U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Sep. 30, 1997 Commission File Number 001-12245
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METROGOLF INCORPORATED
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(Exact name of small business issuer as specified in its charter)
COLORADO 84-1288480
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(State or other jurisdiction I.R.S. Employer Identification No.
of incorporation or organization)
1999 Broadway, Suite 2435, Denver, Colorado 80202
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (303) 294-9300
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(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check whether the issuer (1) has filed
all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and
(2) has been subject to such filing requirements for
the past 90 days. X Yes No
Indicate the number of shares outstanding of each of the issuer's
classes of stock, as of the latest practicable date.
Number of Shares
Class Outstanding at November 14, 1997
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Common stock, no par value 4,415,440 shares
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METROGOLF INCORPORATED
FORM 10-QSB QUARTERLY REPORT
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30,1997
(Unaudited) and December 31, 1996
Consolidated Statements of Operations (Unaudited) for the
three months ended September 30, 1997 and 1996
Consolidated Statements of Operations (Unaudited) for the
nine months ended September 30, 1997 and 1996
Consolidated Statements of Cash Flows (Unaudited)for the
nine months ended September 30, 1997 and 1996
Notes to Consolidated Financial Statements (Unaudited)
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II - OTHER INFORMATION
ITEM 1: Legal Proceedings
ITEM 2: Changes in Securities
ITEM 3: Defaults upon Senior Securities
ITEM 4: Submission of Matters to a Vote of Security Holders
ITEM 5: Other Information
ITEM 6: Exhibits and Reports on Form 8-K
SIGNATURES
MetroGolf Incorporated
Consolidated Balance Sheets
September 30,
1997 December 31,
(Unaudited) 1996
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ASSETS
Current Assets
Cash and cash equivalents $ 873,073 $ 904,146
Inventories 204,654 157,577
Accounts receivable 25,840 31,897
Other current assets 64,051 68,309
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Total current assets 1,167,618 1,161,929
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Property and equipment, net of
Accumulated depreciation and
amortization of $751,446
and $205,342 15,300,681 13,524,145
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Other Assets
Excess of cost over net
assets acquired 1,537,239 1,537,239
Debt issue costs 609,915 133,939
Loan fees 106,205 106,205
Organization costs 89,744 89,744
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2,343,103 1,867,127
Less accumulated amortization (236,918) (97,825)
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2,106,185 1,769,302
Deferred acquisition costs 244,008 78,791
Other receivable - 82,372
Deferred offering costs - 15,000
Other assets 165,509 72,371
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Total other assets 2,515,702 2,017,836
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TOTAL ASSETS $ 18,984,001 $ 16,703,910
=============== =============
"See accompanying notes to consolidated financial statements."
MetroGolf Incorporated
Consolidated Balance Sheets (continued)
September 30,
1997 December 31,
(Unaudited) 1996
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LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,488,077 $ 1,380,947
Checks written against
future deposits - 122,546
Accrued expenses and other
current liabilities 898,349 859,292
Deferred revenue 151,244 218,633
Current portion of long-term
debt and capital lease
obligations 2,056,122 6,111,173
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Total current liabilities 4,593,792 8,692,591
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Long term debt and capital lease
obligations, less current portion 10,724,832 4,133,342
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Minority interest in consolidated
Subsidiaries 268,247 319,024
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Stockholders' Equity
Common stock -- No par value:
50,000,000 shares authorized;
4,346,815 and 2,233,775
shares issued and outstanding
at September 30, 1997 and
December 31, 1996 9,411,993 6,792,487
Notes receivable, stockholder (87,706) (82,511)
Accumulated deficit (5,927,157) (3,151,023)
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3,397,130 3,558,953
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TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 18,984,001 $ 16,703,910
============== ==============
"See accompanying notes to consolidated financial statements."
MetroGolf Incorporated
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
September 30, September 30,
1997 1996
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Revenues
Green fees and driving range $ 1,003,247 $ 211,815
Membership 167,504 -
Merchandise 139,780 42,701
Food and beverage 140,330 7,934
Instruction 134,890 35,530
Management fees, related
Parties - 44,737
Administration 24,092 9,755
Acquisition and
consulting fees - 10,000
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Total revenues 1,609,843 362,472
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Operating expenses
Range and course operations 778,474 312,721
Food and beverage 127,667 3,314
Membership 54,277 -
Instruction expense 98,029 22,769
General and administrative 863,590 323,320
Depreciation and amortization 231,198 31,099
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Total operating expenses 2,153,235 693,223
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Loss from operations (543,392) (330,751)
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Other income (expenses)
Interest expense (610,685) (181,450)
Other 7,688 19,925
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Total other (expense) (602,997) (161,525)
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Equity in income of affiliates - 351
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Minority interest in (income)
loss of subsidiaries 14,095 (3,219)
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Net loss (1,132,294) (495,144)
Dividend requirements on
preferred stock - 42,656
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Loss applicable to common stock $ (1,132,294) $ (537,800)
=============== ==============
Net loss per common share $ (0.28) $ (0.61)
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Weighted average number of
common shares outstanding 4,027,661 877,142
============== ==============
"See accompanying notes to consolidated financial statements"
MetroGolf Incorporated
Consolidated Statements of Operations
(Unaudited)
For the Nine Months Ended
September 30, September 30,
1997 1996
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Revenues
Green fees and driving range $ 2,154,305 $ 211,815
Membership 435,444 -
Merchandise 373,162 42,701
Food and beverage 281,816 7,934
Instruction 261,966 35,530
Management fees, related
Parties - 144,011
Acquisition and
consulting fees - 10,000
Administration 83,086 9,755
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Total revenues 3,589,779 461,746
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Operating expenses
Range and course operations 1,625,500 312,721
Food and beverage 249,315 3,314
Membership 192,610 -
Instruction expense 168,809 22,769
General and administrative 2,234,631 735,965
Depreciation and amortization 673,292 40,749
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Total operating expenses 5,144,157 1,115,518
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Loss from operations (1,554,378) (653,772)
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Other income (expenses)
Interest expense (1,296,250) (243,940)
Other 23,717 54,325
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Total other (expense) (1,272,533) (189,615)
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Equity in loss of affiliates - (2,278)
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Minority interest in (income)
loss of subsidiaries 50,777 (9,459)
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Net loss (2,776,134) (855,124)
Dividend requirements on
preferred stock - 127,969
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Loss applicable to common stock $ (2,776,134) $ (983,093)
============== ==============
Net loss per common share $ (0.92) $ (1.12)
============== ==============
Weighted average number of
common shares outstanding 3,004,677 877,142
============== ==============
"See accompanying notes to consolidated financial statements"
MetroGolf Incorporated
Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended
September 30, September 30,
1997 1996
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Increase (Decrease) in Cash
and Cash Equivalents
OPERATING ACTIVITIES
Net loss $ (2,776,134) $ (855,124)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities
Depreciation 567,682 40,749
Amortization 105,610 -
Gain on sale of assets (6,661) -
Interest 414,383 150,192
Equity in loss of affiliates - 2,278
Minority interest in
(income) loss of
consolidated subsidiaries (50,777) 9,459
Changes in operating assets
and liabilities
Management fee receivable,
related party - 17,165
Account receivable,
related party - (11,000)
Deferred revenue (67,389) -
Inventories 24,087 (96,024)
Accounts receivable and
other current assets 10,315 (44,021)
Accounts payable 59,937 573,193
Accrued salaries - 186,924
Accrued expenses and other
current liabilities 39,057 118,899
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Net Cash Provided by (Used in)
Operating Activities (1,679,890) 92,690
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INVESTING ACTIVITIES
Restricted cash - 222,700
Payments for notes receivable,
related parties - (251,898)
Payments for notes receivable,
Stockholder - (46,416)
Acquisition of fixed assets (239,012) (825,312)
Disposition of fixed assets 20,798 -
Payments for deferred
acquisition costs (165,217) (49,389)
Receivable in connection
with asset acquisition - (83,172)
Advances to officer (5,195) -
Deposits and other assets (93,138) (20,735)
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Net Cash (Used in)
Investing Activities (481,764) (1,054,222)
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"See accompanying notes to consolidated financial statements"
MetroGolf Incorporated
Consolidated Statements of Cash Flows (continued)
(Unaudited)
For the Nine Months Ended
September 30, September 30,
1997 1996
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FINANCING ACTIVITIES
Prior checks written against
current deposits (122,546) -
Proceeds from convertible
subordinated notes payable 3,197,350 2,025,000
Payments on line of credit - (246,937)
Payments on long-term debt (516,159) (12,794)
Payments on note payable,
Officer - (22,752)
Payments for debt issue costs (428,164) (267,878)
Proceeds from issuance of
common stock 100 -
Payments for deferred
offering costs - (462,431)
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Net Cash Provided by
Financing Activities 2,130,581 1,012,208
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Increase (Decrease) in Cash and
Cash Equivalents (31,073) 50,676
Cash and Cash Equivalents,
Beginning of Period 904,146 324
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Cash and Cash Equivalents,
End of Period $ 873,073 $ 51,000
============== =============
"See accompanying notes to consolidated financial statements"
MetroGolf Incorporated
Notes to Consolidated Financial Statements
(Unaudited)
1. General:
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and in accordance with instructions
to Form 10-QSB and Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. The accompanying financial information is unaudited
but includes all adjustments (consisting of normal recurring
accruals) which, in the opinion of management, are necessary to
present fairly the information set forth herein. The
consolidated financial statements should be read in conjunction
with the notes to the consolidated financial statements which are
included in the Form 10-K of the Company for the fiscal year
ended December 31, 1996.
The results for the interim periods are not necessarily
indicative of results to be expected for the fiscal year of the
Company ending December 31, 1997. The Company believes that the
nine-month report filed on Form 10-QSB is representative of its
financial position and its results of operations and cash flow
for the periods ended September 30, 1997 and 1996.
2. Supplemental Data to Statements of Cash Flows
For the Nine Months Ended
September 30, September 30,
1997 1996
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Cash payments for interest $896,189 $44,310
Excluded from the consolidated statements of cash flows were the
effects of certain noncash investing and financing activities as
follows:
For the Nine Months Ended
September 30, September 30,
1997 1996
-------------- --------------
Increase in common stock for
discount on debt $509,023 $243,600
Common stock issued for
Debt issue costs $32,812 -
Increase in ownership of
Subsidiary - $8,642
Conversion of convertible
subordinated notes and accrued
interest into common stock $953,138 -
Acquisition of Leasehold
interest in Rocky Point Golf
Center for common stock and debt $875,000 -
Acquisition of Equipment Lease
in Harborside Golf Center for
common stock and debt forgiveness $186,228 -
Acquisition of Leasehold
Interest in Solano Golf Center
for common stock and debt $1,082,086 -
3. Acquisition of Rocky Point Golf Center
Effective April 11, 1997, the Company purchased the leasehold
interest in Rocky Point Golf Center, Rocky Point, New York for
$965,439. The Company issued notes payable to the seller for
$175,000, issued 517,649 shares of common stock of the Company
for $700,000, paid cash of $75,000 and acquisition costs of
$15,439. The existing golf facility was completed approximately
two years ago and consists of a 70 tee station driving range,
practice putting green, chipping, short game and sand bunker
areas, a clubhouse and a maintenance area on approximately 17
acres of land. The acquisition was recorded using the purchase
method of accounting, by which the assets are valued at the fair
market value at the date of acquisition. The operating results
of this acquisition have been included in the accompanying
financial statements from the date of acquisition. The
allocation of the purchase price is as follows:
Property and Equipment $965,439
Acquisition of Solano Golf Center
Effective September 11, 1997 the Company purchased the leasehold
interest in the Solano Golf Center ("Solano")located in Suisun,
California for $1,107,958. The Company assumed notes payable of
$483,172 issued 399,276 shares of common stock of the Company for
$598,914 and paid acquisition costs of $25,872. Solano is
located on approximately 20 acres and contains an approximate
2,000 square foot retail facility with a 61 station lighted
driving range and batting cages with 8 hitting stations. The
acquisition was recorded using the purchase method of accounting,
by which the assets are valued at the fair market value at the
date of acquisition. The operating results of this acquisition
have been included in the accompanying financial statements from
the date of acquisition.
The allocation of the purchase price is as follows:
Property and Equipment $1,083,987
Inventory 71,164
Accounts payable (47,193)
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Total purchase price $1,107,958
==========
4. Commitments
On May 1 1997, the Company completed its restructuring of the
operating lease of Harborside Golf Center in downtown San Diego,
California. On July 1, 1996, the Company entered into a sublease
agreement with Harborside Golf Center, L.P. The sublease
agreement contained an option to purchase. The restructuring was
concluded with the Company entering into a 5 year ground lease
agreement with Catellus Development Corporation through April 30,
2002. The ground lease contains one 5 year renewal option.
Additionally, the Company entered into a 10 year Equipment Lease
agreement with Columbia Funding Corporation through April 30,
2007 unless terminated earlier pursuant to the early termination
clause contained in the ground lease. The ground lease lessor
has the option to terminate the ground lease on or before
November 1, 1998.
The Company has been notified that it is in non-monetary default
on its approximately $400,000 note payable to Bank associated
with Palms.
5. Stockholders' Equity
On May 30, 1996, the Company completed its offer for sale in a
private placement $2,025,000 in convertible subordinated notes
("PP Notes"). The PP 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 PP Notes bore interest at 12
percent, with interest payable June 1 and December 1 of each year
commencing on December 1, 1996. The PP Notes were due on June 1,
1997. On October 21, 1996, $1,062,500 of the PP Notes including
$56,025 in accrued interest, were converted into 356,138 shares
of the Company's common stock. During May 1997, $912,500 of the
PP Notes including $40,638 in accrued interest were converted
into 1,114,397 shares of the Company's common stock and the
remaining $10,000 of the PP Notes were redeemed for cash.
6. Convertible Subordinated Note Offering
During the nine months ended September 30, 1997, the Company
raised $3,197,350 in convertible subordinated notes ("1997
Notes"). Net proceeds from the offering, after paying
commissions and offering costs were approximately, $2,785,000.
The 1997 Notes bear interest at 10%, with interest payable
January 1, April 1, July 1, and October 1 of each year commencing
July 1, 1998. The 1997 Notes are due on June 30, 2002.
$1,984,000 of the 1997 Notes, including any accrued but unpaid
interest, are convertible, at the option of the holder, at any
time upon the earlier of (i) December 15, 1997 (ii) the date of
delivery by the Company of notice to prepay the 1997 Notes (iii)
date of delivery by the Company of notice to allow immediate
conversion, into common shares of the Company at $1.05 per share.
$1,093,350 of the 1997 Notes, including any accrued but unpaid
interest, are convertible, at the option of the holder, at any
time upon the earlier of (i) December 31, 1997 (ii) the date of
delivery by the Company of notice to prepay the 1997 Notes (iii)
date of delivery by the Company of notice to allow immediate
conversion, into common shares of the Company at $1.35 per share.
$120,000 of the 1997 Notes, including any accrued but unpaid
interest, are convertible, at the option of the holder, at any
time upon the earlier of (i) December 31, 1997 (ii) the date of
delivery by the Company of notice to prepay the 1997 Notes (iii)
date of delivery by the Company of notice to allow immediate
conversion, into common shares of the Company at $1.40 per share.
Under certain circumstances, the Company has the option to prepay
the 1997 Notes, upon 15 days notice, subject to the noteholder's
right to convert. The discount resulting from the conversion
right has been recorded to common stock in the amount of $509,023
and is being amortized from date of issuance through the date of
first conversion.
7. New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") recently
issued Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128") and Statement of Financial
Accounting Standards No. 129 Disclosure of Information About an
Entity's Capital Structure ("SFAS 129"). SFAS 128 provides a
different method of calculating earnings per share than is
currently used in accordance with Accounting Board Opinion
("ABP") No. 15, "Earnings Per Share." SFAS 128 provides for
the calculation of "Basic" and "Diluted" earnings per share.
Basic earnings per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar
to fully diluted earnings per share. SFAS 129 establishes
standards for disclosing information about an entity's capital
structure. SFAS 128 and SFAS 129 are effective for financial
statements issued for periods ending after December 15, 1997.
Their implementation is not expected to have a material effect on
the consolidated financial statements.
In June 1997, FASB issued Statement of Financial Accounting
Standard No. 130 "Reporting Comprehensive Income" ("SFAS 130")
and Statement of Financial Accounting Standard No. 131
"Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 130 establishes standard for
reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting form investments by
owners and distributions to owners. Among other disclosures,
SFAS 130 requires that all items that are required to be
recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that
displays with the same prominence as other financial statements.
SFAS 131 supersedes Statement of Financial Accounting Standard
No. 14 "Financial Reporting for Segments of a Business
Enterprise." SFAS 131 establishes standards of the way that
public companies report information about operating segments in
annual financial statements and requires reporting of selected
information about operating segments in interim financial
statements issued to the public. It also establishes standards
for disclosures regarding products and services, geographic areas
and major customers. SFAS 131 defines operating segments as
components of a company about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources
and in assessing performance.
SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Because of the
recent issuance of these standards, management has been unable to
fully evaluate the impact, if any, the standards may have on
future financial statement disclosures. Results of operations
and financial position, however, will be unaffected by the
implementation of these standards.
8. Liquidity Plan
The Company has approximately $2,056,000 of current liabilities
relating to debts that come due within the next 12 months.
Approximately $1,142,000 of these current liabilities are
mortgages on existing operating properties and are fully
collateralized by such properties. The Company is currently
negotiating to refinance or extend each of these mortgages and
expects to receive new mortgages with maturity dates that extend
beyond 12 months. In addition, the Company may continue to
pursue debt and private equity funding. The Company intends to
use the proceeds for acquisition of, construction of and
improvement of new and existing golf facilities, which should
further increase the Company's cash flow from operations, and for
current working capital needs. The Company believes that these
funds will be sufficient to meet its liquidity needs for the next
year.
9. Subsequent Events
Acquisition of Hitter's Haven. In October 1997, the Company
acquired the leasehold interest in Hitter's Haven for $1,112,259.
The Company assumed notes payable of $887,523, issued 52,486
shares of common stock of the Company for $100,000, and paid cash
of $93,406 and acquisition costs of $31,330.
On November 10, 1997, the Company's shareholders approved an
increase in the authorized common shares to 50,000,000 from
9,000,000.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
The following discussion and analysis should be read in
conjunction with the Company's financial statements and the notes
thereto appearing elsewhere in this report. This report contains
forward-looking statements, and actual results could differ
materially from those projected in the forward-looking
statements.
Overview
On October 21, 1996, the Company completed the sale of
1,175,000 shares of its common stock in an IPO registered on Form
S-1. The Company received net proceeds of approximately $5.46
million after paying offering costs of approximately $1.59
million. 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 acquired approximately 94% and 90% of the
limited partnership interests in Illinois Center Golf Partners
Limited Partnership ("ICGP") and Goose Creek Golf Partners,
L.P. ("GCGP"), respectively, on October 21, 1996. The Company
acquired Fremont Golf Center ("Fremont") on July 1, 1996 and
Palms Golf Center ("Palms") on December 31, 1996. The Company
commenced operating the Harborside Golf Center ("Harborside")
on July 1, 1996 and entered into a long term lease on May 1,
1997. The Company commenced operations at Rocky Point Golf
Center ("Rocky Point") on March 1, 1997, Solano Golf Center
("Solano") on May 1, 1997 and Hitter's Haven on July 3, 1997.
In addition, the Company is actively pursuing acquisition or
development projects in various major cities across the United
States. 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
Prior to July 1, 1996, the Company derived its revenue from
two major sources: development or acquisition fees and management
fees. On July 1, 1996 the Company commenced operations at
Fremont and Harborside. The Company commenced operations at
Palms on September 1, 1996. The Company commenced operations at
Illinois Center Golf and Goose Creek Golf Club on October 22,
1996. The Company commenced operations at Rocky Point on March
1, 1997 and acquired Rocky Point for a combination of cash, notes
and stock effective April 11, 1997. The Company commenced
operations at Solano on May 1, 1997 and acquired Solano for a
combination of debt assumptions and stock effective September 11,
1997. Prior to the commencement of operations, management fees
are generated by three subsidiaries of the Company: MetroGolf
Illinois Center, Inc. and MetroGolf Virginia, Inc., as managing
general partners of ICGP and GCGP, and MetroGolf Management, Inc.
("MGMI") as property manager of Illinois Center Golf Club,
Goose Creek Golf Club, Harborside, Fremont and Palms. 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 Golf Club. All Company properties are, and in the future
are expected to be, managed by MGMI.
Three Months Ended September 30, 1997, as Compared to Three
Months Ended September 30, 1996
Total revenues increased 444%, to approximately $1,609,800
for the three months ended September 30, 1997, from approximately
$362,500 for the three months ended September 30, 1996. In 1997,
the Company derived revenue from golf course and learning center
operations. In 1996, the Company derived revenue from golf
course and learning center operations and from management fees.
Total revenue in 1997 increased compared to 1996 due to property
acquisitions during the fourth quarter of 1996 and during 1997.
Operating expenses increased 310% to approximately
$2,153,200 for the three months ended September 30, 1997, from
approximately $693,200 for the three months ended September 30,
1996. Operating costs increased to approximately $778,500 from
$312,700 due to the acquisition of ICGP, GCGP and Palms during
the fourth quarter of 1996 and the addition of Rocky Point,
Solano and Hitter's Haven during 1997. General and
administrative expenses for the three months ended September 30,
1997 increased to approximately $863,600 from $323,300 in 1996
primarily due to property acquisitions during the fourth quarter
of 1996 and during 1997.
Depreciation and amortization expenses increased to
approximately $231,000 in 1997 from approximately $31,000 in 1996
due to the acquisition of ICGP, GCGP and Palms in the fourth
quarter of 1996 and Rocky Point in 1997.
Interest expense increased to $610,685 in 1997 from $181,450
in 1996 primarily due to placement of $3,197,350 of convertible
subordinated notes ("1997 Notes") in 1997, the ICGP and GCGP
Notes in the fourth quarter of 1996, and debt associated with
property acquisitions during 1996 and 1997.
Other income decreased to $7,688 in 1997 from $19,925 in
1996 as a result of the interest-bearing notes receivable being
eliminated in consolidated as a result of the acquisition of GCGP
and ICGP.
Nine Months Ended September 30, 1997, as Compared to Nine Months
Ended September 30, 1996
Total revenues increased 777%, to approximately $3,590,000
for the nine months ended September 30, 1997, from approximately
$462,000 for the nine months ended September 30, 1996. In 1997,
the Company derived revenue from golf course and learning center
operations. In 1996, the Company derived revenue from golf
course and learning center operations and from management fees.
Total revenue in 1997 increased compared to 1996 due to property
acquisitions during the fourth quarter 1996 and during 1997.
Operating expenses increased 461% to approximately
$5,144,000 for the nine months ended September 30, 1997, from
approximately $1,115,500 for the nine months ended September 30,
1996. Operating costs increased to approximately $1,625,500 from
$312,700 due to the acquisition of ICGP, GCGP and Palms during
the fourth quarter of 1996 and the addition of Rocky Point and
Solano during 1997. General and administrative expenses for the
nine months ended September 30, 1997 increased to $2,255,874 from
$735,965 in 1996 primarily due to property acquisitions during
the fourth quarter of 1996 and during 1997.
Depreciation and amortization expenses increased to
approximately $652,000 in 1997 from approximately $40,700 in 1996
due to the acquisition of ICGP, GCGP and Palms in the fourth
quarter of 1996 and Rocky Point and Solano in 1997.
Interest expense increased to $1,296,250 in 1997 from
$243,940 in 1996 primarily due to placement of $3,197,350 of 1997
Notes in 1997, the ICGP and GCGP Notes in the fourth quarter of
1996, and debt associated with property acquisitions during 1996
and 1997.
Other income decreased to $23,717 in 1997 from $54,325 in
1996 as a result of the interest-bearing notes receivable being
eliminated in consolidation as a result of the acquisition of
GCGP and ICGP.
Liquidity and Capital Resources
At September 30, 1997, the Company had a working capital
deficit of approximately $3,426,174, as compared to a working
capital deficit of $7,530,662 at December 31, 1996. The decrease
in working capital deficit is primarily due to reduction in the
current portion of long-term debt resulting from conversion of
$953,138 of the PP Notes (including accrued interest) into common
stock and reclassification of the approximately $3,150,000 GCGP
mortgage due to its extension to October 31, 1998. The Company
has approximately $2,056,000 of current liabilities relating to
debts that come due within the next 12 months. Approximately
$1,142,000 of these current liabilities are mortgages on existing
operating properties and are fully collateralized by such
properties. The Company is currently negotiating to refinance or
extend the remaining mortgages and expects to receive new
mortgages with maturity dates that extend beyond 12 months. The
Company raised $3,197,350 from the 1997 Notes. In addition, the
Company may continue to pursue debt and private equity funding.
The Company intends to use the proceeds for acquisition of,
construction of and improvement of new and existing golf
facilities, which should further increase the Company's cash flow
from operations, and for current working capital needs. The
Company believes that these funds will be sufficient to meet its
liquidity needs for the next year.
The cash used in operating activities increased to
approximately $1,679,900 in the nine months ended September 30,
1997 compared with cash provided of approximately $93,000 in the
nine months ended September 30, 1996. The primary reason for the
increase has been the increase in the net loss to $2,776,134 in
the nine months ended September 30, 1997 from $855,124 in the
nine months ended September 30, 1996. In addition, the Company
used accounts payable as a source of financing. Trade accounts
payable increased approximately $60,000 in the nine months ended
September 30, 1997 and $573,200 in the nine months ended
September 30, 1996.
The cash used in investing activities decreased to
approximately $481,800 in the nine months ended September 30,
1997 from approximately $1,054,200 in the nine months ended
September 30, 1996. The primary reason for the decrease is the
decrease in acquisition of fixed assets from approximately
$825,000 in the nine months ended September 30, 1996 to
approximately $239,000 in the nine months ended September 30,
1997.
The cash provided by financing activities increased to
approximately $2,130,600 in the nine months ended September 30,
1997 from approximately $1,012,200 in the nine months ended
September 30, 1996. The primary reason for the increase is an
increase in the proceeds from the 1997 Notes.
During May 1997, $912,500 of convertible subordinated notes
and $40,638 of accrued interest were converted into 1,114,397
shares of common stock.
During the nine months ended September 30, 1997, the Company
raised $3,197,350 from the 1997 Notes. The 1997 Notes bear
interest at 10%, with interest payable January 1, April 1, July
1, and October 1 of each year commencing July 1, 1998. The 1997
Notes are due on June 30, 2002. $1,984,000 of the 1997 Notes,
including any accrued but unpaid interest, are convertible, at
the option of the holder, at any time upon the earlier of (i)
December 15, 1997 (ii) the date of delivery by the Company of
notice to prepay the 1997 Notes (iii) date of delivery by the
Company of notice to allow immediate conversion, into common
shares of the Company at $1.05 per share. $1,093,350 of the 1997
Notes, including any accrued but unpaid interest, are
convertible, at the option of the holder, at any time upon the
earlier of (i) December 31, 1997 (ii) the date of delivery by the
Company of notice to prepay the 1997 Notes (iii) date of delivery
by the Company of notice to allow immediate conversion, into
common shares of the Company at $1.35 per share. $120,000 of the
1997 Notes, including any accrued but unpaid interest, are
convertible, at the option of the holder, at any time upon the
earlier of (i) December 31, 1997 (ii) the date of delivery by the
Company of notice to prepay the 1997 Notes (iii) date of delivery
by the Company of notice to allow immediate conversion, into
common shares of the Company at $1.40 per share. Under certain
circumstances, the Company has the option to prepay the 1997
Notes, upon 15 days notice, subject to the noteholder's right to
convert.
Fremont Golf Center. The Company has signed a lease agreement
with the City of Fremont to develop an 35-acre tract of land into
a 9-hole executive-length golf course with expanded practice
facilities and significantly improved clubhouse amenities. The
Company expects to commence construction of the 9-hole
executive-length golf course and begin modifications to the
existing facility in the spring of 1998, with the completion of
the golf center scheduled for the late fall of 1998. 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 and debt, to be provided by a
commercial bank, specialized golf lending institution or private
lender.
New York Golf Center. The Company has entered into 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 early-1998, with the opening scheduled for late 1998.
The proposed development budget is approximately $6 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 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 total expected cost of the New York Golf
Center is expected to be approximately $6 million. The Company
expects to utilize debt and equity financing from banks and
institutional or private lenders to fund such amount.
Harborside Golf Center On May 1 1997, the Company completed its
restructuring of the lease of Harborside Golf Center in downtown
San Diego, California. On July 1, 1996, the Company entered into
a sublease agreement with Harborside Golf Center, L.P. The
sublease agreement contained an option to purchase. The
restructuring was concluded with the Company entering into a 5
year ground lease agreement with Catellus Development Corporation
through April 30, 2002. The ground lease contains one 5 year
renewal option. Additionally, the Company entered into a 10 year
Equipment Lease agreement with Columbia Funding Corporation
through April 30, 2007 unless terminated earlier pursuant to the
early termination clause contained in the ground lease. The
ground lease lessor has the option to terminate the ground lease
on or before November 1, 1998.
Rocky Point Golf Center Effective April 11, 1997 the Company
purchased the leasehold interest in Rocky Point Golf Center for
$965,439. The Company issued notes payable to the seller for
$175,000, issued 517,649 shares of common stock of the Company
for $700,000, paid cash of $75,000 and acquisition costs of
$15,439. Rocky Point is a 70 station lighted and heated driving
range with an associated practice chipping green and putting
green.
Solano Golf Center Effective September 11, 1997, the Company
acquired 99% of the partnership interests for the Solano Golf
Center ("Solano") for $1,107,958. Solano is located on
approximately 20 acres and contains an approximate 2,000 square
foot retail facility with a 61 station lighted driving range and
batting cages with 8 hitting stations.
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.
New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") recently
issued Statement of Financial Accounting Standards No. 128
"Earnings Per Share" ("SFAS 128") and Statement of Financial
Accounting Standards No. 129 "Disclosure of Information About an
Entity's Capital Structure ("SFAS 129"). SFAS 128 provides a
different method of calculating earnings per share than is
currently used in accordance with Accounting Board Opinion
("ABP") No. 15, "Earnings Per Share." SFAS 128 provides for
the calculation of "Basic" and "Diluted" earnings per share.
Basic earnings per share includes no dilution and is computed by
dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period.
Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar
to fully diluted earnings per share. SFAS 129 establishes
standards for disclosing information about an entity's capital
structure. SFAS 128 and SFAS 129 are effective for financial
statements issued for periods ending after December 15, 1997.
Their implementation is not expected to have a material effect on
the consolidated financial statements.
In June 1997, FASB issued Statement of Financial Accounting
Standard No. 130 "Reporting Comprehensive Income" ("SFAS 130")
and Statement of Financial Accounting Standard No. 131
"Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131"). SFAS 130 establishes standard for
reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include
all changes in equity except those resulting form investments by
owners and distributions to owners. Among other disclosures,
SFAS 130 requires that all items that are required to be
recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that
displays with the same prominence as other financial statements.
SFAS 131 supersedes Statement of Financial Accounting Standard
No. 14 "Financial Reporting for Segments of a Business
Enterprise." SFAS 131 establishes standards of the way that
public companies report information about operating segments in
annual financial statements and requires reporting of selected
information about operating segments in interim financial
statements issued to the public. It also establishes standards
for disclosures regarding products and services, geographic areas
and major customers. SFAS 131 defines operating segments as
components of a company about which separate financial
information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources
and in assessing performance.
SFAS 130 and SFAS 131 are effective for financial statements for
periods beginning after December 15, 1997 and require comparative
information for earlier years to be restated. Because of the
recent issuance of these standards, management has been unable to
fully evaluate the impact, if any, the standards may have on
future financial statement disclosures. Results of operations
and financial position, however, will be unaffected by the
implementation of these standards.
PART II - OTHER INFORMATION
- - -------------------------------------------------------
Item 1: Legal Proceedings
The Company knows of no material litigation or proceeding
pending, threatened or contemplated to which the Company is or
may become a party.
Item 2: Changes in Securities
40,000 shares of common stock issued on July 14, 1997 in
conjunction with restructuring of lease at Harborside Golf
Center. 8,381 shares of common stock issued in conjunction with
the acquisition of computer system at Harborside Golf Center on
July 15, 1997. 399,276 shares of common stock issued on
September 5, 1997 in conjunction with acquisition of Solano Golf
Center. 25,000 shares issued to Prime Charter on September 15,
1997 in exchange for investment banking services.
Item 3: Defaults upon Senior Securities
None
Item 4: Submission of Matters to a Vote of Security
Holders
None
Item 5: Other Information
None
Item 6: Exhibits and Reports on Form 8-K
(A) Exhibits
3. Exhibits: The exhibits which are filed with this
Report or which are incorporated herein by reference are set
forth below.
3.1 Articles of Incorporation, as amended,
incorporated herein by reference from the Registrant's Offering
Statement on Form 1-A (File No. 24D-3840)("Form 1-A") with June
3, 1996 amendment filed as Exhibit 3.1 to Registrant's Form S-1
(Reg. No. 333-06151) as filed with as filed with the Securities
and Exchange Commission on June 17, 1996 (together with
Amendments 1, 2, and 3 thereto , the "Form S-1")
3.2 Bylaws, incorporated herein by reference from
the Form 1-A
4 Specimen Common Stock Certificate of MetroGolf
Incorporated (incorporated by reference to Exhibit 4 to Form S-1)
4.1 Form of Note Purchase Agreement dated 1997
between MetroGolf Incorporated and the Purchasers of its 10%
Convertible Subordinated Notes due 2002 (the 1997 PP Notes).**
10.1 Employment Agreement between the Company and
Charles D. Tourtellotte effective as of January 1, 1996
(incorporated by reference to Exhibit 10.1 to Form S-1)
10.2 Employment Agreement between the Company and
J.D. Finley effective as of January 1, 1996 (incorporated by
reference to Exhibit 10.2 to Form S-1)
10.4(a) Form of outstanding Warrant Certificates,
incorporated herein to Form 1-A
10.4(b) Warrant Agreement, incorporated herein by
reference to Form 1-A
10.7 Agreement of Limited Partnership of Illinois
Center Golf Partners L.P., incorporated herein by reference to
Form 1-A
10.8 Ground Sublease and Sublicense Agreement for
Illinois Center Golf Facilities between Illinois Center Golf
Partners L.P. and Illinois Center Plaza Venture, as amended,
incorporated herein by reference to Form 1-A
10.9 Agreement of Limited Partnership of Goose Creek
Golf Partners Limited Partnership, incorporated herein by
reference to Form 1-A
10.10 Credit Line Deed of Trust for the benefit of
Textron Financial Corporation, incorporated herein by reference
to Form 1-A
10.11 Agreement of Lease between The Port Authority
of New York and New Jersey and MetroGolf New York L.L.C. dated as
of June 18, 1997 **
10.12 Operating Agreement of Vintage New York Golf
L.L.C., incorporated herein by reference to Form 1-A
10.13 Agreement of Purchase and Sale between Robert
Selleck and Fremont Golf Partnership and The Vintage Group USA
Ltd. dated as of March 19, 1996 (incorporated by reference to
Exhibit 10.13 to Form S-1)
10.14 Letter of Intent relating to Harborside Golf
Center from The Vintage Group USA Ltd. to Shapery Enterprises
dated March 18, 1996 (incorporated by reference to Exhibit 10.14
to Form S-1)
10.15 Management Agreement between MetroGolf
Management, Inc. and Illinois Center Golf, incorporated herein by
reference to Form 1-A
10.16 Settlement Agreement relating to 15% interest
in Illinois Center Golf and Goose Creek, incorporated herein by
reference to Form 1-A
10.17 Company's 1996 Stock Option and Stock Bonus
Plan (incorporated by reference to Exhibit 10.17 to Form S-1)
10.18 Management Agreement between MetroGolf
Management, Inc. and the Company dated July 1, 1996 relating to
Fremont Golf Center (incorporated by reference to Exhibit 10.18
to Form S-1)
10.19 Management Agreement between MetroGolf
Management, Inc. and MetroGolf (San Diego) Incorporated dated
July 1, 1996 relating to Harborside Golf Center (incorporated by
reference to Exhibit 10.19 to Form S-1)
10.20 Form of Note from the Company to the limited
partners of ICGP that accept the Offer to Purchase (incorporated
by reference to Exhibit 10.20 to Form S-1)
10.21 Form of Warrant from the Company to the limited
partners of ICGP that accept the Offer to Purchase (incorporated
by reference to Exhibit 10.21 to Form S-1)
10.22 Form of Note from the Company to the limited
partners of GCGP that accept the Offer to Purchase (incorporated
by reference to Exhibit 10.22 to Form S-1)
10.23 Company's Senior Executive Incentive Stock
Option Plan (incorporated by reference to Exhibit 10.23 to Form
S-1)
10.24 Golf Facility Lease by and between The City of
Fremont California and MetroGolf Incorporated dated April 2, 1997
(incorporated by reference to Exhibit 10.24 to Form 10-K for the
year ended December 31, 1996).
10.25 Fifth Amendment to Ground Sublease and Sublease
Agreement for Illinois Center Golf Facilities dated January 31,
1996 amending Exhibit 10.8 (incorporated by reference to Exhibit
10.25 to Form S-1)
10.26 Employment Agreement between the Company and
Craig Sloan effective as of February 20, 1997 (incorporated by
reference to Exhibit 10.26 to Form 10-QSB for the quarter ended
June 30, 1997).
10.27 Lease agreement between Catellus Development
Corporation and Metrogolf Harborside, Inc. Catellus/MetroGolf
Settlement Agreement between Catellus Development Corporation and
MetroGolf (San Diego) Incorporated. Equipment Lease between
Columbia Funding and MetroGolf (Harborside) Incorporated.
Termination of Sublease and Option Agreement between MetroGolf
(San Diego) Incorporated, MetroGolf Incorporated and Harborside
Golf Center, L.P. and Harborside Golf Center, Inc. Lease
Guaranty Agreement by MetroGolf Incorporated in favor of Columbia
Funding Corporation 1997 (incorporated by reference to Exhibit
10.26 to Form 10-QSB for the quarter ended June 30, 1997).
10.28 Agreement of Purchase and Sale of Leasehold
Interest and Leasehold Improvements between Parfect Golf
Associates of Rocky Point and MetroGolf Incorporated 1997
(incorporated by reference to Exhibit 10.26 to Form 10-QSB for
the quarter ended June 30, 1997).
10.29 Agreement of Purchase and Sale of Limited
Partnership Interests between Edward W. Dolinar, Michael Dolinar,
Richard Oldenburg, William Onesta, R.T. Rowe, Randy Rowe and Gary
Rowe (collectively "Seller") and MetroGolf Incorporated
("Purchaser") dated as of July 7, 1997 **
**- filed herewith
11 Statement Regarding Computation of Earnings per
Share
(B) Reports on Form 8-K
None during the quarter ended September 30, 1997
MetroGolf Incorporated
Exhibit 11
Statement Re: Computation of Earnings Per Share
Historical weighted average number of shares outstanding is
summarized as follows:
Three months Nine months
Ended ended
September 30, September 30, September 30,
1997 1997 1996
------------- ------------- -------------
Weighted average
number of common
shares outstanding 4,027,661 3,004,677 680,782
------------- ------------- -------------
Warrants outstanding 288,160
Less treasury stock
that could be
repurchased with
proceeds of exercised
warrants (91,800)
-------------
Assumed exercise of
warrants 196,360
-------------
Historical weighted
average number of
common shares
outstanding 4,027,661 3,004,677 877,142
============= ============= ============
Primary and Fully Diluted Earnings Per Share
For the Three Months Ended
September 30, September 30,
1997 1996
------------- -------------
Loss applicable to common
Stock ($1,132,294) $(537,800)
============ ============
Weighted average number of
common shares outstanding 4,027,661 877,142
============ ============
Primary and Fully Diluted
Earnings Per Share $ (0.28) $ (0.61)
============ ============
For the Nine Months Ended
September 30, September 30,
1997 1996
------------- -------------
Loss applicable to common
Stock ($2,776,134) $(983,094)
============= =============
Weighted average number of
common shares outstanding 3,004,677 877,142
============= =============
Primary and Fully Diluted
Earnings Per Share $ (0.92) $ (1.12)
============= =============
SIGNATURES
Pursuant to the requirements of the Exchange Act, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MetroGolf Incorporated
DATE: November 14, 1997 /s/ Charles D. Tourtellotte
----------------- ----------------------------
Charles D. Tourtellotte
President
DATE: November 14, 1997 /s/ J.D. Finley
----------------- ---------------
J.D. Finley
Chief Financial Officer
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