<PAGE>
Filed pursuant to Rule 424(b)1
Registration Number 333-06151
PROSPECTUS
[LOGO]
METROGOLF
INCORPORATED
1,175,000 SHARES OF COMMON STOCK
------------------
MetroGolf Incorporated ("MetroGolf" or the "Company") is hereby offering
1,175,000 shares of its common stock, no par value ("Common Stock").
Prior to this offering (the "Offering"), there has been no public market for
the Common Stock, and no assurance can be given that any such market will
develop. For information regarding the factors considered in determining the
price to the public in the Offering, see "Underwriting." The Common Stock has
been approved for listing on the Nasdaq SmallCap Market ("Nasdaq") under the
symbol "MGLF" and the Boston Stock Exchange ("BSE") under the symbol "MGO."
Concurrently with the Offering, the Company is also registering the shares
of Common Stock that may be resold from time to time by holders (the "Selling
Shareholders") of the Company's 12% Convertible Subordinated Notes due 1997 (the
"PP Notes") upon conversion thereof (the "Conversion Shares"). The Selling
Shareholders may not sell the Conversion Shares until 180 days after the
consummation of the Offering pursuant to an agreement with Laidlaw Equities,
Inc. and Prime Charter Ltd., as representatives (the "Representatives") of the
several underwriters for the Offering (the "Underwriters").
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" CONTAINED AT PAGES 7-12 OF THIS
PROSPECTUS AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS PROCEEDS TO THE
PRICE TO THE PUBLIC AND COMMISSIONS(1) COMPANY (2)
<S> <C> <C> <C>
Per Share.......................... $6.00 $0.51 $5.49
Total (3).......................... $7,050,000 $599,250 $6,450,750
</TABLE>
(1) Does not include the Representatives' non-accountable expense allowance
equal to 1.5% of the gross proceeds of the Offering or warrants to purchase
117,500 shares of Common Stock issuable to the Representatives. The Company
has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $676,000 ($691,863 if the over-allotment option granted to the
Underwriters described below is exercised in full).
(3) The Company has granted to the Underwriters an option, exercisable within 45
days after the date hereof (the "Underwriters' Over-allotment Option"), to
purchase up to 176,250 additional shares of Common Stock on the same terms
as set forth above, solely to cover over-allotments, if any. If the
Underwriters' Over-allotment Option is exercised in full, the total Price to
the Public, Underwriting Discounts and Commissions and Proceeds to the
Company will be $8,107,500, $689,138 and $7,418,362, respectively. See
"Underwriting."
--------------------------
The shares of Common Stock are offered when, as and if delivered to and
accepted by the Underwriters and subject to the approval of certain legal
matters by counsel and certain other conditions. The Underwriters reserve the
right to withdraw, cancel or modify such offer and to reject orders in whole or
in part. It is expected that delivery of the shares of Common Stock will be made
against payment therefor at the offices of Laidlaw Equities, Inc., 100 Park
Avenue, New York, New York 10017 on or about October 21, 1996.
--------------------------
LAIDLAW EQUITIES, INC. PRIME CHARTER LTD.
The date of this Prospectus is October 16, 1996
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the Common Stock
offered by this Prospectus. For the purposes hereof, the term "Registration
Statement" means the original Registration Statement and any and all amendments
thereto. This Prospectus does not contain all of the information set forth in
the Registration Statement and the schedules and exhibits thereto, to which
reference hereby is made. Any interested party may inspect the Registration
Statement and its exhibits, without charge, at the public reference facilities
of the Commission at its principal office at Judiciary Plaza, 450 Fifth Street
N.W., Room 1024, Washington, D.C. 20549, and at its regional offices at 500 W.
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
13th Floor, New York, New York 10007. Any interested party may obtain copies of
all or any portion of the Registration Statement and its exhibits at prescribed
rates from the Public Reference Section of the Commission at its principal
office at Judiciary Plaza, 450 Fifth Street N.W., Room 1024, Washington, D.C.
20549.
As a result of the Offering, the Company will become subject to the periodic
reporting and other informational requirements of the Securities and Exchange
Act of 1934, as amended (the "Exchange Act"). As long as it is subject to such
reporting and informational requirements, the Company will file with the
Commission all reports, proxy statements and other information required thereby,
which may be inspected at the public reference facilities described above. The
Company intends to furnish its stockholders with annual reports containing
consolidated financial statements audited by independent certified public
accountants and with quarterly reports containing unaudited financial
information for each of the first three quarters of each fiscal year.
--------------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON NASDAQ, BSE OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
--------------------------
FOR CALIFORNIA AND VIRGINIA RESIDENTS ONLY
WITH RESPECT TO SALES OF THE COMMON STOCK BEING OFFERED HEREBY TO CALIFORNIA
AND VIRGINIA RESIDENTS, SUCH COMMON STOCK MAY BE SOLD ONLY TO (1) "ACCREDITED
INVESTORS" WITHIN THE MEANING OF REGULATION D UNDER THE SECURITIES ACT, (2)
BANKS, SAVINGS AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES,
INVESTMENT COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940,
PENSION AND PROFIT SHARING TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH,
TOGETHER WITH THE CORPORATION'S OR OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH
ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED
FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED, BUT NOT NECESSARILY
AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES
OF THE FOREGOING, (3) ANY CORPORATION, PARTNERSHIP OR ORGANIZATION (OTHER THAN A
CORPORATION, PARTNERSHIP OR ORGANIZATION FORMED FOR THE SOLE PURPOSE OF
PURCHASING THE SECURITIES OFFERED HEREBY) WHO PURCHASES AT LEAST $1,000,000
AGGREGATE AMOUNT OF THE SECURITIES OFFERED HEREBY, (4) ANY NATURAL PERSON WHO
(A) HAS INCOME OF $65,000 AND A NET WORTH OF $250,000, OR (B) HAS A NET WORTH OF
$500,000 (IN EACH CASE, EXCLUDING HOME, HOME FURNISHINGS AND PERSONAL
AUTOMOBILES), OR (5) ANY "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED UNDER RULE
144A OF THE SECURITIES ACT.
2
<PAGE>
FOLD OUT PAGE
[VIEW OF ILLINOIS CENTER GOLF]
METROGOLF ILLINOIS CENTER
CHICAGO, IL
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS
(INCLUDING THE NOTES THERETO) INCLUDED ELSEWHERE IN THIS PROSPECTUS. ALL COMMON
STOCK AMOUNTS IN THIS PROSPECTUS HAVE BEEN ADJUSTED TO REFLECT THE COMPANY'S
5.5-TO-1 STOCK SPLIT EFFECTED ON AUGUST 31, 1995 AND THE 1.535-TO-1 REVERSE
STOCK SPLIT EFFECTED ON OCTOBER 2, 1996. THE COMPANY WAS FORMERLY KNOWN AS THE
VINTAGE GROUP USA, LTD. METROGOLF INCORPORATED, ITS SUBSIDIARIES AND, IF THE
CONTEXT SO REQUIRES, ILLINOIS CENTER GOLF PARTNERS, L.P. ("ICGP") AND GOOSE
CREEK GOLF PARTNERS LIMITED PARTNERSHIP ("GCGP"), AS SUBSIDIARIES TO BE
CONSOLIDATED WITH THE COMPANY, ARE REFERRED TO HEREIN AS THE "COMPANY."
THE COMPANY
MetroGolf Incorporated acquires, develops and operates golf centers designed
to provide a wide variety of practice and play opportunities in major
metropolitan areas. The Company's centers are located in areas with high
concentrations of office, urban residential and hotel development that are
convenient for time-constrained golfers. The Company's golf centers typically
offer: practice facilities; instructional programs such as the David Leadbetter
Golf Academy-Registered Trademark- currently at the Company's Illinois Center
Golf facility; a full-line pro shop; restaurant, bar and catering facilities;
group meeting areas; and, in some cases, par-3 or executive-length golf courses.
The Company's golf centers are designed around a driving range with target
greens, bunkers and traps to simulate actual golf course conditions. The
Company's driving ranges, which typically include substantially more hitting
stations than the industry average, are lighted to permit night play and are
enclosed or sheltered in a climate-controlled environment.
The Company's strategy is to become the leading owner and operator of golf
centers in major metropolitan areas. The Company intends to accomplish this goal
principally by acquiring existing golf facilities that have the potential for
revenue enhancement through expansion of facilities, more efficient management
and innovative marketing strategies. The Company intends to develop new golf
centers in attractive markets where existing facilities are not suitable for
acquisition. The Company has capitalized on the national media and industry
recognition of its flagship development, Illinois Center Golf, a golf center and
par-3 golf course in downtown Chicago, and has built a substantial pipeline of
attractive projects for acquisition and development. In addition to Illinois
Center Golf, the Company currently operates Goose Creek Golf Club ("Goose
Creek"), an 18-hole golf course in suburban Washington, D.C., Fremont Golf
Center in Fremont, California and Harborside Golf Center in San Diego,
California (described below). Based on written acceptances to the Company's
offer to purchase the limited partnership interests in each of the limited
partnerships that own Illinois Center Golf and Goose Creek, the Company believes
that, simultaneously with the closing of the Offering, it will acquire most, if
not all, of such limited partnership interests for a combination of cash and
convertible notes.
According to the National Golf Foundation (the "NGF"), there were over 24
million golfers in the United States in 1995. According to the editorial staff
of Golf Range & Recreation Report, as of November 1, 1995, there were 1,932
stand-alone golf ranges in the United States, up 11.6% from 1994. In addition,
there were approximately 8,000 other ranges associated with public and private
golf courses. The Company estimates that, in 1995, over 90% of all stand-alone
driving ranges were managed by independent owner-operators. The Company believes
that consolidation of this fragmented industry presents numerous opportunities
for the Company to acquire, upgrade and renovate golf facilities and to realize
economies of scale through efficiencies of management, purchasing and marketing.
The Company also believes that many individual owner-operators lack the
expertise and financial resources to compete effectively in a consolidating
industry.
3
<PAGE>
RECENT TRANSACTIONS AND OTHER POTENTIAL TRANSACTIONS
Consistent with its business strategy of acquiring, developing and operating
golf centers, the Company purchased the leasehold interest on an existing
driving range and learning center facility in Fremont, California (the east San
Francisco Bay area) on July 1, 1996, where it plans to develop an
executive-length golf course (the "Fremont Golf Center"). On July 1, 1996, the
Company also entered into a sublease, with an option to purchase, for the
Harborside Golf Center, a double-tiered, double-ended driving range, putting
green, clubhouse and sports bar/cafe in downtown San Diego, California. The
Company is also developing a golf center located on the top of the Port
Authority Bus Terminal in midtown Manhattan, New York City (the "New York Golf
Center").
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 eight of
these properties. These eight properties are located in or near a major
metropolitan area in the Western United States. Each of the eight properties
contains a driving range, pro shop and food and beverage facility. In some
cases, the property has either a golf course or adjacent land available for
expansion or development of additional golf facilities. 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.
The Company is organized under the laws of the State of Colorado. The
Company's principal executive offices are located at 1999 Broadway, Suite 2435,
Denver, Colorado 80202. Its phone number is (303) 294-9300.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered................... 1,175,000 shares(a)
Common Stock to be Outstanding After
Offering.............................. 2,945,984 shares(b)
Risk Factors........................... The Common Stock offered hereby involves a high
degree of risk and immediate and substantial
dilution. See "Risk Factors" and "Dilution."
Use of Proceeds........................ The Company will use the net proceeds from the
Offering to acquire and develop golf centers and
for working capital, to upgrade and renovate
existing golf centers, to acquire limited
partnership interests in ICGP and GCGP and to
redeem the Company's Redeemable Preferred Stock
(see "Description of Capital Stock -- Preferred
Stock"). See "Use of Proceeds."
Nasdaq Symbol.......................... "MGLF"
BSE Symbol............................. "MGO"
</TABLE>
- ------------------------
(a) Does not give effect to any exercise of the Underwriters' Over-allotment
Option.
(b) Includes issuance of 641,667 shares upon conversion of the PP Notes and
410,375 shares upon conversion of the convertible notes issued in connection
with the acquisition of 90% of the limited partnership interests in each of
ICGP and GCGP (the "Convertible Notes"). See "Partnership Acquisitions" and
"Concurrent Offering." Does not include (i) 157,500 shares issuable upon
conversion of the warrants that may be issued upon conversion of the
Convertible Notes issued in connection with the acquisition of the limited
partnership interests in ICGP, (ii) 117,500 shares issuable to the
Representatives upon conversion of the warrants (the "Representatives'
Warrants") to be issued to the Representatives for their services in
connection with the Offering, (iii) up to 176,250 shares issuable upon
exercise of the Underwriters' Over-allotment Option, (iv) 250,000 shares of
Common Stock available for future grant under the Company's 1996 Stock
Option and Bonus Plan (the "Stock Option Plan"), or (v) 250,000 shares of
Common Stock issuable upon exercise of incentive options granted to Charles
D. Tourtellotte and J.D. Finley (125,000 shares each) under the Company's
Senior Executive Incentive Stock Option Plan (the "Executive Option Plan").
See "Underwriting," "Management -- Stock Option Plan" and "-- Senior
Executive Incentive Stock Option Plan."
5
<PAGE>
SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA
The historical financial information set forth below has been derived from
the Consolidated and Combined Financial Statements of the Company for the
respective periods presented and is qualified in its entirety by, and should be
read in conjunction with, the Consolidated and Combined Financial Statements and
notes thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial and statistical data included
elsewhere in this Prospectus. Operating results for the six months ended June
30, 1996 are not necessarily indicative of the results that will be achieved for
future periods, including for the entire year ending on December 31, 1996. The
pro forma summary consolidated financial information set forth below for the
Company gives effect to the interest expense associated with proceeds from the
sale of the PP Notes and proceeds from the sale of Common Stock in the Offering
(but not including the shares issuable pursuant to the Underwriters'
Over-allotment Option), the acquisition by the Company of the Fremont Golf
Center, the acquisition of limited partnership interests in ICGP and GCGP, the
$1,750,000 in proceeds from ICGP's long-term debt and ICGP's $1,434,000 in
property and equipment acquisitions, and are based on the estimates and
assumptions set forth herein. The unaudited pro forma information has been
prepared utilizing historical financial statements and notes thereto, which are
incorporated by reference herein. The unaudited pro forma financial data does
not purport to be indicative of the results which actually would have been
obtained had the purchase been effected on the dates indicated or of the results
which may be obtained in the future. The unaudited pro forma financial
statements should be read in conjunction with the historical financial
statements (including the notes to such financial statements) included elsewhere
in this Prospectus. The column for the period ended December 31, 1992 reflects
information from February 21, 1992 (date of inception) to December 31, 1992.
<TABLE>
<CAPTION>
INCEPTION TO SIX MONTHS ENDED
DECEMBER 31, YEARS ENDED DECEMBER 31, JUNE 30,
------------ -------------------------------------------- ---------------------------------
PRO PRO
ACTUAL ACTUAL FORMA ACTUAL FORMA
------------ ------------------------------- ----------- -------------------- -----------
1992 1993 1994 1995 1995 1995 1996 1996
------------ --------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Total revenues............ $ 76,250 $ 106,313 $ 291,237 $ 335,303 $ 3,657,593 $ 85,013 $ 99,275 $ 1,291,202
Total operating expenses.. 47,655 109,176 565,811 882,709 4,704,460 371,011 422,296 2,016,706
------------ --------- --------- --------- ----------- --------- --------- -----------
Operating loss............ 28,595 (2,863) (274,574) (547,406) (1,046,867) (285,998) (323,021) (725,504)
Other..................... (2,273) (1,304) 9,761 15,294 (1,190,943) 4,130 (36,959) (631,044)
------------ --------- --------- --------- ----------- --------- --------- -----------
Net loss.................. $ 26,322 $ (4,167) $(264,813) $(532,112) $(2,237,810) $(281,868) $(359,980) $(1,356,548)
------------ --------- --------- --------- ----------- --------- --------- -----------
------------ --------- --------- --------- ----------- --------- --------- -----------
Net loss applicable to
common stockholders...... $ 26,322 $ (4,167) $(315,490) $(687,164) $(2,237,810) $(354,389) $(445,292) $(1,356,548)
------------ --------- --------- --------- ----------- --------- --------- -----------
------------ --------- --------- --------- ----------- --------- --------- -----------
Net loss per common
share.................... $ .03 $ (.00) $ (.36) $ (.78) $ (1.44) $ (.40) $ (.51) $ (.88)
------------ --------- --------- --------- ----------- --------- --------- -----------
------------ --------- --------- --------- ----------- --------- --------- -----------
Weighted average common
and common equivalent
shares outstanding....... 877,142 877,142 877,142 877,142 1,550,170 877,142 877,142 1,550,170
------------ --------- --------- --------- ----------- --------- --------- -----------
------------ --------- --------- --------- ----------- --------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 AT JUNE 30, 1996
-------------------- ------------------------
ACTUAL HISTORICAL PRO FORMA
-------------------- ----------- -----------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........................................ $ 324 $ 1,313,841 $ 3,201,316
Working capital (deficit)........................................ (505,968) (1,340,376) (2,089,512)
Total assets..................................................... 979,679 2,698,529 18,651,357
Short-term debt.................................................. 290,253 1,803,771 2,988,581
Long-term debt................................................... 23,151 13,586 8,468,483
Total stockholders' equity (deficit)............................. 100,961 (52,801) 4,236,533
</TABLE>
6
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK IS HIGHLY SPECULATIVE, INVOLVES A HIGH
DEGREE OF RISK AND SHOULD BE CONSIDERED ONLY BY THOSE PERSONS WHO ARE ABLE TO
AFFORD A LOSS OF THEIR ENTIRE INVESTMENT. IN ADDITION TO THE OTHER INFORMATION
IN THIS PROSPECTUS, THE FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN
EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE COMMON STOCK
OFFERED HEREBY. THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS, AND ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS AS A RESULT OF THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS
PROSPECTUS.
LIMITED OPERATING HISTORY; RECENT LOSSES
The Company's predecessor was formed in 1992. In addition, the Company has
only recently completed the purchase of the leasehold interest in Fremont Golf
Center and entered into a sublease with the option to purchase the Harborside
Golf Center and has a limited operating history as a consolidated entity. When
consolidated with its subsidiaries, the Company had losses of $4,167, $264,813,
$532,112 and $359,980 for the twelve months ended December 31, 1993, 1994 and
1995, and for the six months ended June 30, 1996, respectively. GCGP reported
net losses of $138,593, $28,115, $75,624 and $261,569 for the twelve months
ended December 31, 1993, 1994 and 1995, and for the six months ended June 30,
1996, respectively. ICGP reported net losses of $239,331, $1,110,765, $535,212
and $471,207 from May 28, 1993 (inception date) to December 31, 1993 and for the
twelve months ended December 31, 1994, and 1995 and for the six months ended
June 30, 1996, respectively. At June 30, 1996, the Company reported an
accumulated deficit of $1,019,416, total stockholders' deficit of $52,801 and a
working capital deficit of $1,340,376.
ADDITIONAL CAPITAL REQUIREMENTS
The fiscal strength of the Company will be affected by the amount of funds
raised in the Offering, in project financings and in future equity and debt
financings. The Company's expected equity capital requirements for project
acquisition, development and expansion include approximately $500,000 for the
New York Golf Center, approximately $500,000 for the Fremont Golf Center,
approximately $1,575,000 for the acquisition of the limited partnership
interests in ICGP, approximately $477,750 for the acquisition of the limited
partnership interests in GCGP and approximately $1,222,000 for future
acquisitions and working capital. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." The Company expects to incur mortgage or other
indebtedness relating to these and its other golf centers by borrowing from
banks, institutional lenders or private lenders in order to develop or purchase
these and its other golf centers and to finance improvements thereto. Failure to
raise additional capital will adversely affect the fiscal strength of the
Company. In the absence of such additional funds, the Company will be limited in
its ability to acquire or develop additional golf facilities, will have greater
dependence on the performance of a lesser number of golf facilities and will
have less capital to enable it to withstand economic downturns. Should any such
financing, together with the revenues of such golf project subject to such
financing, be insufficient to service such debt and pay taxes and other
operating costs of such project, the Company would be required to utilize
working capital, seek additional debt or equity investment funds or suffer
foreclosure of the project. Any such use of working capital would decrease the
funds available to the Company for its other projects and future acquisitions
and developments.
EXPANSION STRATEGY; POSSIBLE LACK OF SUITABLE LOCATIONS
The Company's ability to significantly increase revenue, net income and
operating cash flow over time depends in large part upon its success in
acquiring or leasing and constructing additional golf facilities at suitable
locations upon satisfactory terms. There can be no assurance that suitable golf
facility acquisition or lease opportunities will be available or that the
Company will be able to consummate acquisition or leasing transactions on
satisfactory terms. The acquisition of golf facilities may become more expensive
in the future to the extent that competition for sites increases. The likelihood
of the success of the Company must be considered in light of the problems,
expenses,
7
<PAGE>
difficulties, complications and delays frequently encountered in connection with
the construction and opening or renovation of new golf facilities. See "--
Additional Capital Requirements," "-- Dependence On Key Employees; Recruitment
of Additional Personnel," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
To implement its expansion strategy, the Company must integrate acquired or
newly opened golf centers into its existing operations. As the Company grows,
there can be no assurance that additional golf centers can be readily
assimilated into the Company's operating structure. Inability to integrate golf
facilities efficiently will have a material adverse effect on the Company's
financial condition and results of operations. See "Business." The development
of golf centers is subject to all the delays and uncertainties associated with
development and construction projects generally, such as the performance by
construction contractors, costs of materials, labor and energy, inflation,
adverse weather, adverse subsurface conditions and other factors that could
cause construction and rehabilitation costs to exceed the Company's estimates.
The acquisition and development of golf centers may become more expensive in the
future to the extent that competition for sites increases. The future success
and growth of the Company will depend on, among other things, its ability to
acquire suitable operating properties and development sites and to obtain
required financing for future acquisitions or development of golf facilities.
There can be no assurance that the Company will be able to acquire suitable
sites or facilities or to obtain financing on favorable terms.
GOOSE CREEK GOING CONCERN OPINION
In their report dated May 17, 1996 included herein, BDO Seidman, LLP
("BDO"), independent certified public accountants for GCGP, expressed
"substantial doubts" about Goose Creek Golf Partners Limited Partnership's
ability to continue as a going concern. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." BDO has informed the
Company that, upon the closing of the Offering and the simultaneous acquisition
by the Company of approximately 90% of the limited partnership interests in
GCGP, their report with respect to the audited financial statements of GCGP
would no longer contain a "going concern" paragraph.
VULNERABILITY TO WEATHER CONDITIONS AND SEASONAL RESULTS
The second and third quarters of the calendar year have historically
accounted for, and are expected in the future to account for, a greater portion
of the Company's operating revenue than do the first and fourth quarters of the
calendar year. This is primarily due to an outdoor playing season limited by
weather. Although most of the Company's driving ranges are designed to be
all-weather facilities, portions of such facilities, such as the golf courses,
are outdoors and 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 center
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 on as indicative of future
results. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
CONCENTRATION OF SHARE OWNERSHIP
Currently, 100% of the Company's capital stock is owned by Charles D.
Tourtellotte, the Company's President. Depending on whether or not the
Underwriters' Over-allotment Option is exercised, upon completion of the
Offering and before considering the exercise of all outstanding warrants (except
warrants and options held by Company officers and Directors) and the conversion
of all notes convertible into Common Stock, Mr. Tourtellotte will own between
38.4% and 35.5% of the outstanding shares of Common Stock. Based on the
acquisition of 90% of the limited partnership interests in ICGP and GCGP, after
giving effect to the Offering, the exercise of all outstanding warrants and
options with an exercise price at or below the price to the public in the
Offering (the "IPO Price") and the conversion of all notes convertible into
Common Stock, Mr. Tourtellotte will own between 24.8% and 23.6% of the
outstanding shares of Common Stock. The Company's Articles of Incorporation do
not provide for cumulative voting. Accordingly, by virtue of his Common Stock
ownership,
8
<PAGE>
Mr. Tourtellotte will be in a position to effectively control the election of
all of the members of the Board of Directors of the Company and to control the
outcome of matters submitted to a vote of the Company's stockholders, thereby
completely controlling the management, policies and operations of the Company.
See "Principal Stockholders" and "Shares Eligible for Future Sale."
NO PRIOR MARKET FOR COMMON STOCK
Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been accepted for listing, subject to official
notice of issuance, on Nasdaq and BSE, there can be no assurance that an active
trading market will develop after the Offering or, if developed, that it will be
sustained. The IPO Price was determined through negotiations between the
Underwriters and the Company. See "Underwriting" for the factors considered in
determining the IPO Price. There can be no assurance that the price at which the
Common Stock will trade in the public market will not be lower than the IPO
Price.
DILUTION
The IPO Price exceeds the net tangible book value per share of the Common
Stock by $3.84 or 64%. Accordingly, purchasers of shares of Common Stock offered
hereby will incur immediate and substantial dilution. See "Dilution."
RISK OF TERMINATION OF ILLINOIS CENTER GOLF LEASE
The ground lease for Illinois Center Golf terminates on July 4, 2009, but is
subject to early termination under certain circumstances. See "Business."
Because of the financial penalties and costs to the landlord in a termination,
the Company believes such termination is unlikely for the next several years;
however, termination of the lease would result in the loss of the Company's
flagship project, which may have a negative impact on the Company's visibility
and ability to proceed with the acquisition or construction of new metropolitan
golf centers and may have an adverse impact on the financial performance of the
Company.
COMPETITION
The golf industry is highly competitive and includes competition from other
golf facilities, traditional golf ranges and golf courses, as well as other
recreational pursuits. The Company may face imitation and other forms of
competition. Many of the Company's potential competitors have considerably
greater financial and other resources, experience and customer recognition than
does the Company. The Company may also encounter substantial competition from
other investor groups, some of whom have significantly greater financial
resources than the Company, in seeking suitable golf investments. The Company's
golf investments may also experience competition in their day-to-day operations
from existing and newly constructed facilities. Such competition may adversely
impact the cash flow to the Company from its golf facility investments. See
"Business -- Competition."
POSSIBILITY OF NONSPECIFIED INVESTMENTS; MANAGEMENT'S BROAD DISCRETION
As of the date hereof, the Company has a fully negotiated, but unsigned,
lease for the New York Golf Center site. The Company expects the lease to be
executed upon the completion of certain design and engineering studies. See
"Business -- Future Projects." In addition, the Company will select additional
projects prior or subsequent to the completion of the Offering. According to the
Company's proposed use of proceeds from the Offering, the Company's management
will have the discretion to allocate $1,222,000, or 21%, of the Net Proceeds (as
defined below) of the Offering to currently unidentified projects and working
capital. The Company may determine not to proceed with any particular projects
or may be unable to satisfy the conditions contained in its agreements with
respect to currently contemplated projects. While holders of Common Stock may be
provided information with respect to any metropolitan golf facility which is
purchased or developed by the Company, the holders of Common Stock will not
receive a general distribution of information about any facility prior to
acquisition, nor will such holders have a direct opportunity to evaluate or
approve any of the properties or terms of the Company's investments. The
purchasers of Common Stock must rely primarily upon the ability of the officers
and directors of the Company with respect to the utilization
9
<PAGE>
of such unallocated proceeds and selection and negotiation of sites or
facilities. There can be no assurance that desirable golf facilities meeting the
Company's criteria will be available or can be developed on financially
attractive terms. In addition, there can be no assurance that any golf facility
that is selected by the Company for acquisition or development will meet its
projections and the Company's objectives.
DEPENDENCE ON DISCRETIONARY CONSUMER SPENDING
The amount spent by consumers on discretionary items, such as family,
leisure and entertainment activities, like those offered by the Company's golf
centers, have historically been dependent upon levels of discretionary income,
which may be adversely affected by general economic conditions. A decrease in
consumer spending on golf will have an adverse effect on the Company's financial
condition and results of operations.
DEPENDENCE ON KEY EMPLOYEES; RECRUITMENT OF ADDITIONAL PERSONNEL
The continuing services of the Company's President, Charles D. Tourtellotte,
and Executive Vice President, J.D. Finley, are considered essential to the
successful operation of the Company. The Company has an employment contract with
each of Mr. Tourtellotte and Mr. Finley through December 31, 1998. If either Mr.
Tourtellotte or Mr. Finley should die or withdraw, or be removed from his
position with the Company, there can be no assurance that a capable successor
could be found. The Company maintains a $1,000,000 key-man life insurance policy
on Mr. Tourtellotte, the proceeds of which are payable to the Company, and will
have a similar policy on Mr. Finley prior to consummation of the Offering. The
Company will also be required to hire additional personnel to staff the golf
centers it intends to acquire or develop. There can be no assurances that the
Company will be able to attract or retain qualified personnel. See "Business --
Employees."
USE OF LEVERAGE
The Company expects to incur mortgage and other indebtedness relating to its
golf facilities by borrowing from banks, institutional lenders or private
lenders in order to develop or purchase its golf facilities and to finance
rehabilitation and construction improvements thereto. In addition, GCGP
currently has indebtedness of approximately $3.3 million secured by Goose Creek
and guaranteed by the Company, and ICGP currently has indebtedness of
approximately $1.75 million secured by the assets of Illinois Center Golf and
guaranteed by the Company. There can be no assurance that the Company will be
able to satisfy such loans or to sell or refinance its golf facilities upon
favorable terms at the maturity of such loans. Should the revenues of any golf
project subject to financing be insufficient to service such debt and pay taxes
and other operating costs, the Company would be required to utilize working
capital, seek additional debt or equity investment funds or suffer foreclosure
of the project. There can be no assurance that additional funds, if needed,
would be available to the Company or, if available, would be made available on
terms acceptable to the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ENVIRONMENTAL MATTERS
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the costs of removal or remediation of hazardous or toxic substances
on, under or in such property. Such laws often impose liability regardless of
whether the owner or operator knew of, or was responsible for, the presence of
such hazardous or toxic substances. The existence of hazardous or toxic
substances or the failure to properly remediate such matters may adversely
affect the use of the property and result in a loss of value. In connection with
the ownership (direct or indirect), operation, management and development of
golf facilities, the Company may be liable for removal or remediation costs, as
well as certain other costs which could relate to such hazardous or toxic
substances (including governmental fines and injuries to persons and property).
The Company will make certain investigations and obtain a Phase I environmental
survey of a property prior to purchase or development, but such studies are not
designed to
10
<PAGE>
disclose all environmental hazards. The Company will not undertake the
investment in golf facilities if it believes that the environmental factors
might have a material adverse effect on the Company's business, assets or
results of operations.
RISKS OF GOVERNMENTAL REGULATION
The rehabilitation and development of golf facilities is subject, both
directly and indirectly, to federal, state, and local governmental regulation,
including environmental, sewer, water, zoning and similar regulations. It is
possible that (i) the enactment of new laws, (ii) changes in the interpretation
or enforcement of applicable codes, rules and regulations, or (iii) the decision
of any authority to change current zoning classifications or requirements may
have a substantial adverse effect on the value of the Company's golf facilities.
No assurance can be given that any of the regulations or controls which affect
its golf facilities will not be changed, and the Company will have no control
over any such change. Consequently, it is possible that one or more changes
could decrease the value of a golf facility or impair the operations of a golf
facility after acquisition.
UNINSURED LOSSES
The Company intends to carry, and to cause its contractors, subcontractors
and its property managers to carry, insurance appropriate to their respective
activities, including liability and extended coverage insurance and
comprehensive "builder's all-risk" insurance on the Company's golf facilities,
with policy specifications and insured limits as are customarily carried for
similar properties. There may, however, be certain risks which are uninsurable
or not insurable on terms which are believed to be economical. Such risks could
include, but are not necessarily limited to, earthquakes, floods, hazardous
waste contamination and civil rights violations. Should a loss occur that is not
covered by insurance, the Company may be materially adversely affected. The
Company believes that its golf facilities will be adequately insured as is
customary in the industry for similar properties.
MAINTENANCE CRITERIA FOR NASDAQ SECURITIES; PENNY STOCK RISKS
The National Association of Securities Dealers, Inc., which administers
Nasdaq, recently made changes in the criteria for continued eligibility on
Nasdaq. In order to continue to be included on Nasdaq, the Company must maintain
$2 million in total assets, a $200,000 market value of its public float and $1
million in total capital and surplus. In addition, continued inclusion requires
two market-makers, at least 300 holders of the Common Stock and a minimum bid
price of the Common Stock of $1 per share; provided, however, that, if the
Common Stock falls below such minimum bid price, it will remain eligible for
continued inclusion on Nasdaq if the market value of the public float is at
least $1 million and the Company has $2 million in capital and surplus. The
Company's failure to meet these maintenance criteria in the future may result in
the discontinuance of the inclusion of its securities on Nasdaq. In such event,
trading, if any, in the securities may then continue to be conducted in the
non-Nasdaq over-the-counter market in less orderly markets commonly referred to
as the electronic bulletin board and the "pink sheets." As a result, an investor
may find it more difficult to dispose of or to obtain accurate quotations as to
the market value of the securities. In addition, the Company would be subject to
a rule promulgated by the Commission that, if the Company fails to meet criteria
set forth in such rule, imposes various sales practice requirements on
broker-dealers who sell securities governed by the rule to persons other than
established customers and accredited investors. For these types of transactions,
the broker-dealer must make a special suitability determination for the
purchaser and must have received the purchaser's written consent to the
transactions prior to sale. Consequently, the rule may have an adverse effect on
the ability of broker-dealers to sell the Company's securities, which may affect
the ability of purchasers in the Offering to sell the Company's securities in
the secondary market.
If the Company fails to maintain its qualification for Common Stock to trade
on Nasdaq and is trading below $5.00 per share, the Common Stock will be subject
to the rules of the Exchange Act relating to penny stocks. In that event, the
Company's securities will be subject to the disclosure rules for transactions
involving penny stocks which require broker-dealers, among other things, to
11
<PAGE>
(i) determine the suitability of purchasers of the securities, and obtain the
written consent of purchasers to purchase such securities and (ii) disclose the
best (inside) bid and offer prices for such securities and the price at which
the broker-dealers last purchased or sold the securities. The additional burdens
imposed upon broker-dealers may discourage them from effecting transactions in
penny stocks, which could reduce the liquidity of the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
after the Offering could adversely affect the market price of the Common Stock.
Excluding the shares issued in the Offering, the Representative Warrants for
117,500 shares and the options for 250,000 shares issued under the Executive
Option Plan, and assuming all other outstanding warrants, options and
convertible securities are exercised or converted into Common Stock, there will
be 2,178,484 shares of Common Stock available for future sale. Of such shares,
2,012,985 shares are subject to certain lock up provision as follows: 641,667
shares from the conversion of the PP Notes (or such other number of shares
issued upon conversion) may not be sold for a period of 180 days following the
date of consummation of the Offering without the Representatives' prior consent;
567,875 shares (from the conversion of the Convertible Notes and warrants issued
in connection with the Company's acquisition of the limited partnership
interests of ICGP and GCGP) may not be issued and sold until the date that is 13
months after the date of consummation of the Offering; and 803,443 shares which
are owned by officers, directors or stockholders who own 5% or more of the
outstanding Common Stock, and pursuant to an Underwriters' lock-up, may not be
sold for 13 months after the date of consummation of the Offering. The remaining
165,499 shares are issuable upon exercise of the warrants issued in connection
with the sale of the Redeemable Preferred Stock. Such warrants are immediately
exercisable at an exercise price of $2.23 per share. In addition to the
foregoing, the Company has adopted the Stock Option Plan covering 250,000 shares
of Common Stock, none of which have been issued. See "Management -- Stock Option
Plan." In addition, all of the Common Stock described above, except the 641,667
shares issuable upon conversion of the PP Notes, will be "restricted shares"
when issued unless registered under the Securities Act. See "Description of
Capital Stock."
POTENTIAL CONFLICT OF INTEREST
As disclosed in "Certain Transactions," the Company has, from time to time,
entered into various transactions with affiliates, including its President and
Executive Vice President, that may result in potential conflicts of interest.
UNDERWRITER'S POTENTIAL INFLUENCE ON THE COMPANY
In connection with the Offering, the Company has agreed that, for the
three-year period commencing on the date of this Prospectus, Laidlaw Equities,
Inc. has the right to appoint a designee as an observer at all meetings of the
Company's Board of Directors. This designee has the right to attend all meetings
of the Board of Directors, provided that the Board of Directors shall have the
right to exclude such observer at any meeting in which, in the opinion of the
Board of Directors, confidential or sensitive matters are discussed. Such
designee, if any, may enable the Underwriters to exert influence on the Company.
As of the date hereof, Laidlaw Equities, Inc. has not designated any individual
as an observer. See "Underwriting."
NO DIRECTOR PERSONAL LIABILITY
The Company's Articles of Incorporation provide that no Director shall be
personally liable to the stockholders for monetary damages for breach of
fiduciary duty as a Director, provided that the provision shall not apply (i)
for any breach of the Director's duty of loyalty, (ii) for acts or omissions not
in good faith or which involve misconduct or a knowing violation of law, (iii)
for certain acts specified in the Colorado statutes, or (iv) for any transaction
from which the Director derived an improper personal benefit. The Company's
Articles of Incorporation also do not limit a Director's liability for violation
of the federal securities laws.
12
<PAGE>
PARTNERSHIP ACQUISITIONS
On May 31, 1996, the Company commenced an offer (the "Offer to Purchase") to
the limited partners of each of ICGP and GCGP to purchase their limited
partnership interests for a combination of cash and Convertible Notes. Such
Offer to Purchase will terminate simultaneously with the consummation of the
Offering. The acquisitions of the limited partnership interests are contingent
upon the closing of the Offering. Limited partners who elect not to exchange
their interests will remain limited partners of the partnerships. Under the
Offer to Purchase, (i) each limited partner of ICGP who elects to sell will
receive for each $50,000 limited partnership interest, at such holder's option,
either (a) $25,000 cash and a $25,000 Convertible Note or (b) a $50,000
Convertible Note and (ii) each limited partner of GCGP who elects to sell will
receive for each $25,000 limited partnership interest, at such holder's option,
either (a) $12,500 in cash and a $26,500 Convertible Note, or (b) a $39,000
Convertible Note. Each limited partner in GCGP who does not qualify as an
"accredited investor" under Regulation D under the Securities Act has been
offered $39,000 cash for each $25,000 of limited partnership interest. Each
limited partner in ICGP who does not qualify as an "accredited investor" has
been offered $50,000 cash for each $50,000 of limited partnership interest. Each
Convertible Note will bear interest at 6% per annum; interest only will be
payable for 24 months from issuance of the Convertible Notes. Thereafter,
interest will continue to be paid semi-annually and principal will be amortized
evenly over the remaining seven years until maturity. Each Convertible Note will
be convertible at the holder's option into Common Stock at any time after the
date that is 13 months after the closing of the Offering at a conversion price
equal to the IPO Price. In addition, each $25,000 Convertible Note issued to the
limited partners of ICGP will convert into a five-year warrant to purchase 2,500
shares of Common Stock at an exercise price equal to 120% of the IPO Price.
Assuming that 90% of the limited partners of each of ICGP and GCGP accept
the Offer to Purchase, the Company would pay an aggregate of $4,515,000 to
acquire the limited partnership interests, of which amount the Company expects
$2,462,250 will be paid in the form of Convertible Notes and $2,052,750 will be
paid in cash. In addition, the Company will issue five-year warrants to purchase
157,500 shares of Common Stock in connection with the acquisition of the limited
partnership interests in ICGP. These amounts are based on independent appraisals
of the fair market value of the assets of ICGP and GCGP which appraisals are
$6,000,000 and $5,400,000, respectively. The Company has agreed to file and use
its best efforts to cause to become effective, and cause to remain effective for
one year, a registration statement covering the Common Stock into which the
Convertible Notes may be converted. Limited partners who elect to sell will
retain the same golfing privileges as they currently hold and may also receive
golfing privileges at other Company-owned facilities for as long as the Company
owns or leases such facilities.
13
<PAGE>
USE OF PROCEEDS
The net proceeds (the "Net Proceeds") to the Company from the sale of the
1,175,000 shares of Common Stock offered by the Company are estimated to be
approximately $5,774,750 ($6,726,500 if the Underwriters' Over-allotment Option
is fully exercised). The Company expects to use the Net Proceeds as follows:.
<TABLE>
<CAPTION>
ANTICIPATED USE OF NET PROCEEDS AMOUNT PERCENTAGE
- ----------------------------------------------------------------------------- ------------- -------------
<S> <C> <C>
Future Acquisitions and Working Capital...................................... $ 1,222,000 21%
Fremont Golf Center.......................................................... 500,000 9%
New York Golf Center......................................................... 500,000 9%
Limited Partnership Acquisitions:
ICGP....................................................................... 1,575,000 27%
GCGP....................................................................... 477,750 8%
Redemption of Redeemable Preferred Stock..................................... 1,500,000 26%
------------- ---
Total.................................................................... $ 5,774,750 100%
</TABLE>
Pending their use as set forth above, the Company intends to invest the Net
Proceeds in short-term, investment grade, interest-bearing securities. The
described use of proceeds is based upon management's assumptions concerning
certain acquisition, development, financial and other matters which may affect
the Company in the future. If the development of the Company's business varies
materially from these assumptions, the Company may make changes in the proposed
location and size of its golf centers and may reallocate some proceeds in the
best interests of the Company. In the event that the Underwriters exercise the
Underwriters' Over-allotment Option, the Company will utilize any additional Net
Proceeds for future acquisitions and working capital.
DIVIDEND POLICY
The Company has not paid any dividends since its formation. The Company
intends to retain all future earnings for use in its business and does not
anticipate paying any cash dividends on its Common Stock in the foreseeable
future. This policy will be reviewed from time to time by the Company's Board of
Directors in light of, among other things, its results of operations and capital
requirements.
14
<PAGE>
DILUTION
The negative net tangible book value of the Company at June 30, 1996 was
$(1,695,688), or approximately $(2.11) per share of Common Stock. Net tangible
book value per share represents the amount of total tangible assets of the
Company, less total liabilities, divided by the number of shares of Common
Stock, warrants and certain rights outstanding. After giving effect to the sale
by the Company of shares of its Common Stock offered hereby and the application
of the Net Proceeds therefrom (including the redemption of all the outstanding
Redeemable Preferred Stock), the net tangible book value of the Company at June
30, 1996, after such adjustment would have been $4,264,512, or $2.16 per share
of Common Stock and warrants. This represents an immediate increase in net
tangible book value per share of $4.27 to current stockholders and an immediate
dilution in net tangible book value of $3.84 per share (or 64%) to investors in
the Offering. The following illustrates this dilution per share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 6.00
Net negative tangible book value before the Offering.............. $ (2.11)
Increase per share attributable to investors in the Offering...... 4.27
---------
Net tangible book value per share after the Offering................ $ 2.16
---------
---------
Dilution per share to investors in the Offering..................... $ 3.84
---------
---------
</TABLE>
The following table summarizes, as of June 30, 1996, the difference in the
total consideration paid and the original price per share paid between current
stockholders and investors in the Offering with respect to the number of shares
of Common Stock purchased from the Company, at the IPO Price.
<TABLE>
<CAPTION>
CONSIDERATION AVERAGE PRICE
SHARES OWNED PERCENT PAID PERCENT PER SHARE
--------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Current Stockholders......................... 803,443(1) 41.0% $ 273,012 4.0% $ .34
Investors in the Offering.................... 1,175,000 59.0% $ 7,050,000 96.0% $ 6.00
--------------- ----- ------------- -----
Total...................................... 1,978,443 100.0% $ 7,323,012 100.0%
--------------- ----- ------------- -----
--------------- ----- ------------- -----
</TABLE>
- ------------------------
(1) Includes all warrants (whether vested or unvested) issued to Directors and
officers that are exercisable at a price below the IPO Price.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company on a
consolidated basis at June 30, 1996, and as adjusted to give effect to the
Offering of 1,175,000 shares of Common Stock (assuming that the Underwriters'
Over-allotment Option is not exercised) at the IPO Price, net of underwriting
discounts and estimated Offering expenses and the application of the Net
Proceeds. See "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1996 PRO FORMA (1)
-------------- --------------
<S> <C> <C>
Long term debt, less current maturities................................. $ 13,586 $ 8,468,483
Investments in affiliates............................................... 6,318 -0 -
Minority interest in consolidated subsidiaries.......................... 21,773 487,014
-------------- --------------
Total long-term liabilities......................................... 41,677 8,955,497
Stockholders' equity
Preferred stock....................................................... 45,500 - 0 -
Additional paid-in capital............................................ 940,609 -0 -
Common stock.......................................................... 146,830 5,921,580
Notes receivable, stockholder......................................... (166,324) (166,324)
Accumulated deficit................................................... (1,019,416) (1,518,723)
-------------- --------------
Total stockholders' equity (deficit)................................ (52,801) 4,236,533
-------------- --------------
Total long-term liabilities and stockholders' equity (deficit)...... $ (11,124) $ 13,192,030
-------------- --------------
-------------- --------------
</TABLE>
- ------------------------
(1) The Pro Forma information of the Company gives effect to the proceeds from
the sale of Common Stock in the Offering, the acquisition by the Company of
the Fremont Golf Center, and the acquisitions of 90% of the limited
partnership interests in each of ICGP and GCGP and are based on the
estimates and assumptions set forth in the pro forma consolidated financial
information headnote (unaudited) and notes to pro forma consolidated
financial statements (unaudited) included elsewhere in this Prospectus.
16
<PAGE>
SELECTED CONSOLIDATED AND PRO FORMA FINANCIAL DATA
The historical selected consolidated financial information set forth below
has been derived from the Consolidated and Combined Financial Statements of the
Company for the respective periods presented and is qualified in its entirety
by, and should be read in conjunction with, the Consolidated and Combined
Financial Statements and notes thereto, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other financial and
statistical data included elsewhere in this Prospectus. Operating results for
the six months ended June 30, 1996 are not necessarily indicative of the results
that will be achieved for future periods, including for the entire year ending
on December 31, 1996. The unaudited pro forma selected consolidated financial
information set forth below for the Company gives effect to the interest expense
associated with the proceeds from the sale of the PP Notes and proceeds from the
sale of Common Stock in the Offering (but not including the shares issuable
pursuant to the Underwriters' Over-allotment Option), the acquisition by the
Company of the Fremont Golf Center, the acquisition of 90% of the limited
partnership interests in each of ICGP and GCGP, the $1,750,000 in proceeds from
ICGP's long-term debt and ICGP's expenditure of $1,434,000 for property and
equipment acquisitions, and are based on the estimates and assumptions set forth
herein. The unaudited pro forma consolidated financial information has been
prepared utilizing historical financial statements and notes thereto, which are
incorporated by reference herein. The unaudited pro forma consolidated financial
data does not purport to be indicative of the results which actually would have
been obtained had the purchase been effected on the dates indicated or of the
results which may be obtained in the future. The unaudited pro forma
consolidated financial statements should be read in conjunction with the
historical financial statements (including the notes to such financial
statements) included elsewhere in this Prospectus. The 1992 column reflects
information from February 21, 1992 (date of inception) to December 31, 1992.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------------- ---------------------------------
INCEPTION TO PRO PRO
DECEMBER 31, ACTUAL FORMA ACTUAL FORMA
------------- ------------------------------- ----------- -------------------- -----------
1992 1993 1994 1995 1995 1995 1996 1996
------------- --------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Total revenues............... $ 76,250 $ 106,313 $ 291,237 $ 335,303 $ 3,657,593 $ 85,013 $ 99,275 $ 1,291,202
Total operating expenses..... 47,655 109,176 565,811 882,709 4,704,460 371,011 422,296 2,016,706
------------- --------- --------- --------- ----------- --------- --------- -----------
Operating loss............... 28,595 (2,863) (274,574) (547,406) (1,046,867) (285,998) (323,021) (725,504)
Other income (expense)....... (1,263) 88 13,630 35,122 (1,276,042) 9,669 (28,090) (694,372)
Equity in loss of
affiliates.................. (1,010) (1,392) (309) (770) -0 - (877) (2,629) -0 -
Minority interest in income
of consolidated
subsidiaries................ -0 - -0 - (3,560) (19,058) 85,099 (4,662) (6,240) 63,328
------------- --------- --------- --------- ----------- --------- --------- -----------
Net loss..................... $ 26,322 $ (4,167) $(264,813) $(532,112) $(2,237,810) $(281,868) $(359,980) $(1,356,548)
------------- --------- --------- --------- ----------- --------- --------- -----------
------------- --------- --------- --------- ----------- --------- --------- -----------
Net loss applicable to common
stockholders................ $ 26,322 $ (4,167) $(315,490) $(687,164) $(2,237,810) $(354,389) $(445,292) $(1,356,548)
------------- --------- --------- --------- ----------- --------- --------- -----------
------------- --------- --------- --------- ----------- --------- --------- -----------
Net loss per common share.... $ .03 $ (.00) $ (.36) $ (.78) $ (1.44) $ (.40) $ (.51) $ (.88)
------------- --------- --------- --------- ----------- --------- --------- -----------
------------- --------- --------- --------- ----------- --------- --------- -----------
Weighted average common and
common equivalent shares
outstanding................. 877,142 877,142 877,142 877,142 1,550,170 877,142 877,142 1,550,170
------------- --------- --------- --------- ----------- --------- --------- -----------
------------- --------- --------- --------- ----------- --------- --------- -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, AT JUNE 30, 1996
------------------------------------------ ------------------------
1992 1993 1994 1995 HISTORICAL PRO FORMA
--------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................. $ 892 $ 41,590 $ 195,777 $ 324 $ 1,313,841 $ 3,201,316
Working capital (deficit)................. (392) (4,058) 179,422 (505,968) (1,340,376) (2,089,512)
Total assets.............................. 8,218 206,388 812,725 979,679 2,698,529 18,651,357
Short-term debt........................... 20,000 4,296 43,910 290,253 1,803,771 2,988,581
Long-term debt............................ -0 - 21,595 26,287 23,151 13,586 8,468,483
Total stockholders' equity (deficit)...... (17,012) 19,084 489,066 100,961 (52,801) 4,236,533
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Company's financial statements and the notes thereto appearing elsewhere in this
Prospectus. This Prospectus contains forward-looking statements, and actual
results could differ materially from those projected in the forward-looking
statements, as well as those discussed in "Risk Factors" and elsewhere in this
Prospectus.
GENERAL BACKGROUND
On February 21, 1992, Mr. Tourtellotte incorporated and became the sole
stockholder of The Vintage Group USA, Ltd. On May 26, 1993, Mr. Tourtellotte
incorporated and became the sole stockholder of TVG (Illinois Center) Inc.
("IC"). On July 29, 1994, The Vintage Group USA, Ltd. changed its name to TVG
(Virginia) Inc. ("VA"). Simultaneously, Mr. Tourtellotte formed the Company
under the name of The Vintage Group (USA) Ltd. and contributed his common stock
of VA and IC to the Company in exchange for 100% of its outstanding Common
Stock. The Company recently changed its name to MetroGolf Incorporated. VA and
IC were formed for the purpose of holding the general partner interests in, and
are currently the managing general partners of, GCGP and ICGP. See "Business --
Company Golf Centers."
OVERVIEW
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, the
Company believes it will acquire most, if not all, of the limited partnership
interests in ICGP and GCGP. 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 eight 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 two major sources: development or
acquisition fees and management fees. Management fees are generated by three
subsidiaries of the Company: IC and VA, as managing general partners of ICGP and
GCGP, and MetroGolf Management, Inc. ("MGMI"), as property manager of Illinois
Center Golf, Goose Creek, Harborside Golf Center and Fremont Golf Center. The
Company initially used outside management companies to manage its golf centers.
In September 1995, the operations management subcontract for Illinois Center
Golf was terminated. In March 1996, the Company terminated the third-party
management contract for Goose Creek. All Company properties are, and in the
future are expected to be, managed by MGMI.
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SIX MONTHS ENDED JUNE 30, 1996, AS COMPARED TO SIX MONTHS ENDED JUNE 30,
1995
Total revenues, consisting solely of management fees, increased 16.8%, to
approximately $99,300 for the six months ended June 30, 1996, from approximately
$85,000 for the six months ended June 30, 1995.
Operating expenses increased 13.8% to $422,300 for the six months ended June
30, 1996, from $371,000 for the six months ended June 30, 1995. Officer salaries
increased to $269,752 in 1996 from $157,644 for the six months ended June 30,
1995 due to salary increases and the addition of two corporate officers. In
addition, other general and administrative expenses for the six months ended
June 30, 1996 decreased to $142,894 from $207,305 in 1995, due primarily to
decreases in legal and accounting fees associated with pursuing private
financing.
Depreciation expense remained relatively unchanged from 1995 to 1996
primarily because there was little change in depreciable assets from 1995 to
1996.
Interest expenses increased to $62,490 in 1996 from $10,371 in 1995
primarily due to placement of the $2,025,000 PP Notes in the second quarter of
1996. The Company expects the majority of the interest expense relating to the
PP Notes to be paid in stock, in accordance with the conversion terms of the PP
Notes.
Interest income increased to $34,400 in 1996 from $20,040 in 1995 as a
result of an increase in interest-bearing receivables of approximately $235,000.
TWELVE MONTHS ENDED DECEMBER 31, 1995, AS COMPARED TO DECEMBER 31, 1994
Total revenues for 1995 increased 15.1%, to approximately $335,000 from
approximately $291,000 for 1994. In 1995, the Company earned approximately
$190,000 from management fees, $120,000 from an acquisition fee and $25,000 from
consulting fees. In 1994, the Company earned approximately $160,000 from
management fees, $125,000 from development fees and $6,000 from consulting fees.
Each of these are discussed in more detail below.
VA, a wholly owned subsidiary, is the managing general partner of GCGP,
which is the owner of Goose Creek. VA earns a fee of approximately $51,000
annually for managing GCGP. The Company earned management fees of $51,000 for
1995, which increased by 5% from the prior year in accordance with a contractual
inflation adjustment.
IC, an 89% owned subsidiary, is the managing general partner of ICGP, which
is the owner of Illinois Center Golf. IC earns a fee of approximately $60,000
annually for managing ICGP. The Company earned management fees of $60,000 for
1995 and $35,000 for 1994 as IC began earning its management fee beginning June
1, 1994.
MGMI, a 51% owned subsidiary during 1995 (now wholly owned), earned
management fees of approximately $79,000 and $76,000 in 1995 and 1994,
respectively, as the facility manager of Illinois Center Golf.
In 1995, the Company did not earn any development fees. In 1995, the Company
earned a fee of $120,000 for assigning its rights to purchase a golf course in
South Carolina. In addition, the Company earned a $25,000 fee in 1995 from the
purchaser of a promissory note held by the former owner of Goose Creek for
negotiating the purchase of the promissory note at a substantial discount. In
1994, the Company earned a development fee of $125,000 upon completion of the
Illinois Center Golf facility. Each of these sources of revenue are considered
nonrecurring.
Operating expenses increased to approximately $883,000 in 1995 from
approximately $566,000 in 1994. Although salaries decreased to $344,000 in 1995
from $374,000 in 1994, other general and administrative expenses increased to
$520,000 in 1995 from $181,000 in 1994. The primary reasons for the increase in
general and administrative expenses were an increase in legal and accounting
fees in 1995 associated with preparation of various securities offering
documents and the initial audit of the Company in 1995. In addition, the Company
paid a commission of $25,000 from the fees it earned
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for assigning its rights to purchase the South Carolina property and paid
subcontract property management fees of $45,000. These costs were not incurred
in 1994. The Company also leased new office space in September of 1994;
accordingly, rent expense is approximately $17,000 higher in 1995 than in 1994.
Depreciation expense increased to $19,000 in 1995 from $10,800 in 1994.
Interest income increased to $61,100 in 1995 from $15,500 in 1994 as a
result of interest-bearing loans to ICGP and GCGP, starting in September 1994
and November 1995, as well as interest-bearing loans to its sole Common Stock
holder.
Interest expense increased to $26,000 in 1995 from $1,800 in 1994, primarily
due to the Company's borrowings under its line of credit, which were primarily
used to make loans to ICGP and GCGP.
The equity in loss of affiliates represents the Company's proportional share
of the losses of ICGP and GCGP, which had larger losses in 1995 than in 1994.
TWELVE MONTHS ENDED DECEMBER 31, 1994, AS COMPARED TO DECEMBER 31, 1993
Total revenues for 1994 increased 174.5%, to approximately $291,000 from
approximately $106,000 for 1993. In 1994, the Company earned approximately
$160,000 from management fees from ICGP and GCGP, $125,000 from development fees
and $6,000 from consulting fees. In 1993, the Company earned approximately
$46,000 from management fees from GCGP and $60,000 from consulting fees.
Overall, operating expenses were $566,000 in 1994, as compared to $109,000
in 1993. The primary reason for the increase in 1994 is that the Company was
managing only one property in 1993. In 1994, the Company expanded operations,
added additional staff and leased new office space. Commencing January 1, 1994,
the President of the Company began earning a monthly salary of $15,000. In 1993,
nominal officer's compensation was paid.
Depreciation expense increased to $10,800 in 1994 from $5,000 in 1993 due to
the additions of depreciable assets in late 1993 and 1994.
Interest income increased to $15,000 in 1994 from $3,000 in 1993 as a result
of loans to ICGP starting in September 1994.
Interest expense decreased slightly to $1,800 in 1994 from $3,000 in 1993.
The change was due to a reduction in the amount of interest-bearing principal on
outstanding indebtedness in 1994.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had a working capital deficit of approximately
$1,340,400, as compared to a working capital deficit of $506,000 at December 31,
1995. The increase in working capital deficit is due to increases in accounts
payable and accrued salaries resulting from continued losses from operations,
costs associated with the placement of the PP Notes (including issue discount on
such PP Notes deemed for accounting purposes) and negative cash flow.
The cash used in operating activities increased to $221,700 in 1995 from
$103,600 in 1994. The primary reason for the increase has been the increase in
the net loss to $532,100 in 1995 from $264,800 in 1994. Cash raised in debt and
equity financing in 1994 and 1995 was primarily used 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 $104,000 in 1994 and
$260,000 in 1995. Because of reduced cash flows, officers of the Company were
not paid all of their salaries due them in 1994 and 1995.
For the six months ended June 30, 1996, the Company had net cash provided by
operations, despite a net loss of $360,000. The net cash provided by operations
was the result of an increase in
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accounts payable and accrued salaries of $349,600 from December 31, 1995 to June
30, 1996. In addition, the Company received $44,000 in management fees during
the six months ended June 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 PP Notes, resulting in net
proceeds of approximately $1,757,100. Some of the proceeds from the PP Notes
were used to pay off the Company's line of credit. After this payment, the
Company's primary liabilities are accounts payable and accrued salaries. 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. The working capital provided from the sale of the PP Notes, in the
opinion of management, is sufficient to fund the Company's day-to-day operations
through the end of 1996.
The Company is dependent upon the completion of the Offering to help fund
future acquisitions and developments, to provide financing for the development
of the Fremont Golf Center and the New York Golf Center and for the acquisition
of the limited partnership interests in ICGP and GCGP. 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 fall of 1996,
with the completion of the golf center scheduled for the summer 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 PP
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 Net Proceeds,
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 Net Proceeds, together with other undetermined
debt or equity financing from banks and institutional or private lenders to fund
such amount.
Upon completion of the Offering, the Company believes that a substantial
portion of the PP Notes will be converted to equity because the PP Notes are
convertible simultaneously with the closing of the Offering at 50% of the IPO
Price. If the Offering is not consummated or if the PP Notes are not converted
to equity, then the Company may not have sufficient working capital to complete
the development of the Fremont Golf Center, the development of the New York Golf
Center and the repayment of the PP Notes when they come due in June 1997. See
"Risk Factors -- Use of Leverage."
ICGP had a net loss of approximately $1,110,000 in 1994, $535,000 in 1995
and had a net loss of $471,200 for the six months ended June 30, 1996. The net
loss for 1996 is not necessarily indicative of the results of operations
expected for 1996 because much of Illinois Center Golf's business is seasonal,
with most of its revenue generated during the period May 1 to October 1.
Illinois Center Golf, which was not completed until July 1994, has increased its
revenue to $1.55 million in 1995 from $745,000 in 1994. Illinois Center Golf had
working capital deficits at June 30, 1996, December 31, 1995 and 1994. As of
June 30, the Company has funded losses of Illinois Center Golf of approximately
$500,000 and expects to fund additional losses through 1996.
GCGP had net losses of approximately $28,000 in 1994, $76,000 in 1995, and
$262,000 for the six months ended June 30, 1996. In their report dated May 17,
1996, included herein, BDO, independent certified public accountants for GCGP,
expressed "substantial doubts" about GCGP's ability to continue as a going
concern. BDO has informed the Company that, upon the closing of the Offering and
the simultaneous acquisition by the Company of approximately 90% of the limited
partnership
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interests in GCGP, their report with respect to the audited financial statements
of GCGP would no longer contain a "going concern" paragraph. As with Illinois
Center Golf, the net loss of Goose Creek for the six months ended June 30, 1996
is not necessarily indicative of the results of operations expected for 1996 as
Goose Creek business is also seasonal, with a substantial portion of its
business between April 1 and October 31. Goose Creek is a more mature golf
course which generated revenues of approximately $1.4 million in 1993, $1.7
million in 1994 and $1.5 million in 1995.
The Company took over management of both Goose Creek and Illinois Center
Golf 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 June 30, 1996, the Company had a deferred tax asset of $189,000 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.
EFFECT OF CERTAIN FINANCINGS AND PROPOSED ACQUISITIONS
The accompanying unaudited pro forma financial statements of the Company,
give effect to (i) the interest expense associated with the proceeds from the
sale of $2,025,000 of PP Notes, (ii) proceeds from the sale of Common Stock in
the Offering, (iii) the acquisition by the Company of the Fremont Golf Center,
and (iv) the acquisitions of 90% of the limited partnership interests in each of
ICGP and GCGP. These transactions adversely effect pro forma net income for the
Company primarily due to the pro forma interest expense relating to the issuance
of the PP Notes, the acquisition of the limited partnership interests, and the
Fremont Golf Center acquisition, as well as the pro forma depreciation
associated with the acquisition of the limited partnership interests and the
Fremont Golf Center. Total pro forma interest for 1995 related to these
transactions was $540,956 for the year ended December 31, 1995 and $250,229 for
the six months ended June 30, 1996. In addition, the three proposed acquisitions
reflect net losses for both the year ended December 31, 1995 and the six months
ended June 30, 1996, which adversely effect the Company's historical earnings.
On a pro forma basis, as adjusted to give effect to these transactions as if
they had occurred as of January 1, 1995, the Company reported total revenue of
approximately $3,700,000 and a net loss of approximately $2,200,000 on a pro
forma basis for the year ended December 31, 1995. In addition, the total revenue
is $1,291,202 and net loss is $1,356,548 on a pro forma basis for the six months
ended June 30, 1996. In the case of ICGP, the Company believes future earnings
will improve as a result of the maturity of this new operation. In the case of
GCGP 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.
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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 expected conversion of the PP Notes, but will likely increase over time
as a result of increased borrowings to fund new golf center development.
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BUSINESS
GENERAL
The Company is organized as a corporation under the laws of the State of
Colorado, and previously operated under the name "The Vintage Group (USA) Ltd."
See "-- Corporate Information" for a description of the general development of
the Company.
MetroGolf Incorporated acquires, develops and operates golf centers designed
to provide a wide variety of practice and play opportunities in major
metropolitan areas. The Company's centers are located in areas with high
concentrations of office, urban residential and hotel development that are
convenient to time-constrained golfers. The Company's golf centers typically
offer: practice facilities; instructional programs such as the David Leadbetter
Golf Academy at Illinois Center Golf; a full-line pro shop; restaurant, bar and
catering facilities; group meeting areas; and, in some cases, par-3 or
executive-length (shorter than a regulation-length) golf courses. The Company's
golf centers are designed around a driving range with target greens, bunkers and
traps to simulate actual golf course conditions. The Company's driving ranges,
which typically include substantially more hitting stations than the industry
average, are lighted to permit night play and are enclosed or sheltered in a
climate-controlled environment.
The Company's strategy is to become the leading owner and operator of golf
centers in major metropolitan areas. The Company intends to accomplish this goal
principally by acquiring existing golf facilities that have the potential for
revenue enhancement through expansion of facilities, more efficient management
and innovative marketing strategies. The Company intends to develop new golf
centers in attractive markets where existing facilities are not suitable for
acquisition. The Company has capitalized on the national media and industry
recognition of its flagship development, Illinois Center Golf, and has built a
substantial pipeline of attractive projects for acquisition and development. See
"-- Business Strategy." In addition to Illinois Center Golf, the Company
currently operates Goose Creek, Fremont Golf Center and Harborside Golf Center.
Based on written acceptances of the Offer to Purchase, the Company believes
that, simultaneously with the closing of the Offering, it will acquire most, if
not all, of the limited partnership interests in each of ICGP and GCGP for a
combination of cash and convertible notes. See "Partnership Acquisitions."
INDUSTRY OVERVIEW
According to the NGF, there were over 24 million golfers in the United
States in 1995. The average age of the golf driving range user was 37.1 years
old, with an average household income of $55,700 per year. Those with household
income in excess of $75,000 (approximately 35% of all stand-alone range users)
were the most likely to visit a stand-alone range, visiting 3.7 times more
frequently than those with household income of less than $30,000 (19% of all
stand-alone range users) and 1.5 times more frequently than those with household
incomes between $30,000 and $75,000 (46% of all stand-alone range users).
The Company estimates that there are currently between 1,900 and 2,300
stand-alone driving ranges in the United States and that the average number of
tee stations per range in the industry in 1993 was 40, with 50% of all
stand-alone ranges offering 35 or fewer tee stations. Large stand-alone ranges,
defined as ranges with more than 50 tee stations, accounted for approximately
21% of all facilities. The stand-alone range industry is highly fragmented. The
Company estimates that in 1995 over 90% of stand-alone ranges were managed by
independent owner operators. The Company believes that many of these owner
operated ranges are managed by individuals who may lack the experience,
expertise and financial resources to compete effectively in a consolidating
industry.
Driving ranges and golf practice and learning centers, have experienced
significant growth in recent years. Golf practice and learning centers usually
consist of a driving range with a minimum of 50 tee stations (often covered and
heated in areas of colder climates), complete practice areas, including putting,
chipping and sand bunker areas and maintenance facilities. Indoor video and
other instructional analysis, in conjunction with a national golf academy or
other golf school, food and
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beverage services and golf equipment retail operations, have become increasingly
popular at these facilities. Occasionally, such facilities are combined with or
incorporated into the full-length or executive-length course facility types.
The ownership and operation of golf courses, driving ranges and other golf
facilities in the United States is highly fragmented, with very few companies
owning or operating substantial portfolios of golf facilities. Over the last 10
years, however, there has been an accelerating trend towards consolidation of
ownership and management of 18-hole golf courses. What had been an industry
characterized by fragmentation of ownership and management is becoming
increasingly concentrated. The ownership and operation of driving ranges and
golf practice and learning centers in the United States, however, remains
fragmented, with very few companies owning or operating substantial golf
facility portfolios. The Company believes that there are very few companies who
currently own and operate more than one or two golf practice and learning
centers and only one that owns and operates more than ten golf practice and
learning centers in the United States.
BUSINESS STRATEGY
The Company's strategy is to become the leading owner and operator of golf
centers in major metropolitan areas. The Company intends to accomplish this goal
principally by acquiring existing golf facilities that have the potential for
revenue enhancement through expansion of facilities, more efficient management
and innovative marketing strategies. The Company intends to develop new golf
centers in attractive markets where existing facilities are not suitable for
acquisition. The Company's golf centers are designed around a driving range with
target greens, bunkers and traps to simulate actual golf course conditions. The
Company's driving ranges, which typically include substantially more hitting
stations than the industry average, are lighted to permit night play and are
enclosed or sheltered in a climate-controlled environment. The Company has
capitalized on the national recognition of its flagship development, Illinois
Center Golf, a golf center and par-3 golf course in downtown Chicago, and has
built a substantial pipeline of attractive projects for acquisition and
development. The Company intends to incorporate Illinois Center Golf's features
into its renovation of existing golf facilities and development of new golf
centers. See "Risk Factors -- Risks of Governmental Regulation" and "--
Environmental Matters."
Consistent with its business strategy of increasing ownership and operation
of golf centers, on July 1, 1996, the Company purchased the leasehold interest
on the Fremont Golf Center. Also, on July 1, 1996, the Company entered into a
sublease, with an option to purchase, for the Harborside Golf Center. The
Company is also developing the New York Golf Center. 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 eight of these
properties. These eight properties are located in or near a major metropolitan
area in the Western United States. Each of the eight properties contains a
driving range, pro shop and food and beverage facility. In some cases, the
property has either a golf course or adjacent land available for expansion or
development of additional golf facilities. 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, which may include in some cases short-term management or similar
arrangements, 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.
ACQUISITION OF EXISTING GOLF FACILITIES. The Company believes the ownership
and operation of driving ranges and other golf facilities is highly fragmented
and presents numerous opportunities for
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it to acquire, upgrade and renovate golf centers and driving ranges. The
Company's acquisition strategy is to target well-located, stand-alone ranges or
golf centers in major metropolitan areas, some of which may be underperforming.
The Company will either purchase the land and facilities or enter into long-term
leases for each project. In determining which facilities may be suitable
acquisition candidates, management principally considers potential for
improvement in revenue and operating cash flow through capital improvements and
efficiencies in management. Capital improvements may include increasing the
number of tee stations, sheltering the hitting stations or enclosing the driving
range, installing lights to permit night play, adding or expanding pro shop and
clubhouse facilities and constructing other amenities to encourage corporate,
executive and business and leisure traveler participation.
DEVELOPMENTS OF NEW GOLF CENTERS. In desirable locations where suitable
acquisition opportunities are not available, the Company intends to construct
new facilities, often as an interim use for valuable urban real estate under
long-term leases. Such golf centers, typically modeled after Illinois Center
Golf, will be designed to provide a mix of features uniquely focused on the
demographics and other characteristics of the specific market area. The
Company's golf centers typically include: instructional programs such as the
David Leadbetter Golf Academy at Illinois Center Golf; enclosed heated hitting
areas; putting, sand bunker and chipping practice areas; full-line pro shop;
restaurant, bar and catering facilities; group meeting areas; and, in some
cases, par-3 or executive-length golf courses.
ECONOMIES OF SCALE. The Company believes that, in the course of its
acquisition and development activities, it will realize efficiencies of
management, purchasing and marketing unavailable to independent owner-operators
who manage the vast majority of stand-alone golf facilities. It will also spread
corporate overhead costs, including accounting, insurance, cash management,
strategic marketing and financial reporting functions, over multiple facilities.
MARKETING STRATEGY. The Company believes it will achieve high margins from
strong demand and high utilization rates for golf practice and learning
facilities located in areas with few or nonexistent locally available
alternatives. It will accomplish this by providing a unique recreational
facility that is user-friendly for the novice and intermediate golfer; by
including internationally recognized golf instruction programs such as the David
Leadbetter Golf Academy at Illinois Center Golf for golf instruction; by
designing facilities that provide unique venues for corporate and business
outings, meetings and other special events; and by offering opportunities for
major corporate sponsorship and advertising.
METROPOLITAN GOLF CENTERS
Metropolitan golf centers have several attractive characteristics,
including: (i) ease of access for time-constrained metropolitan area residents
and local businesspersons in under-served markets; (ii) corporate entertainment
facilities and unique membership and entertainment opportunities for local and
national businesses; (iii) special appeal to women, beginning golfers and
high-handicap golfers because of the learning center and the shorter length golf
course; and (iv) availability of unique, outdoor recreation amenities for the
business and leisure traveler patronizing nearby hotels.
GOLF ACCESS TO UNDER-SERVED MARKET. Many major metropolitan areas lack
sufficient golf facilities to meet the increasing demand for tee times. Golfers
in densely populated areas frequently must drive long distances to play or
practice golf. In addition, the busy professional may lack sufficient time for
recreational activities. By locating a multi-use golf facility close to the
user's home or job in metropolitan residential or business districts, the
Company provides a convenience for the metropolitan golfer. By offering
opportunities to play and practice golf requiring only one to two hours,
including travel time, the Company allows the golfer more frequent outings and
meets the needs of a larger constituency. The metropolitan golf center is not
designed to replace the suburban country club or daily fee course, but rather to
supplement regular rounds and offer a high-quality practice medium.
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CORPORATE ENTERTAINMENT CENTER. As corporate entertainment facilities,
metropolitan golf centers offer unique venues with easy access for client
entertainment and employee benefit functions. As highly visible outdoor
recreation facilities, metropolitan golf centers provide unique and attractive
advertising and sponsorship opportunities. Each metropolitan golf center has
staff members dedicated to corporate membership, group outings and consumer
products sponsorship sales. The presence of a par-3 or executive-length golf
course in many facilities allows the Company to offer an enhanced opportunity to
increase sales of both individual and corporate memberships, host group outings
and sponsor special events.
PREFERABLE FACILITY FOR WOMEN AND HIGH-HANDICAP GOLFERS. Women tend to be
consumers of golf lessons, specialized golf equipment and golf apparel. The
highly developed learning and practice facilities and upscale retail
merchandising of the Company's metropolitan golf centers cater to these demands.
The executive-length or par-3 golf course holds specific appeal for women.
High-handicap golfers are also drawn to the shorter courses as a lower cost
alternative and as a means to improve their golf game before playing a
full-length course.
TRAVELERS' AMENITY. Metropolitan golf centers offer hotels an outdoor
recreational product for their guests. Both business and leisure travelers may
take advantage of the proximity of the center to their hotel and of special
packages that may be offered to hotel guests. Hotels may be interested in block
purchases and may pay sponsorship fees to the metropolitan golf center, thereby
increasing the visibility of both the hotel and the golf facility.
OPERATIONAL STRUCTURE
Generally, the Company's golf centers are open seven days per week. The
Company's revenues are derived from the sale of greens fees, range balls, pro
shop merchandise (golf clubs, balls, bags, gloves, videos, apparel and related
accessories) and food and beverages and a portion of the revenue generated by
instructional programs. Golf facilities in general have seasonal attendance due
to outdoor facilities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Seasonality."
An on-site general manager of each center has overall administrative
responsibility for his or her center's day-to-day operation including, as
applicable, the driving range, golf course, instructional program, short-game
practice area, pro shop, restaurant, bar, as well as the condition of the
facilities. In addition, each general manager works with the Company's Chief
Financial Officer to prepare monthly and annual budgets and marketing plans.
The Company emphasizes recruiting and training skilled personnel. The
Company seeks general managers with broad and extensive business and management
skills, preferably from service and hospitality industries. General managers, as
well as other management personnel, are provided performance incentive bonuses.
The Company encourages each general manager to emphasize customer service at his
or her center. Employees undergo comprehensive training and are required to be
courteous, wear standardized clothing and display a professional attitude.
The Company also emphasizes the availability of high-quality, all-level golf
instruction at its golf centers. Currently, the Company has an agreement with
the internationally recognized David Leadbetter Golf Academy for instruction at
Illinois Center Golf (the "Golf Academy Agreement"). The Company is currently in
discussions with the David Leadbetter Golf Academy about operating the
instruction program at other Company golf facilities and expects to expand its
relationship with the David Leadbetter Golf Academy to many of the Company's
golf centers.
By virtue of operating a number of golf centers, the Company believes it
achieves economies of scale not available to independent owner-operators.
Typically, the Company can acquire artificial turf, range balls, pro shop
merchandise and other golf center supplies and equipment at lower prices than
any individual owner-operator. The Company can also purchase insurance coverage
at a lower premium rate than would be charged for an individual golf center. The
Company's policies relating to personnel, labor, cash management and budgets are
formulated at the corporate level and required to
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be observed by each of the Company's golf centers. The Company's accounting,
legal, insurance and finance functions and management information systems are
also centralized, which enables personnel at each golf center to focus solely on
operational matters related to the particular golf center.
The Company advertises in newspapers and on radio and cable television and
uses direct mailings and other promotions, including sponsoring certain
charitable events and contests and giving free clinics and equipment
demonstrations, to increase public awareness of its golf centers. Each golf
center employs sales and marketing employees who coordinate advertising and
solicit group events and memberships. The compensation of sales and marketing
employees is predominantly incentive based. Pursuant to the Golf Academy
Agreement, David Leadbetter Golf Academy is required to market and promote the
academy located at Illinois Center Golf.
COMPANY GOLF CENTERS
<TABLE>
<CAPTION>
NO. OF DATE
TYPE OF HITTING OWNED OR OPENED OR
LOCATION OF FACILITY FACILITY NAME FACILITY TEES LEASED ACQUIRED
- -------------------------------- ---------------------------- --------------------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Chicago, IL Illinois Center Golf MetroGolf Center 92 Leased July 1994
Fremont, CA Fremont Golf Center MetroGolf Center 36 Leased July 1996
San Diego, CA Harborside Golf Center MetroGolf Center 80 Leased July 1996
Leesburg, VA Goose Creek 18-hole Course -- Owned June 1992
</TABLE>
ILLINOIS CENTER GOLF. Illinois Center Golf opened in July 1994 on an
approximately 23-acre parcel in downtown Chicago. This golf center features a
9-hole, par-3 golf course; a year-round, lighted, 92-stall driving range; and a
complete, full-service clubhouse and learning center. Illinois Center Golf is
located in the heart of Chicago's financial district adjacent to the Chicago
Loop and is designed to attract business people, travelers and residents in the
immediate and surrounding downtown area. There are more than 4,000 hotel rooms,
3,500 residences, and nine million square feet of Class A office space located
within two blocks of the facility. The Hyatt, Sheraton, Fairmont and Swissotel
hotels are located within one block of Illinois Center Golf and contribute over
1,000,000 room nights per year to the site area. In the immediate vicinity,
there are over 12,000 residents with mean household incomes in excess of
$70,000. In addition, over 650,000 people are employed within a 12-block radius
of the site.
The 9-hole, par-3 course was designed by Dye Designs International, Inc.
("Dye Designs") and features many of the trademark elements that characterize
Dye Designs courses. In particular, the 9th hole features an island green which
challenges the best golfers. Each hole has oversized tee boxes to facilitate tee
maintenance and offer frequent players varied approaches to each green. The
350-yard, double-ended driving range has a choice of grass or astroturf at
either end (with a portion covered and heated for winter use) and target
fairways and elevated greens at various distances. The clubhouse serves as the
focal point and includes restaurant, bar and catering facilities, a full-line
pro shop and a state-of-the-art teaching center featuring a David Leadbetter
Golf Academy with its internationally recognized teaching programs.
Illinois Center Golf generated approximately $1.6 million of revenue in its
first full year of operations (1995). Over 270 individual memberships have been
sold (generating both initiation fees and recurring monthly fees), and both the
course and driving range have received significant public usage. Corporate
membership sales at all levels reflect high interest from the business
community. Corporate and consumer product sponsorship interest has been strong,
with several sponsorship programs, including an agreement with Pepsico, Inc.,
having been sold. Additionally, arrangements have been made with local hotels,
including Swissotel, for block purchases of tee times, range usage and other
events. Illinois Center Golf has been featured on the TODAY SHOW, CNN and 25
local and syndicated television programs and has appeared in SPORTS ILLUSTRATED
and 180 trade publications and daily newspapers (including THE WALL STREET
JOURNAL and THE NEW YORK TIMES). The extensive media coverage of the Company's
Chicago operation attests to the innovative nature of its new metropolitan golf
centers and to the high level of public interest in metropolitan golf and
indicates the significant market potential for such facilities.
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<PAGE>
Illinois Center Golf is located on a property which is leased for 15 years,
terminating in 2009. The lease may be extended by mutual agreement between the
lessor and lessee. The lease may be terminated by the lessor under certain
conditions. If the lease is terminated prior to the end of the 15-year period,
the lessor must pay the lessee a termination fee of up to $4.4 million, reduced
by net earnings from the facility. See "Risk Factors -- Risk of Termination of
Illinois Center Golf Lease," and footnote 5 to Illinois Center Golf Partners,
L.P. financial statements. Illinois Center Golf was financed through a $3.5
million private placement of limited partnership units in ICGP. The Company is
the owner of 89% of the common stock of IC which is the sole general partner of
ICGP, the holder of the ground sublease of the Illinois Center Golf facility.
Upon consummation of the Offering, the Company expects to acquire approximately
90% of the limited partnership interests in ICGP. See "Partnership
Acquisitions."
FREMONT GOLF CENTER. 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
existing golf facility consists of a 36-tee station driving range, two practice
putting greens, a clubhouse and a maintenance area on approximately 15 acres of
land. The current clubhouse includes a grill room and bar area not currently in
operation. The driving range has both natural and artificial tee areas and
lights for nighttime use.
In addition, 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 fall of 1996, with the completion of the golf
center scheduled for the summer of 1997. The total acquisition (including the
driving range and learning center) and proposed development budget is
approximately $3.5 million.
The new Fremont Golf Center is planned to include an expanded, 80-station
tee area, practice putting green, chipping and short game practice and sand
bunker areas. Plans call for the clubhouse to be redesigned and enhanced to
include a full-line pro shop, locker rooms and bar area and grill room with an
outdoor patio. A corporate entertainment and group event area will be located
adjacent to the patio. The 9-hole executive-length golf course is to be designed
by Dye Designs and will have many of the trademark elements that characterize
Dye Designs golf courses.
The Fremont Golf Center site is an urban, in-fill site in the east San
Francisco Bay area, located between Oakland and San Jose in the heart of the
Silicon Valley. An estimated two million people live and work in the east Bay
area. The site is adjacent to Fremont's Central Park, which serves as a regional
park for the east Bay area and frequently experiences weekend crowds in excess
of 50,000 people. The site provides a significant opportunity because of the
limited availability of golfing options in the Fremont area. The Company
believes, based on its market research in the area, that there is significant
undercapacity of golf facilities in the area.
The purchase agreement for the Fremont Golf Center provides 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 interest and principal payable in full on
November 15, 1996. The note is secured by a first deed of trust encumbering the
leasehold. The Company intends to retire the note as soon as possible upon
funding of permanent debt financing for the facility. The development budget for
the new 9-hole executive-length golf course, and modifications to the existing
facility, is anticipated to be approximately $2 million over a one-year
development period. The Company intends to fund the development through a
combination of equity, expected to be provided by the Net Proceeds, and debt,
expected to be provided by a commercial bank, specialized golf lending
institution or private lender.
HARBORSIDE GOLF CENTER. 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 golf center is located on a 4.63 acre site
of land in close proximity to the San Diego Convention Center and
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International Airport and is adjacent to major hotels, restaurants and
approximately eight million square feet of commercial office space. The facility
includes a driving range which has 80 tee stations, double-tiered and
double-ended. There are 20 additional grass practice tees, a putting green,
chipping green and sand bunker area. Multiple target greens and sand traps are
located on the driving range. The clubhouse covers approximately 10,000 square
feet and includes a pro shop, a sports bar/cafe, computerized video swing
analysis and a full-swing golf simulator.
The Company's sublease provides for a term of one year for both sublease and
purchase option, with an option to extend for three months. In addition to
monthly lease payments of approximately $35,000, the Company has agreed to pay
the sublessor 50% of net cash flow after monthly lease payments and management
fees of $6,000 payable to MGMI. The Company will provide the required capital
from funds from operations, existing cash, and, if necessary, from the proceeds
of the Offering.
If the Company elects to exercise its option to purchase the facility for
approximately $1.2 million, it intends to fund the acquisition and any
subsequent development expenses through a combination of equity, to be provided
by the Net Proceeds, and debt, expected to be provided by a commercial bank,
specialized golf lending institution or private lender. There can be no
assurances of the consummation of any of these financings or any other
financings on terms acceptable to the Company.
GOOSE CREEK. Goose Creek is a 20-year-old daily fee course located in
Leesburg, Virginia that was purchased by GCGP in June 1992. The golf course is
6,800 yards in length and has a 5,000 square-foot clubhouse. The club is located
seven miles from Dulles International Airport in the northern Virginia suburbs
of Washington, D.C. and logs in excess of 40,000 rounds annually at current fees
of as much as $30 per round. The facility has been remodeled and repositioned in
the market by the Company as a higher-end, country club-type experience for
daily fee golfers. Since its acquisition in 1992, greens fees have been
increased by as much as 40%. In 1995, Goose Creek generated over $1.4 million in
total revenue. Goose Creek was purchased by GCGP for slightly more than $4.3
million. Approximately $975,000 of equity was raised for the purchase through a
private limited partnership offering in GCGP. The balance of the funds was
provided by a mortgage loan and $400,000 carryback financing from the seller.
The Company owns 100% of the issued and outstanding stock of VA which is the
managing general partner of GCGP. In addition, upon consummation of the
Offering, the Company expects to acquire approximately 90% of the limited
partnership interests in GCGP. See "Partnership Acquisitions."
FUTURE PROJECTS
NEW YORK GOLF CENTER. The Company has fully negotiated a lease (the "Port
Authority Lease") with the Port Authority of New York and New Jersey (the "Port
Authority") to develop a driving range and learning center on top of the Port
Authority Bus Terminal in midtown Manhattan, New York City. Construction is
scheduled to commence in the first quarter of 1997, with the opening scheduled
for the second half of 1997. The proposed development budget is approximately
$5.5 million. The facility is planned to consist of a three-level facility
occupying a portion of the roof of the Port Authority Bus Terminal
(approximately three acres) and includes a 54-tee station area, a practice
putting green, a sand bunker practice area, a greenside chipping area, a video
instruction center, locker rooms, a David Leadbetter Golf Academy and a club
facility. The driving range will include covered, heated tee stations. The golf
instruction center, video instruction center, golf practice areas and locker
rooms will be located in the clubhouse, together with a sports bar/cafe, outdoor
patio, corporate entertainment and group event area, pro shop and offices. The
Company is currently in discussions with the David Leadbetter Golf Academy about
operating the golf instruction program at the New York Golf Center.
The Port Authority Bus Terminal site provides a development opportunity that
the Company believes is unparalleled in the golf industry. In this midtown
Manhattan location at 42nd Street and 8th Avenue, approximately 200,000 daily
commuters pass through the Port Authority Bus Terminal, and approximately 60,000
daily transit riders use the Times Square subway exit at 42nd Street. Peak
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pedestrian traffic counts at the corner of 42nd Street and 7th Avenue show an
average of approximately 45,000 people per day and are among the highest in all
of Manhattan. Demographics show that over 1.1 million employees work in the New
York City midtown area, and 525,000 permanent residents live in the same area.
In addition, over 20 million tourists visit New York City on an annual basis.
The site is adjacent to the Times Square Business Improvement District, which
includes 12,600 hotel rooms and accommodates 1.7 million visitors annually.
Several leading entertainment and service industry companies, including Disney
Enterprises, Inc.; Viacom Inc./MTV Networks Inc.; Sony Corp.; Virgin Records
Inc.; and American Multi-Cinema Inc. have recently announced or are considering
projects near the Port Authority Bus Terminal site. Because of the interest in
the area, several large corporations have expressed interest in sponsorship and
advertising opportunities associated with the facility.
The Company has received conditional approval of the structural feasibility
report for the project. Upon the Company's completion of certain design and
engineering studies to the satisfaction of the Port Authority staff, the Port
Authority Lease will be submitted to the Port Authority Board of Commissioners
for its final approval and the Port Authority's execution. Although the Company
believes that such studies will be approved and the Port Authority Lease will be
executed in the fall of 1996, there can be no assurance as to such approval or
lease execution.
For the purpose of developing the Port Authority site, the Company has
formed a limited liability company that is owned by the Company's wholly owned
subsidiary, MetroGolf New York, Inc. ("MGNY"), and several individual investors
(the "Class B Members") who assisted in the project presentation, concept
development and negotiations with the Port Authority. The Operating Agreement
for the limited liability company provides for distribution of cash to the
members (i) first, in return of capital contributed, plus a 15% per annum
cumulative compounded deferred return thereon (it is anticipated that the Class
B Members will provide 5% of the contributed capital); (ii) second, 75% to MGNY
and 25% to the Class B Members until MGNY has received a 30% internal rate of
return on its investment; and (iii) third, 70% to MGNY and 30% to the Class B
Members. MGNY is to be paid a development fee of $250,000 for development
services during construction and management fee of 5% per annum of gross
revenues upon completion for delivery of management services. The Company may
offer to acquire the Class B Members' current interests which could result in
100% Company ownership of the New York Golf Center; however, there can be no
assurance upon what terms, if any, such acquisition may occur. The Company plans
to finance the development budget of approximately $5.5 million for the New York
Golf Center primarily utilizing a combination of equity, expected to be provided
by the proceeds of the Offering, and debt, expected to be provided by a
commercial bank, specialized golf lending institution or private lender.
OTHER POTENTIAL PROJECTS. 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 eight of these properties. These eight properties are located in
or near a major metropolitan area in the Western United States. Each of the
eight properties contains a driving range, pro shop and food and beverage
facility. In some cases, the property has either a golf course or adjacent land
available for expansion or development of additional golf facilities.
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.
The Company plans to finance future projects directly through a combination
of the proceeds from the Offering, issuance of Company securities in connection
with acquisitions and development, and debt from banks or other lenders. The
balance of the capital requirements, if any, may be raised through subsequent
project specific private offerings or other financing structures. By providing a
substantial portion of the equity, the Company believes it can structure future
financings so that the Company will have majority, if not 100%, ownership
interests and thus receive percentages of the profits and cash flows that are
expected to be higher than the 40% interest in ICGP held prior to the
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partnership acquisition described herein. See "Partnership Acquisitions." The
Company plans to acquire the land for its metropolitan projects generally
through long-term ground leases of 15 years or more.
The Company believes it can obtain debt financing for at least 50% of the
capital required for leasehold property-type projects concurrent with
acquisition or commencement of construction. The Company has recently received
offers from a prospective lender to finance the New York and Fremont Golf
Centers which support this expectation and is currently negotiating with several
possible lenders for those and other future projects. The Company believes that
such financings will allow it to leverage the operating profit margins which are
characteristic of such facilities and thereby maximize its return on equity.
There can be no assurance of the consummation of such financings or any other
similar financings on terms acceptable to the Company.
METROGOLF MANAGEMENT
MGMI is a wholly owned golf management company formed to manage Illinois
Center Golf and other future projects of the Company and its affiliates. The
Company, through MGMI, manages the operations of Illinois Center Golf, Goose
Creek, Harborside Golf Center and Fremont Golf Center, and plans to similarly
manage operations of the New York Golf Center and other future projects.
Generally, all personnel employed at each facility are employees of MGMI. The
management contracts between each facility and MGMI generally include provisions
that the facility reimburse MGMI for the costs of such employees as are required
at each facility.
COMPETITION
On a national basis, the Company faces several major competitors with
sizable portfolios of golf facilities. However, while these companies own or
manage large numbers of golf facilities, overall golf facilities ownership and
management generally remains highly fragmented. The ten largest golf course
management companies own or operate only approximately 3% of the over 14,000
privately owned golf courses in the country. The vast majority of the remaining
97% of privately owned courses are held by regional multi-course (three to five)
companies, small ventures and individuals who have limited experience in
operating a course to maximize profit. These smaller operators tend to lack the
access to capital and management expertise enjoyed by large multi-course owners
and operators. Some of the multi-facility owners have recently completed public
offerings to increase their portfolios with opportunities to acquire facilities
which require professional ownership and management to maximize the potential of
the chosen facility. The trend toward consolidation of 18-hole golf course
facilities has become very profitable, but increasingly competitive, over the
past few years. However, the consolidation trend recently evident for 18-hole
golf courses is only in its infancy for the driving range and practice and
learning center segment of the industry.
Only one other company has emerged as an active developer and acquiror of
driving ranges, golf practice and learning facilities or executive-length and
par-3 courses on a national scale. Family Golf Centers Inc. ("FGCI"), recently
recapitalized through a public secondary offering, is the largest owner and
operator of golf driving ranges in the nation and is pursuing an aggressive
development and acquisition strategy that has already tripled the number of
ranges under its operation since January 1995. Its substantial capital gives it
a competitive advantage over the Company in attempting to absorb weaker
operations and provides it with increasing economies of scale. However, FGCI is
largely focused on the family golf market and on operations in suburban and
smaller metropolitan areas, although it has competed, and may in the future
compete, directly with the Company in certain large metropolitan areas. Other
public and private companies, such as Golden Bear Golf, Inc.; Michael Jordan
Golf Co. and the Professional Golfers' Association of America, are pursuing
opportunities in the golf driving range and practice facility segment and may
compete directly or indirectly with the Company. Several other large and
well-financed companies are active in the full-length golf course segment;
however, none have focused on the driving range, golf practice and learning
center or executive-length and par-3 courses segments or on larger metropolitan
areas, although there can be no assurance that they may not do so in the future.
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EMPLOYEES
The Company has nine full-time employees at the corporate level, and a
variable number of additional full-time and part-time employees at the facility
level through its wholly owned subsidiary, MGMI. Currently, MGMI has
approximately 16 full-time equivalent employees during the slow season, and 60
full-time equivalent employees during the peak season. See "-- MetroGolf
Management." In addition, the Company utilizes the services of various
independent contractors, primarily for computer, accounting and finance-related
services.
CORPORATE INFORMATION
On February 21, 1992, Mr. Tourtellotte incorporated and became the sole
stockholder of The Vintage Group USA, Ltd. On May 26, 1993, Mr. Tourtellotte
incorporated and became the sole stockholder of IC. On July 29, 1994, The
Vintage Group USA, Ltd. changed its name to TVG (Virginia) Inc. Simultaneously,
Mr. Tourtellotte formed the Company under the name of The Vintage Group (USA)
Ltd. and contributed his common stock of VA and IC to the Company in exchange
for 100% of its outstanding Common Stock. Since such time, the Company has, as
the managing general partner in ICGP and GCGP, operated Illinois Center Golf and
Goose Creek. On July 1, 1996, the Company purchased the leasehold interest for,
and began operating, Fremont Golf Center. Also on such date, the Company's
wholly owned subsidiary, MetroGolf (San Diego) Incorporated, executed a sublease
of, and began operating Harborside Golf Center.
The Company has recently changed its name to MetroGolf Incorporated and
intends to incorporate the name "MetroGolf" into the names of its golf centers.
The Company has applied for federal tradename protection for the name "MetroGolf
Incorporated," but there can be no assurance that such protection will be
granted. The Company is aware of other users of the name "MetroGolf" in some of
the markets where the Company currently operates golf centers or may operate
golf centers in the future. The Company does not believe that any such user is
in direct competition with the Company; however, the Company may choose not to
use the name "MetroGolf" in certain markets if it is inadvisable to do so
because there is an existing user of the name.
The Company leases 1,815 square feet of corporate office space in Denver,
Colorado for rent of approximately $21,780 per year.
LEGAL PROCEEDINGS
The Company knows of no material litigation or proceedings pending,
threatened or contemplated to which the Company is or may become a party.
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MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
The names and ages, along with certain biographical information, of the
executive officers, Directors, key employees and Director Nominee of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- --------------------------------- --- --------------------------------------------------------------
<S> <C> <C>
Charles D. Tourtellotte.......... 41 Chairman of the Board; President
J. D. Finley..................... 39 Executive Vice President; Chief Financial Officer and
Secretary
James K. Dignan.................. 38 Vice President -- Acquisitions
Kim E. Wermuth................... 35 National Director of Sales and Marketing
Anthony A. Suttile............... 42 National Director of Operations
Ernie Banks...................... 65 Director
Jack F. Lasday................... 39 Director
Michael S. McGetrick............. 36 Director Nominee
</TABLE>
The members of the Board of Directors hold office until the next annual
meeting of stockholders or until their successors have been elected and
qualified. Officers are appointed by, and serve at the pleasure of, the Board of
Directors. The Company expects to add at least two additional Directors shortly
following the consummation of the Offering, one of which is expected to be
Michael S. McGetrick. The following is a description of the Company's current
Directors, executive officers, key employees and Mr. McGetrick.
CHARLES D. TOURTELLOTTE. Mr. Tourtellotte is the President and Chairman of
the Board. Mr. Tourtellotte directs the development, acquisition and management
of the golf assets of the Company and the raising of debt and equity capital for
the Company's golf facilities portfolio. Prior to forming the Company in 1992,
Mr. Tourtellotte co-founded and served as a director and president of Dye Equity
Incorporated ("DEI"), the golf course acquisition and development subsidiary of
Dye Designs, from January 1989 to December 1991. Dye Designs is a golf course
design and development firm headed by Perry Dye, son of renowned golf course
architect Pete Dye. During his tenure at DEI, Mr. Tourtellotte was responsible
for acquisition and development of golf and related real estate assets and
sourced debt, equity, and joint venture financing for DEI's and its clients'
portfolios. From 1984 to 1989, Mr. Tourtellotte served as Senior Vice President
of Acquisitions for Johnstown American Companies, then one of the nation's
largest real estate investment and property management firms. Earlier, he served
as senior acquisition/investment officer at two national real estate companies,
Consolidated Capital Corporation and Robert A. McNeil Corporation.
J.D. FINLEY. Mr. Finley, Executive Vice President and Chief Financial
Officer, coordinates all financial functions of the Company, including
management and disbursement of development and acquisition funds for the Company
and its affiliated entities. Mr. Finley also provides due diligence analysis and
assistance in structuring proposed asset acquisitions and development projects.
In addition, Mr. Finley assists Mr. Tourtellotte in managing the day-to-day
affairs of the Company. Prior to joining the Company in September 1994, Mr.
Finley, a CPA, was a stockholder and director of Mitchell Finley and Company,
P.C. ("Mitchell Finley"), a Denver-based certified public accounting firm. A
portion of Mr. Finley's time while with Mitchell Finley was devoted to servicing
the Company's account as a tax consultant. Prior to joining Mitchell Finley in
1990, Mr. Finley was a stockholder and director of the accounting firm of
Shenkin Kurtz Baker and Company, P.C. Previous to his employment with Shenkin
Kurtz Baker and Company, P.C. from 1985 to 1990, Mr. Finley was a manager with
the international accounting firm of Deloitte Haskins & Sells (now Deloitte &
Touche) from 1979 to 1985.
JAMES K. DIGNAN. Mr. Dignan, Vice President Acquisitions, joined the
Company in July 1993 to facilitate the acquisition and development of golf
assets for the Company's portfolio. Mr. Dignan
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assists in the acquisition, development and management of metropolitan golf
facilities for the Company. From 1986 to 1993, Mr. Dignan was an Associate
Director for Cushman and Wakefield where he was responsible for the leasing and
management of commercial real estate properties for several Fortune 500
companies. From 1982 to 1986, Mr. Dignan served as Vice President for
Heliconian, Ltd., a company which specializes in real estate investment
services. Mr. Dignan was a member of the Professional Golfers Association (PGA)
for several years.
KIM E. WERMUTH. Ms. Wermuth, National Director of Sales and Marketing,
joined the Company in August 1996. From January 1995 until joining the Company,
Ms. Wermuth was Vice President of Sales and Marketing for Chain Enterprises, a
graphic design company. From August 1994 to January 1995, she was Assistant Vice
President of Sales and Marketing for Sage Hospitality Resources, which operates
11 hotels throughout the United States. From July 1992 to August 1994 she was
Regional Marketing Manager for Howard Johnson Franchise Systems, Inc., and from
July 1990 to July 1992 she was the General Manager of the Howard Johnson Plaza
Hotel in Madison, Wisconsin and was also the Director of Marketing and
Advertising for that hotel and two affiliated hotels. She has also served as
Sales Manager or Director of Sales and Marketing for other hotels beginning in
May 1984.
ANTHONY A. SUTTILE. Mr. Suttile is the Company's National Director of
Operations and was the General Manager of Illinois Center Golf from September
1995 until October 1996. From April 1994 to August 1995 he was General Manager
of the Ambassador West Hotel in Chicago, Illinois, and from April 1993 to April
1994 he was General Manager of the Knickerbocker Hotel in Chicago, Illinois,
both owned by Grand Heritage Hotels International. From April 1991 to March
1992, he was General Manager of the Maple Dale Country Club in Dover, Delaware.
Prior to that Mr. Suttile has worked in hotel management with various companies
since 1975.
ERNIE BANKS. Ernie Banks is a Director of the Company and was an all-star
shortstop and first baseman for the Chicago Cubs Baseball Club for 19 years,
retiring in 1971. Mr. Banks was elected to the Baseball Hall of Fame in 1977.
Since 1991, Mr. Banks has been the owner and chief executive officer of Ernie
Banks International, Inc., a sports marketing and promotions firm located in
Chicago, and Community Relations Director for the Chicago Cubs.
JACK F. LASDAY. Mr. Lasday is a Director of the Company and Senior Vice
President - Investments of Prudential Securities. Prior to joining Prudential
Securities in September 1994, he was a Senior Vice President at Rodman &
Renshaw, Inc., where he was employed from 1982 to 1994. Mr. Lasday is director
of Gateway Foundation and a member of the Illinois C.P.A. Society and the
American Institute of Certified Public Accounts.
MICHAEL S. MCGETRICK. Mr. McGetrick has agreed to be nominated as a
Director of the Company and is expected to be elected as a Director shortly
following the consummation of the Offering. Mr. McGetrick, a PGA Class A Member,
has been the Director of Instruction at the Meridian Golf Learning Center in
Denver, Colorado since 1993. From 1991 to 1993, he was the head teaching
professional at Cherry Hills Country Club in suburban Denver, Colorado. He has
also served as head teaching professional at a number of other country clubs or
golf facilities and coaches a number of players on the PGA and LPGA Tours. Mr.
McGetrick has published several instructional articles in national golf
magazines. He was named by Golf Magazine as one of the top 100 teaching
professionals in America in 1996.
COMMITTEES OF THE BOARD OF DIRECTORS
Within 90 days after consummation of the Offering, the Board of Directors
intends to establish an Audit Committee and a Compensation Committee. The
functions of the Audit Committee will be to recommend annually to the Board of
Directors the appointment of the independent certified public accountants of the
Company, discuss and review the scope and the fees of the prospective annual
audit and review the results thereof with the independent certified public
accountants, review and approve non-audit services of the independent certified
public accountants, review compliance with existing
35
<PAGE>
major accounting and financial policies of the Company, review the adequacy of
the financial organization of the Company and review management's procedures and
policies relative to the adequacy of the Company's internal accounting controls.
The functions of the Compensation Committee will be to review and approve
annual salaries and bonuses for all executive officers and review, approve and
recommend to the Board of Directors the terms and conditions of all employee
benefit plans or changes thereto and administer the Company's Stock Option Plan.
The Board of Directors will appoint independent directors to the Audit and
Compensation Committees.
DIRECTOR AND EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued by the
Company to the Chief Executive Officer and the only other officer of the Company
who received compensation in excess of $100,000 for services rendered to the
Company in all capacities during the three fiscal years ended December 31, 1993,
1994 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
--------------
ANNUAL COMPENSATION SHARES OF
------------------------------------------------------ COMMON STOCK
FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION WARRANTS (#) COMPENSATION ($)
- ---------------------------------------- --------- ------------- ----------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Tourtellotte................. 1993 30,000 -- -- -- --
Chairman of the Board 1994 180,000 -- -- -- --
and President 1995 180,000 -- -- 48,860(1) 125,000(2)
J.D. Finley............................. 1994 30,000(3) -- -- -- --
Executive Vice President 1995 120,000 -- -- 48,860(1) --
and Chief Financial Officer
</TABLE>
- ------------------------
(1) Of these warrants, 36,645 shares are vested as of the date of this
Prospectus. The remaining 12,215 will vest on February 28, 1997.
(2) Mr. Tourtellotte is entitled to receive $125,000 of compensation upon
receipt by the Company of the $125,000 contingent portion of its fee in
connection with the development of Illinois Center Golf. This $125,000 is
payable by ICGP upon the complete repayment of capital to the limited
partner investors, plus a preferred return of 15% per annum. Because of this
financial structure, this payment is not expected to be received before
1999, if at all.
(3) Mr. Finley joined the Company in September 1994.
WARRANT/OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------------------------------------------------
PERCENTAGE OF
NUMBER OF TOTAL WARRANTS
SECURITIES GRANTED TO EXERCISE OF
UNDERLYING EMPLOYEES IN BASE
NAME WARRANTS GRANTED FISCAL YEAR PRICE ($/SH) EXPIRATION DATE
- -------------------------------------- ----------------- ------------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Charles D. Tourtellotte............... 48,860 75% $2.23/sh December 1, 2000
J.D. Finley........................... 48,860 75% $2.23/sh December 1, 2000
</TABLE>
Although 75% of each of Mr. Tourtellotte's and Mr. Finley's warrants
described above are vested and exercisable (subject to an Underwriters' lock-up)
as of the date hereof, none were exercised in 1995. See "Principal
Stockholders."
36
<PAGE>
The members of the Company's Board of Directors are not presently
compensated directly by the Company for their service to the Company. Messrs.
Lasday and Banks have received warrants to purchase 8,152 shares each of Common
Stock at an exercise price of $2.23 per share. The Company has agreed to issue
Mr. McGetrick options to purchase 5,000 shares of Common Stock under the Stock
Option Plan, at an exercise price equal to the IPO Price, upon his election as a
Director. In addition, outside directors will be compensated for their
reasonable expenses in attending meetings of the Board of Directors.
EMPLOYMENT CONTRACTS
CHARLES D. TOURTELLOTTE. Effective January 1, 1996, Mr. Tourtellotte
entered into a three-year employment agreement to serve as President of the
Company, which expires December 31, 1998. Such agreement provides for an annual
salary of $250,000, payable semi-monthly in arrears, plus such bonuses as the
Board of Directors of the Company may from time to time approve. The agreement
provides for certain athletic club memberships and allowances for an automobile,
parking and other perquisites as from time to time are made available to the
Company's executive officers. The agreement is terminable by the Company for
"Cause," which includes conduct which causes material harm to the Company,
willful and continued absence of employee (other than by reason of disability or
death), employee's abandonment of his duties and responsibilities, conviction of
the employee for a felony involving moral turpitude or fraud, misappropriation
or embezzlement of corporate funds. The agreement also has a noncompete clause
for a period of one-year immediately following the cancellation or termination
of the agreement for any reason. In the event of termination by reason of death
or disability and provided the Company has not otherwise provided Mr.
Tourtellotte with life or disability insurance or other benefit plan for such
occurrence, the Company is required to pay Mr. Tourtellotte or his estate
severance pay equal to six months' salary.
J.D. FINLEY. Effective January 1, 1996, Mr. Finley entered into a
three-year employment agreement to serve as Executive Vice President and Chief
Financial Officer of the Company, which expires December 31, 1998. Such
agreement provides a salary to Mr. Finley of $175,000 per year, plus such
bonuses as the Board of Directors of the Company may from time to time approve.
The agreement provides for payment of monthly dues for membership at a country
club and an allowance for a cellular phone, parking and other perquisites as
from time to time are made available by the Company to its executive officers.
The agreement is terminable by the Company for "Cause" as described above. The
agreement also has a noncompete clause effective for a period of one year
immediately following the cancellation or termination of the agreement. In the
event of termination by reason of death or disability and provided the Company
has not otherwise provided Mr. Finley with life or disability insurance or other
benefit plan for such occurrence, the Company is required to pay Mr. Finley or
his estate severance pay equal to six months' salary.
JAMES K. DIGNAN. Effective January 1, 1996, Mr. Dignan entered into a
three-year employment agreement to serve as Vice President -- Acquisitions of
the Company, which expires December 31, 1998. The agreement provides for a base
salary of $66,000 per year, plus such bonuses as the Board of Directors of the
Company may from time to time approve. The agreement is terminable by the
Company for "Cause" as described above. The agreement also has a noncompete
clause for a period of one year immediately following the cancellation or
termination of the agreement for any reason. In the event of termination by
reason of death or disability and provided the Company has not otherwise
provided Mr. Dignan with life or disability insurance or other benefit plan for
such occurrence, the Company is required to pay Mr. Dignan or his estate
severance pay equal to six months' salary.
SENIOR EXECUTIVE INCENTIVE STOCK OPTION PLAN
The Company has granted options to each of Messrs. Tourtellotte and Finley
to purchase 125,000 shares of Common Stock pursuant to the Executive Option Plan
at an exercise price equal to 100% of the IPO Price. None of these options vest
prior to March 31, 1997. Thereafter, they vest as follows: the first 20% upon
the closing market price of the Common Stock exceeding 120% of the IPO Price for
a period of five consecutive trading days; the next 20% upon the closing market
price of the Common
37
<PAGE>
Stock exceeding 140% of the IPO Price for a period of five consecutive trading
days; the next 20% upon the closing market price of the Common Stock exceeding
160% of the IPO Price for a period of five consecutive trading days; the next
20% upon the closing market price of the Common Stock exceeding 180% of the IPO
Price for a period of five consecutive trading days; and the last 20% upon the
closing market price of the Common Stock exceeding 200% of the IPO Price for a
period of five consecutive trading days. The holder of the option must have been
continuously employed by the Company (or an affiliate of the Company) through a
vesting date in order for the related shares to vest. All of the shares issuable
pursuant to the Executive Option Plan are subject to the 13-month lock-up period
described under "Shares Eligible for Future Sale." No further options may be
granted under the Executive Stock Plan.
STOCK OPTION PLAN
The Stock Option Plan provides for issuance of up to 250,000 shares of
Common Stock at exercise prices no less than 85% of the fair market value of the
Common Stock at the time of grant. The purpose of the Stock Option Plan is to
enable the Company to attract or attain the services of the type of professional
and managerial employees and other persons considered essential to the
long-range success of the Company by providing long-term incentives to the
Company's officers and employees. The options will vest over a five-year period,
except that up to 10% of the options may be subject to a shorter vesting period
at the discretion of the Company's Board of Directors. Options may not be
exercised more than three months after an employee's termination of employment
with the Company unless such termination was a result of death, disability or
retirement, in which case the exercise period is extended to one year. The
exercise price may be paid in cash, by tendering shares of Common Stock (valued
at fair market value on the date of exercise) if so provided in the applicable
stock option agreement, or by a combination of such means of payment, as may be
determined by the Compensation Committee. The Stock Option Plan provides that
the total number of option shares covered by such Plan, the number of shares
covered by each option and the exercise price per share may be proportionately
adjusted by the Board of Directors or the Compensation Committee in the event of
a stock split, reverse stock split, stock dividend or similar capital adjustment
effected without receipt of consideration by the Company. To date, no options
have been granted pursuant to the Stock Option Plan.
The Stock Option Plan will be administered by the Compensation Committee.
Prior to appointment of the Compensation Committee, the Stock Option Plan will
be administered by the Board of Directors. Subject to the terms of the Stock
Option Plan, the Compensation Committee will determine the persons to whom
options are granted and the terms of each option. The Compensation Committee may
grant options that either are intended to be "incentive stock options" as
defined under Section 422 of the Internal Revenue Code of 1986, as amended, or
are not intended to be incentive stock options.
Other than the Stock Option Plan and the Executive Option Plan, no
retirement, pension, profit-sharing or similar program has been adopted or is in
effect by the Company for the benefit of its directors, officers or employees.
In the future, however, the Company will adopt such plans or other forms of
incentive compensation as the Board of Directors determines to be necessary or
appropriate to promote and foster the loyalty and dedication of its directors,
officers and employees.
CERTAIN TRANSACTIONS
The following discussion of certain transactions and documents is qualified
in its entirety by reference to certain documents described, copies of which are
available from the Company upon request.
TRANSACTIONS WITH CHARLES D. TOURTELLOTTE
Charles D. Tourtellotte, the Company's President, received a total of
$30,000 in compensation in 1993. From January 1, 1994 through July 31, 1994, Mr.
Tourtellotte deferred $105,000 of compensation. As of June 30, 1996, $58,333 of
this deferred compensation remains unpaid. In addition, since
38
<PAGE>
November 1, 1995 and continuing through the date of this Prospectus, Mr.
Tourtellotte has deferred additional amounts of compensation under his
employment contracts which, as of the date of this Prospectus, total $182,083
(not including the $125,000 described below). From time to time, the Company has
made loans to Mr. Tourtellotte against deferred compensation or in anticipation,
but in advance, of Mr. Tourtellotte earning bonus or other extraordinary
compensation. Such loans were made for the bona fide business purposes of
inducing Mr. Tourtellotte to continue to devote substantial time to the Company
and allowing the Company to continue to defer payment of his compensation thus
increasing the Company's available cash. These loans are evidenced by two note
agreements. The notes bear interest at 8% per annum and are due on demand. The
total original principal amount of these loans is $152,638 and as of June 30,
1996, the aggregate outstanding balance on the two notes was $166,324. Mr.
Tourtellotte has paid the required amounts under the loans when due. Mr.
Tourtellotte continues to receive his base salary while these notes remain
outstanding. Pursuant to Mr. Tourtellotte's employment contract, any amount
still outstanding on the first note must be paid from the $58,333 of deferred
compensation referred to above. During 1996, the Company expects that the
payment of Mr. Tourtellotte's deferred compensation will be offset by the
outstanding balance of the first note which will be cancelled. Mr.
Tourtellotte's employment contract also specifies that any unpaid balance on the
second note must be repaid from the $125,000 Mr. Tourtellotte may receive upon
receipt of the contingent portion of the Company's development fee for Illinois
Center Golf described under "Management -- Director and Executive Compensation."
This $125,000 is payable by ICGP upon the complete repayment of capital to the
limited partner investors, plus a preferred return of 15% per annum. Because of
this financial structure, this payment is not expected to be received before
1999, if at all. Any further loans to Mr. Tourtellotte will be approved by the
Board of Directors and will be made only if the aggregate of all outstanding
loans do not exceed the amount of reasonably anticipated compensation owed to
him, which may include the balance of the $125,000 of deferred compensation
referred to above. Mr. Tourtellotte has personally guaranteed $5.12 million of
indebtedness of ICGP and GCGP.
LOANS BY J.D. FINLEY
In 1995 and 1996, J.D. Finley, the Company's Executive Vice President and
Chief Financial Officer, made various loans to the Company. The balances
outstanding as of December 31, 1995 and June 30, 1996, including accrued
interest were $26,827 and $4,825. As of the date of this Prospectus, the unpaid
balance of such loans is approximately $4,075. These loans are due on demand and
bear interest at an annual rate of prime plus 2%.
TRANSACTIONS WITH OFFICERS, INDEPENDENT CONTRACTORS AND AFFILIATES
Since November 1, 1995 and continuing through the date of this Prospectus,
payment of various amounts due for salaries, fees and reimbursable expenses of
the officers of the Company and certain independent contractors have been
deferred. As of the date of this Prospectus, deferred compensation owed to
certain officers and former officers of the Company aggregates approximately
$327,500. The Company anticipates that substantially all the deferred amounts
will be paid to the officers and independent contractors out of the Company's
available cash flow.
NOTES RECEIVABLE, FROM RELATED PARTIES
On September 1, 1994, IC entered into a $500,000 note agreement with ICGP.
Advances under the agreement accrue interest at two percent over the Citibank's
prime rate, which was 8.75% at December 31, 1995. The note is unsecured and due
the earlier of demand or September 1, 1997. The balance outstanding on the note
is $275,724, $459,739 and $500,000 as of December 31, 1994 and 1995 and June 30,
1996, respectively.
On April 15, 1996, VA entered into a $150,000 note agreement with Goose
Creek. Advances under the agreement accrue interest at two percent over the
Citibank's prime rate, which is 8.75% at December 31, 1995. The note is
unsecured and due the earlier of demand or April 15, 1997. The balance
outstanding on the note is $54,989 and $106,823 as of December 1995 and June 30,
1996.
39
<PAGE>
As described above in "Transactions With Charles D. Tourtellotte," the
Company entered into two note agreements with Charles D. Tourtellotte during
1994. The notes bear interest at 8% per annum and are due on demand. The
balances outstanding on the notes are $64,803, $120,300 and $166,324 as of
December 31, 1994 and 1995 and June 30, 1996, respectively.
DEVELOPMENT FEES FROM ILLINOIS CENTER GOLF
During 1994, the Company earned $125,000 for land acquisition, concept
planning design and development services provided to Illinois Center Golf.
PROPERTY MANAGEMENT FEES
On December 1, 1993, MGMI entered into a property management agreement with
ICGP. The management agreement expires on January 1, 1997. The terms of the
management agreement provide for a management fee of $5,000 per month, plus a
membership incentive fee of 10% of the gross proceeds received from membership
initiation fees and the equivalent of one month's membership dues as received by
Illinois Center Golf. The membership incentive fee for renewal memberships will
be reduced to 4% of annual dues for renewal members. In addition, the management
agreement provides for an annual incentive fee of 5% of the amount of the
managed center's annual net operating income in excess of $1,600,000.
MGMI initially was operated by Club Sports International ("CSI"). On October
1, 1994, CSI was removed as operator of MGMI. On November 17, 1994, Billy Casper
Golf Management, Inc. ("BCGM") was engaged as the new operator of MGMI. From the
period June 1, 1994 through September 30, 1994, MGMI's base fee was split
between CSI and the Company, with CSI receiving $4,000 and the Company receiving
$1,000. From October 1, 1994 through November 18, 1994, the Company earned the
full amount of MGMI's fee. From November 18, 1994 through November 30, 1995,
BCGM earned the entire fee. During November 1995, BCGM was removed as operator
of MGMI. In addition, MGMI has agreed to waive 80% of the deferred $5,000
monthly fees that it had earned under its contract from the period December 1,
1993 to May 31, 1994. For the years ended December 31, 1994 and 1995 and for the
six months ended June 30, 1995 and 1996 property management fees, including
incentive fees, were $76,063, $79,243, $30,000 and $41,511, respectively. As of
December 31, 1994 and 1995 and June 30, 1996, ICGP owes MGMI $41,063, $83,256
and $39,252, respectively.
IC, as managing general partner of ICGP, is entitled to receive an asset
management fee from ICGP of $60,000 per annum increased by a factor of 5% per
annum. Asset management fees for the years ended December 31, 1994 and 1995 and
for the six months ended June 30, 1995 and 1996 were $35,000, $60,000, $30,000
and $31,500, respectively.
VA, as managing general partner of GCGP, receives an asset management fee
from GCGP of $60,000 per annum that started June 1, 1992 and increased by a
factor of 5% per annum on June 1 of each year. The Company also is entitled to
receive a fee equal to 1% of the gross proceeds upon any disposition of GCGP
property. Asset management fees for the years ended December 31, 1993, 1994 and
1995 and for the six months ended June 30, 1995 and 1996 were $46,313, $48,628,
$51,059, $25,013 and $26,264, respectively.
DIRECTOR APPROVAL
The Company believes that all of the transactions described in this "Certain
Transactions" section were on terms no less favorable to the Company than those
that could have been obtained from unaffiliated parties. Future transactions, if
any, between the Company and its officers, Directors, holders of 5% or more of
the Common Stock and other affiliated parties, if any, will be for bona fide
business purposes, on terms no less favorable than could be obtained from
unaffiliated third parties and will be approved by a majority of the Company's
independent disinterested directors.
40
<PAGE>
CONCURRENT OFFERING
The registration statement of which this Prospectus forms a part also
includes a Prospectus with respect to an offering by the Selling Shareholders of
641,667 shares (or such other number of shares issued upon conversion) of the
Selling Shareholders' Common Stock issued to the Selling Shareholders in
connection with the conversion of the PP Notes. The Company will not receive any
proceeds from the sale, from time to time, of any of the Selling Shareholders'
Common Stock. Each Selling Shareholder has agreed not to sell, transfer or
otherwise publicly dispose of the Selling Shareholders' Common Stock for up 180
days from the date of this Prospectus without the prior consent of the
Representatives. The PP Notes may be converted into Common Stock, at the option
of the holder thereof, simultaneously with the consummation of the Offering at
50% of the IPO Price or, thereafter, at 50% of the then current market price of
the Common Stock. Sales of Common Stock by the Selling Shareholders, or the
potential for such sales, may have an adverse effect on the market price of the
Common Stock offered hereby. See "Risk Factors -- Shares Eligible for Future
Sale."
41
<PAGE>
PRINCIPAL STOCKHOLDERS
Charles D. Tourtellotte, whose address is MetroGolf Incorporated, 1999
Broadway, Suite 2435, Denver, Colorado 80202, owns 680,782 shares of Common
Stock, which represents 100% of the Common Stock currently outstanding. In
addition, as of the date of this Prospectus, the Company has issued warrants and
options to purchase 538,160 shares of Common Stock to various individuals and
institutions, and the Company has adopted the Stock Option Plan covering up to
250,000 shares of Common Stock. See "Management -- Stock Option Plan." The
Company also will sell to the Representatives, or their designees, warrants to
purchase an aggregate of 117,500 shares of Common Stock (the "Representatives'
Warrants"). The following table summarizes the current Common Stock and warrant
ownership of the Company as of the date of this Prospectus by (i) each person
who is known by the Company to own beneficially 5% or more of the Common Stock,
(ii) all directors of the Company, and (iii) all directors and officers as a
group. Except for the individuals listed in the table, no person is the
beneficial owner of more than 5% of Common Stock. See "Risk Factors --
Concentration of Share Ownership."
<TABLE>
<CAPTION>
PERCENTAGE OF COMMON STOCK OWNED
--------------------------------------
WARRANTS AFTER OFFERING
PRIMARY -------------------- TOTAL OF 1,175,000
BENEFICIAL OWNER SHARES HELD VESTED UNVESTED HOLDINGS PRIOR TO OFFERING(1) SHARES (2)
- ---------------------------------- ----------- --------- --------- ------------- --------------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles D. Tourtellotte, President
(3).............................. 680,782 36,645 137,215 854,642 50.2% 24.8%
J.D. Finley, Executive Vice
President (3).................... 40,228 137,215 177,443 10.4% 5.2%
Ernie Banks, Director (4)......... 6,114 2,038 8,152 0.5% 0.2%
Jack F. Lasday, Director (4)(5)... 11,168 2,038 13,206 0.8% 0.4%
----------- --------- --------- ------------- --- ---
All Officers and Directors as a
Group............................ 680,782 94,155 278,506 1,053,443 61.9% 30.6%
----------- --------- --------- ------------- --- ---
----------- --------- --------- ------------- --- ---
</TABLE>
- ------------------------
(1) Does not include (i) the 567,875 shares issuable upon conversion of the
notes and warrants issued in connection with the acquisition of the limited
partnership interests in ICGP and GCGP, (ii) the 117,500 shares issuable
upon conversion of the Representatives' Warrants, (iii) 250,000 shares of
Common Stock available for future grant under the Stock Option Plan, or (iv)
the exercise of the Underwriters' Over-allotment Option. Includes the stock
options issued to Messrs. Tourtellotte and Finley under the Executive Option
Plan. See "Management -- Stock Option Plan" and "-- Senior Executive
Incentive Stock Option Plan."
(2) Does not include (i) 157,500 shares issuable upon conversion of the warrants
issued in connection with the acquisition of the limited partnership
interests in ICGP, (ii) the 117,500 shares issuable upon conversion of the
Representatives' Warrants, (iii) 250,000 shares of Common Stock available
for future grant under the Stock Option Plan or (iv) the exercise of the
Underwriters' Over-allotment Option. See "Management -- Stock Option Plan."
(3) Of the unvested options, 12,215 will vest on February 28, 1997, and the
remainder will vest under the terms of the Executive Option Plan (see
"Management -- Senior Executive Incentive Stock Option Plan").
(4) Directors were granted warrants equal to 5% of the total warrants issued in
connection with the Company's Redeemable Preferred Stock offering. The
remaining 2,038 will vest on February 28, 1997.
(5) In addition to the warrants Mr. Lasday received as a director of the
Company, he received 5,054 warrants from Rodman & Renshaw, Inc. as
compensation while employed there.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 9,000,000 shares of
Common Stock, no par value, and 1,000,000 shares of Preferred Stock, par value
$1.00 per share (the "Redeemable Preferred Stock").
COMMON STOCK
Each holder of Common Stock will be entitled to one vote per share of such
stock with respect to all matters. The holders of shares of the Redeemable
Preferred Stock described below shall not have any right or power to vote on any
question or in any proceeding or to be represented at or receive notice of any
meeting of Common Stock holders, except as described below in "Preferred Stock;"
provided, however, that so long as any shares of the Redeemable Preferred Stock
remain outstanding, the affirmative vote or consent of the holders of at least
two-thirds of the shares of the Redeemable Preferred Stock is necessary to
permit (i) the authorization, creation or issuance, or any increase in the
authorized or issued amount of any class or series of stock ranking prior to the
Redeemable Preferred Stock with respect to payment of dividends or the
distribution of assets on liquidation, dissolution or winding up, or (ii) the
amendment, alteration or appeal of any provisions of the Certificate of
Incorporation which would materially and adversely affect any right, preference,
privilege or voting power of the Redeemable Preferred Stock or of the holders
thereof. In addition, so long as any shares of the Redeemable Preferred Stock
remain outstanding, an affirmative vote of the holders of at least a majority of
the shares of the Redeemable Preferred Stock, is necessary to permit, effect or
validate the authorization of a merger or consolidation of the Company if the
effect of such merger or consolidation would be to materially and adversely
alter or change the rights, preferences, privileges or voting power given to the
holders of any shares of the Redeemable Preferred Stock. The foregoing voting
provisions do not apply if, at or prior to the time when the act with respect to
such vote would otherwise be required, all outstanding shares of the Redeemable
Preferred Stock shall have been redeemed or sufficient funds shall have been
deposited in trust to effect such redemption.
The vote of holders of a majority of the shares of Common Stock is required
to decide any question brought before such stockholders, unless the question is
one upon which by express provision of a statute a different vote is required,
in which case such express provision shall govern and control the decision of
such question. Holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of the funds
legally available therefor, subject to any preferential dividend rights of any
outstanding Redeemable Preferred Stock. See "-- Preferred Stock." It is not
anticipated that any Common Stock dividends will be paid by the Company in the
foreseeable future since the Company intends to retain its earnings to finance
the growth of its business. The terms of the Redeemable Preferred Stock prohibit
the payment of dividends on the Common Stock (other than in shares of Common
Stock) unless all past dividends on the Redeemable Preferred Stock are paid and
the current dividend is either paid or provided for in cash. As of June 30,
1996, the total dividends that the Company would be obligated to pay on the
outstanding Redeemable Preferred Stock was $291,041. See "-- Preferred Stock."
Future dividend policies will depend upon the Company's earnings, financial
needs and other pertinent factors. Upon the liquidation, dissolution or winding
up of the Company, the holders of Common Stock are entitled to receive ratably
the net assets of the Company, available after payment of all debts and other
liabilities, subject to the prior rights of any outstanding Preferred Stock.
Holders of Common Stock have no preemptive, subscription, redemption or
conversion rights. The shares of Common Stock are not subject to repurchase by
the Company or conversion into any other securities. The outstanding shares of
Common Stock offered in the Offering will be, when issued and paid for, fully
paid and non-assessable.
TRANSFER AGENTS AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company.
PREFERRED STOCK
The Company has 45,500 shares of Redeemable Preferred Stock outstanding. The
Company will redeem all such shares, together with accrued dividends, out of the
proceeds of the Offering.
43
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the closing of the Offering, the Company will have 3,470,984 shares of
the Common Stock outstanding (including shares of Common Stock issuable upon
exercise of certain warrants, conversion of the PP Notes, conversion of the
Convertible Notes and other rights to acquire Common Stock but not including
shares issuable pursuant to the Underwriters' Over-allotment Option or 250,000
shares issuable under the Stock Option Plan). Of these shares, the 1,175,000
shares of Common Stock sold in the Offering will be freely tradable without
restriction or future registration under the Securities Act and Exchange Act of
1933, as amended (the "Securities Act"), unless purchased by "affiliates" of the
Company, as that term is defined in Rule 144 under the Securities Act. Of the
remaining 2,545,984 shares of Common Stock, 641,667 shares issuable upon
conversion of the PP Notes (or such other number of shares issued upon
conversion) will be registered shares which will be freely tradable upon
expiration of the 180-day Underwriters' lock-up.
In addition, the Company has agreed to file and use its best efforts to
become effective on the date that is 13 months after the date of the closing of
the Offering, and to cause to remain effective for a period of one year, a
registration statement covering the shares of Common Stock issuable upon
conversion of the Convertible Notes and the warrants issued in connection
therewith. All of the shares that are owned by Mr. Tourtellotte, all officers,
Directors, and persons owning 5% or more of the outstanding Common Stock of the
Company, or warrants or options to purchase 5% or more of such Common Stock, or
securities convertible into 5% or more of such Common Stock, or any combination
thereof that aggregates 5% or more of the outstanding Common Stock will, on the
date of consummation of the Offering, be subject to a lock-up to refrain from
making any public sale or distribution of their Common Stock or such warrants,
options or convertible securities (pursuant to Rule 144 or otherwise) without
the prior written consent of the Representatives for 13 months after the
effective date of the Registration Statement for the Offering.
In general, under Rule 144 as it is currently in effect, a person (or
persons whose shares are required to be aggregated) who beneficially owns
restricted shares with respect to which at least two years have elapsed since
the later of the date the shares were acquired from the Company, including
persons who may be deemed to be affiliates of the Company, would be entitled to
sell, within any three-month period, a number of shares which does not exceed
the greater of 1% of the then outstanding shares of the Common Stock or the
average weekly reported trading volume in the over-the-counter market during the
four calendar weeks preceding the filing of the Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner-of-sale
provisions, notice requirements and to the availability of current public
information about the Company. A person who is not an affiliate of the Company
under the Securities Act, has not been an affiliate during the preceding 90
days, and who beneficially owns shares with respect to which at least three
years have elapsed since the later of the date the shares were acquired from the
Company or from an affiliate of the Company is entitled to sell such shares
under Rule 144(k) without regard to the requirements described above.
Until the existing stockholders of the Company have held the Restricted
Shares for two years, no sale of Restricted Shares will be permitted under Rule
144. The Company is unable to estimate the number of shares that may be sold
under Rule 144 after the two-year minimum holding period has elapsed, since this
will depend on the market price for the Common Stock, the personal circumstances
of the sellers and other factors.
The Company may file a registration statement under the Securities Act to
register Common Stock to be issued to employees pursuant to the Stock Option
Plan. Such registration statement may be filed at any time after the date of
this Prospectus and would become effective immediately upon filing. Shares
issued pursuant to the Stock Option Plan after the effective date of any
registration statement covering such shares generally will be available for sale
in the open market. As of the date of this Prospectus, no options to purchase
shares of Common Stock have been granted under the Stock
44
<PAGE>
Option Plan; however, the Company expects to grant options to purchase 5,000
shares of Common Stock at the IPO Price to Michael S. McGetrick if he is elected
a Director of the Company. See "Management -- Stock Option Plan."
The following table summarizes all shares eligible for future sale as of the
date of this Prospectus, assuming conversion of 100% of the PP Notes upon
consummation of the Offering, conversion of the Convertible Notes (assuming 90%
of the limited partners of ICGP and GCGP accept the Offer to Purchase and elect
to receive 55% (ICGP) and 65% (GCGP) Convertible Notes) and exercise of all
warrants, whether vested or unvested. This table does not reflect any options
eligible for issuance under the Stock Option Plan or the Underwriters'
Over-allotment Option.
<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP PERCENTAGE OWNERSHIP
NAME NUMBER OF SHARES PRIOR TO OFFERING AFTER OFFERING
- -------------------------------------------------- ----------------- --------------------- -----------------------
<S> <C> <C> <C>
Charles D. Tourtellotte........................... 854,642 33.6% 23.0%
J.D. Finley....................................... 177,443 7.0% 4.8%
Ernie Banks....................................... 8,152 0.3% 0.2%
Jack F. Lasday.................................... 13,206 0.5% 0.4%
Preferred Stockholders............................ 159,446 6.3% 4.3%
Rodman & Renshaw, Inc............................. 6,053 0.2% 0.2%
Representatives' Warrants......................... 117,500 4.6% 3.1%
Holders of PP Notes............................... 641,667 25.2% 17.2%
Holders of Convertible Notes...................... 567,875 22.3% 15.2%
----------------- ----- ---
Total........................................... 2,545,984 100.0% 68.4%
----------------- ----- ---
----------------- ----- ---
</TABLE>
Prior to the Offering, there has been no public market for any of the
Company's securities, including the Common Stock, and no predictions can be made
as to the effect, if any, that market sales of shares or the availability of
shares for sale will have on the market price prevailing from time to time.
There can be no assurance that a regular trading market will develop in the
Common Stock.
45
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the Underwriting Agreement between the
Company and the Underwriters, to purchase from the Company, and the Company has
agreed to sell to the Underwriters, the number of shares set forth opposite
their names in the table below at the price set forth on the cover page of this
Prospectus:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Laidlaw Equities, Inc...................................................... 347,500
Prime Charter Ltd.......................................................... 347,500
BlueStone Capital Partners, L.P............................................ 50,000
The Boston Group, L.P...................................................... 50,000
Brean Murray, Foster Securities Inc........................................ 50,000
EVEREN Securities, Inc..................................................... 50,000
Hampshire Securities Corporation........................................... 50,000
Josephthal Lyon & Ross Inc................................................. 50,000
Roney & Co................................................................. 50,000
Wedbush Morgan Securities Inc.............................................. 50,000
Cohig & Associates, Inc.................................................... 20,000
Frederick & Company, Inc................................................... 20,000
Neidiger, Tucker, Bruner, Inc.............................................. 20,000
Nutmeg Securities, Inc..................................................... 20,000
-----------------
Total.................................................................... 1,175,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to pay for and accept delivery of the shares of Common Stock offered hereby are
subject to the approval of certain legal matters by counsel and to certain other
conditions. Pursuant to the Underwriting Agreement, the Underwriters are
obligated to purchase all of the shares of Common Stock offered hereby (other
than the shares of Common Stock covered by the Underwriters' Over-allotment
Option) if any are purchased.
The Underwriters have advised the Company that the Underwriters propose to
offer the shares of Common Stock to the public initially at the IPO Price set
forth on the cover page of this Prospectus and to certain dealers (who may
include the Underwriters) at such price less a concession not in excess of $0.30
per share. The Underwriters may allow, and such dealers may reallow, a discount
not in excess of $0.10 per share to certain other dealers. After the initial
public offering of the shares of Common Stock, the public offering price and
other selling terms may be changed by the Underwriters.
Pursuant to the Underwriting Agreement, the Company has granted to the
Underwriters an option, exercisable for 45 days from the date hereof, to
purchase up to an additional 176,250 shares of Common Stock at the public
offering price less the underwriting discounts and commissions set forth on the
cover page hereof. The Underwriters may exercise such option to purchase
additional shares solely for the purpose of covering over-allotments, if any,
made in connection with the sale of the shares of Common Stock offered hereby.
To the extent the Underwriters' Over-allotment Option is exercised, the
Underwriters will become obligated, subject to certain conditions, to purchase
such additional shares.
Subject to certain limited exceptions, the Company, its Directors and
officers, and certain other security holders of the Company have agreed with the
Underwriters not to offer, sell, contract to sell, grant any other option to
purchase or otherwise dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for, or
warrants, rights or options to acquire, Common Stock or enter into any agreement
to do any of the foregoing for a period of 13 months after the date of this
Prospectus without the prior written consent of the Representatives.
46
<PAGE>
The Company has agreed to pay to the Representatives an expense allowance,
on a non-accountable basis, equal to 1.5% of the gross proceeds derived from the
sale of the shares of Common Stock. The Company has paid an advance on such
allowance in the amount of $50,000. The Company has also agreed to pay certain
of the Representatives' expenses in connection with this Offering, including
expenses in connection with qualifying the shares of Common Stock offered hereby
for sale under the laws of such states as the Representatives may designate. In
addition, the Company will sell to the Representatives, or to their designees,
at a purchase price of $.001 per warrant, warrants to purchase an aggregate of
117,500 shares of Common Stock. The Representatives' Warrants are exercisable
for a period of four years commencing one year from the date of this Prospectus
at an exercise price per share (the "Exercise Price") of 120% of the IPO Price.
The Representatives' Warrants may not be sold, transferred, assigned, pledged or
hypothecated for a period of 12 months from the date of this Prospectus except
to members of the selling group and officers and partners of the Representatives
and members of the selling group. The Representatives' Warrants contain
anti-dilution provisions providing for adjustment of the Exercise Price and
number of shares issuable upon exercise upon the occurrence of certain events,
including stock dividends, stock splits, recapitalizations and sales of Common
Stock below the exercise price thereof. The holders of the Representatives'
Warrants have no voting, dividend or other rights as stockholders of the Company
with respect to shares of Common Stock underlying the Representatives' Warrants
unless the Representatives' Warrants have been exercised.
A new registration statement or post-effective amendment to the Registration
Statement will be required to be filed and declared effective before
distribution to the public of the Representatives' Warrants and the shares of
Common Stock issuable upon exercise of the Representatives' Warrants (the
"Warrant Shares"). During such period beginning one year after the date of this
Prospectus and ending four years thereafter, the Company has agreed, on one
occasion if requested by the holders of a majority of the Representatives'
Warrants or Warrant Shares, to make all necessary filings to permit a public
offering of the Warrant Shares and to use its best efforts to cause such filing
to become effective under the Securities Act; provided, however, that no such
registration is required if upon receipt of such request the Company or holders
of 15% or more of the Common Stock agree to purchase the Representatives'
Warrants for the excess of the aggregate current market price for the Warrant
Shares over the aggregate Exercise Price of the Representatives' Warrants. In
addition, during the period beginning one year after the date of this Prospectus
and concluding five years after the date hereof, the Company has agreed to give
advance notice to holders of the Representatives' Warrants and Warrant Shares of
its intention to file a registration statement and, in such case, holders of the
Representatives' Warrants shall have the right to require the Company to include
the Warrant Shares in such registration statement at the Company's expense.
During the period that the Representatives' Warrants are exercisable, the
Representatives and any transferee will have the opportunity to profit from a
rise in the market price of the Common Stock with a resulting dilution in the
interest of other stockholders. In addition, the terms on which the Company will
be able to obtain additional capital during the exercise period may be adversely
affected since the Representatives are likely to exercise the Representatives'
Warrant at a time when the Company would, in all likelihood, be able to obtain
capital by a new offering of securities on terms more favorable than those
provided by the terms of the Representatives' Warrants.
In connection with the Offering, the Company has agreed that, for the
three-year period commencing on the date of this Prospectus, Laidlaw Equities,
Inc. has the right to appoint a designee as an observer at all meetings of the
Company's Board of Directors. This designee has the right to attend all meetings
of the Board of Directors, provided that the Board of Directors shall have the
right to exclude such observer at any meeting in which, in the opinion of the
Board of Directors, confidential or sensitive matters are discussed. Such
observer shall be entitled to receive reimbursement for all expenses of
attendance at such meetings and an amount equal to any fee paid to outside
directors for attending any Board of Directors meetings.
47
<PAGE>
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
payments that the Underwriters may be required to make in respect thereof.
The Underwriters have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5% of the total number of
shares of Common Stock offered hereby.
Laidlaw Equities, Inc. acted as placement agent for the sale of the PP Notes
and received cash compensation of $202,500.
Prior to the Offering, there has been no public market for the Common Stock.
The IPO Price was determined through negotiations among the Company and the
Underwriters. Among the factors considered in such negotiations were an
assessment of the Company's results of operations, the future prospects of the
Company and its industry in general, the ability of the Company's management,
the price/earnings ratio and market prices of securities of similar companies
and prevailing conditions in the securities market at the time of the Offering.
There can be no assurance that an active trading market will develop for the
Common Stock or that the Common Stock will trade in the public market subsequent
to the Offering at or above the IPO Price.
The Company intends to apply to have the Common Stock approved for quotation
on Nasdaq and BSE. There can be no assurance that the Common Stock will be
accepted for such listing or any similar listing.
LEGAL MATTERS
Certain legal matters in connection with the Offering will be passed upon
for the Company by Brownstein Hyatt Farber & Strickland, P.C., Denver, Colorado,
and for the Underwriters by Dorsey & Whitney LLP, Denver, Colorado.
EXPERTS
The financial statements and schedules included in this Prospectus and
elsewhere in the Registration Statement, to the extent and for the period
indicated in their reports, have been audited by BDO Seidman, LLP, independent
certified public accountants, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
48
<PAGE>
METROGOLF INCORPORATED
AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS:
(UNAUDITED)
Pro Forma Consolidated Financial Information Explanatory Headnote (Unaudited).......................... F-2
Pro Forma Consolidated Balance Sheet (Unaudited)....................................................... F-5
Pro Forma Consolidated Statements of Operations (Unaudited)............................................ F-8
Notes to Pro Forma Consolidated Financial Statements (Unaudited)....................................... F-10
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....................................................... F-15
CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS:
Balance Sheets......................................................................................... F-16
Statements of Operations............................................................................... F-17
Statements of Stockholders' Equity (Deficit) F-18
Statements of Cash Flows............................................................................... F-19
Summary of Accounting Policies......................................................................... F-21
Notes to Financial Statements.......................................................................... F-24
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE.............................. F-33
Schedule II - Valuation and Qualifying Accounts.......................................................... F-34
FREMONT PARK GOLF CENTER:
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....................................................... F-35
FINANCIAL STATEMENTS:
Statements of Net Assets............................................................................... F-36
Statements of Operations............................................................................... F-37
Statements of Cash Flows............................................................................... F-38
Summary of Accounting Policies......................................................................... F-39
Notes to Financial Statements.......................................................................... F-41
ILLINOIS CENTER GOLF PARTNERS, L.P.:
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....................................................... F-43
FINANCIAL STATEMENTS:
Balance Sheets......................................................................................... F-44
Statements of Operations............................................................................... F-45
Statements of Changes in Partners' Capital............................................................. F-46
Statements of Cash Flows............................................................................... F-47
Summary of Accounting Policies......................................................................... F-48
Notes to Financial Statements.......................................................................... F-50
GOOSE CREEK GOLF PARTNERS LIMITED PARTNERSHIP:
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS....................................................... F-56
FINANCIAL STATEMENTS:
Balance Sheets......................................................................................... F-57
Statements of Operations............................................................................... F-58
Statements of Changes in Partners' Capital............................................................. F-59
Statements of Cash Flows............................................................................... F-60
Summary of Accounting Policies......................................................................... F-61
Notes to Financial Statements.......................................................................... F-63
</TABLE>
F-1
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE (UNAUDITED)
INTRODUCTION
The accompanying unaudited pro forma consolidated financial statements of
MetroGolf Incorporated and Subsidiaries, formerly The Vintage Group USA, Ltd.
(the "Company"), give effect to the interest expense associated with the
proceeds from the sale of convertible subordinated notes in a private placement
during May 1996, proceeds from the sale of common stock in an initial public
offering ("IPO"), the acquisition by the Company of Fremont Park Golf Center
("Fremont") pursuant to the Option Agreement between the parties, the
acquisitions of 90% limited partnership interests in Illinois Center Golf
Partners, L.P. ("Illinois Center") and Goose Creek Golf Partners Limited
Partnership ("Goose Creek"), the $1,750,000 in proceeds from Illinois Center's
long-term debt and Illinois Center's acquisition of $1,434,000 in property and
equipment (the "Transactions") and are based on the estimates and assumptions
set forth herein. This unaudited pro forma information has been prepared
utilizing the historical financial statements and notes thereto, which are
incorporated by reference herein. The unaudited pro forma financial data does
not purport to be indicative of the results which actually would have been
obtained had the purchase been effected on the dates indicated or of the results
which may be obtained in the future. The unaudited pro forma financial
statements should be read in conjunction with the historical financial
statements set forth herein.
The pro forma condensed consolidated balance sheet as of June 30, 1996
assumes the Transactions were consummated as of June 30, 1996 and the pro forma
condensed consolidated statements of operations for the six months ended June
30, 1996 and for the year ended December 31, 1995 assume the Transactions were
consummated as of January 1, 1995.
In the opinion of management, all adjustments have been made that are
necessary to present fairly the pro forma data.
CONVERTIBLE SUBORDINATED NOTE OFFERING
During May 1996, the Company completed the sale in a private placement of
$2,025,000 convertible subordinated notes. The convertible notes bear interest
at 12% and are due June 1, 1997. The Company received $1,757,122 in net proceeds
after paying $267,878 in debt issue costs.
PROPOSED INITIAL PUBLIC OFFERING
The Company has signed a letter of intent with Laidlaw & Co. for its
subsidiary, Laidlaw Equities, Inc., to complete an initial public offering
("IPO") of the Company's no par value common stock. The Company intends to offer
approximately 1,175,000 shares of its common stock at a proposed price to the
public of $6 per share for gross proceeds of approximately $7,050,000 and net
proceeds of $5,774,750 after deducting estimated offering costs of $1,275,250.
The shares offered for sale to the public are intended to be registered with the
Securities and Exchange Commission on Form S-1.
ACQUISITION OF FREMONT PARK GOLF CENTER
The Company has entered into an agreement to acquire Fremont for $650,000 in
cash, a $700,000 note due to the seller, and $81,472 in acquisition costs. The
$700,000 note will accrue interest at 9% and is due November 15, 1996.
The purchase price for Fremont is anticipated to be allocated as follows:
<TABLE>
<S> <C>
Inventories.................................................... $ 55,000
Building and improvements...................................... 1,151,472
Furniture and equipment........................................ 225,000
----------
Total purchase price........................................... $1,431,472
----------
----------
</TABLE>
F-2
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE (UNAUDITED) (CONTINUED)
ACQUISITION OF ILLINOIS CENTER GOLF PARTNERS, L.P.
The Company has offered to purchase all of the limited partnership interests
in Illinois Center. Under the Company's proposal, (i) each limited partner who
is an accredited investor and who elects to sell will receive for each $50,000
limited partnership interest either (a) $25,000 cash and a $25,000 convertible
note or (b) a $50,000 convertible note and (ii) each limited partner who is a
non-accredited investor and who elects to sell will receive $50,000 in cash for
each $50,000 limited partnership interest. Based on the Company's discussions
with certain limited partners, the Company anticipates that it will acquire a
90% limited partnership interest in Illinois Center for cash of $1,575,000,
convertible notes of $1,575,000 and acquisition costs of $17,773.
The purchase price for a 90% limited partnership interest in Illinois Center
is anticipated to be allocated as follows:
<TABLE>
<S> <C>
Cash........................................................... $ 27,760
Accounts receivable............................................ 9,542
Inventories.................................................... 17,112
Other current assets........................................... 14,420
Property and equipment......................................... 5,900,000
Excess of cost over net assets acquired........................ 1,225,479
Intangible assets.............................................. 173,035
Deposits....................................................... 6,786
----------
7,374,134
----------
Less:
Accounts payable............................................... 400,955
Checks written against future deposits......................... 61,620
Accounts payable, related party................................ 39,252
Accrued real estate taxes...................................... 377,315
Accrued expenses............................................... 117,343
Deferred sponsorship revenue................................... 20,000
Deferred membership revenue.................................... 133,768
Note payable, related party.................................... 500,000
Current maturities of long-term debt........................... 183,569
Minority interest.............................................. 324,396
Long-term debt, less current maturities........................ 2,048,143
----------
4,206,361
----------
Total purchase price........................................... 3,167,773
Less convertible notes payable................................. 1,575,000
Less deferred acquisition costs................................ 17,773
----------
Cash to be paid at closing..................................... $1,575,000
----------
----------
</TABLE>
ACQUISITION OF GOOSE CREEK GOLF PARTNERS LIMITED PARTNERSHIP
The Company has offered to purchase all of the limited partnership interests
in Goose Creek. Under the Company's proposal, (i) each limited partner who is an
accredited investor and who elects to sell will receive for each $25,000 limited
partnership interest either (a) $12,500 cash and a $26,500 convertible note or
(b) a $39,000 convertible note and (ii) each limited partner who is a
non-accredited investor and who elects to sell will receive $39,000 in cash for
each $25,000 limited partnership
F-3
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
EXPLANATORY HEADNOTE (UNAUDITED) (CONTINUED)
interest. Based on the Company's discussions with certain limited partners, the
Company anticipates that it will acquire a 90% limited partnership interest in
Goose Creek for cash of $477,750, convertible notes of $887,250 and acquisition
costs of $15,588.
The purchase price for a 90% limited partnership interest in Goose Creek is
anticipated to be allocated as follows:
<TABLE>
<S> <C>
Cash............................................................. $ 37,681
Inventories...................................................... 23,796
Prepaid and other current assets................................. 32,445
Property and equipment........................................... 5,425,000
Excess of cost over net assets acquired.......................... 766,696
Intangible assets................................................ 40,379
Deposits......................................................... 1,866
---------
6,327,863
---------
Less:
Accounts payable................................................. 332,993
Checks written against future deposits........................... 53,930
Accrued expenses................................................. 41,774
Deferred membership revenue...................................... 25,166
Line of credit................................................... 74,941
Notes payable, other............................................. 28,600
Note payable, related party...................................... 106,823
Current maturities of long-term debt............................. 197,700
Minority interest................................................ 140,844
Long-term debt, less current maturities.......................... 3,944,504
---------
4,947,275
---------
---------
Total purchase price............................................. 1,380,588
Less convertible notes payable................................... 887,250
Less deferred acquisition costs.................................. 15,588
---------
Cash to be paid at closing....................................... $ 477,750
---------
---------
</TABLE>
NOTES PAYABLE AND EQUIPMENT PURCHASE
On January 31, 1996, Illinois Center entered into a $2,000,000 promissory
note with Textron Financial Corporation ("Textron"). Textron advanced $1,750,000
to Illinois Center. The note bears interest at 3% above the Chase Manhattan
Bank's prime rate and is due on or before December 31, 2002. Illinois Center
applied $900,000 of the proceeds to its working capital and applied the
remaining $850,000 of the proceeds to the purchase of a clubhouse facility and
various items of equipment. The total purchase price of the clubhouse and
equipment was $1,434,000. Illinois Center entered into a $584,000 promissory
note for the remaining purchase price. The promissory note bears interest at 8%
per annum and is due June 1, 2005. Principal and interest payments on the note
commence January 1, 1998.
F-4
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ILLINOIS
THE COMPANY FREMONT PRO CENTER PRO
THE PRO FORMA FORMA ILLINOIS FORMA
JUNE 30, 1996 COMPANY ADJUSTMENTS FREMONT ADJUSTMENTS CENTER ADJUSTMENTS
- --------------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current:
Cash....................................... $1,313,841 $5,960,200(2) $ $ $ 27,760 $
(600,000)(4)
(1,575,000)(5)
(477,750)(6)
(1,485,416)(3)
Accounts receivable........................ 9,542
Management fee receivable, related party... 39,252
Inventories................................ 52,448 2,552(4) 17,112
Other current assets....................... 16,184 5,732 (5,732)(8) 14,420
---------- ----------- ---------- ----------- ---------- -----------
Total current assets......................... 1,369,277 1,822,034 58,180 (3,180) 68,834
---------- ----------- ---------- ----------- ---------- -----------
Property and equipment, net.................. 54,302 456,276 920,196(4) 4,395,199 1,504,801(5)
---------- ----------- ---------- ----------- ---------- -----------
Other:
Investments in subsidiaries................ 1,431,472(4)
3,167,773(5)
1,380,588(6)
Excess of cost over net assets acquired,
net of accumulated amortization........... 592,180 (592,180)(8) 977,272(5)
Debt issue costs, net of accumulated
amortization.............................. 245,555
Notes receivable, related parties.......... 606,823
Intangible assets, net of accumulated
amortization.............................. 2,297 (2,297)(8) 173,035
Deferred offering costs.................... 185,450 (185,450)(2)
Deposit on acquisition..................... 50,000 (50,000)(4)
Deferred acquisition costs................. 147,322 (81,472)(4)
(17,773)(5)
(15,588)(6)
Deposits................................... 39,800 6,786
---------- ----------- ---------- ----------- ---------- -----------
Total other assets........................... 1,274,950 5,629,550 594,477 (594,477) 179,821 977,272
---------- ----------- ---------- ----------- ---------- -----------
$2,698,529 $7,451,584 $1,108,933 $ 322,539 $4,643,854 $2,482,073
---------- ----------- ---------- ----------- ---------- -----------
---------- ----------- ---------- ----------- ---------- -----------
<CAPTION>
GOOSE CREEK
GOOSE PRO FORMA ELIMINATING CONSOLIDATED
JUNE 30, 1996 CREEK ADJUSTMENTS ENTRIES PRO FORMA
- --------------------------------------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current:
Cash....................................... $ 37,681 $ $ $ 3,201,316
Accounts receivable........................ 9,542
Management fee receivable, related party... (39,252)(7)
Inventories................................ 23,796 95,908
Other current assets....................... 32,445 63,049
---------- ----------- ----------- ------------
Total current assets......................... 93,922 (39,252) 3,369,815
---------- ----------- ----------- ------------
Property and equipment, net.................. 4,948,837 476,163(6) 12,755,774
---------- ----------- ----------- ------------
Other:
Investments in subsidiaries................ (1,431,472)(7)
(3,167,773)(7)
(1,380,588)(7)
Excess of cost over net assets acquired,
net of accumulated amortization........... 653,709(6) 354,877(7) 1,985,858
Debt issue costs, net of accumulated
amortization.............................. 245,555
Notes receivable, related parties.......... (606,823)(7)
Intangible assets, net of accumulated
amortization.............................. 40,379 213,414
Deferred offering costs....................
Deposit on acquisition.....................
Deferred acquisition costs................. 32,489
Deposits................................... 1,866 48,452
---------- ----------- ----------- ------------
Total other assets........................... 42,245 653,709 (6,231,779) 2,525,768
---------- ----------- ----------- ------------
$5,085,004 $1,129,872 $(6,271,031) $ 18,651,357
---------- ----------- ----------- ------------
---------- ----------- ----------- ------------
</TABLE>
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
F-5
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
ILLINOIS
THE COMPANY FREMONT PRO CENTER PRO
THE PRO FORMA FORMA ILLINOIS FORMA
JUNE 30, 1996 COMPANY ADJUSTMENTS FREMONT ADJUSTMENTS CENTER ADJUSTMENTS
- --------------------------------------------- ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 548,174 $ $ 33,542 $ (33,542)(8) $ 400,955 $
Accounts payable, related party............ 39,252
Accrued real estate taxes.................. 377,315
Checks issued against future deposits...... 6,377 (6,377)(8) 61,620
Deferred membership revenue................ 133,768
Deferred sponsorship revenue............... 20,000
Accrued expenses........................... 117,343
Accrued interest expense................... 20,250
Accrued salaries........................... 327,458
Advances payable........................... 10,000
Notes payable, other.......................
Notes payable, related party............... 500,000
Note payable, officer...................... 4,825
Lines of credit............................
Convertible subordinated notes payable,
net....................................... 1,781,400
Current maturities of long-term debt....... 17,546 700,000(4) 76,760 (76,760)(8) 183,569
---------- ----------- ---------- ----------- ---------- -----------
Total current liabilities.................... 2,709,653 700,000 116,679 (116,679) 1,833,822
---------- ----------- ---------- ----------- ---------- -----------
Long-term debt, less current maturities...... 13,586 1,575,000(5) 164,096 (164,096)(8) 2,048,143
887,250(6)
---------- ----------- ---------- ----------- ---------- -----------
Investments in affiliates.................... 6,318
Minority interest in consolidated
subsidiaries................................ 21,773
---------- ----------- ---------- ----------- ---------- -----------
Total liabilities............................ 2,751,330 3,162,250 280,775 (280,775) 3,881,965
---------- ----------- ---------- ----------- ---------- -----------
---------- ----------- ---------- ----------- ---------- -----------
<CAPTION>
GOOSE CREEK
GOOSE PRO FORMA ELIMINATING CONSOLIDATED
JUNE 30, 1996 CREEK ADJUSTMENTS ENTRIES PRO FORMA
- --------------------------------------------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $ 332,993 $ $ $ 1,282,122
Accounts payable, related party............ (39,252)(7)
Accrued real estate taxes.................. 377,315
Checks issued against future deposits...... 53,930 115,550
Deferred membership revenue................ 25,166 158,934
Deferred sponsorship revenue............... 20,000
Accrued expenses........................... 8,541 125,884
Accrued interest expense................... 33,233 53,483
Accrued salaries........................... 327,458
Advances payable........................... 10,000
Notes payable, other....................... 28,600 28,600
Notes payable, related party............... 106,823 (606,823)(7)
Note payable, officer...................... 4,825
Lines of credit............................ 74,941 74,941
Convertible subordinated notes payable,
net....................................... 1,781,400
Current maturities of long-term debt....... 197,700 1,098,815
---------- ----------- ----------- ------------
Total current liabilities.................... 861,927 (646,075) 5,459,327
---------- ----------- ----------- ------------
Long-term debt, less current maturities...... 3,944,504 8,468,483
---------- ----------- ----------- ------------
Investments in affiliates.................... (6,318)(7)
Minority interest in consolidated
subsidiaries................................ 465,241(7) 487,014
---------- ----------- ----------- ------------
Total liabilities............................ 4,806,431 (187,152) 14,414,824
---------- ----------- ----------- ------------
---------- ----------- ----------- ------------
</TABLE>
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
F-6
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
<TABLE>
<CAPTION>
ILLINOIS
THE COMPANY FREMONT PRO CENTER PRO
PRO FORMA FORMA ILLINOIS FORMA
JUNE 30, 1996 THE COMPANY ADJUSTMENTS FREMONT ADJUSTMENTS CENTER ADJUSTMENTS
- ------------------------------------------ ----------- ------------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stockholders' equity:
Preferred stock......................... 45,500 (45,500)(3)
Common stock............................ 146,830 5,774,750(2)
Additional paid-in capital.............. 940,609 (940,609)(3)
Partners' capital....................... 761,889 2,482,073(5)
Net assets.............................. 828,158 922,748(4)
(319,434)(8)
Notes receivable, stockholder........... (166,324)
Accumulated deficit..................... (1,019,416) (499,307)(3)
----------- ------------- ---------- ------------ ---------- -------------
Total stockholders' equity (deficit)...... (52,801) 4,289,334 828,158 603,314 761,889 2,482,073
----------- ------------- ---------- ------------ ---------- -------------
$ 2,698,529 $7,451,584 $1,108,933 $ 322,539 $4,643,854 $2,482,073
----------- ------------- ---------- ------------ ---------- -------------
----------- ------------- ---------- ------------ ---------- -------------
<CAPTION>
GOOSE CREEK
PRO FORMA ELIMINATING CONSOLIDATED
JUNE 30, 1996 GOOSE CREEK ADJUSTMENTS ENTRIES PRO FORMA
- ------------------------------------------ ------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
Stockholders' equity:
Preferred stock.........................
Common stock............................ 5,921,580
Additional paid-in capital..............
Partners' capital....................... 278,573 1,129,872(6) (4,652,407)(7)
Net assets.............................. (1,431,472)(7)
Notes receivable, stockholder........... (166,324)
Accumulated deficit..................... (1,518,723)
------------- -------------- --------------- ------------
Total stockholders' equity (deficit)...... 278,573 1,129,872 (6,083,879) 4,236,533
------------- -------------- --------------- ------------
$ 5,085,004 $ 1,129,872 $ (6,271,031) $18,651,357
------------- -------------- --------------- ------------
------------- -------------- --------------- ------------
</TABLE>
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
F-7
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
ILLINOIS
THE COMPANY FREMONT CENTER PRO
THE PRO FORMA PRO FORMA ILLINOIS FORMA
SIX MONTHS ENDED JUNE 30, 1996 COMPANY ADJUSTMENTS FREMONT ADJUSTMENTS CENTER ADJUSTMENTS
- --------------------------------------------- --------- ------------- -------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................................... $ 99,275 $ $208,746 $ $ 509,517 $
--------- ------------- -------- ------------ --------- ------------
Operating expenses........................... 422,296 222,837 25,417(10) 842,981 46,594(10)
--------- ------------- -------- ------------ --------- ------------
Income (loss) from operations................ (323,021) (14,091) (25,417) (333,464) (46,594)
--------- ------------- -------- ------------ --------- ------------
Other income (expense):
Interest income............................ 34,400
Interest expense........................... (62,490) (250,229)(11) (9,155) (137,743)
--------- ------------- -------- ------------ --------- ------------
Total other income (expense)................. (28,090) (250,229) (9,155) (137,743)
--------- ------------- -------- ------------ --------- ------------
Equity in loss of affiliates................. (2,629)
--------- ------------- -------- ------------ --------- ------------
Minority interest in loss of consolidated
subsidiaries................................ (6,240)
--------- ------------- -------- ------------ --------- ------------
Net loss..................................... (359,980) (250,229) (23,246) (25,417) (471,207) (46,594)
Dividend requirements on preferred stock..... 85,312 (85,312)(3)
--------- ------------- -------- ------------ --------- ------------
Loss applicable to common stock.............. $(445,292) $(164,917) $(23,246) $(25,417) $(471,207) $(46,594)
--------- ------------- -------- ------------ --------- ------------
--------- ------------- -------- ------------ --------- ------------
Net loss per common share.................... $ (.51)
--------- ------------- -------- ------------ --------- ------------
--------- ------------- -------- ------------ --------- ------------
Weighted average number of common shares
outstanding................................. 877,142
--------- ------------- -------- ------------ --------- ------------
--------- ------------- -------- ------------ --------- ------------
<CAPTION>
GOOD CREEK
GOOSE PRO FORMA ELIMINATING CONSOLIDATED
SIX MONTHS ENDED JUNE 30, 1996 CREEK ADJUSTMENTS ENTRIES PRO FORMA
- --------------------------------------------- --------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Revenues..................................... $ 572,939 $ $(99,275)(7) $ 1,291,202
--------- ----------- ----------- ---------------
Operating expenses........................... 565,353 (9,497)(10) (99,275) 2,016,706
--------- ----------- ----------- ---------------
Income (loss) from operations................ 7,586 9,497 (725,504)
--------- ----------- ----------- ---------------
Other income (expense):
Interest income............................ 2,432 (25,239)(7) 11,593
Interest expense........................... (271,587) 25,239(7) (705,965)
--------- ----------- ----------- ---------------
Total other income (expense)................. (269,155) (694,372)
--------- ----------- ----------- ---------------
Equity in loss of affiliates................. 2,629(7)
--------- ----------- ----------- ---------------
Minority interest in loss of consolidated
subsidiaries................................ 69,568(7) 63,328
--------- ----------- ----------- ---------------
Net loss..................................... (261,569) 9,497 72,197 (1,356,548)
Dividend requirements on preferred stock.....
--------- ----------- ----------- ---------------
Loss applicable to common stock.............. $(261,569) $ 9,497 $ 72,197 $(1,356,548)
--------- ----------- ----------- ---------------
--------- ----------- ----------- ---------------
Net loss per common share.................... $ (.88)
--------- ----------- ----------- ---------------
--------- ----------- ----------- ---------------
Weighted average number of common shares
outstanding................................. 1,550,170(12)
--------- ----------- ----------- ---------------
--------- ----------- ----------- ---------------
</TABLE>
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
F-8
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
ILLINOIS
THE COMPANY FREMONT CENTER PRO
THE PRO FORMA PRO FORMA ILLINOIS FORMA
YEAR ENDED DECEMBER 31, 1995 COMPANY ADJUSTMENTS FREMONT ADJUSTMENTS CENTER ADJUSTMENTS
- --------------------------------------------- --------- ------------- -------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................................... $ 335,303 $ $507,959 $ $1,552,712 $
--------- ------------- -------- ------------ ---------- -------------
Operating expenses........................... 882,709 125,000(9) 531,638 50,833(10) 2,011,646 164,889(10)
(80,500)(13)
--------- ------------- -------- ------------ ---------- -------------
Income (loss) from operations................ (547,406) (125,000) (23,679) (50,833) (458,934) (84,389)
--------- ------------- -------- ------------ ---------- -------------
Other income (expense):
Interest income............................ 61,116 6
Interest expense........................... (25,994) (540,956)(11) (28,585) (76,284) (199,443)(11)
--------- ------------- -------- ------------ ---------- -------------
Total other income (expense)................. 35,122 (540,956) (28,585) (76,278) (199,443)
--------- ------------- -------- ------------ ---------- -------------
Equity in loss of affiliates................. (770)
--------- ------------- -------- ------------ ---------- -------------
Minority interest in loss of consolidated
subsidiaries................................ (19,058)
--------- ------------- -------- ------------ ---------- -------------
Net loss from continuing operations.......... (532,112) (665,956) (52,264) (50,833) (535,212) (283,832)
Dividend requirements on preferred stock..... 155,052 (155,052)(3)
--------- ------------- -------- ------------ ---------- -------------
Loss applicable to common stock.............. $(687,164) $(510,904) $(52,264) $(50,833) $ (535,212) $(283,832)
--------- ------------- -------- ------------ ---------- -------------
--------- ------------- -------- ------------ ---------- -------------
Net loss per common share from continuing
operations.................................. $ (.78)
---------
---------
Weighted average number of common shares
outstanding................................. 877,142
---------
---------
<CAPTION>
GOOSE CREEK
GOOSE PRO FORMA ELIMINATING CONSOLIDATED
YEAR ENDED DECEMBER 31, 1995 CREEK ADJUSTMENTS ENTRIES PRO FORMA
- --------------------------------------------- ---------- ------------ ------------ ---------------
<S> <C> <C> <C> <C>
Revenues..................................... $1,451,922 $ $(190,303)(7) $ 3,657,593
---------- ------------ ------------ ---------------
Operating expenses........................... 1,227,543 (18,995)(10) (190,303)(7) 4,704,460
---------- ------------ ------------ ---------------
Income (loss) from operations................ 224,379 18,995 (1,046,867)
---------- ------------ ------------ ---------------
Other income (expense):
Interest income............................ 3,830 64,952
Interest expense........................... (469,732) (1,340,994)
---------- ------------ ------------ ---------------
Total other income (expense)................. (465,902) (1,276,042)
---------- ------------ ------------ ---------------
Equity in loss of affiliates................. 770(7)
---------- ------------ ------------ ---------------
Minority interest in loss of consolidated
subsidiaries................................ 104,157(7) 85,099
---------- ------------ ------------ ---------------
Net loss from continuing operations.......... (241,523) 18,995 104,927 (2,237,810)
Dividend requirements on preferred stock.....
---------- ------------ ------------ ---------------
Loss applicable to common stock.............. $ (241,523) $ 18,995 $ 104,927 $(2,237,810)
---------- ------------ ------------ ---------------
---------- ------------ ------------ ---------------
Net loss per common share from continuing
operations.................................. $ (1.44)
---------------
---------------
Weighted average number of common shares
outstanding................................. 1,550,170(12)
---------------
---------------
</TABLE>
See accompanying headnote and notes to pro forma consolidated financial
statements (unaudited).
F-9
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. PRO FORMA ADJUSTMENTS
The pro forma condensed consolidated balance sheet as of June 30, 1996
assumes the Transactions were consummated as of June 30, 1996 and the pro forma
condensed consolidated statements of operations for the six months ended June
30, 1996 and for the year ended December 31, 1995 assumes the Transactions were
consummated as of January 1, 1995.
2. PROPOSED INITIAL PUBLIC OFFERING
Reflects the sale of 1,175,000 shares of the Company's common stock at a
price of $6 per share for gross proceeds of $7,050,000 and net proceeds of
$5,774,750 after deducting estimated offering costs of $1,275,250
3. REDEMPTION OF PREFERRED STOCK
Reflects the redemption of the preferred stock. The preferred stock has a
redemption value of $1,194,375 as of June 30, 1996 and dividends in arrears of
$291,041 as of June 30, 1996.
4. ACQUISITION OF FREMONT PARK GOLF CENTER
The Company has entered into an agreement to acquire Fremont for $650,000 in
cash, a $700,000 note due to the seller, and $81,472 in acquisition costs. The
$700,000 note will accrue interest at 9% and is due November 15, 1996. The
acquisition of Fremont is recorded using the purchase method.
The purchase price for Fremont is anticipated to be allocated as follows:
<TABLE>
<S> <C>
Inventories.................................................... $ 55,000
Building and improvements...................................... 1,151,472
Furniture and equipment........................................ 225,000
----------
Total purchase price........................................... $1,431,472
----------
----------
</TABLE>
5. ACQUISITION OF ILLINOIS CENTER GOLF PARTNERS, L.P.
The Company has offered to purchase all of the limited partnership interests
in Illinois Center. Under the Company's proposal, (i) each limited partner who
is an accredited investor and who elects to sell will receive for each $50,000
limited partnership interest either (a) $25,000 cash and a $25,000 convertible
note or (b) a $50,000 convertible note and (ii) each limited partner who is a
non-accredited investor and who elects to sell will receive $50,000 in cash for
each $50,000 limited partnership interest. Based on the Company's discussions
with certain limited partners, the Company anticipates that it will acquire a
90% limited partnership interest in Illinois Center for cash of $1,575,000,
convertible notes of $1,575,000 and acquisition costs of $17,773. The
acquisition of Illinois Center is recorded using the purchase method.
F-10
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
5. ACQUISITION OF ILLINOIS CENTER GOLF PARTNERS, L.P. (CONTINUED)
The purchase price for a 90% limited partnership interest in Illinois Center
is anticipated to be allocated as follows:
<TABLE>
<S> <C>
Cash........................................................... $ 27,760
Accounts receivable............................................ 9,542
Inventories.................................................... 17,112
Other current assets........................................... 14,420
Property and equipment......................................... 5,900,000
Excess of cost over net assets acquired........................ 1,225,479
Intangible assets.............................................. 173,035
Deposits....................................................... 6,786
----------
7,374,134
----------
Less:
Accounts payable............................................... 400,955
Checks written against future deposits......................... 61,620
Accounts payable, related party................................ 39,252
Accrued real estate taxes...................................... 377,315
Accrued expenses............................................... 117,343
Deferred sponsorship revenue................................... 20,000
Deferred membership revenue.................................... 133,768
Note payable, related party.................................... 500,000
Current maturities of long-term debt........................... 183,569
Minority interest.............................................. 324,396
Long-term debt, less current maturities........................ 2,048,143
----------
4,206,361
----------
Total purchase price........................................... 3,167,773
Less convertible notes payable................................. 1,575,000
Less deferred acquisition costs................................ 17,773
----------
Cash to be paid at closing..................................... $1,575,000
----------
----------
</TABLE>
6. ACQUISITION OF GOOSE CREEK GOLF PARTNERS LIMITED PARTNERSHIP
The Company has offered to purchase all of the limited partnership interests
in Goose Creek. Under the Company's proposal, (i) each limited partner who is an
accredited investor and who elects to sell will receive for each $25,000 limited
partnership interest either (a) $12,500 cash and a $26,500 convertible note or
(b) a $39,000 convertible note and (ii) each limited partner who is a
non-accredited investor and who elects to sell will receive $39,000 in cash for
each $25,000 limited partnership interest. Based on the Company's discussions
with certain limited partners, the Company anticipates that it will acquire a
90% limited partnership interest in Goose Creek for cash of $477,750,
convertible
F-11
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
6. ACQUISITION OF GOOSE CREEK GOLF PARTNERS LIMITED PARTNERSHIP (CONTINUED)
notes of $887,250 and acquisition costs of $15,558. The acquisition of Goose
Creek is recorded using the purchase method. The purchase price for a 90%
limited partnership interest in Goose Creek is anticipated to be allocated as
follows:
<TABLE>
<S> <C>
Cash........................................................... $ 37,681
Inventories.................................................... 23,796
Prepaid and other current assets............................... 32,445
Property and equipment......................................... 5,425,000
Excess of cost over net assets acquired........................ 766,696
Intangible assets.............................................. 40,379
Deposits....................................................... 1,866
----------
6,327,863
----------
Less:
Accounts payable............................................... 332,993
Checks written against future deposits......................... 53,930
Accrued expenses............................................... 41,774
Deferred membership revenue.................................... 25,166
Line of credit................................................. 74,941
Notes payable, other........................................... 28,600
Note payable, related party.................................... 106,823
Current maturities of long-term debt........................... 197,700
Minority interest.............................................. 140,844
Long-term debt, less current maturities........................ 3,944,504
----------
4,947,275
----------
Total purchase price........................................... 1,380,588
Less convertible note payable.................................. 887,250
Less deferred acquisition costs................................ 15,588
----------
Cash to be paid at closing..................................... $ 477,750
----------
----------
</TABLE>
7. ELIMINATING ENTRIES
INTERCOMPANY RECEIVABLES AND PAYABLES
Removes the Company's notes receivable due from Illinois Center and Goose
Creek against Illinois Center's and Goose Creek's notes payable due to the
Company.
INTERCOMPANY REVENUES AND EXPENSES
Removes the Company's intercompany revenues generated from Illinois Center
and Goose Creek against Illinois Center's and Goose Creek's intercompany
expenses generated from the Company.
INVESTMENTS IN AFFILIATES
Reflects the net adjustment in investment in affiliates when Illinois Center
and Goose Creek are consolidated with the Company.
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
Reflects the minority interest in Illinois Center and Goose Creek when these
entities are consolidated with the Company.
F-12
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
7. ELIMINATING ENTRIES (CONTINUED)
NET ASSETS OF FREMONT
Reflects the adjustment to remove the net assets of Fremont when Fremont is
consolidated with the Company.
PARTNERS' CAPITAL
Reflects the adjustment to remove the partners' capital of Illinois Center
and Goose Creek when these entities are consolidated with the Company.
EQUITY IN LOSS OF AFFILIATE
Removes the Company's equity in earnings of Illinois Center and Goose Creek
when these entities are consolidated with the Company.
MINORITY INTEREST IN LOSS OF CONSOLIDATED SUBSIDIARIES
Reflects the Company's minority interest in loss of Illinois Center and
Goose Creek when these entities are consolidated with the Company.
8. UNACQUIRED ASSETS AND LIABILITIES
Removes assets not acquired and liabilities not assumed in the acquisition
of Fremont.
9. COMPENSATION EXPENSE
Reflects the change in compensation of the Company's President from $180,000
to $250,000 and the change in compensation of the Company's Executive Vice
President from $120,000 to $175,000 for the year ended December 31, 1995.
10. DEPRECIATION AND AMORTIZATION
FREMONT
Reflects additional depreciation of property and equipment due to the
increase in cost in the assets acquired using the straight-line method. The
estimated useful lives of the assets range from 5 to 31.5 years.
ILLINOIS CENTER
Reflects additional depreciation of property and equipment due to the
increase in cost in the assets acquired using the straight-line method. The
estimated useful lives of the assets range from 14.5 to 39 years. Reflects
amortization of cost in excess of assets acquired using the straight-line method
over 14.5 years. The pro forma consolidated statement of operations for the year
ended December 31, 1995 reflects additional depreciation on clubhouse and
equipment using the straight-line method (see Note 13). The estimated useful
lives of the clubhouse and equipment range from 5 to 39 years.
GOOSE CREEK
Reflects change in depreciation of property and equipment due to the
increase in cost in the assets acquired using the straight-line method. The
estimated useful lives of the assets range from 5 to 31.5 years. Reflects
amortization of cost in excess of assets acquired using the straight-line method
over 20 years.
11. INTEREST EXPENSE
THE COMPANY
Reflects interest expense for the $2,025,000 in convertible subordinated
notes payable. The convertible subordinated notes payable bear interest at 12%
and are due June 1, 1997. Reflects
F-13
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.):
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
11. INTEREST EXPENSE (CONTINUED)
interest expense for the $700,000 note payable used to finance the acquisition
of Fremont. The note payable bears interest at 9% and is due on November 15,
1996. Reflects interest expense for the $2,462,250 convertible notes payable
used to finance the acquisition of Illinois Center and Goose Creek. The
convertible notes payable bear interest at 6% per annum and are due on June 1,
2005. Reflects a reduction in interest expense on the Company's $225,000 line of
credit since the line of credit was paid off. The line of credit bore interest
at 8.5% per annum.
Reflects amortization of debt issue costs due to the issuance of the
convertible subordinated notes. The debt issue costs are being amortized over 29
months.
ILLINOIS CENTER
The pro forma consolidated statement of operations for the year ended
December 31, 1995 reflects interest expense on Illinois Center's $1,750,000 and
$584,000 promissory notes payable (see Note 13).
12. WEIGHTED AVERAGE SHARES OUTSTANDING
On a pro forma basis, weighted average shares are adjusted to reflect the
issuance of 673,028 shares in the IPO associated with the entities reflected in
the pro forma information. The shares of the offering whose proceeds will be
used for future acquisitions and working capital have been excluded in the pro
forma computation of earnings per share. The 673,028 shares are assumed to be
outstanding for the entire period.
13. NOTES PAYABLE AND EQUIPMENT PURCHASE
On January 31, 1996, Illinois Center entered into a $2,000,000 promissory
note with Textron. Textron advanced $1,750,000 to Illinois Center. The note
bears interest at 3% above the Chase Manhattan Bank's prime rate and is due on
or before December 31, 2002. Illinois Center applied $900,000 of the proceeds to
its working capital and applied the remaining $850,000 of the proceeds to the
purchase of a clubhouse facility and various items of equipment. The total
purchase price of the clubhouse and equipment was $1,434,000. Illinois Center
entered into a $584,000 promissory note for the remaining purchase price. The
promissory note bears interest at 8% per annum and is due June 1, 2005.
Principal and interest payments on the note commence January 1, 1998.
The pro forma consolidated statement of operations for the year ended
December 31, 1995 reflects a reduction in equipment lease expense as a result of
Illinois Center purchasing its clubhouse and equipment.
F-14
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
MetroGolf Incorporated (Formerly The Vintage Group USA, Ltd.)
Denver, Colorado
We have audited the accompanying consolidated balance sheets of MetroGolf
Incorporated and subsidiaries (the "Company"), formerly The Vintage Group USA,
Ltd., as of December 31, 1994 and 1995 and the related combined statements of
operations, stockholders' equity and cash flows for the years ended December 31,
1993 and 1994 and the related consolidated statement of operations,
stockholders' equity (deficit), and cash flows for the year ended December 31,
1995. These consolidated and combined financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated and combined financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated and combined financial statements referred
to above present fairly, in all material respects, the financial position of
MetroGolf Incorporated and subsidiaries at December 31, 1994 and 1995, and the
results of their operations and their cash flows for the years ended December
31, 1993, 1994 and 1995 in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
Denver, Colorado
May 17, 1996, except for the
reverse stock split discussed
in Note 8 which is dated
September 16, 1996.
F-15
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS (NOTE 5)
Current:
Cash and cash equivalents................................................... $ 195,777 $ 324 $1,313,841
Restricted cash (Note 3).................................................... 200,000 222,700 --
Management fee receivable, related parties (Note 7)......................... 41,063 83,256 39,252
Commission advances to officer.............................................. 13,500 -- --
Other current assets........................................................ 18,417 15,452 16,184
--------- --------- -----------
Total current assets.................................................... 468,757 321,732 1,369,277
--------- --------- -----------
Property and equipment:
Automobile.................................................................. 35,715 35,715 52,262
Furniture and equipment..................................................... 13,455 52,262 35,715
--------- --------- -----------
49,170 87,977 87,977
Less accumulated depreciation................................................. 4,726 24,025 33,675
--------- --------- -----------
Net property and equipment.................................................... 44,444 63,952 54,302
--------- --------- -----------
Other:
Notes receivable, related parties (Note 1).................................. 275,724 514,728 606,823
Debt issue costs net of accumulated amortization of $22,323 as of June 30,
1996....................................................................... -- -- 245,555
Deposits.................................................................... 18,800 19,800 39,800
Deferred offering costs..................................................... 5,000 -- 185,450
Deferred acquisition costs.................................................. -- 59,467 147,322
Deposit on acquisition...................................................... -- -- 50,000
--------- --------- -----------
Total other assets............................................................ 299,524 593,995 1,274,950
--------- --------- -----------
$ 812,725 $ 979,679 $2,698,529
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................................................ $ 120,413 $ 380,217 $ 548,174
Accrued salaries............................................................ 69,705 145,784 327,458
Accrued payroll taxes and other liabilities................................. 45,307 1,446 20,250
Advances payable............................................................ 10,000 10,000 10,000
Note payable, officer (Note 4).............................................. -- 26,827 4,825
Lines of credit (Note 3).................................................... 38,863 246,937 --
Convertible subordinated notes payable, net of original issue discount of
$243,600 (Note 13) as of June 30, 1996..................................... -- -- 1,781,400
Current portion of long-term debt (Note 5).................................. 5,047 16,489 17,546
--------- --------- -----------
Total current liabilities..................................................... 289,335 827,700 2,709,653
--------- --------- -----------
Long-term debt, less current portion (Note 5)................................. 26,287 23,151 13,586
--------- --------- -----------
Investments in affiliates (Note 2)............................................ 2,919 3,689 6,318
--------- --------- -----------
Minority interest in consolidated subsidiaries................................ 5,118 24,178 21,773
--------- --------- -----------
Total liabilities............................................................. 323,659 878,718 2,751,330
--------- --------- -----------
Commitments and contingencies (Note 6)
Stockholders' equity (deficit) (Note 8):
Preferred stock -- $1 par value; 1,000,000 shares authorized; 37,500, 45,500
and 45,500 shares issued and outstanding; liquidation value of $25 per
share plus dividends in arrears of $50,677, $205,729 and $291,041 (in the
aggregate $988,177, $1,343,229 and $1,428,541)............................. 37,500 45,500 45,500
Additional paid-in capital.................................................... 749,105 940,609 940,609
Common stock -- no par value; 9,000,000 shares authorized; 680,782 shares
issued and outstanding....................................................... (96,770) (96,770) 146,830
Notes receivable, stockholder (Note 1)...................................... (64,803) (120,300) (166,324)
Accumulated deficit......................................................... (135,966) (668,078) (1,019,416)
--------- --------- -----------
Total stockholders' equity (deficit).......................................... 489,066 100,961 (52,801)
--------- --------- -----------
$ 812,725 $ 979,679 $2,698,529
--------- --------- -----------
--------- --------- -----------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated and combined financial statements.
F-16
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------- --------------------------
COMBINED CONSOLIDATED CONSOLIDATED
-------------------------- ------------ --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Revenues:
Management fees, related parties (Notes 2
and 7)................................... $ 46,313 $ 159,691 $ 190,303 $ 85,013 $ 99,275
Acquisition fee........................... -- -- 120,000 -- --
Development fees, related party (Note
7)....................................... -- 125,000 -- -- --
Consulting fees........................... 60,000 6,546 25,000 -- --
------------ ------------ ------------ ------------ ------------
Total revenues.......................... 106,313 291,237 335,303 85,013 99,275
------------ ------------ ------------ ------------ ------------
Operating expenses:
Salaries and bonuses...................... 50,816 373,779 343,827 157,644 269,752
General and administrative................ 53,438 181,201 519,583 207,305 142,894
Depreciation.............................. 4,922 10,831 19,299 6,062 9,650
------------ ------------ ------------ ------------ ------------
Total operating expenses................ 109,176 565,811 882,709 371,011 422,296
------------ ------------ ------------ ------------ ------------
Loss from operations........................ (2,863) (274,574) (547,406) (285,998) (323,021)
------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest income........................... 3,146 15,472 61,116 20,040 34,400
Interest expense.......................... (3,058) (1,842) (25,994) (10,371) (62,490)
------------ ------------ ------------ ------------ ------------
Total other income (expense)............ 88 13,630 35,122 9,669 (28,090)
------------ ------------ ------------ ------------ ------------
Equity in loss of affiliates (Note 2)....... (1,392) (309) (770) (877) (2,629)
------------ ------------ ------------ ------------ ------------
Minority interest in income of consolidated
subsidiaries............................... -- (3,560) (19,058) (4,662) (6,240)
------------ ------------ ------------ ------------ ------------
Net loss.................................... (4,167) (264,813) (532,112) (281,868) (359,980)
Dividend requirements on preferred stock.... -- 50,677 155,052 72,521 85,312
------------ ------------ ------------ ------------ ------------
Loss applicable to common stock............. $ (4,167) $ (315,490) $ (687,164) $ (354,389) $ (445,292)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Net loss per common share................... $ (.00) $ (.36) $ (.78) $ (.40) $ (.51)
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
Weighted average number of common shares
outstanding................................ 877,142 877,142 877,142 877,142 877,142
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated and combined financial statements.
F-17
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND SIX MONTHS
ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK ADDITIONAL COMMON STOCK NOTES
-------------------- PAID-IN -------------------- RECEIVABLE, ACCUMULATED
SHARES AMOUNT CAPITAL SHARES AMOUNT STOCKHOLDER DEFICIT
--------- --------- ----------- --------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993................. -- $ -- $ -- 65 $ 100 $ (40,073) $ 22,554
Issuance of IC's common stock for
cash.................................. -- -- -- 587 90 -- --
Change in notes receivable, stockholder -- -- -- -- -- (79,552) --
Combined net loss...................... -- -- -- -- -- -- (4,167)
--------- --------- ----------- --------- --------- ----------- ------------
Balance, December 31, 1993............... -- -- -- 652 190 (119,625) 18,387
Issuance of IC's common stock for
cash.................................. -- -- -- 65 15,000 -- --
Business reorganization as of July 29,
1994.................................. -- -- -- (717) (15,190) -- --
Issuance of common stock in connection
with business reorganization.......... -- -- -- 680,782 13,690 -- --
Reclassification of VA's and IC's
subchapter S income and losses from
accumulated deficit to common stock... -- -- -- -- (110,460) -- 110,460
Issuance of preferred stock for cash in
private offering, net of stock
issuance costs of $150,895............ 37,500 37,500 749,105 -- -- -- --
Change in notes receivable,
stockholder........................... -- -- -- -- -- 54,822 --
Combined net loss...................... -- -- -- -- -- -- (264,813)
--------- --------- ----------- --------- --------- ----------- ------------
Balance, December 31, 1994............... 37,500 37,500 749,105 680,782 (96,770) (64,803) (135,966)
Issuance of preferred stock for cash... 8,000 8,000 191,504 -- -- -- --
Change in notes receivable,
stockholder........................... -- -- -- -- -- (55,497) --
Net loss............................... -- -- -- -- -- -- (532,112)
--------- --------- ----------- --------- --------- ----------- ------------
Balance, December 31, 1995............... 45,500 45,500 940,609 680,782 (96,770) (120,300) (668,078)
Change in notes receivable,
stockholder........................... -- -- -- -- -- (46,024) --
Increase in ownership of subsidiary for
no consideration...................... 8,642
Discount on debt....................... -- -- -- -- 243,600 -- --
Net loss (Unaudited)................... -- -- -- -- -- -- (359,980)
--------- --------- ----------- --------- --------- ----------- ------------
Balance, June 30, 1996 (Unaudited)....... 45,500 $ 45,500 $ 940,609 680,782 $ 146,830 $(166,324) $(1,019,416)
--------- --------- ----------- --------- --------- ----------- ------------
--------- --------- ----------- --------- --------- ----------- ------------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated and combined financial statements.
F-18
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------- --------------------------
COMBINED CONSOLIDATED CONSOLIDATED
------------------------- ------------ --------------------------
1993 1994 1995 1995 1996
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Increase (Decrease) in Cash and Cash
Equivalents
Operating activities:
Net loss....................................... $ (4,167) $ (264,813) $ (532,112) $ (281,868) $ (359,980)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation................................. 4,922 10,831 19,299 6,062 9,650
Interest expense............................. -- -- -- -- 22,323
Salary expense............................... -- 125,000 -- -- --
Write off of deferred offering costs......... -- -- 5,000 5,000 --
Deferred revenue............................. -- (125,000) -- -- --
Equity in loss of affiliates................. 1,392 309 770 877 2,629
Minority interest in income of consolidated
subsidiaries................................ -- 3,560 19,060 4,662 6,240
Changes in operating assets and liabilities:
Management fee receivable, related party..... -- (41,063) (42,193) (4,341) 44,005
Commission advances to officer............... -- (13,500) 13,500 (18,000) --
Other current assets......................... (520) (17,837) 2,965 18,368 (736)
Accounts payable............................. 12,066 103,916 259,804 80,732 167,957
Accrued salaries............................. -- 69,705 76,079 (11,372) 181,674
Accrued payroll taxes and other
liabilities................................. -- 45,307 (43,861) (47,995) 18,804
Deferred revenue............................. 125,000 -- -- -- --
----------- ------------ ------------ ------------ ------------
Net cash provided by (used in) operating
activities.................................... 138,693 (103,585) (221,689) (247,875) 92,566
----------- ------------ ------------ ------------ ------------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated financial statements.
F-19
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- ---------------------------
COMBINED CONSOLIDATED CONSOLIDATED
------------------------ ------------ ---------------------------
1993 1994 1995 1995 1996
---------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Investing activities:
Restricted cash.................................... -- (200,000) (22,700) -- 222,700
Payments for notes receivable, related parties..... -- (166,099) (239,004) (90,890) (92,095)
Proceeds from notes receivable, stockholder........ 17,280 -- -- -- --
Payments for notes receivable, stockholder......... (93,686) (189,803) (55,497) (40,691) (46,024)
Purchase of furniture and equipment................ (20,569) (8,437) (38,807) (38,807) --
Payments for deferred acquisition costs............ -- -- (59,467) -- (87,855)
Payment for deposit on acquisition................. -- -- -- -- (50,000)
Payment for investment in affiliate................ (90) -- -- -- --
Deposits........................................... -- (18,800) (1,000) 17,000 (20,000)
---------- ------------ ------------ ------------ -------------
Net cash used in investing activities................ (97,065) (583,139) (416,475) (153,388) (73,274)
---------- ------------ ------------ ------------ -------------
Financing activities:
Proceeds from advances payable..................... 20,000 -- -- -- --
Proceeds from (payments) on lines of credit........ -- 38,863 208,074 178,164 (246,937)
Proceeds from convertible subordinated notes
payable........................................... -- -- -- -- 2,025,000
Proceeds from long-term debt....................... -- 10,000 22,971 22,786 --
Proceeds from notes payable, officer............... -- -- 48,827 -- --
Payments for long-term debt........................ (1,120) (4,557) (14,665) (6,705) (8,508)
Payments on note payable, officer.................. -- -- (22,000) -- (22,002)
Principal payments for notes payable............... (20,000) -- -- -- --
Payments for debt issue costs...................... -- -- -- -- (267,878)
Increase in deferred offering costs................ -- (5,000) -- -- (185,450)
Proceeds from issuance of common stock............. 190 15,000 -- -- --
Proceeds from issuance of preferred stock, net of
stock issuance costs.............................. -- 786,605 199,504 75,000 --
---------- ------------ ------------ ------------ -------------
Net cash provided by (used in) financing
activities.......................................... (930) 840,911 442,711 269,245 1,294,225
---------- ------------ ------------ ------------ -------------
Increase (decrease) in cash and cash equivalents..... 40,698 154,187 (195,453) (132,018) 1,313,517
Cash and cash equivalents, beginning of period....... 892 41,590 195,777 195,777 324
---------- ------------ ------------ ------------ -------------
Cash and cash equivalents, end of period............. $ 41,590 $ 195,777 $ 324 $ 63,759 $ 1,313,841
---------- ------------ ------------ ------------ -------------
---------- ------------ ------------ ------------ -------------
</TABLE>
See accompanying summary of accounting policies
and notes to consolidated and combined financial statements.
F-20
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
SUMMARY OF ACCOUNTING POLICIES
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED
ORGANIZATION AND BUSINESS
MetroGolf Incorporated, formerly The Vintage Group USA, Ltd., (the Company),
a Colorado corporation, was incorporated on July 29, 1994 by its sole common
stockholder. The Company was formed for the purpose of acquiring and
consolidating its stockholder's ownership of two pre-existing corporations, as
described below and, therefore, it is a continuation of these pre-existing
corporations. The Company acquires, develops and manages urban golf centers and
other golf facilities.
On July 29, 1994, the Company acquired all of the issued and outstanding
common stock of MetroGolf Virginia, Inc., formerly TVG (Virginia), Inc. (VA) a
Colorado corporation incorporated on February 21, 1992. Prior to the formation
of the Company, VA was the primary operating entity in the business of golf
course management, development and acquisition. VA is the managing general
partner of Goose Creek Golf Partners Limited Partnership (Goose Creek), a
Virginia Limited Partnership formed on June 1, 1992. Also on July 29, 1994, the
Company acquired 90 percent of the issued and outstanding common stock of
MetroGolf Illinois Center, Inc., formerly TVG (Illinois Center), Inc. (IC), a
Colorado corporation incorporated on May 26, 1993.IC is the managing general
partner of Illinois Center Golf Partners, L.P. (Illinois Center), an Illinois
Limited Partnership formed on May 28, 1993. The Company issued 680,782 shares of
its common stock to an individual for 100 percent of his interest in VA and 90
percent of his interest in IC. This exchange of ownership with entities under
common control has been accounted for at historical cost in a manner similar to
that of a pooling of interest. As of December 31, 1995, the Company held 89
percent of the issued and outstanding common stock of IC. Prior to the July 29,
1994 business reorganization, VA and IC were entities under common control and
management.
On March 30, 1994, the Company formed and acquired 51 percent of the issued
and outstanding common stock of MetroGolf Management, Inc., formerly Vintage
Golf Management, Inc. - (MGM), a Colorado Corporation. MGM provides golf
management services to Illinois Center.
During April 1996, the Company acquired the remaining 49 percent of MGM for
no consideration.
On May 24, 1995, the Company formed and acquired 100 percent of the issued
and outstanding common stock of MetroGolf New York, Inc., formerly TVG (New
York), Inc., (NY), a New York Corporation.NY is the 100 percent Class A member
of Vintage New York Golf L.L.C., a limited liability company formed to develop
and operate an urban golf center facility.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned and majority-owned subsidiaries as of December
31, 1995 and for the year then ended, and as of December 31, 1994. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
COMBINED FINANCIAL STATEMENTS
The combined statements of operations, stockholders' equity and cash flows
include the accounts of the Company for the period from July 29, 1994
(inception) to December 31, 1994, the accounts of VA for the years ended
December 31, 1993 and 1994, the accounts of IC for the period from May 26, 1993
(inception) to December 31, 1993 and for the year ended December 31, 1994 and
the accounts of MGM for the period from March 30, 1994 (inception) to December
31, 1994. All significant intercompany accounts and transactions have been
eliminated in combination.
F-21
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim consolidated financial
statements for the six months ended June 30, 1995 and 1996 are presented on a
basis consistent with the audited financial statements and reflect all
adjustments, consisting only of normal recurring accruals, necessary for fair
presentation of the results of such periods. The results of operations for the
interim period ended June 30, 1996 are not necessarily indicative of the results
to be expected for the year ending December 31, 1996.
CASH AND CASH EQUIVALENTS
The Company considers all money market accounts and highly liquid debt
instruments purchased with original maturities of three months or less to be
cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Upon sale or other retirement of
depreciable property, the cost and accumulated depreciation are removed from the
related accounts and any gain or loss is reflected in operations. Depreciation
is provided on the straight-line method based upon the estimated useful lives of
the depreciable assets.
DEFERRED OFFERING COSTS
Deferred offering costs include professional fees directly related to the
Company's proposed private and public offerings.If the offerings are successful,
costs incurred will be offset against the proceeds of the offerings. If the
offerings are unsuccessful, such costs will be expensed.
DEFERRED ACQUISITION COSTS
Deferred acquisition costs include professional fees and other direct costs
related to evaluation of prospective property acquisitions. If the acquisitions
are completed, these costs are included as property costs. If a prospective
property is not acquired, the costs are expensed.
DEBT ISSUE COSTS
Debt issue costs are being amortized using the straight-line method over the
term of the convertible subordinated notes payable (see Note 13).
INVESTMENTS IN AFFILIATES
The Company has recorded its investments in limited partnerships using the
equity method of accounting. Under such method, the Company's share of net
income (loss) is included as a separate item in the statement of operations.
CONCENTRATION OF RISK
Financial instruments which potentially expose the Company to concentration
of credit risk, as defined by Financial Accounting Standards Board Statement No.
105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit
Risk, consist primarily of cash equivalents and notes receivable with the
Company's related parties. The Company establishes an allowance for doubtful
accounts based on factors surrounding the credit risk of specific customers,
historical trends and other information.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles necessarily requires management to make estimates
and assumptions that affect the reported
F-22
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting periods. Actual results could differ
from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
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 how SFAS No. 123 will be adopted nor its impact
on the financial statements. Both statements are effective for fiscal years
beginning after December 15, 1995.
FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
RECEIVABLES FROM RELATED PARTIES
Due to the related party nature and terms of the receivables from related
parties, the Company cannot estimate the fair market value of such financial
instruments.
NOTES PAYABLE AND LONG-TERM DEBT
Substantially all of these notes bear interest at a floating rate of
interest based upon the lending institutions prime lending rate. Accordingly,
the fair value approximates their reported carrying amount at December 31, 1994
and 1995 and June 30, 1996.
LOSS PER SHARE
Primary loss per share is computed using the weighted average number of
common and common equivalent shares outstanding during each period. Pursuant to
the requirements of the Securities and Exchange Commission (SEC) Staff
Accounting Bulletin No. 83 (SAB 83), common shares issued by the Company during
the twelve months immediately preceding the initial public offering at a price
below the initial public offering price plus the number of common share
equivalents which result from the grant of common stock options and warrants
having exercise prices below the initial public offering price during the same
period have been included in the calculation of the shares used in computing
loss per share as if they were outstanding for all periods presented.
F-23
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED
1. NOTES RECEIVABLE
NOTES RECEIVABLE, RELATED PARTIES
On September 1, 1994, IC entered into a $500,000 note agreement with
Illinois Center.Advances under the agreement accrue interest at two percent over
the Citibank's prime rate, which is 8.75 percent at December 31, 1995. The note
is unsecured and due on the earlier of demand or September 1, 1997. The balance
outstanding on the note is $275,724, $459,739 and $500,000 as of December 31,
1994 and 1995 and June 30, 1996.
On November 21, 1995, VA entered into a $100,000 note agreement with Goose
Creek. On April 15, 1996, the note agreement was increased to $150,000. Advances
under the agreement accrue interest at two percent over the Citibank's prime
rate, which is 8.75 percent at December 31, 1995.The note is unsecured and due
on the earlier of demand or November 21, 1996. The balance outstanding on the
note is $54,989 and $106,823 as of December 31, 1995 and June 30, 1996.
NOTES RECEIVABLE, STOCKHOLDER
During 1994, the Company entered into two note agreements and in 1995 the
Company entered into one note agreement with its sole common stockholder. The
notes bear interest at eight percent per annum and are due on demand. The
balances outstanding on the notes are $64,803, $120,300 and $166,324 as of
December 31, 1994 and 1995 and June 30, 1996.
2. INVESTMENTS IN AFFILIATES
INVESTMENT IN GOOSE CREEK
VA is the managing general partner of Goose Creek in which it holds a 0.5
percent general partnership interest. As the managing general partner of Goose
Creek, VA is responsible for the day-to-day management and operation of the
business and property of Goose Creek. The administrative general partner of
Goose Creek, an unaffiliated corporation also having a 0.5 percent interest in
Goose Creek, holds joint authority with VA over annual budgets, significant
capital expenditures, significant deposits into and withdrawals from the Goose
Creek reserve account, as defined, and replacement of the management company, as
hired by Goose Creek. The general partners do not have the authority to sell or
refinance all or any material portion of the property without the consent of 51
percent of the Class A limited partners. Both general partners contributed their
expertise to Goose Creek's formation and other consideration in exchange for an
interest in Goose Creek.
In addition to its 0.5 percent general partnership interest, VA holds a
10.33 percent Class B limited partnership interest in Goose Creek. The Company
accounts for its 10.33 percent Class B limited partnership interest using the
cost method of accounting. The Class B limited partnership interest entitles the
Company to share in cash distributions and profit or loss allocations, as
described below, subsequent to the Class A limited partners receiving a
preferred return of 12 percent on their capital contributions and certain other
funding requirements.
Goose Creek's partnership agreement allows for cash distributions to the
general and limited partners from available net cash flow, at the discretion of
the managing general partner. Net cash flow is defined as the excess of
operating cash receipts over operating cash disbursements after the funding of
reasonable reserves for anticipated expenses and capital replacement.
Profits and losses are allocated to the partners in the same proportion as
net cash flow is distributed subject to the provision of Section 704(b) of the
Internal Revenue Code of 1986 relating to substantial economic effect. As of
December 31, 1994 and 1995 and June 30, 1996, the Company has recorded an
investment in Goose Creek of $(2,975), ($3,731), and ($6,347).
F-24
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED
2. INVESTMENTS IN AFFILIATES (CONTINUED)
In addition to the above, VA as managing general partner, receives an asset
management fee from Goose Creek of $45,000 per annum that started June 1, 1992
and increased by a factor of five percent per annum on June 1st of each year.
The Company is also entitled to receive a fee equal to one percent of the gross
proceeds upon any disposition of Goose Creek's property. Asset management fees
for the years ended December 31, 1993, 1994 and 1995 and for the six months
ended June 30, 1995 and 1996, are $46,313, $48,628, $51,059, $25,013 and
$26,264.
INVESTMENT IN ILLINOIS CENTER
IC is the managing general partner of Illinois Center in which it holds a 40
percent general partnership interest. As the managing general partner, IC has
the responsibility to make all decisions affecting the day-to-day business of
Illinois Center. The general partner does not have the authority except under
certain conditions as provided for in the partnership agreement, to cause
Illinois Center to secure certain indebtedness of Illinois Center with a
mortgage, deed of trust or similar lien on the property, nor shall the general
partner have the authority to sell or transfer all or substantially all of the
assets of Illinois Center, unless the general partner first obtains the majority
consent of the limited partners. The general partner contributed $90, its
agreement to develop and acquire the Illinois Center's ground lease and
expertise to Illinois Center's formation in exchange for its interest in
Illinois Center.
Illinois Center's partnership agreement allows for cash distributions to the
general and limited partners from available net cash flow. Net cash flow is
defined for any period as the excess, if any, of revenues over expenses. Net
cash flow is to be distributed not less frequently than quarterly, commencing
after the first full calendar quarter following the opening to the public of
Illinois Center. Profits and losses are allocated to the partners as defined in
the partnership agreement. As of December 31, 1994 and 1995 and June 30, 1996,
the Company has recorded an investment in Illinois Center of $56, $42 and $29.
In addition to the above, IC, as managing general partner, is entitled to
receive an asset management fee from Illinois Center of $60,000 per annum
increased by a factor of five percent per annum. Asset management fees for the
years ended December 31, 1994 and 1995 and for the six months ended June 30,
1995 and 1996 were approximately $35,000, $60,000, $30,000 and $31,500.
The Company, as general partner of Goose Creek, does not have the authority
to sell or refinance all or any material portion of the property without the
consent of 51 percent of the Class A limited partners. The Company, as general
partner of Illinois Center, does not have the authority except under certain
conditions as provided for in the partnership agreement, to cause Illinois
Center to secure certain indebtedness of Illinois Center with a mortgage, deed
of trust or similar lien on the property, nor does the general partner have the
authority to sell or transfer all or substantially all of the assets of Illinois
Center, unless the general partner first obtains the majority consent of the
limited partners. Accordingly, the Company has recorded its investments in
affiliates using the equity method of accounting.
3. LINES OF CREDIT
The Company entered into a $225,000 line of credit agreement dated December
20, 1994 and a $22,000 line of credit dated November 28, 1995. Borrowings under
the lines accrue interest at the National Prime Lending Rate (8.5 percent) and
are due on March 25, and May 28, 1996, respectively. The $225,000 line is
collateralized by the Company's note receivable from a related party, a $200,000
money market account and is personally guaranteed by the sole common stockholder
of the Company. The $225,000 line of credit was paid in full during May 1996 and
the Company redeemed its $200,000
F-25
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED
3. LINES OF CREDIT (CONTINUED)
money market account. The $22,000 line of credit is collateralized by a $22,700
certificate of deposit. The $22,000 line of credit was paid in full during June
1996 and the Company redeemed its $22,700 certificate of deposit.
The balance outstanding on the lines are $38,863, $246,937 and $0 as of
December 31, 1994 and 1995 and June 30, 1996.
4. NOTE PAYABLE, OFFICER
During 1995, an officer of the Company advanced funds to the Company. The
advances are due on demand and accrue interest at two percentage points over
Citibank's prime rate.The balance outstanding at December 31, 1995 and June 30,
1996 including accrued interest is $26,827 and $4,825.
5. LONG-TERM DEBT
The following is a summary of the Company's long-term debt:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to a bank, interest at 7.75 percent; principal and
interest payments of $545 through October 1998. The note is
collateralized by an auto and is personally guaranteed by the
common stockholder of the Company................................. $ 21,334 $ 16,547 $ 13,778
Note payable to a bank, interest at ten percent; principal and
interest payments of $1,099 through December 25, 1997. The note is
collateralized by substantially all assets of the Company and is
personally guaranteed by the common stockholder of the Company.... 10,000 23,093 17,354
--------- --------- -----------
31,334 39,640 31,132
Less current portion............................................... 5,047 16,489 17,546
--------- --------- -----------
$ 26,287 $ 23,151 $ 13,586
--------- --------- -----------
--------- --------- -----------
</TABLE>
Future maturities of long-term debt as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 16,489
1997.............................................................. 15,629
1998.............................................................. 7,522
---------
Total......................................................... $ 39,640
---------
---------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
During 1994, the Company entered into employment agreements with its
President through December 1996 and with its Executive Vice President through
September 1997. The employment agreements set forth annual compensation of
$180,000 to the President and $120,000 to the Executive Vice President plus
bonuses as the board of directors of the Company may from time to time approve.
Effective January 1, 1996, both agreements were extended until December 31, 1998
with annual salaries of $250,000 and $175,000, respectively.
F-26
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
OPERATING LEASES
The Company leases office space and equipment under noncancelable leases
with terms that expire at various dates through August 1997. Future minimum
lease payments as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.............................................................. $ 23,000
1997.............................................................. 15,500
---------
Total............................................................. $ 38,500
---------
---------
</TABLE>
Total lease expenses for the years ended December 31, 1993, 1994 and 1995
and for the six months ended June 30, 1996 are approximately $7,000, $8,000,
$25,000 and $14,000.
DIRECT GUARANTEES
The Company is the guarantor of long-term indebtedness of Illinois Center
totaling approximately $1,750,000, and the Company is the guarantor of long-term
acquisition indebtedness of Goose Creek totaling approximately $3,333,000 and
$3,345,000 as of December 31, 1995 and June 30, 1996. In addition, VA has
guaranteed Goose Creek's $150,000 line of credit subsequently reduced to $74,941
during April 1996. Goose Creek's balance on the line of credit is $0, $150,000
and $74,941 as of December 31, 1994 and 1995 and June 30, 1996.
7. RELATED PARTY TRANSACTIONS
DEVELOPMENT FEES
During 1994, the Company earned $125,000 for land acquisition, concept
planning design and development services provided to Illinois Center. The
Company earned no development fees for the year ended December 31, 1995.
PROPERTY MANAGEMENT AGREEMENT
On December 1, 1993, MGM entered into a property management agreement with
Illinois Center. The management agreement expires on January 1, 1997. The terms
of the management agreement provide for a management fee of $5,000 per month
plus a membership incentive fee of ten percent of the gross proceeds received
from membership initiation fees and the equivalent of one month's membership
dues as received by Illinois Center. The membership incentive fee for renewal
memberships will be reduced to four percent of annual dues for renewal members.
In addition, the management agreement provides for an annual incentive fee of
five percent of the amount of annual net operating income in excess of
$1,600,000.
MGM initially was operated by Club Sports International (CSI). On October 1,
1994, CSI was removed as operator of MGM. On November 17, 1994, Billy Casper
Golf Management, Inc. (BCGM) was engaged as the new operator of MGM. From the
period June 1, 1994 through September 30, 1994, MGM's' base fee was split
between CSI and the Company with CSI receiving $4,000 and the Company receiving
$1,000. From October 1, 1994 through November 18, 1994, the Company earned the
full amount of MGM's fee. From November 18, 1994 through November 30, 1995, BCGM
earned the entire fee. During November 1995, BCGM was removed as operator of
MGM. In addition, MGM has agreed to waive 80 percent of the deferred $5,000 per
month fees that it had earned under its contract from the period December 1,
1993 to May 31, 1994. For the years ended December 31, 1994 and 1995
F-27
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED
7. RELATED PARTY TRANSACTIONS (CONTINUED)
and for the six months ended June 30, 1995 and 1996, property management fees,
including incentive fees, are $76,063, $79,243, $30,000 and $41,511. As of
December 31, 1994 and 1995 and June 30, 1996, Illinois Center owes MGM $41,063,
$83,256 and $39,252.
8. STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK
During August 1995, the Company amended its articles of incorporation to
increase the authorized shares of preferred stock from 100,000 to 1,000,000
shares. Of the 1,000,000 authorized shares, 100,000 shares have been designated
as redeemable preferred stock. The holders of redeemable preferred stock are
entitled to receive, when, and if declared by the Board of Directors and out of
funds legally available for the payment of dividends or if mandatorily
redeemable as discussed below, dividends at the annual dividend rate of 15
percent per annum ($3.75) on each outstanding share of preferred stock,
commencing upon issuance and thereafter through the end of the eighth complete
calendar quarter after the date of issuance. Thereafter, the annual dividend
rate on the redeemable preferred stock is 18 percent per annum ($4.50) on each
outstanding share of preferred stock. Dividends on shares of the redeemable
preferred stock are payable in four equal quarterly installments on the last day
of March, June, September and December beginning September 30, 1994. The
dividends shall accrue and become cumulative not compounded from the date of
issuance. Accumulated dividends do not bear interest. Whenever dividends on the
redeemable preferred stock are in arrears for eight consecutive quarters or in
an amount equal to at least 12 quarterly dividends, the holders of such stock
(voting as a class) have the right to elect one director of the Company until
all cumulative dividends have been paid in full. Dividends in arrears on the
outstanding preferred shares total $50,677, $205,729 and $291,041 as of December
31, 1994 and 1995 and June 30, 1996. No dividends have been declared for the
years ended December 31, 1994 and 1995 and for the six months ended June 30,
1996. Therefore, assuming no dividends are paid and the redeemable preferred
stock is not redeemed prior to September 30, 1996, the holders of such stock
will have the right to appoint one director on such date.
Shares of the redeemable preferred stock are redeemable, at the Company's
election, in whole or in part. However, if IC declares a dividend, the Company
is contractually obligated to use those proceeds, subject to sufficient legally
available funds to redeem, in whole or in part, the preferred stock, to the
extent such cash dividends are not applied to payment of accrued dividends on
redeemable preferred stock. The shares are redeemable at $26.25 per share
together with accrued and unpaid dividends, if any. Shares of the redeemable
preferred stock have a liquidation value of $25 per share plus accrued
dividends, including cumulative dividends.
COMMON STOCK
During August 1995, the Company amended its articles of incorporation to
increase the authorized shares of common stock from 1,000,000 shares to
9,000,000 shares.
PREFERRED STOCK OFFERING
During 1994, the Company offered to sell 50,000 Units in a private offering
of up to $1.25 million in redeemable preferred stock and warrants at $25 per
Unit. Each Unit consists of one share of preferred stock and one warrant to
purchase 3.58 shares of the Company's common stock at an exercise price of $2.23
per share subject to antidilution adjustments. The warrants expire five years
F-28
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED
8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
from the date of issuance. During 1995, the Company sold 8,000 shares of
preferred stock resulting in net proceeds of $199,504 and during 1994, the
Company issued 37,500 shares of its preferred stock resulting in net proceeds to
the Company after paying offering costs of $786,605.
The underwriter received warrants entitling the underwriter to purchase
11,108 shares of common stock at an exercise price of $2.23 per share on a fully
diluted basis. At the closing of the offering, two directors of the Company will
receive, as compensation, warrants equal to five percent of the number of Units
sold in the offering entitling them to purchase one percent of the outstanding
common stock at an exercise price of $2.23 per share on a fully diluted basis.
Twenty-five percent of the warrants issued to the directors vested on August 28,
1995 and an additional 25 percent will vest every six months thereafter.
OFFICERS' WARRANTS
During 1995, the Company issued warrants to its officers to purchase an
aggregate of 97,720 shares of common stock at an exercise price of $2.23 per
share. Twenty-five percent of the warrants vested on December 1, 1995 and an
additional 25% will vest every six months thereafter.
STOCK SPLIT
During August 1995, the Company declared a 5.5 to 1.0 forward stock split.
During September 1996, the Company declared a 1.535 to 1 reverse stock split.
All share information herein reflects both such stock adjustments.
9. INCOME TAXES
At December 31, 1995 and June 30, 1996, the Company has available net
operating loss carry forwards of approximately $584,000 and $942,000 for tax
reporting purposes which expire through 2012. These operating loss carry
forwards are subject to various limitations imposed by the rules and regulations
of the Internal Revenue Service.
The Company has deferred tax assets fully reserved as of December 31, 1994
and 1995 and June 30, 1996. The tax effect on the components is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1995
----------- ------------ JUNE 30,
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
Net operating loss carry forward............................... $ 35,000 $ 117,000 $ 188,000
Salary accrual................................................. 13,000 29,000 --
Basis difference in property and equipment..................... 1,000 1,000 1,000
----------- ------------ ------------
49,000 147,000 189,000
Valuation allowance............................................ (49,000) (147,000) (189,000)
----------- ------------ ------------
$ -- $ -- $ --
----------- ------------ ------------
----------- ------------ ------------
</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 years ended December 31, 1994 and 1995
and for the six months ended June 30, 1996, the valuation allowance increased by
$49,000, $98,000 and $42,000.
F-29
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED
9. INCOME TAXES (CONTINUED)
VA and IC are Subchapter S Corporations for income tax purposes through July
27, 1994. Under provisions of the Internal Revenue Code, the net income or loss
of VA and IC are to be included in the Federal income tax returns of the
individual stockholders. Since VA and IC incurred losses while Subchapter S
Corporations, no pro forma income tax provision is required.
10. SUPPLEMENTAL DATA TO STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------------ ----------------------
COMBINED CONSOLIDATED CONSOLIDATED
---------------------- ------------ ----------------------
1993 1994 1995 1995 1996
--------- ----------- ------------ --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash payments for interest.............. $ 3,058 $ 1,842 $ 25,994 $ 10,371 $ 42,240
</TABLE>
Excluded from the consolidated and combined statements of cash flows were
the effects of certain noncash investing and financing activities as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Increase in common stock for
discount on debt............... $ -- $ -- $ -- $ -- $ 243,600
Increase in ownership of
subsidiary..................... $ -- $ -- $ -- $ -- $ 8,642
Payable to related party
offset......................... $ -- $ 10,000 $ -- $ -- $ --
Vehicle acquired through long-
term debt...................... $ 27,011 $ -- $ -- $ -- $ --
Reclassification of VA's and
IC's Subchapter S income and
losses from accumulated deficit
to common stock................ $ -- $ 110,460 $ -- $ -- $ --
--------- --------- ----------- --------- ---------
--------- --------- ----------- --------- ---------
</TABLE>
11. ACQUISITIONS
FREMONT PARK GOLF CENTER
The Company has executed an agreement to purchase the leasehold interest on
an existing driving range/learning center facility for $1,350,000 plus
acquisition costs of approximately $81,000. The acquisition is expected to close
during the summer of 1996. The existing golf facility consists of a 35-tee
station driving range, two practice putting greens, a clubhouse and a
maintenance area on approximately 15 acres of land. The current clubhouse design
will require modifications to re-incorporate a grill room and bar area with an
outdoor patio after the acquisition.
After closing of the acquisition, the Fremont Park Golf Center will be
expanded to include an 80-station tee area, practice putting green,
chipping/short game practice and sand bunker areas. The clubhouse redesign will
also include a pro shop and locker rooms. A corporate entertainment and group
area will be located adjacent to the patio.
HARBORSIDE GOLF CENTER
The Company has entered into a letter of intent to sublease, with an option
to purchase, the Harborside Golf Center located in downtown San Diego,
California. Under the current agreement, the Company intends to operate the
Harborside Golf Center sublease commencing in the summer of 1996.
F-30
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED
11. ACQUISITIONS (CONTINUED)
ACQUISITIONS OF LIMITED PARTNERSHIP INTERESTS
The Company has offered to purchase all of the limited partnership interests
in Illinois Center and Goose Creek. Under the Company's current proposal, (i)
each accredited limited partner of Illinois Center who elects to sell will
receive for each $50,000 limited partnership interest either (a) $25,000 cash
and a $25,000 convertible note or (b) a $50,000 convertible note (ii) each
accredited limited partner of Goose Creek who elects to sell will receive for
each $25,000 limited partnership interest (a) $12,500 in cash and a convertible
note in the amount of $26,500 or (b) a convertible note in the amount of
$39,000. The convertible notes will bear interest at 6% per annum and will
mature on June 1, 2005; interest only will be payable for the first 24 months
from the date of the issuance of the convertible notes. Thereafter, interest
will continue to be paid semi-annually and principal will be amortized evenly
over the remaining seven years until maturity. Each convertible note will be
convertible at the holder's option into common stock at any time after the date
that is 13 months after the closing of the IPO at a conversion price equal to
the price of the common stock to public in the IPO (see Note 12). 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 120% of the IPO price. Non-accredited investors of Illinois
Center will receive cash only in the amount of $50,000 for each $50,000 limited
partnership interest. Non-accredited investors of Goose Creek will receive cash
only in the amount of $39,000 for each $25,000 limited partnership interest. The
acquisitions will be contingent upon the closing of the IPO.
12. PUBLIC OFFERING
The Company has signed a letter of intent with Laidlaw & Co. for its
subsidiary, Laidlaw Equities, Inc., to complete an initial public offering of
the Company's common stock. The Company intends to offer approximately 1,175,000
shares of its common stock at a proposed price to the public of $6 per share.
The shares offered for sale to the public are intended to be registered with the
Securities and Exchange Commission on Form S-1.
13. EVENT SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS (UNAUDITED)
CONVERTIBLE SUBORDINATED NOTE OFFERING
On May 30, 1996, the Company completed its offer for sale in a private
placement $2,025,000 in convertible subordinated notes (Notes). The Notes were
offered by Laidlaw Equities, Inc. (Laidlaw) on a best efforts basis. Net
proceeds from the offering, after paying commissions and offering costs were
approximately $1,757,122. The Notes bear interest at 12 percent, with interest
payable June 1 and December 1 of each year commencing on December 1, 1996. The
Notes are due on June 1, 1997. The Notes, including any accrued but unpaid
interest, are convertible, at the option of the holder, simultaneously with the
consummation of the Company's IPO at 50 percent of the IPO price or, thereafter,
at 50 percent of the market price, if converted after the IPO.
The market interest rate on the convertible subordinated notes payable 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
payable in the amount of $243,600 based on an effective rate of 24%. This
original issue discount is being charged to interest over the life of the
convertible subordinated notes payable under the effective interest method.
F-31
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
(FORMERLY THE VINTAGE GROUP USA, LTD.)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED
13. EVENT SUBSEQUENT TO THE DATE OF THE REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS (UNAUDITED) (CONTINUED)
STOCK OPTION PLAN
In connection with the IPO, the Board of Directors has adopted the Company's
stock option plan (the Stock Option Plan). The Stock Option Plan provides for an
initial authorization of 250,000 shares of Common Stock for issuance thereunder
at exercise prices no less than 85% of the fair market value of the Common Stock
at the time of grant. The options will vest over a five-year period, except that
up to 10% of the options may be subject to a shorter vesting period at the
discretion of the Company's Board of Directors. Options may not be exercised
more than three months after an employee's termination of employment with the
Company unless such termination was a result of death, disability or retirement,
in which case the exercise period is extended to one year. The exercise price
may be paid in cash, by tendering shares of the Common Stock (valued at fair
market value on the date of exercise) if so provided in the applicable stock
option agreement, or by a combination of such means of payment, as may be
determined by the Committee. To date, no options have been granted pursuant to
the Stock Option Plan.
SENIOR EXECUTIVE INCENTIVE STOCK OPTION PLAN
The Company has granted options to each of its President and Executive Vice
President to purchase 125,000 shares of common stock pursuant to the Senior
Executive Incentive Stock Option Plan (the "Executive Option Plan") at an
exercise price equal to 100 percent of the IPO price. None of these options vest
prior to March 31, 1997. Thereafter they vest in accordance wtih the Executive
Option Plan.
F-32
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
MetroGolf Incorporated
(Formerly The Vintage Group USA, Ltd.)
Denver, Colorado
The audits referred to in our report to MetroGolf Incorporated dated May 17,
1996 which is contained in the Prospectus constituting part of this Registration
Statement included the audits of the schedules listed under Item 16 for the
years ended December 31, 1993, 1994 and 1995. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based upon our audits.
In our opinion, such schedule presents fairly, in all material respects, the
information set forth therein.
BDO SEIDMAN, LLP
Denver, Colorado
May 17, 1996, except for the
reverse stock split discussed
in Note 8 which is dated
September 16, 1996.
F-33
<PAGE>
METROGOLF INCORPORATED AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS CHARGED
BEGINNING TO COSTS BALANCE AT
OF YEAR AND EXPENSES DEDUCTIONS END OF YEAR
------------ ----------------- ----------- -----------
<S> <C> <C> <C> <C>
Year Ended December 31, 1993; Deferred tax asset
valuation allowance................................... $ -- $ -- $ -- $ --
Year Ended December 31, 1994; Deferred tax asset
valuation allowance................................... $ -- $ 49,000 $ -- $ 49,000
Year Ended December 31, 1995; Deferred tax asset
valuation allowance................................... $ 49,000 $ 98,000 $ -- $ 147,000
------------ -------- ----------- -----------
------------ -------- ----------- -----------
</TABLE>
F-34
<PAGE>
FREMONT PARK GOLF CENTER
FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
MetroGolf Incorporated
We have audited the accompanying statements of net assets of Fremont Park
Golf Center (the "Center") as of December 31, 1994 and 1995 and the related
statements of operations and cash flows for each of the three years in the
period ended December 31, 1995. These financial statements are the
responsibility of the Center's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying statements of net assets and statements of operations were
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission (for inclusion in the registration statement
on Form S-1 of MetroGolf Incorporated) as described in the Summary of Accounting
Policies.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets of Fremont Park Golf Center at December
31, 1994 and 1995 and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
Denver, Colorado
May 24, 1996
F-35
<PAGE>
FREMONT PARK GOLF CENTER
STATEMENTS OF NET ASSETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------- ------------- JUNE 30, 1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Current:
Cash............................................................... $ 2,568 $ 9,571 $ --
Inventories........................................................ 72,660 41,128 52,448
Prepaid expenses................................................... 779 8,147 5,732
------------- ------------- -------------
Total current assets............................................. 76,007 58,846 58,180
------------- ------------- -------------
Property and equipment, net (Note 2)............................... 496,568 469,227 456,276
------------- ------------- -------------
Other assets:
Excess of costs over net assets acquired, net of accumulated
amortization of $67,574, $102,830 and $120,430.................... 645,036 609,780 592,180
Other intangibles.................................................. 2,647 3,097 2,297
------------- ------------- -------------
Total other assets............................................... 647,683 612,877 594,477
------------- ------------- -------------
Total assets..................................................... $ 1,220,258 $ 1,140,950 $ 1,108,933
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES
Current liabilities:
Checks issued against future deposits.............................. $ -- $ -- $ 6,377
Accounts payable and accrued expenses.............................. 52,596 30,042 33,542
Current maturities of notes payable (Note 3)....................... 36,490 76,760 76,760
------------- ------------- -------------
Total current liabilities............................................ 89,086 106,802 116,679
Notes payable, less current maturities (Note 3)...................... 227,504 182,744 164,096
------------- ------------- -------------
Total liabilities.................................................... 316,590 289,546 280,775
------------- ------------- -------------
Commitments (Note 1)
Net assets........................................................... $ 903,668 $ 851,404 $ 828,158
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-36
<PAGE>
FREMONT PARK GOLF CENTER
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Range......................................... $ 336,383 $ 331,047 $ 293,030 $ 105,749 $ 147,114
Merchandise................................... 169,698 144,649 136,917 47,214 46,474
Lessons....................................... 75,554 68,111 65,819 10,523 8,272
Food and beverage............................. 8,551 14,477 12,193 4,859 6,886
----------- ----------- ----------- ----------- -----------
Total revenues.............................. 590,186 558,284 507,959 168,345 208,746
----------- ----------- ----------- ----------- -----------
Operating expenses:
Range operations.............................. 288,255 299,641 240,440 99,955 99,741
Merchandise expenses.......................... 120,523 100,338 115,043 47,600 34,645
Lessons expense............................... 37,198 34,231 29,932 4,125 3,805
Food and beverage expenses.................... 4,606 7,395 6,043 2,560 3,193
General and administrative.................... 79,230 73,540 75,153 45,522 48,053
Depreciation and amortization................. 62,702 65,215 65,027 33,400 33,400
----------- ----------- ----------- ----------- -----------
Total operating expenses.................... 592,514 580,360 531,638 233,162 222,837
----------- ----------- ----------- ----------- -----------
Loss from operations............................ (2,328) (22,076) (23,679) (64,817) (14,091)
Interest expense (Note 3)....................... (35,024) (22,387) (28,585) (16,001) (9,155)
----------- ----------- ----------- ----------- -----------
Net loss........................................ $ (37,352) $ (44,463) $ (52,264) $ (80,818) $ (23,246)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-37
<PAGE>
FREMONT PARK GOLF CENTER
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEARS ENDED DECEMBER 31, 30,
---------------------------------- ----------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Cash
Cash flows from operating activities
Net loss......................................... $ (37,352) $ (44,463) $ (52,264) $ (80,818) $ (23,246)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation................................... 25,798 29,606 30,221 15,000 15,000
Amortization................................... 34,318 35,609 34,806 18,400 18,400
Change in operating assets and liabilities:
Inventories.................................. (169) (7,491) 31,532 24,737 (11,320)
Prepaid expenses............................. 3,500 2,721 (7,368) (4,953) 2,415
Accounts payable and accrued expenses........ 17,818 22,588 (22,554) 10,527 3,500
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities........................................ 43,913 38,570 14,373 (17,107) 4,749
---------- ---------- ---------- ---------- ----------
Cash flows used in investing activities
Purchases of property and equipment.............. -- (8,148) (2,880) (2,840) (2,049)
---------- ---------- ---------- ---------- ----------
Cash flows from financing activities
Checks issued against future deposit............. -- -- -- -- 6,377
Proceeds from note payable....................... -- -- 32,000 32,000 --
Payments on note payable......................... (34,154) (37,613) (36,490) (14,113) (18,648)
---------- ---------- ---------- ---------- ----------
Net cash provided by (used in) financing
activities........................................ (34,154) (37,613) (4,490) 17,887 (12,271)
---------- ---------- ---------- ---------- ----------
Net increase (decrease) in cash.................... 9,759 (7,191) 7,003 (2,060) (9,571)
---------- ---------- ---------- ---------- ----------
Cash, beginning of period.......................... -0- 9,759 2,568 2,568 9,571
---------- ---------- ---------- ---------- ----------
Cash, end of period................................ $ 9,759 $ 2,568 $ 9,571 $ 508 $ --
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-38
<PAGE>
FREMONT PARK GOLF CENTER
SUMMARY OF ACCOUNTING POLICIES
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The statements of net assets and statements of operations relate to the
operations of a golf center in Fremont, California. The Fremont Park Golf Center
(the "Center") operates a practice golf driving range. The Center also provides
individual and group lessons in addition to selling various golf merchandise.
The Center was constructed in 1989 and has since been owned and operated by
various entities and individuals. In February 1993, the Center was sold for $1.2
million in a transaction involving unrelated entities. The purchase price was
financed through a $335,000 bank note payable, the issuance of a short-term note
to the seller of $625,000 (which was paid off in July 1993) and cash of
approximately $300,000. In July 1993, the entity was again sold in a transaction
involving related parties. The February 1993 sales transaction is being used as
the basis for valuing the purchased assets and liabilities since this was the
last arm's-length transaction involving the transfer of ownership. The fair
value assigned to the property and equipment resulting from the 1993 sales
transactions approximates the historical cost to construct the facility in 1989.
The Center currently is owned by an individual and the related land lease (Note
1) controlled by an affiliated entity. Subsequent to December 31, 1995, the
owner and operator of the Center have entered into a preliminary agreement to
sell the assets and assign the land lease of the Center to MetroGolf
Incorporated ("MetroGolf").
MetroGolf intends to use funds raised from the placement of convertible
subordinated notes to purchase the assets (Note 4).
Expenses of the Center have been allocated to the business using primarily
the specific identification method. The Center's management believes that the
allocations are reasonable, but they are not necessarily indicative of the costs
that would have been incurred if the business had operated as a separate
company.
The statements of net assets and statements of operations have been prepared
to substantially comply with rules and regulations of the Securities and
Exchange Commission for business combinations to be accounted for as a purchase.
INVENTORIES
Inventories consisting primarily of golf merchandise are recorded at lower
of cost (first-in, first-out) or market.
PROPERTY, EQUIPMENT AND AND DEPRECIATION
Property and equipment are valued at cost and are depreciated on a
straight-line basis over their estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings............................................... 31.5 years
Furniture, fixtures and equipment....................... 5-7 years
Land improvement........................................ 15 years
</TABLE>
EXCESS OF COSTS OVER NET ASSETS ACQUIRED
The excess of costs over net assets acquired, which relate to the February
1993 acquisition of the Center, is being amortized over a 20-year period using
the straight-line method. The Center periodically evaluates realization of this
asset based on discounted cash flows.
INCOME TAXES
No provision has been made for income taxes or income tax benefits in the
accompanying financial statements, as operating results are reportable in the
tax returns of the owner.
F-39
<PAGE>
FREMONT PARK GOLF CENTER
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Center's financial instruments that are exposed to concentrations of
credit risk consist primarily of cash. The Center's cash is in demand deposit
accounts placed with federally insured financial institutions. Such deposit
accounts at times may exceed federally insured limits. The Center has not
experienced any losses on such amounts.
FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value.
NOTE PAYABLE TO AN AFFILIATE
Due to the related party nature and terms of the $32,000 note payable to an
affiliate, the Company cannot estimate the fair market value of such financial
instruments.
NOTE PAYABLE
The note bears interest at a floating rate of interest based upon the
lending institution's prime lending rate. Accordingly, the fair value
approximates their reported carrying amount at December 31, 1994 and 1995 and
June 30, 1996.
REVENUE RECOGNITION
Range, merchandise and food and beverage revenue are recognized as revenue
immediately upon sale to the customer. Lessons revenue is recognized when the
lessons are provided.
RECENT ACCOUNTING PRONOUNCEMENT
The Financial Standards Board has recently issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets." SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reported at the lower of the carrying amounts of
their estimated recoverable amounts and the adoption of this statement by the
Center is not expected to have an impact on the financial statements.
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements for
the six months ended June 30, 1995 and 1996 are presented on a basis consistent
with the audited annual financial statements and reflect all adjustments,
consisting only of normal recurring accruals, necessary for fair presentation of
the results of such periods. The results of operations for the interim period
ended June 30, 1996 are not necessarily indicative of the results to be expected
for the year ending December 31, 1996.
F-40
<PAGE>
FREMONT PARK GOLF CENTER
NOTES TO FINANCIAL STATEMENTS
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED.
1. LEASE OBLIGATION
The Center is operated from land which is subject to a lease with the City
of Fremont through the year 2014, with an option to extend for 10 years. The
lease requires monthly payments equal to the following percentages of gross
revenue:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Range balls............................................................ 10% 10% 12%
Golf lessons........................................................... 10 10 12
Merchandise............................................................ 5 5 5
Food and beverage...................................................... 10 10 10
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 and for
the six months ended June 30, 1995 and 1996 totaled $45,273, $46,142, $49,718,
$22,084 and $20,247.
The terms of the lease also require the Center's operator to maintain
certain insurance levels for general upkeep of the facility and provide golf
professionals to teach lessons to the public.
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
----------- ----------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Building.............................................. $ 308,922 $ 308,922 $ 308,922
Land improvements..................................... 211,793 211,793 211,793
Furniture, fixtures and equipment..................... 31,257 34,137 36,186
----------- ----------- -----------
551,972 554,852 556,901
Less accumulated depreciation......................... 55,404 85,625 100,625
----------- ----------- -----------
$ 496,568 $ 469,227 $ 456,276
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
3. NOTES PAYABLE
In connection with the acquisition in February 1993, a $335,000 note payable
was incurred by the buyers to finance the acquisition. The note requires monthly
principal payments of $3,730 plus interest through December 2000. The note bears
interest at prime (8.5% at December 31, 1995) plus 1.5%. In January 1995, the
Center borrowed $32,000 from an affiliate of the owner to fund operating
expenses. This note bears interest at 10% and was due to be paid in March 1995.
This note has not yet been repaid.
Annual maturities of notes payable for the years subsequent to December 31,
1995 are as follows:
<TABLE>
<S> <C>
Years ending December 31, 1996 $ 76,760
1997................................................... 44,760
1998................................................... 44,760
1999................................................... 44,760
2000................................................... 48,464
---------
259,504
Less current portion..................................... 76,760
---------
$ 182,744
---------
---------
</TABLE>
F-41
<PAGE>
FREMONT PARK GOLF CENTER
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED.
4. OFFER TO PURCHASE
MetroGolf has executed an agreement to purchase the leasehold interest and
related assets of the Center for $1,350,000. The closing of the acquisition is
expected during the summer of 1996.
5. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
- ------------------------------- --------------------
1993 1994 1995 1995 1996
- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
$ 35,024 $ 22,387 $ 28,585 $ 16,001 $ 9,155
</TABLE>
F-42
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Illinois Center Golf Partners, L.P.
(An Illinois Limited Partnership)
Denver, Colorado
We have audited the accompanying balance sheets of Illinois Center Golf
Partners, L.P. (an Illinois limited partnership) (the "Partnership") as of
December 31, 1994 and 1995 and the related statements of operations, changes in
partners' capital and cash flows for the period from May 28, 1993 (Inception) to
December 31, 1993 and for the years ended December 31, 1994 and 1995. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Partnership at December
31, 1994 and 1995 and the results of its operations and its cash flows for the
period from May 28, 1993 (Inception) to December 31, 1993 and for the years
ended December 31, 1994 and 1995.
BDO SEIDMAN, LLP
Denver, Colorado
May 3, 1996
F-43
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
----------- -----------
JUNE 30,
1996
-----------
(UNAUDITED)
ASSETS (NOTE 3)
<S> <C> <C> <C>
Current:
Cash................................................................... $ 56,871 $ 7,349 $ 27,760
Accounts receivable.................................................... -- -- 9,542
Inventories............................................................ 18,690 11,196 17,112
Prepaid expenses....................................................... 16,437 -- --
Other current assets................................................... 2,100 3,521 14,420
----------- ----------- -----------
Total current assets................................................. 94,098 22,066 68,834
----------- ----------- -----------
Fixed assets (Note 2):
Course and practice facility........................................... 1,503,943 1,503,943 1,503,943
Building and related improvements...................................... 1,125,605 1,140,097 2,181,797
Design and development costs........................................... 522,056 524,719 524,719
Furniture, fixtures and equipment...................................... 143,020 163,973 588,252
----------- ----------- -----------
3,294,624 3,332,732 4,798,711
Less accumulated depreciation and amortization......................... 90,029 275,284 403,512
----------- ----------- -----------
Net fixed assets....................................................... 3,204,595 3,057,448 4,395,199
----------- ----------- -----------
Other:
Organization costs..................................................... 175,017 175,017 175,017
Loan fees.............................................................. -- 21,000 113,269
----------- ----------- -----------
175,017 196,017 288,286
Less accumulated amortization.......................................... 55,422 90,426 115,251
----------- ----------- -----------
119,595 105,591 173,035
Deposits............................................................... 35,222 36,022 6,786
----------- ----------- -----------
Total other assets....................................................... 154,817 141,613 179,821
----------- ----------- -----------
$ 3,453,510 $ 3,221,127 $ 4,643,854
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable....................................................... $ 795,007 $ 757,025 $ 400,955
Accrued real estate taxes.............................................. 83,335 285,573 377,315
Checks written against future deposits................................. -- -- 61,620
Deferred membership revenue............................................ 166,583 106,250 133,768
Deferred sponsorship revenue........................................... -- -- 20,000
Accrued expenses and liabilities....................................... 42,222 15,277 117,343
Accounts payable, related party (Note 5)............................... 41,063 83,256 39,252
Line of credit (Note 2)................................................ 200,000 200,000 --
Notes payable (Note 3)................................................. 81,268 80,911 --
Note payable, related party (Note 4)................................... 275,724 459,739 500,000
Current maturities of long-term debt................................... -- -- 183,569
----------- ----------- -----------
Total current liabilities............................................ 1,685,202 1,988,031 1,833,822
----------- ----------- -----------
Long-term debt, less current maturities................................ -- -- 2,048,143
----------- ----------- -----------
Total liabilities.................................................... 1,685,202 1,988,031 3,881,965
----------- ----------- -----------
Commitments and contingencies (Note 5)
Partners' capital (Note 1)
General partner........................................................ 56 42 29
Limited partners....................................................... 1,768,252 1,233,054 761,860
----------- ----------- -----------
1,768,308 1,233,096 761,889
----------- ----------- -----------
$ 3,453,510 $ 3,221,127 $ 4,643,854
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-44
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
MAY 28,
1993
(INCEPTION)
TO SIX MONTHS ENDED
DECEMBER YEAR ENDED DECEMBER 31, JUNE 30,
31, ------------------------- ----------------------
1993 1994 1995 1995 1996
----------- ------------ ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Green fees and driving range
revenue........................... $ -- $ 238,099 $ 579,186 $ 245,834 $ 208,202
Membership revenue................. -- 245,749 352,324 151,583 141,060
Instruction revenue................ -- 55,026 145,226 119,580 3,478
Merchandise........................ -- 83,415 63,969 27,223 19,731
Food and beverage.................. -- 60,982 194,117 88,186 54,112
Special events..................... -- 54,084 62,446 9,330 33,422
Sponsorship........................ -- -- 75,000 25,000 20,000
Parking............................ -- -- 51,474 19,482 28,191
Other income....................... -- 7,792 28,970 17,753 1,321
----------- ------------ ----------- ---------- ----------
Total revenues................... -- 745,147 1,552,712 703,971 509,517
----------- ------------ ----------- ---------- ----------
Operating expenses:
Pro shop expenses.................. -- 239,856 152,586 99,976 108,380
Instruction expenses............... -- 46,247 146,651 100,782 --
Food and beverage expenses......... -- 178,344 201,013 97,397 65,489
Special events..................... -- -- -- -- 52,472
Golf course maintenance expenses... -- 155,663 196,938 129,137 111,434
General and administrative
expenses.......................... 244,678 1,007,443 954,957 401,686 279,142
Depreciation and amortization...... 20,419 125,033 220,258 109,712 153,053
Asset management fees, affiliate
(Notes 4 and 5)................... -- 111,063 139,243 60,000 73,011
----------- ------------ ----------- ---------- ----------
Total operating expenses......... 265,097 1,863,649 2,011,646 998,690 842,981
----------- ------------ ----------- ---------- ----------
Loss from operations................. (265,097) (1,118,502) (458,934) (294,719) (333,464)
----------- ------------ ----------- ---------- ----------
Other income (expense):
Interest income.................... 25,766 27,121 6 -- --
Interest expense................... -- (19,384) (76,284) (34,074) (137,743)
----------- ------------ ----------- ---------- ----------
Total other income (expenses).... 25,766 7,737 (76,278) (34,074) (137,743)
----------- ------------ ----------- ---------- ----------
Net loss............................. $(239,331) $ (1,110,765) $ (535,212) $ (328,793) $ (471,207)
----------- ------------ ----------- ---------- ----------
----------- ------------ ----------- ---------- ----------
Net loss allocated to general
partner............................. $ (6) $ (28) $ (14) $ (9) $ (13)
Net loss allocated to limited
partners............................ $(239,325) $ (1,110,737) $ (535,198) $ (328,784) $ (471,194)
----------- ------------ ----------- ---------- ----------
----------- ------------ ----------- ---------- ----------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-45
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIOD FROM MAY 28, 1993 (INCEPTION) TO DECEMBER 31, 1993,
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1995, AND FOR
THE SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
----------- -------------- --------------
<S> <C> <C> <C>
Capital balance, May 28, 1993 (inception)............................... $ -- $ -- $ --
Capital contributions, net of syndication costs of $365,171........... 90 2,984,839 2,984,929
Net loss.............................................................. (6) (239,325) (239,331)
----------- -------------- --------------
Capital balance, December 31, 1993...................................... 84 2,745,514 2,745,598
Capital contributions, net of syndication costs of $16,525............ -- 183,475 183,475
Partner redemption.................................................... -- (50,000) (50,000)
Net loss.............................................................. (28) (1,110,737) (1,110,765)
----------- -------------- --------------
Capital balance, December 31, 1994...................................... 56 1,768,252 1,768,308
Net loss.............................................................. (14) (535,198) (535,212)
----------- -------------- --------------
Capital balance, December 31, 1995...................................... 42 1,233,054 1,233,096
Net loss (Unaudited).................................................. (13) (471,194) (471,207)
----------- -------------- --------------
Capital Balance, June 30, 1996 (Unaudited).............................. $ 29 $ 761,860 $ 761,889
----------- -------------- --------------
----------- -------------- --------------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-46
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
MAY 28,
1993
(INCEPTION)
TO YEARS ENDED DECEMBER SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
31, ---------------------- --------------------
1993 1994 1995 1995 1996
----------- ----------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss............................... $(239,331) $(1,110,765) $(535,212) $(328,793) $(471,207)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization........ 20,419 125,033 220,258 109,712 153,053
Changes in operating assets and
liabilities:
Accounts receivable................ -- -- -- -- (9,542)
Inventories........................ -- (18,690) 7,494 8,198 (5,916)
Receivable, affiliate.............. (20,000) 8,000 -- -- --
Prepaid expenses and other current
assets............................ (100) (16,437) 15,016 7,462 (10,899)
Accounts payable................... 52,741 521,895 (37,981) (172,574) (356,070)
Accrued real estate taxes.......... -- 83,335 202,238 101,118 91,742
Checks written against future
deposits.......................... -- -- -- 22,937 61,620
Accrued expenses and liabilities... -- 46,350 (1,950) 56,771 102,066
Deferred membership revenue........ -- 166,584 (60,333) 30,418 27,518
Deferred sponsorship revenue....... -- -- -- 25,000 20,000
Accounts payable, related party.... -- 41,063 42,193 4,341 (44,004)
----------- ----------- --------- --------- ---------
Net cash used in operating activities.... (186,271) (153,632) (148,277) (135,410) (441,639)
----------- ----------- --------- --------- ---------
Investing activities:
Purchase of and construction of fixed
assets................................ (983,238) (2,018,656) (38,108) -- (1,137)
Payment of syndication costs........... (360,132) (16,525) -- -- --
Payment of organization costs.......... (154,863) -- -- -- --
Payments for deposits.................. (8,700) (26,522) (800) 2,238 (1,606)
----------- ----------- --------- --------- ---------
Net cash used in investing activities.... (1,506,933) (2,061,703) (38,908) 2,238 (2,743)
----------- ----------- --------- --------- ---------
Financing activities:
Payments on, proceeds from line of
credit................................ -- 200,000 -- -- (200,000)
Proceeds from note payable,
affiliate............................. -- 266,074 213,679 90,890 40,261
Proceeds from note payable............. -- -- -- -- 900,000
Payments on note payable, affiliate.... -- -- (51,259) -- --
Payments on note payable............... -- (764) (3,757) (651) (183,199)
Payments for loan fees................. -- -- (21,000) -- (92,269)
Proceeds from capital contributions.... 3,350,100 62,500 -- -- --
Proceeds from subscriptions pending.... 137,500 -- -- -- --
Payments for redemption of limited
partner's interest.................... -- (50,000) -- -- --
----------- ----------- --------- --------- ---------
Net cash provided by (used in) financing
activities.............................. 3,487,600 477,810 137,663 90,239 464,793
----------- ----------- --------- --------- ---------
Net increase (decrease) in cash.......... 1,794,396 (1,737,525) (49,522) (42,933) 20,411
Cash, beginning of period................ -- 1,794,396 56,871 56,871 7,349
----------- ----------- --------- --------- ---------
Cash, end of period...................... $1,794,396 $ 56,871 $ 7,349 $ 13,938 $ 27,760
----------- ----------- --------- --------- ---------
----------- ----------- --------- --------- ---------
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-47
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
SUMMARY OF ACCOUNTING POLICIES
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
ORGANIZATION AND BUSINESS
Illinois Center Golf Partners, L. P. (the "Partnership") was formed on May
28, 1993 under the laws of the State of Illinois. The Partnership was formed for
the purpose of developing, owning and operating a public, nine-hole, par 3 golf
course and driving range practice facility located in downtown Chicago known as
Illinois Center Golf and commenced primary operation in August 1994. The
Partnership's business is seasonal. A substantial portion of its business is
between May 1 to October 1. Limited partnership interests were offered to
investors through a private placement, which raised $3,500,000. The limited
partners hold a 60 percent interest in the Partnership (see Note 1).
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements for
the six months ended June 30, 1995 and 1996 are presented on a basis consistent
with the audited annual financial statements and reflect all adjustments,
consisting only of normal recurring accruals, necessary for fair presentation of
the results of such periods. The results of operations for the interim period
ended June 30, 1996 are not necessarily indicative of the results to be expected
for the year ending December 31, 1996.
CASH AND CASH EQUIVALENTS
The Partnership considers all highly liquid investments purchased with
original maturities of three months or less and money market accounts to be cash
equivalents.
INVENTORIES
Inventories, which consist of pro-shop merchandise and food and beverage,
are recorded at the lower of cost (first-in, first-out) or market.
FIXED ASSETS
Fixed assets are stated at cost and are depreciated and amortized on a
straight-line basis over the estimated useful lives of the assets or over the
term of the lease, whichever is shorter.
LOAN FEES
Loan fees are recorded at cost and are amortized using the straight-line
method over the term of the long-term debt (see Note 3).
ORGANIZATION COSTS
Organization costs are recorded at cost and are amortized using the
straight-line method over 60 months.
INCOME TAXES
No provision has been made for income taxes or income tax benefits in the
accompanying financial statements, as taxable income or losses are reportable in
the tax returns of the individual partners. The net difference between the tax
basis and the reported amounts of the Partnership's assets and liabilities as of
December 31, 1994 and 1995 and June 30, 1996 are approximately $733,000,
$678,000 and $744,000.
F-48
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
CONCENTRATIONS OF CREDIT RISK
The Partnership's financial instruments that are exposed to concentrations
of credit risk consist primarily of cash and cash equivalents. The Partnership's
cash equivalents are in demand deposit accounts placed with federally insured
financial institutions. Such deposit accounts at times may exceed federally
insured limits. The Partnership has not experienced any losses on such accounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
ACCOUNTS PAYABLE AND NOTE PAYABLE RELATED PARTIES
Due to the related party nature and terms of the payables to related
parties, the Partnership cannot estimate the fair market value of such financial
instruments.
NOTES PAYABLE AND LONG-TERM DEBT
Substantially all these notes bear interest at a floating rate of interest
based upon a lending institution's prime lending rate. Accordingly, the fair
value approximates the reported carrying amount at December 31, 1994 and 1995
and June 30, 1996.
REVENUE RECOGNITION
Green fees, driving range fees, instruction revenue, merchandise and food
and beverage revenue are recognized as revenue immediately upon sale to the
customer. Membership fees are recognized as revenue ratably over the life of the
membership, usually 12 months. Sponsorship revenue is recognized as revenue
ratably over the life of the contract.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Standards Board has recently issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets." 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
Partnership is not expected to have an impact on the financial statements.
F-49
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. PARTNERS' CAPITAL ACCOUNTS
The general partner of the Partnership, with a 40-percent interest in the
Partnership, has the responsibility to make all decisions affecting the
day-to-day business of the Partnership. The general partner does not have the
authority except under certain conditions as provided for in the partnership
agreement, to cause the Partnership to secure any indebtedness of the
Partnership with a mortgage, deed of trust or similar lien on the property, nor
does the general partner have the authority to sell or transfer all or
substantially all of the assets of the Partnership, unless the general partner
first obtains the majority consent of the limited partners. The general partner
contributed $90, its agreement to develop and acquire the ground lease (see Note
5) and expertise to the Partnership formation in exchange for its interest in
the Partnership. The selling agent for the Partnership received a special
limited partner interest for its services. For financial statement purposes,
activity for the special limited partner is grouped with the limited partners.
The Partnership agreement allows for cash distributions to the general and
limited partners from available net cash flow. Net cash flow is defined for any
period as the excess, if any, of revenues over expenses. Net cash flow is to be
distributed not less frequently than quarterly, commencing after the first full
calendar quarter following the opening to the public of Illinois Center Golf, as
follows:
a. first, 100 percent to the limited partners until the limited partners
have received cash in an amount equal to a 15 percent per annum return on
their net capital contribution calculated on a cumulative and compounded
basis from the date on which their capital contributions were delivered
to the Partnership;
b. second, to the limited partners in proportion to their net capital
contributions until their net capital contributions are reduced to zero;
and
c. thereafter, 57 1/2 percent to the limited partners, 40 percent to the
general partner and 2-1/2 percent to the special limited partner.
Profits and losses are allocated to the partners as follows:
PROFITS
a. first, to the partners in proportion to their negative adjusted capital
account balances, if any, until the negative balance of each partner's
adjusted capital account equals such partner's share of partnership
minimum gain and partner nonrecourse debt minimum gain;
b. second, to the partners until the aggregate amount allocated to each
partner for all years equals the aggregate of net losses allocated to
each partner for all previous years, pro rata in proportion to the net
losses being offset;
c. third, to the general partner until the aggregate amount allocated to
the general partner for all years equals the aggregate distributions of
net cash flow to the general partner for all years;
d. fourth, to the special limited partner until the aggregate amount
allocated to the special limited partner for all years equals the
aggregate distributions of net cash flow to the special limited partner
for all years; and
e. the balance, if any, to the limited partners.
F-50
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. PARTNERS' CAPITAL ACCOUNTS (CONTINUED)
LOSSES
a. first, to the limited partners until the amount allocated to each
partner equals the aggregate of net profits allocated to each limited
partner for all previous years;
b. second, to the special limited partner until the amount allocated to the
special limited partner equals the aggregate of net profits allocated to
the special limited partner for all previous years;
c. third, to the general partner until the amount allocated to the general
partner equals the aggregate net profits allocated to the general partner
for all previous years;
d. fourth, to the partners up to the amount of net capital contributions,
allocated pro rata in proportion to net capital contributions; and
e. the balance, if any, to the general partner.
2. LINE OF CREDIT
The Partnership entered into a $200,000 line of credit agreement dated May
6, 1994. Borrowings under the line accrue interest at 1.5 percent over the
Associated Bank's prime rate, which was 8.5 percent at December 31, 1995. The
line is collateralized by inventory, contract rights, equipment and fixtures.
The balance outstanding on the line of credit was $200,000 as of December 31,
1995. The line of credit was paid in full during January 1996.
3. NOTES PAYABLE
During 1994, the Partnership entered into two note agreements with a
contractor of the Illinois Center Golf facility. Both note agreements are
unsecured, accrue interest at fifteen percent and were due in monthly principal
and interest installments of $500 through June 1, 1995. The balances on the
notes as of December 31, 1994 are $57,030 and $24,238 and as of December 31,
1995 are $58,493 and $22,418. During January 1996, the notes were paid in full.
NOTE PAYABLE -- TEXTRON
On January 31, 1996, subsequent to year end, the Partnership entered into a
$2,000,000 promissory note with Textron. Textron advanced $1,750,000 to the
Partnership. The Partnership may be entitled to receive additional advances up
to $250,000 from Textron pursuant to the terms of the note agreement. The note
bears interest at three percent above the Chase Manhattan Bank's prime rate and
is due on or before December 31, 2002. Principal and interest payments are due
under a seasonal payment structure. The note is collateralized by substantially
all of the assets of the Partnership and is personally guaranteed by the
president of the managing general partner.
EQUIPMENT PURCHASE
On January 31, 1996, subsequent to year end, the Partnership purchased its
clubhouse facility and various items of equipment which were previously under
operating leases for $1,434,000. The Partnership paid $850,000 in cash and
entered into a $584,000 promissory note. The note bears interest at eight
percent per annum and is due June 1, 2005. Principal and interest payments on
the note commence January 1, 1998. The note is collateralized by its clubhouse
facility and various items of equipment. The note is subordinate to the Textron
note payable.
F-51
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
4. RELATED PARTY TRANSACTIONS
ASSET MANAGEMENT FEE
The general partner is entitled to receive a $60,000 annual asset management
fee, increased by five percent per annum, for its services relating to the
operation of Illinois Center Golf, financial advisory services, partnership
reporting and other administrative services. The asset management fee is payable
in monthly installments beginning July 1994. For the years ended December 31,
1994 and 1995 and for the six months ended June 30, 1995 and 1996, the
Partnership incurred asset management fees of $35,000, $60,000, $30,000 and
$31,500.
NOTE PAYABLE TO AFFILIATE
On September 1, 1994, the Partnership entered into a $500,000 note agreement
with its general partner. Borrowings under the agreement accrue interest at two
percent over the Citibank's prime rate, which was 8.5 percent at December 31,
1995. The note is unsecured and due the earlier of demand or September 1, 1997.
The balance outstanding on the note is $275,724, $459,739 and $500,000 as of
December 31, 1994 and 1995 and June 30, 1996.
5. COMMITMENTS AND CONTINGENCIES
PROPERTY MANAGEMENT AGREEMENT
On December 1, 1993, the Partnership entered into a property management
agreement with Metrogolf Management, Inc., formerly Vintage Golf Management,
Inc. ("MGM"), an affiliate of the general partner. The management agreement
expires on January 1, 1997. The terms of the management agreement provide for a
management fee of $5,000 per month plus a membership incentive fee of ten
percent of the gross proceeds received from membership initiation fees and the
equivalent of one month's membership dues as received by Illinois Center Golf.
The membership incentive fee for renewal memberships will be reduced to four
percent of annual dues for renewal memberships. In addition, the management
agreement provides for an annual incentive fee of five percent of the amount of
annual net operating income in excess of $1,600,000.
Prior to November 11, 1994, MGM was operated by Club Sports International
("CSI"). On October 1, 1994, CSI was removed as operator of MGM. On November 11,
1994, Billy Casper Golf Management, Inc. ("BCGM") was engaged as the new
operator of MGM. From June 1, 1994 through September 30, 1994, MGM's base
management fee was split between CSI and the general partner, with CSI receiving
$4,000 and the general partner receiving $1,000. From October 1 through November
10, the general partner earned the full amount of MGM's fee. Starting November
11, 1994 through November 30, 1995, BCGM earned the entire fee. During November
1995, BCGM was removed as operator of MGM and the general partner became the
operator of MGM. In addition, MGM has agreed to waive 80% of the deferred $5,000
per month fees that it had earned under its contract from the period December 1,
1993 to May 31, 1994.
For the years ended December 31, 1994 and 1995 and for the six months ended
June 30, 1995 and 1996, property management expense, including the incentive
fees, were $76,063, $79,243, $30,000 and $41,511. As of December 31, 1994 and
1995 and June 30, 1996, the Partnership owed MGM $41,063, $83,256 and $39,252 in
unpaid property management fees and incentive fees.
F-52
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LEASING ACTIVITY
The Partnership has noncancelable operating lease agreements for equipment
and golf carts which expire through October 1998. Total lease expense
approximated $-0-, $179,000, $159,000 and $11,062 for the period from May 28,
1993 (inception) to December 31, 1993, for the years ended December 31, 1994 and
1995, and for the six months ended June 30, 1996.
Future minimum payments in accordance with the above lease agreements as of
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996...................................................... $ 23,000
1997...................................................... 17,000
1998...................................................... 7,000
---------
$ 47,000
---------
---------
</TABLE>
GROUND SUBLEASE AND SUBLICENSE AGREEMENT
The Partnership entered into a ground sublease and sublicense agreement on
July 14, 1993 for the property on which Illinois Center Golf is constructed. The
term of the lease is for fifteen years, commencing with the opening date of July
14, 1994, and may be extended by agreement of the parties.
The sublease agreement calls for the payment of a tax contribution, land
rent, and additional rent. Payments for these amounts are subject to available
operational proceeds, which are applied and expended in the following order:
1. Expenses
2. Debt service
3. Tax contribution
4. Operational reserve
5. Partnership preferred return
6. Partnership contribution
7. Land rent
8. Distributable cash
The tax contribution is in the amount of $10,417 per month starting August
1, 1994, increased by $6,250 per month for any month in which land rent is not
paid. Land rent is in the amount of $6,250 per month pro rated from July 13,
1994 to August 17, 1994, and $12,500 per month thereafter. Additional land rent
is payable in the amount of 32.5 percent of distributable cash. The contingent
payments for tax contribution and land rent as of December 31, 1995 were
approximately $285,600 and $282,500. As of December 31, 1995, the Partnership
paid no tax contribution nor land rent to the lessor. As of December 31, 1994
and 1995 and June 30, 1996, the Partnership has accrued tax contributions of
approximately $83,300, $285,600 and $377,315. As of December 31, 1994 and 1995
and June 30, 1996, the Partnership was not obligated to pay land rent under the
provisions of the agreement.
F-53
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
6. SUPPLEMENTAL DISCLOSURES FOR THE STATEMENTS OF CASH FLOWS
The following is a summary of noncash investing and financing activities.
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
MAY 28, 1993
(INCEPTION) YEARS ENDED DECEMBER SIX MONTHS ENDED
TO 31, JUNE 30,
DECEMBER 31, -------------------- --------------------
1993 1994 1995 1995 1996
------------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Construction of course, practice facility,
building and related improvements financed
with accounts payable...................... $ 33,507 $ 259,224 $ -- $ -- $ --
Purchase of equipment with long-term debt... $ -- $ -- $ -- $ -- $1,434,000
Purchase of equipment financed with
deposits................................... $ -- $ -- $ -- $ -- $ 30,482
Organization costs financed with accounts
payable.................................... $ 20,154 $ -- $ -- $ -- $ --
Syndicated costs financed with accounts
payable.................................... $ 5,039 $ -- $ -- $ -- $ --
Accounts payable converted to notes
payable.................................... $ -- $ 81,758 $ -- $ -- $ --
Accounts payable converted to note payable,
affiliate.................................. $ -- $ 15,796 $ -- $ 15,000 $ --
Accrued interest converted to note
payable.................................... $ -- $ 274 $ 3,400 $ -- $ --
Accrued interest converted to note payable,
affiliate.................................. $ -- $ 3,854 $ 21,595 $ -- $ --
Receivable due from affiliate offset against
note payable, affiliate.................... $ -- $ 10,000 $ -- $ -- $ --
Subscriptions pending converted to partners'
capital.................................... $ -- $ 137,500 $ -- $ -- $ --
</TABLE>
The Partnership made cash payments for interest of $-0-, $17,716, $37,523,
$3,482 and $108,080 for the period from May 28, (inception) to December 31,
1993, for the years ended December 31, 1994 and 1995 and for the six months
ended June 30, 1995 and 1996.
7. PROPOSED PARTNERSHIP ACQUISITION
MetroGolf Illinois Center, Inc., formerly TVG (Illinois Center), Inc., is
the managing general partner of the Partnership and is a majority owned
subsidiary of MetroGolf Incorporated (the "Company"). The Company has offered to
purchase limited partnership interests for a combination of cash and convertible
notes. The acquisition will be contingent upon the closing of the Company's
initial public offering ("IPO").
Limited partners who elect not to exchange their interest will remain
limited partners in the partnership. Under the Company's current proposal, each
limited partner who elects to sell will receive for each $50,000 limited
partnership interest either $25,000 cash and a $25,000 convertible note or a
$50,000 convertible note. Each convertible note will bear interest at 6% per
annum and will mature on June 1, 2005; interest only will be payable for the
first 24 months from issuance of the convertible notes, with the remaining
interest and principal being amortized evenly over the remaining seven years.
Each convertible note will be convertible at the holder's option into common
stock at any time after the date is 13 months after the closing of the IPO at a
conversion price equal to the price of the common stock to the public in the
IPO. In addition, each $25,000 convertible note issued to the limited partners
will convert into warrants to purchase 2,500 shares of common stock at an
exercise price equal to 120% of the IPO price.
When the convertible notes are first convertible into the common stock of
the Company, the Company will use its best efforts to cause such shares to be
registered.
F-54
<PAGE>
ILLINOIS CENTER GOLF
PARTNERS, L.P.
(AN ILLINOIS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
7. PROPOSED PARTNERSHIP ACQUISITION (CONTINUED)
The closing of the acquisition of the limited partnership interests and the
promissory notes is contingent upon the closing of the Company's IPO. The
limited partnership and promissory note acquisitions will not be consummated
before the closing of the IPO and there can be no assurance that the limited
partnership interests and promissory note acquisitions or the IPO will occur.
8. LIQUIDITY
As of December 31, 1995, the Partnership had negative working capital. As
discussed in Note 3, the Partnership was advanced $1,750,000 on January 31,
1996. The Partnership believes that with this loan it will have sufficient
working capital to fund its 1996 operations.
F-55
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners
Goose Creek Golf Partners Limited Partnership
(A Virginia Limited Partnership)
Denver, Colorado
We have audited the accompanying balance sheets of Goose Creek Golf Partners
Limited Partnership (a Virginia limited partnership) (the "Partnership") as of
December 31, 1994 and 1995 and the related statements of operations, changes in
partners' capital and cash flows for the years ended December 31, 1993, 1994 and
1995. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Partnership as of
December 31, 1994 and 1995 and the results of its operations and its cash flows
for the years ended December 31, 1993, 1994 and 1995 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 1 to the
financial statements, the Partnership has suffered recurring losses from
operations and has a working capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also discussed in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
BDO SEIDMAN, LLP
Denver, Colorado
May 17, 1996
F-56
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
---------- ----------
JUNE 30,
1996
-----------
(UNAUDITED)
ASSETS (NOTE 3)
<S> <C> <C> <C>
Current:
Cash..................................................................... $ 26,466 $ 19,386 $ 37,681
Restricted cash (Note 2)................................................. 75,000 --
Inventories.............................................................. 31,226 34,145 23,796
Prepaid insurance and other current assets............................... 5,030 15,521 10,022
Real estate tax escrow................................................... 6,474 11,666 22,423
---------- ---------- -----------
Total current assets................................................... 69,196 155,718 93,922
---------- ---------- -----------
Fixed assets:
Land..................................................................... 3,526,961 3,526,961 3,526,961
Buildings................................................................ 859,401 859,401 861,501
Furniture, fixtures and equipment........................................ 1,109,701 1,127,060 1,127,060
---------- ---------- -----------
5,496,063 5,513,422 5,515,522
Less accumulated depreciation and amortization........................... 333,542 500,877 566,685
---------- ---------- -----------
Net fixed assets........................................................... 5,162,521 5,012,545 4,948,837
---------- ---------- -----------
Other:
Organization costs....................................................... 89,463 89,463 89,463
Loan fees................................................................ 119,305 119,305 119,305
---------- ---------- -----------
208,768 208,768 208,768
Less accumulated amortization............................................ 106,725 148,479 168,389
---------- ---------- -----------
102,043 60,289 40,379
Deposits................................................................. 2,300 1,866 1,866
---------- ---------- -----------
Total other assets..................................................... 104,343 62,155 42,245
---------- ---------- -----------
$5,336,060 $5,230,418 $5,085,004
---------- ---------- -----------
---------- ---------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable......................................................... $ 135,448 $ 220,687 $ 332,993
Accounts payable, related party.......................................... 393 -- --
Checks written against future deposits................................... 53,930
Sales tax payable........................................................ 1,120 547 8,541
Accrued interest......................................................... 28,567 30,700 33,233
Deferred membership revenue.............................................. 69,574 51,210 25,166
Line of credit (Note 2).................................................. -- 149,941 74,941
Note payable, related party (Note 6)..................................... -- 54,989 106,823
Notes payable, other..................................................... -- 11,650 28,600
Note payable -- Textron, current portion (Note 3)........................ 76,441 84,477 88,811
Convertible notes payable, current portion (Note 3)...................... 527,307 -- --
Capital lease obligations, current portion (Note 5)...................... 93,084 103,343 108,889
---------- ---------- -----------
Total current liabilities.............................................. 931,934 707,544 861,927
---------- ---------- -----------
Long-term liabilities:
Note payable -- Textron, less current portion (Note 3)................... 3,332,953 3,248,486 3,256,062
Convertible notes payable, less current portion (Note 3)................. -- 380,000 380,000
Capital lease obligation, less current portion (Note 5).................. 455,407 354,246 308,442
---------- ---------- -----------
Total long-term liabilities............................................ 3,788,360 3,982,732 3,944,504
---------- ---------- -----------
Total liabilities...................................................... 4,720,294 4,690,276 4,806,431
---------- ---------- -----------
Commitments and contingencies (Note 5)
Partners' capital (Note 4)
General partners......................................................... (2,975) (3,731) (6,347)
Limited partners......................................................... 618,741 543,873 284,920
---------- ---------- -----------
615,766 540,142 278,573
---------- ---------- -----------
$5,336,060 $5,230,418 $5,085,004
---------- ---------- -----------
---------- ---------- -----------
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to financial statements.
F-57
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------- --------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Greens fees.................... $ 704,953 $ 743,816 $ 655,398 $ 324,014 $ 225,748
Golf cart rental............... 266,809 336,180 304,188 140,180 98,682
Merchandise.................... 190,073 204,356 176,185 82,268 57,409
Food and beverage.............. 174,235 222,570 188,953 95,453 73,119
Outings and events............. -- -- -- -- 62,554
Membership revenue............. 104,158 154,007 114,574 61,953 42,773
Other income................... 388 -- 12,624 4,652 12,654
---------- ---------- ---------- --------- ---------
Total revenues............... 1,440,616 1,660,929 1,451,922 708,520 572,939
---------- ---------- ---------- --------- ---------
Operating expenses:
Pro shop....................... 312,520 304,337 295,546 147,077 170,957
Food and beverage.............. 103,982 128,071 120,698 59,593 47,056
Golf course maintenance........ 183,652 241,283 258,147 106,252 105,060
General and administrative..... 322,165 279,901 293,004 132,123 130,298
Depreciation and
amortization.................. 174,132 237,966 209,089 92,147 85,718
Asset management fee, related
party (Note 6)................ 46,313 48,628 51,059 25,013 26,264
---------- ---------- ---------- --------- ---------
Total operating expenses..... 1,142,764 1,240,186 1,227,543 562,205 565,353
---------- ---------- ---------- --------- ---------
Income (loss) from operations.... 297,852 420,743 224,379 146,315 7,586
---------- ---------- ---------- --------- ---------
Other income (expenses):
Interest income................ 1,073 384 3,830 73 2,432
Interest expense............... (437,518) (449,242) (469,732) (233,228) (271,587)
---------- ---------- ---------- --------- ---------
Total other (expenses)....... (436,445) (448,858) (465,902) (233,155) (269,155)
---------- ---------- ---------- --------- ---------
Loss before extraordinary item... (138,593) (28,115) (241,523) (86,840) (261,569)
Extraordinary item, debt
extinguishment.................. 165,899 -- --
---------- ---------- ---------- --------- ---------
Net loss......................... $ (138,593) $ (28,115) $ (75,624) $ (86,840) $(261,569)
Net loss allocated to general
partners........................ $ (1,386) $ (281) $ (756) $ (868) $ (2,616)
Net loss allocated to limited
partners........................ $ (137,207) $ (27,834) $ (74,868) $ (85,972) $(258,953)
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to financial statements.
F-58
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND
SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
--------- --------- ---------
Balance, January 1, 1993.................................... $ (1,308) $ 747,115 $ 745,807
<S> <C> <C> <C>
Capital contributions..................................... -- 50,000 50,000
Distribution to partners.................................. -- (13,333) (13,333)
Net loss.................................................. (1,386) (137,207) (138,593)
--------- --------- ---------
Balance, December 31, 1993.................................. (2,694) 646,575 643,881
Net loss.................................................. (281) (27,834) (28,115)
--------- --------- ---------
Balance, December 31, 1994.................................. (2,975) 618,741 615,766
Net loss.................................................. (756) (74,868) (75,624)
--------- --------- ---------
Balance, December 31, 1995.................................. (3,731) 543,873 540,142
Net loss (Unaudited)...................................... (2,616) (258,953) (261,569)
--------- --------- ---------
Balance, June 30, 1996 (Unaudited).......................... $ (6,347) $ 284,920 $ 278,573
--------- --------- ---------
--------- --------- ---------
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to financial statements.
F-59
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------- --------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net loss................................ $ (138,593) $ (28,115) $ (75,624) $ (86,840) $(261,569)
Adjustments to reconcile net loss to
cash provided by (used in) operating
activities:
Depreciation and amortization......... 174,132 237,966 209,089 92,147 85,718
Extraordinary item, debt
extinguishment....................... -- -- (165,899) -- --
Debt issued for services.............. -- -- 11,650 -- --
Changes in operating assets and
liabilities:
Inventories........................... 10,273 9,036 (2,919) (45,297) 10,349
Prepaid insurance..................... 3,983 (979) (10,491) 5,030 15,521
Real estate tax escrow................ 8,281 (3,031) (5,192) -- (10,757)
Other current assets.................. (5,732) -- -- (1,308) (10,022)
Accounts payable...................... 46,657 25,472 85,239 79,844 112,306
Accounts payable, related party....... -- 393 (393) (393) --
Checks written against future
deposits............................. -- -- -- -- 53,930
Accrued expenses...................... 41,745 131,759 77,857 38,823 53,046
Deferred membership revenue........... 73,850 (6,610) (18,364) (33,843) (26,044)
---------- ---------- ---------- --------- ---------
Net cash provided by operating
activities............................... 214,596 365,891 104,953 48,163 22,478
---------- ---------- ---------- --------- ---------
Investing activities:
Proceeds from certificate of deposit.... -- -- -- -- 75,000
Purchase of certificate of deposit...... -- -- (75,000) (75,000) --
Purchase of fixed assets................ (263,066) (157,128) (17,359) (17,168) (2,100)
Decrease in deposits.................... -- 1,250 434 2,300 --
---------- ---------- ---------- --------- ---------
Net cash provided by (used in) investing
activities............................... (263,066) (155,878) (91,925) (89,868) 72,900
---------- ---------- ---------- --------- ---------
Financing activities:
Payments on long-term debt.............. (62,778) (161,760) (131,953) (52,841) (30,609)
Borrowings on convertible notes
payable................................ -- -- 380,000 -- --
Payments on convertible notes payable... -- -- (380,000) -- --
Payments on capital lease obligations... (71,790) (81,174) (93,085) (36,557) (40,258)
Borrowings on line-of-credit............ -- -- 149,941 140,755
Payments on line of credit.............. -- -- -- -- (75,000)
Borrowings on note payable, related
party.................................. -- -- 54,989 -- 51,834
Borrowings on notes payable, other...... -- -- -- -- 20,000
Payments on notes payable, other........ -- -- -- -- (3,050)
Partner capital contributions........... 50,000 -- -- -- --
Partner distributions................... (13,333) -- -- -- --
---------- ---------- ---------- --------- ---------
Net cash provided by (used in) financing
activities............................... (97,901) (242,934) (20,108) 51,357 (77,083)
---------- ---------- ---------- --------- ---------
Net increase (decrease) in cash........... (146,371) (32,921) (7,080) 9,652 18,295
Cash, beginning of period................. 205,758 59,387 26,466 26,466 19,386
---------- ---------- ---------- --------- ---------
Cash, end of period....................... $ 59,387 $ 26,466 $ 19,386 $ 36,118 $ 37,681
---------- ---------- ---------- --------- ---------
---------- ---------- ---------- --------- ---------
</TABLE>
See accompanying report of independent certified public accountants,
summary of accounting policies and notes to financial statements.
F-60
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
SUMMARY OF ACCOUNTING POLICIES
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
ORGANIZATION AND BUSINESS
Goose Creek Golf Partners Limited Partnership (the "Partnership") was formed
on May 1, 1992 under the laws of the State of Virginia. The Partnership was
formed for the purpose of acquiring, owning, managing and improving a public,
daily fee golf course located in Virginia known as Goose Creek Golf Course and
commenced primary operations on June 1, 1992. The Partnership's business is
seasonal. A substantial portion of its business is between April 1 to October
30. Limited partnership interests were offered to investors through a private
placement which raised $975,000. The limited partners hold a 99 percent interest
in the Partnership. The managing general partner and the administrative general
partner each hold a 0.5 percent interest in the Partnership (see Note 4).
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements for
the six months ended June 30, 1995 and 1996 are presented on a basis consistent
with the audited annual financial statements and reflect all adjustments,
consisting only of normal recurring accruals, necessary for fair presentation of
the results of such periods. The results of operations for the interim period
ended June 30, 1996 are not necessarily indicative of the results to be expected
for the year ending December 31, 1996.
CASH EQUIVALENTS
The Partnership considers all highly liquid investments purchased with
original maturities of three months or less and money market accounts to be cash
equivalents.
INVENTORIES
Inventories, consisting of proshop merchandise and food and beverage, are
recorded at lower of cost (first-in, first-out) or market.
FIXED ASSETS
Fixed assets are stated at cost and are depreciated on a straight line basis
over the estimated useful lives of the assets. Equipment under capital leases is
stated at cost and is amortized over the estimated useful life of the equipment
or over the term of the lease, whichever is shorter.
LOAN FEES
Loan fees are recorded at cost and are amortized using the straight-line
method over the term of the long-term debt (see Note 3).
ORGANIZATION COSTS
Organization costs are recorded at cost and are amortized using the
straight-line method over 60 months.
INCOME TAXES
No provision has been made for income taxes or income tax benefits in the
accompanying financial statements, as taxable income or losses are reportable in
the tax returns of the individual partners. The net difference between the tax
basis and the reported amounts of the Partnership's assets and liabilities as of
December 31, 1994 and 1995 and June 30, 1996 are approximately $114,000, $1,000
and $57,000.
F-61
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
CONCENTRATION OF CREDIT RISK
The Partnership's financial instruments that are exposed to concentrations
of credit risk consist primarily of cash and cash equivalents. The Partnership's
cash and cash equivalents are in demand deposit accounts placed with federally
insured financial institutions. Such deposit accounts at times may exceed
federally insured limits. The Partnership has not experienced any losses on such
amounts.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
ACCOUNTS PAYABLE AND NOTE PAYABLE RELATED PARTIES
Due to the related party nature and terms of the payables to related
parties, the Partnership cannot estimate the fair market value of such financial
instruments.
NOTES PAYABLE AND LONG-TERM DEBT
Substantially all these notes bear interest at a floating rate of interest
based upon a lending institutions prime lending rate. Accordingly, the fair
value approximates their reported carrying amount at December 31, 1994 and 1995
and June 30, 1996.
REVENUE RECOGNITION
Green fees, golf cart rental, merchandise and food and beverage are
recognized as revenue immediately upon sale to the customer. Membership fees are
recognized as revenue ratably over the life of the membership, usually 12
months.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Standards Board has recently issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets." 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
Partnership is not expected to have an impact on the financial statements.
F-62
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. GOING CONCERN
The Partnership has incurred losses since its inception and had a working
capital deficit of $551,826 and $768,005 as of December 31, 1995 and June 30,
1996 (reduced from $862,738 as of December 31, 1994 and $589,838 as of December
31, 1993). These conditions raise substantial doubt about the Partnership's
ability to continue as a going concern. The Partnership's continued existence is
dependent on management's ability to generate additional cash flow from
operations or obtain financing to meet its obligations when due (see Note 8).
The general partner has replaced the management company in an effort to improve
operations (see Note 5) and is negotiating with a lender to refinance its
existing long-term debt, to make additional capital improvements to the golf
course, and to retire short-term debt obligations. In addition, the general
partner has advanced funds to the Partnership to help it meet its obligations.
The accompanying financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
2. LINE OF CREDIT
The Partnership entered into a $150,000 line of credit agreement dated
December 23, 1994. Borrowings under the line accrue interest at two percent over
the prime rate, which was 8.5 percent at December 31, 1995. The line is due on
July 22, 1996. The Partnership deposited a $75,000 certificate of deposit with
the lender as collateral for the debt, and the managing general partner of the
Partnership has guaranteed the debt. As of December 31, 1994 and 1995 and June
30, 1996, the balance on the line of credit is $0, $149,941 and $74,941.
3. LONG-TERM DEBT
NOTE PAYABLE -- TEXTRON
On June 1, 1992, the Partnership was advanced $3.6 million under a loan
agreement whereby the Partnership may borrow up to $4.2 million. The loan
agreement bears interest at 10.05 percent and has a five-year term which may be
extended for an additional five-year term under certain conditions of the loan
agreement. Principal and interest payments are due under a seasonal payment
structure with a balloon payment of principal due on June 1, 1997, unless the
Partnership exercises its right to extend the maturity date. The loan agreement
allows for subsequent advances in amounts of at least $100,000 each until total
advances reach $4.2 million, so long as no more than one advance occurs in any
12-month period. The amount of additional advances are tied to a formula
involving certain net operating income levels and debt-coverage ratios. The loan
is collateralized by all property of the Partnership and is personally
guaranteed by the president of the managing general partner.
CONVERTIBLE NOTES PAYABLE
On June 1, 1992, the Partnership entered into a convertible note agreement
for $400,000 with the seller of the golf course land, buildings and
improvements. The note had an original maturity date of June 1, 1994.
As of June 2, 1994, the Partnership was in default of a provision of the
conversion agreement requiring all net proceeds from the sale of Class A Limited
Partnership Interests in excess of the initial $950,000 to be paid to the
seller. Accordingly, interest has been accrued at the default rate as specified
in the note agreement from April 2, 1993 (the date of default).
F-63
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
3. LONG-TERM DEBT (CONTINUED)
During August 1995, the general partner negotiated the purchase, at a
discount, of the seller's note for $380,000 as payment in full under the note
agreement. The purchase price was $165,899 less than the outstanding balance on
the note at the time of the purchase. Accordingly, the partnership recorded
$165,899 in debt extinguishment income for the year ended December 31, 1995.
During August 1995, the Partnership entered into three unsecured convertible
note agreements. The notes accrue interest at 8 percent per annum through August
1, 1996. Thereafter, the notes accrue interest at 15 percent per annum.
Interest-only payments are due on the first of each month. The notes are due on
August 1, 1997. The note agreements are subordinate to the note payable with
Textron.
The note agreements contain a conversion provision whereby the noteholders
may convert no less than all of the then outstanding principal and accrued
interest into limited partnership interests.
Future maturities of long-term debt as of December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996................................................... $ 84,477
1997................................................... 3,628,486
----------
$3,712,963
----------
----------
</TABLE>
4. PARTNERS' CAPITAL ACCOUNTS
The managing general partner of the Partnership, with a 0.5 percent interest
in the Partnership, is responsible for the day-to-day management and operation
of the business and property of the Partnership. The administrative general
partner of the Partnership, who also has a 0.5 percent interest in the
Partnership, holds joint authority with the managing general partner over annual
budgets, capital expenditures, significant deposits into and withdrawals from
the Partnership reserve account, as defined, and replacement of the management
company (see Note 5). The general partners shall not have the authority to sell
or refinance all or any material portion of the property without the consent of
51 percent of the limited partners. Both general partners contributed their
expertise to the Partnership formation in exchange for an interest in the
Partnership.
The Partnership agreement allows for cash distributions to the general and
limited partners from available net cash flow, at the discretion of the managing
general partner. Net cash flow is defined as the excess of operating cash
receipts over operating cash disbursements after the funding of reasonable
reserves for anticipated expenses and capital replacement. Net cash flow is
distributed as follows:
(i) 99 percent to the limited partners and one percent to the general
partners (0.5 percent to each) until the limited partners have received an
amount equal to 12 percent per annum, cumulative, noncompounded, on their
capital contributions;
(ii) thereafter, to the Partnership reserve account, as defined; and
(iii) thereafter, distributed to the general and limited partners in
accordance with their percentage interests in the Partnership.
Profits and losses are allocated to the partners in the same proportion as
net cash flow is distributed subject to the provisions of Section 704(b) of the
Internal Revenue Code of 1986 relating to substantial economic effect.
F-64
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES
PROPERTY MANAGEMENT AGREEMENT
On June 1, 1992, the Partnership entered into a five-year property
management agreement with a Virginia corporation in the business of managing
golf courses and clubs. The terms of the management agreement provide for a
management fee of $5,000 per month plus an incentive fee of four percent of
gross monthly revenues, to the extent the amount exceeds $5,000 per month. In
addition, the management agreement provides for an annual incentive fee of
$15,000 plus an additional five to fifteen percent of net operating income in
excess of $600,000. The aggregate amount of these fees shall not exceed six
percent of gross revenues with respect to the applicable calendar year or
portion thereof. In addition, a membership fee of 10 percent of the gross
proceeds received from initiation fees is to be paid to the management company.
For the years ended December 31, 1993, 1994, and 1995 and for the six months
ended June 30, 1995 and 1996, the Partnership incurred $60,000, $60,000,
$60,000, $30,000, and $25,476 for management fees.
During March 1996, the general partner gave notice to terminate the property
management agreement discussed above. In accordance with the property management
agreement, the Partnership is required to pay as much as $75,000 to the property
manager for cancelling the agreement as long as the property manager is not in
default with respect to this agreement. The general partner is of the opinion
that the property manager is in default; accordingly, no provision for any
liability that may result from this agreement has been recognized in the
accompanying financial statements.
CAPITAL LEASE OBLIGATIONS
The Partnership has various lease agreements for irrigation system,
maintenance equipment and golf carts. These obligations extend through 2001 with
unexpired terms ranging from one to five years.
Included in fixed assets in the accompanying balance sheets are the
following assets held under capital leases:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
----------- ----------- JUNE 30,
1996
-----------
(UNAUDITED)
<S> <C> <C> <C>
Turf and maintenance equipment.................................. $ 261,000 $ 261,000 $ 261,000
Golf carts...................................................... 196,345 196,345 196,345
Irrigation system............................................... 284,662 284,662 284,662
----------- ----------- -----------
Assets under capital lease...................................... 742,007 742,007 742,007
Less accumulated amortization................................... 209,729 313,295 365,077
----------- ----------- -----------
Assets under capital lease, net................................. $ 532,278 $ 428,712 $ 376,930
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
F-65
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments and the present value of the minimum lease
payments under the capital lease obligations as of December 31, 1995 are as
follows:
<TABLE>
<S> <C>
Total future minimum lease payments...................................... $ 738,826
Less amount representing interest........................................ 281,237
---------
Present value of minimum lease payments.................................. 457,589
Current portion of capital lease obligations............................. 103,343
---------
Long-term portion of capital lease obligations........................... $ 354,246
---------
---------
</TABLE>
As of December 31, 1995, annual maturities of the capital lease obligations
for each of the next five years and in the aggregate are as follows:
<TABLE>
<S> <C>
1996..................................................... $ 103,343
1997..................................................... 87,772
1998..................................................... 26,804
1999..................................................... 27,628
Thereafter............................................... 212,042
---------
$ 457,589
---------
---------
</TABLE>
6. RELATED PARTY TRANSACTIONS
ASSET MANAGEMENT FEE
The general partner is entitled to receive a $45,000 annual asset management
fee, increased by five percent per annum, for its services relating to the
Partnership. For the years ended December 31, 1993, 1994 and 1995 and for the
six months ended June 30, 1995 and 1996, the Partnership incurred asset
management fees of $46,313, $48,628, $51,059, $25,013 and $26,264.
NOTE PAYABLE, RELATED PARTY
On November 21, 1995, the Partnership entered into a $100,000 note agreement
with its general partner. On April 15, 1996, the note agreement was increased to
$150,000. Advances under the agreement accrue interest at two percent over the
Citibank's prime rate, which was 8.75 percent at December 31, 1995. The note is
unsecured and due the earlier of demand or on November 21, 1996. The balance
outstanding on the note is $54,989 and $106,823 as of December 31, 1995 and June
30, 1996.
7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest was $356,822, $291,047 and $335,625 for the years
ended December 31, 1993, 1994 and 1995 and $197,467 and $226,535 for the six
months ended June 30, 1995 and 1996.
F-66
<PAGE>
GOOSE CREEK GOLF
PARTNERS LIMITED PARTNERSHIP
(A VIRGINIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS TO THE PERIODS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
7. SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (CONTINUED)
Excluded from the statements of cash flows were the effects of certain
noncash investing and financing activities as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Accrued interest converted to debt......... $ 44,266 $ 132,146 $ 76,297 $ 63,703 $ 42,519
Equipment acquired through capital lease
obligations............................... $ -- $ 297,680 $ -- $ -- $ --
</TABLE>
8. PROPOSED PARTNERSHIP ACQUISITION
MetroGolf Virginia, Inc., formerly TVG (Virginia), Inc. is the managing
general partner of the Partnership and is a wholly-owned subsidiary of MetroGolf
Incorporated (the "Company"). The Company has offered to purchase the limited
partnership interests for a combination of cash and convertible notes. The
acquisition will be contingent upon the closing of the Company's initial public
offering ("IPO").
Limited partners who elect not to exchange their interest will remain
limited partners in the old partnership. Each limited partner who elects to sell
will receive for each $25,000 limited partnership interest $12,500 in cash and a
convertible note in the amount of $26,500 or a convertible note in the amount of
approximately $39,000. Each convertible note will bear interest at 6% per annum
and will mature on June 1, 2005; interest only will be payable for the first 24
months from the date of the issuance of the convertible notes, with the
remaining interest and principal being amortized evenly over the remaining seven
years until maturity. Each convertible note will be convertible at the holder's
option into common stock at any time after the date that is 13 months after the
closing of the IPO at a conversion price equal to the price of the Common Stock
to the public in the IPO.
When the convertible notes are first convertible into the common stock of
the Company, the Company will use its best efforts to cause such shares to be
registered.
The closing of the acquisition of the limited partnership interests and the
promissory notes is contingent upon the closing of the Company's IPO. The
limited partnership and promissory note acquisitions will not be consummated
before the closing of the IPO, and there can be no assurance that the limited
partnership interests and promissory note acquisitions or the IPO will occur.
F-67
<PAGE>
[FRONT VIEW OF FREMONT GOLF CENTER CLUBHOUSE]
METROGOLF FREMONT
FREMONT, CA
[AERIAL VIEW OF HARBORSIDE GOLF CENTER]
METROGOLF HARBORSIDE
SAN DIEGO, CA
[ARTIST'S RENDERING OF METROGOLF'S PROPOSED NEW YORK CITY GOLF CENTER]
METROGOLF'S PROPOSED PROJECT
NEW YORK CITY, NY
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON IS AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER
OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.
--------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUMMARY............................. 3
RISK FACTORS................................... 7
PARTNERSHIP ACQUISITIONS....................... 13
USE OF PROCEEDS................................ 14
DIVIDEND POLICY................................ 14
DILUTION....................................... 15
CAPITALIZATION................................. 16
SELECTED CONSOLIDATED AND PRO FORMA FINANCIAL
DATA.......................................... 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 18
BUSINESS....................................... 24
MANAGEMENT..................................... 34
CERTAIN TRANSACTIONS........................... 38
CONCURRENT OFFERING............................ 41
PRINCIPAL STOCKHOLDERS......................... 42
DESCRIPTION OF CAPITAL STOCK................... 43
SHARES ELIGIBLE FOR FUTURE SALE................ 44
UNDERWRITING................................... 46
LEGAL MATTERS.................................. 48
EXPERTS........................................ 48
</TABLE>
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Until November 10, 1996 (25 days after the date hereof), all dealers
effecting transactions in the Common Stock, whether or not participating in this
distribution, may be required to deliver a Prospectus. This delivery requirement
is in addition to the obligation of dealers to deliver a Prospectus when acting
as Underwriter.
1,175,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
LAIDLAW EQUITIES, INC.
PRIME CHARTER LTD.
OCTOBER 16, 1996
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