UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-21337
GOLF VENTURES, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0403864
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
255 South Orange Avenue, Suite 1515, Orlando, Florida 32801
(Address of principal executive offices, including zip code)
(407) 245-7557
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant has: (1) 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) been subject to such
filing requirements for the past 90 days. Yes [x] No [ ] Number of shares
outstanding of each of the registrant's classes of common stock, as of the
latest practicable date.
Class Outstanding as of May 31, 1998
Common Stock, par value $.OO1 9,409,377
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TABLE OF CONTENTS
Heading Page
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
Consolidated Balance Sheet - March 31,1998 4
Consolidated Statements of Operations
Three months ended March 31, 1998 and 1997 5
Consolidated Statements of Stockholders Equity-December 31, 1996
through March 31, 1998 6-7
Consolidated Statements of Cash Flows - Three months ended
March 31, 1998 and 1997 8
Notes to Consolidated Financial Statements 9-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Securities Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
2
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PART I
Item 1. Financial Statements
The following, unaudited Financial Statements for the three month period ended
March 31, 1998, included all adjustment which management believes are necessary
for the financial statements to be presented in conformity with generally
accepted accounting principals.
THIS SPACE INTENTIONALY LEFT BLANK
3
<PAGE>
Golf Ventures, Inc.
Consolidated Balance Sheet
March 31, 1998
Assets (unaudited)
Cash and cash equivalents $ 466,230
Accounts receivable:
Trade 681,272
Related parties 1,404,553
Other 65,481
Inventories 129,378
Prepaid expenses and other 164,780
Investment in and advances to a related party
company 3,343,540
Property and equipment, at cost, net of accumulated
depreciation of $1,713,307 8,188,478
Land and development costs 45,698,076
Goodwill, net of accumulated amortization of
$1,028,601 9,910,797
------------
Total assets $ 70,052,585
============
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable:
Trade $ 5,277,505
Related parties 2,037,704
Accrued expenses 959,043
Accrued interest payable:
Related parties 4,734,968
Other 3,580,253
Loan costs payable 1,368,158
Notes payable 16,561,870
Related party notes payable 24,729,904
Convertible notes payable 1,529,665
------------
Total liabilities 60,779,070
------------
Commitments and contingencies -
Stockholder's Equity
Preferred stock - Class A cumulative convertible,
$.001 par value, shares authorized 350,000;
issued 29,084 29
Preferred stock - Class B cumulative convertible,
$.001 par value, shares authorized 350,000;
issued 28,340 28
Preferred stock - Class C cumulative convertible,
$.001 par value, shares authorized 136,039;
none issued -
Preferred stock - Class D convertible, $.01 par
value, shares authorized 8,000,000; 6,672,578 issued 66,726
Common stock, $.001 par - shares authorized 25,000,000;
issued 9,191,195 9,191
Additional paid-in capital 37,453,520
Accumulated deficit (28,255,979)
------------
Total Stockholders' Equity 9,273,515
------------
$ 70,052,585
============
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
Golf Ventures, Inc.
Consolidated Statements of Operations
Quarter ended March 31, 1998 1997
Operating revenue: (unaudited) (unaudited)
<S> <C> <C>
Dues and fees $ 710,493 $ 576,528
Golf cart rentals 734,314 674,984
Food, beverage and pro shop sales 318,090 288,689
Lot sales 312,483 1,508,447
Other 23,709 53,860
------------ ------------
Total operating revenue 2,099,089 3,102,508
------------ ------------
Costs and expenses:
Cost of merchandise and lots sold 275,567 980,206
General and administrative expenses 2,392,407 2,320,953
------------ ------------
Total costs and expenses 2,667,974 3,301,159
------------ ------------
Loss from operations (568,885) (198,651)
Other income (expense):
Interest income 1,065 5,590
Interest expense (1,281,399) (1,038,574)
Loss on sale of property and equipment - (8,671)
Loss on equity method investment - (180,047)
Other (44,997) 1,131
------------ ------------
Total other income (expense), net (1,325,331) (1,220,571)
------------ ------------
Net loss $ (1,894,216) $ (1,419,222)
============ ============
Loss per common share $ (0.21) $ (1.12)
============ ============
Weighted common shares outstanding 9,186,581 1,270,968
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Consolidated Statements of Stockholders' Equity
Common Stock Additional
Par Paid-in Accumulated
Shares Value Capital Deficit
------ ----- ------- -------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 1,270,968 $ 12,710 $ 544,636 $ (13,322,071)
Conversion of notes payable and
accrued interest to capital - - 5,333,024 -
Conversion of related party notes
payable and accrued interest
to capital - - 7,133,327 -
Payment of loan costs payable
through the issuance of capital - - 1,566,926 -
Recapitalization (1,270,968) (12,710) (54,073) -
Issuance of shares in reverse
acquisition 5,690,024 5,690 13,138,264 -
Issuance of common stock as payment
of accounts payable 50,000 50 117,670 -
Issuance of common stock for
acquition 3,432,713 3,433 9,436,527 -
Net loss - - - (13,039,692)
---------- --------- ------------ -------------
Balance, December 31, 1997 9,172,737 $ 9,173 $ 37,216,301 $ (26,361,763)
Discount on conversion price of
convertible notes payable - - 186,479 -
Issuance of common stock as
payment of accounts payable 18,458 18 50,740 -
Net loss - - - (1,894,216)
---------- --------- ------------ -------------
Balance, March 31, 1998 (unaudited) 9,119,195 $ 9,191 $ 37,453,520 $ (28,255,979)
========== ========= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Consolidated Statements of Stockholders' Equity
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock Total
Class A Class B Class D Stockholders'
Shares Amount Shares Amount Shares Amount Equity
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 - - - - - - (12,764,725)
Conversion of notes payable and
accrued interest to capital - - - - - - 5,333,024
Conversion of related party notes payable
and accrued interest to capital - - - - - - 7,133,327
Payment of loan costs payable
through the issuance of capital - - - - - - 1,566,926
Recapitalization 29,084 29 28,340 28 6,672,578 66,726 -
Issuance of shares in reverse
acquisition - - - - - - 13,143,954
Issuance of common stock as
payment of accounts payable - - - - - - 117,720
Issuance of common stock for
acquisition - - - - - - 9,439,960
Net loss - - - - - - (13,039,692)
------ ----- ------ ----- --------- -------- ------------
Balance, December 31, 1997 29,084 $ 29 28,340 $ 28 6,672,578 $ 66,726 $ 10,930,494
Discount on conversion price of
convertible notes payable - - - - - - 186,479
Issuance of common stock as
payment of accounts payable - - - - - - 50,758
Net loss - - - - - - (1,894,216)
------ ----- ------ ----- --------- -------- ------------
Balance, March 31,
1998 (unaudited) 29,084 $ 29 28,340 $ 28 6,672,578 $ 66,726 $ 9,273,515
====== ===== ====== ===== ========= ======== ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Consolidated Statements of Cash Flows
Quarter ended March 31, 1998 1997
- ----------------------- ---- ----
Cash flows from operating activities: (unaudited) (unaudited)
<S> <C> <C>
Net loss $ (1,894,216) $ (1,419,222)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 76,868 116,846
Amortization 263,181 99,346
Discount on conversion price of
convertible notes payable 186,479 -
Cash provided by (used for):
Accounts receivable (476,438) (200,757)
Inventories (2,402) 10,595
Prepaid expenses 18,760 (480,537)
Land and development costs 115,856 1,337,162
Accounts payable 467,255 85,386
Accrued expenses (29,121) 268,568
Accrued interest payable 857,950 960,756
------------- ------------
Net cash provided by / (used for) operating activities (415,828) 778,143
------------- ------------
Cash flows from investing activities:
Purchases of property and equipment (164,407) (174,899)
Proceeds from sale of property and equipment - -
Investment in and advances to affiliate 120,783 -
------------- ------------
Net cash used for investing activities (43,624) (174,899)
------------- ------------
Cash flows from financing activities:
Proceeds from notes payable 348,785 -
Repayments of notes payable (51,300) (380,399)
Proceeds from related party notes payable 723,346 631,935
Repayment of related party notes payable (282,457) (903,200)
Proceeds from convertible notes payable - 50,000
Contributions of capital 50,758 -
Deferred loan costs (242,500) -
------------- ------------
Net cash provided by / (used for) financing activities 546,632 (601,664)
------------- ------------
Net increase (decrease) in cash and cash equivalents 87,180 1,580
Cash and cash equivalents, beginning of period 379,050 378,669
------------- ------------
Cash and cash equivalents, end of period $ 466,230 $ 380,249
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
1. The unaudited financial statements of the Company include all adjustments
which management believes are necessary to be consistent with the audited
financial statements for the year ended December 31, 1997.
2. Recapitalization and Acquisition of GVI
Effective November 24, 1997, GVI acquired the stock of USGCI in a reverse
acquisition in which USGCI's stockholders acquired voting control of GVI.
The acquisition was accomplished through an exchange of stock in which GVI
exchanged 6,672,578 shares of Class D convertible preferred stock for 100%
of the outstanding stock of USGCI. Upon completing the transaction, the
stockholders of USGCI controlled 81% of the voting rights of the combined
Company.
For financial reporting purposes, USGCI is deemed to be the acquiring
entity. The acquisition has been reflected in the accompanying consolidated
financial statements as (i) a recapitalization of USGCI (whereby the issued
and outstanding stock of USGCI was converted into 29,084 shares of Class A
cumulative convertible preferred stock, 28,340 shares of Class B cumulative
convertible preferred stock and 6,672,578 shares of Class D convertible
preferred stock and (ii) the issuance of the securities discussed in the
following paragraph by USGCI in exchange for all of the outstanding equity
securities of GVI.
In the acquisition, USGCI is deemed to have issued 5,690,024 shares of
common stock. The estimated fair value was based on the fair value of the
securities of GVI, which was obtained by the USGCI stockholders in the
acquisition.
The acquisition was recorded using the purchase method of accounting.
Accordingly, the consideration of $13,143,954 was allocated to the GVI net
assets acquired based on estimated fair values including land and
development costs of $22,136,951, other assets of $158,452, notes payable
and debt of $7,442,667 and other liabilities of $1,708,782.
3. Reorganization of U.S. Golf Communities, Inc.
U.S. Golf Communities, Inc. ("USGCI") is a company formed in April 1996 that
immediately prior to its acquisition of Golf Ventures, Inc. ("GVI") issued
its capital stock in exchange for 100% of the outstanding common stock and
partnership interests of various entities engaged in the business of real
estate development, primarily golf courses, with surrounding residential
real estate. 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.
4. Acquisition of Pelican Strand Development Corporation
On December 4, 1997, GVI acquired 81% of the outstanding capital stock of
Pelican Strand Development Corporation ("PSDC") in exchange for 3,432,713
shares of restricted common stock valued at $2.75 per share. PSDC is the 10%
general partner of Pelican Strand LTD ("PSL"), a Florida limited
partnership, which is developing a private golf course community in Naples,
Florida. The acquisition has been accounted for using the purchase method of
accounting, and the results of the acquired business have been included in
the consolidated financial statements since the date of acquisition. The
excess of the purchase price over the fair values of the net assets acquired
was $8,550,054 and has been recorded as goodwill, which is being amortized
on a straight-line basis over ten years, based on the expected development
period of the project.
9
<PAGE>
Pro Forma Financial Information (Unaudited)
The following pro forma information has been prepared assuming acquisitions
of GVI and PSDC had taken place at the beginning of the quarter ended March
31, 1997. The pro forma information includes adjustments for the
amortization of goodwill arising from the transactions. The pro forma
financial information is not necessarily indicative of the results of
operations as they would have been had the transaction been effected on the
assumed dates.
Unaudited
Quarter ended March 31, 1998 1997
Net sales $ 2,099,089 $ 3,103,058
Net loss (1,707,737) (1,911,071)
Loss per common share (0.19) (0.21)
5. Related Party Transactions
The Company is affiliated with various other companies through common
control and stock ownership, which are not included in the accompanying
consolidated 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 stockholders and to entities related by common management which are
not included in the accompanying consolidated financial statements.
The advances are noninterest bearing with no stipulated terms for
repayment.
Management Fees
U.S. Golf Management, Inc. (formerly "U.S. Golf Communities, Inc."); FSD
Golf Club, Ltd.; Northshore Golf Partners, Ltd.; Northshore Development,
Ltd.; Wedgefield Limited Partnership; Cutter Sound Development Ltd.; U.S.
Golf Pinehurst Plantation Ltd. and Pelican Strand Development Corporation
have management agreements with related party companies.
Advances to Affiliates
PSDC has recorded advances to affiliates of $2,574,417 from PSL and other
related companies as of December 31, 1997 for construction costs incurred
on their behalf. The advances to affiliates are non-interest bearing and
have no stipulated repayment terms.
6. Purchase of Minority Interest and Goodwill
The Company owned approximately 60% of US Golf Pinehurst Plantation, Ltd.
("Plantation") and approximately 60% of another limited partnership, US Golf
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, the Company 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. The Company accounted for its investment in National under the
equity method of accounting. The balance of the Company's investment in
National at the date of acquisition was $1,272,274. The acquisition of the
remaining 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 was accounted for as goodwill and
amortized over its estimated useful life of ten years. The operating results
of Plantation were included in the Company's consolidated results of
operations from the April 1994 inception of the partnership.
10
<PAGE>
During the fourth quarter of 1997, the Company completed an evaluation of
the economic value of the Plantation goodwill. It was determined during the
evaluation that the cash flow expected to be generated from Plantation would
be less than the recorded cost of the related assets and goodwill.
Accordingly, the Company recorded a provision for impairment of goodwill of
$1,846,633 to reduce the carrying value of the goodwill to its current fair
value, which was included in general and administrative expenses in the
statement of operations for the year ended December 31, 1997.
<TABLE>
<CAPTION>
7. Notes Payable
Notes payable consist of the following:
March 31, 1998
--------- ----
<S> <C>
Second mortgage note payable. This note is non-interest bearing through November
1996 and bears interest at prime plus 2% (10.5% at March 31, 1998) interest
thereafter. Principal and interest are payable based on lot sale release prices
until maturity in September 1999. Collateralized by certain Company land and
assets. $ 5,193,590
Prime plus 1% (9.5% at March 31, 1998) mortgage note payable to a bank with
principal and interest payable based on lot sale release prices until maturity
in March 1998. Collateralized by certain land of the Company. 3,939,991
10% note payable due in monthly installments of $25,000 through May 15, 1998, at
which time the remaining principal and accrued interest are due in full.
Collateralized by certain land of the Company. 2,192,236
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
certain land and assets of the Company. 1,023,310
7.12% unsecured note payable to an international bank with principal and accrued
interest currently due. Personally guaranteed by the Company President and
other related parties. 1,000,000
10% mortgage note payable with principal and accrued interest past due.
Collateralized by certain land of the Company. This note is currently in
litigation (see Note 10). 916,824
10% note payable with interest payable in shares of the Company's common stock
and principal due currently. Collateralized by certain land of the Company. 646,502
Various unsecured notes payable bearing interest ranging from 10% to 12.5% with
principal and accrued interest payable on demand after December 31, 1998. 419,328
8% note payable due in annual installments of $100,000 plus accrued interest.
Collateralized by certain land of the Company. 355,890
Various mortgage notes payable bearing interest ranging from 8.13% to 12.5%.
Collateralized by certain land of the Company. 306,693
11.7% unsecured note payable to an international bank with accrued interest due
each six months and the principal due on July 22, 1999 250,000
Other notes payable. 317,505
-----------
$16,561,870
===========
</TABLE>
Of the above notes and mortgage notes payable, $7,448,365 were past due as of
March 31, 1998. The Company is currently in the process of negotiating an
extension or modification of the terms of the debt.
11
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<TABLE>
<CAPTION>
8. Notes Payable to Related Parties
Notes payable to related parties consist of the following:
March 31, 1998
--------- ----
<S> <C>
Various unsecured notes payable to stockholders and other related parties
bearing interest ranging from 7.13% to 12% with principal and accrued interest
due on demand after December 31, 1998. $ 5,136,243
10.5% promissory note payable with principal and accrued interest payable on
June 10, 1999. Collateralized by certain land of the Company. 3,649,630
Mortgage note payable with principal and interest payable based on lot sale
release prices until maturity in March 1999. Interest of 17% and 21% per annum
from 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 the
Company. 2,986,627
8.25% unsecured note payable to a stockholder with principal and accrued
interest due December 31, 1998. 2,626,280
Unsecured notes payable to stockholders bearing interest ranging from 10% to
12.5% payable annually and principal due currently. 1,765,000
Prime plus 1% (9.5% at March 31, 1998) note payable with principal and
accrued interest currently due. 1,200,000
Various unsecured notes payable to stockholders bearing interest ranging from
1.3% to 8% with principal and accrued interest due on demand. 1,200,000
7.5% mortgage note payable to a stockholder with principal and interest payable
based on lot sale release prices until maturity in November 1998.
Collateralized by certain land and assets of the Company. The Company has
guaranteed an interest rate equal to a rate based on the euro dollar market
rate plus 5%. 1,591,037
Prime (8.5% at December 31, 1997) note payable with interest payable and
principal due currently. Collateralized by certain land and assets of the Company. 1,000,000
8.68% mortgage note payable to a stockholder with principal and accrued interest
due December 31, 1998. Collateralized by certain land and assets of the Company. 872,660
Note payable issued in connection with the PSDC acquisition (see Note 8). The
note is collateralized by the Company's investment in PSDC (see Note 1). 800,000
8.25% mortgage note payable to a stockholder with principal and accrued interest
due anytime after December 31, 1998. Collateralized by certain land of the Company. 509,011
10% mortgage note payable to a trust owned by certain stockholders with
principal and accrued interest past due. Collateralized by certain land of the Company. 523,503
Note payable issued in connection with PSDC acquisition (see Note 8). The note is
personally guaranteed by the Company President. 500,000
4% unsecured note payable to related party. Principal and accrued interest due
November 1998. 250,000
Other related party notes payable. 119,913
-----------
$24,729,904
===========
</TABLE>
Of the above related party notes payable, $7,468,132 were past due as of March
31, 1998. The Company is currently in the process of negotiating an extension or
modification of the terms of the debt.
12
<PAGE>
10. Litigation
As discussed in Note 2, the Company completed an acquisition of 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. The SEC has alleged violations of certain
sections of the Securities and Exchange Act of 1934 and various rules in
connection with the purchase and sale of Golf Ventures, Inc. securities and
reporting and disclosure requirements. At this time, the Company is in
negotiations with the SEC and management is unable to predict the outcome of
the investigation. 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.
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.
On December 4, 1997, the Company entered into a stock purchase agreement
(the "agreement") with Maricopa Hardy Development Group, Inc. ("Maricopa")
for the purchase of 81% of the outstanding capital stock of Pelican Strand
Development Corporation (see Note 4). Subsequent to December 4, 1997,
Maricopa claimed that the Company breached certain terms of the agreement
and requested that the Company rescind the agreement. The Company believes
that the terms of the agreement have been met and has refused to rescind the
agreement. The parties are continuing to negotiate a resolution to this
dispute, and no lawsuit has been filed against the Company. In the opinion
of management and legal counsel, there is no reasonable probability at
present of the rescission of the agreement.
Montverde Properties LTD is a defendant in a lawsuit for the enforcement of
a $916,824 mortgage note payable, which is in default (see Note 7). The
Company has entered into a payment arrangement with the mortgage holder for
monthly payments of $15,000 until the mortgage can be refinanced. The
mortgage holder has obtained a writ of possession allowing for regular
access to and inspection of the collateral land.
The Company is involved in various other lawsuits and litigation 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.
11. Conversion of Notes Payable and Related Party Notes Payable into Capital
During 1997, $5,333,024 of notes payable and accrued interest and $7,133,327
of related party notes payable and accrued interest, respectively, were
converted into Company capital at conversion prices equal to $1 of capital
for each $1 of debt converted.
12. Going Concern
The Company's financial statements for the year ended December 31, 1997 were
presented on the going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
The Company incurred a net loss of $13,039,692 for the year ended December
31, 1997, and a net loss of $1,707,737 for the quarter ended March 31, 1998
and was in default of approximately $15,000,000 under its debt agreements at
March 31, 1998. The Company expects to incur substantial expenditures to
further its real estate and golf course development activities. The
Company's working capital at March 31, 1998 plus limited revenue from real
estate sales and golf course operations will not be sufficient to meet such
objectives as presently structured. Management recognizes that the Company
must generate additional resources or consider disposing of assets to enable
it to continue operations. Management's plans include alliances or other
13
<PAGE>
partnership agreements with entities interested in and resources to support
the Company's plans or other business transactions, which would generate
sufficient resources to assure continuation of the Company's operations.
On March 27, 1998, the Company entered into a term letter with a lender to
restructure its existing debt by providing up to $83 million of first
priority mortgage financing. The term letter is subject to the lender's
satisfactory completion of its due diligence procedures and is subject to
certain conditions, as defined. The terms and conditions of the proposed
financing include, among others, that the lender shall receive a nondiluted
equity ownership interest ranging from 20% to 40% of the Company. The
Company believes the proceeds from the first priority mortgage financing, if
obtained, will be adequate to satisfy a majority of its existing debt and to
fund its on-going operations and future development plans. While it is
uncertain if the proposed financing will be completed, closing on this
financing is scheduled to begin in late June 1998.
In addition, the Company continues to pursue alternative financing
arrangements, including renegotiating existing debt and disposing of certain
assets. The accompanying financial statements do not include any adjustment
to reflect the possible future effects that may result from the inability of
the Company to continue as a going concern.
Item 2. Management's Discussion & Analysis of Financial Condition & Results of
Operations.
Statements made or incorporated in this report include a number of
forward-looking statements within the meaning of Section 27(a) of the Securities
Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words "anticipates", "believes", "expects", "intends", "future", and words
of similar import which express management's belief, expectations or intentions
regarding the Company's future performance or future events or trends.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause actual results, performance or achievements of
the Company to differ materially from anticipated future results, performance or
achievements expressly or implied by such forward-looking statements. In
addition, the Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
RESULTS OF OPERATIONS
For the Quarter Ended March 31, 1998, Compared to the Quarter Ended March 31,
1997.
Total operating revenues for the quarter ended March 31, 1998 were $2,099,089
compared to $3,102,508 for the year quarter ended March 31, 1997. The following
table compares the changes in the Company's revenues identified by the various
golf course operations and development activities:
<TABLE>
<CAPTION>
1998 1997 1998/1997 % Change
---- ---- --------- --------
<S> <C> <C> <C> <C>
Lot Sales $ 312,483 $1,508,447 ($1,195,964) (79.3%)
Dues and Fees 710,493 576,528 133,965 23.2%
Golf Cart Rentals 734,314 674,984 59,330 8.8%
Food, Beverage & Pro Shop Sales 318,090 288,689 29,401 10.2%
Other 23,709 53,860 (30,151) (56.0%)
---------- ---------- ----------- ------
Total Operating Revenues $2,099,089 $3,102,508 ($1,003,419) (32.3%)
========== ========== =========== ======
</TABLE>
As this table shows, lot sales accounted for substantially all of the decrease
in total revenues for the quarter ended March 31, 1998 compared to the quarter
ended March 31, 1997. Of this ($1,195,964) decrease in lot sales, approximately
($1,124,800) occurred at the Company's Cutter Sound development project in the
quarter ended March 31, 1998 as compared to the quarter ended March 31, 1997.
This decrease was the result of exclusive waterfront homesites with yacht slips
being sold in the quarter ended March 31, 1997 that did not repeat in the
current quarterly period.
14
<PAGE>
Cost of merchandise and lots sold was $275,567 for the quarter ended March 31,
1998 as compared to $980,206 for the quarter ended March 31, 1997. Of this
$704,639 increase in cost, approximately $715,000 resulted from increased sales
of lots discussed above.
General and Administrative expenses were $2,392,407 for the quarter ended March
31, 1998 compared to $2,320,953 for the quarter ended March 31, 1997. This
increase of $71,454 includes $60,401 of expenses for the Company's Pelican
Strand and Golf Ventures acquisitions that were effective in the last quarter of
1997, however were not included in the quarter ended March 31, 1997.
Interest expense was $1,094,920 for the quarter ended March 31, 1998 compared to
$1,038,574 for the quarter ended March 31, 1997. This increase of $56,346 was
offset by none reoccurring losses on the sale of property and equipment, and a
loss on investments totaling $188,718 for the quarter ended March 31, 1997.
The cumulative effect of these results, reported above, is reflected in the
increased net loss of ($288,515) in the quarter ended March 31, 1998 compared to
the Quarter ended March 31, 1997. This loss is the result of the Company's high
debt interest cost coupled with total general and administrative operating
overhead. In order to sustain these costs levels the Company will be required to
increase its level of annual revenues by approximately $11,500,000 at current
operating margins. The Company believes that this level of revenues is
attainable with its further development plans. The Company is in the real estate
development business. Costs of acquiring and developing property accumulate
during the development process, and debt incurred to pay for these costs
generates interest expense. In the early stages of a property development
company's business plan, revenues are generally not sufficient to cover these
expenses, thus operating losses occur. The key to the Company achieving
profitable operations is the availability of sufficient debt and/or equity
funding to move its properties from development stage to a sustained revenue
producing stage. Historically, other than at Cotton Acres and Cotton Manor, the
Company has not been able to attract and manage sufficient funding to achieve
the timely development of its properties. US Golf has also acquired more
development properties than it has had the ability to timely develop into
revenue producing properties, largely as a result of opportunities that could
not be ignored or postponed. The decision of the Company to cease acquisitions
of new properties for the time being and to focus on completing the development
work now on the drawing board is a step toward achieving the Company's goal of
reaching overall profitable operations in the near term. The Company is also
closely examining all of its current development projects to determine if one or
more existing projects might better serve the Company as a property sale in the
near term as opposed to continuing development efforts.
Loss per common share of ($.19) for the quarter ended March 31, 1998 compared to
($1.12) for the quarter ended March 31, 1997 is a result of the Company's net
loss in 1998 of ($1,707,737) compared to a net loss in 1997 of ($1,419,222) and
the increase in the number of weighted average of common shares outstanding for
the comparative periods. This increase of 7,915,613 in the weighted average
shares, starting in the first quarter of 1998, is the result of the reverse
acquition of Golf Ventures, Inc by US Golf Communities, Inc. which added
5,690,024 shares and the acquition of Pelican Strand which increased the shares
outstanding by 3,432,713.
LIQUIDITY AND CAPITAL RESOURCES
The Company's Debt Liabilities:
The long term indebtedness of the Company at March 31, 1998 was $42,821,439,
(see Note 7, "Notes Payable" and Note 8, "Notes Payable to Related Parties" of
the Notes to the Consolidated Financial Statements of the Company):
The Company has historically satisfied its cash needs through the sale of real
estate, private placements of securities and secured borrowings. During the
first quarter of 1998, the Company sold approximately $312,000 of real estate,
or approximately 80% lower than the first quarter of 1997.
15
<PAGE>
A summary of the Company's borrowing activities during the first quarter of 1998
follows:
Total notes payable at December 31, 1997 $42,083,065
Total borrowings during 1998 1,072,131
Total repayment's during 1998 (333,757)
-----------
Total notes payable at March 31, 1998 $42,821,439
===========
The Company will be obligated to pay over $29 million in notes during 1998 of
which $15 million were delinquent at March 31, 1998. The Company's working
capital at March 31, 1998 plus limited revenue from real estate sales and golf
course operations will not be sufficient to pay these notes as and when due.
Management recognizes that the Company must generate additional financial
resources or consider disposing of assets to enable it to continue operations.
Management's plans include new loan facilities, and alliances or other
partnering agreements with entities interested in and having the resources to
support the Company's plans, or other business transactions, which would
generate sufficient resources to assure continuation of the Company's
operations.
On March 27, 1998, the Company entered into a term letter with a lender to
restructure its existing debt by providing up to $83 million of first priority
mortgage financing. The term letter is subject to the lender's satisfactory
completion of due diligence procedures and is subject to certain conditions, as
defined. The terms and conditions of the proposed financing include, among
others, that the lender will be given an equity ownership ranging from 20% to
40% of the equity in the Company. The Company believes the proceeds from this
mortgage financing facility, if obtained, will be adequate to bring current and
restructure all existing debt, and to fund the Company's on-going operations and
move development plans forward. While it is uncertain if the proposed financing
will be completed, management currently knows of no reason that the
debt-refinancing plan will not be accomplished with the closing currently
scheduled to begin late June 1998.
Going Concern
The financial statements of the Company for the year ended December 31, 1997
includes an explanatory paragraph as to an uncertainty with respect to the
Company's ability to continue as a going concern. This is based on the
historical losses of the Company and its default under certain debt liabilities
as discussed above (see Note 12, "Going Concern" of the Notes to Consolidated
Financial Statements of the Company).
YEAR 2000 SOFTWARE ISSUE.
The Company uses a number of computer software programs and operating systems in
its operations, including applications used in sales and marketing, billing,
point of sales data collection, and other administrative functions. The Company
believes that the manufacturers of the software applications it uses most
frequently, including its systems software and its word-processing and
spreadsheet software, are in the process of preparing or have already completed
Year 2000 remediations for their products. There can be no assurance, however,
that such remediation efforts have been or will be successful. In addition, the
Company communicates electronically with a number of its banks, customers and
suppliers with respect to a variety of functions, including cash management,
ordering, billing and payroll. Any failure of the software of the Company's
suppliers or customers to address the Year 2000 issue could impair the Company's
ability to perform such functions. The Company is analyzing the potential impact
of the Year 2000 issue on the Company's software and on the Company's
interactions with its suppliers and customers and expects to make appropriate
responses to address any issue identified by the end of 1998. Given the
information known at this time about the Company's systems, coupled with the
Company's ongoing, normal course-of-business efforts to upgrade or replace
business critical systems as necessary, it is currently not anticipated that
these "Year 2000" costs will have any material adverse effect on the Company's
business, financial condition or results of operations.
16
<PAGE>
However, the Company is still in the preliminary stages of analyzing its
software applications and, to the extent they are not fully "Year 2000"
compliant, there can be no assurance that the costs necessary to update
software, or potential systems interruptions, would not have a material adverse
effect on the Company's business, financial condition or results of operations.
PART II
Item 1. Legal Proceedings
The Company completed an acquisition of 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. The SEC
has alleged violations of certain sections of the Securities and Exchange Act
of 1934 and various rules in connection with the purchase and sale of Golf
Ventures, Inc. securities and reporting and disclosure requirements. At this
time, the Company is in negotiations with the SEC and management is unable to
predict the outcome of the investigation. 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.
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.
On December 4, 1997, the Company entered into a stock purchase agreement (the
"agreement") with Maricopa Hardy Development Group, Inc. ("Maricopa") for the
purchase of 81% of the outstanding capital stock of Pelican Strand
Development Corporation (see Note 4). Subsequent to December 4, 1997,
Maricopa claimed that the Company breached certain terms of the agreement and
requested that the Company rescind the agreement. The Company believes that
the terms of the agreement have been met and has refused to rescind the
agreement. The parties are continuing to negotiate a resolution to this
dispute, and no lawsuit has been filed against the Company. In the opinion of
management and legal counsel, there is no reasonable probability at present
of the rescission of the agreement.
Montverde Properties LTD is a defendant in a lawsuit for the enforcement of a
$916,824 mortgage note payable, which is in default (see Note 7). The Company
has entered into a payment arrangement with the mortgage holder for monthly
payments of $15,000 until the mortgage can be refinanced. The mortgage holder
has obtained a writ of possession allowing for regular access to and
inspection of the collateral land.
The Company is involved in various other lawsuits and litigation 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.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's
securities holders during the quarter ended March 31, 1998.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) This Item is not applicable to the Company.
17
<PAGE>
(b) No Reports on Form 8-K were filed by the Company during
the quarter ended March 31, 1998
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GOLF VENTURES, INC.
Signature Position with Company Date
- --------- --------------------- ----
/s/ Warren Stanchina President, Chief Executive Officer September 17, 1998
- ---------------------- and Director
/s/ Eric LaGrange Senior Vice President and Chief September 17, 1998
- ---------------------- Financial and Accounting Officer
18
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 466,230
<SECURITIES> 0
<RECEIVABLES> 2,151,306
<ALLOWANCES> 0
<INVENTORY> 129,378
<CURRENT-ASSETS> 0
<PP&E> 9,901,785
<DEPRECIATION> 1,713,307
<TOTAL-ASSETS> 70,052,585
<CURRENT-LIABILITIES> 0
<BONDS> 42,821,439
0
66,783
<COMMON> 9,191
<OTHER-SE> 9,197,541
<TOTAL-LIABILITY-AND-EQUITY> 70,052,585
<SALES> 630,573
<TOTAL-REVENUES> 2,099,089
<CGS> 275,567
<TOTAL-COSTS> 2,667,974
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,281,399
<INCOME-PRETAX> (1,894,216)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,894,216)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,894,216)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
