As filed with the Securities and Exchange Commission on July 17, 1997
Registration No. 333-
_____________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________________
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________
DYNACRAFT GOLF PRODUCTS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
OHIO 5961 31-1040532
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation Classification Code Number) Identification No.)
or organization)
DYNACRAFT GOLF PRODUCTS, INC.
98 JAMES STREET
NEWARK, OHIO 43055
(614) 344-6174
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICERS)
(ADDRESS OF PRINCIPAL PLACE OF BUSINESS OR INTENDED PLACE OF BUSINESS)
JOSEPH A. ALTOMONTE, JR.
DYNACRAFT GOLF PRODUCTS, INC.
98 JAMES STREET
NEWARK, OHIO 43055
(614) 344-6174
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
_____________________
COPIES TO:
RONALD A. ROBINS, JR.
VORYS, SATER, SEYMOUR AND PEASE
52 EAST GAY STREET, P.O. BOX 1008
COLUMBUS, OHIO 43216-1008
_____________________
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
_____________________
CALCULATION OF REGISTRATION FEE
TITLE OF EACH PROPOSED MAXIMUM PROPOSED MAXIMUM
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PER SHARE PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------------------
COMMON SHARES, WITHOUT PAR VALUE 700,000 $5.00 $3,500,000 $700.00
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective
date until the registrant shall file a further amendment which specifically states that this registration statement shall
thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
Subject to Completion, dated July 17, 1997
700,000 SHARES
(DYNACRAFT LOGO)
DYNACRAFT GOLF PRODUCTS, INC.
COMMON SHARES
All of the 700,000 Common Shares, without par value (the "Common Shares"),
offered by this Prospectus are being sold directly by Dynacraft Golf Products,
Inc. (the "Company"). Before this offering, there has been no public market for
the Company's Common Shares, so the public offering price has been determined by
the Company. The Common Shares have been approved for listing on the Chicago
Stock Exchange under the trading symbol "DYN". See "Risk Factors - Trading
Market for the Shares" and "Shares Eligible for Future Resale."
This offering is being made directly by the Company for at least 300,000
Common Shares (the "Minimum") and not more than 700,000 Common Shares (the
"Maximum"). See "Use of Proceeds." Only until the Minimum is fully subscribed,
all subscription payments will be deposited into an escrow account at Huntington
National Bank. If the Minimum is not subscribed by February 28, 1998, all
proceeds deposited in the escrow account will be promptly refunded in full, with
interest, and without any deduction for expenses. Upon raising the Minimum
amount, the escrow will be terminated, subscribers will become shareowners and
any proceeds from more sales will go directly to the Company. This offering
will end on the earlier of the following: the sale of the Maximum amount,
twelve months after the date of this Prospectus or the date on which the Company
decides to close the offering. A minimum purchase of 100 Common Shares is
required. The Company reserves the right to reject any subscription or share
purchase agreement in full or in part. See "Plan of Distribution."
ANY INVESTMENT IN THE COMMON SHARES OFFERED BY THE PROSPECTUS INVOLVES A HIGH
DEGREE OF RISK. FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE
COMMON SHARES OFFERED HEREBY SEE "RISK FACTORS" ON PAGES 6 AND 7.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION OT THE
CONTRARY IS A CRIMINAL OFFENSE.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
Per Share $5.00 None $5.00
- --------------------------------------------------------------------------------------------
Total Minimum (300,000 shares) $ 1,500,000 None $1,500,000
- ---------------------------------------------------------------------------------------------
Total Maximum (700,000 shares) $ 3,500,000 None $3,500,000
- ---------------------------------------------------------------------------------------------
(1) The shares are being sold directly by the Company through a designated
employee, Howard Van Huffel, who is registered as sales representative,
where required, and will not receive any commission. See "Plan of
Distribution."
(2) Before deducting estimated expenses of $262,500 payable by the Company,
including registration fees, escrow agent fees, legal and accounting fees,
costs of printing, copying and postage and other offering costs.
THE DATE OF THIS PROSPECTUS IS _______, 1997
The following legend shall run sideways down the front cover of the Prospectus:
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of any offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS AND, IF GIVEN OR MADE, THAT INFORMATION AND REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS IS
NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED TO ANY PERSON IN ANY JURISDICTION IN WHICH THAT OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALES SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION IN THIS
PROSPECTUS IS CORRECT AS OF ANY DATE LATER THAN THE DATE OF THIS PROSPECTUS.
______________
[DYNACRAFT LOGO]
TABLE OF CONTENTS
PAGE PAGE
Reference Data...............2 Certain Relationships and related
Prospectus Summary...........3 Party Transactions................26
Risk Factors.................6 Description of Common Stock.........27
How We Intend To Use The Shares Eligible for Future Resale...29
Funds From This Offering....9 Plan of Distribution................30
Dilution....................11 Experts.............................31
Management's Discussion and Additional Information..............31
Analysis of Financial Index to Financial Statements.......32
Condition and Results
of Operations..............12
Business....................16
Management..................22
Principal Shareowners.......25
UNTIL _____________ 1997 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
_________________
REFERENCE DATA
Upon the date of this Prospectus, the Company became subject to the
informational filing requirements of the Securities Exchange Act of 1934, as
amended ("Exchange Act") for its current fiscal year. Upon completion of this
offering, the company may be required to register under the Exchange Act and
continue to file required annual and quarterly reports.
The Company intends to furnish its shareowners with annual reports
containing financial statements audited by an independent public accounting firm
after the end of its fiscal year on December 31. In addition, the Company will
send shareowners quarterly reports with unaudited financial information for the
first three quarters of each fiscal year.
The Company was incorporated under the laws of the State of Ohio on July 1,
1982. The Company's corporate offices are located at 98 James Street, Newark,
Ohio 43055. The Company's other addresses are, Voice: (614) 344-1191;
Facsimile: (614) 344-6174; e-mail; dynacraft@nextek.net, website:
http://www.dynacraftgolf.com.
2
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL
STATEMENTS OF THE COMPANY, INCLUDING THE NOTES THERETO, APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION PRESENTED IN THIS
PROSPECTUS HAS BEEN ADJUSTED TO REFLECT THE 13:1 SPLIT OF THE COMMON SHARES
PRIOR TO THE OFFERING HEREBY. REFERENCES IN THIS PROSPECTUS TO THE "DYNACRAFT
COMPANIES" OR THE "COMPANY" REFERS COLLECTIVELY TO DYNACRAFT GOLF PRODUCTS, INC.
AND ITS SUBSIDIARIES.
DYNACRAFT GOLF PRODUCTS, INC. AND ITS SUBSIDIARIES
The Dynacraft Companies include Dynacraft Golf Products, Inc., Pal Joey
Custom Golf Inc. (which includes Pal Joey Pro Shop as a division), Dynacraft
Real Estate Holding Inc. and Diamond Golf International Limited. Dynacraft Golf
Products, Inc. owns 100% of all the companies, except Diamond Golf, in which it
is a 51% owner.
The Dynacraft Companies help golfers customize their clubs and equipment to
their own personal specifications. Our customers can design clubs with unique
combinations of loft, lie, weight, face angle, grip type and size, shaft length
and flex and cosmetics. We contract production of our own clubheads and work
with major shaft and grip companies to be within the golf industry's standards
of tolerances. Customer service includes a lifetime warranty on clubheads and a
return/replacement policy on any product.
Dynacraft is owned by its founding family and certain employees through the
Company's Employee Stock Ownership Program (the "ESOP"). We are inviting our
customers and others to join us as shareowners. The investments will be used to
pay for marketing, expanded capacity and working capital. See "How We Intend to
Use the Funds from the Offering."
DYNACRAFT GOLF PRODUCTS, INC. ("Dynacraft") is the parent company and
successor to a business founded in 1980. It is one of the large U.S. supplier
of components for individuals who make clubs for themselves and other golfers.
Dynacraft does not sell finished clubs. We also educate our customers through
the Dynacraft Clubmaking Institute, the golf industry's premier clubmaking and
fitting class facility, and maintains a full-time technical staff. We believe
that our Internet site is the largest of any golf component company and includes
a technical chat room and tutorial for online questions and answers. We publish
an annual catalog of over 150 pages and a quarterly customer magazine,
CLUBMAKERS' DIGEST.
PAL JOEY CUSTOM GOLF INC. ("Pal Joey") was created in 1981 to build clubs
to specific customer requirements for resale. Our market includes golf
professionals, green grass golf shops and specialty off-course golf stores. We
believe that quality, fast turnaround time and the Company's lifetime warranty
provide Pal Joey with a competitive advantage. We have also contracted sourcing
and assembly functions for golf stores.
PAL JOEY PRO SHOP, a division of Pal Joey, opened in 1982 as a store for
golfers to visit for custom clubs and other equipment and golf accessories. It
provides the Company with a model for possible expansion into additional retail
store operations.
DIAMOND GOLF INTERNATIONAL LIMITED ("Diamond Golf") serves Europe with both
component Dynacraft clubs and finished Pal Joey Customer Clubs. Begun as an
acquisition in 1991, it is one of the component suppliers in Europe and will be
renamed "Dynacraft Europe" in 1998. Diamond Golf operates on the same Dynacraft
principles of customer education and technical service, provided by mail order
and on-site custom fitting.
3
PLANS FOR THE FUTURE
The Company intends to apply approximately $300,000 of the net proceeds of
this offering to improve and expand its assembly facilities, approximately
$120,000 for research and development ($30,000 if only the minimum is reached),
approximately $620,000 for market research and advertising activities ($180,000
if only the minimum is reached), approximately $150,000 for upgrading the
inventory system ($75,000 if only the minimum is reached), approximately
$425,000 to be set aside to fund the repurchase of ESOP shares ($225,000 if only
the minimum is reached) and approximately $430,000 to repay shareholder bank
loans (none if only the minimum is reached). The remaining $1,192,500 ($427,500
if only the minimum is reached) will be used for working capital and general
corporate purposes. See "How We Intend to Use the Funds from the Offering" and
"Certain Relationships and Related Party Tranactions."
BECOMING A SHAREHOLDER
You may become a Dynacraft shareholder by filling out the Share Purchase
Agreement and returning it with your check for the amount of your investment (or
credit card number and signature). When your order has been accepted, you will
receive a signed copy and an acknowledgement letter. After the minimum 300,000
Common Shares have been ordered, you will receive a certificate for your shares.
The Company reserves the right to reject any order.
As a Dynacraft shareholder, you will be entitled to certain shareholder
consideration. You will have priority, for 30 days, to purchase new products
before they are offered to the general public. An Internet site will be
dedicated specifically to shareholder information such as share prices and
volume, new products and other related material. The site will be password
protected so that only shareholders may access this information. Shareholders
will receive priority purchase plans for closeouts and excess inventory in an
effort to increase potential profits for clubmakers who are shareholders. A
special email listing will provide this information to shareholders. In
addition, shareholders will be given priority packing and shipping on any
in-stock Dynacraft product ordered. Further, Dynacraft shareholders will be
eligible for priority registration for all classes at the Dynacraft Clubmaking
Institute
4
SUMMARY FINANCIAL DATA AND CURRENT POSITION
THREE MONTHS
ENDED MARCH 31 YEARS ENDED DECEMBER 31
-------------- --------------------------------
1996 1997 1995 1996
---- ---- ---- ----
(unaudited)
Statement of Operations Data:
Net Sales $4,251,706 $4,934,770 $18,963,572 $18,898,498
Gross Profit 1,080,318 1,354,386 5,511,028 5,248,931
Selling and administrative
expense 1,306,487 1,344,962 5,757,157 6,059,312
Operating (loss) profit (226,169) 9,424 (236,129) (810,381)
Other Income or (deductions) 41,713 26,709 222,007 (226,169)
Net (loss) Earnings (184,456) 36,133 271,476 (498,545)
( loss)/Earnings Per Share (.09) .02 .13 (.25)
Common Shares Outstanding 2,033,746 2,033,746 2,033,746 2,033,746
MARCH 31, 1997
------------------------------------------
ACTUAL AS ADJUSTED (1)
------ ---------------
(UNAUDITED)
MINIMUM MAXIMUM
------- -------
Balance Sheet Data:
Working capital $2,308,108 $2,867,608 $3,931,056
Total current assets 7,520,937 8,080,437 9,045,437
Total assets 9,255,499 10,189,999 11,229,999
Total current liabilities 5,212,829 5,212,829 5,114,381
Long-term debt, less current portion 2,803,046 2,710,046 2,378,494
Shareholder's Equity 1,239,624 2,267,124 3,737,124
(1) As adjusted to reflect the sale by the Company of the 300,000 Common Shares
(minimum) and 700,000 Common Shares (maximum) of Common Shares offered at an
Offering price of $5.00 and the application of the net proceeds as set forth in
the "How We Intend to Use the Funds from the Offering" and the effect of the
proceeds from Diamond's repayment and reduction of debt as discussed in "Certain
Relationships and Related Party Transactions."
5
RISK FACTORS
AN INVESTMENT IN DYNACRAFT SHARES INVOLVES A HIGH DEGREE OF RISK AND SHOULD
ONLY BE MADE BY PERSONS WHO CAN AFFORD TO LOSE UP TO THEIR ENTIRE INVESTMENT.
BEFORE PURCHASING SHARES, YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK
FACTORS, IN ADDITION TO OTHER INFORMATION IN THIS PROSPECTUS.
THE COMPANY WAS NOT PROFITABLE LAST YEAR AND HAS HAD DECLINING NET SALES IN EACH
OF THE PAST FIVE YEARS. Dynacraft had a $498,545 loss from its operations in
1996. In addition, the Company's net sales have decreased each year since 1992
in which net sales were $22.6 million. The factors causing the loss and the
decrease in net sales are explained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations: Year Ended December 31, 1996
Compared to year Ended December 31, 1995." While the retained earnings from the
Company's founding through 1996 were $1,472,921, there have been other
unprofitable years. Unaudited results for the first three months of 1997 show a
$36,133 profit, but the results for the full year are unknown, and results for
the first three months should not be considered an indicator of full-year
results.
THE MARKET FOR GOLF CLUB COMPONENTS, WHICH HAS BEEN DYNACRAFT'S PRIMARY
BUSINESS, WAS IN DECLINE FROM 1993 THROUGH 1996. Dynacraft's component sales
grew to $18.3 million by 1993 and then declined to $13.3 million by 1996. This
has been partially offset by Pal Joey's increase in sales of assembled clubs,
from $4.3 million to $6.1 million in the same period. The decline could have
been part of a cycle, in which case component sales could recover, or it could
be a long-term trend in which case such sales could continue to decline. Our
strategy, designed for either case, is described in "Business Marketing and
Strategic Direction."
ONE CUSTOMER GROUP REPRESENTED 16.4% OF LAST YEAR'S SALES. Pal Joey provides
sourcing and assembly work for a brand of golf clubs sold exclusively by a group
of franchised golf stores. This business began in the fall of 1995 and
represented 16.4% of the Company's consolidated 1996 sales. One other customer
accounted for 4.1% of 1996 sales, while the next largest represented less than
1%. All customers are free to discontinue doing business with the Company at
any time. See "Business: The Customer."
MANAGERS PURCHASE LARGE AMOUNTS OF PRODUCT, BASED UPON THEIR ESTIMATE OF WHAT
WILL SELL. Over or under buying of individual components is one of the primary
risks to profitability. We must buy in large quantities, since most components
are manufactured to our own specifications. This means predicting customer
preferences, weather and other factors affecting sales volume. If we under buy,
back orders are created causing nonreimbursed shipping charges and dissatisfied
customers. If we over buy, we sell at discounted prices to move the inventory,
which results in lower profit margins. In both cases, this causes lower
earnings or higher losses.
OUR BUSINESS COULD BE HURT BY THE LOSS OF KEY PEOPLE. Dynacraft relies heavily
on the contributions of our management team, described in the "Management"
section. Loss of any of them could have an adverse effect upon the Company,
until, and unless, a replacement could be found. There is no "key person" life
insurance on any of them.
THE GOLF INDUSTRY IS HIGHLY COMPETITIVE. The Company believes the golf
component, club and equipment sector of the golf industry, in which it operates,
will become even more competitive in the future. The Company competes with
numerous other companies providing similar products. Some of the Company's
present and potential competitors are significantly larger and have or may
obtain, greater financial resources than those of the Company. Consequently,
there can be no assurance the Company will not encounter increased competition
in the future. Such competition could limit the Company's ability to expand its
business and therefore have a material adverse effect on the Company.
WE ARE SUBJECT TO UNAUTHORIZED COPYING OF OUR PRODUCTS, OR TO CLAIMS WE COPIED
OTHERS. We rely primarily on trademark and patent laws to protect the
intellectual property used in our products and services. We could be damaged by
a significant amount of unauthorized copying. We also license third party
intellectual property. Although the Company is not aware that any of its
products and services are
6
materially infringing the rights of others, it is possible we are. If so, we
could have to modify our products and services, at substantial possible cost,
and we could be subject to claims for substantial damages.
ENVIRONMENTAL RISKS. Federal, state and local environmental laws, ordinances
and regulations potentially require that a current or previous owner or operator
of real property may be held liable for the cost of removal or remediation of
certain hazardous or toxic substances, including asbestos-containing materials,
that could be located on, in or under such property. Such laws and regulations
often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of hazardous or toxic substances. The cost of any
required remediation or removal of these substances could be substantial and the
liability of an owner or operator as to any property is generally not limited
under such laws and regulations and could exceed the property's value and the
aggregate assets of the owner or operator. The presence of these substances or
failure to remediate such substances properly may also adversely affect the
owner's ability to sell or rent the property or to borrow using the property as
collateral. See "Business-Environmental".
THE AMOUNTS PAID FOR SHARES WILL BE KEPT IN A BANK ESCROW UNTIL THE MINIMUM
AMOUNT HAS BEEN SOLD. If the Minimum 300,000 Common Shares have not been
fully subscribed by February 28, 1998, all monies deposited in the escrow
account will be refunded to the subscribers, with interest and without any
deduction for expenses. Until then, purchasers will be subscribers and not
shareowners of the Company, although they will be entitled to certain rights
of shareholders under Ohio law. During the Escrow Period, subscribers will
have no right to a return of their payments. See "Plan of Distribution --
Escrow of Minimum Proceeds."
THE TRADING MARKET FOR THE SHARES MAY BE LIMITED AND THE PRICE COULD GO DOWN.
Dynacraft's shares have been approved for trading on the Chicago Stock
Exchange after the offering is over, but there may not be the active trading
that would allow immediate sale of Common Shares at a quoted market price.
If there are more shares offered for sale than to buy, as a result of
negative events for the Company or any other reason, the price is likely to
go down. The major shareowners have stated that they have no current
intention of selling any of their Shares in the public market for two years
after the date of this prospectus. See "Shares Eligible for Future Resale."
The price of the Common Shares in the future may be volatile. A variety of
events, including quarter-to-quarter variations in operating results, news
announcements, trading volume, general market trends and other factors could
result in wide fluctuations in the price of the Common Shares.
THE "BOOK VALUE" OF COMMON SHARES PURCHASED IN THIS OFFERING WILL BE
SUBSTANTIALLY LESS THAN THE PURCHASE PRICE AND THE PRICE PAID BY EXISTING
SHAREHOLDERS. Purchasers of Common Shares in this offering will realize
immediate substantial "dilution" in the "book value" of their shares equal to
approximately $4.03 per share if the Minimum 300,000 Common Shares are sold and
$3.63 if the Maximum 700,000 Common Shares are sold. This is the difference,
per share, between (a) the amount that would show as "Shareholders' equity" on
the Company's Balance Sheet after the offering and (b) the price paid in this
offering. This dilution results principally from the substantially lower
amounts paid by the present shareowners. See "Dilution" and "Plan of
Distribution -- Determination of Offering Price."
THE COMPANY PRESENTLY INTENDS TO RETAIN ANY EARNINGS AND PAY NO DIVIDENDS. The
Company's loan agreement with its bank restricts the Company's ability to pay
dividends. Therefore, future dividends, if any, will depend on the bank lifting
that restriction, the Company's profitability, financial condition, capital
requirements and other considerations determined by the Board of Directors.
THE BUSINESS MAY NEED MORE CAPITAL, WHICH COULD AFFECT SHAREOWNERS. Money from
this offering, together with any cash generated by operations, may not be enough
to pay for the Company's continued growth and debt retirement. If more Common
Shares are sold to raise cash, the percentage ownership of existing shareholders
would be reduced. If money is borrowed, interest expenses and required cash for
repayment will increase. It is possible that Dynacraft may not be able to raise
additional money, with the result that it would have to limit growth. See
"Business Marketing and Strategic Direction" and "Management's Discussion and
Analysis of Financial Conditions and Results of Operations--Liquidity and
Capital Resources."
7
DYNACRAFT'S FOUNDING FAMILY WILL CONTINUE TO CONTROL THE BUSINESS. After
completion of this offering, Joseph A. Altomonte, Sr. and Joseph A. Altomonte,
Jr. will together control 71% of the Company's Common Shares if the Minimum is
sold and 60% if the Maximum is sold. They will be able to elect a majority of
the Board of Directors and control most corporate decisions, including action
upon any offer to acquire the Company. See "Principal Shareholders."
POTENTIAL ANTI-TAKEOVER EFFECT AND POTENTIAL ADVERSE IMPACT ON MARKET PRICE OF
CERTAIN CHARTER AND CODE OF REGULATIONS PROVISIONS AND THE OHIO GENERAL
CORPORATION LAW. Certain provisions of the Company's Articles of Incorporation
and Code of Regulations and of the Ohio Revised Code (the "Ohio GCL"), together
or separately, could discourage potential acquisition proposals, delay or
prevent a change in control of the Company and limit the price that certain
investors might be willing to pay in the future for the Common Shares. Among
other things, these provisions (i) establish a staggered board; (ii) require
certain supermajority votes; and (iii) establish certain advance notice
procedures for nomination of candidates for election as directors and for
shareholder proposals to be considered at shareholders' meetings.
8
HOW WE INTEND TO USE THE FUNDS FROM THE OFFERING
The net proceeds available to the Company from the sale of the shares in this
offering are estimated to be approximately $1,237,500 if the minimum is sold and
$3,237,500 if the maximum is sold, after deducting both selling and other
offering expenses, estimated to be $262,500.
The Company expects to use the net proceeds, over the next twelve month
period from the date of this prospectus for the purposes outlined in the table
below. If more than the minimum, but less than the maximum amount is raised,
the Company will adjust its plans accordingly, making the most effective use of
the net proceeds to grow the business.
MINIMUM MAXIMUM
(300,000 SHARES) (700,000 SHARES)
---------------- ----------------
Expansion of Pal Joey assembly, shipping $300,000 $300,000
and warehouse facilities
Research and development 30,000 120,000
Market research and advertising 180,000 620,000
Upgrade Inventory Control Data Processing 75,000 150,000
System
Set aside for repurchase of ESOP shares 225,000 425,000
Repayment of shareholder subordinated - 430,000
Bank loans
Working Capital 427,500 1,192,500
------- ---------
Total use of Net Proceeds $1,237,500 $3,237,500
---------- ----------
---------- ----------
Approximately $300,000 of the net proceeds of this offering is allocated for
improving Pal Joey assembly, shipping and warehouse space to meet anticipated
growth.
The Company is continually seeking to improve the design of its club heads
and is seeking to develop additional golf heads, irons and wedges. Accordingly,
approximately $120,000 of the new proceeds ($30,000 if only the minimum is
achieved) of this offering is allocated for the research and development of new
technologies for golf club design.
Approximately $620,000 of the net proceeds ($180,000 if only the minimum is
achieved) of this offering is allocated to market research and advertising for
purposes of expanding the Company's market nationally and worldwide, including
but not limited to, expansion of the catalog lists of prospective customers,
improvement and expansion of the Company's web site, opening a warehouse
training center/showroom facility in the Western United States, creating Mobile
Training Centers and expanding the number of qualified commissioned
representatives worldwide.
Approximately $150,000 of the net proceeds ($75,000 if only the minimum is
achieved) of this offering is allocated to upgrading the Company's Inventory
Control System. This upgrade will provide management with more specific costing
information that will enable the Company to reduce its inbound freight and
inventory costs in order to improve its cash flow position.
Approximately $425,000 of the net proceeds ($225,000 if only the minimum is
achieved) is to be set aside for the repurchase obligation contained in the
ESOP. The source of funds for the dollar amount, as determined by the Plan
Custodian, not funded by the net proceeds from this offering will be from
internally generated cash flow, or if the allocation from net proceeds is over
the funds needed, the excess funds will be used for working capital. If the
Company's Common Shares becomes readily tradeable after the offering, the
Company's future repurchase obligations could be eliminated or lessened. That
being the case, the allocation from net proceeds would be used for working
capital.
9
Approximately $430,000 of the net proceeds (none if only the minimum is
achieved) of this offering is to be used to retire two subordinated shareholder
notes payable. The two shareholders, Joseph A. Altomonte, Sr. and Joseph A.
Altomonte, Jr., borrowed $250,000 each from Huntington Bank as part of the
Company's overall refinancing in June 1996. The borrowed funds were in turn
loaned to the company, to help pay off the existing line of credit, at the same
terms as those of the banks, namely, monthly installments of $4,102 each which
includes interest at an interest rate of 9.625% and a final payment due June 1,
2001. See "Certain Relationships and Related Party Transactions."
The balance of the net proceeds of this offering is allocated for working
capital and general company purposes including, among other things, increase in
inventory.
The Company does not contemplate changes in the proposed allocation of net
proceeds of this offering. However, events may require changes, and the Company
reserves the right to make those changes, if management believes those changes
are in the best interest of the Company.
Proceeds not immediately required for the purposes described above will be
invested in United States Government Securities, short-term Certificates of
Deposit, Money Market funds or other investment grade short-term interest
bearing investment.
10
DILUTION
On March 31, 1997, the Company had a net tangible book value of $1,239,624,
or $.61 per share. The net tangible book value per share is equal to the
Company's total tangible assets, less its total liabilities and divided by its
total number of Common Shares outstanding. After giving effect to the sale of
the Minimum and Maximum number of Common Shares offered, at the public offering
price of $5.00 per share, the application of the estimated net offering proceeds
and the recent transaction with Diamond Golf International Limited, the pro
forma net tangible book value of the Company as of March 31, 1997 would have
been $2,267,124 and $3,737,124, respectively, or $.97 per share and $1.37 per
share, respectively. This represents an immediate increase in net tangible book
value of $.36 per share and $.76 per share, respectively, to existing
shareholders and an immediate dilution of $4.03 per share and $3.63 per share,
respectively, to new investors purchasing shares in this offering. The
following table illustrates the per share dilution in net tangible book value
per share to new investors:
MINIMUM MAXIMUM
(300,000 SHARES) (700,000 SHARES)
----------------- ----------------
Public offering price per share $5.00 $5.00
Net Tangible book value per share as of March 31, 1997 $0.61 $0.61
Increase in net tangible book value per share attributed 0.36 0.76
to new investors -------- -----
Pro forma net tangible book value per share as of 0.97 1.37
March 31, 1997 after the offering ---- ----
Net tangible book value dilution per share to new investors $4.03 $3.63
----- -----
The following table sets forth on a pro forma basis as of March 31, 1997,
the difference between existing shareholders and new investors purchasing shares
in this offering with respect to the number of shares purchased, the total
consideration paid and the average price paid per share, at the Minimum and
Maximum:
Shares Purchased Total Consideration Average Price
---------------- ------------------- -------------
Number Percent Amount Percent Per Share
------ ------- ------ ------- ---------
Minimum Sold:
Existing Shareholders 2,033,746 87.15% $229,795 13.28% $0.11
New Investors 300,000 12.85% $1,500,000 86.72% $5.00
------- ------ ---------- ------ -----
TOTAL 2,333,746 100.00% $1,729,795 100.00%
--------- ------- ---------- -------
--------- ------- ---------- -------
Maximum Sold:
Existing Shareholders 2,033,746 74.39% $229,795 6.16% $0.11
New Investors 700,000 25.61% $3,500.000 93.84% $5.00
------- ------ ---------- ------ -----
TOTAL 2,733,746 100.00% $3,729,795 100.00%
--------- ------- ---------- -------
--------- ------- ---------- -------
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF RESULTS OF OPERATION AND FINANCIAL CONDITION IS
BASED UPON AND TO BE READ TOGETHER WITH THE COMPANY'S CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO AND OTHER FINANCIAL INFORMATION APPEARING ELSEWHERE
IN THIS PROSPECTUS. OPERATING DATA PRESENTED IN THIS DISCUSSION IS UNAUDITED.
GENERAL BACKGROUND
The business (which later became known as Dynacraft Golf Products, Inc.) was
started in 1980 by Joseph A. Altomonte, Sr. He began the business after a long
career in the golf industry with Faultless Golf Ball Company and its successive
owners, including Rawlings Sporting Goods Division, ATO. The business began in
Mr. Altomonte's garage with the purchase of component golf parts and assembly of
finished clubs.
The component parts distribution and sales to custom golf clubmakers became a
corporation named Dynacraft Golf Products, Inc. The assembly of finished clubs
eventually evolved into a separate company, Pal Joey Custom Golf, Inc. The
corporate separation of Dynacraft and Pal Joey was a function of serving
separate markets. Dynacraft sells to custom clubmakers who sell a finished club
to the golfer. Pal Joey is a clubmaker selling finished clubs to pro shops and
distributors for resale. The same products are not sold by both companies.
Later, Pal Joey Pro Shop, a division of Pal Joey, was formed to serve as a
retail store for finished clubs and other golf accessories. In October 1990,
Pal Joey, became a wholly-owned subsidiary of Dynacraft.
Dynacraft received a 50% equity investment from its principal Taiwanese clubhead
component supplier, Dynamic Precision Casting Mfg. Co, LTD.
In mid 1990, Mr. Altomonte sought greater employee ownership of Dynacraft.
To achieve this he personally made an offer to buy out the four Taiwanese
investors for $1 million dollars. Except for the owner of Dynamic, Chinneng
Lin, who kept an interest which was converted to 100 shares of $1,000 par value,
noncumulative preferred stock, the investors accepted the cash offer. In
January 1991 the Dynacraft ESOP came into existence.
In 1992, Dynacraft completed the purchase of a 51% interest in Diamond Golf for
$221,209. Diamond Golf is an England based component parts distributor serving
Europe.
During 1994, in a series of transactions, Dynacraft issued 51,462 new Common
Shares to the partners of J & J Enterprises, and acquired all the real estate
previously leased to the Company by J & J Enterprises at a value, less
outstanding debt, of $214,269 or $4.16 per share. J & J Enterprises was owned
equally by Joseph Altomonte, Sr. and Jr..
OVERVIEW
Throughout most of Dynacraft's history the market for component parts has
grown at double digit rates. This changed in 1993 and the market has declined
since. Dynacraft's component sales have fallen from a high of $18.3 million
and a net income of $550,000 to $13.3 million and net loss of $337,000 between
1993 and 1996. Management projects 1997 sales will remain at the 1996 level or
slightly less. However, Dynacraft's market share remains as one of the largest
in the industry.
During that same period of time Pal Joey's sales have increased from $4.3
million to $6.1 million and its projected 1997 sales of assembled clubs is $6.8
million. These increases have offset some of the drop in component sales.
The primary investment risk for the Dynacraft Companies is inventory
management and cost controls. The Company's major investment is in inventories.
Over or under buying certain items is one of the
12
primary risks to profitability. Also, both the economy and weather can affect
retail and component sales of golf equipment. In 1995, Dynacraft staffed for a
down sales year and further staff and expense cuts were made in the fall of 1996
as sales remained flat. Management believes that these staffing and expense
cuts have helped the future outlook as have the sales gains recorded by Pal
Joey. Control of expenses in line with sales performance has become a
management priority during this current period and is expected to continue to be
in the future.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
NET SALES
Consolidated net sales increased by $683,064 or 16.1% from $4,251,706 for
the three months ending March 31, 1996 to $4,934,770 for the three months ending
March 31, 1997. Net sales of component golf club equipment and supplies
accounted for $138,209 of the increase, primarily because the 1997 catalog was
sent out two months earlier than last year and because of better weather this
spring. Net sales of assembled custom clubs accounted for the balance of the
increase, primarily because of servicing new accounts that started in mid 1996.
Net Pal Joey Pro Shop sales were down slightly from the prior three month
period.
GROSS PROFIT
Consolidated gross profit increased by $274,068, or 25.4%, from $1,080,318
for the three months ending March 31, 1996 to $1,354,386 for the three months
ending March 31, 1997. This improvement was the result of minor price increases
and better control of the inventory and associated costs.
SELLING AND ADMINISTRATIVE EXPENSES
Consolidated selling and administrative expenses increased by $38,475, or
3%, from $1,306,487 for the three months ending March 31, 1996 to $1,344,962 for
the three months ended March 31, 1997. The staff and expense cuts initiated in
the fall of 1996 were felt in the first quarter of 1997 as over all
administrative expenses were down by approximately $137,000. This decrease was
offset by an increase in commission and royalty expense of approximately
$175,000 because of increased Pal Joey sales over the prior period.
OTHER INCOME, NET OF INTEREST EXPENSE
Consolidated other income net of interest expense decreased $15,004 or 36%
from $41,713 for the three months ending March 31, 1996 to $26,709 for the three
months ended March 31, 1997. Consolidated interest expense was lower during
this first quarter as compared to the first quarter of last year by some $20,000
because a new business loan agreement entered into (see - "Liquidity and Capital
Resources"). However, advertising and golf school revenue were also lower by
some $46,000. The primary reasons for this was that the Digest that the
Company's suppliers advertise in was reduced from a monthly publication to a
quarterly publication and the 1997 school tuition was lowered in an effort to
attract more students who hopefully later on would become customers.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES
Consolidated net sales were $18,898,498 for 1996, a decrease of .3%
compared to consolidated net sales of $18,963,572 in 1995. Management's focus
in 1996 was not necessarily to increase overall sales, but rather was to explore
ways to start to reposition the Company for growth and profitability in 1997 and
future years. The component sales decrease of approximately $1,890,000 in 1996
as compared to 1995 was almost offset by the increase in sales of assembled
clubs by Pal Joey.
13
GROSS PROFIT
Consolidated gross profit was $5,248,931 for 1996, a decrease of 4.8%
compared to consolidated gross profit of $5,511,028 in 1995. This decrease was
attributable to a decrease in component sales gross profit of $977,433 which is
the result of the increasing Taiwan dollar exchange rate, price competition and
shorter product life cycles resulting in more out-of-date inventory which had to
be sold at smaller margins. That decrease was partially offset by increased
gross profit of Pal Joey because of increased sales volume.
SELLING AND ADMINISTRATIVE EXPENSES
Consolidated selling and administrative expenses for 1996 increased 5.5% to
$6,059,312 compared to $5,747,157 in 1995. This increase resulted from an
increase in the commission and royalty expense due to increased Pal Joey sales;
bad debt write offs; professional fees; and utilities and telephone increases
due to more volume and rate hikes. Those increases were partially offset by
significant decreases in salaries and wages and advertising and marketing
expenses.
OTHER INCOME, NET OF INTEREST EXPENSE
Consolidated other income, net of interest expense, decreased to $182,878
for 1996 compared to $222,007 in 1995. Lower interest expense because of a new
business loan agreement was offset by less advertising income due to a reduction
in the numbers of publications produced.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1997 the Company had working capital of $2,308,108 as compared
to working capital of $2,236,526 at December 31, 1996. This increase is
primarily due to an increase in accounts receivable and inventory offset by an
increase in accounts payable.
For the year ended December 31, 1996, the Company had net cash provided by
operations, despite a net loss of $498,545. This was the result of an increase
in trade accounts payable which the Company used as a source of financing.
For the three months ended March 31, 1997, the Company had net cash provided
by operations of $69,923 as compared to $183,684 for the three months ended
March 31, 1996. Although inventories increased and accounts receivables
increased substantially in both periods, they were offset by increases in trade
accounts payable.
The Company had accounts receivable, less allowance for doubtful accounts of
$2,276,952 at March 31, 1997. Pal Joey's net accounts receivable were a
$1,621,886 of that total as they have provided extended payment terms to a large
franchise account in order to encourage initial purchases of its clubs. Pal
Joey does not anticipate that it will continue to extend such liberal payment
terms. However, as it continues to expand its activities, it may do so again in
order to increase its market exposure.
In June 1996, the Company entered into a seven year loan with Huntington
National Bank which provided for a $1,860,315 term loan at the U.S. Treasury
constant maturities rate (8.375% as of June 20, 1996 secured by the Company's
accounts receivable and inventories, a second mortgage on real estate and
personal guarantees of Joseph A. Altomonte, Sr. and Joseph A. Altomonte, Jr.
The Loan Agreement contains certain financial and operating covenants including
compliance with certain financial ratios, and restrictions on, among other
things, the Company's ability to pay cash dividends. The proceeds from this
loan were used to payoff two revolving line of credit agreements that had been
established at $2,450,000.
14
Over the last four years, the Company's internally generated cash flow has
not been sufficient to finance operations. This has restricted the Company's
ability to conduct its business as anticipated. As a result, the Company has
been substantially dependent upon loans from its current shareholders in order
to maintain its operations. Upon the closing of the Maximum Offering, these
shareholders will have approximately $430,000 of that debt repayed.
The Company believes that the minimum net proceeds of this offering together
with internally generated cash flow and borrowing availability will be
sufficient to meet its operating working capital and capital expenditures
requirements through the next twelve months. In the event the Company's plans
require more capital than is presently anticipated, the Company's remaining cash
balances may be consumed and additional sources of liquidity, such as debt or
equity financings, may be required to meet capital needs. There can be no
assurances that additional capital beyond the amounts the Company currently
requires will be available on reasonable terms, if at all.
SEASONALITY
The Company's need for working capital is seasonal with the greatest
requirements for working capital occuring from approximately October through the
end of February each year. This period is when sales are the lowest and the
inventories need to be built up to provide product for shipment for the
spring/summer selling season. The Company's sales from May to September
represent approximately 64% of the Company's yearly sales.
CURRENCY FLUCTUATIONS
Diamond, a 51% owned company in England, maintains its books of account in
British Pounds. The Company accounts for this investment under the equity
method. For consolidation purposes, net profit or loss of Diamond is converted
to U.S. dollars at the average month end exchange rate for the year.
All export sales by the Company are U.S. dollar denominated, and ordinarily
there is no currency exchange rate problem for the Company. However, with
respect to export sales to Diamond, they may be at risk. Diamond maintains its
account with the Company in British pounds, but owes the Company in U.S.
dollars. At the end of every accounting period, the debt is adjusted to pounds
by multiplying the indebtedness by the closing dollar pound exchange rate to
ensure that the account has sufficient pounds to meet its dollar obligation.
This remeasurement is either income or expense in Diamond's financial statement.
FORWARD LOOKING INFORMATION
This Prospectus contains forward looking statements which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in those forward-looking statements as a result of certain factors,
including those set forth in the section entitled "Risk Factors" and elsewhere
in this Prospectus.
15
BUSINESS
DYNACRAFT GOLF PRODUCTS, INC.
Dynacraft Golf Products, is one of the largest supplier of component golf
club equipment and supplies for clubmaking. The business was started by Joseph
Altomonte, Sr. in his garage. Dynacraft has grown into a component company with
a presence in Europe and distributorships in Japan, Canada and Australia. The
company offers its worldwide customers a wide selection of club heads, shafts,
grips, tools, and accessories.
Dynacraft strives for quality and playability in its wide variety of head
designs. All clubheads adhere to the industry's standards for tolerances of
such specifications as loft, lie, weight, face angle and cosmetics. Heads can
even be modified for unique fitting situations prior to shipment to the
customer. Nearly all products are developed, tested and reviewed, not only by a
team of our technical experts, but by average, better than average and below
average golfers prior to market introduction. We work closely not only with
foundries that produce our clubheads (visits are made as needed to overseas
foundry suppliers), but with major shaft companies such as True Temper, Rapport,
Fenwick, and Aldila to develop shafts that best match current head designs.
Dynacraft-branded grips are produced to specifications to allow customers to
completely customize their Dynacraft purchases. We maintain a lifetime warranty
on all of our golf club heads and offer what we believe to be the industry's
most comprehensive return/replacement policy on any product we sell.
Dynacraft offers a full range of clubmaking and fitting classes in our
Dynacraft Clubmaking Institute (DCI). The DCI educates both novice and
experienced clubmakers as well as industry experts. Coupled with a full-time
technical staff, the DCI and Dynacraft provide education and information to the
clubmaker. Our internet includes, not only information about our products and
services, but also a technical forum and tutorial where customers may receive
answers to their questions via the Internet.
Dynacraft offers a complementary magazine to its active customers.
CLUBMAKERS' DIGEST is published at least four times a year and includes
up-to-date technical information provided by the technical staff as well as new
products and sale items. We publish our full line catalog once each year, with
over 150 pages showcasing all the products we have developed and carry, in a
design and presentation that have won numerous awards. We have a complete
accessory line of products with the Dynacraft logo, including golf bags in a
variety of sizes and styles, hats, umbrellas, towels, and apparel.
Dynacraft offers its customers a toll free telephone order line, customer
service line and technical information line. The order line is staffed fifteen
hours a day, while the other lines are staffed for nine hours per day. The
Shipping Department runs two shifts when needed to offer timely and accurate
fulfillment. Orders are shipped the same day they are received in most cases;
most orders are shipped within 24 hours. The Customer Service Department deals
with special order items, unique customer requests and any consumer problems
that may arise. All Customer Service and Sales Representatives receive
technical training at the DCI in an effort to make them the most knowledgeable
staff in the business.
PAL JOEY CUSTOM GOLF
Founded in 1981, Pal Joey Custom Golf Inc. offers its customers custom made
and fitted golf equipment at reasonable prices. Pal Joey Custom Golf is a
wholesale operation selling finished goods under the Pal Joey brand name. The
models are unique to Pal Joey and are custom made to order. The custom made
club market, while in its infancy in the early 1980's, has grown rapidly in the
mid-1990's, and we believe that Pal Joey is positioned for a rapid growth in
this area. Clubs manufactured at Pal Joey are built to specific customer
requirements. The clubs are typically sold to golf professionals, to green
grass golf shops, or to upscale off-course golf stores. Our turnaround time is
as short as five days. We offer a lifetime warranty on all Pal Joey clubheads
and have among the most comprehensive repair/replacement policy in the club
manufacturing industry.
16
Since fall 1995, Pal Joey has provided sourcing and assembly work, through
a sales representative, to a significant percentage of the franchises of Pro
Golf of America, one of the largest off-course golf store chains in North
America and Pro Golf of America has recommended Pal Joey products to its
franchisees. Such sales represented approximately 16.4% of the Company's total
sales in 1996. We also have several other smaller assembly and/or sourcing
customers. No other customer of the Company accounts for more than .8% of the
Company's sales in any of the past three years, except one and they accounted
for approximately 4% of the Company's total 1996 sales. Pal Joey's 1996 sales
increased 85% over 1995.
PAL JOEY PRO SHOP
The Pal Joey Pro shop was opened as a division of Pal Joey Custom Golf in
1982, allowing local customers to purchase custom made golf equipment and
accessories. It is located on the Dynacraft property and includes a showroom
and two custom fitting areas. We offer custom fitting, which may include Pal
Joey labeled shafts, grips and heads, and prompt delivery in the Central Ohio
area, with some custom-made items deliverable within 24 hours. The Pal Joey Pro
Shop also carries an inventory of brand name clubs such as Cobra, Cleveland,
Callaway, and other golf equipment, attire and accessories. This retail
location has generated sales of nearly one million dollars in each of the past
three years.
DIAMOND GOLF INTERNATIONAL LIMITED
An acquisition of Diamond Golf was begun in 1991 and completed by 1993 to
broaden Dynacraft's presence in Europe. Its name is expected to be changed to
Dynacraft Europe in 1998. One of the two largest component suppliers in Europe,
the company serves the whole of Europe with the same component Dynacraft clubs
and completed Pal Joey Custom clubs, as well as many of the same shafts, grips,
tools and accessories available from the parent. Diamond Golf offers both mail
order and custom fitting on-site.
Diamond Golf also stresses the education of the clubmaker and golf
professional and is staffed to accommodate technical questions, customer service
situations, warehouse and order entry. Chris Treacy, President of Diamond Golf
travels throughout Europe providing quality education to interested customers.
DYNACRAFT REAL ESTATE HOLDING INC.
The Dynacraft Real Estate Holding Inc. "DREHI" includes all of the
properties owned by the Company. These include five commercial buildings, one
of which houses Pal Joey Custom Golf and the Pal Joey Pro Shop The other four
buildings are used by Dynacraft, one for Customer Service and order entry; a
building for office staff, marketing and design; a shipping and receiving
warehouse; and the Dynacraft Clubmaking Institute. All of the buildings are in
fine working order.
DREHI also includes five rental properties, all of which are consistently
occupied. The rental properties generate monthly revenue for the company. All
are well-maintained and are considered to be in fine condition.
COMPANY AND INDUSTRY BACKGROUND
Golf is one of the most rapidly growing sports in the world. Currently
there are more than 25 million golfers in the United States according to The
National Golf Foundation. This number is expected to grow through at least the
year 2000. The National Golf Foundation recently released figures from a five
year study concerning spending and golf. The NGF reported that consumers (both
golfers and non-golfers) spent in excess of $16 billion on golf and golf-related
products in 1995. The study revealed that the average occasional golfer (one
who plays fewer than 8 rounds per year) spends $144.00 per year on equipment and
merchandise. Moderate golfers (8-24 rounds per year)spend $248.00, while avid
players (24 or more rounds per year) spend upwards of $548.00 per year.
Internationally, Japan has 17.5 million golfers and 20 million additional
players who only hit balls at a range but do not actually play golf. Europe,
Asia, and Australia are experiencing a similar growth in the number of golfers
enjoying the game according to The National Golf Foundation.
17
The golf club and equipment industry is mostly based upon brand names, sold
through golf and sports stores. Each brand has a limited range of alternatives
and golfers select the one that seems most suited to their specific needs. The
Company markets to the industry segment of golfers who want more customization
of their clubs.
THE CUSTOMER
The Company's customers are those who actively enjoy the game of golf along
with the opportunity to construct their own equipment for that game. Many of
these individuals become skilled enough in the assembly process to begin making
clubs for sale to others and they often become full time clubmakers. Golf Shop
Operations, the leading industry publication, estimated that 500,000 persons
purchased a golf club component part (head, shaft and/or grip) in 1996. Of that
number, 3,500 are full time clubmakers, with some type of store front or retail
space, who earn their living through the trade. Approximately 300,000 are
hobbyists who may work exclusively on their own clubs and the remaining
approximately 200,000 are part-time clubmakers. These people typically work a
"nine to five" job, but supplement their income by building golf clubs. They
may work from their basements or garages and normally do not have a retail
location.
Currently the Company maintains a complete customer file of approximately
65,000 customers. This number includes any customer who has placed an order
with the Company within the past five years. We mail approximately 100,000
catalogs a year to our customers and to people who come to us from magazine and
Internet catalog requests or from word of mouth referrals. Dynacraft's "active
customer" list includes approximately 20,000 names of customers who have
purchased products during the past calendar year. That list has been steadily
growing at over 5% per year.
Pal Joey is a wholesaler, selling to those in the golf business. Its Sales
Representatives regularly call on golf course pro shops throughout the United
States and it maintains several "house accounts" that are serviced by telephone.
The Company maintains approximately 2,500 "active" pro shop accounts. Pal Joey
has recently had rapid growth in accounts from off-course stores and buying
groups, including Pro Golf Discount, Sam's Golf, and Jumbo Sports.
Since fall 1995, Pal Joey has provided sourcing and assembly work, through
a sales representative, to a significant percentage of the franchisees of Pro
Golf of America, one of the largest off-course golf store chains in North
America and Pro Golf of America has recommended Pal Joey products to its
franchisees. Such sales represented approximately 16.4% of the Company's total
sales in 1996. While Pal Joey could still provide such sales to individual
franchisees, if Pro Golf of America ceased to recommend Pal Joey's products or
ceased to provide marketing support, it could have an adverse effect on the
Company. No other customer of the Company accounted for more than .08% of the
Company's sales in any of the past three years, except one and they accounted
for approximately 4% of the Company's total 1996 sales.
CUSTOMER LOYALTY
Most clubmakers and retailers prefer to do business with a "one stop shop"
where they may buy all of the products and services required to assemble and
market a golf club. We try to use the top foundries to produce their club heads
and to distribute only nationally recognized, high quality heads, shafts and
grips. We believe our toll free telephone technical service and the Internet
technical support are among the best in the industry. Dynacraft Clubmaking
Institute attendees form a growing core of customers. In a high percentage of
cases, former students have increased their purchases after attending the
schools. All of these serve to promote customer loyalty and additional
purchases.
MARKETING AND STRATEGIC DIRECTION
With the capital raised in this offering the Company will strive for
continued growth, service and customer satisfaction. Our marketing and
strategic directions include:
FOR DYNACRAFT GOLF PRODUCTS: (1) gather information from current customers and
non-customers on market share, market growth, issues, demographics,
psychographics and perceptions of Dynacraft; (2) study trends in club design and
club technology, so that we can be a leader in new technology and club design,
18
positioning Dynacraft as a leading edge innovator; (3) extend our customer
training, making a nationwide program; and (4) increase our international market
share.
FOR PAL JOEY: (1) introduce new sets and specialty clubs and add customer
services requested by the market; (2) gain market share in the PGA golf
professional ("green grass") segment; (3) acquire more targeted private label
accounts; (4) hire and train an in-house sales force to serve key accounts in
the private label, retail and "concrete" golf shop markets and (5) consider
increasing the number of Pro Shop retail outlets in Central Ohio.
COMPETITION
Dynacraft competes for customers who want more customization of their clubs
than found in sets sold through most golf and sports stores. During the past
ten years, this segment of the golf market has been dominated by a few major
players, such as Callaway Golf Company, Cobra, Karsten Manufacturing Corporation
(Ping), Taylor-Made Golf Company and Titleist. Many of these companies began as
small, one-club companies. For example, Callaway began as a single wedge
company less than 15 years ago. Odyssey, which sells a putter as its only
product, has grown rapidly over just the past two years. Karsten, which began
in the early 1960's with a single putter that made a "ping" noise when stuck,
has grown to worldwide acceptance. Products selling well recently include
oversized titanium drivers, oversize irons, specialty wedges and uniquely
designed putters.
Dynacraft sells a high percentage of its products to custom club makers.
Pal Joey wholesales custom made clubs to the retailers' specifications. Both
companies have products unique to their markets. For example, Dynacraft offers
a full line of titanium woods and offers many variations on wedges, each suited
to specific player needs. The use of exotic materials, such a beryllium copper,
carbon steel and tungsten, position Dynacraft in specialty niches of the custom
component market. Pal Joey offers forged titanium drivers for less than $150,
compared to some competitors' prices of $650. Pal Joey is also actively
pursuing the "one of a kind" club market, by experimenting with face insert
wedges and tungsten-titanium irons, each of which will be custom made for the
retailer.
FOR DYNACRAFT PRODUCTS: Competition for Dynacraft is principally from other
component suppliers, which have grown in number from 10 in 1982 to over 120 in
1996. Dynacraft's main competition comes from three sources: Golfsmith,
located in Austin, Texas which is the largest golf club component company;
Golfworks, in Newark, Ohio, and the combination of a number of smaller "knock-
off" component companies.
FOR PAL JOEY PRODUCTS. Pal Joey's prime competition comes from approximately
225 small golf club companies located throughout the United States. Both Pal
Joey and many of these companies have staffs of sales representatives visiting
golf shops on a regular basis and competition for business is intense. Some of
the more competitive brands to Pal Joey are MacGregor Golf, Albany, Georgia;
Dunlop in Greenville, South Carolina; Wilson from Morton Grove, Illinois; and
Spalding in Chicopee, Massachusetts. All of these companies have recently
offered lower pricing in order to stay competitive. During the past couple of
years, as custom fitting has experienced a great growth, many large companies,
such as Slazenger, Hogan, Henry-Griffitts, Zevo, to name a few, have
capitalized on the custom fitting segment of the golf market. Pal Joey is able
to effectively compete with these entities by offering the ability to custom
make clubs designed to meet particular customer needs.
The Pal Joey Pro Shop's main competition comes from discount golf stores in
the greater Columbus, Ohio, area. There are a number of on-course pro shops
within a 50 mile radius of the Pal Joey Pro Shop, but most do not stock a wide
selection of equipment, nor do many offer any type of custom fitting. The Pal
Joey Pro Shop maintains its position with little direct competition through
prompt service, custom fitting, delivery and fair pricing.
EMPLOYEES
The Company employs 89 people. Dynacraft includes 36 full time and 22 part
time seasonal workers. Pal Joey Custom Golf includes 26 full time and no part
time/seasonal employees. The Pal Joey Pro Shop has 4 full time and 1 part time
employee. The Company believes that its relations with its employees are
excellent. The Company's work force is not unionized.
19
PROPERTIES/FACILITIES
The Company owns five commercial/industrial facilities and five single
family residences on 3.36 acres in Newark, Ohio. The commercial/industrial
properties include 60,745 sq. ft., broken down as follows:
Office 25,076 sq. ft.
Retail 4,440 sq. ft.
Manufacturing/Warehouse 15,550 sq. ft.
Warehouse 15,679 sq. ft.
--------------
TOTAL 60,745 SQ. FT.
All of the buildings are in close proximity. There are separate buildings
for sales and customer service; marketing and administration; training, research
and development; warehouse and product showroom; manufacturing, warehouse and
pro shop.
All public utilities, including water, sewer, gas, electricity and public
telephone are available to the property through local utility companies. The
five single family residences are rented primarily by employees and generate
monthly rental income to the Company.
In summary, the property located within the Center of the City of Newark in
an area that is primarily residential in nature. It benefits from its location
being in close proximity to two interstate highways, commercial development,
shopping facilities and employment centers. All of the real estate is pledged
as collateral on two bank loans. See Note D to the Company's Consolidated
Financial Statements.
ENVIRONMENTAL
Dynacraft has learned that an Ohio Department of Transportation (ODOT)
garage located geographically upstream from its property dumped paint, solvents,
and other materials and has contaminated the water table under Dynacraft's land.
ODOT has admitted to being responsible for this particular act. Although there
are no recognizable concerns or issues with current Dynacraft operations as a
result of this act, Dynacraft's future ability to utilize its real estate to
secure loans could be impaired until the contamination is removed. Because of
this, Dynacraft is participating in Ohio's Voluntary Action Program "VAP" to
clean up the property. The benefit to Dynacraft for proceeding under the VAP
program is that the property would be "clean" under the eyes of both the state
and federal regulatory authorities and the commercial lending community. In
addition the costs of the VAP program can be recovered from ODOT. The Company
intends to pursue this course of action vigorously.
TRADEMARKS
The Company currently owns 12 trademarks. These are set to expire at
various times between 2000 and 2009. The Company currently intends to renew
each such trademark prior to its expiration. Dynacraft aggressively and actively
preserves its rights to all trademarked and patented material. Among the
trademarked names held by the company and used on golf equipment, including club
heads are: Dynacraft-Registered Trademark-, Pal Joey-Registered Trademark-, the
Pal Joey Kangaroo logo, Copperhead-Registered Trademark-, Genesis-Registered
Trademark-, Accusteel-Registered Trademark-, Greyshadow-Registered Trademark-,
On Line-Registered Trademark-, Outback-Registered Trademark-, TD-1000-Registered
Trademark- and Topaz-Registered Trademark-. The company also has trademarked
its shaft fitting system, the Dynacraft Shaft Fitting Index (DSFI). The Company
is also under license agreement to use the following names: Big Johnson, ESS,
and Mad Dog. All of the Company's trademarks are registered as property of
either Dynacraft Golf Products, Inc., or Pal Joey Custom Golf Inc. Dynacraft
owns U.S. Patent #5,333,871 related to the non-fibrous injection molding process
for golf iron heads.
LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation or legal
proceedings other than with ODOT as described above under "Environmental" and is
not aware of any material litigation or proceeding pending or threatened against
it.
20
CERTAIN FEDERAL INCOME TAX CONSEQUENCES; QUALIFIED SMALL BUSINESS STOCK
A provision in the "Omnibus Budget Reconciliation Act of 1993" provides, in
certain circumstances, a reduction in the capital gains tax for individuals or
certain other taxpayers who purchase shares at original issue from a "qualified
small business" and dispose of those shares after a holding period of at least
five years. One-half of the gain (up to certain limits) on the stock is
generally excluded from taxable income for regular tax purposes.
A "qualified small business" must have not more than $50 million in gross
assets at any time after August 10, 1993 through the date of issuance of the
shares. In addition, at least 80% of its assets must be used "in the active
conduct of one or more qualified trades or businesses" throughout the holding
period. There are also limitations on the persons who may use any exclusion.
We intend to submit reports to the Internal Revenue Service and to the Company's
shareowners as may be required under the law for use of this exclusion, but we
cannot be sure that the benefits of this provision will be available to you. We
suggest you consult your own tax counsel for further details.
21
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors are as follows:
NAME AGE POSITION
- ---- --- --------
Joseph A. Altomonte, Sr. 73 Chairman of the Board and Director
Joseph A. Altomonte, Jr. 39 Chief Executive Officer and Director
Jeff Jackson 39 President, Dynacraft, and Director
Jack Kehl 56 President, Pal Joey, and Director
Duane R. Egeland 59 Chief Financial Officer and Director
Chris Treacy 52 President of Diamond Golf International
Limited and Director
After the effective time of the Registration Statement of which this
Prospect forms a part, the size of the Board of Directors will be increased to 9
and will be divided into three classes each consisting of approximately one-
third of the total number of directors. On or after the date of the offering,
the existing directors will fill the vacancies in the Board of Directors.
The members of the Board of Directors hold office until the next annual
meeting of stockholders or until their successors have been elected and
qualified. Officers are appointed by, and serve at the pleasure of, the Board
of Directors. The Company expects to add three additional Directors, who will
have no affiliation with the Company, shortly following the consummation of the
Offering. The following is a description of the Company's current Directors and
executive officers.
JOSEPH A. ALTOMONTE, SR.
Mr. Joseph Altomonte, Sr., is Chairman of the Board of the Company. He
founded what is now known as Dynacraft in 1980 and has acted as Chairman of the
Board since that time. Mr. Altomonte presides over all of the Dynacraft
entities, including Dynacraft, Pal Joey, the Pal Joey Pro Shop and
Diamond/Dynacraft.
Mr. Altomonte has been in the golf business for over 35 years, beginning in
a sales position with the Faultless Golf Company. He was responsible for
signing such legendary PGA Tour stars as Lee Trevino, Jerry Heard and Lee Elder
to their first endorsement contracts with Faultless. Australian PGA rookie Bob
Shaw and LPGA star Cynthia Sullivan were also signed by Mr. Altomonte. He
became Executive Vice President of Faultless in 1971 and continued with the
company during their subsequent acquisitions by Abbott Laboratories and Rawlings
Sporting Goods Company.
In 1980, Mr. Altomonte started Dynamic Golf in the basement of his home.
The name of the operation was changed to Dynacraft Golf Products in 1982. As a
result of his efforts, Mr. Altomonte was awarded an Honorable Mention in 1985 by
Governor George Voinovich as Ohio Small Businessman of the Year.
JOSEPH ALTOMONTE, JR.
Joseph Altomonte, Jr., has been Chief Executive Officer of the since 1993.
Prior to that position, Mr. Altomonte served as President of Pal Joey Golf from
1981-1992, a company he helped start in 1981.
Mr. Altomonte was chosen in a nationwide search to be a Sales
Representative for the prestigious Ernie Sabayrac Organization, better known as
Izod, in 1977. Later he was Vice President of a major golf retail franchise
located in Miami, Florida, from 1977-78.
Mr. Altomonte attended Ashland College, Ohio University and The Ohio State
University majoring in Political Science and Art.
22
JEFF JACKSON
Jeff Jackson has been the President since the fall of 1996. Prior to
holding that position, he was Executive Vice President of Dynacraft from 1993 to
1996. He joined Dynacraft in 1991 as Product Manager. As President of
Dynacraft, Mr. Jackson oversees the day-to-day operations of the all facets of
the company, including product development, technical support, the Dynacraft
Clubmaking Institute, as well as sales, customer service and purchasing.
Mr. Jackson is a respected author and speaker in the golf industry. He has
written two complete texts, "The Modern Guide to Clubmaking" and "Total
Clubfitting." He has developed a video program of each. He is a regular
contributor to many United States' golf publications, including GOLF TIPS,
JUNIOR GOLF MAGAZINE, GOLF FOR WOMEN, TEE TIME GOLF, THE PROFESSIONAL
CLUBMAKERS' SOCIETY JOURNAL, and to the international journals, CLUBMAKER'S
DIGEST and GOLF THE SCIENTIFIC WAY. He is a frequent speaker at PGA educational
seminars, the Canadian Clubmaking Symposium and at the Dynacraft Clubmaking
Institute. In 1997, Mr. Jackson was named Educational Presenter for the
Australian PGA.
Mr. Jackson graduated from Western Maryland College in 1979 with a
Bachelor's Degree and received his Master's Degree from Frostburg State
University in 1983.
JACK KEHL
Jack Kehl has been President of Pal since the fall of 1996. Prior to that
position, he was Vice President of Sales for Pal Joey since rejoining the
Company in 1995. As President of Pal Joey, Mr. Kehl is responsible for all day-
to-day operations including sales, customer service, manufacturing, accounting,
and other divisions. Since rejoining Pal Joey, Mr. Kehl has been instrumental
in increasing sales from $2.8 million in 1995 to $5.3 million at the close of
1996.
Mr. Kehl has been involved in sales and marketing for over 35 years. Of
those years, 32 have been in the golf and/or sporting goods fields. From 1990
to 1995, he was Vice President and Co- Manager of PGI Golf in Loudonville, Ohio,
a major golf ball supplier to the industry.
During his tenure in the golf industry, Mr. Kehl has worked with such
companies as Faultless, Rawlings and Abbott Labs. He has been involved with
sales team development and sales force management, promotional program
development and implementation, international market development, domestic and
international purchasing, product marketing strategies, advertising support, and
product costing and pricing.
Mr. Kehl attended Ashland University in Ashland, Ohio, and has completed
the American Management Association's School of Marketing Program.
DUANE R. EGELAND
Duane R. Egeland, a CPA, is the Chief Financial Officer of the Company.
He joined the Company in the fall of 1996. As CFO, Mr. Egeland coordinates all
financial functions for the Dynacraft Companies, including Diamond/Dynacraft in
England.
Prior to joining the Company, Mr. Egeland was associated with the Knoll
Group Management Company, concentrating on commercial real estate development
and apartment management. Prior to his tenure with the Knoll Group in 1991, Mr.
Egeland was a self-employed financial and business advisor to companies involved
in real estate development and management in Atlanta, Georgia. During this
time, he advised international investors concerning American investment
opportunities. He also became registered with the National Association of
Securities Dealers and the Commission as a Financial and Operational Principal.
Prior to selling it in 1986, Mr. Egeland owned a general securities firm, Harwin
Securities, Inc., which did private placements. Mr. Egeland acted as a general
partner of Belmont Towers Limited Partnership which owned 240 condominium units
in Texas and developed townhouse units in Pensacola, Florida, and a shopping
center in Nashville, Tennessee.
23
Mr. Egeland was an associate of the Chicago office of the international
public accounting firm of Laventahl and Horwath, becoming a partner in 1967. In
1969 he became the managing partner of the firm's Cleveland office and in 1979
assumed similar responsibilities for the Houston office. In 1981, he sold his
interest back to the firm.
CHRIS TREACY
Chris Treacy is President of Diamond Golf International, Limited, a
position he has held since Dynacraft acquired a 51% ownership in that business
in 1991. As such he is responsible for all facets of the European operation,
including, but not limited to, sales and customer service, advertising,
purchasing, inventory management, and education.
Prior to 1991, Mr. Treacy was owner operator of Diamond Golfworks along
with his wife and son, a position he held since 1978. Immediately prior to
that, Mr. Treacy was a golf course manager whose duties included operating a
golf course pro shop and a green fee operation. Mr. Treacy has operated a
repair stand at numerous British Open Championships and is well known to golf
professionals in Europe as well as in the United States. He has done repair and
custom club work for such pros as Tom Watson, Brian Barnes, and Tony Jacklin, to
name a few. He introduced a teaching facility to all of Europe, specializing in
teaching pros and clubmakers the craft of making and repairing all types of golf
clubs. Mr. Treacy currently travels throughout Europe offering expanded
versions of these instructional curricula for those interested in clubmaking.
Mr. Treacy has authored numerous articles in European publications
concerning the assembly, fitting and repair of golf clubs. He is a regular
contributor to the international journal, CLUBMAKER'S DIGEST and has assisted in
authoring at least two international texts, "The Modern Guide to Clubmaking" and
"Total Clubfitting."
AUDIT COMMITTEE
The Board of Directors intends to appoint an audit committee of three non-
management directors. The Audit Committee's responsibilities include reviewing
the results and scope of the audit and other services provided by the Company's
independent accountants and all transactions between the Company and any of its
officers, directors or principal stockholders.
DIRECTOR COMPENSATION
The Company intends to compensate non-employee directors $500 per Board or
committee meeting attended plus any out of pocket expenses.
EXECUTIVE COMPENSATION
The following table sets forth, for the year ended December 31, 1996
compensation, including salary, bonuses and certain other compensation, paid by
the Company to its Chief Executive Officer and each other executive officers
whose annual compensation exceeded $100,000.
ANNUAL COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION
- --------------------------- ------ ----- ------------
Joseph A. Altomonte, Sr.
Chairman of the Board of Directors
December 31, 1996 $116,176 $38,920 --
Joseph A. Altomonte, Jr.
Chief Executive Officer
December 31, 1996 $127,534 $38,620 --
24
PRINCIPAL SHAREHOLDERS
The following table shows the beneficial ownership of the Company's
common stock immediately prior to this offering, and as adjusted to reflect the
sale of the shares being offered, for (i) each director and executive officer of
the Company, (ii) each shareowner known by the Company to own beneficially 5% or
more of the outstanding shares of its common stock and (iii) all directors and
officers as a group for each class of capital stock of the Company. The Company
believes that the beneficial owners of the common stock listed below, based on
information they furnished, have sole investment and voting power over their
shares.
COMMON STOCK:
DIRECTORS, SHARES PERCENTAGE OF COMMON SHARES OUTSTANDING:
EXECUTIVE OFFICERS BENEFICIALLY BEFORE OFFERING MINIMUM SOLD MAXIMUM SOLD
AND 5% SHAREHOLDERS OWNED --------------- ------------ ------------
- ------------------------- -----
Joseph A. Altomonte, Sr. (1)(2) 968,110 47.60% 41.48% 35.41%
Joseph A. Altomonte, Jr. (3)(4) 684,723 33.67% 29.34% 25.05%
Dynacraft Employee Stock 380,913 18.73% 16.32% 13.93%
Ownership Plan
All directors and executive 1,652,833 81.27% 70.82% 60.46%
officers as a group
(6 persons) (5)
(1) Includes 87,100 Common Shares held in the Joseph A. Altomonte, Sr. 1994
Irrevocable Trust, Ruth E. Altomonte, Trustee.
(2) Does not include, as of December 31, 1995, 11,957.2986 Common Shares
issuable from the ESOP at the close of the plan year in which the ESOP Loan is
repaid in full.
(3) Includes 7,800 Common Shares owned by his wife Gretchen Altomonte.
(4) Does not include, as of December 31, 1995, 10,008.9769 Common Shares
issuable from the ESOP at the close of the Plan year in which the ESOP Loan is
repaid in full.
(5) Does not include, as of December 31, 1995, 25,600.2474 Common Shares
issuable from the ESOP at the close of the Plan year in which the ESOP Loan is
repaid in full.
25
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTION
During 1994, in a series of transactions, Dynacraft issued 51,462 new
Common Shares to the partners of J & J Enterprises, and acquired all the real
estate previously leased to the Company by J & J Enterprises at a value, less
outstanding debt, of $214,269 or $4.16 per share. J & J Enterprises was owned
equally by Joseph Altomonte, Sr. and Jr.
In June 1996, two shareholders, Joseph A. Altomonte, Sr. and Joseph A.
Altomonte, Jr. each personally borrowed $250,000 from Huntington Bank. These
borrowed funds were in turn loaned to the Company, to help pay off the existing
line of credit, at the same terms as those of the banks, namely, monthly
installments of $4,102 each which includes interest at an interest rate of
9.625% and a final payment due June 1, 2001.
In November 1996 to help fund negative cash flow, Joseph A. Altomonte, Sr.
also lent the Company $326,554, taking back three promissory notes. Interest on
$200,000 is at prime plus 1%; at 7% on $90,770 and 7.2% on $35,784. All three
notes are due on demand, but the shareholder has agreed not to call the notes
during the year to end December 31, 1997.
Again in January 1997 to help fund negative cash flow, Joseph A. Altomonte,
Sr. lent the Company $52,500 at 8.25% interest. The principle of this note is
due on demand.
In May 1997, the Company arranged for an Irrevocable Standby Letter of
Credit from Huntington National Bank for 58,000 British pounds or approximately
94,000 US dollars to be used to facilitate the acquisition of a loan for Diamond
Golf International Limited from Lloyds Bank. The proceeds of the loan are to be
used to repay Dynacraft's advance to them of $92,980 plus unpaid interest of
$688 and then Dynacraft will reduce the principal balance on its existing term
note with Huntington National Bank by a like amount. The balance of the
Irrevocable Standby Letter of Credit is to be reduced each three months by 1/12
of the original amount and expires in May 2000. The Letter of Credit is
guaranteed by Joseph A. Altomonte, Sr. and Joseph A. Altomonte, Jr., who
received no consideration for their guarantee.
All future transactions between the Company and its officers, directors and
principal shareowners and their affiliates will be approved by a majority of the
disinterested Directors and will be on terms no less favorable to the Company
than could be obtained from unrelated third parties.
26
DESCRIPTION OF CAPITAL STOCK
GENERAL
The authorized capital stock of the Company consists of 3,500,000 Common
Shares, without par value, and 100 preferred shares, par value $1000.00 per
share. As of July 17, 1997, 2,033,746 Common Shares were issued and outstanding
and 100 preferred shares were issued and outstanding.
COMMON SHARES
Holders of Common Shares are entitled to one vote for each Common Share
held of record on all matters presented to a vote of shareholders, including the
election of directors. Holders of Common Shares have no cumulative voting rights
and no preemptive rights to purchase or subscribe for any stock or other
securities. There are no conversion rights or redemption or sinking fund
provisions with respect to the Common Shares. Subject to preferences that may be
applicable to the outstanding preferred shares and subject to the applicable
debt instruments of the Company, holders of Common Shares are entitled to
receive such dividends as may be declared by the Board of Directors out of funds
legally available therefor. In the event of liquidation, dissolution or winding
up of the affairs of the Company, holders of Common Shares are entitled to share
pro rata in distribution of the assets of the Company remaining after payment or
provision for payment of liabilities and the liquidation payments to holders of
outstanding preferred shares. All outstanding Common Shares are, and the Common
Shares offered hereby when issued and paid for will be, fully paid and
nonassessable.
Application has been made for listing the Common Shares for quotation on
the Chicago Stock Exchange.
PREFERRED SHARES
Holders of preferred shares are not entitled to any votes except as
required by applicable law. Holders of preferred shares are entitled to receive
cash dividends if, as and when declared by the Board of Directors of the
Company. As long as any preferred shares are outstanding, no dividends shall be
paid on the Common Shares until dividends have been paid on the preferred
shares. The Company may, at the option of the Board of Directors, at any time,
or from time to time, redeem all or any part of the preferred shares at the rate
of $1,000.00 per share. In addition, if no dividends have been paid on the
preferred shares for a period of more than two years, the holders of the
preferred shares shall have the right to require the Company to redeem such
shares in whole or in part. The Company has not paid any dividends since
inception and does not intend to pay any dividends in the foreseeable future.
Therefore, as of the date hereof, holders of the preferred shares may seek to
have the Company redeem all, or any part, of the preferred shares at any time,
or from time to time.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Shares is Continental Stock
Transfer and Trust Company.
ESOP
The Company's ESOP was established to encourage stock ownership among the
Company's employees pursuant to the Employees Stock Ownership Plan and Trust
Agreement, date as of January 30, 1991, to be effective as of January 1, 1991,
by and between Dynacraft, Pal Joey and The Huntington Trust Co., N.A. Employees
of Dynacraft and Pal Joey are eligible to participate in the ESOP following six
months of service with the Company. Each year, the Company may make an annual
contribution to the ESOP in the form of cash or Common Shares, although such
contribution is not mandatory. Participants in the ESOP have the right to
instruct the Trustee of the ESOP, confidentially, how to vote such participants'
Common Shares in the ESOP on certain corporate matters affecting the Company.
27
Common Shares in the ESOP are subject to vesting requirements, and non-
vested Common Shares may be forfeited if a participant terminates employment
with Dynacraft and Pal Joey prior to normal retirement age, death or total
disability.
If Common Shares are distributed to ESOP participants, such participants
may either keep such shares or may direct the Company to purchase them at their
fair market value, such payments to be made in substantially equal annual
payments over a period not exceeding five years.
The Company does not plan to distribute vested Common Shares from the ESOP
in connection with this offering.
ANTI-TAKEOVER EFFECTS OF AMENDED AND RESTATED ARTICLES OF INCORPORATION, CODE OF
REGULATIONS AND THE OHIO GENERAL CORPORATION LAW
Certain provisions of the Amended and Restated Articles of Incorporation
and Code of Regulations of the Company and of the Ohio GCL summarized in the
following paragraphs may be deemed to have an anti-takeover effect and may
delay, defer or prevent a tender offer or takeover attempt that a shareholder
might consider in its best interest, including those attempts that might result
in a premium over the market price for the shares held by shareholders.
CLASSIFIED BOARD OF DIRECTORS
The Company's Code of Regulations provides for the Board of Directors to be
divided into three classes of directors serving staggered three-year terms. As
a result, approximately one-third of the Board of Directors will be elected each
year. Moreover, the Code of Regulations provides that the shareholders may
remove a Director only for cause. This provision, when coupled with ability of
the Board of Directors to fill vacant directorships, will preclude a shareholder
from removing incumbent directors without cause and simultaneously gaining
control of the Board of Directors by filling the vacancies created by such
removal with its own nominees.
NO SHAREHOLDER ACTION BY WRITTEN CONSENT
Section 1701.54 of the Ohio GCL requires that an action by written consent
of the shareholders in lieu of a meeting be unanimous, except that, pursuant to
Section 1701.11, the code of regulations may be amended by an action by written
consent of holders of shares entitling them to exercise two-thirds of the voting
power of the corporation or, if the articles of incorporation or code of
regulations otherwise provide, such greater or lesser amount, but not less than
a majority. The Company's Code of Regulations provides that, upon the closing of
this offering, no action to amend the Code of Regulations may be taken by a
written consent of shareholders without a meeting. This provision may have the
effect of delaying, deferring or preventing a tender offer or takeover attempt
that a shareholder might consider in its best interest.
SUPERMAJORITY VOTING PROVISIONS
The Code of Regulations provides that the provisions relating to the
elimination of shareholder action by written consent to amend the Code of
Regulations, indemnification of directors and supermajority voting may not be
repealed or amended in any respect, and no other provision may be adopted,
amended or repealed which would have the effect of modifying or permitting the
circumvention of such provisions, without the vote of the holders of not less
than 66 2/3% of the total voting power of the Company.
ADVANCE NOTICE REQUIREMENTS FOR SHAREHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS
The Code of Regulations provides that shareholders seeking to bring
business before an annual meeting of shareholders, or to nominate candidates for
election as directors at an annual or special meeting of shareholders, must
provide timely notice thereof in writing. To be timely, a shareholder's notice
must be
28
delivered to or mailed and received at the principal executive offices of the
Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be received no later than the close
of business on the 10th day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made. The Code of
Regulations also specifies certain requirements for a shareholder's notice to be
in proper written form. These provisions may preclude some shareholders from
bringing matters before the shareholders at an annual or special meeting or from
making nominations for directors at an annual or special meeting; provided that
nothing in such provisions shall prevent any shareholder from submitting a
shareholder proposal in compliance with Rule 14a-8 of the Exchange Act.
29
SHARES ELIGIBLE FOR FUTURE RESALE
Upon completion of this offering, the Company will have 2,733,746 shares
outstanding at the Maximum (or 2,333,746 shares at the Minimum). The 700,000
Common Shares (at the maximum) or 300,000 Common Shares (at the minimum) sold in
this offering will be freely tradable without restriction or further
registration under the Securities Act unless purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act ("Rule
144") described below. The remaining 2,033,746 outstanding Common Shares held
by current shareholders constitute either "restricted securities", within the
meaning of Rule 144, or securities held by affiliates and will only be eligible
for sale in the open market after this offering subject to the applicable
requirements of Rule 144. Sales of outstanding Common Shares to residents of
certain states or jurisdictions may only be effected pursuant to a registration
in or applicable exemption from the registration provisions of the securities
laws of those states or jurisdictions.
In general, under Rule 144, as currently in effect, if a period of at least
one year has elapsed between the later of the date on which restricted
securities were acquired from the Company and the date on which they were
acquired from an affiliate, then the holder of such restricted securities
(including an affiliate) is entitled to sell a number of Common Shares within
any three-month period that does not exceed the greater of (1) one percent of
the then outstanding Common Shares or (ii) the average weekly reported volume of
trading of the Common Shares during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to certain requirements pertaining to the
manner of such sales, notices of such sales and the availability of current
public information concerning the Company. Affiliates also must sell Common
Shares not constituting restricted securities in accordance with the foregoing
volume limitations and other requirements but without regard to the two-year
holding period. Under Rule 144(k), if a period of at least two years has
elapsed between the later of the date on which restricted securities were
acquired from the Company and the date on which they were acquired from an
affiliate, a holder of such restricted securities who is not an affiliate at the
time of the sale and has not been an affiliate for at least three months prior
to the sale would be entitled to sell the Common Shares immediately without
regard to the volume limitations and other conditions described above.
Joseph A. Altomonte, Sr., Joseph A. Altomonte, Jr. and the Dynacraft
Employee Stock Ownership Plan, which together own 81.27% of the shares
outstanding before this offering, have stated that they have no current
intention of selling any of their shares in the public market for two years
after the date of this Prospectus.
Sales of substantial amounts of Common Shares in the public market could
occur, could adversely affect prevailing market prices and could impair the
Company's future ability to raise capital through an offering of its equity
securities.
The post-offering fair value of the Company's Common Shares, whether or not
any secondary trading market develops, is variable and may be impacted by the
business and financial condition of the Company, as well as factors beyond the
Company's control. The price may also vary due to economic conditions and
forecasts and general conditions in the retail and wholesale golf equipment
industry.
The Company's shares have been approved for listing on the Chicago Stock
Exchange, but that does not necessarily mean that an active trading market will
develop or be sustained. The post-offering fair value of the Company's common
stock, whether or not any secondary trading market develops, is variable and may
be impacted by the business and financial condition of the Company, as well as
factors beyond the Company's control. The price may also vary due to economic
conditions and forecasts and general conditions in the retail and wholesale golf
equipment industry.
30
PLAN OF DISTRIBUTION
GENERAL
Following the declaration of the registration statement of which this
Prospectus is a part effective by the Commission, announcements of this offering
will be communicated to selected persons who are customers or have other
relationships with the Company or its officers and who reside in certain states.
A copy of this Prospectus will be delivered to those who request it, together
with the Subscription Agreement. All Common Shares will be sold at the public
offering price of $5.00 per share and a minimum purchase of 100 shares is
required.
The Company will only effect offers and sales of shares through its
designated sales representative Howard Van Huffel, who also serves as the
Company's Credit Manager. Only Howard Van Huffel will sign Subscription
Agreements on behalf of the Company and will be the only individual who will
conduct activities that involve making oral solicitations or approval of written
communications. Howard Van Huffel will not receive, directly or indirectly, any
commissions or other remuneration based either directly or indirectly on
transactions in securities.
DETERMINATION OF OFFERING PRICE
Prior to this offering there has been no market for the Common Shares of
the Company. The public offering price has been determined by the Company's
Board of Directors. Among factors considered in determining the public offering
price were the Company's results of operations, the Company's current financial
condition, its future prospects, the state of the markets for its products, the
experience of management and the economics of the industry in general.
ESCROW OF MINIMUM PROCEEDS
This offering is being made directly by the Company on a "Minimum/Maximum"
basis subject to subscription and payment for not less than 300,000 shares (the
"Minimum") and not more than 700,000 shares (the "Maximum"). See "How We Intend
to use the Funds From this Offering." All subscription payments will be
deposited into an escrow account at The Huntington National Bank, N.A.. If the
Minimum is not obtained within three months after the date of this Prospectus,
all proceeds deposited in the escrow account will be promptly refunded in full,
with interest, but without any deduction for expenses.
If the Minimum amount is raised, no interest will be paid to subscribers,
and any interest earned during the escrow period will be paid to the Company.
All funds held in the escrow account will be invested in an interest bearing
account. Upon raising the Minimum amount, the escrow shall be terminated,
subscribers will become shareowners and all additional proceeds from the sale of
shares will go directly to the Company.
During the Escrow Period, all subscription payments for shares must be
delivered with a completed Subscription Agreement to the Escrow Agent. A
written confirmation along with a copy of a Share Purchase Agreement will be
mailed by the Company to each subscriber or purchaser until such time as the
funds are released from the escrow account to the Company. Until such time
purchasers will be deemed subscribers and not security holders of the Company.
During the Escrow Period, subscribers will have no right to return of their
payment.
If the Minimum has been fully subscribed on or before February 28, 1998,
the Company will continue to offer the shares, not subject to payment for any
further minimum amount, but not for more than a total of 700,000 Common Shares.
This offering shall be terminated upon the earlier of the following: the sale
of the Maximum amount, twelve months after the date of this Prospectus or the
date on which the Company decides to close the offering. The Company reserves
the right to reject any subscription or share purchase agreement in full or in
part and to terminate the offering at any time prior the sale of 700,000 Common
Shares.
31
EXPERTS
The Consolidated Financial Statements of the Company as of and for the
years ended December 31, 1995 and December 31, 1996, audited by Wilson, Shannon
& Snow, independent auditors, have been included in this Prospectus in reliance
upon their report appearing elsewhere herein.
LEGAL MATTERS
The validity of the Common Shares offered hereby will be passed upon for
the Company by Vorys, Sater, Seymour and Pease, Columbus, Ohio.
ADDITIONAL INFORMATION
A Registration Statement on Form SB-2, including amendments thereto,
relating to the Common Shares offered hereby has been filed with the Securities
and Exchange Commission. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to the Company and the shares offered hereby, reference is made to such
Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the Commission's
principal office located at 450 Fifth Street, N.W., Washington, D.C. 20549, the
Northeast Regional Office located at 7 World Trade Center, 13th Floor, New York,
New York, 10048, and the Midwest Regional Office located at Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661-2511 and copies of all
or any part thereof may be obtained from the Public Reference Branch of the
Commission upon the payment of certain fees prescribed by the Commission. The
Commission also maintains a site on the World Wide Web at http://www.sec.gov
that contains information regarding registrants that file electronically with
the Commission.
32
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountant F-1
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-4
Consolidated Statement of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
33
Board of Directors
Dynacraft Golf Products, Inc. and Subsidiary
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of Dynacraft Golf
Products, Inc. (an Ohio corporation) and Subsidiary as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Dynacraft Golf
Products, Inc. as of December 31, 1996 and 1995, and the consolidated results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Newark, Ohio
March 5, 1997
F-1
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
March 31, 1997 December 31
-------------- ------------------------
ASSETS (Unaudited) 1996 1995
-------------- ---- ----
CURRENT ASSETS
Cash $ 300,274 $ 297,192 $ 0
Accounts and notes receivable
Trade - net of allowance for
doubtful accounts of $75,868 in
1996 and $24,439 in 1995 2,276,952 1,363,445 1,097,628
Notes receivable - current portion 356 1,408 11,585
Stockholders and employees 119,060 52,889 49,635
Diamond Golf 95,385 96,125 0
Other 117,978 21,117 63,641
Refundable income taxes 0 46,281 277,468
Inventories
Raw material 1,266,723 1,262,855 860,923
Finished goods 2,933,634 2,362,138 2,493,720
Prepaid expenses 410,575 331,483 174,114
------------ ------------ ------------
Total current assets 7,520,937 5,834,933 5,028,714
PROPERTY AND EQUIPMENT - AT COST
Buildings and improvements 1,961,576 1,961,576 1,926,812
Equipment, furniture and fixtures 1,297,638 1,290,786 1,254,550
Vehicles 13,084 25,318 25,318
------------ ------------ ------------
3,272,298 3,277,680 3,206,680
Less accumulated depreciation 1,847,697 1,821,584 1,673,124
------------ ------------ ------------
1,424,601 1,456,096 1,533,556
Land 73,220 73,220 73,220
------------ ------------ ------------
1,497,821 1,529,316 1,606,776
OTHER ASSETS
Investment in Diamond Golf 217,015 214,892 196,263
Other assets 2,453 2,453 2,453
Notes receivable, less current portion 0 0 1,409
Loan acquisition costs - net 17,273 17,964 0
------------ ------------ ------------
236,741 235,309 200,125
------------ ------------ ------------
$ 9,255,499 $ 7,599,558 $ 6,835,615
------------ ------------ ------------
------------ ------------ ------------
The accompanying notes are an integral part of this prospectus
F-2
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
March 31, 1997 December 31
-------------- -------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited) 1996 1995
-------------- ---- ----
CURRENT LIABILITIES
Bank overdrafts $ 0 $ 0 $ 100,024
Lines of credit payable 0 0 2,260,315
Current maturities of long-term debt 450,121 515,134 252,999
Current maturities of capital leases 39,126 47,484 35,838
Accounts payable
Trade 4,363,188 2,876,415 1,511,268
Amounts withheld from employees 9,465 17,510 12,479
Accrued liabilities
Salaries, wages and commissions 165,743 30,701 19,241
Interest 0 13,040 13,500
Property, payroll and other taxes 52,612 43,410 28,474
Unearned revenue 132,574 54,713 33,469
Income taxes 0 0 42,911
------------ ------------ ------------
Total current liabilities 5,212,829 3,598,407 4,310,518
LONG-TERM DEBT
Notes payable, net of current maturities 2,778,321 2,808,915 951,965
Capital lease obligations, net of current
maturities 24,725 27,776 66,257
------------ ------------ ------------
2,803,046 2,836,691 1,018,222
STOCKHOLDERS' EQUITY
Preferred stock 100,000 100,000 100,000
Common stock 500 500 500
Additional paid-in capital 229,295 229,295 229,295
Retained earnings 1,509,053 1,472,921 1,971,466
Note payable guarantee - ESOP (599,224) (638,256) (794,386)
------------ ------------ ------------
1,239,624 1,164,460 1,506,875
------------ ------------ ------------
$ 9,255,499 $ 7,599,558 $ 6,835,615
------------ ------------ ------------
------------ ------------ ------------
The accompanying notes are an integral part of this statement
F-3
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Three month ended March 31 Year ended December 31
-------------------------- ------------------------
1997 1996 1996 1995
---- ---- ---- ----
(Unaudited)
Sales $4,934,770 $4,251,706 $18,898,498 $18,963,572
Cost of goods sold 3,580,384 3,171,388 13,649,567 13,452,544
---------- ---------- ----------- -----------
Gross profit 1,354,386 1,080,318 5,248,931 5,511,028
Selling and administrative expenses 1,344,962 1,306,487 6,059,312 5,747,157
---------- ---------- ----------- -----------
Operating Profit (loss) 9,424 (226,169) (810,381) (236,129)
Other income or (deductions)
Interest income 16,238 10,468 33,514 17,633
Interest expense (58,376) (78,668) (270,586) (318,206)
School 6,125 13,625 52,680 70,511
Advertising 51,498 91,863 331,339 399,413
Rent 4,278 3,625 14,201 15,901
Miscellaneous 753 800 1,147 1,828
Gain on sale of fixed assets 4,071 - 1,954 22,829
Equity in net earnings of Diamond Golf 2,122 - 18,629 12,098
---------- ---------- ----------- -----------
26,709 41,713 182,878 222,007
---------- ---------- ----------- -----------
Operating Profit (Loss) before income
taxes and cumulative effect of a
change in accounting principle
36,133 (184,456) (627,503) (14,122)
Income taxes - currently refundable 0 0 23,147 285,598
---------- ---------- ----------- -----------
Net earnings (loss) before cumulative
effect of a change in accounting
principle 36,133 (184,456) (604,356) 271,476
Cumulative effect on prior years of an
accounting change 0 0 105,811 0
---------- ---------- ----------- -----------
NET EARNINGS (LOSS) $ 36,133 $ (184,456) $ (498,545) $ 271,476
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Earnings (loss) per common share before
cumulative effect of a change in
accounting principle $ 0.23 $ (1.18) $ (3.86) $ 1.74
Earnings per common share on cumulative effect
on prior years of an accounting change 0 0 0.67 0
---------- ---------- ----------- -----------
Net earnings (loss) per common share $ 0.23 $ (1.18) $ (3.19) $ 1.74
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
The accompanying notes are an integral part of this statement
F-4
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Class A
Preferred Stock Common Stock
------------------------ ------------------------- Additional
Shares Shares Paid-in Retained
Outstanding Amount Outstanding Amount Capital Earnings
----------- ------ ----------- ------ ------- --------
Balance at December 31, 1994 100 $ 100,000 156,442 $ 500 $ 229,295 $1,699,990
Net earnings 0 0 0 0 0 271,476
-------- ---------- -------- -------- ---------- ----------
Balance at December 31, 1995 100 100,000 156,442 500 229,295 1,971,466
Net (loss) 0 0 0 0 0 (498,545)
-------- ---------- -------- -------- ---------- ----------
Balance at December 31, 1996 100 100,000 156,442 500 229,295 $1,472,921
Net Earnings - - - - - $ 36,132
Balance at March 31, 1997
(unaudited) 100 $ 100,000 156,442 $ 500 $ 229,295 $ 1,509,053
-------- ---------- -------- -------- ---------- ----------
-------- ---------- -------- -------- ---------- ----------
The accompanying notes are an integral part of this statement.
F-5
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended March 31 Year ended December 31
--------------------------- -------------------------
1997 1996 1996 1995
---- ---- ---- ----
(Unaudited)
Cash flows from operating activities
Net earnings (loss) for the year $ 36,132 $ (184,456) $ (498,545) $ 271,476
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities
Depreciation and amortization 36,166 41,656 173,533 202,286
(Gain) on sale of fixed assets (4,071) - (1,954) (22,829)
Equity in net (earnings) of Diamond Golf (2,123) - (18,629) (12,098)
Changes in assets and liabilities
Accounts and notes receivable (1,029,518) (852,274) 1,495 (699,337)
Inventories (575,364) (956,523) (270,350) (194,250)
Prepaid expenses (79,092) (349,021) (157,369) 60,737
Other assets (19,346) (1,143)
Accounts payable 1,478,728 2,287,973 1,370,178 538,076
Accrued liabilities 131,204 71,849 25,936 4,936
Unearned revenue 77,861 124,480 21,244 7,483
Income taxes (42,911) (30,589)
---------- ---------- ---------- ---------
Net cash provided by operating
activities 69,923 183,684 583,282 124,748
Cash flows from investing activities
Proceeds from sale of fixed assets 6,943 - 2,100 22,829
Purchases of fixed assets (6,852) (16,483) (83,813) (76,330)
Payments received on note receivable 1,052 2,171 18,586 10,183
---------- ---------- ---------- ---------
Net cash provided by (used in)
investing activities 1,143 (14,312) (63,127) (43,318)
Cash flows from financing activities
Lines of credit payable - net 0 0 (2,260,315) 510,315
Principal payments on long-term debt (148,107) (63,232) (567,787) (432,444)
Principal payments on capital leases (11,409) (8,300) (37,859) (51,733)
Principal payments on note payable
guarantee - ESOP 39,032 - 156,130 156,129
Proceeds from issuance of long-term debt 52,500 39,032 2,586,892 0
---------- ---------- ---------- ---------
Net cash (used in) provided by
financing activities (67,984) (32,500) (122,939) 182,267
---------- ---------- ---------- ---------
Net increase in cash 3,082 136,872 397,216 263,697
Cash (bank overdrafts) at beginning of Period 297,192 (100,024) (100,024) (363,721)
---------- ---------- ---------- ---------
Cash (bank overdrafts) at end of Period $ 300,274 $ 36,848 $ 297,192 $(100,024)
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
The accompanying notes are an integral part of this statement
F-6
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
Year ended December 31
----------------------
1996 1995
---- ----
SUPPLEMENTAL CASH FLOW DISCLOSURES
Cash paid (refunded) during the year for:
Interest $ 271,046 $ 304,706
---------- ----------
---------- ----------
Income taxes $ (211,423) $ 24,607
---------- ----------
---------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Equipment acquired by capital lease agreement $ 11,025 $ 0
---------- ----------
---------- ----------
Advance to Diamond Golf paid from proceeds
from issuance of long-term debt $ 99,980 $ 0
---------- ----------
---------- ----------
The accompanying notes are an integral part of this statement
F-7
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND ACCOUNTING POLICIES
Dynacraft Golf Products, Inc. (the Company) is a supplier of component golf
club equipment (golf clubheads, shafts, grips and other accessory golf
products) to clubmakers through its catalog and showroom. The Subsidiary,
Pal Joey Custom Golf, Inc., is a wholesaler of finished golf clubs to golf
distributors for resale. Through its Pro Shop Division it is a retailer of
golf equipment, attire and accessories.
CONSOLIDATION
The consolidated financial statements include the accounts of Dynacraft
Golf Products, Inc. and its wholly-owned subsidiary, Pal Joey Custom Golf,
Inc. Pal Joey Custom Golf, Inc. includes the accounts of its wholly-owned
subsidiary Dynacraft Real Estate Holdings, Inc. All significant
intercompany transactions have been eliminated.
CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. There were no cash equivalents at
December 31, 1996 and 1995.
The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any
losses in such accounts. The Company believes it is not exposed to any
significant credit risk on cash and cash equivalents.
INVENTORIES
Inventory consists primarily of golf clubs, golf clubheads, shafts, grips,
golf attire and accessories valued at the lower of absorption costing or
market which approximates the first-in, first-out (FIFO) method.
ADVERTISING COSTS
The Company's policy is to expense advertising costs as incurred, except
for catalog expenses which are capitalized and amortized over their
expected period of future benefits, twelve months.
At December 31, 1996, $180,494 of advertising costs were reported as
prepaid assets and $82,882 at December 31, 1995. Advertising expense was
$287,016 and $438,069 for the years ended December 31, 1996 and 1995,
respectively.
F-8
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE A - ORGANIZATION AND ACCOUNTING POLICIES - CONTINUED
RECLASSIFICATIONS
Certain reclassifications have been made to the December 31, 1995 financial
statements to conform with the December 31, 1996 financial statement
presentation. Such reclassifications have had no effect on net income as
previously reported.
PROPERTY AND EQUIPMENT
Major improvements and additions to property and equipment are charged to
the property accounts while replacements, maintenance and repairs which do
not improve or extend the life of the assets are expensed currently.
Upon the sale or retirement of property and equipment, the costs and
related accumulated depreciation are eliminated from the respective
accounts.
DEPRECIATION
Depreciation is provided in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated services lives,
principally on the declining-balance method.
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 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.
INCOME TAXES
The Company provides for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, ACCOUNTING FOR INCOME TAXES,
which requires the use of the asset and liability approach of accounting
for deferred income taxes. Under this method, deferred tax assets and
liabilities are determined based on the difference between the financial
statement carrying amounts of assets and liabilities and their respective
tax bases.
F-9
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE B - ACCUMULATED DEPRECIATION
A summary of the accumulated depreciation, including methods and lives, was
as follows at December 31:
Lives
Classification Method (Years) 1996 1995
-------------- ------ ------- ---- ----
Buildings and
improvements Straight-line 10-31 $ 713,575 $ 637,690
Equipment,
furniture and Straight-line and
fixtures declining-balance 5 - 7 1,089,120 1,020,831
Vehicles Declining-balance 5 - 10 18,889 14,603
---------- ----------
$1,821,584 $1,673,124
---------- ----------
---------- ----------
NOTE C - LEASE OBLIGATIONS
The Company leases equipment under various operating leases expiring in
1997 - 1999 and also leases equipment on a short-term basis as needed.
Total rent expense for the years ended December 31, 1996 and 1995 was
$15,905 and $15,783, respectively.
The Company is leasing computer and other equipment under capital lease
agreements. These assets are recorded as equipment on the balance sheet.
Equipment $364,913
Accumulated depreciation 329,866
---------
$ 35,047
---------
F-10
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE C - LEASE OBLIGATIONS - CONTINUED
Future minimum lease payments under capital leases, together with the
present value of the minimum lease payments as of December 31, 1996, were
as follows:
Year Amount
---- ------
1997 $ 55,876
1998 15,216
1999 13,315
2000 2,854
---------
87,261
Less: Amounts representing interest 12,001
---------
Present value of net lease payments 75,260
Current portion 47,484
---------
Long-term portion $ 27,776
---------
---------
NOTE D - LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
1996 1995
---- ----
Note payable to a bank in 60 monthly principal
and interest payments of $243 at an interest
rate of 7.11% collateralized by a truck. Final
payment due May 16, 1998 $3,916 $6,454
ESOP note payable to a bank due in monthly
installments of $13,011 plus interest at
prime plus 2.50% (currently 10.75%). The
monthly installment increases to $20,872
on April 31, 1998. Final payment due
January 31, 2000. Collateralized by
inventory, equipment, accounts receivable
and real estate 638,256 794,386
Note payable to a bank due in monthly installments
of $5,833 plus interest at prime plus 1% - 111,252
F-11
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - LONG-TERM DEBT - CONTINUED
Note payable to a bank due in monthly installments
of $7,861 plus interest at prime plus 1%
(currently 9.25%). Final payment due March 30,
1998. The note is collateralized by property and
equipment 106,701 292,872
Note payable to a bank in monthly installments of
$29,344. Interest is at the U.S. Treasury constant
maturities rate (currently 8.375%). Final payment
due June 20, 2003 collateralized by cash, accounts
receivable inventory, intangibles, equipment, and
real estate. 1,781,808 -
Subordinated note payable to a stockholder in
monthly installments of $4,102 which includes
interest at an interest rate of 9.625%. Final
payment due June 1, 2001. 233,407 -
Subordinated note payable to a stockholder in
monthly installments of $4,102 which includes
interest at an interest rate of 9.625%. Final
payment due June 1, 2001. 233,407 -
Note payable to a stockholder on demand.
Interest is at prime plus 1% (currently 9.25%).
The stockholder has agreed not to call the
note during the year to end December 31, 1997. 200,000 -
Note payable to a stockholder on demand. Interest
is at 7.20%. The stockholder has agreed not to
call the note during the year to end December 31,
1997. 35,784 -
Note payable to a stockholder on demand. Interest
is at 7.00%. The stockholder has agreed not to
call the note during the year to end December 31,
1997. 90,770 -
---------- ----------
3,324,049 1,204,964
Less current maturities 515,134 252,999
---------- ----------
---------- ----------
Long-term portion $2,808,915 $ 951,965
---------- ----------
---------- ----------
F-12
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE D - LONG-TERM DEBT - CONTINUED
As of December 31, 1996, long-term debt matures as follows:
Year Amount
---- ------
1997 $ 515,134
1998 857,305
1999 566,871
2000 349,647
2001 507,888
Thereafter 527,204
----------
$3,324,049
----------
----------
At December 31, 1995 the Company had two revolving line of credit
agreements with a bank with interest at prime plus 2.50%. Both lines
expired on July 1, 1995. The bank continued to honor the old agreements
while new agreements were negotiated. Under the first agreement, the
Company had a $1,800,000 line of credit of which $1,621,530 was outstanding
at December 31, 1995. Under the second agreement, the Company had a
$650,000 line of credit of which $638,785 was outstanding at December 31,
1995. The lines of credit were refinanced with long-term debt during 1996.
NOTE E - RELATED PARTY TRANSACTIONS
The Company is related to Dynamic Precision Casting Manufacturing Company,
Ltd. (Dynamic), since one of the Company's preferred stockholders is also a
stockholder in Dynamic. During the years ended December 31, 1996 and 1995,
the Company purchased products from Dynamic totaling $2,335,155 and
$2,604,678 respectively. At December 31, 1996 and 1995 the Company had
accounts payable to Dynamic of $838,167 and $295,891, respectively.
The Company paid $1,000 in consulting fees to stockholders during 1995.
The Company has advances of $52,889 and $49,635 to stockholders and
employees at December 31, 1996 and 1995, respectively, which are receivable
upon demand.
F-13
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE F - STOCKHOLDERS' EQUITY
At December 31, 1996, the Company had 194,900 common shares authorized
without par value with 156,442 shares issued and outstanding, of which
29,301 are shares in the Company's ESOP. In addition, the Company has 100
shares authorized, issued and outstanding of Class A preferred stock with a
par value of $1,000 per share noncumulative and a liquidating preference of
$1,000 per share. The Company is obligated to redeem these shares upon
demand of the stockholder.
NOTE G - PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan. All employees are eligible to
participate on January 1 or July 1 following six months of service. The
Company currently matches 25% of the employee contributions to the plan.
Contributions were $33,022 and $46,069 for the years ended December 31,
1996 and 1995, respectively.
NOTE H - EMPLOYEE STOCK OWNERSHIP PLAN
On January 1, 1991, the Company established an employee stock ownership
plan (ESOP) for purposes of assisting employees who retire.
Under the plan, a stockholder sold to the ESOP 29,301 shares of common
stock for $1,500,000. In order to have the funds available to acquire the
Dynacraft Golf Products, Inc. stock, the Company borrowed $1,500,000 from a
bank and loaned it to the ESOP (see Note D).
In accordance with American Institute of Certified Public Accountants
(AICPA) Statement of Position 76-3, the recording of the note payable
amount is offset by a corresponding reduction of stockholders' equity. Both
amounts are reduced by principal payments made during the year. At December
31, 1996 and 1995, the outstanding principal balance was $638,256 and
$794,386, respectively.
Under the ESOP agreement, each employee who has completed six months of
service may participate in the plan. Participating employees of the Company
are able to acquire shares of the Company stock allocated to them based on
their annual compensation. The shares are held by a trustee and allocated
to the employees based on principal payments made by the Company on the
outstanding loan.
The total amounts contributed to the ESOP for the years ended December 31,
1996 and 1995, were $229,449 and $246,507, respectively, with $156,132
representing the principal portions which were allocated to the
participants' accounts.
F-14
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE I - INVESTMENT IN FOREIGN COMPANY
The Company has a 51% (32,845 shares) ownership interest in Diamond Golf
International Limited (Diamond Golf). Diamond Golf is a limited company
under English law in Great Britain, which engages in the sale of golf club
components and other golfing-related items throughout the countries of the
European Economic Community.
The Company's investment in Diamond Golf is accounted for under the equity
method. The Company's investment was $214,892 and $196,263 at December 31,
1996 and 1995, respectively. The Company's equity in the gain of Diamond
Golf International Limited was $18,629 and $12,098 for the years ended
December 31, 1996 and 1995, respectively. Diamond Golf had total assets of
$410,851 and total liabilities of $380,037 at December 31, 1996. Net income
for the year ended December 31, 1996 was $36,527.
During the years ended December 31, 1996 and 1995, the Company sold
$275,973 and $295,628, respectively, of products to Diamond Golf. As of
December 31, 1996 and 1995, the Company had accounts receivable from
Diamond Golf International Limited in the amount of $96,125 and none,
respectively.
NOTE J - INCOME TAXES
Deferred income taxes reflect the impact of "temporary differences" between
the amounts of assets and liabilities for financial reporting purposes and
such amounts as determined by tax regulations. These temporary differences
are determined in accordance with SFAS No. 109.
The components of deferred taxes at December 31 are as follows:
1996 1995
---- ----
Inventories $ 60,000 $ 76,200
Bad debt 30,300 9,800
Net operating loss carryforwards 275,700 88,600
Contribution carryforwards 15,000 15,000
Officer wages 1,800 2,200
Depreciation (700) 900
--------- ---------
Total deferred tax assets 382,100 192,700
Less valuation allowance (382,100) (192,700)
--------- ---------
Net deferred income taxes $ - $ -
--------- ---------
--------- ---------
F-15
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
NOTE J - INCOME TAXES - CONTINUED
Due to the uncertainty surrounding the realization of these favorable tax
attributes in future tax returns, all of the net deferred tax assets have
been fully offset by a valuation allowance.
Operating loss carryforwards expire as follows: $156,003 in 2005 and
$533,148 in 2011. Charitable contribution carryforwards expire as follows:
$13,742 in 1998, $19,244 in 1999 and $4,610 in 2000.
During the year ended December 31, 1996 a settlement was reached with the
Internal Revenue Service regarding an examination of the Company's federal
income tax returns for 1990, 1991 and 1992. The Company accrued $42,911 at
December 31, 1995 for taxes due on the settlement. Total actual additional
taxes, penalties and interest paid in 1996 amounted to $56,411.
NOTE K - CONTINGENCIES
During the year ended December 31, 1995 it was discovered that the site of
the Company's manufacturing, warehousing and office facility contained
ground water that was deemed to be contaminated. The contamination appears
to have been caused by a neighboring business. No amounts have been accrued
on the balance sheet for the clean up as the cost is not yet estimable, nor
is it probable that the Company will be required to pay for any clean up.
NOTE L - CHANGE IN ACCOUNTING PRINCIPLE
During the year ended December 31, 1996 the Company changed its method for
valuing inventory from lower of average cost or market to lower of
absorption costing or market. Absorption costing is preferable to average
cost for manufacturing and warehousing business.
The effect of this change in 1996 income is an increase of $73,149. In
addition to this effect, a cumulative effect of the accounting change for
prior periods of $105,811 is recognized in the current year. The total
increase in income from the accounting change is $178,960.
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following presents the carrying amounts of the Company's financial
instruments at December 31, 1996. FASB Statement 107, DISCLOSURES ABOUT
FAIR VALUES OF FINANCIAL INSTRUMENTS, defines fair value of financial
instruments as the amount at which the instrument could be exchanged in a
current transaction between willing parties.
F-17
DYNACRAFT GOLF PRODUCTS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS - CONTINUED
Notes receivable, account receivable - Diamond Golf, accounts receivable -
other and refundable income taxes: The carrying amounts approximate fair
value because of the short maturity of these instruments.
Accounts receivable stockholders and employees: It is not practicable to
estimate the fair value. There are no stated repayment terms. However,
interest is charged on the receivable at 7%. It is management's intention
to record the receivable as a bonus to the stockholders if they have not
been repaid during 1997.
Notes payable, capital lease obligations: The carrying amounts approximate
fair value. The notes were negotiated and obtained during the year ended
December 31, 1996. Due to the recent nature of these transactions, the
rates and terms of the notes are comparable to the rates and terms
available to the Company at December 31, 1996. The notes payable carried
over from prior years have interest rates that are adjusted annually and
the carrying amounts approximate fair value.
F-18
[DYNACRAFT LOGO]
1-800-942-5872
Dynacraft markets a full range of golf components, clubs, tools,
schools, and services to golfers and clubmakers in the U.S., Europe, and
other leading international markets. Offering both its own Dynacraft
products and those of leading part and component suppliers, the company also
provides customers with strong support through its Technical Staff, available
through a toll-free telephone number and Dynacraft's World Wide Web site;
education through the Dynacraft Clubmaking Institute, which offers courses on
clubmaking, repair, fitting, and others; and cutting-edge information on the
golf components industry through the CLUBMAKER'S DIGEST magazine.
[DYNACRAFT LOGO]
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Division (E) of Section 1701.13 of the Ohio Revised Code governs
indemnification by a corporation and provides as follows:
(E)(1) A corporation may indemnify or agree to indemnify any
person who was or is a party, or is threatened to be made a party, to
any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, other than an
action by or in the right of the corporation, by reason of the fact that
he is or was a director, officer, employee, member, manager, or agent of
the corporation, or is or was serving at the request of the corporation
as a director, trustee, officer, associate, or agent of another
corporation, domestic or foreign, nonprofit or for profit, a limited
liability company, or a partnership, joint venture, trust or other
enterprise, against expenses, including attorney's fees, judgments,
fines, and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit, or proceeding, if he acted
in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to
any criminal action or proceeding, if he had no reasonable cause to
believe his conduct was unlawful. The termination of any action, suit,
or proceeding by judgment, order, settlement, or conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create
a presumption that the person did not act in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding,
he had reasonable cause to believe that his conduct was unlawful.
(2) A corporation may indemnify or agree to indemnify any person
who was or is a party, or is threatened to be made a party, to any
threatened, pending, or completed action or suit by or in the right of
the corporation to procure a judgment in its favor by reason of the fact
that he is or was a director, officer, employee, member, manager, or
agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, member, manager,
or agent of another corporation, domestic or foreign, nonprofit or for
profit, a limited liability company, or a partnership, joint venture,
trust, or other enterprise, against expenses, including attorney's fees,
actually and reasonably incurred by him in connection with the defense
or settlement of such action or suit, if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification shall be
made in respect of any of the following:
(a) Any claim, issue, or matter as to which such person is
adjudged to be liable for negligence or misconduct in the
performance of his duty to the corporation unless, and only to
the extent that, the court of common pleas or the court in which
such action or suit was brought determines, upon application,
that, despite the adjudication of liability, but in view of all
the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court
of common pleas or such other court shall deem proper;
(b) Any action or suit in which the only liability asserted
against a director is pursuant to section 1701.95 of the Revised
Code.
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(3) To the extent that a director, trustee, officer, employee,
member, manager, or agent has been successful on the merits or otherwise
in defense of any action, suit, or proceeding referred to in division
(E)(1) or (2) of this section, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses, including
attorney's fees, actually and reasonably incurred by him in connection
with the action suit or proceeding
(4) Any indemnification under division (E)(1) or (2) of this
section, unless ordered by a court, shall be made by the corporation
only as authorized in the specific case, upon a determination that
indemnification of the director, trustee, officer, employee, member,
manager, or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in division (E)(1) or (2) of
this section. Such determination shall be made as follows:
(a) By a majority vote of a quorum consisting of directors
of the indemnifying corporation who were not and are not parties
to or threatened by the action, suit, or proceeding referred to
in division (E)(1) or (2) of this section;
(b) If the quorum described in division (E)(4)(a) of this
section is not obtainable or if a majority vote of a quorum of
disinterested directors so directs, in a written opinion by
independent legal counsel other than an attorney, or a firm
having associated with it an attorney, who has been retained by
or who has performed services for the corporation or any person
to be indemnified within the past five years;
(c) By the shareholders; or
(d) By the court of common pleas or the court in which such
action, suit or proceeding referred to in division (E)(1) or (2)
of this section was brought.
Any determination made by the disinterested directors under
division (E)(4)(a) or by independent legal counsel under division
(E)(4)(b) of this section shall be promptly communicated to the person
who threatened or brought the action or suit by or in the right of the
corporation under division (E)(2) of this section, and, within ten days
after receipt of such notification, such person shall have the right to
petition the court of common pleas or the court in which such action or
suit was brought to review the reasonableness of such determination.
(5)(a) Unless at the time of a director's act or omission that
is the subject of an action, suit, or proceeding referred to in division
(E)(1) or (2) of this section, the articles or the regulations of a
corporation state, by specific reference to this division, that the
provisions of this division do not apply to the corporation and unless
the only liability asserted against a director in an action, suit, or
proceeding referred to in division (E)(1) or (2) of this section is
pursuant to section 1701.95 of the Revised Code, expenses, including
attorney's fees, incurred by a director in defending the action, suit,
or proceeding shall be paid by the corporation as they are incurred, in
advance of the final disposition of the action, suit, or proceeding,
upon receipt of an undertaking by or on behalf of the director in which
he agrees to both of the following:
(i) Repay such amount if it is proved by clear and
convincing evidence in a court of competent jurisdiction
that his action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury
to the corporation or undertaken with reckless disregard for
the best interests of the corporation;
II-2
(ii) Reasonably cooperate with the corporation
concerning the action, suit, or proceeding.
(b) Expenses, including attorney's fees, incurred by a
director, trustee, officer, employee, member, manager, or agent
in defending any action, suit, or proceeding referred to in
division (E)(1) or (2) of this section, may be paid by the
corporation as they are incurred, in advance of the final
disposition of the action, suit, or proceeding, as authorized by
the directors in the specific case, upon receipt of an
undertaking by or on behalf of the director, trustee, officer,
employee, member, manager, or agent to repay such amount, if it
ultimately is determined that he is not entitled to be
indemnified by the corporation.
(6) The indemnification authorized by this section shall not be
exclusive of, and shall be in addition to, any other rights granted to
those seeking indemnification under the articles, the regulations, any
agreement, a vote of shareholders or disinterested directors, or
otherwise, both as to action in their official capacities and as to
action in another capacity while holding their offices or positions, and
shall continue as to a person who has ceased to be a director, trustee,
officer, employee, member, manager, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
(7) A corporation may purchase and maintain insurance or furnish
similar protection, including, but not limited to, trust funds, letters
of credit, or self-insurance, on behalf of or for any person who is or
was a director, officer, employee, or agent of the corporation, or is or
was serving at the request of the corporation as a director, trustee,
officer, employee, member, manager, or agent of another corporation,
domestic or foreign, nonprofit or for profit, a limited liability
company, or a partnership, joint venture, trust, or other enterprise,
against any liability asserted against him and incurred by him in any
such capacity, or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability
under this section. Insurance may be purchased from or maintained with
a person in which the corporation has a financial interest.
(8) The authority of a corporation to indemnify persons pursuant
to division (E)(1) or (2) of this section does not limit the payment of
expenses as they are incurred, indemnification, insurance, or other
protection that may be provided pursuant to divisions (E)(5), (6), and
(7) of this section. Divisions (E)(1) and (2) of this section do not
create any obligation to repay or return payments made by the
corporation pursuant to division (E)(5), (6), or (7).
(9) As used in division (E) of this section, "corporation"
includes all constituent entities in a consolidation or merger and the
new or surviving corporation, so that any person who is or was a
director, officer, employee, trustee, member, manager, or agent of such
a constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee, member,
manager, or agent of another corporation, domestic or foreign, nonprofit
or for profit, a limited liability company, or a partnership, joint
venture, trust, or other enterprise, shall stand in the same position
under this section with respect to the new or surviving corporation as
he would if he had served the new or surviving corporation in the same
capacity.
Section 5.01 of the Registrant's Code of Regulations governs
indemnification by Registrant and provides as follows:
II-3
SECTION 5.01. MANDATORY INDEMNIFICATION. The corporation shall
indemnify any officer or director of the corporation who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, without limitation, any
action threatened or instituted by or in the right of the corporation),
by reason of the fact that he is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the
corporation as a director, trustee, officer, employee, member, manager
or agent of another corporation (domestic or foreign, nonprofit or for
profit), limited liability company, partnership, joint venture, trust or
other enterprise, against expenses (including, without limitation,
attorneys' fees, filing fees, court reporters' fees and transcript
costs), judgments, fines and amounts paid in settlement if actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, he
had no reasonable cause to believe his conduct was unlawful. A person
claiming indemnification under this Section 5.01 shall be presumed, in
respect of any act or omission giving rise to such claim for
indemnification, to have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal matter, to have had no
reasonable cause to believe his conduct was unlawful, and the
termination of any action, suit or proceeding by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, rebut such presumption.
In addition, the Registrant intends to purchase insurance coverage which
will insure directors and officers against certain liabilities which might be
incurred by them in such capacity.
Insofar as indemnification for liabilities arising under the Securities
Act, indemnification may be permitted to directors, officers or persons
controlling the Registrant pursuant to the foregoing section. The Registrant
has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses of the Registrant in connection with the issuance and
distribution of the securities being registered are estimated as follows,
assuming the Maximum offering amount is sold:
Securities and Exchange Commission filing fee...... $ 700
Blue sky fees and expenses......................... 10,000
Accountant's fees and expenses..................... 10,000
Special Counsel's fees and expenses................ 75,000
General Counsel's fees and expenses................ 50,000
Printing........................................... 30,000
Postage............................................ 35,000
Marketing expenses................................. 28,000
Stock exchange listing fees........................ 15,000
Miscellaneous-Increasing authorized shares......... 8,800
-------
Total...................................... $ 262,500
-------
-------
The Registrant will bear all expenses shown above.
II-4
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following information is given for all securities that Dynacraft Golf
Products, Inc. (the "Company") sold within the past three years without
registering the securities under the Securities Act:
(a)
Date Title Amount
---- ----- ------
October 26, 1994 Common Stock 51,642 shares
(b) no underwriters were used in connection with any of the issuances of
shares.
The class of persons to whom the company issued shares were
members of the family of the major shareholders of the Company, who were
also owners of J&J Enterprises who owned the real estate leased by the
Company for the operation of its business and certain adjacent
properties.
(c) No underwriters were used in connection with of the issuances of shares so
there were no underwriting discounts or commissions. The transactions and the
types and amounts of consideration received by the Company were:
51,462 Common Shares were issued in exchange for certain assets, real
estate (as shown under "Buildings and Improvements" in the Consolidated Balance
Sheet and described under "Business: Properties/Facilities" in the Prospectus)
and liabilities as follows:
Cash $ 2,617
Accounts Receivable 2,066
Property and Equipment 926,250
Term debt (522,042)
Accounts Payable (194,622)
-----------
$ 214,269
-----------
-----------
The Company and J&J Enterprises were entities under Common Control and as such,
assets and liabilities had been recorded at their historical cost.
(d) The Company claimed exemption from registration under section 4(2) of the
Securities Act as a transaction by an issuer not involving any public offering.
Both of the persons to whom the Company issued shares are active in management
of the Company, or closely related to managers of the business. No resale or
other distribution of the shares has been made, contracted for or is intended.
II-5
ITEM 27. EXHIBITS
The exhibits listed below are filed as part of this Registration
Statement pursuant to Item 601 of Regulation S-B.
Exhibit
Number Description
- ------- -----------
3.1 Form of Second Amended and Restated articles of Incorporation
3.2 Form of Code of Regulations
4.1 Form of common stock certificate
5 Opinion of Vorys, Sater, Symour and Pease with respect to the
legality of the shares
being registered
9 Lock in Agreement for Shares of the Common Shares of Dynacraft
Golf Products, Inc.
10.1 Bank One-Letter of Agreement-June 4, 1996
10.2 Huntington National Bank-June 20, 1996
a) Loan Agreement
b) Commercial Loan Note
c) Guarantor: Joseph A. Altomonte, Sr. and
Joseph A. Altomonte, Jr.
d) Security Agreement: Dynacraft Golf Products, Inc. and
Pal Joey Custom Golf, Inc.
e) Commercial Loan Note and Subordination Agreement:
Joseph A. Altomonte, Sr. and
Joseph A. Altomonte, Jr.
10.3 Letter of Credit Agreement and Irrevocable Stanby Letter of
Credit
10.4 Modification to June 20, 1996 Loan Agreement
10.5 Four Shareholder Promissory Notes
10.6 401(k) Profit Sharing Plan and Trust
10.7 Employees Stock Ownership Plan and Amendments
18. Letter on change in accounting principles
21. Subsidiaries of Registrant
23.1 Consent of Wilson, Shannon & Snow, Inc.
23.2 Consent of Vorys, Sater, Seymour and Pease (included in
Exhibit 5)
24 Powers of Attorney (included on Signature page)
99.1 Share Purchase Agreement
99.2 Impound Agreement
ITEM 28. UNDERTAKINGS.
(a) The Registrant hereby undertakes that it will:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this
registration statement to:
(i) Include any prospectus required by section 10(a)(3)
of the Securities Act
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement; and
(iii) Include any additional or changed material
information on the plan of distribution.
II-6
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration
statement of the securities offered, and the offering of
the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(e) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
II-7
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that is has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the City of Newark,
State of Ohio, on July , 1997.
By:__________________________________
JOSEPH A. ALTOMONTE, JR., CHIEF EXECUTIVE OFFICER
Each person whose signature appears below appoints Joseph A. Altomonte,
Jr. his or her attorney-in-fact, with full power of substitution and
resubstitution, to sign any and all amendments (including post-effective
amendments) to this registration statement on Form SB-2 of Dynacraft Golf
Products, Inc. and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact and agent or his
or her substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Joseph A. Altomonte, Sr. Chairman of the Board, Director July 17, 1997
- ----------------------------
JOSEPH A. ALTOMONTE, SR.
/s/ Joseph A. Altomonte, Jr. Chief Executive Officer, Director July 17, 1997
- ---------------------------- Principal Executive Officer
JOSEPH A. ALTOMONTE, JR
/s/ Jeff Jackson President of Dynacraft, Director July 17, 1997
- ----------------------------
JEFF JACKSON
/s/ Jack Kehl President of Pal Joey, Director July 17, 1997
- ----------------------------
JACK KEHL
/s/ Duane R. Egeland Chief Financial Officer, Director July 17, 1997
- --------------------------- Principal Financial and Accounting
DUANE R. EGELAND Officer
/s/ Chris Treacy President of Diamond Golf, July 17, 1997
- ---------------------------- Director
CHRIS TREACY
II-8