<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-QSB
(Mark One)
[ ] Quarterly report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1998
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required)
For the transitional period from _____________ to ____________
Commission File No. 1-13362
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
-----------------------------------------------------------
(Name of Small Business Issuer as specified in its charter)
Nevada 04-3226365
- ------------------------------ ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
incorporation or organization)
822 Boylston Street, Suite 300, Chestnut Hill, Ma 02167
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(Address of principal executive offices)(Zip Code)
(617) 266-3600
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the issuer was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
3,751,169 Shares of Common Stock, as of May 12, 1998
Transitional Small Business Issuer Format (check one):
YES NO X
--- ---
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
CONSOLIDATED BALANCE SHEET
UNAUDITED
<TABLE>
<CAPTION>
================================================================================
March 31
1998
================================================================================
<S> <C>
ASSETS
CURRENT:
Cash and cash equivalents $ 294,746
Interest and other receivables 175,117
Inventories 122,579
Prepaid expenses and other current assets 84,893
-----------
Total current assets 677,335
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PROPERTY AND EQUIPMENT:
Property and equipment, net of accumulated depreciation 14,220,513
Construction in progress 323,580
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Property and equipment, net 14,544,093
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OTHER ASSETS:
Restricted cash 22,925
Water rights 1,051,992
Investment in golf facilities 1,057,241
Other assets 250,106
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Total other assets 2,382,264
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$17,603,692
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,190,821
Current portion of long term debt 870,855
Current portion of obligation under water-rights agreement 87,141
Deferred revenues 139,080
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Total current liabilities 2,287,897
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LONG TERM LIABILITIES:
Obligation under water rights agreement 761,796
Long term debt 9,326,720
Other long term liabilities 645,000
-----------
Total long-term liabilities 10,733,516
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STOCKHOLDERS' EQUITY:
Preferred stock, $.10 par value; 5,000,000 shares
authorized Common stock, $.001 par value;
15,000,000 shares authorized; 3,751,169 shares
issued and outstanding 3,751
Additional paid-in capital 8,949,973
Management options 1,212,500
Accumulated deficit (5,583,945)
-----------
Total stockholders' equity 4,582,279
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$17,603,692
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 3
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE QUARTERLY PERIODS ENDED MARCH 31, 1998 AND 1997
UNAUDITED
<TABLE>
<CAPTION>
Three Month Three Month
Period Ended Period Ended
March 31, 1998 March 31, 1997
================================================================================
<S> <C> <C>
REVENUES $1,800,823 $1,364,782
COSTS AND EXPENSES:
Operating, general and administrative 1,400,332 1,081,077
---------- ----------
Operating income (loss) 400,491 283,705
Interest income 245 11,098
Interest expense (291,432) (187,909)
---------- ----------
Income (loss) before equity in losses from
unconsolidated affiliate 109,304 106,894
Equity in losses of unconsolidated affiliate (43,000) (38,000)
---------- ----------
NET INCOME (LOSS) $ 66,304 $ 68,894
========== ==========
Net income (loss) per common and common
equivalent share:
Basic $ 0.02 $ 0.02
========== ==========
Diluted $ 0.02 $ 0.02
========== ==========
Weighted average number of common and common
equivalent shares outstanding:
Basic 3,751,169 3,701,169
========== ==========
Diluted 4,172,661 4,108,250
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE QUARTERLY PERIODS ENDED MARCH 31, 1998 AND 1997
UNAUDITED
<TABLE>
<CAPTION>
Three Month Three Month
Period Ended Period Ended
March 31, 1998 March 31, 1997
========================================================================================
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 66,304 $ 68,894
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 153,726 115,172
Noncash compensation charge 0 4,242
Noncash equity in losses of Las Vegas Golf Center 43,000 38,000
Distributions to minority interests in Forest Lakes 0 (349,946)
Changes in assets and liabilities:
Interest and other receivables (6,030) 1,034,025
Prepaid expenses and other assets (43,881) 16,249
Inventories 67,072 (8,269)
Deferred Revenue (35,139) (15,929)
Accounts payable and accrued expenses (365,862) (569,570)
--------- -----------
Cash provided by (used in) operating activities (120,810) 332,868
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (8,346) (10,329)
Golf course development costs capitalized 0 (673,838)
Investment in unconsolidated affiliate (43,000) 0
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Net cash provided by (used in) investing activities (51,346) (684,167)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt 435,383 782,625
Repayment of long term debt (145,655) (1,495,490)
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Net cash provided by (used in) financing activities 289,728 (712,865)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 117,572 ($1,064,164)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 177,174 $ 1,585,611
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 294,746 $ 521,447
--------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
SENIOR TOUR PLAYERS DEVELOPMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
1. OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Organization and Basis of Presentation
Senior Tour Players Development, Inc. and Subsidiary ("the Company") was
organized as a Nevada corporation on April 6, 1994 for the purposes of
developing, acquiring, and managing semi-private, private, and public golf
courses and golf practice facilities throughout the United States. The Company
also provides golf course management services and marketing services for golf
course residential development projects.
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, The Badlands Golf Club, Inc. ("The
Badlands"), which was established in 1995, and is located in Las Vegas, Nevada.
All significant intercompany transactions and balances have been eliminated in
consolidation. (See Note 10 - Subsequent Event - Merger Agreement.)
On December 31, 1996 the Company purchased and retained a minority 21.5%
ownership interest in the Las Vegas Golf Center (the "Center"), a golf practice
center located in Las Vegas, Nevada. The Center opened for business on
January 17, 1997. The Company accounts for its ownership interest in the Center
under the equity method. Under this method, the original investment in the
Center was recorded at cost and is adjusted periodically to recognize the
Company's share of earnings or losses after the date of acquisition. During the
first quarter of 1998, the Company recorded a $43,000 loss representing the
Company's pro rata share in the Center's start-up operating losses. Also, during
the first quarter of 1998, the Company made an additional capital contribution
to the Center in the amount of $43,000. At March 31, 1998 the Company had
capitalized $1,057,241 related to this investment, which is carried as
Investment in Golf Facilities on the accompanying balance sheet.
The accompanying consolidated financial statements reflect the application of
certain accounting policies described in this note and elsewhere in the
accompanying notes to consolidated financial statements.
Interim Financial Statements
The accompanying financial statements have been prepared and presented by the
Company without audit in accordance with generally accepted accounting
principles for interim financial statements and with the instructions to
Form 10-QSB. Accordingly, these interim financial statements do not include
all information and footnotes required by generally
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accepted accounting principles for complete financial statements. The financial
statements reflect all adjustments and accruals which management considers
necessary for a fair presentation of financial position as of March 31, 1998,
and results of operations for the three month periods ended March 31, 1998 and
1997. The results for the interim periods presented are not necessarily
indicative of results to be expected for any future period.
Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Concentration of Risk
Statement of Financial Accounting Standards (SFAS) No. 105, Disclosure of
Information About Financial Instruments with Off-Balance-Sheet Risk and
Financial Instrument with Concentrations of Credit Risk, requires disclosure of
any significant off-balance-sheet and credit risk concentrations. The Company
has no significant off-balance-sheet concentration of credit risk, such a
foreign exchange contracts, options contracts or other foreign hedging
arrangements, except for the loan guarantee discussed in Note 8 of commitment
and contingencies.
Cash and Cash Equivalents
For the purpose of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market, and consist of food &
beverage, golf equipment, clothing, and accessories.
Property, Furniture, Equipment, and Depreciation
Property, furniture, and equipment are stated at cost. Depreciation is computed
using the straight-line method over the estimated useful lives of the assets.
Construction In Progress
At March 31, 1998, construction in progress consisted of design, construction
and other costs incurred in connection with the design, engineering and planning
costs incurred in
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connection with the Company's planned golf course development project in
McKinney, Texas (see Note 2).
Revenue
Revenue consists primarily of green fees, membership dues, golf cart rental
fees, golf course management and development fees, revenue from food and
beverage sales, and pro shop merchandise sales. Deferred revenue consists of
prepaid membership dues which are recognized ratably over the term of the
membership.
Net Income (Loss) per Common and Common Equivalent Share
In 1997, the Company adopted SFAS No. 128, Earnings per Share, effective
December 15, 1997. SFAS No. 128 establishes standards for computing and
presenting earning per share and applies to entities with publicly held common
stock or potential common stock. The Company has applied the provisions of SFAS
No. 128 retroactively to all periods presented. The dilutive effect of potential
common shares consisting of outstanding stock options is determined using the
treasury methods and the if-converted methods, respectively, in accordance with
SFAS No. 128. Calculations of basic, dilutive and pro forma diluted net (loss)
income per common share are as follows:
March 31, March 31,
1998 1997
---------- ----------
Net (loss) income $ 66,304 $ 68,894
========== ==========
Weighted average common shares outstanding 3,751,169 3,701,169
Potential common shares related to stock options 421,492 407,081
--------- ---------
Diluted weighted average shares 4,172,661 4,108,250
========== ==========
Basic net (loss) income per common share $ .02 $ .02
========== ==========
Diluted net (loss) income per share and
potential common share $ .02 $ .02
========== ==========
Common Stock
Shares issued and outstanding at March 31, 1998 include 161,644 shares to be
issued in January 1998 in accordance with the Company's purchase of the 21.5%
interest in the Las Vegas Golf Center, LLC, a Delaware limited liability company
(the LLC), during 1996 (see Note 2). However, the issuance of these shares has
been delayed depending the outcome of legal action brought by the Company
against certain prior owners of the LLC (See Part II Item 1 of this report).
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Recently Issued Accounting Standards
As of January 1, 1998 the Company adopted Statement of Financial Accounting
Standards No. 130 - "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes new rules for the reporting and display of comprehensive income and
its components (e.g., foreign currency translation adjustments and unrealized
gains and losses on certain marketable securities). The Company's total
comprehensive income for the three month period ended March 31, 1998 and 1997,
were the same as reported net income for those periods.
The FASB issues SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information," which is required to be adopted by the Company no later
than fiscal year 1998. This statement introduces a new model for segment
reporting, called the "management approach." The management approach is based on
the way that the chief operating decision maker organizes segments within a
company for making operating decisions and assessing performance. Reportable
segments can be based upon any manner in which management disaggregates the
company. Such segments could include products and services, geography, legal
structure and management structure. The Company does not expect the adoption of
this standard to have a material effect on its financial position or its results
of operations.
In April 1998, the AICPA issued its Statement of Position 98-5 ("SOP 98-5"),
Reporting on the Costs of Start-Up Activities. SOP 98-5 requires that costs
incurred during start-up activities, including organization costs, be expensed
as incurred. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998, although early application is encouraged.
Initial application of SOP 98-5 should be as of the beginning of the fiscal year
in which it is first adopted and should be reported as a cumulative effect of a
change in accounting principle. The Company intends to adopt SOP 98-5 on January
1, 1999. The adoption of SOP 98-5 will not have a material effect on the
Companies financial statements.
2. ACQUISITIONS AND SALES
Proposed Golf Course Development - McKinney, Texas
During March, 1996 the Company signed a purchase and sale agreement and related
documents for the proposed development of an 18-hole championship golf facility
located within the Stonebridge Ranch Development in McKinney, Texas,
approximately 25 miles north of Dallas. During November, 1996, Westerra
Holdings, LLC ("Westerra") purchased and succeeded to the interest of Mobil Land
in the Stonebridge Ranch
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development. The Purchase and Sale Agreement expired on August 15, 1997, and to
date, no development has commenced.
On March 23, 1998 the Company assigned to Westerra all of the Company's
development rights with respect to the Stonebridge Ranch project in McKinney,
Texas. In consideration of such assignment Westerra agreed to reimburse the
Company's actual costs incurred to date and to assume certain unpaid liabilities
related to this development, which are included in construction in process in
the accompanying financial statements. Accordingly during April 1998, the
Company was reimbursed in full for the $323,099 of development costs which the
Company had capitalized in connection with Stonebridge Ranch development.
Investment in Golftown Driving Range - Saugus, Massachusetts
During July 1996, the Company entered into an agreement with Golftown, Inc., a
Massachusetts corporation that owns a golf practice facility in Saugus,
Massachusetts ("Golftown") which opened in August, 1996. The Company has
provided a loan guaranty in the amount of $295,000 in exchange for an original
25% equity ownership in Golftown. Under the terms of the agreement with Golftown
and its lender, the Company has the opportunity to cure any default under the
loan, and in the event of default, the Company may assume day-to-day management
of the Project and receive a management fee for such services. In addition, the
Company has entered into an agreement for a pledge of voting rights to a
majority of the voting interests of Golftown, which pledge becomes effective in
the event of default under the loan being guaranteed by the Company. The
President and majority owner of Golftown is Jeffrey Abrams, who is the son of
Stanton V. Abrams, the President and Chairman of the Board of Directors of
Senior Tour Players Development, Inc. In 1997, various capital contributions
were drawn from Golftown's stockholders and the Company invested approximately
$17,500 which was not sufficient to maintain its 25% equity ownership resulting
in a reduced ownership interest of 21.8% at the end of the calendar year. As of
December 31, 1997, the Company had written down its investment to zero to
reflect the Company's portion of the loss incurred by Golftown in years ended
1996 and 1997 (See Note 10(b) ).
Purchase and Sale of Investment in Las Vegas Golf Center, LLC
On December 31, 1996 the Company acquired a 21.5% interest and a 48.5% interest,
and subsequently sold the 48.5% interest, in the Las Vegas Golf Center, LLC (the
"Center"), a golf practice facility located in Las Vegas, Nevada. The Center is
situated on approximately 42 acres of land leased from Clark County, Nevada, on
the corner of Tropicana and Paradise Roads, directly across the street from the
McCarran International Airport, and approximately one mile from Las Vegas
Boulevard (the "Strip"). The Center is owned by Las Vegas Golf Center, LLC, a
Delaware limited liability company (the "LLC"). The Center includes a driving
range with approximately 120 tee stations on two tiers, a golf school teaching
area, a 3,500 sq. ft clubhouse, and a 20,000 sq. ft. retail golf
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shop. The Center opened for business on January 17, 1997, except for the
20,000 sq. ft. retail store which is expected to open during the second quarter
of 1998.
The Company acquired a 21.5% membership interest in the LLC from unrelated
individual shareholders of Golf Centers of America, Inc., a California
corporation, for an aggregate purchase price of $400,000 cash consideration, and
323,289 shares of the Company's common stock, $.001 par value per share ("STPD
Shares"), payable as follows:
Cash Consideration $ 20,000 paid on December 13, 1996
$180,000 payable on January 15, 1997
$200,000 payable on or before January 15, 1998
STPD Shares 161,645 shares issued on January 15, 1997
161,644 shares on or before January 15, 1998
The Company also acquired an additional 48.5% membership interest in the LLC
from unrelated individual shareholders of Selleck Properties, Inc., a California
corporation, for an aggregate purchase price of $1,532,050 cash consideration,
and 369,547 shares of the Company's common stock, $.001 par value per share.
All of the shares issued or payable in connection with these transactions are
restricted securities, as defined in Rule 144 promulgated under the Securities
Act of 1933, as amended. The Company granted the sellers of the LLC interests
the right to demand registration of their common stock on a Form S-3
registration statement or similar form at any time after May 1, 1997. The
Company received the request during May 1997 and filed a registration statement
that became effective in August 1997.
Immediately following the acquisition of the 48.5% membership interests, the
Company sold a 48.5% membership interest in the LLC to Paul Fireman ("Fireman"),
an individual investor and Company stockholder, for cash consideration of
$2,167,953. In addition, the Company received a $200,000 consulting fee from
Fireman in consideration of certain services rendered in connection with the
structuring and implementation of the transaction, as well as for arranging
certain financing for the LLC.
In consideration of 50,000 shares of common stock of the Company, $.001 par
value per share, the Company shall have the option to repurchase from Fireman a
13.5% membership interest in the LLC (the "Option"). The Company did not
exercise the Option on or before December 31, 1997. If the Company had exercised
the Option, the price for a 13.5% LLC interest would have been $900,000. If the
Company exercises the Option after December 31, 1997 but on or before December
31, 1998, the price for a 13.5% LLC interest shall be $1,075,000. If the Company
exercises the Option after December 31, 1998 but on or before December 31, 1999,
the price for a 13.5% LLC interest shall be $1,350,000. In 1997, the Company
wrote off the carrying value of the Option because it has no intent to exercise.
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Additionally, in consideration of certain consulting services and modification
of existing contractual rights relating to the acquisition of the Company's
21.5% membership interest in the LLC and the financing of the golf practice
facility owned and operated by the LLC, the Company issued in May 1997 to the
Ranchito Company, LLC (Ranchito), 50,000 shares of common stock of the Company.
Ranchito is the owner of the remaining 30% membership interest in the LLC that
was not acquired on December 31, 1996.
The Company has agreed to manage the Center, on an at will basis, in exchange
for a monthly fee equal to 5% of gross revenues generated by the LLC, and is
also be reimbursed for certain accounting and out-of-pocket expenses.
3. MANAGEMENT AGREEMENT - HARBOR LINKS GOLF COURSE OF NORTH HEMPSTEAD, NEW YORK
Effective January 27, 1998, the Company entered into a Golf Facilities
Management Agreement (the Management Agreement) with the Town of North Hempstead
in New York (the Town). The Town is constructing a new municipal golf facility
in the Town of North Hempstead, New York which will include an 18-hole
championship golf course, a 9-hole executive golf course, driving range,
clubhouse, maintenance building, practice and learning center, parking lot and
related golf facilities, five athletic fields, the surrounding cliff areas and
at the discretion of the Town, a miniature golf course, collectively referred to
as the 'Facility." The Company has been engaged to manage the Facility for the
Town including but not limited to marketing, maintaining the golf course,
clubhouse and golf facilities. The Company is required to provide the Town an
initial capital contribution for the Facility of $1,000,000 on July 1, 1998 (or
such later date as the Town shall, in its sole discretion determine) under the
Agreement. The Company is entitled to receive a return of the initial capital
contribution in five equal annual installments of $200,000 payable on March 1 of
each year commencing March 1, 2001. The Company is also entitled to receive
interest on the outstanding portion of such capital contribution, which has not
been returned to the Company at an interest rate equal to the lesser of 2% above
the prime rate as reported by the Federal Reserve Bank or the actual interest
rate paid by the Company on financing obtained to fund the initial capital
contribution to the facility. Payment of such interest shall be made quarterly
in arrears commencing March 1, 1999. In consideration for the management
services to be provided by the Company, the Town is required to compensate the
Company a base amount of $125,000 per annum including actual out-of-pocket costs
commencing 60 days prior to the opening of the Facility, which is anticipated in
the summer of 1998. The base amount shall increase by $25,000 every three years
starting in 1999 and additional incentive management fee payable starting in
1999 equal to 10% of the base amount, if the gross revenue for the immediately
preceding calendar year exceeds a specified threshold amount for the preceding
calendar year. The agreement, which has a 10-year term, expiring on December 31,
2007, can be terminated yearly by the Town upon 30 days' notice to the Company
and upon repayment of the balance of the $1,000,000 capital contribution.
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4. GOLF COURSE DEVELOPMENT COSTS
In connection with the original eighteen hole facility at The Badlands Golf
Club, which was completed in October 1995, and the additional nine holes, which
were completed in September, 1997, the Company has entered into the following
significant contracts and agreements:
(a) Badlands Land Lease Agreement
The Company leases 186 acres of land in Las Vegas, Nevada, for a term of 50
years, expiring in July, 2045. The lease agreement contains four 10-year options
to extend the term of the lease based on certain terms as defined. The lease
requires minimum rental payments of $240,000 per annum, commencing July 1, 1995,
with an increase every three years based on the increase in the Consumer Price
Index.
During June 1996, the Company leased an additional 67 acres abutting The
Badlands which was used to develop an additional nine holes that was completed
in September 1997. The term of the lease will be coterminous with the existing
lease, expiring in July 2045, with four ten-year extension options. The lease
requires minimum rental payments of $120,000 per annum, commencing on October 1,
1997 with an increase every three years based on the increase in the Consumer
Price Index.
Both leases contain a contingent rental clause requiring the Company to pay an
amount equal to the amount by which 6% of annual gross receipts, as defined, at
The Badlands exceeds the minimum annual rental of $360,000. The lease also
requires the Company to pay real estate taxes, assessments and other charges in
connection with the leased property.
(b) Water Rights Agreement
The Company has purchased 399 acre-feet of water rights under a water rights
agreement (the "Agreement") for use at The Badlands. The Agreement requires the
Company to pay $13,300 per month commencing on July 1, 1995 and continuing for
ten years through July 2005. The obligation under the water rights agreement has
been capitalized in the accompanying consolidated balance sheet. The capitalized
water rights will not be amortized since the asset has an indefinite and
indeterminable life span and is transferable by the Company subject to certain
restrictions in the Agreement.
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5. LONG TERM DEBT
Long-term debt consists of the following at March 31, 1998:
<TABLE>
<S> <C>
Mortgage note payable to NationsCredit, secured by The Badlands,
interest is at 10.78%, with principal and interest due monthly of
approximately $ 47,800, final maturity date of December, 2001 $ 4,853,464
Construction note payable to NationsCredit, secured by The
Badlands, interest is at 10.95%, with principal and interest due
monthly of approximately $48,250, final maturity date of
December, 2001 4,272,390
Capital lease obligation for turf maintenance and other equipment,
principal and interest payments of approximately $12,660 due
monthly, final maturity date of September 30, 1999 208,400
Capital lease obligation for furniture, fixtures, and other
equipment, principal and interest payments of approximately
$3,995 due monthly, final maturity date of January 1, 2002 $ 148,047
Capital lease obligation for equipment principal and interest
payments of approximately of $1,040 due monthly, final maturity
date of June 13, 2001 $ 38,521
Capital Lease obligation for equipment principal and interest
payments of approximately $130 due monthly, final maturity date
of May 31, 2002 $ 5,266
Capital lease obligation for turf maintenance and other equipment
principal and interest payments of approximately $4,460 due
monthly, final maturity date of June 1, 2002 $ 186,941
Capital lease obligation for telephone equipment, principal and
interest payments of approximately $595 due monthly, final
maturity date of September 11, 2001 $ 19,546
Unsecured line of credit, with interest at the prime rate (8.5% at
March 31, 1998) plus 1.5%, final maturity date of October 31, 1998 $ 465,000
-----------
Total debt $10,197,575
Less-Current portion $ 870,855
-----------
Total long-term debt $ 9,326,720
</TABLE>
6. STOCKHOLDERS' EQUITY
Common Stock
In November 1994, the Company sold 1,600,000 shares of common stock and warrants
at a price of $5.00 per common share and $.10 per warrant through an initial
public offering.
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Each warrant entitles the holder to purchase one share of the Company's common
stock at an exercise price of $5.50 per share, subject to adjustment, at any
time until November 16, 1999, at which time the warrants expire. The warrants
are subject to redemption by the Company at a price of $5.10 per warrant on 30
days' written notice, provided the average of the closing bid prices of the
common stock of the Company equals or exceeds $8.00 for 20 consecutive trading
days preceding the date on which the notice of redemption.
During 1996, the Company issued 742,836 shares of common stock in connection
with the purchase and sale of investment in the Las Vegas Golf Center, LLC
(LVGC) discussed in Notes 1 and 2. In addition, the Company issued 25,000 shares
to Johnny Miller Design Ltd. for design services rendered at The Badlands.
During 1997, the Company issued an additional 50,000 shares of common stock in
connection with the purchase of the investment in the LVGC, discussed in Note 2.
Underwriter's Warrants
In connection with the Company's initial public offering in November 1994, the
Company issued 160,000 warrants to the underwriter (the "Underwriter's
Warrants"). Each Underwriter's Warrant entitles the Underwriter to purchase one
share of common stock for $7.25 and one warrant for $.15.
Overallotment Option
In addition to the Underwriter's Warrants, the Company granted an overallotment
option (the "Option") to the Underwriter. The Option entitled the Underwriter to
purchase additional shares of common stock and/or additional warrants at the
public offering price less the underwriting discounts and commissions, as
defined. In December 1994, the Underwriter exercised its option and purchased
153,200 warrants for $13,351 net of discounts and commissions.
Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock with such
designations, voting, and other rights and preferences as may be determined from
time to time by the Board of Directors.
Stock Option Plans
On June 20, 1994, the Company adopted the 1994 Employee Stock Option Plan (the
Employee Plan) that provides for the granting of nonqualified and incentive
stock options, as defined by the Internal Revenue Code, to key employees at
prices as determined by the Compensation Committee of the Board of Directors.
Under the Employee Plan, options for a maximum of 350,000 shares of common stock
may be granted over a period not to exceed ten years. At March 31, 1998, 195,000
options have been granted under this plan.
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<PAGE> 15
However, during 1997, three of the employees who had been granted options under
the plan resigned from the Company, resulting in the termination of 131,428
options. For the remaining options granted under the Employee Plan, 35,000
options had an exercise price of $2.1875 per share, the fair market value on the
date of grant and vest in five annual equal installments beginning in December
1997. At March 31, 1998, 7,000 of these options had vested. The terms of the
other remaining 28,572 options issued under the Employee Plan are detailed below
in Deferred Compensation.
On November 10, 1996, the Board of Directors of the Company adopted, subject to
shareholder approval, the 1996 Non-Employee Director Stock Option Plan (the
Nonemployee Plan), which was subsequently ratified by the shareholders. Under
the Nonemployee Plan, options for a maximum 200,000 shares of common stock may
be granted. As of March 31, 1998, 80,000 options have been granted under this
plan. The options were granted with an exercise price equal to fair market value
on the date of grant, and vested immediately.
Stock Option Agreements - Management Options
Effective June 20, 1994, the Company entered into employee stock option
agreements with certain officers and key employees granting them options to
acquire up to 1,111,111 shares of the Company's common stock for an exercise
price of $1.00 per share. Under these agreements, each employee's options vest
and become exercisable based on the Company achieving certain financial
benchmarks, as defined. The options must be exercised by December 31, 2004.
During the fourth quarter of 1995, in accordance with Accounting Principles
Board (APB) Option No. 25, Accounting for Stock Issued to Employees, the Company
recorded a noncash compensation charge of $2,500,000 based on its estimate of
the value related to the probable future vesting of stock options granted to
these individuals. The noncash compensation charge at December 31, 1995 was
calculated based on the market price of the Company's common stock on
December 31, 1995 ($3.25), less the exercise price of $1.00 per share,
multiplied by the number of shares to the options (1,111,111).
During the year ended December 31, 1996, the Company recorded a noncash
compensation credit of $1,250,000. The adjustment reflected a decrease in the
market price of the Company's common stock of $1.125 per share from the closing
price on December 31, 1995 ($3.25) compared to the closing price on December 31,
1996 ($2.125).
At December 31, 1996 the Company's balance sheet reflected an accrual of
$1,250,000 relating to the management options. The $1,250,000 balance at
December 31, 1996 was calculated based on the market price of the Company's
common stock on December 31, 1996 ($2.125), less the exercise price of $1.00 per
share, multiplied by the number of shares subject to the options (1,111,111).
11
<PAGE> 16
At December 31, 1996, 555,555 (representing 50%) of the management stock options
vested, as the Company achieved the financial benchmarks called for under the
option agreements for the year ended December 31, 1996. On March 19, 1997, a
vote was adopted by the Company's Compensation Committee, and then ratified by
the Board of Directors, to amend the option agreements in order to delete the
benchmarks. The Board voted to accept the optionholders' voluntary delay of 10%
of their vested option shares and to replace the benchmarks with an extended
vesting schedule, based on continuing employment with the Company. Under the
revised vesting schedule, 40% or 444,445 of the options vested on December 31,
1996 and the remaining 666,666 options will vest pro rata on December 31, 1997,
1998, and 1999. As of March 31, 1998 a total of 655,556 of the options have
vested. At the time these options are exercised, the proceeds will be credited
to additional paid-in capital accounts. Deferred Compensation
Effective December 11, 1996, the Company granted stock options to an officer of
the Company granting options to acquire up to 100,000 shares of the Company's
common stock for an exercise price of $1.00 per share. Under the stock option
agreement, the options vest pro rata over seven years beginning March 5, 1995.
At December 31, 1996, the Company recorded a charge to deferred compensation and
a corresponding credit to additional paid-in capital in the amount of $89,062,
net of amortization, which represents the difference between the market price of
the Company's common stock on December 11, 1996, the date of the option grant
($2.1875) and the exercise price of $1.00 per share, multiplied by the number of
shares subject to the option (100,000). During 1997, the officer resigned from
the Company, resulting in no future vesting of these options. As of March 31,
1998, a total of 28,752 shares had vested.
7. INCOME TAXES
At March 31, 1998, the Company had a net operating loss carryforward available
for federal tax purposes of approximately $3,300,000 with expiration dates
beginning in 2009. The Company has provided a valuation allowance equal to 100%
of the gross deferred tax asset due to the uncertainty surrounding the
realization of the deferred tax asset. Additionally, net operating loss
carryforwards maybe limited in the event of certain changes in ownership
interests of significant stockholders.
8. CONTINGENT LIABILITIES
(a) Loan Guarantee - Golftown, Inc.
The Company is a guarantor on a loan in the original amount of $295,000 (balance
of the loan as of March 31, 1998 is $270,000) made to Golftown, Inc., a
Massachusetts corporation which is the majority owner and operator of a driving
range facility located in Saugus, Massachusetts ("Golftown"). (See Notes 2, 9
and 10(b))
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<PAGE> 17
(b) Loan Guarantee - Las Vegas Golf Center, LLC (LLC)
During 1997, the LLC, an affiliate of the Company (see Note 2), entered into a
$4,000,000 construction and permanent loan agreement (the Agreement) with US
Bank of Nevada, for the purpose of paying certain costs incurred in construction
a golf driving range located in Las Vegas, Nevada. Under the terms of the
Agreement, the loan is collateralized against substantially all of the assets of
the LLC and the personal guarantees of the Company and Lodwrick Cook, joint and
severally, and Paul Fireman limited to $1,500,000.
(c) 1998 Bonus Plan
During 1998 the Company established the 1998 Key Employee Bonus Plan (the Plan).
Under the Plan employees may receive cash bonuses in the aggregate amount of
approximately $530,000. The bonuses are contingent upon certain conditions set
forth in the Plan, including: (1) the consummation of the proposed merger
between the Company and Golf Club Partners L.L.C., (2) each employee provides
full and complete cooperation to the Company, and (3) each employee remains
employed by the Company until the earlier of (i) the date he or she is
discharged by the Board of Directors, or (ii) thirty (30) days following the
closing of the merger. (See Note 10a - Subsequent Event - Merger Agreement.)
(d) Pending Litigation
See description of pending litigation in Part II Item 1 of this report.
See additional contingent liability described in Note 3.
9. RELATED PARTY TRANSACTION
During July 1996 the Company entered into an agreement with Golftown, Inc., a
Massachusetts corporation which owns and operates a driving range facility in
Saugus, Massachusetts (the "Project"). The Company has agreed to guaranty a loan
in an amount of $295,000 made to Golftown, in exchange for an original 25%
(21.8% as of March 31, 1998) equity interest in the Project. (See Note 2.) The
President and majority stockholder of Golftown, Inc is Jeffrey Abrams, the son
of Stanton V. Abrams, the President and Chairman of the Board of Directors of
Senior Tour Players Development, Inc. (See Note 10(b) - Subsequent Event - Sale
of Equity interest in Golftown)
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<PAGE> 18
10. SUBSEQUENT EVENTS
(a) Merger Agreement
On May 7, 1998 the Company announced that it has signed a Merger Agreement dated
May 6, 1998, with Golf Club Partners L.L.C. (GCP), a privately held Oklahoma
limited liability company which is not affiliated with the Company or its
management. Consummation of the merger is subject to several conditions set
forth in the Merger Agreement, including the approval of the Company's
shareholders.
Prior to the merger, the Company will sell or otherwise dispose of all of the
Company's assets other than The Badlands Golf Club in Las Vegas, Nevada, and the
Company will pay or otherwise discharge all of its liabilities except for
certain liabilities relating to The Badlands and the mortgage debt on The
Badlands. GCP will then acquire the Company through the merger in exchange for a
cash payment equal to $26.0 million, less The Badlands' mortgage debt, any
expenses relating to the merger, and any of the Company's other liabilities. In
addition to the balance of the $26.0 million cash payment, the Company will
receive the proceeds from the exercise of the Company's stock options, and plus
or minus, as the case may be, an adjustment relating to the working capital of
The Badlands at the time of the Merger. The rights of the Company's shareholders
will thereafter consist solely of their rights to receive their portion of the
merger consideration.
Depending upon the outcome of certain future events and adjustments, the Company
now estimates that the merger consideration per share will be approximately
$3.06 to $3.49 per share of Common Stock. However, there is no assurance as to
the exact amount of the merger consideration per share which will ultimately be
available for distribution to the Company's shareholders if the merger is
consummated.
(b) Sale of Equity Interest in Golftown
In May 1998, the Company sold its 21.8% equity ownership of Golftown, Inc.
("Golftown") to Jeffrey Abrams, who is the President of Golftown and the son of
Stanton V. Abrams, the Company's President. In consideration of such transfer,
Jeffrey Abrams will pay the Company approximately $29,000 in cash (which
represented the investment which the Company had previously made in Golftown
together with cash advances) and arranged for the Company to be released from
the Company's guarantee of up to $295,000 of Golftown's debt to a local
institution.
14
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RISK FACTORS AND CAUTIONARY STATEMENTS
This report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results and anticipated events could differ
materially from those projected, anticipated, or implicit, in the
forward-looking statements contained in this report.
LIQUIDITY AND CAPITAL RESOURCES.
The Company believes that is has sufficient cash, revolving lines of credit
and committed financing to meet its current operating needs.
At March 31, 1998, the Company had $294,746 in cash and the Company had
$35,000 available under its $500,000 revolving line of credit with U S Bank of
Nevada. Additionally, in January 1998, the Company qualified for $750,000 of the
$1,000,000 Earnout Advance from NationsCredit (defined below) of which the
Company has borrowed approximately $435,000 through May 12, 1998.
On November 15, 1996, The Badlands Golf Club, Inc., a wholly owned
subsidiary of the Company, entered into a loan agreement with NationsCredit, a
NationsBank company, for a $5,000,000 construction and permanent loan. At
closing the loan provided the Company with $4,000,000 to fund the costs of
construction of a nine hole addition at The Badlands, which was completed in
September 1997.
In addition to the $4,000,000 made available at closing, the loan provides
for the availability to the Company of an additional $1,000,000 in "Earnout
Advances" as defined in the loan agreement. In January 1998, the Company had
qualified for $750,000 of the Earnout Advance and borrowed approximately
$435,000. The remaining earnout funds will be made available to the Company over
a period of thirty months following the loan closing as long as certain
operating results are achieved at The Badlands, including minimum debt service
coverage ratios, and other revenue and cash flow criteria, as defined in the
loan agreement.
It is the Company's practice to lease golf carts, maintenance equipment,
and office and golf equipment at its owned golf facilities. The Company is
leasing substantially all of its turf maintenance equipment and certain
furniture, fixtures, and equipment at The Badlands Golf Club under various
capital lease obligations. As of March 31, 1998 the Company had approximately
$607,000 outstanding under these capital lease agreements. The Company has also
leased its golf cart fleet at The Badlands Golf Club under an operating lease.
PLAN OF OPERATION.
On May 7, 1998 the Company announced that it has signed a Merger Agreement
dated May 6, 1998, with Golf Club Partners L.L.C., a privately held Oklahoma
limited liability company which is not affiliated with the Company or its
management. Consummation of the Merger is
15
<PAGE> 20
subject to several conditions set forth in the Merger Agreement, including
approval of the Company's shareholders.
The Merger Agreement provides that, prior to the Merger, the Company will
sell or otherwise dispose of all of the Company's assets other than The Badlands
Golf Club in Las Vegas, Nevada and the Company will pay or otherwise discharge
all of its liabilities except for certain liabilities relating to The Badlands
and the mortgage debt on The Badlands (See Note 10a of the Notes to the
Consolidated Financial Statements included in this report regarding the Merger
Agreement). Accordingly, as required by the Merger Agreement, the Company's plan
of operation for the next several months will be to operate its business in the
ordinary course of business and consistent with its past practice and to use
reasonable efforts to preserve intact its business organization and assets,
maintain its rights and franchises, retain the services of its respective
officers and key employees and to maintain the relationships with its respective
key customers and suppliers; and to sell or otherwise dispose of all its assets
other than The Badlands Golf Club in Las Vegas, Nevada.
RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED MARCH 31, 1998 VS. THREE MONTH PERIOD ENDED MARCH 31,
1997
The Company was deemed to be a development stage company as described in
FAS-7, "Accounting and Reporting by Development Stage Enterprises", from its
inception on April 6, 1994 until the fourth quarter of 1995, when The Badlands
Golf Club, commenced full operations. Development stage status was appropriate
prior to the fourth quarter of 1995 since the Company's operations had generated
an insignificant amount of revenue since the date of inception and the Company
had devoted most of its activities and efforts to establishing the business,
raising capital, financial planning, and employee training.
REVENUES during the first quarter ended March 31, 1998 totaled $1,800,823
compared to $1,364,782 during the first quarter of 1997, an increase of
$436,041. The primary reason for the increase, which was anticipated by
management, was the increased revenue at The Badlands due to the opening of the
third nine holes in September 1997. Revenues at The Badlands Golf Club in Las
Vegas during the first quarter of 1998 totaled $1,779,223, versus $1,345,510
during the first quarter of 1997, an increase of $433,713 (or 32%). The Company
also generated revenues from management fees of $21,600 during the first quarter
of 1998, compared to $19,272 in 1997, under management contracts with New
England Country Club in Bellingham, Massachusetts, and a management contract
with Las Vegas International Golf Center, in which the Company owns a 21.5%
interest.
OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES were $1,400,332 during the
quarter ended March 31, 1998 compared to $1,081,077 for the corresponding period
in 1997, an increase of $319,255.
Operating expenses at The Badlands during the first quarter of 1998 totaled
$1,163,066 versus $836,567 in 1997, an increase of $326,499.
16
<PAGE> 21
Corporate administrative expenses totaled $237,266 during the first quarter
of 1998 compared to $ 244,510 during the corresponding period in 1997, a
decrease of $7,244.
INTEREST EXPENSE totaled $291,432 for the quarter ended March 31, 1998 compared
to $187,909 during the quarter ended March 31, 1997. Interest expense relating
to The Badlands totaled $291,432 during the first quarter of 1998 versus
$178,047 during the first quarter of 1997. Interest at The Badlands relates to a
first mortgage of the golf course, an obligation incurred in connection with the
purchase of water rights; and interest on capital leases relating to turf
maintenance equipment, furniture, fixtures, and other equipment. Total bank debt
and capital lease obligations at The Badlands as of March 31, 1998 totaled
$10,197,575, and the long term obligation under the water rights agreement was
$848,937 as of March 31, 1998. See Note 4 to the consolidated financial
statements included herein.
INTEREST INCOME totaled $245 during the first quarter of 1998 compared to
$11,098 during the corresponding period in 1997.
EQUITY IN LOSSES OF UNCONSOLIDATED AFFILIATE. On December 31, 1996 the Company
purchased and retained a minority 21.5% ownership interest in the Las Vegas Golf
Center (the "Center"), a golf practice center located in Las Vegas, Nevada. The
Center opened for business on January 17, 1997. The Company accounts for its
ownership interest in the Center under the equity method. Under this method, the
original investment in the Center was recorded at cost and is adjusted
periodically to recognize the Company's share of earnings or losses after the
date of acquisition. During the first quarter of 1998, the Company recorded a
$43,000 loss representing the Company's pro rata share in the Center's operating
losses compared to $38,000 during the corresponding period in 1997. See notes to
consolidated financial statements included herein. At March 31, 1998 the Company
had capitalized $1,057,241 related to this investment, which is carried as
Investment in Golf Facilities on the balance sheet included with the
consolidated financial statement included herein.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 3, 1998, the Company brought an action in Nevada Federal District Court
against unrelated individual shareholders of Golf Centers of America, Inc., a
California corporation (the Sellers), seeking damages and declaratory relief and
alleging breach of contract, fraud and misrepresentation and breach of warranty
under the terms of an agreement dated November 29, 1996, between the Sellers and
the Company by which the Company purchased the Sellers' membership interest in
the LLC (see Note 2). Under that agreement, the Company had agreed by
January 15, 1998, to pay to the Sellers an additional cash payment of $200,000
and to issue to the Sellers an additional 161,644 shares of the Company's common
stock.
On March 5, 1998 the Sellers filed a complaint against the Company for the same
transaction, in the Southern California Federal District Court seeking
compensatory damages and declaratory relief in excess of $1,500,000, attorney's
fees and interest on all such amounts.
17
<PAGE> 22
The Company believes it has valid claims against the Sellers which will offset
the Sellers' claims, in both the Nevada and California litigation, for the
additional cash payment and additional shares due to the Sellers under the
agreement as described above. The Company also believes that the additional
claims made by the Sellers in the California suit are without merit.
ITEM 2. CHANGES IN SECURITIES None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matter was submitted during the first quarter of the fiscal year covered by
this report to a vote of security holders, whether through the solicitation of
proxies or otherwise.
ITEM 5. OTHER INFORMATION
RISK FACTORS AND CAUTIONARY STATEMENTS
When used in this Form 10-QSB and in future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases, and in oral
statements made with the approval of an authorized executive officer, the words
or phrases "will likely result", "are expected to", "will continue", "is
anticipated", "estimate", "project", and similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such statements are subject to certain
risks and uncertainties, including those discussed under the caption "Risk
Factors and Cautionary Statements" at the beginning of Item 2 of this report.
These risks and uncertainties could cause actual results to differ materially
from historical results and those results and events anticipated or projected.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The Company
also wishes to advise readers that the factors contained in this report could
affect the Company's financial performance and could cause the Company's actual
results and financial position to differ materially from any opinions or
statements expressed with respect to future periods in any current statements.
The Company will not undertake and specifically declines any obligation to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements, or to reflect the occurrence of anticipated or unanticipated
events.
18
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 10.30 - Merger Agreement with Golf Club Partners L.L.C. *
Exhibit 10.31 - 1998 Key Employee Bonus Plan *
* To be filed by amendment.
(b) REPORTS ON FORM 8-K.
NONE
SIGNATURES
In accordance with requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SENIOR TOUR PLAYERS DEVELOPMENT, INC.
Dated: May 15, 1998 By: /s/ BRENDAN KISSANE
---------------------------------
Brendan Kissane
Controller
19
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