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 June 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
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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 August 12, 1997
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Common stock, no par value 3,922,539 shares
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METROGOLF INCORPORATED
FORM 10-QSB QUARTERLY REPORT
TABLE OF CONTENTS
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30,
1997 (Unaudited) and December 31, 1996
Consolidated Statements of Operations (Unaudited)
for the three months ended June 30, 1997 and 1996
Consolidated Statements of Operations (Unaudited)
for the six months ended June 30, 1997 and 1996
Consolidated Statements of Cash Flows (Unaudited)
for the six months ended June 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
June 30,
1997 December 31,
(Unaudited) 1996
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ASSETS
Current Assets
Cash and cash equivalents $ 156,035 $ 904,146
Inventories 185,673 157,577
Accounts receivable 58,071 31,897
Other current assets 51,197 68,309
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450,976 1,161,929
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Property and equipment, net of
accumulated depreciation
of $549,091 and $205,342 14,290,205 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 372,660 133,939
Loan fees 106,205 106,205
Organization costs 89,744 89,744
--------------- --------------
2,105,848 1,867,127
Less accumulated
amortization (209,157) (97,825)
--------------- --------------
1,896,691 1,769,302
Deferred acquisition costs 258,683 78,791
Other receivable - 82,372
Deferred offering costs - 15,000
Other assets 89,565 72,371
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Total other assets 2,244,939 2,017,836
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TOTAL ASSETS $ 16,986,120 $ 16,703,910
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,422,200 $ 1,380,947
Checks written against
future deposits - 122,546
Accrued expenses and other
current liabilities 831,327 859,292
Deferred revenue 210,790 218,633
Lines of credit 10,000 -
Current portion of long-term
debt and capital lease
obligations 5,095,176 6,111,173
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7,569,493 8,692,591
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Long term debt and capital
lease obligations, less
current portion 5,462,179 4,133,342
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Minority interest in
consolidated subsidiaries 282,341 319,024
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Stockholders' Equity
Common stock -- No par
value: 9,000,000 shares
authorized; 3,874,158 and
2,233,775 shares issued
and outstanding at June 30,
1997 and December 31, 1996 8,549,481 6,792,487
Notes receivable, stockholder (82,511) (82,511)
Accumulated deficit (4,794,863) (3,151,023)
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3,672,107 3,558,953
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 16,986,120 $ 16,703,910
============== ==============
"See accompanying notes to consolidated financial statements."
MetroGolf Incorporated
Consolidated Statements of Operations
(Unaudited)
For the Three Months Ended
June 30, June 30,
1997 1996
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Revenues
Green fees and driving range $ 832,663 $ -
Membership 137,864 -
Merchandise 162,977 -
Food and beverage 112,501 -
Instruction 93,364 -
Management fees, related
parties - 50,218
Administration 30,201 -
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Total revenues 1,369,570 50,218
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Operating expenses
Range and course operations 500,905 -
Food and beverage 96,090 -
Membership 60,810 -
Instruction expense 50,301 -
General and administrative 624,765 196,019
Depreciation and amortization 239,798 4,825
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Total operating expenses 1,572,669 200,844
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Loss from operations (203,099) (150,626)
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Other income (expenses)
Interest expense (355,454) (55,560)
Other 2,325 17,941
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Total other income (expense) (353,129) (37,619)
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Equity in loss of affiliates - (1,310)
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Minority interest in (income)
loss of subsidiaries (32) (3,120)
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Net loss (556,260) (192,675)
Dividend requirements on
preferred stock - 42,656
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Loss applicable to common stock $ (556,260) $ (235,331)
============= =============
Net loss per common share $ (0.20) $ (0.27)
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Weighted average number of
common shares outstanding 2,732,881 877,142
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"See accompanying notes to consolidated financial statements"
MetroGolf Incorporated
Consolidated Statements of Operations
(Unaudited)
For the Six Months Ended
June 30, June 30,
1997 1996
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Revenues
Green fees and driving range $ 1,151,058 $ -
Membership 267,940 -
Merchandise 233,382 -
Food and beverage 141,486 -
Instruction 127,076 -
Management fees,
related parties - 99,275
Administration 58,994 -
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Total revenues 1,979,936 99,275
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Operating expenses
Range and course operations 847,026 -
Food and beverage 121,648 -
Membership 138,333 -
Instruction expense 70,780 -
General and administrative 1,392,284 412,646
Depreciation and amortization 420,851 9,650
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Total operating expenses 2,990,922 422,296
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Loss from operations (1,010,986) (323,021)
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Other income (expenses)
Interest expense (685,565) (62,490)
Other 16,029 34,400
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Total other income (expense) (669,536) (28,090)
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Equity in loss of affiliates - (2,629)
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Minority interest in (income)
loss of subsidiaries 36,682 (6,240)
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Net loss (1,643,840) (359,980)
Dividend requirements on
preferred stock - 85,312
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Loss applicable to common stock $ (1,643,840) $ (445,292)
============== =============
Net loss per common share $ (0.66) $ (0.51)
============== =============
Weighted average number of
common shares outstanding 2,484,707 877,142
============== =============
"See accompanying notes to consolidated financial statements"
MetroGolf Incorporated
Consolidated Statements of Cash Flows
(Unaudited)
For the Six Months Ended
June 30, June 30,
1997 1996
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Increase (Decrease) in Cash
and Cash Equivalents
OPERATING ACTIVITIES
Net loss $ (1,643,840) $ (359,980)
Adjustments to reconcile net
loss to net cash provided
by (used in) operating
activities
Depreciation 365,327 9,650
Amortization 55,524 -
Gain on sale of asset (6,661) -
Interest 142,394 22,323
Equity in loss of
affiliates - 2,629
Minority interest in
(income) loss of
consolidated
subsidiaries (36,682) 6,240
Changes in operating
assets and
liabilities
Management fee
receivable,
related party - 44,005
Deferred revenue (7,843) -
Inventories (28,096) -
Accounts
receivable and
other current
assets (9,062) (736)
Accounts payable 41,253 167,957
Accrued salaries - 181,674
Accrued expenses
and other current
liabilities (27,965) 18,804
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Net Cash Provided by (Used in)
Operating Activities (1,155,651) 92,566
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INVESTING ACTIVITIES
Restricted cash - 222,700
Payments for notes receivable,
related parties - (92,095)
Payments for notes receivable,
stockholder - (46,024)
Acquisition of fixed assets (84,296) -
Disposition of fixed assets 20,798 -
Payments for deferred
acquisition costs (179,892) (87,855)
Payment for deposit on
acquisition - (50,000)
Deferred offering costs - -
Deposits and other assets (17,195) (20,000)
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Net Cash (Used in)
Investing Activities (260,585) (73,274)
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FINANCING ACTIVITIES
Prior checks written against
current deposits (122,546) -
Proceeds from convertible
subordinated notes payable 1,184,000 2,025,000
Payments on line of credit - (246,937)
Payments on long-term debt (169,608) (8,508)
Payments on note payable,
officer - (22,002)
Payments for debt issue costs (223,721) (267,878)
Payments for deferred
offering costs - (185,450)
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Net Cash Provided by
Financing Activities 668,125 1,294,225
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Increase (Decrease) in Cash
and Cash Equivalents (748,111) 1,313,517
Cash and Cash Equivalents,
Beginning of Period 904,146 324
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Cash and Cash Equivalents,
End of Period $ 156,035 $ 1,313,841
============== =============
"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
six-month report filed on Form 10-QSB is representative of its
financial position and its results of operations and changes in
cash flow for the periods ended June 30, 1997 and 1996.
2. Supplemental Data to Statements of Cash Flows
For the Six Months Ended
June 30, June 30,
1997 1996
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Cash payments for interest $630,973 $42,240
Excluded from the consolidated statements of cash flows were the
effects of certain noncash investing and financing activities as
follows:
Increase in common stock for
discount on debt - $243,600
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 for
common stock and debt $875,000 -
Acquisition of Equipment Lease
in Harborside for common
stock and debt forgiveness $186,228 -
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
========
4. Commitments
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.
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, $952,500 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 six months ended June 30, 1997, the Company raised
$1,184,000 in convertible subordinated notes ("1997 Notes"). Net
proceeds from the offering, after paying commissions and offering
costs were approximately, $960,279. 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. 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
70% of the price of the common stock of the Company at the
issuance of the 1997 Notes. 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.
7. New Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has 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
("APB") 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.
ITEM 2. MANAGEMENT DISCUSSION AND PLAN OF OPERATION.
The following discussion and analysis should be read in
conjunction with the Company's financial statements and the notes
thereto appearing elsewhere in this report. This report contains
forward-looking statements, 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 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 and Solano Golf Center
("Solano") on May 1, 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. 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 June 30, 1997, as Compared to Three Months
Ended June 30, 1996
Total revenues increased 2,739%, to approximately $1,369,600
for the three months ended June 30, 1997, from approximately
$50,000 for the three months ended June 30, 1996. In 1997, the
Company derived revenue from golf course and learning center
operations. In 1996, the Company derived revenue from management
fees.
Operating expenses increased 783% to approximately
$1,573,000 for the three months ended June 30, 1997, from
approximately $201,000 for the three months ended June 30, 1996.
Operating costs increased to approximately $708,000 from $0 due
to the addition of operating properties in the third quarter of
1996, 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 three months
ended June 30, 1997 increased to $624,765 from $196,019 in 1996
due to property acquisitions during 1996 and the costs associated
with becoming a publicly traded company.
Depreciation and amortization expenses increased to
approximately $240,000 in 1997 from approximately $5,000 in 1996
due to the acquisition of Fremont in July 1996 and ICGP, GCGP and
Palms in the fourth quarter of 1996.
Interest expense increased to $355,454 in 1997 from $55,560
in 1996 primarily due to placement of $2,025,000 of convertible
subordinated notes ("PP Notes") in the second quarter of 1996,
the ICGP and GCGP Notes in the fourth quarter of 1996, and debt
associated with property acquisitions during 1996.
Other income decreased to $2,325 in 1997 from $17,941 in
1996 as a result of the interest-bearing notes receivable being
consolidated as a result of the acquisition of GCGP and ICGP.
Six Months Ended June 30, 1997, as Compared to Six Months Ended
June 30, 1996
Total revenues increased 2,000%, to approximately $1,980,000
for the six months ended June 30, 1997, from approximately
$99,000 for the six months ended June 30, 1996. In 1997, the
Company derived revenue from golf course and learning center
operations. In 1996, the Company derived revenue from management
fees.
Operating expenses increased 709% to approximately
$2,991,000 for the six months ended June 30, 1997, from
approximately $422,000 for the six months ended June 30, 1996.
Operating costs increased to approximately $1,177,800 from $0 due
to the addition of operating properties in the third quarter of
1996, 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 six months
ended June 30, 1997 increased to $1,392,284 from $412,646 in 1996
due to property acquisitions during 1996 and the costs associated
with becoming a publicly traded company.
Depreciation and amortization expenses increased to
approximately $421,000 in 1997 from approximately $9,600 in 1996
due to the acquisition of Fremont in July 1996 and ICGP, GCGP and
Palms in the fourth quarter of 1996.
Interest expense increased to $685,565 in 1997 from $62,490
in 1996 primarily due to placement of $2,025,000 of convertible
subordinated notes ("PP Notes") in the second quarter of 1996,
the ICGP and GCGP Notes in the fourth quarter of 1996, and debt
associated with property acquisitions during 1996.
Other income decreased to $16,029 in 1997 from $34,400 in
1996 as a result of the interest-bearing notes receivable being
consolidated as a result of the acquisition of GCGP and ICGP.
Liquidity and Capital Resources
At June 30, 1997, the Company had a working capital deficit
of approximately $7,118,500, as compared to a working capital
deficit of $7,530,700 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. The Company has approximately $5,095,000 of current
liabilities relating to debts that come due within the next 12
months. Approximately $4,700,000 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 $1,184,000 in convertible
subordinated notes ("the 1997 Notes"). The Company intends to
use the proceeds for additional acquisitions 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 $1,156,000 in the six months ended June 30, 1997
compared with cash provided of approximately $93,000 in the six
months ended June 30, 1996. The primary reason for the increase
has been the increase in the net loss to $1,643,840 in the six
months ended June 30, 1997 from $359,980 in the six months ended
June 30, 1996. In addition, the Company used accounts payable as
a source of financing. Trade accounts payable increased $41,000
in the six months ended June 30, 1997 and $168,000 in the three
months ended June 30, 1996.
The cash used in investing activities increased to
approximately $261,000 in the six months ended June 30, 1997 from
approximately $73,000 in the six months ended June 30, 1996. The
primary reason for the increase is the elimination of $222,000
restricted cash as a source of cash from investing activities.
The cash provided by financing activities decreased to
approximately $668,000 in the six months ended June 30, 1997 from
approximately $1,294,000 in the six months ended June 30, 1996.
The primary reason for the decrease is a reduction in the
proceeds from convertible subordinated notes payable.
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 six months ended June 30, 1997, the Company
raised $1,184,000 in convertible subordinated notes ("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. 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 70% of the price of the
common stock of the Company at the issuance of the 1997 Notes.
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 late fall of 1997, with the completion
of the golf center scheduled for the late summer 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 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 late-1997, with the opening scheduled for fall 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 May 1, 1997, the Company entered
into an agreement to operate the Solano Golf Center ("Solano").
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") has
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
("APB") 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.
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
1,114,397 shares of common stock issued in conjunction with
conversion of $912,500 of convertible subordinated notes issued
May 1996 plus accrued interest of $40,638. 517,649 shares of
common stock valued at $700,000 issued in conjunction with the
acquisition of Rocky Point Golf Center on June 9, 1997. 8,334
shares of common stock issued to Cantor Seinuk Group, P.C. on May
9, 1997 in conjunction with engineering services relating to the
New York Golf Center.
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 May 8, 1996
between The Vintage Group USA, Ltd. and the
Purchasers of its 12% Convertible Subordinated
Notes due 1997 (the PP Notes) (incorporated by
reference to Exhibit 4.2 to Form S-1)
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 Port Authority Letter Agreement, incorporated
herein by reference to Form 1-A
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 **
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 **
10.28 Agreement of Purchase and Sale of Leasehold
Interest and Leasehold Improvements between Parfect
Golf Associates of Rocky Point and MetroGolf
Incorporated **
**- filed herewith
11 Statement Regarding Computation of Earnings per
Share
(B) Reports on Form 8-K
None during the quarter ended June 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 Six months
ended ended
June 30, June 30, June 30,
1997 1997 1996
----------- ----------- ---------
Common stock outstanding 2,732,881 2,484,707 680,782
----------- ----------- ---------
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 2,732,881 2,484,707 877,142
=========== =========== =========
Primary and Fully Diluted Earnings Per Share
For the Three Months Ended
June 30, June 30,
1997 1996
------------ ------------
Loss applicable to common stock $(556,260) $(235,331)
============ ============
Weighted average number of common
shares outstanding 2,732,881 877,142
============ ============
Primary and Fully Diluted
Earnings Per Share $ (0.20) $ (0.27)
============ ============
For the Six Months Ended
June 30, June 30,
1997 1996
------------ ------------
Loss applicable to common stock ($1,643,840) $(445,292)
============ ============
Weighted average number of common
shares outstanding 2,484,707 877,142
============ ============
Primary and Fully Diluted
Earnings Per Share $ (0.66) $ (0.51)
============ ============
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: August 13, 1997 /s/ Charles D. Tourtellotte
--------------- ---------------------------
Charles D. Tourtellotte
President
DATE: August 13, 1997 /s/ J.D. Finley
--------------- ---------------
J.D. Finley
Chief Financial Officer
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