SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] - Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998
or
[ ] - Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-21089
GOLDEN BEAR GOLF, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0680880
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
11780 U.S. HIGHWAY ONE, NORTH PALM BEACH, FLORIDA 33408
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(561) 626-3900
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
The Registrant had outstanding 2,744,962 shares of Class A Common Stock (par
value $.01 per share) and 2,760,000 shares of Class B Common Stock (par value
$.01 per share) as of May 8, 1998.
<PAGE>
GOLDEN BEAR GOLF, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
March 31, 1998 (Unaudited) and December 31, 1997.............. 3
Consolidated Condensed Statements of Operations (Unaudited)
for the Three Months Ended March 31, 1998 and 1997............ 4
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 1998 and 1997............ 5
Notes to Consolidated Condensed Financial Statements (Unaudited). 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations................... 13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................ 17
Signatures................................................................. 18
2
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN BEAR GOLF, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,408,688 $ 2,711,014
Accounts receivable, net 14,512,260 13,787,145
Due from International -- 184,502
Costs and estimated earnings in excess of billings on
uncompleted contracts 11,563,982 11,462,323
Inventory 2,563,412 2,445,465
Prepaid expenses and other current assets 1,391,973 994,844
------------ ------------
Total current assets 32,440,315 31,585,293
PROPERTY AND EQUIPMENT, net 29,368,652 28,355,232
INTANGIBLES AND OTHER ASSETS, net 9,997,135 9,300,154
------------ ------------
Total assets $ 71,806,102 $ 69,240,679
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,909,919 $ 5,877,231
Accrued liabilities 4,517,052 7,264,307
Due to International 56,539 --
Billings in excess of costs and estimated earnings on
uncompleted contracts 115,719 90,610
Deferred revenue 1,691,142 689,816
Current portion of notes payable and capital leases 6,702,627 1,213,707
------------ ------------
Total current liabilities 18,992,998 15,135,671
------------ ------------
NOTES PAYABLE AND CAPITAL LEASES, net of current portion 18,262,493 18,776,107
------------ ------------
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
shares issued and outstanding 27,450 27,450
Class B, $.01 par value, 10,000,000 shares authorized, 2,760,000
shares issued and outstanding 27,600 27,600
Additional paid-in capital 40,856,943 40,856,943
Accumulated deficit (6,361,382) (5,583,092)
------------ ------------
Total shareholders' equity 34,550,611 35,328,901
------------ ------------
Total liabilities and shareholders' equity $ 71,806,102 $ 69,240,679
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------
REVENUES: 1998 1997
------------ ------------
<S> <C> <C>
Consumer Division-
Golf centers, golf instruction and related revenues $ 5,383,579 $ 3,900,091
Licensing and other revenues 884,622 727,173
Income from operations of JNAI 108,914 405,924
Related party commissions and management fees 93,625 516,893
------------ ------------
Total Consumer Division 6,470,740 5,550,081
Construction Division 16,016,615 1,270,498
------------ ------------
Total revenues 22,487,355 6,820,579
------------ ------------
OPERATING COSTS AND EXPENSES:
Construction and shaping costs 13,626,743 1,582,142
Operating expenses 7,275,034 6,172,775
Corporate administration 1,203,112 1,305,960
Depreciation and amortization 930,234 289,695
------------ ------------
Total operating costs and expenses 23,035,123 9,350,572
------------ ------------
Loss from operations (547,768) (2,529,993)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 32,470 138,908
Interest expense (445,470) (176,576)
Other (126,013) 56,509
------------ ------------
Total other income (expense) (539,013) 18,841
------------ ------------
Loss before income taxes (1,086,781) (2,511,152)
BENEFIT FOR INCOME TAXES (308,491) (908,510)
------------ ------------
Net loss $ (778,290) $ (1,602,642)
============ ============
EARNINGS PER SHARE - BASIC AND DILUTED:
Net loss per share $ (0.14) $ (0.29)
============ ============
Weighted average common shares outstanding 5,504,962 5,505,912
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (778,290) $ (1,602,642)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 930,234 289,695
Changes in assets and liabilities:
Accounts receivable (725,115) (1,173,700)
Due from/to International 241,041 (658,964)
Costs and estimated earnings in excess of billings on
on uncompleted contracts (101,659) 361,115
Inventory (117,947) (403,241)
Prepaid expenses and other current assets (397,129) (270,607)
Intangibles and other assets (458,859) (558,571)
Deferred tax asset (361,804) (938,971)
Accounts payable 32,688 (1,902,917)
Accrued liabilities (2,747,255) 339,158
Billings in excess of costs and estimated earnings on 25,109 548,507
uncompleted contracts
Deferred revenue 1,001,326 666,573
------------ ------------
Net cash used in operating activities (3,457,660) (5,304,565)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of golf centers -- (1,465,236)
Capital expenditures, net (489,747) (1,508,059)
------------ ------------
Net cash used in investing activities (489,747) (2,973,295)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term credit facility 5,000,000 --
Proceeds from (payments on) revolving credit facilities, net (1,713,000) 173,460
Proceeds from capital lease obligation 674,152 --
Payments on notes payable and capital leases (316,071) (111,905)
Proceeds from exercise of stock options -- 50,400
Repurchase and retirement of common stock -- (43,813)
------------ ------------
Net cash provided by financing activities 3,645,081 68,142
------------ ------------
Net decrease in cash and cash equivalents (302,326) (8,209,718)
CASH AND CASH EQUIVALENTS, beginning of period 2,711,014 16,477,420
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 2,408,688 $ 8,267,702
============ ============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
Acquisitions of equipment accounted for as capital leases $ 1,330,225 $ --
Notes payable issued in connection with the acquisition of $ -- $ 2,899,000
golf centers
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited Consolidated Condensed Financial Statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the audited Consolidated
Financial Statements and Notes thereto included in Golden Bear Golf, Inc.'s (the
"Company") Annual Report on Form 10-K for the fiscal year ended December 31,
1997, as filed with the Securities and Exchange Commission.
The results of operations and cash flows for the three months ended March 31,
1998 are not necessarily indicative of the results of operations or cash flows
which may be reported for the remainder of fiscal 1998.
In order to maintain consistency and comparability between periods presented,
certain amounts have been reclassified from the previously reported financial
statements in order to conform with the financial statement presentation of the
current period. 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.
DEFERRED INCOME TAXES
Included in intangibles and other assets on the accompanying Consolidated
Condensed Balance Sheet as of March 31, 1998 is a net deferred income tax asset
of $2,110,006, comprised primarily of the unrealized net operating loss
carryforwards generated by the operating losses incurred during the 1997 fiscal
year and the three months ended March 31, 1998. Management believes the Company
will generate sufficient taxable income in future periods to absorb such net
operating loss carryforwards and that it is more likely than not that the net
deferred tax asset as of March 31, 1998 will be realized. Accordingly, no
additional provision to the valuation allowance associated with the net deferred
income tax asset was recorded for the three months ended March 31, 1998.
EARNINGS PER SHARE
Effective December 15, 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
per Share," which among other changes, requires that basic earnings per share be
computed without regard to any outstanding common equivalent shares. Earnings
per share in the accompanying Consolidated Condensed Statements of Operations is
computed by dividing the net loss by the weighted average common shares
outstanding for the respective periods presented. Diluted earnings per share as
computed under SFAS No. 128 includes the effects of common stock equivalents,
including the dilutive effect of all outstanding stock options using the
treasury stock method. Diluted earnings per share is the same as basic earnings
per share in the accompanying Consolidated Condensed Statements of Operations.
Options to purchase 670,150 and 420,138 shares of common stock were not included
in computing earnings per share for the three months ended March 31, 1998 and
1997, respectively, because their effects were anti-dilutive for the respective
periods.
6
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
COMPREHENSIVE INCOME
Required for 1998 financial statements, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. This statement requires that an enterprise (i) classify
items of other comprehensive income by their nature in financial statements and
(ii) display the accumulated balance of other comprehensive income separately
from retained deficit and additional paid-in capital in the equity section of
the balance sheets. Comprehensive income is defined as the change in equity
during the financial reporting period of a business enterprise resulting from
non-owner sources. During the three months ended March 31, 1998 and 1997, the
Company did not have any changes in its equity resulting from such non-owner
sources, and accordingly, comprehensive income as set forth by SFAS No. 130 was
equal to the net loss amounts presented for the respective periods in the
accompanying Consolidated Condensed Statements of Operations.
SEGMENT REPORTING
Pursuant to the requirements of SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" which is required to be adopted in fiscal
1998, a public business enterprise must report financial and other descriptive
information about its reportable operating segments. Required disclosures
include, among other things, a measure of segment profit or loss, certain
specific revenue and expense items, and segment assets. Information with respect
to the Company's two reportable segments, comprised of the Consumer Division and
Construction Division, is included herein in Note 7.
2. 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:
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
Costs incurred on uncompleted contracts $ 40,189,259 $32,470,873
Estimated earnings 9,175,789 7,175,348
------------ ------------
49,365,048 39,646,221
Less billings to date 37,916,785 28,274,508
------------ ------------
$11,448,263 $11,371,713
============ ============
The amounts associated with costs and estimated earnings on uncompleted
construction and shaping costs are included in the accompanying Consolidated
Condensed Balance Sheets under the following captions:
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 11,563,982 $11,462,323
Billings in excess of costs and estimated
earnings on uncompleted contracts (115,719) (90,610)
------------ ------------
$11,448,260 $11,371,713
============ ============
7
<PAGE>
3. NOTES PAYABLE AND CAPITAL LEASES
Notes payable and capital leases consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
<S> <C> <C>
Note payable to financial institution, due in monthly principal
installments of $10,000 plus interest at prime + 3/4%,
with balloon payment due at maturity in August, 2003 $ 1,600,000 $ 1,640,000
Notes payable to sellers of golf centers, with interest
ranging from 8% to prime + 1 1/4%, maturing through June, 2004(1) 3,724,818 3,780,723
Capital lease obligations secured by certain golf center facilities,
maturing through April, 2025 2,415,021 2,424,751
Deferred profit participation obligation, payable quarterly, discounted
at an effective rate of 9%, matures December, 2006 391,915 398,940
Capital lease obligations secured by equipment and furniture,
maturing through January, 2003(2) 3,696,220 1,804,047
Revolving credit facility with a bank, with interest at prime payable
quarterly, matures in September, 1999(3) 7,159,410 8,872,410
Short-term credit facility with a bank, with interest at greater of prime
or Federal Funds rate +1/2% payable at maturity in May, 1998(4) 5,000,000 --
Notes payable, with principal and interest ranging from 8 3/4% to
10 3/4% payable monthly, maturing through December, 2002(5) 977,736 1,068,943
------------ ------------
24,965,120 19,989,814
Less current portion (6,702,627) (1,213,707)
------------ ------------
$ 18,262,493 $ 18,776,107
============ ============
<FN>
- -------------------------
(1) In September 1996, the Company issued a note payable for $750,000 in
connection with its acquisition of Highlander Facilities. The note is
secured by certain property and equipment of the golf center and bears
interest at 8% payable monthly, with the entire principal due in August
2001.
In December 1996, the Company issued a note payable for $350,000 in
connection with the purchase of MacDivott's Golf Center. The note is secured
by certain property and equipment of the golf center and bears interest at
prime + 1/2% payable quarterly, with the entire principal due in December
1999. In August 1997, the Company purchased a mini-golf facility located
adjacent to MacDivott's Golf Center and issued a promissory note for
$175,000 in connection with such acquisition. The promissory note is secured
by certain property and equipment of the mini-golf facility and requires
quarterly principal payments of $6,250 plus interest at prime + 1%. Based on
such required quarterly payments, the note will be fully amortized in June
2004. The outstanding principal balance on the note was $156,250 at March
31, 1998.
In January 1997, the Company incurred certain secured indebtedness
aggregating approximately $2.1 million in connection with the purchase of
Oasis Golf Center. During 1997 the Company modified certain terms associated
with such indebtedness and consolidated the obligations into a $1.8 million
promissory note requiring monthly payments of principal and interest at
prime + 1 1/4% calculated on a ten year amortization schedule. In addition
to such recurring monthly installments, the Company is also obligated to
make additional annual $50,000 principal payments in September of each year
through 2002 at which time any remaining outstanding principal is payable in
a balloon payment. The outstanding principal balance on the note was $1.8
million at March 31, 1998.
8
<PAGE>
3. NOTES PAYABLE AND CAPITAL LEASES - (CONTINUED)
(1) (Continued) In February 1997, the Company issued a note payable for $800,000
in connection with the purchase of Caddy-Shack Golf Dome. The note is
secured by certain property and equipment of the golf center and requires
quarterly payments of $38,820 representing the amortization of principal and
interest at 9%. Based on such required quarterly payments, the note will be
fully amortized in March 2004. The outstanding principal balance on the note
was $713,866 at March 31, 1998.
(2) The Company acquired certain construction equipment, computer equipment,
office furniture and phone systems equipment by entering into financing
arrangements that were accounted for as capital leases. Included in such
capital lease obligations are additions during the three months ended March
31, 1998 of approximately $1.1 million to finance the acquisition of certain
construction equipment and $914,452 attributable to the acquisition and
implementation of a new point of sale computer system for the Company's golf
centers operations. Included in the total for the new computer system is
$674,152 representing cash received directly by the Company which was used
to pay for various components of the total cost associated with the new
system. These capital lease obligations have terms of up to five years and
require monthly payments representing principal and interest at rates
ranging from 8 1/2% to 12.7%.
(3) In September 1997, the Company entered into a definitive credit agreement
with a bank for a $10 million revolving credit facility that has a 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.
(4) On February 27, 1998, the Company entered into a second definitive credit
agreement with the financial institution that previously in September 1997
had provided the $10 million revolving credit facility to the Company. The
new credit facility provides for additional short-term borrowings of up to
$5 million to be used to finance the working capital requirements of the
Company's wholly-owned construction subsidiary, Paragon Construction
International, Inc. ("Paragon"). Such borrowings are limited to a percentage
of Paragon's eligible trade receivables and net costs and estimated earnings
in excess of billings on uncompleted construction contracts, subject to
certain limitations and stipulations as set forth in the credit agreement.
The new credit agreement provides for a term of 90 days and borrowings
thereunder bear interest at the greater of (i) the prime rate or (ii) the
Federal Funds rate plus 1/2% per annum, payable at maturity. Outstanding
borrowings are cross-collateralized with related indebtedness under the $10
million revolving credit facility previously provided to the Company by this
same lender, whereby all advances payable to such lender are secured by
Company assets excluding various golf center properties and certain other
assets pledged to secure other long-term debt.
(5) 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%.
</FN>
</TABLE>
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. At March 31, 1998, the Company was out of
compliance with respect to its maintenance of the required ratio of earnings
before interest, taxes, depreciation and amortization ("EBITDA") to interest
expense plus current maturities of debt, as defined in the credit agreement, for
which it obtained a waiver from the financial institution. To the extent that
the Company does not generate sufficient EBITDA during the remainder of the
current fiscal year, the Company may fail to comply with this required financial
covenant and there is no assurance that any additional waivers will be granted.
Any default under the credit agreement could result in the acceleration of the
maturity of all outstanding borrowings under the Company's $10 million credit
facility. See Note 8. 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.
9
<PAGE>
4. ARBITRATION CLAIMS AND CONSTRUCTION WARRANTIES
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 March 31, 1998.
Paragon's construction contracts generally provide for warranties that obligate
Paragon to remedy certain construction defects that may arise in the ordinary
course of providing such construction services. Such warranties, which are
customary in the construction industry are usually effective for a period of one
year from the completion date of the respective projects. The Company's
management does not expect the costs associated with corrective action or
penalties incurred pursuant to these warranties, if any, to have a material
impact on its results of operations.
5. OPERATIONS OF JNAI
The apparel licensing activities of the Company in the Far East are conducted
through Jack Nicklaus Apparel International ("JNAI") and its various
partnerships. The Company serves as a 50% general partner and is generally
entitled to receive 50% of the cash distributions of the various partnerships'
operations. The Company's investment in JNAI is recorded on the equity method.
The following is a condensed summary of the operating results of JNAI:
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
------------ ------------
Licensing revenues $ 379,845 $ 765,250
Operating expenses 114,955 83,268
Provision (benefit) for income taxes 47,062 (129,866)
============ ============
Net income $ 217,828 $ 811,848
============ ============
6. RELATED PARTY TRANSACTIONS
Pursuant to a design services marketing agreement, the Company marketed golf
course designs worldwide for Nicklaus Design, the golf course design division of
Golden Bear International, Inc. ("International"), a privately owned company
controlled by Jack Nicklaus. As part of an organizational restructuring to
refocus on its core businesses, the Company terminated the design services
marketing agreement effective January 1, 1998. Concurrent with the termination
of the design services agreement, International assumed certain financial
obligations of the Company to employees and third parties formerly involved in
the design marketing function, and the Company obtained a ten year exclusive
commitment from International to continue the marketing of 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 Paragon has
agreed to pay International a commission equal to five percent of the projected
gross profit margin negotiated by Paragon in golf course construction contracts
procured by Nicklaus Design. The Company and Paragon will also be entitled to
receive finder's fees from International for business leads generated by them
which result in definitive golf course contracts for Nicklaus Design.
10
<PAGE>
6. RELATED PARTY TRANSACTIONS - (CONTINUED)
Under the previous design services marketing agreement, the Company generally
had been entitled to 10% of the gross design fees collected by Nicklaus Design
for its role in marketing such design services. At December 31, 1997, the
Company had a net receivable balance due from International in the amount of
$184,502, substantially all of which was comprised of commissions payable under
the former design services marketing agreement. The Company had earned
commissions in this capacity of $359,393 during the three months ended March 31,
1997.
Pursuant to the terms of a personal services management agreement, International
and Mr. Nicklaus have retained the Company as the exclusive manager and
representative to market the personal endorsement services of Mr. Nicklaus,
pursuant to which the Company is generally entitled to approximately 20% to 30%
of the personal endorsement fees received by Mr. Nicklaus. During the three
months ended March 31, 1998 and 1997, the Company earned management fees
attributable to providing such services of $93,625 and $157,500, respectively.
The Company has an office staff sharing agreement with International which
provides for the sharing of the services of certain specifically identified
office staff and personnel that can effectively serve the needs of both
organizations. During the first three months of fiscal 1998 and 1997, payroll
and related costs associated with such shared employees totaling $27,750 and
$145,200, respectively, were allocated to International. The Company also
previously subleased its corporate office facilities from International through
July 31, 1997. The rent expense incurred under such sublease for the first three
months of fiscal 1997 was $148,402. 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 three months ended March 31, 1997, a total
of $70,000 of costs associated with maintaining such facilities was 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. As of March 31, 1998, the Company had a net
balance due to International of $56,539, comprised primarily of billings for
certain golf course maintenance consulting services provided on behalf of
Paragon.
In the ordinary course of business, the Company purchases golf equipment
manufactured by Nicklaus Golf Equipment Company, L.C., a privately owned company
in which Mr. Nicklaus has a 50% equity interest. Such equipment is purchased
primarily for resale in the pro shops of the Company's golf centers and for
promotional programs associated with the Company's Nicklaus Flick Golf Schools.
During the three months ended March 31, 1998 and 1997, the Company purchased
such golf equipment at a cost of $7,658 and $38,667, respectively.
During the three months ended March 31, 1998 and 1997, the Company paid
Executive Sports International, a privately held company owned in part by a
member of the Nicklaus family, $53,197 and $9,968, respectively, for certain
printing and graphics services.
7. 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 the operations of the Company's golf practice and
instruction facilities, 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.
11
<PAGE>
7. SEGMENT REPORTING - (CONTINUED)
The revenues and operating income (loss) of the respective segments are set
forth below.
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
------------ ------------
Revenues:
Consumer Division $ 6,470,740 $ 5,550,081
Construction Division 16,016,615 1,270,498
------------ ------------
$ 22,487,355 $ 6,820,579
============ ============
Operating income (loss):
Consumer Division $ (492,834) $ (90,857)
Construction Division 1,242,228 (1,095,676)
Corporate administration(1) (1,297,162) (1,343,460)
------------ ------------
$ (547,768) $(2,529,993)
============ ============
(1) Includes amounts attributable to depreciation and amortization of $94,050
and $37,500 for the three months ended March 31, 1998 and 1997,
respectively.
Information with respect to identifiable assets of the respective segments is
set forth below.
MARCH 31, DECEMBER 31,
1998 1997
------------ ------------
Identifiable assets:
Consumer Division $ 36,009,908 $35,535,513
Construction Division 30,730,156 28,539,674
Corporate administration 5,066,038 5,165,492
------------ ------------
$ 71,806,102 $69,240,679
============ ============
8. SUBSEQUENT EVENT
In connection with the departure of certain members of Paragon's senior
management subsequent to March 31, 1998, the Company has commenced an internal
review of Paragon's construction projects, focusing on the status of such
projects, along with the costs required to fully complete the jobs and
anticipated profitability. Specific attention is directed toward determining
contract requirements, including amendments and change orders, and the related
estimated anticipated costs of fulfilling those requirements. Based on currently
available information, the Company believes it may be necessary to recognize
losses associated with certain projects. However, the estimated amount of such
losses, if any, is not currently determinable and accordingly, no provision for
loss regarding this matter had been established as of March 31, 1998.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
As part of an organizational restructuring 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 owns, operates and licenses the Company's 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. The Construction Division provides technical construction services
principally in connection with the construction and renovation of golf courses
and resort-related facilities.
Under the terms of a design services marketing agreement, the Company had
marketed golf course designs worldwide for Nicklaus Design. However, as part of
its organizational restructuring, the Company terminated the design services
marketing agreement effective January 1, 1998 and entered into a ten year
exclusive commitment from International to market 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 Paragon will
be compensated by Nicklaus Design for any design leads generated through
Paragon's activities.
To-date, the Company has acquired a total of 14 golf practice and instruction
facilities. Consistent with a previous decision on the part of management, no
additional golf center facilities were acquired during the three months ended
March 31, 1998. Although the Company currently intends to continue its strategy
of increasing the number of golf center facilities that it owns and operates,
the timing of new centers will depend on many factors, including obtaining
sufficient financing and the successful integration of the operations of the
golf centers which have been acquired. New acquisitions will be deferred as the
Company focuses on improving the profitability of its existing golf centers. The
Company believes that the integration of its marketing activities and golf
center operations in connection with its recent organizational restructuring
will provide opportunities for improved performance. However, certain of the
golf center facilities currently operated by the Company are not expected to
contribute to the Company's operating performance in the near term. With respect
to any future acquisitions, the Company is also evaluating the benefits
associated with constructing new facilities rather than acquiring existing
facilities.
With regard to its construction activities, the Company is currently involved in
more than 30 projects around the world. In connection with the departure of
certain members of Paragon's senior management subsequent to March 31, 1998, the
Company has commenced an internal review of Paragon's construction projects,
focusing on the status of such projects, along with the costs required to fully
complete the jobs and anticipated profitability. Specific attention is directed
toward determining contract requirements, including amendments and change
orders, and the related estimated anticipated costs of fulfilling those
requirements. Based on currently available information, the Company believes it
may be necessary to recognize losses associated with certain projects. However,
the estimated amount of such losses, if any, is not currently determinable and
accordingly, no provision for loss regarding this matter had been established as
of March 31, 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1997
For the three months ended March 31, 1998, total revenues increased to $22.5
million, up 229.7% compared to revenues of $6.8 million for the comparable
period of 1997.
13
<PAGE>
The $15.7 million increase in total revenues during the current quarterly period
was principally the result of an increase in Construction Division revenues to
$16.0 million from $1.3 million for the first quarter of last year. The low
volume of construction business for the first quarter of last year was the
result of management's decision to curtail such activities pending the
implementation of new systems and the integration of new management. Revenues
attributable to the Consumer Division increased to $6.5 million for the three
months ended March 31, 1998, reflecting a 16.6% increase from the comparable
period of the prior year. Such increase in Consumer Division revenues was due to
an increase in golf instruction operations, coupled with the acquisition of two
golf centers at various dates within the course of the first quarter of last
year which contributed to consolidated revenues for a full three months during
the first quarter of the current year.
The Company incurred net operating losses of $0.5 million and $2.5 million
during the three months ended March 31, 1998 and 1997, respectively. The
decrease in the operating loss incurred for the current quarterly period was
primarily attributable to the gross profit of $2.4 million contributed by the
Construction Division, in contrast to a gross profit deficit of $0.3 million
incurred on the reduced volume of revenues for the comparable period of the
prior year. The increase in the gross profit contribution was offset in part, by
a 17.9% increase in operating expenses which resulted from the expanded level of
operations in the majority of the Company's businesses.
The operating loss incurred for the three months ended March 31, 1998 was also
impacted by an increase in the amount of depreciation and amortization expense,
which increased to $0.9 million during the first quarter of the current year
from $0.3 million for the comparable period of 1997, due primarily to an
increase in property and equipment associated with the acquisition and
conversion of golf center facilities. Corporate administration expenses, which
are comprised primarily of personnel-related costs, decreased slightly to $1.2
million for the current quarterly period from $1.3 million for the comparable
period of the prior year.
Interest expense for the three months ended March 31, 1998 increased to $0.4
million from $0.2 million for the first three months of 1997, attributable
primarily to increased outstanding borrowings under the Company's $10 million
credit facility during the current quarterly period. The benefit for income
taxes recorded for the three months ended March 31, 1998 and 1997 reflects
effective tax rates of 28.4% and 36.2%, respectively, of the pre-tax losses
reported for the two periods. The decrease in the effective tax rate for the
current quarterly period is primarily attributable to state income taxes, as a
consequence of the fact that the Company expected to have a tax liability in
certain states in which it currently operates, despite the consolidated pre-tax
loss reported for the period.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998 and December 31, 1997, the Company had working capital of
$13.4 million and $16.4 million, respectively, along with cash and cash
equivalents of $2.4 million and $2.7 million, respectively.
Certain of the Company's working capital requirements are financed by borrowings
under a $10 million revolving credit facility which matures in September 1999.
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 March 31, 1998 and December 31, 1997, outstanding
borrowings under the facility were approximately $7.2 million and $8.9 million,
respectively. The credit agreement for the 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. At March 31, 1998, the Company was out of compliance with
respect to its maintenance of the required ratio of EBITDA to interest expense
plus current maturities of debt, as defined in the credit agreement, for which
it obtained a waiver from the financial institution. To the extent that the
Company does not generate sufficient EBITDA during the remainder of the current
fiscal year, the Company may fail to comply with this required financial
covenant and there is no assurance that any additional waivers will be granted.
Any default under the credit agreement could result in acceleration of the
maturity of all outstanding borrowings under the Company's $10 million credit
facility. See Note 8 of the Consolidated Condensed Financial Statements included
herein under Part I, Item 1. 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.
14
<PAGE>
To provide additional interim working capital financing for Paragon, the Company
entered into a definitive credit agreement with this same lender on February 27,
1998 for an additional short-term $5 million revolving credit facility.
Borrowings under the new facility are limited to a percentage of Paragon's
eligible trade receivables and net costs and estimated earnings in excess of
billings on uncompleted construction contracts, subject to certain limitations
and stipulations as set forth in the credit agreement. The new credit agreement
provides for a term of 90 days and as of March 31, 1998, the outstanding balance
of borrowings under the facility was $5 million. Outstanding borrowings are
cross-collateralized with related indebtedness under the $10 million revolving
credit facility previously provided to the Company by this same lender, whereby
all advances payable to such lender are secured by Company assets excluding
various golf center properties and certain other assets pledged to secure other
long-term debt.
With respect to financing new acquisitions of golf center facilities, actual
spending on the acquisition or construction of additional golf centers in the
future will depend on, among other things, the availability of funds, the
identification and availability of suitable properties or facilities on terms
satisfactory to the Company, the location and condition of existing facilities
(i.e. whether significant capital improvements are necessary), whether the
Company acquires or leases the related land, competitive developments and
strategic marketing decisions.
The Company believes that its current cash position, together with availability
under its new revolving credit facility and cash provided by operations will be
sufficient to meet its operating needs through fiscal 1998. However, the
acquisition or development of additional golf centers will be subject to
obtaining additional financing. The Company is considering obtaining additional
funds through various means, including public offerings or private placements of
debt or equity securities. The Company may also finance acquisitions by entering
into leasing arrangements or by utilizing seller financing with deferred payment
terms which might reduce the initial up-front cash requirements on the part of
the Company. Leasing arrangements and seller financing have previously been
utilized by the Company to fund all or a portion of the purchase price
associated with the acquisition of certain golf centers. To the extent that the
Company is not able to obtain additional funds, the Company may be required to
delay or reduce its acquisition and expansion strategy.
CURRENCY FLUCTUATIONS
Although substantially all of the Company's contracts are denominated in United
States dollars, fluctuations in the value of foreign currencies relative to the
United States dollar could impact the Company's results of operations. A
substantial portion of the revenues of the Company's overseas licensees are
generated in foreign currencies and accordingly, fluctuations in the value of
these currencies relative to the United States dollar could adversely affect the
Company's profitability. Royalty payments received by the Company or by its JNAI
equity investee relating to foreign licensing arrangements are generally based
on the exchange rate at the time of payment. Although the Company's construction
contracts outside of the United States are generally denominated in United
States dollars, certain payments to local subcontractors and vendors on various
overseas projects are made in the functional currencies of the respective
countries and accordingly, the effective costs to complete certain overseas
projects may increase or decrease as foreign currencies fluctuate relative to
the United States dollar. The Company's JNAI joint venture enters into futures
contracts to hedge its anticipated receipt of certain royalty payments
denominated in Japanese yen. Apart from these futures contracts on the part of
JNAI which were not material to the Company's results of operations, the Company
does not currently engage in hedging activities with respect to currency
fluctuations, but may do so in the future. 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.
15
<PAGE>
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 March 31, 1998, a 10% change in the current interest
rate or historical currency rate movements would not have a material effect on
the Company's financial position or results of operations over the remainder of
the current fiscal year.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-Q contains forward-looking statements made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. These forward-looking statements are based largely on the Company's
expectations which are subject to a number of risks and uncertainties, including
but not limited to, those 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 associated with the
acquisition and operation of the golf centers, and those associated with the
rapid growth and performance of Paragon, including risks relating to estimated
contract costs and estimates regarding the percentage of completion, risks
associated with future profitability and the utilization of tax benefits and the
other factors discussed elsewhere in this report 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 report
will, in fact, occur. The Company does not undertake any obligation to revise
these forward-looking statements to reflect future events or circumstances.
16
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the three-month period
ended March 31, 1998.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLDEN BEAR GOLF, INC.
By: /s/ RICHARD P. BELLINGER
-------------------------
Richard P. Bellinger
President and Chief Executive Officer
By: /s/ STEPHEN S. WINSLETT
------------------------
Stephen S. Winslett
Senior Vice President and Chief
Financial Officer
Date: May 8, 1998
18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDEN BEAR
GOLF, INC.'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,408,688
<SECURITIES> 0
<RECEIVABLES> 16,885,896
<ALLOWANCES> 2,373,636
<INVENTORY> 2,563,412
<CURRENT-ASSETS> 32,440,315
<PP&E> 33,873,167
<DEPRECIATION> 4,504,515
<TOTAL-ASSETS> 71,806,102
<CURRENT-LIABILITIES> 18,992,998
<BONDS> 18,262,493
0
0
<COMMON> 55,050
<OTHER-SE> 34,495,561
<TOTAL-LIABILITY-AND-EQUITY> 71,806,102
<SALES> 16,016,615
<TOTAL-REVENUES> 22,487,355
<CGS> 13,626,743
<TOTAL-COSTS> 20,901,777
<OTHER-EXPENSES> 2,133,346
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 445,470
<INCOME-PRETAX> (1,086,781)
<INCOME-TAX> (308,491)
<INCOME-CONTINUING> (778,290)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (778,290)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
