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, 1997; 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)
DELAWARE 56-1781650
- -------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Tampa City Center, Suite 2550 Tampa, FL 33602
- ------------------------------------------------------------------------------
(Address of principal executive offices)
(813) 222-0611
- ------------------------------------------------------------------------------
(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, 1997 there were 29,519,487 shares of the issuer's Common Stock,
$.001 par value, and 281,250 shares of the issuer's Preferred Stock, $.001 par
value outstanding.
Page 1 of 19
<PAGE>
BRASSIE GOLF CORPORATION
QUARTERLY REPORT FOR THE THREE AND NINE-MONTH
PERIODS ENDED SEPTEMBER 30, 1997
FORM 10-QSB
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condenseed Consolidated Balance Sheets as of September 30, 1997 and December 31,
1996...........................................................................3
Condensed Consolidated Statements of Operations for the three-month and
nine-month periods ended September 30, 1997 and 1996...........................5
Condensed Consolidated Statements of Changes in Shareholders' Equity for the
nine-month period ended September 30, 1997.....................................6
Condensed Consolidated Statements of Cash Flows for the three-month and
nine-month periods ended September 30, 1997 and 1996...........................7
Notes to Condensed Consolidated Financial Statements...........................8
Item Management's Discussion and Analysis of Financial Condition and Results
of Operations................................................................13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.....................................................18
Item 2. Changes in Securities.................................................18
Item 3. Defaults Upon Senior Securities.......................................18
Item 4. Submission of Matters to a Vote of Securities Holders.................18
Item 5. Other Information.....................................................18
Item 6. Exhibits and Reports on Form 8-K......................................18
Signatures....................................................................19
Page 2 of 19
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
---------------- ---------------
<S> <C> <C>
Current assets:
Cash $ 142,869 $ 806,079
Marketable equity securities 39,912 39,912
Trade accounts receivable, net 407,058 488,281
Inventories 168,845 133,365
Prepaid expenses and other current assets 66,004 135,114
---------------- ---------------
Total current assets 824,688 1,602,751
Equity investments in subsidiaries 116,318 150,000
Property and equipment, net 10,342,852 10,394,636
Accounts receivable from related parties 476,471 456,937
Intangible assets, net 758,197 868,500
Goodwill, net - 626,245
---------------- ---------------
Total assets $ 12,518,526 $ 14,099,069
================ ===============
</TABLE>
See accompanying notes
Page 3 of 19
<PAGE>
BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses $ 620,336 $ 773,798
Accrued interest payable 252,067 217,274
Income tax payable 189,712 197,712
Current portion of long-term debt 719,154 684,154
Current portion of long-term debt - related parties 100,000 100,000
Current maturities of capital lease obligations 41,598 34,598
--------------- ---------------
Total current liabilities 1,922,867 2,007,536
Accrued discount on convertible debentures 570,494 882,188
Long-term debt, less current portion 6,298,495 7,984,832
Long-term debt, less current portion - related parties 1,193,895 1,193,895
Long-term capital lease obligations, less current portion 57,671 75,643
Minority interest payable 111,684 111,684
Shareholders' Equity:
Preferred Stock, $.001 par value;
1,000,000 shares authorized; 281,250 and 375,000
shares issued and outstanding 281 375
Common Stock, $.001 par value; 50,000,000 shares
authorized; 29,519,487 and 24,078,630 shares
issued and outstanding 29,520 24,079
Additional paid-in capital 25,974,396 24,406,435
Accumulated deficit (23,554,641) (22,519,314)
Unrealized (loss) on investments (237) (237)
Foreign currency translation adjustment ( 85,899) (68,047)
--------------- ---------------
Total shareholders' equity 2,363,420 1,843,291
--------------- ---------------
Total liabilities and shareholders' equity $ 12,518,526 $ 14,099,069
=============== ===============
</TABLE>
See accompanying notes
Page 4 of 19
<PAGE>
BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
-------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operating revenues:
Golf revenues $ 576,468 $ 536,243 $ 1,571,287 $ 1,536,123
Food and beverage revenues 145,496 119,211 402,347 358,537
Proshop revenues 79,572 85,635 217,247 215,046
Membership fees and dues 42,288 53,640 380,382 259,129
Resident membership fees 140,000 115,000 270,000 430,000
Management and design fees 90,951 610,560 802,722 1,617,792
Other 110 3,367 6,067 7,118
-------------- --------------- -------------- ---------------
Total operating revenues 1,074,885 1,523,656 3,650,052 4,423,745
Operating expenses:
Golf course operations 383,103 407,653 1,070,143 1,022,931
Cost of food and beverage sales 61,164 27,327 162,365 123,549
Cost of proshop sales 56,351 46,915 148,320 127,285
Marketing expenses 60,225 1,430 209,529 131,593
Management and design expenses 65,535 533,846 686,101 1,151,528
General and administrative expenses 495,348 434,595 1,437,911 1,727,909
Depreciation and amortization expense 173,392 263,762 543,398 791,270
-------------- --------------- -------------- ---------------
Total operating expenses 1,295,118 1,715,528 4,257,767 5,076,065
-------------- --------------- -------------- ---------------
Operating loss (220,233) (191,872) (607,715) (652,320)
Other income (expense):
Interest expense (205,833) (221,386) (560,494) (704,947)
Loss on equity investments in subsidiaries - (55,265) - (237,364)
Interest and other income 105,952 42,032 132,882 675,730
-------------- --------------- -------------- ---------------
Net loss before minority interest (320,114) (426,491) (1,035,327) (918,901)
Minority interest expense - - - (49,984)
-------------- --------------- -------------- ---------------
Net loss $ (320,114) $ (426,491) $ (1,035,327) $ (968,885)
============== =============== ============== ===============
Loss per share $ (.01) $ (.02) $ (.04) $ (.05)
============== =============== ============== ===============
Weighted average number of shares
outstanding 29,519,500 20,289,600 28,587,800 18,703,000
============== =============== ============== ===============
</TABLE>
See accompanying notes
Page 5 of 19
<PAGE>
BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Foreign
Additional Unrealized Currency
Common Preferred Paid-in Accumulated Loss on Translation
Shares Amount Shares Amount Capital Deficit Investment Adjustment Total
----------- -------- -------- -------- ------------ ------------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 24,078,630 $24,079 375,000 $ 375 $24,406,435 $(22,519,314) $(237) $(68,047) $ 1,843,291
Net loss (1,035,327) (1,035,327)
Conversion of Preferred Stock
to Common Stock 468,750 469 (93,750) (94) (375) 0
Issuance of Common Stock in
connection with convertible
debenture 4,972,107 4,972 1,568,336 1,573,308
Translation of foreign currency
financial statements (17,852) (17,852)
----------- -------- -------- -------- ------------ ------------- ---------- ----------- -----------
Balance at September 30, 1997 29,519,487 $29,520 281,250 $ 281 $25,974,396 $(23,554,641) $(237) $(85,899) $ 2,363,420
=========== ======== ======== ======== ============ ============= ========== =========== ===========
</TABLE>
See accompanying notes
Page 6 of 19
<PAGE>
BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
--------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (320,114) $ (426,491) $ (1,035,327) $ (968,885)
Adjustment to reconcile net loss to
net cash provided (used) in operating activities:
Gain on sale of subsidiaries (105,711) - (105,711) -
Loss on investments in subsidiaries - 55,265 - 237,364
Depreciation and amortization 173,392 263,762 543,398 791,270
Net change in other working capital items (190,627) 359,798 94,046 (506,377)
Accounts receivable from related parties (19,534) 342,972 (19,534) 156,288
--------------- ---------------- ---------------- ---------------
Net cash provided (used) in operating activities (462,594) 595,306 (523,128) (290, 340)
Investing activities:
Purchases of property and equipment, net (168,741) 109,780 (383,479) (11,172)
Payments for loan and amortization costs
other items (10,145) (67,767) 17,682 (339,209)
Proceeds from sale of business 600,000 600,000
Additional investment in subsidiaries 33,285 (89,916) 33,682 (541,456)
--------------- ---------------- ---------------- --------------
Net cash provided (used) in investing activies 454,399 (47,903) 267,885 (891,837)
Financing activities:
Additions to long-term borrowings - 19 50,300 5,529,430
Payments for long-term borrowings and capital leases (203,601) (3,039,818) (1,702,029) (4,698,223)
Issuance of common stock - 1,132,804 1,573,308 2,003,677
Change in accrued discount on convertible debentures - - (311,694) -
Proceeds on loans from officers and shareholders - 284,154 - 463,275
--------------- ---------------- ---------------- --------------
Net cash provided (used) by financing activities (203,601) (1,622,841) (390,115) 3,298,159
Effect of foreign currency exchange rate changes on cash (6,858) 5,655 (17,852) 832
--------------- ---------------- ---------------- --------------
Increase (decrease) in cash (218,654) (1,069,783) (663,210) 2,116,814
Cash at beginning of period 361,523 3,239,205 806,079 52,608
--------------- ---------------- ---------------- --------------
Cash at end of period $ 142,869 $ 2,169,422 $ 142,869 $ 2,169,422
=============== ================ ================ ==============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 150,047 $ 104,368 $ 434,798 $ 592,676
=============== ================ ================ ==============
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
During the nine months ended September 30, 1997, preferred stock and additional
paid in capital declined by $94 and $375 respectively, and common stock
increased by $469 when 93,750 shares of preferred stock was converted into
468,750 shares of common stock.
See accompanying notes
Page 7 of 19
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(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.
Investment in Subsidiaries - The Company holds majority interest in the golf
courses at Curtis Park (100%) and St. James (80%) which are included in the
Company's condensed consolidated financial statements. The Company also holds
30% investments in two golf courses, Laurel Valley and Myrtle West, which are
accounted for using the equity method of accounting.
On September 26, 1997 the Company entered into a Letter of Intent with Homer E.
Wright, Jr. Inc. to sell the golf course currently known as The Gauntlet at St.
James. Terms of the agreement include a cash payment of $2,875,000 plus an
adjustment to the purchase price equal to the surplus or shortfall between
certain net assets. The Company is negotiating a definitive purchase agreement
and expects to close this transaction in the fourth quarter of 1997. The Company
expects to retain approximately $100,000 in cash after retiring the first and
second mortgages on the property.
In the third quarter of 1997,the Company sold Hale Irwin Golf Services("HIGSI"),
previously acquired in May 1994 and operated as a wholly-owned subsidiary, to
Mr. Hale Irwin. Mr. Irwin's employment contract with the Company had expired in
May 1997.
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 and nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. 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, 1996 contained in its current Annual
Report on Form 10-KSB.
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,
Page 8 of 19
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
NOTE A. Business of the Company and Significant Accounting Policies (continued)
including tax attributes of Summit (and its subsidiary, Club Operations and
Property Management, Inc. ("COPM")), which was acquired through a purchase
transaction in June 1995. Prior to the sale of COPM in July 1997, at which time
the remaining goodwill was removed from the books, goodwill was being amortized
on a straight-line basis over 20 years.
Amortization charged to continuing operations amounted to $1,392 for the
three-month period ended September 30, 1997, and $65,600 for the three-month
period ended September 30, 1996.
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.
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, Earnings per Share, which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact of Statement 128 on the
calculation of primary and fully diluted earnings per share for these quarters
is not expected to be material.
Reclassifications - Certain reclassifications have been made to the prior
periods' financial statements to conform to the classifications used in 1997.
These reclassifications had no effect on net loss or shareholders' equity as
previously reported.
Page 9 of 19
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
NOTE B. Long-Term Debt
Long-term debt with financial institutions and other third parties as of
September 30, 1997 consists of the following:
<TABLE>
<S> <C>
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
(8.5% at September 30, 1997) plus 1.0%. $ 1,943,938
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 (8.5% at September 30, 1997) plus 1.0%. 2,150,122
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. 234,922
Convertible 6% debentures due March 1, 1998, unless converted into common stock,
interest payable incrementally upon conversions with the balance, if any, at
maturity. 2,269,995
Other notes payable 418,672
-----------
7,017,649
Less current portion 719,154
-----------
$ 6,298,495
===========
</TABLE>
On September 26, 1997, the Company entered into an agreement with Flurina
Development ("Flurina"), a holder of the Company's convertible debentures, to
retire the debenture at a discount. Terms of the agreement will be disclosed at
such time that the Company has completed the transaction which is expected
to close in the fourth quarter of 1997.
Page 10 of 19
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
NOTE B. Long-Term Debt (continued)
Long-term debt with related parties as of September 30, 1997 consists of the
following:
<TABLE>
<S> <C>
Loan payable to a related party, 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%. $ 469,000
Construction loan payable to a shareholder of St. James, payable in annual
principal payments of $100,000 beginning October 1996 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 (8.5% at October 1, 1997), plus
2%, payable quarterly. 811,828
Other notes payable 13,067
-----------
1,293,895
Less current portion 100,000
-----------
$ 1,193,895
===========
</TABLE>
Page 11 of 19
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
NOTE C. Shareholders' Equity
As of September 30, 1997, warrants to purchase 5,188,000 shares of the
Company's common stock were outstanding. These warrants have exercise prices
ranging from $0.75 to $3.25 per share; 100,000 warrants expire September 28,
1998; 238,000 warrants expire November 17, 1998; 50,000 warrants expire December
5, 1998; 150,000 warrants expire June 30, 1999; 1,000,000 warrants expire
January 24, 2000; 2,000,000 warrants expire February 4, 2000; 1,400,000 warrants
expire June 30, 2000, and 250,000 warrants expire September 28, 2000.
During the three-month period ending September 30, 1997 and 1996, no
warrants were issued or exercised. During the nine month period ending September
30, 1997, 3,000,000 warrants were issued while none were exercised; during the
nine month period ending September 30, 1996, no warrants were issued or
exercised.
During the three-month and nine-month periods ending September 30, 1997 and
1996, no employee stock options were issued, exercised, redeemed, or canceled.
NOTE D. Litigation
On August 14, 1997, the Company received notice of legal proceedings filed
by Pyramid Investments ("Pyramid"), a holder of the Company's convertible
debentures, for failure to convert a conversion request issued on July 25, 1997
which the company was in dispute over receipt thereof. The Company filed a
countersuit in August vigorously opposing the litigation initiated by Pyramid.
Since that date the Company negotiated a favorable settlement with Pyramid to
retire the entire debenture at a discount. In order to protect the Company's
position in this litigation, negotiation and execution of the pending
settlement, the Company has not and will not disclose the confidential terms of
the litigation and settlement until such time that the Company would not be
negatively impacted. The Company expects the transaction to close in the fourth
quarter of 1997.
NOTE E. Subsequent Event
On October 31, 1997, the Company completed the refinancing of the loan for
the golf course at Curtis Park. The new debt facility replaced the existing
first and second mortgages totaling $ 2,619,122 with a $3,280,000 loan under
more favorable terms. Terms of the loan include an 8.37 % fixed interest rate
(2.50% over the 10 year treasury bill rate) amortized over 20 years, with
principal and interest payments of $ 28,195 due monthly. The proceeds of
$444,000 net of fees will allow the Company to upgrade the maintenance of the
golf course and provide additional working capital.
Page 12 of 19
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
Item 2. Managements 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, 1997 and 1996 and for the years ended
December 31, 1996 and 1995, included in the Company's 1996 Annual Report on Form
10-KSB.
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 at September 30, 1997 consists of 4 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.
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 9/30/97 1997 1996
-------------------- ------ ------
<S> <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 the Company's percentage of ownership interests at
the Laurel Valley and Myrtle West golf courses effective February 29, 1996, the
financial results for the three months and nine months ending September 30, 1996
were restated to report those investments 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. See Item 1.c. of the
Consolidated Financial Statements as reported in the Company's December 31, 1996
Annual Report on Form 10-KSB and incorporated herein by reference for a
description of the Company's ownership interests in each of the aforementioned
golf courses.
Page 13 of 19
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
RESULTS OF OPERATIONS
Quarter Ended September 30, 1997 Compared to Quarter Ended September 30, 1996
(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
1997 1996 (Decrease)
----------- ----------- ------------
<S> <C> <C> <C>
Golf Fees $ 576,468 $ 536,243 $ 40,225
Design and Management Fees 90,951 610,560 (519,609)
Membership Fees and Annual Dues 182,288 168,640 13,648
Food & Beverage 145,496 119,211 26,285
Pro Shop Sales 79,572 85,635 (6,063)
Other Income 110 3,367 (3,257)
----------- ----------- ------------
$ 1,074,885 $ 1,523,656 $ (448,771)
</TABLE>
Page 14 of 19
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
In the aggregate, the Company generated $1,074,885 in revenues during the
quarter ended September 30, 1997 compared to $1,523,656 during the quarter ended
September 30, 1996. This decrease of $448,771 is primarily due to a $519,609
decrease in design and management fees due to the sale of COPM in July 1997 and
the sale of HIGSI in August 1997 offset by a $40,225 increase in golf fees.
(B) Costs and Expenses
The Company's total operating expenses decreased to $1,295,118 during the
three-month period ended September 30, 1997 from $1,715,528 during the quarter
ended September 30, 1996.
The decrease of $420,410 was primarily attributable to a decline in design,
management and marketing expenses of $409,516 due to the sale of COPM and HIGSI
during the quarter and a decline in depreciation and amortization of $90,370
offset by a $60,753 increase in general and administration expenses and a
$33,837 increase in food and beverage cost of goods sold due to higher sales
volume.
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.
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 decreased from $221,386 during the three-month period
ended September 30, 1996 to $205,833 during the three-month period ended
September 30, 1997. The decrease of $15,553 is primarily due to a decrease in
interest expense related to conversions of the convertible debenture into common
stock. The prime rate increased from 8.25% at September 30, 1996 to 8.50% at
September 30, 1997.
Page 15 of 19
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Interest and other income increased from $42,032 during the three-month
period ended September 30, 1996 to $105,952 during the three-month period ended
September 30, 1997. Of this $63,920 increase, approximately $125,000 relates to
a gain on the sale of COPM offset by a $19,289 loss on the sale of HIGSI. The
remaining decrease relates to lower returns on the Company's other investments
due to lower available cash balances in 1997.
For the quarter ended September 30, 1997, the Company did not incur a loss
on equity investments in subsidiaries, improving upon the $55,265 loss for the
quarter ended September 30, 1996.
(C) Net Loss
For the quarter ended September 30, 1997, the Company recognized a net loss
of $320,114 as compared to a net loss of $426,491 for the three-month period
ended September 30, 1996. The improvement of $106,377 is attributable to the
reasons stated above.
(D) Inflation
Inflation has not had a material effect on the Company's operations during
the three or nine-month periods ended September 30, 1997 or September 30, 1996.
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.
Working Capital
The Company had a working capital deficiency of $1,098,179 as of September
30, 1997, as compared to a working capital deficiency of $1,176,015 as of June
30, 1997 and $404,785 as of December 31, 1996. The reduction in the working
capital deficiency of $77,836 from June 30, 1997 to September 30, 1997 relates
primarily to $600,000 in cash received from the sale of COPM offset by
payments for long-term debt of $203,601, fixed and intangible asset additions
of $132,006, predevelopment costs of $66,757, and a $146,722 cash loss for the
quarter net of depreciation and amortization.
The total borrowings for the Company were $8,311,544 as of September 30,
1997 compared to $8,515,145 as of June 30, 1997 and $9,962,881 as of December
31, 1996. The reduction in borrowings of $1,651,337 from December 31, 1996 to
September 30, 1997 consists of $1,196,043 due to the conversion of debentures
into common stock and $455,294 in payments on bank and equipment loans. The
reduction in borrowings from June 30, 1997 to September 30, 1997 is related to
$203,601 in payments on bank and equipment loans.
Page 16 of 19
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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. During the three
months ended September 30, 1997, 28 lots were sold by the developer at St.
James, the proceeds of which increased cash by $140,000, compared to 23 lots
sold during the three-month period ended September 30, 1996, the proceeds of
which increased cash by $115,000. As of September 30, 1997, the Company
estimates that there will be 130 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 1997, 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. See
Note A. Business of the Company and Significant Accounting Policies -Description
of Business regarding the Letter of Intent to sell the golf course at St.
James that would eliminate the Company's receipt of future residential lot sale
closings.
Page 17 of 19
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Item 3 of the Consolidated Financial Statements of the Company for the year
ended December 31, 1996 for a description of legal proceedings to which the
Company is a party.
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
27 - Financial Data Schedule (for SEC use only)
(b)Reports
See Form 8-K filed July 31, 1997 incorporated herein by reference.
Page 18 of 19
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(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/Stephen A. Tucker
Stephen A. Tucker
Chief Financial Officer
Date: November 7, 1997
Page 19 of 19
<PAGE>
EXHIBIT 27
Financial Data Schedule (for SEC use only)
Page 20
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 142,869
<SECURITIES> 39,912
<RECEIVABLES> 407,058
<ALLOWANCES> 0
<INVENTORY> 168,845
<CURRENT-ASSETS> 824,688
<PP&E> 10,342,852
<DEPRECIATION> 0
<TOTAL-ASSETS> 12,518,526
<CURRENT-LIABILITIES> 1,922,867
<BONDS> 0
0
281
<COMMON> 29,520
<OTHER-SE> 2,333,619
<TOTAL-LIABILITY-AND-EQUITY> 12,518,526
<SALES> 619,594
<TOTAL-REVENUES> 3,650,052
<CGS> 310,685
<TOTAL-COSTS> 4,257,767
<OTHER-EXPENSES> (132,882)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 560,494
<INCOME-PRETAX> (1,035,327)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,035,327)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,035,327)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
