SEC File No. 0-26344
Form 10-SB/A
Amendment No. 2
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
GOLF-TECHNOLOGY HOLDING, INC.
(Name of Small Business Issuer in its charter)
Idaho 59-3303066
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13000 Sawgrass Village Circle, Suite 30, Ponte Vedra Beach, FL 32082
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 904/273-8772
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)
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PART I
Item 1. Description of Business
General
Golf-Technology Holding, Inc., an Idaho corporation, formerly known as
THO2 and Rare Metals Exploration, Inc. (the "Company"), through its
subsidiaries, Golf-Tec Holding, Inc. ("Golf-Tec") and Golf-Tec of
Michigan, Inc., designs, manufactures, and markets "Snake Eyes" golf
clubs. "Snake Eyes" is the Company's registered brand and logo. Snake
Eyes/R/ golf clubs are tour-quality golf clubs marketed to the
premium-priced segment of the golf equipment market (see "Business
Strategy" and "Competition" below). The Company's initial products, the
Snake Eyes/R/ Sand Wedge, Pitching Wedge, and Lob Wedge, have been praised
in a number of international golf publications and are used by a number of
PGA Tour players. The Company has recently completed the development of
four new products, the Snake Eyes/R/ Driver and three putters.
Distribution of these new products will begin in April 1996. The Company
has substantially completed the development of a full set of ten irons.
The design of the irons has been completed, and the Company is currently
engineering the manufacturing process. Distribution of the complete set
of irons is expected to begin in late 1996. Sales of iron sets are not
expected to be a material part of the Company's revenue in 1996.
Golf-Tec, Inc., the predecessor to the Company's operating subsidiary
Golf-Tec was formed as a Florida corporation in June 1993 to manufacture
and market a line of golf clubs to be developed by Ernest R. Vadersen.
Mr. Vadersen has over 18 years of experience in designing and assembling
custom golf clubs for professional and serious amateur golfers. During
those years, Mr. Vadersen served as a consultant on equipment design and
golf product marketing to some of golf's largest equipment manufacturers
including Spalding, MacGregor, Hogan and Yamaha.
Golf-Tec was formed as a Florida corporation in May 1994 to become the
parent company of Golf-Tec, Inc., and in October 1994, Golf-Tec, Inc., the
subsidiary, merged into its parent, Golf-Tec. Golf-Tec in turn became a
majority-owned subsidiary of THO2 and Rare Metals Exploration, Inc., an
Idaho corporation incorporated in June 1963 ("THO2"), pursuant to a
voluntary share exchange effected between Golf-Tec's stockholders and THO2
since year-end 1994. THO2 changed its name to Golf-Technology Holding,
Inc. in connection with the share exchange, and its only business is the
design, manufacture and marketing of golf clubs described below.
The Company's strategy is to expand its product line to include a full
range of golf clubs and accessories. The Company believes that Mr.
Vadersen's years of experience and association with members of the pro
tours allow him unique access to the pacesetters of the golfing world and
that the acceptance of the Company's products by such persons will greatly
help the Company's marketing efforts.
Share Exchange and Company's Prior Business
The Company's subsidiary, Golf-Tec, entered into an agreement dated as
of December 29, 1994 providing for Golf-Tec to become a wholly owned
subsidiary of the Company (then known as THO2) pursuant to a statutory
share exchange, with the stockholders of Golf-Tec being entitled to
receive approximately 93% of the Company's Common Stock immediately
following the exchange. Pursuant to such agreement, the present members
of the Company's Board of Directors assumed their positions in December
1994. Thereafter, the transaction was restructured as a voluntary share
exchange effected only with the shareholders of Golf-Tec as a transaction
not involving a public offering pursuant to Section 4(2) of the Securities
Act of 1933. The purpose and effect of the share exchange was for Golf-
Tec to become the subsidiary of a shell corporation having publicly
tradable shares and for Golf-Tec's shareholders to become shareholders of
a public company as a result. As of December 31, 1995, the holders of
approximately 68% of Golf-Tec's common stock have elected to exchange
their Golf-Tec shares for the Company's Common Stock. As a result, 68% of
Golf-Tec's common stock is owned by the Company and the remaining 32% is
owned by stockholders who have not yet responded to the exchange offer.
Because there is no market for Golf-Tec's common stock, management of the
Company believes that all Golf-Tec stockholders will elect to exchange
their shares for the Company's Common Stock.
THO2 initially was organized as a mining company but is believed to have
engaged in only sporadic activity and to have been dormant for the last
several years. Prior to the share exchange, it had 490 stockholders of
record, who owned 250,071 shares of Common Stock, all of which were
retained in the share exchange and are eligible for resale in the open
market. These shares presently constitute approximately 9.0% of the
Company's outstanding Common Stock. THO2 had no assets, liabilities or
operations at the time of the share exchange.
Management's knowledge about THO2's prior business is extremely limited.
Management has no way of knowing whether there is any basis for a
contingent liability arising out of acts or omissions of the Company prior
to the share exchange, such as a tax liability or an environmental claim
relating to any real property to which the Company may have held title
many years ago. While management does not believe that any such
contingent liabilities exist, there can be no assurance that any possible
contingent liabilities resulting from the Company's prior business history
have not yet been cut off by applicable statutes of limitations. Because
management knows very little about THO2's prior business, it has no basis
for determining likely sources of contingent liabilities and therefore has
no basis for determining when applicable statutes of limitation would run.
The Golfing Industry
Management believes the game of golf is continuing to grow in popularity
and that the golf equipment industry is necessarily growing right along
with it. Domestically, an aging and increasingly affluent baby boomer
generation is taking up golf. Industry data indicate that there are
currently in excess of 25 million golfers in the U.S. The Company
believes that this pattern of growth is also occurring internationally in
Europe, Australia, Asia and especially in Japan.
To service the equipment needs of golfers, there are more than 100
domestic and international manufacturers of golf clubs. Many of these
companies manufacture low-priced entry-level clubs for the mass market,
typically sold in department stores, discount chains and general sporting
goods outlets. Other companies, including the Company, manufacture clubs
for golfers who seek to purchase premium-priced, tour-quality golf
equipment.
Over the past 25 years, golf club design and manufacturing processes
have changed rapidly. New materials technologies, along with advances in
modeling, testing and manufacturing techniques, have resulted in the
introduction of new club designs. The Company believes the most
significant impact on the industry was the introduction of golf irons
manufactured using the casting process as opposed to the traditional
forging process. The Company further believes that the casting process is
used by over 90% of golf club manufacturers because it is much cheaper
than forging. It is common industry knowledge that cast golf clubs have
porosity, or air bubbles in the metal. The Company believes that irons
made from forging are superior to those that are cast. The number one
iron used by more pros on the PGA Tour than any other iron is forged, not
cast. The Company has developed new technology that will enable it to
produce forged golf clubs at very strict tolerance levels. These
processes involve computerized cutting technology that eliminates much of
the labor intensive grinding processes used in the traditional forged golf
club industry.
Forged irons must be ground and polished using wheel grinding machines.
The operator must hold the clubhead in his or her hands and press the
clubhead against the grinding wheel or belt until he or she achieves the
desired shape. Since this process requires hand pressure and visual
accuracy, the tolerances achieved are constrained by the operator's
physical ability to feel and see. The Company will use computerized
numeric control (CNC) milling machines to cut its irons out of forged
blocks of steel. The cutters are digitally controlled and therefore can
achieve shape integrity to within three one-thousandths (3/1,000) of an
inch. The Company is aware of at least one competitor who uses milling
machines to cut only the face (flat area) of its wedges. The Company
believes it will be the only company in the industry to cut its entire
iron head on milling machines. The Company will use this CNC technology
to produce all of its sets of irons. The Company currently uses the
traditional forging method to produce its wedges but anticipates switching
to the CNC technology for its wedge production in the last quarter of
1996.
Business Strategy
The Company's business strategy is to target the high-quality segment of
the golf consumer market and to access that segment through innovative
tour-quality design, tour-quality manufacturing and distinctive marketing.
Management believes that the Company has demonstrated the ability to
implement this strategy by the current success of its initial
premium-priced, tour-quality Snake Eyes/R/ wedges. See "Management's
Discussion and Analysis."
Tour Quality Image. The Company will continue to focus on building and
maintaining the tour-quality image associated with the brand name. The
Company maintains this image, in part, through its interaction with
approximately 14 PGA Tour players with whom the Company maintains a
contractual relationship. The Company's contracts with Tour players vary
in length from twelve to thirty-six months. The amounts paid to the
players under these contracts vary according to their ranking and
estimated potential. Contracted Tour players are required to play at
least one of the Company's wedge products and carry the Company's Snake
Eyes/R/ logoed golf bag. Contracted players may play other manufacturers'
golf clubs but are prohibited from endorsing or advertising competitors'
golf clubs. The Company's Tour representatives are consulted during the
development process. Once a new product is ready to test, it is given to
these Tour players first, without charge. The Tour players are asked to
test the product under actual playing conditions and record their results.
The Company believes that a golf club must not only perform technically,
but must also transmit feel and feedback to the player. Hitting machines
cannot duplicate this kind of testing.
The Company's Tour representatives are required to sit on the player's
advisory board for equipment and, in most cases, wear golf shirts and head
gear displaying the Company's logo. These players are as follows:
All Time Rank Tour Term of
Name Tour as of 11/25/95(1) Wins Contract
Leonard Thompson PGA Tour 112 3 1/95-12/96
Lennie Clements PGA Tour 121 0 6/95-12/96
Mark Carnevale PGA Tour 236 1 1/95-12/96
Billy Kratzert PGA Tour 142 4 1/95-12/96
Andy Bean PGA Tour 53 11 4/95-3/97
Doug Tewell PGA Tour 76 4 1/95-12/96
John Mahaffey PGA Tour 37 10 6/95-6/97
Jim Hallett PGA Tour 175 0 1/95-12/96
Mark Hayes PGA Tour 107 3 9/95-8/96
Clark Dennis PGA Tour 245 0 1/95-12/96
Skip Kendall PGA Tour 336 0 2/95-12/96
Bruce Devlin Senior PGA 64 9 6/95-5/98
Tour
Bob Dickson Senior PGA 89 2 1/95-12/96
Tour
Frank Roberson Gold Coast N/A 0 6/95-5/97
Tour
__________
(1) Based on amount of Tour prize money received.
Tour acceptance is further evidenced by the Darrell Survey, which is the
official club count of both the PGA Tour and the Senior PGA Tour. The
Darrell Survey is conducted on the first tee on the first day of
competition at each tournament site. The surveys show that the Snake
Eyes/R/ sand wedges were the number three sand wedges on the PGA Tour at
the Ideon Classic held July 27-30, 1995 and the number three sand wedges
used during the VFW Senior Championship held August 4-6, 1995. The
surveys also list the individual players who used the wedges during
tournament play. Sand wedges, as defined by the survey, include lob
wedges. The Darrell Survey numbers vary from week to week due to the
weekly changes in the field of players and changes in the individual
players' club preferences. There is no guarantee that any player listed
in the survey as playing a particular club will play the same club in
subsequent events. The information provided here by the Darrell Survey is
intended for the sole purpose of providing a basis and context for the
term "acceptance" as used in this document.
There exists a degree of risk associated with making PGA Tour players'
usage of the Company's products as a basis for advertising. Tour players'
preferences and loyalties and their performance and ratings may change
from time to time. The Company is aware of this risk and has advertising
campaigns designed to educate the consumer on the technical and
performance characteristics of its products. These campaigns will be used
in place of the Tour acceptance campaigns should the need arise.
Customer Service and Support. The Company believes that its
relationships with its customers, which primarily consist of on-course
golf professionals, selected off-course golf specialty store operators and
direct retail customers, have and will continue to be a major factor in
its success. The Company employs former on-course PGA professionals as
part of its customer service personnel to enhance its understanding of the
customers' needs.
Research and Development
The Company is engaged in continuing materials research and product
development. All clubhead designs are initiated by Ernest R. Vadersen,
the Company's Chairman and Chief Executive Officer. Mr. Vadersen's
clubhead designs have been used to win many major championships around the
world for over eighteen years. Mr. Vadersen directs all product
development projects utilizing a team comprised of senior and middle
management. The Company is dedicated to the continuing research and
development of computerized, robotic cutting machines and the related
computer programs. The Company believes that computerized production
techniques and metallurgical advances coupled with technically sound
clubhead design are paramount to the future success of the Company.
Products currently in the development stage are a complete set of ten
irons, and three fairway woods. The irons will be introduced in late
1996, and the fairway woods will be introduced in 1997. Product design
has been completed on the irons and is in process on the fairway woods.
The Company is currently engineering the manufacturing process on the
irons.
The Company's expenses for research and development in 1993, 1994 and
1995 were $0, $8,300 and $619,500 respectively.
The design of new golf clubs is greatly influenced by rules and
interpretations of the United States Golf Association (USGA). Although
the golf equipment standards established by the USGA generally apply only
to competitive events sanctioned by that organization, it has become
critical for designers of new clubs to assure compliance with USGA
standards. The Company's product design and development process involves
coordination with the USGA staff regarding such compliance. The Company
has no knowledge of current or pending USGA rules or anticipated changes
in rules that would adversely impact the Company's products or operations.
Products
Snake Eyes/R/ Sand Wedge (#11 Iron). The Snake Eyes/R/ Sand Wedge is
carbon steel forged to tolerances of three grams in weight, shadow graph
integrity in shape and one degree in deflective angle. The Company
believes that its method of production produces a consistently
high-quality product which golf professionals are able to recognize.
Snake Eyes/R/ Lob Wedge (#12 Iron). The Snake Eyes/R/ Lob Wedge has
exactly the same characteristics as the Sand Wedge. In addition, the
Snake Eyes/R/ Lob Wedge is designed with a bottom that was tested by Tour
players specifically as a lob wedge, as opposed to being manufactured by
just adding weight and width to the bottom of the club.
Snake Eyes/R/ Pitching Wedge (#10 Iron). The Snake Eyes/R/ Pitching
Wedge has a multiple-use sole so it can be hit for long bunker shots as
well as pitched out of the grass, or hit out of the fairway or deep rough.
The center of gravity is high to eliminate the skid factor of the ball
running up the clubface. The hosel is the same as the Company's other two
wedges -- tapered, with three different sizes and shapes.
Snake Eyes/R/ Driver. The Snake Eyes/R/ Driver has an innovative
design. The Company's metal wood has face progression. The difficulty in
designing face progression in a metal wood relates to the fact that
internal tooling in the casting process has been restrictive. The
Company's Research & Development (R&D) Department believes it has
developed a method to control the tooling negatives and create this face
progression, which gives the Company an opportunity to face-weight and
three-point balance the golf club: one directly in the tail behind the
hit, a second in the toe of the club, and a third in the heel of the club.
In addition, the wall construction and crown of the club have been
designed so they become geometric braces, and force energy forward through
the golf ball. The first test results from Tour players reportedly show
an average increase in driving distance of between 11.2 and 14.3 yards.
The club will be offered in a new metal, exclusively formulated by the
Company, called PV522.
Snake Eyes/R/ Putters. Snake Eyes offers three putter designs:
mallet, blade, and iron shaped. All three putters were designed to
enhance the player's ability to aim the putter properly and give the
player feedback through a soft feel for better distance control. The
mallet and blade putters also feature milled faces.
Snake Eyes/R/ Irons. Snake Eyes/R/ Irons have been designed with
features that include milling of a forged iron product. Each club is
balanced independently: a 1-iron is a 1-iron, a pitching wedge is a
pitching wedge. The balance point and center of gravity are related to
each iron, so that its effective launch angle when striking a shot is as
close to primary as possible. The materials for the clubs are forged.
The irons have two distinct milling planes on the back of the club that
allow the Company to change balance and weight to individually fit a
customer's specific needs. These irons will be available to the public
sometime in late 1996, on a limited basis. The Company is currently
engineering the manufacturing process of the set of irons.
Future Products. The Company expects to introduce three fairway woods
in 1997 that will have the same features as the Snake Eyes Driver.
Competition
The Company competes in the premium-price segment of the golf club
manufacturing industry. The Company's clubs sell to end users for between
approximately $200 and $230 each, compared with $50 to $90 for entry-level
clubs produced for the mass market. The market for these golf clubs is
highly competitive and a number of established companies compete in this
market, many of which have greater financial and other resources than the
Company. The Company's competitors include Callaway Golf Company, Karsten
Manufacturing Corporation (Ping), Taylor-Made Golf Company, Cobra Golf
Incorporated and Tommy Armour Golf Company.
The golf club industry is generally characterized by rapid and
widespread imitation of popular golf club designs pioneered by new or
existing competitors. Many purchasers of premium-priced clubs desire golf
clubs that feature the latest technological innovations and cosmetic
designs, and their purchasing decisions are often the result of highly
subjective preferences which can be influenced by many factors, including,
among others, advertising, media and product endorsements. The Company
could therefore face substantial competition from existing or new
competitors that introduce and successfully promote golf clubs perceived
to offer advantages over the Company's products.
Manufacturing and Quality Control
In the belief that the key to a successful club is consistency in
production, the Company has established tight production tolerances. All
components are produced to the Company's exacting specifications. Before
acceptance, each component is compared to master models created by the
Company. Each and every club component must meet or exceed the following
tolerances or the component is rejected: 10/1,000 of an inch in grinding
integrity; 3.0 grams maximum chrome plating; 3 cycles shaft variance; 2.5
grams weight variance; and 1.5 grams grip weight variance. The Company
does not know the exact tolerances of its competitors and does not infer
that the Company's tolerances are more stringent than that of the
competition.
The Company obtains its raw materials from a variety of sources and,
like other manufacturers of golf clubs, outsources certain portions of the
manufacturing process, including the chrome plating. The Company
purchases all shafts for its wedges from True Temper Sports, the largest
supplier of steel golf shafts in the industry. The Company purchases all
of its driver shafts from True-Temper and H.S.T. The grips for all the
Company's clubs are purchased from Royal Grips, Inc. and Eaton-Golf Pride.
All of the above-named vendors are well established in the industry and
provide products to most of the major club manufacturers. The Company
assembles its golf clubs at its Ponte Vedra Beach, Florida location using
industry standard methods. The Company does not believe its shafts,
grips, or assembly methods give it any material competitive advantage or
disadvantage. The Company has been dependent on a single supplier,
Hoffman Products, Inc., for the forging and finishing of its wedge product
clubheads. In November 1995, after experiencing difficulty in obtaining
required quantities of product, the Company developed a second source,
Kahler, Inc., for its wedge product clubheads. The Company believes that
it is no longer dependent on a single supplier and that in the event one
of the suppliers experiences production problems, it would not materially
affect the Company's performance.
Marketing and Sales
In keeping with the Company's decision to focus primarily on the high
end of the equipment market, the Company has aimed its marketing efforts
primarily at "green grass" markets (i.e., golf professionals, custom pro-
shops, custom assembly organizations and up-scale golf specialty shops).
The Company's marketing operations are composed of 32 independent sales
representatives servicing green grass markets; direct sales to select club
pros, custom pro shops and custom club assemblers; direct sales and
distributor/wholesale arrangements covering off-shore markets in Europe
and Asia; and direct marketing channels such as catalogs and magazine
articles. These efforts are supported with coverage in select golfing
publications, television commercials and general press obtained through
Mr. Vadersen's reputation and access to the media.
The Company has entered into a distribution agreement with Palawan
Pearls, Inc., d/b/a SunTrex Corporation, for the exclusive distribution of
Snake Eyes/R/ Golf Clubs to Japan and most of the Pacific Rim countries.
The agreement requires certain minimum quantities annually during its
three year duration commencing January 1995.
The Company has also entered a five year licensing agreement, commencing
April 1995 whereby the Company licenses its Snake Eyes/R/ name and logo to
Michael Thomas, Ltd. for use in manufacturing and distribution of soft
goods, including shirts, hats, visors and sweaters. The Company will
receive royalties on gross sales based on a graduated scale.
The Company is optimistic about future results from the SunTrex and
Michael Thomas contracts but does not anticipate revenues from the
contracts to be material over the coming year.
Employees
At December 31, 1995, the Company had 26 full-time employees, two of
whom were executive management. The Company believes its employee
relationships are satisfactory.
The Company is dependant on its founder and President, Ernest R.
Vadersen. There is strong competition for qualified personnel in the golf
club industry, and the loss of Mr. Vadersen's services could adversely
affect the Company's business. The Company has entered into an employment
agreement with Mr. Vadersen through May 1999. See "Executive
Compensation." The Company is the beneficiary on key man insurance
policies on the life of Mr. Vadersen totaling $4,000,000.
Patents and Trademarks
The Company has registered its logo and brand name in the United States.
The Company has also registered its logo in Japan and is currently in the
process of registering its name there. The Company is in the process of
applying for patents on certain technical designs on its wedges and
driver.
Government Regulation
The Company's facilities are subject to numerous federal, state and
local laws and regulations designed to protect the environment from waste
emissions and hazardous substances. The Company is also subject to the
federal Occupational Safety and Health Act and other laws and regulations
affecting the safety and health of employees in the production areas of
its facilities. The Company believes it is in compliance in all material
respects with all applicable environmental and occupational safety
regulations.
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this amendment to its registration statement to be
signed on its behalf by the undersigned thereinto duly authorized.
GOLF-TECHNOLOGY HOLDING, INC.
By: /s/ Harold E. Hutchins
Harold E. Hutchins, Vice President and
Chief Financial Officer
Date: June 6, 1996
