<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[x] Quarterly report pursuant to Section 13 or 15 (d) of the Securities and
Exchange Act of 1934 for the quarterly period ended September 30, 1996; or
[ ] Transition report pursuant to Section 13 or 15(d) of the Exchange Act for
the transition period from to
---------- -----------
COMMISSION FILE NO. 0-24812
BRASSIE GOLF CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 56-1781650
- ------------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
</TABLE>
5806 -A Breckenridge Parkway, Tampa, FL 33610
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(813) 621-4653
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
On September 30, 1996 there were 23,741,432 shares of the issuer's Common
Stock, $.001 par value, and 375,000 shares of the issuer's Preferred Stock,
$.001 par value outstanding.
Page 1 of 24 Pages
<PAGE> 2
BRASSIE GOLF CORPORATION
QUARTERLY REPORT FOR THE THREE-MONTH
PERIOD ENDED SEPTEMBER 30, 1996
FORM 10-QSB
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 . . . 3
Condensed Consolidated Statements of Operations for the three and nine-month periods
ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Consolidated Statements of Changes in Shareholders' Equity for the
nine-month period ended September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 6
Condensed Consolidated Statements of Cash Flows for the three and nine-month periods
ended September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Notes to Condensed Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations . . 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Securities Holders . . . . . . . . . . . . . . . . . . 19
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
Page 2 of 24 Pages
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- -------------
<S> <C> <C>
Current assets:
Cash $ 2,169,422 $ 52,608
Marketable equity securities 39,811 39,738
Trade accounts receivable, net 846,223 620,107
Accounts receivable from related parties 407,907 564,195
Inventories 130,497 93,975
Prepaid expenses and other current assets 144,443 119,302
------------ ------------
Total current assets 3,738,303 1,489,925
Equity investments in subsidiaries 933,892 629,809
Property and equipment, net 9,849,494 10,231,299
Intangible assets, net 751,313 604,579
Goodwill, net 4,685,067 4,876,471
------------ ------------
Total assets $ 19,958,069 $ 17,832,083
============ ============
</TABLE>
See accompanying notes
Page 3 of 24 Pages
<PAGE> 4
BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 861,989 $ 1,210,293
Accrued interest payable 155,124 75,329
Current portion of long-term debt 636,406 636,406
Current portion of long-term debt - related parties - 262,196
Current maturities of capital lease obligations 31,630 31,630
----------- -----------
Total current liabilities 1,685,149 2,215,854
Long-term debt, less current portion 8,226,059 5,153,480
Long-term debt, less current portion - related parties 1,109,136 2,587,168
Long-term capital lease obligations, less current portion 86,787 110,242
Minority interest payable 93,653 43,669
Shareholders' Equity:
Preferred Stock, $.001 par value;
1,000,000 shares authorized; 375,000 shares issued 375 375
Common Stock, $.001 par value; 50,000,000 shares
authorized; 23,741,432 and 17,678,066 shares
issued and outstanding as of September 30, 1996
and December 31, 1995, respectively 23,741 17,678
Additional paid-in capital 23,855,070 21,857,456
Accumulated deficit (14,862,467) (13,893,582)
Unrealized (loss) on investments (602) (593)
Foreign currency translation adjustment (258,832) (259,664)
----------- -----------
Total shareholders' equity 8,757,285 7,721,670
----------- -----------
Total liabilities and shareholders' equity $19,958,069 $17,832,083
=========== ===========
</TABLE>
See accompanying notes
Page 4 of 24 Pages
<PAGE> 5
BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Operating revenues:
Golf revenues $ 536,243 $ 486,200 $ 1,536,123 $ 2,204,885
Food and beverage revenues 119,211 150,934 358,537 631,650
Proshop revenues 85,635 81,743 215,046 298,011
Membership fees and dues 53,640 17,464 259,129 527,837
Resident membership fees 115,000 180,000 430,000 605,000
Management and design fees 610,560 466,202 1,617,792 687,114
Other 3,367 3,307 7,118 6,391
----------- ----------- ----------- -----------
Total operating revenues 1,523,656 1,385,850 4,423,745 4,960,888
Operating expenses:
Golf course operations 407,653 435,587 1,022,931 1,698,517
Cost of food and beverage sales 27,327 61,204 123,549 249,018
Cost of proshop sales 46,915 49,988 127,285 176,136
Marketing expenses 1,430 61,971 131,593 135,998
Management and design expenses 533,846 330,047 1,151,528 651,660
General and administrative expenses 434,595 701,736 1,727,909 1,488,022
Depreciation and amortization expense 263,762 262,773 791,270 639,762
----------- ----------- ----------- -----------
Total operating expenses 1,715,528 1,903,306 5,076,065 5,039,113
----------- ----------- ----------- -----------
Operating loss (191,872) (517,456) (652,320) (78,225)
Other income (expense):
Interest expense (221,386) (110,188) (704,947) (428,631)
Loss on equity investments in subsidiaries (55,265) (243,208) (237,364) (468,542)
Interest and other income 42,032 13,201 675,730 31,404
----------- ----------- ----------- -----------
Net loss before minority interest
and extraordinary item (426,491) (857,651) (918,901) (943,994)
Minority interest expense - - (49,984) -
----------- ----------- ----------- -----------
Loss before extraordinary item (426,491) (857,651) (968,885) (943,994)
Extraordinary loss - - - (4,130,000)
----------- ----------- ----------- -----------
Net loss $ (426,491) $ (857,651) $ (968,885) $(5,073,994)
=========== =========== =========== ===========
Loss per share before extraordinary item $ (.02) $ (.05) $ (.05) $ (.06)
Extraordinary loss per share - - - (.28)
----------- ----------- ----------- -----------
Net loss per share $ (.02) $ (.05) $ (.05) $ (.34)
=========== =========== =========== ===========
Weighted average number of shares
outstanding 20,289,600 16,524,900 18,703,000 14,918,400
=========== =========== =========== ===========
</TABLE>
See accompanying notes
Page 5 of 24 Pages
<PAGE> 6
BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Additional
Paid-in
Shares Amount Shares Amount Capital
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 17,678,066 $17,678 375,000 $ 375 $21,857,456
Net loss
Issuance of Common Stock in connection with
convertible debenture 6,038,366 6,038 1,947,639
Issuance of Common Stock in connection with
settlement of litigation 25,000 25 49,975
Unrealized loss on investments
Translation of foreign currency financial statements
---------------------------------------------------------------
Balance at September 30, 1996 23,741,432 $23,741 375,000 $ 375 $23,855,070
===============================================================
<CAPTION>
Foreign
Currency Unrealized
Accumulated Translation Gain on
Deficit Adjustment Investments Total
---------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ (13,893,582) $(259,664) $ (593) $ 7,721,670
Net loss (968,885) (968,885)
Issuance of Common Stock in connection with
convertible debenture 1,953,677
Issuance of Common Stock in connection with
settlement of litigation 50,000
Unrealized loss on investments (9) (9)
Translation of foreign currency financial statements 832 832
---------------------------------------------------------
Balance at September 30, 1996 $ (14,862,467) $(258,832) $ (602) $8,757,285
=========================================================
</TABLE>
See accompanying notes
Page 6 of 24 Pages
<PAGE> 7
BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------------ ------------- ------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (426,491) $ (857,651) $ (968,885) $ (5,073,994)
Adjustment to reconcile net loss to
net cash provided (used) in operating activities:
Loss on equity investments in subsidiaries 55,265 243,208 237,364 468,542
Extraordinary loss - disposition of courses - - - 4,130,000
Depreciation and amortization 263,762 262,773 791,270 639,762
Net change in other working capital items 359,798 391,887 (506,377) (482,982)
Accounts receivable from related parties 342,972 (710,253) 156,288 (757,475)
----------- ----------- ----------- -------------
Net cash provided (used) in operating activities 595,306 (670,036) (290,340) (1,076,147)
Investing activities:
Purchases of property and equipment, net 109,780 216,191 (11,172) (1,333,745)
Payments for loan and amortization costs
other items (67,767) (90,416) (339,209) (178,353)
Purchase of business, net of cash acquired - - - (311,793)
Additional investment in subsidiaries (89,916) (173,945) (541,456) (192,955)
----------- ----------- ----------- -------------
Net cash provided (used) in investing activities (47,903) (48,170) (891,837) (2,016,846)
Financing activities:
Additions to long-term borrowings 19 482,791 5,529,430 2,637,593
Payments for long-term borrowings and capital leases (3,039,818) (1,364,104) (4,698,223) (2,905,713)
Issuance of common stock 1,132,804 1,400,000 2,003,677 2,914,802
Proceeds on loans from officers and shareholders 284,154 40,000 463,275 540,000
----------- ----------- ----------- -------------
Net cash provided (used) by financing activities (1,622,841) 558,687 3,298,159 3,186,682
Effect of foreign currency exchange rate changes on cash 5,655 184,723 832 136,877
----------- ----------- ----------- -------------
Increase (decrease) in cash (1,069,783) 25,204 2,116,814 230,566
Cash at beginning of period 3,239,205 868,795 52,608 663,433
----------- ----------- ----------- -------------
Cash at end of period $ 2,169,422 $ 893,999 $ 2,169,422 $ 893,999
=========== =========== =========== =============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 104,368 $ 102,546 $ 592,676 $ 407,495
=========== =========== =========== =============
</TABLE>
See accompanying notes
Page 7 of 24 Pages
<PAGE> 8
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
NOTE A. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Brassie Golf Corporation (the "Company"), together with its
predecessors and subsidiaries, has engaged since 1988 in the design,
acquisition, development and management of private, semi-private and daily-fee
(i.e. "public") golf courses.
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles for interim financial information and
the instructions to Form 10-QSB and Rule 10-01 of Regulation S-X of the
Securities and Exchange Commission ("SEC"). Accordingly, the financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles. In the opinion of management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the three
months ended September 30, 1996 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1996. The accompanying
condensed consolidated financial statements and notes thereto should be read in
conjunction with the Company's audited financial statements as of December 31,
1995 contained in its current Annual Report on Form 10-K.
Investment in Subsidiaries - Investments of the Company include one
wholly-owned subsidiary, Curtis Park, one majority-owned subsidiary, St.
James, and two minority owned subsidiaries, Laurel Valley and Myrtle West. The
Company purchased the remaining 20% equity interest in Curtis Park in September
1996 from the UA Canadian Pension Fund for $50,000 in cash and continues to
hold an 80% interest in St. James. Both entities are included in the Company's
condensed consolidated financial statements.
In conjunction with the Company's February 21, 1996 Agreement in
Principle (see Note D - Legal Proceedings), the Company issued 45% of the
outstanding stock in Laurel Valley and Myrtle West to the Edmonton Pipe
Industry Trust Fund in September 1996. As a result, the Company now has a 30%
equity investment in each golf course pending its appeal with the 2nd District
Court of Appeals for the 13th Judicial District in and for Hillsborough County.
As a result of this change in reporting entity, the Company has restated the
condensed consolidated balance sheets as of December 31, 1994, December 31,
1995 and September 30, 1996 to reflect a change to the equity method of
accounting and has reflected its portion of the net income or loss for the
nine months ended September 30, 1996 and 1995 as a loss on equity investments
in subsidiaries based on a 75% ownership interest in both clubs through
February 1996 and a 30% ownership interest from March through September 1996.
Page 8 of 24 Pages
<PAGE> 9
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
NOTE A. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition - Revenues of the Company include daily golf
fees, proshop merchandise sales and food and beverage sales. Golf fees include
revenue generated from green fees, cart fees and range fees. Revenues also
include sales of memberships and annual dues charged to members.
Golf fees, proshop merchandise sales and food and beverage sales are
recognized when received. Membership dues collected in advance are deferred as
"unearned income" and recognized over the period of prepayment. Membership fees
that are nonrefundable are recognized by the Company when received.
Goodwill - The Company has classified as goodwill the cost in excess
of the fair value of the net assets, including tax attributes of Summit, which
was acquired through a purchase transaction in June 1995. Goodwill is being
amortized on a straight-line basis over 20 years. Amortization charged to
continuing operations amounted to $65,600 for the three months ended September
30, 1996, and $111,597 in the three-month period ended September 30, 1995.
The Company carries its goodwill asset at its purchase price, less
amortized amounts, but subject to annual review for impairment. The Company's
policy for the valuation of goodwill is to calculate the undiscounted projected
future cash flows of Summit expected to be generated over the life of the
goodwill. This amount is then compared to the carrying value of the goodwill
to determine if the asset is impaired.
Income Taxes - The Company records income taxes pursuant to the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" (SFAS No. 109"). Under SFAS No. 109, deferred taxes are
provided for the difference between the tax and financial statement bases of
assets and liabilities, and a valuation allowance is established for deferred
tax assets that, based upon available evidence, are not expected to be
realized.
Net Loss Per Share - Net loss per share has been computed based on the
weighted average number of shares outstanding during the period presented.
Stock options and warrants are considered anti-dilutive and have not been
considered in the computations.
Reclassifications - Certain reclassifications have been made to the
prior periods' financial statements to conform to the classifications used in
1996. These reclassifications had no effect on net loss or shareholders'
equity as previously reported.
Page 9 of 24 Pages
<PAGE> 10
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
NOTE B. LONG-TERM DEBT
<S> <C>
Long-term debt with financial institutions and other third
parties as of September 30, 1996 consists of the following:
Golf course development loan to St. James from bank, payable in monthly
principal installments of $16,319, plus interest beginning August 1, 1995,
with the remaining principal balance and unpaid interest due July 1, 2002;
collateralized by land and land improvements. Interest is payable at prime
(8.25% at September 30, 1996) plus 1.0%. $ 2,121,200
Golf course development loan to Curtis Park from bank, payable in monthly principal
payments of $31,875, April through November, 1996 through 2000, with
remaining principal balance and unpaid interest due on December 31, 2000;
collateralized by leasehold interest in land and land improvements. Interest
is payable monthly at prime (8.25% at September 30, 1996) plus 1.0%. 2,390,625
Unsecured operating term loan from bank, with interest at 10.75%, payable in monthly
installments of $16,723, which includes principal and interest, through January 1999. 399,716
Convertible 6% debentures due March 1, 1998, unless converted into common stock, interest
payable incrementally upon conversions with the balance, if any, at maturity. 3,540,378
Other notes payable 410,186
-----------
Less current portion 8,862,465
636,406
-----------
$ 8,226,059
===========
</TABLE>
Page 10 of 24 Pages
<PAGE> 11
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
NOTE B. LONG-TERM DEBT (CONTINUED)
<S> <C>
Long-term debt with related parties as of September 30,1996 consists of the
following:
Golf Course development loan payable to a related party of Curtis Park;
principal due at maturity on June 30, 2001; collateralized by a leasehold
interest in land and land improvements; subordinated to bank loan, with
interest payable quarterly at 9.5%. $ 268,537
Construction loan payable to a shareholder of St. James, payable in annual
principal payments of $100,000 beginning October 1997 with the remaining
principal balance and unpaid interest due on October 2000, collateralized by
land and improvements and various equipment, subordinated to bank loan, with
interest accruing at prime, adjusted annually (8.25% at October 1,
1996), plus 2%, payable quarterly. 811,828
Other notes payable 28,771
----------
1,109,136
Less current portion -
$1,109,136
==========
</TABLE>
On September 6, 1996 the Company entered into an agreement with the
three holders of the Company's convertible debentures. Under this agreement
the original debentures were modified whereby the debenture holders' ability to
convert the debentures into common stock is limited until December 18, 1996.
During the period from October 4, 1996 to December 18, 1996, the debenture
holders, in the aggregate, may convert a portion of their debentures in an
amount up to five percent (5%) of the outstanding shares of the Company's
common stock.
Page 11 of 24 Pages
<PAGE> 12
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
NOTE C. SHAREHOLDERS' EQUITY
On June 30, 1995 the Company issued 375,000 shares of preferred stock,
having a stated value of $10.00 and a $.001 par value, as partial consideration
for the capitalized Summit merger. The preferred stock has been designated
Junior non-cumulative Convertible Preferred Stock ("Junior Preferred Stock"),
with the following provisions: 1) each share of Junior Preferred Stock is
convertible into five shares of common stock, or 1,875,000 common shares in the
aggregate, par value $.001; 2) the Junior Preferred Stock is convertible at the
option of the holder at any time for five years from closing of the Summit
merger; 3) the Junior Preferred Stock is redeemable at the option of the
Company at any time after (a) the Company's common stock trades at a price of
$5.00 or higher for 30 consecutive trading days as quoted on the NASDAQ system;
or (b) issuance of additional Company common stock in excess of 25% of the
shares then issued and outstanding, i.e., from a merger of the Company, a
public offering of its common stock under a Registration under the Securities
Act of 1993 or an additional private placement offering through an underwriter;
4) the Junior Preferred Stock is subordinate to future senior preferred shares
that the Company may later issue; 5) the Junior Preferred Stock shall not pay
dividends unless the Company fails to redeem the shares in accordance with the
above provisions, at which time the dividend will be paid at a rate of 5% from
that date; 6) the Junior Preferred Stock will have no voting rights on matters
that can be voted by the common stock and voting rights will exist only as to
preferences, rights, powers, priority or ranking of the Junior Preferred Stock;
and 7) in the event of any liquidation, dissolution or winding up of the
affairs of the Company, whether voluntary or involuntary, after payment of the
debts and other liabilities of the Company, the holder of each share of Junior
Preferred Stock then outstanding shall be entitled to be paid out of any of the
assets or surplus funds of the Company (prior to and in preference to any
distribution to the common shareholders), an amount equal to $10.00 per share
with respect to any such share of Junior Preferred Stock. If assets of the
Company are not sufficient to satisfy the $10.00 per share distributions, then
the assets of the Company shall be distributed ratably to the Junior Preferred
shareholders in proportion to their respective distributive amounts.
On July 18, 1994, the Company increased the number of authorized shares of
common stock to 50,000,000 shares.
As of September 30, 1996, warrants to purchase 2,138,000 shares of the
Company's common stock were outstanding. These warrants have exercise prices
ranging from $2.00 to $3.25 per share; 100,000 warrants expire September 28,
1998; 238,000 warrants expire November 17, 1998; 150,000 warrants expire June
30, 1999; 1,400,000 warrants expire June 30, 2000, and 250,000 warrants expire
September 28, 2000.
During the three-month periods ended September 30, 1996 and 1995, no
warrants were exercised.
Page 12 of 24 Pages
<PAGE> 13
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
NOTE D. LEGAL PROCEEDINGS
In connection with the Company's February 21, 1996 Agreement in Principle
("AIP") with its three Pension Fund Partners, definitive agreements were
reached during the second quarter of 1996 with regards to two of the Company's
four golf courses. However, the Company's efforts to interpret the AIP and
negotiate with the Edmonton Pipe Industry Trust Fund ("Edmonton") regarding the
two other courses were unsuccessful. On May 31, 1996, Edmonton commenced an
action claiming breach of contract, specific performance, a constructive trust
and temporary and permanent injunctive relief. At a hearing conducted on July
12, 1996 in the Circuit Court in and for Hillsborough County, the judge granted
a preliminary injunction with respect to certain matters set forth in the AIP,
specifically those relating to a reallocation of ownership interests. The
Company filed an appeal brief to this preliminary injunction on August 14, 1996
in the 2nd District Court of Appeals for the 13th Judicial District in and for
Hillsborough County. The Company is currently awaiting the District Court's
ruling on its appeal. The Company continues to negotiate with Edmonton
regarding the AIP.
Page 13 of 24 Pages
<PAGE> 14
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Condensed Consolidated Financial Statements included herein for the three and
nine-month periods ended September 30, 1996 and 1995 and for the years ended
December 31, 1995 and 1994, included in the Company's 1995 Annual Report on
Form 10-K.
Brassie Golf Corporation (the "Company") together with its predecessors and
subsidiaries, has engaged since 1988 in the design, acquisition, development
and management of private, semi-private and daily-fee (i.e., "public") golf
courses. The Company's portfolio currently consists of 29 owned, leased and
managed golf courses: a majority owned golf course in North Carolina, two
minority investments in golf courses in South Carolina; a 100% owned subsidiary
that leases a golf course in Virginia; Hale Irwin Golf Services, Inc., an
international golf course design company based in St. Louis, Missouri, and, as
a result of the June 30, 1995 acquisition of Summit Golf Corporation, a
portfolio of 25 facilities under management contracts at September 30, 1996,
including private, semi-private and daily-fee golf courses in 9 states
throughout the U.S.
The following table indicates the number of full months each owned or
partially owned course was operating during the respective periods:
<TABLE>
<CAPTION>
Percentage Ownership Quarter Ended September 30,
as of 9/30/96 ---------------------------
------------------- 1996 1995
---- ----
<S> <C> <C> <C> <C>
Curtis Park (opened for play June 1995) 100% 3 3
St. James (opened for play October 1991) 80% 3 3
Laurel Valley (opened for play April 1993) 30% 3 3
Myrtle West (acquired December 30, 1993) 30% 3 3
</TABLE>
As a result of the change in reporting entity discussed in Note A - Business of
the Company and Significant Accounting Policies, the accompanying financial
statements are restated for all periods reported to account for the Company's
ownership interest in Laurel Valley and Myrtle West under the equity method of
accounting. Curtis Park and St. James continue to be included in the condensed
consolidated financial statements as subsidiaries of the Company.
Page 14 of 24 Pages
<PAGE> 15
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Three golf courses were acquired by the Company in a single transaction
during April 1994, and were transferred back to the previous owners during May
1995. The operating results of these three facilities are included only from
the date of acquisition through the date of disposition and write off in May
1995.
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1995
(A) Revenues
The Company derives its revenues primarily from golf fees (including greens
fees, range fees and cart fees), management and design fees, membership fees
and annual dues, pro shop sales and food and beverage sales.
The period-to-period increase (decrease) in each of the revenue categories
is as follows:
<TABLE>
<CAPTION>
Quarter Ended September 30
---------------------------- Increase
1996 1995 (Decrease)
---------------------------- ----------
<S> <C> <C> <C>
Golf Fees $ 536,243 $486,200 $ 50,043
Design and Management Fees 610,560 466,202 144,358
Membership Fees and Annual Dues 168,640 197,464 (28,824)
Food & Beverage 119,211 150,934 (31,723)
Pro Shop Sales 85,635 81,743 3,892
Other Income 3,367 3,307 60
---------- ---------- ---------
$1,523,656 $1,385,850 $ 137,806
</TABLE>
Page 15 of 24 Pages
<PAGE> 16
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
In the aggregate, the Company generated $1,523,656 in revenues during the
quarter ended September 30, 1996 compared to $1,385,850 during the quarter
ended September 30, 1995. This increase of $137,806 is primarily due to
$144,358 attributable to an increase in design and management fees.
In the aggregate, the Company generated $4,423,745 in revenues during the
nine months ended September 30, 1996 compared to $4,960,888 during the nine
months ended September 30, 1995. The $537,143 decrease is primarily due to
$1,698,196 related to the three previously owned courses disposed of in May
1995 and $175,000 of residential membership fees at St. James offset by
$387,692 attributable to Curtis Park which opened for play in June 1995 and
$930,678 attributable to an increase in design and management fees.
(B) Costs and Expenses
The Company's total operating expenses decreased to $1,715,528 during the
three-month period ended September 30, 1996 from $1,903,306 during the quarter
ended September 30, 1995.
Of the $187,778 decrease, $267,141 was attributable to general and
administrative expenses, $60,541 to marketing expenses and $33,877 for food and
beverage cost of sales, offset by an increase of $203,799 for management and
design expenses.
The Company routinely evaluates the cost of operations at each of its
facilities and establishes budgeted amounts for each significant category of
expense in the areas of pro shop, food and beverage, golf course maintenance,
and general, selling and administrative expenses. Monthly, the Company
analyzes its actual versus budgeted results. Management anticipates that, as a
result of its ongoing review process, costs and expenses will decline as a
percent of revenues.
Golf course operations include the compensation and benefits costs of course
personnel and related payroll taxes, golf cart leases, equipment rental and
maintenance, clubhouse repairs and upkeep, insurance, utilities, chemicals,
seed and fertilizers, water, supplies and other miscellaneous costs incurred in
the operation of a golf course.
Generally, costs are expected to be higher during the first three years of
operation due to higher maintenance, advertising, and other start up expenses;
operating expenses are expected to stabilize after approximately the initial
three year period.
Page 16 of 24 Pages
<PAGE> 17
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses include management and administrative
compensation, related payroll taxes and benefits, professional fees, including
legal and accounting and other consultants, telephone, utilities, insurance,
other taxes, travel, meals and entertainment and office expenses, including
rents.
Interest expense increased from $110,188 during the three-month period
ended September 30, 1995 to $221,386 during the three-month period ended
September 30, 1996. The increase of $111,198 is primarily due to $58,963 of
interest for golf course operations and $61,070 for the convertible debentures.
The prime rate decreased from 9.0% at September 30, 1995 to 8.25% at September
30, 1996.
Interest and other income increased from $13,201 during the three-month
period ended September 30, 1995 to $42,032 during the three-month period ended
September 30, 1996, primarily due to a greater amount of available cash and
higher returns on the Company's other investments.
(C) Loss on Equity Investments in Subsidiaries
For the quarter ended September 30, 1996, the Company incurred a loss on
equity investments in subsidiaries of $55,265, an improvement of $187,943 over
the $243,208 loss for the quarter ended September 30, 1995. This improvement
is attributable to better performance at Myrtle West and Laurel Valley coupled
with the decreased percentage of ownership at both golf courses.
(D) Net Loss
For the quarter ended September 30, 1996, the Company had net loss of
$426,491 an improvement of $431,160 from the net loss of $857,651 for the
three-month period ended September 30, 1995. The increase is attributable to
the reasons stated above.
(E) Inflation
Inflation has not had a material effect on the Company's operations during
the three-month periods ended September 30, 1996 or September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
Historically, golf fees, membership fees and dues, pro shop sales, food and
beverage sales and management and design fees have been the principal source of
funds to pay the operating expenses of the Company. To fund acquisitions and
capital improvements, the Company is reliant upon long-term borrowing and
equity financing.
Page 17 of 24 Pages
<PAGE> 18
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Working Capital
The Company had a surplus in working capital in the amount of $2,053,154 as
of September 30, 1996, compared to working capital surplus of $3,825,707 as of
June 30, 1996 and a working capital deficiency of $725,929 as of December 31,
1995. The reduction in working capital of $1,772,553 from June 30, 1996 to
September 30, 1996 relates substantially to the retirement of the Curtis Park
second mortgage classified as long-term debt that was paid primarily from
available cash.
The total borrowings for the Company were $9,971,601 as of September 30,
1996 compared to $12,704,838 and $8,639,250 as of June 30, 1996 and as of
December 31, 1995, respectively. The reduction in borrowings of $2,733,237
from June 30, 1996 to September 30, 1996 resulted from the paydown of
$1,490,425 toward the second mortgage at Curtis Park and $1,132,804 due to the
conversion of debentures into common stock.
Proceeds from Developer's Resident Lot Sales
By agreement with developers of residential real estate developments
contiguous to the St. James golf course, initial membership fees are paid to
the Company by the developer on behalf of the purchasing resident upon the
closing of each lot sale pursuant to negotiated or assumed agreements. Through
June 19, 1995, the Company was required by its secured lender at St. James to
apply all such fees to reduce its bank debt upon each payment thereof. During
May 1995, the bank agreed to permit the Company to retain the resident
membership fees rather than apply them against the outstanding loan balance.
During the three months ended September 30, 1996, 23 lots were sold by the
developer at St. James, the proceeds of which increased cash by $115,000,
compared to 36 lots sold during the three-month period ended September 30,
1995, the proceeds of which increased cash by $180,000. As of September 30,
1996, the Company estimates that there will be 240 future residential lots to
be sold, each of which when sold would generate a $5,000 resident membership
fee under the agreement at St. James. Although lot sales have continued to
close at St. James subsequent to September 1996, there can be no assurance as
to whether any additional lot sales will continue or, if they do occur, over
what period of time the membership fees paid at closing will be received by the
Company.
Page 18 of 24 Pages
<PAGE> 19
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See the footnotes to the Condensed Consolidated Financial Statements of the
Company included herein and the Consolidated Financial Statements of the
Company for the year ended December 31, 1995, incorporated herein by reference
in Form 10-K.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.48 - Form of Amended Subscription Agreement for 6% Convertible
Debentures due March 1, 1996, as of September 6, 1996 between
Brassie Golf Corporation and Holders
27 - Financial Data Schedule (for SEC use only)
(b) Reports
Form 8K filed August 30, 1996 incorporated herein by reference
Page 19 of 24 Pages
<PAGE> 20
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRASSIE GOLF CORPORATION
/s/Steve Tucker
-------------------------------------------
Steve Tucker, Controller
(Principal Financial and Accounting Officer)
Date: October 30, 1996
Page 20 of 24 Pages
<PAGE> 1
EXHIBIT 10.48
September 6, 1996
Lake Management LDC
Re: Letter Agreement Amending Offshore Debenture Securities
Subscription Agreements and Convertible Debentures Issued
Thereunder
Dear Lake Management:
Reference is hereby made to that certain Offshore Debenture Securities
Subscription Agreement dated March 18, 1996 (the "Lake Subscription Agreement")
by and between Brassie Golf Corporation ("Brassie") and Lake Management LDC
("Lake"), pursuant to which Brassie issued to Lake a Debenture in the original
principal amount of $1,000,000 convertible into shares of common stock ("Common
Stock") of Brassie (the "Debenture").
On September 4, 1996, Lake filed an action against Brassie in the Court of
Chancery of the State of Delaware in and for Newcastle County, CA No. 15200 NC
(the "Lawsuit") alleging a breach by Brassie of the terms of the Debentures.
Brassie and Lake hereby agree as follows:
1. Within three (3) business days of the date hereof, Lake Management LDC
shall dismiss, without prejudice the Lawsuit. Lake agrees that it shall not
reinstate the Lawsuit except upon (i) the filing of a lawsuit or cause of
action by Brassie against Lake, or (ii) upon any breach or failure to timely
perform all agreements and covenants by Brassie of the terms of (I) this Letter
Agreement or (II) the Lake Subscription Agreement, or the Debenture from and
after the date hereof, as such documents are amended hereby.
2. Brassie hereby agrees to deliver to Lake 1,104,135 shares of Common
Stock (the "Current Shares"), without restrictive legend, for arrival the
morning of September 6, 1996. Brassie and Lake hereby agree that upon delivery
of the Current Shares, $233,082.90 of the principal balance and all of accrued
and unpaid interest on such sum due and owing under the Debenture shall be
deemed paid and/or forgiven. Brassie and Lake hereby agree that the remaining
unpaid balance of the Debenture, following delivery of the Current Shares as
provided herein, is $566,917.10.
Page 21 of 24 Pages
<PAGE> 2
3. Contemporaneous with or immediately preceding or following execution of
this Letter Agreement, Brassie shall enter into letter agreements (the "Other
Agreements") on terms substantially similar to the terms of this Letter
Agreement with (i) Infinity Investors Ltd., and (ii) Flurina Development S.A.,
each of which acquired convertible debentures from Brassie on terms
substantially similar to the terms of the Debenture.
4. Brassie and Lake hereby amend the terms of the Debenture as follows:
a. Brassie shall not have the option to cause the automatic conversion
of any portion of the Debenture into shares of Common Stock prior to February
1, 1997.
b. Infinity's right to convert the remaining balance due and owing on
the Debenture into shares of Common Stock (the "New Shares") shall be limited
as follows:
i) No portion of the Debenture shall be convertible into New Shares
prior to October 4, 1996;
ii) Between October 4, 1996 and December 18, 1996 (the "Limitation
Period"), Lake may convert a portion of the Debenture, from time to time, such
that the New Shares issued to Lake during the Limitation Period do not exceed
0.82% during any 30 day period from the date hereof, or 2.46% in the aggregate,
of the issued and outstanding shares of Common Stock of Brassie after giving
effect to the conversion (subject to adjustment for reorganizations, stock
splits and related transactions) (the "Conversion Limitation"); provided, the
Conversion Limitation shall not apply if the closing bid price of the Common
Stock of Brassie for five (5) NASDAQ Trading Days immediately preceding the
date of receipt via telecopy by Brassie from Lake of a Notice of Conversion
(the "Average Trading Price") exceeds seventy five cents ($.75) per share, net
of any discount;
iii) After the Limitation Period, the Debenture shall be convertible
in whole or in part at any time by Lake;
iv) The conversion price at which the Debenture is convertible into
New Shares (the "Conversion Price") shall be revised as follows:
(a) during the Limitation Period, the Conversion Price shall be
as follows: 1) if Lake's conversion is subject to the Conversion Limitation
then the Conversion Price shall be the greater of (I) the product of
seventy-five percent (75%) multiplied by the Average Trading Price or (II) fifty
cents ($.50) per share; 2) if Lake's conversion is not subject to the Conversion
Limitation then the Conversion Price shall be the greater of (I) the product of
seventy- five percent (75%) multiplied by the Average Trading Price or (II)
seventy-five cents ($.75) per share; and
(b) following the Limitation Period, the Conversion Price shall
be the product of seventy-five percent (75%) multiplied by the Average Trading
Price.
Page 22 of 24 Pages
<PAGE> 3
5. Lake hereby grants Brassie an option (the "Option") to acquire any New
Shares issued upon conversion of the Debentures as described in Section 4 above
as follows:
(i) Brassie must exercise the Option by oral or written notification
to Lake by 3:30 pm Eastern Standard Time on the day of receipt of a Notice of
Conversion (or the next business day, if such notice is not received prior to
1:00 pm Eastern Standard Time). Lake shall be entitled to rely on oral
notification of exercise of the Option by any employee or agent of Brassie, and
such oral notice shall be binding upon Brassie.
(ii) The purchase price (the "Purchase Price") applicable to any New
Shares acquired by Brassie from Lake upon exercise of the Option shall be the
product of the Conversion Price multiplied by one hundred and thirty-three
percent (133%).
(iii) The Purchase Price shall be paid by wire transfer of funds from
Brassie to Lake within one (1) business day of Brassie's exercise of the
Option.
6. Brassie hereby represents and warrants to Lake that, immediately
following consummation of the transactions contemplated in this Letter
Agreement and in the Other Agreements, Brassie will have at least 23,741,732
shares of issued and outstanding Common Stock. Brassie further covenants and
agrees that, until the termination of the Limitation Period, Brassie shall not
repurchase its Common Stock or otherwise enter into any transaction (including
stock split, recapitalization or other transactions) which would cause a
decrease in the number of its shares of Common Stock issued and outstanding
other than (i) transactions that similarly decrease the number of shares of
Common Stock into which the Debenture is convertible, (ii) repurchases of up to
4 million shares of Common Stock by Brassie and (iii) any New Shares
repurchased by Brassie pursuant Section 5 above.
7. Except as described in this Letter Agreement, the terms and provisions
of the Lake Subscription Agreement and the Debenture are ratified and
confirmed, and shall continue in full force and effect, including, without
limitation, all covenants and obligations of Brassie and Lake thereunder.
8. Brassie and Lake hereby each agree that, at any time and from time to
time, it shall execute and deliver such further documents and do such further
acts and things as the requesting party may reasonably request in order to
fully effect the purposes of this Letter Agreement, including, without
limitation, delivery by Lake to Brassie of the Debenture for reissuance by
Brassie of a replacement Debenture reflecting the terms hereof in the principal
sum of $566,917.10 (representing the remaining unpaid principal balance due and
owing on the Debenture following delivery of the Current Shares as described
herein). In connection therewith, Brassie and Infinity will consider, in good
faith, converting the Debentures into a "book entry" accounting system during
the Limitation Period with Brassie's stock transfer agent on mutually
acceptable terms.
Page 23 of 24 Pages
<PAGE> 4
To evidence your agreement with the foregoing, please countersign this Letter
Agreement in the space provided below. This Letter Agreement my be executed in
one or more counterparts and by facsimile signature.
Very truly yours,
BRASSIE GOLF CORPORATION
By:
-----------------------------------
Title:
--------------------------------
ACKNOWLEDGED AND AGREED TO:
LAKE MANAGEMENT LDC
By:
--------------------------
Title:
-----------------------
Page 24 of 24 Pages
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BRASSIE GOLF
CORPORATION CONDENSED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-QSB SEPTEMBER 30, 1996
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,169,422
<SECURITIES> 39,811
<RECEIVABLES> 1,254,130
<ALLOWANCES> 0
<INVENTORY> 130,497
<CURRENT-ASSETS> 3,738,303
<PP&E> 9,849,494
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,958,069
<CURRENT-LIABILITIES> 1,685,149
<BONDS> 9,421,982
0
375
<COMMON> 23,741
<OTHER-SE> 8,733,169
<TOTAL-LIABILITY-AND-EQUITY> 19,958,069
<SALES> 573,583
<TOTAL-REVENUES> 4,423,745
<CGS> 250,834
<TOTAL-COSTS> 5,076,065
<OTHER-EXPENSES> (438,366)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 704,947
<INCOME-PRETAX> (968,885)
<INCOME-TAX> 0
<INCOME-CONTINUING> (968,885)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (968,885)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
