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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB/A
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1996.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to
________
COMMISSION FILE NO. 0-24812
BRASSIE GOLF CORPORATION
__________________________________________________________________
(Name of small business issuer as specified in its charter)
Delaware 56-1781650
______________________________ _______________________
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5806-A Breckenridge Parkway, Tampa, Florida
__________________________________________________________
(Address of principal executive offices)
33610
____________
(Zip Code)
(813) 621-4653
__________________________
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, $.001 Par Value
____________________________________________________
(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 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 [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B in this form and no disclosure will be contained, to
the best of issuer'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. [ ]
The issuer's revenues for its most recent fiscal year: $5,231,902.
The aggregate market value at February 28, 1997 of shares of the
Common Stock held by non-affiliates of the issuer was $9,604,452 based upon the
closing price of the Common Stock in the NASDAQ System (as reported by the
National Quotation Bureau, Inc.). Solely for the purpose of this calculation,
shares held by the principal shareholders named in Item 12 hereof, as well as
shares held by directors and officers of the Registrant, have been excluded.
Such exclusion should not be deemed a determination or an admission by the
issuer that such shareholders or individuals are, in fact, affiliates of the
issuer.
On February 28, 1997, there were 28,205,095 shares of the Registrant's
Common Stock $.001 par value and 375,000 shares of the Registrant's Preferred
Stock, $.001 par value outstanding.
Documents Incorporated by Reference
_____________________________________
None
Transitional small business disclosure format Yes [ ] No [x]
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BRASSIE GOLF CORPORATION
FORM 10-KSB/A
YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
_________________________________________
PART I
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Page
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Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Item 2. Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . 21
PART II
Item 5. Market for Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Item 6. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . 23
Item 7. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . 53
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16 (a) of The Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . 54
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Item 11. Security Ownership of Certain Beneficial Owners
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Item 12. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 60
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
</TABLE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
A. CORPORATE HISTORY
Brassie Golf Corporation, a Delaware corporation (the "Company"),
together with its predecessors and subsidiaries, has engaged, since August
1988, in the acquisition, design, construction, operation and management of
private, semi-private and daily-fee (i.e., "public") golf courses in the United
States.
The Company was incorporated in Delaware on November 12, 1991
under the name "Longview Golf Corporation" as a holding company to acquire
majority interests in two corporations (one of which is now an operating
subsidiary of the Company), each of which was then developing a golf course.
On November 14, 1991, the Company entered into an Agreement and Plan of
Reorganization (the "Reorganization") with the shareholders of both The
Gauntlet at St. James, Inc. (a North Carolina corporation formerly known as
Longview Golf Corporation) ("GSJ") and The Gauntlet at Laurel Valley, Inc.
(formerly known as Laurel Valley Golf Corporation) ("GLV") pursuant to which
the Company acquired all of the outstanding shares of GSJ and GLV except those
shares owned, respectively, by Canadian PT Limited Partnership (a limited
partnership comprising three pension funds and referred to herein as "PT
Partnership") and Edmonton Pipe Industry Pension Trust Fund (referred to herein
as the "EPI Pension Fund").
On September 18, 1992, the Company changed its name from "Longview
Golf Corporation" to "Brassie Golf Holdings, Ltd." On March 29, 1993, the
Company changed its name from "Brassie Golf Holdings, Ltd." to "Brassie Golf
Corporation" and increased its authorized capital to 25,000,000 shares of
Common Stock, $.001 par value per share ("Common Stock"), and 1,000,000 shares
of Preferred Stock, $.001 par value per share ("Preferred Stock"). On July 18,
1994, the Company increased the number of authorized shares of Common Stock to
50,000,000 shares. In 1993, the Company changed its year-end from March 31 to
December 31, resulting in a nine-month fiscal period.
REORGANIZATION WITH HALE IRWIN GOLF SERVICES, INC. To enhance the
Company's visibility and its management, marketing and design capabilities, the
Company acquired 100% of the capital stock of Hale Irwin Golf Services, Inc.
("HIGSI"), an international golf course design, development and management
company based in St. Louis, Missouri, in exchange for 1,250,000 shares of the
Company's Common Stock in a stock-for-stock reorganization on May 16, 1994 (the
"Reorganization"). HIGSI, a Missouri corporation incorporated on October 28,
1986, was founded by Hale S. Irwin, a golf course designer, PGA TOUR
professional and Life Member of the Professional Golf Association of America,
and Richard J. Stahlhuth, a golf course owner and developer. HIGSI had two
operating divisions -- Hale Irwin Golf Design (the "Design Division") and Hale
Irwin Golf Management (the "Management Division"). On September 10, 1994,
HIGSI's operations were combined with the Company's and the Company's principal
executive office was moved from Southport, North Carolina to St. Louis,
Missouri. Messrs. Irwin and Stahlhuth became members of the Board of Directors
of the Company. Mr. Irwin is the President of the Design Division and Mr.
Stahlhuth assumed the role of President of the Company until January 17, 1995,
at which time
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he tendered his resignation as a Director and Officer of the Company in order
to pursue personal business interests. Mr. Irwin resigned as a Director on
August 19, 1996 and has reached an agreement with the Company to purchase
HIGSI. See Item 12. "Certain Relationships and Related Transactions".
MERGER AND REORGANIZATION WITH SUMMIT GOLF CORPORATION. On June
30, 1995, the Company acquired all the issued and outstanding shares of Summit
Golf Corporation, a Florida corporation ("Summit") through the consummation of
an Agreement of Merger and Reorganization (the "Agreement") whereby the
Company's newly incorporated Florida subsidiary, Brasmit Golf Corporation
("Brasmit") merged with Summit, thereby simultaneously vesting Summit
shareholders with the right to exchange their Summit shares for 1,875,000 newly
issued common shares, $.001 par value (the "Common Stock") of the Company,
which as a result were then issued. Copies of the Agreement, Amendment No.1
thereto, and a Pre-Closing Agreement in connection with the transaction were
filed as Exhibits 2.1, 2.2 and 2.3 respectively to the Company's Form 8-K filed
July 6, 1995 and are incorporated herein by reference. Additional consideration
paid by the Company comprised 375,000 shares of newly issued subordinated
redeemable preferred stock with a par value of $.001 per share (each share has
a stated value of $10.00 and is convertible into five shares of Common Stock;
the "Preferred Stock"), 500,000 five-year warrants exercisable at $2.50 per
share for the first three (3) years and $3.25 per share for the next two years,
$275,854 cash and notes for $224,146. The Company's Certificate of
Designations, Preferences and Rights of Junior Non-Cumulative Redeemable
Convertible Preferred Stock setting the qualities of the Preferred Stock was
filed as an Exhibit to the Company's current report on Form 10-Q filed November
14, 1995 and is incorporated herein by reference.
Pursuant to the Articles of Merger filed pursuant to the
Agreement, Brasmit was the surviving corporation and its acquired assets
include (1) all the shares of Club Operations and Property Management, Inc.
("COPM"), a Florida corporation based in Tallahassee which provided consulting
services to or managed, on the effective date of the merger, a portfolio of 44
facilities, including 39 private, semi-private and daily-fee golf courses in 14
states throughout the U.S. and five courses in Mexico; (2) all of Summit's
previously acquired assets of Resort Golf Clubs International, Inc. ("RGCI")
including the RGCI 1995 Marketing Plan which the Company presently intends
eventually to develop and implement in connection with its interval membership
and golf villa programs; and (3) Summit Golf Properties, Inc., an inactive
Delaware corporation.
Following the merger on June 30, 1995, William Horne, Tom
Richardson and Lance McNeill were nominated and elected as Directors at the
Company's Annual Meeting of Shareholders and appointed Officers of the Company
with the following responsibilities:
William E. Horne - President and Chief Executive Officer
Thomas K. Richardson - Senior Vice President - Operations and
Chief Operating Officer
Lance McNeill - Senior Vice President - Acquisitions
& Development
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Gary A. Nacht resigned as interim President and was appointed
Executive Vice President of the Company and acted as its Chief Financial
Officer until his resignation in all capacities on January 30, 1996.
To fund the cash portion of the transaction, the Company utilized
a portion of the proceeds received from a subsidiary's debt repayment which
repayment was funded by surplus proceeds from the subsidiary's May 1995
refinancing of its NationsBank first mortgage on its golf course in Southport,
NC. (See Item 1.c.1. - "The Company's Golf Courses - the Gauntlet at St.
James").
Effective September 4, 1995, the Company's St. Louis, Missouri and
Southport, North Carolina corporate offices were, simultaneously with COPM's
move from Tallahassee, relocated to leased premises at the Company's new
corporate headquarters in Tampa, Florida. The Company's Design Division
relocated to new premises and maintains its offices in St. Louis, Missouri.
(See Item 2 - "Description of Property" for information regarding the Company's
office facilities.)
In connection with the purchase of the shares and assets described
above, the Company entered into employment agreements (the "Employment
Agreements") with Mr. Horne and Mr. Richardson. Copies of the Employment
Agreements were filed as Exhibits 2.4 and 2.5 respectively to the Company's
Form 8-K filed July 6, 1995 and are incorporated herein by reference. The
Employment Agreements contain non-competition provisions and provisions for the
reimbursement of expenses, an automobile allowance, disability and other
customary benefits and are further described hereafter (See Item 12. "Certain
Relationships and Related Transactions".)
On October 27, 1995, Brasmit filed an amendment to its Articles of
Incorporation and changed its name to Brassie Golf Management Services, Inc.
("BGMS").
On December 27, 1995, BGMS transferred all its shares in Summit
Golf Properties, Inc. to the Company. Summit Golf Properties, Inc. was an
inactive Delaware subsidiary of Summit which on June 11, 1996 filed an
amendment to its Certificate of Incorporation and changed its name to Brassie
Construction Management Services, Inc. ("BCMS"). On July 1, 1995, BCMS (then
Summit Golf Properties, Inc.) was engaged to supervise the construction of the
second golf course on St. James Plantation, the site of the Company's first
golf course in Southport, North Carolina. Through BCMS, the Company intends to
offer construction supervision to such owners and developers as may require the
Company's expertise to coordinate and monitor their golf course construction
process (See Item 1.b. "General - Golf Course Construction Management
Services").
B. GENERAL.
The Company's principal business is the ownership, development and
operation of golf courses. As a result of the HIGSI and Summit acquisitions,
the Company also provides golf course design and management services to others
in exchange for design and management fees.
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OWNERSHIP AND OPERATION OF GOLF COURSES.
The Company's business plan is to expand, by acquisition and
development, its portfolio of golf courses primarily by capitalizing on the
present and projected need for quality golf courses in markets where management
believes (i) demand exceeds supply and (ii) buying power, integrated operating
systems and national account management can generate significant economies of
scale. The Company, through its subsidiaries, currently holds ownership
interests in four operating golf courses which are located in North Carolina,
South Carolina and Virginia (see Item 1.c. "The Company's Golf Courses").
Courses which are owned by others but managed by the Company are located in
Alabama, Arkansas, Colorado, Florida, New York, North Carolina, Ohio, South
Carolina, Tennessee and Virginia. All of the courses in which the Company has
an ownership interest in are open to the general public for daily-fee play at
normal greens fees ranging from $15.00 to $60.00 per round (including cart
fees) depending upon the time of year, location of the course and competitive
conditions. For a more complete description of the Company's current
facilities, see Item 1.c. "Business -- The Company's Golf Courses".
Sale of Resident Memberships. As more fully described below, by
agreement with the developer of the residential development contiguous to the
St. James golf course, initial membership fees are paid to the Company, on
behalf of the purchasing resident, by the developer upon the closing of each
lot sale. These "resident" members are entitled to preferential tee times
generally unavailable to the daily-fee player from other facilities. The
bylaws of the residential development at St. James limit the number of
"resident" memberships (and certain "resident" privileges) that may be sold to
and/or activated by lot owners. See Item 1.c.1. "Business -- The Company's
Golf Courses -- The Gauntlet at St. James" for a further discussion on the
limitation of the sale of such "resident" memberships.
Competitive Advantage. To distinguish itself from competing
daily-fee golf courses, the Company's management seeks to provide high quality
golf play, superior pro shop equipment and clothing lines and friendly service.
Quality golf play is achieved by striving for the highest standards of course
maintenance while utilizing golf course designs by P.B. Dye (son of golf course
architect Pete Dye) and Hale Irwin, both accomplished golf course designers.
Hale Irwin currently has an employment agreement with the Company which expires
on May 16, 1997. See Item 12. "Certain Relationships and Related
Transactions".
Acquisition and Expansion Strategy. The tourist trade and local
residents in the southern United States form the principal market for the
Company's daily-fee golf courses. Subject to the Company's ability to secure
financing, the Company intends to direct its expansion primarily in the
southern United States. The Company believes that expansion in specified
regions has numerous benefits, including economies of scale in management and
course operations, regional advertising and the ability to relocate personnel
expeditiously. The Company believes that the southern United States provides
other benefits as well, including a temperate climate, extended playing season,
extended construction season, advantageous market demographics and continuing
development of planned residential communities.
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Subject to securing acquisition financing, the Company intends to
continue to seek to purchase favorably priced existing courses from owners,
including financial institutions, that desire to sell the courses to
financially qualified buyers with access to capital and skilled course
management. Additionally, the Company seeks to capitalize on a trend in public
golf course development whereby residential golf course community developers,
often unable to obtain senior debt financing for the golf course component of
their development, provide significant incentives to a limited group of golf
course developers with credible financial strength and access to "designer
label" architects. Generally, the residential developers seek the premium
pricing and accelerated rate of sales which often inure to developments
associated with an efficiently-run, high-quality community golf course. For
example, as occurred with the Company's Gauntlet at St. James golf course, in
exchange for the Company's commitment to design and construct a golf course,
the underlying land was sold to the Company for nominal consideration and the
Company was provided with significant additional cash incentives (i.e., an
agreement to automatically fund memberships) based upon residential lot sales.
While the Company does not anticipate a shortage of development sites in the
near future, there can be no assurance that similarly suitable sites will
continue to be made available to the Company. Further, a failure of a
residential community project or poor lot sales at a development associated
with a golf course owned by the Company could negatively effect the financial
performance of the Company's course at such location.
In connection with its due diligence and market evaluation
activities for prospective acquisition and development opportunities, the
Company typically performs a market analysis of both the location and the
resident and tourist population, an examination of all existing facilities,
equipment and inventory, a review of an up-to-date property survey and Phase I
Environmental Audit, an examination of permits, variances and required
approvals for the development and/or operation of the golf course, an
investigation of the seller's or developer's financial history, an inspection
of infrastructure and improvements, which includes roads, utility services,
sewer, water and easements and an analysis of administrative changes and/or
capital improvements required to bring the facility in line with the Company's
level of service and operational quality.
The Company estimates that in connection with due diligence,
market evaluation and deposit expenditures, it has incurred expenses of
approximately $281,000 and $200,000 for the years ended December 31, 1996 and
1995, respectively. The Company aggressively pursued opportunities to acquire
and/or develop courses during both years.
Competition with the Company's Golf Course Development Efforts and
Course Operations. The Company faces significant competition with respect to
golf course development and acquisitions. There are a number of regional and
national golf course developers which also offer "designer label" architectural
services. Competitors also include sophisticated real estate investment
groups, multi-course owners and strategic industry investors (often foreign),
many with greater capital resources than the Company. The Company competes for
golf course acquisitions with several companies, including Club Corporation of
America, Golf Enterprises, Inc. (national golf course operators) and National
Golf Properties, Inc. (a national real estate investment trust) and for the
lease and/or management of golf courses with American Golf Corporation, Club
Corporation of America, and Golf Enterprises, Inc. (national golf course
management companies.)
The Company's courses also face substantial competition for the
business of the local and tourist golfer. Competitors for daily-fee play
include other public and private golf courses within each course's region. For
each of the Company's courses, there are numerous competitive alternative
courses within close proximity. For example, the Myrtle Beach area (which
includes two of the
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courses in which the Company has an ownership interest) has approximately ninety
18-hole courses within a ninety-minute drive.
Courses competitive with those of the Company generally have
on-site pro shops. Such shops, together with sporting goods stores and
clothing stores within each course's market vicinity, are the Company's
principal competitors with respect to product sales.
Seasonality. In operating its courses, the Company's revenues are
directly affected by the seasonal tourist trade, the weather, and the effects
of the local economy. For example, play often increases during the autumn and
spring months at its courses located in North and South Carolina, may cease
during the winter months at its course located in Virginia, and decreases at
all courses during unseasonably hot weather.
Trademarks. The Company believes that its current use of the name
"Gauntlet" and associated "glove and rose" logo does not infringe upon other
currently registered uses of the word or logo.
Under the terms of the Agreement and Plan of Reorganization
between the Company and the former shareholders of Hale Irwin Golf Services,
Inc., the Company was granted the exclusive right to use the following trade
names: "Hale Irwin Golf Services," "Hale Irwin Golf Management" and "Hale
Irwin Golf Design" through May 16, 1997. See Item 1.b. "Business General --
Golf Course Design Services and Golf Course Management Services" for a
discussion of the limitations relating to the Company's use of these names.
Thereafter, the Company will no longer use Mr. Irwin's name in connection with
its business.
Government Regulation Relating to the Environment. Three of the
four golf courses in which the Company has an ownership interest were developed
by the Company. During the construction of golf courses the Company must be
concerned with protecting land designated as "wetlands" and other development
and land use restrictions. Because Phase I environmental audits and permits
for the development sites have been procured in the past by the developers, the
Company has not been required to expend substantial funds on an annual basis in
complying with federal, state and local provisions relating to the environment.
There can be no assurance, however, that future compliance expenditures
incurred by the Company will not be substantial, or that necessary permits
and/or licenses will be granted. Accordingly, the Company might experience
development delays pending resolution of environmental concerns arising prior
to or during future construction.
Additionally, operations at the Company's golf courses involve the
use and storage of various hazardous materials such as herbicides, pesticides,
fertilizers, motor oil and gasoline. Various federal, state and local laws,
ordinances and regulations control the storage, use and discharge of such
materials. The Company believes that it is in substantial compliance with all
such laws, ordinances and regulations applicable to its storage and use of such
materials and does not currently incur substantial sums relating to compliance.
However, property owners and users are generally responsible for all
environmental conditions present on such property and for any discharge of any
hazardous substances thereon, regardless of knowledge or responsibility
therefor. Consequently, there can be no assurance
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that the Company will not in the future incur substantial sums in connection
with any such condition or future discharge.
GOLF COURSE DESIGN SERVICES.
The Company has derived revenue from the design of golf courses
for others through its wholly-owned golf course design division, Hale Irwin
Golf Services, Inc. ("HIGSI"). Hale Irwin has served as president of the
Company's Design Division and has been primarily responsible for the golf
course design projects undertaken by the Company.
On May 16, 1997, Mr. Irwin's three-year employment agreement with
the Company will expire. Such employment agreement governs Mr. Irwin's
employment as president of HIGSI, which was purchased by the Company on May 16,
1994. Mr. Irwin has informed the Company that he does not intend to renew the
employment agreement upon its expiration in order to pursue golf course design
independently. In addition, the Company and Mr. Irwin are negotiating an
agreement whereby the Company will sell HIGSI to Mr. Irwin for a combination of
Brassie stock currently held by Mr. Irwin, a percentage of the earnings to be
received on design contracts that are currently in negotiation with clients, a
percentage of revenues on future design contracts procured by the Company, and
the assumption of specified liabilities by Mr. Irwin. As HIGSI has been less
profitable than anticipated since its acquisition by the Company in May 1994,
the Company believes this agreement will improve the financial results of the
Company compared to previous years.
Operations. The Design Division was formed to market world-class
golf course design services to private and public developers of golf facilities
in the United States and internationally. Since its formation in March of 1987,
the Design Division has designed and provided construction observation for the
following courses: Quail Creek Golf Club (opened during 1987 in St. Louis,
Missouri), New England Country Club (opened during 1989 in Bellingham,
Massachusetts), Southern Woods Country Club (opened during 1992 in Homosassa
Springs, Florida), Panther Creek Country Club (opened during 1992 in
Springfield, Illinois), Indian Peaks Golf Course (opened during 1993 in
Lafayette, Colorado), the Club at Cordillera (opened during July 1994 in
Edwards, Colorado), Meadowlands (opened during the fall of 1995 in Greensboro,
North Carolina), The Members Club (opened during 1996 in Southport, North
Carolina), The Valley Club (opened during 1996 in Sun Valley, Idaho), and Cape
Girardeau Country Club (completed in 1996 in Cape Girardeau, Missouri).
Currently, the Design Division has two courses under development, in Tunica,
Mississippi and Rock Hill, South Carolina, and a design consultation project in
Las Vegas, Nevada. (See Item 12. "Certain Relationships and Related
Transactions" for a description of the Company's relationships with entities
owned by Mr. Irwin and his associate, Richard Stahlhuth). The Company derived
$267,226 in total revenues from its golf course design services in 1996.
Design services include course planning, schematic design,
construction documentation and construction supervision. The Design Division
offers two levels of design: the "Hale Irwin Design Course" and the "Hale
Irwin Signature Course." Depending on a variety of factors, including the type
of course, competition and the level of promotional participation by Mr. Irwin,
fees for these 18-hole designs range from $150,000 to $450,000 (for a "Hale
Irwin Signature" course). Clients are primarily local, regional and national
real estate developers.
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Competition with the Design Division. The Company estimates that
there are more than 200 golf course architects providing architecture and
design services in North America. In addition, many local land planners and
engineers provide golf course design services in the early stages of site
development. In this competitive environment, the Design Division solicits new
business primarily by attendance at national industry seminars, trade shows and
conferences; networking with industry professionals including contractors,
engineers, accountants, attorneys, equipment and supply companies and others;
and direct mail campaigns. Following the initial introductions, qualified
prospects are invited to visit, at the Company's cost, sites of previously
completed or in-process design projects.
The Design Division's primary competitive advantages result from
its association with Hale Irwin as a golf course designer, the expertise of the
Company's in-house management team, and its affiliations with other designers
and architects that allow it to provide a broad range of services to meet the
needs of the market. The primary competitive disadvantage faced by the Design
Division is its relatively limited (ten years) operating history and the
limited number of existing projects available for inspection by prospective
clients.
Other Business Considerations. The business of the Design
Division is not seasonal and the Design Division generally has a backlog of
three to six design projects under bid and/or negotiation at any given time.
As a provider of design services, the Design Division does not bear direct
financial responsibility for compliance with federal or state environmental
regulations as these matters are and remain the contractual responsibility of,
and are funded by, the individual golf course owner/developer.
GOLF COURSE MANAGEMENT SERVICES.
The Company also derives revenue through Brassie Golf Management
Services, Inc. ("BGMS") and Club Operations and Property Management, Inc.
("COPM") (subsidiaries of the Company and collectively referred to as the
"Management Division") from operations relating to the day-to-day management of
golf courses for others. As of December 31, 1996, the Management Division
managed 30 facilities, including four golf courses in which the Company has
ownership interests, under Management and/or Financial and Accounting
contracts.
Operations. The Management Division has developed a proprietary
computer system for cash and inventory control, time management and course
reporting. The system allows the Management Division to monitor golf course
operations on a daily basis, providing clients (i.e., course owners) with
comprehensive "real-time" information necessary for efficient operations. Golf
courses are managed by the Management Division pursuant to Management and/or
Financial and Accounting agreements depending upon the degree of management
services requested by the client.
The Management Division benefits the Company not only through the
revenue that is derived from its activities, but also through the expertise it
brings to the management of the Company-owned and operated courses.
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Competition with the Management Division. The Company estimates
that there are approximately 40 golf course management companies nationwide.
The Management Division also derives business from the Design Division, which
offers post-construction management services in conjunction with its design
services. The Company's competitive advantage lies in its experienced
management team and competitive pricing. The Company's competitive
disadvantage is the fact that economies of scale have not yet been achieved,
notwithstanding the number of courses under management.
Other Business Considerations. The business of the Management
Division is not seasonal and there is no backlog of clients. As a provider of
management services, the Management Division does not bear direct financial
responsibility for compliance with federal or state environmental regulations
as these matters are and remain the contractual responsibility of, and are
funded by, the individual golf course owner/developer.
GOLF COURSE CONSTRUCTION MANAGEMENT SERVICES.
The Company also derives revenue through Brassie Construction
Management Services, Inc. ("BCMS"), a subsidiary of the Company, from the
supervision of unrelated parties' golf course construction projects. The
Company's management has had considerable exposure to all forms of land
development (See Item 9. "Directors and Executive Officers of the Registrant").
Experience gleaned from the construction of three of the courses in which the
Company has ownership interest and one of its managed courses located in
Southport, North Carolina that is currently under a management agreement, its
relationships with financing institutions, designers, engineers, contractors
and sub-trades enables the Company to offer this supervisory service.
Operations. The Construction Management Division's services
offered include managing the pre-bid and post-bid process, advising on the
letting of contracts, assisting with contract administration, participating in
the scheduling and budgeting processes, assisting and coordinating in permitting
all aspects of the job, assisting in construction draw administration (including
the preparation of AIA documents, lien waivers, inspections, and monthly site
reports), providing agronomy services throughout the project including such turf
and landscaping advice as necessary to provide an appropriate "grow in" plan
ensuring a smooth transition from the construction phase to the opening of the
course. This division currently has no projects in progress at this time. The
Company derived $141,000 in total revenues from its golf course construction
management services in 1996.
The Construction Management Division benefits the Company not only
through the revenue that is derived from its activities but also as a
follow-through feature of the Company's Design Division Services and as a means
to introduce the Company's Management Division to the owner/client.
Competition with the Construction Management Division. The Company
provides a service which can also be performed by architects, engineers,
contractors and the owners themselves except to the extent of the Division's
unique experience in land development related to golf course construction. The
Company solicits new business from its design project prospects, during
attendances at golf trade shows and by networking to build on its construction
project achievements to date. Trade journals and advertisements also provide
leads. Requests for Proposals (RFP's) from
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<PAGE> 12
governmental agencies provide another bidding opportunity. The Construction
Management Division's competitive advantages result from the relationship
skills and reputation of its principals and the Company's familiarity with golf
course construction in the Southern United States. Also, the ability to point
to the Company's Management Division can provide attractive incentives for
clients to engage BCMS for a seamless "turnkey" project. The primary
disadvantages faced by the Construction Management Division are its limited
number of completed projects available for inspection by prospective clients
and the multitude of alternate supervisors available to the owner/developer,
including other project managers, many of whom have vastly more resources,
reputation and achievements than the Company.
Other Business Considerations. The business of the Construction
Management Division is seasonal to the extent that the time frame for "grow in"
is limited and project start-up times are therefore predetermined. Also,
permitting is frequently a lengthy process and often delayed. The Company has
not developed a backlog of clients. As a provider of services, the Company has
no direct responsibility for federal or state environmental regulations as
these matters are and remain the contractual responsibility of, and are funded
by the individual golf course owner/developer.
EMPLOYEES.
As of February 28, 1997, the Company and its subsidiaries had 120
employees and consultants. No employees of the Company are members of any
union or collective bargaining agreement.
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<PAGE> 13
C. THE COMPANY'S GOLF COURSES.
The Company has ownership interests in four golf courses. Two of
the courses, the Gauntlet at St. James and the Gauntlet at Curtis Park, are each
owned through an individual subsidiary in which the Company presently owns 80%
and 100% of the outstanding equity respectively. The other two golf courses,
the Gauntlet at Laurel Valley and the Gauntlet at Myrtle West are owned through
two similar subsidiaries ("the GLV and GMW Subsidiaries"). The GLV and GMW
Subsidiaries are parties to and the subject of pending litigation between the
Company and the Edmonton Pipe Industry Pension Trust Fund ("the EPI Pension
Fund"). As a result of a preliminary injunction granted by the Circuit Court in
and for Hillsborough County, Florida on July 12, 1996, the Company transferred
45% of the outstanding equity in both of the GLV and GMW Subsidiaries to the EPI
Pension Fund. The Company currently holds 30% of the outstanding equity in each
of these two subsidiaries. For further discussion of the Company's pending
litigation with the EPI Pension Fund see Item 3. "Legal Proceedings". See also
Notes 1 and 10 to Consolidated Financial Statements. Through this
reorganization, the EPI Pension Fund has increased its ownership interest in and
financial commitment to these two golf courses and, as a result, the Company
significantly reduced all short and long term obligations associated with the
ownership of these two golf courses. Furthermore, the Company continues to
manage The Gauntlet Courses on a monthly fee basis, which fees range from $3,500
to $6,000 per month.
In the late fall of 1995, the Company engaged in discussions with
its three pension fund partners (the "Pension Funds") in the four courses in
which the Company has ownership interests ("The Gauntlet Courses") with a view
to modeling a future joint venture and reorganizing existing relationships to
enhance the Company's cash flows and profitability. During February 1996, the
parties established their mutual intentions and on February 21, 1996, the
parties memorialized their intentions in a document captioned an "agreement in
principle" (the "AIP"). Pursuant to the AIP, the Company agreed to pay in full
all debts payable of The Gauntlet Courses as of February 29, 1996, but which
were to be offset by 70% of their aggregated stock in trade. Additionally, the
Company was to repay certain third party advances in the amount of $189,000. In
connection therewith, the Company would assign 70% of The Gauntlet Courses to
the Pension Funds. Certain financial controls over the expenditures at The
Gauntlet Courses were to be granted to the Pension Funds and the Company was to
receive monthly management and accounting fees for each course.
In the second quarter of 1996, the Company reached an alternative
agreement with two of its pension fund partners, UA Canadian Pipeline Industry
National Pension Plan ("UA Pension Fund") and Canadian Limited P.T. Partnership
("PT Partnership"), relating to two of the golf courses, The Gauntlet at Curtis
Park and The Gauntlet at St. James, respectively.
Under the settlement with UA Pension Fund, the Company agreed to
pay off all outstanding debt plus accrued interest owed to UA Pension Fund and
deliver $50,000 in cash and in exchange therefor received all outstanding stock
of The Gauntlet at Curtis Park. With respect to PT Partnership, it was agreed
that the Company would pay all outstanding debt plus accrued interest owed to it
by the Company and the two would continue forward under the same ownership
arrangement for The Gauntlet at St. James. However, the Company was unable to
reach a satisfactory agreement with the EPI Pension Fund with respect to the
other two golf courses. Certain provisions of the AIP contemplate alternative
ownership scenarios whereby the Pension Funds would assume primary
responsibility for The Gauntlet Courses. These alternative ownership scenarios
have been implemented for the Gauntlet at Laurel Valley and the Gauntlet at
Myrtle West (see Item 3. "Legal Proceedings").
1. THE GAUNTLET AT ST. JAMES,
BRUNSWICK COUNTY, SOUTHPORT, NORTH CAROLINA
The Gauntlet at St. James (formerly known as Longview Country Club)
is a 200 acre, 18-hole, daily-fee golf course located in the St. James
Plantation real estate development in Southport, North Carolina, which is 30
miles south of Wilmington, North Carolina and 35 miles north of Myrtle Beach,
South Carolina. The golf course was designed by P.B. Dye. Amenities include a
16,000 square foot clubhouse (including the golf pro shop, restaurant, bar,
snack bar and cart storage), a swimming pool and two tennis courts with a
separate tennis pro shop. The Gauntlet at St. James is owned by a subsidiary of
the Company, The Gauntlet at St. James, Inc. ("GSJ"), a North Carolina
corporation. The Company owns 80%, and Canadian Limited P.T. Partnership ("PT
Partnership") owns 20%, of the outstanding equity shares of GSJ as follows:
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<PAGE> 14
<TABLE>
<CAPTION>
Voting Non-Voting Percent of
Common Stock Common Stock Outstanding
------------ ------------ -----------
<S> <C> <C> <C>
PT Partnership 7,200 12,800 20%
The Company 28,800 51,200 80%
------ ------ ----
36,000 64,000 100%
</TABLE>
The GSJ Shareholders' Agreement provides PT Partnership with
certain powers and safeguards with respect to GSJ, including, without
limitation, control over certain expenditures (checks over $5,000 must be
co-signed by a representative of PT Partnership who acts as Secretary of GSJ),
the ability to appoint a majority of directors to the Board of Directors of GSJ
upon written notice to the Company, the ability to purchase the Company's GSJ
shares for fair market value in the event that PT Partnership determines its
investment to be "at risk" (after giving the Company notice of the condition
causing PT Partnership to believe the project is at risk and the Company's
failure to cure the default cited in the notice), a right of first refusal on
all sales of GSJ shares by the Company, certain buy-out provisions in the event
either shareholder receives a third-party offer to purchase its holdings, and
upon exercising its right to appoint a majority of the Board of Directors, the
requirement that at least two directors nominated by PT Partnership must vote
in favor of any resolution passed by the Board of Directors. Reference is made
to the GSJ Shareholders Agreement and Amendments where such provisions are set
forth in full.
Full service play at The Gauntlet at St. James began in October
1991. The residential community, which is adjacent to the golf course, is
owned and being developed by Homer E. Wright, Jr., Inc. ("Wright"), an
unaffiliated entity. For each residential lot or multi-family dwelling unit
sold, up to a maximum of 900, GSJ receives a $5,000 mandatory resident
membership fee from the developer. This membership fee entitles such buyer to
membership at The Gauntlet at St. James, the association in which residents are
granted memberships. For the years ended December 31, 1996 and 1995, there
were 96 and 138 lots or units sold, respectively, in connection with which the
Company received a resident membership fee. The number of buyers entitled to
activate their memberships at The Gauntlet at St. James is at any given time
limited to 485.
At such time as the Gauntlet at St. James has at least 485 active
resident members, its Bylaws provide that its membership may have an option to
purchase the golf course and certain related facilities at the then fair market
value. In addition, Wright, the developer, holds a twenty-five year right of
first refusal to purchase the golf course and certain related facilities on the
same terms as a third-party offeror. In addition, Wright is entitled to a
commission of 5% in the event the golf course is sold (within twenty-five years
from opening). For more information with respect to such provisions, see the
Bylaws of The Gauntlet at St. James and the Purchase Agreement between Wright
and GSJ, dated as of September 8, 1990.
The Gauntlet at St. James serves two client bases: (a) golf
vacationers primarily during the months of September through December and
February through May; and (b) local players throughout the year. The Company
estimates that it receives approximately 60% of its annual revenues at this
golf course from the Myrtle Beach tourist trade with the balance of revenues
from the local resident population. During the year ended December 31, 1996,
37,387 rounds were played compared to 39,842 rounds played in 1995. Rounds
played, which affect golf, food and beverage and pro shop
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<PAGE> 15
revenues, were negatively impacted in the fourth quarter of 1996 due to the
second 18-hole golf course owned by Wright which is located on St. James
Plantation adjacent to The GSJ golf course.
See Item 1.c.3. for a discussion of the Company's pledge of its
GSJ shares to NationsBank in connection with the financing of The Gauntlet at
Curtis Park. Such pledge was consented to by PT Partnership pursuant to an
amendment to the GSJ Shareholders' Agreement.
2. THE GAUNTLET AT LAUREL VALLEY,
GREENVILLE COUNTY, TIGERVILLE, SOUTH CAROLINA
The Gauntlet at Laurel Valley is a 165 acre, 18-hole, daily-fee
golf course located near Greenville, South Carolina and 22 miles from
Spartanburg, South Carolina. The course was designed by P.B. Dye. The
Gauntlet at Laurel Valley includes a 4,500 square foot clubhouse with
restaurant, pro shop, members' lounge and underground cart storage facility.
The course was built in conjunction with a planned residential real estate
development. The Company has a 30% ownership interest in The Gauntlet at
Laurel Valley, Inc. ("GLV"), a South Carolina corporation. Edmonton Pipe
Industry Pension Trust Fund (the "EPI Pension Fund") owns the remaining 70% of
the outstanding equity shares of GLV as follows:
<TABLE>
<CAPTION>
Voting Non-Voting Percent of
Common Stock Common Stock Outstanding
------------ ------------ -----------
<S> <C> <C> <C>
EPI Pension Fund 7,000 6,720 70%
The Company 3,000 2,880 30%
------- ----- ----
10,000 9,600 100%
</TABLE>
The Shareholders' Agreement between the Company and the EPI
Pension Fund, dated as of October 30, 1991, (the "GLV Shareholders'
Agreement"), provides the EPI Pension Fund with certain rights with respect to
GLV, including, without limitation, control over all expenditures over $5,000
(checks over such amounts must be co-signed by a representative of EPI Pension
Fund who acts as Secretary of GLV), equal representation on the Board of
Directors of GLV (with a director selected jointly by the Company and the EPI
Pension Fund to break any ties), the ability to purchase the Company's shares
in GLV for fair market value in the event that the EPI Pension Fund determines
its investment to be "at risk" and the Company fails to cure the default cited
in the notice, and certain forced buy-out provisions in the event either
shareholder receives a third-party offer to purchase its holdings. Reference
is made to the GLV Shareholders' Agreement where such provisions are set forth
in full.
Full service play commenced in April 1993. There are
approximately 425 residential lots adjacent to this facility to be developed by
the residential developer. The current developer of such community, Laurel
Development Corporation ("LDC"), succeeded to its interest in May 1993. In
keeping with the present development plans and negotiations, GLV will receive a
mandatory membership fee from the developer of approximately $3,000 for each of
the lots sold, which entitles each lot owner to receive a golf membership. Lot
owners at Laurel Valley can activate their memberships by paying their annual
dues. As of December 31, 1996, the subdivision lots have not yet
15
<PAGE> 16
been marketed or sold. Although the residential developer plans to market its
lots during 1997, there can be no assurance that the development will be
successful.
The Gauntlet at Laurel Valley draws its golfing clientele
primarily from the Greenville/Spartanburg metropolitan area. During the year
ended December 31, 1996, 25,439 rounds were played compared to 28,095 rounds
played during the year ended December 31, 1995.
3. THE GAUNTLET AT CURTIS PARK,
STAFFORD COUNTY, VIRGINIA
The Gauntlet at Curtis Park, Inc. ("GCP") has a lease agreement
with the Board of Supervisors of Stafford County, Virginia to lease, through
the year 2026 (with two renewal options of 6 years each), land for the
development, construction and operation of an 18-hole golf course with room and
permission to expand to 27 holes (subject to market conditions) within Curtis
Memorial Park, Stafford County, Virginia (the "Lease"). The Lease requires the
Company to pay rental payments equaling the greater of $25,000 or 5% of net
revenues (excluding revenues from certain membership sales) for each of the
years remaining in the initial 33-year lease term. Rental payments are not to
exceed 7 1/2% and 11% of net revenues, respectively, for each year of the two
renewal terms. Amenities include a 6,000 square foot clubhouse which includes
a golf teaching center, driving range, practice putting green and parking
facilities. The golf course was designed by P.B. Dye and opened for public
play in June 1995.
In 1994, the Company entered into a Shareholders' Agreement
concerning GCP with UA Canadian Pipeline Industry National Pension Plan ("UA
Pension Fund") of which the Company owned 80% and the UA Pension Fund owned 20%
of the outstanding equity shares of GCP. On September 13, 1996 the Company
purchased the remaining 20% of GCP from the UA Pension Fund for $50,000. At
the same time, the Company paid down the $1,600,000 second mortgage loan held
by the UA Pension Fund. The remaining loan balance was purchased by, and
assigned to, A & E Capital Funding, Inc. (see Item 12. "Certain Relationships
and Related Transactions") thereby completely terminating the UA Pension Fund's
interest in GCP.
The Company has guaranteed GCP's first mortgage obligation and
pledged, pursuant to a Stock Pledge Agreement (the "Pledge Agreement"), its
shares in GSJ, GLV and GCP to NationsBank as security for such guarantee (the
'Guarantee"). The Company is to be released from the Guaranty and the Pledge
Agreement upon the attainment by GCP of two consecutive years of specified
levels of performance.
Pursuant to a Subscription Agreement between UA Pension Fund and
the Company, on April 19, 1994, UA Pension Fund was issued 79,010 shares of the
Company's Common Stock for an aggregate price of $400,000 (Canadian) or $5.06
(Canadian) per share. The shares of the Company's Common Stock issued to UA
Pension Fund were guaranteed by the Company to have a value in the event of a
public sale of $400,000 (Canadian) for a period of six months following the
expiration of the one-year hold period under the Securities Act (Ontario) and
the regulations of The Toronto Stock Exchange. For a period of two years
thereafter (ending October 19, 1997) the Company had guaranteed that one-half
of the issued shares shall maintain their issue price. The terms of the
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<PAGE> 17
guaranty appear in the GCP Shareholders' Agreement discussed above. The Company
was to be released from these guaranty provisions upon the public price of the
Company's Common Stock exceeding the issue price by 40% for a period of 30
consecutive calendar days. During the fall of 1995 and at the end of the price
guarantee period for one half (39,505) of the shares issued to UA Pension Fund,
negotiations commenced in respect of a lock-up period for the balance of the
shares. Negotiations were not successful and on October 18, 1995, a related
party collateralized the UA Pension Fund against a $200,000 (Canadian)
shortfall anticipated to result from the UA Pension Funds' disposition of all
79,010 of the shares. During 1996, the Company reimbursed the related party
for $200,000 (Canadian) and contributed an additional $8,000 USD to close the
transaction and be released from the guaranty. See Item 12. "Certain
Relationships and Related Transactions".
GCP seeks to draw golfing clientele from, and sell memberships to,
the residents of the surrounding areas, which include the Washington, D.C.
metropolitan area and the suburbs of Richmond, Virginia. The Curtis Park golf
course has no contiguous or adjacent residential community and therefore there
is no developer with whom GCP has an agreement regarding imposition of
mandatory residential membership fees as a condition of its sale of lots. The
golf course opened for public play on June 1, 1995 and from such opening
through December 31, 1995, 24,654 rounds of golf were played. During the year
ended December 31, 1996, 31,167 rounds were played.
4. THE GAUNTLET AT MYRTLE WEST,
HORRY COUNTY, NORTH MYRTLE BEACH, SOUTH CAROLINA
The Gauntlet at Myrtle West is a 196 acre, 18-hole, daily-fee golf
course located in North Myrtle Beach, South Carolina. The course was designed
by Tom Jackson. The Gauntlet at Myrtle West includes an 8,000 square foot
clubhouse with restaurant, pro shop, member's lounge and a 6,600 square foot
underground cart storage facility. The course, which was previously known as
The Myrtle West Golf and Country Club, was purchased by The Gauntlet at Myrtle
West, Inc. ("GMW"), a South Carolina corporation, on December 30, 1993. The
Company owns 30%, and the EPI Pension Fund owns 70%, of the outstanding equity
shares of GMW as follows:
<TABLE>
<CAPTION>
Voting Non-Voting Percent of
Common Stock Common Stock Outstanding
------------ ------------ -----------
<S> <C> <C> <C>
EPI Pension Fund 7,000 6,720 70%
The Company 3,000 2,880 30%
------ ----- ---
10,000 9,600 100%
</TABLE>
The Shareholders' Agreement between the Company and the EPI Pension
Fund (the "GMW Shareholders' Agreement"), provides the EPI Pension Fund with
certain rights with respect to GMW, including, without limitation, approval
over expenditures that are in excess of $5,000 or outside the annual budget
(which requires the consent of both the President and the Secretary/Treasurer
(an EPI Pension Fund representative) of GMW, equal representation on the Board
of Directors of GMW (with a director selected jointly by EPI and the Company to
break any deadlocks), the ability to purchase the Company's shares in GMW for
fair market value in the event EPI determines its investment to be "at risk"
and the Company fails to cure the default cited in the notice, and certain
forced buy-out
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<PAGE> 18
provisions in the event either shareholder receives a third-party offer to
purchase its holdings. Reference is made to the GMW Shareholders' Agreement
where such provisions are set forth in full.
The shares of the Company's Common Stock issued to the North Myrtle
Beach Golf Club, Inc. ("the MW Seller") in connection with the Company's
acquisition of GMW from the MW Seller, were under certain circumstances,
guaranteed by the Company to have a value in the event of a public sale of
$350,000. On December 11, 1995, MW Seller filed a Complaint against GMW and
the Company, alleging an inability to sell the Company's common shares. GMW and
the Company dispute the claim and, as described in Item 3. "Legal Proceedings",
have filed an Answer and will vigorously oppose the action.
The Company took possession of, and commenced operations at, The
Gauntlet at Myrtle West on December 30, 1993. The golf course draws its
clientele predominantly from the Myrtle Beach area golf market. This course
generated approximately 40,741 and 46,868 rounds of golf during 1996 and 1995,
respectively. There is no residential development contiguous to GMW, nor is
there a developer from whom the Company will receive automatic membership fees.
The rounds of golf were negatively impacted due to extraordinarily inclement
weather in 1996.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal business office is located at: Brassie Golf
Corporation, 5806-A Breckenridge Parkway, Tampa, Florida 33610. Effective
September 1, 1995 the Company took occupancy of 11,200 square feet of newly
leased office space at the above address (the "Premises") after the Company's
renovation of the Premises (with $120,000 of tenant improvements funded by the
landlord). A 5 1/2 year lease ending January 31, 2001 provides for an initial
6 month rent-free period whereafter, on a monthly basis and for each of the
ensuing years of the term, the Company has agreed to pay annual base rents of
$92,288, $95,312, $109,536, $123,872 and $127,232 respectively. The landlord's
operating expenses for services provided to the Company and other lessees of
the business park that accommodates the Premises are estimated, paid monthly as
additional rent, adjusted annually and according to the lease, shall not
annually exceed $2.35 per rentable square foot for the first two years of the
lease. In the event of an overholding of the term, the lease becomes a month to
month lease and as a monthly rent therefor, the Company will be charged 150% of
the base rent and additional rent. The Company may not sublet the Premises or
assign the lease (unless to a qualified and approved affiliate) without the
consent of the landlord. The lease contains other such customary provisions
including a force majeure clause and indemnities. The Premises include the use
of 44 parking spaces and to provide for expansion space should the Company
require additional room, the lease grants to the Company a two year option for
1,000 square feet of contiguous space. This option is terminable should the
Company fail to exercise the option after the landlord advises that a
prospective tenant desires to lease the option space.
The Company's Hale Irwin Design Division offices are located c/o
Hale Irwin Golf Services, Inc., #208-9909 Clayton Road, St. Louis MO 63124.
This office space comprises 1,102 square feet was leased by HIGSI for the
period commencing August, 1995 to October 31, 1997 simultaneous with the
relocation of the Company's corporate offices to Tampa, Florida. HIGSI pays a
monthly rent of $1,426 which includes all electricity, lighting, heating,
cooling and elevator services. The Company's
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<PAGE> 19
lease obligations on this property will terminate upon the sale of HIGSI (see
Item 12. " Certain Relationships and Related Transactions).
The office space occupied by the Company is sufficient for the
conduct of the Company's business therein.
In December 1996 the Company, through a wholly-owned subsidiary,
Divot Properties WGV, Inc., purchased for $810,617 approximately 4.25 acres
described as Southeast Parcel 2 of the St. Johns Planned Unit Development
located in St. Johns County, Florida, as well as certain license rights. The
land is located within the World Golf Village development which is currently
being developed within the 6,300 acre St. Johns planned community. The World
Golf Village resort, located approximately 15 miles south of Jacksonville,
Florida, upon completion, will be home to the World Golf Hall of Fame Museum,
the World Golf Village Resort Hotel and Conference Center, three 18-hole
championship golf courses, PGA Tour Productions, a PGA Tour Golf Academy, and
other amenities. The license rights entitle the Company, for a period of
twenty-five years, to use the World Golf Village names and logos in connection
with the promotion and operation of certain service enterprises, and the
marketing of certain consumer products related to the World Golf Village.
For a complete description of all other properties owned or leased
by the Company, see Item 1.c. "Business -- The Company's Golf Courses."
ITEM 3. LEGAL PROCEEDINGS
A confidential Settlement Agreement ("Settlement") was reached on
May 17, 1995 between the Company and the sellers ("Sellers") of the Wedgefield
Country Club in Orlando, Florida, the Palisades Golf and Country Club in Lake
County near Orlando, Florida and the Northshore Golf and Country Club near
Corpus Christi in San Patricio County, Texas (the "Golf Courses"). A court
hearing was conducted on May 3, 1996 to try mutual allegations of a breach of
the Settlement. The issues tried related primarily to an accounting for
adjustments made at closing and a determination of responsibility for
outstanding and long overdue Golf Course payables assumed by the Sellers
pursuant to the Settlement. Additionally, the Sellers alleged that the
Company, through one of its officers and in breach of the Settlement, made
false and disparaging remarks regarding the Sellers. On July 5, 1996 the
Company and the Sellers participated in a mediation and entered into a
Settlement Agreement resolving the alleged breach of the Settlement.
On August 28, 1993, the City of Lafayette, Colorado, opened a Hale
Irwin Golf Services, Inc. (HIGSI) designed golf course in Colorado surrounded
by a residential community simultaneously developed by an unrelated party. In
March of 1995, purchasers of a building lot on the 18th fairway sought
injunctive relief and damages from the City, the developer, and HIGSI, alleging
that the faulty design of the residential community and golf course denigrated
the value of the other property on which they had recently built a home which
frequently had to accommodate errant golf balls. In July of 1995, the
homeowners' request for a temporary restraining order was dismissed based on
the Judge's ruling that the course was not negligently designed and that the
manner of use by golfers of the 18th fairway did not constitute a dangerous
condition. In spite of the adverse ruling, the homeowners commenced an action
in District Court, Boulder County, Colorado (Civil Action No.
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<PAGE> 20
95CV635) against the developer/owner of the residential community and golf
course, the City of Lafayette as the operator of the course, and amongst
others, HIGSI. In this action the Plaintiffs seek damages which are claimed to
arise from property damage and the threat of bodily injury, resulting from golf
balls that have entered onto their property from golfers' drives from the tee
of the 18th hole at the Indian Peaks Golf Course. Plaintiffs have asserted
twelve claims in their Second Amended Complaint and Request for Injunctive
Relief. The claims which pertain to HIGSI include a second claim for relief
for fraud (based upon allegations that the course was represented to them as a
"world class" golf course designed in accordance with Hale Irwin design
standards when it was not so designed), the third claim for negligent
misrepresentation (based upon the same allegations), a fourth claim for
negligent design, construction, operation and maintenance, a fifth claim for
deceptive trade practices under C.R.S. Section 6-1-101, a sixth claim for
"civil conspiracy", a seventh claim for trespass, and an eighth claim for
nuisance. Almost all defendants are also parties to the above claims as well.
HIGSI has answered the previous Complaint denying the allegations and asserting
numerous affirmative defenses. Damages sought by the Plaintiffs include
monetary damages to be proven at trial, including treble damages, attorney
fees, pre- and post-judgment interest, costs and other expenses of litigation,
punitive damages, preliminary and permanent injunction enjoining the City of
Lafayette, Colorado (co-Defendant) from continuing to operate the 18th hole in
a manner that continues to allow golf balls to strike the property and for such
other and further relief as the Court deems just and proper. HIGSI has filed
an Answer, and is vigorously defending all the allegations. The case is
currently set for trial on May 12, 1997.
On August 10, 1995, the Company and its subsidiary, The Gauntlet at
Myrtle West, Inc. ("GMW") received from North Myrtle Beach Golf Club, Inc.,
("MW Seller") a "Notice of Default Under Indemnity Agreement and Guaranty"
dated December 28, 1993 in connection with MW Seller's alleged inability to
realize $350,000 or any proceeds through its attempts at a public sale of its
102,010 shares of the Company's Common Stock. The stock was issued to MW
Seller and the Indemnity Agreement and Guaranty (the "Guaranty") was entered
into by the Company and GMW as part consideration for the December 28, 1993
sale to GMW of certain of MW Seller's assets, inclusive of certain golf course
lands and improvements in Myrtle Beach, S.C. The obligations under the
Guaranty are secured by a third mortgage and security agreement over the golf
course. The Company has disputed the claim that its shares held by MW Seller
have no value and on February 12, 1996 filed an Answer to the December 11, 1995
Complaint and Third Mortgage Foreclosure proceedings filed by MW Seller under
Civil Action No. 5-CR26.3462 in The Court of Common Pleas, County of Horry,
State of South Carolina. The Company denies liability and states that MW
Seller's failure to sell the stock as required by the Guaranty discharges the
Company's and GMW's obligations. The Company believes its maximum liability
exposure will be the shortfall, if any, from $350,000 and the sale proceeds at
the time MW Seller's 102,010 Company shares are sold or should have been sold.
The Company has recorded a $150,000 expense in the accompanying Consolidated
Financial Statements as a reserve for its estimated maximum liability for
this case.
In connection with the Company's February 21, 1996 Agreement in
Principle ("AIP") with its three Pension Fund Partners (see introduction to
Item 1.c. "The Company's Golf Courses" for further discussion of the AIP and
see Exhibit 10.47), 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 Pension Trust Fund (the
20
<PAGE> 21
"EPI Pension Fund") regarding the two other courses were unsuccessful. On May
31, 1996, the EPI Pension Fund 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, Florida, the court issued a preliminary
injunction which required the Company to transfer to the EPI Pension Fund 45%
of the outstanding equity in the Company's GLV and GMW subsidiaries whereby the
Company now holds 30% of the outstanding equity in each of these two
subsidiaries and the EPI Pension Fund holds 70%. 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,
Florida. The District Court denied this appeal on February 11, 1997. The
Company continues to negotiate with the EPI Pension Fund regarding the AIP.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of the security holders
during the fourth quarter of 1996.
21
<PAGE> 22
PART II
ITEM 5. MARKET FOR THE COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
From August 6, 1993 through July 17, 1996, the Company's Common Stock
traded on the Toronto Stock Exchange (the "TSE") under the trading symbol
"TEE".
The following table sets forth the high and low closing prices on the
TSE for each quarter from January 1, 1996 through the Company's voluntary
request to delist from the TSE on July 17, 1996 (all such prices are in
Canadian dollars):
<TABLE>
<CAPTION>
Closing Prices
--------------
Period Ended High Low
- ------------ ---- -----
<S> <C> <C>
March 31, 1995 $4.69 $2.69
June 30, 1995 3.50 2.30
September 30, 1995 4.00 2.30
December 31, 1995 3.75 1.78
March 30, 1996 3.60 2.10
June 30, 1996 2.25 1.05
July 17, 1996 1.25 .68
</TABLE>
Since November 22, 1994, trading of the Company's Common Stock has
been quoted on the National Association of Securities Dealers, Inc. ("NASD")
Automated Quotation ("NASDAQ") System (SmallCap). The following table sets
forth, for the periods indicated, the quarterly range of the high and low
closing prices of the Common Stock as reported by the NASD in the NASDAQ System
(all such prices are in U.S. dollars):
<TABLE>
<CAPTION>
Closing Prices
--------------
Quarter Ended High Low
- ------------- ----- -----
<S> <C> <C>
March 31, 1995 $3.50 $1.88
June 30, 1995 2.63 1.63
September 30, 1995 3.00 1.63
December 31, 1995 2.88 1.25
March 31, 1996 2.69 1.50
June 30, 1996 1.69 .88
September 30, 1996 1.00 .25
December 31, 1996 .50 .25
</TABLE>
On April 11, 1997 the closing price was $0.31 on the Nasdaq (U.S.).
As of April 11, 1997, there were approximately 307 holders of record
of the Company's Common Stock and two holders of the Company's Preferred Stock.
22
<PAGE> 23
The Company has not paid dividends on its Common Stock or Preferred
Stock and does not anticipate paying any dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction
with the Consolidated Financial Statements included herein for the years ended
December 31, 1996 and 1995.
Brassie Golf Corporation (the "Company") together with its
predecessors and subsidiaries, has been 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
30 owned, leased or managed golf courses including ownership interests in three
golf courses in the states of North Carolina (1) and South Carolina (2) and one
leased golf course in Virginia which opened for public play in June 1995; Hale
Irwin Golf Services, Inc., an international golf course design and management
company based in St. Louis, Missouri; and, as a result of the June 30, 1995
acquisition of Summit Golf Corporation further described in Note 8 to the
accompanying Consolidated Financial Statements, a portfolio of 26 facilities
under management contracts at December 31, 1996, including private, semi-
private and daily-fee golf courses in 10 states throughout the U.S. For
purposes of this discussion and analysis, the Gauntlet at St. James and the
Gauntlet at Curtis Park are referred to hereafter as "Owned courses."
The Company's consolidated financial statements include the accounts
of the Company and all majority-owned subsidiaries. The following table
indicates the number of full months each Owned course was operating during the
respective periods:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31 December 31
1996 1995
---- ----
<S> <C> <C> <C>
St. James (opened for play October 1991) 12 12
Curtis Park (opened for play June 1995) 12 7
</TABLE>
As of December 31, 1996, the Company's total assets were
approximately $14,099,000 and the Company's total debt, including capitalized
leases, was approximately $10,073,000.
The following three golf courses, which were acquired by the
Company in a single transaction during April 1994 were transferred back to the
previous owners during May 1995:
Palisades (Orlando, FL)
Wedgefield (Orlando, FL)
Northshore (Corpus Cristi, TX)
The operating results of these three facilities are included from the date of
acquisition through the date of disposition. The Company incurred a loss of
$4,130,000 on the disposition of these courses, which item is included in the
Consolidated Statement of Operations for the year ended December 31, 1995, as
an extraordinary item.
23
<PAGE> 24
See Item 3. "Legal Proceedings" and Note 9 to Consolidated Financial
Statements for further details on the disposition of the previously owned
courses.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 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 change in each of the revenues categories is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31, Increase
1996 1995 (Decrease)
------------ ------------ ----------
<S> <C> <C> <C>
Golf Fees $1,878,273 $2,555,799 (677,526)
Design and Management Fees 1,785,818 1,211,240 574,578
Membership Fees and Annual Dues 774,594 1,223,464 (448,870)
Food & Beverage 508,911 743,835 (234,924)
Pro Shop Sales 277,188 356,016 (78,828)
Other Income 7,118 15,484 (8,366)
---------- ---------- --------
$5,231,902 6,105,838 (873,936)
</TABLE>
In the aggregate, the Company generated $5,231,902 in revenues
during the year ended December 31, 1996 compared to $6,105,838 in the year ended
December 31, 1995, a decrease of $873,936.
During the year ended December 31, 1996, the Company had no
revenues from golf courses previously sold in May, 1995, which revenue amount
totaled $1,698,196 during the year ended December 31, 1995.
The lot release fees earned by the Company at The Gauntlet at St.
James decreased by $210,000 from 1995 as a direct result of the actual number of
lots sold and closed by the residential developer that owns the property
surrounding the golf course. The Company has no control over these lot sales
and proceeds provided to the Company. Lot sales proceeds are $5,000 per lot
sold.
The design division was unable to secure new golf course design
contracts during the year ended December 31, 1996 and thus realized a reduction
of $101,878 in design fees earned as other contracts were completed.
The golf course management division realized $676,456 of additional
revenues due to the inclusion of Summit for a full year of operations for 1996
versus six months for the year ended December 31, 1995, reflecting the
acquisition at June 30, 1995.
During the year ended December 31, 1996, The Gauntlet at Curtis
Park was open for a full 12 months. During 1995, the course was only open from
June 1995 through year end. As a result, total revenues for The Gauntlet at
Curtis Park were $438,944 more in 1996 and are included in golf fees, food &
beverage and pro shop sales above.
(B) COSTS AND EXPENSES
The Company's total operating expenses increased from $10,935,785
during the year ended December 31, 1995 to $11,056,005 during the year ended
December 31, 1996, an increase of $120,220.
The increase of costs for December 31, 1996 is largely related to
the additional costs of $457,740 associated with a full year of operations for
the golf course at Curtis Park and a $427,093 increase in costs for the full
year operations of the golf course management division (Summit), as noted
above.
In addition, the costs associated with the design division were
$327,198 higher than the prior year due to certain fixed costs and corporate
allocated costs of this division.
The Company also incurred a $250,000 reserve for potential
uncollectible receivables in the management division, primarily related to
Mexican receivables acquired in connection with the COPM merger.
Other general and administrative costs incurred increased by
$150,442 for the year ended December 31, 1996 versus 1995, primarily due to
increased compensation costs.
These increases were substantially offset by $1,587,253 of costs
not incurred as a result of the sale of the previously owned golf courses
referred to above.
24
<PAGE> 25
The Company incurred write downs of goodwill of $4,050,000 and
$4,000,000 related to the Summit merger at December 31, 1996 and 1995. These
write downs were a result of management's evaluation of the future value of
goodwill on the Company's financial statements at year end. See Note 1 on
"Goodwill", in the accompanying Consolidated Financial Statements, for
additional disclosure of the goodwill write downs.
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, allowance for doubtful accounts receivable,
fixed asset valuation adjustments, travel, meals and entertainment and office
expenses, including rents.
Interest expense increased from $656,248 during the year ended
December 31, 1995 to $2,316,301 during the year ended December 31, 1996. This
$1,660,053 increase was primarily due to $1,400,000 of interest expense related
to the discount on convertible debentures, $202,845 related to the 6%
contractual interest on the debentures, $180,249 related to both a one-time
interest adjustment in 1995 and a loan refinancing in 1995 for the St. James
property, and $93,857 related to Curtis Park being open for a full year in
1996, offset by $158,155 from the reduction in debt from the disposition of
previously owned courses. In addition, the prime rate decreased to 8.25% at
December 31, 1996 versus 8.65% at December 31, 1995.
The loss on equity investment in subsidiaries increased from
$637,074 during the year ended December 31, 1995 to $966,579 during the year
ended December 31, 1996. This $329,505 increase results primarily from a
writedown of the Company's investment in the Gauntlet at Laurel Valley and the
Gauntlet at Myrtle West subsidiaries due to a redetermination of the net
realizable value of the Company's ownership interests in those properties
including a $150,000 reserve affiliated with ongoing litigation regarding the
Gauntlet at Myrtle West stock guarantee. See Item 1.c. "The Company's Golf
Courses" and Item 3. "Legal Proceedings."
Interest and other income increased from $3,403 during the year
ended December 31, 1995 to $659,266 during the year ended December 31, 1996.
This $655,863 increase resulted primarily from a gain of $580,000 in proceeds
received from a settlement of claims in connection with a former disposition of
securities held by the Company's foreign subsidiary.
The provision for income taxes of $110,000 is a result of foreign
income taxes due as a result of the $580,000 gain from the former disposition
of securities mentioned above.
25
<PAGE> 26
(C) EXTRAORDINARY LOSS ITEM
During the year ended December 31, 1995, the Company incurred an
extraordinary loss of $4,130,000 in connection with the disposition of three
previously owned golf courses. No extraordinary gains or losses were incurred
in 1996.
(D) NET LOSS
For the year ended December 31, 1996, the Company had a net loss
of $8,625,732, including the write down of goodwill as detailed above, compared
to the net loss of $10,293,535 at December 31, 1995. This $1,667,803 decrease
is a result of the items explained above.
(E) INFLATION
Inflation has not had a material effect on the Company's
operations during the years ended December 31, 1996 and 1995.
26
<PAGE> 27
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.
Deficiency in Working Capital
The Company had a deficit in working capital in the amount of
$404,785 as of December 31, 1996, compared to a working capital deficit of
$725,929 as of December 31, 1995. The improvement in working capital
deficiency was primarily attributable to the effects of proceeds from the
issuance of common stock in 1996 pursuant to Regulations S resulting in
increased cash and lower short-term liabilities offset by a loss from
operations, a cash purchase of long-term assets, a paydown of long-term debt,
and a reclassification of receivables from short-term at December 31, 1995 to
long-term at December 31, 1996. The availability of cash and short-term
investments as of December 31, 1996 was $845,991.
The Company is currently in the process of negotiating a business
combination with an entity with sufficient capital to fund the Company's
working capital deficiency. If such negotiations are consummated, Management
believes that the Company will have access to the capital resources necessary to
continue to meet its current debt obligations, fund capital improvements and
expand and develop its business. There is no assurance that such business
combination will be completed and the inability to complete such merger or
obtain other financing would have a material adverse effect on the Company.
Since this plan outlined above has not been consummated, the Company's Report
of Independent Auditors includes an explanatory paragraph with a going concern
uncertainty.
The Company has taken measures to maintain controls on operating
costs in 1997 as part of a continuing effort to become profitable. Management
intends to take further steps to improve the Company's liquidity and reduce
debt, both short and long term.
During March 1996, the Company issued $5,500,000 of 6% convertible
debentures under an exemption offered by Regulation S of the Securities Act of
1933. These debentures mature on March 1, 1998, unless converted into Common
Stock. As of February 28, 1997 there were two debentures outstanding with
principal balances of $1,228,602 and $1,269,995. One debenture allows for the
Company's Common Stock to be converted at a discount of 15% to its then-market
value. The other debenture may be converted at a discount ranging from 25% to
35% depending on the market price of the stock. Some of the terms of the
currently outstanding debentures have been amended from the terms of the
original debentures issued during March 1996. See Exhibits 10.48, 10.49, 10.54
and 10.55 for the debentures and letter agreements which amended their terms.
A large portion of the proceeds of the debenture have been used to
pay down existing short-term obligations, purchase the remaining outstanding
shares in The Gauntlet at Curtis Park, Inc., pay down the second mortgage loan
on The Gauntlet at Curtis Park, Inc., purchase land and license rights at the
World Golf Village in St. Johns County, Florida, and provide for other working
capital needs.
27
<PAGE> 28
Total debt increased from $8,781,122 at December 31, 1995 to
$10,073,122 at December 31, 1996. Of this $1,292,000 increase, $3,465,738 was
attributed to the Regulation S stock issuance offset by $1,555,469 resulting
from the paydown of related party debt and $618,269 from the paydown of debt to
non-related parties.
The Company has no formal current commitments for capital
expenditures for owned courses currently in operation. Management anticipates,
however, that during the next twelve-month period, the Company will expend
approximately $50,000 for golf course improvements and maintenance equipment.
The Company intends to seek financing for these capital expenditures from
outside financing sources, although there is no assurance that such financing
will be available or, if available, will be on terms acceptable to the Company.
During the year ended December 31, 1996, the Company's
shareholders' equity decreased from $7,721,670 to $1,843,291. This $5,878,379
decrease was primarily a result of the $8,625,732 net loss offset by $2,496,785
from the issuance of 6,350,564 common shares in connection with the convertible
debentures and a $191,617 translation gain on foreign currency during the
period.
Proceeds from Developer's Resident Lot Sales
By agreement with the developer of the residential real estate
development contiguous to the Gauntlet at St. James golf course constructed by
the Company, 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, GSJ was required
by its secured lender to apply all such fees to reduce its bank debt upon each
payment thereof. After the June 1995 refinancing of the first mortgage loan,
the bank agreed to permit GSJ to retain the resident membership fees rather
than apply them against the outstanding loan balance. During the years ended
December 31, 1996 and 1995, 96 and 138 lots were sold respectively by the
developer at St. James, the proceeds of which increased cash by $480,000 in
1996 and increased cash by $325,000 and reduced the bank debt by $365,000 in
1995. As of February 28, 1997, the Company estimates that there are 180 future
residential lots yet to be sold, each of which when sold would generate a
$5,000 resident membership fee under the agreement at St. James. See Item 1.c.
"The Company's Golf Courses". Although lot sales have continued to close
subsequent to February 28, 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.
Warrant Exercises
As of December 31, 1996, warrants to purchase 2,188,000 shares of
the Company's Common Stock were outstanding. These warrants have exercise
prices ranging from $1.00 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; 1,400,000 warrants
expire June 30, 2000, and 250,000 warrants expire September 28, 2000.
During 1995, the holders of warrants to purchase 1,082,001 shares
of the Common Stock exercised their warrants, for which the Company received
proceeds of $1,514,802. No warrants were exercised in 1996.
RISKS AND UNCERTAINTIES
The Company is not aware of any trends or uncertainties that would
have a material favorable or unfavorable impact on its operations other than
competition and the economy in general.
28
<PAGE> 29
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements
<TABLE>
<CAPTION>
Page
----------
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Balance Sheet as of December 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Consolidated Statements of Operations for the years ended December 31, 1996 and December 31, 1995 . . . . . . . . . 33
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1996 and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and 1995 . . . . . . . . . . . . . . . 35
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>
29
<PAGE> 30
Report of Independent Auditors
Board of Directors and Shareholders
Brassie Golf Corporation
We have audited the accompanying consolidated balance sheet of Brassie Golf
Corporation and subsidiaries as of December 31, 1996 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the years ended December 31, 1996 and 1995. 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 audits 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.
As discussed in Note 10 to the financial statements, the Company changed its
method of accounting for two previously majority-owned subsidiaries.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Brassie Golf Corporation and subsidiaries at December 31, 1996 and the
consolidated results of its operations and its cash flows for the years ended
December 31, 1996 and 1995, 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 more fully described in Note 1,
the Company has incurred recurring operating losses and has a working capital
deficiency. 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 1. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classification of liabilities
that may result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Raleigh, North Carolina
March 11, 1997
30
<PAGE> 31
Brassie Golf Corporation
Consolidated Balance Sheet
December 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 806,079
Marketable equity securities 39,912
Trade accounts receivable, net of allowance for doubtful accounts
of $437,400 in 1996 488,281
Inventories 133,365
Prepaid expenses and other current assets 135,114
-----------
Total current assets 1,602,751
Property and equipment at cost:
Land and land improvements 5,315,154
Depreciable golf course improvements 2,283,898
Buildings 3,079,086
Furniture, machinery and equipment 1,313,314
-----------
11,991,452
Less accumulated depreciation and amortization 1,596,816
-----------
10,394,636
Equity investment in subsidiaries 150,000
Long-term accounts receivable from related party 456,937
Intangible assets, net of accumulated amortization of $563,200 868,500
Goodwill, net of accumulated amortization of $482,900 626,245
-----------
Total assets $14,099,069
===========
</TABLE>
31
<PAGE> 32
<TABLE>
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 773,798
Accrued interest payable 217,274
Income tax payable 197,712
Current portion of long-term debt 684,154
Current portion of long-term debt - related parties 100,000
Current maturities of capital lease obligations 34,598
------------
Total current liabilities 2,007,536
Accrued discount on convertible debentures 882,188
Long-term debt, less current portion 7,984,832
Long-term debt, less current portion - related parties 1,193,895
Long-term capital lease obligations, less current portion 75,643
Minority interest payable 111,684
Shareholders' equity:
Preferred Stock, $.001 par value; 1,000,000 shares authorized;
375,000 shares issued and outstanding of Junior Convertible
Preferred Stock 375
Common Stock, $.001 par value; 50,000,000 shares authorized;
24,078,630 shares issued and outstanding 24,079
Additional paid-in capital 24,406,435
Accumulated deficit (22,519,314)
Unrealized loss on investments (237)
Foreign currency translation adjustment (68,047)
------------
Total shareholders' equity 1,843,291
------------
Total liabilities and shareholders' equity $ 14,099,069
============
</TABLE>
See accompanying notes.
32
<PAGE> 33
Brassie Golf Corporation
Consolidated Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
------------ ------------
(Restated)
<S> <C> <C>
Operating revenues:
Golf revenues $ 1,878,273 $ 2,555,799
Food and beverage revenues 508,911 743,835
Proshop revenues 277,188 356,016
Membership sales and dues 294,594 533,464
Resident membership fees 480,000 690,000
Management and design fees 1,785,818 1,211,240
Other 7,118 15,484
----------- ------------
Total operating revenues 5,231,902 6,105,838
Operating expenses:
Golf course operations 1,328,564 2,009,231
Cost of food and beverage sales 203,660 299,448
Cost of proshop sales 173,812 214,419
Marketing expense 216,254 210,695
Management and design expenses 1,553,821 910,925
General and administrative expenses 2,487,003 2,278,493
Depreciation and amortization expense 1,042,891 1,012,574
Write down of goodwill 4,050,000 4,000,000
----------- ------------
Total operating expenses 11,056,005 10,935,785
----------- ------------
Operating loss (5,824,103) (4,829,947)
Other income (expense):
Interest expense - contractual (916,301) (656,248)
Interest expense - discount on convertible debentures (1,400,000) -
Loss on equity investment in subsidiaries (966,579) (637,074)
Bad debt recoveries 510,000 -
Interest income 149,266 3,403
----------- ------------
Loss before minority interest and extraordinary item (8,447,717) (6,119,866)
Minority interest expense (68,015) (43,669)
----------- ------------
Loss before extraordinary item and taxes (8,515,732) (6,163,535)
Extraordinary loss (Note 9) - (4,130,000)
Provision for income taxes (110,000) -
----------- ------------
Net loss $(8,625,732) $(10,293,535)
=========== ============
Loss per share before extraordinary item and taxes $ (.43) $ (.40)
Extraordinary loss per share - (.26)
----------- ------------
Net loss per share $ (.43) $ (.66)
=========== ============
Weighted average number of shares outstanding 20,005,900 15,570,900
=========== ============
</TABLE>
See accompanying notes.
33
<PAGE> 34
Brassie Golf Corporation
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
FOREIGN
ADDITIONAL CURRENCY
COMMON STOCK PREFERRED STOCK PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT
----------- ------- -------- -------- ------------------ -------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 as
restated 13,545,065 $13,545 - $ - $10,495,162 $ (3,600,047) $(358,711)
Net loss as restated - - - - - (10,293,535) -
Exercise of Common Stock warrants 1,082,001 1,082 - - 1,513,720 - -
Issuance of stock in connection
with Summit merger:
Common 1,875,000 1,875 - - 3,748,125 - -
Preferred - - 375,000 375 3,749,625 - -
Issuance of Common Stock in a
private offering 1,301,000 1,301 - - 2,600,699 - -
Retirement of Common Stock (125,000) (125) - - (249,875) - -
Unrealized loss on investments - - - - - - -
Translation of foreign currency
financial statements - - - - - - 99,047
---------- ------ ------- --- ---------- ----------- ---------
Balance at December 31, 1995 as
restated 17,678,066 17,678 375,000 375 21,857,456 (13,893,582) (259,664)
Net loss - - - - - (8,625,732) -
Issuance of Common Stock in
connection with conversion of
convertible debenture 6,350,564 6,351 - - 2,490,434 - -
Issuance of Common Stock in lieu
of compensation 50,000 50 - - 58,545 - -
Unrealized gain on investments - - - - - - -
Translation of foreign currency
financial statements - - - - - - 191,617
Balance at December 31, 1996 24,078,630 $24,079 375,000 $375 $24,406,435 $(22,519,314) $ (68,047)
========== ======= ======== ======== ============ ============ ========
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
INVESTMENTS TOTAL
------------------ ------------
<S> <C> <C>
Balance at December 31, 1994 as
restated $ 5,534 $ 6,555,483
Net loss as restated - (10,293,535)
Exercise of Common Stock warrants - 1,514,802
Issuance of stock in connection
with Summit merger:
Common - 3,750,000
Preferred - 3,750,000
Issuance of Common Stock in a
private offering - 2,602,000
Retirement of Common Stock - (250,000)
Unrealized loss on investments (6,127) (6,127)
Translation of foreign currency
financial statements - 99,047
Balance at December 31, 1995 as
restated (593) 7,721,670
Net loss - (8,625,732)
Issuance of Common Stock in
connection with conversion of
convertible debenture - 2,496,785
Issuance of Common Stock in lieu
of compensation - 58,595
Unrealized gain on investments 356 356
Translation of foreign currency
financial statements - 191,617
Balance at December 31, 1996 $ (237) $ 1,843,291
=========== ===========
</TABLE>
34
<PAGE> 35
Brassie Golf Corporation
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995
------------ -------------
(Restated)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(8,625,732) $(10,293,535)
Adjustments to reconcile net loss to net used in
operating activities:
Extraordinary loss - 4,130,000
Loss of minority-owned equity investee 966,579 637,074
Depreciation 535,293 624,414
Amortization 507,598 388,160
Writedown of goodwill 4,050,000 4,000,000
Bad debt expense 65,000 2,184
Loss on sale of fixed assets - (31,966)
Gain (loss) on sale of investments 182 (207)
Trade accounts receivable 66,826 (213,323)
Accounts receivable from related parties 107,258 (400,411)
Inventory and other current assets (55,202) (33,175)
Accounts payable and accrued expenses (368,480) (97,224)
Accrued interest payable 1,024,133 39,049
Income tax payable 197,712 -
----------- ------------
Net cash used in operating activities (1,528,833) (1,248,960)
INVESTING ACTIVITIES
Payments for loan and organization costs (571,293) (492,554)
Purchases of property and equipment, net (698,630) (1,365,810)
Acquisitions of businesses, net of cash acquired - (311,793)
Additional investments in subsidiaries (486,770) -
----------- ------------
Net cash used in investing activities (1,756,693) (2,170,157)
FINANCING ACTIVITIES
Additions to long-term borrowings 5,480,388 2,480,173
Payments on long-term borrowings and capital leases (4,836,509) (4,177,729)
Issuance of common stock 2,555,380 3,866,802
Proceeds on loans from officers and shareholders 648,121 540,000
----------- ------------
Net cash provided by financing activities 3,847,380 2,709,246
Effect of foreign currency exchange rate changes on cash 191,617 99,047
----------- ------------
Increase (decrease) in cash 753,471 (610,824)
Cash at beginning of year 52,608 663,432
----------- ------------
Cash at end of year $ 806,079 $ 52,608
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest $ 938,071 $ 1,464,713
=========== ============
</TABLE>
See accompanying notes.
35
<PAGE> 36
Brassie Golf Corporation
Notes to Consolidated Financial Statements
December 31, 1996
1. BUSINESS OF THE COMPANY, BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING
POLICIES
Brassie Golf Corporation ("the Company"), together with its predecessors and
subsidiaries, has been engaged since 1988 in the design, acquisition,
development and management of private, semi-private and daily-fee (i.e.,
"public") golf courses primarily located in the United States.
As of December 31, 1996, the Company has a net working capital deficiency of
$404,785. The Company is not generating sufficient revenues from its
operations to fund its activities and therefore is dependent on additional
financing from external sources. Such factors raise substantial doubt about
the Company's ability to continue as a going concern. The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty. Management is in the process of negotiating a
business combination with another entity. If such negotiations are consumated,
management believes that the Company will have access to the capital resources
necessary to continue to meet its current debt obligation, fund capital
improvements and expand and develop its business. There is no assurance that
such business combination will be completed and the inability to complete such
business combination or obtain other financing would have a material adverse
effect on the Company.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
all wholly and majority-owned subsidiaries. All material intercompany accounts
and transactions are eliminated in consolidation. The subsidiaries and related
percentage of ownership by the Company are as follows:
<TABLE>
<CAPTION>
COMPANY NAME ABBREVIATION OWNERSHIP PERCENTAGE
- ------------ ------------ --------------------
<S> <C> <C>
The Gauntlet at St. James, Inc. St. James 80%
The Gauntlet at Curtis Park, Inc. Curtis Park 100%
Brassie Golf Management Services, Inc. BGMS 100%
Summit Golf Corporation Summit 100%
Hale Irwin Golf Services, Inc. HIGSI 100%
Brassie Construction Management
Services, Inc. BCMS 100%
Amalgamated Equity Golf (a British
Columbia Corporation) Amalgamated 100%
Divot Properties WGV, Inc. Properties 100%
</TABLE>
36
<PAGE> 37
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Minority interest represents the 20% interest in the St. James golf course
owned by a related entity.
The Company's 30% investments in The Gauntlet at Laurel Valley, Inc., a golf
course located in Greenville, S.C., and The Gauntlet at Myrtle West, Inc., a
golf course located in Myrtle Beach, S.C., are accounted for using the equity
method. See Note 10 "Change in Reporting Entity".
CASH AND CASH EQUIVALENTS
The Company considers highly liquid, short-term investments with a maturity of
three months or less when purchased to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost. Costs relating to the acquisition
and development of golf courses, including the cost of real estate, related
legal fees, construction costs, interest, and other direct costs associated
with the development of the golf courses are capitalized as part of the cost of
the course. Depreciable golf course improvements are comprised primarily of
irrigation systems, cart paths, bridges, and other land improvements.
Depreciation on property and equipment begins when the assets are placed into
service and is charged to operations over the estimated useful lives of the
assets (5 to 20 years), utilizing the straight-line method for financial
reporting purposes and accelerated methods for tax purposes. Construction in
progress relates to construction that is underway but not yet complete. All
other costs, except for organizational and loan costs, are charged to expense
as incurred.
INTANGIBLE ASSETS
Intangible assets consist primarily of loan costs and licensing fees. Costs
incurred in obtaining long-term debt obligations are capitalized at cost and
amortized over the lives of the respective loans. Significant additions to
capitalized loan costs during 1996 resulted primarily from costs incurred to
obtain financing on more favorable financing terms.
37
<PAGE> 38
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 (see Note 8, "Acquisitions and Golf Course
Developments", for further discussion). Goodwill is being amortized on a
straight-line basis over 20 years. Amortization charged to continuing
operations amounted to $255,226 and $227,641 in 1996 and 1995, respectively.
The Company initially records goodwill at its cost and amortizes the cost over
the estimated useful life of the asset. At the end of each accounting period,
the Company reviews the carrying value of the goodwill for possible 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. Based on Summit's
cash flows and assumptions reflected in internal operating plans and strategies
during 1995, it was determined that a goodwill write down of $4,000,000 in 1995
was necessary to properly record goodwill at its net realizable value.
In October 1996, the Company recorded a goodwill writedown of an additional
$4,050,000, leaving a remaining balance of $626,245, net of accumulated
amortization, at December 31, 1996 which reflects estimated future discounted
cash flows. During 1996, goodwill was determined to be impaired because of the
current financial condition of the Company which has limited the Company's
ability to generate new mangement contracts. Moreover, anticipated future cash
flows of the Company indicate that the recoverability of the asset is not
reasonably assured.
The writedowns of goodwill are included in the accompanying statements of
operations for the years ended December 31, 1996 and 1995.
38
<PAGE> 39
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE EQUITY SECURITIES
The Company's marketable equity securities are classified as available-for-sale
and are carried at fair value at December 31, 1996. The ending balance of
shareholders' equity has been increased by $356 during 1996 and decreased by
$6,127 during 1995 to reflect the net unrealized holding gain or loss on
securities classified as available-for-sale. Net realized gain or loss on
investments for each period, determined by specific identification, is presented
in the consolidated statements of operations.
The Company maintains cash and short-term investments with various financial
institutions. These financial institutions are located in different areas of
the U.S. and Canada, and Company policy is designed to limit exposure to any
one institution. The Company performs periodic evaluations of the relative
credit standing of those financial institutions that are considered in the
Company's investment strategy.
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------------------------------------------------------------
<S> <C> <C> <C> <C>
December 31, 1996:
Available for sale
securities $40,149 $ - $237 $39,912
December 31, 1995:
Available for sale
securities $40,331 $ - $593 $39,738
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost or market as determined using the
specific identification method.
Inventory at December 31, 1996 consists of:
<TABLE>
<S> <C>
Proshop merchandise $100,897
Maintenance inventory 14,091
Food and beverage inventory 18,377
--------
$133,365
========
</TABLE>
39
<PAGE> 40
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUES
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, and golf course management and design fees.
Golf fees, proshop merchandise sales and food and beverage sales are recognized
when received. Annual membership dues are recognized and earned ratably over a
twelve-month period. Membership dues collected in advance are deferred as
"unearned income" and recognized over the period of prepayment. Membership fees
that are non-refundable are recognized by the Company when received. Golf
course management and design fees are recognized as services are performed.
As part of an agreement with the developer who is developing the residential
lots in the immediate area of the St. James golf course, the developer pays St.
James a $5,000 resident membership fee for each of the residential lots sold.
At December 31, 1996, 180 lots remain unsold in the St. James development. At
such time as St. James has at least 485 active resident members, its by-laws
provide that its members have an option to purchase the golf course and certain
related facilities at fair market value.
STOCK BASED COMPENSATION
Prior to January 1, 1996, the Company accounted for its stock option plans in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations. Pursuant to APB 25, compensation expense is recorded only to
the extent that the current market price of the underlying stock exceeded the
exercise price on the date of grant. On January 1, 1996, the company adopted
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which requires companies to (i) recognize as expense
the fair value of all stock-based awards on the date of grant, or (ii) continue
to apply the provisions of APB 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
future years as if the fair-value-based method defined in SFAS 123 had been
applied. The Company has elected to continue to apply the provisions of APB 25
and provide the pro forma disclosure provisions of SFAS 123 (See Note 7).
40
<PAGE> 41
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING EXPENSE
Statement of Position 93-7 "Reporting on Advertising Costs" was implemented by
the Company during the year ended December 31, 1995. The cost of advertising
is expensed as incurred. The Company incurred $216,000 and $211,000 in
advertising costs during the years ended December 31, 1996 and 1995,
respectively.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
CONCENTRATION OF CREDIT RISK
The Company's primary financial instrument subject to potential concentration
of credit risk is trade accounts receivable which are unsecured. The Company
provides an allowance for doubtful accounts based on its analysis of
potentially uncollectible accounts. The Company's trade receivable arise
principally from its golf course management operations which are geographically
dispersed primarily in the southeastern U.S. As of December 31, 1996, the
Company had no significant concentrations of credit risk with any individual
customers.
FOREIGN AND DOMESTIC OPERATIONS
Net income from the Company's foreign subsidiary (Amalgamated) was
approximately $339,000 and $176,000 for the years ended December 31, 1996 and
1995, respectively. Net loss from domestic operations was approximately
$8,965,000 and $10,470,000, respectively, for the same periods.
TRANSLATION OF FOREIGN CURRENCIES
Foreign currency transactions and financial statements of Amalgamated are
translated from the local currency, Canadian dollars, into U. S. dollars at the
current exchange rates except for revenues, costs and expenses which are
translated at average exchange rates. Adjustments resulting from translations
of financial statements are reflected as a separate component of shareholders'
equity.
41
<PAGE> 42
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
1. BUSINESS OF THE COMPANY AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET LOSS PER SHARE
Net loss per share has been computed based on the weighted average number of
shares of common stock outstanding during the period presented in accordance
with APB No. 15. Stock options, warrants and the six percent convertible
debentures are considered anti-dilutive and therefore have not been included in
the computation.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1996, the Company adopted FASB Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
Under the provisions of the Statement, impairment losses are recognized when
expected future cash flows are less than the assets' carrying value.
Accordingly, when indicators of impairment are present, the Company evaluates
the carrying value of property and equipment and intangibles in relation to
the operating performance and future undiscounted cash flows of the underlying
business. The Company adjusts the net book value of the underlying assets if
the sum of expected future cash flows is less than book value. Based on the
application of the Statement, goodwill was adjusted to its estimated fair
value which resulted in a write-down of $4,050,000 and $4,000,000 in 1996 and
1995, respectively.
2. LONG-TERM DEBT
Long-term debt with financial institutions and other third parties at December
31, 1996 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 (8.25% at December 31,
1996) plus 1.0%. $2,090,813
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 December 31, 1996) plus 1.0%. 2,309,497
Unsecured convertible 6% debentures due March 1, 1998, unless
converted into common stock, interest payable quarterly and
incrementally based upon conversions with the balance due, if any,
at maturity. 3,465,738
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. 373,378
Other notes payable 429,560
----------
8,668,986
Less current portion 684,154
----------
$7,984,832
==========
</TABLE>
42
<PAGE> 43
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
2. LONG-TERM DEBT (CONTINUED)
Principal maturities of the above indebtedness during each of the following
five years and thereafter are as follows:
<TABLE>
<CAPTION>
Year ended
December 31
-----------
<S> <C>
1997 684,154
1998 4,173,309
1999 521,384
2000 1,969,731
2001 and thereafter 1,320,408
-----------
8,668,986
</TABLE>
During March 1996, the Company issued $5.5 million in six percent convertible
debentures to finance the operations of the Company. During 1996, the holders
of the debentures converted $2,034,262 of the debt into 6,350,564 shares which
equated to $2,496,785 in equity after offsetting financing fees. Through March
1, 1998, the six percent debentures are convertible into shares of common stock
and allow the common stock to be converted at discounts ranging from 15%-35% of
its current market value. The Company recorded $1.4 million in interest expense
during 1996 to reflect the discounts upon conversion of the Company's common
stock.
Long-term debt with related parties at December 31, 1996 consists of the
following:
<TABLE>
<S> <C>
Loan payable to a related party, principal due June 30, 2001,
collateralized by a leasehold interest in land and land
improvements; subordinated to bank loan, with interest accruing at
9.5%, payable quarterly. $ 469,000
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 (8.25% at December 31, 1996), plus 2%,
payable quarterly. 811,828
Other notes payable 13,067
----------
1,293,895
Less current portion 100,000
----------
$1,193,895
==========
</TABLE>
43
<PAGE> 44
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
2. LONG-TERM DEBT (CONTINUED)
Principal maturities of the related party indebtedness detailed above during
each of the following five years and thereafter are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31
-----------
<S> <C>
1997 100,000
1998 100,000
1999 100,000
2000 980,828
2001 and thereafter 13,067
-----------
$ 1,293,895
===========
</TABLE>
Total contractual interest expense for the years ended December 31, 1996 and
1995 was approximately $916,000 and $656,000, respectively. Approximately $0
and $127,000 of interest costs were capitalized for the years ended December
31, 1996 and 1995, respectively, as part of the construction cost of the
Company's property and equipment. The Company is required under the terms of
the loan agreements to maintain minimum levels of tangible net worth and meet
various financial ratio requirements. The Company is in compliance with these
requirements at December 31, 1996.
The Company estimates that the fair value of notes payable approximates the
carrying value based upon its effective current borrowing rate for debt with
similar terms and remaining maturities. Disclosure about fair value of
financial instruments is based upon information available to management as of
December 31, 1996. Although management is not aware of any factors that would
significantly affect the fair value of these amounts, such amounts have not
been comprehensively revalued for purposes of these financial statements since
that date.
44
<PAGE> 45
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
3. LEASES
The Company leases certain golf carts used in the daily operations of its golf
courses under capital leases which are included in machinery and equipment.
Leased equipment under capital leases included in furniture, machinery and
equipment consists of the following at December 31, 1996:
<TABLE>
<S> <C>
Equipment $144,382
Less accumulated amortization 30,502
--------
$113,880
========
</TABLE>
The accumulated amortization with respect to these capitalized leases is
included in "accumulated depreciation and amortization" in the accompanying
balance sheet. Amortization expense is included in depreciation and
amortization expense in the accompanying statement of operations.
Future minimum lease payments, by year and in the aggregate, under capital
leases, consist of the following at December 31, 1996:
<TABLE>
<S> <C>
1997 $ 43,115
1998 43,115
1999 39,523
--------
Total minimum lease payments 125,753
Amounts representing interest 15,512
--------
110,241
Less current portion 34,598
--------
$ 75,643
========
</TABLE>
The Company also rents certain facilities, land and equipment under operating
leases which expire at various times through 2027. Total rent expense for the
Company was approximately $207,500 and $107,000, for the years ended December
31, 1996 and 1995, respectively.
Future minimum lease payments, by year and in the aggregate, under operating
leases consist of the following at December 31, 1996:
<TABLE>
<S> <C>
1997 $ 206,990
1998 189,652
1999 201,368
2000 183,390
2001 and Thereafter 688,221
----------
$1,469,621
==========
</TABLE>
45
<PAGE> 46
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
4. RELATED PARTY TRANSACTIONS
The Company funded expenses on behalf of certain entities affiliated through
common ownership. Accounts receivable from related parties were $456,937 at
December 31, 1996. The Company does not expect payment of these receivables
within the next twelve months; accordingly, the amounts are classified as
long-term assets.
The Company also provided management services to related parties resulting in
approximately $190,000 and $231,000 in management fee revenue for the years
ended December 31, 1996 and 1995, respectively.
5. INCOME TAXES
Under Financial Accounting Standards Board Statement No. 109, "Accounting for
Income Taxes," the liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and liabilities
and are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
Deferred income taxes reflect the net effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's deferred tax liabilities and assets as of December 31, 1996 are as
follows:
<TABLE>
<S> <C>
Deferred tax liabilities:
Tax over book depreciation $ 41,000
Tax over book amortization 8,000
-----------
$ 49,000
===========
Deferred tax assets:
Net operating loss carryforwards $ 3,149,000
Bad debt allowance 175,000
Other 4,700
-----------
Total deferred tax assets 3,328,700
Valuation allowance for deferred tax assets (3,279,700)
-----------
Net deferred tax assets 49,000
===========
Net deferred taxes $ -
===========
</TABLE>
At December 31, 1996 the Company has a net operating loss carryforward of
$7,900,000 which will begin to expire in the year 2007.
46
<PAGE> 47
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
The reconciliation of income tax attributable to continuing operations computed
at the U.S. federal statutory tax rates to income tax expense is:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Income tax benefit at U. S. statutory rate $(2,895,000) $(2,095,000)
Amortization and write-off of goodwill 1,722,000 92,000
State tax benefit, net (492,000) (370,000)
Equity income 326,000 -
Interest expense for which no tax benefit was
provided 648,000 -
Other items 438,300 106,000
Change in valuation allowance 252,700 2,267,000
Foreign tax 110,000 -
----------- -----------
Tax expense $ 110,000 $ -
=========== ===========
</TABLE>
6. SHAREHOLDERS' EQUITY
On June 30, 1995, the Company issued 375,000 shares of preferred stock, having
a stated value of $10.00 and par value of $.001, as partial consideration for
the capitalized Summit merger (see Note 8, "Acquisitions and Golf Course
Developments"). 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 1933 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
47
<PAGE> 48
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
6. SHAREHOLDERS' EQUITY (CONTINUED)
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.
During 1996, the Company issued 50,000 shares of common stock with a value of
$58,595 in lieu of compensation for consulting services performed. The value
of the issued stock was based on the fair market value of the Company's common
stock on the date that the consulting services were performed and reflects the
value of services received. The Company recognized $58,595 in compensation
expense related to the transaction.
As of December 31, 1996, warrants to purchase 2,188,000 shares of the Company's
common stock were outstanding. These warrants have exercise prices ranging
from $1.00 to $3.25 per share; 100,000 warrants expire September 28, 1998
(exercise price equals $2.40 per share); 238,000 warrants expire November 17,
1998 (exercise price equals $2.40 per share); 50,000 warrants expire December
5, 1998; (exercise price equals $1.00 per share); 150,000 warrants expire June
30, 1999 (exercise price equals $2.00 per share); 1,400,000 warrants expire
June 30, 2000 (exercise prices range from $2.40 to $3.25 per share), and
250,000 warrants expire September 28, 2000 (exercise price equals $2.40 per
share).
7. STOCK OPTIONS
On June 3, 1994, the Board of Directors and the stockholders of the Company
adopted the Brassie Golf Corporation 1994 Stock Option and Restricted Stock
Purchase Plan (the "Stock Option Plan") as an incentive for key employees. The
purchase price for any Stock Awards and the exercise price for any Options may
not be less than the fair market value for the common stock on the date of
grant. Unless otherwise agreed between the grantee and the Company, the Stock
Awards and Options expire 90 days after termination of the grantee's
relationship with the Company. At a meeting of the Option Committee on June
30, 1995, and subject to regulatory approval and the consent of the HIGSI
grantee's, the Stock Awards and Options previously granted and outstanding were
repriced at $2.00 (the market trading price of the stock on the date of
repricing) and the period for their exercise was extended to five years from
their June 3, 1994 grant. Concurrently, the Option Committee granted further
Options and Stock Awards exercisable for five years from June 30, 1995 at an
exercise price of $2.00 to certain employees, directors and officers of the
Company and its subsidiaries. No options were issued during the year ended
December 31, 1996.
48
<PAGE> 49
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
7. STOCK OPTIONS (CONTINUED)
Pro forma information regarding net loss and loss per share is required by
Statement 123, which also requires that the information be determined as if the
Company has accounted for its employee stock options granted subsequent to
December 31, 1994 under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1995 and 1996: risk-free interest rate of 5.93%, a dividend
yield of 0%; volatility factors of the expected market price of the Company's
common stock of .892 and a weighted-average expected life of the option of 5
years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Net loss as reported $ (8,625,732) $(10,293,535)
Pro forma net loss $(10,056,500) $(11,724,323)
Net loss per share as reported $(.43) $ (.66)
Pro forma net loss per share $(.50) $ (.75)
</TABLE>
49
<PAGE> 50
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
7. STOCK OPTIONS (CONTINUED)
Options Outstanding, Common Stock
<TABLE>
SHARES OPTIONS OUTSTANDING
--------------------------
AVAILABLE NUMBER PRICE
FOR GRANT OF SHARES PER SHARE
--------- --------- --------------
<S> <C> <C> <C>
Balances at December 31, 1994 1,100,000 400,000 $3.80
Options granted (986,750) 986,750 2.00
Options canceled 104,225 (104,225) -
Options exercised - - -
--------- --------- --------------
Balances at December 31, 1995 217,475 1,282,525 $2.00 to $3.80
Options granted - - -
Options canceled 47,000 (47,000) -
Options exercised - - -
--------- --------- --------------
Balances at December 31, 1996 264,475 1,235,525 $2.00 to $3.80
========= ========= ==============
</TABLE>
8. ACQUISITIONS AND GOLF COURSE DEVELOPMENTS
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 in May 1995. See Note 9 "Merger
and Disposition of Assets".
On June 30,1995, the Company acquired all of the issued and outstanding shares
of Summit Golf Corporation ("Summit"), a company engaged in the management of
golf properties, for $8,380,000, including acquisition costs of $380,000. The
purchase price was financed through: (i) issuance of 1,875,000 shares of the
Company's common stock with a market value amounting to $3,750,000, (ii)
issuance of 375,000 shares of the Company's preferred stock with a market value
amounting to $3,750,000; (iii) issuance of 500,000 warrants to purchase the
Company's common stock with no market value, (iv) issuance of a note payable
amounting to $224,146, and (v) cash of $275,854. The value assigned to the
common stock, preferred stock and warrants issued reflects the fair value of
the equity instruments on the date of purchase.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, a portion of the purchase price was allocated to the net assets
acquired based on their estimated fair values. The excess of purchase price
over the fair values of the net assets acquired was approximately $8,000,000
and has been recorded as goodwill, which is being amortized on a straight-line
basis over 20 years. The Company has accounted for this transaction as a
purchase. The operating results of Summit are included in the consolidated
operations of the Company from the date of acquisition.
50
<PAGE> 51
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
8. ACQUISITIONS AND GOLF COURSE DEVELOPMENTS (CONTINUED)
The following unaudited pro forma summary of consolidated results of operations
has been prepared as if the Summit acquisition had occurred on January 1, 1995.
For the year ended December 31, 1996, all operating results of Summit are
included in the consolidated operations of the Company for the full year.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995
-----------------
(In thousands, except
per share amount)
<S> <C>
Net revenues $ 6,451
Net loss before extraordinary item (6,345)
Extraordinary loss (4,130)
Net loss (10,475)
Loss per share before extraordinary item (.41)
Extraordinary loss per share (.27)
Net loss per common share (.68)
</TABLE>
These pro forma results do not purport to be indicative of the results that
would have actually been obtained if the respective businesses had been
acquired as of January 1, 1995 or of results which may occur in the future.
9. MERGER AND DISPOSITION OF ASSETS
During the year ended December 31, 1995, the Company disposed of three golf
courses and substantially all the assets and liabilities of the related three
100% owned subsidiaries, The Gauntlet of Wedgefield, Inc., The Gauntlet at
Palisades, Inc. and The Gauntlet at NorthShore, Inc. The courses were acquired
in April 1994. The Company asserted that misrepresentations were made by the
sellers of the courses. After litigation was initiated by both the Company and
the sellers, the Company entered into a settlement agreement in May 1995
effectively rescinding the transaction. The Company incurred an extraordinary
loss of approximately $4.1 million in connection with the disposition and write
off of these courses. The operating results of these golf courses were
included in the consolidated statements of operations of the Company from the
date of acquisition through the date of disposition.
51
<PAGE> 52
Brassie Golf Corporation
Notes to Consolidated Financial Statements (continued)
10. CHANGE IN REPORTING ENTITY
In 1995, the Company consolidated two 75% owned subsidiaries, The Gauntlet at
Laurel Valley and The Gauntlet at Myrtle West in accordance with Financial
Accounting Standards Board Statement 94. In 1996, the Company transferred 45%
of the ownership interest in the subsidiaries to the minority shareholder to
comply with a mandatory injunction issued by the 13th Circuit Court of
Hillsborough County of Florida. Accordingly, the financial statements for 1995
have been restated to reflect the Company's ownership in the subsidiaries under
the equity method of accounting. The change in reporting entity decreased 1995
net loss and 1995 accumulated deficit by $212,357. Net loss per share in 1995
decreased by $.01 per share. In 1996, the Company recognized a loss of
$310,888 on the transference of the interest in the subsidiaries. The
Company's interest in the net losses of these entities is recorded at 75% up
until the date of transference and at 30% thereafter. The amount of
consolidated accumulated deficit attributable to these entities is $2,405,084
at December 31, 1996.
Due to the recurring operating losses and working capital deficiencies of the
entities, the Company assessed the net realizable value of the investments at
December 31, 1996. Based on the Company's assessment, an additional write-down
of $505,691 was recorded to reflect the net realizable value of these
investments. The write-down is included in the loss on equity investment in
subsidiaries line item on the Company's 1996 statement of operations.
The components of the line item, loss on equity investment in subsidiaries, as
reported in the consolidated statements of operations are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Pro rata share of net loss $310,888 $637,074
Write-down to net realizable value 505,691 --
Reserve for ongoing litigation 150,000 --
-------- --------
Loss on equity investment in subsidiaries $966,579 $637,074
</TABLE>
11. CONTINGENCIES
The Company, in the ordinary course of business, is the subject of, or party
to, various pending or threatened claims and litigation. In the opinion of
management, settlement of such claims and litigation will not have a material
effect on the Company's operations or financial position.
12. SUBSEQUENT EVENT
During the period from January 1, 1996 through March 11, 1997, the holders of
the six percent convertible debentures (discussed in Note 2) converted
$1,070,910 of the outstanding debt of $3,465,738 at December 31, 1996 into
4,368,123 shares of common stock which resulted in recording $1,315,678 in
additional equity.
52
<PAGE> 53
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
NONE
53
<PAGE> 54
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Directors and Executive Officers of the Company and their ages for
the fiscal year ended December 31, 1996 were:
<TABLE>
<CAPTION>
Name Age Position(s) with the Company
- ---- --- ----------------------------
<S> <C> <C>
Gordon D. Ewart (1)(2)(3)(4) 55 Director and Chairman of the Board
Robert G. Atkinson (2)(3)(4) 56 Director, Vice Chairman of the Board
William E. Horne 42 Director, President and Chief Executive
(1)(2)(3)(4) Officer of the Company
Thomas K. Richardson 43 Director, Senior Vice President Operations,
(1)(4) Secretary, and Chief Operating Officer of the Company
Lance McNeill 41 Director, Senior Vice President Acquisitions and
(1) Development
</TABLE>
_______________________________________
(1) Member of Executive Committee
(2) Member of Audit Committee
(3) Member of the Compensation Committee
(4) Member of the Option Plan Committee
54
<PAGE> 55
All Directors hold office until the next Annual Meeting of
Shareholders of the Company or until their successors have been duly elected
and qualified. Each of the current Directors was elected at the Annual Meeting
of Shareholders on June 30, 1995. Each Executive Officer of the Company will
serve until the first meeting of the Board of Directors following the next
Annual Meeting or until the Board otherwise directs.
BUSINESS HISTORY
Gordon D. Ewart, a Director of the Company since November 19, 1991, is
a co-founder of the Company. Mr. Ewart is also a founder of the two
predecessor corporations which are now two of the Company's operating
subsidiaries. He was President of the Company from November 12, 1991 to
October 16, 1992, at which point he became Chairman of the Board and its Chief
Executive Officer, which latter position he held until July 11, 1995. Since
1987 and prior to joining the Company, Mr. Ewart was co-founder of three
merchant banks based in Toronto, Canada and Bermuda: Resources Capital
International Ltd., Paramount Funding Corp. and Grafco Ltd., which firms were
utilized as investment vehicles to finance Canadian industrial and natural
resource companies. Mr. Ewart is also a director of Global (GMPC) Holdings,
Inc. (formerly New Total Group, Inc.), a Canadian public company.
Robert G. Atkinson, a Director, has also been its Vice Chairman since
July 28, 1993. Mr. Atkinson was previously a director and the President of
Equity Preservation Corp. from November 1992 to July 28, 1993. (Equity
Amalgamated was a wholly-owned subsidiary of the Company in July, 1993 as
described in Item 1.a. above.) Since October 1991, he has been Chairman of
BridgeBank Partners, Inc., a Vancouver, B.C. capital group organized to make
equity investments in middle market companies. Prior to forming BridgeBank
Partners, Mr. Atkinson was President & CEO of Loewen Ondaatje McCutcheon Inc.
(June 1987 to October 1991), a Canadian investment dealer specializing in
financing growth companies. Mr. Atkinson is a director of six Canadian public
companies, Trimin Enterprises, Ltd., Profco Resources Ltd., Global (GMPC)
Holdings, Inc., (formerly New Total Group, Inc.), A & E Capital Funding, Inc.,
H. J. Forest Products Inc. and Spur Ventures Inc.
William E. Horne has been a Director of the Company since June 30,
1995 and its President and CEO since July 11, 1995. As a pioneer in the club
management business, he brings to the Company over a decade of professional
property management and operations experience in the golf, service and
hospitality industries. Beginning in 1981 with the formation of Horne
Management Inc. (later known as Club Operations and Property Management Inc.
("COPM"), he developed and managed clubs and resorts throughout the United
States and abroad. Prior to COPM, he was a Managing Partner at Steak & Ale,
where he had responsibility for eight restaurants in the Southeast region. He
received a B.A. in Business Management from Florida State University in 1975.
Thomas K. Richardson has been a Director of the Company since June 30,
1995 and its Senior Vice President of Operations and Chief Operating Officer
since July 11, 1995. Having spent seven years with Marriott and three years
with Stouffer Hotels and Resorts, he joined Mr. Horne in 1983 as a partner in
several development projects, including a private downtown business club, a
small luxury hotel and a gourmet restaurant in Tallahassee, Florida.
Subsequently, he became the minority partner in COPM in 1984. As COPM's
Executive Vice President and Chief Operating Officer, he was responsible for
all new club development work, long range planning, and the day to day
administration of the company. Mr. Richardson has a B.S. degree from Florida
State University majoring in Hotel/Restaurant Administration. On February 1,
1996, Mr. Richardson became the Secretary of the Company. Mr. Richardson has
resigned from all executive offices of the Company effective April 15, 1997.
55
<PAGE> 56
Lance McNeill is currently President of McNeill Development Company,
with more than seventeen years of experience as a principal directly involved
in the planning, permitting, financing, development, construction, marketing,
and management of resort, golf, and residential real estate properties in
various markets in the southeastern United States. Mr. McNeill has been a
Director of the Company since June 30, 1995 and its Senior Vice President of
Acquisitions and Development since July 11, 1995. Mr. McNeill has developed
and participated in the development of several golf course and residential
properties in central Florida and on Florida's Gulf Coast. He was a co-founder
and shareholder of American Resorts, Inc., which developed the first interval
ownership resort properties in Hilton Head, South Carolina. The Company was
sold to the Marriott Corporation in 1986.
Family Relationships. No family relationships exist between the
current Directors, Executive Officers and any person nominated or chosen by the
Company to become a Director or Executive Officer.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Based solely on a review of Forms 3, 4 and 5 furnished to the Company
under Rule 16a-3(e) promulgated under the Exchange Act with respect to 1996,
the Company is not aware of any Director or officer of the Company who failed
to file on a timely basis, as disclosed in such forms, reports required by
Section 16(a) of the Exchange Act during 1995 except for the gifts made in 1996
by Lance McNeill of the following shares to which Mr. McNeill disclaims
beneficial ownership: 2,000 shares of Common Stock on January 18, 1996, and
30,500 shares of Common Stock on March 20, 1996. Except as disclosed in Item
11. "Security Ownership of Certain Beneficial Owners and Management" to this
Report, the Company is not aware of any beneficial owner of 10% or more of the
outstanding shares of the Common Stock which is the only security of the
Company registered under Section 12 of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
The Company's directors have heretofore served without compensation
for their services as directors, but have been reimbursed for expenses incurred
in connection with their duties. It is anticipated that directors will
continue to serve without compensation (other than reimbursement of expenses).
The Company had no standard arrangements or policies for compensation
of its executives. The Board of Directors will, from time to time, determine
the compensation of its senior management in accordance with the prevailing
financial condition of the Company as the Board shall determine and provide
other incentives to promote successful management of the Company's business.
Effective February 1, 1996, the Company's officers elected to indefinitely
defer between 12 to 25% of their compensation due to the financial condition of
the Company at that time. These deferrals remain in place as of February 28,
1997 and are recorded as a liability of $96,133 on the accompanying
Consolidated Balance Sheet at December 31, 1996. There were no bonus, stock
option or other incentive plans in effect for any level of management as of the
end of the last year except for the Company's Stock Option Plan more fully
described below and in Notes 1 and 7 of the accompanying Consolidated Financial
Statements.
The tables set forth below provide certain information as to
compensation (including perquisites and other personal benefits) awarded to,
earned by or paid to, and warrants and options to purchase shares of the
Company's Common Stock issued to, the Chief Executive Officer and other highly
paid executive officers of the Company during the last two fiscal years.
Except as set forth below, neither the Chief Executive Officer, nor any
executive officer whose annual salary exceeded $100,000 received any bonus or
other annual compensation or any long-term compensation during the last two
fiscal years.
56
<PAGE> 57
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
------------------- Compensation
Awards
--------------
#Stock Options
Name and Principal Position Year (1) Salary Bonus and Warrants
--------------------------- -------- ------ ----- --------------
<S> <C> <C> <C> <C>
William E. Horne, President 1996 240,610 - -
and Chief Executive Officer 1995 156,689 (3) - 100,000 (2)
Thomas K. Richardson, Sr. Vice 1996 147,083 - -
President and Chief Operating 1995 93,098 (3) - -
Officer
Lance McNeill, Sr. Vice President 1996 131,104 - -
Acquisitions and Development 1995 90,365 (3) - -
Hale Irwin, President of Hale Irwin 1996 138,919 - -
Golf Services 1995 26,348 - -
Gary Nacht, Exec. Vice President 1996 61,230 - -
and Chief Financial Officer 1995 207,154 25,000 150,000 (2)
</TABLE>
_______________________
(1) The years 1996 and 1995 are twelve-month periods ended December 31, 1996
and 1995.
(2) Stock options to purchase shares of the Company's Common Stock were issued
on June 30, 1995 with an exercise price of $2.00 (the fair value of the
Common Stock on such date) and an expiration date of June 30, 2000. The
options contain provisions for adjustments to the exercise price in the
event of reorganizations, stock splits, dividends and other matters
affecting the original value of the options.
(3) Represents the period beginning June 30, 1995 through the end of year.
Except for the Company's Stock Option Plan described later in this
Item 10, there were no Option/SAR grants or long-term incentive plan awards in
1996 and 1995. There are no other plans pursuant to which cash or non-cash
compensation was paid or distributed during 1996 and 1995 or pursuant to which
cash or non-cash compensation is proposed to be paid or distributed in the
future to the executive officers of the Company in respect to 1996 except as
described above.
The Company's Stock Option Plan. On June 3, 1994, the Board of
Directors and the stockholders of the Company adopted the Brassie Golf
Corporation 1994 Stock Option and Restricted Stock Purchase Plan (the "Stock
Option Plan") as an incentive for key employees. The Stock Option Plan is to
be administered by a Compensation Committee of the Board of Directors, each
member of which is to be "disinterested" as defined in Rule 16b-3 of the
Exchange Act. Awards under the Stock Option Plan are restricted to (i) awards
of the right to purchase shares of Common Stock ("Stock Awards"), or (ii)
awards of options to purchase shares of Common Stock ("Options"). Any Options
granted under the Stock Option Plan may be incentive stock options which have
certain tax benefits and legal restrictions, or non-qualified stock options
which do not have any tax benefits and few legal restrictions. The purchase
price for any Stock Awards and the exercise price for any Options may not be
less than the fair market value for the Common Stock on the date of grant. The
Compensation Committee will determine any awards to be made under the Stock
Option Plan and the terms thereof, including any vesting and expiration
provisions. Unless otherwise agreed between the grantee and the Company, the
Stock Awards and Options expire 90 days after termination of the grantee's
relationship with the Company. Under the Stock Option Plan, options to purchase
an aggregate of 1,500,000 shares of Common Stock have been authorized, and on
January 13, 1995 a Notice of grant of such options was delivered to certain of
the employees of HIGSI which provided to such employees the right to acquire at
an exercise price of $3.80 USD per share such amounts of stock as were granted
to them individually and aggregating 250,000 Common Shares. At a meeting of
the Option Committee on June 30, 1995, and subject to the consent of the
aforesaid HIGSI grantees, the Stock Awards and Options previously granted and
57
<PAGE> 58
outstanding were repriced at $2.00 and the period for their exercise was
extended to five years from the date of their June 3, 1994 grant. Concurrently
the Option Committee granted further Options and Stock Awards exercisable for
five years from June 30, 1995 at an exercise price of $2.00 to certain
employees, directors and officers of the Company and its subsidiaries. See Note
7 - "Stock Options" in the accompanying Consolidated Financial Statements for
stock options outstanding.
There were no Option/SAR Grants to Directors or Officers during the year ended
December 31, 1996.
Aggregated Options/SAR Exercises during 1996 and Option/SAR Values at December
31, 1996
<TABLE>
<CAPTION>
Number (#) of Value (S) of
Unexercised Unexercised in-the-
Options/SARs Money Options/SARs
Shares at December 31, at December 31, 1996
Acquired Value Realized 1996 Exercisable/ Exercisable/
Name on Exercise (S) Unexercisable (1) Unexercisable
(a) (b) (c) (d) (e)
---- ---------- -------------- ----------------- -------------------
<S> <C> <C> <C> <C>
Gordon D. Ewart -0- -0- 200,000/0 -0-
William E. Horne -0- -0- 350,000/0 -0-
Robert Atkinson -0- -0- 200,000/0 -0-
Thomas K. Richardson -0- -0- 125,000/0 -0-
Lance McNeill -0- -0- 125,000/0 -0-
</TABLE>
- -----------------------
(1) All such warrants are currently exercisable.
58
<PAGE> 59
CERTAIN AGREEMENTS.
See Item 12. "Certain Relationships and Related Transactions" below
for a description of the agreements between the Company, Hale Irwin, William E.
Horne, Thomas K. Richardson, Lance McNeill and others.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 28, 1997, the total
number and percentage of the Company's Common Stock beneficially owned by (i)
each Director of the Company, (ii) each executive officer named in the summary
compensation table, (iii) by all Directors and Executive Officers as a group
and (iii) any person who is known by the Company to be the beneficial owner of
more than 5% of the Company's Common Stock. As of February 28, 1997, there
were 28,205,095 shares of Common Stock issued and outstanding and 375,000
shares of Preferred Stock issued and outstanding.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF POSITION(S) HELD, AMOUNT AND NATURE OF
BENEFICIAL OWNER IF ANY BENEFICIAL OWNERSHIP (7) PERCENT OF CLASS
- ------------------- ----------------- ------------------------ -----------------
<S> <C> <C> <C>
Gordon D. Ewart Director, Chairman of the 1,303,350 (1) 4.3
163 Ontario Street Board
Cobourg, Ontario
K9A 3B6
Canada
William E. Horne Director, President 2,259,867 (2) 7.4
1002 Bajada de Avila Chief Executive Officer
Tampa, FL 33613
Thomas K. Richardson Director, Senior Vice 1,035,760 (3) 3.4
8922 Eaglewatch President of Operations,
Riverview, FL 33569-4792 Chief Operating
Officer, Secretary
Lance McNeill Director, Senior Vice 953,260 (4) 3.5
2310 Collins Lane President
Lakeland, FL 33803 of Acquisitions and
Development
Robert G. Atkinson Director, 1,074,824 (5) 3.5
6036 Gleneagles Drive Vice Chairman of the Board
West Vancouver
B.C. V7W 1W2
Canada
All Directors & Executive 6,627,061 (6) 21.3
Officers as a Group
(6 persons)
</TABLE>
- ------------------
(1) Includes (i) 603,350 shares of Common Stock held by Eliga Corporation, a
North Carolina corporation, which is wholly-owned by Mr. Ewart, (ii) 500,000
shares of Common Stock held by 425674 Ontario Ltd., an Ontario corporation,
which is wholly-owned by Mr. Ewart, and (iii) currently exercisable options to
purchase 200,000 shares of Common Stock at an exercise price of $2.00 per share
which expire June 30, 2000.
(2) Includes (i) 503,617 shares of Common Stock (ii) 281,25 currently
convertible Junior Preferred Stock, each convertible into five shares of Common
Stock (iii) 250,000 currently exercisable warrants exercisable at $2.50 until
June 30, 1998 and at $3.25 until June 30, 2000, all jointly held with Charlotte
Horne, Mr. Horne's wife and 100,000 currently exercisable options exercisable at
$2.00 until June 30, 2000.
(3) Includes (i) 442,010 shares of Common Stock (ii) 93,750 currently
convertible Junior Preferred Stock each convertible into five shares of Common
Stock (iii) 125,000 currently exercisable warrants exercisable at $2.50 until
June 30, 1998 and at $3.25 until June 30, 2000, all jointly held with Kathleen
Richardson, Mr. Richardson's wife.
(4) Includes 828,260 shares of Common Stock and 125,000 currently exercisable
warrants exercisable at $2.50 until June 30, 1998 and at $3.25 until June 30,
2000.
(5) Includes 874,824 shares of Common Stock and currently exercisable options to
purchase 200,000 shares of Common Stock at an exercise price of $2.00 until June
30, 2000.
(6) Does not include shares held by Gary Nacht or Hale Irwin -- both of whom
resigned as a director during 1996.
(7)This table includes no shares of family members of the director in which the
director disclaims beneficial ownership.
59
<PAGE> 60
As a condition of the approval of its substitutional listing on the
Toronto Stock Exchange (the "TSE"), the TSE required that all officers and
directors of the Company, and all persons or companies beneficially owning
directly or indirectly shares of Common Stock exceeding ten percent of the
Common Stock outstanding, place in escrow with Montreal Trust Company of
Canada, fifty percent of the Common Stock held by them. A total of 2,598,925
shares of Common Stock previously placed in escrow were released in equal
one-third installments in 1994, 1995 and 1996 and are included in the table
above.
Other than the rights of minority shareholders in the Company's
operating subsidiaries to cause changes of control of such subsidiaries under
certain circumstances (discussed in Item 1.c.) and the Company's pledge of its
stock in certain of its subsidiaries to NationsBank in connection with the
financing of the Gauntlet at Curtis Park (discussed in Item 1.c.3.), there are
no arrangements known to the Company, including any pledge by any persons of
securities of the Company, the operation of which may at a subsequent date
result in a change in control of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 6, 1994, pursuant to the Reorganization with HIGSI, the Company
entered into a three-year employment agreement with each of Hale Irwin and
Richard Stahlhuth (the "Employment Agreements"). The terms of the Employment
Agreements are automatically renewed for successive one-year periods unless
written notice of termination is provided by either party not less than six
months prior to such expiration. Under the terms of the Employment Agreements,
Mr. Irwin was to serve as President of Hale Irwin Golf Design and Mr. Stahlhuth
was to serve as President of the Company. Messrs. Irwin and Stahlhuth were
each to be paid a base salary of $100,000 per annum, which would be increased,
but not decreased, by the Board of Directors of the Company and were entitled
to participate in any incentive bonus, stock option and benefit plans available
to the other executive officers of the Company. Mr. Irwin and Mr. Stahlhuth
were bound by non-competition and confidentiality covenants. The
Non-Competition covenant provided that during the term of their Employment
Agreements, they would not, except in connection with certain existing and
specified business interests, directly or indirectly own, manage, operate,
control, participate in the management or control of, or be employed by, or act
as the agent for, lend their name to or initiate any interest whatsoever in any
enterprise having to do with the design or management of golf facilities
similar to those offered by the Company within (i) the fifty states of the
United States, (ii) the United States territories and possessions, and (iii)
each foreign country, possession, or territory in which the Company may be
engaged in business. For a period of one year after termination or expiration
of their Employment Agreements for any reason, Mr. Irwin and Mr. Stahlhuth
agreed that they would not, except in connection with certain existing
specified business interests, directly or indirectly (a) own, manage, operate,
control, participate in the management or control of, or be employed by, or act
as the agent for, lend their name to or initiate, maintain or continue any
interest whatsoever in any enterprise in competition with the business of the
Company within the same geographic areas as set forth above; (b) solicit
business for services offered, sold, produced or under development by the
Company during such employment of any person, firm, corporation or other
business entity which did business with, or was a customer or account of, the
Company during such
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employment; or in any way divert, or attempt to divert business from the
Company or interfere with any business relationships whatsoever between any of
such entities comprising the Company or any other person; or (c) solicit, raid,
entice or induce any person who presently is, or at any time during the term of
their employment shall be, an employee of the Company to become employed by any
other person, firm or corporation or otherwise knowingly interfere with the
relations of the Company with its employees. In the event of a "change of
control" in the Company, defined therein as (A) a merger or consolidation
resulting in the stockholders of the Company owning less than 60% of the
outstanding securities of the surviving entity, (B) the sale of substantially
all of the assets of the Company, (C) approval of a plan or proposal for the
liquidation or dissolution of the Company, (D) the acquisition of 40% or more
of the Company's outstanding Common Stock by a person not currently a 10% or
greater beneficial owner of the Company's Common Stock, or (E) if a majority of
the directors of the Company were replaced, each of Mr Irwin and Mr. Stahlhuth
may terminate their Employment Agreements for "cause." In the event of
termination by Mr. Irwin of his employment for "cause," the Company loses the
right to use the names "Hale Irwin Golf Design," "Hale Irwin Management
Services" and "Hale Irwin Golf Services." See Item 1.b. Additionally, in the
event of a termination by such employee for "cause," such employee shall be
entitled to continue to receive his then base salary and benefits for a
one-year severance period.
On January 17, 1995 Mr Richard Stahlhuth resigned as a Director and
President of the Company in order to pursue his family interests and manage his
personal properties. Mr. Gary Nacht was appointed by the Board of Directors as
president pro tempore of the Company pending the closing of the agreement under
negotiation with COPM. In settling with Mr. Stahlhuth, the parties agreed to
cancel the mutual obligations in the Stahlhuth employment agreement except for
the confidentiality provisions pertaining to the Company's business and
operations. In exchange for 125,000 of the Company's shares held by Mr.
Stahlhuth, the Company assigned to Mr. Stahlhuth all of the shares of a
subsidiary whose assets included (i) Stahlhuth's employment contract; (ii)
three management contracts for golf properties wholly or in part owned by Mr.
Stahlhuth; and (iii) $302,500 in cash. At the time of closing of the
transaction at the end of August 1995, the Company's stock was trading at
approximately US$3.00 and the settlement was deemed by the Company to be an
equitable conclusion to the relationship with its retiring President. The
125,000 shares of the Company were returned to treasury and canceled.
On August 19, 1996 Mr. Hale Irwin resigned as a Director of the
Company. Mr. Irwin has informed the Company that, in order to pursue golf
course design independently, he does not intend to renew his employment
agreement which governs his employment as President of HIGSI, upon its
expiration on May 16, 1997. The Company and Mr. Irwin have reached an
agreement whereby the Company will sell HIGSI to Mr. Irwin for a combination of
Brassie stock currently held by Mr. Irwin and a portion of the earnings to be
received on design contracts that are currently in negotiation with clients as
well as a percentage of revenues on future design contracts procured by
the Company.
Messrs. Irwin and/or Stahlhuth are equity holders of Quail Greek Golf
Club, Inc., Fairways & Greens, Inc. d/b/a The Links, Lakewood Golf Club, Inc.
and Cottonwood Development Company, Inc., which are golf courses that, pursuant
to management contracts with HIGSI, paid an aggregate of approximately $52,000
and $69,000 for the years ended December 31, 1996 and 1995,
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respectively, in management, accounting and computer service fees. Hale Irwin
Golf Design designed the course at Quail Creek Golf Club.
On June 5, 1995, pursuant to the Summit Merger Agreement (See Item
1.a. "Business - Merger and Reorganization with Summit Golf Corporation") the
Company entered into employment agreements with each of William E. Horne and
Thomas K. Richardson (the "Employment Agreements"). The Employment Agreements
terminate upon the sooner of the effective date of a replacement agreement,
termination pursuant to the Employment Agreement or two (2) years. Severance
compensation of one year's salary is due, payable in the ordinary course of the
Company's payroll periods, if the employee is terminated without cause or the
Employment Agreements are not extended or renewed. Under the terms of the
Employment Agreements, Mr. Horne is to serve as the Company's President and its
Chief Executive Officer and Mr. Richardson is to serve as the Company's Senior
Vice President of Operations and its Chief Operating Officer. Under the
agreement, Messrs. Horne and Richardson were to receive base annual salaries of
$250,000 and $135,000, respectively. Mr. Richardson's contract was adjusted to
$150,000 per year effective April 1996. The Company may grant bonuses or
increase the compensation but may not reduce the compensation without the
employee's consent and if the employee voluntarily terminates the Employment
Agreement, no severance compensation is due. The Company's right to terminate
"for cause" arises only from those employee acts or omissions which constitute
gross negligence in the performance of his duties, his substance abuse, his
conviction of a crime involving moral turpitude or any breach of the Employment
Agreement that is not cured by him within five days from written notice from
the Company. The employee is entitled to pursue outside interests only to the
extent that such pursuits do not interfere with his duties and substantially
all his working time is to be devoted to the Company's business. As additional
compensation, Messrs. Horne and Richardson receive an automobile allowance, the
reimbursement of approved expenses, three weeks paid leave per annum and
executive level benefits including payments to supplement or replace their
salaries during periods of partial or total disability (unless such disability
endures six months in which case severance compensation is due and payable).
Messrs. Horne and Richardson are bound by non-competition covenants which are
effective upon termination howsoever caused, and which prohibit them, for a
period two years and throughout the continental United States, from (i)
engaging in any "Competitive Business" (as defined in the Employment
Agreements); (ii) soliciting the Company's clientele; and (iii) directly or
indirectly employing the Company's other employees.
On November 19, 1993, the Company entered into an oral agreement with
Allen Jefferson through Fantor Consulting, Inc. (which is wholly-owned by Mr.
Jefferson) for consulting services for a bi-weekly fee of $3,200 plus
reimbursement of expenses. Effective January 1, 1996 the aforesaid agreement
was superseded by a five year consulting agreement (the "Consulting Agreement")
between the Company and Fantor Consulting Ltd., ("Fantor") a company controlled
by Mr. Jefferson. The agreement paid Fantor $100,000 per year plus approved
expenses for his services to act as a liaison to the Pension Funds and to
perform such tasks as the Company's special projects may require. As a result
of an agreement on June 30, 1996, this contract was terminated with Fantor to
receive $100,000 as severance in accordance with the terms of the agreement.
Substantially all of this amount has been paid as of December 31, 1996 as full
and final settlement.
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Effective May 1, 1994, the Company entered into a written agreement
with Sven Kraumanis through Harvest Consultants, Ltd. ("Harvest") which
provides for a fee of $60,000 per year, plus reimbursement of expenses,
whereby Harvest made Mr. Kraumanis available to provide the services of general
counsel. Effective February 1, 1996, the fee was by mutual agreement,
increased to $90,000 per annum. The contract was terminated in accordance with
the provisions of the contract on June 15, 1996. All amounts owed to Mr.
Kraumanis have been paid as full and final settlement.
In 1995, Gordon Ewart, a Director and the Chairman of the Company,
collateralized the Company's obligation in connection with its guarantee of the
proceeds of UA Pension Fund's disposition of its 79,010 Common Shares of the
Company. The Company reimbursed Mr. Ewart for the direct costs of this
collateralization in 1996. (See Item 1.c.3. "The Company's Golf Courses").
Lance McNeill, a Director and Senior Vice President of Acquisitions
and Development of the Company, commenced employment with the Company after the
Merger and Reorganization with Summit Golf Corporation pursuant to an oral
contract whereby Mr. McNeill is paid $150,000 per annum. Mr. McNeill devotes
substantially all his working time to the needs of the Company.
On September 13, 1996 the Company paid down an existing $1,600,000
second mortgage loan from the UA Pension Fund to The Gauntlet at Curtis Park,
Inc. by $1,131,000. The remaining loan balance was purchased and assigned to A
& E Capital Funding, Inc., a Canadian corporation of which Gordon Ewart and
Robert Atkinson are directors and shareholders.
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ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) (1) & (2) List of Financial Statements
The following consolidated financial statements of Brassie Golf
Corporation and subsidiaries are included in Item 7:
Consolidated Balance Sheet - December 31, 1996
Consolidated Statements of Operations - Years ended December 31, 1996
and 1995
Consolidated Statements of Shareholder Equity - Years ended December
31, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended December 31, 1996
and 1995
Notes to Consolidated Financial Statements.
No other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
required under the related instructions or are applicable and
therefore have been omitted.
(3) Exhibits
The exhibits listed below which are marked with a footnote reference
were filed with a prior registration statement filed under the Securities Act
or in a periodic report filed under the Exchange Act and are incorporated
herein by this reference. The exhibits listed below which are not marked with
a footnote reference are filed with this Form 10-K.
EXHIBIT INDEX
<TABLE>
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EXHIBIT/ITEM DOCUMENT/DESCRIPTION NUMBER
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2.1 Agreement and Plan of Reorganization effective as of November 14, 1991 by and (A)
among Longview Golf Corporation (the "Company"), Eliga Corporation ("Eliga")
and Gutta Percha, Inc. ("GPI")
2.2 Arrangement Agreement dated as of March 26, 1993 between Equity Preservation (A)
Corp. ("Equity"), the Company and 440888 B.C. Ltd. and the Information
Circular distributed to shareholders in connection with the arrangement
contemplated by such Arrangement Agreement (the "Arrangement").
2.3 Final Order of the Supreme Court of British Columbia, dated May 17, 1993, (B)
relating to the fairness of the Arrangement.
</TABLE>
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2.4 Agreement of Purchase and Sale, dated as of December 23, 1993, by and between (B)
North Myrtle Beach Golf Club, Inc. ("MW Seller"), the Company and The Gauntlet
at Myrtle West, Inc. ("GMW"), and the material Exhibits thereto.
2.5 Purchase and Sale Agreement, dated as of April 12, 1994, between Wedgefield (B)
Limited Partnership ("Wedgefield LP"), the Company and The Gauntlet at
Wedgefield, Inc. ("GWF"), and the material Exhibits thereto.
2.6 Purchase and Sale Agreement, dated as of April 12, 1994, between Palisades (B)
Golf Partners ("Palisades GP"), the Company and The Gauntlet at Palisades,
Inc. ("GPS") and the material Exhibits thereto.
2.7 Purchase and Sale Agreement, dated as of April 12, 1994, between Northshore (B)
Golf Partners, Ltd. ("Northshore GP"), the Company and The Gauntlet at
Northshore, Inc. ("GNS") and the material Exhibits thereto.
2.8 Agreement and Plan of Reorganization. dated as of May 16, 1994, between the (B)
Company and the shareholders of Hale Irwin Golf Services, Inc., and the
material Exhibits thereto.
3.1 Certificate of Incorporation of the Company, as amended. (A)
3.2 By-laws of the Company. (A)
3.3 Amendment to the Certificate of Incorporation of the Company filed July 18, (B)
1994.
4.1 Escrow Agreement dated as of July 23, 1993 between The Toronto Stock Exchange, (A)
the Company, Montreal Trust Company of Canada and the individuals listed on
Schedule A thereto.
10.1 Shareholders Agreement between Eliga, Canadian PT Limited Partnership ("PT (A)
Partnership"), Rizzo Inc., and Longview Golf Corporation ("GSJ") dated as of
October 1, 1990.
10.2 Bylaws of Longview Country Club dated November 14, 1990. (A)
10.3 Purchase Agreement between Homer E. Wright, Jr. and GSJ dated as of September (A)
8, 1990.
10.4 Loan Agreement between NCNB National Bank of North Carolina ("NationsBank") (A)
and GSJ dated as of October 1, 1990; Promissory Note made by GSJ in favor of
NationsBank dated October 1, 1990; Deed of Trust and Security Agreement
between GSJ and NationsBank dated October 1, 1990.
10.5 Loan Agreement between GSJ and PT Partnership dated October 1, 1990; (A)
Promissory Note made by GSJ to PT Partnership dated October 1, 1990; and
Future Advance Deed of Trust, Assignment and Security Agreement made by GSJ
dated October 1, 1990.
</TABLE>
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10.6 Shareholders Agreement between Eliga, Edmonton Pipe Industry Pension Trust (A)
Fund (the "EPI Pension Fund"), EPI and Laurel Valley Golf Corporation ("GLV")
dated as of October 30, 1991.
10.7 Loan Agreement between GLV and NationsBank dated as of October 30, 1991; (A)
Promissory Note made by GLV in favor of NationsBank dated October 30, 1991;
and Mortgage of Real Property and Security Agreement between GLV and
NationsBank dated as of October 30, 1991.
10.8 Loan Agreement between GLV and the EPI Pension Fund dated as of October 30, (A)
1991; Promissory Note made by GLV to the EPI Pension Fund; and second mortgage
and Security Agreement between GLV and EPI Pension Fund dated as of October
30, 1991.
10.9 Joint Venture Agreement dated as of May 11, 1993 between Laurel Development (A)
Corporation ("LDC"), Foothills Development, Inc. ("Foothills") and Partners in
Progress X.
10.10 Loan Agreement dated as of July 6, 1993 between Amalgamated Equity Golf Corp. (A)
and Foothills.
10.11 Project Management Agreement dated June 1, 1993 between LDC and PMI. (A)
10.12 Subscription, Assignment and Assumption Agreement dated as of November 23, (A)
1993 between Amalco and Project 93 Management Ltd. ("Project 93") including
Promissory Note made by Project 93 in favor of Amalco.
10.13 Lease Agreement, as amended, between the Company and the Board of Supervisors (B)
of Stafford County, Virginia dated as of November 23, 1993.
10.14 Shareholders' Agreement between the Company, U.A Canadian Pipeline Industry (B)
National Pension Plan ("UA Pension Fund") and The Gauntlet at Curtis Park,
Inc. ("GCP") dated April 19, 1994 and Amendment thereto dated May 13, 1994.
10.15 Loan Agreement between GCP and NationsBank dated as of April 19, 1994; (B)
Promissory Note made by GCP in favor of NationsBank dated April 19, 1994; and
Credit Line Deed of Trust and Security Agreement between GCP and NationsBank
dated as of April 19, 1994.
10.16 Guaranty Agreement between the Company, NationsBank and GCP dated as of April (B)
19, 1994; Pledge Agreement between the Company and NationsBank dated as of
April 19, 1994; Amending Agreement between the Company, PT Partnership, GSJ
and NationsBank dated as of April 19, 1994 (amending GSJ Shareholders'
Agreement to permit the stock pledge); Amending Agreement between the Company,
EPI Pension Fund, GLV and NationsBank dated as of April 19, 1994 (amending GLV
Shareholders' Agreement to permit the stock pledge).
10.17 Loan Agreement between GCP and UA Pension Fund dated April 19, 1994; (B)
Promissory Note made by GCP to UA Pension Fund dated April 19, 1994; and
Second Lien Credit Line Deed of Trust and Security Agreement, dated April 19,
1994, between GCP and UA Pension Fund.
10.18 Shareholders' Agreement, dated February 25, 1994, between the Company, (B)
Edmonton Pipe Industry Pension Trust Fund ("EPI Pension Fund") and GMW.
</TABLE>
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<TABLE>
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10.19 Indemnity Agreement and Guaranty, dated December 28, 1993, MW Seller, GMW and (B)
the Company; Third Mortgage of Real Property and Security Agreement, dated
December 28, 1993 by GMW to MW Seller.
10.20 Loan Agreement, dated as of December 28, 1993, by and between GMW and (B)
NationsBank; Promissory Note made by GMW to NationsBank dated December 28,
1993; Mortgage of Real Property and Security Agreement, dated December 28,
1993, by GMW to NationsBank.
10.21 Mortgage Purchase and Subscription Agreement, effective as of February 28, (B)
1994, between the Company, EPI Pension Fund and GMW.
10.22 Loan Agreement, dated December 28, 1993, between the Company and GMW; (B)
Promissory Note made by GMW to the Company dated December 28, 1993; Second
Mortgage of Real Property and Security Agreement, dated December 28, 1993, by
GMW to the Company.
10.23 Intercreditor Agreement, dated December 28, 1993, by and among NationsBank, (B)
the Company, GMW and MW Seller; Assignment and Assumption of Intercreditor
Agreement, dated February 28, 1994, between NationsBank, the Company, EPI
Pension Fund, GMW and MW Seller.
10.24 Subordinated Convertible Note, dated as of April 12, 1994 from the Company to (B)
Warren J. Stanchina, as Trustee; Promissory Mortgage Note dated April 12, 1994
from the Company, GNS, GPS and GWF to Warren J. Stanchina, as Trustee.
10.25 Indemnity Agreement, dated April 12, 1994, between Wedgefield LP, GWF and the (B)
Company; Indemnity Agreement, dated April 12, 1994, between Palisades GP, GPS
and the Company; Indemnity Agreement, dated April 12, 1994, between Northshore
GP, GNS and the Company; Wedgefield Second Mortgage Deed and Security
Agreement dated as of April 12, 1994 by GWF in favor of Warren Stanchina, as
Trustee; Palisades Second Mortgage Deed and Security Agreement dated as of
April 12, 1994 by GPS in favor of Warren Stanchina, as Trustee; Second Deed of
Trust and Security Agreement dated as of April 12, 1994 by GNS in favor of
Warren Stanchina, as Trustee.
10.26 Assumption Agreement, dated April 28, 1994, between BancFlorida, a Federal (B)
Savings Bank ("BancFlorida"), GWF and GPS; Mortgage, Security Agreement, and
Assignment of Rents, dated April 21, 1989, by Wedgefield LP in favor of
BancFlorida; Mortgage Note, dated April 21, 1989, from Wedgefield LP to
BancFlorida.
10.27 Assumption Agreement, dated April 28, 1994, between BancFlorida, GPS and GWF; (B)
Mortgage, Security Agreement, and Assignment of Rents, dated December 8, 1989,
by Palisades GP in favor of BancFlorida; Mortgage Note, dated December 8,
1989, from Palisades GP to BancFlorida.
10.28 Agreement Relating to Construction, Maintenance and Operation of Golf Course (B)
and Country Club, dated October 18, 1989, between Palisades Golf Club Limited
Partnership and Canam Palisades, Ltd.
</TABLE>
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<TABLE>
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10.29 Promissory Note, dated April 12, 1994, from GAS to Hermann Flachsmann; Deed of (B)
Trust, Security Agreement, Financing Statement, and Assignment of Rental dated
April 12, 1994 by GAS to Wolfgang Dueren, as Trustee.
10.30 Cooperation Agreement Relating to the Sale of Residential Property and (B)
Operation of a Golf Course and Country Club, dated April 12, 1994, by and
between Northshore LP and GAS.
10.31 Brassie Golf Corporation 1994 Stock Option and Restricted Stock Purchase Plan. (B)
10.32 Exclusive Personal Service Contract between the Company and Dye, Inc. dated (C)
March 3, 1993.
10.33 Loan Agreement, dated as of April 24, 1991, between Eliga and the Company and (D)
Promissory Note dated September 15, 1991 in the amount of $780,000.
10.34 Employment Agreement, dated as of May 16, 1994, between the Company and (B)
Richard J. Stahlhuth; Employment Agreement, dated as of May 16, 1994, between
the Company and Hale S. Irwin.
10.35 Employment Agreement, dated as of June 30, 1994, between the Company and Gary (B)
A. Nacht.
10.36 Warrant Agreement, dated March 15, 1994, between the Company and The Travers (B)
Financial Corporation; Warrant Agreement, dated March 15, 1994, between the
Company and Theo Kraumanis.
10.37 Form of Warrant Agreement between the Company and the signatories thereto (E)
dated July 28, 1993.
10.38 Form of Warrant Agreement between the Company and the signatories thereto (F)
dated March 29, 1993.
10.39 Form of Warrant Issued to the Summit Shareholders dated June 30, 1995. (G)
10.40 Form of Warrant and Registration Rights Agreement Issued to Financial Advisor (G)
dated June 30, 1995.
10.41 1995 GSJ Partnership Loan Agreement and Promissory Note dated June 19, 1995. (G)
10.42 GSJ Loan Agreement with Canadian PT Limited Partnership, 1995 GSJ Deed of (G)
Trust and Security Agreement and Promissory Note dated October 1, 1995.
10.43 1995 Deed of Trust and Security Agreement, Promissory Note and 1995 GSJ (G)
NationsBank Loan Agreement dated June 19, 1995.
10.44 Amended and Restated GCP Promissory Note, First Amendment to GCP Loan (G)
Agreement, First Amendment to Credit Line Deed of Trust and Security Agreement
and Restatement of Guaranty Agreement dated May 5, 1995.
10.45 Office Lease between Breckenridge VIII Investment Corporation, Lessor, and (G)
Brassie Golf Corporation, Lessee, dated June 22, 1995.
10.46 Consulting Agreement between the Company and Fantor Consulting Ltd. (Allen (G)
Jefferson) dated January 1, 1996.
</TABLE>
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<TABLE>
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10.47 Agreement in Principle dated February 21, 1996 between the Company, Gordon (H)
Ewart, the Company's four golf course subsidiaries and the Company's three
pension fund partners.
10.48 Form of $5.5 million 6% Convertible Debenture issued by the Company on March (I)
19, 1997.
10.49 Form of Letter Agreement dated September 6, 1996 Amending Terms of Company's (J)
$5.5 million 6% Convertible Debenture.
10.50 Sale of Certain Note Secured by Junior Security dated November 14, 1996 (K)
between UA Pension Fund, A & E Capital Funding, Inc., GCP, and the Company
selling and assigning the second mortgage loan on the Gauntlet at Curtis Park
from UA Pension Fund to A & E Capital.
10.51 Agreement for Sale and Purchase dated June 25, 1996 between Divot Development (K)
Corporation and SJH Partnership, Ltd. concerning Southeast Parcel 2 of the St.
Johns Development.
10.52 Amendment to Agreement for Sale and Purchase dated December 11, 1996 between (K)
SJH Partnership, Ltd. and Divot Properties WGV, Inc. concerning Southeast
Parcel 2 of the St. Johns Development.
10.53 Assignment and Assumption of Purchase Agreement dated December 11, 1996 (K)
between Divot Development Corporation and Divot Properties WGV, Inc.
concerning Southeast Parcel 2 of the St. Johns Development.
10.54 Letter Agreement dated January 31, 1997 between Flurina Development S.A. and (K)
the Company amending the terms of the Company's Convertible Debenture held by
Flurina.
10.55 Letter Agreement dated February 5, 1997 between Pyramid Investments, LLC and (K)
the Company amending the terms of the Company's Convertible Debenture held by
Pyramid.
10.56 Letter Agreement dated January 29, 1997 between Infinity Investors Ltd. and (K)
the Company concerning converting a portion of the Infinity debenture and the
payoff of the Infinity debenture.
10.57 Assignment of Debenture dated February 5, 1997 between Infinity Investors Ltd. (K)
and Pyramid Investments, LLC assigning to Pyramid the Company's debenture held
by Infinity.
10.58 Form of Warrant issued to Infinity Investors Ltd. dated January 31, 1997. (K)
10.59 Form of Warrant Agreement between the Company and Pyramid Investments, LLC (K)
dated February 5, 1997.
21.1 Subsidiaries of the Company. (B)
27 Financial Data Schedule (For SEC Use Only) (K)
- -------------------------------------------
</TABLE>
(A) Incorporated by reference from the Company's Form 10, file No.
0-23056, filed on December 13, 1993.
(B) Incorporated by reference from the Company's Form 10, file
No. 0-24812, filed on September 15, 1994.
(C) Incorporated by reference from the Company's Form 10, file
No. 0-23056, filed on December 13, 1993 (Exhibit 10.14 thereto).
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(D) Incorporated by reference from the Company's Form 10, file No.
0-23056, filed on December 13, 1993 (Exhibit 10.15 thereto).
(E) Incorporated by reference from the Company's Form 10, file No.
0-23056, filed on December 13, 1993 (Exhibit 10.16 thereto).
(F) Incorporated by reference from the Company's Form 10, file No.
0-23056, filed on December 13, 1993 (Exhibit 10.17 thereto).
(G) Incorporated by reference from the Company's Form 10-K, file No.
0-24812 filed on April 15, 1996.
(H) Incorporated by reference from the Company's Form 8-K, file No.
0-24812 filed on August 30, 1996.
(I) Incorporated by reference from the Company's Form 10-QSB, file
No. 0-24812 filed on May 15, 1996.
(J) Incorporated by reference from the Company's Form 10-QSB, file
No. 0-24812 filed on October 30, 1996.
(K) Incorporated by reference from the Company's Form 10-KSB, file
No. 0-24812 filed on April 14, 1997.
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(b) Reports on Form 8-K
The Company did not file any Current Report on Form 8-K,
during the last quarter of 1996.
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SIGNATURES
In accordance with Sections 13 or 15(d) of the Exchange Act,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BRASSIE GOLF CORPORATION
By: /s/ Joseph R. Cellura
------------------------
Chief Executive Officer
Dated: April 20, 1998
In accordance with the Exchange Act, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Joseph R. Cellura Director April 20, 1998
- --------------------------
Joseph R. Cellura
/s/ Gordon D. Ewart Director April 20, 1998
- --------------------------
Gordon D. Ewart
/s/ Clifford F. Bagnall Director April 20, 1998
- --------------------------
Clifford F. Bagnall
/s/ Jeremiah M. Daly Director April 20, 1998
- --------------------------
Jeremiah M. Daly
/s/ James A. McNulty Chief Financial April 20, 1998
- -------------------------- Officer
James A. McNulty
72
