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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) of the SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-25098
Family Golf Centers, Inc.
(Name of small business issuer in its Charter)
Delaware 11-3223246
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
225 Broadhollow Road
Melville, New York 11747
(Address of principal executive offices)
(516) 694-1666
(Registrant's telephone number)
Securities registered pursuant to 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value Nasdaq Stock Market
$.01 per share
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Exchange Act during the
past 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock (based upon the
closing sales price of such stock) held by nonaffiliates of the Registrant was
$112,581,975 on March 25, 1997. (For purposes of this report, the number of
shares of Common Stock of the Registrant held by non-affiliates was determined
by aggregating the number of shares beneficially held by officers and
directors of the Registrant and by others who, to the Registrant's knowledge,
own 10% or more of the Common Stock, and subtracting such
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shares from the total number of shares outstanding).
The Registrant had 11,871,117 shares of Common Stock outstanding as of March
25, 1997.
Documents Incorporated by Reference: The information required by Part III,
Items 10, 11, 12 and 13 is incorporated by reference to the registrant's
definitive proxy statement if filed with the Securities and Exchange
Commission on or before April 30, 1997 or, if such proxy statement is not
filed, will be filed with the Commission as an amendment to this Form 10-K
under cover of Form 10- K/A, not later than April 30, 1997.
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THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD LOOKING
STATEMENTS THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD
LOOKING STATEMENTS.
PART I
ITEM 1. BUSINESS
GENERAL
Family Golf Centers, Inc. (together with its subsidiaries, unless
the context requires otherwise, the "Company") operates golf centers designed
to provide a wide variety of practice opportunities, including facilities for
driving, chipping, putting, pitching and sand play. In addition, the Company's
golf centers typically offer golf lessons instructed by PGA-certified golf
professionals, full-line pro shops and other amenities to encourage family
participation. As of December 31, 1996, the Company owned, leased or managed
35 golf facilities comprised of 27 golf centers and eight combination golf
center and golf course facilities located in 14 states. Of the golf centers,
seven are currently operated under the name "Golden Bear Golf Centers"
pursuant to a non-exclusive license agreement (the "License Agreement"),
expiring August 2002, with Golden Bear Golf Centers, Inc. (the "Licensor"). Of
the eight combination golf center and golf course facilities, six include
par-3 or 9-hole golf courses, generally designed to facilitate the practice of
golf, and two include regulation 18-hole golf courses. The Company has
experienced significant recent growth, primarily through the acquisition of 31
facilities since the initial public offering in November 1994 (the "IPO"). The
Company's total revenue increased from $1.9 million in 1992 to $27.9 million
for the 12-month period ended December 31, 1996. During the same period, the
Company's net income increased from a loss of $22,000 to a profit of $5.2
million.
The Company believes that it attracts customers to its golf
centers primarily due to the quality, convenience and comfort of its
facilities and their appeal to the whole family. The Company's golf centers
are designed around a driving range with target greens, bunkers and traps to
simulate golf course conditions. The ranges are lighted to permit night play,
the hitting tees are enclosed or sheltered from above and from the rear in a
climate-controlled environment and, in four cases, all or a portion of the
range is enclosed under an air inflated dome to permit all-weather play. There
are approximately 80 to 100 hitting tees in facilities with the two-tier
design and approximately 30 to 60 hitting tees at smaller golf centers. In
addition to the driving range, the Company's golf centers include a number of
amenities designed to appeal to golfers and their families, such as a
4,000-6,000 square foot clubhouse (including a full-line pro shop, locker
facilities, a restaurant or snack bar and video games), PGA-certified golf
instructors, landscaped 18-hole miniature golf courses and a short game
practice area (including putting green and sand traps). The Company's pro
shops are stocked with clubs, bags, shoes, apparel, videos and related
accessories from a number of suppliers, including brand name manufacturers
such as Karsten Manufacturing Corporation (Ping), Callaway Golf Company, Tommy
Armour Golf, Wilson Golf Company, Mizuno Golf Company, Spalding Sports
Worldwide, Titleist and Footjoy Worldwide (Division of American Brands, Inc.),
Ashworth Clothing Company and Nicklaus Golf Equipment Company. During 1996,
the Company acquired the assets of The Colbert Ballard Golf Learning Centers,
which offers golf instruction nationwide. The Colbert Ballard Golf Learning
Centers, founded in 1993 by professional golfers Jim Colbert and Jimmy
Ballard, offers golf instruction at over 80 golf facilities in more than 30
cities throughout the U.S. For an annual fee, Colbert Ballard provides initial
instruction and an unlimited number of supervised follow-up sessions.
INDUSTRY OVERVIEW
According to the NGF, there were approximately 25 million golfers
in the United States in 1995. The average age of the golf driving range user
was 37.1 years old, with an average household income of $55,700 per year.
Those with household income in excess of $75,000 (approximately 35% of all
stand-alone range users), were the most likely to visit a stand-alone range,
visiting 3.7 times more frequently than those with household income of less
than $30,000 (19% of all stand-alone range users) and 1.5 times more
frequently than those with household incomes between $30,000 and $75,000 (46%
of all stand-alone range users).
According to the Golf Range and Recreational Association there are
currently between 1,900 and 2,300 stand-alone driving ranges in the United
States. Most of the Company's golf centers, the smallest of which has 20 tee
stations, are larger than those generally found in the industry. The average
number of tee stations per range in the industry in 1993 as estimated by the
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NGF, was 40, with 50% of all stand-alone ranges offering 35 or fewer tee
stations. Large stand-alone ranges, defined as ranges with more than 50 tee
stations, accounted for approximately 21% of all facilities. The stand-alone
range industry is highly fragmented. The NGF estimates that in 1993 92% of
stand-alone ranges were managed by owner-operators. The Company believes that
many of these owner-operated ranges are managed by individuals who may lack
the experience, expertise and financial resources to compete effectively.
BUSINESS STRATEGY
The Company's principal business strategy is to grow revenue and
net income by (i) increasing the number of golf centers its owns, leases or
manages through (a) identifying and acquiring well-located ranges that have
the potential for improvement under better management and with improved or
expanded facilities, including the addition of enclosed hitting areas,
full-line pro shops, miniature golf courses and other amenities and (b)
building new centers in locations where suitable acquisition opportunities are
not available and (ii) seeking to realize economies of scale through
centralized purchasing, accounting, management information systems and cash
management. The Company is also exploring opportunities to license or
franchise the Family Golf concept internationally and domestically.
Acquire Existing Ranges and Centers. The Company believes the
highly fragmented driving range industry presents numerous opportunities for
it to acquire, upgrade and renovate golf centers and driving ranges. The
Company's acquisition strategy is to target well-located, underperforming
stand-alone ranges or golf centers in stable communities with favorable
demographics, generally in close proximity to upscale urban and suburban areas
which generally contain the highest concentration of golfers. The Company
anticipates that it will purchase the land and facilities of the properties it
acquires but may from time to time enter into long-term leases or contracts to
manage sites where the Company determines ownership to be uneconomical or
where the facilities are not for sale, such as those owned by municipalities.
In determining which facilities may be suitable acquisition candidates,
management conducts demographic and competitive analyses and considers such
factors as ease of access, visibility from major thoroughfares and potential
for improvement in revenue and operating cash flow through capital
improvements. The Company has three full-time acquisition and development
professionals who are responsible for strategic planning and project
management. These professionals work together with various outside consultants
who are familiar with the Company's demographic requirements and are
knowledgeable about the current opportunities in the various real estate
markets.
After taking operating control of an acquired range, the Company
may commence various capital improvements to conform the acquired range to the
Company's individually tailored development plan for that site. Capital
improvements may include increasing the number of tee stations, sheltering the
hitting stations or enclosing the driving range, installing lights to permit
night play, adding or expanding pro shop and clubhouse facilities and
constructing miniature golf courses and other amenities to encourage family
participation. The Company trains the staff of newly acquired golf centers in
accordance with the standards of existing facilities, and directs the general
manager of the site to report to one of the Company's five Regional Managers.
The Company also usually installs operational controls, including a
token-based system for dispensing range balls, centralized cash management and
management information systems, which allow the Company to centrally track the
operations of each facility from its headquarter offices.
Develop New Centers. In locations where suitable acquisition
opportunities are not available or where the Company determines ownership is
not economically feasible, the Company intends to buy or lease land on which
it will build new golf centers similar to those currently operated by the
Company. To date, the Company has built five of its facilities. Based upon
its experience, the Company anticipates that under normal conditions
construction of a facility will take approximately four to six months to
complete and can be achieved at a total cost of less than $3.5 million,
exclusive of the cost of land. However, there can be no assurance that the
Company will be able to continue to construct its facilities in such time
periods or for such cost. The Company has the expertise and the personnel
to act as its own general contractor and intends to subcontract the
construction of its centers to third
parties.
Economies of Scale. The Company believes that by virtue of its
size, the Company will continue to take advantage of quantity discounts on
equipment and golf merchandise sold through its pro shops. All accounting,
insurance, cash management, finance and human resource functions are monitored
centrally at the Company's headquarters. In markets where the Company has or
attains a substantial presence, the Company believes that it will be able to
take advantage of various advertising media to
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promote attendance at its facilities.
Licensing and Franchising. The Company has granted, for $250,000,
a non-exclusive license to open up to 10 golf centers under the name "Family
Golf" in China to Asia Golf Centers International, Inc., a non-affiliated
entity. The Company will receive royalties equal to the greater of $15,000 or
3% of the gross revenues of each such golf center. The Company believes that
the growing recognition of the Family Golf name and the economies of scale it
realizes in purchasing may make it attractive to license or franchise the
Family Golf concept domestically as well. The Company is currently exploring
this possibility and may grant several licenses to test its viability.
The net proceeds from a public offering for approximately
$74,000,000 in July 1996 and its revolving credit facility with its primary
lender have afforded and, the Company believes, will continue to afford it
greater financial flexibility and access to capital resources to pursue its
business strategy.
The Company's ability to significantly increase revenue, net
income and operating cash flow over time depends in large part upon its
success in acquiring or leasing and constructing additional golf facilities at
suitable locations upon satisfactory terms. The acquisition of golf facilities
may become more expensive in the future to the extent that demand and
competition increases. The likelihood of the success of the Company must be
considered in light of the acquisition or lease opportunities available and
the problems, expenses, difficulties, complications and delays frequently
encountered in connection with the construction and opening of new golf
facilities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
To successfully implement its principal expansion strategy, the
Company must integrate acquired or newly- opened golf facilities into its
existing operations. As the Company grows, there can be no assurance that
additional golf facilities can be readily assimilated into the Company's
operating structure. Inability to efficiently integrate golf facilities could
have a material adverse effect on the Company's financial condition and
results of operations.
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GOLF FACILITIES
As of December 31, 1996, the Company owned, leased or managed 35
golf facilities in 14 states. Set forth below is information concerning each of
them:
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<CAPTION>
LOCATION TYPE OF FACILITY SIZE OF PGA- PRO MINIA- NO. OF OWNED, DATE
OF PROPERTY CERTIFIED SHOP TURE HIT- LEASED OPENED
FACILITY (APPROXI- INSTRUC- GOLF TING OR OR AC-
MATE ACRES) TORS COURSES TEES MANAGED QUIRED(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Farmingdale, NY Golden Bear Golf Center 13 X X one 80 Leased March 1992
Wayne, NJ Golden Bear Golf Center 16 X X two 80 Leased July 1993
Douglaston, NY Golden Bear Golf Center 12 X X two 70 Managed(2) Dec. 1993
Elmsford, NY Golden Bear Golf Center 27 X X two 80 Leased July 1994
Utica, NY Family Golf Center 18 X X one 60 Leased Dec. 1994
Clay, NY Golden Bear Golf Center 23 X X one 132 Leased Jan. 1995
(near Syracuse)
Queensbury, NY Family Golf Center and 18-hole 200 X X __ 40 Owned May 1995
(near Albany) Golf Course
Greenville, SC Family Golf Center 24 X X one 100 Owned May 1995
Glen Allen, VA Family Golf Center 10 X X one 50 Owned Aug. 1995
(near Richmond)
Duluth, GA Family Golf Center(4) 56 X X one(3) 60 Owned Aug. 1995
(near Atlanta)
Alpharetta, GA Family Golf Center 26 X X two 60 Owned Aug. 1995
(near Atlanta)
El Segundo, CA Golden Bear Golf Center and 28 X X __ 58 Managed(5) Nov. 1995
par-3 Golf Course
Gilroy, CA Family Golf Center and par-3 36 X X __ 20 Leased Nov. 1995
Golf Course
Valley View, OH Family Golf Center 19 X X one(3) 130 Owned/ Nov. 1995
(near Cleveland) Leased
Henrietta, NY Golden Bear Golf Center 28 X X one 132 Leased Jan. 1996
Mesa, AZ Family Golf Center and par-3 39 X X __ 80 Owned Feb. 1996
Golf Course
Virginia Beach, VA Family Golf Center and par-3 81 X X __ 36 Leased March 1996
Golf Course
Flemington, NJ Family Golf Center 17 X X two 67 Owned March 1996
Yorktown Heights, NY Family Golf Center 14 X X __ 54 Owned April 1996
Indian River, VA Family Golf Center 14 X X one 60 Leased May 1996
(near Norfolk)
Tucson, AZ Family Golf Center 18 X X one(3) 50 Owned June 1996
Fairfeld, OH Family Golf Center 24 X X one 68 Leased June 1996
(near Cincinnati)
St. Louis, MO Family Golf Center and par-3 42 X X one 100 Leased June 1996
Golf Course
West Palm Beach, FL Family Golf Center and par-3 32 X X one 40 Owned June 1996
Golf Course
San Jose, CA Family Golf Center 25 X X one 100 Leased July 1996
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Los Angeles, CA Family Golf Center 17 X X one 71 Leased July 1996
Denver, CO Family Golf Center 20 X X three 65 Managed (6) July 1996
Englewood County, CO Family Golf Center (3) 36 X X -- 100 Leased Aug. 1996
Fountain Inn, S.C. Family Golf Center and 27-Hole 283 X X -- 20 Owned Aug. 1996
Golf Course and Golf Center
Flanders, NJ Family Golf Center 25 X X two 80 Owned Aug. 1996
Glen Burnie, MD Family Golf Center 38 X X one 50 Leased Sept. 1996
South Easton, MA Family Golf Center(3) 70 X X one 50 Owned Sept. 1996
Margate, FL Family Golf Center 14 X X one 80 Owned Oct. 1996
Milwaukee, WI Family Golf Center(7) 65 X X one 114 Owned Nov. 1996
Mainville, OH Family Golf Center 32 X X two 140 Owned Dec. 1996
</TABLE>
(1) Represents the first month that the facility generated revenue
for the Company.
(2) The Company manages the facility pursuant to a management
contract with the City of New York. The management agreement terminates on
December 31, 2006, but is terminable by the City of New York at will.
(3) Under development.
(4) The Company has commenced construction of a par-3 executive
golf course adjacent to its golf center which it intends to have completed by
April 1997.
(5) The Company manages the facility pursuant to a management
agreement with the City of El Segundo, California. The management agreement
terminates on June 30, 1998 but is terminable earlier by either party, with or
without cause, at the end of each operating year during the term of the
management agreement, upon at least 90 days prior written notice.
(6) The Company manages the facility pursuant to a concession
license with the City and County of Denver. The concession license terminates
on December 31, 2009.
(7) The Company intends to construct a 9-hole executive golf
course adjacent to the golf center.
Since the IPO in November 1994 and through December 31, 1996,
the Company has opened or acquired 31 golf facilities, including two
regulation 18-hole golf courses, and eight combination golf center and par-3
or 9-hole golf course facilities, including one in 1994, nine in 1995 and 21
in 1996. In general, the consideration paid by the Company to acquire each
golf facility has been based on a number of factors, including appraisals of
the acquired facility, the location and demographics of the facility and the
Company's evaluation of the prospects of improving the facility's performance.
Such consideration has consisted principally of cash, Common Stock, notes and,
in the case of asset purchases, assumed liabilities. When feasible, the
Company has requested that a portion of the consideration be placed in escrow
to satisfy indemnity claims, if any. During fiscal years 1994, 1995, and 1996,
respectively, the Company paid an aggregate of $0, $10.2 million and $50.4
million for the facilities acquired during such respective years. For the
purposes of the foregoing, Common Stock which is part of the acquisition
consideration is valued at its reported market value on the date of the
closing of the acquisition.
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THE GOLF CENTERS
The Company's typical golf center is designed around a driving
range landscaped with target greens, bunkers and traps to simulate golf course
conditions. The Company's larger centers include approximately 80 to 100
hitting tees in a two-tier design. Smaller golf centers include approximately
30 to 60 hitting tees. The ranges are generally open from 8:00 a.m. to 11:00
p.m. and are lighted to permit night play. The hitting tees are enclosed or
sheltered from above and from the rear in a climate-controlled environment
and, in four cases, all or a portion of the range is enclosed under an air
inflated dome, to permit all-weather play. Tokens are sold to driving range
customers at each of the Company's golf centers. These tokens are deposited by
customers in machines which dispense precise amounts of golf balls, thus
allowing the Company to monitor closely its cash receipts for buckets of balls
and control its inventory.
In addition to the driving range, the Company's golf centers
generally include a 4,000-6,000 square foot clubhouse, including a full-line
pro shop and locker facilities, landscaped 18-hole miniature golf courses, and
a short game practice area (with putting green and sand traps) and
PGA-certified golf instructors. As part of the Company's strategy to encourage
family participation, the Company's golf centers include amenities such as
miniature golf courses, restaurants and snack bars, video games and batting
cages.
Many of the Company's recently acquired golf centers are
undergoing or expected to undergo capital improvement programs to add certain
amenities. Golf center design is affected by the size, shape and other
characteristics of available site locations, weather patterns, zoning
requirements and market conditions.
The Company's pro shops are stocked with clubs, bags, shoes,
apparel, videos and related accessories from a number of suppliers, including
brand name manufacturers such as Karsten Manufacturing Corporation (Ping),
Callaway Golf Company, Tommy Armour Golf, Wilson Golf Company, Mizuno Golf
Company, Spalding Sports Worldwide, Titleist and Footjoy Worldwide (Division
of American Brands, Inc.), Ashworth Clothing Company and Nicklaus Golf
Equipment Company.
THE GOLF COURSES
Since the IPO in November 1994 and through December 31, 1996, the
Company has acquired one regulation 18-hole golf course (Queensbury, New
York), one 27-hole golf course (Fountain Inn, South Carolina) and six par-3 or
9-hole executive golf courses (Mesa, Arizona, Virginia Beach, Virginia, El
Segundo and Gilroy, California, St. Louis, Missouri and West Palm Beach,
Florida). The Company is constructing a par-3 golf course, adjacent to a
driving range at its Duluth, Georgia facility and intends to construct a
9-hole executive golf course at its Milwaukee, Wisconsin facility.
The 200-acre, 18-hole golf course at Queensbury, New York, known
as the Hiland Golf Club, has a restaurant and catering facility to accommodate
large parties and weddings, a clubhouse, a pro shop, a driving range and
PGA-certified golf instructors on site.
The 283-acre Carolina Springs Golf Club is a 27-hole, semi-private
golf course with a driving range, putting green and a clubhouse with banquet
facilities and pro shop.
Each of the par-3 courses at Mesa, Arizona, St. Louis, Missouri
and West Palm Beach, Florida has a clubhouse, a full-line pro shop and a
driving range. The par-3 golf course in Virginia Beach, Virginia known as the
"Owl's Creek Golf Course," has a clubhouse, a pro shop, a driving range and a
putting course. Each of these golf courses have PGA-certified golf instructors
on site.
Each of the par-3 practice golf courses in California (one of
which is part of a Golden Bear Golf Center) has a clubhouse, a pro shop, a
driving range and PGA-certified golf instructors on site.
The Company's strategy is to acquire golf courses in areas where
it owns or operates or, intends to own or operate, golf centers so that it has
available a golf course on which to: (i) train its golf instructors so that
they may become PGA-certified and (ii) provide full golf packages and complete
instruction to driving range customers. In addition, the Company believes that
it can attract customers of the golf courses to use its golf centers.
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OTHER POTENTIAL SITES
On November 21, 1995, the Company was orally advised by the City
of Seattle, Washington that it had selected the Company's bid to negotiate a
20-year lease with the City for a 40-acre parcel of land located in downtown
Seattle. The Company intends to construct and operate a Golden Bear Golf
Center on this property, including an 80 station two-tier design driving
range, 9-hole golf course, miniature golf course and clubhouse with a
full-line pro shop and restaurant. A definitive lease agreement with the city
of Seattle was signed in November 1996.
The Company is in negotiations to purchase, for approximately $4
million, 35 acres of land in Fairfield, Connecticut, on which the Company
intends to build a golf center. Although the Company had entered into a letter
of intent relating to this transaction, this letter of intent expired.
The Company continually seeks new golf facilities and has had
discussions with a number of parties as to the acquisition or lease of golf
facilities or land.
OPERATIONS
As of December 31, 1996, the Company has golf facilities located
in five regions (the New York City region, the Northern region, the Southeast
region, Midwest region and the Western region), each of which is managed by a
Regional Manager. Each golf facility has a general manager who reports to a
Regional Manager, one to two assistant managers, a head golf professional,
up to four PGA-certified professionals who instruct golfers, approximately
five full-time staff members and approximately 13 to 20 part-time employees,
depending on the season.
Day-to-day responsibility for operation of the Company's golf
centers resides with the general managers. General managers have overall
administrative responsibility for golf center operations, including the
driving range, miniature golf courses, short game practice area, pro shop and
snack bar concession, as well as the condition of the facilities. In addition,
general managers work with the Vice President-Regional Managers to prepare
monthly and annual budgets and marketing plans.
The Company places great importance on recruiting and training
skilled personnel. A majority of the golf instructors are PGA-certified. In
addition, a majority of the general managers have managed or were assistant
managers at other golf centers or courses prior to being hired by the Company.
Regional managers and general managers, as well as other management personnel,
are provided performance incentives such as stock options and bonuses.
The Company emphasizes customer service. Employees undergo a
comprehensive training program where they are instructed, among other things,
to be courteous, wear standardized clothing and display a professional
attitude.
By virtue of operating a number of golf facilities and eight golf
courses, the Company believes it achieves economies of scale not available to
smaller operators. Typically, the Company can acquire artificial turf, range
balls, pro shop merchandise and other golf center supplies and equipment at
lower prices than could an individual operator. The Company can also purchase
insurance coverage at a lower premium rate than would be charged for an
individual golf center. The Company's corporate policies relating to
personnel, labor, cash management and budgets are formulated at the Company's
headquarters and provided to each of the Company's golf facilities. The
Company's accounting, legal, insurance and finance functions and management
information systems are also centralized. This centralization enables
personnel at a golf center to focus on matters relating to the performance of
the particular golf center.
Management information services are important to the successful
operation of the Company's golf centers. The Company's management information
system provides for a centralized purchasing program, financial performance
and other key operating data for all golf facilities. This system allows the
Company to review data on a regular basis and enables the identification of
potential problems.
The Company advertises in newspapers and on radio and cable
television and uses direct mailings and other promotions, including sponsoring
certain charitable events, holding contests and giving free clinics and
equipment demonstrations, to increase consumer awareness of its golf
facilities. The Company believes advertising plays an important role in
attracting golfers to its facilities. Pursuant to the License Agreement, the
Licensor retains the right to approve advertising and other material using the
"Golden Bear" name and logo.
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In order to further understand its markets, the Company conducts
demographic surveys of areas it intends to enter, reviews industry
publications and attends trade shows.
GOLDEN BEAR LICENSE
Under the License Agreement, the Company is licensed to use the
trademark "Golden Bear" and related trademarks and tradenames in the operation
of certain of its golf facilities. The License Agreement is non-exclusive and
the Company does not have the right to open additional Golden Bear Golf Centers,
except for the facility under development in Seattle, Washington. The License
Agreement expires in August 2002, subject to earlier termination under certain
circumstances. Unless terminated by written notice 90 days prior to the end of
its initial term or renewal term, as the case may be, it will be automatically
extended for additional five-year periods. The License Agreement is also
terminable if the current directors of the Company, at any time, constitute less
than 50% of the Company's directors.
The Company paid the Licensor a one-time fee of up to $25,000
facility development fee for each Golden Bear Golf Center and, in most cases,
pays the Licensor an ongoing royalty fee ranging between 3% and 5% of Adjusted
Gross Revenues, as defined in the License Agreement, subject to a minimum
guaranteed royalty of at least $50,000 per year per site. For two of the
sites, the Company pays a fixed annual fee ranging between $35,000 and
$45,000, however, at one of such sites this amount is subject to increase for
increases in the consumer price index. The value of the "Golden Bear" name is
dependent, in part, upon the continued popularity of Jack Nicklaus.
Accordingly, the occurrence of any event which diminishes the reputation of
Mr. Nicklaus and the related "Golden Bear" symbol could adversely affect the
Company's Golden Bear Golf Centers.
COMPETITION
The golf center industry is highly competitive and includes
competition from other golf centers, traditional golf ranges, golf courses and
other recreational pursuits. The Company may face imitation and other forms of
competition and the Company cannot prevent or restrain others from utilizing a
similar operational strategy. Until September 1995, the Company had the
exclusive right to open Golden Bear Golf Centers in certain territories.
However, the Licensor now is permitted to establish, or license others to
establish, Golden Bear Golf Centers that compete with the Company's golf
centers, including its Golden Bear Golf Centers. In addition, the Company's
pro shop business faces competition from pro shops at golf courses and other
golf centers, specialty retailers devoted to golf equipment and apparel,
sporting goods stores and department stores. One advantage that the Company's
pro shops have over certain of its competitors is that the customer may try
golf clubs on the driving ranges before purchasing them. Many of the Company's
competitors and potential competitors have considerably greater financial and
other resources, experience and customer recognition than does the Company.
EMPLOYEES
As of December 31, 1996, the Company had 590 employees, of which
277 were full-time employees and 313 were part-time employees. None of the
employees are represented by a collective bargaining agreement. The Company
has never experienced a strike or work stoppage. The Company believes that its
relationship with its employees is good.
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GOVERNMENTAL REGULATION
Operations at the Company's golf facilities involve the use and
limited storage of various hazardous materials such as pesticides, herbicides,
motor oil, paint and gasoline. Under various federal, state and local laws,
ordinances and regulations (which are administered, in the case of federal
laws and regulations, primarily by the United States Environmental Protection
Agency), an owner or operator of real property is generally liable for the
costs of removal or remediation of hazardous substances that are released on
or in its property regardless of whether the property owner or operator knew
of, or was responsible for, the release of hazardous materials. The Company
has not been informed by any governmental authority or instrumentality of any
non-compliance or violation of any environmental laws, ordinances or
regulations. However, the Company is aware of one notice of violation issued
by the DEC against the owner of the land leased by the Company in Elmsford,
New York alleging that certain hazardous materials were placed on the site.
The owner has taken remedial action and the Company does not believe it will
be affected by the alleged violation. In addition, the environmental studies
performed for the Company by an environmental consultant in August 1995 in
connection with the acquisition of the golf center in Glen Allen, Virginia
disclosed petroleum contamination of the soil, which the Company has reported
to the Virginia Department of Environmental Quality. The Company received
notice from the Department of Environmental Quality that the contamination
level at this site does not warrant further assessment or corrective action.
Although the Company usually hires environmental consultants to conduct
environmental studies, including invasive procedures such as soil sampling or
ground water analysis, on golf facilities it owns, operates or intends to
acquire, in some cases only limited invasive procedures are conducted on such
properties. Even when invasive procedures are used, environmental studies may
fail to discover all potential environmental problems. Accordingly, there may
be potential environmental liabilities or conditions of which the Company is
not aware.
The Company is subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. The restaurants at the
Company's golf facilities in Queensbury, New York, Gilroy, El Segundo,
California and Denver, Colorado serve alcoholic beverages and are subject to
certain state "dram-shop" laws, which provide a person injured by an
intoxicated individual the right to recover damages from an establishment that
wrongfully served such beverages to the intoxicated individual.
- 11 -
<PAGE>
ITEM 2. PROPERTIES.
The Company maintains its executive offices in approximately 5,292
square feet of space in Melville, New York pursuant to a lease expiring in
October 1999. The Company owns the land, subject to mortgages, on which its
Queensbury, New York golf course (approximately 200 acres), it Yorktown
Heights, New York golf center (approximately 14 acres), its Flemington, New
Jersey golf center (approximately 17 acres), its Greenville, South Carolina
golf center (approximately 24 acres), its Duluth, Georgia (near Atlanta) golf
center (approximately 56 acres), its Alpharetta, Georgia (near Atlanta) golf
center (approximately 26 acres), its Glen Allen, Virginia (near Richmond) golf
center (approximately 10 acres), its Mesa, Arizona golf center (approximately
39 acres), its Valley View, Ohio (near Cleveland) golf center (approximately
five acres), its Tucson, Arizona golf center (approximately 18 acres), its
West Palm Beach, Florida golf center (approximately 32 acres) its South
Easton, Massachusetts golf center (approximately 20 acres), its Fountain Inn,
South Carolina combination golf course and golf center (approximately 283
acres), its Flanders, New Jersey golf center (approximately 25 acres) and its
Margate, Florida golf center (approximately 14 acres) are located. The Company
also leases the land on which 15 of its golf facilities are located as well as
the land adjacent to its Valley View, Ohio golf center on which it has
commenced construction of additional golf facilities. None of such leases are
with affiliates of the Company. Information concerning such leases is set
forth below.
<TABLE>
<CAPTION>
AREA DATE OPENED OR ACQUIRED
GOLF FACILITY LOCATION (ACRES) LEASE EXPIRATION DATE
- ---------------------- ------- --------------------- ------------------------------
<S> <C> <C> <C>
Farmingdale, New York 13 November 30, 1996(1) March 1992
Elmsford, New York 27 February 27, 2019(2) July 1994
Wayne, New Jersey 16 February 28, 1998(3) July 1993
Clay, New York 23 June 30, 2005(4) January 1995
Utica, New York 18 December 31, 2019(5) December 1994
Gilroy, California 36 November 30, 1997(2) November 1995
Valley View, Ohio 19 November 8, 2010(2) November 1995
Henrietta, New York 28 October 10, 2020(5) Partial January 1996 (Indoor)
Virginia Beach, VA 41 March 20, 2027(6) March 1996
Virginia Beach, VA 40 March 20, 2027(6) March 1996
Indian River, VA 14 December 31, 2002(7) May 1996
Fairfield, OH 24 December 31, 2012(5) June 1996
St. Louis, MO 42 February 28, 2017(5) June 1996
San Jose, CA 25 March 31, 2013(2) July 1996
Glen Burnie, MD 38 December 31, 2012 September 1996
Orange County, CA 17 February 28, 2003(2) July 1996
(1) The Company has the option to extend the lease term for up to an additional 20 years.
(2) The Company has the option to extend the lease term for two additional five-year periods.
(3) The Company has the option to extend the lease term for six additional five-year periods.
(4) The Company has the option to extend the lease term for one ten-year period plus four additional five-year
periods.
(5) The Company has the option to extend the lease term for three additional five-year periods.
(6) This lease is for land on which part of the Virginia Beach, Virginia golf facility is located.
(7) The Company has the option to extend the lease term for six additional ten-year periods and one three year,
six-month period.
</TABLE>
After giving effect to renewal options, none of the Company's
current leases is scheduled to expire until 2007. However, the leases may be
terminated prior to their scheduled expiration should the Company default in
its obligations thereunder. The termination of any of the Company's leases
could have an adverse effect on the Company. If any of the Company's leases
were to be terminated, there
- 12 -
<PAGE>
can be no assurance that the Company would be able to enter into leases for
comparable properties on favorable terms, or at all. For additional
information concerning the leases, see Notes F and I to the Financial
Statements included elsewhere herein.
The Company manages the Douglaston, New York golf center pursuant
to a management agreement with the City of New York, which provides for annual
payments to the City of the greater of $900,000 or the aggregate of 45% of
revenues up to an amount of $2 million from this golf center and 50% of such
revenues in excess of $2 million. The City owns the land on which such
facility is located. The Company's management agreement with the City
terminates on December 31, 2006, but is terminable by the City at will.
Pursuant to this management agreement, the Company has made in excess $1.2
million of capital improvements to the Douglaston center. If the management
agreement is terminated the City may retain, and is not obligated to pay the
Company for the value of, such capital improvements.
The Company manages the El Segundo, California golf course and
golf center pursuant to a management agreement with the City of El Segundo
which provides for monthly payments to the Company of $10,417, subject to
annual adjustments based on the Consumer Price Index, and an annual bonus
based on the facility's annual gross revenue, which bonus may not exceed the
total amount of monthly fees for such operating year. The City of El Segundo
owns the land on which the facility is located. Such management agreement
terminates on June 30, 1998, unless earlier terminated by either party, with
or without cause, as of the end of any operating year during the term of the
agreement, upon at least 90 days prior written notice.
The Company operates the Denver, Colorado golf center pursuant to a
concession license with the City and County of Denver which provides for annual
payments to be based on eight percent of the average of the previous two years
gross sales. The city and County of Denver owns the land on which the J.F.
Kennedy Golf Course, including the golf center, is located. The concession
license expires on December 31, 2009.
ITEM 3. LEGAL PROCEEDINGS
The Company knows of no material litigation or proceeding pending,
threatened or contemplated to which the Company is or may become a party other
than routine litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
There were no matters submitted to a vote of stockholders during
the fourth quarter of the fiscal year ended December 31, 1996.
- 13 -
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON STOCK OF THE REGISTRANT AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock, par value $.01 per share (the "Common
Stock"), commenced trading on the Nasdaq National Market on November 17, 1994
under the symbol "FGCI". The following table sets forth, for the periods
indicated, the high and low last sales prices for the Company's Common Stock
as reported by the Nasdaq National Market.
STOCK PRICE
------------------
HIGH LOW
-------- -------
Calendar Year 1995:
First Quarter $ 7 7/8 $ 6
Second Quarter 11 5 1/2
Third Quarter 19 5/8 10 1/4
Fourth Quarter 19 12 3/4
Calendar year 1996:
First Quarter $27 3/4 $17 1/8
Second Quarter 30 1/4 22 7/8
Third Quarter 36 1/2 21 3/4
Fourth Quarter 34 1/4 22 1/2
As of March 25, 1997, there were approximately 115 holders of
record of the Common Stock. The Company believes there were in excess of 400
beneficial owners of the Common Stock. As of March 25, 1997, the last
sales price for the Company's Common Stock as reported by the Nasdaq National
Market was $21.375.
The Company has neither declared nor paid dividends on its Common
Stock and does not intend to declare or pay any dividends in the foreseeable
future. The Company currently intends to retain earnings, if any, for the
development and expansion of its business. The declaration of dividends in the
future will be at the election of the Board of Directors and will depend upon
the earnings, capital requirements and financial position of the Company,
general economic conditions and other pertinent factors. In addition, the
Company's current credit facility with Chase Bank prohibits the payments of
any dividends.
During the year ended December 31, 1996, the Company issued an aggregate
of 342,900 shares of Common Stock as part of the consideration for six
separate acquisitions of golf centers and the acquisition of The Colbert
Ballard Golf Learning Centers and The Seven Iron, Inc. from the owners or
lessees of such properties. Such shares were issued in the amounts, on the
dates and for the properties listed below: (i) March 6, 1996, 50,000 shares,
Virginia Beach, Virginia golf center; (ii) March 7, 1996, 100,000 shares,
Flemington, New Jersey golf center, (iii) April 6, 1996, 30,900 shares,
Yorktown Heights, New York golf center, (iv) August 29, 1996, 40,000 shares,
Denver, Colorado golf center, (v) September 30, 1996, 7,000 shares, The Colbert
Ballard Golf Learning Centers, (vi) October 30, 1996, 75,000 shares, The Seven
Iron, Inc., and (vii) December 31, 1996, 40,000 shares, Mainville, Ohio golf
center. Such golf centers and The Colbert Ballard Golf Learning Centers are
discussed in Item 1 - "Business." Such issuances were not registered under the
Securities Act of 1933 (the "Act") in reliance on the exemption provided by
Section 4(2) of the Act. None of such issuances involved any general
solicitation and each of the recipients of the Common Stock has represented
that such recipient understands that the Common Stock may not be sold or
otherwise transferred absent registration under the Act or an exemption
therefrom and each certificate representing shares of such Common Stock bears
a legend to such effect.
- 14 -
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended
December 31, 1992, 1993, 1994, 1995 and 1996 were derived from audited
financial statements of the Company.
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Statement of Operations Data:
Total revenue......................................... $ 1,887 $ 2,632 $ 6,362 $ 12,432 $ 27,904
Operating expenses.................................... 1,128 2,247 4,215 6,614 13,268
Cost of merchandise sold.............................. 320 459 750 1,779 4,458
Selling, general and
administrative expenses............................ 351 615 548 1,242 3,580
--- --- --- ----- -----
Operating income (loss)............................... 88 (689) 849 2,797 6,598
Interest expense...................................... (111) (192) (313) (939) (370)
Other income.......................................... 1 106 16 66 2,172
----- --- --- --- -----
Income (loss) before income
taxes minority interest and
extraordinary item................................... (22) (775) 552 1,924 8,400
Income tax expenses (benefit).......................... (65) 669 3,192
------ ------- ---- ------ -----
Income (loss) before minority..........................
interest and extraordinary item...................... (22) (775) 617 1,255 5,208
Minority interest in (income) loss..................... 12 (129)
Extraordinary item (net of tax effect.................. (181)
--------- ---------- --------- -------- -------
Net income (loss)...................................... $ (22) $ (763) $ 488 $ 1,074 $ 5,208
====== ======= ===== ======= =======
Net income (loss) per share before
extraordinary item .................................. $ (0.23) 0.13 0.24 0.51
Extraordinary item (Net of Tax Effect) ................ (0.04)
-------- -------- -------- -------
Net income (loss) per share ........................... $ (0.23) $ 0.13 $ 0.20 $ 0.51
======== ====== ======= =======
Weighted average number of
common shares outstanding........................... 3,272 3,636 5,271 10,290
===== ===== ===== ======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents and short term
investments ................................ $ 90 $ 403 $ 2,296 $23,121 $ 38,394
Working capital................................ 88 (1,798) (204) 20,598 36,675
Total Assets................................... 2,995 7,693 16,077 61,582 158,293
Short-term borrowings.......................... 5,000
Total long-term debt,
including current maturity.................. 1,291 4,034 6,328 8,193 12,056
Total stockholders' equity..................... $ (269) $ 1,128 $ 7,234 $49,388 $136,944
</TABLE>
- 15 -
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in
conjunction with the Company's Financial Statements and the notes thereto
appearing elsewhere in this document.
GENERAL
The Company's strategy is to grow revenue and net income by (i)
increasing the number of golf centers it owns, leases or manages by (a)
identifying and acquiring well-located ranges that have the potential for
improvement under better management and with improved or expanded facilities,
including the addition of enclosed hitting areas, full-line pro shops,
miniature golf courses and other amenities and (b) building new centers in
locations where suitable acquisition opportunities are not available and (ii)
seeking to realize economies of scale through centralized purchasing,
accounting, management information and cash management systems. As of December
31, 1996 the Company owns, leases or manages 35 golf facilities, comprised of
27 golf centers and eight combination golf center and golf course facilities.
The following table sets forth certain information as to the Company's golf
facilities:
<TABLE>
<CAPTION>
OWNED LEASED MANAGED TOTAL
<S> <C> <C> <C> <C>
AT JANUARY 1, 1992 - - - -
Facilities built during 1992 - 1 - 1
Facilities or management contracts acquired during 1992 - - - -
----- ----- ----- -----
AT JANUARY 1, 1993 - 1 - 1
Facilities built during 1993 - 1 - 1
Facilities or management contracts acquired during 1993 - - - -
----- ----- ----- -----
AT JANUARY 1, 1994 - 2 - 2
Facilities built during 1994 - 1 1 2
Facilities or management contracts acquired during 1994 - 1 - 1
----- ----- ----- -----
AT JANUARY 1, 1995 - 4 1 5
Facilities built during 1995 - 1 - 1
Facilities or management contracts acquired during 1995 6 1 1 8
----- ----- ----- -----
AT JANUARY 1, 1996 6 6 2 14
Facilities built during 1996 - 1 - 1
Facilities or management contracts acquired during 1996 11 8 1 20
----- ----- ----- -----
AT JANUARY 1, 1997 17 15 3 35
------------------------------------------
The Company's golf facilities have opened at varying times over
the past several years. As a result of changes in the number of golf centers
open from period to period, the seasonality of operations, the completion of
the IPO in November 1994, the 1995
- 16 -
<PAGE>
Offering in December 1995 and the 1996 Offering in July 1996, results of
operations for any particular period may not be indicative of the results of
operations in the future.
Most of the Company's revenues from its golf centers are derived
from selling tokens for use in automated range-ball dispensing machines, pro
shop merchandise sales, charging for rounds of miniature golf, golf lessons
and management fees. The Company also derives revenues at its golf centers
from food and beverage sales, video games and the use of batting cages. The
Company derives revenues from its golf courses from club membership fees, fees
for rounds of golf and golf lessons, pro-shop merchandise sales and from food
and beverage sales at the clubhouse. See "Business--The Golf Centers."
- 17 -
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected operations data of the
Company expressed as a percentage of total revenue (except for operating
expenses which is expressed as a percentage of operating revenue and cost of
merchandise sold which is expressed as a percentage of merchandise sales) for
the periods indicated below:
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Operating revenues 76.6% 78.8% 84.0%
Merchandise sales 23.4 21.2 16.0
Total revenue 100.0 100.0 100.0
Operating expenses 62.1 67.5 78.9
Cost of merchandise sold 68.2 67.5 73.5
Selling, general and administrative expenses 12.8 10.0 8.6
Income (loss) from operations 23.6 22.5 13.3
Interest expense 1.3 7.6 4.9
Other income 7.8 0.5 0.3
Income (loss) before income taxes and minority interest 30.1 15.5 8.7
Income tax (benefit) expense 11.4 5.4 (1.0)
Income (loss) before extraordinary item and minority interest 18.7 10.1 9.7
Minority interest in (income) loss -- -- (2.0)
Extraordinary item (net of tax effect) -- 1.5 --
Net income (loss) 18.7% 8.6% 7.7%
</TABLE>
TWELVE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO TWELVE
MONTHS ENDED DECEMBER 31, 1995
Results for the twelve months ended December 31, 1996 reflect the
operation of 11 golf centers for the full period. Two golf centers underwent
renovation for approximately one month and one golf center underwent
renovation for approximately two months of 1996. The December 31, 1996 results
also reflect the operation of 21 golf centers built or acquired during the
course of 1996. Results for the year ended December 31, 1995 reflect the
operations of four golf centers for the full period, although one such golf
center was undergoing renovation for approximately four months. The December
31, 1995 results also reflect the operations of 10 additional centers built or
acquired during the year. As a result of the change in the number of golf
centers open from period to period, the comparison between 1996 and 1995 may
not necessarily be meaningful.
Total revenue for the twelve months ended December 31, 1996 was
$27.9 million as compared to $12.4 million for the same period in 1995, an
increase of $15.5 million (124%). Total revenue for the four golf centers
operating for the full December 31, 1996 and 1995 periods increased to $9.1
million from $8.0 million an increase of 14%. Operating revenues, consisting
of all sales except merchandise sales, amounted to $21.4 million as compared
to $9.8 million, an increase of $11.6 million (118%) for this period. The
overall increase in revenue was primarily attributable to having additional
golf centers in operation during the 1996 period.
Merchandise sales, consisting of golf clubs, balls, bags, gloves,
videos, apparel and related accessories, amounted to $6.5 million for 1996 as
compared to $2.6 million for 1995. The increase in merchandise sales of $3.9
million (148%) was due to the contribution of new locations to the 1996 period
and the increased emphasis placed by the Company on improving pro-shop sales
in the 1996 period, improved purchasing procedures and increased promotion.
- 18 -
<PAGE>
Operating expenses, consisting of operating wages and employee
costs, land rent, depreciation of golf driving range facilities and equipment,
utilities and all other facility operating costs, increased to $13.3 million
in 1996 from $6.6 million in 1995. The overall increase of $6.7 million (102%)
was primarily due to the operating costs of locations that were not open for
all or part of 1995.
The cost of merchandise sold increased to $4.5 million (68% of
merchandise sales) in 1996 from $1.8 million (68% of merchandise sales) in
1995. The overall increase in this cost of $2.7 million (150%) was primarily
due to the higher level of merchandise sales.
Selling, general and administrative expenses in 1996 amounted to
$3.6 million (13% of total revenue) as compared to $1.2 million (10% of
total revenue) in 1995, an increase of $2.3 million (188%), primarily due to
an increase in corporate staff, advertising and other expenses resulting from
the increase in the number of golf centers operating during 1996.
Interest expense decreased to $0.4 million in 1996 from $0.9
million in 1995. Other income, primarily interest income, increased to $2.2
million in 1996 from $0.1 million in 1995. The increase in interest income is
attributable to the investment of proceeds from the public offerings in
December 1995 and July 1996. Also reflected in other income in 1996 is the
sale of approximately 43 acres of land in Queensbury, New York for a net gain
of $374,000.
The Company had income, before income taxes (benefits), and
extraordinary items of $8.4 million for 1996 as compared to $1.9 million in
1995. The Company recognized an extraordinary charge of $181,000 (net of
taxes) in the fourth quarter of 1995. This extraordinary item reflects the
write-off of debt acquisition costs, net of income taxes, arising from the
repayment of certain bank debt using the proceeds of the 1995 Offering. Net
income, after income taxes (benefits) and, the extraordinary items rose to
$5.2 million in 1996 as compared to $1.1 million in 1995.
TWELVE MONTHS ENDED DECEMBER 31, 1995 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1994
Results for the twelve months ended December 31, 1995 reflect the
operations of the Farmingdale and Elmsford, New York and the Wayne, New Jersey
golf centers for the full period, operations of the Douglaston, New York golf
center (which was undergoing renovation and was operating in a limited
capacity for approximately two of the twelve months), operations of the
Syracuse, New York golf center for approximately twelve months (although the
outdoor portion of the golf center was open for only three months), operations
of the Utica, New York golf center for approximately nine months, operations
of the Greenville, South Carolina golf center and the Queensbury, New York
golf facility for approximately eight months each and operations of the
Richmond, Virginia and Duluth and Alpharetta, Georgia golf centers for
approximately five months, four month and two months, respectively and El
Segundo and Gilroy, California and Valley View, Ohio for two months each.
Results for the twelve months ended December 31, 1994 reflect the operations
of the Farmingdale and Wayne golf centers for the full period, operations of
the Douglaston golf center (which was undergoing renovation and was operating
in a limited capacity for four of the twelve months) and operations of the
Elmsford golf center for approximately five months. As a result of the change
in the number of facilities open from period to period, the comparison between
1995 and 1994 periods may not necessarily be meaningful. Revenue from the
Farmingdale and Wayne golf centers, which were the only golf centers open and
not undergoing substantial renovations for the full December 31, 1994 and 1995
periods, increased from $3.7 million to $4.1 million during such periods, an
increase of 10.8%.
Total revenue for the twelve months ended December 31, 1995 was
$12.4 million as compared to $6.4 million for the same period in 1994, an
increase of $6.0 million (93.8%). Operating revenues, consisting of all sales
except merchandise sales, amounted to $9.8 million as compared to $5.3
million, an increase of $4.5 million (84.9%) for this period. The overall
increase in revenue was primarily attributable to having additional golf
centers in operation during the 1995 period.
Merchandise sales, consisting of golf clubs, balls, bags, gloves,
videos, apparel and related accessories, amounted to $2.6 million for 1995 as
compared to $1.0 million for 1994. The increase in merchandise sales of $1.6
million (160.0%) was due to the contribution of new locations to the 1995
period and the increased emphasis placed by the Company on improving pro-shop
sales in the 1995 period, improved purchasing procedures and increased
promotion.
Operating expenses, consisting of operating wages and employee
costs, land rent, depreciation of golf driving range facilities and equipment,
utilities and all other facility operating costs, increased to $6.6 million in
1995 from $4.2 million in 1994. The overall increase of $2.4 million (57%)
was primarily due to the operating costs of locations that were not open for
all or part of 1994. However, operating expenses as a percentage of operating
revenues declined to 67.5% in 1995 from 78.9% in 1994 primarily due to the
substantial increase in revenues and relatively low corresponding incremental
increases in certain fixed or partially fixed costs, such as rent.
- 19 -
<PAGE>
The cost of merchandise sold increased to $1.8 million (67.5% of
merchandise sales) in 1995 from $750,000 (73.5% of merchandise sales) in 1994.
The overall increase in this cost of $1.05 million (140.0%) was primarily due
to the higher level of merchandise sales. The decrease in this cost as a
percentage of merchandise sales was due to improved buying techniques and
volume discounts.
Selling, general and administrative expenses in 1995 amounted to
$1.2 million (10.0% of total revenue) as compared to $548,000 (8.6% of total
revenue) in 1994, an increase of $652,000 (119.0%), primarily due to an
increase in corporate staff, advertising and other expenses resulting from the
increase in the number of golf centers operating during 1995.
Interest expense increased to $939,000 in 1995 from $313,000 in
1994. The increase was attributable to increased borrowings to fund the
Company's expansion, as well as a higher prime lending rate during 1995 as
compared to 1994.
The Company had income, before income taxes (benefits), an
extraordinary item and the Minority Interest, of $1.9 million for 1995 as
compared to $552,000 in 1994. The Company recognized an extraordinary charge
of $181,000 (net of taxes) in the fourth quarter of 1995. This extraordinary
item reflects the write-off of debt acquisition costs, net of income taxes,
arising from the repayment of certain bank debt using the proceeds of the
Secondary Offering. The Minority Interest in 1994 represents limited
partnership interests in Alley Pond Associates, L.P., a partnership which
operated the Douglaston, New York golf center. The Minority Interest was
acquired by the Company in December 1994. Net income, after income taxes
(benefits), the extraordinary item and the Minority Interest, rose to $1.1
million in 1995 as compared to $488,000 in 1994.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had working capital of $36.7
million compared to $20.6 million at December 31, 1995, due principally to the
proceeds from the 1996 Offering.
The cash requirements of funding the Company's expansion have
historically exceeded cash flow from operations. Accordingly, the Company has
satisfied its capital needs primarily through debt and equity financings. The
Company currently anticipates that it will continue to satisfy its capital
needs through additional debt or equity financing until the Company has
established an adequate number of profitable golf centers to support its
growth through internal cash flow.
The Company's outstanding indebtedness as of December 31, 1996 of
$17.1 million bears interest at fixed and variable rates currently ranging
from 5.25% to 10.5%.
As of December 31, 1996 the Company had $5,000,000 outstanding
under its line of credit with Chase Bank. The Company has a $5 million line of
credit with Chase Bank and amounts outstanding under this credit line bear
interest at the bank's prime. Chase Bank has issued a commitment letter
pursuant to which it has indicated that, subject to certain conditions, it
will replace the current credit line with a two-year $20.0 million secured
revolving credit facility, converting to a four-year term loan at the end of
the first two years.
The Company anticipates making substantial additional expenditures
in connection with the acquisition and opening of new golf facilities and
capital improvements to existing facilities. Golf center opening expenditures
primarily relate to projected golf center construction and opening costs,
associated marketing activities and the addition of personnel. From time to
time, the Company acquires, rather than leases, the land on which its golf
centers are located, which entails additional expenditures. Based on the
Company's experience with its existing golf centers, the Company believes that
the cost of opening or acquiring a golf center generally will not exceed $3.5
million (exclusive of land costs). However, there can be no assurance that
golf center opening or acquisition costs will not exceed $3.5 million. Golf
center acquisition costs vary substantially depending on the location and
status of the acquired property (i.e., whether significant capital
improvements are necessary) and whether the Company acquires or leases the
related land. Land acquisition costs vary substantially depending on a number
of factors, including principally location. To the extent that the Company
acquires any golf courses, the Company may be required to make capital
improvements to these courses, depending again upon the location and status of
the acquired property. The cost of golf course acquisitions depends, to a
large extent, upon the price of the land and may substantially exceed the
anticipated cost of golf center acquisitions. The Company intends to make
capital improvements, estimated to aggregate approximately $12 million over
the next 12 months, primarily on recently acquired facilities. Over the next
12 months the Company intends to utilize approximately all of the net proceeds
from the 1996 Offering, in addition to debt financing and issuances of its
Common Stock, in connection with the acquisition and opening of golf
facilities. In addition, in connection with the acquisition of TPT, up to $1.0
million of additional purchase price will be payable if certain operating
income targets are achieved in 1997.
- 20 -
<PAGE>
The Company believes that the net proceeds from the 1996 Offering,
cash flow from operations and its credit facility with Chase Bank will be
sufficient to finance the Company's currently contemplated expansion plans for
at least the next 12 months.
Management does not believe that recently issued accounting
standards will have a material impact on the Company's financial statements
when adopted by the Company.
EFFECT OF RECENTLY ACQUIRED FACILITIES
On a pro forma basis, as adjusted to give effect to acquisitions
consummated after January 1, 1995 as if they had occurred as of January 1,
1995, the Company had a net loss of $495,000 (as compared to net income of
$1.1 million on a historical basis) for the year ended December 31, 1995 and
net income of $4.3 million (as compared to net income of $5.2 million on a
historical basis) for the year ended December 31, 1996. Although the recently
acquired facilities have adversely affected income on a pro forma basis, the
Company believes that it will be able to (i) enhance revenues at such
facilities by adding amenities including enclosed hitting areas, token-based
automated range-ball dispensing machines, full-line pro-shops, miniature golf
courses and 9-hole golf courses and (ii) reduce expenses by economies of scale
achieved through centralized purchasing, accounting, management information
systems and cash management. There can be no assurance, however, that the
Company will be able to improve the performance of newly-acquired facilities.
SEASONALITY
Historically, the second and third quarters have accounted for a
greater portion of the Company's operating income than have the first and
fourth quarters of the year. This is primarily due to an outdoor playing
season limited by inclement weather. Although most of the Company's facilities
are designed to be all-weather, portions of the facilities, such as miniature
golf courses which are outdoors, tend to be vulnerable to weather conditions.
One of the Company's golf centers and one golf course are closed during a
portion of the winter. Also, golfers are less inclined to practice when
weather conditions limit their ability to play golf on outdoor courses. Since
August 1995, the Company has acquired golf centers in various locations
(Arizona, California, Virginia, Georgia, South Carolina and Florida) where
inclement weather may not limit the outdoor playing season as much as such
weather limits the outdoor playing season at the Company's golf facilities in
Northern states. This seasonal pattern, as well as the timing of new golf
facility acquisitions and openings, may cause the Company's results of
operations to vary significantly from quarter to quarter. Accordingly,
period-to-period comparisons are not necessarily meaningful and should not
be relied on as indicative of future results.
INFLATION
There was no significant impact on the Company's operations as a
result of inflation during 1994, 1995 or 1996.
- 21 -
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
The financial statements of the Company are included herein
commencing on page F-1 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
- 22 -
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT
The information required by this item is incorporated by reference
to "Directors and Executive Officers of the Company" in the Company's
definitive proxy statement for 1997, if filed by April 30, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to "Executive Compensation" in the Company's definitive proxy
statement for 1997, if filed by April 30, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to " Security Ownership of Certain Beneficial Owners and Management"
in the Company's definitive proxy statement for 1997, if filed by April 30,
1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by
reference to "Certain Relationships and Related Transactions" in the Company's
definitive proxy statement for 1997, if filed by April 30, 1997.
- 23 -
<PAGE>
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
<S> <C> <C>
3.1* Certificate of Incorporation.
3.2* By-laws.
10.1* Agreement to Exchange, dated as September 11, 1994, by and among Family Golf
Centers, Inc. and Dominic Chang, Jimmy C.M. Hsu, Krishnan Thampi, Tommy Hsu, and
John Chen.
10.2* Purchase Agreement, dated as of September 11, 1994, by and among Family Golf
Centers, Inc. and Golf Range, Inc. and Abbington Holdings, Inc.
10.3* Option Agreement by and among Ken Simonds, William Schickler III, Dominic Chang,
Krishnan Thampi, The Practice Tee, Inc. and Family Golf Centers, Inc.
10.4* Employment Agreement, dated as of September 11, 1994, between Family Golf Centers,
Inc. and Dominic Chang.
10.4.1***** Amendment No. 1, dated March 8, 1995, to the Employment agreement, dated as of
September 11, 1994, between Family Golf Centers, Inc. and Dominic Chang, filed as
Exhibit 10.5.
10.5* Employment Agreement, dated as of September 11, 1994, between Family Golf Centers,
Inc. and Krishnan Thampi.
10.5.1***** Amendment No. 1, dated March 8, 1995, to the Employment Agreement, dated as of
September 11, 1994, between Family Golf Centers, Inc. and Krishnan P. Thampi, filed as
Exhibit 10.5.
10.6* Agreement, dated as of August 12, 1992, by and between Golden Bear International, Inc.
and Orient Associates International, Inc., as amended by an Assignment and amendment
entered into February 16, 1994, by and among Golden Bear International, Inc., Golden
Bear Golf Centers, Inc. and Orient Associates International, Inc., as further amended by
an Assignment and Assumption by and among Golden Bear Golf Centers, Inc., Orient
Associates International, Inc. and The Practice Tee, Inc.
10.6.1** Amendment entered into November 9, 1994 to Agreement dated as of August 12, 1992,
by and between Golden Bear International, Inc. and Orient Associates International, Inc.
10.6.2***** Amendment entered into December 2, 1994 to Agreement dated as of August 12, 1929,
by and between Golden Bear International, inc. and Orient Associates International, Inc.,
filed as Exhibit 10.6.
10.7* License Agreement, dated September 14, 1994, between Orient Associates International,
Inc. and City of New York Parks & Recreation Department.
10.8* Form of Common Stock Purchase Warrant, for an aggregate of 24,950 shares of Common
Stock, expiring on August 15, 1999.
10.9* Family Golf Centers, Inc. 1994 Stock Incentive Plan.
10.10++++ Family Golf Centers, Inc. 1996 Stock Incentive Plan.
10.11* Loan Agreement, dated March 1, 1994, between Grand Pacific Finance Corp. as Lender,
and Orient Associates International, Inc. as Borrower.
- 24 -
<PAGE>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
10.12* Loan Leasehold Mortgage and Security Agreement, dated April 23, 1993, between Orient
Associates International, Inc. as Mortgagor and The Development Bank of Singapore,
Ltd., as Mortgagee.
10.13* Revolving Credit Line Agreement, dated April 2, 1993, between TaipeiBank, New York
Agency, as Lender, and Orient Associates International, Inc. and Dominic Chang, as
Borrower.
10.14* Mortgage, dated December 17, 1993, between Orient Associates International, Inc. and
Hsing Lung Farm Corp., as Mortgagor and TaipeiBank, New York Agency, as
Mortgagee.
10.15* Authorization and Debenture Guaranty, dated December 31, 1991, between the United
States Small Business Administration, as Lender and Long Island Development
Corporation, as Borrower, to assist Orient Associates International, Inc.
10.16* Building Loan Contract and Building Loan Mortgage, dated October 20, 1994, between
Orient Associates International, Inc., as Borrower, and Grand Pacific Finance Corp., as
Lender.
10.17** Building Loan Agreement and Mortgage, dated November 26, 1991, between Grand Pacific
Finance Corp., as Lender and Orient Associates International, Inc., as Borrower.
10.18** Collateral Note and Security Agreements, dated September 28, 1994 and
September 30, 1994, between Bank of New York, as Lender, and Skydrive Co.,
Inc.,as Borrower.
10.19+ Purchase and Sale Contract, dated May 1, 1995, between Evergreen Bank, N.A. f/k/a The
First National Bank of Glens Falls and Family Golf Centers, Inc.
10.20+ Mortgage and Security Agreement, dated May 15, 1995, between Family Golf Centers,
Inc., as Mortgagor and Orix USA Corporation, as Mortgagee.
10.21+ Purchase Money Note, dated May 15, 1995, made by Family Golf Centers, Inc. in favor of
Orix USA Corporation in the principal amount of $3,000,000.
10.22+ Statement of Purpose for an Extension of Credit Secured by Margin Stock, dated April
28, 1995, between Family Golf Centers, Inc. and Chemical Bank.
10.23+ Promissory Note, dated May 4, 1995, made by Family Golf Centers, Inc. in favor of
Chemical Bank in the principal amount of $850,000.
10.24***** Registration Rights Agreement, dated April 28, 1995, between Kenneth Gurley and
Family Golf Centers, Inc.
10.25***** Commitment letter, dated September 28, 1995, issued by Chemical Bank, N.A. to Family
Golf Centers, Inc.
10.26***** Mortgage, dated March 25, 1994 granted by Pelham Enterprises, Inc. in favor of United
Carolina Bank of South Carolina.
10.27***** Warrant to purchase 80,000 shares of Common Stock, dated November 23, 1994, issued to
Hampshire Securities Corporation by Family Golf Centers, Inc.
10.28***** Warrant to purchase 40,000 shares of Common Stock, dated November 23, 1994 issued
to Brenner Securities Corporation by Family Golf Centers, Inc.
10.29***** Form of Representatives' Warrants.
10.30***** TPT/FGC Purchase Agreement, dated as of September 28, 1995, between Family Golf
Centers, Inc., Dominic Chang, Krishnan Thampi, Ken Simonds and
William Schickler III.
- 25 -
<PAGE>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
10.31***** Registration Rights Agreement, dated August 24, 1995, between Thomas Mathews, J.L.
Matthews, Jr. and Family Golf Centers, Inc.
10.32**** Purchase Contract dated September 28, 1995, between Upper Hembree Partners, L.P.,
each of the general partners of Upper Hembree Partners, L.P. and Alpharetta Family Golf
Centers, Inc., a wholly owned subsidiary of Family Golf Inc.
10.33**** Escrow Agreement, dated September 28, 1995, between Family Golf Centers, Inc., Upper
Hembree Partners, L.P. and Continental Stock Transfer & Trust Company.
10.34**** Stock Option Agreement, dated September 28, 1995, between Family Golf Centers, Inc.
and Upper Hembree Partners, L.P.
10.35**** Registration Rights Agreement, dated September 28, 1995, between Family Golf Centers,
Inc. and Upper Hembree Partners, L.P.
10.36**** Form of Promissory Note, dated September 28, 1995, in the principal amount of $35,000
made by Upper Hembree Partners, L.P in favor of Family Golf Centers, Inc.
10.37**** Assignment & Assumption Agreement, dated October 16, 1995, between Upper
Hembree Partners, L.P., Alpharetta Family Golf Centers, Inc. and Bank South.
10.38**** Renewal Promissory Note, dated November 14, 1994, in the principal amount of
$1,860,770.07 made by Upper Hembree Partners, L.P. in favor of Bank South, N.A.
10.39**** Form of Guaranty Agreement from Dominic Chang in favor of Bank South.
10.40**** Form of Guaranty Agreement from Family Golf Centers, Inc. in favor of Bank South.
10.41****** Promissory Note, dated November 8, 1995, in the principal amount of $4,000,000 made
by Family Golf Centers, Inc. in favor of Dominic Chang, as the representative of the
shareholders of The Practice Tee, Inc.
10.42****** Purchase Agreement, dated as of November 8, 1995, by and between Golf Masters
Limited Partnership and Air Dome Limited Partnership, as Sellers, each of the general
partners of Sellers and Valley View Family Golf Centers, Inc., a wholly owned subsidiary
of Family Golf Centers, Inc.
10.43****** Escrow Agreement, dated as of November 8, 1995, among Family Golf Centers, Inc.,
Golf Masters Limited Partnership, Air Dome Limited Partnership and Continental Stock
Transfer & Trust Company.
10.44****** Registration Rights Agreement, dated as of November 8, 1995, between Golf Masters
Limited Partnership, Air Dome Limited Partnership and Family Golf Centers, Inc.
10.45****** Stock Option Agreement, dated as of November 8, 1995, among Family Golf Centers, Inc.,
Golf Masters Limited Partnership and Air Dome Limited Partnership.
10.46****** Note, dated September 1992, in the principal amount of $350,000 made by Golf Masters
Limited Partnership in favor of JSN Holdings and related Mortgage Deed.
10.47+++ Deed of Assignment, dated February 27, 1996, between Owl's Creek Golf Center, Inc.,
Virginia Beach Family Golf Centers, Inc. and the City of Virginia Beach, Virginia.
10.48+++ Deed of Assignment, dated March 1, 1996, between Owl's Creek Golf Center, Inc. and
Virginia Beach Family Golf Centers, Inc.
10.49+++ Purchase Agreement, dated March 6, 1996, between Owl's Creek Golf Center, Inc. and
Virginia Beach Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
- 26 -
<PAGE>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
10.50+++ Escrow Agreement, dated March 6, 1996, among Family Golf Centers, Inc., Owl's Creek
Golf Center, Inc. and Continental Stock Transfer & Trust Company.
10.51+++ Registration Rights Agreement, dated March 6, 1996, between Family Golf Centers, Inc.
and certain stockholders of Owl's Creek Golf Center, Inc. listed on Schedule 1 thereto.
10.52+++ Deed for Improvements, dated as of March 1, 1996, between Owl's Creek Golf Center,
Inc. and Virginia Beach Family Golf Centers, Inc.
10.53+++ Bill of Sale, dated as of March 6, 1996, between Owl's Creek Golf Center, Inc. and
Virginia Beach Family Golf Centers, Inc.
10.54+++ Purchase Agreement, dated March 7, 1996, between Flemington Equities VII and
Flemington Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers,
Inc.
10.55+++ Guaranty, dated March 7, 1996, by Family Golf Centers, Inc., in favor of Flemington
Equities VII.
10.56+++ Purchase Agreement, dated March 7, 1996, between Flemington Golf and Sports Center,
LLC and Flemington Family Golf Centers, Inc., a wholly-owned subsidiary of Family Golf
Centers, Inc.
10.57+++ Mortgage Note, dated March 7, 1996, in the principal amount of $1,700,000 made by
Flemington Family Golf Centers, Inc. in favor of Flemington Equities VII and related
Mortgage Deed.
10.58+++ Cash Escrow Agreement, dated March 7, 1996, among Flemington Family Golf Centers,
Inc., Flemington Golf and Sports Center, LLC and Continental Stock Transfer and Trust
Company.
10.59++++ Form of Warrants to purchase an aggregate of 70,000 shares of Common Stock, dated as
of March 7, 1996, issued to Monness, Crespi & Hardt & Co. by Family Golf Centers, Inc.
10.60+++ Purchase Agreement, dated April 8, 1996, among 202 Golf Associates, Inc., Family Golf
Centers, Inc. and Yorktown Family Golf Centers, Inc., a wholly owned subsidiary of
Family Golf Centers, Inc.
10.61+++ Escrow Agreement, dated April 8, 1996, among Family Golf Centers, Inc., 202 Golf
Associates, Inc., Yorktown Family Golf Centers, Inc. and Continental Stock Transfer &
Trust Company.
10.62+++ Registration Rights Agreement, dated April 8, 1996, between Family Golf Centers, Inc.
and 202 Golf Associates, Inc.
10.63+++ Assignment and Assumption Agreement, dated April 8, 1996, between 202 Golf
Associates, Inc. and Yorktown Family Golf Centers, Inc.
10.64+++ Bill of Sale, dated April 8, 1996, by 202 Golf Associates, Inc.
10.65+++ Indenture, dated April 8, 1996, between 202 Golf Associates, Inc. and Yorktown Family
Golf Centers, Inc.
10.66+++++ Purchase Agreement, dated May 20, 1996, among Indian River Golf-O-Rama, Inc.,
Indian River Family Golf Centers, Inc. and Lenrich Associates, L.L.C.
10.67++++++ Purchase Agreement, dated June 7, 1996, among Ruth Perillo, Lynn Perillo, Glen Perillo
and Oscar Ramirez, as sellers, and Tucson Family Golf Centers, Inc., a wholly owned
subsidiary of Family Golf Centers, Inc.
- 27 -
<PAGE>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
10.68++++++ Stock Purchase Agreement, dated June 7, 1996, among Joseph E. Wolf, Kenneth R.
Gibbons and Richard Johnson, as sellers, K.G. Golf, Inc. and Family Golf Centers, Inc.
10.69++++++ Assignment and Assumption of Lease, dated June 7, 1996, by and between Tree Court
Golf & Recreational Complex, Inc. and St. Louis Family Golf Centers, Inc., a wholly
owned subsidiary of Family Golf Centers, Inc.
10.70++++++ Purchase Agreement, dated June 10, 1996, by and between W.A.G.N. Partners and West
Palm Beach Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers,
Inc.
10.71! Stock Purchase Agreement, dated as of July 5, 1996, among Michael J. Santin, Donald G.
Rumpf, Pin High Golf Center and Family Golf Centers, Inc.
10.72!! Stock Purchase Agreement, dated September 25, 1996, between Raymond R. Sears,
Ronald L. Sears, Henry Bachman, Privatization Plus, Inc. and Family Golf Centers, Inc.
10.73!! Cash Escrow Agreement, dated September 25, 1996, between Raymond R. Sears, Ronald
L. Sears, Henry Bachman, Privatization Plus, Inc., Family Golf Centers, Inc. and
Continental Stock Transfer & Trust Company.
10.74!! Purchase Agreement, dated September 26, 1996, between Tri-Town Sports, Inc. and
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.
10.75!! Promissory Note, dated September 26, 1996, in the principal amount of $350,000 made by
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.,
in favor of Tri-Town Sports, Inc.
10.76!! Promissory Note, dated September 26, 1996, in the principal amount of $140,000 made by
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.,
in favor of Tri-Town Sports, Inc.
10.77!! Promissory Note, dated September 26, 1996, in the principal amount of $122,500 made by
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.,
in favor of Tri-Town Sports, Inc.
10.78!! Promissory Note, dated September 26, 1996, in the principal amount of $87,500 made by
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.,
in favor of Tri-Town Sports, Inc.
10.79!! Guaranty of Promissory Notes made by Family Golf Centers, Inc. in favor of Tri-Town
Sports, Inc.
10.80!! Mortgage Note, dated September 24, 1996, in the principal amount of $350,000 made by
Easton Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related Mortgage
Deed.
10.81!! Mortgage Note, dated September 24, 1996, in the principal amount of $140,000 made by
Easton Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related Mortgage
Deed.
10.82!! Mortgage Note, dated September 24, 1996, in the principal amount of $122,500 made by
Easton Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related Mortgage
Deed.
10.83!! Mortgage Note, dated September 24, 1996, in the principal amount of $87,500 made by
Easton Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related Mortgage
Deed.
- 28 -
<PAGE>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
10.84!! Assignment and Assumption of License Agreement, dated September 30, 1996, between
Colbert-Ballard Golf Learning Centers, Inc. and C.B. Family Golf Centers, Inc., a wholly
owned subsidiary of Family Golf Centers, Inc.
10.85!! Promissory Note, dated September 30, 1996, in the principal amount of $446,720 made
by Colbert-Ballard Golf Learning Centers, Inc. in favor of C.B. Family Golf Centers, Inc.,
a wholly owned subsidiary of Family Golf Centers, Inc.
10.86!! Guaranty of Promissory Note made by Harry J. Moorhouse and Dorothy Moorhouse in
favor of C.B. Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.87!! Escrow Agreement, dated September 30, 1996, between Family Golf Centers, Inc.,
Colbert-Ballard Family Golf Centers, Inc. and Continental Stock Transfer & Trust
Company.
10.88!! Purchase Agreement, dated September 30, 1996, between KKL Golf Partnership and
Carolina Springs Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.89!! Cash Escrow Agreement, dated September 30, 1996, between KKL Golf Partnership,
Carolina Springs Family Golf Centers, Inc. and Continental Stock Transfer & Trust
Company.
10.90!! Stock Option Agreement, dated September 30, 1996, between Family Golf Centers, Inc.
and KKL Golf Partnership.
10.91!! Purchase Agreement, dated September 30, 1996, between USA Golf Centers, Ltd. #2 and
Westminster Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.92!! Cash Escrow Agreement, dated September 30, 1996, between USA Golf Centers, Ltd.
#2, Westminster Family Golf Centers, Inc. and Continental Stock Transfer & Trust
Company.
10.93!! Ground Lease, dated August 1, 1992, as amended by Ground Lease Extension and
Modification, dated November 20, 1995, between SCI California Funeral Services, Inc.
(successor in interest to Westminster Memorial Park) and USA Golf Centers, Ltd. #2.
10.94!! Purchase Agreement, dated August 29, 1996, between Swingmaster Golf at Centennial,
L.P. and Denver Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.95!! Registration Rights Agreement, dated August 29, 1996, between Swingmaster Golf at
Centennial, L.P. and Family Golf Centers, Inc.
10.96!! Registration Rights Agreement, dated August 29, 1996, between Joseph J. Graham and
Family Golf Centers, Inc.
10.97!! Registration Rights Agreement, dated August 29, 1996, between Andrew Price and
Family Golf Centers, Inc.
10.98!! Escrow Agreement, dated August 29, 1996, between Family Golf Centers, Inc., Denver
Family Golf Centers, Inc., Swingmaster Golf at Centennial, L.P., Joseph J. Graham,
Andrew Price and Continental Stock Transfer & Trust Company.
- 29 -
<PAGE>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
10.99!! Ground Lease and Agreement, dated November 1, 1994, as amended by First Amendment
to Ground Lease and Agreement dated March 9, 1995 and Second Amendment to Ground
Lease Agreement, dated June 8, 1995, by and between the Arapahoe County Public
Airport Authority and Pinecrest Enterprises, Ltd. (predecessor-in-interest to
Swingmaster Golf at Centennial, L.P.).
10.100!! Option to Lease Agreement, dated August 8, 1996, by and between the Arapahoe County
Public Airport Authority and Swingmaster Golf at Centennial, L.P.
10.101!!! Purchase Agreement, dated October 21, 1996, between Mt. Olive Golf Center, Inc. and
Mt. Olive Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers,
Inc.
10.102!!! Stock Option Agreement, dated October 21, 1996, between Family Golf Centers, Inc. and
Mt. Olive Golf Center, Inc.
10.103!!! Purchase Agreement, dated October 21, 1996, between Margate Partners Limited
Partnership and Margate Family Golf Centers, Inc., a wholly owned subsidiary of Family
Golf Centers, Inc.
10.104!!!! Stock Purchase Agreement, dated October 30, 1996, between Stacey Hart, The Seven
Iron, Inc. and Family Golf Centers, Inc.
10.105!!!! Escrow Agreement, dated October 30, 1996, between Stacey Hart, Family Golf Centers,
Inc. and Continental Stock Transfer & Trust Company.
11.1 Statement re: Computation of Earnings Per Share.
21.1 Subsidiaries of Family Golf Centers, Inc.
23.1 Consent of Richard A. Eisner & Company, LLP.
</TABLE>
- -------------------------
* Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated September 12, 1994 (Registration No. 33-83910)
** Incorporated by reference to the Company's Pre-Effective Amendment No.
1 to the Registration Statement on Form SB-2 filed October 26, 1994
(Registration No. 33-83910)
*** Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated November 10, 1994 (Registration No. 33-83910)
**** Incorporated by reference to the Company's Current Report on Form 8-K,
dated October 11, 1995.
***** Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated October 3, 1995 (Registration No. 33-97686).
****** Incorporated by reference to the Pre-Effective Amendment No. 1 to the
Company's Registration Statement on Form SB-2 dated November 9, 1995.
(Registration No. 33-97686).
+ Incorporated by reference to the Pre-Effective Amendment No. 2 to
Company's Current Report on Form 8-K/A (Amendment No. 1), dated June 6,
1995.
++ Incorporated by reference to the Pre-Effective Amendment No. 2 to the
Company's Registration Statement on Form SB-2 dated November 29, 1995.
(Registration No. 33-97686).
+++ Incorporated by reference to the Company's Current Report on Form 8-K/A
(Amendment No. 1), dated May 20, 1996 amending Reports on Form 8-K
dated March 6, 1996 and April 8, 1996.
++++ Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated May 24, 1996. (Registration No. 333-4541).
+++++ Incorporated by reference to the Company's Current Report on Form 8-K,
dated June 4, 1996.
++++++ Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement dated June 12, 1996.
! Incorporated by reference to the Company's Current Report on Form 8-K,
dated July 25, 1996.
!! Incorporated by reference to the Company's Current Report on Form 8-K,
dated October 9, 1996.
- 30 -
<PAGE>
!!! Incorporated by reference to the Company's Current Report on Form 8-K,
dated October 30, 1996.
!!!! Incorporated by reference to the Company's Current Report on Form 8-K,
dated November 13, 1996.
(b) Reports on Form 8-K.
The Company's Current Report on Form 8-K, dated October 9,
1996, reporting an Item 2 event.
The Company's Current Report on Form 8-K, dated October 30,
1996, reporting an Item 2 event.
The Company's Current Report on Form 8-K, dated November 13,
1996, reporting an Item 2 event.
The Company's Current Report on Form 8-K/A, dated December 6,
1996, reporting Item 7 financials.
- 31 -
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
FAMILY GOLF CENTERS, INC.
Dated: March 31, 1997 By: /s/ Dominic Chang
------------------
Name: Dominic Chang
Title: Chairman of the
Board, President
and Chief
Executive Officer
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ----- ----
<S> <C> <C>
/s/ Dominic Chang Chairman of the Board, President and March 31, 1997
- ---------------------- Chief Executive Officer (Principal
Dominic Chang Executive Officer)
/s/ Krishnan P. Thampi Chief Financial Officer, Chief Operating March 31, 1997
- ---------------------- Officer, Executive Vice President,
Krishnan P. Thampi Assistant Secretary, Treasurer and
Director (Principal Financial Officer)
/s/ James Ganley Director March 31, 1997
- ----------------------
James Ganley
/s/ Jimmy C.M. Hsu Director March 31, 1997
- ----------------------
Jimmy C.M. Hsu
/s/ Yupin Wang Director March 31, 1997
- ----------------------
Yupin Wang
</TABLE>
- 32 -
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
- I N D E X -
PAGE
NUMBER
------
REPORT OF INDEPENDENT AUDITORS F-2
CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31,
1996 AND DECEMBER 31, 1995 F-3
CONSOLIDATED STATEMENTS OF INCOME FOR THE
YEARS ENDED DECEMBER 31, 1996, DECEMBER 31, 1995
AND DECEMBER 31, 1994 F-4
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
EQUITY FOR THE YEARS ENDED DECEMBER 31, 1996,
DECEMBER 31, 1995 AND DECEMBER 31, 1994 F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
ENDED DECEMBER 31, 1996, DECEMBER 31, 1995 AND
DECEMBER 31, 1994 F-6
NOTES TO FINANCIAL STATEMENTS F-7
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Family Golf Centers, Inc.
Melville, New York
We have audited the accompanying consolidated balance sheets of Family
Golf Centers, Inc. and subsidiaries as at December 31, 1996 and December 31,
1995 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the financial position of Family Golf Centers, Inc.
and subsidiaries at December 31, 1996 and December 31, 1995 and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996 in conformity with generally accepted accounting
principles.
New York, New York
March 22, 1997
F-2
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
A S S E T S 1996 1995
----------- ---- ----
Current assets:
<S> <C> <C>
Cash and cash equivalents . . . . . . . . . . . . . . $ 4,556,000 $ 23,121,000
Short-term investments . . . . . . . . . . . . . . . . 33,838,000
Inventories . . . . . . . . . . . . . . . . . . . . . 6,258,000 1,941,000
Prepaid expenses and other current assets . . . . . . 3,642,000 999,000
Prepaid income taxes . . . . . . . . . . . . . . . . . 600,000
------------ ------------
Total current assets . . . . . . . . . . . . . 48,894,000 26,061,000
Property, plant and equipment (net of accumulated
depreciation of $2,823,000 and $1,336,000 for
1996 and 1995, respectively) . . . . . . . . . . . . . 103,889,000 33,330,000
Loan acquisition costs (net of accumulated amortization
of $61,000 and $12,000 for 1996 and 1995,
respectively) . . . . . . . . . . . . . . . . . . . . 185,000 234,000
Deferred tax benefit . . . . . . . . . . . . . . . . . . 116,000
Other assets . . . . . . . . . . . . . . . . . . . . . . 2,646,000 1,205,000
Excess of cost over fair value of assets acquired . . . . 2,679,000 636,000
(Net of accumulated amortization of $108,000 and
$34,000 for 1996 and 1995) . . . . . . . . . . . . . .
------------ ------------
T O T A L . . . . . . . . . . . . . . . . . . . $158,293,000 $ 61,582,000
============ ============
</TABLE>
L I A B I L I T I E S
---------------------
<TABLE>
<CAPTION>
Current liabilities:
<S> <C> <C>
Accounts payable, accrued expenses and other current
liabilities . . . . . . . . . . . . . . . . . . . . $ 3,659,000 $ 3,044,000
Income taxes payable . . . . . . . . . . . . . . . . . 569,000
Short-term loan payable - bank . . . . . . . . . . . . 5,000,000
Current portion of long-term obligations . . . . . . . 3,560,000 1,850,000
----------- -----------
Total current liabilities . . . . . . . . . . . 12,219,000 5,463,000
Long-term obligations (less current portion) . . . . . . 8,496,000 6,343,000
Deferred rent . . . . . . . . . . . . . . . . . . . . . . 233,000 116,000
Deferred tax liability . . . . . . . . . . . . . . . . . 254,000
Other liabilities . . . . . . . . . . . . . . . . . . . . 147,000 272,000
----------- -----------
Total liabilities . . . . . . . . . . . . . . . 21,349,000 12,194,000
----------- -----------
Commitments, contingencies and other matters
STOCKHOLDERS' EQUITY
--------------------
Preferred stock - authorized 1,000,000 shares, none
outstanding
Common stock authorized 50,000,000 and 10,000,000
shares, $.01 par value; 11,850,000 and 8,318,000
shares outstanding at December 31, 1996 and
December 31, 1995, respectively . . . . . . . . . . . 118,000 83,000
Additional paid-in capital . . . . . . . . . . . . . . . 130,707,000 48,347,000
Retained earnings . . . . . . . . . . . . . . . . . . . . 6,166,000 958,000
Treasury shares . . . . . . . . . . . . . . . . . . . . . (47,000)
------------- -------------
Total stockholders' equity . . . . . . . . . . 136,944,000 49,388,000
------------- -------------
T O T A L . . . . . . . . . . . . . . . . . . . $ 158,293,000 $ 61,582,000
============= =============
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-3
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues . . . . . . . . . . . . . $ 21,368,000 $ 9,795,000 $ 5,342,000
Merchandise sales . . . . . . . . . . . . . . 6,536,000 2,637,000 1,020,000
------------ ------------ ------------
Total revenues . . . . . . . . . . 27,904,000 12,432,000 6,362,000
------------ ------------ ------------
Operating expenses . . . . . . . . . . . . . 13,268,000 6,614,000 4,215,000
Cost of merchandise sold . . . . . . . . . . 4,458,000 1,779,000 750,000
Selling, general and administrative expenses 3,580,000 1,242,000 548,000
------------ ------------ ------------
Total expenses . . . . . . . . . . 21,306,000 9,635,000 5,513,000
------------ ------------ ------------
Operating income . . . . . . . . . . . . . . 6,598,000 2,797,000 849,000
Interest expense . . . . . . . . . . . . . . (370,000) (939,000) (313,000)
Other income - net (includes interest income
of $1,755,000 in 1996) . . . . . . . . . . 2,172,000 66,000 16,000
------------ ------------ ------------
Income before income taxes, extraordinary
item and minority interest . . . . . . . . 8,400,000 1,924,000 552,000
Income tax expense (benefit) . . . . . . . . 3,192,000 669,000 (65,000)
------------ ------------ ------------
Income before minority interest and
extraordinary item . . . . . . . . . . . . 5,208,000 1,255,000 617,000
Minority interest in income . . . . . . . . . (129,000)
Extraordinary charge - early extinguishment
of debt (net of tax benefit of $121,000) . (181,000)
------------ ------------ ------------
NET INCOME . . . . . . . . . . . . . . . . . $ 5,208,000 $ 1,074,000 $ 488,000
============ ============ ============
Net income per share before extraordinary
item . . . . . . . . . . . . . . . . . . . $ .51 $ .24 $ .13
Extraordinary item . . . . . . . . . . . . . (.04)
------------ ------------ ------------
Net income per share . . . . . . . . . . . . $ .51 $ .20 $ .13
============ ============ ============
Weighted average number of shares outstanding 10,290,000 5,271,000 3,636,000
============ ============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-4
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Capital Stock
(Par Value $.01)
-----------------------
Number of Additional Retained
Shares Paid-in Treasury Earnings
Issued Amount Capital Stock (Deficit) Total
------ ------ ------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1994 . . . . . . 165 $ 1,914,000 $ (786,000) $ 1,128,000
Issuance of stock . . . . . . . . . . 5,055
Issuance of warrants in connection
with bridge loan . . . . . . . . . 18,000 18,000
Conversion of debt to capital . . . . 500,000 500,000
Recapitalization . . . . . . . . . . . 3,444,780 $ 34,000 (216,000) 182,000 - 0 -
Net proceeds from public offering . . 1,380,000 14,000 5,396,000 5,410,000
S corporation distribution to
stockholders . . . . . . . . . . . (310,000) (310,000)
Net income for the year . . . . . . . 488,000 488,000
--------- ------------ ------------- ------------- ------------- -----------
Balance - December 31, 1994 . . . . . 4,830,000 48,000 7,302,000 (116,000) 7,234,000
Issuance of stock . . . . . . . . . . 284,300 3,000 2,732,000 2,735,000
Net proceeds from public offering . . 3,135,000 31,000 43,702,000 43,733,000
Public offering expenses . . . . . . . (1,317,000) (1,317,000)
Exercise of warrants . . . . . . . . . 64,950 1,000 307,000 308,000
Exercise of options . . . . .. . . . . 3,795 13,000 13,000
Preferential distribution to
stockholders of the Practice Tee,
Inc . . . . . . . . . . . . . . . (4,392,000) (4,392,000)
Net income for the year . . . . . . . 1,074,000 1,074,000
--------- ------------- ------------- ------------- ------------- ------------
Balance - December 31, 1995 . . . . . 8,318,045 83,000 48,347,000 958,000 49,388,000
Issuance of stock . . . . . . . . . . 342,900 3,000 6,512,000 6,515,000
Issuance of warrants . . . . . . . . . 69,000 69,000
Net proceeds from public offering . . 3,000,000 30,000 75,300,000 75,330,000
Public offering expenses . . . . . . . (1,064,000) (1,064,000)
Exercise of warrants . . . . . . . . . 150,000 2,000 1,830,000 1,832,000
Exercise of options . . . . .. . . . . 38,757 213,000 213,000
Preferential distribution to
stockholders of The Practice Tee,
Inc . . . . . . . . . . . . . . . (1,000,000) (1,000,000)
Treasury stock (2,700 shares) acquired
in exchange for notes receivable . $ (47,000) (47,000)
Income tax benefit upon exercise of
stock options and warrants . . . . 500,000 500,000
Net income for the year . . . . . . . 5,208,000 5,208,000
------------ ------------- ------------- ------------- ----------- ----------
BALANCE - DECEMBER 31, 1996 . . . . . 11,849,702 $ 118,000 $ 130,707,000 $ (47,000) $ 6,166,000 $136,944,000
============ ============= ============= ============= =========== ============
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-5
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1996 1995 1994
------------ ------------ ------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,208,000 $ 1,074,000 $ 488,000
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . 2,187,000 739,000 564,000
Deferred tax (benefit) liability . . . . . . . . . . . . . . . . . 370,000 (51,000) (65,000)
Issuance of warrants for consulting services . . . . . . . . . . . 69,000
Extraordinary charge - early extinguishment of debt - loan
acquisition cost write-off . . . . . . . . . . . . . . . . . . . 302,000
Minority interest in net income . . . . . . . . . . . . . . . . . 129,000
(Increase) in inventories . . . . . . . . . . . . . . . . . . . . (4,317,000) (1,478,000) (289,000)
(Increase) in prepaid expenses and other current assets . . . . . (3,248,000) (778,000) (124,000)
(Increase) in other assets . . . . . . . . . . . . . . . . . . . . (1,211,000) (749,000) (181,000)
(Decrease) increase in accounts payable and accrued expenses . . . (491,000) 655,000 239,000
Increase (decrease) in deferred rent . . . . . . . . . . . . . . . 117,000 (71,000) (21,000)
(Decrease) increase in other liabilities . . . . . . . . . . . . . (125,000) 119,000 123,000
(Decrease) increase in income taxes payable . . . . . . . . . . . (669,000) 569,000
------------ ------------ ------------
Net cash (used in) provided by operating activities . . . . . . (2,110,000) 331,000 863,000
------------ ------------ ------------
Cash flows from investing activities:
Acquisitions of property and equipment . . . . . . . . . . . . . . . . (58,840,000) (15,213,000) (5,092,000)
(Increase) in security deposits . . . . . . . . . . . . . . . . . . . (230,000) (37,000)
Acquisition of limited partnership minority interest . . . . . . . . . (1,280,000)
Acquisition of goodwill . . . . . . . . . . . . . . . . . . . . . . . (2,117,000) (259,000)
Net (purchase) sales of short-term investments . . . . . . . . . . . . (33,838,000)
------------ ------------ ------------
Net cash (used in) investing activities . . . . . . . . . . . . (95,025,000) (15,472,000) (6,409,000)
------------ ------------ ------------
Cash flows from financing activities:
Increase in loan acquisition costs . . . . . . . . . . . . . . . . . . (246,000) (213,000)
Loans payable to stockholders . . . . . . . . . . . . . . . . . . . . 25,000
(Decrease) in due to officers . . . . . . . . . . . . . . . . . . . . (455,000) (95,000)
Proceeds from loans - bank and others . . . . . . . . . . . . . . . . 6,843,000 17,916,000 4,497,000
Repayment of loans - bank and others . . . . . . . . . . . . . . . . . (4,584,000) (19,594,000) (2,185,000)
Proceeds from issuance of bridge financing and warrants . . . . . . . 499,000
Repayment of bridge financing . . . . . . . . . . . . . . . . . . . . (499,000)
Net proceeds from issuance of common stock . . . . . . . . . . . . . . 74,266,000 42,416,000 5,410,000
Preferential distribution to stockholders of the Practice Tee, Inc. . (4,392,000)
Proceeds from the exercise of warrants and options . . . . . . . . . . 2,045,000 321,000
------------ ------------ ------------
Net cash provided by financing activities . . . . . . . . . . . 78,570,000 35,966,000 7,439,000
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . (18,565,000) 20,825,000 1,893,000
Cash and cash equivalents - beginning of period . . . . . . . . . . . . . 23,121,000 2,296,000 403,000
------------ ------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD . . . . . . . . . . . . . . . . $ 4,556,000 $ 23,121,000 $ 2,296,000
============ ============ ============
Supplemental and noncash disclosures:
Acquisition of property in exchange for common stock . . . . . . . . . $ 6,515,000 $ 2,734,000
Acquisition of property subject to loans payable . . . . . . . . . . . 6,602,000
Conversion of amounts due to stockholders for common stock . . . . . $ 500,000
Acquisition of treasury stock in exchange for payment of notes
receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,000
Income tax benefit for exercise of stock options and warrants. . . . . 500,000
Accrual for preferential distribution to stockholders of The
Practice Tee, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 1,000,000
Property additions accrued but not paid . . . . . . . . . . . . . . . 89,000 669,000 662,000
Accrual of S corporation distribution to stockholders . . . . . . . . 310,000
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . 958,000 1,296,000 476,000
Taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,609,000 53,000
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
F-6
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and Summary of Significant Accounting Policies:
[1] The Company:
Family Golf Centers, Inc. operates golf centers designed to provide a wide
variety of practice opportunities, including facilities for driving, chipping,
putting, pitching and sand play. In addition, the Company's golf centers
typically offer golf lessons instructed by PGA-certified golf professionals,
full-line pro shops and other amenities to encourage family participation. As
of December 31, 1996, the Company owned, leased or managed 35 golf facilities
comprised of 27 golf centers and eight combination golf center and golf course
facilities located in 14 states. Of the golf centers, seven are currently
operated under the name "Golden Bear Golf Centers" pursuant to a nonexclusive
license agreement, expiring August 2002, with Golden Bear Golf Centers, Inc.
("GBGC"). The license agreement is terminable by GBGC under certain conditions
(see Note I[2]). Of the eight combination golf center and golf course
facilities, six include par-3 or 9-hole golf courses, generally designed to
facilitate the practice of golf, and two include regulation 18-hole golf
courses.
[2] Principles of consolidation:
The consolidated financial statements as of December 31, 1996 and December
31, 1995 include the accounts of Family Golf Centers, Inc. ("FGCI") and its
wholly owned subsidiaries.
As of December 31, 1994, the consolidated financial statements include the
accounts of FGCI and its wholly owned subsidiaries, Orient Associates
International, Inc. ("OAI"), Skydrive Co., Inc., Skydrive Willowbook NJ, Inc.,
Skydrive Greenburgh Co., Inc., Skycon Construction Co., Inc., Skydrive Alley
Pond Company, Inc. ("Skydrive Alley Pond"), (collectively, the "Operating
Companies"), (the Operating Companies and FGCI together, the "Company"). Upon
the closing of the Company's initial public offering in November 1994, pursuant
to an exchange agreement, FGCI acquired all of the outstanding common stock of
the Operating Companies, in exchange for 3,445,000 shares of common stock of
FGCI. The consolidated financial statements include the results of the
Operating Companies for the year ended December 31, 1994 as the Operating
Companies were previously related through common ownership. The exchange
transaction is accounted for in a manner similar to a pooling of interests and
there was no change in the bases of the entities combined.
All significant intercompany transactions and accounts have been
eliminated.
[3] Cash equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less to be cash equivalents.
(continued)
F-7
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and Summary of Significant Accounting Policies:
(continued)
[4] Short-term investments:
Short-term investments are classified as "held to maturity" and are
reported at amortized cost.
[5] Inventories:
Inventory consists of merchandise for sale in the pro shop at each
facility and food and beverage in the restaurants and are valued at the lower
of cost on a first-in, first-out basis or market.
[6] Property, plant and equipment:
Property, plant and equipment are stated at cost. Depreciation and
amortization of the respective assets is computed using the straight-line
method over their estimated lives or the term of the lease, including expected
renewal options, if shorter. Leasehold improvements are amortized using the
straight-line method over the remaining life of the lease, including expected
renewal options.
[7] Pre-opening costs:
Costs associated with the opening of a new location are deferred and
amortized over one year.
Pre-opening costs primarily consist of employee recruitment and training
costs as well as pre-opening marketing expenditures.
[8] Loan acquisition costs:
Loan acquisition costs incurred in connection with debt financing are
amortized over the life of the applicable loan weighted in accordance with the
amount of debt outstanding.
[9] Income taxes:
Certain of the Operating Companies elected to be treated as S corporations
pursuant to Section 1362(a) of the Internal Revenue Code for federal and state
income tax purposes. As a result of these elections, the income of such
Operating Companies was taxed directly to the individual stockholders. Upon
the closing of the public offering in November, 1994, the Company became a C
corporation and adopted Statement of Accounting Standards No. 109, "Accounting
for Income Taxes" which requires the use of the liability method of accounting
for income taxes.
(continued)
F-8
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and Summary of Significant Accounting Policies:
(continued)
[10] Net income per share:
Net income per share is computed using the weighted average number of
shares outstanding during the period as adjusted for the exchange ratio for
shares issued in the reorganization of the Company. The effect of outstanding
options and warrants is computed, if dilutive, using the "treasury stock"
method. In accordance with Securities and Exchange Commission requirements,
common shares, and the dilutive impact of options and warrants issued by
certain of the Operating Companies during the twelve-month period prior to the
filing of the initial public offering in November 1994 have been included in
the calculation as if they were outstanding for all periods prior to the
offering.
[11] 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 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.
[12] Concentration of credit risk:
Financial instruments which potentially subject the Company to significant
concentrations of credit risk consist principally of temporary cash
investments. The Company places its temporary cash investments with high credit
qualified financial institutions and, by policy, limits the amount of credit
exposure to any one financial institution.
(continued)
F-9
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE A) - The Company and Summary of Significant Accounting Policies:
(continued)
[13] Stock based compensation:
During 1996, the Company implemented Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123").
The provisions of SFAS No. 123 allow companies to either expense the estimated
fair value of stock options or to continue to follow the intrinsic value method
set forth in APB Opinion 25, "Accounting for Stock Issued to Employees" ("APB
25") but disclose the pro forma effects on net income (loss) had the fair value
of the options been expensed. The Company has elected to continue to apply APB
25 in accounting for its stock option incentive plans (see Note J).
(NOTE B) - Acquisition of Golf Facilities:
In 1995, the Company acquired existing golf practice centers in Pelham,
South Carolina ("Pelham"), Glen Allen, Virginia ("RFC"), Alpharetta, Georgia
("McDivots") and Valley View, Ohio ("Valley View") and an existing golf center
and land on which it intends to construct an executive golf course in Duluth,
Georgia ("Peachtree"). Also in 1995, the Company acquired the Hiland Park Golf
Course ("Hiland"), a distressed property which was in foreclosure, consisting
of a golf course, restaurant and catering facility.
During the first quarter of 1996, the Company acquired two combination
golf center and 9-hole golf courses in Mesa, Arizona ("Mesa") and Virginia
Beach, Virginia ("Virginia Beach"). The Company also acquired a 17-acre
property on which there is a driving range, a miniature golf course, batting
cage, a pro shop and a club house located in Flemington, New Jersey
("Flemington").
During the second quarter of 1996, the Company acquired six golf
recreational facilities; an existing golf recreational facility in Mohegan
Lake, New York ("Yorktown Heights"), a leasehold interest in a 14-acre property
and the related existing golf recreational facility in Indian River, Virginia
("Indian River"), a 24-acre parcel of property in Fairfield, Ohio
("Cincinnati") on which there is a golf recreational facility, an 18-acre
parcel of property in Tucson, Arizona ("Tucson") on which there is an existing
golf recreational facility, a leased 42-acre parcel of property in St. Louis,
Missouri ("St. Louis") on which there is an existing golf recreational
facility, including a par-3 golf course, and a 32-acre parcel of property in
West Palm Beach, Florida ("West Palm Beach") on which there is an existing golf
recreational facility, including a par-3 golf course.
(continued)
F-10
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Acquisition of Golf Facilities: (continued)
During the third quarter of 1996, the Company acquired the following; a
long-term leasehold interest in a 25-acre parcel of property in San Jose,
California ("San Jose") on which there is an existing golf recreational
facility, a 20 year leasehold interest with the option to extend for two
additional ten year periods in Denver, Colorado ("Denver") on which there is an
existing golf recreational facility, a leasehold interest in a 17-acre property
and the related existing golf recreational facility in Westminster, California
("Westminster"), a 70-acre property in South Easton, Massachusetts ("Easton")
on which there is an existing golf recreational facility, a leasehold interest
in a 38-acre property in Glen Burnie, Maryland ("Glen Burnie") and the related
existing golf recreational facility, a 283-acre parcel of property in Fountain
Inn, South Carolina ("Carolina Springs") on which there is a 27-hole golf
course and a golf recreational facility, a 24-acre parcel of property in
Flanders, New Jersey ("Flanders") on which there is an existing golf
recreational facility and a concession license with the City of Denver ("Seven
Iron") to manage an existing golf recreational facility and restaurant.
During the fourth quarter of 1996, the Company acquired three golf
recreational facilities; a 17-acre parcel of property in Margate, Florida
("Margate") on which there is an existing golf recreational facility, a 32-acre
parcel of property in Maineville, Ohio ("Maineville") on which there is an
existing golf recreational facility and a 65-acre parcel of property in
Milwaukee, Wisconsin ("Milwaukee") on which there is an existing golf
recreational facility.
These acquisitions were accounted for using purchase method of accounting.
The purchase prices paid for the various facilities consisted of cash, common
stock of the Company, notes or assumption of liabilities or a combination
thereof.
(continued)
F-11
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Acquisition of Golf Facilities: (continued)
Facilities
Acquired
Year Ended
December 31,
------------
1996 1995
---- ----
Property, plant and equipment . . . . . . . $47,905,00 $ 12,372,000
Other current assets . . . . . . . . . . . 201,000 250,000
Excess of cost over fair value . . . . . . 50,000 259,000
---------- ------------
Total assets . . . . . . . . . . 48,156,000 12,881,000
Assumption of mortgage payable . . . . . . (1,700,000) (1,330,000)
Assumption of other liabilities . . . . . . (2,244,000)
---------- ------------
Net assets acquired . . . . . . . . . . . . $46,456,000 $ 9,307,000
=========== ============
Cash . . . . . . . . . . . . . . . . . . . $35,337,000 $ 378,000
Fair value of stock issued . . . . . . . . 6,363,000 2,734,000
Loan from selling stockholder . . . . . . . 3,102,000 1,642,000
Mortgage . . . . . . . . . . . . . . . . . 1,654,000 3,000,000
Short-term borrowings . . . . . . . . . . . - 1,553,000
----------- ------------
$46,456,000 $ 9,307,000
=========== ============
In November 1995, the Company acquired The Practice Tee, Inc. ("TPT"). TPT
operates a combination Golden Bear Golf Center and golf course facility in El
Segundo, California and a combination golf center and par-3 golf course
facility in Gilroy, California. The purchase price consisted of $4,000,000 and
up to $2,000,000 payable upon the achievement of certain operating targets (see
Note I[3]).
In the third quarter of 1996, the Company acquired the Colbert- Ballard
Golf Learning Centers ("Colbert-Ballard"), which offers golf instruction
nationwide. In connection with this acquisition, the excess of cost over fair
value of assets acquired was $2,067,000.
The operating results of companies accquired are included in the Company's
results of operations from dates of acquisition.
(continued)
F-12
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE B) - Acquisition of Golf Facilities: (continued)
The following pro forma information assumes that the acquisitions in 1995
had taken place at the beginning of 1994 and that the acquisitions in 1996 had
taken place at the beginning of 1995.
1996 1995 1994
---- ---- ----
TOTAL REVENUE . . . . . . . . $32,838,000 $25,855,000 $ 10,902,000
=========== =========== ============
NET INCOME (LOSS) . . . . . . $ 4,319,000 $ (495,000) $ (481,000)
=========== =========== ============
NET INCOME (LOSS) PER SHARE
(NOTE A[10]) . . . . . . . $ 0.41 $ (0.09) $ (0.11)
=========== =========== ============
Subsequent to December 31, 1996 the Company acquired five golf
recreational facilities; a leasehold interest in a 17-acre parcel of property
and the related existing golf recreational facility in Palm Desert, California
("Palm Desert"), a leasehold interest in a 20-acre property and the related
existing golf recreational facility in Raleigh, North Carolina ("Raleigh"), a
leasehold interest in a 14-acre parcel of property and the related existing
golf recreational facility in Mawah, New Jersey ("Darlington"), a leasehold
interest in a 20-acre parcel of property and the related existing golf
recreational facility in Randalls Island, New York ("Randalls Island") and a
leasehold interest in a 175 acre parcel of property and the related 18-hole
golf course and recreational facility in Trotters Glen, Maryland ("Trotters
Glen").
(NOTE C) - Short-Term Investments:
Short-term investments including accrued interest, at December 31,
1996 were as follows:
Amortized Unrealized
Held to Maturity Cost Fair Value Gain/(Loss)
- ---------------- ---- ---------- -----------
U.S. Treasury and
agencies . . . . . . $33,838,000 $34,008,000 $170,000
=========== =========== ========
(continued)
F-13
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE D) - Property, Plant and Equipment:
Property, plant and equipment are summarized as follows:
1996 1995
------------ -----------
Golf driving range facilities . . $ 59,596,000 $23,564,000
Leasehold improvements. . . . . . 29,216,000 7,248,000
Machinery and equipment . . . . . 3,718,000 1,617,000
Furniture and fixtures. . . . . . 2,291,000 219,000
Construction in progress. . . . . 11,891,000 2,018,000
------------ -----------
T o t a l . . . . . . . 106,712,000 34,666,000
Accumulated depreciation and
amortization . . . . . . . . . 2,823,000 1,336,000
------------ -----------
B a l a n c e . . . . . $103,889,000 $33,330,000
============ ===========
Substantially all of the Company's property, plant and equipment is
pledged as collateral for various loans (see Note H). Interest of $778,000 and
$387,000 has been capitalized during the years ended December 31, 1996 and
December 31, 1995, respectively, which amounts are included in property, plant
and equipment.
(NOTE E) - Prepaid Expenses and Other Current Assets:
Prepaid expenses and other current assets consist of the following:
1996 1995
----------- ---------
Prepaid insurance . . . . . . . . $ 290,000 $276,000
Prepaid taxes . . . . . . . . . . 90,000 58,000
Preopening expenses . . . . . . . 1,036,000 173,000
Accounts receivable and interest
receivable. . . . . . . . . . . 500,000 177,000
Accounts receivable - employees . 114,000 29,000
Other receivable and prepaids . . 1,612,000 286,000
----------- --------
T o t a l . . . . . . . $3,642,000 $999,000
=========== ========
(continued)
F-14
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE F) - Leasing Arrangements:
Operating leases, which expire at various dates through 2038, are for land
at the facilities and for office space and, in some cases provide for the
payment of real estate taxes and other operating costs and are subject to
annual increases based on changes in the Consumer Price Index. Certain leases
require contingent rent payments based on a percentage of revenues.
Future minimum lease payments, including expected renewal options, under
operating lease agreements that have initial or remaining noncancellable lease
terms in excess of one year are as follows:
Year Ending
December 31,
------------
1997. . . . . . . . . . . . . . . . . . $ 2,086,000
1998. . . . . . . . . . . . . . . . . . 2,167,000
1999. . . . . . . . . . . . . . . . . . 2,259,000
2000. . . . . . . . . . . . . . . . . . 2,368,000
2001. . . . . . . . . . . . . . . . . . 2,438,000
Thereafter. . . . . . . . . . . . . . . 60,101,000
-----------
Total minimum lease payments. $71,419,000
===========
Operating lease rent expense for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994 was $2,597,000, $1,527,000 and
$1,372,000, respectively.
Pursuant to certain of the Company's land leases, rent expense charged to
operations differs from rent paid because of the effect of free rent periods
and scheduled rent increases. Accordingly, the Company has recorded deferred
rent payable of $233,000 and $116,000 at December 31, 1996 and December 31,
1995, respectively. Rent expense is calculated by allocating total rental
payments, including those attributable to scheduled rent increases, on a
straight-line basis, over the lease term.
(NOTE G) - Due To Related Parties:
The Company was indebted to the Chief Executive Officer ("CEO") and the
Chief Financial Officer ("CFO") for loans in the aggregate amount of $455,000
at December 31, 1994, due on demand and repaid during 1995. Interest on such
loans aggregated $40,000 and $16,000 for the years ended December 31, 1995 and
December 31, 1994, respectively.
(continued)
F-15
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Debt:
[1] Short-term borrowing:
At December 31, 1996, the Company has outstanding borrowings under a
working capital line of credit of $5,000,000, expiring on June 9, 1997,
providing for interest at the bank's prime rate.
The bank has issued a commitment letter to provide a $20,000,000 two year
revolving credit facility convertible to a four year term loan. The loan is
subject to execution of closing on or before April 30, 1997 at which time,
the bank will cancel and replace the existing working capital line of credit
of $5,000,000.
[2] Long-term obligations consist of the following:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Small business term loan bearing interest at 7.45%, payable in monthly
installments through April 2002 . . . . . . . . . . . . . . . . . . . . . $ 529,000
Construction term loan for $1,700 bearing interest at the prime rate plus 2%,
payable in monthly installments through May 1997 (10.5% at December 31,
1996) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,457,000
Mortgage payable bearing interest at LIBOR plus 3.5% (capped at 10.5%),
payable in monthly installments through May 2000 . . . . . . . . . . . . $ 2,946,000 3,000,000
Promissory note due April 1996 bearing interest at bank's prime rate (8.5%
at December 31, 1996) . . . . . . . . . . . . . . . . . . . . . . . . . . 231,000
Promissory note due August 1997 bearing interest payable monthly at 8% . . . 998,000 998,000
Mortgage payable due August 2000 bearing interest payable monthly at bank's
prime rate (8.5% at December 31, 1996) . . . . . . . . . . . . . . . . . 1,600,000 1,600,000
Mortgages payable paid off in 1996 . . . . . . . . . . . . . . . . . . . . . . 378,000
Mortgage payable due March 7, 2001 bearing interest at 5.25% . . . . . . . . . 1,700,000
Promissory notes (four notes of $480, $480, $250 and $250) payable on or after.
January 1, 1997 and not later than July 1, 1997 bearing interest payable
monthly at 8%. The payee has an option to require payment with
common stock of the Company at $27.00 a share . . . . . . . . . . . . . . 1,460,000
Mortgage payable due July 15, 1997 bearing interest at 8%. Convertible into
shares of the Company's common stock at $25.00 a share . . . . . . . . . 700,000
Small business term loan bearing interest at 7.317%, payable in monthly
installments through August 2016 . . . . . . . . . . . . . . . . . . . . 742,000
Promissory note payable December 31, 1997 bearing interest at 8%.
Convertible into shares of the Company's common stock at $29.00 a share 200,000
Promissory note bearing interest at prime with interest only for the first
year, and payable in monthly installments through September 2001 . . . . 1,710,000
----------- ----------
T o t a l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,056,000 8,193,000
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,560,000 1,850,000
----------- ----------
Noncurrent portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,496,000 $6,343,000
=========== ==========
</TABLE>
The above short-term and long-term loans are collateralized by
substantially all the assets of the Company including the golf driving range
facilities, leasehold improvements, machinery and equipment and other assets.
Further the mortgage payable bearing interest at LIBOR plus 3.5%, referred
to above, was personally guaranteed by the CEO.
(continued)
F-16
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE H) - Debt: (continued)
The long-term portion of the Company's debt at December 31, 1996 is
payable as follows:
Year Ending
December 31,
------------
1998. . . . . . . . . . . . . . . $ 541,000
1999. . . . . . . . . . . . . . . 542,000
2000. . . . . . . . . . . . . . . 544,000
2001. . . . . . . . . . . . . . . 3,644,000
2002. . . . . . . . . . . . . . . 97,000
Thereafter. . . . . . . . . . . . 3,128,000
----------
T o t a l . . . . . . . $8,496,000
==========
(NOTE I) - Commitments and Contingencies:
[1] Alley Pond Agreement:
The Company has an agreement to manage a family golf center which is owned
by the City of New York. The license agreement provides for the payment of fees
to New York City, of the greater of $900,000 or up to 50% of gross revenues (as
defined), on an annual basis. The Company was obligated, as part of its
license agreement, to make improvements to the existing property of at least
$1,200,000 and at December 31, 1995 this requirement had been met. Such
improvements will belong to the City of New York at the end of the license
period, which expires on December 31, 2006 or upon earlier termination. The
agreement is terminable at will by the City of New York.
[2] License agreement:
Pursuant to its license agreement with GBGC, the Company paid a one-time
facility development fee for each Golden Bear golf center. In addition, the
Company is required to pay annual royalty fees for each Golden Bear golf center
it operates based on Adjusted Gross Revenues ("AGR") as defined, equal to 3% of
AGR less than
(continued)
F-17
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - Commitments and Contingencies: (continued)
[2] License agreement: (continued)
$2,000,000 plus 4% of AGR between $2,000,000 and $3,000,000, plus 5% of AGR
over $3,000,000. The minimum royalty fee for each Golden Bear golf center
ranges up to $50,000 per year.
On September 13, 1995 the Company's exclusive rights to open Golden Bear
Golf Centers in defined territories were terminated and the restrictions on the
Company's right to develop golf centers under its own name in such territories
were removed.
Royalty fees incurred for the years ended December 31, 1996, December 31,
1995 and December 31, 1994 amounted to $299,000, $184,000 and $120,000,
respectively. All of such fees have been charged to operations.
[3] Purchase of TPT and related party transactions:
In November 1995, the Company acquired TPT. Prior to the acquisition, the
CEO and the CFO of the Company individually owned, in aggregate, 70% of the
shares of TPT. The excess of cost over fair value of assets acquired of
$4,392,000 was considered a preferential distribution to certain stockholders.
The purchase price included a contingent payment up to $2.0 million, payable
upon the achievement of certain operating income targets. The contingent
purchase price in respect of the year ending December 31, 1996 of $1,000,000
payable to the former TPT shareholders has been reflected as an additional
preferential distribution. The contingent purchase price in respect of the year
ending December 31, 1997 will be determined by multiplying $1.0 million by the
lesser of (i) 1.0 and (ii) the number obtained by dividing the OIBITA during
such year by $1.0 million (the "1997 Multiplier").
For purposes of this computation, OIBITA for any year shall mean the
operating income before interest, taxes and depreciation or amortization,
determined in accordance with generally accepted accounting principles
consistently applied, generated by all golf facilities owned by the Company and
located west of the Mississippi River.
(continued)
F-18
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE I) - Commitments and Contingencies: (continued)
[3] Purchase of TPT and related party transactions: (continued)
Under an existing agreement with TPT, the Company had an option to acquire
TPT (the "TPT Option") for a price equal to 12.5 times the net after tax income
of TPT during the full 12 months immediately preceding the exercise of such
option. Such price was payable in shares of the Company's common stock. The TPT
Option may have been exercised at any time commencing on the earlier of (i)
January 1, 1998 or (ii) the date on which TPT has after-tax income of at least
$1,000,000 over a twelve-month period until the expiration date of such option
on December 31, 2003.
See Notes G and H for other related party transactions.
[4] Other commitments:
At December 31, 1996, the Company had commitment for construction
projects aggregating $2,600,000.
(NOTE J) - Stockholders' Equity:
Stock Option Plans:
The Company has elected to follow Accounting Principles Board Opinion No.
25 "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
where the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation is
recognized.
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). Such information has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that statement. The effect of applying SFAS No. 123 on
1995 and 1996 pro forma net income is not necessarily representative of the
effects on reported net income for future years due to, among other things: (1)
The vesting period of the stock options and the (2) fair value of additional
stock options in future years. Had compensation cost for the Company's stock
option plans been determined based upon the fair value at the grant date for
awards under the plans consistent with the methodology prescribed under SFAS
No. 123, the Company's net income,
(continued)
F-19
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - Stockholders' Equity: (continued)
Stock Option Plans: (continued)
before extraordinary items, in 1995 and 1996 would have been approximately
$1,141,000 and $4,546,000, or $0.22 per share and $0.44 per share,
respectively. The weighted average fair value of the options granted during
1995 and 1996 are estimated as $5.32 and $14.77, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: expected dividend yield in both of the years 0%, expected
volatility of 69% in 1995 and 73% in 1996, risk-free interest rate of 6.00% for
1995 and 1996 and estimated life of 5 years in 1995 and 1996.
The Company's 1994 Stock Option Plan (the "Plan") provides for the grant
of options to purchase up to 300,000 shares of common stock to employees,
officers, directors and consultants of the Company. Options may be either
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), or nonqualified options.
Incentive stock options may be granted only to employees of the Company, while
nonqualified options may be issued to nonemployee directors, consultants and
others, as well as to employees of the Company. The Company's 1996 Stock
Incentive Plan (the "New Plan") is identical to the Plan, except that the New
Plan provides (i) for the grant of option to purchase up to 500,000 shares of
common stock and (ii) an automatic grant of nonqualified stock options to
purchase 10,000 shares to each nonemployee director upon his election or
appointment to the Board of Directors and annual grants (commencing on the date
the New Plan was approved by stockholders) to each nonemployee director of
nonqualified stock options to purchase 10,000 shares of common stock at the
fair market value of the common stock on the date of the grant.
The exercise price per share of common stock subject to an incentive
option may not be less than the fair market value per share of common stock on
the date the option is granted. The per share exercise price of common stock
subject to a nonqualified option may be established by the Board of Directors.
Incentive stock options granted under the Plan cannot be exercised more
than 10 years from the date of grant.
(continued)
F-20
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - Stockholders' Equity: (continued)
Stock Option Plans: (continued)
Additional information with respect to 1996 and 1995 Stock Option activity
is summarized as follows:
Year Ended December 31,
1996 1995
--------------------- -------------------
Weighted Weighted
Average Average
Shares Price Shares Price
------ ----- ------ -----
Outstanding at beginning of year . 290,205 $ 8.530 154,000 $ 3.500
Options granted . . . . . . . . . . 426,912 22.697 140,000 13.927
Options exercised . . . . . . . . . (38,257) (5.580) (3,795) 3.500
------- ------
Outstanding at end of year . . . . 678,860 17.606 290,205 8.530
======= =======
Options exercisable at year-end . . 115,265 7.539 47,538 3.500
======= ======
The following table summarizes information about stock options
outstanding at December 31, 1996:
Weighted-
Average Weighted
Number Contractual Average Number
Exercise of Options Remaining Exercise of Options
Price Outstanding Life (In Years) Price Exercisable
- -------- ----------- --------------- ---------- -------------
$ 3.50 120,611 7.5 $ 3.50 69,278
6.00 8,761 8.67 6.00 5,128
8.875 6,000 8.50 8.875 2,000
14.875 116,576 8.80 14.875 38,859
19.875 53,500 9.25 19.875 0
27.125 30,000 9.50 27.125 0
22.75 125,000 9.58 22.75 0
22.75 218,412 9.96 22.75 0
------- ----------
678,860 115,265
======== ==========
In connection with the purchase of certain golf facilities, the
company granted the sellers, options to acquire up to an aggregate of
54,000 shares of common stock at prices ranging form $0.01 to $40 per share,
with a weighted average price per share of $31.16. As at December 31, 1996
options to purchase 53,500 were outstanding.
Warrants:
In connection with the initial public offering in November 1994, the
Company issued warrants to the representatives of the underwriters to purchase
120,000 shares of common stock at $5.50 per share exercisable through November
1999, of which warrants to purchase 40,000 shares were exercised in connection
with a public offering in December 1995 and remaining warrants to purchase
80,000 shares were exercised in 1996.
(continued)
F-21
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE J) - Stockholders' Equity: (continued)
Warrants: (continued)
In connection with the public offering in December 1995, the Company has
granted warrants to the representatives of the underwriters to purchase from
the Company up to 300,000 shares of common stock at $20.25 per share
exercisable through December 2000.
In connection with consulting services to be rendered over a three year
period, the Company in 1996 issued warrants to a consultant to purchase
70,000 shares of common stock at $19.875 per share. Such warrants were
exercised in 1996.
(NOTE K) - Income Taxes:
The provision (benefit) for income taxes consists of the following:
Year Ended December 31,
----------------------------------
1996 1995 1994
------ ------ ------
Current . . . . . . . . . $2,822,000 $785,000 $ (65,000)
Deferred. . . . . . . . . 370,000 (51,000) (65,000)
----------- --------- ----------
3,192,000 734,000 (130,000)
Change in valuation
allowance . . . . . . . 65,000 (65,000)
----------- --------- ----------
Total provision
(benefit) . . $3,192,000 $669,000 $ (65,000)
=========== ========= ==========
At December 31, 1994, the Company had available net operating loss
carryforwards of approximately $180,000 for federal income tax purposes, which
were utilized in 1995. Temporary differences arise due to differences between
reporting for financial statement purposes and for federal income tax purposes
relating primarily to deferred rent expense and depreciation methods.
(continued)
F-22
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(NOTE K) - Income Taxes: (continued)
Expected tax expense (benefit) based on the statutory rate is
reconciled with the actual expense as follows:
Percent of Pre-tax
Earnings (Loss)
December 31,
---------------------
1996 1995 1994
---- ---- ----
Expected tax expense. . . . . . . . . 34.0 % 34.0 % 34.0 %
Increase (reduction) in taxes
resulting from:
Income attributable to
S corporation. . . . . . . . . (56.8)
State income tax (benefit), net
of federal tax effect. . . . . 3.7 7.6 (2.0)
Change in valuation allowance. . (7.7) 11.8
Other. . . . . . . . . . . . . . 0.3 1.1 1.0
----- ----- -----
38.0 % 35.0 % (12.0)%
===== ===== ======
The deferred tax assets (liabilities) are recorded as follows:
Year Ended
December 31,
------------
1996 1995
---- ----
Deferred rent . . . . . . . . . . . . $ 93,000 $ 46,000
Book basis of assets over tax basis . (347,000) 70,000
---------- --------
Net deferred tax asset (liability). . $(254,000) $116,000
========== ========
(continued)
F-23
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
NOTE L - Fair Value of Financial Instruments:
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial statements:
Cash and cash equivalents approximate fair value. The cost and fair value
of short-term investments are disclosed in Note C.
Short-term loan payable - the carrying amount approximates fair value due
to the short-term maturities of these instruments.
Long-term debt - fair value is estimated based on borrowing rates offered
to the Company.
F-24
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
<S> <C> <C>
3.1* Certificate of Incorporation.
3.2* By-laws.
10.1* Agreement to Exchange, dated as September 11, 1994, by and among Family Golf
Centers, Inc. and Dominic Chang, Jimmy C.M. Hsu, Krishnan Thampi, Tommy Hsu, and
John Chen.
10.2* Purchase Agreement, dated as of September 11, 1994, by and among Family Golf
Centers, Inc. and Golf Range, Inc. and Abbington Holdings, Inc.
10.3* Option Agreement by and among Ken Simonds, William Schickler III, Dominic Chang,
Krishnan Thampi, The Practice Tee, Inc. and Family Golf Centers, Inc.
10.4* Employment Agreement, dated as of September 11, 1994, between Family Golf Centers,
Inc. and Dominic Chang.
10.4.1***** Amendment No. 1, dated March 8, 1995, to the Employment agreement, dated as of
September 11, 1994, between Family Golf Centers, Inc. and Dominic Chang, filed as
Exhibit 10.5.
10.5* Employment Agreement, dated as of September 11, 1994, between Family Golf Centers,
Inc. and Krishnan Thampi.
10.5.1***** Amendment No. 1, dated March 8, 1995, to the Employment Agreement, dated as of
September 11, 1994, between Family Golf Centers, Inc. and Krishnan P. Thampi, filed as
Exhibit 10.5.
10.6* Agreement, dated as of August 12, 1992, by and between Golden Bear International, Inc.
and Orient Associates International, Inc., as amended by an Assignment and amendment
entered into February 16, 1994, by and among Golden Bear International, Inc., Golden
Bear Golf Centers, Inc. and Orient Associates International, Inc., as further amended by
an Assignment and Assumption by and among Golden Bear Golf Centers, Inc., Orient
Associates International, Inc. and The Practice Tee, Inc.
10.6.1** Amendment entered into November 9, 1994 to Agreement dated as of August 12, 1992,
by and between Golden Bear International, Inc. and Orient Associates International, Inc.
10.6.2***** Amendment entered into December 2, 1994 to Agreement dated as of August 12, 1929,
by and between Golden Bear International, inc. and Orient Associates International, Inc.,
filed as Exhibit 10.6.
10.7* License Agreement, dated September 14, 1994, between Orient Associates International,
Inc. and City of New York Parks & Recreation Department.
10.8* Form of Common Stock Purchase Warrant, for an aggregate of 24,950 shares of Common
Stock, expiring on August 15, 1999.
10.9* Family Golf Centers, Inc. 1994 Stock Incentive Plan.
10.10++++ Family Golf Centers, Inc. 1996 Stock Incentive Plan.
10.11* Loan Agreement, dated March 1, 1994, between Grand Pacific Finance Corp. as Lender,
and Orient Associates International, Inc. as Borrower.
<PAGE>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
10.12* Loan Leasehold Mortgage and Security Agreement, dated April 23, 1993, between Orient
Associates International, Inc. as Mortgagor and The Development Bank of Singapore,
Ltd., as Mortgagee.
10.13* Revolving Credit Line Agreement, dated April 2, 1993, between TaipeiBank, New York
Agency, as Lender, and Orient Associates International, Inc. and Dominic Chang, as
Borrower.
10.14* Mortgage, dated December 17, 1993, between Orient Associates International, Inc. and
Hsing Lung Farm Corp., as Mortgagor and TaipeiBank, New York Agency, as
Mortgagee.
10.15* Authorization and Debenture Guaranty, dated December 31, 1991, between the United
States Small Business Administration, as Lender and Long Island Development
Corporation, as Borrower, to assist Orient Associates International, Inc.
10.16* Building Loan Contract and Building Loan Mortgage, dated October 20, 1994, between
Orient Associates International, Inc., as Borrower, and Grand Pacific Finance Corp., as
Lender.
10.17** Building Loan Agreement and Mortgage, dated November 26, 1991, between Grand Pacific
Finance Corp., as Lender and Orient Associates International, Inc., as Borrower.
10.18** Collateral Note and Security Agreements, dated September 28, 1994 and
September 30, 1994, between Bank of New York, as Lender, and Skydrive Co.,
Inc.,as Borrower.
10.19+ Purchase and Sale Contract, dated May 1, 1995, between Evergreen Bank, N.A. f/k/a The
First National Bank of Glens Falls and Family Golf Centers, Inc.
10.20+ Mortgage and Security Agreement, dated May 15, 1995, between Family Golf Centers,
Inc., as Mortgagor and Orix USA Corporation, as Mortgagee.
10.21+ Purchase Money Note, dated May 15, 1995, made by Family Golf Centers, Inc. in favor of
Orix USA Corporation in the principal amount of $3,000,000.
10.22+ Statement of Purpose for an Extension of Credit Secured by Margin Stock, dated April
28, 1995, between Family Golf Centers, Inc. and Chemical Bank.
10.23+ Promissory Note, dated May 4, 1995, made by Family Golf Centers, Inc. in favor of
Chemical Bank in the principal amount of $850,000.
10.24***** Registration Rights Agreement, dated April 28, 1995, between Kenneth Gurley and
Family Golf Centers, Inc.
10.25***** Commitment letter, dated September 28, 1995, issued by Chemical Bank, N.A. to Family
Golf Centers, Inc.
10.26***** Mortgage, dated March 25, 1994 granted by Pelham Enterprises, Inc. in favor of United
Carolina Bank of South Carolina.
10.27***** Warrant to purchase 80,000 shares of Common Stock, dated November 23, 1994, issued to
Hampshire Securities Corporation by Family Golf Centers, Inc.
10.28***** Warrant to purchase 40,000 shares of Common Stock, dated November 23, 1994 issued
to Brenner Securities Corporation by Family Golf Centers, Inc.
10.29***** Form of Representatives' Warrants.
10.30***** TPT/FGC Purchase Agreement, dated as of September 28, 1995, between Family Golf
Centers, Inc., Dominic Chang, Krishnan Thampi, Ken Simonds and
William Schickler III.
<PAGE>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
10.31***** Registration Rights Agreement, dated August 24, 1995, between Thomas Mathews, J.L.
Matthews, Jr. and Family Golf Centers, Inc.
10.32**** Purchase Contract dated September 28, 1995, between Upper Hembree Partners, L.P.,
each of the general partners of Upper Hembree Partners, L.P. and Alpharetta Family Golf
Centers, Inc., a wholly owned subsidiary of Family Golf Inc.
10.33**** Escrow Agreement, dated September 28, 1995, between Family Golf Centers, Inc., Upper
Hembree Partners, L.P. and Continental Stock Transfer & Trust Company.
10.34**** Stock Option Agreement, dated September 28, 1995, between Family Golf Centers, Inc.
and Upper Hembree Partners, L.P.
10.35**** Registration Rights Agreement, dated September 28, 1995, between Family Golf Centers,
Inc. and Upper Hembree Partners, L.P.
10.36**** Form of Promissory Note, dated September 28, 1995, in the principal amount of $35,000
made by Upper Hembree Partners, L.P in favor of Family Golf Centers, Inc.
10.37**** Assignment & Assumption Agreement, dated October 16, 1995, between Upper
Hembree Partners, L.P., Alpharetta Family Golf Centers, Inc. and Bank South.
10.38**** Renewal Promissory Note, dated November 14, 1994, in the principal amount of
$1,860,770.07 made by Upper Hembree Partners, L.P. in favor of Bank South, N.A.
10.39**** Form of Guaranty Agreement from Dominic Chang in favor of Bank South.
10.40**** Form of Guaranty Agreement from Family Golf Centers, Inc. in favor of Bank South.
10.41****** Promissory Note, dated November 8, 1995, in the principal amount of $4,000,000 made
by Family Golf Centers, Inc. in favor of Dominic Chang, as the representative of the
shareholders of The Practice Tee, Inc.
10.42****** Purchase Agreement, dated as of November 8, 1995, by and between Golf Masters
Limited Partnership and Air Dome Limited Partnership, as Sellers, each of the general
partners of Sellers and Valley View Family Golf Centers, Inc., a wholly owned subsidiary
of Family Golf Centers, Inc.
10.43****** Escrow Agreement, dated as of November 8, 1995, among Family Golf Centers, Inc.,
Golf Masters Limited Partnership, Air Dome Limited Partnership and Continental Stock
Transfer & Trust Company.
10.44****** Registration Rights Agreement, dated as of November 8, 1995, between Golf Masters
Limited Partnership, Air Dome Limited Partnership and Family Golf Centers, Inc.
10.45****** Stock Option Agreement, dated as of November 8, 1995, among Family Golf Centers, Inc.,
Golf Masters Limited Partnership and Air Dome Limited Partnership.
10.46****** Note, dated September 1992, in the principal amount of $350,000 made by Golf Masters
Limited Partnership in favor of JSN Holdings and related Mortgage Deed.
10.47+++ Deed of Assignment, dated February 27, 1996, between Owl's Creek Golf Center, Inc.,
Virginia Beach Family Golf Centers, Inc. and the City of Virginia Beach, Virginia.
10.48+++ Deed of Assignment, dated March 1, 1996, between Owl's Creek Golf Center, Inc. and
Virginia Beach Family Golf Centers, Inc.
10.49+++ Purchase Agreement, dated March 6, 1996, between Owl's Creek Golf Center, Inc. and
Virginia Beach Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
<PAGE>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
10.50+++ Escrow Agreement, dated March 6, 1996, among Family Golf Centers, Inc., Owl's Creek
Golf Center, Inc. and Continental Stock Transfer & Trust Company.
10.51+++ Registration Rights Agreement, dated March 6, 1996, between Family Golf Centers, Inc.
and certain stockholders of Owl's Creek Golf Center, Inc. listed on Schedule 1 thereto.
10.52+++ Deed for Improvements, dated as of March 1, 1996, between Owl's Creek Golf Center,
Inc. and Virginia Beach Family Golf Centers, Inc.
10.53+++ Bill of Sale, dated as of March 6, 1996, between Owl's Creek Golf Center, Inc. and
Virginia Beach Family Golf Centers, Inc.
10.54+++ Purchase Agreement, dated March 7, 1996, between Flemington Equities VII and
Flemington Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers,
Inc.
10.55+++ Guaranty, dated March 7, 1996, by Family Golf Centers, Inc., in favor of Flemington
Equities VII.
10.56+++ Purchase Agreement, dated March 7, 1996, between Flemington Golf and Sports Center,
LLC and Flemington Family Golf Centers, Inc., a wholly-owned subsidiary of Family Golf
Centers, Inc.
10.57+++ Mortgage Note, dated March 7, 1996, in the principal amount of $1,700,000 made by
Flemington Family Golf Centers, Inc. in favor of Flemington Equities VII and related
Mortgage Deed.
10.58+++ Cash Escrow Agreement, dated March 7, 1996, among Flemington Family Golf Centers,
Inc., Flemington Golf and Sports Center, LLC and Continental Stock Transfer and Trust
Company.
10.59++++ Form of Warrants to purchase an aggregate of 70,000 shares of Common Stock, dated as
of March 7, 1996, issued to Monness, Crespi & Hardt & Co. by Family Golf Centers, Inc.
10.60+++ Purchase Agreement, dated April 8, 1996, among 202 Golf Associates, Inc., Family Golf
Centers, Inc. and Yorktown Family Golf Centers, Inc., a wholly owned subsidiary of
Family Golf Centers, Inc.
10.61+++ Escrow Agreement, dated April 8, 1996, among Family Golf Centers, Inc., 202 Golf
Associates, Inc., Yorktown Family Golf Centers, Inc. and Continental Stock Transfer &
Trust Company.
10.62+++ Registration Rights Agreement, dated April 8, 1996, between Family Golf Centers, Inc.
and 202 Golf Associates, Inc.
10.63+++ Assignment and Assumption Agreement, dated April 8, 1996, between 202 Golf
Associates, Inc. and Yorktown Family Golf Centers, Inc.
10.64+++ Bill of Sale, dated April 8, 1996, by 202 Golf Associates, Inc.
10.65+++ Indenture, dated April 8, 1996, between 202 Golf Associates, Inc. and Yorktown Family
Golf Centers, Inc.
10.66+++++ Purchase Agreement, dated May 20, 1996, among Indian River Golf-O-Rama, Inc.,
Indian River Family Golf Centers, Inc. and Lenrich Associates, L.L.C.
10.67++++++ Purchase Agreement, dated June 7, 1996, among Ruth Perillo, Lynn Perillo, Glen Perillo
and Oscar Ramirez, as sellers, and Tucson Family Golf Centers, Inc., a wholly owned
subsidiary of Family Golf Centers, Inc.
<PAGE>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
10.68++++++ Stock Purchase Agreement, dated June 7, 1996, among Joseph E. Wolf, Kenneth R.
Gibbons and Richard Johnson, as sellers, K.G. Golf, Inc. and Family Golf Centers, Inc.
10.69++++++ Assignment and Assumption of Lease, dated June 7, 1996, by and between Tree Court
Golf & Recreational Complex, Inc. and St. Louis Family Golf Centers, Inc., a wholly
owned subsidiary of Family Golf Centers, Inc.
10.70++++++ Purchase Agreement, dated June 10, 1996, by and between W.A.G.N. Partners and West
Palm Beach Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers,
Inc.
10.71! Stock Purchase Agreement, dated as of July 5, 1996, among Michael J. Santin, Donald G.
Rumpf, Pin High Golf Center and Family Golf Centers, Inc.
10.72!! Stock Purchase Agreement, dated September 25, 1996, between Raymond R. Sears,
Ronald L. Sears, Henry Bachman, Privatization Plus, Inc. and Family Golf Centers, Inc.
10.73!! Cash Escrow Agreement, dated September 25, 1996, between Raymond R. Sears, Ronald
L. Sears, Henry Bachman, Privatization Plus, Inc., Family Golf Centers, Inc. and
Continental Stock Transfer & Trust Company.
10.74!! Purchase Agreement, dated September 26, 1996, between Tri-Town Sports, Inc. and
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.
10.75!! Promissory Note, dated September 26, 1996, in the principal amount of $350,000 made by
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.,
in favor of Tri-Town Sports, Inc.
10.76!! Promissory Note, dated September 26, 1996, in the principal amount of $140,000 made by
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.,
in favor of Tri-Town Sports, Inc.
10.77!! Promissory Note, dated September 26, 1996, in the principal amount of $122,500 made by
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.,
in favor of Tri-Town Sports, Inc.
10.78!! Promissory Note, dated September 26, 1996, in the principal amount of $87,500 made by
Easton Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers, Inc.,
in favor of Tri-Town Sports, Inc.
10.79!! Guaranty of Promissory Notes made by Family Golf Centers, Inc. in favor of Tri-Town
Sports, Inc.
10.80!! Mortgage Note, dated September 24, 1996, in the principal amount of $350,000 made by
Easton Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related Mortgage
Deed.
10.81!! Mortgage Note, dated September 24, 1996, in the principal amount of $140,000 made by
Easton Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related Mortgage
Deed.
10.82!! Mortgage Note, dated September 24, 1996, in the principal amount of $122,500 made by
Easton Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related Mortgage
Deed.
10.83!! Mortgage Note, dated September 24, 1996, in the principal amount of $87,500 made by
Easton Family Golf Centers, Inc. in favor of Tri-Town Sports, Inc. and related Mortgage
Deed.
<PAGE>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
10.84!! Assignment and Assumption of License Agreement, dated September 30, 1996, between
Colbert-Ballard Golf Learning Centers, Inc. and C.B. Family Golf Centers, Inc., a wholly
owned subsidiary of Family Golf Centers, Inc.
10.85!! Promissory Note, dated September 30, 1996, in the principal amount of $446,720 made
by Colbert-Ballard Golf Learning Centers, Inc. in favor of C.B. Family Golf Centers, Inc.,
a wholly owned subsidiary of Family Golf Centers, Inc.
10.86!! Guaranty of Promissory Note made by Harry J. Moorhouse and Dorothy Moorhouse in
favor of C.B. Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.87!! Escrow Agreement, dated September 30, 1996, between Family Golf Centers, Inc.,
Colbert-Ballard Family Golf Centers, Inc. and Continental Stock Transfer & Trust
Company.
10.88!! Purchase Agreement, dated September 30, 1996, between KKL Golf Partnership and
Carolina Springs Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.89!! Cash Escrow Agreement, dated September 30, 1996, between KKL Golf Partnership,
Carolina Springs Family Golf Centers, Inc. and Continental Stock Transfer & Trust
Company.
10.90!! Stock Option Agreement, dated September 30, 1996, between Family Golf Centers, Inc.
and KKL Golf Partnership.
10.91!! Purchase Agreement, dated September 30, 1996, between USA Golf Centers, Ltd. #2 and
Westminster Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.92!! Cash Escrow Agreement, dated September 30, 1996, between USA Golf Centers, Ltd.
#2, Westminster Family Golf Centers, Inc. and Continental Stock Transfer & Trust
Company.
10.93!! Ground Lease, dated August 1, 1992, as amended by Ground Lease Extension and
Modification, dated November 20, 1995, between SCI California Funeral Services, Inc.
(successor in interest to Westminster Memorial Park) and USA Golf Centers, Ltd. #2.
10.94!! Purchase Agreement, dated August 29, 1996, between Swingmaster Golf at Centennial,
L.P. and Denver Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf
Centers, Inc.
10.95!! Registration Rights Agreement, dated August 29, 1996, between Swingmaster Golf at
Centennial, L.P. and Family Golf Centers, Inc.
10.96!! Registration Rights Agreement, dated August 29, 1996, between Joseph J. Graham and
Family Golf Centers, Inc.
10.97!! Registration Rights Agreement, dated August 29, 1996, between Andrew Price and
Family Golf Centers, Inc.
10.98!! Escrow Agreement, dated August 29, 1996, between Family Golf Centers, Inc., Denver
Family Golf Centers, Inc., Swingmaster Golf at Centennial, L.P., Joseph J. Graham,
Andrew Price and Continental Stock Transfer & Trust Company.
<PAGE>
EXHIBIT NO. DESCRIPTION Page No.
- ---------- ----------- --------
10.99!! Ground Lease and Agreement, dated November 1, 1994, as amended by First Amendment
to Ground Lease and Agreement dated March 9, 1995 and Second Amendment to Ground
Lease Agreement, dated June 8, 1995, by and between the Arapahoe County Public
Airport Authority and Pinecrest Enterprises, Ltd. (predecessor-in-interest to
Swingmaster Golf at Centennial, L.P.).
10.100!! Option to Lease Agreement, dated August 8, 1996, by and between the Arapahoe County
Public Airport Authority and Swingmaster Golf at Centennial, L.P.
10.101!!! Purchase Agreement, dated October 21, 1996, between Mt. Olive Golf Center, Inc. and
Mt. Olive Family Golf Centers, Inc., a wholly owned subsidiary of Family Golf Centers,
Inc.
10.102!!! Stock Option Agreement, dated October 21, 1996, between Family Golf Centers, Inc. and
Mt. Olive Golf Center, Inc.
10.103!!! Purchase Agreement, dated October 21, 1996, between Margate Partners Limited
Partnership and Margate Family Golf Centers, Inc., a wholly owned subsidiary of Family
Golf Centers, Inc.
10.104!!!! Stock Purchase Agreement, dated October 30, 1996, between Stacey Hart, The Seven
Iron, Inc. and Family Golf Centers, Inc.
10.105!!!! Escrow Agreement, dated October 30, 1996, between Stacey Hart, Family Golf Centers,
Inc. and Continental Stock Transfer & Trust Company.
11.1 Statement re: Computation of Earnings Per Share.
21.1 Subsidiaries of Family Golf Centers, Inc.
23.1 Consent of Richard A. Eisner & Company, LLP.
</TABLE>
- -------------------------
* Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated September 12, 1994 (Registration No. 33-83910)
** Incorporated by reference to the Company's Pre-Effective Amendment No.
1 to the Registration Statement on Form SB-2 filed October 26, 1994
(Registration No. 33-83910)
*** Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated November 10, 1994 (Registration No. 33-83910)
**** Incorporated by reference to the Company's Current Report on Form 8-K,
dated October 11, 1995.
***** Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated October 3, 1995 (Registration No. 33-97686).
****** Incorporated by reference to the Pre-Effective Amendment No. 1 to the
Company's Registration Statement on Form SB-2 dated November 9, 1995.
(Registration No. 33-97686).
+ Incorporated by reference to the Pre-Effective Amendment No. 2 to
Company's Current Report on Form 8-K/A (Amendment No. 1), dated June 6,
1995.
++ Incorporated by reference to the Pre-Effective Amendment No. 2 to the
Company's Registration Statement on Form SB-2 dated November 29, 1995.
(Registration No. 33-97686).
+++ Incorporated by reference to the Company's Current Report on Form 8-K/A
(Amendment No. 1), dated May 20, 1996 amending Reports on Form 8-K
dated March 6, 1996 and April 8, 1996.
++++ Incorporated by reference to the Company's Registration Statement on
Form SB-2 dated May 24, 1996. (Registration No. 333-4541).
+++++ Incorporated by reference to the Company's Current Report on Form 8-K,
dated June 4, 1996.
++++++ Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement dated June 12, 1996.
! Incorporated by reference to the Company's Current Report on Form 8-K,
dated July 25, 1996.
!! Incorporated by reference to the Company's Current Report on Form 8-K,
dated October 9, 1996.
<PAGE>
!!! Incorporated by reference to the Company's Current Report on Form 8-K,
dated October 30, 1996.
!!!! Incorporated by reference to the Company's Current Report on Form 8-K,
dated November 13, 1996.
<PAGE>
EXHIBIT 11.1
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
Year Ended December 31,
-----------------------
1996 1995 1994
----------- ----------- -------
Net income . . . . . . . . . . . $ 5,208,000 $ 1,074,000 $ 488,000
=========== =========== =========
Shares (1):
Weighted average number of
common shares outstanding
(1) . . . . . . . . . . . . . 10,002,000 5,117,000 3,586,000
Shares issuable upon exercise
of dilutive options and
warrants (1) . . . . . . . . 958,000 267,000 179,000
Less shares assumed
repurchased . . . . . . . . (670,000) (113,000) (129,000)
----------- ----------- ----------
Shares . . . . . . . . . . . . . . 10,290,000 5,271,000 3,636,000
=========== =========== ==========
Income per common share . . . . . $ .51 $ .20 $ .13
=========== =========== ==========
(1) In accordance with Securities and Exchange Commission requirements,
common shares, options and warrants issued in certain of the
Operating Companies during the twelve-month period prior to the
filing of the initial public offering have been included in the
calculation as if they were outstanding for all periods prior to the
offering.
<PAGE>
SCHEDULE A
SUBSIDIARIES
-------------
1. Orient Associates International, Inc.
2. Skydrive Alley Pond Company, Inc.
3. Skydrive Greenburgh Co., Inc.
4. Skycon Construction Co., Inc.
5. Skydrive Willowbrook NJ, Inc.
6. Skydrive Co., Inc.
7. Pelham Family Golf Centers, Inc.
8. Richmond Family Golf Centers, Inc.
9. Peachtree Family Golf Centers, Inc.
10. Alpharetta Family Golf Centers, Inc.
11. Valley View Family Golf Centers, Inc.
12. Mesa Family Golf Centers, Inc.
13. Virginia Beach Family Golf Centers, Inc.
14. Flemington Family Golf Centers, Inc.
15. Yorktown Family Golf Centers, Inc.
16. The Practice Tee, Inc.
17. TPT El Segundo, Inc.
18. Global/Golf Gavilan
19. Indian River Family Golf Centers, Inc.
20. Tucson Family Golf Centers, Inc.
21. Cincinnati Family Golf Centers, Inc.
22. St. Louis Family Golf Centers, Inc.
23. West Palm Beach Family Golf Centers, Inc.
24. San Jose Family Golf Centers, Inc.
25. Easton Family Golf Centers, Inc.
26. Randall's Island Family Golf Centers, Inc.
27. Privarization Plus, Inc.
28. Westminster Family Golf Centers, Inc.
29. Carolina Springs Family Golf Centers, Inc.
30. Denver Family Golf Centers, Inc.
31. Flanders Family Golf Centers, Inc.
32. Margate Family Golf Centers, Inc.
33. The Seven Iron, Inc.
34. C.B. Family Golf Centers, Inc.
35. Darlington Family Golf Centers, Inc.
36. Maineville Family Golf Centers, Inc.
37. Milwaukee Family Golf Centers, Inc.
38. Olney Family Golf Centers, Inc.
39. Palm Desert Family Golf Centers, Inc.
40. Broward Family Golf Centers, Inc.
41. Englewood Family Golf Centers, Inc.
42. Tempe Family Golf Centers, Inc.
43. Raleigh Family Golf Centers, Inc.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference into the Registration
Statements on Form S-8 (Nos. 333-17275 and 33-38192) and on Form S-3
(Nos. 333-15753 and 333-2716) of Family Golf Centers, Inc. (the "Company")
of our report dated March 22, 1997 relating to the consolidated financial
statements of the Company appearing in the 1996 Annual Report on Form 10-K
of the Company.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
March 31, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FOR
THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,556,000
<SECURITIES> 33,838,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 6,258,000
<CURRENT-ASSETS> 48,894,000
<PP&E> 106,712,000
<DEPRECIATION> 2,823,000
<TOTAL-ASSETS> 158,293,000
<CURRENT-LIABILITIES> 12,219,000
<BONDS> 0
0
0
<COMMON> 118,000
<OTHER-SE> 136,826,000
<TOTAL-LIABILITY-AND-EQUITY> 158,293,000
<SALES> 27,904,000
<TOTAL-REVENUES> 27,904,000
<CGS> 4,458,000
<TOTAL-COSTS> 21,306,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 370,000
<INCOME-PRETAX> 8,400,000
<INCOME-TAX> 3,192,000
<INCOME-CONTINUING> 5,208,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,208,000
<EPS-PRIMARY> $0.51
<EPS-DILUTED> $0.51
</TABLE>
