<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
TO CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report (Date of Earliest Event Reported):
July 25, 1997
FAMILY GOLF CENTERS, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-25098 11-3223246
-------- ------- ----------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification
incorporation) No.)
225 Broadhollow Road
Melville, New York 11747
----------------------------------------
(Address of principal executive offices)
Registrant's Telephone Number, including
area code: (516) 694-1666
-------------------------------
(Former Address, if changed since last report)
----------------------------------------------
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
By Current Report on Form 8-K, dated August 11, 1997 (the "Original Form
8-K"), Family Golf Centers, Inc. (the "Company") reported, among other things,
the completion of its acquisition of Leisure Complexes, Inc., by means of a
merger. At the time of the filing of the Original Form 8-K with the Securities
and Exchange Commission it was impractical to file the financial statements of
Leisure Complexes, Inc. as required by Item 7(a) of Form 8-K. The financial
information required by Item 7(a) of Form 8-K with respect to Leisure
Complexes, Inc. is now available. Accordingly, Item 7(a) and Item 7(c) are
supplemented by the addition of the following:
(a) Financial Statements of Businesses Acquired.
In accordance with Item 7(a)(4) of Form 8-K, attached hereto as Exhibit 1
are the financial statements of Leisure Complexes, Inc. prepared pursuant to
Regulation S-X.
(c) Exhibits.
1. Audited Financial Statements of Leisure Complexes, Inc. for the year
ended December 31, 1996.
2
<PAGE>
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 hereunto duly authorized.
Date: August 15, 1997
FAMILY GOLF CENTERS, INC.
By: /s/ Dominic Chang
---------------------------
Dominic Chang,
President and Chief Executive Officer
3
<PAGE>
INDEX TO EXHIBITS
Exhibit Page Number
- ------- -----------
1. Audited Financial Statements of Leisure Complexes, Inc.
for the year ended December 31, 1996.
4
<PAGE>
LEISURE COMPLEXES, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 1996
<PAGE>
LEISURE COMPLEXES, INC.
CONTENTS
Page
----
Independent Auditors' Report 1
Balance Sheet 2-3
Statement of Operations and Accumulated Deficit 4
Statement of Cash Flows 5-6
Notes to Financial Statements 7-17
<PAGE>
[FGM & CO. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Leisure Complexes, Inc.:
We have audited the accompanying balance sheet of Leisure Complexes, Inc. at
December 31, 1996, and the related statements of operations, accumulated
deficit and cash flows for the year then ended. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Leisure Complexes, Inc. at
December 31, 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
As discussed in Note 7 to the financial statements, subsequent to December 31,
1996, the Company was acquired.
/s/ Feldman Gutterman Meinberg & Co.
June 27, 1997
Manhasset, New York
-1-
<PAGE>
LEISURE COMPLEXES, INC.
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
Current Assets:
Cash escrow - redeemable preferred stock $ 1,300,000
Parts, product & beverage inventory 269,171
Trade accounts receivables 116,910
Loan receivable - employees 46,982
Dividend receivable - workman's compensation 19,556
Deferred tax assets 83,565
Prepaid assets 189,647
------------
Total Current Assets 2,025,831
------------
Property and Equipment, net of accumulated depreciation 26,790,945
------------
Other Assets:
Goodwill 100,351
Deferred charges, net of amortization 355,003
Deferred tax asset, net of deferred tax liability
of $190,482 119,605
Security deposits 10,572
------------
Total Other Assets 585,531
------------
Total Assets $ 29,402,307
============
See Notes to Financial Statements.
-2-
<PAGE>
LEISURE COMPLEXES, INC.
BALANCE SHEET
DECEMBER 31, 1996
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Cash overdraft $ 126,732
Accounts payable & accrued expenses and taxes payable 1,819,952
Construction related payables - Sports Plus 1,335,125
Accrued interest payable 458,272
Mortgages payable 789,736
Notes payable 536,038
Line of credit - State Bank of Long Island 100,000
Line of credit - Chase Manhattan Bank 400,000
Due to affiliates 92,280
League deposits 205,682
Tournaments & exchanges 153,396
ProAm tournament advance deposits 159,593
Vending & amusement games, advance deposits 67,437
------------
Total Current Liabilities 6,244,243
------------
Long-term Liabilities:
Mortgages payable 9,332,081
Notes payable 1,745,194
Construction loan 10,550,000
Equipment loan 3,700,000
Loan guarantee fee 90,553
Notes payable - shareholders - Series I 64,487
Notes payable - shareholders - Series II 450,000
Other shareholder loans 1,257,000
Sports Plus associated bank fees & costs payable 712,500
------------
Total Long-term Liabilities 27,901,815
------------
Total Liabilities 34,146,058
------------
Redeemable Preferred stock 1,350,000
------------
Shareholders' Equity (Deficit):
Capital stock 50,000
Additional paid in capital (3,810,689)
Accumulated deficit (2,333,062)
------------
Total Shareholders' Equity (Deficit) (6,093,751)
------------
Total Liabilities & Shareholders' Equity (Deficit) $ 29,402,307
============
See Notes to Financial Statements.
-3-
<PAGE>
LEISURE COMPLEXES, INC.
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996
Sales $ 14,092,648
Operating Expenses 11,972,573
Selling, General and Administrative Expenses 1,631,683
---------------
Income from Operations 488,392
Interest Expense (1,974,719)
Other Income 419,888
---------------
(Loss) before(Provision)Benefit for Income Taxes (1,066,439)
(Provision) Benefit for Income Taxes - Deferred 203,170
---------------
Net (Loss) (863,269)
Accumulated Deficit - Beginning of Year (1,469,793)
---------------
Accumulated Deficit - End of Year $ (2,333,062)
===============
See Notes to Financial Statements.
-4-
<PAGE>
LEISURE COMPLEXES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
Cash Flows From Operating Activities:
Net (Loss) $ (863,269)
Adjustments to reconcile net (loss) to net cash
provided by operating activities:
Depreciation and amortization charges 1,510,815
Provision/(benefit) for income taxes (203,170)
(Increase) decrease in assets:
Trade accounts receivable (74,426)
Dividend receivable - workmens compensation 6,169
Loan receivables - employee (5,589)
Product and beverage inventory (39,614)
Insurance reimbursement affiliate 3,409
Due to affiliates 148,931
Prepaid real estate taxes and tax escrow 307
Prepaid assets (17,225)
Security deposits (112)
Deferred charges (14,220)
Increase (decrease) in liabilities:
Accounts and accrued expenses and taxes payable 1,369,008
Accrued interest payable 316,720
League deposits (43,501)
Tournaments and exchanges 83,104
Pro Am tournament advance deposits (101,933)
Vending and amusement games, advance deposits 65,436
-------------
Cash Provided By Operating Activities 2,140,840
Cash Flows From Investing Activities:
Capital improvements and purchases of fixtures & equipment (13,237,130)
-------------
Cash Flows From Financing Activities:
Proceeds from Chemical Bank construction loan 6,488,073
Proceeds from Chemical Bank - equipment loan 3,313,784
Additions to shareholders loans payable 1,252,000
Additional paid in capital due to officer stock agreement
compensation plan 33,000
(continued on next page)
See Notes to Financial Statements.
-5-
<PAGE>
LEISURE COMPLEXES, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(continued)
Proceeds from State Bank of Long Island - term loan/line
of credit 600,000
Proceeds from State Bank of Long Island - line of credit 100,000
Issuance of redeemable preferred stock (1,300,000)
Proceeds from preferred stock issuance 1,300,000*
Proceeds from Chemical Bank - line of credit 1,600,000
Aggregate principal repayments on mortgages/notes payable (1,185,040)
Repayment of line of credit - Chemical Bank (1,600,000)
Partial repayment of loan to shareholder (70,000)
Payment of commitment fee (25,000)
-------------
Cash Provided From Financing Activities 10,506,817
-------------
(Decrease) in Cash (589,473)
Cash and Cash Equivalents - Beginning of Year 462,741
-------------
Cash and Cash Equivalents - End of Year $ (126,732)
=============
Supplemental Disclosure of Cash Flow Information
Cash Paid for Interest $ 1,974,719
=============
Supplemental Disclosure of Non Cash Investing and Financing Activities:
* In January 1997, a shareholder elected to convert their $50,000 Series
II Note to the Company's new issuance of Convertible Redeemable Preferred
Stock. This conversion is reflected at December 31, 1996.
Upon the closing on August 8, 1996 of the sports and entertainment loan
with Chase Manhattan, Chase Manhattan is deemed to have earned and
therefore the Company has accrued $87,500 in commitment and success fees.
See Notes to Financial Statements.
-6-
<PAGE>
LEISURE COMPLEXES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation:
In previous years, the Company prepared its financial statements using
the income tax basis of accounting. This basis differed from generally
accepted accounting principles (GAAP) primarily because the Company
revalued and stepped up the basis of certain assets over their
historical cost when they were contributed in the tax-free
reorganization of February 1, 1991. For the year ended December 31,
1996, the Company has changed its basis of presentation to reflect the
financial statement in accordance of GAAP.
All interdivision accounts and transactions have been eliminated.
Organization:
Leisure Complexes, Inc. ("The Company") formerly known as Melville
Bowling Center, Inc. (prior to the February 1, 1991 merger) was
incorporated May 1976 under the laws of the State of New York and
elected Small Business Corporation ("S" Corporation) status for both
Federal and New York State income tax purposes (see Note 4). The
Company 's bowling division operates seven (7) facilities on Long
Island.
On July 1, 1996 the Company commenced partial business operations at
Sports Plus(TM). Sports Plus(TM) is a Company created concept that
operates a year round indoor family oriented active leisure and
recreation center designed to provide a wide variety of entertainment
for all ages. The facilities include bowling, ice skating, lasertag,
virtual reality interactive sports, motion theater, restaurant,
"Edutainment" center for tiny tots, lounge, snack bar, sports bar, and
event center that will be used for large meetings, corporate
gatherings, concerts, trade shows and conventions. The Company also
manages an 18 hole executive golf course, driving range, and club
house that is adjacent to the Sports Plus facility.
Capital Structure:
Redeemable Preferred Stock:
On October 25, 1996 and again in April 1997, the Company released
and issued a Private Placement Memorandum Offering to raise
$6,000,000 of additional capital by issuing $100 Convertible
Redeemable Preferred Stock. As of December 31, 1996, the Company
raised $1,300,000 from this offering.
The holder of the Company's preferred stock will be entitled to
receive dividends at the rate of $20 per share accruing annually
and warrants that will be valued based upon a future initial
public offering of $30,000 for each $100,000 unit of preferred
stock. The warrants will be exercisable and convertible at 120%
of the IPO price. The Company presently intends to pay an annual
dividend on its Cumulative, Non-Voting, NonParticipating,
Convertible Redeemable Preferred Stock at the rate of $8 per
share. It is the present intent of the Company that the remaining
$12 dividend per share will accrue on the books of the Company
and be paid in full, without interest, not earlier than any
conversion or redemption of such preferred stock. If the Company
calls the preferred stock prior to the IPO, the shareholder is
entitled to an additional $15 per share for each share redeemed
in addition to the call price (see Note 7).
At December 31, 1996, dividends in arrears on the $20 cumulative
redeemable preferred stock amounted to $19,239. This was paid
upon liquidation of the cumulative redeemable preferred stock on
July 24, 1997 when the Company was acquired (see Note 7).
-7-
<PAGE>
LEISURE COMPLEXES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Capital Structure: (continued)
Common Stock:
In March 1997, the Board of Directors authorized a
reclassification of the shares of no par value common stock of
the Company at a value of $500,530, to common stock having a par
value of $.01 per share, thus shares of common stock increased
changing the number of shares authorized to 10,000,000, and
issued and outstanding from 400 shares to 5,000,000 shares. This
transaction was accounted for by issuing 5,000,000 shares of $.01
par value of common stock by increasing additional paid in
capital in the amount of $450,530.
This transaction is reflected in these financial statements.
Since the Company plans to issue Convertible Redeemable Preferred
Stock in connection with their private placement memorandum
offering, they have reserved 1,409,524 shares as a result of the
reclassification for issuance upon the sale and conversion of the
maximum amount of the Convertible Redeemable Preferred Stock to
be sold by this offering. The determination of how many shares
need to be reserved is based upon managements and their placement
and investment advisors, Josephthal Lyon & Ross, Inc. best
estimate of what the Company's initial public offering (IPO) will
price out at.
Concentration of Credit Risk:
At December 31, 1996, the Company had cash or cash equivalents
(short-term, highly liquid investments readily convertible into cash
with a maturity of three months or less) in excess of federally
insured limits of $100,000.
Income Taxes:
Effective October 1, 1996, the Company elected to revoke their small
business "S" corporation status and will thereafter be treated and
taxed as a "C" corporation. Accordingly, a benefit for federal and
state income taxes has been provided for in accordance with FASB 109
by the Company for the three month period ended December 31, 1996 that
the Company operated as a "C" corporation.
Inventory:
The Company maintains inventory on machine parts and replacements and
redemption prizes. Additionally, the Company maintains inventory for
their food, beverage, liquor and beer purchases.
Use of 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.
-8-
<PAGE>
LEISURE COMPLEXES, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Employee Benefit Plan:
The Company has a defined contributions plan (401-K) covering all
employees who meet the eligibility requirements. To be eligible, an
employee must be a full time employee who has one year of service and
must be age twenty-one or older. The Company contributes fifty percent
(50%) of the first six percent (6%) of base compensation that a
participant contributes to the plan through their elected deferrals.
Additional amounts may be contributed at the discretion of Company's
Board of Directors.
2. REAL PROPERTY, FIXED ASSETS AND EQUIPMENT AT DECEMBER 31, 1996:
Property and equipment are stated at cost. The costs of additions and
betterments are capitalized and expenditures for repairs and
maintenance are expensed in the period incurred. Assets placed into
service during and after 1981 use either the straight line or
accelerated methods for depreciation.
TOTAL
BUILDING $ 20,423,393
BLDG. IMPROVEMENTS 2,553,703
EQUIPMENT 14,798,522
FURNITURE & FIXTURES 840,274
LEASEHOLD IMPROVEMENTS 64,512
SITE DEVELOPMENT 36,160
OTHER ASSETS 134,256
------------
38,850,820
LAND 884,305
------------
TOTAL
BEFORE DEPRECIATION 39,735,125
LESS: ACCUMULATED DEPRECIATION 12,944,180
------------
TOTAL ASSETS - NET OF DEPRECIATION $ 26,790,945
============
-9-
<PAGE>
LEISURE COMPLEXES, INC.
NOTES TO FINANCIAL STATEMENTS
3. MORTGAGES AND NOTES PAYABLE:
Long term debt at December 31, 1996 consists of the following:
<TABLE>
<CAPTION>
PRINCIPAL BALANCE
----------------- INTEREST MATURITY
LENDER PROPERTY CURRENT MATURITY NON CURRENT MATURITY RATE DATE
------ -------- ---------------- -------------------- ---- ------
<S> <C> <C> <C> <C> <C>
Consolidated Mortgage
-Chase Manhattan -I Melville} $ 252,704 $ 3,269,954 11.42% August 17, 2000
Bayshore}
Consolidated Mortgage
-Chase Manhattan-II Sayville}
Shirley}
Centereach} 220,360 3,285,763 10.57% August 14, 2001
Consolidated Mortgage
Chase Manhattan Syosset 156,672 1,736,368 P+1.5% January 1, 2009
Note Payable -
-Junior Mortgages - 160,000 1,039,996 P+1.5% June 1, 2004
----------- ------------
789,736 9,332,081
----------- ------------
Chase Manhattan
-term loan Syosset 247,200 659,240 P+1.0% August 31, 2000
Note Payable - Property
Acquisition - Shareholder Bayshore 68,838 297,621 9.25% February 1, 2001
State Bank - term loan Sports Plus 220,000 788,333 P+1.5% August, 2001
----------- ------------
536,038 1,745,194
----------- ------------
Total $ 1,325,774 $ 11,077,275
=========== ============
</TABLE>
(CONTINUED ON NEXT PAGE)
-10-
<PAGE>
LEISURE COMPLEXES, INC.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED FROM PRECEDING PAGE)
3. MORTGAGES AND NOTES PAYABLE: (continued)
The future principal maturities as of the above date are as follows:
<TABLE>
<CAPTION>
CONSOLIDATED MORTGAGE
Year End Chase Manhattan Chase Manhattan Note Payable
December 31 Total I II Mortgages
<S> <C> <C> <C> <C>
1997 $ 1,325,774 $ 252,704 $ 220,360 $ 160,000
1998 1,387,288 283,122 244,814 160,000
1999 1,455,824 317,202 271,982 160,000
2000 3,764,065 2,669,630 302,165 160,000
2001 2,960,422 -- 2,466,802 160,000
THEREAFTER 1,509,676 -- -- 399,996
----------- ----------- ----------- -----------
$12,403,049 $ 3,522,658 $ 3,506,123 $ 1,199,996
=========== =========== =========== ===========
</TABLE>
[RESTUBBED FROM ABOVE TABLE]
<TABLE>
<CAPTION>
CHASE MANHATTAN
SYOSSET ACQUISITION SPORTS PLUS
Acquisition Mortgage Term Loan Term Loan
<C> <C> <C> <C> <C>
1997 $ 68,838 $ 156,672 $ 247,200 $ 220,000
1998 75,480 156,672 247,200 220,000
1999 82,768 156,672 247,200 220,000
2000 90,758 156,672 164,840 220,000
2001 48,615 156,672 -- 128,333
THEREAFTER -- 1,109,680 -- --
----------- ----------- ----------- -----------
$ 366,459 $ 1,893,040 $ 906,440 $ 1,008,333
=========== =========== =========== ===========
</TABLE>
-11-
<PAGE>
LEISURE COMPLEXES, INC.
NOTES TO FINANCIAL STATEMENTS
3. MORTGAGES AND NOTES PAYABLE: (continued)
Consolidated Mortgage - Chase Manhattan - I:
On August 17, 1990, the Company entered into a loan agreement with
Chase Manhattan (Chase) (formerly Chemical Bank) to increase
Melville's existing mortgage of $841,625. At this closing, Chase
Manhattan loaned to Bayshore Bowl, and to Melville, an additional sum
of $3,758,375. The additional sum was consolidated with Melville's
existing mortgage to Chemical to create a single mortgage lien of
$4,600,000.
Bayshore's portion of the mortgage with Chase was $3,200,000, the
balance of $1,400,000 was attributable to Melville.
The mortgage loan bears interest at a fixed rate of 11.42%. Commencing
September 17, 1990 payments of principal and interest are due and
monthly thereafter in the amount of $53,503 to be applied first
against interest and the balance against principal. The entire
principal balance is due and payable August 17, 2000.
Consolidated Mortgage - Chase Manhattan-II:
On August 14, 1991, the Company refinanced with Chase Manhattan
existing mortgages held on the following properties:
Property Mortgage Held By
-------- ----------------
Shirley Lanes Marine Midland
Sayville Bowling Center Southhold Savings
Recreational Concepts Marine Midland
Recon Associates Marine Midland
The new consolidated mortgage with Chase Manhattan as originally
issued aggregated $4,359,000 and is in addition to the previous
$4,600,000 mortgage that was executed August 17, 1990 by the Company.
The mortgage bears interest at a fixed rate of 10.57% per annum
commencing September 14, 1991 with payments of principal and interest
due monthly in the amount of $48,373. The mortgage is based upon a
fifteen year amortization payout with a ten year balloon that calls
for the entire principal balance to be due and payable on August 14,
2001.
Stock Buyout Acquisition:
On August 16, 1990, the then principal shareholders of the former
Company, Arthur J. Calace, Jr. and Jay Orloff, reached an agreement
whereby Calace acquired Orloff's ownership interest in the Company
and its former affiliates.
The consideration paid for this acquisition was $2,800,000. Upon the
execution of the agreement, $500,000 was paid to Orloff and an
installment note in the amount of $2,300,000 was issued by Calace to
Orloff. This note was subsequently refinanced on May 19, 1994 and
incorporated by Chase Manhattan as junior debt (see Note 3- Junior
Mortgage).
-12-
<PAGE>
LEISURE COMPLEXES, INC.
NOTES TO FINANCIAL STATEMENTS
3. MORTGAGES AND NOTES PAYABLE: (continued)
Subsequent to the plan of reorganization (see Note 1), Mr. Calace
assigned both his interest acquired from Jay Orloff and the resulting
obligation of $2,300,000 to the Company.
Syosset Bowl Acquisition and Financing:
On April 14, 1993, the Company purchased for $2,000,000 the real
property that was previously known as Syosset Bowl. The real property
purchased was a vacant building that occupied one parcel of land.
In connection with this acquisition, the Company obtained the
necessary financing from its shareholders', Chase Manhattan and
current operations. The funds obtained for this acquisition and
improvement were received from the following sources:
- Shareholders' Series II - Notes Payable $ 500,000
- Chase Manhattan Acquisition Mortgage $1,612,500
- Chase Manhattan Construction Loan 737,500 2,350,000
-------------
- Chase Manhattan Equipment Term Loan 1,450,000
----------
Total Financing Obtained $4,300,000
==========
The Shareholders Series II notes payable of $450,000 bear interest at
ten percent (10%) per annum payable quarterly. The notes mature and
are payable in full on January 1, 1998. The series of notes consists
of five (5) separate notes payable to five different shareholders
ranging from $25,000 to $300,000 per note. One note, in the amount of
$50,000 was converted to Convertible Redeemable Preferred Stock
subsequent to the balance sheet date. However, the conversion is
reflected at December 31, 1996.
On January 20, 1994, Chase Manhattan consolidated its original
acquisition mortgage of $1,612,500 and construction loan of $737,500
with the Company into a single first mortgage of $2,350,000. This new
consolidated first mortgage bears interest at the rate of one and one
half percent (1 1/2%) over the Chase Manhattan prime rate. The
principal is payable in 180 equal monthly installments of $13,056
commencing on February 1, 1994. The entire principal balance is due
and payable January 1, 2009.
The Chase Manhattan Term loan of $1,450,000 was used to finance the
purchase of equipment. The loan bears interest at one and one half
percent (1 1/2%) per annum above prime and is amortized over seven (7)
years according to the following amortization schedule:
- Twenty four (24) equal payments commencing
on September 30, 1993 of $8,915 and $ 213,960
- Fifty nine (59) equal payments commencing
on September 30, 1995 of $20,600 and 1,215,400
- One final principal payment due on August 31,2000 of 20,640
-----------
$ 1,450,000
===========
-13-
<PAGE>
LEISURE COMPLEXES, INC.
NOTES TO FINANCIAL STATEMENTS
3. MORTGAGES AND NOTES PAYABLE: (continued)
Junior Mortgage:
On May 19, 1994, the Company entered into a new loan agreement with
Chase Manhattan to refinance the "Orloff" acquisition note for
$1,600,000. The loan bears interest at the floating rate of 1.5% over
the Bank's prime rate. The payments of principal are fixed in the
amount of $13,334 and begin on July 1, 1994. The entire balance of
the mortgage is due with accrued interest on June 1, 2004.
Line of Credit:
The Company had established a line of credit at Chase Manhattan for
funds up to $400,000.
Loan Covenants:
As a condition for providing the Company with the long-term financing
detailed above, Chase Manhattan has included in their mortgage and
note agreements certain loan covenants. These loan covenants specify
certain financial statement amounts and ratios that are to be
maintained by the Company. At December 31, 1996, the Company is not in
compliance with the loan covenants. However, the Company did receive a
waiver from Chase Manhattan regarding the loan covenants.
As an additional condition for providing the Company with the long
term financing, Chase Manhattan requested that Mr. Calace in addition
to the Corporation provide Chase Manhattan with his personal guarantee
on all existing loans and mortgages. In consideration for this
guarantee the Company has agreed to accrue a loan guarantee fee at a
rate of one quarter of one percent (1/4%) per annum on the average
outstanding principal balance each year, payable to Mr. Calace. Since
this fee is not being paid currently, the Company has recorded and
recognized the obligation.
Sports Plus Construction and Equipment Loan:
In August 1996, the Company executed with Chase Manhattan an extension
and modification agreement on their existing loan for an additional
$1,250,000 bringing the total construction financing commitment by
Chase to $14,250,000.
On August 25, 1995 the Company entered into a loan agreement with
Chase Manhattan to finance the construction and purchase of equipment
for the development of their Sports Plus project (see Note 6). The
loan is secured by a commercial mortgage for an amount not to exceed
$14,250,000.
Both the construction and equipment loans bear interest at the rate of
2% over the prime lending rate and is payable monthly.
Construction is to be completed within eighteen months of the closing
of this loan. At the time of completion Chase Manhattan will convert
this construction loan and the equipment loan to permanent financing
in accordance with the mortgage commitment.
The permanent loan will bear interest at a rate equal to 2% plus the
prime rate payable monthly. The loan will be amortized as follows:
o During the first two (2) year term of the permanent loan,
twenty-four (24) consecutive monthly principal payments based
upon a nineteen (19) year amortization rate commencing on the
first day of the month after the conversion from a construction
(interest only) loan to a permanent loan.
-14-
<PAGE>
LEISURE COMPLEXES, INC.
NOTES TO FINANCIAL STATEMENTS
3. MORTGAGES AND NOTES PAYABLE: (continued)
o During the last eight (8) year term of the permanent loan,
ninety-five (95) consecutive monthly principal payments based
upon a fourteen and a third (14 1/3) year amortization rate.
Sports Plus Construction and Equipment Loan: (continued)
o One final principal payment equal to the unpaid principal plus
the accrued but unpaid interest.
The loan is subject to various fees of which some were paid on
exercising the commitment, some at the time of closing, and the
balance to be paid over four years. These fees aggregate
$1,127,500. In addition to the corporate guarantee, collateral,
and security interests assigned, the loan is also personally
guaranteed by Mr. Calace, the Company's chairman and largest
single shareholder.
Additionally, Chase Manhattan required and received from the
shareholders' of the Company their stock pledge as collateral
for fifty-one percent (51%) of the Company's stock.
This loan like previous existing loans with Chase Manhattan is also
subject to certain loan covenants, financial ratios and minimum
balances to be maintained.
Sports and Entertainment Facility - Term Loan - State Bank of Long
Island:
In April, 1996, the Company increased their line of credit by $100,000
from $1,000,000 to $1,100,000 and converted the line of credit to a
sixty (60) month term loan. The payments of principal are fixed in the
amount of $18,333 and began in August 1996. The loan is a five (5)
year term loan payable at an interest rate of 1.5% over the bank's
prime rate.
State Bank of Long Island - Line of Credit:
On July 29, 1996, the Company established a line of credit and
borrowed the maximum funds of $100,000. These funds are to be used for
the day to day operation of the facility. The line bears interest at
the rate of 1% over the Bank's prime rate. The line of credit is due
and payable on August 29, 1997.
4. INCOME TAXES:
As of December 31, 1996, the Company adopted FASB 109 since it now
reports and files as a "C" corporation. As a result of adopting FASB
109, the Company has recognized deferred tax assets that are
deductible temporary differences which aggregate to $393,652,
primarily related to the basis of fixed assets and deferred tax
liabilities for taxable temporary differences which aggregate to
$190,482, primarily related to depreciation. At December 31, 1996, the
Company had a net operating loss (NOL) in the amount of $141,662 which
will be used to offset future taxable income. This NOL will expire in
the year 2011.
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<PAGE>
LEISURE COMPLEXES, INC.
NOTES TO FINANCIAL STATEMENTS
5. COMMITMENTS:
Rocky Point Bowl:
On July 1, 1989, the Company extended its existing lease agreement
with In Towne Shopping Center Co. to run through June 30, 2009. The
Company had originally entered into a lease agreement with In Towne
Shopping Center Co., Inc., on March 30, 1973 for the rental of 30,880
square feet to be used for their bowling operations. The original
lease agreement was for a twenty year period with escalating base
rents and cost of living index adjustments commencing June 1, 1976.
During the period ended December 31, 1996, rental expense under the
long-term lease obligation was $135,855.
Future obligations over the primary terms of the Company's long-term
leases as of December 31, 1996 are:
* AMOUNT PER ANNUM TOTAL
---------------- -----
7/1/94 - 6/30/99 $ 100,000 $ 250,000
7/1/99 - 6/30/04 110,000 550,000
7/1/04 - 6/30/09 120,000 600,000
------------- ------------
$ 330,000 $ 1,400,000
============= ============
* Note - These amounts are exclusive of any future cost of living
index adjustments.
Stony Brook Bowl:
The Company entered into a lease agreement with S&E Realty on June 1,
1976 for the rental of 34,500 square feet to be used for their bowling
operations. The original lease agreement was for a twenty year period
with escalating base rents commencing June 1, 1976.
In August, 1996, the Company did not renew their lease with S&E Realty
when it expired. The Company instead moved the business into the new
Sports Plus facility location (Lake Grove Bowl).
During the period ended December 31, 1996, rental expense under the
long-term lease obligation was $105,000.
Sports Plus:
The Company entered into a lease agreement with a related party (Three
Grove Partners) to lease the land on which the Sports Plus facility is
located. The lease is for a term of 48 years with annual base rents of
$256,000, payable in equal monthly installments of $21,334. In
addition to the base rent, the Company shall pay an additional 5% on
the amount of revenues earned in excess of the Company's gross
operating income base level of $8,000,000 in any calendar year. As a
condition to this lease, Three Grove Partners agreed to subordinate
their land value to Chase Manhattan Bank for up to $14,250,000.
During the period ended December 31, 1996, the rental expense under
the above long-term lease obligation was $96,003.
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<PAGE>
LEISURE COMPLEXES, INC.
NOTES TO FINANCIAL STATEMENTS
5. COMMITMENTS: (continued)
Private Placement Agreement:
The Company signed an agreement with Josephthal Lyon & Ross
Incorporated (Josephthal) to act as their exclusive placement agent to
sell $4,000,000 of its preferred stock subscriptions. Josephthal will
be paid at each closing of sales a cash commission of eight percent
(8%) of the subscription price of each share sold by or through
Josephthal. This agreement was subsequently canceled on June 10, 1997.
Guarantee:
Barclays Bank, in exchange for releasing Leisure's corporate guarantee
on their mortgage with Three Grove Partners (a related party), agreed
to release their first lien and priority position to Chase Manhattan
Bank on the 16 acre parcel of land that Three Grove Partners owns and
leases to Sports Plus and Leisure Complexes, Inc. under a long term
ground lease.
6. TRANSACTIONS WITH RELATED PARTIES:
In the normal course of business, receivables, payables, revenues, and
expenses have been, and will continue to be generated from
transactions with related parties. The Company had entered into
various agreements with a number of entities controlled by, and or
affiliated with, its shareholders and officers.
One such agreement calls for a management fee to be charged by the
Company to their affiliates, The Ponds. This management fee is being
accrued at a rate of three percent (3%) per annum of their total gross
revenues.
7. SUBSEQUENT EVENT:
In May 1997, the catering facility of a related party, Three Grove
Partners, transferred its kitchen equipment and related loan with
Suffolk County National Bank in the amount of $207,722.
In June 1997, prior to canceling their agreement with Josephthal, the
Company raised an additional $300,000, exclusive of selling commission
costs, from the private placement memorandum offering (see Note 1).
Sale of Business (Unaudited):
On July 24, 1997, the Company and its shareholders agreed to sell its
business pursuant to an acquisition agreement with Family Golf Center,
Inc. ("FGCI") that will be treated as a tax free merger to the
existing Company shareholders.
In exchange for the Company's net assets and continuing business
operations, FGCI assumed all existing debt and liabilities of the
Company and issued stock of 509,090 of FGCI to the existing
shareholders of the Company.
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