SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 26, 1997
GOLF VENTURES, INC.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in its charter
Utah 0-21337 87-0403864
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State or other jurisdiction Commission File No. IRS Employer ID #
of incorporation
255 South Orange Avenue, Suite 1515, Orlando, Florida 32801
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Address and zip code of principal executive offices
407-245-7557
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Registrant's telephone number
Item 1. Changes in Control of Registrant
By an earlier filing on Form 8-K filed on or about November 26, 1997, the
Company reported that it had closed on its reverse acquisition transaction with
U.S. Golf Communities, Inc. The result of this transaction was that the
shareholders of U.S. Golf Communities, Inc. received shares of the Company's new
Series D Convertible Preferred Stock constituting approximately 81% of total
common share votes of the Company and constituting approximately 81% of the
total equity shares of the Company. U.S. Golf Communities, Inc. became a wholly
owned subsidiary of the Company, and thereby the Company gained ownership of the
assets and liabilities of U.S. Golf Communities, Inc.
<PAGE>
As provided in the Notes to this Form 8-K, audited financial information
about U.S. Golf Communities, Inc. and pro forma combined financial information
about the Company after the U.S. Golf Communities transaction were to be filed
with the Commission within 75 days of the closing on November 26, 1997. This
Form is filed to fulfill that requirement.
The audited balance sheet of U.S. Golf Communities, Inc. at December 31,
1996 and audited income statements and statements of cash flows for the years
ended December 31, 1996 and 1995 are attached to this Report as Exhibit 99.1.
Unaudited balance sheets and income statements as of September 30, 1997 and 1996
for U.S. Golf Communities are attached to this Report as Exhibit 99.2. Pro Forma
financial statements combining financial information for U.S. Golf Communities
at December 31, 1996 and financial information for the Company at March 31, 1997
are attached to this Report as Exhibit 99.3.
The Company apologizes that it is late with this accounting data.
Item 2. Acquisition or Disposition of Assets
See Item 1.
Item 3. Bankruptcy or Receivership
Not Applicable.
Item 4. Changes in Registrant's Certifying Accountant
For the years ended March 31, 1997, Jones, Jensen & Company, Salt Lake
City, audited the Company's financial statements and issued reports thereon. As
a result of the U.S. Golf transaction referenced in Item 1, above, the control
and headquarters of the Company was moved to the management and offices of U.S.
Golf in Orlando, Florida. The Company has retained BDO Seidman in Orlando,
Florida to audit the Company for the year ended March 31, 1998, and said firm
prepare the attached audited financial statements of U.S. Golf as of December
31, 1996, and assisted in the preparation of the pro forma combined financial
information also attached to this Report. The decision to change outside
auditors was not as a result of any disagreement between Jones, Jensen & Company
and the Company.
Item 5. Other Events
On December 18, 1997, the Commission filed a civil complaint against the
Company and certain former officers of the Company in Federal District Court in
Salt Lake City alleging deficiencies in certain historical disclosure filings by
the Company with regard to a former control person, George Badger, and with
regard to the status of the Company's Red Hawk development in St. George, Utah.
The Company has not yet been required to answer this Complaint, and the Company
is conferring with the Commission to show that the Company has taken corrective
steps to meet the Commission's disclosure concerns, and to show that many of the
Commission's concerns about the Red Hawk project are unfounded. The Company is
hopeful that a resolution of the Commission's concerns can be achieved during
the first calendar quarter of 1998.
<PAGE>
The Company hopes to schedule and hold its Annual Meeting of Shareholders
during the first calendar quarter of 1998, once a resolution of the Commission's
concerns has been accomplished.
Item 6. Resignation of Registrant's Directors
On December 18, 1997, as previously announced, Duane Marchant, the former
President of the Company, resigned as an officer and director of the Company in
the wake of his being named in the Commission's civil complaint, discussed in
Item 5, above. Mr. Marchant had previously agreed with the Company in his
employment agreement that he would resign if he was named as a defendant in a
Commission action.
Item 7. Financial Statement, Pro Forma Financial Information and Exhibits
Attached as Exhibit 99.1 are the audited balance sheet of U.S. Golf
Communities, Inc. at December 31, 1996 and the audited income statements and
statements of cash flows for the years ended December 31, 1996 and 1995.
Attached as Exhibit 99.2 are the unaudited balance sheets and income
statements as of September 30, 1997 and 1996 for U.S. Golf Communities.
Attached as Exhibit 99.3 are pro forma financial statements combining
financial information for U.S. Golf Communities at December 31, 1996 and
financial information for the Company at March 31, 1997.
Item 8. Changes in Fiscal Year
Not Applicable
Item 9. Sales of equity securities pursuant to Regulation S
Not Applicable.
<PAGE>
The following exhibits are filed with the Report.
Exhibit No. Description
99.1 Audited Financial Statements for U.S. Golf
Communities, Inc. as of December 31, 1996 and 1995.
99.2 Unaudited Interim Financial Statements for U.S. Golf
Communities, Inc. as of September 30, 1997 and 1996.
99.3 Pro Forma Consolidated Financial Information for Golf
Ventures, Inc. (as of March 31, 1997) and U.S. Golf
Communities, Inc. (as of December 31, 1996)
GOLF VENTURES, INC.
/s/ Warren Stanchina
---------------------------
Warren Stanchina, President
Dated: February 20, 1998
U.S. Golf Communities, Inc.
Audited Financial Statements
Years Ended December 31, 1996 and 1995
<PAGE>
U.S. Golf Communities, Inc.
Contents
Independent auditors' report 3
Combined financial statements
Combined balance sheet 4 - 5
Combined statements of operations 6
Combined statements of capital deficit 7
Combined statements of cash flows 8
Summary of accounting policies 9 - 13
Notes to combined financial statements 14 - 27
2
<PAGE>
Independent Auditors' Report
To the Board of Directors
U.S. Golf Communities, Inc.
We have audited the accompanying combined balance sheet of U.S. Golf
Communities, Inc. and affiliates as of December 31 1996, and the related
statements of operations, capital deficit, and cash flows for each of the two
years ended December 31, 1996. These financial statements are the responsibility
of the Companies' management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position of U.S. Golf Communities,
Inc. and affiliates as of December 31, 1996, and the results of their operations
and their cash flows for each of the two years ended December 31, 1996, in
conformity with generally accepted accounting principles.
Certified Public Accountants
January 24, 1998
3
<PAGE>
<TABLE>
<CAPTION>
U.S. Golf Communities, Inc.
Combined Balance Sheet
December 31,
1996
------------
Assets
<S> <C>
Cash and cash equivalents $ 378,669
Accounts receivable:
Trade 386,191
Related parties (Note 1) 83,856
Other 123,235
Inventories 154,959
Prepaid expenses 83,751
Property and equipment, at cost,
net of accumulated depreciation (Note 2) 8,225,690
Land and development costs 25,406,847
Deferred loan costs 875,623
Goodwill, net of accumulated amortization of $298,037 (Note 3) 3,675,790
Other assets 347,585
-----------
Total assets $39,742,196
===========
</TABLE>
See accompanying summary of significant accounting policies and
notes to combined financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
U.S. Golf Communities, Inc.
Combined Balance Sheet
December 31,
1996
----
<S> <C>
Liabilities and Capital Deficit
Liabilities:
Accounts payable:
Trade 1,430,799
Related parties (Note 1) 1,710,201
Accrued expenses 782,900
Accrued interest payable:
Related parties 2,334,710
Other 2,641,712
Loan costs payable 1,410,658
Notes payable (Note 4) 24,632,309
Related party notes payable (Note 5) 17,563,632
----------
Total liabilities 52,506,921
----------
Commitments and Contingencies (Note 6) -
Capital deficit:
Partners' deficit:
General partners (1,023,276)
Limited partners (11,341,079)
Stockholders' deficit:
Common stock, $1 par value, shares authorized 10,000,
issued and outstanding 500 500
Accumulated deficit (400,870)
--------
Total capital deficit (12,764,725)
-----------
$39,742,196
===========
</TABLE>
See accompanying summary of significant accounting policies and
notes to combined financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
U.S. Golf Communities, Inc.
Combined Statements of Operations
Year ended December 31,
1996 1995
---- ----
Operating revenue:
<S> <C> <C>
Dues and initiation fees $2,586,233 $ 1,963,136
Golf cart rentals 1,890,024 1,001,608
Food, beverage and pro shop sales 1,379,745 1,167,609
Lot sales 2,296,707 4,602,281
Other 18,261 12,693
------ ------
Total operating revenue 8,170,970 8,747,327
--------- ---------
Costs and expenses:
Cost of merchandise and lots sold 1,816,100 2,924,851
General and administrative expenses 9,542,050 7,758,337
--------- ---------
Total costs and expenses 11,358,150 10,683,188
---------- ----------
Loss from operations (3,187,180) (1,935,861)
---------- ----------
Other income (expense):
Interest income 17,796 32,035
Interest expense (4,182,476) (3,472,136)
Provision for loss on property and equipment (221,127) -
Loss on equity method investment (180,047) (375,696)
Other (110,254) (16,118)
-------- -------
Total other income (expense), net (4,676,108) (3,831,915)
---------- ----------
Loss before minority interest (7,863,288) (5,767,776)
Minority interest in net loss of consolidated subsidiary (Note 3) 68,111 538,674
------ -------
Net loss $(7,795,177) $(5,229,102)
=========== ===========
</TABLE>
See accompanying summary of significant accounting policies
and notes to combined financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
U.S. Golf Communities, Inc.
Combined Statements of Capital Deficit
General Limited Total
Partners' Partners' Common Accumulated Capital
Deficit Deficit Stock Deficit Deficit
------- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ (654,459) $ (18,491) $500 $ (16,191) $ (688,641)
Distribution of capital - (20,000) - - (20,000)
Contribution of capital - 423,559 - - 423,559
Net loss (129,910) (4,908,936) - (190,256) (5,229,102)
-------- ---------- ---- -------- ----------
Balance, December 31, 1995 (784,369) (4,523,868) 500 (206,447) (5,514,184)
Contribution of capital - 44,636 - - 44,636
Conversion of related party notes
payable into partners' capital - 500,000 - - 500,000
Net loss (238,907) (7,361,847) - (194,423) (7,795,177)
-------- ---------- ---- -------- ----------
Balance, December 31, 1996 $(1,023,276) $ (11,341,079) $500 $(400,870) $(12,764,725)
=========== ============= ==== ========= ============
</TABLE>
See accompanying summary of significant accounting policies
and notes to combined financial statements
7
<PAGE>
<TABLE>
<CAPTION>
U.S. Golf Communities, Inc.
Combined Statements of Cash Flows
Year ended December 31,
1996 1995
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net loss $(7,795,177) $(5,229,102)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation 402,974 428,763
Amortization 566,371 177,062
Loss on equity method investment 180,047 375,696
Provision for loss on property and equipment 221,127 -
Minority interest in net loss of consolidated subsidiary (68,111) (538,674)
Gain recognized under installment sales - (137,692)
Cash provided by (used for):
Accounts receivable (80,991) (125,361)
Inventories 48,248 (95,630)
Prepaid expenses (49,500) 63,410
Land and development costs 663,290 807,282
Accounts payable 1,425,004 862,722
Accrued expenses (30,768) 407,859
Accrued interest payable 2,245,637 1,766,062
--------- ---------
Net cash used for operating activities (2,271,849) (1,237,603)
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment (152,660) (233,228)
Investment in equity method investment (56,503) (289,248)
Payment of option payable - (950,000)
Payments received on notes receivable - 395,001
Increase (decrease) in other assets (32,557) (75,452)
------- -------
Net cash used for investing activities (241,720) (1,152,927)
-------- ----------
Cash flows from financing activities:
Proceeds from notes payable 4,987,113 2,177,866
Repayments of notes payable (3,302,157) (4,027,744)
Proceeds from related party notes payable 1,658,921 4,294,970
Repayment of related party notes payable (1,108,611) (337,619)
Distributions of capital - (20,000)
Contributions of capital 44,636 423,559
Deferred loan costs (40,496) -
------- -------
Net cash provided by financing activities 2,239,406 2,511,032
--------- ---------
Net increase (decrease) in cash and cash equivalents (274,163) 120,502
Cash and cash equivalents, beginning of year 652,832 532,330
------- -------
Cash and cash equivalents, end of year $ 378,669 $ 652,832
=========== ===========
</TABLE>
See accompanying summary of significant accounting policies
and notes to combined financial statements
8
<PAGE>
U.S. Golf Communities, Inc.
Summary of Significant Accounting Policies
Principles of U.S. Golf Communities, Inc. and affiliates, hereinafter
Combination referred to collectively as the Company, are engaged in the
ownership, management, development and operation of golf
courses and the acquisition, development and sale of
residential lots. The accompanying combined financial
statements include the following affiliated entities based
upon common ownership and control:
All significant intercompany transactions and balances have
been eliminated in the combination. Subsequent to December
31, 1996, the entities entered into an agreement and plan of
reorganization (see Note 9).
Name of Entity Principal Business Activity
-------------- ---------------------------
U.S. Golf Communities, Inc. Management Company
Golf Communities of America, Ltd. Ownership of U.S. Golf
Pinehurst Plantation, Ltd.
U.S. Golf Pinehurst Golf course and development
Plantation, Ltd. and sale of residential
lots Pinehurst,
North Carolina
U.S. Golf (Plantation), Inc. 1% general partner of U.S.
Golf Pinehurst,
Plantation, Ltd.
Wedgefield Limited Partnership Golf course Orlando,
Florida
U.S. Golf (Wedgefield), Inc. 1% general partner of
Wedgefield Limited
Partnership
FSD Golf Club, Ltd. Golf course Orange City,
Florida
U.S. Golf (FSD), Inc. 25% general partner of FSD
Golf Club, Ltd.
Cutter Sound Development, Ltd. Golf course and development
and sale of residential
lots Stuart, Florida
U.S. Golf (Cutter Sound), Inc. 1% general partner of
Cutter Sound
Development, Ltd.
Northshore Golf Partners, Ltd. Golf course
` Portland, Texas
Northshore Development, Ltd. Development and sale of
residential lots near
Portland, Texas
9
<PAGE>
U.S. Golf Communities, Inc.
Summary of Significant Accounting Policies
Northshore U.S. Golf, Inc. 1% general partner of
Northshore Golf Partners,
Ltd. and Northshore
Development, Ltd.
Montverde Properties, Ltd. Proposed golf course and
residential lots
U.S. Golf (Montverde), Inc. 1% general partner of
Montverde Properties, Ltd.
Montverde Investment Group, Ltd. 99% owner of Montverde
Properties, Ltd.
U.S. Golf Leasing Co., Inc. Leasing of management
employees to the companies
above
U.S. Golf Services &
Development, Inc. No business activity
Operations The Company owns and operates daily fee (public) golf courses
and develops and sells residential lots in Central Florida,
Southeast Texas and Pinehurst, North Carolina. In addition,
the Company owns partially developed real estate in Florida
which has been partially developed as a future golf course
and residential housing site. Golf Communities of America,
Ltd.; U.S. Golf Pinehurst Plantation, Ltd.; Wedgfield Limited
Partnership; FSD Golf Club, Ltd.; Cutter Sound Development,
Ltd.; Northshore Golf Partners, Ltd.; Northshore Development,
Ltd.; Montverde Properties, Ltd.; and Montverde Investment
Group, Ltd. are limited partnerships with defined lives. The
partnerships are scheduled to dissolve, unless terminated
sooner, at various dates beginning December 31, 2020 through
December 31, 2042.
Cash and All highly liquid cash investments with a maturity of three
Cash Equivalents months or less from the date of purchase are considered cash
equivalents.
Inventories Inventories are stated at the lower of cost or market and
consist primarily of golf equipment and clothing, golf course
maintenance supplies, and food and beverages. Costs are
determined by the first-in, first-out (FIFO) method.
10
<PAGE>
U.S. Golf Communities, Inc.
Summary of Significant Accounting Policies
Land and Land acquired for development and development costs are
Development Costs lower stated at the of cost, including development costs,
or estimated net realizable value. Land and development
costs include all significant acquisition, carrying and
development costs, including interest and real estate taxes
until the point of substantial completion. Costs after such
point are expensed as incurred.
Land and development costs are allocated to individual lots
based on the lot's relative sales value.
Revenue The Company recognizes revenue on lot sales when
Recognition substantially all construction is complete and the sale has
been closed. The related cost of the lots is accumulated
during construction and is charged to cost of sales at the
time revenue is recognized.
Revenue from dues, initiation fees, cart rentals, food and
beverage sales and clothing is recognized at the time of
sale.
Partners' Equity The financial statements do not reflect assets the
partners may have outside their interests in the
partnership, nor any personal obligations, including income
taxes, of the individual partners.
Depreciation Property and equipment are depreciated using straight-line
and and accelerated methods over the estimate depreciable lives
Amortization of the assets.
Deferred loan costs are amortized using the straight-line
method over the terms of the related notes payable.
Goodwill Goodwill represents the excess of cost over the fair value
of net assets acquired and is being amortized on a
straight-line method over ten years. The realizability of
goodwill is evaluated periodically as events or
circumstances indicate a possible inability to recover the
carrying amount.
11
<PAGE>
U.S. Golf Communities, Inc.
Summary of Significant Accounting Policies
Income Taxes Golf Communities of America, Ltd.; U.S. Golf Pinehurst
Plantation, Ltd.; Wedgefield Limited Partnership; FSD Golf
Club, Ltd.; Cutter Sound Development, Ltd.; Northshore Golf
Partners, Ltd,; Northshore Development, Ltd.;
Montverde Properties, Ltd.; and Montverde Investment Group,
Ltd. are organized as limited partnerships. Accordingly, all
tax effects of these entities' income or loss are passed
through to the stockholders and partners. U.S. Golf
Communities, Inc.; U.S. Golf (Plantation), Inc.; U.S. Golf
(Wedgefield), Inc.; U.S. Golf (FSD), Inc.; U.S. Golf (Cutter
Sound), Inc.; Northshore U.S. Golf, Inc.; U.S. Golf
(Montverde), Inc.; U.S. Golf Leasing Co., Inc.; and U.S.
Golf Services & Development, Inc. are taxed as a regular C
Corporations. Accordingly, deferred income taxes are
recognized for temporary differences between the bases of
the assets and liabilities for financial statement and
income tax purposes. Because income taxes for the C
Corporations are not significant, they have not been
included in the accompanying combined financial statements.
Fair Value of Statement of Financial Accounting Standards No. 107,
Financial "Disclosures about Fair Value of Financial Instruments,"
Instruments requires disclosure of fair value information about
financial instruments. Fair value estimates discussed herein
are based upon certain market assumptions and pertinent
information available to management as of December 31, 1996.
The respective carrying value of certain on-balance-sheet
financial instruments approximated their fair values. These
financial instruments include cash and equivalents, trade
receivables, accounts payable and accrued expenses. Fair
values were assumed to approximate carrying values for these
financial instruments since they are short term in nature
and their carrying amounts approximate fair values or they
are receivable or payable on demand. The fair value of the
Company's notes payable is estimated based upon the quoted
market prices for the same or similar issues or on the
current rates offered to the Company for debt of the same
remaining maturities. The carrying value approximates the
fair value of the notes payable.
12
<PAGE>
U.S. Golf Communities, Inc.
Summary of Significant Accounting Policies
Use of The preparation of financial statements in conformity with
Estimates generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Recent In June 1997, the Financial Accounting Standards Board
Accounting issued Statement of Financial Accounting Standards No. 130,
Pronouncements "Reporting Comprehensive Income." (FAS 130), and No. 131,
"Disclosure about Segments of an Enterprise and Related
Information" (FAS 131). FAS 130 establishes standards for
reporting and displaying comprehensive income, its
components and accumulated balances. FAS 131 establishes
standards for the way that public companies report
information about operation segments in annual financial
statements in interim financial statement issued to the
public. Both FAS 130 and FAS 131 are effective periods
beginning after December 15, 1997. The Company has not
determined the impact that the adoption of these new
accounting standards will have on its future financial
statements and disclosures.
13
<PAGE>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
1. Related Party The Company is affiliated with various other companies
Transactions through common control and stock ownership which are not
included in the accompanying combined financial statements.
Material related party transactions between the Company and
the affiliated companies consisted of the following:
Accounts Receivable Related Parties
Amounts due from related parties are comprised of amounts
advanced to certain limited partners and to entities related
by common management which are not included in the
accompanying combined financial statements.
The advances are noninterest bearing with no stipulated
terms for repayment.
Management Fees
U.S. Golf Communities, Inc., FSD Golf Club, Ltd.; Northshore
Golf Partners, Ltd.; Northshore Development, Ltd.; and
Wedgefield Limited Partnership have management agreements
with shareholders and a limited partner as follows:
U.S. Golf Communities, Inc. has entered into
a management agreement with Cutter Sound Development,
Ltd. and U.S. Golf Pinehurst Plantation Ltd.
Management fees under these agreements are based
on the greater of monthly minimums or certain
percentages of gross revenues, as defined. In
addition, the agreements provide for the payment
of acquisition and development fees, as defined.
U.S. Golf Communitias a management fee 5% of the
fees earned es, Inc. is obligated to pay to its
shareholders. Management fees earned for the years
ended December 31, 1996 and 1995 were approximately
$365,000 and $425,000, respectively.
FSD Golf Club, Ltd. is obligated under a 10-year
management agreement effect April 25, 1991 with a
company owned by one of its limited partners. Annual
management fees are the greater of 5% of annual gross
revenues, as defined, or $60,000. After the initial
14
<PAGE>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
minimum term, the agreement shall continue in effect
until canceled by either party upon 90 days written
notice.
Northshore Golf Partners, Ltd. and Northshore
Development, Ltd. are obligate under management
agreements effective June 15, 1992 with a company
owned by one of their limited partners. Annual
management fees under the agreements are $120,000.
The agreements will remain in effect as long as the
partnerships retain ownership or control of their
respective projects.
Wedgefield Limited Partnership is obligated under a
10-year management agreement effective May 1, 1995 with
a company owned by one of its limited partners. Annual
management fees are the greater of 10% of annual gross
revenues, as defined, or $120,000. After the initial
minimum term, the agreement shall continue in effect
until canceled by either party upon 90 days written
notice.
Management fees for the years ended December 31, 1996 and
1995 were approximately $665,000 and $725,000, respectively,
and are included in administrative and general in the
accompanying combined financial statements. At December 31,
1996, the amount owed under these agreements was
approximately $1,700,000 and is included in accounts payable
related parties in the accompanying combined financial
statements.
Employee Leasing
Several Company partnerships lease certain employees from
United States Leasing, Inc., a corporated owned by a partner
and stockholder of the Company.
15
<PAGE>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
2. Property and Property and equipment consist of the following:
Equipment
Estimated
December 31, Useful Lives 1996
------------ ------------- ----
Land and golf courses $3,630,453
Improvements of land and
golf courses 10 - 20 years 1,754,377
Buildings and improvements 5 - 40 years 2,770,937
Furniture 3 - 10 years 76,635
Equipment 5 - 15 years 1,259,918
Vehicles 5 years 7,202
------- -----
9,499,522
Less accumulated depreciation 1,273,832
---------
Net property and equipment $8,225,690
==========
See Note 7 regarding the basis of the assets of Wedgefield
Limited Partnership and Northshore Golf Partners, Ltd.
16
<PAGE>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
3. Purchase of Golf Communities of America, Ltd. owned approximately 60% of
Minority US Golf Pinehurst Plantation, Ltd. ("Plantation") and
Interest approximately 60% of another limited partnership, US Golf
and Goodwill Pinehurst National, Ltd. ("National"), through March 1996.
The remaining 40% of both Plantation and National was owned
by an unrelated third party. During March 1996, Golf
Communities of America, Ltd. exchanged its 60% ownership of
National, paid $2,300,000 and issued a $1,200,000 note
payable to acquire the remaining 40% ownership interest in
Plantation from the unrelated third party. The balance of
the Plantation minority interest at the date of the
acquisition was $798,447. Golf Communities of America, Ltd.
accounted for its investment in National under the equity
method of accounting. The balance of Golf Communities of
America's investment in National at the date of acquisition
was $1,272,274. The acquisition of the 40% interest was
accounted for using the purchase method of accounting.
Accordingly, the purchase price was allocated to the net
assets acquired based upon their estimated fair market
values. The excess of the purchase price over the estimated
fair value of net assets acquired amounted to approximately
$3,974,000, which has been accounted for as goodwill and is
being amortized over its estimated useful life of ten years.
The operating results of Plantation are included in the
Company's combined results of operations from the April 1994
inception of the partnership. Minority interest is recorded
in the statements of operations for the 40% third-party
ownership of Plantation through March 1996.
17
<PAGE>
<TABLE>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
4. Notes Payable
Notes payable consist of the following:
December 31,
1996
----
<S> <C>
Second mortgage note payable. This note is non-interest bearing through
November 1996 and bears interest at prime plus 2% (10.3% at December 31, 1996)
interest thereafter. Principal and interest are payable based on lot sale
release prices until maturity in September, 1999. Collateralized by principally
all Cutter Sound Development, Ltd. assets (see Note 10). $ 5,593,591
Mortgage note payable with principal and interest payable based on lot sale
release prices until maturity in March 1999. Interest of 13%, 17% and 21% per
annum from March 22, 1996 to March 22, 1997; March 23, 1997 to March 22, 1998;
and March 23, 1998 to maturity at March 22, 1999, respectively, is payable
monthly. Additional interest of 8% and 4% for March 31, 1996 to March 31, 1997
and March 23, 1997 to March 22, 1998, respectively, is payable at maturity.
Collateralized by certain land of US Golf Pinehurst Plantation, Ltd. 4,300,000
Prime plus 1%(9.3% at December 31, 1996) mortgage note payable to a bank with
principal and interest payable based on lot sale release prices until maturity
in March 1997. Collateralized by certain land and the golf course of U.S. Golf
Pinehurst Plantation, Ltd. 4,165,593
Unsecured notes payable bearing interest ranging from 10% to 12.5% payable
annually and principal due in February 1997. 1,695,000
Various unsecured notes payable bearing interest ranging from 10% to 12.5% with
principal and accrued interest payable on demand after December 31, 1998. 1,328,364
Prime plus 1% (9.3% at December 31, 1996) note payable with principal and
accrued interest due March 1997. 1,200,000
9% mortgage note payable to a bank with principal and interest due in monthly
installments of $9,447 through maturity in October 2001. Collateralized by
principally all the assets of Wedgefield Limited Partnership. 1,047,109
Various unsecured notes payable with interest ranging from 8% to 18%, due
currently. 1,025,718
7.12% unsecured note payable to an international bank with principal and accrued
interest due February 1997. Personally guaranteed by the Company President and
other related parties. 1,000,000
Prime (8.3% at December 31, 1996) note payable with interest payable monthly and
principal due at maturity in February 1997. Collaterlized by assets of
Wedgefield Limited Partnership. 1,000,000
10% mortgage note payable with principal and accrued interest due in April 1998.
Collateralized by land of Montverde Properties, Ltd. 1,000,000
10% mortgage note payable with accrued interest and principal past due.
Collateralized by land of Montverde Properties, Ltd. This note is currently in
litigation (see Note 6). 916,824
10% note payable with principal and accrued interest due in May 1997.
Collateralized by 20 saleable memberships in the U.S. Golf Pinehurst Plantation,
Ltd. golf course. 300,000
Other notes payable 60,110
------
24,632,309
==========
</TABLE>
Certain of the above notes and mortgage notes payable were past due as of
December 31, 1996. The Company is currently in the process of negotiating and
extension or modification of the terms of the debt.
18
<PAGE>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
The aggregate amount of notes payable maturing in future
years is as follows as of December 31, 1996:
Year ending December 31,
1997 $11,043,204
1998 6,955,423
1999 5,652,244
2000 26,120
2001 26,120
Thereafter 929,198
-------
Total $24,632,309
===========
Interest capitalized as land and development costs as
construction period interest was $127,706 and $182,292 for
the years ended December 31, 1996 and 1995, respectively.
19
<PAGE>
<TABLE>
<CAPTION>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
5. Notes Payable Notes payable to related parties consist of the following:
to Related December 31,
Parties 1996
----
<S> <C>
Various unsecured note payable to limited partners and other related
parties bearing interest ranging from 7.13% to 12% with principal and
accrued interest due on demand after December 31, 1998. $ 5,247,402
Unsecured notes payable to a limited partner and another related party
bearing interest ranging from 7.13% to 8.25% with principal and accrued
interest due December 31, 1998. 4,075,411
7.5 % mortgage note payable to a related party with principal and
interest payable based on lot sale release prices until maturity
in November 1998. Collateralized by principally all Cutter
Sound Development, Ltd. assets. The Company has guaranteed
an interest rate equal to a rate based on the euro dollar market
rate plus 1.5% through April 1997 and plus 5% thereafter until
maturity. 3,355,572
8.68% mortgage note payable to a partner with principal
and accrued interest due December 31, 1998. Collateralized by
principally all assets of FSD Golf Club, Ltd. 1,872,660
Various unsecured notes payable to a limited partner and other
related parties bearing interest ranging from 1.3% to 9% with
principal and accrued interest due on demand. 1,249,882
8% unsecured note payable to a related party with principal
and accrued interest due March 1997. 600,000
8.25% mortgage note payable to a related party with principal
and accrued interest due anytime after December 31, 1998.
Collateralized by land of Northshore Development, Ltd. 569,202
10% mortgage note payable to a trust owned by certain limited
partners with principal and accrued interest past due.
Collateralized by land owned by Montverde Properties, Ltd. 523,503
Other related party notes payable. 70,000
------
$17,563,632
===========
</TABLE>
20
<PAGE>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
The aggregate amount of related party notes payable maturing
in future years is as follows as of December 31, 1996:
Year ending December 31,
1997 $ 2,443,384
1998 8,000,185
1999 7,120,063
---- ---------
Total $17,563,632
===========
Interest expense on notes payable to related parties was
$1,085,246 and $1,642,651 for the years ended December 31,
1996 and 1995, respectively.
Subsequent to December 31, 1996, certain of the above notes
payable to related parties were converted to partner capital
and additional paid-in capital of the Company. (see Note 9).
21
<PAGE>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
6. Commitments Leases
and
Contingencies The Company conducts certain operations from leased
facilities including office space in Orlando, Florida. The
Company also leases certain office, maintenance and golf
course equipment. These leases are classified as operating
leases and expire on various dates from 1997 through 2000.
Certain leases provide for renewal options and payment of
occupancy costs and taxes.
As of December 31, 1996, future minimum rental payments
required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year
are as follows:
1997 $355,640
1998 240,368
1999 187,939
2000 96,473
2001 -
Thereafter -
---- ------
Total minimum lease payments $880,420
========
Rental expense under all operating leases was approximately
$503,616 and $228,222 for the years ended December 31, 1996
and 1995, respectively.
Litigation
As discussed in Note 9, the Company completed a reverse
acquisition with Golf Ventures, Inc. On December 8, 1997,
the U.S. Securities and Exchange Commission filed a
complaint against Golf Ventures, Inc. and certain of its
former officers and directors, as well as other defendants.
The SEC has alleged, with respect to the Company and its
former officers and directors, violations of certain
sections of the Securities and Exchange Act of 1934 and
various rules in connection with reporting and disclosure
requirements. At this time, management is unable to predict
the outcome of the complaint. However, the Company believes
that since such acts occurred under prior management, the
ultimate impact on the Company will not have a significant
impact on future operations.
22
<PAGE>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
U.S. Golf Pinehurst Plantation, Ltd. is a defendant in a
lawsuit alleging trademark infringement arising out of the
use of the term "Pinehurst Plantation" in connection with
its golf course operations and residential lot development.
The claim for monetary damages is over $1,000,000. While
any litigation or investigation has an element of
uncertainty, in the opinion of management and legal counsel,
there is no reasonable probability at present of any
substantial liabilities arising out of this matter.
The Company is involved in various other lawsuits and
litigations matters on an ongoing basis as a result of its
day-to-day operations. However, the Company does not believe
that any of these other or any threatened lawsuits and
litigation matters will have a material adverse effect on
the Company's financial position or results of operations.
Loan Costs
In connection with the issuance of certain notes payable,
the Company has agreed to pay cash and transfer title to
specified lots of the Company's residential developments in
future periods. Loan costs payable of $1,410,658 as of
December 31, 1996 have been recorded for the cash
consideration involved and cost of the specified lots. The
loan costs have been capitalized on the Company's balance
sheet and are being amortized to interest expense over the
term of the related notes payable.
23
<PAGE>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
7. Disposition and In April 1994, the Wedgefield Limited Partnership sold
Reconveyance substantially all of its assets, and Northshore Golf
of Assets of Partners, Ltd. sold its golf course operation to a
Wedgefield third-party corporation (the "buyer"). The assets sold
Limited consisted almost entirely of real estate. As part of the
Partnership and same transaction, an affiliated entity which owned and
Northshore Golf operated a golf course in Florida sold substantially all
Partners, Ltd. of its assets to the buyer. The consideration received by
the Company and the affiliated entity included a $400,000
promissory note and a $5,500,000 subordinated convertible
note. The entire $400,000 promissory note and $3,200,000 of
the subordinated convertible note were included in the
consideration received by the Company for the assets of the
Partnerships. Additional consideration received for the
assets of the Partnerships included cash and other items
totaling approximately $1,393,000 and the assumption of
first mortgages securing the assets totaling approximately
$4,407,000. As a condition of the sale, certain partners of
Northshore Golf Partners. Ltd. guaranteed payment of the
$2,428,360 first mortgage secured by the assets of
Northshore Golf Partners, Ltd. and assumed by the buyer in
connection with the transactions. During 1994 and 1995, the
buyer paid the $400,000 promissory note in full and in 1995
defaulted on the $3,200,000 subordinated convertible note.
In May 1995, in exchange for a dismissal of the foreclosure
suits, the buyer reconveyed the assets to the Partnerships
and the affiliated entity. In addition, the Partnerships
assumed the first mortgages assumed by the buyer in the
original transaction as well as accrued interest related to
the mortgages.
Because the buyer's initial investment was small, the sale
of the assets by the Company was accounted for on the
installment basis. The sale involved a total potential gain
of approximately $4,870,000, of which approximately $138,000
and $848,000 were recognized during 1995 and 1994,
respectively, Upon reacquiring the assets in May 1995, the
Company recorded its investment in the assets at the amount
of its net receivable (no interest was accrued), plus the
debt assumed, determined as follows:
24
<PAGE>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
Note receivable $ 3,200,000
Deferred gross profit (3,884,000)
----------
Net receivable (deferred gross profit in
excess of installment note receivable (684,000)
Plus: debt and accrued interest assumed 3,953,000
---------
Total carrying value at reacquisition $ 3,269,000
===========
The fair market value of the property and equipment
reacquired exceeded the carrying values assigned to it on
the date of reacquisition.
<TABLE>
<CAPTION>
8. Supplemental Year ended December 31, 1996 1995
Cash Flow ------------------------------- ---- ----
Information <S> <C> <C>
Cash paid for income taxes $ - $ -
Refinancing of note payable with
related parry note payable 3,355,572 -
Purchase of minority interest through
issuance of related party notes payable
(see Note 3) 2,300,000 -
Purchase of minority interest through
conveyance of equity method investment
(see Note 3) 2,472,274 -
Conversion of related party notes payable
into partners' capital (see Note 5) 500,000 -
Deferred loan costs accrued 920,658 -
Net increase in assets (see Note 7) and
liabilities as a result of reconveyance - 3,268,636
======== =========
</TABLE>
25
<PAGE>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
9. Subsequent In September 1997, certain debt holders exchanged their notes
Events and accrued interest totaling approximately $12,466,000 into
partner capital and additional paid-in capital of U.S. Golf
Communities, Inc. and related companies.
Subsequent to September 30, 1997, the partners and
stockholders of U.S Golf Communities, Inc. and related
companies exchanged their partnership interests and common
stock ownership interests for shares of common stock in a
newly formed Delaware corporation, U.S. Golf Communities,
Inc. Since these entities were under common ownership and
control, this transaction will be accounted for in a manner
similar to a pooling of interests.
U.S. Golf Communities, Inc. (Delaware) has previously entered
into an Agreement and Plan of Reorganization with Golf
Ventures, Inc. whereby Golf Ventures, Inc. would acquire U.S.
Golf Communities, Inc. through an exchange of Series D
Convertible Stock for all outstanding common stock of U.S.
Golf Communities, Inc. This transaction was closed on
November 26, 1997. Based on the controlling interest in Golf
Ventures, Inc. obtained by U.S. Golf Communities, Inc. as a
result of this transaction, the transaction will be accounted
for as an acquisition of Golf Ventures, Inc. by U.S. Golf
Communities, Inc. (a reverse acquisition in which U.S. Golf
Communities, Inc. is considered the acquirer for accounting
purposes).
26
<PAGE>
U.S. Golf Communities, Inc.
Notes to Combined Financial Statements
10. Cutter Sound In 1994, Cutter Sound Development, Ltd. ("Cutter") entered
Development, into an option to purchase (the "Agreement") a golf course
Ltd. Option and residential lots for $15,500,000. The term of this
Agreement option is five years unless sooner terminated as defined in
the Agreement. Under the Agreement, Cutter paid $3,000,000
in cash and agreed to extinguish an existing $5,500,000
first mortgage obligation of the seller. The balance of the
purchase price of $7,000,000 shall be payable to the seller
upon satisfaction of the first mortgage. When Cutter closes
on the sale of a lot, the net cash, as defined, shall first
be applied to the payment of the first mortgage until fully
paid. Upon satisfaction of the first mortgage, the net cash
will be applied to the $7,000,000 balance owned the seller
until satisfied. During November 1996, the outstanding
balance of approximately $3,356,000 on the first mortgage
note was refinanced by the seller.
The option agreement was accounted for as a purchase of the
golf course and residential lots and assumption of the
related liabilities. Accordingly, the total purchase price,
including the cash payment, was allocated to the net assets
acquired based upon their estimated fair market values. The
$7,000,000 note payable to the seller was non-interest
bearing until November 1996, at which time the note began
accuring interest at prime plus 2%. Interest was imputed on
the note during the period of November 1994 to November 1996
at a rate of 10.5%, resulting in a net present value of
$5,593,591 at the date of the transaction.
27
U.S. Golf Communities, Inc.
Unaudited Interim Financial Statements
Periods Ended September 30, 1997 and December 31, 1996
<PAGE>
<TABLE>
<CAPTION>
U.S. GOLF COMMUNITIES, INC.
Combined Balance Sheet
September December
1997 1996
---- ----
(unaudited)
Assets
<S> <C> <C>
Cash and Cash equivalents $ 436,045 $ 378,669
Accounts receivable:
Trade, net 457,202 386,191
Related parties 167,334 83,856
Other 125,821 123,235
Inventories 127,683 154,959
Prepaid expenses 80,637 83,751
Property and equipment, net of
accumulated depreciation 8,069,303 8,225,690
Land under development and related costs 24,025,179 25,406,847
Deferred loan costs 59,964 875,623
Goodwill, net 3,377,755 3,675,790
Other assets 258,212 347,585
------- -------
Total assets $ 37,185,135 $ 39,742,196
============== ============
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
U.S. GOLF COMMUNITIES, INC.
Combined Balance Sheet
September December
1997 1996
---- ----
(unaudited)
Liabilities and Capital Deficit
Liabilities:
Accounts payable
<S> <C> <C>
Trade $ 1,465,711 $ 1,430,799
Related parties 1,544,710 1,710,201
Accrued expenses 1,170,890 782,900
Accrued interest payable:
Related parties 2,203,907 2,334,710
Other 2,954,313 2,641,712
Loan costs payable 1,410,658 1,410,658
Notes payable 21,038,072 24,632,309
Related party notes payable 11,480,871 17,563,632
---------- ----------
Total liabilities 43,269,132 52,506,921
---------- ----------
Commitments and contingencies - -
Capital deficit:
Partners' deficit:
General partners (1,177,340) (1,023,276)
Limited partners (6,371,930) (11,341,079)
Stockholders' deficit:
Common stock, $1 per value, shares authorized
10,000, issued and outstanding 500 500 500
Additional paid in capital 1,650,000 -
Accumulated deficit (185,227) (400,870)
-------- ---------
Total capital deficit (6,083,997) (12,764,725)
---------- ------------
$ 37,185,135 $ 39,742,196
============ ==============
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
U.S. GOLF COMMUNITIES, INC.
Combined Statements of Operations
Year ended
Nine months ended September December 31,
--------------------------- ------------
1997 1996 1996
---- ---- ----
(unaudited) (unaudited)
Operating revenue:
<S> <C> <C> <C>
Dues and initiation fees $ 1,770,663 $ 1,983,641 $ 2,586,233
Golf cart rentals 1,692,745 1,423,626 1,890,024
Food, beverage and pro shop sales 935,539 1,074,358 1,379,745
Lot sales 3,204,983 1,845,047 2,296,707
Other 15,806 - 18,261
------ ------ ------
Total operating revenue 7,619,736 6,326,672 8,170,970
--------- --------- ---------
Costs and expenses:
Cost of merchandise and lots sold 2,165,015 1,509,500 1,816,100
General and administrative expenses 7,341,269 8,533,325 9,542,050
--------- --------- ---------
Total costs and expenses 9,506,284 10,042,825 11,358,150
--------- ---------- ----------
Loss from operations (1,886,548) (3,716,153) (3,187,180
---------- ---------- ----------
Other income (expense):
Interest income 40,452 120,616 17,796
Interest expense (3,956,115) (2,399,554) (4,182,476)
Gain (loss) on sale of property and equipment (18) 22,393 (221,127)
Lose on equity method investment - (180,047) (180,047)
Other (21,166) (337,899) (110,254)
------- -------- --------
Total other income (expense), net (3,936,847) (2,774,491) (4,676,108)
---------- ---------- ----------
Loss before minority interest (5,823,395) (6,490,644) (7,863,288)
Minority interest in net loss of
consolidated subsidiary - 68,111 68,111
------ ------ ------
Net loss $ (5,823,395) $ (6,422,533) $ (7,795,177)
============== ============== ===============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
U.S. GOLF COMMUNITIES, INC.
Combined Statements of Capital Deficit
General Limited Additional Total
Partners' Partners' Common Paid-in Accumulated Capital
Deficit Deficit Stock Capital Deficit Deficit
------- ------- ----- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $ (784,369) $ (4,523,868) $ 500 $ - $ (206,447) $ (5,514,184)
Contribution of capital 32,515 32,515
Conversion of related party notes
payable into partners' capital 500,000 500,000
Net loss (195,804) (6,064,991) (161,738) (6,422,533)
-------- ---------- -------- ----------
Balance, September 30, 1996 (980,173) (10,056,344) 500 - (368,185) (11,404,202)
Contribution of capital 12,121 12,121
Net loss (43,103) (1,296,856) (32,685) (1,372,644)
------- ---------- ------- ----------
Balance, December 31, 1996 (1,023,276) (11,341,079) 500 - (400,870) (12,764,725)
Contribution of capital 37,778 37,778
Conversion of notes payable and
accrued interest into partners'
capital 5,333,021 5,333,021
Conversion of related party notes
payable and accrued into
partners' capital and additional
paid-in capital 5,483,324 1,650,000 7,133,324
Net loss (154,064) (5,884,974) 215,643 (5,823,395)
-------- ---------- ------- --------- ------- ----------
Balance, September 30, 1997 $(1,177,340) $ (6,371,930) $ 500 $1,650,000 $ (185,227) $ (6,083,997)
=========== ============ ======= ========== =========== ============
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
U. S. Golf Communities, Inc.
Combined Statements of Cash Flows
Nine months ended September 30,
------------------------------
1997 1996
---- ----
(unaudited) (unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (5,823,395) $ (6,422,533)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation 302,230 326,979
Amortization 1,113,694 464,533
Loss on equity method investment - 180,047
Provision for loss on property and equipment - 221,127
Minority interest in net loss of consolidated subsidiary - (68,111)
Cash provided (used for):
Accounts receivable (157,075) (125,124)
Inventories 27,276 33,991
Prepaid expenses 3,114 (35,865)
Land and development costs 1,381,668 768,569
Accounts payable (130,579) 715,801
Accrued expenses 387,990 5,788
Accrued interest payable 2,271,289 1,785,544
--------- ---------
Net cash used for operating activities (623,788) (2,149,254)
-------- ----------
Cash flows from investing activities:
Purchase of property and equipment (145,843) (73,304)
Proceeds from property sold 225,000 -
Investment in equity method investment - (56,503)
Increase (decrease) in other assets (135,627) (62,836)
-------- -------
Net cash used for investing activities (56,470) (192,643)
------- --------
Cash flows from financing activities:
Proceeds from notes payable 761,530 3,676,504
Repayments of notes payable (178,855) (2,605,858)
Proceeds from related party notes payable 1,282,572 1,164,276
Repayment of related party notes payable (1,165,391) (58,167)
Contributions of capital 37,778 32,515
------- -------
Net cash provided from financing activities 737,634 2,209,270
------- ---------
Net increase (decrease) in cash and cash equivalents 57,376 (132,627)
Cash and cash equivalents, beginning of period 378,669 652,832
------- -------
Cash and cash equivalents, end of period $ 436,045 $ 520,205
================ =============
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
U. S. Golf Communities, Inc.
Combined Statements of Cash Flows
Nine months ended September 30,
------------------------------
1997 1996
---- ----
(unaudited) (unaudited)
Supplemental Cash Flow Information
<S> <C> <C>
Purchase of minority interest through issuance of related party
notes payable - 2,300,000
Purchase of minority interest through conveyance of equity
method investment - 2,472,274
Conversion of related party notes payable into partners' capital 12,466,345 500,000
Deferred loan cost accrued - 920,658
</TABLE>
6
<PAGE>
U.S. Golf Communities, Inc.
Notes to Unaudited Financial Statements
Subsequent Subsequent to September 30, 1997, the partners and
Events stockholders of U.S Golf Communities, Inc. and related
companies exchanged their partnership interests and common
stock ownership interests for shares of common stock in a
newly formed Delaware corporation, U.S. Golf Communities,
Inc. Since these entities were under common ownership and
control, this transaction will be accounted for in a manner
similar to a pooling of interests.
U.S. Golf Communities, Inc. (Delaware) has previously entered
into an Agreement and Plan of Reorganization with Golf
Ventures, Inc. whereby Golf Ventures, Inc. would acquire U.S.
Golf Communities, Inc. through an exchange of Series D
Convertible Stock for all outstanding common stock of U.S.
Golf Communities, Inc. This transaction was closed on
November 26, 1997. Based on the controlling interest in Golf
Ventures, Inc. obtained by U.S. Golf Communities, Inc. as a
result of this transaction, the transaction will be accounted
for as an acquisition of Golf Ventures, Inc. by U.S. Golf
Communities, Inc. (a reverse acquisition in which U.S. Golf
Communities, Inc. is considered the acquirer for accounting
purposes).
Conversion of Certain debt holders exchanged their notes and accrued
Notes Payable interest totaling approximately $12,466,000 into partner
and Accrued capital and additional paid-in capital as of September 30,
Interest to 1997.
Capital
7
Golf Ventures, Inc.
Pro Forma Consolidated Financial Information
Explanatory Headnote (Unaudited)
Introduction
On August 25, 1997, Golf Ventures, Inc. (the "Company") entered into an
Agreement and Plan of Reorganization (the "Agreement") with U.S. Golf
Communities, Inc. ("U.S. Golf"). The closing of the transaction between the
Company and U.S. Golf occurred on November 26, 1997. Under the terms of the
agreement, the Company issued 6,672,578 shares of the Company's new Series D
Convertible Preferred Stock in exchange for all of the common stock of U.S. Golf
Communities, Inc. Each share of Series D Preferred Stock is convertible into
four (4) shares of Common Stock of Golf Ventures, Inc. Prior to conversion, each
share of Series D Preferred Stock has four (4) votes in any vote of common
stockholders of the Company.
U.S. Golf Communities, Inc. is a recently formed company that immediately prior
to its acquisition by Golf Ventures, Inc. issued its capital stock in exchange
for the outstanding common stock and partnership interests in the following
entities:
U.S. Golf Communities, Inc. U.S. Golf (Cutter Sound), Inc.
Golf Communities of America, Ltd. Northshore Golf Partners, Ltd.
U.S. Golf Pinehurst Plantation, Ltd. Northshore Development, Ltd.
U.S. Golf (Plantation), Inc. Northshore U.S. Golf, Inc.
Wedgefield Limited Partnership Montverde Properties, Ltd.
U.S. Golf (Wedgefield), Inc. U.S. Golf (Montverde), Inc.
FSD Golf Club, Ltd. Montverde Investment Group, Ltd.
U.S. Golf (FSD), Inc. U.S. Golf Leasing Co., Inc.
Cutter Sound Development, Ltd. U.S. Golf Services & Development, Inc.
In September 1997, certain debt holders exchanged their notes and accrued
interest totaling approximately $12,466,000 for equity in U.S. Golf Communities,
Inc. and related companies.
Since these entities were under common ownership and control, the acquisitions
were accounted for in a manner similar to a pooling of interests, and their
financial information is presented as if they were a single entity since
inception.
Based on the controlling interest in Golf Ventures, Inc. obtained by U.S. Golf
Communities, Inc. as a result of this transaction, the transaction will be
accounted for as an acquisition of Golf Ventures, Inc. by U.S. Golf Communities,
Inc. (a reverse acquisition in which U.S. Golf is considered the acquirer for
accounting purposes).
The pro forma condensed consolidated balance sheets as of September 30, 1997
assume the transaction was consummated as of September 30, 1997, and the pro
forma condensed consolidated statements of operations for the year ended
December 31, 1996 and the nine months ended September 30, 1997 and 1996 assume
the transaction was consummated as of January 1, 1996.
The pro forma condensed consolidated financial statements may not be indicative
of the actual results of the transactions. In particular, the pro forma
condensed consolidated financial statements are based on management's current
estimate of the allocation of the purchase price, the actual allocation of which
may differ. In the opinion of management, all adjustments have been made that
are necessary to present fairly the pro form data.
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Pro Forma Consolidated Balance Sheets
September 30, 1997
(Unaudited)
U.S. Golf U.S. Golf Golf
Communities, Pro Forma Ventures, Eliminating Consolidated
Inc. Adjustments Inc. Entries Pro Forma
---- ----------- ---- ------- ---------
Assets:
<S> <C> <C> <C> <C> <C>
Cash $ 436,045 $ $ 14,921 $ $ 450,966
Notes and accounts receivable 750,357 57,948 808,305
Inventories 127,683 127,683
Prepaid expenses 80,637 80,637
Property and equipment, net 8,069,303 145,809 8,215,112
Land under development 24,025,179 12,592,408 36,617,587
Deferred loan costs 59,964 59,964
Goodwill 3,377,755 1,448,326 4,826,081
Other assets 258,212 258,212
Investment in subsidiary 5,191,605 (2) (5,191,605) -
-------------- ---------- ------------- ----------- -------------
$ 37,185,135 $5,191,605 $ 12,811,086 $(3,743,279) $ 51,444,547
============== ========== ============= =========== =============
See accompanying headnote and notes to pro forma consolidated financial statements (unaudited).
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Pro Forma Consolidated Balance Sheets
September 30, 1997
(Unaudited)
U.S. Golf U.S. Golf Golf
Communities, Pro Forma Ventures, Eliminating Consolidated
Inc. Adjustments Inc. Entries Pro Forma
---- ----------- ---- ------- ---------
Liabilities and Stockholders' Equity:
<S> <C> <C> <C> <C> <C>
Accounts payable $ 3,010,421 $ $ 893,265 $ $ 3,903,686
Accrued expenses 6,329,110 707,474 7,036,584
Loan costs payable 1,410,658 1,410,658
Notes payable 32,518,943 7,467,068 39,986,011
---------- --------- --------- ---------- ----------
Total liabilities 43,269,132 9,067,807 52,336,939
Stockholders' equity (deficit) (6,083,997) 5,191,605 (2) 3,743,279 (3,743,279) (892,392)
---------- --------- --------- ---------- --------
$37,185,135 $ 5,191,605 $12,811,086 $(3,743,279) $51,444,547
=========== =========== =========== =========== ===========
See accompanying headnote and notes to pro forma consolidated financial statements (unaudited).
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc
Pro Forma Consolidated Statement of Operations (Unaudited)
Year Ended December 31, 1996
U.S. Golf Golf
Communities, Ventures, Pro Forma Consolidated
Inc. Inc. Adjustments Pro Forma
---- ---- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 8,170,970 $ 274,000 $ $ 8,444,970
Costs and expenses:
Cost of sales 1,816,100 158,066 1,974,166
Operating expenses 9,542,050 860,289 144,833 (3) 10,547,172
--------- ------- ------- ----------
11,358,150 1,018,355 144,833 12,521,338
---------- --------- ------- ----------
Loss from operations (3,187,180) (744,355) (144,833) (4,076,368)
Other income (expense):
Interest expense (4,182,476) (10,142) 785,715(4) (3,406,903)
Other (493,632) 68,580 (425,052)
-------- ------ ------- --------
(4,676,108) 58,438 785,715 (3,831,955)
---------- ------ ------- ----------
Loss before minority interest (7,863,288) (685,917) 640,882 (7,908,323)
Minority interest in loss of subsidiary 68,111 - 68,111
------ ------- ------- ------
Net loss $(7,795,177) $ (685,917) $ 640,882 $ (7,840,212)
=========== ========== ========== ============
Loss per share $ (.28)
============
Weighted average number of common shares outstanding 28,489,495
==========
See accompanying headnote and notes to pro formaconsolidated financial statements (unaudited).
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Pro Forma Consolidated Statement of Operations (Unaudited)
Nine Months Ended September 30, 1997
U.S. Golf Golf
Communities, Ventures, Pro Forma Consolidated
Inc. Inc. Adjustments Pro Forma
---- ---- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 7,619,736 $ 316,546 $ $ 7,936,282
Costs and expenses:
Cost of sales 2,165,015 176,952 2,341,967
Operating expenses 7,341,269 924,150 108,625(3) 8,374,044
--------- ------- ------- ---------
9,506,284 1,101,102 108,625 10,716,011
--------- --------- ------- ----------
Loss from operations (3,886,548) (784,556) (108,625) (2,779,729)
Other income (expense):
Interest expense (1,956,115) (14,447) 766,286(4) (3,204,276)
Other 19,268 33,963 53,231
------ ------ ------- ------
(3,936,847) 19,516 766,286 (3,151,045)
---------- ------ ------- ----------
Net loss $(5,823,395) $ (765,040) $ 657,661 $(5,930,774)
=========== ========== ========= ===========
Loss per share $ (.20)
===========
Weighted average number of common shares outstanding 28,937,760
==========
See accompanying headnote and notes to pro forma consolidated financial statements (unaudited).
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Pro Forma Consolidated Statement of Operations (Unaudited)
Nine Months Ended September 30, 1996
U.S. Golf Golf
Communities, Ventures, Pro Forma Consolidated
Inc. Inc. Adjustments Pro Forma
---- ---- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $ 6,326,672 $ 242,768 $ $ 6,569,440
Costs and expenses:
Cost of sales 1,509,500 174,758 1,684,258
Operating expenses 8,533,325 3,990,527 108,625 (3) 12,632,477
--------- --------- ------- -- ----------
10,042,825 4,165,285 108,625 14,316,735
---------- --------- ------- ----------
Loss from operations (3,716,153) (3,922,517) (108,625) (7,747,295)
Other income (expense):
Interest expense (2,399,554) 549,921(4) (1,849,633)
Other (374,937) 120,501 (254,436)
-------- ------- ------- --------
(2,774,491) 120,501 549,921 (2,104,069)
---------- ------- ------- ----------
Loss before minority interest (6,490,644) (3,802,016) 441,296 (9,851,364)
Minority interest in loss of subsidiary 68,111 68,111
------ --------- ------- ------
Net loss $ (6,422,533) $(3,802,016) $ 441,296 $(9,783,253)
============ =========== ========= ===========
Loss per share $ (.34)
===========
Weighted average number of common shares outstanding 28,439,612
==========
Set accompanying headnote and notes to pro forma consolidated financial statements (unaudited).
</TABLE>
6
<PAGE>
Golf Ventures, Inc.
Notes to Pro Forma Consolidated Financial Information
(Unaudited)
1. Pro Forma Adjustments
The pro forma condensed consolidated balance sheet as of September 30, 1997
assumes the transaction was consummated as of September 30, 1997, and the pro
forma condensed consolidated statements of operations for the year ended
December 31, 1996 and the nine months ended September 30, 1997 and 1996 assume
the transaction was consummated as of January 1, 1996.
2. Acquisition of Golf Ventures, Inc.
The acquisition of U.S. Golf Communities, Inc. by Golf Ventures, Inc. will be
accounted for as an acquisition of Golf Ventures, Inc. by U.S. Golf Communities,
Inc. (a reverse acquisition in which U.S. Golf Communities, Inc. is considered
the acquirer for accounting purposes). The purchase price for Golf Ventures,
Inc. is computed by valuing the outstanding shares of common stock of Golf
Ventures, Inc. (2,247,448 shares) at $2.31 or $5,191,605.
The purchase price for Golf Ventures, Inc. is anticipated to be allocated as
follows:
Fair value of assets acquired $12,811,086
Excess of cost over net assets acquired 1,448,326
---------
Fair value of liabilities assumed 14,259,412
9,067,807
---------
Total purchase price $ 5,191,605
===========
3. Amortization of Excess Cost over Fair Value of Assets Acquired
Reflects the amortization of excess cost over fair value of assets acquired over
ten years.
4. Interest Expense
To remove interest expense on debt that was converted to equity.
7
