UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
Annual report under Section 13 or 15 (d) of the
Securities Exchange Act of 1934 For the
year ended December 31, 1998
0-21337
(Commission File Number)
Golf Communities of America, Inc.
(Name of Small Business Issuer in Its Charter)
UTAH 87-0403864
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
255 South Orange Avenue, Suite 1515, Orlando, Florida 32801
(Address of Principal Executive Offices) (Zip Code)
(407) 245-7557
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $.001 per share
(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes [ x ] No [ ]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ x ]
The issuer's revenues for the year ended December 31, 1998 were $8,239,741.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of December 28, 1998 was $23,516,948.
The number of shares outstanding of the issuer's common equity, as of December
31, 1998 was 71,577,442 shares.
Transitional Small Business Disclosure Format (check one): Yes[ ] No[ x ]
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PART I
Item 1. Business.
General Information about the Company
Golf Communities of America, Inc. (formerly Golf Ventures, Inc.) ("the Company")
is a Utah corporation formed in 1983. GCA's principal corporate offices are
currently located at 255 South Orange Avenue, Suite 1515, Orlando, Florida,
32801. Previous addresses include 345 North 2450 East, St. George, Utah 84790
from September 1997 until December 1997, and prior to that at 102 West 500
South, Suite 400, Salt Lake City, Utah 84101. The Company's telephone number is
(407) 245-7557.
On November 26, 1997, the Company closed on its reverse acquisition
reorganization with U.S. Golf Communities, Inc. ("U.S. Golf"). Under the terms
of this reorganization, the Company issued and delivered to the shareholders of
US Golf 6,672,578 shares of Series D Convertible Preferred Stock ("the Series D
Stock"). Each share of the Series D Stock had four (4) share votes in any vote
of the common stockholders of the Company, and each share of Series D Stock was
converted into four (4) shares of Common Stock in 1998. The result of this
issuance of Series D Stock is that the shareholders of US Golf then owned
approximately 81% of the voting securities and equity of the Company. For
financial reporting purposes, US Golf was deemed to be the acquiring entity and
the acquisition was treated as a purchase of the Company. US Golf is now a
wholly owned subsidiary of the Company. All the officers and directors of the
Company prior to November 26, 1997 have left the Company effective December
1997, and the management, officers and directors of US Golf were retained in
their place at that time.
On November 20, 1998, the Company held an annual meeting of its shareholders.
During the meeting, the shareholders voted to elect the Company's Board of
Directors and to approve the Company's Long Term Equity-Based Incentive Plan. In
addition, the notice of the shareholders meeting served as an information
statement to all of the shareholders of three actions by written consent for the
approval and ratification of the Company Board of Directors' prior designation
and issuance of Series A, B, C and D convertible preferred stock, the approval
of an amendment to the Company's articles of incorporation increasing the number
of authorized shares of the Company's common stock, $.001 par value, from
25,000,000 shares to 100,000,000 shares and the approval of an amendment to the
Company's articles of incorporation to change the name of the Company to Golf
Communities of America, Inc. Upon the increase in the Company's authorized
common stock, the Series D Stock issued in the U.S. Golf transaction was
automatically converted into Company common stock. More information about the
Company following its reorganization with US Golf can be found in the Company's
Reports on Form 8-K filed on November 27 and December 19, 1997, and on January
25, and May 6, 1998.
On July 2, 1998, the Company entered into several agreements with Credit Suisse
First Boston Mortgage Capital, LLC ("CSFB") which provided the company with a
$50,950,000 financing facility for the refinance of certain existing notes
payable and to provide construction funds for future development projects. The
Company also arranged a $35,600,000 financing facility for Pelican Strand, Ltd.,
(PSL) a limited partnership in which the Company holds an 81% interest in the
general partner (see form 8-K report dated July 17, 1998). As partial
consideration for the financing facility, the Company issued 13,648,460 shares
of its common stock to CSFB, representing an approximate 25% ownership interest
in the Company. The financing facility has been recorded net of the value of the
stock which will be amortized as additional interest expense over the three year
life of the loan. The Company also granted CSFB a first mortgage security
interest in all the Company's property and assets in order to secure the
financing facility. The financing facility provided the Company with
approximately $9,733,000 of construction funding for the continued development
of the Company's then existing projects.
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., for a total purchase price of $47,971,635 (See form 8-K report
dated September 18, 1998). The purchase price was 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. The proceeds from the financing provided the Company with
approximately $12,000,000 in additional construction funding for the development
of the Arlington project.
The Company is engaged in the business of real estate development, primarily
golf courses with surrounding residential real estate, and owning, managing and
operating existing golf courses. The Company currently has active projects, both
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completed and under development, in Florida, North Carolina and Texas and,
through a wholly owned subsidiary, a property held for sale in Utah.
SUMMARY INFORMATION ABOUT THE COMPANY'S PROPERTIES
In 1993, the Company acquired an undeveloped 616 acre parcel of land in
Washington, Utah and two other single family dwelling developments in St.
George, Utah from American Resource and Development Company, Inc. ("ARDCO") in
exchange for 654,746 shares of GCA common stock, which represented approximately
86% of the Company's total outstanding shares at the time. The Company also
assumed $4,338,319 of monetary debt in connection with the acquired properties.
The Company named its residential developments "Cotton Acres" and "Cotton
Manor", and called its 616 acre parcel of undeveloped land the Red Hawk(TM)
International Golf & Country Club ("Red Hawk"). On June 1, 1994, the Company
acquired an additional 54 acres of land adjacent to Red Hawk for future
development.
The Company is contractually obligated to sell Cotton Manor, Cotton Acres, and
Red Hawk, in its entirety, under the loan agreement with CSFB. The agreement
requires the sale to take place on or before March 31, 1999, however, as of the
date of this report, the Company has not located a purchaser.
In November 1997 as a result of the reverse acquisition transaction with US
Golf, the Company acquired properties and operations in North Carolina, Texas
and Florida. US Golf was established in April 1996 for the purpose of
consolidating various golf related properties owned by several diverse entities.
US Golf and its affiliated entities had acquired, developed and operated golf
related properties throughout the southeastern United States. The decision of
the Company to reorganize with US Golf was made in large part to take advantage
of US Golf`s greater experience and connections in developing large golf course
communities like Red Hawk. The Company's golf related properties acquired
through US Golf consist of the following:
Cutter Sound Golf & Yacht Club ("Cutter Sound") is located at 2381 SW
Carriage Hill Terrace, Palm City, Florida, 34990. Cutter Sound was
acquired, under the terms of a purchase option, in September 1994 and
consists of an 18-hole course built in 1990. In addition to the 71 acre
golf course, the property contains 96 deep-water yacht moorings and 148
acres approved for 258 residential units, of which 48 townhouse and 25
single-family lots are currently sold. There are 24 golf course lots,
41 single-family lots and 8 condominium lots improved and available for
sale at this time with 97 future development parcels. Construction is
anticipated to begin on a new permanent clubhouse located on the
property during 1999.
Hillcrest Country Club (formerly Montverde Country Club and
Development) ("Hillcrest") located approximately 20 miles west of
downtown Orlando, Florida. Hillcrest was acquired in November 1990 and
consists of 430 acres. The construction of an 18-hole golf course and
residential infrastructure began in late 1998. Once fully developed,
the property is planned to contain a golf course and 256 acres for 365
residential units.
NorthShore Country Club and Community ("NorthShore") is located at 801
East Broadway Avenue, Portland, Texas, 78374. NorthShore was acquired
in 1992 and consists of an 18-hole course built in 1985, and a
clubhouse built in 1986. In addition to the 185-acre golf course, the
property contains 190 acres approved for residential development.
Approximately 50 single-family residential lots are currently being
marketed. Additionally, there is approximately 150 acres surrounding
the golf course in various stages of planning and permitting.
The Plantation Golf Club ("Plantation"), is located at 2130 Midland
Road, Pinehurst, North Carolina, 28734. Plantation was substantially
(60%) acquired in April 1994, and became wholly owned in March 1996.
The property consists of an 18-hole golf course, built in 1992, and a
temporary clubhouse. In addition to the 140-acre golf course, the
property contains 404 acres approved for 650 residential units.
Currently the development has sold 147 residential homesites and is
planned to ultimately feature 500 additional lots and cottage/timeshare
sites. Construction is anticipated to begin on a new permanent
clubhouse located on the property during 1999.
In addition to these large development projects, the Company also owns
and operates two semi-private, 18-hole championship golf courses, The
Pines Golf Club ("The Pines") and Wedgefield Golf and Country Club
("Wedgefield"). The Pines, acquired in April, 1991, is located
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approximately 25 minutes north of Orlando, Florida midway between
Orlando and Daytona Beach in Orange City, Florida. Wedgefield,
reacquired in May 1995 (having been sold in April 1994), is located in
eastern Orange County, Florida, and approximately 15 minutes from the
Orlando International airport and 30 minutes from downtown Orlando.
Through a special purpose subsidiary, the Company acquired 81% of the
outstanding common stock of Pelican Strand Development Corporation ("PSDC") from
Maricopa Hardy Development Group ("Maricopa"), through the issuance of 3,432,713
shares of Company common stock in December 1997. PSDC is the general partner of
PSL a Florida limited partnership formed in 1995, which owns the Pelican Strand
Golf and Country Club Development located in Naples, Florida. The Company
through its ownership interest in the general partner owns approximately an 8%
financial interest in and is entitled to 40-60% of the future cash flows of the
limited partnership. The Pelican Strand property development consists of an
18-hole course, which opened in November 1997, with an additional nine holes
which is anticipated to be opened in early 1999. In addition to the 203 acres
available for the golf course development, the property contains 158 acres
approved for residential development, 30 acres for commercial development, 171
acres for lakes and preserves and 13 acres for the clubhouse. (See "Pelican
Strand" below)
Subsequent to December 4, 1997, Maricopa claimed that the Company had breached
certain terms of the PSDC stock purchase 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.
On July 1, 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 release to
Maricopa as many of the 4,000,000 shares as are necessary to bring the shares
owned by Maricopa, in total, to a value of $13,730,852 based upon the settlement
agreement. In addition, on December 3, 1999, an evaluation will be made of the
historical and projected cash flows of the Company's portion of the PSDC 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 shareholder granting the stock as security interest 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 December 31, 1998 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.
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., for a total purchase price of $47,971,635 (See form 8-K report
dated September 18, 1998). The purchase price was 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. The Arlington property is located between Highway 360 and 157
in North Arlington, Texas. Earth moving and lake dredging is currently in
progress for the development of 400 acres for residential purposes and over 300
acres of master planned business and retail development, all to be surrounded by
over 500 acres of man-made lakes, 120 acres of wetlands, and 220 acres of
greenbelt.
The $100,950,000 CSFB aggregate financing facility bears interest at the London
Interbank Offered Rate ("Libor") plus 5.99% 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 financing facility is collateralized by a first mortgage
security interest in substantially all the Company's assets. Under the terms of
the loan agreement, the Company is prohibited from granting additional security
interests in the Company's assets. This could have a materiel adverse effect on
the Company's obtaining additional financing in the future. The allocation of
the financing facility, including loan hold-backs, to the subsidiaries of the
Company and US Golf, its wholly owned subsidiary as applicable, is as follows:
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Allocated
Principal
Borrower Property Balance
- - -------- -------- -------
Cutter Sound Development, Ltd. Cutter Sound $ 14,041,770
Montverde Property, Ltd. Hillcrest 4,312,828
NorthShore Golf Partners, Ltd.
and NorthShore Development, Ltd.
(jointly and severally) NorthShore 6,104,521
US Golf Pinehurst Plantation, Ltd. Plantation 14,269,717
FSD Golf Club, Ltd. Pines 2,663,028
Wedgefield Limited Partnership Wedgefield 2,696,818
RH Holdings, Inc. Red Hawk
Cotton Manor
Cotton Acres 6,861,318
Arlington Lakes, LP Lakes of Arlington 50,000,000
--------------
Total $ 100,950,000
==============
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.
As additional consideration for structuring and advisory services provided by
CSFB related to the financing facility, the Company issued an additional 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.
Following the $50,000,000 financing facility increase, the CSFB financing
provided the Company a total of approximately $21,733,000 in construction funds
for the continued development of the Company's real estate projects.
The Company has no specific plans to acquire any additional real estate projects
in the foreseeable future, and will focus its energy and resources on developing
and maximizing its current projects. Significant development capital will be
needed to do this effectively. There can be no assurance that the Company will
be able to acquire the needed financing on terms and conditions which will allow
the Company to effectively and profitably develop its current inventory of
development projects.
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EMPLOYEES
At December 31, 1998, GCA had 177 full-time and 75 part-time employees.
Item 2. Properties.
The following table summarizes the development properties owned or directly
controlled by the Company.
<TABLE>
<CAPTION>
Golf Residential Acre Development
Total Course Residential Maximum Units Units Units to be
Properties Acres Acres Acres Units Sold Developed Developed
- - ---------- ----- ----- ----- ----- ---- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Cutter Sound..........213...........71............142 *.............263..........83..........72..........108
Hillcrest.............430..........180............256 **............365...........0...........0..........365
NorthShore............380..........185............190 *.............879.........315..........49..........515
Arlington...........1,980..........N/A.............400**............920...........0...........0..........920
Pelican Strand........575..........203............342 *.............963.........293.........394..........276
The Pines..............74...........74............N/A...............N/A.........N/A.........N/A..........N/A
Plantation............535..........131............404 *.............647.........147..........53..........447
Wedgefield.......... 123........ 123........... N/A.............. N/A.........N/A.........N/A..........N/A
----- ----- --- --- --- --- ---
Sub-total......4,310..........967..........1,734.............4,037....... 838....... 568........2,631
----- --- ----- ----- ----- ----- -----
Cotton Manor...........20..........N/A.............20 *.............130..........35..........14...........81
Cotton Acres...........60..........N/A.............60 *.............238.........199...........3...........36
Red Hawk............ 670........ 182......... 488 **..........1,001.... 0..... 0........1,001
----- ----- ------- ----- -------- ------- -----
Total..........5,060........1,149..........2,302.............5,406.......1,072....... 585........3,749
===== ===== ===== ===== ===== ===== =====
</TABLE>
* Partially developed and sold
** Only partially developed, no sales.
CUTTER SOUND GOLF & YACHT CLUB
Cutter Sound is a 213-acre development located in Palm City, Martin County,
Florida, the heart of the Treasure Coast of East Florida. A short drive from Ft.
Lauderdale, it has easy access to the Florida Turnpike, 4.5 miles away, and to
I-95, just 5 miles away. The community sits directly on the mile wide North Fork
of the St. Lucie River with direct access to the Atlantic as well as to the
Okeechobee Waterway (to Gulf of Mexico) and includes 96 deep-water boat slips.
Boat slips can accommodate yachts to 65 feet and 20-foot beams. All slips have
water, telephone, cable TV and 110/220 volt, 50-amp power. Such sheltered
deep-water mooring facilities are becoming scarce in this high-growth Southeast
Coastal region.
The golf course is an 18-hole, par 71, championship course winding through
subtropical vegetation. The development currently has 65 golf course homesites
and 16 waterfront estates and 48 Harbor Island Townhome sites.
Although currently there is no permanent clubhouse on the property, construction
is anticipated to begin on a permanent clubhouse during 1999. Temporary golf
pro-shop and snack bar facilities are housed in a temporary modular building
near the future site of the permanent clubhouse. The administrative offices and
real estate sales center is housed in one of the 8 9 condominiums already
completed.
Homesites are separated into three sections: 1) Bridgeview - starting at
$85,000; 2) The Fairways - between $107,000 - $134,000; and 3) The River Club -
featuring nature views, water views and direct waterfront. River Club sites
range from $162,000 - $495,000. There currently are also six, golf front
condominiums priced between $195,000 - $240,000.
Preliminary plans for future development call for condominiums from $200,000,
zero-lot-line homes starting at $185,000, golf villas from $200,000 and
townhomes beginning at $250,000.
To date, golf revenues have been minimal and memberships are not being actively
marketed. Maintaining the exclusivity of the project and its amenities has been
a priority. Now that final yacht slip permits are in place for resident use, and
the clubhouse construction is coming on line, marketing has commenced. To
subsidize golf operations and keep the project in the public eye, corporate golf
outings, hotel packages, and events such as Junior Golf tournaments are hosted
at the club. In addition to resident and non-resident member play and corporate
play, guest fees will be established for the yacht slip owners.
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HILLCREST COUNTRY CLUB (formerly MONTVERDE COUNTRY CLUB AND DEVELOPMENT)
Hillcrest is a 430-acre development located approximately 20 miles west of
downtown Orlando, Florida. The hilly topography around Montverde is rare in
Florida. The highest point of the property is approximately 180 feet above sea
level; one of the highest in Central Florida. The property offers a majestic
view of Lake Apopka and Orlando's growing skyline. The recent extension of the
East-West Expressway and its new interchange at the Florida Turnpike - only
minutes from the property - have brought this site closer to the brisk real
estate development now underway in West Orlando/East Lake County. A new hospital
and a regional mall have opened just minutes away.
At this time, Hillcrest is under development. The Steve Smyers designed golf
course is being shaped and is expected to be ready for grassing this summer.
Steve Smyers has designed such well-respected courses as Southern Dunes near
Haines City, Florida, and Chart Hills (with Nick Faldo) in England. The
Hillcrest development, is planned to consist of several small residential
cluster communities surrounding and within the golf course layout. Each cluster
is designed to have its own identity, yet be complimentary to the entire
project. When completed there will be 365 homes ranging in price from $150,000
to in excess of $400,000.
The Company is negotiating with several builders about participation in the
project. The project is estimated to cost approximately $13 million to develop,
including $5,000,000 of estimated costs to complete the golf course and phase
one, (approximately 200 lots), of the residential development.
NORTHSHORE COUNTRY CLUB AND DEVELOPMENT
NorthShore is a 380-acre waterfront development located in Portland, San
Patricio County, Texas (8 miles from Corpus Christi, Texas). The development
features 49 developed, single-family residential lots currently being marketed,
and approximately 150 acres of additional land surrounding the golf course - in
various stages of planning and permitting. The remaining development land has
preliminary plat approval for approximately 500 residential lots.
With over 300 homes already in place, NorthShore has established itself as an
active growing real estate development and country club. Nearly all of the
original 296 homesites have been sold, along with several in the most recently
opened phase.
In April 1995, development of 69 golf course homesites was completed on Corpus
Christi Bay on the 14th/15th/16th fairways. The large homesites range in size
from 80' x 115' to up to 2-acres in area. Typical buyers are career family
move-up couples, empty nesters, or downsizing buyers. Homesites are priced from
$25,000 to $281,400 and homes, built by independent builders, are priced from
$140,000 to $600,000.
Approximately 150 acres with preliminary plat approval for approximately 500
additional units remain to be developed. Preliminary approvals are in place for
a retiree golf villa project on 50' wide homesites, as well as a project of 63
moderate priced 70' wide homesites.
The 18-hole championship golf course, designed by Robert Von Hagge and Bruce
Devlin, was completed in 1985. Four holes hug the rugged and picturesque Corpus
Christi Bay shoreline. The fairways of the "links-style" course include the
challenging style of mounding often associated with Von Hagge/Devlin courses, as
well as extensive use of railroad ties and natural sandy waste areas.
The clubhouse complex is approximately 40,000 square feet, which includes five
buildings. The complex includes a 6-court lighted tennis center and near junior
Olympic size lap pool, wading pool, a snack bar, a recreation and party room,
men's and women's locker rooms and a tennis pro shop.
The Country Club offers fine dining and banquet facilities, wedding receptions
and corporate functions. An exercise room with new equipment, men's and women's
whirlpools and saunas, and large locker room areas are also part of the Club.
Monthly dues rates range from $50 for social memberships to $100 for full. At
present, there are over 850 members of which over 600 are full golf members. The
Company estimates that an additional $7,100,000 will be required to complete the
remaining residential development of this project, including $900,000 of
estimated costs to complete phase nine, (83 lots), of the development.
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THE LAKES OF ARLINGTON
The Lakes of Arlington is a master planned residential and business community
located on 1,980 acres in North Arlington, the heart of the Dallas-Fort Worth
metroplex. The property is strategically located between Highway 360 to its east
and Highway 157 along and through its western boundary with DFW Airport only two
miles to the north. It is bordered on the south and east by the Trinity River
with its protected greenbelt and linear park. The Lakes of Arlington is only
minutes from the Arlington Ballpark, Six Flags, The Great Southwest Business
Center, Texas Stadium, Lone Star Race Track and a multitude of dining and
shopping establishments. It is centrally located north of I-30, which makes for
a short commute to downtown Dallas, Fort Worth and Las Colinas.
As planned, the Lakes of Arlington will consist of over 400 acres of exclusive
residential communities with gated access and over 300 acres of master planned
business and retail development, all surrounded by over 500 acres of man-made
lakes, 120 acres of wetlands and 220 acres of greenbelt with over four miles of
frontage along the Trinity River. This greenbelt will include a jogging/bike
trail as an extension of the River Legacy Park system to be maintained by the
City of Arlington. Blue Lake, the largest in the chain of lakes, will be over
350 acres, providing a recreational use body of water. In all, well over three
miles of shoreline frontage will exist for residential and business uses along
the lakeshore, including a unique residential island in Blue Lake for exclusive
homesites.
1999 will be a year of great transition for this property. The completion of the
earth moving and lake excavation in the first half of the year will lead to
completion of the arterial streets and entryway landscaping. By late summer, the
tree lined streets and grassy medians and shorelines will begin to show the full
potential of this beautiful and extremely well located property. CSFB has funded
approximately $12,000,000 for the construction of the property. The Company
estimates that $44,000,000 will be required to complete this project, including
approximately $25,000,000 of estimated costs to complete phase one,
(approximately 500 lots), of the residential development.
The Lakes of Arlington was financed by a $50,000,000 addition to the Company's
CSFB financing facility. The facility bears interest at Libor plus 5.99%.
PELICAN STRAND
Pelican Strand is a new community located in Naples, Collier County, Florida.
This 575-acre planned unit development is situated at the northwest quadrant of
the major crossroads of I-75 and Immokalee Road near the Tamiami Trail (U.S. Hwy
41).
The developable residential land covers 158 acres, originally zoned for a
maximum of 1,200 Units. The density varies from single-family homesites, to
multi-family condo sites and detached villas. It is anticipated that lot prices
will range from $20,000 to $150,000 with the price of homes built by independent
builders, ranging from $120,000 to $600,000. Approximately one-half of the
development is under contract (approximately 500 units) with various builders
and commercial retail users. The infrastructure along the main spine road, which
serves the various subdivisions, is complete. Pods of land are sold to various
builders who put in the infrastructure, entry feature, landscaping, and homes or
retail structures in the various subdivisions.
Builders currently engaged in home, condo and villa construction at Pelican
Strand include Empire Builders, The Jack Parker Corp, Millennium Communities,
Keevan Homes, Beach Tree Homes, Arthur Rutenberg - ARBC, Vision Builders and
Vicon Homes. Paul Hardy, Renee Tolson and David Mobley were involved in the
initial development of the project and continue to hold an equity interest.
Their company, Maricopa Hardy Development Group, is a real estate development
firm specializing in golf course and country club communities in the Naples
area.
The project's main amenity is an 27-Hole Championship golf course, the first 18
of which opened in November 1997, with the additional nine holes opening in
March, 1999. The Club's facilities include an "aqua" practice range, putting
green, a completed 32,000 sq. ft. clubhouse featuring Pro Shop, dining room,
board room, multi-media center, locker rooms, beauty salon, offices and meeting
rooms. The Club complex will also provide tennis courts, full basketball court,
fitness facility, and swimming pool. The golf course covers 203 acres and the
country club site covers 13 acres, with the planned various residential
neighborhoods surrounding the course. Included in the project are 75 acres of
lakes and 96 acres of preserves.
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All residents of Pelican Strand receive a social membership to the Club, with
the option of upgrading to a full golf or tennis/fitness membership. Golf
memberships are available to residents as well as non-residents, with a total of
600 possible Full Golf members. Additionally, 200 Tennis memberships and 500
Sports memberships will be marketed.
The planned unit development includes 30 acres of commercial land fronting
Immokalee Road. Tenants for the new integrated commercial site already include
Publix, Shell Oil, First Union Bank, Barnett Bank, Fifth & Third Bank, several
small service businesses and the Naples Area Chamber of Commerce Visitors
Center. The planned unit development also allows for a 140-Unit motel/hotel
site. The Company estimates that an additional $3,000,000 will be required to
complete this project.
THE PINES GOLF CLUB
The Pines Golf Club is a 74 acre semi-private 18-hole championship course built
in 1986, located approximately 25 minutes north of Orlando, midway between
Orlando and Daytona Beach (Volusia County) in Orange City, Florida. This is a
high-growth, affordable bedroom and retirement community.
The golf course, which measures 6,400 yards from the back tees, meanders
throughout a 310-acre manufactured home community, in some locations heavily
wooded with mature trees. Affordable fees attract players from coastal and
Orlando areas.
Originally, the property included a 23,000 square foot clubhouse first
constructed in 1948 as a monastery for the monks of the Order of St. Augustine.
Its Spanish architecture, with tile roof, bell tower and chapel, provided a most
interesting atmosphere. However, the age and design of the building resulted in
extraordinary operating and maintenance costs, and the new city codes were
requiring costly improvements. Management deemed that the additional cost for
capital improvements to the building was less advisable than an outright sale of
the building. Terms of the sale include 99-year rights to space for golf shop
operation and office administration within the building. The initial five year
period is rent free, with the rental for the remainder of the term a at mutually
agreed rate. The new building owner has commenced renovations, which until
completed, have necessitated the relocation of club operations to a new
temporary facility adjacent to the old one. The Club name was changed from
"Monastery" to "The Pines" at the time the old "Monastery" clubhouse was sold.
At the time of original purchase in April 1991, the selling developer had
burdened the club with reduced rate guarantees to several hundred members for 5
and 10-year periods. As of August 31, 1996, all such guarantees (except for a
very few members) fully expired. The effect of the guarantee was that most of
the members utilized the facilities for a fee of $2 - $5 per golf round, while
area market rates were at a minimum of $10 - $30 per round. With the `96-`97
member year, several new membership categories were offered and traditional plan
annual dues now range from $900 - $1,500 per year. Also being offered is a
discounted "Pay as you Play" membership program. Currently the club has
approximately 150 members.
THE PLANTATION GOLF CLUB & DEVELOPMENT
Plantation is a 535-acre development located in Moore County, North Carolina,
with its entrance just 3 miles from the Pinehurst Village center. Currently, the
Army Corps of Engineers ("ACE") Wetland Permit has expired. The Company has
retained an engineering firm to complete a new wetland delineation. A formal
approval and acquisition of the new Wetland Permit remains to be completed,
which the Company believes is imminent.
Plantation's golf course was completed and opened in June 1993. The course is an
Arnold Palmer, 18-hole championship design and has rapidly become a popular
course in the area. Golf Digest gave the course a rating of 4 stars in 1995. The
development has sold nearly 150 homesites and is approved for 500 additional
units.
Completion of the sewer, water and paving in the initial phases of the
development has enhanced the appearance and viability of the real estate
project. Additionally the Company has, developed phases for specialized new
product, such as, the new Birkdale Village patio home section. A
revitalization/beautification program, including landscaping, a new main
entrance, and gatehouse to the development was completed, and proper golf turf
maintenance has greatly enhanced the overall appearance and health of the golf
course and residential community.
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The "temporary" clubhouse consists of 1,000 square feet for the snack bar/grill,
golf pro shop, locker rooms and office space with an adjacent temporary real
estate marketing facility of approximately 1,200 square feet providing
additional office and storage space. Construction is anticipated to begin on a
new permanent clubhouse located on the property during 1999.
Subsequent to December 31, 1998, the Company entered into a land purchase
agreement for the sale of all Plantation's residential development lots for a
total purchase price of $10,000,000. The agreement requires the buyer to
purchase 33 lots upon execution of the contract for $1,000,000, and an
additional 67 lots each year thereafter at a purchase price of $19,150 per lot.
In addition, the buyer will purchase 500 memberships to the Company's golf club
for a total purchase price of $5,000,000, to be evidenced by a non-recourse
non-interest-bearing promissory note. Payments under the note will be made in
$10,000 installments as the buyer transfers the memberships to third-party
purchasers of the residential lots. The note matures seven years from the date
of the agreement, at which time any unsold memberships will be returned to the
Company and offset against the balance of the promissory note. The agreement has
been signed by the Company and buyer and is currently pending the approval of
CSFB prior to its full execution. In the event that the required approval is not
received and the contract is not fully executed, the Company has a plan of
development for Plantation.
Plantation's development plan includes a guest home product to be developed
around the to-be-built club house and swim and tennis facility. Research has
confirmed that there is an unsatisfied market demand for an upscale member club
cottage development - emanating from two distinct markets: 1) the second, or
vacation, home market among Plantation's existing membership; and 2) new
corporate member and business user guests.
Many of Plantation's existing and prospective members do not live in the
immediate area. Indications are that they would be likely to purchase housing
(or rent) units which could be "owner occupied" part of the year and placed in a
rental pool other times.
The second distinct club cottage market is that of the corporate member user
desiring housing and lodging for business retreats. According to the Pinehurst
Area Convention and Visitor Bureau ("PACVB") the area is not currently able to
provide housing for approximately 10,000 requested room-nights of this type. The
PACVB indicates that these business groups wish to schedule business meetings of
up to one week for from 4 to 24 employees or business associates in a private,
exclusive golf course setting. Inquiries come mainly from the nearby
metropolitan areas of Charlotte, Raleigh, Greensboro, and Washington D.C. The
Company is currently investigating the feasibility of developing, selling, and
managing a product for these markets.
The current site design concept will allow a number of corporate cottages
buffered from any single-family residential area. Current concept plans for
these cottages may have up to four "lock-out" suites, which can be individually
opened, if desired, to a common gathering parlor (with a full kitchen, sit-down
dining area, and living room). If the Company's land purchase agreement is fully
executed, the Company estimates that the new clubhouse will cost approximately
$2,000,000 to complete. If the land purchase agreement is not executed the
Company estimates that an additional $5,500,000 of residential development costs
will be required to complete the project.
WEDGEFIELD GOLF AND COUNTRY CLUB
Wedgefield Golf & Country Club, a semi-private, 18-hole championship course
(6,500 yards), originally purchased by the Company in 1989 and repurchased in
May 1995 (after having been sold in April 1994), is located in eastern Orange
County, Florida approximately 15 minutes from the Orlando International Airport
and 30 minutes from downtown Orlando.
Wedgefield is fully irrigated with an effluent fertigation system, featuring
subtropical vegetation, ample water and sand hazards. The well-drained and
healthy turf makes for a desirable golf course. An average of 55,000
rounds-per-year are played on the course primarily by members and East Orlando
residents, however, the course draws a significant number of players from the
nearby coastal areas as well.
The club is within the residential development now called Wedgefield, formerly
known as Rocket City and then Cape Orlando Estates. The club currently has
approximately 100 members. The 9,280 square foot clubhouse and adjacent 5,400
square-foot golf cart facility were completed in 1990. Amenities of the
clubhouse include a large, fully equipped kitchen, lounge, dining/banquet rooms,
private executive dining room, locker rooms, spacious pro shop and
administrative offices.
While Central Florida has a definite seasonal influx of part-time residents and
tourists, Wedgefield enjoys a steady year-round customer base. A significant
number of customers are retirees. Profitable small and medium-sized golf outings
are increasingly attracted to the club. Maintaining the golf course in top
condition and keeping the fees and dues affordable - thereby maximizing rounds -
are the keys to Wedgefield's continued success.
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COTTON MANOR AND COTTON ACRES
Cotton Manor is a 20-acre development approved and platted for a total of 130
units. Of the 36 total approved units in Phases I and II, 28 condominium units
are completed (one two-story building with 16 units and three one-story
four-plexes). Eight units remain to be built to complete Phase II. Recreational
facilities including a swimming pool, tennis courts, and a putting green were
constructed in Phase I.
The Company has amended the plat for Cotton Manor to accommodate 94 additional
units as single detached units. These are referred to as "cottages" or
"townhomes". In Phase III, two cottages were built and sold. Development of the
19 lots in Phase IV has been completed at a cost of approximately $11,700 per
lot. Five of the Phase IV lots have been sold. One lot was purchased by Bruce
Frodsham, a Company employee, at the Company's offer price of $15,000. Mr.
Frodsham has built a home on the lot at his cost. In early 1997, a second Phase
IV lot was transferred to an affiliate of the Company. The other three lots were
transferred to Tingey Construction as part of a settlement of dispute agreement.
Cotton Manor residents belong to a Condominium Association or a Planned Unit
Development Association, and pay a monthly fee to support the common area
maintenance. Because of the small size of the project to date, fees collected
have not been sufficient to cover costs, and the Company has subsidized the
project from inception. The Company manages the two associations at Cotton
Manor. When all of the sites have been built on, the membership fees should
adequately cover the operating costs.
Cotton Acres is a 60-acre development approved and platted for 238 single family
detached home lots. 182 lots in Phases I-IX have been sold, and dwelling units
on these lots have been completed, mostly by the lot buyers. Development of
Phase X, consisting of 19 new lots, has been completed at a cost of
approximately $165,000.
Sixteen of the nineteen lots in Phase X have been sold to date.
The Company is contractually obligated to sell Cotton Manor and Cotton Acres in
its entirety, under the loan agreement with CSFB. The agreement requires the
sales to take place on or before March 31, 1999, however, as of the date of this
report the Company has not located a purchaser.
RED HAWK(TM)
Red Hawk is a master-planned residential golfing and recreational community,
located in the southeast Quadrant of Washington City, Utah. Red Hawk is expected
to include approximately 1,000 building lots, a 27-hole golf course, tennis
courts, swimming pools, and other recreational amenities. Phase I is designed to
include the first 18 holes on the golf course, five corporate villa lots, seven
cottage lots, and one hundred-two estate lots. The remaining 9 holes on the golf
course, the clubhouse and amenities, and bulk of the residential and commercial
land developments are planned for subsequent phases. Subsequent phases have not
yet been started, except in the overall project design and surveys.
In 1996, Washington City completed construction of a storage tank for culinary
(drinking) water in close proximity to Red Hawk, together with a water pumping
station and delivery lines which run through Red Hawk, thus assuring Red Hawk
will have an adequate supply of culinary water available. (The Company paid for
part of this water line.) In addition, there are several wells on the Red Hawk
property, that are expected to provide sufficient water for the irrigation of
the golf course and to supply the planned lakes and water features.
Since 1992, the Company has expended a total of approximately $3,000,000 on
planning, development and construction of Red Hawk, most of which was spent on
the construction of Phase I. This amount was funded in part by equity capital
provided by the Company's shareholders, but mostly was debt financed through
third-party borrowings. During 1996, the Company was optimistic that Phase I
could be finished before year-end and that sales of residential lots could begin
in earnest in early 1997. Indeed, substantially all of the first 18 holes of the
golf course have been roughed in, most of the lakes have been excavated, and the
sewer utilities have been installed in the roughed in residential portion of
Phase I. However, increasing costs and lack of capital caused the Company to
halt construction in early 1997 before Phase I could be substantially completed.
The Company was unable to borrow further funds for the project, and was not able
to raise any significant new equity capital. All initial government approvals
and permits have expired.
The Company estimates that approximately 40% of the needed work on Phase I has
been accomplished to date. The Company is contractually obligated to sell Red
Hawk, in its entirety, under the loan agreement with CSFB. The agreement
requires the sale to take place on or before March 31, 1999, however, as of the
date of this report, the Company has not located a purchaser.
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EXECUTIVE OFFICES
Prior to September 1997 the Company's executive offices were located at 102 West
500 South, Suite 400, Salt Lake City, Utah 84101. This office facility consisted
of approximately 2,150 square feet, with a monthly rental of $2,229. The space
was leased on a month-by-month basis. During September 1997, the Company moved
its executive offices to a Company-owned home in the Cotton Manor development to
cut costs and to bring management closer to the Company's then primary assets
and operations. The offices were located at 345 N. 2450 E., St. George, Utah
84790.
Concurrent with the acquisition of U S Golf, the Company moved its executive
offices to 255 South Orange Avenue, Suite 1515, Orlando, Florida, 32801. This
leased office space consists of approximately 2,600 square feet, for which the
rental is $4,700 per month, under a four year lease expiring on June 30, 2002.
The St. George office remains as a model home and area office.
Management believes that the Company's properties are adequately insured given
their current state of development.
Item 3. Legal Proceedings.
The Company is presently involved in the following pending or threatened
material litigation:
a. On May 24, 1994, a complaint was filed against 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 at December
31, 1998 for the April 1, 1999 cash payment due and the estimated value of
the golf tee time covenant.
b. On April 27, 1997, the Company's Montverde Property, Ltd. subsidiary was
sued to enforce a mortgage in the original principal amount of $916,824,
which had matured November 5, 1996, by Thomas C. McCarty in the Circuit
Court of the Fifth Judicial Circuit in and for Lake County, Florida. On
April 11, 1997, the parties entered into a payment arrangement to make
monthly payments in the amount of $15,000 while Montverde diligently
pursued alternatives to payoff the mortgage. On July 2, 1998, the mortgage
plus accrued interest of $1,042,220 was paid in full and the mortgage was
released. The Company expects no further litigation proceedings regarding
this matter.
c. 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 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 submitted an offer of resolution to
the Commission to resolve the matter with a cease and desist order, whereby
the complaints against the Company would be withdrawn. Additionally, the
federal district court has now signed an order dismissing the claims
against the Company. The Company is now awaiting the issuance of the final
order by the Commission, in which the Company without admitting or denying
the allegations will consent to a cease and desist order, fully and finally
resolving the matter.
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d. In March 1998, Daniel C. Watson a lender secured by a trust deed on the Red
Hawk project commenced foreclosure proceedings as a result of the Company's
default on the loan. The Company reached a settlement with the lender and
agreed to pay an additional $100,000 for his forbearance in not noticing up
a trustee's sale. No foreclosure action was taken against the Company. On
July 2, 1998, the Company paid $533,396 in full satisfaction of all
liabilities owed to Mr. Watson.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting on November 20, 1998, at which time, the
following items were submitted to a vote of the shareholders: 1) the election of
the Company's Board of Directors and 2) the adoption of the Company's long term
equity-based incentive plan. The result of the Board of Directors vote was as
follows:
Votes Votes
Director For Against Abstentions
- - -------- --- ------- -----------
Warren Stanchina 30,660,592 279 2,052,308
Wolfgang Dueren 30,661,392 2,050,171 1,616
Mary Lynn Stanchina 30,608,087 52,787 2,052,305
The Company's long term equity-based incentive plan allows the Company Board of
Directors to grant up to 2,000,000 incentive and non-qualified stock options,
stock appreciation rights, restricted stock and long term performance awards to
key employees and officers of the Company and stock options and stock
appreciation rights to certain independent contractors. The results of the long
term equity-based incentive plan vote was 26,977,573, 3,433,019 and 2,303,587
votes cast for the plan, against the plan and abstentions, respectively.
PART II
Item 5. Market for Common Equity & Related Stockholder Matters.
The Company's common stock is currently traded in the over-the-counter market on
the NASDAQ Electronic Bulletin Board under the symbol "CLUB." Prior to December
4, 1998, the Company's common stock was traded under the symbol "GVIM" in the
over-the-counter market on the NASDAQ Electronics Bulletin Board. No significant
public trading market for the Company's common stock has developed and there can
be no assurance that any significant public trading market will develop in the
future.
The following table represents the range of high and low bid quotations for the
calendar quarters indicated since the first quarter of 1997. Please note that
these prices have all been adjusted for the 1-for-5 reverse stock split effected
February 1, 1996.
Calendar Quarters High Bid Low Bid
----------------- -------- -------
1997
1st Quarter.....................2.75............1.50
2nd Quarter.....................2.00............1.25
3rd Quarter.....................3.75............1.13
4th Quarter.....................3.13............0.91
1998
1st Quarter.....................2.63............1.25
2nd Quarter.....................2.00............1.13
3rd Quarter.....................2.67............1.17
4th Quarter.....................1.78..............69
The foregoing quotations were obtained from broker-dealers and market makers
that provide daily reports of the NASDAQ Electronic Bulletin Board. The above
quotes reflect inter-dealer prices without retail mark-up, mark-down, or
commissions and may not necessarily represent actual transactions.
As of December 31, 1998, the Company had 71,577,442 shares of its common stock
issued and outstanding to 867 shareholders of record (not including shareholders
whose certificates are held in "street name" in their brokerage accounts).
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As of the date hereof, the Company has not paid or declared any cash dividends.
The Company can give no assurance that it will generate future earnings from
which cash dividends can be paid. Future payment of dividends by the Company, if
any, is at the discretion of the Board of Directors and will depend, among other
criteria and factors, upon the Company's earnings, capital requirements, and its
financial condition. Management has followed the policy of retaining any and all
earnings to finance the development of its business. Such a policy is likely to
be maintained for the foreseeable future to provide working capital for the
Company's operations.
Recent Sales of Unregistered 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 December 31, 1998.
-On September 3, 1998, the Company acquired the Arlington Lakes 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 were converted into 11,400,000
shares of the Company's common stock in December 1998. 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 are "accredited investors" as defined in
Regulation D promulgated under the Securities Act and 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 (the "Securities Act").
- - -As a condition of the CSFB loan agreements, the Company agreed to settle
certain pre-merger disputed obligations, interest and loan fees with certain
third parties. In December 1998, the Company issued the following shares of its
common stock in satisfaction of these items:
Shares Amount
----------------------------
Miltex Industries 325,000 $ 549,250
Banque SCS Alliance SA 100,000 169,000
Property Alliance 600,000 1,014,000
Curt Newman 250,000 422,500
Jay Vanesa 564,706 954,353
Nicolaus Kummer 365,000 616,850
Woody Davis 50,000 84,500
----------------------------
Total 2,254,706 $3,810,453
============================
Based on the knowledge, experience and economic strength of Miltex Industries,
Property Alliance, Curt Newman, Jay Vanesa and Woody Davis the Company believes
these transactions were exempt from registration with the Commission under
section 4(2) of the Securities Act of 1933, as amended, and the regulations
promulgated thereunder. Based on the domicile of Nicolaus Kummer as a German
citizen and Banque SCS Alliance SA as a Swiss corporation, 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 December, 1998 the Company issued 2,703,295 shares of its common stock to
eleven individuals in connection with the conversion of related party notes
payable, convertible notes payable, accrued interest and loan costs totaling
$1,424,604. 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 December, 1998 the Company issued 1,476,761 shares of its common stock to
Mr. Thomas Rimbach in connection with the conversion of related party notes
payable and accrued interest owed to him totaling $1,851,616. Based on the
domicile of Mr. Rimbach 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.
- - -In connection with the Company's acquisition of the Arlington Lakes development
in Texas and the related loan addition of $50,000,000, the Company issued
3,812,000 shares of its common stock to CSFB in December, 1998 as consideration
for $5,718,000 of structuring and advisory services for the additional financing
facility. Based on the knowledge, experience and economic strength of CSFB, and
representation by CSFB of their status as an "accredited investor" as defined in
Regulation D promulgated under the Securities Act the Company believes this
transaction was exempt from registration with the Commission under section 4(2)
of the Securities Act and the regulations promulgated thereunder.
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Item 6. Management's Discussion & Analysis of Financial Condition & Results of
Operations.
Statements made or incorporated in this report include a number of
forward-looking statements within the meaning of Section 27(a) of the Securities
Act of 1933 and Section 21(e) of the Securities Exchange Act of 1934.
Forward-looking statements include, without limitation, statements containing
the words "anticipates", "believes", "expects", "intends", "future", and words
of similar import which express management's belief, expectations or intentions
regarding the Company's future performance or future events or trends.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors, which may cause actual results, performance or achievements of
the Company to differ materially from anticipated future results, performance or
achievements expressly or implied by such forward-looking statements. In
addition, the Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
REORGANIZATION, RECAPITALIZATION AND ACQUISITIONS (see note 1 to "Notes to the
Consolidated Financial Statements")
On November 26, 1997, the Company concluded a significant transition that
resulted in a complete modification of its financial reporting. In summary, the
historical reporting of the results of operations of the Company now represents
the results of U.S. Golf Communities, Inc., a Delaware Corporation (previously
defined as "U.S. Golf"). This transition of financial reporting from the results
of Golf Communities of America, Inc. (formerly Golf Ventures, Inc.) to the
results of U.S. Golf resulted because a controlling interest in the Company was
obtained by U.S. Golf shareholders. This change in control has been accounted
for as an acquisition of Golf Ventures, Inc. by U.S. Golf (a reverse acquisition
in which U.S. Golf is considered the acquiror for accounting purposes).
U.S. Golf was formed immediately prior to its merger with Golf Ventures, Inc.
and issued 1,270,968 shares of its common stock in exchange for the outstanding
common stock and partnership interests of eighteen golf-related development
entities. Since the entities were under common ownership and control, the
exchange was accounted for in a manner similar to a pooling of interest, and
their financial information is presented as if they were a single entity since
inception.
On December 4, 1997, the Company acquired 81% of the outstanding capital stock
of PSDC. PSDC is the 10% general partner of PSL, a Florida limited partnership,
which is developing a private golf course community in Naples, Florida. This
acquisition has been accounted for using the purchase method of accounting, and
the results of the acquired business have been included in the consolidated
financial statements since the date of acquisition.
On September 3, 1998, the Company purchased a partially developed, approximately
1,980 acre, real estate property located in Arlington, Texas. The Company plans
to develop the property into a residential and commercial development. This
acquisition has been accounted for using the purchase method of accounting, and
the purchase price has been allocated to land and development cost.
RESULTS OF OPERATIONS
For the Year Ended December 31, 1998, compared to the Year Ended December 31,
1997.
Total operating revenues for the year ended December 31, 1998 were $8,239,741
compared to $8,429,552 for the year ended December 31, 1997. The following table
compares the changes in the Company's revenues identified by the various golf
course operations and development activities:
Change 1998 1997 1998/1997 %
- - ------ ---- ---- --------- --
Lot Sales.......................$ 1,170,995 $ 2,512,590 ($ 1,341,595) (53.4%)
Dues and Fees................... 2,745,690 2,335,593 410,097 17.6%
Golf Cart Rentals............... 2,163,260 2,195,107 (31,847) (1.5%)
Food, Beverage & Pro Shop Sales. 1,446,796 1,235,083 211,713 17.1%
Other........................... 713,000 151,179 561,821 371.6%
----------- ----------- ----------- ------
Total Operating Revenues........$ 8,239,741 $ 8,429,552 $ (189,811) (2.3%)
=========== =========== =========== ======
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As this table shows, lot sales accounted for nearly all of the decrease in total
revenues for the year ended December 31, 1998 compared to the year ended
December 31, 1997, offset by an increase in other revenue. Of the $1,341,595
decrease in lot sales, approximately $1,732,000 occurred at the Company's Cutter
Sound development project in the year ended December 31,1998 as compared to the
year ended December 31, 1997 offset by an increase of approximately $617,000 at
the Company's NorthShore development project for the same period. The decrease
at Cutter Sound was the result of exclusive waterfront homesites with yacht
slips being sold in the year ended December 31, 1997 that did not repeat in
1998. The increase in lot sales at the Company's NorthShore development project
and dues and fees of 17.6% or $410,097 is attributed primarily to an increase in
the number of NorthShore members during 1998 and a resurgence of the real estate
market in Southeast Texas. Other revenue increased by $561,821 as a result of
$600,000 of management fee revenue earned by Pelican Strand Development
Corporation in 1998 under a management agreement with PSL.
Cost of merchandise and lots sold was $1,126,307 for the year ended December 31,
1998 as compared to $2,289,247 for the year ended December 31, 1997. This
$1,162,940 decrease in cost is primarily attributed to decreased sales of lots
discussed above.
General and Administrative expenses were $12,156,715 for the year ended December
31, 1998 compared to $11,695,245 for the year ended December 31, 1997. This is
an increase of $461,470. The year ended December 31, 1998, includes $1,448,961
of Pelican Strand Development Corporation and Golf Ventures, Inc. expenses, the
acquisitions of which that were effective in the last quarter of 1997. In
addition, corporate general and administrative expenses increased by
approximately $1,276,000 during the year ended December 31, 1998, due to
additional overhead burdens placed on the Company resulting from the U.S. Golf
reorganization and reverse acquisition transaction. The 1998 increases are
offset by a one-time $1,846,633 provision for impairment of goodwill recorded in
the last quarter of 1997 related to the Company's Plantation subsidiary.
Interest expense was $14,136,872 for the year ended December 31, 1998 compared
to $7,613,258 for the year ended December 31, 1997. This increase of $6,523,614
was due to additional interest expense and the amortization of $5,296,466 of
deferred loan costs during the six months ended December 31, 1998 associated
with the July 2, 1998 and September 3, 1998 CSFB transactions described in Note
6 to the consolidated financial statements.
Settlement of dispute expense, which occurred during 1998, were $3,671,939.
These settlements resulted primarily from Company's commitment as a condition to
the CSFB loan agreements to settle certain pre-merger disputed obligations and
loan fees with certain third parties, for which the Company issued 1,937,000
shares of common stock resulting in the Company's recording of settlement of
disputes expense of $3,273,530 in July, 1998.
The write-down of land and development costs of $6,147,260 during the fourth
quarter of 1998 resulted from the Company's adjustment to land and development
costs of the Company's Red Hawk, Cotton Manor and Cotton Acres property to fair
market value as determined by a third party appraisal completed during 1998 (see
Note 16 to the consolidated financial statements).
The write-down of investments in affiliates of $7,711,460 during the fourth
quarter of 1998 resulted from the Company's adjustment to write down the
Company's investment in Pelican Strand Development Corporation based on the
discounted cash flows expected to be received from the investment (see Note 1 to
the consolidated financial statements).
The cumulative effect of these results, as reported above, is reflected in the
increased net loss of $23,304,915 in the year ended December 31, 1998 compared
to the year ended December 31, 1997. This increased loss is the result of the
Company's high debt interest cost, increased general and administrative
operating overhead and the one-time write-downs that took place in 1998.
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.
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.
16
<PAGE>
The Company believes that the CSFB 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. The Company is contractually obligated to sell its Cotton
Manor, Cotton Acres, and Red Hawk properties in their entirety, under the loan
agreement with CSFB. The agreement requires the sale to take place on or before
March 31, 1999, however, as of the date of this report, the Company has not
located a purchaser.
Loss per common share of $1.90 for the year ended December 31, 1998 compared to
$6.76 for the year ended December 31, 1997 is a result of the Company's net loss
in 1998 of $35,744,607 compared to a net loss in 1997 of $13,039,692 and the
increase of 16,924,923 in the number of weighted average of common shares
outstanding for the comparative periods. This increase in the weighted average
shares, starting in the fourth quarter of 1997, is primarily the result of the
reverse acquisition of Golf Communities of America, Inc. (formerly Golf
Ventures, Inc.) by US Golf which added 5,690,024 shares, the acquisition of
Pelican Strand which increased the shares outstanding by 3,432,713, the issuance
of 17,460,182 shares to CSFB for deferred loan costs in July and September 1998,
the issuance of 14,279,417 shares as conversion of notes payable in 1998 and the
issuance of 26,690,319 shares in conversion of the Company's Class D preferred
stock .
LIQUIDITY AND CAPITAL RESOURCES
Change in Control
Until November 26, 1997, the Company was majority-owned by ARDCO. ARDCO provided
investment capital to the Company, both directly and through referrals of
investors and lenders to the Company. Banque SCS Alliance SA and Miltex
Industries are examples of investors and lenders referred to the Company by
ARDCO (See the table of unsecured long term indebtedness of the Company at
December 31, 1998 below).
During the time of its majority shareholder control over the Company, ARDCO
caused cash to be moved between the Company and ARDCO on an informal basis as
each company had cash needs. The policy imposed on the Company during this time
period was to account for distributions to ARDCO as return of capital
transactions, and not to provide equivalent distributions to other shareholders.
Approximately $800,000 in cash was distributed to ARDCO during 1995, 1996 and
1997. These distributions deprived the Company of cash that would otherwise be
available for debt service on its properties and the development of such
properties.
ARDCO has made a claim for compensation from the Company for services rendered
and support given in nurturing the Company in its early years and in connection
with the introduction of US Golf to the Company. Arm's length negotiations
through counsel ensued and have continued since August 1997 in an effort to
explore and resolve this claim without litigation, and in an effort to create a
complete legal and practical separation from ARDCO. Prior reports on this matter
which characterized the ARDCO claim to be paid for past advances or
reimbursements were apparently in error and did not accurately convey the tenor
of ARDCO's claim as it is now being advanced. At one time the Company believed
that it had reached an agreement with ARDCO on this issue, and reported the
pending issuance of shares of common stock in satisfaction of such claim to
ARDCO in satisfaction of such claim in filings with the Commission. Subsequent
to those filings, disputes arose causing the parties to once again begin
discussions through legal counsel as to the propriety and amount of compensation
due ARDCO. As a condition of the CSFB loan agreements, the Company issued
862,000 shares of its common stock to ARDCO in settlement of this dispute.
In August 1997 a definitive agreement was signed between the Company and US Golf
to give the shareholders of US Golf voting control of the Company through the
issuance of the Series D preferred stock. With the closing of the US Golf
reverse acquisition transaction on November 26, 1997, voting and financial
control of the Company passed from ARDCO and its affiliates to the shareholders
of US Golf. ARDCO and its affiliates have had no control over the business or
affairs of the Company in a legal or practical sense since that time, although
ARDCO continues to be a shareholder of the Company. Upon conversion of the
Series D preferred stock in 1998, ownership control was formally acquired by the
former shareholders of U.S. Golf.
The Company has unused net operating losses for income tax purposes, expiring in
various amounts from 2007 through 2018, of approximately 30,000,000 that are
available at December 31, 1998 for carry forward against future years' taxable
income. Under Section 382 of the Internal Revenue Code, the annual utilization
of these losses may be limited due to changes in ownership.
17
<PAGE>
The Company's Debt Liabilities
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. 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
December 31, 1998, the Company utilized $115,425 of the $6,500,000 funds held
back by the lender.
From the net proceeds of the July 2, 1998 CSFB financing facility and PSL loan,
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 $50,000,000 September 3, 1998 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 plus 5.99% (11.55% at December 31, 1998) 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. As of December 31, 1998, no principal
repayments had been made.
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 December 31, 1998 and continuing through the date of this
report, the Company was in default of the 60 day aging level requirement. The
December 31, 1998 financial statements include an audit opinion that is modified
for a going concern contingency. The Company has not located a purchaser for its
Utah properties as of the date of this report and does not anticipate that the
Utah properties sale will take place by the required March 31, 1999 date. In
addition to the above, the Company is delinquent on interest payments under an
$8,000,000 note payable to CSFB. The lender has not waived their remedies, which
includes possible foreclosure on the loan, as a result of the above defaults.
However, the lender is aware of the defaults and has not taken action against
the Company.
The following table shows the non-CSFB long term indebtedness of the Company at
December 31, 1998, the amounts due at December 31, 1998 for each item of
indebtedness, and an indication of currency or default as to each item of
indebtedness (see Note 7, "Notes Payable", Note 8, "Notes Payable to Related
Parties" and Note 9 "Convertible Notes Payable" to the Notes to the Consolidated
Financial Statements):
Status at Amount of
Lender 12/31/1998 Indebtedness
- - ------ ---------- ------------
Adorno, N.V.* Current $ 848,167
Adorno, N.V.* Delinquent 2,295,000
Autohaus* Current 1,601,172
Davis* Current 250,000
Dueren, Elsie* Current 200,000
Dueren, Wolfgang* Current 214,899
Flachsmann* Current 862,592
JFS Corporation Current 1,000,000
Ludwig* Current 55,900
Massman* Current 235,357
Miltex Industries* Current 3,448,667
Minneola Harbor Hills* Current 1,470,000
Palisades Golf Partners* Current 400,000
Pelican Strand, Ltd.* Current 4,642,176
Rimbach* Current 800,000
Wiedemann* Current 750,000
Baltus-Michaelsen Current 85,000
Bartussek Current 50,000
Buhmann Current 100,000
DeSmet Edmund Current 27,255
DeSmet Esther Current 83,810
Erste Bank Delinquent 250,000
Fleet Mortgage Delinquent 116,404
Handtke Current 37,500
Hepp Current 73,784
18
<PAGE>
Jertz Current 50,000
Jung Current 50,000
Knutson Delinquent 99,450
Kuehnl Current 100,000
Mainzer Strasse Current 50,000
Meinhold Wilko Current 100,000
Musselmann Current 50,000
Roever Current 40,000
Schwanzer Current 29,479
Stiegler Current 60,000
Transworld Current 90,839
Volksbank Current 1,000,000
VonBentzel Current 60,000
Other Current 52,421
-----------
TOTAL $21,729,872
===========
* A shareholder or other related party to the Company.
The Company has historically satisfied its cash needs through the sale of real
estate, private placements of securities and secured borrowings. During 1998,
the Company sold approximately $1,170,995 of real estate, a level which is
approximately 53% lower than in 1997.
A summary of the Company's non-CSFB note payable borrowing activities during
1998 follows:
Total notes payable at December 31, 1997................. $42,083,065
Total borrowings during 1998............................. 25,776,609
Total repayment's during 1998............................ (1,130,044)
Total notes converted to equity.......................... (21,079,682)
Notes refinanced in the CSFB transaction................. (26,804,478)
Total notes reclassed from loan costs.................... 1,023,000
Total notes reclassed from accrued interest.............. 1,861,402
-----------
Total notes payable at December 31, 1998................. $21,729,872
===========
The Company will be obligated to pay approximately $14 million in non-CSFB notes
during 1999, of which approximately $2.8 million were delinquent at December 31,
1998, as shown in the table above. The Company's working capital at December 31,
1998, plus limited revenue from real estate sales and golf course operations,
will not be sufficient to pay these notes as and when due. Management recognizes
that the Company must generate additional financial resources or consider
disposing of assets to enable it to continue operations. Management's plans
include new 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 years ended December 31, 1998
and 1997 were modified as to uncertainty with respect to the Company's ability
to continue as a going concern. This modification is based on the historical
losses of the Company and its default under certain debt liabilities as
discussed above.
The Company's financial statements are presented on the going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. The Company incurred a net loss of $35,744,607
for the year ended December 31, 1998, was in default of approximately $2,800,000
of unsecured debt, has approximately another $11,000,000 of unsecured debt due
during 1999. In addition, the Company has a minimum required principal repayment
of $14,050,000 under a note payable to banks and trust due on or before July 1,
1999 and the Company is in default of certain provisions of the CSFB loan
agreement.
The Company expects to incur substantial expenditures to further its real estate
and golf course development activities which has been funded by CSFB 1998.
Management believes that the funding provided by CSFB is sufficient to provide
the Company's projects with certain amenities critical to the proper marketing
of its real estate development efforts and to support Company revenues from lot
sales in the future. However, the funding proviced by CSFB and the Company's
working capital capital at December 31, 1998, plus limited revenue from real
estate sales and golf course operations will not be sufficient to meet such
objectives and obligations as presently structured. Management recognizes that
the Company must generate additional resources renegotiate current obligations
or consider disposing of assets to enable it to continue operations.
Management intends to open discussions with CSFB as well as continue discussions
with other note holders to restructure current debt obligations to relieve this
current liquidity situation. Management has had success in restructuring many of
its notes payable and believes this effort will be successful. However, there is
no assurance that this can be accomplished before any creditors choose to
exercise their remedies as a result of the above defaults.
Management's plans also include alliances or other partnership agreements with
entities interested in and resources to support the Company's plans or other
business transactions, which could generate resources to assure continuation of
the Company's operations. Several negotiations have taken place between the
Company and certain significant financing sources. Management also intends to
complete the land sale transaction described in note 17 to the consolidated
financial statements and to potentially enter into similar arrangements at other
Company properties. Such transactions provide the Company with capital to meet
some of its first mortgage obligations and alleviates significant development
costs the Company would have to otherwise finance through other means.
The accompanying financial statements do not include any adjustment to reflect
the possible future effects that may result from the inability of the Company to
continue as a going concern.
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.
19
<PAGE>
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 be replaced with more
current technology as embedded technology within certain 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 is 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 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
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.
20
<PAGE>
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"), and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS 130 establishes standards for reporting and
displaying comprehensive income, its components and accumulated balances. SFAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. Both SFAS 130 and SFAS 131 are effective for periods
beginning after December 15, 1997. The Company adopted these new accounting
standards in 1998, and their adoption had no effect on the Company's financial
statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS 133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.
Historically, the Company has not entered into derivatives contracts to hedge
existing risks or for speculative purposes. Accordingly, the Company does not
expect adoption of the new standard on January 1, 2000 to affect its financial
statements.
Item 7. Financial Statements.
The Following financial statements and documents are filed herewith on the
immediately following pages listed below, as part of Part II, Item 7 of this
report.
Document Page
Financial Statements and Accounts Report:
Report of Independent Certified Public Accountants...................23
Consolidated Financial Statements:
Consolidated Balance Sheet for the Year Ended December 31, 1998....24
Consolidated Statements of Operations for the Years
Ended December 31, 1998 and 1997................................25
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1998 and 1997.............................26-27
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998 and 1997................................28
Summary of Significant Accounting Policies.....................29-31
Notes to Consolidated Financial Statements
Notes 1 through 17...........................................32-45
21
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders
Golf Communities of America, Inc.
We have audited the accompanying consolidated balance sheet of Golf Communities
of America, Inc. and Subsidiaries as of December 31, 1998, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the two years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Golf Communities
of America, Inc. and Subsidiaries as of December 31, 1998, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As described in Note 15 to the
financial statements, Golf Communities of America, Inc. has suffered recurring
losses from operations, is in default of certain of its loan agreements and is
experiencing liquidity problems at December 31, 1998. These conditions raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 15. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
BDO Seidman, LLP
Certified Public Accountants
Orlando, Florida
March 23, 1999
22
<PAGE>
<TABLE>
<CAPTION>
Golf Communities of America, Inc.
Consolidated Balance Sheet
December 31, 1998
- - ------------ ----
Assets
<S> <C>
Cash and cash equivalents $ 378,767
Restricted cash (Note 2) 14,285,670
Accounts receivable:
Trade 461,439
Related parties (Note 3) 2,335,369
Other 19,652
Inventories 135,580
Prepaid expenses and other 369,864
Investment in and advances to a related party companies (Notes 1 and 3) 4,422,552
Property and equipment, at cost,
net of accumulated depreciation (Notes 4 and 6) 8,084,717
Land and development costs (Notes 6 and 16) 94,256,982
Deferred loan costs, net of accumulated amortization of $ 2,749,074 (Note 6) 16,123,963
Goodwill, net of accumulated amortization of $ 3,865,657 (Note 5) 8,670,374
-------------
Total assets $ 149,544,929
=============
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable:
Trade 2,767,136
Related parties (Note 3) 2,946,753
Accrued expenses 1,284,977
Accrued interest payable:
Related parties 2,312,514
Other 245,707
Loan costs payable (Note 10) 2,220,908
Notes payable to banks and trust, net of loan costs of $ 14,418,728 (Note 6) 88,146,697
Notes payable (Note 7) 1,892,991
Related party notes payable (Note 8) 19,088,851
Convertible notes payable (Note 9) 748,030
-----------
Total liabilities 121,654,564
-----------
Commitments and contingencies (Note 10)
Stockholders' equity (Note 12): -
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 outstanding -
Preferred stock - Class C cumulative convertible, $.001 par value,
shares authorized 136,039; none outstanding -
Preferred stock - Class D convertible, $.01 par value,
shares authorized 8,000,000; none outstanding -
Common stock, $.001 par - shares authorized 100,000,000; 71,577,442 issued and outstanding 71,577
Additional paid-in capital 89,925,153
Accumulated deficit (62,106,370)
-------------
Total stockholders' equity 27,890,365
-------------
$ 149,544,929
=============
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
23
<PAGE>
<TABLE>
<CAPTION>
Golf Communities of America, Inc.
Consolidated Statements of Operations
Year ended December 31, 1998 1997
- - ---------------------- ---- ----
Operating revenue:
<S> <C> <C>
Dues and initiation fees $ 2,745,690 $ 2,335,593
Golf cart rentals 2,163,260 2,195,107
Food, beverage and pro shop sales 1,446,796 1,235,083
Lot sales 1,170,995 2,512,590
Other 713,000 151,179
------------- ---------------
Total operating revenue 8,239,741 8,429,552
------------- ---------------
Costs and expenses:
Cost of merchandise and lots sold $ 1,126,307 $ 2,289,247
General and administrative expenses 12,156,715 11,695,245
Write-down of land and development costs (Note 16) 6,147,260 -
Write-down of investments in related party companies (Note 1) 7,711,460 -
--------------- ---------------
Total costs and expenses 27,141,742 13,984,492
--------------- ---------------
Loss from operations $ (18,902,001) $ (5,554,940)
-------------- ----------------
Other income (expense):
Interest income $ 397,114 $ 34,645
Interest expense (14,136,872) (7,613,258)
Settlement of disputes (Notes 10 and 12) (3,671,939) -
Other 569,091 93,861
--------------- ---------------
Total other income (expense), net (16,842,606) (7,484,752)
--------------- ---------------
Net loss $ (35,744,607) $ (13,039,692)
================ ===============
Loss per common share $ (1.90) $ (6.76)
================ ===============
Weighted common shares outstanding 18,854,372 1,929,449
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
24
<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, 1996 1,270,968 $ 12,710 $ 544,636 $ (13,322,071)
Conversion of notes payable and accrued
interest to capital - - 5,333,024 -
Conversion of related party notes payable
and accrued interest to capital - - 7,133,327 -
Payment of loan costs payable through
the issuance of capital - - 1,566,926 -
Recapitalization (1,270,968) (12,710) (54,073) -
Issuance of shares in reverse acquisition 5,690,024 5,690 13,138,264 -
Issuance of common stock as payment of
accounts payable 50,000 50 117,670 -
Issuance of common stock for acquisition 3,432,713 3,433 9,436,527 -
Net loss - - - (13,039,692)
--------- ------------ --------------- -------------
Balance, December 31, 1997 9,172,737 $ 9,173 $ 37,216,301 $ (26,361,763)
--------- ------------ --------------- --------------
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)
=============== ============= =============== ==============
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
25
<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, 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
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
========== ======= ======= ======= =========== ======= ============
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
26
<PAGE>
<TABLE>
<CAPTION>
Golf Communities of America, Inc.
Consolidated Statements of Cash Flow
Year ended December 31, 1998 1997
- - ----------------------- ---- ----
Cash flows from operating activities:
<S> <C> <C>
Net loss $(35,744,607) $ (13,039,692)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 462,213 362,605
Amortization 1,253,604 467,383
Amortization of deferred loan costs 7,154,786 3,018,573
Loss on disposal of fixed assets 4,412 -
Discount on conversion price of convertible notes payable 701,186 -
Issuance of common stock as payment of settlements 3,273,530 -
Loss on impairment of goodwill - 1,846,633
Issuance of common stock as payment of interest expense 127,729 -
Write-down of land and development costs 6,147,260 -
Write-down of investment in related party companies 7,711,460 -
Cash provided by (used for) net of effect of acquisition:
Accounts receivable (1,141,592) (1,081,586)
Inventories (8,604) 27,983
Prepaid expenses (186,324) 314,623
Land and development costs (6,593,675) 1,953,866
Accounts payable (2,176,810) (602,690)
Accrued expenses 296,813 131,210
Accrued interest payable 2,587,975 2,962,868
--------- -----------
Net cash used for operating activities (16,130,644) (3,638,224)
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment $ (450,403) $ (399,267)
Restricted cash acquired in acquisition 13,514,366 -
Cash acquired in acquisition 174,875 -
Proceeds from sale of property and equipment - 307,222
Investment in and advances to related party companies 1,621,909 1,063,359
--------- ------------
Net cash provided by investing activities 14,860,747 971,314
---------- -------------
Cash flows from financing activities:
Increase in restricted cash $(14,285,670) $ -
Proceeds from note payable to bank 13,568,006 -
Proceeds from notes payable 695,537 419,244
Repayments of notes payable (141,214) (645,995)
Proceeds from related party notes payable 6,177,705 2,622,000
Repayment of related party notes payable (988,830) (1,358,599)
Proceeds from convertible notes payable 98,785 1,529,665
Redemption of Class A preferred stock (154,285) -
Deferred loan costs (4,361,623) -
Deferred loan costs payable 661,203 100,976
--------------- -------------
Net cash provided by financing activities 1,269,614 2,667,291
--------------- -------------
Net increase (decrease) in cash and cash equivalents $ (283) $ 381
Cash and cash equivalents, beginning of year 379,050 378,669
--------------- -------------
Cash and cash equivalents, end of year $ 378,767 $ 379,050
=============== =============
</TABLE>
See accompanying summary of significant accounting policies and notes to
consolidated financial statements.
27
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Golf Communities
of America, Inc. (formerly Golf Ventures, Inc.) and its subsidiaries,
hereinafter referred to collectively as the Company. All significant
intercompany transactions and balances have been eliminated in consolidation.
Operations
The Company owns and operates daily fee (public) and private golf courses and
develops and sells residential lots in Central and Southwest Florida, Southeast
Texas and Central North Carolina. In addition, the Company owns real estate in
Florida, Texas and Utah, which have been partially developed as a future golf
course and residential housing sites. Golf Communities of America, Ltd.; GCA
Plantation, Ltd. (formerly "U.S. Golf Pinehurst Plantation, Ltd.") Wedgefield
Limited Partnership; FSD Golf Club, Ltd.; Cutter Sound Development, Ltd.;
NorthShore Golf Partners, Ltd.; NorthShore Development, Ltd.; Montverde
Properties, Ltd.; and Arlington Lakes, LP are certain of the entities included
in the accompanying consolidated financial statements and are limited
partnerships with defined lives. The partnerships are scheduled to dissolve,
unless terminated sooner, at various dates beginning December 31, 2020 through
December 31, 2042.
Cash and Cash Equivalents
All highly liquid cash investments with an original maturity of three months or
less from the date of purchase are considered cash equivalents.
Inventories
Inventories are stated at the lower of cost or market and consist primarily of
golf equipment and clothing, golf course maintenance supplies and food and
beverages. Costs are determined by the first-in, first-out (FIFO) method.
Land and Development Costs
Land acquired for development and development costs are stated at the lower of
cost, including development costs, or estimated net realizable value. Land and
development costs include all significant acquisition, carrying and development
costs, including interest and real estate taxes until the point of substantial
completion. Costs after such point are expensed as incurred.
Land and development costs are allocated to individual lots based on the lot's
relative sales value.
The Company monitors the valuation of its land and development costs on a
continuous basis with a detailed review each year in conjunction with the
completion of the following year's business plan.
Deferred Loan Costs
Deferred loan costs resulting from the Credit Suisse First Boston Mortgage
Capital LLC ("CSFB") transaction are capitalized and amortized using the
straight-line method over the thirty-six month life of the loan (see Note 6).
Revenue Recognition
The Company recognizes revenue on lot sales when substantially all construction
is complete and the sale has been closed. The related cost of the lots is
accumulated during construction and is charged to cost of sales at the time
revenue is recognized.
Revenue from dues, initiation fees, cart rentals, food and beverage sales and
clothing is recognized at the time of sale.
Depreciation
Property and equipment are depreciated using straight-line and accelerated
methods over the estimated depreciable lives of the assets.
28
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired and is being amortized on a straight-line method over ten years. The
realizability of goodwill is evaluated periodically for impairment events or if
changes in circumstances indicate a possible inability to recover the carrying
amount. When any such impairment exists, the related assets are written down to
fair value.
Income Taxes
Golf Communities of America, Ltd.; U.S. Golf Pinehurst Plantation, Ltd.;
Wedgefield Limited Partnership; FSD Golf Club, Ltd.; Cutter Sound Development,
Ltd.; NorthShore Golf Partners, Ltd.; NorthShore Development, Ltd.; Montverde
Properties, Ltd.; and Arlington Lakes LP are organized as limited partnerships.
Accordingly, all tax effects of these entities' income or loss are passed
through to the partners. Golf Communities of America, Inc.; U.S. Golf
Management, Inc. (formerly "U.S. Golf Communities, Inc."); U.S. Golf
(Plantation), Inc.; U.S. Golf (Wedgefield), Inc.; U.S. Golf (FSD), Inc.; U.S.
Golf (Cutter Sound), Inc.; NorthShore U.S. Golf, Inc.; U.S. Golf (Montverde),
Inc.; U.S. Golf Leasing Co., Inc.; U.S. Golf Services & Development, Inc.;
Pelican Strand Development Corporation, U.S. Golf Pelican Strand, Inc., RH
Holdings, Inc. and GCA Texas Development, Inc. are taxed as a regular C
Corporations. Deferred income tax assets and liabilities are recorded for
differences between the financial statement and tax basis of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce tax assets to the amount expected to be
realized.
Net Loss Per Share
Effective December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings per Share." Statement No. 128
replaces the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share exclude any dilutive effects of options and convertible
securities. Diluted earnings per share are computed similarly to fully diluted
earnings per share. The Company's calculation for basic and fully diluted
earnings per share is the same as the Company has a loss, and the impact of
potential common shares is antidilutive. Potential common shares include 610,000
and 1,368,369 shares underlying stock options and convertible notes payable,
respectively.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments. Fair value estimates discussed herein are based
upon certain market assumptions and pertinent information available to
management as of December 31, 1998.
The respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash and
equivalents, trade receivables, accounts payable and accrued expenses. Fair
values were assumed to approximate carrying values for these financial
instruments since they are short term in nature and their carrying amounts
approximate fair values or they are receivable or payable on demand. The fair
value of the Company's notes payable is estimated based upon the quoted market
prices for the same or similar issues or on the current rates offered to the
Company for debt of the same remaining maturities.
The carrying value approximates the fair value of the notes payable.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
29
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
Summary of Significant Accounting Policies
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
No. 130"), and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS 130 establishes standards for reporting and
displaying comprehensive income, its components and accumulated balances. SFAS
131 establishes standards for the way that public companies report information
about operating segments in annual financial statements and requires reporting
of selected information about operating segments in interim financial statements
issued to the public. Both SFAS 130 and SFAS 131 are effective for periods
beginning after December 15, 1997. The Company adopted these new accounting
standards in 1998, and their adoption had no effect on the Company's financial
statements and disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS 133 requires companies to recognize all derivatives contracts as either
assets or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as a
hedge, the objective of which is to match the timing of gain or loss recognition
on the hedging derivative with the recognition of (i) the changes in the fair
value of the hedged asset or liability that are attributable to the hedged risk
or (ii) the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999.
Historically, the Company has not entered into derivatives contracts to hedge
existing risks or for speculative purposes. Accordingly, the Company does not
expect adoption of the new standard on January 1, 2000 to affect its financial
statements.
30
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
1. Reorganization, Recapitalization and Acquisitions
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
in the following entities:
U.S. Golf Management, Inc. (formerly U.S. Golf (Cutter Sound), Inc.
U.S. Golf Communities, Inc.) NorthShore Golf Partners, Ltd.
Golf Communities of America, Ltd. NorthShore Development, Ltd.
U.S. Golf Pinehurst Plantation, Ltd. NorthShore U.S. Golf, Inc.
U.S. Golf (Plantation), Inc. Montverde Properties, Ltd.
Wedgefield Limited Partnership U.S. Golf (Montverde), Inc.
U.S. Golf (Wedgefield), Inc. Montverde Investment Group, Ltd.
FSD Golf Club, Ltd. U.S. Golf Leasing Co., Inc.
U.S. Golf (FSD), Inc. U.S. Golf Services & Development, Inc.
Cutter Sound Development, Ltd.
Since these entities were under common ownership and control, the
acquisitions were accounted for in a manner similar to a pooling of
interests, and their financial information is presented as if they were a
single entity since inception.
Recapitalization and Acquisition of GCA
Effective November 24, 1997, GCA acquired the 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) a recapitalization of USGCI (whereby the issued
and outstanding stock of USGCI was converted into 29,084 shares of Class A
cumulative convertible preferred stock, 28,340 shares of Class B cumulative
convertible preferred stock and 6,672,578 shares of Class D convertible
preferred stock and (b) 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
securities of GCA 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. The results of
GCA's operations are included in the accompanying consolidated financial
statements from the date of acquisition.
Acquisition of Pelican Strand Development Corporation
On December 4, 1997, GCA acquired 81% of the outstanding capital stock of
Pelican Strand Development Corporation ("PSDC") in exchange for 3,432,713
shares of restricted common stock valued at $2.75 per share. PSDC is the
10% general partner of Pelican Strand LTD ("PSL"), a Florida limited
partnership, which is developing a private golf course community in Naples,
Florida. The acquisition has been accounted for using the purchase method
of accounting, and the results of the acquired business have been included
in the consolidated financial statements since the date of acquisition. The
excess of the purchase price over the fair values of the net assets
acquired was $8,550,054 and has been recorded as goodwill, which is being
amortized on a straight-line basis over ten years based on the expected
development period of the project.
31
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
Subsequent to December 4, 1997, Maricopa claimed that the Company breached
certain terms of the agreement and requested that the Company rescind the
agreement. The Company believes that the terms of the agreement have been
met and has refused to rescind the agreement. 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 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 PSDC 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 shareholder granting the stock as security
interest 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 December 31, 1998 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.
In July 1998, the Company arranged and guaranteed a $86,550,000 financing
facility between Credit Suisse First Boston Mortgage Capital LLC ("CSFB"),
the Company and PSL (see Note 6). The PSL portion of the financing was
$35,600,000. The Company paid certain structuring and advisory fees to CSFB
of $8,000,000 and issued 13,648,182 shares of its common stock to CSFB
valued at $19,101,492 as loan costs and additional consideration for CSFB
to complete the financing. Of the costs paid by GCA, an allocated portion,
determined based on the percentage of the PSL financing to the total, of
$11,149,918 was deemed to be related to the arrangement and guarantee of
the PSL financing and was accounted for as an additional GCA investment in
PSDC, increasing the investment balance from $877,757 to $12,027,675. The
additional investment allocation and the unamortized goodwill recorded in
the initial acquisition transaction totaling $20,379,879 as of July, 1998
was supported by an estimate of PSDC cash flows expected to be received
from the PSL project at that time. During the fourth quarter of 1998, the
Company completed an evaluation of the economic value of the PSDC
investment and goodwill through an updated analysis of the expected cash
flows from the PSL project. It was determined during the evaluation that
the Company portion of the PSDC cash flow expected to be generated from PSL
would be approximately $16,000,000, which was less than the recorded cost
of the investment and unamortized goodwill balances at December 31, 1998.
Accordingly, the Company recorded a provision for impairment of the
investment balance of $7,711,460 to reduce the carrying value of the
investment to its current fair value based on the discounted cash flows
expected to be received, which has been included in operating expenses in
the 1998 statement of operations.
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.
Pro Forma Financial Information (Unaudited)
The following pro forma information has been prepared assuming acquisitions
of GCA and PSDC had taken place at the beginning of 1997. The pro forma
information includes adjustments for the amortization of goodwill arising
from the transactions. The pro forma financial information is not
necessarily indicative of the results of operations as they would have been
had the transactions been effected on the assumed dates.
32
Unaudited
Year ended December 31, 1997
----------------------- ----
Net sales $ 8,757,742
Net loss (14,016,104)
Loss per common share (1.54)
2. Restricted Cash
On July 2, 1998, the Company entered into a cash management agreement in
connection with its financing facility with CSFB. The Company agreed to
arrange for the deposit of certain loan reserves funded by CSFB and all its
future operating cash into the accounts of a third party cash manager. The
cash manager is responsible for administering escrow balances for property
tax and insurance payments on the Company's behalf and maintaining certain
reserve balances. In addition, the cash manager is responsible for applying
cash for debt service requirements and delivering funds back to the Company
for operating purposes. The restricted cash recorded on the Company's
December 31, 1998 balance sheet is comprised of amounts held by the cash
manager as follows:
December 31, 1998
------------ ----
Construction reserve funds $10,279,809
Loan interest payment reserve 2,596,439
Property tax payment escrow 698,379
Insurance payment escrow 238,198
Other 472,845
----------
$14,285,670
3. 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 noninterest bearing with no stipulated terms for
repayment.
Management Fees
U.S. Golf Management, Inc. (formerly "U.S. Golf Communities, Inc."); FSD
Golf Club, Ltd.; NorthShore Golf Partners, Ltd.; NorthShore Development,
Ltd.; Wedgefield Limited Partnership; and Pelican Strand Development
Corporation had management agreements with stockholders and related party
companies as follows:
U.S. Golf Management, Inc. (formerly "U.S. Golf Communities, Inc.")
entered into a management agreement with Cutter Sound Development, Ltd.
and U.S. Golf Pinehurst Plantation Ltd. Management fees under these
agreements were based on the greater of monthly minimums or certain
percentages of gross revenues, as defined. In addition, the agreements
provided for the payment of acquisition and development fees, as defined.
U.S. Golf Management, Inc. agreed to pay 95% of the fees earned as a
management fee to its stockholders. Management fees earned for the year
ended December 31, 1997 were approximately $365,000. These agreements
were terminated as of September 30, 1997.
FSD Golf Club, Ltd. was obligated under a 10-year management agreement
effective April 25, 1991 with a company owned by a company stockholder.
Annual management fees were the greater of 5% of annual gross revenues,
as defined, or $60,000. The agreement was terminated as of September 30,
1997.
NorthShore Golf Partners, Ltd. and NorthShore Development, Ltd. were
obligated under management agreements effective June 15, 1992 with a
company owned by a company stockholder. Annual management fees under the
agreements were $120,000. The agreement was terminated as of September
30, 1997.
33
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
Wedgefield Limited Partnership was obligated under a 10-year management
agreement effective May 1, 1995 with a company owned by a company
stockholder. Annual management fees were the greater of 10% of annual
gross revenues, as defined, or $120,000. The agreement was terminated as
of September 30, 1997.
PSDC bills PSL a monthly management fee of $50,000 for the management
of a golf course and residential development in Naples, Florida owned by
PSL. The fee payments are for a five-year period ending November 2000.
No management fees expense for the year ended December 31, 1998 is recorded
in the accompanying consolidated financial statements. Management fees for
the year ended December 31, 1997 were approximately $278,000, and are
included in administrative and general expenses in the accompanying
consolidated financial statements. At December 31, 1998, the amount owed
under these agreements was approximately $1,800,000 and is included in
accounts payable related parties in the accompanying consolidated financial
statements.
Advances to Related Party Companies
PSDC has recorded advances to related party companies of $1,914,657 from
PSL and other related companies as of December 31, 1998 for construction
costs incurred on their behalf. The advances to affiliates are non-interest
bearing and have no stipulated repayment terms.
PSL Loan Costs
In accordance with a settlement agreement between GCA and PSL, the Company
agreed that PSDC would reimburse PSL for $2,125,653 of allocated loan costs
associated with the CSFB transaction (see Note 6) through the adjustment of
future cash flows from PSL.
4. Property and Equipment
Property and equipment consist of the following:
Estimated
December 31, Useful Lives 1998
Land and golf courses - $ 3,679,873
Improvements of land and golf courses 7 - 31.5 years 1,825,068
Buildings and improvements 5 - 40 years 3,125,979
Furniture 5 - 7 years 106,914
Equipment 5 - 7 years 1,419,201
Vehicles 5 years 13,228
--------------
10,170,263
Less accumulated depreciation 2,085,546
--------------
Net property and equipment $ 8,084,717
==============
5. Purchase of Minority Interest and Goodwill
The Company owned approximately 60% of US Golf Pinehurst Plantation, Ltd.
("Plantation") and approximately 60% of another limited partnership, US
Golf Pinehurst National, Ltd. ("National"), through March 1996. The
remaining 40% of both Plantation and National was owned by an unrelated
third party. During March 1996, the Company exchanged its 60% ownership of
National, paid $2,300,000 and issued a $1,200,000 note payable to acquire
the remaining 40% ownership interest in Plantation from the unrelated third
party. The balance of the Plantation minority interest at the date of the
acquisition was $798,447. The Company accounted for its investment in
National under the equity method of accounting. The balance of the
Company's investment in National at the date of acquisition was $1,272,274.
The acquisition of the remaining 40% interest was accounted for using the
purchase method of accounting. Accordingly, the purchase price was
allocated to the net assets acquired based upon their estimated fair market
values. The excess of the purchase price over the estimated fair value of
net assets acquired amounted to approximately $3,974,000, which has been
accounted for as goodwill and is being amortized over its estimated useful
life of ten years. The operating results of Plantation are included in the
Company's consolidated results of operations from the April 1994 inception
of the partnership.
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
34
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
would be less than the recorded cost of the related assets and goodwill.
Accordingly, the Company recorded a provision for impairment of goodwill of
$1,846,633 to reduce the carrying value of the goodwill to its current fair
value, which has been included in general and administrative expenses in
the statement of operations for the year ended December 31, 1997.
6. Notes Payable to Bank and Trust
Notes payable to bank and trust consist of the following:
December 31, 1998
------------ ----
Libor plus 5.99% (11.55% at December 31, 1998)
mortgage notes payable to CSFB and Northwest
Bank Minnesota, collateralized by substantially
all the Company's assets $ 94,565,425
Libor plus 4.5% (10.06% at December 31, 1998)
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 $2,547,392 14,418,728
------------
Net notes payable to bank $ 88,146,697
============
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.
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 (See Note 8).
The purchase price of the Company's September 3, 1998 Arlington, Texas
property acquisition (see Note 1) 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 December 31, 1998, 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 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. As of December 31,
1998, no principal repayments had been made.
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 (see Note 10). 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
35
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
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 PSDC as a result of
the Company arranging and guarantying PSL's financing facility (see Note
1). 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 December 31, 1998. The loan costs,
including the portion allocated to the PSDC 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:
December 31, 1998
------------ ----
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 PSDC 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 2,749,074
-----------
Net deferred loan cost assets $ 16,123,963
============
Interest expense recorded for CSFB notes payable for the year ended
December 31, 1998 totaling $8,528,090 consists of $1,373,304 of loan
interest, net of $3,491,788 of interest capitalized, $2,749,074 of loan
cost asset amortization and $2,547,392 of note payable loan cost offset
amortization. In addition, $1,858,320 of the amounts allocated to the
investment in PSDC have been amortized to interest expense during 1998.
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 December 31, 1998 and continuing through the
date of this report, the Company was in default of the 60 day aging level
requirement. The December 31, 1998 financial statements include an audit
opinion that is modified for a going concern contingency. The Company has
not located a purchaser for its Utah properties as of the date of this
report and does not anticipate that the Utah property sale will take place
by the required March 31, 1999 date. In addition to the above, the Company
is delinquent on interest payments under an $8,000,000 note payable to
CSFB. The lender has not waived their remedies which includes possible
foreclosure on the loan as a result of the above defaults. However, the
lender is aware of the defaults and has not taken action against the
Company.
36
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
7. Notes Payable
Notes payable consist of the following:
December 31, 1998
------------ ----
Two $500,000 unsecured notes payable to an
international bank bearing interest at 7.1% and 6% with
principal and accrued interest payable on December 31,
1998 and February 22, 1999. Personally guaranteed by
certain Company stockholders. In January, 1999 the
Company extended the due date of the note due on
December 30, 1998 to June 30, 1999 and decreased the
annual interest rate from 7.1% to 5.9%. In February,
1999 the Company extended the due date of the note due
on February 22, 1999 to May 22, 1999 and decreased the
annual interest rate from 6% to 5.6%. $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
Of the above notes payable, $465,854 were past due as of December 31, 1998.
The Company is currently in the process of negotiating an extension or
modification of the terms of the debt. The remainder of the notes payable
will become due during the year ended December 31, 1999.
During 1998, notes payable and accrued interest of $ 17,254,239 were paid
through the CSFB refinancing transaction (see Note 6).
8. Notes Payable to Related Parties
Notes payable to related parties consist of the following:
December 31, 1998
------------ ----
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 PSDC (see Note 6). 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. (see Note 10) 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 PSDC. 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
============
Of the above notes payable to related parties, $2,295,000 were past due as
of December 31, 1998. The Company is currently in the process of
negotiating an extension or modification of the terms of the debt. Of the
remainder of the notes payable to related parties, $8,703,005 and
$8,090,846 will become due during the years ending December 31, 1999 and
2001, respectively.
During 1998, related party notes payable and accrued interest of
$13,743,179 were paid through the CSFB refinancing transaction (see Note
6).
Interest expense on notes payable to related parties was $3,134,197 and
$4,980,314 for the years ended December 31, 1998 and 1997, respectively.
9. Convertible Notes Payable
Convertible notes payable at December 31, 1998 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 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.
37
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
10. Commitments and Contingencies Leases
The Company conducts certain operations from leased facilities including
office space in Orlando, Florida. The Company also leases certain office,
maintenance and golf course equipment. These leases are classified as
operating leases and expire on various dates from 1998 through 2002.
Certain leases provide for renewal options and payment of occupancy costs
and taxes.
As of December 31, 1998, future minimum rental payments required under
operating leases that have initial or remaining noncancelable lease terms
in excess of one year are as follows:
1998 $ 457,965
1999 384,939
2000 275,517
2001 162,368
2002 66,297
---------
Total minimum lease payments $1,347,086
Rental expense under all operating leases was approximately $379,805 and
$476,798 for the years ended December 31, 1998 and 1997, respectively.
Employment Agreements
The Company has entered into three employment agreements with key
executives. Two of the agreements are for a three-year period ending in
November 2000 and one is for a one-year period ending August 1999, with
automatic one-year renewal terms thereafter. The agreements provide for
aggregate annual base compensation of $435,000. The agreements also provide
the executives an aggregate of 610,000 options to purchase Company common
stock.
Litigation
As discussed in Note 1, the Company completed an acquisition of GCA. On
December 8, 1997, the U.S. Securities and Exchange Commission filed a
complaint against GCA and certain of its former officers and directors. The
SEC has alleged violations of certain sections of the Securities and
Exchange Act of 1934 and various rules in connection with the purchase and
sale of GCA securities and reporting and disclosure requirements. The
Company submitted an offer of resolution to the Securities and Exchange
Commission to resolve the matter with a cease and desist, whereby the
complaint against the Company would be withdrawn. Additionally, the federal
district court has now signed an order dismissing the claims against the
Company. The Company is now awaiting the issuance of the final order by the
Commission, in which the Company without admitting or denying the
allegations, will consent to a cease and desist order, fully and finally
resolving the matter.
U.S. Golf Pinehurst Plantation, Ltd. was a defendant in a lawsuit alleging
trademark infringement arising out of the use of the term "Pinehurst
Plantation" in connection with its golf course operations and residential
lot development. During 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 geographic location".
The Company also entered into a release and settlement agreement whereby,
in exchange for the termination of all disputes between the parties, the
Company agreed to pay damages of $62,500 and the promise of 70 golf tee
times per month for five consecutive years. Prior to December 31, 1998, the
Company paid the $50,000 toward the cash portion of the settlement and
accrued an additional $325,000 at December 31, 1998 for the remainder of
the cash payment due and the estimated value of the golf tee time promise.
The related expense is included in settlement of dispute expense in the
1998 statement of operations.
The former parent company of GCA, American Resources and Development
Corporation ("ARDCO") made a claim against the Company for shares of the
Company's common stock. During 1998, the Company entered into a settlement
agreement with ARDCO and issued 862,000 shares of the Company's common
stock to ARDCO in exchange for the termination of their claim against the
Company. Settlement of dispute expense of $1,456,780 was recorded for the
year ended December 31, 1998 related to this transaction based on the
market value of the Company's common stock on the settlement date.
38
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
Montverde Properties LTD was a defendant in a lawsuit for the enforcement
of a $916,824 mortgage note payable. The mortgage and all accrued interest
were paid in full during 1998. The Company expects no further litigation
proceedings regarding this matter.
The holder of a promissory note payable by the Company has made a claim
disputing the amount owed under the note. The holder is claiming that the
balance owed is $4,175,000 plus related accrued interest at 12% per annum.
The Company believes that the $3,448,670 balance recorded on the December
31, 1998 balance sheet (see Note 8) plus accrued interest at 12% per annum
is correctly stated. The parties are currently negotiating a resolution to
this dispute, and no lawsuit has been filed against the Company. In the
opinion of management, there is no reasonable probability at present that
the promissory note holder's claim is valid.
The Company is involved in various other lawsuits and litigation matters on
an ongoing basis as a result of its day-to-day operations. However, the
Company does not believe that any of these other or any threatened lawsuits
and litigation matters will have a material adverse effect on the Company's
financial position or results of operations.
Loan Costs
In connection with the issuance of several notes payable described in Notes
6, 7, 8 and 9, the Company has agreed to pay loan costs in the form of cash
and the transfer of title of a specified lot in one of the Company's
residential developments. The following is a summary of the loan cost
obligations outstanding as of December 31, 1998:
Description
CSFB loan exit fee (see Note 6).................................$1,298,250
Cash commitments................................................ 827,000
Residential development lot..................................... 95,658
----------
$2,220,908
==========
The Company has valued the residential development lot commitment based on
the recorded cost of the specified lots on the Company's balance sheet at
the date of the commitment.
In December 1997, the Company issued notes payable of $800,000 and $500,000
which were originally payable on or before February 1, 1998 and January
18,1998, respectively. As an incentive for entering into the note payable
arrangements and in lieu of interest, the Company agreed to issue to the
lenders, at their option, one of the following in the aggregate: 1)
$1,800,000 of the Company's Class A cumulative convertible preferred stock,
2) 480,000 shares of the Company's common stock, or 3) 7.5% of the
Company's 81% investment in PSDC (see Note 1) valued at $1,800,000. During
1998, the lenders agreed to accept 929,706 shares of the Company's common
stock, valued at $1,571,203, as compensation for their loans in lieu of the
three options above. The Company has accounted for value of the stock
issued as additional interest expense amortized over the original life of
the loans, which were approximately two months in duration. Accordingly,
additional interest expense of $671,203 and $900,000 has been recorded as
interest expense in the December 31, 1998 and 1997, respectively,
statements of operations.
During 1998, the Company paid $7,741,703 and $225,000 of loan costs payable
through the issuance of capital and the transfer of a residential lot in
one of the Company's developments, respectively. In addition, $1,023,000 of
loan costs payable were reclassed to related party notes payable in 1998.
During 1997, the Company paid $1,566,926 and $244,000 of loan costs payable
through the issuance of capital and the transfer of a residential lot in
one of the Company's developments, respectively.
Loan Guaranty
The Company has agreed to guarantee the payment of a $35,600,000 bank loan
of PSL. The loan is secured by a first mortgage on property owned by PSL.
The loan bears interest at Libor plus 4.5 percent per annum. Interest on
the PSL borrowing is to be paid monthly with minimum principal repayments
of $5,778,765 on or before July 1, 1999, $15,033,015 on or before July 1,
2000, and the remainder due in July 2001.
39
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
Construction Contracts
The Company has entered into various contracts for the construction of a
golf course and two residential infrastructure projects. The contracts
estimate a total of approximately $4,955,000 of construction cost
commitments. Another contract commits the Company to pay monthly rental
fees for construction equipment. The monthly rental fees have ranged from
approximately $300,000 to $1,000,000 per month.
Construction Funding
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.
Contingent Liability
During 1997, a financial services firm invoiced the Company approximately
$1,000,000 for a commission payable to them related to their services in
locating GCA as an acquisition candidate for USGCI (see Note 1). Due to
certain circumstances involved with the acquisition transaction, the
Company believes that the invoice is invalid and has not recorded the
commission in its financial statements. The services firm has not actively
pursued the Company for payment of the commission and the Company has not
contacted the services firm regarding their invoice since 1997.
11. Income Taxes
Unused net operating losses for income tax purposes, expiring in various
amounts from 2007 through 2018, of approximately $30,000,000 are available
at December 31, 1998 for carryforward against future years' taxable income.
Under Section 382 of the Internal Revenue Code, the annual utilization of
these losses may be limited due to changes in ownership. The tax benefit of
these losses of approximately $11,386,000 has been offset by a valuation
allowance due to it being more likely than not that the deferred tax assets
will not be realized. The Company has deferred tax assets of approximately
$2,313,000 and $2,902,000 for the write down of land under development (see
Note 16) and the write down of investments in related party companies (see
Note 1), respectively.
12. Capital Stock
Authorized Common Stock
During 1998, the Company stockholders approved an increase in the
authorized shares of common stock from 25,000,000 to 100,000,000.
Class A Cumulative Convertible Preferred Stock
The holders of the Company's Class A Cumulative Convertible Preferred Stock
("Class A Stock") had the right to convert such shares into shares of the
Company's common stock anytime prior to March 1, 1998 at a conversion price
equal to 60% of the average market price of the common stock for 90 days
immediately prior to the conversion. The Class A Stock entitles the holders
to receive cumulative dividends at a rate of 10% per annum and a one-time
6% bonus from the first net profits of the Company based upon the $5 per
share purchase price paid by the original purchasers. The Class A Stock
also has certain preferences in liquidation. During 1998, the holders of
4,303 shares of Class A Stock elected to convert their shares into 16,915
shares of the Company's common stock. Additionally, the Company elected to
redeem 19,780 shares of Class A stock in exchange for $154,285 during 1998.
40
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
Class B Cumulative Convertible Preferred Stock
During 1998, the holders of 28,340 shares of the Company's Class B
Cumulative Convertible Preferred Stock, representing all such outstanding
shares, elected to convert their shares into 404,857 shares of the
Company's common stock at a conversion rate of approximately 14 common
shares for each Class B Cumulative Convertible Preferred Stock converted.
Class D Convertible Preferred Stock
On November 24, 1997, the Company issued 6,672,578 shares of the Company's
Class D Cumulative Convertible Preferred Stock ("Class D Stock") to effect
an acquisition (see Note 1). The Class D stock automatically converted into
26,690,319 shares of the Company's common stock at a conversion rate of
four shares of common stock for each share of Class D Stock upon the
approval of an increase of the Company's authorized common stock to
100,000,000 shares completed during 1998.
Conversion of Liabilities into Common Stock
During 1998, $280,000 of notes payable and accrued interest, $422,499 of
related party notes payable and accrued interest and $20,909,864 of
convertible notes payable and accrued interest, respectively, were
converted into Company common stock at conversion prices ranging from $0.97
per share to $2.05 per share. The conversion prices were determined based
upon the terms of the individual notes converted.
During 1998, the Company recorded $701,186 of additional paid in capital
and interest expense related to convertible notes payable converted into
Company common stock at conversion rates that were either below the market
value of the Company's common stock or the previous contractual conversion
rate, whichever was lower, at the date of conversion.
During 1998 and 1997, the Company paid $300,758 and $117,720 of trade
accounts payable through the issuance of 268,458 and 50,000 shares of the
Company's common stock, respectively.
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.
Settlement of Disputes
As a condition to the CSFB financing, the Company committed to settle
certain disputed obligations and loan fees with certain third parties. The
Company issued 1,937,000 shares of common stock, including 862,000 shares
issued to ARDCO (see Note 10), during the year ended December 31, 1998 as
compensation under the related settlement agreements. The shares issued
were valued at $3,273,530 based on the market value of the Company's common
stock on the date of the settlements, which is included in settlement of
dispute expense in the 1998 statement of operations.
Stock Options
During 1998, the Company's shareholders approved an equity-based long-term
incentive plan. The Company applies APB Opinion 25, Accounting for Stock
Issued to Employees, and related interpretations in accounting for this
plan. Under the provisions of APB Opinion 25, if options are granted or
extended at exercise prices less than fair market value, compensation
expense is recorded for the difference between the grant price and the fair
market value at the date of grant.
The Company's equity-based incentive plan allows the Company Board of
Directors to grant up to 2,000,000 incentive and non-qualified stock
options, stock appreciation rights, restricted stock and long term
performance awards to key employees and officers of the Company and stock
options and stock appreciation rights to certain independent contractors.
The maximum term of options granted under the plan is ten years.
Statement of Financial Accounting Standards No. 123 ("FAS 123"), Accounting
for Stock Based Compensation, requires the Company to provide pro forma
information regarding net income and earnings per share as if compensation
cost for the Company's stock options had been determined in accordance with
the fair value based method prescribed in FAS 123. The Company estimates
the fair value of each stock option at the grant date by using a
Black-Scholes option-pricing model with the following assumptions used for
grants in 1998: no dividend yield, volatility from 116% to 129%, risk-free
41
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
interest rate of 6.3% and expected lives ranging from two to five years.
Had compensation cost been determined based on the fair value of options at
their grant dates in accordance with FAS 123, the Company would have had a
net loss of $36,555,807 for fiscal 1998. The effect on earnings per share
is less than $.01 per share for fiscal 1998.
In December 1998, the Company Board of Directors granted 610,000 stock
options to certain key executives to purchase the Company's common stock at
$1 per share. The options vest 220,000 at the grant date and 195,000 each
one and two years from the grant date. The fair value of the options at the
date of grant were $ .96 per share.
Shares Reserved
At December 31, 1998, the Company has reserved common stock for future
issuance under its equity-based incentive plan and for convertible notes
payable totaling 3,368,369 shares.
13. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Year ended December 31, 1998 1997
----------------------- ---- ----
<S> <C> <C>
Cash paid for income taxes......................................................$ - -
Noncash financing and investing activities:
Acquisition of Arlington, Texas property (see Note 1)......................... 47,971,635 -
Reclassification of loan costs payable to related party note payable
(see Note 10) ............................................................... 1,023,000 -
Refinance of notes payable, related party notes payable and accrued
interest with notes payable to bank (see Note 6)............................. 30,997,419 -
Reclassification of accrued interest to related party and convertible
notes payable ............................................................... 1,861,402 -
Allocation of common stock issued to CSFB and loan costs to investment
in PSDC ..................................................................... 11,149,918 -
Common stock issued for loan costs (Note payable to bank offsets)............. 11,248,120 -
Accrual of loan costs......................................................... 1,720,750 -
Reclassification of goodwill to land and development costs.................... 250,000 -
Accrual of loan costs (Note payable to bank offsets).......................... 4,703,454 -
Conversion of related party notes payable and accrued interest into
capital (see Note 10) ....................................................... 7,133,327 -
Notes payable issued in connection with advances to related party companies... 1,000,000 -
Reclassification of notes payable to related party and convertible notes
payable ..................................................................... 1,200,000 6,557,298
Conversion of notes payable and accrued interest into capital (see Note 12)... 21,452,927 5,333,024
Payment of loan costs payable through the issuance of capital (see Note 10)... 7,741,703 1,566,926
Payment of loan costs payable with the transfer of a residential lot
(see Note 10) ............................................................... 225,000 244,000
Issuance of common stock for payment of trade accounts payable (see Note 12).. 300,758 117,720
Acquisition of GCA (see Note 1)............................................... - 13,143,954
Acquisition of PSDC through the issuance of common stock (see Note 1)......... - 9,439,960
Conversion of related party notes payable and accrued interest into
capital (see Note 12) - 7,133,327
</TABLE>
14. Option Agreement
In 1994, the Company entered into an option to purchase (the "Agreement") a
golf course and residential lots for $15,500,000. The term of this option
is five years unless sooner terminated as defined in the Agreement. Under
the Agreement, the Company paid $3,000,000 in cash and agreed to extinguish
an existing $5,500,000 first mortgage obligation of the seller. The balance
of the purchase price of $7,000,000 shall be payable to the seller upon
satisfaction of the first mortgage. When the Company closes on the sale of
a lot, the net cash, as defined, shall first be applied to the payment of
the first mortgage until fully paid. Upon satisfaction of the first
mortgage, the net cash will be applied to the $7,000,000 balance owed the
seller until satisfied. During November 1996, the outstanding balance of
approximately $3,356,000 on the first mortgage note was refinanced by the
seller.
The option agreement was accounted for as a purchase of the golf course and
residential lots and assumption of the related liabilities. Accordingly,
the total purchase price, including the cash payment, was allocated to the
net assets acquired based upon their estimated fair market values. The
$7,000,000 note payable to the seller was non-interest bearing until
November 1996, at which time the note began accruing interest at prime plus
2%. Interest was imputed on the note during the period of November 1994 to
November 1996 at a rate of 10.5%, resulting in a net present value of
$5,593,591 at the date of the transaction. During 1998, the note payable to
seller and accrued interest of $7,245,000 were paid in full through the
CSFB refinance transaction.
42
<PAGE>
Golf Communities of America, Inc.
Notes to Consolidated Financial Statements
15. Going Concern Consideration
The Company's financial statements are presented on the going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company incurred a net
loss of $35,744,607 for the year ended December 31, 1998, was in default of
approximately $2,800,000 of unsecured debt, has approximately another
$11,000,000 of unsecured debt due during 1999. In addition, the Company has
a minimum required principal repayment of $14,050,000 under a note payable
to banks and trust due on or before July 1, 1999 and the Company is in
default of certain provisions of the CSFB loan agreement (see Note 6).
The Company expects to incur substantial expenditures to further its real
estate and golf course development activities which has been funded by CSFB
1998. Management believes that the funding provided by CSFB is sufficient
to provide the Company's projects with certain amenities critical to the
proper marketing of its real estate development efforts and to support
Company revenues from lot sales in the future. However, the funding
proviced by CSFB and the Company's working capital capital at December 31,
1998, plus limited revenue from real estate sales and golf course
operations will not be sufficient to meet such objectives and obligations
as presently structured. Management recognizes that the Company must
generate additional resources renegotiate current obligations or consider
disposing of assets to enable it to continue operations.
Management intends to open discussions with CSFB as well as continue
discussions with other note holders to restructure current debt obligations
to relieve this current liquidity situation. Management has had success in
restructuring many of its notes payable and believes this effort will be
successful. However, there is no assurance that this can be accomplished
before any creditors choose to exercise their remedies as a result of the
above defaults.
Management's plans also include alliances or other partnership agreements
with entities interested in and resources to support the Company's plans or
other business transactions, which could generate resources to assure
continuation of the Company's operations. Several negotiations have taken
place between the Company and certain significant financing sources.
Management also intends to complete the land sale transaction described in
note 17 and to potentially enter into similar arrangements at other Company
properties. Such transactions provide the Company with capital to meet some
of its first mortgage obligations and alleviates significant development
costs the Company would have to otherwise finance through other means.
The accompanying financial statements do not include any adjustment to
reflect the possible future effects that may result from the inability of
the Company to continue as a going concern.
16. Land Under Development
During 1998, and as a condition of the CSFB transaction, the Company's real
estate properties were appraised by a third party consulting firm. The
resulting values were compared to the book value of the properties recorded
on the Company's balance sheet in order to evaluate the need for a lower of
cost or fair market value write down. Accordingly, the Company recorded a
write down of $6,147,260 to land and development costs during the quarter
ended December 31, 1998 to reduce the book value of its Utah property to
the appraised value of $16,200,000. The write down is included as an
operating expense in the 1998 statement of operations.
The Company is contractually committed, as part of its loan agreement with
CSFB, to sell the Utah property in its entirety by March 31, 1999.
17. Subsequent Events
Subsequent to December 31, 1998, the Company entered into a land purchase
agreement ("the agreement") for the sale of 500 residential development
lots in the Company's Pinehurst, North Carolina development for a total
purchase price of $10,000,000. The agreement requires the buyer to purchase
33 lots upon execution of the contract for $1,000,000, and an additional 67
lots each year thereafter at a purchase price of $19,150 per lot. In
addition, the buyer is required to purchase 500 memberships to the
Company's golf club for a total purchase price of $5,000,000. A $5,000,000
non-interest-bearing promissory note will be executed as consideration for
the membership purchase, payable in $10,000 installments as the buyer
transfers the memberships to third-party purchasers of the residential
lots. The note matures seven years from the date of the agreement, at which
time any unsold memberships will be returned to the Company and offset
against the balance of the promissory note. The agreement has been signed
by the Company and buyer and is currently pending the approval of CSFB
prior to its full execution.
43
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
On March 13, 1998, the Company formally terminated its independent auditor
relationship with Jones Jensen & Co.
Each of Jones, Jensen's reports on the financial statements of the Company for
the fiscal years ended March 31, 1997 and 1996 were qualified as to uncertainty
with respect to the Company's ability to continue as a going concern.
The decision to change accountants was approved by the Company's Board of
Directors.
During the fiscal years ended March 31, 1997 and 1996, and during the period
April 1, 1997 through March 13, 1998, there were no disagreements with Jones,
Jensen on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedures or any reportable event.
On March 19, 1998, the Company formally engaged BDO Seidman LLP ("BDO") as its
independent auditors who audited and reported on the financial statements of the
Company for the fiscal years ended December 31, 1997 and 1998, enclosed with
this report, (see item 7 "Financial Statements").
Prior to engaging BDO, neither the Company nor anyone acting on its behalf
consulted with BDO regarding the application of accounting principles to any
specified transaction or the type of audit opinion that might be rendered on the
Company's financial statements. In addition, during the Company's fiscal years
ended March 31, 1997 and 1996, and the interim period from April 1, 1997 to
March 13, 1998, neither the Company nor anyone acting on its behalf consulted
with BDO with respect to any matters that were the subject of a disagreement or
event(as described in Item 304(a)(1)(iv) of Regulation S-B).
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act.
All directors of the Company serve a term of one (1) year until the next Annual
Shareholders Meeting or until their death, resignation, retirement, removal,
disqualification, or until their successors have been elected and qualified.
Vacancies in the existing board are to be filled by a majority vote of the
remaining directors.
Officers of the Company serve at the will of the Board of Directors.
The following table sets forth the name and office held by each director and
officer of the Company, followed by a brief resume of each individual.
NAME AGE POSITION HELD
Warren Stanchina 51 President, Chief Executive Officer and Director
Wolfgang Dueren 55 Director
Eric LaGrange 48 Executive Vice President, Chief Operating Officer
Mary Lynn Stanchina 43 Senior Vice President, Secretary, Chief
Administrative Officer and Director
Kevin Jackson 32 Chief Financial Officer
Warren Stanchina, is President and Chief Executive Officer of the Company, and
serves as Chairman of the Board of Directors. Mr. Stanchina joined the company
in November 1997 as a result of the reverse acquisition transaction with U.S.
Golf, a wholly owned subsidiary of the Company. He founded U.S. Golf. Through
the subsidiaries of U.S. Golf and U.S. Golf Services and Development, a related
party company, Mr. Stanchina has acquired, built and operated golf properties
since 1983. Mr. Stanchina is the President and owner of U.S. Golf Services and
Development and the co-beneficial owner of 5,346,458 shares of the Company's
common stock, including 120,000 shares subject to stock options which are
exercisable within 60 days of the date hereof. Pursuant to an employment
agreement, on December 31, 1998, Mr. Stanchina was granted 360,000 options to
purchase the Company's common stock with an exercise price of $1. These options
vest one-third on the date of the grant and the remaining two-thirds equally
over two years, commencing one year from the date of grant.
Wolfgang Dueren, is a Director of the Company. Dr. Dueren is a citizen of
Germany where he has an active law and investment advisory practice. He has
worked with Mr. Stanchina for the past eight years assisting in financing the
U.S. Golf group of operating entities and properties. Dr. Dueren is the
beneficial owner of 4,659,437 shares of the Company's common stock.
Eric LaGrange, is Executive Vice President and Chief Operating Officer, and
served in the same capacities with U.S. Golf Communities, Inc. for over five
years prior to the reorganization transaction with the Company in November 1997.
44
<PAGE>
U.S. Golf Communities, Inc. (now U.S. Golf management, Inc.) was the corporation
assigned with overview responsibilities for the U.S. Golf entities prior to the
November 1997 reverse acquisition transaction. Pursuant to an employment
agreement, on December 31, 1998, Mr. LaGrange was granted 150,000 options to
purchase the Company's common stock with an exercise price of $1. These options
vest one-third on the date of the grant and the remaining two-thirds equally
over two years, commencing one year from the date of grant.
Mary Lynn (Jo) Stanchina, is Senior Vice President, Secretary, Chief
Administrative Officer and a Director of the Company. She was elected to the
Board of Directors of the Company in December 1997 upon the resignation of Duane
Merchant. Mrs. Stanchina is the spouse of Warren Stanchina, and has been active
in the development and management of U.S. Golf Communities in the same positions
that she now holds with the Company. Mrs. Stanchina has actively participated in
co-founding and managing numerous golf properties since 1983. Ms. Stanchina is
the co-beneficial owner of 5,226,458 shares of the Company's common stock.
Kevin Jackson, is Chief Financial Officer. Mr. Jackson joined the Company is
August 1998. Prior to joining the Company, Mr. Jackson worked as an audit
manager and associate for BDO Seidman LLP in Orlando, Florida from 1993 to 1998.
During his years in public accounting, Mr. Jackson was responsible for
coordinating and overseeing audits on a variety of clients including companies
in the real estate, manufacturing and high-tech industries. Pursuant to an
employment agreement, on December 31, 1998 Mr. Jackson was granted 100,000
options to purchase the Company's common stock with an exercise price of $1 per
share. Of the options granted, 50,000 vested on the date granted and the
remaining 50,000 vest equally over two years, commencing one year from the date
of grant.
Item 10. Executive Compensation.
Director Compensation.
The Company has not had a bonus, profit sharing, or deferred compensation plan
for the benefit of its employees, officers or directors.
The Company currently provides no cash compensation to its Directors. Out of
pocket expenses incurred by Directors in their capacity as a Director may be
reimbursed by the Company as approved by the Board of Directors.
The following table sets forth a summary of cash and non-cash compensation for
each of the last three fiscal periods ended December 31, 1998, 1997, and 1996,
with respect to the Company's Chief Executive Officer. No other executive
officer of the Company has earned a salary greater than $100,000 annually for
any of the periods depicted.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Salary/ Restricted Underlying
Name and Management Stock Options/
Principal Position Year Fees1 Awards SAR's2
- - ------------------ ---- ----- ------ ------
<S> <C> <C> <C> <C>
Warren Stanchina, 1998 250,000 - 360,0004
President and Chief 1997 226,000 - -
Executive Officer3 1996 317,000 - -
Duane H. Marchant 1998 - - -
President, CEO and 1997 72,000 150,0005 -
Treasurer6 1996 72,000 - -
Eric La Grange 1998 100,000 - 150,0004
Vice President and 1997 100,000 - -
Chief Operating Officer 1996 100,000 - -
</TABLE>
1 Prior to November 1997, Mr. Stanchina received compensation according to
management fee with several entities now consolidated under US Golf.
2 The Company has never issued SAR's.
3 After November 27, 1997
4 Stock options granted on December 31, 1998, $1 per share exercise price, one
third vested at grant date and one third vest one and two years from the
grant date.
5 150,000 shares issued to Mr. Marchant have a market value of $112,500 as
of December 31, 1998.
6 Until November 27, 1997
45
<PAGE>
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN FISCAL 1998
Number of Securities % of Total Options/SAR Exercise
Underlying Options/SAR Granted to Employees in or Base Expiration
Name Granted1 Fiscal year1 Price($/sh) Date
- - ---- -------- ------------ ----------- ----
<S> <C> <C> <C> <C>
Warren Stanchina 360,000 360,000 $1 December 31, 2008
Eric La Grange 150,000 150,000 $1 December 31, 2008
</TABLE>
1 The Company has never issued SAR's.
Stock Options and Similar Awards to Management
In December 1998, the Company's Board of Directors awarded 360,000 stock options
to Warren Stanchina, the Company President and Chief Executive Officer, 150,000
stock options to Eric La Grange, the Company Chief Operating Officer, and
100,000 stock options to Kevin Jackson, the Company Chief Financial Officer. The
stock options were awarded pursuant to employment agreements and are exercisable
at $1 per share.
In November 1997, the Company entered into an employment agreement with Mr.
Warren Stanchina to employ Mr. Stanchina as President and Chief Executive
Officer of the Company for a term of three years at an annual base salary of
$250,000 with bonus possibilities in the discretion of the Board of Directors.
In addition, the Company granted to Mr. Stanchina options to purchase 360,000
shares of the Company's common stock. The stock options were granted in December
1998 at an exercise price of $1 per share
In July 1997, the Company's Board of Directors awarded 150,000 shares of
restricted common stock to Duane Marchant, the former President and Director,
35,000 shares of restricted common stock to Steven Spencer, the former Chief
Financial Officer and Director, and 30,000 shares of restricted common stock to
Bruce Frodsham, St. George Properties Manager and former Director, as bonus
compensation for service to the Company in negotiating the US Golf reverse
acquisition transaction and in negotiating and implementing a separation of the
Company from ARDCO.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information with respect to any person known to
the Company to be the beneficial owner of than five percent 5% or more of any
class of the Company's voting securities as of December 31, 1998. (Unless
otherwise indicated, the individuals or entities identified each own their
respective shares and have sole voting and sole investment powers regarding
their disposition. The percentages are based upon 71,577,442 shares of common
stock issued and outstanding at December 31, 1998 and 5,000 shares of the
Company's Series A Preferred Stock issued and outstanding at December 31, 1998,
and such percentages are computed in accordance with Rule 13d-3 of the
Securities Exchange Act of 1934, as amended.
<TABLE>
<CAPTION>
Name and Address of Title of Number of Percent
Beneficial Owner Class Shares Owned(1) of Class
- - ---------------- ----- --------------- --------
Common Stock
- - ------------
<S> <C> <C> <C>
Credit Suisse First Boston Common Stock 17,460,182 24.2 %
11 Madison Avenue $.001 par value
New York, NY 10010-3629
Metrovest Partners, Ltd. Common Stock 10,000,000 13.9 %
3883 Turtle Creek Blvd. $.001 par value
Suite 209
Dallas, TX 75219
Double Eagle Properties, Ltd. (2) Common Stock 5,226,458 7.3 %
255 S. Orange Ave. $.001 par value
Orlando, FL 32801
Dr. Wolfgang Dueren Common Stock 4,659,437(3) 6.5 %
255 S. Orange Ave. $.001 par value
Orlando, FL 32801
Hermann Flachsmann Common Stock 3,782,613 5.3 %
Kaiserstr. 16 $.001 par value
74072 Heilbronn
46
<PAGE>
<CAPTION>
Series A Preferred Stock
- - ------------------------
<S> <C> <C> <C>
James W. Geis Series A 2,000 40 %
26962 Sandalia Circle Preferred Stock
Mission Viejo, CA 92691 $.001 par value
Robert F. and Nancy L. Pelton Series A 1,000 20 %
Preferred Stock
$.001 par value
Anna Barbara Taylor Series A 2,000 40 %
Preferred Stock
$.001 par value
</TABLE>
1. As shown on the stock transfer records of the Company or in Section 13(d)
filings received by the Company.
2. Partnership entity owned and controlled by Warren and Mary Lynn Stanchina.
3. Held as trustee for certain overseas shareholders of the Company.
Item 12. Certain Relationships and Related Transactions.
Interested Party Transactions
During the summer of 1997, George Badger assisted the Company in negotiating the
U.S. Golf transaction. Mr. Badger has asked to be paid 250,000 shares of
restricted common stock as a finder's fee. The Company and Mr. Badger executed a
settlement agreement during 1998 that released the Company from any liability to
Mr. Badger.
Employment Agreements
In November 1997, the Company entered into an employment agreement with Mr.
Warren Stanchina to employ Mr. Stanchina as President and Chief Executive
Officer of the Company for a term of three years at an annual base salary of
$250,000 with bonus possibilities in the discretion of the Board of Directors.
In addition, the Company granted to Mr. Stanchina options to purchase 360,000
shares of the Company's common stock. The stock options were granted in December
1998 at an exercise price of $1 per share.
In November 1997, the Company entered into an employment agreement with Mr. Eric
LaGrange to employ Mr. LaGrange as Executive Vice President and Chief Operating
Officer of the Company for a term of three years at an annual base salary of
$100,000 with bonus possibilities in the discretion of the Board of Directors.
In addition, the Company granted to Mr. LaGrange options to purchase 150,000 of
shares of the Company's common stock. The stock options were granted in December
1998 at an exercise price of $1 per share.
In August 1998, the Company entered into an employment agreement with Mr. Kevin
Jackson as Chief Financial Officer of the Company for a term of one year with
automatic renewal terms thereafter at an annual base salary of $85,000. In
addition, the Company granted to Mr. Jackson options to purchase 100,000 shares
of the Company's common stock. The stock options were granted in December 1998
at an exercise price of $1 per share.
In December 1997, the Company entered into a one-year consulting agreement with
Mr. Wolfgang Dueren. Mr. Dueren is required to perform business, financing and
shareholder advice to the Company in connection with the business activities of
the Company as well as partnership issues, tax and legal, especially for the
foreign investors of the Company. Mr. Dueren will receive consulting fees in the
amount of $15,000 per month for the first seven months of the agreement and
$8,333 per month thereafter. In March 1999, the consulting agreement was
extended through June 30, 1999 and amended to provide consulting fees of $15,000
per month from December 1998 through June 30, 1999.
47
<PAGE>
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
The following exhibits are filed herewith or are incorporated by reference to
exhibits previously filed with the Securities and Exchange Commission. The
Company shall furnish copies of exhibits for a reasonable fee (covering the
expense of furnishing copies) upon request.
Exhibit No. Exhibit Name
3.1 Certificate of Incorporation, as amended*
3.2 The Company's ByLaws, as amended *
10.1 Option contract (Stucki)*
10.2 Extension to Option Contract (Stucki)*
10.3 Further Amendment to Option Contract (Stucki)*
10.4 Modification Agreement (Stucki)*
10.5 Further Modification Agreement (Stucki)*
10.6 Sales Agreement (Property Alliance)*
10.7 Addendum to Sales Agreement (Property Alliance)*
10.8 Acquisition Agreement (ARDCO)*
10.9 Agreement (Bear River Contractors)*
10.10 Reorganization Agreement with U.S. Golf Communities, Inc.**
10.11 Amendment No 1 to Reorganization Agreement with U.S. Golf Communities**
10.12 Acquisition Agreement for the purchase of Pelican Strand***
10.13 Employment Agreement dated November 26, 1997 with Mr. Warren
Stanchina***
10.14 Employment Agreement dated November 26, 1997 with Mr. Eric LaGrange***
10.15 Consulting Agreement dated December 1, 1997 with Dr. Wolfgang Dueren***
10.16 Employment Agreement dated August 10, 1998 with Mr. Kevin Jackson
10.17 Loan Agreement, dated as of July 2, 1998, between Cutter Sound
Development, Ltd., Montverde Property, Ltd., NorthShore Golf Partners,
Ltd., NorthShore Development, Ltd., U.S. Golf Pelican Strand, Inc.,
U.S. Golf Pinehurst Plantation, Ltd., FSD Golf Club, Ltd., RH Holdings,
Inc., Wedgefield Limited Partnership and Credit Suisse First Boston
Mortgage Capital LLC.****
10.18 Loan Agreement, dated as of July 2, 1998, between Pelican Strand, Ltd.
and Credit Suisse First Boston Mortgage Capital LLC.****
10.19 Cash Management Agreement, dated as of July 2, 1998, between Cutter
Sound Development, Ltd., Montverde Property, Ltd., NorthShore Golf
Partners, Ltd., NorthShore Development, Ltd., U.S. Golf Pelican Strand,
Inc., U.S. Golf Pinehurst Plantation, Ltd., FSD Golf Club, Ltd., RH
Holdings, Inc., Wedgefield Limited Partnership and U. S. Golf
Management, Inc. and Credit Suisse First Boston Mortgage Capital
LLC.****
10.20 Cash Management Agreement, dated as of July 2, 1998, between Pelican
Strand, Ltd. and U. S. Golf Management, Inc. and Credit Suisse First
Boston Mortgage Capital LLC.****
10.21 Agreement, dated as of July 2, 1998, between Golf Ventures, Inc. and
Credit Suisse First Boston Mortgage Capital LLC. with respect to
Capital Stock of Golf Ventures, Inc.****
10.22 $50,950,000 Promissory Note, dated as of July 2, 1998, between Cutter
Sound Development, Ltd., Montverde Property, Ltd., NorthShore Golf
Partners, Ltd., NorthShore Development, Ltd., U.S. Golf Pelican Strand,
Inc., U.S. Golf Pinehurst Plantation, Ltd., FSD Golf Club, Ltd., RH
Holdings, Inc., Wedgefield Limited Partnership and Credit Suisse First
Boston Mortgage Capital LLC.****
10.23 $35,600,000 Promissory Note, dated as of July 2, 1998, between Pelican
Strand, Ltd. and Credit Suisse First Boston Mortgage Capital LLC.****
48
<PAGE>
10.24 Guaranty, dated as of July 2, 1998, by Cutter Sound Development, Ltd.,
Montverde Property, Ltd., NorthShore Golf Partners, Ltd., NorthShore
Development, Ltd., U.S. Golf Pelican Strand, Inc., U.S. Golf Pinehurst
Plantation, Ltd., FSD Golf Club, Ltd., RH Holdings, Inc., Wedgefield
Limited Partnership and U. S. Golf Management, Inc. for the benefit of
Credit Suisse First Boston Mortgage Capital LLC., for the $35,600,000
indebtedness of Pelican Strand, Ltd.****
10.25 Guaranty, dated as of July 2, 1998, by Golf Ventures, Inc. for the
benefit of Credit Suisse First Boston Mortgage Capital LLC, for the
$35,600,000 indebtedness of Pelican Strand, Ltd.****
10.26 Amendment to loan agreement, dated as of September 3, 1998, between
Cutter Sound Development, Ltd., Montverde Property, Ltd., NorthShore
Golf Partners, Ltd., NorthShore Development, Ltd., U.S. Golf Pelican
Strand, Inc., U.S. Golf Pinehurst Plantation, Ltd., FSD Golf Club,
Ltd., RH Holdings, Inc., Wedgefield Limited Partnership, Arlington
Lakes, LP and Credit Suisse First Boston Mortgage Capital LLC.*****
10.27 Amendment to loan agreement, dated as of September 3, 1998, between
Pelican Strand, Ltd. and Credit Suisse First Boston Mortgage Capital
LLC.*****
10.28 Note modification agreement, dated as of September 3, 1998, between
Pelican Strand, Ltd. and Credit Suisse First Boston Mortgage Capital
LLC.*****
10.29 $50,000,000 promissory note, dated as of September 3, 1998, between
Cutter Sound Development, Ltd., Montverde Property, Ltd., NorthShore
Golf Partners, Ltd., NorthShore Development, Ltd., U.S. Golf Pinehurst
Plantation, Ltd., FSD Golf Club, Ltd., RH Holdings, Inc., Wedgefield
Limited Partnership, Arlington Lakes, LP and Credit Suisse First Boston
Mortgage Capital LLC.*****
10.30 Note consolidation and severance agreement, dated as of September 3,
1998, between Cutter Sound Development, Ltd., Montverde Property, Ltd.,
NorthShore Golf Partners, Ltd., NorthShore Development, Ltd., U.S. Golf
Pinehurst Plantation, Ltd., FSD Golf Club, Ltd., RH Holdings, Inc.,
Wedgefield Limited Partnership, Arlington Lakes, LP and Credit Suisse
First Boston Mortgage Capital LLC.*****
10.31 $48,456,000 Class A promissory note, dated as of September 3, 1998,
between Cutter Sound Development, Ltd., Montverde Property, Ltd.,
NorthShore Golf Partners, Ltd., NorthShore Development, Ltd., U.S. Golf
Pinehurst Plantation, Ltd., FSD Golf Club, Ltd., RH Holdings, Inc.,
Wedgefield Limited Partnership, Arlington Lakes, LP and Credit Suisse
First Boston Mortgage Capital LLC.*****
10.32 $26,247,000 Class B promissory note, dated as of September 3, 1998,
between Cutter Sound Development, Ltd., Montverde Property, Ltd.,
NorthShore Golf Partners, Ltd., NorthShore Development, Ltd., U.S. Golf
Pelican Strand, Inc., U.S. Golf Pinehurst Plantation, Ltd., FSD Golf
Club, Ltd., RH Holdings, Inc., Wedgefield Limited Partnership,
Arlington Lakes, LP and Credit Suisse First Boston Mortgage Capital
LLC.*****
10.33 $26,247,000 Class C promissory note, dated as of September 3, 1998,
between Cutter Sound Development, Ltd., Montverde Property, Ltd.,
NorthShore Golf Partners, Ltd., NorthShore Development, Ltd., U.S. Golf
Pinehurst Plantation, Ltd., FSD Golf Club, Ltd., RH Holdings, Inc.,
Wedgefield Limited Partnership and Credit Suisse First Boston Mortgage
Capital LLC.*****
10.34 Note severance agreement, dated as of September 3, 1998, between
Pelican Strand, Ltd. and Credit Suisse First Boston Mortgage Capital
LLC.*****
10.35 $17,088,000 Class A promissory note, dated as of September 3, 1998,
between Pelican Strand, Ltd. and Credit Suisse First Boston Mortgage
Capital LLC.*****
10.36 $9,256,000 Class B promissory note, dated as of September 3, 1998,
between Pelican Strand, Ltd. and Credit Suisse First Boston Mortgage
Capital LLC.*****
10.37 $9,256,000 Class C promissory note, dated as of September 3, 1998,
between Pelican Strand, Ltd. and Credit Suisse First Boston Mortgage
Capital LLC.***** 10.38 Convertible note agreement, dated as of
September 3, 1998, between Golf Ventures, Inc. and Jocie L. Salim.*****
49
<PAGE>
10.39 Contribution agreement, dated as of September 3, 1998, between Golf
Ventures, Inc. and Metrovest Partners, Ltd.*****
27 Financial Data Schedule
* Incorporated by reference from the Company's Form 10-SB Registration
Statement filed with the commission September 6, 1996, File No. 0-21337.
** Incorporated by reference from the Company's Form 8-KSB filed with
the Commission on November 25, 1997, File No. 0-21337.
*** Incorporated by reference from the Company's Form 10-KSB filed with the
Commissions May 21, 1998, File No. 0-21337.
**** Incorporated by reference from the Company's Form 8-K filed with the
Commission on July 17, 1998.
***** Incorporated by reference from the Company's Form 8-K filed with the
Commission on September 18, 1998.
(b) The following reports on Form 8-K were filed by the Company during the
fiscal year ended December 31, 1998:
February 23, 1998 (amended May 6, 1998, May 19, 1998 and September 18,
1998) the Company filed a report on Form 8-K to report the pro-forma
financial information required for the Company's November 26, 1997 reverse
acquisition transaction with U.S. Golf Communities, Inc., a change in the
Company's certifying accountant, the resignation of a Company director and
other events.
July 17, 1998 (amended September 18, 1998) the Company filed a report on
Form 8-K to report the refinancing and debt restructuring agreement with
Credit Suisse First Boston Mortgage Capital, LLC.
September 18, 1998 the Company filed a report on Form 8-K to report the
Company's acquisition of an Arlington, Texas property from Metrovest
Partners, Ltd..
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the
Registrant caused this Second Amended Annual Report on Form 10-KSB to be signed
on its behalf by the undersigned, thereunto duly authorized.
GOLF COMMUNITIES OF AMERICA, INC.
(Registrant)
Dated: March 31, 1999 BY:/s/ Warren Stanchina
---------------------------
Warren Stanchina, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this Second
Amended Report on Form 10-KSB has been signed below by the following persons,
being a majority of the board of directors of the registrant, on behalf of the
registrant and in the capacities and on the date indicated.
Signature Position with Company Date
/s/ Warren Stanchina President, Chief Executive March 31, 1999
- - -------------------- Officer and Director
/s/ Wolfgang Dueren Director March 31, 1999
- - -------------------
/s/ Mary Lynn Stanchina Senior Vice President, Secretary, March 31, 1999
- - ----------------------- Chief Administrative Officer
and Director
/s/ Kevin Jackson Chief Financial Officer March 31, 1999
- - -----------------
50
EMPLOYMENT AGREEMENT
Golf Ventures, Inc., a Utah Corporation (the "Company"), agrees to
employ Kevin Jackson (Employee) and Employee agrees to accept such employment
under the following terms and conditions:
1. Term of Employment.
(a) Except for earlier termination as is provided in Section 12 below,
employment under this Agreement and the term of this Agreement shall commence on
August 10, 1998, with a 90-day trial period (Initial Term), during which time
either party may cancel this agreement. The Company will pay 30 days of
severance if this Agreement is canceled by the Company during the Initial Term.
(b) After the Initial Term, this Agreement and employment hereunder
shall be renewed automatically for successive terms of one (1) year each (a
"Renewal Term"), unless prior to the end of each anniversary, any Renewal Term
either party shall have given to the other party at least three months' prior
written notice (a "Termination Notice") of termination of this Agreement or
Employee shall have exercised his right of termination upon a Change in Control
(to the extent applicable) provided for in subsection (a) above. If a
Termination Notice is given by either party, (i) the Company shall, without any
liability to Employee except as set forth herein, have the right, exercisable at
any time after the Termination Notice is given, to elect any other person to the
office or offices in which Employee is then serving and to remove Employee from
such office or offices, but (ii) all other obligations Employee and the Company
have to the other, including the Company's obligation to pay compensation and
make available the fringe benefits to which Employee is entitled hereunder,
shall continue until the end of the anniversary date.
2. Compensation
(a) Employee shall be compensated for performance of obligations under
this Agreement at the rate of Eighty Thousand Dollars, ($80,000.00) for the
Initial Term, after which time it will increase to Eighty-Five Thousand Dollars,
($85,000.00) per annum and then adjusted to $90,000 after one year of
employment.
(b) Upon ratification of the Company's incentive Stock Option Plan by
its shareholders, Employee shall be granted an employment options pursuant to
the Plan, paid out as follows: The initial grant shall be for Twenty-Five
Thousand (25,000) of the Company's Common Shares, @ $ 0.01 par value, effective
August 10, 1998. Following 90 days of employment, another Seventy-Five Thousand
(75,000) Common Shares will be issued to employee. The exercise price shall be
established for all recipients by the Company's Board of Directors.
3. Duties.
(a) During the term of employment hereunder, including any Renewal Term
hereof, Employee shall serve, and the Company shall employ Employee, as the
Chief Financial Officer, with such duties, title and responsibilities of a
similar or greater nature and stature as established standards in the industry.
Employee also shall perform such other services and duties consistent with the
office or offices in which Employee is serving and its responsibilities as from
time to time shall be prescribed by the Board of Directors, and Employee also
shall serve, if elected, as an officer and/or director of any of the Company's
subsidiaries, in all cases in conformity to the bylaws and the policies of the
Board of Directors of each such corporation.
(b) Employee shall be required to devote substantially all his business
time and energies during normal business hours to the business and affairs of
the Company and its subsidiaries.
(c) Employee shall cooperate with the Company, including taking such
medical examination as the Company reasonably shall deem necessary, if the
Company shall desire or be required (such as pursuant to the terms of any bank
loan or any agreement for merger, sale or purchase or any Company medical,
disability or life insurance plan) to certify in writing the current state of
Employee's physical health. Where reasonably possible, the Company shall
cooperate with Employee's request to have such examinations performed by his
personal physician or another physician reasonably acceptable to Employee.
(d) Employee shall be subject to the Company's rules, practices and
policies applicable to the Company's senior executive employees, except to the
extent the same are inconsistent with any of the express provisions of this
Agreement. (e) Employee shall not be required to relocate outside the Orlando,
Florida area in order to perform his duties under this Agreement but shall
undertake such reasonable business travel as may be necessary to perform said
duties (for which Employee shall be reimbursed pursuant to Section 7 below).
<PAGE>
4 . Benefits.
(a) During the term of this Agreement and any subsequent renewal
periods, Company shall provide and pay for Employee's full family coverage of
medical and dental insurance. Employee shall have the benefit of and be entitled
to participate in such employee benefit plans and programs, including life and
disability insurance, pension, saving and other similar plans, as the company
now has or hereafter may establish from time to time, and in which Employee
would be entitled to participate pursuant to the terms thereof. The foregoing,
however, shall not be construed to require the Company to establish any such
plans or to prevent the Company from modifying or terminating any such plans,
except health insurance, and no such action or failure thereof shall affect this
agreement.
(b) Employee shall be entitled to three (3) weeks of paid vacation each
year.
(c) The Company shall indemnify Employee in the performance of his
duties pursuant to the By-Laws of the Company and to the full extent allowed by
applicable law, including, without limitation, legal fees.
5. Change of Control; Severance Pay.
(a) If Employee elects to terminate this agreement during the Initial
Term or any Renewal Term, as a result of a Change of Control of the Company,
then within ten business days after the date of such termination date (the
"Termination Date") the Company shall pay to Employee an amount in cash (the
"Termination Payment") equal to ninety (90) days total compensation, including
base salary and all benefits, perquisites and incentive or bonus payments.
(b) The Employee may elect to continue to be covered by all of the
company's life, medical, health, and dental plans for 24 months after such
Change of Control termination date at Employee's expense.
(c) The amounts paid to the Employee hereunder shall be considered
severance pay in consideration of the past services he has rendered to the
Company and in consideration of his continued service from the date hereof to
his entitlement to those payments. Should the Employee actually receive other
payments from any such other employment, the payments called for hereunder shall
not be reduced or offset by any such future earnings.
(d) The arrangements called for by this Agreement are not intended to
have any effect on the participation in any other benefits available to
executive personnel or to preclude other compensation or additional benefits as
may be authorized by the Company's Board of Directors from time to time.
6. Working and Other Facilities. During the Initial Term and any Renewal Term,
Employee shall be provided with such working facilities and other support
services as are suitable to his position and necessary and appropriate for the
performance of his duties.
7. Expenses. The Company shall reimburse Employee for all reasonable
expenses incurred in connection with the performance of Employee's obligations
hereunder, upon the presentation of appropriate substantiation of such expenses
and approval thereof by the Compensation Committee in accordance with normal
Company expense reimbursement policies, and shall provide Employee with a
cellular phone at no cost to Employee.
8. Confidentiality, Noninterference and Proprietary Information.
(a) In the course of employment by the Company hereunder, Employee will
have access to confidential or proprietary data or information of the Company.
Employee shall not at any time divulge or communicate to any person, nor direct
any Company employee to divulge or communicate to any person (other than to a
person bound by confidentiality obligations similar to those contained herein
and other than as necessary in performing duties hereunder) or use to the
detriment of the Company or for the benefit of any other person, any of such
confidential or proprietary data or information, except to the extent the same
becomes publicly known other than through a breach of this Agreement by
Employee. The provisions of this Section 9(a) shall survive employment
hereunder, whether by the normal expiration thereof, or otherwise, for as long
as such data or information remains confidential. The term "confidential or
proprietary data or information" as used in this agreement shall mean data or
information not generally available to the public, including personnel
information, financial information, customer lists, supplier lists, product and
trading specifications, trade secrets, information concerning product and
service composition, specifications and formulas, tools and dies, drawing and
schematics, manufacturing processes, information regarding operations, systems
and services, know how, computer and any other processed or collated data,
computer programs, pricing, marketing, sales and advertising data and regulatory
compliance information.
(b) Employee shall not, during the term of this Agreement and for a
period of one year after the termination of employment by the Company, for
<PAGE>
Employee's own account or for the account of any other person, interfere with
the Company's, or its subsidiaries relationship with any of its suppliers or
customers or interfere with or hire any of the Company's or its subsidiaries'
employees.
(c) All written materials, records and documents made by Employee or
coming into his possession during his employment concerning any products or
services, processes or equipment, manufactured, used, developed, investigated or
considered by the Company or otherwise concerning the business or affairs of the
Company, shall be the sole property of the Company, and upon termination of
employment, or upon the reasonable request of the Company during employment,
Employee shall promptly deliver the same to the Company. In addition, upon
termination of employment, or upon the reasonable request of the Company during
employment, Employee shall deliver to the Company all other Company property in
his possession or under his control, including confidential or proprietary data
or information and all Company credit cards and all equipment and automobiles
owned or leased by the Company.
9. Equitable Relief. With respect to the covenants contained in Sections
8 of this Agreement, Employee acknowledges that any remedy at law for any breach
of said covenants may be inadequate and that the Company shall be entitled to
specific performance or any other mode of injunctive or other equitable relief
to enforce its rights thereunder.
10. Earlier Termination: Continued Compensation. Employment hereunder shall
terminate prior to the stated expiration date of the Initial Term or, if
applicable, the current Renewal Term (the "Stated Expiration Date") on the
following terms and conditions:
(a) This Agreement shall terminate automatically on the date of
Employee's death. Notwithstanding the foregoing, the Company shall: (i) continue
to make payments to Employee's estate of the Base Salary as then in effect
pursuant to this Agreement for six (6) months.
(b) This Agreement shall be terminated, at the option of the Company,
if Employee is unable to perform his duties hereunder for 90 days (whether or
not continuous) during any period of 365 consecutive days by reason of physical
or mental disability. The disability shall be deemed to have occurred on the
90th day of inability to perform duties due to disability, and notice of
termination on account of such disability shall be given (if at all) by the
Company within 30 days after that date. Notwithstanding the foregoing, the
Company shall: (i) continue to pay Employee's Base Salary as then in effect
pursuant to this Agreement (less any amounts paid to Employee pursuant to any
disability policy provided by the Company), until six (6) months after such
disability, and pay Employee any reimbursable expenses that had been incurred by
him and had not been reimbursed as provided herein as of the date of termination
due to such disability. Disability as used in this paragraph shall mean any
single or series of related physical or mental conditions, illnesses or diseases
which, in the opinion of a competent and mutually selected medical specialist in
the locale of Employee's residence, independent of Employee and the Company,
prevents Employee (as the date of that specialist's examination, which shall not
take place until the condition, illness or disease in question shall have
continued for at least 90 days) from substantially fulfilling Employee's duties
for the Company. No termination for disability shall be effective unless (i)
Employee has first received notice in writing of the Company's determination to
have him medically examined and such examination has taken place or (ii)
Employee has unreasonably delayed, or interfered or refused to cooperate with,
the examination process.
(c) This Agreement shall terminate immediately upon the Company's
sending Employee written notice terminating employment hereunder for cause.
"Cause" shall mean: (i) conviction of Employee of a felony; (ii) Employee's
material breach of any obligations under this Agreement (including voluntary
termination by Employee of this Agreement other than at the end of the Initial
Term or any Renewal Term or by exercise of Employee's right of termination
provided for in Section l(a) hereof) without a material breach by the Company of
its obligations hereunder); or (iii) Employee's refusal to perform duties,
obligations and responsibilities under this Agreement, or (iv) Employee's gross
negligence or willful misconduct with respect to duties or gross misfeasance or
gross malfeasance of office.
(d) This Agreement may not be terminated by the Company except as set
forth in paragraphs 11(a), (b) and (c) hereof.
(e) Upon termination of this Agreement, the Company's obligations
hereunder shall cease except as provided in subsections (a) and (b) above and
Section 5 hereof.
11. Entire Agreement: Modification: Construction. The Agreement constitutes
the full and complete understanding of the parties, and supersedes all prior
agreements and understandings, oral or written, between the parties, with
respect to the subject matter hereof. Employee acknowledges that he has (a)
carefully read this Agreement, (b) had an opportunity to consult with
independent counsel with respect to this Agreement and (c) entered into this
<PAGE>
Agreement of his own free will. Employee represents and warrants that he is not
a party to, or otherwise bound by, any employment contracts, restrictive
covenants or any other contracts preventing the proper performance of duties
hereunder. Each party to this Agreement acknowledges that no representations,
inducements, promises or agreements, oral or otherwise, have been made by either
party, or anyone acting on behalf of either party, which are not embodied or
referred to herein and that no other agreement, statement or promise pertaining
to the terms of employment by the Company and not contained specifically or
referred to in this Agreement shall be valid or binding. This Agreement may not
be modified or amended except by an instrument in writing signed by the party
against which enforcement thereof may be sought.
12. Severability. Any term or provision of this Agreement that is held to
be invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of that invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction.
13. Waiver of Breach. The waiver by either party of a breach of any
provision of this Agreement, which waiver must be in writing to be effective,
shall not operate as or be construed as a waiver of any subsequent breach.
14. Notices. All notices hereunder shall be in writing and shall be sent
by messenger or by certified or registered mail, postage prepaid, return receipt
request, if to Employee, to his residence at, and if to the Company, to 255
South Orange Avenue, Suite 1515, Orlando, Florida 32801.
15. Assignability; Binding Effect. This Agreement shall not be assignable
by Employee. This Agreement shall be binding upon and inure to the benefit of
Employee, his legal representatives, heirs and distributees, and shall be
binding upon and inure to the benefit of the Company, its successors and
assigns.
16. Governing Law. All questions pertaining to the validity, construction,
execution and performance of this Agreement shall be construed and governed in
accordance with the laws of the State of Florida without giving effect to the
conflicts or choice of law provisions thereof.
17. Arbitration. Any disputes which arise under this Agreement shall be
settled by arbitration at Orlando, Florida or a mutually acceptable location
pursuant to the rules of the American Arbitration Association.
18. Headings. The headings in this agreement are intended solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this agreement.
19. Counterparts. This agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
Executed by the Parties hereto effective as of ___ day of ______________, 199_.
COMPANY: GOLF VENTURES, INC.
EIN:
By: Employee: Kevin Jackson
--------------------------
Warren Stanchina
President
Date: Signature
---------------------------
Date:
SSN: - -
----------------------------------
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