UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-21337
GOLF VENTURES, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0403864
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
255 South Orange Avenue, Suite 1515, Orlando, Florida 32801
(Address of principal executive offices, including zip code)
(407) 245-7557
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant has: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and, (2) been subject to such
filing requirements for the past 90 days. Yes [x] No [ ] Number of shares
outstanding of each of the registrant's classes of common stock, as of the
latest practicable date.
Class Outstanding as of October 30, 1998
Common Stock, par value $.OO1 24,610,538
<PAGE>
TABLE OF CONTENTS
Heading Page
PART I. CONSOLIDATED FINANCIAL STATEMENTS
Item 1. Consolidated Financial Statements.................................3
Consolidated Balance Sheet - September 30,1998......................4
Consolidated Statements of Operations
Three and nine months ended September 30, 1998 and 1997...........5
Consolidated Statements of Stockholders Equity-December 31, 1996
through September 30, 1998.......................................6-7
Consolidated Statements of Cash Flows - Nine months ended
September 30, 1998 and 1997.......................................8
Notes to Consolidated Financial Statements........................9-14
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................14-20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................20-22
Item 2. Changes in Securities..............................................22
Item 3. Upon Senior Securities.............................................23
Item 4. Submission of Matters to a Vote of Securities Holders..............23
Item 5. Other Information..................................................23
Item 6. Exhibits and Reports on Form 8-K..................................23-24
SIGNATURES..................................................................24
Financial Data Schedule - Exhibit 27........................................25
2
<PAGE>
PART I
Item 1. Consolidated Financial Statements
The following, unaudited financial statements as of and for the period ended
September 30, 1998, include all adjustments which management believes are
necessary for the financial statements to be presented in conformity with
generally accepted accounting principals.
THIS SPACE INTENTIONALLY LEFT BLANK
3
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Consolidated Balance Sheet
September 30, 1998
----
Assets (unaudited)
<S> <C>
Cash and cash equivalents $ 885,107
Restricted cash 22,550,340
Accounts receivable:
Trade 768,066
Related parties 1,364,335
Other 79,989
Inventories 141,887
Prepaid expenses and other 356,091
Investment in and advances to a related party company 11,489,503
Property and equipment, at cost, net of accumulated
depreciation of $1,857,495 8,311,434
Land and development costs 95,371,345
Deferred loan costs 17,883,831
Goodwill, net of accumulated amortization of $3,413,762 9,122,269
-------------
Total Assets $ 168,324,196
=============
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable:
Trade $ 4,572,415
Related parties 1,855,631
Accrued expenses 2,889,363
Accrued interest payable:
Related parties 2,974,465
Other 649,724
Loan costs payable 10,485,611
Notes payable to bank, net of unamortized deferred loan costs of $15,860,599 86,589,401
Notes payable 2,271,775
Related party notes payable 16,535,072
Convertible notes payable 21,185,864
-------------
Total Liabilities $ 150,009,321
-------------
Commitments and contingencies -
Stockholders' Equity:
Preferred stock - Class A cumulative convertible, $.001 par value,
shares authorized 350,000; issued 24,780 25
Preferred stock - Class B cumulative convertible, $.001 par value,
shares authorized 350,000; none issued -
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 24,610,538 24,611
Additional paid-in capital 58,668,904
Accumulated deficit (40,445,391)
-------------
Total Stockholders' Equity 18,314,875
-------------
$ 168,324,196
=============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Consolidated Statements of Operations
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
---- ---- ---- ----
Operating revenue: (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Dues and fees $ 703,113 $569,414 $ 2,178,524 $ 1,770,663
Golf cart rentals 389,344 446,446 1,685,779 1,692,745
Food, beverage and pro shop sales 352,348 295,593 1,089,549 935,539
Lot sales 64,930 852,787 1,169,632 3,204,983
Other 51,806 123,623 78,187 204,524
------ ------- ----------- -------
Total operating revenue 1,561,541 2,287,863 6,201,671 7,808,454
--------- --------- ----------- ---------
Costs and expenses:
Cost of merchandise and lots sold 194,152 461,461 972,892 2,165,015
General and administrative expenses 2,919,438 2,226,389 8,230,651 7,341,269
--------- --------- --------- ---------
Total costs and expenses 3,113,590 2,687,850 9,203,543 9,506,284
--------- --------- --------- ---------
Loss from operations (1,552,049) (399,987) (3,001,872) (1,697,830)
---------- ------- --------- ----------
Other income (expense):
Interest income 101,510 29,410 104,969 40,452
Interest expense (5,546,331) (2,046,024) (7,789,787) (3,956,115)
Loss on sale of property and equipment - - -
(8,671)
Loss on equity method investment - - - (180,047)
Settlement of disputes 3,672,467) - (3,672,467) -
Other 275,588 (55,701) 275,529 (21,184)
------- ------ ------- ------
Total other income (expense), net (8,841,700) (2,072,315) (11,081,756) (4,125,565)
--------- ----------- ---------- ---------
Net loss $(10,393,749) $(2,472,302) $(14,083,628) $(5,823,395)
============= ============ ============ ===========
Basic and diluted loss per common share $ (.42) $ (1.95) $ (1.11) $ (4.58)
============ =========== ============ ===========
Weighted common shares outstanding 24,610,538 1,270,968 12,717,161 1,270,968
============ =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Consolidated Statements of Stockholders' Equity
Common Stock Additional
Par Paid-in Accumulated
Shares Value Capital Deficit
------ ----- ------- -------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 1,270,968 $ 12,710 $ 544,636 $ (13,322,071)
Conversion of notes payable and
accrued interest to capital - - 5,333,024 -
Conversion of related party notes payable
and accrued interest to capital - - 7,133,327 -
Payment of loan costs payable through
the issuance of capital - - 1,566,926 -
Recapitalization (1,270,968) (12,710) (54,073) -
Issuance of shares in reverse
acquisition 5,690,024 5,690 13,138,264 -
Issuance of common stock as payment
of accounts payable 50,000 50 117,670 -
Issuance of common stock for acquition 3,432,713 3,433 9,436,527 -
Net loss - - - (13,039,692)
--------- --------- ------------ ----------
Balance, December 31, 1997 9,172,737 $ 9,173 $ 37,216,301 $(26,361,763)
Discount on conversion price of
convertible notes payable - - 186,479 -
Issuance of common stock as payment
of accounts payable 268,458 268 300,490 -
Conversion of Class A preferred stock 4,304 4 - -
Conversion of Class B preferred stock 404,857 405 (377) -
Issuance of common stock as payment
of settlement 862,000 862 1,455,918 -
Issuance of common stock in conversion
of related party note payable and interest 250,000 250 422,250 -
Issuance of common stock as payment
of loan costs 13,648,182 13,649 19,087,843 -
Net loss - - - (14,083,628)
---------- ------ ---------- ----------
Balance, September 30, 1998 (unaudited) 24,610,538 $ 24,611 $ 58,668,904 $ (40,445,391)
=========== ========== ============ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Consolidated Statements of Stockholders' Equity
Convertible Convertible Convertible
Preferred Stock Preferred Stock Preferred Stock Total
Class A Class B Class D Stockholders'
Shares Amount Shares Amount Shares Amount Equity
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 - - - - - - (12,764,725)
Conversion of notes payable and
accrued interest to capital. - - - - - - 5,333,024
Conversion of related party
notes payable and accrued
interest to capital - - - - - - 7,133,327
Payment of loan costs payable
through the issuance of
capital - - - - - - 1,566,926
Recapitalization 29,084 29 28,340 28 6,672,578 66,726 -
Issuance of shares in reverse
acquisition - - - - - - 13,143,954
------ ----- ------- ------- --------- ------- ------------
Issuance of common stock as
payment of accounts payable - - - - - - 117,720
Issuance of common stock for
acquisition - - - - - - 9,439,960
Net loss - - - - - - (13,039,692)
Balance, December 31, 1997 29,084 $ 29 28,340 $ 28 6,672,578 $66,726 $10,930,494
Discount on conversion price of
convertible notes payable - - - - - - 186,479
Issuance of common stock as
payment of accounts payable - - - - - - 300,758
Conversion of Class A preferred
stock (4,304) (4) - - - - -
Conversion of Class B preferred
stock - - (28,340) (28) - - -
Issuance of common stock as
payment of settlement - - - - - - 1,456,780
Issuance of common stock in
conversion of related party note
payable and interest - - - - - - 422,500
Issuance of common stock as
payment of loan costs - - - - - - 19,101,492
Net loss - - - - - - (14,083,628)
------ ----- ------- ------- --------- ------- ------------
Balance, September 30,
1998 (unaudited) 24,780 $ 25 - $ - 6,672,578 $66,726 $ 18,314,875
====== ===== ======= ======= ========= ======= ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Golf Ventures, Inc.
Consolidated Statements of Cash Flows
Nine months ended September 30, 1998 1997
Cash flows from operating activities: (unaudited) (unaudited)
<S> <C> <C>
Net loss $ (14,083,628) $ (5,823,395)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation 221,056 185,626
Amortization 4,223,067 1,173,658
Discount on conversion price of
convertible notes payable 186,479 -
Issuance of common stock as
payment of settlement 1,456,780 -
Cash provided by (used for):
Accounts receivable (537,522) (157,075)
Inventories (14,911) 27,276
Prepaid expenses (172,551) 32,523
Land and development costs (1,360,778) 1,381,668
Accounts payable (1,462,653) (130,579)
Accrued expenses 1,901,199 586,990
Accrued interest payable (2,059,474) 2,271,291
---------- ---------
Net cash used for operating activities (11,702,936) (452,017)
----------- --------
Cash flows from investing activities:
Purchases of property and equipment (431,551) (29,239)
Restricted cash from acquisition 13,514,366 -
Cash acquired in acquisition 174,875 -
Investment in and advances to affiliate 2,092,747 -
--------- -------
Net cash provided by (used for )investing activities 15,350,437 (29,239)
---------- -------
Cash flows from financing activities:
Increase in restricted cash (22,550,340) -
Proceeds from note payable to bank 11,927,523 -
Proceeds from notes payable 794,322 1,107,029
Proceeds from related party notes payable 6,658,076 1,637,262
Repayments of notes payable (141,215) (524,354)
Repayment of related party notes payable (852,749) (1,520,076)
Contributions of capital - 37,771
Deferred loan costs 1,022,939 (199,000)
--------- --------
Net cash provided by (used for) financing activities (3,141,444) 538,632
---------- -------
Net increase in cash and cash equivalents 506,057 57,376
Cash and cash equivalents, beginning of period 379,050 378,669
------- -------
Cash and cash equivalents, end of period $885,107 $436,045
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
Golf Ventures, Inc.
Notes to Consolidated Financial Statements
1. The unaudited financial statements of the Company include all adjustments
which management believes are necessary to be consistent with the audited
financial statements for the year ended December 31, 1997.
2. Reorganization of U.S. Golf Communities, Inc.
U.S. Golf Communities, Inc. ("USGCI") is a company formed in April 1996
that immediately prior to its acquisition of Golf Ventures, Inc. ("GVI")
issued its capital stock in exchange for 100% of the outstanding common
stock and partnership interests of various entities engaged in the business
of real estate development, primarily golf courses, with surrounding
residential real estate.
Since these entities were under common ownership and control, the
acquisitions were accounted for in a manner similar to a pooling of
interests, and their financial information is presented as if they were a
single entity since inception.
3. Recapitalization and Acquisition of GVI
Effective November 24, 1997, GVI acquired all of the outstanding 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 recapitalization of USGCI (whereby the issued and
outstanding stock of USGCI was converted into 29,084 shares of Class A
cumulative convertible preferred stock, 28,340 shares of Class B cumulative
convertible preferred stock and 6,672,578 shares of Class D convertible
preferred stock) with 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
GVI securities 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.
4. Acquisition of Pelican Strand Development Corporation
On December 4, 1997, GVI acquired 81% of the outstanding capital stock of
Pelican Strand Development Corporation ("PSDC") in exchange for 3,432,713
shares of restricted common stock valued at $2.75 per share. The Company
has agreed to register such shares under securities act of 1933, as
amended, as soon as possible. PSDC is the 10% general partner of Pelican
9
<PAGE>
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.
5. Acquisition of Arlington, Texas Property
On September 3, 1998, the Company purchased a partially developed,
approximately 970 buildable-acre, real estate property located in
Arlington, Texas from Metrovest Partners, Ltd (the "seller"), for a total
purchase price of $47,971,635. The purchase price consisted of cash paid to
the seller of $4,165,000, the issuance of convertible notes payable to the
seller of $17,804,583, payment of the seller's bank mortgage of $18,944,920
and the assumption of trade accounts payable of $7,057,132. The convertible
notes payable consist of a $15,000,000 and a $2,804,583 note payable to the
seller. The notes and any related accrued interest are convertible, at any
date through maturity, into 10,000,000 and 1,400,000 shares of the
Company's common stock, respectively. The conversion rates are either equal
to or above the average market value of the Company's common stock for five
trading days prior to the transaction. The $15,000,000 and $2,804,583
convertible notes payable bear interest at 5.42% and 10% per annum,
respectively, and principal and accrued interest are due in full on April
30, 1999, unless earlier converted. If the notes are converted into common
stock, the underlying common stock carries piggyback registration rights
and the Company has agreed to use its best efforts to register such shares
under the securities act of 1933, as amended, on or before March 31, 1999.
6. Related Party Transactions
The Company is affiliated with various other companies through common
control and stock ownership, which are not included in the accompanying
consolidated financial statements. Material related party transactions
between the Company and the affiliated companies consisted of the
following:
Accounts Receivable Related Parties
Amounts due from related parties are comprised of amounts advanced to
certain stockholders and to entities related by common management which
are not included in the accompanying consolidated financial statements.
The advances are non-interest 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 had management agreements with related party
companies. All agreements, except for the Pelican Strand Development
Corporation agreement, were terminated in September 1997.
10
<PAGE>
Advances to Affiliates
PSDC has recorded advances to affiliates from PSL and other related
companies for construction costs incurred on their behalf of $724,874
and $2,574,417 as of September 30, 1998 and December 31, 1997,
respectively. The advances to affiliates are non-interest bearing and
have no stipulated repayment terms.
7. Purchase of Minority Interest and Goodwill
The Company owned approximately 60% of US Golf Pinehurst Plantation, Ltd.
("Plantation") and approximately 60% of another limited partnership, US
Golf Pinehurst National, Ltd. ("National"), through March 1996. The
remaining 40% of both Plantation and National was owned by an unrelated
third party. During March 1996, the Company assigned its 60% ownership of
National, paid $2,300,000 and issued a $1,200,000 note payable to acquire
the remaining 40% ownership interest in Plantation from the unrelated third
party. The balance of the Plantation minority interest at the date of the
acquisition was $798,447. The Company accounted for its investment in
National under the equity method of accounting. The balance of the
Company's investment in National at the date of acquisition was $1,272,274.
The acquisition of the remaining 40% interest was accounted for using the
purchase method of accounting. Accordingly, the purchase price was
allocated to the net assets acquired based upon their estimated fair market
values. The excess of the purchase price over the estimated fair value of
net assets acquired amounted to approximately $3,974,000, which was
accounted for as goodwill and amortized over its estimated useful life of
ten years. The operating results of Plantation were included in the
Company's consolidated results of operations from the April 1994 inception
of the partnership.
During the fourth quarter of 1997, the Company completed an evaluation of
the economic value of the Plantation goodwill. It was determined during the
evaluation that the cash flow expected to be generated from Plantation
would be less than the recorded cost of the related assets and goodwill.
Accordingly, the Company recorded a provision for impairment of goodwill of
$1,846,633 to reduce the carrying value of the goodwill to its current fair
value, which was included in general and administrative expenses in the
statement of operations for the year ended December 31, 1997.
8. Note Payable to Bank
On July 2, 1998, the Company entered into several agreements with Credit
Suisse First Boston Mortgage Capital LLC ("CSFB") which provided a
$50,950,000 financing facility. In addition, the Company arranged and
guaranteed a $35,600,000 financing facility with CSFB for PSL. In
connection with the arrangement of the PSL financing facility, PSL agreed
to loan the Company $4,642,176 from the proceeds of their financing in the
form of a related party note payable.
The purchase price of the Company's September 3, 1998 Arlington, Texas
property acquisition (see Note 5) was also financed through funding from
CSFB in the form of a $50,000,000 addition to the Company's previously
existing $50,950,000 financing facility, which increased the aggregate
financing facility to $100,950,000.
11
<PAGE>
From the net proceeds of the July 2, 1998 CSFB and PSL loans, the Company
paid $31,166,492 of outstanding principal and accrued interest on its
existing notes and related party notes payable, established property tax,
insurance, working capital, interest, construction escrow and other reserve
accounts totaling $11,379,989, paid trade accounts payable of $734,710,
paid closing costs of $4,465,985(including structuring and advisory fees of
$2,713,342 paid to CSFB) and received cash of $1,345,000. In addition,
$6,500,000 of the total financing facility has been held back by the
lender, in accordance with the loan agreement, until it becomes necessary
for these funds to be used for certain development and improvement
projects.
From the proceeds of the September 3, 1998 $50,000,000 loan addition, the
company paid the sellers mortgage in the Arlington, Texas transaction of
$18,944,920, paid financing costs of $7,487,210(including structuring and
advisory fees of $6,825,000 paid to CSFB), paid seller trade accounts
payable of $5,713,629 assumed by the Company at closing, paid the cash
portion of the purchase price of $4,165,000, established property tax,
interest, and construction escrow reserve accounts totaling $13,514,366 and
received cash of $174,875.
The $100,950,000 CSFB aggregate financing facility bears interest at the
London Interbank Offered Rate ("Libor") plus 5.6 percent per annum.
Interest on the borrowing will be paid monthly with minimum principal
repayments of $14,050,000 due on or before July 1, 1999, $36,550,000 on or
before July 1, 2000 and the remainder due July 1, 2001. The PSL financing
facility also bears interest at Libor plus 5.6 percent per annum. Interest
on the PSL borrowing is to be paid monthly with minimum principal
repayments of $5,778,765 due on or before July 1, 1999, $15,033,015 on or
before July 1, 2000 and the remainder due on July, 2001.
As additional consideration for structuring and advisory services provided
by CSFB related to the financing facility, the Company issued an additional
promissory note of $8,000,000 payable to CSFB. The note bears interest at
Libor plus 4.5 percent per annum and is due on July 1, 2001. In addition,
the Company is obligated to pay an additional $1,298,250 to CSFB as an exit
fee for the loan. The Company also issued 13,648,182 shares of its common
stock to CSFB on July 2, 1998 and has committed to issue another 3,815,528
shares of common stock in the future as additional consideration for their
providing the Company financing. The Company has committed as a condition
to the CSFB loan agreements, to settle certain pre-merger disputed
obligations and loan fees with certain third parties. The Company issued
862,000 shares of common stock in July 1998 and is required to issue an
additional 2,045,000 shares of common stock in the future related to these
settlement transactions. These additional issuance's of common stock are
subject to effectiveness of an increase in the amount of common stock
authorized under the Company's Articles of Incorporation, action which was
approved by shareholder written consent to become effective after notice to
the shareholders generally, which is expected to occur in November, 1998.
During July 1998, the Company recorded settlement expenses of $ 3,672,467
related to these settlement transactions.
The common shares issued and committed, but not yet issued, to CSFB have
been valued at $19,101,492 and $5,718,000, respectively, based upon the
average market value of the Company's common stock for five trading days
prior to the related transactions. An allocated portion of the value of the
12
<PAGE>
shares issued on July 2, 1998 and the additional $8,000,000 committed to be
paid to CSFB totaling $11,149,918 have been recorded on the Company's
balance sheet as an additional investment in PSDC. The remaining balance
has been recorded as deferred loan costs of which $16,966,120 represents
common stock related cost recorded as an offset to the September 30, 1998
notes payable to bank balance of $102,450,000. The loan costs, including
the PSDC investment portion, are being amortized on the straight-line basis
over the three-year term of the note.
Also on September 3, 1998, the Company entered into a note consolidation
and severance agreement with CSFB, whereby the aggregate principal balance
of the Company's financing facility of $100,950,000 was severed into a
$48,456,000 Class A promissory note, a $26,247,000 Class B promissory note
and a $26,247,000 Class C promissory note. A similar note severance
agreement was entered into to sever the PSL note payable in the amount of
$35,600,000 into a $17,088,000 Class A promissory note, a $9,256,000 Class
B promissory note and a $9,256,000 Class C promissory note. The individual
and aggregate terms of the severed notes are equivalent to those of the
former $100,950,000 and $35,600,000 notes as described above.
<TABLE>
<CAPTION>
9. Notes Payable
Notes payable consist of the following as of September 30, 1998:
<S> <C>
Various unsecured notes payable bearing interest ranging from 8.2% to
12.5% with accrued interest and principal payable currently $1,271,775
7.12% unsecured note payable to an international bank with principal and
accrued interest payable currently. Personally guaranteed by the Company
President and other related parties. $1,000,000
$2,271,775
<CAPTION>
10. Notes Payable to Related Parties
Notes payable to related parties consist of the following as of September
30, 1998:
<S> <C>
Various unsecured notes payable to stockholders and other related parties
bearing interest ranging from 4% to 12.5% with principal and accrued
interest payable currently. $8,444,226
Libor plus 5.6% promissory note payable to PSL with principal and accrued
interest payable as normal partnership cash distributions are made from PSL
to PSDC. $4,642,176
10.5% promissory note payable to a stockholder with accrued interest due
quarterly and principal payable on June 10, 2001. Collateralized by certain
land of the Company. $3,448,670
$16,535,072
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
11. Convertible Notes Payable
Convertible notes payable consist of the following as of September 30,
1998:
<S> <C>
5.42% unsecured promissory note payable with principal and accrued interest
due on April 30, 1999. Convertible into 10,000,000 shares of the Company's
common stock.
$15,000,000
10% unsecured promissory note payable with principal and accrued interest
due on April 30, 1999. Convertible into 1,400,000 shares of the Company's
common stock.
$2,804,583
Non-interest bearing unsecured promissory note payable to a Company
stockholder due currently. Convertible into 1,476,761 shares of the
Company's common stock.
$1,851,616
Various promissory notes payable bearing interest ranging from 9% to 11%
per annum with principal and interest due on demand. Convertible into
Company Common stock at 70% of the market value of the Company's common
stock for the ten trading days prior to the conversion date.
$1,529,665
----------
$21,185,864
===========
</TABLE>
12. 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.
Item 2. Management's Discussion & Analysis of Financial Condition & Results of
Operations.
Statements made or incorporated in this report include a number of
forward-looking statements within the meaning of Section 27(a) of the Securities
Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words "anticipates", "believes", "expects", "intends", "future", and words
of similar import which express management's belief, expectations or intentions
regarding the Company's future performance or future events or trends.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause actual results, performance or achievements of
the Company to differ materially from anticipated future results, performance or
achievements expressly or implied by such forward-looking statements. In
addition, the Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
14
<PAGE>
RESULTS OF OPERATIONS
For the Quarter Ended September 30, 1998, compared to the Quarter Ended
September 30, 1997.
Total operating revenues for the quarter ended September 30, 1998 were
$1,561,541 compared to $2,287,863 for the quarter ended September 30, 1997. The
following table compares the changes in the Company's revenues identified by the
various golf course operations and development activities:
<TABLE>
<CAPTION>
1998 1997 1998/1997 % Change
---- ---- --------- --------
<S> <C> <C> <C> <C>
Dues and Fees $703,113 $569,414 133,699 23.5%
Golf Cart Rentals 389,344 446,446 (57,102) (12.8%)
Food, Beverage & Pro Shop Sales 352,348 295,593 56,755 19.2%
Lot Sales 64,930 852,787 (787,857) (92.4%)
Other 51,806 123,623 (71,817) (58.1%)
------ ------- -------- ------
Total Operating Revenues $1,561,541 $2,287,863 $(726,322) (31.7%)
========== ========== ========= =====
</TABLE>
As this table shows, total revenues decreased by $726,322 or 31.7% for the
quarter ended September 30, 1998 compared to the quarter ended September 30,
1997, primarily as a result of a decrease in lot sales of $787,857. Lot sale
decreases of $649,192 and $151,400 occurred at the Company's NorthShore
Development and Pinehurst Plantation projects, respectively, in the quarter
ended September 30, 1998 as compared to the quarter ended September 30, 1997.
These decreases were the result of exclusive homesites being sold in the quarter
ended September 30, 1997 that did not repeat in the current quarterly period.
The increase in dues and fees of $133,699 or 23.5 % is attributed primarily to
NorthShore related to an increase in the number of members during 1998.
Cost of merchandise and lots sold was $194,152 for the quarter ended September
30, 1998 as compared to $461,461 for the quarter ended September 30, 1997. This
$267,309 decrease in cost is primarily attributed to the decrease in lot sales
at NorthShore Development and Pinehurst Plantation.
General and Administrative expenses were $2,919,438 for the quarter ended
September 30, 1998 compared to $2,226,389 for the quarter ended September 30,
1997. This increase of $693,049 includes $897,962 of expenses resulting from the
Company's Pelican Strand and Golf Ventures acquisitions that were effective in
the last quarter of 1997, but not included in the quarter ended September 30,
1997, and offset by reductions in general and administrative expenses throughout
the Company.
Interest expense was $5,546,331 for the quarter ended September 30, 1998
compared to $2,046,024 for the quarter ended September 30, 1997. This increase
of $3,500,307 is due primarily to the amortization of $3,171,357 of deferred
loan costs during the quarter ended September 30,1998 associated with the July
2, 1998 and September 3, 1998 Credit Suisse First Boston transactions described
in Note 8 to the consolidated financial statements.
15
<PAGE>
Settlement of disputes expense was $3,672,467 for the quarter ended September
30, 1998 compared to $0 for the quarter ended September 30, 1997. This increase
of $3,672,467 resulted from Company's commitment, as a condition to the Credit
Suisse First Boston loan agreements, to settle certain pre-merger disputed
obligations and loan fees with certain third parties, for which the Company
issued 862,000 shares of common stock, and has committed to issue an additional
2,045,000 shares of common stock, resulting in the Company's recording of
settlement of disputes expense of $3,672,467 in July, 1998. These additional
issuance's of common stock are subject to effectiveness of an increase in the
amount of common stock authorized under the Company's Articles of Incorporation,
action which was approved by shareholder written consent to become effective
after notice to the shareholders generally, which is expected to occur in
November, 1998.
The cumulative effect of these results, reported above, is reflected in the
increased net loss of $7,921,447 in the quarter ended September 30, 1998
compared to the quarter ended September 30, 1997.
Loss per common share of $.42 for the quarter ended September 30, 1998 compared
to $1.95 for the quarter ended September 30, 1997 is a result of the increase in
the Company's net loss in 1998 of $10,393,749 compared to a net loss in 1997 of
$2,472,302 and is offset by the increase in the number of weighted average
common shares outstanding for the comparative periods. This increase of
23,339,570 in the weighted average shares, starting in the first quarter of
1998, is the result of the issuance of 5,690,024 for the reverse acquisition of
Golf Ventures, Inc by US Golf Communities, Inc., the issuance of 3,432,713 for
the acquisition of Pelican Strand and the issuance of 13,648,182 shares to
Credit Suisse First Boston for financing costs in July, 1998.
For the Nine Months Ended September 30, 1998, Compared to the Nine Months Ended
September 30, 1997.
Total operating revenues for the nine months ended September 30, 1998 were
$6,201,671 compared to $7,808,454 for the nine months ended September 30, 1997.
The following table compares the changes in the Company's revenues identified by
the various golf course operations and development activities:
<TABLE>
<CAPTION>
1998 1997 1998/1997 % Change
---- ---- --------- --------
<S> <C> <C> <C> <C>
Dues and Fees 2,178,524 1,770,663 407,861 23.0%
Golf Cart Rentals 1,685,779 1,692,745 (6,966) 0.0%
Food, Beverage & Pro Shop Sales 1,089,549 935,539 154,010 16.5%
Lot Sales 1,169,632 3,204,983 (2,035,351) (63.5%)
Other 78,187 204,524 (126,337) (61.8%)
------ ------- --------- -----
Total Operating Revenues $6,201,671 $7,808,454 ($1,606,783) (20.1%)
========== ========== ============= =====
</TABLE>
As this table shows, lot sales accounted for nearly all of the decrease in total
revenues for the nine months ended September 30, 1998 compared to the nine
months ended September 30, 1997. Of this $2,035,351 decrease in lot sales,
approximately $1,750,875 occurred at the Company's Cutter Sound development
project in the nine months ended September 30,1998 as compared to the nine
months ended September 30, 1997. This decrease at Cutter Sound was the result of
16
<PAGE>
exclusive waterfront homesites with yacht slips being sold in the nine months
ended September 30, 1997 that did not repeat in the nine month period. The
increase in dues and fees of 23% or $407,861 is attributed primarily to
NorthShore related to an increase in the number of members during 1998.
Cost of merchandise and lots sold was $972,892 for the nine months ended
September 30, 1998 as compared to $2,165,015 for the nine months ended September
30, 1997. This $1,192,123 decrease in cost is primarily attributed to decreased
sales of lots discussed above.
General and Administrative expenses were $8,230,651 for the nine months ended
September 30, 1998 compared to $7,341,269 for the nine months ended September
30, 1997. This increase of $889,382 includes $1,160,191 of expenses resulting
from the Company's Pelican Strand and Golf Ventures acquisitions that were
effective in the last quarter of 1997, however were not included in the nine
months ended September 30, 1997, offset by reductions in general and
administrative expenses throughout the Company.
Interest expense was $7,789,787 for the nine months ended September 30, 1998
compared to $3,956,115 for the nine months ended September 30, 1997. This
increase of $4,412,364 was due to additional interest expense and the
amortization of $3,171,357 of deferred loan costs during the quarter ended
September 30, 1998 associated with the July 2, 1998 and September 3, 1998 Credit
Suisse First Boston transactions described in Note 8 to the consolidated
financial statements.
Settlement of dispute expense was $3,672,467 for the nine months ended September
30, 1998 compared to $0 for the nine months ended September 30, 1997. This
increase of $3,672,467 resulted from Company's commitment as a condition to the
Credit Suisse First Boston loan agreements to settle certain pre-merger disputed
obligations and loan fees with certain third parties, for which the Company
issued 862,000 shares of common stock and has committed to issue an additional
2,045,000 shares of common stock, resulting in the Company's recording of
settlement of disputes expense of $3,672,467 in July, 1998. These additional
issuance's of common stock are subject to effectiveness of an increase in the
amount of common stock authorized under the Company's Articles of Incorporation,
action which was approved by shareholder written consent to become effective
after notice to the shareholders generally, which is expected to occur in
November, 1998.
The cumulative effect of these results, as reported above, is reflected in the
increased net loss of $8,260,233 in the nine months ended September 30, 1998
compared to the nine months ended September 30, 1997. This increased loss is the
result of the Company's high debt interest cost coupled with increased general
and administrative operating overhead. In order to sustain these costs the
Company will be required to increase its level of annual revenues by
approximately $11,000,000 at current operating margins. The Company believes
that this level of revenues is attainable with its future 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 increasing interest expense. In the early
stages of a real estate development company's business plan, revenues are
generally not sufficient to cover these expenses, thus operating losses occur.
17
<PAGE>
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, the Company has not
been able to attract and manage sufficient funding to achieve the timely
development of its properties. The Company 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 Company believes that the newly closed Credit Suisse First Boston loan
facility provides the Company with financial resources to actively pursue those
development projects that were in the planning stage. 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 $1.11 for the nine months ended September 30, 1998
compared to $4.58 for the nine months ended September 30, 1997 is a result of
the Company's net loss in 1998 of $14,083,628 compared to a net loss in 1997 of
$5,823,395 and the increase of 11,446,193 in the number of weighted average of
common shares outstanding for the comparative periods. This increase in the
weighted average shares, starting in the first quarter of 1998, is the result of
the reverse acquisition of Golf Ventures, Inc by US Golf Communities, Inc. which
added 5,690,024 shares, the acquisition of Pelican Strand which increased the
shares outstanding by 3,432,713 and the issuance of 13,648,182 shares to Credit
Suisse First Boston for deferred loan costs in July, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's Debt Liabilities:
The notes payable indebtedness of the Company at September 30, 1998 was
$142,442,711 (see Note 8, "Note Payable to Bank", Note 9, "Notes Payable", Note
10, "Notes Payable to Related Parties" and Note 11 "Convertible Notes Payable"
of the Notes to the Consolidated Financial Statements of the Company):
The Company has historically satisfied its cash needs through the sale of real
estate, private placements of securities and secured borrowings. During the
first nine months of 1998, the Company sold approximately $1,170,000 of real
estate, or approximately 64% lower than the first nine months of 1997.
A summary of the Company's borrowing activities during the first nine months of
1998 follows:
Total notes payable at December 31, 1997 $42,083,065
Total borrowings during 1998 128,421,152
Total repayment's during 1998 (28,061,506)
------------
Total notes payable at September 30, 1998 $142,442,711
============
The Company will be obligated to repay over $12 million in notes during 1998 of
which $10 million were delinquent at September 30, 1998. The Company's working
capital at September 30, 1998 plus limited revenue from real estate sales and
golf course operations will not be sufficient to pay these notes as and when
18
<PAGE>
due. Management recognizes that the Company has to secure additional financial
resources or consider disposing of assets to enable it to continue operations.
Management's plans include the conversion of the unsecured debt into equity,
raising equity capital, 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.
Going Concern
The financial statements of the Company for the year ended December 31, 1997
includes an explanatory paragraph as to an uncertainty with respect to the
Company's ability to continue as a going concern. This is based on the
historical losses of the Company and its default under certain debt liabilities
as discussed above.
YEAR 2000 SOFTWARE ISSUE.
A "Year 2000 problem" exists because many computer programs use only the last
two digits to refer to a year. Therefore, these computer programs do not
properly recognize a year that begins with "20" instead of "19". If not
corrected, many computer applications could fail or create erroneous results.
The Company's State of Readiness
The Company uses a number of computer software programs and operating systems,
including applications used in sales and marketing, billing, point of sales data
collection, and other administrative functions. In addition, the Company
communicates electronically with a number of its banks, and vendors with respect
to a variety of functions, including cash management, ordering, billing and
payroll. The Company's operating subsidiaries each currently utilize general
ledger and point of sale software that is not year 2000 compatible. The general
ledger and point of sale software are the key links of the Company's main
operating and financial reporting applications. In addition to software issues,
a portion of the Company's computer hardware will need to replaced with more
current technology as embedded technology within much of the Company's current
hardware is not year 2000 compatible. The Company's solution to the year 2000
issue includes the identification of specific internal computer software
programs and hardware that will need to be upgraded or replaced, the
identification of appropriate replacement software and hardware that is
compatible with the Company's operating needs and year 2000 compliant and the
installation and employee training related to the newly installed systems. Upon
completion of the internal modifications, the company will determine the
potential effect of external source year 2000 non-compliance and develop a plan
to mitigate potential risks to the Company.
The Costs to Address the Company's Year 2000 Issues
The Company is currently in the process of selecting a new general ledger
software from a group of year 2000 compatible programs and has replaced some
incompatible computer hardware with year 2000 compliant technology to date. In
addition, the Company is currently analyzing its other internal software
applications and hardware technology in order to quantify the Company's internal
19
<PAGE>
year 2000 compliance requirements. The Company has plans to evaluate external
source year 2000 compliance requirements, however, no steps have been taken to
date in that regard. The Company's plans for general ledger software and
hardware replacements and the costs associated with such replacements were
primarily motivated by the age of the Company's current systems and a need for
better information and efficiency, rather than by the year 2000 issue itself.
The Company believes that the costs directly associated with the year 2000 issue
will be less than $100,000.
The Risks of the Company's Year 2000 Issues and Contingency Plans
The Company believes that the manufacturers of the software applications it uses
most frequently, including its word-processing and spreadsheet software, are
preparing or have already completed year 2000 remediations for their products.
In addition, the Company believes that the new general ledger system, once
installed, will be fully year 2000 compatible. There can be no assurance,
however, that such remediation efforts have been or will be successful or that
any newly installed systems will be fully year 2000 compatible. The Company is
unable to accurately predict the consequences of failed remediation efforts and
a failure of the Company's new systems or external sources to effectively
address the year 2000 issue. Any failure of the Company's software or the
software of the Company's financial institutions and vendors to address the year
2000 issue could impair the Company's ability to perform normal operational
functions. Because the Company is still evaluating the status of the systems
used in operations of the Company and the systems of the third parties with
which the Company conducts its business, management has not yet developed a
comprehensive contingency plan and is unable to identify "the most reasonably
likely worst case scenario" at this time. As management identifies significant
risks related to the Company's Year 2000 compliance, management will develop
appropriate contingency plans.
PART II
Item 1. 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 Appeals unanimously 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
20
<PAGE>
judgement and does not expect any material adverse impact from either
the judgement or any future decision on damages.
b. On November 21, 1995, a 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 $1,141 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.
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
Securities and Exchange Commission ("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 GVI requesting that GVI 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 the
Company diligently pursues alternatives to payoff the mortgage. The
21
<PAGE>
payment arrangement was without prejudice to Montverde's asserting any
claims or defenses to the mortgage enforcement.
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, Golf
Communities of America, Inc., f.k.a. Golf Ventures, Inc., Duane
Marchant, Stephen Spencer, Karl Badger, and Marion Sherrill, Harmon S.
Hardy, Jr. La Jolla Capital Financial Corp., Harold B. Gallison, Jr.,
Terry Hughes, Marvin Susemihl, David Rosenthal, William Slone and
Andrew Sears). In the third and fourth complaints for relief the
Commission alleges that certain historical press releases and public
disclosure filings by the Company were materially false and misleading,
and thus violations of Section 10(b) of the Securities Exchange Act and
Rule 10b-5 as well as Sections 13(a) of the Exchange Act and Rules
12b-20, 13g-1 and 13a-13. 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
Company's 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 have negotiated a resolution to this dispute as part of the
Credit Suisse First Boston transaction and there will be no further
action or consideration required by either party.
The Company is involved in various other lawsuits and litigation matters on an
ongoing basis as a result of its day-to-day operations. However, the Company
does not believe that any of these other or any threatened lawsuits and
litigation matters will have a material adverse effect on the Company's
financial position or results of operations.
Item 2. Changes in Securities
The following are brief descriptions of issuances of securities by the Company
during the quarter ended September 30, 1998:
-On July 2, 1998, the Company entered into a loan agreement and a
stock agreement with Credit Suisse First Boston Mortgage Capital LLC ("CSFB")
under the terms of which the Company obtained property development loans of
$50,950,000 secured by its golf course properties. In consideration therefor,
the Company issued 13,648,182 restricted shares of common stock and agreed to
issue additional restricted shares of common stock to CSFB upon the happening of
22
<PAGE>
certain events. Based on the knowledge, experience and economic strength of
CSFB, the company believes this transaction was exempt from registration with
the Commission under section 4(2) of the Securities Act of 1933, as amended, and
the regulations promulgated thereunder.
-On July 2, 1998, the Company issued, as a condition to the CSFB
loan agreements, 862,000 shares of its common stock to ARDCO as a settlement of
a pre-merger disputed obligation. Settlement expense of $1,456,780 was recorded
on July 2, 1998 related to this issuance based upon the average market value of
the Company's common stock for five days prior to the transaction. Based on the
knowledge, experience and economic strength of ARDCO, the company believes this
transaction was exempt from registration with the Commission under section 4(2)
of the Securities Act of 1933, as amended, and the regulations promulgated
thereunder.
-On July 2, 1998, the Company issued 250,000 shares of its common
stock to Mr. Bernd Menne in connection with the conversion of a related party
note payable and interest owed to him totaling $422,500. Based on the domicile
of Mr. Menne as a German citizen, the Company believes these shares were exempt
from registration under the Securities Act pursuant to rule 903 of Regulation S
promulgated thereunder.
-On September 3, 1998, the Company acquired the Arlington Lakes
golf community development in Texas. In this transaction, the Company issued
$17,804,583 in two convertible notes to Metrovest Partners LP and Jocie Salim,
from whom the project was purchased. The beneficial owner of Metrovest Partners
LP is the Melissa Lynn Cain Trust. Melissa Cain is the granddaughter of Jim
Salim. Jim Salim is the trustee of the trust and receives 50% of the trust
profits under a profit participation agreement. The convertible notes obligate
the Company to issue up to 11,400,000 new common shares if the holders choose to
convert their notes. Based on representations provided to the Company in the
contribution and convertible note agreements dated September 3, 1998 by
Metrovest Partners LP, Jim Salim and Jocie Salim, the Company believes that
these investors possess the necessary knowledge, experience and economic
strength to qualify for the exemption under Section 4(2) of the Securities and
Exchange Act of 1933, as amended, and the regulations promulgated thereunder.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
As of June 9, 1998 the shareholders of the Company, acting by the written
consent of a majority of the issued and outstanding shares eligible to vote,
adopted these resolutions:
1. An increase to 100,000,000 Authorized Common Shares.
2. The ratification of all outstanding and previously outstanding shares of
preferred stock. 3. The change of the Company's name to "Golf Communities of
America, Inc."
These actions by shareholder written consent will become effective upon general
notice thereof to the shareholders at large expected during the fourth quarter.
23
<PAGE>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit numbers
(1) Exhibit 27-Financial Data Schedule
(b) -On July, 17, 1998, the Company filed an 8-K reporting the refinancing
and debt restructuring agreements with Credit Suisse First Boston
Mortgage Capital LLC. -On September 18, 1998 the Company filed an 8-K
reporting the acquisition of an Arlington, Texas property from
Metrovest Partners, Ltd.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GOLF VENTURES, INC.
Signature Position with Company Date
/s/ Warren Stanchina President, November 13, 1998
- -------------------- Chief Executive Officer and Director
/s/ Kevin Jackson Chief Financial Officer November 13, 1998
- -----------------
24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 23,435,447
<SECURITIES> 0
<RECEIVABLES> 2,212,390
<ALLOWANCES> 0
<INVENTORY> 141,887
<CURRENT-ASSETS> 0
<PP&E> 10,168,929
<DEPRECIATION> 1,857,495
<TOTAL-ASSETS> 168,324,196
<CURRENT-LIABILITIES> 0
<BONDS> 142,442,711
0
66,751
<COMMON> 24,611
<OTHER-SE> 18,223,513
<TOTAL-LIABILITY-AND-EQUITY> 168,324,196
<SALES> 2,259,181
<TOTAL-REVENUES> 6,201,671
<CGS> 972,892
<TOTAL-COSTS> 9,203,543
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,789,787
<INCOME-PRETAX> (14,083,628)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,083,628)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,083,628)
<EPS-PRIMARY> (1.11)
<EPS-DILUTED> (1.11)
</TABLE>
