UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| Quarterly report pursuant to Section 13 or 15 (d) of the Securities and
Exchange Act of 1934 for the quarterly period ended March 31, 1998; or
|_| Transition report pursuant to Section 13 or 15(d) of the Exchange Act for
the transition period from __________ to ___________
COMMISSION FILE NO. 0-24812
BRASSIE GOLF CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 56-1781650
- -------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 N. Franklin Street, Suite 200, Tampa, Florida
- ------------------------------------------------------------------------------
(Address of principal executive offices)
(813) 222-0611
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(Registrant's telephone number, including area code)
Check whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes |X| No |_|
On May 13, 1998 there were 49,664,193 shares of the issuer's Common Stock, $.001
par value, and 2,040 shares of the issuer's Preferred Stock, $.001 par value
outstanding.
Page 1 of 20
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BRASSIE GOLF CORPORATION
QUARTERLY REPORT FOR THE THREE-MONTH
PERIOD ENDED MARCH 31, 1998
FORM 10-QSB
TABLE OF CONTENTS
PART 1. FINANCIAL INFORMATION
Item 1Financial Statements (unaudited)
Condensed Consolidated Balance Sheets as of March 31, 1998
and December 31, 1997
Condensed Consolidated Statements of Operations for the three-month periods
ended March 31, 1998 and 1997..................................... 5
Condensed Consolidated Statements of Changes in Shareholders' Equity for the
three-month period ended March 31, 1998........................... 6
Condensed Consolidated Statements of Cash Flows for the three-month periods
ended March 31, 1998 and 1997..................................... 7
Notes to Condensed Consolidated Financial Statements................ 8
Item 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................14
PART II. OTHER INFORMATION
Item 1Legal Proceedings.................................................18
Item 2Changes in Securities.............................................18
Item 3Defaults Upon Senior Securities...................................18
Item 4Submission of Matters to a Vote of Securities Holders.............18
Item 5Other Information.................................................18
Item 6Exhibits and Reports on Form 8-K..................................19
Signatures..............................................................20
Page 2 of 20
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
1998 1997
(Unaudited)
------------- ------------
Current assets:
Cash (deficit) $ (148,362) $ 53,266
Cash - restricted 126,012 135,019
Trade accounts receivable, net 429,577 352,018
Accounts receivable from related parties 25,358 160,543
Inventories 26,902 31,611
Prepaid expenses and other current assets 865,592 1,038,588
------------- -----------
Total current assets 1,325,079 1,771,045
Property and equipment, net 7,169,858 5,287,805
Intangible assets, net 651,627 583,400
Goodwill, net 325,729 331,250
------------- ------------
Total assets $ 9,472,293 $7,973,500
============= ============
See accompanying notes
Page 3 of 20
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BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1998 1997
(Unaudited)
------------- ------------
Current Liabilities:
Accounts payable and accrued expenses $ 1,159,892 $ 772,460
Accrued interest payable 76,818 32,751
Income tax payable - -
Unearned income 1,000 -
Short-term debt 1,500,000 -
Foreign income tax payable 181,793 181,793
Current portion of long-term debt 757,023 757,023
Current maturities of capital lease obligations 21,510 21,510
Accrued discount on convertible debentures 51,489 104,037
------------- ------------
Total current liabilities 3,749,525 1,869,574
------------- ------------
Long-term debt, less current portion 3,568,686 3,477,256
Long-term capital lease obligations,
less current portion 31,449 35,785
Shareholders' Equity:
Preferred Stock, $.001 par value;
1,000,000 shares authorized; 283,290
shares issued and outstanding
(aggregate liquidation preference
$2,585,000) 283 283
Common Stock, $.001 par value; 50,000,000
shares authorized; 48,343,526 shares
issued and outstanding 48,344 42,633
Additional paid-in capital 33,421,991 32,043,966
Accumulated deficit (31,028,264) (29,176,276)
Less cost of Convertible Preferred Stock
held in treasury, 281,250 shares (210,937) (210,937)
Foreign currency translation adjustment ( 108,784) (108,784)
------------- ------------
Total shareholders' equity 2,122,633 2,590,885
------------- ------------
Total liabilities and shareholders' equity $9,472,293 $7,973,500
============= ============
See accompanying notes
Page 4 of 20
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BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31
1998 1997
------------- ------------
Operating revenues:
Golf revenues $ 101,457 $ 443,492
Food and beverage revenues 13,751 97,412
Proshop revenues 9,539 53,367
Membership fees and dues 5,783 91,227
Resident membership fees - 30,000
Management and design fees 6,938 379,504
Other - 5,259
------------- ------------
Total operating revenues 137,468 1,100,261
Operating expenses:
Golf course operations 70,367 306,762
Cost of food and beverage sales 22,968 41,056
Cost of proshop sales 51,607 36,301
Marketing expenses 16,172 67,830
Management and design expenses - 373,226
General and administrative expenses 892,464 328,170
Professional fees, including legal
and accounting 306,279 113,652
Depreciation and amortization expense 85,322 194,507
------------- ------------
Total operating expenses 1,445,179 1,461,504
------------- ------------
Operating loss (1,307,711) (361,243)
Other income (expense):
Interest expense (206,131) (178,472)
Amortization of debt discount on convertible
debt (260,783) -
Income from equity investments in subsidiaries - 19,890
Acquisition deposit forfeited (100,000) -
Interest and other income 22,637 22,236
------------- ------------
Net loss $ (1,851,988) $ (497,589)
============= ============
Basic and diluted net loss per share $ (.04) $ (.02)
============= ============
Weighted average number of shares
outstanding 46,756,200 27,447,900
============= ============
See accompanying notes
Page 5 of 20
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BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS'
EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Additional
Common Preferred Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------------- --------- --------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 42,632,503 $42,633 283,170 $ 283 $32,043,966 $ (29,176,276)
Net loss (1,851,988)
Issuance of Warrants in connection with
issuance of other notes payable 560,000
Issuance of Common Stock in connection with 750,000 750
a private placement
Issuance of Preferred Stock in connection with
a private placement 120 0 120,000
Issuance of Common Stock in connection with
Warrant exercise 1,414,561 1,415 (1,415)
Issuance of Common Stock in connection with
convertible debenture 3,013,129 3,013 499,973
Issuance of Common Stock in connection with
a deposit on the acquisition of Miller
Golf, Inc 533,333 533 199,467
Translation of foreign currency financial
statements
------------- --------- --------- -------- ------------- -------------
Balance at March 31, 1998 48,343,526 $48,344 283,290 $ 283 $33,421,991 $ (31,028,264)
============= ========= ========= ======== ============= =============
</TABLE>
<TABLE>
<CAPTION>
Convertible Foreign
Preferred Currency
Treasury Stock Translation
Shares Amount Adjustment Total
--------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 (281,250) $ (210,937) $(108,784) $ 2,590,885
Net loss (1,851,988)
Issuance of Warrants in connection with
issuance of other notes payable 560,000
Issuance of Common Stock in connection with
a private placement 750
Issuance of Preferred Stock in connection with
a private placement 120,000
Issuance of Common Stock in connection with
Warrant exercise 0
Issuance of Common Stock in connection with
convertible debenture 502,986
Issuance of Common Stock in connection with
a deposit on the acquisition of Miller
Golf, Inc 200,000
Translation of foreign currency financial
statements
--------- ----------- ------------ ------------
Balance at March 31, 1998 (281,250) $(210,937) $(108,784) $2,122,633
========= =========== ============ ============
</TABLE>
See accompanying notes
Page 6 of 20
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BRASSIE GOLF CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 31,
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,851,988) $(497,589)
Adjustment to reconcile net loss to
net cash provided by (used in)
operating activities:
Income from investments in subsidiaries - (19,890)
Depreciation and amortization 85,322 194,507
Amortization of debt discount 260,783 -
Amortization of loan costs 76,851 -
Net change in other working capital items 532,683 (275,104)
Accounts receivable from related parties 135,185 -
------------ -----------
Net cash used in operating activities (761,163) (598,076)
Investing activities:
(Purchases) sales of property and equipment, net (1,962,453) 27,827
Change in restricted cash 9,007
Change in loan and amortization costs - (30,312)
Additional investment in subsidiaries - 2,761
------------ -----------
Net cash (used in) provided by in investing activities (1,953,446) 276
Financing activities:
Additions to long-term borrowings 1,025,976 -
Payments for long-term borrowings and capital leases (133,745) (1,167,217)
Additions to short-term borrowings 1,500,000
Issuance of common stock 750 1,370,230
Issuance of preferred stock 120,000 -
Change in accrued discount on convertible debentures - (272,595)
Net cash provided by (used in) by financing activities 2,512,981 (69,582)
Effect of foreign currency exchange rate changes on cash - (11,024)
------------ -----------
Decrease in cash (201,628) (678,406)
Cash at beginning of period 53,266 806,079
------------ -----------
Cash (deficit) at end of period $(148,362) $127,673
============ ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 85,213 $102,891
============ ===========
</TABLE>
See accompanying notes
Page 7 of 20
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BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
NOTE A. Business of the Company and Significant Accounting Policies
Description of Business
Brassie Golf Corporation (the "Company"), together with its
predecessors and subsidiaries, has engaged since 1988 in the design,
acquisition, development and management of private, semi-private and daily- fee
(i.e. "public") golf courses. The Company currently is engaged in the
development and marketing of golf- related businesses, and holds certain
licensing rights in the United States and internationally.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
of the Company have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions to
Form 10-QSB and Rule 10-01 of Regulation S-X of the Securities and Exchange
Commission ("SEC"). Accordingly, the financial statements do not include all of
the information and footnotes required by generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been
included. Operating results for the three months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1998. The accompanying condensed consolidated financial statements
and notes thereto should be read in conjunction with the Company's audited
financial statements as of December 31, 1997 contained in its current Annual
Report on Form 10-KSB.
Investment in Subsidiaries - The Company holds a 100% ownership interest in
the golf course at Curtis Park which is included in the Company's condensed
consolidated financial statements, see Note E Subsequent Events . The Company
also holds minority interests in two golf courses in South Carolina, which the
company disposed of in April 1998.
The acquisitions listed in Note E - Subsequent Events will be
accounted for under the purchase method of accounting, in accordance with
generally accepted accounting principles.
Revenue Recognition - Revenues of the Company include daily golf fees,
proshop merchandise sales and food and beverage sales. Golf fees include revenue
generated from green fees, cart fees and range fees. Revenues also include sales
of memberships and annual dues charged to members.
Golf fees, proshop merchandise sales and food and beverage sales are
recognized when received. Membership dues collected in advance are deferred as
"unearned income" and recognized over the period of prepayment. Membership fees
that are nonrefundable are recognized by the Company when received.
Page 8 of 20
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BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
NOTE A. 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 of the Spa, which was acquired through a
purchase transaction in December 1997.
Goodwill is being amortized on a straight-line basis over 15 years.
Amortization charged to continuing operations amounted to $5,520 for the three
months ended March 31, 1998. During the three-month period ended March 31, 1997,
$15,000 of goodwill was charged to operations as a write-off of the goodwill in
Summit.
The Company carries its goodwill asset at its purchase price, less
amortized amounts, but subject to annual review for impairment. The Company's
policy for the valuation of goodwill is to calculate the undiscounted projected
future cash flows of the investment expected to be generated over the life of
the goodwill. This amount is then compared to the carrying value of the goodwill
to determine if the asset is impaired.
Income Taxes - The Company records income taxes pursuant to the
provisions of Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, deferred taxes are
provided for the difference between the tax and financial statement bases of
assets and liabilities, and a valuation allowance is established for deferred
tax assets that, based upon available evidence, are not expected to be realized.
Basic and Diluted Net Loss Per Share - Basic and diluted net loss per share
has been computed in accordance with the Statement of Financial Accounting
Standards No. 128, "Earnings Per Share," based on the weighted average number of
shares outstanding during the period presented. Stock options and warrants are
considered anti-dilutive and have not been considered in the computations.
NOTE B. Long-Term Debt
Long-term debt with financial institutions and other third parties as of March
31, 1998 consists of the following:
<TABLE>
<S> <C>
Golf course development loan to Curtis Park from bank,
payable in monthly principal payments of $26,124, with
remaining principal balance and unpaid interest due on
October 31, 2007; collateralized by leasehold interest in
land and land improvements. Interest is payable monthly at
8.37%. $3,230,044
</TABLE>
Page 9 of 20
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
NOTE B. Long-Term Debt - continued
<TABLE>
<S> <C>
6% convertible debentures due December 31, 1998, unless converted into
common stock, interest payable incrementally upon conversions with the
balance, if any, at maturity, net of unamortized discounts of
$307,025. 193,162
Unsecured operating line of credit from bank, with interest at
10.625%, interest payable monthly, principal and unpaid interest due
on March 22, 1999. 395,976
Other notes payable 506,527
----------
4,325,709
Less current portion 757,023
----------
$3,568,686
==========
</TABLE>
NOTE C. Short-Term Debt
<TABLE>
<S> <C>
Land loan from individuals with the principal and unpaid interest due
on June 30, 1998; collateralized by the Parcel 11 land held at the World
Golf Village. Interest is payable monthly at 12% per annum. $1,500,000
==========
</TABLE>
NOTE D. Shareholders' Equity
As of March 31, 1998, warrants to purchase 36,309,403 shares of the
Company's common stock were outstanding. These warrants have exercise prices
ranging from $0.17 to $2.40 per share; 100,000 warrants expire September 28,
1998; 238,000 warrants expire November 17, 1998; 50,000 warrants expire December
5, 1998; 150,000 warrants expire June 30, 1999; 1,000,000 warrants expire
January 24, 2000; 900,000 warrants expire June 30, 2000, and 250,000 warrants
expire September 28, 2000; 28,061,003 warrants expire November 18, 2000;
1,360,000 warrants expire December 3, 2000; 850,000 warrants expire February 9,
2001; 3,350,000 warrants expire January 28, 2003.
Page 10 of 20
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
NOTE D. Shareholders' Equity (continued)
During the three-month period ended March 31, 1998, 4,200,000 warrants
were issued in payment of various debts issued during the period and 80,000
warrants were issued in connection with the issuance of preferred stock, in
connection with a private placement. During the same period, 2,021,265 warrants
were exercised in a cash-less transaction for 1,414,561 shares of common stock.
During the same period in 1997, no warrants were exercised.
During the three-month periods ended March 31, 1998 and 1997, no
employee stock options were issued, exercised or redeemed.
During the quarter ended March 31, 1998, the Company sold an additional 120
shares of the 1997 Preferred Stock for $120,000. Additionally, at March 31,
1998, there were approximately $35,000 of unpaid dividends on the Company's
preferred stock. This amount has been recorded as an adjustment to liquidation
value of the shares.
During the quarter ended March 31, 1998, certain holders of
convertible debt converted approximately $502,986 of notes and unpaid interest
into 3,013,129 shares of common stock. The Company also issued 533,333 shares of
common stock with a fair market value of approximately $200,000 as a deposit
related to the acquisition of Miller Golf, Inc.
NOTE E. Subsequent Events
Subsequent to March 31, 1998, the Company completed the following
acquisitions and disposition:
GAUNTLET AT CURTIS PARK
On April 2, 1998, the Company sold its leasehold interest in the golf
course assets at The Gauntlet at Curtis Park for $5,400,000 of which
approximately $4,800,000 was used to reduce the Company's indebtedness. The net
realized gain on the sale of the golf course was approximately $186,000.
MILLER GOLF, INC.
On April 8, 1998, the Company completed its $4.3 million acquisition
of all the issued and outstanding stock Miller Golf, Inc. ("Miller"), a
Massachusetts corporation. The Miller stock was acquired from its shareholders,
Robert Marchetti, Louis Katon, and John Carroll, for a combination of $3.0
million in cash, $1.0 million in notes payable to the sellers and $300,000 of
the Company's common stock (266,667 shares in addition to the 533,333 shares
deposit, for a total of 800,000 shares which, in the aggregate, had a fair
market value of $300,000 at the date of closing). The sellers' notes payable are
due on September 30, 1998 and accrue interest at 8% per annum and are secured by
a pledge of the common stock of Miller. Forms 8-K were filed on February 12,
1998 and April 23, 1998 describing the terms of this transaction.
Page 11 of 20
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BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
NOTE E. Subsequent Events (continued)
To obtain the funds necessary to complete this transaction, the
Company issued $3.0 million of convertible notes. These convertible notes are
secured by a subordinated pledge of the Miller Stock, which mature on December
31,1999, and accrue interest at 7% per annum, payable quarterly beginning on
July 1, 1998. The notes are convertible into shares of the Company's common
stock at the lesser of $0.50 per share or 75% of the average closing bid price
of the common stock during the last five trading days prior to conversion. The
convertible note holders also received warrants to purchase 1,472,727 shares of
common stock at $0.50 per share.
All of the convertible notes and warrants were issued to a small group
of sophisticated and accredited investors. Neither the convertible notes nor the
warrants are exercisable until approval by the shareholders to increase the
Company's authorized common stock at the Annual Meeting to be held May 28, 1998.
In the event that approval is not obtained, the Company will be required to
redeem the convertible notes at a per share redemption price equal to 125% of
the sum of the principal amount of the notes plus accrued interest. There are
other penalties on the Company for failure to pay the redemption price and for
failure to issue the common stock upon the exercise of the warrants.
The Company shall also be obligated to redeem the warrants at a
redemption price per share equal to the pre-tax profit that the warrants would
have earned if exercised and simultaneously sold at the closing NASDAQ sales
price on such date. The redemption price will be payable within five days after
demand and will accrue interest at 11% per annum.
In connection with the sale of the convertible notes, the Company
issued warrants to purchase 2,727,273 shares of common stock of the Company at
$0.40 per share. These warrants were issued as consideration for commissions
earned on securing the placement of the convertible notes.
DIVOT GOLF CORPORATION
On April 15, 1998, the Company completed its $500,000 stock
acquisition of Divot Golf Corporation ("Divot"), a Florida corporation. The
Divot stock was acquired from its sole shareholder, Joseph R. Cellura, for a
combination of (i)$300,000 in cash and (ii) a short term promissory note in the
principal amount of $200,000 (the "Note"). The Note provides for interest
accruing at 6% per annum, payable quarterly beginning June 30, 1998, with all
principal and unpaid interest due on October 15, 1998. The assets of Divot
include its name, certain patent and licensing rights, and molds for producing a
divot repair tool.
Mr Cellura serves as Director, Chairman of the Board, and Chief
Executive Officer of the Company. The Board believes that the terms of this
transaction are commercially reasonable.
TALISMAN TOOLS, INC.
On April 20, 1998, the Company completed its $101,875 acquisition of all of
the issued and outstanding stock of Talisman Tools Incorporated ("Talisman"), a
Rhode Island corporation. The Talisman stock was acquired from its sole
shareholders,
Page 12 of 20
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
.
NOTE E. Subsequent Events (continued)
Daniel S. Shedd and Dixon Newbold for a combination of (i) two short-term,
non-interest bearing promissory notes in the aggregate amount of $55,000 payable
on May 20, 1998 and (ii) $46,875 of the Company's common stock (150,000 shares
valued at the date of closing). Talisman is a manufacturer of high-quality
greens repair tools. The assets of Talisman include a pending patent on the
specialized divot repair tool and the proprietary process of producing the divot
repair tool.
The Company will account for these transactions under the purchase
method of accounting, in accordance with generally accepted accounting
principles.
As a result of the disposition and the acquisitions that have occurred
subsequent to the close of the period ended March 31, 1998, the Company has
redefined its business strategy out of golf course operations and into the
development of golf related businesses and licensing rights.
Page 13 of 20
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction
with the Condensed Consolidated Financial Statements included herein for the
three-month periods ended March 31, 1998 and 1997 and for the years ended
December 31, 1997 and 1996, included in the Company's 1997 Annual Report on Form
10-KSB.
Brassie Golf Corporation (the "Company") owns and operates golf
courses, is engaged in the development and marketing of golf related businesses
and holds licensing rights in the United States and internationally.
The Gauntlet at Curtis Park golf course, operated through a wholly
owned subsidiary of the Company, continues to be included in the condensed
consolidated financial statements as of March 31, 1998.
RESULTS OF OPERATIONS
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
(A) Revenues
During the quarter ended March 31, 1998 and 1997, the Company derived
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. In late 1997 the Company sold its design
division, management division, and one of the golf courses.
The period-to-period (decrease) in each of the revenue categories is
as follows:
Quarter Ended March 31
1998 1997 (Decrease)
Golf Fees $ 101,457 $ 443,492 $(342,035)
Design and Management Fees 6,938 379,504 (372,566)
Membership Fees and Annual Dues 5,783 121,227 (115,444)
Food & Beverage 13,751 97,412 (83,661)
Pro Shop Sales 9,539 53,367 (43,828)
Other Income 0 5,259 (5,259)
----------- ----------- ----------
$ 137,468 $ 1,100,261 $(962,793)
=========== =========== ==========
Page 14 of 20
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
In the aggregate, the Company generated $137,468 in revenues during
the quarter ended March 31, 1998 compared to $ 1,100,261 during the quarter
ended March 31, 1997. This decrease of $962,793 is primarily due to the
disposition of the Gauntlet at St. James golf course in November 1997 and the
sale of the management division in August 1997.
(B) Costs and Expenses
The Company's total operating expenses decreased $16,325 to $1,445,179 during
the three-month period ended March 31, 1998 from $1,461,504 during the quarter
ended March 31, 1997. The decrease is due to a combination of a $373,226
decrease attributed to design expense, a $290,835 decrease in marketing and golf
course activities, and a $109,185 decrease in depreciation and amortization, due
to the sale of the design division and the golf course operations. These
decreases were offset by an increase of $564,294 in general and administrative
expenses directly related to the hiring of key employees necessary to facilitate
the execution of ongoing business activities and an increase of $192,627 of
professional fees, which were primarily legal and accounting fees incurred with
the Company's efforts towards complying with regulatory agencies and other costs
incurred with respect to pursuit of acquisitions and financing, which were
partially unsuccessful.
The Company routinely evaluates the cost of operations at its facility
and establishes budgeted amounts for each significant category of expense in the
areas of pro shop, food and beverage, golf course maintenance, and general,
selling and administrative expenses. Monthly, the Company analyzes its actual
versus budgeted results.
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 the golf course.
General and administrative expenses include management and
administrative compensation, related payroll taxes and benefits, professional
fees, including legal and accounting and other consultants, telephone,
utilities, insurance, other taxes, travel, meals and entertainment and office
expenses, including rents.
Interest expense increased from $178,472 during the three-month period
ended March 31, 1997 to $206,131 during the three-month period ended March 31,
1998. The increase of $27,659 is primarily due to an increase in borrowings.
Amortization of debt discount on conversions amounted to $260,783
during the three-month period ended March 31, 1998, as a result of certain
conversions of convertible notes payable during the quarter.
Page 15 of 20
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
During the quarter ended March 31, 1998, the Company also forfeited a
$100,000 deposit on an unsuccessful acquisition.
Interest and other income increased from $ 22,236 during the
three-month period ended March 31, 1997 to $22,637 during the three-month period
ended March 31, 1998.
(C) Net Loss
For the quarter ended March 31, 1998, the Company had net loss of
$1,851,988, an increase of $1,354,399 from the net loss of $497,589 for the
three-month period ended March 31, 1997. The increase is attributable to the
reasons stated above.
(D) Inflation
Inflation has not had a material effect on the Company's operations
during the three-month periods ended March 31, 1998 or March 31, 1997.
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 working
capital needs, acquisitions and capital purchases, the Company is reliant upon
long-term borrowing and equity financing.
Working Capital
The Company is not generating sufficient revenues from its operations to
fund its activities and therefore is dependent on additional financing from
external sources. This fact raises substantial doubt about the Company's ability
to continue as a going concern. The Company expects to raise additional amounts
from private placements of its securities in 1998. If the Company is successful
in raising additional capital in 1998, management believes that the Company will
have adequate resources to continue to meet its working capital requirements to,
pay its current debt obligations, fund capital improvements and expand and
develop its businesses. There is no assurance that such additional funding will
be completed. The inability to obtain such financing would have a material
adverse effect on the Company.
The Company had a working capital deficiency of $2,374,446 as of March
31, 1998, as compared to a working capital deficiency of $98,529 as of December
31, 1997. The reduction in working capital of $2,275,917 from December 31, 1997
to March 31, 1998 relates primarily to the net loss for the three-month period
ended March 31, 1998 and short-term borrowings related to the purchase of the
Parcel 11 land at the World Golf Village.
Page 16 of 20
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
On April 2, 1998, the Company used approximately $4,800,000 of the
proceeds from the sale of its leasehold interest in the golf course assets at
The Gauntlet at Curtis Park to reduce its debt. From this, the Company reduced
its working capital deficit by approximately $1,500,000.
In May 8, 1998, the Company secured a working capital loan of $1,100,000,
due May 10, 1999 with interest at 10.6% per annum, secured by Parcel 11 land at
the World Golf Village, which reduced bank lines of credit by approximately
$675,000. This reduction includes $275,000 funded to the Company in April, 1998.
The total borrowings for the Company were $ 5,825,709 as of March 31,
1998 compared to $4,234,279 as of December 31, 1997. The net increase in
borrowings of $1,591,430 from December 31, 1997 to March 31, 1998 consists
primarily of a $1,500,000 short-term note payable to purchase the Parcel 11 land
at the World Golf Village. As part of the financing, the Company paid $150,000
in loan and associated costs.
Page 17 of 20
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Item 3 of the Consolidated Financial Statements of the Company for the year
ended December 31, 1997 for a description of legal proceedings to which the
company is a party.
On April 16, 1998, the Company delivered the remaining 30% minority ownership
interest in two golf courses in South Carolina, The Gauntlet at Myrtle West and
The Gauntlet at Laurel Valley, to the EPI Pension Fund under the March 26, 1998
court ordered hearing. The Company also recorded, in operations for the period
ended March 31, 1998, the amount of the anticipated settlement of the litigation
with EPI Pension Fund.
Item 2. Changes in Securities
From January 1, 1998 to March 31 , 1998, the Company sold 120 shares of its 1997
convertible preferred stock ("1997 Preferred"). The 1997 Preferred was sold
solely to sophisticated and accredited investors pursuant to a private placement
offering in reliance upon Section 4 (2) of the Securities Act of 1933, as
amended. Proceeds from the private placement equaled $120,000. The 1997
Preferred was offered in units of 15 preferred shares, with each share having a
liquidation value of $1,000, plus 10,000 warrants (exercisable at $1.00 per
share for a period of 3 years) for a price of $15,000 per unit. The holders of
the 1997 Preferred are entitled to 7% cumulative dividends payable quarterly
with percentage increases in the foreseeable future. The 1997 Preferred is
convertible immediately into shares of the Company's common stock at $1,000 per
share so converted divided by the "conversion price" which is a formula based on
the lesser of $0.70 or 75% of the average closing price during the 10-day period
prior to conversion.
Item 3. Defaults Upon Senior Securities
The Company has defaulted on certain obligations of its senior securities by
failing to meet its obligation to file a registration statement, having such
registration statement become effective by a certain date, and having its annual
shareholder meeting. The holders of the securities under default have waived
their rights and granted the Company an extension of time to July 1, 1998 to
cure the defaults.
Item 4. Submission of Matters to a Vote of Security-Holders
None.
Item 5. Other Information
None.
Page 18 of 20
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
PART II - OTHER INFORMATION (continued)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 - Financial Data Schedule (for SEC use only)
(b)Reports on Form 8K
Dated May 1, 1998
Dated April 30, 1998
Dated April 23, 1998
Dated February 13, 1998
Dated January 12, 1998
Dated January 12, 1998
Page 19 of 20
<PAGE>
BRASSIE GOLF CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BRASSIE GOLF CORPORATION
/s/James A. McNulty
---------------------------------------------
James A. McNulty, Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: May 15, 1998
Page 20 of 20
<PAGE>
EXHIBIT 27
Financial Data Schedule (for SEC use only)
Page 21
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-01-1998
<CASH> (148,362)
<SECURITIES> 0
<RECEIVABLES> 429,577
<ALLOWANCES> 0
<INVENTORY> 26,902
<CURRENT-ASSETS> 1,325,079
<PP&E> 7,169,858
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,472,293
<CURRENT-LIABILITIES> 3,749,525
<BONDS> 0
283
283
<COMMON> 48,344
<OTHER-SE> 2,074,006
<TOTAL-LIABILITY-AND-EQUITY> 9,472,293
<SALES> 137,468
<TOTAL-REVENUES> 137,468
<CGS> 0
<TOTAL-COSTS> 1,461,504
<OTHER-EXPENSES> 1,461,504
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 206,131
<INCOME-PRETAX> (1,851,988)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,851,988)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,851,988)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
