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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ___________.
Commission File Number: 000-28523
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BEVERLY HILLS LTD., INC.
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(Exact Name of Registrant as Specified in its Charter)
State of Utah 87-0281305
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16 N. Fort Harrison, Clearwater, Florida 33755
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(Address of Principal Executive Offices)
(727) 298-8771
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Registrants telephone number
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements by
reference in Part III of this Form 10-KSB or any amendment to the Form 10-KSB.
[ ]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [ X ]
State registrant's revenues for its most current fiscal year $1,319,402
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As of June 7, 2000, the aggregate value of the registrant's voting stock held by
non-affiliates was $14,142,645 (computed by multiplying the last reported sale
price on June 7, 2000 by the number of shares of common stock held by persons
other than officers, directors or by record holders of 10% or more of the
registrant's outstanding common stock. This characterization of officers,
directors and 10% or more beneficial owners as affiliates is for purposes of
computation only and is not an admission for any purposes that such person are
affiliates of the registrant).
At June 7, 2000, 16,075,957 shares of Common Stock were outstanding, which is
the registrant's only class of common stock.
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PART I
ITEM 1. DESCRIPTION OF THE BUSINESS
BUSINESS
Company
Beverly Hills is a diversified Internet commerce company focusing on
building market share in the recreation, media and merchandising business
through the development of leisure apparel, golf merchandise, media, travel and
Internet sales, including tee time reservations, web advertising, sales sites
and related e-commerce businesses.
Beverly Hills, owns 97% of Focused Media Limited, which owns 100% of
Ireland based Global Golf Limited (www.globalgolf.com), an international tee
time reservation system. Global Golf offers information pertaining to golf
courses, accommodations and dining, among other things. The Global Golf web site
currently receives approximately 1,000,000 hits per month and Beverly Hills
estimates that the number of hits is increasing at a rate of 20% per month.
Global Golf provides information and tee time services for golf courses in many
states in the USA including Florida, South Carolina, Nevada, Virginia and
Illinois. In Europe Global Golf covers courses in Ireland, England, Scotland,
Wales, Spain and Portugal. Global Golf has also expanded into the Far East with
clients in Malaysia, Thailand and Singapore. Utilizing the Global Golf web site,
golfers can view in detail the courses to play, book tee times on-line, check
accommodations in the area, access tour operators who provide a service to that
destination and decide upon restaurants or local places of interest to visit.
Global Golf has developed its own proprietary tee reservation software and plans
to provide the software to the golf courses that participate in its Internet
reservation system. Beverly Hills expects revenue to be derived from Global
Golf's operations through commissions paid by the golf courses, primarily as
percentage of green fees, and advertising income.
In addition to providing online golf-related information and tee time
services, Beverly Hills has established Beverly Hills Charity Auction Online
(www.BHAuction.com), one of the industry's first Internet based companies to
offer celebrity/charity auctions over the Internet. Beverly Hills Charity
Auction Online acts as a medium through which charities can raise funds by
reaching the millions of consumers that have access to the Internet. We expect
this service offering to generate revenue for Beverly Hills through commissions
on sales of auctioned items. We believe that this operation will not only be of
value to Beverly Hills but to charities worldwide seeking unique fundraising
opportunities.
In January 1999, Beverly Hills acquired all of the stock of Golf Shoes
Plus, Inc. (www.golfshoesplus.com), a retailer of high-quality name brand golf
shoes sold over the Internet and in retail stores. Also in January 1999, Beverly
Hills acquired all of the stock of Pro's Edge Wholesale, Inc., a wholesaler of
quality name brand golf accessories. Pro's Edge also manufactures "The Big Smoke
Driver" a patent-pending Titanium alloy oversized driver that is being sold via
the Internet (www.thebigsmoke.com).
In March 1999, Beverly Hills entered into an agreement to acquire Briar
& Wood, Inc., the publisher of The Golfer Magazine for cash. Beverly Hills did
not pay the cash purchase price. The transaction was abandoned by Beverly Hills
on May 10, 2000 and is not recorded as of December 31, 1999. During 2000,
depending on Beverly Hills' ability to finance acquisitions, Beverly Hills may
reconsider the acquisition of Briar Wood and other media properties in golf and
golf related fields.
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Beverly Hills intends to continue future acquisitions of the Internet
and other companies that fit Beverly Hills' general acquisition criteria.
However, currently, Beverly Hills does not have a fixed source of capital to
finance such future acquisitions. In this respect, the Company intends to
accomplish its acquisition plans by exchange of Beverly Hills stock alone. There
is no assurance given as to the trading price or liquidity of Beverly Hills'
common stock. Low trading price or poor liquidity of the Company's common stock
may adversely affect the Company's ability to engage in future acquisitions and
to accomplish its growth objectives.
Corporate History
Beverly Hills Ltd., Inc. was first incorporated in Utah on, April 29,
1939 as Ophir Queen Mines Company. On June 15, 1974 Ophir Queen Mines Company
changed its name to Hawk International. The Company had substantial operations
until March 15, 1996 when the Company discontinued operations and entered the
development stage. Hawk International changed its name to Beverly Hills Country
Club on February 28, 1998 when it acquired HMW Golf d/b/a the Hanlon Group.
Beverly Hills Country Club then changed its name to Beverly Hills Ltd., Inc. on
August 13, 1998.
Strategies
Key strategic factors in establishing brand recognition and fostering
growth for our Internet-based businesses include:
o Mintaining an upscale quality to all facets of our web sites;
o Covering all facets of upscale golf apparel, quality
merchandising, tee times, travel and hospitality, golf
information, and charity links to maximize each web site's
drawing power;
o Partnering with businesses with broad market exposure;
o Partnering with industry leading technology providers;
o Building and maintaining additional relationships inside and
outside of the golf industry to further the objectives of Global
Golf and the overall Beverly Hills Ltd. business plan; and
o Acting with speed and decisiveness to stay ahead of our
competitors.
As part of the Beverly Hills' overall business strategy, we intend to
integrate our Global Golf Internet business with our other product and service
offerings such that consumers will have easy access to online golf course
information and tee time reservations, golf merchandise and charity auction
events. We expect future revenue to be generated through a combination of retail
sales, transaction fees, and advertising revenue from the various web sites. We
expect to increase the rates we charge for advertising on our web sites as the
numbers of visits to these sites increases. Also, we anticipate that in the
future we will be able to build an enormous database of visitors to our web
sites that can be used for other marketing opportunities. Beverly
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Hills plans to continue to look for possible acquisition or partnering
candidates whose businesses fit synergistically with our current operations.
Global Golf Business
The Global Golf Division of Beverly Hills has been organized to create
an integrated blend of businesses that provide Beverly Hills with multiple
sources of revenue and, when combined, become a unique and powerful drawing card
to the Global Golf e-commerce site, www.globalgolf.com. Services or areas of
business expertise needed by the company, that fall outside of the main focus of
Global Golf, are being pursued through strategic partnerships. Some areas where
this approach is being pursued include marketing, technology and fulfillment.
Global Golf's strategy of involving strategic partners in key areas allows the
company to remain flexible and lessens drag on resources. Management believes
that the combination of the integrated businesses, brand identity, strategic
partners and technology will provide Global Golf with key competitive advantages
in the marketplace.
Although the terms "portal" or "destination site" are used frequently
in the Internet market, Global Golf recognizes that branding and the combination
of services and products offered are the keys to actually achieving true
"portal" status. Other Beverly Hills subsidiaries provide Global Golf with
building blocks that help differentiate the site and provide the foundation for
Beverly Hills' expected revenue growth. They are also stepping stones to a much
broader business vision surrounding the Global Golf brand.
Beverly Hills indirectly owns Ireland based Global Golf and
www.globalgolf.com, a site that was originally designed as an international tee
time reservation system but has since been significantly enhanced. The site
offers information on where to play, where to stay, where to eat, related
recreational activities and other information. The Global Golf website currently
receives over 1,000,000 hits per month and is increasing at 20% per month.
Global Golf now covers many states in the USA including Florida, South
Carolina, Nevada, Virginia and Illinois. In Europe Global Golf covers Ireland,
England, Scotland, Wales, Spain and Portugal. Global Golf has also expanded into
the Far East with clients in Malaysia, Thailand and Singapore. Golfers can view
in detail the courses to play, book tee times, check for accommodations in the
area on-line, access tour operators who provide a service to that destination
and decide upon restaurants or local places of interest to visit. Global Golf
has developed its own proprietary tee reservation software and will give the
software to the golf courses that join their Internet reservation system.
The business goal, then, is to establish Global Golf as the premier
website for golf and the dominance of the Global Golf brand, which is expected
to be measured by the quantity and quality of viewers drawn to the site, the
number and dollar value of transactions conducted, overall prestige of the site
as (partially) reflected in related website advertising, and strategic referral
relationships.
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In addition, the Company is negotiating for additional financing which may
involve the transfer or issuance of interests in Global Golf. Beverly Hills has
also entered into agreements to own and operate freestanding stores in high
traffic locations such as airports, by assuming leases of existing golf
merchandise stores. The Company has agreed to assume the $150,000 line of credit
and has agreed to issue them 250,000 restricted shares of Beverly Hills' stock
and one and one half percent ownership of Global Golf, the agreement may be
terminated if Beverly Hills does not secure a minimum of $2,500,000 in funding
by July 31, 2000. Future transactions may also involve the transfer of interest
in Global Golf. The Company does not anticipate reducing its ownership in Global
Golf below a majority. There can be no assurance that any or all of these
transactions will be consummated. If Beverly Hills does not obtain sufficient
financing for Global Golf, Beverly Hills' Global Golf business would suffer
significant adverse effects.
Key Strategies
The key strategic factors in establishing www.globalgolf.com as the
premier golf website and the powerful Global Golf brand include the following:
o Maintaining an upscale quality to all facets of the site.
o Having a strong name for branding, i.e. Global Golf.
o Covering all facets of upscale golf apparel, quality
merchandising, tee times, travel and hospitality, publishing,
golf information, and charity links to maximize the drawing power
as well as "stickiness" to the site.
o Partnering with marketing strength to maximize quality exposure.
o Partnering with technological strength to ensure state-of-the-art
technology platforms as well as expertise in e-commerce.
o Building and maintaining additional myriad relationships inside
and outside of the golf world to further the objectives of Global
Golf and the overall Beverly Hills Ltd. business plan.
o Acting with speed and decisiveness (within the business plan
structure) to stay ahead of the competition in the torrid net
climate.
o Focusing on opportunities in an effort to increase revenues AND
ensure profitability.
Revenues
It is clear that sustainability of a business in the Internet
marketplace will depend on many factors. But actually, the final arbiter of
which businesses survive is profitability. Price competition on wholesale and
retail goods will be, and is already, fierce. Margins are razor thin, and in
some cases, many products are being sold at a loss. Beverly Hills' Global Golf
business model seeks to avoid the necessity of selling merchandise at a loss as
a means to attract web site viewers and users.
The Global Golf business model attempts to achieve relief from this
unprofitable scenario by participating in revenues at each leg of a transaction.
All business conducted at the site is subject to transaction fees, whether it is
the sale of a pair of brand name golf shoes or the booking of a destination golf
weekend in Scotland. But Beverly Hills also owns the businesses that help make
the web site a valuable place to visit. The sale of brand name golf shoes
translate into revenue for the company through our Golf Shoes Plus, Inc.
subsidiary. All are sources of revenue for the company. We will be establishing
price points, determining specials, creating frequent buyer programs and
combination offers which we expect will maintain the margins we deem necessary
to remain profitable and viable.
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As the number of visitors to the site increases so does the value of
advertising on the Global Golf site. The site is designed to allow visitors to
survey the geographic area surrounding a destination golf course. After booking
your reservation through the tee-time reservation system a customer might be
interested in the accommodations or restaurants nearby. There are estimated to
be 36,000 golf courses around the world. As Global Golf adds more golf course
clients to its reservation system, the opportunity to derive revenue from
ancillary advertisers such as local restaurants, entertainment venues, hotels
and related leisure activities is expected to increase. This source of revenue,
though inexpensive for the individual advertiser, can become significant for the
site.
The combined revenue sources from Global Golf are expected to come
from:
1) Transactional fees at the web site for product sales
2) Revenue from products sold by subsidiaries (linked to
www.globalgolf.com)
3) Regional and national banner advertising revenue
4) Tee-time reservation fees
5) Advertising associated with specific destinations (i.e.
restaurant & hotel)
It is our plan that the breadth and scope of the site, when complete,
will increase loyalty to the site and reduce our susceptibility to "bargain
hunter" shopping which is widespread on the Internet. This coupled with unique
product offerings, such as original golf art and specially licensed products not
available elsewhere, is expected to provide an additional buffer from the zero
margin trend that is impacting many Internet businesses. Value added no-fee
services such as chat rooms with your favorite Golf Pros, helpful hint sections,
etc. are also under consideration to help increase customer loyalty and traffic.
Finally, special programs rewarding loyalty or repetitive business are planned
in an effort to encourage frequent visits and discourage "surfing" to other
sites. Programs such as these will be implemented where appropriate.
Golf Related Businesses
Beverly Hills owns Golf Shoes Plus (GSP) (www.golfshoesplus.com), a
retailer of high-quality name brand golf shoes sold over the internet and in
retail stores, and Pro's Edge Wholesale, Inc. (PEW) a wholesaler of quality name
brand golf accessories. PEW also manufactures "The Big Smoke Driver" a patent-
pending Titanium alloy oversized driver that is being sold via the Internet
(www.thebigsmoke.com) and through advertisements in the Wall Street Journal.
Through December 31, 1999 most of Beverly Hills' revenue was from the retail
sale of golf merchandise at retail stores, Golf Shoes Plus had 1999 revenues of
approximately $719,000. Internet sales accounted for approximately $298,000 of
the total sales.
All Global Golf internet businesses will be networked together so that
consumers will have easy access to the retail sales locations and corporate
information sites. This is expected to generate income for Beverly Hills both
through retail sales, transaction fees, and advertisements on the various Web
sites. As the numbers of visits to these sites increases it is expected that the
rates that can be charged for advertising will also increase. Also, Beverly
Hills expects to build a database of visitors to the sites that can be used for
other marketing opportunities.
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Employees
As of December 31, 1999, Beverly Hills employed approximately 30
full-time employees and 5 part-time employees. Management considers relations
between the Company and its employees to be good.
Marketing
Beverly Hills intends to focus its promotional efforts on mass media,
the Internet and public relations to create product and service awareness in
order to develop a broader user base. This advertising campaign is intended to
raise general awareness of the Beverly Hills Auction, Global Golf, Golf Shoes
Plus and such other brands and trade names as Beverly Hills may develop or
acquire. This advertising campaign is intended to raise consumer awareness
through the placement of television, print and radio advertising. Through Global
Golf's former relationship with CNBC Sports International many 30 second
television commercials ran during the broadcast of European and Asian golf
tournaments. Beverly Hills also acquired prepaid print media advertising in
major airline magazines in exchange for 600,000 shares of Beverly Hills Common
Stock which was delivered in June, 2000. The seller estimates the value of such
advertising to be $2.4 million. Beverly Hills has entered into an advertising
agreement with Sports By Line, a leading sports talk radio show carried in over
200 U.S. affiliates in 140 countries through the Armed Forces Network to provide
30-60 second spots during prime time talk shows. The agreement also includes
3,000,000 banner ad impressions in the Sports Byline USA Website and CBS Sports
Byline Website. The advertising was valued by Sports Byline to be approximately
$2,011,000. Beverly Hills intends to continue and expand its promotional
efforts in order to reach a larger targeted audience.
Trademarks and Patents
Beverly Hills and its subsidiaries have no patents or trademarks.
Beverly Hills' Pro Edge Wholesale, Inc. has filed a patent application for the
Big Smoke Driver. Beverly Hills has the following existing Internet Domain names
which are used in its business:
<TABLE>
<S> <C>
alumniave.com eterrain.com
alumniavenue.com globalgolf.com
bevelryhillsauction.com globalgolfart.com
beverlyhillsartgallery.com globalgolfstore.com
beverlyhillsgallery.com globalgolfsuperstore.com
bhauction.com golfshirtsplus.com
bhccauction.com golfshoesplus.com
bhchats.com onlineteetime.com
bhltd.com onlinettime.com
bhltdart.com supportyourcollege.com
bigsmoke.com thegolferonline.com
</TABLE>
Beverly Hills and its subsidiaries have applied for registrations for
"Global Golf", Beverly Hills Charity Auction", Beverly Hills Limited" and
"Auction.Com."
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In addition, in May 2000, Beverly Hills acquired the rights to use
various logos of prestigious golf clubs located in Scotland, Ireland, England,
countries in the Pacific Rim and other nations which Beverly Hills intends to
use for golf merchandising.
Suppliers
Beverly Hills employs services of a number of suppliers whose services
range from providing high speed Internet access to financial and other news
content providers. Among many service providers are the following companies:
Digital Nation is the ISP (internet service provider) for the Beverly
Hills Auction.
Mindspring/Exite is the ISP for Global Golf.
Opensite provides auction software and support to Beverly Hills Charity
Auction.
Credit Card International and Cybercard provide Internet credit card
processing and security services to Beverly Hills Auction sites.
Vario, Inc. provides software that creates a virtual shopping cart on
each of Beverly Hills retail sites.
RISK FACTORS
An investment in Beverly Hills involves a high degree of risk. You
should consider an investment in Beverly Hills only if you can afford to lose
your entire investment. In addition to the other information in this report, the
following risk factors should be considered carefully in evaluating an
investment in our common stock. When used in this report, the words "expect,"
"anticipates," "intends" and similar expressions are intended to identify
forward-looking statements. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. These risks and uncertainties include, but are not limited to, those
risks discussed below and elsewhere in this report. Actual results could differ
materially from those projected in the forward-looking statements as a result of
the risk factors discussed below and elsewhere in the report.
We Have Recently Implemented a New Business Plan and We Anticipate Operating
Losses in the Near Term
Beverly Hills commenced its current business operations in February
1998. Accordingly, we have little meaningful operating history upon which an
evaluation of our business and its prospects can be based. Although the
corporate entity has been in place for many years, because we have implemented a
new business plan, Beverly Hills business and it's prospects must be considered
in light of the risks, expenses and difficulties frequently encountered by
companies in their early stages of development. In the foreseeable future, we
will be required to among other things:
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o attract, retain and motivate qualified personnel;
o implement and successfully execute our business strategy;
o respond to competitive developments;
o develop and market additional products and services; and
o develop and enhance its existing product and services.
There can be no assurance that we will be successful in addressing
these business requirements. In addition, our limited operating history makes
the prediction of future overall results difficult or impossible. We expect to
incur substantial expenses related to the development of our business, marketing
activities and personnel, among other things. We expect to incur net operating
losses in the foreseeable future. There can be no assurance that we will be able
to achieve and maintain profitability.
We are Uncertain Whether the Market Will Accept our Internet-based Product and
Service Offering and the Size of the Market for our Products and Services is
Unknown
In order to achieve anticipated growth rates, our products and services
must achieve broad market acceptance. There can be no assurance that the market
acceptance attained by our existing products will be sustained or will grow. In
addition, we cannot guaranty that future products and services will . Because
the market for golf-related products and services of the type offered by us is
constantly changing, we are unable to accurately estimate the commercial
viability and market demand for the range of products and services offered by
us. We believe that the current market for golf-related products and services
utilizing Internet technology is in an early stage of growth. However, we can
give no assurance that the market will in fact grow at the rates projected by
us, or at all. If that market does not grow rapidly, or if we are not able to
obtain sales from growth in that market, we will incur substantial operating
losses. Moreover, as the novelty of golf- and leisure-related products and
services delivered via Internet technology diminishes over time, we may not be
able to retain customers. We will be required to invest substantial resources in
developing awareness of and confidence in our on-line products and services and
there can be no assurance that we will have the resources necessary to be
successful.
Our Success Depends on Our Key Executives
Our business depends on the continued efforts of our key technical
employees and managers. We cannot guarantee that any individual will continue in
his or her present capacity with us for any particular period of time. In
addition, at this time we do not maintain "key person" life insurance policies
on the lives of any of our personnel.
Our Business Could be Hurt By Competition
We will compete with other golf products and services providers and
other Internet vendors. In addition, the market for Internet services is highly
competitive and competition is expected to increase significantly due to
anticipated growth of the Internet as a means of communication and commerce.
There are no effective barriers that will prevent a potential competitor from
entering the market. Current providers of golf-related products and services may
decide to provide these products and services over the Internet and compete
directly with us. If so, many of our competitors would have greater financial,
development, technical, marketing
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and sales resources than we have and would have greater expertise and
established brand recognition. In addition, there can be no assurance that our
competitors will not develop products and services that are superior to our
products and services or that achieve greater market acceptance than our
products and services.
Risk of Inaccuracy of Projections and other Forward-Looking Statements
This report contains certain forward-looking statements, including,
among others:
o Our ability to execute our business strategies and generate
revenues from our Internet-based operations; and
o Our ability to finance future growth and possible
acquisitions through the issuance of shares of our common
stock.
These forward-looking statements are based upon a number of assumptions
and estimates that, while considered reasonable by us when taken as a whole, are
inherently subject to significant business, economic, and competitive
uncertainties and contingencies, many of which are beyond our control, and are
based upon specific assumptions with respect to future business decisions, many
of which will change. It can be anticipated that some or all of the assumptions
underlying the projections and forward-looking statements included herein will
not materialize or will vary significantly from actual results. Accordingly, it
can be expected that actual results will vary from the projections and that such
variations, in all likelihood, will be material and are likely to increase over
time.
In addition to the other risks described elsewhere in this Risk Factors
discussion, important factors to consider and evaluate in such forward-looking
statements include:
o changes in the external competitive market factors or in our
internal budgeting process which might impact our results of
operations;
o unanticipated working capital or other cash requirements; and
o changes in our business strategy or an inability to execute our
strategy due to unanticipated changes in our targeted market.
In light of these risks and uncertainties, many of which are described
in greater detail elsewhere in this "Risk Factors" discussion, we cannot give
assurance that the forward-looking statements contained in this report will in
fact transpire.
Limited History of Operations; History of Losses
Beverly Hills and its subsidiaries have only a limited history of
operations with periods of net operating losses. During the year ended December
31, 1998, Beverly Hills experienced a loss from its operations in the amount of
$895,032 and during the year ended December 31, 1999 the net loss was
$8,137,893. Beverly Hills' operations are subject to the risks and competition
inherent in the establishment of a relatively new business enterprise in a
competitive field of Internet start-up companies. There can be no assurance that
future operations will be profitable. Revenues and profits, if any, will depend
upon various factors, including market acceptance of its concepts, market
awareness, its ability to expand its network of participating Internet
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companies, reliability and acceptance of the Internet commerce, dependability of
its advertising and recruiting network, and general economic conditions. There
is no assurance that Beverly Hills will achieve its expansion goals and the
failure to achieve such goals would have an adverse impact on it.
Adverse Economic Conditions or a Change in General Market Patterns
A weak economic environment could adversely affect Beverly Hills sales
and promotional efforts. General economic conditions impact Internet based and
related commerce and demand and interest for Beverly Hills' Internet services
may decline at any time, especially during recessionary periods. Many factors
beyond Beverly Hills' control may decrease overall demand for Internet portal
services including, among other things, decrease in the entry costs by other
similarly situated companies, increase in the overall unemployment rate,
additional government regulation. There can be no assurance that the general
market demand for Internet portal services and related fields will remain the
same or will not decrease in the future.
Reliance on Future Acquisitions Strategy
Beverly Hills expects to continue to rely on acquisitions as a primary
component of its growth strategy. Beverly Hills regularly engages in evaluations
of potential target candidates, including evaluations relating to acquisitions
that may be material in size and/or scope. There is no assurance that Beverly
Hills will continue to be able to identify potentially successful companies that
provide suitable acquisition opportunities or that Beverly Hills will be able to
acquire any such companies on favorable terms. Also, acquisitions involve a
number of special risks including the diversion of management's attention,
assimilation of the personnel and operations of the acquired companies, possible
loss of key employees. There is no assurance that the acquired companies will be
able to successfully integrate into Beverly Hills' existing infrastructure or to
operate profitably. There is also no assurance given as to Beverly Hills'
ability to obtain adequate funding to complete any contemplated acquisition or
that such acquisition will succeed in enhancing Beverly Hills' business and will
not ultimately have an adverse effect on Beverly Hills' business and operations.
Lack of Continued Development of E-Commerce Market
The use of the Internet and the World Wide Web for commercial purposes
is expanding dramatically. There is no assurance, however, that as increased
commerce takes place on the Internet that unforeseen overloads, lack of
sufficient hardware, telephone availability or other problems may develop. In
addition, consumer use of the Internet for purchases, banking, and other
commercial uses may decline for any number of reasons such as security problems,
overload difficulties, shopping trends, or slow Internet access. These
difficulties may undermine Company's expansion and promotional efforts. There is
no assurance that Beverly Hills will be able to successfully overcome these
difficulties and maintain its competitive pricing and services.
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Loss of Beverly Hills Key Employees May Adversely Affect Growth Objectives
Beverly Hills success in achieving its growth objectives depends upon
the efforts of Marc Barhonovich as well as other key management personnel. Their
experience and industry-wide contacts significantly benefit Beverly Hills. The
loss of the services of these individuals could have a material adverse effect
on Beverly Hills business, financial condition and results of operations. There
is no assurance that Beverly Hills will be able to maintain and achieve its
growth objectives should it lose any of its key management members' services.
Competition From Larger and More Established Companies May Hamper Market Ability
The competition in the Internet and electronic commerce industry is
intense. Large and highly fragmented, this industry hosts a number of
well-established competitors, including national, regional and local companies
possessing greater financial, marketing, personnel and other resources than
Beverly Hills. There is no assurance that Beverly Hills will be able to market
or sell its products if faced with direct product and services competition from
these larger and more established Internet portal services providers.
Failure to Attract Qualified Personnel
A change in labor market conditions that either further reduces the
availability of employees or increases significantly the cost of labor could
have a material adverse effect on Beverly Hills' business, financial condition
and results of operations. Beverly Hills' business is dependent upon its ability
to attract and retain highly trained and qualified technical personnel and
corporate management. There is no assurance that Beverly Hills will be able to
employ a sufficient number of qualified training personnel in order to achieve
its growth objectives.
Issuance of Future Shares May Dilute Investor Share Value
The Certificate of Incorporation, as amended, of Beverly Hills
authorizes the issuance of 50,000,000 shares of common stock and 25,000,000
shares of preferred stock. The future issuance of all or part of the remaining
authorized common stock and/or all or part of the preferred stock may result in
substantial dilution in the percentage of Beverly Hills' common stock held by
its then existing shareholders. Moreover, any common stock issued in the future
may be valued on an arbitrary basis by Beverly Hills. The issuance of Beverly
Hills shares for future services or acquisitions or other corporate actions may
have the effect of diluting the value of the shares held by investors, and might
have an adverse effect on any trading market, should a trading market develop
for Beverly Hills' common stock.
Penny Stock Regulation
Penny stocks generally are equity securities with a price of less than
$5.00 per share other than securities registered on certain national securities
exchanges or quoted on the Nasdaq Stock Market, provided that current price and
volume information with respect to transactions in such securities is provided
by the exchange or system. Beverly Hills' securities may be subject to "penny
stock rules" that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally those with assets in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 together with their
spouse). For transactions covered by these rules, the broker-dealer must make
12
<PAGE> 13
a special suitability determination for the purchase of such securities and have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the "penny stock rules" require the delivery, prior to the transaction,
of a disclosure schedule prescribed by the Commission relating to the penny
stock market. The broker-dealer also must disclose the commissions payable to
both the broker-dealer and the registered representative and current quotations
for the securities. Finally, monthly statements must be sent disclosing recent
price information on the limited market in penny stocks. Consequently, the
"penny stock rules" may restrict the ability of broker-dealers to sell Beverly
Hills' securities. The foregoing required penny stock restrictions will not
apply to Beverly Hills' securities if such securities maintain a market price of
$5.00 or greater. There can be no assurance that the price of Beverly Hills'
securities will reach or maintain such a level.
ITEM 2. PROPERTIES
Beverly Hills' executive office is located at 16 N. Fort Harrison,
Clearwater, Florida 33755. Pro's Edge Wholesale occupies 1850 Boyscout Drive,
Unit 209, Ft. Myers, Florida 33907. Golf Shoes Plus occupies 1850 Boyscout
Drive, Unit 111, Ft. Myers, Florida, 33907. Beverly Hills Charity Auction is
located at 2320 US Highway 19, Holiday, Florida 34691. Global Golf has offices
at Unit 27 Templemore Business Park, Northland Road, Derry, North Ireland
BT4800LD.
ITEM 3. LEGAL PROCEEDINGS
Litigation
Beverly Hills, Marc Barhonovich, Steven Velte and Michael Hanlon, an
officer of Global Golf, are defendants in an action pending in the United States
District Court for the Northern District of Georgia brought by CNBC Sports
International Limited. The parties have settled this matter and it will be
dismissed upon Beverly Hills fully performing its obligations under the terms of
the settlement agreement.
Beverly Hills and one of its stockholders, Lehigh Enterprise, Ltd. are
plaintiffs in a lawsuit against Friss Asset Management Company, an associated
individual, Irvin Freedman, The Grand Master Company, Chautauqua Asset
management Company, and New Generation Polymers, LLC which is pending in the
U.S. District Court for the Middle District of Florida, Tampa Division, Civil
Case No. 99-2286-CIV-26C. This lawsuit arises out of (a) certain abortive
acquisition transactions, pursuant to which Beverly Hills would have acquired
various companies, including The Grand Master Company, Chautauqua Asset
Management Company, and New Generation Polymers, LLC, in exchange for stock and
capital funding to be provided by Beverly Hills to each of the companies to be
acquired; and (b) an abortive financing transaction pursuant to a separate
agreement between Lehigh and Friss, in which Lehigh agreed to furnish 1,600,000
of its shares in Beverly Hills to Friss as consideration for $8,000,000 of
capital funding to be provided by Friss to Beverly Hills.
Beverly Hills declined to conclude the acquisition transactions because
information and documentation necessary and material to the transactions, and
which were to have been provided
13
<PAGE> 14
pursuant to the acquisition agreements, were never forthcoming, and because the
companies to be acquired were found by Beverly Hills not to be as represented.
Lehigh declined to transfer any of its shares in Beverly Hills to Friss because
of the foregoing, and because Friss did not provide $8,000,000 in capital
funding to Beverly Hills as agreed.
In the lawsuit, Beverly Hills seeks to rescind the relevant acquisition
agreements and the agreement between Beverly Hills and Friss, based upon fraud
in the inducement, and also seeks damages for breach of each of those
agreements. The defendants have filed counterclaims in which they allege breach
of the subject agreements by Beverly Hills and seek monumental damages totaling
$128,000,000. Beverly Hills believes the counterclaims to be wholly without
merit or subject to valid defenses based upon, among other things, fraud in the
inducement and material breaches by the opposing parties. The lawsuit is now in
the discovery phase.
On January 26, 1999, Beverly Hills concluded its acquisitions of two of
its present subsidiaries, Golf Shoes Plus, Inc. and Pro's Edge Wholesale,
Inc.(respectively, "GSP" and "PEW") from their former shareholder, Randall J.
("Hap") Personett. Beverly Hills has certain outstanding obligations, in cash
and also, 232,335 additional (restricted) shares of Beverly Hills's common
stock, representing the balance of the consideration which it agreed to pay for
GSP. Beverly Hills believes the cash portion of its remaining obligation to Mr.
Personett for the acquisition of GSP to be in the approximate amount of
$185,000.
Mr. Personett has also asserted that he is entitled to (a) payment by
Beverly Hills of unpaid salaries pursuant to Beverly Hills's guarantee of his
Employment Agreements with GSP and PEW; (b) payment by GSP and PEW of unpaid
rents on business premises of which he is the lessor and GSP and PEW are the
lessees; and (c) payment or reimbursement of other sums which he claims to have
advanced to GSP and/or PEW or paid on their behalf since January 26, 1999.
Beverly Hills has not been able to verify the validity of these claims, or the
amounts which are owed.
In the first of these lawsuits referenced above, GSP, PEW and Beverly
Hills have sued Mr. Personett for breach of his Employment Agreements with GSP
and PEW, and for breach of his fiduciary obligations to GSP, PEW and Beverly
Hills, and seek both damages and injunctive relief. In the second (Mr.
Personett's Circuit Court suit), Mr. Personett seeks damages against Beverly
Hills for alleged breaches of the Stock Purchase Agreement relating to Beverly
Hills's acquisition of GSP, including, principally, Beverly Hills's failure to
pay the balance of the cash and stock representing the agreed consideration for
that company. He also seeks to recover his alleged unpaid salaries from GSP, PEW
and Beverly Hills. Finally, in the third (Mr. Personett's County Court suit),
Mr. Personett seeks a judgment for possession of the business premises of which
he is the lessor and GSP and PEW are the lessees; the imposition and foreclosure
of a landlord's lien against GSP's and PEW's assets for unpaid rents; and other
damages, together with interest, costs and attorney's fees.
Among its defenses to Mr. Personett's claims, Beverly Hills, GSP and
PEW have noted that Mr. Personett has continued to be in charge of the business
operations of those corporations; and have asserted that any failures on the
part of GSP and PEW to meeting their obligations for salaries and rents have
been attributable to Mr. Personett's mismanagement, neglect and/or malfeasance.
14
<PAGE> 15
Notwithstanding that these lawsuits are being actively prosecuted and
defended by both sides, there are continuing communications between the parties
in an effort to achieve an amicable resolutions. Draft settlement agreements
have been exchanged.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held a Special Meeting of Stockholders on January 11, 2000,
pursuant to written notice and the Company's bylaws. The total number of the
Company's shares outstanding on December 21, 1999, the record date of the
meeting, was 14,813,942, of which 8,302,191 were present, in person or by proxy.
the following persons were nominated by management and each was elected to serve
as director until the next annual meeting of stockholders:
Marc Barhonovich
Steve Velte
Leon F. Willis, Jr.
The following matters were submitted to stockholders and adopted by the
requisite vote of a majority of the shares present and voting on the matter:
1. To adopt, ratify and approve the Articles of Incorporation of the
Corporation.
2. To adopt, ratify and approve all prior Amendments to Articles of
Incorporation, including the following amendments, which will be incorporated in
amended and restated Articles of Incorporation:
o Changing the name of the Corporation from Ophir Queen Mines Co.
to Hawk International, Inc. to Beverly Hills Country Club, Inc.
to Beverly Hills Ltd., Inc.
o Changing the number of authorized shares to 50,000,000 shares of
Common Stock, $0.001 par value per share.
o Authorizing the Corporation to issue 25,000,000 shares of
Preferred Stock, $0.001 par value per share, to be issued in such
series and with such rights, preferences and designations as
determined by the Board of Directors of the Corporation and the
designation of 1,500,000 shares as Series A and 1,500,000 shares
as Series B having the rights and preferences set forth in
Exhibit B hereto.
o Adopting limitations on the personal liability of directors as
permitted by Utah corporation law.
o Requiring the Corporation to indemnify directors, officers,
employees and agents of the Corporation to the fullest extent
permitted by Utah corporation law.
15
<PAGE> 16
o Eliminating an outdated requirement that the Corporation maintain
its principal place of business in Salt Lake County, Utah.
o Giving the Corporation perpetual duration.
o Making certain ministerial and conforming revisions to the
Company's Articles of Incorporation in connection with the
preparation of the proposed Amended and Restated Articles of
Incorporation, consistent with the Utah Revised Business
Corporation Act.
3. To adopt, ratify and approve the Amended and Restated By-Laws of the
Corporation which was adopted on January 13, 2000.
4. To adopt, ratify and approve that the fiscal year of the Corporation
end on December 31.
5. To adopt, ratify and approve that the registered agent of the
Corporation in the State of Utah be CT Corporation System with a registered
office located at 50 West Broadway, Salt Lake City, Utah 84101 and that the
registered agent in the State of Florida be Leon F. Willis, Jr. with a
registered office located at 16 N. Ft. Harrison, Clearwater, FL 33755.
6. To adopt, ratify and approve all past actions on behalf of the
Corporation by the officers and the Board of Directors of the Corporation, since
August 7, 1997.
7. To adopt, ratify and approve the ability of a majority of the
Shareholders to consent to an action in lieu of a meeting of the Shareholders.
8. To adopt, ratify and approve all previous actions taken by
Shareholders without unanimous consent and not at a duly called and held meeting
of the Shareholders, including the following:
o The ten-for-one reverse stock split approved by majority
Shareholder consent July 10, 1997.
o The change of the Corporation's name from Hawk International, Inc.
to Beverly Hills Country Club, Inc. approved by majority
Shareholder consent February 17, 1998 and from Beverly Hills
Country Club, Inc. to Beverly Hills Ltd., Inc. approved by
majority Shareholder consent August 13, 1998.
9. To consider and act upon a proposal to adopt, ratify and approve
certain material corporate acquisitions, employment agreements, loan agreements,
the settlement of incipient litigation and warrants to purchase stock, the
definitive agreements effectuating such transactions, all transactions
contemplated therein and the payment of all consideration therefore, including
all issuances of stock in connection therewith, if applicable, including:
o HMW, Inc. d/b/a The Hanlon Group, Inc. (October 10, 1997);
16
<PAGE> 17
o LA Partners, L.P. (January 18, 1998);
o Pro's Edge Wholesale, Inc. (January 26, 1999);
o Golf Shoes Plus, Inc. (January 26, 1999);
o Focused Media Ltd. and Global Golf Ltd. (March 3, 1999);
o Briar & Wood, Inc. (Golfer Magazine) (March 18, 1999, as
amended);
o Settlement Agreements with Jeffrey Daugherty and Cliff Wildes;
o Loan and Security Agreement with Marc Barhonovich;
o Loan and Security Agreement with Equity Advisors, Inc.;
o Media Purchase Agreement with Sports By Line USA, Inc.;
o Employment Agreements of Michael Hanlon, Charles Williams, Fred
Willis and Marc Barhonovich;
o Loan Agreement with William Brown
Each of the foregoing was approved by a vote of 8,302,191 in favor, none
opposed and none abstaining.
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<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED MATTERS
Beverly Hills has been a non-reporting publicly traded company with
certain of its securities exempt from registration under the Securities Act of
1933 pursuant to Rule 504 of Regulation D of the General Rules and Regulations
of the Securities and Exchange Commission. The Company's common stock was traded
on the NASD OTC Bulletin Board under the symbol BLTD from March 24, 1998 to
October 8, 1999. The Nasdaq Stock Market implemented a change in its rules
requiring all companies trading securities on the NASD OTC Bulletin Board to
become reporting companies under the Securities Exchange Act of 1934, since
Beverly Hills was not a reporting company on the date it was required to comply
with these rules, it was removed from the Bulletin Board.
Beverly Hills acquired all the outstanding shares of Keynote to become
successor issuer to it pursuant to Rule 12g-3 in order to comply with the
reporting company requirements implemented by the Nasdaq Stock Market.
The following table is bid price information for Beverly Hills common
stock as reported by the OTC Bulletin Board for the periods indicated:
<TABLE>
<CAPTION>
High Low Closing
Date Bid Bid Bid
---- ---- --- ------
<S> <C> <C> <C>
Q3/1998 $ 6.875 $3 $5.25
Q4/1998 $ 6 $2 $4.5
Q1/1999 $ 8.375 $4.75 $8.25
Q2/1999 $ 11 $5 $7.5
Q3/1999 $ 10.5 $4 $4.625
(through
October 8,
1999)
</TABLE>
The following table is trade information reported to the NASD by
brokers during the time that Beverly Hills has been quoted in the Pink Sheets:
<TABLE>
<CAPTION>
Date High Price Low Price Closing Price
---- ---------- --------- -------------
<S> <C> <C> <C>
Q3/1999 $5.5 $1.5 $1.5
(from October 8, 1999)
Q4/1999 $5.375 $1.375 $1.5
</TABLE>
The quotations are interdealer prices without adjustment for retail
markups, markdowns or commissions and do not necessarily represent actual
transactions. These prices may not necessarily be indicative of any reliable
market value.
On June 7, 2000 the closing price reported by brokers to the NASD was
$1.55.
There are 168 holders of our Common Stock. Based upon reports received
from Depository Trust and inquiries of various holders of our stock that hold
shares as fiduciaries, we believe that there are in excess of 1,000 beneficial
owners of our shares.
Options
On January 14, 1999, the Company issued stock options to the board of
directors. The Company granted 1,000,000 shares with a strike price for $5.32
per share. The share may be exercised at any time through January 14, 2003.
On February 5, 1999, the Company issued stock options to a key
employee. The Company granted 350,000 with a strike price of $5 per share. The
shares vest at 50,000 shares every ninety days.
On February 24, 1999, the Company issued stock options to key employees
of the Company. The Company granted 300,000 shares with a strike price of $7 per
share. The shares may be exercised at any time through February 24, 2003.
On May 15, 1999, the Company issued stock options to an individual to
find financing for the Company. The Company granted 400,000 options with a
strike price of $8.01 per share. The shares may be exercised at any time
through June 25, 2003.
On May 21, 1999, the Company issued 30,000 stock options to an
individual to find financing for the Company. The stock options have a strike
price of $7 per share. The shares may be exercised any time through May 21,
2003.
On June 15, 1999, the Company issued stock options to a key employee
of the Company. The Company granted 60,000 shares with a strike price of $.05
per share. The shares may be exercised any time through June 16, 2004.
On October 18, 1999, the Company issued stock options to an officer of
a subsidiary Company. The Company granted 100,000 shares with a strike price of
$2 per share. The shares may be exercised any time through April 17, 2001.
On November 15, 1999, the Company issued stock options to the CEO of
the Company. The Company granted 1,000,000 shares with a strike price of $.05
per share. The share vest three months after issuance and become exercisable
when the Company files a registration statement with the Securities and
Exchange Commission.
On December 31, 1999, the Company issued stock options to key
employees of the Company. The Company granted 5,900 shares with a strike price
of $3.00 per share. The shares may be exercised any time through December 31,
2003.
We have not paid any dividends to date, and have no plans to do so in
the immediate future.
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<PAGE> 19
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL STATEMENTS
The increase in revenues from December 31, 1998 to 1999 is due to the
acquisition of three golf related entities: Golf Shoes Plus, Pro's Edge
Wholesale and Global Golf.Com. With these acquisitions Beverly Hills began to
move from a developmental company to an internet holding company whereby the
bulk of products sold by Golf Shoes Plus and Pro's Edge will be sold through
their websites and Global Golf. Com. Global Golf is designed to become a
comprehensive internet golf portal. Beverly Hills expects revenue to be
generated by retail sales over the internet and at retail locations and from
advertising revenue. In 1999 Beverly Hills Ltd had total revenue of
approximately $1,319,000. Of this approximately $719,000 was due to retail sales
of golf merchandise, $298,000 of which was sold through the internet. Also
included in the $1,319,000 was approximately $328,000 of wholesale sales of
golf equipment with the remaining $252,000 attributed to internet revenue from
transaction fees and advertising.
Cost of sales for 1999 consisted of cost of hard goods sold through Golf
Shoes Plus's retail outlets and the internet and through Pro's Edge Wholesale's
outlet.
Advertising costs of approximately $806,000 for 1999 consisted primarily of
$700,000 in advertising expenses incurred in a marketing program with CNBC
Sports International during 1999, whereby our golf website, located in Ireland,
was promoted on their international broadcast network. The remaining amount,
approximately $106,000, was incurred by our subsidiaries for local advertising.
The increase in amortization and depreciation is primarily due to the
amortization of goodwill (approximately $755,000) generated by the acquisitions
completed during 1999. We expect amortization of goodwill to increase as
additional acquisitions are closed. Our policy is to amortize goodwill over four
years. The remaining depreciation expense (approximately $165,000) represents
the depreciation of website development costs, office equipment and store
fixtures at the various locations.
Professional fees of approximately $1,872,000 for the year ended December
31, 1999 were primarily attributable to acquisition activities (approximately
$1,152,000)and development and start up costs (approximately $720,000) related
to our internet websites. The acquisition costs greatly exceeded the original
expectations of management as early in the year the NASDAQ adopted reporting
requirements which were significantly more stringent for those companies which
were trading on the OTCBB. As a consequence, the company experienced greater
than expected costs for legal and accounting services in order to bring the
targeted acquisitions as well as Beverly Hills Ltd., Inc. into compliance with
the new rules. In certain cases the cost of bringing the targeted acquisitions
into compliance was so onerous that they were abandoned. Of the total
$1,872,000, approximately $214,000 was paid through the issuance of stock and
stock purchase warrants.
Approximately $310,000 of bad debt expense in 1999 is due to the
establishment of a reserve against an amount due from Briar and Wood, Inc., a
former acquisition target. The remaining $27,000 is due to the write off of
certain trade receivables.
Compensation expense increased dramatically in 1999 from an insignificant
amount for the prior year. Approximately $744,000 is attributable to the
operation of the operating
19
<PAGE> 20
subsidiaries and division with $38,000 of that amount attributable to options
issued to an officer of a subsidiary. The remaining $2,458,000 is due to
increased staffing at the corporate level. The corporate staffing increases were
required to meet the additional work load generated by the heavy acquisition
schedule and the change in the NASDAQ compliance rules. Corporate payroll,
including taxes, was approximately $655,000 with another, approximately $752,000
of the corporate compensation in the form of stock issued from Beverly Hills
Ltd., Inc. and approximately $1,711,000 attributable to stock warrants/options
which have not been exercised.
Interest expense was comprised of approximately $167,000 on investor notes
payable issued primarily for working capital.
The remaining operating costs were approximately $755,000 in 1999 and
$335,000 in 1998. Costs included herewith are: insurance, rent, travel &
entertainment, utilities, and miscellaneous other. The increase is mostly
attributable to the operating subsidiaries.
Liquidity and Capital Resources
Our auditors have raised the issue that there is substantial doubt that we
will be able to continue as a going concern as a result of significant losses
and negative working capital. A significant amount of capital has been expended
towards building corporate infrastructure and operating and capital expenditures
in connection with certain acquisitions and the establishment of our programs.
These expenditures have been incurred in advance of the realization of revenue
that may occur as a result of such programs. As a result, our liquidity and
capital resources have diminished significantly. Liquidity and capital resources
could improve within the short term by a combination of any one or more of the
following factors: (i) an increase in revenues and gross profit from operations;
and (ii) financing activities. An inability to generate cash from either of
these factors within the short term could adversely affect our operations and
plans for future growth. If these issues are not addressed, we may have to
materially reduce the size and scope of our planned operations and the Company's
business could suffer severe disruptions.
Beverly Hills had a negative cash flow from operations of $2,803,000, and
$856,000 for the periods ended December 31, 1999 and 1998, respectively. The
cash flow of $635,000 that was used in investing activities was for the purchase
of equipment and acquisition costs. Cash flow generated by financing activities
was primarily from funds received under a line-of-credit in the amount of
$370,000 the issuance of common stock in the amount of $1,177,000 and the
issuance of long-term debt in the amount of $1,968,000. Substantial additional
cash will be required to implement our business plan.
Operations and working capital requirements have been met primarily through
issuance of the Company's equity securities and short and long term debt
instruments as well as vendor financing. In addition, at December 31, 1999
Beverly Hills Ltd., Inc. had approximately $1,832,000 in prepaid advertising.
This arose from a contract with a major sports radio talk show network to
advertise/promote Beverly Hills and subsidiaries' products and services. Payment
for this was by issuance of stock.
The Company has adopted a three-pronged financing plan:
o Seek mergers, joint ventures or financing arrangements with larger
private or public entities in related industries.
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<PAGE> 21
o Seek short and long term financing through private placements of debt
and equity securities in the capital markets.
o Mount an aggressive campaign to acquire companies for cash, if
available, and otherwise for registered Beverly Hills common stock or
ownership in Focused Media. This will require substantial working
capital to fund operating and merger and acquisition expenses and to
pay the significant cost of compliance with applicable securities
laws.
There can be no assurance that financing will be available in amounts or on
terms acceptable to Beverly Hills, if at all. Should the Company be unsuccessful
in its efforts to raise capital, it may be required to curtail operations.
ITEM 7. FINANCIAL STATEMENTS
See financial statement annexed hereto.
ITEM 8. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
21
<PAGE> 22
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the executive officers and directors of
Beverly Hills, their ages and the positions they hold as of June 7, 2000.
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE POSITION(S)
---------------- --- -----------
<S> <C> <C>
Marc Barhonovich................................... 37 President, Chief Executive Officer and Director
Leon F. Willis, Jr................................. 65 Chief Financial Officer, Secretary,
Treasurer and Director
Steven Velte....................................... 38 Director
</TABLE>
Marc Barhonovich, has served as a consultant to Beverly Hills since
March 1998. He became a director and Beverly Hills' President and CEO in
November, 1999. Since 1997, Mr. Barhonovich has been the sole shareholder and
President of Equity Advisors, Inc., a corporation engaged in financial
consulting to both private and public companies. Mr. Barhonovich currently
serves on the board of directors for Florimed Health Group and in the past for
American Dermatology Network, Inc. Prior to 1997, Mr. Barhonovich served as Vice
President of Investments for Morgan Stanley Dean Witter.
Leon F. Willis, Jr. has served as Chief Financial Officer of Beverly
Hills since April 1999 and became a director December, 1999. Mr. Willis has over
20 years of experience in accounting and management including serving as the
Senior V.P. of Finance of Seaworld, Inc. Such previous experience includes
serving as chief financial officer and partner of Rosenbloom Marketing, Inc. Mr.
Willis is also President and Owner of Universal Truck Parts & Sales, Inc., a
company which sells truck parts and rebuilds drive train units. He is currently
a director of Asgard, a Development stage company traded on the Pink Sheets. Mr.
Willis graduated from San Diego State College with a B.S. in Accounting.
Steven Velte has served as a director of Beverly Hills since 1997. Mr.
Velte has served as a systems development engineer for Hewlett-Packard and
Agilent Technologies, Inc. for 15 years specializing in the placement of high
end telecommunications systems targeting network surveillance, fraud detection
and Internet traffic characterization. He is also president of RSV Productions,
an after-marketer of automotive specialty products. Mr. Velte is a graduate of
Virginia Technical Institute with a degree in Electrical Engineering.
Our directors serve in their positions until the next annual meeting of
stockholders or until the director's successors have been elected and qualified.
Our executive officers are appointed by our Board of Directors and serve at the
discretion of the Board.
22
<PAGE> 23
ITEM 10. EXECUTIVE COMPENSATION
Executive Compensation
The following table sets forth certain summary information regarding
the compensation paid to and accrued for each of the Company's Chief Executive
Officers that served in such capacity during Fiscal 1999 and each of its other
executive officers whose total salary and bonus for the fiscal year ended
December 31, 1999 exceeded $100,000:
<TABLE>
<CAPTION>
Name and Year Other Restricted All Other
Principal Ended Annual Stock Options/ LTIP Compen-
Position Dec. 31, Salary Bonus Compensation Awards SARs Payouts sation
-------- -------- ------ ----- ------------ ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marc Barhonovich 1999 $ 15,624 $ -0- $ -0- -0- 1,000,000/0 $ -0- $ -0-
President, 1998 -0- -0- -0- -0- 0/0 -0- -0-
Chief Executive 1997 -0- -0- -0- -0- 0/0 -0- -0-
Officer (1)
Cliff Wildes 1999 $ 55,250 $ -0- $ -0- -0- 185,000/0 $ -0- $ -0-
Chief Executive 1998 -0- -0- -0- -0- 0/0 -0- -0-
Officer(2) 1997 -0- -0- -0- -0- 0/0 -0- -0-
Steve Velte 1999 $ -0- -0- $100,000(3) -0- 200,000/0 $ -0- $ -0-
Director 1998 $ -0- -0- -0- -0- 0/0 -0- -0-
1997 $ -0- -0- -0- -0- 0/0 -0- -0-
Leon F. Willis, Jr. 1999 $ 33,000 -0- $100,000(4) -0- 100,000/0 $ -0- $ -0-
Chief Financial 1998 -0- -0- -0- -0- 0/0 -0- -0-
Officer 1997 -0- -0- -0- -0- 0/0 -0- -0-
</TABLE>
-------------
(1) Became a director and chief executive officer in November 1999.
(2) Resigned July, 1999
(3) Stock issued in lieu of director's fee
(4) Stock issued as a bonus
Stock Option Plan
In January, 2000, the Board of Directors adopted the Beverly Hills
Ltd., Inc. 2000 Employee Stock Incentive Plan (the "2000 Plan"). Pursuant to the
2000 Plan, subject to shareholder approval, eligible participants of the
Company, its subsidiaries and affiliates may receive, until January 10, 2010,
stock options, stock appreciation rights, restricted stock or deferred stock
awards for up to 3,000,000 shares of the Company's Common Stock.
Pursuant to the 2000 Plan, the Board, in its discretion, determines
those directors of the Company to be granted Director Stock Options and those
officers and other key employees of the Company, its subsidiaries and affiliates
to be granted Employee Stock Options, Stock Appreciation Rights, Restricted
Stock Awards or Deferred Stock Awards or a combination, thereof; the type of
grants to be made; the number of shares subject to such grants; the terms and
conditions of the awards, including restrictions on Director Stock Options,
Employee Stock Options or other awards and/or the stock relating thereto based
on performance and/or such other factors as the Board in its sole discretion
determines and vesting acceleration features based on performance and/or such
other factors as the Board in its sole discretion determines; and whether, to
what extent and under what circumstances stock and other amounts payable with
respect to an award may be deferred either automatically or at the participant's
election. No grants of options to purchase shares were made under the 2000 Plan
during the year ended December 31, 1999.
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<PAGE> 24
The following table sets forth as to each executive officer of the
Company listed in the Summary Compensation table above concerning certain
options and warrants granted during the year ended December 31, 1999:
<TABLE>
<CAPTION>
% of Total
Options and Warrants/
Options/ SARs Granted to
SARs Employees in Exercise or Base Expiration
Name Granted Fiscal Year Price Per Share Date
----- ------------- --------------------- ---------------- ----------
<S> <C> <C> <C> <C>
Marc Barhonovich 1,000,000 / 0 30% / N/A $ .05 11/20/2004
Cliff Wildes 185,000 / 0 6% / N/A $ .05 5/31/2001
</TABLE>
The following table sets forth as to each executive officer listed in
the Summary Compensation table above certain information concerning the exercise
of options during the year ended December 31, 1999 and options outstanding as of
such date:
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised in-the-Money
Shares Options Options
Acquired Exercisable/ Exercisable/
Name on Exercise Value Realized Unexercisable Unexercisable
---- ----------- -------------- ------------- ---------------
<S> <C> <C> <C> <C>
Marc Barhonovich 0 $ 0 1,000,000 / 0 $1,450,000 / 0
Cliff Wildes 0 $ 0 185,000 / 0 $ 268,250 / 0
</TABLE>
Board Report on Executive Compensation
The Board of Directors did not, during the year ended December 31,
1999, have a compensation or similar committee. Accordingly, the full Board of
Directors is responsible for determining and implementing the compensation
policies of the Company.
The Board's executive compensation policies are designed to offer
competitive compensation opportunities for all executives which are based on
personal performances, individual initiative and achievement, as well as
assisting the Company in attracting and retaining qualified executives. The
Board also endorses the position that stock ownership by management and
stock-based compensation arrangements are beneficial in aligning management's
and stockholders' interests in the enhancement of stockholder value.
Compensation paid to the Company's executive officers generally
consists of the following elements: base salary, annual bonus and long-term
compensation in the form of stock options. Compensation levels for executive
officers of the Company is determined by a
24
<PAGE> 25
consideration of each officer's initiative and contribution to overall corporate
performance and the officer's managerial abilities and performance in any
special projects that the officer may have undertaken. Competitive base salaries
that reflect the individual's level of responsibility are important elements of
the Company's executive compensation philosophy. Subjective considerations of
individual performance are considered in establishing annual bonuses and other
incentive compensation. In addition, the Board considers the Company's financial
position and cash flow in making compensation decisions.
Mr. Barhonovich's Compensation and Employment Agreement
Mr. Barhonovich entered into a employment agreement with Beverly Hills
on November 15, 1999. Pursuant to the agreement, as amended, Mr. Barhonovich is
to serve as the Company's Chief Executive Officer for a term ending November 14,
2000, at which time the agreement is automatically extended for successive
additional terms of one year, unless either party has notified the other of its
intention to terminate the agreement thirty days prior to the expiration of the
term. The agreement provides for annual cash compensation of $125,000 during the
term and entitles Mr. Barhonovich to certain fringe benefits, including an
automobile and its maintenance, disability insurance, medical benefits and life
insurance coverage the cash value of which is payable to Mr. Barhonovich in the
event he retires after the age of 55. Mr. Barhonovich has agreed that during the
term of his agreement and for the twelve months thereafter (unless the agreement
is terminated by the Company without cause), he will be subject to
non-competition provisions. The agreement further provides for Mr. Barhonovich
to be granted 1,000,000 warrants which vested February 15, 2000 and are
exercisable for $.05 per share for a period of five years. Upon termination of
employment without cause, Mr. Barhonovich will be entitled to receive a lump sum
cash payment equal to the remaining base salary due through the expiration of
the term and the product of the number of full years employed times $75,000. To
date all cash compensation for Mr. Barhonovich has been accrued but is not paid.
Director Compensation
Beverly Hills does not have a policy relating to compensating the
members of its Board of Directors. In January 1999, the Board of Directors voted
to award 100,000 shares of Beverly Hills' common stock to each of the members of
the Board, each member abstaining from voting with respect to his own award. The
value for such shares, as determined by Beverly Hills' Board of Directors, was
$1.00 per share. In addition, the Board issued 1,000,000 warrants to its
members in January 1999 exercisable until January 14, 2003 for $5.32 per share.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This table describes the current ownership of our outstanding Common
Stock by (i) each of our officers and directors; (ii) each person who is known
by us to own more than 5% of the company's outstanding Common Stock; and (iii)
all of our officers and directors as a group:
25
<PAGE> 26
<TABLE>
<CAPTION>
COMMON STOCK
BENEFICIALLY OWNED
--------------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENTAGE
------------------------------------ ------ -----------
<S> <C> <C>
Triton Enterprises, Inc. (1)
5030 Champion Boulevard, Suite 6-212 4,198,670 27.2%
Boca Raton, FL 33496
Marc Barhonovich (2)
c/o Equity Advisors, Inc.
14502 N. Dale Mabry Highway
Tampa, FL 33618 3,613,000 21.7%
Makenzie Shea Inc. (3)
657 3rd Street
San Francisco, CA 94107 1,046,790 6.8%
Directors:
Marc Barhonovich (2)
c/o Equity Advisors, Inc.
14502 N. Dale Mabry Highway
Tampa, FL 33618 3,613,000 21.7%
Steven Velte (4)
c/o Beverly Hills Ltd., Inc.
16 N. Ft. Harrison
Clearwater, FL 33755 590,000 3.7%
Leon F. Willis, Jr. (5)
c/o Beverly Hills Ltd., Inc.
16 N. Ft. Harrison
Clearwater, FL 33755 200,000 1.3%
All directors and officers as a group (3 persons) (6) 4,403,000 26.1%
</TABLE>
-----------------
(1) Includes 100,000 shares which may be acquired upon the exercise of
outstanding warrants.
(2) Includes 1,000,000 shares which may be acquired upon the exercise of
outstanding warrants, 1,388,000 shares owned by Lehigh Enterprises, Ltd.,
1,000,000 shares owned by Peak Investment International ltd. Mr.
Barhonovich may be deemed to be the beneficial owner as a result of a trust
for the benefit of his minor children. Also includes a 50% interest in
390,000 shares owned by Barde, Inc. a corporation which is jointly owned by
Mr. Barhonovich.
(3) Consists of 241,790 shares owned of record by Makenzie Shea, 210,000 shares
owned by Avon Brill LLC, 110,000 shares held by Congo Capital, 275,000
shares owned by Dimension Capital and 210,000 owned by Haxlon Capital Corp.
All of such companies maintain an address co/o Makenzie Shea, Inc. and
Beverly Hills cannot determine whether all such shares are beneficially
owned by Makenzie Shea.
(4) Includes 450,000 shares which may be acquired upon the exercise of
outstanding options and warrants.
(5) Includes 100,000 shares which may be acquired upon the exercise of
outstanding warrants.
(6) Includes the shares which are deemed to be beneficially owned by each
officer and director, including 1,550,000 shares which may be acquired upon
the exercise of outstanding options and warrants.
26
<PAGE> 27
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Marc Barhonovich served as a consultant to Beverly Hills since March
1998 and became a director and President of Beverly Hills November 4, 1999.
During 1998 and 1999 Mr. Barhonovich loaned Beverly Hills funds, which were due
on demand. As of December 31, 1999, $498,871 was due to Mr. Barhonovich. In
April 1999 Beverly Hills and Mr. Barhonovich entered into an agreement to
formalize the lending relationship by fixing the due date of the loan to April
30,2000, fixing the interest rate at 10% per year and securing the loan with a
security interest in substantially all of the Beverly Hills assets. The
agreement was amended November 30, 1999 to extend the due date of the loan to
April 30, 2001 or upon an earlier default or a public or private financing. In
May 1999, Equity Advisors, Inc., a company in which Mr. Barhonovich is sole
shareholder and officer entered into an agreement to provide working capital to
Beverly Hills in an amount up to $2,000,000. The loan bears interest at the rate
of 10% per annum and was initially due at the earlier of December 31, 2000 or
upon an earlier default or a public or private financing. The loan is secured by
the same collateral as Mr. Barhonovich's loan. On November 30, 1999 the due date
of the loan was extended to May 31, 2001.
On February 7, 2000, Triton Enterprises, Inc., a principal shareholder,
loaned Beverly Hills $125,000. The loan is due with interest at the annual rate
of 10% on February 7, 2001. Beverly Hills issued 100,000 five year warrants to
Triton exercisable at a price of $.05 per share as an inducement to enter into
the loan agreement. On July 14, 1999 Triton loaned $140,000 with interest at 10%
due July 14, 2001.
On March 1, 2000, Steven Velte, a director, loaned Beverly Hills
$100,000. The loan is due on demand.
On April 5, 1999 William Brown, Mr. Barhonovich's father-in-law,
loaned Beverly Hills $200,000. The loan was due April 5, 2000. On April 20,
2000 Mr. Brown agreed to extend the due date to April 5, 2001. The loan carries
an interest rate of 10% annually.
On April 19, 1999 Michael Hanlon, a former director and officer of
Beverly Hills, loaned the Company $25,000. The loan carries an annual interest
rate of 10% and is due April 19, 2001.
27
<PAGE> 28
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits are filed as part of this report. Where such
filing is made by incorporation by reference to a previously filed statement or
report, such report is identified in parenthesis:
2.01 Agreement and Plan of Reorganization between Beverly Hills Ltd., Inc.
and Keynote Acquisition Corporation, dated as of January 27, 2000.(1)
2.02 Amendment dated February 17, 2000 to Agreement and Plan of
Reorganization, dated as of January 27, 2000.(1)
2.03 Stock Purchase Agreement between Beverly Hills Ltd., Inc. and Randal J.
Personett regarding Golf Shoes Plus, Inc., dated January 26, 1999.
2.04 Stock Purchase Agreement between Beverly Hills Ltd., Inc. and Randal J.
Personett regarding Pro's Edge Wholesale, Inc., dated January 26, 1999.
2.05 Acquisition Agreement between Beverly Hills Ltd., Inc. and Focused
Media Ltd. and Global Golf Ltd., dated March 3, 1999.
3.1 Amended and Restated Articles of Incorporation of Beverly Hills Ltd.,
Inc.(1)
3.2 Amended and Restated By-Laws of Beverly Hills Ltd., Inc.(1)
10.01 Loan and Security Agreement between Beverly Hills Ltd., Inc. and Briar
& Wood, Inc., dated March 18, 1999.
10.02 Stock Purchase Agreement between H. Kevan Pickens, Andrea DaRif and
Marc L. Bailin with respect to the purchase and sale of 100% of the
issued and outstanding capital stock of Briar and Wood, Inc., dated
March 18, 1999.
10.03 Addendum to Stock Purchase Agreement between Beverly Hills Ltd., Inc.
and Briar & Wood, Inc., dated April 1, 1999.
10.04 Employment Agreement between Beverly Hills Ltd., Inc. and Clifford
Wildes, dated May 19, 1999.
10.05 Subscription and Shareholders' Agreement between CNBC Sports
International Limited, Beverly Hills Ltd., Inc. and Focused Media
Limited, dated May 24, 1999.
28
<PAGE> 29
10.06 Business Consulting Agreement between Beverly Hills Ltd., Inc. and
Mackenzie Shea, Inc., dated May 27, 1999.
10.07 Option Agreement between Beverly Hills Ltd., Inc. and Luna Trading
Limited, dated July 12, 1999.
10.08 Amendment to Agreement between Beverly Hills Ltd., Inc. and CNBC Sports
International Limited, dated August 24, 1999.
10.09 Subscription and Shareholders' Agreement between CNBC Sports
International Limited, Focused Media Limited, Beverly Hills Ltd., Inc.,
Cycad Financial Holdings Limited and Luna Trading Limited, dated
September 30, 1999.
10.10 Side Letter dated October 1, 1999 to Cycad Financial Holdings Limited
regarding Focused Media Limited.
10.11 Modification Agreement regarding Subscription and Shareholders'
Agreement between CNBC Sports International Limited, Focused Media
Limited, Beverly Hills Ltd., Inc., Cycad Financial Holdings Limited and
Luna Trading Limited, dated October 26, 1999.
10.12 Settlement Agreement between Beverly Hills Ltd., Inc. and Clifford
Wildes, dated October 28, 1999.
10.13 Employment Agreement between Beverly Hills Ltd., Inc. and Marc
Barhonovich, dated November 15, 1999.
10.14 Warrant to Purchase Common Stock issued to Marc Barhonovich, dated
November 30, 1999.
10.15 Warrant to Purchase Common Stock issued to Steve Velte, dated January
14, 1999.
10.16 Warrant to Purchase Common Stock issued to Triton Enterprises, Inc.,
dated February 7, 2000.
10.17 Settlement Agreement between CNBC Sports International Limited, Focused
Media Limited, Global Golf Limited, Beverly Hills Ltd., Inc., Cycad
Financial Holdings Limited and Luna Trading Limited, dated February 25,
2000.
10.18 Letter Agreement dated April 12, 2000 to Gary Lipson, Receiver.
10.19 Assignment and Assumption Agreement between Beverly Hills Ltd., Inc.
and Genuine Golf, LLC, Philip Kenny and Brian Mahoney, dated May 12,
2000.
10.20 Amendment to Agreement between CNBC Sports International Limited,
Focused Media Limited, Beverly Hills Ltd., Inc., dated August 31,
1999.
10.21 Warrant to Purchase Common Stock issued to Leon F. Willis, Jr., dated
February 24, 1999.
29
<PAGE> 30
10.22 Retained Service Agreement between Beverly Hills Ltd., Ind. and
Millennium Media, Ltd., dated November 15, 1999.
10.23 Addendum to Assignment and Assumption Agreement between Beverly Hills
Ltd., Inc. and Genuine Golf, LLC, Philip Kenny and Brian Mahoney, dated
May 12, 2000.
10.24 Assignment and Assumption Agreement between Golf Where, LLC, Philip
Kenny, Blair Subry and Beverly Hills Ltd., Inc., dated May 12, 2000.
10.25 Addendum to Assignment and Assumption Agreement between Golf Where,
LLC, Philip Kenny, Blair Subry and Beverly Hills Ltd., Inc., dated May
12, 2000.
10.26 Closing Agreement between Beverly Hills, Ltd, Inc., Liam Gallagher,
Eoin O'Sullivan, John Boyle, NovaTech Ltd., Focused Media Ltd. and
Global Golf Ltd., dated October 9, 1999.
10.27 Letter Agreement with Sports Byline USA dated July 30, 1999.
10.28 Letters regarding Sports Byline USA and the Company's shares dated
September 8, 1999.
21 Subsidiaries of Registrant
27 Financial Data Schedule
-------
(1) Incorporated by reference to the registrant's Form 8-K Report dated
February 24, 2000.
(b) Reports on Form 8-K
Form 8-K Report dated March 10, 2000
Form 8-K Report dated April 28, 2000
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed by the
undersigned, thereunto duly authorized.
BEVERLY HILLS LTD., INC.
Date: June 19, 2000 By: /s/ Marc Barhonovich
---------------------------
Marc Barhonovich, President
Pursuant to the requirements of the Securities Exchange Act of 1934
this report has been signed below by the following persons on behalf of the
registrant and in the capacities on the dates indicated.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
/s/ Marc Barhonovich President and Director June 19, 2000
------------------------------------ (Principal Executive Officer)
Marc Barhonovich
/s/ Leon F. Willis CFO, Secretary, Treasurer June 19, 2000
------------------------------------ and Director
Leon F. Willis (Principal Financial and
Accounting Officer
/s/ Steven Velte Director June 19, 2000
---------------------------
Steven Velte
</TABLE>
31
<PAGE> 32
CONSOLIDATED FINANCIAL STATEMENTS
BEVERLY HILLS LTD, INC.
December 31, 1999
<PAGE> 33
Consolidated Financial Statements
BEVERLY HILLS LIMITED, INC.
December 31, 1999
<TABLE>
<CAPTION>
CONTENTS:
<S> <C>
Independent Auditors' Report................................................................................1
Consolidated Financial Statements:
Consolidated Balance Sheets..............................................................................2
Consolidated Statements of Operations....................................................................4
Consolidated Statements of Stockholders' Equity (Deficiency in Assets)...................................5
Consolidated Statements of Cash Flows....................................................................6
Notes to Consolidated Financial Statements..................................................................8
</TABLE>
<PAGE> 34
INDEPENDENT AUDITORS' REPORT
To the Stockholders
Beverly Hills Ltd., Inc.
We have audited the accompanying consolidated balance sheets of Beverly Hills
Ltd., Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity (deficiency in
assets) and cash flows for the years then ended. We did not audit the financial
statements of Focus Media Limited, one-hundred percent owned subsidiary, which
statements reflect total assets of $601,044 as of December 31, 1999, and total
revenues of $245,228 for the nine-month period then ended. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for Focus Media Limited
is based solely on the report of the other auditor. These consolidated financial
statements are the responsibility of the Company"s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Beverly Hills Ltd.,
Inc. as of December 31, 1999 and 1998, and the results of their operations and
their cash flows for the years then ended, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note M, the
Company's recurring operating losses and lack of working capital raise
substantial doubt about its ability to continue as a going concern. Management's
plan in regard to those matters is also described in Note M. The financial
statements do not include adjustments that might result from the outcome of this
uncertainty.
Smith & Radigan Certified Public Accountants
/s/ SMITH & RADIGAN, LLC
Atlanta, Georgia
May 12, 2000
-1-
<PAGE> 35
Consolidated Balance Sheets
BEVERLY HILLS LTD., INC.
ASSETS
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS
Cash $ 34,692 $ -0-
Accounts receivable 126,608 -0-
Due from affiliated companies 75,000 -0-
Inventory 448,027 -0-
Prepaid advertising 1,832,025 -0-
----------- -----------
TOTAL CURRENT ASSETS 2,516,352 -0-
PROPERTY AND EQUIPMENT
Furniture, fixtures and equipment 761,027
Computer equipment 153,352 2,168
Leasehold improvements 23,282 -0-
Less: allowance for depreciation (493,686) (60)
----------- -----------
443,975 2,108
----------- -----------
OTHER ASSETS
Investment 55,000 -0-
Goodwill, net 3,044,567 -0-
Deposits 10,594 -0-
Organization costs, net -0- 463
----------- -----------
3,110,161 463
----------- -----------
$ 6,070,488 $ 2,571
=========== ===========
</TABLE>
-2-
<PAGE> 36
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Cash overdraft $ -0- $ 41,310
Accounts payable and accrued expenses 4,082,076 48,782
Accrued interest 101,790 61,677
Due to affiliates companies 141,192 -0-
Loans payables to affiliates 801,243 218,636
Line of credit 423,520 -0-
Current maturities of long-term debt 21,863 -0-
----------- -----------
TOTAL CURRENT LIABILITIES 5,571,684 370,405
LONG-TERM DEBT
Notes payable to stockholders 863,871 416,000
Notes payable, net of current maturities 1,529,198 -0-
----------- -----------
2,393,069 416,000
STOCKHOLDERS' EQUITY (DEFICIENCY IN ASSETS)
Preferred stock, par value $0.001 per share:
Authorized -- 25,000,000 shares
Issued and outstanding - -0- shares -0- -0-
Convertible Preferred Stock, Series A,
par value $.001 per share
Authorized 1,500,000 shares -0- -0-
Issued and outstanding - -0- shares
Cumulative Convertible Preferred Stock, Series B
Par value $.001 per share
Authorized 1,500,000 shares -0- -0-
Issued and Outstanding -- -0- shares
Common stock, par value $0.001 per share:
Authorized -- 50,000,000 shares
Issued and outstanding-- 15,123,042 in 1999
and 11,568,134 in 1998 15,124 11,568
Additional paid-in capital 7,698,283 685,944
Accumulated other comprehensive income 11,567 -0-
Accumulated deficit (9,619,239) (1,481,346)
----------- -----------
(1,894,265) (783,834)
----------- -----------
$ 6,070,488 $ 2,571
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
Statements.
-3-
<PAGE> 37
Consolidated Statements of Operations
BEVERLY HILLS LTD., INC.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------------------------
1999 1998
------------ ------------
<S> <C> <C>
SALES $ 1,319,402 $ -0-
COST OF SALES (737,147) -0-
------------ ------------
GROSS PROFIT 582,255 -0-
OPERATING EXPENSES
Advertising 806,484 6,020
Amortization and depreciation 920,091 292
Dues and subscriptions -0- 897
Insurance 49,671 31,830
Licenses and permits 2,247 670
Office expense 94,303 20,861
Professional fees 1,872,467 555,224
Rental expense 139,995 10,479
Compensation expense 3,861,990 -0-
Bad debt expense 336,616 -0-
Foreign currency 36,399 -0-
Interest expense 167,407 31,888
Service charges 25,718 2,764
Travel and entertainment 301,438 186,784
Utilities 81,505 22,928
Taxes 1,648 540
Miscellaneous 22,169 23,855
------------ ------------
Total operating expense 8,720,148 895,032
------------ ------------
OPERATING LOSS BEFORE NONRECURRING ITEM (8,137,893) (895,032)
NON RECURRING ITEM
Loss on abandoned development -0- 200,000
------------ ------------
NET LOSS $ (8,137,893) $ (1,095,032)
============ ============
NET LOSS PER SHARE $ (.61) $ (.10)
============ ============
DILUTED LOSS PER SHARE $ (.45) $ (.10)
============ ============
WEIGHTED AVERAGE COMMON SHARES 13,347,918 11,143,402
============ ============
WEIGHTED AVERAGE DILUTED SHARES 17,898,793 11,143,402
============ ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
Statements.
-4-
<PAGE> 38
Consolidated Statements of Stockholders' Equity (Deficiency in Assets)
BEVERLY HILLS LTD., INC.
<TABLE>
<CAPTION>
Paid-In
Common Stock Capital Accumulated
--------------------------- (Discount Other
No. of on Common Comprehensive Accumulated
Shares Amount Stock) Income (Deficit) Total
----------- ----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 11,001,509 $ 11,002 $ 100,542 $ -0- $ (386,314) $ (274,770)
January 1998, stock issued
for services 178,225 178 178,047 -0- -0- 178,225
January 1998, stock issued
for cash 362,000 362 379,638 -0- -0- 380,000
December 1998, stock issued
for services 2,100 2 2,098 -0- -0- 2,100
December 1998, stock issued
for cash 24,300 24 25,619 -0- -0- 25,643
Net loss for the year ended
December 31, 1998 -0- -0- -0- -0- (1,095,032) (1,095,032)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 11,568,134 11,568 685,944 -0- (1,481,346) (783,834)
January 1999, stock issued
for services 344,212 345 346,765 -0- -0- 347,110
March 1999, stock issued
for cash 962,000 962 1,176,038 -0- -0- 1,177,000
March 1999, stock issued
for acquisition 80,606 81 664,921 -0- -0- 665,002
July 1999, stock issued for
services 1,088,790 1,089 -0- -0- -0- 1,089
September 1999, stock issue
for acquisition 300,000 300 2,474,700 -0- -0- 2,475,000
October 1999, stock issued
for services 69,300 69 -0- -0- -0- 69
December 1999, stock issued
for services 250,000 250 1,890,375 -0- -0- 1,890,625
December 1999 stock issued
for services 460,000 460 459,540 -0- -0- 460,000
Foreign currency translation
adjustment -0- -0- -0- 11,567 -0- 11,567
Net loss for the year ended
December 31, 1999 -0- -0- -0- -0- (8,137,893) (8,137,893)
----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 15,123,042 $ 15,124 $ 7,698,283 $ 11,567 $(9,619,239) $(1,894,265)
=========== =========== =========== =========== =========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
Statements.
-5-
<PAGE> 39
Statements of Cash Flows
BEVERLY HILLS LTD., INC.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(8,137,893) $(1,095,032)
Adjustments to reconcile net loss
to net cash used by operating
activities:
Common stock issued for services 2,698,893 180,325
Amortization and depreciation 920,091 292
Foreign currency translation adjustment 11,567 -0-
Decrease (increase) in:
Accounts receivable (99,611) -0-
Due from affiliates (75,000) -0-
Inventory 118,848 -0-
Other assets, current (1,827,018) -0-
Other assets, noncurrent (65,594) -0-
Increase in:
Accounts payable and accrued expenses 3,285,255 26,594
Accrued interest 40,113 32,000
Other liabilities 327,258 -0-
----------- -----------
Total adjustments 5,334,802 239,211
----------- -----------
Net cash used by operating
activities (2,803,091) (855,821)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (385,358) (2,168)
Acquisition of subsidiaries (250,000) -0-
Net cash used by investing
activities (635,358) (2,168)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on line of credit 369,770 -0-
Proceeds from loans 1,967,681 410,053
Proceeds from issuance of common stock 1,177,000 405,643
----------- -----------
Net cash provided by
financing activities 3,514,451 815,696
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 76,002 (42,293)
CASH AND CASH EQUIVALENTS (OVERDRAFT)
AT BEGINNING OF YEAR (41,310) 983
----------- -----------
CASH AND CASH EQUIVALENTS (OVERDRAFT)
AT END OF YEAR $ 34,692 $ (41,310)
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 127,294 $ -0-
=========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
Statements.
-6-
<PAGE> 40
Statements of Cash Flows -- Continued
BEVERLY HILLS LTD., INC.
ACQUISITION OF SUBSIDIARIES:
<TABLE>
<CAPTION>
Pro's Edge Golf Shoes Global Total
---------- ---------- ------ -----
<S> <C> <C> <C> <C>
Goodwill $ 176,007 $ 786,995 $ 2,490,512 $ 3,453,514
Assets acquired 160,782 457,438 546,147 1,164,367
Liabilities acquired (136,789) (344,433) (379,959) (861,181)
Stock issued -0- (665,000) (2,656,700) (3,321,700)
Notes payable issued -0- (185,000) -0- (185,000)
----------- ----------- ----------- -----------
Net cash $ (200,000) $ (50,000) $ -0- $ (250,000)
=========== =========== =========== ===========
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
Statements.
-7-
<PAGE> 41
Notes to Consolidated Financial Statements
BEVERLY HILLS LTD., INC.
December 31, 1999
Note A -- Summary of Significant Accounting Policies
Organization
Beverly Hills Ltd., Inc. (the Company) was first incorporated in Utah on April
29, 1939 as Ophir Queen Mines Company. On June 15, 1974, Ophir Queen Mines
Company changed its name to Hawk International. The Company had substantial
operations until March 15, 1996 when the Company discontinued operations and
entered the Development Stage. Hawk International changed its name to Beverly
Hills Country Club on February 28, 1998. Beverly Hills Country Club then changed
its name to Beverly Hills Ltd., Inc. on August 13, 1998.
The Company was a developmental stage company from March 15, 1996 to December
31, 1998 as defined in Financial Accounting Standards Board Statement No. 7. The
Company elected not to be a developmental stage company in the current year due
to the acquisitions of the subsidiaries.
Principles of Consolidation
The financial statements include the accounts of the Company and its
wholly-owned subsidiaries, HMW Golf d/b/a The Hanlon Group, a shell, Golf Shoes
Plus, Inc., a retail and internet golf company, Pro's Edge Wholesale, Inc., a
wholesale golf company and Focus Media Limited involved in digitalization of
information for dissemination, distribution and promotion through digital media.
All intercompany transactions have been eliminated.
Accounting Method
The Company recognizes income and expense on the accrual basis of accounting.
Cash and Equivalents
The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
Property and Equipment
All property and equipment is recorded at cost and depreciated over their
estimated useful lives, which is three years for computers, five to ten years
for furniture and equipment and ten years for leasehold improvements, using the
straight-line method. Depreciation expense for the years ended December 31, 1999
and 1998 totaled $164,570 and $60, respectively.
-8-
<PAGE> 42
Notes to Consolidated Financial Statements -- Continued
BEVERLY HILLS LIMITED, INC.
December 31, 1999
Note A -- Summary of Significant Accounting Policies -- Continued
Investment
The Company has a less than twenty percent investment in the equity of an
investee. The Company accounts for the investment using the cost method.
Inventory
Inventory is stated at the lower of cost or market using the first-in, first-out
method.
Organizational Costs
Organization costs were amortized over a five-year period on a straight-line
basis. Amortization expense totaled $464 and $232 for the years ended December
31, 1999 and 1998, respectively.
Goodwill
Goodwill is amortized on the straight-line basis over four years. Amortization
expense of goodwill for the year ended December 31, 1999 and 1998 was $755,057
and zero, respectively.
Income Taxes
The Company accounts for income taxes under the liability method. Under this
method, deferred income taxes are recorded to reflect the net tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting and the amounts used for income taxes.
Prepaid Advertising
Prepaid advertising consists of advertising, valued by the advertising agency at
$2,011,250, that was purchased by the Company in exchange for 250,000 shares of
common stock with a market value at July 30, 1999 the contract was issued of
$7.56 per share and a total value of $1,890,625. The advertising was valued
using the stock price. Advertising is expensed when the advertisement is first
run. During 1999, the Company has expensed $58,600 of advertising expense
associated with the prepaid process. The advertising can be used by the Company
at any time.
Reclassifications
Reclassification of certain amounts in the 1998 consolidated financial
statements have been made to conform to 1999 presentation. The reclassifications
did not have a material impact on the financial statements.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent
-9-
<PAGE> 43
Notes to Consolidated Financial Statements -- Continued
BEVERLY HILLS LIMITED, INC.
December 31, 1999
Note A -- Summary of Significant Accounting Policies -- Continued
Use of Estimates -- Continued
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Earnings Per Share
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted average number of shares outstanding during the period. Diluted EPS is
computed in the same manner, except the number of weighted average shares
outstanding is adjusted for the number of additional common shares that would
have been outstanding if the potential common shares had been issued.
The following table represents the earnings per share calculations for the years
ended December 31, 1999 and 1998.
<TABLE>
<CAPTION>
Net Per Share
Loss Shares Amount
------------ ------------ ------------
<S> <C> <C> <C>
December 31, 1999
Basic earnings per share $ (8,137,893) 13,347,918 $ (.65)
Dilutive securities -0- 4,550,875 .16
------------ ------------ ------------
Diluted earnings per share $ (8,137,893) 17,898,793 $ (.49)
============ ============ ============
December 31, 1998
Basic earnings per share $ (1,095,032) 11,143,402 $ (.10)
Dilutive securities -0- -0- N/A
------------ ------------ ------------
Diluted earnings per share $ (1,095,032) 11,143,402 $ (.10)
============ ============ ============
</TABLE>
Note B -- Acquisition of Subsidiaries
On January 26, 1999, the Company acquired one-hundred percent of the common
stock (500 shares) of Pro's Edge Wholesale, Inc., a Florida corporation for
$200,000. On January 26, 1999, the Company also acquired one-hundred percent of
common stock (100 shares) of Golf Shoes Plus, Inc., a Florida corporation, for a
total purchase price of $907,400 in cash and stock. The cash requirement totaled
$242,400 with a down payment of $50,000 on the date of sale; and, the remaining
$192,400 was to be paid over a six-month period beginning August 1, 1999. The
stock requirement is the number of restricted shares of common stock which shall
be determined by dividing the sum of $665,000 by the market value of each share
on January 26, 1999. At the one-year anniversary, the Company is required to
issue additional shares if the total value of stock previously issued is less
than $665,000. The Company has agreed to issue 232,335 additional shares to the
stockholder of Golf Shoes Plus. The Company recorded the purchases using the
equity method. Eleven months of the activity for both entities purchased have
been included in the consolidated financial statements for the year end December
31, 1999. The Company recorded equity
-10-
<PAGE> 44
Notes to Consolidated Financial Statements -- Continued
BEVERLY HILLS LIMITED, INC.
December 31, 1999
Note B -- Acquisition of Subsidiaries -- Continued
of approximately $137,000 and goodwill of approximately $963,000. The Company
has made the remaining payment in escrow subsequent to year-end pending
resolution of litigation related to the purchase of Golf Shoes Plus. Pro's Edge
Wholesale, Inc. and Golf Shoes Plus, Inc. sell golf supplies and equipment.
On March 18, 1999, the Company signed an agreement to purchase Briar & Wood,
Inc., a magazine publisher, for $250,000 plus $125,000 due on September 1, 1999
and $125,000 on March 31, 2000. The Company was also required to pay a remaining
amount based on 2001 earnings before interest, taxes, depreciation and
amortization. The payment range was based on earnings from zero to over
$6,000,000 with multiples that range from 3 to 6. The balance of the purchase
was to be paid over a period depending on the amount of the payout. The Company
rescinded the contract with Briar & Wood, Inc. on May 10, 2000. The acquisition
was never fully consummated and is not recorded as of December 31, 1999.
On March 31, 1999, the Company acquired Focused Media Limited (Focused) by
exchanging 336,000 shares of restricted common stock for one-hundred percent of
the shares of Focused. The Company has not issued the final 36,340 shares valued
at $5 per share in connection with the acquisition of Focused. The Company
recorded the purchase using the equity method. The Company recorded an equity
deficit of $204,822 and goodwill of $2,863,222.
The 1999 acquisitions described above were accounted for by the purchase method
of accounting for business combinations. Accordingly, the accompanying
consolidated statements of operations do not include any revenues or expenses
related to these acquisitions prior to the respective closing dates. Following
are the companies unaudited proforma results for 1999 and 1998 assuming the
acquisitions occurred on January 1, 1998:
<TABLE>
<CAPTION>
1999 1998
------------ -------------
<S> <C> <C>
Net revenues prior to acquisitions $ 17,705 $ -0-
Net revenues attributable to acquisitions 1,051,302 996,859
------------ -------------
$ 1,069,007 $ 996,859
============ =============
Net earnings (loss) prior to acquisitions $ (8,137,893) $ (1,095,032)
Net earnings (loss) attributable to
acquisitions (556,505) (127,596)
------------ -------------
$ (8,694,398) $ (1,222,628)
============ =============
</TABLE>
These unaudited proforma results have been prepared for comparative purposes
only and do not purport to be indicative of the results of operations which
would have actually resulted had the combinations been in effect on January 1,
1998, or the results of future operations.
Note C-- Advances and Loans Payable to Stockholders and Affiliates
Stockholders of the Company, officers and affiliates of the Company made
multiple loans to the Company to fund working capital. Loans in the amount of
$801,243 and $218,636 at December 31, 1999 and 1998, respectively, have no
stated interest rate and are due on demand.
-11-
<PAGE> 45
Notes to Consolidated Financial Statements -- Continued
BEVERLY HILLS LIMITED, INC.
December 31, 1999
A stockholder of the Company loaned the Company $498,871 through December 31,
1999, of which $416,000 was outstanding at December 31, 1998. These loans are
secured by the assets of the Company. The notes accrue interest at ten percent
per annum. Interest is due monthly. The balance of accrued interest at December
31, 1999 was $31,638. The note plus accrued interest is due on April 30, 2001 or
upon an event of default, as defined, or a private placement or public offering.
Another stockholder of the Company loaned the Company $25,000 as of December 31,
1999. The loan had no outstanding balance as of December 31, 1998. The note
accrues interest at ten percent per annum. The balance of accrued interest at
December 31, 1999 was $1,753. The note plus accrued interest is due on April 19,
2001.
The Company had loans from two stockholders in the amounts of $200,000 and
$140,000 as of December 31, 1999 and accrues interest at ten percent per annum.
At December 31, 1999, the balance of accrued interest was $14,685 and $8,888.
The loans are due on October 5, 2001 and July 14, 2001.
Note D -- Lines of Credit
The Company has a line of credit with an investment company. The line is for a
maximum of $2,500,000 and accrues interest at twelve percent. At December 31,
1999, the Company had $353,476 outstanding under the line and accrued interest
of $24,440. The line of credit expired on April 1, 2000. The Company extended
the repayment of the note by issuing a $400,000 note payable and accrued
interest to the investment company which is due by July 31, 2000.
Golf Shoes Plus has a line of credit with a bank that provides a credit
commitment of $75,000 available for working capital in the ordinary course of
business. The outstanding balance bears interest at eight and three-quarters
percent and is personally guaranteed by an officer of the Company. The Company's
borrowings against this commitment was $70,044 at December 31, 1999.
Note E -- Notes Payable
The Company had the following notes payable as of December 31, 1999:
<TABLE>
<CAPTION>
December 31,
---------------------------
1999 1998
-------- -------
<S> <C> <C>
Unsecured commercial loan to bank. Monthly payments
of $1,250 plus interest at 1% plus the bank's prime
rate plus 1% with final payment due August 13, 2002. $ 38,752 $ -0-
</TABLE>
-12-
<PAGE> 46
Notes to Consolidated Financial Statements -- Continued
BEVERLY HILLS LIMITED, INC.
December 31, 1999
Note E -- Notes Payable -- Continued
<TABLE>
<CAPTION>
December 31,
------------------------
1999 1998
---------- ----------
<S> <C> <C>
Installment note payable for working capital. The Company can borrow up to
$2,000,000. The note is secured by assets of the Company and accrues inter-
est at 10% with balance due May 31, 2001. The com-
mitment is through an institution that is wholly-
owned by the majority stockholder. 1,481,158 -0-
Note payable to financial institution. The note is
secured by equipment and a personal guarantee of
an officer of the Company. The note is payable
in monthly principal and interest installments of
$481 with final payment due March 2003. The
interest rate at December 31, 1999 was 9%. 31,151 -0-
---------- ----------
Total 1,551,061 -0-
Less current maturities (21,863) -0-
---------- ----------
$1,529,198 $ -0-
========== ==========
</TABLE>
Future maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31, Amount
------------- ------
<S> <C>
2000 $ 21,863
2001 1,506,953
2002 19,547
2003 2,698
----------
$1,551,061
==========
</TABLE>
Note F -- Provision for Income Taxes
No provision for income taxes have been recorded due to net operating loss (NOL)
carryforwards totaling approximately $9,583,893 that will be offset against
future taxable income. Substantially all NOL carryforwards begin to expire in
the year 2012. No tax benefit has been reported in the financial statements
because the Company's future income is unpredictable. No federal tax expense has
been recognized for 1999 and 1998 due to loss carryforwards.
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Tax assets
NOL carryforwards $ 2,971,007 $ 457,600
Valuation allowance (2,971,007) (457,600)
----------- ----------
Total $ -0- $ -0-
=========== ==========
</TABLE>
Note G -- Stock Restrictions
Certain shares of common stock have been issued to officers or employees of the
Company. These shares are considered restricted and cannot be sold for two
years. Restricted shares totaled 11,014,033 at December 31, 1999 and 10,937,250
at December 31, 1998.
-13-
<PAGE> 47
Notes to Consolidated Financial Statements -- Continued
BEVERLY HILLS LIMITED, INC.
December 31, 1999
Note H -- Leases
The Company and its Subsidiaries lease office space and office equipment. The
noncancelable leases are accounted for as operating leases for financial
reporting purposes. Charges to rent expense for the years ended December 31,
1999 and 1998 are $139,035 and $10,479, respectively.
At December 31, 1999, the future minimum lease payments from the operating
leases consisted of the following:
<TABLE>
<S> <C> <C>
2000 $ 123,451
2001 125,146
2002 90,325
2003 78,580
2004 14,340
----------
$ 431,842
==========
</TABLE>
Note I -- Related Party Transactions
The Company had receivables from affiliated companies that are owned by officers
of the subsidiaries in the amount of $7,564 included in accounts receivable.
Note J -- Stock Options
On January 14, 1999, the Company issued stock options to the board of directors.
The Company granted 1,000,000 shares with a strike price for $5.32 per share.
The shares may be exercised at any time through January 14, 2003.
On February 5, 1999, the Company issued stock options to a key employee. The
Company granted 350,000 with a strike price of $5 per share. The shares vest at
50,000 shares every ninety days.
On February 24, 1999, the Company issued stock options to key employees of the
Company. The Company granted 300,000 shares with a strike price of $7 per share.
The shares may be exercised at any time through February 24, 2003.
On May 15, 1999, the Company issued stock options to an individual to find
financing for the Company. The Company granted 400,000 options with a strike
price of $8.01 per share. The shares may be exercised at any time through June
25, 2003.
On May 21, 1999, the Company issued 30,000 stock options to an individual to
find financing for the Company. The stock options have a strike price of $7 per
share. The shares may be exercised any time through May 21, 2003.
Note J -- Stock Options -- Continued
On June 15, 1999, the Company issued stock options to a key employee of the
Company. The Company granted 60,000 shares with a strike price of $.05 per
share. The shares may be exercised any time through June 16, 2004.
On September 30, 1999, the Company issued stock options to a former chief
executive officer. The Company granted 125,000 options with a strike price of
$.05 per share. The shares may be exercised any time through September 30, 2004.
On October 18, 1999, the Company issued stock options to an officer of a
subsidiary Company. The Company granted 100,000 shares with a strike price of $2
per share. The shares may be exercised any time through April 17, 2001.
On November 15, 1999, the Company issued stock options to the CEO of the
Company. The Company granted 1,000,000 shares with a strike price of $.05 per
share. The share vest three months after issuance and become exercisable when
the Company files a registration statement with the Securities and Exchange
Commission.
-14-
<PAGE> 48
Notes to Consolidated Financial Statements -- Continued
BEVERLY HILLS LIMITED, INC.
December 31, 1999
On December 31, 1999, the Company issued stock options to key employees of the
Company. The Company granted 5,900 shares with a strike price of $3.00 per
share. The shares may be exercised any time through December 31, 2003.
A summary of the Company's outstanding stock options at December 31, 1999 and
1998 and the changes during the years then ended is as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------- ---------
Exercise Exercise
Shares Price Shares Price
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year -0- $ -0- -0- $ -0-
Granted 3,370,900 .05-7.00 -0- -0-
Exercised -0- -0- -0- -0-
--------- ---------- ---------- ----------
Outstanding at end of year 3,370,900 $ .05-7.00 -0- $ -0-
========= ========== ========== ==========
Exercisable at end of year 2,170,900 $ .05-7.00
</TABLE>
Fair value of options at date granted:
<TABLE>
<S> <C>
January 14, 1999 $ 4.57
February 5, 1999 7.34
February 24, 1999 6.17
May 15, 1999 8.06
May 21, 1999 8.24
June 15, 1999 7.64
September 30, 1999 5.59
October 18, 1999 3.08
November 15, 1999 2.64
December 31, 1999 1.42
</TABLE>
Note J -- Stock Options -- Continued
In accordance with the provision of SFAS No. 123, "Accounting for Stock-Based
Compensation," the Company has elected to continue to record compensation cost
under Accounting Principles Board Opinion ("APB") No. 25 and, accordingly, does
not recognize compensation cost for options granted at or above market value of
the related stock. Had compensation cost been determined, consistent with SFAS
No. 123, the Company's net income would have reflected the following proforma
amounts:
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Net income as reported $ (8,137,893) $ (1,095,032)
Net income proforma (19,463,221) N/A
Basic earnings per share as reported (0.65) (0.1)
Basic earnings per share proforma (1.46) N/A
Diluted earnings per share as reported (0.49) N/A
Diluted earnings per share proforma (1.09) N/A
</TABLE>
-15-
<PAGE> 49
Notes to Consolidated Financial Statements -- Continued
BEVERLY HILLS LIMITED, INC.
December 31, 1999
Note J -- Stock Options -- Continued
The fair value of each option grant is estimated on the date of the grant using
the Black Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
January 14, 1999 options
Expected dividend yield $ -0- N/A
Expected stock volatility 142.37% N/A
Risk free interest rate 4.73% N/A
Expected life of option 4 years N/A
February 5, 1999 options
Expected dividend yield $ -0- N/A
Expected stock volatility 143.25% N/A
Risk free interest rate 4.85% N/A
Expected life of option 5 years N/A
February 24, 1999 options
Expected dividend yield $ -0- N/A
Expected stock volatility 131.72% N/A
Risk free interest rate 5.20% N/A
Expected life of option 4 years N/A
May 15, 1999 options
Expected dividend yield $ -0- N/A
Expected stock volatility 111.80% N/A
Risk free interest rate 5.40% N/A
Expected life of option 4.11 years N/A
</TABLE>
-16-
<PAGE> 50
Notes to Consolidated Financial Statements -- Continued
BEVERLY HILLS LIMITED, INC.
December 31, 1999
Notes to Consolidated Financial Statements -- Continued
BEVERLY HILLS LIMITED, INC.
December 31, 1999
Note J -- Stock Options -- Continued
<TABLE>
<S> <C> <C>
May 21, 1999 options
Expected dividend yield $ -0- N/A
Expected stock volatility 117.64% N/A
Risk free interest rate 5.63% N/A
Expected life of option 4 years N/A
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
June 15, 1999 options
Expected dividend yield $ -0- N/A
Expected stock volatility 116.85% N/A
Risk free interest rate 6.02% N/A
Expected life of option 4 years N/A
September 30, 1999 options
Expected dividend yield $ -0- N/A
Expected stock volatility 121.01% N/A
Risk free interest rate 5.94% N/A
Expected life of option 4 years N/A
October 18, 1999 options
Expected dividend yield $ -0- N/A
Expected stock volatility 144.17% N/A
Risk free interest rate 5.78% N/A
Expected life of option 1.5 years N/A
November 15, 1999 options
Expected dividend yield $ -0- N/A
Expected stock volatility 174.64% N/A
Risk free interest rate 5.98% N/A
Expected life of option 6 years N/A
December 31, 1999 options
Expected dividend yield $ -0- N/A
Expected stock volatility 207.44%
Risk free interest rate 6.44%
Expected life of option 4 years N/A
</TABLE>
Note K -- Commitments and Contingencies
Advertising Commitment
The Company signed an agreement with an advertising agency to issue 600,000
shares of stock in exchange for advertising valued by the agency at $2,514,174.
As of year end, the Company had not released the 600,000 shares nor had the
advertising agency provided any services. Thus, the Company had not recorded a
prepaid or a payable.
-17-
<PAGE> 51
Notes to Consolidated Financial Statements -- Continued
BEVERLY HILLS LIMITED, INC.
December 31, 1999
Note K -- Commitments and Contingencies -- Continued
Litigation
The Company, Marc Barhonovich, Steven Velte and Michael Hanlon, an officer of
Global Golf, are defendants in an action pending in the United States District
Court for the Northern District of Georgia brought by NBC Sports International
Limited. The parties have settled this matter and it will be dismissed upon the
Company fully performing its obligations under the terms of the settlement
agreement. The Company is required to pay a remaining $400,000 for advertising
they had used in connection with an earlier agreement with CNBC Sports
International Limited.
The Company and one of its stockholders, Lehigh Enterprise, Ltd. are plaintiffs
in a lawsuit against Friss Asset Management Company, an associated individual,
Irvin Freedman, The Grand Master Company, Chautauqua Asset Management Company,
and New Generation Polymers, LLC which is pending in the U.S. District Court for
the Middle District of Florida, Tampa Division, Civil Case No. 99-2286-CIV-26C.
This lawsuit arises of (a) certain abortive acquisition transactions, pursuant
to which the Company would have acquired various companies, including The Grand
Master Company, Chautauqua Asset Management Company and New Generation Polymers,
LLC, in exchange for stock and capital funding to be provided by the Company to
each of the companies to be acquired; and (b) an abortive financing transaction
pursuant to a separate agreement between Lehigh and Friss, in which Lehigh
agreed to furnish 1,600,000 of its shares in the Company to Friss as
consideration for $8,000,000 of capital funding to be provided by Friss to the
Company.
The Company declined to conclude the acquisition transactions because
information and documentation necessary and material to the transactions, and
which were to have been provided pursuant to the acquisition agreements, were
never forthcoming, and because the companies to be acquired were found by the
Company not to be as represented. Lehigh declined to transfer any of its shares
in the Company to Friss because of the foregoing, and because Friss did not
provide $8,000,000 in capital funding to the Company as agreed.
In the lawsuit, the Company seeks to rescind the relevant acquisition agreements
and the agreement between the Company and Friss, based upon fraud in the
inducement, and also seeks damages for breach of each of those agreements. The
defendants have filed counterclaims in which they allege breach of the subject
agreements by The Company and seek monumental damages totaling $128,000,000. The
Company believes the counterclaims to be wholly without merit or subject to
valid defenses based upon, among other things, fraud in the inducement and
material breaches by the opposing parties. The lawsuit is now in the discovery
phase.
On January 26, 1999, the Company concluded its acquisitions of two of its
present subsidiaries, Golf Shoes Plus, Inc. and Pro's Edge Wholesale, Inc.
(respectively, "GSP" and "PEW") from their former stockholder, Randall J.
("Hap") Personett. The Company has certain outstanding obligations, in cash and
also, possibly, additional (restricted) shares of the Company's common stock,
representing the balance of the consideration which it agreed to pay for GSP.
The Company believes the cash portion of its remaining obligation to Mr.
Personett for the acquisition of GSP to be in the approximate amount of
$185,000. The number of additional shares of the Company's common stock to which
Mr. Personett is entitled is estimated to be 232,335 shares.
-18-
<PAGE> 52
Notes to Consolidated Financial Statements -- Continued
BEVERLY HILLS LIMITED, INC.
December 31, 1999
Note K -- Commitments and Contingencies -- Continued
Litigation -- Continued
Mr. Personett has also asserted that he is entitled to (a) payment by the
Company of unpaid salaries pursuant to Beverly Hills' guarantee of his
Employment Agreements with GSP and PEW; (b) payment by GSP and PEW of unpaid
rents on business premises of which he is the lessor and GSP and PEW are the
lessees; and (c) payment or reimbursement of other sums which he claims to have
advanced to GSP and/or PEW or paid on their behalf since January 26, 1999.
In the first of these lawsuits referenced above, GSP, PEW and the Company have
sued Mr. Personett for breach of his Employment Agreements with GSP and PEW and
for breach of his fiduciary obligations to GSP, PEW and Beverly Hills, and seek
both damages and injunctive relief. In the second (Mr. Personett's Circuit Court
suit), Mr. Personett seeks damages against the Company for alleged breaches of
the Stock Purchase Agreement relating to the Company's acquisition of GSP,
including principally the Company's failure to pay the balance of the cash and
stock representing the agreed consideration for that company. He also seeks to
recover his alleged unpaid salaries from GSP, PEW and the Company. Finally, in
the third (Mr. Personett's County Court suit), Mr. Personett seeks judgment for
possession of the business premises of which he is the lessor and GSP and PEW
are the lessees; the imposition and foreclosure of a landlord's lien against
GSP's and PEW's assets for unpaid rents and other damages together with
interest, costs and attorney's fees.
Among its defenses to Mr. Personett's claims, the Company, GSP and PEW have
noted that Mr. Personett has continued to be in charge of the business
operations of those corporations notwithstanding their acquisition by the
Company and have asserted that any failure on the part of GSP and PEW to meet
their obligations for salaries and rents have been attributable to Mr.
Personett's mismanagement, neglect and/or malfeasance.
Notwithstanding that these lawsuits are being actively prosecuted and defended
by both sides, there is continuing communications between the parties in an
effort to achieve amicable resolutions.
Note L -- Loss on Abandoned Development
The Company engaged in golf course development projects which were later
abandoned due to lack of financing. The loss on abandoned developments totaled
$200,000 during the year ended December 31, 1998.
19
<PAGE> 53
Notes to Consolidated Financial Statements -- Continued
BEVERLY HILLS LIMITED, INC.
December 31, 1999
Note M -- Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has minimal assets, has
lacked working capital for the past several years, and is dependent upon
financing to continue operations. The financial statements do not include any
adjustments that Note M --Going Concern-- Continued might result from the
outcome of this uncertainty. Management is currently seeking adequate financing
to continue operations of the Company and its Subsidiaries.
Note N -- Subsequent Events
In January 2000, the Board of Directors adopted the Beverly Hills Ltd., Inc.
2000 Employee Stock Incentive Plan ("the 2000 Plan"). Pursuant to the 2000 Plan,
subject to stockholder approval, eligible participants of the Company, its
subsidiaries and affiliates may receive, until January 10, 2010, stock options,
stock appreciation rights, restricted stock or deferred stock awards for up to
3,000,000 shares of the Company's common stock.
Pursuant to the 2000 Plan, an independent committee, at its discretion,
determines those directors of the Company to be granted director stock options
and those officers and other key employees of the Company, its subsidiaries and
affiliates to be granted employee stock options, stock appreciation rights,
restricted stock awards or deferred stock awards or combination, thereof; the
type of grants to be made; the number of shares subject to such grants; the
terms and conditions of the awards, including restrictions on director stock
options, employee stock options or other awards and/or the stock relating
thereto based on performance and/or such other factors as the committee in its
sole discretion determines; and whether, to what extent and under what
circumstances stock and other amounts payable with respect to an award may be
deferred either automatically or at the participant's election. No grants of
options to purchase shares were made under the 2000 Plan during the year ended
December 31, 1999.
The Company signed an agreement with a consulting company in order to help
acquire a Securities and Exchange Commission (SEC) reporting company. The
Company has agreed to pay $62,500 when the acquisition is complete and $62,500
upon the filing of the SEC Form 8-K. The consulting company provided services in
connection with the acquisition of Keynote Acquisition Corporation. On January
27, 2000, the Company acquired Keynote Acquisition Corporation (Keynote) by
exchanging 250,000 shares of the Company's stock for 5,000,000 shares of
Keynote's stock. The Company is required to provide enough shares that are equal
to $500,000 within one year of the acquisition date. The acquisition was
accounted for under the purchase method. Keynote has no operations or equity but
is currently reporting to the Securities and Exchange Commission.
On May 12, 2000, the Company assumed the lease of two golf stores at an airport
location. They also obtained the rights to open golf stores in other airports.
They also assumed the inventory line of credit not to exceed $150,000 in
exchange for the lease agreement and rights, Beverly Hills has agreed to
exchange one and one-half percent of the stock of Global Golf Limited, a
wholly-owned subsidiary of Focus Media, Ltd. The Company also agreed to issue
250,000 shares of restricted stock. The restriction will be lifted at the rate
of 62,500 shares for every three months the agreement is in effect. The
agreement may be terminated if the Company does not secure a minimum of
$2,500,000 in funding by July 31, 2000.
On May 12, 2000, the Company agreed to purchase logos to be used in connection
with merchandise sold at the golf stores discussed above. The Company has agreed
to exchange one and one-half percent ownership in Focus Media Limited. The
Company also agreed to issue 250,000 shares of restricted stock. The restriction
will be lifted at the rate of 62,500 shares for every three months the agreement
is in effect. The agreement may be terminated if the Company does not secure a
minimum of $2,500,000 in funding by July 31, 2000.
-20-
<PAGE> 54
EXHIBIT INDEX
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C>
2.01 Agreement and Plan of Reorganization between Beverly Hills Ltd., Inc.
and Keynote Acquisition Corporation, dated as of January 27, 2000.(1)
2.02 Amendment dated February 17, 2000 to Agreement and Plan of
Reorganization, dated as of January 27, 2000.(1)
2.03 Stock Purchase Agreement between Beverly Hills Ltd., Inc. and Randal J.
Personett regarding Golf Shoes Plus, Inc., dated January 26, 1999.
2.04 Stock Purchase Agreement between Beverly Hills Ltd., Inc. and Randal J.
Personett regarding Pro's Edge Wholesale, Inc., dated January 26, 1999.
2.05 Acquisition Agreement between Beverly Hills Ltd., Inc. and Focused
Media Ltd. and Global Golf Ltd., dated March 3, 1999.
3.1 Amended and Restated Articles of Incorporation of Beverly Hills Ltd.,
Inc.(1)
3.2 Amended and Restated By-Laws of Beverly Hills Ltd., Inc.(1)
10.01 Loan and Security Agreement between Beverly Hills Ltd., Inc. and Briar
& Wood, Inc., dated March 18, 1999.
10.02 Stock Purchase Agreement between H. Kevan Pickens, Andrea DaRif and
Marc L. Bailin with respect to the purchase and sale of 100% of the
issued and outstanding capital stock of Briar and Wood, Inc., dated
March 18, 1999.
10.03 Addendum to Stock Purchase Agreement between Beverly Hills Ltd., Inc.
and Briar & Wood, Inc., dated April 1, 1999.
10.04 Employment Agreement between Beverly Hills Ltd., Inc. and Clifford
Wildes, dated May 19, 1999.
10.05 Subscription and Shareholders' Agreement between CNBC Sports
International Limited, Beverly Hills Ltd., Inc. and Focused Media
Limited, dated May 24, 1999.
</TABLE>
<PAGE> 55
<TABLE>
<S> <C>
10.06 Business Consulting Agreement between Beverly Hills Ltd., Inc. and
Mackenzie Shea, Inc., dated May 27, 1999.
10.07 Option Agreement between Beverly Hills Ltd., Inc. and Luna Trading
Limited, dated July 12, 1999.
10.08 Amendment to Agreement between Beverly Hills Ltd., Inc. and CNBC Sports
International Limited, dated August 24, 1999.
10.09 Subscription and Shareholders' Agreement between CNBC Sports
International Limited, Focused Media Limited, Beverly Hills Ltd., Inc.,
Cycad Financial Holdings Limited and Luna Trading Limited, dated
September 30, 1999.
10.10 Side Letter dated October 1, 1999 to Cycad Financial Holdings Limited
regarding Focused Media Limited.
10.11 Modification Agreement regarding Subscription and Shareholders'
Agreement between CNBC Sports International Limited, Focused Media
Limited, Beverly Hills Ltd., Inc., Cycad Financial Holdings Limited and
Luna Trading Limited, dated October 26, 1999.
10.12 Settlement Agreement between Beverly Hills Ltd., Inc. and Clifford
Wildes, dated October 28, 1999.
10.13 Employment Agreement between Beverly Hills Ltd., Inc. and Marc
Barhonovich, dated November 15, 1999.
10.14 Warrant to Purchase Common Stock issued to Marc Barhonovich, dated
November 30, 1999.
10.15 Warrant to Purchase Common Stock issued to Steve Velte, dated January
14, 1999.
10.16 Warrant to Purchase Common Stock issued to Triton Enterprises, Inc.,
dated February 7, 2000.
10.17 Settlement Agreement between CNBC Sports International Limited, Focused
Media Limited, Global Golf Limited, Beverly Hills Ltd., Inc., Cycad
Financial Holdings Limited and Luna Trading Limited, dated February 25,
2000.
10.18 Letter Agreement dated April 12, 2000 to Gary Lipson, Receiver.
10.19 Assignment and Assumption Agreement between Beverly Hills Ltd., Inc.
and Genuine Golf, LLC, Philip Kenny and Brian Mahoney, dated May 12,
2000.
10.20 Amendment to Agreement between CNBC Sports International Limited,
Focused Media Limited, Beverly Hills Ltd., Inc., dated August 31,
1999.
10.21 Warrant to Purchase Common Stock issued to Leon F. Willis, Jr., dated
February 24, 1999.
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<PAGE> 56
<TABLE>
<S> <C>
10.22 Retained Service Agreement between Beverly Hills Ltd., Ind. and
Millennium Media, Ltd., dated November 15, 1999.
10.23 Addendum to Assignment and Assumption Agreement between Beverly Hills
Ltd., Inc. and Genuine Golf, LLC, Philip Kenny and Brian Mahoney, dated
May 12, 2000.
10.24 Assignment and Assumption Agreement between Golf Where, LLC, Philip
Kenny, Blair Subry and Beverly Hills Ltd., Inc., dated May 12, 2000.
10.25 Addendum to Assignment and Assumption Agreement between Golf Where,
LLC, Philip Kenny, Blair Subry and Beverly Hills Ltd., Inc., dated May
12, 2000.
10.26 Closing Agreement between Beverly Hills, Ltd, Inc., Liam Gallagher,
Eoin O'Sullivan, John Boyle, NovaTech Ltd., Focused Media Ltd. and
Global Golf Ltd., dated October 9, 1999.
10.27 Letter Agreement with Sports Byline USA dated July 30, 1999.
10.28 Letters regarding Sports Byline USA and the Company's shares dated
September 8, 1999.
21 Subsidiaries of Registrant
27 Financial Data Schedule
</TABLE>
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(1) Incorporated by reference to the registrant's Form 8-K Report dated
February 24, 2000.
