
1997. The Company management devotes a considerable amount of effort to
increasing sales and improving the operating margins from concession sales.
The Company's primary concession sales come from soft drinks, popcorn, and
candy. In addition to these basic items, the Company sells bottled water,
nachos, fruit drinks, flavored teas and coffee-type beverages as alternatives
for its customers. The Company offers "combos" of a pre-selected assortment of
concession items for both adults and children.
The Company's newest theatres have multiple station concession stands which
are designed to serve larger numbers of customers rapidly.
The Company currently purchases all its concession supplies for all
theatres from two regional suppliers. The Company has a formal agreement with
Pepsi Cola(R) ("Pepsi(R)") to purchase all fountain products at existing and
future locations from that company. In exchange, Cinema Saver receives
Pepsi(R)'s favorable national pricing and Pepsi(R) provides all fountain
equipment at no cost to the Company.
PITCHERS! Each facility combines casual dining with specific entertainment
alternatives, such as large screen TVS, dancing, pool tables, video games, and
other amusement games. Separate customer areas permit different customer groups
to enjoy the facility simultaneously. For example, family and middle-aged
customers often frequent the restaurant dining area, while singles and young
couples dominate the amusement and games space. Many patrons use both customer
areas during a single visit. The varied uses of the restaurant space allows for
greater continuous occupancy throughout the day and evening. Management also
believes that it results in more even monthly and seasonal revenue flows, plus
an ability to compete effectively in highly saturated restaurant markets.
Pitchers! derives revenues primarily from sales of alcoholic beverages
(approximately 65%) and food (approximately 30%), with video games, pool, and
clothing accounting for the final 5%. Profit margins are significantly higher
on sales of alcoholic beverages (approximately 75%) than food (approximately
55%). Pitchers! serves casual American fare, with menu items ranging from $4.95
to $15.95.
Pitchers! negotiates directly with suppliers for key food and beverage
products to assure uniform quality and freshness of products in its restaurants,
and to obtain competitive prices. Food and beverage products and supplies are
shipped directly to the restaurants as Pitchers! does not maintain a central
product warehouse. Pitchers! has not experienced any significant delays in
receiving restaurant products, supplies, or equipment.
MARKETING
CINEMA SAVER. As is fairly standard for the movie theatre business, Cinema
Saver relies heavily on advertisements and movie schedules published in local
newspapers to inform the public of films currently showing and show times. It
also runs previews of coming attractions and previews of other films currently
showing on other screens in the same theatre complex, and displays lobby posters
and other promotional materials supplied by the distributors. In addition, the
theatres benefit from national advertising campaigns run by film distributors.
Each theatre is also equipped with a telephone "movie information line" which
has a recorded message listing the features and show times, and is listed on the
World Wide Web through various entertainment information bureaus.
19
<PAGE>
PITCHERS! In the past, marketing has consisted primarily of big
promotional grand openings involving sponsorships by beer distributors,
extensive use of coupons in specifically targeted local areas, and a substantial
amount of softball league sponsorships. Pitchers! tested more conventional
marketing methods during the fall of 1997: sponsoring pre-game and post-game
shows of the radio broadcast of Denver Bronco football games, advertising on an
afternoon weekday radio sports show, and monthly drawings at the restaurants for
trips to Las Vegas, a Super Bowl trip, a motorcycle, and Bronco game tickets.
FUTURE EFFORTS. With the combination of the companies, marketing efforts
will emphasize the image of a complete destination entertainment complex,
appealing to everyone in the local community. The Company plans to utilize
local newspaper and radio advertising, continue to sponsor softball and other
local participatory sport activities in the community, and cross-sell each side
of the business at the other location. Prior to the combination of these
companies, the two companies conducted a modest amount of cross-selling in Fort
Collins, where Cinema Saver 6 and Pitchers! are located across the street from
each other. The theatre advertises Pitchers! in the lobby and on-screen during
intermission, while Pitchers! has used theatre tickets as promotional items with
lunches and dinners. In the proposed new complexes where the facilities will be
located together, it is anticipated that more extensive use of such promotions
will further enhance the Company's marketing efforts.
SEASONALITY
CINEMA SAVER. The major film distributors generally release those films
which are anticipated to be the most successful during the summer and holiday
periods. As a results, first-run revenues are generally higher during these
periods. Cinema Saver's revenues, however, are somewhat more level due to its
mixture of first-run and discount admission operations. The first-run revenue
streams follow national trends relating to this release schedule, while discount
admission revenue flows generally lag behind first-run revenues streams by 30 to
120 days.
PITCHERS! The sports restaurant business typically is stronger in the
first and fourth quarters of the calendar year. While this is also true for
Pitchers!, it is offset somewhat through its significant sponsorship of softball
teams at all locations, which attracts customers during the second and third
calendar quarters. As of June 1, 1998, Pitchers! was sponsoring approximately
115 teams.
COMPETITION
CINEMA SAVER. Cinema Saver competes against both local and national
exhibitors, many of which have substantially greater financial resources than
the Company. The amount of competition varies depending upon the geographic
areas in which Cinema Saver's theatres are located. Competition can be intense
with respect to licensing motion pictures, attracting patrons, and finding new
theatre sites. Management of the Company believes that the principal
competitive factors with respect to film licensing include theatre location,
seating capacity, and the quality of the facilities versus those of other
exhibitors. The competition for patrons is dependent upon factors such as the
availability of popular motion pictures, the location and number of theatres and
screens in a given market, the comfort and quality of the theatres, and pricing.
The theatrical exhibition industry also faces competition from other
distribution channels for filmed entertainment, such as cable television, pay-
per-view, and home video systems, as well as from all other forms of
entertainment.
PITCHERS! The restaurant industry is intensely competitive. Pitchers!
competes with other casual dining restaurants and bars primarily on the basis of
service, atmosphere, location, quality of food, and perception of value. The
restaurant industry is affected by changes in consumer tastes, economic
conditions, weather conditions, demographic trends, traffic patterns, and the
type, number, and location of competing restaurants and bars. Management of the
Company believes that Pitchers! ability to compete effectively will continue to
depend upon its ability to offer good food, service, and entertainment value.
20
<PAGE>
LICENSING AND REGULATION
Both Cinema Saver and Pitchers! are subject to regulation by federal
agencies and to licensing and regulation by state and local health, sanitation,
safety, fire, and other departments relating to the development and operation of
movie theatres and restaurants, respectively. These regulations include matters
relating to environmental, building and zoning requirements; the preparation and
sale of food; designation of non-smoking areas; the operation of amusement
devices, such as billiard tables and pinball machines; and accessibility of the
premises to disabled customers. Various federal and state labor laws govern the
relationships between these companies and their employees, including minimum
wage requirements, overtime, working conditions, and immigration requirements.
Significant additional government-imposed increases in minimum wages, paid
leaves of absences and mandated health benefits, or increased tax reporting and
tax payment requirements for employees who receive gratuities could have an
adverse effect on the Company's results of operations. Delays or failures in
obtaining the required construction and operating licenses, permits, or
approvals could delay or prevent the opening of new theatres and restaurants.
Management believes that Cinema Saver and Pitchers! are operating in substantial
compliance with applicable laws and regulations governing their respective
operations.
CINEMA SAVER. The distribution of motion pictures is in large part
regulated by federal and state antitrust laws and historically has been the
subject of numerous antitrust cases. As a result of these cases, distributors
of motion pictures are required to offer and license them to exhibitors,
including Cinema Saver, on a film-by-film and theatre-by-theatre basis.
Consequently, Cinema Saver cannot assure itself of a supply of motion pictures
by entering into long-term arrangements with major distributors, but must
compete for its licenses on a film-by-film and theatre-by-theatre basis.
PITCHERS! Each of Pitchers! restaurants is subject to licensing and
regulation by a number of governmental authorities. Pitchers! operates its
restaurants in compliance with federal licensing requirements imposed by the
Bureau of Alcohol, Tobacco and Firearms of the United States Department of the
Treasury, as well as the licensing requirements of Colorado. Alcoholic beverage
control regulations require each of the Company's restaurants to apply to the
Colorado Department of Revenue Liquor Enforcement Division and, in most
locations, municipal authorities for a license and permit to sell alcoholic
beverages on premises. Typically, licenses must be renewed annually and may be
revoked or suspended for cause at any time. Alcoholic beverage control
regulations are related to numerous aspects of the daily operations of Pitchers!
restaurants, including minimum age of patrons and employees hours of operation,
advertising, wholesale purchasing, inventory control, and the handling, storage,
and dispensing of alcoholic beverages. Management of Pitcher! believes it has
all material regulatory permits and licenses necessary to operate its
restaurants. Failure on the part of Pitchers! to comply with federal, state, or
local regulations could cause Pitchers! licenses to be revoked and force it to
cease the sale of alcohol beverages at its restaurants. In addition, changes in
legislation, regulations, or administrative interpretation of liquor laws after
the opening of restaurants in a jurisdiction may prevent or hinder Pitchers!
expansion or operations in that jurisdiction. The failure to receive or retain,
or a delay in obtaining, a liquor license in a particular location could
adversely affect Pitchers! ability to obtain such a license elsewhere.
Pitchers! is subject to "dram-shop" laws in Colorado and will be subject to
such statutes in certain other states for future sites. These laws generally
provide a person injured by an intoxicated person the right to recover damages
from an establishment which wrongfully served alcoholic beverages to such
person. Pitchers! carries liquor liability coverage as part of its existing
comprehensive general liability insurance which it believes is consistent with
coverage carried by other entities in the restaurant industry. However, a
judgment against Pitchers! under a dram-shop statute in excess of its liability
coverage could have a material adverse effect on the Company.
EMPLOYEES
As of November 12, 1998, Cinema Saver had 71 employees, 9 of whom were
full-time, and Pitchers! had 162 employees, 46 of whom were full-time. Of the
Cinema Saver employees, 3 were engaged in administrative/accounting functions, 9
were theatre managers or assistant managers, and 59 were theatre staff. Of the
Pitchers! employees, 4 were engaged in administrative/accounting functions, 13
were restaurant managers or assistant managers, and 145 were restaurant staff.
None of the employees of Cinema Saver or Pitchers! is covered by any collective
bargaining agreements.
21
<PAGE>
PROPERTIES
CINEMA SAVER. Cinema Saver owns its locations in Evergreen and Fort
Collins. Parker Cinema IV had been leased from a non-affiliated third party
pursuant to a lease which expired September 1, 1998. Basemar Cinema Saver is
leased from a non-affiliated third party pursuant to a lease which expires
December 1, 2001, and requires monthly rental payments of $3,156 plus 10% of
monthly gross sales in excess of $40,000. The lease may be renewed for two
additional five-year terms. Cinema Saver is leasing office space on a month-to-
month basis for $940 per month, which serves as the executive offices for both
Cinema Saver and the Company.
The Littleton location is leased from a non-affiliated third party on a
percentage rent basis through July 31, 1999. After payment of taxes, insurance,
and common area operating costs, Cinema Saver is paid an equal amount as a
management fee. Cinema Saver and the landlord then split the net cash flow
before deductions for overhead, debt service, and depreciation. Cinema Saver
has the right to terminate this lease on 30 days' written notice to the
landlord. Cinema Saver may extend this lease for two three-year periods under
the same terms.
PITCHERS! Pitchers! leases all of its locations as follows:
<TABLE>
<CAPTION>
LOCATION LEASE EXPIRATION DATE MONTHLY RENT PAYMENT
- -------- --------------------- --------------------
<S> <C> <C>
1670 South Chambers Road, Aurora April 30, 2002 $ 4,373
1100 West Drake Road, Fort Collins March 28, 2006 $ 6,563
146 Van Gordon, Lakewood November 30, 2010 $12,197
2852 West Bowles Avenue, Littleton April 30, 2001 $ 8,811
</TABLE>
All of the lessors are non-affiliated third parties.
In addition, Pitchers! owned a location at 10175 East Hampden Avenue in
Denver, which it sold to a non-affiliated third party on September 30, 1998. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
LEGAL PROCEEDINGS
The Company, through its operating subsidiaries, Cinema Saver and
Pitchers!, are involved in various legal proceedings which are normal to its
business, including premises liability and workers' compensation claims. The
Company believes that none of this litigation is likely to have a material
adverse effect on its financial condition or operations. The Company faces the
risk of exposure to premises liability claims if customers are injured while in
the Company's theatres or restaurants. While the Company will continue to
attempt to take appropriate precautions, there can be no assurance that it will
avoid significant premises liability exposure. Based on historical experience,
Cinema Saver and Pitchers! have liability coverage which the Company believes is
adequate.
Cinema Saver, together with Cinamerica Theatres, L.P. and United Artist
Theatre Circuit, Inc. (collectively the "Theatres"), has sued the City of
Boulder, Colorado, challenging the constitutionality of the City's admissions
tax. The case was filed initially in the District Court for the County of
Boulder, Colorado, on March 17, 1997. On January 21, 1998, the court granted
the City of Boulder's motion for summary judgment and affirmed the City's
administrative determination to deny the Theatres' claims for refund of the
Boulder Admissions Tax. The Theatres appealed this ruling to the Colorado Court
of Appeals on February 20, 1998. If the Theatres were to prevail, Cinema Saver
would receive a refund of approximately $100,000 in taxes.
22
<PAGE>
MANAGEMENT
The officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --- --- --------
<S> <C> <C>
R. Haydn Silleck 53 President, Treasurer and Director of Company
President, Treasurer and Director of Cinema Saver
Herbert I. Lee 57 Secretary and Director of Company President and
Director of Pitchers! Director of Cinema Saver
Clifford E. Godfrey 49 Vice President and Director of Company
Vice President, Secretary and Director of Cinema Saver
Lorry D. Hanson 39 Vice President and Director of Company
Vice President and Director of Pitchers!
Stanley H. Marks 54 Director of Company
Director of Cinema Saver
Lyle A. Chapman, Jr. 49 Director of Company
Director of Cinema Saver
</TABLE>
The directors of the Company are elected to hold office until the next
annual meeting of stockholders and until their respective successors have been
elected and qualified. Officers of the Company are elected annually by the
Board of Directors and hold office until their successors are duly elected and
qualified.
R. Haydn Silleck has been the President, Treasurer, and a director of the
Company since its inception, and the Treasurer and a director of Cinema Saver
since the inception of that company in August 1991. He has been the President
of Cinema Saver since February 1993, and is responsible for the general
management, finance, and accounting of that company. Mr. Silleck was the
president, treasurer, and a director of Starlight Acquisitions, Inc., Denver,
Colorado, from January 1989 to May 1996. Starlight Acquisitions, Inc., a public
company, acquired Toucan Mining Limited in May 1996. From July 1988 to April
1989, he served as the president, treasurer, and a director of Starwood
Ventures, Inc., Denver, Colorado, a publicly-traded company which acquired Cine-
Source, Inc. in April 1989. Mr. Silleck has also been the president of Starwood
Investments, Inc., a private company involved in various investment activities,
since January 1984. From March 1976 to December 1983, he co-founded and was
employed by Gold C Enterprises, Inc., Denver, Colorado, a national publisher of
coupon books, as chairman and treasurer. Mr. Silleck was a commercial and
personal banking officer at the United Bank of Denver (now Norwest Bank),
Denver, Colorado, from September 1971 to September 1975. He received a
master's degree in business administration from Harvard University in 1971, and
a bachelor's degree in Latin American Studies from Yale University in 1966.
Herbert I. Lee has been the Secretary and a director of the Company since
its inception, the President and a director of Pitchers! since that company's
inception in 1989, and a director of Cinema Saver since its inception in 1991.
He is responsible for the general management of Pitchers! From 1986 to 1989, he
was the owner of Diversions Inc. (Softball America), Aurora, Colorado, a company
engaged in recreational softball. He was also the executive director for
Eastern Canada of Entertainment Publications Inc., Broomfield, Michigan, an
international company engaged in discount books. From 1974 to 1986, Mr. Lee was
president of Gold C Enterprises, Inc., Denver, Colorado, a national publisher of
coupon books which he co-founded. He was a vice president of United Bank of
Denver (now Norwest Bank) from 1963 to 1974. Mr. Lee received a bachelor's
degree from the University of Colorado in 1962.
23
<PAGE>
Clifford E. Godfrey has been a director of the Company since its inception,
the Vice President of Company since May 1998, and the Vice President and a
director of Cinema Saver since that company's inception in 1991. He has also
been the secretary of Cinema Saver since May 1997. He is responsible for the
film buying for Cinema Saver, as well as the day-to-day operations. He was the
vice president and secretary of Summit Theatre Corporation from February 1991 to
December 1994, which operated a drive-in movie theatre in Aurora, Colorado.
From January 1981 to September 1989, Mr. Godfrey was in the film buying
department of Commonwealth Theatres, serving the last five years as the regional
film buyer responsible for film licensing agreements for approximately 150 of
that company's theatre screens. From October 1989 to January 1991, he performed
the same duties when these theatres were purchased by United Artists Theatres,
Englewood, Colorado. He has worked in the movie theatre business since 1965 in
various capacities in California, Colorado, Kansas, Missouri, Oklahoma, Texas,
and Wyoming.
Lorry D. Hanson has been the Vice President and a director of the Company
since May 1998, and the Vice President and director of Pitchers! since that
company's inception in 1989. He has been responsible for the construction of
all Pitchers! locations and restaurant management since 1989. Prior to being
employed by Pitchers!, Mr. Hanson was the general manager of Softball America.
From 1977 to 1987, he worked with Hanson Companies, contractors and homebuilders
in the Denver area.
Stanley H. Marks has been a director of the Company since May 1998 and a
director of Cinema Saver since the inception of that company in 1991. He has
been engaged in the private practice of law in Denver, Colorado, since 1972,
focusing his practice in criminal law, with emphasis in securities and white
collar criminal defense. Mr. Marks was certified as an arbitrator for the
National Association of Securities Dealers in 1996. He has been licensed to
practice in the State of Colorado since 1971. Mr. Marks received his law degree
from the Cincinnati College of Law in 1970 and bachelor's degrees from Wright
State University and Miami University of Ohio in 1967.
Lyle A. Chapman, Jr. has been a director of the Company since May 1998 and
a director of Cinema Saver since May 1994. Since 1990, he has been engaged in
private investments. He was the general manager and owner of Durant Foundry and
Machine Co., Inc., Durant, Iowa, a company which is engaged in the manufacture
of aluminum sand castings, from 1970 to 1990. Mr. Chapman received a bachelor's
degree in economics from Iowa State University in 1970.
EXECUTIVE COMPENSATION
Since the Company was recently formed, no compensation was paid to any
executive officers of the Company during the last fiscal year. During 1998,
following compensation is being paid:
<TABLE>
<CAPTION>
ANNUALIZED
INDIVIDUAL POSITION COMPENSATION
<S> <C> <C>
R. Haydn Silleck President & Treasurer of the Company $57,250
President & Treasurer of Cinema Saver
Herbert I. Lee Secretary of the Company; President of Pitchers! $62,500
Clifford E. Godfrey Vice President of the Company; $57,250
Vice President & Secretary of Cinema Saver
Lorry D. Hanson Vice President of the Company; $63,000
Vice President of Pitchers!
</TABLE>
COMPENSATION OF DIRECTORS
There are no standard arrangements pursuant to which directors of the
Company are compensated for any services provided as a director, except for the
award of stock options pursuant to the Company's 1998 Stock Option Plan. No
options have been awarded as of the date of this Prospectus. See "Management -
Stock Option Plan."
STOCK OPTION PLAN
On May 20, 1998, the shareholders of the Company adopted the 1998 Stock
Option Plan, which provides for the granting of both incentive stock options and
non-qualified options to eligible employees, officers, and directors of the
Company. An aggregate of 223,000 shares of Common Stock initially have been
reserved for issuance pursuant to the exercise of stock options under this Plan
(the "Option Pool"). The Option Pool is adjusted annually on the beginning of
the Company's fiscal year to a number equal to 10% of the number of shares of
Common Stock of the Company outstanding at the end of the Company's last
completed fiscal year, or 223,000 shares, whichever is greater. The Plan is
administered by the Compensation Committee of the Board of Directors.
The Plan provides that disinterested directors, defined as non-employee
directors or persons who are not directors of one of the Company's subsidiaries,
will receive automatic option grants to purchase $10,000 of shares of
24
<PAGE>
Common Stock upon their appointment or election to the Board of Directors of the
Company. Options shall have an option price equal to 100% of the fair market
value of the Common Stock on the grant date and shall have a minimum vesting
period of one year from the date of grant.
Each option granted under the Plan will be evidenced by a written option
agreement between the Company and the optionee. Incentive stock options may be
granted only to employees (as defined by the Internal Revenue Code). The option
price of any incentive stock option may not be less than 100% of the fair market
value per share on the date of grant of the option; provided, however, that any
incentive stock option granted under the Plan to a person owning more than 10%
of the total combined voting power of the Common Stock will have an option price
of not less than 110% of the fair market value per share on the date of grant of
the incentive stock option. Each non-qualified stock option granted under the
Plan will be at a price no less than 85% of the fair market value per share on
the date of grant thereof, except that the automatic stock option grants to
disinterested directors will be at a price equal to the fair market value per
share on the date of grant. The exercise period of options granted under the
Plan may not exceed ten years from the date of grant thereof. Incentive stock
options granted to a person owning more than 10% of the total combined voting
power of the Common Stock will be for no more than five years. No portion of
any option will be exercisable prior to the first anniversary of the grant date.
An option may not be exercised unless the optionee then is an employee,
officer, or director of the Company or a subsidiary of the Company, and unless
the optionee has remained continuously as an employee, officer, or director of
the Company since the date of grant of the option. If the optionee ceases to be
an employee, officer, or director of the Company or subsidiary of the Company
other than by reason of death, disability, retirement, or for cause, all options
granted to such optionee, fully vested to such optionee but not yet exercised,
will terminate 90 days after the date the optionee ceases to be an employee,
officer, or director of the Company. All options which are not vested to an
optionee, under the conditions stated in this paragraph for which employment
ceases, will immediately terminate on the date the optionee ceases employment or
association.
As of the date of this Prospectus, no options have been granted under this
Plan.
CORPORATE GOVERNANCE POLICIES
Pursuant to the requirements of the Pacific Exchange, the Company has
agreed to establish certain corporate governance policies. Such policies include
having a minimum of two independent directors; maintaining an audit committee in
which a majority of those members are independent directors; and using the audit
committee to review all related party transactions and potential conflict of
interest situations. See "Certain Relationships and Related Transactions."
PRINCIPAL SHAREHOLDERS
The following table sets forth information, as of the date of this
Prospectus, with respect to the beneficial ownership of shares of Common Stock
of the Company, its only class of voting securities outstanding, by each person
known by the Company to be the beneficial owner of more than five percent
thereof, by its directors, and by its officers and directors as a group:
<TABLE>
<CAPTION>
PERCENT OF CLASS (1)
---------------------
NAME AND ADDRESS OF NUMBER OF SHARES BEFORE AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------ -------- --------
<S> <C> <C> <C>
Herbert I. Lee 267,650 21.68% 11.98%
2852 W. Bowles Avenue
Littleton, Colorado 80120
R. Haydn Silleck (2) 164,858(3) 12.86% 7.23%
9025 E. Kenyon, Suite 209
Denver, Colorado 80237
Clifford E. Godfrey (4) 148,212 (3) 11.56% 6.50%
9025 E. Kenyon, Suite 209
Denver, Colorado 80237
Stanley H. Marks (5) 114,260 9.26% 5.11%
1775 Sherman Street
Denver, Colorado 80203
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
PERCENT OF CLASS (1)
--------------------
NAME AND ADDRESS OF NUMBER OF SHARES BEFORE AFTER
BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------ -------- --------
<S> <C> <C> <C>
Lyle A Chapman, Jr. (6) 113,750 (7) 9.19% 5.08%
4301 S. Downing Street
Englewood, Colorado 80010
Carol A VanGytenbeek 110,484 8.95% 4.95%
2852 W. Bowles Avenue
Littleton, Colorado 80120
Lorry D. Hanson 104,636 8.48% 4.68%
2852 W. Bowles Avenue
Littleton, Colorado 80120
Jean A. Sertich 85,912 6.72% 3.85%
15001 E. Alameda Avenue
Aurora, Colorado 80012
Officers and directors as a group 913,366(9) 68.56% 39.16%
(6 persons) (8)
</TABLE>
______________
(1) Where persons listed on this table have the right to obtain additional
shares of Common Stock through the exercise of outstanding options or
warrants or the conversion of convertible securities within 60 days from
the date of this Prospectus, these additional shares are deemed to be
outstanding for the purpose of computing the percentage of Common Stock
owned by such persons, but are not deemed to be outstanding for the purpose
of computing the percentage owned by any other person. Percentages are
based on 1,234,355 shares outstanding before the offering and 2,234,355
shares outstanding after the offering.
(2) Includes 31,653 shares held of record by his wife, 14,578 shares held of
record by Starwood Investments Profit Sharing Plan, and 43,988 shares held
of record by his two children.
(3) Includes 47,479 shares issuable upon the exercise of certain options. See
"Certain Relationships and Related Transactions."
(4) Includes 12,364 shares held of record by his wife and 4,946 shares held of
record by his child.
(5) Includes 101,387 shares held of record by his wife, 10,895 shares held of
record by his law firm's profit sharing plan, and 1,978 shares held of
record by his two children.
(6) Includes 63,057 shares held of record by his three children.
(7) Includes 2,967 shares issuable upon the exercise of certain options. See
"Certain Relationships and Related Transactions."
(8) See notes (2), (3), (4), (5), (6), and (7) above.
(9) Includes 97,925 shares issuable upon the exercise of certain options. See
"Certain Relationships and Related Transactions."
26
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CINEMA SAVER
On November 11, 1996, Cinema Saver acquired the one-half interest in
Evergreen Cinemas, Ltd. which it did not own from Lyle A. Chapman, Jr., a
director of Cinema Saver, and his family. Evergreen Cinemas, Ltd. was
originally formed to develop the Bergen Park theatre with Cinema Saver and the
Chapman being equal owners. The Chapmans were paid for their equity capital
account and their share of net earnings in the limited partnership, and were
repaid loans that had been made in the partnership. The partnership was
subsequently merged into Cinema Saver.
On November 12, 1996, Cinema Saver refinanced its then existing debt with a
loan from Quad City Bank and Trust Company in the amount of $3,255,000. The
promissory note, which requires monthly payments of $33,529.81 and accrues
interest at the rate of 9.25% per annum, was personally guaranteed by R. Haydn
Silleck, Clifford E. Godfrey, Lyle A. Chapman, Jr., and Joel D. Boldrey, then
officers and directors of Cinema Saver. The note is secured by mortgages on the
Fort Collins and Bergen Park locations and an assignment of lease on the Boulder
location, as well as a security interest in the inventory, accounts, equipment,
and general intangibles of Cinema Saver. At September 30, 1998, the balance of
the note was $3,056,167. See "Business."
On May 15, 1997, Cinema Saver purchased 467,090 shares of Cinema Saver
common stock and warrants to purchase shares of Cinema Saver common stock from
Joel D. Boldrey, a former officer and director of Cinema Saver, for $217,542.
Cinema Saver paid $20,000 in cash and delivered a promissory note for $197,542.
Mr. Boldrey was also released as a guarantor on the loan by Quad City Bank
described above. The promissory note, which is due May 15, 2007, requires
payments of $2,250 per month and accrues interest at the rate of six percent per
annum. At September 30, 1998, the balance of the note was $176,038. Cinema Saver
reissued the warrants to R. Haydn Silleck, Clifford E. Godfrey, and Lyle A.
Chapman, Jr. for their increased exposure on their personal guarantees of bank
loans made to Cinema Saver. The warrants, as reissued to Messrs. Silleck,
Godfrey, and Chapman, permitted each of them to purchase up to 32,500, 32,500,
and 15,000 shares, respectively, at $0.134 per share. The warrants, which were
originally granted as consideration for personal guarantees of bank loans made
to Cinema Saver, expire one year after the guarantors are released from all
liability arising from such guarantees. In consideration for increased
responsibilities placed on Messrs. Silleck and Godfrey due to the departure of
Mr. Boldrey, Messrs. Silleck and Godfrey were each granted an option to purchase
up to 155,000 shares at $.417 per share. The options expires May 15, 2007.
Messrs. Silleck and Godfrey subsequently transferred part of the options to two
employees of Cinema Saver.
As a result of the Share Exchange, the options and warrants to purchase
shares of Cinema Saver common stock were converted to options to purchase shares
of the Company's Common Stock. The outstanding options are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES EXERCISE PRICE
OPTION HOLDER PURCHASABLE PER SHARE EXPIRATION DATE
- ------------- ----------- --------- ---------------
<S> <C> <C> <C>
R. Haydn Silleck 29,674 $2.108 05/15/2007
R. Hayden Silleck 17,805 $0.677 one year after release of liability for
guarantee of bank loans
Clifford E. Godfrey 29,674 $2.108 05/15/2007
Clifford E. Godfrey 17,805 $0.677 one year after release of liability for
guarantee of bank loans
Lyle A. Chapman, Jr. 2,967 $0.677 one year after release of liability for
guarantee of bank loans
Employee 989 $2.108 01/07/2003*
Employee 989 $2.108 01/07/2003*
</TABLE>
- -----------
* Reverts back to Messrs. Silleck and Godfrey equally if not exercised before
expiration date or if employee leaves Cinema Saver before expiration date.
27
<PAGE>
PITCHERS
On December 14, 1993, Pitchers! borrowed $12,500 each from Herbert I. Lee
and Lorry D. Hanson, officers, directors, and shareholders of that company. As
of September 30, 1998, $3,964 and $11,964 were owed to Messrs. Lee and Hanson,
respectively. Interest is paid at the rate of 7% per annum. The loans are
unsecured.
On May 24, 1994, Pitchers! obtained an SBA loan in the amount of $800,000
from Aurora National Bank (now known as Citywide National Bank). One promissory
note, in the original principal amount of $600,000, was due May 24, 2019,
accrued interest at the prime rate plus 2.75% per annum, and required payments
of $5,957 per month. The second promissory note in the original principal amount
of $200,000 was due May 24, 2001, accrued interest at the prime rate plus 2.75%
per annum, and required payments of $3,394 per month. Repayment of the loan was
guaranteed by Herbert I. Lee, Lorry D. Hanson, Jean A. Sertich, and Carol A.
VanGytenbeek, all of whom are officers and directors of Pitchers!. The proceeds
of the loans were used to purchase, remodel, and equip the restaurant at 10175
East Hampden Avenue. A deed of trust on this location and a security interest in
the furniture, fixtures, equipment, and inventory secured this loan. The Hampden
Avenue restaurant was sold in September 1998, with these loans assumed by the
purchaser. The officers and directors of Pitchers! remain liable as
guarantors.
On April 25, 1996, Pitchers! entered into a lease for its Littleton
location with 1100 Drake, Ltd., a Colorado limited partnership ("1100 Drake").
The general partner of 1100 Drake is Starwood Investments, Inc., a company
controlled by R. Haydn Silleck. Over 78% of the limited partnership interests
of 1100 Drake are owned by shareholders of the Company, including the following
officers and directors of Cinema Saver and/or Pitchers!: Herbert I. Lee,
Clifford E. Godfrey, Lorry D. Hanson, Carol A. VanGytenbeek, Jean A. Sertich,
and R. Haydn Silleck indirectly through Starwood Investments Profit Sharing
Plan. Pitchers! believes that the terms of the lease are more favorable than
what could be obtained from a non-affiliated third party. For the year ended
December 31, 1997, Pitchers! paid rent, common area maintenance expenses, and
taxes of $131,556 to 1100 Drake. A non-affiliated third party purchased this
property subject to the lease to Pitchers! on July 10, 1998. See "Business -
Properties."
On May 6, 1997, Pitchers! borrowed $171,787 from Aurora National Bank to
remodel the Lakewood restaurant. The note is due May 5, 2000, accrues interest
at 9.75% per annum, requires monthly payments of $5,533.77, and is guaranteed by
Herbert I. Lee, Lorry D. Hanson, Jean A. Sertich, and Carol A. VanGytenbeek.
The loan is secured by a third deed of trust on 10175 East Hampden Avenue,
Denver, Colorado, together with the inventory, furniture, fixtures, and
equipment. At September 30, 1998, the unpaid balance of this loan was
$104,776.
On March 16, 1998, Pitchers! obtained a line of credit in the amount of
$35,382 from Aurora National Bank. Interest accrued at the rate of 9.75% per
annum and the loan was guaranteed by Herbert I. Lee, Lorry D. Hanson, Jean A.
Sertich, and Carol A. VanGytenbeek. The loan was paid on its due date of June
16, 1998.
Also on March 16, 1998, Pitchers! borrowed $75,782 from Aurora National
Bank to provide cash for certain of the costs of this offering. Interest accrues
at the rate of 9.75% per annum on this loan, which was due September 16, 1998
but extended to December 16, 1998. Repayment of the loan, the unpaid balance of
which was $85,233 at September 30, 1998, is guaranteed by Herbert I. Lee, Lorry
D. Hanson, Jean A. Sertich, and Carol A. VanGytenbeek.
On July 17, 1998 and September 14, 1998, Pitchers! borrowed $20,000 and
$5,000, respectively, from Herbert I. Lee for 90 days, with interest to accrue
on the loan at 8%. On July 27, 1998 and September 14, 1998, Pitchers! borrowed
$10,000 on each date from Lorry D. Hanson for 90 days, with interest to accrue
on the loan at 8%. All loans are unsecured. Messrs. Lee and Hanson have agreed
to extend the loans which are due in October 1998 for 90 days.
None of the net proceeds of this offering has been allocated to reduce
debt. See "Use of Proceeds."
DISINTERESTED APPROVAL
With regard to all of the above transactions, the unanimous approvals of
the respective boards of directors were obtained. For information regarding the
handling of future transactions, see "Management - Corporate Governance
Policies."
28
<PAGE>
DESCRIPTION OF SECURITIES
UNITS
Each Unit consists of one share of Common Stock and one Warrant. The Shares
and the Warrants included in the Units may not be separately traded for six
months after the date of this Prospectus, unless earlier separated upon ten
days' written notice from the Representatives to the Company.
COMMON STOCK
The Company is authorized to issue 25,000,000 shares of common stock, no
par value (the "Common Stock"). As of the date of this Prospectus, there were
1,234,355 shares of Common Stock issued and outstanding, held by 51 holders.
VOTING RIGHTS. All shares of the Company's Common Stock have equal voting
rights, with one vote per share, on all matters submitted to the stockholders
for their consideration. The shares of Common Stock do not have cumulative
voting rights.
DIVIDENDS. Subject to the prior rights of the holders of any series of
preferred stock which may be issued, holders of Common Stock are entitled to
receive dividends, when and if declared by the Board of Directors, out of funds
of the Company legally available therefor.
PREEMPTIVE AND LIQUIDATION RIGHTS. Holders of shares of Common Stock do
not have any preemptive rights or other rights to subscribe for additional
shares, or any conversion rights. Upon a liquidation, dissolution, or winding
up of the affairs of the Company, holders of the Common Stock will be entitled
to share ratably in the assets available for distribution to such stockholders
after the payment of all liabilities and after the liquidation preference of any
preferred stock outstanding at the time.
OTHER. There are no sinking fund provisions applicable to the Common
Stock. The Shares offered hereby will be fully paid and non-assessable when
issued.
PREFERRED STOCK
The Articles of Incorporation authorize the Board of Directors to issue, by
resolution, 10,000,000 shares of preferred stock, no par value, in classes,
having such designations, powers, preferences, rights, and limitations and on
such terms and conditions as the Board of Directors may from time to time
determine, including the rights, if any, of the holders of such preferred stock
with respect to voting, dividends, redemptions, liquidation and conversion. See
"Risk Factors - Authorization of Preferred Stock." As of the date of this
Prospectus, no classes of preferred stock have been designated and no shares
have been issued.
WARRANTS
The Warrants will be issued in registered form under, governed by, and
subject to the terms of a warrant agreement (the "Warrant Agreement") between
the Company and Corporate Stock Transfer, Inc. as warrant agent (the "Warrant
Agent"). The following statements are brief summaries of certain provisions of
the Warrant Agreement. Copies of the Warrant Agreement may be obtained from the
Company or the Warrant Agent and have been filed with the Securities and
Exchange Commission as an exhibit to the Registration Statement of which this
Prospectus is a part. See "Additional Information."
Each Warrant entitles the holder thereof to purchase one share of Common
Stock at a price of $9.00 (the "Warrant Exercise Price") at any time after the
Shares and Warrants become separately tradable until _______ [5 years from the
date of this Prospectus]. The right to exercise the Warrants will terminate at
the close of business on ___________. The Warrants contain provisions that
protect the Warrant holders against dilution by adjustment of the
29
<PAGE>
exercise price in certain events including, but not limited to, stock dividends,
stock splits, reclassifications, or mergers. A Warrant holder will not possess
any rights as a stockholder of the Company. The shares of Common Stock, when
issued upon the exercise of the Warrants in accordance with the terms thereof,
will be fully paid and non-assessable.
Commencing on ___________, 1999 [twelve months from the date of this
Prospectus], the Company may redeem some or all of the Warrants at a call price
of $0.01 per Warrant, upon thirty (30) days' prior written notice if the closing
sale price for the Common Stock has equaled or exceeded $_____ for ten (10)
consecutive trading days.
The Warrants may be exercised only if a current prospectus relating to the
underlying Common Stock is then in effect and only if the shares are qualified
for sale or exempt from registration under the securities laws of the state or
states in which the purchaser resides. So long as the Warrants are outstanding,
the Company has undertaken to file all post-effective amendments to the
Registration Statement required to be filed under the Securities Act, and to
take appropriate action under federal law and the securities laws of those
states where the Warrants were initially offered to permit the issuance and
resale of the Common Stock issuable upon exercise of the Warrants. However,
there can be no assurance that the Company will be in a position to effect such
action, and the failure to do so may cause the exercise of the Warrants and the
resale or other disposition of the Common Stock issued upon such exercise to
become unlawful. The Company may amend the terms of the Warrants, but only by
extending the termination date or lowering the exercise price thereof. The
Company has no present intention of amending such terms. However, there can be
no assurances that the Company will not alter its position in the future with
respect to this matter.
TRANSFER AGENT AND REGISTRAR
Corporate Stock Transfer, Inc., Denver, Colorado, will act as the registrar
and transfer agent for the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
All of the currently outstanding 1,234,355 shares of Common Stock are
restricted and will not be eligible for sale under Rule 144 of the Securities
Act until June 1999. In general, under Rule 144 as currently in effect, a
person (or persons whose shares are aggregated) who has beneficially owned
restricted shares for at least one year, is entitled to sell, within any three-
month period, that number of shares that does not exceed the greater of (a) one
percent of the then outstanding shares or (b) the average weekly trading volume
of the then outstanding shares during the four calendar weeks preceding each
such sale. Furthermore, a person who is not deemed an "affiliate" of the
Company and who has beneficially owned shares for at least two years is entitled
to sell such shares under Rule 144 without regard to the volume limitations
described above.
The Representatives have required in the underwriting agreement that sales
of the outstanding shares may not commence until 12 months from the date of this
Prospectus, without the prior written consent of the Representatives.
There are also outstanding as of the date of this Prospectus, options to
purchase 99,903 shares of Common Stock, all of which are currently exercisable
at prices which are substantially less than the public offering price. Upon
exercise of these options, the holders would be issued restricted shares of
Common Stock that could be sold in Rule 144 sales one year from the date of
exercise. See "Certain Relationships and Related Transactions."
No predictions can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. The Company is unable
to estimate the number of shares that may be sold in the public market under
Rule 144, since this will depend on the trading volume, the market price for the
Common Stock, and other factors. Nevertheless, sales of substantial amounts of
Common Stock, or the perception that such sales could occur, could have a
material adverse effect on prevailing market prices.
30
<PAGE>
UNDERWRITING
Pursuant to the terms and subject to the conditions contained in the
Underwriting Agreement, the Company has agreed to sell to the Underwriters named
below, and each of the Underwriters, for whom Tejas Securities Group, Inc. and
Neidiger, Tucker, Bruner, Inc. (the "Representatives") are acting as
Representatives, have severally agreed to purchase the number of Units set forth
opposite their respective names in the following table:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF UNITS
------------ ---------------
<S> <C>
Tejas Securities Group
Neidiger, Tucker, Bruner, Inc.
Total 1,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the Units to the public at the initial public offering price per Unit
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession of not more than $_____ per Unit, of which $______ may
be reallowed to other dealers. After the initial public offering, the public
offering price, concession, and reallowance to dealers may be reduced by the
Representatives.
The Company has granted to the Underwriters an option, exercisable during
the 45-day period after the date of this Prospectus, to purchase up to 150,000
additional Units to cover over-allotments, if any, at the same price per Unit as
the Company will receive for the 1,000,000 Units that the Underwriters have
agreed to purchase. To the extent that the Underwriters exercise such option,
each of the Underwriters will have a firm commitment to purchase approximately
the same percentage of such additional Units that the number of Units to be
purchased by it shown in the above table represents as a percentage of the
1,000,000 Units offered hereby. If purchased, such additional Units will be
sold by the Underwriters on the same terms as those on which the 1,000,000 Units
are being sold.
All of the existing shareholders of the Company have agreed with the
Representatives that, until one year after the date of this Prospectus, subject
to certain limited exceptions, they will not offer, sell, contract to sell, or
otherwise dispose of any shares of Common Stock, any options to purchase shares
of Common Stock, or any securities convertible into, exercisable for, or
exchangeable for shares of Common Stock, owned directly by such holders or with
respect to which they have the power of disposition, or enter into any swap or
similar agreement that transfers, in whole or in part, the economic risk of
ownership of the Common Stock, without the prior written consent of the
Representatives. Substantially all of such shares will be eligible for immediate
public sale following the expiration of the lock-up period, subject to the
provisions of Rule 144. In addition, the Company has agreed that until one year
after the date of this Prospectus, the Company will not, without the prior
written consent of the Representatives, subject to certain limited exceptions,
issue, sell, contract to sell, or otherwise dispose of, any shares of Common
Stock, any options to purchase any shares of Common Stock, or any securities
convertible into, exercisable for, or exchangeable for shares of Common Stock,
or enter into any swap or similar agreement that transfers, in whole or in part,
the economic risk of ownership of the Common Stock, other than the Company's
sales of shares in this offering, the issuance of Common Stock upon the exercise
of outstanding options or warrants, or the issuance of options under its
employee stock option plan. See "Shares Eligible for Future Sale."
Certain persons participating in this offering may over-allot or effect
transactions which stabilize, maintain, or otherwise affect the market price of
the Common Stock at levels above those which might otherwise prevail in the open
market, including by entering stabilizing bids, effecting syndicate covering
transactions, or imposing penalty bids. A stabilizing bid means the placing of
any bid or effecting of any purchase, for the purpose of pegging, fixing or
maintaining the price of the Common Stock. A syndicate covering transaction
means the placing of any bid on behalf of the underwriting syndicate or the
effecting of any purchase to reduce a short position created in connection with
this offering. A penalty bid means an arrangement that permits the Underwriters
to reclaim a selling concession from a syndicate member in connection with this
offering when shares of Common Stock sold by the syndicate member are purchased
in syndicate covering transactions. Such stabilizing, if commenced, may be
discontinued at any time.
31
<PAGE>
The Representatives have informed the Company that they do not expect sales
to accounts over which the Underwriters exercise discretionary authority.
The Company has agreed to pay the Representatives a non-accountable expense
allowance of 2.0% of the gross amount of the Units sold at the closing of the
offering. The Underwriters' expenses in excess thereof will be paid by the
Representatives. To the extent that the expenses of the underwriting are less
than that amount, such excess shall be deemed to be additional compensation to
the Underwriters.
The Company has agreed that for a period of five years from the closing of
the sale of the Units offered hereby, it will nominate for election as a
director a person designated by the Representatives, and during such time as the
Representatives have not exercised such right, the Representatives shall have
the right to designate an observer, who shall be entitled to attend all meetings
of the board and receive all correspondence and communications sent by the
Company to the members of the Board. The Representatives have not yet identified
to the Company the person who is to be nominated for election as a director or
designated as an observer.
The Underwriting Agreement provides for indemnification between the Company
and the Underwriters against certain civil liabilities, including liabilities
under the Securities Act. In addition, the Representatives' Warrants provide
for indemnification between the Company and the holders of the Representatives'
Warrants and underlying securities against certain civil liabilities, including
liabilities under the Securities Act and the Exchange Act.
REPRESENTATIVES' WARRANTS
Upon the closing of this offering, the Company has agreed to sell to the
Representatives for nominal consideration, the Representatives' Warrants. The
Representatives' Warrants are exercisable at 120% of the public offering price
for a four-year period commencing one year from the effective date of this
offering. The Representatives' Warrants may not be sold, transferred, assigned,
or hypothecated for a period of one year from the date of this offering except
to the officers of the Representatives and their successors and dealers
participating in the offering and/or their partners or officers. The
Representatives' Warrants contain antidilution provisions providing for
appropriate adjustment of the number of shares subject to the Warrants under
certain circumstances. The holders of the Representatives' Warrants have no
voting, dividend, or other rights as shareholders of the Company with respect to
shares underlying the Representatives' Warrants until the Representatives'
Warrants have been exercised. The holders of the Representatives' Warrants have
certain demand and piggyback registration rights with respect to the underlying
shares of Common Stock.
SOLICITATION FEE
The Company has agreed to solicit the exercise of the Warrants solely
through the Representatives, at the Representatives' election, at any time after
one year from the date of this Prospectus, and the Company is obligated, except
in the circumstances described below, to pay the Representatives a solicitation
fee equal to 5% of the aggregate proceeds received by the Company as a result of
the solicitation. No solicitation fees will be paid within one year after the
date of the Prospectus, if the market price of the Common Stock is lower than
the then current exercise price of the Warrants, if the Warrants being exercised
are held in a discretionary account at the time of exercise, except where prior
written approval for exercise is received from the beneficial owner of the
Warrants, or unless the beneficial owner of the Warrants states in writing that
the exercise was solicited by the Representatives and designates in writing the
Representatives to receive compensation in connection with the exercise.
Solicitation of the exercise of the Warrants by the Representatives will not be
made during the restricted periods of Regulation M under the Securities Exchange
Act of 1934, as amended.
32
<PAGE>
DETERMINATION OF OFFERING PRICE
The initial public offering price was determined by negotiations between
the Company and the Representatives. The factors considered in determining the
public offering price include the combined revenue growth of the Company's
subsidiaries since their organization, the industry in which the Company
operates, the Company's business potential and earning prospects, and the
general condition of the securities markets at the time of the offering. Prices
for the shares of Common Stock after this offering will be determined in the
market and may be influenced by many factors including the depth and liquidity
of the market for the Common Stock, investor perception of the Company, and the
entertainment industry as a whole.
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active market will develop.
PACIFIC EXCHANGE
The Company has applied to list the Common Stock on the Pacific Exchange
under the trading symbol "SLL".
LEGAL MATTERS
The validity of the issuance of the securities offered hereby will be
passed upon for the Company by Dill Dill Carr Stonbraker & Hutchings, P.C.,
Denver, Colorado. Certain legal matters in connection with the sale of the
securities offered hereby will be passed upon for the Underwriters by Wolin,
Ridley & Miller LLP, Dallas, Texas.
EXPERTS
The financial statements of Cinema Saver and Pitchers! as of and for the
period ending December 31, 1997, included in this Prospectus have been audited
by Comiskey & Company, P.C., independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in auditing and accounting, in giving said
reports.
33
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HISTORICAL FINANCIAL STATEMENTS
<S> <C>
Starlight Entertainment, Inc.:
Consolidated Balance Sheet as of September 30, 1998 (unaudited) F-1
Consolidated Statements of Operations for the Nine Months Ended
September 30, 1998 and 1997 (unaudited).................................................... F-2
Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 (unaudited).................................................... F-3
Notes to Consolidated Financial Statements for the Nine Months Ended
September 30, 1998 and 1997 (unaudited).................................................... F-4
Cinema Saver Theatre Corporation:
Report of Independent Certified Public Accountants............................................ F-6
Balance Sheet as of December 31, 1997......................................................... F-7
Statements of Operations for the Years Ended December 31, 1997 and 1996....................... F-8
Statement of Changes in Stockholders' Equity for the Years Ended December 31, 1997 and 1996... F-9
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996....................... F-10
Notes to Financial Statements - December 31, 1997 and 1996.................................... F-11
Pitchers!, Inc.:
Report of Independent Certified Public Accountants............................................ F-16
Balance Sheet as of December 31, 1997......................................................... F-17
Statements of Operations for the Years Ended December 31, 1997 and 1996....................... F-18
Statement of Changes in Stockholders' Equity for the Years Ended December 31, 1997 and 1996... F-19
Statements of Cash Flows for the Years Ended December 31, 1997 and 1996....................... F-20
Notes to Financial Statements - December 31, 1997 and 1996.................................... F-21
PRO FORMA COMBINED FINANCIAL STATEMENTS
Starlight Entertainment, Inc.:
Introduction to Pro Forma Combined Financial Statements....................................... F-27
Balance Sheet as of December 31, 1997......................................................... F-28
Statements of Operations for the Year Ended December 31, 1997................................. F-29
Statements of Operations for the Year Ended December 31, 1996................................. F-30
Notes to Pro Forma Financial Statements - December 31, 1997................................... F-31
</TABLE>
34
<PAGE>
Starlight Entertainment, Inc.
Consolidated Balance Sheets
September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 60,630
Other current assets 244,475
----------
Total current assets 305,105
PROPERTY AND EQUIPMENT, net of accumulated depreciation 4,600,691
OTHER ASSETS 511,364
----------
TOTAL ASSETS $5,417,160
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 296,599
Other current liabilities 201,350
----------
Total current liabilities 497,949
----------
LONG-TERM LIABILITES
Notes payable, less current portion 3,173,151
Other long-term liabilities 411,562
----------
3,584,713
----------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 10,000,000 shares authorized, no
shares issued or outstanding
Common stock, no par value, 25,000,000 shares authorized,
1,234,355 shares issued and outstanding 546,087
Retained earnings 788,411
----------
1,334,498
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $5,417,160
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-1
<PAGE>
Starlight Entertainment, Inc.
Consolidated Statements of Operations
For the Nine Months Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
REVENUES
<S> <C> <C>
Restaurant operations $3,806,879 $3,631,157
Theater operations 2,010,566 2,081,498
---------- ----------
5,817,445 5,712,655
---------- ----------
COST AND EXPENSES
Cost of goods sold, restaurant operations 1,423,421 1,230,420
Direct operating cost, theater operations 695,450 769,322
General and administrative expenses 3,320,093 3,056,002
Interest expense 283,026 296,070
Other (income) ( 45,982) ( 11,438)
---------- ----------
5,676,008 5,340,376
---------- ----------
Income before income taxes 141,437 372,279
Provision for income taxes 46,250 121,735
---------- ----------
NET INCOME $ 95,187 $ 250,544
========== ==========
Per share information
Earnings per share basic $ .08 $ .21
========== ==========
Weighted average number of shares outstanding
Basic 1,234,355 1,234,355
========== ===========
Earnings per share diluted $.07 $.20
========== ==========
Weighted average number of shares outstanding
Diluted 1,334,258 1,273,206
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
Starlight Entertainment, Inc.
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------------- -------------------
CASH FLOW FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 95,187 $ 250,544
Adjustments to reconcile net income to cash
Provided by operations:
Depreciation and amortization 236,006 224,834
Net change in operating assets and liabilities ( 463,920) ( 214,542)
---------- ----------
Net cash provided (used) by operations (132,727) 260,836
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES
Sale (Purchase) of property and equipment 186,497 ( 325,164)
---------- ----------
Net cash provided (used) by investing 186,497 ( 325,164)
activities ---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES
Increase in deferred offering cost ( 150,814)
Repayment of installment debt ( 762,704) ( 66,915)
Proceeds from installment debt 85,233 171,787
Other cash provided (used) by financing activities ( 139,385) ( 87,607)
---------- ----------
Net cash provided (used) by financing ( 967,670) 17,265
activities ---------- ----------
Net decrease in cash ( 913,900) ( 47,063)
CASH BEGINNING OF PERIOD 974,530 333,335
---------- ----------
CASH END OF PERIOD $ 60,630 $ 286,272
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
Starlight Entertainment, Inc.
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and Item 310(b) of Regulation SB. They do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included. The results of operations for the periods
presented are not necessarily indicative of the results to be expected for the
full year. For further information, refer to the financial statements of the
Company as of December 31, 1997 and for the two years then ended, including
notes thereto included elsewhere in this registration statement.
2. POOLING OF INTERESTS
On June 4, 1998, the Company acquired Pitchers! Inc. ("Pitchers") and Cinema
Saver Theatre Corporation ("Cinema Saver") in a business combination accounted
for as a pooling of interests. Pitchers, which operates four sports
restaurants, became a wholly owned subsidiary of the Company through the
exchange of 583,738 shares of the Company's common stock for all of the
outstanding stock of Pitchers. Cinema Saver, which operates four movie
theaters, became a wholly owned subsidiary of the Company through the exchange
of 650,617 shares of the Company's common stock for all of the outstanding stock
of Cinema Saver. The accompanying financial statements for 1998 are based on
the assumption that the companies were combined for the full nine month period,
and financial statements for the prior year have been restated to give effect to
the combination.
Summarized results of operations of the separate companies for the period from
January 1, 1998 through September 30, 1998 are as follows:
<TABLE>
<CAPTION>
Company Pitchers Cinema Saver
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Revenue $-0- $3,806,879 $2,010,566
==== ========== ==========
Net Income $-0- $ 30,136 $ 65,051
==== ========== ==========
</TABLE>
There were no adjustments to amounts previously reported for 1997.
Prior to June 4, 1998, there were no intercompany transactions between the
Company and Pitchers or Cinema Saver, nor were there any transactions between
Pitchers and Cinema Saver.
F-4
<PAGE>
Starlight Entertainment, Inc.
Notes to Consolidated Financial Statements
For the Nine Months Ended September 30, 1998 and 1997
(Unaudited)
3. SEGMENT INFORMATION
The Company's operations are classified into two principal industry segments:
restaurant and movie theater. The Company's reportable segments are strategic
business units that offer different products and services. They are managed
separately. The Company evaluates performance based upon profit or loss after
income taxes. There are no intersegment revenues. Following is a summary of
segment information for 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------------ ------------------
Revenue from external customers
<S> <C> <C>
Restaurant industry $3,806,879 $3,631,157
Movie theater industry $2,010,566 $2,081,498
Segment profits
Restaurant industry $ 30,136 $ 149,160
Movie theater industry $ 65,051 $ 101,384
Total assets of each segment
Restaurant industry $1,114,687 $1,736,635
Movie theater industry $4,255,568 $4,262,568
</TABLE>
The total of the segments' profits are equal to the Company's consolidated net
income and therefore there are no reconciling items.
F-5
<PAGE>
[LETTERHEAD OF COMISKEY & COMPANY]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
And Stockholders of Cinema
Saver Theatre Corporation
Parker, Colorado
We have audited the accompanying balance sheet of Cinema Saver Theatre
Corporation as of December 31, 1997, and the related statements of operations,
cash flows, and changes in stockholders' equity for each of the years ended
December 31, 1997. These statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance that 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. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cinema Saver Theatre
Corporation at December 31, 1997, and the results of its operations, cash flows,
and changes in stockholders' equity for each of the two years ended December 31,
1997, in conformity with generally accepted accounting principles.
Denver, Colorado
May 1, 1998
/s/ Comiskey & Company
PROFESSIONAL CORPORATION
F-6
<PAGE>
Cinema Saver Theatre Corporation
BALANCE SHEET
December 31, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 893,513
Inventory 16,871
Deferred tax asset 5,000
Other assets 3,249
----------
Total Current Assets 918,633
PROPERTY AND EQUIPMENT
Buildings 2,360,288
Leasehold improvements 503,209
Theater equipment 631,036
Office equipment 26,282
Land 562,500
----------
4,083,315
Less accumulated depreciation 596,142
----------
3,487,173
OTHER ASSETS
Secured note receivable 11,725
Other Assets 19,910
----------
31,635
----------
TOTAL ASSETS $4,437,441
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 120,624
Accrued expenses and taxes 113,042
Accrued interest 11,945
Income taxes payable 46,898
Current maturities on long term debt 116,570
Notes payable to shareholders 24,846
----------
Total current liabilities 433,925
LONG-TERM LIABILITIES
Long term debt, net of current portion 3,025,799
Shareholder loans 171,908
Deferred tax liability 151,000
----------
3,348,707
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value, 25,000,000 shares
authorized, 3,289,081 shares issued and outstanding 3,290
Additional paid-in capital 223,472
Retained earnings 428,047
----------
654,809
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,437,441
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
Cinema Saver Theatre Corporation
STATEMENTS OF OPERATIONS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Revenues:
Admissions $ 1,840,242 $ 1,836,177
Concessions 823,312 803,593
Other operating revenues 17,991 17,051
----------- -----------
Total revenues 2,681,545 2,656,821
Operating expenses:
Film expense 833,471 829,355
Advertising 47,590 37,263
Cost of concessions 169,049 174,491
Theatre operating expenses 871,604 828,336
Depreciation and amortization 183,718 184,326
General and administrative expenses 156,728 168,321
----------- -----------
Total operating expenses 2,262,160 2,222,092
----------- -----------
Income from operations 419,385 434,729
Non-operating (income) and expense
Interest income (9,381) (3,860)
Interest expense 309,597 326,512
Miscellaneous income (6,212) (16,467)
Other income (1,068) (1,061)
Gain on sale of building (215,594) -
----------- -----------
Total non-operating income and expense 77,342 305,124
----------- -----------
Income before income tax 342,043 129,605
Income tax expense 106,248 40,813
----------- -----------
NET INCOME $ 235,795 $ 88,792
=========== ===========
BASIC EARNINGS PER SHARE $ 0.07 $ 0.02
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC 3,367,183 3,639,562
=========== ===========
DILUTED EARNINGS PER SHARE $ 0.06 $ 0.02
=========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - DILUTED 3,851,463 3,835,989
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-8
<PAGE>
Cinema Saver Theatre Corporation
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock
------------------ Additional
Number Paid-in Retained
of Shares Amount Capital Earnings Total
--------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996 3,622,420 $3,622 $410,272 $103,460 $517,354
Common stock issued for debt
conversion, January 19, 1996,
$0.80 per share 10,938 11 8,739 - 8,750
Common stock issued for debt
conversion, February 20, 1996,
$0.80 per share 7,813 8 6,242 - 6,250
Common stock issued for cash,
warrant exercise, December 31,
1996, $0.13 per share 22,500 23 2,992 - 3,015
Net income - - - 88,792 88,792
--------- -------- -------- -------- --------
Balance, December 31, 1996 3,663,671 3,664 428,245 192,252 624,161
Repurchase and retirement of
common stock, May 3, 1997,
$0.47 per share (467,090) (467) (217,075) - (217,542)
Common stock issued for cash,
September 16, 1997, $0.134
per share 5,000 5 665 - 670
Common stock issued for
mortgage note receivable,
warrant exercise, November 12,
1997, $0.134 per share 87,500 88 11,637 - 11,725
Net Income - - - 235,795 235,795
--------- --------- -------- -------- --------
3,289,081 $3,290 $223,472 $428,047 $654,809
========= ========= ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-9
<PAGE>
Cinema Saver Theatre Corporation
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 235,795 $ 88,792
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization 183,976 184,326
Gain on sale of building (215,594) -
Deferred income taxes 49,000 25,000
Net changes in operating assets and liabilities:
Inventories (3,827) (741)
Other assets (7,025) 27,343
Accounts payable 19,867 (21,829)
Accrued expenses and other liabilities 29,177 43,102
--------- -----------
Net cash provided by operating activities 291,369 345,993
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (61,080) (100,853)
Acquisition of property - (405,000)
Proceeds from sale of building 725,483 -
--------- -----------
Net cash provided (used) by investing activities 664,403 (505,853)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of stock 670 3,015
Retirement of stock/equity interest (20,000) -
Issuance of stock for conversion of debt - 15,000
Proceeds from installment debt - 3,285,000
Repayment of installment debt (207,110) (3,097,845)
--------- -----------
Net cash provided (used) by financing activities (226,440) 205,170
--------- -----------
NET INCREASE IN CASH 729,332 45,310
CASH AND EQUIVALENTS, BEGINNING OF YEAR 164,181 118,871
--------- -----------
CASH AND EQUIVALENTS, END OF YEAR $ 893,513 $ 164,181
========= ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
F-10
<PAGE>
Cinema Saver Theatre Corporation
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Nature of Operations
Cinema Saver Theatre Corporation (the Company) was incorporated under the
laws of the State of Colorado on August 23, 1991. The Company started
operations in November 1991 when it opened its first movie theater. The
Company currently operates four movie theaters in the Colorado front range
area.
ACCOUNTING METHOD
The Company records revenues and expenses on the accrual method.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. Depreciation is provided using
the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Office furniture and equipment 5 - 10 years
Theater equipment 10 years
Leasehold improvements 5 years
Building 40 years
</TABLE>
INVENTORIES
Inventory of concession supplies is valued at the lower of cost or market,
determined on a first-in, first-out basis.
INCOME TAXES
Deferred income taxes are provided on temporary timing differences between
financial statement and income tax reporting. These differences are
primarily the result of the use of accelerated methods of depreciation for
income tax purposes. Deferred taxes are classified as current or noncurrent,
depending on the classification of the assets and liabilities to which they
relate.
STATEMENT OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
EARNINGS PER SHARE
Earnings per share have been computed using the weighted average number of
shares outstanding.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's cash and equivalents, notes
receivable, and long-term debt approximate their fair value at December 31,
1997 and 1996.
CONCENTRATION OF RISK
The Company maintains cash in excess of federally insured limits. The amount
in excess at December 31, 1997 was $722,507.
USE OF ESTIMATES
The preparation of financial statements of Cinema Saver theatre Corporation
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts
reported in these financial statements and accompanying notes. Actual
results could differ from these estimates.
F-11
<PAGE>
Cinema Saver Theatre Corporation
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
IMPACT OF NEWLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently released Statement of
Financial Accounting Standards No. 130--Reporting Comprehensive Income, and
Statements of Financial Accounting Standards No. 131--SAS Segment Reporting.
SFAS 130 requires companies to present comprehensive income (consisting
primarily of net income items plus other direct equity changes and credits)
and its components as part of the basic financial statements. SFAS 131
supercedes SFAS 14, and requires disclosure of disaggregated information by
operating segment. Both standards are effective for years beginning after
December 31, 1997. The Company has not elected early adoption of either
standard, and does not anticipate a material impact on operations as a
result of future adoption of these standards.
2. LONG-TERM DEBT
--------------
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
SHAREHOLDER LOANS
8.00% promissory notes, unsecured. Interest
payments payable quarterly, Principal due
December 31, 1998. $ - $ 90,000
9.25% promissory notes, unsecured. Interest
payments payable quarterly, Principal due
January 3, 1998. 10,000 10,000
6.00% unsecured note payable. Principal
and interest payments of $2,250 due
monthly through May 2007 186,754 -
---------- ----------
Total shareholder loans 196,754 100,000
Less current portion 24,846 10,000
---------- ----------
Long-term portion $ 171,908 $ 90,000
========== ==========
BANK LOANS
9.25% note payable secured by all real
property and personally guaranteed by
the officers and directors of the Company.
Principal and interest payments of
$33,530 due monthly through October
2006 with the balance of $1,639,306 due
November 2006. $3,142,369 $3,248,692
Less current portion 116,570 106,323
---------- ----------
Long-term portion $3,025,799 $3,142,369
========== ==========
</TABLE>
F-12
<PAGE>
Cinema Saver Theatre Corporation
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
2. LONG-TERM DEBT (CONTINUED)
--------------------------
As of December 31, 1997, annual maturities of long-term debt outstanding for
the next five years and through maturity are as follows:
<TABLE>
<CAPTION>
For the year ended
December 31, Amount
------------------- ----------------
<S> <C>
1998 $ 141,416
1999 181,499
2000 194,480
2001 210,203
2002 226,587
Thereafter 2,533,231
----------
$ 3,339,123
===========
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
-----------------------------
Operating Leases
The Company leases theater space under operating leases extending through
December 2001. Future minimum lease payments under this lease are as
follows:
<TABLE>
<CAPTION>
For the year ended
December 31, Amount
------------------ ---------------
<S> <C>
1998 $ 57,115
1999 37,870
2000 37,870
2001 37,870
--------------
$ 170,725
==============
</TABLE>
Rent expense for the two years ended December 31, 1997 and 1996 was $81,161
and $74,486, respectively.
SALE LEASEBACK OF BUILDING
Effective December 1997, the Company sold, and agreed to lease back for a
period of one year, one of its cinema buildings and the associated land. The
transaction has been accounted for as a sale-leaseback and consequently, all
profit from the sale, an aggregate of $215,594 has been recognized currently
-------
in the financial statements. The Company continues to operate the cinema in
this location but retains no continuing involvement in the property other
than that associated with the leaseback.
FILM RENTAL CONTRACTS
The Company maintains ongoing contracts with certain movie companies, which
are subject to negotiation. These contracts define the terms for film rental
expenses. Final settlements are held open until such time as sales results
are analyzed and contract terms finalized. At December 31, 1997, $14,053 has
been accrued for these film rental costs.
F-13
<PAGE>
Cinema Saver Theatre Corporation
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
-----------------------------------------
CONSTRUCTION IN PROGRESS
On October 28, 1997, the Company entered into a fee construction contract
for expansion of the Company's Bergen Park Theatre. The Company has
committed to approximately $400,000 of construction fees under this
contract. At December 31, 1997 approximately $58,500 of the construction had
been completed with an estimated $341,500 remaining.
4. INCOME TAXES
------------
Components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current income taxes paid or payable $ 57,248 $ 15,813
Increase in deferred taxes 49,000 25,000
-------- --------
Income tax expense $106,248 $ 40,813
======== ========
</TABLE>
Deferred income taxes are provided on temporary timing differences between
financial statement and income tax reporting. The components of deferred
income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities
Depreciation and amortization $151,000 $131,000
Deferred tax assets
Accrued liabilities (5,000) (34,000)
-------- --------
Net deferred tax liability $146,000 $ 97,000
======== ========
</TABLE>
A reconciliation between the statutory federal income tax rate and the
effective income tax rates based on continuing operations is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Statutory federal income tax rate 34.0% 34.0%
State income taxes, net of federal benefit 3.3 3.3
Graduated tax rates (2.1) (7.3)
Other differences - net (4.1) 1.5
--------- --------
Effective income tax rates 31.1% 31.5%
========= ========
</TABLE>
5. STOCKHOLDERS' EQUITY
--------------------
Stock Options
At December 31, 1997 the Company had 505,000 stock options outstanding. This
total is comprised of 195,000 and 310,000 stock options exercisable for one
share of common stock at a price of $0.134 per share and $0.417 per share,
respectively. The warrants were exercisable upon issuance and are
transferable. The $0.134 per share options expire one year after the option
holders' personal guarantees associated with the Company's debt are release
the remaining stock options expire May 2007.
REPURCHASE OF STOCK
Effective May 15, 1997, the Company entered into an agreement to repurchase
467,090 shares of outstanding common stock and remaining rights to acquire
additional stock through existing warrants or options from one of its
shareholders for $.465 per share. This purchase was funded with an initial
payment of $20,000 and the issuance of a note in the amount of $197,542. At
December 31, 1997, $186,754 remained outstanding under this note as
described in note 2.
F-14
<PAGE>
Cinema Saver Theatre Corporation
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1996
6. STATEMENT OF CASH FLOWS
-----------------------
The following provides supplemental information concerning disclosure of
cash flow activities:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Interest paid $313,601 $335,663
======== ========
Income taxes paid $ 26,163 $ -
======== =========
Schedule of non-cash investing and financing activities:
Secured receivable accepted for stock $ 11,725 $ -
======== =========
Conversion of equity to debt $197,542 $ -
======== =========
</TABLE>
7. SUBSEQUENT EVENTS
-----------------
On May 20, 1998, the shareholders of the Company approved an agreement and
plan of share exchange (the "Plan") pursuant to which the Company and
Pitchers!, Inc. ("Pitchers") would be acquired by Starlight Entertainment,
Inc., a corporation which has been formed for this purpose (the
"Acquisition"). As a result of the Acquisition, the Company and Pitchers
became wholly-owned subsidiaries of Starlight Entertainment, Inc. The Plan
provided for the exchange of the outstanding shares of the Company's common
stock and shares of Pitchers common stock for restricted shares of Starlight
Entertainment, Inc. common stock.
F-15
<PAGE>
[LETTERHEAD OF COMISKEY COMPANY]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
and Stockholders of
Pitchers!, Inc.
Littleton, Colorado
We have audited the accompanying balance sheet of Pitchers!, Inc. as of December
31, 1997, and the related statements of operations, stockholders equity, and
cash flows for each of the two years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pitchers!, Inc. as of December
31, 1997 and 1996, the results of its operations, changes in stockholders'
equity and its cash flows for each of the two years then ended in conformity
with generally accepted accounting principles.
Denver, Colorado
May 4, 1998
/s/ Comiskey & Company
PROFESSIONAL CORPORATION
F-16
<PAGE>
Pitchers!, Inc.
BALANCE SHEET
December 31, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 81,017
Inventory 104,682
Prepaid expenses 55,468
Other current assets 22,479
Deferred tax asset 49,609
----------
Total current assets 313,255
PROPERTY AND EQUIPMENT
Land 97,790
Buildings and improvements 910,393
Furniture and fixtures 475,927
Computers, machinery and equipment 340,025
Vehicles 23,554
----------
1,847,689
Less accumulated depreciation 502,522
----------
1,345,167
OTHER ASSETS
Deposits 5,098
Organization costs, net of amortization 17,994
Loan fees, net of amortization 10,804
Goodwill, net of amortization 121,333
----------
155,229
----------
TOTAL ASSETS $1,813,651
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities on long term debt $ 95,403
Obligations under capital leases 20,418
Accounts payable 42,391
Accrued expenses 215,981
Income taxes payable 27,817
----------
Total current liabilities 402,010
LONG-TERM LIABILITIES
Long-term debt 755,634
Obligations under capital leases 34,633
Loans payable - officers & shareholders 23,927
Deferred tax liability 12,946
----------
827,140
STOCKHOLDERS' EQUITY
Common stock, no par value; 200,000 shares authorized,
39,628 shares issued and outstanding 319,325
Retained earnings 265,176
----------
584,501
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,813,651
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
Pitchers!, Inc.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Gross sales, net of discounts $5,246,593 $4,460,196
Cost of goods sold 1,836,461 1,536,624
---------- ----------
GROSS PROFIT 3,410,132 2,923,572
General and administrative expenses 3,168,400 2,701,666
---------- ----------
INCOME FROM OPERATIONS 241,732 221,906
Other (income) expense
Interest income (1,624) (686)
Loss on disposition of fixed assets 1,320 62,934
Miscellaneous income, net of expense (8,530) (5,750)
Interest expense 98,182 90,819
---------- ----------
Total other expense 89,348 147,317
---------- ----------
INCOME BEFORE INCOME TAXES 152,384 74,589
Income tax expense 49,767 24,444
---------- ----------
NET INCOME $ 102,617 $ 50,145
========== ==========
BASIC EARNINGS PER SHARE $ 2.59 $ 1.27
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - BASIC 39,550 39,335
========== ==========
DILUTED EARNINGS PER SHARE $ 2.59 $ 1.27
========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING - DILUTED 39,550 39,335
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-18
<PAGE>
Pitchers!, Inc.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Common Stock
-------------------------------
Number Retained
of Shares Amount Earnings Total
------------ ---------- ----------- --------
<S> <C> <C> <C> <C>
Balance, January 1, 1996 39,238 $315,000 $112,414 $427,414
Shares issued for services 388 4,325 - 4,325
Net income for year - - 50,145 50,145
---------- ---------- ---------- ----------
Balance, December 31, 1996 39,626 319,325 162,559 481,884
Net income for year - - 102,617 102,617
---------- ---------- ---------- ----------
Balance, December 31, 1997 39,626 $319,325 $265,176 $584,501
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-19
<PAGE>
<TABLE>
<CAPTION>
Pitchers!, Inc.
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 and 1996
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 102,617 $ 50,145
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 163,310 139,685
Loss on sale of property and equipment - 61,208
Changes in assets and liabilities:
Increase in inventory (22,943) (9,695)
(Increase) decrease in prepaid expenses 3,063 (23,053)
(Increase) decrease in other current assets (2,791) 24,445
Increase in deferred tax asset (7,903) (38,499)
Increase (decrease) in deferred tax liability (9,667) 22,613
Increase (decrease) in accounts payable 6,219 (20,754)
Increase in accrued expenses 48,111 47,571
Increase in income taxes payable 172 17,001
----------- ----------
Net cash provided by operating activities 280,188 270,667
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment (478,910) (81,846)
Deposits 11,056 2,911
Organization costs (9,543) -
Loan fees (1,787) -
----------- ----------
Net cash used in investing activities (479,184) (78,935)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (reduction) of long term-debt 108,883 (117,645)
Increase of capital lease obligations 16,604 10,465
Issuance of common stock - 4,325
Reduction of officer loans (1,073) -
----------- ----------
Net cash provided (used) by financing activities 124,414 (102,855)
----------- ----------
NET INCREASE (DECREASE) IN CASH (74,582) 88,877
CASH, BEGINNING OF YEAR 155,599 66,722
----------- ----------
CASH, END OF YEAR $ 81,017 $ 155,599
=========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-20
<PAGE>
Pitchers!, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
NATURE OF OPERATIONS
The Company owns and operates five bar-restaurants, four in the Denver
metropolitan area of Colorado, and the fifth in Ft. Collins, Colorado.
ACCOUNTING METHOD
The Company records revenues and expenses on the accrual method.
PROPERTY AND EQUIPMENT
Depreciation and amortization of property and equipment are computed by the
straight-line and declining balance methods at rates adequate to allocate the
cost of applicable assets over their estimated useful lives as follows:
<TABLE>
<S> <C>
Building 39 years
Building improvements 31.5 - 39 years
Furniture, fixtures and equipment 7 years
Vehicles 5 years
Computer equipment 5 years
</TABLE>
ORGANIZATION COSTS, LOAN FEES AND GOODWILL
Organizational costs are being amortized on the straight-line method over a
period of five years.
Loan fees are being amortized on the straight-line method over the terms of
the loans, which range from three to 25 years.
Goodwill is being amortized on the straight-line method over a 20-year
period.
INVENTORIES
Inventory of food, beer, and liquor is valued at the lower of cost or market,
determined on a first-in, first-out basis.
INCOME TAXES
Deferred income taxes are provided on temporary differences between financial
statement and income tax reporting, principally from the difference in
inventory and depreciation methods used for tax purposes.
STATEMENT OF CASH FLOWS
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
ADVERTISING
Advertising costs are generally charged to operations in the year incurred.
Total advertising costs were $49,946 and $28,461 in 1997 and 1996,
respectively.
EARNINGS PER SHARE
Earnings per share have been computed using the weighted average number of
shares outstanding.
F-21
<PAGE>
Pitchers!, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
------------------------------------------------------
FAIR VALUES OF FINANCIAL INSTRUMENTS
Unless otherwise indicated, the fair value of all reported assets and
liabilities which represent financial instruments (none of which are held for
trading purposes) approximate the carrying values of such amount.
CONCENTRATION OF CREDIT RISK
At certain time during the year, the Company has maintained cash balances in
excess of federally insured limits with a single institution.
USE OF ESTIMATES
The preparation of the Company's financial statements, in conformity with
generally accepted accounting principles, requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ from
those estimates.
IMPACT OF NEWLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has recently released Statement of
Financial Accounting Standards No. 130 Reporting Comprehensive Income, and
Statements of Financial Accounting Standards No. 131 Segment Reporting. SFAS
130 requires companies to present comprehensive income (consisting primarily
of net income items plus other direct equity changes and credits) and its
components as part of the basic financial statements. SFAS 131 supercedes
SFAS 14, and requires disclosure of disaggregated information by operating
segment. Both standards are effective for years beginning after December 31,
1997. The Company has not elected early adoption of either standard, and does
not anticipate a material impact on operations as a result of future adoption
of these standards.
2. LONG-TERM DEBT
--------------
Long-term debt consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
SHAREHOLDER LOANS
Two 7%, $12,500 loans with
two of its officer-
shareholders. Loans are
unsecured and do
not require monthly
payments. $ 23,927 $ 25,000
=========== ===========
OTHER LOANS
Two 2.75% + prime bank
notes. $600,000, 75%
guaranteed by the U.S.
Small Business
Administration
(SBA). $200,000, 84%
guaranteed by the
SBA. Secured by
deed of trust on real
property, operating
equipment and
inventory, and personally
guaranteed by all
officer-shareholders of
the Company. Principal
and interest of $9,351 due
monthly. Mature May 2019
and May 2001, respectively. $ 692,497 $ 724,924
9.9% GMAC note. Principal
and interest due
monthly of $453. Matures
October 2000. 13,414 17,230
</TABLE>
F-22
<PAGE>
Pitchers!, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
2. LONG-TERM-DEBT (CONTINUED)
--------------------------
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
9.75% bank note.
Principal and interest due
monthly of $5,534.
Secured by equipment.
Matures May 2000. 145,127 -
-------- --------
Total long-term debt 851,038 742,154
Current portion 95,403 36,243
-------- --------
Long-term portion $755,635 $705,911
======== ========
</TABLE>
As of December 31, 1997, annual maturities of long-term debt outstanding for the
next five years and through maturity are as follows:
<TABLE>
<S> <C>
1998 $ 95,403
1999 105,392
2000 79,801
2001 26,119
2002 10,753
Thereafter 557,807
--------
$875,275
========
</TABLE>
3. CAPITAL LEASES
--------------
The Company leases certain property and equipment under non-cancelable
capital leases. The capitalized cost of this equipment is $94,485 and is
included in furniture, fixtures and equipment in the accompanying financial
statements.
The following is a schedule, by years, of future minimum lease payments under
the capital leases, together with the present value of the net minimum lease
payments as of December 31, 1997.
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------
<S> <C>
1998 $27,738
1999 19,878
2000 14,147
2001 6,648
2002 1,813
-------
Total minimum lease payments 70,224
Less amount representing interest 15,173
-------
Present value of net minimum lease payments 55,051
Current portion 20,418
-------
Long-term portion of capital lease obligations $34,633
=======
</TABLE>
F-23
<PAGE>
Pitchers!, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
4. COMMITMENTS
-----------
The Company leases various facilities and operating equipment under
noncancelable operating leases and reflects lease payments as expenses of the
period to which they relate. Total rental expense under these leases amounted
to $369,620 and $268,528 for the years ended December 31, 1997 and 1996,
respectively.
At December 31, 1997, the aggregate minimum rental payments due under
noncancelable operating leases are as follows:
<TABLE>
<S> <C>
1998 $ 391,841
1999 386,627
2000 374,481
2001 322,327
2002 250,121
-----------
$ 1,725,397
===========
</TABLE>
5. RELATED PARTY TRANSACTION
--------------------------
Since April 1996, the Company has leased one of its bar-restaurants from a
partnership. Three of the partners in this partnership are also officer-
shareholders of the Company. This lease is considered an operating lease and
is reflected in Note 4 above. For the years ended December 31, 1997 and 1996,
total rent and common area maintenance expense under this related party lease
was $131,556 and $110,463, respectively.
6. INCOME TAXES
------------
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Current income taxes paid or payable $67,337 $42,045
Increase in deferred tax assets 17,570 17,601
------- -------
$49,767 $24,444
======= =======
</TABLE>
Deferred income taxes are provided on temporary timing differences between
financial statement and income tax reporting. The components of deferred
income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax liabilities
Valuation of assets $36,476 $41,391
Depreciation and amortization 2,320 -
------- -------
Total deferred tax liabilities 38,796 41,391
------- -------
</TABLE>
F-24
<PAGE>
Pitchers!, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
6. INCOME TAXES (CONTINUED)
------------------------
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred tax assets
Section 263a adjustments 49,609 39,770
Depreciation and amortization - 485
Capital leases & accrued expenses 25,850 20,229
------- -------
Total deferred tax assets 75,459 60,484
------- -------
Net deferred tax assets $36,663 $19,093
======= =======
Included in the balance sheet as follows:
Current deferred tax assets $49,609 $41,706
Long-term deferred tax liability 12,946 22,613
------- -------
Net deferred tax asset $36,663 $19,093
======= =======
</TABLE>
A reconciliation between statutory federal income tax rate and the effective
income tax rates based on continuing operations is as follows:
<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Statutory federal income tax rate 34.0% 34.0%
State income taxes, net of
federal tax benefit 3.3 3.3
Other differences, net (4.6) (4.5)
---- ----
Effective income tax rates 32.7% 32.8%
==== ====
</TABLE>
7. SITE CLOSURES
-------------
On September 30, 1995, the Company closed its Lowry operation. This location
was operated as a sandwich shop on the Lowry Air Force Base in Aurora,
Colorado. The closing of the sandwich shop including the loss on disposal of
assets has been recorded and is shown as a component of continuing operations
in 1996.
On December 15, 1997, the Company decided to close one of its Denver
locations and actually closed this location January 17, 1998. Similarly, this
is shown as an element of continuing operations for the year ended December
31, 1997.
F-25
<PAGE>
Pitchers!, Inc.
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
8. STATEMENT OF CASH FLOWS
-----------------------
The following provides supplemental information concerning disclosure of cash
flow activities:
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Interest paid $102,389 $89,068
======== =======
Income taxes paid $ 67,337 $26,536
======== =======
Obligations assumed
under capital leases $ 45,158 $32,716
======== =======
</TABLE>
9. SUBSEQUENT EVENTS
-----------------
On May 20, 1998, the shareholders of the Company approved an agreement and
plan of share exchange (the "Plan") pursuant to which the Company and Cinema
Saver Theatre Corporations ("Cinema Saver") would be acquired by Starlight
Entertainment, Inc., a corporation which has been formed for this purpose
(the "Acquisition"). As a result of the Acquisition, the Company and Cinema
Saver became wholly-owned subsidiaries of Starlight Entertainment, Inc. The
Plan provided for the exchange of the outstanding shares of the Company's
common stock and shares of Cinema Saver common stock for restricted shares of
Starlight Entertainment, Inc. common stock.
F-26
<PAGE>
The accompanying unaudited pro forma combined financial statements give effect
to the pooling of interests of Pitchers!, Inc. and Cinema Savers Theatre Corp.
as wholly owned subsidiaries of Starlight Entertainment, Inc. as if such
transactions had occurred, at the beginning of each period presented. These
unaudited pro forma combined financial statements should be read in conjunction
with the each company's audited financial statements and notes thereto appearing
elsewhere in this filing. The pro forma information is not necessarily
indicative of the results that would have been reported had such events actually
occurred on the dates specified, nor is it indicative of the Company's future
results.
F-27
<PAGE>
STARLIGHT ENTERTAINMENT, INC.
PRO FORMA COMBINED BALANCE SHEET
December 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
--------------------------------- ----------------------------
Cinema Savers
Pitchers!, Inc. Theatre Corp. Adjustments Combined
--------------- ------------ ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets $ 313,255 $ 918,633 $ - $1,231,888
Property, plant and equipment, net of depreciation 1,345,167 3,487,173 - 4,832,340
Intangibles and other assets, net of amortization 155,229 31,635 - 186,864
---------- ---------- ---------- ----------
TOTAL ASSETS $1,813,651 $4,437,441 $ - $6,251,092
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 402,010 $ 409,078 $ - $ 811,088
Long-term debt 779,561 3,222,553 - 4,002,114
Other liabilities 47,579 151,000 - 198,579
Stockholders' equity 584,501 654,810 - 1,239,311
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS EQUITY $1,813,651 $4,437,441 $ - $6,251,092
========== ========== ========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-28
<PAGE>
Starlight Entertainment, Inc.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Year ended December 31, 1997
<TABLE>
<CAPTION>
Historical Pro Forma
--------------------------------- ------------------------------
Cinema Savers
Pitchers!, Inc. Theatre Corp. Adjustments Combined
---------------- --------------- -------------- ----------
<S> <C> <C> <C> <C>
NET REVENUES
Restaurant, net of discounts $5,246,593 $ - $ - $5,246,593
Theatre - 2,681,545 - 2,681,545
---------- ----------- ---------- ----------
Total revenues 5,246,593 2,681,545 - 7,928,138
Cost of goods sold 1,836,461 2,105,432 - 3,941,893
---------- ----------- ---------- ----------
Gross profit 3,410,132 576,113 - 3,986,245
General and administrative expenses 3,168,400 156,728 - 3,325,128
---------- ----------- ---------- ----------
Income from operations 241,732 419,385 - 661,117
Other (income) expense
Interest expense 98,182 309,597 - 407,779
Interest income (1,624) (9,381) - (11,005)
Miscellaneous income, net of expense (8,530) (7,280) - (15,810)
Loss (gain) on disposition of assets 1,320 (215,594) - (214,274)
---------- ----------- ---------- ----------
89,348 77,342 - 166,690
---------- ----------- ---------- ----------
Income from continuing
operations before income taxes 152,384 342,043 - 494,427
Federal and state income taxes 49,767 106,248 - 156,015
---------- ----------- ---------- ----------
Net income from continuing operations $ 102,617 $ 235,795 $ - $ 338,412
========== =========== ========== ==========
Basic Earnings Per Share $ 2.59 $ 0.07 $ 0.27
========== =========== ==========
Weighted Average Number of
Shares Outstanding 39,550 3,367,183 1,234,355
========== =========== ==========
Diluted Earnings Per Share $ 2.59 $ 0.06 $ 0.26
========== =========== ==========
Weighted Average Number of
Shares Outstanding - Diluted 39,550 3,851,463 1,313,538
========== =========== ==========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-29
<PAGE>
Starlight Entertainment, Inc.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
Year ended December 31, 1996
<TABLE>
<CAPTION>
Historical Pro Forma
----------------------------------- ------------------------------------
Cinema Savers
Pitchers!, Inc. Theatre Corp. Adjustments Combined
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
NET REVENUES
Restaurant, net of discounts $4,460,196 $ - $ - $4,460,196
Theatre - 2,656,821 - 2,656,821
---------- ------------- ---------- ----------
Total revenues 4,460,196 2,656,821 - 7,117,017
Cost of goods sold 1,536,624 2,053,771 - 3,590,395
---------- ------------- ---------- ----------
Gross profit 2,923,572 603,050 - 3,526,622
General and administrative expenses 2,701,666 168,321 - 2,869,987
---------- ------------- ---------- ----------
Income from operations 221,906 434,729 - 656,635
Other (income) expense
Interest expense 90,819 326,512 - 417,331
Interest income (686) (3,860) - (4,546)
Miscellaneous income, net of expense (5,750) (17,528) - (23,278)
Loss (gain) on disposition of assets 62,934 - - 62,934
---------- ------------- ---------- ----------
147,317 305,124 - 452,441
---------- ------------- ---------- ----------
Income from continuing
operations before income taxes 74,589 129,605 - 204,194
Federal and state income taxes 24,444 40,813 - 65,257
---------- ------------- ---------- ----------
Net income from continuing operations $ 50,145 $ $88,792 $ - $ 138,937
========== ============= ========== ==========
Basic Earnings Per Share $ 1.27 $ $0.02 $ 0.11
========== ============= ==========
Weighted Average Number of
Shares Outstanding 39,335 3,639,562 1,234,355
========== ============= ==========
Diluted Earnings Per Share $ 1.27 $ $0.02 $ 0.11
========== ============= ==========
Weighted Average Number of
Shares Outstanding - Diluted 39,335 3,835,989 1,313,538
========== ============= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE>
Starlight Entertainment, Inc.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. NATURE OF EVENTS
----------------
On May 20, 1998, the shareholders of Cinema Saver Theatre Corporation
("Cinema Saver") and Pitchers!, Inc. ("Pitchers") approved an agreement and
plan of share exchange (the "Plan") pursuant to which the Cinema Saver and
Pitchers would be acquired by Starlight Entertainment, Inc., ("Starlight") a
corporation which has been formed for this purpose (the "Acquisition"). As a
result of the Acquisition, the Cinema Saver and Pitchers became wholly-owned
subsidiaries of Starlight Entertainment, Inc. The Plan provided for the
exchange of the outstanding shares of the Company's common stock and shares
of Pitchers common stock for restricted shares of Starlight Entertainment,
Inc. common stock.
On the effective date of this agreement, Starlight issued a total of
1,234,355 shares of common stock in exchange for all of the issued and
outstanding shares of Cinema Saver (3,289,081 shares) and Pitchers (39,628
shares). The Agreement called for the Cinema Saver shares to be exchanged at
a conversion rate of 1 share of Starlight common stock for every 5.05487
shares of Cinema Saver common stock, and the Pitchers shares to be exchanged
at a conversion rate of 14.73119 shares of Starlight common stock for every
1 share of Pitchers common stock held. The outstanding warrants for Cinema
Saver common stock will be exercisable for Starlight common stock at a rate
of 1 share of Starlight common stock for every 5.05487 shares of Cinema
Saver common stock exercised.
2. EARNINGS PER SHARE
------------------
Pro Forma earnings per share was calculated assuming the shares issued in
the plan of share exchange mentioned above have been outstanding as of the
beginning of each period reported. The effect of dilutive securities was
determined with respect to the combined entity's public offering price of
$7.50.
F-31
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCE, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 10
Dilution................................................................. 11
Capitalization........................................................... 12
Dividend Policy.......................................................... 12
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 13
Business................................................................. 15
Management............................................................... 23
Principal Shareholders................................................... 26
Certain Relationships and Related Transactions........................... 28
Description of Securities................................................ 30
Shares Eligible for Future Sale.......................................... 31
Underwriting............................................................. 32
Legal Matters............................................................ 34
Experts.................................................................. 34
Index to Financial Statements............................................ 35
</TABLE>
UNTIL , 1998 (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.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,000,000 UNITS
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE REDEEMABLE COMMON
STOCK PURCHASE WARRANT
STARLIGHT ENTERTAINMENT, INC.
OFFERING PRICE
$ PER UNIT
-----------------
PROSPECTUS
-----------------
, 1998
TEJAS SECURITIES GROUP, INC.
(214) 692-3544
NEIDIGER, TUCKER, BRUNER, INC.
(303) 825-1825
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Colorado Business Corporation Law and Article X of the Registrant's Articles
of Incorporation permit the Registrant to indemnify its officers and directors
and certain other persons against expenses in defense of a suit to which they
are parties by reason of such office, so long as the persons conducted
themselves in good faith and the persons reasonably believed that their conduct
was in the corporation's best interests, not opposed to the corporation's best
interests, or unlawful. Indemnification is not permitted in connection with a
proceeding by or in the right of the corporation in which the officer or
director was adjudged liable to the corporation or in connection with any other
proceeding charging that the officer or director derived an improper personal
benefit, whether or not involving action in an official capacity, in which
proceeding the officer or director was adjudged liable on the basis that he or
she derived an improper personal benefit.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<CAPTION>
CATEGORY OF EXPENSE AMOUNT
<S> <C>
Registration fee.................................... $ 6,129
NASD filing fee..................................... 2,578
Pacific Exchange listing and application fee........ 25,500*
Blue sky filing fees................................ 7,500*
Transfer agent fees................................. 5,000*
Printing costs...................................... 90,000*
Engraving costs..................................... 2,500*
Legal fees.......................................... 62,000*
Accounting fees..................................... 20,000
Road Show expenses.................................. 80,000*
Contingency......................................... 23,793*
Representative's nonaccountable expense allowance... 150,000
---------
Total............................................... $475,000*
=========
- ---------------
</TABLE>
*Estimated
ITEM 26. UNREGISTERED SECURITIES ISSUED OR SOLD WITHIN ONE YEAR
On June 4, 1998, the registrant issued a total of 1,234,355 shares of its Common
Stock to the shareholders of Cinema Saver Theatre Corporation ("Cinema Saver")
and Pitchers!, Inc.("Pitchers") in exchange for all of the issued and
outstanding shares of common stock of those companies. In addition, warrants to
purchase the common stock of Cinema Saver were exchanged for warrants to
purchase the Common Stock of the registrant. The registrant, which was formed
for the purpose of acquiring Cinema Saver and Pitchers, relied upon the
exemption from registration contained in Section 4(2) of the Securities Act of
1933. No underwriters were involved in the transaction. The offerees were
limited to the existing shareholders of the companies being acquired, the
majority of whom are accredited investors, members of management of Cinema Saver
and Pitchers, and/or family members of management. Accordingly, the offerees
were believed to be "sophisticated" with respect to an investment in securities
of the registrant, as required by Section 4(2). The shareholders of Cinema Saver
and Pitchers approved the Agreement and Plan of Share Exchange in accordance
with the requirements of the Colorado Business Corporation Act pursuant to which
the foregoing exchange of securities was made.
II-1
<PAGE>
ITEM 27. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT CONSECUTIVE
NUMBER EXHIBIT PAGE NUMBER
<C> <S> <C>
1.1 Form of Underwriting Agreement (1)
1.2 Form of Representatives' Warrants (1)
2.1 Agreement and Plan of Share Exchange (1)
3.1 Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Warrant Agreement (1)
5.1 Opinion re Legality (1)
10.1 1998 Stock Option Plan (1)
10.2 Quad City Bank and Trust Company loan documents (1)
10.3 Cinema Saver Theatre Corporation Promissory Note to Joel Boldrey (1)
10.4 Aurora National Bank loan documents (1)
10.5 Business Lease with 1100 Drake, Ltd. (1)
10.6 Contract to Buy and Sell Real Estate dated August 15, 1998 (1)
10.7 Agreement to Amend/Extend Contract dated November 15, 1998 ---
21.1 List of Subsidiaries (1)
23.1 Consent of Comiskey & Company ___
23.2 Consent of Comiskey & Company ___
23.3 Consent of Dill Dill Carr Stonbraker & Hutchings, P.C. (2)
27.1 Financial Data Schedule ---
</TABLE>
- -----------------------------
(1) Filed previously.
(2) Incorporated by reference to exhibit 5.1
ITEM 28. UNDERTAKINGS
(a) The registrant will:
(1) File, during any period in which it offers or sells securities, a post-
effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with Commission pursuant
to Rule 424(b) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate
II-2
<PAGE>
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement.
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the
initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(b) The registrant will provide to the underwriter at the closing specified in
the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(d) The registrant will:
(1) For determining any liability under the Securities 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 registrant under Rule 424(b)(1), or (4)
or 497(h) under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the
initial bona fide offering of those securities.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of Parker,
State of Colorado, on December 3, 1998.
STARLIGHT ENTERTAINMENT, INC.
By: /s/ R. Haydn Silleck
----------------------------------
R. Haydn Silleck, President
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
President, Treasurer and Director
(Principal Executive Officer and
/s/ R. Haydn Silleck Principal Financial Officer) December 3, 1998
- -------------------------
R. Haydn Silleck
/s/ Herbert I. Lee Secretary and Director December 3, 1998
- -------------------------
Herbert I. Lee
/s/ Clifford E. Godfrey Vice President and Director December 3, 1998
- -------------------------
Clifford E. Godfrey
/s/ Lorry D. Hanson
- -------------------------
Lorry D. Hanson Vice President and Director December 3, 1998
/s/ Stanley H. Marks Director December 3, 1998
- -------------------------
Stanley H. Marks
Director
- -------------------------
Lyle A. Chapman, Jr.
</TABLE>
II-4
<PAGE>
EXHIBIT 10.7
THIS FORM HAS IMPORTANT LEGAL CONSEQUENCES AND THE PARTIES SHOULD CONSULT LEGAL
AND TAX OR OTHER COUNSEL BEFORE SIGNING.
AGREEMENT TO AMEND/EXTEND CONTRACT
November 15, 1998
-----------------
RE: Contract dated August 12, 1998 between
Starlight Entertainment, Inc., and/or Assigns
(Buyer) and
Twenty Mile Village LLC
(Seller),
relating to the sale and purchase of the following described real
estate in the County of Douglas, Colorado:
-------
Lots 14 & 15, Twenty Mile Village Filing No. 2, 1st Amendment, County of
Douglas, State of Colorado containing approximately 8.5 acres in total.
known as No. to be determined Parker CO 80134 (Property
---------------- ----------- ----------- ---------
Street Address City State Zip
Buyer and Seller hereby agree to amend the aforesaid contract as
follows:
1. The date for closing and delivery of deed is changed to February 15, 1999.
-----------
2. The date for furnishing commitment for title insurance policy or abstract
of title is changed to no change, 19 .
--
3. The date for delivering possession of Property is changed to February 15,
1999 . -----------
4. The date for approval of new loan is changed to N/A, 19 .
--- --
5. The date for lender's consent to loan assumption or transfer of Property is
changed to N/A, 19 .
--- --
6. Other dates set forth in said contract shall be changed as
follows:
A. Paragraph 21P PAYMENT OF EARNEST MONEY NOTE - the $25,000.00 earnest money
note shall be extended to February 12, 1999.
B. Paragraph 21H CONTINGENCIES - All contingencies in this paragraph are
extended to February 12, 1999.
7. Additional amendments: (The language of these additional amendments has not
been approved by the Colorado Real Estate Commission).
A. It is hereby understood that the subject property has been final platted
with the Town of Parker and the new legal description shall be Lots 14 & 15,
Twenty Mile Village Filing No. 2, 1st Amendment, County of Douglas, State of
Colorado.
B. The purchase price shall be adjusted from $1,625,000 to $1,650,000.
C. Paragraph 21I DRAINAGE AND DETENTION - The Buyer hereby acknowledges that
the Town of Parker will be constructing a regional detention pond. Seller has
agreed to join and pay the fee in lieu of constructing the drainage pond which
was to be located on Lot 16, Block 1. Buyer's future drainage study will be
required to provide for storm water inlets and/or underground culverts to
transfer the drainage water from subject property.
D. Paragraphs 21S and 21T shall be deleted from the Contract.
E. Buyer hereby agrees to begin the site plan process with the Town of Parker
and to hire the Allred Architectural Group, P.C. for the purpose of preparing
marketing exhibits and the required documents for the site planning process with
the Town of Parker. The complete set of required Site Plan submittal items
shall be submitted to the Town of Parker Planning Department no later than
January 11, 1999.
F. The closing of this transaction shall take place on February 15, 1999 (the
"Closing Date") provided, however, that the Buyer shall have the right to extend
the closing date for of thirty (30) days upon written notice delivered to Seller
not less than ten (10) business days prior to the pertinent closing date. Along
with said written notice, Buyer shall deliver a non-refundable earnest money
check payable to Seller in the amount of $25,000.00 for the extension period
requested. The monies shall not be deposited into escrow but shall be paid
directly to the Seller as consideration for the extension. However, the
$25,000.00 payment shall be credited towards that cash payment due from Buyer on
the Date of Closing.
The printed portions of this form have been approved by the Colorado Real Estate
Commission. (AE41-1-94)
No. AE41-1-94 AGREEMENT TO AMEND/ESTEND CONTRACT
RealFAST (c) Forms, Box 4700, Frisco, CO 80443, Version 5.5 (c) RealFAST, 1998;
Reg (t) TCOCOL223657
Completed by - Dannle Niewroehner, Associated Property Brokers, Inc., Associated
Property Brokers, Inc.
11/17/98 11:19:52 Page 1 of 2
Buyer(s)________ Seller(s) _______
<PAGE>
All other terms and conditions shall remain the same.
Twenty Mile Village LLC
SELLER /s/ William S. Arrington DATE November 16, 1998
------------------------------ ------------------------
By: William S. Arrington
Starlight Entertainment, Inc., and/or Assigns
BUYER: /s/ Hayden Silleck DATE November 15, 1998
------------------------------ ------------------------
By: Hayden Silleck, President
The printed portions of this form have been approved by the Colorado Real Estate
Commission. (AE41-1-94)
No. AE41-1-94 AGREEMENT TO AMEND/ESTEND CONTRACT
RealFAST (c) Forms, Box 4700, Frisco, CO 80443, Version 5.5 (c) RealFAST, 1998;
Reg (t) TCOCOL223657
Completed by - Dannle Niewroehner, Associated Property Brokers, Inc., Associated
Property Brokers, Inc.
11/17/98 11:19:52 Page 2 of 2
<PAGE>
EXHIBIT 23.1
[LETTERHEAD OF COMISKEY & COMPANY]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement of our report dated
May 1, 1998, on the financial statements of Cinema Saver Theatre Corporation
and to references to our firm as experts in accounting and auditing.
/s/ Comiskey & Co.
PROFESSIONAL CORPORATION
Denver, Colorado
December 3, 1998
<PAGE>
EXHIBIT 23.2
[LETTERHEAD OF COMISKEY & COMPANY]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement of our report dated
May 4, 1998, on the financial statements of Pitchers!, Inc. and to references
to our firm as experts in accounting and auditing.
/s/ Comiskey & Co.
PROFESSIONAL CORPORATION
Denver, Colorado
December 3, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 60,630
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 305,105
<PP&E> 5,744,507
<DEPRECIATION> 1,143,816
<TOTAL-ASSETS> 5,417,160
<CURRENT-LIABILITIES> 497,949
<BONDS> 3,584,713
0
0
<COMMON> 546,087
<OTHER-SE> 788,411
<TOTAL-LIABILITY-AND-EQUITY> 5,417,160
<SALES> 5,817,445
<TOTAL-REVENUES> 5,817,445
<CGS> 2,118,871
<TOTAL-COSTS> 2,118,871
<OTHER-EXPENSES> 3,320,093
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 283,026
<INCOME-PRETAX> 141,437
<INCOME-TAX> 46,250
<INCOME-CONTINUING> 95,187
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 95,187
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0.07
</TABLE>
