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, 1999
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.
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(Exact name of Registrant as specified in its charter)
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<CAPTION>
FLORIDA 65-0680880
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<S> <C>
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
11780 U.S. HIGHWAY ONE, NORTH PALM BEACH, FLORIDA 33408
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(Address of principal executive offices) (Zip Code)
(561) 626-3900
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since last report)
</TABLE>
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 14, 1999.
<PAGE>
GOLDEN BEAR GOLF, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
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PAGE
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
March 31, 1999 (Unaudited) and December 31, 1998........................................ 3
Consolidated Condensed Statements of Operations (Unaudited)
for the Three Months Ended March 31, 1999 and 1998....................................... 4
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 1999 and 1998...................................... 5
Notes to Consolidated Condensed Financial Statements (Unaudited)........................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................... 13
Item 3. Quantitative and Qualitative Disclosures About Market Risk................................. 17
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................................................... 18
Signature................................................................................................ 19
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOLDEN BEAR GOLF, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
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MARCH 31, DECEMBER 31,
1999 1998
---------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,430,218 $ 1,168,118
Accounts receivable, net 2,278,804 1,626,783
Due from International 73,639 41,812
Prepaid expenses and other current assets 288,060 226,806
---------------- ----------------
Total current assets 4,070,721 3,063,519
PROPERTY AND EQUIPMENT, net 627,149 706,361
OTHER ASSETS 375,960 438,983
NET NON-CURRENT ASSETS OF DISCONTINUED OPERATIONS 1,441,555 1,675,550
---------------- ----------------
Total assets $ 6,515,385 $ 5,884,413
================ ================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 1,732,937 $ 2,083,702
Accrued liabilities 1,955,383 1,145,550
Deferred revenue 2,002,356 1,275,042
Current portion of capital leases 113,661 111,140
Net current liabilities of discontinued operations 15,583,224 15,552,968
---------------- ----------------
Total current liabilities 21,387,561 20,168,402
---------------- ----------------
NOTE PAYABLE AND CAPITAL LEASES, net of current portion 2,576,970 2,606,441
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 3)
SHAREHOLDERS' DEFICIT:
Preferred stock, $.01 par value, 20,000,000 shares authorized,
no shares issued and outstanding -- --
Common stock-
Class A, $.01 par value, 70,000,000 shares authorized,
2,744,962 shares issued and outstanding 27,450 27,450
Class B, $.01 par value, 10,000,000 shares authorized,
2,760,000 shares issued and outstanding 27,600 27,600
Additional paid-in capital 40,856,943 40,856,943
Accumulated deficit (58,361,139) (57,802,423)
---------------- ----------------
Total shareholders' deficit (17,449,146) (16,890,430)
---------------- ----------------
Total liabilities and shareholders' deficit $ 6,515,385 $ 5,884,413
================ ================
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these balance sheets.
3
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GOLDEN BEAR GOLF, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
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FOR THE THREE MONTHS ENDED
MARCH 31,
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1999 1998
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REVENUES:
Golf instruction revenues $ 1,452,938 $ 1,697,667
Licensing and other revenues 1,123,516 1,080,879
Income from operations of JNAI 177,177 108,914
Related party management fees 89,700 93,625
--------------- ---------------
Total revenues 2,843,331 2,981,085
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OPERATING COSTS AND EXPENSES:
Operating expenses 1,851,874 2,206,050
Corporate administration 1,430,070 772,069
Depreciation and amortization 80,476 114,888
--------------- ---------------
Total operating costs and expenses 3,362,420 3,093,007
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Operating loss (519,089) (111,922)
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OTHER INCOME (EXPENSE):
Interest income 9,541 539
Interest expense (6,853) (75,942)
Other 8,094 (108,674)
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Total other income (expense) 10,782 (184,077)
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Loss from continuing operations before income taxes (508,307) (295,999)
PROVISION FOR INCOME TAXES 50,409 5,557
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Loss from continuing operations (558,716) (301,556)
Loss from discontinued operations --- (6,957,403)
--------------- ---------------
Net loss $ (558,716) $ (7,258,959)
=============== ===============
EARNINGS PER SHARE - BASIC AND DILUTED:
Loss from continuing operations $ (0.10) $ (0.06)
Loss from discontinued operations --- (1.26)
--------------- ---------------
Net loss per share $ (0.10) $ (1.32)
=============== ===============
Weighted average common shares outstanding - basic and diluted 5,504,962 5,504,962
=============== ===============
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
4
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GOLDEN BEAR GOLF, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
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FOR THE THREE MONTHS ENDED
MARCH 31,
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (558,716) $ (7,258,959)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 80,476 114,888
Provision for uncollectible accounts 48,900 ---
Loss from discontinued operations --- 6,957,403
Changes in assets and liabilities:
Accounts receivable (700,921) (543,654)
Due from International (31,827) 214,237
Prepaid expenses and other current assets (61,254) (25,971)
Other assets 63,023 96,090
Accounts payable (350,765) 44,294
Accrued liabilities 809,833 526,676
Deferred revenue 727,314 1,001,326
--------------- ---------------
Net cash provided by operating activities 26,063 1,126,330
--------------- ---------------
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS: 264,251 (4,054,449)
--------------- ---------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures, net (1,264) (68,180)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term credit facility --- 5,000,000
Payments on revolving credit facility, net --- (1,713,000)
Payments on capital lease obligations (26,950) (24,260)
--------------- ---------------
Net cash (used in) provided by financing activities (26,950) 3,262,740
--------------- ---------------
Net increase in cash and cash equivalents 262,100 266,441
CASH AND CASH EQUIVALENTS, beginning of period 1,168,118 675,303
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 1,430,218 $ 941,744
=============== ===============
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
Discontinued operations:
Acquisition of computer equipment accounted for as a capital lease
obligation $ --- $ 240,300
Capital lease obligations issued in connection with the acquisition of
construction equipment $ --- $ 1,089,925
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
5
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited Consolidated Condensed Financial Statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the audited Consolidated
Financial Statements and Notes thereto included in Golden Bear Golf, Inc.'s (the
"Company") Annual Report on Form 10-K for the fiscal year ended December 31,
1998, as filed with the Securities and Exchange Commission.
The results of operations and cash flows for the three months ended March 31,
1999 are not necessarily indicative of the results of operations or cash flows
which may be reported for the remainder of fiscal 1999.
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 to the financial statement presentation of the
current period. During fiscal 1998, the Company sold its wholly-owned
subsidiary, Golden Bear Golf Centers, Inc. ("Golf Centers") and formally
approved the discontinuance of the construction operations conducted by its
wholly-owned subsidiary, Paragon Construction International, Inc. ("Paragon").
Accordingly, the operations and financial activity associated with such
businesses have been classified as discontinued operations.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes".
Accordingly, deferred income taxes have been provided for 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. A valuation allowance was established to offset the Company's net
deferred tax assets as of March 31, 1999 and December 31, 1998 because
management currently believes that the future realization of such deferred tax
assets is not more likely than not.
LOSS PER SHARE
Loss 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. 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 222,675 and 670,150 shares of common stock were not included
in computing earnings per share for the three months ended March 31, 1999 and
1998, respectively, because their effects were anti-dilutive for the respective
periods.
6
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1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
COMPREHENSIVE INCOME
Required for 1998 financial statements, the Financial Accounting Standards Board
("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, 1999 and 1998, the Company did not have any changes in its
equity resulting from such non-owner sources, and accordingly, comprehensive
income as set forth by SFAS No. 130 was equal to the net loss amounts presented
for the respective periods in the accompanying Consolidated Condensed Statements
of Operations.
DERIVATIVE FINANCIAL INSTRUMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments and for hedging activities. SFAS No. 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 does not believe that the adoption of SFAS No. 133 will have a material
effect on its financial position or results of operations.
2. NOTE PAYABLE AND CAPITAL LEASES
Note payable and capital leases consist of the following:
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MARCH 31, DECEMBER 31,
1999 1998
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Capital lease obligations secured by furniture and equipment, with
principal and interest at 9% payable monthly, maturing
through June, 2002(1) $ 290,631 $ 317,581
Note payable to shareholder, with interest at The Wall Street
Journal Prime Rate payable monthly, entire principal due
in July, 2003(2) 2,400,000 2,400,000
----------------- ----------------
2,690,631 2,717,581
Less current portion (113,661) (111,140)
----------------- ----------------
$ 2,576,970 $ 2,606,441
================= ================
</TABLE>
(1) The Company acquired certain office furniture and phone systems equipment
by entering into financing arrangements that were accounted for as capital
leases. These capital lease obligations have initial terms of five years
and require monthly payments representing principal and interest.
(2) In July 1998, the Company issued an unsecured promissory note for $2.4
million payable to Jack Nicklaus, the principal stockholder of the Company
and Chairman of the Company's Board of Directors. The proceeds of the note
were used in connection with the settlement of certain claims associated
with a golf course development project.
7
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3. COMMITMENTS AND CONTINGENCIES
CLAIMS AND ASSESSMENTS
In August 1995, Paragon brought an arbitration claim against a customer for
breach of contract. Paragon alleges it has properly completed the construction
relating to the renovation of the customer's golf course and is seeking final
payment of retainage and related amounts due, together with additional damages,
totaling approximately $350,000. Simultaneous to this claim of arbitration, the
customer filed a counterclaim of arbitration against Paragon for alleged
construction defects in the renovation of its golf course. Although the customer
now claims its damages are in excess of $3.0 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, 1999. The ultimate
disposition of this matter is not expected to have a material effect on the
Company's financial position or results of operations.
In connection with the discontinuance of the construction business conducted by
Paragon and the winding down of such operations, the Company has been named in
numerous legal actions involving claims for damages and other amounts due to
certain project owners, construction vendors and subcontractors. While the
Company has entered into settlement negotiations with several claimants, the
ultimate outcome of such negotiations is not determinable at this time. Certain
of these claims, if determined adversely to the Company in the aggregate, could
have a material adverse effect on the Company's financial position and results
of operations. The Company has recorded loss reserves which management believes
are sufficient to cover the estimated losses on the wind-down of its
construction projects.
Based on a comprehensive review conducted by the Company during 1998 of
Paragon's construction projects, it was necessary for the Company to restate
certain financial statements it had previously filed with the Securities and
Exchange Commission. As a result of the restatement of the Company's financial
statements, numerous 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. The plaintiffs are seeking an
unspecified amount of damages, interest, costs and attorneys' fees.
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 position and results of operations. The Company's ultimate
liability with respect to any of the foregoing proceedings is not presently
determinable.
The Securities and Exchange Commission has also advised the Company that it is
conducting a private investigation to determine whether the Company or certain
of its current or former officers, directors and employees engaged in conduct in
violation of certain provisions of the Exchange Act 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 construction projects and the Company's public statements
and accounting systems with respect thereto. The Company is cooperating in such
investigation.
The Company is also a party to various other legal proceedings which have arisen
in the ordinary course of its business. While the ultimate outcome of these
matters cannot be predicated with certainty, the Company does not believe that
any losses resulting from such other legal proceedings will have a material
adverse effect on the Company's financial position or results of operations.
CONSTRUCTION CONTRACT WARRANTIES
Paragon's construction contracts generally provided for warranties that
obligated 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 incurred
pursuant to these warranties, if any, to have a material impact on its results
of operations.
8
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4. SHAREHOLDERS' DEFICIT AND LIQUIDITY
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. Primarily as a result of losses
and costs previously incurred by the Company's Paragon subsidiary, the Company
has incurred operating losses which have resulted in a shareholders' deficit of
approximately $17.4 million and a working capital deficiency of approximately
$17.3 million at March 31, 1999.
Management's plans in regard to these matters included discontinuing the
Company's construction operations and reducing on-going expenses. In this
regard, the Company has formally approved the discontinuance of the construction
activities formerly conducted by its Paragon subsidiary and is in the final
phase of winding down such operations. The Company is negotiating with certain
project owners, as well as construction vendors and subcontractors to expedite
the completion of the remaining projects and to minimize the costs associated
with such completion.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern and future working capital requirements are dependent on the Company's
ability to successfully complete such negotiations involving Paragon and on its
ability to achieve and maintain profitable operations in the future. Management
of the Company believes that such objectives are attainable. However, there is
no assurance that the Company will be successful in realizing these objectives,
or that the Company will generate sufficient cash flow from operations to meet
its future working capital requirements. To the extent that capital requirements
exceed available capital, the Company will be required to seek alternative
sources of financing to fund its operations. The Company has no existing credit
facility and there is no assurance that alternative financing will be available,
if at all, on satisfactory terms. If the Company is unable to obtain
satisfactory alternative financing, the Company may be required to delay or
reduce its future expenditures, sell additional assets to meet its obligations,
seek to renegotiate the terms of its obligations or curtail its operations.
There can be no assurance that any source of funds or other actions taken by the
Company will provide sufficient capital so as to enable the Company to remain a
going concern.
5. OPERATIONS OF JNAI
The apparel licensing activities of the Company in the Far East are conducted
through Jack Nicklaus Apparel International ("JNAI") and its various
partnerships. The Company serves as a 50% general partner and is generally
entitled to receive 50% of the cash distributions of the various partnerships'
operations. The Company's investment in JNAI is recorded on the equity method.
The following is a condensed summary of the operating results of JNAI:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
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1999 1998
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<S> <C> <C>
Licensing revenues $ 518,649 $ 379,845
Operating expenses and other 67,224 114,955
Provision for income taxes 97,071 47,062
============== ===============
Net income $354,354 $217,828
============== ===============
</TABLE>
9
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6. RELATED PARTY TRANSACTIONS
Effective December 18, 1998, the Company, Jack Nicklaus and Golden Bear
International, Inc. ("International"), a privately owned company controlled by
Jack Nicklaus, entered into an agreement with Weitz Golf International LLC
("Weitz Golf"), pursuant to which the Company, Jack Nicklaus and International
will provide certain technical and marketing assistance in connection with the
construction services offered by Weitz Golf, which include general contracting,
design-build and construction management. Under the agreement, the Company
agreed to no longer offer construction services independently during the term of
the agreement which expires on December 31, 2007. The Company is entitled to
receive 40% of the net profits, as defined, received by Weitz Golf pursuant to
the contracts it enters into during the term of the agreement. There were no net
profits from the operations of Weitz Golf during the three months ended March
31, 1999.
Subsequent to March 31, 1999, the Company's Board of Directors approved the
terms of a settlement with a former customer of Paragon, which included certain
potential obligations on the part of International. In addition, the Company
issued promissory notes pursuant to a settlement with certain construction
vendors and subcontractors associated with a former Paragon golf course
development project which were personally guaranteed by Jack Nicklaus. See Note
9.
Pursuant to the terms of a personal services management agreement, International
and Jack Nicklaus have retained the Company as the exclusive manager and
representative to market the personal endorsement services of Jack Nicklaus,
under 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, 1999 and 1998, the Company earned management fees attributable
to providing such services of $89,700 and $93,625, respectively. At March 31,
1999, the Company had a net amount due from International of $73,639, which was
comprised primarily of the management fees attributable to such personal
endorsement services performed by Mr. Nicklaus.
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 three months ended March 31, 1999 and 1998, payroll
and related costs associated with such shared employees totaling $9,000 and
$27,750, respectively, were allocated to International.
During the three months ended March 31, 1999 and 1998, the Company paid
Executive Sports International, a privately held company owned in part by a
member of the Nicklaus family, $120 and $53,197, respectively, for certain
printing and graphics services.
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 currently
purchased primarily for promotional programs associated with the Company's
NICKLAUS FLICK GOLF Schools. Prior to the sale of the Company's Golf Centers
subsidiary, such equipment was also purchased for resale in the pro shops of the
Company's golf centers. During the three months ended March 31, 1999 and 1998,
the Company purchased such golf equipment at a cost of $10,490 and $7,658,
respectively.
7. DISCONTINUED OPERATIONS
GOLDEN BEAR GOLF CENTERS, INC.
On July 20, 1998, the Company sold all of the issued and outstanding stock of
its Golf Centers subsidiary to an unrelated party for cash consideration of
approximately $21.5 million. Through its Golf Centers subsidiary, the Company
had been engaged in the acquisition, ownership and operation of golf practice
and instruction facilities. As of the date of the sale, Golf Centers owned and
operated a total of 14 golf center facilities under the GOLDEN BEAR GOLF CENTER
brand name. The Company retained its licensing and franchising rights with
respect to being able to offer franchise opportunities to outside parties for
the operation of golf instruction and practice facilities.
10
<PAGE>
7. DISCONTINUED OPERATIONS - (CONTINUED)
All of the financial activities associated with the Golf Centers operations that
were sold have been classified as discontinued operations in the accompanying
Consolidated Condensed Financial Statements. Losses totaling $1,649,479
attributable to such operations for the three months ended March 31, 1998 are
included in the accompanying Consolidated Condensed Statements of Operations as
a component of the line item captioned, "Loss from discontinued operations."
PARAGON CONSTRUCTION INTERNATIONAL, INC.
On October 26, 1998, the Company formally approved the discontinuance of the
golf course construction operations conducted by its Paragon subsidiary.
Substantially all such projects have been completed and the Company is no longer
actively involved in pursuing construction projects independent of its agreement
with Weitz Golf. Paragon had been involved in providing comprehensive golf
course and other resort-related construction services, including project
management, shaping, renovation and golf course construction.
The financial activities associated with Paragon have been classified as
discontinued operations in the accompanying Consolidated Condensed Financial
Statements. Losses attributable to the operations of Paragon totaling $5,307,924
for the three months ended March 31, 1998 are included in the accompanying
Consolidated Condensed Statements of Operations as a component of the line item
captioned, "Loss from discontinued operations." The Company did not incur any
additional costs attributable to such discontinued operations during the three
months ended March 31, 1999.
The components of the net liabilities associated with Paragon's discontinued
operations included in the accompanying Consolidated Balance Sheets consist of
the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
--------------- ---------------
<S> <C> <C>
Current assets $ 310,438 $ 1,932,478
Property and equipment, net 1,441,555 1,675,550
--------------- ---------------
Total assets 1,751,993 3,608,028
Current liabilities 15,893,662 17,485,446
--------------- ---------------
Net liabilities of discontinued operations $ 14,141,669 $ 13,877,418
=============== ===============
</TABLE>
8. SEGMENT REPORTING
With the sale of the Company's Golf Centers subsidiary and the discontinuance of
the construction operations conducted by its Paragon subsidiary, the Company
effectively consolidated all of its remaining operations into one operating
segment. Accordingly, all of the Company's revenue generating activities are now
conducted by one operating segment encompassing the licensing and franchising of
NICKLAUS, JACK NICKLAUS and GOLDEN BEAR branded products throughout the world,
the operation of the NICKLAUS FLICK GOLF SCHOOLS and the generation of marketing
fees related to Jack Nicklaus' personal endorsements. As the Company operates
and tracks its results in one operating segment, certain segment disclosure
requirements are not applicable.
9. SUBSEQUENT EVENTS
At a special meeting of the Board of Directors of the Company held on April 15,
1999, the Company's Board of Directors approved the terms of a settlement with a
former customer of Paragon. Paragon had been engaged by this customer (the
"Developer") to construct a golf course located in San Jose, California
("California Project") and one located in Orlando, Florida ("Florida Project").
Nicklaus Design, a division of International, designed both of the golf course
projects. In addition, the Florida Project is owned by a partnership controlled
by the Developer in which International has a 25% limited partner interest.
11
<PAGE>
9. SUBSEQUENT EVENTS - (CONTINUED)
After Paragon was unable to complete these projects, Paragon and the owners of
the projects entered into a Settlement Agreement and Release of Claims.
Subsequent to and notwithstanding the terms of this settlement, issues arose
regarding responsibility for certain cost overruns that were incurred in
connection with the construction of the golf courses. Based upon an assessment
of the potential risks and costs of litigation, the Company's Board of Directors
approved a revised settlement pursuant to which Paragon will agree to pay the
Developer certain of the amounts at issue.
With regard to the California Project, the Board of Directors authorized Paragon
to pay the Developer $785,436 in the form of a promissory note bearing interest
at an annual rate of 10%, payable in quarterly installments of principal and
interest over three years. With regard to the Florida Project, the Board of
Directors authorized Paragon to pay the Developer $496,171 evidenced by a
promissory note bearing interest at an annual rate of 10%, payable in quarterly
installments of principal and interest over five years. Mr. Nicklaus or
International may be required to guarantee these notes.
In connection with the settlement approved by the Company's Board of Directors,
International agreed to credit any payments to which it would otherwise be
entitled to for the design services performed by Nicklaus Design at these two
projects, against the respective notes payable to be issued by Paragon to the
Developer. To the extent that such payments are applied against the obligations
due to the Developer, Paragon will deliver notes in the amount of any such
credits to International with interest payable quarterly at an annual rate of 8%
and the entire principal payable at the maturity of the respective original
notes delivered to the Developer. Paragon has recorded a liability for the
amount of its obligations under the terms of the foregoing settlements.
In addition to the foregoing, the Company also issued promissory notes dated
April 23, 1999 in the aggregate principal amount of $568,673 to several
construction vendors and subcontractors associated with a former Paragon golf
course development project. The notes, which were issued pursuant to a
settlement agreement, have five-year terms and require equal quarterly payments
of principal and interest at an annual rate of 8%. The notes are personally
guaranteed by Jack Nicklaus.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements, the related Notes to Consolidated Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations included in the Company's Annual Report on Form 10-K for
the year ended December 31, 1998 and the Consolidated Condensed Financial
Statements and the related Notes to Consolidated Condensed Financial Statements
included in Item 1 of the Quarterly Report on Form 10-Q.
OVERVIEW
The Company sold the stock of its wholly-owned Golf Centers subsidiary on July
20, 1998 and formally approved the discontinuance of the construction operations
conducted by its Paragon subsidiary on October 26, 1998. Accordingly, the
operations and financial activity associated with such businesses have been
reclassified as discontinued operations. With the disposition of such
operations, the Company is now fully focused on its core business, which
includes the licensing and franchising of NICKLAUS, JACK NICKLAUS and GOLDEN
BEAR branded products throughout the world, the operation of the NICKLAUS FLICK
GOLF SCHOOLS and managing the personal endorsement services provided by Jack
Nicklaus.
With regard to the discontinued construction operations, substantially all of
the Company's golf course construction projects have been completed and the
Company is in the final phase of winding down such operations. The Company is no
longer actively involved in pursuing construction projects independent of an
agreement it entered into with Weitz Golf on December 18, 1998. Weitz Golf is a
newly formed construction company focused on building golf courses and
clubhouses nationally and internationally. Pursuant to the terms of the
agreement, the Company, Jack Nicklaus and International will provide certain
technical and marketing assistance in connection with the construction services
offered by Weitz Golf, which include general contracting, design-build and
construction management. The principal markets targeted for these services are
developers and designers in the golf industry. Under the agreement, the Company
agreed to no longer offer construction services independently during the term of
the agreement which expires on December 31, 2007. The Company is entitled to
receive 40% of the net profits, as defined, received by Weitz Golf pursuant to
the contracts it enters into during the term of the agreement. There were no net
profits from the operations of Weitz Golf during the three months ended March
31, 1999.
Based on a comprehensive review conducted by the Company during 1998 of its
Paragon subsidiary's construction projects, it was necessary for the Company to
recognize additional costs and losses incurred on certain construction projects,
resulting in the restatement of certain financial statements the Company had
previously filed with the Securities and Exchange Commission ("SEC"). As a
result of the restatement of the Company's financial statements, 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
adverse impact on the Company's financial position and results of operations.
See Note 3 to the Consolidated Condensed Financial Statements included in Item 1
of this Quarterly Report on Form 10-Q.
Additionally, the SEC has advised the Company that it is conducting a private
investigation to determine whether the Company or certain of its current or
former officers, directors and employees 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 construction projects and the Company's public statements
and accounting systems with respect thereto. The Company is cooperating in such
investigation.
13
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1998
Total revenues were $2.8 million during the three months ended March 31, 1999,
compared to $3.0 million for the comparable period of 1998. The $0.2 million
decrease in total revenues during the current quarterly period was attributable
to a reduction in golf instruction revenues, offset in part, by increased
revenues attributable to the income from the operations of JNAI, along with
increased licensing and other revenues. Golf instruction revenues decreased
during the three months ended March 31, 1999 due primarily to a reduction in the
Company's executive golf program. Income from the operations of the Company's
JNAI joint venture increased during the current quarterly period due primarily
to an increase in the retail sales of licensed products on the part of JNAI's
customers in the Far East.
The Company incurred net operating losses of $0.5 million and $0.1 million
during the three months ended March 31, 1999 and 1998, respectively. The
operating loss incurred for the current quarterly period was attributable to
certain legal costs incurred in connection with the SEC investigation and
certain litigation involving shareholders. Operating expenses were $1.9 million
and $2.2 million for the three months ended March 31, 1999 and 1998,
respectively.
Corporate administration expenses, which are comprised primarily of
personnel-related costs, were $1.4 million and $0.8 million for the three months
ended March 31, 1999 and 1998, respectively. The increase in such expenses for
the current quarterly period was attributable to increased costs incurred for
legal fees in connection with the SEC investigation and certain shareholder
claims that have been asserted against the Company. Charges for depreciation and
amortization expense were approximately $0.1 million for the three months ended
March 31, 1999 and 1998.
The interest expense incurred during the three months ended March 31, 1999 was
not material to the Company's results of operations. Interest expense of $0.1
million incurred during the three months ended March 31, 1998 was primarily
attributable to outstanding borrowings under the Company's $10 million revolving
credit facility and a $5 million short-term credit facility, both of which were
subsequently repaid and terminated during fiscal 1998.
Other income for the three months ended March 31, 1999 was not material to the
Company's results of operations. Other expense of $0.1 million for the three
months ended March 31, 1998 was comprised primarily of the losses associated
with a joint venture arrangement in which the Company had invested capital and
participated in the operating results of such venture. Effective December 31,
1998, the Company terminated its participation in the joint venture at which
time it was dissolved.
Although the Company has sufficient net operating loss carryforwards and other
tax benefits to absorb substantially all of the Company's Federal income tax
liabilities, certain of its operations are subject to state and foreign income
taxes. The provision for income taxes of $0.1 million for the three months ended
March 31, 1999 is comprised of amounts incurred with respect to state and
foreign income taxes.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999 and December 31, 1998, the Company had a working capital
deficit of $17.3 million and $17.1 million, respectively, including cash and
cash equivalents of $1.4 million and $1.2 million, respectively.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. Primarily as a result of losses
and costs previously incurred by the Company's Paragon subsidiary, the Company
has incurred operating losses which have resulted in a shareholders' deficit of
approximately $17.4 million and a working capital deficiency of approximately
$17.3 million at March 31, 1999.
14
<PAGE>
Management's plans in regard to these matters included discontinuing the
Company's construction operations and reducing on-going expenses. In this
regard, the Company has formally approved the discontinuance of the construction
activities formerly conducted by its Paragon subsidiary and is in the final
phase of winding down such operations. The Company is negotiating with certain
project owners, as well as construction vendors and subcontractors to expedite
the completion of the remaining projects and to minimize the costs associated
with such completion.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts and the amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern. The Company's continuation as a going
concern and future working capital requirements are dependent on the Company's
ability to successfully complete such negotiations involving Paragon and on its
ability to achieve and maintain profitable operations in the future. Management
of the Company believes that such objectives are attainable. However, there is
no assurance that the Company will be successful in realizing these objectives,
or that the Company will generate sufficient cash flow from operations to meet
its future working capital requirements. To the extent that capital requirements
exceed available capital, the Company will be required to seek alternative
sources of financing to fund its operations. The Company has no existing credit
facility and there is no assurance that alternative financing will be available,
if at all, on satisfactory terms. If the Company is unable to obtain
satisfactory alternative financing, the Company may be required to delay or
reduce its future expenditures, sell additional assets to meet its obligations,
seek to renegotiate the terms of its obligations or curtail its operations.
There can be no assurance that any source of funds or other actions taken by the
Company will provide sufficient capital so as to enable the Company to remain a
going concern.
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 converted to U.S.
dollars based on the exchange rate at the time of payment.
The Company's JNAI joint venture historically has entered into futures contracts
to hedge its anticipated receipt of a portion of the royalty payments
denominated in Japanese yen. Apart from these futures contracts on the part of
JNAI which were not material to the Company's results of operations, the Company
does not currently engage in hedging activities with respect to currency
fluctuations, but may do so in the future.
YEAR 2000
The Year 2000 issue exists because many computer systems and applications
currently use two-digit fields to designate a year. As the century date change
occurs, date-sensitive systems may recognize the year 2000 as 1900, or not at
all. This inability to properly treat the Year 2000 issue may cause systems to
process critical financial and operational information incorrectly.
The Company has conducted an assessment of its state of readiness with respect
to the Year 2000 issue. The Company has evaluated all of its computing hardware,
software, and other equipment containing embedded devices, including non
information-technology ("IT") systems. The Company operates in a networked
computing environment, using software and network devices that are generally
current versions of standard applications that require only limited or no
modifications. To the extent that shortfalls in compliance were identified as
part of its evaluation, the Company replaced, updated or modified the affected
hardware or software to remediate the date related problems.
15
<PAGE>
The assessment of the Company's internal systems for compliance with the Year
2000 issue has been completed and such systems have also been tested to ensure
correct date processing, before, during, and after January 1, 2000. All
computing hardware has been tested using a third party certification program and
also has been manually tested by date advancement. Non-conforming models have
been replaced with conforming models. Software has been upgraded to vendor
certified versions and additional testing, via date advancement, has been
performed on critical applications as well as other applications deemed to be
date sensitive. The Company's non-IT equipment containing embedded devices, such
as telephones, voice-mail equipment, fax machines and other related office
equipment, has been vendor certified as Year 2000 compliant, and with respect to
certain equipment, additional testing was performed using date advancement.
Accordingly, the Company has completed the evaluation of its internal computer
systems along with its non-IT equipment, and has determined that such systems
are Year 2000 compliant and that no additional material modifications were
necessary.
The costs incurred by the Company in connection with its remediation efforts to
address the Year 2000 issue have not been material to the Company's financial
position or results of operations. Hardware replacements were made using surplus
inventory and did not require the purchase of new computer systems. For the most
part, software modifications were made using compliant upgrades provided without
cost by the respective vendors or by using upgrades provided under existing
software maintenance agreements, and did not require the purchase of significant
new software.
The Company is also monitoring the adequacy of the manner in which third
parties, including customers, suppliers and service providers to the Company,
are attempting to address the Year 2000 issue. Based on the assessment performed
to date, the costs of addressing potential problems are not currently expected
to have a material impact on the Company's financial position, results of
operations or cash flows in future periods. While the Company believes its
internal conversion efforts and those of its external customers, suppliers and
service providers are designed to be successful, because of the complexity of
the Year 2000 issue, and the interdependence of organizations using computer
systems, it is possible that the Company's efforts or those of third parties
with whom the Company interacts, will not be successful or satisfactorily
completed in a timely fashion.
Although the Company believes that the Year 2000 issue will not pose significant
operational problems, certain potential risks have been identified at this time.
Certain of the Company's customers, particularly those that are located abroad
or have significant operations outside of the United States may not be or may
not become Year 2000 compliant in a timely manner. The risk posed by such
customers is a decrease or delay in their remittances of fees and various other
revenues to the Company. With respect to the Company, a reasonably likely worst
case Year 2000 scenario would involve certain of the Company's customers,
including customers with significant operations outside of the United States. To
the extent that markets and the general economic conditions become disrupted or
volatile due to problems attributable to the Year 2000 issue, and unfavorably
impact the Company's customers, such events could have an adverse effect on the
Company's operations. Reasonably likely problems resulting from such events
would include reduced revenues from customers and delays in the receipt of
revenues and distributions. Such factors could negatively impact the financial
position, operating results and cash flows of the Company. In addition to the
foregoing reasonably worst case scenario, Year 2000 issues could have an impact
on the Company's operations and its financial results if unforeseen needs or
problems arise or if systems operated by third parties are not, or do not,
become Year 2000 compliant in a timely manner.
Based on the modifications and conversions of the Company's hardware, software
and non-IT embedded devices made to date, the Company does not believe that
contingency planning with respect to its internal systems is warranted at this
time. The Company will continue to monitor developments with respect to its
applicable external third parties, which may reveal the need for contingency
planning at a later date. The Company will continue to regularly evaluate the
need for contingency planning based on new information and developments in this
regard.
16
<PAGE>
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-Q contains forward-looking statements made
pursuant to the safe harbor provisions of the Securities Litigation Reform Act
of 1995. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, including
but not limited to, 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, including the renewals of such
licensing and franchising agreements; those risks associated with the ability of
Paragon 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 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 Quarterly Report on Form 10-Q 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to the impact of interest rate changes. Such exposure to
market risk is inherent in certain of the Company's financial instruments which
arise from transactions entered into in the normal course of business. The
Company is subject to interest rate risk on its outstanding note payable to a
shareholder and any future financing requirements. The Company's fixed rate
indebtedness consists of certain capital lease obligations requiring monthly
payments of principal and interest, with terms maturing through 2002.
17
<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, 1999.
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLDEN BEAR GOLF, INC.
By: /S/ STEPHEN S. WINSLETT
-------------------------
Stephen S. Winslett
Senior Vice President,
Chief Financial Officer
and Chief Operating Officer
Date: June 8, 1999
19
<PAGE>
EXHIBIT INDEX
ITEM NO. 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, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,430,218
<SECURITIES> 0
<RECEIVABLES> 2,575,058
<ALLOWANCES> (296,254)
<INVENTORY> 0
<CURRENT-ASSETS> 4,070,721
<PP&E> 1,884,942
<DEPRECIATION> (1,257,793)
<TOTAL-ASSETS> 6,515,385
<CURRENT-LIABILITIES> (21,387,561)
<BONDS> (2,690,631)
0
0
<COMMON> (55,050)
<OTHER-SE> 17,504,196
<TOTAL-LIABILITY-AND-EQUITY> (6,515,385)
<SALES> 0
<TOTAL-REVENUES> (2,843,331)
<CGS> 0
<TOTAL-COSTS> 3,362,420
<OTHER-EXPENSES> (10,782)
<LOSS-PROVISION> 48,900
<INTEREST-EXPENSE> 6,853
<INCOME-PRETAX> 508,307
<INCOME-TAX> 50,409
<INCOME-CONTINUING> 558,716
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 558,716
<EPS-BASIC> 0.10
<EPS-DILUTED> 0.10
</TABLE>
