SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
[X] Amendment to Application or Report Filed Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 (No Fee Required)
For the year ended December 31, 1997
Commission File Number
0-21089
GOLDEN BEAR GOLF, INC.
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(Exact name of Registrant as specified in its charter)
FLORIDA 65-0680880
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11780 U.S. HIGHWAY ONE
NORTH PALM BEACH, FLORIDA 33408
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(561) 626-3900
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(Registrant's telephone number, including area code)
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THE UNDERSIGNED REGISTRANT HEREBY AMENDS ITS ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1997 TO AMEND ITEMS 6, 7 AND 8 TO PART II AND ITEM 14 TO
PART IV, AS SET FORTH IN THE PAGES ATTACHED HERETO:
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PART II
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data set forth below was derived from the respective
year's audited financial statements and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included at Item 7 herein, together with the Consolidated Financial
Statements, including the Notes thereto, included at Item 8 of this Form 10-K.
As part of an organizational restructuring, the operations and financial
activity associated with the Company's former Golf and Marketing Divisions have
been consolidated into a new Consumer Division and the revenues previously
presented for the former two divisions have been consolidated to conform to the
current year's presentation. The 1997 information has been restated. See Note 2
to the consolidated financial statements.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
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STATEMENT OF OPERATIONS DATA: 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Revenues: (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Consumer division $ 12,873 $ 10,792 $ 9,604 $ 8,381 $ 7,031
Construction division 21,894 20,454 19,177 5,599 2,177
-------- -------- -------- -------- --------
Total revenues 34,767 31,246 28,781 13,980 9,208
-------- -------- -------- -------- --------
Operating costs and expenses:
Construction and shaping costs 34,266 17,052 16,500 4,737 1,894
Operating expenses 11,035 8,114 7,327 6,693 5,440
Compensation recorded on sale of shares
to management(1) -- 3,000 -- -- --
Corporate administration 4,184 3,276 3,121 3,051 2,994
Depreciation and amortization 782 244 233 199 243
-------- -------- -------- -------- --------
Total operating costs and expenses 50,267 31,686 27,181 14,680 10,571
-------- -------- -------- -------- --------
Operating income (loss) (15,500) (440) 1,600 (700) (1,363)
Other income (expense) (482) 161 (1) (10) 2
-------- -------- -------- -------- --------
Income (loss) from continuing operations (15,982) (279) 1,599 (710) (1,361)
before income taxes
Provision for income taxes 288 246 365 155 43
-------- -------- -------- -------- --------
Income (loss) from continuing operations (16,270) (525) 1,234 (865) (1,404)
Loss from discontinued operations (8,429) (1,906) -- -- --
-------- -------- -------- -------- --------
Net income (loss) (24,699) (2,431) 1,234 (865) (1,404)
======== ======== ======== ======== ========
EARNINGS PER SHARE - BASIC
AND DILUTED:
Income (loss) from continuing operations
per share $ (2.96) $ (0.13) $ 0.41 $ (0.29) $ (0.47)
Loss from discontinued operations per share (1.53) (0.47) -- -- --
-------- -------- -------- -------- --------
Net income (loss) per share $ (4.49) $ (0.60) $ 0.41 $ (0.29) $ (0.47)
======== ======== ======== ======== ========
PRO FORMA EARNINGS PER SHARE -
BASIC AND DILUTED:
Income (loss) from continuing
operations per share $ (0.10) $ 0.46 $ (0.03) $ (0.16)
Loss from discontinued operations per share (0.47) -- -- --
-------- -------- -------- --------
Pro forma net income (loss) per share $ (0.57) $ 0.46 $ (0.03) $ (0.16)
======== ======== ======== ========
Weighted average common shares outstanding 5,505 4,040 3,000 3,000 3,000
======== ======== ======== ======== ========
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------
1997 1996(2) 1995 1994 1993
-------- -------- -------- -------- --------
BALANCE SHEET DATA (AT YEAR-END): (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital (deficit) $(12,442) $ 20,593 $ 368 $ (462) $ 314
Total assets 45,947 43,505 7,287 3,290 2,499
Long-term debt 2,353 -- 44 113 --
Shareholders' equity 13,561 38,254 1,030 256 1,110
</TABLE>
(1) Represents compensation deemed to have been received by certain executives
in connection with their purchase of shares in Golf Centers. See Note 14 to
the Consolidated Financial Statements included at Item 8 herein.
(2) The significant increases in the respective balance sheet data amounts for
1996 are primarily attributable to the Company's initial public offering of
2.484 million shares of its Class A Common Stock on August 1, 1996.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the years ended December 31, 1997, 1996 and 1995.
This discussion and analysis should be read in conjunction with the Selected
Financial Data and the accompanying audited Consolidated Financial Statements of
the Company and the related Notes thereto which are included elsewhere in this
10-K.
OVERVIEW
As part of an organizational restructuring during the fourth quarter of 1997 to
refocus on its core businesses, the operations and financial activity associated
with the Company's former Golf and Marketing Divisions have been consolidated
into a new Consumer Division. Accordingly, the Company now operates its business
through two divisions comprised of the Consumer Division and the Construction
Division. The Consumer Division licenses and franchises golf practice and
instruction facilities under the JACK NICKLAUS GOLF CENTER, JACK NICKLAUS
ACADEMY OF GOLF and GOLDEN BEAR GOLF CENTER brand names. In addition, the
Consumer Division is involved in the licensing 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. Through December 31, 1997, the Consumer
Division was also involved in the marketing of golf course design services on
behalf of designers, primarily Nicklaus Design, and provided golf course
management and consulting services to various golf courses and golf-related
businesses. However, as part of its organizational restructuring, the Company
terminated the design services marketing agreement pursuant to which it marketed
the design services and is no longer directly involved in providing golf course
management and consulting services effective January 1, 1998. Concurrent with
the termination of the design services agreement, the Company secured a ten year
exclusive commitment from International to continue the marketing of Paragon's
golf course construction services to Nicklaus Design clients and prospects. The
arrangement between the parties will permit Paragon to utilize the services of
Nicklaus Design's sales staff as needed on an independent contract basis and to
obtain compensation from Nicklaus Design for design leads generated through
Paragon's construction marketing activities. The Construction Division provides
technical construction services principally in connection with the construction
and renovation of golf courses and resort-related facilities.
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 additional costs and
losses associated with certain projects based on revised cost estimates related
to uncompleted contracts. As discussed in Note 1 to consolidated financial
statements (Accounts Receivable and Revenue Recognition - Paragon), under
percentage-of-completion accounting, the increase in estimated contract costs
results in a decrease in reported revenues and profits. Accordingly, the
accompanying Consolidated Statements of Operations reflect the changes to
restate the previously filed financial statements for the period ended December
31, 1997 giving effect to the additional costs and losses to be recorded on the
projects. As a result of the above restatement, the Company also determined that
it was necessary to write-off the deferred tax asset of $1,748,202 previously
recorded at December 31, 1997.
The Company has taken steps to stabilize Paragon's operations and to reduce
on-going expenses at Paragon. The Company has closed its offices in Atlanta,
Phoenix and in Manila, Philippines, and has reduced its field and corporate
personnel. The Company intends to continue to be involved in golf course
construction on some basis and is presently in discussions with a third party to
explore a range of alternatives.
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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. See
Note 13 to the consolidated financial statements.
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 discussed in Note 2 and the Company's public
statements and accounting systems with respect thereto. The Company is
cooperating in such investigation.
DISCONTINUED OPERATIONS
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. Golf
Centers was incorporated in December 1992 to offer franchise opportunities for
the operation of golf instruction and practice facilities that consist of
practice stations and the teaching techniques developed by Jack Nicklaus, Jim
Flick and the International staff. In connection with the franchise program,
Golf Centers entered into various agreements with franchisees including, but not
limited to, development and license agreements which provided for the
establishment and operation of golf centers and use of various trademarks, trade
names and associated logos and symbols. In addition, Golf Centers also owned and
operated its own golf instruction and practice facilities at numerous locations
in several states.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
For the year ended December 31, 1997, total revenues increased to $34.8 million,
up 11.5% compared to revenues of $31.2 million for the comparable period of
1996. The $3.6 million increase in total revenues during the current year was
principally the result of a $2.1 million or 19.4% increase in Consumer Division
revenues, coupled with a $1.4 million or 7.0% increase in Construction Division
revenues. Contributing to the increase in Consumer Division revenues for the
current year were new revenues associated with a recent strategic marketing
alliance that the Company entered into with VISA USA, Inc. and an increase in
revenues from golf instruction operations.
The Company incurred operating losses of $15.5 million and $0.4 million during
the years ended December 31, 1997 and 1996, respectively. The operating loss
incurred for the year ended December 31, 1996 included a one-time, non-cash
charge of $3.0 million representing compensation deemed to have been received by
certain executive officers in connection with their purchase of shares in Golf
Centers prior to the Company's initial public offering. Exclusive of the effects
of the $3.0 million charge, the $18.1 million increase in the operating loss
incurred during the current year was primarily attributable to the recognition
of certain losses associated with Paragon's construction contracts. 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. Based on
the results of the review, it was necessary to recognize additional costs and
losses associated with certain projects based on revised cost estimates related
to uncompleted contracts. As discussed in Note 1 to consolidated financial
statements (Accounts Receivable and Revenue Recognition-Paragon), under
percentage-of-completion accounting, the increase in estimated contract costs
results in a decrease in reported revenues and profits. Accordingly, the
accompanying Consolidated Statement of Operations reflect the changes to restate
the previously filed financial statements for the period ended December
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31, 1997 giving effect to the additional costs and losses to be recorded on the
projects. Included in the losses recognized by the Company is a construction
contract loss reserve of approximately $6.8 million which represents a provision
for estimated losses on certain uncompleted contracts for which management of
the Company believes losses are probable. See Notes 2 and 3 to the consolidated
financial statements. As a result of the above restatement, the Company also
determined that it was necessary to write-off the deferred tax asset of $
1,748,202 previously recorded at December 31, 1997.
The increase in the operating loss for the current year was also impacted by an
increase in operating expenses, which as a percentage of total revenues, were
31.8% and 26.0% for the years ended December 31, 1997 and 1996, respectively.
The increase in operating expenses was due primarily to additional provisions
for bad debts of $1.9 million for various accounts receivable, including certain
receivables attributable to the construction operations in the Far East.
Corporate administration expenses, which are comprised primarily of
personnel-related costs, increased to $4.2 million for the year ended December
31, 1997 from $3.3 million for the year ended December 31, 1996. The increase in
corporate administration expenses was attributable to additions of personnel and
systems upgrades, together with the increased costs associated with the
expansion of the Company's businesses and operating the Company as a separate
public company.
The increase in the operating loss incurred during the current year was also
impacted by an increase in depreciation and amortization expense along with an
increase in the level of spending on corporate administration. Charges to
depreciation and amortization increased to $0.8 million during the year ended
December 31, 1997 from $0.2 million for the comparable period of 1996 due
primarily to the addition of equipment used in Paragon's operations.
Interest income, which decreased to $0.1 million during fiscal 1997 from $0.2
million for fiscal 1996, was comprised primarily of earnings on the unexpended
proceeds from the Company's initial public offering which were invested in
short-term commercial paper instruments and repurchase agreements. Interest
expense for the current year increased to $0.4 million from $0.03 million for
the comparable period of 1996, attributable primarily to increased amounts of
indebtedness outstanding under the Company's new revolving credit facility
during the fourth quarter of 1997.
Prior to becoming a C Corporation upon the reorganization of the Company on
August 1, 1996, the various entities that comprised its operations were S
Corporations and therefore not subject to United States Federal and state income
taxes. Prior to the reorganization, such entities generally paid only foreign
income taxes
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
Total revenues increased 8.3% to $31.2 million in 1996 from $28.8 million in
1995. Revenues attributable to the Consumer Division increased during 1996 due
to increased revenues from licensing operations, together with increased income
from the operations of JNAI, which were offset in part by a decrease in golf
instruction revenues.
The Company's Construction Division revenues increased to $20.5 million in 1996
from $19.2 million in 1995. The Company limited the number of new construction
contracts that it undertook during 1996 in an effort to complete the
implementation of new systems and the integration of new staff.
The Company incurred an operating loss from continuing operations for 1996 due
primarily to a one-time, non-cash charge of $3.0 million representing
compensation deemed to have been received by certain executive officers in
connection with their purchase of shares of Golf Centers. Exclusive of the
effects of this one-time charge, operating income would have increased
approximately $1.0 million in 1996 as compared to 1995. The increase in
operating expenses, which as a percentage of total revenues increased to 26.0%
for 1996 from 25.5% during 1995 was primarily the result of the Company
incurring additional costs attributable to the implementation of new systems and
the expansion of its businesses.
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The gross margin realized by the Construction Division increased to 16.6% for
1996 from 14.0% during 1995, due primarily to a differing mix of projects in
process during 1996. Corporate administration costs increased to $3.2 million in
1996 from $3.1 million in 1995 due to planned systems upgrades and additions of
personnel, together with the increased costs associated with operating the
Company as a separate public company.
Interest income of $0.2 million in 1996 was primarily attributable to earnings
on the unexpended proceeds from the Company's initial public offering which had
been invested in short-term commercial paper instruments and repurchase
agreements. Interest income for 1995 was not material to the Company's results
of operations.
Prior to becoming a C Corporation upon the reorganization of the Company on
August 1, 1996, the various entities that comprised its operations were S
Corporations and therefore not subject to United States Federal and state income
taxes. Prior to the reorganization, such entities generally paid only foreign
income taxes.
LIQUIDITY AND CAPITAL RESOURCES
On August 1, 1996, Golden Bear closed an initial public offering of 2,484,000
shares of its Class A Common Stock and received net proceeds (after deducting
underwriting discounts and offering costs) of approximately $35.2 million. The
net proceeds, which had been fully expended by the Company as of December 31,
1997, were utilized for the following purposes: (i) approximately $13.6 million
was used to fund the acquisition of golf centers, (ii) approximately $10.2
million was utilized for working capital purposes, (iii) approximately $9.0
million was used for capital improvements to the acquired golf center facilities
and other capital expenditures, (iv) approximately $1.6 million was utilized to
repay indebtedness incurred by the Company in connection with the acquisition of
the Cool Springs Golf Center which had been funded by Jack Nicklaus and (v)
approximately $0.8 million was used for the repayment of other indebtedness.
As of December 31, 1997, the Company had a working capital deficit of $12.4
million compared to working capital of $20.6 million at December 31, 1996. Cash
and cash equivalents were $1.8 million and $6.8 million at December 31, 1997 and
1996, respectively.
To provide for additional liquidity, the Company entered into a definitive
credit agreement with a financial institution on September 26, 1997 for a $10
million revolving credit facility. Advances under such facility are used to
finance the working capital requirements of the Company. The credit agreement
provides for an initial term of two years. Borrowings under the facility are
secured by Company assets excluding various golf center properties and certain
other assets pledged to secure other long-term indebtedness. At December 31,
1997, the outstanding balance of borrowings under the facility was approximately
$8.9 million. The credit agreement contains customary conditions and covenants
with respect to the conduct of the Company's business, including dividend
payment limitations, and requires the maintenance of various financial ratios.
Effective as of December 31, 1997, certain of the ratios associated with the
financial covenants were amended by the financial institution, bringing the
Company into compliance with all required financial covenants under the credit
agreement as of that date. All amounts outstanding under the revolving credit
facility were repaid in full in July 1998 from the proceeds of the sale of
Golden Bear Golf Centers, Inc. and the credit facility was terminated.
Accordingly, all amounts related to the revolving credit facility were
classified as a current liability in the accompanying consolidated balance
sheet.
The Company entered into a second definitive credit agreement with this same
lender on February 27, 1998 for an additional short-term $5 million credit
facility. All amounts outstanding under the second credit facility were repaid
in full in July 1998 and the credit facility was terminated.
The Company has incurred operating losses from continuing operations which has
resulted in an accumulated deficit of approximately $27.4 million and a working
capital deficiency of approximately $12.4 million at December 31, 1997. The
Company incurred a net loss of approximately $17,000,000 (unaudited) for the six
months ended June 30, 1998 and expects such losses to continue during the
remainder of fiscal 1998. Management's plans in regard to these matters include
obtaining funds from the sale of Golden Bear Golf Centers, Inc. to an unrelated
party, as well as reducing on-going expenses at Paragon. In connection with
Paragon, the Company is negotiating
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with certain project owners, as well as construction vendors and subcontractors,
to expedite the completion of those projects and to minimize the cost associated
with such completion.
Future working capital requirements are dependent on the Company's ability to
complete the sale of Golden Bear Golf Centers which closed on July 21, 1998, to
successfully complete negotiations regarding Paragon as discussed in the
preceding paragraph and to achieve and maintain profitable operations in the
future. Although there can be no assurances, management believes the Company
will be successful in realizing these objectives, and, accordingly, will
generate sufficient cash flow from operations to rectify 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 proposed
expenditures or sell additional assets in order to meet its future 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. In addition, the Company's
construction contracts outside of the United States are also generally
denominated in United States dollars and accordingly, the effective cost to
customers for construction services performed overseas will increase or decrease
as foreign currencies fluctuate relative to the United States dollar, unless the
Company changes its United States dollar prices to reflect the fluctuations in
currency. Starting in fiscal 1997, the Company's JNAI joint venture entered 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. Furthermore, the Company has
historically engaged in significant business activities in Japan and Asia. To
the extent that markets in these geographic areas are volatile and unfavorably
impact the Company's customers, such events could have an adverse effect on the
Company's operations in the region going forward.
INFLATION
The Company does not believe that the relatively moderate rates of inflation
experienced in the United States over the last three years have had a
significant effect on its revenues or profitability. Although higher rates of
inflation have been experienced in a number of foreign countries in which the
Company does business, the Company does not believe that such rates have had a
material effect on the Company's revenues or profitability.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in a full set of
general-purpose financial statements. Comprehensive income is defined as the
change in equity during the financial reporting period of a business enterprise
resulting from non-owner sources. SFAS No. 131 establishes standards for the
reporting of operating segment information in both annual financial reports and
interim financial reports issued to shareholders. Operating segments are
components of an entity for which separate financial information is available
and is evaluated regularly by the entity's chief operating management. Both
statements require adoption in fiscal 1998.
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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.
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 the modifications required to ensure that its computer
systems are Year 2000 compliant. Such modifications are not anticipated to be
significant and the costs associated with such modifications will be expensed as
incurred. 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.
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 December 31, 1997, 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
next fiscal year.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Annual Report on Form 10-K 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, 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 and stabilization of its
activities, including its ability to obtain new contracts and remain
competitive, 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.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
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FINANCIAL STATEMENTS:
Report of Independent Certified Public Accountants........................ 25
Consolidated Balance Sheets as of December 31, 1997 and 1996.............. 26
Consolidated Statements of Operations for the Years
Ended December 31, 1997, 1996 and 1995................................. 27
Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1997, 1996 and 1995................................. 28
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995................................. 29
Notes to Consolidated Financial Statements................................ 32
FINANCIAL STATEMENT SCHEDULE:
Schedule II - Valuation and Qualifying Accounts for the Years
Ended December 31, 1997, 1996 and 1995................................. 62
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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Golden Bear Golf, Inc.:
We have audited the accompanying consolidated balance sheets of Golden Bear
Golf, Inc. and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1997 (1997 restated -
see Note 2). These financial statements and the schedule referred to below are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Golden Bear Golf,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule (1997 as restated) listed in
the index to consolidated financial statements is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
September 18, 1998.
12
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
----------------------------
1997
(RESTATED) 1996
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,826,033 $ 6,811,046
Accounts receivable, net of allowances of $2,148,380 in 1997
and $540,806 in 1996 13,213,727 4,978,852
Due from International 184,502 843,235
Costs and estimated earnings in excess of billings on uncompleted contracts 725,780 3,341,500
Prepaid expenses and other current assets 867,492 207,941
Net current assets of discontinued operations 773,185 9,662,135
------------ ------------
Total current assets 17,590,719 25,844,709
PROPERTY AND EQUIPMENT, net 4,844,577 1,080,172
INTANGIBLES AND OTHER ASSETS, net 774,306 398,138
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS 22,737,517 16,181,869
------------ ------------
Total assets $ 45,947,119 $ 43,504,888
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,304,993 $ 2,652,836
Accrued liabilities 2,885,421 947,099
Construction contract loss reserves 6,755,654 --
Billings in excess of costs and estimated earnings on uncompleted contracts 6,034,540 419,705
Deferred revenue 659,816 363,240
Current portion of notes payable and capital leases 9,392,487 868,498
------------ ------------
Total current liabilities 30,032,911 5,251,378
------------ ------------
NOTES PAYABLE AND CAPITAL LEASES, net of current portion 2,352,913 --
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 13)
SHAREHOLDERS' EQUITY:
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 and
2,744,812 shares issued and outstanding in 1997 and 1996, respectively 27,450 27,448
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 40,850,358
Accumulated deficit (27,350,698) (2,651,896)
------------ ------------
Total shareholders' equity 13,561,295 38,253,510
------------ ------------
Total liabilities and shareholders' equity $ 45,947,119 $ 43,504,888
============ ============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
13
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
REVENUES: 1997
(RESTATED) 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Consumer Division-
Golf instruction and related revenues $ 5,810,433 $ 4,731,750 $ 4,522,234
Licensing and other revenues 4,110,592 2,704,108 2,235,135
Income from operations of JNAI 1,080,892 1,431,616 1,056,069
Related party commissions and management fees 1,870,735 1,924,913 1,790,523
------------ ------------ ------------
Total Consumer Division 12,872,652 10,792,387 9,603,961
Construction Division 21,894,300 20,454,052 19,177,460
------------ ------------ ------------
Total revenues 34,766,952 31,246,439 28,781,421
------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Construction and shaping costs 34,265,666 17,052,253 16,500,035
Operating expenses 11,035,186 8,114,192 7,326,740
Compensation recorded on sale of shares to management -- 3,000,000 --
Corporate administration 4,183,393 3,276,422 3,121,257
Depreciation and amortization 782,366 244,107 233,041
------------ ------------ ------------
Total operating costs and expenses 50,266,611 31,686,974 27,181,073
------------ ------------ ------------
Operating income (loss) (15,499,659) (440,535) 1,600,348
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 121,335 185,398 37,166
Interest expense (389,199) (30,391) (25,255)
Other (213,821) 6,341 (12,954)
------------ ------------ ------------
Total other income (expense) (481,685) 161,348 (1,043)
------------ ------------ ------------
Income (loss) from continuing operations
before income taxes (15,981,344) (279,187) 1,599,305
PROVISION FOR INCOME TAXES 288,208 245,389 365,430
------------ ------------ ------------
Income (loss) from continuing operations (16,269,552) (524,576) 1,233,875
Loss from discontinued operations (8,429,250) (1,905,957) --
------------ ------------ ------------
Net income (loss) $(24,698,802) $ (2,430,533) $ 1,233,875
============ ============ ============
EARNINGS PER SHARE - BASIC
AND DILUTED:
Income (loss) from continuing operations per share $ (2.96) $ (0.13) $ 0.41
Loss from discontinued operations per share (1.53) (0.47) --
------------ ------------ ------------
Net income (loss) per share $ (4.49) $ (0.60) $ 0.41
============ ============ ============
PRO FORMA EARNINGS PER SHARE - BASIC
AND DILUTED:
Income (loss) from continuing operations per share $ (0.10) $ 0.46
Loss from discontinued operations per share (0.47) --
------------ ------------
Pro forma net income (loss) per share $ (0.57) $ 0.46
============ ============
Weighted average common shares outstanding 5,505,200 4,040,378 3,000,000
============ ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
14
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
RETAINED
CLASS A CLASS B ADDITIONAL EARNINGS
COMMON COMMON PAID-IN (ACCUMULATED
STOCK STOCK CAPITAL DEFICIT) TOTAL
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 $ 2,400 $ 27,600 $ 840,000 $ (614,384) $ 255,616
Divisional transfers to International -- -- -- (459,173) (459,173)
Net income -- -- -- 1,233,875 1,233,875
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1995 2,400 27,600 840,000 160,318 1,030,318
Sale of shares to management -- -- 1,500,000 -- 1,500,000
Compensation recorded on sale
of shares to management -- -- 3,000,000 -- 3,000,000
Initial public offering, net 24,840 -- 35,177,574 -- 35,202,414
Exercise of stock options 208 -- 332,784 -- 332,992
Divisional transfers to International
prior to initial public offering -- -- -- (381,681) (381,681)
Net loss -- -- -- (2,430,533) (2,430,533)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1996 27,448 27,600 40,850,358 (2,651,896) 38,253,510
Repurchase and retirement of
common stock (30) -- (43,783) -- (43,813)
Exercise of stock options 32 -- 50,368 -- 50,400
Net loss (Restated) -- -- -- (24,698,802) (24,698,802)
------------ ------------ ------------ ------------ ------------
BALANCE, December 31, 1997 $ 27,450 $ 27,600 $ 40,856,943 $(27,350,698) $ 13,561,295
============ ============ ============ ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
15
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997
(RESTATED) 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) $(24,698,802) $ (2,430,533) $ 1,233,875
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 782,366 244,107 233,041
Provision for uncollectible accounts 1,862,832 45,870 98,046
Provision for loss on construction contracts 6,755,654 -- --
Compensation recorded on sale of shares to management -- 3,000,000 --
Loss from discontinued operations 8,429,250 1,905,957 --
Changes in assets and liabilities:
Accounts receivable (10,097,707) (296,261) (3,271,756)
Due from International 658,733 (196,089) (617,057)
Costs and estimated earnings in excess of billings
on uncompleted contracts 2,615,720 (2,675,162) (472,161)
Prepaid expenses and other current assets (659,551) (15,454) 48,838
Intangibles and other assets (453,872) (274,972) 70,783
Accounts payable 1,652,157 (941,400) 2,993,965
Accrued liabilities 1,938,322 (160,101) 536,410
Billings in excess of costs and estimated earnings
on uncompleted contracts 5,614,835 (183,285) (226,802)
Deferred revenue 296,576 (326,475) (168,304)
Net cash provided by (used in) operating activities of
discontinued operations 1,991,123 (11,896,257) --
------------ ------------ ------------
Net cash provided by (used in) operating activities (3,312,364) (14,200,055) 458,878
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (1,276,182) (741,693) (179,514)
Net cash used for investing activities of discontinued
operations (7,256,923) (17,270,402) --
------------ ------------ ------------
Net cash used in investing activities (8,533,105) (18,012,095) (179,514)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net -- 35,202,414 --
Proceeds from sale of shares to management -- 1,500,000 --
Proceeds from exercise of stock options 50,400 332,992 --
Payments on notes payable and capital leases (362,417) (70,213) (62,975)
Proceeds from revolving credit facilities, net 8,047,424 675,976 150,000
Divisional transfers to International -- (381,681) (459,173)
Repurchase and retirement of common stock (43,813) -- --
Net cash used in financing activities of discontinued
operations (831,138) 1,416,698 --
------------ ------------ ------------
Net cash provided by (used in) financing activities 6,860,456 38,676,186 (372,148)
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents (4,985,013) 6,464,036 (92,784)
CASH AND CASH EQUIVALENTS, beginning of year 6,811,046 347,010 439,794
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 1,826,033 $ 6,811,046 $ 347,010
============ ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
16
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF NON-CASH
OPERATING AND INVESTING ACTIVITIES:
Compensation recorded on sale of shares to management $ -- $3,000,000 $ --
Discontinued Operations:
Golf center acquisitions accounted for as capital
leases $ -- $2,465,757 $ --
Notes payable issued in acquisition of golf centers $3,074,000 $1,700,000 $ --
Deferred profit participation obligation issued in
connection with acquisition of golf center $ -- $ 419,097 $ --
Acquisitions of equipment and furniture accounted
for as capital leases $2,054,152 $ -- $ --
Notes payable issued in acquisition of equipment $1,137,743 $ -- $ --
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid for interest $ 938,012 $ 210,226 $ 24,962
Cash paid for income taxes $ 376,485 $ 201,835 $ 57,500
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
17
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements include the accounts of
Golden Bear Golf, Inc. and its subsidiaries ("Golden Bear" or the "Company").
All significant intercompany accounts and transactions have been eliminated. 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 year. As part of an organizational restructuring, the operations and
financial activity associated with the Company's former Golf and Marketing
Divisions have been consolidated into a new Consumer Division.
Golden Bear was formed on June 7, 1996 to enter into an exchange agreement which
was consummated on August 1, 1996 upon the closing of an initial public offering
of Golden Bear's Class A Common Stock. Parties to the plan of reorganization
included, among others, Golden Bear's affiliates, Golden Bear Golf Centers, Inc.
("Golf Centers"), Paragon Construction International, Inc. ("Paragon")
(collectively, the "Constituent Companies") and Golden Bear International, Inc.
("International"), a privately owned company controlled by Jack Nicklaus.
Pursuant to the exchange agreement, Golden Bear acquired all of the outstanding
common stock of the Constituent Companies in exchange for an aggregate of
1,668,000 shares of its Class A and Class B Common Stock. In addition, Golden
Bear acquired certain assets and assumed certain liabilities of International in
exchange for 1,332,000 shares of Class B Common Stock. The transaction was
accounted for on a historical cost basis in a manner similar to a pooling of
interests as Golden Bear and the Constituent Companies had common stockholders
and management. Therefore, the financial statements of Golden Bear and the
Constituent Companies for all periods prior to the reorganization are presented
in a combined format.
Paragon was incorporated in October 1992 to provide golf course construction,
shaping and consulting services to customers located throughout the world.
Construction and shaping work is performed under both cost-plus-fee contracts
and fixed-price contracts. Paragon also manages or supervises, for a fee, the
construction projects of others. The length of Paragon's contracts varies but
typically is less than two years.
The Company licenses and franchises the brand names of NICKLAUS, JACK NICKLAUS
and GOLDEN BEAR, develops and conducts golf instruction, and manages the
personal endorsement services provided by Jack Nicklaus. The Company is
generally entitled to approximately 20% - 30% of all revenues received by Jack
Nicklaus for personal endorsement services with various companies. The Company
also received a 10% commission based on the golf course design fees received by
International through December 31, 1997. See Note 14.
International is primarily involved in golf course design and consulting, along
with the development of residential communities and daily fee golf courses.
The financial statements attributable to the operations acquired from
International for all periods prior to the reorganization, which are included in
the accompanying Consolidated Financial Statements, have been prepared from the
books and records of International. As such, the consolidated statements of
operations include allocations of expenses between the operations acquired from
International and the other divisions of International which are material in
amount. Such expenses include allocations for corporate overhead, payroll,
facilities, administration and other overhead which were allocated to the
Company using a proportional cost method of allocation because specific
identification of such expenses was not practicable. Management believes that
such allocations are representative of the respective stand-alone expenses based
on the operations acquired from International, and are
18
<PAGE>
further supported by agreements that were entered into in connection with the
reorganization of the Company. The equity of the Company includes transfers to
International, representing cash generated by the Company that was used in other
operations of International. In the opinion of management, the results of
operations and cash flows of the operations acquired from International are
properly reflected in the accompanying Consolidated Financial Statements.
CASH AND CASH EQUIVALENTS
Cash equivalents are comprised of highly liquid investment instruments with a
maturity of three months or less when purchased. Such investments, totaling $0
and $5.6 million at December 31, 1997 and 1996, respectively, are comprised
primarily of interest bearing short-term commercial paper and repurchase
agreements.
ACCOUNTS RECEIVABLE AND REVENUE RECOGNITION
CONSUMER DIVISION
Fees received for golf management services are generally received and recorded
over the life of the related contracts. Golf instruction revenues are recognized
concurrent with the time the services are rendered. License revenue is
recognized over the term of the underlying license agreement, generally from
five to ten years. Revenues attributable to strategic marketing agreements are
recognized over the contract period as the goods and services required
thereunder are provided.
Revenues attributable to personal endorsement fees are recognized as Jack
Nicklaus becomes entitled to receive such fees and the commissions on marketing
golf course design services are recognized as International receives its design
fees. International generally receives deposits ranging from 10% to 50% for its
design services. The remaining design fee is received in installments over the
period of the design contract.
PARAGON
Paragon records results of operations on long-term construction and shaping
contracts using the percentage-of-completion method, measured by the percentage
of costs incurred to date as compared to estimated total cost for each contract.
This method is used as management considers expended contract costs to be the
best available measure of progress on these contracts. Provision for estimated
losses on uncompleted contracts are made in the period in which the Company
determines that such losses are probable. To the extent that the Company
underestimates the remaining cost to complete a project, it may overstate the
revenues and profit in a particular period. In addition, 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. Furthermore, a portion of Paragon's
revenues and earnings are generated through fixed priced contracts for the
construction of golf courses. Such fixed price contracts may expose the Company
to the risks of cost overruns and inflation as well as credit risks associated
with the customer.
Construction and shaping costs include all direct material and labor costs and
those indirect costs related to contract performance, such as indirect labor,
supplies, tools and repairs and depreciation costs. Operating expenses are
charged to expense as incurred. Accounts receivable are principally from owners
of golf courses under construction. Paragon performs periodic reviews to
determine the collectability of its receivables and maintains allowances for
potential credit losses.
During 1997, the Company did not have sales to any individual unaffiliated
customer in excess of 10% of its consolidated revenues for the year. However,
during 1996, revenues from two unaffiliated customers of Paragon, SEG Hangzhou
Development Corporation ("SEG") and Aspen Glen Golf Company ("Aspen") comprised
approximately 25% of the Company's total consolidated revenues. Accounts
receivable at December 31, 1996 included $599,531 due from SEG and $874,209 due
from Aspen.
19
<PAGE>
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized, while minor replacements, maintenance and
repairs are charged to expense as incurred. When property is retired or
otherwise disposed of, the cost and accumulated depreciation are removed from
the accounts and any resulting gain or loss is recognized currently.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. In connection with accounting for Paragon's long-term
construction and shaping contracts the Company must make substantial estimates
regarding future construction costs, the length of time to complete contracts,
collectibility of billings for costs incurred and change orders and construction
site conditions. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosure of the fair value of certain financial instruments. Cash and cash
equivalents, accounts receivable, costs and estimated earnings in excess of
billings on uncompleted contracts, inventory, prepaid expenses and other current
assets, accounts payable, accrued liabilities, billings in excess of costs and
estimated earnings on uncompleted contracts, deferred revenue, together with
notes payable and capital leases are reflected in the accompanying Consolidated
Financial Statements at cost which approximates fair value. The estimated fair
value of fixed rate indebtedness at December 31, 1997 was approximately
$457,000, which approximates the carrying value. The estimated fair value of
such indebtedness was determined based on the expected future payments
discounted at risk adjusted rates for debt of similar terms and remaining
maturities.
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 December 31, 1997, 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
next fiscal year.
DEBT ISSUE COSTS
Debt issue costs have been deferred and are amortized using the straight-line
method over the term of the related indebtedness of 24 months.
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 tax assets
as of December 31, 1997 and 1996, as management believes the future realization
of such net deferred income tax assets is not more likely than not. See Notes 2
and 10.
20
<PAGE>
EARNINGS PER SHARE
In 1997, the FASB issued 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 (loss) per share in the
accompanying Consolidated Statements of Operations is computed by dividing the
net loss or pro forma net income (loss) by the weighted average common shares
outstanding for the respective years. 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 does not differ from the basic earnings per
share amounts presented in the accompanying Consolidated Statements of
Operations. Options to purchase 670,150 and 383,688 shares of common stock were
not included in computing earnings per share for the years ended December 31,
1997 and 1996, respectively, because their effects were anti-dilutive for the
respective periods. There were no common stock equivalents of the Company for
the year ended December 31, 1995.
Prior to becoming a C Corporation upon the reorganization of the Company on
August 1, 1996, Golf Centers and Paragon were S Corporations for Federal and
state income tax reporting purposes and International was also an S Corporation.
As S corporations prior to the reorganization, Golf Centers, Paragon and
International have historically only paid foreign income taxes and have not paid
United States Federal and state income taxes. The following pro forma
adjustments to record income taxes at the Company's estimated effective tax rate
have been reflected in the pro forma earnings per share data presented in the
accompanying consolidated statements of income for the years ended December 31,
1996 and 1995 to show the effects on the Company's operations as if the relevant
entities had been C Corporations during all of the years presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Historical income (loss) from continuing operations $ (524,576) $ 1,233,875
Pro forma provision (benefit) for income taxes (127,331) (135,080)
----------- -----------
Pro forma income (loss) from continuing operations (397,245) 1,368,955
Discontinued operations (1,905,957) --
----------- -----------
Pro forma net income (loss) $(2,303,202) $ 1,368,955
=========== ===========
</TABLE>
ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
which is required to be adopted in 1998. This statement 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. The adoption of SFAS No.
130 is not expected to have a material impact on the Company's financial
statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which is required to be adopted in fiscal
1998. This statement requires that a public business enterprise report financial
and descriptive information about its reportable operating segments including,
among other things, a measure of segment profit or loss, certain specific
revenue and expense items, and segment assets. The Company does not believe that
the adoption of SFAS No. 131 will have a significant effect on its financial
statements.
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
21
<PAGE>
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.
2. RESTATEMENT
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. Based on
the results of the review, it was necessary to recognize additional costs and
losses associated with certain projects based on revised cost estimates related
to uncompleted contracts. As discussed in Note 1 (Accounts Receivable and
Revenue Recognition - Paragon), under percentage-of-completion accounting, the
increase in estimated contract costs results in a decrease in reported revenues
and profits. Accordingly, the accompanying financial statements reflect the
changes to restate the previously filed financial statements for the period
ended December 31, 1997 giving effect to the additional costs and losses
incurred on the projects. Included in the losses recognized by the Company is a
construction contract loss reserve of approximately $6.8 million which
represents a provision for estimated losses on certain uncompleted contracts for
which management of the Company believes losses are probable. Unaudited
quarterly financial data for the fourth quarter of 1997, as shown in Note 18,
has also been restated and reclassified. As a result of the above restatement,
the Company also determined that it was necessary to provide full valuation
allowance to reserve for the deferred tax asset of $ 1,748,202 previously
recorded at December 31, 1997. The effect of the restatement on the Company's
results for continuing operations is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1997
---------------------
<S> <C>
REVENUES:
As previously reported $ 52,627,995
As restated 34,766,952
INCOME (LOSS) FROM CONTINUED OPERATIONS BEFORE INCOME TAXES:
As previously reported $ 4,038,060
As restated (15,981,344)
NET LOSS:
As previously reported $ (2,931,196)
As restated (24,698,802)
LOSS PER SHARE - BASIC AND DILUTED:
As previously reported $ (0.53)
As restated (4.49)
</TABLE>
Revenues and Income (loss) from continued operations before income taxes as
restated herein exclude the results of Golden Bear Golf Centers, Inc., which
have been reclassified to "Loss from Discontinued Operations" in the
accompanying consolidated statements of operations. See Note 15.
22
<PAGE>
3. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted construction and shaping contracts
consist of the following for contracts recognized under the
percentage-of-completion method of accounting:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 23,824,133 $ 23,604,746
Estimated earnings (loss) (1,528,973) 2,446,337
------------ ------------
22,295,160 26,051,083
Less billings to date (27,603,920) (23,129,288)
------------ ------------
$ (5,308,760) $ 2,921,795
============ ============
</TABLE>
The amounts associated with costs and estimated earnings on uncompleted
construction and shaping costs are included in the accompanying Consolidated
Balance Sheets under the following captions:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 725,780 $ 3,341,500
Billings in excess of costs and estimated
earnings on uncompleted contracts (6,034,540) (419,705)
----------- -----------
$(5,308,760) $ 2,921,795
=========== ===========
</TABLE>
Construction contract revenues included in the accompanying Consolidated
Statements of Operations consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Completed contracts $ 4,348,929 $13,182,139 $ 4,255,046
Uncompleted contracts 17,545,371 7,271,913 14,922,414
----------- ----------- -----------
$21,894,300 $20,454,052 $19,177,460
=========== =========== ===========
</TABLE>
The construction and shaping costs associated with construction contract
revenues included in the accompanying Consolidated Statements of Operations
consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Completed contracts $ 6,115,177 $11,655,967 $ 3,391,505
Uncompleted contracts 28,150,489 5,396,286 13,108,530
----------- ----------- -----------
$34,265,666 $17,052,253 $16,500,035
=========== =========== ===========
</TABLE>
As of December 31, 1997, the Company recorded a construction contract loss
reserve in the amount of $6,755,654 which represents a provision for estimated
losses on certain uncompleted contracts for which management of the Company
believes losses are probable.
23
<PAGE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Buildings and leasehold improvements $ 278,209 $ 442,690
Equipment, furniture and fixtures 6,357,581 2,045,060
----------- -----------
6,635,790 2,487,750
Less accumulated depreciation and amortization (1,791,213) (1,407,578)
----------- -----------
$ 4,844,577 $ 1,080,172
=========== ===========
</TABLE>
5. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Investment in JNAI $ 289,496 $ 328,604
Debt issue costs 354,028 --
Deposits 184,040 39,518
Other 23,092 30,016
--------- ---------
850,656 398,138
Less accumulated amortization (76,350) --
--------- ---------
$ 774,306 $ 398,138
========= =========
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Payroll and related costs $ 876,285 $ 259,346
Foreign taxes 266,214 266,214
Construction related job costs 761,374 --
Other 981,548 421,539
---------- ----------
$2,885,421 $ 947,099
========== ==========
</TABLE>
24
<PAGE>
7. NOTES PAYABLE AND CAPITAL LEASES
Notes payable and capital leases consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Capital lease obligations secured by equipment and furniture,
maturing through September, 2002(1) $ 1,804,047 $ --
Revolving credit facility with a bank, with interest at prime
payable quarterly, matures in September, 1999(2) 8,872,410 --
Revolving credit note with a bank, with interest at 8 1/2%
payable monthly, repaid in September, 1997(3) -- 824,986
Notes payable, with principal and interest ranging from 8 3/4% to
10 3/4% payable monthly, maturing through December, 2002(4) 1,068,943 --
Secured credit note, with principal and interest at 9 1/2%
payable monthly, matured in July, 1997 -- 43,512
------------ ------------
11,745,400 868,498
Less current portion (9,392,487) (868,498)
------------ ------------
$ 2,352,913 $ --
============ ============
</TABLE>
(1) During the period May through October of 1997, the Company acquired certain
construction equipment, office furniture and phone systems equipment by
entering into financing arrangements that were accounted for as capital
leases. Such capital lease obligations have terms of up to five years and
require monthly payments representing principal and interest at rates
ranging from 9% to 9.6%.
(2) In September 1997, the Company entered into a definitive credit agreement
with a bank for a $10 million revolving credit facility to be used to
finance the working capital required to fund the Company's growth as well
as for general corporate purposes. The credit agreement provided for an
initial term of two years. Outstanding borrowings, which bear interest at
the prime rate payable quarterly, are secured by Company assets excluding
various golf center properties and certain other assets pledged to secure
other long-term debt. The credit agreement for the $10 million revolving
credit facility contains customary conditions and covenants with respect to
the conduct of the Company's business, including dividend payment
limitations, and requires the maintenance of various financial ratios.
Effective as of December 31, 1997, certain of the ratios associated with
the financial covenants were amended by the financial institution, bringing
the Company into compliance with all required financial covenants as of
that date. All amounts outstanding under this credit facility were repaid
in full in July 1998 and the credit facility was terminated. Accordingly,
all amounts related to the revolving credit facility are classified as a
current liability in the accompanying December 31, 1997 balance sheet.
(3) In September 1997, the Company repaid outstanding borrowings and terminated
future availability under a previously existing revolving credit note. The
borrowings were repaid using proceeds from the new $10 million revolving
credit facility that the Company entered into in September 1997.
(4) During the period June through December of 1997, the Company financed the
purchase of certain construction equipment and vehicles by issuing notes
payable secured by the assets purchased. Such notes payable have terms of
up to five years and require monthly payments representing principal and
interest at rates ranging from 8 3/4% to 10 3/4%.
25
<PAGE>
The future minimum lease payments under capital lease obligations are as
follows:
<TABLE>
<CAPTION>
CAPITAL LEASE
Years ending December 31: OBLIGATIONS
----------------
<S> <C>
1998 $ 527,971
1999 522,052
2000 510,214
2001 456,829
2002 184,227
Thereafter --
-----------
Total minimum payments 2,201,293
Less amounts representing interest(1) (397,246)
-----------
Present value of minimum payments $ 1,804,047
===========
</TABLE>
(1) Represents amounts necessary to reduce the net minimum payments to present
value calculated at the Company's estimated incremental borrowing rate at
the inception of the respective obligations.
The aggregate maturities of notes payable and borrowings under the revolving
credit facility are as follows:
<TABLE>
<CAPTION>
MATURITIES OF
Years ending December 31: INDEBTEDNESS
----------------
<S> <C>
1998 $ 9,240,277
1999 349,966
2000 237,960
2001 58,775
2002 54,375
Thereafter --
--------------
$ 9,941,353
==============
</TABLE>
8. COMMON STOCK
The shares of Class A Common Stock and Class B Common Stock are identical in all
respects, except for voting rights and certain conversion rights and transfer
restrictions in respect of the shares of the Class B Common Stock. Each share of
Class A Common Stock entitles the holder to one vote on each matter submitted to
a vote of Golden Bear's shareholders and each share of Class B Common Stock
entitles the holder to ten votes on each such matter, including the election of
directors. Neither the Class A Common Stock nor the Class B Common Stock have
cumulative voting rights.
Holders of Class A Common Stock and Class B Common Stock are entitled to receive
dividends at the same rate if and when declared by the Board of Directors out of
funds legally available therefore, subject to the dividend and liquidation
rights of any Preferred Stock that may be issued and outstanding.
There are certain restrictions with respect to the transfer of Class B Common
Stock. All of the shares of Class B Common Stock are held by Nicklaus family
members or by entities controlled by or established for the benefit of such
members ("Nicklaus Family Members"). If a holder of Class B Common Stock
transfers such shares, whether by sale, assignment, gift, bequest, appointment
or otherwise, to a person other than a Nicklaus Family Member, such shares will
be converted automatically into shares of Class A Common Stock.
26
<PAGE>
Class A Common Stock has no conversion rights. Class B Common Stock is
convertible into unregistered shares of Class A Common Stock, in whole or in
part, at any time and from time to time at the option of the holder, on the
basis of one share of Class A Common Stock for each share of Class B Common
Stock converted.
In the event of liquidation, after payment of the debts and other liabilities of
Golden Bear and after making provision for the holders of Preferred Stock, if
any, the remaining assets of the Company will be distributable ratably among the
holders of the Class A Common Stock and Class B Common Stock treated as a single
class.
Upon the merger or consolidation of Golden Bear, holders of Class A Common Stock
and Class B Common Stock each are entitled to receive equal per share payments
or distributions, except that in any transaction in which shares of capital
stock are distributed, such shares may differ as to voting rights to the extent
and only to the extent that the voting rights of the Class A Common Stock and
Class B Common Stock differ at that time.
9. 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 YEARS ENDED NOVEMBER 30,
=======---------------------------------
1997 1996 1995
========== ========== ==========
<S> <C> <C> <C>
Licensing revenues $2,927,236 $3,929,392 $3,820,125
Operating expenses 755,052 818,877 1,095,232
Provision for income taxes 10,400 247,283 644,882
========== ========== ==========
Net income $2,161,784 $2,863,232 $2,080,011
========== ========== ==========
</TABLE>
10. INCOME TAXES
The components of the provision for income taxes for the respective fiscal years
consisted of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Current:
State $ 81,262 $ 62,272 $ --
Foreign 206,926 183,117 365,430
Deferred:
Federal (8,244,808) (515,282) --
State (635,288) (23,718) --
Change in valuation allowance 8,880,116 539,000 --
----------- ----------- -----------
Provision for income taxes $ 288,208 $ 245,389 $ 365,430
=========== =========== ===========
</TABLE>
27
<PAGE>
A reconciliation of the difference between the expected provision for income
taxes on continuing operations using the statutory Federal tax rate and the
Company's actual provision is shown below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Provision using statutory Federal tax rate $(5,433,657) $ (94,924) $ --
Non-deductible expenses 79,907 -- --
State income taxes -- 62,259 --
Foreign income taxes 192,320 183,130 365,430
Change in valuation allowance 5,449,638 94,924 --
----------- ----------- -----------
$ 288,208 $ 245,389 $ 365,430
=========== =========== ===========
</TABLE>
The net deferred income tax asset is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1996
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Allowance for doubtful accounts $ 802,738 $ 211,000
Tax basis capitalized costs 132,413 52,000
Tax basis in property and equipment
in excess of book basis 82,533 68,000
Accruals not currently deductible 2,608,575 47,000
Net operating loss carryforwards 5,525,988 286,000
Foreign tax credit carryforwards 368,027 112,000
----------- -----------
9,520,274 776,000
----------- -----------
Deferred income tax liabilities:
Book basis in intangible assets over tax basis 7,526 7,000
Book basis of investment in JNAI
over tax basis 118,367 223,000
Deferred revenue (24,735) 7,000
----------- -----------
101,158 237,000
----------- -----------
Net deferred income tax asset 9,419,116 539,000
Valuation allowance (9,419,116) (539,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
At December 31, 1997, the Company had available Federal net operating loss
carryforwards of approximately $16.1 million which expire in the year 2012,
along with approximately $368,000 of foreign tax credit carryforwards which
expire in 2002.
In assessing the realizability of deferred tax assets, management must consider
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. At December 31, 1997 and 1996, the Company provided
a full valuation allowance to reserve for the net deferred tax asset balance as
management believes the future realization of such net deferred income tax asset
is not more likely than not.
28
<PAGE>
11. STOCK OPTIONS
A total of 675,000 shares of the Company's Class A Common Stock may be issued
under the Golden Bear 1996 Stock Option Plan ("Option Plan"), which was adopted
in July 1996. Options under the Option Plan are granted at an exercise price
equal to the fair market value of the Class A Common Stock at the date of grant
and generally have a term of ten years from the date of grant. Such options
generally become fully vested five years from the grant date although certain
options granted to employees on December 31, 1997 are exercisable one year after
the date of grant and the options granted to Jack Nicklaus pursuant to his
employment agreement with the Company vest immediately upon being granted.
A summary of stock option transactions for the fiscal years ended December 31,
1997 and 1996 is set forth in the table below:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1997 1996
---------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE
------- -------- ------- --------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 383,688 $16.00 -- $ --
Granted 383,150 $ 9.92 404,500 $16.00
Exercised (3,150) $16.00 (20,812) $16.00
Canceled (93,538) $15.36 -- --
------- -------
Options outstanding at end of year 670,150 $12.61 383,688 $16.00
======= =======
Options exercisable at year-end 122,600 $13.28 16,688 $16.00
======= =======
Options available for future grants -- 270,500
======= =======
</TABLE>
The following table summarizes information about outstanding and exercisable
stock options at December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
------------------------------------------ ------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE PRICE OR RANGE CONTRACTUAL EXERCISE EXERCISE
OF EXERCISE PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
- ----------------------- ------- ------------ --------- ------- ---------
<S> <C> <C> <C> <C> <C>
$ 8.00 185,550 10.00 $ 8.00 -- $ --
$10.63 - $11.50 137,600 8.94 $ 11.00 65,000 $ 10.88
$12.75 30,000 9.81 $ 12.75 -- $ --
$16.00 317,000 8.59 $ 16.00 57,600 $ 16.00
------- -------
670,150 9.11 $ 12.61 122,600 $ 13.28
======= =======
</TABLE>
In connection with his employment agreement with the Company, Jack Nicklaus is
entitled to receive options to purchase 65,000 shares of Class A Common Stock
each year for a period of four years, commencing on August 1, 1997. Such
options, which are issued with an exercise price equal to the fair market value
of the Class A Common Stock on the date of grant, are immediately exercisable
upon grant and expire in 2006.
The Option Plan also provides for options to be granted to each non-employee
director of Golden Bear on the first business day following the annual meeting
of shareholders of the Company. Each non-employee director is granted options
for the purchase of 1,000 shares of Class A Common Stock with an exercise price
equal to the fair market value of the Class A Common Stock on the date of grant,
which expire 10 years from the date of grant.
29
<PAGE>
The Option Plan is administered by the Compensation Committee of the Company's
Board of Directors which is authorized to determine the provisions of future
grants, including selecting the recipients, exercise price, terms and vesting
schedules for such options.
The Company applies Accounting Principals Board Opinion No. 25, "Accounting for
Stock Issued to Employees" in accounting for stock-based compensation
arrangements whereby no compensation costs attributable to stock options is
deducted in determining net income (loss). Had compensation costs for the
Company's Option Plan been determined pursuant to SFAS No. 123, "Accounting for
Stock-Based Compensation", the Company's net loss and net loss per share would
have increased accordingly. Using the Black-Scholes option pricing model for all
options granted, the Company's pro forma net loss, pro forma net loss per share
and pro forma weighted average fair value of options granted, with related
assumptions, are as follows for the fiscal periods since inception of the Option
Plan through December 31, 1997.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------
1997 1996
------------ -----------
<S> <C> <C>
Pro forma net loss $(25,369,578) $(2,523,317)
Pro forma net loss per share - basic and diluted (4.61) (0.63)
Pro forma weighted average fair
value of options granted 7.26 11.80
Risk free interest rate 7.0% 7.0%
Expected lives 10 years 10 years
Expected volatility 55.0% 55.0%
</TABLE>
12. RETIREMENT SAVINGS PLAN
The Company participates in a retirement savings plan ("Savings Plan") sponsored
by International. The Savings Plan operates as a defined contribution plan and
is qualified under Section 401(k) of the Internal Revenue Code. The Savings Plan
covers all employees who have completed one year of service. The Company matches
the employees' contributions, up to a maximum of $1,500 per employee per Savings
Plan year. A participant's individual contribution is limited to the maximum
amount for such year under the Internal Revenue Code. Discretionary
contributions can also be made to the Savings Plan. All employees who have
completed one year of service and are employed at year-end are eligible for this
contribution. Company contributions to the Savings Plan were $ 93,384, $129,945
and $118,979 during the years ended December 31, 1997, 1996 and 1995,
respectively.
13. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its corporate executive and administrative office facilities
and leases certain other office space, office equipment, construction equipment
and vehicles. The rent expense incurred under these leases was approximately
$3.3 million, $1.2 million and $0.6 million during the years ended December 31,
1997, 1996 and 1995, respectively. Future minimum lease payments required under
noncancelable operating lease obligations are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31: MINIMUM LEASE PAYMENTS
<S> <C>
1998 $1,003,750
1999 994,533
2000 950,839
2001 926,206
2002 810,049
Thereafter 3,080,620
----------
$7,765,997
==========
</TABLE>
30
<PAGE>
CLAIMS AND ASSESSMENTS
In the normal course of business, the nature of the Company's operations may
result in claims for damages. In the opinion of management, there are no pending
legal proceedings that would have a material effect on the Consolidated
Financial Statements of the Company.
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 December 31, 1997. The
ultimate disposition of this matter is not expected to have a material effect on
the Consolidated Financial Statements of the Company.
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 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
Construction International, Inc. The plaintiff is seeking an unspecified amount
of damages, interest, costs and attorneys' fees. Since the filing of this
matter, seven additional lawsuits have been filed against the Company and
certain of its present and former officers and directors. Six of these lawsuits
were filed in the United States District Court for the Eastern District of New
York. 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 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 on the
Company's financial condition, results of operations and cash flows. 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 discussed in Note 2 and the Company's public
statements and accounting systems with respect thereto. The Company is
cooperating in such investigation.
CONSTRUCTION CONTRACT WARRANTIES
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.
31
<PAGE>
CAPITAL CONTRIBUTION COMMITMENT
During 1997, the Company entered into a joint venture agreement to provide
certain marketing services to a business that contracts with golf courses across
the United States to offer golfers the benefits of convenient advance ticketing
for specific tee times. Under the terms of the agreement, pursuant to which the
Company is entitled to a 50% participation interest in the operations of the
venture, the Company is required to make an initial capital contribution of
approximately $500,000, of which $300,000 has already been invested. The
Company's participation in the joint venture was not material to its results of
operations for the year ended December 31, 1997.
ACCUMULATED DEFICIT AND LIQUIDITY
The Company has incurred operating losses from continuing operations which has
resulted in an accumulated deficit of approximately $27.4 million and a working
capital deficiency of approximately $12.4 million at December 31, 1997. The
Company incurred a net loss of approximately $17,000,000 (unaudited) for the six
months ended June 30, 1998 and expects such losses to continue during the
remainder of fiscal 1998. Management's plans in regard to these matters include
obtaining funds from the sale of Golden Bear Golf Centers, Inc. to an unrelated
party, as well as reducing on-going expenses at Paragon. In connection with
Paragon, the Company is negotiating with certain project owners, as well as
construction vendors and subcontractors, to expedite the completion of those
projects and to minimize the cost associated with such completion.
Future working capital requirements are dependent on the Company's ability to
complete the sale of Golden Bear Golf Centers which closed on July 21, 1998, to
successfully complete negotiations regarding Paragon as discussed in the
preceding paragraph and to achieve and maintain profitable operations in the
future. Although there can be no assurances, management believes the Company
will be successful in realizing these objectives, and, accordingly, will
generate sufficient cash flow from operations to rectify 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 proposed
expenditures or sell additional assets in order to meet its future obligations.
14. RELATED PARTY TRANSACTIONS
The balances included in the accompanying Consolidated Balance Sheets under the
caption "Due from International" consists of the net amounts owed to Golden Bear
Golf, Inc. and its subsidiaries. At December 31, 1997 and 1996, the Company had
net amounts due from International of $184,502 and $843,235, respectively.
Substantially all of the $184,502 balance due at December 31, 1997 was comprised
of commissions payable under a design services marketing agreement, whereby the
Company had marketed golf course designs worldwide for Nicklaus Design, a
division of International. As part of an organizational restructuring to refocus
on its core businesses, the Company terminated the design services marketing
agreement and will no longer be involved in marketing such services effective
January 1, 1998. Concurrent with the termination of the design services
agreement, the Company secured a ten year exclusive commitment from
International to continue the marketing of Paragon's golf course construction
services to Nicklaus Design clients and prospects. The arrangement between the
parties will permit Paragon to utilize the services of Nicklaus Design's sales
staff as needed on an independent contract basis and to obtain compensation from
Nicklaus Design for design leads generated through Paragon's construction
marketing activities.
The $843,235 balance due as of December 31, 1996 was comprised primarily of
International's allocable portion of certain costs associated with maintaining
shared office space in Singapore, together with reimbursements for certain legal
expenses and commissions on specific design related revenues collected by
Nicklaus Design.
32
<PAGE>
Under the 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. The Company earned commissions in this
capacity of approximately $1.3 million each year during fiscal 1997, 1996 and
1995.
International has retained the Company as the exclusive manager and
representative to market the personal endorsement services of Jack Nicklaus,
pursuant to which the Company is generally entitled to approximately 20% - 30%
of the personal endorsement fees received by Mr. Nicklaus. During fiscal 1997,
1996 and 1995, the Company earned management fee revenues for such services of
$565,905, $643,587 and $480,000, respectively.
Pursuant to an office sharing agreement, the Company had subleased its corporate
office facilities from International for the period from August 1, 1996 through
July 31, 1997. The rent expense incurred under such sublease for the first seven
months of fiscal 1997 was $358,755 and such rent expense for the five months
ended December 31, 1996 was $248,862. Effective August 1, 1997, the Company
entered into a separate lease agreement for its corporate office facilities
directly with the owner of such facilities.
In addition, the Company had maintained certain office space in Singapore
through October 31, 1997 that was shared with International. During the ten
months ended October 31, 1997, a total of $239,000 of costs associated with
maintaining such facilities was allocated to International. During fiscal 1996,
a total of $277,818 of such costs were allocated to International. Effective
November 1, 1997, the Company relocated its office facilities in Singapore and
entered into a lease for its new facilities that are no longer shared with
International.
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. Such agreement was established effective with the reorganization
of the Company on August 1, 1996. A total of $458,964 attributable to payroll
and related costs associated with such shared employees was allocated to
International during fiscal 1997, and a total of $255,000 in such costs were
allocated to International during the five months ended December 31, 1996.
During fiscal 1997, the Company paid a $100,000 investment banking fee to
International for services rendered by Golden Bear Financial Services, a
division of International, in connection with negotiating the $10 million
revolving credit facility that the Company obtained during the year. The fee is
equal to 1% of the total facility commitment.
An analysis of the activity in "Due from International" is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $ 843,235 $ 647,146 $ 30,089
Management fees and commissions 1,870,735 1,999,913 1,790,523
Reimbursement for shared employees 458,964 255,000 --
Reimbursement for Singapore office costs 239,000 277,818 --
Reimbursement of legal fees -- 209,000 --
Sublease of corporate office facilities (358,755) (248,862) --
Investment banking fee (100,000) -- --
Payments received (2,768,677) (2,296,780) (1,173,466)
----------- ----------- -----------
Balance at end of year $ 184,502 $ 843,235 $ 647,146
=========== =========== ===========
</TABLE>
33
<PAGE>
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 Jack 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 fiscal 1997, golf equipment at an aggregate cost of $405,205 was
purchased through this source. Such purchases for 1996 were not significant to
the Company's results of operations.
The Company also had indebtedness that originated and was repaid in full during
1996. In June 1996, Jack Nicklaus advanced the Company $1.625 million and the
Company issued a note payable to Jack Nicklaus for such amount. The proceeds
were used to fund an acquisition of a golf center. The note payable was repaid
in full in August 1996 from the proceeds of the initial public offering.
During the year ended December 31, 1997, the Company paid Executive Sports
International ("ESI"), formerly a division of International, $125,101 for
certain printing and graphics services. In October of 1997, ESI was sold by
International to outside parties which included a Nicklaus family member.
In June 1996, members of management and certain Nicklaus family members
purchased capital stock of Golf Centers for an aggregate price of $1.5 million,
of which $600,000 related to the shares purchased by members of management. For
financial statement reporting purposes, the fair value of the shares sold to
management at the date of issuance was deemed to be the estimated initial public
offering price of $15 per share which resulted in the recognition of
compensation expense in the amount of $3 million.
Accounts receivable at December 31, 1997 includes $204,154 due from JNAI for
certain costs associated with a brand marketing research project that were
previously paid by the Company on behalf of JNAI.
15. DISCONTINUED OPERATIONS
On July 20, 1998, the Company sold all of the issued and outstanding stock of
Golf Centers to an unrelated party for $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 purchase price approximates the book value of the Company's
investment in Golf Centers and the Company does not expect to incur any
significant gain or loss on the sale. Golf Centers was incorporated in December
1992 to offer franchise opportunities for the operation of golf instruction and
practice facilities that consist of practice stations and the teaching
techniques developed by Jack Nicklaus, Jim Flick and the International staff. In
connection with the franchise program, Golf Centers entered into various
agreements with franchisees including, but not limited to, development and
license agreements which provided for the establishment and operation of golf
centers and use of various trademarks, trade names and associated logos and
symbols. In addition, Golf Centers also owned and operated its own golf
instruction and practice facilities at numerous locations in several states.
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 it's results of
operations as "Loss from discontinued operations" in the accompanying
consolidated statements of operations. The loss from operations of Golf Centers
totaled $8,429,250, $1,905,957 and $0 for the years ended December 31, 1997,
1996 and 1995 respectively. Certain prior year amounts have been reclassified to
give effect to the discontinued operations treatment.
34
<PAGE>
The net assets of the discontinued operations at December 31, 1997 and 1996, as
presented in the accompanying consolidated balance sheets, are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current assets $ 3,812,770 $12,007,462
Property, Plant and Equipment, net 23,510,655 17,267,755
Other assets 6,777,646 4,470,781
----------- -----------
Total assets 34,101,071 33,745,998
----------- -----------
Current liabilities 3,039,585 2,345,327
Other liabilities 7,550,784 5,556,667
----------- -----------
Total liabilities 10,590,369 7,901,994
----------- -----------
Net assets of discontinued operations $23,510,702 $25,844,004
=========== ===========
</TABLE>
16. SEGMENT REPORTING
The Company's revenue generating operations are conducted through two divisions,
comprised of the Consumer Division and the Construction Division. The Consumer
Division primarily includes golf instruction activities along with the
development of the licensed products and marketing endorsement relationships.
The Construction Division reflects the operating activities of Paragon, which is
primarily engaged in the construction and shaping of golf courses.
The operating results and capital expenditures of the respective segments are
set forth below.
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Consumer division $ 12,872,652 $ 10,792,387 $ 9,603,961
Construction division 21,894,300 20,454,052 19,177,460
------------ ------------ ------------
34,766,952 31,246,439 $ 28,781,421
============ ============ ============
Operating income (loss):
Consumer division 5,097,124 4,221,983 $ 3,176,440
Construction division (16,080,894) 1,721,916 1,634,509
Compensation on sale of shares to management(1) -- (3,000,000) --
Corporate administration (4,515,889) (3,384,434) (3,210,601)
------------ ------------ ------------
(15,499,659) (440,535) $ 1,600,348
============ ============ ============
Depreciation and amortization:
Consumer division 84,414 112,738 118,690
Construction division 365,456 23,357 25,007
Corporate administration 332,496 108,012 89,344
------------ ------------ ------------
782,366 $ 244,107 $ 233,041
============ ============ ============
Capital expenditures:
Consumer division $ -- $ 44,819 $ --
Construction division 1,206,634 203,514 88,239
Corporate administration 69,548 493,360 91,275
------------ ------------ ------------
$ 1,276,182 $ 741,693 $ 179,514
============ ============ ============
</TABLE>
35
<PAGE>
(1) Amount represents compensation deemed to have been received by certain
executives in connection with their purchase of shares in Golf Centers. See
Note 14.
Information with respect to identifiable assets of the respective segments is
set forth below.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
Identifiable assets:
Consumer division $ 1,434,442 $ 2,232,321
Construction division 17,584,685 7,228,719
Corporate administration 3,417,290 8,159,844
Net assets of discontinued operations 23,510,702 25,884,004
------------ ------------
$ 45,947,119 $ 43,504,888
============ ============
</TABLE>
17. INTERNATIONAL OPERATIONS
The Company derives a portion of its revenues from foreign sources, primarily
through certain operations of Paragon and the apparel licensing activities of
JNAI, an unconsolidated joint venture. The foreign operations of Paragon are
primarily attributable to projects located in the Asia Pacific region.
Substantially all of Paragon's construction contracts are denominated in U.S.
currency and accordingly, its historical results of operations have generally
not been subject to foreign currency fluctuations. Although JNAI conducts its
operations in the United States, substantially all of its revenues are received
from licensees located in the Asia Pacific region, primarily Japan and Korea.
All of the revenues of JNAI's licensees are generated in foreign currencies. The
licensees pay their license fees to JNAI in U.S. dollars based on the exchange
rate on the date of payment. Although foreign currency fluctuations have not
been significant historically, fluctuations in the values of these currencies
relative to the U.S. dollar could have a material adverse effect on the
Company's future profitability. Furthermore, the Company has historically
engaged in significant business activities in Japan and Asia. To the extent that
markets in these geographic areas are volatile and unfavorably impact the
Company's customers, such events could have an adverse effect on the Company's
operations in the region going forward.
Certain information with respect to the foreign operations of Paragon and the
Company's net investment in, and net equity in the earnings of JNAI is set forth
below.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Assets $ 7,330,328 $ 1,605,598 $ 2,583,569
=========== =========== ===========
Revenues $11,463,451 $ 8,528,800 $ 6,821,478
=========== =========== ===========
Contribution to operating income before
allocation of corporate overhead $ 3,898,643 $ 1,852,314 $ 3,034,988
=========== =========== ===========
</TABLE>
36
<PAGE>
18. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended December 31, 1997
and 1996 is presented below.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1997 1997 1997 1997 (RESTATED)(1)
------------ ------------ ------------- ------------------
<S> <C> <C> <C> <C>
Revenues:
Consumer division $ 2,842,501 $ 4,057,310 $ 2,882,717 $ 3,090,124
Construction division 1,270,498 12,929,712 9,722,403 (2,028,313)
------------ ------------ ------------ ------------
4,112,999 16,987,022 12,605,120 1,061,811
------------ ------------ ------------ ------------
Operating costs and expenses:
Construction and shaping costs 1,582,142 11,889,210 7,102,439 13,691,875
Operating expenses 2,477,297 2,792,823 2,244,164 3,520,902
Corporate administration 1,113,034 944,726 627,864 1,497,769
Depreciation and amortization 70,868 120,695 240,652 350,151
------------ ------------ ------------ ------------
5,243,341 15,747,454 10,215,119 19,060,697
------------ ------------ ------------ ------------
Operating income (loss) from operations (1,130,342) 1,239,568 2,390,001 (17,998,886)
Other income (expense) 56,262 (61,651) (163,273) (313,023)
------------ ------------ ------------ ------------
Income (loss) from continuing operations
before income taxes (1,074,080) 1,177,917 2,226,728 (18,311,909)
Provision (benefit) for income taxes (387,389) 344,217 766,685 (435,305)
------------ ------------ ------------ ------------
Income (loss) from continuing operations (686,691) 833,700 1,460,043 (17,876,604)
Loss from discontinued operations (915,951) (830,390) (1,096,626) (5,586,283)
------------ ------------ ------------ ------------
Net income (loss) $ (1,602,642) $ 3,310 $ 363,417 $(23,462,887)
============ ============ ============ ============
EARNINGS PER SHARE - BASIC
AND DILUTED:
Income (loss) from continuing operations
per share $ (0.12) $ 0.15 $ 0.27 $ (3.25)
Discontinued operations per share (0.17) (0.15) (0.20) (1.01)
------------ ------------ ------------ ------------
Net income (loss) per share $ (0.29) $ -- $ 0.07 $ (4.26)
============ ============ ============ ============
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1996 1996 1996 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Consumer division $ 2,276,719 $ 3,008,061 $ 2,475,516 $ 3,032,091
Construction division 2,055,894 5,116,729 6,482,256 6,799,173
------------ ------------ ------------ ------------
4,332,613 8,124,790 8,957,772 9,831,264
------------ ------------ ------------ ------------
Operating costs and expenses:
Construction and shaping costs 1,505,531 4,481,026 5,311,901 5,753,795
Operating expenses 1,974,760 2,163,287 2,294,646 1,681,499
Compensation on sales of shares -- 3,000,000 -- --
Corporate administration 750,467 882,080 1,000,248 643,627
Depreciation and amortization 72,207 89,521 26,211 56,168
------------ ------------ ------------ ------------
4,302,965 10,615,914 8,633,006 8,135,089
------------ ------------ ------------ ------------
Income (loss) from operations 29,648 (2,491,124) 324,766 1,696,175
Other income (expense) 4,130 (7,331) 76,124 88,425
------------ ------------ ------------ ------------
Income (loss) from continuing operations 33,778 (2,498,455) 400,890 1,784,600
before income taxes
Provision for income taxes 586 22,588 187,992 34,223
------------ ------------ ------------ ------------
Income (loss) from continuing operations 33,192 (2,521,043) 212,898 1,750,377
Loss from discontinued operations -- (103,466) (57,020) (1,745,471)
------------ ------------ ------------ ------------
Net income (loss) $ 33,192 $ (2,624,509) $ 155,878 $ 4,906
============ ============ ============ ============
EARNINGS PER SHARE - BASIC
AND DILUTED:
Income (loss) from continuing operations
per share $ 0.01 $ (0.84) $ 0.04 $ 0.32
Discontinued operations per share -- (0.03) (0.01) (0.32)
------------ ------------ ------------ ------------
Net income (loss) per share $ 0.01 $ (0.87) $ 0.03 $ --
============ ============ ============ ============
PRO FORMA EARNINGS PER SHARE - BASIC AND
DILUTED (2):
Pro forma income (loss) from continuing
operations per share $ 0.03 $ (0.86) $ 0.07
Discontinued operations per share -- (0.03) (0.01)
------------ ----------- ------------
Pro forma net income (loss) per share $ 0.03 $ (0.89) $ 0.06
============ ============ ============
</TABLE>
(1) Based on the results of the Company's comprehensive review of Paragon's
construction projects, it was necessary to recognize additional costs and
losses associated with certain projects during the fourth quarter of 1997
based on revised cost estimates related to uncompleted contracts which
were determined to have been available as of December 31, 1997.
Accordingly, the accompanying results of operations for the quarter ended
December 31, 1997 have been restated giving effect to the additional costs
and losses incurred on the projects. As a result of the restatement, the
Company also determined that it was necessary to provide a full valuation
allowance to reserve for the net deferred tax asset previously recorded at
December 31, 1997. See Note 2.
(2) Pro forma earnings per share assumes pro forma income tax provision
(benefit) of $ (45,600), $30,984 and $ (112,715) for the quarterly periods
ended March 31, 1996, June 30, 1996 and September 30, 1996, respectively.
See Note 1 to Consolidated Financial Statements.
38
<PAGE>
19. SUBSEQUENT EVENT
On February 27, 1998, the Company entered into a second definitive credit
agreement with the financial institution that previously in September 1997 had
provided a $10 million revolving credit facility to the Company. The new credit
facility provided for additional short-term borrowings of up to $5 million to be
used to finance the Company's working capital requirements. During July 1998,
the Company repaid in full the outstanding balance due under both credit
agreements, and both credit agreements were terminated.
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements of the Company are set forth in Part II,
Item 8 of this report.
(2) Financial Statement Schedule II, Valuation and Qualifying Accounts for
the Years Ended December 31, 1997, 1996 and 1995 is submitted herein.
(3) Exhibits -
EXHIBIT NO. DESCRIPTION
----------- ------------------------------
23 Consent of Arthur Andersen LLP
27 Financial Data schedule
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment 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: October 19, 1998
41
<PAGE>
SCHEDULE II
GOLDEN BEAR GOLF, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
----------- -----------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND AMOUNTS END
DESCRIPTION OF YEAR EXPENSES WRITTEN OFF OF YEAR
- ---------------------------------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Allowance for uncollectible accounts $ 572,999 $ 98,046 $ 159,212 $ 511,833
=========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 1996:
Allowance for uncollectible accounts $ 511,833 $ 45,870 $ 16,897 $ 540,806
Valuation allowance for deferred
tax assets - 539,000 - 539,000
=========== =========== =========== ===========
$ 511,833 $ 584,870 $ 16,897 $ 1,079,806
=========== =========== =========== ===========
YEAR ENDED DECEMBER 31, 1997:
Allowance for uncollectible accounts $ 540,806 $ 1,862,832 $ 255,258 $ 2,148,380
Valuation allowance for deferred
tax assets 539,000 8,880,116 - 9,419,116
=========== =========== =========== ===========
$ 1,079,806 $10,742,948 $ 255,258 $11,567,496
=========== =========== =========== ===========
</TABLE>
42
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
23 Consent of Arthur Andersen LLP
27 Financial Data Schedule
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K/A, into the Company's
previously filed registration statement on Form S-8 (File No. 333-05581).
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
October 16, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDEN BEAR
GOLF INC.'S FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,826,033
<SECURITIES> 0
<RECEIVABLES> 15,362,107
<ALLOWANCES> (2,148,380)
<INVENTORY> 45,546
<CURRENT-ASSETS> 17,590,719
<PP&E> 6,635,790
<DEPRECIATION> (1,791,213)
<TOTAL-ASSETS> 45,947,119
<CURRENT-LIABILITIES> (30,032,911)
<BONDS> (11,745,400)
0
0
<COMMON> (55,050)
<OTHER-SE> (13,506,245)
<TOTAL-LIABILITY-AND-EQUITY> (45,947,119)
<SALES> (21,894,300)
<TOTAL-REVENUES> (34,766,952)
<CGS> 34,265,666
<TOTAL-COSTS> 50,266,611
<OTHER-EXPENSES> 481,685
<LOSS-PROVISION> 1,862,832
<INTEREST-EXPENSE> 389,199
<INCOME-PRETAX> 15,981,344
<INCOME-TAX> 288,208
<INCOME-CONTINUING> 16,269,525
<DISCONTINUED> 8,429,250
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,698,802
<EPS-PRIMARY> 4.49
<EPS-DILUTED> 4.49
</TABLE>
