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, 2000
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
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
11780 U.S. HIGHWAY ONE, NORTH PALM BEACH, FLORIDA 33408
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(Address of principal executive offices) (Zip Code)
(561) 626-3900
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
The Registrant had outstanding 2,744,962 shares of Class A Common Stock (par
value $.01 per share) and 2,760,000 shares of Class B Common Stock (par value
$.01 per share) as of May 4, 2000.
<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, 2000 (Unaudited) and December 31, 1999............... 3
Consolidated Condensed Statements of Operations (Unaudited)
for the Three Months Ended March 31, 2000 and 1999............. 4
Consolidated Condensed Statements of Cash Flows (Unaudited)
for the Three Months Ended March 31, 2000 and 1999............. 5
Notes to Consolidated Condensed Financial Statements (Unaudited).. 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................. 14
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,
2000 1999
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(UNAUDITED)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,744,752 $ 1,397,027
Accounts receivable, net 850,271 398,241
Due from International 52,046 58,826
Prepaid expenses and other current assets 187,475 3,898,718
------------ ------------
Total current assets 5,834,544 5,752,812
PROPERTY AND EQUIPMENT, net 380,048 428,855
OTHER ASSETS 346,346 601,349
------------ ------------
Total assets $ 6,560,938 $ 6,783,016
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 729,465 $ 1,188,860
Accrued liabilities 1,541,399 1,096,858
Deferred revenue 1,916,673 1,095,301
Current portion of capital leases 115,485 121,565
Net current liabilities of discontinued operations 5,035,373 5,133,611
------------ ------------
Total current liabilities 9,338,395 8,636,195
------------ ------------
NET NON-CURRENT LIABILITIES OF DISCONTINUED OPERATIONS 4,167,528 4,738,500
NOTE PAYABLE AND CAPITAL LEASES, net of current portion 2,461,095 2,484,494
------------ ------------
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 (50,318,073) (49,988,166)
------------ ------------
Total shareholders' deficit (9,406,080) (9,076,173)
------------ ------------
Total liabilities and shareholders' deficit $ 6,560,938 $ 6,783,016
============ ============
</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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<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
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REVENUES:
Golf instruction revenues $ 1,095,038 $ 1,452,938
Licensing and other revenues 1,300,196 1,123,516
Income from operations of JNAI 157,522 177,177
Related party management fees 52,994 89,700
----------- -----------
Total revenues 2,605,750 2,843,331
----------- -----------
OPERATING COSTS AND EXPENSES:
Operating expenses 1,843,666 1,851,874
Corporate administration 1,051,209 1,430,070
Depreciation and amortization 56,937 80,476
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Total operating costs and expenses 2,951,812 3,362,420
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Operating loss (346,062) (519,089)
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OTHER INCOME (EXPENSE):
Interest income 66,563 9,541
Interest expense (4,324) (6,853)
Other (134,770) 8,094
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Total other income (expense) (72,531) 10,782
----------- -----------
Loss from continuing operations before income taxes (418,593) (508,307)
PROVISION FOR INCOME TAXES 11,948 50,409
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Loss from continuing operations (430,541) (558,716)
INCOME FROM DISCONTINUED OPERATIONS 100,634 --
----------- -----------
Net loss $ (329,907) $ (558,716)
=========== ===========
EARNINGS PER SHARE - BASIC AND DILUTED:
Loss from continuing operations $ (0.08) $ (0.10)
Income from discontinued operations 0.02 --
----------- -----------
Net loss per share $ (0.06) $ (0.10)
=========== ===========
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
<PAGE>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
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FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (329,907) $ (558,716)
Adjustments to reconcile net loss to net cash provided by operating
Activities:
Depreciation and amortization 56,937 80,476
Provision for uncollectible accounts 198,750 48,900
Income from discontinued operations (100,634) --
Changes in assets and liabilities:
Accounts receivable (650,780) (700,921)
Due from International 6,779 (31,827)
Prepaid expenses and other current assets 3,711,243 (61,254)
Other assets 255,003 63,023
Accounts payable (459,395) (350,765)
Accrued liabilities 444,541 809,833
Deferred revenue 821,372 727,314
----------- -----------
Net cash provided by operating activities 3,953,909 26,063
----------- -----------
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS: (568,576) 264,251
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Capital expenditures, net (8,130) (1,264)
----------- -----------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Payments on capital lease obligations (29,478) (26,950)
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Net increase in cash and cash equivalents 3,347,725 262,100
CASH AND CASH EQUIVALENTS, beginning of period 1,397,027 1,168,118
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 4,744,752 $ 1,430,218
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 109,681 $ 55,332
Cash paid for income taxes $ 6,646 $ 9,909
</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,
1999, as filed with the Securities and Exchange Commission.
The results of operations and cash flows for the three months ended March 31,
2000 are not necessarily indicative of the results of operations or cash flows
which may be reported for the remainder of fiscal 2000.
In 1998, the Company discontinued the construction operations conducted by its
wholly-owned subsidiary, Paragon Construction International, Inc. ("Paragon").
Accordingly, the operations and financial activity associated with Paragon has
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, 2000 and December 31, 1999 because
management does not currently believe that the future realization of such
deferred tax assets is 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 181,175 and 222,675 shares of common stock were not included
in computing earnings per share for the three months ended March 31, 2000 and
1999, 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
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, 2000 and 1999, the Company did not have
any changes in its equity resulting from such non-owner sources, and
accordingly, comprehensive income (loss) 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
The Financial Accounting Standards Board ("FASB") issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded in the balance sheet as either an asset or a liability
measured at its fair value. SFAS No. 133, which requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. The FASB issued SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the effective date
of FASB Statement No. 133." SFAS No. 137 deferred the effective date of SFAS No.
133 to fiscal years beginning after June 15, 2000. Management believes the
impact of adopting this statement will not have a material impact upon the
Company's results of operations or financial position.
2. NOTE PAYABLE AND CAPITAL LEASES
Note payable and capital leases consist of the following:
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MARCH 31, DECEMBER 31,
2000 1999
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Capital lease obligations secured by furniture and equipment,
with principal and interest at 9% payable monthly, maturing
through June, 2002 $ 176,580 $ 206,059
Note payable to shareholder, with interest at The Wall Street
Journal Prime Rate (8.83% at March 31, 2000)
payable monthly, entire principal due
in July, 2003(1) 2,400,000 2,400,000
----------- -----------
2,576,580 2,606,059
Less current portion (115,485) (121,565)
----------- -----------
$ 2,461,095 $ 2,484,494
=========== ===========
<FN>
(1) 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.
</FN>
</TABLE>
3. COMMITMENTS AND CONTINGENCIES
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
7
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3. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
excess of $3.0 million, the initial claim submitted by the customer in
arbitration was for $750,000. The Company intends to vigorously defend this
claim, but because the ultimate outcome of this matter is not currently
determinable, no provision for loss regarding this matter had been established
at March 31, 2000. The ultimate outcome of this matter cannot be predicted with
certainty and legal proceedings could result in losses that may have a material
adverse 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. Further,
certain of these claims and future claims, if brought, arising out of such
business, 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.
In 1998, the Company conducted a comprehensive review of Paragon's construction
projects, focusing on the status of the projects, the costs required to fully
complete the jobs and the anticipated profitability or losses of such projects.
Attention was also directed toward determining contract requirements and the
related estimated costs of fulfilling those requirements. As a result of the
review, the Company found evidence that former management of Paragon
deliberately falsified records, misrepresented the status of construction
projects and made false statements about Paragon's revenues, costs and profits
to the Company's executive management and Board of Directors. Based on the
results of the review, it was necessary for the Company to recognize additional
costs and losses incurred on certain construction projects, resulting in the
restatement of the Company's financial statements included in its Annual Report
on Form 10-K for the year ended December 31, 1997 and its Quarterly Report on
Form 10-Q for the three months ended March 31, 1998, as previously filed with
the Securities and Exchange Commission.
As a result of the foregoing review and restatement of the Company's financial
statements, numerous class action lawsuits were filed against the Company and
certain current and former officers and directors of the Company, asserting
various claims under the federal securities laws. On July 28, 1998, shareholders
filed a class action lawsuit in the United States District Court for the
Southern District of Florida against the Company and certain of the Company's
present and former officers and directors.
Subsequently, nine additional lawsuits were filed against the Company and
certain of its present and former officers and directors. Eight of these
lawsuits were filed in the United States District Court for the Southern
District of Florida and one was filed in the United States District Court for
the Eastern District of New York, though the court in New York has entered an
order transferring this action to the Southern District of Florida. The District
Court in Florida entered an order consolidating all of the actions originally
filed in the Southern District of Florida and all similar actions which are
transferred to or subsequently filed in the Southern District of Florida and
directed the plaintiffs to file a consolidated complaint.
The defendants named in the action were Golden Bear Golf, Inc., Jack W.
Nicklaus, Richard P. Bellinger, Jack P. Bates, Stephen S. Winslett, John Boyd
and Arthur Andersen LLP ("Andersen"). The plaintiffs sought an unspecified
amount of damages, interest, costs and attorneys' fees. In the Second Amended
Consolidated Complaint on behalf of a class of all persons, excluding the
defendants, who purchased shares of the Company's Class A Common Stock from the
date of the Company's public offering, August 1, 1996 through and including July
27, 1998, the plaintiffs alleged securities law violations under Sections 11,
12(2) and 15 of the Securities Act of 1933, Sections 10(b) and 20(a) of the
Securities Act and Rule 10b-5, as well as common law claims.
On December 22, 1999, the parties entered into a Settlement Agreement relating
to the consolidated actions. The Settlement Agreement was approved by the United
States District Court during a final hearing on March 28, 2000. Under the terms
of the Settlement Agreement, the Company established a settlement fund in the
amount of $3.5 million to settle the class action litigation. The Company
contributed $2.5 million to the settlement fund, with funds
8
<PAGE>
3. COMMITMENTS AND CONTINGENCIES - (CONTINUED)
provided by the Company's insurance carrier. Pursuant to the Settlement
Agreement, Andersen also contributed $1.0 million to the settlement fund.
In connection with the Company's entry into the Settlement Agreement, the
Company also entered into a settlement with Andersen to settle the Company's
claims against it. The Company had previously advised Andersen of the belief
that Andersen violated its duty of care in connection with the professional
services it provided the Company and that the Company's losses, in part,
resulted from the failure of due care. Andersen has vigorously denied a failure
of due care on its part and has vigorously denied that any of the Company's
losses resulted from anything Andersen did or failed to do. Notwithstanding its
position, in order to avoid protracted litigation in which their position would
be fully developed and resolved, Andersen entered into a settlement agreement
with the Company. Pursuant to the settlement, Andersen agreed to pay the Company
$3.8 million in cash and waive approximately $750,000 in receivables due to
Andersen from the Company. The Company received $3.8 million during the quarter
ended March 31, 2000.
In accordance with the settlement agreement, the Company has agreed to take the
steps necessary to acquire all the shares held by public shareholders at a cash
price of $0.75 per share. The price for the publicly held shares was the result
of negotiations between the Company and attorneys for the class action
plaintiffs and has the approval of a committee of independent directors. An
investment banking firm provided an opinion that the consideration to be
received by holders of the Company's Common Stock, other than Jack Nicklaus and
his family, pursuant to the Settlement Agreement is fair from a financial point
of view to such holders.
The Company has not given effect to the proposed repurchase of the outstanding
shares held by the public shareholders in the accompanying financial statements.
The following unaudited financial information gives pro forma effect to the
proposed repurchase had it occurred as of March 31, 2000:
Unaudited pro forma total assets $ 4,329,714
Unaudited pro forma total liabilities 15,646,605
-------------
Unaudited pro forma shareholder's deficit $ (11,316,891)
=============
The Securities and Exchange Commission is conducting a private investigation to
determine whether the Company or certain of its current or former officers,
directors and employees have engaged in conduct in violation of certain
provisions of the 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 that have arisen
in the ordinary course of its business. The ultimate outcome of these matters
cannot be predicted with certainty. The foregoing legal proceedings could result
in losses that may 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.
9
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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 $9.4 million and a working capital deficiency of approximately
$3.5 million at March 31, 2000. The circumstances surrounding the losses
previously incurred by Paragon have resulted in substantial claims and
litigation against the Company. Management's actions in regard to these matters
included discontinuing the Company's construction operations in 1998 and
reducing ongoing expenses.
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 negotiations of claims and issues 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. Pursuant to the
terms of the settlement agreement, the Company is committed to take steps to
repurchase and redeem its publicly held shares for a price of $0.75 per share
(an aggregate of approximately $1.9 million). 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.
10
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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 joint venture agreement provides that JNAI shall continue until Deember 31,
2000, unless otherwise terminated prior to that date by the mutual consent of
both partners or by operation of law. However, the termination date set forth in
the joint venture agreement can be extended by mutual consent of both partners.
Upon termination of JNAI, its net remaining assets are to be distributed to its
two partners in the manner set forth in the joint venture agreement, which
generally provides for distributions of equal amounts. As of May 9, 2000, the
joint venture agreement has not been extended beyond December 31, 2000.
The following is a condensed summary of the operating results of JNAI:
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
2000 1999
-------- --------
Licensing revenues $468,567 $518,649
Operating expenses and other 90,622 67,224
Provision for income taxes 62,900 97,071
-------- --------
Net income $315,045 $354,354
======== ========
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 cumulative net profits, as defined, received by Weitz Golf
pursuant to the contracts it enters into during the term of the agreement. There
were no cumulative net profits from the operations of Weitz Golf during the
three months ended March 31, 2000.
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, 2000 and 1999, the Company earned management fees attributable
to providing such services of $52,994 and $89,700, respectively. At March 31,
2000, the Company had a net amount due from International of $52,046, which was
comprised primarily of the management fees attributable to such personal
endorsement services performed by Mr. Nicklaus.
In 1998, Jack Nicklaus advanced $2.4 million to the Company evidenced by an
unsecured five-year promissory note. The loan proceeds were used by the Company
in connection with the settlement of certain claims associated with a golf
course development.
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, 2000 and 1999, payroll
and related costs associated with such shared employees totaling $6,900 and
$9,000, respectively, were allocated to International.
During the three months ended March 31, 2000 and 1999, the Company paid
Executive Sports International, a privately held company owned in part by a
member of the Nicklaus family, $18,352 and $120 respectively, for certain
printing and graphics services. In 1999, the Company entered into a marketing
and support agreement with ESI in connection with the promotion, marketing, sale
and operation of the NICKLAUS FLICK GAME IMPROVEMENT'S programs. Under the
marketing and support agreement, ESI earned a management fee of $45,000,
commissions of $15,000, and was reimbursed for travel and amenities of $4,517
during the three months ended March 31, 2000.
11
<PAGE>
6. RELATED PARTY TRANSACTIONS - (CONTINUED)
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 GAME IMPROVEMENT. 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, 2000 and 1999,
the Company purchased such golf equipment at a cost of $9,112 and $10,490,
respectively.
7. 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. Income attributable to the operations of Paragon $100,634 for the
three months ended March 31, 2000 is included in the accompanying Consolidated
Condensed Statements of Operations as a component of the line item captioned,
"Income from discontinued operations."
The components of the net liabilities associated with Paragon's discontinued
operations included in the accompanying Consolidated Balance Sheets consist of
the following:
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
Current assets $ 93,279 $ 60,844
Property and equipment, net 131,778 131,999
----------- -----------
Total assets 225,057 192,843
----------- -----------
Current liabilities 3,354,275 5,194,455
Notes payable and capital leases 6,073,683 4,870,499
----------- -----------
Total liabilities 9,427,958 10,064,954
----------- -----------
Net liabilities of discontinued operations $ 9,202,901 $ 9,872,111
=========== ===========
12
<PAGE>
8. SEGMENT REPORTING
With 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
of NICKLAUS, JACK NICKLAUS and GOLDEN BEAR branded products throughout the
world, the operation of the NICKLAUS FLICK GAME IMPROVEMENT 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
On April 17, 2000, the Company terminated a licensing agreement with one
licensee covering 21 golf center facilities, based upon the failure of the
licensee to make required payments. Pursuant to the agreement, the Company had
been entitled to receive minimum annual licensing fees of $795,000. The licensee
defaulted on its payment to the Company for the quarterly minimum fees which
were due on January 1, 2000 and April 1, 2000, as required under its licensing
agreement. On May 4, 2000, the licensee announced that it filed voluntary
petitions with the U.S. Bankruptcy Court to reorganize under Chapter 11 of the
U.S. Bankruptcy Code. The Company will not earn any future revenue associated
with this licensing agreement and has fully reserved the current outstanding
receivable amount of $198,750.
Pursuant to the terms of the settlement of the class action litigation brought
against the Company, on April 5, 2000 the Company transferred $1.9 million into
an escrow account. These funds are to be paid to the Company's public
shareholders in cancellation and redemption of their shares.
13
<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, 1999 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 focused on its core business, which includes the
licensing of NICKLAUS, JACK NICKLAUS and GOLDEN BEAR branded products throughout
the world, the operation of the NICKLAUS FLICK GAME IMPROVEMENT 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 or
terminated. 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 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 cumulative net profits, as defined, received by Weitz Golf
pursuant to the contracts it enters into during the term of the agreement. There
were no cumulative net profits from the operations of Weitz Golf during the
three months ended March 31, 2000.
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 class
action lawsuits were 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.
14
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2000 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1999
Total revenues were $2.6 million during the three months ended March 31, 2000,
compared to $2.8 million for the comparable period of 1999. 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 revenue
from licensing and other revenue. Golf instruction revenues decreased during the
three months ended March 31, 2000 due primarily to lower occupancy at the
NICKLAUS FLICK GAME IMPROVEMENT'S retail golf programs.
Operating expenses were $1.8 million and $1.9 million for the three months ended
March 31, 2000 and 1999, respectively. Corporate administration expenses were
$1.1 million and $1.4 million for the three months ended March 31, 2000 and
1999, respectively. The $0.3 million decrease in such administrative expenses
for the current quarterly period was attributable to decreased expenses for
employee related costs and for legal fees in connection with the SEC
investigation. Charges for depreciation and amortization expense were
approximately $0.1 million for the three months ended March 31, 2000 and 1999.
The Company incurred net operating losses of $0.3 million and $0.5 million
during the three months ended March 31, 2000 and 1999, respectively. The
operating loss incurred for the current quarterly period was primarily
attributable to legal costs of $0.6 million incurred in connection with the SEC
investigation.
Other expense of approximately $0.1 million for the three months ended March 31,
2000 was comprised of legal fees incurred in connection with the stock
repurchase, offset in part by interest income earned on cash balances held by
the Company as a consequence of settlement proceeds received from Andersen.
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 for the three months ended March 31, 2000
and 1999 was comprised of amounts incurred with respect to state and foreign
income taxes.
The income from discontinued operations of $0.1 million, for the three months
ended March 31, 2000 was primarily the result of a favorable settlement with a
former Paragon vendor.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2000 and December 31, 1999, the Company had a working capital
deficit of $3.5 million and $2.9 million, respectively, including cash and cash
equivalents of $4.7 million and $1.4 million, respectively.
Pursuant to the terms of the settlement agreement, the Company agreed to pay
approximately $1.9 million for the redemption of its publicly traded stock. The
required amounts were deposited into an escrow account on April 5, 2000.
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 $9.4 million and a working capital deficiency of approximately
$3.5 million at March 31, 2000. Management's actions in regard to these matters
have included discontinuing the Company's construction operations and reducing
on-going expenses.
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 negotiations of claims and issues
15
<PAGE>
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.
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;
competitive and other factors affecting the Company's operations, markets,
products and services; risks associated with its licensing activities including
risks associated with the operations of its licensees; the possibility that
additional claims may be brought based on its discontinued operations or
otherwise; risks associated with its discontinued operations and the risks
relating to pending litigation and investigations and associated costs; and
other factors discussed elsewhere in this release and in documents filed by the
Company with the Securities and Exchange Commission. Many of these factors are
beyond the Company's control. Actual results could differ materially from these
forward-looking statements. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this 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.
16
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE 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
arose in connection with its business and not for trading purposes. The Company
is subject to interest rate risk on its outstanding note payable to a
shareholder, with variable interest at The Wall Street Journal Prime Rate
payable monthly. The entire principal balance of $2.4 million is due in July,
2003. The Company may be subject to additional interest rate risk associated
with 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.
EXCHANGE RATE SENSITIVITY
The Company is exposed to the impact of foreign currency rate 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.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 Agreement and Plan of Merger, dated January 12, 2000, among
Golden Bear Golf, Inc. and GB Golf Corp. (incorporated by
reference to the Registrant's Current Preliminary Report on
Form 14C filed on April 12, 2000).
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, 2000.
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 Operating Officer
and Chief Financial Officer
Date: May 12, 2000
19
<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, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,744,752
<SECURITIES> 0
<RECEIVABLES> 1,276,064
<ALLOWANCES> (373,747)
<INVENTORY> 0
<CURRENT-ASSETS> 5,834,544
<PP&E> 1,350,934
<DEPRECIATION> (970,886)
<TOTAL-ASSETS> 6,560,938
<CURRENT-LIABILITIES> (9,338,395)
<BONDS> (2,461,095)
0
0
<COMMON> (55,050)
<OTHER-SE> 9,406,080
<TOTAL-LIABILITY-AND-EQUITY> (6,560,938)
<SALES> 0
<TOTAL-REVENUES> (2,605,750)
<CGS> 0
<TOTAL-COSTS> 2,951,812
<OTHER-EXPENSES> 72,531
<LOSS-PROVISION> 198,750
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 418,593
<INCOME-TAX> 11,948
<INCOME-CONTINUING> 430,541
<DISCONTINUED> (100,634)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 329,907
<EPS-BASIC> 0.06
<EPS-DILUTED> 0.06
</TABLE>
