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 March 31, 1999
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 COMMUNITIES OF AMERICA, INC.
(Exact name of registrant as specified in its charter)
UTAH 87-0403864
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
255 South Orange Avenue, Suite 1515, Orlando, Florida 32801
(Address of principal executive offices, including zip code)
(407) 245-7557
(Registrant's telephone number, including area code)
Indicated by check mark whether the registrant has: (1) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and, (2) been subject to such
filing requirements for the past 90 days. Yes [x] No [ ] Number of shares
outstanding of each of the registrant's classes of common stock, as of the
latest practicable date.
Class Outstanding as of April 30, 1999
Common Stock, par value $.OO1 71,985,589
<PAGE>
TABLE OF CONTENTS
Heading Page
PART I. CONSOLIDATED FINANCIAL STATEMENTS
Item 1. Consolidated Financial Statements...................................3
Consolidated Balance Sheet -March 31, 1999..........................4
Consolidated Statements of Operations
Three months ended March 31, 1999.................................5
Consolidated Statements of Stockholders Equity-December 31, 1997
through March 31, 1999 ..........................................6-7
Consolidated Statements of Cash Flows - Three months ended
March 31, 1999....................................................8
Notes to Consolidated Financial Statements........................9-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............................13-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................15-16
Item 2. Changes in Securities...............................................16
Item 3. Defaults Upon Senior Securities.....................................16
Item 4. Submission of Matters to a Vote of Securities Holders...............17
Item 5. Other Information...................................................17
Item 6. Exhibits and Reports on Form 8-K....................................17
SIGNATURES...................................................................17
Financial Data Schedule - Exhibit 27.........................................18
2
<PAGE>
PART I
Item 1. Consolidated Financial Statements
The following, unaudited financial statements as of and for the period ended
March 31, 1999, 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
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<TABLE>
<CAPTION>
Golf Communities of America, Inc.
Consolidated Balance Sheet
March 31, 1999
--------- ----
Assets (unaudited)
<S> <C>
Cash and cash equivalents $ 1,284,824
Restricted cash 7,375,018
Accounts receivable:
Trade 954,510
Related parties 2,164,333
Other 23,784
Inventories 144,336
Prepaid expenses and other 433,045
Investment in and advances to a related party company 3,585,255
Property and equipment, at cost, net of accumulated
depreciation of $2,164,166 8,379,377
Land and development costs 102,076,559
Deferred loan costs 14,511,569
Goodwill, net of accumulated amortization of $4,179,058 8,356,973
------------- ----
Total Assets $ 149,289,583
=============
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable:
Trade $ 7,233,141
Related parties 1,889,177
Accrued expenses 1,349,148
Accrued interest payable:
Related parties 2,648,784
Other 329,136
Loan costs payable 1,920,908
Notes payable to bank and trust, net of unamortized deferred loan costs of $12,976,867 89,588,563
Notes payable 1,892,991
Related party notes payable 19,088,851
Convertible notes payable 538,030
-------------
Total Liabilities 126,478,729
--
Commitments and contingencies -
Stockholders' Equity:
Preferred stock - Class A cumulative convertible, $.001 par value,
shares authorized 350,000; 5,000 issued and outstanding 5
Preferred stock - Class B cumulative convertible, $.001 par value,
shares authorized 350,000; none issued and outstanding -
Preferred stock - Class C cumulative convertible, $.001 par value,
shares authorized 136,039; none issued and outstanding -
Preferred stock - Class D convertible, $.01 par value,
shares authorized 8,000,000; none issued and outstanding -
Common stock, $.001 par - shares authorized 100,000,000;
71,985,589 issued and outstanding 71,985
Additional paid-in capital 90,484,928
Accumulated deficit (67,746,064)
--------------
Total Stockholders' Equity $ 22,810,854
--------------
Total Liabilities and Stockholders' Equity $ 149,289,583
==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
Golf Communities of America, Inc.
Consolidated Statements of Operations
Three Months
Ended March 31,
1999 1998
--------- ---------
Operating revenue: (unaudited)
<S> <C> <C>
Dues and fees............................................ $ 649,865 $ 710,493
Golf cart rentals........................................ 682,330 734,314
Food, beverage and pro shop sales ....................... 366,452 318,090
Lot sales ............................................... 356,015 312,483
Other.................................................... 175,974 23,709
--------- ---------
Total operating revenue.................................... 2,230,636 2,099,089
--------- ---------
Costs and expenses:
Cost of merchandise and lots sold........................ 330,904 275,567
General and administrative expenses...................... 3,598,875 2,392,407
--------- ---------
Total costs and expenses................................... 3,929,779 2,667,974
--------- ---------
Loss from operations........................................ (1,699,143) (568,885)
----------- ---------
Other income (expense):
Interest income.......................................... 171,197 1,065
Interest expense.......................................... (4,111,971) (1,094,920)
Other.................................................... 223 (44,997)
--------- ---------
Total other income (expense), net........................... (3,940,551) (1,138,852)
----------- -----------
Net loss.................................................... $(5,639,694) $(1,707,737)
============ ============
Basic and diluted loss per common share..................... $(0.08) $(0.19)
======= ========
Weighted common shares outstanding......................... 71,679,479 9,186,581
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
Golf Communities of America, 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, 1997......................... 9,172,737 $ 9,173 $ 37,216,301 $ (26,361,763)
Discount on conversion prices of convertible
notes payable - - 701,186 -
Issuance of common stock as payment of
accounts payable 268,458 268 300,490 -
Conversion of Class A preferred stock
into common stock 16,915 17 (13) -
Conversion of Class B preferred stock
into common stock 404,857 405 (377) -
Issuance of common stock as payment
of settlements of disputes 1,937,000 1,937 3,271,593 -
Issuance of common stock in conversion
of notes payable 14,279,417 14,279 21,598,084 -
Issuance of common stock as payment of
loan costs 18,807,739 18,808 26,952,118 -
Redemption of Class A preferred stock - - (154,265) -
Conversion of Class D preferred stock
into common stock 26,690,319 26,690 40,036 -
Net loss - - - (35,744,607)
---------- --------- ------------ -------------
Balance, December 31, 1998..................... 71,577,442 $ 71,577 $ 89,925,153 $ (62,106,370)
Issuance of common stock as payment of
accrued expenses........................ 220,437 220 325,325 -
Issuance of common stock in conversion of
convertible notes payable............... 187,710 188 234,450 -
Net loss............................ - - - $ (5,639,694)
---------- --------- ------------ -------------
Balance, March 31, 1999 (unaudited)............ 71,985,589 $ 71,985 $ 90,484,928 $ (67,746,064)
========== ========= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
Golf Communities of America, 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, 1997......... 29,084 $ 29 28,340 $ 28 6,672,578 $ 66,726 $ 10,930,494
Discount on conversion
prices of convertible notes payable - - - - - - 701,186
Issuance of common stock as
payment of accounts payable - - - - - - 300,758
Conversion of Class A preferred
stock into common stock (4,304) (4) - - - - -
Conversion of Class B preferred
stock into common stock - - (28,340) (28) - - -
Issuance of common stock as
payment of settlements of disputes - - - - - - 3,273,530
Issuance of common stock
as payment of notes payable - - - - - - 21,612,363
Issuance of common stock as
payment of loan costs - - - - - - 26,970,926
Redemption of Class A
preferred stock (19,780) (20) - - - - (154,285)
Conversion of Class D
preferred stock into common shares - - - - (6,672,578) (66,726) -
Net Loss - - - - - - (35,744,607)
------- ----- ----- ----- ---------- -------- ------------
Balance, December 31, 1998.......... 5,000 $ 5 - $ - - $ - $ 27,890,365
Issuance of common stock as payment
of accrued expenses - - - - - - 325,545
Issuance of common stock in conversion
of convertible notes payable - - - - - - 234,638
Net Loss - - - - - - (5,639,694)
------- ----- ----- ----- ---------- -------- ------------
Balance, March 31, 1999 (unaudited) 5,000 $ 5 - $ - - $ - $ 22,810,854
======= ===== ===== ===== ========== ======== ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
<TABLE>
<CAPTION>
Golf Communities of America, Inc.
Consolidated Statements of Cash Flows
Three months ended March 31, 1999 1998
- ---------------------------- ---- ----
(unaudited) (unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net loss.......................................................$ (5,639,694) $ (1,707,737)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation......................................................78,620 76,868
Amortization...................................................3,711,506 263,181
Cash provided by (used for):
Accounts receivable........................................ (326,167) (476,438)
Inventories.................................................. (8,756) (2,402)
Prepaid expenses............................................. (63,181) 18,760
Land and development costs................................ (7,819,577) 115,856
Accounts payable............................................3,408,429 467,255
Accrued expenses...............................................89,716 (29,121)
Accrued interest payable......................................444,337 857,950
------------- ------------
Net cash provided by (used for) operating activities................. (6,124,767) (415,828)
------------- ------------
Cash flows from investing activities:
Purchases of property and equipment................................ (373,280) (164,407)
Investment in and advances to affiliate........................... 493,452 120,783
------------- ------------
Net cash (used for) investing activities.............................. 120,172 (43,624)
------------- ------------
Cash flows from financing activities:
Increase in restricted cash........................................6,910,652 -
Proceeds from notes payable................................. - 348,785
Repayment of notes payable.................................. - (51,300)
Proceeds from related party notes payable................... - 723,346
Repayment of related party notes payable.................... - (282,457)
Contributions of capital.................................... - 50,758
Deferred loan costs......................................... - (242,500)
------------- ------------
Net cash provided by financing activities..............................6,910,652 546,632
------------- ------------
Net increase in cash and cash equivalents................................906,057 87,180
Cash and cash equivalents, beginning of period...........................378,767 379,050
------------- ------------
Cash and cash equivalents, end of period...........................$ 1,284,824 $ 466,230
============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
Golf Communities of America, 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, 1998.
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 Communities of America,
Inc. (formerly Golf Ventures, Inc). ("GCA") 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 GCA
Effective November 24, 1997, GCA acquired all of the outstanding stock of
USGCI in a reverse acquisition in which USGCI's stockholders acquired
voting control of GCA. The acquisition was accomplished through an exchange
of stock in which GCA 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 exchanged 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 GCA.
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
GCA 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 GCA 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 the Strand Development Corporation of Naples
On December 4, 1997, GCA acquired 81% of the outstanding capital stock of
the Strand Development Corporation of Naples (formerly "Pelican Strand
Development Corporation") ("SDC") from Maricopa Hardy Development, Inc.
("Maricopa") in exchange for 3,432,713 shares of restricted common stock
valued at $2.75 per share. The Company had agreed to register such shares
under the Securities Act of 1933 as amended (the "Securities Act"), after
December 4, 1997. SDC 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.
Subsequent to December 4, 1997, Maricopa claimed that the Company breached
certain terms of the stock purchase agreement (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. During 1998, the Company and Maricopa entered into a settlement
agreement whereby the two parties exchanged non-monetary concessions in
resolution of any existing disputes. The settlement agreement requires a
Company shareholder to grant a security interest in and deliver 4,000,000
shares of the Company's common stock held by the shareholder and other
Company shareholders to an escrow agent. The 4,000,000 shares are to be
held in escrow until the shares owned by Maricopa become freely marketable
and tradable, as defined, or until December 3, 1999. On December 3, 1999,
if the security interest in the shares is still in effect, and if the
thirty day average stock price of the Company's common stock is less than
$4 per share, then the escrow agent is required to assign as many of the
9
<PAGE>
4,000,000 shares as are necessary to bring the shares owned by Maricopa, in
total, to a value of $13,730,852. Also on December 3, 1999, an evaluation
will be made of the historical and projected cash flows of the Company's
portion of the SDC cash flows from the PSL project. If the historical and
projected cash flows are lower than $22,275,000, then a proportionate
amount of shares held by Maricopa will be surrendered first to the
shareholders granting the stock as security in accordance with the
settlement agreement and then to the Company based upon the short-fall of
the projected cash flow returns discounted at twenty-five percent, adjusted
for certain items. There has been no adjustment made to the March 31, 1999
financial statements as a result of this contingency due to the fact that
no reasonable estimation of the result can be determined at this time.
5. Acquisition of Arlington, Texas Property
On September 3, 1998, the Company purchased a partially developed,
approximately 1,980 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.
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
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 SDC had
management agreements with related party companies. All agreements,
except for the SDC agreement, were terminated in September 1997.
Advances to Related Party Companies
SDC has recorded advances to related party companies of $1,471,205 from
PSL and other related companies as of March 31, 1999 for construction
costs incurred on their behalf. The advances are non-interest bearing
and have no stipulated repayment terms.
PSL Loan Costs and Trust
In accordance with a settlement agreement between GCA and PSL, the
Company agreed that SDC would reimburse PSL for $2,125,653 of allocated
loan costs associated with the Credit Suisse First Boston Mortgage
Capital, LLC ("CSFB") transaction described in Note 7 through the
adjustment of future cash flows from PSL.
7. Note Payable to Bank and Trust
Notes payable to bank and trust consist of the following as of March 31,
1999:
Libor plus 5.99% mortgage notes payable to
CSFB and Northwest Bank Minnesota, collateralized
by substantially all the Company's assets $ 94,565,425
Libor plus 4.5% mortgage note payable to
CSFB, collateralized by substantially all
the Company's assets 8,000,000
------------
$102,565,425
Less: Loan costs, net of accumulated amortization
of $3,989,258 12,976,862
------------
Net notes payable to bank $ 89,588,563
============
On July 2, 1998, the Company entered into several agreements with 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.
10
<PAGE>
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 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. In addition, $6,500,000 of the total financing
facility was held back by the lender, in accordance with the loan
agreement, until it became necessary for these funds to be used for certain
development and improvement projects. As of March 31, 1999, the Company had
utilized $115,425 of the $6,500,000 funds held back by the lender.
From the net proceeds of the July 2, 1998 CSFB and PSL loans, the Company
paid $30,997,419 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 accounts payable of $1,014,108, paid
closing costs of $4,355,660 (including structuring and advisory fees of
$2,713,342 paid to CSFB) and received cash of $1,345,000.
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 Company also accrued an additional $600,000
of brokerage fees associated with the Arlington, Texas purchase
transaction.
The $100,950,000 CSFB aggregate financing facility bears interest at the
London Interbank Offered Rate ("Libor") plus 5.99 percent per annum.
Interest on the borrowing is due and payable 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.
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 11, 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 17,460,182 shares of its common
stock to CSFB as additional consideration for their providing the Company
financing. The common shares issued to CSFB have been valued at
$24,813,529, 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 shares issued and the additional $8,000,000
committed to be paid to CSFB totaling $11,149,918 has been recorded on the
Company's balance sheet as an additional investment in SDC as a result of
the Company arranging and guarantying PSL's financing facility. 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 notes payable to bank balance at March 31, 1999. The loan costs,
including the portion allocated to the SDC investment, are being amortized
on the straight-line basis over the three-year term of the note.
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.
On November 11, 1998, CSFB securitized the Class A and B promissory notes
and placed the Class C promissory note into a CSFB controlled entity called
Odeon FL trust. The Class A and B promissory notes were effectively
transferred to Northwest Bank Minnesota, a national association acting as
trustee for the two notes.
Under the loan agreement with CSFB, the Company has committed to raise
financing of $4,267,139 before January 1, 2000 to fund the
Company's construction projects.
The components of deferred loan costs assets resulting from the CSFB
transaction are as follows:
11
<PAGE>
March 31, 1999
------------
Closing costs paid in the July 2 CSFB transaction $ 4,355,660
Closing costs paid in the September 3 CSFB transaction 7,487,210
Allocated portion of the CSFB $ 8,000,000 structuring
and advisory fee promissory note (net of $ 3,290,583
allocated to SDC investment) 4,709,417
CSFB exit fee accrued 1,298,250
Brokerage fees accrued for the Arlington, Texas
purchase transaction 600,000
Loan finders fee paid through the issuance of 250,000
shares of the Company's common stock 422,500
18,873,037
Less: Accumulated amortization 4,361,468
------------
Net deferred loan cost assets $ 14,511,569
============
The Company's loan agreement requires the Company, among other items, to
maintain its accounts payable balances below a 60 day aging level, sell its
Utah properties by March 31, 1999 and receive an unqualified audit opinion
from its independent certified public accountants for its December 31, 1998
financial statements. As of March 31, 1999 and continuing through the date
of this report, the Company was in default of the 60 day aging level
requirement and the obligation to sell the Utah properties. The December
31, 1998 audited financial statements included an audit opinion that was
modified for a going concern contingency. The Company has not located a
purchaser for its Utah properties as of the date of this report. In
addition to the above, the Company is delinquent on interest payments under
an $8,000,000 note payable to CSFB and the Company has not complied with
certain requirements of a cash management agreement with CSFB. The lenders
under these facilities have not waived the defaults or any remedies in
connection therewith, which remedies include possible collection actions on
the loans and foreclosure on any collateral therefor. However, the lenders
are aware of the defaults and have not taken action against the Company.
8. Notes Payable
Notes payable consist of the following as of March 31, 1999:
Two $500,000 unsecured notes payable to an
international bank bearing interest at 5.9%
and 5.6% with principal and accrued interest
payable on June 30, 1999 and May 22, 1999.
Personally guaranteed by certain Company stockholders. $1,000,000
Various unsecured notes payable bearing interest
ranging from 8.1% to 12% with accrued interest and
principal payable currently. 892,991
----------
$1,892,991
==========
9. Notes Payable to Related Parties
Notes payable to related parties consist of the following as of March 31,
1999:
Various unsecured notes payable to stockholders and other
related parties bearing interest ranging from 4% to 10%
with principal and accrued interest payable currently. $ 6,889,623
Libor plus 4.5% unsecured promissory note payable to
PSL with principal and accrued interest payable as normal
partnership cash distributions are made from PSL to SDC. 4,642,176
12% promissory note payable to a stockholder company with
accrued interest due quarterly and principal payable on
June 10, 2001. Collateralized by a second mortgage on
certain land of the Company. 3,448,670
8% unsecured notes payable to a stockholder with principal
and accrued interest payable on June 30, 1999. 1,601,172
18% note payable with accrued interest due monthly and
principal payable on September 17, 1999. The note is
secured by 500 golf memberships of PSL and 190
outstanding shares of SDC. 1,000,000
Non-interest-bearing unsecured note payable to a
stockholder due June 2, 1999. Personally guaranteed
by three Company stockholders. 800,000
8% unsecured note payable to a stockholder with
principal and accrued interest payable on June 30, 1999. 707,210
-----------
$19,088,851
===========
10. Convertible Notes Payable
Convertible notes payable at March 31, 1999 consist of various promissory
notes payable bearing interest ranging from 9% to 12% per annum with
principal and interest due on demand. The notes are convertible, at any
12
<PAGE>
time at the option of the holder, 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.
Item 2. Management's Discussion & Analysis of Financial Condition & Results of
Operations.
Statements made or incorporated in this report include a number of
forward-looking statements within the meaning of Section 27(a) of the Securities
Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words "anticipates", "believes", "expects", "intends", "future", and words
of similar import which express management's belief, expectations or intentions
regarding the Company's future performance or future events or trends.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause actual results, performance or achievements of
the Company to differ materially from anticipated future results, performance or
achievements expressly or implied by such forward-looking statements. In
addition, the Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
RESULTS OF OPERATIONS
For the Quarter Ended March 31, 1999, compared to the Quarter Ended March 31,
1998.
Total operating revenues for the quarter ended March 31, 1999 were $2,230,636
compared to $2,099,089 for the quarter ended March 31, 1998. The following table
compares the changes in the Company's revenues identified by the various golf
course operations and development activities:
1999 1998 1999/1998 %Change
---- ---- --------- -------
Dues and Fees $ 649,865 $ 710,493 $ (60,628) (8.5%)
Golf Cart Rentals 682,330 734,314 (51,984) (7.0%)
Food, Beverage & Pro Shop Sales 366,452 318,090 48,362 15.2%
Lot Sales 356,015 312,483 43,532 13.9%
Other 175,974 23,709 152,265 642.2%
----------- ----------- --------- ------
Total Operating Revenues $ 2,230,636 $ 2,099,089 $ 131,547 6.3%
=========== =========== ========= ======
As this table shows, total revenues increased by $131,547 or 6.3 % for the
quarter ended March 31, 1999 compared to the quarter ended March 31, 1998,
primarily as a result of an increase in other revenues of $152,265. Other
revenues increased resulting from the Strand Development Corporation of Naples
(formerly "Pelican Strand Development Corporation") recording $150,000 of
revenue under a management agreement for the quarter ended March 31, 1999.
Cost of merchandise and lots sold was $330,904 for the quarter ended March 31,
1999 as compared to $275,567 for the quarter ended March 31, 1998. This $55,337
increase in cost is primarily attributed to a $187,386 increase in lot sales at
the Company's NorthShore Development project.
General and Administrative expenses were $3,598,875 for the quarter ended March
31, 1999 compared to $2,392,407 for the quarter ended March 31, 1998. This
increase of $1,206,468 resulted from an increase in General and Administrative
expenses of $737,106 at the Company's Pinehurst Plantation project, $185,231 of
increased corporate office expenses, $89,615 of expenses associated with the
Company's new Arlington Lakes property and general increases in expenses
throughout the Company, all consequences of increased operations and
construction activity resulting from funds provided by the CSFB financing
transaction secured by the Company in July, 1998.
Interest expense was $4,111,971 for the quarter ended March 31, 1999 compared to
$1,094,920 for the quarter ended March 31, 1998. This increase of $3,017,051 is
due primarily to the amortization of $3,398,105 of deferred loan costs during
the quarter ended March 31, 1999 associated with the July 2, 1998 and September
3, 1998 Credit Suisse First Boston transactions described in Note 7 to the
consolidated financial statements.
The cumulative effect of these results, reported above, is reflected in the
increased net loss of $3,931,957 in the quarter ended March 31, 1999 compared to
the quarter ended March 31, 1998.
Loss per common share of $.08 for the quarter ended March 31, 1999 compared to
$.19 for the quarter ended March 31, 1998 is a result of the increase in the
Company's net loss in 1999 of $5,639,694 compared to a net loss in 1998 of
$1,707,737 and is offset by the increase in the number of weighted average
common shares outstanding for the comparative periods. This increase of
62,492,898 in the weighted average shares is primarily the result of the
Company's issuance of 14,279,417 shares for the conversion of notes payable, the
issuance of 18,807,739 shares as payment of loan costs and the conversion of
Class D preferred stocks into 26,690,319 shares of Company common stock, all
occurring subsequent to March 31, 1998.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's Debt Liabilities:
The notes payable indebtedness of the Company at March 31, 1999 was $111,108,435
(see Note 7, "Note Payable to Bank and Trust", Note 8, "Notes Payable", Note 9,
"Notes Payable to Related Parties" and Note 10 "Convertible Notes Payable" of
the Notes to the Consolidated Financial Statements of the Company):
The Company's CSFB related loan documents (See Note 7. "Note Payable to Bank and
Trust") require the Company, among other items, to maintain its accounts payable
balances below a 60 day aging level, sell its Utah properties by March 31, 1999
and receive an unqualified audit opinion from its independent certified public
accountants for its December 31, 1998 financial statements. As of March 31, 1999
and continuing through the date of this report, the Company was in default of
the 60 day aging level requirement and the obligation to sell the Utah
properties. The December 31, 1998 audited financial statements included an audit
opinion that was modified for a going concern contingency. The Company has not
located a purchaser for its Utah properties as of the date of this report. In
addition to the above, the Company is delinquent on interest payments under an
$8,000,000 note payable to CSFB and the Company has not complied with certain
requirements of a cash management agreement with CSFB. The lenders under these
facilities have not waived the defaults or any remedies in connection therewith,
which remedies include possible collection actions on the loans and foreclosure
on any collateral therefor. However, the lenders are aware of the defaults and
have not taken action against 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 three months of 1999, the Company sold approximately $356,000 of real
estate, or approximately 14% higher than the first three months of 1998.
The Company had no note payable borrowing activity during the first three months
of 1999.
The Company will be obligated to pay approximately $14 million in non-CSFB notes
(See Note 8. "Notes Payable"; Note 9, "Notes Payable to Related Parties" and
Note 10 "Convertible Notes Payable") during 1999, of which approximately $2.8
million were delinquent at March 31, 1999. The Company is also required to make
a minimum principal payment under the CSFB and Nrothwest Bank Minnesota loan of
$14,050,000 by July 1, 1999. The Company's working capital at March 31, 1999,
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
financing 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. The Company has and will continue to
renegotiate the terms of the delinquent notes and the notes due during 1999. In
addition, negotiations have and will continue between the Company and the
lenders for the conversion of certain of the non-CSFB notes payable into Company
common stock.
Going Concern
The financial statements of the Company for the year ended December 31, 1998
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 Company's year 2000 evaluation
will be ongoing during 1999 and, because of the uncertainties involved,
management has not yet developed a comprehensive year 2000 contingency plan.
The Costs to Address the Company's Year 2000 Issues
The Company has selected a new year 2000 compatible general ledger software
program 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 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
14
<PAGE>
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 material litigation:
a. On May 24, 1994, a complaint was filed against U.S. Golf Pinehurst
Plantation, Ltd., a subsidiary of U.S. Golf 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, judgment 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 judgment. 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". On December 28, 1998, U.S. Golf Pinehurst
Plantation, Ltd. and Resorts of Pinehurst, Inc. entered into a release
and settlement agreement. The agreement terminated all disputes between
the two parties in exchange for U.S. Golf Pinehurst Plantation, Ltd's
payment of $50,000 on or before January 1, 1999, payment of $12,500 on
or before April 1, 1999 and a covenant to provide 70 golf tee times per
month for five consecutive years for Resorts of Pinehurst, Inc.
patrons. The $50,000 payment due December 31, 1998, was made and an
additional $325,000 has been accrued for the April 1, 1999 cash payment
due and the estimated value of the golf tee time covenant.
b. On December 18, 1997 the Securities and Exchange Commission (the
"Commission") filed certain complaints 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, Marion Sherrill, Harmon S. Hardy, Jr., La Jolla
Capital Financial Corp., Harold B. Gallison, Jr., Terry Hughes, Marvin
15
<PAGE>
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, 13a-1 and 13a-13.
The Company made an offer of settlement, which was accepted by the
Commission, finalizing the matter. The Company, without admitting or
denying any allegations accepted a cease and desist order relating to
certain practices of former Company management.
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 sales of unregistered securities by the
Company for services, property or cash to support and advance the Company's
business plan during the quarter ended March 31, 1999:
- -In January, 1999 the Company issued 187,710 shares of its common stock to Elena
Von Bentzel, Luitpold Roever, Michael Stiegler and Elisabeth Seifert in
connection with the conversion of convertible notes payable and accrued interest
totaling $234,638. Based on the domicile of the individuals as German citizens,
the Company believes the shares related to these transactions were exempt from
registration under the Securities Act pursuant to rule 903 of Regulation S
promulgated thereunder.
- -In February, 1999 the Company issued 200,000 shares of its common stock to
Robert Faust Mortgage Company as payment of $300,000 of accrued commissions owed
by the Company in connection with the acquisition of its Arlington, Texas
property. Based on representations provided to the Company, the Company believes
that Robert Faust Mortgage Company is an "accredited investor" as defined in
Regulation D promulgated under the Securities Act and possesses the necessary
knowledge, experience and economic strength to qualify for the exemption under
Section 4(2) of the Securities Act.
- -In February, 1999 the Company issued 20,437 shares of its common stock to
Dominique Rihs as payment of $25,545 of legal services accrued by the Company.
Based on representations provided to the Company, the Company believes that
Dominique Rihs possesses the necessary knowledge, experience and economic
strength to qualify for the exemption under Section 4(2) of the Securities Act.
Item 3. Defaults Upon Senior Securities
The Company's CSFB related loan documents (See Note 7. "Note Payable to Bank and
Trust") require the Company, among other items, to maintain its accounts payable
balances below a 60 day aging level, sell its Utah properties by March 31, 1999
and receive an unqualified audit opinion from its independent certified public
accountants for its December 31, 1998 financial statements. As of March 31, 1999
and continuing through the date of this report, the Company was in default of
the 60 day aging level requirement and the obligation to sell the Utah
properties. The December 31, 1998 audited financial statements included an audit
opinion that was modified for a going concern contingency. The Company has not
located a purchaser for its Utah properties as of the date of this report. In
addition to the above, the Company is delinquent on interest payments of
approximately $500,000 under an $8,000,000 note payable to CSFB and the Company
has not complied with certain requirements of a cash management agreement with
CSFB. The lenders under these facilities have not waived the defaults or any
remedies in connection therewith, which remedies include possible collection
actions on the loans and foreclosure on any collateral therefor. However, the
lenders are aware of the defaults and have not taken action against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of the Company's security holders during the
quarter ended March 31, 1999.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit numbers
(1) Exhibit 27-Financial Data Schedule
16
<PAGE>
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, May 14, 1999
- -------------------- Chief Executive Officer and Director
/s/ Kevin Jackson Chief Financial Officer May 14, 1999
- -----------------
17
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 8,659,842
<SECURITIES> 0
<RECEIVABLES> 3,142,627
<ALLOWANCES> 0
<INVENTORY> 144,336
<CURRENT-ASSETS> 0
<PP&E> 10,543,543
<DEPRECIATION> 2,164,166
<TOTAL-ASSETS> 149,289,583
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<BONDS> 111,108,435
0
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<COMMON> 71,985
<OTHER-SE> 22,738,864
<TOTAL-LIABILITY-AND-EQUITY> 149,289,583
<SALES> 722,467
<TOTAL-REVENUES> 2,230,636
<CGS> 330,904
<TOTAL-COSTS> 3,929,779
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,111,971
<INCOME-PRETAX> (5,639,694)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,639,694)
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