UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB/A
Annual report under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the year ended December 31, 1997
0-21337
(Commission File Number)
GOLF VENTURES, INC.
(Name of Small Business Issuer in Its Charter)
UTAH 87-0403864
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
255 South Orange Avenue, Suite 1515, Orlando, Florida 32801
(Address of Principal Executive Offices) (Zip Code)
(407) 245-7557
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ x ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for the year ended December 31, 1997 were $8,429,552.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of December 29, 1997 was $6,166,967.
The number of shares outstanding of the issuer's common equity, as of December
31, 1997 was 9,172,737 shares (subject to the conversion of 6,672,578 shares of
Series D Convertible Preferred Stock into 26,690,312 shares of Common Stock and
certain other immaterial possible preferred stock conversions).
Transitional Small Business Disclosure Format (check one): Yes[ ] No [x]
<PAGE>
PART I
Item 1. Business.
General Information about the Company
Golf Ventures, Inc. ("GVIM" or "the Company") is a Utah corporation formed in
1983. GVIM's principal corporate offices are currently located at 255 South
Orange Avenue, Suite 1515, Orlando, Florida, 32801. Previous addresses include
345 North 2450 East, St. George, Utah 84790 from September 1997 until December
1997, and prior to that at 102 West 500 South, Suite 400, Salt Lake City, Utah
84101. The Company's telephone number is (407) 245-7557.
On November 26, 1997 the Company closed on its reverse acquisition
reorganization with U.S. Golf. Under the terms of this reorganization, the
Company issued and delivered to the shareholders of US Golf 6,672,578 shares of
Series D Convertible Preferred Stock ("the Series D Stock"). Each share of the
Series D Stock has four (4) share votes in any vote of the common stockholders
of the Company, and each share of Series D Stock can be converted into four (4)
shares of Common Stock. The result of this issuance of Series D Stock is that
the shareholders of US Golf now own approximately 81% of the voting securities
and equity of the Company. For financial reporting purposes, US Golf is deemed
to be the acquiring entity. US Golf is now a wholly owned subsidiary of the
Company. More information about the Company following its reorganization with US
Golf can be found in the Company's Reports on Form 8-K filed on November 27 and
December 19, 1997, and on January 25, and May 6, 1998.
GVIM is engaged in the business of real estate development, primarily golf
courses, with surrounding residential real estate. With the acquisition of U. S.
Golf Communities, Inc. in November 1997, the Company's business has expanded to
include ownership, management and operation of existing golf courses. The
Company currently has active projects, both completed and under development, in
Florida, Utah, North Carolina and Texas.
SUMMARY INFORMATION ABOUT THE COMPANY'S PROPERTIES
In 1993, GVIM acquired an undeveloped 616 acre parcel of land in Washington,
Utah and two other single family dwelling developments in St. George, Utah from
American Resource and Development Company, Inc. ("ARDCO") in exchange for
654,746 shares of GVIM common stock, which represented approximately 86% of the
Company's total outstanding shares at the time. The Company also assumed
$4,338,319 of monetary debt in connection with the acquired properties.
The Company named its residential developments "Cotton Acres" and "Cotton
Manor", and called its 616 acre parcel of undeveloped land the Red Hawk(TM)
International Golf & Country Club ("Red Hawk"). On June 1, 1994, GVIM acquired
an additional 54 acres of land adjacent to Red Hawk for future development.
Although the real estate market in the St. George, Utah area is extremely
competitive, the Company believes that it is well positioned in terms of pricing
and location with respect to the Cotton Manor and Cotton Acres projects such
that it can compete effectively and complete the development and sale of these
two projects (see "Cotton Manor" and "Cotton Acres" below). With respect to Red
Hawk, the Company will require significant additional financing for development
(see "Management's Discussion and Analysis", below), after which management
believes Red Hawk will offer competitive values to interested club members and
residence buyers.
In November 1997 as a result of the reverse acquisition transaction with U. S.
Golf Communities, Inc., a privately held Delaware corporation ("US Golf"), and
now a wholly owned subsidiary of the Company, the Company acquired properties
and operations in North Carolina, Texas and Florida. US Golf was established in
April 1996 for the purpose of consolidating various golf related properties of
several entities. US Golf and its affiliated companies have acquired, developed
and operated golf related properties throughout the southeastern United States.
The decision of the Company to reorganize with US Golf, was made in large part
to take advantage of US Golf`s greater experience and connections in developing
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large golf course communities like Red Hawk. The Company's golf related
properties acquired through US Golf consist of the following:
Cutter Sound Golf & Yacht Club ("Cutter Sound"), is located at 2381 SW
Carriage Hill Terrace, Palm City, Florida, 34990. Cutter Sound was
acquired, under the terms of a purchase option, in September 1994 and
consists of an 18-hole course, built in 1990. In addition to the 71 acre
golf course, the property contains 96 deep-water yacht moorings and 148
acres approved for 219 residential units, of which 48 townhouse and 25
single-family lots are currently sold. There are 24 golf course lots, 41
single-family lots and 8 condominium lots improved and available for sale
at this time with 73 future development parcels.
Montverde Country Club and Development ("Montverde") located approximately
20 miles west of downtown Orlando, Florida. Montverde was acquired in
November 1990 and consists of 430 acres. This property has not yet been
developed but is fully permitted and ready for construction. Once fully
developed, the property is planned to contain an 18-hole golf course and
310 acres for 460 residential units.
NorthShore Country Club and Community (`NorthShore"), is located at 801
East Broadway Avenue, Portland, Texas, 78374. NorthShore was acquired in
1992 and consists of an 18-hole course built in 1985, and a clubhouse built
in 1986. In addition to the 185-acre golf course, the property contains 195
acres approved for residential development. Approximately 60 single-family
residential lots are currently being marketed. Additionally, there is
approximately 150 acres surrounding the golf course in various stages of
planning and permitting.
Pinehurst Plantation ("Pinehurst"), is located at 2130 Midland Road,
Pinehurst, North Carolina, 28734. Pinehurst was substantially (60%)
acquired in April 1994, and became wholly owned in March 1996. The property
consists of an 18-hole golf course, built in 1992, and a temporary
clubhouse. In addition to the 140-acre golf course, the property contains
395 acres approved for 650 residential units. Currently the development has
sold 150 residential homesites and is planned to ultimately feature 500
additional lots and cottage/timeshare sites.
In addition to these large development projects, the Company also owns and
operates two semi-private, 18-hole championship golf courses, The Pines
Golf Club ("The Pines") and Wedgefield Golf and Country Club
("Wedgefield"). The Pines, acquired in April, 1991, is located
approximately 25 minutes north of Orlando, Florida midway between Orlando
and Daytona Beach in Orange City, Florida. Wedgefield, reacquired in May
1995 (having been sold in April 1994), is located in eastern Orange County,
Florida, and approximately 15 minutes from the Orlando International
airport and 30 minutes from downtown Orlando.
Through a special purpose subsidiary, the Company acquired 81% of the
outstanding common stock of Pelican Strand Development Corporation ("Pelican
Strand") from Maricopa Hardy Development Group, through the issuance of
3,432,713 shares of Company common stock in December 1997. (See Form 8-K report
dated December 19, 1997). Pelican Strand is the general partner of Pelican
Strand, Ltd. a Florida limited partnership formed in 1995, which owns the
Pelican Strand Golf and Country Club Development located in Naples, Florida. The
Company through its ownership interest in the general partner owns approximately
a 40% financial interest in the limited partnership. The Pelican Strand property
development consists of an 18-hole course, which opened in November 1997, with
an additional nine holes under construction. In addition to the 203 acres
available for the golf course development, the property contains 158 acres
approved for residential development, 30 acres for commercial development, 171
acres for lakes and preserves and 13 acres for the clubhouse. (See "Pelican
Strand" below)
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The Company has no specific plans to acquire additional real estate projects in
the near term, and will focus its energy and resources on developing and
maximizing its current projects. Significant development capital will be needed
to do this effectively. There can be no assurance that the Company will be able
to acquire the needed financing on terms and conditions which will allow the
Company to effectively and profitably develop its current inventory of
development projects.
RECENT MATERIAL FINANCIAL TRANSACTIONS AND ACTIONS
In February 1996, the Company reverse-split its outstanding shares by a factor
of 5 shares then outstanding into 1 share. When used in this Report, all
references to numbers of shares of the Company's common stock and per share
information, regardless of the date of the transaction, are expressed in
post-reverse split numbers.
In October, 1997, the holder of most of the Company's outstanding Series B
Convertible Preferred Stock converted these shares into 4,052,683 shares of
Common Stock, based on the conversion ratio for the Company's Common Stock.
On November 26, 1997 the Company closed on its reverse acquisition
reorganization with U.S. Golf. Under the terms of this reorganization, the
Company issued and delivered to the shareholders of US Golf 6,672,578 shares of
Series D Convertible Preferred Stock ("the Series D Stock"). Each share of the
Series D Stock has four (4) share votes in any vote of the common stockholders
of the Company, and each share of Series D Stock can be converted into four (4)
shares of Common Stock. The result of this issuance of Series D Stock is that
the shareholders of US Golf now own approximately 81% of the voting securities
and equity of the Company. US Golf is now a wholly owned subsidiary of the
Company. More information about the Company following its reorganization with US
Golf can be found in the Company's Reports on Form 8-K filed on November 27 and
December 19, 1997, and on January 25, and May 6, 1998.
In early December 1997, the Company issued 3,432,713 shares of its Common Stock
to the owners of Pelican Strand in return for the Company's new controlling
interest in Pelican Strand. (see "Pelican Strand" below and the security
discussion above.)
OUTSTANDING STOCK
As of December 31, 1997, the Company had 9,172,737 shares of its common stock
issued and outstanding out of 25,000,000 shares of common stock authorized in
the Company's Articles of Incorporation, as amended. At the same date, there
were 29,084 shares of Series A Convertible Preferred Stock outstanding out of
350,000 shares of Series A Convertible Preferred Stock authorized, 28,340 shares
of Series B Convertible Preferred Stock outstanding out of 350,000 shares of
Series B Convertible Preferred Stock authorized, and 6,672,578 shares of Series
D Convertible Preferred Stock outstanding out of 8,000,000 shares of Series D
Convertible Preferred Stock authorized.(1)
EMPLOYEES
At December 31, 1997, GVIM had 155 full-time and 73 part-time employees.
__________________________
(1) As noted above, the reverse acquisition reorganization with US Golf resulted
in the shareholders of US Golf receiving 6,672,578 shares of Series D
Convertible Preferred Stock in return for all of the outstanding stock of US
Golf. Each share of Series D Preferred Stock may be converted at the option of
the holder into four (4) shares of Common Stock. Thus the entire block of Series
D Preferred Stock now in the hands of the former shareholders of US Golf
represents approximately an additional 26,000,000 shares of Common Stock when
and if converted. The Company currently does not have sufficient authorized but
unissued common shares to accommodate the conversion of the Series D Preferred
Shares.
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<TABLE>
<CAPTION>
Item 2. Properties.
The following table summarizes the development properties owned or directly
controlled by the Company.
Golf Residential Acre Development
Total Course Residential Maximum Units Units Units to be
Properties Acres Acres Acres Units Sold Developed Developed
- ---------- ----- ----- ----- ----- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cotton Manor 20 N/A 20 * 131 31 19 81
Cotton Acres 60 N/A 60 * 238 197 4 37
Cutter Sound 213 71 142 * 258 80 72 106
Montverde 430 120 310 ** 460 0 0 460
NorthShore 380 185 190 * 879 304 60 515
Pelican Strand 575 203 342 * 1,000 44 268 688
The Pines 74 74 N/A N/A N/A N/A N/A
Pinehurst 535 131 404 * 647 147 53 447
Red Hawk 670 182 488 ** 945 0 0 945
Wedgefield 123 123 N/A N/A N/A N/A N/A
----- ----- ----- ----- --- --- -----
Total 3,080 1,089 1,956 4,558 803 476 3,279
===== ===== ===== ===== === === =====
</TABLE>
* Partially developed and sold
** Only partially developed, no sales.
COTTON MANOR AND COTTON ACRES
Cotton Manor is a 20-acre development approved and platted for a total of 131
units. Of the 36 total approved units in Phases I and II, 28 condominium units
are completed (one two-story building with 16 units and three one-story
four-plexes). Eight units remain to be built to complete Phases I and II.
Recreational facilities including a swimming pool, tennis courts, and a putting
green were constructed in Phase I.
The Company has amended the plat for Cotton Manor to accommodate 94 additional
units as single detached units. These are referred to as "cottages" or
"townhomes". In Phase III, two cottages were built. One Phase III cottage has
been sold to a third person, while the other is being used by the Company as a
model, sales office and, local executive office. Development of the 19 lots in
Phase IV has been completed at a cost of approximately $11,700 per lot. Three of
the Phase IV lots have been sold. One lot was purchased by Bruce Frodsham, a
Company employee, at the Company's offer price of $15,000. Mr. Frodsham has
built a home on the lot at his cost. In early 1997, a second Phase IV lot was
transferred to Mr. George Badger to enable Mr. Badger to obtain a loan to
finance construction of a home on the site for entry by the Company in a home
show. Mr. Badger was a "control person" of the Company (see Item 3 Legal
Proceedings (c)). The Company's entry won the "best of show" award. Currently,
Mr. Badger is paying the indebtedness on the property and lives there from time
to time. A third lot was recently sold to an unaffiliated third party builder.
Building permits will be obtained from the City of St. George as needed.
Following the sale of the 19 units in Phase IV, the Company intends to commence
developing and marketing additional Phases.
While the Company is still actively marketing its Phase IV Cotton Manor cottage
sites, without further investment the Company cannot build the remaining 17
cottages in Phase IV or engage in further development of the Project.
Cotton Manor residents belong to the Condominium Association or the Planned Unit
Development Association, and pay a monthly fee to support the common area
maintenance. Because of the small size of the project to date, fees collected
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have not been sufficient to cover costs, and the Company has subsidized the
project from inception. The Company retains control over the two homeowners
associations at Cotton Manor. When all of the sites have been built on, the
membership fees should adequately cover the operating costs. The Company
maintains property and liability insurance on the Cotton Manor project at a cost
of approximately $6,000 per year.
Cotton Acres is a 60-acre development approved and platted for 238 single family
detached home lots. 182 lots in Phases I-IX have been sold, and dwelling units
on these lots have been completed, mostly by the lot buyers. Development of
Phase X, consisting of 19 new lots, has been completed at a cost of
approximately $165,000. All Phase X lots have been sold or pre-sold with a
deposit and are expected to close during the first six months of 1998. Phase XI
has been platted and approved for a final 37 lots. At the current time, pre-sale
reservations have been received by the Company for 10 of the Phase XI lots.
Management anticipates that the development and sale of the lots from all of the
remaining potential phases of Cotton Acres could be completed within two years,
provided that sufficient development funding becomes available for this purpose.
There is also no assurance that market conditions will allow for this schedule,
even if sufficient funding were available.
CUTTER SOUND GOLF & YACHT CLUB
Cutter Sound is a 219-acre development is located in Palm City, Martin County,
Florida, the heart of the Treasure Coast of East Florida. A short drive from Ft.
Lauderdale, it has easy access to the Florida Turnpike, 4.5 miles away, and to
I-95, just 5 miles away. The community sits directly on the mile wide North Fork
of the St. Lucie River with direct access to the Atlantic as well as to the
Okeechobee Waterway (to Gulf of Mexico) and includes 96 deep-water boat slips.
Boat slips can accommodate yachts to 65 feet and 20-foot beams. All slips have
water, telephone, cable TV and 110/220 volt, 50-amp power. Such sheltered
deep-water mooring facilities are becoming scarce in this high-growth Southeast
Coastal region.
The golf course is an 18-hole, par 71, championship course winding through
subtropical vegetation. It currently has 65 golf course homesites and 18
waterfront estates completed and sold, and 48 Harbor Island Townhomes on the St.
Lucie River under development by an independent builder.
Although currently there is no permanent clubhouse on the property, plans are
underway to build a Clubhouse. Currently, concept architectural plans
(preliminary, undimensioned schematic drawings showing general room layout and
elevations) have been completed. Upon approval of these plans final dimensioned
and construction detailed plans will be completed by the architect. Temporary
golf pro-shop and snack bar facilities are housed in a temporary modular
building near the site of the permanent clubhouse. The administrative offices
and real estate sales center is housed in one of the 8 condominiums already
completed.
Homesites are separated into three sections: 1) Bridgeview - starting at
$85,000; 2) The Fairways between $107,000 - $134,000; and 3) The River Club -
featuring nature views, water views and direct waterfront. River Club sites
range from $162,000 - $495,000. There currently are also eight (8), golf front
condominiums priced between $195,000 - $240,000.
Preliminary plans for future development call for condominiums from $200,000,
zero-lot-line homes starting at $150,000, golf villas from $200,000 and
townhomes beginning at around $250,000.
To date, golf revenues have been minimal and memberships are not being actively
marketed. Keeping the exclusivity of the project and its amenities has been a
priority. Now that final yacht slip permits are in place for resident use, and
the third party real estate construction is coming on line, marketing has
commenced. To subsidize golf operations and keep the project in the public eye,
corporate golf outings, hotel packages, and events such as Junior Golf
tournaments are hosted at the club. In addition to resident and non-resident
member play and corporate play, guest fees will be established for our to be
built "VIP" suite patrons staying at Cutter Sound and for the yacht slip owners.
The Company estimates that an additional $2,500,000 will be required to complete
this project.
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MONTVERDE COUNTRY CLUB AND DEVELOPMENT
Montverde is a 430-acre development located approximately 20 miles west of
downtown Orlando, Florida. The hilly topography of Montverde is rare in Florida.
The highest point of the property is approximately 180 feet above sea level; one
of the highest in Central Florida. The property offers a majestic view of Lake
Apopka and Orlando's growing skyline. The recent extension of the East-West
Expressway and its new interchange at the Florida Turnpike - only minutes from
the property have brought this site closer to the brisk real estate development
now underway in West Orlando/East Lake County. A new hospital and a regional
mall have opened just minutes away.
At this time the Montverde property is raw land which was formerly the site of
an orange grove. No permanent improvements have been made to the property. The
site has been cleared of the citrus trees, preliminary monuments have been set
for the general golf course routing, and the site is mowed on a regular basis
for showing to builders and prospective development partners. Some minor grading
has been completed on the golf course route. All permits and approvals were
obtained on the project. Upon renewal of some permits, which have expired, the
project will be ready for construction to commence. Once fully developed, the
approved plan includes 460 single-family units.
The Montverde, Planned Unit Development ("PUD"), consists of several small
residential cluster communities surrounding and within the golf course layout.
Each cluster is designed to have its own identity, yet be complimentary to the
entire project.
With consulting advice from celebrity designers, the 18-hole, par 72 golf course
general layout and preliminary design is complete. Management intends to
contract a top-name golf architect to add the finishing touches, as well as to
incorporate his own unique design characteristics and to lend his name to the
project. The unique layout of the course will feature rolling terrain with
dramatic elevation changes, unusual in Central Florida and will have four (4)
sets of tees to accommodate all levels of golfers. The Company estimates that an
additional $8,100,000 will be required to complete this project.
NORTHSHORE COUNTRY CLUB AND DEVELOPMENT
NorthShore Country Club is a 380-acre development located in Portland, San
Patricio County, Texas (8 miles from Corpus Christi, Texas). The development
features approximately 60 developed, single-family residential lots currently
being marketed, and approximately 150 acres of additional land surrounding the
golf course - in various stages of planning and permitting. The remaining
development land has preliminary plat approval for approximately 500 residential
lots.
With over 250 homes already in place NorthShore has established itself as an
active growing real estate development and Country Club. Nearly all of the
original 296 homesites have been sold, along with several in the most recent
phase.
In April 1995 development of 69 homesites was completed on Corpus Christi Bay on
the 14th/15th/16th fairways. These large homesites range in size from 80' x
115', up to 2-acres in area. Typical buyers are career family move-up couples,
empty nesters, or downsizing buyers. Homesites are priced from $25,000 to
$281,400 and homes, built by independent builders, are priced from $140,000 to
$600,000.
Approximately 170 acres with preliminary plat approval for approximately 500
additional units remain to be developed. Preliminary approvals are in place for
a retiree golf villa project on 50' wide homesites, as well as a project of 63
moderate priced 70' wide homesites.
The 18-hole championship golf course, designed by Robert Von Hagge and Bruce
Devlin, was completed in 1985. Four holes hug the rugged and picturesque Corpus
Christi Bay shoreline. The fairways of the "links-style" course include the
challenging style of mounding often associated with Von Hagge/Devlin courses, as
well as extensive use of railroad ties and natural sandy waste areas.
The clubhouse complex is approximately 40,000 square feet, which includes five
buildings. The complex includes a 6-court lighted tennis center and near junior
Olympic size lap pool, wading pool, a snack bar, a recreation and party room,
men's and women's locker rooms and a tennis pro shop. The Country Club offers
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fine dining and banquet facilities, wedding receptions and corporate functions.
An exercise room, with new equipment, men's and women's whirlpools and saunas,
and large locker room areas are also part of the Club. Monthly dues rates range
from $100.00 for Full to $50.00 for Social. At present there are over 750
members of which over 550 are full golf members. The Company estimates that an
additional $5,300,000 will be required to complete this project.
PELICAN STRAND
Pelican Strand is a new community located in Naples, Collier County, Florida.
This 575-Acre Planned Unit Development is situated at the northwest quadrant of
the major crossroads of I-75 and Immokalee Road near the Tamiami Trail (U.S. Hwy
41).
The developable residential land covers 158 acres, originally zoned for a
maximum of 1,200 Units. The density varies from single-family homesites, to
multi-family condo sites and detached villas. Product prices will range from
$120,000 - $600,000. Approximately one-half of the development is under contract
(approximately 500 units) with various builders and commercial retail users. The
infrastructure along the main spine road, which serves the various subdivisions,
is complete. Pods of land are sold to various builders who put in the
infrastructure, entry feature, landscaping, and homes or retail structures in
the various subdivisions.
Builders currently engaged in home, condo and villa construction at Pelican
Strand include Empire Builders, The Jack Parker Corp, Millennium Communities,
Keevan Homes, Beach Tree Homes, Arthur Rutenberg - ARBC, Vision Builders and
Vicon Homes. Paul Hardy, Renee Tolson and David Mobley were involved in the
initial development of the project and continue to hold an equity interest.
Their company, Maricopa Hardy Development Group, is a real estate development
firm specializing in golf course and country club communities in the Naples
area.
The project's main amenity is an 18-Hole Championship golf course which opened
in November 1997, with an additional nine holes scheduled for completion in the
future. The Club's facilities include an "aqua" practice range, putting green, a
completed 32,000 sq. ft. clubhouse featuring Pro Shop, dining room, board room,
multi-media center, locker rooms, beauty salon, offices and meeting rooms. The
Club complex will also provide tennis courts, full basketball court, fitness
facility, and swimming pool. The golf course covers 203 acres and the country
club site covers 13 acres, with the planned various residential neighborhoods
surrounding the course. Included in the project are 75 acres of lakes and 96
acres of preserves.
All residents of Pelican Strand will receive a social membership to the Club,
with the option of upgrading to a full golf or tennis/fitness membership. Golf
memberships are available to residents as well as non-residents, with a total of
600 possible Full Golf members. Additionally, 200 Tennis memberships and 500
Sports memberships will be marketed.
The Planned Unit Development includes 30 Acres of commercial land fronting
Immokalee Road. Tenants for the new integrated commercial site include Publix,
Shell Oil, First Union Bank, Barnett Bank, & Fifth Third Bank, several small
service businesses and the Naples Area Chamber of Commerce Visitors Center. The
Planned Unit Development also allows for a 140-Unit motel/hotel site. The
Company estimates that an additional $12,700,000 will be required to complete
this project.
THE PINES GOLF CLUB
The Pines Golf Club is a 74 acre semi-private 18-hole championship course built
in 1986, located approximately 25 minutes north of Orlando, midway between
Orlando and Daytona Beach (Volusia County) in Orange City, Florida. This is a
high-growth, affordable bedroom and retirement community.
The course covers 6,400 yards with a back tees rating of 71.3. The fully
irrigated course meanders throughout a 310-acre manufactured home community, in
some locations heavily wooded with mature trees. Affordable fees attract players
from coastal and Orlando areas. Originally, the property included a 23,000
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square foot Clubhouse first constructed in 1948 as a Monastery for the monks of
the Order of St. Augustine. Its Spanish architecture, with tile roof, bell tower
and chapel, provided a most interesting atmosphere. However, the age and design
of the building resulted in extraordinary operating and maintenance costs, and
the new city codes were requiring costly improvements. Management deemed that
the additional cost for capital improvements to the building was less advisable
than an outright sale of the building. Terms of the sale include 99-year rights
to space for golf shop operation and office administration within the building -
5-years no cost; remaining term at mutually agreed market rate. However, until
the new building owner completes necessary renovations, club operations have
been moved to a new temporary facility adjacent to the old one. The Club name
was changed from "Monastery" to "The Pines" at the time the old "Monastery"
Clubhouse was sold.
At the time of original purchase in April 1991, the selling developer had
burdened the club with reduced rate guarantees to several hundred members for 5
and 10-year periods. As of August 31, 1996, all such guarantees (except for a
very few members) fully expired. The effect of the guarantee was that most of
the members utilized the facilities for a fee of $2 - $5 per golf round, while
area market rates were at a minimum of $10 - $30 per round. With the `96-`97
member year several new membership categories were offered and traditional plan
annual dues now range from $900 - $1,500 per year. Also being offered is a
discounted "Pay as you Play" membership program. Currently the club has
approximately 150 members.
PINEHURST PLANTATION COUNTRY CLUB & DEVELOPMENT
Pinehurst Plantation is a 535-acre development located in Moore County, North
Carolina, with its entrance just 3 miles from the Pinehurst Village center.
Currently, the Army Corps of Engineers ("ACE") Wetland Permit has expired. The
Company has completed a new wetland delineation and submitted a new survey for
the area, which has been tentatively approved by ACE. A formal approval and
acquisition of the new Wetland Permit remains to be completed, which the Company
believes is eminent.
Plantation's golf course was completed and opened in June 1993. The course is an
Arnold Palmer, 18-hole championship design and has rapidly become a favorite
course in the area. Golf Digest gave the course a rating of 4 stars in 1995. The
development has sold nearly 150 homesites and is approved for 500 additional
units.
Completion of the sewer, water and paving in the initial phases of the
development has enhanced the appearance and viability of the real estate.
Additionally the Company has brought new products online, such as, the new
Birkdale Village patio home section. A revitalization/beautification program,
including landscaping, a new main entrance and gatehouse to the development was
completed in 1997, and proper golf turf maintenance has greatly enhanced the
overall appearance and health of the golf course and community.
The "temporary" clubhouse consists of 1,000 square feet for the snack bar/grill,
golf pro shop, locker rooms and office space with an adjacent temporary real
estate marketing facility of approximately 1,200 square feet providing
additional office and storage space. Plans are underway for a new clubhouse
complex, which may include guest cottages and full amenities.
Plantation's development plan includes a Guest Home product to be developed
around the to-be-built Club House and swim and tennis facility. Research has
confirmed that there is an unsatisfied market demand for an upscale member club
cottage development - emanating from two distinct markets: 1) the second, or
vacation, home market among Plantation's existing membership; and 2) new
corporate member and business user guests.
Many of Plantation's existing and prospective members do not live in the
immediate area. Indications are that they would be likely to purchase housing
(or rent) units which could be "owner occupied" part of the year and placed in a
rental pool other times. The second distinct Club Cottage market is that of the
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corporate member user desiring housing and lodging for business retreats.
According to the Pinehurst Area Convention and Visitor Bureau ("PACVB") the area
is not currently able to provide housing for approximately 10,000 requested
room-nights of this type. The PACVB indicates that these business groups wish to
schedule business meetings of up to one week for from 4 to 24 employees or
business associates in a private, exclusive golf course setting. Inquiries come
mainly from the nearby metropolitan areas of Charlotte, Raleigh, Greensboro, and
Washington D.C. Plantation may develop, sell, and manage a product for these
markets.
The current site design concept will allow a number of corporate cottages
buffered from any single-family residential area. Current concept plans for
these cottages may have up to four "lock-out" suites, which can be individually
opened, if desired, to a common gathering parlor (with a full kitchen, sit-down
dining area, and living room). The Company estimates that an additional
$7,500,000 will be required to complete this project.
RED HAWK(TM)
Red Hawk is a master-planned residential golfing and recreational community,
located in the southeast Quadrant of Washington City, Utah. When completed, Red
Hawk will include approximately 945 building lots, a 27 hole golf course, tennis
courts, swimming pools, and other recreational amenities. Phase I is designed to
include the first 18 holes on the golf course, five corporate villa lots, seven
cottage lots, and one hundred-two estate lots. The remaining 9 holes on the golf
course, the clubhouse and amenities, and bulk of the residential and commercial
land developments are planned for subsequent phases. Subsequent phases have not
yet been started, except in the overall project design and surveys.
In 1996, Washington City completed construction of a storage tank for culinary
(drinking) water in close proximity to Red Hawk, together with a water pumping
station and delivery lines which run through Red Hawk, thus assuring Red Hawk
will have an adequate supply of culinary water available. (The Company paid for
part of this water line.) In addition, there are ten (10) separate wells on the
Red Hawk property, and these wells will not only provide the lakes included in
the design of the project, but could also be developed into sources of culinary
and irrigation water.
Significant cost and effort have been expended in gaining initial government
approvals and permits. The final plat for Red Hawk will be recorded upon
installation of all Phase II improvements and/or bonding for the same. The
Company believes that no other permits or authorizations are required until
after filing of the final plat for Phase I, at which time building permits for
homes at the project can be obtained form Washington City.
Since 1992, the Company has expended a total of $2,972,985 on planning,
development and construction of Red Hawk, most of which was spent on the
construction of Phase I. This amount was funded in part by equity capital
provided by the Company's shareholders, but mostly was debt financed through
third-party borrowings. During 1996, the Company was optimistic the Phase I
could be finished before year-end and that sales of residential lots could begin
in earnest in early 1997. Indeed, substantially all of the first 18 holes have
been roughed in, most of the lakes have been dug out, and the sewer utilities
have been installed in the roughed in residential portion of Phase I. However,
increasing costs and lack of capital caused the Company to halt construction in
early 1997 before Phase I could be substantially completed. The Company was
unable to borrow further funds for the project, and was not able to raise any
significant new equity capital. There is a risk that the current cessation of
work on the project, if continuing, my result in the need to redo some or all
existing local and governmental approvals obtained to date.
The Company estimates that approximately 40% of the needed work on Phase I have
been accomplished to date. The Company also estimates that approximately
$6,400,000 of additional investment capital and a solid nine months of
construction activity will bring Phase I of Red Hawk(TM) to a point where golf
can take place on the course and fully developed Phase I residential lots can be
sold for home construction. If the Company were to undertake the construction of
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"spec" homes, or otherwise reserve to itself the development of the residential
units at the project, the capital required for Phase I would be substantially
higher than the $6,400,000 estimate, and it could take two to three years or
more to fully build out the residential lots in Phase I.
The Company estimates that it could take up to ten years to fully develop all
phases of Red Hawk, and that as much as $60,000,000 of additional investment
capital will be needed to reach the full development stage, again depending on
whether the Company involves itself in the construction of residential
properties or simply sells developed lots.
WEDGEFIELD GOLF AND COUNTRY CLUB
Wedgefield Golf & Country Club, a semi-private, 18-hole championship course
(6,500 yards), originally purchased by the Company in 1989, is located in
eastern Orange County, Florida approximately 15 minutes from the Orlando
International Airport and 30 minutes from downtown Orlando.
Wedgefield is fully irrigated with an effluent fertigation system, featuring
subtropical vegetation, ample water and sand hazards. The well-drained and
healthy turf makes for a desirable golf course. An average of 55,000
rounds-per-year is comprised of primarily Members and East Orlando residents,
but draws a significant number of players from the nearby coastal area residents
as well.
The Club is within the residential development now called Wedgefield, formerly
known as Rocket City and then Cape Orlando Estates. The Club currently has
approximately 100 members. The 9,280 square foot clubhouse and adjacent 5,400
square foot cart facility were completed in 1990. Amenities of the clubhouse
include a large, fully equipped kitchen, lounge, dining/banquet rooms, private
executive dining room, locker rooms, spacious and pro shop and administrative
offices. The complex additionally accommodates a large swimming pool
(temporarily closed), two lighted asphalt tennis courts, bathhouse and a 5,000
square foot maintenance building.
While Central Florida has a definite seasonal influx of part-time residents and
tourists, Wedgefield enjoys a steady year-round customer base. A significant
number of customers are retirees. Profitable small and medium-sized golf outings
are increasingly attracted to the club. Maintaining the golf course in top
condition and keeping the fees and dues affordable - thereby maximizing rounds -
are the keys to Wedgefield's continued success.
EXECUTIVE OFFICES
Prior to September 1997 the Company's executive offices were located at 102 West
500 South, Suite 400, Salt Lake City, Utah 84101. This office facility consisted
of approximately 2,150 square feet, and the Company was paying $2,229 for the
space on a month-by-month basis at the time it moved its executive offices to
St. George, Utah. The Company and its then majority shareholder, ARDCO, shared
this leased space based on an oral agreement pursuant to which the Company paid
the rent and certain related overhead charges for both companies, while ARDCO
paid the salary of some of the Company's employees, who also provided part-time
services to ARDCO. Historically, the value of the rent and overhead charges paid
by the Company attributable to ARDCO's use of the leased space were
approximately equal to the value of the services provided by the Company's
employees which were paid by ARDCO, however no exact accounting was maintained.
During September 1997 the Company moved its executive offices to a Company-owned
home in the Cotton Manor development to cut costs and to bring management closer
to the Company's assets and operations. The offices were located at 345 N. 2450
E., St. George, Utah 84790, a model home owned by the Company. The Company has a
mortgage on the model home with a payment of $1,006.00 per month.
Concurrent with the acquisition of U S Golf, the Company moved its executive
offices to 255 South Orange Avenue, Suite 1515, Orlando, Florida, 32801. This
leased office space consists of approximately 2,000 square feet, for which the
Company is paying $3,000 per month, with expansion to 2,600 square feet
scheduled with a four (4) year lease renewal in July 1998 at which time the base
monthly rent will be $4,700. The St. George office remains as a model home and
area office.
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Management believes that the Company's properties are adequately insured given
their current state of development.
Item 3. Legal Proceedings.
The Company is presently involved in the following pending or threatened
material litigation:
a. On May 24, 1994 a complaint was filed against the Company's U.S. Golf
Pinehurst Plantation, Ltd. Subsidiary in the U.S. District Court for the
Middle District of North Carolina alleging that the Company was infringing
on the trademark of Resorts of Pinehurst, Inc. arising out of the use of
the term "Pinehurst Plantation" in connection with the Company's golf
course operations and residential lot development. On July 14, 1997
judgement was entered against the Company holding that there was an
infringement but postponing a decision on damages. On July 15, 1997 the
Company appealed this judgement. On July 15, 1998 the Fourth Circuit Court
of Apeals unanimaously affirmed the district court's judgement. On
September 4, 1998 the District Court entered a permanent injunction against
the Company ordering that it cease any use of the word "Pinehurst" except
"to fairly and accurately describe their geographic location". The Company
is the process of complying with this judgement and does not expect any
material adverse impact from either the judgement or any future decision on
damages.
b. On November 21, 1995, the Complaint was filed against the Company in the
Superior Court of Portland County, Georgia, under the caption Sam Benlow,
Inc. n/k/a Financial Information Network, Inc. v. Golf Ventures, Inc. The
Complaint sought payment of $21,141 allegedly due for services rendered in
an advertising campaign. The Company negotiated a settlement whereby the
matter was dismissed in exchange for the issuance of 4,000 shares of the
Company's common shares, which would be covered by an S-8 registration
statement. To date, such shares have not been delivered and the S-8
registration statement has not been filed. The Company anticipates that
this matter will be finally resolved once the Company becomes able to use
Form S-8 in the near future.
c. On October 10, 1996, a criminal complaint was filed in the Southern
District of New York against George Badger, then the President of ARDCO,
and a "control person" of the Company. Mr. Badger was indicted on a number
of charges and was arraigned in the U.S. Federal District Court for the
Southern District of New York on October 9, 1996. It is the understanding
of the Company that the indictment related to alleged unlawful and
undisclosed compensation to securities brokers and promoters to induce them
to cause customers to purchase securities issued by ARDCO and the Company.
The Company has learned that Mr. Badger has pleaded guilty to counts of:
(i) conspiracy to commit securities fraud; (ii) securities fraud; (iii)
criminal contempt; and (vi) perjury.
d. On March 12, 1997, the Company received a subpoena duces tecum from the
Commission to produce certain original documents and to testify in the
Commission's investigation regarding Trading in Certain Over-the-Counter
Securities ("NY-6375") pursuant to a formal order issued by the Commission
under Section 20(a). under the Securities Act of 1933 and Section 21(a) of
the Securities Exchange Act of 1934. The requested documents related to the
Company's loans or other forms of financing or credit obtained or sought by
the Company and all correspondence between the Company and the various
funding entities. On July 25, 1997, the Company President and its Secretary
received subpoenas duces tecum from the Commission, and on August 7 and 8,
such officers testified before the Commission in New York.
On August 7, 1997, the Commission issued another subpoena duces tecum, to
GVIM requesting that GVIM produce all minutes and other documents relating
to meetings of the Company's Board of Directors held during the period of
January 1, 1993 through that date. The Company intends to continue to
cooperate fully with the Commission in its investigation.
e. On April 27, 1997, the Company's Montverde Property, Ltd. subsidiary was
sued to enforce a mortgage in the original principal amount of $916,824,
which had matured November 5, 1996, by Thomas C. McCarty in the Circuit
Court of the Fifth Judicial Circuit in and for Lake County, Florida. On
April 11, 1997, the parties entered into a payment arrangement to make
monthly payments in the amount of $15,000 while Montverde diligently
pursues alternatives to payoff the mortgage. The payment arrangement was
without prejudice to Montverde's asserting any claims or defenses to the
mortgage enforcement.
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f. On December 8, 1997 the Commission filed a complaint against the Company
and certain of its former officers and directors in the United States
District Court for the District of Utah (SEC v. Badger, et al). The
Commission alleges that certain historical disclosure filings by the
Company were erroneous, and thus violations of Section 10(b) of the
Securities Exchange Act and Rule 10b-5. The Company is talking with the
Commission in an effort to resolve this litigation. The Company has not yet
been required to answer the complaint.
g. In March 1998 Daniel C. Watson a lender secured by a trust deed on the Red
Hawk project commenced foreclosure proceedings as a result of the Company's
default on the loan. The Company reached a settlement with the lender and
agreed to pay an additional $100,000 for his forbearance in not noticing up
a trustee's sale. No foreclosure action was taken against the Company.
h. On December 4, 1997, the Company entered into a stock purchase agreement
(the "agreement") with Maricopa Hardy Development Group, Inc. ("Maricopa")
for the Company's purchase of 81% of the outstanding capital stock of
Pelican Strand Development Corporation. subsequent to December 4, 1997,
Maricopa claimed that the Company had 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 stock purchase agreement. The parties are negotiating a
resolution to this dispute and the Company believes that there will be no
further action or consideration required by either party, and no lawsuit
has been filed against the Company.
Item 4. Submission of Matters to a Vote of Security Holders.
No items were submitted to a vote of security holders during the fourth quarter
of the Company's fiscal year ended December 31, 1997.
PART II
Item 5. Market for Common Equity & Related Stockholder Matters.
The Company's common stock is currently traded in the over-the-counter market on
the NASDAQ Electronic Bulletin Board under the symbol "GVIM." The Company
intends to apply to have its common stock listed for trading on the main
National Association of Securities Dealers Automated Quotation System (NASDAQ)
as soon as it meets the requirements for such listing, although there is no
assurance that such listing will be obtained.
The following table represents the range of high and low bid quotations for the
calendar quarters indicated since the first quarter of 1995. Please note that
these prices have all been adjusted for the 1-for-5 reverse stock split effected
February 1, 1996.
Calendar Quarters High Bid Low Bid
----------------- -------- -------
1995
----
1st Quarter 4.75 3.00
2nd Quarter 4.50 2.50
3rd Quarter 3.50 1.50
4th Quarter 2.50 1.00
1996
----
1st Quarter 6.00 3.75
2nd Quarter 7.25 2.50
3rd Quarter 7.00 5.00
4th Quarter 5.50 2.00
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Calendar Quarters High Bid Low Bid
----------------- -------- -------
1997
----
1st Quarter 2.75 1.50
2nd Quarter 2.00 1.25
3rd Quarter 3.75 1.13
4th Quarter 3.13 0.91
1998
----
1st Quarter 2.56 1.25
The foregoing quotations were obtained from broker-dealers and market makers
that provide daily reports of the NASD Electronic Bulletin Board. The above
quotes reflect inter-dealer prices without retail mark-up, mark-down, or
commissions and may not necessarily represent actual transactions.
As of December 31, 1997, the Company had 9,172,737 shares of its common stock
issued and outstanding, and there were 805 shareholders of record, which figures
do not take into consideration those shareholders whose certificates are held in
"street name" in their brokerage accounts.
As of the date hereof, the Company has not paid or declared any cash dividends.
The Company can give no assurance that it will generate future earnings from
which cash dividends can be paid. Future payment of dividends by the Company, if
any, is at the discretion of the Board of Directors and will depend, among other
criteria, upon the Company's earnings, capital requirements, and its financial
condition as well as other relative factors. Management has followed the policy
of retaining any and all earnings to finance the development of its business.
Such a policy is likely to be maintained as long as necessary to provide working
capital for the Company's operations.
Recent Sales of Unregistered Securities
The following are brief descriptions of sales of securities by the Company for
services, property or cash to support and advance the Company's business plan
during the two years ended December 31, 1997. Please note that all numbers of
shares have all been adjusted for the 5 shares into 1 share reverse stock split
effected February 1, 1996.
- On January 23, 1996, the Company issued 567,400 shares of the Company's
common stock to Banque SCS Alliance S.A. having an agreed value based on a
discount for resale restictions of $1.5 million, as payment for financial
advisory and referral services provided to the Company. Based on the domicile of
Banque SCS Alliance S.A. in Switzerland and its commitment to comply with the
resale restricitons of Regulation S, the Company believes these shares were
exempt from registration under the Securities Act pursuant to Rule 903 of
Regulation S promulgated thereunder.
- On January 31, 1996, The Company issued 70,000 shares of its common stock
to Corporate Relations Group, Inc. as payment for promotional, advertising and
market maker services to the Company valued at $350,000. Based on the knowledge,
experience and economic strength of Corporate Relations Group, the Company
believes this transaction was exempt from registration with the Commission under
Section 4(2) of the Securities Act of 1933.
- On March 29, 1996, the Company sold 160,057 shares of its Series B
Preferred Stock to Banque SCS for $800,284. The Series B Preferred Stock is
convertible into shares of the Company's common stock anytime prior to March 1,
1998 at a conversion price equal to 40% of the lowest market price of the common
stock for 18 months immediately prior to the conversion. Based on the domicile
of Banque SCS Allicance S.A. in Switzerland and its commitment to comply with
the resale restrictions of Regulation S, the Company believe these shares were
exempt from registration under the Securities Act pursuant to Rule 903 of
Regulation S promulgated thereunder.
- On June 4, 1996, the Company sold 200,000 shares of its common stock for
$879,424 a small group of private investors. Based on the knowledge, experience
and economic strength of this group of investors, the Company believes this
transaction was exempt from registration with the Commission under Section 4(2)
of the Securities Act of 1933.
- On July 29, 1996, the Company issued 10,000 shares of its common stock to
Banque SCS to repay a $17,261 indebtedness. Based on the domicile of Banque SCS
Alliance S.A. in Switzerland and its commitment to comply with the resale
restrictions of Regulation S, the Company believes these shares were exempt from
registration under the Securities Act pursuant to Rule 903 of Regulation S
promulgated thereunder.
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- On September 11, 1996, the Company issued 2,000 shares each to Mark
Qualey and Cambridge Consultants for promotional and advertising services valued
at $12,000. Based on the knowledge, experience and economic strength of these
persons, the Company believes this transaction was exempt from registration with
the Commission under Section 4(2) of the Securities Act of 1933.
- On September 30, 1996, the Company issued 10,000 shares of its common
stock to Banque SCS to repay a $17,261 indebtedness. Based on the domicile of
Banque SCS Alliance S.A. in Switzerland and its commitment to comply with the
resale resstricions of Regulaiton S, the Company believes these shares were
exempt from registration under the Securities Act pursuant to Rule 903 of
Regulation S promulgated thereunder.
- On December 10, 1996, the Company issued 1,804 shares of its Series A
Preferred Stock to George Dalton to satisfy indebtedness of $9,020 owed to Mr.
Dalton. The Series A. Preferred Stock is convertible into shares of the
Company's common stock anytime prior to March 1, 1998 at a conversion price
equal to 60% of the average market price of the common stock for 90 days
immediately prior to the conversion. Based on the knowledge, experience and
economic strength of Mr. Dalton, the Company believes this transaction was
exempt from registration with the Commission under Section 4(2) of the
Securities Act of 1933.
- On December 30, 1996, the Company issued 27,637 shares of its common
stock to Banque SCS to repay a $138,185 indebtedness owed to Banque SCS. Based
on the domicile of Banque SCS Alliance S.A. in Switzerland and its commitment to
comply with the resale restrictions of Regulation S, the Company believes these
shares were exempt from registration under the Securities Act pursuant to Rule
903 of Regulation S promulgated thereunder.
- On August 22, 1997 the Company issued a total of 250,000 shares of its
common stock, in the aggregate, to its officers and to an officer of ARDCO,
having an agreed value based on a discount for resale restrictions of $312,500,
as a bonus for services rendered and to be rendered to the Company during the
critical period of June-December 1997. Mr. Duane Marchant received 150,000
shares, Mr. Stephen Spencer received 35,000 shares, Mr. Bruce Frodsham received
30,000 shares and Mr. Karl Badger, the President of ARDCO, received 35,000
shares. (The shares of Mr. Marchant are listed in the table on page 23) All of
these individual are considered accredited investors by virtue of the fact they
are either officers or directors of the Company. The issuance of these shares
was exempt from registration under the Securities Act pursuant to Section 4(2).
- In November 1997, the Company issued a total of 50,000 shares of common
stock to two unrelated creditors in satisfaction of $117,720 of overdue amounts.
Based on the knowledge, experience and economic strength of these persons, the
Company believes that these two placements qualify for the exemption under
Section 4(2) of the Securities Act of 1933.
- On November 26, 1997 the Company issued 6,672,578 shares of its Series D
Convertible Preferred Stock valued at $13,143,954, to the shareholders of US
Golf in connection with the reverse acquisition transaction discussed elsewhere
in this Report. The Series D Preferred Stock will automatically convert into
shares of the Company's common stock at a conversion rate of four shares of
common stock for each share of Class D Stock upon the approval of an increase of
the Company's authorized common stock to 100,000,000 shares. The Company relied
on the exemptions of Sections 4(2) and 4(6) and Regulation S to effect this
share exchange with the US Golf shareholders.
- On December 4, 1997 the Company issued 3,432,713 shares of Common Stock
to the shareholders of Pelican Strand Development Corporation valued at
$9,439,960, in connection with the Company's acquisition of its equity interest
in Pelican Strand. The Company relied on the exemptions of Sections 4(2) and
4(6) to effect this transaction.
Item 6. 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.
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<PAGE>
REORGANIZATION, RECAPITILIZATION AND ACQUISTIONS (see note 1 to "Notes to the
Consolidated Financial Statements")
On November 26, 1997, Golf Ventures, Inc. concluded a significant transition
that resulted in a complete modification of the financial reporting of the
Company. In summary, the historical reporting of the results of operations of
the Company now represents the results of U.S. Golf Communities, Inc. This
transition of financial reporting from Golf Ventures, Inc. to U.S. Golf
Communities, Inc. resulted because a controlling interest in Golf Ventures, Inc.
was obtained by U.S. Golf Communities, Inc. shareholders. This change in control
has been 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).
U.S Golf Communities, Inc. was formed as an entity that immediately prior to its
merger with Golf Ventures, Inc. issued 1,270,968 shares of its capital stock in
exchange for the outstanding common stock and partnership interests of with
eighteen golf related development entities. Since the entities were under common
ownership and control, the exchange was accounted for in a manner similar to a
pooling of interest, and their financial information is presented as if they
were a singly entity since inception.
Additionally on December 4, 1997, the Company acquired 81% of the outstanding
capital stock of Pelican Strand Development Corporation ("PSDC"). 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. This 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.
RESULTS OF OPERATIONS
For the Year Ended December 31, 1997, Compared to the Year Ended December 31,
1996.
Total operating revenues for the year ended December 31, 1997 were $8,429,552
compared to $8,170,970 for the year ended December 31, 1996. The following table
compares the changes in the Company's revenues identified by the various golf
course operations and development activities:
<TABLE>
<CAPTION>
1997 1996 1997/1996 % Change
---- ---- --------- --------
<S> <C> <C> <C> <C>
Lot Sales $2,512,590 $2,296,707 $215,883 9.4%
Dues and Fees 2,335,593 2,586,233 (250,640) (9.7%)
Golf Cart Rentals 2,195,107 1,890,024 305,083 16.1%
Food, Beverage & Pro Shop Sales 1,235,083 1,379,745 (144,662) 10.5%
Other 151,179 18,261 132,918 --
Total Operating Revenues $8,429,552 $8,170,970 $258,584 3.2%
</TABLE>
Lot sales increased by approximately $1,587,000 at the Company's Cutter Sound
development project in the year ended December 31,1997 as compared to the year
ended December 31, 1996. This increase was the result of three (3) of Cutter
Sound's exclusive waterfront homesites with yacht slips being sold to one of the
Company's "Bridgeview Terrace" residents. In the same period, lot sales
decreased by approximately ($680,000) and approximately ($676,000) at the
Company's Pinehurst Plantation and Northshore Development projects,
respectively, during the same comparative periods. The reduction in lot sales at
Pinehurst Plantation was primarily due to a lack of new available inventory,
reduced marketing expenditures, and the absence of a clubhouse facility. The
reduction in lot sales at Northshore Development was primarily due to the
absence of an on-site sales office and a strained relationship with Remax Metro
Properties. In July 1997 a new relationship was formed with Coldwell Banker -
Myers Gallagher.
Club dues, initiation and other fees declined by approximately ($219,000) at
Pinehurst Plantation and by approximately ($68,000) at Northshore for the year
ended December 31, 1997 compared to the year ended December 31, 1996. The
decrease in dues and initiation fees at Pinehurst Plantation is related to the
reduction in lot sales (Ongoing fees and dues remained stable, but initiation
fees from new club memberships declined.). Dues revenues at Pinehurst Plantation
actually increased during the year, however, the initiation fees, which are
included in the lot purchase price declined in direct proportion to the decline
in lot sales. In September 1997 the Company initiated a program at Northshore to
focus on increasing membership through a lower monthly dues structure. The
Company experienced an increase in dues and initiation fees at Wedgefield of
approximately $42,000 caused by an increase in the golf fees pricing structure.
The increase in total golf cart rentals of approximately $305,000 for the twelve
month ending December 31, 1997 compared to the twelve months ending December 31,
1996 was the result of increased membership activity at the Company's golf club
properties at The Pines, Cutter Sound and Northshore. These increased membership
activities can be attributed to increased marketing activities, as well as
improved turf and product conditions and overall customer service improvements
in golf operations as a result of staff changes at the Cutter Sound facility.
The decline in total food, beverage and pro shop sales for the 12 months ended
December 31, 1997 compared to December 31, 1996 is primarily the result of a
reduction in these sales at The Pines due to the disruption caused by the sale
of the building and the relocation of the pro shop and business office. The
Company believes this decline is temporary and expects to return to historical
sales level at the Pines.
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<PAGE>
Cost of merchandise and lots sold was $2,289,247 for the year ended 1997 as
compared to $1,816,100 for the year ended 1996. Of this $473,147 increase in
cost, approximately $31,000 was for merchandise sold with the balance of
approximately $442,000 resulting from increased sales of lots discussed above.
Although, lot sales were higher, the company's total gross margin for lot sales
declined by approximately $266,000 during the year ended December 31, 1997
compared to the year ended December 31, 1996. The decline in total lot sales
margins resulted from an increase in lot sales at Cutter Sound, where the cost
of developed land is relatively high. For the comparative periods the Company's
gross profit margins at Cutter Sound were approximately 40% of lot revenues
versus approximately 60% gross profit margins realized at Pinehurst Plantation
and Northshore.
General and Administrative expenses were $11,695,245 for the year ended December
31, 1997 compared to $9,542,050 for the year ended December 31, 1996.l This
increase of $2,153,195 includes a one time charge in 1997 of $1,846,633 for
goodwill impairment (see Note 4 of "Notes to Consolidated Financial
Statements").
Interest expense was $7,613,258 for the year ended December 31, 1997 compared to
$4,182,476 for the year ended December 31, 1996. Included in this increase of
$3,430,782 was $3,018,573 for a one-time acceleration of amortization of
deferred loan costs plus $469,029 of higher interest expense for the difference
between the conversion prices in the convertible notes payable and the fair
market value of the company's Common stock, (see note 7 to "Notes the
Consolidate Financial Statement").
The cumulative effect of these results, reported above, is reflected in the
increased net loss of ($5,244,515) in the year ended December 31, 1997 compared
to the year ended December 31, 1996. After adjusting the net loss of
($13,039,692) for the year ended December 31, 1997 for one time non-cash
write-offs of deferred loan costs and impairment of goodwill totaling $4,865,206
the Company still experienced a loss of ($8,174,486). This loss is the result of
the Company's high debt interest cost of $4,594,685 coupled with total general
and administrative operating overhead of $9,848,612. 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. To date the
Company has sold approximately 18% of the total units it can develop, with an
additional 10% of its total units currently available for sale, leaving the
balance of approximately 72% yet to be developed and sold. 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 ($6.76) for the year ended December 31, 1997 compared
to ($6.13) for the year ended December 31, 1996 is a result of the Company's net
loss in 1997 of $13,039,692 compared to a net loss in 1996 of $7,795,177 and the
17 of 29
<PAGE>
increase in the number of weighted average of common shares outstanding for the
comparative periods. Although there was an increase in the number of common
shares outstanding at December 31, 1997 (9,172,737 shares) compared to the
number of shares outstanding at December 31 1996 (1,270,968 shares) the weighted
average shares for the twelve month period ended December 31, 1997 only
increased by 658,481 shares. The full impact of these total shares outstanding
at December 31, 1997 will be given full effect in the weighted average shares
starting in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Change in Control
Until November 26, 1997, the Company was majority-owned by ARDCO. In this
connection, ARDCO provided investment capital to the Company, both directly and
through referrals of investors and lenders to the Company. Banque SCS Alliance
SA and Miltex Industries are examples of investors and lenders referred to the
Company by ARDCO (See the table of long tern indebtedness of the Company at
December 31, 1997 below).
During the time of its former majority shareholder control over the Company,
ARDCO caused cash to be moved between the Company and ARDCO on an informal basis
as each company had cash needs. The policy imposed on the Company during this
time period was to account for distributions to ARDCO as return of capital
transactions, and not to provide equivalent distributions to other shareholders.
A total of approximately $800,000 in cash was distributed to ARDCO, during 1995,
1996 and 1997. These distributions deprived the Company of cash that would
otherwise be available for debt service on its properties and the development of
the same.
ARDCO has made a claim for compensation from the Company for services rendered
and support given in nurturing the Company in its early years and in connection
with the introduction of US Golf to the Company. The claim is for the issuance
of 715,000 shares of GVIM common stock or approximately $1,200,000. Arm's length
negotiations through counsel ensued and have continued since August 1997 in an
effort to explore and resolve this claim without litigation, and in an effort to
create a complete legal and practical separation from ARDCO. Prior reports on
this matter which have characterized the ARDCO claim to be for past advances or
reimbursements were apparently in error and did not accurately convey the tenor
of ARDCO's claim as it is now being advanced. At one time the Company believed
that it had reached an agreement with ARDCO on this issue, and reported the
pending issuance of shares of common stock to ARDCO in filings with the
Commission. Subsequent to those filings, problems and issues arose causing the
parties to once again begin discussions through legal counsel as to the
propriety and amount of compensation due ARDCO.
In August 1997 a definitive agreement was signed between the Company and US Golf
to give the shareholders of US Golf voting control of the Company. With the
closing of the US Golf reverse acquisition transaction on November 26, 1997,
voting and financial control of the Company passed from ARDCO and its affiliates
to the shareholders of US Golf. ARDCO and its affiliates have had no control
over the business or affairs of the Company in a legal or practical sense since
that time, although ARDCO continues to be a shareholder of the Company.
The Company has unused net operating losses for income tax purposes, expiring in
various amounts from 2007 through 2012, of approximately $6,004,000 that are
available at December 31, 1997 for carryforward against future years' taxable
income. Under Section 382 of the Internal Revenue Code, the annual utilization
of these losses may be limited due to changes in ownership.
The Company's Debt Liabilities
The following table shows the long term indebtedness of the Company at December
31, 1997, the amounts due at December 31, 1997 for each item of indebtedness, an
indication of currency or default as to each item of indebtedness, and the
collateral of each item of (see Note 5, "Notes Payable" and Note 6, "Notes
Payable to Related Parties" of the Notes to the Consolidated Financial
Statements of the Company):
18 of 29
<PAGE>
<TABLE>
<CAPTION>
Amount of Status at Property Used
Lender Indebtedness 12/31/1997 as Collateral
- ------ ------------ ---------- -------------
<S> <C> <C> <C>
Adorno, N.V.* $ 848,167 Current Unsecured
" " 2,295,000 Delinquent Unsecured
Property Alliance, Inc. 646,502 Delinquent Cotton Manor/Cotton Acres
Autohaus/Augsburg* 1,072,000 Current Unsecured
Boyd/Davis* 523,502 Delinquent Montverde
Davis* 250,000 Current Unsecured
DeSmet, Esther 83,810 Current Unsecured
DeSmet, Edmund 27,255 Current Unsecured
Duren, Elsie* 200,000 Current Unsecured
Duren, Wolfgang* 360,783 Current Unsecured
First National Bank 1,028,538 Current Wedgefield
Flachsmann, Hermann* 2,575,411 Current Unsecured
" " 872,660 Current The Pines
" " 569,202 Current Northshore
Fleet Mortgage. 116,404 Delinquent Cotton Manor/Cotton Acres
Foss Lewis, Inc. 80,575 Delinquent Red Hawk
Hepp 30,000 Current Unsecured
International Bank 40,000 Current Secured by an individual lot
Jasar International 800,000 Current Unsecured
Johnson, Donna 201,890 Delinquent Cotton Manor/Cotton Acres
Kiemens* 14,920 Current Unsecured
Knutson Mortgage 99,450 Delinquent Cotton Manor/Cotton Acres
Kummer/Augsburg* 500,000 Current Unsecured
Ludwig* 55,900 Current Unsecured
Massman* 235,357 Current Unsecured
McCarty, John Jr. 916,824 Delinquent Montverde
Menne* 400,000 Current Unsecured
Miltex Industries* 3,649,630 Delinquent Red Hawk
Minneola Harbor Hills* 1,470,000 Current Unsecured
MKR* 1,127,353 Current Cutter Sound
Musselmann 50,000 Current Unsecured
Palisades Golf Partners* 400,000 Current Unsecured
Rimbach, Thomas* 2,986,627 Current Pinehurst
" " 1,000,000 Delinquent Wedgefield
" " 27,504 Current Unsecured
Schwanzer 29,479 Current Unsecured
Smith, Claude 1,200,000 Delinquent Unsecured
Spector Mortgage 5,193,590 Current Cutter Sound
Stucki Family Trust 2,206,609 Current Red Hawk
Transworld. 90,839 Delinquent Red Hawk
United Carolina Bank 3,970,591 Delinquent Pinehurst Plantation
Volksbank 1,000,000 Delinquent Unsecured
Watson Family Trust 355,890 Delinquent Red Hawk
Wiedemann* 750,000 Current Unsecured
Wilko,Meinhold 100,000 Current Unsecured
Various lenders* and
capital leases 101,138 Current Unsecured
-------
TOTAL. $ 40,553,400
============
</TABLE>
* A shareholder or other related party to the Company.
19 of 29
<PAGE>
The Company has historically satisfied its cash needs through the sale of real
estate, private placements of securities and secured borrowings. During 1997,
the Company sold approximately $2,513,000 of real estate, or approximately 10%
higher than 1996.
A summary of the Company's borrowing activities during 1997 follows:
Total notes payable at December 31, 1996 $42,195,941
Total borrowings during 1997 3,041,244
Total repayment's during 1997 (2,004,594)
Total notes converted to equity (10,220,431)
Total notes assumed as a result of acquisition
transactions during 1997:
Golf Ventures reverse acquisition 7,436,240
Pelican Strand acquisition in December, 1997 105,000
-----------
Total notes payable at December 31, 1997 $40,553,400
===========
The Company will be obligated to pay over $29 million in notes during 1998 of
which $16 million were delinquent at December 31, 1997, as shown in the table
above. The Company's working capital at December 31, 1997 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 by the projected June 1, 1998
closing date.
Going Concern
The financial statements of the Company for the year ended December 31, 1997
includes an explanatory paragraph as to an uncurtainty 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 13, "Going Concern Consideration" 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
20 of 29
<PAGE>
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. 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.
Item 7. Financial Statements.
The Following financial statements and documents are filed herewith on the
immediately following pages listed below, as part of Part II, Item 7 of this
report.
Document Page
Financial Statements and Accounts Report:
Report of Independent Certified Public Accountants F-1
Consolidated Financial Statements:
Consolidated Balance Sheet as of
December 31, 1997 F-2-3
Consolidated Statements of Operations for the Years
Ended December 31, 1997 and 1996 F-4
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1997 and 1996 F-5-6
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1997 and 1996 F-7
Summary of Significant Accounting policies F-8-11
Notes to Consolidated Financial Statements
Notes 1 through 13 F-12-30
21 of 29
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Golf Ventures, Inc.
We have audited the accompanying consolidated balance sheet of Golf Ventures,
Inc. and Subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
two years in the period ended December 31, 1997. 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 consolidated financial position of Golf Ventures,
Inc. and Subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 13 to the
financial statements, Golf Ventures, Inc. has suffered recurring losses from
operations, is currently in default under substantially all of its debt
agreements and is experiencing liquidity problems at December 31, 1997. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 13. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
BDO Seidman, LLP
Certified Public Accountants
Orlando, Florida
April 10, 1998
F-1
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Consolidated Balance Sheet
December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
Assets
<S> <C>
Cash and cash equivalents $ 379,050
Accounts receivable:
Trade 252,946
Related parties (Note 2) 1,294,134
Other 127,788
Inventories 126,976
Prepaid expenses and other 183,540
Investment in and advances to a related party company (Notes 1 and 2) 3,464,323
Property and equipment, at cost,
net of accumulated depreciation (Notes 3,5 and 6) 8,100,939
Land and development costs (Notes 5 and 6) 45,813,932
Goodwill, net of accumulated amortization of $765,420 (Note 4) 10,173,978
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 69,917,606
- -------------------------------------------------------------------------------------------------------------------
See accompanying summary of significant accounting policies and notes to consolidated financial statements.
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Consolidated Balance Sheet
December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable:
<S> <C>
Trade $ 4,187,304
Related parties (Note 2) 2,660,650
Accrued expenses 988,164
Accrued interest payable:
Related parties 3,398,099
Other 3,159,172
Loan costs payable 2,510,658
Notes payable (Note 5) 17,464,385
Related party notes payable (Note 6) 23,089,015
Convertible notes payable (Note 7) 1,529,665
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 58,987,112
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 8)
Stockholders's Equity (Note 10)
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 9,172,737 9,173
Additional paid-in capital 37,216,301
Accumulated deficit (26,361,763)
- -------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 10,930,494
- -------------------------------------------------------------------------------------------------------------------
$ 69,917,606
- -------------------------------------------------------------------------------------------------------------------
See accompanying summary of significant accounting policies and notes to consolidated financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Consolidated Statements of Operations
Year ended December 31, 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Operating revenue:
<S> <C> <C>
Dues and initiation fees $ 2,335,593 $ 2,586,233
Golf cart rentals 2,195,107 1,890,024
Food, beverage and pro shop sales 1,235,083 1,379,745
Lot sales 2,512,590 2,296,707
Other 151,179 18,261
- -------------------------------------------------------------------------------------------------------------------
Total operating revenue 8,429,552 8,170,970
- -------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of merchandise and lots sold 2,289,247 1,816,100
General and administrative expenses 11,695,245 9,542,050
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 13,984,492 11,358,150
- -------------------------------------------------------------------------------------------------------------------
Loss from operations (5,554,940) (3,187,180)
- -------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest income 34,645 17,796
Interest expense (7,613,258) (4,182,476)
Provision for loss on property and equipment - (221,127)
Loss on equity method investment - (180,047)
Other 93,861 (110,254)
- -------------------------------------------------------------------------------------------------------------------
Total other income (expense), net (7,484,752) (4,676,108)
- -------------------------------------------------------------------------------------------------------------------
Loss before minority interest (13,039,692) (7,863,288)
Minority interest in net loss of
consolidated subsidiary (Note 4) - 68,111
- -------------------------------------------------------------------------------------------------------------------
Net loss $ (13,039,692) $ (7,795,177)
- -------------------------------------------------------------------------------------------------------------------
Loss per common share $ (6.76) $ (6.13)
- -------------------------------------------------------------------------------------------------------------------
Weighted common shares outstanding 1,929,449 1,270,968
- -------------------------------------------------------------------------------------------------------------------
See accompanying summary of significant accounting policies and notes to consolidated financial statements.
</TABLE>
F-4
<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, 1995 1,270,968 $ 12,710 $ - $ (5,526,894)
Contribution of capital - - 44,636 -
Conversion of related party notes
payable into capital - - 500,000 -
Net loss - - - (7,795,177)
- -------------------------------------------------------------------------------------------------------------------
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 acquisition 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)
- -------------------------------------------------------------------------------------------------------------------
See accompanying summary of significant accounting policies and notes to consolidated financial statements.
</TABLE>
F-5
<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>
Balance, December 31, 1995 - $ - - $ - - $ - $ (5,514,184)
Contribution of capital - - - - - - 44,636
Conversion of related party notes
payable into capital - - - - - - 500,000
Net loss - - - - - - (7,795,177)
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
See accompanying summary of significant accounting policies and notes to consolidated financial statements.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Consolidated Statements of Cash Flows
Year ended December 31, 1997 1996
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (13,039,692) $(7,795,177)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 362,605 402,974
Amortization 467,383 566,371
Amortization of deferred loan costs 3,018,573 -
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)
Loss on impairment of goodwill 1,846,633 -
Cash provided by (used for):
Accounts receivable (1,081,586) (80,991)
Inventories 27,983 48,248
Prepaid expenses 314,623 (49,500)
Land and development costs 1,953,866 663,290
Accounts payable (602,690) 1,425,004
Accrued expenses 131,210 (30,768)
Accrued interest payable 2,962,868 2,245,637
- -------------------------------------------------------------------------------------------------------------------
Net cash used for operating activities (3,638,224) (2,271,849)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (399,267) (152,660)
Proceeds from sale of property and equipment 307,222 -
Investment in equity method investment - (56,503)
Investment in and advances to affiliate 1,063,359 (32,557)
- -------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities 971,314 (241,720)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from notes payable 419,244 4,987,113
Repayments of notes payable (645,995) (3,302,157)
Proceeds from related party notes payable 2,622,000 1,658,921
Repayment of related party notes payable (1,358,599) (1,108,611)
Proceeds from convertible notes payable 1,529,665 -
Contributions of capital - 44,636
Deferred loan costs 100,976 (40,496)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,667,291 2,239,406
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 381 (274,163)
Cash and cash equivalents, beginning of year 378,669 652,832
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 379,050 $ 378,669
- -------------------------------------------------------------------------------------------------------------------
See accompanying summary of significant accounting policies and notes to consolidated financial statements.
</TABLE>
F-7
<PAGE>
Golf Ventures, Inc.
Summary of Significant Accounting Policies
Principles of The consolidated financial statements include the accounts
Consolidation of Golf Ventures, Inc. and its subsidiaries, hereinafter
referred to collectively as the Company. All significant
intercompany transactions and balances have been eliminated
in the consolidation.
Operations The Company owns and operates daily fee (public) and private
golf courses and develops and sells residential lots in
Central and Southwest Florida, Southeast Texas and Pinehurst,
North Carolina. In addition, the Company owns real estate in
Florida and Utah which has been partially developed as a
future golf course and residential housing sites. 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 certain of the
entities included in the accompanying consolidated financial
statements and 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 an original maturity
Cash Equivalents of three 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.
Land and Land acquired for development and development costs are
Development Costs stated at the lower 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.
The company monitors the valuation of its land and
development costs on a continueous basis with a detailed
review each year in conjunction with the completion of the
following year's business plan.
F-8
<PAGE>
Golf Ventures, Inc.
Summary of Significant Accounting Policies
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.
Depreciation Property and equipment are depreciated using straight-line
and and accelerated methods over the estimated 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 for impairment events or
if changes in circumstances indicate a possible inability to
recover the carrying amount. When any such impairment exists,
the related assets are written down to fair value.
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 partners. Golf Ventures, Inc.; U.S. Golf Communities,
Inc.; U.S. Golf Management, Inc. (formerly "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.; U.S. Golf
Services & Development, Inc.; Pelican Strand Development
Corporation and U.S. Golf Pelican Strand, Inc. are taxed as a
regular C Corporations.
Deferred income tax assets and liabilities are recorded for
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or
deductible amounts in the future based on enacted tax laws
and rates applicable to the periods in which the differences
are expected to affect taxable income. Valuation allowances
are established when necessary to reduce deferred tax assets
to the amount expected to be realized.
F-9
<PAGE>
Golf Ventures, Inc.
Summary of Significant Accounting Policies
Net Loss Effective December 31, 1997, the Company has adopted the
Per Share provisions of Statement of Financial Accounting Standards No.
128, "Earnings per Share," Statement No. 128 replaces the
previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share exclude
any dilutive effects of options and convertible securities.
Diluted earnings per share are computed similarly to fully
diluted earnings per share. The Company's calculation for
basic and fully diluted earnings per share is the same as the
Company has a loss, and the impact of potential common shares
is antidilutive. Potential common shares include 26,789,170
and 724,187 shares underlying the preferred stock and
convertible notes payable, respectively. All loss per share
amounts for all periods presented have been restated to
conform to the requirements of Statement No. 128.
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, 1997.
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.
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.
F-10
<PAGE>
Golf Ventures, Inc.
Summary of Significant Accounting Policies
Recent In June 1997, the Financial Accounting Standards Board issued
Accounting 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
operating segments in annual financial statements and
requires reporting of selected information about operating
segments in interim financial statements issued to the
public. Both FAS 130 and FAS 131 are effective for 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.
F-11
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
1. Reorganization, Reorganization of U.S. Golf Communities, Inc. U.S. Golf
Recapitalization Communities, Inc. ("USGCI") is a company formed in April
and 1996 that immediately prior to its acquisition of Golf
Acquisitions Ventures, Inc. ("GVI") issued its capital stock in exchange
for 100% of the outstanding common stock and partnership
interests in the following entities:
U.S. Golf Management, Inc. U.S. Golf (Cutter Sound), Inc.
(formerly U.S. Golf Northshore Golf Partners, Ltd.
Communities, Inc.) Northshore Development, Ltd.
Golf Communities of Northshore U.S. Golf, Inc.
America, Ltd. Montverde Properties, Ltd.
U.S. Golf Pinehurst U.S. Golf (Montverde), Inc.
Plantation, Ltd. Montverde Investment Group,
U.S. Golf (Plantation), Ltd.
Inc. U.S. Golf Leasing Co., Inc.
Wedgefield Limited U.S. Golf Services &
Partnership Development, Inc.
U.S. Golf (Wedgefield), FSD Golf Club, Ltd.
Inc. U.S. Golf (FSD), Inc.
Cutter Sound Development,
Ltd.
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.
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 (a) a
recapitalization of USGCI (whereby the issued and
outstanding stock of USGCI was converted into 29,084 shares
F-12
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
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 (b) 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. The
results of GVI's operations are included in the
accompanying consolidated financial statements from the
date of acquisition.
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.
F-13
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
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 respective periods. 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
transactions been effected on the assumed dates.
Unaudited
----------------------------------
Year ended December 31, 1997 1996
-----------------------------------------------------------
Net sales $ 8,757,742 $ 8,527,488
Net loss (14,016,104) (11,805,013)
Loss per common share (1.54) (1.29)
-----------------------------------------------------------
2. Related Party The Company is affiliated with various other companies
Transactions 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; and Pelican Strand Development
Corporation have management agreements with stockholders
and related party companies as follows:
F-14
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
U.S. Golf Management, Inc. (formerly "U.S. Golf
Communities, Inc.") entered into a management
agreement with Cutter Sound Development, Ltd. and
U.S. Golf Pinehurst Plantation Ltd. Management fees
under these agreements were based on the greater of
monthly minimums or certain percentages of gross
revenues, as defined. In addition, the agreements
provided for the payment of acquisition and
development fees, as defined. U.S. Golf Management,
Inc. (formerly "U.S. Golf Communities, Inc.") agreed
to pay 95% of the fees earned as a management fee to
its stockholders. Management fees earned for the
years ended December 31, 1997 and 1996 were
approximately $365,000 and $425,000, respectively.
These agreements were terminated as of September 30,
1997.
FSD Golf Club, Ltd. was obligated under a 10-year
management agreement effective April 25, 1991 with a
company owned by a company stockholder. Annual
management fees were the greater of 5% of annual
gross revenues, as defined, or $60,000. The agreement
was terminated as of September 30, 1997.
Northshore Golf Partners, Ltd. and Northshore
Development, Ltd. were obligated under management
agreements effective June 15, 1992 with a company
owned by a company stockholder. Annual management
fees under the agreements were $120,000. The
agreement was terminated as of September 30, 1997.
Wedgefield Limited Partnership was obligated under a
10-year management agreement effective May 1, 1995
with a company owned by a company stockholder. Annual
management fees were the greater of 10% of annual
gross revenues, as defined, or $120,000. The
agreement was terminated as of September 30, 1997.
F-15
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
PSDC bills PSL a monthly management fee of $50,000 on
behalf of Maricopa Hardy Development Group, Inc.
("MHDG") for the management of a golf course and
residential development in Naples, Florida owned by
PSL. MHDG is owned by stockholders of PSDC. The fee
payments are for a five-year period ending November
2000. The management fee billings are recorded as a
pass-through on PSDC's financial statements and have
no effect on the statement of operations.
Management fees for the years ended December 31, 1997 and
1996 were approximately $278,000 and $665,000,
respectively, and are included in administrative and
general in the accompanying consolidated financial
statements. At December 31, 1997, the amount owed under
these agreements was approximately $647,000 and is included
in accounts payable related parties in the accompanying
consolidated financial statements.
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.
F-16
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
3. Property and Property and equipment consist of the following:
Equipment
Estimated
December 31, Useful Lives 1997
-----------------------------------------------------------
Land and golf courses - $ 3,816,452
Improvements of land and
golf courses 10 - 20 years 1,644,965
Buildings and improvements 5 - 40 years 2,939,202
Furniture 3 - 10 years 98,784
Equipment 5 - 15 years 1,226,954
Vehicles 5 years 11,021
-----------------------------------------------------------
9,737,378
Less accumulated depreciation 1,636,439
-----------------------------------------------------------
Net property and equipment $ 8,100,939
-----------------------------------------------------------
F-17
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
4. Purchase of The Company owned approximately 60% of US Golf Pinehurst
Minority Plantation, Ltd. ("Plantation") and approximately 60% of
Interest another limited partnership, US Golf Pinehurst National,
and Goodwill 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 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 consolidated 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.
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 has
been included in general and administrative expenses in the
statement of operations.
F-18
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
5. Notes Payable
Notes payable consist of the following:
<S> <C>
December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
Second mortgage note payable. This note is non-interest bearing through November
1996 and bears interest at prime plus 2% (10.5% at December 31, 1997) 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 December 31, 1997) 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. 3,970,591
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. 2,206,609
Prime plus 1% (9.5% at December 31, 1997) note payable with principal and
accrued interest currently due. 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
certain land and assets of the Company. 1,028,538
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 8). 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
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
Various unsecured notes payable bearing interest ranging from 10% to 12.5% with
principal and accrued interest payable on demand after December 31, 1998. 320,544
Other notes payable. 318,604
- -----------------------------------------------------------------------------------------------------
$17,464,385
- -----------------------------------------------------------------------------------------------------
</TABLE>
Of the above notes and mortgage notes payable, $8,667,416 were past due as of
December 31, 1997. The Company is currently in the process of negotiating an
extension or modification of the terms of the debt.
F-19
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
The aggregate amount of notes payable maturing in future
years is as follows as of December 31, 1997:
Year ending December 31,
-----------------------------------------------------------
1998 ....................................... $ 15,607,060
1999 ....................................... 476,932
2000 ....................................... 214,518
2001 ....................................... 989,214
2002 ....................................... 176,661
-----------------------------------------------------------
Total ....................................... $ 17,464,385
-----------------------------------------------------------
Interest capitalized as land and development costs as
construction period interest was $127,706 for the year
ended December 31, 1996. No interest was capitalized during
the year ended December 31, 1997.
F-20
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
6. Notes Payable to Related Parties
Notes payable to related parties consist of the following:
December 31, 1997
- -------------------------------------------------------------------------------------------------------------------
<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. $ 5,137,127
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. 2,575,411
Unsecured notes payable to stockholders bearing interest ranging from 10% to
12.5% payable annually and principal due currently. 1,765,000
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%. 1,127,353
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. 569,202
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. 132,502
- --------------------------------------------------------------------------------------------------------------------
$ 23,089,015
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Of the above related party notes payable, $7,468,132 were past due as of
December 31, 1997. The Company is currently in the process of negotiating an
extension or modification of the terms of the debt.
F-21
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
The aggregate amount of related party notes payable
maturing in future years is as follows as of December 31,
1997:
Year ending December 31,
-----------------------------------------------------------
1998 $ 13,529,598
1999 9,559,417
-----------------------------------------------------------
Total $ 23,089,015
-----------------------------------------------------------
Interest expense on notes payable to related parties was
$4,980,314 and $1,085,246 for the years ended December 31,
1997 and 1996, respectively.
7. Convertible During 1997, the Company issued a total of 1,529,665 of
Notes Payable convertible notes payable. The notes bear interest ranging
from 9% to 11% per annum with principal and accrued
interest due on demand. Upon the issuance of the
convertible notes payable, the holders had the right to
convert the notes payable into Company common stock at
$2.00 to $2.40 per share or 80% of the average market value
of the Company's common stock for ten days prior to the GVI
acquisition (see Note 1). Accordingly, $469,029 of interest
expense has been recorded for the year ended December 31,
1997 for the difference between the conversion prices of
the convertible notes payable and the fair market value of
the Company's common stock at the time of issuance or the
acquisition, whichever was lower.
Subsequent to December 31, 1997, the conversion rates for a
majority of the convertible notes payable were reduced to
70% of the market value of the Company's common stock.
8. 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 1998 through 2000.
Certain leases provide for renewal options and payment of
occupancy costs and taxes.
F-22
<PAGE>
Golf Ventures, Inc.
Notes to Consoldiated Financial Statements
As of December 31, 1997, future minimum rental payments
required under operating leases that have initial or
remaining noncancelable lease terms in excess of one year
are as follows:
-----------------------------------------------------------
1998 $ 251,879
1999 192,709
2000 99,690
-----------------------------------------------------------
Total minimum lease payments $ 544,278
-----------------------------------------------------------
Rental expense under all operating leases was approximately
$476,798 and $503,616 for the years ended December 31, 1997
and 1996, respectively.
Employment Agreements
The Company has entered into two employment agreements with
key executives for a three-year period ending in November
2000. The agreements provide for aggregate annual base
compensation of $350,000. The agreements also provide the
executives an aggregate of 510,000 options to purchase
Company common stock at 110% of the average market value of
the Company's common stock for ten days prior to the GVI
acquisition (see Note 1) which equals $2.76 per share. The
options are exercisable over a two-year vesting period and
are issued pending the approval of the Company's long-term
equity based incentive plan by the Company's board of
directors. Upon the approval of the long-term equity based
incentive plan by the board of directors, the options will
be considered granted.
Litigation
As discussed in Note 1, 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, management is unable
F-23
<PAGE>
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.
The former parent company of Golf Ventures, Inc., American
Resources and Development Corporation, has made a claim
against the Company for 715,000 shares of the Company's
common stock, or approximately $1,200,000. The Company
believes that the claim is without merit, is unsupportable
and will not have a significant impact on future
operations.
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 1). 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 enforecement of a $916,824 mortgage note payable which
is in default (see Note 5). 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.
Loan Costs
In connection with the issuance of several notes payable
described in Notes 5, 6 and 7, the Company has agreed to
pay loan costs in the form of cash, the transfer of title
of specified lots of the Company's residential developments
or the issuance of common stock in future periods. The
following is a summary of the loan cost obligations
outstanding as of December 31, 1997:
Description
-----------------------------------------------------------
Cash commitments $ 1,241,000
Residential development lots 369,658
Equity or PSDC investment commitment 900,000
-----------------------------------------------------------
$ 2,510,658
-----------------------------------------------------------
F-24
<PAGE>
Golf Ventures, Inc.
Notes to Consoldiated Financial Statements
The Company has valued the residential development lot
commitment based on the recorded cost of the specified lots
on the Company's balance sheet at the date of the
commitment.
In December 1997, the Company issued notes payable of
$800,000 and $500,000 which were originally payable on or
before February 1, 1998 and January 18,1998, respectively.
As an incentive for entering into the note payable
arrangements and in lieu of interest, the Company agreed to
issue to the lenders, at their option, one of the following
in the aggregate: 1) $1,800,000 of the Company's Class A
cumulative convertible preferred stock, 2) 480,000 shares
of the Company's common stock, or 3) 7.5% of the Company's
81% investment in PSDC (see Note 1) valued at $1,800,000.
The Company has accounted for the note payable incentives
as additional interest expense amortized over the original
life of the loans, which were approximately two months in
duration. Accordingly, additional interest expense of
$900,000 has been recorded as interest expense in the
December 31, 1997 statement of operations and an accrued
loan cost payable as of December 31, 1997. An additional
$900,000 of interest expense, representing the remainder of
the commitment, has been recorded in January of 1998.
Subsequent to December 31, 1997, the maturity date of the
$800,000 note payable was extended to May 1, 1998.
During 1997, the Company paid $1,566,926 and $244,000 of
loan costs payable through the issuance of capital and the
transfer of a residential lot in one of the Company's
developments, respectively.
Loan Guaranty
The Company has agreed to guarantee the payment of an
$11,800,000 bank loan of Pelican Strand Ltd. The loan is
secured by a first mortgage on property owned by Pelican
Strand Ltd. The loan bears interest at prime plus 1%, with
interest only payable monthly until July 24, 1999 at which
time principal plus unpaid interest is due.
Construction Contracts
Pelican Strand Development Corporation has entered into
various contracts on behalf of Pelican Strand LTD for the
construction of buildings and the residential
infrastructure of their Naples, Florida development. The
contracts estimate a total of approximately $9,566,000 of
construction cost commitments, of which $2,693,000 relates
to a contract with an affiliated company.
Contingent Liability
A certain debt holder has represented to management that
the Company is obligated for an amount up to approximately
$1,200,000 in connection with Golf Ventures, Inc.'s
original acquisition of the future golf course and
residential housing site located in Utah. The Company's
management believes the claim is invalid and unsupportable,
therefore, no provision has been recorded for such
contingency.
F-25
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
9. Income Taxes Unused net operating losses for income tax purposes,
expiring in various amounts from 2007 through 2012, of
approximately $6,004,000 are available at December 31, 1997
for carryforward against future years' taxable income.
Under Section 382 of the Internal Revenue Code, the annual
utilization of these losses may be limited due to changes
in ownership. The tax benefit of these losses of
approximately $2,259,000 has been offset by a valuation
allowance due to it being more likely than not that the
deferred tax assets will not be realized. There are no
other significant deferred tax assets or liabilities.
10. Capital Stock Class A Cumulative Convertible Preferred Stock
The holders of the Company's Class A Cumulative Convertible
Preferred Stock ("Class A Stock") have the right to convert
such shares into shares of the Company's common stock
anytime prior to March 1, 1998 at a conversion price equal
to 60% of the average market price of the common stock for
90 days immediately prior to the conversion. The Class A
Stock entitles the holders to receive cumulative dividends
at a rate of 10% per annum and a one-time 6% bonus from the
first net profits of the Company based upon the $5 per
share purchase price paid by the original purchasers. The
Class A Stock also has certain preferences in liquidation.
The Company may redeem the Class A Stock on or before March
31, 1998 at $5 per share plus accrued dividends.
Class B Cumulative Convertible Preferred Stock
The holders of the Company's Class B Cumulative Convertible
Preferred Stock ("Class B Stock") have the right to convert
such shares into shares of the Company's common stock
anytime prior to March 1, 1998 at a conversion price equal
to 40% of the lowest market price of the common stock for
18 months immediately prior to the conversion. The Class B
Stock entitles the holders to receive cumulative dividends
at a rate of 10% per annum based upon the $5 per share
purchase price paid by the original purchasers. The Class B
Stock also has certain preferences in liquidation that are
secondary to the Series A Stock. The Company may redeem the
Class B Stock on or before March 31, 1998 at $5 per share
plus accrued dividends.
F-26
<PAGE>
Golf Ventures, Inc.
Notes to Consoldiated Financial Statements
Class D Convertible Preferred Stock
On November 24, 1997, the Company issued 6,672,578 shares
of the Company's Class D Cumulative Convertible Preferred
Stock ("Class D Stock") to effect an acquisition (see Note
1). The Class D stock will automatically convert into
shares of the Company's common stock at a conversion rate
of four shares of common stock for each share of Class D
Stock upon the approval of an increase of the Company's
authorized common stock to 100,000,000 shares expected to
be completed at the first meeting of the Company's
shareholders subsequent to the acquisition. The Series D
Stock also has certain preferences in liquidation.
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.
F-27
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
11. Supplemental Year ended December 31, 1997 1996
Cash Flow -----------------------------------------------------------------------------------
Information <S> <C> <C>
Cash paid for income taxes $ - $ -
Noncash financing and investing activities:
Acquisition of GVI (see Note 1) 13,143,954 -
Acquisition of PSDC through the issuance of
common stock (see Note 1) 9,439,960 -
Conversion of related party notes payable and
accrued interest into capital (see Note 10) 7,133,327 500,000
Reclassification of notes payable to related
party notes payable 6,557,298 -
Conversion of notes payable and accrued interest
into capital (see Note 10) 5,333,024 -
Payment of loan costs payable through the
issuance of capital (see Note 8) 1,566,926 -
Payment of loan commitment fees payable with
the transfer of a residential lot (see Note 8) 244,000 -
Issuance of common stock for payment of trade
accounts payable 117,720 -
Refinancing of note payable with related
party note payable - 3,355,572
Purchase of minority interest through issuance
of related party notes payable (see Note 4) - 2,300,000
Purchase of minority interest through conveyance
of equity method investment (see Note 4) - 2,472,274
Deferred loan costs accrued - 920,658
------------------------------------------------------------------------------------
</TABLE>
F-28
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
12. Option In 1994, the Company entered into an option to purchase
Agreement (the "Agreement") a golf course and residential lots for
$15,500,000. The term of this option is five years unless
sooner terminated as defined in the Agreement. Under the
Agreement, the Company 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 the Company 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 owed 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
accruing 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.
F-29
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
13. Going The Company's financial statements are presented on the
Concern going concern basis, which contemplates the realization of
Consideration 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 was in
default of approximately $12,000,000 under its debt
agreements (see Notes 5 and 6). The Company expects to
incur substantial expenditures to further its real estate
and golf course development activities. The Company's
working capital at December 31, 1997 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 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,
management expects the plan will be accomplished by June 1,
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.
F-30
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On March 13, 1998, the Company formally terminated its independent auditor
relationship with Jones Jensen & Co. ("Jones, Jensen")
Each of Jones, Jensen's reports on the financial statements of the Company for
the fiscal years ended March 31, 1997 and 1996 were qualified as to uncertainty
with respect to the Company's ability to continue as a going concern.
The decision to change accountants was approved by the Company's Board of
Directors.
During the fiscal years ended March 31, 1997 and 1996, and during the period
April 1, 1997 through March 13, 1998, there were no disagreements with Jones,
Jensen on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedures or any reportable event.
On March 19, 1998, the Company formally engaged BDO Seidman LLP ("BDO") as its
independent auditors who audited and reported on the financial statements of the
Company for the fiscal year ended December 31, 1997, enclosed with this Form
10-K filing, (see Item 7 "Financial Statements").
Prior to engaging BDO, neither the Company nor anyone acting on its behalf
consulted with BDO regarding the application of accounting principles to any
specified transaction or the type of audit opinion that might be rendered on the
Company's financial statements. In addition, during the Company's fiscal years
ended March 31, 1997 and 1996, and the interim period from April 1, 1997 to
March 13, 1998, neither the Company nor anyone acting on its behalf consulted
with BDO with respect to any matters that were the subject of a disagreement (as
defined in Item 302(a)(1)(iv) of regulation S-K) or a reportable event (as
described in Item 304(a)(1)(v) of Regulation S-K).
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
All directors of the Company serve a term of one (1) year until the next Annual
Shareholders Meeting or until their death, resignation, retirement, removal,
disqualification, or until their successors have been elected and qualified.
Vacancies in the existing board are to be filled by a majority vote of the
remaining directors. Officers of the Company serve at the will of the Board of
Directors.
The following table sets
forth the name and office held by each director and officer of the company,
followed by a brief resume of each individual.
NAME AGE POSITION HELD
---- --- -------------
Warren Stanchina 50 President, Chief Executive Officer and Director
Wolfgang Duren 54 Director
Eric LaGrange 47 Executive Vice President, Chief Operating
Officer and Chief Financial and Accounting
Officer
Mary Lynn Stanchina 42 Senior Vice President, Secretary, Chief
Administrative Officer and Director
Ken Breland 45 Vice President, Director of Real Estate
Mark Buelow 37 Director of Club Operations
22 of 29
<PAGE>
Warren Stanchina, is President and Chief Executive Officer of the Company, and
serves as Chairman of the Board of Directors. Mr. Stanchina joined the company
in November 1997 as a result of the reverse acquisition transaction with U.S.
Golf Communities, Inc. He founded U.S. Golf Communities, which operate
properties under the U.S. Golf corporate umbrella, and continues as Chief
Executive Officer and Chairman of the Board of Directors of U.S. Golf
Communities, a wholly-owned operating subsidiary of the Company. Mr. Stanchina
has acquired, built and operated golf properties since 1983. Mr. Stanchina is
the co-beneficial owner of 1,306,614 shares of the Company's Series D
Convertible Preferred Stock, including in these totals shares subject to stock
options which are exercisable within 60 days of the Record Date. Pursuant to an
employment agreement Mr. Stanchina is entitled to 360,000 options to purchase
the Company's Common Stock with an exercise price of $2.34. These options will
vest one-third on the date of the grant and the remaining two-thirds equally
over two years, commencing one year from the date of grant. As yet, no options
have been granted to Mr. Stanchina.
Wolfgang Duren, is a Director of the Company. Dr. Duren is a citizen of
Germany where he has an active law and investment advisory practice. He has
worked with Mr. Stanchina for the past seven years in building the U.S. Golf
Communities group of operating entities and properties. Dr. Duren is the
beneficial owner of 1,267,307 shares of the Company's Series D Convertible
Preferred Stock.
Eric LaGrange, is Executive Vice President and Chief Operating Officer and Chief
Financial and Accounting Officer, and served in the same capacities with U.S.
Golf Communities for over five years prior to the reorganization transaction
with the Company in November 1997. Pursuant to an employment agreement Mr.
LaGrange is entitled to 150,000 options to purchase the Company's Common Stock
with an exercise price of $2.34. These options will vest one-third on the date
of the grant and the remaining two-thirds equally over two years, commencing one
year from the date of grant. As yet, no options have been granted to Mr.
LaGrange.
Mary Lynn (Jo) Stanchina, is Senior Vice President, Secretary, Chief
Administrative Officer and Director of the Company. She was elected to the Board
of Directors of the Company in December 1997 upon the resignation of Duane
Merchant. Mrs. Stanchina is the spouse of Warren Stanchina, and has been active
in the development and management of U.S. Golf Communities in the same positions
that she now holds with the Company. Mrs. Stanchina has actively participated in
co-founding and managing numerous golf properties since 1983. Ms. Stanchina is
the co-beneficial owner of 1,306,614 shares of the Company's Series D
Convertible Preferred Stock.
Ken Breland, is Vice President and Director of Real Estate, and since 1994, held
the same position with U.S. Golf prior to the reverse acquisition with the
Company in November 1997. Prior to joining U.S. Golf Mr. Breland spent over 22
years in the real estate development and building business.
Mark Buelow, is Director of Club Operations, and held the same position with
U.S. Golf prior to the reverse acquisition with the Company in November 1997. In
addition, Mr. Buelow currently serves as the general manager and director of
development operations for the Company's Cutter Sound project.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's officers and directors
and persons who are beneficial owners of ten percent or more of the Company's
Common Stock to file reports of ownership and changes in ownership of the
Company's securities with the Securities and Exchange Commission. Such officers,
directors and beneficial owners are required by applicable regulations to
provide to the Company copies of all forms they file under Section 16(a).
23 of 29
<PAGE>
Based solely upon a review of the copies of forms furnished to the Company, and
written representations from certain reporting persons, the Company believes
that during the fiscal year ended December 31, 1997, all filing requirements
applicable to its officers, directors and ten percent beneficial owners were
compiled with except that Messrs. Marchant, Frodsham and Spencer, former
directors of the Company, each filed one delinquent report on Form 4 following
their receipt of bonus shares on July 8, 1997.
Item 10. Executive Compensation.
Cash Compensation
The Company currently provides no cash compensation to its Directors. Out of
pocket expenses incurred by Directors in their capacity as a Director may be
reimbursed by the Company as approved by the Board of Directors.
Director Equity-Based Compensation.
The Company has not had a bonus, profit sharing, or deferred compensation plan
for the benefit of its employees, officers or directors.
The following table sets forth a summary of cash and non-cash compensation for
each of the last three fiscal periods ended March 31, 1997, 1996, and 1995, with
respect to the Company's Chief Executive Officer. No other executive officer of
the Company has earned a salary greater than $100,000 annually for any of the
periods depicted.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Salary/ Restricted
Name and Management Stock Options/ All Other
Principal Position Year Fees(1) Bonus Awards SAR's(2) Compensation
- ------------------ ---- ------- ----- ------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Warren Stanchina, 1997 226,000 - - - -
President and Chief 1996 317,000 - - - -
Executive Officer(3) 1995 97,333 - - - -
Duane H. Marchant 1997 $72,000 - 150,000 - -
President, CEO and 1996 $72,000 - - - -
Treasurer(4) 1995 $72,000 - - - -
</TABLE>
(1) Prior to November 1997, Mr. Stanchina received compensation according to
management fee with several entities now consolidated under US Golf.
(2) The Company has never issued SAR's.
(3) After November 27, 1997
(4) Until November 27, 1997
Stock Options and Similar Awards to Management
In July 1997, the Company's Board of Directors awarded 150,000 shares of
restricted common stock to Duane Marchant, the former President and Director,
35,000 shares of restricted common stock to Steven Spencer, the former Chief
Financial Officer and Director, and 30,000 shares of restricted common stock to
Bruce Frodsham, St. George Properties Manager and former Director, as bonus
compensation for service to the Company in negotiating the US Golf reverse
acquisition transaction and in negotiating and implementing a separation of the
Company from ARDCO.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information with respect to any person known to
the Company to be the beneficial owner of five percent 5% or more of any class
of the Company's voting securities as of December 31, 1997. (Unless otherwise
indicated, the individuals or entities identified each own their respective
shares and have sole voting and sole investment powers regarding their
24 of 29
<PAGE>
disposition. The percentages are based upon 9,172,737 shares of Common Stock
issued and outstanding at December 31, 1997, 29,084 shares of the Company's
Series A Preferred Stock issued and outstanding at December 31, 1997, 28,340
shares of the Company's Series B Preferred Stock issued and outstanding at
December 31, 1997, and 6,672,578 shares of the Company's Series D Preferred
Stock issued and outstanding at December 31, 1997, and such percentages are
computed in accordance with Rule 13d-3 of the Securities Exchange Act of 1934,
as amended). The Total Common Stock Votes refers to the total common share votes
able to be cast at a meeting of Shareholders as of December 31, 1997 by the
holders of common stock, Series B Preferred Stock and Series D Preferred Stock.
<TABLE>
<CAPTION>
Percent of
Name and Address of Title of Number of Percent Total Common
Beneficial Owner Class Shares Owned(1) of Class Stock Votes
- ---------------- ----- --------------- -------- -----------
<S> <C> <C> <C> <C>
Banque SCS Alliance SA Common Stock 3,715,244(2,5) 40.5 % 10.4 %
P.O. Box 880
12111 Geneva 3, Switzerland
American Resources and Common Stock 594,309(2) 6.5 % 1.7 %
Development Co.
102 West 500 South
Suite 400
Salt Lake City, UT 84101
Warren Stanchina and Series D 1,306,614(3) 19.6% 14.6%
Mary Lynn Stanchina Preferred Stock
255 S. Orange Ave.
Orlando, FL 32801
Dr. Wolfgang Duren Series D 1,267,307(4) 19.0% 14.1%
255 S. Orange Ave. Preferred Stock
Orlando, FL 32801
Miltex Industries Series B 28,340(5) 100.0% -
c/o Camila Froidevaux Preferred Stock
Budinet & Associates
20 Rue Senebier, P.B. 166
1211 Geneva, Switzerland
</TABLE>
(1) As shown on the stock transfer records of the Company or in Section 13(d)
filings received by the Company.
(2) Banque SCS apparently owns 57% or more of ARDCO. Thus Banque SCS could be
seen as beneficially owning ARDCO's shares.
(3) Owned by a controlled partnership entity.
(4) Held as trustee for certain overseas shareholders of the Company.
(5) The Company believes that there is a business relationship between Banque
SCS and Miltex Industries that might be seen as causing each to beneficially
own the shares of the other.
Item 12. Certain Relationships and Related Transactions.
Directors' and Officers' Liability Insurance
The Company has not purchased directors' and officers' liability and corporate
reimbursement insurance on behalf of the Directors and Executive Officers of the
Company. However, management believes the premium expense for such a policy will
be worth the protection given the Company and its officers and directors once
the Company's financial performance improves. Such a policy will indemnify, and
reimburse attorney fees and other legal action defense costs to, Executive
Officers and Directors of the Company in connection with claims made against
them by third parties, including Shareholders' claims.
25 of 29
<PAGE>
Interested Party Transactions
From 1992 through July 1997, the Company shared office space with American
Resources and Development ("ARDCO"), its then majority Shareholder. Under this
arrangement, the Company paid the lease payments due on the space, and ARDCO
provided the services of Messrs. George Badger, Karl Badger, and Steven Spencer
to the Company without salary cost. During this time, day to day control over
the Company's affairs was directed by ARDCO and Mr. George Badger.
Effective November 26, 1997, the Company's executive offices were moved to
Orlando, Florida, to the same offices being used by U.S. Golf Communities.
During the summer of 1997, George Badger assisted the Company in negotiating the
U.S. Golf transaction. Mr. Badger has asked to be paid 250,000 shares of
restricted common stock as a finder's fee. The Company is disputing this claim.
To date this fee has not been paid.
ARDCO has made a claim on the Company for compensation for services and benefits
to the Company. The Company is disputing this claim. Negotiations have
sporadically attempted to resolve these claims without litigation. No agreement
is now in place with respect to ARDCO's claims.
Employment Agreements
In November 1997, the Company signed and delivered an agreement employing Mr.
Duane Marchant as a Vice President with supervisory responsibilities for the
Company's St. George-area projects and any future projects in the Western United
States. As a result of a civil action filed by the Securities and Exchange
Commission against the Company and Mr. Marchant, Mr. Marchant resigned as an
officer and director of the Company and severed his employment with the Company
in December 1997.
In November 1997, the Company entered into an employment agreement with Mr.
Warren Stanchina to employ Mr. Stanchina as President and Chief Executive
Officer of the Company at an annual base salary of $250,000 with bonus
possibilities in the discretion of the Board of Directors for a term of 3 years.
In addition, the Company agreed to issue to Mr. Stanchina 360,000 options to
purchase the Company's Common Stock upon the closing date of the reverse
acquisition transaction with US Golf. The exercise price of these options is
$2.34 based on the average of the closing bids for the ten (10) consecutive
trading days prior to the closing date of the reverse acquisition transaction
plus 10%. The options will vest one-third on the date of the grant and the
remaining two-thirds equally over two years, commencing one year from the date
of grant. As yet, no options have been granted to Mr. Stanchina.
In November 1997, the Company entered into an employment agreement with Mr. Eric
LaGrange to employ Mr. LaGrange as Executive Vice President and Chief Operating
Officer of the Company at an annual base salary of $100,000 with bonus
possibilities in the discretion of the Board of Directors for a term of 3 years.
In addition, the Company agreed to issue to Mr. LaGrange 150,000 options to
purchase the Company's Common Stock upon the closing date of the reverse
acquisition transaction with US Golf. The exercise price of these options is
$2.34 based on the average of the closing bids for the ten (10) consecutive
trading days prior to the closing date of the reverse acquisition transaction
plus 10%. The options will vest one-third on the date of the grant and the
remaining two-thirds equally over two years, commencing one year from the date
of grant. As yet, no options have been granted to Mr. LaGrange.
In December 1997, the Company entered into a one-year consulting agreement with
Mr. Wolfgang Duren. Mr. Duren is required to perform business, financing and
shareholder advice to the Company in connection with the business activities of
the Company as well as partnership issues, tax and legal, especially for the
foreign investors of the Company. Mr. Duren will receive consulting fees in the
amount of $15,000 per month for the first seven- (7) months of the Initial Term
of the agreement and $8,333 per month thereafter.
26 of 29
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Securities and Exchange Commission. The
Company shall furnish copies of exhibits for a reasonable fee (covering the
expense of furnishing copies) upon request.
Exhibit No. Exhibit Name
3.1 Certificate of Incorporation, as amended*
3.2 The Company's ByLaws, as amended *
10.1 Option contract (Stucki)*
10.2 Extension to Option Contract (Stucki)*
10.3 Further Amendment to Option Contract (Stucki)*
10.4 Modification Agreement (Stucki)*
10.5 Further Modification Agreement (Stucki)*
10.6 Sales Agreement (Property Alliance)*
10.7 Addendum to Sales Agreement (Property Alliance)*
10.8 Acquisition Agreement (ARDCO)*
10.9 Agreement (Bear River Contractors)*
10.10 Reorganization Agreement with U.S. Golf Communities, Inc.**
10.11 Amendment No 1 to Reorganization Agreement with U.S. Golf
Communities**
10.12 Acquisition Agreement for the purchase of Pelican Strand. ***
10.13 Employment Agreement dated November 26, 1997 with
Mr. Warren Stanchina ***
10.14 Employment Agreement dated November 26, 1997 with
Mr. Eric LaGrange***
10.15 Consulting Agreement dated December 1, 1997 with
Dr. Wolfgang Duren***
27 Financial Data Schedule
* Incorporated by reference from the Company's Form 10-SB Registration
Statement filed with the Commission September 6, 1996, File No. 0-21337.
27 of 29
<PAGE>
** Incorporated by reference from the Company's Form 8-K, filed with the
Commission on November 25, 1997, File No. 0-21337.
*** Incorpated by reference from the Company's 10-K, filed with the
commission on June 10, 1998.
(b) The following reports on Form 8-K were filed by the Company during the
fiscal year ended December 31, 1997:
August 12, 1997 The Company filed a report on Form 8-K for the purpose of
correcting a previous press release issued by the Company on October 18,
1996 concerning the charges filed October 10, 1996 against Mr. George
Badger.
August 22, 1997 The Company filed a report on Form 8-K concerning its
issuance under Regulation S promulgated under the Securities Act of 28,340
shares of Series B Preferred Stock to Miltex Industries, Inc.
November 25, 1997 The Company filed a report on Form 8-K to report the
acquisition of U.S. Golf Communities, Inc. in a reorganization transaction.
December 26, 1997 The Company filed a report on Form 8-K to report the
resignation of Duane Marchant, as a Vice-President and a Director of the
Company and to report that the Company had entered into an agreement to
acquire its interest in Pelican Strand.
March 23, 1998 The Company filed a report on Form 8-K disclosing financial
information about U.S. Golf Communities, Inc. and reporting on a change of
outside auditors.
May 8, 1998 The Company filed an amended report on Form 8-K/A to amend its
filing of March 23, 1998 to include amended financial information about
U.S. Golf Communities, Inc. and to disclose other pertinent information.
28 of 29
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
Registrant caused this Second Amended Annual Report on Form 10-KSB to be signed
on its behalf by the undersigned, thereunto duly authorized.
GOLF VENTURES, INC.
(Registrant)
Dated: September 17, 1998 BY:/s/ Warren Stanchina
---------------------------
Warren Stanchina, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Second
Amended Report on Form 10-KSB has been signed below by the following persons,
being a majority of the board of directors of the registrant, on behalf of the
registrant and in the capacities and on the date indicated.
Signature Position with Company Date
/s/ Warren Stanchina President, Chief Executive Officer and 09/17/98
- -------------------- Director
/s/ Wolfgang Duren Director 09/17/98
- ------------------
/s/ Mary Lynn Stanchina Senior Vice President, Secretary, Chief 09/17/98
- ----------------------- Administrative Officer and Director
/s/ Eric LaGrange Executive Vice President and Chief 09/17/98
- ----------------- Financial and Operating Officer
29 of 29
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 379,050
<SECURITIES> 0
<RECEIVABLES> 1,674,868
<ALLOWANCES> 0
<INVENTORY> 126,976
<CURRENT-ASSETS> 0
<PP&E> 9,737,378
<DEPRECIATION> 1,636,439
<TOTAL-ASSETS> 69,917,606
<CURRENT-LIABILITIES> 0
<BONDS> 42,083,065
0
66,783
<COMMON> 9,173
<OTHER-SE> 10,854,538
<TOTAL-LIABILITY-AND-EQUITY> 69,917,606
<SALES> 3,747,673
<TOTAL-REVENUES> 8,429,552
<CGS> 2,289,247
<TOTAL-COSTS> 13,984,492
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,613,258
<INCOME-PRETAX> (13,039,692)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,039,692)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,039,692)
<EPS-PRIMARY> (6.76)
<EPS-DILUTED> (6.76)
</TABLE>
