SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] - Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
or
[ ] - Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-21089
GOLDEN BEAR GOLF, INC.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0680880
- ---------------------------------- -------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
11780 U.S. HIGHWAY ONE, NORTH PALM BEACH, FLORIDA 33408
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(Address of principal executive offices) (Zip Code)
(561) 626-3900
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
The Registrant had outstanding 2,744,962 shares of Class A Common Stock (par
value $.01 per share) and 2,760,000 shares of Class B Common Stock (par value
$.01 per share) as of September 30, 1998.
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GOLDEN BEAR GOLF, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
September 30, 1998 (Unaudited) and December 31, 1997...................... 3
Consolidated Condensed Statements of Operations (Unaudited) for the
Three Months and Nine Months Ended September 30, 1998 and 1997............ 4
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the Nine Months Ended September 30, 1998 and 1997..................... 5
Notes to Consolidated Condensed Financial Statements (Unaudited)............. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............................ 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................ 17
Signatures............................................................................. 18
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2
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
GOLDEN BEAR GOLF, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
-------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $2,120,952 $ 675,303
Accounts receivable, net 2,180,440 1,501,767
Due from affiliates 69,279 157,698
Prepaid expenses and other current assets 437,846 304,115
-------------- -------------
Total current assets 4,808,517 2,638,883
PROPERTY AND EQUIPMENT, net 1,057,854 1,069,067
OTHER ASSETS 273,734 546,819
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS 2,902,777 24,643,492
-------------- -------------
Total assets $ 9,042,882 $ 28,898,261
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,712,694 $ 897,964
Accrued liabilities 2,156,523 710,498
Deferred revenue 1,199,676 659,816
Current portion of notes payable and capital leases 489,509 9,024,619
Net current liabilities of discontinued operations 13,589,161 3,788,178
-------------- -------------
Total current liabilities 19,147,563 15,081,075
-------------- -------------
NOTES PAYABLE AND CAPITAL LEASES, net of current portion 2,400,000 255,891
-------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.01 par value, 20,000,000 shares authorized,
no shares issued and outstanding
Common stock-
Class A, $.01 par value, 70,000,000 shares authorized,
2,744,962 shares issued and outstanding 27,450 27,450
Class B, $.01 par value, 10,000,000 shares authorized,
2,760,000 shares issued and outstanding 27,600 27,600
Additional paid-in capital 40,856,943 40,856,943
Accumulated deficit (53,416,674) (27,350,698)
-------------- -------------
Total shareholders' equity (deficit) (12,504,681) 13,561,295
-------------- -------------
Total liabilities and shareholders' equity $9,042,882 $28,898,261
============== =============
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
3
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<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ----------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Golf instruction revenues $ 618,011 $ 915,756 $ 4,506,338 $ 3,558,916
Licensing and other revenues 1,413,531 1,717,151 3,484,763 4,946,789
Income from operations of JNAI 215,244 130,030 406,928 874,544
Related party commissions and fees 211,093 119,780 331,676 402,280
------------ ----------- -------------- --------------
Total revenues 2,457,879 2,882,717 8,729,705 9,782,529
------------ ----------- -------------- --------------
OPERATING COSTS AND EXPENSES:
Operating expenses 1,580,319 1,637,966 5,923,193 5,600,819
Corporate administration 1,355,923 376,859 2,657,002 1,932,609
Depreciation and amortization 105,108 82,881 272,184 247,191
------------ ----------- -------------- --------------
Total operating costs and expenses 3,041,350 2,097,706 8,852,379 7,780,619
------------ ----------- -------------- --------------
Operating income (loss) (583,471) 785,011 (122,674) 2,001,910
------------ ----------- -------------- --------------
OTHER INCOME (EXPENSE):
Interest income 16,399 14,978 17,328 98,947
Interest expense (227,320) (9,874) (389,370) (26,100)
Other (32,418) (80,581) (262,929) (129,515)
------------ ----------- -------------- --------------
Total other expense (243,339) (75,477) (634,971) (56,668)
------------ ----------- -------------- --------------
Income (loss) from continuing
operations before income taxes (826,810) 709,534 (757,645) 1,945,242
PROVISION FOR INCOME TAXES 2,350 101,793 180,312 285,363
------------ ----------- -------------- --------------
Income (loss) from continuing
operations (829,160) 607,741 (937,957) 1,659,879
Gain on sale of business segment 969,405 969,405
Loss from discontinued operations (9,371,384) (244,326) (26,097,424) (2,895,792)
------------ ----------- -------------- --------------
Net income (loss) $(9,231,139) $363,415 $(26,065,976) $(1,235,913)
============ =========== ============== ==============
EARNINGS PER SHARE - BASIC
AND DILUTED:
Income (loss) from continuing operations$ (0.15) $ 0.11 $ (0.17) $ 0.30
Gain on sale of business segment 0.17 0.18
Income (loss) from discontinued
operations, net (1.70) (0.04) (4.74) (0.52)
------------ ----------- -------------- --------------
Net income (loss) per share $ (1.68) $ 0.07 $ (4.73) $ (0.22)
============ =========== ============== ==============
Weighted average common shares
outstanding 5,504,962 5,506,187 5,504,962 5,505,687
------------ ----------- -------------- --------------
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
4
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<CAPTION>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING OPERATIONS:
Net Loss $(26,065,976) $ (1,235,913)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 272,184 247,191
Loss from discontinued operations 25,128,019 2,895,792
Changes in assets and liabilities:
Accounts receivable (747,952) (572,779)
Due from affiliates 157,698 590,313
Prepaid expenses and other current assets (133,731) (87,654)
Intangibles and other assets 273,085 161,133
Accounts payable 814,730 249,426
Accrued liabilities 1,446,025 1,048,042
Deferred revenue 539,860 1,096,792
Deferred tax assets (842,292)
-------------- --------------
Net cash provided by continuing operating activities 1,683,941 3,550,051
-------------- --------------
Net cash used in discontinued operations (17,531,827) (10,924,856)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (481,981) (507,107)
Proceeds from sale of business segment 22,635,221
-------------- --------------
Net cash provided by ( used in) investing activities 22,153,240 (507,107)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term credit facility 5,000,000
Proceeds from revolving credit facilities, net 413,000
Payments on short-term and revolving credit agreements (13,243,706) (2,411,870)
Proceeds from notes payable and capital leases, net 2,971,000 4,822,846
Proceeds from exercise of stock options 6,585
-------------- --------------
Net cash provided by (used in) financing activities (4,859,706) 2,417,561
-------------- --------------
Net increase (decrease) in cash and cash equivalents 1,445,649 (5,464,351)
CASH AND CASH EQUIVALENTS, beginning of period 675,303 6,694,991
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 2,120,952 $ 1,230,640
============== ==============
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
5
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited Consolidated Condensed Financial Statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the audited Consolidated
Financial Statements and Notes thereto included in Golden Bear Golf, Inc.'s (the
"Company") Annual Report on Form 10-K/A for the fiscal year ended December 31,
1997, as filed with the Securities and Exchange Commission.
The results of operations and cash flows for the three and nine-month periods
ended September 30, 1998 are not necessarily indicative of the results of
operations or cash flows which may be reported for the remainder of fiscal 1998.
In order to maintain consistency and comparability between periods presented,
certain amounts have been reclassified from the previously reported financial
statements in order to conform with the financial statement presentation of the
current period. The Company sold its golf centers operations pursuant to a stock
sale of the golf center subsidiary that closed on July 20, 1998. See Note 7.
On October 26 ,1998, the Board of Directors of the Company approved the
discontinuance of the Company's construction division which is conducted by
Paragon Construction International, Inc. ("Paragon") upon the completion of all
remaining projects. Presently, the Company is pursuing an alliance with The
Weitz Company, Inc. ("Weitz") for the construction of golf courses and related
infrastructure, as well as for vertical construction of golf related facilities.
Under the alliance as currently contemplated, the Company would provide golf
course construction expertise and marketing assistance and Weitz would provide
all construction and project management. See Note 7. There is no assurance that
an agreement with Weitz will be reached.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Accordingly, deferred income taxes have been
provided to show the effect of temporary differences between the tax basis of
assets and liabilities and their reported amounts in the financial statements.
The Company files a consolidated Federal income tax return which includes the
operations of the Company and its subsidiaries. Prior to the reorganization of
the Company on August 1, 1996, the respective entities comprising the current
Company were S Corporations for Federal income tax reporting purposes, and
therefore not subject to Federal income taxes.
A valuation allowance was established for the Company's net deferred income tax
assets as of September 30, 1998 and December 31, 1997 as management does not
currently believe that the future realization of such deferred tax assets is
more likely than not.
6
<PAGE>
EARNINGS PER SHARE
Effective December 15, 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share," which among other changes, requires that basic earnings per share be
computed without regard to any outstanding common equivalent shares. Earnings
per share in the accompanying Consolidated Condensed Statements of Operations is
computed by dividing the net loss by the weighted average common shares
outstanding for the respective periods presented. Diluted earnings per share as
computed under SFAS No. 128 includes the effects of common stock equivalents,
including the dilutive effect of all outstanding stock options using the
treasury stock method. Diluted earnings per share is the same as basic earnings
per share in the accompanying Consolidated Condensed Statements of Operations.
Options to purchase 565,725 and 380,538 shares of common stock were not included
in computing earnings per share for the periods ended September 30, 1998 and
1997, respectively, because their effects were anti-dilutive for the respective
periods.
COMPREHENSIVE INCOME
Required for 1998 financial statements, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. This statement requires that an enterprise (i) classify
items of other comprehensive income by their nature in financial statements and
(ii) display the accumulated balance of other comprehensive income separately
from retained deficit and additional paid-in capital in the equity section of
the balance sheets. Comprehensive income is defined as the change in equity
during the financial reporting period of a business enterprise resulting from
non-owner sources. During the three and nine-month periods ended September 30,
1998 and 1997, the Company did not have any changes in its equity resulting from
such non-owner sources, and accordingly, comprehensive income as set forth by
SFAS No. 130 was equal to the net loss amounts presented for the respective
periods in the accompanying Consolidated Condensed Statements of Operations.
DERIVATIVE FINANCIAL INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
133 requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. The accounting for changes in fair value depends on the intended
use of the derivative and the resulting designation. This statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. The
Company believes the adoption of SFAS No. 133 will not have a material effect on
the Company's financial condition or results of operations.
7
<PAGE>
3. NOTES PAYABLE AND CAPITAL LEASES
Notes payable and capital leases consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ --------------
<S> <C> <C>
Capital lease obligations secured by equipment and
furniture, maturing through January, 2003(1) $ 489,509 $ 408,100
Revolving credit facility with a bank, repaid in July 1998;
credit facility terminated -- 8,872,410
Note payable, interest payable monthly. (2) 2,400,000 ---
------------ --------------
2,889,509 9,280,510
Less current portion
(489,509) (9,024,619)
------------ --------------
$ 2,400,000 $ 255,891
============ ==============
</TABLE>
(1) The Company acquired certain computer equipment, office furniture and phone
systems equipment by entering into financing arrangements that were
accounted for as capital leases. These capital lease obligations have terms
of up to five years and require monthly payments representing principal and
interest at rates ranging from 8.5% to 12.7%.
(2) On July 13, 1998 the Company issued a promissory note to Jack W. Nicklaus, a
major stockholder and Chairman of the Company, for $2,400,000. The note
which matures on July 1, 2003 is subject to a monthly interest payment based
on "The Wall Street Journal Prime Rate" (the prime rate published in the
"Money Rates" section of the Wall Street Journal).
4. COMMITMENTS AND CONTINGENCIES
CLAIMS AND ASSESSMENTS
In August 1995, Paragon brought an arbitration claim against a customer for
breach of contract. Paragon alleges it has properly completed the construction
relating to the renovation of the customer's golf course and is seeking final
payment of retainage and related amounts due, together with additional damages,
totaling approximately $350,000 Simultaneous to this claim of arbitration, the
customer filed a counterclaim of arbitration against Paragon for alleged
construction defects in the renovation of its golf course. Although the customer
recently claimed its damages were in excess of $1.2 million, the initial claim
submitted by the customer in arbitration was for $750,000. The ultimate outcome
of this matter is not determinable at this time; accordingly, no provision for
loss regarding this matter had been established at September 30, 1998.
Paragon's construction contracts generally provide for warranties that obligate
Paragon to remedy certain construction defects that may arise in the ordinary
course of providing such construction services. Such warranties, which are
customary in the construction industry are usually effective for a period of one
year from the completion date of the respective projects. The Company's
management does not expect the costs associated with corrective action or
penalties incurred pursuant to these warranties, if any, to have a material
impact on its results of operations.
8
<PAGE>
On July 28, 1998, individuals purporting to be shareholders of the Company filed
a class action lawsuit in the United States District Court for the Southern
District of Florida. The lawsuit was filed by the plaintiff individually and on
behalf of all others who purchased common stock of the Company from August 1,
1996 through July 24, 1998, excluding defendants and certain other related
persons or entities, against the Company and certain of the Company's present
and former officers and directors. The complaint alleges that during the
purported class period, the Company violated applicable sections of the
Securities Exchange Act of 1934 by making misrepresentations or omissions of
material fact in publicly filed documents and in other alleged public statements
relating to the Company's financial condition and that of its wholly-owned
subsidiary, Paragon. The plaintiff is seeking an unspecified amount of damages,
interest, costs and attorneys' fees. Since the filing of this matter, nine
additional lawsuits have been filed against the Company and certain of its
present and former officers and directors. Eight of these lawsuits were filed in
the United States District Court for the Southern District of Florida and one
was filed in the United States District Court for the Eastern District of New
York, though the court in New York has entered an order transferring this action
to the Southern District of Florida. The allegations in these additional
lawsuits are essentially the same as those contained in the initial lawsuit and
two lawsuits have asserted claims under the Securities Act of 1933. The District
Court in Florida has entered an order consolidating all of the actions
originally filed in the Southern District of Florida and all other similar
actions which are transferred to or subsequently filed in the Southern District
of Florida and has directed the plaintiffs to file a Consolidated Complaint.
The Company intends to vigorously defend each of the foregoing lawsuits, but
their respective outcomes cannot be predicted. Any of such lawsuits, if
determined adversely to the Company, could have a material adverse effect of the
Company's financial position and results of operations. The Company's ultimate
liability with respect to any of the foregoing proceedings is not presently
determinable.
The Securities and Exchange Commission is conducting a private investigation to
determine whether the Company or certain of its current or former officers,
directors and employees have engaged in conduct in violation of certain
provisions of the Securities Exchange Act of 1934 and the rules and regulations
thereunder. The Company believes that such investigation is focused principally
on the recognition of additional costs and losses associated with the review of
Paragon's construction projects and the Company's public statements and
accounting systems with respect thereto. The Company is cooperating in such
investigation.
ACCUMULATED DEFICIT AND LIQUIDITY
The Company has incurred operating losses from continuing operations which has
resulted in an accumulated deficit of approximately $53.4 million and a working
capital deficiency of approximately $14.3 million at September 30, 1998. The
Company incurred a net loss of approximately $26.1 million (unaudited) for the
nine months ended September 30, 1998 and expects further losses during the
remainder of fiscal 1998. Management's plans in regard to these matters include
discontinuing the Company's construction operations and reducing on-going
expenses .
Future working capital requirements will be dependent on the Company's ability
to achieve and maintain profitable operations in the future. There is no
assurance that the Company will be successful in realizing these objectives, or
will generate sufficient cash flow from operations to rectify the Company's
current working capital deficiency and so as to meet future working capital
requirements. To the extent that capital requirements exceed available capital,
the Company will need to seek alternative sources of financing to fund its
operations. The Company has no existing credit facility and there is no
assurance that alternative financing will be available, if at all, on
satisfactory terms. If the Company is unable to obtain satisfactory alternative
financing, the Company may be required to delay or reduce its future expenses,
sell additional assets to meet its obligations, or seek to renegotiate the terms
of its obligations.
9
<PAGE>
5. OPERATIONS OF JNAI
The apparel licensing activities of the Company in the Far East are conducted
through Jack Nicklaus Apparel International ("JNAI") and its various
partnerships. The Company serves as a 50% general partner and is generally
entitled to receive 50% of the cash distributions of the various partnerships'
operations. The Company's investment in JNAI is recorded on the equity method.
The following is a condensed summary of the operating results of JNAI:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Licensing revenues $ 574,090 $ 643,606 $ 1,253,638 $ 2,274,686
Operating expenses 78,035 331,911 310,757 592,826
Provision (benefit) for
income taxes 65,565 51,635 129,020 (67,235)
------------ ------------ ------------ ------------
Net income $ 430,490 $ 260,060 $ 813,861 $1,749,095
============ ============ ============ ===========
</TABLE>
RELATED PARTY TRANSACTIONS
Pursuant to a design services marketing agreement, the Company marketed golf
course designs worldwide for Nicklaus Design, the golf course design division of
Golden Bear International, Inc. ("International"), a privately owned company
controlled by Jack Nicklaus. As part of an organizational restructuring to
refocus on its core businesses, the Company terminated the design services
marketing agreement effective January 1, 1998. Concurrent with the termination
of the design services agreement, International assumed certain financial
obligations of the Company to employees and third parties formerly involved in
the design marketing function, and the Company obtained a ten year exclusive
commitment from International to continue the marketing of golf course
construction services to Nicklaus Design clients and prospects. The arrangement
between the parties will permit the Company to utilize the services of Nicklaus
Design's sales staff as needed on an independent contract basis and the Company
has agreed to pay International a commission equal to five percent of the
projected gross profit margin negotiated by the Company in golf course
construction contracts procured by Nicklaus Design. The Company will also be
entitled to receive finder's fees from International for business leads
generated by them which result in definitive golf course contracts for Nicklaus
Design.
Under the previous design services marketing agreement, the Company generally
had been entitled to 10% of the gross design fees collected by Nicklaus Design
for its role in marketing such design services. At December 31, 1997, the
Company had a net receivable balance due from International in the amount of
$157,698, substantially all of which was comprised of commissions payable under
the former design services marketing agreement. Pursuant to the terms of a
personal services management agreement, International and Mr. Nicklaus have
retained the Company as the exclusive manager and representative to market the
personal endorsement services of Mr. Nicklaus, pursuant to which the Company is
generally entitled to approximately 20% to 30% of the personal endorsement fees
received by Mr. Nicklaus. During the nine months ended September 30, 1998 and
1997, the Company earned management fees attributable to providing such services
of $331,676 and $402,280 respectively.
10
<PAGE>
The Company has an office staff sharing agreement with International which
provides for the sharing of the services of certain specifically identified
office staff and personnel that can effectively serve the needs of both
organizations. During the nine months ended September 30, 1998 and 1997, payroll
and related costs associated with such shared employees totaling $98,244 and
$456,650, respectively, were allocated to International. As of September 30,
1998, the Company had a net balance due from International of $39,170 comprised
primarily of reimbursable expenses.
In the ordinary course of business, the Company purchases golf equipment
manufactured by Nicklaus Golf Equipment Company, L.C., a privately owned company
in which Mr. Nicklaus has a 50% equity interest. Such equipment is purchased
primarily for resale in the pro shops of the Company's golf centers and for
promotional programs associated with the Company's Nicklaus Flick Golf Schools.
During the nine months ended September 30, 1998 and 1997, the Company purchased
such golf equipment at a cost of $53,042 and $56,942 respectively.
During the nine months ended September 30, 1998, the Company paid Executive
Sports International, a privately held company owned in part by a member of the
Nicklaus family, $34,063 for certain printing and graphics services.
7. DISCONTINUED OPERATIONS
GOLDEN BEAR GOLF CENTERS
On July 20, 1998, the Company sold all of the issued and outstanding stock of
its Golden Bear Golf Centers, Inc. ("Golf Centers") subsidiary to an unrelated
party for approximately $32 million less the outstanding balance of any capital
lease obligations and purchase money indebtedness remaining in connection with
the Company's initial purchase of the Company's golf center facilities. The sale
resulted in a gain of approximately $1.0 million. Prior to the closing of the
sale, Golf Centers distributed certain assets and liabilities to the Company.
The Company has classified the amounts related to Golf Centers as discontinued
operations and has included its results of operations as "Loss from discontinued
operations" in the accompanying consolidated condensed statements of operations.
The losses from operations of Golf Centers were as follows for each of the
periods presented:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ----------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Loss from discontinued operations $(154,300) $(1,094,188) $(4,209,054) $(2,842,069)
</TABLE>
The net assets of the discontinued operations of Golf Centers at December 31,
1997, as presented in the accompanying consolidated condensed balance sheets ,
was as follows:
DECEMBER 31,
1997
-----------------
Current assets $ 3,812,770
Property and equipment, net 23,510,655
Other assets 6,777,646
-----------------
Total assets 34,101,071
=================
Current liabilities 3,039,585
Other liabilities 7,550,784
-----------------
Total liabilities 10,590,369
=================
Net assets of discontinued operations $23,510,702
=================
11
<PAGE>
PARAGON CONSTRUCTION INTERNATIONAL
On October 26, 1998, the Board of Directors of the Company approved the
discontinuance of the Company's construction division which is conducted by
Paragon, upon the completion of all remaining projects. Presently, the Company
is pursuing an alliance with The Weitz Company Inc. ("Weitz") for the
construction of golf courses and related infrastructure, as well as for vertical
construction of golf related facilities. Under the alliance as currently
contemplated, the Company would provide golf course construction expertise and
marketing assistance and Weitz would provide all construction and project
management. The Company has classified the amounts related to Paragon as
discontinued operations and has included its results of operations as "Loss from
discontinued operations" in the accompanying consolidated statements of
operations.
The income ( loss) from operations of Paragon were as follows for each of the
periods presented.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
-------------------- ------------------------
1998 1997 1998 1997
---------------------- ------------------------
<S> <C> <C> <C> <C>
Income (loss) from discontinued operations $(9,217,084) $849,862 $(21,888,370) $(53,723)
</TABLE>
The net assets of the discontinued operations at September 30, 1998 and December
31, 1997, as presented in the accompanying consolidated condensed balance
sheets, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 1998 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Current assets $ 4,079,876 $14,178,651
Property and equipment, net 2,827,602 3,775,510
Other assets 75,175 227,487
------------------- ------------------
Total assets 6,982,653 18,181,648
------------------- ------------------
Current liabilities 17,669,037 18,740,014
Other liabilities 2,097,022
------------------- ------------------
Total liabilities 17,669,037 20,837,036
------------------- ------------------
Net liabilities of discontinued operations $ 10,686,384 $ 2,655,388
=================== ==================
</TABLE>
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company is involved in the licensing and franchising of NICKLAUS, JACK
NICKLAUS and GOLDEN BEAR branded products throughout the world, the operation of
the NICKLAUS FLICK GOLF SCHOOLS and the generation of marketing fees related to
Jack Nicklaus' personal endorsements.
Under the terms of a design services marketing agreement, the Company had
marketed golf course designs worldwide for Nicklaus Design. However, as part of
an organizational restructuring, the Company terminated the design services
marketing agreement effective January 1, 1998 and entered into a ten year
exclusive commitment with International pursuant to which International agreed
to market the Company's golf course construction services to Nicklaus Design
clients and prospects.
In connection with the departure of certain members of Paragon's senior
management during 1998, the Company conducted a comprehensive review of
Paragon's construction projects, focusing on the status of the projects, the
costs required to fully complete the jobs and the anticipated profitability or
losses of such projects. Attention was also directed toward determining contract
requirements, including known and unknown amendments and change orders, and the
related estimated anticipated costs of fulfilling those requirements. In the
review, the Company found evidence that former management of Paragon falsified
records, underbid construction projects, misrepresented the status of
construction projects and made false statements about Paragon's revenues, costs
and profits to the Company's executive management and Board of Directors. Based
on the results of the review, it was necessary to recognize costs and losses
associated with certain projects based on cost estimates related to uncompleted
contracts. In connection with the review, the Company recorded construction
contract loss reserves of $6,063,127 and $6,755,654 as of September 30, 1998 and
December 31, 1997, respectively. The Board of Directors of the Company has since
approved the discontinuance of the construction division upon the completion of
all remaining projects. The Company is currently pursuing an alliance with Weitz
for the construction of golf courses and related infrastructure, as well as for
vertical construction of golf related facilities. Under the contemplated
alliance, Golden Bear would provide golf course construction expertise and
marketing assistance and Weitz would provide all construction and project
management.
As a result of the aforementioned review and restatement, numerous purported
class action lawsuits have been filed against the Company and certain current
and former officers and directors of the Company, asserting various claims under
the federal securities laws. While it is not feasible to predict or determine
the outcome of these proceedings or to estimate the amounts or potential range
of loss with respect to these matters, management believes that an adverse
outcome with respect to such proceedings could have a material impact on the
financial condition, results of operations and cash flows of the Company.
DISCONTINUED OPERATIONS
GOLDEN BEAR GOLF CENTERS
On July 20, 1998, the Company sold all of the issued and outstanding stock of
it's Golf Centers subsidiary less the outstanding balance of any capital lease
obligations and purchase money indebtedness remaining in connection with the
Company's initial purchase of the Company's golf center facilities. to an
unrelated party for approximately $32 million resulting in a gain of
approximately $1.0 million.
13
<PAGE>
PARAGON
On October 26, 1998, The Board of Directors of the Company approved the
discontinuance of the construction division upon the completion of all remaining
projects. While there is no assurance that an agreement will be reached, the
Company is currently pursuing an alliance with "Weitz" for the construction of
golf courses and related infrastructure, as well as for vertical construction of
golf related facilities. Under the contemplated alliance, Golden Bear would
provide golf course construction expertise and marketing assistance and Weitz
would provide all construction and project management.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1997
For the three months ended September 30, 1998, total revenues decreased to $2.5
million from $2.9 million for the comparable period of 1997. The decrease was
mainly due to reductions in licensing and golf instruction revenues which was
partially offset by increase in revenues for JNAI operations and commissions and
fees.
The Company incurred an operating loss of $0.6 million and operating income of
$0.8 million during the three months ended September 30, 1998 and 1997,
respectively. The operating loss incurred for the current quarterly period was
primarily attributable to the increase in non-recurring corporate and
administrative expenses which resulted from the reorganization of the Company
and its businesses.
Interest expense for the three months ended September 30, 1998 increased to $0.2
million attributable primarily to the write-off of the loan costs upon the
repayment of the Company's $10.0 million credit facility and $5.0 million
short-term credit facility.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1997
For the nine months ended September 30, 1998, total revenues decreased to $8.7
million compared to revenues of $9.8 million for the comparable period of 1997.
The $1.1 million decrease in total revenues was principally due to a reduction
in licensing revenues and earnings from the Company's partnership interest in
JNAI as well as a reduction in related party commissions and fees which was
partially offset by an increase in Golf instruction revenues. The decreases in
JNAI's and licensing revenues are attributable to the international economic
downturn in particularly the Far East.
The Company incurred an operating loss of $0.1 million and operating income of
$2.0 million during the nine months ended September 30, 1998 and 1997,
respectively. The operating loss incurred for the current period was primarily
attributable to the reduction in revenue and an increase in operating expenses
of $1.3 million which is attributable to the reorganization of the Company and
its businesses, and corporate and administrative expense, which is due to
certain non-recurring personnel related expenses.
Interest expense for the nine months ended September 30, 1998 increased to $0.4
million from $0.03 million for the period in 1997. This was attributable
primarily to increased outstanding borrowings under the Company's $10 million
credit facility and $5 million short-term credit facility which were both
repaid and terminated and the write-off of the loan related costs.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998 and December 31, 1997, the Company had a working
capital deficit of $14.3 million and $12.4 million, respectively, including cash
and cash equivalents of $2.1 million and $0.7 million, respectively.
Certain of the Company's working capital requirements were financed by
borrowings under a $10 million revolving credit facility and an additional
short-term $ 5 million credit facility which was with a financial institution.
Borrowings under the facility were secured by Company assets excluding various
golf center properties and certain other assets pledged to secure other
long-term indebtedness. During July 1998, all amounts outstanding under the
revolving and short-term credit facility were repaid in full, and the credit
facilities were terminated.
The Company has incurred operating losses from continuing operations which has
resulted in an accumulated deficit of approximately $53.4 million September 30,
1998. The Company incurred a net loss of approximately $26.1 million (unaudited)
for the nine months ended September 30, 1998 and expects such losses to continue
during the remainder of fiscal 1998. Management's current plans going forward
include discontinuing the Company's construction operations and reducing
on-going expenses.
Future working capital requirements are dependent on the Company's ability to
achieve and maintain profitable operations in the future. Although there can be
no assurances, management believes the Company will generate sufficient cash
flow from operations to meet the Company's current working capital deficiency
and to meet future working capital requirements. To the extent that capital
requirements exceed available capital or the Company is unable to successfully
complete negotiations regarding Paragon, the Company will need to seek
alternative sources of financing to fund its operations. The Company has no
existing credit facility and no assurance can be given that alternative
financing will be available, if at all, in a timely manner, on favorable terms.
If the Company is unable to obtain satisfactory alternative financing, the
Company may be required to delay or reduce its future expenses sell additional
assets in order to meet its obligations or seek to renegotiate the terms of its
obligations.
CURRENCY FLUCTUATIONS
Although substantially all of the Company's contracts are denominated in United
States dollars, fluctuations in the value of foreign currencies relative to the
United States dollar could impact the Company's results of operations. A
substantial portion of the revenues of the Company's overseas licensees are
generated in foreign currencies and accordingly, fluctuations in the value of
these currencies relative to the United States dollar could adversely affect the
Company's profitability. Royalty payments received by the Company or by its JNAI
equity investee relating to foreign licensing arrangements are generally based
on the exchange rate at the time of payment. Although the Company's construction
contracts outside of the United States are generally denominated in United
States dollars, certain payments to local subcontractors and vendors on various
overseas projects are made in the functional currencies of the respective
countries and accordingly, the effective costs to complete certain overseas
projects may increase or decrease as foreign currencies fluctuate relative to
the United States dollar. The Company's JNAI joint venture enters into futures
contracts to hedge its anticipated receipt of certain royalty payments
denominated in Japanese yen. Apart from these futures contracts on the part of
JNAI which were not material to the Company's results of operations, the Company
does not currently engage in hedging activities with respect to currency
fluctuations, but may do so in the future.
YEAR 2000
The Year 2000 issue exists because many computer systems and applications
currently use two-digit fields to designate a year. As the century date change
occurs, date-sensitive systems may recognize the year 2000 as 1900, or not at
all. This inability to properly treat the Year 2000 issue may cause systems to
process critical financial and operational information incorrectly. The Company
has evaluated all of its computer systems and applications and has determined
that its computer systems are Year 2000 compliant and that no material
modification is necessary. In the opinion of management, the conversions
required to comply with the Year 2000 issue are not expected to have a material
effect on the Company's results of operations.
15
<PAGE>
MARKET RISK
The Company is exposed to market risks, including changes in interest rates and
currency exchange rates. Based on the Company's interest rate and foreign
exchange rate exposure at September 30, 1998, a 10% change in the current
interest rate or historical currency rate movements would not have a material
effect on the Company's financial position or results of operations over the
remainder of the current fiscal year.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-Q contains forward-looking statements made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, including
but not limited to, to those risks associated with economic conditions generally
and the economy in those areas where the Company has assets and operations
including Asia and Japan; competitive and other factors affecting the Company's
operations, markets, products and services; those risks associated with the
licensing and franchising of golf centers; those risks associated with the
performance of Paragon Construction International, including its ability to
obtain a joint venture partner or other satisfactory collaborative agreement
with a third party, its ability to successfully negotiate with certain project
owners, as well as construction vendors and subcontractors, regarding the
completion of existing projects and the minimization of costs associated with
such completion, risks relating to estimated contract costs, estimated losses on
uncompleted contracts and estimates regarding the percentage of completion of
contracts, and risks relating to litigation and associated costs arising out of
Paragon's activities and the matters discussed in this report; risks relating to
changes in interest rates and in the availability cost and terms of financing;
risks related to the performance of financial markets; risks related to changes
in domestic and foreign laws, regulations and taxes; risks related to changes in
business strategy or development plans; risks related to the outcomes of the
pending lawsuits against the Company and the associated costs; risks associated
with future profitability; and other factors discussed elsewhere in this release
and in documents filed by the Company with the Securities and Exchange
Commission. Many of these factors are beyond the Company's control. Actual
results could differ materially from these forward-looking statements. In light
of these risks and uncertainties, there can be no assurance that the
forward-looking information contained in this press release will, in fact,
occur. The Company does not undertake any obligation to revise these
forward-looking statements to reflect future events or circumstances and other
factors discussed elsewhere in this report and the documents filed by the
Company with the Securities and Exchange Commission.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the six-month period
ended June 30, 1998.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLDEN BEAR GOLF, INC.
By: /S/ STEPHEN S. WINSLETT
--------------------------------------------
Stephen S. Winslett
Senior Vice President and Chief Financial Officer
Date: September ___, 1998
18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDEN BEAR
GOLF, INC.'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,120,952
<SECURITIES> 0
<RECEIVABLES> 2,180,440
<ALLOWANCES> 0
<INVENTORY> 69,279
<CURRENT-ASSETS> 4,808,517
<PP&E> 4,234,365
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,042,882
<CURRENT-LIABILITIES> (19,147,563)
<BONDS> (2,400,000)
0
0
<COMMON> (55,050)
<OTHER-SE> 12,559,739
<TOTAL-LIABILITY-AND-EQUITY> 12,504,681
<SALES> (2,457,879)
<TOTAL-REVENUES> (2,457,879)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,041,350
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 227,320
<INCOME-PRETAX> 826,810
<INCOME-TAX> 2,350
<INCOME-CONTINUING> 829,160
<DISCONTINUED> 8,402,879
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,231,139
<EPS-PRIMARY> 1.68
<EPS-DILUTED> 1.68
</TABLE>
