SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File
September 30, 1996 Number 001-12245
METROGOLF INCORPORATED
- -----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
COLORADO 84-1288480
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(State or other jurisdiction I.R.S. Employer Identification No.
of incorporation or organization)
1999 Broadway, Suite 2435, Denver, Colorado 80202
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(Address of principal executive offices) (Zip code)
Registran's telephone number, including area code (303) 294-9300
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(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check whether the registrant (1) has filed 1) Yes X
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 2) Yes X
the past 90 days.
Indicate the number of share outstanding of each of the issue's
classes
of stock, as of the latest practicable date.
Number of Shares
Class Outstanding at November 22, 1996
Common stock, no par value 2,211,957 shares
METROGOLF INCORPORATED
FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1996
(Unaudited) and December 31, 1995
Consolidated Statements of Operations (Unaudited)
for the three months and the nine months ended September
30,1996 and 1995
Consolidated Statements of Cash Flows (Unaudited)
for the nine months ended September 30, 1996 and 1995
Notes to Consolidated Financial Statements (Unaudited)
ITEM 2. Managemen's Discussion and Analysis of
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Items 1 through 6
SIGNATURE
<TABLE>
<CAPTION>
MetroGolf Incorporated
Consolidated Balance Sheets
September 30, December 31,
1996 1995
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalent $ 51,000 $ 324
Restricted cash - 222,700
Inventories 96,024 -
Management fee
receivable, related party 66,091 83,256
Other current assets 70,470 15,452
----------------------------------
283,585 321,732
Property and equipment,
net of accumulated
depreciation of
$64,774 and $24,025 1,548,515 63,952
Other Assets
Deposits and other assets 40,535 19,800
Deferred offering costs 462,431 -
Debt issue costs,
net of accumulated
amortization of $89,292 as
of September 30, 1996 178,586 -
Deferred acquisition costs 108,856 59,467
Notes receivable,
related parties 766,626 514,728
Note receivable, other 83,172 -
-------------------------------
1,640,206 593,995
-------------------------------
TOTAL ASSETS $ 3,472,306 $ 979,679
==================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Current Liabilities
Accounts payable $ 963,410 $ 380,217
Accrued salaries 332,708 145,784
Accrued expenses and
other current
liabilities 120,345 11,446
Note payable, officer 4,075 26,827
Line of credit - 246,937
Convertible
subordinated notes
payable, net of issue
discount of $182,700 as
of September 30, 19961, 842,300 -
Current portion of
long-term debt 716,489 16,489
----------------------------------
3,979,327 827,700
----------------------------------
Long term debt,
less current portion 10,357 23,151
---------------------------------
Investments in affiliates 5,967 3,689
---------------------------------
Minority interest in
consolidated subsidiaries 24,992 24,178
---------------------------------
Stockholders' Equity (Deficit)
Preferred stock --
$1 par value; 1,000,000
shares authorized;
45,500 shares issued
and outstanding;
liquidation value of $25
per share plus dividends
in arrears of $333,698
and $205,729 (in the
aggregate $1,471,198
and $1,343,229) 45,500 45,500
Additional paid-in
capital 940,609 940,609
Common stock --
No par value: 9,000,000
shares authorized;
680,782 shares issued
and outstanding 146,830 (96,770)
Notes receivable,
stockholder (166,716) (120,300)
Accumulated deficit (1,514,560) (668,078)
-----------------------------------
(548,337) 100,961
-----------------------------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
(DEFICIT) $ 3,472,306 $ 979,679
===================================
</TABLE>
<TABLE>
<CAPTION>
MetroGolf Incorporated
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
September 30, September 30,
1996 1995
<S> <C> <C>
Revenues
Operating revenues $ 265,034 $ -
Merchandise 42,701 -
Management fees,
related parties 44,737 28,773
Acquisition and
consulting fees 10,000 145,000
--------------------------------
Total revenues 362,472 173,773
Operating expenses 346,541 -
Cost of merchandise sold 23,362 -
Selling, general and
administrative expenses 323,320 153,715
--------------------------------
Income (loss) from operations (330,751) 20,058
--------------------------------
Interest expense (181,450) (5,821)
Other 19,925 2,693
--------------------------------
Total other income (expense) (161,525) (3,128)
--------------------------------
Equity in income of affiliates 351 77
--------------------------------
Minority interest in income
of subsidiaries (3,219) (1,732)
--------------------------------
Net income (loss) (495,144) 15,275
Dividend requirements on
preferred stock 42,656 39,875
--------------------------------
Loss applicable to common stock $ (537,800) $ (24,600)
================================
Net (loss) per common share $ (0.61) $ (0.03)
================================
Weighted average number
of common shares outstanding 877,142 877,142
</TABLE>
See accompanying notes to consolidated financial statements
<TABLE>
<CAPTION>
MetroGolf Incorporated
Consolidated Statements of Operations
(Unaudited)
For the Nine Months Ended
September 30, September 30,
1996 1995
<S> <C> <C>
Revenues
Operating revenues $ 265,034 $ -
Merchandise 42,701 -
Management fees,
related parties 144,011 113,786
Acquisition and
consulting fees 10,000 145,000
---------------------------------
Total revenues 461,746 258,786
---------------------------------
Operating expenses 346,541 -
Cost of merchandise sold 23,362 -
Selling, general and
administrative expenses 745,615 524,726
---------------------------------
Income (loss) from operations (653,772) (265,940)
---------------------------------
Interest expense (243,940) (16,191)
Other 54,325 22,733
---------------------------------
Total other income (expense) (189,615) 6,542
---------------------------------
Equity in loss of affiliates (2,278) (800)
---------------------------------
Minority interest in
income of subsidiaries (9,459) (6,394)
---------------------------------
Net income (loss) (855,124) (266,592)
Dividend requirements on
preferred stock 127,969 112,396
---------------------------------
Loss applicable to common
stock $ (983,093) $ (378,988)
=================================
Net (loss) per common share $ (1.12) $ (0.43)
=================================
Weighted average number of
common shares outstanding 877,142 877,142
=================================
</TABLE>
See accompanying notes to consolidated financial statements
<TABLE>
<CAPTION>
MetroGolf Incorporated
Consolidated Statements of Cash Flows
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
For the Nine Months Ended
September 30, September 30,
1996 1995
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (855,124) $ (266,592)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities
Depreciation 40,749 9,093
Interest expense 150,192 -
Equity in loss of
affiliates 2,278 778
Minority interest in
income of consolidated
subsidiaries 9,459 6,394
Changes in operating
assets and liabilities
Management fee
receivable, related
party 17,165 (4,341)
Account receivable,
related party (11,000) -
Account receivable (23,489) (50,310)
Inventories (96,024) -
Other current assets (20,532) 18,368
Accounts payable 573,193 139,083
Accrued salaries 186,924 (11,216)
Accrued expenses
and other current
liabilities 118,899 (45,307)
---------------------------------
Net Cash Provided by (Used in)
Operating Activities 92,690 (204,050)
---------------------------------
INVESTING ACTIVITIES
Restricted cash 222,700 -
Payments for notes
receivable, related
parties (251,898) (96,718)
Payments for notes
receivable, stockholder (46,416) (99,763)
Acquisition of fixed assets (825,312) (38,807)
Payments for deferred
acquisition costs (49,389) -
Receivable in connection
with asset acquisition (83,172) -
Deposits and other assets (20,735) 17,000
---------------------------------
Net Cash Used in Investing
Activities (1,054,222) (218,288)
---------------------------------
FINANCING ACTIVITIES
Proceeds from convertible
subordinated notes payable 2,025,000 -
Proceeds from (payments on)
line of credit (246,937) 97,559
Payments on long term debt (12,794) 12,315
Payments on note payable,
officer (22,752) -
Payments for debt issue costs (267,878) -
Payments for deferred
offering costs (462,431) (25,283)
Proceeds from issuance of
preferred stock, net of
offering costs - 199,504
---------------------------------
Net Cash Provided by Financing
Activities 1,012,208 284,095
---------------------------------
Increase (Decrease) in Cash
and Cash Equivalents 50,676 (138,243)
Cash and Cash Equivalents,
Beginning of Period 324 195,777
----------------------------
Cash and Cash Equivalents,
End of Period $ 51,000 $ 57,534
=================================
</TABLE>
See accompanying notes to consolidated financial statements
MetroGolf Incorporated
Notes to Consolidated Financial Statements
(Unaudited)
1. General:
The accompanying financial statements have been prepare in
accordance with generally accepted accounting principles for
interim financial information and in accordance with
instructions to Form 10-Q and Regulation S-X. Accordingly,
they do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. The accompanying financial
information is unaudited but includes all adjustments
(consisting of normal recurring accruals) which, in the
opinion of management, are necessary to present fairly the
information set forth herein. The consolidated financial
statements should be read in conjunction with the notes to
the consolidated financial statements which are included in
the Registration Statement on Form S-1 of the Company for
the fiscal year ended December 31, 1995.
The results for the interim periods are not necessarily
indicative of results to be expected for the fiscal year of
the Company ending December 31, 1996. The Company believes
that the nine month report filed on Form 10-Q is
representative of its financial position and its results of
operations and changes in cash flow for the periods ended
September 30, 1996 and 1995.
2. Convertible Subordinated Notes Payable:
On May 30, 1996, the Company completed its offer for sale in
a private placement of $2,025,000 in convertible
subordinated notes. Net proceeds from the offering, after
paying commissions and offering costs, were approximately
$1,757,000. The notes bear interest at 12%, with interest
payable June 1 and December 1 of each year commencing
December 1, 1996. The market interest rate on the
convertible subordinated notes has been determined to be
greater than the stated interest rate which results in an
original issue discount on the face amount of the
convertible subordinated notes in the amount of $243,600
based on an effective interest rate of 24%. This original
issue discount is being charged to interest expense over the
life of the convertible subordinated notes under the
effective interest method.
Simultaneously with the completion of the Company's Initial
Public Offering (IPO) on October 21, 1996, subordinated
notes and accrued but unpaid interest totaling $1,068,525
were converted into 356,175 shares of common stock in
accordance with the provisions of the convertible
subordinated notes. The remaining $1,012,500 in notes are
due on June 1, 1997.
3. Stockholders Equity
In September, 1996 the Company declared a 1.535 to 1 reverse
stock split. All share information herein reflects such
stock adjustment.
On October 21, 1996, the Company completed the sale of
1,175,000 shares of common stock in an IPO registered on
Form S-1. Net proceeds to the Company upon completion of
the IPO was approximately $5,781,000 after paying offering
costs and commissions of approximately $1,269,000.
On November 21, 1996, the Company completed the redemption
of 45,500 shares of preferred stock at an aggregate cost of
$1,544,432, including dividends in arrears of $357,870.
4. Acquisitions
On July 1, 1996, the Company purchased the leasehold
interest on an existing driving range and learning center
facility in Fremont, California for $1,350,000 plus
acquisition costs of approximately $81,000. The purchase
agreement provided for payment of $650,000 in cash and
$700,000 payable by a promissory note accruing interest at a
rate of 9% per annum, with all principal and interest due
November 15, 1996. The note is secured by a first deed of
trust encumbering the leasehold. The Company is currently
in negotiations with the note holder to extend the due date
past November 15, 1996. The ability of the Company to
extend the due date is uncertain at this time.
On July 1, 1996 the Company entered into a sublease, with an
option to purchase, for the Harborside Golf Center located
in downtown San Diego, California. The sublease provides
for a term of one year for both sublease and purchase
option, with an option to extend for three months. If the
Company elects to exercise its option to purchase the
facility for approximately $1.2 million, it intends to fund
the acquisition and subsequent development expenses through
a combination of working capital provided from the proceeds
of its IPO and debt which it expects to obtain from a
commercial bank, specialized golf lending institution or
private lender.
On September 1, 1996, the Company entered into a short term
sublease on the Palms Golf Center located south of San
Diego, California. The sublease provides for a four month
term. The Company is in the process of negotiating a
purchase agreement to acquire this facility for
approximately $790,000. The Company intends to fund the
acquisition through assumption of existing debt, proceeds
from the IPO and issuance of securities.
On October 21, 1996 the Company purchased 93.6% of the
limited partnership interests in Illinois Center Golf
Partners L.P. (Illinois Center) for $1,587,500 cash and
$1,687,500 in convertible notes. The convertible notes will
be convertible at the holders option into common stock at
any time after November 21, 1997 at a conversion price equal
to $6 per share of common stock. In addition, each
convertible note issued to the limited partners of Illinois
Center will convert into warrants to purchase 2,500 shares
of common stock at an exercise price equal to $7.20 per
share.
On October 21, 1996 the Company purchased 89.7% of the
limited partnership interests in Goose Creek Limited
Partnership (Goose Creek) for $620,500 cash and $744,500
in convertible notes. The convertible notes will be
convertible at the holders option into common stock at any
time after November 21, 1997 at a conversion price equal to
$6 per share of common stock.
5. Supplemental Data to Statements of Cash Flows
Excluded from the consolidated statements of cash flows were
the effects of certain noncash investing and financing
activities.
In July 1996, the Company acquired certain leasehold
interests for $700,000 by issuing a note payable, as
discussed more fully in Note 4 above.
<TABLE>
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Cash
payments
for
interest $2,070 $5,821 $44,310 $16,192
</TABLE>
6. Income Taxes
At September 30, 1996 and December 31, 1995, the Company has
available net operating loss carry forwards of approximately
$1,437,000 and $584,000 for tax reporting purposes which
expire through 2012. These operating loss carry forwards
are subject to various limitation imposed by the rules and
regulations of the Internal Revenue Service.
The Company has deferred tax assets fully reserved as of
September 30, 1996 and December 31, 1995. The tax effect on
the components is as follows:
<TABLE>
September 30, December,31
1996 1995
<S> <C> <C>
Net operating loss carry forward .$ 286,000 $ 117,000
Salary accrual ................... - 29,000
Basis difference in property
and equipment .... 1,000 1,000
-----------------------------
287,000 147,000
Valuation allowance (287,000) (147,000)
-----------------------------
$ -- $ --
=============================
</TABLE>
A 100 percent valuation allowance has been established to
reflect management's evaluation that it is more likely than
not that all of the deferred tax assets will not be
realized. For the nine months ended September 30, 1996 and
for the year ended December 31, 1995, the valuation
allowance increased by $140,000 and $98,000.
ITEM 2. MANAGEMENT DISCUSSION AND PLAN OF OPERATION.
The following discussion and analysis should be read in
conjunction with the Company's Financial Statements and the notes
thereto appearing elsewhere in this Report. This report contains
forward-looking statements that involve risks and uncertainties.
The Company's actual results could differ materially form the
results discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but
are not limited to, those discussed in "Risk Factors" in the
Company's Registration Statement on Form S-1, as amended, dated
October 16, 1996, filed with the Securities and Exchange
Commission.
General
The Company's strategy is to increase revenues and net
income by increasing the number of golf centers it owns, leases
or manages by (i) identifying and acquiring existing golf
facilities that have the potential for revenue enhancement
through better management and improved or expanded facilities,
including the addition of enclosed hitting areas, full-line pro
shops and other amenities, (ii) developing new golf centers in
locations where suitable acquisition opportunities are not
available, and (iii) seeking to realize economies of scale
through centralized purchasing, accounting, management
information and cash management systems. Consistent with this
strategy, during October 1996 the Company has acquired 93.6% of
the limited partnership interests in Illinois Center Golf
Partners, L.P. ("Illinois Center") and 89.7% of the limited
partnership interests in Goose Creek Golf Partners Limited
Partnership ("Goose Creek"). In addition, the Company is actively
pursuing acquisition or development projects in major cities,
including Atlanta, Denver, Los Angeles, St. Louis, San Diego,
San Francisco, Seattle and Toronto. The Company currently has
18 properties under active review as candidates for acquisition
and has either entered into or is currently negotiating
non-binding letters of intent with respect to six of these
properties. Consummation of any acquisition or development of
these or any other future sites is subject to the satisfaction of
various conditions, including the satisfactory completion of due
diligence by the Company and the negotiation of definitive
agreements. As consideration for any future acquisition or
development, the Company may pay cash, incur indebtedness or
issue debt or equity securities. Such acquisitions or
developments could result in material changes in the Company's
financial condition and operating results; however, there can be
no assurance as to the occurrence of any of these acquisitions or
developments or, if they occur, as to the timing of the
consummation of any acquisitions or developments.
Results of Operations
The Company derives its revenue from three major sources:
consulting or acquisition fees, management fees and golf center
operations. The Company acquired the leasehold interest in the
Fremont Park Golf Center on July 1, 1996. The Company entered
into a sublease agreement for the Harborside Golf Center on July
1, 1996. The Company entered into a short term lease agreement
for the Palms Golf Center on September 1, 1996. Prior to these
dates, the Company had no direct revenue or expenses from the
operation of Golf Centers.
Nine Months Ended September 30, 1996, as Compared to Nine Months
Ended September 30, 1995
Total revenues increased 78.4% to approximately $461,700 for
the nine months ended September 30, 1996, from approximately
$258,800 for the nine months ended September 30, 1995. Golf
center operations and merchandise sales were approximately
$307,700, up from $0 in 1995, resulting from the leases and
subleases acquired in the third quarter of 1996 discussed above.
Management fees increased to approximately $144,000 in 1996 from
approximately $113,800 in 1995. Acquisition and consulting fees
decreased to $10,000 in 1996 from $145,000 in 1995. Of the
$145,000 in acquisition and consulting fees, $120,000 was
attributabe to a fee for the negotiation of certain Goose Creek
notes payable. The remaining $25,000 was a fee for the sale of
the contract to acquire a golf course. Both fees are non-
recurring in nature.
Operating expenses were approximately $346,500 for the nine
months ended September 30, 1996, up from $0 for the nine months
ended September 30, 1995 resulting from the leases and subleases
acquired in the third quarter of 1996 discussed above. Cost of
merchandise sold was $23,362 for the nine months ended September
30, 1996.
Selling, general and administrative expenses increased to
approximately $745,600 for the nine months ended September 30,
1996 from approximately $525,000 for the nine months ended
September 30, 1995. These increases are primarily attributable
to the addition of key personnel associated with management of
the golf center operations and selling, general and
administrative costs associated with the golf center operations.
Interest expenses increased to $243,940 in 1996 from $16,191
in 1995 primarily due to placement of the $2,025,000 convertible
subordinated notes in the second quarter of 1996 and a note
payable of $700,000 in connection with the acquisition of
Fremont. Approximately $56,025 of interest was paid by the
issuance of common stock subsequent to September 30, 1996. See
Note 2 to the consolidated financial statements.
Other income increased to $54,325 in the nine months ended
September 30, 1996 from $227,338 in the nine months ended
September 30, 1995 as a result of an increase in interest-bearing
receivables of approximately $252,000.
Three months Ended September 30, 1996, as Compared to Three
Months Ended September 30, 1995
Total revenues increased 108.6% to approximately $362,500
for the three months ended September 30, 1996, from approximately
$173,800 for the three months ended September 30, 1995. Golf
center operations began July 1, 1996 at Harborside and Fremont
and September 1, 1996 at Palms. Golf center operations and
merchandise sales were approximately $307,700 in 1996, up from $0
in 1995, resulting from the leases and subleases acquired in the
third quarter of 1996 discussed above. Management fees increased
to approximately $44,800 from approximately $28,800. Acquisition
and consulting fees decreased to $10,000 in 1996 from $145,000 in
1995. Of the $145,000 of acquisition and consulting fees in
1995, $120,000 was attributable to a fee for the negotiation of
certain Goose Creek notes payable. The remaining $25,000 was a
fee for the sale of the contract to acquire a golf course. Both
fees are non-recurring in nature.
Operating expenses were $346,500 for the three months ended
September 30, 1996, up from $0 for the three months ended
September 30, 1995. Cost of merchandise sold was $23,362 for the
three months ended September 30, 1996.
Selling, general and administrative expenses increased to
approximately $323,300 for the three months ended September 30,
1996 from approximately $154,000 for the three months ended
September 30, 1995. These increases are primarily attributable
to the addition of key personnel associated with management of
the golf center operations and selling, general and
administrative costs associated with the golf center operations.
Interest expenses increased to $181,450 in 1996 from $5,821
in 1995 primarily due to placement of the $2,025,000 convertible
subordinated notes in the second quarter of 1996 and a note
payable of $700,000 issued in connection with the acquisition of
Fremont. Approximately $56,025 of interest was paid by the
issuance of common stock subsequent to September 30, 1996. See
Note 2 to the consolidated financial statements.
Other income increased to $19,925 in 1996 from $2,693 in
1995 as a result of an increase in interest-bearing receivables
of approximately $252,000.
Liquidity and Capital Resources
At September 30, 1996, the Company had a working capital
deficit of approximately $3,695,700, as compared to a working
capital deficit of $506,000 at December 31, 1995. The increase in
working capital deficit is primarily due to issuance of the
convertible subordinated notes, issuance of the purchase mortgage
indebtedness in conjunction with the Fremont acquisition, and
costs associated with the private placement of the convertible
subordinated notes (including issue discount on such convertible
subordinated notes deemed short term for accounting purposes).
The nine months ended September 30, 1996 had cash provided
by operating activities of $92,700 compared to cash used in
operating activities of $204,000 in the nine months ended
September 30,1995. Cash raised in debt and equity financing in
1995 and 1996 was primarily used to acquire the Fremont leasehold
interest, the Harborside sublease interest and to fund operating
losses and advances to related parties. In addition, the Company
used accounts payable as a source of financing. Trade accounts
payable increased $139,100 in 1995 and $573,200 in 1996. Because
of reduced cash flows, officers of the Company were not paid all
of their salaries due them in 1996.
For the nine months ended September 30, 1996, the Company
had net cash provided by operations, despite a net loss of
$855,100. The net cash provided by operations was the result of
an increase in accounts payable, accrued salaries and accrued
expenses and other current liabilities of $879,000 from
December 31, 1995 to September 30, 1996. In addition, the Company
received $17,000 in management fees during the nine months ended
September 30, 1996 which had been accrued for in prior periods.
Since its inception, the Company has been funded primarily
through loans, capital contributions and the sale of preferred
stock. In May 1996, the Company successfully completed the sale
of $2,025,000 of convertible subordinated notes, resulting in net
proceeds of approximately $1,757,100. Some of the proceeds from
the convertible subordinated notes were used to pay off the
Company's line of credit. With the recent and expected future
increased activities of the Company, the Company expects certain
operating expenses, such as office rent and salaries, to
increase. Depending on the number of acquisitions that the
Company undertakes during 1997, the working capital provided from
the IPO, together with cash flow from operations, in the opinion
of management, is sufficient to fund the Company's day-to-day
operations through the end of 1997.
The Company's expected capital requirements for project
acquisition, development and expansion are estimated at
approximately $8,500,000. The Company has been granted the
exclusive right to negotiate an agreement to develop an adjacent
35-acre tract of land owned by the City of Fremont into a 9-hole
executive-length golf course with expanded practice facilities
and significantly improved clubhouse amenities. This grant
expires on December 31, 1996 unless mutually extended. The
Company expects to commence construction of the 9-hole
executive-length golf course and begin modifications to the
existing facility in the spring of 1997, with the completion of
the golf center scheduled for the fall of 1997. The total
acquisition and proposed development budget is approximately
$3,200,000. Of such amount, $650,000 was paid utilizing the
proceeds from the sale of the convertible subordinated notes, and
a $700,000 note was given to the seller of the leasehold
interest. The Company expects to utilize approximately $500,000
of the proceeds from the IPO, together with debt from a
prospective lender from whom the Company has received a
non-binding lending proposal for $2,000,000 or another bank or
private lender, to fund such development. The total expected cost
of the New York Golf Center is expected to be approximately
$6,000,000. The Company expects to utilize approximately $500,000
of the proceeds from the IPO, together with other undetermined
debt or equity financing from banks and institutional or private
lenders to fund such amount.
Illinois Center and Goose Creek have had net losses from
operations in 1996. Upon their acquisition on October 21, 1996
the Company expects to fund losses from operations for the
remainder of 1996. The funding of these losses, expected to be
approximately $103,000, will be financed from net proceeds from
the IPO.
In the case of Illinois Center, the Company believes future
earnings will improve as a result of the maturity of this new
operation. In the case of Goose Creek and Fremont, the Company
believes it will enhance revenues at these facilities by
completing capital improvements, enhancing the facilities and
increasing and refocusing marketing efforts for these projects.
In addition, the Company believes it can improve cash flows and
reduce expenses by economies of scale achieved through
centralized purchasing, accounting, management information
systems and cash management. There can be no assurance, however,
that the Company will be able to improve the performance of newly
acquired facilities.
The Company took over management of both Goose Creek and
Illinois Center on October 1, 1995 and April 1, 1996,
respectively. Prior to this time, an independent golf management
company managed each facility. In addition to generating revenues
from these management activities, the Company believes it will be
able to better evaluate daily changes in operation and react in a
more timely basis if needed.
At September 30, 1996, the Company had a deferred tax asset
of $287,000 that was fully reserved to reflect management's
evaluation that it is more likely than not that all of the
deferred tax asset will not be realized.
The Financial Standards Board has recently issued Statement
of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets" and SFAS No. 123,
"Accounting for Stock Based Compensation." SFAS No. 121 requires
that long-lived assets and certain identifiable intangibles be
reported at the lower of the carrying amounts or their estimated
recoverable amounts, and the adoption of this statement by the
Company is not expected to have an impact on the financial
statements. SFAS No. 123 encourages the accounting for
stock-based employee compensation programs to be reported within
the financial statements on a fair value based method. If the
fair value based method is not adopted, then the statement
requires pro forma disclosure of net income and earnings per
share as if the fair value based method has been adopted. The
Company has not yet determined in what form SFAS No. 123 will be
adopted or its impact on the financial statements. Both
statements are effective for fiscal years beginning after
December 15, 1995.
Seasonality
Historically, the second and third quarters have accounted
for a greater portion of the Company's revenue and operating
income than have the first and fourth quarters of the year. This
is primarily due to an outdoor playing season limited by
inclement weather. Although most of the Company's facilities are
designed to be all-weather, portions of the facilities tend to be
vulnerable to weather conditions. Also, golfers are less inclined
to practice when weather conditions limit their ability to play
golf on outdoor courses. This seasonal pattern, as well as the
timing of new golf facility acquisitions, developments and
openings, may cause the Company's results of operations to vary
significantly from quarter to quarter. Accordingly,
period-to-period comparisons are not necessarily meaningful and
should not be relied upon as indications of future results.
Trends
The Company plans to acquire or develop additional golf
centers. As such additional golf centers are acquired or
developed, total revenue should continue to increase. The Company
is making capital improvements at the Fremont Golf Center and
Goose Creek and has recently strengthened the on-site management
teams at these golf centers with an increased emphasis on sales
and marketing. The Company believes that, as its current golf
centers mature, revenues and operating income from such centers
should increase due to customer awareness, programs marketing the
golf centers to various special interest groups, expanded ties to
local businesses and golfing communities and marketing programs
developed by the Company. Such increases may be partially offset
by initial losses from pre-opening costs (and initial operating
losses) associated with new golf centers. The Company's interest
expense will decrease in the short term with the conversion of
the part of convertible subordinated notes, but will likely
increase over time as a result of increased borrowings to fund
new golf center development.
PART II - OTHER INFORMATION
- -------------------------------------------------------
Item 1: Legal Proceedings
In July 1996, the Company entered into a sublease
agreement to operate the Harborside Golf Center in San
Diego, California. Management believes that the
sublessor breached its sublease agreement, and the
Company is withholding a portion of the rental payments
seeking resolution of these matters. The sublessor has
sued the Company seeking payment of approximately
$18,700 of rental payments. The Company is preparing a
counter-suit alleging the sublessor's breaches of
contract.
Item 2: Changes in Securities
None
Item 3: Defaults upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security
Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit No. 11 Statement Regarding Computation
of Earnings per Share
(B) Reports on Form 8-K
None during the quarter ended September 30, 1996
MetroGolf Incorporated
Exhibit 11
Statement Re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
Historical weighted average number of shares outstanding is
summarized as follows:
<S> <C> <C>
Common stock outstanding 680,782
Warrants outstanding 288,160
Less treasury stock that
could be repurchased with
proceeds of exercised
warrants
(91,800)
---------
Assumed exercise of
warrants 196,360
-------
Historical weighted average
number of common shares
outstanding 877,142
=======
</TABLE>
<TABLE>
<CAPTION>
Primary and Fully Diluted Earnings Per Share
For the Three Months For the Nine Months
Ended Ended
September 30, September 30, September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Loss
applicable
to common
stock $(537,800) $ (24,600) $(983,093) $(378,988)
=====================================================
Weighted
average
number
of common
shares
outstanding 877,142 877,142 877,142 877,142
=====================================================
Primary
and Fully
Diluted
Earnings
Per Share $ (0.61) $ (0.03) $ (1.12) $ (0.43)
=====================================================
</TABLE>
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MetroGolf Incorporated
DATE: December 2, 1996 /S/ Charles D. Tourtellotte
Charles D. Tourtellotte
President
DATE: December 2, 1996 /S/J.D. Finley
J.D. Finley
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Sep-30-1996
<CASH> 51
<SECURITIES> 0
<RECEIVABLES> 67
<ALLOWANCES> 0
<INVENTORY> 96
<CURRENT-ASSETS> 284
<PP&E> 1613
<DEPRECIATION> 65
<TOTAL-ASSETS> 3472
<CURRENT-LIABILITIES> 3979
<BONDS> 0
<COMMON> 147
0
46
<OTHER-SE> (741)
<TOTAL-LIABILITY-AND-EQUITY> 3472
<SALES> 362
<TOTAL-REVENUES> 362
<CGS> 369
<TOTAL-COSTS> 693
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 181
<INCOME-PRETAX> (495)
<INCOME-TAX> 0
<INCOME-CONTINUING> (495)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (495)
<EPS-PRIMARY> (.61)
<EPS-DILUTED> (.61)
</TABLE>
